Wednesday, January 23, 2013

Today's links

1---5 reasons to remain cautious on U.S. equities, sober look

2---Credit agency corruption, Big Picture

The major credit rating agencies were the prime enablers of the credit crisis. They put Triple-AAA ratings on securitized sub-prime mortgage bundles, primarily because they were paid by the underwriters to do so. But for those actions, much of the securitized junk would not have been able to be purchased by the many bond funds, pensions and other large institutional investors mandated to buy only Investment grade paper. (The bond markets eventually figured this out and has learned to ignore the ratings agencies commentary as conflicted and corrupt). Thus, what should have been a tiny, high risk corner of the mortgage market instead became an enormous, A-rated, mainstream asset class for yield hungry fixed income managers. This is why S&P and Moody’s are thus amongst the prime causes of the financial crisis of 2008-09.

3---The Media Is Misreporting The Housing Turnaround Story, business insider

4---Central bankers should be brought to heel by elected parliaments, Telegraph

Princeton professor Gauti Eggertsson has long argued that independent central banks have a “deflation bias” by their nature. This was fine during the quarter century after the Great Inflation of the 1970s, but as the inflation rate fell ever lower with each business cycle it eventually became dangerous, for there lies the dreaded “liquidity trap”.

A new paper by Paul McCulley and Zoltan Poszar argues that the taste for independent central banks goes “hand-in-hand with secular private debt cycles”. It becomes faddish during credit upswings such as the era of “monetary supremacy” from 1978 to 2008. The appeal wears off as the “deleveraging cycle” gathers force and the economy slides into slump. The US Employment Act of 1946 was the low point for the Fed. The bank was entirely harnessed to US Treasury purposes until its “emancipation” in 1951.

The implication is that politicians may have to take charge of central banks and force them to monetise debt at key moments to break the vicious circle. Indeed, the banks may have to be crushed into submission in extremis as a national priority if they drag their feet. ...

The greatest indictment of modern central banks is that they chose to target the consumer price level, one variable among many, and a bad one to boot. They took their eye off credit growth and asset prices.

Now some – notably the ECB – are making the opposite mistake. Rising CPI inflation blinds them to credit contraction and surging jobless levels.

They might fare better to target nominal GDP growth of 4pc to 5pc and forget about the short-term ups and downs of inflation.

5---Gun ownership quotes, (everything from Joe Stalin to William Burroughs)  infowars

“Arms discourage and keep the invader and plunderer in awe, and preserve order in the world as well as property… Horrid mischief would ensue were the law-abiding deprived of the use of them.
” –Thomas Paine
“It is the duty of the patriot to protect his country from its government.” - Thomas Paine
“When governments fear the people, there is liberty. When the people fear the government, there is tyranny. The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.” - Thomas Jefferson
“Those who beat their swords into plowshares usually end up plowing for those who didn’t.
” – Ben Franklin
“If the opposition disarms, well and good. If it refuses to disarm, we shall disarm it ourselves.” - Joseph Stalin

“What country can preserve its liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance. Let them take arms.” – Thomas Jefferson
“A free people ought not only to be armed and disciplined, but they should have sufficient arms and ammunition to maintain a status of independence from any who might attempt to abuse them, which would include their own government.” – George Washington
“Guard with jealous attention the public liberty. Suspect everyone who approaches that jewel. Unfortunately, nothing will preserve it but downright force. Whenever you give up that force, you are ruined…The great object is that every man be armed. Everyone who is able might have a gun.” 
– Patrick Henry

“If the representatives of the people betray their constituents, there is then no recourse left but in the exertion of that original right of self defense which is paramount to all positive forms of government…” – Alexander Hamilton, The Federalist (#28)
“To disarm the people is the best and most effective way to enslave them.” – George Mason

The most foolish mistake we could possibly make would be to allow the subject races to possess arms. History shows that all conquerors who have allowed their subject races to carry arms have prepared their own downfall by so doing.” - Adolf Hitler, April 1942

“After a shooting spree, they always want to take the guns away from the people who didn’t do it. I sure as hell wouldn’t want to live in a society where the only people allowed guns are the police and the military.” – William S. Burroughs, 1991
“The very atmosphere of firearms anywhere and everywhere restrains evil interference – they deserve a place of honor with all that’s good.”
- George Washington

6---Cornel West bashes Obama, information clearinghouse (video)-

7---Imperialism plans “decades of war” in Africa, wsws
    The French intervention in Mali, followed by the bloody siege in Algeria, represents a turning point in what has emerged as a new imperialist scramble for Africa. With these events, following on the heels of the US-NATO war for regime-change in Libya and the Washington-backed sectarian civil war in Syria, mankind is witnessing a convulsive drive by the major powers to re-divide the world, its territories, markets and resources.
There is every reason to believe that this campaign to re-colonize much of the planet will be even bloodier and more oppressive than the original colonization of Africa.

