June 28, 2013

Weekend Topic Suggestions

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Comment by Whac-A-Bubble™
2013-06-28 07:06:36

Will rapidly rising mortgage rates stop the echo bubble in its tracks?

Comment by Whac-A-Bubble™
2013-06-28 07:08:54

Mortgage rates: Nowhere to go but up?
Julie Schmit, USA TODAY 10:38 p.m. EDT June 27, 2013
(Photo: Gene J. Puskar, AP)
Story Highlights
Rising rates won’t derail housing recovery
Historic low rates are history
Regrets among buyers who didn’t lock in lower rates

This week’s sharp increase in mortgage rates — the biggest one-week leap in 26 years — won’t likely be repeated, but a long era of historically low rates may be over.

Mortgage giant Freddie Mac said Thursday that the average 30-year fixed rate mortgage rose to 4.46%, the highest in almost two years, and up from under 4% the week before.

In the short run, this week’s half a percentage point increase could push some home shoppers out of the market while spurring others to act before rates go higher, says John Burns, CEO of John Burns Real Estate Consulting.

Longer term, higher rates and more homes for sale could slow gains in home prices, whose rapid rise has spurred fears of another housing bubble.

In April, home prices were up 12.1% from a year ago and more than 20% in San Francisco, Phoenix, Las Vegas and Atlanta, Standard & Poor’s Case-Shiller data show.

Higher interest rates will have a “small impact” on sales volume as well as prices, says Cameron Findlay, economist with Discover Home Loans. Gains of 20% year-over-year “are not sustainable or healthy,” he adds.

Higher rates won’t stop the housing market recovery, however, says Freddie Mac economist Frank Nothaft.

It has “enough momentum to continue,” but sales volume and home price appreciation will be “less than what would’ve occurred,” he says.

Comment by (Neo-) Jetfixr
2013-06-28 08:17:13

Mortgage rates don’t affect people who are paying with cash.

Comment by goon squad
2013-06-28 08:18:43

What is this “cash” thing you are speaking of?

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Comment by brother_jimmy
2013-06-28 09:09:14

The cash being paid for these homes by REIT’s is coming from both leverage and individual/pension investors. When (and if) the individual/pensioners demand their money back, AKA a margin call, it will sink these REITs.

So thus it follows if the REITs need the cash, they’ll be forced to sell the homes quickly. If they can’t sell, they’ll get server with their own margin call. There are plenty of examples of this happening in the summer of 2007, back when everything was “rosy”. Search for Bear Stearns hedge fund and the parallels are there.

The discussion needs to be who is going to get the next round of bailouts.

Comment by (Neo-) Jetfixr
2013-06-28 10:16:10

IOW, bailouts as far as the eye can see.

Bailouts don’t have to be cash. Things like not being taxed on the “gift” from the bank during a short sale count as a bailout in my book.

Of course, I’m the guy that thinks the banksters (with their income taxed as capital gains) are undertaxed compared to the W-2 receiving wretched refuse.

Want to slow down or stop flipping? Reinstate the capital gains tax on sales of homes, the way it used to be.

Comment by Whac-A-Bubble™
2013-06-28 08:25:20

What percent of buyers in a normal housing market pay with cash?

Or do you presume the abnormal market is here to stay?

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Comment by (Neo-) Jetfixr
2013-06-28 10:26:25

I think that government will flog the housing market bubble for the forseeable future. Because letting it collapse to where it should would be Armageddon for the banksters, the REIC, builders, government at all levels…….the list goes on.

The ability of the wretched refuse (bottom 80% of the population) is going down, not up. But house prices are supposedly going up.

Free Market my azz.

There ain’t no such thing as a free market. All you have to do is look at the signs at your nearest gas station to see that.

(Unleaded regular went to $4.00 just before Memorial Day, dropped to $3.25-$3.30 until this morning. Suddenly, just before a driving holiday, prices jumped to $3.60 this morning.)

Comment by "Uncle Fed, why won't you love ME?"
2013-06-28 09:21:12

And people with cash are neither willing nor able to drive prices back up to bubble levels for very long. Apparently, some institutions with OPM are more than willing to overpay, as long as they get a cut of every transaction. However, the actual investor will eventually get pisced off by this.

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Comment by "Uncle Fed, why won't you love ME?"
2013-06-28 09:18:21

I don’t know if it’s the interest rates or not, but inventory is increasing in the rebubble cities now.

Comment by (Neo-) Jetfixr
2013-06-28 10:29:04

Around here, everybody is reading/hearing the “economy is improving/prices are recovering” BS, and people who didn’t sell in 2009-2012 because they “didn’t want to give the place away” are now starting to list.

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Comment by Whac-A-Bubble™
2013-06-28 07:50:30

June 28, 2013
See the mortgage rate spike that’s killing refis

The Week in Charts charts recent economic indicators

Mortgage rates are soaring, with the popular 30-year fixed-rate-mortgage recently hitting the highest rate in almost two years and posting the largest weekly rate jump since 1987, according to data released this week by Freddie Mac. Interest rates have been climbing since early May, but picked up the pace after Federal Reserve Chairman Ben Bernanke said last week that the central bank could start tapering its bond purchases this year.

