1--Japan 'Totally Behind' in Fighting Deflation as Fed Gears Up, Bloomberg
Excerpt: Government reports today reinforced signs of a worsening economy that indicate the Bank of Japan needs to do more, with September consumer prices and industrial production sliding more than forecast. Japan’s inflation-linked bonds signal investors don’t anticipate the nation will end deflation, with prices seen falling an average of about 0.78 percent in the next eight years.
“Japan will likely need ‘helicopter money drops’ to ensure a full escape from the Great Deflation,” Citigroup Inc. Chief Economist Willem Buiter and analysts including Tokyo-based Kiichi Murashima wrote in a note to clients yesterday. Asset purchases of “100 trillion would be more appropriate,” they said. (With no sustained commitment to fiscal stimulus, Japan continues its fight with deflation)
2--Channeling Milton Friedman, David Wessel, Wall Street Journal
Excerpt: Friedman would have scoffed at the notion that the Fed is out of ammunition. He believed in the potency of "quantitative easing," or QE—printing money to buy bonds.
"The Bank of Japan can buy government bonds on the open market…" he wrote in 1998. "Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand…loans and open-market purchases. But whether they do so or not, the money supply will increase…. Higher money supply growth would have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately." (Would Friedman oppose QE?)
3--Foreclosure Freeze Cuts Sales, Supply in Hardest-Hit States, Bloomberg
Excerpt: U.S. home foreclosure sales are slowing in the states hardest-hit by the real estate crash as banks review their practices and delay seizures.
In Arizona, California and Nevada, foreclosure auctions on courthouse steps, known as trustee sales, are down 42 percent since Sept. 20, according to ForeclosureRadar, a real estate tracking service in Discovery Bay, California. In Florida’s Miami-Dade and Broward counties, fewer foreclosures have led to 18 percent declines this month in the number of repossessed homes listed for sale, said Ron Shuffield of Esslinger, Wooten, Maxwell Inc., a realty firm based in Coral Gables, Florida.
In a real estate market where as many as 7 million homes face foreclosure or have already been seized by lenders, according to Zillow Inc., a clog in the pipeline may delay a housing recovery, which won’t occur until home prices stop falling. That could in turn postpone a U.S. economic recovery. Distressed properties accounted for 31 percent of all U.S. home sales last month, RealtyTrac Inc. said Oct. 14.
4--Testimony of Katherine Porter Before the Congressional Oversight Panel Hearing on the TARP Foreclosure Mitigation Program, Mish's global economic trend analysis
Excerpt: Flawed foreclosures
Robo-signing is only one of a number of alleged deficiencies in foreclosure practices. Several courts have determined that there were serious deficiencies in the foreclosure process.
The concern being raised is that during the securitization process that the transfers from originator to sponsor to depositor to trust... were not performed or were not performed correctly. A related issue is whether the physical paperwork or electronic records can be located and are accurate. These records are needed to sort out whether the transfers were completed and valid.
... the note must be negotiated (if a negotiable instrument) or endorsed (if bearer paper) and that the mortgage must be assigned to each party in the securitization process. The latter issue implicates MERS, the Mortgage Electronic Recording System and whether its efforts to declare itself the nominee for the mortgagee and not make public recordation of the assignments are valid. Others believe that the primary issue is whether the note was transferred correctly, on the theory that the “mortgage follows the note” (but it is not clear whether the same rules applies for a deed of trust). But even here, there is disagreement on whether the transfer of the notes needed to have occurred individually, by endorsement (negotiable instrument) or by transfer of possession (bearer paper), or whether the pooling and servicing agreement somehow suffices to effectuate the transfer of the notes to the trust.
The implications of problems with transfer are serious. If the trust does not have the loan, homeowners may have been making payments to the wrong party. If the trust does not have the note or mortgage, it may not have standing to foreclose or legal authority to negotiate a loan modification.... Chain of title problems have the potential to expose the banks to investor lawsuits and to hinder their legal authority to foreclose or even to do loss mitigation. (Foreclosure crisis in a nutshell)
5--ECB bought Irish bonds, traders say, Independent
Excerpt: The European Central Bank bought Irish bonds today, according to three traders and strategists with knowledge of the transactions.
