Wednesday, July 25, 2012

Today's links

1--David Stockman: "People who have been speculating will be carried out on a stretcher", zero hedge

The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate." That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread. And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today.

2--US position on Syria directly endorses terrorism - Lavrov, RT

Washington’s reaction to blasts in Damascus is a downright justification of terrorism, slams Russian Foreign Minister Sergey Lavrov. US State Department announced that terror acts in Syria are not surprising in light of the Assad regime’s actions.

“This is direct endorsement of terrorism. How are we supposed to understand that?” Sergey Lavrov shared his astonishment at a press conference in Moscow. “This is a sinister position, I cannot find words to express our attitude towards that.”

Lavrov also expressed his surprise that the UN Security Council refused to condemn acts of terror in Syria. The US permanent representative to the UN Susan Rice has stated that terror acts in Damascus contribute to speeding up the adoption of a resolution on Syria according to the Chapter 7 of the UN Statute, which implies harsh sanctions, including resorting to force.

“In other words this means ‘We are going to support such acts of terrorism until the UNSC does what we want’,” Lavrov commented on the US representative's actions.


I didn't think it was possible, but my confidence in the ability of European policymakers to pull the Continent out of crisis continues to fall. This is saying a lot because I had virtually no confidence to begin with.

...The Greeks were never given a bailout plan that had any hope of success.

...Whether or not Greece can be forced from the Euro with little impact elsewhere remains to be seen. I doubt we will need to wait much longer to learn the outcome of Grexit. But the devastating train that is the debt crisis keeps rolling right along, currently crashing through Spain's economy.

And make no mistake, European policymakers have learned nothing from the Greek experience. One gets the sense that policymakers think the prescription was correct, but that the patient was simply unwilling to take the medicine. Where Greece failed, Spain will succeed ...

4--Yield Stories: "The economy is going to be depressed for a long time", Paul Krugman, NY Times

Low interest rates on the bonds of just about every country that still has its own currency have created a small industry of would-be explainers. It’s a bubble; no, it’s the global shortage of safe assets; no, it’s “disaster economics“.

Maybe there’s some truth to some of these stories. But surely the dominant story is very simple: it reflects market perceptions that the economy is going to be depressed for a long time.

5--Europe is sleepwalking towards imminent disaster, warn top economists, Telegraph

The euro has completely broken down as a workable system and faces collapse with “incalculable economic losses and human suffering” unless there is a drastic change of course, according to a group of leading economists.

6--US big banks' glory days feared to be gone for good, IFR

Seven of the 10 biggest U.S. banks beat analysts’ average earnings expectations in the second quarter. But much of that came from cutting costs and dipping into money previously set aside to offset bad loans, rather than from growth in their main businesses, which is what investors want to see.

Revenue from lending, trading and advising corporate clients on mergers is still weak, and low interest rates continue to squeeze profits on loans and other investments. Banks and their already depressed stocks appear headed for a long, grim future.

Nancy Bush, who has been a bank analyst and investor for three decades, said she is ready to throw in the towel on banks of all sizes.

“What’s left at this point, barring a really significant improvement to the economy and a miraculous ramp-up in lending?” Bush asked. “Why invest in these companies?...
Even if banks are making more loans to better borrowers, they are doing so less profitably.

A protracted period of low interest rates puts a lot of pressure on balance sheets,” said Consector’s Black.

Bankers on their second-quarter calls also raised concerns by warning that the mortgage refinancing boom will likely have run its course by year end....

One sign of trouble: loan growth is not keeping up with deposit growth.

In March 2010, banks loaned out about 99 percent of money collected from depositors. In March 2012, the figure plunged below 77 percent, the lowest ratio in more than a decade, according to the Federal Deposit Insurance Corp...

For many banks, however, issues go deeper than just a slowing economy. Capital markets businesses, including trading stocks and bonds, are just not as profitable as they used to be...

JPMorgan Chase & Co’s JPM.N almost $6 billion of derivative losses and the Libor interest-rate-fixing scandal in the last few months proved to be the “proverbial straw that broke this camel’s back,” Ackman wrote to his clients at Pershing Square Capital Management. (Full Story)

For months, JPMorgan Chief Executive Jamie Dimon had no idea of the size of the losses brewing inside his bank, signaling to many investors that major banks are too big and too complex to manage, investors said.

“If I don’t think that even insiders have a great handle on what’s going on, I’m certainly not comfortable about investing my capital there,” said Consector Capital’s Black.

