Thursday, February 7, 2013

Today's links

1-----"In Feb 2013, Fed Will Buy 75% Of New 30y Treasury Supply", zero hedge

No bond bubble???

We urge readers to read the bolded section below, which comes straight from this quariter's Treasury Borrowing Advisory Committee (i.e., Primary Dealers) presentation to the Treasury Department, and explain, with a straight face, just how the Fed will ever be able to not only stop monetizing debt and injecting $85 billion of flow into the stock market, but actually sell any holdings.

2---December Revolving Credit Slides By Most Since July As Student Loans Surge By A Record, Zero hedge

3---Modern Market Alchemy Explained: Converting Junk Debt Into Supersafe Treasurys Out Of Thin Air, zero hedge

4---Germany's Industrial Production, stymied by a surging EUR, has just suffered its third biggest quarterly decline on record - plunging back to 2007 levels, zero hedge

5---Flippers push housing prices up by 2X in S. Calif, Dr Housing Bubble

6---A slow downward slide in prices, Greater Fool

7--Another Bubble?, CNBC

Barely a year in, home prices rose over eight percent annually in December, according to a new report from CoreLogic. While still down double digits from their 2006 peak, prices are suddenly soaring again and raising some serious red flags.....

Phoenix leads the pack, with prices up 26 percent from a year ago, according to Clear Capital. The "REO saturation" there, that is the share of sales that are foreclosures (Real Estate Owned) is 17 percent. Mind you, that is down from over 50 percent just a few years ago, when the market was still crashing. The story is the same in Las Vegas, where REO saturation is still 38 percent, prices are up over 15 percent annually. Investors have cleaned out the inventory so much that they are now bidding up prices higher than any expectations, and that is pushing many potential owner-occupant buyers out, especially first-time home buyers.
In Florida, where there is a huge pipeline of distressed loans, foreclosures had been severely delayed due to the so-called "robo-signing" foreclosure processing scandal. After years of negotiations and now final bank settlements, foreclosures are moving again. This increased inventory may be what is slowing the big price gains.
More concerning is that the investor price drives are not playing out in other parts of the country, specifically in the South and Midwest.
In St. Louis, Chicago, Charlotte and Dallas, distressed properties are making up about one third of the market, often higher than markets out West, but home prices are either flat or down annually, a far cry from the jumps out West. That is because investors are not as interested in these markets. As banks now begin to ramp up foreclosures, not just in Florida, but especially in states like New York and New Jersey where judges had been holding up the process as well, more distressed inventory will come on the market with fewer potential buyers. That will push prices there down.
Essentially, the recovery is becoming increasingly bifurcated, with much of the nation still suffering as some markets see bubble price dynamics.

8---A scary graph from G Sax, WA Post

On Friday,” writes Alec Phillips, an economist at Goldman Sachs, “we lowered our outlook for federal spending, to take into account the increased likelihood that cuts under sequestration take effect.”
With that built into their baseline, the cuts to federal consumption and investment look deep in the coming years. Here’s their graph, which adds a bit of historical perspective:
Goldman Sachs
Goldman Sachs
“Sequestration, spending caps, and reduced war spending will together reduce real federal consumption and gross investment by 11% over the next two years,” writes Phillips. Ouch. That’s a very big drop in a very weak economy

9----The Great Lie Of The Great Rotation, zero hedge

10---Martial Law in Greece, wsws

The imposition of martial law against the ferry strikers came just two weeks after martial law measures were used to break a strike by Athens subway workers. The Greek state, in violation of basic democratic rights, is imposing a de facto ban on any effective strike action. It is also violating international laws that permit forced labor only within clearly defined limits.

The abolition of the right to strike and criminalization of striking workers hark back to the police state conditions that prevailed under the fascist regime of the Greek colonels some 40 years ago.
The Greek government has now resorted to martial law on four separate occasions to force striking workers back to work since the European Union began dictating austerity measures for Greece.
Martial law was called against truck drivers in 2010, against striking refuse workers in 2011, and against the subway workers and ferry workers this month....

The attack on the right to strike in Greece is being carried out in collaboration with and support from other European governments and EU institutions. The so-called “troika”—the International Monetary Fund (IMF), European Commission and European Central Bank (ECB)—monitors every measure taken by the Greek government and has deployed observers to watch over specific Greek ministries. At the start of the year, Greek Prime Minister Antonis Samaras (ND) spoke with German Chancellor Angela Merkel during a visit to Berlin and was told in no uncertain terms that there could be no slowdown in the imposition of social cuts.

Having plunged the Greek population into social misery to satisfy the demands of the banks and speculators, the Greek state is now utilizing naked repression to suppress working class opposition. But Greece today is the face of Europe tomorrow. Just as Greece set the pace for the spread of austerity measures across the continent, so its turn to police state methods will be copied by governments across Europe.

11---Yield surge fuels fears of market meltdown, IFR

12---The police state implications of Obama's assassination program, wsws

The Obama administration’s recently-leaked “white paper” on the assassination of US citizens, and the actions carried out on the basis of the arguments it advances, must be taken as a dire warning to the working class in the United States and around the world. The democratic rights of the people are in grave peril. The American ruling class, steeped in lawlessness and violence, is moving toward dictatorship.
The administration’s frontal assault on democratic rights and constitutional protections—asserting the “right” of the president to unilaterally and secretly order the state murder of American citizens—is undeniably grounds for impeachment. The crimes of Richard Nixon, who nearly 40 years ago resigned the presidency rather than face impeachment and removal from office, pale in comparison to Obama’s assertion of unconstrained executive powers.

