Thursday, August 30, 2012

Today's links

1--Correspondence and collusion between the New York Times and the CIA, Guardian
Mark Mazzetti's emails with the CIA expose the degradation of journalism that has lost the imperative to be a check to power

2--Five Australian Troops Killed by Afghan , antiwar.com

3--Gangs of Aleppo, William lind, The American Conservative

The Arab Spring succumbs to post-state violence

4--Money market fear gauge nears record lows, IFR
5--Latest on China: all is well and "economic growth is stabilizing", sober look
6--Economy Still Stuck in Low Gear, NY Times

7--The unintended consequences of QE: not what you think, FT.com
(The road to hell is paved with good intentions?)

By now, everyone is familiar with the mantra that QE is [arghh!] money-printing and that a major unintended consequence could be a chronic and uncontrollable inflation. (One could call this the goldbug, Austrian, Republican case).


Less well known, perhaps, is the theory that QE could be just as unexpectedly deflationary — because long-term micro yields come to threaten a number of financial sectors outright, as well as general expectations of risk-free returns which lead to capital destructive feedback loops...

(From the) Federal Reserve Bank of Dallas working paper from William (Bill) White entitled “Ultra Easy Monetary Policy and the Law of Unintended Consequences“.


A further concern is that the reductions in real rates seen to date, associated with lower nominal borrowing rates and seemingly stable inflationary expectations, might at some point be offset by falling inflationary expectations. In the limit, expectations of deflation could not be ruled out. This in fact was an important part of the debt/ deflation process first described by Irving Fisher in 1936....

Given the unprecedented character of the monetary policies followed in recent years, and the almost complete absence of a financial sector in currently used macroeconomic models, there might well be other unintended consequences that are not yet on the radar screen. By way of example only, futures brokers demand margin, and customers often over margin. The broker can invest the excess, and often a substantial portion of their profits comes from this source. Low interest rates threaten this income source and perhaps even the whole business model. A similar concern might arise concerning the viability of money market mutual funds, supposing that asset returns were not sufficient to even cover operating expenses. A final example of potential problems has to do with the swaps markets, where unexpectedly low policy rates can punish severely those that bet the wrong way. This could lead to bankruptcies and other unintended consequences....

herein lies the irony. For, if it’s clear that low-yield policies and QE buy time, and only time, this inevitably puts the onus on governments, not central banks, to steer the economy out of the path of the unintended consequences of monetary policy.


Indeed, as White concludes:

If governments do not use this time wisely, then the ongoing economic and financial crisis can only worsen as the unintended consequences of current monetary policies increasingly materialize

8--Mostly through short sales, banks met 40% of settlement requirement, OC Housing News

The settlement with the major banks dramatically altered their incentives. As part of the settlement, banks can count short sale losses toward their settlement amount. Foreclosures don’t count. So how did banks respond? They dramatically reduced their REO processing and focused on approving short sales. This had two impacts on MLS inventory. First, the lingering short sales that polluted the MLS for months were cleared out. And second, far fewer REO were processed to replace the REO the banks were selling. By clearing out the backlog and not replacing with fresh supply, the number of properties available for sale on the MLS dried up. As a side benefit, prices went up increasing the bank’s capital recovery on the properties they did sell.


This change in incentives is one of the many policy changes and manipulations impacting the housing market. It’s very difficult to predict when such changes will occur and what their impact will be. Anyone who guesses right about the direction of home prices in this environment is either extraordinarily insightful, or rather lucky

9--A Bold New Call for a Maximum Wage, counterpunch






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.”




 










Tuesday, August 28, 2012

Today's links

1--China’s Stimulus Headaches, naked capitalism

2--US troops escape criminal charges for incidents that outraged AfghanistanBurning of Qur'ans and urinating on corpses in Afghanistan led to allegations against six US army soldiers and three marines, Guardian


3--Parents deported, what happens to US-born kids?, MPR News
Nearly 45,000 such parents were removed in the first six months of this year, says the federal department of Immigration and Customs Enforcement (ICE).
4--The Middle Class Decline, economic populist

5--The work of John Maynard Keynes shows us that counter-cyclical fiscal policy and an easing of austerity may offer a way out of Eurozone crisis, LSE

6--Is the Fed Gaming Hilsenrath? Next Easing Will Be the Last, TrimTabs

7--Spanish Recession Deepens as Austerity Damps Outlook: Economy, Bloomberg

8--Will the Fed announce an open-ended QE3 program at Jackson hole?, Dr Ed's blog

9--Why Paul McCulley Would Be Shorting The Economy With Both Hands Right Now, zero hedge

10--Gaza will be 'unlivable' by 2020 unless immediate action taken - UN, RT

11--Israeli court acquits Israel of 2003 killing of US pro-Palestinian activist Rachel Corrie, RT

12----Trickle-down quantitative easing, IFR

QE drove a 26% rise in shares above where they otherwise would be, in turn fuelling a nominal increase of almost a trillion dollars in household wealth in Britain, though with the richest 5% owning 40% of financial assets those gains were hugely slanted towards the wealthiest.

Quantitative easing, as distinct from simply lowering interest rates, acts on the economy through channels several of which tend to push asset prices higher. First, most simply and most powerfully, when a central bank creates money and buys a government bond the person selling it is faced with a question of what to do with the money. Many will elect to plow the money back into shares and corporate bonds, boosting prices.

While QE will improve the earning power of corporations, via the wealth effect from higher asset prices and more generally through higher overall economic growth, it seems unlikely, to cite the BOE’s figures, that it has raised the long-term value of corporate earnings by the 26% it has raised the price of a share in those earnings. That very well may leave shares vulnerable; in need of either more QE, which may show diminishing returns, or, less likely, an actual economic recovery.

The so-called liquidity premium may also not last forever.



Friday, August 24, 2012

Weekend links

1--Big Income Losses for Those Near Retirement, NY Times
2--Most U.S. Stocks Decline on Economic Data, Europe Concern, Bloomberg

Equities retreated after a report showed demand for U.S. capital goods such as machinery and communications gear dropped in July by the most in eight months, indicating companies are pulling back on investment.
3--Money Funds Test Geithner, Bernanke as Schapiro Defeated, Bloomberg

There’s real unanimity in the bank regulatory arena about the need to do something about money-market funds,” ....SEC Chairman Mary Schapiro this week abandoned a four-year effort to adopt tougher rules for money funds as three fellow commissioners said they wouldn’t support her proposal. The announcement marks a victory for the fund industry, which had lobbied against the plan.
Former SEC Chairman Arthur Levitt called the decision by three commissioners to block Schapiro’s proposal a “national disgrace” and said the Obama administration should pursue the issue through the Financial Stability Oversight Council, or FSOC, the panel Congress charged under Dodd-Frank with monitoring the country’s financial threats.

4--Venezuela Ramps up China Oil Exports Unsettling Washington, Oil Price
5--Real house prices, woodonfire (great chart)
6-- Don’t Lose Money While Waiting For Market Plunge, TrimTabs

Today there are three reasons why current real time data is so bearish when compared with stock prices. First, wages and salaries are growing nominally at 3% year over year. And that is before inflation. After inflation, there is no growth in final demand and therefore spending. (See the August 16 Daily Edge for more.)


What all this means is that very few jobs are currently being created. Second, no growth in spending means that earnings during the second half of the year are likely to disappoint. Why should companies hire more people and increase production when final demand is flat?

