Contraction To Continue For Longer Than Expected
Some housing bubble news from Wall Street and Washington. “Concerns about inflation trumped worries about the slumping housing market last month in the minds of Federal Reserve officials who voted to hold interest rates steady. While Fed officials said the downturn in housing was turning out to be more severe than expected, worries about inflation continued to dominate the May 9 discussions among Fed Chairman Ben Bernanke and his colleagues, according to minutes released Wednesday.”
“‘Nearly all participants viewed core inflation as remaining uncomfortably high and stressed the importance of further moderation,’ the minutes said.”
From Bloomberg. “‘The correction of the housing sector was likely to continue to weigh heavily on economic activity through most of this year, somewhat longer than previously expected,’ the minutes said.”
“Almost all Fed policy makers consider inflation to be ‘uncomfortably high,’ the minutes added. ‘All participants agreed that the risks around the anticipated moderation in inflation were to the upside; and some noted that a failure of inflation to moderate could entail significant costs.’”
From Forbes. “‘Recent readings on sales and inventories of new homes had been interpreted by the staff as suggesting that the ongoing contraction in residential investment would continue for longer than previously expected,’ the minutes said.”
“The general sentiment was mirrored in Federal Chairman’s Ben Bernanke’s May 17 address, when he said that increased deliquencies and foreclosures would continue to weigh on the market ‘this year and next.’”
From Fitch Ratings. “Fitch Ratings has revised M/I Homes’s (MHO) Rating Outlook to Negative from Stable.”
“The Outlook revision to Negative for MHO reflects the more challenging outlook for homebuilders, the current and expected near term deterioration in certain credit metrics for the company, and pressures from credit tightening, which particularly affect the entry level buyer (a targeted customer at M/I Homes), and high cancellation rates, which add to speculative inventory totals.”
“The housing sector is in the midst of a meaningful, multi-year downturn. MHO has been increasing its sales and marketing efforts, focusing on reducing speculative inventory (enlarged by unusually high cancellation rates), reducing its lot supply, reassessing its land positions, renegotiating option contracts and, where possible, reducing overhead and direct construction costs.”
“During this current downturn MHO, like most builders, has leveraged the financial flexibility of land options, walking away from overpriced lots (forfeiting its deposits). These builders also have reported meaningful charges associated with write downs of land values.”
“MHO was the 21st largest U.S. single-family homebuilder in 2006 as ranked by Builder Magazine.”
The Post Dispatch from Missouri. “Bill Taylor appears to be back in the trenches, battling the nationwide slump in new house sales that’s also affecting local builders.”
“The CEO of 53-year-old Taylor-Morley Homes has sold the equity in his headquarters building, and has scaled back his company’s share to 10,000 square feet from 20,000.”
“‘We have had to let some people go, but so have most builders,’ said company spokeswoman Judi Wayhart. ‘But, he (Taylor) says it was much worse in the ’80s. This is a 53-year-old company, and he’s (Taylor) been through this four times.’”
“‘We don’t know what has made the new house buyer go into his cocoon, because the interest rate is not that bad,’ said Pat Sullivan, executive VP of the Home Builders Association of St. Louis & Eastern Missouri. ‘It’s puzzling. They don’t usually go into the cocoon until the interest rate reaches about 8 percent.’”
“‘One thing is for sure, when the market slows you don’t want to be holding too much land,’ Sullivan said.”
From CNN Money. “Imagine you’re a homeowner, and you discover that instead of the expensive subprime mortgage loan you signed on for, you actually qualified for a prime mortgage with much lower interest rates.”
“‘I reviewed several hundred [subprime] loans recently for our wholesale division,’ said Allen Hardester, regional director of development for mortgage-broker, Guaranteed Rate, ‘and all of them, with one exception, qualified for a prime-rate loan.’”
“Some consumer advocates blame loan officers and mortgage brokers who steer borrowers away from prime loans because they can make much more money from the subprime market. ‘I have a friend who interviewed for a job with my company,’ said Hardester. ‘He told me, ‘I’m not coming to work for you. I can’t make enough money.’”
From Reuters. “Fitch Ratings on Wednesday cut the residential primary servicer rating for subprime mortgages of NovaStar Mortgage, Inc., a unit of NovaStar Financial Inc., citing uncertainties over the company’s profitability.”
From NPR.org. “Ameriquest was a high-flying sub-prime lender during the housing boom, and was accused of predatory lending by state prosecutors. The company now faces a class-action lawsuit from borrowers.”
“Some of the creative ARM products that flourished of late included interest-only and payment-option loans. How prevalent were these loans? Nearly 23 percent of all mortgages taken out in 2005 were interest-only ARMs, and more than 8 percent were payment-option ARMs, according to First American LoanPerformance.”
“In certain once-sizzling markets, the numbers were much higher: For example, 34 percent of all new mortgages in California in 2005 were interest-only.”
The Boston Herald. “A Rhode Island lawyer claims he has found a chink in the legal armor of subprime mortgage giant Ameriquest, one that could give hundreds of thousands of homeowners grounds to wriggle out of their loans.”
“Attorney Christopher Lefebvre said he is representing 200 current and former Ameriquest homeowners in Massachusetts and other states, many now facing foreclosure - who are suing to undo mortgages taken out through the California-based lender.”
“The homeowners he is representing contend they were either not given all the correct mortgage paperwork, or that it was provided in a confusing or misleading way.”
