Tuesday, February 26, 2013

Today's links

1---Fed Faces Explaining Billion-Dollar Losses in QE3 Exit Test, Bloomberg

Federal Reserve Chairman Ben S. Bernanke’s efforts to rescue the economy could result in more than a half trillion dollars of paper losses on the central bank’s books if interest rates rise abruptly from recent levels.

That sum is the difference between the value of securities in the Fed’s portfolio on Dec. 31 and what they may fetch in three years, according to data compiled by MSCI Inc. of New York for Bloomberg News. MSCI applied scenarios devised by the Fed itself for stress-testing the nation’s 19 largest banks.
MSCI sees the market value of Fed holdings shrinking by $547 billion over three years under an adverse scenario that includes an economic contraction and rising inflation. MSCI puts the Fed’s mark-to-market loss at less than half that, or $216 billion, if the economy performs in line with consensus forecasts of gradually rising growth, inflation and interest rates.
The potential losses are unprecedented in the Fed’s 100- year history, and Bernanke has never used congressional testimony to give a detailed explanation of the consequences of shifting hundreds of billions in interest-rate risk from private portfolios onto the Fed’s balance ...

The first two rounds of bond purchases “may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred,” Bernanke said in an Aug. 31 speech in Jackson Hole, Wyoming.

‘Diminishing Returns’

“There’s a cost to very significant stimulus -- and that’s OK if the stimulus is a good investment -- and I think a lot of what the Fed has done is a very, very good decision,” said Representative John Delaney, a Maryland Democrat and member of the House Financial Services Committee, where Bernanke testifies tomorrow. “Their actions right now are having diminishing returns and increasing the severity of this future loss that will be incurred as rates go up.”

2---Housing Smoke And Mirrors, GEI

The consensus opinion on the US Housing Market is that it is in recovery mode. Closer analysis of the data reveals that this recovery is artificial; and that the tools that made the recovery have built in a self-destruct mechanism.....

The slow death is easy to visualize. Loans with vintages from 2005-2007, when the bubble was inflating, were the first to have problems. Federal programmes have now got the delinquency rate of these 2005-2007 vintages falling. Loans taken out after 2008 are all accelerating into delinquency. This signals that borrowers since 2008 cannot afford to meet their current debt obligations. This could be because the economy is weak. It could also be because the size of the loans (i.e. the value of the underlying houses) is still too large....

The current rising delinquency line, albeit less steep than in 2008 and 2009, still signals that the housing market is in stress and prices are still too high for buyers. Even with modifications and low interest rates, thanks to the Government and the Fed, the market remains unsustainable. The Federal Programmes and the Federal Reserve have prevented true price discovery from occurring in the present; this price discovery however cannot be avoided. They hope that the discovery will be made in conditions of economic growth, so that the adjustment to realistic market prices for houses is higher rather than lower. The housing market is therefore the hostage of economic growth and not the signal of economic growth.

3---Payday Predators Move to the Internet, economic populist

Payday loans have to be the poster child for exploiting the poor. People should never get a payday loan. Selling blood or begging in the streets is a better option. The Pew Chartable Trust has been on the warpath to expose these exploitive sorts of financial ripoffs which it turns out are quite the profitable business.
Twelve million Americans take out payday loans each year, spending approximately $7.4 billion annually at 20,000 storefronts and hundreds of websites, plus additional sums at a growing number of banks. Though they are marketed as short-term products for temporary needs, payday loans are typically used for ordinary expenses not unexpected emergencies. The average customer ends up indebted for five months and pays $520 in finance charges.
Some of these loans are charging interest rates of 500% and Pew reports the average person taking out a payday loan coughs up $520 in interest and finance charges for just $375 in principle. Who needs the mob and loans sharks when we have payday loans?
The New York Times reports major banks are enabling these predatory lenders evade new state laws which cap interest rates or ban payday loans altogether.

4---Euro debt crisis looms again as Italians defy EU austerity demands, Telegraph

The eurozone’s debt crisis strategy was in chaos on Monday night after anti-austerity parties appeared on track to win a majority of seats in the Italian parliament, vastly complicating efforts to forge a government able to carry through EU-imposed reforms

In an earthquake result, the Five Star protest movement of comedian Beppe Grillo looked likely to emerge as the biggest single party in the lower house. The scourge of bankers and corrupt elites, Mr Grillo has campaigned for a return to the lira and a restructuring of Italy’s €1.9 trillion (£1.64 trillion) public debt.

even though Mr Monti himself suffered a serious defeat.
His Civic List won just 9pc of the vote in what amounted to a popular rejection of his hair-shirt policies. “It is a disaster for Monti, calling into question every thing he has done. He must regret that he ever got drawn into politics,” said Gary Jenkins from Swordfish.