— Text and charts by Ruth Mantell

Comment by Whac-A-Bubble™
2013-06-28 07:11:41

Comment by azdude
2013-06-28 06:12:45

QE will be around a long time.

Is from now until Fall 2014 “a long time”?

If not, what is?

Comment by Whac-A-Bubble™
2013-06-28 07:16:38

If QE will be around for “a long time,” then why the nonstop talk, from the horses’ mouths, of it ending “soon”?

Got denial?

June 23, 2013 7:18 pm
Quantitative easing: End of the line
By Robin Wigglesworth and Stefan Wagstyl
With the Fed eyeing an exit from loose monetary policy, emerging markets are coming under pressure

International investors have long shunned Honduras, an impoverished Central American country plagued by violence and coups. That changed this year.

Although Honduras struggles to pay its bills and suffers one of the world’s highest murder rates, it made a bond market debut in March, with investors happy to lend $500m for the next decade. Without the bond, the country could well have defaulted on domestic debts. In large part, Honduras can thank the US Federal Reserve for its unlikely salvation.

The Fed has been at the forefront of central banks seeking to stimulate economic recoveries through creating trillions of dollars to buy bonds and wrestle down global interest rates. Much of the new money has spilled into the developing world as investors have desperately sought better returns in new markets. This helped countries from Honduras to Rwanda gain access to international capital for the first time, and buoyed the bigger developing markets.

But Ben Bernanke, the Fed chairman, has reminded investors and borrowers of an inconvenient truth: the party cannot last forever. On May 22 Mr Bernanke told the US Congress that the Fed’s $85bn-a-month bond purchases could soon be reduced – a message he reiterated last week. His words have echoed across global financial markets but nowhere as loudly as in emerging economies.

The subsequent sell-off in currencies, stocks and bonds has been sharp, deep and indiscriminate. Investor favourites such as Mexico have suffered almost as much as less favoured countries. “We’ve been absolutely spanked,” says one hedge fund manager. Central banks have been forced to intervene to stem currency declines and officials have scrambled to reassure investors but to little avail. The currencies of Turkey and India slid to record lows last week, and emerging stock markets have fallen almost 15 per cent in a month.

Comment by (Neo-) Jetfixr
2013-06-28 08:20:42

So, thanks to the export of the US jobs base, most US government “stimulus” ends up stimulating the economies of other countries.

Comment by Whac-A-Bubble™
2013-06-28 07:28:31

I read the ‘taper talk’ as the start of a new regime where the Fed has forewarned investors of plans to scale back QE3 as the unemployment rate approaches 6.5%, but to do so very gradually. They are trying to spread out the shock to markets as much as possible.

Unless unemployment stays high forever, QE3 will increasingly melt away as unemployment returns to long-term norms. Those who gambled on ‘QE3 forever’ are likely to get severely burned.

June 28, 2013, 8:00 a.m. EDT
Fed’s Stein suggests September tapering move
By Greg Robb

WASHINGTON (MarketWatch) — Federal Reserve Gov. Jeremy Stein on Friday suggested that the central bank’s first tapering move could come in September. In a speech to the Council on Foreign Relations, Stein used only September as the hypothetical start date for slowing the pace of purchases. He told markets not to focus on fresh payroll numbers that come out just before the meeting, saying any decision by the Fed to slow the pace of its asset-purchase program will be based on developments since the program started last fall in order to make the best judgment about the state of the economy and to reduce market volatility. “The best approach is for the [Fed] to be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting–as salient as these releases may appear to be to market participants,” Stein said. “Even if a data release from early September does not exert a strong influence on the decision to make an adjustment at the September meeting, that release will remain relevant for future decisions,” Stein said. “If the news is bad, and it is confirmed by further bad news in October and November, this would suggest that the 7% unemployment goal is likely to be further away, and the remainder of the program would be extended accordingly,” he said.

Comment by "Uncle Fed, why won't you love ME?"
2013-06-28 09:16:18

They are supposed to start winding down in September 2013.

Comment by AmazingRuss
2013-06-28 10:36:41

… until stock market crashes at the merest hint of them actually doing it.

Comment by Whac-A-Bubble™
2013-06-28 07:18:14

Is gold oversold at this point, or has it yet to fully price in the end of QE?

Comment by Whac-A-Bubble™
2013-06-28 07:23:18

This quarter is ending on a very interesting note for true believers in gold. Is there any chance at least some of them might lose the faith and jump ship, out of doubt or necessity, or will most continue riding the falling knife all the way to the ground?

Gold plunges: ‘nobody wants it’
Date June 28, 2013 - 1:01PM

Why The Gold Price Will Fall to $750. Steps You Need to Take NOW.
Steep fall … the gold price over the past three years.

Gold has fallen below $US1200 for the first time in nearly three years, as month-end book squaring and relentless liquidation by institutional investors sent bullion prices sharply lower.

Despite slumping another 1.7 per cent to $US1180.57 an ounce this morning, its lowest since August 2010, gold has rebounded to $US1204.60 an ounce.

