Bits Bucket And Craigslist Finds For December 19, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
December 2024 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
The Models are Broken…
http://www.ft.com/cms/s/0/1520a1b4-ad0c-11dc-b51b-0000779fd2ac.html
From the article,
For some reason, American legislators in times past did not put unconditional trust in central bank management, and would not allow the central bank to accept anything other than the best security.
yeah, I wonder what that reason was?
The more I read about these high financiers, the more trailer-park they sound.
“Liquidity” is cash-money in the checking account, “reserves” is keeping just enough cash-money to pay the minimum payment on the credit-card, “credit crunch” means you found out just now that you’re living paycheck-to-paycheck…
…”Get at least some of the overhang of credit risk off their balance sheets” is like transferring the balance from one CC to another with the lower rate, the Discount Window is the payday-loan place on the corner, the Super-Siv is the pawn shop, politicians are the bouncers that underage drinkers bribe at the bar…..
…and state pensions funds and foreign banks are the welfare office — perceived as a place staffed with idiots, not there to help people as intended, but as an agency staffed with idiots ripe for swindling through the exploitation of loopholes, such as having too many children, in the form of “derivatives.”
All ways to hide just ONE fact — they own more than they have, and they will never have the income to pay it back. Simple as that.
Great analogy!
You need to send this to the comment page of a major newspaper. Very simple such that anyone can understand and realize who the crooks are and how bad it really is.
I like this analogy too. Very creative.
Uh, so is this basically saying that we’re all gonna pay for this debacle?
LOL…..Hey if your not in Montana ,where are you NotinMontana ?
Anyway ,as I see it, these banks and investment firms have major losses that are mounting .They can’t sell what they are holding right now and these loans from the Fed have just been a stall to figure out what to do about a cash on hand position that is …well…tied up in bad loans and obligations .
It seems to me that these lenders/investment firms are waiting for a fix to the ongoing problem of how to deal with losses . IMHO ,if the banks can pass some of this questionable loan paper to a Government backed loan ,they have passed some hot potatoes off,hot potatoes that nobody wants to buy right now (unless it’s at a deep discount ).
It goes back to a bad loan is a bad loan ,and losses are losses ,especially when you can’t past the risk on to someone else . Also ,to avoid lawsuits ,many of the money changers are carrying these losses ,or buying out these losses .
So, really ,your dealing with a bunch of financial institutions that are like sub-prime borrowers that need a fix or constant loans to stay alive until they can somehow restructure these losses to be functional .
So what I mean is, do these somehow work into our T Bills, Treasuries etc?
Damn hard to ask the question right when I don’t understand much…
Somehow they work into being paid out of taxes or T-bills or Treasuries or however the government wants to finance bail-outs ,and inflation and the trashing of the dollar is a direct cost to all Americans if the Feds choose to bail out banks, rather than raise interest rates .
Ohhhhh….
I bought my first gold coin today…
The bankers mantra “a rolling loan gathers no loss”.
This is the standard modus operandi for Wall Street. They cheerfully accept massive profits, but run home to mommy (the federal government) when their investment schemes backfire on them.
The United States does not practice authentic capitalism - where the players accept that doing business involves risk.
We have a system that allows the big players to privatize thier profits and socialize thier losses. The only way out is to let one or more of these big banks go down in flames to serve as an example to those that remain.
GS is trumpeting profits and paying bonuses… while quietly soliciting disaster insurance punters.
–
December 19,2007
Money Supply and Inflation
I watched part of the Q&A of ECB President Trichet by EU parliament members. It seems that there was an ECB study out that concluded that M3 says nothing about the inflation rate or inflation pressures, but it says more about asset prices and bubbles. Only indirectly does it impact inflation when people spend the “wealth effect” from the asset prices.
Inflationists were having a field day, or a field year, by claiming that the “reconstructed” discontinued M3 in the US was growing at double-digit rate and hence the real inflation was double-digit, or much higher than reported. M3 was useless, is useless, and I am glad some of our taxpayer money is being saved by junking it. M1 and M2 have whatever relevant information can be gleaned from the money supply numbers.
As it turns out, long-term, of all the M’s M1 has the highest correlation with the CPI. Guess what is the growth rate in M1? It IS where it was in September of 2004 (no misprint here). So, get ready for falling inflation once the recession is in full force (inflation rate peaks in the first few months of a recession).
Once again, I want to emphasize that money supply is an effect and not the cause. Debt, growth or decline, is the cause and when household debt growth slows to below 5% annual rate, led by mortgage debt, we have the recession (the Q4 data wouldn’t come out until March 2008) and I believe that we are there.
Jas
True, debt replaced income in the U.S. and logic would dictate that if debt were to implode, we will see much lower prices across the board. We can hope.
Americans need to lose the mentality that a loose credit market is a good thing. It drives up prices so that wages and creates a vicious cycle where people need to go further and further into debt in order to buy the same things — as wage increases are NOT matching credit expansion. The only people who benefit from such a system are the bankers / the wealthy (i.e., those who own and run the world). The workers are shafted in every way under this system.
Oops. Strike “so that wages” from the second line in second paragraph.
Edit button!
There was a book about deflation. Trying to find it…
Here it is.
http://www.amazon.com/Conquer-Crash-Deflationary-Depression-Expanded/dp/0470870907/ref=sr_1_5?ie=UTF8&s=books&qid=1198071511&sr=8-5
No links, no data to support your suppositions? Meanwhile, money supply growth at 16%:
http://www.shadowstats.com/cgi-bin/sgs/data
–
Money supply data is ready available from Fed sites, e.g., for M1:
http://research.stlouisfed.org/fred2/series/M1?cid=25
Shadow stats? Piece of garbage, IMO. Plus, M3 is useless except as an indicator of asset bubbles.
M1 has gone nowhere for the past three years:
Current:
2007-12-03 1374.0
Three years ago:
2004-09-20 1372.6
2004-09-27 1370.8
2004-10-04 1363.1
2004-10-11 1363.9
2004-10-18 1358.7
2004-10-25 1365.7
2004-11-01 1355.3
2004-11-08 1368.8
2004-11-15 1372.3
2004-11-22 1380.1
2004-11-29 1383.1
Jas
Why would the government willingly supply us with M3 data for many years, and then cut us off cold turkey?
veni, vidi, fini
Plus, M3 is useless except as an indicator of asset bubbles.
I don’t think that I agree with this. If people can spend it, measuring it isn’t useless. Now it IS true that this latest runup in the money supply has boosted the prices of assets that can be used as collateral for further borrowing, not the prices of consumer goods or wages. This is why we’re headed for stagflation IMHO. As some of this “wealth” disappears, we’re seeing a credit crunch since the appreciation fairy has been flattened on the highway. However the falling dollar will simultaneously raise the prices of consumer goods. Result: stagflation, the “misery index” and the 70s all over again.
“If people can spend it, measuring it isn’t useless.”
But people can’t spend M3, they can only spend M1. M3 has to be converted to M1 before it can be spent.
And this conversion hasn’t been happening; M1 hasn’t grown any while M3 growth has exploded.
This makes sense if one considers that repurchase agreements make up one of the components of M3. Repurchase agreements, as derivities, make up a big chunk of hedge fund assets.
And these hedge fund assets are marked to model rather than marked to market because there is no liquid market available to sell them into. This makes the true value of hedge fund assets questionable, hence it makes the true value of M3 questionable.
It is only when the assets of the hedge funds is liquidated (converted from M3 to M1) that their true value will be established by Mr. Market, which I suspect will be much lower that the value carried on their books.
Does M-1 increase if the fed is taking in cdo’s and giving back currency? m-3 down m-1 up?
Yeah, it does. But the Fed is gonna have to buy back trillions of M3 and convert it to trillions of M1 if they have any hope of overcoming Mr. Market’s actions in this area.
“Shadow stats? Piece of garbage, IMO.”
Hmm. It seems to me, that measuring inflation should be a piece of cake. Simply have a basket of goods that most people consume and measure the price rise. For example, housing, bread, milk, health care, education, gasoline, haircuts, etc.
Whether it is done by shadow stats or the US govt, or whomever, it seems it should be a simple, straightforward process. No need to mess around with M1, M2, M3. Just measure price changes in basic items.
When I look at those basic items, I find that most of them have been going up quite a bit in recent years. Definitely more than 0% or 3%.
Is it really that simple? What if incomes have declined or risen at a different rate than the prices in the basket of goods? If everyone’s income doubled in the same time period, no one would be complaining about inflation.
What if some incomes increased significantly and others dropped? Your example works in an “all other things being equal” scenario, but that is mostly just in theory. I find this topic fascinating because there are so many variables (credit contraction, wage pressures from overseas, currency valuations, commodity supplies, Helicopter Ben, etc). Which force will ultimately have the most impact is hard to know. It’s like a soap opera.
It’s trickier than you think, what if wonderbread had remained the same price, but whole grain triples?
What happens when the price of a gallon of 2% milk stays the same, but organic whole milk quintuples?
What’s in the education basket? How do you decide how much is Harvard and how much is City Community college, and how does finanical aid factor into that? How do you account for the difference between the two?
How are you going to put all of these things together to create a single inflation number?
Yeah, I like using the Austrian Economics system to define inflation better. First, it looks at the root of the issue, which is money supply, from which prices can change as a result of expansions or contractions of it. However, prices can change over time due to factors independent of money supply (availability, demand, changes in cost of production, etc.), so changes is prices is an imprecise indicator of inflation, at best, and can always be debated if inflation was the cause, or something else.
According to Shadowstats.com M1 is currently at 0% monthly average growth, M2 is 6% and M3 is 16%.
CPI is currently at plus 4% but the alternative CPI calculation is at 12%.
So it seems that M1 tracks CPI and M3 tracks the alternate CPI.
Which method is more accurate?
What are the names of the people who own the Federal Reserve? If I knew that it might help me better analyze what’s going on.
Names of shareholders are kept secret, and being a private institution it doesn’t have to reveal. The Rothschild family founded the central banks of Europe, and I’ve heard some speculation Europeans are controlling shareholders in the Fed. This comes from a Google video on the Federal Reserve I saw a little while ago, so memory might be fuzzy. I read recently from the Fed web site that profits it makes, after expenses, are returned to the US treasury.
My suspicion is the Fed is controlled by powerful financial interests, and under the general appearance of being a gov’t institution they “regulate” the market for the profiteering of a core elite.
If the intent of the Fed is to benefit the majority of participants in the general economy, in other words Americans as a whole, then they are utterly incompetent and complete morons the way they’ve handled things over the past few years. But I don’t think that’s the case. If the Fed exists to make its friends filthy rich–not the entire financial industry, mind you, just certain powerful interests–then their actions make sense.
Ok I’ll bite. If as you say, there will be widespread deflation of prices, then what prevents the goverment from Zimbabwenomics, which is to re-inflate their way out of debt?
Personally I think there will be a bifurcation in prices - essentials (esp food) will skyrocket while non-essentials will collapse. Pseudo-essentials like oil (there is a lot of consumer discretion when it comes to using oil) will stay about the same.
–
“Ok I’ll bite. If as you say, there will be widespread deflation of prices, then what prevents the goverment from Zimbabwenomics, which is to re-inflate their way out of debt?”
It is ridiculous to compare the US with Zimbabwe. The only choice left for the USG and the Fed is “controlled inflation” or deflation. Controlled inflation requires pushing more debt on households at a rate higher than 5% a year, or the USG running a trillion dollar a year deficit. Japanese example is much better for what lies ahead for the US than Zimbabwe, no?
Anyway, once the recession is fully acknowledged inflation rate will start to fall. It has happened during all the past recessions.
Jas
It is ridiculous to compare the US with Zimbabwe.”
Why? We are on a similar path, or if you prefer you can compare it to Weimar Germany. All fiat currency finds its’ intrinsic value, which is 0.
Japanese example is much better for what lies ahead for the US than Zimbabwe, no?”
No, Japan has massive savings and a current account surplus. They are definitely not in the same situation we are in.
Anyway, once the recession is fully acknowledged inflation rate will start to fall. It has happened during all the past recessions.”
No it didn’t; the 1970s show that inflationary recessions are not only possible but likely.
–
Inflation rate FELL during the recessions of 1970s and 1980s. Check out:
YIELD-CURVE, INFLATION, AND RECESSIONS: Are Recessions Necessary to Control Inflation in the US?
http://www.financialsense.com/fsu/editorials/jain/2006/0618.html
Deep recession (the Double Dip of 1980-82) became necessary to control inflation. And the US Fed has no choice but to keep inflation under control. The global financial systems will blow up if the Fed refuses to control inflation. No one gives a damn to Zimbabwe.
Of course, all the holders of the 30-year UST at 4.5%, including yours truly, are morons. Inflationists must have superior predictive ability than the bondholders. I know one idiot whose subscribers have lost money for the past 5 years by buying puts of the 10-year T-Note month after month after month. Luckily, I was on the other side of those trades (I sell naked puts on US Treasuries) .
Jas
Zimbabwe is a bad comparison, Argentina circa 2002, is more likely our fate…
Their Peso was linked to the Dollar 1 to 1, and then it was worth around 35 Cents, almost overnight.
Those holding latter-day American Pesos (a few on here, the lion’s share of the public) will get schooled about inflation…
“The unrest started when Economy Minister Domingo Cavallo, introduced restrictions to the withdrawal of cash from bank deposits (see corralito), intending to stop the draining of deposits that had been taking place throughout 2001 and had reached the point where 25% of all the money in the banks had been withdrawn. These measures were aimed at controlling the banking crisis for a period of 90 days, until the exchange of Argentina’s public debt could be completed.”
“Although people could still use their money via credit cards, checks and other forms of non-cash payments, the enforcement of these measures caused delays and problems for the general population and especially for businesses. Massive queues at every bank and growing reports of political crisis contributed to inflame Argentina’s political scenario.”
http://en.wikipedia.org/wiki/December_2001_riots_(Argentina)
Quoting your own article as evidence to prove your point? Priceless.
(dynomite!)
The emperor’s new name for J.J.
This is my view as well, although I think fuel prices will continue to increase.
That is I agree with yensoy.
–
Believe it or not, I have not paid as high prices for gasoline as I did in Sep/Oct of 2005. My forecast is that global demand for petroleum products will fall during the 2008-10 US depression. First, we have to confirm the beginning of the recession. We should get clarity in the next 6 months.