13---'Senator John McKeynes', calculated risk

Jared Bernstein:
Senator John McKeynes, by Jared Bernstein: From this AM’sNYT:
…the potential impact of the cuts is being cited by both parties. Senator John McCain, Republican of Arizona, said the military side alone would eliminate 350,000 jobs directly, and 650,000 more that depend on the government programs.
So, not only is this pure Keynesian analysis, but the Senator is recognizing both the direct and indirect effects of the cuts of jobs. In other words, he’s got a multiplier, and it’s a big one!
I can’t say how long will it be until these guys go back to saying “the government doesn’t create jobs!” but until then we need to add to our working definition of a Keynesian. It used to be ”a Republican in a recession.” Now it’s also “a Republican facing defense cuts.”
14---CBO: Deficit Shrinking At Fastest Pace Since WWII As GDP Sputters, investors

The main take-away from the Congressional Budget Office's new fiscal and economic outlook is that, collectively, Washington has put deficit reduction way ahead of jobs and growth.

After a burst of stimulus and financial rescue outlays in 2009, the fiscal retrenchment over the past three years was arguably steeper than at any time since World War II (see chart). Now, with stimulus and bailouts no longer clouding the picture, there's no question that the deficit is shrinking faster than it has in more than 60 years. Based on existing policies, CBO projects the deficit will shrink to 5.3% of GDP in fiscal 2013, down 3.7 percentage points since 2010.

Even during the '90s economic boom, the deficit never fell by more than 3 percentage points over any three-year period, but at that point the economy was growing twice as fast in real terms, producing a revenue windfall.

Now, after the economy crawled ahead at a growth rate barely above 2% over the past three years, the confounding response from inside the Beltway has seemingly been, "Too fast!"
Thanks to the fiscal cliff tax hikes approaching $200 billion in 2013, as well as automatic spending cuts set to take effect in March, the new fiscal and economic outlook from the Congressional Budget Office projects real GDP growth of 1.4%.
The jobless rate, now 7.9%, is seen ending the year at 8%, with the average 100,000 jobs added a month not enough to keep up with growth in the working population.
A look at U.S. fiscal history would seem to confirm that the deficit is shrinking much too fast.

Outside of the demobilization from WWII, the only time the deficit has fallen faster was when the economy relapsed in 1937, turning the Great Depression into a decadelong affair.
Other occasions when the federal deficit contracted by much more than 1 percentage point a year have also coincided with a recession, including 1960 and 1969.

A long-term deficit problem needs to be addressed, but we're going about it the wrong way, at an unnecessarily high cost.
Even if the automatic spending cuts did not go into effect this year, the deficit of 5.5% of GDP would still show by far the biggest three-year improvement since World War II.
On the one hand, it seems that the deficit scolds need to get their priorities right.
On the other hand, it seems that until we wrestle with the full spectrum of entitlement programs, our deficits and demographics will create a psychological hurdle to growth

15---US upside down fiscal policy, New Yorker

The C.B.O. estimates that, taken together, the fiscal-cliff deal and the sequester will reduce G.D.P. growth by about 1.5 per cent. Another way of putting it is that if neither of these policies had been introduced, growth this year would have been close to three per cent, which is what we badly need. In the interest of reducing the budget deficit and stabilizing the debt-to-G.D.P. ratio, policy makers have effectively hacked growth in half—that’s assuming the sequester goes through, which most people in Washington now think will happen. Consequently, the C.B.O. says, the unemployment rate is likely to stay close to eight per cent for at least another couple of years....

With neither party willing to tell Americans that they need to pay more in taxes, the only sensible alternative would appear to be obvious. Go easy on immediate spending cuts—we need to let the economy recover—but start work now on trimming entitlement programs, essential as they are, so they don’t eventually swallow the rest of the budget. Unfortunately, that order of proceeding runs into party politics. Many anti-government Republicans want to slash federal spending as a matter of principle. Many Democrats are dragging their heels about making cuts to Social Security and Medicare.

On Tuesday, President Obama called on Congressional Republicans to replace the sequester with smaller spending cuts and the elimination of some corporate-tax loopholes. He was right. In recent months, however, he has backed away from earlier suggestions that he would be willing to make tough choices in tackling entitlement reform. The country needs both things: immediate action on the sequester and a sound long-term fiscal strategy. But with the two sides digging in, the most likely outcome is more upside-down policies.

16---Federal debt under Reagan, Clinton, Bush, NYT (chart)

17---Fed’s Stein: Signs of Overheating in Credit Markets, WSJ

A top Federal Reserve official pointed to signs of overheating in some corners of the credit markets and raised uncomfortable questions for the central bank about how it should address the trend if it continues.
Federal Reserve Board governor Jeremy Stein said there is not an imminent threat to the wider financial system, but highlighted several markets–including junk bonds, mortgage real-estate investment trusts and commercial banks’ securities holdings–as areas where potentially troubling developments are emerging as a result of the Fed’s easy-money policies. Mr. Stein made his remarks in a speech Thursday at a symposium at the Federal Reserve Bank of St. Louis.

18--Wall Street is running a new profit game by buying foreclosed homes and renting them back to their former owners-The housing recovery is a myth, Salon

19---Consumer credit rises, although revolving loans down, Reuters

Consumer borrowing in the U.S. rose in December for a fifth straight month as non-revolving credit surged by the most in 11 years.

The $14.6 billion gain followed a revised $15.9 billion advance in November... Non-revolving debt, such as financing for college tuition and auto purchases, jumped $18.2 billion in December, while credit-card borrowing fell...

Non-Revolving Credit

The December increase in non-revolving credit, which followed a $15.3 billion advance in the prior month, was the biggest since November 2001, when automakers lured buyers back to showrooms with zero-percent financing after the Sept. 11 terrorist attacks....

Revolving debt, which includes credit cards, fell by $3.6 billion, the most since July, after a $573.8 million increase in November. 


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