The Housing Bubble

A “housing recovery” is dramatically lower housing prices by definition.

Did you catch that miraculous stock market rally yesterday? Despite a year of epic stock fund withdrawals, and a major trading “glitch” last week, the ever-more-resilient Mr Market managed to close out the week with a price blowout. I guess the stock market can only go up from here?

Schumpeter
Business and management
Knight Capital
Desperate times
Aug 3rd 2012, 21:29 by T.E. | NEW YORK

AS IF Wall Street did not have enough problems, a software mistake by Knight Capital on August 1st, resulting from a faulty trading algorithm, threatened not only its own existence, but the battered credibility of America’s financial markets.

While details are still emerging, it appears the prices at the opening of more than 100 securities might have been directly affected, with a particularly large impact on a half-dozen. But even firms only remotely tied to America’s equity markets must have shuddered in the aftermath of the glitch.

Knight plays a key backstage role executing trades for retail brokerage firms, an audience that may not pick up on tiny pricing disparities but has no tolerance for highly publicised glitches that rattle small investors already confronting a decade of rotten returns.

So far the impact of the glitch has fallen on Knight itself, costing it $440m and stretching its finances to the limits, and maybe beyond. On the morning of August 3rd, its share price was posted at $1.51, down from $10 on July 31st, reflecting a loss in market value of $850m. Even that may have been overly optimistic. Knight is not in the category of too big to fail, and there is little doubt that its survival is in question.

Shortly before the market opened, however, Knight’s share price more than doubled amid reports that it had received an emergency credit line and was in the process of raising money from an audience that—most importantly—had shown interest in providing it. By mid-afternoon, its stock price had stabilised at just over $4 a share, suggesting some sort of deal had been struck.

This is not the first time Knight has encountered problems. It emerged in the 1990s as an alternative trading venue to the established firms and faced the prospect of an early death. In the midst of a crisis in 2002, Thomas Joyce became its chief executive, moving over from Merrill Lynch where he had run one of the largest trading platforms in the country. He is broadly thought to have done a good job at Knight. And though its customers fled en masse on August 1st, and may only return slowly, the head of a trading desk at one firm said he believed there was a good possibility that lost business could be largely recovered over the course of a year, though probably not sooner.
…

Are you ready for the Buffett coat-tail effect to lure an army of hesitant investors currently sitting on the sidelines back into the U.S. housing market?

My personal take: The seemingly-limitless number of serial bottom callers on housing certainly is delaying the capitulation phase of the housing bubble stages of grief.

Aug. 3, 2012, 6:20 p.m. EDT
Buffett’s Clayton Homes hints at housing recovery
By Sue Chang, MarketWatch

SAN FRANCISCO (MarketWatch) — Warren Buffett was right: There are signs of life in the U.S. housing market.

Berkshire Hathaway Inc.’s BRK.A +1.73% BRK.B +1.78% Clayton Homes, the largest producer and financier of manufactured homes in the United States, reported on Friday that its second-quarter pretax earnings grew 45% on increased unit sales.

“Revenues from home sales increased $40 million (11%) in the second quarter and $103 million (16%) in the first six months, due primarily to increases in units sold partially offset by slightly lower average prices,” said Berkshire Hathaway in a regulatory filing.

Last month, Buffett said there has been a discernible pickup in the housing sector and stressed that a recovery in housing will be the key to continued economic expansion.

Recent data also suggest that the real-estate market is rebounding. The S&P/Case-Shiller 20-city composite index rose 2.2% in May, the second month in a row, according to data released earlier this week. All 20 cities in the index recorded monthly gains, including a 4.5% surge in Chicago.

“We would like to think that housing is finding its equilibrium, that it is searching for a bottom and establishing a base,” said Steven Jones, an investment manager at First Washington.
…

I wonder how many thousands of people are collecting free rent because the banks want to keep inventory low?

How much is this costing the taxpayer stiff?

Geithner To DeMarco: “I Do Not Believe [Un-Socialism] Is The Best Decision For The Country”
Submitted by Tyler Durden on 07/31/2012 14:26 -0400

In an administration that has completely lost its mind, and in which the solution to every problem is the forgiveness of debt to those who lived beyond their means, FHFA’s Ed DeMarco is a lone voice of sanity. In a letter to Tim Geithner, the FHFA has the temerity to tell the truth and say that “after extensive analysis of the revised [Principal Reduction Act]…FHFA has concluded that the anticipated benefits do not outweigh the costs and risks… FHFA concluded that HAMP PRA did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.”Via Bloomberg:

*FANNIE MAE, FREDDIE MAC WON’T WRITE DOWN LOANS, DEMARCO SAYS
*FHFA’S DEMARCO SAYS PRINCIPAL REDUCTION WON’T BENEFIT TAXPAYERS

Needless to say, when presented with a minority opinion that socialism just may not be the answer, Geithner was not happy and penned his own response. Both are presented below.
…

This listing proves bidding wars are back in central Texas

$47k appreciation in less than four years…. Sold 12k
OVER asking price

MLS#: 9843087

Aug 02, 2012 Sold (MLS) $312,000
Jun 10, 2012 Pending (Pending - Taking Backups)
Jun 05, 2012 Listed (Active) $299,900
Nov 25, 2008 Sold (MLS) $265,000

The Post’s View
Edward DeMarco’s defensible decision against mortgage relief
By Editorial Board, Published: August 1

EDWARD J. DeMARCO is once again in the Obama administration’s doghouse. The acting director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac while they are in federal conservatorship, has refused to allow the mortgage giants to offer debt reductions to homeowners who owe more on their properties than they are worth on the market. Mr. DeMarco’s refusal has incurred the wrath of the administration and a wider circle of mostly left-leaning critics who say that he is standing in the way of a nearly costless measure that would aid economic ­recovery.