7--Why We’re 100% Bearish, Trimtabs

The key reasons we are more bearish start with there is almost nothing the Fed can do to boost the economy. Creditworthy borrowers can already borrow at almost nothing and dropping short rates to zero would bankrupt the entire money market world, creating untold havoc much worse then the two commodity trading house frauds.

Equally as important to the bearish call is that growth in the US economy has slowed to just about zero. Wages and salaries are barely growing year over year and what’s worse the modest growth rate has been slowing each of the past two months. To remind you all, we estimate wages and salaries based upon real time income and employments taxes withheld from all employees with a W2. Jobs are barely growing. Our TrimTabs Online Job Posting Index is growing at its slowest rate since February 2010 and the year over year growth in new unemployment claims is at its highest since April.

Then there is Europe and slowing global economies. China real world is in recession and remember low tides uncover all the hidden garbage created by booms. I predict we will start to see major Chinese financial frauds being uncovered by this years end.

Finally supply and demand of stock and money is also now bearish. The Biderman Market Theory says all there is in the stock market are shares of stock; and money flows in and out of the checking accounts of institutions. What we are now seeing is more corporate selling then buying. Also our Demand Index based upon 21 investor activity variables plunged to a six month low last week and is down 36% from the early April which coincided with this years stock market peak

8--The Bernanke Put is Dying, Trimtabs

 I would expect the sell off eventually could approach or even drop below the March 2009 market bottom. Remember, in March 2009 the Fed announced a new round of quantitative prices whose purpose was to rig the market. The law of karma being what it is, when all the rigging becomes undone, I would not be surprised if stock prices ended up below the Fed created March 2009 bottom...

The Bernanke put is dying. When the Fed demonstrates that the next easing will not work even to boost stock prices, then the stock market will collapse and the Black Swan will enjoy its meal.

9--No Housing Recovery In These Three Charts, zero hedge

10--HELOC abusers and lenders face day of recast reckoning, OC Housing

11--US Housing Inventory Requiring Deleveraging: 30 Million Units, Big Picture

12--Zillow: "Housing Market Turns Corner", calculated risk

From Zillow: U.S. Home Values Post First Annual Increase In Nearly Five Years

Home values in the United States have reached a bottom. The Zillow Home Value Index (ZHVI) rose on an annual basis for the first time since 2007, increasing 0.2 percent year-over-year to $149,300, according to Zillow’s second quarter Real Estate Market Reports. Values have risen for four consecutive months.

...“After four months with rising home values and increasingly positive forecast data, it seems clear that the country has hit a bottom in home values,” said Zillow Chief Economist Dr. Stan Humphries. “The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own.

“Of course, there is still some risk as we look down the foreclosure pipeline and see foreclosure starts picking up. This will translate into more homes on the market by the end of the year, but we think demand will rise to absorb that, particularly in markets where there are acute inventory shortages now. Looking forward, we expect home values to remain relatively flat as the market works through a backlog of foreclosures and high rates of negative equity.”

13--Home Price Bottom or Bubble? , CNBC

Home prices rose, just barely, in the second quarter of this year annually for the first time since 2007, according to online real estate firm Zillow. That prompted the popular site to call a “bottom” to home prices nationally. The increase was a mere 0.2 percent, but in today’s touch and go housing recovery, that was enough.

Nearly one third of the 167 markets Zillow tracks in this survey saw annual price gains from a year ago.

“After four months with rising home values and increasingly positive forecast data, it seems clear that the country has hit a bottom in home values,” said Zillow Chief Economist Dr. Stan Humphries. “The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own.”

14--Home Values Post First Year-Over-Year Increase Since 2007, Bloomberg

15--Housing landscape, The Big Picture (Graphic)

16--Radar Logic: “Housing Still a Short”, The Big Picture

Key observations from the May 2012 RPX Monthly Housing Market Report:

• Evidence that the housing market has bottomed is not conclusive
• Data from the second half of the year tells more about price trends than data from the first half;
• Reports of diminishing supply are greatly exaggerated;
• Psychology and total inventory – including both “visible” and “shadow” inventory suggest housing is a short

17--Second mortgages hold short sellers hostage, OC Housing

Axon, working with co-investors, buys distressed U.S. home- equity loans and other junior real estate liens, often for pennies on the dollar. Investors like Axon have to be dealt with whenever a home is sold in a short sale, a transaction in which the lenders agree to accept less than what’s owed on the property.

