If you’re a member of Gen X and Gen Y, this is probably the scariest chart you will see in 2011, and possibly, right up to the time you’re old and gray.

As you can clearly see, the crony capitalism, fake prosperity, recycled Keynesianism memes et al., have been a great benefit to the U.S. economy… right up until we reach the tipping point and it’s time to pay it back.

Let’s hope those folks who started this race to economic ruin in the 1980s (for the sake of winning elections) will get voted out of office see the light and do the right thing: force those who ran up the national debt pay it back (e.g. higher taxes, eliminate tax deductions for all income levels, cut spending, etc.) versus making their children pay for it years from now.

Image Source & Credit
Karl Denninger
The Market Ticker

US Government Spending: Why the Republican Argument of “Obama is a Keynesian” Doesn’t Hold Water.

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Being an idealist, I’m easily repulsed from any person/organization that I lose respect for. Case in point, the reason why I said goodbye to the Grand Old Party was because they’ve completely gone off the deep end when it comes to social issues (e.g. believing they can tell U.S. citizens what they can or can’t do in the bedroom) and they hammer the current sitting President while totally ignoring the reckless spending that went on just 3 short years ago when their man held the executive branch (e.g. George W. Bush added ~$4.9 Trillion to the national debt, nearly doubling it from $5.7 Trillion upon taking office 2001 to $10.6 Trillion to leaving office in 2009).

Being a fan of well executed rants that point out hypocrites for what they are, I found this Bill Maher interview with Piers Morgan highly apropos.

Highlights from the interview at minute 2:30 marker:

Well, stop talking about — stop talking about the debt and the deficit. You know when Dick Cheney was in office and they were running up all the debt, and by the way you can look this up. There are facts outside of the FOX News bubble, actual facts and numbers.

Most of the debt was run up under Bush. Dick Cheney said, quote, “deficits don’t matter.” Why can’t Obama say that? Why is it OK when Dick Cheney says it but not when President black man says it?

I mean the Republicans have some nerve. Bush came into office. The debt was $5.6 trillion. He took a surplus and turned it into a $10 trillion debt, almost doubled it, with stuff they didn’t pay for.

They didn’t pay for the wars. They didn’t pay for the tax cuts for the rich, which should be called tax spending for the rich, because it is spending. The prescription drug program, all of that unpaid for. And then suddenly Obama comes into office and they act like he’s Newt Gingrich’s wife at Tiffany’s.

Sports psychologists agree that one of the best attributes for success is a bad memory (e.g. the ability to forget your failures).

It would appear the Republican party has adopted the same “bad memory” tactic, because no rational human being could stand at the podium, look into the camera and give us — the American people — such a hard sale speech while simultaneously telling us GOP policies are what “the American people” will accept.

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Update 12/26/2011: Added chart above.

If you’re an avid follower of the financial markets, no doubt you’ve heard a money manager make the claim that “this market is cheap” as a reason to get you, or keep you, invested in the stock market after it’s doubled from March 2009 to present.

Truth is, that claim is just not true.

True, the price to earnings ratio of the S&P 500 hasn’t been this low since 1991. What is not true, is that P/E ratio in the upper teens is  – historically – anything but cheap.

More troubling data on real estate and foreclosures as a whole from the NYT:

In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real estate data firm.

Clearing the pipeline in New Jersey, which like New York handles foreclosures through the courts, would take 49 years. In Florida, Massachusetts and Illinois, it would take a decade.

In the 27 states where the courts play no role in foreclosures, the pace is much more brisk — three years in California, two years in Nevada and Colorado — but the dynamic is the same: the foreclosure system is bogged down by the volume of cases, borrowers are fighting to keep their houses and many lenders seem to be in no hurry to add repossessed houses to their books.

“If you were in foreclosure four years ago, you were biting your nails, asking yourself, ‘When is the sheriff going to show up and put me on the street?’ ” said Herb Blecher, an LPS senior vice president. “Now you’re probably not losing any sleep.”

Bottom line: slow and steady won’t win this race.

All this accomplishes is a reduction in the rate at which home prices are falling (presumably to prop up the real estate market as long as possible) and reduces stress upon the big banks (who have unofficially become real estate investment trusts). The only thing delays in foreclosures, as unpleasant as they are, will mean is a slower recovery since delinquent homeowners aren’t paying their mortgages, their property taxes, HOA fees, etc.

