The Housing Bubble

Apparently, not all Republicans think the sole purpose of the 2012 election is to beat Obama.

Perhaps the 1% don’t have as much control of the American political process as they thought they did?

Arizona Ron Paul supporters boo Romney’s son off stage
By Rebekah L. Sanders, The Arizona Republic
Updated 11h 21m ago

PHOENIX – Supporters of Ron Paul booed presidential hopeful Mitt Romney’s son off the stage Saturday at the Arizona Republican Party convention, as he sought to solidify support for his father’s nomination.

Hundreds of state GOP members were gathered at Grand Canyon University to elect delegates for the national convention in July in Tampa, Fla., which is expected to select Mitt Romney as the official Republican nominee to challenge President Obama.

“We cannot afford four more years of President Obama,” said Josh Romney, the third of Mitt Romney’s five sons. “We need someone to step in there and turn things around.”

But Josh Romney had to stop repeatedly as people booed and yelled for Paul, who has continued campaigning in the Republican primary. All other challengers, including Rick Santorum and Newt Gingrich, have dropped out of the race, and Romney has a commanding lead over Paul in the estimated delegate count.

But Paul supporters have begun flooding state conventions, recently winning control of delegate majorities in Nevada and Maine.

Josh Romney tried to appease the crowd, taking a minute to recognize his father’s former challengers.

“I recognize how hard it is to run for president, the sacrifice those men and women made running for president,” he said. “It’s a great contribution they’ve made to the party.”

He recapped Mitt Romney’s background of turning around failing companies, rehabilitating the Salt Lake City Olympics organization and balancing the budget as governor of Massachusetts. Josh Romney said his dad stepped up to the added challenges of taking care of the family after wife Ann was diagnosed with multiple sclerosis.

But as Josh Romney wrapped up, with an admonition to choose the preferred slate of Mitt Romney delegates, the crowd exploded with competing boos and cheers, cutting him short.

Some attendees said they heard Paul supporters chanting outside that Mitt Romney is “the white Obama.”

State party chairman Tom Morrissey begged for everyone to stay respectful.

“Maybe it’s going to take getting behind somebody we weren’t so excited about. … What I want is to save this country, and we’ve gotta do it together. None of us gets everything we want,” Morrissey said, adding, “Keep your eye on the prize: defeating Barack Obama.”
…

Everyone must be out buying houses.

California economic outlook for the indefinite future:

Higher taxes and deficits, higher housing prices and rents, reduced public services.

GOVERNOR: CALIFORNIA DEFICIT BALLOONS TO $16B

Gov. Brown says tax collections not as high as expected, economic growth slow Up from $9.2 billion; Brown warns of deep cuts if tax boost fails

By JUDY LIN Associated Press
12:01 a.m., May 13, 2012
Updated 9:21 p.m. , May 12, 2012

California’s budget deficit has swelled to a predicted $16 bn, much larger than predicted early this year — and will force severe cuts to schools and public safety if voters don’t approve tax increases in November, Gov. Jerry Brown said Saturday.

He said the shortfall grew from $9.2 billion in January in part because tax collections have not come in as high as estimated, the economy isn’t growing as fast as the state had expected and spending in Sacramento has surpassed the budgeted rate. The shortfall also has widened because lawsuits and federal requirements have blocked billions of dollars in state cuts.

“This means we will have to go much further and make cuts far greater than I asked for at the beginning of the year,” Brown said in an online video. “But we can’t fill this hole with cuts alone.”

Brown didn’t release details of the newly calculated deficit Saturday; he is scheduled to lay out a revised spending plan Monday. The new blueprint for the fiscal year that starts July 1 hinges largely on voters approving higher taxes.

The governor has said those tax increases are needed to help pull the state out of a crippling decade shaped by the collapse of the housing market and recession.

Democrats, who control the Legislature, have resisted Brown’s proposed cuts so far this year. Republican lawmakers criticized the majority party for building in overly optimistic tax revenues.

“We’ve seen state budget-deficit projections increase all year. However, to see a new figure that is nearly double the January estimate will no doubt drive up the anticipation and anxiety level in advance of the governor’s budget rollout on Monday,” said Geoff Patnoe, director of the Office of Strategy & Intergovernmental Affairs for the county of San Diego.
…

A friend of mine who had to leave Austin to take care of his parents for a few years is in the process of moving back. He went apartment hunting and was appalled at the prices. Rents have nearly doubled for the same crappy apartments.

It’s one thing to pay 1200-1500 bucks a month for a crappy apartment in a city where the cultural amenities, infrastructure, and especially the salaries might justify it. But the premium being paid to live in Austin simply because it is considered “cool” is ridiculous. It’s not just a housing bubble, there is just a bubble in general where Austin is concerned. Everyone wants to live here, apparently.

Six months until Formula one races begin…

I love it when the housing shills tell stories that disagree with their own supporting data. While this article suggests that San Diego rental vacancy rates are low at the March 2012 level of 4.43%, the sidebar graph which accompanies the article shows they have trended up sharply from levels below 2% in 2000-01.

RENTAL MARKET TIGHTENS IN S.D.
Demand outruns supply, so apartments will cost more and be harder to land
By Lily Leung & Roger Showley • U-T
12:01 a.m., May 13, 2012
Updated 5:03 p.m., May 11, 2012

3 complexes in San Diego County either in the pipeline or opening this year

Carmel Pacific Ridge, opposite of University of San Diego on Linda Vista Road (above): This project will cater mostly to students. After completion, it will have 533 units, ranging from $1,500 to $4,000. Amenities include two resort-style pool and spa areas, an outdoor yoga area and gourmet test kitchen. The first wave of units will be available in July. The project is expected to be done by May 2013.

Sterling Alvarado, 6625 Alvarado Road, San Diego: This student-housing project features 320 apartments. The asking rent for units ranges from $1,025 for a studio to $3,100 for a 4-bedroom unit. Move-in is scheduled for August. Amenities include swimming pools, fitness center and tanning beds.

