The Association of Realtors

About 10 months ago, the Association of Realtors paid $40MM for a campaign to convince retail buyers that it was the right time to buy or sell a house… as per my doubtful blog post from November 4, 2006.

Today they announced that the seasonally “adjusted index of pending home sales for July fell 16.1 percent from a year ago and 12.2 percent from the prior month”. Hmm, the reason is – according to their chief economist – due to that “mortgages have been falling through at the last moment”.

The real reason we see a drop in the real estate market is that we have reached a point where few are prepared to take the risk of owning a house versus renting. It’s now 40-60% more expensive to own than rent in the US, UK and Australia according to the Economist, the highest it’s ever been since 1989…

As we have seen over the past few weeks, the American Dream has become a nightmare for many folks that trusted mortgage brokers, lenders and real estate brokers. Well, every bubble got it’s own learnings. It’s unfortunate that people’s homes have to be at stake to get people to smarten up.

Thoughts on War

“They wrote in the old days that it is sweet and fitting to die for one’s country. But in modern war, there is nothing sweet nor fitting in your dying. You will die like a dog for no good reason.”

- Ernest Hemmingway

When Nothing Else Matters…

I’m reading Charles Handy again. He is one of the most brilliant contemporary worklife and management philosophers there is. In his book ‘The Elephant and the Flea’ he argues that a market economy sometimes brings along the lesser desirable market society where success is only measured in financial wealth.

During my self imposed sabbatical I realized how stuck most of us are in the rat-race, in the earn-and-spend cycle and in keeping up with the Joneses. There is very little real need behind why we’d like the latest Garmin GPS navigator, iPod or flatscreen. The only reason we buy it is that we can afford it (which feels good) and our neighbor doesn’t have one – yet (which feels even better).

The sabbatical taught me that I have everything I need to have a great life – material, emotional and intellectual. More of everything doesn’t solve problems, it only creates more problems. Spending time on shopping is wasting your life if it doesn’t solve a true need – just a want, a lust or an envy. But it’s easy to get sucked into that world if you lack a personal vision and mission with your life.

So I took a number of steps to ensure that my next years will focus on quality and not quantity:
1. I asked to get opt-out of all kinds of unsolicited mailings. The Federal Trade Commission is a great place to start. Now I’m hardly getting any unsolicited mail.
2. I never spend quality time shopping. I usually find stuff by accident on our travels.
3. If I buy something it has to replace something old. It cannot just be a new closet filler.
4. I sell or give-away old stuff to make room for new.
5. I only spend money on a few categories: media that makes you smarter, food that makes you happier and travels that keeps you open-minded.

Charles Handy writes: ‘A worthwhile life, in my book, requires you to have a purpose beyond yourself, something that selfish capitalism puts low down the agenda’. I could not agree more.

Bubblelucious Bubbles

The National Association of Realtors are paying $40MM to convince everyman that it’s a great time to buy or sell a home now. Permit me to be doubtful and concur with The Big Picture. When has it ever been great to buy AND sell?

Market Analysis: Correction in the Cards

The Dow has enjoyed new highs since I last posted my view on the current market actions. The S&P has hit 5 1/2 year highs. So everything is back to a happy, normal bullish market?

Well, I disagree. The Dow only consist of 30 companies that are weighted based on selling. It alone is not a good indicator. But it tells us something: that investors are moving away from growth to value. A clear sign of the last phase in a cyclical bull market. What confuses the picture is the current sector rotation, from commodities, energy and housing to value, tech (including bio) and financials.

Sure, BKX is doing great but Nasdaq is not roaring out of the gates and SOX is breaking down. The current tech leaders are tired and just recovering from the May – July wipeout.

If you believe in cycles you’ll probably know that we are currently in a secular bear market, not seen since before 1982. We are also in the end of the cyclical 4-year bull market that started in October 2002 by hitting new lows and rallied in March 2003. This current rally is a short-term relief rally, a classic bull run in a bear market.

But, but… isn’t oil coming down, growth in the economy slowing and the interest rate stable? Well, yes but are any of those factors positive in the intermediate to long-term? Nope. Lower oil prices means slowing global demand. A economy that contracts is not growing. And a lowered Fed rate would mean declining dollar.

Therefore I’m putting my money on a 10-15% correction of this irrational exhuberance over the promise of a “soft landing”. My time horizon is 2-6 weeks and the only thing we need now is the catalyst. Could tonight’s 8% KOSDAQ crash be it? It only takes a butterfly to create chaos even if it’s on the other side of this flat world.

Mr. Hou$ing Bubble Ready to Burst?

I might be very conservative in this sense but I believe that housing is something that everyone deserves. Any man or woman deserves a home where they can feel secure and at home. So when I hear the fear that is expressed by people gambling in real estate I feel about the same empathy as I do for people gambling in Vegas or in the stock market: there is no free lunch.

Today we learned that the value of a median excisting home declined for the first time in eleven years. Six months ago I was deemed insane for not buying a house, today that sentiment is slowly changing. I might not know that much but I know when a market is declining it can keep declining for a long, long time. Sure, it might be irrational but the markets do have that privileged. They can stay irrational longer than anyone of us can stay solvent.

In the end of the day I do believe in accumulating equity in the long term by owning, not renting but not at any cost. It’s like any other business deal, it has to survive on it’s own merits, not the hype.

Blogged with Flock

Market Analysis: Slowdown in Growth Worries

The Philly Index rattled the markets yesterday and that has continued today. Many of the key indecies – such as BKX, SOX and COMP – are challenging the upwards short-term trendlines. Technically all of them are in engulfing bearish rising wedges.