Those states who have a lawful and judiciously efficacious — not of the JP Morgan foreclosing on deployed soldiers variety — will claw their way out of fiscal Hell faster than those who do not.

Source
New York Times
DAVID STREITFELD
Backlog of Cases Gives a Reprieve on Foreclosures

From May 18, 2009:

An Index Fund Investor’s Dream: S&P 500 Earnings Nearing Historical Lows
Image Source: Chart of the Day

Fast forward to today and imagining a world where the S&P earnings were your only metric, it’s almost like nothing ever happened — and no lessons have been learned.

The real question is whether or not corporate earnings can remain at the levels, maybe even grow, without the steroids that is quantitative easing.

Too bad the Case Shiller model doesn’t take condos, bank owned real estate, short term prices, etc. Wouldn’t want to show chartology for the most distressed segments of the market… that might undermine confidence and investor psychology.

From the article:

This chart is really astounding. It shows the average number of days that homeowners with defaulted loans (NOD) have not made a mortgage payment. For New York, one of the states which requires court approval (judicial) of a foreclosure, it is more than 21 months. Can you imagine how many seriously delinquent loans there are in that state?

This figure for the average number of days delinquent continues to grow in nearly every state. It is the source of the “shadow inventory” pipeline. As prices continue their descent, the total number of properties in this situation will almost certainly increase. That’s because a growing number of seriously underwater homeowners are beginning to sense that their property’s value will not return to what they paid for it for many years, if ever.

The findings of a shocking new survey reported jointly by trulia.com and realtytrac.com were released on May 18 of this year. It revealed a dramatic change in consumer attitudes about when the housing market will “recover.” Only last November, 37% of those polled believed the recovery would begin no later than the end of 2012. That number plunged to 18% by April.

Most ominous in the report is that 54% of those surveyed thought the recovery would not occur until “2014 or later.” This percentage was only 34% in November 2010. Such an extraordinary shift in six months tells me that the number of potential walkaways is growing by leaps and bounds.

There are dozens of infamous quotes that would adequately sum up the ominous overtones of such bearish data, but I think I’ll let this one go and let the chart do the talking.

Of course, if you’re a vulture real estate investor looking to score serious discounts at foreclosure auctions, you’re about to enter the “seven fat years” period.

Source
Keith Jurow
Seriously Delinquent Homeowners Undermine Hopes of a Market Recovery

Image via Chart of the Day

A 20 second scan of the headlines for the real estate tab on this blog will show you I’ve been bearish on U.S. real estate since this blog began several years ago, but I’m thinking it might be time to go from ultra bearish to neutral on select markets based on the following chart.

In certain areas, where supply trumps demand, home prices are ridiculously cheap when bought at foreclosure. In other markets, where supply is a problem and where the local economy supports a strong to average job market, homes are still a bit overpriced.

But on the national level, after averaging in the dogs (Phoenix, Miami, etc) along with the high fliers (New York, DC, etc.), it would appear we’re back to early 1990s levels on the median home price index, and could be closing in on early 1980s levels.

My only concern is that during the early 2000s, we built a disproportionate number of low to middle income housing — that has resulted in overwhelming numbers of foreclosures – to take advantage of the credit bubble, and that could potentially be dragging down the national index, where in the past, this wasn’t such a pressing concern.

As a former federal government employee, I know all too well how in demand we were because we knew “the ropes”. Private sector human resources management often drool over certain governmental employees because we, generally, know how the system works from the inside, have solid rapports with high pay grade shot callers, and know who to approach if (and when) we need access to government funding or want to sell them something.

Based on the chart, it seems the financial lobbyist market knows how this game works all too well. Makes you wonder if a conflict of interest clause needs to be implemented when it comes to influencing those who write our laws.

Source
Sunlight Foundatation
Revolving Door From Capitol Hill to Big Banks

Being a chartporn aficionado, it’s hard to not to look at such a chart and wonder if precious metals and real estate markets from the late 1970s/early 1980s will do an encore.

Real estate still has a long way to fall, in my opinion as well as many others who follow real estate on a daily basis, but the momentum in gold is no where near played out. That’s a nice way of saying this trend isn’t going to be over anytime soon, and a dip into the double digits for the home prices to gold ratio is becoming more and more likely.

However, trends change. When one asset becomes cheap enough, and another asset becomes too expensive, investors have this nasty little tendency to cash out of one and move into another. Rinse, wash, repeat.

Note: the home to gold ratio was ~25 ticks higher just 10 months ago.