Third, supply and demand of stocks has turned quite bearish. Insider selling this month is at its highest level since May 2011. By the way, May 2011 was the first of three times the S&P 500 approached 1420. In addition, companies are also selling more shares than they are buying. New buybacks in August have been less than company and insider- share sales for the first time since this past May. May 2012 was the second time that the S&P 500 approached 1420. The third time was yesterday before the market turned around.

7--How Goldman Sachs Created the Food Crisis , Foreign Policy
Don't blame American appetites, rising oil prices, or genetically modified crops for rising food prices. Wall Street's at fault for the spiraling cost of food.
8--China's slowdown can no longer be masked by cooked economic data, sober look

NY Times: - After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.


The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.

The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors.

9--Fears of meltdown in Vietnam, NYT
10--Europe marches into recession, macrobusiness
11--Pew Research: “Fewer, Poorer, Gloomier: The Lost Decade of the Middle Class”--New poll, data point to vast social polarization in US, WSWS

12--Foreclosure-rental ABS deals in the works, IFR
13--Euro crisis: Germany is not bluffing, IFR
14--Cooler heads at the FOMC should prevail, avoiding QE3, sober look


Fed's beyond the changes in economic indicators, the FOMC members (hopefully) understand that increasing bank reserves further via QE3 is not going to change banks' behavior. The problem of a number of small businesses and potential homeowners not being able to access credit is not going to improve just because bank reserves rise due to Fed's asset purchases. In fact US banks are not liquidity constrained and are visibly increasing their lending activities (below). Also interest rates are already sufficiently low (near record lows) not to be a constraint when it comes to financing decisions. QE3 will do little to change the credit conditions in the US....
And there are significant downside risks. The latest FOMC minutes contain the following, somewhat disturbing quote: "... some participants noted that a new [QE] program might boost business and consumer confidence". That statement shows how out of touch some of these members are when it comes to the US consumer. Additional unsterilized asset purchases will undermine consumer confidence instead of improving it by raising commodity prices. Gasoline prices have risen considerably already and food prices will rise as drought driven spike in agricultural commodities makes its way through the system. More QE will increase these prices further and aggravate an already difficult situation. Risks of such a program far outweigh the benefits. Cooler heads at the FOMC should prevail and the Fed will "remain on the sidelines".

15--Jews in Iran, CNN and, this from you tube

















Wednesday, August 22, 2012

Today's links

1--Corporations hoard record cash (From the archive), Bloomberg video

2--Still Getting the Housing Bubble Wrong, CEPR

...Bubble-inflated house prices created close to $8 trillion dollars of housing equity. The housing wealth effect implies that people would spend between 5 to 7 cents on the dollar of this additional wealth, creating between $400 billion and $560 billion in additional annual consumption. The property taxes on inflated house prices also helped support perhaps $80 billion or so in state and local government spending. For good measure there was a bubble in non-residential real estate that followed in the wake of the housing bubble, which created a boom in this sector as well.


When the bubble burst, there was nothing to replace the lost demand. Residential construction fell by more than 4 percentage points of GDP ($600 billion annually in today's economy). It fell below normal levels because the boom of the bubble years had led to record vacancy rates. Consumption plunged because the housing bubble equity disappeared. When the wealth was gone, the consumption that it generated also vanished. And, we saw cutbacks in government spending at the state and local level in response to the lost tax revenue.

All of this seems clear and simple. We lost $1.2 trillion to $1.4 trillion in annual private sector demand. Some of this has been replaced by the federal government's budget deficits, but not enough to fill the gap. So what would have various plans to rescue housing done?

3--China bubble in 'danger zone' warns Bank of Japan, Telegraph

4--"Many members” believe more QE may be needed, Bloomberg

5--Zombie China, macrobusiness

6--Wages and compensation stagnating, state of working america (chart)

7--CBO: Prepare for recession, pragmatic capitalism

8--CBO: Even if Fiscal Cliff Avoided Unemployment to Remain High, WSJ

9--The US debacle in Afghanistan, WSWS

10--Existing Home Sales: Inventory and NSA Sales Graph, calculated risk




Tuesday, August 21, 2012

Today's links

1--Volatility's Great Moderation, IFR


2--Where has the retail investor gone, Wa Post   3--Still Looking for a Housing Bottom, Michael Olenick, naked capitalism "Must read"

4--Top Marginal tax rates: 1916-2011, chart, naked capitalism

5--South American bloc adopts resolution on UK threats to Ecuador, RT
6--Consumer Debt and the Economic Recovery, FRBSF

A key ingredient of an economic recovery is a pickup in household spending supported by increased consumer debt. As the current economic recovery has struggled to take hold, household debt levels have grown little. Some evidence indicates that households adjusted debt in line with house price movements in their local markets. However, the data show that consumer debt cutbacks were largest among households that defaulted on mortgages or had lower credit scores, suggesting that household borrowing also was restricted by tight aggregate credit supply.

Conclusion


Consumer debt fell substantially during the recent recession and recovery. The extent of deleveraging in consumer nonmortgage debt differs by households in different markets in a way that is consistent with the idea that highly indebted households seek to reduce debt loads when house prices fall substantially. However, the most important differences do not appear to depend on geography, that is, differences in past house price appreciation. Rather they appear to depend on the type of borrower. Within a county, borrowers who defaulted on mortgages tended to experience much larger reductions in nonmortgage debt than borrowers who stayed current on mortgages. Borrowers with low credit scores experienced larger reductions in nonmortgage debt than borrowers with high credit scores. These results suggest that tighter credit conditions also are probably restricting the flow of credit to consumers. Moreover, these changes in credit supply appear to be working at an aggregate rather than a regional level (see Williams 2012). The early signs of recovery in the housing market are certainly welcome. But this analysis suggests that households are still facing credit supply headwinds.

7--Epic Stock Rally Finding Few Fans, WSJ

8--Globalization and the Income Slowdown, NY Times

9--Corporate Earnings & Revenues Destined to Disappoint in Q3 & Q4, Trimtabs

Many bullish Wall Street analysts seem to be expecting decent second half earnings and revenue growth for the stock market as whole and that is their justification for current stock prices. I say there is no way earnings per share and revenues will grow in aggregate over the second half of this year. I do not include financial stocks in this accounting. That’s because big bank stocks’ earnings per share are based upon the same myth that the current stock market valuation is based upon, and that is the Bernanke Put. The Bernanke put says the Fed will print enough money to buy existing loans, and then everyone lives happily ever after.


The reason earnings growth has to disappoint is apparent to me when I step back and look at our chart tracking wage and salary growth rate compared with the stock market for the past eight years....the three month moving average of wage and salary growth on our blog chart was negative for all of 2009 and turned positive in early 2010. At same time, stock prices soared starting in March 2009, ultimately peaking at just about double the March 2009 lows. As a result of the market boom and plunging interest rates, companies were able to sell lots of new shares as well as bonds and in the process added record cash to their balance sheets

 in 2011 wage and salary growth had dropped from 6% at the April peak, to below 4% in October and then to under 3.3% by January 2012. Since then January wage and salary growth has trended lower. Currently wage and salary growth is hovering over 3% year over year. What is even worse that 3% is before inflation. My guess is that real inflation now that oil prices are surging is at least 3%. That means that after inflation there is no growth in final demand. So with no increase in demand, where will earnings growth come from?
10--Are Stocks Climbing A Wall Of Worry?, Big Picture
11--China's housing market heats up again, sober look
12--Ex-Morgan Stanley Analyst Forms Firm to Buy Rental Homes, Businessweek

13--Foreclosures Draw Private Equity as U.S. Sells Homes, Bloomberg

The Federal Housing Finance Agency, which oversees Fannie Mae (FNMA) and Freddie Mac, plans to complete initial transactions in the first quarter of this year, offering some of the 180,000 foreclosed homes in their inventory to private operators as rental properties, Corinne Russell, a spokeswoman, said in a telephone interview.


