The Housing Bubble

~ After this fails to produce the out come the meddlers are looking for, then the QE-III will be launched.

ITEM: Fed is expected to take new action to lift economy
Fed is expected to announce new action to try to lower long-term rates and boost economy.

WASHINGTON (AP) — The Federal Reserve is running out of options to try to boost a slumping economy and lower unemployment. So policymakers are expected to reach 50 years back into their playbook for their next move.

Most economists expect the Fed to announce a plan Wednesday to shift money in its $1.7 trillion portfolio out of short-term securities and into longer-term holdings.

The plan could lower Treasury yields further. Ultimately, it could reduce rates on mortgages and other consumer and business loans, too.

Fed Chairman Ben Bernanke is expected to advocate the move despite criticism from within the Fed and from Republican lawmakers and presidential candidates.

On Monday, the four highest-ranking Republicans in Congress sent Bernanke a letter cautioning the Fed against taking further steps to lower interest rates. Their letter suggested that lower rates could escalate the risk of high inflation.

The plan the Fed is considered most likely to unveil Wednesday has been dubbed “Operation Twist” and dates to the early 1960s. The Fed used a similar program then to “twist” long-term rates lower relative to short-term rates.

Expectations that the Fed will do so again, along with renewed fears of another recession, have led investors to buy up U.S. Treasurys. Treasury yields have dropped in response.

The yield on the 10-year Treasury note last week touched a historic low of 1.87 percent. On Tuesday, it finished slightly higher, 1.93 percent.

Update on our housing purchase.

Like many of you recommended, we walked when the listing agent tried to claim that our appraisal was wrong (about $50K below list). We live in the neighborhood and know the appraisal is spot on.

Cancelled the contract that night because I refuse to deal with a lying scumbag realtor.

The next morning (Tuesday), the realtor calls our agent basically wondering what went wrong. Said that the sellers wanted to sell to us, against her recommendation, and they agreed to our price and terms.

We will (hopefully) close escrow today or Thursday.

We are NOT buying at the bottom, and expect to lose at least $200K on the value of the house. We were fortunate enough to make more than that on the sale of our last house, so I’m trying to console ourselves with the fact that we will be no worse off than if we had done a sale and purchase pre-bubble. That being said, we plan on this being our toe-tag house, so will close our eyes after we close escrow and go about our lives (finally!). It is well within our level of affordability, so that helps with the decision to buy.

We are buying this house because it is literally our dream house. It’s not a fancy house — it’s under 1,800 sf, and still has Formica countertops, original kitchen and bathrooms, and standard beige carpet — but it’s only a few doors down from our beloved rental where we’ve raised our kids for the past 7 1/2 years. We know all the neighbors, and LOVE, LOVE, LOVE our neighborhood. It’s a single-story, 4/2, with a very large backyard and a pool, no Mello-Roos or HOA. You just can’t find those around here (not at any price), and we’ve been looking for over 10 years. When we walked in the door, it just felt like home. We’ve never felt that way about any other house we’ve seen, and we’ve literally been in hundreds of houses (at least) over the years.

So, while we wish this house would have come on the market in another 18 months (when I think we’ll be much closer to a bottom), we have to do what we have to do to get on with our lives.

Thanks for all your support and insights over the years, guys and gals! For those who are still waiting, and still wish to buy, I wish you the very best, and hope that you find your home soon. For those who decide to continue renting, I think that’s a very wise decision as well, and wish you a wonderful lifetime of memories in your homes, because a renter’s home IS their HOME (I’ve gotten so sick and tired of hearing that our beloved home is not “our” home…Ummmm, yes, it is.

Let the next leg of the downturn commence!

Not that you’ll see any of this in the lamestream media, but the “Occupy Wall Street” movement hasn’t given up yet. Saw some video posted on Huffpo, police goons dragging some of the protestors off, that sort of thing.

The problem with these sorts of protests is that they don’t handle the police up front. Say what you want about Michael Moore, but when he did some filming on Wall Street and put up some crime scene tape around one of the bankster buildings, he was approached by one of the local constabulary and he asked the guy if it was OK. The guy laughed and said “sure, you should see what they did to our pension plan”.

So that’s the stand ANY protest movement against the banksters has to take. Put up a little refreshment stand for the police. Give them some flyers so they can educate themselves. Have a banner that says “The Real Criminals are Over There” or “Join Us, They’ve Screwed You, Too”.

California Housing Market Sees August Boom
http://www.mainstreet.com/article/real-estate/buying/california-housing-market-sees-august-boom

Yesterday, a title rep told me homes under $100K in the desert were selling. How about civilization?
Inventory is tight in job corridors, and people are buying a “I’ll settle for” home, was her opinion.

Ca Renter-
What’s happening with your transaction?

Why Many Banks Don’t Want Your Money
By Brad Tuttle
http://moneyland.time.com/2011/09/20/why-many-banks-dont-want-your-money/?iid=pf-main-lede

Housing Is to the U.S. What Greece Is to the Euro Zone.
http://blogs.wsj.com/economics/2011/09/20/housing-is-to-the-u-s-what-greece-is-to-the-euro-zone/?mod=WSJBlog

More Americans Are Doubling-Up
(A week old article, but nevertheless interesting.)
http://blogs.wsj.com/economics/2011/09/13/more-americans-are-doubling-up/

Middle-class income fell in the last decade
CNN MONEY - September 21, 2011

It’s official. The first decade of the 21st century will go down in the history books as a step back for the American middle class.

Last week, the government made gloomy headlines when it released the latest census report showing the poverty rate rose to a 17-year high. A whopping 46.2 million people (or 15.1% of the U.S. population) live in poverty and 49.9 million live without health insurance.

But the data also gave the first glimpse of what happened to middle-class incomes in the first decade of the millennium. While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed.

For American households in the middle of the pay scale, income fell to $49,445 last year, when adjusted for inflation, a level not seen since 1996. And over the 10-year period, their income is down 7%.

“Economists talk about the lost decade in Japan. Well, with these 2010 data, we can confirm the lost decade for the American middle class,” said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities.

Sure, it’s fair to say Americans at all levels of income, from rich to poor, were hit hard in the decade that started with the dot-com boom and bust, and ended with the Great Recession.

Rising costs for middle class

But according to the census data, those losses disproportionately hit the lowest 60% of Americans, while the richest 40% actually gained wealth, relative to the entire U.S. economy.

Much of that trend can be explained by massive losses in the housing sector, the period of high unemployment that ensued, and rising prices that flew in the face of the American family’s heightened financial struggles.

Unlike the richest Americans, middle class families have most of their wealth tied up in the equity of their homes, which took a beating in the recession. And high unemployment has left many people with little or no other income at all.