Mr Monti took power 15 months ago at the head of a technocrat team after Mr Berlusconi was forced from office in murky circumstances.

Mr Berlusconi, Italy’s richest man, alleges that he was the victim a “coup d’etat” orchestrated by EU officials and German political leaders, and has made no secret of his thirst for revenge.

“This election is close to being the worst-case scenario for the markets. If there is one wild card in the European pack willing to do anything, it is Silvio Berlusconi, and he is sitting on the biggest barrel of gunpowder in Europe,” said Mr Jenkins.

“Italy is big enough to blow up the whole eurozone. That means Italy’s leader can take a tough line in the pyschological game with Germany. The question is what markets will do. The Italian debt auction on Wednesday will be very interesting to watch.” ...

Mr Monti pushed through draconian fiscal tightening – mostly tax increases – to comply with EU demands, even though Italy’s primary budget was already near balance. Critics say this tipped the economy into needlessly deep recession,

Output contracted by 2.1pc last year, and is expected to fall 1.4pc this year. The economy will have shrunk by almost a tenth from its peak by 2014. The youth jobless rate has reached 37pc. By any measure, it has become a depression.

5---Death by Davos, NYT

This is the way the euro ends: not with the banks but with bunga-bunga.

OK, the euro isn’t doomed — yet. But the Italian election signals that the eurocrats, who never miss an opportunity to miss an opportunity, are getting very close to the edge.

The fundamental fact is that a policy of austerity for all — incredibly harsh austerity in debtor nations, but some austerity in the European core too, and not a hint of expansionary policy anywhere — is a complete failure. None of the nations under Brussels/Berlin-imposed austerity has shown even a hint of economic recovery; unemployment is at society-destroying levels

6---From S&P: Home Prices Closed Out a Strong 2012 According to the S&P/Case-Shiller Home Price Indices, cal risk
Data through December 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed that all three headline composites ended the year with strong gains. The national composite posted an increase of 7.3% for 2012. The 10- and 20-City Composites reported annual returns of 5.9% and 6.8% in 2012. Month-over-month, both the 10- and 20-City Composites moved into positive territory with gains of 0.2%; more than reversing last month’s losses.

In addition to the three composites, nineteen of the 20 MSAs posted positive year-over-year growth – only New York fell.

“Home prices ended 2012 with solid gains,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Housing and residential construction led the economy in the 2012 fourth quarter. In December’s report all three headline composites and 19 of the 20 cities gained over their levels of a year ago. Month-over-month, 9 cities and both Composites posted positive monthly gains. Seasonally adjusted, there were no monthly declines across all 20 cities.
 
7---Japan Reflation Inspired by Braintrust Created by Shinzo Abe, Bloomberg

Dramatic Shift

“The reflationists have come in from the cold to sit right by the fireplace next to the prime minister,” said Takahiro Sekido, a strategist in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. who formerly worked at the Bank of Japan. “Their influence was limited until Abe came back, and right now we are on the verge of a dramatic shift in the nation’s monetary policy.” ...

What we are using is a very standard theory of international finance,” Takahashi said in an interview this month. “If you ease monetary policy, the currency will weaken. If you do that, exporters will benefit and shares will rise. It will also encourage inflation and real interest rates will fall, which will also lead to higher share prices and improve capital spending and the economy will improve.”

Economic Outsiders

Economists in favor of reflation were “on the outside for nearly a decade” after the government switched focus to boosting the economy through deregulation instead of keeping pressure on the Bank of Japan, according to Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo and a former Bank of Japan official. “Lawmakers often paid lip-service to fighting deflation, but their heart wasn’t in it.”
Investors are cheering Abe’s brand of economics, with theNikkei 225 (NKY) Stock Average advancing for 12 weeks through Feb. 1, the longest winning streak since 1959. The index is up 22 percent in three months, the largest gain in 18 global stock market indexes tracked by Bloomberg, with Mazda Motor Corp. (7261) more than doubling on the improved export outlook. ...

