Monday, May 20, 2013

Today's links

1---Fed wants low-credit score homebuyers (Mortgage rates are higher now than when QE3 started in September 2012), zero hedge

However, I believe the new normal is going to be intervention. Here is a recent speech by Fed Governor Elizabeth Duke, entitled "A View from the Federal Reserve Board: The Mortgage Market and Housing Conditions".  This speech is significant because Duke usually labels herself as the Federal Reserve's main voice on housing.

Since joining the Board in 2008 amid a crisis centered on mortgage lending, I have focused much of my attention on housing and mortgage markets, issues surrounding foreclosures, and neighborhood stabilization.

For those who follow the housing market, I believe this speech is a must read. It provides insight into the data that the Fed is looking at and the Fed's understanding, or misunderstanding, of the real estate market. They seem to be overly concerned about lending to borrowers with low credit scores (emphasis mine):

“The drop in originations has been most pronounced among borrowers with lower credit scores. For example, between 2007 and 2012, originations of prime purchase mortgages fell about 30 percent for borrowers with credit scores greater than 780, compared with a drop of about 90 percent for borrowers with credit scores between 620 and 680 Originations are virtually nonexistent for borrowers with credit scores below 620
At the Federal Reserve, we continue to foster more accommodative financial conditions and, in particular, lower mortgage rates through our monetary policy actions. We also continue to monitor mortgage credit conditions and consider the implications of our rule makings for credit availability. For your part, I urge you to continue to develop new and more sustainable business models for lending to lower-credit-score borrowers that lead to better outcomes for borrowers, communities, and the financial system than we have experienced over the past few years.”

Governor Duke has completely forgotten about the sub-prime disaster. A low credit score is not a given, it is earned. A borrower must carry some balance, miss a few payments or even default on a few loans before they can garner a 620 or lower credit score.  The last thing that sub-prime borrowers need is more debt,  something that they have proven they cannot manage.

At the moment, we know prices are going up in certain markets, and so are sales. Mortgage rates are higher now than when QE3 started in September 2012. Investors are gobbling up everything in sight in their favored target markets. As an example, they are buying 30% of the houses in Southern California, 38% in Phoenix and 53% in Vegas. First time buyers do not stand a chance, especially if their credit score is an iffy <620 a="" are="" contingency="" declining.="" happy="" home="" is="" makers="" making="" most="" of="" offer="" ownership="" percentage="" policy="" results="" seller.="" span="" the="" their="" these="" to="" unattractive="" with="">
U.S. economy will continue to recover until at least 2015 without tumbling into a recession, according to a poll of investors, analysts and traders who are Bloomberg subscribers. With the economy creating an average of 208,000 jobs a month since November, 69 percent of those surveyed call the recovery "sustainable" while 27 percent anticipate a new recession within two years. Michael McKee reports on Bloomberg Television's "In the Loop."
Stocks on both sides of the Atlantic were boosted after a survey of U.S. consumer sentiment in early May rose more than economists had expected, with more Americans giving favorable views about their financial and economic prospects, particularly among upper-income households
7---Housing bubbles inflating, Portland press herald
, the recent price surge has made eight U.S. markets -- including Orange County, Calif.; Houston; and Portland, Ore. -- overvalued, the San Francisco-based real estate data company said....
Blackstone, the largest buyer in the United States, spent more than $4 billion on 24,000 rental properties last year.
Vitner, of Wells Fargo, said investors are buying properties as quickly as they can and when they leave, housing will take a hit. Investors accounted for 19 percent of sales in the U.S. in March and even more in some former bubble markets, according to the National Association of Realtors.
"The problem is if they don't earn a high enough return, they all walk away," Vitner said. "Investors accounted for a larger proportion of the housing recovery than people realize."

8---Corporate cash balances still growing - and so is debt, sober look
Corporate treasurers' risk tolerance remains low as they prefer to hold record amounts of cash on their balance sheets.

