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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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How can most non-rich Americans reasonably expect to live in the future? Looking at the big costs, food, housing, transportation, education for the young, health care in old age, years in retirement.
If it is less than in the past, what is the reason?
Is there an implied guarantee in this country that we should live as well or better than previous generations.
Most likely not, however, iffin’ a wide swath of citizens were determined to $traighten up and stay flying right (as in “not upside down”, not, constantly veering to the “other” left) I think the outcome might be: = or > than.
Progre$$, can be $wiftly made in leap$ and bound$ (put that Equity to WORK, you fool!), just watching the water/($avings) drip in to fill the pool seems almost monk like.
This “guarantee” was the result of the economic anomaly that was the USA circa 1945 to 1975, only because of the destruction of the industrial base of much of the rest of the developed world.
The “middle class” is dead. Most of the alleged middle class either are or soon will be nothing more than working-poor, Lucky Duckies.
“This “guarantee” was the result of the economic anomaly that was the USA circa 1945 to 1975, only because of the destruction of the industrial base of much of the rest of the developed world.”
On the contrary, it was because, having just survived a depression and won a world war, the average American was in no mood to return to the oligarchy that America had been prior to FDR’s reforms. Instead, they insisted that FDR’s reforms be not only maintained but strengthened, and succeeding presidents- Republican and Democrat- did just that, and the result was the creation of a large, stable middle class.
South America was untouched by the war’s destruction. Where was their great increase in the size and wealth of their middle class? It all went into the kleptocrats’ pockets, and never trickled down to the masses. As will happen when there is no rule of law over the elites, and no economic policy that truly benefits the people.
Is it safe to say that (1) RP is the only candidate who might potentially address these issues if elected, and (2) he is not electable?
What’s Plan B?
“RP is the only candidate who might potentially address these issues if elected”
Given that he wants to end Social Security and Medicare- two of the bulwarks of the middle class- and that he doesn’t support national health care coverage- something we desperately need if we are to continue to have a middle class- I would not say that RP offers much hope to America’s middle class.
I like that suggestion and I hope you don’t mind if I expand on it and ask for a discussion on when and how the portion of the 50% that have jumped a few income niches in living standards through the use of credit will realize they’ve got to start sloughing off their material items and assume the lifestyle they thought they’d left behind.
It’s occurred to me that the bubble has lasted long enough in duration that some of the younger set (young 30s and below) may not realize that a lot of what they think is normal is smoke and mirrors and so they’re not acknowledging how far back the system is going to correct, not to mention any overshoot.
But it’s really not just about that age group. I remember watching my college friends (’83) buying bigger homes, 1 year after graduation, than what their parents had built up to after 20-25 years together. Right off the bat they put all the bells and whistles in them. It kind of did work out for us 80s graduates who if they were smart stayed in one home and are having mortgage burning parties now. Well I’ll be the first to admit while they were paying down their mortgae I was dropping $50-$100 a night in the Boston dinner/bar scene. Now their kids are out of school a year and buying homes even when single. Not sure it will work out so well for them but I wouldn’t be surprised to hear their parents are explaining everything works out just fine if you take the long view.
they’re not acknowledging how far back the system is going to correct,
The poor will go back to 1890.
The middle class and their kids will go back to about 1947.
The rich will not go back at all.
The rich will not go back at all.
I think many will go back. The truly wealthy that manage and protect their wealth through more than buy and hold, they won’t go back at all because of that exec to worker income ratio balloon. IMHO that explosion has been about them maintaining their buying power after adjusting for the inflation they were using to their benefit. There are also the tax laws they’ve paid for through lobbying efforts that benefit their sector.
However, I believe a lot of people who think they’re “rich” will find they just rode the credit bubble up. Some were smart enough to know it was a limited gig and exited appropriately. Many grew their wealth cautiously and it is protected probably as well as anyone can through hedges. But others were caught unprepared and are too late to unload assets.
I’m watching this group like a hawk. Yeah, their condescension when we didn’t follow them into the maelstrom angered us. Some even accused us to our face of being jealous losers. I’d love to say to them: You had a beautiful ride but may lose what to you is “everything”. We had stability. Maybe we each got exactly what we wanted.
Agreed. A real worl example: The local Chrysler dealership (Ferrero), family owned for decades, was passed down to the next generation. The young pups moved the dealership to a Taj Mahal in an automall of I-25, even though there was an even bigger Taj Mahal Chrysler dealer (Iron mountain) just a few miles away of of US34.
