Monday, February 11, 2013

Today's links

1---Record Numbers of US Military and Veteran Suicides, global research

Suicides Outpace War Deaths. Surge in Military Suicides. Nearly Two Dozen Veterans Commit Suicide Daily.

2---Households On Foodstamps Rise To New Record, zero hedge

47.7 million

3---FBI monitors Occupy, Firedog Lake

new documents show that the violent crackdown on Occupy last fall – so mystifying at the time – was not just coordinated at the level of the FBI, the Department of Homeland Security, and local police. The crackdown, which involved, as you may recall, violent arrests, group disruption, canister missiles to the skulls of protesters, people held in handcuffs so tight they were injured, people held in bondage till they were forced to wet or soil themselves –was coordinated with the big banks themselves....

We now know that the FBI was monitoring Occupy. We know they helped coordinate the crackdowns and deemed peaceable protesters to be potential terrorists. The mayor of Oakland admitted that 18 mayors around the country were talking to each other about how to handle Occupiers.
None of this is about incompetence, laziness or an over-burdened system. It is about silencing voices which would demand accountability of those in power, justice for the “99%” and analysis and adjustment of our worship of predatory capitalism. Some aspects of the system have been crumbling to a state of auto-complicity for so long that we’ve become complacent. But that doesn’t make it any less unjust or any less responsible for the resulting oppressions.

4---Housing: Where cash is King, Dr Housing Bubble

all cash buyers
In 2002 and 2003 all cash buying in places like Phoenix and Orlando hovered around 10 percent. In 2012 over 50 percent of all purchases went to all cash buyers while in Phoenix it was closer to 45 percent. Sacramento hit a record with 34 percent of purchases going to all cash buyers. This figure almost aligns with the 32 percent for California overall....

Today, to qualify for a mortgage you need to document income. However, if 30 to 50 percent of the market is buying with all cash there is no need for verification. Next, you have another 25 to 30 percent of purchases going to low down payment FHA insured buyers that can only afford a very minimal down payment. The FHA to make up for this gap has increased mortgage insurance premiums dramatically...

all cash buying
Source: Calculated Risk
In parts of Florida over 70 percent of purchases are going to all cash buyers. In Las Vegas it was 55 percent. This is an incredible amount of volume but also speaks to the unintended consequences of artificially low interest rates. ...

Some of the much bigger income (i.e., hedge funds) are looking to put these rental payments into some form of security. This is where those added costs will show up over time:
“(Fool) Private-equity firms have been buying up distressed single-family homes for several months now, using pots of money to grab large lots of foreclosed properties which they can fix up and rent, sometimes to the very people who used to own them. Obviously, this venture is turning a profit: Not only are more companies getting involved in the landlord business, but Wall Street is working on a way to turn the income from these rental homes into a new investment vehicle: the rental-backed security.”
Given how high the volume is from investors, you have to wonder what will happen once yields begin to drop down to Earth. Will investors fight over each other for a 4.5 percent return? For markets where investor buying is over 30 percent, will the organic buyer make up for the gap once investor money slows down? That is something that we are going to find out over the next few years. If you are wondering why you are losing out on bidding on certain homes, there is a good chance that you are contending with all cash purchases.

5---Class tensions in Europe at the breaking point, wsws

Class tensions in Europe are rapidly intensifying. The ruling class will not rest until it has imposed the full burden of the international financial crisis on the working class. Its aim is to destroy the social gains of the post-war period and slash wages in Europe to a level comparable with those in China and India.
Greece, where five successive austerity packages have thrown broad layers of the population into unemployment and poverty, is only the beginning. Portugal, Ireland, Slovenia, Romania, Spain and Italy are all being subjected to similar austerity policies....

The European governments respond to any expression of working class opposition with more serious consequences for corporate profits and government policy by imposing strike bans and employing methods of state violence traditionally associated with dictatorships.
Two years ago, the social democratic Zapatero government in Spain mobilized the army to break a strike by air traffic controllers.
In France, Interior Minister Manuel Valls has instructed police and intelligence agencies to “closely” follow developments at troubled companies where labor unrest could break out and to watch for “threats to production in the event of a radicalization of the conflict.” Steel workers who recently demonstrated in Strasbourg against mass redundancies were detained by the French police, searched and attacked with tear gas.
In Greece, the government forced striking ferry workers back to work last week by imposing martial law for the fourth time since the beginning of austerity measures. Under penalty of long prison terms, the government broke the strike by workers who have not been paid for months. Two weeks earlier, the Greek government invoked the same emergency powers to break a strike by Athens subway workers.
The democratic right to strike has, in practice, been abolished. Any effective strike is illegal. Only protests and strikes that are purely symbolic are permitted......

