Monday, January 23, 2012

Today's links

1--Draghi Makes Euro Favorite for Most-Profitable Carry Trades With Rate Cuts, Bloomberg

Excerpt: Spiraling deficits and debt burdens have spurred Greece, Ireland and Portugal to seek bailouts from the European Union and International Monetary Fund. The contagion spread to larger economies last year, driving up yields in the region to an average of 4.28 percent in November, the highest since 2009, even as rates on Treasuries fell to record lows.

The World Bank said this month that the economy in the euro area will probably contract 0.3 percent this year, compared with global growth of 2.5 percent. Leaders, including Draghi and German Chancellor Angela Merkel, will gather in Davos, Switzerland, this week to discuss tackling the crisis without depressing the economy. ...

After Europe’s shares tumbled last year, wiping out 751 billion euros in market value from the Stoxx Europe 600 index, signs of a rebound are emerging. The index is up 3.5 percent this year, and the region’s sovereign bonds have returned 0.6 percent after soaring 4 percent in December, according to the Bank of America Merrill Lynch EMU Direct Government Index. That may cause investors with bets that profit from declines to reverse those trades.

2--The US-GCC fatal attraction, Pepe Escobar, Asia Times

---the Arab Spring was virtually dead on arrival in the GCC. In Oman, Sultan Qaboos basically distributed loads of cash. In Saudi Arabia, there was fierce pre-emption and sustained hardcore repression in the Shi'ite majority Eastern province, close to Bahrain, where the oil is.

And in Bahrain itself, there was not only hardcore repression - with documented detention and torture of hundreds of pro-democracy protesters - but an outright invasion by Saudi and UAE troops.
The culmination of this process has been the birth of a new geopolitical monster - NATOGCC. That embodies the key role of Qatar and the UAE in the NATO invasion - and destruction - of Libya. Libya was an all-out GCC special - from actual cash and weapons dispensed to the "rebels" to actual operatives, intelligence and last but not least, political legitimacy, via that fake Arab League vote legitimizing a no-fly zone vote at the United Nations (only nine out of 22 Arab League members voted yes, and six of them were GCC; the other three were bought, and Syria and Algeria were against it).

And now a tragic joke reigns supreme; the GCC trying to intervene and actually financing hardcore Sunni fundamentalists in Syria under the cover of helping pro-democracy protesters. When the meek UN secretary general Ban Ki-moon urges President Bashar al-Assad to stop the violence against Syrian protesters and says the time of dynasties and one-man rule in the Arab world is coming to an end, obviously he believes the GCC is a colony in one of Saturn's rings.

After the NATOGCC win in Libya, no wonder they are on a roll. The GCC strategy of regime change in Syria is the preferred way to weaken Iran and the so-called Shi'ite crescent - a fiction jointly concocted during the George W Bush administration by the Playstation king of Jordan and the House of Saud. ...

on one side we have Washington, NATO, Israel and the GCC. Not exactly an "international community", as the spin goes. And on the other side, we have Iran, Syria, a fed-up-with-Washington Pakistan, Russia, China, and scores of countries linked to the 120-member Non-Aligned Movement (NAM)...
It's true that whoever dominates the GCC - with weapons and political support - projects power globally. The GCC has been absolutely key for US hegemony within what Immanuel Wallerstein defines as the world system.
Yet let's take a look at the numbers. Since last year Saudi Arabia is exporting more oil to China than to the US. This is part of an inexorable process of GCC energy and commodity exports moving to Asia.

By next year foreign assets held by the GCC could reach $3.8 trillion with oil at $70 a barrel. With all that non-stop "tension" in the Persian Gulf, there's no reason to believe oil will be below $100 in the foreseeable future. In this case GCC foreign assets could reach a staggering $5.7 trillion - that's 160% more than in pre-crisis 2008, and over $1 trillion more than China's foreign assets.

At the same time, China will be increasingly doing more business with the GCC. The GCC is increasingly importing more from Asia - although the top source of imports is still the European Union. Meanwhile, US-GCC trade is dropping. By 2025, China will be importing three times more oil from the GCC than the US. No wonder the House of Saud - to put it mildly - is terribly excited about Beijing.

So for the moment we have the pre-eminence of NATOGCC military, and USGCC geopolitically. But sooner rather than later Beijing may approach the House of Saud and quietly whisper, "Why don't you sell me your oil in yuan?" Just like China buying Iranian oil and gas with yuan. Petroyuan, anyone?

