Bits Bucket For August 27, 2008
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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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FDIC chief sees more struggles for banks
Number of bad loans swells to 15-year high
By Eric Dash and Geraldine Fabrikant
NEW YORK TIMES NEWS SERVICE
August 27, 2008
…
More than a year after the credit crisis first flared, Bair, the chairwoman of the Federal Deposit Insurance Corp., warned yesterday that the outlook for the ailing banking industry was bad – and getting worse.
The swelling tide of toxic home loans is proving to be even more worrisome than initially feared, Bair said. She is struggling to clean up the mess and forestall home foreclosures with a plan to ease loan terms for hard-pressed homeowners.
“It is going to be a slog to work though this, but there is no easy way to do it,” Bair said. “We haven’t seen the trough of the credit cycle yet.”
It’s a toxic mindfield…
The news that the banking industry is suffering through a major meltdown should be very bullish for U.S. stock prices going forward.
Fair is foul and foul is fair
Hover through the fog and filthy air.
There is nary a sign, on the road to financial perdition.
MARK HULBERT
Winning by losing?
Commentary: Beleaguered banking industry still earned $5 billion in quarter
By Mark Hulbert, MarketWatch
Last update: 10:51 p.m. EDT Aug. 26, 2008
Comments: 59
ANNANDALE, Va. (MarketWatch) — What was your reaction to the headline Tuesday that total profits of the banking industry have plunged?
If you’re like almost everyone else, your reaction no doubt was some variation on “Please, not yet more bad news! How bad can it get?”
But the news wasn’t all bad if you were willing to dig below the surface.
Banking industry profits may have been 86.5% lower in the second quarter of this year than they were in the comparable quarter a year ago, as indeed the FDIC reported Tuesday. But note carefully that the industry still did produce a profit, of no less than $5 billion. And that profit came even after the banking industry increased its total loan loss reserves to more than $50 billion, compared to only $11 billion in the year-ago quarter.
In other words, despite the perfect financial storm over the past year involving plunging housing prices and the subprime mortgage mess, the banking industry as a whole still turned a tidy profit.
Where do you folks see gold at the end of the year. Should I hold onto my gold calls?
If you are speculator trading paper, I would cut and run. If it isn’t physical, it isn’t gold.
You always talk your book. Did you ever read any of Gekko’s posts in days of yore? He took the same approach to peddling stocks that you take to convincing everyone to buy gold.
I don’t care if he buys or sells, but he asked a question and I answered. If anyone has something to sell it would seem to be you, with your deflationary yammering for the past several years. Care to compare your track record to mine? Cull the archives and get back to me.
Home Prices Still Falling, but the Pace Is Slowing
By MICHAEL M. GRYNBAUM
Published: August 26, 2008
Consumers cheer on falling gold price
26 Aug, 2008, 0131 hrs IST,Deepa Krishnan, ET Bureau
MUMBAI: Gold prices which have fallen sharply in the past few weeks on the back of a surge in dollar value, is expected to dip further, offering good buying opportunities.
Prof, as a human posting machine you are without peer; but your analysis is Jas-lite.
Your analysis is gold-heavy.
Moreover, you are gambling, and encouraging others to gamble, on an unlikely event, which is a near-term collapse of the U.S. dollar, even as the value of the dollar is strengthening by the day. Good luck with your long-shot gamble.
DON’T FIGHT THE FED.
Prof, you seem to have missed the part where I advised the original poster to sell, not buy.
As for fighting the Fed, I leave that to deflationistas. I consisently bet on the Fed, and inflation. You are the one fighting the Fed.
“You are the one fighting the Fed.”
I don’t talk my book here, so I guess you don’t really know what I am doing.
The long range trend remains deflationary in the aggregate due to technological advancement and an impending worldwide declining birthrate as the Third World is industrialized. Spot inflation will continue as the world economy adjusts to new conditions. Gold hit its peak earlier in the year at $1000/ounce and provided a recent bounce to $960/ounce. It will continue to drift lower as US financial and geo-political turbulence abates. The US will remain militarily impotent until it extricates itself from Iraq/Afghanistan conflicts. (See Russian annexation of Georgian provinces.) The US will also have to engage in tremendous demand-side stimulation of national economy to prevent further deterioration of financial system. (See tax rebate checks and pending buyout of mortage GSE’s Fannie Mae and Freddie Mac. Also, look for a return of public works projects.) Government acquisition of health care and energy industries also very likely. (This type of response is typical after the Invisible Hand gets too greedy. See Marx.)
Ahh… After a break from lurking, it’s good to come back and see some things never change. Almost gets me a little teary-eyed.
Maybe my problem is that I am a once-bitten, twice-shy sort of fellow. I lost lots of dough the last time I purchased physical gold.
“Where do you folks see gold at the end of the year?”
In the pawn shops, maybe?
For many Americans, that crappy 14k Zale’s necklace that he paid 5x melt for, on easy credit terms 17 years ago @ the mall, as a gift to her, on their 2nd anniversary…
Might be the only easily salable item this couple has left, to get (drum roll, please)
Cash
Cash?
Alad, are you undergoing some sort of religious conversion, perhaps?
religious conversion?
nah, every man and woman is a living breathing seeing smelling hearing feeling god.
Almost 7 billion of us now…
OMG! He used the “C” word!
Self-Cashtration
Don’t cashtigate yourself over it.
Cash.. aka money.. aka the most marketable commodity.
You are clearly saying that gold is one of the most marketable commodities most people will have left aside from federal reserve notes.
Federal reserve notes will maintain their status as money until one day they don’t. It will be fast when it happens, but when it does then federal reserve notes will be just another “commodity” with a near infinite supply and very low marketability.
I don’t think the notes can properly be considered a comodity. The “it’s money until it isn’t” part fits though.
I see gold at 800 at best.There is a lot of specualtion there.
I remember people coming on saying that the run up in oil was due to supply and demand and speculators did not play a major role.Well to go from 147 to 113 was a drop in demand? There are huge amounts of speculators in oil too.
An interesting commentary on what is going on with the price of gold.
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/GoingForTheGoldBeAlert.aspx
A closer look at the gold market reveals shortages driven by price declines and a subsequent explosion in retail demand, and many dealers have run out of assorted forms of gold coins, bars, etc.
These shortages likely have something to do with the fact that last week the U.S. Mint suspended sales of gold coins — a reflection of the surging demand. The fall in price also triggered an outpouring of buying in India and the Middle East. In addition, the exchange-traded funds, or ETFs, that hold gold and silver showed an amazing resilience in the face of plunging prices.
Thus we witnessed an unusual dichotomy: Physical buying (and here I’m kind of including the ETFs, though they aren’t purely physical) was ratcheting up even as the selling of futures contracts was driving the market lower. When the price was rallying, the futures market had a big hand in that, so we can’t ignore it when it seems to be at the epicenter of lower prices.
According to the Mint website, in the first two weeks of August, before the suspension of sales, the Mint sold 65,000 ounces worth of gold eagle bullion coins. These were sold at per ounce rates far exceeding the COMEX fantasy price…According to the U.S. Mint, in 2007, 198,500 ounces of gold were sold in the form of gold eagles. That amounts to about 6.2 tons of gold for the entire year. In contrast, in the first two weeks of August, the Mint had already sold 65,000 ounces worth of gold eagles. That is an annual rate of 1,690,000 ounces of gold. It works out to about 52.6 metric tons. In other words, demand for gold, in the form of eagle coins, increased by a factor of about 8.5. During all of 2007, total demand in the US based physical gold investment market was only about 16.6 tons, according to the World Gold Council. This year, if the pace set in the first two weeks of August continues, and the ratio of American Eagle sales to total sales stays about the same, real market investment gold sales, in America , will total 141.1 tons.
Sorry, cannot link
From the second article linked above by the Professor:
As the World Gold Council admitted in its report for the quarter and the half year ended June 2008, demand for gold began falling since the fourth of quarter of 2007 and continued its decline in the first half of 2008.
That doesn’t contradict what you’re reporting about August ‘08 sales, but interesting data nonetheless.
