Bits Bucket for December 29, 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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the National Association of Realtors®
Are you bragging or complaining?
Lawrence Yun, chief economist of the National Association of Realtors® will be appearing live and taking viewer calls on C-SPAN’s Washington Journal at 7:45am ET tomorrow.
NAR has only a few more months before the obvious trend in the numbers is against them. For the last 6-7 months they have been reporting YOY numbers showing massive rise in prices, fueling many to think they better buy now. These numbers were mostly reporting rear view runups from a pretty low bottom, cash and institutional investors looking for a steal. That is all gone now. Has been since last May or so in my area. They can make it to about May before the YOY are obvious to everyone.
It is already obvious from the last few MOMs for anyone paying close attention.
From last year — today’s assessment in caps:
2013-01-03
2013
- I *might* buy a house. Depends. NOPE
- I will spend WAYYY too much precious free-time playing Angry Birds Star Wars (especially the levels with multiple gravity fields). TRUE
- My son will start K. HAPPENED
- Another 20% drop in house prices DID NOT HAPPEN
- Long-timers of the HBB will continue to be frustrated at the stickiness of this whole fustercluck. (Homes we looked at in 2008 are just now showing up as homepath foreclosures.) Slooooooooooooooooooowwwwww-motion.) TRUE FOR ME
- I will realize that I actually, truly have a good job (that I love) and subsequently accept Florida as my fate. STILL NOT SETTLED HERE. 8+ YEARS AND COUNTING.
Muggy,
I am curious about your comment that your not feeling “settled” in FL. Where did you move from and where would you rather be living?
Great question… we moved here from upstate NY. I use Buffalo, Rochester, and Syracuse interchangeably since I love them all and have connections to all (grew up in Roch, wife is from Syr, we met in Buf). We moved here in our mid-to-late twenties for jobs. We both earned masters degrees here and brought two kiddos into this world. It hasn’t been all bad, but I do not feel settled.
Immediately after college, we lived in NYC/Hoboken. We knew that was temporary and for the experiences, so there was no tension when we left, although I might have been able to stay a few more years had 9/11 not happened.
Simply stated, Florida has way too many problems. I don’t pretend that other places are problem-free, but Florida has a few obvious things that trouble me, like sinkholes, anacondas, sex offenders, etc. A week ago I was rear-ended in a hit and run. Again, I realize hit and runs happen everywhere, but they happen ALL.THE.TIME in the Tampa area, and many are fatal. My biggest issue is that there are no real cities with downtown areas. All (or most) of the development here occurred after the advent of the automobile. Add house prices to the mix, and forget it. I’d live in parts of St. Pete, but the houses those ‘hoods go for $400k+.
The roads are awful and there is nowhere for kids to bike safely. I recently started mountain biking again, and when I go around the ‘hood I am risking my life. It sucks. Why would I want to stay here? Why would I want my kids to stay here? I don’t. A few years ago a bunch of my friends visited from
The challenge in leaving is that we both work in K-12 education. Either of us can find a job, but both of us may be a challenge.
We recently visited Rome, GA, and it was great. That’s the kind of place I can wrap my brain around raising a family.
Long story short: I was raised in an area with great schools, lots of nature, diverse economy, etc. before the middle class was off-shored. Perhaps I am sentimental for an era that has ended.
The era of Big Everything sucks. I happen to live in a region where it’s all have.
“A few years ago a bunch of my friends visited from”
Didn’t finish…
A few years ago a bunch of my friends visited from the Nawth, and they were blown away by Route 19. I took them from St. Pete to Weeki Wachee to kayak, and they couldn’t believe the sprawl. An hour and a half of McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart-McDonald’s-Walgreens-WalMart.
C’mon, Muggy - there had to be at least one Publix on 19 and at least one Checkers.
I lived in Pinellas County from 1992 to 2002 and moved there from Long Island. I loved my time in Pinellas. Of course, that was before the housing prices went out of control. Pinellas housing was much more affordable than the metro New York area.
“1992 to 2002″
It seems that this was the sweet spot for… everywhere.
Were you single? I think this would be a great place to be single. I am approaching 40, and have two kids.
I don’t know why you’re still there. Why would somebody spend so long in a place they don’t like? Life is short, and I can’t understand what you’re doing.
“I don’t know why you’re still there.”
I was in grad school, and my wife just finished (two weeks ago).
We’re free to relocate.
“Long story short: I was raised in an area with great schools, lots of nature, diverse economy, etc. before the middle class was off-shored. Perhaps I am sentimental for an era that has ended.”
I haven’t been able to match my parent’s standard of living regardless of effort or professional achievement, but we do live in a safe area among working families despite a high percentage of welfare dependent people. I agree with your assessment, the middle-class has indeed been off-shored, and the new economy doesn’t offer much for the unsophisticated. Luckily for you is that both of you are “mobile” unlike many men with a lanyard connected to their mother-in-law.
I can’t match my parents standard of living despite making close to 2X what they made at retirement and having no children (they had 2). Yes, it’s a very different world.
I am in the same boat. I can certainly live off my income but me and five others cannot have the same standard of living as we did (boomer family of six) in the 50s thru early 70s - off of this income. And the area we lived in was not that great.
Maybe that’s why so many of us can’t really grasp the current situation. We’ve all grown up in a very different world where people with just a high school diploma were able to get decent-enough jobs that could support a family in a modest way. College graduates were able to provide a middle-class to upper middle-class lifestyle for their families. That is no more.
Let’s hope we can wake enough people up so that we can change this for the better.
Let’s hope we can wake enough people up so that we can change this for the better.
many times people think of things that will make the change worse instead of better. so how would you change it?
The reality in 1982 there was that there were only three or four free market countries: Hong Kong, the USA, maybe Singapore and Taiwan.
The USA dropped lower in the rankings of free market since then. Many former ion curtain and socialist countries freed up their economies. Some have lower taxes than the USA.
We workers had very little competition. Bill Clinton signed in NAFTA and it sealed the governent’s unwillingness to go back to tariffs and cut income taxes at home.
NAFTA,
no tariffs
High income taxes and high corporate taxes.
Mix them together and you kill off America’s middle class.
NAFTA,
no tariffs
i know that you and most others think this is counter productive, but it isn’t.
High income taxes and high corporate taxes.
now you’re hitting it out of the park. don’t forget the red tape. financing the national debt is really hurting, and will eventually cause a collapse.
lot’s of things affect the economy, and we’re doing nearly everything wrong.
“…you kill off America’s middle class.”
Mission accomplished. Heckuva job!
And we can look forward to more of the same under Madam President Clinton.
I can’t think of another candidate who is more devoted to statism and globalism than Clinton.
Either of us can find a job, but both of us may be a challenge.
My experience with this dynamic is that one gets in, and then pretty soon after the other will be able to get in because the first one makes connections and can put in the good word. I’ve seen it happen many times, for myself and others.
If you can afford to have one out of work or at a lesser job for just a bit, I think it’d work out.
http://www.cnn.com/2013/12/28/us/new-york-florida-population/
Nooooooooooo! I guess it’ll be go time for me pretty soon. I’ve enjoyed it here. Now, not so much. One of the sidebar articles says much of the population growth is from people looking for work. Good luck with that. They’re in for a rude shock.
When I moved to this area of Tampa Bay in 2000, it was so quiet, the streets were relatively empty and navigable and it was a breeze to commute to Tampa. Nobody much wanted anything to do with this area of Hillsborough County, they used to call it the red-headed stepchild of the county and folks looked down their noses at it. Which was fine with me.
I was out and about running errands on Friday and was shocked, I tell you, shocked to see how many people in the area were out and about as well. Traffic, long lines at RaceTrac. Sometimes, when I looked at the people around me, I felt sick to my stomach. Orcs on parade.
The last 13 years has changed a lot! Pre housing bubble, less traffic, less medication, less consumerism, less insanity. Before even the Kim Kardashian porn video shot her to prominence. This is the world we live in now.
In 1983, 1970 seemed a hundred years ago, but somehow 2000 doesn’t. Some of this has to due with age and passing youth, but not all. I think there really is sometimes a change not only in degree, but in kind, and this happened in the last 13 years.
“I think there really is sometimes a change not only in degree, but in kind, and this happened in the last 13 years.”
I agree. I’ve commented before that Florida has exceeded its carrying capacity and the future doesn’t look good. Sometime I scan the relocation and RE forums here and there, and the number of folks posting “We’re moving to Florida!” is truly scary. Even scarier is how they seem to think this is the promised land and they’ll have a sun kissed life going to the beach and enjoying friends and family in great weather. For many the reality will be quite grim.
Muggy
I once heard that Florida was 400 miles long, 200 miles wide, and two inches high.
How are you doing with your mountain biking?
Did you go to UB ? Ski at Bristol ?
I have fond memories of the Niagara Frontier areas. And also with my family in Florida on many vacations there.
MTB is great. I can’t believe I actually stopped doing it. I don’t know what I was thinking. Bikes have changed ALOT since the 90’s. I roll on a 29′er now. Not sure how I fell about it in tight spaces, but it’s great for longer, subtle trails.
Check out these guys in Utarr….
http://www.youtube.com/watch?v=Xr5FGOKY3RM
Yes, went to UB (great experience), and yes, I grew up at Bristol. I actually started MTB there, too. We used to go in summers, and hike up Infinity/Southern Cross and bomb down. I did it a few times by myself as well. That was stupid. Being a mountain without snow is a very different experience.
Things that are simple to ski, become very difficult to walk or ride. We never even tried to bike Upper Rocket.
So far, the Lieberals from the northeast have not caused Florida to implement a state income tax. That should be a good thing.
In Arizona, we are getting a 25% tax cut and it will be phased in by 2016. Still, there are too many California Lieberals fleeing their own damage in California movi g to Arizona. I fear the 2016 tax rate in Arizona will bottom.
Lieberals are hoping their comrades in Nevada will cause an income tax to be implemented there. When that happens, the Arizona Lieberals will work to increase income taxes in Arizona,
I’ve commented before that Florida has exceeded its carrying capacity and the future doesn’t look good.
One built in natural dampening mechanism is the commute from city/job centers. There is a natural limit for most. I think it is at about 1 hour each way. Building cheaper developments beyond that 1 hour one way point is too risky IMO. (This is excepting California where people do way crazier commutes and are generally nuts.)
Related to this is that once the outer areas get built up, traffic times increase.
“STILL NOT SETTLED HERE. 8+ YEARS AND COUNTING.”
Personnel Support Services
Certificated Job Information
Phone:(858) 521-2800 x2765 FAX: 858-485-1355
PUSD uses an on-line job search and application process to communicate Job opportunities. Please click the following link to access this system:
PUSD On-line Job Search and Application Process
For a current list of job openings check the online job search. At the bottom of the first page see “Click here to see current job openings”
Nondiscrimination Philosophy and Policy Statement
The Poway Unified School District is an equal opportunity employer and is committed to an active Nondiscrimination Program. It is the stated policy of the Poway Unified School District that harassment is prohibited and that all employees and applicants shall receive equal consideration and treatment. All recruitment, hiring, placements, transfers, and promotions will be on the basis of qualifications of the individual for the positions being filled regardless of Sex, Sexual Orientation, Race, Color, Ancestry, Religious Creed, National Origin, Physical Disability (Including HIV and AIDS), Mental Disability, Medical Condition (Cancer), Age (Over 40), Marital Status, and Denial of Family Care Leave.
Caveat: Things might eventually turn out badly for those who buy homes within the PUSD boundaries.
Bonds continue to haunt Poway Unified School District
By Emily Sorensen
Lingering fallout from the controversial $1 billion CABs debt left a shadow over the Poway Unified School District in 2013.
After the revelation in 2012 that the district had taken out $105 million in Capital Appreciation Bonds (CABs) that will ultimately cost the district nearly $1 billion, and cannot be refinanced, the year initially started out on a positive note.