At the same time that Americans had less cash to spend, they were also being hit with rising prices for some crucial items. Even accounting for inflation, it still costs more to buy a home, fill your gas tank, go to the doctor and put food on the table than it did only 10 years ago.

And not only is it more expensive to live a middle-class life, it cost more to get there too. The price of a college education — still considered the ticket to higher wages and a better lifestyle — has surged over the last decade, even in spite of the recession.

Facing these burdens, the American Dream is undergoing stark changes, with fewer people choosing to buy homes and more young people postponing their own independent lives. The census data showed about 14.2% of all young people ages 25 to 34 are still living in their parents’ homes this year, compared to about 11.8% before the recession began in 2007.

And that poses a challenge for the economy going forward. After all, what will the middle class and the American Dream look like another decade from now, if the younger generations still can’t get their feet off the ground?

Poker site accused of $440 million Ponzi scheme
NEW YORK (CNNMoney) — Federal prosecutors on Tuesday accused executives at the online site Full Tilt Poker of operating a Ponzi scheme, siphoning more than $440 million in gamblers’ winnings to board members and owners.
…
“In reality, Full Tilt Poker did not maintain funds sufficient to repay all players, and in addition, the company used player funds to pay board members and other owners more than $440 million since April 2007,” the complaint read.
…
http://money.cnn.com/2011/09/20/news/companies/poker_ponzi/index.htm?iid=HP_River

If they were a bank that behavior would be in full compliance with all legal and ethical guidelines. If you’re not a bank then this behavior is considered criminal.

Realtors Are Liars®

New High: 37% Say Their Home Is Worth Less Than Remaining Mortgage Payments
http://www.rasmussenreports.com/index.php/public_content/business/housing/september_2011/new_high_37_say_their_home_is_worth_less_than_remaining_mortgage_payments

Maybe if we all steadfastly avoid using the ‘R’ word, we can thereby avoid the occurrence of the event it describes.

The R-word index
Up means down
The Economist’s gauge of gloom
Sep 17th 2011 | from the print edition

IT HAS been a thoroughly wretched summer in the rich world: weak growth, dismal jobs numbers and plunges in stockmarkets. Now there is yet another cause for concern.

The Economist’s informal R-word index tracks the number of newspaper articles that use the word “recession” in a quarter.
…
The latest iteration counts articles published in the Financial Times and the Wall Street Journal. It shows the index declining steadily from a peak in early 2009, with just a brief pause during the summer of 2010. September, however, has brought a change in the weather. Measured at a quarterly rate, the index has visibly turned up since the start of this month.
…

If 26-year-old real estate brokers in Beaverton, Oregon are stuck renting unless they get help from mom and dad, the economy must really be in dire straits.

Bernanke Has Few Tools to Heal Economy Amid Weak Housing
By Steve Matthews and John Gittelsohn - Sep 20, 2011 9:00 PM PT

U.S. Federal Reserve chairman Ben S. Bernanke. Photographer: Tomohiro Ohsumi/Bloomberg
Fed Monetary Policy, U.S. Economy, Outlook

U.S. mortgage rates are the lowest in at least four decades, with a 30-year fixed loan available at 4.09 percent. That didn’t help Alexis Wolf buy a townhome in Beaverton, Oregon.

“Unless you have family help, you’re stuck renting,” said Wolf, 26, a real estate broker who turned to relatives for a loan because she didn’t have the credit and employment history needed to qualify for a mortgage.

Wolf’s experience illustrates the predicament for Federal Reserve policy makers as they end a two-day meeting today to consider ways to boost economic growth. Low interest rates, the traditional medicine for a flagging economy, aren’t helping housing, which since 1982 has aided every recovery except the current one.

Sales of existing homes dropped in July to the lowest since November, and the median price slid 4.4 percent from a year earlier. Rising foreclosures, tighter lending standards and unemployment stuck near 9 percent for more than two years are all weighing on the market. Lower borrowing costs aren’t likely to make a difference, said housing economist Brad Hunter.
…

US housing starts fell in August; New home construction at lowest since at least 1970
By Finfacts Team
Sep 20, 2011 - 2:31 PM
Blue: single family; Red: multi-units such as apartment blocks, which are incremental to single family units.

US housing starts fell in August while there were fewer homes were under construction in the month than at any time on records dating back to 1970.
…

Gee - what do these states (California, New York and Illinois) have in common?

Total control by democrats. Insane public unions.

I feel sorry for the people and businesses who live in these state that are not in/part of a public union. They are looked at as chattel to be fleeced when needed (which now is constant).

Get out while you can. No one (person or business) is going to move to these states (but they are leaving in droves). Housing prices will NEVER recover with this “model” of government.

Now for homework. What do Texas, North Carolina and South Carolina have in common? Where do you think you have the best chance of finding a job? Where do you think housing prices will recover the fastest?

———————

Illinois among worst states to do business: Survey
By Ameet Sachdev
The Chicago Tribune

Some Illinois companies, such as Chicago’s CME Group, have threatened to leave the state, citing a hostile business environment.

Illinois ranked among the three worst states for business, according to a survey of U.S. corporate executives released Monday.

Nearly one quarter of the survey’s 322 respondents said Illinois had one of the least favorable business climates, according to Development Counsellors International, which specializes in economic development and tourism marketing.

Taxes and high costs were among the factors that contributed to the state’s poor showing in the survey. California was deemed to have the worst business climate, followed by New York and Illinois.

Illinois recently increased its income tax rate, which has prompted several companies, including Chicago-based CME Group, to consider leaving the state.

Texas, North Carolina and South Carolina were viewed as having the best business climates, according to the survey.

http://www.chicagotribune dot com/business/breaking/chi-illinois-among-worst-states-to-do-business-survey-20110919,0,2978345.story

Don’t buy until the IMF outlook for the U.S. economy improves, and is reflected in employment statistics.

P.S. What’s a “strong policy”? I’m guessing that is secret central banker code for quantitative easing or similar measures, but then I’m no central banker.

IMF sharply downgrades outlook for U.S., Europe
Growth forecast is cut through 2012
Sep 21, 2011
BY CHRISTOPHER S. RUGABER
ASSOCIATED PRESS

WASHINGTON — The world economy has entered a “dangerous new phase,” according to the chief economist of the International Monetary Fund.

As a result, the international lending organization has sharply downgraded its economic outlook for the U.S. and Europe through the end of next year.

The IMF expects the U.S. economy to grow just 1.5% this year and 1.8% in 2012. That’s down from its June forecast of 2.5% in 2011 and 2.7% next year.

To achieve even that still-low level of growth, the U.S. economy would need to expand at a much faster rate in the second half of the year than its 0.7% annual pace in the first six months.

Most economists expect growth of between 1.5% and 2% in the final two quarters.

Though an improvement, it wouldn’t be enough to lower the unemployment rate.

