Tuesday, April 26, 2011

Today's links

1--Bill Gross Battles Dealers on Outlook as Treasuries Gain, Bussinessweek

Excerpt: Yields on 10-year notes ended last week at 3.39 percent, down from this year’s high of 3.77 percent on Feb. 9, even as Standard & Poor’s cut its outlook for the U.S.’s top AAA credit rating to “negative” from “stable.” S&P said the move indicates a one-in-three chance of a downgrade.

‘Significant Demand’

“What’s telling is the significant volume of buying when 10-year yields were above 3.50 percent and 30-year bond yields were around 4.65 percent,” said William O’Donnell, head U.S. government bond strategist at RBS Securities Inc. in Stamford, Connecticut, a primary dealer. “There’s still significant demand for long-end Treasury paper at those levels and I don’t think Bill Gross is going to make that demand disappear.”

Demand at Treasury auctions has risen to record levels this year, with investors submitting $3 in orders for every $1 of debt offered, data compiled by Bloomberg show....

‘Easier’ Policy

“Increased downgrade risk doesn’t necessarily imply increased Treasury yields,” Goldman Sachs economists led by Jan Hatzius in New York wrote in an April 19 report. “A significant push toward fiscal austerity would lead to lower growth and lower growth would lead to easier monetary policy for longer.”

2--ECB-forced 'run on our banks' led to bailout, Telegraph

Excerpt: Professor O'Callaghan said: "A systemic run on Irish banks was the cause of the November crisis and that it probably resulted from public musings by ECB members on the need to curtail liquidity support to banks."....

....on Thursday, November 18, Mr Honohan appeared on RTE Radio One's Morning Ireland programme to state frankly that there would be an aid package amounting to tens of billions of euro.

This intervention came, he said, when he learned the night before that an editorial was to appear in the Financial Times newspaper "saying effectively that people should be planning on bank runs".

He was concerned about the possible effect it would have on financial stability and said he needed to provide reassurance. Asked if he had consulted the Government on the radio appearance, he said: "No, I operate an independent role here."

By that point, dozens of officials from the EC-IMF-ECB were in Dublin and the formal application for assistance was made three days later on Sunday, November 21.

Mr Lenihan also gave a graphic description of his feelings when the bailout talks were concluded. "I've a very vivid memory of going to Brussels on the final Monday to sign the agreement and being on my own at the airport and looking at the snow gradually thawing and thinking to myself, this is terrible. No Irish minister has ever had to do this before."

3--China must watch for rising U.S. Treasury yields, Reuters

Excerpt: The S&P cautionary note had little impact on Treasury purchases by foreign central banks, which continued to grow in the week ended April 20. The Fed said its holdings of U.S. securities kept for overseas central banks rose $14.09 billion during the week to stand at $3.423 trillion.

Due in part to its size, the U.S. Treasury market is deemed to be among the safest in the world as it allows investors to buy and sell without prices swinging too much.

But the gigantic-and-growing market is also a sign of poor U.S. fiscal health. U.S. government debt is expected to hit its $14.3 trillion ceiling as early as May.

China owned $1.154 trillion in U.S. government debt in February, U.S. data showed.

4--Builders of New Homes Seeing No Sign of Recovery, New York Times via Patrick.net

Excerpt: Sales of new single-family homes in February were down more than 80 percent from the 2005 peak, far exceeding the 28 percent drop in existing home sales. New single-family sales are now lower than at any point since the data was first collected in 1963, when the nation had 120 million fewer residents.

Builders and analysts say a long-term shift in behavior seems to be under way. Instead of wanting the biggest and the newest, even if it requires a long commute, buyers now demand something smaller, cheaper and, thanks to $4-a-gallon gas, as close to their jobs as possible. That often means buying a home out of foreclosure from a bank.

Four out of 10 sales of existing homes are foreclosures or otherwise distressed properties. Builders like Mr. Meier who specialize in putting up entire neighborhoods on a city’s outskirts — Richmond is some 50 miles northwest of downtown Chicago — cannot compete despite chopping prices....

