Bits Bucket for July 7, 2013
Post off-topic ideas, links, and Craigslist finds here.
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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Name:Ben Jones
Location:Northern Arizona, United States
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Something to read regarding our evolving feudal economies…
The Bubble Economy as a Two part play for Privatisation
July 4, 2013
By Michael Hudson
As published in the latest World Economics Association digest, the Real World Economics Review
The Federal Reserve’s QE3 has flooded the stock and bond markets with low-interest liquidity that makes it profitable for speculators to borrow cheap and make arbitrage gains buying stocks and bonds yielding higher dividends or interest. In principle, one could borrow at 0.15 percent (one sixth of one percent) and buy up stocks, bonds and real estate throughout the world, collecting the yield differential as arbitrage. Nearly all the $800 billion of QE2 went abroad, mainly to the BRICS for high-yielding bonds (headed by Brazil’s 11% and Australia’s 5+ %), with the currency inflow for this carry trade providing a foreign-exchange bonus as well.
This financial engineering is not your typical bubble. The key to the post-2000 bubble was real estate. It is true that the past year and a half has seen some recovery in property prices for residential and commercial property. But something remarkable has occurred. This new debt-strapped low-interest environment has seen Hedge funds and buyout funds doing something that has not been seen in nearly a century: They are buying up property with cash, starting with the inventory of foreclosed properties that banks are selling off at distress prices.
Ever since World War II, the operating principle of real estate investors is never to use their own money – or at least, to use as little of their own as possible. Debt leveraging leaves the rental income paid to the banks as interest. The absentee owner is after the capital gain at the end of the bubble’s rainbow. That is what a bubble economy is all about. But the only way that investors can obtain current returns above today’s miniscule rates is to buy assets directly for cash.
In a bubble economy, falling interest rates (e.g., from 1980 to today) almost guarantee capital gains. But today’s near-zero interest rates cannot fall any further. They can only rise, threatening capital losses. That is what is panicking today’s bond and stock markets as the Fed talks about ending QE3’s near-zero interest rate regime. So there is little incentive for bond buying. Once interest rates rise, we are in an “anti-bubble” economy. Instead of capital gains driving “wealth creation” Alan Greenspan style, we have asset-price deflation.
In the Bubble Economy, families became convinced that the way to build up their wealth was to borrow as much as they could to buy the most expensive home they could, and ride the wave of asset-price inflation. But since 2008, consumers have paid down about $5 trillion of personal debt. This has meant using their wages and other income to pay down mortgages, student debt, auto debt, credit-card debt and other bank loans. This leaves only about a quarter of the typical family’s paychecks to spend on goods and services after paying the Finance, Insurance and Real Estate (FIRE) sector and the taxes shifted onto wage earners and consumers. The outlook looks dim for corporate sales and hence earnings. So instead of debt-leveraged inflation of asset prices, we have debt deflation of the overall economy.
To put this in perspective, from 1945 until interest rates rose to their peak in 1980, there was an almost steady 35-year downturn in bond prices. The Bubble Economy was fueled by interest rates being rolled back down to their 1945 levels and even lower. Credit flowed into the financial markets to buy stocks, peaking in the dot.com bubble in 2000, and then to inflate the 2001-2008 real estate bubble.
We are now drowning in the Bubble Economy’s legacy. We can think of this as Phase 2: repayment time, along with foreclosure time. That is what happens in debt deflation. The Obama Administration has broken its 2008 campaign promises to Congress and to voters to write down mortgage debt to the ability to pay or to market prices reflecting realistic rental values. The debt legacy has been kept in place, not written down.
Carrying this debt overhead has caused a fiscal crisis. The financial and real estate bubble helped keep state and local finances solvent by providing capital gains taxes. These are now gone – and properties in default or foreclosure are not paying taxes. And whereas public pension funds assumed an 8+% rate of return, they now are making less than 1%. This has left pensions underfunded, and prompted some municipalities to engage in desperate gambles on derivatives. But the Wall Street casino always wins, and most cities have lost heavily to the investment banking sharpies advising them.
In place of a new bubble, financial elites are demanding privatization sell-offs from debt-strapped governments. Pressure is being brought to bear on Detroit to sell off its most valuable paintings and statues from its art museums. The idea is to sell their artworks for tycoons to buy as trophies, with the money being used to pay bondholders.
The same dynamic is occurring in Europe. The European Union and European Central Bank are demanding that Greece sell off its prime tourist land, ports, transport systems and other assets in the public domain – perhaps even the Parthenon. So we are seeing a neo-rentier grab for basic infrastructure as part of the overall asset stripping.
This is a different kind of inflation than one finds from strictly financial bubbles. It is creating a new neo-feudal rentier class eager to buy roads to turn into toll roads, to buy parking-meter rights (as in Chicago’s notorious deal), to buy prisons, schools and other basic infrastructure. The aim is to build financial charges and tollbooth rents into the prices charged for access to these essential, hitherto public services. Prices are rising not because costs and wages are rising, but because of monopoly rents and other rent-extraction activities.
This post-bubble environment of debt-strapped austerity is empowering the financial sector to become an oligarchy much like landlords in the 19th century. It is making its gains not by lending money – as the economy is now “loaned up” – but by direct ownership and charging economic rent. So we are in the “economic collapse” stage of the financialized bubble economy. Coping with this legacy and financial power grab will be the great political fight for the remainder of the 21st century.
Interesting read…Nice post…Thanks…
“The same dynamic is occurring in Europe. The European Union and European Central Bank are demanding that Greece sell off its prime tourist land, ports, transport systems and other assets in the public domain – perhaps even the Parthenon. So we are seeing a neo-rentier grab for basic infrastructure as part of the overall asset stripping.”
So the countries have to borrow printed money from the Central Bilderbergers, I mean Central Bankers to pay for social programs that they knew would implode and bail out too big to fail banks that are owned by the Bilderbergers, I mean Central Bankers and when they can’t pay back the money that was printed out of thin air with real money the Bilderbergers, I mean Central Bankers just ask for natural resources, prime tourist land, ports, transport systems and other assets in the public domain instead.
OK, I got it.
It was just awhile back that some in DC were suggesting we sell off our national parks to reduce the debt…
This had me until the end. While I think some of this will happen, I don’t think this is all one big scheme for rich people to buy roads to add tolls to them. The opposite end of the spectrum, total state ownership, seems equally as likely, considering having to provide for the masses in a depression economy.
I don’t think this is all one big scheme for rich people to buy roads to add tolls to them ??
I don’t think it has much to do with “Rich People”….Its more like institutions seeking yield for what ever reason…
Take CalPers in California for example…They are underfunded and desperate for yield particularly a “safe” yield…Do you think they would be interested in buying Hwy #5 through the central valley of California and turn it into a toll road ??
Lets just say “the rich” then. The article says this is a two step financial play. The financial elite already own the government. Under a scenario where I-5 would be sold to Calpers, no one would have the money to pay a toll because it wouldn’t happen absent a depression.
Sorry the article just seemed to couch a conspiracy theory in some reasonable bubble history. I’ve read Confessions of an Economic Hitman and just don’t think that paradigm can apply in this country. We’ll see, I suppose.
The rich and the government are the same.
And in the instances they are not, the rich still USE the government to achieve their ends.
“This new debt-strapped low-interest environment has seen Hedge funds and buyout funds doing something that has not been seen in nearly a century: They are buying up property with cash, starting with the inventory of foreclosed properties that banks are selling off at distress prices.”
And they after they bought up a lot properties sold at distressed prices they bought up some more properties at premium prices and this buying at premium prices increases the value of the properties that were bought up at distressed prices.
Which would make no sense if they were using their own money but it makes a lot of sense if they are using somebody else’s money because in using somebody else’s money they get to extract fees - extract two and twenty.
Extract twenty from the price increase of the pool of OPM they are managing (a price increase they themselves caused to happen due to their buying up of property at higher and higher prices) and extract two for managing the money in the pool that is forever increasing in “value”, and this forever increase in value acts to attract new money into the pool which allows for more extraction of the two in fees and more extraction of the twenty as a share of the increase in value of the holdings of the pool - values that will forever increase (well, almost forever increase - but that’s a problem for later) because part of this new money coming in is paid out in the buying up of more property at higher and higher prices.
This buying up of property and then you yourself setting the value of the property that was bought is easy to do in real estate if you control a lot of OPM because:
1. Real estate is local. What you do with RE prices affects the prices of all the RE in your locale - it affects the prices of the comps. And if your pool owns a lot of the comps then the prices of these comps goes up if your additions to the pool are bought at higher prices.
2. Price equals value. If the price of your holdings go up then the value of your holdings also go up.
Price equals value.
price almost never equals value. price diverges from value all the time.
If the price of your holdings go up then the value of your holdings also go up.
value is much more stable than price.
“price almost never equals value. price diverges from value all the time.”
Do you own a mutual fund? Do you understand that the value of a mutual fund is determined by the prices of all the holdings that are in this mutual fund?
<Do you understand that the value of a mutual fund is determined by the prices of all the holdings that are in this mutual fund?
do you understand that the value of a mutual fund is determined by its holdings, not its price?
“do you understand that the value of a mutual fund is determined by its holdings, not its price?”
The value of a mutual is determined by the prices of its holdings.
The value of a mutual is determined by the prices of its holdings.
you are quite wrong. evidently, you don’t know what ‘value’ means.
The tell me what it means.
“The” = Then”
If the value of a mutual fund is not determined by the prices of its holdings then what is it that determines the value of a mutual fund?
The tell me what it means.
you like equations. you always say “price=value”. here’s a more accurate equation.
value=quality/price
If you were to, say, want to borrow money and you were to put up stock as collaterial, what criteria would the lender use to value the stock? Would it not be the price of the stock?
If the value of a mutual fund is not determined by the prices of its holdings then what is it that determines the value of a mutual fund?
the value of its holdings, not the price of its holdings.
If you were to, say, want to borrow money and you were to put up stock as collaterial, what criteria would the lender use to value the stock?
if you were a lender and a borrower wanted a loan against his REITS, but you thought the REITS were way over priced, would you make the loan? (only a fool would say yes)
But at any time I want I can cash in the value of my mutual funds and I will receive an amount of money that is based of the price that I cashed it in at, so that means the value of the mutual fund must be based of the price of the fund, does it not?
But at any time I want I can cash in the value of my mutual funds and I will receive an amount of money that is based of the price that I cashed it in at, so that means the value of the mutual fund must be based of the price of the fund, does it not?
only if you think ‘price=value’. going down that road will cost you money.
oh come on. We’ve belabored that point about houses for years, but mutual fund value is pretty transparent at any given time, despite opinions about various stocks in them, and are easily liquidated. Not so houses.
Back to 2, Price equals value.
Note that the VALUE of the comps are set by PRICES and these prices are set by strangers - strangers who have their own reasons for doing what they are doing.
If you are buying because the value is going up and this increasing value is, at root, based on an increasing price then, at root, you are buying because of decisions made by strangers.
Note that the VALUE of the comps are set by PRICES and these prices are set by strangers
comps are just a GUIDE. what would happen if a few people colluded and got some comps up to a million in a 250K area? would people start paying a million per house? probably not even if they could afford it. the exception would be if they thought that the government would bail them out of any losses.
If you are buying because the value is going up and this increasing value is, at root, based on an increasing price then, at root, you are buying because of decisions made by strangers.
then you are buying into a mania and deserve to take a loss. it isn’t the value of houses that is going up, it’s prices. follow them up at your own risk, because prices are more volatile than value.
“comps are just a GUIDE.”
