Bits Bucket for September 17, 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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Did Obama throw Summers out there as a possible Fed pick just for some blood sport? If so, that was fun! Nice to see him get savaged all around.
printing money is the only game in town. does it really matter who runs the printing press?
How do you like your 4 big mac and 4 gasoline?
How do you like that 30,000.00 car?
How do you like the 200,000.00 house where your stuck paying front loaded interest to jamie dimon so he can gamble in stocks and commodities?
“where your stuck”
…where you’re stuck…
http://www.elearnenglishlanguage.com/difficulties/youryoure.html
stucco
Italy not matter who runs the printing press, but the DOW would do a loop de loop every time Summers flapped his yap. No thanks.
Dang iPhone. “It may.”
printing money is the only game in town. does it really matter who runs the printing press?”
It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.
– Thomas Sowell
No price?
We actually rewarded them with more power and authority.
We actually rewarded them with more power and authority.
Ding ding ding!!!
History will judge us for this, if you ask me.
How do you like your 4 big mac and 4 gasoline?
I can do without the expensive fast food. The car, however, demands gasoline, so I telecommute more than I used to in the past.
How do you like that 30,000.00 car?
I’ve noticed that people in the nabe are finally buying new cars, but unlike years past I’m not seeing big honking trucks or SUV’s on the driveways when I walk the dog, but rather I’m seeing compacts and subcompacts (which are about 20K when well equipped)
“For my own part…I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.” - janet yellen, future fed head
she’s either a liar or an idiot…which is it?
what would happen to the dow if this were the headline.
“obama appoints Ron Paul as Fed Chairman”.
“obama appoints Ron Paul as Fed Chairman”.
That would not be an American Exceptionilsm, would it?
If she were blonde, I would have gone with the latter.
“she’s either a liar or an idiot…which is it?”
+1 She’s clearly a liar, but likely coerced, IMHO.
FWIW, she doesn’t strike me as a strong personality type, which is not a good thing for a fed chief, but I’d vote for her any day over Larry “the bully” Summers. Better yet, lets try a gentile, and preferably one whose a son or daughter who has served a few tours in the middle-east. The United States can do better than these crony neo-con choices.
That’s interesting. I read this early this morning:
Taken together, she has more “hours” in monetary policy than any Fed chief in history. She was also quick to sense the full dangers of the US housing bubble and shadow banking before the storm hit in 2008. “I feel the presence of a 600-pound gorilla in the room, and that is the housing sector. The risk for further significant deterioration, with house prices falling and mortgage delinquencies rising, causes me appreciable angst,” she told Fed colleagues in June 2007.
Fed transcripts show that she crossed swords with New York Fed chief William Dudley in December 2007 when he claimed the fall-out from subprime mortgage defaults was contained. “The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real. At the time of our last meeting, I held out hope that the financial turmoil would gradually ebb and the economy might escape without serious damage. Subsequent developments have severely shaken that belief,” she said
http://www.telegraph.co.uk/finance/economics/10313765/Jobs-champion-Janet-Yellen-leads-Fed-race-as-Larry-Summers-forced-out.html
Can anyone remember the days when the Fed Chair appointment was such a non-event that nobody except those in the inner circle of power was aware of it? Thanks to the countless heroic bailouts executed since Black Monday, 1987, the Fed Chair position has been elevated to rock stardom.
for us here…for 90% or more of ‘merikans it still is a non-event. as someone said earlier…how hard is it to print money?
If you asked 90% of the American public who the Fed Chair is, they would ask what the Fed Chair is to start with. If people actually understood the Federal Reserve, or fractional reserve banking for that matter, they would be outraged. That is why bankers are able to operate with such impunity- they are capitalizing on the stupidity of a dumbed down people. I have little hope for the future as I cannot ever see this changing. Call me a cynic, I guess.
One small glimmer of hope, perhaps: In my family, my middle sister got all the looks and then some (fits in perfectly in west LA), but came up short in the scholastic arena. Somewhat shockingly, she has proven to be quite informed on the housing bubble, Bernanke, the bailouts, and the current state of affairs in this country, whereas my older, college educated sister turned into stay-at-home mom is completely clueless about everything. She has those blinders on where everybody makes six to seven figures a year, and the most difficult things in life are finding the right pair of shoes at the store, or dealing with the kids who require so much time.
The selection of a new Fed Chairman is the Wall St. version of the way the Catholic Church selects a new Pope. They both perform a similar function by absolving the guilty of their sins.
Will a cloud of white smoke from the cardinal conclave room signal the selection of a new pope of monetary policy?
“Will a cloud of white smoke from the cardinal conclave room signal the selection of a new pope of monetary policy?”
+1 LOL. I was imagining a water cannon atop an armored truck knocking over protestors like bowling pins.
They both perform a similar function by absolving the guilty of their sins.
Except on Wall St. you don’t have to confess your sins or perform penance. In fact, you’re expected to plead ignorance of any wrong doing, or worse, you can say that you were doing “God’s work.”
Also “not my fault, as nobody could have seen it coming!”
Thanks to the countless heroic bailouts executed since Black Monday, 1987, the Fed Chair position has been elevated to rock stardom.
Paul Volcker raised the position to one of prominence back in the early 1980s.
Some interesting anecdotal information…
While checking out the Volusia County, FL foreclosure sale report for the month preceding today, of the nearly 200 auctioned, 154 of them were sold back to the lender. Interestingly, of the 43 that were sold to a third party, only 2 went to individuals. The rest went to LLC’s and realtors. The shadow inventory grows…I’m beginning to think that the bubble never burst in 2007-8; it just paused while the inflators caught their collective breaths.
Never in my wildest dreams did I imagine how this system could be gamed.
i completely understimated the extent they would go to polish this turd…hell…they gold plated it.
This is for Pbear;
California is by no means a cheap place to live, but a recent report conducted by Trulia has revealed that Southern California is one of the most overvalued real estate markets in the country. Although home values remain at a safe level at the moment, it’s important to note these changes as an overvalued market could indicate another bubble.
According to Trulia’s second-quarter “Bubble Watch” report, Orange County and Los Angeles County are currently the most overvalued markets in the country. The two counties remain at 12% and 10% above where they should be priced respectively
Read more;
http://cts.vresp.com/c/?REInsider/f5fc31cd5e/2c95d5623a/486c381e01
“The two counties remain at 12% and 10% above where they should be priced respectively…”
Los Angeles County…median household income $60,000. Median house price $380,000. times about 4 million of them.
Yes, that is at least 12% overpriced.
