Are We Once Again In A Bear Market Now?
Readers suggested a topic on the current economic situation. “Are we once again in a bear market now?”
A reply, “Darnit, I seem to remember predicting that this country would go to pot in Summer 2011. It’s the only time they could allow it to happen and still have time for a ‘turnaround’ before the 2012 elections. Fannie’s 6% –> 4% will probably go nowhere and Op Twist is not enough liquidity and too hard for people to understand anyway. I suspect that somebody shut off the spigot, which is why BoA is rushing to the exits and why the stock market is reverting to goods and services.”
One added, “China’s been escalating their threats. Maybe they’ve finally made a move that supports the idea they finally mean it and we’ve moved beyond the saber rattling.”
Another said, “If I were owning both parties, I’l let them switch places in 2012. It will settle the sheep down for a while, while they wait for change that isn’t on its way.”
One had this, “Let’s look at some basic facts: America is old and tried and broke.”
A reply, “I take it your a non-skateboard, non-iPhone, non-wii-chess user. How about Kite-surfing ever try that?”
The Associated Press. “The world economy is in a world of hurt. Europe is wrestling with a debt crisis. Economic growth in powerhouse China appears to be slowing. And in the United States, political paralysis has left policymakers with few tools to fight a slowdown.”
“U.S. markets sank this week even though the Federal Reserve offered a bigger dose of economic stimulus than investors had expected: The Fed plans to reshuffle $400 billion of its investments in hopes of pushing down interest rates on mortgages and other long-term loans. But economists say the Fed’s effort probably won’t make much difference. Rates on mortgages and other loans are already the lowest in decades. The Fed’s announcement underscored the fear that the American central bank had run out of tools to stimulate the economy.”
“Despite China’s rising power, experts say its economy is still not big or strong enough to compensate for meltdowns elsewhere: Chinese investment and spending is only one-sixth that of the European Union and United States. ‘From a global perspective, China’s domestic demand is still way too small to offset the impact of a recession’ in Europe and the U.S., Deutsche Bank economist Ma Jun said in a report.”
“To make up for a 3 percentage point drop in growth in those economies, China would have to grow by 18 percent this year, he says. ‘This is mission impossible.’”
The Kansas City Star. “Kansas City Power & Light Co. officials were optimistic that 2011 would be the year the economy — and electric meters — started humming along again. But after six months some troubling figures emerged. The utility’s residential customers were using 4 percent less electricity than a year ago, when the numbers were adjusted for the weather’s ups and downs. Commercial and industrial electricity use also was down, but just 1 percent.”
“Frugal homeowners’ conservation measures, such as replacing inefficient furnaces and air conditioners, had something to do with the decline. But a starker symbol of the troubled economy also played a part: A growing number of vacant, foreclosed homes are using little or no electricity. ‘These are homes that were getting bills, and now they aren’t,’ said Chuck Caisley, a spokesman for Kansas City Power & Light, which has 725,000 residential customers in Missouri and Kansas.”
The Salt Lake Tribune. “Utah has the nation’s 10th-highest foreclosure rate in the country a new report shows. But the Beehive State, which has been in the top 10 for more than two years, has a foreclosure problem that pales in comparison to No. 1 Nevada, according to RealtyTrac. Nevada was followed by California, Arizona, Georgia, Idaho, Michigan, Florida, Illinois and Colorado.”
“There are about 3.7 million more homes in some stage of foreclosure now than there would be in a normal housing market, according to Citi analyst Josh Levin. ‘This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery,’ Levin said in a client note this week.”
The Providence Journal. “The average monthly rent in 2010 for a two-bedroom apartment in Rhode Island, $1,165, is more than 50-percent higher than it was in 2001, when it was $775. The ‘affordable’ rental price for a two-bedroom apartment, the amount that is 30 percent of the average private-sector wage in Rhode Island ($41,808), is $1,045.”
“Despite declines in home values, affordability continues to be an issue for home ownership as well, the report found. The income required to afford a $210,000 house (the 2010 median sales price) in Rhode Island is $64,766. But the median annual household income in Rhode Island is $54,120. Rhode Island’s unemployment rate, 10.6 percent in August, has been in the double digits since March 2009.”
“‘I still think we’re seeing the numbers artificially depressed due to delays [in the foreclosure process],’ said Joy Riley, broker-owner of Westcott Properties, of Providence, which specializes in selling foreclosed properties. As a result, ‘the shadow inventory of at-risk properties is continuing to grow.’ ‘There are hundreds of foreclosure cases in limbo due to the pending legal actions,’ she said. Riley said it’s taking close to 400 days to process a foreclosure.”
The Douglas County Sentinel. “Georgia ranked fourth nationally in foreclosure rates for the month of August, with Douglas County posting the state’s second highest foreclosure rate. Chris Collier, executive officer of the Westside Homebuilders Association, said seasonal factors may also contribute to a rise in foreclosures.’
“‘The summer selling season is coming to an end for people who want to buy homes before school starts. Banks may be saying that now that the season is over, they have no choice but to move forward with foreclosures. Government regulations can force banks to process foreclosures as well,’ said Collier.”
“Kim Hargrave, a real estate broker who works with Douglas County on neighborhood stabilization programs, was not surprised by the statistics. ‘I don’t see it getting better in the near future. We are trying to use local companies to get some foreclosures occupied. The county is doing a lot to try to combat that through classes for new homebuyers and other programs, but the biggest thing right now is we need more jobs,’ said Hargrave.”
What a mess the real estate market, banking system, and stock market are in. Corporate America has fleeced the middle class. The wealthiest Americans sit idle. Government is failing to provide any leadership. Voters need to wake up. It is going to take new policies, time and patience to get through this. Not sure if Americans have the patience or stomach of seeing our country’s standard of living drop. Every American needs to be concerned and involved.
‘It is going to take new policies, time and patience to get through this.’
