Sunday, February 10, 2013

Today's links

1---House Flipping Is Hot Again, Time

According to the Washington Post, flipping homes is booming business yet again:
The number of flips rose 25 percent during the first half of 2012 from the same period a year earlier, according to research firm RealtyTrac, and the gross profit on each property averaged $29,342....
 
The hottest markets for flipping include Phoenix, Las Vegas, Miami, and Atlanta. What these areas have in common is that they all suffered enormously during the Great Recession‘s real estate value collapse. Like most of the country, these spots have also been benefitting from steadily rising home prices, leading buyers to believe that the market has bottomed out and there’s money to be made—attracting more buyers in the process.

2---The greatest triumph of the banking industry wasn’t ATMs or even depositing a check via the camera of your mobile phone. It was convincing Treasury and Justice Department officials that prosecuting bankers for their crimes would destabilize the global economy.”
-Barry Ritholtz, The Big Picture

3---Fed provides funds for "hopelessly insolvent EU banks", zero hedge

4--Sweden turns to neoliberalism, economist

5---Profits and Business Investment, NYT

Below are corporate profits (after tax and inventory valuation adjustment) and nonresidential fixed investment (roughly speaking, business investment), both measured as shares of GDP. These aren’t exactly matched figures, because not all business investment comes from corporations. Still, I think they illustrate an important point. Business investment isn’t actually all that low; you expect it to be relatively weak in a weak economy with excess capacity, but in fact it’s about as high a share of GDP as in the middle Bush years. What’s really out of line with previous experience is the level of corporate profits, which is arguably serving as a kind of sinkhole for purchasing power.
 
 
...suppose that real wages grow roughly in step with productivity. If we saw real wage growth of 1.5 percent annually, then the tax increase needed to meet the projected 75-year shortfall would be equal to 4.6 percent of projected wage growth over the next 30 years. Suppose we got real kinky and imagined we saw some of that 2.0 percent annual wage growth that we had in the golden age (1947-1973). Then the tax increase need to main the program's solvency would be equal to just 3.2 percent of projected wage growth over the next 30 years.
 
The story here is straightforward. We expect retirees' income to be related to their living standards in their working lifetime. If wages grow rapidly then it is easy for a smaller number of workers to support a growing population of retirees while still ejoying a rise in living standards. This is the way the world used to work. It might not be easy for political reasons to get back to that world, but we should at least know that such a world did once exist and is still possible.
 
 
Let's just run through the basic facts. Nationwide house prices had sharply departed from a 100 year long trend in which they had just kept pace with the overall rate of inflation. At the peak of the bubble in 2006 they were more than 70 percent above their trend level. Housing construction rose from its average of 3-4 percent of GDP to over 6.0 percent of GDP. This was at a point when the demographics would have led observers to expect a drop in construction since the baby boom cohort was seeing their kids move away from home and would have been looking to downsize. On top of this, the vacancy rate was already at record levels as early as 2002. It kept rising to new record highs year by year after that.

The savings rate had dropped from a pre-stock bubble average of more than 8.0 percent to near zero at the peak of the bubble. Again, the demographics with the baby boom cohort in its peak saving years would have led one to expect a rise in the savings rate.
Any economist who could look at these monstrous divergences from normality and not recognize a bubble really needs a new line of work. And this is before we even talk about the explosion of the subprime market, the Alt-A market, and the huge number of homeowners buying houses with no money down.

Folks this was really really easy. The economists and other policy types who are trying to say it was difficult to see are just covering their rears.

8---Automatic budget cuts are almost certain, LA Times
The ax is set to fall March 1 — with the first installment of $1.2 trillion in reductions over the next decade — because lawmakers can't agree on an alternative.

9---WSJ: Fed Buying 61 Percent of US Debt, moneynews

10---Is the Fed Really Buying Three-Quarters of All Treasury Debt?, Mother Jones

11----Treasury Scarcity to Grow as Fed Buys 90% of New Bonds, Bloomberg Dec 3, 2012

Even as U.S. government debt swells to more than $16 trillion, Treasuries and other dollar fixed-income securities will be in short supply next year as the Federal Reserve soaks up almost all the net new bonds.
The government will reduce net sales by $250 billion from the $1.2 trillion of bills, notes and bonds issued in fiscal 2012 ended Sept. 30, a survey of 18 primary dealers found. At the same time, the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co.....

Investors bid for more than four times the amount of two-year notes the Treasury auctioned last week, matching a record high, data compiled by Bloomberg show. Yields on U.S. government bonds are about a half a percentage point lower than the rest of the world on average, compared with about a quarter-percentage point more as recently as April 2010, Bank of America Merrill Lynch indexes show.
Buyers range from central banks to financial institutions stocking up on high-quality assets to meet the Dodd-Frank financial-overhaul law and global regulations set by the Bank for International Settlements. They’re helping the Fed and the Obama administration keep borrowing costs at all-time lows for everyone from consumers to Walt Disney Co. .....

$31.3 Trillion

Programs to pay for the bailout of the financial system, an extension of unemployment benefits and to bolster housing helped caused the size of the U.S. taxable debt market to swell 27 percent since 2007 to $31.3 trillion, according to Nomura Holdings Inc. The figures exclude money-market securities such as commercial paper....

With the Fed buying about $85 billion a month in Treasuries and mortgage bonds next year, the net supply to the private sector will be about zero as the central bank effectively soaks up about 90 percent of new issuance of those assets.

Gross Borrowing

Gross U.S. borrowing through Treasury sales rose to more than $2.1 trillion in each of the last three years from $922 billion in 2008, according to government data. Debt owned by the public jumped to $10.1 trillion in January 2012 from $5.75 trillion in January 2009....

Bank Deposits

Deposits at U.S. banks exceed loans by $1.91 trillion, marking a turnaround from 2008, when loans exceeded deposits by about $200 billion. Much of that surplus money has been used to buy Treasuries and government agency debt such as that issued byFannie Mae, Freddie Mac, boosting holdings to a record $1.86 trillion, Fed data show. Bank holdings of Treasuries increased 15 percent to $531.7 billion in the past year.
Investors have bid a record $3.16 for each dollar of the $1.974 trillion in notes and bonds the U.S. government has sold at auctions this year, Treasury data show, up from the previous high of $3.04 set last year. The bid-to-cover ratio at the Treasury’s auction of $35 billion in two-year notes on Nov. 27 was 4.07, matching the record high in November 2011.
That has kept down the cost of financing the record $16 trillion debt. The U.S. spent $359.8 billion on interest expense in fiscal 2012, below the $454.4 billion the previous year.

Mortgage Rates

Consumers are also benefiting. The average interest rate on30-year mortgages is a record low 3.31 percent, according to a weekly survey conducted by Freddie Mac. Banks reported the most common rate for a 48-month new-car loan was 4.88 percent in August, the most recent reporting period. The rates were more than 7 percent in December 2008.
The Fed has pumped money into the financial system by purchasing more than $2.3 trillion of Treasuries and mortgage-related securities in three rounds of policy called quantitative easing. The latest program announced Sept. 13 involves buying $40 billion a month in mortgage securities, and has no end date or fixed total amount

12---Why are corporations sitting on $5 trillion in cash?, conversable economist

13---America's weak economic recovery under threat from reckless Congress, Guardian

The good news: indicators show a tentative exit from recession. The bad news: lawmakers have another chance to sabotage it

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