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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Food stamps / Social programs
I see several righties demonizing these programs. To me it seems that they are either brain washed/dead or selfish. What is wrong with programs who support people who need it? I know that there are folks who abuse or misuse these programs. we should advocate to minimize/eliminate the abuses and not eliminating/reducing the programs.
I have said earlier that the main difference between first world and third world is that folks in first world rarely die because of hunger but in third world it happens all the time.
I was born in India and based on my education and earnings here in USA, perhaps I may be in top 5 to 10% and I know and have seen that folks here in USA are in general more sincere and kind. But I do not understand why some of them (more specifically rigties, demonize poor folks or who have fallen)
Although I have voted for democrats all the time, it seems that both the parties are more or less same and are there to help rich folks and screw the general population.
I believe the basic argument goes something like this:
Basically the inverse of the Golden Rule (do unto to others as you would have done to yourself). It pretty well captures the American Ethos don’t you think? It’s one of the main reason we are a super power - the willing consent (or apathy) of the people to inflict death and misery on others without guilt.
Philosophers say the golden rule is considered the foundation of morality and ethics in a free society.
And at the same time we consider ourselves a “Christian” nation.
What is especially amusing about the Evang/Fundy flavors of Christianity is that they consider themselves the recipients of the ultimate “cheese”: Salvation where you don’t have to do ANYTHING good, you just accept Jesus as your personal Lord and Savior and voila, you are Heaven bound. In other words Salvation is a 100% free gift, no strings attached. No good works are required. Yet these same people often hold a grudge against the working poor and their SNAP cards.
“I was born in India and based on my education and earnings here in USA, perhaps I may be in top 5 to 10% and I know and have seen that folks here in USA are in general more sincere and kind. Although I have voted for democrats all the time…”
So what I’m hearing is you fled the socialist India to live in the land of the free. You left socialism for capitalism.
Why did you make this choice? Was socialism not providing you the lifestyle you enjoyed or opportunities to innovate?
Don’t get me wrong – India is a fine place if you wish to witness firsthand what mass devaluation of a national currency due to socialist policies does to the wealth of a people and their ability to innovate.
And what wellspring of innovation has India become under its socialists? Clearly they are in ingenious people. We know because they produce so many top engineers and scientists. So why do all their engineers and scientists flee to capitalist America?
I find it amazing that you live in America and have enriched yourself there and still don’t recognize the value of freedom.
+1
So why do all their engineers and scientists flee to capitalist America?
To make America socialist?
Kidding aside, they moved to a place where their skills and knowledge were valued. It was an individual decision for most, so I don’t really see a problem with that.
He/She is GOP’s “desired” immigrant type and they are not even voting GOP…not even once! Really sad….gotta love the GOP leadership….
What about all those stories we were hearing about foreign techies going back to India and China, where the streets are now paved with gold?
If you want to understand why we object to socialism please see the scientific results of the experiments conducted by Dr. John Calhoun at the NIH in Washington D.C. He used white mice in experiments with a model centrally planned utopia of nutrition, comfort and housing for over 3,000 mice. If the results send shutters down your spine then *you* are the resistance.
Please consider…
“The beautiful ones” from John Calhoun’s mice experiments:
http://www.youtube.com/watch?v=0Z760XNy4VM
Meanwhile, the “socialist” economies of India and China are growing much faster than ours.
Perhaps those shutters are on the minds of those who interpret Calhoun’s experiments ideologically?
First and foremost, we’re dealing with mice, not human beings. And these are mice so genetically overbred they’d not survive more than a generation outside of a laboratory setting.
Secondly, Calhoun’s conclusions could just as easily be tweaked to apply to capitalism, communism, fascism, or any other closed (and artificially manipulated from outside) social system. Artificial confinement never bodes well for any population — which so confined tends to revert to hierarchy and warring for limited space/stimulae (See: Malthus)
Ultimately, how any given system’s resources are exploited is a function of the individuals operating within it, not the other way around. At some point the population will reach stasis. (Recall Calhoun ended his experiment after only a few mouse-generations, not hundreds or thousands.)
