The Housing Bubble

Is the sky the limit from here on the U.S. housing recovery?

Will unelected Federal Reserve Bank officials continue to redistribute wealth through U.S. housing price supports under Janet Yellen’s tenure?

Of possible interest to HBB readers and posters:

Financial Markets

An overview of the ideas, methods, and institutions that permit human society to manage risks and foster enterprise.

Financial institutions are a pillar of civilized society, supporting people in their productive ventures and managing the economic risks they take on. The workings of these institutions are important to comprehend if we are to predict their actions today and their evolution in the coming information age. The course strives to offer understanding of the theory of finance and its relation to the history, strengths and imperfections of such institutions as banking, insurance, securities, futures, and other derivatives markets, and the future of these institutions over the next century.
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Is the economic fog unusually thick this year in your neck of the woods?

Bacon was $8.99 at our grocery store yesterday except for one brand, that was all fat and it was $4.99

We decided against BLTs this week.

Food prices soar as incomes stand still

By/Michelle Miller/CBS News/
February 15, 2014, 8:02 PM/

NEW YORK - Writer Jen Singer, the mother of two teenage boys, wrestles with her grocery list every week to keep the household budget from getting away from her.

“I’d like the government to stop by my house, come food shopping with me and see where the real costs are,” she said.

It’s is not her imagination. While the government says prices are up 6.4 percent since 2011, chicken is up 18.4 percent, ground beef is up 16.8 percent and bacon has skyrocketed up 22.8 percent, making it a holiday when it’s on sale.
“Oh my god!” Singer said as she spied bacon for $3.

“The things that are going up in price are the things I absolutely need to buy,” she said. “It’s the meat, it’s the milk, it’s the eggs and it’s getting out of hand.”

http://www.cbsnews.com/news/food-prices-soar-as-incomes-stand-still/ - 103k -

Have a friend in Cambria who bought a second home there. Cambria is now on strict water rationing. Can use grey water outside if you have it.

Farmers in Bako told me that they are looking at a water reduction of 50%. This will be an interesting year!

Today is Washington’s Birthday, and I cannot tell a lie.

Ronald Reagan left office many years ago, so quit beating a dead horse LOLA. Seems like you’d want to be angrier at democrats following Ronnie than people in his same party anyway.

I understand internet trolling will be a new event in the Summer Olympics, but you have to stop all the drinking or your liver will never make it to Rio.

Happy George Washington’s Birthday, everyone! TPTB now gives it the lame name of “Presidents’ Day”, but today I honor the original, the one and only. Wish he were here now, he had no mercy on traitors and slackers.

Screw the “Presidents”, there’s only one that matters to me at this time, and that’s GW. For your sacrifices, and for all you did for me, old man, many thanks and many apologies that I haven’t been a better citizen and that I failed to realize what would happen before it was too late.

PS: Screw google, not even a doodle for the man, and yet they lionize King and any obscure cultural figure who so much as gets a hangnail. Blehh.

Here is a brief article that shows how the data has been changed in order to make global warming / global climate change “more real”.

What if the earth is really going through a cooling trend?

http://stevengoddard.wordpress.com/data-tampering-at-ushcngiss/

The new Class Warfare meme:

“Poor Americans are doing fine because they’re richer than people in India.” (As if America is India or a developing country. Talk about propaganda to set the bar low. )

We need a vibrant middle class

http://edition.cnn.com/2014/02/15/opinion/erickson-super-rich/

…..Last summer, a commercial funded by the conservative Charles Koch Foundation tried to persuade people that the middle class in America is actually rich by pointing out that someone making over $34,000 — a decidedly middle-class income — was part of “the wealthiest 1% in the world.”

Seriously? Let’s look more closely at this idea that the poor — or even the middle class — in America are actually wealthy.