The truth is that Mr. DeMarco has made a defensible judgment call on a politically polarized question that is, in policy terms, actually very close.

Basically, the Obama administration proposes to write down the loan balances of up to a half-million underwater borrowers, saving them tens of billions of dollars — the equivalent of a middle-class tax cut in both size and stimulative impact.

Who would pay? Partly, Fannie and Freddie’s bondholders, because they would get bought out at par, instead of the premium at which the securities currently trade. Also partly, taxpayers, who would supply a $2.7 billion subsidy from the leftover Treasury Department’s Troubled Assets Relief Program (TARP). But when you factor in the benefit to Fannie and Freddie from fewer defaults, the taxpayer actually comes out almost $1 billion ahead, according to a Treasury analysis.

Not so fast, says Mr. DeMarco. The vast majority — 75 percent — of Fannie and Freddie’s 4.6 million underwater borrowers (fewer than half the national total of 11 million, by the way) are current on their loans. As soon as underwater homeowners get wind of the fact that Fannie and Freddie are offering write-downs to some borrowers who are in default, others who are not in default will try to get in on the action. If there are as few as 3,000 “strategic defaults,” Mr. DeMarco argues, the principal reductions will result in net losses to the taxpayer.
…

Was it a Spanish bailout hint that drove yesterday’s market rally?

ft dot com
Last updated: August 3, 2012 8:08 pm
Market boost from Spain bailout hint
By Miles Johnson in Madrid and Michael MacKenzie in New York
Monti and Rajoy

Stock markets rallied sharply on Friday as Spain responded to a conditional offer of intervention from the European Central Bank by signalling it would consider seeking a sovereign bailout.

European and US equities gained while the borrowing costs of Spain and Italy fell. Those “exceptionally high” bond yields had prompted the ECB to say on Thursday it was devising a plan to buy bonds – but only if the affected countries applied to Europe’s rescue funds first.

US equities were set for their first positive session this week, with better-than-expected jobs data showing the US added 163,000 jobs in July powering a rise of 1.9 per cent in the S&P 500 by the close.

Spain has already agreed to take €100bn of European aid specifically to clean up the parts of its banking sector that have been left with billions of bad property loans made during the country’s decade long real estate bubble.

After denying for months that Spain would require any aid resembling a sovereign bailout, Mariano Rajoy, prime minister, for the first time opened the door to such a step, but said his government would wait for the terms of any rescue to be clarified.

“I will do what I consider to be in the general interest of Spaniards,” Mr Rajoy said. “I want to know first what these [ECB] measures are, what they could mean, and if they are adequate … and then in view of the circumstances we can make one decision or another, but I have not taken any decision.”
…

My parents are in town. Their hotel is 100% booked.

Party on, dudes. To 2005 and beyond!!

If U.S. housing prices can be artificially propped up by inventory manipulation and the Libor can be grossly understated by lying, I don’t understand why a similar ploys might not work to manipulate the BDI to advantage?

MARKET LAB
The holy grail of obscure indicators loses its lustre
DAVID PARKINSON
The Globe and Mail
Published Friday, Jul. 20 2012, 7:42 PM EDT
Last updated Friday, Jul. 20 2012, 8:33 PM EDT

The Baltic Dry index has lost its cool. And it’s going to have to jump over an awful lot of freighters to get it back.

The index – which tracks global freight prices for shipping dry bulk commodities such as coal, grains and iron ore – remains mired in its lowest trading range in more than 25 years. After showing some encouraging gains since early June, the Baltic Dry has once again gone into a skid, slumping 6 per cent in a week.

Historically, a weak Baltic Dry was a canary in the coal mine – a warning that commodity demand was in trouble, that the global economy was ailing and that financial markets were about to take a turn for the worse. For astute market watchers, it was the holy grail of obscure indicators.

But its latest drop may signal nothing. Changes in the global shipping business over the past few years have made the Baltic Dry irrelevant.

Too many ships

Since the 2008-2009 recession, the previously close correlation between the Baltic Dry index and dry bulk commodities has fallen apart. So far this year, the Baltic Dry has tumbled nearly 40 per cent, even as grain prices have spiked, iron ore prices have risen, and commodities overall have posted little change.

This is because shipping costs, which are traditionally a function by commodity demand, have in recent years become dominated instead by issues of shipping supply. A surge in orders for new ships at the commodity market’s peak in 2008 has led to a flood of new cargo capacity since 2010. (It takes a few years for big freighters to be built and go into service.)

“Demand for shipping has rebounded from its late-2008 lows, but capacity has been rising even faster, causing utilization rates and hence shipping costs to plummet,” said Julian Jessop, chief global economist at Capital Economics. “Order books for delivery in 2012 suggest that this year will see a further surge in supply, maintaining the downward pressure on prices.”
…

“The next big thing driving Florida’s job growth could be the same as the last big thing: construction. If forecasts prove true, the archetypical boom-and-bust state will soon be at it again as jobs tied to the building trades rank among the fastest-growing between now and 2019. ”

http://www.tampabay.com/news/business/realestate/florida-construction-industry-on-verge-of-a-comeback-seers-say-thanks-to/1244149

Leading Irish experts now believe Euro break-up more likely
Dow Jones confusing signals may last to 2013
By CHRISTOPHER M. QUIGLEY,
Published Saturday, August 4, 2012, 8:48 AM
Updated Saturday, August 4, 2012, 8:48 AM

The European Central Bank has indicated it may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but the conditions it set and the dissenting voice of its key
The European Central Bank has indicated it may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but the conditions it set and the dissenting voice of its key German member disappointed markets.