Here’s an interesting set of data from the American Enterprise Institute. Contrary to commonly-held assumption, global population rates are declining, not rising, and are projected to stabilize far below earlier estimates by century’s end.
http://www.aei-ideas.org/2013/05/population-bomb-no-theres-been-a-massive-global-drop-in-human-fertility-that-has-gone-largely-unnoticed-by-the-media/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+aei-ideas%2Fcarpe-diem+%28AEIdeas+»+Carpe+Diem%29
This must be what’s behind the GOP obsession with abortion laws. This AEI report will help their cause.
If the birth/death/replacement rates stabilize would the world wide standard of living eventually tend to normalize over time?
The last letter in the “comments” section speaks to this so, um, eloquently, I’d like to post a portion here for your evaluation:
iwik | June 27, 2013 at 1:46 am
People; WAKE UP. This is in fact a fuse already lit.
“…What we have now, in metaphor is like a swimming pool, filled up to 7billion people. And we have turned the tap to Zion off coming in. And there is no new flow or current going into the pool. So now algae and mould is growing in the stagant Swiming Pool. That is a metaphor for all of the worlds problems and evils. Babies keep things innocent and are conducive to being positive about the future. That of which entirely lacks in economical temperament (GCF) and green sustainability issies: Why would the trees grow if there is no one to sing to.
In terms of how this has happend:
• 1 BILLION abortions (more than ww1/ww2 put together)
Culling of babies at one end of the Tree of life and not balancing this with the opposing end. Leaving an aging population burden.
• FRUITLESS homo-sexual and hetero-sexual relationships that age yet do not restock the human population in replacement, nor are they taxed more. It’s culturally acceptable and not a “human right violation” to replace our selves. We just suck time and resource from the earth without giving back. And that is A ok.
• CONTRACEPTION reduces the rate and qty of babies. Trickster one that one.
• BREAK DOWN IN MARRIAGE low marriage rate just like low fertility rate.
Not exactly the stable social fabric you want to breed or retire on. Total and utter break down in the worlds bread and butter Nuclear Family….”
Wakey wakey.
“I know and have seen that folks here in USA are in general more sincere and kind. But I do not understand why some of them (more specifically rigties, demonize poor folks or who have fallen”
Kindness towards fellow American should be neither Democratic nor Republican virtues is what he is saying.
Although in general I do not reply to comments on my comments but I think I should do here.
You may have an impression that India is a socialist country, actually it is not. Most western countries are most socialist than India. The problem with India is lack of education for masses and a corrupt political class and rampant corruption in every government institution. Political class in USA also is corrupt but there are few differances.
In USA corruption is legalised in DC by something fancy called lobbying and revolving door. In India it is mostly being paid in cash or kind.
Another important differance is that when we (general population) go to any government institution here in USA to get something done e.g. getting driver’s lisence, getting some records etc., we get it done without any problem (most of the times) but in India most of the times people have to pay bribe to get things done in most of the government institutions.
Here in USA if you get stopped for traffic violation, you get ticked and fined (unless you can talk the cop into somehow letting you go
), but India most of the times you bribe the cop 5 to 10 dollars and they would let you go without any ticket.
why these things happen? One reason is that those folks earn a lot less than one needs to full fill ones basic needs. Corruption is not just limited to lower employees, who get paid less, it has become sort of accepted way and everyone invloved in the process is corrupt. Just think about cops and government employees in USA earning minimum wages or just little above that, what would be their behavior?
Now about why did I leave India, It is the same reason anyone leaves a job and takes another one but it was sort of an accident in my case and most of engineers or doctors who come here initially think that we would stay here for few years and go back. But after staying here for few years, getting green card and then citizenship and raising kids here, it becomes almost next to impossible to go back because of kids and also this place is really great place to be (unless republicans and democrats destroy it because they both work for corporations)
About freedom, you seem to have no idea, freedom does not mean like GW Bush (you are either with us or against us). I love capitalism and freedom but there need to be a defined set of rules and regulations that go with it. I have seen the crap about self regulation, It is the greatest joke, self regulation is not possible when profit motive is involved.
Any thoughts on what effect the “better-than-expected” jobs report might have on the prospect for a “sooner-than-expected” end to QE3?
I thought the unemployment rate bar for tapering QE3 was 6.5%. Has it increased to 7%?
