January 25, 2013

Weekend Topic Suggestions

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Comment by Cantankerous Intellectual Bomb Thrower™
2013-01-25 03:49:30

Given the Fed’s commitment to keep interest rates low from now until kingdom come, is there any reason to expect them to soar this year?

What could possibly thwart the Fed’s ability to make good on their commitment?

Comment by Cantankerous Intellectual Bomb Thrower™
2013-01-25 03:51:46

Interest Rates Will Spike This Year: Soros
Thursday, 24 Jan 2013 | 4:34 PM ET
By: Justin Menza

There will be a dramatic rise in interest rates as soon as there are clear signs the U.S. economy is picking up, billionaire financier George Soros told CNBC.

Soros said that the U.S. needs to reestablish growth to help shrink its debt pile and that the Federal Reserve’s policy of buying U.S. debt, is the right one since it doesn’t add to the net amount of debt outstanding. “It’s about as close to a free lunch as you can get,” he said.

But there is a risk, Soros warned, “Once the economy gets going, then interest rates are going to take a big leap.”

Comment by oxide
2013-01-25 06:42:26

First the Fed throws more money at the economy and then as the economy picks up the money needs to be taken back out. But as money comes out of the economy, it could arrest the recovery.

What does he mean by “money being taken back out?” Does this mean that the Fed (i.e. the private banks) first lends to the economy, and then raises interest rates on smaller principal in order to collect more in interest to repay that loan to the economy? That will mean deflation, which will kill anyone with a loan, which is almost everybody.

I remember that any time rates were lowered, Wall Street would bully the Fed to lower rates even more, generally through CNBC’s screaming scrolling chyron: “…TEH BERNANK TO LOWER INTEREST RATES AGAIN?????…” So how would the corps react if interest rates went up? Probably by speed-dialing their local Senator and threatening layoffs. In that environment, I doubt that interest rates are going to “jump.”

Comment by Cantankerous Intellectual Bomb Thrower™
2013-01-25 08:50:38

‘What does he mean by “money being taken back out?”’

We’re gonna take this money back!

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Comment by michael
2013-01-25 13:26:10

“i’m gonna get that gun…then i’m gonna get that money jake”.

Comment by cactus
2013-01-25 10:12:27

What does he mean by “money being taken back out?”

what happened to Darrel ? Money created by loans.

Anyway higher interest rates = less money being loaned out and as old loans get paid off he money supply goes down this is the money being taken out lever the FED bank uses.

I think

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Comment by Cantankerous Intellectual Bomb Thrower™
2013-01-25 03:54:27

Soros Says Euro to Stay as Nations Seek Weaker Currencies
By Matthew G. Miller & Jeff Black - Jan 24, 2013 4:12 PM PT

George Soros, one of the most outspoken critics of Germany’s proposed austerity policies to solve the European debt crisis, said the euro is here to stay and will gain as other nations seek to devalue their currencies.

Soros, who made $1 billion shorting the British pound in 1992, said that while the causes of the euro crisis haven’t been solved, the acute phase of the turmoil is over.

Germany will always do “the minimum” to preserve the currency, Soros said yesterday at the World Economic Forum in Davos, Switzerland. He forecast a “tense” two years for the euro region.

Yields on sovereign debt of countries from Spain to Greece have fallen since European Central Bank President Mario Draghi announced an as-yet-untapped bond-purchase plan in September last year. Soros, reiterating his view that austerity is the wrong policy at this time, said the German insistence on tight fiscal and monetary policies means the euro will appreciate as other countries pursue more expansive policies, a situation that may lead to a currency war.

Currencies have been remarkably stable in the last few years,” Soros said. “Now there is the making of more fireworks, more volatility.”

Comment by alpha-sloth
2013-01-25 06:40:41

Time to go long on euros?

Comment by goon squad
2013-01-25 06:57:50

Dianne Feinstein should be impeached, expelled from the Senate, and sent to Guantanamo Bay for crimes against the Constitution.