Public-Private Partnerships

The Federal Housing Administration, which also will participate in the rental program, had 32,170 real-estate owned homes seized from borrowers, also known as REOs, as of Dec. 31, according to spokesman Lemar Wooley.

Possible aspects of the program include public-private partnerships to share the risk and profits, “seller financing” guaranteed by the government and rent-to-own opportunities for tenants, according to a November memo. ...

1 Trillion Liquidations


About 7.5 million homes with a current market value of $1 trillion will be liquidated through foreclosures or other distressed sales by 2016, according to an Oct. 27 report by Chang. That will add to the estimated 20 million single-family homes already operated as rentals, which have yielded annual returns averaging 8.1 percent since 1990, Chang’s report said.

Rentals can produce cash flows, known as a capitalization rate or cap rate, that reduce losses more than reselling foreclosed homes at a time of weak demand, the Federal Reserve report said.

“Preliminary estimates suggest that about two-fifths of Fannie Mae’s REO inventory would have a cap rate above 8 percent -- sufficiently high to indicate renting the property might deliver a better loss recovery than selling the property,” the Fed paper said....

GTIS, which has $2 billion of assets, expects to hold its homes about five years, waiting for housing prices to recover before selling, Shapiro said. If housing prices don’t rebound, GTIS can exit by forming a real estate investment trust with shares sold to investors attracted by the rental income, similar to REITS for multifamily, industrial or office properties, he said.


“Single family dwarfs any of those asset classes,” Shapiro said. “When you think about the number of homes that are going to be rented and institutionally owned, they’re going to become its own asset class.”

14--Fannie Mae Partners Seek Bulk Buys in Cities Headed for Recovery, businessweek


Given the mixed-quality portfolios that the agencies currently hold, an important feature will be for the government to provide the joint ventures access to reasonable but conservative leverage,” he said. “Investors will be able to offer higher upfront prices for the homes if attractive financing is available, which in turn will act as a stabilizer for the market as a whole.”...

Fannie Mae had 122,616 real estate owned homes, or REOs, as of Sept. 30. A minority of the properties will be offered in bulk to investors, while most will go to buyers who will live in them, said Andrew Wilson, a spokesman for agency.

15--Why Homeownership Is Stalling Even As Home Sales Improve, US News


An influx of investors buying up properties actually drives down the homeownership rate, because the homeownership rate is calculated by dividing the number of households that are owner-occupied by the total number of occupied households. Investors generally purchase a property, but then rent to another household, which doesn't make them owner-occupiers. That reduces the "owner-occupiers" in the equation, which ultimately means the homeownership rate takes a hit.


The latest estimates from the National Association of Realtors showed that investors accounted for about 19 percent of home purchases in June, up from 17 percent in May, but housing experts and industry observers believe that number could shoot higher as government foreclosure-to-rental programs take off.

Overall, most experts expect the homeownership rate to continue to fall in coming years—down to 64 percent according to some estimates—as the fallout of the foreclosure crisis continues to work through the system and rental demand remains elevated.

16--Mortgage woes rise, loan safe

Nationwide, delinquencies increased from 6.9 percent to 7.3 percent over the same period.


“Perhaps more important than the small size of the increase, however, is the fact that it reversed the trend of fairly steady drops in delinquencies we have seen over the last year,” said Jay Brinkmann, the Washington, D.C.-based association’s chief economist.

“This is consistent with the slowdown in the economy during the first half of the year and our stubbornly high unemployment rate,” he said.

17--Mortgage Delinquencies in U.S. Rise for First Time in Year, SF Gate



 














 








Monday, August 20, 2012

Today's links

1--Will the Economic Data Re-elect President Obama?, pragmatic capitalism

2--China's Big Four boost new bank loans in Aug first half -report, Reuters

3--Americans Cut Their Debt, The Big Picture

4--Banks Use $1.77 Trillion to Double Treasury Purchases, Bloomberg
While the gap has narrowed to $1.75 trillion as of Aug. 8 as lending of $7.12 trillion trailed $8.87 trillion in deposits, the gap is more than 17 times the $100 billion average in the decade before credit markets seized up, Fed data show.


Commercial and industrial lending reached a peak of $1.61 trillion in October 2008, a month after the bankruptcy of Lehman Brothers Holdings Inc. As the credit crisis deepened, loans tumbled to $1.2 trillion two years later, before recovering to $1.46 trillion Aug. 1.

The recent rise isn’t keeping up with record bank deposits as savings of U.S. households have risen to 4.4 percent of incomes as of June from 1.7 percent in 2007, the data show.

5--GSEs admit to “Managing our REO inventory to minimize costs and maximize sales proceeds”, OC Housing News

Admission of manipulation?
6--Low-interest locusts: David Cay Johnston, Reuters
7--FHA's 30x leverage on mortgages is creating a new "subprime" market , sober look

8--Slow housing starts offset boom-time construction, housingwire

9--China New-Home Prices Rebound After Interest-Rate Cuts, Bloomberg

Saturday, August 18, 2012

Weekend links

1--Natural brands betray consumers over GMO labeling, infowars

2--US "exports" are actually built in other countries, sober look

As we noted yesterday, Obama's goal of achieving a 50% rise in US exports during his term has been nearly reached. US exports have risen 48% since early 2009. At the same time, when ever one thinks about US exports, keep in mind that US companies service foreign demand primarily by building locally and selling locally. Sales by majority owned affiliates of US multinationals sell 4-5 times more goods abroad than the US exports. The US has pursued primarily a foreign direct investment strategy rather than the more traditionally export strategy
3--Has the Great Rebalancing already started?, Michale Pettis, China Financial Markets

4--'Wind Down' of Fannie, Freddie: 'Positive for Housing'?, Realty Check

Treasury officials announced they will now require the two to reduce their investment portfolios at a faster rate, 15 percent a year instead of the previous 10 percent.


The Treasury is also replacing the ten percent dividend payments the two make to Treasury on its preferred stock investments with a “quarterly sweep of every dollar of profit that each firm earns going forward.” Fannie Mae and Freddie Mac only became profitable again this year, the first time since the crash of the market.

We see this as a positive for housing, as it ensures that Fannie and Freddie will remain in business,” writes Jaret Seiberg of Guggenheim Partners. “Absent Fannie and Freddie, we believe housing finance will become more expensive and less available.” ...

Given the enormous debt still owed to taxpayers, $188 billion less $46 billion paid back so far, this insures Fannie Mae and Freddie Mac will never be what they once were.


“They are never going to come back as privately chartered or quasi-governmental because they’ve signed a business plan where they can’t keep any of that profit going forward,” said Guy Cecala of Inside Mortgage Finance.

5--US Home Builders Begin to See Credit Thaw, Realty Check

The U.S. home building industry is finally coming off its lowest volumes ever, albeit in fits and slow starts.

New single family home starts fell 6.5 percent in July from the previous month but are still up 17 percent from a year ago. Building permits, considered a more dependable future indicator, rose 4.5 percent month-to-month and are up 23 percent from a year ago.

6--TVWho: Gen. Wesley Clark Shocker on 9/11 “Policy Coup”, who what why

In this stunning but little-known speech from 2007, Gen. Wesley Clark claims America underwent a “policy coup” at the time of the 9/11 attacks. In this video, he reveals that, right after 9/11, he was privy to information contained in a classified memo: US plans to attack and remove governments in seven countries over five years: Iraq, Syria, Lebanon, Libya, Somalia, Sudan and Iran.