Overnight, gold reversed early gains in New York trade, and the slide accelerated with stop-loss orders triggered after the price fell below $US1225 an ounce to $US1199.51, down 2.1 per cent. Its session low of $US1197.1 an ounce was its lowest since August 12, 2010.

Gold has slid nearly $US200 an ounce in 10 days. It is down more than 28 per cent for the year and is headed for a 25 per cent loss for the second quarter, its biggest quarterly decline since at least 1968.

The overnight slide came despite gains in other precious metals and commodities, including crude oil, and even as the benchmark 10-year US Treasury yield fell below 2.5 per cent.

Falling yields for Treasuries usually encourage buying of gold, which pays no interest.

Analysts cited forced liquidations of gold unrelated to market fundamentals, and quarter-end selling by funds polishing portfolios through the time-honored practice of window dressing.

You don’t want to catch a falling knife, so people who might be buyers are stepping aside and don’t want to show gold at their quarter-end statement,” said Axel Merk, chief investment officer at Merk Funds.

US Comex gold futures for August delivery settled down $US18.2 at $US1211.6 an ounce. Trading volume was 270,000 lots, heavier than its 30-day average of 214,000, preliminary Reuters data showed.

Bullion has taken a beating since the beginning of last week after Fed Chairman Ben Bernanke laid out a strategy to wind down the bank’s $85 billion monthly bond purchases on the back of a recovering economy.

Comment by PeakHubris
2013-06-28 22:15:44

The gold bugs are ANGRY. Just look at the comments on any Marketwatch article pertaining to gold. The gold bugs are venomous as they attack anyone suggesting gold will fall further. They are a desperate bunch.

Comment by Professor Bear
2013-06-28 22:45:36

Their anger will soon morph into despair and resignation. You can bank on it.

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Comment by Bill in Los Angeles
2013-06-29 09:31:24

On yahoo finance the comments are mostly taking pot shots at gold bugs.

Capitulation is underway. Mines are shutting down as spot price is below production costs. Physical demand continues.

You can’t eat paper money.

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Comment by Whac-A-Bubble™
2013-06-28 07:32:37

Are gold bugs still buying the dip at this point in the crash, or is gold pretty much in a free-fall, i.e. 6% weekly losses, 50% 12 week (quarterly) losses, 75% 24 week (semiannual) losses, etc.?

Comment by Whac-A-Bubble™
2013-06-28 07:35:35

The good news for true believers in gold is that asset price declines at the current rate (6% per week) tend to self-extinguish before playing out for very long.

June 28, 2013, 6:27 a.m. ET
This Time Is Different: Gold’s Plunge Doesn’t Lure Retail Buyers
Unlike after April selloff, Chinese and Indian consumers hold back

When gold prices tumbled in the spring, the world’s biggest buyers took advantage of the lower prices to snap up coins, bars and jewelry. In the current selloff, consumers in China and India are holding back.

That has worsened gold’s decline. It has now fallen 39% from its peak in 2011, and it dropped below $1,200 an ounce in U.S. trading Thursday for the first time in nearly three years.

Gold’s June swoon, to below $1,200 an ounce for the first time in nearly three years, is leaving Chinese and Indian buyers cold.

The caution shown by Asian gold buyers is making it harder for the market to soak up the billions of dollars of physical gold being unloaded by exchange-traded funds, which are seeing big redemptions by investors.

Despite a 13% drop in prices in June, Chinese and Indian consumers are holding back because of fears that prices will continue to fall and growing confidence that an improving U.S. economy and a Europe free from further debt crises mean the metal is no longer needed as a safe haven.

“Gold prices have been dropping, but with this second drop, buyers are actually holding back,” said Billy Chiam, director at dealer Gold Price Singapore. “Investors don’t want to take on too much risk at the moment, so they’re just coming slowly into the market.”

One sign of tepid demand is the sharp decline in sales of new U.S. gold coins, which are popular among Asian investors. The U.S. Mint has sold only 47,000 ounces of gold American Eagle coins so far in June, compared with 70,000 ounces last month and 209,500 ounces in April.

Comment by (Neo-) Jetfixr
2013-06-28 08:22:50

The “pump and dump” economy.

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Comment by Bill in Los Angeles
2013-06-29 09:04:35

Yes, still buying. This month credit expanded by more than $96 billion. QE will continue and we will get QE4.

I have $2400 cash at the ready to buy seven quarter ounce American eagles. I think my one pill bottle will then be full. Will fill a couple more in 2014.

Comment by Whac-A-Bubble™
2013-06-28 07:48:54

June 28, 2013, 9:21 a.m. EDT
Gold barrels toward steep June, quarterly declines
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By Carla Mozee, MarketWatch

NEW YORK (MarketWatch) — Gold prices fell sharply in electronic trade Friday, with the precious metal on track for one of its steepest quarterly declines ever, as investors accelerated a rush out of the precious metal in the face of rising bond yields.

