Cheap Money Is Still In Play
The Tampa Bay Times reports from Florida. “Is this a new bubble, or what? It’s easy to see how today’s housing market could trigger flashbacks to the frothy mid 2000s boom. Bidding wars are rampant, deals are quick, and investors and flippers abound. But economists say there are plenty of reasons to be skeptical that the market is blowing bubbles. ‘It’s all part of this metamorphosis from the downtrodden housing market to something that resembles normalcy again,’ University of Central Florida economist Sean Snaith said. ‘It looks like, as we’re coming out of the depths, that there’s a bubble forming, when really we’re still trying to get back to the surface.’”
“April was Tampa Bay’s busiest sales month in seven years. More than 1,500 sales so far this year sprang from contracts signed within three days or less. And buyers aren’t hesitating to pay full price. ‘It’s like the O.K. Corral. It’s like ‘06 and ‘07 all over again,’ Keller Williams agent Scott Samuels said. ‘People are just paying crazy money.’”
“‘Prices seem to be being driven by something other than the fundamentals,’ like more jobs or higher wages, that traditionally steer a healthy market, senior economist Mark Vitner said. ‘I just don’t think that’s sustainable, or the kind of housing recovery we want to see.’”
“‘We’re emerging from a historical period that was rife with outliers in terms of behavior and how things were functioning,’ Snaith said, ‘and now we’re trying to transition back into something that’s closer to normal — whatever that normal might be.’”
The Tampa Tribune. “One of South Tampa’s prime corners at Bayshore and Bay to Bay boulevards, will house a luxury condominium tower if a developer’s plans come together. Bill Robinson of Citivest Construction tried to develop the tower in 2008 but shelved the project amid the real estate crash. Now, he’s once again marketing a 15-story tower with high-end real estate broker Toni Everett and expects to begin recruiting buyers for presales shortly, Robinson said.”
“Everett said the proposed tower will have 32 units, floor plans from 2,600 to 3,500 square feet and floor-to-ceiling glass offering views of downtown and Tampa Bay. Prices will be ‘north of a half-million, easily,’ Robinson said.”
The Sun Sentinel. “The housing market has soared past recovery and is bearing down on chaos. Buyers in control during the bust now are on the defensive, racing from home to home and making offers on the spot before somebody else swoops in with a better deal. The insanity has even created a new sales category of sorts: Flash sales. It’s a home that gets listed in the morning, and is under contract by nightfall. ‘We’re literally running to houses and as soon as you get there, there are three other people,’ said Terry Story of Coldwell Banker in Boca Raton. ‘Buyers are very anxious to get something quickly.’”
“In the past week, rates have inched up to over 4 percent, which will cause even more people to jump into the market, said Jim Heidisch, broker at Campbell & Rosemurgy in Deerfield Beach. ‘There’s a sense of urgency,’ he said. ‘I always tell people, ‘You’re not buying a house, you’re buying money, and you want to get the cheapest rate you can.’”
“Pembroke Pines resident Angela Medina and her husband were driving north to look at two homes in Palm Beach County when her smartphone buzzed with a text alert about a three-bedroom home that had just been listed in Palm Beach Gardens. The couple toured it, made an offer and signed the contract, all within 24 hours. The sale of the Medina’s own four-bedroom Pines property went the same way. It was listed and under contract in one day. Both deals are scheduled to close July 1. ‘From the time it hit my phone to the time we saw it, maybe an hour passed,’ said Medina. ‘You’ve got to be proactive.’”
The Miami Herald. “Property values in Miami-Dade County rose for the second year in a row – welcome news for South Florida municipalities, which derive much of their revenue from property taxes. ‘It’s a good thing for anybody in government,’ Miami City Manager Johnny Martinez said.”
“Jack McCabe, a housing analyst in Deerfield Beach, said he saw property values rise across the board, partly because hedge funds were eager to invest in real estate. ‘While the rate of appreciation is coming to a more historical norm, the forces driving it are entirely different,’ McCabe said. ‘It’s not individual owner-occupiers buying homes to live in. It’s corporations buying homes to rent out to people.’”
“‘The big question is, how long is it going to last?’ said McCabe. ‘There are some people who believe that we may see these price increases for the next three to five years – and then interest rates are going to sky rocket, the hedge funds will start selling off their acquisitions, and we may have something similar to last decades. This could be the start of another bubble.’”
