Weekend Topic Suggestions
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Okay, another morning but with a fresh dose of QE3. So what do we see from this recent injection and how it will impact our lives:
–Price of Gold - Up
–USD - Dn
–Commodities - Up
–OIL - Up Up
–Salaries - Dn
–Inflation - Up (not recorded)
–Hyperinflation - Not recorded
Commodities - Up
Because the Obamney administration needs more third world food riots leading to civil wars to deal with. Good luck with that
Come on, lay off the man. The press has everything under control! Why we have the smartest man in the world along with Hilary the smartest woman in the world running things for us. And not only is he the smartest man in the world, he’s the Nobel Peace prize winner.In another four years there will be no more wars, just people hugging each other across the borders.
people hugging each other across the borders
If only enough people had COEXIST stickers on their vehicles…
It only works if they’re slapped on a Subaru
on a Subaru
Like this one, I photographed in traffic yesterday?
http://www.picpaste.com/pics/2012-09-13_15-41-42_330-sTVU53fw.1347641145.jpg
I noticed that of the 5 vehicles in front of you, 3 a big azz trucks? Very Colorado.
In addition to that Coexist sticker, that Subaru is supporting a “DAM” sticker. As in, the Denver Art Museum (”DAM, that’s good art!”) He’s okay in my book.
Putting A Face To Einstein’s Definition Of Insanity
Tuesday, August 7, 2012 9:57
from Zero Hedge
If ever there was a name and a face synonymous with Einstein’s famous definition of repeating the same action and expecting a different unicorn-full world of happiness, it is Boston Fed’s Eric Rosengren. Thankfully far from consensus among the Fed heads – though worrying fanatical – the hyperinflationary head used the propaganda channel this morning to pump hope into an increasingly skeptical market.
In an effort to pre-empt a possible slowing global economy, his prescription is “open-ended quantitative easing triggered on economic outcomes”. Fearful of the US merely treading water, Rosengren sounds like he admits that it’s all about the flow when he shuns pegging interest rates as a ‘trigger’ since this removes control of the Fed’s balance sheet to market forces (in other words – we need to keep printing and expanding the balance sheet no matter what rates or stocks are doing). Stunningly, the only limiting factor he sees to this open-ended print-fest is the size of the asset markets they are buying in – which he would like to see in MBS (and suggests his disappointment at the limited scope of assets available to the Fed). Just under nine minutes sums up the extremely dangerous experimental mind of an eternal optimist “if at first (or second, or third) you don’t succeed…” as he shuns the impact on (transitory) energy price rises by pointing at the lack of inflationary pressures.
…
Read the Einstein post above, then the following; notice any similarities?
ft dot com
Last updated: September 14, 2012 1:00 am
Bernanke takes plunge with QE3
By Robin Harding in Washington
The US Federal Reserve has launched an open-ended effort to spark recovery by injecting an extra $40bn into the economy each month through purchases of mortgage-backed securities.
Unlike previous programmes, the Fed’s third round of quantitative easing – nicknamed QE3 – does not have a defined limit and will continue until the labour market improves.
Combined with its purchases of long-dated Treasuries under the Operation Twist programme, the Fed will be buying assets at a pace of $85bn a month for the rest of the year, similar to its QE2 programme during 2010.
Yields on Fannie Mae-guaranteed mortgage bonds fell 18 basis points to 2.18 per cent, highlighting the new action’s potential to drive down mortgage rates and boost the housing sector. The S&P 500 jumped 1.6 per cent to its highest level since 2007.
The new QE programme marks one of the most significant shifts by the Fed since the 2008-09 financial crisis. The Fed has for the first time tied policy to developments in the economy – and promised not to shift policy until it succeeds.
…
“The US Federal Reserve has launched an open-ended effort to spark recovery by injecting an extra $40bn into the economy each month through purchases of mortgage-backed securities.”
Oh, lovely.
And I can buy one of these house attached to all of this, right?
We’re screwed.
“The Fed has for the first time tied policy to developments in the economy – and promised not to shift policy until it succeeds.”
