The Housing Bubble

good morning to all you geniuses.Watching some racing from singapore this morning.Might make it to a couple open houses to do some investigating.

Bloomberg blames it on the housing bust and reduced spending. What a novel concept:

U.S. Stocks Fall Most Since July on Home Sales, Durable Goods

By Elizabeth Stanton

Sept. 26 (Bloomberg) — U.S. stocks fell the most since July this week as disappointing housing and durable goods reports raised concern that the market’s record six-month rally has outpaced the prospects for an economic recovery.

Home Depot Inc. and General Electric Co. dropped as sales of new homes rose less than forecast and demand for goods made to last several years unexpectedly fell. Bank of America Corp. and American Express Co. lost more than 4.8 percent after the Federal Reserve said it will cut the size of two programs meant to bolster credit markets. Commodity producers declined as crude oil and metals prices retreated.

The Standard & Poor’s 500 Index fell 2.2 percent to 1,044.38 as all 10 of its industry groups declined. The Dow Jones Industrial Average lost 155.01 points, or 1.6 percent, to 9.665.19. The Nasdaq Composite Index slid 2 percent to 2,090.92. The Russell 2000 Index of small companies retreated 3.1 percent to 598.94. The indexes closed at their highest levels of the year on Sept. 22.

“Over the last six months, we’ve had a huge, huge rally,” Keith Wirtz, chief investment officer at Fifth Third Asset Management Inc., which oversees $20 billion in Cincinnati, said in a Bloomberg Television interview. “It wouldn’t be unusual at all for this market to show some churn a bit, some pullback from this great run that we’ve had.”

Strategist Forecasts

The S&P 500 soared 58 percent through Sept. 22 from a 12- year low on March 9, climbing above the year-end forecasts from all but one of the 10 projections by forecasters in a Bloomberg survey. The index closed at 1,071.66 on Sept. 22, 3.3 percent above the 1,037 average forecast of the 10 strategists at Wall Street’s biggest securities firms.

The companies in the S&P 500 traded at 19.7 times their profits from continuing operations over the past year on Sept. 18, the most expensive level since 2004, according to weekly data compiled by Bloomberg.

The benchmark index for U.S. stock options rose for the first time in three weeks as investors paid higher prices for insurance against declines in the S&P 500. The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose 7.1 percent to 25.61.

Home Depot, the world’s largest home-improvement chain, lost 4.9 percent to $26.85 as new home sales increased 0.7 percent to a 429,000 annual pace in August, less than the 440,000 median forecast of 75 economists in a Bloomberg News survey. Existing home sales unexpectedly slowed in August, signaling the housing recovery will take longer to gain speed.

Homebuilders in S&P indexes slid 10 percent, the group’s biggest weekly retreat since May. KB Home, the Los Angeles-based builder that sells to first-time buyers, led the declines, falling 16 percent to $16.96.

Yes, as through this world I’ve wandered
I’ve seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.

And as through your life you travel,

Yes, as through your life you roam,

You won’t never see an outlaw

Drive a family from their home.

Woody Guthrie
from the song “Pretty Boy Floyd”

Amen to that brother Woody.

The Boomers going Bust is a problem for Social Security again:

Early retirements strain Social Security system

By Stephen Ohlemacher, Associated Press Writer
On Sunday September 27, 2009, 9:55 am EDT

WASHINGTON (AP) — Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that’s happened since the 1980s.

The deficits — $10 billion in 2010 and $9 billion in 2011 — won’t affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn’t expect the increase to be so large.

What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security.

“A lot of people who in better times would have continued working are opting to retire,” said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. “If they were younger, we would call them unemployed.”

Job losses are forcing more retirements even though an increasing number of older people want to keep working. Many can’t afford to retire, especially after the financial collapse demolished their nest eggs.

Question to the board - what are the good websites for NYC (Manhattan) RE? Besides Street Easy and Property shark?

Btw, some recent NYC sales are at 2004 levels. Asking prices are still mostly at 2006-2007. From what I remember, 2004 was double 2000-2001, so it’s hard to get excited over these first baby steps of sellers drifting back to reality.

Congress has begun to debate the question of whom to tax in order to pay for extending the first-time homebuyer credit. I suppose the question of extension is more one of how than whether at this point.

You have to admire the cunning political craft of commingling the extension of the credit with the goal of helping returning vets secure housing. Why not create a separate program for vets, and just say no to continuing Dough-4-Dumps? I don’t want one cent of my tax dollars spent on supporting speculators’ and investors’ foreclosure home gambling activities.

Nation’s Housing
Legislation introduced to keep tax credit alive
By Kenneth R. Harney

2:00 a.m. September 27, 2009

WASHINGTON — Will Congress extend the wildly popular $8,000 home-buyer tax credit beyond its Dec. 1 expiration date?

That’s a question generating huge pressure on Capitol Hill, from would-be buyers who haven’t found the right house to realty agents, builders, lenders and squads of lobbyists working on their behalf.
…
Blumenauer, who is a member of the Ways and Means Committee, said “it is absurd that thousands of Americans serving our country, away from friends and family, must choose between their service work and homeownership.” He wrote corrective legislative language that ultimately was incorporated into Rangel’s tax bill.

Though nothing is guaranteed on Capitol Hill, legislation eliminating tax penalties on the military during wartime looks like a good bet for early passage in both houses. Equally significant: It now appears likely that there will be an $8,000 tax credit available a year from now — at least for some purchasers. Which raises the question: Why not leave it in place for all first-time buyers?