In late January, an investigative report commissioned by the Poway Unified School District from ESI International, Inc., cleared the district of any wrongdoing.
The 25-page report concluded that the firm “found no evidence that anyone involved in the transaction acted improperly within his or her respective role in the transaction. ESI also found no evidence that anyone involved in the transaction acted in a manner that was harmful to, or in conflict with, the district’s interests.”
The bond aftermath turned sour in early February, with the release of Mangum Report.
The nine-page report, which was created by a committee of six people assembled by former board member Jeff Mangum, criticized the district for not having its own experts review the proposed bonds, not fully disclosing details of the proposed bonds, and “out-of-control” spending on school upgrades.
The report also criticized the district for “circling the wagons,” saying, “the District and Board could and should have been more forthcoming and transparent in the disclosure of information about the bonds… Even when it is facing harsh (and arguable unfair) criticism, the District does itself no favors by circling the wagons and failing to communicate candidly and openly with the community.”
The backlash continued when the district was nominated for and received the top “Grand Golden Fleece” award from the San Diego Taxpayers Association in May. The district’s $1 billion debt led to it beating out fellow nominees including the San Diego Unified School District, the San Diego County Employees Retirement Association and the Tri-City Healthcare District.
The hits kept coming when later on that month, a San Diego County Grand Jury called for countywide school bond reform, inspired by investigations into school district bonds, including the CABs.
The grand jury concluded in its report that reforms should include “greater citizen oversight of bond requirements and increased transparency of total bond costs and future outlays.”
The report’s overall tone regarding the use of CABs by school districts was very critical, with the grand jury endorsing most of the reform proposals advanced earlier in 2012 by county Treasurer-Tax Collector Dan McAllister, including reducing the maturity time for bonds from 40 to 25 years, reducing the maximum allowable interest rate from 12 to 8 percent, and including a callable feature (the ability to refinance) in all debt issuances.
The district was given 90 days, until Aug. 20, to deliver a response to the report, but ended up asking for an extension until Sept. 17. PUSD was one of only two out of 47 districts cited in the report to request an extension.
The district responded to the report in September, taking issue with three of the findings. The district’s response also declined to comment specifically on any of the jury’s four recommendations, saying that “further analysis” by the district would be required.
PUSD’s four-page response said the district complied with the state Election Code in the wording of the bond measure presented to district voters. It also took issue with the jury’s finding that “The practice of artfully inflating the interest rate to generate premium for unauthorized uses allows additional bond proceeds over and above what the voters authorized,” saying in their response, “a premium is an amount paid by an individual bond purchaser over and above the principal amount. That bond premium is not debt and does not constitute part of the amount of the issued bond; it is not part that needs to be repaid.”
…
I inadvertently failed to post the date and source of that article:
Pomerado Newspaper Group-Dec 24, 2013
the FED has given the sense that every financial crisis will be dealt with by printing a lot more money. Are they giving a false sense of security to investors? Or do they have the power to keep asset prices higher forever?
Wait until we have 12% inflation and you will see a different policy.
dude what do you think the real inflation rate is now? It sure isnt even close to the CPI.
More people are going broke everyday cause they cant keep up anymore. Have you been to s. sacramento lately?
I have not been to South Sacramento lately. It is too much of a war zone. I agree with you that “real” inflation is higher than the public rate of 2%. I was referencing a public rate in my comments. Wait until it is 12%….and the real rate is 18%.
yeah the public rate and the real rate are quite different. they will be saying there is no inflation while the real rate is 20%.
“I have not been to South Sacramento lately.”
Family living in Sacramento really means Davis on the west side, and the eastern foothills, Folsom, Roseville, etc., safe neighborhoods for the family. Flooding danger also exists in the flat lands, 1920’s levies everywhere.
There is price fixing and inflation. *Learn* the difference.
“Flooding danger also exists in the flat lands, 1920’s levies everywhere.”
They’ve done alot of levee revamping over the last few years, but yeah, not enough. In researching that, I came across this from the Huff post, “California Levee Fixes Lead To Greater Risk, Analysis Shows”. An interesting bit from it:
>>Eliud Nduti, a Kenyan immigrant who works as a Bay Area elevator mechanic, bought a house here two years ago. But he said he didn’t realize Lathrop was behind a levee until he moved in.
“One day, I just drove up, parked my car and walked,” he said. “I was really surprised. This levee is a concern for us, but we can’t afford flood insurance.”<<
Flood insurance out here is $800/year, not sure how they can afford the house but not afford pretty cheap flood insurance.
“the FED has given the sense that every financial crisis will be dealt with by printing a lot more money.”
Yup. Bailout Nation… at least for The Creators.
It’s way too early to predict how history will judge Bernanke’s tenure at the Fed, but that hasn’t stopped the Fed’s cheerleading propagandists from jumping the gun. Wouldn’t it be prudent to at least see how unwinding the Fed’s balance sheet goes down before deciding how well the Bernanke doctrine worked?
The Bernanke Doctrine
By the Editors Dec 18, 2013 1:57 PM MT
In a speech this week to celebrate the Federal Reserve’s 100th birthday, Chairman Ben S. Bernanke said one of the central bank’s greatest strengths is its willingness, “during its finest hours,” to stand up to political pressure and make tough decisions. To remind him that those pressures aren’t new, Bernanke keeps in his office one of many two-by-fours that construction industry workers mailed to Paul Volcker to protest the former Fed chairman’s double-digit interest rates.
To tame runaway inflation, Volcker had to crush the construction business. That culture of political independence freed Bernanke — who conducted what may be his last news conference as chairman this afternoon, and whose eight-year tenure ends next month — to break the central-bank mold just as Volcker had done. He established what might be called the Bernanke Doctrine, a two-part philosophy. First, use the Fed’s balance sheet to do whatever it takes to stimulate a faltering economy. With this new tool of monetary policy, he maneuvered the U.S. away from another Great Depression. Second, put financial stability alongside the Fed’s existing mandates of price stability and full employment.
Along the way, he spurned the free-market, deregulatory thinking of his predecessor, Alan Greenspan, and startled his Republican political sponsors. Yet he earned the admiration of colleagues and central bankers worldwide, many of whom are now copying his moves. Underwater homeowners, underemployed workers and underpaid savers may not see Bernanke as a heroic figure. History most likely will.
…
To tame runaway inflation, Volcker had to crush the construction business ??
There are people behind those businesses…This industry relies on stable financing availability mainly through lines of credit, construction loans or long term financing after the project is completed…
He took the rate to 18% in a short period of time…Caught everyone by surprise…Most had no time to adjust being in the start, middle or end of commitments…
He was successful at subduing inflation at the cost of millions of hard working prudent people…
Lots of businesses rely on stable financing. Construction is nothing special in that regard. Any business that is capital intensive or relies on people being able to borrow money to pay for their products is also effected.
Any business that is capital intensive or relies on people being able to borrow money to pay for their products is also effected ??
Except that the life cycle of the construction business goal-line to goal-line can take a very long time particularly if it involves entitlement process…When you commit capital in this process, its going out the door for two years + before your Capital is returned…Volcker moved the goal-line…You might even say he eliminated the goal-line in that nobody could get there…Down in flames because of a broad-side move by him…
You don’t know what you’re talking about because you’re not in the construction biz.
Guys lose their shirts in this business all the time. And if they haven’t lost their shirt, they haven’t been in the business very long. We own regional banks, we’re majority stakeholders in publicly traded companies, we buy, sell and swap land and land contracts, we do alot of things irrespective of borrowing costs.
18% interest rates have no bearing on our or our competitors day to day.
18% interest rates can’t happen soon enough and it will be a good thing for everyone once they get there.
….. and they’ll get there.
“….. and they’ll get there.”
Yep. It’s 1960 again, and in 20 years, you can expect another yield curve blowout.
“He took the rate to 18%…”
I bought a p/u truck back then…18.9% rate. Fugg’n stupidest thing I ever did, no chit. Paying on that damned thing for four years, and then had to finance the balloon too! It was like swimming upstream while wearing a rucksack. Then the insurance liability crisis hit. But I never paid late, not even thirty days; never welshed on anyone.
There’s a reason I’m debt free these days.
There’s a reason I’m debt free these days.
Sounds like you learned a lot from that truck…
“Sounds like you learned a lot from that truck…”
In addition to the insurance liability crisis, I also got a DUI ticket while the MAD organization was gaining political traction. I was tossing down a couple of beers with others at the end of a workday on the tailgate before leaving the job site; did it for years, nothing serious. But MAD was being stoked, and a cop was patrolling the job site. As soon as my tires hit the pavement…bingo. Blew a 0.084, which was under 0.10, but the winds of change were underway.
Nothing really changed…except my commercial insurance, a 300% increase for my full coverage policy. I was stuck because I signed a contract. Yeah, I learned a lesson alright.
I bought a new car in 1980 with a 16% loan and a new truck in 1984 with a 14% loan and I honestly don’t remember having any trouble making the payments, $150 & $140 iirc.
Probably had some money saved to pay down, it also helped that I like the base models: $5,000 and $5,500 respectively. No AC. I must have been rugged back then.
I still don’t get the doom and gloom about interest rates rising to 6 or 7%. After having payed 13.5% loans even 8% seems trivial.
I bought a Toyata in 1987 with an 11% loan. It was $200 per month payments. My current Toyota had a 3.9 rate. Believe it or not, there were 1.9 rates on Toyotas and 0.0 rates on American cars back in 2003. I missed the 1.9 financing b a few weeks. So I essentially doubled my car payments and paid it off in less than half the loan period.
That Toyota I have still, is my best car. Best built, very few problems. The longer I drive it, the more I laugh at young people in new Lexus cars costing $40,000 new.
Smart dude.
If that was directed to me, thanks! If not, thanks on my behalf!
you
Bernanke doctrine = stand market forces on their head while in office and wish your successor the best of luck when you leave
They don’t need forever. People in charge only need to keep it going until they leave.
Wait until we have 12% inflation and you we see a different policy!
And what will cause wages to rise so dramatically? Because without that there won’t be this type of inflation.
Housing inflation was fueled by years of fraudulent borrowing that allowed people to put off the pain for years. Groceries and gas can only be fueled this way for a couple of months then the CC bill comes due.
We are in a credit contraction, which means wages are not going up. The Fed’s reaction to the credit contraction is shoveling money into the banks, which is being shoveled into speculation, which is making the price of food and gas stay high. That is not inflation, it is grand theft.
I have been expecting one of the major players in the global commodities hoarding game to faint and the Ponzi fall like dominoes. It is tiresome.
bravo blue!
The velocity of money has slowed to a crawl. The successful managers and engineers I work around are not doom-n-gloom, but they have hunkered-down, grumble about zero interest rates, no serious vacations, modest cars, etc., very cautious going forward.
Same story around my STEM shop.
The ones I work with have modest cars at least. But they are wasting no time making huge commitments - new houses, a recent marriage, new baby. It’s not like they are rich. I figure it’s the Orange County optimism - and I actually think that part is true. But California is more and more a nanny state and imposes more taxes, regulations and other costs.
While driving back to the left coast I was calculating my costs. I earn over $100,000. But assume for simplicity I earn exactly that. In 2016 if I go back to Arizona and work full time there at the same income, I immediately get an income tax cut of $5,600. I drop my California rental and only have my Arizona rental, that is another $16,200 more I have left over. I would be flying less, and the travel expenses have been more than $350 per month, so let’s say I will do some personal travel. I save another $3,000. I have not factored in dual energy bills or the price of food and fuel in Orange County versus Phoenix. Or of car maintenance costs in California versus Phoenix. I am sure there is a difference. California taxes me on my Arizona municipal income. So I would still have more money.
Roughly $25,000 less would go out of my pocket by working in Arizona at the equivalent income.
