CNN (oh we love CNN) is reporting that home prices have experienced the worst drop in 37 years, and the pace of sales has fallen short of forecasts by experts.

The report showed that the median price of a new home sold in October plunged 13 percent from year-earlier levels to $217,800. It was most severe year-over-year drop since September 1970, when the median price was only $22,600, or less than the cost of a typical new car purchase today.

Thirteen percent may seem like big drop, however when compared to the exponential increases in values we’ve seen over the past several years, we can see why the sales volume still fell far short of the forecasts. That measly thirteen percent drop still keeps most prices out of reach of the typical buyer, especially with the limited availability of subprime and other nontraditional mortgages.

Thursday’s report is only the latest sign of weakness in the housing market. On Wednesday, a separate report by the National Association of Realtors reported the weakest sales of existing homes on record despite the largest drop in prices ever.

Well now that we’ve seen the worst price drop in 37 years and the weakest sales of existing homes on record, we must be at or near the bottom!

Real Estate | 3 Comments »

CNN Money is reporting that Enron is seeking $20B from Citi in a lawsuit recently filed.

Let’s get this out of the way first: Yes, Enron still exists! But it’s called Enron Creditors Recovery Corp., it has just 36 employees, and it exists for one reason: to pay creditors. To date, those creditors have gotten 36 cents on the dollar, double the original estimate, which Enron has paid by selling assets such as pipelines and power plants — and extracting money from Wall Street banks that, like Citi, helped Enron fool the world.

…

This campaign against Wall Street began in 2003, when Enron filed a suit that it aptly called Mega Claims against 11 banks, alleging that they helped manufacture its financial statements. Nine of the 11 settled, paying what Enron says is $1.7 billion in cash (some of this was payment for claims the banks took back) and giving up almost $1 billion more in claims. A small case remains against Deutsche Bank — and a big one remains against Citi. “We believe the suit is without merit, and we intend to defend against it vigorously through the courts,” says Citi.

Kool-Aid | No Comments »

CNN reports that The White House lowered its forecast for economic growth next year with rising unemployment, the housing market slump, and a credit crunch weighing on economic activity.

Inflation, however, should improve. The White House expects consumer prices to increase by 2.1 percent next year, a moderation from a previous forecast of a 2.5 percent rise.

Just yesterday, the federal reserve hinted that interest rates may be lowered again in the near future due to the economic slowdown. How would a rate cut affect inflation, which is supposedly under control?

The big worry for economists is that consumers and businesses will cut back on spending and investing, sending the economic growth into a tailspin. Spending by consumers and businesses is the lifeblood of the country’s economic activity.

Consumer spending certainly gets a boost from available credit, so let’s hope that someone can figure out a way to extend more credit to consumers and businesses and save our economy from recession. If you have any ideas as to what this next innovative scheme technique will be, please let us know what that will be so we can get in on the action and make a little money.

Kool-Aid, Economy | No Comments »

After a well needed break, the KoolAidMan is back! During the time off, he’s been disconnected from the markets and the media, however upon returning it seems that not much has changed. Housing values haven’t rebounded yet, and the markets are still jittery.

Instead of linking to a top story about home values dropping again, we found a nice piece at Marketwatch reminding us of some old expressions that are very applicable to the realtors, home buyers, sellers, and lenders who sparked this mess that we’re in.

What goes up must come down. One reason people did this is that home prices were rising faster than personal incomes for a number of years, but that could not go on forever, as we know now.

We know now, and we could have known this back when the mania was at its prime. Most people involved chose to ignore reality and decided to speculate instead. We’re going to guess that there’s a handful of people who knew this and were able to cash out while they could, but there are millions of handfuls of people who are left holding the bag right now.

You can’t make a silk purse from a sow’s ear (or kiss a frog and turn it into a prince). These securities were based on loans of questionable quality that, when bundled together, somehow were blessed with AAA ratings by the debt-rating agencies.

There is no such thing as a free lunch. It boggles the mind how many money managers, investors and just about everyone else thought these securities could be rated almost as high as supersafe U.S. Treasurys — without any added risk. No wonder people from all corners of the planet, from sophisticated hedge funds and banks to the proverbial man or woman on the street, put chunks of money into these mortgage-backed issues.

We’ll be listening for any news on investigations into the ratings agencies as this mess unfolds. It’s difficult to predict what will happen because there are so many things going on behind the scenes that average Joe Investor doesn’t know, but we’re not in the game of making predictions here. We’d rather drink our Kool-Aid and believe that everything is OK!

Stay tuned, for later this week we’ll be covering holiday retail sales and consumer spending. We’re sure to see some interesting statistics in the coming days!

Financial Market, Investing, Economy, Stock Market, Real Estate | No Comments »