There’s growing support for that on both sides of the Capitol, but there are also some complicating issues. In the Senate, the most outspoken advocate for months has been a Republican, Sen. Johnny Isakson of Georgia, a former real estate broker. He wants not only to extend the credit to Dec. 1, 2010, but to raise the maximum to $15,000, and make it available to all home buyers next year.

But recently, key Senate Democrats produced their own version of an extension, limited to six months, retaining the ceiling at $8,000 and targeting only first-time purchasers. The bill’s primary sponsor is Sen. Benjamin Cardin, D-Md. Democratic co-sponsors include Majority Leader Harry Reid of Nevada and Debbie Stabenow of Michigan. Republicans John Ensign of Nevada and Isakson have signed on as well.

In a statement, Cardin raised what may prove to be the crucial issue affecting the scope and duration of any credit extension: Cost. “A six-month extension is a fiscally responsible way to provide adequate time to nudge even more prospective home buyers off the sidelines,” he said.

Estimates of the revenue costs of the current credit vary widely, from $3 billion to $8 billion and up. How do you pay for any extension without worsening the budget deficit? The new Rangel bill includes the answer: You raise taxes somewhere else — you “pay as you go.” The Rangel bill pays for most of the servicemen’s credit extension by increasing IRS penalties on taxpayers who fail to file partnership or “S” corporation returns.

This would raise an estimated $327 million over the next 10 years. Where and how to raise taxes to cover the far larger cost of a six-month or 12-month extension of the current tax credit could prove much more controversial.

ANALYSIS-
Will “It worked” come back to haunt G20?
Sat Sep 26, 2009 3:43pm EDT

* Unemployment, real estate loan losses, among pitfalls

* Finding political backing for regulatory reform not easy

* Some worry for global economy once supports removed

By Emily Kaiser

PITTSBURGH, Sept 26 (Reuters) - The G20 may face a “mission accomplished” moment akin to former President George W. Bush’s premature declaration of victory in Iraq unless leaders quickly make good on pledges for substantive financial reforms.
…
“It’s hubris,” said Simon Johnson, a former chief economist of the International Monetary Fund.

Johnson, who is now a senior fellow at the Peterson Institute for International Economics in Washington, listed possible pitfalls including growing losses on commercial real estate loans, the need to recapitalize European banks, and stubbornly high unemployment in most developed countries.

Any of those has the potential to trigger an economic setback serious enough to force a re-thinking of policy.

Even though G20 leaders insisted they were on guard against complacency, Johnson said they may have assumed success too soon, much like Bush’s infamous May 2003 Iraq speech on an aircraft carrier in front of a banner that read “mission accomplished.”

“What can you point to in terms of real regulatory reform since April?” Johnson said, refering to the last G20 leaders’ summit in London.
…

Finance and Economics
Buttonwood
Chucking the buck

Sep 24th 2009
From The Economist print edition
The dollar comes under increasing pressure

Illustration by S. Kambayashi

THE credit crunch vindicated the bears, although some were right for the wrong reasons. They did not expect subprime mortgages to bring the global economy down. Instead they thought the crisis would be caused by a collapse in the dollar, and a jump in Treasury-bond yields, as foreigners balked at funding America’s current-account deficit.

Now the recession has caused a rapid improvement in America’s trade position. But ironically the resulting fall in the current-account deficit has been accompanied by a renewed downturn in the greenback. On a trade-weighted basis, the dollar has fallen by around 10% over the past six months.

That hardly constitutes a collapse. But if the decline accelerates, it could cause problems for the Federal Reserve, not to mention concern among America’s creditors and trading partners.
…

Peter Morici (U Maryland economist) on CSPAN this a.m. does a great opening summary of the economy to wit: the US economy is toast, jobs that are gone won’t come back, chronic 10% unemployment, and the only jobs growth will be in the public sector.

The question for investors appears to be whether the various liquidity-driven financial asset price supports put in place by the Fed and other central banks can be sustained indefinitely.

Thoughts?

Finance and Economics
The rally in financial markets
Liquid fuel

Sep 24th 2009
From The Economist print edition
Investors are betting on a vibrant recovery. With returns on cash so low, they have little choice

Illustration by S. Kambayashi

“EXTRAORDINARY how potent cheap music is,” the playwright Noel Coward declared. He could have said the same about cheap money. With cash on deposit yielding not much more than zero in many rich countries, there has been a powerful rally in most financial markets. In America, money-market funds yield around 0.1% after fees, so an investor with $100,000 receives just $100 in annual interest. Unsurprisingly, investors have withdrawn $332 billion from such funds this year, or around 10% of total assets, according to EPFR Global, a data provider.

Investors elsewhere also seem to be putting their cash to work. The MSCI world index of global share prices is up by almost 24% so far this year, having fallen by a similar amount between January 1st and March 6th. In the debt markets, the spread (or excess interest rate over Treasury bonds) on high-yield corporate bonds has fallen from more than 16 percentage points at the start of the year to around seven and a half points now (see chart). Commodities have not missed out—gold has moved back above $1,000 an ounce.

The markets are enjoying a “sweet spot” in which economic and profit forecasts are being revised higher but the outlook for interest rates (and thus borrowing costs) remains on hold, thanks to subdued inflation. On September 23rd the Federal Reserve said that the American economy had “picked up” but that interest rates were set to remain “exceptionally low”. The data indicate that most developed economies have emerged from recession. The second-quarter profits of S&P 500 companies may have dropped by nearly 30% year-on-year but they were still an improvement on the first quarter. Analysts forecast a 28.7% increase in global corporate earnings in 2010.
…
The more difficult question to answer is whether the surge is the start of a long-term bull market or simply yet another bear-market rally, like those Japan enjoyed in the 1990s. The deleveraging that many have long predicted has not really started; government debt has simply substituted for private-sector debt. So the economy may be very reliant on action by central banks and governments and may slump once that support is taken away.