Konheim’s argument probably does not hold much weight among millions of Americans who skipped filling a prescription in 2012 because of the costs, according to Commonwealth Fund’s Biennial Health Insurance Survey. Nor does it likely ring true for many in the middle class who are trying to buy a home at a time when home prices have doubled since 1970. And let’s not forget the cost of a public four-year college education, which has risen by an eye-watering 250% over the past 30 years….

….Median incomes in America are actually lower now than they were in 2000, and household debt levels have skyrocketed.

Uncle Fed Love Me, take note.

This story reminds me why I am such a patient stock market investor.

Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion
February 17, 2014, 7:23 AM

Soros Fund Management has doubled up a bet that the S&P 500 SPX is headed for a fall.

Within Friday’s 13F filings news was the revelation that the firm, founded by legendary investor George Soros, increased a put position on the S&P 500 ETF SPY by a whopping 154% in the fourth quarter, compared with the third. (A put or short position basically gives the owner the right to sell a security at a set price for a limited time, and in making such a bet, an investor generally believes the security is going to decline.)

The value of that holding, the biggest position in the fund, has risen to $1.3 billion from around $470 million. It now makes up a 11.13% chunk of all reported holdings. It had been cut to 5.14% in the third quarter, from 13.54% in the second quarter, which itself marked another dramatic lift on the bearish call. The numbers can be found at Whalewisdom.com, which makes them slightly easier to digest than the actual SEC filing.

Writing on the Bullion Baron blog, Joseph has been quick to alert readers to the hedge fund’s bets on the S&P 500, offering up a summary of changes to that call from mid-2011 onward. For the four quarters of 2013, that short has followed a pattern of big highs and big lows.
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Moreso than anyone here, Buckets O’ Money lives rent free in many empty skulls.

Where ya at today Buckets O’ Money?

Renting will never allow you to do a tax free short sale while allowing your ex-wife to keep her new boobs that were paid for with your 2005 cash out refi.

I wonder how many boob jobs the Fed has on their balance sheet?

The agency MBS purchase program was announced in November 2008 and the FOMC expanded the size of the program in early 2009. In total, $1.25 trillion in agency MBS were purchased between January 2009 and March 2010, when the purchase phase of the program was completed. Additional transactions were conducted after March to facilitate the settlement of the initial purchases. Outright purchases were conducted via competitive bidding to ensure that trades were executed at market rates.

http://www.federalreserve.gov/newsevents/reform_mbs.htm - 23k -

Anyone catch the Jimi Hendrix documentary on PBS’s American Masters? Yeh, I’m showing my age. I was never particularly a fan of the guy, but after seeing the show, newfound respect. Great rendition of the Star Spangled Banner at Woodstock, and I loved how he responded to Cavett when he was asked about it. I’m paraphrasing here: “I dunno, I heard it when I was a kid, I’m an American, so I played it.”

An American. Not an “African American”. An American. Thank you, Jimi!

I always thought he died of a heroin OD, come to find out, he had trouble sleeping, was exhausted and just wanted to crash. His girlfriend (sheesh, with girlfriends like that, who needs enemies) apparently gave him a couple of sleeping pills way more potent than what he was used to, accidentally slipping him a mickey. Presto, dead at 27. Looking at the old footage of the guy, he always seemed rather older than he was, like in his early 40s. Not necessarily because of hard living, but because of a certain stature and bearing that he had. And for someone who was reputed to be a heavy drug user, his eyes looked remarkable clear to me in the interviews he gave.

BTW, an Englishwoman can be credited for “discovering” Jimi Hendrix. Not the guy who usually gets the credit. If that woman hadn’t promoted him relentlessly, he’d have labored in obscurity in Greenwich Village blues gin joints.

Chase Imposes New Capital Controls on Cash Deposits

Customers have to show ID, can no longer deposit cash into another person’s account

Paul Joseph Watson
Infowars.com
February 17, 2014

JPMorgan Chase has irked its customers by imposing new capital controls that mandate identification for cash deposits and ban cash being deposited into another person’s account.

Air Force veteran Kristen Meghan received a letter from Chase informing her of “changes in how we accept cash deposits.”

