Double, double, toil and trouble

I think it's funny how slow things seem to move sometimes.

I first started talking about the foreclosure crisis over a week and a half ago. The enormity of the issue seemed, IMHO, self-evident.

The fallout, just as obvious.

Yet it has only been the last two days that stocks in the financials sector have started to take a hit. I mean, wouldn't you have dumped those stocks the very next day?

But things move slowly.

And what of the investment banks?

As this article on Seeking Alpha notes, there's a pretty strong case that they lied to the investors in many if not most of the mortgage bond deals they put together.

The risk to investment banks isn’t only one of dodgy paperwork; there’s also a serious risk of massive lawsuits from the SEC or other prosecutors, as well as suits from individual mortgage investors.

What has been sold to these investors is nothing short of fraud.

These investment banks bought up loans they knew were bad, packaged them up and sold them on to some buy-side sucker under the guise of a triple A rating.

As the Seeking Alpha article outlines, it’s clear that the banks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool.

That’s a lie of omission. And you can bet your bottom dollar there is going to be a Tsunami of lawsuits from investors who are going to want their money back.

It is going to be a very long time before the banking system is going to be free and clear of the nightmare it created with these securitized mortgages.

And those financial stocks? The drop over the last two days is nothing compared to what's coming.

Inflation

If the destruction that is going to be caused to the banking system by the foreclosure crisis wasn't bad enough, there is the topic of inflation.

Here is another earthquake that most of us are completely oblivious to.

The paradox of concurrent deflation/inflation continues to elude the grasp of many.

One of the biggest deceptions we are being fed right now is that inflation is running at only 1%. When you hear that, you certainly don't conjure up images of the 1970s do you?

But as I have discussed before, the manner in which inflation is calculated was changed in 2000.

That's why I continue to be a big fan of John William's website Shadow Government Statistics.

Among other things, William's continues to offer calculations based on the pre-2000 formulas for measuring inflation.

Take the month of September, for example.

The September consumer inflation rate was an almost non-existant 1.1%.

But calculate the inflation rate as it was calculated before 2000 and the rate of inflation in the month of September was 8.5%.

8.5%!

If we are going to compare today with the stagflation of the 1970s, you have to use data that is calculated in the same manner.

And keep in mind that the US Federal Reserve is desperate to boost the rate of inflation even higher. They are trying to achieve a target under the current format of about 3-4%. This means we are probably looking to achieve a rate of inflation that is something on the order of 12-20% based on using pre-2000 statistics.

Currency induced cost-push inflation is already upon us. It's important you understand and appreciate that.

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The slow melt meets the winter freeze.

So we're just about halfway through the month of October and we're on track for a 5th consecutive month wherein real estate sales are down more than 40% from last year.

And it's not just a case of comparing data to an outstanding sales year in 2009. Sales are on track to total 2,188 units for the entire month. Compare that to the totals over the past decade:

• Oct-2009 - 3704
• Oct-2008 - 1364
• Oct-2007 - 3028
• Oct-2006 - 2722
• Oct-2005 - 3099
• Oct-2004 - 2735
• Oct-2003 - 3765
• Oct-2002 - 2866
• Oct-2001 - 2379

Once again, with the exception of 2008, we are on track for the worst sales month in the past decade.

This comes as banks once again cut their five year rates so that mortgages are now among the lowest levels in history - and still real estate sales are sucking wind.

It comes at a time when wealthy Asians can come in and buy what they want without competition from locals - and still sales lag.

Nothing seems to be greasing the wheels of the market right now.

I wonder how many realtors will feel like they're getting a rock in their Hallowe'en sack this year?

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Meanwhile... back in bubble land

Let's take a break from the foreclosure crisis in the United States and pause for a reminder about how it is we live in the city with the most bubbly real estate in North America.

Four consecutive months of declining sales have peope wondering if the bubble is set to burst here in Vancouver.

But don't kid yourself... there are still people buying at bubble level prices.

Take the property pictured above at 348 West 19th St., Central Lonsdale in North Vancouver.

This 23 year old, 7 bedroom, 4,131 sq. ft. house sold in 1989 for $313,000.

65 days ago it was listed for sale with an asking price of $1,100,000.

It sold for $1,065,000!

Granted... it was bought by a local community service organization caring for seniors and handicapped people.

Said the realtor, “The new owners were as giddy as kids at Christmas when this home hit the market. It may have taken over a month to finalize financing for this community service project but, in the end it was my first call, within the first hour of this home hitting the market, that made the sale. It was serendipity. Both parties are very happy with this transaction.”

The bubble persists.

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Afternoon Update: CitiBank legal briefing on the Foreclosure Crisis

Stunning item in the email inbox this morning.

If you think the Foreclosure Crisis is a non-event which bloggers like myself are just using to ramp up doom and gloom, then check this out.

Yesterday CitiBank hosted a conference call on the Foreclosure Crisis in an attempt to understand the legal issues surrounding this explosive topic. In attendance was Adam Levitin, Associate Professor of Law at Georgetown University

Levitin presented a legal briefing on the issue for CitiBank.

CitiBank released a report on the conference call they had on the topic and you can read the full document here. This will give you an inside glimpse of what is going on at the highest level of the US Banks right now.

Levitin emphasized that all parties involved are still trying to get their arms around the legal issues in question. CitiBank noted that, relative to other opinions which they had heard on these issues, Levitin painted what CitiBank believes to be "one of the bleaker portraits of these matters and their ultimate resolution."

In providing an overview of the key legal issues, the report notes:

• The underlying issues which have recently erupted involve the proper transfer of paperwork in the mortgage securitization process. Real estate law is “arcane” and requires that paperwork be physically transferred when mortgage ownership is transferred (“assigned”) from one party to another party. It appears that in many instances during the mortgage securitization process over the past few years, the paperwork was not properly transferred. If the paperwork was not transferred in the legally required manner, it raises questions not only about who owns the mortgages in question but also about the validity and tax exempt status of the trusts in which the mortgages reside. All of these issues also bear directly on the role played by the title insurance industry.

The report notes what Levitin sees as a crucial issue:

• Banks have attempted to remedy the aforementioned problems by having employees sign affidavits that they have personal knowledge that the trust was once in possession of the necessary documents. Two problems have emerged with regards to these affidavits. First, several news stories have reported that the people signing these affidavits had no knowledge of the matters in question despite the fact that there were legally swearing that they did. Second, the affidavits may be irrelevant because the issue is not that the documents were lost but they were never properly transferred at each step of the aforementioned securitization process.

The report notes three possible outcomes of this quagmire:

• Levitin articulated three possible outcomes to the aforementioned issues and assigned an equal likelihood to each. In his best case scenario, these issues are deemed merely technical in nature and are successfully resolved but it takes at least year to do so and all foreclosures are delayed by at least a year. Levitin disputed the claim by banks that these issues can be resolved in a month or so and attributed the banks’ claims to “legal posturing.” In the medium case scenario, litigation ensues and it takes years to sort out these matters. In the worst case scenario, the aforementioned issues become a “systemic problem” which causes the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes.

