Weekend Topic Suggestions
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
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Are horses athletes?
Who here is a paid shill?
I tracked half of the pro-housing posts on here to Amy Hoak’s i-phone, and her posting location is under Lawrence Yun’s desk.
That’s my weekend topic .
+1
Got Bitcoin?
Bitcoin boom: Virtual currency hits all-time high of $309
Published time: November 07, 2013 11:09
Edited time: November 08, 2013 11:17
The value of Bitcoin virtual currency has increased 20-fold in the past year and hit an all-time high of $309.68 on Mt. Gox, the world’s largest Bitcoin exchange. Growth sustainability is at risk as new ‘Silk Road’ makes it a target of the US government.
Bitcoin’s extraordinary rise has garnered attention from investors from Cyprus to China wanting to get in on the soaring prices. But its success on the online ‘Silk Road’ has made it, along with drugs, a target for the US government.
The re-launch of the illegal online drug operator Silk Road could threaten the ‘Bitcoin boom’ as the FBI continues its crack down on Bitcoins used to barter for contraband products.
On Wednesday an almost exact copy of the notorious internet marketplace Silk Road “has risen from the ashes”, the new clone site announced.
Government officials will be quick to try and nip operations of the reincarnated site in the bud; dubbed the ‘Black market reloaded’.
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Can anyone offer suggestions for protecting one’s Bitcoin stash from theft? I’d guess guns and ammo would be useless.
A million dollars gone in a nanosecond without a trace!
8 November 2013 Last updated at 11:22 ET
Major Bitcoin theft from website, claims owner
A man who ran an online “wallet service” for storing Bitcoins has claimed hackers stole virtual currency from his site worth more than one million Australian dollars.
The Australian man said 4,100 Bitcoins (US$1.04m, £650,000) were taken in two separate attacks.
He said he would not report the theft to police as Bitcoin transactions are virtually impossible to trace.
This has led some users to speculate whether it was an “inside job”.
In a radio interview with ABC News the man, who only used his online name TradeFortress, denied being involved.
The Bitcoin virtual currency is increasingly used to pay for things online.
According to the Sydney Morning Herald, the theft occurred on 26 October but users were only alerted this week via a message he posted on the wallet service’s website.
“I know this doesn’t mean much, but I’m sorry, and saying that I’m very sad that this has happened is an understatement.
“Please don’t store Bitcoins on an internet-connected device, regardless if it is your own or a service’s.”
Bitcoin is the most well known of a handful of virtual currencies. The currencies are developed through a computer process called “mining” and can be traded on exchanges or privately between users.
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What is the difference between Bitcoin and counterfeit currency? Anything?
Bloomberg News
Bitcoin at Record as U.S. Senate Seeks to Discuss Virtual Money
By Olga Kharif and Max Raskin November 08, 2013
A Bitcoin
The price of Bitcoins has more than doubled even after the closing five weeks ago of the “Silk Road Hidden Website,” where people could obtain drugs, guns and other illicit goods using Bitcoins. Photographer: Tomohiro Ohsumi/Bloomberg
Bitcoin’s price climbed to a record at $330.01 on the BitStamp online exchange, as U.S. senators scheduled a hearing to discuss the future of the digital money and other virtual currencies.
The U.S. Senate Committee on Homeland Security and Governmental Affairs will meet on Nov. 18 “to explore potential promises and risks related to virtual currency for the federal government and society at large,” it said in a statement today.
The price of Bitcoins has more than doubled even after the closing five weeks ago of the “Silk Road Hidden Website,” where people could obtain drugs, guns and other illicit goods using Bitcoins. While the digital money lost a third of its value in the days after the website was shut down, it’s becoming an increasingly popular way of paying for goods and services on the Web and in stores that accept the tender.
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Interest rates and the housing bubble
China is famous for its housing bubble. With interest rates on savings so low, real estate is a very popular investment option for those with funds, sometimes resulting in “ghost housing developments” where the owners sit on uninhabited investment properties as they wait for prices to rise.