“When making a cash deposit please; be ready to show a valid ID – deposit only into accounts that list your name,” states the letter.

The move is another example of how banks are becoming increasingly invasive and restrictive with how they treat their customers, while crypto-currency alternatives like Bitcoin offer total anonymity.

According to Meghan, when she asked a Chase bank teller why cash deposits couldn’t be made into another person’s account, she was told that the new regulation was imposed by government request.

According to Fox Business, Chase is “the first big bank to enact such a change.” Customers are already being asked for ID as of February 1, while cash deposits into accounts bearing someone else’s name will be banned from March 3 onwards.

Chase claims it is imposing the changes to prevent money laundering, although the policy is likely to cause massive inconvenience for families, such as parents who wish to deposit cash in accounts belonging to children who are away at college.

Representatives from Bank of America, Citigroup and Wells Fargo did not respond to questions on whether they would also be looking to impose the same rules.

Some analysts have speculated that such measures are a sign that banks are preparing for economic turmoil and potential bank runs. Last year it was reported that two of the biggest banks in America were stuffing their ATMs with 20-30 per cent more cash than usual in order to head off a potential bank run if the U.S. defaults on its debt.

This is by no means the first example of Chase imposing capital controls on their customers’ accounts.

In October last year, we reported on how Chase instituted policy changes which banned international wire transfers while restricting cash activity for business customers (both deposits and withdrawals) to a $50,000 limit per statement cycle.

The bank’s reputation was already under scrutiny after an incident last year when Chase Bank customers across the country attempted to withdraw cash from ATMs only to see that their account balance had been reduced to zero. The problem, which Chase attributed to a technical glitch, lasted for hours before it was fixed, prompting panic from some customers.

Other banks have also imposed capital controls in recent months, including HSBC, which is preventing customers from withdrawing larger amounts of money without written documentation proving how it is to be used.

Russian lender ‘My Bank’ also temporarily banned all cash withdrawals last month.

Are you ready for the ‘Downton Abbey’ economy?

How are your Bitcoin investments doing?

“U.S. health care: We pay more, wait longer than other countries”

“Americans are much more likely to have trouble paying medical bills or getting a quick appointment with a doctor than their peers in 10 other high-income, industrialized countries, according to a new study.”

http://economy.money.cnn.com/2013/11/14/america-healthcare/

But … but I thought THEY were the ones who had to wait to see a doctor, you know, because they “ration” healthcare.

Whac-A-Bubble™, something you might find interesting: (video, 3:42, SFW) The Landfill Harmonic Orchestra - extremely poor people making string instruments out of landfill trash.

Also: (note - auto sound start): http://www.cbsnews.com/news/price-of-success-will-the-recycled-orchestra-last/

From Sunday’s 2/16/14 Bits Bucket:
Comment by Whac-A-Bubble™
2014-02-16 01:09:33

How long will it be from now until when the Housing Bubble bottoms out?

Some observations and a conclusion:

The model of the populace and government taking on debt, then the Federal Reserve buying it for permanent sequestration - I’m sure it has consequences but I’m not clear on what those are. Granted, the policy is extremely discretionary and unpredictable - at least for most economic actors. Surely, the connected insiders have signals about what the Fed does.

The Fed has a 4 trillion dollar balance sheet. And the mortgage market is about 10 trillion dollars. About half of the Fed’s balance sheet is outright mortgages. The other half is government debt. How much of that government debt is mortgage-related? For example, the FHA is insolvent. So any debt generated by FHA is government debt, but caused by mortgages. Item: Wells Fargo is moving back into subprime loans which will be insured by FHA.

The Fed can print money to buy this debt and sequester it on its balance sheet (balance sheet expansion). It could be that system works without much side effect. The Fed is a unique economic entity in that it can print money (well, have it printed).

In Star Wars, there is the scene when the Death Star blows up the planet Alderaan. The Grand Moff Tarkin says, “I think it is time we demonstrated the full power of this station.” I think that could be what the PTB are thinking with the Fed.

