Thursday, November 7, 2013

Today's Links

"Cash sales are often indicative of investor behavior and the concern is that housing prices are being driven up more through speculative buying than from an increasing base demand.

Typically, bubble cycles form when an initial catalyst causes prices to rise and the increase in prices drives investment activity to the market, hoping to cash in on the rising prices. As investment activity increases, demand builds artificially, reflecting a level of demand that fluctuates drastically with the growth rate of prices instead of long-term demand based on housing necessity." Fitch warns of housing bubble, zero hedge

1---House rolls back derivatives legislation, daily represent

the House has passed a bill (H.R. 992) that would roll back these derivative regulations and let banks go back to the same set of rules that let them break the economy in the first place. So, why is it that both parties have found a way to agree on a substantive regulatory change at a time when partisan bickering is supposedly making any progress impossible?

It’s certainly not because the public is up in arms about rolling back derivative regulations — most Americans have never heard of derivatives trading, let alone pressured their Member of Congress to deregulate it. No, this is happening for a very different reason: Big bank lobbyists wrote this bill.

That’s not a cute turn of phrase or an exaggeration — The New York Times reports that 70 of the 85 lines in the new House bill reflect recommendations made in a piece of model legislation drafted by lobbyists for Citigroup, another bank that played a major role in the 2008 crisis and also received billions of federal stimulus dollars. The same report also revealed “two crucial paragraphs, prepared by Citigroup in conjunction with other Wall Street banks, were copied nearly word for word...

Members of the House received $22.4 million from interest groups that support the bill — that’s 5.8 times more than they received from interest groups opposed. Wall Street has also spent over $73 million on lobbying in 2013 alone. To top it all off, the the chair of the House Financial Services Committee went on a lavish ski vacation with prominent Wall Street lobbyists just six weeks after his appointment. 

So to review: We have a bill designed to roll back protections put in place after the financial crisis that was literally written by lobbyists for one of the major players in that same financial crisis. This bill was sponsored by a bipartisan group of Congressmen — including a former Wall Street executive — who depend on Wall Street to fund their campaigns. This bill enjoyed bipartisan support in a House that received over $22.4 million in Wall Street contributions and is under constant assault from nearly $50 million worth of Wall Street lobbyists in 2013.

2---Bank of Japan boosts monetary base 32% in 6 months, Testosterone Pit

on April 1, the beginning of the fiscal year, the BOJ embarked on a money printing campaign without precedent in the developed world, printing ¥7 trillion per month, as Kuroda told leaders of Japan Inc. in Osaka on Tuesday, to achieve “2% price stability" – an insider joke he keeps playing on Japanese workers, whose wages are not keeping up with it, and on holders of JGBs, CDs, and similar near-zero yielding instruments that are now turning into Swiss cheese.

Between April 1 and October 31, the monetary base has jumped 32%, in line with Kuroda’s promise to double it in two years and water down the yen through "massive purchases" of JGBs of all maturities. He pointed out proudly that this has "been progressing ... as scheduled." So in just seven months, government securities on the BOJ’s balance sheet have soared 40% to ¥175.6 trillion. The marks of a central bank in full bloom. Even if it did not help the real economy...

And it killed the market for JGBs.
Average Monthly Trading volume among large financial institutions has collapsed to ¥37.9 trillion last quarter, the lowest in the data series of the Japan Securities Dealers Association, dating back to 2004. That’s down 61% from last year's monthly average of ¥98 trillion. JGBs have become unresponsive to fiscal risks, inflation, the economy, or anything else. Liquidity has evaporated. Pricing has become meaningless.

3---Demand for mortgage loans has dropped quite sharply as rates increased, sober look
WSJ: - More than 40% of banks said they saw a lower volume of mortgage applications since the spring, prior to the increase in mortgage rates. About a third of banks said demand was about the same or stronger.

Fewer home owners refinanced their mortgages in the period due to rising interest rates, the banks said. More than 90% of banks have received moderately to substantially lower volumes of applications compared with the spring.