Sure, that $10K/yr per household premium for living in Ca. vs. Flyover helps with the monthly nut.
well when the bubble pops a lot of people will be getting free rent for a long time.
on the topic of los angeles, this linked from drudge:
‘a projected 650 million in welfare benefits will be distributed to illegal alien parents in 2013, county officials said … an estimated 100,000 children of 60,000 undocumented parents receive aid in los angeles county … add the 550 million for public safety and nearly 500 million for healthcare, the total cost for illegal immigrants to county taxpayers exceeds 1.6 billion dollars a year’
http://losangeles.cbslocal.com/2013/09/16/undocumented-la-county-parents-projected-to-receive-650m-in-welfare-benefits/
Those numbers are just insane and what are the chances its going to get any better ??
“what are the chances its going to get any better ??”
Better for who? For California taxpayers, never. For the Democrat party, most definitely. This is the Free Sh*t Army. And every single anchor baby who grew up on Free Sh*t will vote Democrat. And when 12 million are legalized and another 80 million move here thanks to “chain migration” family reunification immigration policies, the Permanent Democrat Supermajority will be cemented in place.
and another 80 million move here
That would be about 2/3 of Mexico’s population.
FWIW, what’s stopping the current batch of “Americanos Nuevos” from chain migrating their many relatives back home? My guess is actually quite simple: The Mexodus has stopped because of the lack of jobs in “El Norte”
I heard somewhere that Mexican families have been having fewer kids in recent decades and that this should reduce the flow of migrants northward at some point. On the other hand, it’s not accurate to assume that all illegal aliens are Mexican. We have illegals from all over the world.
We have illegals from all over the world.
True, but the lion’s share are Sons of Aztlan
I heard somewhere that Mexican families have been having fewer kids in recent decades
True, it has come way down.
For the life of me I cannot wrap my mind around paying welfare for illegal aliens. It is insanity. No doubt the calls just pour into Mexico from the recipients- “Si senorita, dinero gratis, dinero gratis, DINERO GRATIS!”
“$10K/yr per household premium for living in Ca. vs. Flyover”
It also helps for folks living in Flyover to help federally guarantee SoCal loans in excess of $500,000.
Plus we get to listen to the Cali’s brag about how wonderful the weather is, especially in SoCal.
Unless you are on the coast or in the mountains, the weather in CA is horrible.
Understated by 200% or more.
The measure is materials, labor and profit(roughly $60/sq ft). If its a resale house, reduce that rate by a third to adjust for depreciation.
And if there was overbuilding, the value is only some small fraction of the sunken building cost.
Precisely.
“Materials, labor, and profit.”
So you admit it doesn’t include the land?
I never denied it.
So you admit there’s a globe full of land that a full 95% of goes undeveloped and you grossly overpaid for a 20+year old shack?
Keep walkin’ into walls.
The trouble with land is that the perceived “value” of it is phoney. Oxy and her neighbors could not actually pay $200,000 for a tenth of an acre of land, but since they promise they will pay someday in the future, that is the price for them. It is the same now all over the world.
It is called the biggest credit bubble in history for a reason. Credit bubbles always collapse. This one is doing so.
Land in many places should be almost free. The costs associated with the development are excessive. Yet, we have developers bidding multiple millions for desert scrub.
“Southern California is one of the most overvalued real estate markets in the country. Although home values remain at a safe level at the moment, it’s important to note these changes as an overvalued market could indicate another bubble.”
Big shocker! They must be reading our posts.
there not making anymore ocean views.
http://cdn.vanoord.com/sites/default/files/styles/vanoord_carousel/public/gladstone_1_photo_-_wbd_dredging_-_ccp_-_gpc_aerials_late_february_2013_-_083.jpg
And we’re going to keep building water front.
So yes….. we make “ocean views”….. day in and day out.
True, but 90%+ of SoCal homes don’t have an ocean view or are even remotely close to the beach. Which is one reason why a house in La Jolla is worth more than a similar crap shack in La Mesa or El Cajon.
“…a similar crap shack in La Mesa or El Cajon.”
The natural air conditioning near the coast is another big advantage over inland locales.
“there not making…”
They’re not making…
http://www.elearnenglishlanguage.com/difficulties/theirtheretheyre.html
Give ‘em hell, rms.
“Give ‘em hell, rms.”
I was working on a hat trick.
…only 2 went to individuals. The rest went to LLC’s and realtors.
It might make sense to take into account that most investors (projecting here: I and all the ones I personally know - I could be wrong) use an LLC to purchase real estate. IMHO the “2 individuals” might just be unsophisticated?
Nevertheless those are interesting numbers, especially the 154 going back to the lender.
“of the nearly 200 auctioned, 154 of them were sold back to the lender”
Real estate is a debt trap. And I would venture to say even if you pay cash it’s a trap unless you know everyone in your neighborhood also paid cash.
Ya got great neighbors and all who paid cash…DON’T MOVE. STAY THERE.
Anybody else disappointed the latest spree shooter is not white?
I thought blacks lacked the metal toughness and IQ to plan and carry out such events?
Two or three more shooting like this from black ma(e)n, even the NRA will call for tougher gun laws.
Uh huh. Because tougher gun laws work so well to stop gun related crime, like in Chicago and DC. I wish they would start banning cars so that we could get these drunk drivers off the streets, right?
And this guy had huge mental problems just like the one in Connecticut, and many before. What has been done about that issue since Connecticut? More fiddling while Rome burns.
If we took mental illness seriously, there wouldn’t be anyone to run our government.
+1 Blue Skye although I don’t think they are really mentally ill, I think they are mentally & morally corrupt…
“If we took mental illness seriously, there wouldn’t be anyone to run our government.”
This gets the prize for jose’s pick HBB comment of the day.
Blue Skye although I don’t think they are really mentally ill, I think they are mentally & morally corrupt…
We have a system that rewards sociopaths.
“We have a system that rewards sociopaths.”
True story…my wife worked with this person years ago who is now a VP for a large company. They remained friends over the years. When my wife was working as a senior manager for this large accounting firm, he called her with some “attestation” work he wanted her firm to bid on. He was doing her a huge favor. They got the work…it was $ 5 to 7 million a year engagement. It was the largest engagement in the history of the venerable firm.
Not one single partner in her office was willing to do the work so it went to another office a few hours away. My wife worked her ass off for 2 years but another senior manager in the other office got promoted to partner. There were partners all along the east coast weaseling their way in taking credit for the engagement.
The partner in the other office even built a multi-million dollar house.
During the second year of the engagement they even transitioned her off of the engagement completely. The VP was constantly asking why my wife wasn’t on the account anymore…and why she wasn’t in meetings.