The government is of course concerned, having launched a long series of curbs on the property market in recent years, but until the banking sector — dominated by the big state-owned players — offer a viable investment alternative, the housing bubble may remain a growing danger to China’s economic future.
Enter People’s Bank of China Gov. Zhou Xiaochuan. The Wall Street Journal reported this week that the central-bank chief shockingly lambasted party leaders late last year over the need to provide depositors with higher interest rates and to open up the financial system to more competition.
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How about that stock market?
“Shoe shine boy” moment: Without prompting, my my 85-yr-old dad recently told me he was scrambling to cash out his minimum defined contribution plan pension distribution early this year, as he is worried stock prices are overvalued. Dad is not a finance guy, just a casual observer who views Wall Street through the business section of his local newspaper.
Dad’s not the only one cashing in chips at the moment:
Investors left U.S. equity funds as the Dow hit record highs
November 8, 2013, 10:58 AM
Investors were pulling out U.S. equity funds this week as the Dow Jones Industrial Average (DJIA +0.50%) was hitting a peak.
U.S. equity funds had $7.5 billion of withdrawals in the week ended Wednesday, according to Bank of America Merrill Lynch Global Research. Wednesday was also the day that the Dow topped its prior record high and the S&P 500 index (SPX +0.71%) nearly did the same.
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Investors were pulling out U.S. equity funds this week as the Dow Jones Industrial Average (DJIA +0.50%) was hitting a peak.”
That means it will keep climbing.
Got tweets?
Jobs Report Elevates Dow to a New High
By THE ASSOCIATED PRESS
Published: November 8, 2013
An unexpectedly strong jobs report gave stocks a lift on Friday, pushing the Dow Jones industrial average to another high.
The gains were led by banks, like Bank of America and JPMorgan Chase, which stand to benefit from a rise in lending as the economy strengthens. Consumer-focused stocks like Priceline.com and Disney also rose after reporting higher profits.
Losers included housing stocks and Twitter, which dropped 7 percent the day after its initial public offering.
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The Times of India
Wall Street: Dow and S&P 500 indexes are back at record highs
AP Nov 6, 2013, 09.00PM IST
(Stocks rose in early trading…)
NEW YORK: Stocks rose in early trading Wednesday, sending major indexes back to record highs, as traders anticipated that the Federal Reserve will keep up its stimulus program for some time.
The Dow Jones industrial average was up 97 points, or 0.6 per cent, to 15,717 in the first half-hour of trading. The Standard & Poor’s 500 index was up 9 points, or 0.5 per cent, to 1,772. Both indexes were above the record highs they closed at Oct. 29.
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Bulletin Stocks fight December taper fears, open higher »
Nov. 7, 2013, 3:44 p.m. EST
This market is overcooked
By Anthony Mirhaydari
When a market gets as frothy as this one, logic goes out the window. Emotion takes over. And soon, like a drug addict coming up with excuses, the bulls start looking silly. That’s what’s happening now.
Overconfident investors are getting overwhelmed by another dot-com bubble, stimulus fatigue, and in the twisted logic that passes for investment rationale these days, a strengthening U.S. economy.
Just look at what happened this morning with the European Central Bank. In response to rising deflation risk and massive youth unemployment in countries like Italy and Spain, it cut its policy interest rate to a record-low 0.25%. This, like the Federal Reserve’s “no taper” decision in September, was a complete surprise, as most expected action in December after updated economic forecasts were released.
Yet European stocks are drifting lower, and an overnight ramp in U.S. equities futures has been completely reversed. The Russell 2000 small-cap index has lost its 20-day moving average for the first time since the early October debt-ceiling scare. Emerging-market stocks are in even worse shape, with the iShares Emerging Markets (EEM -0.90%) losing its 50-day moving average for the first time since August.
The takeaway: Stimulus fatigue is setting in. With annual inflation of just 0.7%, another 0.25% reduction in borrowing costs isn’t going to turn things around for countries like Italy, where production has fallen back to recessionary lows.