OK, I’m sure a lot of people would agree with you. But, if you stick your neck out and propose “new policies”, be prepared to be called a “dangerous, unelectable extremist.” The gatekeepers on who is “acceptable” to hold office in this country hold a mighty grip on the election process.
Even FDR policies were radical. FDR even shut down the banking system and imposed moratoriums on foreclosures from being prosecuted. I wonder what would happen if all borrower’s on residential mortgage’s were to stop paying their mortgage would that at least get the governments attention?
“…hold a mighty grip on the election process.”
Not to mention their grip on policies aimed to prop up too-big-to-fail zombies that would have otherwise collapsed in the wake of the Fall 2008 financial meltdown…
… and be prepared to have all of your policies filibustered in the Senate via the wimpy cloture rule. This applies to either party.
“….fleeced the middle class.”
I prefer ” A parasite that has killed the host.”
New policies? What, like 20% down, letting failing businesses bankrupt, progressive taxation, comparatively limited budgets, and all that stuff that we used to do?
New rule requiring 20-percent mortgage down payment unlikely
By Kenneth R. Harney / The Nation’s Housing
Sunday, September 25, 2011
Remember the proposed requirement from six federal agencies that home buyers make down payments of at least 20 percent if they want the lowest interest rates?
Remember the controversy that erupted over the plan last spring, when labor unions joined with bankers, civil rights groups, mortgage companies, real estate agents and consumer advocates to try to make sure it didn’t take effect? A bipartisan group of 39 senators and more than 250 Democrats and Republicans in the House even signed letters demanding that the agencies ditch the proposal on grounds that it would greatly harm a housing market in deep trouble.
Half a year has passed since then, so here’s an update: The 20-percent proposal is still alive, but it’s temporarily bogged down in agency reviews of the roughly 12,000 comments filed by interest groups and individuals. It almost certainly would not be ready for adoption until the first quarter of 2012. Even then, there would be a mandatory one-year lag before the requirement could take effect, pushing the issue into 2013 — well after the presidential and congressional elections.
But can it survive that long in its current form, given the rip currents of the political year that’s getting underway? The agencies themselves — the Federal Deposit Insurance Corp., the Treasury’s Office of the Comptroller of the Currency, the Department of Housing and Urban Development, the Federal Reserve, the Securities and Exchange Commission, and the Federal Housing Finance Agency — are officially remaining mum on the proposal during the comment review.
The group includes strong proponents of the 20-percent rule who argue that the “qualified residential mortgage” language Congress adopted in its 2010 Wall Street financial reform package requires them to devise a national standard for safe, low-risk home mortgages based on historical data on default and foreclosure risk. One of the statistical indicators of risk, based on studies of Fannie Mae and Freddie Mac mortgages, they say, is the amount of equity a borrower has in the property: The higher the initial equity, the lower the probability of foreclosure. Any standard that does not include down payments, proponents insist, will be deficient.
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A 20% down payment requirement would, indeed, absolutely hammer housing prices.
It’s NOT a requirement. ALL the rule says is that you don’t have 20% down, the bank has to hold 5% of the loan when they sell the loan on the secondary market.
That’s it FIVE PERCENT of the loan. And this is enough to “crash” the housing market? Now we know just how dependent banks were on unloading those loans before the ink was dry. They were so dependent that 5% is enough to break them. Disgusting.
“What a mess the real estate market, banking system, and stock market are in. Corporate America has fleeced the middle class. The wealthiest Americans sit idle. Government is failing to provide any leadership.”
Don`t be such a Gloomy Gus, look at the bright side….
Food stamp use rises to record 45.8 million
By Blake Ellis August 4, 2011: 5:03 PM ET
http://money.cnn.com/2011/08/04/pf/food_stamps_record_high/index.htm - 55k -
“…the Federal Reserve offered a bigger dose of economic stimulus than investors had expected: The Fed plans to reshuffle $400 billion of its investments in hopes of pushing down interest rates on mortgages and other long-term loans.”
What does restacking the deck chairs on the Titanic have to do with stimulus?
Me confused…
“Chinese investment and spending is only one-sixth that of the European Union and United States.”
Sounds like it’s SOL time for the global Ownership Society, as American and European investors are pretty much sidelined by the never-ending solvency crisis, while the little-engine-that-could across the Pacific isn’t quite big enough to fill the gap.
This is part of the narrative that the PTB try and sell. Back in 2005 it was regularly reported that China was buying huge amounts of GSE debt and financing the US housing bubble. But there was never any proof of that. I’ve posted some recent reports that real estate is the majority of China’s GDP now. Look at the gap between rich and poor there! With the RE bubble about to collapse, they are in worse shape than the US.
The idea that China is some powerhouse, based on making and selling crappy products to the west, is part of the globalization myth. See, these countries where the factories are going were supposed to be building a middle class that will carry us all into an era of global prosperity. And it just ain’t so. All these yeas after NAFTA, look at Mexico. Jeebus, it’s worse than the dark ages down there.
“All these yeas after NAFTA, look at Mexico. Jeebus, it’s worse than the dark ages down there.”
Woman Decapitated in Mexico for Web Posting
By MARK STEVENSON Associated Press
MEXICO CITY September 25, 2011 (AP)
Police found a woman’s decapitated body in a Mexican border city on Saturday, alongside a handwritten sign saying she was killed in retaliation for her postings on a social networking site.
The gruesome killing may be the third so far this month in which people in Nuevo Laredo were killed by a drug cartel for what they said on the internet.
http://abcnews.go.com/Technology/wireStory/woman-decapitated-mexico-web-posting-14600050 - -
That’s not the Multi-Nationals/NAFTA lover’s problem.
And it won’t be, until the drug gangs start trashing their factories.
The it will morph into a “War on Terror”. Bogus communications between Al Qaida and the drug gangs will be produced. Rumors of “weapons of mass destruction” south of the border will pop up.
Soon, we’ll need to “invade Mexico to save it”.