Casa Mira View in Mira Mesa, north of Mira Mesa Boulevard and between Westview Parkway and Interstate 15: About 1,848 units are expected at this development, scheduled to open by the end of the year. Rents have yet to be released. The project features a bowling alley, 35,000-square-foot gym and merry-go-round.

Rents are expected to rise and competition for apartments may stiffen in San Diego County as more folks defer owning a home amid what appears to be a slowly improving job market.

Rising demand from young workers — also known as Gen Y’ers — fewer new units and tighter standards for mortgages also have pushed people into the rental market.

The result is a jump in rental rates. In March, the average rent in the county was $1,361, up 2.6 percent from a year ago, says real estate data company MarketPointe.

San Francisco finished 2011 with the highest rental-rate increase, at 4.7 percent, based on a separate report from commercial real estate company Cassidy-Turley, which has an office in San Diego. Washington, D.C., placed 10th with a 2.4 percent increase. San Diego County was not among the Top 10.

The county’s vacancy rate — the percentage of rental units that aren’t occupied — is at 4.43 percent, the lowest it’s been for a given March since 2008, when it was 3.63 percent. On a national level, San Diego has the sixth-lowest vacancy rate behind New York City, Minneapolis, Portland, Ore., San Jose and Seattle, the Cassidy-Turley report shows.

A big reason for the area’s lower-than-normal vacancy rate is lack of finished units.
…

Bunds Surge Amid Austerity Backlash as Greek Debt Slumps
By Emma Charlton and David Goodman - May 11, 2012 11:00 PM PT

German bunds surged, sending the nation’s borrowing costs to all-time lows, while Greece’s bonds sank as a political stalemate following inconclusive elections renewed concern it will exit the euro bloc.

Yields on two-, five, 10- and 30-year German bonds fell to records as Finance Minister Wolfgang Schaeuble suggested the euro-region could handle Greece dropping out of the 17-nation currency group. Greek 10-year bonds slid, pushing the price below that of the security it replaced in the biggest-ever debt restructuring two months ago. Spain’s 10-year bonds dropped the most in more than a month after the European Commission forecast the nation’s economy will contract this year and next.

“The main driver this week was the problems in Greece and the failure to form a coalition government,” said Sercan Eraslan, a fixed-income strategist at WestLB AG in Dusseldorf, Germany. “While the Greek situation remains uncertain, with the risk that they may drop out of the euro, bund yields will stay lower and Greek bonds will be under pressure. Fears of a deeper recession are also dominating sentiment.”
..

Greece will run out of money soon, warns deputy prime minister

The deputy prime minister also warned that chaos could boost the neo-fascist Golden Dawn party, which won an unprecedented seven per cent of the vote, and 21 seats, in Sunday’s election Photo: AP
By Andrew Gilligan, Athens
7:00PM BST 12 May 2012

Speaking exclusively to The Sunday Telegraph, Theodoros Pangalos said he was “very much afraid of what is going to happen” after Greek voters rejected the deal in elections last Sunday.

“The majority of the people voted for a very strange mental construction,” he said. “We want to be in the EU and the euro, but we don’t want to pay anything for the past.”
…

BOND KING: EUROPEAN AUSTERITY WILL FAIL
Spending cuts alone won’t produce growth, Gross says

By MATTHEW CRAFT ASSOCIATED PRESS
12:01 a.m., May 13, 2012
Updated 5:42 p.m. , May 11, 2012
Also of interest
Bond king says budget pain isn’t enough in Europe
Stocks higher? Famed investor says don’t bet on it
Pimco market strategist: Europe still top threat
Does it matter that S&P downgraded European bonds in terms of the economic impact both there and in the U.S.?
Italian Senate passes key austerity package

The struggling countries of Europe have cut spending for two years in hopes of averting financial catastrophe and persuading bond investors to buy their debt.

But the world’s most influential bond investor thinks it won’t work.

Bill Gross, manager of Pimco’s $252 billion Total Return Fund, the largest mutual fund, says that countries can’t simply cut their way out of the debt crisis. That’s bound to backfire, he says.

The countries that use the euro reduced their budget deficits last year, but their economies shrank, too. As a result, their debt increased as a share of their annual economic output. Eight of the 17 euro countries are in recession.

Meanwhile, unemployment in the so-called eurozone is almost 11 percent and rising. Outrage over spending cuts led voters in Greece and France last weekend to oust leaders who had promoted cuts as a way out of the crisis.

Some questions and answers with the man sometimes called the bond king:

Q: What do you make of the backlash in Europe against deep spending cuts? They were supposed to lure investors like you into buying government bonds from Greece, Portugal, Spain and the like. It doesn’t seem to be working.

A: We do look at the debt levels. It matters. But a bond investor has to look at economic growth, too. If a country can’t grow its way out of its predicament, we won’t go there. That’s why we’ve stayed out of Europe for the most part.
…

31 year old friendship (forgive or not?)-
An absolutely terrific gentleman is a computer tech, has a client that is a loan broker for infestors who flip in our target city. He feels bad that we haven’t found our toe-tag home, so when his client asks him open ended questions (REIC training) he blabs about us, just not our names. All kind of info went into the enemies hands. He doesn’t understand the deviants of the REIC, nor how they all share and buyers are always on the end of the short stick. I told him never to share about us previously. I know he was trying to help.
Should we forgive?

Interest rates on a 30 year mortgage, I’ve seen on a placard at my Phoenix Bank of America, are around 4.3%. Low by the standards on my 1990 California new stucco box when I paid 8.5%. Yet no rush to get a mortgage in Phoenix. Investors / Don Trump wannabes bought up a lot of the $100k and under houses which are crap shacks anyway. Why would a vacationing Nebraskan want to spend winter in one of those with drug deals going on down the block?

Anyhow the rates are still down, QE3 is a maybe. The stock market has boomed since March 2009. But Real Estate HAS NOT boomed since 2009. The investors who snapped up Phoenix houses in 2011 could have gained 4.73% in 12 months of Vanguard’s 500 index fund, 11.74% in T Rowe Price Blue Chip Growth fund, or 17.4% in Vanguard’s long term investment grade corporate bond fund.