“Lefebrve contends paperwork problems were common during the recent hectic boom in subprime mortgages. ‘People got sloppy,’ he said.”
“Federal bankruptcy regulators Friday urged a bankruptcy judge to expand the scope of a probe of New Century Financial Corp., the Irvine-based subprime lender that failed earlier this year.”
“The U.S. Trustee wants the examiner to have the power to examine New Century’s accounting for 2005 in addition to records from 2006, which were already on the agenda because the company admitted accounting irregularities would require the restatement of reported financial results for that year.”
“HSBC Holdings Plc plans to sell bonds backed by some of the last subprime mortgages made by bankrupt New Century Financial Corp., once its biggest rival in the business.”
“More mortgages that New Century made in its last months before filing for bankruptcy on April 2 will probably turn up in future deals, said Alla Sirotic, a Fitch analyst in New York. HSBC’s bank will be on the hook for repurchases of any loans with defects that normally would have required an originator to buy them back, Fitch’s Sirotic said.”
“‘Where typically in the past we’ve accepted New Century’s’ loan warranties ‘we’re no longer accepting those,’ she said.”
“The numbers looked compelling. Buy this investment-grade collateralized debt obligation and you’ll get a return of up to 10 percent, Credit Suisse Group said.”
“Investors snapped up the $340.7 million CDO, a collection of securities backed by bonds, mortgages and other loans, within days of the Dec. 12, 2000, offering. The CDO buyers had assurances of its quality from the three leading credit rating companies, Standard & Poor’s, Moody’s Investors Service and Fitch Group Inc. Each had blessed most of the CDO with the highest rating, AAA or Aaa.”
“Investment-grade ratings on 95 percent of the securities in the CDO gave no hint of what was in the debt package, or that it might collapse. It was loaded with risky debt, from junk bonds to subprime home loans. During the next six years, the CDO plummeted as defaults mounted in its underlying securities. By the end of 2006, losses totaled about $125 million.”
“The failed Credit Suisse CDO may be an omen of far worse to come in the booming market for these investments. Sales of CDOs worldwide have soared since 2004, reaching $503 billion last year, a fivefold increase in three years, according to data compiled by Morgan Stanley.”
“Many of the world’s CDOs are owned by banks and insurance companies, and the people who regulate those firms rely on the raters to police the CDOs.”
“‘As regulators, we just have to trust that rating agencies are going to monitor CDOs and find the subprime,’ says Kevin Fry, chairman of the Invested Asset Working Group of the U.S. National Association of Insurance Commissioners. ‘We can’t get there. We don’t have the resources to get our arms around it.’”
“Joseph Mason, a finance professor at Philadelphia’s Drexel University and a former economist at the U.S. Treasury Department, says the ratings are undermined by the disclaimers. ‘I laugh about Moody’s and S&P disclaimers,’ he says. ‘The ratings giveth and the disclaimer takes it away. Once you’re through with the disclaimers, you’re left with very little new information.’”
From Nine MSN. “A weakening US housing market is dragging down the world economy, with growth in world gross product, or WGP, expected to fall to 3.4 per cent in 2007 from four per cent last year, the United Nations says.”
“‘Currently, the primary drag for the world economy is a notable slowdown in the United States of America, as its housing sector is falling into a substantial recession and business investment is weakening,’ the UN report said.”
Speaking of mortgages, the 30 Year Fixed average just went to 6.42%….
Bond yields are up again today. Do the bankers finally smell a rat?
and first quarter growth was 0.6%
On cnbc yesterday, a pundit said the market was up because no one really believes the FED is tough on inflation. If they were really hawkish they’d hike rates at least a quarter point! This ‘pause’ is a joke. It would send a real signal to the market. Instead everyone continues to believe in the saviour function of the FED and not it’s role at containing inflation.
I suspect the Fed understands that as housing prices drop, rents will rise, increasing CPI. This will give them political cover to hike rates. They’re just biding their time till it’s safe to act.
Rents will drop in tandem with housing price drops. As people get foreclosed on second/third properties, said properties will wind up on the rental market depressing rents.
Your assumption holds true if people only lose their primary residence, and doesn’t consider the ‘trade effect’ of shuffling the deck so current renters buy or rent and foreclosed people rent.
everyone knows inflation is outta control.
a beer costs $10 in los angeles night clubs. same for movie tickets. these two items track salaries pretty nicely and have doubled in 15 years, but increasing more lately.
“…everyone knows inflation is outta control.”
I suspect the Fed is hoping that housing price inflation will come back just enough to get the looky-loos off the sidelines and to get the building industry back to work at a sustainable rate, but not enough to reignite mania conditions. If they succeed in the wake of the largest, most protracted period of runaway home price inflation in U.S. history and against the backdrop of a collapse in the subprime lending industry, then my hat will go off to them.
Non-seriousness of Fed and unlikelihood of rate increase seems reflected in possible firming of Australian dollar, in which my out-sized holdings had recently languished.
“Bond yields are up again today. Do the bankers finally smell a rat?”
The dollars is in the toilet. Gas & food prices are through the roof.No way is inflation contained. Other central banks are raising rates.
Makes total sense that bond yields are (finally!) starting to drift up. If BB dares to lower short term rates, those long term rates will really skyrocket.
Most people still do not understand the connection between short term and long term rates. But I think bond yields will already be through the roof by the time BB get’s around to toying with the idea of rate cuts.