Well connected gringos in will get no-bid contracts to provide security for all those factories in Nuevo Larado. Supplies will “disappear”, and we’ll find out that we are supplying the arms of both sides (…..actually, we know that already. Go ATF! ).
At least the logistical supply lines will be a lot shorter.
Totally predictable. As the saying goes, when the only tool you have is a hammer, everything looks like a nail.
I don’t think we’ll occupy Mexico, but I think it is reasonably likely that NATO troops will occupy Greece if its own military doesn’t produce a coup.
“I’ve posted some recent reports that real estate is the majority of China’s GDP now.”
This is gonna end ‘worse than expected.’
So GDP consists mainly of those condos in the cities that are selling for 54x income?
Check out China’s ghost cities. They have entire cities the size of San Francisco which are completely devoid of people.
Sounds unsustainable, no?
Heh. I have a relative from another Latin American country who accepted a job in Mexico City a couple of years ago. He is now departing. Last month a severed head was found on the sidewalk in his neighborhood.
‘This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery,’
Nothing a little castor oil can’t fix…
I’m not sure that even the castor oil will help.
People around here are losing jobs/income at a faster rate than house prices are falling.
And nobody in their right mind is going to buy a house if there is any chance whatsoever you might lose your job, because the only replacement jobs around here pay $8-12/hour.
“But the Beehive State, which has been in the top 10 for more than two years, has a foreclosure problem that pales in comparison to No. 1 Nevada, where 1 in every 118 households received a filing in July, according to foreclosure-tracking company RealtyTrac.
Nevada was followed by California (1 in 226), Arizona (1 in 248), Georgia (1 in 346), Idaho (1 in 348), Michigan (1 in 349), Florida (1 in 376), Illinois (1 in 424) and Colorado, No. 9 with a rate of 1 in every 439 households receiving a filing.
Nationally the foreclosure rate is 1 in every 570 U.S. households, said RealtyTrac.”
It’s the “in July” that stands out here. 1 in every 570 U.S. households receiving a foreclosure filing doesn’t sound too bad, unless that is the rate for just one month.
For instance, assuming the same houses are not receiving foreclosure notices over different months, and that the recent rate of foreclosures keeps up over the following twelve months, that “1 in 226 homes in July” for CA translates into “12 in 226 homes in a year” — i.e. about 1 in 20 homes over a year’s time.
Got shadow inventory?
And if this goes on for a decade……….
It won’t ever get to 100% of all homes, but it is sure to turn out ‘worse than expected’ in a way that ‘nobody could have seen it coming.’
“about 1 in 20 homes over a year’s time”
That sounds about right. Looking at the county property appraisers map the biggest problem is not the houses that sold at peak fantasy levels, it is the amount of existing homeowners who refied their houses up to those peak fantasy levels. In the neighborhoods I look in the refi crowd vastly outnumber the houses that were bought and sold at or near the peak.
Fleeced by The Donald!
Baja land deals end in lawsuits
Written by Sandra Dibble
8:39 a.m., Sept. 25, 2011
Dawn Nicoli and her husband, Bruce Hoey, paid $375,000 for oceanfront property in a development planned in Rosarito Beach. The land remains vacant, and the two are trying to get their money back. / Photo by David Maung
Nearly 200 people have joined a lawsuit seeking the return of more than $20 million in deposits from the proposed Trump Ocean Resort in Tijuana.
————————————————————————————-
Baja California coastal real estate was booming in late 2006 when Dawn Nicoli and her husband, Bruce Hoey, bought into the upscale La Esmeralda development planned in southern Rosarito Beach.
The Escondido couple said they felt safe paying $375,000 for two parcels of prime oceanfront property. They trusted their American real estate agent and the U.S. firm she represented, Realty Executives, and felt encouraged by their positive first experience buying property from her in Mexico.
But more than four years later, the land is nothing but a vacant lot. The couple has filed lawsuits on both sides of the border in their increasingly frantic struggle to obtain a refund. The property has a $1.8 million lien, and the Mexican company that took their money, Empresa Constructora Fortaleza, has long since closed shop.
The case is one of several involving Americans who said they mistakenly placed faith in U.S. real estate franchises or projects promoted by U.S. companies in Baja California. While affiliation with well-known U.S. firms or names may be a powerful marketing tool, it confers no special protection in Mexico.
Experts said buyers can safeguard themselves far more by asking lots of questions, seeking out qualified attorneys or other independent consultants, and understanding what they are signing before they hand over large sums of money. Title insurance and escrow accounts — even though not mandatory in Mexico — are now widely available and offer a measure of security.
“The vast majority of people buying in Mexico have done it safely,” said Christopher Hill, chief executive of Stewart Title of Latin America. But in a different legal system and without some of the checks and balances that are standard in the United States, U.S. consumers are advised to exercise “an additional level of self-protection and due diligence,” he said.
Rule No. 1: Don’t pay for a property until you have the title. “Until you get the piece of the paper with the title, the home is not yours,” Hill said.
Seeking remedy after the fact can be a lengthy, confusing and costly process.
More than two years have passed since buyers of Trump Ocean Resort filed suit in Los Angeles Superior Court seeking the return of more than $20 million in deposits. The lawsuit now involves nearly 200 people, many of whom said they were drawn to the project because of its association with New York real estate magnate Donald Trump.
When the project was unveiled in 2006, Trump told the Union-Tribune that he was “a significant equity investor” in the planned hotel-condo project in Tijuana. It later turned out that he only allowed his name to be used for marketing purposes.
The developers — Los Angeles-based Irongate and its Mexican counterpart, PB Impulsores — lost their financing in 2008 when a construction loan fell through, and the project was scrapped early in 2009. By then, $32 million in buyers’ deposits had been spent.
Trump has distanced himself from the project since terminating his license agreement in January 2009.
…
Is it considered a badge of honor among mom and pop real estate investors to have been fleeced by The Donald?