The rate has been 9% or higher in all but two months since the recession officially ended more than two years ago.

“The global economy has entered a dangerous new phase,” said Olivier Blanchard, the IMF’s chief economist. “The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks.”
…

It seems as though Megabank, Inc’s race for the exit may be underway now.

Huge Surge in Bank of America Foreclosures
Published: Tuesday, 13 Sep 2011 | 12:29 PM ET
By: Diana Olick
CNBC Real Estate Reporter

Bank of America is ramping up its foreclosure processing, sending out far more notices of default to borrowers in August than in previous months, well over 200 percent more month-to-month.

A notice of default is the first stage of the foreclosure process in non-judicial foreclosures states, that is, where foreclosures do not go before a judge.

The notice of default is usually sent when a borrower is 90 days or more overdue in payments, but that timeline has been extended significantly during this housing crisis, due to the so-called “robo-signing” processing scandal and the sheer volume of troubled loans.

Mortgage and housing analyst and strategist Mark Hanson alerted me to unusually high legal default filing activity, and his research points to Bank of America [BAC 6.90 -0.09 (-1.29%) ] as the primary driver. I contacted a Bank of America spokesman, who responded:

It appears the numbers you noted to me this afternoon generally track with our own numbers for key categories. It should be noted it’s driven more in key states like California and Nevada than overall, and certainly the progress we’re seeing is limited to non-judicial states. Judicial states continue to move very slowly, with key states like New Jersey only beginning to start processing foreclosures again this month.

The foreclosure numbers are down very slightly year-over-year, but only because August 2010 was one of the highest foreclosure months on record, and of course was just before the “robo-signing” scandal was uncovered. Delays in processing have artificially lowered the foreclosure numbers over the past year, so this new surge is likely addressing loans that have been long delinquent, but unaddressed.
…

Posted on Wednesday, 09.21.11
FORECLOSURES

Rick Scott, GOP to consider taking courts out of foreclosure process

Gov. Rick Scott, along with top lawmakers, are interested in legislation to change Florida laws so judges won’t have to referee foreclosures.

A way to speed-up foreclosures?

Foreclosure proceedings in Florida are among the slowest in the nation, averaging 638 days. Lawmakers are considering removing judges from proceedings to speed up the process.

By Janet Zink
Herald/Times Tallahassee Bureau

TALLAHASSEE — The push is on in Florida to cut the courts out of the foreclosure process.

Supporters of the concept — which is used in nearly 30 states — say it will speed foreclosures, get houses back onto the real estate market and boost the economy.

Opponents say it puts property owners at the mercy of banks.

Gov. Rick Scott, House Speaker Dean Cannon and Senate President Mike Haridopolos all say they are interested in considering legislation to change Florida laws so judges won’t have to referee foreclosures.

And the House Civil Justice Subcommittee on Tuesday heard a presentation on foreclosures detailing states that include courts in the process versus those that don’t.

Bottom line: Foreclosures take longer and are more expensive in states that involve courts, said state economist Amy Baker.

“I don’t want to leave you with the impression that the data suggests the judicial process is a terrible process,” Baker told lawmakers. “It’s actually ultimately a policy decision on where you want the burden to be, where you want the rights protection to be.”

Florida has the nation’s second highest foreclosure rate, and is one of 20 states that require all foreclosures to go through the court system.

Court action isn’t needed in Michigan, Arizona, California and Nevada — other states with high foreclosure rates. On average, foreclosure proceedings in those states take from 392 days in Arizona to 511 in California, according to Jacksonville-based Lender Processing Services.

In Florida it takes 638 days.

That’s too long, Scott said in a recent interview with the Times/Herald.

“It’s not good for anybody in the process,” he said. “It costs money. Either the homeowners lose money or the lenders lose money, and the longer it takes, it slows down what actually happens in the real market.”
…
States with the quickest foreclosures (in days):

Utah: 388

Colorado: 388

Idaho: 381

Alaska: 379

Wyoming: 367

States with the slowest foreclosures (in days):

New York : 664

Florida : 638

Hawaii : 580

New Jersey : 563

Maine : 551

Source: LPS Applied Analytics

Grantham: ‘No market for young men’
Market Watch | 09/21/11 | Jonathan Burton

SAN FRANCISCO (MarketWatch) — Hey, Young Turks on trading desks, up-and-coming money managers and Wall Street stock jockeys: You want the truth about the global markets today?

Listen to Jeremy Grantham, chairman of Boston-based investment manager GMO LLC: You can’t handle the truth.

Jeremy Grantham. “This is no market for young men,” Grantham said. “At least us old men remember what a real bear market is like, and the young men haven’t got a clue.”

Women, too, for that matter. And at 72, after 40-plus years in the investment business, Grantham can make this claim unchallenged, but his point is more about the lessons of experience than the limitations of age, and an investor’s ability to build on the former and overcome the latter.

Lots of good stats. A whole economy is springing up to deal with this.

———————–

The New Face of Foreclosure: Strategic Defaults
Fox Business | 09/19/11 | Laura Rowley

“I was looking for a way to get back to a larger city, and this was the only way I could get out of this house,” says Kessler, who paid $800 to YouWalkAway.com to help guide him through the process known as strategic default. He’s anticipating a move to a warmer climate and a more active art and dating scene in Santa Fe, N.M.

First notices of default jumped 33% in August, a nine-month high and the biggest month-over-month increase since August 2007, according to figures by RealtyTrac released Wednesday.

“There are 3 million to 4 million seriously delinquent mortgages that under normal circumstances would be in foreclosure but have been kept out by procedural delays and paperwork problems,” says Rick Sharga, RealtyTrac senior vice president. The recent spike in foreclosure starts suggests lenders are “hitting the restart button” on cases that were delayed by documentation problems such as robo-signing, he explains.

“The people we are now seeing are nearing retirement age, who never missed a payment on anything in their lives,” says Jon Maddux, co-founder and CEO of the Carlsbad, Calif., firm. “They are trapped. They can’t sell or get a modification and they need to downsize or move for a job.”

“The vast majority of those who default end up doing a short sale and that discharges the deficiency,” he says. “If they are pursued, they can negotiate to pay less than the full amount. A savvy person who retains an attorney or other knowledgeable person to walk them through the process will likely get through default without having to pay a deficiency judgment. Most people will have a good credit score again within a couple years.”

“If you already have payment problems on the mortgage and defaulted on other accounts, [foreclosure] may not have a material downward impact, but it will lock in a lower score for a long time,” Ulzheimer says. People who stop paying the mortgage can minimize the credit score impact by using that free cash flow to pay down other debts, such as credit cards, he adds.