Levitin argued that what appears on the surface to be a series of technical glitches in the mortgage securitization and foreclosure process may well cause a “systemic problem” and that what CitiBank has recently seen and heard in the news is “just the tip of the iceberg.”

Levitin predicted that more and more lenders are likely to stop their foreclosure processes in both judicial and non-judicial states. He also expects more states’ attorney generals to get involved. At the federal level, it is possible that banking regulators might step in as there is legal and reputational risk for the banks involved.

CitiBank concludes that, if these issues do in fact escalate, the US Government may try to broker some sort of settlement. If such deal brokering does take place, Levitin believes that “some payment” will be exacted from the lenders and servicers. CitiBank speculates that the US Government could bargain for more mortgage principal write downs.

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First Greenspan, now Bernanke: A warning about interest rates

In the fervor on the Foreclosure Crisis last week, I missed this.

But so did most of the media.

Faithful readers recall that I have, on several occasions, posted about speeches from former US Federal Reserve Chairman Alan Greenspan in which Greenspan warns that the Federal Reserve will not be able to keep rates low forever and that his fear is the bond market forcing rates dramatically higher.

That warning is lost on everyone, particularly here in the Village on the Edge of the Rainforest. What prevails here is the believe that interest rates will never again rise very high.

Well, Ben Bernanke, the current chairman of the US Federal Reserve, has come out with a warning of his own.

Back on October 4th, 2010 in a presentation on fiscal sustainability at the Annual Meeting of the Rhode Island Public Expenditure Council in Providence, Rhode Island, Greenspan made some very grim comments.

The topic of the speech was the looming fiscal crisis of the Federal government. There will be no easy way to avoid it, he said. Congress has to decide what spending to cut and then it must decide which taxes to raise. Congress has been deferring this two-part decision since the Nixon Administration to avoid alienating special interest groups.

The essence of politics is buying votes with the taxpayers' money, but without losing more votes than you buy. To pull this off, there is often a fair amount of deception and the tax burden is often concealed. This concealment includes increasing deficits and increasing monetary expansion.

Here is where Bernanke is firing a warning shot across Congress's bow. Bernanke is saying the Federal Reserve will not take the hit. It will not destroy the dollar in order for Congress to play its game of deception.

Bernanke made it clear that Congress cannot maintain its present course. He said the markets will not allow this. He said that there will be a day of reckoning: rising interest rates. At some point, lenders will decide that the United States government is no longer a reliable borrower.

Like Greenspan, Bernanke has come out and said that as the US national debt grows, the escape hatch of ready lenders is going to be shut. The lenders will reduce their purchases of debt at low rates.

There are only two ways the US has of dealing with their huge debt. One of those ways (foreign lenders) is going to be eliminated by free market. The lenders will close it. They will do so out of self-interest.

This will leave only one other exit: the willingness of the Federal Reserve System to buy Treasury debt. In this speech Bernanke makes it clear the Federal Reserve will not ultimately destroy the dollar and keep buying Treasury debt.

That's a stunning statement and a slap in the face to all those who believe that the United States will never allow us to go back to the interest rates of the mid 1970s to early 1980s when rates ranged from 12% - 22%.

At 12% the monthly payment on your $600,000 mortgage is $6,093.30 per month. We don't need to calculate what it would be at 22%. The Vancouver housing market will have imploded before it even reaches 12%.

As I have constantly said on this blog: inflation and very high interest rates are coming... and they are coming long before all the 5% down, 35 year amortized half million dollar mortgages in the Lower Mainland can be significantly paid down.

Now even the Chairman of the US Federal Reserve is saying it.

Of course this was before the Foreclosure Crisis and the possible need to re-bailout the banks.

Things are starting to get mighty interesting.

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Happy Thanksgiving

It's Thanksgiving Day today in Canada and Columbus Day for our wonderful American cousins in the United States.

Just some simple offerings on this holiday for you.

A clip from Robert Reich, promoting his new book Aftershock. There are some interesting tidbits...

And an excellent clip from 60 Minutes on flash trading...

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Sunday Afternoon Update.

You knew this was coming.

This infamous clip from 'Hitler's Last Days' has been used for housing bubble parodies before and now has been re-worked for the Foreclosure Crisis. Hitler is portrayed as a big banker furious with the whole fiasco blowing up and is so up-to-date it even works President Obama's pocket veto of the Interstate Recognition of Notarizations Act (HR 3808) which would have made the entire robosigning fiasco legal (see last Thursday's post).

I expect that this week will see the entire issue intensify. Will it be the proverbial straw on the camel's back of the faux recovery and house of cards that has been constructed?

As the start of all this last week I explained the Mortgage Electronic Registration Systems (MERS) to you. This was how banks, trusts and lending institutions digitized the land title process (and by-passed local state real estate laws) for title transfer.

MERS has now come out with a statement that not only acknowledges, for the first time, its involvement in this whole fiasco but has made it all too clear just how deep the problem truly runs.

MERS's defense is remarkably like that of the high frequency traders involved in the flash crash of the stock markets. In essence they argue that its all just technological advancement, and if you want to blame it on someone, blame it on technology.

• "What we're seeing now is that the foreclosure process itself was not designed to withstand the extraordinary volume of foreclosures that the mortgage industry and local governments must now handle."
  

The explosion of securitization over the past 10 years has created a massive $10 trillion in first level debt and exponentially more in layered debt after that.

As more people realize that the fake title transfer aspect of foreclosure fraud is just the tip of the iceberg, I believe you will see that the repercussions are severe.

As overnight trading begins (16:00 Pacific Time), Gold has jumped up over $7 an ounce ($1353.40), Silver by $0.30 an ounce ($23.55) and the US Dollar index has dropped below 77.00. The charts are on the right hand side of this blog and will be watched with keen interest.

Meanwhile, if you are in Canada, you can click on this link for clip #1 from the Daily Show with Jon Stewart. As part of his first segment on October 7th, Stewart offers an interesting look at the Foreclosure Crisis. Then there is this link to clip #2 which is from the second segment of the same show.

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Turbulence

So, it's been an interesting week.

Let’s take a moment to consider a few things.

Given the U.S. government’s $13 trillion accumulated debt, its continuing $1 trillion annual deficits, its failure to deal with a rapidly approaching explosion of entitlement spending, increased healthcare costs, State and city obligations to retirees which are in many cases too sizable for many localities, the near-total state of political gridlock, and now a looming massive funding issue of unknown proportions with this foreclosure crisis, and what do you have?

I suspect the full range and scope of what is going on still has not been realized. We are entering the second act of the 2008 crisis and I sincerely believe it will eclipse anything we have seen yet because of the shear size of this OTC derivative disaster.