Unfortunately Phoenix commercial software jobs are more Java and not much Linux. I have seen salary ranges in Phoenix for commercial jobs and they are not worth going back to Arizona. I do not anticipate getting a raise at my Irvine job. It will help. But I am barely at the point where it is worth it to have two addresses still. I keep my Phoenix address for my residency to have a CCW in Arizona and to own my firearms there, which are legal in Arizona but illegal in nanny state. It sux because I feel more at home in Arizona than my native California.
I feel I need to re-visit a response to a post I made yesterday that went like this:
“Wages determine sales, not emotions.”
I contend that it is emotions that determine sales during financial manias and that these emotions will drive buyers to get the money that they need to get in order to buy, and these emotionally driven buyers will get this money by any means necessary.
If they have to borrow at low interest rates then that is what they will do. Borrow at high interest rates? They will do that too. Cash out their pensions? Cash out their children’s college funds? Sell all their stock? These things and more are what they will do.
They will somehow get the money all at once in order to buy because they need the money all at once in order to buy. Wages will give them money to buy but wages won’t do this all at once, thus it’s not wages DURING a financial mania that derermine sales, it’s the availability of money that determine sales.
Money and emotions.
And the opposite holds true as well: There can be money made available to buy but if the driving emotions that causes people to buy is not there then buying will drop off.
Wages can go up but at the same time spending can fall off if emotions switch sides, if emotions that drive spending switch sides from greed to fear.
thts true dude. just like emotions can drive asset prices. when there is a sense that prices will never go down people buy a lot more.
Emotions mean squat without a source of financing.
On the other hand, if lenders are willing and able to make subprime loans to people whose emotions are telling them to pay unaffordable prices for homes which financial prudence suggests they would be better off not buying, then you have the makings of a mania.
“Emotions mean squat without a source of financing.”
If what you mean by “a source of financing” to be a source of money then I will agree with you. But if you are restricting your source of financing to what can be borrowed via subprime loans then I will not agree with you.
If money can be gotten by those whose emotions are swept up by the clutches of a financial mania then it doesn’t matter to them from where the money comes from, it only matters that it comes.
“a source of money”
Yes, that is what I mean by “a source of financing.” Subprime is an option, but not the only way. I’m not sure whether Fannie Mae, Freddie Mac and FHA lending are properly classified as “subprime,” but they have apparently provided upwards of 90% of new mortgage financing since the private subprime lending sector went extinct in 2007.
Emotions mean squat without a source of financing ??
I agree…It will be interesting to see how the new loan limits impact prices…What is confusing to me is how & why they are different for each MSA…Stockton Ca. had a huge reduction in the qualifying limit…The new limits I suppose are connected to the median price..
“I agree…It will be interesting to see how the new loan limits impact prices…”
Totally! We have a ways to go before reaching the point where economic policy is as dull as dentistry.
Conversely, the era of rock-star central bankers clearly continues.
They do think highly of themselves, as do their cronies. At a minimum their cronies think of them as useful idiots.
Thanks for making me think with this comment. Anyone in sales knows emotion is the driver for most people. But I think it has always been this way and yet the bubble didn’t happen until those emotions were combined with something else: the ability to act on this emotions through waaaaaaayyy loosened financing standards.
Many people will order the lobster or the filet on the menu if someone else is paying. When it’s their wallet, it’s the meatloaf.
Many people will buy an ordinary doll for their child but if the doll is a Beanie Baby and the madness about this doll runs rampant then an ordinary doll won’t do, only a Beanie Baby doll will do.
And the extent of the madness about the doll has little to do with funding and has everything to do with emotion. Money that normally would be channeled into other items of interest instead gets channeled - get focused - into only one thing and that one thing is the buying of a Beanie Baby doll.
And once money gets focused into the buying of one thing then the price of that one thing goes up, and the price rise of the one thing draws in other buyers and - presto - a buying mania is formed.
The money has to come frome somewhere but this somewhere does not necessairly mean it has to be borrowed; It can just as easily be money that is diverted.
And the extent of the madness about the doll has little to do with funding — oh Mr. Banker, you and your wily ways.
No, it still has to do with available funding. If you can divert it from somewhere else, then you have the funding, just borrowed from another part of the budget or diverted from another want.
Housing, maybe the biggest purchase in most people’s lives, is fundamentally different in kind also than trinkets like Beanie Babies because it is a drastically higher percentage of a persons income.
It occurred to me how funny the little unintentional experiment involving the virtual blog personas of Mr. Banker and Amy Hoax has been. Tremendous vitriol directed towards Amy, much less towards Mr. Banker. (Of course he is much more polished, smartly dressed and silver tongued than Amy.)
No matter how wild the emotions run, you generally cannot get sales above the household budget constraint without some form of subprime lending to enable them.
There has been, on average, one MSM article a day for the past month on the horror of expiring Mortgage Debt Forgiveness. Where is the outrage over households getting $100K+ in tax-free income as a reward for buying houses they couldn’t afford?!
Got moral hazard?
Kelly Phillips Erb, Contributor
I cover tax: paying tax is painful but reading about it shouldn’t be.
Taxes | 12/27/2013 @ 12:08PM
Tax Break Ending For Underwater Homeowners: Is It The Right Time?
Here’s a startling statistic: the number of homeowners who owe more on their mortgage than their home is worth is greater than the number of residents in most states.
According to the latest report from Zillow, nearly 11 million homeowners have negative equity in their homes, or are considered underwater. That’s more than the population of 43 of our states: only California, Texas, New York, Florida, Illinois, Pennsylvania and Ohio can boast census numbers larger than that figure. The rate works out to about in five homeowners with a mortgage (if you add in those homeowners with 20% or less equity in their homes, called the “effective” negative equity rate, that number doubles to two in five homeowners). By the dollars, homeowners in the U.S. were underwater by $805 billion as of the end of third quarter of 2013.
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Should help to cut down on strategic default and thereby help keep the banks afloat. It will further drain the main street economy.
Not to worry! With all the homeowners who were enabled in recent years to refinance at artificially suppressed interest rates, Main Street should be in great shape for the years to come.
“Where is the outrage…”
Nowhere except from those who have old fashioned American ethics. People on HBB here who are almost unanimously outraged (except trolls like the hoaxster) are rare.
Millions of households have had a lot of debt forgiven. They vote. It is mobocracy. It is wealth redistribution. It is equivalent of us responsible renting taxpayers paying for the deadbeats.
It is in line with the principles of the wealth redistributors. This, perhaps, is what Obama was thinking when he talked to Joe the Plumber.
“…mobocracy…”
And that, in turn, is why my SIL’s CPA ex-hubby believes renewal of the Mortgage Forgiveness Debt Relief Act is a done deal, as the alternative would be political suicide for Congress (not to suggest that they haven’t already successfully attempted that!).
I expect this to pass at around 11:59:59 pm on 12/31/2013.
Congress Fails to Renew Tax Break
By: Kara Johnson - MortgageLoan.com
Thursday, Dec 26, 2013
Mortgage borrowers who lose their homes to foreclosure or face financial difficulties due to being underwater on their loan could face another hit in 2014 - a big tax bill.
A law shielding homeowners against the tax consequences of mortgage debt that was erased through a loan modification, foreclosure or other means expires after Dec. 31. Congress has pretty much wrapped up work for the year and is highly unlikely to renew it by year’s end.
The Mortgage Forgiveness Debt Relief Act was originally passed in 2007 to shield borrowers who’d already suffered a financial blow from taking another hit on their taxes. Congress gave it a one-year renewal for 2013, but efforts to renew it again have stalled out in recent weeks.
…
It’s great to see the MSM finally catching on to the financial folly of homeownership in the era of all-cash rental investment purchases. Why not rely on the Blackstones, JingleMales and all-cash Canadian and Chinese investors to provide a supply of cheap rental properties for the foreseeable future, rather than competing with deep-pockets for limited inventory of homes for purchase?
The chief enemy of financial folly is reason.
Kelly Phillips Erb, Contributor
I cover tax: paying tax is painful but reading about it shouldn’t be.
Taxes | 9/27/2013 @ 5:19PM |193,906 views
11 Reasons Why I Never Want To Own A House Again
When my phone vibrated, I didn’t even have to look. I knew what it meant: the house had finally sold.
I wasn’t sure how I was going to feel when it was finally over. I wondered if I would feel sad or anxious or regretful. What I actually felt was relief.
It was a great house. It was where my children took their first steps, where they learned to ride bikes and scooters. It was the location for dinner parties and cocktail parties and birthday parties and our annual Halloween potluck. But it was time to go. We happened upon a great new house that was nearly perfect. And even better: it was a rental.
I know what you’re thinking: didn’t you want to buy another house? It was a question we were asked over and over as we approached our closing. But I didn’t want to buy another house. After fifteen years, I was tired of being a homeowner. After a few months of renting, I was sold – on not buying again.
There’s a lot of hype about why you need to own a house. But buying a house isn’t the key to financial security for everyone – and those alleged tax advantages? Also not quite what they’re painted to be. I hope to never own a house again. Here’s a list of eleven reasons – many of them tax-related – why:
1. As investments go, it’s not always a great deal.
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2. The mortgage interest deduction doesn’t make up for the fact that you’re still paying a lot of interest.
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3. Homes often tempt people to borrow more than they can afford.
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4. Owning a house subject to a mortgage drives up debt to income ratios.
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5. A mortgage is typically 20 or 30 years while, at any given time, the current administration has only four (or possibly eight).
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6. A mortgage is typically 20 or 30 years. So yeah, I said that already. But I have another point: home ownership can limit your mobility.
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7. Houses take a lot of your money. There’s a reason that many folks refer to their homes as money pits: you often put a lot of money that you’ll never see again into a home.
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8. If you do hit the home appreciation jackpot, there can be significant taxes.
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9. I like for things to be predictable and real estate taxes can vary.
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10. You can’t deduct a loss on the sale of your home.
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11. It’s getting more difficult to claim the itemized deduction. Home mortgage interest is only deductible if you itemize on your Schedule A, meaning that only about 1/3 of taxpayers even have the option of taking the deduction.
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I’m not saying that owning a home is a bad thing. I liked being a homeowner. I just happen to like renting more.
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Also, almost invariably, when first time buyers become mortgage payers, their costs go WAY UP because they tend to buy much more space than when they rented.
The 30-something’s going from 625 square foot rental to 1500 square foot house will not only have more than double PITI compared to their monthl rent, they will have maintenance, have to buy extra furniture and appliances, and so on.
Houses are money pits (see item number 7)
Yeah, but you know, it’s a bit rough when you’re one of the sane ones in a mob of howling nutcases.
True dat, especially when the government offers massive incentives for financial nuttiness.
12. Borrowing large amounts of money and 30 years of debt service on a depreciating asset results in massive personal financial losses.
Or massive personal financial gains; It all depends on which side of the transaction you decide to choose.
” 10. You can’t deduct a loss on the sale of your home.”
The losses are incalculable!
Did you dump your bonds, or did you decide to wait out the correction?
‘Did you dump your bonds, or did you decide to wait out the correction?’
Buying as they drop. Go big and go for the debt implosion I say.
Current Yield | SATURDAY, DECEMBER 28, 2013
Why Treasury Yields May Top 3%
By BRADLEY DAVIS | MORE ARTICLES BY AUTHOR
Some bond strategists say the 10-year yield could climb amid Fed tapering and economic recovery.
After fits and starts over the past several years, Treasuries may finally win their wings in 2014. Government bonds might not be ready to emerge completely from the embrace of mother Fed, but the benchmark 10-year Treasury this week mustered its best effort in 2013 to fly beyond the key 3% yield – something it hasn’t done on a regular basis since 2011.
Will 2014 see the benchmark Treasury yield finally break out? Some signs say yes, which could have implications for broader markets if money flees bonds declining in price and heads to better-performing assets. (It could also make mortgage and credit-card debt, priced off 10-year Treasury yields, more expensive.)