He was told: “We learned that we can use our military without being challenged …. We’ve got about five years to clean up the Soviet client regimes before another superpower comes along and challenges us.”

“This was a policy coup…these people took control of policy in the United States

7--Attack on Iran will bring destruction of Israel – Ahmadinejad, RT

8--Large Caps net 14.1%, Big Picture (chart)

9-- Wage & Salary Growth Drops 50% – Stocks Unchanged, trimtabs

 the declining growth rate of wages and salaries is very disturbing. The chart attached to this video on our TrimTabs.com/blog site shows that the three month moving average of year over year wage and salary growth peaked at 6% in April 2011 and has been steadily dropping until first reaching the 3% level in June and where it currently remains in the middle of August.

Despite the decline in wage and salary growth, stock prices are pretty much unchanged. Let me repeat, due to the Fed rigging the market, stocks are unchanged over the past 18 months while wages and salaries growth has dropped 50%....

when the world did not end in 2009 and companies began to rebuild inventories and technology using dirt cheap debt and equity, wage and salary growth first turned positive again in March 2010 and rose steadily to the 6% top in early 2011. But by early 2011 the pipeline is rebuilt and that is why we are now seeing no year over year growth in earnings and sales.

Meanwhile all of the Feds easings have gotten us to here, where the US has to print, borrow or steal $100 billion each month to grow incomes by $20 billion. And the wage and salary growth rate is dropping. For how long can stock prices levitate while the economy slumps? Welcome to the Big Fix.

10--Number of Homes Facing Foreclosure Rose in July, ABC News

11--It’s the capital requirements, stupid, ft.com

Banks are lending neither to each other, nor to the real economy, in the way they used to. In Europe in particular, loan growth remains subdued. In the UK, there’s a lot of hope riding on the Funding for Lending Scheme to alleviate the situation.

While some of the great deleveraging is a question of reining in past excesses and lax standards, another part of it is regulation-driven

12--Derivatives industry no likey new margin requirements, ft.com

A survey of financial market participants most likely to be negatively affected by new regulations on uncleared swap trades revealed that they don’t like this new-fangled way of doing things at all. No, no, they really don’t.

The completely predictable result was published in an article in Risk on Wednesday:

Sixty per cent of respondents to a survey thought end-users will opt not to use derivatives as a result of proposals published in July… If those rules come into force, derivatives participants will be required to post initial and variation margin on uncleared swap trades – a development that could lock down several trillion dollars in collateral.

13--All Four Official Recession Indicators Are Looking Up, business insider

Industrial production, employment, real income, retail sales

14--A Short History of Bubblenomics, counterpunch
15--Tremendous demand for ABS paper, sober look


Asset backed securities (ABS) continue to hit the market in volume, with both high quality as well as subprime paper in high demand.

Top quality:

Bloomberg: - Nissan Motor Co. sold $1.4 billion of bonds tied to auto loans at the lowest rate ever as the Federal Reserve’s efforts to spur economic growth reduce borrowing costs.

The company issued the top-rated securities with an average life of 1.49 years to yield 0.481 percent, the lowest financing rate for an auto company in the asset-backed market on record, according to data from Citigroup Inc. (C), the lead manager of the transaction. Though spreads on the debt were narrower in 2006, the higher lending benchmarks boosted the cost, the data show.

Subprime:
Bloomnerg: - Sales of bonds tied to payments on subprime car loans are accelerating at the fastest pace in five years as investors seek high yields amid speculation the Federal Reserve will keep interest rates at record lows until mid-2015

16--ABS - the changing face of US "shadow banking", sober look


Here are the latest statistics on the US asset-backed securitization industry - the so-called "shadow banking". In spite of what has been said about ABS, it continues to be a critical source of financing in certain areas. Unlike in Europe where banks are the dominant source of credit, the US capital markets provide essential non-bank access to credit. It means that if the banking system is not ready to extend credit for some reason, other channels of liquidity may still be available (and lending doesn't come to a grinding halt as it did in Europe).

The chart below shows the total ABS outstanding over time in the US. It has peaked in 2007 at just under three trillion and has been on a constant decline as existing deals gradually roll off
The "Auto" sector that is now over half of the new ABS issuance includes car loans, leases, and dealer floor plans. Even in the subprime auto sector default rates have been significantly lower than in the mortgage space

17--Meet Barack Obama, Robert Urie, counterpunch

18--It's the Housing Stupid, CEPR

it is not hard to understand why housing has not recovered. The massive over-building of housing during the bubble years lead to an enormous over-supply of housing, which shows up in the data as a record vacancy rate in the years 2006-10. In the last couple of years the vacancy rate has begun to decline which can explain the recent uptick in housing over the last few quarters.


This housing story explains why we should have expected a long and drawn out recovery. There is no easy way to replace the massive loss in demand associated with the collapse of the housing sector. And, it is hard to blame the collapse on President Obama, since the overbuilding took place in the years 2000-2006 and the collapse was already well underway at the point where he took office.

The housing story also puts a kink in the three phases of stimulus story that Hassett and Hubbard outline, where the stimulus becomes contractionary when it is withdrawn after a short initial boost, and then slows the economy further after recovery as a result of a higher future tax burdens. The implication of the housing crash story is that we didn't want a short initial boost, but rather needed a longer term stimulus that could sustain demand until some other component of consumption could fill the gap.






 




Wednesday, August 15, 2012

Today's links

1--« No Alpha: Bain Capital’s Investment ResultsCapital flight from China rising »Housing bottoming? Then where are the buyers?, Big Picture


Whether it’s the data for existing homes, new homes, housing starts, or builder sentiment, all have pointed to signs of stabilization over the past few months and we hear stories of bidding wars again in some markets. One of the factors the NAR in particular is citing is the lack of inventory, whether because of the slowdown in foreclosure proceedings or sellers waiting for higher prices. Whether the case or not, one indicator is standing in contrast to the bottoming housing figures and that is weekly mortgage applications to buy a home. They fell for a 5th straight week and is at the lowest level since Feb. In analyzing existing home data in the next few months we should start focusing on how many are being bought for cash by investors who then plan to rent them out, a continuously growing trend.   2--The failure of supply-side tax cuts, Marketwatch

Commentary: We’re still waiting for the benefits to trickle down
Some 30 years after the Republican Party was smitten by supply-side economics, the Grand Old Party remains faithful to the creed, even if history hasn’t been kind to the idea that tax cuts and deregulation alone will lead to a wondrous new era of American prosperity.

Mitt Romney’s economic platform is little changed from George W. Bush’s or Ronald Reagan’s. It’s sparse on details, likely because it can be summed up in four powerful words: Government IS the problem. Like Reagan and Bush, Romney says he’s positive that the American economy would thrive if we’d only liberate businesses (that is, “job creators”) from pesky regulations and onerous taxes. ...

In the past 31 years, we’ve had three major supply-side tax cuts, which had the effect of reducing the top marginal rate from 70% to as low as 28%. The top rate is currently 35%, and it could go up to 40.9% if President Barack Obama gets his way.

If the supply-siders were right, then investment should have boomed when tax rates were low, and faltered when Presidents George H.W. Bush and Bill Clinton raised the top marginal rate in the early 1990s....