The European Central Bank indicated on Thursday (2nd. August) it may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but the conditions it set and the dissenting voice of its key German member disappointed markets.

In the latest move to contain the eurozone crisis, ECB President Mario Draghi indicated that any intervention would not come before September - and only if governments activated the euro zone’s bail-out funds to join the ECB in buying bonds.

“The Governing Council … may undertake outright open market operations of a size adequate to reach its objective,” Draghi told a news conference after the central bank’s monthly meeting, using the central bank’s code for bond-buying.
…

I talked to an interesting guy at my cousin’s housewarming party last night who recently traveled to Greece. I had to admire his no-nonsense description of the situation, which was something to the effect of, “They have no economy aside from olive oil presses, and are completely screwed no matter what happens.”

gulfnews dot com
August 04 2012 | Last updated 1 minute ago

Summer break first, then crisis looms large again
Negotiations likely on further Greek debt write off
Reuters
Published: 20:11 August 2, 2012

Brussels: Over the past couple of years, Europe has muddled through a long series of crunch moments in its debt crisis, but this September is shaping up as a “make-or-break” month as policymakers run desperately short of options to save the common currency.

Crisis or no crisis, many European policymakers will take their summer holidays in August. When they return, a number of crucial events, decisions and deadlines will be waiting.

“September will undoubtedly be the crunch time,” one senior Eurozone policymaker said.

In that month a German court makes a ruling that could neuter the new Eurozone rescue fund, the anti-bailout Dutch vote in elections just as Greece tries to renegotiate its financial lifeline, and decisions need to be made on whether taxpayers suffer huge losses on state loans to Athens.

On top of that, the Eurozone has to figure out how to help its next wobbling dominoes, Spain and Italy - or what do if one or both were to topple.

“In nearly 20 years of dealing with EU issues, I’ve never known a state of affairs like we are in now,” one Eurozone diplomat said this week. “It really is a very, very difficult fix and it’s far from certain that we’ll be able to find the right way out of it.”

Since the crisis erupted in January 2010, the Eurozone has had to rescue relative minnows in Greece, Ireland and Portugal as they lost the ability to fund their budget deficits and debt obligations by borrowing commercially at affordable rates.

Now two much larger economies are in the firing line and policymakers must consider ever more radical solutions.

If Spain, the Eurozone’s fourth biggest economy and the world’s 12th, loses affordable market financing the next domino at risk of falling is Italy — the Eurozone’s third biggest economy and a member of the G7 group of big wealthy nations.

A bailout of Spain would probably be double those of Greece, Ireland and Portugal combined, while Italy’s economy is twice as large as Spain’s again.

The European Union has already agreed to lend up to €100 billion to rescue Spanish banks. One Eurozone official said Madrid has now conceded that it might need a full bailout worth €300 billion from the EU and IMF if its borrowing costs remain unaffordable.

European officials have spent the past few days issuing a series of statements declaring they will act to halt the crisis.

In the latest, issued on Sunday, Chancellor Angela Merkel and Prime Minister Mario Monti “agreed that Germany and Italy would do everything to protect the Eurozone”.

The wording was similar to remarks by European Central Bank chief Mario Draghi last week prompted buying in financial markets on the expectation that the bank would take steps to lower the cost of borrowing of Spain and Italy.

The Eurozone does not seem to have enough cash in the current setup to deal with a scenario of Spain and Italy needing a rescue, and a sense of doom is growing among some policymakers. Fighting the crisis, said the Eurozone diplomat, is like trying to keep a life raft above water.

“For two years we’ve been pumping up the life raft, taking decisions that fill it with just enough air to keep it afloat even though it has a leak,” the diplomat said. “But now the leak has got so big that we can’t pump air into the raft quickly enough to keep it afloat.”

Compounding the problems, Greece is far behind with reforms to improve its finances and economy so it may need more time, more money and a debt reduction from Eurozone governments.

If Greek debt cannot be made sustainable, the country may have to leave the Eurozone, sending a shockwave across financial markets and the European economy.

September 12 is a crucial date in the European diary. On that day the German Constitutional Court is scheduled to rule on whether a treaty establishing the Eurozone’s permanent bailout fund, the €500 billion European Stability Mechanism (ESM), is compatible with the German constitution.

A positive ruling is vital, because Germany is the biggest funder of the ESM, and the Eurozone would be powerless to protect Spain or Italy without the ESM.

On the same day, parliamentary elections are held in the Netherlands where popular opposition to spending any more money on bailing out spendthrift Eurozone governments is strong. The Dutch vote may complicate talks on a revised second bailout for Greece, which also has to be agreed in September.

Athens wants two more years than originally planned to cut its budget deficit to below 3 per cent of GDP, so as not to impose yet more spending cuts on a country which is already in a depression.

This would mean Greece’s €130 billion second bailout package may need to be increased by €20-50 billion, according to estimates by some Eurozone officials and economists, and there is no appetite in the Eurozone to give Greece yet more extra money.

More importantly Greece needs to bring its debt, which is equal to 160 per cent of its annual economic output, under control. This means Eurozone governments, which own roughly two thirds of it, may need to write part of it off.

Private creditors have already suffered a huge writedown in the value of their Greek debt holdings but so far Eurozone taxpayers have not lost a cent on any of the bailouts.

