Sunday, January 20, 2013

Today's links

1---From Jesse

Simon Johnson, 13 Bankers

"The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises.

If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time."

Simon Johnson, The Quiet Coup

2---Housing speculation explodes but with institutional investors this time, oc housing

In Las Vegas, the discount between full price homes and foreclosures was only was only 1 percent in the third quarter of 2012, and price differential between full-price properties are REOs has fallen to only $2000....

The foreclosure discount in Phoenix has shrunk to about 5 percent. REO prices have risen to a median of $88,000 from $62,000 in January 2011, and today are only $6000 less than the median full-price home in the Phoenix market. At $70,000, short sales trail both REOs and full-price homes.
n Orlando, REO prices have been rising throughout 2012, but they still trail full-price homes by $17,000. The discount in the third quarter was still sizeable, about 21 percent, but down significantly from 33 percent in 2009...
The massive amounts of money hedge funds are spending on foreclosures clearing impacting the real estate economy. Last year several dozen investment firms backed by $6 to 8 billion in private equity hedge funds announced plans to purchase between 40,000 and 80,000 previously foreclosed homes. In September investment bankers at Keefe Bruyette and Woods estimated the dollars raised so far may only trim 15 percent of the foreclosure supply and there is room for even more growth that could last for years.
Just last week Blackstone Group LP, the largest U.S. private real estate owner, accelerated purchases of single- family homes as prices jumped faster than it expected. According to Bloomberg, Blackstone has spent more than $2.5 billion on 16,000 homes to manage as rentals, deploying capital from the $13.3 billion fund it raised last year, said Jonathan Gray, global head of real estate for the world’s largest private equity firm. That’s up from $1 billion of homes owned in October, when Blackstone Chairman Stephen Schwarzman said the company was spending $100 million a week on houses

3---With New Rules, Prepare for More Paperwork, WSJ

The changes, which start in 2014, will ban lenders from issuing loans if they don’t verify a borrower’s income or assets....
Low-documentation mortgages account for about 12% of the private mortgages borrowers signed up for from January through October 2012, according to the latest data from CoreLogic, CLGX +0.18% a real-estate analytics firm.
....Interest-only mortgages account for roughly 14% of the private mortgages originated during the first 10 months of 2012, according to CoreLogic. ... Currently, it’s possible to get an interest-only mortgage in both the government-backed and private mortgage markets. Starting next year, borrowers who want this loan will likely have to turn to the private market, possibly leading to longer waiting periods. Also, fewer lenders will be offering mortgages with a balloon payment, which starts out with regular monthly payments but requires the borrower to pay the remaining balance after a few years or refinance

4---Rentals Chip Away at Home Builder Gains, CNBC

The December numbers beat expectations by a lot. Housing starts jumped 12 percent month-to-month, to a seasonally adjusted annual rate of 954,000 units. That sent the stocks of the public home builders higher and prompted housing analysts to exclaim bullish headlines....

What they failed to mention is that 30 percent of all housing starts in 2012 were of multi-family apartments. That is the highest share in over 20 years. In December alone, multi-family starts jumped 23 percent month to month, seasonally adjusted, and are up nearly 166 percent from December of 2011. Compare that to single family gains of 8 percent month-to-month and 18.5 percent from a year ago.
Single family construction may in fact be slowing. Housing starts usually calm down in the fourth quarter. When you take out that seasonal adjustment, they fell 24 percent from October to December of 2012 compared to just a 10 percent pause in the fourth quarter of 2011, according to housing analyst Mark Hanson....

Single family starts did 'improve' suddenly early in 2012 on the Twist gap down in mortgage rates, but it quit 'improving' several months ago. Once 2013 data start to come in, the segment could quickly go from year-over-year positive to year-over-year negative over the period of a month or two," argues Hanson. "Multi-family has reached escape velocity; single-family is stuck in the mud."
Developers are rushing to increase supply of multi-family apartments, as there are now more This even as single-family rentals continue to gain market share.....

The boom in multi-family is already raising red flags.
"We are incrementally more cautious on the multi-family sub-sector, as we see a rising supply environment in 2014," note analysts at Cantor Fitzgerald. "Although at this point, data indicate demand remains strong and absorption in check....

Low inventories are pushing prices higher, faster than expected. All-cash investors are pushing those gains, and in turn pushing out first-time home buyers. While non-investors are slowly moving back into the market, they are not arriving in the necessary numbers, and they are also not finding much to choose from

5---Shock the Money System--The Trillion Dollar Cat Shit Coin, Rob Urie, counterpunch

Some fair proportion of readers are already aware of the proposal to have the U.S. Mint produce a $1 trillion face amount coin to be deposited at the Federal Reserve and credited to the account of the Treasury Department to pay Federal bills. The $1 trillion would render the ‘debt ceiling’ debate irrelevant because it wouldn’t be funded with debt. It would demonstrate the contrived nature of the austerity ‘debate’ in Washington. Most fundamentally, it would lay bare the social nature of the institutions put forward as immutable facts. The current arrangement of affairs, debt based money, is not socially ‘neutral,’ it serves the political economic interests of some to the detriment of others. By making this visible, the trillion-dollar coin idea is extremely useful. So of course, the White House has said it has no use for the idea.

6---Corporate CEO 'Extremists' Target Social Security, Medicare, common dreams
For the wealthy, pampered, and narcissistic CEOs of the Business Roundtable, sacrifice is always for someone else.