Anyone with a clear view of the economy can see that our immediate problems are rooted in lack of demand, not a lack of supply: The consumer sector took a huge hit to its wealth and income, and taking on debt no longer seems wise. It’s no surprise that consumption is weak.


The housing sector is depressed because of too much supply. Capital spending by businesses surged just after the recession ended, but has slowed recently because there’s little reason to expand a business if there are few new customers. Exporters are finding slower growth in global markets. Government spending has declined for eight quarters in a row.

In other words, demand is weak


3--48 Killed, 130 Wounded in Afghan Suicide , antiwar.com
4--Bill Black talks to Bethany McLean and Maria Bartiromo about Goldman Sachs, credit writedowns

Money quote:  "It's the FBI that testified in 2004 that there was an epidemic of fraud...It's the MBA that said that 90% of liar's loans were fraudulent. It is overwhelmingly everyone who has been investigated who have said that it was the lenders who put the liar in the liar's loans. It's the FHFA showing people knew they were purchasing bad packages and not excluding them."

5--Who Is The Smallest Government Spender Since Eisenhower? Would You Believe It's Barack Obama?, Forbes

Courtesy of Marketwatch-•In fiscal 2010 (the first Obama budget) spending fell 1.8% to $3.46 trillion.

• In fiscal 2011, spending rose 4.3% to $3.60 trillion.

•In fiscal 2012, spending is set to rise 0.7% to $3.63 trillion, according to the Congressional Budget Office’s estimate of the budget that was agreed to last August.

•Finally in fiscal 2013 — the final budget of Obama’s term — spending is scheduled to fall 1.3% to $3.58 trillion. Read the CBO’s latest budget outlook.

No doubt, many will wish to give the credit to the efforts of the GOP controlled House of Representatives. That’s fine if that’s what works for you.

However, you don’t get to have it both ways. Credit whom you will, but if you are truly interested in a fair analysis of the Obama years to date—at least when it comes to spending—you’re going to have to acknowledge that under the Obama watch, even President Reagan would have to give our current president a thumbs up when it comes to his record for stretching a dollar

6--Japan's catch-22 , sober look


The Japanese government has made some progress in its efforts to generate additional tax revenue. The increase in the national consumption tax was finally passed. Japan urgently needs to begin addressing its runaway fiscal problem.

WSJ: - Japanese Prime Minister Yoshihiko Noda won a major victory in finally securing the passage of a hard-fought tax-increase package last week, but analysts argue that a provision in the law to consider economic conditions before implementation means the battle to achieve the tax increase isn't yet over.

The law to raise the national consumption tax to 10% from the current 5% in two stages by 2015 was passed Friday after a dramatic week of political brinkmanship that forced Mr. Noda to promise general elections "in the near term" in return for opposition support for the legislation.....

WSJ: - Critics have blamed the last tax increase in 1997 for wiping out the nation's fragile post-bubble economic recovery and triggering deflation, which continues to plague the economy 15 years later.


It truly is a case of "catch-22". Raising taxes now risks putting the nation into another recession and is not permissible unless the government believes they can improve growth. At the same time waiting for growth that may never come (per model above) will certainly accelerate the deterioration of Japan's fiscal conditions.

7--Home Improvement Shows Gains—But May Not Last, CNBC
The foreclosure slowdown to a five-year low, said California-based analyst Mark Hanson, could hurt the likes of Home Depot. He cites the 22 percent (month-over-month) July drop in home sales in Phoenix as an example.

“The Phoenix region is a leading indicator to other more ‘distressed’ regions that made up most of the dead-cat bounce in Q1 and Q2 housing. The foreclosure rehab trade is now a headwind to Home Depot,” Hanson said. (Related: Why Drop in Foreclosures Is Bad for Housing Market)

Hanson expects July existing home sales to come in at the lowest annualized rate of the year. While few others are predicting such a “triple-dip,” Hanson has been warning for months that a drop in distressed supplies would stem the rebound in home sales, and it did just that in May and June.

This is not to say that the foreclosure crisis is gone, just perhaps delayed for the next few quarters. There are still 5.7 million loans that are either delinquent or in the foreclosure process, according to the latest reading from Lender Processing Services. While not all of those loans will go to final foreclosure, many of them will, and there is a huge cadre of hungry investors waiting to buy them up and do quick rehabs in order to rent them out.

8--Why Drop in Foreclosures Is Bad for Housing Market, CNBC

More than 50 percent of all existing home sales have been to "investors" and "first timers" — thin and volatile cohorts relative to repeat buyers — looking for low-end properties to rehab and occupy or rehab and rent/flip respectively. These two cohorts have carried the market for three years,” California-based mortgage analyst Mark Hanson noted.


The distressed share of home sales fell to 25 percent, while it had been running at a third for much of the past year. The first-time home buyer share also fell to 32 percent, down from 34 percent the previous month and from a normal range of 40-45 percent. First-timers are having particular trouble obtaining home loans.

So why is the supply of foreclosures so low when there are so many hungry investors waiting to pounce? There should be plenty to go around, given that the total U.S. delinquency rate is at 7.2 percent, representing 5.57 million loans either delinquent or in the foreclosure process, according to Lender Processing Service’s June Mortgage Monitor.


The answer is the process....

lack of supply, even of distressed homes, should help settle this housing market, but the trouble is that regular buyers, move-up buyers, are, in large part, unable to participate in this recovery. Negative equity (including second liens) and near negative equity (less than 5 percent equity) is trapping an estimated 30 million potential repeat buyers in their homes, according to Hanson.

9--House Prices and a Foreclosure Supply Shock, calculated risk

This can lead to some pretty scary numbers being bandied about. As an example, CoreLogic recently reported that “11.4 million, or 23.7 percent, of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2012”. And LPS reported 1.6 million loans were 90+ days delinquent at the end of June, and another 2.1 million are in the foreclosure process.


These numbers suggest a coming “flood” of foreclosures to those arguing house prices will fall further. I think this is incorrect...
A more immediate concern is the 3.7 million homeowners currently 90+ days delinquent or in the foreclosure process. Many of these properties will eventually be a distressed sale, either a foreclosure or short sale, although some will receive loan modifications. It is important to remember that some of these homes are already listed for sale (so they are included in the “visible inventory”), and there has been a significant shift by lenders from foreclosures to short sales (short sales have less of an impact on prices than foreclosures).

10--Resale supply is coming, lenders increase foreclosures 10% in July in California, OC Housing news

The lack of supply on the MLS is becoming a serious problem. Buyers are getting burnt out and frustrated because they are unable to make a deal. Bidding is so aggressive — and so foolish — that 50% of deals fall out of escrow due to either a low appraisal or the borrower’s inability to obtain financing. The demand is still tepid by historical standards, but the supply is so constricted that lenders have considerable leeway to increase their foreclosure liquidations and still enjoy rising house prices. Perhaps as a response to current market conditions, lenders increased the number of properties they bought at auction and that they allowed to go to third parties by more than 10% over June’s numbers....

Lenders held steady to the rates at which they are filing notices. Perhaps they believe they have arrived at a new equilibruim that allows them to dispose of REO without crashing prices.....The consistent but slow liquidation of REO is ongoing.....Very soon lenders will reach a point where inventory is only what is held in their processing pipeline — a pipeline that continues to grow as they continue to increase the amount of time they hold their properties....

Lenders are the housing market. Through direct sale of foreclosures and indirect approval of short sales, they control most of the housing market. Perhaps as prices move higher more discretionary sellers will come to market as they emerge from the depths of their debts, but until then, lenders control the supply of housing available on the MLS. One thing that jumps out from these numbers is the dramatic decline in properties that are going back to the bank on a year-over-year basis. Each chart shows that lenders simply stopped foreclosing in February which makes for fewer REO. The removal of this REO is responsible for the lack of available housing now.