Policymakers are working on “last chance” options to bring Greece’s debts down and keep it in the Eurozone, with the ECB and national central banks looking at also taking significant losses on the value of their bond holdings, officials said.

If governments swallowed the bitter pill by also accepting a cut in the value of their contributions to loans already made to Greece, this would break a taboo and could provoke demands for similar treatment from Ireland or Portugal.

Peter Vanden Houte, chief economist at ING bank, said euro governments might be forced to accept a halving of the value of their Greek debt — known in the business as haircut.

“If Greece is to be saved, we must see some debt forgiveness from Eurozone governments in the coming years because otherwise Greece is never going to come out of the situation it is in now,” he said. “We are talking about potentially a 50 per cent haircut, which would still mean the Greek debt would be (proportionately) around the Eurozone average.”

The Eurozone would want concessions from Athens. “Most probably in exchange, Eurozone partners will be more strict on Greek compliance with structural reforms and may ask Greece to give up some sovereignty,” said Vanden Houte.

While no official discussions are underway on another Greek debt restructuring, Eurozone officials say privately it may be necessary if Greece is to have a fighting chance.

“The Greeks might say they are in such a mess that to survive they we need to ease up the austerity a bit, and to still regain debt sustainability they will have to default on 30-40 per cent of the loans,” one Eurozone official said.

“There would be a lot of people saying this is understandable, so maybe this makes sense and maybe we could have a reasonable discussion among the member states on how Greece can move forward,” the official said.
…

Break up the megabanks
The Salt Lake Tribune
First Published Jul 31 2012 01:01 am • Last Updated Jul 31 2012 01:01 am

The following editorial appeared in Friday’s Los Angeles Times:

Former Citigroup honcho Sanford I. Weill is widely seen as the man most responsible for the rise of “too big to fail” banks and, by extension, for the enormous federal bailouts they received in 2008 and 2009. Last week, however, Weill shocked the financial industry when he said that megabanks should be broken into smaller pieces, separating the arms that take federally insured deposits from the ones making bets on Wall Street. Lawmakers resisted such a straightforward approach when they enacted the Dodd-Frank law to re-regulate the financial industry in 2010. But Weill’s hindsight should prompt them to consider again how best to protect Americans from a repeat of the last meltdown.

The New Deal-era Banking Act of 1933, better known as Glass-Steagall, created deposit insurance and, to prevent those newly insured funds from being put at risk on Wall Street, barred banks from owning stock brokerages. That ban was dropped in 1999 after an intense campaign by bank lobbyists, led by Weill, who was in the process of building Citigroup into one of the world’s largest financial institutions.

Wall Street’s epic collapse in 2008 led Congress to enact Dodd-Frank, imposing new restrictions and mandates aimed at reducing the risk of another catastrophic failure. Instead of forcing banks to sell their brokerages, however, it included a rule, named after former Federal Reserve Chairman Paul Volcker, barring banks from using insured deposits to make bets on securities.

The banking industry, which has fought to weaken Dodd-Frank, nevertheless argues that the law is sufficient to guard against future bailouts. But Weill, who had little to say during the debate over Dodd-Frank, advocated a different approach Wednesday on CNBC, calling for the government to “split up investment banking from banking.”
…

More vestiges of fiscal disaster left over from the Bush years (or should I say “Booosh” — where is Eddie these days, anyway?):

Politics & Policy
The Fiscal Cliff We All Saw Coming
By Brendan Greeley on August 02, 2012

In early 2001, Paul O’Neill, the new secretary of the Treasury for a new president, began work on a plan for radical tax reform. He wanted simpler forms and fewer deductions, which would make it easy for people to prepare their taxes and cost the government less to process them. He presented a 5-inch-thick binder of research to a senior White House official. “Don’t ever let that see the light of day,” O’Neill says he was told. George W. Bush didn’t want to deliver tax reform. He wanted to deliver the tax cuts he’d promised as a candidate.

He did, in 2001 and then again in 2003. But the kinds of cuts he’d promised—large ones—would create unsustainable deficits after 10 years, the Congressional Budget Office projected. So they were designed to expire in a decade, at least on paper. It was “baloney,” says O’Neill, who publicly supported them at the time. Republicans never intended to let the cuts lapse. “It was put in there so they could make a fiscal claim that it wouldn’t damage us. It had nothing to do with reality.”

It’s now more than 10 years later, and Bush’s tax cuts are still with us—adding to the debt, exactly as predicted. The temporary tax cuts have become a subsidy, and as with all subsidies, to take them away is to create a period of painful readjustment. Politicians worry loudly about the “fiscal cliff”—the economic turmoil waiting at year’s end when deep federal spending cuts go into effect and the tax cuts lapse—as though no one could have seen it coming. There is nothing we know now that we didn’t already know a decade ago.

On Dec. 1, 1999, candidate George W. Bush was leading the race for the Republican presidential nomination, looking over his shoulder at Steve Forbes’s promise of a 17 percent flat tax, which was popular with conservatives. At a campaign event in Des Moines, Bush vowed that, as president, he would cut taxes for all Americans. According to a widely circulated report prepared by Citizens for Tax Justice at the time, his plan would cost $1.7 trillion over 10 years.

