Beyond the two big equity bear markets of the past decade, it’s no surprise that Main Street has soured on equities thanks to the Madoff scandal and the bail-out of Wall Street banks, followed by high bonuses paid out to bankers last year, all crowned by May’s “flash crash”.

While retail investors ran from equities and piled record amounts of their cash into money market funds in 2008, what really hurts the Street is their failure to forget and come back.

The common punchline on Wall Street is that once the markets have rallied for a while, you wait for the “dumb money” to rush in for a slice of the action. Then the “smart money” sells out and sit backs as retail investors get hosed when the market falters.

Except this year, the dumb money has resolutely stayed away and kept buying bonds and foreign equities, leaving the professionals twisting in the wind. So far in 2010, $50.2bn has been pulled from US equity funds on top of the $74.6bn in outflows during 2009, while $152bn has flooded into US bond funds, according to EPFR Global.

Such flows aptly illustrate Wall Street’s sour mood. Talk to people in prime brokerage at big banks and they mutter darkly that many hedge funds are struggling to make money and risk big redemptions later this year. The recent decision by Stanley Druckenmiller to wind down his Duquesne hedge fund is the type of shot across the bow that people in the industry could well look back upon as a foreboding omen.

Another on-the-money post from Zero Hedge.

Not China, not Russia, not North Korea, not Iran, not terrorists...According to Admiral Mike Mullen, the Chairman of the Joint Chiefs of Staff, the "single biggest threat" to American national security is the US national debt, which is either $8.85 trillion (public debt), $13.4 trillion (total national debt), $20 trillion (total debt including GSE debt), or $124 trillion (total debt including unfunded obligations), depending on one's definition of the word "debt." And as Zero Hedge has long been warning, the imminent increase in interest rates (sooner or later), will eventually put the country in an untenable funding position. "Tax payers will be paying around $600 billion in interest on the national debt by 2012, the chairman told students and local leaders in Detroit." The Chairman (the real one, not his pale imitation over at Marriner Eccles) politely forgot to add that the successful rolling of nearly $600 billion in debt per month is likely an even greater threat to national security.

More from Mike Mullen, commenting on the upcoming annual interest payment forecast:

“That’s one year’s worth of defense budget,” he said, adding that the Pentagon needs to cut back on spending.

“We’re going to have to do that if it’s going to survive at all,” Mullen said, “and do it in a way that is predictable.”

He also called on the defense industry to hire veterans and become more robust in the future.

“I need the defense industry, in particular, to be robust,” he said. “My procurement budget is over $100 billion, [and] I need to be able to leverage that as much as possible with those [companies] who reach out [to veterans].”

And since debt is now the functional equivalent of a nuclear bomb, it behooves readers to know just who the biggest threats to US national security are:

We hope it is appreciated promptly enough, that the entity highlighted in red can just as easily become the biggest domestic threat to national security, should the interests it represents, both political and financial, not get their way.

h/t Robert

4.666665

Two studies–one by Deutsche Bank and the other by TransUnion-show that mortgages with payments that are past due for 60 and 90 days have risen sharply.

The Deutsche Bank data shows that in some regions, most located in Florida, California, and Nevada, 20%, or more, of home loans are beyond the payment terms of the mortgages.  The bank uses 90 days as its measure.

TransUnion found that 6.67% of all mortgages nationwide were 60 days past due at the end of the second quarter. This compares to 5.81% in the same period a year ago.

The data is not surprising. As a matter of fact such statistics have become mundane and match other information from groups which include Zillow and RealtyTrac. Home owners are late on mortgages, homes are not being sold, home builders are in despair and unemployment in the construction industry is in the double digits.

There are few reasons to thinks the data will get better. Despite predictions to the contrary, housing is now in a flat spin. Buyers are  on strike despite low interest rates. Few of them want to try to catch the falling knife of plunging prices on the chance that they will catch prices at the bottom

Economists have finally come around to the realization that housing and unemployment are Siamese twins. People without work, especially for long time periods, lose their homes to foreclosure or walk away. Individuals without work are not potential buyers. If unemployment remains above 9% for another 18 months or two years, the housing market will remain in tatters.

Housing data will continue to get much worse, despite government intervention programs like HAMP. Nothing is a bargain, in the eyes of the public, when the moving in prices is relentlessly down.

Douglas A. McIntyre

Does anyone doubt that once a society ceases to be able to afford schools, public transit, paved roads, libraries and street lights -- or once it chooses not to be able to afford those things in pursuit of imperial priorities and the maintenance of a vast Surveillance and National Security State -- that a very serious problem has arisen, that things have gone seriously awry, that imperial collapse, by definition, is an imminent inevitability?  Anyway, I just wanted to leave everyone with some light and cheerful thoughts as we head into the weekend.

The housing market, whose collapse pulled the economy into recession in late 2007, is stalling again.

In major markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans. The expiration of a federal home-buyers tax credit at the end of April is weighing on the market.

The Fed Funds rate is ZERO%. There is a Tax Credit for home buyers. There is a Tax deduction for interest paid on a mortgage. What else can the Federal Government do to prop up the housing market?

I know - they should purchase the home for you. Call it another stimulus plan. Hell - they gave hundreds of billions to finance companies and car companies. Why not give to us homeowners? I am sure there is an economist somewhere in the government who will tell you about the "multiplier effect" - where every $1 the Feds spend on buying your house generates $1.75 in economic activity.

Almost 40 years ago Walter Block wrote a fun little book called Defending the Undefendable.  In it he explicated the libertarian arguments in defense of all sorts of people and practices that most observers would find objectionable: drug dealers, pimps, and the like.

One such group he defended was loan sharks, who charge high interest rates, normally on short-term loans.  The common objection is that they are predatory lenders taking advantage of the poor and less creditworthy by charging them “usurious” interest rates.  Walter quite rightly argued that such lenders were simply providing a service that customers voluntarily contracted for and that there was no victim.

Here we are in 2010, and the same objections are being raised, but this time backed by the force of law.  According to CNN, Arizona has now become the 17th state to ban payday lenders by capping their effective annual interest rate at 36 percent.  Payday lenders specialize in short-term loans, usually two weeks to a month, at high annual interest rates, often to borrowers who can find no other source of credit.  These lenders provide liquidity to borrowers to carry them over until payday, when the loans are repaid.  CNN reports that an interest charge of $17 per $100 borrowed on a 14-day loan is typical.  This comes out to about a 400 percent interest rate if the loan is carried a full year.  The usual suspects see these practices as “predatory” and “abusive.”

But who exactly is hurt here?  No one points a gun at the heads of the borrowers.  Clearly they perceive a need for that additional liquidity and, to use a little economic jargon, their time preference is high enough that they are willing to pay the high rate for the very short-term loan.  Their willingness to do so is most likely a consequence of their poverty; they lack the assets and collateral, and even the human capital, necessary to get a standard loan or a credit card.  For such people the payday loan option is better than going hungry between paychecks.

Read the full article. This is a very cogent discussion of the practice of payday lending. Is it possible that the offended sensibilities of the ruling class are restricting a service that is needed by the lower class? Is this a transaction where there are no victims? No predators?

Yes. The interest rate is high. But the people who are lining up at this "discount window" have no other choices. And the default rate of these loans is 50% so this is a high risk endeavor for the lender.

Where will these people go to get short term cash if these businesses close? The Fed?