Comment by In Colorado
2013-01-25 11:07:27

I am reminded of the scene in Mars Attacks when the Martians zap congress on national TV and viewers rejoice.

Comment by ahansen
2013-01-25 14:44:55

Sweet old Grandma: (nodding, smiles benignly)
“They blew up Congress… yes….”

Whenever I’m having a bad day, she comes to me. Almost as funny a flick as “The Raid” with the original subtitles.


Comment by oxide
2013-01-25 14:59:25

Why? All she did was introduce a bill. It’s not illegal to do that. And we all know that this bill will have as much chance of paasing as I have of of climbing Mt Everest naked while carrying a yak. I’m surprised DiFi even made the news.

Comment by ahansen
2013-01-25 15:46:46

The ironic thing is that Feinstein is the Chair of the Senate Intelligence Committee, and one of the biggest hawks in Congress. (Also one of the richest.) I’d love to see her ousted except for the fact that she’s a stalwart on relevant social issues.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-01-25 08:57:38

Why is it that despite all the rumors of incipient inflation, gold both black and yellow is dropping like a rock?

Comment by In Colorado
2013-01-25 11:06:12

Huh? Oil is up 5% during the past 30 days. At least according to cnn’s money website.

Gold is at where it was 30 days ago, though it has lost $30 in the past few days. I still wish I had bought some when it was around $400.

Comment by Bill in Los Angeles
2013-01-25 21:12:34

Hoping to maintain buying one ounce every month. Let it drop.

My 401k and IRAs are into stocks. My conservative investment is gold. I intend to work at least another 13 years. 1 ounce a month is 156 ounces by the time I think I should quit, provided the Monarch does not impose FDR style confiscation. 156 ounces bought one ounce at at time once a month would be reducing risk. Something in the middle of a boom and a bust.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-01-25 21:33:40

Good plan. I think buying the dips in general on assets, be they stocks, gold or REITs, makes good sense.

Needless to say, avoid long-term Treasurys like the plague unless you want to become the investing equivalent of road kill.

Comment by Brett
2013-01-25 14:59:24

Can we have a topic about ME?
Gen Y renters unable to buy given the inflated prices, but also facing increasing rents and poor job prospects.

Comment by ahansen
2013-01-25 15:47:56

Patience, Grasshopper. When your elders die off you’ll get all the goodies.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-01-25 21:35:39

Right on. In the long run, all the Baby Boomers are dead, and to the survivors go the spoils.

Hopefully today’s young people won’t mind future life in a home formerly occupied by debt people.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-01-25 21:37:18

Most amazing aspect of the current U.S. housing situation: They are trying to crank up the home building industry at the onset of a three-decades-long drop in demand due to the retirement and eventual die-off of the Baby Boomers.

This can only end badly.

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Comment by alpha-sloth
2013-01-26 04:46:23

onset of a three-decades-long drop in demand due to the retirement and eventual die-off of the Baby Boomers.

Haven’t we established that Gen Y alone is bigger than the baby boom generation? I’m pretty sure I’ve provided the wikipedia link about twenty times.

Comment by polly
2013-01-25 16:06:42

Young guy in my office was talking about being outbid on a house earlier this week. I don’t think he is as young as you, but pretty darn young anyway. Seems the winning bid was all cash. I don’t know exactly where they were looking.

Comment by Bill in Los Angeles
2013-01-25 21:16:59

I just realized I have more young people in my family to give my assets to besides my do-nothing nephew. I have some second cousins in their 20s and 30s in the south who are more mature. They will get some of my stuff, including my Glock 17 and Colt 45 and (soon-to-be) AR 15. They will get some (not all) of my gold and silver, stock funds, stocks, and municipal bonds.

Millenials should not worry too much. We boomers will die and leave some of our dough.

Comment by polly
2013-01-25 16:39:37

Maybe we should just rip this article to shreds (sorry for the full article post - it is short)?