Gold for August delivery (GCQ3 +0.22%) gave up $18.20, or 1.5%, to trade at $1,193.40 an ounce, after having hit an intraday low of $1,179.40. Gold has fallen more than 25% since start of April and is also on track for a decline of about 14% for June.

Gold heads for sharp, double-digit losses for both the month and quarter.

“The market is still prone to a further pullback in jittery trading, with nervous investors as ever attaching a lot of importance to U.S. economic readings and the [U.S. dollar index] relative value,” wrote Andrey Kryuchenkov, strategist at VTB Capital.

“The market could pause and consolidate ahead of the weekend, but in the absence of serious buyers we would choose to stay away for now and wait for the market to bottom out,” he said in a note.

Gold prices remained on a downward spiral Thursday, even as three Federal Reserve officials suggested the markets had overreacted after Fed Chairman Ben Bernanke’s remarks last week that the central bank may start slowing the pace of stimulus as early as this year.

Such a move would be based on improvement in the economy that’s in line with the Fed’s forecasts, Bernanke had said.

Speculation that the end of Fed stimulus would arrive sooner rather than later hit gold futures hard this month, as so-called quantitative easing has been credited for supporting a rally in gold in recent years.

“Gold needs either inflation or fiat-currency fears to do really well, and neither appears likely in the near term,” wrote Jay Pelosky, principal at J2Z Advisory, in a report about financial market trends for Itaú BBA.

“Having some gold in the portfolio when rates are low seems like low-cost protection, though price action is scary,” Pelosky said.

Comment by Professor Bear
2013-06-28 12:55:22

Gold is a great investment over the long run, with “long run” defined to mean a century or so.

June 28, 2013, 2:23 p.m. EDT
Gold: Is the bad news over?
Commentary: Some say it has further to fall
By Mark Hulbert, MarketWatch

Is gold undervalued or overvalued? The question is all the more relevant now that the precious metal is trading at $1,200 an ounce, having shed $700, or 38%, over the past two years, including nearly 14% during June alone.

One study stirring much controversy among gold enthusiasts suggests it has more to fall.

The study — titled “The Golden Dilemma” — was published earlier this year by the National Bureau of Economic Research, a nonpartisan think tank in Cambridge, Mass. Its major finding is that regardless of how you define gold’s “fair value,” gold sometimes trades well above it and at other times well below. An ancillary finding: Whenever bullion deviates significantly from fair value, it eventually returns to trade at that level.

Campbell Harvey, a finance professor at Duke University and one of the study’s co-authors, concedes that there isn’t one agreed-upon definition of gold’s value. But he says that he and his co-author closely analyzed all the criteria of which they were aware.

The list they studied included defining gold’s value as a hedge against inflation, currency fluctuations, or low real interest rates, or as an insurance policy against hyperinflation or collapse of the financial system. They found that each definition was unable to explain more than a small portion of gold’s price swings over the shorter term.

While this finding is frustrating to traders who want to forecast gold’s shorter-term moves, gold is hardly different in this regard than the other major asset classes.

Consider the price/earnings ratio, a popular valuation metric for equities. According to research conducted by Cliff Asness, co-founder of AQR Capital Management, which oversees $80 billion, the P/E ratio historically has been unable to explain more than 5% of the variation in next-year stock-market returns.

The situation improves when we focus on the very long term, however, according to Harvey. When measured over many decades, gold is a decent inflation hedge, maintaining its purchasing power. His study therefore provides confirmation of the conclusion reached by a seminal book that enjoys almost biblical status among gold enthusiasts: “The Golden Constant,” which was written in the 1970s by the late Roy Jastram, a professor of business at the University of California, Berkeley.

Gold bugs need to be careful drawing the proper investment implications of Jastram’s conclusion, however, according to Claude Erb, a former commodities portfolio manager at TCW Group and the other co-author of the National Bureau of Economic Research study.

“For Jastram, the short run was the next few years, and the long run was perhaps a century,” Erb said in an interview. “And over the short term of a few years, both Jastram as well as our recent study found that gold’s track record as an inflation hedge is quite poor.”

Comment by Professor Bear
2013-06-28 22:52:40

Gold Prices in ‘Washout’ Phase: Epstein

June 28 (Bloomberg) — The Linn Group Managing Director Ira Epstein discusses the decline in gold with Deirdre Bolton on Bloomberg Television’s “Money Moves.” (Source: Bloomberg)

Comment by Professor Bear
2013-06-28 23:10:35

Schenker: Gold Has a Lot of Downside Risk Near Term

June 28 (Bloomberg) — Jason Schenker, president of Prestige Economics LLC, talks about the gold market. He speaks with Scarlet Fu and Sara Eisen on Bloomberg Television’s “Market Makers.” (Source: Bloomberg)

Comment by Whac-A-Bubble™
2013-06-29 02:37:46

‘Tis a mere flesh wound!

And not to worry about recent losses, as the serial bottom callers are out in droves now to say a bottom is near.

Gold’s Worst Quarter Ever Is Finally Over: Where Do Gold Prices Go From Here?
By Mike Obel
on June 28 2013 9:53 PM

Whew! Gold has just slinked away, battered and beaten, from its worst quarter ever.