Some forms of stimulus are already being withdrawn. The American “cash-for-clunkers” subsidy for car sales ended in August. Edmunds.com, a website, predicts that the annualised rate of car sales in September will be 8.8m units, down from more than 14m in August. The fear is of a “Weekend at Bernie’s” recovery, after the 1989 film, in which two office workers pretend their dead boss is alive (putting sunglasses on the corpse and propping it up) so they can enjoy the party lifestyle.

Equity and corporate-bond markets have also been boosted by quantitative easing (QE), the process whereby central banks create money to purchase (mostly government) bonds. That has helped keep the lid on Treasury-bond yields. In June the ten-year bond yielded almost 4%; it is currently around 3.5%, pretty low by historical standards even though governments are issuing record amounts of debt. The fear is that if QE stops, yields may rise sharply, driving up borrowing costs for everyone. “At some point the quantitative easing will come to an end but until it does this bull market is sponsored by [governments] and everyone should enjoy it,” Crispin Odey, a hedge-fund manager based in London, recently urged his clients.

Yet the stockmarket seems to assume a robust economic recovery. The S&P 500 index is trading on a price-earnings ratio of around 20, based on 2009 forecasts for operating earnings. A more cautious approach, using earnings reported under official accounting standards, puts the multiple at 27. Both numbers are well above the historical average. According to Smithers & Co, the American market is 37% overvalued on the best long-term measure, the cyclically-adjusted price-earnings ratio (which averages profits over ten years).

As a result, the markets look vulnerable to a setback. As strategists at UBS remarked in a recent research note: “Liquidity has been a much bigger driver of this market than fundamentals. Liquidity-driven rallies have a habit of reversing violently without warning.”

I have an HBB brain trust question:

In my field work I am creating an average attendance number for each sub-group I am studying. I arrive at this number by: total number of students in subgroup/ total absences for subgroup.

Is there a stats term for this type of average? I feel like the word ‘comparitive’ may be in there somewhere.

Here’s an odd story. A 92 year old woman has outlived all her children and grandchildren. Medicare owns her house due to a reverse-mortgage for dementia care.

Speculator buys out her tax debt and claims ownership, renting the place out.

Is there any right or wrong in this story?

http://www.idahostatesman.com/235/story/915580.html

When the taxes weren’t paid on the house, the county started the steps toward putting it up for public auction - a process called a tax deed sale. The online auction was scheduled for May 19-21, 2007.

When Foldesi paid the taxes, that did “nothing more in this case than cancel the tax deed and all related proceedings,” Ada County Treasurer Cecil Ingram said.

The US economy is on the life support. The Fed is playing crony capitalism. What happens in 6 months? How long can the Fed keep up this charade?

For years, the economy has been powered by consumers, who borrowed exuberantly against real estate and tapped burgeoning stock portfolios to spend in excess of their incomes. Those sources of easy money have mostly dried up. Consumption is now tempered by saving; optimism has been eclipsed by worry.
Meanwhile, some businesses are in a holding pattern as they await the financial consequences of the health care reforms being debated in Washington.

Even after companies regain an inclination to expand, they will probably not hire aggressively anytime soon. Experts say that so many businesses have pared back working hours for people on their payrolls, while eliminating temporary workers, that many can increase output simply by increasing the workload on existing employees.

“They have tons of room to increase work without hiring a single person,” said Heidi Shierholz, an economist at the Economic Policy Institute Economist. “For people who are out of work, we do not see signs of light at the end of the tunnel.”

Even typically hard-charging companies are showing caution.

http://www.nytimes.com/2009/09/27/business/economy/27jobs.html?_r=1&hp

This is what happens when the employer is a ONE TRICK PONY. Diversification in a need based business is the key for surviving this recession. It will definitely separate the men from the boys this time around.

Enter the Recession’s Waiting Room

A BUNCH of the guys drove straight to a bar. You get laid off from a job that pays $15 an hour, plus health care and other benefits — it’s Miller time. Time for a convoy to one of the watering holes in this town, 80 miles west of Omaha, where you can buy a beer at 10 in the morning.

Few of the employees of Katana Summit, a wind-tower manufacturer, saw it coming. On that day in early August, and in another round of cuts a few weeks later, about half of the plant’s 195-person payroll was eliminated, a shock that came with one notable consolation: the executives said they hoped to hire everyone back soon.

http://www.nytimes.com/2009/09/27/business/27hire.html?ref=us

An Ounce of Prevention: Financial regulation, moral hazard, and the end of “too big to fail”

after the slashes: harvardmagazine.com/2009/09/financial-risk-management-plan

On Healthcare reform…

Here is what I think is the most worrying aspect of current proposals …

Let’s say you have a middle class family who in a previous life earned say $120K- lives in California with a $3000 /Mo Mortgage and another $3000 / Mo of other living expenses including a couple of car payments some credit card debt and food, clothing etc. totaling some $72,000. In this previous life Joe the Plumber earned most of the cash and his wife had a steady job with a local market to get health coverage. Life was good and they were paying the bills easily. Joe’s wife was laid off and now has a job paying a lot less with no health coverage, and because of economic factors Joe the Plumber is not doing as well as he used to either, leaving them in an expensive area with an income of $75K Not much help from the govt at this income, so Joe is required to purchase insurance at an as of yet undetermined cost, but lets say $12,000 a year. Obviously he does not earn enough to pay this, but is considered by Obama to be in a category of earners who do not qualify for govt help, yet are required to purchase insurance or be fined $3800 a year by the IRS for not carrying insurance as now required by law.