This has to be a brand advertiser’s worst nightmare…

“Be afraid … be very afraid.” AMP Agency, a Boston-based branding firm, has just completed a study of consumers, “Inside the Buy,” that suggests that actually very few consumers between the ages of 25 and 49 are moved to purchase by habit, or sentimental considerations for a brand.

The study, based on a Fall 2010 poll of 865 Gen X and Y consumers, looks at what happens in the “consideration phase” of the purchase path, where the Web and what AMP found to be a “new/modern path” to purchase hold sway. The quantitative and qualitative study also addressed a changing view of brand loyalty. The firm found that just 3% of consumers say they are loyal to a particular brand and never buy anything else.

The study, which looks at five product categories — baby products, consumer electronics, food and beverage, health and beauty, and fashion — finds that the very idea of loyalty has changed for 97% of consumers. “New consumer behavior is redefining what we view as ‘contemporary loyalty’,” said Allison Marsh, VP, Consumer Insights at AMP Agency. “With more information, consumers have seized control and are more open to the wide choices in the marketplace.”

Just like we’re finding in the Middle East where increasing Internet and social media usage is influencing social change for the better by allowing up to the minute information flow, here in Consumption Land, the ability to use search engines to search for positive and negative reviews of individual products, as well as user based communication sites like Facebook, Twitter, Reddit, etc., are allowing consumers to separate the wheat from the chaff.

Moreover, user based gathering sites allow crowdsourcing at astounding speed. In theory, and what it looks like it actually happening on a minute by minute basis, a single consumer finds a brand worth recommending, or conversely, finds a brand not living up to its marketing message (e.g. fake statistics, planned obsolescence, etc.), those brands are quickly exposed for the better or worse, or adds additional supporting evidence to previously mentioned findings.

This trend shows no signs of abating. In fact, it will likely become the societal norm as Gen X and Gen Y grows older, and our children learn to use scour the web for the brands who acquired brand loyalty the old fashioned way — by producing the best product on the market vs. relying on marketing chicanery.

Sources
Karl Greenberg
Media News
Study: Gens X, Y Rely On Research, Less On Loyalty

AMP Agency
Inside The Buy (opens to pdf)

(Might help to disengage your cognitive dissonance defense mechanism before watching.)

Naturally, as an investor, if you spotted the trends early, invested as they were going mainstream, and got out when industry growth began to expire (market penetration 80 to 90%), you probably did fairly well for yourself.

Source: Wall Street Journal via Karl Hartig: Data Visualization (click to zoom: opens to pdf)

However, things get a little crazy in the early 80s. More friendly tax policies, aggressive lobbying for loopholes, insane levels of executive compensation packages, and a few dozen other variables I’m sure, appear to have distorted a ~70 year trend.

I’m all for the I get mine raison d’etre, but I’m not sure those who defend outrageous levels of compensation for workloads most people with an IQ above 120 could do is justifiable. Especially when you consider the Bollinger Bands would be blowing up from the early 80s to present due to volatility in the income numbers and the aberration  in wealth creation still finds us with extraordinaryly high unemployment and national debt going through the roof.

Source
State of Working America
When Income Grows, Who Gains?

One static component of my constantly evolving Lending Club investment strategy is identifying borrowers who have a fairly long history of employment. In other words, that means:

1. the older the better (but not at or beyond retirement age).
2. 10 years plus with a single employer.
3. decades of experience often imply management material.

As the above graphic shows, there seems to be something to my original hypothesis:

The Labor Department’s household survey in December found that 28.2 million people over 55 years of age had jobs, an increase of 7.6 percent from three years earlier, when the recession was beginning.

By contrast, there were fewer jobs held by people in all age groups under 55, as can be seen in the accompanying charts. Over all, the number of people working was down by 4.9 percent.

As a P2P lending investor, this lends additional evidence that the older a borrower might be (within reason of course), the more likely they’re going to hang on to their job during a downturn in the economy. And why not? If you’ve worked 20-30 years in a chosen field, chances are you’re more experienced, more seasoned to the tasks at hand, etc., and senior management (of whom the 55+ is largely composed), the more likely you’ll be able to retain one or more sources of income.

People who have income generally pay their bills, and thus, making you a prime P2P lending loan applicant in the eyes of my loan filters where I’m earning 15.6% NAR at Lending Club.

Source
Floyd Norris
New York Times
Older Workers Are Keeping a Tighter Grip on Jobs