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
 

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