It looked like the money would be there to spend. Fiscal restraint and a strong economy had given Washington something novel to play with: The CBO forecast a federal budget surplus of $5.6 trillion by 2011. “The people of America have been overcharged, and, on their behalf, I’m here asking for a refund,” Bush told a joint session of Congress after his election. Trent Lott, then Republican Senate majority leader, lauded the idea. “It protects the entire Social Security surplus and leaves resources available for other priorities.”
…

Obama’s Real Unemployment Rate Is In Double Digits

“The so-called U3 measure of unemployment is the one most people know. It shows 8.3% joblessness, and 12.9 million people with no job.

But the government also releases what it calls the U6 measure — one that takes into account discouraged workers and those who, as the Labor Department puts it, are “marginally attached” to the labor force.

What does U6 show? It shows an alarming 15% unemployment rate — with 23 million people having no job. Worse, the U6 measure of unemployment is rising as the economy slows down.”

http://news.investors.com/article/621034/201208031859/real-unemployment-much-higher-than-white-house-claims.htm

So, maybe the Prez is fudging the numbers a bit, but the question remains,

What will all of these unemployed people do when they vote in Nov? We shall see.

San Francisco, Sacramento, Stockton, Fresno, Portland, Astoria, Long Beach, WA, Seattle, Reno, Salt Lake, Denver, Chicago, Cleveland, Buffalo, Albany, NYC, Philly, DC, Fredricksburg, Richmond, Springfield, IL. & MO, Texarkana, Austin, Dallas, San Antonio, Del Rio, Marfa, El No Peso, Demming, Tucson, Phoenix, Yuma, Palm Springs, Pomona, Lost Angeles.

x5 weeks

singin’ … “Eye’ve been everywhere man, eye’ve been everywhere …”

“All Aboard Amtrak!”

Can’t make up readin’ fer the lost-past HBB posts & POV’s … [let alone figure out who's who argumentative avatars] only hit FedEx Office cmptrs a couple times in the past 40 days … a very Bifurcated hill country Economy, … lilly pad$ of wealth surrounded by miles & miles of slough$ of de$pondence & di$appointment.

“gawd must love the poor, she made soooooooo many of ‘em”

Job$! Job$! Job$! … or … find-create-involve another “Great Conflict” and let SCOTU$ Private CitizenCorporation$ find-create-implement “A $olution”
[ eye know sound$ like a forward-looking movie preview-prequel ]

Job $tabilities & $helters cost$ for citizens is an absolute me$$ in America.

Iffin’ we just focused on American Repair$ & Redemption$, …therein bee lots of jobs (iwlho)

OK, now fer a cup of joe …

Great! Now when do we audit the Feds?

What’s in your vault? Uncle Sam audits its stash of gold at the New York Fed
Los Angeles Times | August 02, 2012 | Andrew Tangel

The federal government has quietly been completing an audit of U.S. gold stored at the New York Fed. The effort included drilling small holes in the bars to test their purity.

The Treasury Department has refused to disclose what the audit has revealed so far, saying the results will be announced by year’s end. But as one former top Fed official said recently, the testing may finally prove that “Goldfinger didn’t sneak in at night” and take the gold.

“The calls for audits are saying, ‘We don’t trust the government for the last 200 years,’” said Ted Truman, a former assistant Treasury secretary and Fed official. He called perennial questions about the country’s reserves “the gold bug equivalent of the birther movement.”

Ben, did you discuss the Zillow breakeven horizon calculation earlier in the week? I looked through Thursday’s and Friday’s posts, but I didn’t see any comments. In what I read on-line, the calculation appeared to be about when the current monthly cost of owning versus renting starts being a better deal, rather than when the accumulated total cost of owning versus renting becomes a better deal. I’d appreciate knowing what you and others thought. Thanks.

It must be nice to be “too-big-to-prosecute.”

Feature | SATURDAY, AUGUST 4, 2012
The Naked Truth?
By GARY WEISS | MORE ARTICLES BY AUTHOR

Documents accidentally unsealed from Overstock.com’s failed lawsuit against prime-broker units of Goldman and Merrill Lynch raise questions about short sales.

Naked short selling has long dwelled in the grassy knoll of the equity markets, denounced by crackpots, devotees of penny stocks, and troubled companies eager to divert attention from their failings. In other words, sightings of it often turn out to be bunk.

Despite this, a failed naked-shorting lawsuit lodged against all of the major Wall Street prime brokers, including units of Goldman Sachs Group and Merrill Lynch, by Overstock.com, has raised intriguing issues. The case, filed in California Superior Court in San Francisco in 2007, was summarily dismissed in January on a technicality; the court found that it should have been filed in a different venue. Goldman (ticker: GS) and Merrill, a Bank of America (BAC) subsidiary, want the court to keep all related records and documents sealed, as they now are, while four media outfits—the New York Times (NYT), the Economist, Wenner Media (Rolling Stone’s publisher), and Bloomberg—have filed a motion seeking their release. Amid all this, a lawyer for Goldman goofed—attaching to a public filing a sealed legal brief from Overstock’s legal team, citing selected documents and e-mails in a manner that casts a very unflattering light on the two Wall Street giants’ prime-brokerage operations.

NAKED SHORTING—selling stock that the seller doesn’t have and hasn’t borrowed, in the hope that its price will quickly fall, letting the seller repurchase it at a lower price and then deliver the stock to the buyer—is generally illegal. Usually, sellers must borrow a stock, or at least determine that they can borrow it, before they can sell it short.

The accidentally released file, mentioned first in a Rolling Stone blog two months ago, cites only portions, rather than the full texts, of various communications. The selections copiously use the term “fail,” as in “fail to deliver” securities—an essential ingredient in naked shorting. They make no mention of any intent to drive down the shares of Overstock (OSTK), an online discount retailer. However, as submitted by Overstock, they contain comments by Goldman and Merrill officials that could be interpreted as acknowledging that they let certain clients and counterparties fail to deliver stock, and indeed lent to short sellers shares that themselves were a product of naked shorting.