All the gold I own is around my third finger, left hand.
However, I am long over 30,000 SLV.
The silver story is much, MUCH more compelling, in my book.
Loan ranger:
What gets you all hot and bothered about Silver?
Do tell~
Emp,
I like the divisibility of silver. Think of it as the pocket change of PMs. Also, most silver is used up in industrial processes, not kept around, as is gold. Silver is a nice complement to AU.
America’s Achilles Heel?
We all live on a really short tether of around 25 to 50 gallons of gasoline (probably what’s in your 2 or 3 cars, and that’s it) and if there was an easy way to store 1,000 gallons, i’d do it in a heartbeat, but it’s very costly to do this, and not cost productive.
Karats & Gas are both cash of the realm, but with the later, you would need storage of around 10,000 gallons, to equal what one could easily hold in the closed palms of the former.
Just buy a gas station :)…
there was an easy way to store 1,000 gallons, i’d do it in a heartbeat
Buy a hybrid - I’m getting 53mpg
Insulate your house
Buy solar panels -
Solar hot water
Geothermal
You can’t store 1000 gallons of gas but you can make investments now that will guarantee that you don’t need as much in the future. When I bought my hybrid they said payback on the premium was over 5 years, now it’s under 3.
45,000mi\50mpg = 900 gal X 4 bucks a gallon = $3600
old car
45,000mi\25mpg = 1800 gal x 4 bucks a gallon = $7200
Buying a hybrid saved me 900 gallons over 3 years, actually with my job I travel 20,000 a year so it’s even better than that. Now work the numbers with 8 dollar a gallon gas, the only way out of our debt problem, and our loss of manufacturing jobs is to decrease the value of the dollar. Energy prices are going to keep climbing in the long run.
What makes more sense?
To keep driving a beater worth a grandido or 2, that gets 20 mpg, or lash out and buy a new prius for $25k?
Not enough data to reach a conclusion, depends on (1) how many miles you drive and (2) how much in repairs the beater is costing you.
Gut answer if low cost is the goal: drive the beater until you’ve spent $500 or so in repairs then buy a used, but fairly recent, high MPG non hybrid (Civic, Mini, Corolla)
I drive around 5k miles a year, and upkeep on my beater is about a grandido per annum.
I tried that, but the repairs cost $1,300!
Maybe I will spring for the diesel hybrid when it is available, provided I have not given up and moved out of the country.
Emperor -
The math is pretty basic. At $5 a gallon you would be spending $1250 a year for gas. Add $1k per year on upkeep and you are paying $190 a month for your current beater.
A 45 mpg hybrid would knock about $50 a month off your gas bill, but you would pay at least $400 a month to buy or lease, plus you would have to carry collision insurance, plus depreciation. So if money is the only consideration, keep the beater.
Like I said, if something big breaks, scrap it and buy a 3-4 year old, high MPG, non hybrid. This is the most cost effective car purchase there is.
Buy a diesel car and stockpile bio-diesel; it is non-toxic, stable, does not have flash-point issues like gasoline, so it is quite safe to store.
Or stock-pile vegetable-oil: you can burn it in the car, or cook with it in the event of global collapse!
I’d pay attention to the part of this re-cap that speaks to forestalling the “poom” and it’s impact on gold (towards the end). Just FYI.
http://www.itulip.com/retrospective2006.htm
Nobody is blessed with an iota more foresight than you, which means nobody knows what will happen to gold.
What fundamentals have been moving the price? Your guess is as good as anyone’s. I think the general economy is guided by many fundamentals, but gold’s only fundamental is an emotional reaction to the economy.
Emotions are relatively easy to predict. If the objective is to make money in gold, ignore gold and observe the gold bugs.. the traders. What makes them tick? If you are one of them you already know. If you aren’t one of them, you might want to pick another commodity.
And considering the path we are heading down, what are they likely to be thinking and feeling by the end of the year? Are there enough gloom/doomers with adequate fear (and liquidity) to invest and move price up or will a large majority be more inclined to sell or to conserve money for necessities?
joey…
What exactly do you believe in, as far as investments go?
I believe an investor should remain unattached and flexible.
Thanks for nothing.
So you pretty much agree with watcher then that all of us should buy gold? Of course, I don’t just mean paper equivalents thereof.
almost everyone should own some gold.. almost nobody should gamble in commodities.
“almost everyone should own some gold.. almost nobody should gamble in commodities.” …well said.
…said it once ,and say it again: Goldbugs or Fiat cheerleaders aside. Buy yourself a hundred ounces of silver. fact is if everyone decided to, there would be none left.There is 1 oz. in every flat screen TV 500 mil last year. Re: recent shortages on Kitco, Apmex, most large dealers etc. They are telling you something. Don’t go nuts, but it is fact we are using more than producing,and not many mines producing anymore,and cost to produce is going skyword. Also, Buy physical. Recent shortages are telling you there just isn’t much around when almost every major dealer was out ! Time will tell, but have your bet on the dollar?
I am having a hard time understanding how the picture is improving when home prices in U.S. cities just completed a record one-year price drop right through the red-hot summer sales season. And isn’t San Diego a bellwether for the rest of the U.S. housing market?
Housing downturn could be letting up
But S.D. not among cities in recovery
By Roger Showley
STAFF WRITER
August 27, 2008
A key housing-price index released yesterday offered a glimmer of hope that the downward spiral might be slowing in some places, but San Diego and other once-high-flying cities have yet to see any return to stability.
The Standard & Poor’s/Case-Shiller Home Price Index showed prices of single-family resale homes in 20 cities had dropped 0.5 percent from May to June, compared with a 0.9 percent decline from April to May. It was the smallest month-over-month decline in a year.
San Diego’s 1.5 percent decline was up from a 1.4 percent drop in May. San Diego prices were down a record 24.2 percent from year-ago levels, compared with the 15.9 percent drop for the index of 20 metro areas, also a record decline.
MSM financial journalists are grasping at the straws of a slowing rate of decline, and seem happy to downplay the record price drop that just played out over the past year, including the obvious implication that the incentives for foreclosures, walkaways and short sales just increased considerably.
US house price declines slowing
By James Politi in Washington
Published: August 26 2008 14:52 | Last updated: August 26 2008 19:21
US home prices posted a record annual decline of 15.9 per cent in June, but the pace of monthly falls slowed significantly, offering hope that the ailing US housing market is edging towards a rebound.
I bet if you read local media sources in Japan, they probably called weekly pricing bottoms for the first 10 years of their 16-year housing price slide.
I wonder if any regular readers of this blog has personal experience with how the local media handled the Japanese downturn.
We are getting to the point when yoy drops will show smaller declines simply because declines were in full swing by this time in 2007. Compounded declines don’t make things better, but thats too much for media to understand….
Sheila Bair’s been on tv a bunch lately, and she never answers the the real questions, because they are never posed to her.
Very robot-like, she always goes into her spiel about how nobody’s ever lost a penny in an FDIC insured bank since 1933, and tends to combine her soothing words with a toothy grin, spin spin spin…
If everything’s so hunky dory, why is she considering hitting up the Treasury Department for an undeclared amount, to see the FDIC through an expected wave of bank failures?
And as the FDIC has access to a separate $30 Billion Treasury credit line, you have to ask yourself, Just how much does Sheila really need?
Get your money out of American Banks, sooner than later…
are you paying the currency exchange to deposit in foreign banks? any other thoughts?
“…More failures would also make the situation worse. Though only 27 institutions joined the troubled bank list, the growth in assets at those banks and thrifts was more dramatic, $52 billion.
The list does include IndyMac, which accounted for $32 billion of the increase in troubled bank assets. The other $20 billion indicates that some other large institutions have been added to the list. “More banks will come on the list as credit problems worsen, and the assets of problem institutions will also continue to rise,” Ms. Bair said.
The earnings picture was equally bleak. The FDIC said loan-loss provisions were the most significant factor in the profit decline. The provisions increased fourfold from a year earlier, to $50.2 billion.