IS TOPPING 3% A BAD THING? Not necessarily, considering the reason for the 10-year yield’s march higher: the Federal Reserve’s decision to taper $85 billion a month in Treasury purchases, starting with $10 billion less in January. It’s a small paring, but sends a big message: Maybe – just maybe – after years of recovery, the U.S. economy is returning to normal.
We’ve had brushes with the key 3% level before, but, says Kevin Giddis, head of fixed-income capital markets at Raymond James, “This time it’s different. Normally, we get a lot of chatter about higher rates in the New Year as economists speculate on the strength of the U.S. economy and its effect on the jobs market,” he adds. “By March or April, the growth theory has been kicked to the curb,” and the Fed responds with another round of asset purchases intended to goose growth.
But the Fed changed the script in December by announcing the taper. “This is why it really is different,” Giddis says. The Fed “almost validated higher rates and a stronger economy.” As the Fed rate-setting committee said in December: “The committee sees the improvement in economic activity and labor market conditions…as consistent with growing underlying strength in the broader economy.”
On Thursday, the 10-year Treasury yield touched 3% for the first time since September. Friday it traded just above that level. A thinly traded post-Christmas market might have exaggerated the price moves. Still, many analysts predict a post-3% world in 2014, quite a reversal from the 10-year’s record low of 1.38% in July 2012.
For the year, Treasuries notched a loss in total return of 2.7%, according to Barclays. The 10-year yield as of Thursday had registered a year-to-date rise of 1.231 percentage points. U.S. stock-market indexes have rallied 20% in the same period. As of Thursday, the Dow Jones Industrial Average had logged its 50th record high in 2013.
“The stock market was more than willing to forgo $10 billion in purchases now… in exchange for a bullishly confident Fed that will likely keep rates lower for longer,” says John Canally, economist and investment strategist for LPL Financial. “After all, it’s the Fed’s zero-interest-rate policy, not its soon-to-be-tapered bond purchases, that has the biggest impact on maintaining lower rates and boosting economic growth.”
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The new normal. Service economy and winner takes all again and again vis a vis Mr. Banker.
How are decisions made for your wallet? If it is based on “the news” then by all means, go out and buy a house. Renters are bitter betas.
In a world run by bankers there is no such word as “unafforadable”.
“Unaffordable” is a word used by losers, by deadbeats, by those who choose to live within their means.
“…the benchmark 10-year Treasury this week mustered its best effort in 2013 to fly beyond the key 3% yield…”
Stated as though it didn’t actually happen. Denial ain’t a river in Egypt!
Don’t look now, but the 10-year T-bond yield is over 3%, and the 30-year T-bond yield is set to broach 4%.
Looking better! I want ten year notes above 5%. That is when I start moving ten percent of my TBills to notes - per year
Hope you’re patient, as I don’t believe they are going there until after 2020.
And when the cascade hits 2014-2019?
I saw Mr. Banker at a meeting the other day. Reaction to the news that wages are stagnant:
http://i2.kym-cdn.com/photos/images/newsfeed/000/411/964/9b5.jpg
This is an excellent picture of some very accurate reactions of bankers.
Consider: If wages are stagnant then money is tight which means people have to borrow in order to keep up with their buying. And they have to keep up their buying if they are to keep up with the Joneses.
Logic should dictate that they question just why they should have to keep up with the Joneses in the first place and in a logical world this question would be asked. But we do not live in a logical world therefore the question is never asked and therefore we bankers will forever get a free ride - a free ride on the backs of the wage earners.
Wage earners work, bankers ride. A gift to bankers that keeps on giving because People Are Smart.
I’m naming my first dog after you. I’ll call him/her/it “Applebee Chase”.
I am honored. I would be furthur honored if I could float you a loan large enough to allow you to “go all in” and buy for yourself a pricey mutt (one that has a lot of hefty future vet bills attached to it.)
On second thought, I’m buying a couch instead.
Where’d Eddie go? I’m still waiting for him to post statistics on Applebees’ wait times around Atlanta.
“The deflationary spiral rages on…… whatever you do, stay out of debt and hold onto your cash.”
You better believe it mister.
“Lawrence Yun is Chief Economist and Senior Vice President of Research at the National Association of Realtors. He oversees the production of existing home sales statistics and the popular Home Buyer and Home Seller survey reports. He regularly appears on CNBC, BBC, Bloomberg TV, and is often quoted in the media. Yun is also a frequent speaker at Real Estate conferences throughout the United States. In March 2008, USA Today listed him among the top 10 economic forecasters in the country. At the time, when most economists were calling for another major declines in the housing market, Yun predicted that the housing market could stabilize with home buyer tax credit. Four years later, that rebound has yet to materialize according to some analysts, though actual data show home sales, housing starts, and Case-Shiller home prices either showing modest increases from 2009 or showing essentially no meaningful change.
http://en.wikipedia.org/wiki/Lawrence_Yun
Lawrence Yun, chief economist of the National Association of Realtors® will be appearing live and taking viewer calls on C-SPAN’s Washington Journal at 7:45am ET tomorrow. Please call him to share your opinions on the housing recovery.
He is often on the ‘Real Estate Today’ radio show hosted by Gil Gross. I can not help but listen to that show. It is like a beer company commercial that shows your life getting so much more happier if you drink their product. But all along there is a fine print that you have to drink responsibly. Business, just business, with hired actors/hosts/canned scripts.
Real Estate Today’ radio show is the infomercial for NAR, CAR and the REIC. When Al Rantel hosted it for a while, I lost respect for him. Of all the right wing nutcases on KABC Talk Radio, Al actually was a cool dude. I miss him. I hope his health issues resolved.
Is LesterAppletonYoung a liar?
Hope and Change
“The end of unemployment checks for more than a million people Saturday is driving out-of-work Americans to consider selling cars, moving and taking minimum-wage work after already slashing household budgets and pawning personal possessions to make ends meet.
The end to the five-year program that extended benefits for the long-term jobless affected 1.3 million people immediately and will affect hundreds of thousands more who remain jobless in the months ahead. Under the program, the federal government provided an average monthly stipend of $1,166.
While the Obama administration and Democrats in Congress want to continue the program, the extensions were dropped from a budget deal struck earlier this month and Republican lawmakers have balked at its $26 billion annual cost.
The end of the program might prompt a drop in the nation’s unemployment rate, but not necessarily for a good reason. People out of work are required to look for work to receive unemployment benefits. As benefits disappear, some jobless will stop looking for work out of frustration and will no longer be counted as unemployed.”
http://www.denverpost.com/nationworld/ci_24809386/high-stakes-families-losing-unemployment-benefits
While I feel for the folks losing the benefits, in a way this is good. With credit, food stamps, unemployment and disability somewhat masking the true state of affairs, it’s tough to get people to realize how scrude they are and get them angry enough to protest the offshoring of jobs, the competition from an unending stream of immigrants (both legal and illegal) and the general contempt showered on them from Washington and Wall Street. Perhaps reality starts now.
I think the ceasing of benefits will make people look for a job. I’ve been in that boat. It is not a cocktail party. Maybe it might be enough a wedge to undo the general feeling that abounds that this economy is based on two Americas.
AbsoluteBeginner
80% of all positions right now are networking success positions. It’s not the lack of looking for the most part. I used Christmas Day to volunteer for job leads as well as doing good. I don’t collect UI. I go to the Ca EDD networking groups. UI people are frustrated. They need real incomes.
Bleak job picture in many sectors.
Thats BUNK……its not like in the old days like maybe 10 years ago when a company would be THRILLED to get an overqualified worker at a cheap rate..
Today employers want a barely qualified worker at a cheap rate.
The reason is very very simple its a dead end job, that’s it no advancement opportunities….so an overqualified worker will be severely frustrated..
Doesn’t matter if you are a 5 min drive or even walking distance to the job….trust me i’ve begged people and nope they dont want anyone too smart.
aNYCdj
I’m in So Ca. Most of our group are STEM people, and a few have found jobs from networking. An MBA from Columbia told our group it’s 80% networking. She’s an HR consultant on a national basis, and was our keynote speaker one morning. Your qualifications must surpass hers.
Inch…for the elite 1% its easy….but in the real world the chance of advancement is mighty slim.
The foot in the door doesn’t work anymore. business have squashed down the hierarchy so the job you get today is the same job you will have 2- 3- 5+ years from now……some people can accept that and they get hired.
aNYCdj
Just read your response. Yeah, you’re right. but all I want is a middle management job. I am leaving shopping centers focusing on small firms leaning towards medical building development, renovation and management. My skills are transferable. Man, it’s tough out there.
Most of my group is stem. We have a paralegal who is 59 and was on her 2nd interview and not hired. Ageism, I assume. I’m thinking of plastic surgery in a few years myself.
I think most of this unemployment and underemployment will continue for ten or twenty years. This is all due to more market -oriented societies freeing their people to achieve their economic liberties.
I cannot stress this enough: investing internationally is the key to reduce your risk from exposure to bad economic policies in the USA.
Suppose group A, call them “end users,” have exclusive bidding rights for a few weeks while group B, call them “investors,” are forced to wait their turn. Wouldn’t a rational seller target the list price to group B in order to avoid selling to group A at a loss of potential profits?
What I am suggesting is that a rule to keep one group of prospective buyers on the sidelines for a few days while another group has protected bidding rights is likely to have little effect on the sale price or who ends up with the “winning” bid.
That was not a hypothetical. Perhaps the scheme is workable with GSE-sponsored price fixing (i.e. listing the properties at less than investors would be willing to bid).
FIRST-TIME BUYERS GET EXCLUSIVE BID RIGHTS
By U-T San Diego
12:01 a.m. Dec. 29, 2013
An important resource for first-time and other homebuyers who find themselves in unfair competition with deep-pocket investors bearing cash just got better: The two biggest players in the mortgage market, Fannie Mae and Freddie Mac, are now giving non-investor shoppers 20-day exclusive rights to bid on and buy new listings they are selling.
During the 20-day “first look” period, investors will be excluded from submitting bids. To qualify, non-investor buyers will need to commit to make the home their principal residence for at least a year. The idea, according to Fannie and Freddie officials, is to encourage greater owner-occupancy, stabilize neighborhoods that have seen significant numbers of foreclosures, and generally help out shoppers who find it difficult to outbid all-cash investors.
All-cash purchases of homes hit a high mark last month, according to a new report from RealtyTrac, a housing data firm. A stunning 42 percent of all residential sales nationwide went to buyers who paid cash — the highest rate since RealtyTrac began measuring the phenomenon in early 2011, and nearly double what it was as recently as May.
First-time buyers looking for affordably priced homes have been hit especially hard by the profusion of investors waving cash at sellers. They locate a home that fits their budget, make an offer with a mortgage contingency, and then lose the sale to an investor who has no financing requirements. A mortgage contingency ties the contract to the ability of the bidder to obtain a loan, which slows the process and often makes the offer less attractive to the seller.
Fannie and Freddie have large inventories of previously foreclosed homes for sale — byproducts of the economic woes of 2008-10. As of last week, Fannie had about 35,000 houses listed for sale around the country through its “HomePath” (HomePath.com) program. Freddie Mac had 13,000 active listings in its “HomeSteps” (HomeSteps.com) program. Buyers can access the listings online by state, city and price range, then submit offers through a participating realty agent.
In California, for example, Fannie had 2,136 properties listed, many below $200,000. Current listings range from a $139,000, two-bedroom single-family house in Big Bear City to a $700,000 three-bedroom home in South San Francisco. Buyers in San Diego could pick up a two-bedroom condo for $394,000.
