Saturday, November 30, 2013

Today's Links

1---Obamacare: Government-coerced profit-delivery system, wsws

It has already become clear that for millions of working people, Obamacare will mean higher premiums, deductibles and co-pays and/or reduced access to doctors, medical procedures and drugs. What is being exposed is the fact that the entire scheme is little more than a government umbrella for increased profit-making by the health care industry as well as cuts in government health care spending....

With every tortured turn, the failure of the web site has underscored the fact that the ACA has nothing in common with providing “affordable,” “near-universal” health care for ordinary Americans. Rather, it is aimed at rationing and cutting care while boosting the profits of private insurers and the entire health care industry....

It is clear that the Obama administration defines “success” not as the ability of working families to obtain quality, affordable health care, but as the web site’s ability to sign up a sufficient number of new customers for the private insurance companies to make the pro-corporate Obamacare enterprise viable.

2---Here We Go Again: Zero down mortgages eligible for gov-guaranteed MBS, Dean Baker

.... the latest proposed rules would allow mortgages with zero down payment to be placed into pools with no requirement that banks maintain a stake. This change would mean that banks would have the same incentive as in the housing bubble years to put junk mortgages in MBS. If this rule is coupled with the Corker-Warner proposal for having a government guarantee for MBS, it will mean that banks will likely find it far easier to pass on junk and fraudulent mortgages going forward than they did in the years of the housing bubble.

Further facilitating this process is the gutting of the Franken amendment. This amendment (which passed the Senate with 65 votes) would have required investment banks to call the Securities and Exchange Commission (SEC) to pick a bond rating agency for a new MBS. This removed the conflict of interest where bond rating agencies would have an incentive to give a positive rating in order to get more business. In the conference committee, the amendment was replaced by a requirement that the SEC study the issue. After two and a half years the SEC issued its study and essentially concluded that picking bond rating agencies exceeded its competence. This left the conflict of interest in place.
If Congress wants to set up the conditions for another housing bubble fueled by fraudulent mortgages it is doing a very good.

3---Abenomics: inflation without compensation, Testosterone Pit

Incomes of the all-important “workers’ households” rose a measly 0.1% from a year ago to ¥482,684. In nominal terms. But adjusted for inflation – yes, here is where the benefits of Abenomics are kicking in – incomes fell 1.3%. Disposable incomes fell 1.4%. The details were ugly: “Current income” (salaries and wages) dropped 1.2% and “temporary bonuses” plunged 19.5%. Income from self-employment and piecework plummeted 20.8%.

So these strung-out workers’ households whose belts are being tightened by Abenomics and whose real incomes are being whittled away by inflation, how can they spend more to perk up the economy? Turns out, they don’t. Spending rose a scant 0.4% in nominal terms from a year ago – but adjusted for inflation, spending fell 1.0%.

And this despite rampant frontloading of big-ticket purchases. The consumption-tax hike from 5% to 8%, to take effect on April 1, is motivating households to buy big-ticket items now and save 3%. It has turned into a frenzy. Durable goods purchases, the primary target of frontloading, jumped 40.4% in October from a year ago. While it’s goosing the economy now, it will create a hole starting next spring. Japan has been through this before.

When the consumption tax hike from 3% to 5% was passed in 1996, Japanese consumers went out on a buying binge of big-ticket items to avoid paying the extra 2% in taxes, and the economy boomed. The hangover came around April 1, 1997, when the tax hike became effective. The economy skittered into a recession that lasted a year and a half. Now Japanese households are frontloading to avoid an additional 3% in consumption tax. The hangover next year is going to be painful.

4---The bloody disaster of Libya, Iraq and Afghanistan is laid bare, Guardian

Bombs and militia violence make clear the folly of Britain's wars – the removal of law and order from a nation is devastating...
Forty-three people died on Friday in clashes between militias in Libya, as did 22 on Sunday from bombs in Iraq. In Helmand, a return of the Taliban to power is now confidently expected. Why should we care? Why should it feature on our news?
The answer is that we helped to bring it about. Britain's three foreign wars in the past decade were uninvited military interventions to topple installed governments. All have ended in disaster.

5--NSA SEXINT is the Abuse You’ve All Been Waiting For , just security

NSA uses blackmail.

6---Israel implements "transfer" policy: Day of rage’: UK protests Israeli plan to remove 70,000 Bedouins, RT

Ethnic cleansing

7--Stock Bubble Driven by Central Banks to Burst in 2014, Analyst Warns, WSJ

Fed officials don’t offer predictions of future equity price movements. But they do believe that rising asset prices boost the so-called wealth effect. As consumers feel richer, they feel emboldened to spend more, which lifts the broader economy. To that end, they have been pursuing very aggressive bond-buying policies while offering guidance on short-term rates that suggest monetary policy will be very easy for years to come.

Over the course of this year, speculation about the Fed easing back on its bond buying generated considerable market volatility. Some officials welcomed this because they said it helped correct market complacency about future Fed policy while flushing out some pockets of excess in some corners of the bond market. But Fed officials also came to lament the move as they saw higher borrowing costs creating fresh headwinds for an economy that wasn’t growing fast enough to begin with.

Friday, November 29, 2013

Today's Links

1---Robert Shiller on housing: Don't trust momentum, cnbc (repeat)

2--"We are in a massive bubble", cnbc

Marc Faber editor and publisher of The Gloom, Boom & Doom Report, told CNBC on Friday he believes a "massive speculative bubble" has encroached on everything from stocks and bonds to bitcoin and farmland. He attributed the vast bubble to "symptoms of excess liquidity."

Faber said the markets, which have reached record highs, could still rise before the bubble bursts, if stimulus programs such as the Federal Reserve's massive monthly bond purchases and super-low interest rates continue.

"Now can the market go up another 20 percent before it tumbles?" Faber said on "Squawk Box". "Yeah, it can go up even more, if you print money

3---Watch out! Worrisome housing signs appear in West, cnbc

4---Pending home sales fall again, cnbc

5---Dow, S&P 500 Close At Record Highs, Reuters

6---Japan to spend about 1 trillion yen on public works for stimulus: sources, Reuters

(Abe uses traditional fiscal stimulus to boost economy revealing the sham of monetary stimulus which only inflates asset prices.)

Japan will spend around 1 trillion yen ($9.86 billion) on public works in a stimulus package to be finalized next month, sources said, to help offset the impact of an increase in the sales tax.
Prime Minister Shinzo Abe's cabinet is expected to approve the stimulus package, which will total around 5 trillion yen, on December 5.
The government plans to raise the sales tax in April to 8 percent from 5 percent currently to pay for growing healthcare spending.

Abe wants to use short-term stimulus spending to counter the blow to consumer spending from the tax hike.
The package is likely to contain around 200 billion yen for a temporary expansion of payments to families with children, sources with direct knowledge of the matter said.
The package will also spend about 300 billion yen on payouts to low-income earners and around 150 billion yen on subsidies for new home purchases, sources said.

7---The Forth Reich? German grand coalition to intensify austerity policies in Europe, wsws

(The beatings will continue until morale improves)

the coalition parties are committed to continuing a course that has led to a social disaster virtually without precedent in peacetime.
The Christian Democratic Union (CDU), Christian Social Union (CSU) and Social Democratic Party (SPD) have agreed to drive ahead with austerity policies that have wrought indescribable misery in Greece, Spain, Portugal and other countries, with unemployment soaring to record levels, an entire generation of youth robbed of a future, and millions of livelihoods destroyed.
Most of the 185-page coalition agreement is characterized by vague formulations, but on this issue the document is crystal clear. “The policy of fiscal consolidation must be continued,” it states. The agreement goes on to declare that “structural reforms to increase competitiveness” and “strict, sustained fiscal consolidation” are indispensable preconditions for “exiting the crisis.”