In about 2 years Ferrero went out of business, follwed a couple of years later by Iron Mountain (which had 5 brands IIRC). Both borrowed to move and were counting on the local market to grow. Instead it shrunk.
The I-25 automall was supposed to have 20+ dealerships. As of today there are 4: BMW, Chevy/Subaru, Buick/Cadillac/GMC and MINI. In addition to the defunct Chrsler/Dodge dealer there is a defunct high end used card dealer (Lithia). Both of their gleaming facilities have been empty for years. The Ford dealer didn’t move and stayed put in their old school (and probably paid for) facility in town.
Speaking of Ford dealers in old school buildings, the really strange thing was the Boulder lost theirs…and not because it moved somewhere else. As far as I can tell they just went out of business a few years ago. And they didn’t go for the expensive new building by the interstate. I suppose it’s possible that they were owned by somebody else who did, though.
You have hit on one of the key reasons for the “lifestyle” concepts of this last generation…..massive credit, borrowing and “leverage”.
This compounded with a demographic that credits “expansion” as a model for economic stability.
Bombing Germany into a wasteland, Nuking Japan and marching across Europe certainly were major factors, as another pointed out;
we were the only economy left standing, which needed to be “re-tooled” to produce consumer products instead of guns and tanks.
And lastly, CHEAP energy. All civilizations get built on energy units.
The more machines were incorporated into modern life, the less human effort necessary. Machines are doing the work of hundreds of laborers.
This is all changing. We overspent. Overbuilt. Wasted fuel and energy by-products and we are beginning to see depletion. We have a “lifestyle” that demands constant energy consumption. It needs to change, but that will be stressful.
The entire suburban model of easy-motoring and drive-in food joints is a model for disaster. Modernization of major population areas like China, Brazil, India and even Mexico are consuming much of the energy that we took for granted. We import 70% of our oil. There’s a problem there. We’ve been talking about energy independence since the 70’s, when we had the first “shortages”.
We haven’t done anything but burn food and waste fertile ground as a substitute (forget solar and wind). Transport systems here run on GAS. We have no mass transport and the cities/towns/suburbs won’t support such a system without re-building the entire structure of American life.
I have a dismal view. I have an even more dire view when I hear people talk about “American Innovation” and how some “smart guy” is going to come up with a solution to all that. Even that idiot in the Whitehouse. We’ve been pushing out Americans for decades now and importing Indian, Pakistani, Egyptian, Chinese and other “educated innovators”. They haven’t really done much except take money out of silicon valley and formerly innovative companies. If you look at who the smart guys who really create great things its usually the white guys, who were once the backbone of America.
We’ve spent 40 years trying to “multiculturalize” the Country. I say we. I had no part in it.
But, the country has pushed out the white guys, in favor of a more diverse University population. We don’t send the smart guys to the university to solve problems. We push them aside for more diversity. As a result, I don’t see the problems getting solved. We’ve got the wrong team working on the job. And I am on strike.
The social-engineering bedwetter liberals will call this racist, but multiculturalism is a failure.
multiculturalism is a failure.
Put down that taco!, now.
Yeah, to see how virtually everything in our culture is derived from chep energy- from ferilizers to iPads - it will be a rude awakening when the last sources of oil dwindle. Drilling deeper, further offshore, oil sands, coal liquification, etc., I highly doubt that they are saving the best reserves for last. And then there’s topsoil and water table depletion, declining fisheries,… the list goes on and on.
The next generation will certainly have some challenges facing them.
I highly doubt that they are saving the best reserves for last.
It’s more than doubt. We blew through the best reserves first, since that’s what economics crossed with capitalism does: High efficiency in production. So we sucked out the cheapest and best (i.e. most value-producing) oil deposits first. Largely we didn’t suck those dry, since that’s not how deposits can be economically exploited… which is why we’re resorting to fracking and other such re-pressurization schemes. But all such schemes and all subsequent exploitations must be more costly, and that means the oil produced will be more costly.
I tell people that world oil discoveries peaked in the 1960s, and they either don’t believe me, or shake their heads sadly. The “adjustment” to petroleum starvation in the Western World is going to produce a lot more than just a few head shakes. We’re going to end up killing millions before we adjust. Well, more than millions, since due to a highly mechanized, energetic system of agriculture, arguably billions are alive today only because petroleum fuel allows them to be fed. Think about that for a second: Without cheap petroleum, billions of people that now exist just wouldn’t be alive at all. Hence, as we’ve run out of cheap oil anyway, there’s only one thing that’s going to happen to about 2 billion people in about 30 years: Death from starvation and war.
