International Bits Bucket For January 29, 2008
Please post items of interest from outside the USA here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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This thread isn’t intended to discourage international posts elsewhere, but rather to focus the topic and take the strain off the regular bits bucket.
Thanks but no thanks. You just doubled my workload.
LOL. Suck it up like the rest of us. That’s what it takes to keep track of this world-wide housing extravaganza.
a once-in-a-lifetime extravaganza …
Cape Town: Why buy for R15 300 a amonth when you can rent for R4 800.
Hey Ben, thanks for the international input place! Although Australia doesn’t count for much, it really is an economic microcosm of the Western World.
What I find amusing about your blog is the thinly-veiled political partisanship of your loyal posters. Here we have both sides of politics digging at each other, but (I think!) both sides realising the inadequacies of their political leaders.
How about you do a PollHost (or similar) online survey, so as to establish the political middle-ground of your audience? Is there a middle-ground?
Even something as simple as an e-vote for one of the five or six remaining contenders would be an interesting demographical survey.
Both sides? IMO, there are more than 2 views of the world, but the problem with politics is we only get 2 choices.
and even if you have more choices (like in most of Europe), it often comes down to more of the same.
oh hell and here I thought it was better everywhere else.
JT,
I’m wondering which side do you think gets most of the posts in this blog? Why, because no matter which side you choose, you could find people that think exactly opposite.
IMO just jump in, be cordial, try to be rational, and remember democracy (or whatever you want to call the US system) is set up for constant friction which to me means “constant disagreement”. At least we’re not using guns.
One of my best friends in the world is almost diametrically opposite when it comes to politics. Over the years we’ve learned not to talk about it too much, but this year it’s an amazing mixture of variables that’s simply too interesting not to talk about it.
In lieu of politics, and if you want to narrow it down to 2 schools of thought…
You either think inside the box or outside the box.
And there’s so much more outside the box, than in it.
Lad, there is a third choice which is all too popular - you DON’T think at all, you let someone else do it for you.
Actually, I prefer a fourth option: thinking about the box.
Politics rule, so its hard to be involved/concerned with some topic without it having some political overtones at the least. I think this is largely a function of the fact (in most western countries) that large government and/or central control is in play in almost every single aspect of our lives.
As for partisanship, it seems to me, that this blog has a disproportionate representation of liberty-favoring types. I don’t find this personally that surprising. I think once people start to educate themselves about the negative impact of government involvement (as a fairly consistent theme irrespective of the area of life in which it is involved) the only logical conclusion for most is to drift to some degree toward supporting increased liberty.
dollar down:
TOKYO (AP) — The dollar fell against the yen Tuesday in Asia as Japanese exporters bought the local currency amid speculation the U.S. Federal Reserve will cut interest rates again at a policy meeting this week.
The dollar fell to 106.62 yen midafternoon in Tokyo, from 106.83 yen late Monday in New York.
http://biz.yahoo.com/ap/080129/asia_dollar.html?.v=1
http://business.timesonline.co.uk/tol/business/markets/japan/article3240252.ece
Japan feels the chill as it peers nervously down slippery slope of economic decline
As confidence in the Land of the Rising Sun takes a fall, no one seems to have control of the country’s destiny.
*******
I hope our leaders can steer us clear of this future.
Idiots! BoJ should’ve normalized their rates when they had the chance. Now they’ll be stuck with a near ZIRP forever. This time, it’s not holding down the value of the yen either. I hope the Japanese deflation scenario doesn’t play out like a cascading wave in every other developed nation, but it sure looks like something similar is going to happen in the US.