The News Press. “Southwest Florida housing markets may be in danger of going through another boom-and-bust cycle because of the Federal Reserve’s loose money policy and overly lax bank capitalization rules, according to the former Federal Deposit Insurance Corp. chairman. ‘South Florida’s starting to look a little frothy’ as low interest rates tempt investors to overvalue assets such as real estate, Sheila Bair warned in the keynote address to the Urban Land Institute Florida Forum in Naples.”
“Bill Valenti, executive VP for IberiaBank’s Lee County operations, said he agrees that in Southwest Florida, ‘Cheap money is still in play. I think people think prices are right, but they’re going to go up. People are in a rush to invest.’”
CBS Miami. “Checks for thousands of Florida foreclosure victims will finally be going out next week, with hundreds of millions of dollars more earmarked for new housing programs statewide. But there’s a growing debate on where most of the money’s going and if foreclosure victims are really getting their fair share. Some of the money was used by the banks themselves to lower their customers’ monthly payments.”
“Weston foreclosure defense attorney Roy Oppenheim said millions will be going to the courts, and will actually help speed up future foreclosures statewide. ‘A lot of money’s going to the court administrative process to speed the foreclosure process even more, to fund the rocket dockets. It’s a complete and utter joke,’ said Oppenheim.”
The Herald Tribune. “The American dream of owning a home is slowly fading across the country, as a growing demographic of young families opts to rent either out of necessity or by choice to avoid the headache of a mortgage. The generation grew up seeing parents fight over a suffocating home loan, with hopes the equity would one day finance a retirement, and seeing the disappointment as those hopes never panned out. They have seen real estate values climb to historic heights in 2006, and then swiftly crumble two years later, sending shock waves through the economy.”
“‘The real estate industry wants us to think the American dream starts with homeownership, and the baby boomers bought into that,’ said Patrick Bet-David, a real estate author and CEO of the financial services firm PHP Agency. ‘But the reality is that owning a home is not the American dream. It is just $400,000 worth of debt. Now we’re seeing the repercussions from it.’”
“The rate of homeownership among Americans has slowly declined since the onset of the Great Recession, slipping to 65 percent in the first quarter — the lowest ratio since 1995, according to recent data from the U.S. Census Bureau. Recent troubles in the real estate market, and new increases in home prices that stir fears of another bubble, have fewer potential buyers willing to take on the risk.”
“The slide has been especially prevalent among young families and consumers aged 35 to 44 — a group that has seen a homeownership rate decline of 8.2 percentage points since 2007. That is the sharpest fall of any demographic, Census figures show. ‘I constantly see young families who used to own homes and now they’re choosing to rent,’ said Laurie Rastovski, a rental agent with Michael Saunders & Co. ‘For a lot of them, it’s because they just can’t afford to own.’”
“Since last fall, the foreclosure market has been dominated by institutional investors — such as Wall Street’s Blackstone Group and Colony Financial — which have been buying up distressed homes on the auction block for use as rentals. That trend, too, has made homeownership less obtainable for the average Floridian by taking inventory off the market and pushing prices higher, said Jack McCabe, a real consultant in Deerfield Beach.”
“‘There’s a paradigm shift in the market right now, where homeownership is shrinking and rental activity is on the rise,’ McCabe said. ‘The number of full-time owner-occupiers buying homes is actually going down. Many young families have seen their parents and grandparents lose their retirement or inheritance from a house, and they don’t want to deal with that.’”
“Bill Kamka retired to Sarasota in April with his wife, Mary. The 69-year-old entrepreneur from a suburb of Chicago was not so sure about the housing market. Kamka sold his house in Illinois for $100,000 less than what it was worth just a couple years earlier. He shopped around Lakewood Ranch for a retirement home, but with that loss still fresh on his mind, he opted to rent in Palm-Aire instead of purchasing quite yet. But he does not rule out the idea of becoming a future homeowner.”
“‘Why rush?’ Kamka said. ‘We love the home we’re in.’”
“reality is that owning a home is not the American dream. It is just $400,000 worth of debt…”
The concept that debt makes you poor is worth considering.
‘In Flagler County, where the Flagler Home Builders Association reports that building permits for new homes are up 78 percent so far this year, compared with last year, pickup sales have been climbing as well. Guy Lance, general sales manager at Flagler Chrysler Dodge Jeep Ram of Palm Coast, said Dodge Ram pickups have been his dealership’s top-selling new vehicle, but added, ‘Everything is up — the entire line.’
‘Rick Tredo, fleet and commercial sales department manager at Gary Yeomans Ford-Lincoln in Daytona Beach, said his team sold 60 trucks in May, compared with 30 the same month last year, with the average price of trucks ranging from $35,000 to $45,000.’