The agreement rejects “any form of pooling sovereign debt” and rules out joint government bonds (euro bonds) and other mechanisms that could reduce the interest burden of indebted countries. Emergency loans from European financial funds must continue to be tied to draconian austerity measures. They must be granted only “as a last resort,” and in “exchange for strict conditions, i.e., reforms and consolidation measures, by the recipient countries.”
To ensure that there be no let-up in the pressure on indebted countries, the deal calls for an expansion of the “surveillance of national budgetary planning by the EU Commission.”
In plain English, this means intensifying the policy of social impoverishment with which the German chancellor is associated across large swathes of Europe, including in Germany itself.

8---The Rajoy Horror Picture Show Lumbers On, Testosterone Pit

the Rajoy administration’s brutal, ideologically driven austerity program.
It is a program or, better put, pogrom that targeted the weakest and most vulnerable in society, including the terminally ill, disabled and pensioners, while leaving completely unscathed the wallets of the country’s burgeoning political class ....

that most of the continent’s banks are already as insolvent as Enron, the company whose wildly dysfunctional business model became the business model of our times. As Zerohedge recently noted, “unlike the US, where the banks raised capital to address their problems, EU  banks have not raised capital nor have they reduced their leverage (of 26 to 1 by the way). Instead, they’ve simply swapped garbage assets as collateral to the ECB,  which counts this garbage at 100 cents on the Euro, and issues liquidity to the banks.”

- World-beating unemployment. Unemployment in Spain continues to hover above 25 percent and youth unemployment remains well above 50 percent. While Rajoy’s administration is not exclusively to blame for the level of unemployment, it is largely responsible for the destruction of more than one million jobs over the last two years. And that despite – some might say because of — the government’s much-lauded labour reforms last year.

- Plummeting living standards and internal demand. Disposable incomes for those lucky enough to have kept their jobs have shrunk significantly as a result of rising income and sales taxes, not to mention the addition of 40 new taxes during Rajoy’s mandate. In the private sector, meanwhile, salaries continue to fall precipitously. As such, is it any wonder that internal demand in the country has fallen off a cliff?

- An epidemic of small business closures. More than 250,000 small and medium size enterprises (SMEs) have closed since the crisis began. Many of those have perished in the last two years and more than a third of them due to late payment of invoices, the biggest offenders of which are Spain’s local and regional government institutions and large corporations...

According to a recent report by UNICEF, following the imposition of successive austerity measures by the country’s main two parties, the social conditions of post-civil war are returning with a vengeance. Poverty is spreading like liquid wildfire and over a quarter of under-16-years-olds — some 2.3 million — are now at risk of malnutrition.

9---Stock market gains fuel speculation about bubble, SF Gate

The Dow Jones industrial average finished above 16,000 for the first time Thursday and on Friday the Standard & Poor's 500 index notched its first close over 1,800. The Nasdaq composite index just missed breaking the 4,000 barrier, but is still 21 percent below its all-time high of 5,048.62 set in 2000.
This year, the Dow is up 22.6 percent, its best performance since 2003. The S&P 500 is up 26.5 percent and the Nasdaq 32.2 percent.
When Janet Yellen, President Obama's nominee to become Federal Reserve chairwoman, was asked by a senator this month if the Fed's expansive monetary policy was inflating a stock market bubble, she acknowledged that stocks have risen "pretty robustly. But I think that if you look at traditional valuation measures ... you would not see stock prices in territory that suggests bubble-like conditions."....

One development that has experts concerned is the return of individual investors, who are known for getting into the stock market near peaks. Although they came back in a big way this year, they have not put in as much as they withdrew over the past five years.
One way to measure their activity is to look at net inflows into stock mutual funds (excluding exchange-traded funds). When investors put more into stock funds than they take out, it's called a net inflow. When they withdraw more than they invest, it's a net outflow.

This year, net inflows totaled $176 billion through Nov. 20, according to Lipper.
That followed net outflows of roughly $200 billion in 2008, $13 billion in 2009, $94 billion in 2011 and $130 billion in 2012. In 2010 there was a small net inflow of $6.3 billion.
If you add up all those flows, we are still about $255 billion in the hole, says Lipper senior analyst Tom Roseen.
Most of that money is coming from bank accounts and money market funds, he adds. Only a small portion appears to be coming from bond funds

10---Tech Bubble? No revenues? No problem, NYT

Since the dark days of 2008, the Nasdaq has risen more than 150 percent, twice as much as the old-school Dow industrials. Money has been pouring into social media stocks. As of Friday, Twitter had risen nearly 60 percent since it went public only a few weeks earlier.
Once again, new “metrics” are being applied to justify stratospheric valuations. Twitter is losing money. A price-to-earnings ratio? There is no E in the P/E. But its stock is trading at 20-odd times the company’s annual sales. Good enough.

There is more. Technology companies have become the takeover bait du jour. A report issued by Ernst & Young last week said that mergers and acquisitions in the global technology industry have rebounded to “a new post-dot-com bubble high.” Roughly $71 billion in deals were made during the third quarter.
And then there is, the poster child of the dot-com bust. Kozmo is back. Last time, its couriers would deliver just about anything at any hour — CDs, Milky Way bars, you name it. It burned through $280 million before going bust.

“Remember us?” a banner on the reads now. “We’re relaunching soon.”
Many technology entrepreneurs and venture capitalists say there is little to worry about. Which tells you something about bubbles and Silicon Valley. It is difficult to know when any bubble is going to pop until it does. And in Silicon Valley, with its inherent optimism in brighter tomorrows, the view tends to be that the way is always up.

“I’m not going to say there is a bubble or there isn’t a bubble,” said Naval Ravikant, co-founder of AngelList, a website for raising money for start-ups. “But I lived through the first bubble, and I was in disbelief the entire time, and I don’t see anything of that magnitude or scale here today.”
Such assurances aside, the numbers are sobering. Eight months ago, Snapchat was valued at $70 million. Today, it is valued at $4 billion, even though it has zero revenue. Six months ago, Pinterest was valued at $2.5 billion. Today, it is valued at $3.8 billion — and no revenue there, either. And last week news broke that Dropbox was said to be seeking a new round of funding that would value the company at $8 billion, up from $4 billion a year ago.

11---Bubble Trouble, Barron's

One of the biggest coming challenges for stocks is the likely curtailment of the Federal Reserve's aggressive bond purchases during 2014. When Federal Reserve Chairman Ben Bernanke raised the prospect of "tapering" in the spring -- an action that the Fed has since postponed -- stocks stumbled. But Auth argues stocks can appreciate in 2014 in the face of higher bond yields.

THERE ARE PLENTY of reasons for caution. Margin debt has risen to record levels, investor complacency is high with the VIX index -- a gauge of volatility known as the "fear index" -- near a 10-year low, and many professional investors are raising cash or hedging their portfolios. Warnings about bubble-like conditions are coming from the likes of BlackRock CEO Larry Fink and longtime bull Warren Buffett who said two months ago, when the S&P was 5% below current levels, that he's "having a hard time finding things to buy." That said, last week Berkshire Hathaway (BRKA) disclosed that it had taken a $3.45 billion stake in ExxonMobil (XOM).

12--More on Bubble, WSJ

Against that confidence, an equities strategist is warning of a major bubble in global stock prices. In a research note, Nomura Securities strategist Bob Janjuah is warning that over the final three quarters of next year and into 2015, there “could be a 25% to 50% sell off in global stock markets.”
Mr. Janjuah, who is co-head of macro strategy research at Nomura, sees a lot to worry about, and he sees central banks, including the Fed, at the center of the factors that eventually will bring woe to stocks.
“The major themes are unchanged–anaemic global growth/mediocre fundamentals, what I consider to be extraordinarily and dangerously loose monetary policy settings, very poor global demographics, excessive debt, an enormous misallocation of capital driven by the state sponsored mispricing of money/capital, and excessive financial market/asset price speculation at the expense of any benefit to the real economy,” the analyst says.