The reaction from the US Federal Reserve is not hard to predict. Last Monday (before the fervor of the Foreclosure Crisis) we saw this commentary from New York Fed President William Dudley:

"Fed action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long... The outlook for US job growth and inflation is unacceptable. We have tools that can provide additional stimulus at costs that do not appear to be prohibitive."

When you have the New York Fed President openly stating that subdued inflation is unacceptable, it doesn't take a PhD in economics to decipher what is coming.

What we are waiting for now is a tipping point, an incident that will trigger a flood of actions. The stage is set for panic and when it is triggered, I suspect you will see Gold move a couple of hundred dollars in a manner of days and Silver move $5- $10 in the same time frame.

Olympic Village

Meanwhile on the real estate front, the Olympic Village story is another unfolding disaster.

If it interests you, this link will take you to a media briefing on the Olympic Village by City Manager Penny Ballem on September 30, 2010.

As noted in the comments section of VCI, there are some interesting facts in this report.

Number of market units put up for sale: 737
Number of presales: 264
Number of presales closed: 223
Number of presales that have not closed: 264-223 = 41
Number of post-Olympic sales closed: 36
Number of units with closed sales: 259
Number of units remaining unsold: 454
Number of units with pending sales: 737-259-454 = 24

Breakdown of the 259 closed sales by price:
under $1 million: 202 (78%)
$1 to 2 million: 54 (21%)
over $2 million: 3 (1%)

Breakdown of the 454 unsold units by price:
(Prices as of May 15, 2010)
under $1 million: 48%
$1 to 2 million: 24%
over $2 million: 28%

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To dump or not to dump

The Foreclosure Fraud Saga continues (tired of me talking about it yet?). Above is a great summary from FOX news.

The crisis isn’t easy to understand, but boiled down it basically comes down to this: Banks need proper documentation to repossess a home from a family. They need documents about everything from the family’s financial situation to its history of missed payments to its assets. And they need to verify that the information in those documents is correct. But they didn’t. They hired individuals to sign thousands of mortgage papers — legal affidavits, swearing to a judge that they had personal knowledge of the information within — without checking a thing.

Basically the banks committed fraud - on a massive scale. And they have been caught.

Bank of America has now suspended foreclosures in all 50 US states. And there are calls for all institutions in the United States to follow suit.

Janet Tavakoli, the founder and president of Tavakoli Structured Finance Inc, sounded some of the earliest warnings on the structured finance market. In an interview with the Washington Post she calls these developments "the biggest fraud in the history of capital markets."

Takakoli gives a wonderful synopsis. She observes that when the financial crisis broke out, the first thing the banks did was run to Congress and ask for accounting relief. They asked to be able to avoid pricing this stuff at the price where people would buy them. By allowing this to happen, no one can now tell you the size of the hole in their balance sheets.

The United States government has thrown a lot of money at the problem but TARP was just the tip of the iceberg. The US governemnt has given these banks guarantees on debts and low-cost funding from the Federal Reserve but a lot of these mortgages just cannot be saved.

Had this problem been acknowledged in 2005, the mess could have been cleaned up for a few hundred billion dollars. But that wasn't done. Banks were lying and committing fraud, and the regulators were covering them.

Now a bad problem has become a hellacious one.

The financial system is still very fragile. The fear is that these developments will be a disaster for the economy and will trigger another credit freeze. But Takakoli disagrees and sees a solution for the crisis.

• In order to make the financial system healthy, we need to recognize the extent of our losses and begin facing the fraud. Then the market will be trustworthy again and people will start to participate.
  
  This can be done with a resolution trust corporation, the way we cleaned up the S & L's. The system got back on its feet faster because we grappled with the problems. The shareholders would be wiped out and the debt holders would have to take a discount on their debt and they’d get a debt-for-equity swap. Instead we poured TARP money into a pit and meanwhile the banks are paying huge bonuses to some people who should be made accountable for fraud.
  
  The financial crisis was a product of our irrational reaction, which protected crony capitalism rather than capitalism. In capitalism, the shareholders who took the risk would be wiped out and the debt holders would take a discount but banking would go on.

Faithful readers will recall this blog has long said there should never have been any 'too big to fail' sacred cows.

It would have meant a very severe, painful and difficult recession, but correction could have started and the rebuilding begun in earnest.

Will we see a solution similar to what we saw in the Savings and Loan crisis? Or will bailouts continue to be the order of the day?

In that the Federal Reserve Chairman is one who has publically staked his reputation on the belief that the Great Depression of 1929 could have been prevented by dumping buckets of money from a helicopter, and that the US Treasury has staked the nation's wealth on the 'too big to fail' concept, I'm guessing the latter option will win out.

The realization of just how big this issue is has finally started to seep into national consciousness.

Rep. Brad Miller (D-N.C.) provided a clear explanation to The Washington Post yesterday:

• There is massive potential liability for the securitizers, which are mostly the biggest banks.
  
  The contract was that if mortgages didn’t meet certain requirements, then the securitizer would buy them back.
  
  The mortgage servicers and trustees have exclusive control over the paperwork.
  
  Both the investors, the people who own the mortgage-backed securities, and the homeowners, really depend on them.
  
  There’s been lots of litigation where investors try to get securitizers to buy back the bad mortgages because they were flawed, but that litigation has been stymied by procedural objections.
  
  If the private investors can break through that defense and require the mortgages that don’t meet the requirements to be bought back, the liabilities for the biggest banks will be enormous.

Enormous?

Enormous doesn't begin to cover it.

Worse, since the biggest banks have been deemed 'too big to fail', there is simply no way I see the Federal Reserve and the US Treasury shifting gears now. Therefore I doubt Ben will be setting the helicopter down anytime soon.

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You maniacs! Damn you... all to hell!

On Tuesday I made the first post about what is becoming to be known as the US Foreclosure Fraud Crisis.

It is a major, evolving and significant story on a scale that is simply profound.

In a nutshell “it appears that on a widespread and probably pervasive basis (the banks) did not take the steps necessary to own the note... which means that in 45 out of the 50 states they lack the legal right to foreclose... So they have simply created a system where servicers hire foreclosure mill law firms whose business is to forge documents showing or purporting to show they have a legal right to foreclose."

The import of this cannot be understated. There are trillions of dollars in mortgages bundled into mortgage backed securities. And as this document fraud is exposed it is entirely possible that these trillions of dollars in mortgage backed securities could have NO backing whatsoever!

That means they are worthless!

As the Washington Post newspaper notes, this chaos in the mortgage industry could prose a much wider peril.

• Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.
  
  Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.
  
  These fundamental concerns over ownership extend beyond those that surfaced over the past two weeks amid reports of fraudulent loan documents and corporate "robo-signers."
  
  The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system...
  
  For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.
  
  For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again.

Do not underestimate the impact of these developments.

How long before all foreclosures executed within the past 2-3 years have to be retried? How many millions of existing home sales will be put in jeopardy, those homes which were foreclosed upon and then resold?

All of the big banks have legacy assets which are currently marked up in value to cost and above. Because of the mark-to-market nonsense, this now represents a large amount of capital for the Western world’s financial entities.