Black Swan time.
but you knew this was going to happen
right ?
we have been predicting it for months now.
Besides we won’t get full employment. the world has moved on.
went to silly valley yesterday money is everywhere up there
went to silly valley yesterday money is everywhere up there
That’s the impression I got when I visited. I’m sure that if you live there and don’t have friends or family in flyover country, you’d be scratching your head over all the talk of recession and such.
In their case, the old saw that “everyone wants to live here” does seem to apply, at least for now.
DC is the same. Oh sure, the area has its poor, but it isn’t reflected in the contractors. No Craigslist 10 pm games with the vicegrip around here. If anyone is lacking for business, they just put a coupon up on Angie’s List and whoomp! they get slammed.
This is really the only topic.
In addition to how it affects the economy monetarily anf fiscally, I would also like to see a discussion on how Q3 affects how people view the country and the world, both short- and long-term.
This is insanity. What happens when this doesn’t work?
I agree. What the heck else is there to talk about? Especially since they are going to concentrating on buying mortgage backed bonds.
I hear ya.
What I find mind-boggling is the farce that government (i.e. taxpayer) spending is going to preserve the “wealth” of housing. This time in the form of mortgage bond purchasing. The housing market is much beyond being saved through artificial means.
The real means of support are being destroyed (for starters, monetary wealth of consumers).
Martin suggests a discussion of fiscal/monetary. I agree. I also wonder how this will affect the psyche of a people over the next 40 years.
Future generations are going to riot over our present-day maneuvers. Some legacy.
“What happens when this doesn’t work?”
You do more of it until it does work.
It’s all they’ve got, it’s all they know.
You also continually dismiss skeptics with your assertions that if you keep doing it more and more, it eventually will work.
Quantitative Easing Revisited
Uploaded by malekanoms on Feb 1, 2012
The bears are back to discuss the latest doings by the Federal Reserve and The Bernank.
they have lost total control , desperation move. who are they going to buy all these mortgages from? Are they going to take all the cr@p from fannie and freddie? This does nothing to help me or you. Continuous bailout of the big banks. Maybe you can invest in facebook since you cant get a yield anywhere else? 5 dollar gas on its way?
i would like to see a discussion on central banks around the world and unrest in the middle east.
is there more than a tin foil hat connection?
“i would like to see a discussion on central banks around the world and unrest in the middle east.
is there more than a tin foil hat connection?”
At least someone is thinking and being honest around here.
From four years ago but just as relevant today:
http://www.counterpunch.org/2008/04/26/food-riots-and-speculators/
I didn’t want to bring it up, but if you want to discuss Tin Foil Hat:
For the past few days, the Daily Orange Libtard Site has been mulling a few conspiracy theories about the Embassy attack. Mainly, that Jewish money (Adelson et al) and possibly even the old PNAC contingent (Rove/Cheney et al) are behind the production and release of the anti-Muslim movie. The visibility of the movie, which was finished and released months ago, was conveniently timed around 9/11 and/or the election and/or defense cuts, to bring the focus onto foreign policy. Shades of the Iranian hostages.
Some libs are also wondering about the timing of Romney’s comments slamming Obama for the attack in Libya. Romney’s comments came pretty early on in the game, and then he smirked. The Orange Libs place a great deal of stock in smirks, and they well remember that Romney met with Adelson in the Middle East just after making an idiot of himself at the Olympics. Libs are now asking what did Romney know and when did he know it.
I’m not going to comment whether it’s a good theory or not, because I don’t really know.
OK, here’s an update. Apparently the anti-Muslim movie was put together by Coptic Christians who then tried to blame it on Jews. Now I have no idea who is behind what. I can only hope that the definitive truth comes out and the violence stops.
Sept. 14, 2012, 8:38 a.m. EDT
Same forces at play in Lehman collapse, QE3 rally
Commentary: It’s been four years since Lehman went belly-up
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) — It’s somehow fitting that the stock market would celebrate the fourth anniversary of Lehman Brothers’ bankruptcy by staging a huge rally in the wake of the Fed announcing more quantitative easing.