In a worldwide deflation senario, we would see ever increasing defaults on debts, corporate, municipal and otherwise. Most retirement funds would fail and social security etc would collapse, since there would be little feeding it from the bottom up. House prices would collapse entirely as no one could buy or sell anyway and many older more secure homeowners would find themselves in hawk to the money grubbing local taxing agencies who will become increasingly bold in their collection efforts as thier coffers dry up, eventually losing thier homes too. If inflation is being boiled to death, deflation is being frozen to death. Both extremes lead to the same final end. Given a choice I would take inflation personally, but then I am thinking about “wage inflation” along with it, but given the downward pressure from third world labor this will not happen, so perhaps the end will be a long winter of discontent…
This time, it’s not holding down the value of the yen either. I hope the Japanese deflation scenario doesn’t play out like a cascading wave in every other developed nation
First off I know people not spending was a major factor in the Great Depression. That said…
If the Yen goes up… the Japanese as individuals are great savers… and their currency being worth more… could very well spark a round of worldwide buying/investing (converting strong savings into overseas assets).
Look at what the savers hwer on the forum are looking to do with their savings if housing prices drop 70% from peak…
EU inflation:
Europeans are convinced they will be hit by budget-restricting price rises this year, according to a survey that highlights widespread inflation fears across the continent.
http://www.ft.com/cms/s/0/667cedce-cdc3-11dc-9e4e-000077b07658.html
but don’t worry, inflation is fully contained, the ECB is watching our savings like a hawk
gulf states face inflationary spiral:
Jan. 29 (Bloomberg) — Persian Gulf states, including Saudi Arabia and the United Arab Emirates, may create an “inflationary spiral” as governments boost
http://tinyurl.com/2vcdpo
maybe they can get some consulting from the BLS, Eurostat or the Dutch Ministry of Truth to cure the problem
Whare are all the deflationists on this board? Every day we read a dozen links detailing raging inflation around the world. Maybe all the deflationists that are left sit on the Fed?
–
“Whare are all the deflationists on this board?”
They are well and alive. They just don’t shout as loudly as inflationists. Inflation peaks few months into a recession and then falls sharply. Wait for 2008Q3 to see serious price declines led by no mo’ money after the stimulus checks are spent.
Jas
I think you will soon go back into hiding when you realize that inflation is a powerful tool in the hands of the government to goose the economy. Basically, deflation may be what your model is predicting but inflation (>= 0%) will be engineered as a consequence of the war on savers.
Central banks hate excessive inflation, but they hate deflation even more. If push comes to shove, they will make sure that national gov’ts around the world are able to borrow and spend as much as they want.
–
Why do I keep forgetting that central banks are all-powerful and they can always get the desired results.
I must be dumber than people say I am. Thanks for keeping a check on my dumbness.
Jas
you know guys … I’m starting to side with Jas here.
I’m in Florida, which is one of the bubble ground zeros, and I’ve been seeing prices in the last two weeks that I haven’t seen in two years. Snack food is an interesting one–of course, wheat and dairy prices went up a lot in the last two years, but snack foods are largely profit. I’m seeing some retreat in the prices there. Very interesting. Looks like profit margins at grocery stores will be going away. Also profit margins at the biscuit makers.
Call-A-Mattress is advertising sets for less than I paid for the mattress alone last year after spending months looking for the best price. Another high-profit item bites the dust.
Of course the furniture store is going out of business and car prices starting cracking last spring.
But the point is that a recession drives down demand, and then where is the pricing power?
In the GD, farm prices were already depressed when it started. They collapsed further, below the cost of farming! Do not underestimate the power of demand destruction.
Jas lives in CA, am I right? CA is heading down the vortex into the abyss even faster than FL. We’re first. Y’all are next.
Why do I keep forgetting that central banks are all-powerful
Who says that they are all powerful? If they were, they could solve this problem without printing monet like there is no tomorrow.
I would like a nice Monet as well as some moneY..
lol.
there is one just below
–
Someone asked me in what countries one was able to get 100% financing for home purchases. Please list based on your knowledge.
Thanks.
Jas
A friend of mine here in Australia was able to get 108% financing for an investment property 3 years ago, but I believe he had to show significant equity in his principal residence to do that.