And a number of Canada's big five banks also have large exposure to US mortgages.

As I have said, this issue has the potential to be far more explosive and crucial than the collapse of Bear Sterns and Lehman Brothers in 2008.

Gather everything together that is going on.

An economy in tatters. A looming crisis in individual US state funding. Massive looming obligations in pensions, social security and healthcare.

And now this.

It isn't a question of whether or not there will be QE2. It's a question of when will QE3, 4, and 5 come.

The United States is going to have to print money to infinity.

Do you see any other way out?

If not, you have the foundation of a genuine currency crisis.

Mortgage backed securities, over the counter (OTC) derivatives, all have been confusing financial products that critics have called time bombs that will blow up the Western economy.

I'm starting to understand what they mean by that.

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Turbulent Days

Well Gang.

I sat back today and watched events play out. Without a doubt we are living through one of the most fascinating periods in history.

Faithful readers know I consider the events of 2008 a massive financial earthquake, the depth and breadth of which many of us still do not fully understand nor appreciate.

Two years later the fallout is only just starting to be felt.

US Foreclosure Fraud Saga

This massive story took a couple of interesting twists today.

Early this morning Reuters had reported that a bill toughening foreclosure challenges had zoomed through the Senate last week.

The bill, named the Interstate Recognition of Notarizations Act, would require courts to accept document notarizations made out of state. Its sponsors intended to promote interstate commerce. But homeowner advocates warn the bill could allow lenders to cut even more corners as they seek to evict homeowners... not to mention make it easier for forged documents to be easily accepted.

The bill passed without public debate in a way that even surprised its main sponsor, Republican Representative Robert Aderholt. It requires courts to accept as valid document notarizations made out of state, making it harder to challenge the authenticity of foreclosure and other legal documents.

The timing raised eyebrows, coming as a rising furor over improper affidavits and other filings in foreclosure actions by large mortgage processors was making big news.

But by this afternoon the White House announced that President Obama will not sign the bill passed by Congress without public debate using a "pocket veto" on the bill, which will effectively kill it.

This story has a long ways to play out yet.

Fluctuating Gold/Silver

Meanwhile, overnight, gold soared into a new record high above $1365 US with silver following suit putting in a fresh 30 year high at $23.53 US as the US Dollar continued sinking further in the Asian and early European trading.

A number of analyst had predicted that the trend would come under assault when morning came to North America and it did. As the sun rose here it was not long before the Euro, the Swissie and the Pound began giving up their gains and out came the selling in the metals pits.

It will be interesting to watch the overnight battle on the gold/silver front. Europe and Asia are piling into gold like crazy.

In India there is a gold rush going on the likes of which that country has not witnessed in a decades. Fears of double dip recession in the US and the subsequent global fallout of such an event has caused high net-worth individuals in India to shift assets massively.

"The way this class (wealthy investors) responds to a fear situation is by buying bars and kilos of gold," said A L Adjaniawala, precious metals analyst at KJMC Capital, a Mumbai-based research firm. "Given the firming up of bank deposit rates in India, consumers in the world's biggest buyer of the precious metal are keen to increase the share of gold in their investment portfolio to 20%-25% over the following year, from the current 10%-12%."

Meanwhile Silver swung over a dollar over the course of the day.

We do live in interesting times.

Cost Push Inflation

All week I have been meaning to do an in depth post on this topic. A number of readers of this blog are staunch defenders of the looming deflation scenario.

We will have deflation... in some areas.

But we are also going to suffer a concurrent bout of inflation too, producing a paradox that many have difficulty reconciling.

The vicious cycle created by the Federal Reserve’s Quantitative Easing monetary policy is kicking in.

We are seeing a huge influx of speculative money flows into the commodity sector pushing up food prices across the board. At some point, sooner rather than later, the rising cost at the wholesale level as indicated by the CCI and the futures boards will translate into higher retail prices for consumers, who are already being pinched by stagnant wages and falling net worth.

The result – consumers are forced to retreat on spending with the next result – a slowing economy – with the next result – more Quantitative Easing – with the next result – more rising prices as currency induced inflation in essentials rises further will compound the problem exponentially as the cycle repeats itself.

As long as the market is convinced that the Federal Reserve is going to set off another round of QE, it will go after the US Dollar driving it lower forcing money into commodities making life miserable for a large swath of North American citizenry.

The decision by the Federal Reserve to deliberately sacrifice the Dollar is going to come back and haunt all of us for years to come.

When I can, I will expand on this.

Interesting times indeed.

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Rare post update: US Foreclosure Fraud Crisis

Following up our early morning post on this explosive issue is this afternoon update. If you haven't read the earlier post, I would suggest you read it first before reading this update.

If you read the earlier post from today, don't be fooled by the lack of coverage this issue is getting on the evening news or on Financial TV, it's a HUGE issue which is still in it's earliest stages.

It is getting coverage.

The New York Times has been on the story here.

• The uproar over bad conduct by mortgage lenders intensified Tuesday, as lawmakers in Washington requested a federal investigation and the attorney general in Texas joined a chorus of state law enforcement figures calling for freezes on all foreclosures...
  
  Texas Attorney General Greg Abbott, a Republican, sent letters to 30 lenders demanding they stop foreclosures, evictions and the sale of foreclosed properties until they could provide assurances that they were proceeding legally... scarcely two weeks after the country’s fourth-biggest lender, GMAC Mortgage, revealed that it was suspending all foreclosures in the 23 states where the process requires judicial approval, concerns about flawed foreclosures had mushroomed into a nationwide problem.
  
  Dubious notary practices used by banks to justify foreclosures have come under scrutiny in recent weeks as GMAC and other top lenders suspended homeowner evictions over possible improper procedures.

ABC News is also covering the story here;

• As millions of Americans struggle under an epidemic of foreclosures, evidence has surfaced suggesting that some of the biggest banks are barely paying attention before signing documents that will push people out of their homes.
  
  Officials at some big banks now admit that so-called "robo-signers" were signing off on thousands of foreclosures a day without actually looking at the details of any of the cases.
  
  ABC News obtained a copy of multiple signatures attributed to a Florida lawyer moonlighting as a robo-signer. She had a day job in the Florida Attorney General's office, she somehow managed to vet some 150,000 mortgages in three years. If she worked every day of every year, that would amount to over 130 mortgages a day.
  
  "It appears that most of the mortgage (companies) in fact did use robo-signers," said Mark Zandi, chief economist for Moody's Analytics. "It was a way to try to facilitate the process. They've been overwhelmed by the foreclosed properties, and this was their way of trying to get through those problems as fast as they could."
  

The Wall Street Journal is covering it here:

• For mortgage investors, the recent suspension of foreclosures could potentially cause further losses in the already-battered $2.8 trillion market for residential mortgage-backed securities...
  
  "It's symptomatic of sloppy servicing and a lack of adherence to contract and property law, which we've seen examples of over and over again in the last two years," said Scott Simon, a managing director at Pacific Investment Management Co., or Pimco, a unit of Allianz SE.