My question… How does this aid the middle class? How is this not an egregious tax? Has Obama forgotten about Joe?

Sounds to me like day care on the tax payer’s dime. Then again, we’re doing it for the kids

WASHINGTON – Students beware: The summer vacation you just enjoyed could be sharply curtailed if President Barack Obama gets his way.

Obama says American kids spend too little time in school, putting them at a disadvantage with other students around the globe.

“Now, I know longer school days and school years are not wildly popular ideas,” the president said earlier this year. “Not with Malia and Sasha, not in my family, and probably not in yours. But the challenges of a new century demand more time in the classroom.”

The president, who has a sixth-grader and a third-grader, wants schools to add time to classes, to stay open late and to let kids in on weekends so they have a safe place to go.

As Subprime Lending Crisis Unfolded, Watchdog Fed Didn’t Bother Barking

The Fed’s performance was undercut by several factors, according to documents and more than two dozen interviews with current and former Fed governors and employees, government officials, industry executives and consumer advocates. It was crippled by the doubts of senior officials about the value of regulation, by a tendency to discount anecdotal evidence of problems and by its affinity for the financial industry.

after the w-s : washingtonpost.com/wp-dyn/content/article/2009/09/26/AR2009092602706.html?hpid=topnews

Interesting article. But in that list of three above, I would say that the second, “a tendency to discount anecdotal evidence of problems,” was a result of the first and third, rather than a co-factor. Bastards.

Was doing my normal Sunday morning scan for bank failure news when I noticed this quote (sad to see only one failure this week).

Georgian, founded in 2001, was one of the state’s most profitable banks during the housing boom…Adams D. “De” Little of Marietta, owner of Greenstone Properties..[is] among the directors of Georgian Bancorporation.

Now, this strikes me as an odd conflict of interest: sit on the board of directors of a bank that is in a position to make loans to the customers of your own business. Makes me wonder how many other banks have regional property developers sitting on the board?

atlanta [dot] bizjournals.com/atlanta/stories/2009/09/21/daily103.html

I posted a link to a Washington Post article about the Fed’s refusal

The visits had a ritual quality. Three times a year, a coalition of Chicago community groups met with the Federal Reserve and other banking regulators to warn about the growing prevalence of abusive mortgage lending.
They began to present research in 1999 showing that large banking companies including Wells Fargo and Citigroup had created subprime businesses wholly focused on making loans at high interest rates, largely in the black and Hispanic neighborhoods to the south and west of downtown Chicago.
The groups pleaded for regulators to act.
The evidence eventually led Illinois to file suit against Wells Fargo in July for discrimination and other abuses.

But during the years of the housing boom, the pleas failed to move the Fed, the sole federal regulator with authority over the businesses. Under a policy quietly formalized in 1998, the Fed refused to police lenders’ compliance with federal laws protecting borrowers, despite repeated urging by consumer advocates across the country and even by other government agencie

Despite all the money printing, tax crediting, and other hoopla, there are several 2 bdrm, 1100 sqft, luxury condos next door being offered to the public for 70K to 80K. A one bedroom is offered for 45K. At the peak, 2 bdrms were selling for 175K plus.

There just aren’t as many willing knife catchers as yesteryear. It’s pretty remarkable buyers aren’t jumping over each other to buy these units.

If the Fed gets into tightening mode, is there a chance they will continue to keep the lid on mortgage rates, in order to avoid a return to plummeting home prices? And would it technically be possible for them to tighten on Treasury yields while continuing to respike the mortgage lending punchbowl?

* The Wall Street Journal
* CREDIT MARKETS
* SEPTEMBER 28, 2009

Credit Thaw Threatens Gains by Treasurys
As Corporate-Debt Markets Advance, Fed Considers Ending Support and Raising Interest Rates

By EMILY BARRETT

The Treasury market has benefited from the fragile state of the economy, but the unfolding recovery in the credit markets could yet push government bonds off their perch.

Corporate-debt markets are overtaking the real economy on the road to health. Central-bank officials are now paying more attention to these stronger signals to guide them in deciding how soon to remove market support and to start raising interest rates.

This week brings the biggest numbers on the U.S. data schedule, with nonfarm payrolls to be released Friday. Economists predict 200,000 jobs were lost in September, compared with a loss of 216,000 in August, though the unemployment rate is likely to rise again to 9.8% from the current 9.7%.

But it is also a week laden with appearances by Federal Reserve officials, who are highly likely to echo the sentiments of Federal Reserve Gov. Kevin Warsh that asset prices may be a clearer gauge of growth and inflation prospects than “arithmetic readings” of the economy.
…

* The Wall Street Journal
* SEPTEMBER 28, 2009

Phone Calls Add to Din Over Loans
Congressional Investigators Ask for More on Countrywide VIP Mortgage Program

By JOHN R. EMSHWILLER

The discovery that Countrywide Financial Corp. recorded phone conversations with borrowers in a controversial mortgage program that included public officials — and that those recordings have been destroyed — has prompted new congressional calls for more information about the program.

Rep. Darrell Issa of California, the ranking Republican on the House Oversight and Government Reform Committee, is trying to subpoena the remaining records of Countrywide’s VIP loan program. So far, the committee’s chairman, New York Democratic Rep. Edolphus Towns, has turned down that request.

The committee’s Republican staff investigators have spent months looking into the VIP program, and learned of the call-recording system from a former Countrywide employee in June, according to a spokesman for Mr. Issa.

The Issa spokesman said that earlier this month Bank of America Corp., which purchased Countrywide in July 2008, confirmed the existence of the recording system, but said all the VIP program-related calls had been disposed of.

