The First To Get Out Don’t Get Hurt
The Post and Courier in South Carolina. “It occupies the top floor in one of Charleston’s tallest buildings. And, if sold at its $19.5 million list price, the expansive two-story penthouse could mark another high: the largest amount ever for a condominium in the historic city. John Dunnan of Handsome Properties Inc., who’s listing the penthouse said he’s confident the Charleston market can accommodate such a listing. Dunnan’s listing rivals high-priced properties commonplace in larger cities such as New York, Atlanta and Miami. ‘The economy is improving and the market is just arriving,’ he said. ‘We took the appraised value for a listing in New York City and cut it half for comparable size with the same interior designer.’”
The Miami Herald in Florida. “Marc Sarnoff played his part quickly Wednesday morning, shoveling some dirt on the ground of a Brickell Avenue construction site for a ceremonial groundbreaking. He didn’t linger after the photo op; there was another shovel awaiting him at another condo tower groundbreaking in just 25 minutes. And one more after lunch. ‘We’ve never had a three-groundbreaking day in the history of Miami,’ said Sarnoff, a Miami city commissioner. ‘I’ve done two, but never three.’”
“Related Group CEO Jorge Pérez said Florida lends itself to boom and bust cycles, but he said the company learned lessons from the crash. He said the 453-unit SLS Brickell is almost completely sold out, with buyers agreeing to pay 50 percent of the purchase price before construction workers finish the top floor of the 52-story building. ‘We are trying to reduce the chance,’ he said, ‘that there will be a bust like the last time.’”
Miami Today in Florida. “How bad has the foreclosure crisis been in Miami-Dade County? Initial filings here dropped by 36% last year, yet the county remains the foreclosure capital of the US. Meanwhile, 46 condominium projects are in construction in the tri-county area of Miami-Dade, Broward and Palm Beach, according to Peter Zalewski, a principal consulting firm Condo Vultures. He said there are areas of concern where inventory and price levels have been rising at alarming rates: the Brickell area and the beachside communities north of Miami Beach: Surfside, Bal Harbour and Sunny Isles Beach. He said he’s most concerned that Brickell’s condo market is overheating.”
“‘Developers are sprinting to put their buildings up,’ he added, ‘because the first ones [into a market after a price collapse like the last one and the first to get out] are the ones who don’t get hurt.’”
The Palm Beach Post in Florida. “A new report found that 2013 saw an increase in buyers with plans to either flip the homes or renovate and rent. According to RealtyTrac, 12 percent of Florida home purchases in 2013 were made by institutional investors, up from 9 percent in 2012. Local investors are watching the purchases with concerns. They say Wall Street buyers like Blackrock, which owns Invitation Homes, and Colony Financial, are overpaying for properties, artificially jacking up the prices.”
“‘It’s what I call the corporatization of residential America,’ said Jack McCabe, chief executive of McCabe Research & Consulting in Deerfield Beach. ‘You have a lot of neighborhoods now where big percentages of homes are owned by corporations and what happens to the community in the long run isn’t being talked about.’”
All Alabama. “When they first went on the market around Thanksgiving of 2013, the three available condos in the Antoinette building ranged from $449,000 for the two downstairs units to $549,000 for the upstairs unit. But Debra and Daly Baumhauer, who bought the building last April and have spent the past few months renovating it, have reduced the prices to $349,000 and $375,000.”
“The Baumhauers sold their family home in Spring Hill and now live in one of the upstairs units in the Antoinette. ‘It’s a knockout, high-end building,’ said Realtor Ashley McLean of LLB&B Inc. ‘You feel like you’re in a New York apartment.’”
The Tennessean. “Jill Tzompanakis has seen the effect that foreclosures have had on her neighbors’ home values, so she’s relieved to hear that the number of distressed properties in Wilson County has fallen dramatically over the past year. ‘It kills the comps in a neighborhood and kills the value,’ the Lebanon homeowner said.”
“Tzompanakis and her husband, Nick, have owned a home in the Spence Creek subdivision for about six years. They have seen the prices of some homes decline and believe foreclosures continue to affect the market. ‘What foreclosures sell for, it’s so low it shocks me,’ she said. One house that originally sold for $275,000 was purchased in foreclosure for $168,000, Tzompanakis said. ‘You hear stories like that and you wonder,’ she said.’”
