The Housing Bubble

Pimco’s Gross Boosts Cash to Most Since Lehman Failed (Update4)

Dec. 18 (Bloomberg) — Bill Gross, who runs the world’s biggest bond fund, cut government debt holdings and boosted cash to the most since Lehman Brothers Holdings Inc. collapsed in 2008 amid increasing speculation that interest rates will rise.

Gross, who manages the $199.4 billion Total Return Fund at Pacific Investment Management Co., increased cash to 7 percent in November from negative 7 percent in October, according to Pimco’s Web site. The fund can have a so-called negative position by using derivatives, futures or by shorting. He reduced government-related securities to 51 percent from a five-year high of 63 percent in October.

Futures contracts on the Chicago Board of Trade show investors see a 41 percent chance the Federal Reserve will increase borrowing costs from a record low by June, versus 36 percent odds a month ago. Traders also raised bets on inflation to the most in 16 months after reports on retail sales and industrial production showed the economy picked up.

‘Sizzling’ Shanghai Homes Defy Tax, Bubble Concerns (Update1)

Dec. 18 (Bloomberg) — Gloria Gu paid $483,000 for an apartment near Shanghai’s financial district so her 3-year-old son could attend one of the city’s best kindergartens. Six months later, a similar place in her building sold for $615,000.

“Prices are way past reasonable,” said Gu, 31, a food company manager who bought her three-bedroom, 140-square-meter (1,507-square-foot) apartment in the Pudong area in May. “The market is too good to be true.”

Escalating prices in Pudong, transformed within two decades from vegetable fields to skyscrapers for Citigroup Inc. and HSBC Holdings Plc, underscore a Chinese property market that set record highs this year after the government unleashed $1.3 trillion in new bank lending to counter the global recession.

Hey guys,

If the rate banks lend to each other is near 0% or very low now, what’s going to happen when it slowly starts to rise? Isnt the interest rate that is somewhere around 4% for loans going to go up? Plus, how fast will the rate to buy a house go up along with the bank rate? Now, I’m not as hard core as most of you, but you have had an effect. When I get home about april, may timeframe, should I be thinking about a modest house? Right now, I pay about $1650 a month for a four bedroom house connected to a mirror house just like it next door (Picerne military housing). It looks like Bragg isnt going anywhere, I retire from the military in about three years and my daughter will graduate high school in four years. There will be ample jobs for a guy like me on Bragg. To be honest, I am afraid the Fed will start raising rates and I will get stuck with an 8% loan and kicking myself in the ass I didnt act quicker. I know, I know with the big down payment stuff, but a 4% loan is always better than a 8% loan…

We’ve been making lowball rent offers with no success. I’ve been trying to negotiate the monthly rent — do you think I would be more successful agreeing to monthly rent but asking for “one free month!” ?

Our landlords have told us that they want the house back this summer for a vacation property.

From today’s Bloomberg DOT com:
Harvard Swaps Are So Toxic Even Summers Won’t Explain — On 10/31/08, as vanishing credit spurred the government-led rescue of dozens of financial institutions, Harvard was so strapped for cash that it asked Massachusetts for fast-track approval to borrow $2.5 billion. Almost $500 million was used within days to exit agreements known as interest-rate swaps that Harvard had entered to finance expansion. The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers led the university. As a member of Harvard’s ruling body, Summers approved the decision to use the swaps. He declined comment for this article. “For nonprofits, this is going to be written up as a case study of what not to do,” said Mark Williams, a finance professor at Boston University. “Harvard throws itself out as a beacon of what to do in higher learning. Clearly, there have been major missteps.”
While Harvard Corp. is ultimately responsible for the school’s financial decisions, the losses sustained by the school in almost every financial domain — the endowment, cash account and swaps — suggest that oversight was lax, said Harry Lewis, a Harvard alumnus, computer science professor and former dean of Harvard College. “They have a structural problem,” Lewis said in a telephone interview. “There’s something systemically wrong with Harvard Corp. It’s too small, too secretive, too closed and not supported by enough eyeballs looking at the risks they are taking.”