Once considered the perfect safe-haven investment, the precious metal can’t find any place to hide anymore. From exchanges in Hong Kong and Shanghai to markets in London and New York, the price of gold is getting clobbered.

As a result, retail investors are stampeding to the exits, nursing financial wounds that will take years to heal. Indeed, whether gold can ever regain its luster, let alone its former strength, is suddenly a very wide-open question.

Gold hit an all-time high in September 2011 when it touched $1,921 per troy ounce. In the next 13 months, the price was virtually flat, slipping a mere 2 percent.

But from early October 2012 through June 2013, gold has tumbled 32 percent. Much of that decline began two months ago, early in the second quarter. On Thursday, April 11, the price closed at $1,566; by the following Monday, gold was selling for $1,362 — a 13 percent drop that landed gold in bear market territory (generally defined as a 20 percent decline in value) for the first time in years. It was also the biggest single-day percentage drop for gold in recorded history.

For the entire quarter just ending, gold is on track to lose nearly 25 percent of its value. The last time gold fell anywhere near that sharply was in the first quarter of 1982 when it plunged 18 percent.

Comment by Whac-A-Bubble™
2013-06-28 07:36:33

For how much longer will the bond market crash continue?

Comment by Whac-A-Bubble™
2013-06-28 07:43:32

The problem with newfangled policies which drive asset prices skyward is that nobody can predict the effect of withdrawing said policies on asset prices until the correction has already played out.

Here is a modest prediction: Unless a comparably strong stabalization policy to QE3 was in place in 1994, then the QE3 exit will have a stronger effect on the bond market than the 1994 policy tightening had.

Updated June 27, 2013, 8:58 p.m. ET
A Stormy Summer Looms for Bonds

It is certainly not the Summer of Love for global fixed-income investors.

The U.S. Federal Reserve’s warning that it could turn off the easy-money faucet has roiled global government, corporate, high-yield and emerging-market debt. The sharp move higher in Treasury yields—with 10-year yields up nearly one percentage point from their May lows to 2.5%—has stirred fears of a rerun of 1994’s carnage, when yields rose by 2.2 percentage points.

Comment by Professor Bear
2013-06-28 22:10:00

ft dot com
On Wall Street
June 28, 2013 5:02 pm
Don’t blame ‘feral hogs’ for bond rout
By Stephen Foley

The Federal Reserve had to employ a full-court press to end the rout in the bond market.

It sent officials to complain about the “feral hogs” of Wall Street trading desks and to insist that sellers had misread its chairman’s signal on monetary easing. But as one trader put it, it is not that the markets misunderstood Ben Bernanke. It is that Ben Bernanke misunderstood the markets.

Him and everyone else. Traders and investors, almost to a man, were taken aback by the speed of the run-up in rates after the Fed chairman set out a likely timetable for tapering bond purchases.

It seems that the overreaction was driven by poorly understood feedback loops in fixed-income markets, and by changes to the structure of the market since the last time the Fed ended a period of loose money back in 2003.

The $6.4tn market for US government-back mortgage securities bears particular scrutiny. Rising interest rates are more brutal on mortgage securities than on other fixed income assets because the underlying, low-interest loans are likely to hang around for longer when homeowners stop refinancing. And what investor wants to be stuck holding low-interest loans when rates have moved higher?

One new source of instability is the “mortgage real estate investment trust” (mREIT), a stock market-listed investment vehicle and the nearest thing to a hedge fund “mom and pop” investors are allowed to buy. In common with other leveraged trading desks and investment funds, mREITs raced to hedge losses in their mortgage portfolios by selling Treasuries, exacerbating the upward move in benchmark yields.

The chief executives of mREITs sometimes claim that these vehicles, if expanded enough, could fill the gap left by the government-controlled mortgage finance giants Fannie Mae and Freddie Mac, which are being wound down after saddling taxpayers with unacceptable losses.

Not in a crisis they couldn’t. Fannie and Freddie, massive in size and showered with government favours, routinely bucked the market and snapped up mortgage securities when prices dipped in the past. Few will mourn their passing, but their absence is an under-appreciated contributor to the market volatility of the past few weeks.

The worry is that the market’s recent travails are just a precursor to a much more dangerous period, when Mr Bernanke’s successor moves from tapering to monetary tightening.

Comment by Whac-A-Bubble™
2013-06-29 02:14:54

The chief executives of mREITs sometimes claim that these vehicles, if expanded enough, could fill the gap left by the government-controlled mortgage finance giants Fannie Mae and Freddie Mac, which are being wound down after saddling taxpayers with unacceptable losses.

I keep seeing this in print. I guess they really are going to wind down F&F, then, just as Polly suggested?

Comment by Professor Bear
2013-06-28 22:47:03

Treasuries Lose Most in First Half Since 2009 on Outlook for Fed
By Cordell Eddings & Daniel Kruger - Jun 28, 2013 9:00 PM PT

Treasuries lost the most this year since 2009 as investors fled U.S. debt after the Federal Reserve signaled the world’s biggest economy may be strong enough to allow the central bank to reduce its bond buying this year.

