Global Property Boom ‘Turning Into A Bust’
Thw Washington Post reports on the pending Fed decision. “The Federal Reserve is on track to lift its benchmark interest rate again today for a 17th consecutive quarter-percentage-point increase over 25 months, making this the longest sustained campaign on record of raising interest rates.”
“So why isn’t the economy choking by now? The short answer is that money is still pretty cheap, in historical terms.”
From MarketWatch. “Evidence is mounting that the global property cycle is turning down, as rising interest rates and heightened inflationary pressures combine to put the brakes on demand for real estate, according to a Morgan Stanley report.”
“‘Due to deflation shocks, global inflation has been low, which allowed major central banks to keep interest rates very low, in turn fueling property,’ economist Andy Xie said. ‘As inflation picks up simultaneously around the world, interest rates are rising everywhere, and the property boom is turning into a bust.’”
“Unlike in previous property cycles, Xie said institutional property investors have been active in shifting capital between different cities, leading to the rare situation where prices gained in unison around the world.”
“‘Innovations in the global financial system have led to a rising correlation of property markets to each other and central bank-policies. It has essentially turned deflationary shocks of the past 10 years into a global property bubble,’ Xie said.”
“He cites some telling statistics to illustrate his point. The value of U.S. housing has risen to 173% of gross domestic in 2005 from 135% in 2000. And in Australia, housing values rose to 347% of GDP in 2005 from 271% in 2000.”
From the Reuters summit. “U.S. real estate executives hope the Federal Reserve Bank signals interest rate hikes are complete after the latest expected increase this week. Inflation and potential Federal Reserve interest rate hikes, and how many of them, are the top concerns among the executives, who spoke at the Reuters Real Estate Summit.”
“Beazer Homes CEO Ian McCarthy does not think the Fed has been too aggressive so far, but worries about more increases beyond this week. ‘If there’s one more increase..that would probably be good. Do we need any more than that? I’m not sure that we do,’ he said. ‘We don’t want to tighten the economy down so far that it impacts the markets.’”
“However, Robert Toll, CEO of Toll Brothers said the repeated quarter-point interest rate increases have been somewhat maddening. ‘This Chinese water treatment of a quarter of a point (hikes), it hasn’t had its desired effect,’ he said. ‘Do I think the Fed has overdone it? No,’ Toll added. ‘I think the Fed has underdone it in the past.’”
An update. “The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5-1/4 percent.”
“Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.”
“Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.”
“In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.”
Thanks to the readers who sent in these links. The Post article is a well done, brief history of previous tightening cycles.
From the AP. ‘Interest rates on 30-year mortgages rose for a third straight week, hitting the highest level in more than four years as investors continued to express worries about inflation. Rates have been climbing since Federal Reserve Chairman Ben Bernanke expressed concerns earlier this month that inflation was rising at ‘unwelcome’ levels, raising worries about how many more rate hikes there will be before the Fed decides it has done enough to combat inflation.’
It is not just the FED that you have to consider. Europe has a lot of tighthening to do. As for places like Japan? The tighthening when it starts, will have spectacular consequences on world real estate and many assets, notably bonds that will get litterally exterminated.
An increasing number of the financial newsletters which I read say the Fed is not actually tightening because money and credit continue to expand. As long as this goes on, the interest rates continue to be lower than they would be without Fed intervention. Money supply is the main focus of this line of thought.
as Jim Puplava says, whenever the Fed tightens something breaks. I think this time it’ll be housing and the stock market.
“as Jim Puplava says, whenever the Fed tightens something breaks. I think this time it’ll be housing and the stock market.”
I agree. Folks better set their trailing stops on their stocks and consider taking profits on the gainers that look like they’ve topped. T-Bills are the way to go for the next 2 years. Evenly-purchased platinum coins and gold coin purchases (like every 2 months) are the way to hedge in case the T-Bill rates are lower than inflation.
my only problem with t-bills isn’t inflation, it’s a possible dollar run. bonds have worked for the last 25 years, but what if we’re in a secular rout for bonds, too?
Cost of borrowing keeps edging up
that’s going to leave a mark.
Yes. Don’t just look at interest rates. Look at the worldwide money supply.