U.S. Adds 195,000 Jobs; Unemployment Remains 7.6%
Lucas Jackson/Reuters
A woman filling out a job application at a job fair in New York on June 11.
By NELSON D. SCHWARTZ
Published: July 5, 2013
The economy added 195,000 jobs in June, the Labor Department reported Friday morning, slightly more than analysts had been expecting and suggesting steady growth.
Reactions on Twitter
Stephen Bronars@SBronars
Despite strong BLS payroll numbers - there are now more than 1 million discouraged workers up more than 200,000 from one year ago.
6 minutes ago
Wall Street has been feverishly awaiting the June employment report. Not only does it provide another indicator of overall economic strength, it also affects the timing of the Federal Reserve’s decision to start tapering a major part of its stimulus efforts.
A strong report increases the likelihood the central bank will start pulling back on its bond purchases as early as September, a prospect that has made some investors more cautious in recent weeks. On the other hand, signs of weakness in the labor market would likely prolong the Fed’s program of purchasing $85 billion in bonds per month.
Along with job creation, the Fed is closely watching unemployment levels. The unemployment rate, which is based on a separate survey from the one that tracks jobs, remained at 7.6 percent, unchanged from May.
The chairman of the Federal Reserve, Ben S. Bernanke, said two weeks ago he anticipated the bond-buying program would wrap up when the unemployment rate sinks to 7 percent. The Fed estimates that could happen by the middle of next year.
…
It appears the “race to the exits” in the bond market just accelerated considerably.
July 5, 2013, 8:39 a.m. EDT
Treasurys dive after strong jobs report
By Ben Eisen
NEW YORK (MarketWatch) — Treasury prices fell after a report that the U.S. added 195,000 jobs in June, beating expectations of economists. The unemployment rate was unchanged at 7.6%. On that news, Treasury yields, which move inversely to prices, soared. The 10-year note (10_YEAR +7.21%) yield rose 15 basis points to 2.659%, while the 30-year bond (30_YEAR +3.63%) yield rose 11 basis points to 3.600%, and the 5-year note (5_YEAR +10.85%) rose 14 basis points to 1.560%.
This guy glibly ignores that 30-year Treasurys have already lost 14% of their value as of May 2, 2013.
Bulletin 10-year Treasury yield leaps to 2.66% after jobs report
July 3, 2013, 8:27 a.m. EDT
The ‘Great Bond Massacre’ of 2013
By John Nyaradi
It happened in 1994 and it could happen again in 2013.
In 1994, the Federal Reserve set about raising Treasury yields from unusually low levels. As the economy was strengthening, the Fed saw fit to raise short-term rates from 3% to 3.25%. Thirty-year Treasury bonds were yielding 6.2% in January. By the end of the summer, the Fed had pushed yields up to 7.5%. In the process, hundreds of billions of dollars in Treasury bond value evaporated. As short-term yields increased, leveraged bondholders were forced to unload bonds to mitigate escalating losses on 30-year bonds. Prices dropped, yields climbed and money was lost.
Could it happen again?
We recently got a taste of what this action could look like after Ben Bernanke unveiled plans during his June 19 press conference to phase out the quantitative-easing program over the coming months. In the ensuing week, investors withdrew over $23 billion from bond funds, generating the biggest bond-fund outflow since 1992.
After that press conference, 10-year Treasury bond yields jumped 0.17% to 2.35%. By June 25, the 10-year yield was up to 2.61%.
But Dr. Bernanke might be on to something when he says the economy is improving, as the flow of economic data has recently shown steady, if uneven, improvement.
The June 2013 Institute of Supply Management (ISM) manufacturing report on business beat economists’ expectations of an increase to 50.5% with its reading of 50.9%. Home prices continue to beat expectations. The Case-Schiller 20-City Composite Index of home prices jumped 12.1% in April on a year-over-year basis, beating expectations of a 10.9% increase. Car sales and factory orders were up sharply on Tuesday of this holiday shortened week.
Meanwhile, investors in bonds, and bond funds, are hoping that the selling panic is over and that everyone intent on bailing out has already done so.
…
Well the higher interest rates will blow up a lot of leveraged bets on the stock market. Gold was down $30 ($1220.00) at one point this morning, silver down .77 cents to $18.90 while the 10yr is over 2.7% (almost a 3% loss!). The bond market is way bigger than the stock market so this is a big deal.
