Tuesday, July 23, 2013

Today's links

1--The (not-so) green shoots of recovery , Economist

Two big factors lie behind the poor overall output numbers. First, the financial sector remains dislocated. The US has dealt much more aggressively with the problem of bad loans and is now enjoying a stronger recovery. British (and European) banks remain reluctant to lend as they re-build their balance sheets and are not enforcing covenants over bad loans. This forbearance has meant less insolvency and more jobs in the short-run, but creates “zombie firms” who would exit in normal times. Low rates of new lending hits new firms with high growth potential particularly hard, which shores up problem in the future. Much productivity growth comes from start-ups with innovative ideas.

Second, the blast of austerity unleashed in Britain and euro zone has depressed demand. The 40% cuts in British public investment have been hugely counter-productive. Rather than taking advantage of low interest rates and spare resources to rebuild much needed- infrastructure, the UK government and its predecessor did the opposite. The underestimation of the impact of austerity on output (the “fiscal multiplier”) when interest rates are near zero has, as the IMF and others have pointed out, substantially reduced growth in the UK and other austerity minded nations.

The upshot of these twin evils has been an investment collapse (Figure 4). Business Investment is now 30% lower than what it was in 2007

2---Over 500 ‘Al-Qaeda militants’ escape Iraq’s Abu Ghraib in violent break-out, RT

3---Decrease in Starts Curbs U.S. Housing Rebound: Economy, Bloomberg

The residential real-estate rebound suffered a setback in June as housing starts unexpectedly fell to the lowest level in almost a year, curbing how much construction contributed to U.S. economic growth last quarter. ...

Apartment Construction

Work on multifamily projects such as apartment buildings slumped to an annualized rate of 245,000 last month, the least since August 2012, following a 28.2 percent surge in May, today’s report from the Commerce Department showed.
Construction of single-family houses fell 0.8 percent to a 591,000 rate, the fewest since November, from 596,000 the prior month......

The market remains shy of the heights reached at the peak of the housing boom. Builders began work on 780,000 homes in 2012, a 28 percent increase from the prior year and the third-straight annual advance. Starts peaked at 2.1 million in 2005, which was a three-decade high.

4---U.S. SEC urges money funds to be prepared for tri-party repo defaults, Reuters (5 years later, the problem that caused the meltdown still not fixed)

U.S. securities regulators are warning the $2.6 trillion money market fund industry to be careful of the risks in the so-called repo market, part of the unregulated shadow banking system that large investment banks use to fund their business.

The U.S. Securities and Exchange Commission on July 17 quietly issued new guidance to money funds that spells out the risks they could face if borrowers in the tri-party repurchase market collapse.
"There are a variety of ways in which a money fund and its adviser may be able to prepare for handling a default of a tri-party repo held in the fund's portfolio," the SEC wrote. "Such advance preparation could be part of broader efforts by the money market fund and its adviser to follow best practices in risk management."...

But in 2008, the collapse of Lehman Brothers caused major problems for one of the largest money funds, exposing potential systemic weaknesses in the short-term lending market.
Panicked investors rushed to pull out their money from the Reserve Primary Fund, a large prime institutional fund, after learning it was exposed to collapsed bank Lehman Brother's short-term debt.
The fund eventually "broke the buck" when its net asset value fell below $1 per share, and the U.S. government was forced to create a temporary program to guarantee money market funds.
Although money market funds and the repo market both experienced major shocks during the crisis, the 2010 Dodd-Frank law did not address these two areas.

As a result, the Financial Stability Oversight Council, a body of regulators chaired by the Treasury Secretary, has been advocating for new rules for both money funds and repos.
In previous annual reports, the FSOC has labeled money funds and repo markets as areas of emerging risks.

Regulators say they fear money market funds could be at risk in the event that a financially stressed broker-dealer needs to quickly sell assets it can no longer finance.
If the dealer's securities decline in value and they cannot return the money from a repo transaction, then creditors could initiate a run.

Last November, when a deadlocked SEC could not come to a consensus on money fund reforms, the FSOC stepped in and issued its own proposal in an effort to spur the SEC to act.
In June, under the leadership of new SEC Chair Mary Jo White, the SEC finally proposed new rules that could require large institutional prime funds to offer a floating, instead of a fixed, net asset value.
But little so far has been done on repo markets and the potential risks that may be posed by defaults.
The SEC's guidance appears to be an early step toward addressing the issue

5---A Federal Bailout For Detroit's Pensions? , Huffington Post

Does $1,500 a month after hauling garbage cans your whole adult life really sound like a fortune?

6---Sales of Existing Homes in U.S. Unexpectedly Decline, Bloomberg

Sales of previously owned houses unexpectedly dropped in June, hurt by a lack of supply and rising mortgage rates that will slow the rebound in the U.S. real-estate market.
Purchases (ETSLTOTL) fell 1.2 percent to a 5.08 million annualized rate, the National Association of Realtors reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 5.26 million pace. The pace of the demand was the second strongest since November 2009 following May’s downwardly revised 5.14 million rate. ...

Estimates in the Bloomberg survey of economists ranged from 4.99 million to 5.5 million. The prior month’s pace was revised from a previously reported 5.18 million.