The ECB purchased debt maturing between 2011 and 2020, one of the traders said, under condition of anonymity because the deals are confidential. ...The ECB began the program on May 10 to stabilise markets rocked by the region’s sovereign-debt crisis.
The purchases were part of a European Union-led push to rescue the euro, which fell to a four-year low on June 7 after Greece’s near default raised concern that some nations in the region would struggle to finance their budget deficits. (Trichet operates behind the scenes to prop up EU banking system)
6--The Fed's impending blunder, Ambrose-Evans Pritchard, Telegraph
Excerpt: “Each big inflation – whether the early 1920s in Germany, or the Korean and Vietnam wars in the US – starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. The effect is much like lighter fuel on a camp fire before the match is struck.
People’s willingness to hold money can change suddenly for a “psychological and spontaneous reason” , causing a spike in the velocity of money. It can occur at lightning speed, over a few weeks. The shift invariably catches economists by surprise. They wait too long to drain the excess money.”
“Velocity took an almost right-angle turn upward in the summer of 1922,” said Mr O Parsson. Reichsbank officials were baffled. They could not fathom why the German people had started to behave differently almost two years after the bank had already boosted the money supply. He contends that public patience snapped abruptly once people lost trust and began to “smell a government rat”.
7--Lower housing prices may be here to stay, Las Vegas Review Journal
Excerpt: The collapse in housing prices over the last four years is not simply a blip in the market, but a fundamental resetting of values underlined by high unemployment, slower income growth and a more conservative consumer who'll be more likely to rent than buy, said Alan Mallach, nonresident senior fellow for Brookings' Metropolitan Policy Program.
Household formation is slowing, leaving less demand for home construction, Mallach said during a Brookings' lecture series at the University of Nevada, Las Vegas.
Households increased by an average of 1.12 million a year from 2000 to 2005, but that average dropped to 631,000 a year from 2005 to 2009. Household formation won't be more than 800,000 to 900,000 a year, he said.
"It's going to be single people, senior citizens and immigrants, so there's going to be less demand for high-end homes," Mallach said
8--New Home Sales Stuck at Rock-Bottom, Wall Street Journal
Excerpt: September’s new-home sales climbed 6.6% from a month earlier to a seasonally adjusted annual rate of 307,000 the Commerce Department said Wednesday. When compared to a year earlier, the rate tumbled 21.5%. September saw the fourth-worst monthly reading since 1963, though these statistics are notoriously prone to later revisions.
Regardless, sales “remained stuck at near rock-bottom levels,” said Patrick Newport, an economist with IHS Global Insight.
Builders face continued headwinds including elevated unemployment — a figure some expect to climb into the new year — and depressed housing values. Home prices, already down dramatically from the peak, slipped in August, according to the S&P Case-Shiller home-price indexes covering major metro areas.
Meanwhile, some banks have suspended the foreclosure process in recent weeks, which threatens to keep the glut of foreclosed homes on the market and further delay recovery.
9--Q3 Advance Report: Real Annualized GDP Grew at 2.0%, Calculated Risk
Excerpt: "The change in real private inventories added 1.44 percentage points to the third-quarter change in real GDP after adding 0.82 percentage point to the second-quarter change. Private businesses increased inventories $115.5 billion in the third quarter, following increases of $68.8 billion in the second quarter and $44.1 billion in the first."
Without the boost in inventories, GDP would have been barely positive in Q3.
"Real personal consumption expenditures increased 2.6 percent in the third quarter, compared with an increase of 2.2 percent in the second."
This was a little stronger than expected, and PCE will probably slow over the next couple of quarters.
Investment: Nonresidential structures increased 3.9 percent, equipment and software increased 12.0 percent and real residential fixed investment decreased 29.1 percent.
As expected, residential investment declined sharply after the Q2 tax credit boost.
Overall this was a weak report and will not derail QE2 next Wednesday (further easing from the Fed).