The thoughts are that Interest rates will start to rise at some point. I think it depends on wage growth. No interest rate hikes until wages go up significantly. “Significantly” means 4% in one year. A 1% growth does not mean a trend.

Since low interest rates have not attracted more home buyers (the birth dearth, more divorces, low wages, non-secure jobs, upcoming spending cuts in defense) but the stock market has been cheering on low rates, it is likely this will continue for the next few years, particularly in the face of stagnant wages projected through 2021:

http://tinyurl.com/7l3o69w

Now what about gold?

Official: 49 bodies left on Mexico highway

By PORFIRIO IBARRA RAMIREZ, AP
53 minutes ago

MONTERREY, Mexico — Forty-nine decapitated and mutilated bodies were found Sunday dumped on a highway connecting the northern Mexican metropolis of Monterrey to the U.S. border, officials said.

The bodies of 43 men and six women were found in the town of San Juan on the non-toll highway to the border city of Reynosa at about 4 a.m. (5 a.m. EDT; 0900 GMT), forcing police and troops to close off the highway. Nuevo Leon state security spokesman Jorge Domene said a banner left at the site left a threatening message in the name of the Zetas drug cartel.

The identities of the victims were not immediately clear. Domene said the fact they were found with their heads, hands and feet cut off will make identification difficult.

Attorney General Adrian de la Garza told a news conference he did not rule out the possibility they could be migrants. He said they could have been killed as long as two days ago at another location.

Mexican drug cartels have been waging an escalating war of terror as they battle to control smuggling routes, the local drug market and extortion rackets, including shakedowns of migrants seeking to reach the United States.

A drug gang allied with the Sinaloa cartel left 35 bodies were left at a freeway overpass in the city of Veracruz in September, and police found 32 other bodies, apparently killed by the same gang, two days after that. The goal apparently was to take over territory that had been dominated by the Zetas. Twenty-six bodies were found in November in Guadalajara, another territory being disputed by the Zetas and the Sinaloa group.

So far this month, 23 bodies were found dumped or hanging in the city of Nuevo Laredo and 18 were found along a highway south of Guadalajara.

Officials last year found 183 bodies in mass graves in the Tamaulipas state town of San Fernando. They were believed to have been migrants killed by the Zetas drug cartel. Another 72 migrants, many of them from Central America, were found slain in San Fernando in 2010.

Is all the wailing and gnashing of teeth over the JPM trading loss no more than another political Grand Kabuki dance, or will Uncle Sam actually do something this time around to end too-big-to-fail, once and for all time?

I’d personally rather not have to contemplate my grown up children having to pony up bailout after bailout to keep Mr Fussy Puss and his friends living the life of Ryan in Manhattan.

JPMorgan CEO says he was ‘dead wrong’ to dismiss concerns about bank’s trading

FILE - In this Wednesday, Jan. 13, 2010 file photo, from left, Goldman Sachs Group, Inc. Chairman and Chief Executive Officer Lloyd Blankfein; JPMorgan Chase & Company Chairman and Chief Executive Officer Jamie Dimon; Morgan Stanley Chairman John Mack and Bank of America Corporation Chief Executive Officer and President Brian Moynihan, testify on Capitol Hill in Washington before the Financial Crisis Inquiry Commission. Dimon had to face stock analysts and reporters on Thursday, May 10, 2012, and confess to a “flawed, complex, poorly reviewed, poorly executed and poorly monitored” trading strategy that lost a surprise $2 billion.

By Associated Press, Updated: Sunday, May 13, 6:58 AM

NEW YORK — The CEO of JPMorgan Chase, which disclosed a $2 billion loss last week, said he was “dead wrong” when he dismissed concerns about the bank’s trading last month.

CEO Jamie Dimon said he did not know the extent of the problem when he said in April that the concerns were a “tempest in a teapot.” After the bank reported the trading loss, investors shaved almost 10 percent off the bank’s stock price.

“We made a terrible, egregious mistake,” Dimon said in an interview that aired Sunday on NBC’s “Meet the Press.” ‘’There’s almost no excuse for it.”

The $2 billion loss came in the past six weeks. Dimon has said it came from trading in so-called credit derivatives and was designed to hedge against financial risk, not to make a profit for the bank.

Dimon said the bank is open to inquiries from regulators. He has also promised, in an email to the bank’s employees and in a conference call with stock analysts, to get to the bottom of what happened and learn from the mistake.

Dimon told NBC that he supported giving the government the authority to dismantle a failing big bank and wipe out shareholder equity. But he stressed that JPMorgan, the largest bank in the United States, is “very strong.”

Lawmakers and critics of the banking industry have seized on the $2 billion loss to say that banks still take too much risk more than three years after the financial crisis.

A piece of the financial regulation known as the Volcker rule would prevent banks from certain kinds of trading for their own profit. Dimon has said the trading involved in the $2 billion loss would not have fallen under the rule.

Rep. Barney Frank, D-Mass., told ABC’s “This Week” that he hopes the final version of the Volcker rule will prevent the type of trading that led to the massive loss at JPMorgan.

Dimon conceded to NBC that the bank “hurt ourselves and our credibility” and expects to “pay the price for that.” Asked what the price should be, Sen. Carl Levin, D-Mich., said that banks will lose their fight to weaken the rule.

“This was not a risk-reducing activity that they engaged in. This increased their risk,” Levin told NBC.
…

Any thoughts on how J.P. Morgan’s great big fat Greek derivatives blow up will affect Wall Street employment and housing prices in the surrounding communities? Maybe Fussy Puss’s rent will go back down soon.

Large layoffs loom on Wall Street
By Stephen Gandel, senior editor April 30, 2012: 6:00 AM ET

Latest wave of financial industry cuts could eliminate 21,000 jobs, rivaling the financial crisis.

FORTUNE –Perhaps the only thing more broken than Wall Street’s business model is its staffing strategy.

After adding thousands bankers in the past two years, financial firms again appear to be on the verge of cutting that many positions and then some. Consultants and Wall Street recruiters say banks could eliminate nearly 21,000 jobs from their securities divisions in New York alone. Worldwide cuts could be even larger. Recruiters say big banks are in the process of finalizing their downsizing plans, and that layoffs could start soon.