Construction of new single-family homes usually surges after a recession because of lower rates and pent-up demand. But the Census Bureau said this week that while multi-unit construction had picked up strongly in the last year, single-family home construction fell 21 percent to an annual rate of 422,000. One consequence of the anemic pace: more than 1.4 million residential construction jobs have been lost in the last five years.

5--Home buyers try to beat "jumbo" loans squeeze, Reuters

Excerpt: Beginning on October 1, the government will dial back on the size of mortgages it guarantees in high-cost areas like San Francisco, New York and Washington.

After that, the maximum loan amount that Fannie Mae and Freddie Mac will back is scheduled to drop from $729,750 to $625,500. And that may make mortgages more expensive or harder to get for buyers like the Schreibers, who are shopping in the $700,000 range and would prefer to make a downpayment of 10 percent or less....

"For people planning on exiting the market altogether (such as retirees), that is a compelling proposition," says Stan Humphries, chief economist at Zillow. Home sellers may have to be patient to get the price they want. The curbs on government-backed loans could, at the margin, reduce the available pool of buyers, he said.


Anybody who wants a government-backed mortgage for a $1-million home after October 1 may have to come up with a $370,000 downpayment instead of $270,000, says Rob Chrisman, an independent mortgage banking consultant from San Rafael, California.

6--March Survey: Almost half of housing market is now distressed properties, Calculated Risk

Excerpt: From Campbell/Inside Mortgage Finance HousingPulse: HousingPulse Distressed Property Index Rises for Month; Homebuyer Traffic Flattens

The HousingPulse Distressed Property Index (DPI), a key indicator of the health of the U.S. housing market, rose to 48.6 percent in March – the second highest level seen in the past 12 months.
The HousingPulse DTI indicated that nearly half of the housing market is now distressed properties. This trend is likely to continue as a backlog of foreclosures and mortgage defaults make their way through the housing pipeline.
Survey respondents reported mixed opinions on traffic for the winter and spring housing market. “January, February and March sales were characterized by a wait and see attitude of buyers.
[S]hort sales boomed in the month of March and the proportion of damaged REO fell. Short sales rose from 17.0% in February to a record-high 19.6% in March. Damaged REO fell from 14.9% in February to 12.0% in March.

This fits with other data showing a high level of distressed properties, and this suggests further declines in the repeat transaction house price indexes.

7--Let's take a hike, Paul Krugman, New York Times via Economist's View

Excerpt: The ... only major budget proposal out there offering a plausible path to balancing the budget ... includes significant tax increases: the “People’s Budget” from the Congressional Progressive Caucus ... is projected to yield a balanced budget by 2021 ... without dismantling ... Social Security,... Medicare and Medicaid.

But if the progressive proposal has all these virtues, why isn’t it getting anywhere near as much attention as the much less serious Ryan proposal? ...

The answer, I’m sorry to say, is the insincerity of many if not most self-proclaimed deficit hawks. To the extent that they care about the deficit..., it takes second place to their desire to do precisely what the People’s Budget avoids doing, namely, tear up our current social contract, turning the clock back 80 years under the guise of necessity. They don’t want to be told that such a radical turn to the right is not, in fact, necessary.

But, it isn’t, as the progressive budget proposal shows. We do need to bring the deficit down, although we aren’t facing an immediate crisis. How we go about stemming the tide of red ink is, however, a choice — and by making tax increases part of the solution, we can avoid savaging the poor and undermining the security of the middle class.

8--The QE2 Snafu, Pragmatic Capitalism

Excerpt: The mainstream media is beginning to size-up the results of QE2. And apparently it’s looking it was all a great big monetary non-event. This is what I said before QE2 even started, however, it looks like the damage has already been done. QE2 didn’t monetize anything. It didn’t cause the money supply to explode. It didn’t really do anything except cause a great deal of confusion and generate an enormous amount of speculation in financial markets that now appears to be contributing to turmoil and strife around the globe. But the misconceptions continue....

