The latest monthly unemployment figures were released today. The latest figures were estimated to be at 5.1%. This was the highest unemployment figure released in the past 5 years. The estimated job losses in the U.S. economy last month were projected at a loss of over 80,000 jobs. 

This was the third consecutive negative monthly unemployment figure. I think that now most people can reasonably say that we are in a "recession" or an economic downturn. As many self employed individuals are not figured in these unemployment numbers, I believe the unemployed (or at least "underemployed") numbers may be closer to above 10% now. 

Will the job market get better or worse over the next few months? We shall see as the economic numbers are released down the road. The 3 consecutive months of negative job growth only makes it more likely that the Federal Reserve may cut rates another 1/2 percent at their scheduled April 29th and 30th meetings in a few weeks.

Investment Banks on Wall Street are now borrowing an average of $38 Billion per day from the Fed's emergency auction facilities. Investment banks may borrow the money ANONYMOUSLY from the Fed so the general public does not know who is so short of cash. 

I am glad that the Fed continues to print the billions of dollars on a daily basis. Without the Fed's emergency auction facilities, we might have seen numerous banks and investment banks go out of business.

The Credit Crisis continues to cause havoc to our world's economy!

Auto sales have plunged in recent times as the delinquency rates on many of our outstanding auto loans have increased substantially in recent times. The Auto industry represents close to a 1/2 Trillion Dollar segment of the overall U.S. economy. If sales continue to drop significantly, then they may be a substantial hit to both U.S. automakers and the U.S. Gross Domestic Product (GDP).

The combination of higher gas prices and more difficulty obtaining auto loans these days may have a severe impact on our economy for some time to come. As I have written before, many auto loans are securitized and sold off into the secondary markets like home mortgages. As the demand for these "income streams" of investments has dropped tremendously since last summer, the financing costs and borrowing guidelines have changed dramatically the past several months.

The Swiss banking giant, UBS AG, just announced additional losses of $19 Billion (US Dollars) for the 1st quarter of 2008 alone. Over the past nine months, UBS had written down (or taken as a loss) over $40 Billion. UBS is placing most of the blame on their exposure to Subprime losses in residential real estate in the U.S.

Deutsche Bank (Germany's largest bank) also announced additional losses in the amount of over $4 Billion (1st quarter of 2008). Deutsche Bank's representatives are quoted as saying that the financinal markets have become "significantly more challenging" primarily due to the Subprime market losses in America.

As you see, the Credit Crisis is affecting the whole world. Whether the banks or investment banks are based in Asia, Europe, North America, South America, or Australia, the ongoing Credit Crisis is having a direct impact on the entire planet.

Treasury Secretary Henry Paulson announced a new financial regulation plan with changes not seen since The Great Depression. Some of these changes include the following (summarized by the Associated Press):

1.) Expand the role of the President's Working Group on Financial Markets to include the entire financial sector rather than just financial markets.
2.) Create a federal commission, the Mortgage Origination Commission, to develop uniform, minimum licensing standards for mortgage professionals.
3.) Close the Office of Thrift Supervision (the people who governed the S & L meltdown and subsequent RTC sales), and move those functions to the Office of the Comptroller of the Currency (which regulates banks).
4.) Merge the functions of the Commodity Futures Trading Commission into the Securities and Exchange Commission (SEC). This may create one agency to provide unified oversight of the future and securities industries. I hope someone there understands how the derivatives markets works as well as how Credit Default Swaps (CDS) either protect or harm the world's financial markets.
5.) Establish an Office of National Insurance within the Treasury Department to regulate those not in the insurance industry who want to work within an optional federal charter. Is this a way to finally regulate Hedge Funds and Private Equity Funds?
6.) Work to establish as a long-term goal three major regulators: the Federal Reserve as a "market stability regulator" (i.e. keep printing money, and lowering rates), a "prudential financial regulator" to take over the functions of five separate banking regulators, and a "business conduct regulator" to regulate business conduct and consumer protection. 
***Now, we are giving more power to the Federal Reserve (a quasi private/public consortium of people). Will this be good or bad for the markets? We shall see if any of these new rules changes have any impact on our ongoing Credit Crisis.