“The bond market is way bigger than the stock market so this is a big deal.”
Could you kindly elaborate on “way bigger than”?
I find this extremely curious, as MSM reporting is fixated on Wall Street and largely ignores the bond market. For instance, the correction dates back to May 2, 2013, a point which I have not seen mentioned yet in a single MSM financial news story.
Found this with one google search. No idea about the reliability of the source, but this seems like data that would be widely publicized. No reason to get it wrong when you are trying to sell research to people.
http://finance.zacks.com/bond-market-size-vs-stock-market-size-5863.html
The capital market is composed of the bond market, in which debt instruments are issued and traded, and the stock market, in which shares of ownership in companies are issued and traded. In the United States and worldwide, the bond market is much larger than its stock market counterpart.
Size Differential
In 2010, global stock market capitalization stood at $54 trillion, according to the McKinsey Global Institute’s report “Mapping Global Capital Markets 2011.” The outstanding global debt including public debt securities, financial institution bonds and nonfinancial reached $93 trillion — almost twice the capitalization of the equity market.
The size of the U.S. bond market is just under $37 trillion, finance professor Torben Anderson at the Kellogg School of Management says in “Volatile Assets” in July 2012. In comparison, the market capitalization of the U.S. stock market is about $21 trillion.
Thank you. It must be a moving target though since Wall St. seems to invent new synthetic debt based instruments every few weeks. I would note that anything invented out of thin air can disappear just as fast too.
Many thanks, Polly. This only deepens the mystery of why MSM financial writers tend to focus so heavily on stock market movements while largely ignoring bonds.
I have seen that date discussed on CNBC.
The bond market is just one element of the total debt bubble but it’s the lead dog. I don’t know if any body actually tracks the whole market at one place. Remember it includes synthetic instruments too like MSBs, CDOs, ETNs.
Gold going down almost as fast as a pair of panties in Bill Clinton’s oval office.
ABX down 7% today. I revised my limit buy to $10 per share. That would be the price at 18% of its September 2011 all time high, which was $55.18. Its current yield is climbing up there. Now 5.81% based on 0.8 dividend and $13.66 price per share.
Staffing company stocks going the opposite direction. Mine is up 2.5% today. My limit sell price still a long distance away.
Aim is to turn $6,500 into $38,000 on a little over 1,000 shares, then with the after-tax proceeds ($30,000) roll it into precious metals (physical, ETF, stocks) in measured amounts over a year. Call that nuts! But I think it will grow to $90,000 very fast. Would be a hoot to grow $6,500 to $90,000!
“Gold going down almost as fast as a pair of panties in Bill Clinton’s oval office.”
Same goes for long-term bonds. The flight-from-quality investor panic continues to play out in the face of an ever-improving U.S. jobs picture.
Bill, I’m a little confused on why you like ABX and KGC. I kinda can understand NEM. I look at something like ABX and see that it’s losing 0.86 / share and it scares me - especially given gold’s historic run-up. These companies are also giving their CEOs 10s of millions of dollars despite their stocks going down the tubes. I thought this article summed things up nicely:
http://www.forbes.com/sites/nathanvardi/2013/07/01/how-gold-miners-became-a-terrible-investment-2/?partner=yahootix
How come these things don’t worry you? Dividends can always stop…
What about book value per share. Mining assets count.
Goldcorp looks better perhaps!
What about book value per share. Mining assets count.
I guess I haven’t really used that in my analysis of a stock. If the company goes bankrupt, I doubt a high book value per share is gonna help me much as a shareholder. I’m not the smartest investor - I can tell you that - but it seems to me that assets are nice but a company can be driven into the ground just the same; it might just take longer.
July 5, 2013, 9:18 a.m. EDT
Treasury yields soar to 2011 highs on jobs data
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasury prices tanked on Friday after a stronger-than-expected jobs report, putting the 10-year note yield on track to once again close at its highest level since August 2011.
The 10-year note (10_YEAR +7.09%) yield, which moves inversely to price, rose 20 basis points on the day to 2.698%, according to Tradeweb. The 30-year bond (30_YEAR +4.46%) yield rose 15 basis points to 3.649% and the 5-year note yield (5_YEAR +9.80%) rose 17 basis points to 1.583%.