I’m not telling people to drive a GM Volt or to install solar electric panels, since such options are just too expensive and waste what little capital that we common Westerners have left; but I am telling people to stop with the consumption… voluntarily, before economics and your own governments stop you with force.
We import 70% of our oil. There’s a problem there.
Tanks, but Jimmay Cartier did blab on about this, like 32 years ago!
We have a
“lifestyle”life-form that demands constant energy consumption. It needs to change, but that will be stressful.Hey, in genetics that’s called pressure, …no pressure, no change…
(What you think humans are going to skedaddle the wobbling-spinning planet-that’s-now-too-close-ol’-sunshine on an all white vehicle with a Yugo logo?)
the country has pushed out the white guys, in favor of a more diverse University population.
You might be amazed about the true genetic makeup of your being, in fact, eyes reckon you’d might be down right in “Shock & Awe!”
(camera fades to black, only the image of a 10 gallon white-hat remains)
Don’t go outside yourself, ya might get cooties!
Absolutely agree with your observations on waste and restructure, but just for the record, the United States is a net fuel EXPORTER.
As to your increasingly strident racism, (and yes, it is both racist and tedious– and unworthy of Ben’s blog,)
“…the country has pushed out the white guys, in favor of a more diverse University population. We don’t send the smart guys to the university to solve problems….”
By your own argument, the “white guys” have not been “pushed out;” they’ve self-entitled themselves into mediocrity and gotten their butts whipped by the competition.
A cursory visit to google will bring up a long list of successful non-”white” innovators– beginning with that Arab-Armenian guy, Steve Jobs.
An acquaintance used to be in management at a small engineering company. Affirmative action advised him to hire 20% African American because the country is 20% AA. Acquaintance said he would hire the same % of AA’s as there were AA’s who graduated from the surrounding colleges with an engineering degree. If the eng grads were 20%, he’d be happy to hire 10%. If the eng grads were only 10%, he should hire only 10%.
He argued that by hiring at the level of total population level instead of level of qualified population, some of the hirees were clearly less qualified, but got the job solely by creed/color/etc. Until we have a truly color-blind society (we don’t), diversity hurts the company.
Not sure what the acquaintence ultimately did.
Not sure what the acquaintence ultimately did.
If he hired AA engineers like the two who’ve been clients of mine, that company will turn into a real stickler for quality.
The first AA engineer client is now deceased, alas. He was a good friend of the family, and we miss him. He was an intellectual’s intellectual, and it was always a pleasure to meet with him. You’d learn so much.
The second? Well, let’s say that he’s one of the foremost academic researchers in his field in this entire country. And doing design for him was a game of millimeters. As in, move that element a millimeter this way or that. I can tell you that most clients don’t view their projects with that level of precision.
Charlize Theron is an “African-American.” I used to work with a blonde-haired, blue-eyed fourth-generation American of Castillian descent by the name of Fred(erico) Martinez, who despite minor talent was in major demand because of federal hiring incentives. He used to joke he’d made a career out of providing “diversity.”
With globalization, racial designations are becoming increasingly absurd (just ask the mixed-mixed race kids who must figure out what demographic they best fit for their college applications- or our President, for that matter,) and within another generation or two will be as meaningless in fly-over country as they already are in the coastal suburbs, where Latino-Caribs marry Balinese-Swedes and name their children after Cherokee deities. Maybe we’ll have to go back to religion to separate us out from The Others….
where Latino-Caribs marry Balinese-Swedes
Hmmm … in all my years in SoCal I never saw that. My experience was that Hispanics marry Hispanics, and even then they didn’t cross tribal barriers (Mexicans married Mexicans, Salvadorans married Salvadorans, etc.). The few exceptions I saw were with middle to upper middle class Hispanics, and even then they were few and far between and it usually involved a fair skinned hispanic marrying an “anglo”.
There is a joke in my family, “there are those that left Pike County and those that stayed.”
Multiculturalism has enriched my life.
“If it is less than in the past, what is the reason?”
Demographics? More old consumers, less young producers?
Unfunded promises? More promised money than actual money?
A debt driven economy that can no longer acquire debt?
A consumer-based economy powered by consumers who are broke?