Goldman and Merrill deny engaging in naked shorting or violating the securities laws and say that Overstock’s characterization of the e-mails distorts their meaning. A Goldman spokesman, in a statement, calls the filing “an advocacy piece written by Overstock’s lawyers that contains selective and highly misleading references to a handful of the many documents produced during the discovery process in the litigation. Overstock’s argumentative references omit material information and necessary context and are rife with misleading partial quotations and inaccuracies.”

Presumably, if the spokesman is correct, the full records related to the case would show that the references to the e-mails are misleading. Why, then, are Goldman and Merrill seeking to seal them? Both contend that they could reveal “trade secrets.”
…

SF Renter,

Good luck with your purchase. What hood that has become too gentrified are you leaving? The Mission? Where you headed? I have not been to SF for about 4 years. Are the homeless and vagrants as bad as portrayed in paper?

Iceland is about to test drive some financial innovation which might be worth soon adopting here in the U.S.

Too-Big-to-Fail Prevention Is Tested in Post-Crisis Iceland
By Omar R. Valdimarsson - Aug 3, 2012 4:24 AM PT

Iceland was brought to the brink of bankruptcy when its biggest banks failed four years ago. Now, the site of the world’s most spectacular financial collapse is becoming a pioneer in banking reform.

“We’ve been burned by this and that’s why we have to look very closely at what we need to do to prevent it happening again,” Economy Minister Steingrimur J. Sigfusson said in an interview. “Icelanders are more interested in taking greater steps than small steps when it comes to regulating banking.”

The law would force Arion Bank hf, Landsbankinn hf and Islandsbanki hf - state-engineered successors to the banks that failed - to break up their business. Photographer: Arnaldur Halldorsson/Bloomberg

His party, the junior member in Prime Minister Johanna Sigurdardottir’s coalition, has submitted a motion to parliament to stop banks using state-backed deposits to finance risky investments. The move puts Iceland on course to become the first western nation since the global financial crisis hit five years ago to force banking conglomerates to split their business.

It’s a proposal that’s gaining traction elsewhere. Even Sanford “Sandy” Weill, whose 1998 creation of New York-based Citigroup Inc. (C) triggered the Gramm-Leach-Bliley Act that paved the way for financial behemoths, now says investment banks should be separated from deposit-taking banks. Opponents including JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon say diverse businesses are needed to spread risk across divisions and stay competitive.

The Icelandic lawmaker who presented the motion, Alfheidur Ingadottir, says the best way to stop banks creating asset bubbles is to pass laws akin to the 1933 Glass-Steagall Act, which separated commercial and investment banking in the U.S. for more than six decades.
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Bonds good, stocks not so much…

Investors tiptoe back into US stock mutual funds
(AP) – Jul 25, 2012

WASHINGTON (AP) — Investors added cash to each major mutual fund category during the week ended July 18, with more money flowing into U.S. stock funds than out for the first time in seven weeks.

Stocks:

A net $99 million was deposited into U.S. stock funds for the weeklong period, the Investment Company Institute said Wednesday. It was the first time since the week ended May 30 that U.S. stock funds attracted new cash. The recent withdrawals suggest investors remain wary of volatile stock prices. But the latest weeklong period brought some relief, as the Standard & Poor’s 500 index rose 2.3 percent.

Investors added $542 million into funds investing primarily in foreign stocks. Those funds have attracted new cash for nine consecutive weeks. Overall, net deposits into stock funds totaled more than $640 million during the latest week.

Bonds:

Investors deposited a net $6.5 billion into bond funds, slightly more than during the preceding week. The latest week’s total includes $5.1 billion of net deposits into taxable bond funds, which primarily invest in corporate bonds, and nearly $1.4 billion into municipal bond funds, which invest in bonds issued by state and local governments. Investors have added cash to bond funds in all but one week so far this year.
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Chinese real estate always goes up.

Demands may fuel home sales in next 5 yrs
Updated: 2012-08-03 09:19
By Li Tao in Hong Kong (China Daily)

A seaman cleans a tail light on his boat near the coast in Qingdao, Shandong province. Home sales and prices will continue to go up in China over the next five years, supported by increasing fundamental demand, according a research report. [Photo/China Daily]

Housing sales and prices are expected to continue going up in China in the next five years, supported by increasing fundamental demand, although the pace of the price rises could be dampened by government curbs, said a report by the China Index Academy released on Thursday.

Residential prices are expected to increase 5.5 percent annually to reach an average of 6,428 yuan ($1,010) per square meter nationwide by 2016.

Residential sales, new construction areas, as well as new completion areas are expected to reach 1.4 billion, 2.76 billion and 1.33 billion square meters in 2016, representing a compound growth of 8.3 percent, 14.5 percent and 7.8 percent, respectively, for the period.

Huang Yu, executive vice-president at the academy, said the property market on the mainland will undergo a transition from rapid growth to steady growth.

“Home demand is directly driven by the steady progress of urbanization on the mainland,” Huang said at a media briefing in Hong Kong on Thursday.

“The urban population between the ages of 20 and 34 will increase by 3.76 million every year, which will bring about inelastic demand to the market with those first-time homebuyers,” she said.
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Oh bugger…next thing you know, Vancouver investors will get trampled as they try to race through the exits.