I have claimed that restaurant prices are one of the best indictors of actual inflation because it involves all types of expenditures. For the past 25 years the restaurant prices have gone up LESS than the reported CPI in Silly.con Valley and SoCal (SFV and Simi Valley).
Costco still sells large pizza that feeds four, with 6 toppings, for $10.79. The best pizza, Uncle Ernie’s Combo, went up 50c (3-4%) during the 14 years that I lived in SFV. I am assuming that the price is still no more than 30% higher than it was in 1988.
Jas
My prediction is that the price of the cheap-n-nasty prepared foods, like Costco pizza, is going to go up only slightly. Gov subsidies will keep wheat and soy low. Corn syrup/ethanol is a wild card. Other processed food production is slowly being outsourced overseas, so the labor cost savings will mostly offset the price increases. This will continue in a “race to the bottom” until we have sweatshop food just like sweatshop sneakers.
On the other hand, high-quality raw material food — produce from California, for example — will skyrocket.
–
“the cheap-n-nasty prepared foods, like Costco pizza”
I must have poor taste buds. Regardless, it is no worse than it was ten years ago. I am sure that the New York steak that I bought for $2.99/lb must have been from bad beef, fed with bad grain, somewhere in the US. The steak that I cooked with light seasoning was fantastic. Some of us are stupid to buy food that is not priced high.
Jas
I’ve sort of noticed this - the restaurants we’ve gone to have increased their prices slightly. But we’ve noticed the food quality and service have plummetted. This is at restaurants that I’ve faithfully gone to for 7 years and NEVER until now had a bad experience. As a result we now no longer eat out at all (we used to eat out 1-2 times per month).
Just because the price doesn’t go through the roof doesn’t mean you’re getting a good deal…
I have claimed that restaurant prices are one of the best indictors of actual inflation because it involves all types of expenditures. For the past 25 years the restaurant prices have gone up LESS than the reported CPI in Silly.con Valley and SoCal (SFV and Simi Valley).
Your experience is different than mine. I am seeing restaurant prices that are 30% higher than just 2 years ago, at national chains. Entrees that used to go for $9, now command $12. Sodas used to be around $1.30, now everybody charges $2 for a bottomless coke.
Fast food prices are also up dramatically, especially burgers.
Yes, i agree. I am seeing both real inflation (ie, entrees that go up a dollar every few months) and stealth inflation (lesser quality, outsourced or just smaller portions) here in the Bay Area. I go out to eat much less these days.
+1 on higher restaurant prices. it’s been very noticeable over the past couple of years, just as the prices of staple grocery items such as milk, orange juice, bread, etc. have increased steadily over roughly the same period of time.
“Fast food prices are also up dramatically, especially burgers.”
I wonder what Carl’s Jr. will do when their ’six-dollar-burger’ rings up at seven bux…
They’ll rename the 12 buck burger.
I go out to eat much less these days.
Same here. I can prepare a steak dinner for the family for less than what it costs to eat out at Red Robin.
My daughter won a lead role in a school musical, so to celebrate we went out to eat at a local mom-n-pop restaurant (comparable to a higher end chain). With the tip it was $100 for a party of 4. We could have had big NY strip loins at home for less than half of that.
Hi Jas-
I am also in the SF Bay (SF SOMA) and I have actually noticed a dramatic inflation in restaurant prices across the price spectrum. Just my experience as a single guy that eats out daily, restaurant prices remained somewhat flat during the tech boom and bust, but everything seems to be $1 more than last year, which was $1 more than the year before, for about 3 years now. From the corner pho joint to the French Laundry, the cost of cooked meals really has gone up in the bay area.
I digress, but I think grocery costs may be a more accurate measure of inflation. Restaurants are subject to competitive pressures, demographic and taste shifts (ie proliferation of really good and reasonably priced restaurants in both silicon v and so-cal) but the cost of the raw materials I think is closer to true inflation.
“Ok I’ll bite. If as you say, there will be widespread deflation of prices, then what prevents the goverment from Zimbabwenomics, which is to re-inflate their way out of debt?”
Banks.
Inflation only benefits banks if it oils the financial machine and make people more likely to incur debt because they anticipate inflation and thus some relief of the debt over time. For example, if you anticipate house prices will double over the next 20 years, it’s sensible to lock down your housing payments now with a mortgage. A rate of inflation of 2% seems to be the sweet spot.
If the system is exhausted of credit– meaning those still able to borrow *do not* choose to do so, and those who DO want to borrow are such poor credit risks the banks no longer want to lend– and credit comes to a near standstill, then deflation benefits the bank, because it enhances the value of the only measure of their wealth, which is debt payable in US dollars.
By similar logic, hyperinflation is always hugely harmful to banks, because then they loose everything. All the debt they hold that constitutes their wealth disappears.
So… as long as banks are in basic control of the economy, hyperinflation won’t happen. If the federal government on behalf of taxpayers were to gain control of the economy, congress is constitutionally entitled to print currency, and it could print it’s way out of debt, as well as all the FBs who would similarly benefit by having their debt forgiven when it is reduced to almost nothing. Banks, savers, and anyone with investments (direct or through retirement accounts insecuritized debt) would suffer.
–
A note to inflationists…
My comment: “As it turns out, long-term, of all the M’s M1 has the highest correlation with the CPI.”
I had done a thorough analysis of all M’s versus CPI and the GDP. M1 had the best correlation with the CPI. On this blog I can only share my conclusions and not all the data and research. Those who don’t believe my conclusions are free to ignore them, or do their own analysis. M3 is for conspiracy theorists and my analysis as well as ECB’s prove that it says nothing about inflation or inflation pressures. There are much better measures of asset bubbles than M3. M3 was junked because it is useless and not to hide anything about the economy.
Jas
Dear Jas,
How come you don’t address the issue of how the CPI is calculated? Correlating M1 to CPI is bogus if the CPI calculation is bogus.
–
Sorry, I am not going to take inflationists’ bait on this blog any longer. You guys are free to share your conclusions and I will share mine. We agree to disagree.
Jas
The currency of the United States, is debt.
I’m a steadfast flationist.
I’m a flatulist.
Thanks, Jas. I was feeling in a great minority as a deflationist on this blog. Cash will be King again, at least in the short-term until the gov truly prints money instead of printing debt, then I will turn inflationist.
I agree there will be a “sweet spot” where you can buy a ton for cash. This fits in with non-essentials deflation, necessities inflation theory. But I think end game the Fed will lose their mind completely and create a Weimar republic situation with respect to money supply.
So this creates a timing issue: hoard money like they’re not making any more of it, but then blow the entire wad before TSHTF. Hope I don’t misjudge the window…
I find it curious that most here insist that the price of houses is set to collapse but that it won’t drag everything else down with it. I don’t get the disconnect. The recent slowdown in building has already resulted in falling materials prices and competition for lower paying jobs. Big pieces of concrete are falling daily from the face of the debt dam. Retirement funds are shrinking as the stock market slides. The tourist season here was a bust. If the “they” can’t get us all to “buy,buy,buy!” just where is all the upward price pressure going to come from?
OK, wheat is up because of corn subsidies. What else?
The difference is what you need to survive. The ability to differentiate is what separates the great depression generation from this generation - but they learned through bitter experience and so will this generation.
Housing will plummet because you don’t need a house to live. You can rent an appartment for example. And if you do want a house to live in you certainly don’t need a grossly exorbitant one like what’s been built the last few years.
Food and water on the other hand you can’t do without. And while global food shortages are beginning to be reported in the MSM, we are content to burn much of our ag product for BS political reasons. If we stopped doing this and the government butted out, our country could get rich being the bread basket of the world with food exports. But for some reason we’re not even self sufficient foodwise any more either, as we’ve resorted to buying our food staples from overseas (quite a bit from our Chinese enemies who we no longer trust to even make a safe toy).
the stock market’s sliding?
hey,Blue Sky, tourist season where?
tourism at the NY Finger Lakes wineries. Just a local indicator.
The difference is that very few people can buy houses for cash. If people no longer have access to credit, they’ll STILL be buying food and gas and other neccessities, but for shelter they’ll be forced to rent from those who bought pre-bubble or paid cash. Most of the money paid for houses is borrowed money. If nobody will lend, prices must fall.
Jim wrote…”If nobody will lend, prices must fall.”
I think it varies from neighborhood to neighborhood. That’s not necessarily the case everywhere.
In my neck of the woods, I’m seeing the exurban, entry-level neighborhoods take a big hit from foreclosures, and prices are off upwards of 15% from 2005. On the other hand, the move-up neighborhoods closer to the city are much more stable. Prices have merely flat-lined, because the owners have affordable mortgages and are choosing to stay put.
As far as inflation…
I can’t give you specifics, but my weekly cash (groceries, fuel, dining out) seems to be worth less these days, and my buying habits haven’t changed. Groceries that used to cost me $125 are now running about $145. I’ve begun stocking up on staples in an attempt to keep to the budget, and we’re definitely eating at home more frequently.
I’m not looking for an argument with Jas, but I’m definitely noticing price creep in our daily expenses, and my spouse and I have begun to make lifestyle changes in response. We drive much less, and we’re shopping for a house that’s walkable to my husband’s workplace so we can live comfortably with only one car (at least until our oldest hits driving age).
It may be all in vain, but there’s no harm in making small changes that will help us live well if and when inflation becomes a bigger concern.
Jas,
I have read many of your previous posts and enjoyed them, and it is obvious you have experience/research in financial matters. However I disagree with your conclusion here. I think the disconnect is that you accept the CPI as reported by the government at face value. There are sites (like shaddow) that refute this, but I’m just going off personal experience here. There is no way inflation is anywhere close to what the government is reporting. Exclude housing, food and fuel? What does the government think people spend their money on? How about the basic necessities of life which have skyrocketted in price recently. For instance, wheat prices have doubled in one year.
The government has a vested interest in lying about inflation. By legislation they are required to provide cost of living increases each year that are pegged to inflation. If they reported the true inflation values, not only would everyone freak out, but the gov budget would balloon even faster than it currently is in our bloated bankrupt system.
RE: Those who don’t believe my conclusions are free to ignore them,
JJ-I, for one, enjoy your posts.
Your perspectives always add dimension to the topics under discussion, which is what gaining knowledge is all about.
I second that. While I disagree in this instance, I would actually prefer Jas to be right. That’s one of the great things about this board - there’s so many experts (I’m certainly not one on money matters, just trying to make sense of what I see) from different industries/fields. And even when there’s disagreements I always feel like I’ve learned something.
I 3rd that. The thing that keeps me coming to this blog site is the point / counter point discussion. No ONE of us is as smart as the collective of people who blog here. I have found myself agreeing with certain main posters most of the time but sometimes I find them way off in their bloggings. I don’t discount the blogger outright from this point on but instead think they didn’t get their morning coffee or something. We all need to remember blogging for the most part is opinions. Opinions are like a-holes everyone has one and they all stink. Well everyones except mine
. I respect the opinions on this blog site due to they seem to be much better educated then the masses and it is not MSM being spoon fed to the sheeple. KEEP BLOGGING AND KEEP AN OPEN MIND EVERYONE!!!
I am of the opinion that necessities will inflate and non necessities will deflate until uncle Sam gets involved and changes the rules.
According to Wikopedia, the definition of M3 is “M2 + all other CDs, deposits of eurodollars and repurchase agreements”.
The last part, “repurchase agreements”, seems to be the component that has been exploding in quantity the last serveral years due to hedge fund activities. Mr. Market, via his credit crunch, may be signaling a halt to growth of repos.
Correct me if I am wrong.
again, Jas totally ignores reality (OK, he admits that we have to wait half a year or so for his predictions to come true). Listen to what Trichet says, he must be desperate! Inflation is RAGING in the EU and all this talk about indexing is not for nothing. Lots of powerful worker groups in the EU (mostly the well-paid, or those that can break the economy by striking) are getting pay increases of 4,5 or even 8% in ONE year, and some extra bonuses on top of that. Trichet can do nothing, because raising rates is not an option for the kleptocrats in the Europarliament and their masters in corporate Europe; and clamping down the credit spigots for the EU housing market is clearly not an option either. Stuck between a rock and a hard place, just like the bubblemasters from the FED.
While the average worker in most EU countries (numbers just came out today for Netherlands and Germany, but most of Northern Europe won’t be any different) has seen their real wage / purchasing power DECLINE over the last 15 years (mostly thanks to rampant ECB money supply growth), the 5% richest have seen their incomes INCREASE by an average 7% yoy over the same period, and capitals of the ueber-rich in Europe are increasing at double-digit rates lately. Up to now most people could cope because of the home piggy bank (probably more widespread than in the US!). Now that homeprices are no longer surging in most countries, the average citizen is getting crunched.
That is the reality in Netherlands, where the maximum rate on an internet savings account is around 3.5% (with only 20K capital buranteed) while banks have to pay the ECB 4.95% overnight rate. Banks are making superfat profits from their savers, but because they work together to keep rates down savers have nowhere to go. Euro goldprice is trying to break out, this will get ugly and exactly the opposite of what Jas is saying.
Jas isn’t about to let reality disrupt his perfect deflationary theory. He will just keep pushing the start date for his deflationary depression into the future.
I just gotta say, I love checking in here in the a.m. for these raucous yet always enlightening debates. It’s also cool to have great respect for the individuals posting on both sides of the issue - you always learn more that way. Party on, my HBB stooges!
To be prudent you must play both sides of the inflation/deflation argument. In this environment diversification is a must. Cash is usually king in a deflation. Keep it on hand for easy access and control, personally I only keep 50% of my cash in banks for paying my monthly bills.
Gold usually does great in a inflation and retains purchasing power within a deflation. Confiscation and the potential manipulation of the gold market can cloud the mind about the true value of the metal. Will it always be accepted as a store of value? 2000+ years of history will have to make a person assume that it will be so in the future.
Bonds and Bills? For me, no thanks. I’ll let the PIMCO’s and socialist central banks of the world keep that arena.
I still play the stock market long and short. IMHO stocks are spec plays and nothing else. Dividend yield is so pathetic that only the greater fool theory is in action in the stock market. Tech theory and charting I find so Pavlovian that it has always been a wonder to me that the black boxes don’t explode immediately upon being put online.
