by
Bill Bonner D.C. builders have begun selling houses like Wal-Mart sells soap. The Washington Post tells us that Mid-Atlantic Builders in Rockville are offering buyers the "Lowest Price Guarantee." He'll adjust the sales contract downward if the price falls between the time the customer signs an agreement and 45 days before the settlement. Doesn't sound like much protection to us...but we didn't read the fine print. "We've given up trying to sell that house we bought in Delray Beach," said a source on Friday. "Of course, we could sell it if we wanted...but it would mean giving it a steep discount. There are about ten houses for sale on the same street." It took years to build up the housing bubble in places like South Florida. It will take years to let the air out. Houses aren't marked to market immediately, like stocks or copper. It takes time for buyers and sellers to adjust to new market conditions. At first, the buyers hesitate. Then, the sellers dither. Then, when weakness becomes more obvious, a few buyers come forward...hoping for a bargain in what they believe is a market still on its way up. The government and the realtors seem to believe it is, too. New numbers purport to show that house prices are still rising. In July, house sales fell 21%...but not according to the Commerce Department, which claims that sale prices actually rose 0.3%. The NAR, meanwhile, said they went up almost a full percentage point. What gives? Well, the figures probably don't take into account the incentives sellers are now offering. And they surely don't take into account the huge number of houses that are simply not selling because owners are unwilling to take the loss. Why? Because they are still not convinced the slump will be deep or long lasting. This delays the impending bubble burst...and keeps the press reporting only the part of the reality everyone wants to see – the part that says that, as of July, those who were able and willing to sell were apparently still seeing slight gains. Meanwhile, this chart tells another story – about homeowners' collapsing equity. As long as the current trend continues, owners will own less of their own homes every month. They will be less willing to sell at a loss...but many will be more desperate to do so. The "home ATM is not refilling as rapidly as it has in recent years," says Paul Kasriel of Northern Trust. For the last few years, U.S. consumers just walked across the living room to the invisible ATM machine in the corner and "took out" some of their growing home equity. Now that equity is no longer growing at the rate it was – if at all – the ATM machine doesn't work as well as it used to. Many are still "taking out" equity...but now it's coming out of what they have left after house prices go down, not what they are gaining from a rising market. Mortgage equity withdrawal (MEW) has faltered, to an annualized rate of $214.2 billion in the third quarter of this year after peaking at $730.5 billion a year earlier. Of course, this means that consumers have less money to spend. And less consumer spending should begin to pinch sales...and profits. Not that Wall Street even blinked. Last week, the Dow hit new records. Of course, it's still down in real terms...investors might as well have put their money in a sock over the last seven years. You'd think they'd get tired of it. You'd think they'd notice what is happening to the consumer. You'd think they'd wake up one of these days in a panic. But so far, no one has. Which is why we continue our Crash Alert. When everybody is thinking the same thing, nobody is thinking. The VIX, which measures investors' fears of a crash, is near record lows...while stock indices, property, art, commodities, and just about everything else are at record highs. Nothing may crash ever again. Never. Nothing but blue skies and soft landings from now on. Yes, dear reader, we could all live happily ever after, forever and ever, Amen. But when you are passing through an airport and you find crash insurance offered at record low prices...why not buy some? Who knows, maybe your spouse will get lucky. • Here, a friend reports on one of Europe's most successful public companies. "Bill, you might be interested to know that Max, our oldest son (23), who is now on an internship in India, just completed his end of studies memoir on the history of the share value of the Société Générale de Belgique which had never been compiled. "This is a very key company, because when it was finally taken over by Suez a few years ago, it had over 150 years of a very successful existence, had controlled up to two-thirds of the Belgian economy, and had been heavily invested in Europe, Africa, Asia, the United States, etc. So it reflected the economical development of Europe over a very long term. "What he found out was quite surprising: If you adjust the share value of the latest trading by inflation, splits and new issues, you find that the shares went from 100 Belgian francs in 1827 to only 101 BEF in 1988!! No capital gains at all in real terms in more than 150 years!! But there had been a steady dividend of approximately 4% right through the years, including the depression, the wars etc...which is not bad at all." • One thing we noticed in India might fit into the "you think you have problems?" category. There are hundreds of millions of people in that country with nothing at all. They work day by day at little jobs just to get enough to eat. At night, they sleep on the streets. And, as an Indian friend reminds us, these are in some ways the lucky ones. They can work. They can support themselves. And they can imagine that better times will come – when they will earn, maybe, $5 a day! Being "rich" is easier than we think. You just have to get away from Miami or Los Angeles. If you live in some countries, even an income of $5,000 a year will make you feel like a relatively rich man. In fact, a new study by the United Nations says that a net wealth of $2,200 will put you in the richest half of the world's people. If you can scrape together $61,000 in net assets, you are in the top 10%. What does it take to be in the top 1%? Just $500,000. The study found that the three richest people in the world – Bill Gates, Warren Buffett and Carlos Slim Helu, the Mexican who owns the telephone system – have combined net-worths higher than the total assets of the 48 poorest countries on earth. And something else interesting: Millions of Americans are actually poorer, in terms of their net wealth, than the people who sleep on India's filthy streets. The poor in India have nothing. But many of America's poor – and this is true for other rich countries too – have less than nothing. They are in debt, often by thousands of dollars. India's desperately poor people, on the other hand, have no credit cards.
December 19, 2006 Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis. Copyright © 2006 Bill Bonner |