A guide that leads to prices. And these prices are then interpreted as - are converted into - values.
And these prices are then interpreted as - are converted into - values.
only fools who insist on overpaying for homes equates price with value. if they understood real value they wouldn’t get suckered.
“only fools who insist on overpaying for homes equates price with value. if they understood real value they wouldn’t get suckered.”
Fools, or very sharp people who have access to other people’s money. Which goes back to the point of my original post.
fools
Whatever distinctions assets have regarding their intrinstic values, as compared to their prices, these distincions become forgotten as soon as these assets become pooled with other assets.
As soon as they become pooled, as soon as they become part of a pool, the assets are no longer considered distinct and thus their intrinstic values are no longer distinct. So the favorite way to measure the values of these pooled assets is by the price of these pooled assets.
And so, IMHO, it is in this fashon that the pooling of assets converts intrinstict values into values determined by price.
And if the prices of these pooled assets are being controlled then the values of these pooled assets are also being controlled.
If an active investor was to personally decide whether or not he would pay an outrageously high price for a house then he would most likely say “no”. But if he was a passive investor then his answer would be a “yes” if the answer of the people handling his money was a “yes”.
And the people who handle his money have an incentive to say yes because they end up getting an enormous benifit from making sure the price that is paid is high.
Whatever distinctions assets have regarding their intrinstic values, as compared to their prices, these distincions become forgotten as soon as these assets become pooled with other assets.
not if you know how to add and subtract.
As soon as they become pooled, as soon as they become part of a pool, the assets are no longer considered distinct and thus their intrinstic values are no longer distinct.
they are distinct if you do your due diligence.
So the favorite way to measure the values of these pooled assets is by the price of these pooled assets.
you mean the favorite way of lazy people, don’t you? or the favorite way to make a careless investment.
If an active investor was to personally decide whether or not he would pay an outrageously high price for a house then he would most likely say “no”. But if he was a passive investor then his answer would be a “yes” if the answer of the people handling his money was a “yes”.
And the people who handle his money have an incentive to say yes because they end up getting an enormous benifit from making sure the price that is paid is high.
you’re not proving that ‘price=value’ here. all you’re doing is providing excuses for shoddy investments.
TJ said “if they understood real value they wouldn’t get suckered.”
This is exactly right. And if I’ve said it once, I’ve said it a thousand times here….. People don’t understand the value of a dollar. You see…. TJ and I are saying the same thing. Most have no idea….. not the foggiest notion on how to evaluate the cost of a house. It really is simple math and the sum of the component costs (materials, labor, profit, lot) is the price.
And here’s a not so secret secret for you all….. realtors and contractors will do and say anything to discourage you from understanding this very basic approach.
The alternative and the general rule?
Dumb. Borrowed. Money.
People don’t understand the value of a dollar
What is the value of a dollar?
Speaking of dumb. borrowed. money.
Correct, Combotechie.
There have always been obscenely wealthy people, and those people have always striven to take over the world. However, no matter how hard they try, not one has been able to pull it off. The bottom line is that prices will revert to their historic mean, after undershooting for a little while. There is no great scheme by the wealthy that will stop this from happening, while also giving “them” ownership of everything under the sun.
“Correct, Combotechie.”
Thank you. I’m glad at least one person appears to get what I am saying.
suddenly things seem slow his weekend vs mmmorial day weekend- here is S of DC
DoD furloughs start tomorrow.
Wow you betcha! Tomorrow is my first day of working pure commercial!!! I am going to be thankful I got a job so fast. I am excited about getting away from taxpayer money (although defense spending IS constitutional and someone has to be paid who provides the work). I am also nervous. The first three weeks is going to involve driving 410 miles a week. Then in August it will drop to 100 miles a week as I will be moving closer to work.
If we have to declare war in the next 20 years, the government will make sure the Fed keep the printing presses going. Salary cuts mean less revenue, so inflation will be the tax.
Hence, buy physical precious metals.
With all the deflation in incomes here and inflation in incomes in BRIC nations, investing in those nations is probably a smart way to protect your net worth.
Do you consider BRIC and Emerging Markets to be the same asset class?
Yes. But their stocks underperformed the U.S. stocks for awhile. Cycles In investing disfavors the developed world stocks and favors the emerging markets.
With all the deflation in incomes here and inflation in incomes in BRIC nations,
I wouldn’t be surprised if their currencies get hammered when the free money evaporates… Alot[sic] of it has flowed into the emerging markets for yield (e.g. carry-trade), and when that trade unwinds…
I thought the BRICS were imploding. Besides, the United States is trying to dump China for Africa now. The plan is turn everyone into a slave, certainly not to increase the wages of slaves.
don’t confuse us with facts. Foreign = more better.
“Salary cuts will mean less revenue, so inflation will be the tax.”
Listen to yourself, Bill. Salary cuts will mean less revenue - which is true - but inflation won’t be the tax, it is DEFLATION that will be the tax in that less money to spend means less buying power.
“Hence, buy physical precious metals.”
But if you do that then you are spending money that is growing increasingly scarce (due to salary cuts) on something that will not generate a return (unless you are depending on a price increase to generate a return, but a price increase in gold is not likely because of salary cuts).
If salary cuts are pervasive then the will be less money available to pay for price increases of such non-essentials as gold.
No the Fed will continue to expand the money supply.
“No, the Fed will continue to expand the money supply.”
How’s that “expand the money supply” thingy been working out so far?
The Fed may continue to expand the money supply but that doesn’t necessairly mean you (and most everyone else) will end up with more money.
Price inflation is one thing. We can debate that for a few years. Monetary inflation is another thing. Tapering does not mean credit stopped expanding.
Eventually monetary inflation turns into severe price inflation.
BILA:
1) The Fed is going to increase interest rates eventually.
2) There will be no price inflation in the United States unless we shift away from globalism. If that happens, then we will have wage inflation too. The wage inflation will outstrip the price inflation. In this case, people will have money to invest, but why would they choose gold over anything else? I don’t see how gold would suddenly become relatively more valuable than other assets.
I know we both are saying “general” price inflation. We do have price inflation in energy, health insurance, health care, college tuition for starters. To those of us with wage cuts, everything is inflated however. So he’s I see general price inflation.
I remember paying less than $2.00 per gallon for unleaded eleven years ago, hence energy costs.
If your wages kept up with your housing costs, health insurance, long term care insurance costs, and energy, congratulations.
As the gold buyers say, the weight of anyone of my gold coins does not change. The value of the dollar does.
1) If I buy a hybrid car which I value highly, yet, as a result care far less about the price of gas, does value equal price?
2) If I have a classic Lexus sports coupe that I value tremendously and have experienced great road trips driving,
does value equal price?
4) If I have a 1918 Craftsman home with guest house that is completely restored in a preservation zone of a wonderful
neighborhood, does value equal price?
The price has fluctuated between $950k and $350k over the past ten years (Untrustworthy Zillow).
Which transactions would/could involve emotion?
#1 No. Intellectual and a bit of self-congratulation, yes.
#2 Yes definitely an emotional component. Don’t ever plan to sell it.
#3 Yes. Too much sweat equity to mention. Pride of ownership. Low taxes. May never move. Close to beaches at a discount price.
Conclusion: IMHO, when no emotion is involved, value=price. When emotion is added, logic is out the door (I always wanted me one of them!) -
Lowered correlation.
Just happy to not be in any debt at all. If I need to I can downsize my clutter and move to a one bedroom in A Tucson apartment and bike all over the city.
The dark storm could last a generation.
Bila, you might want to see if you can get a room at UCI dorms for the interim to avoid that two-hour stop-and-go commute during the week. (Summer conference residence program)
Good luck on the new commute; I have respect and sympathy for anyone who regularly deals with LA traffic. (I have only done so on an occasional basis, and never once had a pleasant experience.)
Bill, you described the person hiring you as “a friend”.
Is he a close enough friend to let you crash at his place on weeknights for a couple of weeks?
Thanks folks! No not that close of a friend.
I am going to negotiate a break lease on my L.A. Apartment. Others told me I have a one month break lease penalty but I did not see the statement I. The lease or it’s addendum. I did see something about negotiating a lease termination fee though. Otherwise I have six months.
“Just happy to not be in any debt at all.”
+1 And reasonably fit too.
Thanks! I am 54. At the age of twenty I did not want to think of me in my 50s. 50s was old. But now I claim I am not old. A friend retired this year in January at 56, also in reasonable shape. But I have a lot of juice in my batteries. Retirement is for old people, not for me!
That should hit the DC housing market like a lead balloon.
It’s slow here (Charlotte) too.
One notable difference between this holiday and the Memorial Day holiday is the Thurs-Sun 4 day weekend vs. Sat-Mon 3 day weekend.
Another difference is that schools are out now whereas they were in session in late May.
good point- I just remember the loud POP july 5th 2005
AC guy took me to the woodshed again. 350.00 for a bad capacitor, cmon man. There is no shame with these folks.
Have you guys seen that dateline show where they went undercover and busted some shady ac people?
Was that the lowest bid or the first guy that would come and fix it ASAP? I just paid $600.00 for a sewer line repair and I got 3 estimates. One wanted $75 just to come give a estimate, but sight unseen he quoted $1500. Another guy came out and spent 15 minutes surveying the problem and gave me a detailed written estimate for $3,250. The winning bid was $600 was by a plumber who use one guy to hand dig a 6′ long 4′ deep trench and $30 in parts.
I hear stories like this all the time. When something like this happens to one it seems prices are too high: take a dentist, plumber, auto mechanic. We are becoming Japanese!
Using (presumably) illegal labor to hand-dig ditches takes money away from American workers. Shame on you for not paying the $3,250! Think of the jobs!
And this is why we should start enforcing the laws against hiring illegal labor.
Shame on you for not paying the $3,250! Think of the jobs!
My neighbor dug the trench himself, then had the plumber come to deal with the plumbing portion.
Shame on him as well!
“Have you guys seen that dateline show where they went undercover and busted some shady ac people?”
Yes.
350 sounds high to replace a cap. I paid 175 a couple of weeks ago to replace a bad compressor run capacitor. The markup on those is ridiculous. You can get them at Home Depot for around 25, but my AC is on the roof and it’s been 110+ for the last couple of weeks, so it’s easier just to fork it over.
The internet is probably responsible for the demise of more trade union service jobs than Reagan’s deregulation ever was. With a little help from the manufacture’s tech support, I just replaced the temperature control in my industrial refrigerator and saved a $300 service call (not including parts or labor). In terms of complexity, replacing a fitting on a septic line is mere child’s play (though admittedly a very tired, muddy and PVC-spattered child….)
It’s amazing what the reluctant DIYer can do when confronted with economic necessity.
I was able to troubleshoot my refrigerator using Youtube a few years ago. The parts were readily available on eBay/Amazon.
Even with the purchase of extra parts that turned out to be an unnecessary expenditure, I was able to fix the fridge for a lot less than what it would have cost for a service call.
Anybody need a computer control board, thermostat, or evaporator motor for a GE side by side? Have I got a deal for you…
You should really get comfortable doing that kind of repair yourself. It’s a pretty common AC repair, and it’s very easy to DIY. Turn off the power, open up the electrical, test the cap (make sure it’s discharged), pull it out (connected with quick disconnects, makes it easy). Take to the computer, look it up and order from Amazon.
