Thursday, December 20, 2012

Today's links

1--Rising prices and rising interest rates will slow housing market appreciation, oc housing
Housing Affordability Begins to Slide
It is a double edged sword, no doubt. Rising home prices are necessary for the overall housing market to recover and for more borrowers to get back above water on their mortgages. Rising home prices, however, cut into the historic affordability that was bringing more buyers back to the market in the first place....
Even with mortgage rates hovering near record lows, it doesn’t take much to send borrowers running for the hills.
A slight move up from 3.47 percent on the 30-year fixed to 3.50 percent, caused mortgage refinance applications to plummet 14 percent from the previous week, according to the Mortgage Bankers Association.
Despite the Federal Reserve’s announcement last week that it would purchase an additional $45 billion in Treasury securities per month as part of its continuing quantitative easing effort, rates increased in the second half of the week,” said Mike Fratantoni, MBA’s Vice President of Research and Economics....
“As a result, refinance applications dropped sharply to the lowest level in over a month.”
Applications to buy a home also dropped 5 percent week-to-week, indicating a still weak and rate-sensitive purchase market.

“A lot of money has been spent between OT [Operation Twist] and QE3 for very little incremental reward,” notes Peter Boockvar of Miller Tabak. “The true cost, yet to be determined, will of course occur when the likely market forced exit begins.”

2---US profits as share of GDP at all time high while wages and salaries at all time low,  Big Picture

3--Fed’s $4 Trillion Rescue Helps Hedge Fund as Savers Hurt, Bloomberg

Deepak Narula’s mortgage-bond fund is up 39 percent this year. George Sanchez’s monthly annuity payout is down 41 percent.

The near-zero interest rate the Federal Reserve charges financial firms, as well as securities purchases that will balloon the central bank’s balance sheet to almost $4 trillion next year, have made it easier for Narula’s $1.6 billion fund to thrive and more difficult for Sanchez, a former college library director, to enjoy retirement.
Chairman Ben S. Bernanke’s efforts to energize the U.S. economy since 2008 have been credited with rousing the housing market from a six-year funk, lowering the jobless rate and putting more money in the pockets of both mortgage lenders and borrowers. At the same time, Fed policy has been blamed for starving money-savers of income and boosting certain asset prices, widening the gap between the rich and the rest of the country, said Joseph E. Stiglitz, the Nobel Prize-winning Columbia University economist.
Monetary policy has been indirectly, surreptitiously helping the top and hurting the bottom,” Stiglitz said.

After two rounds of asset purchases totaling $2.3 trillion through June 2011, the central bank began so-called QE3 in September. QE stands for “quantitative easing,” in which the Fed buys securities to channel cash into the financial system.
The goal is to stimulate spending and boost lending, which is meant to generate more jobs. Bernanke said last week the central bank will purchase $85 billion of assets a month next year “to increase the near-term momentum of the economy.” That would bring its balance sheet to almost $4 trillion, up from $924 billion on Sept. 10, 2008, the week before the collapse of investment bank Lehman Brothers Holdings Inc. deepened the recession...

Twenty-two of the 24 commodities in the S&P GSCI Commodity Spot Index have gained since the recession ended in June 2009, with only natural gas and cocoa lagging. Corn more than doubled in price even before this year’s drought sent values soaring. Heating oil is up 77 percent and wheat 58 percent. That means higher energy and food prices for consumers like Arlene McGuirk.
“Prices are ridiculous,” said McGuirk, a 65-year-old in Sterling, Massachusetts, who, like Sanchez, supplements a fixed income with a diminished annuity. “People who say there’s no inflation never go grocery shopping.”...

The losers in monetary policy are the savers,” Rupkey said. “Their rates are at zero for four years with the promise of two-and-a-half more years of zero rates. There’s little hope for the savers out there.”
Mortgage borrowers, on the other hand, have never had it better. Bob ...

The boon for the banks rankles David A. Stockman, a former Michigan congressman and director of the U.S. Office of Management and Budget under President Ronald Reagan.
“The Federal Reserve is in the tank for Wall Street,” said Stockman, who headed auto-parts maker Collins & Aikman Corp. “That’s why the 1 percent are thriving on financial speculation while savers, workers and retirees are getting crushed by zero interest rates and inflationary food and energy costs. It’s damn unfair, and it doesn’t work either

4---Obama’s Vilification of Latin America, counterpunch

Yes, there have been abuses of authority in Venezuela, as in all of the hemisphere — as President Obama should know. It was Obama who defended the imprisonment without trial for more than two-and-a-half years, and abuse in custody, of Bradley Manning, which was condemned by the United Nations’ Special Rapporteur on Torture. It is Obama who has refused to grant freedom to Native American activist Leonard Peltier, widely seen throughout the world as a political prisoner, now in a U.S. prison for 37 years. It is Obama who claims the right, and has used it, to kill American citizens without arrest or trial.