What is a reasonable spread between the FED funds rate and long term debt? The FED is already at 5.25%, which is plenty high if we had a normal yield curve. Perhaps we’re about to get one.
I think I understand the dynamics, but could use some clarification:
If the Fed overnight rate is too low and the risk of inflation grows that will actually drive up long term rates. Is that the dynamic we are currently facing?
“If the Fed overnight rate is too low and the risk of inflation grows that will actually drive up long term rates. Is that the dynamic we are currently facing?”
Someone correct me if I’m wrong, but as the inflation risk grows, then investors in U.S. treasuries (e.g. the 10 year) want a higher interest rate to safeguard their money against inflation over that time period.
With our huge federal deficit, we are very dependent on foreigners buying our treasury bonds. Other central banks are raising rates, so our yields have to be competitive to attract treasury investment.
“What is a reasonable spread between the FED funds rate and long term debt?”
You would want to find a historical period when gas and gold prices were spiking — I suggest the late 1970s. At that time, I am pretty sure the inflation risk premium (l-t T-bond yield minus FF rate) was above 3%, but you can check for yourself to see.
More generally, I am guessing 3% is at the low end of the range for historic periods when inflation was ramping up.
“‘We don’t know what has made the new house buyer go into his cocoon, because the interest rate is not that bad,’ said Pat Sullivan, executive VP of the Home Builders Association of St. Louis & Eastern Missouri. ‘It’s puzzling. They don’t usually go into the cocoon until the interest rate reaches about 8 percent.’”
Mr. Stucco: I want to say one word to you. Just one word.
Pat: Yes, sir.
Mr. Stucco: Are you listening?
Pat: Yes, I am.
Mr. Stucco: Subprime.
Pat: Just how do you mean that, sir?
http://ml-implode.com/
Agreed, that guy is an IDIOT. Especially in the St. Louis area, there are way more houses than local demand warrants. I have some friends there who can’t sell their house, and they are back down to the 2003 value. Houses in STL are WAY overvalued, and there are way too many. I expect a 20% haircut (small compared to FL but it will kill that area).
My sister owns two homes in the St. Louis area. I am torn between a brother’s natural concern for a sibling’s financial well-being and the urge to grab a bucket of popcorn.
You are correct Mr. Stucco.
And the underlying cause is that the sub prime meltdown removed financing from FBs for properties that are priced too high. We’ll see this continue into Alt-A because, again, the prices have just gotten too high, but the FBs will continue to willingly put the financial noose around their necks as long as it is available and packaged to look like a low monthly.
I find it incredible that so few in the REIC fail to recognize or choose to ignore the simple reality that property prices have finally topped out. I have a feeling that this is just part of the “sell” to try to convince GFs that there is no “reason” not to buy now. Fact is there is no reason to buy.
I believe some Congressmen (Dodd, Frank, etc) clearly percieve the train’s headlight coming down the tunnel, which explains why they are working hard behind the scenes to turn the FHA into a govt-insured subprime lender, with the liability for the mess taken off the backs of their investment banking constituency and dropped like a lead anvil into the lap of the American taxpayer.
Bingo…we have a winner.
“who are suing to undo mortgages taken out through the California-based lender.”
Sure, we can let you out of the mortgage… just give us back the money. Oh, you don’t have it and what you spent it on is worth 80% of what you paid? I see…
Exactly. I was trying to figure out what “let you out of” meant? Perhaps his clients are looking for relief on the pre-payment penalty.
Great. What a set up. Homeowner could not pay back as its gone. Can’t pay it back, either some type of roll-over or judgement is waiting unless chapter 7 which is now harder to get. None are good choices.
Quote: “Attorney Christopher Lefebvre said he is representing 200 current and former Ameriquest homeowners in Massachusetts and other states, many now facing foreclosure - who are suing to undo mortgages taken out through the California-based lender.”
“The homeowners he is representing contend they were either not given all the correct mortgage paperwork, or that it was provided in a confusing or misleading way.”
Not too sure that will make a difference. Why?
1. Statute of Limitations (presumably for TILA violations) is one year. Other side can go in on a motion to dismiss.
2. Nearly everyone reports the signing process to be confusing, exhausting, miserable, etc. Nevertheless, the plaintiffs will still have to explain why they signed/or initialed the (multiple) documents.
~Misstrial
Statute of Limitations is one year for Truth in Lending violation(s).
They still signed.
~Misstrial
attorneys = next bull market
Attorneys are going to clean up over the next 5-8 yrs. Recession proof…
‘Oh, you say you were misled, deceived, defrauded in the loan documents you signed, and are being foreclosed on. You want me to represent you? That will be a $5,000 retainer, up front. Oh, you don’t have it now and want our firm to take your case on a contingency basis? Leave your number with the secretary on your way out. Don’t call us we’ll call you (ha ha). NEXT’
there’s always a bull market in attorneys.
“‘We don’t know what has made the new house buyer go into his cocoon, because the interest rate is not that bad,’ said Pat Sullivan, executive VP of the Home Builders Association of St. Louis & Eastern Missouri. ‘It’s puzzling. They don’t usually go into the cocoon until the interest rate reaches about 8 percent.’”
This dude is a VP? Where do they find these guys?
I guess the execs in flyover country aren’t as bright as the guys running, say, all the subprime lending outfits in The OC?