Mine went out this year; it was about 30 bucks to get a new cap and about 1 hr total time (out and back in).
i was out of town, or I could have fixed it for 20 bucks.
planet money
THE ECONOMY EXPLAINED
Episode 470: Killing Fannie Mae
July 02, 2013 7:43 PM
25 min 20 sec
Easy Financing
Joe Raedle/Getty Images
Five years after the financial crisis, the federal government still controls Fannie Mae and Freddie Mac, two giant companies that guarantee trillions of dollars in mortgages. This is a huge, little-discussed part of the post-crisis economy.
Almost everybody agrees that taxpayers shouldn’t be on the hook when their neighbors don’t pay their mortgages. But the government doesn’t have a clear plan to get out of the mortgage business.
Last week, two senators (a Republican and a Democrat) that would get rid of Fannie and Freddie and reduce the government’s role in the mortgage business.
On today’s show, we try to figure out what the new bill means. And, which we first talked about on the show a few years back.
Rising Mortgage Rates Could Chill Housing Market
By Mary Shanklin
Orlando Sentinel
Sunday, July 7, 2013
(Published in print: Sunday, July 7, 2013)
A recent, sharp rise in mortgage-interest rates has raised concerns about whether the housing recovery will soften as home loans become more expensive.
Two weeks ago, the average rate nationwide for a 30-year mortgage jumped to 4.46 percent from 3.93 percent — the biggest one-week increase since 1987 and the highest rate since July 2011, according to the Federal Home Loan Mortgage Corp.
“We do think that, as rates go higher, there will be additional affordability issues,” said Brad Hunter, a Florida-based economist for the real-estate research firm MetroStudy Inc.
“Everyone is getting nervous now as the Fed is taking away the Kool-Aid bowl soon,” he said. Rates started moving up after the Federal Reserve said on June 19 that it might end its economic-stimulation program by the end of this year or in 2014.
An increase in interest rates could temper the housing recovery in several ways.
For one thing, higher rates would mean prospective buyers could afford less house, possibly easing demand for new and existing homes. For another, the equity funds that have been buying up foreclosures would likely go looking elsewhere for better ways to invest their money, which would likely limit competition for new listings. Home builders may be pressured by higher carrying costs, even as fewer prospects show up to tour their model units. And homeowners not interested in selling would be less likely to refinance their existing loans.
Here’s a closer look at how rising rates could affect those four groups:
…
Has the Fed ever previously tethered a bond market crash to labor market recovery?
Friday’s “Catastrophic Surge” in Mortgage Rates
by John Maxfield, The Motley Fool Jul 6th 2013 6:00PM
Updated Jul 6th 2013 6:02PM
If you’re thinking about buying a home, then you’re probably not going to like what I’m about to say. On Friday, while you were busy nursing yourself back to life following the previous night’s celebrations, mortgage rates exploded.
The daily recap from a widely followed mortgage industry publication characterized it as a “catastrophic surge,” saying: “today’s rise in mortgage rates is among the largest ever, and certainly the largest in the past 10 years. Today alone, rates rose more than most entire weeks.”
According to its estimates, the rate on a conventional 30-year fixed rate mortgage “moved forcefully into 4.75% territory, with some lenders at 4.875%.”
But wait a second. Didn’t Freddie Mac just announce on Wednesday that rates had fallen? What could have happened in the meantime to cause them to take flight?
The answer is this: Friday’s better-than-expected jobs report for June. As my colleague Morgan Housel noted, “Bad news for the end-of-the-world crowd: June’s jobs report was released Friday, and it was pretty good. 195,000 new jobs were created last month, according to the Bureau of Labor Statistics. That was the third-best June jobs report in the last 15 years.”
The connection between mortgage rates and job creation is the Federal Reserve. That is, as the labor market picks up, the central bank will begin to reduce its support for the economy. And because its support for the economy consists, in large part, of bond purchases, its retreat will result in higher interest rates.
…
Markets More: Bonds Crash Bubbles Bearish
Here Are The Warning Signs That Preceded The Last 3 Bond Market Crashes
Sam Ro
Jun. 18, 2013, 7:31 PM 5,945 2
Michael Hartnett and the investment strategy team at Bank of America Merrill Lynch recently warned that the “risks of a bond crash are high.”
“While our core asset allocation remains bullish on equities and bearish on bonds, the risks of a risk-negative bond crash a la 1987, 1994 and 1998 remain high enough to warrant short-term caution,” wrote Hartnett today reiterating his warning.
The team believes everyone should keep an eye out for the warning signals which preceded the last three crashes. Here’s BAML verbatim:
1987: The October crash was preceded by a dangerous combination of rising stocks, bond yields and gold prices, as well as global policy discord, as the Germans and Americans argued about monetary and exchange rate policy.
1994: The lead indicators were a pickup in US bank lending and small business hiring intentions, which led to a Q1 payroll shock and caused the Fed to quickly tighten policy.
1998: Amidst the ongoing Asian Financial Crisis and Japanese bank bailouts, confusion on how much the Fiscal Investment and Loan Program of the government would buy government bonds caused yields to jump by more than 100 basis points in less than three months, which led to a 13% equity correction.
…
ft dot com
Last updated: July 5, 2013 7:01 pm
US bond yields soar on robust jobs growth as QE tapering expected
By Robin Harding in Washington
Robust US employment figures sent bond yields soaring on Friday as the labour market showed it was healthy enough for the Federal Reserve to slow its $85bn a month in asset purchases later this year.
The yield on 10-year Treasuries rose 22 basis points to 2.72 per cent – the highest since July 2011 – after payrolls rose by 195,000 in June, comfortably beating expectations. Revisions to recent data added another 70,000 jobs to the total.
The figures take average payrolls growth this year to 202,000 a month – meeting Fed chairman Ben Bernanke’s standard of “continuing gains in labour markets” for a “tapering” of quantitative easing. September is seen as the likely date for the US central bank to consider such a change.
The shift in bond prices spilled across the Atlantic and helped push British 10-year yields up by 11 basis points to 2.49 per cent, more than reversing Thursday’s declines, which had followed dovish signals from the Bank of England.
After presiding over his first interest rates meeting as BoE governor, Mark Carney broke with its convention not to tie its hands on future policy, issuing a statement that rising market interest rates were not “warranted”.
Friday’s moves pile pressure on the BoE to reinforce its rhetoric with action such as Fed-style “forward guidance” or further bond buying or quantitative easing.
Fed officials argue that slower asset purchases will still mean it is easing monetary policy, but with US 10-year yields up by 100 basis points in the space of two months, the response to payrolls shows how global financial markets are in thrall to fears of what will happen when the Fed steps back.
“Any doubts that the Fed wouldn’t follow through on its plan to taper QE3 later this year in response to some of the recent weaker activity data have been dealt a major blow,” said Paul Dales, senior US economist at Capital Economics, the analysts. “The bottom line is that payrolls growth could probably even slow a bit from here and the Fed would still start to taper QE3 at the FOMC meeting scheduled for September.”
…
Growth in lower paid jobs and temp jobs that last a few months. Therefore the Fed should aperture. MSM, gotta love ‘em!
Growth in lower paid jobs and temp jobs that last a few months. Therefore the Fed should taper.
I don’t know about the “should,” but the Fed has fairly clearly indicated that it “will” taper Treasury bond purchases when headline unemployment drops under 7.0%, currently projected to occur by this September. This is why I maintain the Fed has tethered a bond market crash to labor market recovery.
That’s what they have said. We’re they telling the truth? Do you believe them? Would they change their minds if “conditions have changed”?
I think the economy is going to sink into recession. Even if the Fed tapers, such tapering will occur over two months or so, then the Fed will open the spigots.
To preserve any credibility the fed may have, it would not taper if it thinks it will have to open the spigots in two months.
Either the fed follows its schedule or delays tapers for various reasons. I am betting on the latter.
Yeah. Many know the “positive” job reports not really. Combined with furloughs, I doubt tapering is going to happen.
“I doubt tapering is going to happen.”
Is this because you doubt the headline unemployment rate will drop below 7%, or because you don’t believe the Fed’s resolve to follow through with stated plans?
If many gold investors believe similarly to you, then I do think gold is in for another serious leg down when tapering actually begins. Tapering looks nearly inevitable, as the Bernanke Fed has generally followed through on per-announced plans, and headline unemployment is on a very steady trajectory to drop below 7% later this year.
Here is a chart which conveniently makes my point. Unless my eyes missed something, we are presently in the seventh period since 1948 when the U.S. headline unemployment rate exceeded 7%. In each of the six similar episodes, once unemployment reached a peak, it soon thereafter began a period of quick, steady decline towards levels below 7% within the next couple of years. The one slight exception to this was in the post-1982 period; for some reason, the rate of decline in unemployment decelerated as the 7% level was approached, but it nonetheless steadily declined right on through 7%, albeit at a slower rate than initially.
Unless the seventh time is different, we are headed towards (official) unemployment below 7% within the next couple of years in the event of deceleration, and sooner with continuation of the recent rate of decline. Either you disagree with me on this point, or else you expect the Fed will not follow through on announced tapering plans.
“Combined with furloughs, I doubt tapering is going to happen.”
They said ‘the sky would fall.’ Guess what. It didn’t
Four months after ’sequestration’ took effect, most dire predictions have proven unfounded
Posted: 07/07/2013 06:36:35 AM EDT
By David A. Fahrenthold and Lisa Rein
The Washington Post
WASHINGTON — Before “sequestration” took effect, the Obama administration issued specific — and alarming — predictions about what it would bring: There would be one-hour waits at airport security. Four-hour waits at border crossings. Prison guards would be furloughed for 12 days. FBI agents, up to 14.
At the Pentagon, the military health program would be unable to pay its bills. The mayhem would extend even into the pantries of the neediest Americans: Around the country, 600,000 low-income women and children would be denied federal food aid.
But none of those things happened.
Sequestration did hit, on March 1. And since then, the $85 billion budget cut has caused real reductions in many federal programs that people depend on. But it has not produced what the Obama administration predicted: widespread breakdowns in crucial government services.
The Washington Post recently checked 48 of those dire predictions about sequestration’s impact. Just 11 have come true, and some effects are worse than forecast. But 24 predictions have not come to pass. In 13 cases, agencies said it is too soon to know.
So many predictions fell short because, in recent months, the administration and Congress did what was supposed to be impossible: They undid many of sequestration’s scariest reductions. In the process, this supposedly ironclad budget cut — ostensibly immune to political maneuvering — became a symbol that nothing in Washington is beyond politics.
In some cases, politicians transferred cuts from high-value programs to lower-value ones. Employee travel was limited. Maintenance was deferred.
But in other cases, they found “cuts” that didn’t cause much real-world pain. The Justice Department, for instance, prevented furloughs by “cutting” $300 million in money that had already legally expired, as well as $45 million meant to house detainees who didn’t exist.
This is why the sky didn’t fall. Sequestration was intended to show there was no longer any escape from austerity in Washington.
There was.
“The dog barked. But it didn’t bite,” said Robert Bixby of the Concord Coalition, which pushes for fiscal responsibility in Washington.
…
and headline unemployment is on a very steady trajectory to drop below 7% later this year.
Yep—to a significant degree due to those long-term unemployeds, who fall off the headline unemployment roles at a nice, predictable rate.
I did some back-of-the-envelope data analysis on the UE Rate data whose chart I linked above. Since peaking at 10.0% as of October 2010, the headline UE Rate has dropped by 2.4% to 7.6% over the course of 44 months. The average rate of decline can be scaled up from 2.4%/44 months to 3.0%/55 months (multiply top and bottom of the fraction by 5/4). Based on this back-of-the-envelope calculation, one might reasonably expect a 7% unemployment rate will be reached about 11 months after June 2013, around May 2014.