Canada Realtors Post Lower Sales in July as Vancouver Plunges
By Theophilos Argitis on August 03, 2012

Canadian realtors recorded lower sales in July from a year earlier, regional data suggest, led by a plunging housing market in Vancouver.

The value of purchases at seven major regional real estate boards that have reported figures for July fell 3.4 percent from the same month in 2011 to C$7.75 billion ($7.76 billion), according to data compiled by Bloomberg News. Sales in Vancouver were down 28 percent.

The Canadian Real Estate Association publishes aggregated national data in the middle of every month.
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How many of you bet long on last week’s central banking QE headfake?

ft dot com
August 3, 2012 6:46 pm
Zen and the art of central banking

Central banking has much in common with chess and fencing. What others think you will do – and to which they pre-emptively react – may matter more than what you yourself actually do in the pursuit of victory. Winning strategies involve feints, signals and the art of calmly manoeuvring opponents to where you want them. Some times the ability to force another’s hand is far more effective than making your own move.

Such thoughts may have been on the minds of the world’s two most important central banks’ governing committees this week. Strictly speaking, the Federal Reserve and the European Central Bank did nothing. But their respective leaders, Ben Bernanke and Mario Draghi, showed how doing nothing is far from being inactive.
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Don’t get mad at Wall Street, get even: Dump your stocks now!!!

You only have yourself to blame if you continue swimming in shark-infested waters.

Personal Finance
Small Investors Should Be Furious at Stock Market

WSJ personal finance columnist Jason Zweig stops by Mean Street and says Wednesday’s trading glitch is more than enough to give small investors reason to be disgusted with the stock market. Photo: Reuters.

8/2/2012 3:00:00 PM3:31

BUSINESS
Updated August 3, 2012, 12:02 a.m. ET

J.P. Morgan ‘Whale’ Was Prodded
Bank’s Probe Concludes Trader’s Boss Encouraged Boosting Values of Bets That Were Losing
By GREGORY ZUCKERMAN And DAN FITZPATRICK

A J.P. Morgan Chase (JPM +2.62%) & Co. executive encouraged the trader known as the “London whale” to boost valuations on some trades, said a person who reviewed communications emerging from the bank’s internal probe of recent trading losses.

After reviewing emails and voice-mail messages, the bank has concluded that Bruno Iksil, the J.P. Morgan trader nicknamed for the large positions he took in the credit markets, was urged by his boss to put higher values on some positions than they might have fetched in the open market at the time, people familiar with the probe said.

The bank’s conclusion is based on a series of emails and voice communications in late March and April, as losses on his bullish credit-market bet mounted, the people said. The bank believes they show the executive, Javier Martin-Artajo, pushing Mr. Iksil to adjust trade prices higher, according to people close to the bank’s investigation. At the time, Mr. Martin-Artajo was credit-trading chief for the company’s Chief Investment Office, or CIO.

Mr. Iksil agreed on repeated occasions to adjust the values, the people said. Those discoveries led the bank to determine last month that an earnings restatement was necessary. The prices he chose were within broad market ranges, but high enough to later raise concerns among the bank’s investigators, the people said.

Among the communications uncovered by the bank’s investigation are two that the bank believes show Mr. Martin-Artajo prodding Mr. Iksil toward higher prices, the people familiar with the probe said.

“We should not be showing” a certain amount of losses from the trades “until we see where the market is going,” Mr. Martin-Artajo told the trader in one communication, according to people who have reviewed the communications from the probe, which is continuing.

“I’d prefer” that a higher price be put on certain positions, Mr. Martin-Artajo told Mr. Iksil in another communication, said a person close to the investigation

Last month, J.P. Morgan said both men had left the largest U.S. bank in assets and will be forced to relinquish compensation as part of the fallout from $5.8 billion in trading losses.

Greg Campbell, a lawyer for Mr. Martin-Artajo, said his client “unequivocally denies any wrongdoing on his part and is confident that he will be completely exonerated when the investigations into these events have been completed.” Mr. Iksil’s lawyer, Raymond Silverstein, couldn’t be reached but has previously denied any wrongdoing by Mr. Iksil.

It isn’t clear why Mr. Iksil decided to use the higher values. Accounting rules dictate that such investments be valued at the best estimate of where they might be sold.
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Do you notice how one of these “rogue traders” surfaces every couple of years at Megabank, Inc and creates a major scandal? It’s so predictable, yet the MSM seems completely shocked, shocked, every time.

JP Morgan: The bank that choked on a whale
03 Aug 2012 10:28 - Eleni Giokos

Greedy for large profits, JP Morgan laid itself open and a single trader cost it $5.8-billion. Eleni Giokos reports.
Click here to find out more!

Banks globally have been hogging headlines for the wrong reasons, most of them complex financial scandals.

Barclays, Deutsche Bank and as yet 20 unnamed others are embroiled in the London interbank offered rate (Libor) scandal. HSBC has been accused of enabling drug lords to launder money in Mexico.

Then there is JP Morgan and its chief executive, Jamie Dimon, a walk-on-water banker who came through the subprime crisis unscathed and even managed to produce a profit while his competitors were standing cap in hand in the bailout queues. This was thanks to a bet its chief investment office made against subprime mortgage loans in 2007. This risky trade resulted in $1-billion profit in the division.

The chief investment office is no small thing within JP Morgan. It has assets under management of $360-billion, up from $75.6-billion in 2007. This is more than a chunk of change for JP Morgan, which has assets of $2.3-trillion.