Mortgage Bankers’ Association numbers are interesting. Waaaaayyyy down in the article is this: “Adjustable rate and fixed rate loans had lower seasonally adjusted delinquency rates during the first quarter of 2006 than in the previous quarter with the exception of sub-prime adjustable rate loans. The delinquency rate for prime ARMs decreased from 2.54 percent to 2.30 percent from the earlier quarter and that for fixed rate loans was down 21 basis point to 2 percent. Even the delinquency rate for sub-prime fixed rate loans declined from 9.70 to 9.61 percent. The delinquency rate for sub-prime ARMS, however, increased from 11.61 percent to 12.02 percent.”
That’s one in ten sub-prime ARMs which are 30 to 90 days delinquent right now, boys and girls, before any further interest rate hikes. Stay tuned…
Does anyone know the portion of total ARMs outstanding that subprime loans represent?
Not sure of exact number. But I think it is at least 2 trillion dollars. That’s a minimum. It’s probably higher than that NOW.
‘Do I think the Fed has overdone it? No,’ Toll added. ‘I think the Fed has underdone it in the past.’”
Huh?
Bob Toll actually makes my brain hurt when I try to figure out his ‘logic’.
I need a neurologist.
Clouseau
Or a lobotomy.
Clouseau
he sold already- can say what he wants
still the largest shareholder by far in TOL…
And fully collared, I am sure.
Underdone it in the past…sooooo rates should have gone lower faster??
“Unlike in previous property cycles, Xie said institutional property investors have been active in shifting capital between different cities, leading to the rare situation where prices gained in unison around the world.”
“‘Innovations in the global financial system have led to a rising correlation of property markets to each other and central bank-policies. It has essentially turned deflationary shocks of the past 10 years into a global property bubble,’ Xie said.”
Mr. Xie, please repeat after me: “There is no global property market, and thus the notion of a global property bubble is semantically and mathematically impossible.”
Fed Raised Rates by 1/4: http://tinyurl.com/rqth6
“The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5-1/4 percent.
Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.”
David
http://bubblemeter.blogspot.com
I was wrong - in the minority that predicted .5%.
The post about the Chinese water toture seems to be on the mark.
Or fighting a 4-Alarm fire with a Garden hose.
Come on you FED weenies, Man Up and give us the 0.5% already !
Fed decison/policy statement show …they are more concerned about housing bubble/reprecussions than most people probably want to know …
Look at the rise in gold concurrent with the announcement. Gold traders don’t believe that this 25 bp raise is enough. If $600 gold holds for a couple of days we’ll start to hear some hand-wringing about further rate hikes, as we should.
No. They are weenies.
A number of other folks must have agreed with you, based on the pop that happened right after the announcement.
I made $214 trading USD/EUD on that pop!
any global problems are bad for the housing bubble, especially with US dollar problems like these.
US budget challenge
“Standard and Poor’s recently said US treasury bonds would be downgraded to BBB by 2020.”
oh boy.
From the update:
‘The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5-1/4 percent.’
‘Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.’
‘Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.’
‘In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.’
This entire economy is a confidence game. It’s all smoke and mirrors.
“This entire economy is a confidence game. It’s all smoke and mirrors.”
Oh come on. This is delusional.
‘“This entire economy is a confidence game. It’s all smoke and mirrors.”
Oh come on. This is delusional. ‘
No, Joe’s right. It’s all smoke an mirrors. How come it costs the same to produce a $1 bill as it does to produce a $100 bill? The US Dollar is only as good as long as the American public can be fooled. Those who are aware of this smoke and mirrors wisely still buy T-bills but spread the gains in other assets and have 10% of their net worth in precious metals (not ETFs, and not mining stocks, but real metal).
we’ve been a confidence gain for a long time. right now we have a fiat currency, some would say a debt currency, not a real currency. we have an unsustainable credit bubble with people taking up too much debt. throw on a negative savings rate, stock market bubble, a bond bubble and a housing bubble and you’ve got an economy that isn’t what it seems.
consumption as a % of GDP is at an all-time high. it’s a false prosperity nurtured a long by debt growth.
Yep. That’s what I am saying.
LOL.
The entire economy is not a confidence game…lots of people get up every day in America and provide valuable goods and services.
and lets of people pay for those goods with money that don’t have. it’s false prosperity. nowhere is this more evident than the housing equity people with cars/vacations and the like.
don’t even get me started on the fact that the dollars we trade aren’t even really dollars…
Just Read “Bubble Man” - great book on Alan “Bubble” Greenspan and the FED during his tenure.
