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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: maxncompany who wrote (80772)	6/28/2008 9:47:27 AM
From: Crimson Ghost	Respond to of 116555

Iran says Gulf oil route at risk if attacked TEHRAN (Reuters) - The Revolutionary Guards said Iran would impose controls on shipping in the vital Gulf oil route if Iran was attacked and warned regional states of reprisals if they took part, a newspaper reported on Saturday. ..."Naturally every country under attack by an enemy uses all its capacity and opportunities to confront the enemy," Guards commander-in-chief Mohammad Ali Jafari told Jam-e Jam newspaper in some of the toughest language Iran has used so far. Analysts say Iran may not match the firepower of U.S. forces but could still cause havoc in the region using unconventional tactics, such as deploying small craft to attack ships, or using allies in the area to strike at U.S. or Israeli interests. "Regarding the main route for exiting energy, Iran will definitely act to impose control on the Persian Gulf and Strait of Hormuz," Jafari said of the Gulf waterway through which about two-fifths of all globally traded oil passes. CG comment The same people who argued that Iraq would be a cakewalk are now saying an Iran attack would be no big deal. Easy to warmonger when others will do the dying. As the old saying goes "fool me once shame on you fool me twice shame on me"

To: maxncompany who wrote (80772)	6/28/2008 10:24:34 AM
From: elmatador	Respond to of 116555

Tallying the True Size of the Housing Bust Two top measures of home prices vary greatly in their estimates of how far prices have sunk. But whether 4.7% or 17.8%, the drop is putting the squeeze on consumer spending by James Cooper How much have home prices fallen since their peak? Is it 4.7% or 17.8%? Those wildly different results are the April readings from two well-respected measures: the Office of Federal Housing Enterprise Oversight (OFHEO) and the Standard & Poor's (MHP)/Case-Shiller home price indexes, respectively. Of course, both can't be right, and the true pattern could have major implications for consumer spending and saving over the next year or two, depending on how badly the housing bust slams household balance sheets. The surge in home prices helped boost the financial condition of consumers from 2002 to 2007. The big $18trillion runup in household net worth, defined as all assets from stocks to bonds to real estate minus all liabilities, propped up spending and offered an alternative to traditional savings. Now, with real estate dragging down overall wealth and with no help from stock prices, that plus is turning into a minus, and the hit could be much larger than the official data imply. That's because the widely followed measure of household net worth, compiled by the Federal Reserve, may be understating the overall loss. The Fed calculates the amount of wealth households have tied up in their homes based on the home values implied by the slower-declining OFHEO price index. Using the S&P/Case-Shiller index, the recent drop in consumer wealth would be much larger. According to the Fed, overall net worth fell by $1.7trillion in the first quarter, to $56trillion, after declining $530 billion in the fourth quarter. The first-quarter drop mainly reflected slumping stock prices; falling home prices also contributed. Home equity, the net of home values minus mortgages, dropped $335 billion in the fourth quarter and $399 billion in the first quarter. However, using the S&P/Case-Shiller index to estimate home values, each of those losses would be more than three times greater. Over the past year, the drop in home equity would be nearly four times greater than the Fed's data show. The two price indexes are similar in design, but the key difference is their coverage. The OFHEO index includes only homes with prime mortgages that conform to strict Fannie Mae (FNM) and Freddie Mac (FRE) guidelines. The S&P/Case-Shiller index does not have the broader geographic coverage of the government's gauge, but it better represents the universe of U.S. homes: It includes those purchased with subprime, jumbo, and other unconventional loans. As a result, that index rose faster than the OFHEO index during the boom, and it is falling faster amid the bust, since it captures more defaults, foreclosures, and forced sales. Consequently, wealth, as estimated by the S&P/Case-Shiller index, shows the same boom-bust pattern. The amount of erosion in consumer balance sheets will be an important factor in household spending. That's especially true since it comes at a time when consumer confidence is at a 16-year low, with no relief in sight from higher gas prices or rising unemployment, and the lift from the tax rebates will have played out later this year. Economists generally agree that consumer spending varies by about 4 cents to 5 cents for every dollar's increase or decrease in net worth, and that the effect stretches out over two to three years. An analysis by JPMorgan Chase (JPM) economist Michael Feroli suggests that measuring wealth based on the S&P/Case-Shiller index, which showed a greater rise, better explains the strength in consumer spending in recent years. Also, the effect on spending appears to be larger for changes in housing wealth compared with sources outside of housing. That suggests the bigger wealth losses implied by the S&P/Case-Shiller index will create a heavy drag on spending over the next couple of years. One thing seems certain: Mounting wealth losses will alter households' saving and spending patterns of recent years, especially those of baby boomers who are worrying about how the housing bust may have affected the size of their retirement nest eggs. Cooper is BusinessWeek's senior editor and senior economist and writes the influential Business Outlook column.