CHESSNOID

I know some of you are still in denial about the R word. I think we are in a recession right now. The news that keeps coming out more frequently in the business section is negative. In every business cycle, there is a part where everything is booming and there is another part where everything is contracting. We had easy money, easy credit, and companies growing by leaps and bounds yesterday. Today, we have credit card companies taking away credit lines from their best customers, massive layoffs, and the price of gas and everything you can buy at the grocery store going up.

I don’t think this is just where I live, otherwise I would just pack up and move. The price of houses and condos are falling everyday. I get redfin emails for the areas I would like to live in and the prices are dropping everyday. There was a brand new condo that has been on the market for 6 months in Seattle where the builder just slashed the price by $80,000. It is still not sold. The housing inventory is still growing at an alarming rate due to record breaking foreclosure numbers according to CNN.Money:

Florida Foreclosure filings nationwide soared 57% in January over the same month last year - another indication that the nation’s housing woes are deepening.

Nevada, California and had the highest foreclosure rates in the nation. During the housing boom, all three states recorded big price run-ups, and saw a large proportion of homes sold to investors. In Nevada, one of every 167 homes was in some foreclosure stage last month.

California had the largest total number of foreclosures among the states. There were more than 57,000 foreclosure filings there in January, one for every 227 homes. Florida trailed well back in total foreclosures with 30,000, but its rate of one for every 273 households was only slightly behind its West Coast rival.

Several states recorded massive jumps in foreclosure activity in the last twelve months. In Rhode Island filings rose 279%; in Maryland they spiked 430%; and in Virginia they leapt 634%.

The federal reserve and congress has talked about helping those in foreclosure but seems to be more talk than action based on those numbers. They have dropped interest rates but that is hurting us indirectly with soaring prices. I hear of different bailout plans but I think that is just more to be politically correct. Last month they touted a plan called Project Lifeline:

Six of the nation’s largest mortgage lenders, in a joint effort to cool the raging foreclosure crisis, have agreed to temporarily stop foreclosure proceedings on homeowners who have fallen seriously behind in their house payments.

Under a program unveiled Tuesday, legal efforts to oust seriously delinquent borrowers from their homes will be postponed for 30 days while lenders and borrowers try to work out payment options.

The effort, known as Project Lifeline, will not be confined to borrowers with adjustable rate mortgages. So-called ARMs have recorded the highest rates of delinquencies, even as default for loans of all types have risen dramatically over the past couple of years.

“For many families, Project Lifeline will temporarily pause the foreclosure process long enough to find a way out. Loan modifications may follow,” said Alphonso Jackson, Secretary of Housing and Urban Development. “This program is not only available to subprime borrowers but to people with any kind of home mortgage.”

You have to admit what they say contradicts reports of what is actually happening. This housing bust is still unfolding and just gaining momentum. I know many analysts and economists are saying the bottom is here, but they are only fooling themselves. For the next few months, I won’t be surprised to see the same headlines “housing sales drop to record low again vs last month” and “foreclosure numbers break new record high”. I am a very positive person but I try to make accurate observations so I can capitalize on them and avoid any bad consequences from them. Last year, I sold all my stocks and put it in cash and money markets. At the time it seem like a paranoid move considering stocks were still going up even after I sold. It didn’t turn negative until late Decemeber early January. I avoided a 15% to 20% decline because I acted on what I saw happening around me. Now, I am waiting for the signs to jump back in the market. I will dollar cost average back into the stocks I think will flourish in the long term. I think banks and builder stocks will be cheap for a long time and will be great value buys. Many tech stocks that are taking a beating will be good long term buys too.

Google bucked the market trend again, or maybe the market bucked the Google trend. Google is a search engine I use often, but their main business is advertising. In a recession, even they are not immune to the economy’s effects. If people or businesses don’t have the capital to spend, then they will cut costs and reduce spending including advertising temporarily. I actually believe Google is going with the market trend and the stock market is defying the news. The market rallied on IBM buying back stock and MBIA’s rating not getting cut. IBM is buying back its stock cheap and I am highly doubtful there forecast is accurate considering most business activity is slowing. And for MBIA rating not to get cut doesn’t change the fact the major losses they posted and bigger losses they will be posting in the coming months. This subprime mess that the federal reserve help to create and big companies like MBIA helped to insure from losses is far from over. I don’t know why investors are setting themselves up for a fall by buying too early. Maybe they don’t want 3% returns in money markets. This low rate is still better than negative returns that lower your principal investment.

The markets closed up again:

and google closed down only by -22.25 to $464.19. Ouch!