4---US stock market volatility lowest since 2007 , sober look

One of the contributors to this decline in volatility is the retail investor. Over the past year or so the relentless flows out of domestic equity mutual funds have stopped.

 5---Chase Isn't the Only Bank in Trouble, Matt Taibbi

there's a huge mess involving possible manipulation of the world currency markets. This scandal is already drawing comparisons to the last biggest-financial-scandal-in-history (the Financial Times wondered about a "repeat Libor scandal"), the manipulation of interest rates via the gaming of the London Interbank Offered Rate, or Libor. The foreign exchange or FX market is the largest financial market in the world, with a daily trading volume of nearly $5 trillion.
Regulators on multiple continents are investigating the possibility that at least four (and probably many more) banks may have been involved in widespread, Libor-style manipulation of currencies for years on end. One of the allegations is that traders have been gambling heavily before and after the release of the WM/Reuters rates, which like Libor are benchmark rates calculated privately by a small subset of financial companies that are perfectly positioned to take advantage of their own foreknowledge of pricing information....

From a Reuters article on the Guardian Care case:
"To unwind all Libor-linked derivative contracts would be financial Armageddon," said Abhishek Sachdev, managing director of Vedanta Hedging, which advises companies on interest rate hedging products....
JP Morgan Chase disclosed that it is currently the target of no fewer than eight federal investigations, for activities ranging from possible bribery of foreign officials in Asia to allegations of improper mortgage-bond sales to . . . the Libor mess. "The scope and breadth of risky practices at JPMorgan are mind-boggling," Mark Williams, a former Federal Reserve bank examiner, told Bloomberg.
6---Security Is Remarkably Effective, naked capitalism

Social Security has been a very effective program for combating poverty among the elderly. In 2012, approximately 9.1% of the population of the US age 65 and older lived in poverty. Contrast this with a poverty rate of 21.8% for children 18 and under, or 13.7% for adults ages 18 to 64. It’s also worth noting that under a new supplemental measure of poverty created by the US Census Bureau that takes into account other sources of cash payments or benefits such as SNAP (“food stamps”) and tax credits but also includes the cash cost of healthcare not covered by Medicaid or Medicare, the poverty rate for seniors rises to 16.1%.

Since the government started keeping data on official poverty levels in 1960, the poverty rate among those 65 and older has fallen from a high of 35%. Large increases in Social Security benefits from 1959 through the 1970s contributed to a steep drop in poverty rates. Poverty rates among those 65 and older continued falling but at a more moderate pace during the 1980s, 1990s, and 2000s except during recessions.

While Social Security has done well to keep seniors out of abject poverty, it is grossly insufficient to meet all income needs in retirement. According the Social Security administration, the average retiree is receiving $1,230 per month, or about $14,760 per year.

Unfortunately, due to the recession, poverty rates have started rising. Poverty rates among children have risen from 16.2% in 2000 to 21.8% in 2012. Poverty rates for working age adults have skyrocketed from 9.6% to 13.7% during the same period. Social Security has been instrumental in keeping the same thing from happening to seniors. The poverty rate among seniors was 9.9% in 2000 compared to 9.1% in 2012. Poverty rates for seniors, however, are now starting to tick higher with 2012 seeing the largest increase in poverty rates among seniors in the last decade...

Why Cuts Are Being Proposed
Three words: Wall Street + taxes.
Let’s tackle the first two words: Wall Street. Wall Street desperately wants to get their hands on your Social Security money, so they can manage it. If Wall Street were managing an investment portfolio the size of the Social Security trust fund and charging a somewhat typical 1% fee, they would make $27B per year

7--Has QE stimulated credit, naked capitalism

8---China prepares to liberalise finance as hedge funds and estate agents salivate, Guardian

Beijing is making preparations to let its money off the leash, and the repercussions will be felt everywhere...
Back in the late 1990s, US multinationals demanded that China accept more stringent conditions than had been imposed on other developing countries in order to secure WTO membership. Beijing accepted. Now America wants two things: China's financial sector to be opened up to US banks and the country's savings to boost western capital markets. More than likely, Washington will get its way, perhaps not immediately but with profound effects.