U.S. bonds fell for a third quarter, the longest losing streak since 1999, Bank of America Merrill Lynch data show. Ten-year note yields touched 2.66 percent this week, the highest since August 2011, after Fed Chairman Ben S. Bernanke said June 19 policy makers may begin slowing purchases under quantitative easing this year and end them in mid-2014. The jobless rate fell in June to match the lowest since 2008, data next week may show.

“The move higher in rates is all about central-bank action,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “The move looks to be overdone given the economy, but the Fed has dominated the market with asset purchases. And if they are ready to start pulling back, investors don’t want to be the last ones out the door.”

Treasuries slid 2.57 percent this year through June 27, a Bank of America Merrill Lynch index showed. It was the biggest drop since the first half of 2009. U.S. government debt fell 2.32 percent in the second quarter, after losing 0.3 percent from January through March and slipping 0.1 percent in fourth-quarter 2012, Merrill Lynch indexes showed. It was the longest stretch since the three quarters ended in June 1999.

Since 2003

Ten-year (USGG10YR) note yields climbed the most in almost a decade over the two past months, according to Bloomberg Bond Trader prices, surging 46 basis points, or 0.46 percentage point, in May and 36 basis points in June. The 83 basis-point jump was the biggest since the 95 basis-point increase in July and August 2003. The yields declined five basis points last week to 2.49 percent. The price of the 1.75 percent securities due in May 2023 gained 3/8, or $3.75 per $1,000 face amount, to 93 19/32.

The benchmark yields advanced from a 2013 intraday low of 1.61 percent on May 1 as bets rose that the Fed would reduce the bond-buying it announced in December to put downward pressure on borrowing costs, spur economic growth and combat unemployment.

The Fed purchases $85 billion of Treasuries and mortgage bonds every month in the program, the third round of purchases in its stimulus effort. Policy makers have also kept its benchmark interest-rate target at zero to 0.25 percent since 2008 to support the economy.

Bernanke, in response to questions from lawmakers after congressional testimony on May 22, said policy makers could cut the pace of buying if the U.S. employment outlook showed a sustainable improvement. He also said tightening policy too soon would endanger the recovery.

Comment by polly
2013-06-28 08:04:43

How about a topic on Fannie and Freddie - their planned demise, what is going to end up taking their place, is there the slightest chance that nothing will take their place, etc.

I’m pasting this from the NYT. Don’t ususally post entire articles, but I can’t figure out how to cut this one. It is largely about what is being considered for now, not what should be considered, but it is still very interesting. And it raises the issue of the entire idea of whether the availability of 30 year fixed mortgages should be a policy or not.

Op-Ed Columnist
The End of Fannie and Freddie?By JOE NOCERA
Published: June 26, 2013

On Tuesday, Senator Mark Warner, a Virginia Democrat, and Senator Bob Corker, a Republican from Tennessee, introduced a complicated bill that is intended to solve, once and for all, the problem known as Fannie Mae and Freddie Mac. You can be forgiven for missing this piece of news. Between Edward Snowden and the Supreme Court, it was easy enough to overlook.

But it’s not unimportant. It has now been nearly five years since Fannie and Freddie were put into conservatorship by the Treasury Department. Since then, we have been through the financial crisis, the housing crisis and the foreclosure crisis. Although the housing market has come a long way back, the market for private mortgage-backed securities — that is, bundles of mortgages sold to investors without a government guarantee — remains moribund. Believe it or not, the much-maligned Fannie and Freddie have kept the housing market alive by taking on the credit risk for most plain-vanilla mortgages, especially that most sacred of sacred cows, the 30-year, fixed-rate mortgage.

Indeed, ever since the creation of mortgage-backed securities in the 1970s, this has been a critical role of Fannie and Freddie; their “wrap” helped give investors the confidence to buy securities stuffed with thousands of mortgages they were never going to inspect individually. Currently, an incredible 77 percent of the mortgages being made in America are guaranteed by Fannie and Freddie.

Yet this can’t last forever. Conservatorship was supposed to be temporary. Although Fannie and Freddie are now making a gaggle of money, for complicated reasons having to do with the way the Treasury Department originally set up the conservatorship, that money is not reducing the government’s $180 billion bailout of the two companies.

Meanwhile, many Republicans have been screaming that the financing of housing should be left to the private market and that Fannie and Freddie must be put out of business. (They believe, wrongly, that Fannie and Freddie caused the financial crisis.) And the Obama White House — shocker! — has punted.

Thus we have Corker-Warner. (The bill has six other co-sponsors, three from each party.) The first thing to note about it is that, by god, it actually would eliminate Fannie and Freddie; the two companies are supposed to be wound down within five years.

But does that mean the private market will take over? Not a chance. Warner told me that although the bill would insist that private capital absorb the first 10 percent of any losses, the federal role remains critical. A new federal agency would be established to explicitly guarantee losses beyond that. And the bill would create programs to help make homeownership possible for low-income Americans, just like Fannie and Freddie once did. Those ads Fannie and Freddie used to run showing diverse Americans smiling in front of their home-sweet-homes could easily be replayed by supporters of Corker-Warner.