“While affiliation with well-known U.S. firms or names may be a powerful marketing tool, it confers no special protection … .”
_____________________________/
This statement needs to be at the very top of the very first page of any prospectus on a Latin American investment opportunity.
It looks like among countless other collapsed bubbles, the Spanish bullfight bubble has popped.
In Catalonia, a Last Day of Bullfighting
Emilio Morenatti/Associated Press
Barcelona’s bullring was filled to capacity for the city’s final day of bullfighting Sunday.
By RAPHAEL MINDER
Published: September 25, 2011
MADRID — Catalonia bids farewell to bullfighting on Sunday with a corrida in Barcelona’s Monumental bullring featuring José Tomás, probably the country’s most popular matador.
Jose Tomas was among the top Spanish bullfighters performing on the final day.
Despite the fact that the Catalan regional Parliament voted last year to ban bullfighting, this final fight later on Sunday is a sellout, expected to fill the 20,000-seat arena with cheering spectators.
But such frenzied demand for bullfighting is no longer the norm these days in Spain. Not only have animal rights activists increased pressure to outlaw the fights — as was the case in Catalonia — but bullfighting is also confronting a financial crisis that has forced public subsidy cuts to local venues that once relied on them.
The number of bullfights held in Spain has fallen by just over a third since the onset of the financial crisis — to 1,724 last year from 2,622 in 2007, according to government data. For the month of August alone, the drop over the same period was 50 percent, underlining the extent to which smaller, debt-saddled towns have abandoned the bullfighting spectacle that was long the highlight of their summer festivities but that they can no longer afford.
The woes of the bullfighting business have also been acutely felt in the countryside, where bull breeders are enduring the same boom-and-bust scenario that has unfolded in Spain’s property sector. In fact, many of the newcomers to bull breeding are also construction entrepreneurs, who often bought farming land for its gentrified status.
“The number of farms grew in an uncontrolled manner,” said Carlos Núñez, president of the Unión de Criadores de Toros de Lidia an association that represents 367 bull breeders across Spain. The resulting oversupply means that, if not close to bankruptcy, “many of them are now up for sale,” he said.
…
Thank goodness. Bullfighting is an absolutely disgusting display of barbarism.
I keep waiting for our football bubble to pop. I was telling someone just last week that I felt the sport had metastasized to the point where it was turning me off. You should see the amounts that are paid in this state just for high school football facilities.
Congress’s game of budget chicken seems to have morphed into a prisoner’s dilemma game.
Congress Reluctantly Pulled Toward Shutdown
FEMA funding dispute threatens a government shutdown neither side wants
By Alex M. Parker
September 23, 2011
The leaves are turning. Tailgate parties and gridiron are dominating college campuses. Baseball playoffs are around the corner. About the last thing anyone wants to disrupt this early fall is another bruising game of chicken over the federal budget. And yet, something is slowly pulling Congress is slowly being pulled toward another government shutdown, over an issue which doesn’t even represent half a percent of the discretionary federal budget.
…
Sept. 25, 2011, 9:00 a.m. EDT
Standstill economy needs rest from stress
The best investors and consumers can hope for is no bad news
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — As the U.S. teeters on the brink of another recession, the absence of bad economic news is probably the best that can be hoped for.
If that’s the case, this week might not be so bad. None of the main indicators — new home sales, durable-good orders, personal spending and consumer confidence — are forecast to show sharp declines.
Of course, none of those reports are expected to show healthy increases, either.
“Growth has basically come to a standstill,” said Ryan Sweet, senior economist at Moody Analytics.
Perhaps the biggest drag on domestic growth right now are events overseas. Europe is still divided on how to rescue debt-riddle Greece and shore up the continent’s financially weak banks.
Fresh concerns have also emerged about a slowdown in China, whose hunger for foreign goods has helped Western exporters and whose abundant capital has helped underpin U.S. and European borrowing.
Jitters about events abroad contributed to a big selloff in U.S. stocks last week. Investors are likely to remain quite anxious until Europe coalesces around a rescue plan that appears credible.
“Every country has its own agenda, but hopefully they will step back and realize that this what they have to do,” said Jennifer Lee, senior economist at BMO Capital Markets. “We need some sort of resolution in Europe — all this chatter about whether Greece will default is not helping.”
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you don’t hear a lot of this from our press.
http://youtu.be/cG_TKAJyV6k
Bank of America activists get theatrical
Local group finds inventive ways to protest bank’s foreclosures
By Jerry Kronenberg
Sunday, September 25, 2011
Hub activists have begun protesting Bank of America foreclosures using “street theater,” from leaving a vacant home’s trash on an executive’s doorstep to sneaking into a business breakfast to hand out anti-B of A muffins.
“We feel this is a fun way to raise our issues while using some levity and humor,” said Jason Stephany of MassUniting, one of the groups behind the protests. “We’re not trying to be confrontational. We just want to give a voice to those families who have been victims of foreclosure and predatory lending.”
Activists got the ball rolling a few weeks ago by sending letters to Bank of America CEO Brian Moynihan at his office and Wellesley home to demand the bank do more to prevent foreclosures.
Getting no response, protesters began sit-in-like demonstrations at local Bank of America branches, armed with signs and leaflets but not actually blocking bank operations.
Two MassUniting organizers upped the ante further on Sept. 13, sneaking into a Greater Boston Chamber of Commerce breakfast dressed as servers and handing out muffins reading, “Bank of America: Bad for America. Bad for Massachusetts.”
Robert Gallery — who’s both Bank of America’s Massachusetts president and the chamber’s chairman — was hosting the event.
“A few people who took muffins actually thanked our ‘servers’ before the chamber figured out what was up and asked us to leave — which we did,” Stephany said. “There was no confrontation.”
Activists next cleaned up the yard of an abandoned Malden home that BofA has foreclosed on, bringing bags of trash to nearest Bank of America branch.