Another gem from Bloomberg: “Royal Bank of Scotland Group Plc, recipient of the world’s biggest banking bailout, is contributing 10 pounds ($16) a head toward employee Christmas parties this year, enough to buy two pints of lager and a packet of potato chips.”

Greenspan backs deficit-reduction commission.

WASHINGTON (Reuters) – Former Federal Reserve Chairman Alan Greenspan on Thursday endorsed a proposed bipartisan commission to help make the tough calls needed to get the spiraling and record U.S. debt under control.

Testifying before the Senate Homeland Security Committee, Greenspan warned that the United States must quickly begin to erase red ink to avert possible disaster.

“Our nation has never before had to confront so formidable a fiscal crisis as is now visible just over the horizon,” said Greenspan, who headed the central bank from 1987 to 2006.

Greenspan, a long-time deficit hawk, was seen as somewhat of an economic oracle while he headed the Fed and his word routinely moved financial markets.

(Bloomberg) - Bank of England official Andrew Haldane said the departure of financial institutions from the U.K. to avoid tighter regulation may be “a price worth paying” for the sake of the economy. Bank of England Governor Mervyn King has called for regulation forcing lenders to separate retail operations from investment banking to protect the economy from future financial crises. Haldane said that there is a need to “redirect” regulation because “those institutions that spread the risk disease furthest and in the biggest way ought to be subject to more stringent, and harder-hitting regulation up front.”

“There is not so much as a scintilla of evidence of bigger being better in banking,” he said, according to the BBC. “Bigger certainly isn’t better when the going gets tough. Bigger during this crisis has meant bigger bailouts, not better bailouts.”
The Brits have a way with the English language.

Credit card’s newest trick: 79.9% interest
Candice Choi, Associated Press
NEW YORK — It’s no mistake. This credit card’s interest rate is 79.9%.

The bloated APR is how First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It’s a strategy other subprime card issuers could start adopting to get around the new rules.

Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25% of a card’s credit line.

In a recent mailing for a preapproved card, First Premier lowers fees to just that limit — $75 in the first year for a credit line of $300. But the new law doesn’t set a cap on interest rates. Hence the 79.9% APR, up from the previous 9.9%.

“It’s the highest on the market. It’s the highest we’ve ever seen,” said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings.

The terms are eyebrow raising, but First Premier targets people with bad credit who likely can’t get approved for cards elsewhere. It’s a group that tends to lean heavily on credit too, meaning they’ll likely incur steep financing charges.

So for a $300 balance, a cardholder would pay $20 a month in interest.

http://www.msnbc.msn.com/id/34459843/ns/us_news-washington_post//

Lots of hardluck stories in this one. I think of it as an adaptability problem. These area’s just dont change very well. I notice on the last page about the “big man” who is 55 and his 54 yr old wife. Both have been laid off. Their chief comment is, “He is hard working and never missed a day of work. She just wants to go to work”…

To me, even statements like this arent good enough. Although they are in the prime of their lives, they either planned poorly or didnt adapt to future expectations. Companies just dont need someone to be able to move a box from place to place. I notice she says neither of them are “book” or “Math” people. Well if that’s the case, shouldnt she expect to be where she is now? You arent going to get the better jobs if you arent educated. I see a revolt of the masses coming…

Have I lost all my compassion? What do you do when pity and compassion costs tax dollars and the money could possibly go into a black hole with no return? What do you do when those seeking compassion outnumber those who can give tax dollars?

Some excerpts from WashPost article mentioned in yesterday’s bits, a rare example of real journalism covering the “new normal” as opposed to the recession-is-over kool-aid the MSM is pumping. I can relate to the feeling of having been “thrown away” as this is the current reality for many people I know in the Cleveland/Akron metro.

“It’s a final erasure,” says John Russo, a labor studies professor at Youngstown State University, describing the lethality of job losses and plant closures.

As far as decent jobs, Breuer is unusually blunt. “My best advice is to look into moving,” he tells the young sergeant.

“I see the young ones, there’s nothing for them,” says Stefan, who draws a monthly pension. “Why go to a vet center for a job you know doesn’t exist?

The Szykulskis have lost their jobs and are down to Tom’s unemployment benefits check. He is 53 and she is 55. They have just joined the ranks of Americans without health insurance.