But just because the bank doesn’t pursue homeowners today doesn’t mean it won’t tomorrow, argues Ulzheimer. The statute of limitations to sue on contract debt in recourse states ranges from three to 15 years. “Some people think that’s the next shoe to fall,” he notes.

White says underwater homeowners should figure out if they are paying substantially more to own a house on a monthly basis than they would pay to rent a similar property. “Even if you are thousands of dollars underwater, if you are paying the same as you would to rent, you don’t gain that much financially by defaulting,” he says. (The survey by YouWalkAway.com found a quarter of respondents saved 50% or more on housing expenses when they rented after their default.)

In addition, someone who will need a good credit score to run a small business or borrow to meet a goal, such as a child’s college education, should avoid strategic default. “If you have a particular need for easy credit in the future, then it doesn’t make financial sense,” White notes.

As for Kessler, he is looking forward to biking, tennis and skiing in the Southwest next year. “I don’t feel guilty at all about walking away from the place,” he says. “The banks really did it to themselves. They made a ton of money with me over the years. I owned four or five houses. But I don’t think I’ll ever buy another house. I’ll probably just rent until they put me in a nursing home.”

Bernanke Has Few Tools to Heal Economy Amid Weak Housing
Bloomberg - Sep 21, 2011 1

U.S. mortgage rates are the lowest in at least four decades, with a 30-year fixed loan available at 4.09 percent. That didn’t help Alexis Wolf buy a town-home in Beaverton, Oregon.

“Unless you have family help, you’re stuck renting,” said Wolf, 26, a real estate broker who turned to relatives for a loan because she didn’t have the credit and employment history needed to qualify for a mortgage.

Wolf’s experience illustrates the predicament for Federal Reserve policy makers as they end a two-day meeting today to consider ways to boost economic growth. Low interest rates, the traditional medicine for a flagging economy, aren’t helping housing, which since 1982 has aided every recovery except the current one.

Sales of existing homes dropped in July to the lowest since November, and the median price slid 4.4 percent from a year earlier. Rising foreclosures, tighter lending standards and unemployment stuck near 9 percent for more than two years are all weighing on the market. Lower borrowing costs aren’t likely to make a difference, said housing economist Brad Hunter.

“The Fed’s actions probably won’t help housing in a meaningful way,” said Hunter, chief economist and national director of consulting at Metrostudy, a Houston-based housing research firm that provides data to 18 of the 20 largest U.S. builders. “The level of mortgage rates is not a major factor. Rates are at extremely attractive levels.”

The Federal Open Market Committee may decide today to replace short-term Treasuries in its $1.65 trillion portfolio with long-term bonds in a bid to lower rates for mortgages, auto and consumer loans, according to 71 percent of 42 economists surveyed by Bloomberg News.

Today’s house: Overpriced Gem

http://www.zillow.com/homedetails/7327-Blanchard-Dr-Derwood-MD-20855/37215670_zpid/#{scid=hdp-site-map-list-address}

Fairly nice 1964 4/3 ranch on half acre. Beautifully done walk-out basement, good neighborhood. The layout of the kitchen reno is poor IMO, and basically wastes a beautiful window. I would have swapped the kitchen and dining room, even if it meant moving plumbing. The price history is classic DC bubble. I suspect that this house has another $75K to fall in the long run, but with a $400K+ mortgage, but the seller probably can’t afford a fire sale.

Jun 2001: Sold $250K
May 2003: Sold $345K
Oct 2007: Sold $412K
Sep 2011: Listed $349K

House 2: Give me an f’in break

http://www.zillow.com/homedetails/6407-Winnepeg-Rd-Bethesda-MD-20817/37179385_zpid/#{scid=hdp-site-map-list-address}

1955 little ranch on 0.14 acre in pricey Bethesda. Man, talk about a Home Despot special. Hardwood floor OK. Nice granite dropped onto cheap cabinets, bad layout, and LOUSY flooring in the kitchen. Bathroom fit for a skinny emperor. “Au Pair” suite downstairs = finished basement with man-cavey kitchen. They spent all the $$ inside and left the crappy concrete and spooky shed in the yard.

Dec 1998: Sold $160K <— OK, I’ll use $160K as a good reference point for a pre-bubble price for a small pre-reno ranch, even for Bethesda.
Aug 2005: Zestimate $556K.
Sep 2011: Listed $539K <— yeah right. $60K of reno does not justify $180K of price bloat.

A bad track record won’t stand in the way of a Fed determined to act on their religious faith.

Fed’s Track Record Casts Doubts on QE3 Success
Sept. 20, 2011

Data on economic and bank-reserve growth stretching back 80 years suggest that the economy doesn’t always do well after the Fed eases, according to H.C. Wainwright’s David Ranson. That’s not good for long-term stock investors. Laura Mandaro reports.
…

Northrop Grumman to cut 200 more jobs at its Apopka laser-weaponry plant. By Richard Burnett, Orlando Sentinel September 21, 2011

For the second time this year, Northrop Grumman Corp. plans to shed at least 200 jobs at its once-expanding laser-weaponry factory in Apopka — a move that will eliminate 24 percent of the remaining work force, the company confirmed Tuesday.

Citing a falloff in orders for its military equipment, Northrop said the jobs being eliminated range from management and engineering to administrative support. Affected workers will be notified by the end of the month, the company said.

“This work force reduction is regrettable, but unavoidable,” spokeswoman Yolanda Murphy said in an email. “It is imperative that the company properly adjusts the staffing levels at our laser systems business unit to accommodate anticipated business needs going forward.”

(Reuters) - The rising gap between rich and poor in nearly every country, rich or poor, went largely ignored during the decades of globalization-fueled boom.

there are clear signs of the wealth gap becoming a political hot potato.

In the 20 years prior to the financial crisis, data from the Organization for Economic Cooperation and Development (OECD) group of rich nations show the wealth gap widening in the vast majority of member states, most strikingly in the English-speaking world, Japan and Israel.

But until the 2008 crash, household disposable income was also rising across the board by some 1.7 percent a year. With the economic crisis, that trend looks to be reversing — and that leaves the newly squeezed middle classes and poor with a striking sense of injustice.

In the developing world (and here in the good old USA), rising food and fuel inflation has also eroded the buying power of middle classes who — while their per capita incomes may still be rising — they too feel they have grievance. (BECAUSE it doesn’t make up for lost purchasing power)

SHADOW OF THE 1930S

Spreading discontent could, some fear, make it harder there to solve debt crises and form coherent policy.

With social media-organized protests on New York’s Wall Street this weekend and occasional looting by “flash mobs” in other U.S. cities seen as echoing larger protests in Europe, some fear worse to come.

New York Mayor Michael Bloomberg last week warned that without rapid job creation, the United States could see riots like those that hit London this summer.

The lessons of the last century are alarming to some.