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Why do the MarketWatch peops keep predicting market Armageddon…and fail in their predictions every time?
Nov. 8, 2013, 2:57 p.m. EST
Bulls run to rescue the market — too late
Commentary: S&P 500 has support at 1730, but bears are growling
By Lawrence G. McMillan
The broad stock market, as measured by the Standard & Poor’s 500 Index (SPX) was seemingly impervious to an increasing overbought condition.
From the day that Congress raised the debit ceiling until yesterday, buyers were having their way. But that changed abruptly on Thursday. After moving to new intraday highs, the buyers finally ran out of gas, and the market reversed downward sharply. The S&P 500 (SPX +1.34%) had not actually closed at a new high since October 29th, but it had probed above that high twice this week — including today.
There is support at 1730, and the 20-day moving average is at approximately 1745. These “overbought” declines typically overshoot the 20-day moving average, so 1730 would be a good first target. Considering that other indicators are just now turning negative, this decline might find its way lower than that, though. A more serious retracement would be a decline to around 1710.
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I’m very comfortable with most of my portfolio in stock funds. Rebalancing provides peace of mind. I am bullish on world stocks and human ingenuity.
What has the gold bugs so upset? The pretty jobs picture this morning sent the price plummeting below $1300/oz with no resistance level in view.
Oh…
Nov. 8, 2013, 9:13 a.m. EST
Gold drops 1.3% as jobs report boosts taper talk
By William L. Watts and Shawn Langlois, MarketWatch
NEW YORK (MarketWatch) — Gold futures slumped on Friday, erasing modest gains after a much stronger-than-expected jobs report boosted expectations the Federal Reserve could begin to reduce the flow of monetary stimulus to the U.S. economy as early as next month.
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Haven’t bought physical since July. Prices look buyable.
Major rout underway this morning in the Treasury bond market:
Nov. 8, 2013, 9:20 a.m. EST
Treasury yields jolt higher on jobs report
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — A robust jobs report caught the Treasury market by surprise, sending benchmark yields sharply higher as investors pulled forward expectations of when the Federal Reserve could start scaling back its bond purchase program.
The 10-year note (10_YEAR +5.15%) yield, which moves inversely to price, pushed 11.5 basis points higher on the day to trade at 2.716%, the highest since mid-October.
The 7-year note (7_YEAR +6.94%) yield spiked the most, climbing 12 basis points to 2.095%. The intermediate part of the Treasury curve is often considered most sensitive to changes in monetary policy.
The 30-year bond (30_YEAR +3.10%) yield rose 10 basis points to 3.809%, and the 5-year note (5_YEAR +8.02%) yield rose 9.5 basis points to 1.404%.
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Are Treasurys toast (again!)?
Given today’s huge jobs number and a strong Q3 GDP release, is a Dectaper back on the table?
Nov. 8, 2013, 10:31 a.m. EST
Consumer sentiment lowest since 2011
By Ruth Mantell, MarketWatch
WASHINGTON (MarketWatch) — A gauge of consumer sentiment fell this month to the lowest level in almost two years, surprising economists who had expected a sunnier views now that the government shutdown is over, according to data released Friday.
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Maybe consumer sentiment dropped because the government shutdown is over, LOLZ.
I’m pretty sure precautionary savings increased in the aftermath.
I was at lord at lord &Taylor as well as Macy’s last night. The stores were dead
Does interest rate suppression lead to the underpricing of risk?
November 1, 2013, 3:15 pm
Market Failure and Government Failure
By JARED BERNSTEIN
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.
Two fundamental institutions that undergird our economy are markets and government. And both are in trouble.
We’re still climbing out of the last great market failure: the downturn born of the housing bubble. The bubble itself was inflated by a related market distortion: the underpricing of risk.
One of the most fundamental building blocks of capitalism is its ability to convey important and correct signals through pricing, where “correct” means at least roughly accurate valuations of opportunity costs and risks. No one would buy a Snickers bar that sold for $10 as there would be a lot more “utility” (happiness) spending the $10 on other stuff. But people would, and did, borrow into unaffordable mortgages because credit was underpriced in ways they either didn’t understand or chose to ignore. In many cases, the only way they could service the debt was if their home values kept going up — i.e., if the bubble kept inflating.