Palm Beach Post- “They say Wall Street buyers like Blackrock, which owns Invitation Homes, and Colony Financial, are overpaying for properties, artificially jacking up the prices.””
With borrowed money no less.
For reputedly “smart” money, you have to wonder why they’re paying 40-60% premiums over new construction price of $55/sq ft(lot, labor, materials, profit) for resale housing.
The Tennessean ‘It kills the comps in a neighborhood and kills the value,’ the Lebanon homeowner said.”
“Tzompanakis and her husband, Nick, have owned a home in the Spence Creek subdivision for about six years. They have seen the prices of some homes decline and believe foreclosures continue to affect the market. ‘What foreclosures sell for, it’s so low it shocks me,’ she said. One house that originally sold for $275,000 was purchased in foreclosure for $168,000, Tzompanakis said. ‘You hear stories like that and you wonder,’ she said.’”
She’s “shocked”.
What is shocking is how dumb DumbBorrowedMoney really is. When you got nothing but loads of debt, the notion of the value of a dollar evaporates completely.
I never want to experience what it’s like to have absolutely nothing and not even know it like these people.
In the late 80s I had $1,000 net worth. Well that was 3 months rent so it would be equivalent to about $3,600 or so today. That in not mucking fuch.
This is why you should not be greedy when you made incredible gains. Sell. Be greedy for those things that are very undervalued, that the peanut gallery laughs at. And don’t be too proud that you have to sell a good reliable used car that you paid off and runs well and has low insurance costs. Especially if it is economical because high energy prices can return.
“‘Developers are sprinting to put their buildings up,’ he added, ‘because the first ones [into a market after a price collapse like the last one and the first to get out] are the ones who don’t get hurt.’”
That sounds like a stable market (not!)…
“Household Formation Is Cratering”
http://realmoney.thestreet.com/articles/08/21/2013/household-formation-cratering
This should explain why housing demand is cratering.
The institution of marriage is expensive. It’s an institution that encourages home ownership - more space than you had as a single. That means more rooms to fill with costly furnishings. More carpets to vacuum, more wood to polish, more BTUs of energy to heat or cool.
Then when you add kids into a marriage it gets darned expensive.
“As the First Coast’s economy shakes off vestiges of years-long unemployment and mortgage headaches, new foreclosure lawsuits are flowing into Jacksonville courtrooms from a less-obvious source: HabiJax. Habitat for Humanity of Jacksonville, the nonprofit that says its home-construction reflects Christian teachings, filed foreclosure suits against 50 owners last year. The year before, there were 33.”
“Suits from those years total more than all the foreclosures that HabiJax, as the group is commonly called, filed between 2006 and 2011.”
“HabiJax officials, whose organization built about 40 new homes last year and repaired others, said the spike in foreclosures reflects a backlog of homeowners who had stopped paying the zero-interest mortgages they signed to buy homes built with volunteer labor and owners’ “sweat equity.” In December, one in 344 housing units in Duval County was in some stage of foreclosure, the real estate data company RealtyTrac reported.”
“HabiJax had historically been lenient about foreclosures and avoided taking homes during the height of the recession. But eventually, it was time to settle accounts, board chairman Greg Matovina said.”
“For a long time, we were probably not as diligent as we should have been,” Matovina said. “Finally, the board said, ‘we really can’t have 100 people not paying.’ ”
http://www.foreclosedmovie.com/
LOL I was all happy thinking a foreclosure documentary, turns out to be a bible beater advertisement or something. “Perfect for Church Groups.”
“A brand-new home the county built in the struggling unincorporated area stands vacant and boarded, a portable toilet in the swale, and beer cans littering the lawn.”
“The $1.8 million investment was expected to improve property values in a depressed zone in the unincorporated central Broward area. But none of the 16 new single-family homes are occupied, and about half of them are boarded up for protection.”
“Owner beware,” activist Eligha Lewis said of the boarded homes. “It doesn’t look safe, when you board something up.”
