The Housing Bubble

I’d like to hear as detailed an account as Ben is willing to give us of his experience at the state convention last weekend.

I’m also interested in how many of the delegates are actually required to vote for the candidate(s) chosen in primary or caucus, whether in proportion to the vote or caucus or in a winner-take-all situtation. There was some coverage of the state conventions in the MSM that I found, but a lot of it skipped that detail.

Do low interest rates really lead to lower unemployment? Based on what theory? Or better yet, on what evidence?

Several on FOMC Said Easing May Be Needed on Faltering
By Joshua Zumbrun - May 16, 2012 9:01 PM PT

The Federal Reserve signaled further monetary easing remains an option to protect the U.S. economy from the danger that lawmakers will fail to reach agreement on the budget or Europe’s debt woes worsen.

Several members of the Federal Open Market Committee said new actions could be necessary if the economy loses momentum or “downside risks to the forecast became great enough,” according to minutes of the Federal Open Market Committee’s April meeting released yesterday in Washington.

U.S. stocks declined yesterday as reports the European Central Bank will stop lending to some Greek banks overshadowed stronger-than-forecast data on U.S. housing and manufacturing. A focus on threats to the U.S. economy gives officials more scope to ease policy, said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York.

“If you have very clear and potentially large downside risks, like the fiscal cliff and Europe’s debt crisis, you are going to have a little more of an easing bias in place,” said Hanson, who formerly worked in the Fed’s monetary affairs division.

The Standard & Poor’s 500 Index (SPX) fell 0.4 percent to 1,324.80, the lowest since February. Treasury notes erased losses, leaving the yield on the 10-year Treasury note little changed at 1.76 percent.

A fiscal tightening caused by a failure of U.S. lawmakers to agree on a budget could damage the economy even before cuts take effect as an unclear outcome prompts businesses to defer investment and hiring decisions, the minutes said.

Bernanke Warning

Fed Chairman Ben S. Bernanke warned a group of senators last week that the expiration of fiscal policies at the end of the year may push the U.S. into recession, according to lawmakers who attended the meeting.

Fed governor Elizabeth Duke told a gathering of Realtors May 15 that the combined impact of the changes could amount to about 4 percent of the country’s economy.

Programs scheduled to end include tax cuts enacted under President George W. Bush, a payroll-tax holiday and extended unemployment benefits. In addition, budget cuts are set to take effect in January of 2013 as part of a deal last year in Congress to raise the U.S. statutory borrowing limit.

Central bankers last month affirmed their plan to hold interest rates near zero at least through late 2014 as they sought to push down an unemployment rate that has stayed above 8 percent for more than three years.
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Is a near-term double-dip recession in the works, and if so, what are the possible implications?

6) For the U.S. housing market, in terms of prices and sales?

`Quite a Few’ Fed QEs Coming, Sri-Kumar Says

May 17 (Bloomberg) — Komal Sri-Kumar, chief global strategist at Los Angeles-based TCW Group Inc., talks about the impact of Europe’s sovereign debt crisis on U.S. financial markets and the economy, and the outlook for Federal Reserve monetary policy. He speaks with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

Is the Grexit in the bag. If so, will it be another Lehman, or just a minor perturbation to the global financial equilibrium, as everyone already expects it at this point?

A Greek Exit? Euro Zone May Be Ready
New York TimesBy BINYAMIN APPELBAUM | New York Times – 2 hours 59 minutes ago

WASHINGTON — It is increasingly conceivable that Greece may leave the euro zone, not just because of its own political dysfunction but also because the consequences of such an exit for the rest of the Europe and the global economy no longer seem quite so scary.

The foot-dragging and brinkmanship of the last few years have won the other members of the currency union valuable time to prepare for life without Greece. Banks have recorded losses on Greek investments, companies are making contingency plans and Europe has bolstered rescue funds for other vulnerable nations like Portugal, Ireland and Spain.

Those measures also have reduced the risks for the United States, making it less likely that a “Lehman moment” will spread panic through global financial markets. American investment funds and banks have also sharply reduced their investments in Europe.

But some experts say Europe’s preparations remain incomplete and the potential costs of a Greek exit are highly uncertain and potentially substantial. That reality helps to explain why Germany continues to profess its determination to keep Greece in the currency union if at all possible.