“I feel like we’ve been thrown away,” Debbie says, sitting at the kitchen table.

http://tinyurl DOT com/yjm9h95

If you are 50 or over ,you’d better have a marketable skill, or niche of some kind , that you specialize in if you want to be gainfully employed . This is not running some machine that is owned by someone else , or worse , some company looking for a cheaper 20 something to run it . The works out there , and you should have been preparing for it the last 20 years .

Despite the distraction of Tiger Woods’s foibles, the rancorous meetings in Copenhagen, military prospects in Afghanistan, and sundry other events, concern about the economy in 2010 is very much on the minds of average Americans. Mike Whkitney observes, ” The economic crisis has stripped $13 trillion in equity from working families who now find their access to credit either cut off or severely curtailed by the same banks that received hefty taxpayer-funded bailouts. The fiscal strangulation of the millions of people who are no longer considered ‘creditworthy’ is progressively weakening demand and spreading pessimism across all income levels.” 2010: The Year of Contraction

Here’s the catch. The smart consumer will continue to live within his/her means, pay down debt, and avoid high-risk economic traps that put so many people behind the eight ball earlier in this decade. That behavior, however, will be a severe drag on the economy.

The administration won’t be able to do much to turn the sluggish economy around and many politicians’ re-election chances in November will hinge on voters’ concern for pocketbook issues.

Holiday card business is chilled by the economic downturn
USA TODAY
CHICAGO — Are you receiving fewer holiday cards this year? Sarah Tompkins can explain.

“I’m not sending any,” says Tompkins, 41, a Web designer in a Chicago suburb. “Do the math: the cost of the cards, then 44 cents for each stamp times 50 cards. That’s an indulgence I just can’t afford this year.”

The U.S. Postal Service says there was an 11% decline in cancellations of first-class cards and letters from Dec. 1-13 — when most Americans mail holiday cards — compared to 2008.

Dishing Out Some Shock on Debt By David Broder

“The United States, they unanimously said, is facing “a debt-driven crisis — something previously viewed as almost unfathomable in the world’s largest economy.” Under the impact of the worst economic calamity since the Great Depression, the federal government ran a deficit of $1.4 trillion this past year. The rescue effort was necessary, but in 2009 alone, the public debt grew 31 percent, from $5.8 trillion to $7.6 trillion, rising from 41 percent to 53 percent of gross domestic product (GDP).”

“Unless strong remedial steps are taken in the years just ahead, the debt is projected to rise to 85 percent of GDP by 2018 and 100 percent four years later. By that time, barely a dozen years from now, these sober-sided, deeply experienced folks say, the American economy is likely to be in ruins.”

Like its doing really great right now!!! We need some grown ups to step up, tell the kids to quit the spending and then get real about what our government should be doing (IMO very little). Oh yeah, let’s send $100 Billion a year to tin hat dictators so we can feel good about doing something for global climate change.

http://www.realclearpolitics.com/articles/2009/12/18/dishing_out_some_shock_on_debt_99607.html

Dec. 16, 2009, 12:01 a.m. EST

New Orleans leaves the cellar
Crescent City no longer worst city; San Joaquin, Rust Belt in bottom 10

By Russ Britt, MarketWatch

LOS ANGELES (MarketWatch) — New Orleans is off the basement floor in MarketWatch’s annual survey of the best cities for business, while a Rust Belt city has replaced it at the very bottom of the list and several other metro areas in California’s San Joaquin Valley are now ranked below it.

Sure, the Crescent City still languishes in the bottom 10 of MarketWatch’s survey as it continues to recover from the effects of 2005’s Hurricane Katrina. Now, however, it’s at least risen to the top of that group, after spending two years on the lowest rung.
…

Does anyone else find themselves perversely missing the HBB’s pet troll’s ad hominen attacks this morning? There is something curiously stimulating about witnessing a troll on a rampage.

Zale Halts New Orders as Holiday Sales Slide: Report
Friday, 18 Dec 2009 CNBC.com

Zale, the second-largest U.S. jewelry retailer, has cancelled some orders with suppliers as it struggles under the weight of mounting debt and sales declines, The Wall Street Journal reported.