The big question that would need to be answered on the inflation/deflation debate is what will be the primary accepted medium of exchange for transactions. Will it always be the almighty dollar? I don’t know, but you must assume with at least with part of your mind and portfolio that it will, and cover your ass if it isn’t.
The real truth of the matter about deflation and inflation is that we are headed off into uncharted/untested waters financially, and i’m prepared to be surprised about how wrong some of my thinking is/was…
I agree with aladinsane, uncharted waters … both regarding future central bank policies when they find out their wreck is sinking, and regarding what can hold its value amid desperate economic/political actions.
Although I agree with much of the reasoning of Jas, most of what I see in Europe points exactly in the other direction. The inflation horses are out of the barn, there is no stopping them now except maybe for a total collapse of the banking system. Huge pay increases are a daily occurence in the newspaper here, although it still affects only a lucky 10% or so of workers, the sheeple are no longer blind to what is happening with the currency.
nhz, you may be right about “the inflation horses”, but the fact that the rich are getting richer and the poor are getting poorer would be an argument in favor of deflation, not inflation. As the standard of living of the “unlucky” 90% continues to drop, demand for non-essential products will drop along with the prices of those products.
However, I do believe that it will be a long time coming before we see any relief from the rising costs food, shelter, health care, and energy. IMO, the greedy bastards who control these industries will be bending us over as far and as long as possible until we break.
“To be prudent you must play both sides of the inflation/deflation argument.”
IMO this is the crux of the matter. Just like the stock market, purist bulls and bears will eventually get burned. How correctly we prognosticate what prices will do in certain asset/commodity classes will largely determine our future financial survival.
Since I don’t have a crystal ball I don’t know for sure, so I try to do what makes sense to me, hedge in case the opposite happens, and at the same time live in a way that I’m happy long term.
To whit, because I think food prices are going to skyrocket long term, and that harmful additives will increase in commercial ag products to the detriment of our health, I am working towards having my own small farm. This accomplishes several things: 1. It insulates my family from rising food costs, 2. We will produce more food than we need, so we will have an additional income stream depending on how expensive food gets, 3. I can trust the quality of food/meat I raise myself, 4. If food prices don’t go up any more and no dooms day event transpires I’m still OK because I want to have a farm anyway.
Just an example…
Sweeny t.. But like housing appreciation, that too is likely to reverse with ferocity. I’m going to sound kind of socialist here, but for the last several years, returns on capital have been greater than returns on labor. More capital means more capital, with leverage upon the actual “making stuff” economy increasing at every turn. This has led to a greater concentration of wealth in the top 1% who have a disproportionate amount of the wealth. Jas might say that much of that wealth has been in M3. Others might say that much of it just spiraled around and aroudn Wall Street with minimal impact on the real economy. The housing bubble is arguably the last gasp of the equities inflation of the last 20-30 years. As these CDOs and hedge funds etc implode, most of the losses will actually come from the super-rich. The thing is, when you go from having 200mil to 20mil (adjusted by CPI) your lifestyle probably doesn’t change that much. But people who go from 80k/yr to 50k/yr feel alot of pain. And those losses are very uneven, if you still have a job you’re in good shape, if you become marginally employed, you’re hurting. Even if most of the losses in wealth are from the rich, most of the pain will be reserved for the rest of us.
sweeny texas wrote
“but the fact that the rich are getting richer and the poor are getting poorer”
This is true but it is also true that the poor are better off than they were 20 years previous. The poor get poorer because they purchase depreciating assets Hummers with double deuce rims, plasma TV’s, drugs etc. The truth is they have a hand in their own financial situation. If the poor would have saved the extra income instead of buying more crap, then they would no longer be classified poor. If you go by the projects and through low income housing you will see this. The artificiallt low inflation rate that globalization created increased the net amount of money all Americans had to spend on non necessities thoughout the late 90’s and early 2000’s. We exported our jobs and increased the credit supply to keep things going for a while but now it is time to pay and since the poor did not save while times were good they will disproportionately suffer. The rich keep getting richer due to the rules favor them and they understand the rules that are in play and take advantage of them. I completely agree that the rules need to be changed in order to balance the playing field but as long as the poor keep buying non essential crap they will never live the American dream of rags to riches.
Shakes - the poor that I know don’t drive Hummers or own plasma TVs. They drive written-off 20-year old beater cars, live in decaying apartments, and barely survive on their low-skills jobs. The unskilled American worker is *much* worse off than they were 30 years ago, due to downward wage pressure from globalization.
That being said, I agree that the *stupid* and/or “keeping-up-with-the-Jones’ types of all income categories are less financial sound than they should be, due to the kinds of indulgences that you mention above.
–
I feel so lucky to be on a blog with people who know lot more than I do on the subject of inflation. I have been betting against inflation for the past 15 years (betting on the long side of the USTs) like a bumbling fool and making money with my ignorance. I feel so lucky that someone is manipulating the long bond market all these years so that a fool like me can keep on a roll.
When the 10-year rate goes below 3% we would know that deflation has come to America. If it goes to 8%, like the genius Greenspan says it would, then I would be hit with some losses and learn my lesson the hard way. Until then I will keep fooling around.
There is nothing like putting your money where tour mouth is to learn reality of economics and financial markets. One could have a totally wrong view and make money for 3 years but not for ten years or longer. I have lost money when I was wrong and sometimes even when I was right but the market didn’t care. Losing money can concentrate ones thoughts. If the US inflation gets above 5% for more than a year it will concentrate my mind.
Thanks guys.
Jas
I don’t think the long bond has ANYTHING to do with actual inflation but EVERYTHING with surging money supply - all these virtual dollars have to go somewhere, and the US Treasuries seem to be about the last ’safe’ harbour that this money can find (after the housing bubble burst, and the stock market also is no longer a sure thing like over the last 5 years or so). I don’t understand people (certainly not all those foreigners) who are buying ’safe’ bonds in a currency that is depreciating by the day, but that is their decision.
–
“I don’t think the long bond has ANYTHING to do with actual inflation…”
Yeah, right. One would buy German Bund that pay more than the 10-Year Note if all he, or she, was looking for safety. Why do you think that the UST is yielding lower than Bund?
Looks like everyone is smarter than the US Treasury market.
Jas
–
One more thing — with all the potential risks, can you explain why would anyone take the risk and buy 30-year UST yielding only 4.5%? I am sure that you have an explanation and I would love to hear. Wouldn’t it be safer to buy stock in an oil company or a copper company?
Jas
Jas, did you put your money where your mouth was on oil? You would have sold short at $60, right?
“I have been betting against inflation for the past 15 years (betting on the long side of the USTs) like a bumbling fool and making money with my ignorance.”
Gee, the last 15 years investing in housing has probably seen some of the greatest investment returns ever in the US, and you guys are debating economic theory on a housing blog?
It sounds very educational, but how in the hell is it going to make or save me from real estate.
Again, your intense discussions on economic theory is putting me to sleep. Lets keep the focus on hosuing.
–
“Gee, the last 15 years investing in housing has probably seen some of the greatest investment returns ever in the US, and you guys are debating economic theory on a housing blog? ”
Hmm… when did I say that I don’t invest/speculate in anything other than being long the UST for the past 15 years? As a matter of fact, I have invested in real estate during the past 20 years. The latest was purchase of two lots in 2003 (because they were very cheap) that I sold for exactly twice what I paid in 2005.
“Lets keep the focus on hosuing.”
You have no idea whatsoever as to how much inflation/deflation in the coming two years would have to do with the housing prices in 2010.
There are millions of people who have been invested in RE for the past 15 years, but how many have had the guts to be long USTs with so many scaremongers about inflation? The biggest of these scaremongers is Martin Weiss who writes Money & Markets. Maybe, you guys should take a free subscription to his e-letter.
Jas
Oh, lord, I’ve read that one for years. For entertainment more than anything else.
US Foreclosure Filings Up 68 Percent in November Over Same Month Last Year
http://tinyurl.com/yreprf
In all, 201,950 foreclosure filings were reported last month, compared with 120,334 in November 2006, Irvine-based RealtyTrac Inc. said Wednesday.
Last month’s filings fell 10 percent from October’s 224,451.
The last time there was a sequential drop in foreclosure filings was between August and September, when they fell 8 percent.
“It’s a little bit of good news in the otherwise murky real estate market right now,” said Rick Sharga, RealtyTrac’s vice president of marketing. “The fact that we’re seeing a 10 percent decrease is significant. It’s a good thing.”
The FBs must be singing, keep those good times rollin’.
–
“The FBs must be singing, keep those good times rollin’.”
The housing has bottomed, for the eighth time in the past two years.
Jas
Housing pretty much bottoms every day the housing market news looks worse than it did the previous day…
“Last month’s filings fell 10 percent from October’s 224,451.”
Hmm, last time I checked, October had more days in the month than November (approx. 3.3% more days), so I’d reckon that much of that “significant” M/M decrease in foreclosure filings can be attributed to the fact that there are fewer business days in November (don’t forget Thanksgiving holiday)
I bet December’s numbers go down too or hold steady for many of the same reasons - fewer working days in the month, holidays, etc. Plus, even big bad banks have a heart and will let an FB stay in their home over the holidays. That means the foreclosure machine will be cranking big time in January and February . . . those numbers will be fugly.
CA foreclosures dropped 20% over the month? This has got to be a large reason that the month-to-month numbers look so “good”. But what has changed that would make foreclosure LESS likely in CA? Anyone have any idea why that would be the case–is there some chicanery going on here?
Check working days!
October started on a Monday and ended on a Wednesday. 23 working days.
November had 22 weekdays, but with Thanksgiving call in 21.
10% fewer working days. And how many take off the day after thanksgiving or day before and day after?
A counter argument could be, “But, last year there wasn’t a drop in November.”
Counter-counter is that last year it was 22 vs. 21 since Oct started on a Sunday last year.
AND foreclsoures are up 68% from last year. Maybe last year the lenders weren’t as resource bound as they are now. If they had excess capacity to file notices, then 1 less working day would not be a major factor. This year, with 68% hogher workload, there is unlikely to be people sitting around with nothing to do, so 2 fewer working days is a huge hit on capacity.
AND foreclosures for November are up 68% y-o-y, but November was up 94% y-o-y. Further indication that the filers are resource bound.
Oct 2006 = 22 working days. Oct 2007 = 23 working days. Increase = 94%.
Nov 2006 = 21 working days. Nov 2007 = 21 working days. Increase = 68%
Hmmmm… October was also the highest foreclosure rate in 2005 despite starting on a Saturday. So, in 2005, Oct and Nov both had 21 days, and still Oct was higher than Nov. This signals some seasonality to October being higher than November, overcome slightly last year by the crazy fast pace of increase.
probably we get less and less foreclosures because the owners are finding it increasingly difficult to figure out who can foreclose on a property (like Deutsche Bank has found out …).
Working days. 23 in Oct. 21 in Nov.
The Conservative Origins of the Sub-Prime Mortgage Crisis
http://www.prospect.org/cs/articles?article=the_conservative_origins_of_the_subprime_mortgage_crisis
or in other words The Left’s Version of Why it’s the Right’s Fault
What do you guys think? When I read this I find nothing to suggest that it’s Bush’s fault, but the title does make you think that.
I think this debacle will be a large part of the coming election in ‘08 and the choices will most likely be:
A) Dems, who are going to fix it all with government regulation and pork or
B) Reps, who can’t do anything because a vast majority don’t believe in anything, or
C) Independent, Ron Paul, who will suck all of the R votes away and serve to elect the Dem candidate.
Peace to all,
Lip
“The best hope for real reform rests with a Democratic Party victory in November.”
That completely unsubstantiated (within the article) conclusion tells me all I need to know about the value of this article as an unbiased review of deregulation history. It’s simply meant to become talking points for stumping Democrats to connect the current president to the housing bubble pain, even though Greenspan, who served several presidents, had a major hand with his super-low interest rates. I’ll leave it up to more learned commentators as to whether the drum beat of deregulation was more or less important to the dance than the enchanting melody of low interest rates.
I would say that deregulation is probably an all-or-none proposition. Without regs, you have cut throat competition keeping the system lean but mean, whereas with regulaton you create points of interaction with bureaucrats that are opportunities for the rich and powerful to game the system. Most legislation designed to restrict free markets appears to have a built-in back door for the Trojan Horse to enter.
Ron Paul type republicans is the only hope we have for us my friends….
Got Ron Paul on the ticket?
If I didn’t hate Paul’s stance on everything not financially oriented, he’d even get this diehard democrat’s vote. For Reps, he is the best chance you have to beat the Dems.
From yesterday’s WSJ Op-Ed page:
The Clinton Housing Bubble
By Vernon L. Smith
The joint housing and mortgage-market crisis once again reminds us that all financial implosions stem from the same cause: borrowing short and lending long without enough equity to weather periodic storms in the gap between.
But this bubble was different. Besides being fueled by housing purchases and repackaged loans, each with inadequate equity — doubling down with other people’s money — at the end of the capital-gains rainbow was the right to take up to $500,000 of profit, tax free.
Thank you President Bill Clinton for your 1997 action, applauded by the banks, the realtors and all citizens in searchof half-milionaire status from an investment they could understand ans self decpeptively believe to be low risk; thank you for fueling the mother of all housing bubbles; thank you for enabling so many of us who bought second or third homes, and homes before construction began, which we then sold to someone else who dreamed of riches from owning homes long enough to sell to another fool.
…
This is an outstanding piece; unfortunately I have no link, and I don’t want to type me a river…
Another good turn of the phrase from the HBB: Type me a river.
Can’t wait to use that one!
The 500k tax gift was a doozy, but Bush ramped up the housing bubble exponentially by constantly touting the ” ownership society”, signing the subprime Bill of Rights, aka The American Dream legislation of 2003, pushing his stooge, greenslime to keep the interest rates at giveaway levels, and encouraging “shopping” as a patriotic cure for terrorism. And deregulation and lack of oversight–the mantra of the Bush administration. At the end of the day, with 2 back to back repub admins running the country into the ground with debt and deficits, there is plenty of blame and ridicule to be laid at the feet of republicans.
I think Vernon L. Smith is Alan Greenspan’s pen name.
As in, the Nobel Prize winner?
Yes.
The legislation was sponsored by two republicans and sailed through both houses with a veto-proof margins. It was non-partisan idiocy.
This is no surprise Lip. Remember the last housing bubble and who made all the funny money available with voodoo economics? RayGun.