The FED has no courage - they have become simple bubble blowers and MOP-UP specialists!
In other words, Janitors.
spitblowers!
COMMENT FROM YAHOO BOARD AFTER FED ANNOUNCEMENT
In the words of Peggy Lee, “Is That All There Is?”
For at least 2 years we have been waiting for a nationwide “housing bubble” to burst. I don’t mean eventually “deflate”. The metaphor, so popular with the media for so long, implies a rapid rise in prices followed by a sudden and precipitous collapse.
Thought I would look back at CFC and compare it with the Nasdaq.
http://finance.yahoo.com/q/ta?s=CFC&t=my&l=on&z=m&q=l&p=&a=&c=%5EIXIC
The millennial tech bubble is obvious (as is everything in hindsight). The CFC chart, arguably a reflection of the U.S. housing market, sure looks different. Where’s the spike? All I see is another share price plateau. And housing markets are already cooling off, as expected. Interest rates are probably near their upper limit.
I’m afraid the “statute of limitations” on bubbles is expired for this real estate cycle.
Nah — you just pulled up the wrong chart…
http://tinyurl.com/rquf7
Let’s ponder for a moment. Higher interest rates mean what to the housing market? Did you say that it is detrimental to the market? Surely you jest! Look at the homebuilders. Under the tender loving care of the PPT, they are doing just fine. The PPT arrived at 2:15 and the stocks soared. No worries about higher interest rates. Ignore the down grades by B of A. Pay no attention to the falling home prices. None of that matters when the PPT is on the job. Gotta make sure that the prices look as healthy as possible at quarter end, because some mutual funds are chock-a-block with homebuilder stocks.
Take a careful look at the homebuilders charts of today’s trading :
http://tinyurl.com/ovpm8
Exactly. The action in the HB’s today was all coattails.
I was going to go long SPX at the close tomorrow (*) instead of re-entering a HB short but the rise in the HB’s today is so transparently phoney that entering new short tomorrow is almost irresistable.
(*) Blindly buying the SPX at the close of the last trading day of the month and selling it at the close the next day has been a money-maker 5/8 of the time since January 1990. The actual return is in fact better than this figure suggests because the up-days are bigger gainers on average than the down-days are losers.
Isn’t this what TxChick predicted yesterday?
There is no PPT. There are only a whole lot of ignorant investors and a new, untested, unaware generation of fund managers. You need to get burned before you learn not to play with fire. They’ve never truly been burned. They’ve been raised on good times and an ever-increasing marketplace of all things. They have no real fear of a fall. In fact, they have only a dim concept of fundamental forces like gravity - or panic. This is how disasters begin and wars start: with ignorance.
Home builders — the “old economy” — were really a great buy at the height of the tech bubble. Todays great buy is probably something equally shunned. Agricultural futures, maybe.
the bounce from the hb yesterday was nothing comped to other bounce in the past. they bounced normaly on this kind of news at leat 4-6%.
yesterday after hitting one low after another only 3%.
they are done!
Due to the rather stringent conditions for getting a mortgage in Germany and underwhelming economic performance, house prices have been relatively flat over the past decade, in contrast with most of its neighbors (top of the list: the crazy Netherlands)
Investors cashing out of other markets are casting their eyes over here as of late, though. Ack.
There’s enough societal memory of the 1920’s and horror that followed to make banks VERY tight with large amounts of money. The interest rates are startlingly low, but they won’t even talk to you about a mortgage unless you have at least 20% in cash, and that’s a serious loosening-up. Buying your first (and only) home happens more often at age 40 than age 30.
Behold the future US real estate lending environment, in Bayern.
“top of the list: the crazy Netherlands)”
That’s where Tulipmania occured. They should know better.
People forget hard learned lessons. The USA has as well. Those who forget, doomed to repeat, etc.
so why does another rate hike send home builder stocks UP? what’s up with that?
No they’re relieved it wasn’t a 0.5% hike
It’s very rare the past couple of weeks for any sector to move in a different direction from any other sector, due to program trading. It seems that the only differences are the initial move at the open or the relative amount of change compared to another sector during a reversal or sudden buy or sell program.