Deepest Slump

After leaving office in September 2007, Abe watched as the economy sank into its deepest recession since at least the 1950s in the aftermath of the Lehman Brothers Holdings Inc. collapse and ensuing credit storm. The LDP was ousted from office in 2009 after dominating Japan’s government for half a century...

Study Sessions

Abe began attending study group sessions on monetary policy, hosted by Yamamoto, with economists including Hamada, Gakushuin University Professor Iwata and Tokyo University’s Takatoshi Ito, an inflation targeting-advocate rejected in 2008 as a BOJ deputy governor candidate. Other discussants with Abe included Nobuyuki Nakahara, an intellectual father of the BOJ’s first stab at quantitative easing, in 2001, when he was a board member.
“Their ideas entered his head like water soaking into the desert,” Yamamoto said in an interview this month. The current administration’s economic platform “started from there,” he said.
Abe began echoing publicly the view of economists including Iwata and Takahashi. In a broadcast on BS Fuji television in October 2011 he said that the central bank ought to enlarge the monetary base -- or the amount of cash in circulation plus financial institutions’ reserves at the BOJ -- to get out of deflation. Abe declined an interview request from Bloomberg Newslast month.

Japan’s deflationary economy cannot be resolved through monetary policy alone,” Yukari Sato, an upper house LDP lawmaker and former Credit Suisse First Boston economist, said in an interview last week. “It provides an entry point for resolution, which will also require support for demand via fiscal stimulus that will stimulate private demand.”

8---Che dreamed of united Latin America standing strong against the US’ – Guevara’s daughter, RT

9---Deficit Is Falling Dramatically, But Only 6% Know That, smirking chimp

10---Russia is back, in Syria, that is, oilprice

Russia is back. President Vladimir Putin wants the world to acknowledge that Russia remains a global power. He is making his stand in Syria

11---American NGOs pull out of Russia, wsws

A series of events over the past two months point to a marked deterioration in US-Russian relations. The much-hyped “reset” in relations, declared jointly by US Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov in March 2009, has proved to be ephemeral

The curtailment of foreign-controlled NGOs in Russia is widely understood as the official response to the role those NGOs played in providing assistance to liberal oppositionist groups, which began organizing mass protests in Russia following parliamentary elections in December 2011 that were widely believed to be falsified. The liberal opposition has sought, under the banner of defense of democratic rights, to promote a right-wing agenda aimed at further opening up the country to foreign investment, instituting austerity measures, and building closer ties with Washington.

Friction between NGOs and the Russian government has been building for some time. It reached new heights last October with the official expulsion from Russia of USAID, the United States Agency for International Development. USAID had provided funding for Golos, an election monitoring group that criticized the 2011 elections.

In November, the National Democratic Institute for International Affairs (NDI) evacuated its senior staff from Russia to Lithuania after it was threatened with criminal prosecution by Russian officials. The International Republican Institute (IRI) likewise evacuated its entire staff to Lithuania in December.

It is no secret that these so-called “nongovernmental” organizations are, in fact, funded by the United States government (in the case of the NDI, via the National Endowment for Democracy). Furthermore, many ostensibly independent NGOs operating in Russia receive indirect support from the US government through thousands of circuitous channels. Given the central role that US-backed organizations played in the “color revolutions” of the mid 2000s, which saw the installment of political figures with close ties to Washington in a series of countries in Russia’s traditional sphere of influence, the Kremlin’s fears of US meddling in its internal affairs are by no means groundless....

What lies behind the deteriorating relations are more fundamental geo-political conflicts. The two countries are at loggerheads over Washington’s promotion of Islamist forces in the Middle East and North Africa, its drive for regime-change in Syria, and its participation in the new imperialist scramble for Africa, all of which threaten Russian political and commercial interests.

12----Stalemate in Italy elections, wsws

The poor performance by Monti demonstrates the extent of the popular hatred for the austerity measures dictated by the EU. In late 2011 and under pressure from the EU, the former EU commissioner Monti took over as head of a non-elected technocratic government and introduced drastic austerity measures. They have lowered the living standards of broad sections of the population, while youth unemployment has soared to more than 37 percent.
Monti was supported by the ruling classes throughout Europe and highly praised by the media. Italian voters did not share this enthusiasm, however, as the election result makes clear.
Bersani had long been regarded as the undisputed favorite to win the election. In the last polls published two weeks ago he was still well ahead of Berlusconi. As a result of his insistence on continuing Monti's austerity measures, this lead evaporated quickly.
....
The fact that more than half of all those who went to the polls voted for the list of Berlusconi or Grillo’s Five-Star Movement, both of which conducted campaigns against the EU, indicates the growth of opposition to the European Union in a country traditionally regarded as pro-EU.
The anger against Monti and the European Union could be exploited by right-wing figures because they faced no opposition from the nominal “left”. In common with the Social Democrats in all other European countries, the Democratic Party in Italy fully supports the austerity policies of the EU