Oil has dropped 20% since July and is now due for a rebound. That will again put pressure on the equity markets. I think people are starting to realize that there might be a small possibility for stagflation. The Fed is not going to lower the interest rates until the inflation is truly under control. A unchanged rate for the rest of the year is not positive. That scenario supports my overall midterm bearish market outlook.

The next two weeks will be interesting. September so far has been unusually good to the markets, especially the financial and tech sectors who has been the clear leaders. It’s time for a strong correction but it could be dampened by the earnings season that is just 2-3 weeks away. One things is clear: VIX is heading up, possibly breaking out of the bullish falling wedge.

Market Analysis: All About The Fed

Tomorrow the FOMC policy statement is being released at 2.15pm EST. The market expectation is that the Fed won’t raise the interest rate since the inflation seems to be under control – for now. The focus will therefore be on the wording; changes, additions and formulations.

The housing is showing further weakness as the construction of new homes dropped with 6% in August. That’s the fifth decline during the past six months and clearly indicates that the past five years bull run is over. This is the sector I believe will lead the US economy into a recession as previously argued.

The financial markets are still in a short-term confirmed rally, lead by NASDAQ. But there are still no clear leadership and the indices’s are now very close to previous tops or resistance levels. The past few days have showed a tug of war between bulls and bears.

My sentiment is that the market has chosen to look at the positive aspects of the recent decline in energy prices and the unchanged Fed rate. But what does this data really mean? Well, after a five year long housing boom and a three plus year market rally the times are changing. The lower energy prices most likely mean a decline in global demand. And even if the Fed keeps the interest rate at 5.25% we haven’t seen this extra cost of capital being carried through to companies and consumers.

The US is also much more depend on the rest of the world than previous years. The federal debt is being financed by foreign governments who wants the greenback in their portfolio, i.e. holding up the dollar value. The increase in global supply of labor has held down the cost of wages and allowed many business to charge ahead. The savings rate is negative and when housing cannot longer be used as an ATM machine the consumption will keep declining and people have to focus on paying off expensive debt.

That said, I still think we are going to see strong company earnings over the next 4-8 weeks within certain sectors and specific companies. A bull market doesn’t turn into a bear market overnight. That would be to easy. Topped out earnings is usually a sign of decline in the current context. The important for investors is the potential for future earnings growth, not past or present.

"It Still Feels Unreal”

“I hereby resign as prime minister” Goran Persson, Stockholm September 18, 2006

If you asked me about my childhood dreams I’d say they include: getting a sportscar, living in California and watching the socialist be defeated and ousted from government. My life is hereby complete.

But it still feels very unreal. I’ve been spending most of the day visiting Swedish web sites to get more information, read about the joy people are feeling and making sure that yes, Goran is finally leaving. For good.

I can, 6000 miles away, feel the hope that my family and friends are feeling about entering a new life of prosperity, individual freedom, innovation, entrepreneurship, responsibility and accountability. The old gray bureaucratic backwards-looking Sweden has hopefully seen it’s last days.

Moving forward I’d like to see a confident Sweden that partakes in the world in a constructive way. I’d like to see a Sweden who rewards innovation, peak performance and great results. I’d like to see a school that coaches people to be everything they can be. I’d like to see a Sweden with fewer politicians, stronger business environment and stronger individuals.

I’d like to see a Sweden that retires the old equality, solidarity and justice political metaphors. They are misunderstood, missused and abused. I’d like to see a Sweden that takes more risk, whines less and pushes the envelope. I’d like to see some traditional, like before the whole 20th century political socialistic experiement, viking balls. I’d like to see some anger, some ass-kicking and from-the-bottom-of-their-souls-desire to win. Yeah!

Liberate Sweden! Send Persson to Gulag!

The socialists have govern Sweden pretty much since the late 1910’s except for a few years during WWII, 1976-1982 and 1991-1994. I remember when they were ousted in 1976, still years before the breakdown of the Berlin Wall and the global acceptance of individual freedom and capitalism. I was just a kid back then but it was like the country got a brand new hope. Darth Vader was gone and rebel forces ruled the land.

The second time they were ousted was in 1991 and I was in college. Man, were we excited. Finally, we thought, it was time to clean up the mess, lower the sky-high taxes and liberate the people. And a lot of that happened and energized the country. Unfortuntaley, when too many people have been pampered for too long they get lazy, wanting social security instead of work. And the socialists were back in power.

But tomorrow is another day. It looks like the socialists will finally get the boot. It’s not healthy to have one party rule a country for almost 100 years. They get used to the power and abuse it. It’s time for a change. Hopefully all the old socialists, marxists and communist have started to die off so that the young generation can get liberated and getting the same opportunities to a great life as most other young people in the rest of the western world.

I proudly sent in my vote a few weeks ago, knowing that it could come down to a close race. The expat votes are counted on Monday and are usually anti-socialistic. Well, that’s not surprising. Once you have tasted the real freedom where every individual matters, the government stays out of micro-managing everyones business and people can afford a good life thanks to lower taxes and healty competition, the choise is easy.

I tell you, if the awesome Alliance succeeds in ousting the socialistic dark force we’ll be celebrating and shooting firecrackers from our house. I’ll pull out the Swedish flag and hang it from our window while I’ll pass around cigars. I’ll extend my index fingers to all socialist in the world and say: Take that, you fuckers! If you come by my house I’ll bring out the big guns and blow you back to the Old Soviet Union. No more of your lazy-ass crap, robbing personal income and property, killing off creativity and innovation, and preventing people from making a difference.

Yup, Goran Persson (Swedens biggest socialistic dark force, current prime minister and the most evil politician since Olof Palme) – run and hide cause when people wake up from their coma and realize what you have done they will surely want to find you. I know I would.

PS. I’m much less angry than I used to be. 10 years in exile has calmed me down.