Seattle Bubble

While each and every analyst on your nightly news tells us
how they are seeing "green shoots" sprouting up all over, when you really dig in,
you see nothing but withered weeds. Let's just start off with three quick headlines
that crossed the wires this morning and you can decide if this sounds like green
shoots, or "something wicked this way comes" and you need to prepare for it.

April foreclosures rise. The number of U.S. homes facing foreclosure jumped 32%
in April, led by Nevada, Florida and California. One in every 374 U.S. housing units
received a foreclosure filing last month, the highest monthly rate since reporting
began in 2005. Repossessions by banks were down on a monthly and annual basis, but
will likely increase again in coming months.

More losses at Freddie. Freddie Mac (FRE) reported a Q1 loss of $9.85B as the costs
of mortgage defaults grew, and said it will need another $6.1B of capital from the
Treasury. The company put $8.8B aside for future credit losses, up from $1.2B in
the year-earlier quarter, and expects 'the coming quarters to be difficult,' though
it sees 'preliminary signs of slowing in home-price declines.' The latest capital
call brings Freddie's total to $51B.

Retail Sales fall far short of the rosy estimates, with the Ex auto number falling
0.5%, while last months reading was reduced even further from - 1.1% to -1.3%.

So, where are the green shoots? Maybe their hiding in the latest budget projections?
Well, a quick peek at them shows us nothing but horror. Just two months ago projections for the deficit were horrid, but at least the street could accept them. In other words, we knew it would be bad, and they were, but it was expected. Then out of the clear blue the President comes out and says basically "oops" sorry, those number don't work any longer. Because of falling tax revenues, combined with higher costs for all these bailouts, we're going to have a fiscal deficit for 09 of some $1.84 trillion, or $89 billion more than forecast in February, while the 2010 figure now is estimated at $1.26 trillion, or $87 billion above the previous number.

These are not small numbers we're playing with here. This deficit is 4 times higher
than anything we've ever seen before and what's worse is that this budget is predicted by using the rosiest outlook on employment and economic growth they could muster.

For instance this budget assumes we're going to be seeing growth of fantasy proportions. It projects that "by the end of this year," the economy will be growing at a 3.5 percent annual rate. Where's that going to come from?

Basically, the budget is based on pure fantasy, make believe numbers that can't possibly come true. So, if the numbers are fantasy, so are these deficit projections. In other words, they're going to get worse. Much worse....

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