Still, the provisions did not keep pace with loan losses. The so-called coverage ratio dropped slightly to 88.5 cents for every dollar of noncurrent loans — a 15-year low.
The ratio remains low “because of the rapid rate at which loans are going bad,” Ms. Bair said. “We expect that banks and thrifts will keep building up reserves for the next several quarters, and we continue to strongly encourage institutions to make sure that they have adequate reserves to cover their credit losses”…
Total deposits at insured institutions increased by only $6.9 billion in the quarter. Deposits in foreign offices increased by $46.8 billion, while deposits in domestic offices fell by $39.8 billion.
The number of institutions in the industry fell by 43 during the quarter, to 8,451 as of June 30. Twenty-four charters were added, while 64 were merged into other institutions.”
American Banker
Writing off loans with no current earnings and weak future prospects sounds like a death spiral to me….
(Reuters) - Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.
http://www.reuters.com/article/ousiv/idUSBNG28670420080827
What makes you think non-American banks are any safer?
Trying to pick the least worst currency ain’t my bag.
Along those lines:
http://www.portfolio.com/views/columns/wall-street/2008/08/13/Problems-in-British-Banking-System
“British bank stocks have plummeted in the wake of last year’s rescue attempt and subsequent failure of Northern Rock, a midsize bank whose customers were seen on the evening news lining up to withdraw their money. Britain’s surviving banks are scrambling to raise capital, with some having less success than others. The deflation of the British housing bubble has only just begun. Prices, which rose at roughly double the U.S. rate over the past decade, tumbled about 10 percent from their peak in August 2007 through the middle of this summer. Inflation and unemployment are rising, and Britain is in a bear market.
Things might become worse in Britain than in the U.S. Consumers are more indebted; financial services make up an even greater portion of the economy; inflation takes a much more significant bite because the British have to import so much.”
I thought that the least worst currency was gold.
(speaking for aladinsane…)
I think he was referring to the least worst fiat currency.
Many non-American banks have little exposure to the US. These banks are flush with cash and will be buying US banks as the debacle proceeds - (leaving the Federal Reserve with the worthless paper). These banks are primarily located in China, Japan, and the Middle East. (There are some good Indian banks, but it is hard to separate them from the drek. There are also some good South American banks, again hard to separate. There are 5 very good US banks, the rest are suspect.)
Some of these foreign banks are growing at 35%+ per year. Banks such as Wachovia which needs to get at least $5B by year end will find few buyers in the US, but may find foreign buyers looking for a presence in the US. As Ms. Sheila Bair said yesterday “And we don’t see a return to the record high earnings levels of previous years anytime soon. … We don’t think this credit cycle has bottomed out.”
I can’t say I know anything about the condition of foreign banks, but I find it hard to believe that anyone can evaluate a bank in China with any degree of accuracy. I also can’t see the Chinese economy continuing to grow at it’s current rate considering how tied in it is to the U.S. and European consumer markets. I would think that many foreign banks have loaned money to U.S institutions and have bought mortgage backed securities tied to the U.S. property market. The banks in the countries you mention may come out of ahead of the U.S. and European institutions, but they will still likely suffer some severe financial consequences.
The regulations for banks in Asia are more difficult than regulations for banks in the US. (Not including the fact that shareholders in China have more safe guards than shareholders in the US.) A recession in China is a growth rate of 8%. Many of these foreign banks are listed in the US and have to meet US SEC rules.
“Industrial & Commercial Bank of China Ltd (ICBC) (1398.HK: Quote, Profile, Research, Stock Buzz), the world’s biggest bank by market value, posted a 41 percent rise in second-quarter profit, buoyed by widening interest margins and fee income growth….” Reuters
Why buy a US bank with negative prospects for the next 5 years when you can make money? ICBC is trading at a PE of 20 with a growth rate of 40%, Bank of America is trading at a PE of ? with dim future prospects.
One of the many great things about a market falling like China’s is the ability to buy good stocks at relatively cheap prices. China’s stocks are now less expensive than US Stocks and with higher growth prospects.
China makes it’s money by purchasing natural resources around the globe and turning them into goods. Global inflation is going to reduce the demand for manufacturing. Unemployment is going to push polititians to save local jobs. I just can’t believe that China is going to keep growing while the US, Europe, and most others contract. China also has rapid inflation which is related to their efforts to keep their currency below the dollar. This will hurt their domestic demand.
Inflation causes manufacturing to increase as people “buy now or be priced out forever”.
China’s currency has appreciated 8% against the dollar in the last year alone. If China is reporting rapid inflation, what should the US be reporting?
Absolutely China is going to slow down from 10.5% to 8% - that is a recession in China.
The US is not the largest trade partner with China. Even if the US and Europe are toast, mopes are still going to go to Walmart and the ilk. What is made in the US that consumers buy and must continue to buy? The necessities come from China. Prepackaged food and clothing. The same is true for Europe.
On the banking side, good US companies are going overseas for funding. At this time, the US banks are not able to lend moneys in the amount needed by multinationals.
“There are 5 very good US banks”
Can you tell us which? I may need a place to park some funds for a little while.
Start with Northern Trust NTRS and compare to the crappy ones: Bank America, Wachovia, Washington Mutual, Citigroup, Wells Fargo etc. (Wells is the best of the crappy banks.)
Some of the items that should concern every lender (depositor) to the banks are ‘Securities held for Investment’, ‘Level 3 assets’, ‘commercial loans outstanding’, ‘residential loans outstanding’, ‘reserve ratios’, reserve ratio growth keeping in line with distressed assets….etc. etc. etc.
A banks balance sheet is the reverse of your balance sheet. A liability to you is an asset to a bank. Think of the number not paying bills, will it get worse?
Why ’securities held for investment’? These items may be distressed bonds that are trading at a 40% discount to par, but bank accounting allow it to be kept at par on the books.
Lately a large number of banks have moved ’securities held for trade’ to ’securities held for investment’. When and if these bonds default, there will not be sufficient reserves in the banks accounts.
This should give you a good start on where and what to seek. At this present time, I will not recommend any bank because of the inherent risk in dark matter. Some are not in as risky a position as others. They may all survive, but there are safer banks in other lands.
When Ms. Bair yesterday said:
“And we don’t see a return to the record high earnings levels of previous years anytime soon. … We don’t think this credit cycle has bottomed out.”
As an aficionado of banker speak, I was stunned.
What she said, translated into English: “We will be lucky if any bank shows a profit…. We are in deep shit.”
Ditto! Please do tell, Hoz!
Hoz is a wealth of information. With WM’s short-term debt yielding 30%, I thought about doing some arbitrage and researched the banks and a few other companies on a superficial level, looking at interest coverage and LT debt/equity. Without even analyzing asset quality (Hoz has done a rigorous analysis as anyone should when considering investing), I saw it ain’t pretty and changed my mind. In short, interest coverage should be at least two times interest expenses, and LT debt/equity of less than 1.5 is good. For what it’s worth, here’s what I found:
Bank/Interest coverage/LT debt/equity
Wells Fargo 3.12 2.14
Bank of America 1.6 1.48
Lehman Bros 1.28 13.31
CIT Group 0.44 11.81
National City Bank -1.81 2.07
Citibank -1.32 4.42
Fannie Mae 0.45 14.62
Wachovia -3.99 2.09
General Motors -4.98 1.02
Washington Mutual -6 1.17
Merrill Lynch 0.01 33
MGIC Investment Corp -7.63 1.9
Ambac -8.93 4.82
MBIA -8.81 11.69
Freddie Mac NA 64.55
Ford -2.74 102.3
Northern Trust 3.9 0.95
Comparing NT to the rest, you can see they are in much better financial shape. Just in case anyone doesn’t listen to Hoz….
BTW, I own Allied Irish Banks (AIB) and Banco Bilbao Vizcaya (BBVA). Their financials look great right now because they have not been destroyed yet by the unfolding housing implosion in Europe. I will learn my lesson the hard way. The situation is the same for many of the other European banks. I believe Hoz is referring to the Asian banks, which are better capitalized (from China’s industrial cash flow) and have little or no toxic waste on their books.