Source: JPMorgan

This is taking place at the time when companies have issued record amounts of debt to take advantage of ridiculously low rates. Increasingly however the proceeds of those bond sales and other borrowings sit in cash. The difference between total and net debt in the chart below is cash..
Markets are betting that some of this cash will ultimately turn into stock buybacks or dividends. Shareholders are certainly demanding it. Over time that will leave some of these firms more leveraged, and unless they "grow into" this debt, more vulnerable to downturns
9---N. Korea continues short-range missile launches for 3rd day - South, RT
North Korea has fired two short-range missile into the Sea of Japan on Monday, South Korean Defense Ministry reports. It’s the third day in a row of such launches, despite calls from the UN to cease them.
Amid the launches, Seoul placed Israeli precision-guided missiles capable of hitting North Korean targets on its Yellow Sea border islands, Yonhap news agency reported Sunday.

"Dozens of Spike missiles and their launchers have recently been deployed on Baengnyeong and Yeonpyeong islands," an official for the Joint Chiefs of Staff (JCS) said. "They can destroy [North Korea's] underground facilities and can pursue and strike moving targets."
The satellite-guided Spike missile has a range of about 20km (12.4 miles) and weighs 70kg (154lbs), according to military officials.
Yeonpyeong is situated just 11km (6.8 miles) from North Korean shores....

The US stations around 28,500 troops in South Korea, a carry-over from the 1950-53 Korean War, which ended with an armistice, not a peace treaty. The armistice was signed by the US-led UN troops, by the Chinese volunteer army which came to help the North, and by Pyongyang, but not by Seoul.
The Korean Peninsula is emerging from the latest episode of tensions, which began February 12, 2013, when Pyongyang announced it had conducted an underground nuclear test, its third in seven years.

10--Workers must reject emergency manager’s plan for Detroit, wsws

11---Police State America, wsws

The Pentagon’s assertion of the power for the indefinite future to unilaterally deploy the US killing machine wherever the president sees fit—including within the US and without any oversight or “checks and balances”—amounts to an announcement of a semi-dictatorship in the US. ...

Behind Obama, and next to the financial aristocracy, stands a privileged middle class layer—approximately the top 90th to 99th percentile. Some within this layer maintain minor differences with the financial aristocrats on lifestyle, race, culture and identity issues. However, they depend on the existing setup for their privileged status, income and respectable positions in corporate management, university departments, law firms, the entertainment industry, the trade unions, NGOs, the media and so forth. On board for imperialist war and the defense of the capitalist system in general, this layer is prepared to go along with a police state if the alternative is a revolutionary overthrow of the system by the working class.
The vast majority of the American population—the bottom 80 to 90 percent—is wholly excluded from the official political life of the country. Obama does not address himself to them. Their interests are not taken into account in any major political decision. They do not matter.

Ask an American worker in that bottom 80 to 90 percent whether the First Amendment contains mere suggestions conditioned on “government interests,” or whether it guarantees absolute, inalienable rights. Ask whether the US president and military should have unlimited and unchecked powers for the indefinite future, up to and including the power to violently suppress “civil disturbances” without regard for the Constitution or basic rights. Ask whether the president should be able to secretly order the assassination of US citizens. Ask, and you are highly likely to get very different answers than if you ask a Supreme Court justice, a member of Congress, a “liberal” newspaper columnist or the president (who is purportedly a one-time “constitutional law lecturer” at a top US law school).

Analyzing the theft of the 2000 elections, the World Socialist Web Site observed at the time that there remained no significant constituency for the defense of democratic rights within the American ruling class or its political establishment. The WSWS predicted a rapid shift towards authoritarian forms of rule and reiterated these warnings in the period following the September 11, 2001 attacks.

It is now necessary to issue a new warning. More than a decade has passed since the launch of the so-called “war on terror.” The process of disintegration of American democracy has accelerated and advanced sharply, in particular under the Obama administration. Now looming on the horizon is an American police state.


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