Wednesday, December 4, 2013

Today's Links

1---"The Fed has created a systematic risk in the world financial system for which they take little or no responsibility", zero hedge

2---Japan Plans 18.6 Trillion Yen Economic Package to Support Growth, Reuters

Japan launches fiscal stimulus to conceal impact of consumption tax.

3---Global shares slide ahead of U.S. data crunch , Reuters

4---Does Lowering Corporate Tax Rates Create Jobs? Answer is a resounding "no", ataxingmatter

5---Economists and Inflation: It's Also Interest Rates, not Just Wages, Dean Baker

Binyamin Appelbaum had an interesting post about how many economists would like to see a higher rate of inflation to help recover from the downturn. The piece emphasizes the role of inflation in lowering real wages, with the argument that lower real wages are necessary to increase employment.
...
The other important point is that higher inflation promotes growth in other ways. First and foremost it makes investment more profitable by reducing real interest rates. Firms are considering spending money today to sell more output (e.g. software, computers, Twitter derivatives etc.) in the future. If they expect to sell this output for higher prices because of inflation, then they will find it more profitable to invest today. If we can keep interest rates more or less constant and raise the expected rate of inflation, then firms will have much more incentive to invest. This process seems to be working successfully in Japan at the moment.

6--Wrist slap: Penalties for Libor rate rigging, Reuters

7---Time to lock and load? Mortgage rates on the rise again, Diana Olick

didn't take much for the mortgage market to plunge into a deep freeze.
As temperatures fell across the country last week, so did mortgage applications, down 12.8 percent from the week before, according to the Mortgage Bankers Association. That includes an adjustment for the Thanksgiving Day holiday, but the shortened week still played a role in the drop.
Applications to refinance fell the hardest, down 18 percent week-to-week, seasonally adjusted, to the lowest level since the first week of September. Applications to purchase a home fell 4 percent....

The average rate on the 30-year fixed "conforming" mortgage, backed by Fannie Mae or Freddie Mac, rose very slightly, from 4.48 percent to 4.51 percent. The average rate for a "jumbo" loan, generally those over $417,000, also rose slightly but is still below the conforming rate at 4.49 percent

8---Pew Survey: Americans believe their country is weaker on the global scene than it was a decade ago, RT

A majority of Americans believe their country is weaker on the global scene than it was a decade ago, according to a Pew poll. The 53 percent figure is the highest since the polling agency started asking the question in 1974.
It was also the first time in almost 40 years that more than half of Americans have viewed their nation’s global standing in such a pessimistic way. Back in 2004 the figure was a mere 20 percent.
America is also less respected globally than it was in the past, say 70 percent of the people surveyed, which nearly matches the level of 71 percent reached in May 2007 in the late months of President George W. Bush’s second term.

Accordingly, the US public’s support for meddling in foreign affairs is almost at a historic low, with 52 percent of Americans saying that the country should “should mind its own business internationally and let other countries get along the best they can on their own,” as opposed to just 38 percent who disagree with the statement. The balance is the most lopsided in favor of the isolationistic world view in nearly 50 years, the Pew report says.

The Obama administration’s handling of foreign crises is viewed with criticism by 56 percent of those polled, while 34 percent said they approve of it more than disapprove. Terrorism is the only major issue where approval surpasses disapproval.