Still, European leaders are increasingly willing — even eager — to comment publicly on the possibility that Greece will leave, something they long refused to countenance, not just because relations with Greece continue to deteriorate but also as a result of their own preparations.

“We’ve worked hard to mitigate against such a scenario,” the Dutch finance minister, Jan Kees de Jager, told reporters after a meeting of European finance ministers early this week. “That’s why the contagion risk would be far, far smaller than one and a half years ago.”
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For how much longer will gold keep crashing until it finds a stable bottom?

And why do European risks drive a flight out of, not into, gold?

Gold Set for Third Weekly Decline as European Risks Curb Demand
Bloomberg
By Phoebe Sedgman | Bloomberg – 6 hours ago

Fantasy Finance

Gold dropped, headed for its third weekly decline, on signs that Europe’s crisis is worsening as concern grew about the health of Spanish banks and Fitch Ratings downgraded Greece’s credit rating, curbing demand for the metal.

Gold for immediate delivery fell as much as 0.4 percent to $1,568.03 an ounce and was at $1,570.68 at 2:49 p.m. in Singapore. The metal climbed 2.3 percent yesterday, paring this week’s loss to 0.5 percent. June-delivery bullion declined as much as 0.5 percent to $1,567.80 on the Comex in New York.

Greece’s credit rating was reduced one level on concerns the country won’t be able to muster the political support needed to sustain its membership in the euro area as leaders began campaigning ahead of a second national vote in six weeks. Moody’s Investors Service lowered debt ratings at 16 Spanish banks, citing economic weakness and the government’s mounting budget strain. It follows Moody’s May 14 downgrade of 26 Italian banks and its Feb. 13 cut of Spain’s sovereign debt.

“The fact that people are worried about European banks again is likely to have a broader, more depressing effect across all markets,” said Nick Trevethan, senior commodities strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Even though it broke away from other assets yesterday, gold is still very much traded in line with risk.”
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Will a nice pop on the Facebook IPO be enough to stave off global economic depression and heat death of the sun?

Stocks futures rise, markets to close worst week of year
Reuters – 1 hour 24 minutes ago
By Rodrigo Campos

NEW YORK (Reuters) - U.S. stocks were set to open higher on Friday but major indexes were still setting up to close their worst week of the year, while Facebook’s market debut could help lift battered investor sentiment.

The S&P has fallen 6.7 percent so far in May, and while volatility is expected to continue, some analysts were forecasting a near-term rebound as valuations become more attractive.

Investors are bracing for Facebook’s debut after the world’s No. 1 online social network raised about $16 billion in one of the biggest initial public offerings in U.S. history. Facebook priced its offering at $38 a share on Thursday, and shares are expected to begin trading under the FB symbol on Nasdaq (FB.O) at around 11 a.m. (1500 GMT).

The large weekly decline in equities has come amid uncertainty over a political crisis in Greece and whether that could trigger a default and possible exit from the euro zone.

Market participants were skittish even as a poll showed Greek voters are returning to the establishment parties that negotiated its bailout.

“Even good news is not enough to overcome the fear that there is going to be a dramatic slowdown in the world economy because of the European crisis,” said Rick Meckler, president of investment firm LibertyView Capital Management in New York.

“Today, Facebook trading up would be a good start,” he said, adding that a decline below the IPO price “could be a big negative for the market.”
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How bad are the actual losses at JP Morgan and other Wall Street investment banks, compared to what we have heard so far?

Perhaps FPSS will favor us over the weekend with an update on his insider perspective.

Inside the chaos at J.P. Morgan

An exclusive, behind-the-scenes look at the chaos that enveloped J.P. Morgan as the bank and its CEO, James Dimon, struggle to come to grips with the magnitude of losses from a trading debacle.
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How does a $2.3 bn trading loss translate into a $25 bn loss of shareholder value? Is JPM oversold?

MANAGEMENT
Updated May 18, 2012, 7:05 a.m. ET

Inside J.P. Morgan’s Blunder
CEO Dimon Blessed the Concept Behind Disastrous Trades; ‘Blood in the Water’
By MONICA LANGLEY

The Wall Street Journal’s Monica Langley offers an exclusive, behind-the-scenes look at the chaos that enveloped J.P. Morgan as the bank and its CEO, Jamie Dimon, struggled to come to grips with the magnitude of losses from a trading debacle. Photo: Bloomberg.