A Bank of America spokesman said in a written statement that the VIP recordings “were retained only for a limited time or until available recording space was utilized. Due to these limitations, we have no recordings from before July 2008 when Bank of America assumed management of Countrywide and terminated the VIP program.”

Many companies routinely record phone conversations with customers, both for internal-training purposes and to help resolve disputes over what was said during a call.

On Thursday, Mr. Issa sent a letter to Bank of America Chief Executive Kenneth Lewis with a dozen questions seeking more information on what happened to the recordings. Arguing that those call records could have shed light on what public officials were being told by Countrywide personnel about the favorable treatment they were receiving, Mr. Issa wrote that Bank of America’s “refusal to fully explain” what happened to the recordings “raises important questions.”
…

This is great reading. Apparently, not everyone inside the Fed believes that maintaining the Too-Big-to-Fail Megabank, Inc cartel in perpetuity through low (taxpayer-subsidized) interest rates is a great plan going forward. Perhaps there is hope for both the Fed and the rest of America to outlive this period of officially-sanctioned, inside-job bank robbery.

* The Wall Street Journal
* OPINION
* SEPTEMBER 27, 2009, 7:38 P.M. ET

The Blob That Ate Monetary Policy
Banks that are ‘too big to fail’ have prevented low interest rates from doing their job.

By RICHARD W. FISHER AND HARVEY ROSENBLUM

Fans of campy science fiction films know all too well that outsized monsters can wreak havoc on an otherwise peaceful and orderly society.

But what B-movie writer could have conjured up this scary scenario—Too Big To Fail (TBTF) banks as the Blob that ate monetary policy and crippled the global economy? That’s just about what we’ve seen in the financial crisis that began in 2007.

While the list of competitive advantages TBTF institutions have over their smaller rivals is long, it is also well-known. We focus instead on an unrecognized macroeconomic threat: The very existence of these banks has blocked, or seriously undermined, the mechanisms through which monetary policy influences the economy.

Economics textbooks tell us that when the Federal Reserve encounters rising unemployment and slowing growth, it purchases short-term Treasury bonds, thus lowering interest rates and inducing banks to lend more and borrowers to spend more. The banking system, and the capital markets that respond to these same signals, are critical to transmitting Fed policy actions into changes in economic activity.

These links normally function smoothly. Numerous academic studies have concluded that monetary policy before the financial crisis was working better, faster and more predictably than it did a few decades ago. Monetary policy’s increased effectiveness helped usher in a quarter century of unprecedented macroeconomic stability often called The Great Moderation—infrequent and mild recessions accompanied by low inflation.

Then the Blob struck. With financial markets in trouble and the economy wobbling, the Fed began lowering its target interest rate two years ago, bringing it close to zero by December 2008. Other central banks followed suit. Based on recent experience, such aggressive policies should have fairly quickly restored stability and growth. Unfortunately, the Blob was already blocking the channels monetary policy uses to influence the real economy.

Many TBTF banks grew lax about risk as they chased higher returns through complex, exotic investments—the ones now classified as “toxic assets.” As the financial crisis erupted, these banks saw their capital bases erode and wary financial markets made them pay dearly for new capital to shore up their balance sheets.
…

Apparently, some very smart investors underestimated the potential for massive helicopter drops of liquidity to prop up asset prices which fundamentals suggest should be tanking. About the time when the last bear realizes his folly and goes long is when we can expect another big leg down in the stock market.

* The Wall Street Journal
* SEPTEMBER 28, 2009

Pessimism Exacts a Price on the Skeptics

By GREGORY ZUCKERMAN

Hedge-fund manager Peter Thiel is suffering, not because he lost money in the downturn, but because he missed the rebound.

BAD VIBES: Taking the contrarian view as the market has rallied has left some hedge-fund managers, such as Peter Thiel, missing out on big gains.

Mr. Thiel, a billionaire co-founder of online payment company PayPal and an early investor in Facebook, thinks the economy is far from recovered and has bet with the bears amid the relentless rally. His fund has seen double-digit declines as other hedge funds have racked up gains.

“The recovery is not real,” he says. “Deep structural problems haven’t been solved and it’s unclear how we will create jobs and get the economy growing again — that’s long been my thesis and it still is.”

The contrarian view puts Mr. Thiel among a group of investors with impressive track records who are holding out, unwilling to buy into the notion of the economy’s rebound.

In London, the largest fund of John Horseman’s $4 billion hedge-fund firm is down 20% this year; “it is hard to build longer-term confidence when employment prospects and job markets are shrinking,” he said in a client letter.
…

Just when I begin to suspect the government has run out of ways to pump money into the housing sector, they announce yet another new program to do so!

* The Wall Street Journal
* SEPTEMBER 28, 2009

$35 Billion Slated for Local Housing

By DEBORAH SOLOMON

WASHINGTON — The Obama administration is close to committing as much as $35 billion to help beleaguered state and local housing agencies continue to provide mortgages to low- and moderate-income families, according to administration officials.

The move would further cement the government’s role in propping up the housing market even as some lawmakers push to curb spending at a time of rising debt.

The effort, which could be announced as early as this week, is aimed at relieving pressure on government-operated housing finance agencies, which have been struggling to find funding amid the downturn. These agencies, or HFAs, are a small part of the housing market but are critical to many first-time and low-income home buyers, who can get lower-rate mortgages through an HFA than they could through a private-sector lender. Rates are typically 0.5 to one percentage point lower than commercial lenders.

Administration officials are concerned that HFAs have largely stopped making new loans, exacerbating the housing market’s woes.

Details are still being finalized. The plan requires formal approval from Treasury Secretary Timothy Geithner and the White House.

The program could be in place for as long as three years, and would involve the administration essentially buying the debt that these housing agencies rely on for financing.