Zale has reportedly cancelled orders as its sales suffer.

In a filing with the Securities and Exchange Commission, Zale said sales at stores open at least a year fell 18.6 percent in November.

Who’d have thunk, North Dakota, South Dakota and Nebraska with the fewest unemployed. Georgia almost at 11 percent.

http://www.bls.gov/web/laumstrk.htm

Happy holidays, enjoy life in its purest form of just being

Best

Sagesse

March 2008. Greensburg, Pennsylvania: Candidate Obama says “I will seriously consider eliminating the penny.” This was in response to a voter who questioned the wisdom of producing coins so worthless that vending machines (and some stores) no longer accept them. Penny Doesn’t Make Cents.

~ It seems reasonable to expect Congress will eventually give up on the lowly cent, just as it did the half-cent coin in 1857.

Since 1982 the cent has been manufactured from zinc, coated with a thin veneer of copper. The zinc industry would like to see this continue. But it costs more than a cent to make a cent and that doesn’t make sense.

Pelosi, Rahm do not scare Rep. DeFazio
By Walter Alarkon - 12/18/09

Rep. Peter DeFazio’s phone rang. On the other end was Rahm Emanuel.

The White House chief of staff last month expressed frustration with DeFazio’s resignation calls for President Barack Obama’s top two economic aides — Treasury Secretary Tim Geithner and White House chief economist Larry Summers — and appealed for cooperation, according to DeFazio.

But Emanuel, known for his blunt manner and ability to bend members of his party to his will, did not raise his voice with the Oregon Democrat.

“Rahm does not yell at me,” DeFazio said, “because he knows that I yell back.”

Others are learning that DeFazio, who has served in the House since 1987 and describes himself as a “progressive populist,” is not easily intimidated. He has emerged in recent months as one of the most vocal liberal critics of the Obama administration, blasting the president’s team for not getting tough enough with Wall Street. He’s also taken on his own party for failing to move left-leaning legislation through the Congress.

Personal calls from Speaker Nancy Pelosi (D-Calif.) and former Vice President Al Gore couldn’t persuade him to vote for the Speaker’s climate change bill. He also opposed the $787 billion stimulus, citing concerns that only 7 percent was devoted to infrastructure spending.

DeFazio was one of only two Democrats to vote against those measures and the $700 billion bank bailout. (The other was Rep. Gene Taylor (D-Miss.) a Blue Dog conservative.)

Yet he’s also a pro-gun Democrat who has a B rating from the National Rifle Association.

“I would have less of a voice and I would have less respect if I voted for things I didn’t believe in because of pressure from the leadership,” DeFazio told The Hill in an interview.

Obama himself has taken notice.

“Don’t think we’re not keeping score, brother,” Obama told DeFazio during a closed-door meeting of the House Democratic Caucus, according to members afterward.

But poking a stick at those in power is what DeFazio does.

and then things got interesting

BAGHDAD – Iranian troops have crossed into Iraqi territory and seized an oil well that lies in a disputed area along the two countries’ southern border, Iraq’s deputy foreign Minster said Friday.

The deputy minister, Mohammed Haj Mahmoud, said Iranian troops seized oil well No. 4 Thursday night in the al-Fakkah oil field, located about 200 miles (about 320 kilometers) southeast of Baghdad. The oil field is one of Iraq’s largest.

“It’s a question of how do you achieve the deleveraging. Do you go through a long period of slow growth, high savings and many legal problems or do you accept higher inflation? It would ameliorate the debt bomb and help us work through the deleveraging process”

– Kenneth Rogoff, Professor of Economics at Harvard, Former Chief Economist at the International Monetary Fund

Midnight in the food-stamp economy ~ Dec 18, 2009

SAN FRANCISCO/LOS ANGELES (Reuters) - At 11 p.m. on the last day of the month, shoppers flock to the nearest Walmart. They load their carts with food and household items and wait for the midnight hour. That’s when food stamp credits are loaded on their electronic benefits transfer cards.

“Once the clock strikes midnight and EBT cards are charged, you can see our results start to tick up,” says Tom Schoewe, Wal-Mart Stores Inc’s chief financial officer.