To the extent that lenders knew what was going on, they not only didn’t care, in part because they could unload the risk down the line (IBGYBG), they were also compelled by the profit motive to keep dancing “as long as the music is playing,” as Citigroup’s chief executive said at the time.
In other words, the oversight, or regulatory function that should have prevented all this failed … there’s that word again. The myriad agencies, from the Federal Reserve to the alphabet soup of (too many) others supposedly focused on some aspect of financial markets, were either asleep at the switch, gutted by lobbying efforts to defund and defang them, or, in the case of the Greenspan Fed, ideologically convinced that markets would “self-regulate.”
We begin to see the toxic combination of market and government failure.
And there’s an interesting back story. As I describe in a paper due out next week, there’s an additional market failure lurking in the background: the vast increase in inequality and the middle-class income stagnation that occurs in its wake. Given their historically weak wage growth, the only way many families could get ahead was to borrow into the bubble. The accumulation of so much wealth at the top meant lots of cheap capital to lend, and lots of lobbying dollars to ensure that the oversight mechanisms were shut off.
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Does interest rate suppression lead to the underpricing of risk?”
hahaha yes of course
How about
- subsidized crop insurance?
- federally guaranteed mortgages?
- too-big-to-fail bailout insurance?
Could there be a more relevant topic?
Comment by Ben Jones
2013-11-08 08:58:00
‘There has never been two bubbles in the same asset class in a single generation’
That was Orr that said that. It gets down to a serious question, that IMO is answered by, it’s the same bubble. It never went away. Look at how quickly some re-embraced gambling in real estate.
Let me ask this; did China have one bubble, or two? Or Canada, or Australia, or New Zealand, or London, or Dubai? You’ll hear lots of people say China has a bubble, but they don’t say, China’s had two bubbles in just a few years.
If you dump your risky assets now, you needn’t worry about the next crash.
ft dot com
November 7, 2013 12:49 pm
Danger: US mortgage market whiplash risk
Gillian Tett By Gillian Tett
IMF points to M-Reits as source of potential instability
This week, the US government was handed one small reason to smile. A survey by the National Association of Realtors suggests house prices rose in nine out of 10 US cities in the year to October, growing on average by 14 per cent.
This represents the most broad-based increase seen since 2007. And since it comes hard on the heels of other upbeat housing data, there is growing optimism in some policy quarters that the scars from the 2007 housing crash may be healing, boosting overall economic growth.
So far, so cheering. But before realtors get too confident about the future, it is worth looking at some sobering research from the International Monetary Fund, buried deep inside this autumn’s Global Financial Stability Report. This analysis, which looks at mortgage real estate investment trusts (M-Reits) – which invest in packages of mortgage bonds – did not make headlines when the IMF met last month, because M-Reits are a fairly specialist sector. That is a pity, given that the IMF says the rapidly expanding world of M-Reits has the potential to deliver nasty surprises if, or when, US interest rates rise.
Most notably, even a modest increase in rates could spark fire sales of mortgage-backed bonds, which would raise mortgage interest rates sharply for consumers. And that could not just hurt housing markets but produce knock-on waves of instability in other areas of finance.
“Rapid M-Reit deleveraging has important spillover implications,” the IMF report warns. “Sizeable disruptions in secondary mortgage markets against a backdrop of rising mortgage rates could also have macroeconomic implications, jeopardising the still-fragile housing recovery.”
The IMF’s concern arises from the business model of M-Reits. Until a few years ago, these were relatively small entities, and because they operated in the “shadow banking world” (ie outside banks) they received scant regulatory scrutiny. However, in the past five years they have exploded in size, partly because they have rushed to fill gaps created by banks reducing their lending activities (to comply with new regulatory capital rules). Indeed, M-Reits now hold more mortgage bonds than government state enterprises such as Fannie Mae.
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