RE: Get your money out of American Banks, sooner than later…
Huh?
Didn’t you read today’s biz headlines?
“Consumer confidence” is drastically up in August because gaz has fallen 25 cents a gallon!
(snicker)…Josef Gobbels never had it so good.
I’m below FDIC and buying laddered treasuries going out 1 years today. I decided to move out of my CA Muni Bond MM fund..low risk, but not 0 risk.
I decided to move out of my CA Muni Bond MM fund..low risk, but not 0 risk.
—————–
Very good idea, IMO. I think this is the next “crisis” coming within the next 2-3 years.
“…The borrowed money would be repaid once the assets of that failed bank are sold.”
You see how easy it is to fix these sort of “financial problems”…I can’t understand why these folks spend so much of their life getting an MBA
FDIC may borrow money from Treasury:
http://www.reuters.com/article/newsOne/idUSBNG28670420080827
The FDIC is broke. They have no choice but to borrow moneys from the Federal Reserve as the banks fold. The report issued yesterday covers to 30 June; it does not accurately reflect the credit debacle that is occurring now.
Just another one of the hidden ways the printing presses are kicked into overdrive and savers are punished.
What other choice does the Fed have?
I now designate the Fed to be more like:
Def-Con
it’s a bizarroworld, deal with it…
Maybe, for one, we the publick, should demand full transparency of all our financial instituitions so they don’t get into these messes to begin with…..like that’ll ever happen.
But if we do want it to happen, Americans need to actually lose the money that they’ve entrusted to the Banks. When this occurs, then and only then will the public will demand full reform. With the FDIC scam in place the sheeple will continue to get fleeced.
Wait, isn’t far more money being destroyed than created?
FDIC insured money is placed in the checking or savings account from the saver’s paycheck. It’s real money produced from real labor.
Presumably, the bank failed because it created more money, in the form of bad loans, than it could handle. Yes, a little bit of money is created when bank assets don’t cover depositors and the US treasury has to print the rest. But the covered deposits are only a fraction (10% reserve or so(?) ) of the bad loan paper. The remaining balance from the bad loans goes *poof*.
Here’s the scenario Oxide.
I buy a fully paid off home from you for 300K and you put that money in your account.
I borrowed the full amount and immediately default in a non-recourse state.
Now, what mechanism takes that money out of your account?
When I walk from the house I no longer owe money on that loan. My payment of the loan is what drains the money back out of the economy, now that link is severed.
The bank may not be able to loan anymore money but the money it loaned and is no longer able to collect on is stranded in the economy. Unless someone can show me how a banking book entry drains your account of the money you deposited from the sale.
A bank with a market cap of say 100 million that has lent out 5 billion can only decline to zero market cap before it fails. If all the depositors are made whole by FDIC and if ALL the loans were a 100% loss (an unlikely scenario for sure but just to make the point) then there is almost 5 billion of created money stranded out in the economy. That is assuming that the shareholders all bought for cash at the top so their loss is 100% invested capital.
Can anyone in the banking industry add to this line of thought?
I guess it’s just a matter of question how much the banks loans have declined in value. In the end by bailing out saving and checking accounts I’d wager that more money is placed into the system since that bad debt still has some value. Also the banks surely must have many assets/loans that still hold value, they just aren’t capitalized well enough.
Ok, I’ll admit my initial post was knee jerk.
Does anyone have any hard evidence has to what bank bailouts do to the money supply? It’s an interesting question.
Lets say I put $100 in bank A. The bank then loans you $90 and you deposit that in bank B. Bank A then has assets of $10 + a $90 loan. You default on your loan so bank A has a net worth of -$80 and cannot give me my $100. The FDIC then gives me $90 plus $10 left in the bank and I deposit it into bank B which has not failed.
Bank B now has $90 + $100 that have been deposited allowing it to lend out $171 whereas without the FDIC bailout bank B would only have $100 because I would only get back $10 from the bank.
Yes I realize that you spent your $90 so it isn’t in your bank, but it is in the bank of the person you bought your house from and for the sake of argument, lets assume they also use Bank B
Oh, I see.
1. The bank creates $300K *poof* money for you to borrow.
2. I put that $300K in the account, effectively making *poof* money real. (this is the key part I was missing.)
3. Then you default on the $300K, and that $300K from somewhere goes *poof*.
4. Say the bank has $200K in assets to cover me. They cover me and then go under.
5. The Fed has to print $100K new *poof* money to cover my cover my real $300K.
Score card:
$300K *poof* money –> checking account –> created + real.
$300K *poof* money –> default –> destroyed.
$100K printed to cover real –> *poof created*
——–
$100K created total.
100K is only created if the FDIC or government has to borrow money into existence to cover your loss.
300K created when loaned to you (with matching bank liability, aka naked short on the dollar)
300K deposited into another bank when you spend your 300K… which allows another 30K to be created and another 3K on down the fractional reserve line…
You default and the bank is caught without the dollars to cover their naked short because you never paid them back. Unless the bank manages to come up with money to cover their naked short positions that money will NEVER be destroyed.
So a bank with 100K in capital and 100M in loans loses 50% on their loans. They do not have enough money to cover / destroy the debt they issued. So in order to destroy the money someone would have to infuse the failed bank with 50M dollars from circulation (to pay off that debt).
In other words, when a bank fails you have perm. inflation in an amount equal to their losses from naked shorting the dollar.
Then the FDIC creates new money to cover the individuals who lost money which creates EVEN MORE new money.
So any deflationary forces are simply the result of people being able to repay loans (and banks able to cover losses) and not being able to take on new loans.
Bank failures result in perm. inflation unless I am missing something.
July durable goods orders up 1.3 percent
http://biz.yahoo.com/rb/080827/usa_economy_durables.html
Orders for durable goods, items meant to last three years or more, were up after an upwardly revised 1.3 percent gain in June, the Commerce Department said. Analysts were expecting durables orders to remain unchanged from the previous month.
Rally time again?
I had been under the delusion that San Diego County incomes were in the mid 70s. At a median hh income of $61,794, the median home price (reported by DataQuick at $364,000 for July 2008) is still at 5.9 times the median hh income — quite pricey when incomes are expected to stagnate or fall going forward.
Census data show no rise in wages in 2007
Numbers for 2009 incomes expected to be worse
By Dean Calbreath
and Lori Weisberg
STAFF WRITERS
August 27, 2008
Workers’ incomes stagnated last year, barely outpacing the official level of inflation, according to data released yesterday by the U.S. Census Bureau.
(LAURA EMBRY / Union-Tribune
UCSD groundskeeper Christine Gonzalez repaired sprinklers yesterday. She and her husband want to have children, but worry that their combined income couldn’t support a child.)
After adjusting for inflation, the median salary throughout the state and nation was lower last year than it was in 2000, economists said.
“2007 was probably as good as it’s going to get for a while, and these numbers show it wasn’t very good,” said Jean Ross, director of the California Budget Project in Sacramento.
Census data show the median household income in San Diego County was $61,794, compared with $50,233 for the nation. After adjusting for inflation, the county figure was roughly 0.5 percent higher than in 2006 – a statistically insignificant number, economists say.
Even though U.S. income is declining, it’s ok because income is increasing in China & India. Hopefully, one day globalization and free markets will make us equally poor.
The fact of the matter is that each additional individual working productively would be increasing the total world-wide wealth with their labor. It is only when resources are stolen via inflation, taxes, and regulations that the poor are unable to utilize their labor to serve those around them and increase overall wealth. More labor enables greater specialization and greater productivity per person.
If you require “coercive markets” (instead of free markets) to maintain your standard of living then you are living on the theft of wealth from others.
And of course this is using the bogus government inflation figures. Using the real inflation figures (2x government numbers) then people have taken quite a hit in standard of living.
Southwest dumping nearly 200 flights
Airline gives in to pinch by fuel, sour economy
By David Koenig
ASSOCIATED PRESS
August 27, 2008
DALLAS – Southwest Airlines, which had resisted the kinds of capacity cuts being made by other carriers, will eliminate nearly 200 flights early next year as it struggles with high fuel costs and a weakening economy.