Mr. Janjuah says markets are now priced entirely for good news, leaving them vulnerable to adverse developments. But the main driver of the coming bursting of the stock market bubble, as the Nomura analyst sees it, is a much delayed rebalancing of the global economy as central banks pull back from all of their aggressive stimulus activities.
“The next five years has to be about a rebalancing towards the ‘real economy’ and the bottom 90%, at the expense of the top 10%,” Mr. Janjuah writes. “This shift in policy emphasis will not be a happy time for financial markets and speculators while the transition happens,” he says

13---5 signs the stock market is in a bubble, CBS

14---The Sum Of All Stock Market Fears In One Epic Chart, B Insider
hussman cape

Thursday, November 28, 2013

Today's Links

1---Greenspan Sees No Bubble in Dow 16,000, Bloomberg

“It’s a little on the upside, frankly,” Greenspan said...
The S&P 500 reached 1,565.15 on Oct. 9, 2007, and then dropped 57 percent as the economy went through the longest and deepest recession since the Great Depression. The index didn’t surpass its October 2007 peak until March of this year

2--CPI drops, Bloomberg

The consumer-price index dropped 0.1 percent, reflecting cheaper energy, clothing and new cars, after a 0.2 percent gain the prior month, a Labor Department report showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for no change. Excluding volatile food and fuel, the so-called core measure rose 0.1 percent

3--Talking bubbles, zero hedge

Hmmm...internet mentions of "stock bubble" steadily rising according to Google Trends,

4--Accounting shenanigans keep banks looking solvent, Testosterone Pit

The board changed financial accounting standards 157, 124, and 115, allowing banks more discretion in reporting the value of mortgage-backed securities (MBS) held in their portfolios and losses on those securities. Floyd Norris reported at the time for the New York Times,

The change seems likely to allow banks to report higher profits by assuming that the securities are worth more than anyone is now willing to pay for them. But critics objected that the change could further damage the credibility of financial institutions by enabling them to avoid recognizing losses from bad loans they have made.
"With that discretion," fund manager John Hussman writes, "banks could use cash-flow models ("mark-to-model") or other methods ("mark-to-unicorn")."                                                                  
And author James Kwak wrote on his blog "The Baseline Scenario" just after FASB amended their rules: "The new rules were sought by the American Bankers Association, and not surprisingly will allow banks to increase their reported profits and strengthen their balance sheets by allowing them to increase the reported values of their toxic assets."
Banks were loaded with securities containing subprime home loans. When borrowers stopped paying en masse, the value of these securities plunged. Until the change in March 2009, these losses had to be recognized. With financial institutions leveraged at upwards of 30-1 at the time, the sinking valuations made much of the industry insolvent… until March 16, 2009. Since then the S&P has nearly tripled....

Last year the Florida paper devoted a three-part series to "Bad-Neighbor Banks." When homeowners walk away, one would think it would be in the banks' best interests to gain legal possession as soon as possible and either sell as is, or repair and sell quickly.

Apparently that's not the case. All across Florida, banks "have halted foreclosure proceedings because the remaining equity in the properties is deemed inadequate to cover the banks' costs to reclaim title and maintain, refurbish and sell them," Megan O'Matz and John Maines wrote for the Sun Sentinel.
When pressed about weed- and rodent-infested abandoned properties, banks often pointed the finger at mortgage servicers. South Florida attorney Ben Solomon, who represents condos and community associations in foreclosure cases, stated, "We see bank delays every day. They really continually have been getting worse. More and more time is going by."

As banks sit on assets indefinitely without having to recognize a loss, homes get lost in vast bank bureaucracies. When the banks finally figure out what they have, "lenders also have been walking away from foreclosure actions involving homes with low market values, after their cool-headed calculation that the homes cannot resell for enough to offset the costs of foreclosing, repairing, maintaining and marketing them," O'Matz and Maines wrote....

The Banks Are the Only Ones Profiting

For the banks, this was the 16th consecutive quarter of year-over-year increases. A primary driver of the record earnings is less money being socked away in loan-loss reserves. Banks put away the lowest loss provision since the third quarter of 2006. The banking industry's coverage ratio of reserves to noncurrent loans is still only 62.3%, far below what was once the standard of greater than 100%.

5---Bank's predatory lending destroyed 53% of African American wealth and 66% of Hispanic wealth, macrobussiness

Between 2005 and 2009, the mortgage crisis, fueled by racially discriminatory lending practices, destroyed 53% of African American wealth and 66% of Hispanic wealth, figures that stagger the imagination. As a result, it’s safe to say that few blacks or Hispanics today are buying homes outright, in cash. Blackstone, on the other hand, doesn’t have a problem fronting the money, given its $3.6 billion credit line arranged by Deutsche Bank. This money has allowed it to outbid families who have to secure traditional financing. It’s also paved the way for the company to purchase a lot of homes very quickly, shocking local markets and driving prices up in a way that pushes even more families out of the game.

“You can’t compete with a company that’s betting on speculative future value when they’re playing with cash,” says Alston. “It’s almost like they planned this.”

In hindsight, it’s clear that the Great Recession fueled a terrific wealth and asset transfer away from ordinary Americans and to financial institutions. During that crisis, Americans lost trillions of dollars of household wealth when housing prices crashed, while banks seized about five million homes. But what’s just beginning to emerge is how, as in the recession years, the recovery itself continues to drive the process of transferring wealth and power from the bottom to the top.

6--Still Deleveraging American Homeowners, credit slips

We still have a ways to go, five years after the Global Financial Crisis.  Total mortgage debt has eased down from 10.5 trillion dollars to 9.3 trillion, but that 10% drop aligns poorly with the 25% drop in home values, not to mention stagnant real wages.  Reuters reports that home equity lines of credit (HELOCs) will be the next wave of defaults as many 10-year interest-only periods expire.  After that will come the mortgages modified to below-market rates, which go back up after 5 years

7---Harvard Yoga Scientists Find Proof of Meditation Benefit, Bloomberg

8---Foreclosed Sales at U.S. Auctions Double as Prices Gain, Bloomberg

Speculative demand is what’s driving the market,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “That’s giving banks the chance to get foreclosures off their books.”

9---Foreclosure Inventory Plunges Nearly 30% , DS News

The nation’s foreclosure inventory has contracted for 18 consecutive months and is now at its lowest point since the end of 2008, totaling 1.28 million loans, or just 2.54 percent of today’s active mortgages, according to Lender Processing Services (LPS).....

Nationwide, there are 3,152,000 properties with mortgages 30 or more days past due; 1,283,000 of those are 90 or more days delinquent but not in foreclosure. Add to that the 1,276,000 loans that are part of the pre-sale foreclosure inventory, and there are 4,427,000 non-current home mortgages in the United States, by LPS’ assessment.

10---Howard Marks: We're Not at Bubble-Type Highs, Forbes

Now we're seeing another upswing in risky behavior. It began surprisingly soon after the crisis (see Warning Flags, May 2010), spurred on by central bank policies that depressed the return on safe investments. It has gathered steam ever since, but not to anywhere near the same degree as in 2006-07.
•Wall Street has, thus far, been less creative in terms of financial engineering innovations. I can't think of a single new "modern miracle" that's been popularized since the crisis.
•Likewise, derivatives are off the front page and seem to be created at a much slower pace. A full resumption of derivatives creation and other forms of financial innovation appears to be on hold pending clarification of the regulatory uncertainty surrounding acceptable activity for banks.

•Buyout activity seems relatively subdued. In 2006-07, it seemed a buyout in the tens of billions was being announced every week; now they're quite scarce. Many smaller deals are taking place, however, including a large number of "flips" from one buyout fund to another, and leverage ratios have moved back up toward the highs of the last cycle.

•"Cov-lite" and PIK-toggle debt issuance is in full flower, as are triple-Cs, dividend recaps and stock buybacks.
It's highly informative to assess how the other characteristics of 2007 enumerated above compare with conditions today:
•global glut of liquidity – check
•minimal interest in traditional investments – check 

10---Corporate credit markets back to frothy levels , sober look

11---Putting Nasdaq 4,000 in perspective, marketwatch

12---The 16,000 Dow, wsws

13--Bubble trouble Testosterone Pit

14---If It Looks Like a Bubble and Floats Like a Bubble , NYT

15--Central Banks Renew Reflation Push as Prices Weaken, Bloomberg

16---Zombie Firms And Zombie Banks, Forbes

But consider Japan. In 1990, it was the second most powerful economy in the world, and many thought it was well on its way to eating our lunch.