If it is less than in the past, what is the reason?
Mmmm… that the the 1%er’s are keeping all the money for themselves?
It can’t be lack of productivity, right?
The government will take most of the GDP just to pay interest on the debt, not much left for you or me.
How do 2 people survive in what has now become a 3 income household? As a necessity, not for procreation.
There are child-labor laws, you know -
Funny you would mention that; I’ve long called the HELOC trend the “third income”, to try to get people to understand how out of control American finances had become. There is no fourth income, so all that expansion had to STOP. And once it stopped, then it had to crash… which the government is desperately and constantly trying to delay and cover up. This must all end, and badly; I’m talking riots-badly, and soup-lines-badly, and then we’ll have the domestic terrorism (i.e. also badly).
> food, transportation
These are highly dependent on the cost of energy. So they will be markedly higher.
> housing
Will continue to fall and then stagnate for a generation. Sadly, too many will have not foreseen this, due to ideology, and will not be able to afford to buy with cash despite the cheapness.
> education for the young
This will continue to climb since it’s essentially a middle-class drug. But eventually (maybe 15 years from now) more and more people will reject it as an unnecessary cost. Lots of Americans now are hit with what’s effectively double taxation, since they pay their local property taxes for lousy local schools, while they send their kids to private schools on their own dime.
> health care in old age, years in retirement
We had it too good, and the time is here to pay the price. I just had a friend die at age 87. He expired from lack of nutrition in his own home, as he wished and as his family wished. There was no real possibility to keep extending his life at the cost of losing the family home. More and more people will have to make this choice, since economically there won’t be other choices.
And this trend of having people work longer and longer will hit the brakes as American industry will stop worrying about age-discrimination suits and just fire the old en masse.
Politicians Are Feces®
You’re insulting feces.
I just wiped my reaItor and gave a politician the swirly twirl.
MY politicians are good guys. They are promising to bring a lot more pork back to MY district. I am hoping to feed at the trough. They know what they are doing. Get some for me, now… Deficits don’t matter. See.
For how much longer is the foreclosure crisis scheduled to continue?
Red, White and Blue Chips Archives
Dec. 15, 2011, 11:48 a.m. EST
RealtyTrac: Two million foreclosures this year
RealtyTrac CEO Jim Saccacio says foreclosure activity this year has slowed to just two-thirds of last year’s levels, due to government interventions. But unless the economy picks up, foreclosures will pick up again early next year.
I also wonder if the foreclosures will be dumped more quickly once we get past this robo-signing drama. Sometimes I wonder if the stall tactic which leads to the house deteriorating in ruin is really so unplanned. Maybe it’s just a passive way of reducing inventory, which will, in effect, keeping prices supported. After all the US taxpayer backs all these failed mortgages. At least the ones held by Fannie, Freddie.
Here’s an interesting discussion that we could have:
Who gets the “lost” income when people quit paying their mortgage and refuse to vacate the property.
It’s really like failing to pay rent, without getting thrown out.
I think we should have the Courts rule that people who have a dispute about their mortgage should be forced to pay, and the assets held by a receiver or trust. If there is a dispute about the mortgage, then the Court can settle the account when the case is reviewed. It’s only fair.
Why should a deadbeat be allowed to occupy a mortgaged property and then walk away, usually after trashing the place? How much “free rent” is appropriate for a deadbeat? I say NONE.
Non-payments should be retroactive DEBTS receivable. Why should a lender or holder of an MBS be shafted because the ‘tenant’ refuses to vacate??>?
How much “free rent” is appropriate for a deadbeat?
A white deadbeat or a brown deadbeat Diogenes? Because that makes a difference to you.
Actually, no it makes no difference to me, at all. Laws should be enforced equally. I believe in equal treatment under the law.
I disagree with “preferential” treatment, which is what I am sure you would like to see.
Government “subsidies” for special groups, does not fall under “laws” as I see them. These are political patronage payouts. I take the same stance with corporate “welfare”.
I object to “illegal” aliens coming across the border, black, brown or white. Unfortunately, most are brown, so all the racist “latinos” favor more of “their kind” coming to join them here in My Country.
Then they take advantage of free food in schools, free education and a long list of “benefits” that should be reserved for citizens of the US of A.
But, I am also disturbed by putting people with no abilities in positions and places they don’t belong to achieve “racial balance”.
I am sure you favor all the “affirmative action” programs because to provide special preferences to incompetent and useless people.