‘Lewis lives in Roosevelt Gardens and leads the homeowners association there. He’s grown so frustrated with the community’s unmet needs, he has little positive to say about the new homes. The buyers the county keeps promising haven’t materialized. “Talk is cheap,” said Lewis, 51, who also sits on the county’s advisory board for the area.”
“There may have been a little more red tape than a typical buyer would go through, conceded Broward’s director of housing finance and community development, Ralph Stone, but 14 of the 16 homes have buyers lined up, he said. He said one of the two developers of the homes chose to board the windows to deter vandals. But new owners will start closing in the coming weeks, he said.”
“County commissioners voted two years ago to pay $184,000 for each house on county-owned lots. They will be sold for $140,000 to $150,000 to people earning 20 percent less than the median income here, which is $61,800 for a family of four. In addition, the county will heavily subsidize the purchase, offering some buyers $60,000 to $70,000 in assistance.”
“Though two buyers fell through, Stone said he has more applicants “in the pipeline.” “They know they’re getting a once-in-a-lifetime opportunity,” he said.”
County commissioners voted two years ago to pay $184,000 for each house on county-owned lots. They will be sold for $140,000 to $150,000
So… they are planning on losing $30-40K per house, and making it up in volume?
This looks so much like graft to me; they likely bought the houses from a well-connected developer, which equates to a very targeted subsidy for that one particular developer.
Further, they are giving certain house-buyers a huge subsidy, paid for by all of the other property owners in the county.
Sure sounds fair to those who are getting paid off!
“The Obama administration is scheduled on Wednesday to launch a retirement savings vehicle called “myRA,” aimed at enrolling more Americans in a government-backed investment option. In details provided by the White House on Wednesday, the retirement savings proposal would be similar to a Roth Individual Retirement Account, but with holdings backed by the U.S. government like savings bonds.”
“MyRA guarantees a decent return with no risk of losing what you put in,” President Barack Obama said in introducing the program on Tuesday night in his State of the Union Speech.”
How about we just stop suppressing interest rates?
“How about we just stop suppressing interest rates?”
The oldest game in the DebtMasters playbook. Just like a car dealer buys down the interest rate and hides the cost by jacking the principal, our buddies at the Fed buy down the rate and stack the cost to do so like firewood. All to keep the steady stream of donkeys and junkies flowing.
I just got this in an email:
“Responding to President Obama’s call to keep “the dream of homeownership alive for future generations of Americans,” Smart Growth America President and CEO Geoff Anderson issued the following statement:
“President Obama is doing the nation a great service by bringing attention to the urgent need to help American families invest in their first home. As he said last night, even in the midst of recovery, too many Americans are working hard just to get by—let alone get ahead.”
“Homeownership can help families build wealth and plays a significant role in the economic security of America’s middle class, but the federal government could do more to help families reach this goal.”
“Congress needs to re-examine real estate tax programs, to make sure exclusions and deductions are doing all they can to enable Americans purchase their first home and reach the middle class. And like President Obama’s call for better retirement savings programs, the Administration and Congress can help Americans save by creating individual Mortgage Savings Accounts, making it easy and convenient for workers to save money for their first home.”
“To reverse current trends and renew the promise of upward mobility for all Americans we urge Congress and the Administration to examine federal support for real estate to ensure that money is used as effectively as possible to help Americans reach the middle class, purchase their first homes and create stable thriving communities.”
I can’t afford to put money in an MSA. I’m too busy trying to put food on family. It’s hard because they keep running away whenever they see me coming with handful of food.
No, see, this is perfect, it’s a way for us to become more like the Japanese. Borrow money from the citizenry to fund the deficit, and for that, what you get a rate of return equal to what, the treasury rates?
Since the Fed is going to slow down funding of the deficit, let’s “encourage” the people to voluntarily fund the deficit. Let’s make all other risky investments seem, well, very risky, while espousing MyRA’s “guaranteed” returns.
Who needs investment in new businesses anyway, let’s invest in the government…they’re GREAT!
Any investment marketed as guaranteeing a return, and as having “no risk of loss,” likely is a fraud.
Or a government pension fund. Oh yeah, a fraud.
It is already possible to buy governments bonds using funds held in an IRA.