The latest round of job cuts could rival those that happened during the financial crisis. Back then, which was less than four years ago, Wall Street eliminated 28,000 positions. But that round of downsizing included the collapse of Bear Stearns and Lehman Brothers, and the biggest crisis in the financial markets since the Great Depression. By comparison, the stock market is up this year, and just last week banks reported better than expected earnings for the first quarter. What’s more, at the same time large firms are firing, many smaller investment banks have been staffing up. As a result, overall employment on Wall Street might not drop as much as it did after the financial crisis.

“Hiring is going on, it’s just not by the big banks,” says a top Wall Street recruiter Gary Goldstein, who runs Whitney Partners.

Nonetheless, consultants say the big Wall Street firms are coming to the conclusion that they have more workers than they need. Last week, The Boston Consulting Group released a report that predicted banks would eliminate 12% of their workforce in the “short-term.” Recruiters say those numbers sound similar to what they are hearing from the large firms.

“The estimate is possibly low,” says veteran financial industry recruiter Steve Potter at Odgers Berndtson. Potter says not only are the firms competing for few deals, but with their clients. More and more large firms are adding investment bankers to their staffs to save on Wall Street fees. “Large layoffs are a virtual certainty.”
…

One way to end the problem of systemically-risky too-big-to-fail banks: Megabank, Inc falls on its own sword until operations are no longer too big.

Morgan Brennan, Forbes Staff
I write about real estate markets, outrageous homes and cities.
Business
4/24/2012 @ 10:35PM |4,844 views
How Wall Street Layoffs Will Affect The Housing Market

Investment banks including Goldman Sachs, JPMorgan Chase, Citigroup and Morgan Stanley may slash and burn dozens of jobs as soon as next month, as my colleague Halah Touryalai reports. And these positions may never be replaced. It’s the latest round of layoffs for Wall Street, which let thousands of workers, particularly traders, go in 2011.

Wall Streeters have already suffered some discouraging news this year, as cash bonuses for work done in 2011 were cut and capped. A February report estimated that Wall Street bonuses dropped 14% from 2010 to 2011. For staffers at firms like Bank of America and Citigroup, the cuts were as high as 30% and bonuses at Morgan stanley were capped at $125,000.

All that cost-cutting has had repercussions that fan out past that eight-block swath of downtown Manhattan street where smocked traders scream in pits and analysts calculate risk. In years past, Wall Street has always affected Main Street. Literally.

“The finance sector plays a very large role in New York City and as a result of that, those people play an overall role in the residential real estate market,” explains Gary Malin, president of Citi Habitats, a New York City-based realty firm.

On a grand scale, we saw all too painfully how intertwined Wall Street and real estate were as the housing bubble deflated and the global economy plunged into a recession in early 2009. Locally, Wall Street residential enclaves like the Financial District and New Jersey’s Hoboken emptied out as finance folk packed their bags, newly out of work at companies where balance sheets were rapidly deteriorating and jobs disappearing. In the Tri-State area around the Big Apple residential projects stalled and homes fell into foreclosure.

Now less than four years later, as bonuses shrink and another spate of layoffs roll out, how will that affect the housing market? The answer, like all things in housing today, depends on location and a variety of factors.
…

Home values: Check out the 5 worst markets

By Bankrate.com |
Bankrate.com –
Thu, May 10, 2012 3:00 AM EDT

http://finance.yahoo.com/news/provider-bankrate/ - 87k -

If it shows up later, you will see I recently posted a wise crack about JPM’s “great big fat Greek derivatives loss.” I thought I was just making a pithy figurative reference to a movie with a similar title, but after casting about a bit on the internet, I learned otherwise:

Finance
JPMorgan Chase loses big in derivatives gamble

The biggest bank in the US has squandered $2 billion (1.54 billion euros) in an investment aimed at profiting from the eurozone debt crisis. The mistaken gamble has thrust the regulation question back into the spotlight.

The huge loss had emerged over the past six weeks in an investment portfolio originally designed to help the bank control financial market risks, JPMorgan Chase announced late on Thursday.
…
A case of casino capitalism

According to an article in the Wall Street Journal last month, JP Morgan was heavily invested in an index of so-called credit default swaps (CDS), which are products to ensure against default by debt issuers.

In addition, Bloomberg News reported in April, that a single JPMorgan trader in London, known in the bond market as ‘the London whale’ was moving prices through exceptionally large trades. Chief Executive Jamie Dimon admitted that the loss was “somewhat related” to that story.

Presumably in connection with the Greek debt swap completed in April, the CDS index had lost value, forcing JPMorgan to sell its investments at a loss.

“These instruments are not regularly and efficiently priced, and a company can wake up one day, and find out they’re in a terrific hole,” Michael Greenberger, a professor at University of Maryland, told AP news agency.

The announcement of the loss has led to mounting calls for tougher regulation to monitor banks’ trading activities.

“The enormous loss is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making,” US Democratic Senator Carl Levin said Thursday.

JPMorgan Chase CEO Jamie Dimon is one of the staunchest critics of tighter US trading rules which come into force in July 2014, and which would have made this loss “less likely,” as Michael Greenberger told AP.

The bank’s shares fell 6.7 percent in after-hours trade, pulling fellow banks down with it.
…

JPMorgan CEO: Bank reacted badly to red flags
Reuters Video
Published Sunday, May. 13, 2012 2:30PM EDT
Last updated Sunday, May. 13, 2012 2:31PM EDT

JPMorgan Chase CEO Jamie Dimon says his bank reacted badly to warning flags last month that it had losing trades in derivatives. Video courtesy NBC’s Meet the Press

Trade data sparks fears of sharper China slowdown

by: Michael Sainsbury
From: The Australian
May 10, 2012 5:10PM

STRONGER evidence of a significant slowdown in the Chinese economy has emerged with much weaker-than-expected imports for April, as well as lower growth in exports.

Although economists are still not expecting a hard landing generally across the world’s second largest economy, there is likely to be something of a thud in the construction sector where government policies have deliberately sought to deflate any bubble that has been forming.