Anyhoo…when the firm got hit hard by the great recession they laid my wife off. The VP stopped giving them the work. They would literally call my wife while she was unemployed checking up on her…the nice folks they are. They always ended the call with “have you talking to Mr. VP lately).
It was one of the worst experiences with human nature of my life. Writing this…years later…makes my blood boil.
I apologize if my writing is a little incoherent…I get really emotional thinking about it. The next time you hear someone talking about “all you got to do is work hard to succeed in this country…punch him in the fracking nose for me”.
the only silver lining is that the senior manager that they promoted to partner was demoted to senior manager again after the VP pulled the work when they laid off my wife.
One tries to be careful who they work for.
There were partners all along the east coast weaseling their way in taking credit for the engagement.
And they fired her to? Nice!
You’d think the would have swallowed their pride and rehired her to keep the contract.
The next time you hear someone talking about “all you got to do is work hard to succeed in this country…punch him in the fracking nose for me”.
I’ve seen this garbage as well. The only way to climb the ladder is to be an unscrupulous sociopath.
s/to/too
In the beginning there was another partner who had a small engagement with the company of around 100K. he was almost succesful atblockig the $ 7 million engagement because the firm could not provide large engagement services because of the type of services the other partner was providing…conflic of interest.
the reason he did this was because he would lose his piddly 100k engagement. his sociopathy caused him to think 100k for him is better than the $ 7 million (recurring annually) for the entire firm.
The partner that ran the engagement thought the same way. $ 7 million engagement for him for 1 year was better than $ 7 million egnagement in perputuity for the entire firm.
i think about this often. there is a “free market” lesson in this…perhaps that in the human services industry…human nature may work against the effeciency of the free market.
the entire experience truly was mindboggling. i have been a cynic ever since.
There’s nothing more important than how a company tailors their incentives for the people who actually bring in business.
“The next time you hear someone talking about “all you got to do is work hard to succeed in this country…punch him in the fracking nose for me”.”
I realized early on in life that it is “who you know, not what you know.”
The partner that ran the engagement thought the same way. $ 7 million engagement for him for 1 year was better than $ 7 million egnagement in perputuity for the entire firm.
The blame for this lays directly at the feet of the people who set up incentives across the company.
Riiiii-diculous.
The problem is we either have a system where malicious relatives commit one of their own to a mental institution or a system where psychos mass murder people.
Which do we want? I think I would want the first system. Far less likely scenario that an innocent sane person would be committed by his relatives.
Lock them all up.
Funny thing, OC prolly has zero tolerance for the derelicts. I haven’t seen a one in Mission Viejo, Laguna Niguel, or Irvine. I lived in Torrance. They were everywhere, mumbling to themselves. LA permits any lunacy.
Visited downtown Anaheim lately?
drudge link on this topic:
‘just hours after the deadly shooting rampage at the washington navy yard, gun control advocates tried to reignite the national debate over gun laws that had only just subsided.
sen. dianne feinstein, california democrat and a longtime gun control advocate, denounced ‘the litany of massacres’ over the past few years and asked rhetorically, ‘when will enough be enough?’
http://m.washingtontimes.com/news/2013/sep/16/navy-yard-shooting-revives-gun-control-fight/
FYI
The first gun laws in America were specifically designed to keep the newly freed blacks from owning guns.
Much easier to intimidate them that way.
The democrat terrorist organization (KKK) hates it when their victims shoot back.
Except it was Saint Ronald who instituted modern day control. And he wasn’t a Dem.
Oops.
What about black males lobbin missiles, does that count?
Are you trying to talk dirty?
What about the LA Police office who went postal?
This guy spoke fluent Thai…he didn’t leave any social media trail….Doesn’t sound like he lacked IQ.
To me he looks like just another case of metal illness.
BTW I was listening to NPR on my way to work and the reporter and the host sounded like he must be deranged because he didn’t leave any social media trail. LOL.
“…metal illness.”
I’m glad my kids don’t listen to that kind of music.
“Metal Health”
BTW I was listening to NPR on my way to work and the reporter and the host sounded like he must be deranged because he didn’t leave any social media trail. LOL.
I have heard stories of potential employers demanding FB passwords before making a job offer. I guess telling them you don’t do FB will get you branded as being dangerous and maybe the cops will show up at your door.
A few months ago when the NSA stories broke I predicted the internet would be split into zones to firewall countries from being cyber attacked. Well check out what Brazil is doing…
http://gizmodo.com/how-brazil-wants-to-purge-america-from-its-internet-aft-1333914046
I will remind everyone this will happen inside the US at some point. Someday you will find out your IP address will be blocked and most of the independent web sites (like HBB) will only be available to local users. If Ben wants to be visible to the rest of the world he will have to pass a security clearance, install NSA backdoors to his server and pay a transmission fee to each zone he wants to open his blog to.
Yes we can! Obama will make it happen.
“I will remind everyone this will happen inside the US at some point. Someday you will find out your IP address will be blocked and most of the independent web sites (like HBB) will only be available to local users. If Ben wants to be visible to the rest of the world he will have to pass a security clearance, install NSA backdoors to his server and pay a transmission fee to each zone he wants to open his blog to.”
That’s the day I stop using the internet, and start assembling large crowds with pitchforks.
“I have heard stories of potential employers demanding FB passwords before making a job offer.”
Not any company I would ever be interested in working for. MAJOR red flag.
“I have heard stories of potential employers demanding FB passwords before making a job offer. I guess telling them you don’t do FB will get you branded as being dangerous and maybe the cops will show up at your door.”
You just set yourself up a new FB account and only include your immediate family. Puppy dog pictures, food pictures, boasting of workouts, vacation shots. Yawn. Nothing political.
My boss already knows my views by now. I had him as a FB buddy months before he hired me. He knows I’m a staunch RKBA guy perhaps with firearms and ammo. Since he hired me (no resume at all, he knew me), I have not been as political on FB. I got my firearms I wanted for now and they are in AZ. Probably will buy some more. But not in a rush.
They seem to have looked down every avenue with this to see if it was linked to terrorism (and it doesn’t seem to be), yet Fort Hood shooting was immediately branded “workplace violence” when it was obviously an act of terrorism. Go figure….
No it wasn’t.
Yes it was.
“Housing is never an investment. Housing is a depreciating asset and a loss, always.”
Exactly. Houses depreciating just like automobiles. The difference is that losses on housing are crushing and last a lifetime at current grossly inflated asking prices.
housing is a black hole for loanowners. the amount of money and time sucked into that black hole is incalculable.