Puzzling indeed! Might price and ability to move up have anything to do with it, genious?
Genius? Man, I am just off today. Must be the 0.6% Q1 GDP. F***It, I’m going golfing…….
Good call - anytime, anywhere.
I won $75 dollars playing golf last Saturday!
Anyone out there who could get me on at Pine Valley, Augusta, or Congressional? Like to give some of those cats a piece of my mind, or at least a 3 iron shot to the shin region.
75 bones, nice! I almost won a new Mustang 2 weeks ago. Hit the flag and bounced a foot out. No justice……..
Where do they find Treasury secretaries? Paulson called the bottom in housing a week ago.
same place they get the people who run the Federal Reserve!
Gambino Sachs
Yep. Notice that the next World Bank chair (nominee) is coming from G-S, too. Time to put on my tinfoil hat and start searching for the Illuninati.
nah, you have to be a stodgy academic with plenty of published papers to egg-head it at the FED. Your risk/reward profile has to match that of a professor, not a wildcatter wall streeter.
Paulson is just a lying sack of manure
Don’t you think they have a good reason for lying? Imagine yourself in his position - you could tell the truth, in which case the financial world suffers a meltdown, or you could lie and go out and play a round of golf… Which would you do?
Regent Univeristy Law School. The New Yale.
The problem is with the house seller who is presently curled up in a fetal position not the house buyer.
“We don’t know what has made the new house buyer go into his cocoon, because the interest rate is not that bad,’ said Pat Sullivan, executive VP of the Home Builders Association of St. Louis & Eastern Missouri”
It’s not the interest rate, it’s the outrageous prices you @$$hat!!
“The U.S. Trustee wants the examiner to have the power to examine New Century’s accounting for 2005 in addition to records from 2006, which were already on the agenda because the company admitted accounting irregularities would require the restatement of reported financial results for that year.”
Why does this even matter at this point? You can’t squeeze blood out of a turnip.
Oh but it does. Then you go after auditors, law firms, officers and directors individually.
Sweet. But you can bet the officers and directors are hiding assets as you read this….
“Why does this even matter at this point? You can’t squeeze blood out of a turnip.”
Ahh, but payback is sweet!
Moody’s is by far the worst of the 3
That was indeed a hilarious story about the Credit Suisse CDO’s, if that’s what you’re referring to.
And to think how much credence we all now give Credit Suisse because we’re in love with their ARM reset chart. (I am too.)
“Investment-grade ratings on 95 percent of the securities in the CDO gave no hint of what was in the debt package, or that it might collapse. It was loaded with risky debt, from junk bonds to subprime home loans. During the next six years, the CDO plummeted as defaults mounted in its underlying securities. By the end of 2006, losses totaled about $125 million.”
…
“Many of the world’s CDOs are owned by banks and insurance companies, and the people who regulate those firms rely on the raters to police the CDOs.”
“‘As regulators, we just have to trust that rating agencies are going to monitor CDOs and find the subprime,’ says Kevin Fry, chairman of the Invested Asset Working Group of the U.S. National Association of Insurance Commissioners. ‘We can’t get there. We don’t have the resources to get our arms around it.’”
BWAHAHAHA! The banks are saying “No fair! We didn’t understand what we were buying!” The banks are as dumb as the FB. Banks and insurance companies are incapable of valuating CDOs?!?!?! Next they’ll be saying they thought it was a 30-year fixed rate…
“Joseph Mason, a finance professor at Philadelphia’s Drexel University and a former economist at the U.S. Treasury Department, says the ratings are undermined by the disclaimers. ‘I laugh about Moody’s and S&P disclaimers,’ he says. ‘The ratings giveth and the disclaimer takes it away. Once you’re through with the disclaimers, you’re left with very little new information.’”
What about the disclaimers coming out of the Treasury Dept: “Subprime is contained.” Are those based on good information?
“Subprime is contained” was not a disclaimer. That was the claim, the disclaimer is “unless a major hedgefund with pyramids of debt goes under, unless a derivatives tower collapses, unless an Asian country goes tits up, unless unemployment spikes, unless China and Japan stop buying T-notes, unless a major bank is caught with its pants down…”
Summarized:
“There won’t be a recession unless there is a recession.”
Also: “The stock market will always go up so long as the DJIA and other headline indexes keep hitting new highs.”
Stucco, thanks to you and all the others who answered my Ken Fisher beef this morning.
And more…“‘As regulators, we just have to trust that rating agencies are going to monitor CDOs and find the subprime,’ says Kevin Fry, chairman of the Invested Asset Working Group of the U.S. National Association of Insurance Commissioners. ‘We can’t get there. We don’t have the resources to get our arms around it.’”
As TxChick and my Daddy (unrelated) always said, “Do not invest in something you do not understand.” Sheesh, Kevin. Go ask your mama about it….
your dad’s warren buffet?
“‘We don’t know what has made the new house buyer go into his cocoon, because the interest rate is not that bad,’ said Pat Sullivan, executive VP of the Home Builders Association of St. Louis & Eastern Missouri. ‘It’s puzzling.
Puzzling? It’s the price stupid.
It’s puzzling to people who are stupid
or suffering from a kool-aid hangover.
or still drinking kool-aid
“Some consumer advocates blame loan officers and mortgage brokers who steer borrowers away from prime loans because they can make much more money from the subprime market. ‘I have a friend who interviewed for a job with my company,’ said Hardester. ‘He told me, ‘I’m not coming to work for you. I can’t make enough money.’”