The thing you fail to recognize with your option C is that Ron Paul is not running as an Independant AND he is a candidate that sucks away a ton of D votes, not just R votes.
“he is a candidate that sucks away a ton of D votes, not just R votes.”
Something that any educated voter hopes will happen. Suck away enough votes from dems and repubs and you have yourself a Ron Paul win.
Is that Panama City, Florida on the HBB picture show? I”m in shock! We spent summers there when I was a kid. Admittedly that was a long time ago but it was a sleepy little beach town where the tallest building was maybe 3 or 4 stories. That picture is shocking.
Chick,
Destin…ugh
I think that is Panama City, Panama.
Roidy
It is indeed Panama City, Panama. And, if you look closely at the photo, note the hovels in the foreground, while the $500k condos are off in the distance.
Roidy is right.
Panama City Beach, Florida was throwing up condo towers like crazy the last time I was there almost two years ago. Panama City itself was still sleepy.
This is what the end of the road looks like for a nation that “shops’ to keep the economy going. Ever more meshed in global central banks, selling assets to Sovereign Wealth Funds. From the link…
“That’s why the inter-central bank swap lines are possibly the most interesting aspect of the facility announced last week. The ECB can draw on billions of dollars in Fed-provided cash to fund those positions.
So, through the magic of globalisation, we have dollar paper moving off the books of the world’s banks and dealers, onto the books of the central banks.
This won’t be enough. In the end the Fed will have to take a more direct role in taking risk on to its own book. There will need to be more large sales of equity in banks and dealers, most readily to the sovereign wealth funds.”
Does this mean it’s all contained?
Before ’shopping’ was the biggest aspect of the healthful US economy, what was its measure? Manufacturing output? Raw material export?
When did consumerism become the biggest part?
Consumerism and slobbishness coincided with the war on wage earners in 1981.
If Social Security isn’t saved, give me back all those excess payroll taxes since 1983. Take it out of the seniors who spent the money.
Exactly. It is disturbing to hear the uniformed say SS won’t be there for them without thinking it through and demanding the fed’s make good on the SS promise or refund my contributions. It’s one or the other. Take your pick.
How about they just put back the contributions they stole. SS would be rolling in dough if they had left the contributions alone. Everyone laughed at Al suggesting the old “lock box,” but that’s exactly what we need.
Acknowledging the theft would put the larcenous scum in jail. Never happen.
On paper the S.S fund has trillions of dollars .
All the hand wringing over S.S is because the government has borrowed/spent “all” the surplus and has no idea how to pay it back. They are still taking in more money than they pay out and that will be true until around 2017.
We need to “demand” they (Congress) find a way to repay the fund not cut S.S. benefits
exeter wrote…”It is disturbing to hear the uniformed say SS won’t be there for them without thinking it through and demanding the fed’s make good on the SS promise or refund my contributions”
Why? I’m not uninformed, but I consider that money gone and have taken steps to ensure a comfortable retirement without SS. Perhaps you disagree, but I look at it as a check that I’m writing my parents & grandfather to allow them to continue living on their own, rather than with me…and I must prevent that from happening at all costs!
Thats your choice. My choice is to hold my govt. to account and demand they provide what they agreed to or refund my money.
exeter,
while I understand your sentiment, I suspect you can demand anything you want from the Feds, but what mechanism can you use to force them to give you your money?
Same question for folks expecting public pensions…see my post below. We know they’re massively underfunded, and with tax revenues falling, they’ll continue to be underfunded. Promises have been made, contracts signed and in the end, so what? If there isn’t the money, then the only payouts will be severly reduced or means-tested. There is no mechanism that provides for an individual to receive money that ain’t there.
“So, through the magic of globalisation, we have dollar paper moving off the books of the world’s banks and dealers, onto the books of the central banks.”
Can I short the central banks?
Buy gold?
Bloomberg has a interesting piece on a handful of hedge funds that bet against subprime mortgage market and the profits involved.
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aC5bZpU8S6f4
Wish I had been able to buy into that play. Don’t think they pick up the phone for small fry like me.
You could have made the same profit buying BIDU calls in January and rolling them over each month.
The Long Johns (British comedy duo) explain the subprime crisis:
http://www.youtube.com/watch?v=SJ_qK4g6ntM&
–
Wild swings in MBA’s Mortgage Applications Index…
WASHINGTON, D.C. (December 19, 2007) — The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending December 14, 2007. The Market Composite Index, a measure of mortgage loan application volume, was 653.8, a decrease of 19.5 percent on a seasonally adjusted basis from 811.8 one week earlier. On an unadjusted basis, the Index decreased 21.3 percent compared with the previous week and was up 1.7 percent compared with the same week one year earlier.
The Refinance Index decreased 27.3 percent to 2093.6 from 2879.8 the previous week and the seasonally adjusted Purchase Index decreased 10.6 percent to 422.2 from 472.0 one week earlier. On an unadjusted basis, the Purchase Index decreased 13.1 percent to 317.1 from 364.8 the previous week. The seasonally adjusted Conventional Index decreased 20.3 percent to 932.8 from 1169.9 the previous week, and the seasonally adjusted Government Index decreased 12.2 percent to 188.7 from 214.9 the previous week.
The four week moving average for the seasonally adjusted Market Index is down 1.0 percent to 725.9 from 732.9. The four week moving average is down 0.1 percent to 440.4 from 440.9 for the Purchase Index, while this average is down 1.1 percent to 2456.9 from 2483.5 for the Refinance Index.
The refinance share of mortgage activity decreased to 53.2 percent of total applications from 57.6 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 9.9 from 9.4 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages increased to 6.18 percent from 6.07 percent, with points decreasing to 1.12 from 1.17 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to 5.78 percent from 5.72 percent, with points increasing to 1.10 from 1.01 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year ARMs increased to 6.48 percent from 6.31 percent, with points decreasing to 0.95 from 0.97 (including the origination fee) for 80 percent LTV loans.
http://www.mortgagebankers.org/NewsandMedia/PressCenter/58951.htm
Jas
Dang Jas,
I love math but my eyes are bugged on that post!
Leigh
Pension Fund Shortages Create Hard Choices
As predicted by hbb. Half the states have chronic public pension shortages that will cause them to choose between funding public pensions and cutting public services. And this is only state pension liabilities. City and local public pension costs not counted in this study.
http://www.nytimes.com/2007/12/19/business/19pension.html?_r=1&hp&oref=slogin
Why I haven’t invested in state/municipal funds in the past couple of years. I think many of these entities are insolvent.
Just heard on the local radio station this morning that one of the larger municipalities in the region (it was either Lowell or Lawrence) fired 40 city employees yesterday, and will fire another 20 today.
This is just the tip of the iceberg. The cuts in public services in Massachusetts will be deep and devastating. Just pray you don’t have to call 911 within the next 5 or 10 years.
RE: fired 40 city employees yesterday, and will fire another 20 today.
It was Lawrence.
Of course the majority of those let go where in the Water & Sewer Dept..
It’s always those muni employees who actually DO SOMETHING for the preponderance of taxpayers that are the first ones cut.
It’s the first act of the subtle extortion. Next it will be the cops and firemen.
Heaven forbid any social welfare advocates or counselors should hit the road.
My own (Australian Federal Government) pension scheme was closed to new entrants in the early 1990’s, mainly because of a single financial adviser in Canberra who had a weekly advice column in the local paper.
He kept writing over and over again about the advantages of one particular option in the scheme, so more and more people started picking that option and the Government Actuary started reporting in more and more alarming terms about the unfunded liability trend. Finally the government of the day decided they had to close the loophole.
The replacement scheme lasted 10 years before it, too, became regarded as overly generous. Now new staff get what we should have all had in the first place; a simple (and portable) accumulation scheme with employer co-contribution.
FYI in NY State, the state fund covers state employees and local employees outside NYC, but NYC local government has its own fund. One likely result is to have state taxes raised everywhere cover local government pensions outside, but not inside, NYC, destroying the city once again.
In any event, by not including NYC Pew missed half the story here.
Moreover, NYC and NY State say their pensions are funded based on very optimistic assumptions — such as an 8 percent rate of return from today’s high asset levels.
Mildly housing related:
Now that Centro’s bubble has burst, all sorts of interesting practices are being held up to the light of day here down under.
Like the Employee Stock Programme; 10-year INTEREST-FREE NON-RECOURSE loans from the company to buy company stock. All the top execs loaded up on millions of bucks worth over the last few years.
In the MSFM the sob stories are starting about the megabucks the top guys there have lost on paper. But it isn’t as if they’ve put up any of their OWN money, is it?
Morgan Stanley says 9.4 Billion $ write down “disappointing”.
–
And “potential further loss from sub-prime.”
Jas
Morgan Stanley also sold out. But instead of selling out to muslims, they sold out to the Chinese.
http://us.rd.yahoo.com/finance/finhome/topstories/apf;_ylt=Ai3OCWLyhMlgzua1md6ykS67YWsA/*http://biz.yahoo.com/ap/071219/earns_morgan_stanley.html
–
They would have sold to Muslims if they were smarter. Relatively, the Chinese money is smarter money than the Middle-Eastern money.
Jas
for all you sooth sayers for body language, did you catch any part of the news conference?
Morgan Stanley CEO John J Mack, IMHO appears defeated.
9.4 Billion write off is not big enough for Morgan Stanley, They are only mildly bullish on write offs under 10 billion.
–
Morgan Stanley earnings, or lack thereof, report is out. Looks very bad. Loss of $3.61 per share. $5.7B “mortgage related charge.”
For full disclosure, I have lots of long-term puts on MS and many other Fraudentials, including the index XLF.
Jas
I’m sure you heard the rumors this week that they are going to need to raise money.
Question: has anyone at MS gotten a bonus? Anybody know?
The CEO said he won’t take a bonus this year. They also sold a piece of the company to China for $5 billion.
I used to work at morgan, but am loath to ask the few friends I have who still work there. That conference was sad–mack’s nickname was mack the knife, for his willingness to fire anybody who didn’t beat his numbers. He got the job after a rebellion ousted purcell, and his mission was to get morgan back in competitive position with goldman, after the stock and company languished under the lackluster purcell. vikram pandit ran the prop trading desk and was a huge profit center–losing pandit, who left in the upheaval, was a huge loss for morgan, and mack couldn’t lure him back. clearly pandit wanted the top job himself.
This is a huge hit for morgan, not just financially, but for morale…watch the departures and layoffs start.
Wonder how Pandit liked the “reception” he got from the market at Citi? Nice shot to the ego, eh?
“The writedown Morgan Stanley took this quarter is deeply disappointing — to me, to our colleagues, to our board and to our shareholders,” said Chairman and Chief Executive John Mack. Mr. Mack said the he will forego his 2007 bonus, saying accountability rests with him.”
WSJ
If I were a rock star I’d throw my laptop across the room.
We lost 5b, but don’t worry, I’m giving up my bonus!
This isn’t about greed and poor management. It’s about people making tremendous personal sacrifices to do what’s right. No doubt if Kennedy were still alive he’d add a new chapter to “Profiles in Courage”, John Mack.
It’s like a security guard not showing up for a week and then saying, it’s OK, you don’t have to pay me for the week.
Dude, your fired.
Correction, “you’re fired”
Step into my office, why? Cause your Fuc$%@ fired!
Jas,
What is the difference between shorting XLF or buying the inverse SKF? I have done very well with SKF. SKF is 2X.
–
I only buy/sell long-term puts on XLF. They were the best buys compared to most puts on Fraudentials (now they are also quite rich). They are also very liquid. I don’t follow SKF so I can’t comment.
Jas
Bloomy Radio interviewed analyst this a.m. He indicated he expects box builder bankruptcies ahead but wouldn’t commit to who or which.
Pick any one.
Given the choice I’d love to see Bob Hole crash and burn for his comments that we’d all live with mom and dad’s corpse before we’d ever be able to afford to buy.
I cannot resist~
May he sit in his…er…deep doo doo
Burn, Morgan Stanley, burn.
$9.4 billion writedown for 4Q.
Wow. Just wow.
– Judge Smales
“You’ll get nothing and like it”
–
“Burn, Morgan Stanley, burn.”
The Scam is up in pre-market! Why? For reporting much bigger than expected loss! We must be in an Orwellian world.
Jas
Unless decline in book value restricts future profitability there is not really a justification for stock decline. Although loss of capital does hurt, future profitability is more closely tied to your personnel, perception of other IBs and market participants, participation in the top tier in syndications/corporate finance deals (the “bulge group”), etc.
Then, measure the restriction of future profitability versus decline in uncertainty of balance sheet due to write-offs, a positive. Voila - market may not be as irrational as it appears.
Along those same lines, Goldman’s problem is that they admit to having a bad late November and say that this quarter may be challenging. Market wants to know: how much have you lost in December, and have you got those losing positions righted? GS can’t advance until there is more clarity.
“$9.4 billion writedown for 4Q”
Here come the Judge……….
On CNBC Mayor Bloomberg said of Morgan Stanleys CEO Mack is a “wonderful corporate citizen”. I’m sure he would say the same of Mr. Putin Time magazines man of the year.
“wonderful corporate citizen”.
Billy Squire:
“Stroke me, stroke me…stroke, stroke.”
Elitist tools.
I’m sure he would say the same of Mr. Putin Time magazines man of the year.
Remember when the smirking chimp said he looked in to the eyes of Putin and saw his soul and found he was friendly?
I do.
2008 Predictions:
1) More multi-billion dollar subprime debt writedowns to come;
2) More futile helicopter drops of liquidity into bankers’ open arms.
Second wave of SIV liquidity problems looms
By Paul J Davies
Published: December 18 2007 02:56 | Last updated: December 18 2007 02:56
The funding problems for the structured investment vehicles (SIVs) that have been at the centre of this year’s liquidity troubles are far from over in spite of a number of banks stepping in to support their vehicles.
January will bring the start of a second wave of liquidity problems for SIVs as the vast majority of medium-term funding starts to come due for repayment, according to a report from Dresdner Kleinwort analysts to be published on Wednesday.
