(China's) days of open-ended buying of Treasuries will soon come to an end." Stephen S Roach, former chief economist Morgan Stanley, Asia
1---Dow Closes At Record High On Fed Stimulus Hopes, AP
Markets soar on QE
2--Markets enter blowoff, naked capitalism
You know something is going wrong when the heads of the largest fund manager in the world and the largest bond management firm simultaneously scream ”bubble”. From Bill Gross last night:
All risk asset prices artificially high. When won’t they be? When they don’t produce growth in real economy. Is 2% GDP enough?And Larry Fink, CEO of Blackrock, from Bloomberg:
“It’s imperative that the Fed begins to taper…We’ve seen real bubble-like markets again. We’ve had a huge increase in the equity market. We’ve seen corporate-debt spreads narrow dramatically…We have issues of an overzealous market again.”
3---Fed stalls taper to assist selloff, Testosterone Pit
hedge funds massively dumped stocks last week, so much so that all three client types combined were overall net sellers. Something is in the air, and hedge funds can smell it. The great rotation, from the smart money to retail investors
“It’s a great time to sell,” mused Anthony Breault, senior real estate investment officer at Oregon’s state pension fund....
Blackstone has more jewels in its crown that it’s getting ready to sell, including IndCor Properties, a warehouse REIT, and Invitation Homes, the platform Blackstone created that maniacally gobbled up 40,000 single-family homes – inflating home prices along the way – and then tried to rent them out. They might head for your portfolio early next year.
Blackstone isn’t the only seller. So far this year, there have been 14 real-estate IPOs, including the Empire State Realty Trust Inc., owner of the Empire State Building, and American Homes 4 Rent. But since May, REITs have hit rough water. Worst loser: since its IPO in May, Ellington Residential Mortgage REIT is down 18%.
So 2013 is shaping up to be a huge year for sellers: "Property-related IPOs, including REITs, real estate operating companies and mortgage trusts, have had their biggest year since 2004 by money raised,” Bloomberg reported, based on data it compiled...
the Fed, perhaps seeing its handiwork incomplete with this many IPOs and so much smart money up in the air, decided to abandon its taper considerations in September. It might keep printing money until the great rotation from private equity and hedge funds to retail investors and retirement funds has been accomplished. Once tucked away in these portfolios – we’ve seen how that worked in 2000 and 2007 – some stocks will decompose slowly, others will blow up rapidly, which is not to say that there might not actually be a winner in that group that will make patient investors some money years down the road. That one stock will then be held up as example of why all of this always works out if you just hang on to it long enough.
“Real bubble-like markets” is what Laurence Fink, CEO of the world’s largest asset manager BlackRock called it today. He blamed the Fed. “It’s imperative that the Fed begins to taper,” he said. He referred to the “huge increase in the equity market,” with the S&P 500 soaring 25% so far this year while the economy languishes, while job creation is lousy and consumer spending feeble, while corporate revenue growth has trouble keeping up with inflation, and while earnings growth is stagnating. But if the Fed does taper, it will create a vicious downdraft for those folks who unwittingly ended up buying from the “smart sellers” at the peak of the market.
4---JP Morgan sees 'most extreme excess' of global liquidity ever, Pritchard, Telegraph
(JP Morgan also said that Norway's sovereign wealth fund ($800bn) stopped buying equities in the third quarter, becoming net sellers....This implies more selling. .. Interpret that as you want. Sounds to me like there is now a sovereign wealth fund "call" on global equities markets. They will sell into the rallies.)
If you think there is far too much money sloshing through the global financial system and causing unstable asset booms, you are not alone.
A new report by JP Morgan says the bank's measure of excess global money supply has reached an all-time high.
"The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude," said the report, written by Nikolaos Panigirtzoglu and Matthew Lehmann from the bank's global asset allocation team.
They said the latest surge is far beyond anything seen in the last three episodes of excess liquidity: 1993-1995, 2001-2006, and during the Lehman emergency response from October 2008 to September 2010, all of which set off a blistering rise in asset prices....
The lion's share, some $2 trillion, is showing up in emerging markets where credit continued to surge at $170bn a month in July and August despite the Fed Taper scare earlier that hit the Fragile Five (Brazil, India, Indonesia, South Africa, and Turkey). Mr Panigirtzoglu said there is an internal credit boom in emerging markets that is running in parallel to QE in the West....
The wash of money has set off another asset boom, yet the world economy has failed to achieve "escape velocity", and is arguably still in a contained depression. Global trade volumes contracted by 0.8pc in August. (It would have been a lot worse without QE of course, though we can never prove it).
If we ever need more QE it should go straight into the veins of the economy by direct deficit financing of big investment projects (fiscal dominance) and damn the torpedoes, and the taboos. Just print money to build houses for the poor, and solve two problems at once. Remember, I said "if", before you Austro-liquidationists and coupon rentiers all scream abuse at once.