China’s trade surplus widened to $US18.4 billion in April from $US5.35 billion in March, data from China’s General Administration of Customs showed today, with the surprise news spooking sharemarkets.
…

This Eurozone debt crisis story just never seems to grow old, does it?

Global Economy Weekahead: Back into the euro-zone storm
By Stella Dawson
WASHINGTON | Sun May 13, 2012 3:06pm EDT

(Reuters) - Greece ditching the euro, huge tax hikes and spending cuts in the United States in 2013, plus a showdown over Iran’s nuclear ambitions are three big political risks looming over a global economic recovery that looks more uncertain by the day.

The global outlook clouded late last week. The European Commission downgraded growth forecasts for Spain and Greece; China reported weak retail sales, bank lending and industrial output; and India’s industrial output slumped for the first time in five months.

The U.S. economy already has hit a soft patch. Its giant service sector is slowing and employment growth has cooled. While U.S. manufacturing is holding firm, weakness in Asia and Europe makes it vulnerable to loss of export markets.

One bright spot for the global economy is oil. If high-level meetings this week with Iran succeed in defusing nuclear tensions, growth could get a major fillip from lower oil prices.

Brent crude prices already have fallen by 9 percent since early March, and the Institute of International Finance estimates they could retreat a further 14 percent to 18 percent if the political risk premium from Iran was squeezed out.

Relief from political risks stemming from the United States, however, will take much longer. Resolving U.S. budget battles, which threaten to thrust the nation back into recession next year if planned tax increases and budget cuts go through, must await the November presidential and congressional elections.

That leaves Europe as the immediate wild card in the deck.

“The question for 2012 is whether the euro zone will limp through without anything worse than the kind of slow-motion recession underway now,” said David Levy, chairman of the Jerome Levy Forecasting Center.

A week after 70 percent of Greece’s electorate rejected the harsh budget cutbacks required under a joint European Union/IMF bailout, leaders in Athens have failed to form a government.

This has revived market talk that Greek could default, and perhaps even exit the euro zone, spooking investors still raw from the Lehman Brothers collapse and leaving them uncertain whether they would escape damage.

At best, Levy said, Europe cannot escape a severe retrenchment over the next few years, which will drag on global growth.

The euro zone shrank 0.3 percent in the fourth quarter and analysts forecast that GDP data due on Tuesday will show a further 0.2 percent decline in the first quarter.
…

Banks
Jamie Dimon’s Moral Hazard
By Joe Klein | @JoeKleinTIME | May 12, 2012

Jamie Dimon of JPMorganChase once was Barack Obama’s favorite banker, a big backer of the President’s 2008 campaign. But he’s been blowing hard and often when it turned out that Obama was attempting to–gasp!–regulate the banking industry after its wanton recklessness caused the stock market, and the economy, to crash. Dimon has gone on to attack Paul Volcker, a true voice of reason, for proposing ways to limit the activities of the big banks. And now, in a lovely little trick of fate, JPMorganChase has lost $2 billion in the very sort of proprietary casino gambling that led to the 2008 crash.

I’m happy that Dimon is getting a taste of comeuppance, but schadenfreude is hardly a sufficient reaction here. What if the loss had been larger? What if JPMorganChase were now teetering on the brink of failure? Well, we would have to bail it out, of course. The financial system simply could not handle the collapse of one of its six largest institutions of higher earning; the economy would once again crash. The term of art when a bank reaches the size where it is too big to fail is moral hazard. That means bankers will tend to act less responsibly if they know the government won’t allow them to go under, if there are no real risks in risk.

I’ve written before that Barack Obama let the bankers off the hook too easily. Jon Huntsman’s plan to force the six biggest banks to dismember themselves by imposing large fees according to size was a good idea that was ignored because Huntsman was ignored. And Obama’s problem is compounded by the fact that Dodd-Frank, the regulatory reform legislation passed last year, is a spotty proposition–some very good provisions attended by some very bad provisions (making small banks play by the same rules as the big banks, even though the 2008 crash wasn’t caused by small banks), and completed by a disastrously inept effort to limit the gambling abilities of the biggest banks.

Moral hazard may be the most important issue facing our economy in the long-term, but it’s not likely to be addressed in the coming presidential campaign. Obama had his chance to rectify it, and failed; Romney’s not interested in trying. And the Jamie Dimons of the world can preen and flash along…until their hubris causes the next disaster.
…

When I first clicked on the link to this article, I thought it was going to say that Jamie Dimon decided to walk the plank for the good of his company and his country.

No such luck, just yet. I guess the U.S. taxpayer can look forward to getting hosed by Wall Street buccaneers for a little longer.

JPMorgan Chase Executive to Resign in Trading Debacle
By NELSON D. SCHWARTZ and JESSICA SILVER-GREENBERG
Published: May 13, 2012

The $2 billion trading loss at JPMorgan Chase will claim its first casualty among top officials at the bank as early as Monday, with chief executive Jamie Dimon set to accept the resignation of the executive who oversaw the trade, Ina R. Drew. Ms. Drew, a 55-year-old banker who has worked at the company for three decades and serves as chief investment officer, had repeatedly offered to resign since the scale of the loss became apparent in late April, but Mr. Dimon had held off until now on accepting it, several JPMorgan Chase executives said.
…

The Greek debt crisis situation is evolving fast.

May 13, 2012, 2:52 p.m. ET

Greek Communist Head Calls For Annulment Of Greek Loan Deal

ATHENS (Dow Jones)–The head of Greece’s Communist KKE party Sunday called for the annulment of the country’s loan deal, ruling out her party’s participation in a coalition government, even as Greece scrambles to resolve a weeklong political deadlock following inconclusive polls last week.

“We will introduce legislation in the Greek parliament, which is going to set out very specifically the elimination and annulment of the [loan agreement], Aleka Papariga said after a meeting with Greece’s president Karolos Papoulias.

In elections last Sunday, Greek voters voted in a deeply fragmented parliament that denied the country’s two governing parties–the Socialist Pasok and New Democracy parties–an outright majority, hamstringing their efforts to implement unpopular austerity measures promised to Greece’s European partners in exchange for a 130-billion-euro ($168 billion) loan.