EDITOR’S CHOICE
Superfund banks shrug off fall in debt appetite - Dec-19
Municipal SIV advocates fly into turbulence - Dec-16
French banks set up fund as safety net - Dec-13
Banks and investors seek SIV exit routes - Dec-11
SocGen joins other banks to bail out its SIV - Dec-10
On Wall St: Super fund pill can’t treat the SIV illness - Dec-07
http://www.ft.com/cms/s/371ee924-acf8-11dc-b51b-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F371ee924-acf8-11dc-b51b-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
There was one of those heart-warming stories in our paper yesterday (sorry no link) about a woman from California who tracked down an old boyfriend in NB - she hadn’t seen him for 50 years. At the end of the story she mentioned she had two homes in Cali. and was looking to sell one of them…the housing bubble creeps into every story!
“…and was looking to sell one of them…”
To the old boyfriend?
“Honey, if you still love me, you’ll buy this house.”
[ Boyfriend runs rapidly in the opposite direction. ]
“Honey, this house is SPECIAL! Why won’t you buy it?”
inflation to be more protracted:
Dec. 19 (Bloomberg) — European Central Bank President Jean- Claude Trichet said his economy faced a “more protracted” period of elevated inflation than previously expected, signaling he’s not planning to cut interest rates to ease a credit squeeze.
“The risks to price stability over the medium term are clearly on the upside,” Trichet told the European Parliament’s economic and monetary affairs committee in Brussels today. “The ECB’s Governing Council stands ready to counter upside risks to price stability.”
European inflation accelerated to 3.1 percent last month, the fastest pace since May 2001 as food prices soared.
http://tinyurl.com/2oxgv4
why do these idiots keep talking about risk while everyone can see with their own eyes what is happening? EU foodprice inflation is around 20% for this year, energy around 18%, there is hardly a necessary item that is rising at less than double-digit rates. Only rents in Netherlands have risen only 1.5% this year, putting a huge downside influence on the CPI. If it weren’t for rent control (part of a deal to keep the Dutch HMD untouched) inflation in Netherlands would be out of control. Unfortunately, many people cannot rent in the state-controlled sector and have to pay rent increases of 10-20% every year (fortunately for the Ministry of Truth, free market rents are not used in the Dutch CPI calculations). Why would government workers get 5-10% yearly pay increases if inflation is contained??
Two pieces of anecdotal evidence on the housing industry and economy: I ordered 3 Dell laptops for my business a week ago. Dell said they would ship on the 18th and might get there before the 24th. They arrived on the 17th…I also have a friend that works at a company that makes custom doors. The kind you put on high end homes. She said they have laid off half the work force and have liens on many builders…She is getting a forced vacation for the next two weeks. She is very scared…I live in central fl.
I bought a Dell laptop last week too. I ordered last Wednesday and it arrived on Monday morning! In my experience Dell has always shipped systems quickly, but I was sort of taken aback by this as it was during the holiday season.
BTW, the newer generation of Dell laptops is a major improvement over the last gen. The new ones have metal cases and the overall build quality is much, much better. They also seem to have solved the overheating wrist-rest problem.
Joe S, I have never ordered Dells before.They seem to be
pretty nice and easy to set up. Hope they hold up!
I won’t buy from dell because they charge you sales tax. So you might find a better deal elsewhere
Funny you should mention fast shipping. I’ve been ordering hobby supplies online lately - and all my orders have arrived lightning fast - like never before. Emails and receipts inidcate my orders were processed as late as 10 p.m. on a Friday and many shipped out over the weekend - and these are all Mom and Pop operations - not mega sites. Business has got to be slow!
yeah, same in Europe over the last few months - especially with international shipping there was a big speedup lately, like next day delivery instead of the usual 3-4 days. Judging from my talk with the drivers from UPS etc. business has been slowing for some time.
The place where I work is up 30% from last year - and that was starting from around $100 million. Vast majority was phone sales and internet orders.
I’m typing y’all a river on my second Dell system. (The first got old and tired after five years of heavy use. This one’s rolling right along as it heads into its third year.)
As for the custom house parts kind of purchase, I’ve been on a pay-as-I-go pace to replace the windows on the Arizona Slim Ranch. Have replaced five of nine, and am waiting for the window manufacturer to start offering some great deals before I finish the rest. Something tells me that those great deals will start materializing soon.
Just don’t let warranty claims skew your decision…
They might not be there to honor their terms.
Dell has been like that for a long time. I think it’s more of an attempt to game their customers than any indication of their market status. Everyone loves fast shipping. So if you tell someone it should arrive in a three day window, and it arrives the day before that three day window starts, you feel lucky and special.
–
Time’s Man of the Year is… Vlady.
Jas
Ignore it. It’s just a magazine promotion. Nothing more.
Congratulations Vladimir Vladimirovich!!
Time looked into his soul.
it was a shoe, stamped “You’re Chinas Bit*h” tm
UK builders cut prices:
House sellers are cutting prices at the fastest rate for five years in a further sign that the property market is set for a serious slowdown.
Asking prices have fallen by 3.2 per cent since November, according to data from Rightmove, a website that gathers information on nine out of 10 houses on the market.
Forecasters say that while prices may only dip a little, house transactions will drop by 20 per cent.
This means that the average property has lost £7,590 this month and is valued at £232,396.
http://tinyurl.com/2spwh5
buy-to-let plunge begins:
The days of making a quick buck as a buy-to-let landlord could be numbered, as figures released by Hamptons International today revealed that the number of buy-to-let mortgages taken out plunged nearly 26pc last month.
As enthusiasm for investing in buy-to-let properties falters in the face of a cooling property market, the proportion of mortgages taken out in order to purchase buy-to-let properties fell back to 18pc during November, down from 44pc in the same period last year.
The estate agent’s mortgage-tracker report also found that the proportion of buy-to-let landlords remortgaging jumped 6.2pc in the same period.
http://tinyurl.com/37snrl
as far as I know the buy-to-let crowd was already in trouble for much longer (like the whole year), because the amount of these properties is FAR bigger in many areas of the UK than actual market demand. Prices for some of these properties have gone down nearly 20% from the peak - but they are not representative of the UK housing market.
Good morning all!
FYI, “phillygal” and I are planning a rendezvous for drinks/dinner after work tomorrow (Thursday 12/20) at the Park Hyatt in downtown Philadelphia. Any of you who can make it are welcome to join us.
If you’d like to come along, please e-mail me your contact info at [ricercare2001 at yahoo dot com] so we can recognize each other, keep up w/ any last minute changes, etc.
Hope to see some of you there!
Regards, LehighValleyGuy
Crisis in Graphics…
http://news.bbc.co.uk/2/hi/business/7073131.stm?src=rss
like a rock:
The Northern Rock crisis is threatening to cost every taxpayer up to £1,800, as it emerged Gordon Brown was warned a year ago that “urgent action” was needed to prevent a banking meltdown.
Ministers yesterday announced that public guarantees to the beleaguered bank could rise to £57 billion - almost as much as the annual Whitehall education budget - with a full-scale nationalisation now thought to be imminent.
http://tinyurl.com/3cvrme
–
Jeb (Jab?) Bush was the advisor to Lehman Brothers when it sold toxic mortgage securities to the Florida fund.
The financial system is infested with conflicts of interests.
Jas
“Jeb (Jab?) Bush was the advisor to Lehman Brothers when it sold toxic mortgage securities to the Florida fund.”
See the mess in Guv Jeb’s Florida, live the fallout from Prez George’s policies, gasp at the history of the Silverado S&L fiasco. Stare in shock at all the chimps driving along who voted for dumb-down man twice. Countdown time for the next bum to take the reigns. Will it be Huck the Baptist? Hillary the Iron Maiden? Ruddy the Capo? McCain the forever POW? General Petreaus America needs someone like you.
No No Doc
http://www.stockmania.com/index.php?showimage=116
The times they are a changin’. Looks like these new rules may be a little late. Hey, better late than never. Just maybe, this is a step in the right direction.
“Bill Loney’s”
lol
No Soup for You! This can’t be good for the Manhattan market. Walk to shul?
Bear Stearns (BSC) CEO James Cayne and other senior executives are expected to give up their bonuses this year as the company falls on hard times. Bear expects to report its first ever quarterly loss tomorrow. According to the WSJ, Bear’s current executive compensation plan, adopted in 1986, mandates that the firm hit a minimum return-on-equity level before senior brass can receive bonuses, which the company barely met this year.
“Bear Stearns (BSC) CEO James Cayne and other senior executives are expected to give up their bonuses this year as the company falls on hard times.”
Sniff. Sob… Maybe folks can take up a collection for the poor dears. How about Bear Stearns bell ringers in front of the department stores? I mean, after all, where would the city of New York be without these great financial minds?
I have yet to see anybody break out in tears, or fall from windows, in my neighborhoods. We live right around the corner from the stock exchange. I am hoping soon that it will be “raining men”. Make that “raining pigmen”. I’ll be singing in the rain like a scene from Clockwork Orange.
Read your email. Now.
Cayne wasn’t able, obviously.
He should consider financide (defenestration) and save us a lengthy show trial, throwing good money after bad.
Cayne wasn’t able, obviously.
He should consider financide (defenestration) and save us a lengthy show trial, throwing good money after bad.
Wait, it says they are EXPECTED to give them up, but they only have to if they don’t hit a specific return, which they did hit, barely.
So does that mean Bear Stearns CEOs won’t meet expectations again?
Amazing how bonuses go from the penthouse to the outhouse in one year, eh?
Kind of like the RE market or the Nasdaq bubble?
Predicted here a year ago.
That Mr. Cayne is still employed amazes me, the board of directors at Bear Stearns should be in jail for malfeasance.
Email me off line. I’ve got something interesting to show you.
Ha! I just realized what that sounded like. LOL. It’s market related if I have to actually say that.
Mmm hmm.
I’m gettin’ nuttin’ for Christmas
Mommy and Daddy are mad.
I’m gettin’ nuttin’ for Christmas
‘Cause I ain’t been nuttin’ but bad.
California Assembly approves plan to overhaul health care system
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/12/18/MNB4U06GL.DTL
The new system, which also would require voter approval, would be financed by a new tax on hospitals, an increase in the tobacco tax, billions of new federal matching funds, and a tax on employers of up to 6.5 percent of their payrolls.
I got a feeling that more inventory may on its way.
This is great news, actually. I love California, but I hate the socialists. I still have a few capitalist friends left in LA and San Diego, friends who have been on the edge of moving away. Most of them have significant equity in the homes they bought in the 80s, so moving is not a big concern.
Now it looks like this will force them to move. A few have secretly told me that they hate their employees, and can’t wait for a reason to leave. It’s funny when bleeding heart socialists work for capitalists, and then they complain when the capitalists take off because of the socialists’ programs being enforced.
The good news is that they’ll likely move the businesses to States where I would do business in (I refuse to do business in Cali or NY, I even ended a contract with a major client after Bear Stearns took over their Broker-Dealer business years ago). Then, when I make more money because they’ll be more profitable without having to pay ridiculous Cali overhead, I can then go and maybe buy their old Cali homes from the socialists who will surely be bankrupt as the rest of the brain-drain finishes its wonderful and beautiful movements.
The poorer California gets, the more likely I am to move there just for a winter home. Anyone know a large electric fence builder in San Diego and private security contractor?
BlackWater
“and a tax on employers of up to 6.5 percent of their payrolls”
—————
Well, I was wondering how Arizona was going to entice more and more California companies to relocate during the next few years, and now I know. It will be nice to see Intel start moving all that production out of the Bay area down to Chandler, where they just invested another $3 Billion.
Thanks leftists!
As-owner,
The NYTimes had a major editorial the other day, Blazing Arizona, predicting the virtual collapse of the Arizona economy after Jan. 1, all because Arizona dares to enforce the immigration laws. And of course, the NYTimes has a reliable crystal ball for making economic predictions–witness how well they did calling the housing bubble/insolvency crisis.
Anyways, the joke may be that Arizona, freed of illegals and their costs might snag businesses from overtaxes and overleveraged California. Wouldn’t that be sweet.
i’ll look for the link to that editorial.
That employer tax is ridiculous. You gotta be kidding me. Damn California let me out!
The WSJ is all mortgage doom today:
o Shock — prime mortgage borrowers may also default.
o Greenspan — climactic selling leading to lower prices required.
o Summers — bad economy likely, tax cuts, massive spending, cash helicopter drops, liberalized bankruptcy rules required.
Here’s your sign:
2 of the big pieces of American finance (citi & m.s.) have had to walk the plank and sell out to foreigners with money, to stay alive…
The shock part is interesting. If prime mortgages fall-then it cannot be contained to subprime (the garbage the fed is fueling) and the public will figure it out…eventually…its price!
Until the pricing on Prime is reduced to reality.Prime is really sub-prime.
Bush’s Subprime Plan Spells a Raw Deal for 2008: Amity Shlaes
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_shlaes&sid=aWtZtQzuuDqY
“The appeal of the adjustable-rate loan, never mind that of the subprime no-doc mortgage, lay precisely in that it allowed borrowers to fool themselves about the true price of the debt they were assuming.”
They can come up with all the plans that they want, but in the end, people bought more house than they could afford, and nothing they do will change that fact.
Paulson’s Dangerous Precedent
By Doug Dachille
Word Count: 785
Treasury Secretary Hank Paulson’s rescue plan has landed amid the wreckage of the mortgage market. Unfortunately, the proposal lacks balance.
The Treasury secretary has effectively given borrowers a unifying voice. Borrowers preserve their value proposition under the plan as they are able to “freeze” attractive rates and enjoy the future benefits of potential property appreciation. Investors, however, will not be able to enjoy the original value proposition and could face significant further losses.
http://online.wsj.com/article/SB119802939432038365.html?mod=opinion_main_commentaries
does this mean it is even more attractive than previously to falsily state that a property is your primary home?
I am sure the teaser-freezer contains provisions to verify that a home is a primary residence. RIGHT???
http://www.minyanville.com/articles/MER-GS/index/a/15270
Wow.
Scary.
“embrace the cold reality of a situation that has possibly not yet seen its darkest hour”
From the link. Thanks.
I was in a meeting yesterday with a relatively senior person in a sizeable regional bank. The subprime slime is affecting even this generally conservative bank. REO’s at all time high, hundreds of employees layed off already (more to come), scaled back expansion plans.
Now, Even Borrowers With Good Credit Pose Risks
“There’s been a change in social attitudes toward default… We’re seeing people who are current on their credit cards but are defaulting on their mortgages,” Mr. Lewis said. “I’m astonished that people would walk away from their homes.”