“Median housing prices surged 25 percent in Orange County in 2013 and most people agree it was a stellar year for the Southern California housing market. More than a quarter of Los Angeles-area homeowners who were underwater on their mortgages in 2012 emerged out of negative equity. And buyers are snapping homes off the market nearly twice as fast as a year ago.”
“Now the question is whether this means housing is on a sustainable path or if we’re in another bubble of artificially high prices and demand that’s bound to burst.”
“Between 1991 and 1999, the Federal Housing Finance Agency reports that home prices in the Anaheim-Santa Ana-Irvine metropolitan statistical area increased 11 percent (unadjusted for inflation). During the same period, renters in the same area saw their housing costs grow 12 percent, according to the Bureau of Labor Statistics. Translation: the price of homes was not inflated during the 1990s in Orange County – and in fact might have been undervalued a bit.”
“The story quickly changed, though. From the first quarter of 2000 to the same time in 2006, housing prices in Orange County jumped 155 percent. In the greater Los Angeles area prices spiked 178 percent. But BLS rental prices rose just 38 percent. Translation: the price of homes was significantly inflated relative to rents, signaling the housing bubble.”
“The warning sign for today’s market is that housing prices are once again growing much faster than the BLS rental market trend. Entering 2014, homes in Orange County are 20 percent higher than rents by BLS standards. In Los Angeles, home prices are 6 percent higher than rents.”
“If the data looks like a bubble and acts like the last bubble, it’s probably a bubble. Orange County homeowners and buyers should consider the recent housing market crash before jumping onto the real estate “recovery” bandwagon.”
“And buyers are snapping homes off the market nearly twice as fast as a year ago.”
The SoCal market must be healthy if buyers are snapping up homes again!
You can count on SoCal and Denver being the epicenter for the next round of cascading personal defaults. It will be far worse this time as the new round of suckers will take out the previous round of suckers who are barely hanging on.
But they’re not scooping them yet.
That happened last year until the bottom dropped out in May.
Adjustment times a ‘comin’.
heh…. I like it.
“Pittsburgh Steelers receiver Plaxico Burress sold his Lighthouse Point home at a $2 million loss to avoid foreclosure. The Super Bowl hero for the New York Giants, who missed last season with a torn rotator cuff, and his wife got hit with a $3.3 million foreclosure lawsuit from Deutsche Bank in 2010. It targeted the 6,872-square-foot waterfront home.”
“Burress recently sold the house for $2 million. That’s half of the $4 million that Burress paid for the house in 2005. The deal also caused a loss for the lender, which apparently approved the short sale.”
I’ve always felt that some of these professional athletes’ houses are absurd. Jeter has a house here in Tampa that is 30,000 square feet, roughly the size of a Barnes & Noble. What’s the point?
“U.S. Homeownership Rate Falls to Lowest Since 1995
http://www.bloomberg.com/news/2013-04-30/u-s-home-vacancies-fell-in-first-quarter-from-prior-year.html
So the public categorically rejects housing as they should considering it’s grossly inflated.
Totally. I can’t imagine the homeownership rate going up any time soon, as the Fed appears determined to continue its housing price support program into the indefinite future. (If they have changed their housing price support policy, I sure missed the announcement.)
“Game Over for Real Estate: Time to Short US Housing Market”
http://www.nomadiccapitalpartners.com/home/short-us-housing-market/
“A recent spike in home values across Hillsborough County is translating into more dollars for renovation and new construction businesses, according to vendors at a recent home show. Mark Leek of Brandon, the owner of Doorpro Entryways said customers are taking advantage of lower interest rates while they are still available. He doesn’t anticipate business slowing down, at least not in the Brandon and South Shore areas.”
“From Gibsonton Drive to Ruskin, it’s slated to have 5,000 to 8,000 new homes in the next three years,” Leek said.”
“Esther Dempsey of Carrollwood, an artist, said not everyone is rushing to become a homebuyer after the recession. Dempsey, who displayed her oil, acrylic and digital art at one of the booths at the home show, said she thinks the rental market is still more attractive to some people.”
“I don’t see the housing market progressing,” she said. “For me being single, I like renting. There is no upkeep. The area is nice and quiet.”