How the Fed projected tapering by September 2013 is a mystery to me, though I am 100% certain they used far more complicated models and maths than the above to arrive at their projection.
“Yep—to a significant degree due to those long-term unemployeds, who fall off the headline unemployment roles at a nice, predictable rate.”
What actually seems more likely at this point is a falling unemployment rate may lure more of those long-term unemployeds back into the labor force, SLOWING the rate of decline in unemployment from its recent pace.
I wonder if this might help explain the leveling off in unemployment rate decline as it approached 7% in the post-1982 episode?
One further useful thing to recognize about falling unemployment: At some point, the labor market will flip from a “buyer’s market” to a “seller’s market.” A “buyer’s market” is great for employers, who get to cherry pick top talent at a deep discount to normal salary levels, while workers are left competing at for worse jobs at lower pay than in normal times.
Once unemployment reaches a sufficiently low level, the tables turn, with workers enjoying multiple job opportunities between which to choose, and employers facing bidding wars to attract talent.
I’d guess we will see this transition within the next couple of years.
But Whac, everything is different now that we have globalism and illegal labor. Why should any employer hire a free person, when there are slaves everywhere to choose from?
Most employers I have ever worked for were control freaks at the core. It’s much harder to keep overseas slave labor under your thumb than workers under the same roof where you work.
Sorry my friend PB, I just am not convinced. I need someone to throw a BRIC at me.
“I need someone to throw a BRIC at me.”
OK.
hindustantimes
Sun, 07 Jul 2013
BRIC call was a mistake, says Goldman Sachs
Reuters London, July 05, 2013
First Published: 01:50 IST(5/7/2013) |
Last Updated: 03:11 IST(5/7/2013)
Investors who wrongly called time on US economic supremacy during the financial crisis are set to pay a hefty price for betting too much on the developing world, according to a top Goldman Sachs strategist.
The US investment bank helped inspire a 20-fold surge in financial investment in China, India, Russia and Brazil over the past decade, its chief economist popularising the term BRICs in a 2001 research paper.
Sharmin Mossavar-Rahmani, in charge of shaping the portfolios of the bank’s rich private clients, has been arguing against that trend for four years, however, trying to persuade investors and colleagues they were safer sticking with the developed world.
The past six months has substantially vindicated that view.
China’s boom is finally wobbling under the weight of economic imbalances including an undervalued currency, and emerging stock markets are down 13% compared to an 11 percent rise in the US S&P 500 index over the same period.
“Many investors and market commentators have been too euphoric about China over the last decade and this euphoria is finally abating. Many just followed the herd into emerging markets and over-allocated to many of the key countries,” she says.
…
“The US investment bank helped inspire a 20-fold surge in financial investment in China, India, Russia and Brazil over the past decade, its chief economist popularising the term BRICs in a 2001 research paper.”
Should we expect BRICs to soon start dropping out of the sky?
ANALYST: The Bond Crash Is Worse Than 1994
Matthew Boesler 28 June 2013 4:36 AM
Worse than 1994
Remember in January, when all the buzz was about the possibility of a “1994 moment” – a repeat of the bloodbath in the bond market that year when the Federal Reserve unexpectedly tightened monetary policy?
Go figure – the sell-off the Treasury market has seen since early May is actually already worse than what went down 20 years ago, as ISI’s Ed Hyman points out in a note to clients this week.
“Looking ahead in 1994, bond yields surged another +100 [basis points] in the next 3.5 months,” writes Hyman. “Of course, the huge difference is that in 1994 fed funds were hiked +75bp during this period, and another +175bp by the end of the year.”
Needless to say, the situation in 2013 is drastically different from that in 1994.
“In sharp contrast, this year, there is no chance of a fed funds hike, and even with tapering, the Fed’s balance sheet will increase another +$450b, which could be viewed as equivalent to cutting the fed funds rate by roughly -50bp,” says Hyman.
…
Due to inflation most people are not excited to get off the couch for 10 bucks an hour because they know they will never get ahead. There is an oversupply of labor in america because technology has eliminated a lot of jobs and population growth. Also from what I see regulation is preventing a lot of work from actually happening. In addition manufacturing jobs have been sent to areas with cheap labor. Simply put there are not enough high paying jobs to go around. The govt is also paying people pretty well to sit at home.
I would love to see a real study of the people actually out of work here. Not the rubbish you hear on TV.
Asset bubbles have taken the place of actual work.
And this is relevant to discussion of the Fed tethering a bond market crash to labor market recovery because…?!
maybe they should tether the bond market to food stamp participation?
There is an oversupply of labor in america because technology has eliminated a lot of jobs ??
And will continue…Maybe at a accelerated pace…New normal could be 7% unemployment or higher…Lower wages due to competitive forces…
Son shared with me some of the discussions occurring around the BBQ amongst his friends (30’s)….Attitude is, we are staying as renters…Not having any kids soon either…Working and making great money as a couple….Enjoying some but main focus is saving…Get to their early forties or so and then leave the area for a lower cost mainly for housing..Pay off the house, No debt, money in the bank & 401k, he gets a job as best he can, and they start a family…
I hope you told your son that the timing doesn’t work out. When are the kids born in this scenario, when the wife is in her late 40s or early 50s?
Marry a younger wife…not too young of course.
I hope you told your son that the timing doesn’t work out. When are the kids born in this scenario, when the wife is in her late 40s or early 50s ??
What part of this did you fail to understand;
Get to their early forties or so…
So you jump it to late forties early fifties to make your case ??
“Pay off the house, No debt, money in the bank & 401k, he gets a job as best he can, and they start a family”
I guess I didn’t understand this part where you said pay off house before “and they start a family”. I think it would have read better as “buy house with cash saved”.
So this is basically the Oil City plan?
I think it would have read better as “buy house with cash saved” ??
Thats kinda what I did say…
“Son shared with me some of the discussions occurring around the BBQ amongst his friends (30’s)….Attitude is, we are staying as renters”
In other words they are not going to buy a house now…They are going to buy it when they move and pay off the house…Meaning…No Debt…
Sounds like your son and his friends were raised well.
If having a family is a goal then start as early as possible. Certainly the grandparents will help out where possible, right?
‘And will continue…Maybe at a accelerated pace…New normal could be 7% unemployment or higher…Lower wages due to competitive forces…’
Lady runs to house closing with copy of ‘Idiocracy’ in hand:
“Mr. Chambers, don’t sign the papers! The rest of the movie ‘Idiocracy’ it’s… it’s a documentary!”
There is an oversupply of labor in america because technology has eliminated a lot of jobs
a weaker economy has eliminated jobs, not technology.
Also from what I see regulation is preventing a lot of work from actually happening.
true.
In addition manufacturing jobs have been sent to areas with cheap labor.
they are escaping high taxation and over regulation.
Simply put there are not enough high paying jobs to go around.
we’ve lost much of the efficiency of our labor.. again mostly due to high taxation and over regulation. less efficient labor can’t be paid as much as efficient labor.
The govt is also paying people pretty well to sit at home.
true, and it’s also paying people too much to go to work. government employees are costing taxpayers way too much money.
Asset bubbles have taken the place of actual work.
bubble are caused by bad monetary policy.
Agree on all. Don’t forget overpaid government contractors. I was one in my former life.
China’s manufacturers are suffering right now.
“China’s manufacturers are suffering right now.”
And Japan’s currency war isn’t helping the situation either.
Er,
http://www.reuters.com/article/idUSTRE68R40I20100928
how many 99′res are working off the books?
lots, especially in the trades
Technology does not eliminate jobs. It increases productivity, meaning that everyone can still work all day, but they all get more at the end of the day.
We have an oversupply of labor due to globalism. People who come from very corrupt and inefficient countries are bending over backwards to tear themselves off a chunk of the American dream.
…and our own corrupt leaders are helping them.
http://www.reuters.com/article/idUSTRE68R40I20100928
We have an oversupply of labor due to globalism. People who come from very corrupt and inefficient countries are bending over backwards to tear themselves off a chunk of the American dream.
+1 So true.
I can remember when companies had data processing departments.
“Inflation”? LOLZ…
Go develop an understanding of the word before you invoke it.
“Population growth” eh? LOLZ
Popluation growth is the lowest in US history per 2010 census.
A major oil company is running ads on LA’s biggest news radio station recruiting engineers for expansion of a facility north of LA.
Pretty unusual, and maybe a good sign.
Fracking in outer Bakersplat.
Also saw a major 60 sec commercial pimping natural gas exploration and expansion (to go along with a coordinated print media push last month.) SOMEone’s divesting from real estate….
“The yield on the 10-year Treasury has risen nearly a percentage point from its May low but has fallen back from the highs it hit…”
This information was already outdated as of the market close on July 5, 2013, contradicting data presented in the same article, as the 10-yr T-bond yield jumped 21 bps from 2.52% on July 3, 2013 to 2.73%, by far the highest level in 2013.
But don’t let this news panic you!
Investors: Don’t panic over bond yield spike
John Waggoner, USA TODAY 9:04 a.m. EDT July 5, 2013
Stock specialists on New York Stock Exchange
(Photo: STAN HONDA AFP/Getty Images)
Story Highlights
- The 10-year Treasury yield’s low was 1.6% in May
- Fed funds rate still near zero
- The 10-year T-note averaged about 6% since 1962
When you see Friday’s big spike in the 10-year Treasury note yield, it’s a sign that you’re going to have to prepare your portfolio for rising interest rates. But you still have time to make changes, despite Friday’s better-than-expected jobs report.
The bellwether 10-year note yield jumped to 2.7% from 2.5% Wednesday, but it’s likely an overreaction to a much-stronger-than expected report on new jobs in June.
The economy added 195,000 jobs, according to the Bureau of Labor Statistics. Economists had expected 165,000. Still, the unemployment rate was unchanged at 7.6% even though more people are returning to the labor force.
All of this is good news: More jobs means more spending, and more spending greases the wheels of the American economy. But it’s far from “good” enough for the Federal Reserve to think the economy needs reining in and to raise short-term interest rates, which determine the rates on money funds and bank CDs.
It may, however, be enough for the Fed to slow its stimulus program of buying longer-term securities later this year. The bond-buying slowdown in bond buying will mean that longer-term interest rates will start to rise. It’s what is driving Friday’s big jump in long-term bond yields.
Wall Street has anticipated this, however: The yield on the 10-year Treasury has risen nearly a percentage point from its May low but has fallen back from the highs it hit after Fed Chief Ben Bernanke told investors in late June where the central bank stands on tapering its bond buying program.
…
Have Central Bankers Lost Control? Could The Bond Bubble Implode Even If There Is No Tapering?
Posted on July 4, 2013 by Michael Snyder
Panic - Photo by Wes Washington
Are the central banks of the world starting to lose control of the financial markets? Could we be facing a situation where the bond bubble is going to inevitably implode no matter what the central bankers do? For the past several years, the central bankers of the planet have been able to get markets to do exactly what they want them to do. Stock markets have soared to record highs, bond yields have plunged to record lows and investors have literally hung on every word uttered by Federal Reserve Chairman Ben Bernanke and other prominent central bankers. In the United States, it has been remarkable what Bernanke has been able to accomplish. The U.S. government has been indulging in an unprecedented debt binge, the Fed has been wildly printing money, and the real rate of inflation has been hovering around 8 to 10 percent, and yet Bernanke has somehow convinced investors to lend gigantic piles of money to the U.S. government for next to nothing. But this irrational state of affairs is not going to last indefinitely. At some point, investors are going to wake up and start demanding higher returns. And we are already starting to see this happen in Japan. Wild money printing has actually caused bond yields to go up. What a concept! And that is what should happen - when central banks recklessly print money it should cause investors to demand a higher return. But if bond investors all over the globe start acting rationally, that is going to cause the largest bond bubble in the history of the planet to burst, and that will create utter devastation in the financial markets.