That’s because both the events of mid-September 2008, as well as those on Thursday, underline just how inscrutable — and, therefore, ultimately unpredictable — the markets can be.
Just take the rationale given for the market’s huge rally on Thursday. In essence, we’re told, the market rallied because the Federal Reserve concluded that the economy is in such horrible shape that it must be put on even more remedial life support.
Got that?
Far from seeing any irony in any of this, however, many investors have evidently decided that happy days are here again.
…
Exactly, it is like a patient who is very sick and doctors gave a strong dose of steroids to keep the patient from sinking. There is no reason for Wall Street to be happy about as the effect of the steroid is shortlived.
Eat, drink and be merry today, for tomorrow we all die.
Since when has the Me Generation ever led their lives any other way?
Some legacy they are leaving behind.
What’s that saying again about sons (and daughters) having to suffer the sins of their fathers (and mothers)? Seems quite apt today, doesn’t it?
Enjoy your $1.6 million house, Cantankerous. Enjoy your aftificially low property taxes while your daughters get reamed for the next 40 years.
CIBT rents, hon.
Okay, sugar.
In my next life, I plan to win the birth lottery and be born as a trust fund baby. Later I will pay $16M for a home at the market peak, and shrug my shoulders when it is only worth $9M (in 2050 dollars) a couple of years later, knowing that Big Daddy’s trust fund money has my back.
“In my next life, I plan to win the birth lottery and be born as a trust fund baby. Later I will pay $16M for a home at the market peak, and shrug my shoulders when it is only worth $9M (in 2050 dollars) a couple of years later, knowing that Big Daddy’s trust fund money, and the FED, have my back.”
REVIEW & OUTLOOK
September 13, 2012, 7:30 p.m. ET
Bernanke Unbounded
The Fed enters a brave new world of unlimited monetary easing.
So much for fears that the Federal Reserve might disappoint Wall Street. Chairman Ben Bernanke and his music men at the Fed’s Open Market Committee put on their party hats Thursday and unleashed an unlimited program of monetary easing. The move exceeded even Wall Street’s expectations, but whether it will help the real economy in the long term is doubtful.
This is the Fed’s third round of quantitative easing (QE3) since the 2008 panic, and the difference this time is that Ben is unbounded. The Fed said it will keep interest rates at near-zero “at least through mid-2015,” which is six months longer than its previous vow. The bigger news is that the Fed announced another round of asset purchases—only this time as far as the eye can see.
The Fed will start buying $40 billion of additional mortgage assets a month, with a goal of further reducing long-term interest rates. But if “the labor market does not improve substantially,” as the central bankers put it, the Fed will plunge ahead and buy more assets. And if that doesn’t work, it will buy still more. And if . . .
The Fed statement paid lip service to pursuing its “dual mandate” of controlling inflation and reducing unemployment, but no one should be fooled. The Fed has declared that it is going all-in to cut the jobless rate, no matter what it takes.
…
BB to Uncle Buck: “The beatings will continue until morale improves.”
Who edits this junk? Unless there’s some pun I’m missing, surely the author meant “unbound” instead of “unbounded.”
Unbounded= having no boundaries.
BOOYA
From the Fed announcement minutes ago:
* FED TO BUY $40B IN MORTGAGE BACKED SECURITES MONTHLY
* FED TO CONTINUE `OPERATION TWIST’
* FED TO KEEP POLICY STIMULATIVE FOR `CONSIDERABLE TIME’
* FED WILL ADD TO PURCHASES IF LABOR MARKET DOESN’T IMPROVE
* FED DOES NOT SAY WHEN MBS PURCHASE PROGRAM TO END
* FED TO EXTEND ZERO-RATE POLICY INTO 2015
Precious metals are taking off, with gold trading at $1760 an ounce and silver at $34.40. A video from Peter will be released later this afternoon, anticipate that to follow in a few hours.
So let me get this straight: The Fed is gonna purchase $4bn/mo in MBS until the jobs come back.
Isn’t this something like the idiot who insists on pounding his head against the wall until the pain stops?