The move raised doubts about the company’s publicly stated goal of growing modestly in 2009 despite the airline industry’s troubles.
Now, Southwest will cut 196 flights while adding six new ones in its schedule that takes effect Jan. 11.
That is nearly 6 percent of the airline’s daily schedule of close to 3,400 flights.
RE: SouthWest dumping flights…
Southwest needs to dump the eastern urban seaboard pick-ups where all the fatties headin’ to Chicago get on.
While their 737’s simply sail out of Manchester NH, once the load from Baltimore/DC clambers on board, it’s always throttles full bore, balls to the wall, to get into the air.
Quite nerve racking really, to think all those extra Big Mac’s might prevent a plane from gettin’ off the run-way.
I see extra charge for surplus poundage coming!
I see extra charge for surplus poundage coming!
You may be right.
If so, I foresee a class-action lawsuit by the morbidly obese alleging discrimination against the Wide-Arsed.
We pay for frieght according to weight why not air passengers ? Their biggest expense is fuel and you burn more fuel with more weight…Screw hurting someone’s feelings…Makes complete sence to me…
Makes sense to me too. But then again, with a moniker like Arizona Slim, such a thing would make sense.
I would argue that weight is not their biggest expense, but volume. If weight was the factor then you could sell one ticket for a 150lb individual or two tickets for 75lb individuals.
obviously the total number of tickets is fixed and it is the fixed costs that make up the biggest expense. In other words, doubling the weight of one passenger will not significantly change the cost to fly them from point a to point b.
Regarding discrimination… that is a right in a free society because it involves choice. anti-discrimination lawsuits are anti-freedom and are equivalent to “forced association”.
Wow VT Dan, so you’re saying I have the RIGHT to not have to associate with blacks, latinos, jews, gays, the aged, etc in public because of our “free” society. Your assertion that discrimination is a right because it involves choice is equally asinine. You know what, I don’t like Hookies. I think they should all be confined to a certain area of the country with no job prospects, little education, and piss poor healthcare. I don’t think they should be allowed to marry and breed either. Oh, and they shouldn’t have the right to vote or dine in the establishments I dine at. All because VT is such a stupid school and I don’t like them. Take you “forced association” and blow it out yer a**.
All I am saying is that I am against rape (forced association), against outlawing sex (forced disassociation) and pro freedom of association.
More mass in an airplane requires more aerodynamic lift when cruising. More lift creates more drag. (1)
More drag means you need more engine thrust to counteract the increased drag, hence generally more fuel burnt. (It gets complicated how more mass carried filters through into more fuel cost, but this is the root cause.)
(1) Aerodynamically, it just does. Don’t argue
LOL. SW is already probably the strictest airline for making large people buy two seats. I am ticked that they are cancelling, I think, six daily flights between San Diego and Oakland. I fly that RT route all the time and at all times of day and the planes are always PACKED.
I believe the airlines tried this years ago. There was such an uproar that they dropped charging overweight people.
That was perhaps back when they were making money.
Now, driving overweight passengers to another airline is a double help. Less loss for the first airline, and more loss for the competition.
Soutwest is currently running their operations at a loss. Only heating fuel hedges have allowed them to remain profitable.
Each new flight they add is not covered by the hedges, so any expansion in the current situation would only lose them money.
And by cutting flights they extend their hedge on fuel…Pretty smart…
Would Southwest be toast if it raised its fares? After all, that fuel hedge won’t be around forever.
I think they are hoping the fuel hedges last longer than United or USAir (ie 12 months).
My death-bet is on USAirways. Southwest has been itchin’ to take over their PHL gates.
In an inflationary environment they need to always use the replacement cost of fuel to determine their profit/loss. Otherwise they are taking real losses even if they have nominal profits.
Suppose I bought 1000 gallons of gas 5 years ago for $2/gal and today it costs $4/gal. I am not making a profit if I sell it for $3/gal because the dollar has lost 50% of its value over that time period so I am taking a real loss.
If I instead burn the fuel to make a $1 profit I would be better off selling the fuel to make a $2 dollar nominal profit in order to stay even on a real basis.
The fact that companies use first in first out accounting instead of last-in-first out means that they are always losing real wealth due to their prices being behind inflation. In many cases companies can go on for years with nominal profits but real losses…. this is the problem with any amount of inflation. Sooner or later the capital is destroyed because of inflation and taxes on nominal profits (that only make the real losses worse).
I believe we are really close to something big happening financially…
It doesn’t necessarily have to be a black swan event, as even small tremors tremble the mindfield, now.
“I believe we are really close to something big happening financially …”
Uh, we are already in the midst of something big happening financially.
No joke. I would say if 20 pct+ YOY declines in San Francisco, LA and San Diego single-family home prices do not qualify as big, then aladinsane has a very high bar…
I don’t follow your reasoning.
If 30% yoy INCREASES for 2-3 years is allowed to go on, why would the inverse be so terrible??
That unrealistic increase was the problem.
FAke financials, gaming the system, phoney valuations all made people rich. So now, they’re just a little less rich.
I guess the real problem is the 30:1 leverage. It should have been stopped by OCC or FED or OBTS, but they didn’t care, so now it’s time to straigten up the books, a least a little bit.
With 30% increases, a lot of people get rich. Some people get really, really rich. This is, of course, due to their own brilliance, not some financial or psychological phenomenon, like a bubble. Few people notice that the increases are abnormal.
With decreases of almost any amount, many people get poor, mostly because they are leveraged to the hilt. Financial institutions become insolvent. Who cares that they were raking it in only a couple of years ago? That money is gone, having been paid out in lavish bonuses. Now everyone notices. It’s big.
Think of what’s coming at the hoi polloi as a financial Pearl Harbor or 9/11 attack.
It will then be painfully obvious, ominously…
We few that broke the code, know what’s coming and have sent signals via semaphore flags (the internet) but it appears nobody was listening.
I respectfully disagree. What has already played out will be viewed through history’s rear-view mirror as a sudden collapse, even though it was hard to clearly perceive in real time.
Why be a rear-view driver, when you should be looking forward?
Please elaborate on the event (s).
Stupid question: please elaborate on “black swan.”
I’ve been reading that phrase here for months, but never in enough context to figure it out. is it the black swan from Swan Lake?
The Black Swan is a theory and book by Nicholas Nassim Taleb about the impact of rare events that are outside normal expectations.
“The Black Swan: The Impact of the Highly Improbable.”
From the author: (he sure coined a catchy phrase, but I’m not sure if he is such a eminent philosopher).
“…. a Black Swan (capitalize it) is an event with the following three attributes.
First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.
I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability.”
Doesn’t black swan refer to a very unexpected event that completely changes your view of what is possible? The metaphor being that you can spend a lot of time looking at swans (the overall housing market) and come to a very reasonable conclusion that they are always white (it always goes up). Until you see a black one. After that, your idea of what is possible is completely different.
Pretty much any insider phrase you see on the blog that isn’t an inside joke, is probably explained with some moderate googling.
Black Swan ?? A contagion released in a big city or worse in a potable water supply would cause a world wide meltdown…Just need some Bi-polar chemical engineer I suppose…
“The Black Swan is a theory and book by Nicholas Nassim Taleb about the impact of rare events that are outside normal expectations.”
“Outside normal expectations” of only the dopes, I might add. Coming to terms with the reality, especially, if it is dark, is not normal in our culture. Propaganda machine heavily discounts the negative prognostications and tries its best to discredit the messenger.
Jas
One very, very long slow Black Swan event. Of course since everyone on this board has been predicting this ‘Black Swan’ I guess it’s a ‘White Swan’ or something like that.
I’m guessing the next ’surprise’ will involve WaMu, Leh or Wachovia. WaMu is in the deepest doo-doo now.
No I think Alad is referring to something bigger than even what we expect…
Trifecta in one week? Plus maybe a Fanny and Freddy bailout at about the same time? That would probably cause some bank runs and a plunge in the markets. Yummy!