‘Things are really starting to come along now,’ Tredo said, adding that many of his recent buyers are from construction, heating and air-conditioning companies.’
Two weeks ago in Tarpon springs FL, I had a Ford salesman tell me that no one has good credit. I questioned his interpretation of “no one” and he said 90%.
BTW, there are brand new, stand alone, goodwill stores popping up all over FL. Weird?
There are Fords I like, but how many people with good credit want to finance at the Ford dealership in Florida?
I guess 10%.
I love my 2012 Focus, but I don’t have good credit any longer and I’m a cash buyer.
Bad Andy,
Was the dealer a little confused when you didn’t want financing? I bought a new car about 8 years ago now, and they seemed to have a hard time handling that I was writing a check. Even worse, I was buying a base model sedan.
I had the same thing happen Al. I bought a new car for my wife a few years ago, and the dealership pushed financing on me like nobody’s business. I told them that I had no desire to pay interest.
I have noticed the last couple of times we bought a car that you can negotiate a very steep discount if you pay cash up front.
Even better, LOOK MA, NO CAR (OR INTEREST) PAYMENT!
Al, it was simple, I had an X plan and my checkbook. The only haggle was my 16 year old trade-in. And boy did they try to get me to bite on the 0% instead of the $3,000 rebate.
I was shocked when I went to buy my wife a Honda CRV and the salesman would only go lower on price if I took a loan for a big chunk of the purchase. (48 months, 0.9% b/c excellent credit.)
I took the loan in May and will be paying it off this month.
These are stupid games to trap people into interest-paying debt donkey mentality. Or, even worse, preying on people who could afford to pay cash but take the loan anyway, and for a % of them something will happen in the interim (car accident, medical emergency, job loss, death in family). Then, the retailer gets to collect interest over an extended period.
I’ve done the same thing with Best Buy and Home Depot for large-ish sums of money in the past year. In each case I saved a considerable sum up front (20 or 25% in each case) and then turned around and paid down the borrowed money. In each case, the only way to get the discount was to open their store card.
“I took the loan in May and will be paying it off this month.”
Hopefully w/o prepayment penalties.
That said, I’m sure there was an origination fee (aka “interest for the banksters in advance”).
I was talking to a lady who said the local Ford dealership where she worked was approving people with credit scores in the 400’s. They had to, or they couldn’t sell cars. This entire economy is based upon giving people credit who cannot pay the money back. It will all end badly, I just don’t know when.
“Guy Lance, general sales manager at Flagler Chrysler Dodge Jeep Ram of Palm Coast, said Dodge Ram pickups have been his dealership’s top-selling new vehicle, but added, ‘Everything is up — the entire line.”
Fortunately for Guy Lance the Federal Reserve is also buying auto industry debt after Wall street bundles the individual loans into securities because most buyers these days would never qualify to shoulder these high debt levels at terms up to eight years.
Another deceitful industry being subsidized by taxpayers.
Buying the home and paying off the mortgage are two entirely different things and you know it. I suspect that the American Dream is the latter.
The American Dream was formulated back when housing appreciated at the rate of inflation, so it’s not about riches incalcuable.
I think the American dream may have been formulated when you stake a claim or whatever.
The American Dream was always about ownership, not appreciation.
Speaking of South Florida, I guess the Heat players’ minds were all on their massive real estate profits instead of game 3. Duncan must have been in Lebron’s head all night, whispering “your home is overvalued by 65%.”
Funny that you say that. When Shaq played for the Heat, he bought a palatial estate, which he then tried to sell in 2007 for $35 million. The place finally sold in 2009 for $16 million to Naomi Campbell’s then-boyfriend.
“As the market soured, so did Shaq’s luck with his real estate.”
http://tinyurl.com/n44mfo4
‘Low global interest rates have made it easier than ever to sell new bonds denominated in dollars, euros or yen, resulting in a boom in issuance that has made Asia and its companies ever more dependent on debt. But the market for trading those bonds is slowly drying up, leaving it susceptible to a sharper selloff if holders of these so-called G3 bonds decide it is time to head for the exit.’
‘Bond markets in Asia have generally trended higher since the Lehman crisis during the global financial crisis in 2008, partly aided by the flood of cash from Western central banks aimed at reviving their economies. By one measure, a JP Morgan basket of credit, the debt market hit its highest level in May since the global financial crisis.’
‘In the last month though, bonds have stumbled on jitters over when the U.S. Federal Reserve will start to unwind its stimulus program. Yields, which move inversely to prices, on the debt tracked by the JP Morgan basket have jumped in the past month more than 60 basis points, largely in the past two weeks. The yield on Indonesian government bonds due in 2020 have risen even faster, nearly 100 basis points in the past month.’