If it is no longer possible to defend jobs, wages and social gains through pressure on corporations and governments, the working class is called upon to take into its own hands the control of society and the economy. This requires an independent, international mass movement of the working class fighting for a socialist program and the establishment of workers’ governments within the framework of a United Socialist States of Europe.

6---S&P Suit Shows DOJ Knows about Wall Street Corruption, Firedog Lake

Issuers were shtting down and liquidating their warehouses i.e., stores of RMBS temporarily held by issuers as they assembled assets for future CDOs), in part to enable the issuers to avoid being required to mark their positions to market — and being stuck with collateral that had suffered losses.
¶ 233(b). What this means is that issuers were taking advantage of the lag time they actively created in adjusting ratings criteria to shovel more of their garbage off their books and onto actively misled investors....

And these are just some of the issues rated or for which final ratings were issued. The complaint says S&P rated more than $135 billion in securities from March to June 2007, long after it was obvious that the housing market had collapsed.
The Department of Justice knows this, but it refuses to indict anyone. This complaint makes it clear that it wasn’t just an accident or a matter of greed, as the President and his henchmen claim. With the departure of Tim Geithner and Lanny Breuer, the most offensive proponents of the get out of jail free card, there is an opening for change

7----The case for precious metals: "Gold, Jerry, Gold!", The Big Picture

All that glitters...
Central banks cannot stop growing their balance sheets via debt monetization because higher nominal rates would force governments into bankruptcy and would kill the banking system before it is better reserved. The cost of this ongoing bailout is the slow death of un-levered savers and fixed income investors in real terms.

The de-levering process is the dynamic that drives gold higher and it has not yet begun. Leverage has merely migrated from banks and households to governments and central banks.
• Bank credit and broad measures of money are not expanding to the extent required to support relative leveraged asset pricing.
• Central banks are reported to be substantial net buyers of gold...

We expect discussion of Fed, ECB and BOE inflation and/or nominal GDP targeting to become louder and more frequent in 2013, and we expect markets to begin adjusting asset prices accordingly....

The global financial system has been using Treasuries as a surrogate for gold reserves for over four decades. Is this surprising? No. Is it sustainable? Doubtful. Treasuries are in the process of demonstrating they are available in near infinite supply while gold’s physical stock struggles to grow more than one-percent per annum. Gold is thus a threat to the perpetuation of this peculiar, self-referencing system – not an ally. Gold and Treasuries are like oil and water in this regard. Holding gold is a hedge to holding Treasuries. If one is a safe-haven, the other is a time-bomb. History bears this out. In fact, when thought through logically and cohesively, being long gold is being short Treasuries, in real terms.
Claim: “Given its historical role as a store of value, it was not surprising that investor demand for gold increased substantially. Now, however, with the acute phase of the crisis likely to be behind us, we think the peak of the fear trade has now also passed.” The analysts continue; “against any sensible benchmark gold still appears significantly overvalued relative to the long run historical experience.”

Reality: Whether it has been government-sanctioned money or not, gold’s role has empirically been the same as money’s – to store purchasing power. Sometimes, societies may collectively believe, correctly, that there is more purchasing power to be gained by converting their money into levered financial assets over some period of time. However, when levered financial assets are further denominated in unreserved currencies, then it would seem highly likely that at some point scarcer gold would protect its holders’ purchasing power better than money or financial assets. Gold’s quantity is relatively static while money’s quantity must be greatly inflated tomorrow in response to credit inflation today.
Such is the store of value to which the analysts refer. By implication, they are asserting that the future rate of money growth will be less than the future rate of the gold stock. ....

