Wednesday, August 29, 2012

Today's links

1--How Iraq discovered American burger and fries, Firstpost
2--Deposits at US commercial banks approaching $9 trillion, sober look

Here is another reason QE3 will do little to change bank behavior or encourage lending. US commercial banks are awash with liquidity these days as deposits hit a new high (approaching $9 trillion).

Banks are already struggling to put cash to work. The rate of deposit growth exceeds that of new loan demand and credit approvals. The bottleneck is not the availability of liquidity - there is $1.77 trillion of available lending capacity waiting on the sidelines. If the Fed were to implement a new asset purchase program, the level of liquidity in the banking system would increase even further without any material change in the rate of credit expansion.

3--Triple-dip in houising?, OC Housing News

4--Liquidating shadow inventory requires managing absorption rates, OC Housing News

Prices may go up or they may go down depending on how well bank asset managers control the flow. The bottom callers are all placing their faith in the skills of these asset managers rather than in the forces of the market. Right now, these asset managers overly constricted the supply in the Southwest, and prices are rising. However, this also means lenders aren’t clearing out the existing shadow inventory and are actually adding to it. This will likely prompt lenders to increase foreclosure processing rates to take advantage of the higher prices. It’s also possible lenders will become overly exuberant about regaining their non-performing capital and process too many...

In a normal market, millions of individual owners control the supply, and they don’t act with any coordinated effort. Today, a cartel of a few major banks control the bulk of our housing inventory. These banks openly collude on prices with the blessing of our government. Since cartel arrangement are inherently unstable, there is not telling how this plays out.

5--Case Shiller Q1 2012 Rises, The Big Picture

Check out the nice price rise in Q1 2012 versus Q1 2011 for Case Shiller.

As I have been saying for some time, this is an apple to orange comparison — pitting a period of high foreclosures versus a period of voluntary foreclosure abatement by the money center banks.

Distressed sales are 20% < less than non -distressed sales. The NAR has reported that the number of distressed sales has fallen from 38% to 26% of the total basket.

Do the math, and this accounts for nearly all of the price improvement

6--8-22 Housing…The Stimulus Cycle is over. Let the hangover (triple-dip) begin, Mark Hanson
7--Case-Shiller: House Prices increased 0.5% year-over-year in June, calculated risk
8--Are Retail Investors ‘Fleeing’ Stocks?, WSJ

9--Bank of America: Risk of Sell-off is High, prag cap

Our strategists see an unusually high number of macro catalysts over the next 3-6 months that could take markets lower. We expect economic growth to disappoint in the second half of the year in anticipation of the fiscal cliff. This would exacerbate any slowdown from the deepening recession in Europe and decelerating growth in emerging markets. There is also the ongoing tension in the Middle East, the potential for a US credit downgrade and accelerating downward analyst estimate revisions. To top it off, September is seasonally the weakest month of the year for stock price returns.”

10--McCulley and Rosenberg: This Indicator Could be Pointing to Recession, prag cap
11--Shas Spiritual Leader Calls on Jews to Pray for Annihilation of Iran, Reuters
12--Pew Research: “Fewer, Poorer, Gloomier: The Lost Decade of the Middle Class”, WSWS

New poll, data point to vast social polarization in US

13--It Is Not Just Your Imagination – American Families ARE Getting Poorer, The Economic Collapse

14--The Pacific free trade deal that's anything but free, Guardian
The draft TPP deal may grant new patent privileges and restrict net freedom, but it's secret – unless you're a multinational CEO

15--US consumer confidence hits lowest since Nov 2011, business spectator
16--The unintended consequences of QE, WSJ

–[T]here are grounds to believe that monetary stimulus operating through traditional (“flow”) channels might now be less effective in stimulating aggregate demand than is commonly asserted. In Section C, it is further contended that cumulative (“stock”) effects provide negative feedback mechanisms that also weaken growth over time. Assets purchased with created credit, both real and financial assets, eventually yield returns that are inadequate to service the debts associated with their purchase. In the face of such “stock” effects, stimulative policies that have worked in the past eventually lose their effectiveness.

–[O]ver time, easy monetary policies threaten the health of financial institutions and the functioning of financial markets, which are increasingly intertwined. This provides another negative feedback loop to threaten growth. Further, such policies threaten the “independence” of central banks, and can encourage imprudent behavior on the part of governments. In effect, easy monetary policies can lead to moral hazard on a grand scale. Further, once on such a path, “exit” becomes extremely difficult. Finally, easy monetary policy also has distributional effects, favoring debtors over creditors and the senior management of banks in particular. None of these “unintended consequences” could be remotely described as desirable.

–The force of these arguments might seem to lead to the conclusion that continuing with ultra easy monetary policy is a thoroughly bad idea

17--El-Erian on QE, Bloomberg

The central bank bought $2.3 trillion of debt from 2008 to 2011 in two rounds of what’s become known as quantitative easing, or QE. It has also kept its benchmark interest rate at zero to 0.25 percent since December 2008 and has pledged to hold it there until at least 2014....

Less Favorable’

More “stimulus would have more some impact, especially if the Fed focuses on buying mortgage securities,” El-Erian said from Pimco’s headquarters in Newport Beach, California. And the Fed’s easing has allowed borrowing costs to remain “artificially low,” thus stimulating the economy, he said.

Monetary policy is exhibiting diminishing returns and has the potential for causing “collateral damage” for money market funds, pension funds, the insurance industry and “the functioning of markets” El-Erian said. “The equation between costs and risks are becoming less favorable and that’s an issue for the Fed.”


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