That is because the house is underwater.
http://tinyurl.com/3954xo
WSJ
The credit-card is the umbilical cord for most mopes, and we eradicated shame eons ago, so you go with the plastic that got you here.
A $500 Billion Correction
By Steven Pearlstein
Wednesday, December 19, 2007;
“…Meanwhile, back at the Fed, the board of governors yesterday proposed rules to prevent the kind of loosey-goosey mortgage lending that helped get us into this trouble in the first place. At the Fed, they think of this initiative as a timely response to an unanticipated breakdown of market discipline. In the newspaper business, we’d call it a correction.
Lesson 1 from the subprime fiasco: Industry self-regulation almost never works.
Lesson 2: Disclosure alone won’t deter bad behavior.
Lesson 3: Market discipline can be easily corrupted.
Lesson 4: Even sophisticated buyers and sellers cannot always protect themselves, let alone the safety and soundness of the financial system.
Deregulation zealots and free-market purists may not value things like fairness or stability, but the rest of us do. That’s why people are willing to accept a measure of lost innovation and lost output that inevitably results from economic regulation. And it is why people are willing to have their governments pump half a trillion dollars into the private banking system to avoid a financial meltdown….”
Washington Post
http://tinyurl.com/2gfl8f
10:01 Bid-to-cover ratio 3.08 for Fed 28-day credits
10:01 93 banks bid $61.6 billion on Fed 28-day credits
10:01 Fed auctions $20 billion in 28-day credits at 4.65%
“And it is why people are willing to have their governments pump half a trillion dollars into the private banking system to avoid a financial meltdown….”
‘People’ = central bankers
“Jeb (Jab?) Bush was the advisor to Lehman Brothers when it sold toxic mortgage securities to the Florida fund.”
See the mess in Guv Jeb’s Florida, live the fallout from Prez George’s policies, gasp at the history of the Silverado S&L fiasco. Stare in shock at all the chimps driving along who voted for dumb-down man twice. Countdown time for the next bum to take the reigns. Will it be Huck the Baptist? Hillary the Iron Maiden? Rudy the Capo? McCain the forever POW? General Petreaus, America needs someone like you.
Rudy the Capo. LOL! He wishes!
–
“McCain the forever POW?”
He will appoint Greenspan and Kudlow to straighten all our economic problems including the mortgage mess.
McCain: “We are the greatest exporting nation and the greatest importing nation.”
Rught on one count. The greatest exporting nation is Germany. China plans to replace Germany.
Aren’t we lucky to have such wonderful choices for the Prsident?
Jas
Memorable quote:
“If he’s alive or dead it doesn’t matter. If he’s dead, just prop him up and put some dark glasses on him like, like ‘Weekend at Bernie’s,’” McCain joked. “Let’s get the best minds in America together and fix this tax code.”
http://www.huffingtonpost.com/2007/10/05/mccain-id-still-appoint_n_67291.html
–
To cheer up inflationsts…
The Coming Oil Crash
by John Cassidy January 2008 Issue
Crude at $100 a barrel makes good headlines but ignores basic economics. Why oil prices are in for a 50 percent drop.
If you haven’t got the message that something disturbing is happening in the oil world, stop by my office. On my desk, I have a pile of books a foot high with titles like Out of Gas, The End of Oil, and Twilight in the Desert. The authors range from geologists to journalists to policy wonks, and they all tell the same story.
For years, oil industry executives dismissed fears of an energy crisis, attributing rising gasoline prices to unrest in the Middle East, Wall Street speculation, and temporary interruptions in supply. But recently, as the price of crude has bounced around $100 a barrel, even some establishment figures have been making alarmist noises. The Paris-based International Energy Agency warned of a possible “supply crunch” within five years. Its chief economist, Fatih Birol, said prices could reach such a high level that “the wheels may fall off” the global economy. In the U.S., the National Petroleum Council, a federal advisory group, said that as the economies of China and India continue to expand, global energy consumption will rise by 50 percent over the coming quarter of a century. “There is no quick fix,” said Lee Raymond, former chairman of Exxon Mobil, who leads the council.
Perhaps not. But the experts who are predicting the worst, based on geology and geopolitics, are missing the crucial role that economic incentives play in determining the price of crude. The tripling of oil prices since the summer of 2003 has unleashed forces that within the next two or three years will bring oil prices tumbling back down to below $50 a barrel. Looking even further ahead, prices could easily fall to $30 a barrel or even lower. So before you trade in your Cadillac Escalade for a Toyota Prius, think twice: $1.50-a-gallon gas might not be gone forever.
…
http://www.portfolio.com/views/columns/2007/12/17/Why-Oil-Prices-Will-Drop?print=true
Jas
Chicken or egg. What are you gonna choose.
–
Egg.
Jas
Causality dillemmas are a bitch aren’t they?
I’m a wimp, I choose both.
–
People have accused me of lot of things but never of being a whimp.
Jas
It’s too easy for me to “chicken out” on issues like these and play both sides.
So kudos to you for making a stand!
Jas,
I agree with your deflation expectations. Extreme credit expansion is historically followed by deflation. It won’t be pretty.
Already, in Texas and California, hundreds of mothballed, low-producing stripper wells have been brought back into production.
Drive by a small oil field (4-5 rigs) off 101 in Ventura, CA . They are pumping all day long. For years they sat mothballed. Also, along the 5 in Santa Clarita area you can see some old oil well working again. I always wondered who owned these and why they did not take them down. Oil at $90/ barrel Now I know!
You should be short oil. You will make a fortune.
CEOs Gone Wild Are 2007’s Real-Life Show
Yahoo
Tomnitz wins the year’s “at least he’s honest” award. The CEO of homebuilder D.R. Horton told investors in March, “I don’t want to be too sophisticated here, but ‘07 is going to suck, all 12 months of the calendar year.”
He was right.
Horton swung to a fourth-quarter loss, and its stock lost half its value over the year.
In July, he said, “It is now clear that the selling season did not materialize this year. It is unclear to us when the housing recovery will begin … we don’t see one on the horizon.”
Tomnitz also had the good graces to exercise options on 254,000 shares in June and hold them, treating his company’s stock as — gasp!– a good investment.
Prize: An investor relations merit badge.
http://tinyurl.com/yuhfqk
what, no set of steak knives?
Can anyone who believes this will not accelerate the housing crash please explain why not? I cannot believe the audacity of measures to require income verification on a loan application.
Fed to rein in shady lending practices
Risky loans led to housing crisis
By David Cho
THE WASHINGTON POST
December 19, 2007
WASHINGTON – The Federal Reserve proposed new regulations yesterday to clean up a broad array of deceptive mortgage lending practices, a move that represents the central bank’s most significant response to the nation’s housing crisis.
http://www.signonsandiego.com/uniontrib/20071219/news_1n19fed.html
I guess with the former Treasury secretary calling for $50 bn - $75 bn in direct stimulus from the sideline of the playing field, it is safe to conclude that we have not yet run out of moneys?
PAGE ONE
Fed’s New Rules On Mortgages Draw Hostility
By DAMIAN PALETTA and JAMES R. HAGERTY
December 19, 2007; Page A1
Concerns about the U.S. mortgage crisis and turmoil in global credit markets intensified, with U.S. policy makers seeking to clamp down on the practices that created the crisis and Europe’s central bank pouring an unprecedented half-trillion dollars into an effort to soothe markets.
The Federal Reserve proposed new rules that would sharply curtail the kinds of high-risk mortgages largely responsible for the global credit crunch. But the proposal drew a lukewarm, and occasionally hostile, reaction from lawmakers and other critics, who called for more-aggressive action.
…
In Washington, the Fed’s proposal was greeted with jeers from influential Democrats in Congress. And in a signal of the fast-changing nature of the political debate, former Clinton Treasury Secretary Lawrence Summers called for a $50 billion to $75 billion stimulus package, including universal tax rebates, if the nation’s economy shows no sign of improvement by early next year.
Democratic lawmakers pounced on the central bank for having failed to act before the current wave of home foreclosures and for not seeking bigger changes in mortgage-industry practices. They noted the Fed’s proposal comes too late to help many homeowners, and that it addresses a market for risky mortgages, or subprime home loans, that has largely dried up.
http://online.wsj.com/article/SB119798901839036859.html?mod=todays_us_nonsub_page_one
P.S. I don’t get what kind of improvement Summers is calling for, given that unemployment is low, the stock market is ever-resilient, and we have been repeatedly assured the economy is strong and there will be no recession in 2008? It seems as though the guy is asking for the moon — how can Goldilocks possibly get any cheerier than she already is at the moment?
The housing market news has never looked worse in San Diego. Ergo a bottom must be nigh at hand.
Bad news continues to build in the region
Nov. home prices, sales plummet; has market hit bottom?
By Roger Showley
STAFF WRITER
December 19, 2007
Southern California’s housing market descended into further negative territory last month as prices and sales plummeted at a double-digit rate, with only a wisp of a sign that the bottom might be at hand, DataQuick Information Systems reported yesterday.
http://www.signonsandiego.com/uniontrib/20071219/news_1b19housing.html
The MSM bottom-caller brigade is clueless about one important point: With the various housing market bailout attempts that are getting passed by U.S. policymakers, plus central bankers all over the planet leaning into the wind of an inevitable credit market correction, this mess may well take many years to play out. I predict many, many more bottom calls in 2008!
Table which accompanies the article shows median price changes from Nov 06 — Nov 07
LA -3.5%
OC -6.5%
Riverside -16.5%
San Bernardino -13.2%
San Diego -9.7%
Ventura -9.7%
TOTAL -10.3%
Since the “total” only recently dipped into negative territory, it seems reasonable to conjecture that prices are falling at more than a 10 percent annualized rate at this point.
We are sure lucky the SoCal economy is not in a recession, or these across-the-board housing price declines would be downright worrisome!
Not to worry — real estate always goes up in the long run.
Amigos of Tijuana-adjacent, I beg you…
Paint the donkeys to look like zebras, to save your eCONomy
PB they broke ground on Moonlight Lofts.
The billboard says: 18 lofts, one ocean!
My new ‘hood has Fire Mts McMansions starting at (fill in the blanks)
Out my garden I can see a whole huge area being carved up for a new GIGANTIC shopping center.
Loudoun County, VA - the wealthiest county in the nation (income per household) - facing a budge shortfall of $251 million due to housing downturn.
http://tinyurl.com/2em8la
What the article doesn’t mention is that even though population in the county increased 52% the past 5 years, the budget increased 139%. Methinks some cuts are in order.
Writedowns / stocks up
http://www.marketwatch.com/tools/marketsummary/
Spoke too soon? (I hate it when the twists and turns of a volatile stock market make my previous posts look silly…)
MARKET SNAPSHOT | Portfolios
Stocks on the rise
Indexes stabilize, pointing upward after erasing early dips, with Morgan Stanley results and Fed auction among focuses.
Got a bit ahead of yerselves, eh MarketWatchers?
MarketWatch.com
December 19, 2007 12:33 P.M.EST
MARKET SNAPSHOT | Portfolios
Stocks retrench
Indexes complete intraday roundtrip, with Morgan results and Fed auction among focuses.
Price support at DJIA = 13,200 is holding…
DJIA = 13,200 or bust…
Fire losses are a drop in the bucket compared to home equity losses due to falling SoCal home prices.
California fires caused up to $335 mln in losses: Allstate
By John Letzing, MarketWatch
SAN FRANCISCO (MarketWatch) — Insurance company Allstate Corp. said Tuesday that the wildfires that blanketed southern California in October have resulted in more than 7,000 claims and up to $335 million in “catastrophe losses” to be recorded in the fourth quarter of 2007.
http://www.marketwatch.com/news/story/california-fires-caused-up-335/story.aspx?guid=%7B7B852DC9%2DB499%2D4C1E%2D8641%2DE8D74166EFB1%7D
Fed to lend $20 billion to banks
Wednesday December 19, 10:55 am ET
By Paul R. La Monica, CNNMoney.com editor at large
The Federal Reserve announced Wednesday that it was lending $20 billion to banks in the first of four special auctions designed to help alleviate the credit crunch on Wall Street.
http://biz.yahoo.com/cnnm/071219/121907_fed_auctions.html?.v=5
Hovnanian’s 4Q Loss Jumps Fourfold
Wednesday December 19, 10:58 am ET
By Jeffrey Gold, AP Business Writer
Hovnanian Reports $469.3 Million 4Q Loss Amid Housing Slump, Accounting Charge
http://biz.yahoo.com/ap/071219/earns_hovnanian.html?.v=6
Monetary rescue helicopters getting bigger
By Gillian Tett
Published: December 18 2007 21:15 | Last updated: December 18 2007 21:15
http://www.ft.com/cms/s/73d95e48-adad-11dc-9386-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F73d95e48-adad-11dc-9386-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Does anyone else have the feeling these massive helicopter drops will mainly succeed in creating volatility and confusion in global financial markets for 2008? I am thinking the impulse of this week’s 500 euro helicopter drop may be somewhat akin to the impact of the December 24, 2004 Indonesian earthquake on the coastal zone of the Indian Ocean.
… but the trouble is that unlike with the real quake, all this money takes months to wash ashore. By the time everybody seas the Weimar tsunami arriving at the shore it will be too late to run. There are even people like Jas who enjoy picking some profits in low time while the water is temporarily receiding …
sorry for the usual spelling errors
above should read:
… in low tide while the water is temporarily receding.
nice analogy - 500 billion makes quite a splash..
overall, i think we are at the stage in this whole mess where a bunch of people are standing on the beach, slack-jawed, watching the water rushing out and marveling at the flopping fish and pretty shells. some are running for higher ground…
I am trying very hard to not impolitely gawk at all the naked swimmers now lying stranded on the waterless beach…
US Foreclosure Filings Up 68 Pct in Nov.
Wednesday December 19, 6:55 am ET
By Alex Veiga, AP Business Writer
US Foreclosure Filings Up 68 Percent in November Over Same Month Last Year
http://biz.yahoo.com/ap/071219/foreclosure_rates.html
We’ll, ML CEO Mack’s job seems easy enough. Pay me a few million dollars to flush 9+ Bill down the drain. I can do that. Sign me up!
It also seems like these IB likes to give out loans but don’t like “taking out” loans themselves. They had an opportunity cash from the US and EURO banks at low interests rates, but they chose tp give out stocks instead. It kind of tells you the story that the Government’s actions to help the IB are not helping.