Now that the economy is recovering, can we get on with prosecuting the Wall Street criminals, please?
US charges ex-Fannie, Freddie CEOs with fraud
By DEREK KRAVITZ, AP Business Writer – 1 hour ago
WASHINGTON (AP) — Two former CEOs at mortgage giants Fannie Mae and Freddie Mac on Friday became the highest-profile individuals to be charged in connection with the 2008 financial crisis.
In a lawsuit filed in New York, the Securities and Exchange Commission brought civil fraud charges against six former executives at the two firms, including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron.
The executives were accused of understating the level of high-risk subprime mortgages that Fannie and Freddie held just before the housing bubble burst.
“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, SEC’s enforcement director.
Khuzami noted that huge losses on their subprime loans eventually pushed the two companies to the brink of failure and forced the government to take them over.
The charges brought Friday follow widespread criticism of federal authorities for not holding top executives accountable for the recklessness that triggered the 2008 crisis.
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Is RP the next “Not Romney” Republican candidate on deck?
Op-Ed Columnist
G.O.P. Monetary Madness
By PAUL KRUGMAN
Published: December 15, 2011
Apparently the desperate search of Republicans for someone they can nominate not named Willard M. Romney continues. New polls suggest that in Iowa, at least, we have already passed peak Gingrich. Next up: Representative Ron Paul.
In a way, that makes sense. Mr. Romney isn’t trusted because he’s seen as someone who cynically takes whatever positions he thinks will advance his career — a charge that sticks because it’s true. Mr. Paul, by contrast, has been highly consistent. I bet you won’t find video clips from a few years back in which he says the opposite of what he’s saying now.
Unfortunately, Mr. Paul has maintained his consistency by ignoring reality, clinging to his ideology even as the facts have demonstrated that ideology’s wrongness. And, even more unfortunately, Paulist ideology now dominates a Republican Party that used to know better.
I’m not talking here about Mr. Paul’s antiwar views or his less well-known views on civil and reproductive rights, which would horrify liberals who think of him as a good guy. I’m talking, instead, about his views on economics.
Mr. Paul identifies himself as a believer in “Austrian” economics — a doctrine that it goes without saying rejects John Maynard Keynes but is almost equally vehement in rejecting the ideas of Milton Friedman. For Austrians see “fiat money,” money that is just printed without being backed by gold, as the root of all economic evil, which means that they fiercely oppose the kind of monetary expansion Friedman claimed could have prevented the Great Depression — and which was actually carried out by Ben Bernanke this time around.
O.K., a brief digression: the Federal Reserve doesn’t actually print money (the Treasury does that). But the Fed does control the “monetary base,” the sum of bank reserves and currency in circulation. So when people talk about Mr. Bernanke printing money, what they really mean is that the Fed expanded the monetary base.
…
‘hard-money doctrine and paranoia about inflation have taken over the party, even as the predicted inflation keeps failing to materialize’
Ever heard of pushing on a string?
Deflation is a possibility. And why this happens, like in Japan after a stock and real estate bubble, isn’t addressed by Keynesians. Anything is possible; when the central bank feels free to create multiple trillions of $ and do this and that, as we’ve seen recently, who knows what the outcome will be.
IMO the question is why do we allow a private corporation to make such decisions in the first place?
Is RP the next “Not Romney” Republican candidate on deck?
Which just tells you how desperate they’re getting. In any other election they’d be happily ignoring him as always.
What is the next big bubble collapse story? Perhaps a replay of the 1930s-era farm foreclosure crisis?
BUSINESS
DECEMBER 15, 2011
A Bubble Down on the Farm?
By MARK PETERS And SCOTT KILMAN
NEPONSET, Ill.—Farmers like Terry Pratt are a big reason Midwest farmland prices seem to be defying gravity—for now.
Inside the tidy red-brick community center here, a hushed crowd of town merchants and growers watched as two of their own bid against each other at an auction for 50 acres of corn and soybean land.
With slight nods and the waggling of a finger, the rivals yanked the price higher and higher as auctioneer Troy Louwagie chanted into his hand-held microphone: “Will you give 61 and 62, and a two and a two? Will you give 6,200 on a good farm today?”
The auction was over in 15 minutes. Mr. Pratt’s winning bid of $7,875 an acre was nearly double the rate he paid for a nearby parcel just four years ago. “Chances are if another person bought it, it would have never sold again in my lifetime,” Mr. Pratt said.