9---Detroit bankruptcy ruling paves way for nationwide attack on pensions, wsws

10---Hedge Funds as Landlords, economic populist

Then, you might have wondered who has been buying up all of those homes of recent.  Every month we point out there is simply no way the typical American can afford these home prices with such low income amounts.  It turns out a large amount of home purchases are hedge funds and groups of rich investors.
Wall Street hedge funds and private equity firms have quietly amassed an unprecedented rental empire, snapping up Queen Anne Victorians in Atlanta, brick-faced bungalows in Chicago, Spanish revivals in Phoenix. In total, these deep-pocketed investors have bought more than 200,000 cheap, mostly foreclosed houses in cities hardest hit by the economic meltdown.
These hedge funds are planning on renting many of these units, but if that isn't bad enough, after all who wants a hedge fund as a landlord, they are planning on bundling rentals into a new sort of derivative for trading.  This is precisely how the financial crisis happened, bundling toxic mortgages into derivatives and selling them like a game of musical chairs as to who would be stuck with the rotten hot potato last.  Now they want to do the exact same thing, but this time with underlying assets being rental properties and related assets instead of bundled mortgages.  We might even call these new derivatives securitized pools of American suckers, renting from slum landlords corporatized like some form of contractual law debtors prison.
"It's just like a residential mortgage-backed security," said one hedge-fund investor whose company does business with Blackstone. When asked why the public should expect these securities to be safe, given the fact that risky mortgage-backed securities caused the 2008 collapse, he responded, "Trust me."
For Blackstone, at least, the logic is simple. The company wants money upfront to purchase more cheap, foreclosed homes before prices rise. So it's joined forces with JP Morgan, Credit Suisse, and Deutsche Bank to bundle the rental payments of 3,207 single-family houses and sell this bond to investors with mortgages on the underlying houses offered as collateral.
The Rental Empire agenda is terrible news for rents as well.  By creating a landlord monopoly, one can just guess which way rents would go and that is up.  What is worse, these new corporate landlords are completely negligent on repairs and suing them is near impossible.  As a result people are paying top rents to experience powerful, out of reach slumlords, where refusal to make properties habitable is corporate policy.

Consequences

The institutional investors who have bought up so many homes may also have created another housing bubble generally.  If that's not bad enough, the Chinese have also been swooping in, buying up America's houses.
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.
The Chinese are buying up houses for investment as well as a place to live while their kids, versus your kids, attend America's higher education institutions.  Think about your plumbing breaking and trying to get someone in China to fix it as a renter.  That is what is happening.
More and more evidence is trickling in that the great housing recovery, proclaimed to be so by so many pundits, is not what it appears to be.  Americans are not recovering from the financial crisis, Wall Street is.  Worse, Wall Street is trying to squeeze even more out of the already financially blood run dry and drained average American.  Chinese, who have become middle class by obtaining U.S. industries and jobs, are also swooping in to takes what's left.  The illusion that real Americans are recovering their homes, livelihoods and financial lives is just that, marketing and public relations fluff and puff.

11---Realtors & Mortgage Brokers: Toughest Year for Housing Markets Since 2010 Ahead, Mandelman

Our housing markets are now heading directly into the perfect storm and those in the real estate and mortgage industries would be well advised to get prepared for the downturn now.  I dislike being an alarmist, but I am officially sounding the alarm.

This past September signified the fourth straight month of a decline in existing home sales, while mortgage interest rates hit two-year highs.  The Mortgage Bankers Association index of mortgage activity is now at its lowest point since November of 2008, which was probably the nadir of the financial crisis and resulting Great Recession.

In the early part of September, Bloomberg reported that Bank of America, the second-largest U.S. lender, had announced that it was eliminating about 2,100 jobs and shutting down 16 mortgage offices citing lower loan demand as the reasons for the layoffs.  And Wells Fargo & Co., the biggest U.S. home lender, plans more than 2,300 job cuts, announcing in September that it expects to originate 30 percent fewer home loans this quarter.

The bottom-line is that, according to a recent study by Goldman Sachs’, purchase mortgage origination has fallen from $1.5 trillion in 2005, to around $500 billion in each of last two years.  Aggregate demand is simply down for what should be obvious reasons (that I’ll describe anyway,) and now that the pressure is on to reduce stimulus programs, prices will soften and once again begin to fall.

12---Two -Year Housing Recovery Mirage Now Over… Bernanke Hoping to Retire Before Everyone Notices, Mandelman matters

13---Almost half of all homes sold in September were all cash, RealtyTrac

Real estate analyst Jack McCabe, owner of McCabe Research

& Consulting in Deerfield Beach, Fla., is skeptical of all the cash

flooding the market, warning that the high percentage of corporate

cash buyers makes Florida's real estate markets “volatile
 
 

Despite the fact that prices and sales are up in South Florida,

McCabe said the market in unpredictable because there are so

many cash buyers.

“Everything looks good on the surface,” said McCabe, pointing
 
 
to rising prices, sales and rosier home builder sentiment. “But

if you peel back the layers you see this is a temporary market subject

to volatile changes in a couple of years. Once these hedge

funds head for the exits, a lot of hedge funds will lose money

because of the circumstances they created. It will be very negative

for them.”
 
 

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