Instead, Greek voters gave more than 60% of the vote to five other parties that campaigned against the austerity program.
…

Graduates get a degree in debt
With diploma in hand, many are leaving college hobbled by big loans
New York Times
Published 09:40 p.m., Saturday, May 12, 2012

ADA, Ohio — Kelsey Griffith graduates on Sunday from Ohio Northern University. To start paying off her $120,000 in student debt, she is already working two restaurant jobs and will soon give up her apartment to live with her parents. Her mother, who co-signed on the loans, is taking out a life insurance policy on her daughter.

“If anything ever happened, God forbid, that is my debt also,” said Griffith’s mother, Marlene Griffith.

Griffith, 23, wouldn’t seem a perfect financial fit for a college that costs nearly $50,000 a year. Her father, a paramedic, and mother, a preschool teacher, have modest incomes, and she has four sisters. But when she visited Ohio Northern, she was won over by faculty and admissions staff members who urge students to pursue their dreams rather than obsess on the sticker price.

“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” said Griffith, a marketing major. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”

With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education. Now nearly everyone pursuing a bachelor’s degree is borrowing. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden.

Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993, according to an analysis by The New York Times of the latest data from the Department of Education.

For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000, the Federal Reserve Bank of New York reports. Average debt for bachelor degree graduates who took out loans ranges from under $10,000 at elite schools like Princeton and Williams College, which have plenty of wealthy students and enormous endowments, to nearly $50,000 at some private colleges with less affluent students and less financial aid.
…

Not fatal attraction…

ft dot com
May 13, 2012 7:28 pm
Fear grows of Greece leaving euro
By Ralph Atkins in Frankfurt

Eurozone central bankers have talked publicly for the first time of managing a possible Greek exit from Europe’s monetary union as stalemate in Athens talks on a coalition government raises the prospect that Greece will renege on the terms of its international bailout.

The comments by members of the European Central Bank’s governing council indicate that the risk of eurozone fragmentation is being taken increasingly seriously by the region’s policymakers.

They mark a significant shift at the ECB, which has previously argued that European treaties do not allow for an exit and that a break-up would cause incalculable economic damage.

“I guess an amicable divorce – if that was ever needed – would be possible, but I would still regret it,” Luc Coene, central bank governor of Belgium, told the Financial Times.

Patrick Honohan, Irish central bank governor, told a conference in Estonia at the weekend: “Things can happen that are not imagined in the treaties. … Technically, it [a Greek exit] can be managed. … It is not necessarily fatal, but it is not attractive.”
…

Got scissors? Got sheep?!

As European bond yields rise, barbers are sharpening their shears
ERIC REGULY
ROME— From Saturday’s Globe and Mail
Published Friday, May. 11, 2012 6:15PM EDT

Almost a week after the French and Greek elections, Europe plods on. This may come as a surprise to the doomsayers who assumed the arrival of François Hollande as France’s new socialist president would instantly shred the Franco-German alliance that allegedly kept the euro zone from shattering. It hasn’t and it won’t.

Greece, to be sure, is a mess – political gridlock on an epic, even comical, scale. So what? Last Sunday’s election confirmed what everyone knows: Its exodus from the euro zone is rapidly going from the possible to the probable. Out with the new, in with the old. The drachma is almost certainly coming back.

So can investors stop fretting about the election results? Depends which kind of investors.

Mr. Hollande’s message that an endless budgetary slice-and-dice operation offers no cure for ailing economies is, broadly speaking, good news. His insistence that a growth pact be run alongside austerity is hardly dangerous economic theory. Austerity heaped on to a deepening recession – the 17-country euro zone is shrinking again – ranks somewhere between reckless and insane. But since any growth policies will take time work, the markets will take some time to react.

Sovereign-bond investors face a different story, for two reasons. The first is the risk of renewed contagion from a country barrelling ever faster toward the euro zone exit doors as anti-austerity parties surge in popularity.

The second is that bond investors have emerged as soft targets in the great European restructuring game.

Greece, with ungentle nudging of the so-called troika – the European Union, the European Central Bank and the International Monetary Fund – managed to reduce its national debt burden by about €110-billion ($142-billion) in February. It did so by slicing the net present value of the bonds held by private investors (largely banks) by 70 per cent.

The effort succeeded with minimal disruption. While the experience wasn’t pleasant for the bond holders, the markets, the euro and the banks did not collapse. It had to be done. The alternative would have been forcing another €110-billion in spending cuts and tax hikes onto a country with 22-per-cent unemployment (and 54-per-cent youth unemployment). Greece would have been bled white.

The question now is whether the Greek bond “haircut” will be repeated elsewhere in the euro zone. Why wouldn’t it?
…

Is now a good time to buy the dip?

Or would it be wiser to wait for the S that just HTF at JPMorgan to wash through the market before buying?

Warren Buffett says buying stocks amid market dip
Ben Berkowitz Reuters
5:40 p.m. CDT, May 7, 2012

(Reuters) - Berkshire Hathaway Inc is adding to its shareholdings of two U.S. companies amid a market dip, billionaire investor Warren Buffett said on Monday.

Buffett, Berkshire’s controlling shareholder, also forecast record results this year for Berkshire’s largest non-insurance businesses, among the railroad BNSF and utility MidAmerican.

Berkshire class B shares led the insurance sector to close 1.9 percent higher at $82.47 on Monday.

In an interview on cable television network CNBC from just outside his conglomerate’s home base in Omaha, Nebraska, he dismissed the dip in European shares after weekend elections in France and Greece.

“It’s going to be very, very difficult to resolve their problems,” he said of the euro zone countries, but he insisted they would do so eventually.

Buffett declined to identify the two portfolio stocks Berkshire was purchasing more of. He said Berkshire spent $60 million buying stocks last Friday and would buy more on Monday. It was not clear if the $60 million was spent on just two stocks.

Over the weekend, Berkshire held its annual shareholder meeting in Omaha, a festival that draws nearly 40,000 people for an hours-long question-and-answer session with Buffett and Berkshire Vice Chairman Charlie Munger.