13---It's Always the right time to buy,  The Burning Platform

The Incredible Shrinking Inventory

We are told by good old Larry Yun that there are only 1.74 million homes left for sale in this country and at current sales rates we’ll run out of inventory in 4.2 months. Oh the horror. You better buy now, before it’s too late. We must be running out of houses. Someone call Bob Toll. We need more houses built ASAP, before this becomes a crisis. But there seems to be problem with this storyline. Existing home sales are falling. Even using the NAR seasonally manipulated numbers, sales in January were lower than in November. In a country with 133 million housing units, there were 291,000 existing home sales in January. If there is an inventory shortage, why have new home sales fallen every month since May of 2012? There were a total of 10,000 completed new homes sold in December in the entire country. Housing starts plunged by 8.5% in January. Does this happen when you have a strong housing market? Do you believe the NAR inventory figure of 1.74 million homes for sale? The last time the months of supply was this low was early 2005 – during the good old days.....

Let’s examine a few facts to determine the true nature of this shocking inventory shortage. According to the U.S. Census Bureau:
  • There are 133 million housing units in the United States
  • There are 115 million occupied housing units in the country, with 75 million owner occupied and 40 million renter occupied.
  • For the math challenged this means that 13.5%, or 18 million housing units, are vacant.
  • Only 4.3 million are considered summer homes, and 3.9 million are available for rent. That leaves 9.8 million homes completely vacant.
  • The Census Bureau specifically identifies 1.6 million of these vacant housing units as up for sale.
So, with 9.8 million vacant housing units in the country and 1.6 million of these identified as for sale, the NAR and media mouthpieces have the balls to report only 1.74 million homes for sale in the entire U.S. This doesn’t even take into account the massive shadow inventory stuck in the foreclosure pipeline. Of the 75 million owner-occupied housing units in the country, 50 million have a mortgage. Of these houses, a full 10.9% are either delinquent or in the foreclosure process. This totals 5.4 million households, with 1.9 million of these households already in the foreclosure process. The number of distressed households is still double the long-term average, even with historically low mortgage rates, multiple government mortgage relief programs (HARP), and Fannie, Freddie and the FHA guaranteeing 90% of all mortgages. Do you think the NAR is including any of these 5.4 million distressed houses in their inventory numbers?...


Then we have the little matter of a few home occupiers still underwater on their mortgages. After this fabulous two year housing recovery touted by shills and shysters, only 27.5% of ALL mortgage holders are underwater on their mortgage. This means 13.8 million households are in a negative equity position. Those with 5% or less equity are effectively underwater since closing costs usually exceed 6% of the house’s value. That adds another 2.2 million households to the negative equity bucket. Do you think any of these 16 million households would be selling if they could? ...

The media, NAHB, and certain bloggers look at this chart and declare that new home sales are up 20% from 2011 levels. Sounds awesome. I look at this chart and note that 2011 was the lowest number of new home sales in U.S. history. I look at this chart and note that new home sales are 75% below the peak in 2005. I look at this chart and note that new home sales are lower today than at the bottom of every recession over the last fifty years. I look at this chart and note that new home sales are lower today than they were in 1963, when the population of the United States was a mere 189 million, 40% less than today’s population. Do you see any signs of a strong housing recovery in this chart?

The housing cheerleaders look at the chart below and crow about a 75% increase in housing starts. I look at this chart and note that housing starts in 2009 were the lowest in recorded U.S. history. ...

distressed homes (foreclosed & short sales) now make up 23% of all home sales and have accounted for well over 30% of all home sales since 2010. Another 28% of home sales are all-cash sales to investors looking to turn them into rental units or flip them for a quick buck. Lastly, 30% of homes are being bought by first time home buyer pansies who have been lured into the market by 3.5% down payment loans through the FHA, with the future losses born by middle class taxpayers who had no say in the matter. Prior to the housing crash, normal buyers who just wanted a place to live, accounted for 90% of all home purchases. Today they make up less than 30% of home buyers.....
 

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