The Treasury Department, along with government-controlled mortgage giants Fannie Mae and Freddie Mac, is expected to buy as much as $20 billion of new housing bonds issued by the state agencies. It will also provide $15 billion in additional funding, as needed, to help the agencies continue to use a type of cheap, short-term financing.

If the housing agencies default on their debt obligations, taxpayers could lose out. The Treasury plans to charge fees to agencies that want to sell new long-term bonds to the government based on their individual risk factors, to help reduce the risk of default and protect taxpayers.
…

* The Wall Street Journal
* SEPTEMBER 28, 2009

Bank Pulls Back From Acorn Work

By JAMES R. HAGERTY

Already facing the loss of federal government funding, the community-organizing group Acorn also has run afoul of one of its big corporate partners, Bank of America Corp.

In response to questions from The Wall Street Journal, a spokesman for the banking company said it has “suspended current commitments” to Acorn Housing, an affiliated group, and “will not enter into any further agreements with Acorn or any of its affiliates,” pending assessments by the bank of the organization’s operations.

Acorn, officially the Association of Community Organizations for Reform Now, has been under fire since the recent release of secretly recorded videos that showed Acorn employees offering advice on evading taxes, setting up brothels and smuggling illegal immigrants.
…

The land grab is on at the big Wall Street sponsored homebuilders. I guess they must “know” a bottom is in, or they wouldn’t be grabbing foreclosed land?

* REAL ESTATE
* SEPTEMBER 28, 2009

Hovnanian’s Debt Is Drag as Housing Heals
Builder Still Feels Effect of Market’s Fall Even as Rivals Start to Buy Again; Founder’s Death Comes as Blow

By JAMES R. HAGERTY and DAWN WOTAPKA

As the U.S. housing market shows tentative signs of healing, some of the nation’s biggest home builders are starting to acquire land again in preparation for better times. But one builder is hobbled going into this land grab: Hovnanian Enterprises Inc.

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Founder Kevork Hovnanian, who died last week at 86, is shown at left at the builder’s 2001 transfer to the NYSE. Sales
Associated Press

Founder Kevork Hovnanian, who died last week at 86, is shown at left at the builder’s 2001 transfer to the NYSE.
Founder Kevork Hovnanian, who died last week at 86, is shown at left at the builder’s 2001 transfer to the NYSE. Sales
Founder Kevork Hovnanian, who died last week at 86, is shown at left at the builder’s 2001 transfer to the NYSE. Sales

The nation’s sixth-largest home builder in terms of the number of sales completed last year, Hovnanian is still trying to recover from its post-boom malaise. Late last week, the company suffered another blow with the death of its founder and chairman, Kevork Hovnanian, 86 years old. His son, Ara, 52, remains chief executive, a post he has held since 1997.

A spokesman declined to comment on when a new chairman will be named or how the death might affect the family’s controlling stake in the company.

Hovnanian took on more debt and made more acquisitions near the top of the housing bubble than most big rivals.

Now, the Red Bank, N.J., company is struggling to return to profitability in time to pay down debt and take advantage of potential bargains as banks unload foreclosed land.

“The company is caught in a tough spot,” said David Goldberg, an analyst at UBS Investment Bank in New York.
…

How do the MarketWatch people “know” when across the board stock market gains are driven by M&A activity versus, say, massive liquidity dumps by central banks?

Benchmarks score 1% gain

Wall Street opens broadly higher, playing off fresh M&A activity as Abbott Labs and Xerox announce multibillion-dollar deals.

I believe the US real estate market also faces a “mismatch between supply and supply” — for instance, a huge shadow inventory of foreclosure homes seems mismatched against efforts to respike the homebuilding party. And eighteen million plus vacant homes doesn’t help the supply picture very much, either.

Sept. 28, 2009, 8:53 a.m. EDT
Dr. Doom sees no credit bubble in China

By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) — Contrarian economist Marc Faber is cautiously optimistic on the outlook for China, saying he sees few signs of a mismatch between supply and supply in the real estate sector, while its fiscal policies don’t appear to be repeating the mistakes made by Western counterparts.
…

San Diego losing year-round cruise ship

Carnival shifts home port to Alabama for 2,052-passenger Elation

By Lori Weisberg
UNION-TRIBUNE STAFF WRITER

Come spring, San Diego will lose its only year-round cruise ship and along with it a bevy of bargain excursions to Mexico. Chalk it up as another casualty of the economy. Carnival Cruise Lines has decided to relocate its 2,052-passenger ship Elation from its home port in San Diego to Mobile, Ala.
…

A homebuying recovery stumbled in August, even as the clock began to wind down on an $8,000 tax credit, the National Association of Realtors said Thursday.

Existing-home sales slid 2.7% to an annual rate of 5.1 million. Sales had risen 15.2% in the prior four months to 5.24 million from a long-term low near 4.5 million.

While economists stressed that one month of data may not signal a new trend, the prospect of weaker sales reinforced the case for an extension of the refundable credit for first-time homebuyers.

“We can’t take a housing rebound for granted,” said NAR chief economist Lawrence Yun.

Sales start going down at the end of Sept. anyway ,so it’s no justification to extend the 8k tax credit .

NEW YORK (Reuters) - Investors in a class-action lawsuit against Bank of America Corp (NYSE:BAC - News) over the Merrill Lynch & Co takeover are trying to collect “billions of dollars” in damages, Ohio’s attorney general said on Monday.

Attorney General Richard Cordray spoke after filing a 155-page complaint in Manhattan federal court that accuses Bank of America of fraudulently concealing Merrill’s soaring losses even as it let Merrill award $3.6 billion of bonuses in 2008.

