KeNo's Housing and Economic Portal: Wednesday June 9 Housing and Economic stories

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Sell Everything Liquid, You Won't Recogonize America By The End Of The Year - (www.businessinsider.com) WHOA! Richard Russell, the famous writer of the Dow Theory Letters, has a chilling line in today's note: Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know -- who told him?" Tell them the stock market told him. That's pretty intense! Update: By popular demand, here's more on what he sees in the market. The gist is that the markets recent gyrations are telling him that the economy is in trouble: And I ask myself, "Am I seeing things? The April 26 high for the Dow was 11205.03. The Dow is selling as write at 10557 down 648 points from its April high. If business is even better than expected, then why is the Dow down over 600 points? And why, if there were 674 new highs on the NYSE on April 26, were there only 20 new highs on Friday, May 14? And if my PTI was 6133 on April 26, why is it down 17 points since its April high? The fact is that I've been seeing deterioration in the stock market ever since early-April, and this in the face of improving business news. The D-J Industrial Average is composed of 30 internationally known top-quality blue-chip stocks. These are 30 of "America's biggest companies." If Barron's is so bullish on the future of America's biggest companies, then why isn't the Dow advancing to new highs?

Are we going to get rid of the mortgage interest deduction? - (curiouscapitalist.blogs.time.com) Last week Shaun Donovan, who runs the Department of Housing and Urban Development, said that it might make sense to modify the mortgage interest tax deduction. Sacrilege! Giving people a tax break for buying a house is one of the great middle class subsidies. Donovan knew he was on shaky ground when he said it, and did plenty to hedge. According to the WSJ: He also made clear that the Obama administration isn't actively considering, much less endorsing, such a step, which could affect millions of homeowners... Pressed for more details, Donovan again made clear that this wasn't an active conversation inside the administration. “We're not actively looking at this. It's not something that we have a policy group on or anything at this point,” he said. “I don't want to get into the details of discussions that aren't happening.” Too bad. Because we shouldn't only look at getting rid of the mortgage interest deduction—we should actually do it. Each year, about 40 million tax payers claim the mortgage interest deduction. Congress's Joint Committee on Taxation estimates that between 2009 and 2013, the federal government will miss out on about $600 billion in revenue as a result. In 2009, the tax break cost the government $80 billion—which could have paid for more than 2% of all federal spending.

Banks Embrace Extend and Pretend as U.S. Hotels Await Rebound - (www.businessweek.com) A year ago, Sam Nazarian was concerned bankers wouldn’t rework the mortgage on his SLS Hotel at Beverly Hills after the recession cut occupancy and the luxury property lost money. “There was a point in time when getting a lender on the phone to talk restructuring was very challenging,” said the Los Angeles nightclub owner and hotelier, who has played himself on the HBO series “Entourage” and has a house next to actor Leonardo DiCaprio’s in the Hollywood Hills. The talks heated up in November as the loan’s maturity loomed, and within three months Nazarian had a three-year extension on $137 million of debt. He’s among a growing number of hotel investors, including Blackstone Group LP and Ashford Hospitality Trust Inc., to find that lenders are increasingly willing to redo loans often backed by struggling properties rather than risk taking an immediate loss.

‘Major Crash’ Likely If Stocks Break May 7 Lows, Russell Says - (www.bloomberg.com) Investors should sell U.S. stocks because the market is at risk of a “major crash,” Richard Russell, editor of the Dow Theory Letters newsletter, said in a note to subscribers today. The decline would follow should the Dow Jones Industrial Average and Dow Jones Transportation Average fall below their May 7 levels, he said. They have risen 1.3 percent and 2.8 percent versus their closing levels that day. “If I read the stock market correctly, it’s telling me that there is a surprise ahead,” Russell wrote. “And that surprise will be a reversal to the downside for the economy, plus a collection of other troubles ahead.” The market started showing signs of deterioration in early April, including a shrinking number of stocks reaching 52-week highs and falling stocks outnumbering rising ones, he said. Russell, 85, has published Dow Theory Letters every three weeks since 1958 and posts daily market commentaries on his website. Dow Theory, which stems from observations made by Wall Street Journal founder Charles Dow during the late 1800s, holds that moves by the transportation average must be “confirmed” by the industrial measure, and vice versa, to be sustained. The Dow Jones Industrial Average fell 6.9 percent during the four days that ended May 7, sinking to 10,380.43, the lowest level since Feb. 26. The transportation gauge closed at 4,298.12, down 11 percent in four days. Downgrades of Greece, Spain and Portugal helped trigger the decline as the prospect of a sovereign default in Europe undermined investor confidence.

Another 'Freefall' to Push Dow Below 5000: Strategist - (www.cnbc.com) The CBOE volatility index, widely considered the best gauge of fear in the market, is trading above 25 Thursday. Is this volatility good for the market? James Hardesty, president, market strategist and chief economist at Hardesty Capital Management and David Hefty, CEO of Cornerstone Wealth Management shared their insights. “It undermines investor confidence and confidence is important in pushing this market higher,” Hardesty told CNBC. Hardesty sees “much strength” in the economy and said the market has room to reach 11,500 to 12,000 by year-end. In the meantime, Hefty warned investors that although the markets are going to rise in the near-term, a sudden “freefall” is expected. “Our number one focus on this volatility is not about how high the markets are going to go, but when the market is going to make that turn because when it does, we believe that it’s going to go into a complete freefall like we saw in oil back in 2008 that could push the Dow as low as 5,000 or lower by the end of the year,” he said. Hefty said a “handful of very serious catalysts” are going to push the markets down such as a “disappointing” second quarter GDP and rising foreclosure rates.

Silicon Valley's swagger seems a long way away - (seattletimes.nwsource.com) I have to admit I felt a little nostalgic watching the recent NBC11-TV's weeklong series on the state and the prospects of Silicon Valley. There, right off the bat, was 1999 footage of champagne corks popping at a dot-com IPO. Dot-coms. IPOs. Remember them? Sure, those days were the best of times leading straight to the worst of times, but they were fun. The valley had swagger then. I like swagger. I miss the days when the valley was Newsweek's cover story every other month or so. (In fact, I miss Newsweek, which is another story.) The IPO days were not very grown-up days. They were days of giddy selfishness. Times of arrogance before the collapse. But all eyes were on Silicon Valley. This was the Hollywood of technology; the place people came to make it big. And many did. But the swagger has been gone for a while now, as the valley finds itself struggling with recession, foreclosure and terrifying unemployment, just like every other part of the country. "Our area has problems," Russell Hancock, CEO of Joint Venture: Silicon Valley Network, tells NBC11 reporter Scott Budman at one point. "We're not solving our basic problems." Budman's five-part report, "Boom, Bust and Beyond," touched on where some of the swagger went, focusing on the condition of commercial real estate, venture capital, startups and immigration.

European Businesses Hit in Credit Squeeze From Greek Crisis - (www.nytimes.com) When Tadeusz Nowicki visited his local bank in early May looking for credit to expand production at his profitable and fast-growing plastics processing company in Warsaw, Ergis-Eurofilms, he got a lecture instead. “The banks are putting out the message that the high leverage times are over,” Mr. Nowicki said. Never mind that Poland has one of the fastest-growing economies in the European Union, or that Ergis-Eurofilms increased profit last year by 70 percent, to 17 million zloty, or $5.2 million, in the midst of a global recession. The Greek debt crisis and its ripple effects across Europe are crimping credit, especially for midsize and smaller companies and especially those in countries perceived as riskier — starting with Greece but also including Portugal, Spain and others on the periphery.