Beginning in 1991, Japan experienced a financial crisis that has been documented and studied by many. Japan’s crisis was triggered by a real estate and equity price bubble followed by a collapse of equity and real estate prices. But unlike the examples I cited above, Japanese policymakers met the crisis with prolonged denial and then, when conditions forced recognition of the severity of the problem, very halting steps to address it. Banks were not forced to recognize the condition of their balance sheets and were encouraged to continue lending to firms that were themselves unprofitable. Anil Kashyap labels these “zombie firms.”

Zombie banks continued to direct capital to zombie firms. This charade continued for more than a decade, with the result that the once-powerful Japanese economy was completely stagnant for that period. The government’s main response was to dramatically increase spending on infrastructure and frantically try to get Japanese households to save less and consume more. The resulting “lost decade” of economic growth cost Japan more than 20% of GDP.
Does any of this sound familiar?

17---The Day The Bubble Became Official, And Everyone Was Happy , Testosterone Pit

18--Stock market bubble? Testosterone Pit

19---CNN cuts ‘most crucial points’ from interview with Russia's UN envoy on Syria, RT

20---Thanksgiving in America, wsws

Wednesday, November 27, 2013

Today's Links

1---Deportation surges under Obama, RT

The Obama administration is on track to deport 2 million people by 2014. About 97 percent of people being deported are Latino and Caribbean, according to Tanya Golash-Boza, a sociologist at the University of California, Merced.

Human Right Watch researcher Grace Meng says since deportees have no legal way to return, many folks - often parents of US citizen children - try repeatedly to reenter the US illegally. Some US districts, she says, saw an estimated 80 to 90 percent of reentry defendants that had US citizen relatives.

“One US district judge, Robert Brack in New Mexico, who has sentenced over 11,000 people for illegal reentry, told me, ‘For 10 years now, I’ve been presiding over a process that destroys families every day and several times each day,’” Meng writes

2---NSA uses blackmail against Muslim leaders, RT

another top-secret NSA document - one of many whisked out of the United States by whistleblower Edward Snowden - revealed that the agency sought to discredit the “credibility, reputation and authority” of six Muslim ‘radicalizers’ through their online sexual activity and visits to pornographic websites, according to Huffington Post.
The targeted “exemplars,” whose identities are not revealed, are purportedly attempting to recruit and radicalize followers through “incendiary speeches.”
The NSA document, dated Oct. 3, 2012, aims to exploit the “personal vulnerabilities” of its targets through their online tendencies, including “viewing sexually explicit material online” and “using sexually explicit persuasive language when communicating with inexperienced young girls

3---Majority in US support Iran deal, RT

By a margin of 2-to-1, Americans support the nuclear deal struck with Iran over the weekend. In addition, Americans are strongly against using military force should Tehran renege on the agreed terms, a Reuters/Ipsos poll revealed Tuesday

4--Higher  rates dampen housing market, WA Post

5---Shiller: No excitement in housing, recourse loan

6---Volatile Loan Securities Are Luring Fund Managers Again, WSJ
Collateralized Loan Obligations Offer High Returns—And Risk
(Did someone say "Bubble"?)

Investment funds aimed at individual investors are barreling into collateralized loan obligations, a complex and volatile type of security that was shaken by the financial crisis.
Lured by annual returns of as high as 20%, some mutual-fund managers are buying CLOs through investment funds that purchase stakes in loans to companies with low credit ratings. Another type of loan investment fund, business-development companies, also have begun buying CLOs, according to securities filings. ...
The biggest buyers of these securities usually are hedge funds, insurers and banks. But mutual funds and business-development companies, which pitch themselves to individual, or retail, investors, have collected more than $60 billion in money from clients this year, according to Keefe, Bruyette & Woods, Inc. and fund-data provider Lipper.
CLO returns are higher than on corporate bonds and other loans, but CLO prices could plunge if the risk rises that companies will run into trouble repaying their loans.
That happened in 2011, and some fund managers say retail investors are mostly unaware that the firms they invest in are buying CLOs...
Loan mutual funds had $138 billion in assets as of Nov. 22, almost twice the amount they had at the start of the year. So far this year, the average return by such funds is 5%, and the typical loan mutual fund has less than 1% of its total assets in CLOs and similar securities, according to Morningstar
Tiffany & Co jumped 7 percent to $88.02 and was the S&P 500's top performer after the luxury retailer's third-quarter sales topped expectations. The S&P retail index <.SPXRT> advanced 0.9 percent.
"The wealth effect because the stock market has gone up has definitely helped the upper-end folks," said Gary Bradshaw at Hodges Capital Management in Dallas, Texas.

9---The Rush for Rentals by Investors Turns Into a Run for the Exit, mandelman implode
(Today's "must read")

What I do think happened last year is that with 60 percent of home sales coming from investors, instead of the historical 10 percent, they managed to bid up the bottom of the market, causing everyone to pay more than they should for the properties… creating a mini-bubble, if you will.
And now that investor demand has chilled appreciably, they’re realizing that their capital… or someone else’s, if they can unload what they’ve bought on even dumber money… is about to be destroyed.  It won’t be easy for many to dump their inventory, however, because they can’t sell the homes to people who will live in them… the demand just isn’t there and never was… so they’ll have to find another fund who hasn’t yet realized the flaws in the group-think that’s been going on.

The first sign that the gig was up came when Blackstone announced its first-ever home rental bond, a securitization structured by Deutsche Bank (who also provided $3.6 billion in loans, by the way) and known as the “Invitation Homes 2013-SFR1” offering, which was pitched by JPMorgan and Credit Suisse as co-leads.  (Securitizing these homes-to-be-rented is a way out for Blackstone, although they’d never admit it.)

When I first heard about it all I could think to say was: “Lord, if I could only figure out how to short this thing…”

Ratings agency, Fitch declined to rate this newfangled monstrosity triple A, and surprise, surprise, wasn’t chosen to rate the offering, but not to worry, those practicing the oldest profession in the world over at Moody’s showed their true colors by giving the deal at least one triple A.  The consensus had been that under no circumstances would such a deal deserve anything higher than a single ‘A’ rating, but how soon we forget on Wall Street, don’t you know...

Exit… Stage Left.

Last April, Leon Black, CEO of Apollo Global Management, another private equity mega-firm, said his firm was selling “everything that wasn’t nailed down,” and you would think that sort of statement would send more of a message, but as I’ve said before… optimism is a hard thing of which to let go.  Dumb money is always the last to know that the party has ended.
But, it’s late enough in the game that the word is now out.
At the end of September, Reuters reported that Oaktree Capital Group is looking to dump its accumulated portfolio consisting of 500 single-family homes bought out of foreclosure.  They tried to convert their portfolio into a rental-REIT, so as to unload it on the public, but they just didn’t screw us in time… this time… and they were forced to pull the plug on the perverse plan.
Gosh, I wonder why that would be, I mean, with prices going up and all, I can’t imagine why Oaktree would want to bail out on all those “low priced” bargains.  It would seem that they want out of what was only recently considered the red-hot buy-to-rent bonanza.

Oh, and by the way… Reuters was unable to find out the price Oaktree’s asking for the 500 home portfolio, which is another way of saying… “It’s been reduced.”  Unfortunately, American Homes-4-Rent and Silver Bay Realty Trust, have managed to convert their portfolios into publicly traded REITs, which are being shoveled into mutual funds that will find their way into unsuspecting retirement accounts
They are unlikely to be alone as far as looking for an exit goes.   In total, private equity firms, REITs, and hedge funds raised in excess of $17 billion since 2011, in order to buy over 100,000 vacant, foreclosed single-family homes… you can guess where.

In addition, spurned on by the Fed’s QE and zero-interest-rate policy, Lord knows how many smaller companies and individual investors also jumped on the bandwagon, and as it has the tendency to do, the insanity drove up home prices at double-digit rates thus “fixing” the problems we’ve had with the housing market for the last 6-7 years.  Anyone care to take a guess at what happens next?  Anyone?  Anyone?
American Homes-4-Rent picked up 19,000 single-family homes, Colony American Homes nearly 18,000, Silver Bay Realty Trust threw down for 5,370, Waypoint Homes gobbled up 4,620, and American Residential Properties brought up the rear with 2,530 homes bought....