“Just for the record; there is no shortage of housing. Not in California, not in Tokyo, not anywhere. And there will come a day (again) when the media will tell us, ‘there’s a glut of houses for sale in….’, and regale us with sob stories, ‘I was doing great until the economy went south and my income went away and I can’t get rid of this damned house!’”
~Ben Jones, August 8, 2013
This false notion…. this lie….. that there is a shortage of housing in the US is laughable considering there are tens of millions of excess empty houses out there. A sea of them. And it’s growing. Day by day.
UCLA Anderson Forecast, June 2002
Bubble Trouble?
Your Home Has a P/E Ratio Too
Edward E. Leamer
Director, UCLA Anderson Forecast
There is no housing shortage and don’t expect a
phantom shortage to prevent a bubble from
being created.
I remember a realtor telling me some time ago
that I should buy ocean front property because that
was limited in supply and the price could only go up.
The same kind of thinking has led many to conclude
that, since California “needs” more housing, the
current run-up in prices is justified by supply and
demand, and there is no bubble here. For example,
the Los Angeles Times, Monday, May 27, 2002, reported:
Both these thoughts reflect a lack of understand-
ing of how asset prices get determined. They reveal
indifference to the behavior of rents, and/or they show
a lack of understanding of the connection between the
rents and the asset prices. This is the same error that
Wall Street analysts made during the Internet Rush
when they imagined that the New Economy changed
the rules and created a fundamental disconnect
between corporate earnings and stock prices. We
know differently now. The markets are rudely
reminding us that when we buy a stock (an asset), we
are buying an earnings stream. The price we pay for
the stock should reflect current corporate earnings
and reasonable expectations about what the future
of earnings might be. A bubble is created when these
get disconnected.
…
California Notice Of Defaults Up A Whopping 38.7% In Second Quarter
http://www.ksby.com/news/california-foreclosures-rise-in-2nd-quarter/#_
“Research firm DataQuick says Tuesday that lenders filed more than 25,700 notices of default from April to June. That was up 38.7 percent from the previous quarter.
However, the figure is down nearly 53 percent from the second quarter of last year and it’s the second-lowest level in seven years.”
And rising.
Watchya think Fraudster?
I think flushing the distress is a good thing.
We’re just in the 1st quarter of that Fraudster… there’s a long way to go.
I think flushing the distress is a good thing.
+1. The sooner we flush it, the sooner we are done flushing it.
“With over 25 MILLION excess empty houses in the US and another 35 MILLION houses just beginning to come on the market now that boomers are starting to die off, housing prices are going to go alot lower.”
There is no question about it.
“If you pay current massively inflated asking prices for resale housing, you’ll get ripped off so excessively that you’ll never recover financially.”
You can say that again.
How many suckers have we heard about right here on the HBB that overpaid by $200k or more?
This is really interesting. Time Magazine publishes a different cover for the US than the rest of the world. wow. But, they really have the US public’s number, with a college athlete cover as opposed to Putin. They don’t call it Slime Magazine for nuthin’.
http://dailycaller.com/2013/09/16/time-mag-hides-putins-success-from-u-s-voters/
They should have put this on the U.S. cover:
http://www.picpaste.com/bun65xhciaedwuw-gjUcG4Q6.jpg
lolz
That was funny.
They should have showed Putin without his shirt on riding Obee…..get up bitch…..Heyaaaa!!!!
But … but … it’s football season dammit!
We had terrible floods in the Centennial State, but the Broncos won again, so it’s all good!
And after we win the Sooper Bowl, all those washed out roads will repave themselves. With bricks of gold, no less!
Man, I’m sorry all that happened, guys. It’s amazing to me, we don’t even do those kind of evacuations in Florida when there’s a hurricane coming.
FWIW, only those in imminent danger were evacuated. The overwhelming majority was unaffected. About 20,000 were evacuated. The other 4 million plus were not.
Playboy does the exact same thing.
You mean the US version has a hot babe on the cover, while the international versions have Vlad Putin?
I will take the category “useful idiots” for $400…
———————–
Labor Unions: Obamacare Will ‘Shatter’ Our Health Benefits, Cause ‘Nightmare Scenarios’
forbes | 9/15/2013 | Avik Roy
Labor unions are among the key institutions responsible for the passage of Obamacare. They spent tons of money electing Democrats to Congress in 2006 and 2008, and fought hard to push the health law through the legislature in 2009 and 2010. But now, unions are waking up to the fact that Obamacare is heavily disruptive to the health benefits of their members.
You keep saying this without any facts or citations to back it up? Why is that?
A scam? In Nigeria?
—————–
Nigeria’s property boom: only for the brave
Reuters via news.yahoo.com | Sun Sept 15, 2013 | Joe Brock
ABUJA (Reuters) - On one of the most exclusive streets in Nigeria’s capital sits a crumbling mansion with an unwelcoming message painted at its entrance: “BEWARE! THIS HOUSE IS NOT FOR SALE”.
The warning refers to a popular property scam. In the most elaborate version, robbers break into your house while you are away, change the locks, and then produce multiple copies of fake title deeds. Posing as estate agents, they show buyers around your house and sell as many copies of the deeds as possible. When you get back, your house belongs to six people.
This sort of deception epitomises the tricky nature of Nigeria’s real estate business, but despite the risks, there are huge returns to be had in a market where around 16 million homes are needed just to meet current demand.
Navigating through opaque land laws, corruption, a lack of development expertise and financing, a dearth of mortgages and high building costs will take courage and influential local partners.
‘ Posing as estate agents, they show buyers around your house and sell as many copies of the deeds as possible. When you get back, your house belongs to six people.’
“But, but, Sade researched it.”
‘Posing as estate agents, they show buyers around your house and sell as many copies of the deeds as possible. When you get back, your house belongs to six people.’
“But, but, Sade researched it.”
“No need to ask he’s a smooth operator..”
Nice :-).
Bears an eerie similarity to how loans were sliced up and sold to multiple investors in our recent bubble.
IMO, there are a lot of potential headwinds facing residential housing but if Richmond prevails @ the Supreme Court it would be a game changer on how SFR’s are financed…Given the Supreme Courts broad interpretation of limitations of Eminent Domain, there should be serious consideration that Richmond would prevail…
BlackRock Inc. (BLK)’s lawsuit with other bondholders to block Richmond, California, from seizing underwater home loans through eminent domain was dismissed by a federal judge in San Francisco.
U.S. District Judge Charles Breyer ruled today that the case had to be dismissed, rather than put on hold, because the claims depend on “future events that may never occur.”