5---Nearly 50% Of All Home Sales Now Cash, As Institutional Investor Activity Hits New High, Forbes
Blackstone Group’s Invitation Homes is by far the largest landlord in this arena, having spent $7.5 billion on an estimated 40,000 houses over the past two years. Other companies like American Homes 4 Rent, American Residential Properties, and Silver Bay Realty Trust SBY -0.89% have snapped up thousands of homes and bundled them into public offerings as single-family rental REITs. Still others, like Five Ten Capital, have accessed nine-figure credit facilities from Deutsche Bank DB +0.1% with the longer term plan to securitize the debt. And according to Bloomberg Bloomberg, Deutsche Bank could begin marketing $500 million worth of bonds backed by Blackstone’s massive portfolio’s rental income as soon as this week.
Distressed transactions, comprised of homes in foreclosure or bank-owned, accounted for 25% of all sales last month, up from 18% a year ago. Nationwide the median price of a distressed sale was $112,000 — 41% below the $189,000 median price of a non-distressed property.
6---Chiseling banks use loan loss provision to pad profits, OC Housing
The housing bust should have wiped out America’s lenders. Instead, we deemed these institutions Too-Big-Too-Fail, and we pumped billions of dollars into keeping them afloat. Since the emergency cash was not enough, we suspended prudent accounting rules and allowed lenders to report the value of bad loans based on financial models rather than actual market prices. As long as lenders didn’t foreclose, they didn’t need to recognize the loss on their non-performing loans.
But it’s really worse than that.
Lenders quickly realized they could turn this accounting loophole to their advantage in several ways. First, they embarked on an aggressive program of modifying loans to keep borrowers making payments. Rather than accept smaller profits, they modified the terms of these loans to interest-only. This reduced the borrowers payments while keeping lender revenues and profits the same. Second, for those delinquent borrowers that didn’t agree to a loan modification, lenders simply booked the lost income as profit anyway. How could they do this? Since the could model whatever they wanted for accounting, they assumed house prices would rebound, and they would at some point in the future get back their principal plus the accumulated interest payments they booked as profits. Although this scenario isn’t particularly realistic, it past muster with accounting regulators, so banks eagerly booked this phantom income as profit to boost their financial statements.
They are reducing their loan loss reserves and booking that as profit too.
I can’t claim we are a Banana Republic, but we appear to have a Banana Banking System.
Lenders are recording profits on non-performing loans!
They are making money by virtue of not recording losses!..
Accounting rules allow the money to flow directly into profits. In all, it made up 18% of the banks’ third-quarter pretax income excluding special items, the highest percentage in a year, according to an analysis by The Wall Street Journal
7--- Fed's hawks are looking to crack down on phantom bubbles, CEPR
The issue that the Fed should concern itself with is a bubble that actually moves the economy as the stock bubble did in the 1990s and the housing bubble did in the last decade. It wasn't necessary to have complex computer programs and super-sophisticated economic knowledge to see the impact of these bubbles on the economy. Intro econ and third grade arithmetic were pretty much adequate for the job.
In both cases the wealth generated by the bubbles led consumption to soar and savings rates to plummet. In the former case, the ability to sell shares of stock in Garbage.com for billions of dollars led to a boom in investment by nonsense Internet based companies. In the latter case we got a clearly unsustainable construction boom. Both of these booms predictably collapsed when the bubbles burst.
There is no comparable story in the economy today as should be readily apparent to anyone who reads the data. The Fed's hawks are looking to crack down on phantom bubbles and to keep millions of people out of work as the cost of their war.
From Comments: NYSE Margin Debt pushing to new extremes;
(3) Covenant-Lite corporate debt issuance (high risk to lenders) hitting new extremes while interest rates remain abnormally low;
(4) Extremely high proportion of houses being bought by investors paying "cash" (aka pre-funded borrowing) rather than resident owners;
(5) House prices pushing back up toward the bubble peak, while affordability metrics drop;
(6) corporate earnings/GDP well above sustainable levels (at the expense of high trade and government deficits, and low household savings rates;
(7) rising income and wealth inequality since the newly-minted credit is unevenly distributed.
8---On Marriner Eccles, Keynes at the Fed??, economists view
"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth ... to provide men with buying power. ... Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. ... The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."
Marriner Stoddard Eccles,
Beckoning Frontiers, 1951...
while Keynes held that the 1929 downturn had caused underconsumption, Eccles held that underconsumption had preceded and caused the downturn.
Nowadays, Eccles’s argument would be called “secular stagnation.” This is utterly different from the timid, conventional, and almost surely wrong Keynesian business-cycle argument about what's happening to the world economy. In the Keynesian argument, deficit spending would be sufficient for a full and sustainable recovery. In the Ecclesian argument, deficit spending might ease the pain, but a full and sustainable recovery would require….???
9--Consumer Confidence Falls Sharply, NYT
10---Blackstone Vies With Goldman in Spain Rental Housing Bet, Bloomberg
11--QE fails to produce -Inflation, Reuters
The government's consumer price index rose 0.2 percent last month, bringing its year-over-year increase to 1.2 percent, the smallest since April.