Why? Well, consider this. America, the world's biggest economy, has savings of $2.8tn (£1.7tn); China has more than $4tn. As a result, the impact of financial liberalisation in China will make the flow of funds into the west from Russian oligarchs look inconsequential.

9---Why smaller deficits are bad news, Dean Baker

In an economy that is suffering from lack of demand, as is the case in the United States today, smaller deficits are bad news. They mean less demand, slower growth, and fewer jobs.

This is not a complex point. Ever since the collapse of the housing bubble, the U.S. economy has suffered from inadequate demand. The inflated house prices of the bubble era led to a building boom. They also fueled a consumption boom, as people spent based on the $8 trillion in bubble generated housing equity. The bubble generated demand disappeared when the bubble burst leaving a gap in annual demand of more than $1 trillion a year.
The large deficits the government has run since the downturn began helped to fill part of this gap. Smaller deficits mean the government is filling less of the gap. That shouldn’t be hard to understand.
When the government hires people it is directly reducing the unemployment rate. These people will also spend their wages which further increases demand. It’s the same story when the government hires a contractor or directly buys goods produced in the private sector. Alternatively, when it pays out money for Social Security, unemployment insurance or food stamps, this money gets spent, adding to demand in the economy.
If Mr. Lew has some theory whereby the private sector will fill the demand lost when the government cuts spending or increases taxes he should share it with the world. If it makes any sense at all he will surely have a Nobel Prize waiting for him in short order. After all, economists have studied this issue intensely for the last 5 years. The overwhelming weight of the evidence is that cutting government deficits in a downturn like the one we are seeing means less growth and fewer jobs, end of story. ...
the grand bargainers insist that an agreement for additional stimulus in the present has to be accompanied by reductions in longer term spending. Their focus is invariable on cuts to Social Security and Medicare. Their position is that the country’s seniors, who have a median income of less than $20,000 a year, are living too well.
The grand bargainers are prepared to allow for some additional stimulus, leading to growth and jobs now, but only in exchange for reducing the benefits that provide security for the country’s workers in their old age. This is where the terrorism comes in.
The grand bargainers are effectively insisting that they will keep millions of innocent people out of work or underemployed until they get a commitment to cut Social Security and Medicare payments. This means that not only a current generation of workers will suffer from an economic policy designed to keep them unemployed, but their children will suffer as well.
US policymakers are caught in a trap – a seemingly inescapable dilemma that stems directly from the massive scale of QE
ECB warned it must take immediate and pre-emptive action to head off the risk of full-blown deflation by next year
exposure to glyphosate can contribute to Obesity, Autism,  Alzheimer’s disease , Parkinson’s disease, and digestive issues to name just a few of the diseases that have seen epidemic increase in the years since GMOs were introduced
13---Economic policy mix---The same everywhere, Jack Rasmus, counterpunch
QEs, near zero central bank interest rates, and token initial fiscal stimulus policies followed soon by austerity fiscal stimulus withdrawals, represent the economic recovery policy ‘mix’ for the US since 2008.
In similar form, albeit with different emphases, the same monetary and fiscal policies have been adopted by other capitalist sectors of the global economy. Like the USA, those economies—from the Eurozone, UK, to Japan and elsewhere—are   also experiencing a sub-average, ‘stop-go’ economic recovery trajectory since 2008.  The outcome has been more or less the same everywhere: a bailing out of the banks, an acceleration of investors’ income and corporate profits, a shift toward speculative financial investing globally, growing income inequality, declining real investment relative to profits, an inability to generate full time employment and wages, declining real disposable incomes for median family households, and stalling consumption....

Fiscal policies are also becoming less effective in generating real economic growth. Contrary to what liberal economists argue, deficit spending per se does not stimulate economic growth.....

A further reason why multiplier effects have declined is household consumers have become more ‘fragile’—that is, they have accumulated excessive debt loads and face stagnating or declining income gains. Government spending and tax cuts targeting consumer households thus get diverted to retiring debt or paying for inflationary increases for essential goods and services that was once covered by rising wage incomes.