As in the Libyan war, France has taken the lead in unleashing fighter bombers and deploying its dogs of war, the French Foreign Legion, in Mali. However, the other major imperialist powers have made it clear that they will not remain on the sidelines.-...

The message was unmistakable. Mali and the region are to be turned into a new front in the global US killing spree, to be carried out in the first instance with Predator drones and Hellfire missiles.
The US has also announced that it is sending US Special Forces troops as “trainers” and “advisors” to the six countries—Niger, Nigeria, Burkina Faso, Senegal, Togo and Ghana—which are to provide the troops for an African force being cobbled together by the Economic Community of West African States (ECOWAS) as a proxy for imperialist intervention. It will also provide aircraft to deliver them to Mali.....

Time magazine succinctly outlined the real motives in Mali: “The dangers expand elsewhere, with huge oil reserves attracting Western companies to set up production across the vast Sahel. South of Algeria and Mali sits Niger, a dirt-poor desert country with the world’s fourth largest output of uranium, which supplies France’s crucial network of nuclear-power stations. East of Algeria is Libya, where a number of Western companies exploit some of Africa’s biggest oil reserves.”
US imperialism and the European powers that formerly colonized Africa are determined to lay hold of these resources. Having been supplanted by China as Africa’s single largest trading partner, and badly trailing Beijing in terms of growth in foreign direct investment, Washington and the European powers are turning to military intervention as a means of offsetting economic decline.
As with the inter-imperialist rivalries generated by the scramble for Africa over a century ago, the present conflicts over domination of the continent point toward the eruption of a new world war.

8---Existing Home Sales Unexpectedly Fall 1 Percent, Reuters

9---Reflating the housing bubble?, oc housing

To facilitate reflation of the housing bubble, the federal reserve lowered interest rates to zero, and embarked on a program of buying 10-year Treasuries (operation Twist) and directly buying mortgage-backed securities to ensure the flow of capital into the housing market and dramatically lower mortgage interest rates. At the peak of the housing bubble, mortgage interest rates were between 6% and 6.5%. They are 3.35% today — a near 50% reduction. These super-low interest rates give today’s buyers the ability to borrow amounts commensurate with peak prices under stable loan terms.

The stage was set to reflate the bubble and allow lenders to foreclose and recover capital at peak prices. There was only one problem. Due to the collapse of prices when the housing bubble burst, comparable sales were far below peak prices, and continued foreclosure processing was keeping prices down. The solution was simple; stop foreclosure processing and restrict inventory until the housing bubble reflates. That’s were we are today.

Lenders stopped foreclosure processing to dry up the inventory. Loanowners are in no hurry to list their properties because if they wait, they might get out without a ding to their credit scores, so both foreclosures and short sales are in short supply. Foreclosures used to be a third of the market, and with 25% of owners underwater, more than half the supply has been removed. The few organic sellers are also have incentive to wait because they will make more money by selling later. The result is a huge decline in inventories and rapidly rising prices.

How much higher can prices go?

A shortage of inventory alone is not enough to make prices go up. Buyers also have to be able to raise their bids.

10---Investor’s think the Federal Reserve is omnipotent, TrimTabs

The Federal Reserve has now admitted that five years ago, just days before the start of the financial meltdown, Mr. Bernanke and others at the Fed did not have a clue as to the impending financial disaster. Now contrast that with the results of an astonishing poll by a Chartered Financial Analyst Institute publication that 59% of investors now believe that because of what’s happened during the last five years: central banks and governments will be there to bail out troubled creditors.

In other words, because of what’s happened in the last five year, 59% of investors now believe that the Federal Reserve will save their butts in terms of their investments if anything goes wrong.