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How to Take Advantage of the U.S. Bond Market Panic
Interest-Rates / US Bonds Jul 03, 2013 - 05:05 PM GMT
Interest-Rates
Michael Lombardi writes: Investors beware: the bond market is treading in very rough waters. The sell-off we have seen of U.S. bonds might just lead to more troubles ahead for the bond market. Just take a look at the chart below:
…
I guess the MSM has caught on to the bond market crash by now, albeit two months after it began.
That’s not so bad, considering it took several years for the housing bubble crash. Also is the bond market crash still a “might” happen. I have to confess I cannot follow all of the bond links you post.
‘Also is the bond market crash still a “might” happen.’
Below I post the (approximate*) losses as of last Friday on investments in 10-year and 30-year Treasury bonds made on May 2, 2013 (i.e. over a 2-month time horizon).
You be the judge.
Term / 5-2-2013 yield / 7-5-2013 yield / Approximate loss%
10 years / 1.66% / 2.73% / -9.3%
30 years / 2.82% / 3.68% / -15.5%
* I don’t include the increase in value for a bond bought on May 2 due to being two months closer to payment in my calculation. This change is automatic and has nothing to do with the correction in progress.
Does the central banker “think method” trump market fundamentals? I guess time will tell.
Draghi-Carney Seek Independence Day Break From Bernanke
By Simon Kennedy, Jennifer Ryan & Jana Randow - Jul 5, 2013 3:08 AM PT
European central bankers broke new ground to protect their economies from a U.S.-led surge in bond yields, indicating they will keep benchmark interest rates low for longer than investors bet.
With rising market borrowing costs posing fresh threats to weak expansions, Bank of England Governor Mark Carney and European Central Bank President Mario Draghi gave greater clarity over their monetary policy thinking yesterday in the hope financial markets will correct.
The pound and euro slid against the dollar, while bonds and stocks rose as both officials used rhetoric to distance themselves from Federal Reserve Chairman Ben S. Bernanke’s signal that the U.S. is preparing to start unwinding its $85-billion a month bond-buying program later this year. That had sparked a global selloff in bonds, forcing up yields in economies less able than the U.S. to cope with tighter credit.
“The ECB and BOE are declaring their monetary independence from the rising U.S. rate trend,” said Michael Saunders, chief western Europe economist at Citigroup Inc. in London. “It’s the right thing to do, because European economies need low rates.”
The euro slid 0.3 percent to $1.2881 at 11:57 a.m. in Frankfurt, after dropping 0.7 percent yesterday. Portugal’s 10-year bond yield, which climbed as high as 8.11 percent on July 3, slid 30 basis points to 6.972 percent. Italian yields dropped a second day.
‘Downward Bias’
Carney, marking his debut at the helm of the BOE as the first foreign governor in its 319-year history, went first as the U.K. central bank released a rare statement in which it said the recent increase in market rates “was not warranted by the recent developments in the domestic economy.”
Less than two hours later, Draghi told reporters in Frankfurt that the ECB planned to keep its interest rates low or even lower for an “extended period” and that it was injecting a “downward bias in interest rates for the foreseeable future.”
The central banks turned to words over deeds as both kept their key interest rates at 0.5 percent, matching the median forecasts of economists surveyed by Bloomberg News. The BOE also left its bond-buying program unchanged at 375 billion pounds ($565 billion).
…
Bank of America Boosts U.S. 10-Year Yield Forecast to 3% on Jobs
By Jeff Marshall - Jul 5, 2013 1:32 PM PT
Bank of America Corp. (BAC) increased its year-end forecast for Treasury 10-year yields to 3 percent after data showed June employment exceeded projections, fueling speculation the Federal Reserve will reduce monetary stimulus.
“Today’s payroll data, in light of the Fed’s new reaction function, justifies a move higher in rates,” Bank of America Merrill Lynch said in a report. The company, one of 21 primary dealers that trade with the central bank, raised its 10-year forecast from 2.4 percent issued in early June.
The outlook for higher yields is also supported by so-called convexity hedging linked to mortgage-backed securities, increased yields on Japanese government securities and outflows from bond mutual funds, the report said. Treasuries may also be hurt as investors in emerging markets reduce duration and central banks liquidate dollar reserve assets to support their local currencies, it said.
U.S. 10-year note yields rose 22 basis points, or 0.22 percentage point, to 2.73 percent in New York, according to Bloomberg Bond Trader prices. It was the biggest one-day yield increase since August 2011.
…
Note this article is from over a week ago, and the key point has been upended by more recent market action.
Rate Rise Tied After Fed Official References Feral Hogs
Published: Monday, 24 Jun 2013 | 6:03 PM ET
By: Patti Domm | CNBC Executive News Editor
Whether it was a comment likening Wall Street to runaway feral pigs that did it, Federal Reserve officials managed to slightly rein in rising rates Monday.
Four officials have spoken since Friday, and it was a comment from Dallas Fed President Richard Fisher that got a lot of attention.
“Markets tend to test things,” Fisher told the Financial Times. “We haven’t forgotten what happened to the Bank of England [on Black Wednesday.] I don’t think anyone can break the Fed … But I do believe that big money does organize itself somewhat like feral hogs. If they detect a weakness or a bad scent, they go after it.”
“First of all, everybody had to stop and look up feral hogs. Apparently they’re big in Texas,” said one strategist.
But Fisher’s comments also seemed to change the tone in the market. Fisher, a known hawk and nonvoting member, sounded more dovish to some traders, as he also stuck to his known views that too much quantitative easing can create market bubbles.
Since the Fed’s meeting last week, yields have gone up sharply on the expectation the Fed will pare back its bond purchases before the end of the year. The 10-year yield early Monday hit 2.66 percent, well above its early May low of 1.61 percent. By late in the day, it had come back in to 2.55 percent.
The 10-year yield has made a rapid run of more than 100 basis points from 1.62 percent on May 2. A move above 2.5 percent was roughly 60 percent higher and is the quickest on a percentage basis since 1962, according to Dan Greenhaus, BTIG chief global strategist.
…
Mortgage rates poised to jolt up again
July 7, 2013, 3:07 PM
With the government reporting surprisingly good jobs news on Friday, the 10-year Treasury yield posted a large jump, signaling that mortgage rates may see yet another jolt higher in coming days.
The 10-year Treasury yield rose almost one-quarter of a percentage point to 2.74% on Friday. The last time there was a similar-sized jump up was in August 2011. Weekly mortgage rates, which trend in the same direction as Treasury yields, recently pulled back. But given Friday’s yield surge, this Thursday’s weekly mortgage-rate report from federally controlled mortgage buyer Freddie Mac could show a large gain.
The average rate on the 30-year fixed rate mortgage hit a trough of 3.35% in early May, according to Freddie Mac FMCC . Since then, the rate has increased almost one full percentage point, though levels remain relatively low.
Rising mortgage rates will make home-buying more expensive, and some buyers will have to scale back purchase plans. Goldman Sachs analysts estimated that recent mortgage-rate gains mean that for a median-priced single-family home, which costs about $200,000, borrowers who put down 20% face an increase of about $100 in their monthly mortgage payments.
Mortgage News Daily, which closely tracks the market, described Friday as “among the worst days in mortgage rate history,” and said some lenders’ rates rose as high as 4.875%.
–Ruth Mantell
I luv me some Agenda 21
Obama’s Plans for the Suburbs: And How to Stop Them
By Stanley Kurtz
March 18, 2013 10:01 AM
Last Friday’s headlines focused on President Obama’s address at Argonne National Laboratory, where he proposed to spend $2 billion on an energy-security trust fund for renewable fuel research. Obama boldly pledged “to shift our cars entirely . . . off oil.”
Look closely, however, and it’s possible to spot some troubling plans. The Times, and just about every other major news outlet, neglected to note that on the day of Obama’s Argonne speech, the Department of Energy released a series of coordinated reports called “Transportation Energy Futures” (developed in cooperation with Argonne). This DOE project explores a variety of strategies designed to curb America’s greenhouse gas emissions up to 80 percent by about 2050.
Arguably the most controversial of those reports covers the “effects of the built environment on transportation.” To put it plainly, the “built environment” report lays out strategies the federal government can use to force development away from suburbs and into cities, supposedly for the sake of reducing carbon dioxide emissions given off by all those suburban commuters. The Obama administration wants to force so-called smart growth policies on the country: get out of your car, stay out of the suburbs, move into small, tightly-packed urban apartment complexes, and walk or take public transportation instead of driving.
The Department of Energy’s built environment report lays out a scenario much like the one I described in Spreading the Wealth: How Obama is Robbing the Suburbs to Pay for the Cities. The report highlights two policy options most likely to increase dense, Manhattan-style urban development, without exceeding the traditional limits of federal authority. Those options are eliminating the home-mortgage interest deduction and conditioning future federal aid of all kinds on local adherence to “smart growth” principles. Of these, I think the second is the most likely to be implemented. The built environment report also says that the most convenient bureaucratic channel through which to manage such federal pressure is the Partnership for Sustainable Communities.
http://www.nationalreview.com/corner/343242/obamas-plans-suburbs-and-how-stop-them-stanley-kurtz - 79k
Argonne Lab wins $120M battery research center near Chicago
Thursday, November 29, 2012, 2:14pm PST
Argonne National Laboratory, southwest of Chicago, will receive $120 million from the Department of Energy to form a research center that will help develop better battery technology for electric vehicles, according to Crain’s Chicago Business. Argonne is perhaps best known for developing the battery technology used in the Chevrolet Volt.
According to its web site, Argonne is currently home to over 1,250 scientists and engineers, and is managed by UChicago Argonne, LLC.
http://sustainablebusinessoregon.com/national/2012/11/argonne-lab-wins-120m-battery.html - 37k -
force development away from suburbs and into cities
This may be a viable plan on the coasts but in rust belt cities, there appears to have been very little investment for 50 or more years. If you look closely you can see that they were once beautiful but the evidence tells the story. No one w/investment dollars has had confidence in the area for a long time. There are some vibrant and exciting outposts that people will go in and visit but for the most part there is huge resistance to getting people to leave their well maintained suburbs to head in to an environment where everything around you looks tired and neglected. In Syracuse the restaurants, the private clubs, business offices have been flowing outward to the suburbs. Personally I tired quickly of loitering young men staring at my purse as I walked by as I sweated out whether they thought they could get away with it or not.
April 16, 2013
Obama Campaign Chief Data Scientist Joins University of Chicago
Rayid Ghani, chief scientist of the highly regarded Obama for America data analytics team, has joined the University of Chicago to explore using data to solve complex social problems.
During the 2012 campaign season, Ghani’s team applied advanced data-mining and machine-learning methods to create new tools for fundraising, voter turnout, advertising and campaign strategy. Now, working with the Computation Institute and the University of Chicago Harris School, Ghani hopes to adapt those methods to address challenges in areas such as education, public safety and health care.
“Chicago Harris is taking important steps to prepare public policy students to tackle some of the world’s most pressing issues by harnessing the power of big data,” Chicago Harris Dean Colm O’Muircheartaigh said. “Rayid’s expertise, experience and vision will be integral to these efforts, and allow us to expand our ambitions for this work.”
At UChicago, Ghani will serve as Chief Data Scientist for the CI’s Urban Center for Computation and Data, where he will help analyze city data and build complex computer models that simulate the impact of policy decisions and urban development.
