Late-Year Recovery Hopes Devastated

Stocks plummet after retail, unemployment data

NEW YORK (AP) -- Dejected investors sent stocks plunging Thursday, hurtling the Dow Jones industrials down more than 340 points after retailers and the government added to a mountain of bad economic news and devastated hopes for a late-year recovery.

Captain Obvious says, "Goodbye bull market's wall of worry, hello bear market's slope of hope?"

Furthermore, if the job market keeps deteriorating, it is tough for Wall Street to see a rebound in sight for the economy's biggest culprit: the tumbling housing market.

Captain Obvious says, "Deteriorating job markets aren't generally known for their ability to generate prosperity, even in an illusionary sense. The same could be said of deteriorating housing markets."

"You have to have a paycheck to pay that mortgage," said Craig Peckham, market strategist at Jefferies & Co.

Captain Obvious says, "While currently true, there was a time when paychecks were not needed to pay that mortgage. All that was needed was a pulse and a banker willing to offer a stated income loan (see below)."

"We're seeing nothing but sellers," said Ted Oberhaus, director of equity trading at Lord, Abbett & Co. "In a bear market, you sort of really don't need an excuse to sell."

Captain Obvious says, "You 'sort of really' do need a good excuse when telling your bank why you aren't paying the mortgage though. Without a really good excuse, you 'sort of really' need to sell something in order to pay it. Stocks can be sold. Houses can be sold. Based on recent late night TV commercials, so can unwanted gold jewelry (and dental gold). Go figure."

Stated income loan

However, a real estate investor may have multiple properties and for each may receive only a small amount more than their loan payments on each house, but end up with 200,000.00 in disposable income. Nevertheless, a non-stated income loan would decline this person since their debt to income ratio would not be in line. The same issue can arise with self-employed borrowers, where the bank with a fully documented loan would include the borrower's business debt in their debt to income calculation. Stated income loans also help borrowers where fully documented loans normally would not consider the source of income as being reliable and stable, such as investors who consistently earn capital gains.

Captain Obvious says, "Since 2006, the consistency of the stock markets and housing markets to earn capital gains for investors seems more than a bit suspect."

U.S. House Price Decline Could Be Worse than Great Depression, Economist Shiller Says

The current hopeful consensus -- that house prices will bottom soon and then begin to recover -- is most likely a dream. Housing markets don't usually have "V-shaped" recoveries. And even if house prices stabilize in nominal terms, after adjusting for inflation, most homeowners will continue to lose money.

Captain Obvious says, "It may be best to remain on the sidelines during periods of hopeful consensuses. Using the power of hindsight, Captain Obvious should have sold his house a few years ago to become a renter. He's also seriously questioning his stagflationary outlook, not that he's going to alter his inflation protected investments and begin to bury fiat paper dollars in his backyard. That is not what concerns him most. It is that he's talking about himself in third person. He's clearly fallen off the deep end, much like our overall economy."