Also, the taper. They’re saying they’re going to taper but no one really knows (other than the leaders and connected insiders) what the Fed is doing. Why couldn’t they continue balance sheet expansion? I see some indications that their rate of debt purchasing has not diminished, but obviously the reality is unclear.

There are side effects which are of course, poorly understood. Blowing up Alderaan had consequences which likely led to the destruction of the Death Star (yes, I know it’s a movie but the moral of the story is what I’m trying to convey).

Japan’s government debt is over a quadrillion yen, about 200 percent of GDP. Its central bank, the BOJ, has a 270 trillion yen balance sheet.

Our government debt is about 100 percent of GDP, about 16 trillion USD. The balance sheet-to-public debt ratio is about 25%, just like Japan’s ratio. The balance sheet to GDP ratio is about 50% for Japan, 25% for the US. Popular economists - e.g. Krugman - have stated outright that Japan is the model.

If the Federal Reserve can be a permanent and relatively consequence-free debt sink for any amount of debt from favored industries, and it has political support… why would that change?

Of course, this action doesn’t support the currency, but the attitude with that is, “We’ll have plenty of warning with increasing inflation to take action.” I keep reading that responding to inflation simply involves stopping the injection of money into the economy. That would be quite a scenario though. The economy is like a plant. It grows around and towards light (money) sources. With the Fed providing so much support, then not just stopping the money printing, but having to reduce the money supply - that would be quite a disruptive scenario. Quite disruptive.

But… I would guess as long as there are no hints of undesired inflation, why would the PTB not continue with the balance sheet expansion? Politicians, the Fed and the FIRE sector all like it a great deal. Voters don’t seem to have a problem with it as re-election rates are quite high in historic terms.

Ultimately though, I think the path is fraught with danger, versus a non-discretionary, non-interventionist central bank policy. Imagine companies starting to convince the Fed to take on debt which benefits the company, and they can make a plausible case that it benefits the economy - and thus fills one of the dual mandates of the Fed to pursue full employment. So, this path is fraught with the inefficiencies and costs of central planning.

China has this model, a combination capitalist/centrally planned model. I was reading about Myanmar’s (Burma) banking system. The article stated, “A final factor is whether the government in Yangon will rein in its deep-rooted instincts to control banking and the wider economy. Rather than specifying individual banks to lead the build-up of mobile banking, Mr Furberg says the ideal approach would be for the government to stick to drawing up robust regulations and then to open the market to “as many players as possible” — http://www.economist.com/news/finance-and-economics/21586841-mobile-phones-may-regenerate-countrys-withered-banking-system-leapfrog-spotting

The slide towards increased central consolidation of power is constant it seems to me. The Founders recognized it and created three equal, competing power centers in the government, so the ambitious men who enter it always have to fight with other ambitious men for their power.

BUT - if the central bank debt sequestration system works, and it has no apparent upper bound, the current state of real estate and more importantly mortgage finance could continue for some time. If there is some problem with it - political or financial - it could stop sooner. Or suddenly. I’m intrigued by the taper. With the unanimous vote to do so at the last FOMC meeting. I not sure of the reasoning behind it. It’s a data point which suggests they feel they are reaching an upper limit. On the other hand, it could be a test to see how the economy reacts. Or it could just be theater and they’re really not tapering at all or by some token amount to gauge market reactions and reduce political pressure.

So, to answer the question - if this system of Fed as consequence-free debt sequestration sink works… it could be a long time before the system changes. Don’t get me wrong, I think it is a very destructive course of action. It’s the very definition of crony capitalism where unelected officials, with tacit approval from elected officials and their big donors, enrich the big donors. When the economy runs on trying to figure out what the Fed wants to do instead of meeting human wants - that’s a descent into central planning. Central planning is very good to the central planners and their associates - the elites of the Soviet Union were not living in mean circumstances. But it causes greater and greater weakness in the economy at large. It is a siren song though and this kind of back-door entry into it, always under the guise of doing good things for the society, is very attractive to the PTB. As long as there’s no political consequence to it, why change?