The big question mark hanging over the farm economy is whether a bubble is building in Midwest cropland. Prices have doubled over the past five years in states such as Nebraska and Indiana. Iowa State University reported Wednesday that the average price of an acre of farmland in Iowa, the nation’s biggest producer of corn and soybeans, reached $6,708 this year, up 32.5% from 2010 for the biggest annual increase in the history of the 70-year-old survey.
But a look at the buying suggests that, while prices may be running too fast, there are reasons to think that a price bust can be avoided, absent some outside shock to the farm economy: Less than 2% of the cropland in Iowa is sold each year, and 74% of it ends up in the hands of local farmers, who tend to buy for the long term and often buy with cash instead of debt.
…
Worst year: Congress
By Chris Cillizza
Saying that Congress is unpopular is kind of like saying that water is wet or that big-time college football is corrupt. It’s so obvious as to be assumed. And yet, in 2011 Congress managed to underperform even the low regard in which the American people hold it.
It wasn’t just that lawmakers didn’t do much in 2011. It was that they didn’t do much in a year in which the economy continued to struggle, the nation’s collective anxiety soared and, for the first time in modern memory, our fiscal foundations seemed genuinely shaky.
The mismatch between the bigness of the country’s problems and the smallness of Congress drove the institution’s approval ratings down to used-car-dealer (or even journalist) levels.
An early October Washington Post-ABC News poll showed that just 14 percent of the public approved of the job Congress was doing, a lower ebb than before the 1994, 2006 and 2010 elections — all of which saw huge seat shifts because of widespread voter dissatisfaction. A Gallup survey released in early December showed that three-quarters of the public didn’t believe that most members of Congress deserved to win re-election in 2012 — a record high in the poll. (As interesting: Who the heck are the 20 percent who said the majority of members deserved another term?) A December NBC-Wall Street Journal poll showed that a measly 1 percent of people thought the 112th Congress was among the “best in years.”
How did things get so horribly, terribly, awfully bad for Congress in 2011? No one event stands out; rather, it was a slow-motion collapse in which everyone saw what was happening, but no one was willing to do anything about it. It was operatic in its scope. So here’s a look at how Congress failed — in three acts.
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Now that the U.S. economy is clearly in recovery, is QE3 off the table?
Gold Tumbles Most in 11 Weeks as Fed Shuns Additional Stimulus
By Debarati Roy and Nicholas Larkin - Dec 14, 2011 7:32 AM PT
Gold tumbled the most in 11 weeks as the Federal Reserve refrained from taking more stimulus measures and as a stronger dollar curbed demand for alternative assets. Silver plunged more than 7 percent.
The dollar rose to an 11-month high against the euro as Italian borrowing costs increased at a debt auction. The Standard & Poor’s GSCI index of 24 commodities dropped as much as 2.7 percent. The Federal Reserve yesterday said the U.S. economy is maintaining its expansion and refrained from taking new action to bolster the economy.
“There is turbulence across the commodity market because of the strength in dollar,” Jochen Hitzfeld, an analyst at UniCredit SpA in Munich, said in a telephone interview. “No further stimulus from the Fed is bearish for the market.”
Gold futures for February delivery dropped 3.2 percent to $1,609.50 an ounce at 10:31 a.m. on the Comex in New York, heading for the biggest slide since Sept. 23. Earlier, prices slumped to $1,602.40, the lowest since Oct. 5.
Gold fell after the Fed “statement failed to hint at further quantitative easing despite acknowledging slowing global growth,” Suki Cooper, an analyst at Barclays Capital in New York, wrote in a report.
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Get used to financial market volatility, because there is no end in sight.
France’s AAA Outlook Cut; Fitch Reviews Others
By Emma Ross-Thomas - Dec 16, 2011 4:13 PM PT
France’s credit outlook was lowered by Fitch Ratings, which also put the grades of nations including Spain and Italy on review for a downgrade, citing Europe’s failure to find a “comprehensive solution” to the debt crisis.
Fitch affirmed France’s AAA rating and placed Spain, Italy, Belgium, Slovenia, Ireland and Cyprus on a “Rating Watch Negative” review, which it expects to complete by the end of January, according to a statement released yesterday in London. Belgium’s credit rating was cut two levels to Aa3 yesterday by Moody’s Investors Service.