Cordray is leading the case on behalf of five pension funds. Investors also want to recover from Bank of America Chief Executive Kenneth Lewis, Chief Financial Officer Joe Price, Chief Accounting Officer Neil Cotty, the bank’s board of directors, and former Merrill chief executive John Thain.

“The amount of shareholder value affected here, negatively, is about as great as has been alleged in any case, ever,” Cordray said in a press conference. He said damages “could well be in the billions of dollars,” and that the investors are “not looking immediately to settle.”

Man it would be good to see some of these criminals go down.

These are true words: Charles Hugh Smith.

2. Voters possess the built-in human bias for present gain over future gain. “One in the hand is worth two in the (future) bush” is the default human response, and future insolvency is meaningless to those expecting and desiring swag in the present.

Indeed, politicians have noted that those who demand sacrifice in the present to address a long-term crisis lose elections while those who distribute the most swag now while ignoring the gathering storm on the horizon win elections.

Wisconsin exports dive 21.5% in 1st half of year
By John Schmid of the Journal Sentinel

Posted: Sept. 27, 2009

Promoting manufacturing exports
The Wisconsin Manufacturing Extension Partnership has struck an agreement with the state Commerce Department to provide export-development expertise to small and midsize manufacturers.

Under the effort, department specialists will help manufacturers analyze markets, seek potential customers and connect with agents. The partnership, a nonprofit consulting organization, will pay the department up to $170,000 a year for the services.

The program will seek to boost the number of state manufacturers who export, and increase the volumes of those who are already exporting, said Lee C. Swindall, marketing director for the partnership.

Wisconsin exports increased by 9.2% in 2008 compared with 2007, to a total of $20.6 billion, but many manufacturers remain on the sidelines, the Commerce Department and partnership said in a statement.

More than one in six manufacturing workers in Wisconsin depends on exports for a job, the department and partnership said.

Exporters have tended to fare much better in the recession than manufacturers who tap only the domestic market, Swindall said.

- Rick Romell
Wisconsin’s exports, from paper products to massive shovels used in coal mines, appear headed for their sharpest yearly decline since at least the 1980s - the latest indicator that the economic slump has been as wide as it is deep.

Foreign demand for made-in-Wisconsin goods declined 21.5% in the first six months compared with the same period a year ago, paralleling a 23.8% national decline in U.S. exports, according to the U.S. Census Bureau.

Exports from the state previously had grown every year since at least 1987, except for three minor declines in the period from 1998 to 2001, according to state and federal records.

The decline so far this year has been unusually severe, in Wisconsin and globally.

This should push a few more Dream Shacks and their DebtSlave owner onto the market and off the cliff.

http://tinyurl.com/y9l7ryu

HOUSTON (Reuters) - Allen Stanford, the alleged mastermind of a $7 billion fraud, is back in his jail cell after suffering a mild concussion, broken nose and two black eyes in a prison brawl last week, his lawyer said on Monday.

We can only hope that there will be more of this.

My guess is he spoke to some violent prisoner like he was a lawn boy and got his A## kicked.

Sheesh! Just when it seems like stocks are beginning to always go up again, the scaremongers and gloomsters have to try to ruin the party with their correction talk. It is very hard to know what to believe under current market conditions, where US stocks have soared during the past half-year period against the backdrop of very shaky fundamentals.

Stocks due for correction?

Investors are rotating out of financials and into more defensive plays in a trend that may signal a market correction.
…

MarketWatch First Take
Sept. 28, 2009, 1:12 p.m. EDT

Banker bashing is in vogue in London and Texas
Commentary: Downing Street offers civil rules for an uncivil business

By MarketWatch

…Bashing bankers is a political no-brainer even in good times. Now, when their companies are being propped up by governments around the world, it’s a moral imperative for any office holder.

However, it’s important to remember that no matter how much bankers may deserve public scorn, new rules limiting pay and causing them inconvenience carry a risk.

The problem is that in satisfying, in some small way, the public thirst for revenge, political leaders will delude the public into thinking the fundamental problems behind the crisis have been solved. They’ll also conveniently escape their own substantial culpability in failing to design adequate regulatory regimes, interfering in free markets without due regard for Murphy’s law, etc.

Incidental penalties and new rules imposed on the wealthy individuals who run the world’s biggest financial institutions may serve as a modest deterrent to malfeasance, but they cannot solve the problems that led to the financial crisis in the first place.

Perhaps a more effective approach would be a compulsory annual weekend for all financial executives to the Joe Corley Detention Center in Conroe, Texas. That’s where accused Ponzi schemer Allen Stanford is recovering from injuries suffered in a prison fight.

TORONTO (Reuters) – Canada outperforms the United States in health outcomes but is well behind global leaders like Japan in overall health of its population, a Canadian report released on Monday showed.

The annual report card by the Conference Board of Canada ranked Canada 10th out of 16 developed countries, with a “B” grade. The United States was the worst performer, placing 16th and earning a “D” grade.

“Canada has been at the center of much of the debate on U.S. health care reform. Since Canada ranks ahead of the United States on all but one indicator of health status … it is clear that we are getting better results,” Gabriela Prada, director of health policy at the Conference Board, said in a statement.

“But when we look beyond the narrow Canada-U.S. comparison to the rest of the world, Canadians rank in the middle of the pack in terms of their health status,” Prada said

Japan was once again the top-ranking country. Switzerland, Italy, and Norway also earned “A” grades.

“B” grades were given to Sweden, France, Finland, Germany, Australia and Canada, while Netherlands, Austria and Ireland earned a “C” grade, the report showed.

Along with the United States, Denmark and the United Kingdom got “D” grades.

Woo Hooo we passed !!!