“The Computation Institute unites computational experts and tools with thought leaders from multiple disciplines to find solutions to the hardest problems that face our world today,” said Ian Foster, CI Director, Professor of Computer Science at UChicago and Distinguished Fellow at Argonne National Laboratory. “We are thrilled that Rayid Ghani is bringing his extensive knowledge and creative talents to this vital effort using data and computation to improve how cities around the world grow and operate.”
http://www.ci.uchicago.edu/news/detail.php?id=953 - 17k -
“…by harnessing the power of big data,”
Would the data the NSA collects fit this description?
That’s what I was wondering. Where do they get the data?
“I luv me some Agenda 21″
More “forced” conformity rooted in Fabian Socialism, an evil philosophy masked by the ruse of “good intentions”.
Why don’t they just build commercial/industrial buildings in a more spread-out manner, enabling people to have many smaller neighborhoods that each surround a few work places? That would be better than trying to force all the jobs and “housing units” into one small place.
Because the true plan is to cause real-estate prices to go through the roof. There are certain people, see, who already own land in the existing business hubs, and those people would make a killing if everyone was forced to move there. That’s why they are willing to spend so much money, time, and energy to elect politicians who will implement such policies.
See, Uncle, my reasoning skills are improving, and I haven’t even finished my assignment yet.
Was checking out the tax records of a house for sale:
yr county school total tax bill
2007 2,977.95 +$6,280.34= $ 9,258.29
2008 2,997.42 +6,410.90 = $ 9,408.32
2009 3,055.03 +6,499.91 = $ 9,554.94
2010 3,149.51 + 6,636.58 = $ 9,786.09
2011 3,496.80 +10,186.11 = $13,682.91
2012 4,709.63 +$9,337.74 = $14,047.37
2013 4,818.33 n/a
Pushing more people out of the state every day.
Is it time to move your money from stable bond funds?
This is a serious question. I moved most of money from stocks to stable bond funds when the S&P reached 1300. With all the talks about bonds lately, I am worried there’s no safe place any more….if it ever was….
Don’t worry, your progressive overlords will take care of you.
Where can you move your money??
Ridiculous to think that way. There is always one or two asset classes that outperform the ones that are tanking.
For perspective, it’s great to note that whenever one asset class is tanking, the numeraire for that asset class is going up in relative terms.
It’s best to have your portfolio oriented towards the numeraire asset class at the point when the primary asset class is tanking, and in the primary asset class when its value is going up relative to the numeraire. Easier said than done, of course (and another version of “Buy low, sell high”).
What is a “stable bond fund”?
One that invests in short term securities that produce a return in the form of the dividend to shareholders, not the kind of fund that invests in the price of bonds.
OK got it. I think the important point is that the principle is guaranteed at whatever level you purchase, so the only risks are inflation, return fluctuation and default. Presumably these funds are set up for very low default risk.
Over the recent period, inflation has been low, but returns on stable value funds have been abysmal. These will presumably increase with QE3 tapering. The interesting question (to me at least) is whether one would do better staying parked in a stable value fund, or moving over to a conventional bond fund after the bond panic has largely played out. If one believed that interest rates are destined to steadily march upwards from here to normal levels, then it would make sense to just stay parked in the stable fund, enjoying rising rates without loss of principle. On the other hand, if interest rates over correct with the bond market panic, there will be an entry point when one can profitably buy the dip in the conventional bond fund investment, particularly if a flight-to-quality move is soon to follow the overcorrection.
“While interest rates are bound to rise, no one knows when. And it could well be a year or more before the Fed makes a move.”
The myth that the Fed controls long-term interest rates is alive and well.
And I note a recent prevalence of helpful advice in personal finance columns for bond market investors not to panic.
Here is my own helpful advice: Try not to catch yourself a falling knife.
PERSONAL FINANCE
July 7, 2013
How to Manage Your 401(k) for Rising Interest Rates.
Here’s your first rule: Don’t panic.
ANDREA COOMBES
Is it time for 401(k) savers to abandon bond mutual funds?
Many investors hit the “sell” button on bonds in June—but if your focus is on retirement, think through your options before you follow the crowd.
The specter of rising interest rates spooked investors into pulling an estimated $60.5 billion out of bond mutual funds last month—almost a 47% jump from the $41.3 billion withdrawn in October 2008, amid the worst moments of the financial crisis—according to preliminary data from the Investment Company Institute, a mutual-fund trade group and researcher.
Yields on 10-year Treasurys jumped as high as 2.6% in June, from 1.6% in early May, thanks in part to Federal Reserve Chairman Ben Bernanke’s hints about the end of the central bank’s bond-buying program, which has pushed interest rates to record lows in recent years. (Bond prices move inversely to yields.)
Some of the biggest bond funds in the 401(k) universe took hits. Pimco’s Total Return fund (PTTAX) plunged more than 5% from May 1 through July 1 (it’s down more than 3% year to date). That fund holds a whopping $79.9 billion worth of 401(k) assets, according to December 2011 data, the most current available, from researcher BrightScope.
Another big 401(k) player, Vanguard’s Total Bond Market Index fund (VBMFX), dropped about 4% in May and June, and is down more than 2% so far this year. It’s enough to make your average 401(k) investor break out in cold sweats.
Here’s your first rule: Don’t panic. Generally, the best advice for people investing for the long haul—and your retirement could well last 30 years—is to pick a suitable asset-allocation strategy, invest in low-cost mutual funds, rebalance regularly and stick with your plan to guard against the all-too-common mistake of buying high and selling low.
Still, following that prudent strategy doesn’t mean you should ignore big-picture trends. Rates have been at extraordinary lows since the 2008 crisis. They really have nowhere to go but up, forcing bond values down.
With individual bonds, investors can hold them until their maturity date to retrieve their principal. But most 401(k) participants have access only to bond mutual funds. As investors flee for the exits, managers may be forced to sell bonds before maturity to honor those redemptions.
Yet, despite the current rate outlook, it doesn’t make sense to exit bonds entirely, experts say. One reason: While interest rates are bound to rise, no one knows when. And it could well be a year or more before the Fed makes a move.
“You’re essentially timing the bond market just like people try to time the stock market and you’ve got the same risk: You could be wrong,” says Thomas Batterman, a principal at Financial Fiduciaries in Wausau, Wis.
And don’t forget why you own bonds: They provide a ballast against stock-market gyrations. “Although one component might come under pressure, it’s the other part of the portfolio that you hope is acting as a buffer. That’s the beauty of a balanced portfolio,” says Catherine Gordon, a principal with the investment strategy group at Vanguard Group.
…
Congratulations, Andy Murray. Wimbledon Mens Champion 2013. Straight sets. 6-4, 7-5, 6-4.
In other news from the sports world…
Ex-fans line up in Mass. to dump Hernandez jersey
1 day ago
FOXBOROUGH, Mass. (AP) — Hundreds of one-time fans are trading in their Aaron Hernandez jerseys.
The New England Patriots are letting fans trade in their No. 81 jerseys for a different one on Saturday and Sunday.
The ex-Patriots tight end has been charged with the murder in the death of 27-year-old semi-pro football player Odin Lloyd. He has pleaded not guilty.
The Patriots released Hernandez shortly after he was arrested on June 26.
Team spokesman Stacey James says children love wearing Patriots gear but may not understand why their parents don’t want them wearing Hernandez’s jersey.
The jerseys must have been purchased at the team shop at Gillette Stadium or its online store.
Copyright 2013 STATS LLC
I learned to drive in the parking lot at Patriot’s stadium. The old one. I think it was named after a beer company - Shaffer?
Then donating his winning to a charity hospital. Nice.
Is ObamaCare killing the labor market recovery?
REVIEW & OUTLOOK
July 5, 2013, 7:07 p.m. ET
Part-Time America
A better jobs report in June, except for the impact of ObamaCare.
The U.S. labor market may be gaining a little more steam, judging by Friday’s June jobs report. Imagine how much better it might do if ObamaCare weren’t encouraging employers to hire so many part-time workers.
The Labor Department’s survey of businesses found 195,000 net new hires in June, 202,000 in the private economy. Payrolls for April and May were also revised upward by a total of 70,000, which means the average for the last three months is about 200,000. That’s up from the 182,000 monthly average over the last year.
One positive development is that the number of “long-time” unemployed, those out of work for six months or more, fell again and is down by one million workers over the past year. The dismally low labor participation rate ticked up to 63.5% from 63.4% in May as 177,000 more Americans entered the workforce, though the rate is still below the 63.8% from last June. Average hourly wages climbed a welcome 10 cents and for the first time hit $24.
The disappointments include a big jump of 247,000 in the number of “discouraged workers,” those who have stopped looking for a job. This could be a one-month anomaly given the other increases, but it bears watching.
Also disappointing is the big jump in the number of Americans who want to work full time but could only find part-time work. That number leapt to 8.23 million, a 322,000 one-month increase. Total part-time employment rose by 432,000, more than double the total number of net new jobs.
A Lowe’s home improvement store in Chicago, Ill. The company plans to hire 9,000 permanent part-time employees this year.
The broadest measure of unemployment—which includes discouraged workers and those who can’t find a full-time job for economic reasons—still totals more than 20 million Americans and the rate unexpectedly rose in June to 14.3% from 13.8%.
This could also be a one-month outlier, and at this stage of an expansion you’d expect the number of part-time jobs to be falling as companies do more full-time hiring. Yet as the nearby chart shows, the number of part-time workers who want full-time work has stayed stubbornly high. The number at this stage in the last expansion was closer to 4.5 million.
Retail (37,000) and leisure and hospitality (75,000) businesses accounted for more than half of the new jobs in June. And it’s revealing that the average hours worked in retail have fallen to 31.4 from 31.6 hours a week over the past year, and the average hospitality job now is still 26.1 hours a week.
One explanation is almost surely ObamaCare. The law requires employers with more than 50 workers to provide health insurance to all employees or pay a $2,000 penalty per worker. The law also defines a full-time job as 30 hours a week. All of this gives businesses that operate on thin margins—and that’s most businesses—an incentive to hire more part-time workers.
…
Most states have had laws in place for about twenty years that essentially force employers to buy health insurance for full-time workers. Obamacare isn’t doing much to change that. I have never lived in a place where health insurance wasn’t mandatory for medium-to-large businesses.
Tesla qualifies as retail now?
‘A federal judge has ordered the FBI to explain in more detail its refusal to release documents about its surveillance of the Occupy movement in Northern California. The FBI turned over 13 pages in September. It withheld 24 other pages, citing national security and other concerns.’
http://www.tribtown.com/view/story/02e4490bb42347fda57a69dd7141b9be/CA–Occupy-FBI-Surveillance
Those g–d— liberal judges…
I feel much safer in the knowledge that the FBI is protecting this great nation from the Occupy Wall Street people.
I wonder how many undercover protestors were there?
Hey Prof,
What equation were you using to compute the loss of bond value on a given increase in yield?
E.g. were you computing the face value to produce the same NPV at the two different yields? If so, with what discount rate?
I simplified the calculation to ignore the passage of time (2 months) since yields began their steep ascent, by assuming a full thirty-year term as of 5-2-2013 and 7-5-2013. But otherwise, I assumed a $1000 Treasury bond was purchased on 5-2-2013 with coupons determined by the yield on that date, then computed the present value of these coupons at the 7-5-2013 yield rate.
Details to follow…
then computed the present value of these coupons at the 7-5-2013 yield rate.
I thought that might be the case.