“A volunteer for Meals on Wheels, Dempsey said a lot of older people have more pressing financial concerns than trading up to a nicer home or renovating. “People are afraid to spend, especially if they have health care concerns,” she said. “People are looking for more stability with the economy and it’s not occurring. They threw the health care in and deterred a lot of people from spending.”
Five to eight thousand more tract houses in that part of the county in the next three years? It will become a very interesting slum.
“Brazilian “oligarch” José Afonso Assumpção is snapping up parcels in Edgewater and Brickell, including the site of the first tower announced on Biscayne Boulevard since the crash, which he plans to put on ice for a while, and a collection of lots in western Brickell, which he proposed a megaproject on, even though he’s now on the brink of flipping the collected parcels for “almost double” according to DBR.”
“‘It’s what I call the corporatization of residential America,’ said Jack McCabe, chief executive of McCabe Research & Consulting in Deerfield Beach. ‘You have a lot of neighborhoods now where big percentages of homes are owned by corporations and what happens to the community in the long run isn’t being talked about.’”
____________________________/
Sorry Jack, it’s way too late to be bringing this up. We no longer live in communities of people, we live in communities of investments. Often someone else’s investments.
When the only relationships that matter are commercial relationships, civilized society is reduced to a series of soulless transactions and won’t withstand any kind of major stress.
When the only relationships that matter are commercial relationships, civilized society is reduced to a series of soulless transactions and won’t withstand any kind of major stress.
What are you, some kind of commie?
MYera- propped up by taxpayers
word, yo out
“Chinese issuers of junk bonds got off to a fast start this year, but concerns about weakening economic growth and the likelihood of a high-profile loan default are putting investors off.”
“Chinese real estate developers in particular opened up a wide lead on the Asian pack in terms of high-yield bond issuance in advance of the Year of the Horse, but now they are leading the way regionally in a broader emerging-market sell-off.”
“Chinese property developers raised a combined $US4.55 billion ($5.2bn) by issuing junk, or non-investment-grade, bonds in the first three weeks of the year, accounting for 11 of 12 such issues in Asia outside Japan, according to data provider Dealogic. That is not far off the record pace set in the same period last year, when Chinese companies issued $US5.87bn in junk bonds. Meanwhile total junk bonds for Asia, excluding Japan, shrank 40 per cent to $US4.77bn.”
“The Chinese firms sought to extend the pattern, set over the past two years of tapping bond buyers who were on the hunt for higher yields in growth markets against a backdrop of ultralow interest rates globally amid central banks’ loose monetary policy. But unlike last year, when bond prices soared, the new debt has turned sour immediately after issuance.”
“KWG Property Holding, a large developer, saw its five-year bond fall roughly 2 per cent from its issue price, while notes from CIFI Holdings, a smaller player, fell about 5 per cent within a couple of days of its issuance. Bond prices of peers who issued debt with investment-grade ratings also softened: China Overseas Grand Oceans Group’s five-year bond, for example, fell by about 1 per cent. “Obviously, Asia cannot escape from global emerging-market weakness, despite the fact that most Asian countries are not battling the same level of currency volatility or political instability seen in some other emerging regions,” said Mark Reade, credit desk analyst at Mizuho Securities Asia.”
“Chinese high-yield bonds have been harder-hit than their investment-grade counterparts as tight onshore liquidity conditions have stoked concerns about a deluge of offshore high-yield supply, not to mention rising refinancing risk among smaller, weaker corporates.”
Don’t you hate it when this happens:
‘the new debt has turned sour immediately after issuance’
“The last-minute deal saved a CNY3bn trust product which we expected a high probability of default…As a rate strategist, we are more interested in examining a set of scenarios, and what we see unsettles us.’
‘We will be more specific: the bailout looks very much like the Bear Stearns moment. …The evolution then follows with risky debt investments losing value fast. In the US, it started with subprime mortgage funds. In China, leveraged junior tranches of managed debt products are experiencing the same problem, due to a combination of higher rates and fear of worsening credit quality of the underlying names; a few have lost half of its value in the last six months. Cases in point: Haitong’s yueyueying risk-tranche and ShenYinWanGuo’s #8 tranche C have lost more than 60% from its recent peak…”
“Have we reached the point at which fear overwhelms greed and older debts can no longer be funded by new ones? It’s an investment timing question to which nobody has the answer. Clearly not, according to the latest lending data.”