In Washington state, Fannie had nearly 1,900 listings including a three-bedroom, two-and-a-half-bath condo in Everett for $215,000 and a four-bedroom, three-bath house in Monroe at $445,000. Shoppers in Virginia had 742 houses to choose from, including a three-bedroom, three-bath house in Virginia Beach for $214,000 or a condo in Alexandria for $369,900.
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“In California, for example, Fannie had 2,136 properties listed, many below $200,000.”
How does this compare to the size of California shadow inventory, including investor-owned homes that are going to come back on the market when the echo bubble pops? I’m guessing it’s a drop in the bucket, but I really have no way to estimate how many millions of homes are in California shadow inventory at this point.
I think this is a good idea.
Why?
Hope and Change
“The Food and Drug Administration has released proposed regulations for a provision in the law overhauling America’s health care system that requires vending machine operators to display snacks’ caloric content.
The rules apply to all vending machine operators with 20 or more machines; about 10,800 with 5 million machines, according to CBS News.
The law only requires a vending machine display how many calories its snacks contain, with no other information required.
According to USA Today, the FDA has calculated this change will cost the vending machine industry $25.8 million during the first year and $24 million each year after that.”
http://www.denverpost.com/obamacare/ci_24808758/vending-machines-will-soon-sport-calorie-info-thanks
overpaid government contractor
Carbs are more important, and if people don’t self educated and have self discipline, all the govt nanny hand holding will make no difference. Other than food allergies(I have them) has food labels thinned out our country or made people smarter food consumers?
Even a health crisis doesn’t always fix a foodie.
Just watched an episode of “Property Virgins”. I’m now convinced that evil people do exist. A young couple was looking for a 2 family place in New York (Bronx) to buy. After looking at a few dumps that were tear downs (in my opinion) and priced in the high 200’s, they were elated to have the bank accept an offer of 200k for a property listed at 270 (short sale). The realtor kept pressuring them and told the viewing audience that owners won’t “give away” their property. Oh, and the prized property had an “oil contamination” situation that was estimated at 5-100k to remedy. YOLO!
“Property Virgins”
Don’t buy until ALL shows like this one lose popularity and go off the air.
Don’t buy until ALL shows like this one lose popularity and go off the air.
+infinity. The mere existence of this genre is proof-positive that we are still in a mania.
I thought these shows would go the way of the dodo back in ‘09; unfortunately, no such luck.
Check out HGTV’s offerings some time when you are really, really bored. I worked out 3X last week at the gym where my BIL’s wife has a membership, where it’s all-HGTV-real estate investment shows, all the time. I wonder if the owner gets some kind of perk from the NAR for 24/7 advertising?
It’s always on in my gym along with various sports stations right in the cardio area. Sometimes I look around at the other riders/walkers/steppers and notice many of the fairer sex glued to the HGTV screens with rapturous expressions.
HGTV real estate shows = propaganda to lure dumbsh!ts into making stoopid financial moves
A lot of the shows on that network revolve around homes in the greater Toronto area. So many young couples getting into debt to the tune of 600k and higher for older homes that have to have monstrous utility and repair bills.
This will never happen, or at least not for enough years for it not to matter. The pretty pictures lure too many in.
HGTVs big Prom is coming up in a few days, the Rose Bowl Parade with commentary from HGTV stars! Pumping CA real estate from sunny Pasadena. Everything is wonderful in the sunshine and real estate always goes up.
Yes, you pretty much summed up my interest in these home shows (pretty pictures, or decor). I wish they would go back to home decorating and gardening shows, instead of being mostly real estate buying shows. I especially miss the gardening guy, though I can’t remember his name.
Hope and Change
“Political polarization has ushered in a new era in state government, where single-party control of the levers of power has produced competing Americas. One is grounded in principles of lean and limited government and on traditional values; the other is built on a belief in the essential role of government and on tenets of cultural liberalism.
These opposing visions have been a staple of national elections, and in a divided Washington, this polarization has resulted in gridlock and dysfunction. But today, three-quarters of the states — more than at any time in recent memory — are controlled by either Republicans or Democrats. Elected officials in these states are moving unencumbered to enact their party’s agenda.
Republican states have pursued economic and fiscal strategies built around lower taxes, deeper spending cuts and less regulation. They have declined to set up state health-insurance exchanges to implement President Obama’s Affordable Care Act. They have clashed with labor unions. On social issues, they have moved to restrict abortion rights or to enact voter-identification laws, in the name of ballot integrity, that critics say hamper access to voting for the poor and minorities.
Blue states have also been forced to cut spending, given the budgetary pressures caused by the recession. But rather than cutting more deeply, a number of them also have raised taxes to pay for education or infrastructure. They have backed the president on the main elements of his health-care law. The social-issue agenda in blue states includes legalizing same-sex marriages, providing easier access to voting and, in a handful of cases, imposing more restrictions on guns.
The values that underpin these governing strategies reflect contrasting political visions, and the differences can be seen in stark terms in the states. In a red state such as Texas, government exists mostly to get out of the way of the private sector while holding to traditional social values. In blue states such as California and Maryland, government takes more from taxpayers, particularly the wealthy, to spend on domestic priorities while advancing a cultural agenda that reflects the country’s growing diversity.
The alternative models on display in the states have triggered a competition for bragging rights about which would be better for the nation as a whole — a debate that is likely to intensify nationally in forthcoming elections.”
http://www.washingtonpost.com/politics/red-blue-states-move-in-opposite-directions-in-a-new-era-of-single-party-control/2013/12/28/9583d922-673a-11e3-ae56-22de072140a2_story.html
So I wonder which states an atheist pro choice capitalist would feel at home?
Hope and Change
“A gravel-voiced man whose accent recalls his blue-collar Boston roots, Adelson, 80, has just rung the bell at the New York Stock Exchange. Shares of his Las Vegas Sands Corp. are at a five-year high, making him one of the world’s richest men, worth more than $30 billion.
Federal law requires billionaires such as Adelson who want to leave fortunes to their children to pay estate or gift taxes of 40 percent on those assets. Adelson has blunted that bite by exploiting a loophole that Congress unintentionally created and that the Internal Revenue Service unsuccessfully challenged.
By shuffling his company stock in and out of more than 30 trusts, he has given his heirs at least $7.9 billion while legally avoiding about $2.8 billion in U.S. gift taxes since 2010, according to calculations based on data in Adelson’s filings with the Securities and Exchange Commission.
Hundreds of executives have used the technique, SEC filings show. These tax shelters may have cost the federal government more than $100 billion since 2000, says Richard Covey, the lawyer who pioneered the maneuver. That’s equivalent to about one-third of all estate and gift taxes the nation has collected since then.
The popularity of the shelter, known as the Walton grantor retained annuity trust, or GRAT, shows how easy it is for the wealthy to bypass estate and gift taxes. Even Covey says the practice, which involves rapidly churning assets into and out of trusts, makes a mockery of the tax code.
Covey’s technique is one of a handful that together make the estate tax system essentially voluntary, rendering it ineffective as a brake on soaring economic inequality, says Edward McCaffery, a law professor at the University of Southern California.
Since 2009, President Obama and some Democratic lawmakers have made fruitless proposals to narrow the GRAT loophole. Any discussion of tax shelters has been drowned out by the debate over whether to have an estate tax at all, McCaffery says.
“From the Republican side of the aisle, you’re committed to killing the thing,” he says, adding that Democrats don’t want to tackle an issue affecting a handful of people. “And that handful are all in the class of campaign donors.”
Mark Zuckerberg, chief executive of Facebook, and Lloyd Blankfein, chief executive of Goldman Sachs, are among the business leaders who have set up GRATs, SEC filings show.
JPMorgan Chase has a special unit dedicated to processing GRAT paperwork, says Joanne E. Johnson, a JPMorgan private-wealth banker. “I have a client who’s done 89 GRATs,” she says.
Goldman Sachs disclosed in a 2004 filing that 84 of the firm’s current and former partners used GRATs. Blankfein has transferred more than $50 million to family members with little or no gift tax due, according to calculations based on his SEC filings.
Charles Ergen, chairman of Dish Network, and fashion designer Ralph Lauren passed more than $300 million each, calculations from SEC filings show.
Blankfein, Ergen, Lauren and Zuckerberg declined to comment.
http://www.washingtonpost.com/business/grat-shelters-an-accidental-tax-break-for-americas-wealthiest/2013/12/27/936bffc8-6c05-11e3-a523-fe73f0ff6b8d_story.html?tid=hpModule_79c38dfc-8691-11e2-9d71-f0feafdd1394
he has given his heirs at least $7.9 billion while legally avoiding about $2.8 billion in U.S. gift taxes since 2010 ??
Yep…And set-up many more generations of the .005% that will continue to accumulate anything that is a store house of value…We don’t pay taxes…Taxes are for the little people…Just ask Leona Helmsley…
We don’t pay taxes…Taxes are for the little people…Just ask Leona Helmsley…
There is a remarkably simple solution to problem of the ultra-wealthy avoiding paying taxes: a progressive asset tax.
Over $10M in net worth? 1% tax on net worth.
Over $100M in net worth? 2% tax on net worth.
Over $1B in net worth? 3% tax on net worth.
Over $10B in net worth? 4% tax on net worth.
etc…
At the same time, we should also get rid of silly taxes like the estate tax, which folks go to so much effort to avoid. There’s not much point in a death-tax if we tax extreme wealth every year while they’re alive.
We would, of course, want to index it to inflation to avoid it eventually hitting middle-class taxpayers—see our experience with the AMT…
Leona actually paid plenty in taxes. She and husband paid millions in taxes over their lives. I can see how easy it would be for some like that to be tempted to fudge. People get irrational about money. I would not have risk jail time for cheating on taxes.
The top 1% of income taxpayers ~$350K AGI pay 37% of federal income taxes. Top 10% AGI $112K pay 70% of federal income taxes. Cut the spending and cut taxes.
But I guess we can’t look at the spend side of the equation. The sky will fall.
The top 1% of income taxpayers ~$350K AGI pay 37% of federal income taxes.
All of the best lies have a nugget of truth in them. I’m sure that your data are accurate, and yet they completely misrepresent the truth.
The top 0.1% pay a dramatically LOWER tax rate than I do. That’s just wrong. I bet for the top 0.01%, the difference is even worse.
Possible solutions: tax capital gains the same as income (after adjusting for inflation, of course to avoid taxing phantom gains), or tax the asset base. Either is fine by me; the status quo of working folks paying a dramatically higher rate (roughly double) of what people pay who are so rich they don’t even need to work—that is entirely unacceptable.
Comment by Prime_Is_Contained
2013-12-29 13:59:17
The top 1% of income taxpayers ~$350K AGI pay 37% of federal income taxes.
All of the best lies have a nugget of truth in them. I’m sure that your data are accurate, and yet they completely misrepresent the truth.
The top 0.1% pay a dramatically LOWER tax rate than I do. That’s just wrong. I bet for the top 0.01%, the difference is even worse.
Possible solutions: tax capital gains the same as income (after adjusting for inflation, of course to avoid taxing phantom gains), or tax the asset base. Either is fine by me; the status quo of working folks paying a dramatically higher rate (roughly double) of what people pay who are so rich they don’t even need to work—that is entirely unacceptable.
——————–
Agree 100%.
What too many people fail to note is that inheritance does NOT concentrate wealth; it is far more likely to dilute wealth because most wealthy people have many beneficiaries of their estates. The wealth goes from one person to two (or many more, in most cases).
The key to avoiding wealth/power concentration is to tax it appropriately when it is earned. We need a very steep, progressive income tax that taxes ALL income at the same levels.
And if rich people want the cost basis of their assets to be “stepped up” when transferred to their heirs (because they don’t want to pay taxes on inflation, as they claim), then surely poor people deserve the same treatment. Perhaps we should use a standard inflation factor that can be applied to the cost basis of all assets when they are sold or transferred, irrespective of whether or not they are transferred as a result of inheritance.