Venezuela is a middle-income country where the rule of law is relatively weak, as is the state generally (hence the absurdity of calling it “authoritarian”). But compared with other countries of its income level, it does not stand out for anything in the realm of human rights abuses. Certainly there is nothing in Venezuela comparable to the abuses by Washington allies such as Mexico or Honduras – where candidates for political office, opposition activists, and journalists are regularly murdered. And much of the scholarly research on Venezuela under Ch├ívez shows that it is more democratic and has more civil liberties than ever before in its own history.

5---Calif housing bubble?, Dr Housing Bubble

California home prices experienced a big surge in 2012. This might fly in the face of stagnant household incomes but the incredible push for lower interest rates and reliance on low down payment FHA insured loans has brought many people off the fence. In Southern California home sales are up by 14 percent over the last year and the median price is now up by 16 percent. The median price is largely being pushed by the mix of home sales. Distressed properties are making up a smaller pool of sales. With low inventory, you have regular home buyers competing also with house flippers, big Wall Street buyers, and foreign money with limited supply on the market. The result has been to push home prices much higher making it more difficult for middle class families to afford a home. As we approach the end of 2012, let us look at the data for Southern California...

Another bubble brewing?
It is hard to believe how quickly prices are rising but when you look below the surface, you realize that this rush is coming via cheap money and hot money from other sources. Many investors looking to buy homes to rent out are now turning away from places like the Inland Empire because the yields are no longer attractive. Flipping can only go on as long as easy financing is in play. Foreign money will only continue so long as our economic growth is in play. The Fed keeping interest rates low has given the market a major boost but how will life be after the boost

Is another bubble in California possible? Absolutely. Prices are rising disconnected from household incomes. The only way we keep moving at the current pace is if all of the above groups continue to purchase: investors, flippers, foreign money, FHA loans, low Fed rates. Missing from the equation is household income growth but then again, this is repeating the history of the first bubble run.

6---Brrrrr! Russia's Killer Coldfront, RT

7---Interview with James K Galbraith, economist's view

NachDenkSeiten: One of the news items of the past few days is that American companies are leaving southern Europe – without necessarily intending to go back.
Galbraith: Yes. You have a situation where companies are going to leave when they consider the social situation as unstable, when they consider the medical care is not tenable, and their top employees don't want to stay there, when the schools aren't any good or it's too stressful for their kids, all of these things. But it's also just a question of whether there's any hope for a profit in the markets....
NachDenkSeiten: You said that the debt, as long as the debt is not repayable, that you should essentially write it off and take a much larger haircut at this point.
Galbraith: Yes, of course.
NachDenkSeiten: It's fairly controversial among many economists and politicians. The economist Gustav Horn, for example, says, no, that would disrupt everything, there'd be a domino effect
Galbraith: All debt crises end in a write-down, all of them. I don't know of a single example, except maybe when Mexico got a brief reprieve in 1978 when it discovered oil in the Gulf. But that's the only counterexample I can come up with. They all end that way, because once you've moved into a crisis, you are in a situation which gets worse as time goes on. So it's only a question of now or later.
NachDenkSeiten: How would you go about doing that. One idea would be for the ECB to buy up a lot of the outstanding bonds, and just letting them sit in the books.
Galbraith: So long as they are in existence at unsustainable interest rates, they are what an IMF economist in the 1980's described to me as an unfunded tax liability for the debtor. They just sit there, and they act as a burden on economic activity. You never know at what point you are going to have to actually dip into whatever later growth you might have in order to pay them off. So you have to get rid of them
8---Obama proposes cuts to social security, wsws

what is being worked out in the talks between Obama and Boehner is nothing less than the terms of a social retrogression of unprecedented dimensions. Using the concocted threat of a December 31 “fiscal cliff,” when some $600 billion in tax increases and spending cuts are scheduled to begin because of previous Washington agreements, the representatives of big business, Democratic and Republican, are proposing to begin the dismantling of the social reforms enacted in the 20th century.

The White House decision to propose cuts in future Social Security benefits is of enormous political significance. Social Security has long been characterized as the “third rail” of American politics—touch it and you die. Obama and Boehner are seeking to break this taboo and create a new political framework for imposing brutal austerity measures on working people.

Whatever the immediate outcome of the talks in Washington, whether or not a deal is reached before December 31, the overall direction is clear: entitlement programs like Social Security, Medicare and Medicaid are to be gutted. The only significant area of federal spending will be the military-police agencies required to defend the interests of the financial aristocracy—overseas against foreign rivals and revolutions, at home against the American working class.

9--UBS Libor-rigging settlement exposes pervasive bank fraud, wsws-

The Libor scandal has laid bare the rampant criminality in the operations of the world's major banks and exposed the fact that the so-called “free market” is rigged by the most powerful banks and corporations for their own profit.

The Libor rate, which is set daily in London under the auspices of the BBA, a private banking lobby, is supposed to reflect the average cost of loans between major banks. An estimated $800 trillion in financial products are linked to Libor. These include $10 trillion in mortgages, student loans and credit cards. About 90 percent of US commercial and mortgage loans are linked to the index.

