Monday, November 19, 2012

Today's links

1--Canada: Tighter mortgage rules threaten economy’s recovery, brokers warn, National Post

2--Why Gaza Must Suffer Again, counterpunch

Israel and its supporters always make it their first priority when Israel launches a new war of aggression to obscure the timeline of events as a way to cloud responsibility. The media willingly regurgitates such efforts at misdirection.
In reality, Israel engineered a confrontation to provide the pretext for a “retaliatory” attack, just as it did four years earlier in Operation Cast Lead. Then Israel broke a six-month ceasefire agreed with Hamas by staging a raid into Gaza that killed six Hamas members.

This time, on 8 November, Israel achieved the same end by invading Gaza again, on this occasion following a two-week lull in tensions. A 13-year-old boy out playing football was killed by an Israeli bullet.
Tit-for-tat violence over the following days resulted in the injury of eight Israelis, including four soldiers, and the deaths of five Palestinian civilians, and the wounding of dozens more in Gaza.
On November 12, as part of efforts to calm things down, the Palestinian militant factions agreed a truce that held two days – until Israel broke it by assassinating Hamas military leader Ahmed Jabari. The rockets out of Gaza that followed these various Israeli provocations have been misrepresented as the casus belli.

But if Netanyahu and Barak are responsible for creating the immediate pretext for an attack on Gaza, they are also criminally negligent for failing to pursue an opportunity to secure a much longer truce with Hamas.
We now know, thanks to Israeli peace activist Gershon Baskin, that in the period leading up to Jabari’s execution Egypt had been working to secure a long-term truce between Israel and Hamas. Jabari was apparently eager to agree to it.

Baskin, who was intimately involved in the talks, was a credible conduit between Israel and Hamas because he had played a key role last year in getting Jabari to sign off on a prisoner exchange that led to the release of Israeli soldier Gilad Shalit. Baskin noted in the Haaretz newspaper that Jabari’s assassination “killed the possibility of achieving a truce and also the Egyptian mediators’ ability to function.”

3--Bernanke pledges to do what he can to reflate the housing bubble, OC Housing

Bernanke said while tighter credit standards after a collapse in the subprime mortgage market were appropriate, “it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.”...

The Fed’s actions have helped push mortgage rates to historic lows. The average fixed rate on a 30-year mortgage fell to 3.34 percent today, according to a Freddie Mac index, the lowest on record.
Those rates have increased affordability and helped bolster home price. The S&P/Case-Shiller index of property values in 20 cities rose 2 percent in the year beginning in August 2011, the biggest annual gain since July 2010.

Supporting Gains

Increasing home prices are rippling through the economy, supporting gains in consumer confidence and spending ..

Bernanke will continue to stimulate housing for the benefit of the member banks of the federal reserve until he is either removed from his post, or house prices reflate back to peak levels so lenders can finally foreclose on the squatters without losing money. I expect to see interest rates continue to fall, and house prices continue to go up. Bernanke will reflate the housing bubble, along with its commensurate problems, to solve the problems created by the last housing bubble. The last vestiges of a free market are quickly fading from memory. We are embarking on a new era of government-controlled housing.

4--Widespread confusion about fiscal cliff, CEPR

This crisis is one of excessive deficit reduction, it is resolved by smaller tax increases and smaller cuts in spending.
In other words, the crisis is that we are taking too much money away from people, which will hurt the economy. The crisis will be resolved by taking less money away from people. It is the opposite of a "costly fiscal crisis." Instead, we will be faced with a costly economic crisis if the tax increases and spending cuts are allowed to take effect.

5---GDP Accelerating to 2.9% Helping U.S. Overcome Sandy Woes, Bloomberg

6--Shadow Banking’ Up to $67 Trillion, Financial Group Says, NYT

The so-called shadow banking system, blamed by some for aggravating the global financial crisis, grew to a new high of $67 trillion worldwide last year, a regulatory group said on Sunday, calling for tighter oversight of nonbank institutions like hedge funds, private equity firms and other investment companies.
      