HOUSTON (Reuters) – Allen Stanford, the alleged mastermind of a $7 billion fraud, is back in his jail cell after suffering a mild concussion, broken nose and two black eyes in a prison brawl last week, his lawyer said on Monday.

We can only hope for more of this.

My guess is he talked to a violent fellon the same way he talks to his lawn boy.

Wall Street has showered nearly $11 million on the Senate since the beginning of the year, and more than 15 percent of it has gone to a single senator: Democrat Chuck Schumer of New York.

Schumer’s $1.65 million take from the financial services industry is nearly twice that of any other senator’s — and more than five times what the industry gave to any single Republican senator.

And this is problem #1. I just don’t understand people who thing money = free speech and doesn’t influence elections for the elite.

WINDERMERE, Fla. – The Orange County Jail is a far cry from J. Robert Ward’s seven-bedroom, nine-bathroom home in the exclusive gated community that is home to Tiger Woods and Shaquille O’Neill.

But the prominent developer charged with second-degree murder in his wife’s shooting death appeared perfectly at ease over the weekend in a videotaped jail visit with family members.

The 61-year-old modeled his blue jail jumpsuit, danced and started to unbutton his shirt. He chatted about who would make a good character witness, whether he could buy anti-dandruff shampoo at the jail commissary and even where the family should celebrate Thanksgiving.

His daughter and sister-in-law giggled, belying the seriousness of the accusation against him. Police say he killed his wife in the master suite of their home on Sept. 21, then called 911 to say he had shot her. His attorney, Kirk Kirkconnell, has since raised questions about whether it was a homicide or a suicide. Kirkconnell did not return calls for comment Monday.

Diane Ward’s death is a disturbing turn in the life of her husband, a self-made millionaire who in recent years had suffered crushing financial troubles. J. Robert Ward hadn’t paid the $16,841 monthly mortgage on the estate in over a year, and had filed for bankruptcy after his business — developing vacation and resort home communities in five states — failed.

Wow 17k a month for over a year, what a deal.

WHY did the market go up today on Xerox buying the other corp?

I don’t get it.

“Levelling the playing field” and “Re-distribution of Wealth” have their downside effects, IMHO:

Wall Street Journal Online, Sept. 28 -

“New companies will be crucial to the strength of any economic recovery. Businesses in their first 90 days of life accounted for 14% of hiring in the U.S. between 1993 and 2008, according to the Bureau of Labor Statistics.

But this recession is taking a particularly heavy toll on business creation, as sources of small-business funding dry up and would-be entrepreneurs become more risk-averse. When entrepreneurs do launch businesses, they are hiring fewer employees on average. The trends threaten to damp growth in jobs and economic output for years.

Company formation typically dips slightly in recessions, says Brian Headd, a Small Business Administration economist. Earlier this decade, business starts — including new businesses and units of existing businesses — fell 9% between the third quarter of 2000 and the first quarter of 2003, the BLS says.

This time, the decline has been steeper. Business starts fell 14% from the third quarter of 2007 to the third quarter of 2008; the 187,000 businesses launched in that quarter were the fewest in a quarter since 1995. The number ticked up slightly in the fourth quarter, the latest data available. But those new establishments created only 794,000 jobs, the fewest since the government began tracking the data in 1993.

The recession may have ended, but history suggests business creation won’t rebound quickly. The 2001 recession officially ended in November of that year. But business starts didn’t begin growing again until mid-2003. A sustained lull in company formation “could have huge implications for the economy down the road,” Mr. Headd says.”

IMHO new capital and business formation will now fall like a crowbar down a well.

Those who have never made a payroll, or tried to comply with many local, State, and Federal regs and statutes to open and/or run a business may choose not to hear what I am saying.

Every single action, every proposal, and every nuance and suggestion from the Obama administration to date shows its complete and utter contempt for the small business owner.
Those closely aligned to a Leftist agenda will tell you that’s a welcome sea change.

I will tell you that it’s extremely difficult for cities, school districts, or the states or Feds to collect taxes from dark and boarded-up storefronts on Main Street. Empty parking lots at all industrial plants may be the dreamy goal of the global warming crowd, but empty parking lots and closed plants don’t buy groceries or pay public or private debt.

I think the Obama administration has been on the wrong course since day One. Mouthing wonderful Good Intentions and promoting destructive legislation seems to be the single game plan. I think the President’s advisors consist mostly of Clinton era retreads or lookalikes who cannot grasp the obvious, that deficits in fact matter greatly; and that it is lunacy to think you can legislate wealth creation in a country, or micromanage the economy to eliminate poverty and ignorance. The results, as they say, speak for themselves.

Japan prices tumble by record in August.

http://tinyurl.com/y8ptfms

Japan core consumer price index falls by record 2.4 percent in August
On Monday September 28, 2009, 7:51 pm EDT
Buzz up! 1 Print.TOKYO (AP) — The government says prices in Japan tumbled at a record pace in August amid growing worries about jobs and wages.

The country’s core consumer price index fell 2.4 percent from a year earlier. The figure marks steepest decline since officials began compiling comparable data in 1971.

Japan’s core CPI has now dropped for six straight months, indicating that deflation is strengthening its grip on the world’s second largest economy.

The core CPI for Tokyo retreated 2.1 percent in September. The results suggest that prices nationwide are headed further downward. Prices in the nation’s capital are considered a leading barometer of price trends across Japan.

Buy bullets now, before Obama bans you from doing so…

Bullet-Makers Swamped With Demands For Ammo

September 24, 2009

Gun dealers and bullet-makers are straining to keep up with record demand for ammunition. Some dealers think it’s because of fear President Obama will limit gun use.