It’s also remarkable that a cartel of lenders has been so successful at limiting inventory.


11--Mortgage delinquencies rising as lenders slow foreclosure processing, OC Housing News

Foreclosure rates are declining across the Southwest. Lenders are slowing foreclosures because they want house prices to bottom and start going up due to a lack of distressed supply on the MLS. This would be a natural occurrence once shadow inventory is eliminated, but right now, this slowing of foreclosures is a contrived policy of a cartel desperately hoping they can force prices to move higher. If foreclosures were declining because lenders were out of delinquent mortgages to foreclose on, we would all be celebrating the housing market recovery. However, lenders are not out of delinquent mortgage squatters to boot out of the houses they are not paying for. In fact, lenders have slowed their foreclosure rates so much, they are no longer keeping up with current new delinquencies. As a result, shadow inventory is growing again.

It is difficult to imagine how house prices can put in a durable bottom with millions of delinquent mortgages yet to be processed. The federal reserve and government regulators have done everything possible to create conditions favorable to lenders. Zero percent interest rates lower the cost of capital to banks to near zero enabling them to sustain billions in non-performing loans on their books without bankruptcy. Suspension of mark-to-market accounting rules allows lenders to pretend their bad loans are still worth face value to give the appearance of solvency. Both of these measures have one thing in common; they buy time. Ultimately, neither measure will cause house prices to go up. Low interest rates make housing much more affordable which induces buying, but only improved credit conditions lower unemployment, and higher wages will make house prices go up.


The market-has-bottomed meme currently touted by every major media outlet is a concerted effort to improve buyer sentiment and induce people to enter into a transaction that may not be in their best interest. Affordability is currently quite good in nearly every housing market due to the low interest rates — and that is a good reason to buy — but sheeple are so accustomed to buying for appreciation that the market-has-bottomed meme must be pounded into the public’s heads to knock people off the fence. A secondary benefit of a widespread belief in future appreciation is a reduction in strategic default....

Mortgage Delinquencies Increase in Latest MBA Survey


MBA —WASHINGTON, D.C. (August 9, 2012) — The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 7.58 percent of all loans outstanding as of the end of the second quarter of 2012, an increase of 18 basis points from the first quarter, but a decrease of 86 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 41 basis points to 7.35 percent this quarter from 6.94 percent last quarter. Delinquency rates typically increase between the first and second quarters of the year....

Seriously delinquent loans don’t cure. Those are the committed squatters waiting until foreclosure.


The combined percentage of loans in foreclosure or at least one payment past due was 11.62 percent on a non-seasonally adjusted basis, a 29 basis point increase from last quarter, but a 92 basis points decrease from the same quarter one year ago.

That’s a big number! Nearly 12% of all outstanding mortgages are non-performing

12--Investors place big bets on Buy Here Pay Here used-car dealers, LA Times


Private equity firms are investing in chains of used-car lots, and auto loans are being packaged into securities much like subprime mortgages. They're attracted by the industry's average profit of 38% for each car sold...

On a recent morning, a dozen executives could be seen huddled in a glass-walled conference room, reviewing a slide presentation on plans to buy some franchised Byrider lots. It's part of a strategy to boost profit at the 135-lot chain, which had sales of $740 million last year.


Firms like Altamont pride themselves on being the smart money, identifying profitable opportunities ahead of the herd. Lately they and other investors are finding just such a windfall in a little-noticed niche of the used-car business known as Buy Here Pay Here.

These dealerships focus on people who need cars to get to work, but can't qualify for conventional loans. They sell aging, high-mileage vehicles at prices well above Kelley Blue Book value and provide their own financing. As lenders of last resort, they can charge interest at three times or more the going rate for regular used-car loans.

Many require customers to return to the lot to make their loan payments — that's why they're called Buy Here Pay Here dealerships.

If buyers default, as about 1 in 4 do, the dealer repossesses the cars and in many cases sells them again.


The dealerships make an average profit of 38% on each sale, according to the National Alliance of Buy Here Pay Here Dealers. That's more than double the profit margin of conventional retail car chains like AutoNation Inc.

"The amount of return from these loans you can't get on Wall Street. You can't get it anywhere," said Michael Diaz, national sales manager for Small Dealers Assistance Inc. in Atlanta, which buys loans originated by Buy Here Pay Here dealers. "It's the gift that keeps giving."

Investor money is pouring into the industry from several sources, helping Buy Here Pay Here dealers expand their reach and raise their profile.

In addition to private equity firms such as Altamont, several payday lending chains are moving into Buy Here Pay Here and have acquired dealerships....

Loans on decade-old clunkers are being bundled into securities, just as subprime mortgages were a few years ago. In the last two years, investors have bought more than $15 billion in subprime auto securities.


Although they're backed mainly by installment contracts signed by people who can't even qualify for a credit card, most of these bonds have been rated investment grade. Many have received the highest rating: AAA.


That's because rating firms believe that with tens of thousands of loans lumped together, the securities are safe even if some of the loans prove worthless.

Some analysts worry that the rush to securitization could lead to careless lending by dealers eager to sell more loans, as happened with many mortgage-backed bonds.

"We think that investing in such companies is a ticking time bomb," said Joe Keefe, chief executive of Pax World Management, which steers its investments into businesses it deems socially and environmentally responsible. "It has ethical as well as systemic risk implications








































 













Tuesday, August 14, 2012

Today's links

1--Q2 earnings surprises masked weaker revenues, sober look


Analysts have been pointing out that earnings for the S&P500 companies continued to surprise to the upside for Q2 results. The top-line numbers however were not nearly as impressive. In fact this has been the lowest percentage of positive revenue surprises since at least 3Q09.

Nasdaq: - While roughly two-thirds of companies beat earnings expectations, the beat ratio on the revenue front is far weaker - only 37.6% of the companies have beat revenue expectations. Even some of these companies with positive revenue surprises for the second quarter have guided towards lower revenue numbers in the coming quarters. This does not bode well for growth in the coming quarters.

The global macro pressures have impacted revenues far more because of a sharp decline in commodity prices that helped improve margins.


Barclays Capital: - The global growth slowdown has had more of an impact on revenues, as margins were aided by a sharp drop in commodity prices in the second quarter. Additionally, ... companies have begun to cut their forward financial outlooks, suggesting that macro concerns are beginning to weigh on corporate operating performance.

2--No real growth in wage and salaries, Trimtabs

The fact is real time wages and salaries, before inflation, are up only 3 per cent year over year for the 133 million Americans on payrolls. And that growth rate has been trending lower for the past year and a half. After inflation, with gasoline and food prices surging, there is no real growth in wages and salaries What is worse, unless all tax cuts remain in place in 2013, after tax- income will turn negative year over year. And even if all the tax breaks do stay in place, wage and salary growth is still likely to keep slowing.


We at TrimTabs distill wages and salaries from the U.S. Treasury which reports the daily inflows of withheld payroll taxes that it receives. Back in October 2007, we first turned bearish after having been mostly bullish since 2004. Two of the reasons included that the flood of money coming out of real estate sales and mortgages was ending, and that wage and salary growth had dropped to 4% year over year compared with an over 6% pace since 2004. Wage and salary growth turned negative by the end of 2008 and bottomed at the end of 2009. Then wage and salary growth year over year turned positive in 2010 and then peaked at just over 4% by early 2011. Since then wage and salary growth has slumped down to the current 3% year over year rate.