If you were short before the announcement, my heart goes out to you. It’ll be a couple of tough days holding a new mid-day short waiting for the HB’s give up today’s post-announcement gain.
in Switzerland RE is only up 12-14% in past few years and they have all the gold and growth !
SWZ home gamers
Wall Street commentators are reading the tea leaves of the Fed announcement to mean the Fed is done. I can see why the stock market would party on this news, but not so sure about why long-term Treasuries would rally, as rates are still historically low, and inflationary pressures are still in evidence. It is also hard to conceive of how the announcement of another rate hike is beneficial to home builders, given that mortgage rates are certain to increase in lockstep.
i was hoping for 50 basis points,i prefer to take my lumps up front.however from the strain i am seeing already,i think this is enough of a raise to send california over the edge…when borrowers are balanced on the edge of a razor it doesn’t take much,and the price declines have been evident for a couple of months already…just this .25% raise is enough to disqualify many from the multigenerational loans the industry was pinning its last hopes on.
“just this .25% raise is enough to disqualify many from the multigenerational loans the industry was pinning its last hopes on.”
Especially if the mortgage industry begins to qualify people the old-fashioned way.
Hopefully soon!! Yes, this is like Chinese water torture - waiting for the California market to bust!! I know these people are in debt up to their eyeballs, I am just wondering when they will go under??? It seems like it is taking forever and I am sooooo sick of the “soft landing” crap! I was really hoping for 50 basis points!! Ben B. needs to get some guts!!
He folded like a cheap fan. The language is definitely moderating. This will be a trading opportunity, the one I’ve been waiting for, on the short side. But not for awhile.
He already is going to catch an unfair share of the blame for the aftermath of problems which predate his tenure. Why would he want to make worsen the blame game by toppling the apple cart?
Not today’s business but these might be put candidates later in the summer
Technical Analysis
Regional Banks on the Fault Line
By Richard Suttmeier
RealMoney.com Contributor
6/29/2006 1:57 PM EDT
URL: http://www.thestreet.com/p/rmoney/technicalanalysis/10294431.html
Regional banks are dancing on the edge. Investors need to make sure they don’t fall into the crevasse, should those stocks stumble. This afternoon’s Fed announcement could shake the ground under regional banks’ feet and cause them to start tumbling.
Federal Reserve monetary policy has fueled tremendous growth in real estate values, starting when the FOMC cut the fed funds rate to 3% on Sept. 17, 2001, after the terrorist attacks, down from 3.5%. The FOMC continued to cut rates aggressively, all the way down to 1% at the end of June 2003. The Fed kept the funds rate at 1% for a full year, and then began measured rate hikes in June 2004.
Now the FOMC is expected to hike the fed funds rate to 5.25%, and is likely to signal that rates may have to move even higher to slay the inflation dragon. This overly aggressive interest rate policy threatens what has been the backbone of U.S. economic growth since 2001, the real estate boom.
The low rate policy from September 2001 to June 2004 created a parabolic explosion in real estate activity — and the financing for it — resulting in dangerously overextended balance sheets at the regional banks. As I wrote June 5, many regional banks have become overexposed to real estate. The measure of just how overexposed they’ve become is two key ratios monitored by the FDIC on a quarterly basis.
The FDIC scrutinizes the 8,832 financial institutions that are the cornerstone of financing the real estate markets in every community around the country and compiles two ratios: The CD loans ratio measures construction lending vs. total Tier 1 risk-based capital, and when this ratio exceeds 100%, it’s a warning. The CRE loans ratio measures the total of construction, multifamily and commercial real estate lending vs. total Tier 1 risk-based capital, and when this ratio exceeds 300%, it’s another warning. The CD loans ratio is more closely reviewed, because these are for housing projects prior to owner occupancy.
As the country’s bankers expanded their balance sheets to lend to builders and contractors, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve and the Office of Thrift Supervision began to address the potential financial stress that regional banks might face due to the explosive growth in real estate financing. As a group, they jointly issued interagency guidance on risk management of commercial real estate lending about a year ago.
The expansion of regional bankers’ balance sheets continued unabated during the first full year of the Fed’s rate-raising campaign. But the stress became noticeable as the funds rate crossed above 3.25% to 3.75% in the third quarter of 2005. That’s when the average price of a single-family home peaked, and that’s when the real estate market began to shift from a seller’s market to a buyer’s market. Again, now that we’re on the cusp of 5.25% short-term rates, the stresses on regional banks are only becoming more apparent.