“Continuing the US sub-prime analogy, China’s equivalent of toxic assets will be those that over-invested in fixed assets and the industrial capacity that fed them. The contagion includes anyone invested in the Australian mines shipping steel-making ingredients.”
“It’s quite an historic irony. The Chinese built an export machine based upon US sub-prime abundance. When it imploded, taking the export machine with it, authorities responded by unleashing a credit stimulus that recreated the very shadow banking mechanisms at the heart of US sub-prime.”
“Australia built an export machine based upon China’s sub-prime abundance and as it slows authorities here are responding by unleashing a credit stimulus…”
“The latest move by the Reserve Bank of India (RBI) to increase its repo rate by 25 basis points, will increase the number of stressed debt-ridden companies, says India Ratings.”
“As per the rating agency’s calculations, the number of companies that will be closer to debt default will go up to 10.7% from the current 9.5%. As much as 11% of BSE 500 companies will come under the ‘troubled’ category if the repo rate increase by the Central Bank translates into lending rates.”
“If the repo rate is increased by another 25 basis points in the next three months, the stress level may shoot up substantially, taking the number of stressed corporates to 13.1% and the amount of stressed debt to 16.5%. This could unleash a second wave of restructuring and non-performing assets,” said India Ratings.”
“Unfortunately, the agency also foresees more rates hikes due to pressure on emerging market currencies. On the other hand, consumer price inflation remains ’stubbornly’ high. As the country prepares for general elections, the likelihood of moderation in inflation is low. RBI have but few choices between saving the rupee by enhancing real interest rate or unleashing a second wave of corporate defaults. “It may be much higher than default rates observed so far,” said the rating agency.”
Bernanke should be a national hero in all of these countries!
‘We will be more specific: the bailout looks very much like the Bear Stearns moment.’
How long from now will China have its Lehman Brothers moment?
“Chinese real estate developers in particular opened up a wide lead on the Asian pack in terms of high-yield bond issuance in advance of the Year of the Horse, but now they are leading the way regionally in a broader emerging-market sell-off.”
Dear Gawd, Please let the EM crisis turn out to have been triggered by junk-bond funded Chinese real estate developers.
That would be such an over-the-top awesome come-uppance!
A while back, I was considering a couple jobs in Tennessee. I could not believe how skewed the cost of housing was there. The Tennessee employers still want to pay “southern” wages, but the Tennessee homedebtors all want to collect California-style rents or selling prices. Needless to say, I did not continue looking for work in that state. High housing costs and low wages do not attract a population.
That’s interesting, because Tennessee was one of the states actively attempting to dissuade retirees from choosing Florida.
I suspect you were applying in Nashville. Nashville has been declared an “it city” by the trendsters - whatever that means.
That translates into a 50-80% surcharge over the rest of the region.
Not quite CA prices, but still high. You get to rub shoulders with young and artsy hipsters. Isn’t that worth something?
“They say Wall Street buyers like Blackrock, which owns Invitation Homes, and Colony Financial, are overpaying for properties, artificially jacking up the prices.””
Wouldn’t surprise me. BlackRock is a poor man’s Blackstone. (BR started as a joint venture by Blackstone, I’m pretty sure it is entirely separate now.) Anyway, BR has basically the same profits as Blackstone but much worse return… BR has many times the assets of Blackstone. In other words, they’re not as shrewd. Blackstone/Steve Schwartzman > Goldman.
Blackstone = Lump ‘O Coal.
“The First To Get Out Don’t Get Hurt”
No sooner does Ben Bernanke prepare to leave office and the markets tank (starting last week already). How will high risk gamblers in the global financial casino get by without him providing an unlimited supply of free poker chips?
The important thing to understand is that nobody could have seen wave after wave of unusual tumult coming and none of it was due to Fed policy.
Analysis: Only time will define Bernanke’s crisis-era legacy at Fed
By Jonathan Spicer and Ann Saphir
Thu Jan 30, 2014 1:16am EST
Outgoing U.S. Federal Reserve Board Chairman Ben Bernanke participates in a discussion at the Brookings Institution in Washington January 16, 2014. REUTERS/Gary Cameron
(Reuters) - Ben Bernanke did not hesitate when asked whether he was confident that his signature response to the Great Recession would work.