Option ARMs were used in such manner by greedy, unscrupulous LO’s. OpArm’s gave them the ability to make 5 points on loans, so safe options like conventional fixed loans were never offered or talked down by the agent. In addition, in order to make the big money on these deals, large margins and heavy pre-pays had to be attached to the note, compounding the problem of people who financed in the last couple of years being able to refinance out of these risky loans. We have yet to see the plague OpArm’s will cause.
Yea… that’s not going to be pretty. I was on the phone 2 days ago with a borrower who wanted the definition of “recast”. After I explained the silence on the phone was unnerving. I think it was the realization that after 20 years of making payments she was about to hit the bricks in less than two years time. It was really weird and I get a lot of strange phone calls.
“‘Nearly all participants viewed core inflation as remaining uncomfortably high and stressed the importance of further moderation,’ the minutes said.”
You know the house is on fire when core inflation is too high. They don’t even address headline inflation any more. If I could live by core inflation I would be one happy watcher. Can’t wait to see how ‘da boys’ wriggle out of this one; raise rates and crush housing and the economy or cut them and drive even more inflation. Maybe they will just remain in a fetal position and hope things get better but that doesn’t seem to be working.
The whole idea of looking at just “core” inflation was that it factored out the historically volatile food and energy components. The wild month to month swings in those two components made the headline number less valuable than focusing on the core. Now, however, there is a persistent trend of the food and energy component prices rising higher and higher each measurement period and being higher than core number. In other words, the volatile components are just heading higher and higher, not jumping around. It’s time to pay attention to that trend as the core is just not capturing reality at this point.
This sounds awful, but I’ve not paid attention to food costs for a long time. We have a 2 person/2 terrier household and we eat well. I know gas prices are up, and my employer recently changed reimbursement for mileage (so I transferred to an area in which my home is located, vs the area which was already a 16 mile commute one way). Lately, I have been struggling to save as much as was fairly effortless for me to save a year ago, and the only costs that are impacting this are food and gas.
Soybean futures:
http://miniurl.org/fm6
Corn futures:
http://miniurl.org/1hb
Wheat futures:
http://miniurl.org/moX
Does not look good…
OMG. The middle one of those is… I have no idea. Has this happened with miniurl before? It is SUPPOSED to be
http://www.cbot.com/cbot/pub/page/0,,1213+chart,00.html?symb=C&month=N&year=07&period=W&varminutes=&study=&study0=&study1=&study2=&study3=&bartype=BAR&bardensity=LOW
Those corn futures are not corn futures.
wait till bls price checkers find all those squatters w no housing costs
that will fix inflation
Marijuana and meth prices should be down, too, with all the ‘free’ growhouses/labs available…
I think they’ll go for the last option.
Deer-in-the-headlights strategy.
interest rates are jumping. This will drive a stake in the heart of the housing market. house prices go down even further.
Our real estate agent tried to push us into bidding on a house by pointing out that interest rates were going up, now is the time to buy. But since we have cash, I hope interest rates DO go up. I don’t want lower rates, I want a lower home price.
lose the real whore and buy direct- the hoyse will still be for sale the day after the listing expires
Yes, we already did this. We were doing all the work anyhow. THe only difference is that now we have to directly contact the seller’s agent if it is MLS listing. But they should be doing some work for their 3%.
In reality, though, we have all but stopped looking at real estate for this year. Sellers aren’t quite ready to capitulate and the real bargains probably won’t come until next summer/fall (or later).
I have given up for the year. Funny & true story. Got a call yesterday from a realtor re: house I put a bid on couple of weeks ago, she wanted to know that if we had “serious” offer, her buyer was ready to negotiate. I told her the original offer was “serious”, and just signed another 6 month lease at my place. But I’ll be around for the Holidays! Will you still be the listing agent?
Had a realtor chew me out for calling her w/o first checking a place out on the internet (didn’t have the exact address, just drove by it). This is in Grand Junction, Colorado, where the oil industry is keeping things moving. But make no mistake, even the oil workers can’t afford the prices here, and things are slowing. She’ll be licking boots before this is over, guaranteed. Now, once again, what exactly do they do to earn 6%???
I second that!
Stake to the heart - Hope so. You can refinance a better rate later(if Ben wakes up in a few years), not renegotiate a price. I think it’s called “position of strength” bargaining. Novel idea. Realtors love this from buyers……..
I expect the Fed to intervene in order to “contain” the increase at the long end of the T-bond yield curve. Doing so has several beneficial purposes:
1) It helps encourage stock market investments, by making stocks relatively attractive to T-bonds.
2) It helps promote the belief that inflation is under control, by suppressing the inflation risk premium (compare to bond market yields by 1979, the last time inflation went berserk).
3) It helps keep mortgage rates from rising to a level where the housing market crashes quickly instead of in slow motion.
4) It provides risk lovers with bank a means to make a killing by going short debt instruments and plowing the money into the booming stock market (a version of the carry trade).
Where is the downside?
How can the FED actually do this? I’m not aware of any Fed instrument that could directly control long-term rates. Treasury note rates, for example, are set by the market in a competitive bidding process.