Breyer said on Sept. 13 that bondholders’ request for an injunction blocking the city from continuing to pursue the plan was premature because city council members hadn’t voted on whether to go to state court to seize the loans.
Bank trustees for bondholders including Pacific Investment Management Co. and DoubleLine Capital LP sued last month alleging Richmond’s plan to seize more than 600 loans on which the amount owed is more than the value of the property through eminent domain and refinance them to give homeowners built-in equity was unconstitutional.
Richmond Mayor Gayle McLaughlin and lawyers for Mortgage Resolution Partners LLC, a firm that will provide financing, say the plan will prevent foreclosures and blight. Lawyers for the trustees allege that some of the targeted loans are still performing and the plan will harm investors and disrupt the U.S. housing market if it’s allowed to proceed and other communities follow suit.
The cases are Wells Fargo Bank v. City of Richmond, 13-03663, and Bank of New York Mellon v. City of Richmond, 13-03664, U.S. District Court, Northern District of California (San Francisco).
pretty soon they will want your house if you have any equity.
I find this whole thing ironic. If lenders would foreclose quickly on defaulted loans and sell the houses for what they are worth, the city wouldn’t have time to consider such actions.
Yes but if they foreclosed & sold the houses they would have to book the loses…Right now its just a non-proforming asset on the books but still booked as an asset…
lots of people have collected 5 year of free rent just because of that fact.
Yes but if they foreclosed & sold the houses they would have to book the loses…
It wouldn’t cost them _that_ much is the limited their rapid foreclosure and rapid sale strategy to “only in Richmond.”
No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
5th Amendment of the US Constitution
nor shall private property be taken for public use, without just compensation ??
Yep…How does Richmond demonstrate that the 600 homes they are threatening to condemn through Eminent Domain constitute a “Public Use” ??
Public use = votes of the free sh*t army
public use is keeping property taxes high.
Public use == billionaire sports team owners football fields.
Dave, I think they are considering seizing the notes, not the houses. They they would resell the notes to their golf buddies. That is getting used by the public if anything is.
If they are sizing the notes they are also sizing the “title/deed” to the property because the notes are secured by the Trust Deed…Cannot detach one from the other…They are conjoined…
They aren’t going to sell the notes. They are planning to “refi” the houses, lowering the principle to current FMV so they won’t be underwater - for a little while.
Yes but to be able to “Refi” you must have a reconveyance of the Deed of Trust…Since the refi is going to give the secured lender 50 cents on the dollar what chance do you think you have to get the reconveyance ?? zero…This is going to the Supreme Court
OK, but they are going to use a third party to “refi” for the “fair market value” they give the original lenders, right?
“Mortgage Resolution was started last year by Gluckstern, a former money manager whose past credits include working for Warren Buffett, co-owning the New York Islanders hockey team, chairing liberal think tank the Democracy Alliance and raising money for President Obama.
Gluckstern says about 50 people have invested in his company, including former San Francisco mayor and Chronicle contributor Willie Brown and Don Putnam, founder of Grail Partners, a San Francisco investment bank. Phil Angelides, former California treasurer, was the firm’s executive chairman but severed his relationship in January.
The firm is working with investment banks Evercore Partners and Westwood Capital to find investors to front the money cities would need to pay for seized mortgages. The investors would be repaid when the mortgages were refinanced.”
http://www.sfgate.com/business/networth/article/Battle-on-over-plan-to-seize-mortgages-3725036.php
“The process of selecting which mortgages to include in the program was far from arbitrary, says Steven Gluckstern, chairman of San Francisco-based investment firm Mortgage Resolution Partners, which is partnering with Richmond on the project.”
http://blogs.kqed.org/newsfix/2013/09/13/how-mortgages-were-chosen-for-richmonds-eminent-domain-scheme/
“Mr. Altman began his investment banking career at Lehman Brothers and became a general partner of that firm in 1974. Beginning in 1977, he served as Assistant Secretary of the U.S. Treasury for four years. He then returned to Lehman Brothers,…. In 1987, Mr. Altman joined The Blackstone Group as Vice Chairman … January 1993, Mr. Altman returned to Washington to serve as Deputy Secretary of the U.S. Treasury for two years. In 1996, he formed Evercore.”
“Mr. Schlosstein was for almost twenty years the President of BlackRock, the largest asset management firm in the world with over $3.9 trillion of assets under management. Mr. Schlosstein co-founded BlackRock in 1988 … Prior to founding BlackRock in 1988, Mr. Schlosstein was a Managing Director in Investment Banking at Lehman Brothers. While at Lehman, Mr. Schlosstein started the firm’s interest rate swap business and led its Mortgage and Savings Institutions Group”
http://www.evercore.com/team
“Mortgage Resolution Partners, a firm affiliated with Evercore Partners, has signed up the city of Richmond and several others it won’t name to try and pursue the same plan”
“taking advantage of state and federal incentives that can mount to as much as $100,000 per loan.”
“the plan relies on pulling loans out of private-label securities trusts at a discount and reselling them to agencies like Fannie Mae , Freddie Mac or the Federal Housing Administration”
” Proponents say cities can seize any kind of property they want under eminent domain, even paper assets like stocks and bonds.”
“Cities may get a rude shock when they try to seize private-label mortgages that are actually held in the trading portfolios of Fannie and Freddie”
http://www.forbes.com/sites/danielfisher/2013/04/29/mortgage-seizure-plan-resurfaces-as-investors-try-to-kill-it-for-good/
I’m sure the investment firms are involved just because they are feeling benevolent.
Here’s the thing: with the Kelo decision, they were basically bullying a single homeowner (who I think owned the home outright) who was standing in the way of “progress”. It’s easy for a bunch of dicks in black robes to rule against an individual.
Richmond, however, is a different story. You have groups of “investors” who “own” the mortgages on the property. And who, by the way “own” the government, including the dicks in black robes.
who was standing in the way of “progress” ??
Well the ruling went well beyond what was universally understood was the purpose of Eminent Domain power…Municipalities using eminent domain power for roads, infrastructure, parks etc., is one thing but in the case that the Supremos decided the municipality condemned the property for the benefit of a private developer… Unconscionable until the Supreme court ruling…
The municipality argued that although the condemnation was for the benefit of a private developer it also benefited the “Public Use” provision because it improved a Mariana for public enjoyment and generated revenue to the city which also benefited the public good…
Supreme Court Agreed and likely opened a Pandoras box for future attacks on private property rights…See; Richmond California…
Except the last I read, there had been no “improvements”, just a forlorn patch of vacant land. Of course, I’m not aware of recent developments.