3--India, Iran to settle some oil trade in rupees-source, Reuters

Excerpt: India and Iran have agreed to settle some of their $12 billion annual oil trade in rupees, a government source said on Friday, resorting to the restricted currency after more than a year of payment problems in the face of fresh, tougher U.S. sanctions.

India, the world's fourth-largest oil consumer, relies on Iran for about 12 percent of its imports or 350,000-400,000 barrels per day (bpd) and is Tehran's second-biggest oil client after China.

But Washington has snapped tighter financial sanctions on Iran and wants Asia, Tehran's biggest oil market, to cut imports in a bid to pressure the Islamic nation to rein in its nuclear ambitions, which it suspects are aimed at making weapons.

Iran rejects the charge and says its programme is for peaceful means.
India's central bank stopped one clearing mechanism in December 2010 for Iran payments and refiners finally managed to secure a route through Turkey's Halkbank in July 2011 but this could be vulnerable to the new U.S. measures....

Asian support for U.S. sanctions is vital since the region buys more than half of Iran's daily crude exports. The European Union has agreed in principle to halting Iranian crude imports and could finalise the ban on Jan. 23.

China, Iran's biggest crude customer, has rejected the U.S. sanctions as overstepping the mark and defended its extensive imports from the second-biggest oil producer in OPEC.

4--Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says, Bloomberg

Excerpt: Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran’s state-run Fars news agency reported, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow.

The proposal to switch to the ruble and the rial was raised by Russian President Dmitry Medvedev at a meeting with his Iranian counterpart, Mahmoud Ahmadinejad, in Astana, Kazakhstan, of the Shanghai Cooperation Organization, the ambassador said.

Iran has replaced the dollar in its oil trade with India, China and Japan, Fars reported.

The European Union, the U.S. and the United Nations are applying sanctions against Iran over its nuclear program. Iran says its nuclear efforts are for civilian purposes and to generate electricity, while the U.S. and several major allies say the program represents a weapons threat

5--Americans Anti-Big Business, Big Gov't, Gallup

Excerpt: Americans' satisfaction with the size and power of the federal government is at a record-low 29% and their satisfaction with the size and influence of major corporations remains near the all-time low at 30% -- making both highly susceptible targets for politicians and presidential candidates in this election year.

Democrats, as would be expected, are disproportionately displeased with the size and influence of major corporations, with 71% dissatisfied and 23% satisfied. Republicans break even in their views of major corporations, with 48% satisfied and the same percentage dissatisfied. Independents -- as was the case in their views of the federal government -- are slightly more negative than the national average.

Most Americans who are dissatisfied with the size and influence of major corporations say, in response to a follow-up question, that they would like to see corporations have less influence....

6--Taking Campiagn Promises Seriously: Remember Renegotiating NAFTA?, CEPR

Excerpt: Ezra Klein tells us today that candidates take campaign promises seriously. I haven't reviewed the research, but it is easy to identify some important campaign promises that President Obama made over the course of his campaign that he clearly has not taken seriously while in office.
His pledge to renegotiate NAFTA was important in gaining support from manufacturing workers in many key primary states. This pledge was clearly never taken seriously once he got in the White House.

President Obama also promised to push for legislation that would allow for judges to rewrite the terms of home mortgages in bankruptcy. Any effort in this direction has been all but invisible since he entered the White House.
Finally, the public option portion of his health care plan clearly was not a priority for his administration. Wile he would have signed a bill that included a public option, he made it clear that he did not view it as an essential part of the plan.

Obviously there are promises that candidates feel little qualm about abandoning once they take office.

7--(From the archive)How we got to where we are today, WSJ

Excerpt: Foreclosures have slowed sharply over the past year in many states where banks are required to foreclose on homeowners through courts. But slowdowns haven’t yet been as pronounced in non-judicial states such as Nevada, where foreclosures are conducted by an administrative process.
To foreclose on homeowners in Nevada and most other non-judicial states, banks hire a “trustee” that notifies borrowers that they are in default and then carries out the foreclosure sale in accordance with state law if the borrower doesn’t become current on the debt.

The Nevada law makes an important technical change to those rules by forbidding trustees from handling foreclosures if the trustee is a subsidiary of foreclosing bank. That change appears to strike a blow for Bank of America Corp., which uses a wholly owned subsidiary, ReconTrust, as its trustee for foreclosures in Nevada and other western states.