These homes, that last year were found on the for sale sheets that investors have been reading with the focused attention of an 11 year-old boy reading Playboy, now appear on the lists of homes, “FOR RENT.”  The problem is… they’re not renting.
It’s the strangest thing, but even though vacancy rates for apartments have fallen to 8.2 percent, which is their lowest level since 2001, single –family homes bought after foreclosure have VACANCY RATES OF 50 PERCENT and higher… according to Bloomberg this past July.
And can you guess what the 50 percent vacancy rates are doing to rents?  Here’s a clue… it’s not increasing them.

It’s finally become clear, at least to some, that the business model of buy-to-rent isn’t workable and that the dumb money that dove into the shallow end of the pool thinking it was an ocean, is about to get its head smashed when it hits bottom.

Yes, my friends… the homeowners and other professionals who read Mandelman Matters… I wrote this as a gift to you.  Wall Street and Father Fed have managed to transform single-family homes into something akin to a commodities futures market, where prices jump without demand, and crash at any moment without warning… they’ve done it this time… not homeowners, but those darn irresponsible investors.
The only question now is whether what used to be the smart money, but now realizes it’s the dumb money, will be able to find even dumber money… it’s called the Wall Street shuffle… or at least it should be.

10---Shiller on Housing: "No momentum", cnbc (video)

A striking surge in home prices this fall was not enough to convince one of the nation's top housing economists that the recovery is on solid ground.
"We can't trust momentum in the housing market anymore," Nobel Prize-winning economist Robert Shiller said on CNBC's "Squawk Box."
Why not? Investors, specifically institutional investors, have vast sums of cash. They have bought about 100,000 homes, most of them previously foreclosed properties. They bought the homes in a limited number of markets, mostly in the West, pushing prices dramatically higher as competition for the properties increased. They are now renting them, and even selling bonds backed by the rental streams.
(Read more: Chinese buying up California housing)
The trouble, according to Shiller, is that investors are a fickle bunch, and if they see lower-than-expected returns they won't hesitate to dump the properties and move on to another trade.
"They've learned that there is short-run momentum in housing," said Shiller...

In fact, they may already be moving on. Institutional investor purchases represented just 6.8 percent of all sales in October, according to a new report from RealtyTrac. That is a dramatic drop from 12.1 percent in September and down from 9.7 percent a year ago. While one could point to the housing recovery and the related drop in the number of distressed properties, sales of bank-owned homes actually rose in October, both month over month and year over year, the firm said.
"There is notable weakness in the new-era, Fed-inspired investor, flipper/renter regions—that is, California, Arizona, Nevada—with a surge in supply," said housing analyst Mark Hanson.

11---Obama's Triumph: Breadlines Return, NYT

12---Japan to spend about 1 trillion yen on public works for stimulus: sources, Reuters

Japan will spend around 1 trillion yen ($9.86 billion) on public works in a stimulus package to be finalized next month, sources said, to help offset the impact of an increase in the sales tax.
Prime Minister Shinzo Abe's cabinet is expected to approve the stimulus package, which will total around 5 trillion yen, on December 5.
The government plans to raise the sales tax in April to 8 percent from 5 percent currently to pay for growing healthcare spending.
Abe wants to use short-term stimulus spending to counter the blow to consumer spending from the tax hike.

The package is likely to contain around 200 billion yen for a temporary expansion of payments to families with children, sources with direct knowledge of the matter said.
The package will also spend about 300 billion yen on payouts to low-income earners and around 150 billion yen on subsidies for new home purchases, sources said.
Japan's government has previously said that it will fund the stimulus package with budget reserves and higher-than-expected tax revenue so it does not have to issue new bonds.

13---Housing prices already above long-term trend, Dean Baker

It would have been useful to point out to readers that house prices are already well above their long-term trend, suggesting that the market is at risk of being inflated by another bubble. This would mean that many new home buyers will pay bubble-inflated prices for their homes and face large losses in equity when prices return to trend levels.The return of a housing bubble can hardly be seen as a positive development

14--Housing Bubble? Maybe, Dean Baker

Further price rises would push the housing market into a new bubble.
The Case-Shiller 20-City Index rose by 1.0 percent in September, bringing its increase over the last year to 13.3 percent. Since bottoming out in January of 2012 the index has increased by 18.5 percent.
All 20 of the cities in the index showed price increases in September...
While the September Case-Shiller data suggest a very strong housing market with rapidly rising prices, other data point in the opposite direction. Seasonally adjusted existing home sales in October were down 3.2 percent from their September level and 5.0 percent from the peaks hit in the summer. Median and average prices were also sharply lower than in prior months, although these data do not control for the mix of homes and therefore are highly erratic.
Pending homes sales were down 1.2 percent in October and were down 8.3 percent from the peak reached in May. Similarly, the index for purchase mortgage applications has been trailing downward since June and has been running below its year-ago levels in recent weeks. This indicates a falloff in purchases by owner-occupants. The new home sales data, which is based on contracts signed, showed a sharp drop in July, but some bounce back in August. The September release was cancelled due to the shutdown and the October data will not be available until next month. The July and August data also showed sharply lower prices compared with spring peaks, but this series also does not adjust for the mix of homes.
The seeming contradiction between the strong price data in Case-Shiller index and the weaker data shown in the other series may be explained by the long lag in the data in the Case-Shiller series....
Inflation-adjusted prices are approaching the level where analysts first began warning of the last bubble and many markets are likely already in bubble territory.

Tuesday, November 26, 2013

Today's Links

1---Google searches in the US in November for the term “stock bubble” was the highest since 2007 , Testosterone Pit

Last week, CNBC found that Google searches in the US in November for the term “stock bubble” was the highest since 2007 just before the last bubble blew up....

But a stock bubble cannot deflate until after retail investors have poured their money into it – the purpose of a bubble being redistribution of wealth from latecomers who put their hard-earned life savings at risk to early investors with access to the Fed’s free money. Stocks are a zero-sum game. Every share bought by a late retail investor must be sold by an earlier investor. When retail investors finally pour money into the market, they’re handing it to those who are pulling their money out – and end up holding the bag. This is the tail end of the Fed’s “wealth effect.”

And retail investors have been throwing their money into the stock market with gusto. For the first 10 months this year, they handed $172 billion to early investors, the most since 2000. In one week alone, ended October 23, they threw $9.2 billion at US stock funds, the highest since weekly records began in 2007, Bloomberg reported. And early investors took that money and ran.
Total funds allocated to equities hit 57%. There were only two times in the last 20 years when they were higher: in the late 1990s before the bubble imploded, and just before the 2007-2009 financial crisis. Not exactly soothing data points.

But just because it’s a bubble doesn’t mean it’s going to implode anytime soon. It’s during bubbles that you can make the mostest the fastest. The fact that it has already been driven to irrational heights proves that it can be driven to even more irrational heights; there’s no rational limit to irrational heights. The extent to which bubbles can grow has a nasty tendency to surprise those who see them and bet against them. Me included. In October 1999, I was a few months early and lost my shirt.
But this time, it’s different. In 1999, the economy was booming, unemployment was as low as it could get, the employment-population ratio was hitting all-time highs, corporate earnings were growing.... And the S&P 500 rose 19.5%, closing on the high for the year. That was less than three months before the bubble blew up.

This year, the economy is sluggish, unemployment is doggedly high, the employment-population ratio is stuck near multi-decade lows, corporate earnings are stagnating, and revenues have trouble keeping up with inflation. Real wages have declined since 2000, poverty rates are up, the number of people needing assistance to put food on the table has soared.... And the S&P 500 so far this year has jumped 26.5%. With Wall Street clamoring for a Santa rally, people are now envisioning 30% or even 40%. And it’s already up 164% from March 2009.