The report by the Financial Stability Board appeared to confirm concerns among policy makers that shadow banking is set to thrive beyond the reach of a regulatory net that has been tightening around conventional banking.
The board, a task force from the world’s top 20 economies, also called for greater regulatory control of shadow banking.
      
“The F.S.B. is of the view that the authorities’ approach to shadow banking has to be a targeted one,” the group said, pointing to current lax regulation of the sector. “The objective is to ensure that shadow banking is subject to appropriate oversight and regulation to address banklike risks to financial stability,” it said.
      
The United States had the largest shadow banking system, with $23 trillion in 2011, followed by the euro zone, with $22 trillion, and Britain, with $9 trillion. The American share of shadow banking has declined in recent years, while the shares of Britain and the euro zone have increased.
The board warned that tighter rules forcing banks to keep more capital reserves to cover losses could bolster shadow banking
 
 
The great "Sandy debate" is on. US economic data is coming in weaker than expected and some argue that it can't all be explained by the hurricane. Case in point is the initial jobless claims report from last week - see chart.
Econoday: - Hurricane or not, it's hard to ignore an incredible 78,000 surge in initial jobless claims for the November 10 week to 439,000. Adding to the pressure is a 6,000 upward revision to the prior week to 361,000. The four-week average is up a very sizable 11,750 to a 383,750 level that is more than 15,000 above month-ago levels which does not point to improvement for November payroll growth or the unemployment rate.
Another example is the US industrial production, which clearly looks like it has stalled
 
8--Blackstone Sees Two-Year Window to Buy Houses: Mortgages, Bloomberg
 
Thomas Barrack’s Colony Capital LLC, a private-equity firm, has bought about 5,500 homes since April, spending more than $500 million, and expects to reach $1.5 billion invested by the end of next year. Closely held Waypoint Homes has said it has bought about 2,500 homes and expects to have 10,000 homes by the end of next year.

REIT Plans
Blackstone, Colony and other investors buying homes in bulk to rent have said they could create real estate investment trusts out of the properties to take public, paying dividends from the rental income on the homes, similar to the wave of apartment REITs such as Equity Residential (EQR) that went public in the early 1990s.

“There are differing opinions about whether the opportunity will continue beyond 2-3 years to buy houses at yields that make sense to institutional investors,” said Colin Wiel, co-founder and managing director of Waypoint Homes. “I believe this is an evergreen opportunity.”

While investment yields “will come down,” from about 7 percent today, excluding debt, to a level more in line with apartment-property yields, or about 5.5 percent, Wiel said, “I think institutional investors will be comfortable with that because the asset class will be ‘established’ by then.”

Blackstone paid less than $150,000 on average for homes that were valued during the 2006 peak at more than $300,000, Gray said. Blackstone has formed a company called Invitation Homes to focus on about 10 metropolitan areas that were particularly hard hit by the credit crisis. It has partnered with closely held Riverstone Residential Group based in Dallas to manage the properties.

9--Faux liberal group "Third Way" aims to scuttle social security, Big Picture

Let me attempt again to make the basic facts clear. Third Way is not a “liberal think tank.” It does not take “a centrist approach.” It is not run by “fellow progressives.” It is not concerned with “protecting entitlements.” It is not even a “think tank.” Third Way is a creature of Wall Street. It’s version of “protecting” the safety net was made infamous during the Tet offensive in Viet Nam when the American officer explained that “it became necessary to destroy the village in order to save it.” Third Way is the Wall Street wing of the Democratic Party, which seeks to defeat Democratic candidates like Elizabeth Warren running against Wall Street sycophants like Senator Scott Brown and seeks to unravel the safety net programs that are the crown jewels of the Democratic Party. Wall Street’s “natural” party is certainly the Republican Party, but Wall Street has no permanent party or ideology, only permanent interests. Third Way serves its financial interests and the personal interests of its senior executives. Wall Street has always been the enemy of Social Security and its greatest dream is to privatize Social Security. Wall Street’s senior executives live in terror of being held accountable under the criminal laws for their crimes. They became wealthy by leading the “control frauds” that drove the financial crisis and the Great Recession. This is why Wall Street made defeating Warren a top priority.