Few things could be bigger than what I expect.
combo:
I’m holding 4 aces, can your hand beat that?
Yes, if my hand is holding a gun.
I have the guns and the gold, the cash and the rice, the good job and the austere life, mobility and a deck of cards. Did I forget anything? Oh yes, the fishing pole.
Don’t force me to bludgeon you with my blackjack kicker card…
Blackjack: n. A leather-covered bludgeon with a short, flexible shaft or strap, used as a hand weapon.
RE: I have the guns and the gold, the cash and the rice, the good job and the austere life, mobility and a deck of cards.
Don’t forget the Stihl chainsaw.
Don’t forget the Stihl chainsaw
Better hope it runs on solar panels.
Husqvarna and General Tractor hydraulic splitter. Easy enough to run the hydraulics on hydro, but the solar chainsaw might take some thought….Ethanol qualify? How about I drink the ethanol and use the bow saw?
A “Tyvek and Stucco” swan.
I’m debating whether to open a 1 yr. CD at WaMu…they are paying 4.5%. I have about 100K coming up at another bank and the renewal interest rate is much less.
I feel pretty good about the FDIC making good on my principal and accreued interest. I just don’t know about future interest for the remainder of the CD period. The FDIC did retain the interest going forward at the IndyMac bail out. I wonder whether they will be so generous in the future.
What rough beast slouches toward Bethlehem to be born?
In the town of Greenwich, Connecticut, it is illegal for a real-estate agent to post a “For Sale” sign in front of a house or a tract of land. For many years, such an ordinance was unnecessary; those who needed to know knew, and those who did not did not. But in the nineteen-eighties, with the arrival in town of national real-estate firms, “For Sale” signs started sprouting up, cluttering the roadways with middleman names and numbers.
http://www.newyorker.com/reporting/2008/08/25/080825fa_fact_paumgarten
for sale signs are lawn ornaments these days
anyone see Cramer predict a bottom in housing by June 2009?
I did not see that, but at this point, I feel like I’ve seen predict everything. And take credit for everything [he thinks] is good.
If brokers’ signs were allowed, the town might look, from the right distance, like a giant and very expensive tag sale, and the sudden conspicuousness of so much supply, in a time of slackening demand, might shatter a range of illusions best epitomized by the risible listing prices.
We must keep up appearances, mustn’t we?
Manhattan movers-and-shakers take note: your commuter brethren are in the crosshairs, and you’re next.
A paper was recently written that compared Federal Reserve staff reports to voting members of the Federal Reserve reports and found the staff reports were more accurate.
Fed minutes bearish on growth
By Krishna Guha in Washington
“The staff economists of the Federal Reserve presented a bearish growth forecast at the US central bank’s last meeting on August 5, minutes of the meeting revealed on Tuesday
The Fed staff cut their forecast for growth in the second half of 2008 and in 2009, citing a weak jobs market, unfavourable financial conditions, a lack of consumer and business confidence and falling manufacturing activity.
Meanwhile, the staff forecast that core inflation would “pick up somewhat in the second half of this year” then “edge down in 2009” as the impetus from past increases in commodity and import prices faded and widening economic slack moderated price pressures.
Fed policymakers meanwhile put renewed weight on financial sector stress and signs of softening global growth as they toned down the emerging hawkishness of recent months at the meeting….”
FT
http://www.ft.com/cms/s/0/0f458ca8-73a6-11dd-8a66-0000779fd18c.html
“The Fed staff cut their forecast for growth in the second half of 2008 and in 2009, citing a weak jobs market, unfavourable financial conditions, a lack of consumer and business confidence and falling manufacturing activity.’
What took them so long ? Easy to make predictions when the data are all in and counted. In Engineering its cover your ass if you’re wrong with data. Slows you down though.
If Dubya’s “No Child Left Behind” produces any learned results it should at least convey the difference between a fully-amortized loan and the non-amortized loan. Ownership society?
“No Child Left A Dime”
Wall Street is offering a March of Dimes on the Dollar, in terms of how much your original investments are now worth…
Economists have long weeded through the New York Fed’s weekly release. With a dry, wonky name such as “Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks,” it’s no wonder U.S. presidents aren’t known to peruse its contents.
Yet it will tell the next leader — be it Republican John McCain or Democrat Barack Obama — how willing foreigners are to continue financing the U.S.’s way of life. Alas, there are good reasons for the U.S. to learn how to live without Asia’s money.
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_pesek&sid=aqu59cnYfsFY
Are hedge funds subject to usury laws? Or does their “lightly regulated” status exempt them?
Hedge Funds Help Fill Gap In Lending for Property
By LINGLING WEI
August 27, 2008; Page C1
Three months ago, Eric Gray saw an opportunity to scoop up a vacant retail property in New York City’s borough of Brooklyn. But he had a problem, one that has been plaguing many real-estate investors and owners: The nation’s banks, burned by years of easy credit and the resulting devastating losses, are no longer eager to lend.
So Mr. Gray turned to an unlikely source for money — a hedge fund. He took out a one-year, $2.3 million loan from Madison Realty Capital to pay for the $3.7 million property.
Even though the interest rate on the loan — at 12% — is nearly twice as much as a conventional-bank commercial mortgage, the developer took solace in the fact that he purchased the property at an attractive price and was able to close the deal fast. “For the flexibility, I can pay a bit more for the loan,” he says.
As the credit crunch enters its second year, more investors seeking financing to acquire office towers, retail stores, hotels and the like are left with little choice but to turn to so-called hard-money lenders, lightly regulated businesses that charge high interest rates for short-term loans.
Right now, among the biggest players in the hard-money arena are hedge funds, which view commercial-real-estate lending as a way to diversify their traditional trading operations while still commanding double-digit returns.
“We’re cranking it up,” says Judd Shoval, senior managing director of Ambit Funding, a Wilkes-Barre, Pa., firm that has dedicated $250 million in two hedge funds toward commercial-real-estate lending. David Hecht, president of Metro Funding Corp. in Paramus, N.J., says his firm launched a second hedge fund early this year to accommodate the increased demand for bridge financing from commercial-property owners and developers. “We get deals now we never got before,” Mr. Hecht says, referring to some high-quality borrowers who traditionally have resorted to banks for financing.
Uh-oh…sounds like we are going to be bailing out some more hedge funds next year…
Yeah - this will end well.
Sigh
Leigh
As the credit card companies have discovered/established in litigation, usury laws apply based on the institution making the loan, not the location of the collateral (if any) or the location of the borrower. So as long as one state has lax laws, the hedge fund can set up an LLC in that state and do whatever they like.
State? I thought all hedge funds operated out of the Bahamas or Bermuda?
Some of the ones that only want to bother to get US based investors are in the US. Or, rather, US based natural persons. There are complex tax reasons for those trying to get money from pension funds and university endowments and private foundations to have the investments held off-shore.
They’re “scooping up” housing again.
The only things worth scooping up are M&M’s.
“…We don’t know who bought the Freddie notes today. But buyers of Freddie notes who have access to borrowing from the Federal Reserve would have found the decision to bid relatively easy. That’s because the ability to exchange the Freddie debt for Fed cash means banks can buy Freddie debt with a huge amount of leverage, dramatically increasing the return on their capital….
A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Fed’s Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give them credit for 97% of their market value. Recently, the TAF pricing topped out at 2.35 percent for 28-day borrowing. So a bank buying $100 million of Freddie paper yielding 2.858% could flip it to the Fed, borrowing $97 million at around 2.4% (assuming the pricing will be slightly higher this time around).
At the end of the day, a credit desk could buy $100 million of Freddie debt for just $3 million down. On that $3 million, the desk would receive a 17.7% annualized return”
Dealbreaker
Is this business as usual at the Fed, or have they entered a new era, where the old rules no longer apply?
New rules. Gotta keep on your toes GS or you’ll miss the game.
There are a lot of trading opportunities in the bond market for 18%+ apr yields. But it is really sweet when it is as close to riskless as this.
Mondays news.