The U.S. economy created 195,000 jobs in June, beating expectations of economists surveyed by MarketWatch, who had projected 155,000 jobs. That left the unemployment rate unchanged at 7.6%, a positive sign that indicates more people entered the labor force to find jobs. Figures for April and May were revised higher as well.
…
At a current yield of 3.649%, the 30-year T-bond is off from its May 2, 2013 value by 2013. The bond market seems to be reaching for bear market territory.
I meant to say “off from its May 2, 2013 value by 15 percent.”
Reminder to self: Always review posts before hitting “Add Comment” button.
And never post before coffee.
July 5, 2013, 9:47 a.m. EDT
June jobs report keeps Fed on track for tapering
By Robert Schroeder, MarketWatch
WASHINGTON (MarketWatch) — Here is a roundup of reactions from analysts to Friday’s jobs report that showed the U.S. added a better-than-expected 195,000 jobs in June and that the unemployment rate was unchanged at 7.6%.
…
Has there ever been another point in the history of the Fed when they tethered a bond market crash to labor market recovery?
How do the bond vigilantes feel about having the Fed aim a loaded bazooka at their heads with a hair trigger set to fire as soon as the labor market recovers?
Is the U.S. economy decoupled from the rest of the world?
July 5, 2013, 6:48 a.m. EDT
German manufacturing orders disappoint with drop
By MarketWatch
FRANKFURT–German manufacturing orders in May were much weaker than expected once again, as another sharp drop in domestic orders squashed expectations of a recovery in domestic investment.
German manufacturing orders in May declined 1.3% on the month after April’s 2.2% drop, data from the Economics Ministry showed Friday, falling short of analysts’ expectations for a 1.2% increase.
German manufacturing orders have been extremely volatile of late, the ministry said, noting that big ticket orders in May were below average. The data for April were marginally revised up from a 2.3% drop previously reported.
The picture in May was broadly unchanged from April, as depressed domestic demand led the decline in overall orders. Domestic orders dropped 2.0% on the month following April’s 3.2% plunge. Foreign orders fell 0.7% from the previous month as a 3.9% drop in euro-zone orders erased a 1.1% increase in demand from countries outside the euro bloc.
Stubbornly slack corporate investment has held back the recovery of Europe’s largest economy. Domestic investment in German machinery and equipment has been in decline since the fourth quarter of 2011.
Germany’s VDMA engineering federation Thursday also cut its 2013 production forecast amid weak orders in the first five months of this year. The industry group, which represents about 3,100 mostly midsize companies, predicts German plant and machinery production will decline 1% this year, down sharply from an earlier estimate of a 2% increase. That would be the first annual decline in machinery output since the deep recession of 2009, when production plunged 25%. The data are inflation adjusted.
…
The Economist explains
What caused China’s cash crunch?
Jul 4th 2013, 23:50 by S.C. | HONG KONG
LAST month some Chinese banks found it excruciatingly difficult to borrow the money they required from their fellow banks. The interest rate for an overnight loan from one bank to another briefly hit 30% on June 20th, compared with a typical rate of about 2.5% earlier in the year. This cash crunch or “Shibor shock” (Shibor stands for Shanghai Interbank Offered Rate, a benchmark interest rate) raised immediate fears of bank defaults. It also highlighted broader concerns about financial excesses in China, where the supply of credit has been growing faster than the economy. What caused the sudden cash crunch?
Banks keep cash in reserve both to satisfy regulatory requirements and to meet their obligations to customers, creditors and each other. If a bank runs short of money, it typically borrows cash from other banks that have more than they need. Although banks can run out of money, China cannot. Its central bank, the People’s Bank of China (PBOC), can “print” all the yuan it needs. It transfers this freshly created money to the banks by buying something from them, such as foreign currency, bonds or other safe financial assets. It can also lend it to them. But when China’s banks ran short of cash last month, the central bank surprised everyone by refusing to help. Instead of adding more money to the banking system it sat on its hands, causing the crunch. Exactly why it did so is still in dispute.