"The Government of Last Resort (i.e. The Federal Reserve) is working with the Lender of Last Resort (i.e most U.S. banks and investment banks) to shore up the housing and credit markets to avoid Great Depression II", economist Ed Yardeni wrote to clients.

What does this mean to the Average Joe and Jane on the street? It means that the vast majority of our financial institutions are INSOLVENT. According to data recently released by the Federal Reserve themselves last month, the estimated cash reserves of all U.S. banks (non - borrowed cash) is estimated to be near NEGATIVE $60 BILLION.

Without the newly created auction facilities formed by the Fed, the vast majority of the U.S. Banks would have NO CASH to maintain their day to day operations. Banks and Wall Street firms are borrowing an average of $30 to $32 Billion PER DAY from the Federal Reserve direct. These banks and investment banks (i.e. Bear Stearns, JP Morgan, Lehman Bros., Goldman Sachs, Merrill Lynch, etc.) are running to the Fed for emergency capital in the form of "cheap loans" (or bailouts).

What are the banks doing with these hundreds of billions of dollars of new cash? They are hoarding it for themselves in many cases. They are not increasing their lending to the American consumer in the form of home mortgages, credit card loans, auto loans, business loans, or student loans. The banks need the cash to survive, and they can't risk lending the money out to others.

The Wall Street Journal (March 27, 2008) had a great article entitled, "Ten Days That Changed Capitalism" about the state of the American financial system, the Bear Stears bailout, and how close we may have come to a complete financial meltdown. Hopefully, this mess may be sorted out in the near term. There may be tremendous investment opportunities to those individuals who have money set aside to buy the banks's discounted assets.

Goldman Sachs, one of the premiere Wall Street investment banks, is estimating that U.S. financial institutions may take up to $460 Billion in Subprime Mortgage related losses. They are also projecting that U.S. financial institutions may take up to $1.2 TRILLION in total credit losses when factoring in credit cards, automobile loans, and other receivable losses in addition to mortgage losses.

To date, U.S. financial institutions have admitted to losses of $120 Billion. It looks like we have a long way to go through the Credit Crisis' impact on total losses around the world.

Las Vegas and Miami, according to the Case-Schiller Housing Index, both dropped 19.3 in average value over the past year. Phoenix followed those two cities with an 18.2% price drop. San Diego fell 16.7%, and Los Angeles dropped an estimated 16.5%. Detroit followed with a 15.1% drop, Tampa fell 15%, San Francisco fell 13.2%, Washington D.C. fell 10.9%, and Minneapolis dropped 10%.

I hope we are near a housing bottom otherwise we may be in for a severe price correction for many years to come. If you are an investor looking for bargains, then you may have plenty of choices in the near future.

Sadly, individual builders, small to mid-sized development companies, and even large national home builders are beginning to default on their existing construction loans in record numbers. 

There will be some incredible buying opportunities for investors looking to purchase these newly constructed homes. We will provide updated builder lists by regions in our book as well as on this website at a later date.

According to data provided by the Federal Reserve for the 4th Quarter of 2007, the states with the highest construction loan delinquency rates are as follows:

1.) Michigan - 14%, 2.) Ohio - 13.7%, 3.) Arkansas - 11.1%, 4.) Arizona - 10.3%, 5.) Minnesota - 10%, 6.) Florida - 9.9%, 7.) Georgia - 9.6%, and 8.) South Dakota - 9.2%.

The newly formed "Primary Dealer Auction Facility" (created on March 17th) allows investment banks to exchange investment grade corporate securities, municipal securities, and Mortgage Backed Securities (MBS) for much needed cheap cash from the Federal Reserve. 

The is the first time since the Great Depression that the Federal Reserve has made loans to "non-banks". The Fed is getting more and more creative with their newly formed auction facilities to try to "unfreeze" the capital markets. Will they succeed, and kick start the U.S. economy and stabilize the U.S. housing market?