It was during that session that Buffett revealed he had very nearly made an acquisition of more than $22 billion recently, which would have been one of his biggest ever.
…

Polly:

Dewey & LeBoeuf has terminated about 450 people at its New York office effective Friday, according to a lawsuit filed by an employee who complained the law firm failed to give her adequate notice.

http://money.msn.com/business-news/article.aspx?feed=OBR&date=20120510&id=15096816

Crushed by college debt: Massive loan bills hang over graduates, derail life plans
May 13, 2012 | By David Jesse
Detroit Free Press Education Writer

Sean Doerr, like thousands of Michigan college graduates this spring, is trapped between a rock and a hard place.

To get a good job, he knew he needed a college degree. But getting it cost the 22-year-old Detroiter dearly. He graduated Thursday from the College for Creative Studies in Detroit with more than $85,000 in debt.

He’s far from alone: 130,000-plus Michigan residents are trying to repay school loans, and 10,711 are in default. Their average debt in 2010: $25,675. But many, like Doerr, have bills approaching $100,000 or more.

The debts, already at historical highs, will climb even higher if Congress can’t agree to hold down interest rates on federally subsidized loans. But even if it does, Doerr still faces years of college bills.

“I am afraid of the payments six months from now” when he must start repaying the loans, he said.
…

The problem with the system: The trader who made the bad JP Morgan bet made 100 million dollars last year. But he’s not going to lose a dime from these activities. He’ll probably walk away slightly chagrined and with a golden parachute.

The London-based JP Morgan trader implicated in this is nicknamed ”The Whale” or “Voldemort” from Harry Potter. The group he runs had $350 billion of securities as of the end of last year, according to the Wall Street Journal. That’s nearly twice the market cap of the bank itself, the largest in the U.S. “Voldemort” reportedly made $100 million last year.

http://abcnews.go.com/blogs/business/2012/05/jp-morgan-dj-vu-there-you-go-again-wall-street/

May 13, 2012, 11:01 p.m. EDT
Asia stocks mostly lower amid Europe woes
By Sarah Turner, MarketWatch

SYDNEY (MarketWatch) — Asian shares traded mostly lower Monday, as concerns about Europe’s debt woes worked to offset positive sentiment over China’s weekend move to loosen monetary policy.

Hong Kong’s Hang Seng Index declined 0.2% after opening higher, while the Shanghai Composite Index traded down 0.3%.

Japan’s Nikkei Stock Average traded flat after early gains of its own, while Australia’s S&P/ASX 200 index also slipped down to the flat-line, and South Korea’s Kospi lost 0.7%.

Hong Kong stocks skidded 5.3% last week, Japanese stocks lost more than 4.5%, Korean stocks fell 3.6%, and Australian stocks fell 2.5% for their worst weekly fall so far this year.

The losses came after Europe’s problems took a turn for the worse, as elections in France and Greece became a stage for voters to express discontent over austerity measures.

The election in Greece left the country without the leadership needed for the cost-cutting it’s undertaking to conform with the lending terms imposed by international creditors, with the nation now likely headed back to the polls.

Toward the end of the week, Chinese data generally presented a weaker picture of growth in the country that markets are counting on for a global economic recovery.

The People’s Bank of China introduced more monetary easing over the weekend, in a move that Deutsche Bank analysts linked to the weaker data.
…

I’m sure none of this news about economies spiraling down the tubes across the Eurasian land mass have any implications for future U.S. housing prices, do they?

May 13, 2012, 10:15 p.m. EDT
China’s economy has yet to bottom
Commentary: Market waits for further stimulus
By Craig Stephen

HONG KONG (MarketWatch) — China bears have the upper hand after growth in everything from retail spending and investment to industrial output and imports declined in April, pointing to a widening economic slowdown.

The move at the weekend to cut the amount of money Chinese banks must hold with the central bank by 50 basis points signals authorities recognize the problem. But will they do more? For much of this year, the commentary from many sell-side analysts was that the worse it gets, the bigger the likely stimulus — but we are still waiting.

As analysts reviewed last week’s data, they were cutting forecasts and questioning the lack of policy action by Beijing. SG Research said in a new note that not only did infrastructure investment fail to pick-up in April, but railway fixed-asset investment contracted 48% year-on-year, while fiscal spending growth was just in single digits.
…

Loan figures confirm housing in doldrums
From: AAP
May 14, 2012 12:44PM

THE outlook for the housing industry remains gloomy after data showing the value of lending to the sector is still heading lower.

The figures from the Australian Bureau of Statistics (ABS) on Monday showed the number of loans approved to home buyers rose by an insignificant 0.3 per cent, after seasonal adjustment, in March.

The value of home loans approved was down by the same margin, while the value of loans approved for investors fell by 1.0 per cent.

Overall, the value of housing loans - including loans to both investors and home buyers - fell by 0.5 per cent in total and by 1.0 per cent excluding refinancing transactions, the third consecutive fall by both measures.

The ABS trend measure of housing finance approvals was down by 0.2 per cent in the month, to be up by 4.6 per cent for the year.

But the trend has clearly flattened - in the most recent six months, the rise on the trend measure was less than 1.0 per cent.

The figures also suggest the recent mild deflation in housing prices is still under way.
…

It’s the best of times and the worst of times…to buy a house.

May 14, 2012

Is Now the Time to Buy Your First House?

It’s been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?

After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.

On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.

An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity.

On the other side, pessimists insist that the housing slump is far from over, and that prices will continue falling—perhaps as much as 20% or more.

Excess inventories, they say, are the problem, and some estimate it could be four years before the market absorbs all of that extra supply.

Eric Lascelles, the chief economist at money-management firm RBC Global Asset Management Inc., says this is a remarkable time to be a first-time home buyer. A. Gary Shilling, president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J., says buying now is a terrible idea.
…

Foreclosure Radar updated their information for the month of April recently. Here is the link to CA data:

http://www.foreclosureradar.com/california-foreclosures

Number of homes becoming REO down, number of homes held as REO down, notices of sale down.

Still messy, with time to go, but trending in the right direction.