To track the overall regional banking sector (and monitor signs of this stress), I look at the America’s Community Bankers Nasdaq Index (ACBQ), which is a market-cap-weighted index of more than 500 regional banks. The ACBQ index peaked at 298.98 on May 5, and has been on the cusp of its 200-day simple moving average, 286.53, since last Friday. There is significant downside risk for regional bank stocks if this index trends below this key support.
Because construction loans are most at risk of becoming non-performing loans, I set my screen to see how many lead institutions of publicly trading banks had assets of more than $1 billion and had a CD loans ratio of 200% or more at the end of the first quarter. A ratio of 200% is twice the FDIC risk guideline.
The result was a list of 50 institutions that could be set up like dominoes, should builders and contractors walk away from incomplete projects that are already funded. Then I searched the newswires to see if any of these names issued any press releases over the past week or had a change in Wall Street analysts’ ratings that might signal increasing weakness.
I found one, Corus Bankshares (CORS:Nasdaq) was covered in an article in American Banker on June 23. The article described the Chicago-based bank as taking a breather from lending to condo developers. American Banker referred to the fact that the bank had been averaging $414 million in deals each month over the past year, but announced only $50 million in May and did not make an announcement at all in June.
Corus has had a policy of focusing on the “hot markets” nationwide, such as Miami. Its CD loans ratio was a whopping 267% at the end of the first quarter. The stock has already taken it on the chin by 25% since peaking at $33.72 on May 1.
While scanning the news, I also caught a warning from City National (CYN:NYSE) , downgrades of Comerica (CMA:NYSE) and Union BanCal (UB:NYSE) , and the risky merger of Citizens Bank (CBCF:Nasdaq) and Republic Bancorp (RBNC:Nasdaq) . These banks are not on my “domino list,” but may be just the tip of an iceberg. My focus in the second half of 2006 will be the 50 names on the list, particularly as they begin to report second-quarter earnings in July. Keep in mind that banks do not include the FDIC ratios in their quarterly reports, and that the data submitted to the FDIC for the second quarter may not be compiled until late July at the earliest.
The Domino List
These regional banks have CRE loans
ratios more than double the FDIC’s risk guidelines.
Ticker Lead Institution ASSET Construction Tier 1 Capital Cons/Capital
ALAB FIRST AMERICAN BANK 2,850,989 560396 227408 246%
BANR BANNER BANK 3,116,468 799952 254371 314%
BBX BANKATLANTIC 6,000,167 1002281 458087 219%
CACB BANK OF THE CASCADES 1,349,245 288247 120897 238%
CBBO COLUMBIA BANK 1,545,330 361157 111499 324%
CBHI GUARANTY BANK&TRUST 1,722,328 357975 122548 292%
CBKN CAPITAL BANK 1,308,376 274505 113500 242%
CBSS COMPASS BANK 32,842,329 5143502 2125743 242%
CFCP COASTAL FEDERAL BANK 1,645,260 333381 120076 278%
CFFC BANKERS BANK 1,957,091 314701 152289 207%
CNB COLONIAL BANK NATIONAL 21,918,735 5733507 1518710 378%
COBZ COBIZ BANK NATIONAL 1,974,948 319577 157896 202%
CORS CORUS BANK NATIONAL 9,026,598 2442732 916303 267%
FBTX FRANKLIN BANK SSB 4,764,405 798887 288093 277%
FCBP PACIFIC WESTERN NB 2,554,900 468248 223225 210%
FCTR FIRST CHARTER BANK 4,269,962 892314 362666 246%
FFFL FIDELITY FEDERAL B&T 4,237,789 881141 319356 276%
FLAG FLAG BANK 1,750,151 492935 123249 400%
FMAR FIRST MARINER BANK 1,269,073 232771 89822 259%
FMSB FIRST MUTUAL BANK 1,084,244 205171 80439 255%
FMT FREMONT INVEST&LOAN 12,856,490 3109253 1537840 202%
FNBF FNB SOUTHEAST 1,022,633 237075 92877 255%
FSNM FIRST COMMUNITY BANK 2,490,482 426376 193273 221%