The problem with that is it will Require a very totalitarian state to figure each persons net worth.
I shudder when the peanut gallery proposes any social engineering.
It’s already here dude. You and TJ seem dismissive of it. It’s crept insidiously through technology and media in an near imperceptible way.
Whether you believe it or not, they will stop at nothing to get what is yours to make it theirs. I don’t need to persuade you of anything because it’s the truth and the truth will stand irrespective of our beliefs.
The problem with that is it will Require a very totalitarian state to figure each persons net worth.
a bigger problem with it is that something is taken from someone that they already own. it would be the same as someone taking a little of your savings every year. oh, you have x.xx in the bank? we’ll take .xx of it. see you next year!
it would be the same as someone taking a little of your savings every year.
Are you freaking kidding me? They ALREADY do that—the Fed, via stealth taxation.
Having saved up a chunk of assets by being a saver my entire life, I’m not excited about an asset tax either. But what we have today clearly isn’t working, if you compare my tax rate against any of the billionaires.
Are you freaking kidding me? They ALREADY do that—the Fed, via stealth taxation.
you really don’t see the difference, do you? you don’t see the difference between some entity taking your money and the devaluation of your money.
will the entity taking your money stop the devaluation of your money?
But what we have today clearly isn’t working,
so you want to add something else that doesn’t work.
if you compare my tax rate against any of the billionaires.
more class envy. someone has more than you and that isn’t ‘fair’.
more class envy. someone has more than you and that isn’t ‘fair’.
I have no problem with people having more than me—heck, I have more than 99.99% of the world’s population; more than most here in the US as well. (and likely ALOT more than you…) It’s not about envy at all.
But I do have a big problem with Mittens & Co paying taxes at half the rate that I do. That’s just wrong.
he might pay half the rate, but he pays a heck of a lot more dollars than you do.
you know what would be ‘right’? if everyone paid the same amount, like when you buy a car.
(and likely ALOT more than you…)
if you check my old posts on this blog you’ll see that i lived in mexico on the beach for 8 years. then moved to arizona for about a year. then i told the blog about act 22 being implemented in puerto rico that gives huge tax advantages. then i moved to puerto rico in sept.
yeah, i moved thousands of miles to a carribean island for tax purposes because i’m poor. what a moron.
yeah, i moved thousands of miles to a carribean island for tax purposes because i’m poor. what a moron.
Uh huh, _sure_ you life on a caribbean island—if you did, you would probably be able to spell caribbean correctly. LOL.
I dare you to find a Puerto Rican (nice job on spelling that one, btw) street-cam and stand in front of it while flipping me the bird!
what a moron.
Thanks for keeping the dialogue positive and respectful, as always, tj!
BTW, I missed all of your previous posts where you mentioned a location, not that I feel any obligation to read nor remember all of your posts.
_sure_ you life
sure i life? you can’t spell ‘live’? that’s shorter than carribbean.
I dare you to find a Puerto Rican (nice job on spelling that one, btw) street-cam and stand in front of it while flipping me the bird!
first, where did i misspell ‘puerto rican’? seems like you’re hallucinating now. second, why don’t you strip naked and sit on a coke bottle and spin?
i guess you think i posted where i was living at various times to back up a lie that i thought would be worth telling a moron like you at some future date?
BTW, I missed all of your previous posts where you mentioned a location, not that I feel any obligation to read nor remember all of your posts.
you’re free to read or remember or believe whatever you want. the posts are all there if you’re not too lazy to look for them.
i moved here in sept. so you can look around that time to find where i said i moved to puerto rico. it was a little earlier that i found out about act 22 which i mentioned to the board in case anyone wanted to take advantage of the tax benefits.
and no, i ain’t looking anything up for you. i don’t care if you don’t believe me. but you’ll just be making a further fool of yourself for anyone that takes the time to look back.
toddle on..
Hope and Change
“Financial executives who are actually held to account for misdeeds remain as rare as hen’s teeth, alas. That’s why a recent enforcement action by the Securities and Exchange Commission caught my eye.
The case was filed Dec. 4 against Fifth Third Bank, which is based in Cincinnati and has $126 billion in assets. Daniel T. Poston, the bank’s former chief financial officer, was also named in the suit.
The S.E.C. contended that both the bank and Mr. Poston improperly delayed writing down the value of $1.5 billion of nonperforming loans in 2008. Mr. Poston certified that Fifth Third’s financial statements had been prepared in accordance with generally accepted accounting principles, but the S.E.C. said that wasn’t the case.
Both the bank and Mr. Poston settled the case, the bank paying $6.5 million in penalties and Mr. Poston paying $100,000. Neither the bank nor Mr. Poston, who became chief strategy and administrative officer at Fifth Third in October, admitted or denied the S.E.C.’s allegations.
The Fifth Third case is interesting because it shows that securities regulators can indeed require executives to pay penalties out of their own pockets when they settle charges of flouting securities laws.
But the regulatory action is also notable for what it did not involve: an executive pay clawback under the Sarbanes-Oxley law. Indeed, the Fifth Third action illustrates how challenging it is for regulators to mount such cases.
Consider the Fifth Third matter, which seems at first glance tailor-made for a clawback. The events began in August 2008, as the financial crisis was gathering force. The bank wanted to rid itself of some bad loans and arranged to sell about $1.5 billion worth the next month.
But when it came time to sell, Mr. Poston and his colleagues at Fifth Third did not write down the loans — assign them a lower value, reflecting the market’s travails — as it was required to do under accounting rules. If properly accounted for, the S.E.C. said, Fifth Third would have recorded a $297 million loss in the third quarter of 2008. Instead, it reported a loss of less than half that size: $128 million.
Securities filings show that Mr. Poston received incentive pay — stock and option awards — of almost $350,000 the year after the misstatements, the period subject to clawbacks under Section 304 of Sarbanes-Oxley.
Mr. Poston declined to comment through a Fifth Third spokesman, who was also unwilling to discuss the settlement.
http://www.nytimes.com/2013/12/29/business/clawbacks-theyre-still-a-rare-breed.html?_r=0
Barack Hussein Obama
“President Obama celebrated a low-key Christmas in Hawaii this year. He sang carols, opened presents with his family, and visited a nearby military base to wish the troops “Mele Kalikimaka” — the Hawaiian phrase meaning “Merry Christmas.”
But the one thing the president and his family did not do — something they have rarely done since he entered the White House — was attend Christmas church services.
“He has not gone to church, hardly at all, as president,” said Gary Scott Smith, the author of “Faith and the Presidency: From George Washington to George W. Bush,” adding that it is “very unusual for a president not to attend” Christmas services.
Historically, watching the nation’s first family head to church dressed in their Sunday best, especially around the holiday season, was something of a ritual. Yet Mr. Obama’s faith is a more complicated, more private, and perhaps — religious and presidential historians say — a more inclusive affair.
Mr. Obama’s religion first garnered national headlines during the 2008 campaign; after sermons by the Rev. Jeremiah A. Wright Jr. — Mr. Obama’s spiritual mentor — included inflammatory remarks, Mr. Obama was ultimately forced to renounce the minister and sever ties with the Trinity United Church of Christ in Chicago, which he and his family had attended for 20 years.
But rumors that he was a “pretend Christian” or a Muslim Manchurian candidate — fueled by his Kenyan background and the boyhood years he spent in Indonesia — dogged him. A 2010 study by the Pew Forum on Religion and Public Life found that nearly one in five Americans thought the president was a Muslim, and 43 percent did not know what his religion was.”
http://www.nytimes.com/2013/12/29/us/as-the-obamas-celebrate-christmas-rituals-of-faith-stay-on-the-sidelines.html?hpw&rref=politics
Bwa-ha-ha-ha, wait’ll the truth comes out about this guy. It’ll be even more incredible than some of the stuff bandied about that so many like to scoff at.
The way to hide something is to make it so incredible people refuse to believe it.
Found this joke out on the interwebs a few days ago.
An illegal alien, a communist, & a black criminal walked into a bar.
The bartender asks ” What would you like Mr. President?”
There is a less PC version of that joke that is not fit for the HBB, this is a family values blog.
Jeebuz
Give it a rest.
The world is waking up to reason and religion is dying. I would live to see a president who is at once an atheist and capitalist.
I’d like to see a president adhere to the constitution instead of laying claim to one faith or another.
amen.
Allāhu Akba
Sorry for the transgression (aka typo):
Allāhu Akbar.
“Allāhu Akbar”
I’d like to Google that, but I don’t want to be on a no-fly list.
‘A global retirement crisis is bearing down on workers of all ages. Many people will be forced to work well past the traditional retirement age of 65. Living standards will fall and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after World War II.’
‘Leslie Lynch, 52, of Glastonbury, Conn., had $30,000 in her 401(k) retirement account when she lost her $65,000-a-year job last year at an insurance company. She’d worked there 28 years. She’s depleted her retirement savings trying to stay afloat. “I don’t believe that I will ever retire now,” she says.’
‘As the 2000s dawned, governments — and companies — looked at actuarial tables and birth rates and realized they couldn’t afford the pensions they’d promised.’
Here in the US, these actuarial tables and birth rates were clear as a bell in the early 80’s. Yet the government did nothing but set up a bigger time bomb. Does the financial media expect that we’ve forgotten how entitlements were called the third rail of politics? Dang this kicking the can down the road can have consequences!
And these corporations; nobody in charge of regulating saw that the accounting rules allowed them to save almost nothing for their pensions?
As I’ve said before, those paying attention in the 80’s were saying the system was destined to fail, just as the maximum number of retirees were relying on it, and it was too late to find a plan B.
just as the maximum number of retirees were relying on it, and it was too late to find a plan B ??
We should have addressed a lot of issiues facing our countrey long ago…
Starting with why we must be the worlds Sharrif at tremendous cost to our country…Instead of investing in bombs we could have been investing in our people…
IMO, we are looking at total tax code overhaul dead ahead…My bet would be the year following the 2016 election…Just look at what is in place;
Adelson has blunted that bite by exploiting a loophole that Congress unintentionally created and that the Internal Revenue Service unsuccessfully challenged.
By shuffling his company stock in and out of more than 30 trusts, he has given his heirs at least $7.9 billion while legally avoiding about $2.8 billion in U.S. gift taxes since 2010…
And all the way down the pecking order you have the same thing…..Taxes are for people who cannot avoid them…The little people…
I can’t look at a photo of Adelson without the image of a loathsome toad coming to mind. It’s said he pretty much owns the repubs these days.
Any criticism of the 0.001% is class warfare.
http://4.bp.blogspot.com/-nYgE_6RABFw/Tpr969qtAtI/AAAAAAAAHTM/YMndu55j0lo/s1600/111015_0159.jpg
If you think he has not paid millions in taxes you’re mistaken. Never enough for the tax and spend crowd who want to mooch off of others.
Well said, scdave.
“Here in the US, these actuarial tables and birth rates were clear as a bell in the early 80’s. Yet the government did nothing but set up a bigger time bomb.”
Back then, when I worked as an actuary, the presumed 7% return on investment assumption seemed reasonable.
Now that the Baby Boom generation is nearing the end of their working years and becoming reliant on a return on savings, how are prospective returns looking?
how are prospective returns looking ??
Not too good…With safe rates of return maybe 2%…
How do you define “safe”? Traditionally Treasurys have been considered “risk free.” Here is where yields stood as of last Friday:
Date One.mo Three.mo Six.mo One.yr Two.yr Three.yr Five.yr Seven.yr Ten.yr Twenty.yr Thirty.yr
12/27/2013 0.01 0.07 0.09 0.12 0.4 0.79 1.74 2.44 3.02 3.7 3.94
I’ve highlighted the range of yields from five years (1.74%) out to thirty years (3.94%) to highlight where all the action is in projected future yield increases. In short, the market expects little increase in Treasury yields before 2018, and gradual increases thereafter. Gamble accordingly.
