Wednesday, December 11, 2013

Today's Links

1--Las Vegas Crashes, Mark Hanson, zero hedge

From Mark Hanson: Lost Vegas

Las Vegas housing demand has crashed.  "Crash"...there is no other word to use.  This is not hyperbole.  "Crashed" is absolutely the appropriate word to use here given sales are suddenly the weakest levels since Armageddon 2009.  I mean come on...sales at the same pace as when the stock market was in the midst of one of the greatest plunges in history speaks least to me.  Volume precedes price.

Supply is surging in Vegas with "months-supply" back to nearly 7 months (over 7 for condos), and at 2010/11 levels.  There certainly is NO LACK OF SUPPLY in this market.  And ponder about this for a minute...and apply it to all these other "investor-centric" regions around the nation.  That is, in Vegas there are 10s of thousands of single-family houses being readied for rent by new-era "investors".  This flood of freshly rehabbed "for rent" supply will competes at some level with resale and builder "for sale" supply.  Even if it competes at a factor of .4, then Las Vegas "normalized" month's supply could right now be back to a year.

Lastly, houses are as expensive on a monthly payment basis -- and relative to the income needed to qualify for a loan -- then they were at the peak of the bubble in 2006.  But, this is a fact masked over for the past year by the plethora of all-cash buyers who are not governed by employment, income and safe & sound mortgage lending requirements.  Like Sacramento, Phoenix, regions in the Inland Empire, and a dozen other "hot" real estate markets around the nation -- that, "not"-coincidentally are the regions in which private and new-era "investors" swarmed with cash regularly paying 10% to 20% over appraised value / list price using flawed cap rate models as a guide -- when the stimulus go-go juice ran out this market hit a literal "brick wall" the size of 2007.

With house as expensive on a monthly payment basis than they were in 2007, when this market turns back towards "organic" being the incremental demand driver (people that can only buy as much house as their job, earnings, and mortgage qualifications dictate) serious double-digit percent points of house price downside will occur.  That's in the process of happening now.

The next year in Vegas could easily bring a 50% retracement of the past two years historic annualized gains, which to all the investor models predicting 10% appreciation in perpetuity, will feel like a crash.

So, question is, what businesses are levered to the past couple of years of resale house volume momentum and energy?  Those are the stocks that will shock the most amount of people in 2014.  Companies levered to Existing Sales typically feel trend changes two to three quarters afterward meaning Q1/Q2 will usher in a hard downshift -- especially relative to Q1/Q2 2013 when volume was going parabolic -- since 2008 and the period following the expiration of the Homebuyer Tax Credit.

2--The American Dream is Over, Bloomberg

3--Volcker Rule Loophole, jared bernstein

Let's be careful not to overstate the rule's toughness. According to the Times, "... banks can build up positions [acquire securities] to meet 'the reasonably expected near-term demands of clients, customers or counterparties.' Banks and regulators may clash over what is 'reasonably expected,' and the rule leaves it largely up to banks to monitor their own trading."

That sounds less than air-tight, but it's typical of such regulations. One could make a case that's why we're always stuck in the shampoo cycle, but blurred lines are the nature of the beast in this space.
Which means that at the end of the day, it's going to be up to the regulators and their agencies to make this work, and that caveat goes all the way to the top.

4---FHA to pull back on big mortgages, CNN

Starting in the new year, the biggest cap in these areas will drop to $625,500 from $729,750. Limits will be set lower in about 650 counties as a result, the agency said.
The FHA will maintain current limits in areas where home prices are lower and said the move will allow it to refocus on less wealthy homebuyers

5---Is service work today worse than being a household servant?, al Jazeera
Worse than prison

6---FHA raises rates to divert business to private capital (aka Wall Street speculators), CNBC

The FHA has already raised premiums and fees, and the average credit score of its borrowers is far higher than it was during the housing boom.
Then late Monday, the Federal Housing Finance Agency (FHFA), overseer of Fannie Mae and Freddie Mac, announced it would again raise the fees it charges lenders, beginning in March. Those fees will likely be passed on to borrowers in higher rates.
"The new pricing continues the gradual progression towards more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital," noted the FHFA's acting director, Ed DeMarco, in a release. "These changes should encourage further return of private capital to the mortgage market."

The push to bring private capital back to the mortgage market by both the FHA and FHFA would seem to indicate that government agencies and federal regulators believe the economy, and the housing market, can handle the changes and that investors are waiting at the ready. That is not necessarily a given.
"We appreciate the broader goal of attracting more private capital to the housing finance system, but we question the timing of the price hike, as it comes right as multiple other housing regulations take effect," wrote Guggenheim Partners' Jaret Seiberg of the hike in Fannie and Freddie fees.
A major new regulation, called the Qualified Mortgage (QM), also goes into effect in the new year, and that could raise borrowing costs even more, especially for borrowers who don't qualify for the new standards. Qualified Mortgages are designed to protect both borrowers and lenders by limiting risk and providing banks with legal protections. The rules, however, are strict, and while lending will take place outside of QM, it will do so at a far higher cost.