3--Tweedledum and Tweedledee, CEPR

The vast majority of the upward redistribution over the last three decades has been in before-tax income, not after-tax. This has come out about through a coddled and bloated finanacial sector that relies on massive government subsidies in the form of "too-big-to-fail" insurance. It has been the result of a system of corporate governance in which directors get 6-figure payoffs to look the other way as the CEOs and other top management pilfer the company.


The upward redistribution was also the result of a trade policy that deliberately sought to put manufacturing workers in direct competition with low-paid workers in the developing world while largely protecting highly paid doctors and lawyers from similar competition. And it is the result of a Federal Reserve Board policy that deliberately throws millions of workers out of work to put donward pressure on their wages, thereby keeping inflation below its target rate.

These and other policies are the real story about "the extent of Americans’ obligations to one another, even the soul of the country." Unfortunately, there is no real choice offered to the public in this area since the position of the candidates on these issues is largely indistinguishable.

4--Criminalizing dissent; FBI launches stealth attack on OWS protestors, WSWS

Last month the FBI launched a series of raids at the homes of anti-Wall Street protesters in Portland, Oregon and Seattle and Olympia, Washington. As the Socialist Equality Party’s candidate for US president, I emphatically condemn these police state actions against peaceful protesters and demand an end to the Obama administration’s campaign of political persecution and repression against these individuals and groups.


The early-morning invasions—barely reported in the news media—involved as many as 80 heavily armed “domestic terrorism” agents who used stun grenades and battering rams to smash through doors, pull their unsuspecting victims from their beds and terrorize them with automatic weapons.

Underscoring the political character of the raids, the FBI agents confiscated computers, political literature, cell phones, thumb drives, and various pieces of clothing bearing political slogans. A warrant left behind in the home of one of the victims indicates the agents were seeking, among other items, “anti-government or anarchist literature or material.”

Those targeted are guilty of nothing more than participating in protests organized by the Occupy movement. The FBI has not even revealed what the trumped-up charges are and the indictments remain sealed. One can only conclude that for the Obama administration, possession of “anti-government literature or material” is now being considered evidence of criminal activity or “terrorism.”

This has enormous implications for basic democratic rights. The administration is criminalizing political dissent and employing its political police to intimidate and silence any and all opposition to the financial aristocracy that rules America.

5--Phoenix home prices climb 35% in one year, Housingwire

6--Serious Mortgage Delinquencies and In-Foreclosure by State, calculated risk

The top states are Florida (13.70% in foreclosure down from 14.31% in Q1), New Jersey (7.65% down from 8.37%), Illinois (7.11% down from 7.46%), New York (6.47% up from 6.17%) and Nevada (the only non-judicial state in the top 13 at 6.09% down from 6.47%).

As Jay Brinkmann noted, California (3.07% down from 3.29%) and Arizona (3.24% down from 3.57%) are now a percentage point below the national average.

7--Spanish bank addiction to ECB liquidity grows, IFR

Spanish banks borrowed €375.6bn from the ECB in July compared to €337.2bn in June. This borrowing is on a net basis with gross borrowing going up from €365bn in June to €402.2bn in July. The net figure simply subtracts deposits by Spanish banks at the ECB that stand at €26.6bn in July.


The breakdown of the borrowing by Spanish banks shows that MRO borrowing went up to €69.3bn from €45bn while LTRO related borrowing went up to €332.8bn from €320bn.

The latest hike in margins by LCH is likely to see further records during August as Spanish banks move further from repo based funding to the ECB.

8--Gary Shilling: We are either in or entering a recession, credit writedowns

"We’ve had three consecutive months of declines in retail sales," says Shilling, president of A. Shilling & Co., an economic research and forecasting firm. "That’s happened 29 times since they started collecting the data in 1947, and in 27 of the 29 we were either in a recession or within three months of it."


9--The Wall Street Book Everyone Should Read, hbr, blog


In 1997, though, such arguments were pretty close to unheard of. Which is what makes Doug Henwood's book Wall Street, published that year, such an amazing document. Along with explaining in clear if caustic terms how financial markets work, the book prefigures almost every criticism of the financial system that's been levied since the crisis of 2008. An overleveraged housing market? Check. A link between financial sector growth and income inequality? Check. A natural tendency toward instability in financial markets?

10--Where's the money going in healthcare?, incidental economist
One chart says it all

11--More on banks and housing, ft.com
Last week we wrote about how US lending standards for mortgages have continued to tighten — in severe contrast to standards for other kinds of loans....
Demand for residential mortgages continues to grow…


The strengthening of demand for residential mortgages continued into the three months preceding the July survey with a net 52.3% of banks indicating higher demand for prime mortgages (37% for nontraditional mortgages). There haven’t been that many banks reporting this since the survey in April of 1998....

In fact, a special question specifies that 25.0% of responding banks have somewhat tighter standards for prime mortgages than its average standard since 2005 to present while 30.0% have significantly tighter standards.

12--The One Housing Solution Left: Mass Mortgage Refinancing, by Joseph E. Stiglitz and Mark Zandi, Commentary, NY Times: ...

With 13.5 million homeowners underwater ... the odds are high that many millions ... will lose their homes.


Housing remains the biggest impediment to economic recovery, yet Washington seems paralyzed. ... Late last month, the top regulator overseeing Fannie Mae and Freddie Mac blocked a plan backed by the Obama administration to let the companies forgive some of the mortgage debt owed by stressed homeowners. ...

With principal writedown no longer an option, the government needs to find a new way to facilitate mass mortgage refinancings. With rates at record lows, refinancing would allow homeowners to significantly reduce their monthly payments... A mass refinancing program would work like a potent tax cut. ...

Well over half of all American homeowners with mortgages are ... excellent candidates to refinance. ... But many ... can’t refinance because the collapse in house prices has wiped out their home equity.

Senator Jeff Merkley, an Oregon Democrat, has proposed a remedy. Under his plan,... underwater homeowners who are current on their payments and meet other requirements would have the option to refinance to either lower their monthly payments or pay down their loans and rebuild equity. ...

13--The United States and Its Comrade-in-Arms, Al Qaeda, counterpunch

Afghanistan in the 1980s and 90s … Bosnia and Kosovo in the 1990s … Libya 2011 … Syria 2012 … In military conflicts in each of these countries the United States and al Qaeda (or one of its associates) have been on the same side. 1

What does this tell us about the United States’ “War On Terrorism”?

Regime change has been the American goal on each occasion: overthrowing communists (or “communists”), Serbians, Slobodan Milosevic, Moammar Gaddafi, Bashar al-Assad … all heretics or infidels, all non-believers in the empire, all inconvenient to the empire.

Why, if the enemy is Islamic terrorism, has the United States invested so much blood and treasure against the PLO, Iraq, and Libya, and now Syria, all mideast secular governments?

Why are Washington’s closest Arab allies in the Middle East the Islamic governments of Saudi Arabia, Qatar, Kuwait, Jordan, and Bahrain? Bahrain being the home of an American naval base; Saudi Arabia and Qatar being conduits to transfer arms to the Syrian rebels.

Why, if democracy means anything to the United States are these same close allies in the Middle East all monarchies?

Why, if the enemy is Islamic terrorism, did the United States shepherd Kosovo — 90% Islamist and perhaps the most gangsterish government in the world — to unilaterally declare independence from Serbia in 2008, an independence so illegitimate and artificial that the majority of the world’s nations still have not recognized it?...