…
The Global DOW is looking fairly ursine these days:
52-week high = 2,270.47
Current level = 1,694.15
Percentage decline off peak =
100*(1,694.15-2,270.47)/2,270.47 = -25.4%.
Isn’t a mere 20% drop in equities considered bear market territory?
Global Dow Realtime USD
DJI: GDOW
Market closed 1,694.50
Change -5.92 -0.35%
Volume 76.13m
Sep 25, 2011 8:34 p.m.
Previous close 1,700.42
Day low 1,694.15
Day high1,700.55
Open: 1,700.42
52 week low 1,671.26
52 week high 2,270.47
Vanishing patience
Updated: 2011-09-24 07:55
(China Daily)
Worldwide financial panic and a rising tide of anger on both sides of the Atlantic indicate that public faith in a lasting global recovery is wearing out faster than expected. Therefore, policymakers from Europe and the United States can no longer avoid taking their fundamental economic and financial problems by the horns.
The annual meetings of the International Monetary Fund (IMF) and World Bank in Washington is a chance the international community has got to review the progress made, if any, in fighting the global slowdown. More importantly, it is time to drive home a badly needed sense of urgency among global policymakers that a double dip would become imminent if they do not do enough to stimulate real and sustainable growth.
On Thursday, stocks plunged about 5 percent across Europe and more than 3 percent in the US. Though the situation in developing markets is better, they are showing high levels of stress.
Perhaps global investors have begun losing confidence in the “ease answers” Western policymakers have come up with. Financial gimmicks, such as quantitative easing, may have eased some pain but they have failed to boost job-creating growth in developed but debt-laden countries.
The strike in Greece against the government’s fiscal austerity measures and the protest in Wall Street against greedy capitalists have exposed how unjust the quick fixes are. Massive bailouts using public funds have saved big banks on both sides of the Atlantic, but now the public, especially the poor, are being made to bear the brunt of their governments’ deficit cuts.
The unjust “ease answers” will add to the domestic difficulties of policymakers in rallying enough public support to overhaul their troubled financial and economic systems with necessary and shared sacrifice from everyone.
Worse, some politicians in the debt-laden developed countries have irresponsibly blamed other countries for their domestic economic woes, further undermining global efforts to tackle the financial crisis through coordinated international action. In the latest example, some US senators unveiled a legislation bill on Thursday to punish China for its alleged currency manipulation.
At a time when the world economy is “entering a dangerous phase”, such China-bashing will do nobody any good. Instead, it will spark fears among investors and the public about the dim prospects of global growth, especially if relations between two of the world’s largest economies worsens.
…
Gloomy banks brace for Greek default
September 26, 2011 - 10:38AM
Bankers are bracing for a Greek default, and their best hope is that Europe can erect firewalls around the banking system strong enough and soon enough to prevent it from spreading to other euro-zone countries.
So gloomy were bankers from major financial institutions, attending a conference on the sidelines of the International Monetary Fund/World Bank sessions, that they compared the risks of financial market contagion to the collapse of Lehman Brothers.
“The direct financial exposure in the European banking system is extremely manageable. What’s the indirect impact? You’re going to have one massive demand shock,” said Vikram Pandit, Citigroup’s chief executive.
“The fact is we should all expect some sort of a GDP impact if you have a demand shock that’s going to be that significant and that’s going to have an impact on business.”
The biggest fear is that Greece defaulting on its 340 billion euros in government debt would trigger widespread selling of euro-zone debt causing a much broader financial crisis.
“It is very pessimistic,” said another senior commercial banker at an international financial institution. “It (Greek default) is what we have to prepare for. I don’t think it is the most likely scenario, but we have to be prepared.”
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EUROPE NEWS
SEPTEMBER 26, 2011
The Debate: Seeking Ways to Boost Firepower of Europe’s Bailout Fund
By MARCUS WALKER And CHARLES FORELLE
Many euro-zone leaders say they are willing to consider the idea of boosting the firepower of their bailout fund, but they haven’t agreed on whether to move forward, in part because they aren’t sure how they can do it.
At the International Monetary Fund gathering in Washington, in recent days officials from the U.S. and other major economies have urged the euro zone to leverage its bailout fund—by letting it borrow money more flexibly—to bolster investor confidence in Europe’s bond markets and banks.
The bailout fund, called the European Financial Stability Facility, or EFSF, is widely seen as too small to intervene credibly in bond markets.
“Anything that’s clearly finite and not very big is a sitting duck for the hedge funds,” says one Berlin official.
…
EUROPE NEWS
SEPTEMBER 25, 2011, 7:32 A.M. ET
Euro Crisis to Hurt Ireland’s Deficit-Cutting Efforts
BY SUDEEP REDDY AND LAURENCE NORMAN
The global slowdown and escalating crisis in the euro zone will hit Ireland’s economy next year and weigh on its deficit-cutting efforts, Irish Finance Minister Michael Noonan said.
Propped up by an international rescue package since last year, Ireland finally seems to be emerging from a deep recession triggered by a banking crisis and the bursting of a housing bubble. But just as it turns the corner, the country faces new headwinds as its major trading partners–the U.S., U.K. and euro zone–come under pressure. “The European economy has gone flat,” Mr. Noonan said in an interview Saturday.
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September 25, 2011 7:45 pm
Operation Twist has investors moving
By Michael Mackenzie and Dan McCrum in New York
Investors are responding to the Federal Reserve’s new easing policy by unwinding trades that benefited from a weak dollar and the prospect of higher inflation.
Traders are selling oil, gold, inflation-linked bonds, equities and emerging market securities as the Fed has moved away from previous policies that fanned worries that the strength of the US currency was being reduced.
The central bank’s introduction of Operation Twist marks a departure from its two rounds of quantitative easing, which saw the Fed buying bonds. Now the central bank is selling shorter-term Treasury holdings, and buying long-term debt and mortgage-backed securities, as part of an effort to dramatically lower market interest rates.