‘Bonds from single “B” rated China property companies, sovereign issuers such as Sri Lanka, Vietnam and Mongolia and infrequent borrowers that make $100-$200 million offerings are struggling for buyers. Trading liquidity in these bonds is low anyhow, so during times of market caution, buyers retreat further. “If you are holding those names good luck trying to sell. Even though things have cheapened up considerably, traders don’t want to hold some of these bonds because there may be no buyers,” said a Hong Kong-based trader at a U.S. bank.’
I was only able to discover by scanning a China website, that a blow up in a Chinese developers bonds caused a market shock there recently. Total debt was just under a billion dollars. And how much news has the recent collapse of Mexican home builder junk bonds received? (At least a billion bucks, maybe more lost).
A headline at Yahoo:
US Government Forced to Pay Positive Real Rates
Imagine that…
Thanks for covering Florida so thoroughly. There’s not a whole lot more I can say. At this point in time, we are a badly-led and foolish people, and we are going to get what we deserve.
It’s actually fun to read these housing articles out of Florida. Where else would you hear something like this:
‘It’s like the O.K. Corral. It’s like ‘06 and ‘07 all over again,’ Keller Williams agent Scott Samuels said. ‘People are just paying crazy money.’
One might expect a group of professors at UCLA or Princeton to emerge from an oak paneled conference room and proclaim, “everyone wants to live here.” But in Florida, they take themselves, and their real estate, less seriously, and the statement ‘everyone wants to live here’ is more likely to be stated by a guy in a muscle shirt with a Corona in his hand.
All this is happening at a time when I am almost certainly going to have to capitulate, as well. My lease is up shortly and, after several years, my landlord wants to sell. I like my neighborhood. Finding a good, trustworthy rental relationship was extraordinarily difficult the last time and we’re not up for going through it again.
When I look at our economic leadership I am ashamed. Like I’ve written here before, though, the rest of the world isn’t much better, and often is worse. There’s no place to escape these doctrines.
snake charmer-
I’m feeling you up here in Orlando, but hang in there. We’ve been renting since early 2007- financially able to buy, but waiting for the stupid to wear off the market. And it will. I know it is hard. I’ve told my bride numerous times that, ‘with the housing mania in progress as it is, the neighborhood you buy into today may look very different in just 1 year- and not in a good way’. We are in Florida. Anything can happen here and it frequently does. We can’t vote. The southern part of the state is over-run with gigantic pythons. Huge lizards kill and eat people every year. We have killer bees. Zombies will chew your face off. Hurricanes. Kardashians. Last week in Orlando a visitor at the local animal shelter was caught having sex with a pit bull. And we are right up there with our idiot-twin, California when it comes to the housing bubble. Start looking for another rental now and ride it out for another year or so. With everything else happening in the world, this bullshit can’t go on much longer. Cracks are already starting to appear.
It’s quite apparent by now that CA and FL face a housing price collapse that will dwarf the previous crash.
It’s quite apparent they face a housing price collapse because prices there are going back up? I don’t think I follow your logic.
Krusty The Realtor,
I can ask $40k for my 10 year old Chevy pickup. Where are the buyers?
How many times do I need to school you this?
I advised a family member not to buy a second house in California in 2006. I was told I was stupid. A couple of years later I was asked how could have seen the crash coming. Now the market is going up again, and they won’t sell. I am stupid again.
The market never sobered up. Another binge will just make the crash harder.
“Where are the buyers?”
Did you not read the articles? They’re almost all about how there are too many buyers for the properties. That was the whole point the stories.
“Buyers in control during the bust now are on the defensive, racing from home to home and making offers on the spot before somebody else swoops in with a better deal”
I don’t read realtor articles Krusty The Realtor.
Do you not pay attention to the data? Housing demand is at 17 year lows and falling.
See for yourself.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/03/20130328_house2.jpg
My assertion: Newspapers can sometimes be pro-realtor and exaggerate upticks, both because they get a lot of their advertising money from Realtors, and because frenzies make better headlines than upticks.
Your assertion: The newspaper stories are complete fabrications out of thin air, 100% exact opposite of the real truth. The papers say homes are selling like crazy, but in reality almost nothing is selling and there’s no demand.
Just think about what you’re claiming. A lot of times I’m with you on 90% of what you say, then you lose me on the 10% crazy.
“It’s quite apparent they face a housing price collapse because prices there are going back up? I don’t think I follow your logic.”