-
More to cheer inflationists…
Base Metals Bear Mkt In place. — Weldon
In line with this strategic thought process we also remain bearish on Copper, with expansion to include the entire industrial metals sector, with sights set on the potential for extension into the broader materials indexes. Indeed, we are now also closely monitoring the energy complex for a potential breakdown in Crude Oil specifically.
Thus inflation’s upside run might be more short-lived, than embedded.
**** Warning **** – pdf file:
http://weldononline.com/data/wmm121807xMoney1198000154.pdf
Jas
Base metals attract base minds.
Actually, you would be wrong.
It’s not for no reason that a particular metal is referred to as “Dr” Copper (’cause it’s smarter than PhD’s at predicting the state of an economy.)
You may want to do some homework on that particular one.
Sallie Mae Shares Plunge After CEO Talks
Wednesday December 19, 11:10 am ET
By Alan Zibel, AP Business Writer
Sallie Mae CEO Says Company Looking at Dividend Cut As He Tries to Reassure Investors
http://biz.yahoo.com/ap/071219/sallie_mae_outlook.html?.v=3
OT: White House fire contained.
Brief fire breaks out inside White House campus
By Greg Robb, MarketWatch
Last update: 11:12 a.m. EST Dec. 19, 2007
WASHINGTON (MarketWatch) — A brief fire broke out Wednesday morning inside the Eisenhower executive office building which is adjacent to the White House, but no one was injured and the fire was contained within a half hour.
http://www.marketwatch.com/news/story/brief-fire-occurs-white-house/story.aspx?guid=%7B521A9963%2D9DAD%2D4F92%2D988D%2D0721D2EC3C8A%7D
There is no panic.
There is no panic.
There is no panic.
There is no panic.
(Keep repeating until you feel very calm.)
BOND REPORT
Treasurys turn lower after Fed auction reveals no panic
By Nick Godt, MarketWatch
Last update: 10:36 a.m. EST Dec. 19, 2007
Treasurys fall as auction shows no signs of panic
http://www.marketwatch.com/news/story/treasurys-turn-lower-after-fed/story.aspx?guid=%7B20B988A1%2DDC9D%2D45F7%2DAC59%2DB9D2BAEE6269%7D
Hit some (deep in the money) calls on the morning swoon, still think there is a short squeeze coming.
So far today’s action is looking like a long squeeze…
I think another expiration surprise is coming.
I think pressure is building to open the SPR for a month to knock the price of oil down.
Anything to dispel the perception that inflation is running amok…
Perception is reality.
We had this discussion on the HBB last fall and have long since moved on to other subjects.
I still maintain that the value of incentives should be subtracted from the sale price recorded at the county assessor’s office, but I can see why they might view the situation differently than I do.
How Hidden Incentives Distort Home Prices
By JAMES R. HAGERTY and MICHAEL CORKERY
December 19, 2007; Page B1
PARKER, Colo. — As the housing market slump deepens, disguised discounts are making it harder to tell exactly how much people are paying for homes.
Buyers, sellers and other market participants typically monitor fluctuating home values through sale records that legally have to be listed with county clerks. But incentives offered to buyers — ranging from free cars or furniture to cash rebates — are making those prices less reliable as a sign of what buyers actually paid, netting out the giveaways. And that may be misleading lenders and people shopping for homes, some real-estate lawyers and appraisers warn.
http://online.wsj.com/article/SB119803038237438417.html?mod=todays_us_nonsub_marketplace
One consequence of misleadingly excluding incentives from the recorded sale price: Used home sellers get a distorted picture of how much their homes are worth, and hence list at a price where they will never be able to sell. Meanwhile builders flood the market with homes whose sale prices do not reflect the value of incentives used to generate sales.
Breaking Empire, news:
Paulson the snowman and the loan terminator got together in Stockton, and promised to keep things on ice.
Emperor Norton II… of the Inland Empire, protector of Mexico and adjacents.
WTF?
Ex-Treasury Secretary Summers: economy needs fiscal stimulus
WASHINGTON (MarketWatch) — Fiscal stimulus of $50 billion to $75 billion would be “appropriate” for the U.S. economy, former Treasury Secretary Lawrence Summers said in a speech Wednesday. Speaking at the Brookings Institution, Summers said the current U.S. economic situation requires “a comprehensive program of measures to contain the fallout from problems in the financial and housing sectors” and to sustain growth. He also said the government should assist people who lost their homes.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7bC35D2CE3-84A0-441C-A1AE-097169862BFC%7d&siteid=yhoo&dist=yhoo
Why are you surprised? They will pull out all the stops to keep this ponzi scheme going.
S&P Downgrades ACA to Junk Status
Wednesday December 19, 12:43 pm ET
By Stephen Bernard, AP Business Writer
S&P Downgrades ACA Financial to Non-Investment Grade “CCC” Rating From Investment Grade “A”
Did I just hear a pin drop?
This downgrade is huge…can you saw counterparty risk? I guess we’ll wait til tomorrow at least for some fallout.
“…for some fallout.”
Fallout = rising stock price?
Dominos closed 6 retail pizza joints in the Empire last week.
Fresno Domino-ation…
Talk about Domino effect…
Morgan Stanley CEO Skipping Bonus
Wednesday December 19, 12:51 pm ET
By Stephen Bernard, AP Business Writer
Morgan Stanley CEO John Mack to Decline Year-End Bonus Because of “Disappointing” Writedowns
http://biz.yahoo.com/ap/071219/wall_street_bonus.html?.v=1
My letter to Barb Boxer about her tax gift for deadbeats that just passed the senate:
—–
Dear Senator:
I am disturbed that congress decided to give deadbeat mortgage holders a tax holiday from the very real “forgiven debt” income.
Many of these people leveraged their ill-gotten paper gains and bought everything from Hummers to plastic surgery….now with tax free dollars!
How about rewarding people like me, who despite owning two properties (one in Sunnyvale, CA and one in Florida) has _zero_ debt, and a substantial savings?
Anyone who took out an adjustable mortgage in 2005–when rates were at a 40-year low for fixed mortgages was a fool.
Your actions merely prop up house prices artificially, further shutting out the careful savers America should be rewarding.
I’m fortunate to be in that top 1% of taxpayers who pays about 20% of the total tax load for the United States. I don’t get any tax deductions because of AMT. In fact, when I had a mortgage, I didn’t get a mortgage deduction either because it phases out above $150K, through a mechanism separate from AMT.
I’m a constituent you should be grateful to have. Instead, you pass these tax gifts for deadbeats, essentially telling me to get lost.
There needs to be a give and take. How about in exchange for this very generous gift (no taxes on forgiven debt) paid for by people like me, you ELIMINATE the mortgage interest deduction to pay for it? This way _my_ taxes won’t have to go up to cover it.
Looking forward to hearing from you.
Sincerely,
Reuven S******
Sunnyvale, CA
(A typo: The top 1% pays 40% of the taxes, not 20%)
Interestingly, groups that you’d think would be up in arms about not taxing forgiven debt are silent! For example the National Taxpayers Union has issued no statement about this, I’m assuming because they feel that “all tax cuts are good tax cuts”
I can’t wait to see the answer. Whenever I send a comment to my elected officials that can’t be answered with one of their 5 canned responses, they’re stuck, and I usually get something completely unrelated to the point I was trying to make.
Basically, I see anyone else’s tax cut as my tax increase, which I think is reasonable to assume.
This HUD home was 183K last time I looked, about 10 days ago. Today, it is listed for 164,700. Wow!
http://hud1.towerauction.net/cgi-bin/e9_select_property.cgi?id=091390272&office=e9&state=FL
Should I take this guy up on it?
$2557 / 3br - It’s costing ME $783.00 per month to make YOU happy!
http://sandiego.craigslist.org/csd/apa/512175253.html
Maybe he stopped making payments on it! While morally questionable, that’s clearly the best option for FBs…
Rent out the house for whatever you can get. Then stop paying. It’ll take 2-3 months for the bank to own the house, and the rent is pure profit (After all, the Bank thinks you’re living in it, right).
So you keeo the rent tax-free, and you keep the forgiven debt tax free. And when you BK, you get to keep your boob job (the bank can’t take it back). The worst thing is–maybe–you’ll have to give the Hummer back to the dealer after you’ve had it for a year.
I’d be suspicious of any amateur landlord in this climate
This kind of come-on screams scam. Reuven is right…this guy is fishing for a sucker to play tenant for a few months and get fleeced in the bargain.
Thanks you guys. I never would have thought of that.
Is there a good way to do detective work on this “amateur landlords?”
December 19, 2007
Worthless Ratings Agencies (MHP, MCO, ABK, ACA, MBI, DHI, BX, SCA)
http://www.247wallst.com/2007/12/worthless-ratin.html
In the right hands they could be very profitable, for example if Mr. Buffett were to buy these, place them under separate corp ownership - which most of Berkshire’s subsidiaries are. The ratings would be AAA, the implicit guarantee from Mr. Buffett would generate a lot of income. If they still failed, it would be no loss to Mr. Buffett other than what he knew at the time of purchase. Mr. Buffett’s insurance hedge has been very fruitful over the last few years. He knows how to handle risk.
I do not think he would do this, his name is worth a lot more than a few measly billions of dollars. He could do it.
Those foreigners that the newspapers have been languishing praise over, as being our saviors and buying up all of our real estate, @ bargain prices?
Read about how we treated this woman from Iceland to give you an idea of the greeting far too many innocent travelers receive, upon entry to our country.
“During the last twenty-four hours I have probably experienced the greatest humiliation to which I have ever been subjected. During these last twenty-four hours I have been handcuffed and chained, denied the chance to sleep, been without food and drink and been confined to a place without anyone knowing my whereabouts, imprisoned. Now I am beginning to try to understand all this, rest and review the events which began as innocently as possible.”
http://eggmann.blog.is/blog/eggmann/entry/389611/
2008 global financial market forecast: Black Swans for Everyone!
Buttonwood
Swan songs
Dec 19th 2007
From The Economist print edition
The crises to watch for in 2008
LEAF through the financial magazines at this time of year and they are full of predictions. The five stocks to own! The hottest mutual funds! Wall Street’s finest are asked to spell out their forecasts in full. The venerable Abby Joseph Cohen of Goldman Sachs asserts, with remarkable precision, that profits will grow by 5.6% and that the S&P 500 index will end the year, not at 1,670 or 1,680, but at 1,675.
The one forecast Buttonwood can safely make for 2008 is that the consensus will prove to be wrong. Although many anticipated a fall in American house prices for 2007, for example, few expected the scale of the ramifications for financial markets, as a whole system of structured finance appeared to unravel and the banking system was plunged into crisis.
In one of the defining phrases of 2007, the author and investor Nassim Taleb has called these occurrences “black swans”—unexpected events that have enormous consequences. These are, by definition, very hard to forecast. One approach is to make several wild guesses in the hope that one will prove right; Saxo Bank, for example, predicts, along with a further doubling of grain prices, that Ron Paul, the Texan Republican, will be elected president. Buttonwood will take the more modest approach of highlighting a couple of areas that could burst out of the background to grab next year’s headlines.
http://economist.com/finance/displaystory.cfm?story_id=10339398
Apologies if this has been previously posted.
BofA chief: Credit-worthy customers default
Bank of America chief executive Ken Lewis told editors of the Wall
Street Journal that he’s worried about borrowers with strong credit scores not making loan payments if the housing crisis worsens.
Such concerns by the head of California’s largest bank could trigger a tightening of credit availability beyond the subprime customer base.
“There’s been a change in social attitudes toward default,” Lewis told the Wall Street Journal. “We’re seeing people who are current on their credit cards but are defaulting on their mortgages. I’m astonished that people would walk away from their homes.”
Apparently even borrowers with strong credit scores are finding it easier to walk away from their mortgages, especially if they put little or no money down on houses and condos purchased for investment purposes.
Lewis’ remarks are all the more striking because Bank of America (NYSE: BAC) exited the subprime lending business in 2001 after deciding the risks of participating in this segment of the market weren’t attractive. Not to mention the public relations black eye the bank risked by offering credit to subprime customers.
Shortly after the bank exited the subprime business, then-CEO Hugh McColl said in speech to journalists in Atlanta, “I wish I had never heard of subprime.”
http://tinyurl.com/ynmt7r
Shortly after the bank exited the subprime business, then-CEO Hugh McColl said in speech to journalists in Atlanta, “I wish I had never heard of subprime.”
That’s quite a pathetic thing for a CEO to say. It’s morally equivalent to some thrill seeker saying, “I wish I’d never heard of crack cocaine.”
Hovnanian, he of the $4000 suits: “. . . after a very slow period for new sales contracts in October and November, we have experienced an improvement in sales pace during the first three weeks of December. This is encouraging given that December is historically a slower sales month,” he said.
Notice a pattern with Mr. Hovnanian? Things are horrible, but hey, we just had a great sale in New Jersey with our incentives. Hey, things are horrible, but we just had a nice three weeks in December (this on the 19th, during the 13th business day of the month).
Look, pal, you just wrote off most of your book value, you had a 40% cancellation rate (nice NJ “sales”), and you’re not paying a dividend on a preferred stock. You’re f&%ing bankrupt, and you know it.
This bull cannot be stopped. Buy stocks now or get priced out forever!
MONDAY, DECEMBER 17, 2007
A Bullish Call
Wall Street’s seers forecast more gains for stocks next year.
By KOPIN TAN
THE STOCK MARKET HAS JUST EXPERIENCED its most volatile year since the current bull market began. Corporate profits shrank in the third quarter for the first time since early 2002. Record oil prices, housing deflation, rising loan defaults and tighter credit conditions threaten to tip the U.S. economy into recession. And a few weeks ago, it looked as if 2007’s gains might disappear before the first strains of Auld Lang Syne.
Against this troubling backdrop, it’s no wonder investors are worried that the bull market might end in 2008. But Wall Street’s top equity strategists are quick to dismiss such fears.
Indeed, the dozen seers we’ve surveyed all have penciled in higher stock prices in 2008, although their estimated gains vary widely, from 3% to 18%. On average, the group sees the Standard & Poor’s 500 at 1,640 by the end of next year, or about 10% higher than the recent 1486 with global growth and a benevolent Federal Reserve serving as twin crutches for the aging bull.