We think the Fed and other central banks expect the following economic sequencing: banks de-lever further via bank reserve creation => goods and service price inflation rises naturally as global producers demand more monetary units (higher prices) for their production => economic activity slows, creating a stagflationary global environment => by then well-reserved banks will buy or lend to borrowers willing to purchase distressed assets => asset prices rise and banking systems and economies begin to re-lever => wage levels rise relative to household debt levels, reducing the burden of grass roots debt repayment. (The wheel in the sky keeps on turning.)

In other words, we believe central banks in advanced economies are united in pursuing inflation as a remedy for economic leverage. (We further believe they will succeed, but will be forced by the market to greatly condense the sequence above into policy-administered currency devaluation.) If our analysis is correct, then “the peak of the fear trade” is ahead of us, not behind us, and the magnitude of the fear trade is substantially larger than implied by past USDXAU gains....

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”....

Policy Administered Gold Monetization
Currency devaluation may be achieved through rotating currency interventions by treasury ministries and central banks or through a one-time coordinated asset monetization. (Current debt monetization in the form of QE is NOT asset buying. To the contrary, it is central bank credit extension.) When it comes to asset monetization, gold – rather than corporate shares, real estate or consumable commodities – is clearly the most established, convenient and socially acceptable medium for fiscal agents and monetary authorities to endorse. Why? First, gold is equity already held on official balance sheets – treasury ministries and/or central banks. Second, the purchase of gold through a currency devaluation process would not necessarily be an unfair confiscation of popular wealth, which is critical in democracies where governments and their agents are not supposed to take ownership of private property.

Through policy-administered currency devaluation, fiscal agents and monetary authorities would bid for gold in terms of their currencies. Imagine the following pronouncement, if you will:
“Today, the Federal Reserve System announces a program of gold monetization in which the Fed offers to tender for any and all gold in qualifying forms at a price of US $20,000 per troy ounce. The program will be conducted through participating U.S. chartered banks, which will be instructed to properly assay gold and exchange it for U.S. dollars to be placed in customer bank accounts as deposits. Deposit holders will be entitled to make withdrawals in the form of dollars or gold at the fixed exchange rate.

By establishing the fixed exchange rate substantially above past market prices for spot gold, the Board of Governors believes enough gold will be tendered to produce a supply of new base money sufficient to adequately reserve the stock of U.S. dollar-denominated deposits in the global banking system. The Fed will monitor the tender process to ensure the soundness of the exchange rate and the ongoing viability of the US dollar.”

Done. The trillions in net unreserved bank obligations, including those appearing and not appearing on bank balance sheets, would be fully reserved. Banks would be healthier than ever and ready to lend. The debt on the balance sheets of businesses, homeowners, consumers, college graduates and car owners would still be there but would pale next to their new incomes, which would multiply more or less by the same amount as the currency devaluation. Tax receipts would multiply in kind – without raising marginal income tax rates – swiftly closing budget deficits without cutting spending (seriously). With coordinated and administered monetary devaluation all balance sheets would once again be leverage-able. The global economy would be almost immediately ready to grow. It would be economically stimulative.

We think administered currency devaluation must and will occur, as it is already occurring less formally. Banks and central banks would endorse it; their profitability would soar as lending soars and interest rates would remain low and stable. Politicians would happily champion it, as it would seem to the majority of the indebted and increasingly under-employed electorate to be a windfall solution.

8---Fed Easy Credit Becomes Inside Debate Focusing on Escape, Bloomberg

Federal Reserve Chairman Ben S. Bernanke says the end of the central bank’s bond buying won’t constitute a move toward tighter policy. He may have a tough time convincing stock and bond investors that’s true.
The Fed is acquiring $85 billion of securities each month, and policy makers are grappling with how to condition markets not to interpret a stop in those purchases as a prelude to the exit from easy credit. Bernanke said Dec. 12 in Washington that he “would emphasize” the end won’t be “a turn to tighter policy.

If the Fed fails, interest rates may climb prematurely, as traders arrange positions for the withdrawal of unprecedented monetary stimulus, according to Dean Maki, chief U.S. economist at Barclays Plc in New York. The Fed has kept its benchmark federal funds rate near zero for more than four years and swelled its balance sheet to a record of more than $3 trillionthrough three asset-purchase programs.
“There is a risk the markets get ahead of the Fed,” said Maki, a former Fed board economist. “It will be tricky for the Fed to signal it’s going to stop buying without signaling that tightening is imminent.” ....