The deals are done, and now the quants are flipping switches again. Short Financials and long energy is back on rolling into the holiday weekend Gustav party, and FDIC fed backstop. I like the swing on this one. We should have a double dip closure on Friday, just to get the damn thing on realistic schedule.
Why go through this sharade of lending money and then taking back Freddie Fannie Notes.
Just have the FED give the banks cash, the difference between Freddie Notes and what they borrow for. I mean the FED in essence owns both ends so why the the dog and pony show.
looking back, many will say this was the ultimate design of the Alphabet Soup lending facilities, but its really just unintended consequences.
I believe at this time the real solutions are going to involve some sort of OTC Derivative debt forgiveness, in the event of substantial failures, the cross defaults will cascade into something that is not manageable. In order to mangage it…the parties with these large books of weapons of financial destruction will succomb to the realization that in order to unwind the mess, they are gonna have to let these things die. The longer this bullshit continues, the more dangerous the game.
The charade that is the U.S. Economy is very much like an overwound pocketwatch, that is very prescient twice daily, but hasn’t a clue what’s going on otherwise…
As opposed to what?
Central Party Planning in China? Russian Mobsters? Indian Subcontinent untouchables? Brazillian playboys?
you seemed to have lost your entertainment value, wake up on the wrong side of the casket?
Credit quality among the shakiest companies is worsening. The Standard & Poor’s distress ratio jumped to 24.8 percent in August, meaning almost one in four junk bond issues are at a high risk of default.
http://www.cfo.com/article.cfm/11999097/c_11999656?f=home_todayinfinance
Shhhhh.
Ear muffs on. Don’t confuse the issue with the facts. I can’t hear you, its a great time to buy. Not to worry the Federal Reserve will loan them the moneys.
Thoughts/comments:
Did the durable goods orders jump this month (like last month) because:
1) People/firms with cash are looking to offload the cash in an inflationary envrionment, feeding both inflation and the durable goods orders numbers?
2) Durable goods orders always rise in the summer?
3) There is an honest demand rise for durable goods in a “R” envrionment?
Any clues WTF?
It was the $50B stimulus part of the package to business. Nothing else.
Buy a new tractor, the accelerated depreciation allowed the government to pay for 65% of it. Whee.
Could it be that the huge prince increase in metal / plastic raised the price amount in US $ term even though actually the volume of order is down? Just my thought.
The govt cooked the boosk again.There is no way in hell that is a realistic number.I think it said autos were down 1.5%.Give me a break here.
I was talking to a friend of a friend that owns a new car dealership, in L.A.
Not only are people not buying new cars, but dealerships are oh so wary of more of the lease bubble hitting them, in the way of used cars on their lots that nobody wants, so leasing is not encouraged on bigger cars, as they will have the least resale.
Imagine what the cringe must be like for the dealership, when all those 2 year old leased Tahoes or Expeditions or what have you, come back @ $16k, and aren’t worth $6k now?
funny you say that
this guy i work with has a tahoe (book of $34k)
the dealer offered $10k
he is just going to keep it
I work with a guy that was offered $1k by the dealer on his 2004 Ford XLT.
There is a nice-lookin’ early-to-mid 2000s Expedition parked near my house with “For Sale: $2100″ grease-penciled across the windows. Seems cheap, though I haven’t bothered to check the comps.
After a month, still no takers.
They should take those SUV’s and have a crash derby. Sell tickets. They might get more money.
Maybe try jumping over the Grand Canyon.
True for trucks/SUVs but not all around. Just bought a Mini (cash of course) and stock for these is very low — gas crunch result, I guess. BMW/Mini (South Bay) dealer sold 420 units last month. Talking to finance guy and he says they are hanging on OK so far. Surprising to me, but I tend to believe him. On the flip side, new trucks in the SF VAlley at Galpin are marked ‘1/3rd off’ for Ford and ‘1/2 off’ for Dodge.
The MINI dealer in Denver has no stock at all. You have to order and wait 2-3 months for it to arrive.
Ours is doing great. 34 mpg in stop and go city driving.
420? In San Francisco you say…
Here is a thought……..
Why give everybody $2000 and it can only be used to pay off a credit card debt….then the cc company can lower the credit limit by $2000
thereby saving the cc holder $30-60 a month forever
And those that have no debt…well you get $2000 to spend for being frugal….now that is the right incentive.
They already did that with our “stimulus” checks.
The demand may have increased because of people like Yours Truly. Earlier this month, my refrigerator died. And then my computer’s UPS had to join the fun and do its own swoon act.
I feel so powerful, having stimulated the economy so much of late.
And my refrigerator as well. Didn’t cost me a dime. I deducted it from the month’s rent. Woot!
Atlanta builders need counselling for their emotional distress:
http://www.ajc.com/search/content/news/stories/2008/08/26/builderpsych.html
Hey! What about the buyers of the overpriced crapboxes? If they awake from their stupor they may need counselling too. Maybe anger management!
These builders made millions… now they claim they are broke.
WTF?
http://www.ajc.com/search/content/business/stories/2008/07/08/home_builders.html?cxntlid=inform_artr
Every year from 1991 through 2003, metro Atlanta had more single-family building permits than any metro region in the country, according to the National Association of Home Builders.
Tony Perry made millions building and selling homes during metro Atlanta’s housing boom. Now he scraps for remodeling work, has a part-time marketing job and worries about losing his own home.
“It’s not fun going from millionaire to ‘nothing-aire,’ ” Perry said. “I can’t say it’s an experience I would recommend.”
Not only are builders broke, but the rest of the country needs to collectively chip in now to get their industry back on their feet. What is good for home builders is good for the U.S.A.
A friend told me he got not 1, but 2 speeding tickets yesterday, issued by CHP… in the Central Valley.
Either he’s the dumbest driver ever, or CHP is really hard-up for do re mi?
“Either he’s the dumbest driver ever”
After the second, did he go buy some lotto tickets and then pay full sticker price on a new Tahoe? Either he’s very stupid or very unlucky.
Most people would at least slow down to the flow of traffic after the first.
Back to school week in the Valley.
I love these guys. Their speeding attracts the cops and keeps them busy thus allowing me lots of slack.
The Fed is not the first central bank in USA. It is the third.
First Bank of US 1791-1811
Second Bank of US 1816-1836
Fed 1913- ?
http://en.wikipedia.org/wiki/History_of_central_banking_in_the_United_States
I recently came across that information. So here is a research topic for the taking: What can we say about the duration of central banks in modern history?
It probably has more to do with the decline of dueling
Barack Obama in his speech yesterday sites dropping house prices as one of the things that’s Wrong With America.
Obama’s jabs were not limited to McCain, as he tried to put blame on the Bush Administration and the Republican Party.
“Over the last eight years, you’ve been falling behind, over the last eight years, your lives are less secure, over the last eight years, you are more likely to have lost your health insurance, over the last eight years you are more likely to not be able to save, over the last eight years your home values have started to drop,” Obama said.
Obama misspoke here. Median house price today is higher than 8 years ago–and has actually exceeded the rise in wages. Why would a “liberal” be upset if house prices get affordable again?
Of course, I don’t have much faith that McCain will get it right either (well, he might, but he’ll act “concerned” because Home Equity is now a core American value, like “Family” and “Church”)
Falling home prices create fantastic political opportunities, both to blame your opponent’s party, as well as to make grandiose claims about how once you are elected, you will wave an economist’s equivalent of a magic wand to fix the problem. But it does not help McCain’s cause much that he does not know how many homes he owns. I wonder if Romney knows how many homes he owns?
Well, then he certainly doesn’t care about falling home prices if he doesn’t know how many he owns!
(I don’t know how many computers or cameras I own—I was trying to figure that out the other day. But I know how many houses I own.)
I know how many houses I own — a big fat ZERO.
It is very sad, indeed. 300M American Citizens and these candidates are the best we can do? Don’t get me started on the House Of Reps and the Senate. I wish people could see through propaganda and hyperbole in both parties.
Thank you, Wipeout. I was thinking the same dire thought as I was waking up this morning.