Uh — are you familiar with the Working Group on Financial Assets, chaired by the Treasury Secretary and fostering a close working relationship between the White House, the Fed and Wall Street? What is to stop the Fed and Treasury from coordinating the demand and supply sides of the l-t T-bond market to subtilely keep a lid on the inflation risk premium? I am not claiming this is necessarily occurring — just that I see a motive and the potential (and also find it puzzling that the l-t Treasury yields are so low when I can barely afford to pay for the gas to get my car to work).
Independence, indeshmendence.
Correct. They do intervene in the bond market under ‘open market operations’. It’s a can of worms though because then you have to try to manipulate the other warning indicaters like price of gold, commodites, etc. Eventually inflation springs up everywhere and interest rates move naturally anyway. Can you see where we are in that cycle?
“Can you see where we are in that cycle?”
If the economy were a pot of water, I would guess its temperature at 97 degrees Celsius and rising…
Print money.
Buy notes.
Interest rates can be held down to any level you want with this strategy.
but you’re right that the Fed can’t do it alone. paulson would have to help out.
Spot on.
But printing money could also stoke inflation… driving rates higher. I”m not sure how long they could play this game.
“I’m not sure how long they could play this game.”
As I recently posted, Milton Friedman’s ghost will soon come back to haunt them if they are not careful.
‘Friedman used Abraham Lincoln in explaining his position on monetary policy: “You can fool all of the people some of the time, and some of the people all of the time. But you can’t fool all of the people all of the time.” A central bank can have occasional impact on the level of economic activity by controlling interest rates. But if this power is used too often, firms and households will adjust expectations of price changes and neutralise any impact on real activity. This is the core of monetarism, and it was and still is correct.’
http://www.opendemocracy.net/xml/xhtml/articles/4132.html
Interest rates can be held down to any level you want with this strategy.
Not when you have to borrow $2 billion a day from the rest of the world and they already hold trillions in debt, which they can and will dump if they think the Fed is going to try to hold down rates.
The US consumes more than it produces, and no amount of monetary sleight-of-hand can make that go away. Just a big drop in consumption.
The Fed already buys its’ own bonds. Google ‘coupon pass’. It’s not working any more because they have to print so much money to buy the bonds to fund our deficit that inflation is raging out of control. The Fed is in a lose-lose situation of their own making.
Sorry, should say the Treasury buys the bonds.
Even harder to refinance into a fixed loan if the rate jumps up a point or two. Those who can’t afford their homes at 6% can afford them even less at 7%. This is getting really ugly in a BIG hurry.
What amazes me is how many people I know that are blissfully unaware of what is happening with housing, inflation, debt levels, etc…
OT, but may be of interest to folks who use debit cards (as if we didn’t have enough problems today):
http://www.pcworld.com/article/id,131701/article.html?tk=nl_spxnws
Great, short message is, don’t use debit card or even credit card in CA, NV, FL, PA, MA, RI.
Problem is that this could spread to other states
I wonder how they replaced the card swipers without anyone noticing?
“The scammers visited one Stop & Shop grocery store at around 10:30 p.m. when only one cashier was on duty. Then, while one of the conspirators diverted the cashier with a request for help finding shampoo, the other went to a keypad in a closed checkout aisle and swapped out the keypad machine.”
I could totally see that happening.
Yesterday GS posted up the following in the Bits Bucket:
Short sales soar on NYSE
By Daniel Hauck and Michael Tsang Bloomberg News
Published: May 29, 2007
“NEW YORK: Short-sellers are betting against U.S. stocks like never before as the Standard & Poor’s 500-stock index approaches an all-time high. That is making some of the biggest bulls even more optimistic.
“What the short-seller appears to be doing is doubling down,” said Kenneth Fisher, chairman of Fisher Investments in Woodside, California. “You love to see it, because if you believe there is a basic driver to the bull market, they’re going to get run over.”
The amount of shorting - where traders sell borrowed stocks expecting to buy them back after prices fall - jumped to 3.1 percent of the total shares listed on the New York Stock Exchange this month. That is the highest level since at least 1931, according to Bespoke Investment Group, a research firm in Mamaroneck, New York.”
News Flash! Nobody ran the shorts over in 1931. Anyone long in 1931 because the shorts were at an all time high per Ken Fisher’s logic probably jumped out their window sometime during the year.
I did a quick check on the situation in 1931 i.e. the last time when shorts were at the present levels and although Ken Fisher is shilling the high volume of shorts as a strong “bullish” sign it didn’t work out that way in 1931. Yahoo Charts shows that the Dow opened on January 5, 1931 at 172.12 and closed the year on January 4th 1932 at 74.06 for a loss of 57% in 1932.
I appreciate that the past is not predictive of the future but when the comparative situation resulted in a 57% drop in the market I would think a bit of caution should be advised.
Yahoo Charts
http://tinyurl.com/2eq4f5
This is a complete crock of shit. Hang on, I don’t want to type this out myself but I have something that explains it.
Tue May 22nd, 2007
Short Interest
By John Succo
There’s been record breaking call selling in the marketplace. Guys like me buy those cheap options and short stocks against them. This artificially skews short interest numbers.There is also record margin debt, which means that people are borrowing record amounts of money to buy stocks.So, on balance, I view this as a negative.
HAte to bang the proverbial drum, but more DEBT used this time to buy stock. I am soooooo shocked. I thought everyone in this country was cash positive and had savings that rivaled Buffet and Gates. And to think all this time I was misled in my thinking. Debt propping up the market. Say it ain’t so, Joe!
