The Dept. of Commerce says new housing starts rose 17.2% in May.
I don't know about your town, but you can't really get a lot of building done until the sun comes out, starting in May. I'm betting this is another example of "the mother of all head-fakes," as Whitney Tilson and Glenn Tongue of T2 Partners have called the spring uptick in housing demand.
Based on April sales and inventory, the U.S. now has 9.6 months worth of housing supply and 15.1 months worth of condominium supply.
Countrywide still has about 7,000 foreclosed homes for sale across the country. Last October, it had more than 21,000 foreclosed homes for sale.
Logging on to the Wall Street Journal website this morning, one of the top news stories said, "Deutsche Bank Predicts 40% Drop in New York Home Prices."
What a coincidence. Yesterday's edition of Extreme Value contained a short-sale recommendation on a New York bank that's been way too aggressive with construction, residential, and other real estate loans. It grew more than 70% last year (a terrible year to make new construction loans) and another 8% in the first quarter of this year.
On top of its ill-timed hypergrowth, this bank also increased a certain telltale type of borrowing by more than 800%. It's building new homes in an area where there are already 22 homes for sale for every one sold.
To read the full report on this and two other Extreme Value recommendations, all poised to make readers huge profits in the ongoing real estate meltdown, click here.
As an investor, you need to learn to be wary of the words, "pro forma." Pro forma usually means, "if everything turns out as we hope and wish, this is what the numbers will be."
During the great bubble, commercial real estate mortgages were securitized into bonds, based on pro forma income and debt-service reserves. Debt-service reserves were a mere wish that said, "We'll set aside a few bucks to pay investors their interest until the rents increase enough to pay it. That's how confident we are that the numbers will rise."
According to Fitch Ratings, the pro forma income hasn't materialized and the reserves are depleted. Fitch says defaults on apartments and shopping centers have pushed its Loan Delinquency Index to its highest level since the index began in 2001.
Detroit's last Chrysler Jeep store closed last week. Soon, it'll start selling small pickup trucks made in India.
Retailers continue to abandon Detroit. You can't find a Borders bookstore in Detroit. Only four Starbucks are left. Since A&P and Kroger left in 2007, no national grocery chains operate stores in the city.
The landscape is post-apocalyptic. Hundreds of buildings are left vacant. A million people have fled the city.
Everybody, including the sometimes-clueless Wall Street Journal, says it's because the auto industry has collapsed. That's true to an extent, but the real truth is it's entrepreneurial suicide to open a business in a political hellhole like Detroit.
Thirty percent of Detroit residents are on food stamps, and 22.8% of them are unemployed. The only thriving retailer: Family Dollar Store has opened 23 locations here since 2003.
Cut way back on the food-stamp program and unemployment insurance, then eliminate the barriers to starting and growing a business that exist in every city in America, and Detroit could give New York a run for its money some day.
To really eliminate the barriers and make Detroit a free city, it would have to leave the increasingly socialistic People's Republic of Amerika, but I'm pretty sure nobody up there has the brains to understand that or the guts to revolt against Komrade Obama.
Last December, attendees of the annual Stansberry & Associates Alliance meeting in Hong Kong were warned municipal bonds aren't the safe havens they used to be. If you're a municipal-bond investor, you need to know what you're buying and be careful.
Today, Standard & Poor's (late to the party as ever) placed $67.1 billion of California's general obligation bonds on watch for a downgrade. California faces a $19.5 billion budget deficit and says it'll be out of cash by the end of July if the fiscal 2010 budget isn't changed.
S&P seems truly concerned California might actually miss an interest payment. Missing interest payments on general obligation bonds must be about the worst thing that can happen in the muni-bond world. General obligation bonds are backed by the full faith, credit, and taxing power of the issuer. California is the seventh-biggest economy in the world. If it can't service its debts... wow!
True to form, Standard & Poor's still rates California's general obligation debt "A", and it delicately mentions to "the state's impending liquidity shortfall," instead of just saying California is going broke. Remember, it said AIG wasn't insolvent, just illiquid. "Illiquid" is financial speak for flat broke.
I wonder if Warren Buffett is buying California GO bonds? He nearly doubled his muni-bond holdings from $2.05 billion to $4.05 billion from last summer through the first quarter of 2009. They've appreciated to $4.35 billion recently.
But Buffett is also scaling back on insuring municipal bonds because he thinks city and state governments might choose to default rather than raise taxes.
Slim pickings in the mailbag today. But speaking of seeds, we're still interested in your expertise on investing in farmland. Send your insights to: feedback@stansberryresearch.com.
"Seed do not have an infinite shelf life. It is best to put them in a plastic bag, get as much air out as possible and freeze them. Try to get some varieties that are heirloom not hybrid seed. Heirloom seed you can save each year from your current crop whereas with hybrid seed you can't or shouldn't. I love to garden, I love to eat, and I love to share with my neighbors." – Paid-up subscriber David Lee
"I haven't emailed you re torture because I agree. There must be many other subscribers who feel the same way... By the way, I hope you are kidding about pin ups. If I want that I can get it easily elsewhere. Please no temptation." – P
aid-up subscriber Bill McKenzie
Regards,
Dan Ferris
Medford, Oregon
June 16, 2009