7---The Most Important Economic Stories of 2013—in 41 Graphs, atlantic

Mike Konczal, Roosevelt Institute
David Beckworth, Macro and Other Market Musings, Professor at Western Kentucky University: Despite the stated intentions of the Federal Reserve, the QE programs have coincided with rising treasury yields. QE2 and QE3 have also coincided with growth in privately-produced safe assets. Some have attributed the rising yields under QE3 to the Fed’s taper talk. But real yields started rising before the taper talk and were going up in other countries too. If anything, the taper talk was the Fed acknowledging the improving fundamentals that were driving up yields during that time. Though modest, these developments attest to the Fed’s potential to spur economic growth through large scale asset purchases if done properly.

Claudia Sahm, Senior Economist at the Federal Reserve: Households views about their income prospects, for example, as measured in the Michigan Survey of Consumers, worsened sharply in the recession and remain depressed. While income expectations have gradually improved over the past two years, the remaining pessimism among households may be a phenomenon that continues to weigh against a recovery in consumer spending

The Year in Wages and Wealth: Stocks Up, Paychecks Flat

Ryan Avent, The Economist: The

Binyamin Appelbaum, New York Times: Wage stagnation may be our most important economic problem. Wages are supposed to rise with productivity. As workers produce more, it stands to reason that they will be paid more. But as you can see above, wages have lagged productivity since the 1970s.

8---Poverty is at a two-decade high. , NYT

At the center of the debate is economic inequality, which has reached levels not seen since the Gilded Age. Poverty is at a two-decade high. The share of poor working-age Americans is the highest since at least 1967, according to a new study by researchers at Columbia University.

9---That was the point!, Dean Baker

"In anticipation of the Volcker rule, many large banks, including JPMorgan, have shuttered or spun off their proprietary trading desks, as well as their private-
equity arms and hedge funds. That could blunt the full force of the rule, analysts say."

It's not clear what this could mean, since the point of the Volcker Rule was to keep banks from engaging in proprietary trading. If they have spun off their trading desks then its purpose will have been accomplished. The goal is not to prevent trading, but to prevent banks from effectively speculating with government guaranteed deposits

10--Dan Rather on the George W. Bush memos: "We reported a true story. That's the reason I'm no longer at CBS News", CNN 3 min video

11---Factional struggle intensifies between Ukraine’s oligarchs, wsws

12---Over 1 million US unemployed set to lose benefits after Christmas,wsws
Democratic, Republican negotiators reach agreement on austerity budget

According to a Washington Post report published Tuesday, “[S]enior Democrats acknowledged that checks are likely to be cut off at the end of the month for more than a million people who are out of work.”

By the White House’s own figures, failure to extend the unemployment benefits will end cash assistance for 1.3 million people immediately after the holidays and impact an additional 3.6 million people in the first half of 2014.
President Barack Obama endorsed the deal, calling it “a good first step” and urging “members of Congress from both parties” to pass a budget “based on this agreement.”

13---CIA-groomed Obama basks in Mandela's fame, wsws

After graduating from college, Obama—supposedly propelled by Mandela’s example—took his first job as an “analyst” for Business International Corporation, which provided intelligence dossiers for US corporations while serving as a front for covert CIA agents.
Associated with no social struggles in the course of his meteoric rise to the US presidency, he was groomed at Harvard Law School and then by wealthy interests in Chicago to become a right-wing militarist and defender of Wall Street, making himself millions in the bargain....

This policy reached its peak with the decision of big money interests to promote Obama’s presidential ambitions. The aim was to exploit his status as America’s first black president to mask the reactionary policies being pursued by the US government at home and abroad...

This is a president who has presided over the steepest growth of social inequality in the history of the United States. His policies, from the financial bailouts of 2008, to the rescue of General Motors and Chrysler and his government’s backing for the bankruptcy of Detroit, have constituted a deliberate and massive transfer of wealth from America’s working people to a financial and corporate oligarchy. In his five years in the White House, 95 percent of all income gains have gone to the richest 1 percent, and, while the working class has seen its living standards decline, the country’s billionaires have doubled their wealth.

As for not tolerating dissent, this goes hand-in-hand with levels of social inequality that render the forms of democracy unworkable. Obama has overseen a massive growth of domestic spying by the National Security Agency and other parts of Washington’s gargantuan intelligence apparatus. He has sought the extradition and prosecution of Edward Snowden for exposing these illegal and unconstitutional operations, while pursuing WikiLeaks’ Julian Assange and condemning Private Bradley Manning to 35 years in prison as punishment for exposing US war crimes in Iraq and Afghanistan. His administration has invoked the World War I era Espionage Act to suppress whistleblowers more times than all other previous presidents combined.

14--Large inventories pose problems, sober look

15---Prof Steve Keen: Will there be a Double Dip in the USA? Part Two , steve keen (archive)

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