Somewhat off topic, but I saw a site in Minyanville today called alexa.com. This site allows you to track web traffic for most web sites going back to 2002. You can see the page views, website rank by traffic, etc. I suggest you try it out with realtor.com. Anyone thinking the big turnaround in housing is right around the corner will be shocked by the total collapse in web traffic the site is experiencing. Try the 3 year tab and look at page views and web ranking. Total meltdown. I offer this tidbit as a little piece of info that may be useful.
Not THAT is interesting.
Great link - thanks.
Loafer
I’m excited about that Alexa link. Thank you.
But I would like to add the codicil that in my area there are at least 3 sites that have come up in the past few years that are far superior to realtor.com and most of the locals have gravitated to the newer sites for info.
Very cool! I checked my website, and its rank was a little over 1,000,000. Not bad for a personal site!
“In certain once-sizzling markets, the numbers were much higher: For example, 34 percent of all new mortgages in California in 2005 were interest-ana!!y.”
Heh-heh. Heh-heh.
is he taking ver their payments ??
“A Rhode Island lawyer claims he has found a chink in the legal armor of subprime mortgage giant Ameriquest, one that could give hundreds of thousands of homeowners grounds to wriggle out of their loans.”
http://www.minyanville.com/articles/Debt-Fisher-Keynsian-Austrian/index/a/12975
txchick, I am in way over my head on some of what that article said, but to think that we have 120 trillion in assets is crazy. What does the guy who made that comment think? IS thie US going to have a massive gargage sale to pay for everything? Also, if you look at the grandfather report by Hodges (on the Internet), it lists total debts and future entitlements (which of course could be cancelled) at something in the 60 trillion range. I realize these numbers are mindnumbing and that they don’t make headlines, but at some point this whole thing is gonna’ give.
And in other news, WS bonuses looking up 10-15% from last year already
http://dealbook.blogs.nytimes.com/2007/05/23/wall-street-bonuses-may-break-record-again/
interesting theory on inflation and money supply.
A few comments on the WS article. First, I read all the comments on the blog after the article. Second, I find it funny how so many people say they don’t go into something for the money. Well, that may be true, but if there was no money/salary, etc. how are you paying the bills? Third, the complaints that no one makes against athletes is pure tripe. I am a sports nut and have had it with whiny athletes who make 20 mil a year. Same goes for entertainers. OH, I can’t make it on 2 mil a month. Shut your piehole, loser! As for IBs. What a joke. I deserve this million dollar bonus because i work 60-80 hours a week. Yeah, well boohoo. Working a ton of OT DOES NOT, I REPEAT DOES NOT, entitle anyone, anywhere to gross amounts of money and that includes gubmint workers or bankers. I might make an allowance for surgeons, but that is it. One of the reasons all these private cos. like GM and city gubmints like San Diego are in trouble is they have massive pensions, which I daresay include some serious numbers of J6P making 100 large a year in a nice retirement package, which also includes free-reide health insurance. No wonder we are where we are in this economy. Everyone has their hand in everyone’s else’s pocket(book) and very few produce anything we all really need.
Anyone that is exposed to outsourcing is having to compete head to head against much cheaper labor & those jobs are going away. The last hideouts are in any of the jobs subsidized by the gubmint like health care & teaching. The old line companies like GM that are still adhering to the old health care & pension rules are being wittled away. This continues until labor rates are evened out throughout the world - our standard of living is slip sliding away.
It just isn’t the standard of living that worries me, but the fact that the middle class is shrinking. One of the great things about America is that it wasn’t a country of just rich and poor. There was the middle option. In many countries this does not exist, or, if it does, it is on a small scale. However, I guess that the banana republic isn’t too far off.
“One of the great things about America is that it wasn’t a country of just rich and poor. There was the middle option.”
So true. And that middle class–thru it’s lower, middle and upper ranges–used to encompass about 80% of the country.
It did wonders for social and political stability.
In about a year, when the damage is visible to everyone, how many Americans, who took for granted that they were middle class, will still be able to make that claim?
I’m betting that the fallout from gutting the middle class will turn the presidential race, currently moving along as if its biz as usual except for the current unpleasantness in Iraq, on it’s head. The winner in 2008 may be whoever speaks for the financially disenfranchised, angry, alienated former middle class.
The middle class is being redefined. For instance, in the 3rd world being “middle class” means that you and your family live in a 2 bedroom 600 sq ft apt, and you have a 6 year old sub compact car. Being “poor” means you live in a cardboard shack with a dirt floor. In those countries only the truly wealthy have houses and late model cars.
Globalization and Its Discontents…count me as one. Even Alan Blinder, the daddy of outsourcing, is now having second thoughts. Gee, millions of jobs lost, millions more to be lost in the upcoming few years, more unemployment and downward mobility, and increasingly, questions about the value of higher education in the sciences, engineering and IT–if all those jobs are just going overseas. Just like most gubmint playahs, hindsight is the only insight this guy has.
ttp://www.washingtonmonthly.com/archives/individual/2007_05/011255.php
As I mentioned, we’re looking to sell and rent for the next year. Realtor was just over. Looks through the house. We sit at the dining table and she starts going over marketing conditions and such… I skip ahead and say $240K, willing to negotiate to $235K to get a sale.
She skips to the last page of her packet. $239K willing to drop to $235K. Very happy to work with someone that has realistic knowledge of the market.