And Market Watch has posted this explosive tidbit:

• With some of the nations largest banks suspending their judicial foreclosures to figure out their next move now that there is a critical mass of people that have caught on to their fraud, the smoking gun has now been discovered.
  
  A company by the name of DOCX charged the banks $35.00 to "Create Missing Intervening Assignments". In other words, forge the assignments. A copy of this company's price list is now all over the internet. A link can be found here:
  
  http://mattweidnerlaw.com/blog/wp-content/uploads/2010/10/LPS-DOCX-Price-List.pdf

But it's the broader picture which is important.

King World News conducted an interview with Jim Sinclair and Dan Norcini on the unfolding events.

• Dan Norcini: The primary drivers in gold and silver today had to do with concerns over currency devaluation as well as securitized debt problems and the implications associated with it.
  
  Jim Sinclair: “Each time that happens an item of collateral on the securitized debt publicly dies. That is why this is dynamite that people will realize very soon. This is one reason gold is up hard today.”
  
  Norcini: “That collateralized debt obligation is now effectively worthless because the collateral behind the debt can no longer be collected. The banks cannot go and get it. Let’s say you have 10 mortgages at $1 million a piece, the sum total of those mortgages are $10 million.
  
  So, the banks took the 10 mortgages and bundled them together into a collateralized debt obligation or CDO with a face value of $10 million. They then sold that new entity that they created to an investment group of some sort, a pension fund, hedge fund, etc. promising them a yield of let’s say 7%. The sales pitch would emphasize the fact that this CDO was backed by real collateral.
  
  In the event of loan defaults by the borrowers, the banks would tell the buyer of the CDO that the collateral behind the loan could be sold to recapture any potential losses on the part of the purchaser. Everything seemed to work fine until the defaults began and the foreclosure process kicked into high gear. The foreclosure process has exposed fatal flaws in the system and the flaw is that the banks cannot prove clear ownership of the mortgage.
  
  Consequently, they are then barred from foreclosing on the property.
  Because they can no longer foreclose on the properties, the CDO is now effectively worthless.
  
  The hedge funds and the pension funds cannot now sell these CDO’s on the open market, so how are they going to recover their original investment? Perhaps you may say that won’t be a problem because these instruments were insured. The problem is now the credit default swap or the insurance policy that was purchased to protect against default assumes that the insurer has the financial wherewithal or resources to make good on the claim. If there were only a small number of these problem CDO’s this would not be an issue.
  
  But as the number of the foreclosures continue to skyrocket, and more and more banks are prohibited from seizing the collateral behind the property, the sheer magnitude of the number of claims presented to the insurer will overwhelm their balance sheet.
  
  In effect what you have is an insurance company which doesn’t have enough money to pay off the claims. Compounding the problem is the fact that the CDO’s and credit default swaps related to these claims form a mass network of interdependence. This then ripples through the entire system and creates a domino effect which can cause the failure of entities creating the next financial crisis.
  
  Ultimately the Federal Reserve will be asked to step in and buy up the now worthless CDO’s and put those on its balance sheet. In order to do this the Federal Reserve will have to engage in massive quantitative easing, taking onto its balance sheet the worthless CDO’s in exchange for newly issued treasuries. This of course will have a horrific effect on the US Dollar which is why gold and silver are heading much higher.

Watch this issue very closely gang.

I could be wrong, but this may well be the Black Swan event of the 2008 Financial Crisis.

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More on fraudulent US foreclosure documents.

A little more today on the allegations of foreclosure mortgage fraud by big banks in the United States.

I cannot stress how significant this issue is. I am reminded of July 2008, the subprime mortgage issue was brewing, the markets had started to fall, but the vast majority were oblivious to what was about to happen.

Is this a case of deja vu?

Let's go back to the subprime mortgages that almost destroyed the world banking system in 2008.

Securitizing mortgages was a way of taking the cost of a mortgages off of a banks books and improving their bottom line.

From 2005 onward the securitization chain ramped up and out of control.

Bundling and selling off securitized mortgages was a virtual licence to print money and Wall Street wanted as many mortgages to bundle as they could get their hands on as quickly as possible and as cheaply as possible.

In order to maximize the revenue stream in the securitizaton process, the subprime lenders, trusts and banks cut as many corners as possible to save money.

Included in this cost-cutting was the cost of record keeping.

Banks, trusts and subprime lenders didn't keep very good records in their pell mell rush to shove money to middle America and fuel the massive housing bubble.

They didn't keep good records and, in the process, they violated individual state laws mandating that they had to file records with the local state county clerk's on who owned what mortgage title.

This isn't to say records weren't kept.

What the banks/trusts/subprime lenders did was to digitize mortgage titles into a privatized system called the Mortgage Electronic Registry System, or MERS. And it did these transfers by trading excel spreadsheets among the banks and trusts rather than endorsing the mortgage notes as required by their own contracts, by state real estate law and by IRS rules.

Today MERS is the registered owner of a security interest in 60 million properties representing 60% of all the mortgages in the United States.

More importantly... since 2005 and through to 2008, 97% of the loans that originated in the United States are in the MERS system.

But it now appears that, on a wide spread and probably pervasive basis, they did not take the steps necessary to legally own the mortgage note on the properties they registered.

This means that in 45 out of 50 US states, the lending institutions who have mortgages registered in MERS lack the legal right to foreclosure on the properties they claim to own.

As bad as this sounds, it gets worse.

As the housing bubble began to collapse, banks/trusts and subprime lenders obviously did not want to grapple with the massive legalistic quagmire they had created for themselves with trillions of dollars of mortgages for which they had no legal standing to foreclose on.

(and this is where things really go sideways)

A trend started when the foreclosures started to ramp up in earnest in 2006. When some foreclosed homeowners (and some foreclosure courts) began demanding that the proper paperwork be produced in order for the foreclosure to be carried out, the banks/trusts didn't have it.

So the industry simply created a system where the foreclosure services would hire 'foreclosure mill law firms' whose business it was to simply forge documents showing - or we should say - purporting to show that they had a legal right to foreclose.

The document mill signatories have come to be called 'robosignors', people whose names appear of thousands of mortgage documents. Investigations from the likes of the New York Times have revealed that it is clear that, although the same name appears on thousands of mortgage transfer forms, the signatures are clearly different and forged throughout all those documents. When tracked down, these signatories admit that they really did not have any knowledge of what it was they were signing.

According to Florida Congressman Alan Grayson, the system is so organized that there is a company called Lender Processing Services (LPS) which has allegedly created the means to systematize this fraud.

Lawyers used the LPS system to request which affidavits and documents they need. LPS then has document mills where they can magically make an authorized 'Vice-President of whatever you need' and send you backdated signed documents saying that you have the right to foreclose on the property you are interested in.

Courts originally refused to believe that this level of rampant fraud even existed.