Then I turned on NPR, which was full of DemoCon news, and that sure didn’t help my disposition.
Don’t get me started on the House Of Reps and the Senate. This is a democracy, get used to it. The electorate hibernates between election years & wakes up every Leap Year, turns on the tube & watches the candidates & parties spin. Few are interested in following issues of importance beyond that.
Because politicians are first and foremost politicians - narcissistic with a lust for money and power.
Politicians will do whatever brings in money. So, on the one hand they can say they are for homeownership, yet they promote policies that keep RE prices high and force people to take on crushing debt if they want to buy a home.
Why? This keeps property taxes high, and gives them more money with which to wield their power, and keep them in power.
This model - that politicians will do support whatever brings in the most money for them - works for many models. Why are politicians so susceptible to the wiles of lobbyists? Cash money.
What kind of society are we creating, anyway?
Our Inequality of Outcomes
Hey, good news on the income front: The Census Bureau reported yesterday that median earnings for full-time male workers rose by $1,653 last year, to $45,113, after adjusting for inflation.
Another year like that, and maybe the typical male worker will finally catch up to where he was in 1973.
… But over the past 35 years, the typical American household has managed to eke out only a 15 percent increase in its pretax income. During that same period, the productivity of the American worker — the value of the goods and services produced per hour worked — has increased by 90 percent.
Oops, forgot to close that hyperlink.
A quick comment while it’s fresh in my mind:
I’ve done a study of REO properties sold in my target zipcode. The bank that owns the house I’m looking to lowball closed on 5 houses in the zipcode in June.
The average discount on the amount “paid” by the REO bank at the trustee sale was 32.4%. The most grevious example was a property taken back by the bank for $367K in 12/07 and closed in June of ‘08 for $202K, a 45% discount! This is especially interesting because most of the trustee sale amounts indicate HUGE second mortgage balances and those entities are getting bupkis.
dude, where are you located?
Palmdale, Ca
Good news, US to lower the bar for corporate America
US companies will soon be able to higher fiction writers to create their financial reports. The benefits of this will of course go to the biggest companies first. Earnings will rise with the addition of pixie dust. Debt will disappear with a wave of the wand, and garbage assetts will retain fantasy pricing.
http://bloomberg.com/apps/news?pid=20601087&sid=aIwX0JunqIas&refer=home
Two questions:
1) Is the Fed part of the government?
2) How can the average observer know whether the Fed is buying up debt, given the veil of secrecy which shrouds their operation?
Fannie, Freddie Attract Buyers to $3 Billion of Short-Term Debt
By Jody Shenn
Aug. 27 (Bloomberg) — Fannie Mae and Freddie Mac sold $3 billion of short-term notes at yields that suggest the U.S. mortgage-finance companies are still capable of financing their businesses without government assistance.
They sold at yields greater than loans at the discount window, with a wink wink nod nod we’ll take all the risk just borrow from us buy these bonds and it’s guaranteed money.
It’s like I said, the FED should just give the dam banks cash and be honest about it.
define “part” of the government. It was created by the government, for the government, but the government “pretends” that the fed is independent. I would argue that the Fed is the heart of big government because without it our government could not exist in its present form.
According to CNNMoney - Hope Now has helped 2 million homeowners keep their homes over the past 13 months.
I’m having problems believing those numbers. Any of you think that this is correct?
I sure don’t!
Mariotti Abruptly Quits Sun-Times
Star Sports Columnist Says He Wanted Out Before Newspapers Die Out
In a bombshell announcement in the world of sports journalism, star columnist Jay Mariotti has abruptly resigned from the Chicago Sun-Times.
Mariotti told the Chicago Tribune he decided to quit after covering the Olympics in Beijing because newspapers are in serious trouble, and he did not want to go down with the ship.
http://cbs2chicago.com/sports/jay.mariotti.quits.2.803995.html
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“Lehman Brothers is reportedly setting up an off-the-books enterprise to ‘buy’ its failing mortgage assets, thus getting them off the old balance sheet and make investors forget that it still faces huge losses.”
C.K. Michaelson
It will work! Investors are stupid. They bought Pets.com et al and rode ‘em down.
Delinquencies Kept Rising On Loans Backing RMBS In 1st Half
DOW JONES NEWSWIRES
Delinquencies and losses on pools of loans backing U.S. residential mortgage- backed securities issued in 2006 and 2007 continued to weaken through the first half of the year, according to Moody’s Investors Service.
The ratings agency said weaker collateral, declining home values, higher mortgage rates and reduced credit availability hurt the performance of both first- and second-lien loans originated in 2006 and 2007. Deals backed by subprime, Alt-A and jumbo loans have all weakened compared with prior years.
While the absolute level of delinquencies among jumbo-loan deals remains low in comparison to other RMBS segments, Moody’s said delinquencies in that segment have been building more quickly in recent months. The agency is now reviewing for potential downgrade all jumbo transactions originated in 2006 and 2007.
While noting prime closed-end second pools have seen lower losses than subprime ones, Moody’s warned that 2006 and 2007 vintage delinquencies and losses have been increasing. The firm expects 2006 vintage prime CES pools to lose about 13% of their original balance and 2007 vintage pools to lose about 17%, on average.
The outlook is also daunting for home-equity line of credit pools. Moody’s projects 2006 vintage transactions will, on average, lose around 24% and the 2007 vintage around 26%.
Earlier this month, fellow ratings agency Standard & Poor’s reported that delinquencies of most home-related loans continued to climb in July, as the 2006 and 2007 issuance years continued to perform poorly. S&P said that, as of the July distribution date, delinquencies on subprime deals were 42% of current total pool balances for 2006 and 31% for 2007, both up from June. For jumbo loans, the 2006 vintage led delinquencies, while deals originating in 2007 were the worst performers among Alt-A deals. “
“For jumbo loans, the 2006 vintage led delinquencies, while deals originating in 2007 were the worst performers among Alt-A deals. “
Those still doing sloppy alt-A loans in 2007 had their heads in the sand up to their ah, err, knees.
Bankruptcy filings increase 30%
http://biz.yahoo.com/cnnm/080827/082708_bankruptcy.html
Bankruptcy cases surged in late 2005 because of the Bankruptcy Abuse Prevention and Consumer Protection Act, which made it harder for individuals to receive Chapter 7 bankruptcy protection.
I remeber that this law is what made me question the direction of the economy and eventually led me to sell my house and move to a very defensive position.
I’d forgotten the name of the law - Bankruptcy Abuse Prevention and Consumer Protection Act. ??? Isn’t it really a lender protection act ???
this is akin to marginal homebuyers of the same period taking on interest rate risk in adjustable rate loans.
chalk it up to unintended consequences. like many here you are in the process of educating yourself, and thats a good thing.
I wonder to myself though. What do you consider defensive positions? And I do not need you to post it, but remember that a certain someone is continuosly shorting your position, he shall remain unamed.
That someone shorting is me.
Defense for me
Mostly Treasury MM, CD’s, other MM - I’m not worried about inflation in terms of housing and that’s what this $$ is going toward in a couple of years.
Foreign bond fund same reason -
An electric motorcycle and making plans to build electric car
Most of the rest is invested in a schizophrenic manner to maximize dividends and hedge against a loss in the stock price
best I can come up with so far
Well I all but held up a bank today.
I stopped by WaMu, and found they have upped the ante on a 13 month CD from 4.5% to 5.0% apy. I picked up the WaMu flyer and went down to Bank X, intending to pull out my maturing-today CD to take it over to open one at WaMu. Bank X was only talking around 3.5% CD and 2% MM rates. But when I asked for my money they caucused with the branch manager and offered to MATCH the WaMu offer. I’ve never heard of a bank matching another bank’s promotional rate. I took them up since Bank X is in better shape than WaMu going forward.
indymac had better CD rates than all others ………
Wamu sounds like a repeat of indymac
Awesome!
I’m guessing Bank X is a small regional bank? It seems like a large bank wouldn’t be so flexible.
The price of increasingly scarce money is going up. It’s about time.
Though I’d be hesitant about locking money up in a CD for any length of time.