The Federal Reserve Bank of Richmond’s seasonally adjusted manufacturing index slid to -6 from November’s reading of 7, as factory shipments, new orders and employment all declined.

“To All HMIC Business Partners,

It is with deep regret that we announce Harbourton Mortgage Investment Corporation will cease operations effective the close of business today, December 20th, 2006.

We are extremely proud to have had the opportunity to serve our Brokers, Investors and Business Partners and wish everyone much success in the future.”

For the quarter ended September 30, 2006, HMIC recorded a provision for losses of $954,000 in response to a significant increase in the loans sold to investors that experienced an early payment default, under which HMIC may have liability to the investor. HMIC recorded a loss for the quarter ended September 30 of $1.19 million excluding the provision for losses and approximately $260,000 of one time expenses directly related to the MAW acquisition.

Harbourton Mortgage, a national Alt-B, Alt-A and subprime wholesale mortgage lender, originated $785 million in loans during the past year (a/o mid-2006).

I’m starting to wonder if there isn’t much more mortgage fraud out there than is generally realized. I saw a number that 35% of early defaults were fraud related, but that was from older data. The 2006 crop of subprime mortgages is performing much worse than any previous crop, and I’m starting to suspect that much of the difference is cash-back fraud. In this business model, the crook arranges to buy a house at a high price in return for an off-the-record agreement for the seller to return cash after the closing, nominally for “renovations” or something similar. A cooperative or ignorant appraiser provides the right numbers and 100% financing provides the cash. Using no-doc “liar’s loans” and a bit of identity theft makes it easy for the borrower to disappear without making even the first payment. Of course it is usually a lot harder for the seller to disappear and he or she is complicit in the fraud.

KUWAIT: “It was an incredible revelation last week that the second largest oil field in the world is exhausted and past its peak output. Yet that is what the Kuwait Oil Company revealed about its Burgan field. The peak output of the Burgan oil field will now be around 1.7 million barrels per day, and not the two million barrels per day forecast for the rest of the field’s 30 to 40 years of life, Chairman Farouk Al-Zanki told Bloomberg. He said that engineers had tried to maintain 1.9 million barrels per day but that 1.7 million is the optimum rate. Kuwait will now spend some $3 million a year for the next year to boost output and exports from other fields.”

In perspective, world oil output runs about 81 million bpd, so Burgan is about 2.1%. Not trivial.

It is the time of year when those with a guru bent go public with their predictions for 2007. Perhaps more than in previous years, I am struck by the diversity of those predictions. While, as one might expect, most go with the averages - modest changes in everything, slight slowing of the economy, soft landing, modest rise in the markets - Goldilocks in other words - others go from hyperbullish to hyperbearish. And these people are not idiots or necessarily self-serving, the diversity simply reflects the fact that economics is not a science and provides little or no predictive value. This doesn’t mean that good forecasts aren’t out there, just means that those forecasts depend on the judgment and intuition of the forecaster (or just luck) rather than any “scientific” formula or theory.

The Fed is believed to be building a mega-model of the economy in order to improve their predictions. Perhaps they should ask Gosplan how well that works.

It is an exceptionally difficult time to forecast because of the bubbles. Property prices have risen to unprecedented heights in relation to incomes, the stock market is still highly overvalued in terms of peak earnings and Q-ratio, consumers are spending more than they earn, the country is bleeding money and real blood in endless and apparently pointless military conflict, overseas competition is gutting the domestic manufacturing base, energy and commodity prices are high and look to be going higher… sure doesn’t sound like Goldilocks to me. But then I am not an economist. What seems clear to me is that this is not a stable equilibrium. If anything happens to disturb it - and it will - then we could see chaos. But what will happen and when is not predictable, in my opinion.

Clearly the property market is the latest and greatest bubble. A rapid deterioration in the subprime mortgage asset quality is a leading candidate for a financial disruption. The cost of credit protection on subprime mortgage CDOs (ABX-BBB) closed at new highs last week. But perhaps that’s too obvious.

My prediction is that things will kind of bumble along until something happens to change the crowd psychology. Then the rush for the exits will be scary indeed. When? Who knows. Might not be next year. Might be next month.

A timely reminder from Marc Faber, who recalls a saying of Mahatma Mohandas K. Gandhi: “The things that will destroy us are: politics without principle; pleasure without conscience; wealth without work; knowledge without character; business without morality; science without humanity; and worship without sacrifice.”