Similar story in AZ:

http://www.foreclosureradar.com/arizona-foreclosures

Good granular detail by county, city, and zip code if one is tracking a particular market.

How long will it be until the Fed announces QE3?

And is a return to the March 2009 stock market lows a precondition of a QE3 announcement?

WSJ Blogs
The Euro Crisis
Real-time updates and analysis of Europe’s debt crisis

May 10, 2012, 8:34 AM

End of QE Hits Shares Harder Than Greece
By Alen Mattich

The latest iteration of the Greek crisis has seen markets slump again. But that may just have been a trigger rather than the cause.

Of even more concern to investors is the prospect that the ever increasing supplies of central bank liquidity that have inflated asset prices beyond what can be justified by economic fundamentals is probably reaching its limits.

The tenor of recent comments from members of the FOMC suggests they are growing uncomfortable with the risks yet more quantitative easing would pose to future inflation. Bearing in mind that monetary policy runs on a lag of up to two years, the fact that U.S. unemployment has been falling while inflation remains broadly stable around the 2% level while credit demand has been rising suggests that there are risks of the Fed doing too much.

In the U.K., the Bank of England is battling against persistent inflationary overshoots and growing concerns that the economy’s problems have at least as much to do with aggregate supply as with demand. To that end, the BOE failed to extend its latest round of asset purchases, which ended this month, at Thursday’s policy meeting.

In the euro-zone, meanwhile, the European Central Bank is circumscribed by German economic strength, a political unwillingness to allow U.S. or U.K.-style quantitative easing and by the very large volumes of liquidity it has already provided to banks.

Central bankers have been arguing that it’s not the incremental additions of stimulus that will boost their economies, but rather the stock of bond purchases they’ve already done. If they could only convince the equity markets.

During the past three years, each time investors came to think that liquidity provision had come to an end, the markets tumbled. Central bankers have placed considerable store on wealth effects, so market falls have sent them scurrying to offer further stimulus.

But with the balance of risks tilting towards eventual inflation, central banks could well turn more of a blind eye to equity market demands for more stimulus.

The Dallas Fed’s Richard Fisher has several times said that the central bank would not be blackmailed by the equity market into endless loose policy. And Fed chairman Ben Bernanke won’t be indifferent to charges by Harvard professor and president of the august economics body, the NBER, that the Fed has detached equities from the real world and inflated another bubble.

As for the equity markets’ prognosis, it’s worth looking at the Shanghai Composite. The index peaked at above 6100 ahead of the financial crisis and then slumped to under 1700 in its wake. Huge amounts of fiscal and monetary stimulus pumped it back up to 3480. But, since then, a combination of rising Chinese inflation and concerns about economic distortions has brought it back to around the 2500 level.

This suggests that as central banks pull back, equities will head closer to their 2009 lows than to recent highs.
…

Ya gotta love a story that keeps on giving…and as for Faster Pussy’s suggestion that Dimon doesn’t know about multi-billion dollar gambling activities happening on his watch, I’m not buying it.

Dimon Fortress Breached as Push From Hedging to Betting Blows Up
By Dawn Kopecki and Max Abelson - May 13, 2012 11:01 PM PT

May 11 (Bloomberg) — Jamie Dimon, chief executive officer of JPMorgan Chase & Co., and Bloomberg’s Dawn Kopecki and Christine Harper talk about JPMorgan’s $2 billion trading loss after what Dimon said was an “egregious” failure in the firm’s chief investment office. This report also includes comments from Bloomberg Television contributing editors William Cohan, Thomas Brown and Neil Barofsky, Portales Partners’ Charles Peabody, Aegis Capital’s Stanley Crouch, Fifth Third Asset Management’s Keith Wirtz and Rochdale Securities’ Richard Bove. (Source: Bloomberg)

“We want to ramp up the ability to generate profit for the firm,” Olson, 43, recalled being told by two executives. “This is Jamie’s new vision for the company.”

That drive has now shattered JPMorgan’s cultivated reputation for policing risk and undermined Dimon’s authority as a critic of regulatory efforts to curb speculation by too-big-to-fail banks. It also may cost Chief Investment Officer Ina R. Drew, one of the most powerful women on Wall Street, her job. As U.S. and U.K. investigators descend on the firm following Dimon’s announcement last week of a $2 billion trading loss, lawmakers are pointing to the breakdown at the largest U.S. bank as evidence that tougher rules are needed.

Dimon pushed Drew’s unit, which invests deposits the bank hasn’t loaned, to seek profit by speculating on higher-yielding assets such as credit derivatives, according to five former executives. The CEO suggested positions, a current executive said. Profits surged over the next five years as assets quadrupled to $356 billion and employees were given proprietary- trading accounts, current and former executives said.
‘Wall Street Hubris’

Dimon said on May 10 that the unit made “egregious mistakes” by taking flawed positions on synthetic credit securities and that New York-based JPMorgan could lose an additional $1 billion or more as it winds down the position. The U.S. Securities and Exchange Commission, the Federal Reserve and the Commodity Futures Trading Commission are investigating, according to people familiar with the probes.

The loss was particularly surprising for JPMorgan, the bank whose $2.32 trillion balance sheet makes it the largest in the U.S. and whose traders were the first in the mid-1990s to create credit derivatives, which let firms and investors insure themselves against losses on debt. It was also a blow to Dimon, 56, who has been the most outspoken critic of the Volcker rule, meant to restrict banks from betting their own money.

“It’s classic Wall Street hubris, which we’ve seen so many times before,” said Simon Johnson, a former chief economist at the International Monetary Fund who teaches at the Massachusetts Institute of Technology. “What’s particularly ironic here is that Jamie presents himself, and is believed by others to be, the king of risk management.”
Fannie Mae Loss

It wasn’t the first 10-digit hit for JPMorgan’s chief investment office. In 2008, it lost $1 billion on Fannie Mae and Freddie Mac preferred securities when the government-backed mortgage agencies were put into conservatorship. Olson, who ran the unit’s U.S. credit trading until December, said the only reason he wasn’t fired at the time was because Dimon had been “intimately familiar with those positions.”
…