Note that for correctness, you also have to include the NPV of the final face-value payment; did you include the NPV of that as well? The price I will pay today for someone’s below-market-rate bond includes that final payoff.
Of course, for long bonds, that payment matters much less; for short-term bonds, it matters much more…
“Note that for correctness, you also have to include the NPV of the final face-value payment; did you include the NPV of that as well?”
It’s there; see bolded term in the formula. (Also handled in MS Excel by the “FV” entry in PV(…).)
PV = pmt*(1-v^nper)/rate + fv*v^nper
Treasury coupons are paid semi-annually, so you need to divide the yield and coupon rate and multiply the term in years by two in order to get the right answer. It’s also important to keep straight in your calculation whether you are using decimals or percentages.
The other thing you need to understand is that once a bond is purchased, the coupon (semi-annual payment) is set in stone until maturity — rather similar to the principle amount borrowed on a mortgage loan! Variation in the value of a bond is due to the interplay between a fixed semi-annual coupon and a market- (or QE3-) determined yield which varies continually when the market is open.
Here is the calculation in terms of high school algebra, in a version familiar to actuaries:
rate = 3.68/200
nper = 60
pmt = 1000*2.82/200
fv = 1000
v = 1/(1+rate)
PV = pmt*(1-v^nper)/rate + fv*v^nper = 844.566
This calculation is more easily performed in MS Excel, using the PV (”present value”) calculation, provided you insert negative signs in the appropriate locations to get the answer to come out positive:
=PV(rate,nper,-pmt,-fv)
=PV(3.68/200,60,-1000*2.82/200,-1000)
You will see the answer produced by this formula, $844.57, matches the high school algebra calculation.
Great answer; thanks… It has been a long time since I ran that computation.
It appears that you are assuming a zero discount-rate; while that is less inaccurate today than usual, I prefer to discount my NPV calculations with something closer to the real time-value of money—e.g. the rate at which it loses purchasing power.
“…you are assuming a zero discount-rate…”
No. Just doing the calculations on a nominal basis — i.e. using nominal interest rates as given by the market without any inflation adjustment.
Given currently low inflation and unpredictable future inflation, I have no idea how to plausibly build an inflation adjustment into the calculation. For that matter, there is also a way to use the “stochastic discount rate” to value a fixed future payment stream; presumably that could be used to model future uncertainty in real interest rates in order to get a more realistic estimate of the real value of a bond than the market value provides. I learned how to do this kind of calculation in graduate school, but would need to review methodology before I could do it presently.
P.S. v = 1/(1+rate) = 1-period discount factor in my calculations. Thus, for instance, a discount over 60 semiannual periods (to the end of thirty years) is given by v^60 (v to the sixtieth power).
i.e. using nominal interest rates as given by the market without any inflation adjustment.
Given currently low inflation and unpredictable future inflation, I have no idea how to plausibly build an inflation adjustment into the calculation.
I consider that unreasonable and inaccurate, PB. I would think that your NPV calculation would have to adjust for baseline inflation in order to be even remotely valid.
Can you point to a single 30-yr period in the history of the Fed where the dollar has not been significantly devalued? Yet you are assuming that the dollars returned after 30yrs are equally valuable to the first interest payment.
I think even using the Fed’s 2-2.5% inflation target would probably be reasonable; 3% is closer on a historical basis.
Without this, the payment of face value after 30yrs inflates the value of the computed PV to a significant extent, making the whole computation inaccurate.
In other words, I believe the true losses are worse than you are calculating. Or put a different way, you are calculating reasonable losses for a 5.82% bond in a 6.68% yield environment.
“I consider that unreasonable and inaccurate, PB. I would think that your NPV calculation would have to adjust for baseline inflation in order to be even remotely valid.”
My interest is in reasonable approximations to the values at which market transactions occur. The formula I used is an exact calculation for the current market value of a 30-year Treasury bond at a certain face value, coupon rate and yield. The value is directly comparable to recent prices at which bonds sold, as well as current market values of other assets such as stocks, gold or houses.
Whatever inflation adjustment you apply to bonds would need to be applied to valuations of other assets in order to maintain comparability. But if you find your inflation-adjusted calculation more informative than the current value at which bonds trade in market transactions, feel free to do it your way.
“Without this, the payment of face value after 30yrs inflates the value of the computed PV to a significant extent, making the whole computation inaccurate.”
My calculation is perfectly accurate, exact in fact, as a calculation of the market value at which bonds trade as a function of current yields. This makes the value of bonds far easier to understand than that of stocks, which depend on a far more complicated set of beliefs about future profitability, dividends, corporate growth, sustainability of operations, etc etc etc.
I once tried to explain this to a Chicago-trained professor, who confessed he didn’t realize that this is how market value of a bond is related to yields. Do you yourself understand this point?
The same calculation is easily adapted to demonstrate the loss in home purchase budget for a given increase in mortgage rates. For instance, suppose 30-year fixed mortgage rates rose from 3.35% to 4.875%. Assume a household could just barely afford to finance a $500,000 California starter home with a zero downpayment loan at the 3.35% rate. What is the most expensive home (mortgage) they could finance at a 4.875% rate?
For starters, note that while Treasurys compound semi-annually, mortgages compound monthly; hence division and multiplication by 12 comes in handy.
MS Excel will show you the monthly payment needed to finance a $500,000 loan at 3.35% is $2,203.57, as given by this MS Excel calculation:
To figure out what amount of principle that will buy at a 4.875% rate, compute
to get $416,389.53, a 16.7% drop in purchase budget.
In short, unless interest rates return to all-time record lows and stay there, or the all-cash specuvestors step up to supplant priced out mortgage-funded buyers, the echo bubble is toast.
“…borrowers who put down 20% face an increase of about $100 in their monthly mortgage payments.”
This happens to be incorrect and irrelevant. With a fixed-rate, fixed-term mortgage, which I presume describes most recent borrowers’ mortgages, your minimum required monthly payments and interest rate are fixed until the loan is fully amortized.
The relevant question is how much the amount which can be financed off a given monthly payment stream declines when rates increase. Stay tuned for my example, based on the interest rate figures given in this article.
Capitol Report
Mortgage rates poised to jolt up again
July 7, 2013, 3:07 PM
With the government reporting surprisingly good jobs news on Friday, the 10-year Treasury yield posted a large jump, signaling that mortgage rates may see yet another jolt higher in coming days.
The 10-year Treasury yield rose almost one-quarter of a percentage point to 2.74% on Friday. The last time there was a similar-sized jump up was in August 2011. Weekly mortgage rates, which trend in the same direction as Treasury yields, recently pulled back. But given Friday’s yield surge, this Thursday’s weekly mortgage-rate report from federally controlled mortgage buyer Freddie Mac could show a large gain.
The average rate on the 30-year fixed rate mortgage hit a trough of 3.35% in early May, according to Freddie Mac. Since then, the rate has increased almost one full percentage point, though levels remain relatively low.
Rising mortgage rates will make home-buying more expensive, and some buyers will have to scale back purchase plans. Goldman Sachs analysts estimated that recent mortgage-rate gains mean that for a median-priced single-family home, which costs about $200,000, borrowers who put down 20% face an increase of about $100 in their monthly mortgage payments.
Mortgage News Daily, which closely tracks the market, described Friday as “among the worst days in mortgage rate history,” and said some lenders’ rates rose as high as 4.875%.
–Ruth Mantell
Posted: 3:43 p.m. Friday, July 5, 2013
Florida foreclosure prevention targets seniors
By Kimberly Miller
Palm Beach Post Staff Writer
Florida’s key foreclosure prevention program is dedicating $25 million to help seniors who are in danger of losing their homes after taking out a reverse mortgage.
The plan, named the Elderly Mortgage Assistance Program, is scheduled to begin in August. It is part of the state’s $1 billion Hardest Hit Fund, which is overseen by the Florida Housing Finance Corporation.
How bout a little Bob Marley Buffalo Soldier
Said he was a Boomerang buyer, pre-approved borrower -
Boomerang buyer in the heart of america.
If you know your history,
Then you would know where you coming from,
Then you wouldn’t have to ask me,
Who the ‘eck do I think I am.
I’m just a Boomerang buyer in the heart of america,
Woy yoy yoy, woy yoy-yoy yoy,
Woy yoy yoy yoy, yoy yoy-yoy yoy!
‘Boomerang buyers’ rebounding from foreclosures, short sales impacting San Diego real estate market
Credit repair is not the biggest obstacle
Posted: 06/04/2013
SAN DIEGO - San Diegans who went through a foreclosure or short sale are back and ready to buy again.
Shopping for homes can get tiring, but Jeff Grant isn’t complaining.
“I feel unbelievable. It’s an incredibly freeing feeling. I feel like I got a get-out-of-jail-free card,” said Grant.
His frustration boiled over in 2009, when he went through a short sale on his condo.
When the real estate bubble burst, Grant, a real estate broker, fell behind on his mortgage payments, and was forced into a short sale.
He rebuilt his credit, and now, he said he is ready to buy again.
Some have dubbed buyers like him “boomerang buyers”, but he doesn’t plan to make the same mistakes again.
“I’m making sure to live within my means,” said Grant.
Grant and many boomerang buyers across the country have turned to a local website for help.
“The interest is in the thousands. As far as pre-approved borrowers, it’s in the hundreds,” said Chad Ruyle.
Ruyle is co-founder of Afterforeclosure.com, which offers free resources for those looking to buy after foreclosures and short sales. He coined the term boomerang buyers.
“In either case, we’re seeing people get their credit to a normal range within a year,” said Ruyle.
Credit repair is actually not the biggest obstacle. Right now, banks are requiring those who have been through a foreclosure to wait three years before buying. That number is two years for short sales.
Grant, owner of Sea & Sand Investments, says he has three boomerang clients who bought properties in San Diego this past year. He said there are many others, including himself, who are losing out on homes to all cash buyers.
Boomerang buyers will add to the large buyer pool, which should help sellers.
Grant says he remains thankful that he’s back on the house hunt.
“I feel very lucky. My wife and I are happy about it,” said Grant.
Ruyle says boomerang buyers range in age, but most are looking for more reasonably priced homes, and more conservative loans.
1 comment
JosephBrenner
I wouldn’t give them loans.
Last Month· Reply
http://www.10news.com/news/boomerang-buyers-rebounding-from-foreclosures-short-sales-impacting-san-diego-real-estate-market06042013 - 141k -
“Ruyle is co-founder of Afterforeclosure.com, which offers free resources for those looking to buy after foreclosures and short sales.”
So I sing you to sleep
Afterforeclosure
With a song I just wrote yesterday
And I hope you can hear
What the words and the music have to say.
they shouldn’t be buying a home until they can pay cash. That’s why the housing market has been turned into a big casino. I wouldnt loan them a dime.
“I’m making sure to live within my means,” said Grant.
No circular driveway and water fountain this time?
Comment by Dirk Diggler
2013-07-06 18:32:02
No, just anticipating a stupid comment by someone like yourself. What do you ride? A greenmobile?
Comment by Ben Jones
2013-07-06 20:31:53
‘anticipating a stupid comment by someone like yourself’
Strike two. Three and you’re out.
Comment by Housing Analyst
2013-07-06 21:38:53
Hey Dirk….. Do you dress up in drag like the Village People too?
Ben, seriously? “Stupid” was at least the adjective applied to the “comment”, not the person.
You seem to tolerate much worse than that on a daily basis; for example, the comment by HA was ad-hominem, not directed at a “comment”.
Shouldn’t the same bar be applied to all posters?
Maybe Housing Analyst was just trying to tell Dirk…..