Look at the family income in that area and then look at the price of the average house in same area. Do the math. Its really not that hard.
Look at the price and demand for lumber. Look at mortgage applications. Do either of those metrics look like a housing boom to you? I hear lots of sound bytes and read lots of real estate hyperventilation in the MSM, but I don’t see any of it here on the ground in one of the worst bubble cities in the country. You know what IS happening a lot here and I suspect everywhere else? Mindless flipping. From one flipper to another wannabe-flipper, over and over and over, driving up the price each time. If two flippers flop the same property back and forth 5 times, increasing the price by 10% each time, guess how many sales are recorded? Five. Guess what the headline reads? ‘Home sales increase 5-fold amid double-digit feeding frenzy!’ Guess how many jobs were created? None. Guess how many families actually bought and moved into that home? None. Guess how much value was added or created? None. Guess how much fraud was involved? A shit-load. Guess how much taxes were falsly increased for the surrounding area? A shit-load. Guess how long this type of bubble can be sustained? Less than last time.
“Look at the family income in that area and then look at the price of the average house in same area. Do the math. It’s not that hard”.
Sounds like you’ve aleady done the math, can you just post your calculations instead of making me do it all over again?
“Guess how long this type of bubble can be sustained? Less than last time.”
This is the real question. Banks can dribble out supply, while restricting construction loans. Not sustainable, but not necessarily going to end soon. I see rising interest rates (on the bond market, not central banks) putting more pressure on the housing market than anything on the supply side.
When demand is at 17 year lows, who cares what “banks” do?
“Sounds like you’ve aleady done the math, can you just post your calculations instead of making me do it all over again?”
I could, but it looks like you are the one in the dark and obviously need the enlightenment. Go on, median income and sfr price for central Florida. Its so simple that even a realtor (or a caveman) can do it!
“It’s quite apparent they face a housing price collapse because prices there are going back up? I don’t think I follow your logic.”
Fundamentals certainly point in the direction of a further crash, but given the demonstrated willingness and ability of high-level government agencies to override market fundamentals, I honestly don’t know.
Whether or not a crash happens appears to depend on the willingness of governments to continue twisting the rules in order to thwart the market’s ability to equilibrate supply and demand.
Krusty The Realtor shouldn’t have any problem commenting on FL, GA and SC.
And there’s always the alter-ego Eddietard Slithers.
Whether or notWhen a crash happens appears to depend on the willingness of governments to continue twisting the rules in order to thwart the market’s ability to equilibrate supply and demand.Thanks. I was aware of all those fun facts about our state except the pit bull story.
The last alligator fatality here happened in 2007. A man was in the course of burglarizing a car when the police arrived. He attempted to flee by jumping into a nearby retention pond. This might have been one of the few times when going to prison was preferable to what happened next.
It almost happened again last month, in similar circumstances: a guy ran from a traffic stop and hid out near a water treatment plant. Something else was hiding there too.
“Something else was hiding there too.”
A Kardashian?
It’s time for a gator attack to be written in as a story line for the new Kardashians season. I can see it now: citing a lack of adventure in his life, Scott Disick will attempt a career for which he is badly unsuited.
Beer- Been renting in Orlando since 2005. I know folks who have stopped paying on mortgages two seperate times already. No inventory to buy in my hood (not that i want to buy) but several homes that nobody has occupied for years. Oh….and they are still building building building.
I am ready to throw in the towel and buy for cash but it just takes 15 minutes of reading this blog to take me back to sanity.
I don’t think Snake Charmer should ride it out. I think he/she should buy now and sell at the next peak.
“‘We’re emerging from a historical period that was rife with outliers in terms of behavior and how things were functioning,’ Snaith said, ‘and now we’re trying to transition back into something that’s closer to normal — whatever that normal might be.’”
Wait, did Susanne research this? I’ve seen lot’s of crap Ingsock double speak over the years but wow that one caught even jaded me.
Sean Snaith is one of the last professional water-carriers for the FL NAR. He is a serial bottom-caller and an unusually piss-poor economist.
SNAITH? I haven’t heard that name in ages. Jeesh.
Echo bubble shoe-shine-boy moment number 13,997…
Oops, I misspelled my name. Correcting it here.
Sarasota FL housing market is crazy again. I was thinking of relocating two months ago to another state, I called local realtor to get market analysis. I spoke with realtor last week, price is up 30K from two months ago. Houses in my neighborhood are usually sold within one week and usually for more than asking price.