The move is seen by analysts and traders as a renewed attempt to help homeowners via lower mortgage rates, and a break with policies that pumped up global financial asset prices via a weaker dollar.
Alan Ruskin, strategist at Deutsche Bank, said: “The market has delivered its initial verdict – without an expansion of the Fed’s balance sheet the US dollar is a natural beneficiary.”
Prya Misra, rates strategist at Bank of America Merrill Lynch, said: “The Fed is signalling it is ready to act to support mortgage refinancing activity.”
Since the Fed ended QE2 in June, many asset prices have endured a bumpy ride, with the dollar benefiting from safe haven flows.
Selling pressure sharply intensified last week when details of Operation Twist emerged and policymakers warned of “significant downside risks to the economic outlook, including strains in global financial markets”.
Since the Fed concluded its meeting, gold alone has tumbled 8 per cent to $1,656 an ounce, while US oil prices dropped from $86 to below $80 a barrel, their lowest level in more than a year.
The sell-off in global equities accelerated last week, pushing the FTSE All World index into bear market territory, with a drop of more than 20 per cent from its high in May.
In contrast, the dollar reached its highest level in seven months with a jump of 1.9 per cent on a trade-weighted basis in the wake of Operation Twist.
“The QE2 trade of selling the dollar and buying commodities is in reverse and will continue,” said Richard Gilhooly, strategist at TD Securities.
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COMPANIES
Superyacht industry battles strong headwinds
7:49 AM
The Monaco Yacht Show is where yacht makers, designers and brokers traditionally meet to market the world’s biggest and most expensive superyachts. But with the supply of boats outstripping demand and financial markets in turmoil, the question is: ‘Where are the buyers?‘ Victor Mallet reports
I’m proud to note that I immediately flagged this shoe-shine boy moment four years ago when this article was published.
THE WEALTH REPORT
MAY 25, 2007
Flip That Yacht
Rich Buyers Sell Unfinished Boats, Reaping Millions in Profits
By ROBERT FRANK
Terry Taylor, a Florida car dealer, has purchased five yachts since 2001. But don’t expect to see him anchoring off the coast of Cannes this week. Mr. Taylor is boatless, having sold all of his yachts to other buyers for huge profits.
Check daily posts on Robert Frank’s blog, The Wealth Report.
“I wouldn’t feel too bad for Terry,” jokes Felix Sabates, a partner in Trinity Yachts of Gulfport, Miss., which built Mr. Taylor’s boats. “He’s probably made more money off those boats than we did.”
Mr. Taylor is part of a new breed of wealthy boat buyers: yacht flippers, who sell their costly purchases often without taking them on a single cruise.
With demand for large yachts far outstripping supply, the market for half-finished or recently completed boats is soaring. Some buyers are selling their boats months before they’re ready, for millions more than they agreed to pay. Others are auctioning off their slots on yacht-builder waiting lines.
Today’s new rich, being entrepreneurial, can’t resist the lure of the deal even when it comes to the multimillion-dollar toys they are buying for their own pleasure. Yacht flippers are the superrich cousins of the real-estate flippers of the housing boom. Just as speculators bought Florida condos only to sell them, often unfinished, months later (which worked fine until prices fell), yacht flippers are banking on rising prices to buoy their investments.
“The risk, I guess, is that the yacht market collapses,” says Billy Smith, a partner in Trinity. “But with all the wealth that’s being created, there are no signs that that will happen.” That may be true today, but the yacht-building industry has a history of ups and downs that in some ways mirrors the real-estate market. Still, flippers are a tiny minority of yacht buyers, and their wealth should allow most of them to hold on to their boats if no buyers emerge.
The 180-foot Mia Elise was the fifth yacht flipped by Terry Taylor.
This year, the number of yachts under construction that were larger than 80 feet long soared to 777 world-wide, up 61% from 2003, according to Showboats International magazine. American yacht builders have been especially swamped, since the falling dollar has made their boats cheaper compared to their European competitors. Even though builders are expanding furiously, their production lines are backed up for years. Customers ordering one of Trinity’s $35 million, 161-footers today have to wait at least three years for delivery. Christensen, a Vancouver, Wash.-based builder, says the wait time for its two models — at 160 feet and 206 feet — is now about 3½ years. Westport, of Westport, Wash., which builds more standardized yachts, has a delivery period of about 20 months or less.
Like Ferrari and Gulfstream, which have waiting lists for their top cars and jets, some yacht makers don’t like to admit that their customers are profiting at the company’s expense. “That’s not how we operate,” says Philip Purcell of Westport, whose boats start at 100 feet long. “I’m not saying it doesn’t happen or that we can prevent it. I’m just saying that’s not what our customers are about.”
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Comment:
Between the Sword of Damocles hanging over the Greek economy’s, not to mention the rest of the global economy’s head, yet another threatened U.S. government shutdown, stubbornly high U.S. unemployment, and the I.M.F.’s gloomy global economic outlook, it appears the prospects for any kind of a near-term U.S. housing market recovery are a pipe dream.
Editorial: How Europe’s debt crisis threatens U.S. economy
Updated 2h 43m ago
Sometimes, trouble comes from where you least expect it, and today the gravest threat to Americans’ financial well-being comes not from the endless wrangling in Washington but from Europe.
By Spencer Platt, Getty Images
The continent’s debt crisis was blamed for last week’s 6.4% drop in the Dow, the largest since October 2008, but the problem has been simmering for much longer. If European leaders can’t come to grips with their problems, the impact will go beyond a hit to your 401(k) account.
The default of one or more European countries — Greece is in the worst shape, but Italy, Portugal and Spain are also on shaky ground — could bring down European banks. That, in turn, could trigger the type of financial panic that gripped the world after the collapse of Lehman Bros. three years ago, when swift, forceful government action just barely averted a depression.