The Supremes have screwed the pooch twice in recent years: once with Kelo, and now with Obamakare.
Don’t forget “seperate but equal”.
Perhaps the argument is that by preventing foreclosure, they are preventing “foreclosure blight,” a condition that drags down the value of all other real estate in the area. (I always suspected that argument to be specious, but it is used often.)
“Wells Fargo Bank v. City of Richmond”
Sounds like Gulliver v. the Lilliputians. I wonder who will win in the real-life version?
What strikes me is that the case is only for 600 houses. The big banks stand to lose more actual money on a power lunch than in this case. Their fear the precedent more than the losses.
In Richmond they aren’t planning on seizing the homes for zero compensation. They plan on assigning a market value, seizing the home and paying their determined “market value” price to the mortgage holder (hint: MUCH lower than the current mortgage on the property), then re-issuing a mortgage to the current “owner” of the house for the reduced price they determined. They are thinking of doing this under the public good classification because they claim the underwater mortgages are a public ill, and eliminating them(bad mortgages) through this process will therefore be a public good. IMHO this will be seen as a breach of centuries of contract law and declared illegal.
Well articulated.
I agree with Blue Skye–it is very well articulated. Said another way, this scheme allows the public to force a private entity to sell an asset at a value that is determined in a way that the private entity feels is too low (or else they wouldn’t be fighting to hold the asset).
If there is a $100k loan on a house worth $50k, but the debtor has a history of paying regularly on the $100k loan to stay in the house (to not have a credit hit, for whatever reason, etc.), the loan is arguably worth substantially more than $50k.
I could stand to see the banks take it in the shorts just this once.
Awesome!
Video about Detroit being the most searched area for real estate. Also the least foreclosures, high YoY gains, etc.
Read More:
http://finance.yahoo.com/blogs/big-data-download/surprise-detroit-among-best-housing-markets-invest-145242845.html
There is a whole lot of acreage in this country. Detroit, schme-troit.
Were you the one posting the Daft Punk videos? If so, curses on ya! (kidding). I’ve been all over the net catching up with the Daft Punk phenomenon, the music, the videos, etc. I must’ve been under a rock, that’s for sure. Good stuff. I see the LA Times is giving Lose Yourself to Dance high marks. I prefer Get Lucky, though. And I learned something: Pharrell is pronounced “Fa-RELL”, not like barrel.
Yeah, JC, I came across Daft Punk the other day. Discovered Gorillaz and ‘Clint Eastwood’ last year. I have a penchant for uppity sharing of musical entries here. Stll like KC and the Sunshine Band:
http://www.youtube.com/watch?v=FpoI7vK4uvY
Hah! It was fun to be a pup on the make in South Florida back in days of KC, TK Studios, etc. Miami-Ft. Lauderdale rocked!
If you had been a club or bar regular since about 1998, you’d want to stab Daft Punk in the face with a pitchfork.
It’s interesting to me that some music is lovely if you hear it occasionally but make you want to tear your ears off if you hear it every 15 minutes. It’s also odd that the majority of radio stations test that ear tearing part of the theory even though the back catalogue of great songs is pretty much infinite.
I hear ya, except my days of clubbin’ it pretty much ended in the early 1990s.
It’s called “heavy rotation”, as I recall it pretty much started with 70s disco and bled over into MTV during the 80s then progressed to the clubs and from what you say, it’s been going on ever since.
I guess what I liked about Daft Punk was the whole retro/techno thing, great to see Nile Rogers front and center and still jammin’.
AM Top 40 format originated in the 1950’s.
Sounds like wall street interns searching for high ROI, now that Vegas and Phoenix are near par. Can’t wait to see these folk try to rent to tenants in Destroit.
Has anyone who posts here ever tried out the hair-of-the-dog hangover cure? I’m wondering what happens to the drinking victim when the morning-after alcohol binge wears off.
It looks as though we are about to find out how this goes in the case of the housing market’s metaphorical equivalent.
“what happens to the drinking victim”
Jonestown happens. Drink the kool-aid and buy a house today, end up in a pile of corpses tomorrow:
http://media.npr.org/programs/newsnotes/features/2008/11/jonestown-wide-200-9dfe8cd552817db016777cb4112365ed0c9dc949-s6-c30.jpg
The National Association of Realtors® are the Pied Pipers of FINANCIAL SUICIDE
There are plenty of housing trolls here to serve as case studies.
“Has anyone who posts here ever tried out the hair-of-the-dog hangover cure? I’m wondering what happens to the drinking victim when the morning-after alcohol binge wears off.”
You don’t let it wear off, you keep drinking. On the day after the day after, you must imbibe even more or you will have hangover². That’s when things start to get real dangerous. You then must thread the needle between hungover and dead.
“what happens to the drinking victim when the morning-after alcohol binge wears off”
You have a drink with lunch, and then a couple after lunch, a couple before dinner, and then after dinner, you can start drinking in earnest again.
How long can one keep this going before the pink elephants enter the room?
Uncle Fed Love — there is still time for you to unwind your short position before the market starts its next correction. (My experience is that the hardest thing about playing the short side of the market is staying short long enough to experience a veritable Black Swan payday!)
BTW, I totally agree with Hulbert’s point on the Summers exit rally. Wasn’t Summers under fire for being overly cozy with Wall Street? The stock market is an alcoholic who finds a new excuse to party every day of the year.
Sept. 17, 2013, 10:34 a.m. EDT
The ‘What, Me Worry?’ stock market
Commentary: Investor sentiment now dangerously exuberant
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) — Nothing so well illustrates Wall Street’s dangerously exuberant state of mind as its triple-digit rally in the wake of Larry Summers withdrawing from consideration to be the next Federal Reserve chairman.
Do you really believe the outlook for corporate earnings suddenly became much brighter just because Summers is no longer in the running to succeed Ben Bernanke?
If so, I have a bridge I want to sell you.
Wall Street is now fully ensconced in that alternate reality in which all news is interpreted as a reason to rally. It’s nice while it lasts, but it probably won’t end well.
In fact, according to contrarian analysis, this sentiment situation is at the opposite end of the spectrum from the wall of worry that bull markets like to climb. It’s more akin to the slope of hope that bear markets like to descend.
…
You really do have to admire the Marketwatch peops’ stopped-clock persistence in their dire September forecasts, despite all the appearances that Wall Street is on track to close out the year with a spate of gains.
Sept. 17, 2013, 10:38 a.m. EDT
Home builders most confident in almost eight years
By Ruth Mantell, MarketWatch
WASHINGTON (MarketWatch) — Confidence among home builders in September remained at the highest level in almost eight years, despite rising mortgage rates, according to a report released Tuesday.