THE STREET’S BULLISH consensus is particularly impressive considering that all 12 strategists also take a dim view of the U.S. economy’s prospects and expect the Fed to keep cutting interest rates to spur spending.
http://online.barrons.com/article/SB119768725735731187.html?mod=googlenews_barrons
DAVID CALLAWAY
The recession blame game
Commentary: Fault-finding begins, whether we have one or not
By David Callaway, MarketWatch
Last update: 12:01 a.m. EST Dec. 20, 2007
SAN FRANCISCO (MarketWatch) — Now that the great minds of Wall Street and Washington seem to agree we’re going to have a recession next year, the blame game can officially begin.
Greedy bankers, unscrupulous mortgage lenders, uninterested Federal Reserve officials, big, swinging securities chiefs, manipulative derivatives traders, even super-rich investors searching for a little extra yield sprinkled on their wealth are all lined up like Roger Clemens and the “Mitchell 86,” ready to be the whipping boys for another national obsession gone haywire.
It’s a predictable pattern, but one with a big possible flaw. What if we don’t have a recession this time?
http://www.marketwatch.com/news/story/recession-talk-grows-blame-game/story.aspx?guid=%7B735CC1FA%2D975A%2D4ACB%2DB670%2D774D73DCF76B%7D
Callaway’s economic management prescription:
1. The problem is merely one of confidence, not a structural one (or a complete evaporation of trust from the banking system, for that matter).
2. Hurry up, Fed, and blow another bubble!
“As for the recession, the cards are certainly lined up for one to happen. But the credit crisis on Wall Street is really a confidence problem, not a structural one. The lending engine that fuels global liquidity is stuck in gear. It needs a kick start. That will come at some point, and we’ll be back to the races. And if we’re lucky, when the next asset bubble comes along, we’ll catch it early.”
ABX index, we barely knew thee…
ABX index postponed for lack of subprime deals
By Alistair Barr, MarketWatch
Last update: 4:28 p.m. EST Dec. 19, 2007
SAN FRANCISCO (MarketWatch) — The latest version of the closely watched ABX index is being postponed, in yet another sign of turmoil in mortgage markets.
The next series of the ABX, a synthetic index of mortgage-backed securities, was due to be rolled out on Jan. 19. But that’s been put off for three months because there have been so few residential mortgage-backed securities issued during the second half of 2007, according to Markit, which helps run the index.
Under current index rules, only five deals qualified for inclusion in the planned ABX.HE 08-1 index, Markit explained.
“The dealer community considered amending the index rules to include deals which failed to qualify initially but decided against this approach at this time,” the firm added. “Markit and the dealer community remain fully committed to the index and will update the market as and when appropriate.”
http://www.marketwatch.com/news/story/closely-watched-abx-subprime-index/story.aspx?guid=%7B61D60EAD%2D92B4%2D4AE8%2D8B84%2D280ECA0902FD%7D&dist=sp_inthis
P.S. How will sumpprime SIV assets be valued going forward w/o an ABX index? (Perhaps this is not a problem for existing SIV assets?)
Geithner = the man behind the curtain?
The scourge of liquidity
By Philip Bowring Published: December 19, 2007
HONG KONG: The United States, Britain and the European Union seem to think they can debase their currencies without their creditors in the rest of the world - most of them in Asia - noticing.
That is the only construction that can be put on recent decisions by the U.S. Federal Reserve, the European Central Bank and the Bank of England to flood the markets with “liquidity.”
The ECB is making available to institutions almost limitless amounts of cash, not at appropriate penalty rates but at subsidized ones. The Fed is auctioning low interest loans to holders of mortgage-backed securities. The president of the New York Federal Reserve, Timothy Geithner, suggests that still “additional instruments” may be needed to provide funds to banks.
“Liquidity” may sound positive enough, a substance that oils the wheels of commerce. In reality, the central bankers have been creating more paper money, to the legitimate concern of those holding the existing stock.
Money is created in the hope that volume alone can substitute for the lack of trust that exists between financial institutions, which has pushed inter-bank interest rates above those the central banks deem appropriate. Central banks are trying to thwart a central tenet of market capitalism - that the price of credit should reflect perceived risk.
The process of money printing can only make those who hold the bonds and other debt of the countries concerned look for almost any alternative, particularly a resource - be it gold, oil soybeans - that cannot be created by the stroke of a pen.
The supposed cure for the sub-prime mortgage crisis and related diseases is actually more damaging than facing up to the consequences of past mistakes. Money was already being created on a vast scale, despite an existing global abundance fueled by, among other factors, U.S. trade deficits.
http://www.iht.com/articles/2007/12/19/opinion/edbowring.php?page=1
Mortgage-industry lawsuits
The finger of suspicion
Dec 19th 2007 | NEW YORK
From The Economist print edition
In America and elsewhere trial lawyers, state prosecutors and regulators look for the crime in subprime
FINANCIAL firms have already been drenched by mortgage-related losses. Now a wave of litigation threatens to assail them. According to RiskMetrics, a consulting firm, between August and October federal securities class-action lawsuits were filed in America at an annualised pace of around 270—more than double last year’s total and well above the historical average. At this rate, claims could easily exceed those of the dotcom bust and options-backdating scandal combined.
At most risk are banks that peddled mortgages or mortgage-backed securities. Investors have handed several writs to Citigroup and Merrill Lynch. Bear Stearns has received dozens over the collapse of two leveraged hedge funds. A typical complaint accuses it of failing to make adequate reserves or to explain the risks of its subprime investments, and of dubious related-party transactions with the funds. Several firms, including E*Trade, a discount broker with a banking arm sitting on a radioactive pile of mortgage debt, are being sued for allegedly failing to disclose problems as they became apparent to managers.
But one thing that sets the subprime litigation wave apart from that of the 2001-03 bear market is its breadth. After the collapses of Enron and WorldCom, lawsuits were targeted at a fairly narrow range of parties: bust internet firms, their accountants and some banks. This time, investors are aiming not only at mortgage lenders, brokers and investment banks but also insurers (American International Group), bond funds (State Street, Morgan Keegan), rating agencies (Moody’s and Standard & Poor’s) and homebuilders (Beazer Homes, Toll Brothers et al).
Borrowers, too, are suing both their lenders and the Wall Street firms that wrapped up their loans. Several groups of employees and pension-fund participants have filed so-called ERISA/401(k) suits against their own firms. Local councils in Australia are threatening to sue a subsidiary of Lehman Brothers over the sale of collateralised-debt obligations (CDOs), the Financial Times has reported. Lenders are even turning on each other; Deutsche Bank has filed large numbers of lawsuits against mortgage firms, claiming they owe money for failing to buy back loans that soured within months of being made.
“It seems that everyone is suing everyone,” says Adam Savett of RiskMetrics’ securities-litigation group. “It surely can’t be long before we get the legal equivalent of man bites dog, where a lender sues its borrowers for some breach of contract.”
The authorities, too, are baring their teeth. Several Wall Street banks have received subpoenas from New York’s attorney-general, Andrew Cuomo, requesting information on their packaging of now-stricken securities. This comes on top of a deepening probe into possibly inflated home-price appraisals by brokers and lenders, including Washington Mutual and First American Corporation. Ohio’s attorney-general, Marc Dann, has been just as hyperactive, suing over a dozen lenders and brokers.
http://economist.com/finance/displaystory.cfm?story_id=10337884
Business.view
Going easy on corporate crime
Dec 11th 2007
From Economist.com
Is the crackdown on corporate America over?
…
The current financial crisis resulting from the sub-prime mortgage meltdown will provide a clear indication of how far the pendulum has swung back. In terms of market capitalisation, the losses have been of a similar magnitude to the Enron and WorldCom cases.
Already the law suits are mounting. Mark Dann, the attorney general of Ohio, may become the new Eliot Spitzer: he is pursuing sub-prime offenders with the same zeal New York’s former attorney general (now governor) went after Wall Street a few years ago. He calls the sub-prime crisis the “largest financial scam in American history.” Well, maybe. But the smart money in corporate law is betting that punishing companies for their role in it will be harder now than it would have been just a couple of years ago.
http://www.economist.com/business/displaystory.cfm?story_id=10277692
From The Sunday TimesDecember 9, 2007
Cuomo attacks banks over subprime lending
Wall Street
Dominic Rushe
…
Cuomo also recently subpoenaed America’s two largest lenders, Freddie Mac and Fannie Mae, looking at what he called “widespread collusion” between property appraisers and lenders to inflate home prices. No doubt more subpoenas are to come.
What about the ratings agencies that gave their approval to portfolios of loans that have collapsed? The compromised relationships between the banks and the agencies may yield some interesting material for the attorney-general.
The subprime meltdown could be worse for Wall Street than the dotcom crash. More people own houses than stocks, and watching people lose their homes will be far worse than hearing about their stock losses. But there are big differences too.
Wall Street didn’t sell subprime loans to home buyers, it bundled up those debts and sold the bundles to investors. This time around, Wall Street firms have also been among the big losers. The subprime meltdown has wiped billions off the value of many of the big banks, and thousands of bank employees have lost their jobs.
Like the dotcom disgrace, however, the subprime meltdown points to some clear problems on Wall Street. At best, the banks had no idea what they were doing; at worst someone knowingly sold them a pup.
http://business.timesonline.co.uk/tol/business/columnists/article3021633.ece
CAPITAL
By DAVID WESSEL
Don’t Count on a Stimulus Plan
December 20, 2007; Page A2
With the Federal Reserve struggling to find the right medicine for a sickly economy that may be resistant to traditional remedies, talk of using fiscal stimulus — spending increases or tax cuts — is growing louder.
For years, the conventional wisdom among economists and the politicians who listen to them has been that recession-fighting is best left to the Fed. It can cut interest rates quickly when the economy weakens.
Fiscal stimulus, the argument goes, is a great idea — in theory. The reality is that Congress and the president inevitably move so slowly that the stimulus arrives too late, or they use recession jitters as an excuse to pursue pet projects that don’t actually stimulate much. Yes, a sluggish economy got a well-timed boost from the Bush tax cuts in 2001, but the past quarter century suggests that relying on the Fed to fight recession usually works.
Still, when deficit-fearing Harvard University economists Martin Feldstein, who advised Ronald Reagan, and Lawrence Summers, who advised Bill Clinton, begin prescribing fiscal stimulus (and when former Fed Chairman Alan Greenspan — incorrectly, by the way — is viewed as a fellow traveler), it’s time to listen carefully.
http://online.wsj.com/article/SB119809264981940109.html?mod=hpp_us_inside_today
No conflicts of interest here, I’m sure…
Ex-Treasury Secretary Calls For Tax Cut, Spending Plan
By Michael M. Phillips
Word Count: 623
WASHINGTON — Former Treasury Secretary Lawrence Summers, once a fiscal hawk among Clinton Democrats, said the government should consider a $50 billion to $75 billion tax-cut and spending package to stave off a deep recession.
Mr. Summers, now a Harvard University professor and investment-fund manager, also urged the Federal Reserve to take more aggressive action to ensure that its rate cuts actually reduce consumers’ interest charges and stimulate spending.
http://online.wsj.com/article/SB119803775810738963.html?mod=Capital
I may be branded an ideologist for saying so, but I just simply don’t believe that engineering solutions (or bald faced lies, for that matter) will suffice to restore trust to the banking system.
Others may feel free to differ with my opinion. It’s a free country, after all.
Geithner Says Fed, Central Banks Reviewing More Tools (Update1)
By Craig Torres and Anthony Massucci
Dec. 13 (Bloomberg) — Federal Reserve Bank of New York President Timothy Geithner said central bankers are looking at “additional instruments” to provide funds to banks in times of stress.
Central bankers around the world have started a “coordinated review” on how regulations may be influencing liquidity risk and whether they need “additional instruments” to “mitigate marketwide liquidity problems,” Geithner said in a speech in New York today.
Geithner spoke a day after the Fed, the European Central Bank and three other central banks acted in concert to ease a funding squeeze between banks that threatens global growth. He said the effort should help reduce risks to the economy, while adding that policy makers will look at other options.
The Fed made up to $24 billion available to the ECB and Swiss National Bank to increase the supply of dollars in Europe. It also plans four auctions, including two this month adding as much as $40 billion, to increase cash in the U.S.
Geithner said the cash auctions should “mitigate the risk” that liquidity pressures “pose to the broader economy.” Higher interest rates in the market for loans between banks have the effect of “tightening overall financial conditions, offsetting some of the impact of reduction in the target federal funds rate,” he said.
http://www.bloomberg.com/apps/news?pid=20601103&sid=anRK.SnmTcps&refer=us
RESIDENT EXPERT
Daniel McGinn
When Mortgages Made Sense
Should we go back to using the old-fashioned rules for lending?
Dec 18, 2007 | Updated: 11:41 a.m. ET Dec 18, 2007
http://www.newsweek.com/id/80719
> Should we go back to using the old-fashioned rules for lending?
Yes. The sooner, the better.
Big picture question: Can Wall Street’s debt securitization business model survive the solvency crunch?
JUDGMENT CALLS
Robert J. Samuelson
A Sequel to the Subprime Mess?
The danger is another wave of large financial losses and a chain reaction of fear that paralyzes investors and banks.
Dec 24, 2007 Issue
…
Credit and financial markets subsist on trust and confidence. The subprime crisis has corroded both. Estimated losses range from $50 billion and up. But because trading in subprime mortgage securities is thin, how can they be accurately valued? Who holds them? Banks and investors have reacted to these uncertainties. For example, banks now find the “interbank market”—banks lending to each other—riskier than before, because they don’t know which banks are most exposed. The three-month LIBOR (London Interbank Offered Rate) jumped to more than 2 percentage points above U.S. Treasury bills, triple the historic “spread” of 0.6 percentage points, reports economist John Lonski of Moody’s.
The subprime debacle also posed a question: what if it’s not the only problem? Consider “credit default swaps” (CDS) as a possible sequel. CDS are, in effect, insurance contracts on loans or bonds: the seller of the CDS receives a payment and, in return, agrees to pay the buyer some or all of the amount of a designated loan or bond if the borrowing company (say, General Motors or IBM) actually defaults. But note, neither party to the CDS has to be the underlying lender or borrower. They can be, and usually are, outsiders. They are simply betting on the creditworthiness of different borrowers.
http://www.newsweek.com/id/78252