7---The Fed Didn't Realize the Housing Bubble Was Driving the Economy, CEPR

I've not read through the whole set of transcripts, which probably exceed 1000 pages, but what is remarkable to me is a seeming complete failure to understand the extent to which the housing market was driving the economy. Housing construction had exceeded 6.0 percent of GDP at the peak of the bubble compared to an average of between 3.0-4.0 percent in the prior three decades. This was not explained by fundamentals. Similarly the saving rate had fallen to nearly zero compared to an average in the pre-stock bubble years of more than 8.0 percent.

The FOMC members were utterly clueless about the extent to which the bubble was driving the economy. It is therefore not surprising that they would be taken aback by the size of the hole created by its collapse. The overbuilding of the bubble years meant that construction would not just fall back to its normal level, but in fact well below as builders allowed excess supply to be filled. (It dropped to around 2.0 percent of GDP, a falloff of more than 4 percentage points.)

Consumption would naturally fall as the housing wealth that was driving it disappeared. The savings rate rose to above 5 percent in the wake of the downturn which corresponds to a loss of demand that is close to 4.0 percentage points of GDP. The combined loss in annual demand from these two sectors was close to 8 percent of GDP ($1.2 trillion in today's economy).

8---World’s 100 richest earned enough in 2012 to end global poverty 4 times over, RT

9---Dow Average Rises to 5-Year High Amid Debt-Ceiling Talks, Bloomberg

10----Where's the money coming from?, TrimTabs

TrimTabs Investment Research says that an amazing $39 billion has been invested in US and Global equity mutual as well exchange traded funds during the first ten trading days of January.

Compare that $39 billion ten day flood of cash with the entire month of January, 2012 when less than half of that amount, or $18 billion, flowed into equity funds. Let us not also forget that January 2012 was a very good month for stocks. The S&P 500 rose more than 4%.

What’s particularly amazing is that $11 billion flowed into US equity mutual funds for the first ten trading days of this month, compared with a $2 billion outflow in January 2012. Moreover, that current inflow if it lasts will be the first month inflow since February 2011....

 lower take home pay has to translate into slower economic activity, and therefore lower sales and income for public companies. What you really need to keep in mind is that the rest of the financial world looks backward for its data and does not look at real time the way we do. Therefore most of Wall Street predicts the future based upon past trends. That unrealistic way of predicting future trends could keep stock prices up this month before they begin to fall next month if my prediction of slowing economic growth starting now is accurate.

11---IMF chief urges big world economies to promote growth, Reuters

12--The hidden costs from inflation in the housing market:, dr housing bubble

For vast areas of the United States home prices are close to inflation adjusted trend lines. With incredibly low interest rates courtesy of the Fed ballooning their balance sheet up to nearly $3 trillion, the government and the Fed are basically the main player in eating up mortgage backed securities. Over 95 percent of mortgage origination come from the government and are issued by the large too big to fail banks. This has now been the case since the housing bubble peaked and burst in 2007. When we look at prices nationwide you do see prices trending with longer-term inflation trend lines.....

home prices in our current environment are driven up not necessarily because the economy is doing so well, but because the Federal Reserve and government backed programs like FHA insured loans combined with low rates are injecting massive liquidity into the market. This was the boom in 2012....

 changes with inventory are going to have large impacts. This is why in a previous article we discussed how the drop of inventory in Los Angeles by 60+ percent in one year is shocking.

13----Detonating The Japanese Debt Time Bomb" With Kyle Bass, zero hedge (video)

14---Comeback for pre-crisis auto ABS structures, IFR

Auto-lenders are taking full advantage of the current investor craze for asset-backed securities backed by car loans, and are even bringing back structures with features that were popular in the years before the 2008 crisis.

The past two weeks have seen the introduction of a pre-funding account and a one-year revolving period in consumer ABS structures, both of which have added risk – yet the transactions in question have still been hugely oversubscribed.

One week after Santander Consumer USA priced its first sub-prime auto ABS that included pre-funding, Ally Financial on Tuesday priced a non-prime auto loan-backed ABS with a revolving period – the first since 2007.

A pre-funding account adds risk to an ABS because funds in the account are used to purchase additional collateral during a post-closing period. The risk is that new auto loans delivered to the trust could be poorer in credit quality than those already in the pool. Similarly, during the one-year revolving period, Ally could add new loans to the pool.

But those involved insist that such developments should not worry investors. “Pre-crisis structural features are making a comeback. But it is not as alarming as the statement may sound,” said Martin Attea, managing director in the securitised products origination group at Barclays.
“Many sub-prime deals before the crisis employed pre-funding and all those structures that had revolving periods got repaid in the post-crisis years. There were no defaults in such products so it is not surprising to see investors overwhelmingly supporting these structures in the last two weeks

15---Confidence Falls as U.S. Payroll Tax Rise Hits: Economy, Bloomberg

The economy is growing at a tepid rate, employment is growing at a tepid rate and consumer confidence is measly,”said Kevin Harris, chief economist at Informa Global Markets inNew York, whose projection of 72 for the Michigan index was closest in the Bloomberg survey. “Everybody took a two percentage-point pay cut and that is not going to help.”
Stocks closed at a five-year high as investors weighed prospects for a short-term increase in the debt ceiling. The Standard & Poor’s 500 Index climbed 0.3 percent to 1,485.98 at the close in New York.

The Michigan index of expectations six months from now, which more closely projects the direction of consumer spending, dropped to 62.7, the lowest since November 2011, from 63.8 the prior month. Household purchases account for about 70 percent of the economy.
...., payroll taxes went up. As part of its budget agreement on Jan. 1, Congress agreed to let the tax, used to pay for Social Security benefits, return to its 2010 level of 6.2 percent from 4.2 percent. That reduces the paycheck by about $83 a month for someone who earns $50,000.

16----The post crisis, crisis, J Stiglitz, project syndicate

17--Will the US double dip, steve keen, Debt Watch (video)


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