“There is a lot of evidence that when you have a small, growing middle class, that is a major driver of political stability,” says William Galston, a former policy adviser to President Bill Clinton and now a senior fellow at the Brookings Institution in Washington.

“But when you have a large middle class that is shrinking and where you have alarm and despondency over the future, that is where politics can become very volatile and even dangerous. That’s what we saw in Europe in the 1930s.”

The rise of the right-wing Tea Party movement in the United States is widely seen as part of a trend toward extremes and volatility, as perhaps too are calls from the left for greater wealth redistribution and for heavier taxes on the rich.

U.S. President Barack Obama on Monday made higher taxes for the rich a key part of his plan to cut ballooning deficits, echoing calls from billionaire Warren Buffett for a rebalancing of the tax system. Republican opponents described the call as “class warfare”, but it may have caught the spirit of the times.

Some believe it is all tied together with the rising tide of protest elsewhere in the globe. U.S. counterinsurgency specialist Patricia DeGennaro sees a wider “global uprising” or “worldwide insurgency.”

“People are finding that not only can they be heard en masse, they can make change en masse,” says DeGennaro, a senior fellow at the World Policy Institute and professor at New York University, citing the rising wealth gap as key. “That is at the root of the insurgency. In essence, people are tired of how the system is benefiting the few instead of the many … I don’t see it as a threat, but governments certainly do.”

I
“Investors like emerging markets, but they are becoming increasingly worried about the risk,” says Ravi Vish, chief economist at the World Bank’s ”

Some analysts suspect big corporations are holding back on planned investments, sitting on cash partly because of fears over an immediate future that includes far too many unknowns.

These include widespread doubt over global and domestic economic demand, THIS IS THE #1 reason in my book

Whatever happens, it is uncertain whether governments can do much to stem the broader wealth gap. In a globalized world, the rich and major corporations can easily move assets from jurisdiction to jurisdiction to avoid attempts at redistribution.

In this environment there are clear divisions in the approach taken by the world’s most wealthy.

Some, like Buffett, say the wealthiest should pay more taxes a

Others see instead many of the world’s rich following the example of Russian oligarchs in the chaotic 1990s, retreating into secure estates
protected by private security and bullet-proof vehicles and secreting wealth in offshore tax havens.

news.yahoo.com/analysis-crisis-bites-rising-wealth-gap-becomes-key-164425632.html

So, BB will come out at 2:15 today (est) doing his rendition of Chubby Checker. Come on BB let’s do the “twist”!

I am not so sure this will get the markets all Wee-Wee’d up. Perhaps for a while, but the w street gang want’s a full blown launch of the QE-III!

Greek government announces more austerity measures, including cutting pensions

ATHENS, Greece (AP) — Greece will suspend more civil servants than originally planned and impose new pension cuts as part of more austerity measures, the government said Wednesday, as it tried to persuade international creditors to continue bailout payments needed to avoid a chaotic default.

Government spokesman Elias Mossialos outlined the new spending cuts after a 6 1/2 hour Cabinet meeting, the outcome of which was being watched closely by nervous global markets.

“This choice sends a message to our partners and the markets that Greece both wants and is able to fulfill its commitments and remain at the core of the eurozone and the EU,” Mossialos said in a statement.

The new measures include increasing the number of civil servants to be suspended on partial pay to 30,000 by the end of this year from 20,000. Mossialos said this amounted to a total of about 3 percent of public sector staff.

Greece has been under pressure from its international lenders to meet fiscal targets and slash the size of its bloated public sector. The country has more than 750,000 staff in the country of 11 million people.

Under the new measures, monthly pensions above euro1,200 ($1,636) will be subject to a 20 percent cut of the amount above the euro1,200 threshold, while pensioners below the age of 55 will see a 40 percent cut in the amounts of their pensions above the euro1,000 limit.

The tax-free limit on annual income will drop to euro5,000 ($6,818) from euro8,000 ($10,908), and the cut will be applied to this year’s income, Mossialos said.

“It is the fundamental and strategic choice of the country to return to fiscal independence as an equal member of the eurozone, achieving a primary surplus as soon as possible,” he said.

The prospect of more tax increases and spending cuts are likely to be met with mounting concern in a country mired in a deep recession and with the number of unemployed rising to around one in seven. Greece’s two largest labor unions already called earlier Wednesday for another general strike on Oct. 19. All public transport in the capital will halt on Thursday as transport workers hold a 24-hour strike.

Georgia-Pacific to Close its Hawthorne Plywood Mill, Leaving Nearly 400 without Jobs.

HAWTHORNE, Fla. — Georgia-Pacific has announced it will close its Hawthorne plywood mill, leaving nearly 400 people without a job.

“I have two sons, they were 5 and 7. Now they’re 29 and 31,” said Dianne Tabler, a 24-year employee of Georgia-Pacific.

“GP gave us a good way of life. I was able to have Friday nights home, send them to school in nice clothes. GP really provided for us,” she said.

Tabler said she and her coworkers were shocked by the closure, and most aren’t sure what they’ll do next.

“There’s going to be a lot of people looking for jobs,” she said.

Georgia-Pacific spokeswoman Tricia Bowles stressed the closure had nothing to do with the quality of work at Hawthorne, but rather the state of the economy.

“Weak demand for home building and remodeling has devastated the plywood mill over the past few years,” Bowles said, “and they will stop production Oct. 14.”

Then 400 people in the small community of Hawthorne will be looking to find jobs in town, or as Mayor Matt Surrency fears, relocate to find work.

“People come in and shop. They live, work, and play here,” said Surrency.

He said the city wants to help the workers find jobs locally, which means starting fresh for many of them.

“Some of these workers haven’t even been trained in writing a resume because they’ve been working there for 20 or 30 years,” he said.

Surrency said keeping those 400 employees here is crucial. Most of the people getting laid off just want a job.

“I’m praying about it. Wherever God puts me, that’s where I belong,” said Tumbler.

First a trickle, then a flood?
Bank run in EURO-Land gaining steam. Siemens pulled $500 million from a French bank (Societe General) followed by Lloyds of London who pulls EURO Bank deposits.
http://www.bloomberg.com/news/2011-09-21/lloyd-s-of-london-posts-697-million-pound-loss-on-disasters-1-.html

Time to get my million EURO out of that greek bank
…this could get interesting…

American “Free Market” economics at its finest.

Our local WNBA team, the Phoenix Mercury won the first series of the playoffs and move on to the conference finals (final 4).

I go look for tickets. Cheapest seat in the house is $35 and most seats are more like $70 + fees. They usually pull 11k-12K or so people to a game.

I think… wow. $50 * 11K = a cool half million extra revenue per playoff game.

Not bad for a league with a $700K per team salary cap. I know this, because I’ve heard players complain about the $700K team cap and the $100K per player cap. They can make way more in Europe.