It’s unlikely that such a crisis would be confined to Europe. Because the economies and banking systems of major countries have become tightly intertwined — and in ways that are not fully understood even by governments — American banks, insurers and others invested in European debt would be vulnerable.
For instance, several American money market funds had as much as 40% of their investments in Europe. They’ve been reducing their exposure. Meanwhile, capital from around the world has been pouring into the presumed safety of U.S. bonds. That’s why interest rates have been dropping despite Standard and Poor’s downgrade of the country’s AAA credit rating, and despite America’s own long-term debt problems.
International bankers and political leaders are scrambling mightily to avoid the disaster scenario. Last week, the U.S. and other nations urgently pressed European leaders to respond more forcefully than they have. The question is whether they’re willing or able to do so.
Europe, which accounts for a quarter of the world’s economy, has a common currency used by 17 nations, but it lacks the central governance to manage that currency effectively, and strong countries such as Germany and Finland are understandably unenthusiastic about bailing out their more indulgent neighbors.
It’s hard for U.S. lectures about fiscal responsibility to be taken seriously, given our massive deficit spending and political gridlock over controlling it, but the similarities between America’s financial crisis in 2008 and Europe’s today suggest reforms in three major areas:
•Lower debt. Last year, Greece had public debts of 143% of its economy, more than double America’s worrisome 62%. Greece’s public sector employs about 20% of the population, compared with 7% in the USA. That’s finally changing, but even so, substantial amounts of debt will still need to be written off.
•Higher capital. European banks treated borrowing by government, known as sovereign debt, as essentially risk-free, and at the same time their capital reserve requirements are less stringent than those in the U.S., greatly increasing risk to the public. Yet the banking world — in Europe and here — has begun to push back against reforms. This must not be allowed.
•Greater transparency. Investors and government leaders everywhere need a better idea of who owes what to whom through the exotic financial instruments called derivatives that have sprung up in recent years. In this country, Republican presidential candidates have called for repeal of legislation that would put the trade of complex derivatives onto more open markets so that investors can get a better idea of hidden risks. Repeal would be a huge, dangerous step backward.
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INVESTING
SEPTEMBER 25, 2011
Stocks—and Everything Else—Take a Big Fall
By GREGORY ZUCKERMAN
After seesawing through the summer between gut-wrenching triple-digit selloffs and euphoric triple-digit rallies, the stock market last week appeared to have finally made up its mind.
And it wasn’t pretty.
Yet another wave of concern over European debt and fresh fears that the U.S. is sliding back into recession whacked investments across the board, from emerging markets to gold futures, small caps to blue chips.
The Dow Jones Industrial Average of 30 big stocks tumbled 6.4%, the Dow’s worst week since Oct. 10, 2008. The broader Standard & Poor’s 500-stock index finished down 6.5%, while the tech-dominiated Nasdaq Composite dropped 5.3%. Asian and European indexes logged similar declines.
Oil prices fell 9.2%. Silver fell 26%. And even gold, the market darling of the past year, dropped 9.6%.
And adding insult to all those investors’ injuries: Yields on the benchmark 10-year U.S. Treasury note fell to 1.8% — a nice value boost for bondholders to be sure, but still just $18 annual interest income on a $1,000 bond.
Here are some questions and answers to explain how we got into this mess, where things go from here and what investors can do about it:
Q: What happened in the market last week and why?
A: For months, investors have been worried about European debt problems and weak growth in the U.S.
Last week, the Federal Reserve gave the U.S. economy a bleak prognosis. And while the Fed will buy long-term debt, to try to push down home-mortgage and other interest rates, it already has attempted to juice the economy with two major “quantitative easing” efforts over the past two years — with little impact.
There’s also little the government can do, as political and debt pressures make it impossible to launch a big spending program. As such, the U.S. economy will have to dig itself out of its hole without much help, a challenging task.
Q: Anything else worrying markets?
A: White-hot growth in nations such as China and Brazil once encouraged even gloomy investors. But signs are pointing to a slowdown in almost every market, adding to the jitters.
“The world is now in a synchronized slowdown,” says Mohamed A. El-Erian, chief executive of Pacific Investment Management Co.
Q: Why is there so much focus on Greece, a tiny nation?
A: Greece is only 2% of the European economy. But the country has piled up enough debt to worry investors. Greece is taking a series of painful steps to try to raise cash and reduce spending. And European nations and international bodies have forged a plan to trade new debt for old debt to fill Greece’s financing gaps to allow it to enact reforms.
But investors are growing more convinced Greece won’t be able to pay debt that’s expected to amount to nearly twice the value of its annual production, and that those who hold Greek debt will deal with losses.
Q: Why is that a big deal?
A: The fact that Greece shares a currency, the euro, with other European nations raises questions about the future of that currency.
Just as important, any Greek default could make already-skittish investors even less likely to lend to other European nations with heavy debts, such as Portugal, Ireland, Spain and Italy. That will force those nations to pay even more to borrow money.
Since most of these countries are much bigger than Greece, any additional problems could weigh on the global economy. Meanwhile, big European banks hold the debt of all these nations, something that has investors wringing their hands about the health of these banks.
Q: Are we in for another crash? A financial crisis? Is this just like 2008?
A: In 2008, subprime-mortgage problems infected all global markets. One thing learned from that downturn is how interconnected global economies are. If European banks take it on the chin, it could put pressure on other financial players and push an already-weak U.S. economy into a recession.
“If it is not careful, Europe is getting very close to tipping into a recession and a banking crisis,” says Mr. El-Erian.
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Another dumb comment (I have more than you can shake a stick at):
Yes, we now are once again in a bear market. Try not to catch yourself a falling knife, or to get yourself attacked by an angry bear.
Grizzly bear encounters are raising hackles
By Laura Bly, USA TODAY
Updated 9/2/2011 1:43 AM
Last week’s mauling of a Michigan hiker by a grizzly bear in Yellowstone National Park - the second fatal attack at the park in a month - is the latest in a lengthening string of bear-human encounters this summer.