I should have mentioned, I am thinking of relocating because the artificial unemployment rate of 7.6% in Sarasota is more like 25%!~
I’m in that demographic of the young family who rents. I’m also glad to see renting as a choice and being happy about it vs. being shamed that I don’t own a small building in a small lot. I’d love to own a house again, but I simply can’t afford it, and I’m perfectly happy with that.
Surprisingly if I don’t own a house my life will go on. (Shocking I know!)
And in the absence of the crushing debt burden of a mortgage payment twice the amount of your rent, your bank account is ballooning.
Smart man.
“Prices seem to be being driven by something other than the fundamentals”
Heh…. heh heh…..
Ya know….. with pre-bubble prices 50%-70% lower than current asking prices, you’d think it would dawn on people that something is very wrong. Apparently it’s not sinking in.
Do you think it’s because people don’t understand the value of a dollar, i.e, they have no idea what the costs are to build something?
They use “inflation” to justify it and say “hey, it’s been years since those old low prices, you can’t fight inflation”.
Yes.
(you’re one shrewd mofo BTW)
(you’re one shrewd mofo BTW)
Thanks, it feels like I’ve got just enough brain power to see through the scams, but not enough to figure out how to actually get ahead ethically. I just hope if I keep my powder dry someday I’ll recognize the right opportunity.
The inflation argument is for people who cannot do long math.
Food double.
Gas double.
Taxes up.
Wages stagnant.
Neighbors out of work.
20 million extra houses.
Let’s buy a more expensive house!
“Housing’s Dead Cat Bounce”
Now that it’s self-evident that housing is in dead cat bounce mode, you can now observe the losses of those who were foolish enough to believe the tripe and paid a grossly inflated price for a house even though a house is always a depreciating asset.
This may be the longest dead cat bounce on record, no?
It’s amazing what you can do when you can print money that other people will give you things in exchange for.
Housing Sales At Multi Decade Lows
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/03/20130328_house2.jpg
You do know what happens when prices rise on tiny volume…. right?
BANKS REVIVE RISKY LOANS AND MORTGAGES
http://www.nytimes.com/2013/04/19/business/banks-revive-risky-loans-and-mortgages.html?partner=rss&emc=rss&_r=0
The coming second housing collapse is going to be breathtaking
June 5, 2013, 12:02 a.m. EDT
Doomsday poll: 87% risk of stock crash by year-end
Commentary: 10 predictions point to worse plunge than 2008
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, CA (MarketWatch) — New crash coming? When? Before year-end?
In “Stocks for the Long Run,” economist Jeremy Siegel researched all the “big market moves” between 1801 and 2001. Bottom line: 75% of the time, there is no rationale for “big moves.” No one can predict them. Maybe technicians and traders can pick short-term moves the next second. Maybe tomorrow. But the long-term “big market moves?” No way.
So why predict an “87%” chance of another meltdown in 2013? Because in the real world of statistical probabilities, historical facts and expert opinions danger signals are flashing wild. In mid-2008 we summarized the predictions of 20 experts over several years. Predicted a meltdown in a few years — markets crashed two months later. Fast.
In retrospect, it was inevitable, thanks in part to the hype, arrogance and incompetence of Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson who failed to prepare America.
The warnings are again accelerating. And so is the happy talk from Wall Street casino insiders, about rallies, housing recoveries, perpetual cheap money. Don’t listen. The next crash will happen by year-end.
…
Well gee, doesn’t the stock-market crash seem to be happening already? Looks like it to me.
These piddling 1% drops are just the warmup act, kind of like when you feel regular temblors just before a major volcanic eruption.
Yen mauls Japan stocks; Asia markets falling hard
• Japan stocks can’t escape yen (First Take)
Today:
Sell your bonds; buy stocks.
Next week:
Sell your stocks; buy bonds.
Last month: Sell your bonds; sell your stocks.
Don’t Be A Debt Donkey®
Hee Haw! Hee Haw!
“If you have to borrow and repay over 30 years, it’s not affordable and you can’t afford it.
You can say that again.
Hi. Just logging in to mention that this not a return to normalcy. We surpassed normalcy like six months ago.
Bye.
Judging from the state of the global credit markets, we may currently be at another one of those moments which resembles the Roadrunner-chasing Coyote who just ran off the edge of the cliff, although his legs are still spinning in midair.
ft dot com
Markets Insight
June 12, 2013 4:13 pm
Markets Insight: Central bank loss of control leads to EM tumble
By Ralph Atkins in London
Tear gas and riot police fill Istanbul’s Taksim Square. Investors fret about the growth outlook in India and China. But these were not the main factors behind sharp falls this week in emerging economies’ bond prices, and corresponding rises in yields.