J.P. Morgan Chase & Co. Chairman and Chief Executive Officer James Dimon had just committed the most expensive blunder of his 30-year career, failing to detect the risk of trades that had begun to generate huge losses at the bank.

On April 30, associates who were gathered in a conference room handed Mr. Dimon summaries and analyses of the losses. But there were no details about the trades themselves. “I want to see the positions!” he barked, throwing down the papers, according to attendees. “Now! I want to see everything!”

When Mr. Dimon saw the numbers, these people say, he couldn’t breathe.

Those trading positions have produced losses that could total as much as $5 billion, tarnishing the record of an executive who had thrived through the global financial crisis and who has long been known for paying close attention to the bank’s trading activity, its risk profile and the activities of its senior employees.

J.P. Morgan, the nation’s largest financial firm by assets, is struggling to contain the damage, which already has shaved off more than $25 billion in shareholder value.

This behind-the-scenes account of the disaster—based on interviews with numerous J.P. Morgan executives and with officials on Wall Street and in Washington—provides new details about the drama inside the bank as executives sought to understand the scope of the losses and decide what to do about them.

Among other things, Mr. Dimon initially resisted ousting the executive at the center of the mess, confided in his wife that he had “missed something bad,” and expressed regrets with his colleagues one night over vodka about how they had all let the firm down.

“The big lesson I learned: Don’t get complacent despite a successful track record,” Mr. Dimon said in an interview Wednesday. “No one or no unit can get a free pass.”
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From the Canadian bubble thread:

“Real estate agent Melanie Piche says record-low interest rates are fueling the insanity. To keep the economy going, the Bank of Canada has held its prime lending rate at 1 percent. This winter, banks were offering mortgages for less than 3 percent, making house prices more affordable for many buyers.”

Low interest rates are fueling the same insanity on the U.S. side of the border, raising some million-dollar questions:

1) How long will this ultra-low rate environment last? (The Fed has indicated it will pin rates to the mat through 2014, but I am not sure whether they have sufficient control to do this under all eventualities.)

2) What will happen to housing prices when mortgage rates return to more normal levels as a consequence of the end of the inexorable end of extraordinary central bank intervention to suppress interest rates?

What happened to housing as the worst investment ever? After a bubble I thought things over corrected on the downside?

Or did I miss it ?

I’d like to re-visit capitulation points for all the fence-sitters (like me). When will you buy, for what reason, how much, why? etc.

Comment by Bronco
2012-05-19 04:42:07

Not at all, Muggy. I would say I am in the acceptance phase. I have moved on; housing is not my major focus. There is more to life. It is, however, fun to grab a box of popcorn, find a comfortable seat and enjoy the show.

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Topic suggestion: for those of you who have have not purchased, AND are over it, what was the turning point?

What did it take to be a renter that doesn’t care?

In terms of being productive and getting out and doing stuff, yes, I am doing all that. I suspect being in FL (fraud, GSEs, shadow inventory, etc.) is part of my problem. Rents are still very high and that is a annoying.

I am still excited about the future, and I am still forked up about housing.

How about a few ides:

Is Bill in LA phoenix tampa LA the wave of the future? Mobile not buying much in the way of permanent items? Therefore never needing the space of a McMansion? So why would a 20-30 somethings ever own a house…. unless they inherited it.

My take on FB….I never knew how DULL my friends really are….I post interesting articles videos and get almost no likes or responses, yet a friend posted about the strawberry pie made from her garden and she got 30 likes and responses in a few hours.

I liked Myspace so much better we had a community of musicians dj’s all from around NYC, traded gigs music etc….so what good is it to me spending a lot of time getting 5000 FB friends if only 100 are around nyc? I think FB makes it hard to be local.

I am in my hometown of Fresno this weekend. sign of the times of Calif ’s financial mismanagement: Most rest stops on 5 and 99 closed on Friday. Had a good two mile run-walk with a sister early today. We will meet up with couch potato relatives later.