Why rising house prices could be great for American consumers

Posted by Neil Irwin on January 25, 2013 at 5:08 pm

A lot of the speculation about what an improving housing market will mean for the economy has centered on new construction. After all, if the housing sector comes roaring back, new homes being built will translate into more construction workers with jobs.

But there’s another way that the improvement in housing could translate into economic gains, one that is potentially larger but much harder to estimate in advance. One of the biggest questions for the economy in 2013 is how much a stronger housing market will translate into more consumer spending. It matters a great deal; residential investment is 2.5 percent of overall economic activity right now, while personal consumption is 71 percent. It would be great to see a rise in building activity, but the consumer is where the major macroeconomic action is.

A good starting point is “wealth effects.” This is simply the idea that when people become wealthier, such as when their stock portfolio rising in value, they will feel more flush and therefore spend more money. Figuring out just how large these wealth effects might be is notoriously difficult, and they can vary a lot depending on any number of factors. A 2006 study estimated that a $1 rise in the value of homes triggers 2 cents of additional spending in the quarter immediately following, and nine cents total. In a paper last year, Charles Calomiris, Stanley Longhofer, and William Miles found that the wealth effects from housing vary significantly depending on whether the homeowner is old or young, poor or rich—but their overall estimate is that a dollar of extra housing wealth triggers five to eight cents in additional spending.

That, by the way, is much more than their two cent estimate of the wealth effect from a gain in securities. In other words, if Calomiris and his colleagues’ estimates are right, rising home prices should mean more for the American consumer than a comparable rise in the stock market.

So what would that mean in practical terms for growth? Over the year ended in November, the Federal Housing Finance Agency’s index of U.S. home prices rose 5.6 percent. If that rate of home price increases continues, it would increase the value of the entire U.S. housing stock, $17.2 trillion in the third quarter, by about $963 billion.

Using the Calomiris estimates, an increase in home values on that scale should then trigger between $48 billion and $77 billion in extra spending. On the high end of that estimate, that would represent about an 0.7 percent gain in consumption spending and half a percent gain in GDP. That may not sound like a lot, but is a pretty big deal; in an economy that has been growing at a 2 percent rate for the last three years, 2.5 percent would be a welcome shift upward.

But there is reason to suspect that this unique economic moment could make the impact of higher home values higher than usual. In the Great Recession, spending fell by even more than could be attributed solely to the wealth effects caused by falling home prices. A vicious cycle set in through which falling home prices contributed to people being underwater on their mortgages, which had an outsized impact on their spending. Research by Atif Mian, Kamalesh Rao, and Amir Sufi last year found that in counties with high degrees of household debt and home price declines, retail sales fell much more than elsewhere.

That raises some interesting possibilities. It seems at least plausible that this vicious cycle could work in reverse. If homeowners who ended up underwater on their homes accounted for a disproportionate drop in spending, could home price increases that bring their net worth into positive territory have a disproportionate positive effect on spending?

We are in sufficiently uncharted territory that it is hard to predict with confidence, but this may be one of the best hopes for an improved consumer-driven economy in 2013. Maybe, just maybe, there exist tipping points by which a rise in home prices pushes families from owing more than their home is worth to owing less, and once they cross that tipping point, they will spend more freely.

Regardless of whether that effect exists or not, what is clear is that at a time when spending will come under pressure from a rise in the payroll tax, the best hope for the American consumer is to be found on the home front.

Comment by ahansen
2013-01-25 23:16:18

Because the upcoming generation of 20-30 somethings has all that money saved up and just burning a hole in their collective pocket to spend on a house, and those student loans are going to pay themselves….

Extra spending? EXTRA SPENDING?! Neil Irwin is barking mad.

PS. The only reason the housing sector is “recovering” is because investor conglomerates are buying up existing cheapo stock to rent out. Building has nothing to do with it.

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