FTBK FRONTIER BANK 2,939,801 1131364 283924 398%
GCBS GREENE COUNTY BANK 1,606,721 416767 145094 287%
GSBC GREAT SOUTHERN BANK 2,188,995 577158 175220 329%
HARB HARBOR FEDERAL SAVINGS BANK 3,215,836 705102 316913 222%
HRZB HORIZON BANK 1,116,720 283329 109277 259%
MCBC MACATAWA BANK 1,904,373 352768 156794 225%
MI M&I MARSHALL&ILSLEY 40,059,357 6212314 2665262 233%
MRBK MERCANTILE-SAFE DEP&TR 7,424,155 1248414 523168 239%
NASB NORTH AMERICAN SB FSB 1,532,856 383863 130002 295%
OZRK BANK OF THE OZARKS 2,229,396 411769 167649 246%
PABK PARK AVENUE BANK 1,058,327 289754 94178 308%
PCBI PEOPLES COMMUNITY BANK 1,057,145 209258 85100 246%
PFB PFF BANK&TRUST 4,249,246 943502 349561 270%
PVTB PRIVATEBANK&TRUST CO 2,741,194 533496 201405 265%
SBCF FIRST NB&T CO TREA COAST 1,828,515 435549 146325 298%
SCB COMMUNITY BKS OF COL 1,106,402 274565 95938 286%
SCBT SOUTH CAROLINA B&T NA 1,801,645 336555 136973 246%
STSA STERLING SAVINGS BANK 7,839,514 1255676 540447 232%
SUPR SUPERIOR BANK 1,415,216 363395 113475 320%
SUSQ SUSQUEHANNA BANK 2,912,545 547322 231844 236%
TAYC COLE TAYLOR BANK 3,243,072 692528 277429 250%
TONE TIERONE BANK 3,301,912 1005382 284150 354%
TXUI STATE BANK 1,106,731 215652 77095 280%
UBSH UNION BANK&TRUST CO 1,380,680 283179 114153 248%
UCBI UNITED COMMUNITY BANK 4,810,623 1645338 310456 530%
VCBI VIRGINIA COMMERCE BANK 1,676,879 407120 117056 348%
VNBC VINEYARD BANK 1,852,387 755684 202625 373%
Source: Federal Deposit Insurance Corp.
Out of curiosity, if they violate the FDIC guidelines, are their deposits etc. still federally guaranteed? In many private instances, violation of guidelines or restrictions has severe consequences.
“Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.”
So we can just act as if the 5.6% growth rate numbers reported today NEVER happened? The ghost of AG lives on. I want some of the stuff that BB is smoking.
GDP is overstated probably by 2-3% at least because inflation is understated (and don’t get me started on that).
Yup
but the buck is being pummeled and gold is back over $600 a OZ
and oil is over $73-
Not everyone thinks the Fed can rest easy, now that they are done hiking FF rates all the way up to 5.25% — way below the 18% FF rate Paul Volcker needed to throttle inflation the last time it ran amock.
http://research.stlouisfed.org/fred2/series/FEDFUNDS
http://people.brandeis.edu/~cecchett/pdf/inf_current.htm
Thank goodness for Reality Times, out to save us JBRs
Rental Rates Rise Despite Protest
by Carla L. Davis
When affordability for decent housing slips beyond the reach of many renters, the issue isn’t an isolated one. Housing ails are symptomatic of a bigger issue at hand — one that could severely affect our economic and political spheres.
Just as former Fed chairman Alan Greenspan used to say, local housing markets are directly linked to local economies. And vice versa. Rising rental rates have also been thought to spur on inflation. (NPR)
The issue is a hot topic for many.
The Rent Guidelines Board met last night to discuss rents in the city of New York.
They approved a measure that will allow landlords to raise rents by as much as 7.25 percent over the next two years — and that is for “rent-stabilized” apartments. While tenants, many of whom are traditionally on fixed incomes, were at the meeting in full on protest, the board had to consider the rights and annual costs that must be covered by the landlords — owner costs rose 7.8 percent in the last year. As interest rates rise and other living costs skyrocket — it is no wonder this issue has been brought to the forefront.
But affordability is already out of the reach of many middle-income families, with many spending over a 1/3 of their monthly income just for a roof over their heads, not to mention costs of energy bill and gas for commutes.