Netherlands: 100-110% no problem in general (you have to shop around a bit of course), 120-125% possible for people with higher income/education; don’t know about the most recent developments but I don’t have the impression anything has changed over the last year or so. With some creativity it is possible to get 100% financing that is fully backed by a semi-gov fund; when the home has to be sold at a loss the fund will pay the difference, so you can never end up with debt. Officially this fund only applies for 80% or less financing, but in reality you can piggyback loans or use other tricks.
In Germany, it is near to impossible.
The normal minimun down rate is 20%. If you are a high earner in a safe job and want to buy a modest house, it could be 10% or even 5%, but in this cases effectively the bank loans the rest because of your income. These cases are very rare.
One should mention that there is no such thing as a nonrecourse mortgage for homeowners in Germany.
One the other hand, German covered bonds (Pfandbriefe) are very reliable, even now. Maximum loan is 60% of collateral, and the issuing bank is reliable, too.
if Netherlands (or UK, Ireland, Spain) had German mortgage conditions, prices would be down by at least 50-75% (despite the current very low rates).
The conditions are old school and very thorough, indeed. So there was no housing bubble at all here.
If the mortgage rate is fixed for 10 years (most cases), it is fixed. For both sides. No refinancing to catch smaller rates. If you sell, you can refinance, but if the rates are lower than at the time you fixed, you have to pay the lost interest difference to the bank, which can be hefty.
we have lots of fixed rate, 5-15y mortgages in Netherlands; but most of them are I/O and/or ‘investment mortgages’ where the payments are leveraged in the stockmarket.
In the UK when I was there, no problem. Some banks had 105% on offer. They are still mad and have these dangerous things on offer — this from a day or two ago:
“Abbey raised the rate on its 100% two-year tracker by 1.15 percentage points, from 6.84% to 7.99%, last week.”
At least they are starting to recognise the risk, but I know *I* would never loan my own money out at 8% on a likely-depreciating asset.
I think the international bits bucket is a great idea… Can you post it as the very last post at the end of each day, so us furriners in Europe/Asia can post when we get to work and have our posts actually read by someone?
GOOD IDEA…
Are we at the end of the credit expansion?
That sure does not appear to be the Fed’s plan, but Mr. Market might force them into another plan than they intended.
But, Mousie, thou art no thy lane,
In proving foresight may be vain;
The best-laid schemes o’ mice an ‘men
Gang aft agley,
An’lea’e us nought but grief an’ pain,
For promis’d joy!
– Robert Burns –
International audience:
I’m curious what your take is on our proposed $600 giveaway to most our citizenry, just as our financial fiascoes are doing serious harm to your economies…
Wait a sec, alad. I’m American and I hate the Fed but you can’t blame everything on them. Other countries have central banks that made decisions to inflate their currency, peg to the dollar, etc. etc. Look at Japan! They are the poster child for terrible monetary responsibility.
Everything points back at us, currently.
some people think that the economic policies of Japan and the monetary policies of the BOJ in the eighties and nineties were STRONGLY influenced by the FED (in exchange for military cooperation). I’m sure BOJ en FED cooperate strongly.
One can make a strong argument that (nearly?) all the current housing bubbles trace back to the Greenspan Put and the monetary expansion that was a result of that policy, beginning in 1987. The first bubbles developed quickly after that near several financial capitals around the globe. Of course, other factors are involved e.g. countries with an open economy like the Dutch were quick to jump on the bandwagon (+/- 1990), others were late to the party because there were factors that made housing speculation and monetary expansion less easy or less attractive. It is also telling that nearly all the housing bubbles are in anglo-saxon countries, or countries with an anglo-saxon banking system (maybe we can include Singapore and the big cities of China in that category as well).
(* shrugs *)
Be thankful they didn’t decide to copy this insanity.
http://www.firsthome.com.au
Sorry folks, make that http://www.firsthome.gov.au
“First Home Owner Grant”
Does it get called “Fat Hog” down under?
Meh, seems just as lame as when the Canadian government did it to buy votes a couple of years ago. No lamer, mind you, considering there is a real crisis to deal with now and when “Canada’s New Government” did it, they were only doing it to buy votes, and it worked! $600 is going to change a whole lotta nuthin in the big picture.