Prices Climb

The median price of an existing home climbed 13.5 percent to $214,200 last month from $188,800 a year earlier, today’s report showed

7---Investors moving out of housing--here's why, CNBC

They swarmed the distressed housing market, buying thousands of foreclosed properties and pushing prices higher faster than anyone expected. Now investors are pulling back, dissuaded by the higher prices they themselves brought about.
"Perhaps the numbers aren't working out," said Lawrence Yun, chief economist of the National Association of Realtors, which reported that just 15 percent of June sales were by investors. That is the lowest share since the Realtors began tracking this cohort in October of 2008....

At the height of the foreclosure crisis investors, some individual and some larger funds, were making up more than a third of home buyers. Most of their sights were set in the West, where the crisis hit hardest. That is why prices in that region are up more than 20 percent now from a year ago, but prices are still way off from where they were at the peak of the boom.

"Everybody else seems to be getting out OK on this one, and here we are just the perfect timing and circumstance to be on the outside looking in," said David. "There's this theoretical wealth creation all around us, and yet we're not participating in it, so yeah it's pretty frustrating."
First-time homebuyers could say the same. Usually about 40 to 45 percent of the market, they made up just 29 percent of buyers in June, according to the Realtors. A lack of supply has made the market far too competitive for these buyers, who usually need financing and have smaller down payments.

"We can thank investors for that limited inventory of course as many entry level buyers are now going to have no choice but to rent," said Peter Boockvar of The Lindsey Group.
Even as investors move out, cash is still king in this market. Thirty-one percent of sales were all cash. That share is usually below 10 percent. June's home sales were largely unaffected by the recent rise in mortgage rates, as contracts for those sales were signed in April and May.

The Realtors expect higher rates will slow sales in the coming months, and if investors, who drove the market for so long, continue to exit, those sales could be even slower.

8---Existing home sales dip monthly but rise 15.2% annually, Housingwire

Existing-home sales fell in June, but have stayed well above year-ago levels for the past two years. For seven consecutive months, the median price saw double-digit year-over-year increases, according to the National Association of Realtors.
Total existing-home sales — completed transactions involving single-family homes, townhomes, condominiums and co-ops — dropped 1.2% to a seasonally adjusted annual rate of 5.08 million in June from a downwardly revised 5.14 million in May. However, sales are 15.2% higher than the 4.41 million units reached in June 2012.

NAR Chief Economist Lawrence Yun said there is enough momentum in the market, even with higher interest rates. “Affordability conditions remain favorable in most of the country, and we’re still dealing with a large pent-up demand,” he said. “However, higher mortgage interest rates will bite into high-cost regions of California, Hawaii and the New York City metro area market.”

9--SELLOUT: SEC watchdog cashes in big, NYT

lawyers briefed on the matter say, Mr. (Robert) Khuzami has accepted a job that pays more than $5 million a year at Kirkland & Ellis, one of the nation’s biggest corporate law firms. In doing so, he is following the quintessential Washington script: an influential government insider becoming a paid advocate for industries he once policed.

As a partner at Kirkland, Mr. Khuzami will represent some of the same corporations that the S.E.C. oversees. Critics say this revolving door — common at the S.E.C. — undermines the agency’s independence and links it inextricably to Wall Street. Mr. Khuzami, who spent 17 years in the government and has publicly called for lawyers to build public and private experience, called defense work essential to the justice system.

“It’s both aggressive enforcement and vigorous defense that are critical to justice and fairness,” Mr. Khuzami, who will start in Kirkland’s Washington office around Labor Day, said in an interview.
His compensation package, the lawyers briefed on the matter said, is guaranteed for at least two years. Kirkland, known for lavishing its star partners with some of the highest salaries in the industry, also hired one of Mr. Khuzami’s lieutenants at the S.E.C., Kenneth R. Lench. Kirkland is expected to announce the personnel moves on Tuesday.

10--Loose lending makes a comeback, Denver post

11--China Maneuvers To Take Away US' Dominant Reserve Currency Status, zero hedge

12---Survey: 54% of YouWalkAway Clients Past Due but Not in Foreclosure, DS News
YouWalkAWay.com, a national foreclosure agency, recently released a June 2013 survey of its customers and found 54 percent are in pre-foreclosure, meaning they have defaulted on their mortgage but have not received an official foreclosure notice.

Data from the agency revealed Georgia has the highest share of YouWalkAway clinets in pre-foreclosure, at 82 percent. On average, clients in the state were behind by 18 months, but still haven’t been served with an official foreclosure notice.

In Minnesota and Arizona, 79 and 74 percent of clients, respectively, were in pre-foreclosure status. Customers in those states were behind by over 20 months.

The state that saw the biggest year-over-year decrease in clients in pre-foreclosure inventory was Florida, where 23 percent of clients were in pre-foreclosure, down from 45 percent in 2012.
The average number of months past due though increased from 17 months in 2012 to 23 months in 201

13---A call to action: Oppose the Detroit bankruptcy!, wsws

14--No country for firsttime home buyer, zero hedge

15---Existing Home Sales…Should have been much stronger. What’s going on??? “Low Inventory” a Red-Herring, mark hanson

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