Anyhoo, my $0.02.

Will the Fed follow its forward guidance to raise short term rates when the unemploynent rate reaches 6.5 pct?

At the Fed, The More Things Change, the More They Stay the Same

Ron Paul
Infowars.com
February 17, 2014

Last week, Federal Reserve Chairman Janet Yellen testified before Congress for the first time since replacing Ben Bernanke at the beginning of the month. Her testimony confirmed what many of us suspected, that interventionist Keynesian policies at the Federal Reserve are well-entrenched and far from over. Mrs. Yellen practically bent over backwards to reassure Wall Street that the Fed would continue its accommodative monetary policy well into any new economic recovery. The same monetary policy that got us into this mess will remain in place until the next crisis hits.

Isn’t it amazing that the same people who failed to see the real estate bubble developing, the same people who were so confident about economic recovery that they were talking about “green shoots” five years ago, the same people who have presided over the continued destruction of the dollar’s purchasing power never suffer any repercussions for the failures they have caused? They treat the people of the United States as though we were pawns in a giant chess game, one in which they always win and we the people always lose. No matter how badly they fail, they always get a blank check to do more of the same.

It is about time that the power brokers in Washington paid attention to what the Austrian economists have been saying for decades. Our economic crises are caused by central bank infusions of easy money into the banking system. This easy money distorts the structure of production and results in malinvested resources, an allocation of resources into economic bubbles and away from sectors that actually serve consumers’ needs. The only true solution to these burst bubbles is to allow the malinvested resources to be liquidated and put to use in other areas. Yet the Federal Reserve’s solution has always been to pump more money and credit into the financial system in order to keep the boom period going, and Mrs. Yellen’s proposals are no exception.

Every time the Fed engages in this loose monetary policy, it just sows the seeds for the next crisis, making the next crash even worse. Look at charts of the federal funds rate to see how the Fed has had to lower interest rates further and longer with each successive crisis. From six percent, to three percent, to one percent, and now the Fed is at zero. Some Keynesian economists have even urged central banks to drop interest rates below zero, which would mean charging people to keep money in bank accounts.

Chairman Yellen understands how ludicrous negative interest rates are, and she said as much in her question and answer period last week. But that zero lower rate means the Fed has had to resort to unusual and extraordinary measures: quantitative easing. As a result, the Fed now sits on a balance sheet equivalent to nearly 25 percent of US GDP, and is committing to continuing to purchase tens of billions more dollars of assets each month.

When will this madness stop? Sound economic growth is based on savings and investment, deferring consumption today in order to consume more in the future. Everything the Fed is doing is exactly the opposite, engaging in short-sighted policies in an attempt to spur consumption today, which will lead to a depletion of capital, a crippling of the economy, and the impoverishment of future generations. We owe it not only to ourselves, but to our children and our grandchildren, to rein in the Federal Reserve and end once and for all its misguided and destructive monetary policy.

Former Congressman Ron Paul’s article first appeared at the-free-foundation.org, the temporary home for his weekly column until his personal web page is up and running.

Bill Nye the paid off guy.

I guess we will never see those pictures of Justice Roberts.

With six years of shadow inventory behind us, and still no real change in the bank’s shadow policy - nor mark to market - a real big explosion is approaching.

On a $300,000 mortgage at 4% over six years the banks have buried $83,000 into their balance sheet that doesn’t exist. And as those funds passed thru their income statements they took bonuses on them making a bad situation even worse.

It isn’t just the principal that they cannot recover but the lost revenues they have been accruing. And they have calculated their liquidity on as well (about 30 average -but could be 40 all being equal).

And nobody seems to have a plan on how to address this. Disgraceful.

When will the government step in and make some correct decisions. Rah Rah guidance is not an economic principle.