Lets see the government is going to sell some t-bills and borrow $600. and send me a check. I am going to cash the check and buy t-bills.
A debt aholic will get the $600. and blow it. Three months later the economy will not even feel the affect.
This deal is no different then in the old days of Mayor Daily or Tannany Hall in which people were paid to vote.
I believe in the late 1800’s, in the California Assembly, if you wanted to get a bill passed all you needed to do is show up and literally throw you money around. Whoops hold on doesn’t look like things have changed to much today with the California Assembly.
This was the same thing in 2001 when our gov gave out money then which was only a loan on next years tax debt
Not sure if this belongs here or in the regular bits bucket, but since it is from an international source, here goes:
US homebuilders face growing bankruptcy risk
By Daniel Pimlott in New York
Published: January 29 2008 19:18 | Last updated: January 29 2008 19:18
The risk of bankruptcies among the big US homebuilders has risen sharply as the economy has weakened and an end to the housing slump remains distant.
Credit default swaps on homebuilders, which act as insurance on corporate debt, suggest some of the biggest are at risk of failing to keep up debt payments. According to Byron Douglass, an analyst at Credit Derivatives Research, the most exposed are Standard Pacific, Hovnanian, Beazer, and Meritage. All are among the top 15 publicly-listed US homebuilders.
http://www.ft.com/cms/s/0/ea718bb4-ce9d-11dc-877a-000077b07658.html
It looks like rumors of potential bankruptcy in the Financial Times is great for stock prices…
http://www.marketwatch.com/quotes/quotes.aspx?symb=tol%20kbh%20len%20ctx%20dhi%20fnm%20aapl%20goog%20bzh%20phm%20sbux%20peet,mth,spf,hov
Bernanke’s reflation gamble may work too well
By Martin Wolf
Published: January 29 2008 19:49 | Last updated: January 29 2008 19:49′
http://www.ft.com/cms/s/0/8bd26b04-ce9e-11dc-877a-000077b07658.html
http://en.wikipedia.org/wiki/Reflation
Related reading:
Speech
Governor Frederic S. Mishkin
At the Federal Reserve Bank of New York, New York, New York
January 11, 2008
Monetary Policy Flexibility, Risk Management, and Financial Disruption
http://www.federalreserve.gov/newsevents/speech/mishkin20080111a.htm
SOL time for serial bubble blowers…
Corporate America braced for recession
By Francesco Guerrera in New York
Published: January 29 2008 19:51 | Last updated: January 29 2008 19:51
Leading US companies are shifting into recession mode and preparing to cut costs, freeze hiring and reduce capital spending as they brace for an economic slowdown, senior executives and industry experts said.
Their concerns are likely to be reinforced by the International Monetary Fund, which slashed its forecast for US growth and warned that no country would be completely immune from what it termed a “global slowdown”.
(EDITOR’S CHOICE
IMF slashes US growth forecast - Jan-29
US homebuilders face growing bankruptcy threat - Jan-29
Mixed messages holds planning hostage to fortune - Jan-29
Case-Shiller index adds to US housing gloom - Jan-29)
Separately, a US study due out today shows that chief financial officers’ views of the economy are the most pessimistic in nearly four years.
http://www.ft.com/cms/s/0/1e553756-cea2-11dc-877a-000077b07658.html
More U.S. news in the international financial media…
FBI in subprime crackdown
WASHINGTON, Jan 29 (Reuters) - The FBI has opened investigations into 14 corporations as part of a crackdown on improper subprime lending, agency officials said on Tuesday.
FBI officials told reporters the probes involved potential violations including accounting fraud and insider trading.
They did not identify the companies, but said the probes reached across the industry to include developers, subprime lenders, companies that securitized loans and investment banks that held them.
The cases could lead to potential civil or criminal charges, the officials said.