ReconTrust wasn’t involved in filing any default notices in Nevada during the month of October, according to the ForeclosureRadar data. A Bank of America spokesman declined to comment.

Real estate agents and housing investors say the law could have unintended consequences if it hinders the ability of the housing market to clear. In hard-hit housing markets like Las Vegas, foreclosures have been among the fastest-selling properties. They accounted for around half of all home sales there during the third quarter, according to SalesTraq, a local real-estate firm.

“It leaves this shadow,” says Sean O’Toole, president of ForeclosureRadar. “If you’re a buyer, and you don’t know when or how that market’s going to clear, it’s not going to leave you a lot of confidence in investing in that area.”

But advocates of the bill say the measure will put the real-estate market on sound footing by ensuring that title defects don’t later lead judges to invalidate foreclosures—a step that has already happened in Michigan and Massachusetts.

“This is not at all about preventing foreclosures. It is about helping end users,” says Tisha Black Chernine, a real-estate lawyer in Las Vegas who was part of a working group that helped draft the bill.

In order to truly heal housing markets, “we need to make sure foreclosures are done properly,” she said. “People taking title pursuant to a bad foreclosure run the risk of having no title at all.”

The foreclosure slowdown in Nevada comes amid signs that banks are begin to ramp up foreclosures across many other parts of the country. The rate at which banks started new foreclosures increased to the highest level this summer since banks were forced to sharply decelerate the process one year ago, according to a report released Monday by Fitch Ratings.

Banks initiated foreclosures on around 10% of all mortgages that hadn’t made any payments in more than two months, double the historical lows from one year ago. That is still below the average 14% rate for the past decade. The Fitch Ratings analysis looked at loans that were bundled and sold as mortgage-backed securities without any government guarantees.
The uptick is a sign that banks and other mortgage companies “are playing catch-up on actions that have been delayed over the past year,” said Diane Pendley, managing director at Fitch Ratings.

8--Housing Inventory Ends Year Down 22%, WSJ

Excerpt: There were fewer homes listed for sale at the end of 2011 than in any of the previous four years, a positive sign for the housing sector.
But appearances can be deceiving, and it remains to be seen whether the drop is the beginning of a real recovery or if inventory is being held down by sellers waiting for prices to pick up and banks moving slowly on foreclosures.

The 1.89 million homes on the market at the end of December represented a 6% decline from November and a 22.3% decline from one year ago, according to data compiled by

Low inventories are an important ingredient for any housing recovery because prices could firm up in markets that have worked through their inventory.

Still, some real-estate agents aren’t celebrating because there’s a large backlog of potential foreclosures that haven’t yet been taken back and listed by banks. The inventory declines are particularly pronounced in certain states where banks have sharply slowed down foreclosures to correct document-handling abuses.

Moreover, some sellers have pulled their homes off the market to wait for a turn in prices, and that “pent up” demand from sellers could keep inventories higher once prices do rise.

Inventories were down for the year in all but one of the 145 markets tracked by, with Springfield, Ill., posting the only year-over-year inventory gain. The largest declines were recorded in Miami (-49.7%), Phoenix (-49.1%), and Bakersfield, Calif. (-46.6%).

The figures include sale listings from more than 900 multiple-listing services across the country. They don’t cover all homes for sale, including those that are “for sale by owner” and newly constructed homes that aren’t always listed by the services.

9--From S&P: The Fourth Quarter Starts with Broad-based Declines in Home Prices According to the S&P/Case-Shiller Home Price Indices, calculated risk

Data through October 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices ... showed decreases of 1.1% and 1.2% for the 10- and 20-City Composites in October vs. September. Nineteen of the 20 cities covered by the indices also saw home prices decrease over the month. The 10- and 20-City Composites posted annual returns of -3.0% and -3.4% versus October 2010, respectively.

“There was weakness in the monthly statistics, as 19 of the cities posted price declines in October over September,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Eleven of the cities and both composites fell by 1.0% or more during the month...
The Composite 10 index is off 32.9% from the peak, and down 0.5% in October (SA). The Composite 10 is at a new post bubble low (Seasonally adjusted), but still above the low NSA.