Young man, there’s no need to feel down.
I said, young man, pick yourself off the ground.
I said, young man, ’cause you’re in a new town
There’s no need to be unhappy.
Young man, there’s a place you can go.
I said, young man, when you’re short on your dough.
You can stay there, and I’m sure you will find
Many ways to have a good time.
It’s fun to blog at the y-m-c-a.
It’s fun to blog at the y-m-c-a.
They have everything for you men to enjoy,
You can hang out with all the boys…
Dirk was starting to seem weird to me too.
Anyone who names himself after a dimwit washed-out male porn star is suspect from the get-go.
Agreed, Prime. Some folks here seem to get a lot of slack, while others get the boot for doing considerably less.
Of course, Ben’s free to do what he chooses in his house, but it’d be nice if we could get rid of all the ad-hominems, trolling, and baiting that goes on here.
When you troll, you will be trolled.
How about depressing negativity? I’ll never flip if HA keeps up his shit!
Pick yourself up off the floor and cheer up. Falling housing prices to dramatically lower and more affordable levels is postive bullishness and good for the economy.
“while others get the boot for doing considerably less.”
It could be worse, they could have gotten banished to the Pointless Forest.
The Point!
From Wikipedia, the free encyclopedia
The Point! is a fable and the sixth album by American songwriter and musician Harry Nilsson about a boy named Oblio, the only round-headed person in the Pointed Village, where by law everyone and everything had to have a point.
I was on acid and I looked at the trees and I realized that they all came to points, and the little branches came to points, and the houses came to point. I thought, “Oh! Everything has a point, and if it doesn’t, then there’s a point to it.” – Harry Nilsson[2]
Story
The round-headed Oblio has had to wear a pointed hat since birth to conceal his “pointless” condition from his pointy-headed peers. However, Oblio is accepted in the town despite his nonconformity until one day when the son of an evil Count in the land is unwittingly dishonored by Oblio. The Count’s son challenges Oblio to a one-on-one game of Triangle Toss (where participants catch the triangle on their heads), which Oblio wins. In a fit of rage, the Count (who wants his son to rule the land one day) confronts the good-hearted but timid King to reaffirm the law of the land, which states that those who are pointless must be banished from the kingdom and into the Pointless Forest. A jury reluctantly convicts both Oblio and his dog Arrow (who helped him win the Triangle Toss), leaving the king no choice but to send the pair away.
Oblio and Arrow are sent to the Pointless Forest, but soon discover that even the Pointless Forest has a point. They meet curious creatures like giant bees, a “pointed man” pointing in all directions who proclaims “A point in every direction is the same as no point at all”, a man made of rock, three dancing fat sisters, and the man made out of leaves who helps Oblio see that everyone has a point, though it might not be readily displayed.
Oblio and Arrow spend the night in the Pointless Forest, then awaken to a large stone hand with the finger pointing to their “destination”. They take the road indicated by the hand and make their way back to the Land of Point, where they receive a hero’s welcome from the land’s citizens, and the King. Oblio begins to tell his story but is interrupted by the furious Count, who is then silenced by the King.
Oblio tells the King and the people of the land that everything has a point, including the Pointless Forest, and himself. Angered, the Count pulls off Oblio’s pointed hat, but is taken aback when he sees a point on top of Oblio’s bare head.
Upon this revelation, the points of everyone else in the land disappear, and pointed buildings become round. Oblio’s cap is removed only to discover that while everyone and everything else is becoming round, he has developed a point.
http://en.wikipedia.org/wiki/The_Point! - 67k
If anybody reading this still smokes (which I don’t) there are worse ways to spend 40 minutes.
The Point - Harry Nilsson - YouTube
http://www.youtube.com/playlist?list=PL1F7FBBEDD6073213 - 69k - Cached - Similar pages
25 minutes for all 7 parts, and you don’t have to be stoned to enjoy it. I just found that out.
If someone is new, or posts so infrequently that I don’t recognize them, and they start off like that, I’m going to nip it in the bud. My experience is posters like that get banned pretty quickly, so might as well let him know right off.
Thanks for the explanation, Ben.
It makes more sense to me when you put it in terms of a new poster, and your experience with new posters and whether they ever eventually add value or just trolling. If someone’s “cost” vastly outweighs their “value” (paging combo), then it makes sense to nip it in the bud.
I just assumed with all of the name-changing going on of late, that Dirk was an existing poster posing under a new name. Silly me for assuming…
You libs need to lighten up, you take everything so seriously.
I should point out that I banned the poster housing analyst. It lasted for years; 3 or 4, I can’t recall. This poster asked me to reconsider several times and finally I agreed. He’s cleaned up his act a lot.
“libs”
Sounds like Eddie is back under another name, with his bag of trollery and ad hominem attacks on everybody who responds to his posts.
He’s nicky’s cheerleader. Eddie at least had the occasional original thought.
This fits with what I was told last night at the grocery store. After I was approached by a young man wanting me to put my groceries on his SNAP card and then pay him a discounted amount in cash, I talked to a Winn Dixie employee who told me they had all been put on part time. Must be the new economy.
Temporary Jobs Becoming A Permanent Fixture In US
by The Associated Press
July 07, 201310:49 AM
WASHINGTON (AP) — Hiring is exploding in the one corner of the U.S. economy where few want to be hired: Temporary work.
From Wal-Mart to General Motors to PepsiCo, companies are increasingly turning to temps and to a much larger universe of freelancers, contract workers and consultants. Combined, these workers number nearly 17 million people who have only tenuous ties to the companies that pay them — about 12 percent of everyone with a job.
Hiring is always healthy for an economy. Yet the rise in temp and contract work shows that many employers aren’t willing to hire for the long run.
The number of temps has jumped more than 50 percent since the recession ended four years ago to nearly 2.7 million — the most on government records dating to 1990. In no other sector has hiring come close.
Driving the trend are lingering uncertainty about the economy and employers’ desire for more flexibility in matching their payrolls to their revenue. Some employers have also sought to sidestep the new health care law’s rule that they provide medical coverage for permanent workers. Last week, though, the Obama administration delayed that provision of the law for a year.
The use of temps has extended into sectors that seldom used them in the past — professional services, for example, which include lawyers, doctors and information technology specialists.
Temps typically receive low pay, few benefits and scant job security. That makes them less likely to spend freely, so temp jobs don’t tend to boost the economy the way permanent jobs do. More temps and contract workers also help explain why pay has barely outpaced inflation since the recession ended.
http://www.npr.org/templates/story/story.php?storyId=199686583 -
Before temping took off, white collar temps earned far more than direct hires. I am not convinced white collar temps earn about the same or less…yet. But it will happen,
Anyone else see the report on the Irish housing market in the weekend Wall Street Journal?
50% of sales all cash. But it’s different this time.
Signs of Life Emerge in Dublin
Back in Dublin 4 and 6, showings get more crowded as prices climb.
“In a word, it’s been frustrating,” says Ronan O’Donoghue, architect Darrell O’Donoghue’s brother, who has been looking for a house for more than a year. Mr. O’Donoghue, 34 years old, who works in advertising, and his wife, a marketing executive, have been told by their bank that they can get a mortgage of around $650,000.
“We started off very optimistic,” he says. “We thought we would be lucky because property prices were so low.” But as 2012 progressed, he says, “we noticed that the viewings became more and more cluttered with people.”
At one recent showing of a property in Blackrock, along the coast, he sensed the beginning of “an irrational frenzy” that had marked the boom years. There were 100 people crowded into the viewing and nearly 10 actively bidding. “I just kind of laughed, and I said to myself, ‘We have learned nothing.’ “
July 7, 2013, 9:53 p.m. EDT
Hong Kong, Shanghai stocks slump in early trade
By V. Phani Kumar
HONG KONG (MarketWatch) — Hong Kong and mainland Chinese shares were slammed early Monday as concerns that Beijing wouldn’t ease polices despite slowing growth weighed on sentiment. The Hang Seng Index (HK:HSI -2.34%) lost 2.1% to 20,418.76 and the Hang Seng China Enterprises Index slumped 2.6% to 8,971.61, while the Shanghai Composite (CN:SHCOMP -1.78%) lost 1.9% to 1,969.88. The losses came after the State Council — China’s cabinet — issued a statement Friday, elaborating on its pursuit of economic restructuring and financial reforms. Banks and property developers lost heavily in Hong Kong, with China Construction Bank Corp. (HK:939 -2.80%) sliding 3.4%, Industrial & Commercial Bank of China Ltd. (HK:1398 -2.91%) skidding 3.3% and China Resources Land Ltd. (CRBJF -5.19%) falling 3.4%.
Feds shy away from crackdown on ‘nothing down’
By Dan McSwain5 p.m.July 6, 2013
It looks like regulators are chickening out on a major tightening of lending standards for mortgage loans. Low down payments are here to stay, and may be poised for a big comeback.
Although this certainly helps homebuyers, owners and Realtors, it won’t do much to protect the banking system or smooth out the ups and downs of the real estate market, which have become particularly volatile in San Diego.
On Tuesday the Federal Reserve outlined new regulations that may eventually reduce systemic risk by increasing the amount of equity a “too big to fail” bank must hold. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. are scheduled with the Fed this week to unveil detailed proposals on leverage.
But the Fed went easy on small and regional banks, and it backed away from a proposal that would have discouraged lenders from making loans without at least a 20 percent down payment from the borrower.
What a difference a few years makes.
In 2009 Washington was full of talk about raising minimum down payments. Prices were plummeting in the U.S. housing market, and mortgage defaults were skyrocketing. This had triggered a global financial panic as investors and creditors discovered that giant banks were holding highly leveraged portfolios of troubled mortgage-backed securities.
President Obama talked about requiring borrowers to contribute at least 10 percent of a purchase price for a mortgage down payment. Sheila Bair, Obama’s former chief of the Federal Deposit Insurance Corporation, gave speeches calling for a 20 percent standard.
Their reasoning was straightforward. The more equity borrowers have in their houses, the less likely they are to walk away from their mortgages. And when properties do fall into foreclosure, lenders are less likely to lose money when their loan balances are smaller percentages of the values.
…
Homebuilding revival sparks land rush
As land prices soar, savvy developers who bought up properties during economic downturn are in enviable position.
By Lily Leung
3 p.m. July 6, 2013
First in a three-part series on land costs in San Diego County.
When most developers fled the sinking San Diego housing market, Brad Termini and business partner Dane Chapin stuck around to shop for project failures.
They bought land foreclosures for as little as half price during the past five years of uncertainty to carry out $150 million in residential land development.
“We’ve never bought a piece of land that we didn’t have three people we know really well say we’re crazy, we overpaid and don’t know what we’re doing,” said Termini, co-chief executive of Zephyr Partners, a private developer in San Diego.
Once ridiculed, Zephyr now finds itself in a seemingly enviable position in the local real estate market. The heavily discounted supply of land it has acquired since the recession’s start is the kind of stuff its competitors, public and private builders, are struggling to secure — and at a reasonable price.
Rising home prices and a sunnier consumer outlook have sent homebuilders into a frenzy to buy land in San Diego County and resume once-stalled projects. Land analysts say the demand for lots has returned to that of peak times — causing lot prices to soar. It also raises concerns of deteriorating affordability for consumers.
…
Just took my occasional peak at San Diego County housing inventory, per Redfin. There are currently 5,570 SFRs, townhomes and condos on the market; of these, 1,535 (27.5%) are priced north of $1 million.
This number is about a third of what inventory was during the peak bubble years, so I can’t imagine home sales are taking place at anywhere near normal levels at this point.