A central bank may be reluctant to print money if it fears inflation. But inflation in China is quite low. The PBOC was instead worried about something else. In its public statements, it argued that the banks as a group had plenty of money between them. If one or two of them were running short that was because they were behaving badly. Perhaps they had lent too much, in one form or another. Or perhaps they were taking out a lot of short-term loans from their fellow banks in order to make a lot of longer-term ones. Banks can get away with this kind of overstretch and mismatch if they know they can always borrow easily and cheaply. Perhaps the PBOC wanted to shake their complacency by creating a cash squeeze. But instead it caused an unexpectedly severe crunch. As interest rates spiked, the central bank was slow to react or to clarify its intentions. That allowed fear and uncertainty to spread. Eventually the central bank did intervene, ordering big banks to lend to smaller ones and promising to stabilise the market. But the banks remain shaken by its hesitation.
…
China’s banks
Ten days in June
How will China’s lenders respond to the Shibor shock?
Jul 6th 2013 | Hong Kong |From the print edition
DURING last month’s cash crunch, China’s banks struggled desperately to work out what the country’s central bank was thinking. As the cost of interbank borrowing rose to record levels, they wondered how the People’s Bank of China (PBOC) would respond. The answer was: belatedly and fitfully. Now the banks must decide on their own response.
As rates ease, the fog enshrouding the central bank’s intentions is beginning to clear. In addition to its public statements, a summary of a private PBOC meeting was leaked to the Wall Street Journal. It conveyed the central bank’s alarm at an apparent surge in lending in the first ten days in June, when China’s banks added almost 1 trillion yuan ($163 billion) to their loan books, more than they typically lend in a whole month (see chart). Such an expansion of credit “had never been seen in history,” the summary said.
The PBOC concluded that some banks were expecting a fresh government stimulus to revive a slowing economy and had “positioned themselves in advance”. That meeting, which took place on June 19th, helps explain why the central bank failed to act the next day even as overnight interbank borrowing rates exceeded 25%.
…
China Banks May Need ‘Sticky Tape’ to Hold Together
Published: Wednesday, 3 Jul 2013 | 7:46 PM ET
By: Dhara Ranasinghe | Senior Writer
Sticky tape and chewing gum may be what’s needed to hold Chinese banks together as they learn to operate in an environment of slower economic growth and generally tighter liquidity conditions, says one banking analyst.
Although inter-bank funding costs for China’s lenders have fallen back this week after last month’s unprecedented credit squeeze, concerns about future money supply continue to pressure banking stocks in Shanghai and Hong Kong.
…
We have reached the end of a century of recurring panic-ridden financial management at the hands of the central banking oligopoly. I am curious whether any of the big minds in academia have considered whether some kind of perestroika of the current command-and-control central banking cartel could serve to restore competition to the banking sector? I realize oligarchs might not make as much money in the near term, but if we continue along our current trajectory, we run the risk of driving golden-egg laying geese who provide for the wealth of nations to the point of extinction.
Thoughts?
• Is the economy too chaotic to be centrally planned?
• Is picking winners and losers by a central planner, in direct opposition to market forces, a recipe for a durable recovery?
• With financial companies the world over, trying to play a game of poker and trying to obfuscate their operations, can a central planner ever reliably take the right steps to engineer a sustainable recovery?
“• Is the economy too chaotic to be centrally planned?”
An excess of central planning leads to economic chaos.
“• Is picking winners and losers by a central planner, in direct opposition to market forces, a recipe for a durable recovery?”
It’s a perfect recipe for chaos.
“• With financial companies the world over, trying to play a game of poker and trying to obfuscate their operations, can a central planner ever reliably take the right steps to engineer a sustainable recovery?”
The best poker players in the international finance community recognize the central bankers’ standing commitment to bail out too-big-to-fail corporations. They exploit this by playing ‘heads-we win, tails-you’re-screwed’ high risk gambles, where they make out like bandits if the bets work out and they are showered with too-big-to-fail bailouts from the public purse in case of losing gambles.