Instead, the story was about how the world’s central banks lost control, at least temporarily, over market interest rates, heightening fears about disruptive times in prospect as they head for the eventual withdrawal of their exceptional support for economies.
While it is not clear that we are at the beginning of a great global bond market sell-off, we have at least learnt a little more about how successive waves of monetary policy loosening might work in reverse. It has not looked pleasant.
Over the past few years central banks, led by the US Federal Reserve, have encouraged “portfolio rebalancing” across financial markets. Tumbling yields on US Treasuries persuaded investors to shift into something riskier. Those already in riskier assets took bigger risks – maybe in emerging market debt. It was like the nursery rhyme Ten in a Bed in which “the little one said: ‘Roll over, roll over’” … And as any child knows, “ … they all rolled over, and one fell out”.
The yield on bonds in JPMorgan’s emerging market EMBI diversified index has risen more than a percentage point to 5.5 per cent during the past month. Fears about economic as well as political weaknesses put Turkey among the worst performers. With activity hectic, traders on some fixed income desks have reported record flows in the past few days – suggesting forced selling (or perhaps opportunistic buyers?). Volatility has spread to equity markets, with the FTSE All-World Index down 4 per cent from its May peak.
Behind the falling-out-of-bed were signs that global quantitative easing was entering an uncertain phase that will undermine lucrative carry trades – borrowing in a low interest rate currency to invest in higher yielding assets.
On one view, the initial cause was volatility in Japanese bond markets; the Bank of Japan has struggled to guide yields since launching aggressive bond buying plans to drag the economy out of deflation. The sell-off really gained momentum, however, after Ben Bernanke, Fed chairman, hinted on May 22 at a possible “tapering” of US quantitative easing. His comments shifted expectations from a bias towards “no change, possible further loosening” in QE to talk of possible tightening. It was a subtle change – but the effects were striking.
Ten-year US Treasury yields have risen 60 basis points since the start of May, and markets are pricing in a Fed hike as early as January 2015 – at least six months sooner than economists’ consensus view. Disruption has spread into credit markets and globally. German 10-year Bund yields have jumped from 1.15 per cent to 1.61 per cent – the sort of jump seen during the most intense phases of the eurozone debt crisis. While the eurozone remains deep in recession, interest rates on three-month euro loans starting in December 2014 have risen from 0.48 per cent to 0.64 per cent during the past week – one of the sharpest five- day jumps this year.
As ever, movements were almost certainly exaggerated as some investors found themselves wrongfooted; the most egregious example were trend-following hedge funds, which took big losses. The lesson, however, is that turning points in the interest rate cycle are messy.
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“Ten-year US Treasury yields have risen 60 basis points since the start of May, and markets are pricing in a Fed hike as early as January 2015 – at least six months sooner than economists’ consensus view.”
Unless the pace of U.S. labor market recovery changes or the Fed’s statements indicating a 6.5% headline unemployment rate as the threshold for QE3 withdrawal are revised, my back-of-the-envelope estimate (see yesterday’s Bits Bucket) suggests it will be around October 2014 when the Fed operationalizes its QE3 withdrawal plan.
30-year Treasury Bond Yields
05/02/13 2.82
06/12/13 3.37
Unrealized capital loss so far on a 30-year T-bond bought on May 2, 2013 = 10.3%.
WHAC!
Annualized rate of loss on the value of a 30-year T-bond based on its pace since May 2, 2013:
((100%-10.3%)^[360/(12+31-2)]-1)*100% = -61.5%.
‘Tis a mere flesh wound!
“We surpassed normalcy like six months ago.”
They’ve gone to plaid.
http://www.youtube.com/watch?v=ygE01sOhzz0
At least San Diego real estate keeps on going up, despite the correction in almost everything else. Apparently the market is performing at price and transaction volume levels comparable to the 2006-2008 period, just before world-wide economic collapse!
HOME SALES, PRICES HIT MULTIYEAR HIGHS IN S.D.
Increases fueled by low mortgage rates and growing demand
By Lily Leung 12:01 a.m. June 12, 2013 Updated
5:05 p.m. June 11, 2013
Pent-up housing demand and low mortgage rates have pushed home prices and sales toward multiyear highs in San Diego County, based on a report from local real estate tracker DataQuick released Tuesday.
The median price for a home sold last month was $406,500, a 2 percent bump from April and a 21 percent jump from a year ago. That’s the highest level since February 2008, when the median was $415,000. Prices have held a five-year high for the past two months.