So, I think… are teams this profitable?

So, I dig around… nope. 8 of the 12 teams lost money during the regular season. Of the teams that lost money, they lost an average of $1.5 million each.

How do you lose $1.5 million in a league where the player salary cap is $700K?

To understand that, we can look to the European leagues. They average attendance of about 2000 people per game, but pay the players millions.

The answer is, RENT.

In the USA, the WNBA playes in the $100-200 million palaces built for NBA teams and pay many millions a year in rent.

In Europe they play in small, cheaply built areanas, pay very little to host the games, and pay the players the money instead.

The Mercury sell tickets for $40 per seat ( regular season), sell 10K seats per game, for 19 home games = $7.6 million. They then pay $200K per game to host the home games. The rent on the building is 6 times as much as they pay the players.

In Europe they sell 2000 tickets for $20 = $4K. They then pay $2-3 million for players and less than $1 million for facility rent.

So, “free market” American economics. You buy some land cheaply. You bribe a politician to get them to spend taxpayer money building an areana. The value of the land around the areana skyrockets and you sell for big profit.

Meanwhile, fans pay more to go to games and players get a smaller portion of the revenue.

Wow, what a shock…

ITEM: Fed to Shift $400B in Holdings to Boost Economy -AP

The Federal Reserve says it will sell $400 billion of its shorter-term securities to purchase longer-term holdings, its latest effort to boost a weak economy.

Says 30% of transactions are all cash.

“A new survey from MacroMarkets predicts U.S. home prices will decline 2.5% this year and rise just 1.1% annually through 2015. Humphries is a bit more skeptical, predicting prices will fall 3% to 5% this year before bottoming in 2012 at the earliest.

“We think it’s going to be a long, rocky bottom where appreciation will be below historic norms,” he continues, predicting gains of just 1% to 2% for the two-to-four year period after real estate final bottoms out.”

http://finance.yahoo.com/blogs/daily-ticker/zillow-humphries-encouraging-news-long-rocky-road-housing-170159404.html?sec=topStories&pos=5&asset=&ccode=

Bernanke Speaks - It’s Operation Twist

WASHINGTON (MarketWatch) — The Federal Reserve on Wednesday said it will sell $400 billion worth of short-maturity bonds it holds and reinvest in bonds maturing between 6 and 30 years by the end of June 2012, confirming market expectations that it would revive the 1960s-era program dubbed “Operation Twist.” By a 7-to-3 vote, the Fed also said it will reinvest proceeds from maturing mortgage-backed securities into mortgage-backed securities, instead of its previous practice to buy Treasurys with the proceeds. The Fed kept its target Federal funds rate between 0% and 0.25% and kept its pledge, first announced in August, to keep rates at exceptionally low levels through the middle of 2013. The Fed said that “economic growth remains slow” and inflation will settle at or below levels consistent with its dual mandate.

Fed’s Operation Twist Isn’t Much to Shout About
By Daniel Gross | Contrary Indicator

The Federal Reserve has announced its latest effort to jolt the economy back to life. In the widely anticipated move, dubbed Operation Twist, it is pledging, over the next nine months, to sell some $400 billion in short-term government bonds it owns and use the proceeds to buy government bonds that mature in 6-30 years. The theory: This market intervention will help further lower long-term interest rates. The Fed also said that when mortgage-backed securities it owns pay off, it will roll the money back into similar securities. That could help push mortgage rates down.

There are a few reasons why we shouldn’t have great expectations for this move.

First, the Federal Reserve moves with all the surprise and guile of a lumbering elephant. It talks about moving, says what direction it might go in and at what speed, and provides a specific date on which it will act. It does so because it wants to avoid spooking the market. But it also means that the market tends to react well ahead of the actual event. Look at the path of the 10-year bond over the last several weeks. The interest rate on the 10-year bond has fallen from 3.2 percent on July 1 to about 1.9 percent today. The mere anticipation of the Fed’s move has caused the market to do much of the Fed’s work.

Second, given how low long-term interest rates already are - they’ve fallen by 40 percent in the past three months– this action is like pushing on a string, or adding another drop of water to a full pitcher. Pick your metaphor. Long-term borrowing costs for creditworthy borrowers are already at Crazy Eddie levels — they’re so low, they’re insane. In August, according to Freddie Mac, the average commitment rate on 30-year mortgages it backed was 4.27 percent. Disney in August sold 30-year bonds that yielded 4.375 percent. Google in May sold three-year notes that pay a paltry 1.25 percent in annual interest. The government borrows for 10 years at less than 2 percent. That’s all to the good. These lower rates help free up more cash for some people to spend, help corporations pay their bottom line, and lessen the fiscal bite of high deficits. But when you get close to zero, it becomes harder to make a bigger percentage difference. Money simply can’t get much cheaper.

In recent years, lower interest rates have generally allowed people who are already able to borrow do so at lower rates. Homeowners who have a lot of home equity and are current on their mortgages may be given an opportunity to refinance. But the lower rates haven’t generally led to the extension of credit to people who badly need it. If a home is underwater, it’s very difficult to refinance, no matter how low rates go. Check out page 9 of Fannie Mae’s recent earnings report. The average loan it has been acquiring over the last few years has a loan-to-value ratio of just 68 percent, and only six percent of the loans it bought in that period had a LTV ratio of 90 percent. Meanwhile, value of the collateral for mortgages continues to fall. According to the National Association of Realtors, the median price of an existing home sold in August 2011 was down 5.1 percent from August 2010.

Realtors: I had a nice house for sale once. The buyers looked at it 3 times, then their Realtor said they loved everything, but could not get past the “plastic” windows.

They were metal clad wood, dual pane windows.

Clipped from The 5Min. Forecast…

Here’s an eyebrow-raiser on a Wednesday morning: The feds have revised their lawsuit against an online gaming site called Full Tilt Poker.

Not only was it violating the gambling laws, prosecutors say, it was “a global Ponzi scheme.”

Here’s how they say it worked: Members had deposited $390 million, but the site had only $60 million on hand. Turns out the proprietors had pocketed $444 million for themselves over the previous four years.

Leave aside the pot-kettle issue of the U.S. government labeling anything a Ponzi scheme. Ponder this: $60 million in assets, compared with $390 million owed to depositors? That’s only 6:1 leverage!

Before 2008, the major investment banks were leveraged nearly 40:1. Fannie Mae and Freddie Mac, nearly 80:1.

Now we know what Full Tilt Poker really did wrong: It failed to obtain a Federal Reserve charter.

So the Fed finally announces Operation Twist. Not many viable tools left in that bag now huh Benny boy?

