Saturday, October 23, 2010

Today's Best Reads

1--Bob Janjuah Is Back, And Asks "Has Anything Changed?", zero hedge

Excerpt: ..."We are broadly positive, on a three-month basis, that the market will continue to run with the trends since early September. Namely, pro-risk, pro-policy and pro-policymaker, with a firm belief that the Fed can and will create broad-based inflation and maybe also some growth. On a six-month basis our major concern is that market sentiment will abruptly and completely flip. Why? Because by then we think it should become clear that current policy settings are not working (in terms of driving sustainable real economy growth and sustained real estate appreciation), that „more of the same policy? will be seen as non-credible, and because we will likely be pretty much out of any other policy options. Over the next three months we think the risk reward will become increasingly supportive of an asset allocation and trading strategy that looks to pre-position for this turnaround in market sentiment."

2--Introducing Kevin Gaynor (Bob Janjuah's partner)"Bigger fall" ahead, zero hedge

Excerpt: We see the fact the Fed is acting early as good news in the general scheme of things, i.e. we welcome more policy rather than less. Or to put it another way, asset reflation is much more acceptable than asset price deflation....

So, the world looks to be a better place for now. But it seems to us that rather than solving the underlying final demand issues in the leveraged western economies, this approach just moves the dénouement down the road. And there are, to use the polite economics word, externalities to the Fed’s action which at the very least increase the political tensions around a genuine attempt to rebalance. We think on balance that this sets us up for a bigger fall than otherwise six months out.

3--US mortgage crisis: The case for public ownership, World Socialist Web Site

Excerpt:In the face of mounting evidence of systematic fraud by leading US banks in the foreclosure and eviction of millions of families from their homes, the Obama administration continues to oppose a moratorium on foreclosures. It is instead running political interference for the Wall Street firms implicated in the scandal....

The position of the Obama administration flies in the face of elementary legal principles and the due process rights of homeowners. It is likely that millions of documents are missing, forged, or of otherwise dubious validity. In an unknown number of foreclosure cases the financial entity with a legal claim to the home is simply not known. As a result, banks are foreclosing on properties to which they have no legal title.

The Obama administration all but openly asserts that the “recovery” in housing depends on driving homeowners who cannot afford their mortgage payments out of their houses...The legal and due process issues raised by the mortgage foreclosure scandal, and, more importantly, the underlying social issue—the right to housing—cannot be resolved without overturning the entire framework of private ownership and the subordination of housing to the profit drive of banks and corporations.

4--Foreclose on the foreclosure fraudsters, Randall Wray and William Black, Huffington Post

Excerpt: The fraudulent CEOs looted with impunity, were left in power, and were granted their fondest wish when Congress, at the behest of the Chamber of Commerce, Chairman Bernanke, and the bankers' trade associations, successfully extorted the professional Financial Accounting Standards Board (FASB) to turn the accounting rules into a farce. The FASB's new rules allowed the banks (and the Fed, which has taken over a trillion dollars in toxic mortgages as wholly inadequate collateral) to refuse to recognize hundreds of billions of dollars of losses. This accounting scam produces enormous fictional "income" and "capital" at the banks. The fictional income produces real bonuses to the CEOs that make them even wealthier. The fictional bank capital allows the regulators to evade their statutory duties under the Prompt Corrective Action (PCA) law to close the insolvent and failing banks.

The inflated asset values allow the Fed and the administration to ignore the Fed's massive loss exposure and allow Treasury to spread propaganda claiming that TARP resolved all the problems -- at virtually no cost. Donovan claims that we have held the elite frauds accountable -- but we have done the opposite. We have made the CEOs of the largest financial firms -- typically already among the 500 wealthiest Americans -- even wealthier. We have rewarded fraud, incompetence, and venality by our most powerful elites.

Ambac's investigation found that 97% of the Countrywide loans reviewed by Ambac were had false reps and warranties. Countrywide also engaged in widespread foreclosure fraud.....The financial media treats Bank of America as if it were a legitimate bank rather than a "vector" spreading the mortgage fraud epidemic throughout much of the Western world.

5--How American Income Inequality Hit Levels Not Seen Since The Depression, Huffington Post

Excerpt: America has one of the largest wealth gaps among advanced economies. Based on an inequality measure known as the Gini coefficient, the United States ranks on a par with developing countries such as Ivory Coast, Jamaica and Malaysia, according to the CIA World Factbook.

His research with co-author Thomas Piketty shows the top 1 percentile of households took home 23.5 percent of income in 2007, the largest share since 1928, but that slipped back to 20.9 percent in 2008. (Unlike Census, Saez relies on IRS tax data, which is released with a two-year lag, so he does not yet have figures for 2009.)

"There may be demand for private jets and yachts, but you need a healthy middle-income group (to drive consumption of basic goods)," he said. "In the golden age of capitalism, in the 1950s and 60s, everyone shared in income growth."

6--Report: 1.2 Million Workers could lose Unemployment Benefits next month, Calculated Risk

Excerpt: A new analysis released by the National Employment Law Project today reveals that 1.2 million workers will be cut off of federal jobless benefits by year’s end if Congress fails to renew the federal emergency extensions that expire on November 30th.
...
Of the 1.2 million workers at risk of losing federal benefits, 387,000 are workers who were recently laid-off and are now receiving the six months (26 weeks) of regular state benefits. After exhausting state benefits, these workers would be left to fend for themselves in a job market with just one job opening for every five unemployed workers and an unemployment rate that has exceeded nine percent for 17 months in a row—with no federal unemployment assistance whatsoever.

7--Clear Capital™ Reports Sudden and Dramatic Drop in U.S. Home Prices, Calculated risk

“Clear Capital’s latest data through October 22 shows even more pronounced price declines than our most recent HDI market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician, Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration.”

This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months and are now at the same level as in mid April 2010, two weeks prior to the expiration of the recent federal homebuyer tax credit. This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture that will likely show up in other home data indices in the coming months.

... if previous correlations between the Clear Capital and S&P/Case-Shiller indices continue as expected, the next two months will show a similar downward trend in S&P/Case Shiller numbers.

8--How To Think About QE2, Paul Krugman, New York Times

Excerpt: So, here it is: in effect, QE2 amounts to a decision by the US government to shorten the maturity of its outstanding debt, paying off long-term bonds while borrowing short-term. This should drive down long-term interest rates. But how much?

...What happens when the Fed buys long-term government securities? If we consider the Fed and Treasury as a consolidated entity — which, for fiscal purposes, they are — then what happens is that some long-term federal debt is taken off the market, and paid for by issuing more short-term debt in the form of monetary base. It’s just as if Treasury sold 3-month T-bills and used the proceeds to buy back 10-year bonds.

So the question to ask is, how much do we think federal management of its maturity structure matters for the real economy? I think if you put it that way, most people wouldn’t be terribly optimistic.

9--70% of all stock market trades are held for an average of 11 seconds, Washington's blog

Excerpt: As the New York Times dealbook noted in May:

These are short-term bets. Very short. The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said

The fact that the vast majority of stock market trades are held for 11 seconds shows that the stock market is not a real market with real traders governed by the law of supply and demand, and that there is no real price discovery.

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