But the office has recently chalked up losses of $5.8-billion associated with the activities of a single trader, Bruno Iksil, also known as the London Whale, because of the size of his bets. The tale of this whale and how he came to ratchet up these eye-watering losses is worth examining in depth because it appears to speak to the core problem – at the heart of which is a rotten system.
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These “slow running” machines must be getting very constipated. When they finally blow, the toilet is going to be a real mess.

WSJ Blogs
Developments
Real estate news and analysis from The Wall Street Journal

July 31, 2012, 12:20 PM

Foreclosure Machines Still Running on ‘Low’
By Robbie Whelan

The country’s foreclosure machinery appears to be grinding along at a consistent pace, but that pace is still slow, according to a report out today from CoreLogic, a real-estate data provider. The report is good news for home sellers who are concerned about having to compete with low-priced foreclosures, but still serves as a source of uneasiness among forecasters who think that foreclosure inventories have dropped to levels that are too low to allow the recovery to continue at a healthy pace.

In June, CoreLogic says, there were 60,000 completed foreclosures, which is down from 80,000 in June 2011, but about the same as the tally from a month before.

However, a more important number, perhaps, is the foreclosure inventory, or the number of homes nationwide that are in some stage of the foreclosure process. As of June, that number stood at 1.4 million, or 3.4% of all homes with a mortgage, versus 1.5 million a year ago.

The foreclosure inventory numbers provide an idea of how quickly lenders are moving through the huge supply of distressed homes. A reading of 60,000 completed foreclosures in June, as well as a relatively unchanged supply of foreclosed homes, indicates that the banks are still holding back on releasing for sale the millions of homes with distressed mortgages that they hold on their balance sheets.

To skeptics in the housing industry, this “shadow inventory” of unlisted homes is a serious threat: If the banks release their inventory of homes too quickly, it could depress prices in many markets. This would help derail the nascent recovery in prices we’ve seen lately.

Part of the slowdown in foreclosure sales is due to the moratorium on foreclosures imposed in some state’s after the “robo-signing” scandal of 2010 and 2011. At this point, all the banks have lifted their self-imposed moratoriums on foreclosures, but are still moving at a snail’s pace under the watchful eye of state and federal regulators. That means longer timelines for the foreclosure process, fewer foreclosures completed each month, and ultimately, a slower process for unclogging the pipes of the housing market.

Since September 2008, when Lehman Brother Holdings failed, about 3.7 million foreclosures have been completed. Between May 2007 and May 2012 about 4.7 million Americans have lost their homes to foreclosure, CoreLogic estimates.
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How to earn $200,000 on a real estate investment:

It’s easy as pie, folks!

LANDMARK LISTING
Penthouse at historic El Cortez downtown available, with tax break, for $1.65 million

A penthouse at El Cortez, a San Diego landmark that once hosted the likes of Elvis Presley and President Dwight Eisenhower, is on the market for almost $1.65 million.

The home listing takes up the entire 14th floor of the 1920s-era building, once a glitzy hotel that drew in the country’s who’s who in entertainment and politics. The structure, at Seventh Avenue and Ash Street on Cortez Hill, has since gone through numerous phases — from an evangelical center to a crumbling local treasure and now condo residences.

Real estate agent Tina Dameron and her husband, Bob, who own a brokerage firm in Little Italy, bought the home in 2004. That was roughly four years after a major renovation and the same year the units were converted to condos.

Property records show they paid $1.45 million for the 2,150-square-foot property. The current assessed value is $652,500; the home has been designated a historic site, which allows the owner to get a tax break.
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“There’s still a fair amount of pessimism, but equities are so much more attractive than bonds that the dividend on Johnson & Johnson (JNJ), for example, offers a better yield than the company’s bonds,” said Bruce Zessar, managing director at Advisory Research in Chicago, which oversees about $9 billion.

An investor would do better with the stock than the bond over the next ten years even if the stock price went nowhere because of the stock dividend, he said.

Based on measures like dividends and price-to-earnings ratios, equities appear cheap compared to other assets like Treasuries where yields on the 10-year note fell to a record low this past month. Stocks are the best house in a bad neighborhood.

The bad news (according to this guy): The U.S. is already in a recession, though most are blithely oblivious to it.

The good news: It’s far worse in the Eurozone, which shouldn’t worry the U.S., (presumably) thanks to decoupling.

Aug. 3, 2012, 12:01 a.m. EDT
Shilling: New recession has begun
Commentary: Don’t get excited about the recent ‘green shoots’
By Howard Gold

NEW YORK (MarketWatch) — After a rocky spring, we’ve had two consecutive months of gains in the Standard & Poor’s 500 index.

And some pros are looking for a strong fall and are hoping the Federal Reserve rides to the rescue with more “quantitative easing” at its September meeting.

But just when you thought it was safe to get back into the market, here comes Gary Shilling to throw ice water on your hopes and dreams.

Shilling, a perennial contrarian, said that when economists sift through all the data, they will say the next U.S. recession began in the second quarter of 2012.

Earlier this year, Shilling predicted a global recession would occur in 2012; now, it’s well under way in Europe and he said it already has hit our shores.

“I think the U.S. is in recession,” he told me in a phone interview last week.

But here’s the good news, if you can call it that: He expects this to be a brief, mild, cyclical recession, not the kind we had in 2008-2009.

“I think the recession started in the second quarter and will run about a year,” he said. He predicts a decline in GDP of 3.5% from peak to trough “because I’m not looking for a financial crisis.”

Europe, however, which does have a fiscal crisis, a financial crisis and everything in between should show a 6.5% decline from peak to trough, about in line with what we both suffered in the Great Recession, he said.
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