The National Association of Home Builders/Wells Fargo housing-market index remained at 58 in September. Readings above 50 signal that builders, generally, are optimistic about sales trends.
September’s unchanged level followed four months of gains.
…
Whom the gods would destroy, they first make proud.
Have you been watching “Breaking Bad” too? Ozymandias was the best episode yet.
Nah…I came across that poem in the opening pages of Jared Diamond’s book Collapse.
Here’s what I don’t understand.
The national number stayed the same at 58. However EVERY region went up…NE from 39 to 45, Midwest from 64 to 66, South from 56 to 58, West from 59 to 62.
How does that work?
Its like those children in Lake Woebegone. They’re all above average.
Here is what I’m certain of…… California is a $hithole like no other state.
Don’t make the provincial queens mad. They will list out how wonderful it’s in cali.
It has to be better than anywhere else! They have beaches with ice cold water. They have Disneyland, which now costs $100 a day and is packed year round, much like the freeways around it. You can send your kids to a public school where half their classmates don’t speak English. And you can buy a $400K crapshack in a nabe that is so dangerous that every house has bars on the windows and the local supoermarket has an armed guard on duty. You say you want a “safe” nabe? That’ll cost you pilgrim, a lot. Or you can live out in the boonies and have a 2 hour commute to the office. It’s all good.
That’s racis.
t
U can see Movie stars in Calabassas and Westlake Village and little dogs with their ears dyed pink in stollers.
“You say you want a “safe” nabe? That’ll cost you pilgrim, a lot.”
That is correct. Sadly I think what I see here will spread across the Country as time goes by.
Still we will be Cali and you will be a third world.
If you mean Cali/third world spreading across the states, you’re correct.
mike whitney piece discussing the circumstances surrounding the lehman collapse:
http://www.counterpunch.org/2013/09/17/financial-terrorism/
I dunno what to say, except Hank’s head would look great on a pike.
+1 Thanks, goon. A great read!
the FED holds the keys to your prosperity.
Perhaps Fed will hear our prayers if we make a sacrifice?
Gary Shilling is happy about lower wages. But he is a deflationist.
“3. Labor Flexibility
An added long-term advantage for the U.S. in international competition is her flexible labor markets. Labor unions are becoming a thing of the past, especially in the private sector and now increasingly among state and local employees (Chart 4). Partly as a result, U.S. wages are flexible on the down side. Surveys show that of the people out of work for six months (Chart 5) who do find new jobs, a third work for less money than previously.
Working for less is almost unheard of in Europe and lifetime employment is the rule in Japan. China is increasing minimum wages about 25% per year to provide more consumer spending power as she strives to shift from an export-led to a domestically-driven economy. But higher wages erode the global competitiveness of China and production is shifting to cheaper locales like Vietnam, Bangladesh and Pakistan.
The auto industry is a case in point. After the Great Recession drove GM and Chrysler into bankruptcy, U.S. automakers introduced $14 per hour wages for new employees, half the level of veterans. So in 2011, the average pay of U.S. autoworkers including benefits was $38 per hour compared to $66 in Germany and $37 in Japan. U.S. pay has increased $3 per hour since 2007, but $12 in Japan and $14 in Germany. As a result, vehicles from U.S. auto plants are beginning to be shipped abroad in numbers.
“China is increasing minimum wages about 25% per year to provide more consumer spending power”
This actually makes more sense than showering the banks with free money and hoping it magically works it’s way through the population.
Either way the banks end up with all the money in the end, but the Chinese way allows the proles to spend it once.
I’m guessing these HH income statistics are misleading, as they most likely exclude households with no employment from the average. Feel free to correct me if I am wrong.
And don’t forget to look on the bright side: Who needs income growth when home and other asset prices are ever-rising?
U.S. NEWS
Updated September 17, 2013, 6:32 p.m. ET
Household Incomes Level Off
Recession-Hit Paychecks Finally Stabilize, but Poverty and Other Problems Persist
By NEIL SHAH
CONNECT
American incomes are no longer free-falling—but they’re not rising, either.
The income of the typical U.S. family stabilized last year for the first time since the recession, according to the Census Bureau’s latest snapshot of U.S. living standards, released Tuesday. The bottoming-out follows four years of declines that pushed incomes to their lowest levels in nearly two decades.
The median annual household income—the level at which half are above and half are below—edged down 0.2% in 2012 to an inflation-adjusted $51,017. The change isn’t considered statistically significant and compares with much larger declines of 1.5% and 2.6% in 2011 and 2010, respectively. During the economic expansion of the 1990s, incomes rose nearly 15%—from $48,884 in 1993 to an all-time peak of $56,080 in 1999.
The Census report, viewed as a gauge of American prosperity, could mark a turning point for the recovery: It suggests consumers may soon feel the benefits of an improving job market that has seen unemployment drop from a peak of 10% to 7.3% this August. A rally in stocks also has boosted incomes for some Americans, along with rebounding real-estate prices.
A pickup in income growth could give Americans more spending power—and boost the overall recovery.
Still, Tuesday’s figures highlight the grim picture for American paychecks over recent years and explain why so many Americans continue to struggle. Incomes remain 8.3% below the $55,627 level of 2007, the year the recession began.
U.S. businesses still have little incentive to boost wages given that over 11 million Americans are looking for work. Much of the nation’s recent job growth has been in lower-paying industries. And the aging of America’s population could mean less income growth going forward since the retired often earn less.
“The bleeding has stopped, I suppose, but incomes have yet to increase,” said Richard Fry, an economist at Pew Research Center. “Asset prices are rising, but when we look out at Main Street, at what households are getting, there isn’t much growth.”
…
seems like the healthcare industry never missed a beat during the recession. highly dependent on your occupation really.
I dont think PG&E employees are hurting that bad either thx to the monopoly on power they have.
Comment by Rental Watch
2013-09-16 22:20:40
“RW, if you are primarily intent on selling, why would you be buy at all at the same time?”
Simply looking to pick off a few short sales at discounts to today’s market value while there are still opportunities to use quick-close cash purchases as a way to get good pricing.
Ah, I hadn’t realized you were engaging in flipping short-sales…
There’s alot you don’t know about Rental Fraudster. Stay tuned.
Hm, you have piqued my curiosity…
Comment by Rental Watch
2013-09-16 22:34:44
PIC, just so you can quantify, new purchases in homes to rent from this point forward might represent a few percent of the total we have invested in residential post crash. The vast majority of our investment dollars went into land, and the opportunity to buy land cheaply went away some time ago. Since land values in many places have risen quite a bit–it’s the land that we plan to sell first.