$40bn/mo (lost a 0 in there…)
$480bn/yr hard-wired into the mortgage market; luckily taxpayers will not have to put up a dime of it, as it all comes straight from the Fed’s printing press…
Updated: 6:05 p.m. Friday, Sept. 14, 2012 | Posted: 6:05 p.m. Friday, Sept. 14, 2012
Fed seeking to create wealth, not just cut rates
By MARTIN CRUTSINGER
The Associated Press
WASHINGTON —
The Federal Reserve wasn’t just trying to drive down interest rates when it announced a third round of bond purchases Thursday.
It also wants to make people feel wealthier — and more willing to spend.
The idea is for the Fed’s $40 billion-a-month in bond purchases to lower interest rates and cause stock and home prices to rise, creating a “wealth effect” that would boost the economy.
And “if people feel that their financial situation is better because their 401(k) looks better or for whatever reason — their house is worth more — they’re more willing to go out and spend,” Chairman Ben Bernanke told reporters. “That’s going to provide the demand that firms need in order to be willing to hire and to invest.”
Sure enough, stocks have surged since the Fed announced plans to buy mortgage bonds as long as it feels necessary — a policy known as “quantitative easing,” or QE. And since Bernanke gave a speech Aug. 31 more or less confirming that QE3 was on the way, the Dow Jones industrial average has jumped more than 500 points, about 4 percent.
In addition to the bond purchases, the Fed said it expects to keep short-term rates super-low at least through mid-2015, six months longer than it previously planned. And it said it would probably hold rates low even after the economic recovery has strengthened — a sign that it will intervene until the economy starts growing fast enough to reduce unemployment sharply.
As a result of the Fed’s latest moves, Mark Zandi, chief economist at Moody’s Analytics, expects the average rate on a 30-year fixed mortgage to fall in the next several months to near 3 percent from 3.55 percent now. Lower rates could trigger another wave of refinancing, which would give people more money to spend.
If lower mortgage rates boost home sales and prices, they could contribute to the wealth effect: Americans whose homes rise in value would be more willing to spend.
The combination of more refinancings and increased household wealth will help the economy quickly but only modestly, Zandi predicts. The Fed’s moves should lower unemployment (8.1 percent in August) by up to 0.3 percentage point by the end of 2013, he says.
Many economists worry that the Fed is reaching a point of diminishing returns after nearly four years of aggressive efforts to help the economy. Bernanke himself urged everyone to keep expectations in check.
“I personally don’t think that it’s going to solve the problem,” he said Thursday. “But I do think it has enough force to help nudge the economy in the right direction.”
Every $1 increase in stock prices raises consumer spending by 3 cents to 5 cents, according to calculations by Joseph Gagnon, a former Fed official who’s a senior fellow at the Peterson Institute for International Economics. So if the market value of the Standard & Poor’s 500 stock index, which was $13.9 trillion Friday, rose 10 percent, consumer spending would rise $40 billion to $70 billion.
So, the Fed is rewarding the wealthy, and f***ing everyone else. What a surprise!
Sorry, posted in the wrong section.
One weekend topic could be that Fed has basically told all central banks in the world to keep on printing, how does it impact world RE bubbles, commodity prices etc.
It seems that’s been going on since the first QE. The QE money expansions appear to be coordinated throughout the major world economies. My question for a while has been who blinks first? What will spark beggar thy neighbor policies and where will that spark take place first? A black swan event? Increasing political unrest? These are the questions I’ve been asking.
You may think you posted in the wrong section, but really you didn’t. This is the most important topic for the weekend.
Thanks Polly, I think Oil prices would soar now. And the DC economy where you live is going to be fine with all the money printing. RE prices in NoVa and MoCo would stay high. Lets see what happens to the fiscal cliff. Congress would take more loans to kick the can down the road.
Oil prices would soar now
WTI trading above $100 for the first time since May.
I think the local economy will go up and down more on the ultimate outcome of the military spending than on QE. It isn’t irrelevant, and there may very well be another round of refis which releases some more cash into the local economy, but direct spending through contractors is probably more important.