Add to that insanity the fact that Investor’s Intelligence has reported that the percentage of bearish newsletter writers is now near its lowest point since it was started 50 years ago in 1963. Which means that most everyone now believes in the market’s version of the tooth fairy — that the Federal Reserve is omnipotent....

All bull markets end when new share sales from companies and insiders swamp corporate buybacks. That is close to happening, but has not yet happened. Therefore, for now the emperor is still clothed. However, at some point soon, I expect new offerings to swamp corporate buying after which the market will crash regardless of whatever the Federal Reserve tries.

11---New Housing Fears: Home Prices Are Rising Too Fast, CNBC

The greatest concern in the market is the inventory situation," said Lawrence Yun, chief economist for the NAR. "Even if we see an increase in the Spring and Summer, if home sales hold at the [current] level or even a 5 to 6-month supply, price increases are guaranteed. We don't want to see rapid appreciation in prices faster than income."
The reasons for the low supply are varied, and the low numbers are in fact feeding on themselves. If potential buyers can't find something to their liking, they will probably not list their homes for sale.
There are also still 10.7 million borrowers who owe more on their mortgages than their homes are worth, according to the latest report from CoreLogic. An additional 2.3 million have less than five percent equity in their homes, referred to as near-negative equity. Most of these homeowners are stuck in place, unable to sell unless they can afford to pay in to their mortgages. As for new supply, even though builders are increasing starts, they are still not even at half the pace they were at the height of the housing boom.

As a result, home prices are now rising more and faster than most analysts predicted due to this short supply, up 7.4 percent year-over-year in November, according to CoreLogic. They are especially surging in some of the hardest hit markets from the housing crash, where large-scale investors are swarming with cash in hand. In Phoenix, home values jumped nearly 32 percent from a year ago in November and are now at the highest level since October of 2008 according to DataQuick. While still 39 percent off their boom-high in June of 2006, they are now up 41.5 percent from the bottom, and there is not much on the market.
(Read More: Could Rentals Be the New Red Flags in Real Estate?)
Healthy housing market gains are historically driven by increasing employment and income, not by lack of supply; the latter leads to price bubbles. First-time home buyers, who generally account for 40 percent of the home-buying market or higher are still under-represented at just 30 percent, according to the Realtors. This is due to tighter credit conditions in the mortgage market and now decreasing affordability.

December's disappointing drop in home sales, month-to-month is a clear warning for the housing recovery going forward. Rising home prices are not the sole measure of a healthy market. Supply and demand need to fall closer in line, and a robust economic recovery should be driving both home sales and prices.

12--The Most Important Graph on the Deficit, rortybomb

13---Fiscal multipliers work better in recessions, AEA

A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession. We provide three insights. First, using regime-switching models, we find large differences in the size of spending multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions. Second, we estimate multipliers for more disaggregate spending variables which behave differently relative to aggregate fiscal policy shocks, with military spending having the largest multiplier. Third, we show that controlling for predictable components of fiscal shocks tends to increase the size of the multipliers in recessions.

14---The Macroeconomic Task Ahead, econbrowser
And why countercyclical macro policy is still needed

15---And you thought the gov was spending alot of money? NYT (Krugman)

Let’s look first at a longish time series of total government spending as a share of potential GDP:
Ratio of government spending to potential GDP. Ratio of government spending to potential GDP.
With the success of the Home Affordable Refinance Program for Fannie and Freddie borrowers, there is an expected push on the part of the Obama Administration to offer performing borrowers falling outside the agency's purview a way to lower their mortgage payments – through either a refinance or loan modification, Amherst Securities Group said.
Amherst's latest Mortgage Insight Report focuses on the implications of both Sen. Jeff Merkley's plan for refinancing underwater borrowers and the Treasury proposal for modifying mortgages in private-label securitizations.
The mechanics of the refinance plans are different in that under the Merkley Plan and other refinancing proposals, the loan is removed from the private label securitization trust (PLS trust), whereas under the Treasury plan, the mortgage loans remain in the PLS trust. Sen. Jeff Merkley, D-Ore., introduced his plan last year, proposing that the government would buy underwater mortgages from banks, reduce the principal for eligible borrowers and refinance the loan into a new Federal Housing Administration-backed mortgage.

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