As food stamps become an increasingly common currency in a struggling U.S. economy, they are dictating changes in how even the biggest retailers do business.

From Costco to Wal-Mart, store chains are rethinking years of strategy as they watch prized customers lose jobs and turn to this benefit, the stigma of which is disappearing not just in society, but in corporate America.

Besides staffing up for the spike in shoppers on the first day of the month, retailers are adjusting when and what they stock, updating point-of-sale systems to accept food stamps and shifting expansion plans to focus on lower-income shoppers.

Take Costco Wholesale Corp, a warehouse club operator that caters to middle income Americans who must pay $50 a year to shop in its stores. Nudged along by New York Attorney General Andrew Cuomo, who threatened legal action, Costco began accepting food stamps at a few New York stores in May. It now plans to clear the payments in all of its 413 locations in the United States and Puerto Rico.

“Our view was … we would not get a lot of food stamps because our member on average is a little more upscale,” Costco Chief Financial Officer Richard Galanti said in October. “Well, I think that was probably a little bit arrogant on our part.”

Did anyone else read all of Bernanke’s written response to Sen Bunning? I posted a link in an earlier BB, and just finished it last night.

One of the most interesting bits to me was that Bernanke made what was (I believe) one of the first public denials that there is a PPT, or at least that the Fed is involved in it.

That is big news IMHO, because part of the case for there being such intervention was that they Fed has never publicly addressed it—suggesting that they did have something to hide.

Check this out:

————————-
Q: 50. Before the financial crisis there was a widespread sense, especially on Wall Street trading desks, that the stock market was strangely resilient. This encouraged excessive risk-taking in various types of assets. Do you have direct or indirect knowledge of the Federal Reserve or any government entity or proxy ever intervening to support the stock market (or any individual stock) via futures or in any other way? If yes, who decides the timing of such intervention and with what criteria? How is it funded? Which Wall Street firm handles the orders, and who sees them before they are executed?

Bernanke: The Federal Reserve has not intervened to provide support to the stock market or individual stocks by trading in futures or any other financial instrument. I have no knowledge of any other U.S. government entity providing such support.

Ryanair Kills Orders For 200 Planes In A Blow To Boeing
December 18, 2009

Boeing (NYSE:BA) has had more than its share of troubles over the last two years with delays in the launch of its Dreamliner, labor problems, and disappointing earnings.

The clouds around the aircraft manufacturer lifted briefly as the Dreamliner made it maiden voyage. Analysts immediately pointed out that several airlines will have to check the plane to decide if it can be put into commercial service, which could delay delivery again.

Boeing was hit with another terrible blow against as Ryanair, Europe’s big budget airline, said it had ended negotiations to buy 200 Boeing planes.

The Ryanair order would have been one of the biggest in Boeing’s history. The airline was concerned that it would not get the absolutely best price from Boeing and made that clear as it walked away from talks. “Ryanair has made clear to Boeing that we will not order aircraft if we believe that either the pricing or the other contractual terms and conditions will be inferior to those which we currently enjoy, as this would not be a wise or sensible use of shareholder funds,” it said in a statement.

The news makes it more likely that the Boeing board will revisit the tenure of the company’s CEO James McNerney. There have been rumors over the last several months that the board would finally dismiss him because of the delays in the Dreamliner delivery schedule. Boeing’s shares were well over $100 two years ago. They trade at barely over $50 now.

The turnaround at Boeing, kicked off by the flight of the Dreamliner, lasted less than a week.

Cal Lutheran forecast suggests state debt default likely.

California faces at least another year of recession, and the state budget is so far upside down that it’s now “more likely to default than not,” on some of its debt, a new economic forecast from California Lutheran University’s economists declares.

The director of Cal Lutheran’s new Center for Economic Research and Forecasting, Bill Watkins, cites the state’s budget problems, its high regulatory and operating costs and its deficit infrastructure as impediments to rapid recovery.

“We expect California’s economy to continue to contract, slowly, through the first three quarters of 2010,” the forecast says. “However, the contraction will be a bit less each quarter. By the fourth quarter, the state’s gross product growth could be mildly positive. Output is then likely to slowly improve, but at an improving rate, through 2011.