As we chat she says…
Houses are still selling. Just not as fast, and not at the same prices. “Prices will move sideways to slightly down for the next year or so.” And I says, “sideways like down 10% we’ve seen in the last 9 months?” She chuckles…. Yeah, sideways like that.
If we don’t sell in the first few weeks, slicing to $230K, then $220K. If we have to go lower than that, the profitability gets to the point where we have to decide if it is worth it.
I expect the house to be at $150K in 2 years. So, if we had to go to $200K, -10% coming and going, we’d only be in for $30K-40K profit. Not worth repeated moves for that much.
The last person I want to set the price for my house is a realtor. If you are willing to accept $220,000 NOW, list it for $220. Let’s see a bidding war at $220. There are so few buyers out there, and the spring non-buying season is over, take whatever money you can and RUN!!!
“….take whatever money you can and RUN!!!”
Why that would be like giving the house away!!!
Dangerous game as I’m not sure there are enough buyers to really get a bidding war, even if listed at $220K. Heck, even $200K.
I love my house and will only sell if there is substantial cha-ching in it. $30-40K is the min… not worth having to move for less than that.
“if we had to go to $200K, -10% coming and going, we’d ONLY be in for $30K-40K profit.”
Consider yourself luck Darrell, I’ve owned my place for 5 years & would expect to break even.
What part of Phx did you leave in?
Glendale. .25 mile north of Banner T-bird hospital.
I live at 80th ave and Cactus. Only a couple of miles from you. Bought my house New (1600 sq ft) in 1993 for 85K. At the “peak” the same floor plan sold for 260K. If I sold today I probably would get 225K. The smaller houses in the neighborhood (1250 sq ft) are being offered at about 225K but, nothing is moving. House accross the street (1050 sq ft) started at 215K and sold for 180K.
What is the age and sq ft of your house?
‘78. 1773 sqft.
1600 sqft down the street went for $224,900 few weeks ago, but didn’t show as a comp since it was a short-sale. 2000 sqft down the street listed for $260K for 2 months.
Bank 1600 sqft-er owned on the side street listed at $245K has been sitting for months.
Darrell
I play golf at Bellaire which is just north of Bell road at 43rd ave. Most of the houses on the course and in Bellaire were built in the mid 70’s. A number of home are in bad shape. If you can get 240K for a 30 year old house - go for it. The thing I like about my neighborhood is that the front landscaping is taken care of by the association. So no one house looks back from the front.
‘People got sloppy,’ he said.”
it’s more than sloppy. borrowers need to feel some of the pain too. they drove up prices to dopey levels.
This may already have been posted, but it looks like Snowflake has thrown in the towel — IAFF offically went dark this morning:
http://www.iamfacingforeclosure.com/
How long before he re-appears on the evening news in an orange jumpsuit and handcuffs?
I would pay handsomely to see that in person. Unfortunately, it looks like he took it down due to pressure from the wife, not legal troubles: http://donthatecasey.blogspot.com/
he admitted several frauds on TV
My guess is that Snowflake is back in one week. Attention is a narcotic to this guy, he won’t just go away because of a marriage, responsibilities or anything else.
That clown claims he will be issuing prorated refunds. Yeah, and in other news I just found out I am Santa Claus and the Easter Bunny. What a joke this guy is.
U.S. banks have invested as much as 10 percent of their assets in CDOs
Seventy-five percent of global CDO sales are in the U.S. Moody’s reported in March that about half of the CDOs sold in the U.S. last year contained subprime debt. On average, 45 percent of the contents of those CDOs consisted of subprime home loans, Moody’s said.
“They don’t blow up,” McManus says of CDOs. “They just kind of melt.”
GDP estimates anyone ?
I’m thinking next one is over 1.2
don’t laugh
Before or after the adjustment?
All the cheerleader economist are stating that 0.6% isn’t too bad, because the economy will pick up in Q2, so I expect the number to be closer to 2%, revised to 1.1%, then -0.2% or something like that.
Check this out on MSN. Gives appreciation over last 5 years for a lot of major cities. http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/HomePricesByCity.aspx
Greeley, CO, until recently the national foreclosure champ, is #257 on the list, with a whopping 11.52% appreciation in the past 5 years. That didn’t even keep pace with inflation.
Looks like Osmond-ville (Ogden, UT) had the best 1st quarter. (3.07)
Hope the Mormons aren’t gathering there in preparation for Armageddon.
they don’t need to gather, they’re already prepared - min. of one year’s food in pantry, socialist/communal-type culture - Utah will be one of the best places you could be in a depression - they may or may not share, but they sure wouldn’t need to steal your food…
I thought I had also seen stories of the Church itself warehousing stockpiles. Couldn’t remember if that was end times preparation or just for difficult times. In any case, I respect the way they plan to watch out for each other.
I got just one thing to say about all those reports: WOTTA EFFING MESS!
those 3 words sum it up quite nicely, Palmetto
‘“Investors snapped up the $340.7 million CDO, a collection of securities backed by bonds, mortgages and other loans, within days of the Dec. 12, 2000, offering. The CDO buyers had assurances of its quality from the three leading credit rating companies, Standard & Poor’s, Moody’s Investors Service and Fitch Group Inc. Each had blessed most of the CDO with the highest rating, AAA or Aaa.”’
So much for the theory that “AAA” means “no default risk!