2---Is the Fed dabbling in the markets?, naked capitalism

I was intrigued to see Pam Martens write up some data points that align with the concerns of the stock market pros in a post titled, New York Fed’s Strange New Role: Big Bank Equity Analyst. If the Fed isn’t dabbling in the stock market, why does it need this sort of expertise? Key sections from her write-up:
But the New York Fed itself is helping to fuel suspicions about what’s going on within its cloistered walls…. Of the 12 regional Federal Reserve Banks, the New York Fed is the only institution with a trading floor and highly sophisticated trading platforms. But despite multiple requests, the New York Fed will not provide a photo of the full trading area. Photos of its gold vault and currency vault are on line, but photos of the trading area is off limits…

The resume of Kathleen Margaret (Katie) Kolchin is also noteworthy…she works for the Federal Reserve Bank of New York, “performing equity research on the large cap US and European banks. Throughout her career as an Equity Research Analyst, Katie has covered various sectors, including Global Consumer Products, Global Real Estate, and Metals and Mining, at UBS Securities and also at a boutique investment bank.”

Even more curious is the resume Kolchin has posted at LinkedIn. The resume states that the New York Fed has an “internal equity research team,” of which she is the Senior Analyst. The team’s coverage includes Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, UBS, and Wells Fargo… she has “Developed a sell-side style research platform, including work product branding, distribution strategy, and internal client marketing presentations…” Kolchin adds that she uses her “capital markets experience and contacts” to garner insights into the market’s reaction to “stock and bond prices.”
“Branding”? “Distribution”? “Marketing”? Stock prices? What’s going on here. There are famous, long-tenured bank analysts all over Wall Street….How is this the job of the New York Fed?
I too am curious as to what the justification is for this sort of position. Since when are stock prices part of the Fed’s job description?

3--Summers, Krugman: The defense of bubbles, naked capitalism

Within this neoclassical theoretical box, there is only one solution offered to move the economy out of secular stagnation. One must boost the Wicksellian “natural rate” by strengthening expectations of return. More precisely, the solution offered by both Summers and Krugman is to promote asset bubbles. Hence, instead of aborting the bubble that will ineluctably end in a crisis, we are told that we should be sustaining these bubbles and keeping them aloft. It is truly ironic that, while these economists would probably never recommend wage inflation (because it would supposedly cause unemployment), they have no problem in promoting sustained asset price inflation that would redistribute wealth towards those who already own too much of it!...

if Summers et al., are really worried about secular stagnation and truly want to kick-start the economy, what is needed is an expansionary Keynesian fiscal policy of massive public investment, not as a temporary measure (as partly happened during the financial crisis with the disjointed implementation of fiscal stimulus packages internationally), but as a long-term measure that would sustain aggregate demand in the long term. This measure will support not only employment growth in more well-paying and highly skilled jobs, but also long-term productivity growth, thereby encouraging private investment as well. To a large extent, this is what happened during the early postwar period that produced a virtuous cycle of growth, now remembered as the “Golden Age” of western capitalism. Instead of secular stagnation, with the precise political commitment and policy mix in favor of activist fiscal policy cum public investment, we could actually be looking forward to a world of strong expansion and a truly full employment environment that had largely characterized much of the early postwar era.

It is time to abandon that outmoded New Consensus model that seems to be keeping even some of the brightest in the profession stuck in an intellectual cul-de-sac. The real inhibitor of growth is not the zero lower bound, but the lack of desire to venture outside the neoclassical box. This lack of desire to pursue new fiscal policy measures that would commit government to long-term spending and full employment is not because the latter is not a viable alternative, but perhaps because, as Kalecki had long surmised also in the 1940s, it is the political fears of the wealthy who would benefit from asset booms that overrides good common sense and prevents the enhancement of the welfare of the majority who, under the existing policies, are faced with the continued spectre of long-term austerity and secular stagnation.

4---Pending Homes Sales Point to Party Over, economic populist

5--Bubbles: Qui Bono?, CEPR

The bursting of the current bubble will not have the same consequences for the economy because it has not yet grown large enough to move the economy in the same way as the stock bubble of the 1990s or the housing bubble in the last decade. Both of those bubbles led to consumption booms through the wealth effect, in addition to a boom in whacky Internet start-up investment and housing construction. That story could change if the bubble keeps growing, but thus far it is not large enough to move the economy in a big way.

The other issue is that bubbles invariably involve an important component of redistribution as the bubble pushers get rich at the expense of others. In the 1990s, people like Steve Case, a founder of AOL, managed to get incredibly rich by selling out his stake at the peak of the bubble. The big losers were the shareholders of Time-Warner, who were kind enough to give away most of their company for nothing.

In the case of the housing bubble, sellers of homes in the bubble years came out way ahead at the expense of the people who bought into bubble inflated markets. And the Wall Street gang who made a fortune in financing the deals also were big winners.

6---"Buy high" and be sorry, WSJ

Both the Dow Jones Industrial Average and the S&P 500 set record highs this week. Counting dividends, U.S. stocks have returned 29% so far this year. If returns stay flat through year-end, 2013 would rank as the 19th-best annual return since reliable data began in 1926.
About $23 billion flowed into U.S. stock mutual funds in the four weeks ended Nov. 13, estimates the Investment Company Institute, after more than $37 billion flowed out over the previous 12 months

Let’s say you have $400,000 in stocks and stock funds. Between November 2007 and March 2009, U.S. stocks fell 51% and foreign stocks 57%, according to Morningstar. Another such “drawdown” would shrink your portfolio by more than $200,000.
Even if you don’t think stocks are as overvalued as they were in 2007, imagine a drop just half as severe. Can you withstand a short-term loss of $100,000 in pursuit of longer-term gains?
You can perform the same exercise on any of your assets. Real-estate investment trusts lost 68% between February 2007 and February 2009, according to Morningstar. Gold fell 62% between February 1980 and September 1999, while long-term government bonds lost 21% from July 1979 to September 1981. (Account for inflation, and all these numbers look worse.)

7---Why Fed's taper is essential to stabilize agency MBS liquidity, sober look
While we've discussed some of the economic implications of the Fed's current policy, let's now take a quick look at the impact of QE on the overall mortgage bond market.

Here is a simple fact: the amount of mortgage-related securities in the US has been declining since 2008 - after reaching just over $9 trillion at the peak.
And now with these market dynamics as the backdrop, put the Fed into the mix. At it's current pace the Fed is taking about half a trillion of MBS securities out of the market. In fact the Fed is now removing more than 100% of the paper that is being issued
8--Corporate credit markets back to frothy levels , sober look
SFGate: - The extra yield company bonds offer over Treasuries approached the narrowest level in six years as Federal Reserve Chairman Ben S. Bernanke said interest rates will stay low and investors sought ways to boost income.Even within the middle-market credit space, pricing is looking quite rich. BDCs (public investment firms that focus on middle market debt - see discussion) have seen a nearly 60% total return over the past two years. In order to keep paying the same dividend they have been historically, BDCs are increasingly reaching for yield, flooding credit markets with more capital.
9--Home Equity Blowout: A new wave of U.S. mortgage trouble threatens, Reuters
10--Japan economy slows as 'Abenomics' boost fades, AP
 Japan's economy slowed in the third quarter as consumer spending remained sluggish despite government efforts to energize growth with public works and lavish monetary stimulus.The government said Thursday that the world's third-largest economy grew an annualized 1.9 percent in the July-September quarter, half the pace of the previous quarter. The annualized growth rate was 3.8 percent in April-June and 4.3 percent in the first quarter.

The preliminary data for the third quarter showed that the economy expanded 0.5 percent from the second quarter, slowing from 0.6 percent growth in April-June.

11--Abenomics hype wearing off: Data does not support Gov claims that economy is improving, japan times

Of the 14 categories in the report, including consumer spending and industrial production, only corporate profits merited an upgrade for persistently “improving, mainly among large firms.”
Exports have shown “weak tone recently,” although last month they were described as “almost flat.”
The expression reflects how reluctant the government is to play up the economy, which has shown nascent signs of challenging nearly two decades of deflation.
“The slowing down of overseas economies is still a downside risk for the Japanese economy,” the report said.
Exports, a major driver of the economy, declined 0.6 percent in the quarter through September, down for the first time in three, after climbing 2.9 percent in April-June, the latest gross domestic product data said last week....