I concur—it makes sense to sell the land first, and I would guess that your window is closing rapidly on that segment. Nice call on that one, BTW.
The window will begin to close on the opportunity to sell land when substantial amounts of additional land gets entitled, a long and expensive process in the people’s republic of CA (which hasn’t been keeping up with demand for entitled land for decades), so frankly, I think in some cases, there is a risk of leaving money on the table by selling too soon.
That said, lots of the finished lots have been built on, and the economics of homebuilding are getting to a point where builders can justify finishing new lots again, which, in my view signals the curve for land prices starting to flatten…prices will start to go up at a slower pace generally, and so there is less reason to hold for much longer.
Nice try but land prices collapse to near zero. History proves that. And Can is headed in that direction.
We’re not flipping the houses, but renting them out. A key to making the numbers work is being able to buy them at an attractive price up front, which makes the yields a bit higher, which allows better cash flow for the hold period.
I’m glad your not using my money to do it. You haven’t the slightest notion of value. Do your customers have any idea how far over your head you are?
Brazil’s president, angry about spying, cancels state visit to U.S.
Brazilian President Dilma Rousseff calls off visit to Washington in the latest fallout from the Edward Snowden leaks affair.
By Kathleen Hennessey and Vincent Bevins
September 17, 2013, 5:57 p.m.
WASHINGTON — In the latest fallout from the Edward Snowden affair, the president of Brazil canceled a state visit to Washington out of anger that the National Security Agency had spied on her and other Brazilian officials, deepening a rift with the Obama administration.
Brazilian President Dilma Rousseff on Tuesday called off the high-profile visit that both governments had planned for Oct. 23. A White House spokesman sought to downplay the diplomatic snub by a key ally and trading partner, and described the decision to indefinitely postpone the visit as mutual.
The White House said in a statement that Rousseff and President Obama had agreed that the state visit — an elaborate affair with meetings and a formal dinner with toasts — would be better staged when relations between the two nations were less tense.
Obama “understands and regrets” the concern that disclosures about U.S. spying has generated in Brazil, the statement said. “He is committed to working together with President Rousseff and her government in diplomatic channels to move beyond this issue as a source of tension in our bilateral relationship.”
A statement from the Brazilian president’s office was harsher, citing a “lack of … explanations and commitment to cease interceptive activities” for the cancellation.
“The illegal interception of communications data belonging to citizens, companies and members of the Brazilian government are a grave matter, an assault on national sovereignty and individual rights, and are incompatible with relations between friendly nations,” the statement said.
…
Bankrupt Detroit still hasn’t deposited property tax checks
From The Detroit News: The unluckiest landlord in Detroit wrote a check for his summer property taxes and mailed it Aug. 22. Where the check is now, he can’t tell you — and neither can the city.
Joe Pirronello is not, for the record, a slumlord, a deadbeat, a Moroun, or any of the other dubious things a landowner can be. He’s a guy who bought a 900-square-foot west-side bungalow out of foreclosure with a partner, only to have the partner back out.
Then he put almost $45,000 in improvements into a $10,000 investment — just as the housing market imploded.
At least he managed to get his taxes reduced, even if the process took a year and a half. Instead of paying $4,000 last month, he sent the city $1,683.50.
Then he waited for the check to clear. And waited. And waited some more.
Finally, he says, he called the number for the Property Tax Division on the back of his bill.
When he followed the prompts and hit 0 to talk to a live human being, he got disconnected. Repeatedly.
After several days of attempts, he managed to reach an executive secretary who told him why his check to a bankrupt city had not been cashed:
“They’re still trying to process payments that arrived in June.”
Trading Shots
Reality check: Stock markets do not ‘always’ go up
LARRY MACDONALD
Special to The Globe and Mail
Published Tuesday, Sep. 17 2013, 10:53 AM EDT
Last updated Tuesday, Sep. 17 2013, 1:58 PM EDT
It’s now five years since the bankruptcy of Lehman Brothers tipped the world into a financial crisis. Stock markets have clawed their way back from the abyss, prompting observers to comment that “stock markets always come back.” Alas, stock markets do not always come back.
For countries with reliable data back to 1921, close to a third suffered a permanent closure in their stock market due to war, invasion or revolution. The majority of the surviving stock markets experienced interruptions averaging several years. Only five avoided major breaks: U.S., Canada, U.K., New Zealand and Sweden. So says a paper by William Goetzmann of the Yale School of Management and Philippe Jorion of the University of California.
Nor is a visit from any of the Four Horsemen of the Apocalypse required, as illustrated by the contemporary case of the Japan. The Nikkei 225 has yet to return to its 1989 high of 39,000; it currently sits at 14,400, down 65 per cent over the past 24 years.
Of course, many other stock markets have brushed aside volatility and marched progressively higher over the decades. But past performance does not guarantee future performance.
This point was made, for example, by Financial Times of London investment columnist John Authers in his book The Fearful Rise of Markets. As Mr. Authers writes: “the historical era for which we have the most complete data involved a long period of peace and prosperity as the world recovered from two world wars, abandoned communism, and enjoyed many technological advances. There is no reason to assume that this can be repeated.”
When it came out in 1993, Jeremy Siegel’s book, Stocks for the Long Run, had a recommendation from Nobel-prize winning economist Paul Samuelson on the cover. However, it ended on an ominous note: “[But we may] ponder as to when this new philosophy [stocks for the long run] will self-destruct after Siegel’s readers come someday to be universally imitated.” Could the saturation phase now be at hand? After all, Robert Shiller’s cyclically adjusted price-earnings ratio has shown serious overvaluation in U.S. stocks for much of the past decade.
…
The Fed has a simple choice on its taper decision:
- Taper sooner = Wall Street taper tantrum.
- Taper as expected = no impact.
- Temper or delay the taper = trigger a rally.
As Fed ‘taper’ looms, so do market surprises?
Adam Shell, USA TODAY 5:42 p.m. EDT September 16, 2013
Wall Street expects the Fed to announce the start of a long-awaited “tapering” of its bond purchases Wednesday. Could there be a surprise?
NEW YORK — It’s no surprise Wall Street traders have placed their bets on when and how the Federal Reserve will start to cut back on its market-friendly bond-buying program. What could come as a surprise is if the wagers don’t jibe with what the Fed announces Wednesday.
Whether the Fed will taper or not has been dissected for weeks. The market reaction will depend on how close what the Fed does regarding its quantitative easing (QE) policy is to the consensus forecast.
…
phony scandals