I believe the Japanese Central Bank is joining operation Twist

http://www.youtube.com/watch?v=Vzu4FHAT3YA

add just one provision to the president’s bill and i would support it whole heartedly.

as a provision to the enactment of this legislation…mr. warren buffet must make public his 10 year prior income tax returns and all current and future income tax returns along with all related workpapers.

this provision will not be limited to mr. warrent buffets individual income tax returns but to include all related parties as defined under the IRC and related regulations…and to also include all foreign, domestic and state income tax returns, filings, and information returns.

If you pay attention, it won’t be a surprise when it happens.

MSNBC anchor CRAIG MELVIN: First, there’s some precedent here. What you write in your column of presidents who could have run for reelection but did not in the face of a hostile electorate, LBJ, ‘68, Truman in ‘52. Make the case for Obama sitting the next one out.

Chicago Tribune columnist STEVE CHAPMAN: We’ve got about as bad an economy as we’ve had since the Great Depression. It’s been going on for four years now. Unemployment is not falling, the economy is barely growing at all, and the forecasts are that it’s not gonna grow very much in the next year. So I think, given that, it’s hard for me to believe that the American electorate is gonna go to the polls next November and give Obama another four years, given that he’s had four years and the economy is no better. It’s really gonna work against him.

MELVIN: Well, you mentioned Hillary Clinton in your column, too, Steve.

CHAPMAN: Yeah. You know, she’s a person who’s run for president before.

MELVIN: Yeah.

CHAPMAN: She’s obviously very well known, has a lot of credibility, but I don’t think there’s anybody who would be credible as a Democratic Party nominee. Hillary is instantly credible. She doesn’t bear any credibility for the economic problems — and, in fact, she’s associated with a period of economic prosperity in the nineties when her husband was president. She also happens to be, according to the new Bloomberg poll, the most popular political figure in the country right now.

Was just over on LinkedIn. Seems that there’s an REIC-ster who’s asking people to write their Congress critters re: the burdensome 20% down payment requirement.

You’ll be pleased to know that all of the responders don’t consider 20% to be a burden.

http://news.yahoo.com/indian-govt-says-poverty-begins-below-50-cents-201642336.html

“India’s economic planning body has said any villager earning 50 cents a day is not poor and should not qualify for a government ration card — a figure condemned by experts on Wednesday.

In May, the World Bank criticised India’s anti-poverty schemes, saying they were ineffective due to corruption and mismanagement.”

So 1 pound of rice and 3 bananas per villager for 2 days wages at 50 cents per day (the proposed new poverty line).

37% of 1.2 billion (444 million people) live below the current poverty line (not stated).

Ha! Just watched Suze Orman on the 6pm ABC Nightly News telling people if they were more than 20% underwater and banks weren’t negotiating w/them that they should just stop paying and save the money until the bank comes after them w/foreclosure.

The news also stated that the only people that should buy in this market are those that were going to stay put for at least a decade, and had 20% deposit to put down.

Wow! This is just starting to get interesting.

HEARD ON THE STREET
SEPTEMBER 22, 2011

Fed Throws Banks a Curve Ball
BY DAVID REILLY

The Federal Reserve served up something of a double-whammy Wednesday for financial stocks.

The central bank said it would “twist” $400 billion of its $1.66 trillion in Treasury holdings into longer-dated debt. This was more than the $300 billion markets had been expecting, but a bigger surprise was that about 30% of the purchases would be in the 20- to 30-year range.
…

Twist and shout, baby!

The Fed Wants to ‘Twist’ While the GOP Shouts
John Hudson Sep 21, 2011

“The Twist” is back in vogue in D.C. but Republican lawmakers are fleeing the dance floor. Today, Federal Reserve Chairman Ben Bernanke is rumored to announced a plan dubbed “Operation Twist,” in reference to the 1960s dance craze, that will move money in its $1.7 trillion portfolio “out of short-term securities and into longer-term holdings.” It’s designed to boost the slumping economy by lowering rates on mortgages “and other consumer and business loans,” reports the Associated Press. However, last night Republican leaders, including Mitch McConnell and John Boehner, sent a letter to Bernanke urging him to resist new efforts to lower interest rates. So what is this new Twist and what are the pros and cons for implementing it?
…

It’s transparently obvious that Republicans care more about their Fall 2012 election prospects than they do about American workers.

Robert Reich’s Blog
The Republicans’ latest ploy to keep the economy lousy through election day

Republicans aim to block most or all of Obama’s jobs bill, and now they’re taking aim at Fed. chief Bernanke

By Robert Reich, Guest blogger / September 21, 2011

Whatever shred of doubt you may have harbored about the determination of congressional Republicans to keep the economy in the dumps through Election Day should now be gone.

Yesterday, in advance of a key meeting of the Federal Reserve Board’s Open Market Committee to decide what to do about the continuing awful economy and high unemployment, top Republicans wrote a letter to Fed Chief Ben Bernanke.

They stated in no uncertain terms the Fed should take no further action to lower long-term interest rates and juice the economy. “We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy.”

They didn’t threaten to “treat him pretty ugly” — as Texas Governor Rick Perry told his supporters last month he’d deal with Bernanke if he “printed more money” between now and the election.

But the threat was there. “It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitiated economic growth or reduced the unemployment rate.”

Translated: You try this, and we rake you over the coals publicly, and make the Fed into an even bigger scapegoat than we’ve already made it.
…
Robert is chancellor’s professor of public policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Clinton. He has written 13 books, including ‘The Work of Nations,’ ‘Locked in the Cabinet,’ and his most recent book, ‘Aftershock: The Next Economy and America’s Future.’ His ‘Marketplace’ commentaries can be found on publicradio.com and iTunes.

Why Jon Stewart can’t stop talking about Ron Paul

In an interview in Rolling Stone magazine, comedian Jon Stewart holds up presidential hopeful Ron Paul as an example of something that’s unusual in US politics: consistency.

By Peter Grier, Staff writer / September 19, 2011

Television host Jon Stewart holds the Emmy award for the ‘The Daily Show With Jon Stewart’ after winning for outstanding variety, music or comedy series, backstage at the 63rd Emmy Awards in Los Angeles on Sept. 18.

Jon Stewart just can’t stop talking about Ron Paul, apparently. There’s a long interview with “The Daily Show” host in the latest issue of Rolling Stone magazine, and in it Mr. Stewart holds up the libertarian GOP presidential aspirant as an example of something that’s unusual in US politics: consistency.

The subject comes up when Stewart is describing how much fun it is to pore through old tape looking for instances in which politicians have contradicted themselves. Airing that kind of thing is a “Daily Show” staple.

“You know a guy you’d have a hard time doing that do? Ron Paul, because he’s been consistent over the years,” says Stewart. “You may disagree with him, but at least you can respect that the guy has a belief system he’s engaged in and will defend.”
…

“This was more than the $300 billion markets had been expecting, but a bigger surprise was that about 30% of the purchases would be in the 20- to 30-year range.”