Why, if the enemy is Islamic terrorism, did the United States pave the way to power for the Libyan Islamic rebels, who at this very moment are killing other Libyans in order to institute a more fundamentalist Islamic state?


Why do American officials speak endlessly about human rights, yet fully support the Libyan Islamic rebels despite the fact that Doctors Without Borders suspended its work in prisons in the Islamic-rebel city of Misurata because torture was so rampant that some detainees were brought for care only to make them fit for further interrogation

14--Washington’s bipartisan class-war policy: No jobs, no benefits, WSWS

The expiration last week of one of the two federal emergency unemployment benefits programs marks an escalation in the American ruling class’ attack on working people. Idaho, the last state participating in the federal government’s Extended Benefits (EB) program, made its final extended unemployment payment. Across the country, half a million people have been cut off of extended benefits since the start of the year.


The other federal jobless benefits program, known as Emergency Unemployment Compensation (EUC), is scheduled to end completely on January 1, halting at a stroke payments for two million more people.

There is every likelihood that after December 31 no one in the United States will receive more than 26 weeks of jobless benefits at a time when the average duration of unemployment is nearly 40 weeks. The Obama administration has already indicated that it will not seek a renewal of the EUC program.

In exchange for passing a payroll tax cut last February—financed at the expense of the Social Security trust fund—the Democrats agreed to significant cutbacks in unemployment insurance, lowering the duration of federal extended benefits in most states by 30 weeks. This set the stage for states such as Georgia, Florida and Michigan to implement even more draconian cuts in state unemployment insurance.

The deal also allowed for the immediate cut-off of existing beneficiaries on January 1, 2013 should Congress fail to extend the federal programs before the end of 2012. Prior to the agreement brokered by the White House in February, all extensions of federal emergency unemployment benefits passed since the financial crash of 2008 provided that existing beneficiaries would continue to receive payments for the duration available when they first became jobless, even if there was no further extension of the programs. The extension signed in February, however, stipulated that all two million recipients of the EUC program would be cut off immediately if Congress failed to extend it further.

What is perhaps most remarkable about the cutoff of benefits is the complete silence in the media and in official politics. In the midst of a presidential election campaign, occurring in the context of the deepest social crisis since the Great Depression, neither Obama nor his Republican opponent Romney, and neither of their corporate-controlled parties, even mention the ending of cash assistance to millions of unemployed workers.


The justification for all cuts in social spending—that there is “no money”—is preposterous. Extending the federal benefit programs for a year would cost $30 billion. This is less than the US military spends in two weeks and less than the personal net worth of multi-billionaires such as Warren Buffett, Bill Gates and Larry Ellision.

The cutoff of extended unemployment benefits is part of a bipartisan class-war policy led by the Obama administration. For the ruling class, high unemployment is a positive good. It gives the corporations and state and local governments a weapon to blackmail workers into accepting lower wages and cuts in benefits.

Last month, wages grew at a slower pace than at any time since the Second World War. Adjusting for inflation, wages have actually fallen over the past year. The slashing of wages and imposition of speedup have sent corporate profits to record levels.

Obama’s 2009 restructuring of the auto industry, based on a 50 percent reduction in wages for new-hires and the cutting of benefits for both active workers and retirees, was a signal to corporate America to attack the wages and working conditions of the entire working class. What is underway is a drive to reverse all of the social gains achieved by workers in the twentieth century and turn the clock back to the days of poverty wages and unvarnished industrial slavery.

The Obama administration has pursued a definite domestic strategy: to turn the US into an export platform by making labor costs competitive with Mexico, China and other cheap-labor centers. It is no coincidence that only weeks after Obama signed off on cuts in jobless benefits last February he held a major event at the Master Lock plant in Milwaukee, Wisconsin to promote the “insourcing” of jobs to the United States. “Our job as a nation is to do everything we can to make the decision to insource more attractive for more companies,” he said.

The attack on wages is tied to a policy of gutting social benefits. Unemployment insurance, Social Security, Medicare and Medicaid—all of the social programs that were wrenched from the ruling class through working class struggles—are to be slashed or eliminated outright

15--A Green Light for Car Loans, WSJ

Banks, Finance Firms Boost Auto Lending; Fed Survey Finds Easier Standards.
Banks and investors are still wary of lending to Americans purchasing houses and almost everything else, but they are lending people money to buy cars—even to borrowers who must stretch to make their payments.


The value of auto loans outstanding at the end of the second quarter hit $725 billion, according to the automotive division of Experian, a credit-reporting firm. That is 5.7% above a year ago and the highest level since the first quarter of 2009.

More banks tell the Federal Reserve that they are easing standards for making new auto loans, and the market for securities backed by car loans has rebounded

The car-financing surge is nourishing one of the few parts of the consumer economy that is doing well. Lenders, eager to boost their interest income because yields on alternatives like U.S. Treasurys are very low, see auto loans as particularly attractive and safe.

The banks are getting into auto loans because they have the money," said Jim Lentz, U.S. chief executive at Toyota Motor Corp. 7203.TO -0.79%"We are seeing more 'subprime,' which is good."


One attraction of auto loans to lenders is that when borrowers get into trouble, they tend to skip mortgage payments before car payments because cars can be more easily seized by banks. The percentage of auto-loan payments 30 days past due fell to a recent low of 2.52% in the second quarter, around 2007's rate, Experian said.


One potential worry for lenders: More borrowers are taking out loans as long as 72 months, or even 84 months. That could cause problems later if stretched borrowers need to sell their cars but owe more than the vehicles are worth....

Finance companies increased auto loans on their books during the first quarter by about $2 billion to $228.4 billion while reducing their credit-card loans by $7 billion to $93.5 billion, the Fed says. Car makers that scaled back their lending businesses are eager to expand again: General Motors Co. GM +1.11%said Monday it has made a bid for Ally Financial Inc.'s international operations in Canada, Mexico, Europe and Latin America.


On Wall Street, the market for securities backed by auto loans, which collapsed during the 2008-09 financial crisis, has rebounded. Roughly $50 billion in bonds backed by auto loans have been issued so far this year, nearly the $53 billion raised in all of 2011, according to Dealogic. Finance units of auto makers and banks initiate the loans, and then package them into securities which are sold to investors.

The volume of auto-loan-backed securities so far this year is about 33% above 2006 pre-crisis levels. In contrast, the volume of mortgage-backed securities is about 70% below 2006 levels.

The most recent Fed survey of senior bank-lending officers found more than 20% reporting they had eased standards for making auto loans in the past three months. In contrast, 11% said they had eased standards for credit cards and 3% for prime residential mortgages.

The availability of financing has helped drive up auto sales. Year-over-year, total sales rose 8.9% to 1.15 million new cars and light trucks in July, maintaining an annual pace of 14.1 million vehicles, according to industry researcher Autodata Corp. Annual sales could hit 15 million, said Paul Edelstein, economist at IHS Global Insight, who says consumers are more willing to borrow money to buy cars than other items.

In the first half of the year, sales at motor-vehicle dealers were up 8.7%, before adjusting for inflation, compared with an overall increase in nonauto retailers' sales of 5.9%, according to the Commerce Department's monthly retail sales data. Sales at clothing stores were up 6.6%; at department and other general merchandise stores, 2.7%, and at electronics and appliance stores, only 0.4%.


The average car on the road is 11 years old, according to Experian. That is a record and is helping to boost demand at a time when credit is readily available.

"It's definitely flowing better, the credit issue has eased up," said Gary McAlister, general manager of the Fairway Ford Lincoln Subaru dealership in Greenville, S.C.