When I asked Corker how he planned to sell the bill to his fellow Republicans, he said, “This is a pragmatic approach. To have liquidity in the market, you have to have some government insurance.” He said it as if it were the most obvious thing in the world. As for the social mission, he told me that the country would be better served having that mission explicitly dealt with by the federal government than to have it “embedded” as part of two companies that were always more concerned with maximizing profits.

I don’t doubt that he’s right about that. One of the big problems with the old Fannie Mae-Freddie Mac model is that because they were publicly traded companies that also had a government component, their goals were constantly at war with each other. There was too much about them that was implied rather than stated outright. Warner and Corker both stressed that the country was better served by having things like government guarantees of mortgages out in the open, rather than implied as it was in Fannie’s and Freddie’s heyday.

Yet Corker-Warner has its own unstated assumption, namely that “the 30-year fixed mortgage is a social entitlement,” as Karen Petrou, the managing partner of Federal Financial Analytics, puts it. Almost no other country offers a 30-year fixed mortgage, because 30 years is unacceptably risky to the private market — without a government backstop. The 30-year fixed is also at the heart of the idea that owning one’s home is the American Dream. Part of the reason Corker-Warner is so complicated is that it has to do backward somersaults to create a mechanism that will maintain the viability of the 30-year fixed mortgage.

The question of whether the country should even have a 30-year fixed mortgage — or whether those who want one should pay for it, rather than relying on a broad government guarantee, or whether encouraging everyone to own their own home should be government policy — is what the country should be debating. By comparison, the debate about Fannie and Freddie is the same thing it’s always been: a sideshow.

And if you want to take a look at the comments, here is the link:


Comment by Whac-A-Bubble™
2013-06-28 08:36:37

“…their planned demise…”


My best guess: If they actually go through with the plan, there will be another federal government agency by another name which serves exactly the same purpose, waiting in the wings to fill in.

Comment by polly
2013-06-28 08:52:30

You could - you know - read the article and find out what is currently in the pipeline instead of just guessing.

Comment by Professor Bear
2013-06-28 13:36:33

Is it really better to read than to guess? For instance, how many years has it been already since the F&F wind down was first proposed?

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Comment by Rental Watch
2013-06-28 09:22:35

I read a different article on this, and one question I have is whether the new government insurance will also cover NEW apartment loans. The article I read noted that they would continue to guarantee existing apartment loans.

People on the HBB and elsewhere have been focusing quite significantly on the affect of mortgage rates on single-family homes. However, they are doing so in the context of home prices that have not fully recovered…there is room in the affordability calculations for rates to rise…at the moment.

HOWEVER, if you really want to see the affect of rising rates, you should look no farther than multifamily and multifamily cap rates. Cap rates (yields) are currently at remarkably low levels, and rents have nearly fully recovered in many places. The combination of the two have resulted in apartment values being at VERY high levels…driven substantially by low financing rates that are available…through the good graces of the FHA and Fannie/Freddie.

An estimate that I’ve heard is that if Fannie/Freddie were to go away tomorrow, that interest rates and cap rates for apartments would rise by 1% overnight…if your starting point is a 5% cap (infill So Cal commonly sees these cap rates), a 1% rise reduces your value by 17%. AND if we are in the context of a rising rate environment generally, cap rates could rise even further.

The only option for the apartment owner is to raise rents to try to make up this difference…and at today’s home prices, that would simply tend to push more renters to buy.

Take a look at the ticker symbol EQR (Equity Residential)…it has been running at all-time high territory for some time now.

So, my question…will this new structure guarantee new multi-family loans? I guess I may need to read the actual proposed legislation…since the MSM is so focused on single-family, they don’t pay attention to low cap rate for multi…

Comment by Professor Bear
2013-06-28 13:37:59

“To have liquidity in the market, you have to have some government insurance.”

If an ‘expert’ sez it, then it must be true…at least at bubblelicious price levels which reflect subsidized insurance!

Comment by Rental Watch
2013-06-28 17:43:56

That’s baloney. There are plenty of other countries with no public backing, and plenty of liquidity…they just don’t have 30-year fixed rate mortgages.

Comment by localandlord
2013-06-29 06:07:24

Given the “time bomb” of maintenance costs a 30 year mortgage is an accident waiting to happen. 15 year should be the norm - maybe 20 years for new construction.

Or maybe not as lumber is not as good now as in years past.

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Comment by Whac-A-Bubble™
2013-06-29 02:18:14

Believe it or not, the much-maligned Fannie and Freddie have kept the housing market bubble alive by taking on the credit risk for most plain-vanilla mortgages, especially that most sacred of sacred cows, the 30-year, fixed-rate mortgage.

Fixed it.

Comment by Whac-A-Bubble™
2013-06-29 02:22:52

Indeed, ever since the creation of mortgage-backed securities in the 1970s, this has been a critical role of Fannie and Freddie; their “wrap” helped give investors the confidence to buy securities stuffed with thousands of mortgages backing home purchases at bloated prices which they were never going to inspect individually. Currently, an incredible 77 percent of the mortgages being made in America are guaranteed by Fannie and Freddie taxpayers.