P.S. With QE3 still going quite strong and a promised taper plus ZIRP for the short end of the curve for the foreseeable future, it is very difficult if not impossible to sort out the effects of market expectations from Fed-sponsored yield suppression.
Here is a graph I just created to illustrate the yield curve as of 12/27/2013 (like the one in the WSJ, except I kept the horizontal axis on a constant scale to avoid distorting the time dimension). It’s never been better for too-big-to-fail banks that can borrow at near 0% and lend to Uncle Sam at near 4%.
Seldom-mentioned fact: The 30-year T-bond has corrected to the tune of nearly 20% since 5/2/2013. These calculations are at constant maturity (30 years):
Date Yield Value %Change
5/2/2013 2.820 $1,000.00
12/27/2013 3.94 $803.92 -19.6%
Eddie claims a yield increase from 2.82% to 3.94% is no big deal, but he is obviously clueless.
Here are a couple of other useful facts:
1) Long-term Treasury bond yields have traditionally correlated with long-term mortgage rates at the 95%+ level (not sure this is the case with the Fed buying $40 bn a month in MBS, though).
2) Contrary to recent assertions by our prank poster Amy Hoax, housing prices and bond prices are similarly dependent on interest rates. In particular, higher interest rates immediately reduce the value of long-term bonds and have a similar effect on housing prices, once the comps adjust to higher rates.
BTW, the rise in 10-year T-bond yields had a similar effect on the value of the benchmark T-bond, though far less damaging than the parallel effect on 30-yr T-bonds:
Date Yield Value %Loss
5/2/2013 1.660 $1,000.00
12/27/2013 3.020 $883.37 -11.7%
In contrast to 30-year Treasurys, the DJIA is up by a huge percentage since May 2, 2013 (over 10%). Has anyone noticed a similar period of 30% divergence between the DJIA and the 30-year Treasury bond value since 1987? (I haven’t.)
If you take a close look at my soon-to-appear graph of percentage changes to the DJIA since 5/2/2013, you’ll see it is up by over 10% since the govt shutdown in October 2013.
Time will tell how long the DJIA can keep going up from the 5/2/2013 level.
If I get slightly more motivated, I’ll post a graph later showing the value of the 30-year T-bond at constant maturity versus the DJIA since 5/2/2013. I find these periods of extreme divergence in asset prices quite fascinating, as such a development suggests an anomaly in violation of the Efficient Market Hypothesis.
I’d be interested in anyone’s explanation of what could rationally justify such a divergence.
it is very difficult if not impossible to sort out the effects of market expectations from Fed-sponsored yield suppression.
+infinity. The yield curve used to offer great information about the market’s expectations; now, it is more like a propaganda mouthpiece.
“…more like a propaganda mouthpiece.”
Or perhaps the harbinger of a massive future correction…
Here ya go.
The top line is the level of the DJIA, indexed to May 2, 2013. The middle and bottom lines are the respective values of 10-year and 30-year Treasurys at constant maturities.
I look forward to the answer to my question about whether there has been a period of greater divergence between the DJIA and long-term Treasury prices since the period beginning in January 1987 up to around October 19, 1987.
Nothing like starting off the new year with a market priced for perfection, especially with a new Fed chair waiting in the wings. Heh heh heh…
Dec. 29, 2013, 1:23 p.m. EST
Record run for stocks has investors nervous about 2014
Week ahead: ISM, consumer confidence, housing data
By William L. Watts, MarketWatch
NEW YORK (MarketWatch) — Perhaps you don’t believe in magical elves, flying reindeer or the bull market, but there was no denying the reality of the Santa Claus rally in 2013.
Stocks are set to end the year on a high note, but investors are nervous about what the new year will bring.
“There are clear expectations the market is going to rally and will continue to do that through the end of the year. There is also an institutional imperative at the end of the year to be fully invested,” said Brad McMillan, chief investment officer at Commonwealth Financial Network in Waltham, Mass.
Shutterstock.com Enlarge Image
The 50 record closes for the Dow industrials this year are the most since 1995.
While that should provide the market with continued momentum in the week ahead, investors should be looking to diversify their exposure in 2014 rather than continue to bet on a market-wide rally, McMillan said in a phone interview.
While a broad market rally isn’t out of the question, it’s worth noting that profit margins and earnings are “starting to roll over a bit,” he said. And it may be difficult for companies to maintain or increase the rapid pace of buybacks, particularly in a rising interest-rate environment. Other underlying concerns include a continued rise in margin debt and extreme investor optimism, McMillan noted.
…
I guess my graph above pretty much documents the widely heralded “Great Rotation,” neh?
Markets More: Stocks Bonds
Why Stock And Bond Markets Are So Confusing Right Now
Matthew Boesler
May 30, 2013, 5:29 PM
Below is a pretty simple chart from Morgan Stanley that illustrates a pretty important concept.
Historically, when 10-year bond yields fall below 3% for an extended period of time, stocks and bond yields tend to go in opposite directions (meaning stocks and bonds rise in tandem). That’s more or less been the status quo during the past few years of sub-3% 10-year yields.
The last time bond yields rose above 3% – all the way back in the 1950s, as the chart shows – the correlation went positive. Stocks were rising while bonds were selling off, sending yields higher (think “Great Rotation”).
The problem is that these transitions from one market phase to the next “can be very confusing,” as Morgan Stanley puts it – after all, when correlations flip from negative to positive, they inevitably pass through a range characterized by little or no correlation.
Given the recent surge in stocks and some of the flirtation with rising bond yields we have seen so far in 2013, the correlation chart is worth keeping in mind.
…
Here is a cooler version of my DJIA-Tbond Divergence graph with color coding and a legend.
Got incipient correction?
If you like that graph and are looking for a challenging opportunity to develop your R programming skills, I recommend the following courses:
- Computing for Data Analysis
- Data Analysis
Both are offered through the John Hopkins University Dept. of Biostatistics. Tuition is free except for the time commitment.
coursera.org
With a little additional effort, I loaded in some data for 1987 and revised my graph to compare the DJIA and long-term Treasurys indexed to January 2, 1987.
Conclusions:
1) The divergence went much wider over the period from January 2, 1987 through the massive correction on October 19, 1987 (Black Monday).
2) Even after the correction, you would have been better off holding stocks over the period!
3) Buy stocks. The stock market always goes up; not so much long-term bonds. You just can’t seem to ever win with with Treasurys.
Thanks for your work on this, GS.
For whatever it’s worth (nothing), I’ve just started shorting some stocks this past Thursday. First time I’ve been short since October 2008 (at which point I sold short positions purchased in 2005 and afterward…rolled over those positions during those painful years of 2005-2008).
Of course, I’m always early, which is why I’m starting small.
Of course, I’m always early, which is why I’m starting small.
I’ve been resisting the urge to go short most of this year as well, CA renter. And yes, I was early last time as well—early ‘06, IIRC.
early ‘06, IIRC.
No, wait—it was late ‘06.
“Back then, when I worked as an actuary…”
I recall reading a story in the newspaper that ranked job satisfaction; actuaries were at the top.
But note that those who are trained as actuaries and work as actuaries are a self-selected group. You might get a different survey outcome entirely if you polled those who left the profession.
Of course the same can be said of every other profession—it is still those still working in the field who are polled for any satisfaction survey.
Which suggests any satisfaction survey results should be taken with a grain of salt, as those who stay in a profession will naturally have an upwardly-biased view of their occupation than those who changed profession (albeit coal miners trapped in company towns may be an exception).
as those who stay in a profession will naturally have an upwardly-biased view of their occupation than those who changed profession
+infinity—for any class of people with sufficient economic freedom to manage a career-change. At the lowest rungs of the economy the upward-boas is likely negligible (no other good options); at the highest rungs of the economy, the bias is likely substantial.
Note that there may be outliers in certain professions, such as medical doctors, who may not like what they are doing but also might not be able to justify leaving it due to the massive investment (both in time and money/debt) that it took them to get their credentials, combined with the level of compensation and their inability to easily replicate it elsewhere. I’ve known some folks in that category.
Whac…..I still say you guys screwed up the actuaries by not realizing how many people would quit smoking and be collecting payouts 10-15-20 years longer then they should have.
aNYCdj — I take no credit (or blame) for producing actuarial tables, as that was not my specialty. But your observation is astute; i.e. if people had continued to smoke as much as they used to in the 1950s, we wouldn’t have the life expectancy problem currently facing the pension system. Blame it on the Surgeon General’s warnings.
“As I’ve said before, those paying attention in the 80’s were saying the system was destined to fail, just as the maximum number of retirees were relying on it, and it was too late to find a plan B.”
I have a great idea: How about a bailout of Social Security?
I have a great idea: How about a bailout of Social Security?
Didn’t we do that once already in our lifetimes? I thought Greenscam already saved SS once…
Oh yeah — that’s the bailout for which I’ve been forking over 15.3% of my income ever since I started working to pay for geezers’ Winnebago purchases.
“I have a great idea: How about a bailout of Social Security?”
That is indeed a great idea! Money should be borrowed from banks and this borrowed money should immediately go into propping up Social Security and this borrowed money should be managed by those who know money the best of all which, of course, are bankers.
She’s only 52! She has time to make it up.
She’s toast…Social security & Medicare will be her safety net…
No, she doesn’t and no, they won’t.
@BenJones
This is why Bill in Los Angeles = WIN and why I aim to keep my savings rate north of 50%. My income has more than doubled in the past 7 years but I have not allowed lifestyle inflation creep to eat up that increase. And if it dropped by 50% it would be an adjustment but not the end of the world.
See I had to take a break from consulting and go direct. I had nine years in a dead end line I’df consulting. Great pay but my resume was stale.
Sometimes you give yourself a payout for a few years to win a bigger prize later when you go consulting again.
My prize is the entire left coast. From Seattle to San Diego and I will be in Linux, C, TCP/IP, SSL, TPM and other areas.
This may seem a break in WIN. But it’s part of WIN.
Seems to me that in the 80s the FedGov allowed corporations to defund their pensions. Top management at these companies started paying themselves huge salaries. Now we are surprised that the pensions are defunded.
Gotta fund the double and quadrupled MIC budgets somehow.
Comment by Blue Skye
2013-12-29 15:26:45
Seems to me that in the 80s the FedGov allowed corporations to defund their pensions. Top management at these companies started paying themselves huge salaries. Now we are surprised that the pensions are defunded.
———————
Yep. There’s a book called Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers, (and it’s not talking about public pensions) that discusses this in more detail.
http://www.amazon.com/Retirement-Heist-Companies-Plunder-American/dp/1591843332
Dec. 27, 2013, 6:02 a.m. EST
America’s hidden retirement crisis is racial
By Richard Eisenberg
This article is reprinted by permission from NextAvenue.org .
A troubling new study, Race and Retirement Insecurity in the U.S., reveals that America’s retirement crisis is particularly dire for blacks and Latinos.
“If nothing changes, the future for people of color is frightening,” author Nari Rhee, research manager for the nonprofit National Institute on Retirement Security , told me. Read the report here .
Rhee’s report comes on the heels of other recent surveys from financial services firms and consultants with their own scary stats documenting the general lack of retirement savings among blacks and Latinos.
Striking racial differences for retirement saving
Among the key findings in the Race and Retirement Insecurity report:
- Workers of color (Latinos especially) are much less likely than whites to be covered by employer-sponsored retirement plans. Only 38% of Latino employees age 25 to 64 and 54% of blacks work for organizations with such plans; 62% of white employees do.
- Blacks and Latinos are far less likely to have dedicated retirement savings than white households of the same age. Roughly two-thirds of black working-age households (62%) and Latinos (69%) don’t have retirement accounts; 37% of white households don’t.
- Three out of four black households age 25 to 64 and four in five Latino households have less than $10,000 in retirement savings. One in two white households are in that camp.