The move by Fitch increases pressure on the region’s leaders to stem a two-year debt crisis that has seen bailouts of Greece, Ireland and Portugal. European Union leaders meeting this month in Brussels agreed to forge a tighter fiscal union as the thrust of their efforts, even as the European Central Bank resisted investor calls to ramp up its bond-buying program.
“Of particular concern is the absence of a credible financial backstop,” Fitch said in an e-mailed statement. “This requires more active and explicit commitment from the ECB.”
Without a full solution, Fitch said the crisis will persist, “punctuated by episodes of severe financial-market volatility that is a particular source of risk to the sovereign governments of those countries with levels of public debt, contingent liabilities and fiscal and financial sector financing needs that are high relative to rating peers.”
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For how much longer can the Treasuries rally continue?
Treasuries Advance the Most in Six Weeks as Debt-Crisis Exit Eludes Europe
By Susanne Walker - Dec 16, 2011 9:00 PM PT
Treasuries advanced the most since early November as optimism that a summit a week ago would spur a resolution of Europe’s debt crisis faded amid political discord, fueling investor demand for U.S. government bonds as a refuge.
The benchmark 10-year note yield touched a two-month low yesterday as Fitch Ratings reduced France’s outlook and put the grades of nations including Spain and Italy on review for a downgrade. Moody’s Investors Service said Dec. 12 it will review all EU countries’ ratings. Record demand at this week’s Treasuries offerings added to optimism investor interest will remain strong at next week’s $99 billion in note sales.
“The appetite for Treasuries remains the biggest on the planet,” said Paul Montaquila, head of fixed-income trading in San Ramon, California, at Bank of the West. “The uncertainty about what’s going on in Europe is superseding everything else. Treasuries continue to be the No. 1 asset to have.”
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How are prospects for global economic growth in 2012 shaping up?
Switzerland Joins Global Suffering as Europe Debt Crisis Ripples: Economy
by Klaus Wille - Dec 16, 2011 7:17 AM PT
Switzerland’s economy will expand 0.2 percent next year and 1.9 percent in 2013, the KOF Economic Institute institute said in a statement today, cutting previous projections. Photographer: Gianluca Colla/Bloomberg
Switzerland’s economic growth will almost grind to a halt next year as the franc’s appreciation and floundering global demand hurt exports, according to the KOF Economic Institute.
The economy will expand 0.2 percent next year and 1.9 percent in 2013, the Zurich-based institute said in a statement today, cutting previous projections. Swiss National Bank President Philipp Hildebrand will meet with the government today after the SNB yesterday maintained its cap of 1.20 francs per euro to fight deflation and help exporters.
Hildebrand said he can’t rule out an escalation of Europe’s debt turmoil, which is threatening the outlook in countries from India to the U.K. The Bank of England cut its growth forecasts last month, while India’s central bank refrained from raising interest rates today for the first time in eight meetings, warning of an “uncertain global environment.”
“The euro-area problems are dragging down everyone and the SNB can’t escape that,” Martin Gueth, an economist at Landesbank Baden-Wuerttemberg in Stuttgart, said by phone. “They are having the same problem as everyone else; trying to protect themselves from the fallout in Europe.”
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Has the gold bubble popped for good, or is another leg up in store before the final bubble collapse?
Gold Rout Means Traders Least Bullish
By Nicholas Larkin - Dec 16, 2011 9:28 AM PT
Gold’s biggest rout in three months means traders are the least bullish since July and Dennis Gartman, the economist who sold the last of his metal on the day the slump began, warned of further declines.
Ten of 21 surveyed by Bloomberg expect the metal to gain next week, the lowest proportion since July 29. Three were neutral. While bullion’s slide of as much as 9 percent this week took its drop from the record $1,923.70 an ounce reached in September to almost 20 percent, the common definition of a bear market, investors are still holding near the most metal ever in exchange-traded products, a wager now valued at $120.2 billion.
Commodities retreated the most in almost three months and more than $640 billion was wiped off the value of global equities on Dec. 14 after the Federal Reserve refrained from taking new stimulus measures. That combined with signs of increased funding stress in Europe helped drive the dollar to the highest since January against the euro. Gold typically moves in the opposite direction to the U.S. currency.
“Bears are in the driver seat,” said Miguel Perez- Santalla, vice president of sales at Heraeus Precious Metals Management LLC in New York, whose clients include jewelers and mining companies. (BWMING) “But the problems in Europe have not been solved and buying will come back and we will see higher prices because of a lack of confidence in the financial system.”
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