Mish's Global Economic Trend Analysis

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Co-Signing a Loan is Risky Business For You, Your Family, Your Heirs, Even the Borrower: More Student Loan Debt Slave Nightmares Posted: 22 May 2014 04:16 PM PDT Thinking of co-signing a loan for your son or daughter to go to college? I have a single word of advice: don't. The Huffington Post notes numerous horror stories related to co-signing student loans. Please consider Sallie Mae Torments Faithful Student Borrowers After Co-Signers Die Seven borrowers who had been paying their Sallie Mae student loans on time for years were unexpectedly threatened with asset seizures after a Sallie Mae contractor demanded they immediately repay tens of thousands of dollars simply because a family member had died. Regina Kibler, a retiree who lives off payments from her late husband's life insurance policy, spent days agonizing over how to help her son, Christopher, pay back nearly $22,000 neither had. Samantha Flora hired a lawyer to fight attempts to recoup some $20,000 from her dead grandmother's estate that have turned members of her family against one another. Tony Muzzatti, a 31-year-old Washington, D.C., resident who works in television and who owed Sallie Mae about $60,000, was asked to make a $10,000 down payment in January following the 2012 death of his grandmother, despite six years of on-time payments to Sallie Mae. HuffPo has numerous other horror stories, all involving co-signing loans. What it did not have was the degrees the borrowers have and where they are working now. These cases all involved people generally paying debts on time. What about those with no job? What about those with low-pay jobs who cannot possibly pay the loan back before the co-signer dies? The former will be an immediate headache, the latter a delayed headache. Education is way overpriced and student loans are part of the reason. Co-signing compounds the problem, while making the student and the co-signer indefinite debt slaves. The moral of the story is simple: don't co-sign. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com  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.

Existing Home Sales "Rebound": Headline Hype vs. Reality Posted: 22 May 2014 09:29 AM PDT This morning, headline news stories talk of a "rebound" in existing home sales and why rising inventory is good for the market. Let's separate the hype from reality starting with the hype. Please consider Existing Home Sales Rebound, Inventory Increases. U.S. home resales rose in April and the supply of properties on the market increased, suggesting the housing market was regaining its footing. The National Association of Realtors said on Thursday existing home sales increased 1.3 percent to an annual rate of 4.65 million units, marking the second increase in sales in nine months. Though an usually [Mish note - They meant unusually] cold winter depressed activity, a dearth of homes for sale also stymied demand. Sales are expected to gradually trend higher for the rest of 2014 as job growth and the overall economy accelerate. And there is reason to be optimistic. The inventory of unsold homes on the market increased 6.5 percent from a year-ago and the median home price increased at its slowest pace since March 2012. The months' supply increased to 5.9 months, the highest since August 2012, from 5.1 months in March. Six months' supply is normally considered as a healthy balance between supply and demand. Headline Hype vs. Reality Let's now compare the hype with the reality, starting with a pair of seasonally adjusted existing home sales graphs. "Rebound" in Home Sales Second Rise in Nine Months Fundamental Reality There is absolutely nothing in the above charts that remotely suggests a reason to be optimistic or that housing is "regaining its footing". Moreover, the author failed to discuss interest rates, student debt, investor demand, or household formation. Here's the reality: Interest rates are up, prices are up, and affordability is down. Investor demand was a huge portion of the market, and rising inventory suggests investors are more discriminating. Sales may increase in spite of those fundamentals, but virtually nothing suggests that outcome.  The author describes the increase in supply as "healthy". In context, it's not. While six month's supply may be normal, the more important fact is supply is outpacing demand by quite a bit. The expected result should be for prices to drop. While I consider that a good thing, most don't. And if the supply trend continues, it will provide evidence of pent-up-demand, not to buy, but to sell. Finally, given all the emphasis on the "usually cold winter", one might wonder why the rebound was as small as it was, and also why the rebound was "less than expected". The above article is about as slanted as it gets, including this line: "Sales are expected to gradually trend higher for the rest of 2014 as job growth and the overall economy accelerate." Did someone from the NAR write that article? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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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