“Well, the problem with QE is that it works in practice but it doesn’t work in theory,” the head of the U.S. Federal Reserve quipped earlier this month during his last public appearance.
He was referring to his decision during the darkest days of the financial crisis to launch an unprecedented program of massive bond purchases, a policy known as quantitative easing, or QE. The aim was to push long-term interest rates lower given that overnight rates, the Fed’s main economic lever, were already near zero.
The purchases Bernanke kicked off in late 2008 have continued, off and on, to this day. They have already led to a quadrupling of the Fed’s balance sheet to $4 trillion.
On Wednesday, Bernanke, 60, quietly adjourned his final policy-setting meeting after an unusually tumultuous eight-year stint atop the world’s most influential central bank.
When he steps down on Friday, the Fed’s bloated balance sheet will hang over his legacy. Critics have warned it contains seeds that could lead to inflation or asset price bubbles.
Early assessments have been mostly positive. The former Princeton professor has been praised as the steady hand who helped steer the United States and world economies clear of a far more painful recession.
He flooded financial markets with liquidity from an alphabet soup of programs set up on the fly; he printed trillions of dollars through three rounds of QE; and he made bold promises to keep stimulus in place for years to come, tying low interest rates to particular economic outcomes in an approach emulated by other central banks.
As a leading scholar of the Great Depression, Bernanke had a deep theoretical understanding of what to do in the face of a fast-moving banking panic. He put that knowledge into practice when the financial crisis struck.
“Bernanke was willing to do creative and aggressive things,” said Laurence Meyer, a former Fed governor who co-founded the forecasting firm Macroeconomic Advisers. “He put a lot of balls in the air and likely thought that not all of them will work - but some of them will. That was the kind of spirit and leadership and willingness to take risks.”
But like his predecessor, Alan Greenspan - who was showered with accolades when he stepped down in 2006 only to later be labeled a main architect of the subsequent crisis - Bernanke’s legacy will only become clear over time.
$4 TRILLION AND COUNTING
…
Ben Bernanke’s parting shot to emerging markets
By James Saft
Thu Jan 30, 2014 3:29am IST
Outgoing U.S. Federal Reserve Board Chairman Ben Bernanke participates in a discussion at the Brookings Institution in Washington January 16, 2014. REUTERS/Gary Cameron
(Reuters) - Ben Bernanke’s parting gift to emerging markets was some tacit advice they should have understood all along: you are on your own.
The Fed carried on with its tapering campaign at the conclusion of the Federal Open Market Committee meeting on Wednesday, slicing another $10 billion off of monthly purchases, and making no mention of the impact of a nascent crisis in emerging markets.
The statement accompanying the decision was reasonably upbeat, and carried no mention of recent upsets in emerging markets as a possible factor in their thinking. The Fed said the economy “picked up”, that the labor market indicators were “mixed” but showing “further improvement” and that household spending and business investment had advanced “more quickly”.
All in, this was somewhere between a gentle upgrade and on par with their December statement.
Combine that with no dissenting votes and you have the Fed sending out terrible signals not just for emerging markets, but for riskier investments generally. The Fed is apparently not made afraid by what it sees in emerging markets, and seems comfortable with the negative knock-on consequences for markets generally.
That is the right call, but not what you want to hear if you are long riskier equities. And indeed not only did emerging market currencies and other assets fall after the announcement, but U.S. shares accelerated an earlier slide.
The Fed’s moves today are negative for equities and riskier assets like emerging markets in two ways.
First, on a fundamental basis, buying fewer bonds means there are fewer bond investors who now have cash and face a decision on where to put it. That tightens conditions generally, and should, all else being equal, hurt investments in growing proportion to their riskiness.
Secondly, the fact that the Fed has finally met a selloff it doesn’t mind is significant. Not only did it pay attention to the market volatility caused by the euro zone crisis, it delayed the taper after a run-up in bond interest rates over the summer. Now, having started the taper, and seeing mixed but what it sees as update data, it seems resolved to carry on even if markets don’t like it.
OF GORILLAS AND MONKEYS
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