Tuesday, 29 December 2009

Don't believe the hype - About the reality hiding being some of the economic data...

A lot of the economic data being released is being propped up or gently massaged to look good.

If you look at my favourite links I invite you to have a look at the Shadow Stats:


I came accross a very interesting read in another blog about new home sales and I invite you to have a look at it:


You cannot rely on the recent new home sales data as a positive sign of improvements in the housing market in general and the economy in particular. Tax credits have inflated the results of new home sales. It is the same case with new cars sales. The reality is that the US car industry still has too much capacity for a demand which will be weaker as soon as tax credits will be withdrawn.

From the above article published on the blog www.nakedcapitalism.com you can read the following statement from a contact of the blogger based in Texas relating to what might be happening behind the data relating to new home sales and the picture is not nice at all to say the least if it is true.

"When I went to the bankruptcy / foreclosure auctions here a few weeks ago I found out that the whole thing is a charade. Bank of America (for instance) auctions off houses that have gone into foreclosure for the amount owed plus any carrying costs which usually makes the auction price higher than what was owed. A pre-bid was submitted by Bank of America Home Loan Servicing (the rename for Countrywide) in the exact amount of the auction minimum (mortgage owed plus carrying costs). No one else bids so the house is “sold” by Bank of America to Bank of America Home Loan Servicing. In essence, the property is simply transferred from one division to another so that clear title is established. But this is counted as an existing home sale which artificially inflates existing home sales numbers. This is what was happening for most of the 102 BAC mortgages and the 130 Wells Fargo mortgages. For the house I “rent” where the original mortgage was with Countrywide (and then transferred to B of A when B of A bought the property) this is simply a process for getting the house off of B of A’s books and back on Countrywide’s books (now BAC Home Loan Servicing). As I said, it is all charade or smoke-and-mirrors or a shell game.

Later Bank of America Home Loan Servicing will contact a realtor who will eventually put the house on the market for sale. Let’s say that the auction price was $200,000 but the house is now worth only $150,000. Of course when this house is sold by the realtor it is again counted as an existing home sale."

As well as treating new home sales data with caution, you also need to treat cautiously data relating to unemployment levels.

The big question for 2010 will be around liquidity withdrawals from governments and its impact on current market valuations.

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