The Rent Guidelines Board released their annual “Income and Affordability Study” in April of this year. In it they found that while unemployment rates are down in the city (5.8 percent), inflation is higher than in years past. And many middle income families are spending nearly 32 percent of their income on housing.
The national average rental cost at this time is $940, while in New York City that cost is $850. For rent stabilized apartments we see a rate of $844 a month.
The truth is that each of those amounts is steep for a family to pay.
Buying a home can be a very feasible option to avoiding paying high rents. Paying rent is a lowsy investment. There are hundreds of programs available to allow low and moderate income families and minorities a chance at owning. Contacting your local Realtor association could be a smart first step.
If buying a home is not an option, then the rents must be paid, and as rental rates aren’t set to drop any time soon — what can be done?
The minimum wage rate needs to be raised. It is currently set at $5.15 an hour, and Congress is currently in battles to decide if it should be raised nationwide.
And then anyone tight on money needs to live by a strict budget. This is a “band-aid” on a personal level and won’t do anything to alleviate the rising costs nationwide, but it can reduce some financial stresses. For more information on Debt Management, click here.
Published: June 29, 2006
Bernanke Dons the Fed Cap — At Last
By Tony Crescenzi
RealMoney.com Contributor
6/29/2006 2:53 PM EDT
URL: http://www.thestreet.com/p/rmoney/tcrescenziblog/10294471.html
The Federal Reserve moved closer to ending its interest rate hikes today by both indicating that it felt that economic growth has begun to moderate, and by showing vigilance against what the Fed implicitly said was an unwelcome rise in core inflation. The statement is a success for Fed Chairman Ben Bernanke, who, after several missteps, has found his footing by delivering a balanced statement that should give him the flexibility to let the incoming data take center stage rather than the Fed’s frequent public appearances.
One of the more important distinctions between today’s statement and the May 10 statement was the Fed’s assessment of the economy. Whereas in May the Fed said that it felt that growth was “likely to moderate,” today the Fed said that economic growth “is” moderating. There is a major difference between the two. If, as the Fed says, the economy has already begun to moderate, the Fed would more likely want to pause to wait and watch for the continued lagged effects of the factors it cited: housing, rate hikes and higher energy prices.
Second, by acknowledging that core inflation had accelerated, the Fed more closely aligned itself with the views of the financial markets, which have become more fearful of inflation over the past few months. The use of the word “elevated,” which was used to describe the recent data on core inflation, is the equivalent of “unwelcome,” a word that the Fed has used in the past to describe its disdain with the inflation situation. By showing such displeasure, the Federal Reserve is showing that it engaged completely in the effort to solve the problem. This particular part of the statement is one in which we see Fed Chairman Bernanke now donning the Fed Chairman’s clothing in ways he failed to until early June. This is good news for the markets.
The Fed statement was also reassuring, just as Bernanke was on June 16 in a speech that helped the Dow to rally 200 points. The Fed admitted inflation had ticked up, but provided reasons why it would likely moderate, including via the Fed’s own vigilance.
He must be jockeying for a job at the Ministry of Truth. I wonder what he’s paid to sell his soul and dribble out of both sides of his mouth.
I wasn’t paying attention today, but CNBC (I know…) said the market was up 100 points BEFORE the Fed announcement. I don’t but what reporters say is going on - that the market was up cause they expect a pause that refreshes. Maybe they do, but why before the announcement?
Fed pump was $23.75 this morning and those weren’t overnighters. So the Fed telegraphed the move shortly before 10 AM. So Fed is “tightening” while shovelling money out the back door into the market. Gold and energy responded accordingly. Bill Gross’ take is an interesting read. He’s expecting the Fed to start cutting in January.
‘So Fed is “tightening” while shovelling money out the back door into the market.’
Exactly. As Lee Adler from the Wall Street Examiner says, they speak loudly and carry a soft stick.
Michael,
Could you please clarify a few points in your post?
1) What is the “Fed pump”?
2) How do you know they telegraphed the move at 10am?
3) How are they “shovelling money out the back door into the market”?
4) Isn’t this a bit like shooting one’s self in the foot?
I too am fascinated to discover what the “Fed pump” is.
There are many places that describe the mechanism. As mentioned, the Wall Street Examiner site discusses it and keeps charts of the amounts in play.