To summarize with regard to fiscal and austerity policy, government spending and tax cuts no longer have the same positive effect on economic recovery they once had. Greater household debt and stagnating incomes reduces the effect of fiscal stimulus. That same debt and income stagnation makes austerity fiscal policies in turn more effective in terms of reducing consumption. Austerity multipliers are greater, while fiscal stimulus multipliers are smaller.  Austerity serves to contract the economy, but does so more effectively than tax cuts and spending stimulate the economy. In order for fiscal stimulus policies to return to past effective levels, major structural changes will have to occur in the economy: incomes will have to be redistributed from the wealthiest households and toward the middle and working classes by means of a number of measures, while debt levels will have to be reduced or debt expunged.”

14---Bid Rigging: The Department of Justice’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions has led to yet another guilty plea., national mortgage news

“Collusion at foreclosure auctions harmed both lenders and distressed homeowners in an already struggling real estate market, and the conspirators must be held accountable,” says Bill Baer, assistant attorney general in charge of the Department of Justice’s Antitrust Division.

15---Investors now 50% of the buyer market, oc housing

16---Home ownership is now at the lowest rate in 13 years, cnbc

Home ownership is now at the lowest rate in 13 years, and it isn't moving much, despite the recovery in home prices. More disturbing, however, is the dramatic drop in household formation.
Household formation—when a person who lives with someone else (parents, roommates, etc.) moves into another housing unit on his or her own, creating a new household—has averaged around 1 million per year historically as the U.S. population grows. In the early part of this century, when housing was just beginning its boom, it jumped by nearly 2 million. In the third quarter of this year, just 380,000 new households were formed, according to the U.S. Census

The share of millennials living with their parents rose from 31.4 percent in 2012 Q3 to 31.6 percent in 2013 Q3, based on the raw Census data," noted Jed Kolko of Trulia, an online real estate company. "During the recession, many people doubled up with roommates or lived with relatives, including young adults who stayed in their parents' homes. Even now, years after the recession technically ended, young adults remain much more likely to live with their parents than before the recession."
That's because younger adults continue to experience weak job growth. They also have more trouble obtaining a mortgage than older adults.

Kolko estimated that there are 2.4 "missing households" today, that is, people who should be living on their own, either in rental or owner-occupied homes, but are not.
(Read more: Housing's top 'turnaround' markets)
The irony is that the past few years have actually been prime time for home buying. Prices dropped dramatically and mortgage rates hit historic lows, but all-cash investors reaped most of the rewards.
"I think there is a lot of frustration, even rage, that regular home buyers were beat out by investors, that the people who really needed affordable housing were the ones who couldn't get it," said Glenn Kelman, CEO of Redfin, a real estate company

17---QE addiction, RT

As President Obama stated in a radio address back in 2011, “To restore fiscal responsibility, we all need to share in the sacrifice…I believe we can live within our means and live up to the values we share as Americans…If we don’t act, a rising tide of borrowing will damage our economy, costing us jobs and risking our future prosperity by sticking our children with the bill.”

The coded language Obama employs here is critical to understanding the ideology and actions of the financial ruling class in the United States. By establishing the notion of ‘sharing in the sacrifice’, Obama is transferring the burden of the continued economic crisis away from the financiers and speculators who created it, and on to the backs of working people and the poor.
So in Obama’s America, those who work hard and earn a paycheck to support themselves and their families must pay for the malfeasance of those on Wall Street and elsewhere....

At the same time that the politicians are convincing ordinary Americans that such sacrifices are necessary, the Federal Reserve (Fed) continues its policy of ‘quantitative easing’ (QE) – a prescription by which the Fed buys bonds and major financial institutions become the recipients of extraordinarily low-interest (essentially no interest) credit from the Fed. This QE policy of ‘free money’ for banks and other financial institutions has become the bedrock of the current economic order, and one that is having, and will continue to have, wide-ranging and dangerous ramifications in the US and worldwide...