But recently US courts have begun sanctioning fraud charges against loan servicers as details of what has been going on becomes apparent.

As Florida Congressman Alan Grayson will outline for you below, there have been instances where homeowners have had to go to court to fight the foreclosure process. It turns out that in a couple of cases, the banks made a mistake in the address of the property they were foreclosing on. Turns out the house the foreclosed on NEVER had a mortgage to begin with... the owner having paid cash to buy the house.

Despite this, the banks produced mortgage documents that said they were legally entitled to foreclose on the property.

You can see how courts might have a slight problem with this disparity.

This week two civil suits in Kentucky have filed under the RICO statutes. That's the US version of racketeering laws.

The civil suits say that in a significant number of cases, banks do not have proper title to the homes on which they are foreclosing. Worse, these lawsuits allege that the supporting documentation they are producing to support their claims has been fraudulently created and presented to the courts.

These lawsuits are about to open up a massive can of worms that speaks clearly and directly to the fact that securitized (collateralized) debt on a vast number of mortgages have no paperwork, lost paperwork or paperwork that has been duplicated many times in many collateral debt instruments.

The import of this cannot be understated.

Firms like Goldman Sachs are already being sued as in this lawsuit from LBBW Luxemburg.

Goldman is already battling claims that “Goldman Sachs knew at the highest levels of its organization that its representations to LBBW Luxemburg that the notes merited triple-A ratings and were high grade were blatantly false,” the Stuttgart-based bank said. “Goldman committed fraud and, or, was negligent in marketing and selling the notes to LBBW Luxemburg.”

Now there are the Kentucky lawsuits. The key element here is that the Kentucky suits are RICO actions and class action suits. That is why it is so important.

The RICO (organized crime) statute in a civil suit is usually used to force a settlement between parties. It is a very effective tactic because If the banks lose under RICO they sacrifice ALL their assets.

The key to RICO in a civil suit is to prove a PATTERN. Listen to the video posted below by Florida Congressman Alan Grayson. It outlines the facts I have just laid out for you and shows you some of the clearly forged mortgage documents.

The pattern screams at you.

The only logical settlement in the Kentucky cases will be to void the foreclosure.

And since this is a class action lawsuit, it could sign up 100,000 complaints if that is desired by the attorneys.

This suit, if successful, will be repeated all over the US.

That's why Bank of America, J.P Morgan and GMAC have halted all foreclosure proceedings in the affected states.

Do you remember the panic that gripped the markets when it became apparent that Bear Sterns and Lehman Brothers were going to go under because their securtized mortgages were deemed worthless?

It could be that all of the mortgage backed securities issued from 2005 onward could be completely worthless because they are not legally backed by any mortgages!

As I said yesterday, all of the big banks have legacy assets which are currently marked up in value to cost and above. Because of the mark-to-market nonsense, this now represents a large amount of capital for the Western world’s financial entities.

A number of Canada's big five banks also have large exposure to US mortgages.

Watch these developments very closely, because if they do play out I suspect you will see the markets - and financials in particular - make the September 2008 stock market crash look like a minor dip, forcing the US Federal Reserve to bailout the banks on a level that makes the 2008 bailouts look like chump change. As for Gold/Silver, it could well go hyperbolic.

Here is Florida Congressman Alan Grayson outlining the issue:

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Could the US foreclosure fraud situation cause another Banking Meltdown?

There is an evolving and fascinating story going on in the United States that could become a major, major issued for the economy.

As you know, the housing collapse in the US has lead to a massive number of foreclosures by the banks.

But the foreclosure bandwagon has hit a significant speed bump.

It seems the courts have put the brakes on a number of foreclosures because banks do not have the proper paperwork to execute foreclosure.

This foreclosure document 'problem' is rapidly evolving into a case of fraud on a massive scale, a situation that could affect 60 million properties in the U.S.

In a nutshell banks have lost track of promissory notes signed by homeowners when original mortgages were taken out. In 2008 some big banks could not produce the note that proved it had the right to take back a home. The problem has gotten much bigger as more homeowners discover the banks do not have the original documents.

The root of the problem, apparently, is that after physical paperwork was filled out and signed by the borrower, the banks electronically filed the paperwork into a computerized system called the 'Mortgage Electronic Registry System' (MERS).

According to Florida Congressman Alan Grayson, 60 million mortgages are in MERS.

It appears that after the electronic filing, the banks have lost track of the original paperwork - the note - signed by the borrower for virtually every mortgage filed in MERS.

This is crucial because that 'note' is what actually proves the bank owns the property.

Grayson says, “It appears that on a widespread and probably pervasive basis they (the banks) did not take the steps necessary to own the note... which means that in 45 out of the 50 states they lack the legal right to foreclose... So they have simply created a system where servicers hire foreclosure mill law firms whose business is to forge documents showing or purporting to show they have a legal right to foreclose."

The import of this cannot be understated. Take a moment and grasp the enormity of this problem for the banks.

There are 60 million homes which banks loaned money on, and now they might not be able to legally get the property back if the homeowner defaults!

Another colossal problem is the trillions of dollars in mortgages bundled into mortgage backed securities.

Remember, the banks were giving almost anyone a mortgage during the housing boom which allowed them to create and sell lucrative mortgage backed securities.

So, there are trillions of dollars in mortgage backed securities that now could have NO backing whatsoever!

That means they are worthless!

Would you like to be the pension fund manager who bought that security? Do you think this just might cause an accounting problem for the banks? Do you think this could push some of the big banks into bankruptcy? Will there be another financial meltdown and government rescue?

Do not underestimate the impact of these developments. This past weekend, Bank of America became the latest lender to delay all foreclosures in 23 states because of possible problems with the necessary documents needed to repossess a home. GMAC Mortgage and JP Morgan Chase have had similar problems recently with documents that prove the bank has the right to foreclose.

How long before all foreclosures executed within the past 2-3 years have to be retried? How many millions of existing home sales will be put in jeopardy, those homes which were foreclosed upon and then resold?

There are currently two civil suit proceeding that say the banks do not have proper title to the homes on which they are foreclosing.

All of the big banks have legacy assets which are currently marked up in value to cost and above. Because of the mark-to-market nonsense, this now represents a large amount of capital for the Western world’s financial entities.

And a number of Canada's big five banks also have large exposure to US mortgages.

The biggest question in the financial world today is could the foreclosure fraud situation cause another banking meltdown?

Gold and silver are spiking on the upcoming possibility of QE2.

QE3, anyone?

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First time buyers: "Save your money and wait" - Victoria area Mortgage Broker

As we reported earlier this month, Victoria real estate mid month sales were dramatically down and on track to be off 75% from this time last year.

Sales did pick up in the second half of the month, but as the final numbers are tallied,Victoria has hit a 20 year low with sales down 50% from last year.

That total, by the way, is the lowest in 20 years. Note that they only started keeping such records in 1990, so Victoria recorded it's lowest number of sales EVER last month.