It also maintained its line on consumption, which is responsible for about 60 percent of GDP.
Consumption is “on a trend of picking up” ahead of the first stage sales tax hike to 8 percent next April.
As for prices, the report said: “Recent price developments indicate that deflation is ending.”
Consumer prices rose 0.7 percent in September from a year ago for the fourth straight month of increase due to higher electricity and gasoline prices as well as hikes in some durable goods prices, government data showed last month. But if energy and fresh food are removed, prices were flat

12---Both sides claim victory in Honduran election, wsws

Monday, November 25, 2013

Today's Links

1---Washington turns bond market upside down, FT

2---Where the Empty Houses Are, (Er, don't we call this "shadow inventory"?) atlantic cities

The 2013 third quarter Census Homeownership and Vacancy survey shows that the vacancy rate is still above its pre-bubble level and remains unchanged from one year unusually high share of vacant homes today is being held off the market. The elevated vacancy rate discourages new construction activity and is therefore one of the major hurdles to a full housing recovery...

In the third quarter of 2013, 10.2 percent of housing units were vacant, excluding vacant homes that the Census classifies as "seasonal," such as beach homes. Vacant homes include those for sale or for rent, as well as homes "held off market" for various reasons. This vacancy rate of 10.2 percent  – the share of homes that are empty – was unchanged from 2012 Q3 and well above the pre-bubble level. In fact, the vacancy rate today (10.2 percent) is closer to its peak during the recession (11.0 percent in Q3 2010) than before the bubble (8.8 percent in Q3 2000)....

How can the for-sale inventory be relatively low while the vacancy rate is high? Because the share of vacant homes being held off the market – that is, neither for sale nor for rent – is rising. In 2013 Q3, 53.5 percent of vacant homes were held off market, up slightly from 52.9 percent in 2012 Q3 and from a low of 45 percent at the height of the housing bubble in 2006.

 In other words, the for-sale inventory is back down to its 2000 level, and tight inventory has helped fuel sharp price increases across the country over the past two years. That means there’s an inventory shortage, but not a housing shortage:...

How can the for-sale inventory be relatively low while the vacancy rate is high? Because the share of vacant homes being held off the market – that is, neither for sale nor for rent – is rising. In 2013 Q3, 53.5 percent of vacant homes were held off market, up slightly from 52.9 percent in 2012 Q3 and from a low of 45 percent at the height of the housing bubble in 2006.....

At the same time, there were declines in the number of vacant homes in foreclosures or other legal proceedings, which is consistent with other data showing big drops in the share of homes in the foreclosure process.
Many of the vacant homes now being held off the market won't stay off the market forever. Homes under repair or being prepared to be sold or rented could come onto the market. These homes would then be added to the active inventory, which would slow down or even reverse price and rent increases while giving house hunters more housing options. However, the trend in the vacancy rate also depends on how fast vacant homes fill up, which hinges on the growth in the number of households. The Census survey showed that household formation, at 380,000 over the past year in Q3, remains below the normal level of 1.1 million; the underlying survey data showed a slight year-over-year increase in the share of Millennials (age 18-34) living with their parents. Without more new households, vacant homes will fill up slowly....
The vacancy rate, therefore, remains a hurdle for the housing recovery. Even though listed inventory is tight, many vacant homes are being held off the market. The overall vacancy rate is above its pre-bubble level and moving downward slowly and irregularly. For construction, and the housing market overall, to return to normal, more vacant homes must be occupied.
...Right from the start, you can see that there has been a lot of semantic drift in the word “bubble”. From having once referred to a specific model of how prices could depart from fundamentals in a rational expectations model, to referring to any general inflation of securities valuations, Summers and Krugman appear to be using “a succession of bubbles” to refer to “any period during which personal gross debt increased based on rising asset values”. As an opponent of linguistic inflation, I’m already prejudiced against this way of thinking of the economic history of the last two decades. But  in describing the growth in debt as if it was a purely exogenous phenomenon, due to nothing other than animal spirits and irrationality, there’s a really dangerous kind of mistake being made.

It was policy! For more or less the entire period in question (call them “The Greenspan Years”), the growth of consumer spending, financed by increased consumer debt, was the main instrument of policy. I suppose I might be misremembering but I really don’t think I am, and I was there and I read a lot of FOMC minutes. The US authorities wanted to manage aggregate demand, but during the entire period, the fiscal authorities had either a deficit reduction target (Clinton) or a massive unfunded war (Bush), and so they made the goal of interest rate policy the management of consumer demand. This consumer demand was financed by debt, but nobody paid attention to this, in my opinion largely because the idea of stock/flow consistency didn’t really feature in the economic models they were using.
4---The Looming Bond Fund Crash , Paul Avery (repeat)
In 2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ….
This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.
The government that permits this to happen is complicit in a vast crime.
Galbraith also says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.
Galbraith recently said that “at the root of the crisis we find the largest financial swindle in world history”, where “counterfeit” mortgages were “laundered” by the banks.

6---China's Central Bank Announces Job Creation Program for the United States, Dean Baker

According to Bloomberg, YI announced that the bank would no longer accumulate reserves since it does not believe it to be in China's interest. The implication is that China's currency will rise in value against the dollar and other major currencies.
This could have very important implications for the United States since it would likely mean a lower trade deficit. Since other developing countries have allowed their currencies to follow China's, a higher valued yuan is likely to lead to a fall in the dollar against many developing country currencies. A reduction in the trade deficit would mean more growth and jobs. If the deficit would fall by 1 percentage point of GDP (@$165 billion) this would translate into roughly 1.4 million jobs directly and another 700,000 through respending effects for a total gain of 2.1 million jobs.

Since there is no politically plausible proposal that could have anywhere near as much impact on employment, this announcement from China's central bank is likely the best job creation program that the United States is going to see. It deserves more attention than it has received.

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Even the most bullish investor would admit that sluggish economic growth, a lacklustre labour market, and political discord are hardly the logical bedfellows of a stock market at new highs,” says Nicholas Colas, chief market strategist at ConvergEx.
“The current market action of a year end melt-up coming after five years of truly solid returns for US stocks, seems at first blush to be irrational performance-chasing. And who knows, it may end up being exactly that.”
Certainly the return of money into US stocks after outflows in 2011 and 2012 has been one catalyst for outsized performance. According to Lipper, investors have pumped a net $285bn into US equity mutual funds and exchange traded funds in 2013, the best year for the market since their records began in 1992.

7---On a roll. Stocks will rise forever! A "permanently high plateau." What Bubble? NASDAQ Rises Above 4,000, Back To Year 2000, Dot-Com Bubble Levels, zero hedge

8--Pending homes sales tank 5 months straight, cnbc

Signed contracts to buy existing homes fell for the fifth straight month in October, as the government shutdown added to an overall slowdown in the U.S. housing market. So-called pending home sales eased 0.6 percent from an upwardly revised September reading and are down 1.6 percent from October 2012, according to the National Association of Realtors.
This is the lowest sales pace since December 2012. Pending home sales are an indicator of closed sales in November and December.
While the Realtors' survey, which draws its data from regional multiple listing services, showed a big drop in the usually investor-heavy West, another report saw investors returning to the market in October after stepping back earlier in the year. After surging to 23 percent of the market in February, investors made up just 16.6 percent of home buyers in August, according to Campbell/Inside Mortgage Finance. Over the past two months, however, that share has climbed back to 17.4 percent.
(Read more: Map: Tracking the recovery)
"The two-month rise in investor activity is significant given that it occurred at the same time the proportion of distressed properties in the housing market has continued to fall," the report said

9---Economists trim short-term US growth forecasts, cnbc

The economy is expected to grow at a rate of 1.7 percent for all of 2013 and 2.6 percent in 2014...