A bit more editing could have gone a long way for this article.

Comment by Whac-A-Bubble™
2013-06-29 02:26:32

“But does that mean the private market will take over? Not a chance. Warner told me that…”

A politician tells a NY Times journalist that the private market cannot possibly take over the role of the GSEs, and suddenly the laws of economics are repealed…

Comment by Whac-A-Bubble™
2013-06-29 02:32:06

Almost no other country offers a 30-year fixed mortgage, because 30 years is unacceptably risky to the private market — without a government backstop. The 30-year fixed is also at the heart of the idea that owning one’s home is the American Dream. Part of the reason Corker-Warner is so complicated is that it has to do backward somersaults to create a mechanism that will maintain the viability of the 30-year fixed mortgage.

The question of whether the country should even have a 30-year fixed mortgage — or whether those who want one should pay for it, rather than relying on a broad government guarantee, or whether encouraging everyone to own their own home should be government policy — is what the country should be debating.

Sounds great! Though almost every politician running for the WH in 2012 missed the opportunity to get into substantive questions about future U.S. housing policy, there is another chance to do so in just a few short years.

Comment by Whac-A-Bubble™
2013-06-28 08:30:27

Is the U.S. state budget crisis pretty much over at this point?

Comment by Whac-A-Bubble™
2013-06-28 08:33:58

In WA budget battle, state workers’ jobs down to the wire
By Chris Thomas | Jun 28, 2013

Gov. Jay Inslee announced Thursday that state lawmakers finally had reached a two-year budget agreement.

It may not satisfy everyone, but it at least eases the minds of 25,000 state workers, who had faced furloughs or layoffs on Monday if an agreement had not been reached.

This week, there were multiple rumors of last-minute compromises, denied within hours of being announced.

Tim Welch, communications director for the Washington Federation of State Employees (WFSE), says the budget may only be a governor’s signature away - but the damage has been done to taxpayers’ confidence in their lawmakers.

“If you have one part of the legislature that is just unwilling to compromise,” he says, “and doesn’t realize that, you know, you don’t get everything you want - we started in the cold of winter and here we are, going into a 90 degree summer weekend, and there’s just no reason for it.”

Comment by WT Econonmist
2013-06-28 12:13:03

Not in New York State:

a) Pensions are still underfunded, even with the stock market way up.

b) Retiree health care is unfunded.

c) More and more of the “dedicated” transportation revenues, for roads and transit, are going to past debts and not transportation after past “fiscal relief” raids.

Comment by "Uncle Fed, why won't you love ME?"
2013-06-28 08:52:59

OK, everyone do the stock-market crash dance today. Put on your blue suede shoes!

Comment by Rental Watch
2013-06-28 09:23:45

In the mortgage finance world today, what conditions are the same as they were in 2003-2006. Where are the differences?

Comment by Housing Analyst
2013-06-28 10:40:21


How much did you pay for the debt dump you bought in 2011?

Comment by Bubbabear
2013-06-28 11:11:56

Housing’s ‘Shadow Inventory’ Still Haunts Banks

According to the National Association of Realtors, only 15 to 20 percent of the homes that were foreclosed on during the downturn were making their way to the market in 2008 and 2009. The remaining 80 to 85 percent of the homes were bought back at foreclosure and are now owned by the banks. One might ask why the banks would want to own these properties. The answer is both telling and very scary.


Comment by Arizona Slim
2013-06-28 12:24:12

Key point from the article: We suggest investing new money in real estate only if your timeline is 10 years or more, your liquidity needs are low and you’re able to lock the debt service rate for a long period of time. Invest with caution. I am not suggesting that the shadow inventory issue, our building deficit and our current interest rate environment are going to cause another 2008-like crisis, but these issues are real and are not small numbers.

Comment by Bill in Los Angeles
2013-06-29 09:36:01

I think REITs in multiple unit apartment rentals are a slam dunk for intermediate term and long term.

In coastal areas renting is far cheaper than owning. Jobs are higher paying than in red states. Combination of renting and high pay is a great idea. Might as well profit on rent while paying rent.

Comment by Housing Analyst
2013-06-28 13:59:51

Great work Bubba. Excellent. And truthful.

Comment by WT Econonmist
Comment by Sean
2013-06-28 13:00:57

Hey Ben,

Not necessarily a weekend topic, but I wanted to ask - Do you see an increased amount of traffic to your blog after the sudden uptick and mania of real estate? I’m picturing wife telling hubby it’s time to buy, then hubby wants to see what the market does, googles ‘housing’ and ‘bubble’ and reads some of the stuff on your sight. (Then Suzzanne researches it and says its a good time to buy :p )

Just curious. If you don’t want to reveal your stats I understand.

Comment by Housing Analyst
2013-06-28 13:56:44

Consider this:

The widespread and deliberate PR (all outlets including the HBB) by the Housing Crime Syndicate resulted in the mania. Not the other way around.

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