Increased demand for homes also is reflected in May sales numbers. Countywide, a total of 4,236 properties were sold. That’s the highest tally since June 2006, when 4,533 sales were recorded. Southeastern Carlsbad had the most number of sales at 123.
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I would be optimistic about staying here if houses were affordable.
Long-time posters here may recall when I roundly pooh-poohed the decoupling thesis back when it was in vogue.
Actually the best time to debunk a BS thesis is when it is at the height of popularity, not after the data has plainly debunked it for all to see.
June 12, 2013, 12:00 p.m. EDT
The best days of super-cheap money are over
Commentary: So much for the decoupling thesis
By Michael Casey
NEW YORK (MarketWatch) — Call it the great re-rebalancing.
In the years following the financial crisis, a grand, sweeping narrative took root in global investment circles. It held that investment flows were undertaking a reallocation that was centuries in the making, as money began to leave the debt-laden, aging societies of the developed world and enter high-growth emerging markets.
After years of struggling with their own poor finances, these up-and-coming markets were now thought to be in better shape than their wealthier peers in Europe and North America. A big run-up in emerging market stocks, bonds and currencies seemed to prove that point.
But now a worldwide selloff in emerging markets suggests this story needs some editing. Clearly, these global investment flows weren’t solely explained by this historic turning of the tables; they were also aided by an abundance of cheap liquidity from the developed world’s biggest central banks. The recent reversal of that effect reminds us that however much emerging markets have matured, they remain vulnerable to shifts in the richer economies.
Some $6.5 billion was yanked out of emerging-market stocks and bonds last week, according to data provider EPFR Global, the biggest outflows since September 2011. Those numbers will likely be even bigger this week.
And the trigger? Nothing more than a general sense within bond markets that the Federal Reserve is preparing to “taper” its bond-buying program. Let’s be clear, the Fed’s not planning to outright end its “quantitative easing” program; it’s merely thinking about how and when to dial down the bond buying from the massive $85 billion it currently conducts each month. Even so, when combined with signals of no further action from the European Central Bank and the Bank of Japan this past week, Fed Chairman Ben Bernanke’s tapering hints last month have convinced global investors that the jig is up.
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Decoupling, schmuppling. This global stock market selloff is getting real boring really fast! And it’s shaping up a lot like the summer of 2000, when markets sold off day-in, day-out for months on end.
June 13, 2013, 1:07 a.m. ET
UPDATE: Japan Leads Asian Shares Selloff
By Daniel Inman
Markets across Asia suffered another bruising day as investors scrambled for the exits, with Japanese stocks falling almost 5% and into bear market territory, and heavy losses in China and across Southeast Asia.
The selloff has gripped global markets all week, fuelled by uncertainty over the direction of the Federal Reserve’s monetary policy and signs of cooling growth in emerging economies. The mood is sending investors to traditional safe havens, with the yen and Japanese government bonds moving higher.
“It is a sentiment driven fall that’s feeding on itself,” said Nader Naeimi, head of dynamic asset allocation AMP Capital Investors in Sydney, who helps the firm manage around $120 bill lion. “Investors seem to be taking profits wherever they can.”
The most dramatic move was in Japan, with the Nikkei Stock Average falling 4.9% and putting it around 20.5% down from the intraday peak reached on May 23, the day Japan’s 6-month rally turned south and begun three weeks of wild trading.
“There is no clear downside target (for the Nikkei) unless there is more clarity of the Fed’s policy,” said Shigeo Sugawara, senior investment manager at Sompo Japan Nipponkoa Asset Management. “Depending on the comments from the Fed, the direction may become clearer.”
The fear that the Fed could change its monetary policy, along with signs that the U.S. economy is recovering, has encouraged investors to pull money out of emerging markets that are typically perceived as risky. The resulting outflows have hit some of Asia’s smallest markets the hardest - such as the Philippines and Thailand, which were both down 4.8% on Thursday.
The other dampener to sentiment came from China. Chinese stocks plunged after markets in the mainland reopened after a three-day public holiday, getting their first chance to react to a series of poor economic data that came out over the weekend, with both trade data and inflation disappointing the market.
The Shanghai Composite Index hit a six-month low of 2127.15 early in the session and was last down 3.0% at 2144.49. The Hang Seng China Enterprises Index, a measure of Chinese companies in Hong Kong, plunged 3.7%, its worst percentage fall since late 2011.
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So it is already starting to look like the recent global stock market rally was nothing but investor reaction to the easiest money on record. And this is given that no move has even been made yet to end QE3.
Imagine how horrendous the carnage will be when the Fed actually starts taking away the QE3 punch bowl!