- Among near-retirees, the average retirement savings balance among households of color ($30,000) is one-fourth that of white households ($120,000). “It wasn’t surprising to me that there was a pretty significant amount of racial disparity in retirement savings,” Rhee told me. “What was surprising was how much worse it was for older households.”
One slight caveat about the study: It’s based on 2010 data, so the numbers don’t reflect the recent run-up in stock prices and housing values.
“Obviously, there’s been an improvement in retirement account values since then,” said Rhee, “and, with the economy growing, more people are saving.” But she said she doubted that updated numbers would be much higher for minority households in general, because so many of them are still not offered retirement plans at work.
That brings me to the key question: What’s behind the huge retirement savings gap between blacks, Latinos and whites?
It’s complicated.
…
“A troubling new study, Race and Retirement Insecurity in the U.S., reveals that America’s retirement crisis is particularly dire for blacks and Latinos.”
The losers typically “live in the present” and spend that way too. The winners exercise discipline, a survival trait.
“It’s complicated.”
No, it really isn’t.
Even at age 20 I was always looking ahead, planning ahead. Not “living by the day.”
My dad told me when I was young I take life too seriously. He was right. But I have more money than he did. He was richer than me in some ways. He was the wisest man I ever knew.
Ben,
Movable and hidable wealth is king!
I can imagine ou reviving your Money and Metals blog!
Nanny of the year awards.
http://www.youtube.com/watch?v=-lJXmx7mivc
…and the winner was also nanny of the month in April.
http://www.youtube.com/watch?v=ioSh8Xinzvk
excerpts from the book
Tragedy and Hope
A History of the World in Our Time
by Carroll Quigley, 1966
Pg. 52:
The names of some of these banking families are familiar to all of us and should be more so. They include Raring, Lazard, Erlanger, Warburg, Schroder, Seligman, the Speyers, Mirabaud, Mallet, Fould, and above all Rothschild and Morgan. Even after these banking families became fully involved in domestic industry by the emergence of financial capitalism, they remained different from ordinary bankers in distinctive ways: (1) they were cosmopolitan and international; (2) they were close to governments and were particularly concerned with questions of government debts, including foreign government debts, even in areas which seemed, at first glance, poor risks, like Egypt, Persia, Ottoman Turkey, Imperial China, and Latin America; (3) their interests were almost exclusively in bonds and very rarely in goods, since they admired “liquidity” and regarded commitments in commodities or even real estate as the first step toward bankruptcy; (4) they were, accordingly, fanatical devotees of deflation (which they called “sound” money from its close associations with high interest rates and a high value of money) and of the gold standard, which, in their eyes, symbolized and ensured these values; and (5) they were almost equally devoted to secrecy and the secret use of financial influence in political life.
Pg. 53:
The influence of financial capitalism and of the international bankers who created it was exercised both on business and on governments, but could have done neither if it had not been able to persuade both these to accept two “axioms” of its own ideology. Both of these were based on the assumption that politicians were too weak and too subject to temporary popular pressures to be trusted with control of the money system; accordingly, the sanctity of all values and the soundness of money must be protected in two ways: by basing the value of money on gold and by allowing bankers to control the supply of money. To do this it was necessary to conceal, or even to mislead, both governments and people about the nature of money and its methods of operation.
Pg. 62:
In addition to their power over government based on government financing and personal influence, bankers could steer governments in ways they wished them to go by other pressures. Since most government officials felt ignorant of finance, they sought advice from bankers whom they considered to be experts in the field. The history of the last century shows, as we shall see later, that the advice given to governments by bankers, like the advice they gave to industrialists, was consistently good for bankers, but was often disastrous for governments, businessmen, and the people generally. Such advice could be enforced if necessary by manipulation of exchanges, gold flows, discount rates, and even levels of business activity. Thus Morgan dominated Cleveland’s second administration by gold withdrawals, and in 1936-1938 French foreign exchange manipulators paralyzed the Popular Front governments. As we shall see, the powers of these international bankers reached their peak in the last decade of their supremacy, 1919-1931, when Montagu Norman and J. P. Morgan dominated not only the financial world but international relations and other matters as well. On November I l, 1927, the Wall Street Journal called Mr. Norman “the currency dictator of Europe.” This was admitted by Mr. Norman himself before the Court of the Bank on March Zl, 1930, and before the Macmillan Committee of the House of Commons five days later. On one occasion, just before international financial capitalism ran, at full speed, on the rocks which sank it, Mr. Norman is reported to have said, “I hold the hegemony of the world.”
Pg. 324:
the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.
http://www.thirdworldtraveler.com/Banks/Tragedy_Hope_excerpt.html - 20k -
Entertainment
It’s finally here — JibJab’s 2013 year in review!
Dec. 20, 2013 4:20pm
Meredith Jessup
Judge me if you must, but I look forward to this every year…
Added to my 2014 to-do list: Watch Sharknado!
MAKING SENSE — December 27, 2013 at 12:00 PM ET
So you think you can do better than the Fed?
By: Paul Solman
Fed chair Ben Bernanke steps down at the end of January. The Fed may not be perfect, Paul Solman explains in response to a reader, but is there another way to run a modern market-driven economy? Photo courtesy of Alex Wong/Getty Images.
Paul Solman answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Friday’s questions are about the Fed.
Earlier this month, Making Sense previewed the Fed’s decision to taper its monetary stimulus program, and we revisited our simulation of how the Fed’s Open Market Committee reaches those policy decisions. As part of that week-long look at the Fed, which just celebrated its centennial, we asked new Nobel laureate Bob Shiller what he would do if he were chair of the Fed and asked former Fed economist Catherine Mann to weigh in on how the Fed’s low interest rates send dollars abroad.
But here’s what readers still want to know about the Fed and its quantitative easing policy and Paul’s responses to those queries.
…
QE has buried the taxpayer.
…. and loaded losses onto the back of millions of suckers who signed up for a mortgage.
Here’s the Fed’s mission according to the Fed.
Would I be better at picking winner’s and losers than the Fed? Of course! I’d be picking myself and my cronies instead of them and their cronies!
As Gingrich said, “To the winners go the spoils.”
Add to the employment and inflation mandates a stabalization mandate and you have a difficult if not impossible triple mandate to achieve.
Has the U.S. pulled off a major economic switchero by morphing into the world’s largest oil producer? The situation raises some interesting questions:
1) Whither peak oil?
2) Why don’t gasoline prices drop to reflect the new supply, especially given the ongoing move to replace gas guzzlers in the American fleet with fuel efficient vehicles?
3) What would happen if the U.S. started exporting oil once again?
I inadvertently misspoke; apparently the U.S. is projected to become the world’s largest oil producer within the foreseeable future. But my questions remain of interest.
By 2020, United States Will Become World’s Leading Oil Producer, Says IEA
Eyder Peralta
By 2020, the United States will overtake Saudi Arabia to become the world’s leading oil producer, the International Energy Agency says in a new report.
At the moment, the United States imports 20 percent of its energy. So this prediction is bold and points to “a dramatic reversal” for the U.S.
“The result is a continued fall in U.S. oil imports, to the extent that North America becomes a net oil exporter around 2030,” the report finds. “This accelerates the switch in direction of international oil trade towards Asia, putting a focus on the security of the strategic routes that bring Middle East oil to Asian markets.”
But the IEA warms “no country is an energy island.” So if you were thinking that energy independence in 2020 would mean long road trips because of cheap gas, think again.
…
4) Will housing prices eventually collapse in the oil patch the way they did in Texas during the mid-1980s?
“Why don’t gasoline prices drop”
FR price fixing.
It’s backfiring, as U.S. production is steadily increasing while the U.S. auto fleet is endogenously trending towards more efficient fuel consumption.
Eventually economic fundamentals will bury market manipulation, just as happened in the 2007-08 episode.
Price supports, price fixing, rampant fraud and corruption from end to end and you’re willing to commit to 30 years of earnings to buy a house?
Seriously?
Breaking Bad. Sign of the times?
With Taper, the Fed Takes Gold Back 3.5 Years
By Alex Dumortier, CFA | More Articles
December 19, 2013
Although we don’t believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes — just in case they’re material to our investing thesis.
During the past six months, the Fed surprised the market several times with regard to the “taper” — most notably, perhaps, in September, when it failed to pull the trigger — resulting in bouts of volatility. However, investors were obviously prepared for yesterday’s decision by the central bank to begin scaling back its monthly bond-buying program. That’s what the price action indicates, in any case, with stocks essentially unchanged today, as the S&P 500 fell less than 0.1%, while the Dow Jones Industrial Average rose less than 0.1%.
…
Get shorty!
Would you stake your fortunes on the “Hope Trade”?
Investors’ Soapbox PM | THURSDAY, DECEMBER 26, 2013
Home Builders Set for a Short Squeeze
Raymond James notes the relative high short interest in Lennar and St. Joe.
Raymond James & Associates
Following last week’s 6.1% drop, applications for purchase mortgages were down another 3.5% week-over-week to the lowest level since February 2012. The purchase index is currently tracking down 11.5% year-over-year.
We note, cash buyers represent a much larger portion of demand in the existing-home market than the new-home market, and the lingering impact of robust spring price increases, higher interest rates, economic and political uncertainty, and stringent mortgage-underwriting criteria have all played a role in this divergence.
Application activity remains below both the recently reported year-over-year growth in new home sales (up 22% in October) and existing-home sales (down 1.2% in November), led by a declining mix of first-time buyers within both segments. Recent data also suggest mortgage credit availability has tightened slightly more. Notably, 32% of all existing-home sales in November were “all cash” transactions.
The average loan size for purchase applications during the week was $269,800, up $4,900 from last week and now eclipsing the previous record high set the week ending May 3 of $269,700. Loan size has averaged $260,400 this year, suggesting that the mix shift toward “move-up” homes remains in full effect. Concurrently, recent home-builder data support this mix shift as higher price point “move-up” communities are seeing better traffic and absorption rates versus entry-level communities.
The average contract rate on 30-year fixed-conforming mortgages increased two basis points week-over-week to 4.64%, matching the highest level since September, and is now up 105 basis points since bottoming during the week ended May 3. Overall mortgage rates are up 113 basis points year-over-year, as the spread relative to the 10-year Treasury note has now expanded one basis point year-over-year to 175 basis points. However, mortgage rates remain at historically attractive levels, and at current prices, we estimate rates would need to be 6.30% before most affordability index measures approach historical norms. The refinance index fell 7.7% week-over-week to the lowest level since November 2008. In our view, the decline is driven by refinancing burnout, and the index remains down 72% from the May 3 peak. Refinancings as a share of mortgage activity decreased to 65% of total applications from 66% last week.
Mortgage availability decreased marginally in November, according to a 1.2% decline in the Mortgage Credit Availability Index (ticker: MCAI). The index now stands at 110.2, up 4% year-over-year, and 11% above the trough set in February 2012. This figure, however, needs to be kept in historical context. While “availability” has improved around the edges this year, it is still not close to 2006-2007 underwriting levels. The current index was benchmarked to 100 in March 2012 and, if it had been tracked in 2007, would have been closer to a reading of 800. Notably, origination volume is down nearly 20% during the third quarter of 2013 versus last year’s period.
Our current ratings reflect our view that the seasonal “Hope Trade” in home-building stocks will be in effect this year. The trade period, which runs Nov.15-Jan. 31, saw the home-builders outperform the S&P 500 for nine consecutive years (by more than 1,100 basis points) and 23 of the past 29 years (by roughly 1,000 basis points).
We have three distinct strategies, which investors can take advantage of based on their risk tolerances, including: 1) a high-quality “Good Dirt” strategy; 2) a higher-beta “Short Squeeze” strategy; and 3) a derivative call on housing names we believe can tangentially benefit from the “Hope Trade.”
…