The FBI said it was investigating the cases with the US Securities and Exchange Commission, which has opened about three dozen investigations into the subprime market collapse.
Targets of the SEC probe include Swiss bank UBS and investment banks Morgan Stanley, Merrill Lynch, Bear Stearns , as well as bond insurer MBIA. It was not clear whether any of these companies were involved in the FBI investigation.
http://www.ft.com/cms/s/0/705995c4-ceb1-11dc-877a-000077b07658.html
IMF slashes US growth forecast
By Krishna Guha in Washington
Published: January 29 2008 22:34 | Last updated: January 29 2008 22:34
The International Monetary Fund on Tuesday slashed its forecast for US growth and warned that no country would be immune from what it termed a “global slowdown”.
http://www.ft.com/cms/s/0/b282cc38-ceb9-11dc-877a-000077b07658.html
Volatility hits Main Street economic forecasts.
Mixed messages holds planning hostage to fortune
By Francesco Guerrera in New York and Kevin Allison in San Francisco
Published: January 29 2008 22:09 | Last updated: January 29 2008 22:09
Robert Pruger, chief financial officer at Rudolph/Libbe Companies, an Ohio-based construction group whose clients include Ford and BP, has devised a novel way of dealing with the confusing state of the US economy.
“We have drawn up two business plans for 2008 depending on whether our order book remains strong or not,” he explains. “The more robust one factors in a 15 per cent increase in sales, while the less robust one goes for a 10 per cent drop.”
http://www.ft.com/cms/s/0/91822548-cea9-11dc-877a-000077b07658.html
Wait a minute — the IMF just said there would be a global slowdown and slower US growth, but said nothing about any looming recession. ME CONFUSED.
Beyond fiscal stimulus, further action is needed
By Lawrence Summers
Published: January 27 2008 16:39 | Last updated: January 27 2008 16:39
Markets and perceptions of the economic outlook change rapidly. Even two months ago most observers doubted predictions of a US recession, saw no need for a fiscal stimulus, and thought that inflation fears should constrain monetary policy. Now, Washington is more or less settled on a stimulus package that will exceed $150bn; markets at one point last week expected a Fed funds rate below 2 per cent by September. The debate about recession is now about how deep and global its impact will be.
http://www.ft.com/cms/s/0/ae9ef538-ccf2-11dc-8df7-000077b07658.html
COVER STORY
The U.S. Economy Faces the Guillotine
http://www.newsweek.com/id/105558
There seems to be a plethora of U.S. economic news in the international media today…
Case-Shiller index adds to US housing gloom
By James Politi in Washington
Published: January 29 2008 15:04 | Last updated: January 29 2008 20:32
The Case-Shiller index of home prices delivered the latest bleak snapshot of the US residential property market on Tuesday, with prices of houses in 20 large cities falling by 7.7 per cent in the year to November 2007.
The decline was steeper than the 7.1 per cent drop expected by economists and significantly more acute than a 6.1 per cent fall in the index the previous month.
http://www.ft.com/cms/s/0/ed56ecd0-ce79-11dc-877a-000077b07658.html
The Short View: US economy and Fed
By John Authers, Investment Editor
Published: January 29 2008 18:36 | Last updated: January 29 2008 18:36
French consumers are losing their nerve. US consumers are not. US companies continue to receive a lot of orders. Meanwhile, the S&P Case-Shiller index shows US house prices falling faster than feared.
Traders normally trade on every new bit of information. On Tuesday, they tuned out all of these data like they were so much noise. The reason: the Federal open market committee meets on Wednesday. The market expects a cut in the Fed Funds rate to 3 per cent, after last week’s emergency cut to 3.5 per cent. There are worries that the Fed may only cut to 3.25 per cent. Until the Fed has spoken, nothing else matters.
…
These moves can be attributed to traders’ attempts to capitalise on changing views of the US economy (and the belief that the Federal Reserve can help).
http://www.ft.com/cms/s/0/0fa4c0b0-ce97-11dc-877a-000077b07658.html