They’re right that QE2 has been a disappointment. And most certainly a monetary non-event, however, there is substantial evidence now showing that QE2′s one targeted goal – increasing inflation expectations – is working via the exact wrong channels by contributing to the surge in commodity prices. So while it’s been a monetary non-event it’s been a substantial economic event...... And now that it’s becoming clear that QE2 didn’t contribute positively to economic growth these same economists are changing their tune to give the appearance that QE is not a flawed policy, but that it was merely implemented incorrectly. This is sheer nonsense.

When I first discussed QE last August and why it would not contribute positively to economic growth I described how QE was akin to an apple salesman who can’t sell enough apples. So, instead of altering price he merely alters the number of apples on the shelves. Altering reserve balances at banks is perfectly analogous. Giving the banks more reserves does nothing because banks are never reserve constrained. But now all of the experts are trying to convince us that QE just wasn’t tried hard enough! If only the apple salesman had put more apples on the shelves – then his sales would have improved! No, that’s not how monetary policy works. And as I’ve said for many many months now, this obsession with size is entirely misguided. QE2 isn’t about size. It is about price.

9--Geezer Uprising, Dave Lindorff, Counterpunch

Excerpt: I am 62 and have just reached the age where I could apply for Social Security retirement benefits. Of course, I'd be crazy to do that and collect some $700 a month for the rest of my life, when I could keep working and wait until I'm 70 and get $2000 a month.

But the point is, I've arrived. I'm a "senior." And now I'm paying a lot more attention to what the Right and its paymaster, the corporate lobby, are trying to do, not just to my retirement plan (which is Social Security. period), but also to Medicare, the program upon which my medical care will depend once my wife decides to retire from her university job....

But here's the thing. The reason these parties and lobbies are trying so hard now to use the recession and the national deficit as cover to decimate and destroy these two proven and critically important social programs into which all working Americans have been paying all our working lives, is that they realize what most 50 and 60-something Americans haven't realized yet: that we are about to become the most powerful political force in the country, and that we are certainly going to demand both an excellent government Medicare program, and a decent retirement program.

The way I see it, we in the Baby Boom generation--those people born between 1946 and about 1964--are just starting to hit retirement age. In another 10 years, we will become a political force twice as powerful and certainly more than twice as noisy and demanding as the current senior lobby. We can either wait until then, after they have successfully gutted the two programs we depend on, making it so we have to fight to recreate or restore them, or we can start organizing now to defend and improve them, and save ourselves a whole lot of trouble.

So here's my proposal.

Let's start building a coalition of Baby Boomers, working through every conceivable organization--labor unions, churches, veterans organizations, alumni organizations, political chapters, etc.--with one goal: Defending and improving Social Security and Medicare....

Poll after poll shows that Americans love Medicare. It's a program that works, that only spends 1% of funds on administration (compared to almost 30% for the private medical system), and that has vastly improved the health of older Americans since it went into effect in 1965. It's a program that actually is very similar to what all Canadians have (which is a program they also call Medicare), but here in the US you have to be either over 65 or permanently disabled in order to qualify.

10--Wall Street speculators send food prices soaring, MSNBC via Information Clearinghouse---video

11--Taliban Jailbreak, New York Times

Excerpt: KANDAHAR, Afghanistan — Taliban leaders carried out an audacious plot on Monday to free nearly 500 fighters from southern Afghanistan’s largest prison, leading them through a tunnel dug over more than five months and equipped with electricity and air pipes, which suggested that the insurgents remained formidable and wily opponents despite recent setbacks....

Of the 488 men who escaped, fewer than 20 were from the criminal section of the prison; the rest were security detainees believed to be Taliban fighters and commanders.

An escapee, who asked not to be identified, said that among those freed were two shadow governors and 14 shadow district governors. The Taliban have a shadow government that has varying influence in different provinces.

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