The Composite 20 index is off 33.0% from the peak, and down 0.6% in October (SA). The Composite 20 is also at a new post-bubble low.

10--Existing Home Inventory declines 18% year-over-year in December, calculated risk

Excerpt: For the final week in December, inventory is down 18.4% from a year ago.

This is just inventory listed for sale, sometimes referred to as "visible inventory". There is also a large "shadow inventory" that is currently not on the market, but is expected to be listed in the next few years. Shadow inventory could include bank owned properties (REO: Real Estate Owned), properties in the foreclosure process, other properties with delinquent mortgages (both serious delinquencies of over 90+ days, and less serious), condos that were converted to apartments (and will be converted back), investor owned rental properties, and homeowners "waiting for a better market", and a few other categories - as long as the properties are not currently listed for sale. Some of this "shadow inventory" will be forced on the market, such as completed foreclosures, but most of these sellers will probably wait for a "better market".

11--CoreLogic: Existing Home Shadow Inventory remains at 1.6 million units, calculated risk

Excerpt: CoreLogic® Reports Shadow Inventory as of October 2011 Still at January 2009 Levels

CoreLogic ... reported today that the current residential shadow inventory as of October 2011 remained at 1.6 million units, representing a supply of 5 months. This was down from October 2010, when shadow inventory stood at 1.9 million units, or 7-months’ supply, but approximately the same level as reported in July 2011. Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed (short and real estate owned) sales.

CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders.
Of the 1.6 million properties currently in the shadow inventory, 770,000 units are seriously delinquent (2.5-months’ supply), 430,000 are in some stage of foreclosure (1.4-months’ supply) and 370,000 are already in REO (1.2-months’ supply).

The shadow inventory is approximately four times higher than its low point (380,000 properties) at the peak of the housing bubble in mid-2006.

“The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults,” said Mark Fleming, chief economist for CoreLogic.

So the key number in this report is that as of October, there were 1.6 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale (see chart)

(From WSJ) The 1.89 million homes on the market at the end of December represented a 6% decline from November and a 22.3% decline from one year ago, according to data compiled by

12--Housing sales (chart) 2011 roughly 4 million, calculated risk

Excerpt: (Chart)

13--Realtors: We Overcounted Home Sales for Five Years, CNBC

Excerpt: Data on sales of previously owned U.S. homes from 2007 through October this year will be revised down next week because of double counting, indicating a much weaker housing market than previously thought.
The National Association of Realtors said a benchmarking exercise had revealed that some properties were listed more than once, and in some instances, new home sales were also captured.

"All the sales and inventory data that have been reported since January 2007 are being downwardly revised. Sales were weaker than people thought," NAR spokesman Walter Malony told Reuters....

Early this year, the Realtors group was accused of overcounting existing homes sales, with California-based real estate analysis firm CoreLogic claiming sales could have been overstated by as much as 20 percent.

At the time, the NAR said it was consulting with a range of experts to determine whether there was a drift in its monthly existing home sales data and that any drift would be "relatively minor."

The depressed housing market is one of the key obstacles to strong economic growth and an oversupply of unsold homes on the market continues to stifle the sector.

14--Obama to Draw an Economic Line in State of Union, NY Times

Excerpt: ...— President Obama will use his election-year State of the Union address on Tuesday to define an activist role for government in promoting a prosperous and equitable society, hoping to draw a stark contrast between the parties in a time of deep economic uncertainty..

In a video preview e-mailed to more than 10 million supporters on Saturday, as South Carolina Republicans went to the polls to help pick an alternative to him, Mr. Obama promised a populist “blueprint for an American economy that’s built to last,” with the government assisting individuals and businesses to ensure “an America where everybody gets a fair shot, everyone does their fair share and everybody plays by the same set of rules.” ....

Advisers and other people familiar with the speech say Mr. Obama will expand again on the administration’s effort to resolve the housing crisis with both carrots and sticks to lenders dealing with homeowners behind on their mortgage payments — after yet another debate between his economic and political advisers.

The political team has long argued that most Americans oppose bold government action to stem home foreclosures, like forcing lenders to reduce borrowers’ principal, seeing it as rewarding those who had bought houses they could not afford. The economic team holds that until the housing market recovers, the broader economy cannot — and that all Americans suffer...

In the video preview, like one sent to supporters last year, Mr. Obama said he would call for “a return to American values of fairness for all and responsibility from all....


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