Seems like it’s a race to the bottom in all major currencies now, any non-currency store of value (oil, commodities, hard assets, metal, precious metal, etc.) will eventually cost more in terms of those currencies in the race.
According to Trulia, thanks to low interest rates and the deflation of the housing bubble the buy to rent ratio now favors buying in every metro area in the U.S., though less on the coasts than in the middle.
http://trends.truliablog.com/2012/09/rent-vs-buy-summer-2012/
It seems like they did it the right way.
“We estimated the total costs of renting and buying for the typical property in a metro over a seven-year period. We factored in all the costs of homeownership (e.g., closing costs, maintenance, insurance, taxes, etc.), along with the tax benefit of deducting mortgage interest and property taxes, as well as the proceeds from selling the home after seven years with modest home price appreciation. On the rental side, we factored in renters’ insurance and the security deposit. Finally, we calculate the net-present-value of all those costs to capture the opportunity cost of tying your money up in a down payment.”
In Atlantic Cities, Richard Florida points out that the high rent cost relative to buying might simply show an expectation of future price declines.
“There’s no doubt that home ownership is far more affordable today than it was before the bubble burst. Even so, it still makes sense to balance the short-run costs of owning versus renting with longer-run expected returns. Four of the five metros above — New York, San Francisco, San Jose, and L.A. — may be expensive because the market is pricing in predicted appreciation over the long-run. The reason prices are lower, and more affordable, in other metros likewise may be because the market expects lower rates of appreciation. There’s also the all-important question of ability to exit — whether and how quickly you can sell if you need to.”
Is buying a good idea now, based on the same criteria we touted here during the bubble? Will those who do so get crushed when interest rates rise (in 2016?). Will renters get crushed by rent inflation, or will developers catch up?
Maintenance and the modest appreciation value are fudge factors to get the result one wants. I’d be very curious to see what their “modest appreciation” and maintenance values are.
It certainly shouldn’t be more than inflation.
But the fact that they are including maintenance at all is an improvement vs. what I’ve seen.
Another fudge factor is that it isn’t the average rent, but what the average rent would be for the kind of houses that are for sale, which are larger than rental properties.
The problem with this is that some of the extra square footage in ownership housing is a (bad) investment, and some of it is just waste, not housing needed for comfort or convenience. Renters would be unwilling to pay for that.
Modest appreciation implies that they have to have a positive number or the model says don’t buy. That’s what it boils down to; a bet that the market always goes up, or not.
The question is, what is the buy vs. rent going in?
If the buy is lower, your life situation is stable, and it’s going to be the homestead indefinately, then it makes sense to buy. Otherwise no.
Stable, like you have control over that. I’m a stable kind of guy, but I’ve had to adjust to changing situations. I’ve “owned” eight houses over four decades of shifting through a stable as possible career and marriage. These rent vs own models never consider entrance and exit costs, and those pumping “mortgage to own” never consider them either, when things are likely changing more now than ever in our lives. I only survived it financially because of the great credit expansion. It wouldn’t be pretty in a great credit contraction!
They don’t mention the 6% real estate agents usually take on every sale, but what I find really annoying;
They factor in the full tax advantages of interest deductions, but they DON’T factor in the tax owed on the “modest appreciation”.
Isn’t the appreciation exempted (up to 250K, 500K if filing jointly) from taxation if you’ve lived in the house for 2 years? Or has that expired?
Is it only two years now? (checks p523 on the irs web site…) Sure enough, you can exclude up to $250,000 in gains if you haven’t done so for at least two years prior.
Pretty short for something that used to be a one time exemption.
Does make me wonder what that “modest appreciation” is though - an SF house might actually gain over $250,000 in their calculations.
Let’s start with this gem: “According to Trulia”.
Now seriously. With the exception of Blue, by virtue of the fact you’re discussing this article, you’re lending it credibility. Why is that? You know Trulia is a NAR affiliated propaganda outlet.
Second;
Houses don’t “appreciate”. Houses depreciate. Now you people and twist this reality into 4 dimensions until the fat lady sings but guess what??? Houses still depreciate. They always have and they always will.