“Job growth will lag economic activity. We don’t expect to see California gain jobs until the second half of 2011. Consequently, unemployment will probably remain in double digits through 2011. Wages, by contrast, will likely show some gains almost immediately, but we don’t expect to see California’s average wage reach its pre-recession levels within the forecast horizon.”

In today’s Syracuse Craigslist:

IT HAPPENED AGAIN WEDNESDAY

Potential homebuyers put their house on the market as they found the perfect home. However when they came in for their mortgage appointment they found that becasue of a late mortgage payments and a lot of credit card debt they don’t qualify for a mortgage under today’s stricter guidelines.

So please, please prior to putting your home on the market, be sure you can buy a new one, if that is your plan. Luckily for these people no one had looked at their house and they just took it off the market, but a lot of time and money was wasted and hopes were shattered.

It is a different market out there, know the rules. I would be happy to meet with you at any time, just shoot me an email

Chump change I know but this is how our(S.Carolina)high ranking moron & his ass-istants in D.C.handle the small stuff.

Clyburn’s $100,000.00 earmark goes to wrong town!

Chris Pipkin, who runs a one-room library in Jamestown, S.C., earlier this year requested $50,000.00 from the federal government to buy new computers and also build shelves to hold the books that were strewn across the room. A “library” ought to have shelves, right?

Rep. Jim Clyburn agreed, but upped the number to $100,000.00, earmarked in the $3.9 billion of pork-barrel money in the $1.1 trillion spending bill the president signed this week. But somebody goofed and the money is going to Jamestown, California - which doesn’t even have a library.

Hey Polly, Looks like you guys are going to get a good bit of the white stuff this weekend. Stay warm!

I’ve mentioned the property auction for the house two doors down from me that happend in May. The house was bought for $362k on Oct 25, 2006, and the highest bid at the auction was $155k. Apparantly this was NOT accepted, and on 11/6/2009 the deed went to CIT Mortgage Loan Trust for $195,599.

Sun Prairie tax preparer was arrested Thursday in Texas on federal bank fraud charges related to a scheme in which she and others allegedly filed false documents to get more than $3.3 million in bank loans.

The U.S. Attorney’s Office in Madison said that Gail L. Mendez, 44, who did business as Mendez Connections, was arrested in Laredo, Texas, on charges returned by a federal grand jury on Sept. 30. The indictment had been sealed but was unsealed upon her arrest.

According to the indictment, Mendez and others, who were not named in the indictment, took part in a mortgage fraud scheme in 2006 and 2007 in which they submitted false income tax returns to Park Bank in Madison while applying for loans through the bank.

At the time, Park Bank had a program in which applicants could use an Individual Tax Identification Number to apply for loans instead of a Social Security number, if they were ineligible to obtain a Social Security number. The borrower had to supply Park Bank with income tax returns for the prior two years.

According to the indictment, Mendez and the others fabricated bogus tax returns that inflated the borrowers’ incomes. The returns supplied to the bank were not the same as those filed with the Internal Revenue Service.

The indictment did not indicate what Mendez and the others did with the $3.3 million they sought in 19 loan applications.

Mendez is also charged with making false statements on a loan application to AmTrust Bank, an online bank based in Cleveland, Ohio. According to the indictment, Mendez applied for a $349,000 loan to buy her home from her then-husband. In support of her application she submitted 2005 and 2006 income tax returns showing an income $169,237 and $170,825.

The returns Mendez filed with the IRS for those years showed an income of only $29,402 and $40,868 for those years, the indictment states.

I used to think these guys were criminals, but if they steal from other criminals that steal from me??? I’m so confused.

What a sad xmas present tonight; only 6 banks???

http://www.fdic.gov/bank/individual/failed/banklist.html

7 banks failed today, see FDIC dot GOV

I’ve been thinking about inflation. If inflation goes up, won’t interest rates on CDs just go up too to keep pace? Even if they lag slightly, that results in a mild real-wealth hit, but shouldn’t be too bad, right? It’s not like having 10% inflation, and CD rates still tracking at 1%.