The most recent official unemployment rate released by the government edged up to 7.3 percent in October from 7.2 percent.
The Fed has promised to hold interest rates near zero until unemployment hits 6.5 percent, provided the outlook for inflation stays under 2.5 percent.
Inflation was expected to remain muted, with year-on-year headline consumer price inflation averaging 1.4 percent in the fourth quarter of 2013 and 2 percent in the fourth quarter of 2014. Those numbers were unchanged from prior estimates.
The year-on-year core reading of CPI, which removes food and energy, was also steady at 1.8 percent in 2013 and 2 percent in 2014.
(Read more: Treasurys remain boosted by Fed reassurance)
On a quarter-on-quarter basis, core CPI was forecast at 1.7 percent in the fourth quarter and 1.9 percent in the first three months of next year. Both were revised down slightly from the previous forecast.

10---The 16,000 Dow, wsws

The Dow Jones Industrial Average closed above 16,000 for the first time ever on Thursday, following seven consecutive weeks of gains. This was immediately followed by another milestone: the Standard & Poor’s 500 stock index closed at 1,804, the first time it closed above 1,800 in history.
The Dow is up by 24 percent over the past year, having doubled since 2009. The S&P 500 is up by 28 percent.

Far from expressing a genuine economic recovery, the rise in the stock market coincides with economic stagnation or outright contraction in the US, Europe and much of the rest of the world. More than five years after the September 2008 Wall Street crash, the US and world economies remain mired in the deepest slump since the Great Depression of the 1930s.

The fever chart of soaring stock prices, corporate profits and CEO pay occurs alongside growing poverty, mass unemployment, and ever more staggering levels of social inequality.
There is a parallel between the upward arc of stock prices and the upward trajectory of the indices of social misery and deprivation. The number of people receiving food stamps in the US climbed from 28.2 million in 2008 to 47.7 million in April 2013, an increase of 70 percent. This number continues to swell, with over 1 million new food stamp recipients added between 2012 and 2013.....

The urgent task is the building of an independent political movement of the working class based on a socialist program. The Wall Street casino must be shut down and the trillions of dollars stolen from the population impounded and used to meet the needs of the people for jobs, decent wages and benefits, education, and health care. The banks and corporations must be nationalized and placed under public ownership and democratic control, and the economy reorganized to meet social needs, not private profit.

Sunday, November 24, 2013

Today's Links

1---Credit card debt, The Burning Platform

Wall Street introduced the credit card in 1968.
  • There were 200 million Americans in 1968 and $2 billion of credit card debt outstanding, or $10 per person....
  • By July of 2008 credit card debt outstanding peaked at $1.022 trillion and the population was 304 million, with credit card debt per person topping out at $3,361 per person.
Over the course of 40 years, the population of this country grew by 52%. Credit card debt grew by 51,000%. Credit card debt per person grew by 33,600%. ....

Since July 2008 credit card debt has declined by $175 billion... It bottomed out at $834 billion in April 2011 and has only grown by a miniscule $13 billion in the last 29 months, and only $1.7 billion in the last twelve months. The muppets have refused to cooperate by running up those credit cards..... Even a government educated, math challenged, iGadget addicted moron realizes their credit card is the only thing standing between them and living in a cardboard box on a street corner.
The proposals of the Securities and Exchange Commission on money market fund regulation are a response to continuing vulnerabilities as well as to the run in the fall of 2008. These are important initiatives that will contribute to a safer system of funding throughout the financial system. Yet the risk of contagious runs would persist even in the absence of individually systemic institutions. And with less vulnerable money market funds, other cash-rich entities could emerge as a source of inexpensive funding for the shadow banking system. Finally, as I have noted, the systemic risks associated with short-term wholesale funding in prudentially regulated institutions have not fully been countered by the important capital and liquidity standards adopted since the crisis. My purpose today has been to reinforce the point that a sounder, more stable financial system requires a more comprehensive reform agenda.
They don't ring bells at the top, but when a company called Fantex Holdings plans to sell shares in professional athletes and possibly actors and musicians, a chill should race up the spine of investors.
You know this isn't your grandfather's market when a company pushing chicken wings (Buffalo Wild Wings) sells at over 40 times earnings. And when a company that dominates retail but doesn't make any money (Amazon) trades for $350 a share. And when a company that pumps old movies, TV shows, and a sliver of new content to subscribers trades at 280 times earnings (Netflix).
Let's just say that American industry ain't what it used to be.

6------QE: The problem, not the solution, The Coppola Comment

The policy rate has fallen to an all-time low - it has now been fixed at 0.5% since Q2 2009. But that is only just beginning to feed through into the effective interest rate, and the chart indicates that most commercial lending rates remain far above the policy rate. Now, the policy rate is not an absolute indication of the cost of funding for banks - most banks pay slightly above that - but it is certainly an indication that bank funding is pretty cheap at present. Yet commercial borrowers are still paying high rates. This is undoubtedly because of banks' desperate need to repair their balance sheets and build up capital, but it doesn't help the economy.

And note also the effect of QE. This chart does suggest - very strongly - that QE is effective in bringing down real interest rates - but not for borrowers from commercial banks. They are paying as much or more than two years ago. The effective interest rate is depressed because of lower rates paid to

7---The strange world of negative rates, Coppola moment

Banks lend if they choose to - if the balance of risk versus return works in their favour. If it doesn't, no amount of reserves will make them lend. They will hoard money instead. And the fact is that the balance of risk versus return at the moment is so horrible that banks do not wish to lend except to the most creditworthy borrowers. Banks are seriously damaged and very, very scared of losses: they are already carrying high levels of risky loans against which they have insufficient loss-absorbing capital, and governments are withdrawing the implicit guarantee that enables them to maintain risky lending against insufficient capital. And the world is a risky place for banks at the moment....and creditworthy borrowers are thin on the ground everywhere due to damaged household and corporate balance sheets.
Not only that, but there is evidence that creditworthy households and corporates don't want to borrow, either. Borrowing and spending is out of fashion, saving and thrift is in."

8---Shiller warns of Bubbles, WSJ

Stocks have risen more than 20% this year and are up roughly 164% from their 2009 low. Investors have been bidding up prices for technology and social-media company initial public offerings, such as Twitter Inc. But at the same time, corporate earnings growth has been slowing and there are worries that the stock market's gains have been fueled mainly by easy-money policies from the Federal Reserve.
The result has been rising concern among some market watchers that stocks are being lifted by a potentially dangerous bubble, with Shiller's index seen as one of the early warning signs.
The nation’s foreclosure inventory has contracted for 18 consecutive months and is now at its lowest point since the end of 2008, totaling 1.28 million loans, or just 2.54 percent of today’s active mortgages, according to Lender Processing Services (LPS).

The company’s latest report assessing loan-level data on the performance of mortgage assets through the end of October shows the industry’s foreclosure inventory rate is down 29.61 percent from last year. Through the first 10 months of 2013, the foreclosure inventory rate has plummeted 26 percent.
Delinquencies dropped 2.8 percent month-over-month in October to come in at a rate of 6.28 percent. LPS says while that’s not as low as the delinquency rates recorded

 earlier this year—in August the rate was 6.20 percent and in May it settled in at 6.08 percent—it’s still headed in the right direction. Compared to last year, the rate of mortgages 30-plus days delinquent is down 10.69 percent.
Nationwide, there are 3,152,000 properties with mortgages 30 or more days past due; 1,283,000 of those are 90 or more days delinquent but not in foreclosure. Add to that the 1,276,000 loans that are part of the pre-sale foreclosure inventory, and there are 4,427,000 non-current home mortgages in the United States, by LPS’ assessment.

10---4,427,000 non-current home mortgages in the United States, DS News

Compared to last year, the rate of mortgages 30-plus days delinquent is down 10.69 percent.
Nationwide, there are 3,152,000 properties with mortgages 30 or more days past due; 1,283,000 of those are 90 or more days delinquent but not in foreclosure. Add to that the 1,276,000 loans that are part of the pre-sale foreclosure inventory, and there are 4,427,000 non-current home mortgages in the United States, by LPS’ assessment.

11---More inventory manipulation in housing, Dr housing Bubble