As we enter the October/November period, historically the slowest time of the year, their is fear in the air... and it is palpable.

Check out this news story by CHEK-TV in Victoria (youtube video above).

From the intro: "Realtors say if you are selling your home you need to consider dropping your asking price or be prepared to wait a long time."

Even better is an excerpt where viewers are told that Frank Simon, a Langford mortgage specialist, is telling people that there is no demand for housing left and is openly predicting a price crash.

Simon is telling first time buyers to save their money and wait. To home owners, Simon is blunt saying "your home price is going down."

CHEK-TV attempted to contact Simon for a interview to expand on his comments, but he was muzzled by his employer, Dominion Lending.

Gee... I wonder why?

Meanwhile the first forecasts for Real Estate in Vancouver next year are coming out and there are calls for at least a 5-10% decline in values.

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Did you see the sales numbers for new R/E units?

Well gang, another month has come and gone.

Next week real estate sales statistics will be released for the month of September, 2010.

As expected sales will be down by over 40% for the fourth consecutive month, carrying on with record low sales.

The R/E propaganda machine, however, will pounce on a glaring anomaly from the stats: the average price of the single family house will have risen, eclipsing the one million-dollar mark once again.

Fewer houses have sold, but those that have sold have traded at very high prices - thus distorting the average. I do believe there was even a sale of a $9 million dollar property in Vancouver this month.

But when you look beyond the R/E spin that is sure to flow, the stats tell a story that cannot be denied.

Sales on all brand new real estate units (houses, condos, etc) in Vancouver are utterly abysmal and have plunged lower than anything seen in the month of September over the last 15 years.

Here are the numbers according to the contributor 'Inventory' over on Vancouver Condo Info:

Sept New unit sales
1994 = 364
1995 = 310
1996 = 422
1997 = 317
1998 = 286
1999 = 305
2000 = 235
2001 = 232
2002 = 218
2003 = 400
2004 = 421
2005 = 545
2006 = 300
2007 = 322
2008 = 242
2009 = 396
2010 = 170 (as of Sept 29)

The 2010 total will be well below even the dismal 2008 & 2002 totals.

Downtown there are a stunning number of new condo developments slated to come onto the market in the months ahead... and sales of new units are absolutely cratering. Headlined, of course, by the Olympic Wasteland.

Fall/Winter is shaping up to be wicked.

Will December be a time to deck the halls with desperation?

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The Bank of Canada repeats its warning to you: Curb your enthusiasm for debt!

You will recall the other day that I commented on the fact that the finances of most Canadian households are in abysmal shape.

It is one of the key factors that will contribute to Vancouver's status as ground zero in a monumental housing collapse.

Last Friday I said that numerous economic reports have cited that debt is out of control in this country. Canadians have saddled themselves with record mortgage debt as household liabilities are now equal to 145% of earned income. Six in ten Canadians now live paycheque to paycheque. 40% are not even trying to save money anymore because there is no money left over after daily expenses.

As faithful readers know, my number one recommendation over the past two years has been that, if you are in debt, get out of it... now!

And today Mark Carney, the Governor of the Bank of Canada - and the man who plays a large role in influencing interest rates, issued yet another warning to Canadians on just this subject.

Using particularly strong language (for the head of a Central Bank), Carney warned Canadians today to curb their enthusiasm for debt. In a midday speech to the Windsor-Essex Regional Chamber of Commerce, Carney echoed my warning about the perils of the fact that the ratio of household debt to disposable income hit 146% in the first quarter of the year, a record and a level that is closing in on that of the U.S.

"This cannot continue," the central bank chief warned, adding that while the net worth of Canadians is about six times the level of average disposable income, asset prices rise and fall but "debt endures."

Carney can see what I see.

We're in a tenuous position. Real Estate doesn't always go up. And many believe real estate is set to go down. How much it will go down depends on your particular slant. And as many of you know, my slant is 50 - 70%, minimum. And I lean heavily to the 70% minimum end.

Any kind of decline in asset prices will amplify and exacerbate this precarious Canadian debt position.

• "House prices matter principally because of the “financial-accelerator effect.” When the value of a house rises, the owner can typically borrow against this increased equity to fund home renovations, a second house, or other goods and services. These expenditures can “accelerate” a rise in house prices, reinforcing the increase in collateral values, access to additional borrowing, and, thus, an increase in household spending. Of course, this accelerator effect can also work in reverse: a decrease in house price tends to reduce household borrowing capacity and amplify the decline in spending."

Carney also noted that,

• "With Canadians working, but not as much as they would like, they have been borrowing. Real household credit expanded rapidly throughout the recession, in contrast to previous downturns, and has continued to grow through the recovery. Canadian households have now collectively run a net financial deficit for 37 consecutive quarters. That is, their investment in housing has outstripped their total savings for over nine straight years. In effect, households are demanding funds from the rest of the economy, rather than providing them, as had been the case through the 1960s, 1970s, 1980s and 1990s."

This focus on plunging all our eggs into home mortgages is important. With more and more of our disposable income going to monthly mortgage payments, Carney observed that household balance sheets are growing "increasingly stretched."

But what about our economy? Isn't it growing? Aren't we out of the recession with everything getting better and our paycheques growing?

Carney noted that while Canada’s recovery has been the envy of the Group of 7, but that recovery has relied on levels of consumer spending and investment in housing that are proving unsustainable.

Translation: The economy has relied on the fact we have been borrowing our asses off and plunging ourselves into record debt - courtesy of Carney's emergency level, record low, interest rates.

Carney's warning was simple and straightforward and he reduced it to 3 simple words:

"This cannot continue."

You would be wise to take heed, if you haven't already.

What's coming won't be pretty.

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More on the currency debate... (btw, Garth Turner sees Gold going to $3,000)

No real estate topics today... instead it's devaluing currencies of the world, gold and what will come as a surprise to many: Garth Turner sees Gold going to $3,000 an ounce.

All around the world there is a stunning drama unfolding. Country after country is devaluing their currency through massive quantitative easing in an attempt to make their exports more attractive because - via foreign exchange - their currency is worth less than other countries as those countries devalue. It's becoming a vicious cycle.

Brazil is warning of a currency war, the Bank of Israel buys $250 million in forex to weaken the shekel, Chile considers measures to combat strong peso, intervention in Taiwan dollar suspected of bringing value down, Korea considers moves to stabilze, Singapore intervenes to devalue currency, and Japan considers more moves to devalue currency.

There's more, but you get the picture.

All of this is in response to the United States and the rapid dropping of the US dollar index (it's one of the graphs on the right hand side of the blog).

Click here for a Reuters clip on the fears over a world currency battle.

This is one of the feared outcomes of the Quantitative Easing that was started last year. And the great fear is that the US Federal Reserve's actions to prop up the increasingly uncompetitive and defective U.S. economy with what amounts to unprecedented amounts of money printing over the past two years - with efforts still ongoing and slated to expand later this year - are going to lead to a crisis of confidence.