The September CPI figures did not alter investors' inflation outlook as measured by the breakeven rates on Treasury Inflation Protected Securities were little changed from their earlier levels
12---US slowdown confirmed in employment and inflation data, Forex
The US Dollar has seen a bout of volatility this morning amid two important data releases that offer a bleak picture of the US economy. The private sector tracking report of US labor market, the ADP Employment Change report, showed that jobs growth slowed further as the 4Q’13 began, underscoring fears that next week’s October NFP report will erode more than the September NFP report.
The inflation outlook for the US doesn’t look much better either. The Consumer Price Index slowed to a 2013 low, while core inflation – stripped of food and energy prices – may have peaked in the near-term with the index pulling back from the Fed’s +2% yearly target.
13---ADP Fail, CNBC
The ADP employment report for October found 130,000 jobs were created in the private sector. Analysts polled by Reuters had forecast 154,000 jobs were created this month, down on 166,000 in September.
The recording-breaking opposition to the embargo saw Israel isolated as the only country to vote in support of the US.
15---Rebuilding the German War Machine; What could go wrong? wsws
The German bourgeoisie and leading business interests now view more aggressive German participation in future military interventions as essential. In February, it was announced that major German corporations had formed an alliance for raw materials to press the German government to secure trade routes and access to raw materials....
Besides German economic interests, the “precarious situation of the United States” also plays an important role in the NATO reform, Spiegel Online writes. In the past, the virtually unlimited US defence budget secured for the US military a leading role in NATO. However, given its economic and financial crisis and the increasing number of US wars and military interventions, Washington is calling for more support and a spreading of responsibilities among the different NATO powers.
Berlin views the United States’ decline as an opportunity to assume a more prominent role in NATO and in future wars.
16---The global NSA spying scandal, wsws
Democracy is not compatible with a policy of world domination through military violence and the unprecedented levels of social inequality that prevail within the United States. The American ruling class spies on everyone because it sees everyone as a potential enemy......
The entire policy of the American ruling class, at home and abroad, is based on a mountain of lies. It is involved in a permanent conspiracy against the democratic rights of the population. The exposure of these lies has the most far-reaching political implications.
An article appearing in the latest edition of Foreign Affairs, one of the major journals of the foreign policy establishment, suggests that the pervasiveness of leaks is undermining a central premise of Washington’s “soft power”—namely, “its ability to act hypocritically and get away with it.”
In order for the international political system to function under the domination of the US, George Washington University political science professors Henry Farrell and Martha Finnemore argue, “US officials must regularly promote and claim fealty to its core liberal principles… But as the recent leaks have shown, Washington is also unable to consistently abide by the values that it trumpets.”
The leaks from Snowden and Chelsea (Bradley) Manning are, they write, part of “an accelerating hypocrisy collapse—a dramatic narrowing of the country’s room to maneuver between its stated aspirations and its sometimes sordid pursuit of self-interests
17---Vital Signs: Private Hiring Slowed Well Before the Shutdown, WSJ
18---Scott Free (JPM and BoA) and "I'll have the chicken, but hold the arsenic", economic populist
JPMorgan Chase Fine Should Be Ten Times LargerThis article quotes experts claiming the JPMorgan Chase fine should be 10 times larger and points out how the previous fines supposedly to be doled out to homeowners benefited the bank instead:
The total damages JPMorgan, Washington Mutual, and Bear Stearns inflicted directly on purchasers of the shoddy mortgage-backed securities is estimated to be $100 billion.
Consumer advocates are concerned about how the $4 billion will be parceled out to homeowners. In other settlements related to the financial crisis, such as the $25 billion agreement with five major banks in 2012 regarding flawed foreclosure practices, much of the money that has been dispensed so far provided "relief" that benefited banks more than homeowners....
The settlement includes $4 billion to resolve claims over mortgage bonds and $1.1 billion to settle claims that JPMorgan sold faulty mortgages directly to Fannie Mae and Freddie Mac that the companies packaged into their own securities, the FHFA said today in a statement....
The Criminals Get PromotedIn our mad world of upside down where corruption and crime is rewarded as long as it is white collar and regular people get the shaft, we have yet another outrage. The crafter of BoA mortgage fraud now has a cushy executive position at JPMorgan Chase.
The Bank of America executive at the center of the recent mortgage fraud case – for which Bank of America was found liable by a jury – is not only still working on Wall Street, she is still working in the housing market. Rebecca Mairone, the architect of the scam known as “the Hustle”, now works for JPMorgan Chase as the Managing Director of Home Lending.No One Should Shed a Tear
Matt Tiabbi weighs in on the Chase settlement:
And while it is true that the federal government in this latest $13 billion settlement is ostensibly reserving the right to continue to pursue criminal charges, don't hold your breath. The arc of this story suggests that the whole purpose of this agreement has been to find the highest price Chase is willing to pay to a) stay in business b) keep employees out of jail.What's in the chicken?
Could there be anything worse for the chicken industry than this month’s outbreak of an antibiotic-resistant strain of salmonella that hospitalized 42 percent of everyone who got it—almost 300 in 18 states?
Yes. The government also announced that China has been cleared to process chickens for the US dinner plate and that all but one of arsenic compounds no one even knew they were eating have been removed from US poultry production.