Third Way is run by a man who Laursen terms an “acolyte” of Pete Peterson. Peterson is a Republican, Wall Street billionaire who has two priorities – imposing austerity on America and privatizing Social Security. Privatizing Social Security is Wall Street’s unholy grail. They would receive hundreds of billions of dollars in fees and ensure that their firms were not only “too big to fail,” but “too big to criticize” if they could profit from a privatized retirement system. (We do not know who funds Third Way because it refuses to make its donors public. Given who dominates its Board of Trustees, however, the donors must be overwhelmingly from Wall Street.)...

The “left” is not divided on the need to oppose austerity and the Great Betrayal. Third Way is not left or center or even right. It is Wall Street on the Potomac. Opposition to austerity and the Great Betrayal is not a left v. center issue. Wall Street’s proposed financial policies are terrible for virtually all Americans.

10---Putting the fiscal cliff in perspective, sober look

11---Overall Delinquency Rate Surges in September; Denial Dial Plunges to Record Low, AIE

In September, 17.3 percent of all Federal Housing Administration (FHA) loans were delinquent, up from 16.35 percent in August 2012 and 16.78 percent in September 2011. Total delinquencies increased by 77,000 over August, the largest one-month increase since FHA Watch began tracking monthly delinquencies in September 2011.

The September estimate of the FHA’s generally accepted accounting principles (GAAP) net worth is –$28.3 billion, down from –$16.3 billion and –$26.3 billion in September 2011 and August 2012, respectively. The capital shortfall stands at $48 billion (using a 2 percent capital ratio) and $67 billion (using a 4 percent capital ratio). The Denial Dial was reset to −2.61 percent, eclipsing the previous low set in August 2012. The FHA’s estimated net worth on a GAAP basis has declined by $12 billion since the end of FY 2011.

12--The Next Housing Bailout? Big Trouble Brewing at the FHA, Atlantic

13--“Shadow” & “Ghost” Inventory / Negative & “Effective” Negative Equity…The Real Challenges for US Housing, Big Picture

For years I have proclaimed that “no housing recovery will ever occur — or no dead-cat-bounce will reach “escape velocity” or become “durable” — unless the repeat buyer is leading the way. This is because investors and first-timers are thin, volatile cohorts who have been known over history to leave the market literally, overnight.

Case in point, July Phoenix area home sales were down a whopper 22% MoM and 15% YoY to multi-year lows for July…demand “recoveries” are not supposed to come with that type of volatility. However, stimulus-driven short squeezes and dead-cat-bounces are.
The problem is that the mortgaged homeowner has always been the primary demand cohort. It’s not investors, first-timers or those who own their homes free and clear. Rather, the mortgage-levered homeowner who tends to move every 6 to 8 years who provides most of the historic underlying support for macro housing.

This is a problem. Put simply, there are more houses today then there were five years ago but a full HALF of the primary demand cohort — repeat buyers — died due to negative equity, “effective” negative equity, poor credit or legacy HELOCs, all of which prevent sellers (repeat buyers) from paying a Realtor 6%, putting 10% to 20% down on a new purchase, and getting a mortgage for the remainder. Put even more simply, housing “supply” has grown in the past 5 years and ready and able buyers have been cut in half.

Bottom line, WHERE IS THE “DURABLE”, INCREMENTAL DEMAND GOING TO COME FROM short of issuing instant citizenship to 15 million foreigners for a $500k+ capital investment in US resi real estate?

With nearly 50% of all mortgaged homeowners in the nation zombified (not including HELOCs), the housing market will continue to go through period of stimulus-driven demand spurts (when investors and first-timers are “activated”) followed by stimulus-hangovers (when investors and first-timers go away) until meaningful de-leveraging occurs, which will take another decade based on my math

 

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