The US government as a whole has increasingly spent beyond its means, doubled down on debt and pushed the limits of inflation risks as it milks the outdated perception of the dollar as a "safe haven" for all it's worth.

The largest critics say the table is being set for the biggest currency crisis ever. Some say that all of the key ingredients are in place for a crisis of confidence that will threaten to overwhelm all efforts to contain it - something beyond the magnitude of currency crises that unraveled Mexico in 1994, Asia in 1997, Russia in 1998, and Argentina in 1999.

That's why I say there is an opportunity looming.

It's irrelevant whether you believe the crisis will lead to hyper-inflation or not. A crisis will play out. The only question is the depth and breadth of the magnitude.

Gold (and Silver) are the final refuge against universal currency debasement. And that debasement is starting to ramp up big time.

The US and Britain are debasing coinage to alleviate the pain of debt-busts, and to revive their export industries: China is debasing to off-load its manufacturing overcapacity on to the rest of the world, though it has a trade surplus with the US of $20bn (£12.6bn) a month. And the rest of the world is racing them to the bottom.

Premier Wen Jiabao confesses that China’s ability to maintain social order depends on a suppressed currency. A 20pc revaluation would be unbearable. “I can’t imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs,” he said.

Commodities analyst Dan Norcini notes, Gold put in another record high price in late Asian/early European trading last evening with silver also following closely behind as it too set another 30 year high during the same interval. As a matter of fact, all of the “precious” metals were higher today with platinum and palladium continuing to work higher on the charts. Palladium is probably the sleeper among the group as it has quietly managed to rally from $160 in late 2008 to nearly $570 as of today. That is a 250% increase in 2 years.

One of the things about the palladium rally is that it now leaves silver as the least expensive precious metal to own. Yes, I know that palladium and platinum are considered industrial metals but they too, as does silver, often act as precious metals. Gold is now over $1300, platinum is over $1650, and palladium is near $570. None of them could be considered especially cheap for the average citizen to buy. Silver however, even after its strong rally is shy of $22. Tell me that the average citizen who has a few hundred dollars laying around and is becoming increasingly worried about the future of the Dollar as they become informed about the woes of the current monetary system, will not look at these metals and feel very comfortable plopping down some cash on the counter for a few rounds of silver."

Which brings us to Garth Turner.

For those who follow Turner, they know he is adamant that Gold is a relic and not a place to put your money.

But Turner can see what is happening too. In this interview with Stirling Faux on Howestreet.com he begrudging admits that gold will still climb further...

(http://www.howestreet.com/goldradio/index.php/mediaplayer/1784).

Towards the end of the interview, at the 10:23 mark, Turner dismisses Gold rising up in price but stumbles and concedes that "yeah... it may go to $3,000. But not $5,000 or $10,000".

Hands up out there how many thought they would ever hear Turner predict Gold at $3,000 an ounce?

Such is the import of what is happening right now.

Does anyone remember how this all started?

And the world is dealing with it... taking it a 'little more seriously'.

They are moving out of the US dollar and into Gold/Silver. Do you see the opportunity?

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Do you see what I see?

As a child, everyone has seen the picture above which is the visual definition of "perception".

Some see the image of a young woman. Others can clearly see the image of an old woman.

Same image, two different perceptions.

And the same can be said of real estate in the Village on the Edge of the Rainforest. Yesterday the little red-headed girl told me she spends her weekends going to open houses, house lust working it's elusive magic.

Sigh.

Don't people see the picture I see?

Bouncing around the Internet today is like going from site to site with confirmation of so many of last year's blog insights playing themselves out in living colour.

Aren't they evident to all?

You've often see me refer to the Vancouver Real Estate Anecdote Archive, a blog which collects anecdotes found on various blogs or in mainstream media. Since most are anonymous, it is impossible to confirm the validity of the comments but they are interesting. What stands out are the number of comments being made by people who are starting to worry about their real estate purchases.

Some recent comments (click on first two words for link):

• “A buddy of mine on the Island put his home on the market in August…..not a sniff. He is freaking out as he had hoped to ‘move-up’ and is carrying a big monthly mortgage.”
  
  “I’m in the financial industry. People are one or two paycheques or missed mortgage payments away from real disaster. I think that bankruptcies will unfortunately become commonplace.”

These comments are reflective of events now unfolding as many of us in the blogosphere have predicted. Yesterday the chief economist of Gluskin Sheff + Associates, David Rosenberg, came out with a report that notes that housing starts, building permits and home prices have slipped.

Canada's recovery from the recession has been fuelled by the boom in the housing sector, a boom which was driven by the emergency level interest rates that sucked so many Canadians into the overpriced housing market over the past year. But that 'stimulus' has run it's course, the 'recovery' is now slowing, and "that goose is no longer laying any golden eggs."

Rosenberg foresees that same scenario we have been fearful of. He expects that a "rising number" of Canadian homeowners won't be able to meet their mortgage payments as interest rates rise and real estate values sink.

"Housing cycles, both up and down, tend to go further than anyone thinks, as we saw occur in the United States, which is still suffering from a post-bubble hangover three years after the initial turn down. Even if this correction in housing is a fraction as harsh as was the case south of the border, the economy, and the financial markets, are likely in for a rude awakening in coming quarters as lower home prices cut into household wealth, confidence and spending plans," said Rosenberg.

This comes out on the same day as a report from the Royal Bank of Canada that says home ownership costs in B.C. are quickly nearing record highs and that the result is that home ownership costs are testing the limits of household budgets. More importantly the report notes that “the Vancouver market is clearly vulnerable to a price correction."

“Generally, we have dismissed the case of housing market bubbles in Canada, but the situation in Vancouver is probably the closest to one in the country,” the report stated.

Interestingly the report calculates that the tenuous Vancouver market chews up more that 65% of pre-tax family income (the highest in the country). But this conclusion is based on buying a house at current prices with 25% down and a 25-year amortized mortgage.

Ummm... does anybody out there have a friend or acquaintance who has bought a house in Vancouver in the last five years who has paid a quarter of the purchase price in cash and has taken out a mortgage that was less than 35 years in length?

Royal's skewed analysis allows it to temper conclusions. Economist's like Rosenberg do not colour their outlook with such diversions.

The fact of the matter is that the finances of most Canadian households are in abysmal shape. As other economic reports have noted, debt is out of control in this country as Canadians have saddled themselves with record mortgage debt (household liabilities now equal 145% of earned income). Six in ten Canadians now live paycheque to paycheque. 40% are not even trying to save money anymore because there is no money left over after daily expenses.

The writing is on the wall for real estate in our little hamlet which sits on the Edge of the Rainforest. We will be ground zero for a massive real estate collapse.

Don't you see what I do?

Meanwhile... more on 'all that glitters'

Bloomberg reports that the U.S. Mint has suspended sales of its 1-ounce American Eagle gold coins after soaring commodity prices led collectors and investors to deplete supplies. It is the first time in two decades that the Mint halted sales of the coins.

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