So, I was thinking about rental housing this morning as I made my coffee, probably because my LL is on his way over today to clean the gutters.
Rent-producing property may be one of the few investments where the Fed has a difficult time in decreasing your yield. My LL bought way back in the ’80s for what looks like a remarkably small amount now; I believe his rental yield is pushing 20% of his original investment.
The Fed can manipulate yields on almost everything else by pushing the whole curve, and by pushing people between asset classes with ZIRP. But they really don’t seem to be able to manipulate his yields.
What other investment classes share this characteristic?
Rents on anything with long depreciation schedules that are not regulated by government…
Energy royalty streams?
Music royalty streams?
Does the rent cable companies collect on their infrastructure qualify?
Syndicated television shows (are there going to be Seinfeld Bonds…a la Bowie Bonds?…I think I just heard they are going to try Dylan Bonds)?
Too bad I’m not a musician, actor, or relative of an oil giant. Rent-producing real estate seems to be the most accessible of these kinds of things.
“It was like riding a tiger, not knowing how to get off without being eaten.” — Ramalinga Raju
The Fed is riding the tiger.
The Fed is having so much fun it’s pulling the rest of the family onto the tiger, too…like one of those motorcycles in the Philippines carrying a family of 6.
Lara Hoffmans, Contributor
9/14/2012 @ 1:33PM |85 views
Moody’s Loves the Fiscal Cliff
On Tuesday, Moody’s threatened to downgrade the US—if the US doesn’t plunge over the metaphorical cliff that is fiscal.
Some news organizations are reporting just the opposite. But that’s not quite right. Effectively, Moody’s posits three outcomes. First, Moody’s will keep America’s Aaa (i.e., pristine) rating and change the outlook from “negative” to “stable” if the 2013 Congress comes to a debt-reduction deal satisfactory to Moody’s. Which seems pretty arbitrary and based on a bunch of as-of-yet unelected politicians.
Second, Moody’s will maintain the Aaa rating, but keep the outlook “negative” temporarily if “the method adopted to achieve debt stabilization involved a large, immediate fiscal shock” (i.e., the fiscal cliff). They’d wait to see how it all turned out, then consider returning the outlook to “stable.” They suggest no imminent downgrade in the fiscal cliff scenario.
Third, if there’s no Congressional debt accord and no fiscal cliff, then the US likely gets downgraded.
Which is passing strange. Most folks can’t discuss the fiscal cliff without a fair amount of histrionics about the CBO’s (ever changing, yet always specific) forecast that a fiscal-cliff plummet will lead to a sure-fire GDP contraction. Maybe Moody’s recognizes that the CBO’s forecasts are based on politically directed assumptions, and therefore, are about as useful as, say, a credit rating agency’s opinion. (Zing!) Or perhaps they realize the odds the fiscal cliff plays out exactly as feared are slim to none. All these “automatic” cuts and hikes and triggers are, at root, arbitrary deadlines set by politicians—politicians who don’t want to annoy constituents.
Still, Moody’s thinks America has “too much debt.” And this “too much debt” might imperil our creditworthiness.
…
My understanding is the CBO is pretty solid at estimating outcomes. The problem is that there are too many variables. Every dichotomous variable (and dichotomizing itself greatly simplifies) multiplies the complexity.
Raise taxes, Yes/no
Cut spending, Yes/no
Cut Medicare, Yes/no
That right there is 2×2x2=8 different scenarios, and we haven’t even talked about 1)how much, and 2)where (e.g., do we raise taxes on everyone, on certain types of investments/income, and on and on and on).
IAT
I want to know if sfrenter’s key fit, and if so, who carried whom across the threshold?
Maybe they took turns. Or both carried the kids.
If I really had to guess, I’d put my money on the triathalon person unless they both compete in those.
Was the stock market response to the Fed’s “QE-infinity” the result of:
1. A race TO equities because the policy will work? or
2. A simultaneous race AWAY from cash and debt, with equities being the most logical place money can flow?
I’m going with #2.