AWFUL 1.001

Greetings folks this is the 1st report of "Alex World Finances Unveiled Live" (AWFUL). I'm calling it Volume 1, Number 1. Here's the AWFUL news for you.

The global assets bubble burst (GABB) is creating a situation in America that reminds us of the 1930's or the Gaza strip. Tent cities and shantytowns are popping up in many places across America. See http://tinyurl.com/2008housing for news stories on this. In the meantime there are plenty of housing vacancies around the country.

The inventories of homes owned by banks are at a record high. When a home goes into foreclosure it usually goes up for auction. If the loan(s) on the home are less than the proceeds of the auction than the bank gets paid off. When the home is worth less than the loan(s) then the bank gets the home. And the banks have purposely been keeping too many homes on their books because they are playing accounting games. If they own a house with a 300K mortgage but its worth 200K then if they sell it they'll have to take a 100K hit on their books now. So they hold on in hopes that their balance sheet will be rescued by an upturn in the market. In the meantime for each of these homes there is a family out there that could have a place to live. See http://countrywide-foreclosures.blogspot.com for one BLOG that has been watching one of the nation's largest mortgage institutions history of recent years.

Now what's making matters worse is that in Congress's 700B bailout they included a provision to get rid of mark-to-market accounting requirements. This now lets banks do more mark-to-model accounting and play more accounting games. As a result for the quarter that just ended and for future quarters its really impossible to know which banks are telling the truth and which ones aren't. And I can't risk being too frank on which ones I think are the most dishonest and/or insolvent. That's because President Bush has promised to aggressively prosecute anyone who spreads bad rumors about the banks. All I can do is say "I don't know". But I can tell you what I did with my money. I sold ALL of my bank stocks and I consider the stocks of all the banks to be like playing a roulette wheel. And it looks much of the rest of the investment world has done the same as stocks have tanked over 30% since Congress passed that bailout. However the real suffering is not in the asset price losses. Its being felt by the homeless. Remember them whenever you drive by a REO that's been sitting for a few months because a bank is taking advantage of the new law associated with the 700B bailout.

I will not be investing in bank stocks except for banks who decide to self-impose transparency upon themselves. For starts I expect that any bank holding REO's will count them as zeros for assets and a money drain on operating expenses. I wish that the OCC/OTS/FDIC/FRB/SEC wouldn't let banks count them for any regulatory capital ratio calculations or SEC filings. That way we'll see the inventories clear faster, the pain gets taken/cleared and start facilitating the process of getting families into these homes. The Federal Reserve has been using ample power to increase the money supply and flood the market with credit. Right now there are millions of Americans (myself included) who can get tens of thousands of dollars of credit at zero percent interest to help finance these kind of transactions. Investors will gobble up these homes IF they are auctioned up. And in cases where a home has less utility value in it than the costs of taxes/insurance/repairs/liabilities (i.e. nobody will buy it) then the counties/cities will get the homes for free to help solve their own problems of unemployment and homeless people. With all the natural resources and hungry people to feed, clothe and provide shelter we're going to need plenty of workers in the future.

I know that some greatly fear what could happen to home prices if the banks all dumped their REO inventories. Prices would go down and more people would be "upside down" in their homes. The collapse could accelerate. Well the idea that this dropping would continue indefinitely is all hogwash. The bottom line is that people are willing to pay money to rent a place to live. And any decent housing unit in a livable location will bring in some level of rent. And with the Fed rates at a very low level and certain to stay very low until the market recovers and with trillions in liquidity being pumped out you can be sure that there will be plenty of investors creating a floor on the prices of these properties. Once we reach the floor we'll be in good shape moving forward. However the longer it takes to reach the floor then the harder and longer it'll be to get out. Typically we hit bottoms around the same time the companies in big trouble completely capitulate and finally clean the crap off their books.