“The short-sale brokers know us — they know we’re not cupcakes,” Axon, 60, chairman of Jersey City, New Jersey-based mortgage-servicer Franklin Credit Management Corp., said in an interview. “At the end of the day, my friend, you signed a contract. You owe money and we’re willing to reach an accommodation that is commensurate with your ability to pay.”

Vultures buying distressed second mortgage debt is a big business. They make a profit by squeezing a few more pennies out of a second mortgage than a large bank felt they could get. They have little incentive to be accommodating because any such accommodation comes out of their bottom line....

Roadblocks involving second liens are standing in the way of more short sales, which reached the highest number in three years in the first quarter — 133,192 total transactions — said Daren Blomquist, vice president at RealtyTrac Inc., a real estate information service in Irvine, California.

While about 39 percent of homes that have entered the foreclosure process have more than one lien, just 4.2 percent of short sales — 5,658 transactions — completed in the first quarter were on homes with second mortgages, according to an analysis RealtyTrac performed for Bloomberg....

Homes with second mortgages were twice as likely to be underwater, according to a July 12 report by real estate information provider CoreLogic Inc. That makes them candidates for short sales, even if they don’t have delinquent loans, because their mortgage debt is greater than their resale value. The average negative equity for homes with second liens was $82,000, compared with $47,000 for single-mortgage homes, Santa Ana, California-based CoreLogic said.

Two-thirds of underwater borrowers are there because of their second mortgages...

Fannie Mae tries to put a limit on negotiations by capping the amount junior-mortgage owners can receive at $6,000 or 6 percent of the unpaid balance, whichever is less. The company’s guidelines don’t allow any party to the transaction, including the buyer, seller or real estate agent, to kick additional money to the junior-lien holder. ...

Largest Banks

The four largest U.S. banks — Bank of America Corp., Wells Fargo & Co., JPMorgan and Citigroup Inc. — held 48 percent of the $849.5 billion in second liens as of March 31, according to the newsletter Inside Mortgage Finance. Home equity lines of credit accounted for $590 billion, or 69 percent of the value of second liens, as of that date, according to Amherst Securities Group LP....

The major banks better hope they collect more than 6% of the $849.5 billion in outstanding second liens

18--Home prices are driven by controlled inventory and low interest rates, Dr Housing Bubble

It is now almost a universal mainstream headline that housing has reached a bottom. Of course little is mentioned about the ridiculously low mortgage rates that have aided in covering up stagnant incomes to accomplish this task. Yet a nationwide bottom should not be confused with regional troughs. The summer selling season has been hot for California. Home prices are now at two year highs coming in at a median price of $274,000 (still far from the $484,000 peak reached in 2007). Yet is this positive with California facing a 20 percent underemployment rate and massive budget deficits? There is no doubt that the recent push has come from two sources; low interest rates and controlled inventory. Roughly 30 percent of California home owners are underwater. This works out to be 1.5+ million households. Yet California only has about 170,000 homes for sale on the MLS! You have nearly 10 times the number of underwater homeowners compared to the homes listed on the MLS....

Keep in mind interest rates were already historically low just one year ago. In the last year, the 30-year conventional fixed mortgage saw rates fall by a stunning 20 percent. For most of this time, home prices fell. Starting this year home prices are now up 1.4 percent. In California, and here is the kicker, home prices are up 8.3 percent year-over-year. So you begin to realize that lower interest rates are largely a boon for high priced metro areas.

Compare a $150,000 loan that will get you a home in most states versus say a $400,000 loan for a starter shack in California:

20% drop in interest rate for a $150,000 = $87 monthly savings in Principal and Interest
20% drop in interest rate for a $400,000 = $232 monthly savings in Principal and Interest

It should be abundantly clear that the recent rise in home prices is being driven purely by controlled inventory and the insanely low interest rate.

19--Bob Janjuah: "You Have Been Warned", zero hedge

"The global growth picture is, as per our long-term contention, weak and deteriorating, pretty much everywhere – in the US, in the eurozone and in the emerging markets/BRICs.... We in the Global Macro Strategy team still think the market consensus is far too optimistic on policy expectations both in terms of the likelihood of seeing more (timely) fiscal and/or monetary policy assistance (globally), and in terms of any meaningful and/or lasting success of any such policy moves. In particular, we think that the period August through to November (inclusive) represents a major global policy and political vacuum. Based on the reasons set out earlier and also covered in my two prior notes, over the August to November period I am looking for the S&P500 to trade off down from around 1400 to 1100/1000 – in other words, I expect over the next four months to see global equity markets fall by 20% to 25% from current levels and to trade at or below the lows of 2011!


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