Renowned political economist Dr. Jack Rasmus has written: “Even potentially more dangerous than its predecessors, QE3 will be an open-ended tab of free money to investors, amounting to $40 billion a month for an undetermined number of months to come. It could therefore be an even greater subsidy to banks and investors, in terms of magnitude, than previous QEs… But QE3 will have no more effect on job creation, housing, or general economic recovery than has its predecessor QEs. QE is not about boosting jobs, housing, or the real economy. QEs are about subsidizing investors and boosting stock, bond, derivatives, and commodity futures markets and therefore the capital incomes and returns of investors, both individual and corporate...

18---US ordered to hand over Red Cross files on conditions at Guantánamo Bay, guardian

Military judge in trial of 9/11 suspects says correspondence must be disclosed, but ICRC insists its assessments are confidential
here’s the picture:
The US did substantial stimulus in 2009-10 (although not, I’d argue, nearly as much as these numbers suggest), but then began withdrawing it rapidly despite still being in a liquidity trap. At this point fiscal policy is only modestly more expansionary than it was before the crisis, which is a big policy mistake.
But Europe is far worse. It, too, is in a liquidity trap, with the extra problems of severe adjustment needed in the periphery, made worse by a weak economy and excessively low inflation. Yet aggregate fiscal policy is clearly tighter than it was before the crisis.
And that, ladies and gentlemen, is why European had a double-dip recession, still has incredibly high unemployment, and is in general in such a mess

20---Monetary base vs inflation, Krugman

the Fed began rapidly expanding its balance sheet when Lehman fell — more than five years ago. Here’s the result of that “destructive and inflationary” policy so far:
It’s not often that you see an economic theory fail so utterly and completely. Yet that theory’s grip on the GOP has only strengthened as its failure becomes ever more undeniable.

21---Bubble Trouble Seen Brewing in Australia Home Prices, Bloomberg

22--Cautious consumers seen curbing U.S. economic growth, Reuters

U.S. economic growth likely slowed a bit in the third quarter as consumers kept a lid on spending, supporting the Federal Reserve's decision to maintain its current pace of bond purchases to stimulate activity.
Gross domestic product probably expanded at a 2.0 percent annual rate, according to a Reuters poll of economists, moderating from a 2.5 percent clip in the second quarter.
The anticipated deceleration will also reflect a pullback in business spending and some ebbing in home building as a run-up in interest rates over the summer took a toll.

The Commerce Department's first estimate of third-quarter GDP on Thursday at 8:30 a.m. will offer confirmation that the economy lost momentum even before October's 16-day government shutdown, which is expected to weigh on growth over the final three months of the year.
"There are no signs that the economy is picking up," said Thomas Costerg, a U.S. economist at Standard Chartered Bank in New York. "If you add the shutdown to an already subdued underlying trend, it's difficult to see the economy taking off in the near term."

The economy grew at a 1.8 percent rate in the first half of 2013, held back by a tightening in fiscal policy at the start of the year. Growth had been expected to gain speed in the fourth quarter as the drag from fiscal policy lifted.
The report is expected to paint a picture of anemic domestic demand and could be seen as validating the Fed's decision to stick to its $85 billion monthly bond-buying program.
With near-term growth prospects not that bright, a reduction in the purchases, which aim to keep interest rates low, is not expected this year.
"What you saw in the third quarter will be continued in the fourth quarter," said Doug Handler, U.S. chief economist at IHS Global Insight in Lexington, Massachusetts. "We expect the tapering to begin somewhere in the first quarter of 2014."
Sluggish consumer spending will account for much of the slowdown in growth in the third quarter, against the backdrop of a modest rise in household disposable income.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is forecast to have expanded at its slowest pace in 2-1/2 years. It grew at a 1.8 percent rate in the April-June period.

