Mish's Global Economic Trend Analysis

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Home Prices Double Dip in "Sudden Dramatic Drop"; 20% More to Come says Gary Shilling Posted: 23 Oct 2010 07:18 AM PDT Clear Capital™ has issued a special press release report on home prices that shows a Sudden and Dramatic Drop in U.S. Home Prices TRUCKEE, Calif. – Oct. 22, 2010 – Clear Capital (www.clearcapital.com), is issuing this special alert on a dramatic change observed in U.S. home prices. "Clear Capital's latest data shows even more pronounced price declines than our most recent HDI market report released two weeks ago," said Dr. Alex Villacorta, senior statistician, Clear Capital. "At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration." This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months and are now at the same level as in mid April 2010, two weeks prior to the expiration of the recent federal homebuyer tax credit. This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture that will likely show up in other home data indices in the coming months. Both Clear Capital and S&P/Case-Shiller indices have displayed consistent market peak, trough, secondary trough, and tax credit run-ups. Despite these consistencies, a critical difference is that HDI's patent pending methodology enables more timely and granular reporting. Therefore, if previous correlations between the Clear Capital and S&P/Case-Shiller indices continue as expected, the next two months will show a similar downward trend in S&P/Case Shiller numbers. Shilling Calls for Another 20% Drop Video: Gary Shilling says single-family home prices will drop another 20% over the next few years with number of homeowners underwater to rise from 23% to 40%. Excess inventories of 2.1 million are the "mortal enemy" of prices says Shilling. "A 20 percent decline would bring us back to the long-term trend, all the way back to 1890. I am a great believer in reversion to the norm". I agree with Shilling on those points. It's a great interview, much more to hear, including a forecast on 30-year bond rates of 3%. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Nonviable Pension Stupidity in Pittsburgh Posted: 23 Oct 2010 12:35 AM PDT Pittsburgh has unfunded pension liabilities totaling $718 million. Those liabilities are a black hole that will continue to grow unless the structural issues are addressed. Sadly, Pittsburgh agreed to put off addressing the real issues and instead floated a 30-year bond. Please consider Pittsburgh Deal to Fund City Pensions Put in Park Pittsburgh's city council nixed a deal this week to lease its parking assets to a consortium led by J.P. Morgan Chase & Co. Instead, the council is proposing that the city's parking authority issue a 30-year bond and pay it off with parking-rate increases. Part of the proceeds would go to the pension plan. Mayor Luke Ravenstahl said Friday that he was opposed to that proposal. The city pension plan, which had an unfunded liability of $718 million as of August, could fall into state hands without additional funding. J.P. Morgan Asset Management and LAZ Parking offered the city $452 million to operate garages, lots and 7,000 metered street spaces for 50 years. , who runs J.P. Morgan's infrastructure-investments group, said the consortium might amend its offer. "Clearly, we were disappointed," he said. "But we believe it's still a viable option." Nonviable Options Anyone who proposes a 50-year deal that does not address underlying structural needs is a fool or a charlatan. Thus, Mark Weisdorf is no friend of Pittsburgh. Instead he is looking out for the best interest of JP Morgan. However, the same thing can be said about the nonviable solution Pittsburgh came up with. Floating 30-year bonds to fund liabilities without addressing the root cause of the liabilities is just as stupid, if not more stupid. I have seen no discussion of the real issue: The pension plan of Pittsburgh is not sustainable, nor are public union wages and services. Pittsburgh is bankrupt, as are many cities in the nation. It is foolish to enter into 30-year or 50-year deals to stave off the inevitable. Neither the JP Morgan solution nor the action taken by the city council is viable. Pittsburgh kicked the can down a 30-year road, at taxpayer expense, in an asinine attempt to keep the ball in play. The decision cannot and will not work. The correct decision was to admit bankruptcy of the plan and address the structural issues of untenable union wages and benefits. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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