Bill Bonner

Stocks went up yesterday. They’ve gone up so far, for so long we almost wish we had bought some.

But wait… Look at the stock market in terms of gold. Stocks have lost more than 75% of their value over the last 10 years – and they’re still going down.

Yesterday, gold went up again. So did oil. The sell-off we’ve been expecting is still in the future. But a sell-off is coming. Because this economy is still in a Great Correction; much remains to be corrected.

Nothing we read about the economy is consistent with the feds’ description of it.

The way they tell it, the economy is now recovering from a recession – thanks to their decisive action. But the facts don’t support the recovery fantasy.

Homeowners, for example, are still getting killed. More than 28% of them are now underwater. Bloomberg is on the story:

More than 28 percent of US homeowners owed more than their properties were worth in the first quarter as values fell the most since 2008, Zillow Inc. said today.

Homeowners with negative equity increased from 22 percent a year earlier as home prices slumped 8.2 percent over the past 12 months, the Seattle-based company said. About 27 percent of homes with mortgages were “underwater” in the fourth quarter, according to Zillow, which runs a website with property-value estimates and real-estate listings.

Home prices fell 3 percent in the first quarter and will drop as much as 9 percent this year as foreclosures spread and unemployment remains high, Zillow Chief Economist Stan Humphries said. Prices won’t find a floor until 2012, he said.

The number of homes with negative equity rose to 16.2 million in the first quarter from 13.1 million a year earlier, Zillow said.

In Las Vegas, 85 percent of homes with mortgages were underwater, the most of any city tracked by Zillow. Other metropolitan areas in the top five were Reno, Nevada, at 73 percent; Phoenix at 68 percent; and Modesto, California, and Tampa, Florida, both at 60 percent. Zillow has tracked negative equity since the first quarter of 2009, when more than 22 percent of homes were underwater.

But getting a clear picture of the economy is hard.

Here’s another Bloomberg report that tells us something interesting. A good part of current consumer spending is not coming from an economic recovery; it’s a by-product of the fall in housing prices:

May 6 (Bloomberg) – Melissa White and her husband stopped paying their mortgage in May 2008 after it reset to $3,200 a month, more than double the original rate. That gave them extra cash to pay off debts and spend on staples until their Las Vegas home sold two years later for less than they owed.

“We didn’t pay it for about 24 months,” said White, who quit her job as a beautician during that period after becoming pregnant with her first child and experiencing medical complications. “What we had, we could put towards food and the truck payments and insurance and health things I was dealing with.”

Millions of Americans have more money to spend since they fell delinquent on their mortgages amid the worst housing collapse since the Great Depression. They are staying in their homes for free about a year and a half on average, buying time to restructure their finances and providing an unexpected support for consumer spending, which makes up about 70 percent of the economy.

So-called “squatter’s rent,” or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

Recent Articles

5 Min. Forecast
Bold Predictions from the Bubble Crowd

Dave Gonigam

Even if tech giants like Facebook and Apple have a down day now and then, that doesn't mean they aren't still sound companies with upside potential. Of course, some people aren't convinced... which is why the word "bubble" has now reentered the conversation. Dave Gonigam has the full story...


The Price Floor That’s Key to Gold Mining Profits

Matt Insley

Gold has had a rough go of it since the 2008 financial crisis. But according to Matt Insley, there is now a very clear price floor for the yellow metal. And what's more interesting, he comes to this conclusion by way of a glass of chocolate milk and Janet Yellen's actions from here throne at the Eccles Building. Read on...


Why You Should Tune-Out the Talk of a Tech Bubble

Paul Mampilly

The recent spate of new tech-based IPOs has a few prominent investors (Ahem... David Einhorn) touting the return of the '90s tech bubble. But there are some very good reasons why this market is nothing like the '90s, and why investors should be wary of any advice to the contrary. Paul Mampilly explains...


The Scariest Thing You Don’t Know About Generic Drugs

David Eifrig

Generic drugs are supposed to lower healthcare costs and provide you with another medical alternative. That's what it says on paper. But there's a real danger that goes along with these drugs. A danger even your doctor might not be aware of... Dr. David Eifrig has the full story. Read on...


An Unlikely Source of Dirt-Cheap Energy

Greg Guenthner

The solar panel turns 60 on Friday, but this birthday celebration will be unlike any other the industry has seen so far. In the past, solar energy's high price tag meant its wide-spread usage was nothing more than a pipe dream. But now, after six decades, solar power may finally be cheaper than oil and Asian liquefied-natural-gas. Greg Guenthner has more...