December 8, 2013

They Expect Buyers To Be Plentiful

A reader suggested a topic on QE. “Does anyone know the opportunity cost of quantitative easing to U.S. savers? I never hear much discussion of the wealth redistribution inherent in the Fed’s monetary policy, other than from my 80-something dad, who thinks the stock market and bond market are too risky for him, but otherwise can’t figure out what to do with his savings.”

From MarketWatch. “By suppressing interest rates in an effort to stimulate the economy, the Federal Reserve’s quantitative easing campaign boosted borrowers and banks at the expense of retirees and other income-oriented savers and investors. A recent report from McKinsey Global Institute (MGI) attaches some dollar figures to these ‘distributional effects,’ and the sums are eye-catching: They estimate that between 2007 and 2012, U.S. households cumulatively lost $360 billion in interest income compared with what they would have earned if rates had followed their pre-recession trends.”

From Peter Schiff. “Herd mentality can be as frustrating as it is inexplicable. Once a crowd starts moving, momentum can be all that matters and clear signs and warnings are often totally ignored. Financial markets are currently following this pattern with respect to the unshakable belief that the Federal Reserve is ready, willing, and most importantly, able, to immediately execute a wind down of its quantitative easing program…The herd is blissfully unaware that the Fed may not be able to reverse, or even slow, the course of QE without immediately sending the economy back into recession.”

“Things look very different on Main Street, where the employment picture has not kept pace with the rising prices of financial assets. The work force participation rate continues to shrink (recently falling back to levels last seen in 1978),real wages have declined, and since the end of 2009 the temporary workforce has grown at a pace that is 14 times faster than those with permanent jobs. Americans are driving less, vacationing less, and switching to lower quality products and services in order to deal with falling purchasing power. But the herd is closely watching the Fed’s rocket show and does not understand that stocks and housing will likely fall, and bond yields rise steeply, once the QE is removed.”

“When it comes to tapering, the Fed is all bark and no bite. In fact, toward the end of last week, Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, said that the Fed ‘won’t taper its bond-buying until the economy is ready.’ He must know that the economy will never be ready. It’s like a drug addict claiming that he’ll stop using when he no longer needs them to stay high.”

The Wall Street Sector Selector. “In a recent interview, David Stockman, former director of the Office of Management and Budget, said that the Fed argument that quantitative easing is designed to help the economy, has been proven to have failed. Over the past 13 years that the Fed has been printing money in huge amounts, the US has had the lowest GDP rate, 1.7%, at any time in the modern history of the United States for any comparable time frame. Furthermore, investment growth has been less than 1% in real terms since the beginning of this century. The US has lost 30,000 full-time bread winner jobs per month for the past 13 years since this monetization policy began. Only the 1%, ‘the very top,’ Stockman said, have benefited from this ‘windfall from the Fed.’”

“If Yellen becomes Chair of the Fed, Stockman said, ‘What the new chair of Fed will be doing and saying, is she’s going to take this lunatic policy that we’ve had for years, right over the edge in a Keynesian spree of money printing.’”

“Stockman sees the greatest danger as the Fed. He said, ‘It has become a serial bubble machine.’ He argued that three times already this century, during the dot com boom and bust, the housing boom and bust, and the Wall Street collapse in 2007-8, we have seen bubbles driven by deliberate Fed policies.”

“Stockman mentioned the housing market as well as markets for fine art, wine and diamonds as experiencing severe bubbles driven by the Feds easy money policy of low interest rates. He argued that the Russell 2,000 is up 230% since the bottom in barely four years, yet the environment for small businesses has not improved anywhere near that much in four years. ‘There is a complete disconnect between the Main Street economy that is struggling,’ Stockman said, ‘and Wall Street bubbles that are being driven by the lunatic policies of the Fed.’”

“The Fed’s policies have not just been a danger to the United States. Stockman said, ‘The Fed has created massive danger for the world.’ Other Central Banks have either bought into the policy of easy money or are doing it defensively. Therefore, you have, he said, ‘A race to the bottom amongst Central Banks.’”

The News Press. “Builders pulled 159 single-family-home permits in November, down from 188 in October — but developers still are ramping up production in expectations of a strong winter selling season. Meanwhile, lenders in November filed 241 foreclosure lawsuits in the county, down from 259 in October, according to a report by the Southwest Florida Real Estate Investment Association.”

“‘They’re looking forward to the season, which makes sense,’ said Michael Timmerman, a Naples-based senior associate of economic consultant Fishkind & Associates. ‘I think the season’s going to be pretty decent. The builders have seen any house they put up, somebody comes by and buys it.’”

“Now, he said, the major homebuilders are trying to put up as many houses as they can, building ‘on spec’ (on speculation, without a particular buyer locked in). That’s because they expect buyers to be plentiful.”

“As for foreclosures, November’s numbers show they’ve settled into a relatively low pace compared to the post-boom bloodbath when investors walked away in droves from the houses on which they’d put down payments, said Jeff Tumbarello, an agent with Steelbridge Realty in Fort Myers and director of the investment association. ‘There’s nothing in that report that tells me the market of today will change,’ he said.”

The Las Vegas Sun. “On A&E’s ‘Flipping Vegas,’ abandoned homes across the Las Vegas Valley get a second chance in the hands of real estate investor Scott Yancey and his interior designer wife, Amie. I visited the couple onsite during a flip in Summerlin, where they were filming their upcoming fifth season.”

“Q: Since you first started doing the show, when the housing market had just tanked, how has its recovery since then affected what you do? Scott Yancey: There was such a huge supply vs. demand, we were killing it. And then, years later, people got into it, and the supply and demand changed. Now there’s excess inventory, and the days on the market are taking longer.”

“But I think there are a lot of amateur-type flippers who have gotten in in the last little while, and they have short fuses because they’ve borrowed money to their properties. Buyers have a lot of options now, and I think those people who are in the business who don’t have staying power are probably going to start discounting their properties. So I see prices maybe going down in Vegas again for a little while. Especially the next quarter or two because you’re going to have the holidays when buying slows down and people are going to get desperate and need to fill their places. Things have definitely changed.”

Bits Bucket for December 8, 2013

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