Ending the Fed’s third round of so-called quantitative easing carries greater significance than completion of the previous two because those were introduced with defined amounts and durations. ...

Treasury Yields

U.S. 10-year government notes declined, pushing the yield up two basis points, or 0.02 percentage point, to 1.97 percent at 10:32 a.m. London time. Yields on thirty-year bonds also climbed two basis points to 3.18 percent.
Fed Governor Jeremy Stein warned last week that the market for speculative-grade debt may be overheating even as his institution’s policy of keeping benchmark borrowing costs low is pushing investors into riskier debt.
“We are seeing a fairly significant pattern of reaching-for-yield behavior emerging in corporate credit,” Stein said in a Feb. 7 speech in St. Louis. If the observation is accurate, he said, “it does not bode well for the expected returns to junk bond and leveraged-loan investors.” ....

It is going to be very difficult for them” to end QE3 without triggering a rise in borrowing costs, which may argue for sticking with the program until the economy has sustainable momentum, said Carl Lantz, head of interest-rate strategy at Credit Suisse Group AG in New York. .....

There is no doubt that when the Fed pulls back you will see a big shoot upward in Treasury yields,” said Karl Haeling, head of strategic-debt distribution in New York at Landesbank Baden-Wuerttemberg, one of Germany’s largest banks. “There are a lot of people who think the only reason rates are here is because the Fed put them here. Nobody wants to be the last man standing.”

9---Austere indeed!, NYT

An annoyed Ryan Avent combats claims that we aren’t seeing any real federal spending cuts. Indeed — for those of us who warned that premature austerity would undermine recovery, it’s frustrating to see the other side shift from “Austerity is expansionary!” to “Austerity? What austerity?” when it turned out that austerity did, indeed, undermine recovery.

What’s the clearest way to see what’s happening? I have taken to looking at the ratio of spending to (the CBO’s estimate of) potential GDP. You don’t have to believe CBO has it exactly right to believe that a measure including normal growth and inflation is a better baseline than the raw numbers. Here’s federal spending relative to potential GDP:
Spending is still elevated a bit relative to pre-crisis — reflecting higher spending on unemployment benefits and food stamps, plus the ongoing pressures of baby-boomer retirement and rising medical costs. But it’s way down from the peak. Yes, we’ve been engaged in austerity — and this is a major reason the recovery has been so weak

10---Moody's Analytics estimate that home prices, already down around 30% from their peak, would have fallen by an additional 25% without this government backing, Housingwire

Not only will FHA Mortgage Insurance Premiums be increasing 10 to 15 basis points, but they will also become permanent, creating room for alarm among lenders who fear lower-income homeowners will be squeezed out of the market.
U.S. Federal Housing Commissioner Carol Galante announced the changes in late January.
Many are arguing that, for a loan designed to help lower-income families and first time homebuyers, this increase in premiums is unjust, according to a recent press release.
"If Commissioner Galante follows through with other items, such as permanent mortgage insurance, low income households will qualify for less," said Chris Apodaca, a California mortgage banker.

And reducing market share is partially a goal of the increases, according to the FHA. It's role, post-crisis, is huge. Accoring to an article in The Wall Street Journal, economists at Moody's Analytics estimate that home prices, already down around 30% from their peak, would have fallen by an additional 25% without this government backing.
Therefore, it will be difficult to claw-back from the role the government plays in today's housing finance.
"FHA was never meant to be as mainstream as it is today," Apodaca added.....

mortgage companies are banking that housing stays strong. The nation's lenders are ramping up operations right now. An article in USA Today, said these firms are beefing up their staffs to accommodate the continued expansion in lending, sales and construction that many economists forecast this year.
"It should be a very good year for housing," the article quotes James Chessen, chief economist of the American Bankers Association. "With house prices rising, it means that there will be more (homeowners) refinancing at low rates because the equity in their house is improving. It also means more people are interested in selling their house to buy larger ones."

11----Austerity is here, macro musings

12---The corporate cash puzzle, noahpinion

13---Mortgage Rates Highest Since September, WSJ

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