23---Taking aim at the wrong deficit, Baker and Bernstein

Simply put, lowering the budget deficit right now leads to slower growth. But reducing the trade deficit would have the opposite effect. Not only that, but by increasing growth and getting more people back to work in higher-than-average value-added jobs, a lower trade deficit would itself help to reduce the budget deficit.
Running a trade deficit means that income generated in the United States is being spent elsewhere. In that situation, labor demand — jobs to produce imported goods — shifts from here to there.
When we run a trade deficit, as we have since 1976, we are spending more than we are producing. When that happens, the national savings rate goes into the red. Either private savings (by households and businesses) or government savings, or both, must be negative.
Private savings are usually near zero, with companies net borrowers and households net lenders. The exceptions came during the stock and housing bubbles, when bubble-generated wealth caused household consumption to soar and savings to drop. The housing bubble also led to a surge in home building.
That rise in investment, coupled with the fall in savings, filled the gap in demand created by the trade deficit. But after the housing bubble burst, consumption fell back to more normal levels and construction tanked as a result of overbuilding. The government stepped up and at least partially filled the gap in demand, leading to large negative savings in the public sector, or budget deficits.
In other words, we’ve been bouncing from investment bubble to deficit spending to offset the income that is being drained out of the economy by trade deficits. And now, with the bubble behind us and politicians obsessively focused on lowering the budget deficit, we’ve lost our offsets. Meanwhile, the trade deficit remains a hefty 3 percent of gross domestic product, about $500 billion a year.
The economy in the U.S. expanded in the third quarter at a faster pace than forecast, led by the biggest increase in inventories in more than a year as household purchases and business investment slowed.
Gross domestic product rose at a 2.8 percent annualized rate after a 2.5 percent gain the prior three months, a Commerce Department report showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 2 percent advance. Consumer spending climbed 1.5 percent, the smallest increase since 2011. ...

The biggest gain in inventories since the first three months of 2012 risks holding back production in the current quarter, which began with a 16-day partial shutdown of the federal government. Jobs data tomorrow are projected to show hiring slowed in October, helping explain why Federal Reserve policy makers are pressing on with stimulus...

Core Inflation

The report also showed price pressures remain contained. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.4 percent annualized pace.

25---10.2% of U.S. homes held off market, WSJ

The Commerce Department reported Tuesday that 10.2% of U.S. homes were vacant in the third quarter. That’s little changed from 10.1% in the second quarter but still well above seen before the housing boom.
What’s of interest is the rising share of vacant home that are being held off the market, not listed for rent or sale. According to real estate website,, off-market homes accounted for 53% of vacant homes last quarter, up 45% in the third quarter of 2006 when housing was near its peak.
Homes can be held off the market because they are under repair or being prepared to be put on the market, says Trulia’s chief economist Jed Kolko. For a large number, sellers are not putting out the “for sale” sign until home prices rise further.

The homes held off the market represent a shadow inventory of homes. As repairs are completed and prices rise, these homes will move out of the shadows and into active real-estate markets. Buyers and renters then will have a greater choice of properties. Kolko says that could slow or even reverse recent price and rent increases.

26--China headed for slowdown, WSJ

27--Gas and food hit 2013 lows, prag cap
After huge increases in 2007/8 and 2010/11 food and gas prices are now declining rapidly.  According to the FAO global food prices are now deflating at a -7.7% year over year rate:

And gasoline prices are now deflating at a -10.7% year over year rate:

28---Euro zone officials: No let-up in economic stagnation, mass unemployment, wsws

Economist Jean-Paul Fitoussi told the daily LibĂ©ration: “Europe is plunging into an endless spiral, with explosive levels of unemployment in Greece, Spain, and even Italy. Can democracy survive when 60 percent of youth have no job? The probability of a social explosion is increasing each month.”

29--Japan's key index of indicators hit 5 year high, global post

Japan's key index of indicators designed to show the current state of the economy rose in September to its highest level in more than five years as companies boosted production and investment amid an economic recovery, the government said Thursday.
The index of coincident indicators, such as industrial output, retail sales and new job offers, climbed to 108.2 from 107.6 in August, against the 2010 base of 100, the Cabinet Office said in a preliminary report.

Economists estimate that the world's third-biggest economy grew a real annualized 1.4 percent in the July to September quarter, up for the fourth consecutive quarter, following a 3.8 percent expansion in the April to June quarter, a Kyodo News survey showed last week.

30--Pessimism over the dollar will be shortlived, FT


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