The current generation passes their debt to my children.

CNNMoney
The Fed’s twist won’t make the economy dance
By Nin-Hai Tseng, writer-reporter September 21, 2011: 4:03 PM ET

Long-term interest rates are already low and they aren’t doing much to spur economic growth. How will ‘Operation Twist’ change that?

FORTUNE – Throughout the economic downturn, the Federal Reserve has been torn by two responsibilities: Keep prices stable and institute policies to help the economy to grow.

Today, it appears officials are more worried about the troubled economy than inflation. In another unconventional move to boost an economy on the brink of a second recession, the Federal Open Market Committee said it would raise its share of longer-term Treasuries by $400 billion by June 2012.

Not all members agreed on this. Worried about inflation, Richard Fisher of the Dallas Fed, Narayana Kocherlakota of Minneapolis and Charles Plosser of Philadelphia voted against the program dubbed “Operation Twist,” similar to a move made with mixed results in 1961.

However, worries have been running high inside the central bank about joblessness and weak economic growth. The unemployment rate hovers at a high 9.1% and is expected to decline only gradually. And it doesn’t help the dissenters’ inflation argument when absolutely no jobs were created in August.

The idea behind Operation Twist is to hold long-term rates down further by buying up long-term debt. This would ideally allow people to get cheaper mortgages and companies to finance their operations at better rates.

But there’s more than one twist here. Fed officials have tried bold moves similar to this before. In June, the central bank completed a widely criticized program of bond purchases that essentially pumped $600 billion of newly printed money into the financial system. It sparked fears of inflation and, even though it helped send mortgage rates to record lows, it didn’t spur home purchases or refinancing.

Today’s move is technically different in that it aims to ease financial conditions without raising the amount of money circulating in the financial system. While it might allay inflation fears a bit, lowering long-term rates likely won’t help the overall economy much. After all, Freddie Mac’s latest survey shows the average rate on 30-year, fixed rate mortgages is at 4.09% — the lowest level in more than 50 years.

Admittedly, the Fed has shown its commitment to keep the economy chugging along. And right now, with the ongoing debt crisis in Europe unnerving investors worldwide, the U.S. economy needs all the support it can get.

But the Fed is running out out-of-the box prescriptions. It can only do much. Isn’t it time for Congress to act?

SMARTMONEY MAGAZINE
SEPTEMBER 21, 2011, 4:04 P.M. ET

Has Housing Finally Hit Bottom?
After yet another summer of bad news, an intrepid few think it might be a good time to buy real estate.
…
For homebuyer Barbara Weeks, the current Seattle housing market is the right place at the right time. Three years ago, the 74-year-old retired teacher found a condo north of the city that she adored but couldn’t afford. A month ago, she drove by it “just to see” and found a for sale sign — with a list price 34 percent lower. “I knew I had to get it,” Weeks says. And she locked in a 4.6 percent interest rate on her mortgage — the lowest rate of all the five properties she has purchased over the past 40 years.
…

Government by brinkmanship

Republicans and Democrats in Congress are squaring off again in a budget dispute that could force the government to shut down. That’s not what most Americans want from lawmakers.

September 22, 2011

Less than two months after a corrosive battle over the debt ceiling, Republicans and Democrats in Congress are squaring off again in a budget dispute that could force the government to shut down. That’s the third such threat this year, with another looming in mid-November. The impasse this time is a disagreement over how much to spend on disaster relief, and whether to cut other programs to offset some of the spending. This is the kind of disagreement that should be easy to resolve. Yet not only are lawmakers proving themselves unable to settle these disputes without resorting to brinkmanship, House Republican leaders are managing the budget process in a way that sets up one artificial crisis after another. That’s no way to govern.…

The global economy may be on the brink of another crushing downturn, but at least Americans can rest in peace over their cheap mortgages.

The Financial Times
Global Market Overview
Last updated: September 22, 2011 10:22 am
Risk assets rattled by Fed’s bleak outlook

By Jamie Chisholm, Global Markets Commentator
Traders work on the floor of the New York Stock Exchange

Thursday 10.20 BST. Growth-focused assets are taking a battering as fears over the global economy roil markets following pessimistic comments from the US Federal Reserve and evidence of slowing activity in China’s factories and across Europe.

The FTSE All-World equity index is down 2.4 per cent, after the Asia-Pacific region slumped 3.9 per cent to a 15-month low. European bourses are displaying a sea of red as the FTSE Eurofirst 300 stumbles 3.8 per cent. S&P 500 futures suggest Wall Street will lose another 1.9 per cent following Wednesday’s 2.9 per cent plunge.

Commodities are slumping, with copper off 4.9 per cent to a 12-month trough of $3.57 a pound, while traditional havens such as the dollar and Treasuries are in demand. The buck is up 0.7 per cent on a trade-weighted basis while 10-year US sovereigns are yielding 1.80 per cent, down 5 basis points and the lowest in several decades.

Strange stresses can be seen across credit markets. Germany’s 5-year credit default swaps, which track the cost of insuring Berlin’s sovereign bonds against default, have hit a record high of 105 basis points even as Bund yields hit record lows below 1.7 per cent. For context, Italian CDS have hit a record high of 550bp.

Clearly, investors who were hopeful that the Fed’s much-anticipated “Operation Twist” would bolster risk appetite have been sorely disappointed. The move has had its intended main effect, flattening the yield curve by pushing down long-dated US interest rates. US homeowners will welcome this as it should allow for cheaper mortgages.
…
Related

Fed launches $400bn ‘Operation Twist’
Money Supply A big twist
‘Twist’ is a sign of the Fed’s resolve
Fed fulfils bond market forecasts
Central banks seek to bolster economies

Here is some hollow comfort for U.S. stock market investors.

Trading Post.

Wall Street has given its immediate response to the Federal Reserve’s latest monetary policy decision. Now investors can look forward to parsing some microeconomic fundamentals when the US third-quarter earnings season gets under way in a few weeks.

Tobin’s equity Q

So how do stocks stand in valuation terms? One gauge is Tobin’s Q, the ratio of market capitalisation to the replacement value of assets.

Proponents of Q say the current reading shows US stocks are about 40 per cent overvalued versus the long-term average (see chart).

But John Higgins at Capital Economics argues this is not fair because big rises in corporate expenditure on intangible assets over recent decades are not adequately captured in net worth calculations, so “the actual degree of overvaluation is probably a lot less”.

Mr Higgins says this suggests the downside for stocks may be limited.

“Indeed, our view that valuations are not especially stretched from a historical perspective is the main reason why we expect the S&P 500 to end next year around its current level of 1,200 despite our gloomy prognosis for the US economy,” he concludes.