Wrong or just early? Time will tell…
ft dot com
July 5, 2013 2:08 pm
Lunch with the FT: Meredith Whitney
By Lucy Kellaway
The Wall Street analyst who foresaw the US banking crisis talks to Lucy Kellaway about standing out in a ‘dull’ industry
Meredith Whitney©Luke Waller
Meredith Whitney arrived early for lunch at the Wolseley and so, alas, I didn’t see Wall Street’s most notorious analyst making her entrance. I bet the other diners stared, though. They may not have known that this was the woman who predicted the US banking crisis but they couldn’t have failed to clock her fishnet-clad legs, one ending in a patent leather high-heeled shoe with a diamante buckle, the other in a blue-and-pink trainer.
When I get there, the portion of Whitney visible above the starched white tablecloth looks exactly as a woman known as the “dollar dominatrix” ought to. A long position in gold is festooned around her neck and clamped to her ears; her hair is big and blonde and her sweater black and expensive.
Yet the smile is warm and girly. Please like me, it begs. “This is so nice of you. I’m so excited about this!” she says in a voice so low that I can barely hear it above the din of the restaurant.
Whitney can afford to whisper: people go to great lengths to listen to what she has to say, even if they sometimes regret it afterwards. In 2007 she predicted that Citibank would cut its dividend – and it did. But then in 2010 she predicted that 50 to 100 municipal bonds would default – and they didn’t. Call #1 had Michael Lewis saying she was “the closest thing Wall Street has to an oracle”. Call #2 had Fox TV commentator Charlie Gasparino saying she “didn’t possess a single brain cell”.
Oracle or lobotomy victim, Whitney does her homework. She has been studying the data on Lunch with the FT, reading past examples, and has worked out the importance of getting the restaurant right. She explains her thinking behind the choice of one of London’s swankiest places to eat.
“I didn’t want to pick anywhere too grand.”
Pouring coffee from the silver jug she has already ordered, she tells me she’s in town for a couple of meetings; that London gets “a lot more high-end” every time she comes – and that she has hurt her foot.
“I ran yesterday and was trying to keep up with my girlfriend and completely ate dirt.” Completely did what? It’s not just the low volume that’s a problem: the 43-year-old Whitney talks as if she were back in her dorm at Brown.
“I was so klutzy,” she explains. “I tripped and now one foot looks like an American football.” She pokes a swollen ankle out from under the tablecloth and the waiter advancing to take our orders almost trips over it.
“What’s the biggest crowd-pleaser: the sole or the halibut?” she asks him, conscientiously collecting more data before she makes her menu call. He duly recommends halibut – the more expensive dish – so she orders that. I say I’ll have the fish of the day, trout.
. . .
It is odd how cross people are with Whitney about that municipal bond call she made two and a half years ago. Her initial bearish view was shared by such financial luminaries as Bill Gross and Nouriel Roubini; she only departed from them by being specific and saying defaults would run into hundreds of billions dollars within a year. When the defaults didn’t happen, she made everyone even crosser by declining to say sorry.
Now she has written a book justifying her position. In it she argues that the coastal states that were hardest hit by property collapse will suffer a mass exodus as people flee from regulation, debt and punitive taxation, moving to the “flyover” states in the middle where taxes are lower.
I protest that I’d rather endure any amount of tax and red tape in New York than live in South Dakota. Whitney stops smiling and leans across the table, big brown eyes narrowing.
“That’s interesting,” she snaps, “because Julian Robertson [the former hedge fund manager] certainly can afford to live in New York City but he chose to live outside. Ron Burkle [the private equity magnate] can afford to live in California but isn’t it interesting that he lives there fewer than half the days in the year?”
So is she herself quitting New York? Um, no. She’d love to move to Bermuda, where she owns a weekend house with John “Bradshaw” Layfield, the wrestler-turned-financial-adviser whom she met on live TV and subsequently married. But, unfortunately, her clients need her in NYC.
The waiter places a big chunk of white fish in front of her. “Oh, my goodness! That looks great!” she says, putting a speck of Béarnaise on a tiny flake of fish: “Hundreds of billions [of defaults] is still absolutely possible,” she goes on. “You hope it’s not – but Detroit is a matchstick away from going bankrupt.”
Meanwhile, any apparent improvement in California’s finances is an illusion. She rehearses again her central argument with an intensity that is slightly scary: taxpayers are getting fed up with footing the bill while bondholders get paid in full. Something’s got to give.
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