Between 2005 and 2007, Barclays, UBS and other banks systematically inflated their borrowing cost estimates to the Libor board in order to drive up the Libor rate and increase their profits on derivatives linked to it. After 2007, when the global financial crisis intensified, the banks lowballed their submissions to Libor in order to mask their financial weaknesses and lower their borrowing costs.

By manipulating the rate upward, the banks robbed countless millions of people of billions of dollars in inflated loan costs. By manipulating the rate downward, they deprived states, cities, pension funds and retirees with fixed investments of untold billions in revenues from bond holdings...

In its report, the FSA said the total fines against UBS were larger than those imposed on Barclays because “UBS’ misconduct is, although similar in nature, considerably more serious… More individuals, including managers and senior managers, participated in or knew about the manipulation."

The FSA noted that UBS employees not only collaborated internally in falsifying Libor submissions, but the bank also “made corrupt payments of £15,000 per quarter to brokers to reward them for their assistance for a period of at least 18 months.”

The report cited specific exchanges, such as an email from September 18, 2008 in which a UBS trader told a broker at another firm: “if you keep [the Libor rate] unchanged today… I will f___g do one humongous deal with you… Like a 50,000 buck deal, whatever… I need you to keep it as low as possible… if you do that… I’ll pay you, you know, 50,000 dollars, 100,000 dollars… whatever you want ... I’m a man of my word.”
The FSA reported noted: “There
was a culture where the manipulation of the Libor and Euribor (the euro equivalent of the dollar-denominated Libor) setting process was pervasive. The manipulation was conducted openly and was considered to be a normal and acceptable business practice by a large pool of individuals.”

In an email published in relationship to last June’s Barclays settlement, one trader said that for every .01 percent Libor was changed, the bank would receive “about a couple of million dollars.”
Libor was created in 1984 to provide a common basis for valuing a broad range of complex securities, including interest rate swaps and derivatives, which had sprung up during the decade’s finance boom. In keeping with the global policy of deregulation and “self-regulation,” the Libor-setting process was placed under the control of the BBA, a private British banking lobby dominated by the most powerful London-based banks, and based on daily reports submitted by major international banks.

Given the scale and pervasiveness of the manipulation of Libor by virtually every major bank in the world, it is impossible to credibly claim that financial regulators and governments were unaware of the fraud that was being perpetrated. On the contrary, documents requested by a US House of Representatives committee and released last July by the Federal Reserve Bank of New York and the Bank of England, following the announcement of the Barclays settlement, showed that both institutions knew of the Libor-rigging as early as 2007.

10---Massacre at Wounded Knee anniversary Dec 29, history

11-- Dispelling the myth: Tax cuts DO NOT help the economy, Reuters

This September, the CRS followed up with a 65-year retrospective by Hungerford on whether tax cuts for the rich help the economy. "Analysis of such data suggests the reduction in the top tax rates (has) had little association with saving, investment, or productivity growth," he wrote. "However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution."

12---A projected 13.1 percent of workers will be unemployed at some point in 2013, EPI

New data show that 14.9 percent of the workforce was unemployed at some point in 2011, much higher than the official 2011 unemployment rate of 8.9 percent. How can this be? Each month, the official unemployment rate provides the share of the labor force unemployed in that month. But this understates the number of people who are unemployed at some point over a longer period, since someone who is employed in one month may become unemployed the next, and vice versa. So the official annual unemployment rate—which is actually the average monthly unemployment rate for the year—is much lower than the share of the workforce that experienced unemployment at some point during the year.

The figure below, from The State of Working America, 12th Edition (and updated with new data from the Bureau of Labor Statistics) shows both the official unemployment rate and the “over-the-year” unemployment rate—the share of workers who experienced unemployment at some point during the year. Using the ratio of the over-the-year unemployment rate to the official unemployment rate in 2011, we can project the over-the-year unemployment rate for 2012 and 2013. It is likely that 13.1 percent of the workforce, or more than one in eight workers, will be unemployed at some point next year.

13---World Bank fears fresh credit bubble in China on hot money flows, Telegraph

China and Asia’s tigers are roaring back to life and risk a fresh credit booms unless they can choke inflows of hot money, the World Bank has warned.

The Far East has shaken off the deep downturn earlier this year and looks poised to drive a fresh cycle of global growth in 2013. “China appears to have bottomed out,” said the Bank in its regional report.

Asia’s powerhouse economy will rebound with 8.4pc growth next year as credit stimulus and an infrastructure blitz by local governments gain traction, with knock-on effects through East Asia. The region as a whole will grow by 7.9pc, with Myanmar at last starting to catch up as undertakes “formidable reforms”.

The new risk is a return to overheating as ultra-loose monetary policies in the West trigger a “flood of capital into the region that could lead to asset bubbles and excessive credit growth” -- with the risk of sharp reversals later.

“Authorities should closely monitor developments on the capital account, especially in countries

By holding down the yuan - to boost exports - China is in effect importing a US monetary policy that is far too loose for its own internal needs, creating inflationary “blow-back”.This may not have mattered after the Lehman crisis when the Politburo deliberately boosted credit by over 30pc a year, but it has now become malign.

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