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Yeah, the bears were a bit cantankerous this year.
California property
Beverly Hills flop
Even palaces are not immune to the downturn
Sep 24th 2011 | LOS ANGELES | from the print edition
IT HAPPENS a lot these days in southern California. A homeowner falls on hard times and has to move from his house, renting it out to make ends meet. But if that house happens to sit on a few acres of Beverly Hills, there may be one difference. The rent is $600,000. A month.
That is what Leonard Ross, a financier and socialite—his party buddies include Hugh Hefner and Prince Albert of Monaco—is asking for his Beverly House, as it is called. In the year since he himself moved out, he has already had two tenants, one “a Russian”, the other “a Middle-Easterner”. They are the sort for whom price hardly matters. What they want instead, he says, are security (bulletproof windows, monitored gates) and the “experience”.
That experience might be described as a caricature of Beverly Hills civilisation. The place is a palace—17 to 21 bedrooms, “depending how they’re used”, not counting the discos, saunas, cinemas and so forth. The style, if that is the word, is somewhere between kitsch and sublimity, with Graeco-Roman columns here, Babylonian motifs there, some Versailles and Neuschwanstein, a bit of Zen Buddhism, some stained-glass church windows, and so forth.
Uniquely Beverly Hills, in short. The roster of former residents reaffirms that message. The newspaper titan William Randolph Hearst once owned the estate, and died there. Jack and Jackie Kennedy honeymooned there (their thank-you letters are now framed on a wall). The house even had a bit-part in “The Godfather”, filmed in 1971, as the place where a movie mogul wakes to find his horse’s severed head in his bed. That experience is not included in the rent, though doubtless it could be arranged.
Economics focus
Bringing down the house
The effect of ageing on asset prices may make the rich world’s problems worse
Sep 24th 2011 | from the print edition
SINCE the bursting of Japan’s asset bubbles in the early 1990s, the country has undergone a long and deflationary process of debt reduction. During this period, Japanese policymakers have attracted criticism from (among others) Ben Bernanke, the chairman of the Federal Reserve, for their gradualist approach to reflating the economy. The critics’ charge is this: that although the Bank of Japan (BoJ) pioneered many of the policies that the Fed and others have since followed—such as committing to zero interest rates and increasing bank reserves by the alchemy of quantitative easing—the Japanese central bank still did too little, too late.
Things look rather different in Japan itself, where some say the problem lies in a lack of demand for loans from the debt-strapped private sector, rather than a lack of supply. This is the hallmark of a “balance-sheet recession”, a term coined by Richard Koo of the Nomura Research Institute to describe the process whereby households and companies pay down debts rather than embark on new spending.
In two speeches* this year, Kiyohiko Nishimura, deputy governor of the BoJ, has developed this line of thinking to help explain why Japan’s balance-sheet adjustment has taken so long. Mr Nishimura blames the prolonged slump on ageing, which is furthest advanced in Japan, but is also occurring in many of the world’s biggest economies. His central argument is that ageing depresses asset prices. That in turn makes deleveraging tougher because debt used to finance assets is harder to pay off without incurring losses. This, he says, may have grim repercussions for America and Europe.
The theory behind the link between ageing and asset prices is outlined in a recent working paper by Elod Takats of the Bank for International Settlements (BIS). In simple terms, the young and middle-aged save for old age by buying assets, often with borrowed money; the old sell them to pay for retirement. As the working-age population rises—as it did, for instance, after the baby boom—asset prices rocket because of increased demand. As baby-boomers reach retirement, the reverse may happen.
In his paper Mr Takats seeks to quantify this effect. He prefers to look at an international sample rather than data on single countries, because that enables more robust identification of the impact of ageing. He also focuses on house prices rather than financial assets, because they are less likely to be influenced by cross-border capital flows. Mr Takats applies two aspects of demography to BIS house-price data from 22 advanced economies: first, total population; second, the ratio of old people to the working-age population, or the old-age dependency ratio. Between 1970 and 2009, he finds that a 1% rise in GDP per person and a 1% rise in the total population each corresponded to about a 1% rise in real house prices. But a 1% increase in the old-age dependency ratio was associated with a 0.66% drop in real house prices.
Using United Nations projections, his analysis suggests that house prices will face strong headwinds in the next 40 years as populations age. American house prices, for example, will rise by about 80 basis points a year less than they would do if you strip out demographic factors, he reckons. For faster-ageing countries such as Japan, Germany and Italy, prices would fall by more than 1% a year, though he notes that other factors may offset the demographic effects and he does not expect a meltdown in prices.
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CLICK!
ECONOMY
SEPTEMBER 26, 2011
Pivot Point: Investors Lose Faith in Stocks
BY TOM LAURICELLA
European nations, flirting with recession, can’t agree on how to climb out from under their pile of debt. The U.S. is careening toward a budget fight that threatens to shut down the government. China’s mammoth economy may be downshifting.
And across the financial markets, a sea change is taking place. Investors are abandoning the time-tested “stocks for the long run” optimism that dominated since the late 1980s. Instead, there is a widening belief that the mess left behind by the housing bubble and financial crisis will be a morass to contend with for years.
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ECONOMY
SEPTEMBER 26, 2011
Europe Split on Rescue Plan
World Urges Swift Action; Germany Opposes Expanded Bailout; Anxiety at IMF
BY SUDEEP REDDY, BOB DAVIS AND MARCUS WALKER
WASHINGTON—European officials are debating ways to boost the firepower of their financial-bailout fund after the world’s finance ministers, worried about the potential for a market meltdown, ratcheted up pressure on euro-zone officials to act.
During meetings of the International Monetary Fund in Washington over the weekend, the U.S. and other major nations pressed European leaders to increase the effective size of their €440 billion ($594 billion) rescue fund to perhaps trillions of euros by borrowing against it.
The talks are at a early stage, and it is far from clear they can forge a political consensus to act.
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