The Housing Bubble

I’m buying a pitchfork if this happens.

Matthew Lynn’s London Eye
Opinion: Why the U.S. will have to bail out Greece
Published: Feb 18, 2015 4:00 a.m. ET
Athens and Brussels may want talks to fail, but Washington doesn’t
By Matthew Lynn

Fighting has flared up again in the Ukraine. The Egyptians are sending soldiers into Libya as another North African state collapses into chaos. The militants of Islamic State are spreading their influence across the region. You’d think Barack Obama might have bigger foreign policy issues to worry about than a small state of 10 million people on the eastern edges of the Mediterranean.

But Greece may be about to turn from a European into an American problem.

As the game of brinkmanship between the radical Syriza government elected last month and the European Union gets played out, it has become increasingly clear that both sides may have a strong interest in the talks failing. The International Monetary Fund looks to have abdicated all responsibility for fixing the mess.

The worrying point is this: Both sides have an increasing interest in a catastrophic failure.

But the U.S., with the U.K. perhaps in a subsidiary role, has an equally strong interest in a stable Greece. If a crunch comes, America will have no choice but to bail Greece out. How? It may well need to extend emergency loans, prop up its banks, and if necessary help it establish a new currency as well.

On Monday, talks between Greece and the finance ministers of the eurozone ended chaotically. The Syriza government, led by the charismatic young Prime Minister Alexis Tsipras, is committed to ending the austerity regime imposed on Athens by the EU and the IMF and is refusing to borrow any more money under the terms of the bailout agreement.

The rest of the EU, led by Germany, is standing firm. It may be willing to make some minor concessions, such as rebranding the loans or extending their duration. But it does not look willing to compromise on the core issue — that Greece has to stick to the austerity plan, and keep tight controls on public spending.

There may still be a deal to be struck. Greece after all only accounts for a small percentage of the total eurozone economy. Its debts amount to just 315 billion euros, hardly a massive sum in the context of an economic bloc with a total gross domestic product of 9.5 trillion euros. But the worrying point is this: Both sides have an increasing interest in a catastrophic failure.

Look at it from the perspective of Germany, and the other core eurozone states. If they give in to Syriza, they will only encourage other radical anti-austerity parties in Spain, Italy and elsewhere. Any member state will be able to elect a left-wing government, ramp up public spending, and insist that the rest of the zone pay the bills.

The eurozone will have been turned from a merely dysfunctional monetary union into a completely unworkable one — and that is hardly an improvement. Worse, politicians who cave in to Syriza may well get wiped out when they next face the electorate. So they have to strong incentive to stay firm.

Then look at it from Tsipras’s viewpoint. If he compromises and starts tearing up his election promises, which include a higher minimum wage, and hiring more government workers, what then? The Greek economy will keep declining. And he will be out of power very quickly. If he sticks to his guns, Greece may well be ejected from the euro, but if Tsipras manages that well, he may well consolidate his grip on power.

Remember, Syriza is a party with its roots in hard-left Leninist politics. It isn’t necessarily afraid of disruptive change, and it won’t always play by the rules of the club of mainstream social democratic parties. So a Grexit may only be a possibility — Beremberg Bank, for example, currently puts it at 35% — but it could happen. If so, the U.S. would have to get involved. Here’s why.

The immediate aftermath of a sudden exit from the euro (EURUSD, -0.31%) would be chaotic. Greece would be bust, with little in the way of hard currency to pay for imports of oil and medicines. It would be under the control of a radical government, with little experience of power. Its medium-term prospects might be fine — but the short-term would be looking very bleak.

You might expect the EU to step in with financial and technical aid. It would if the Ukraine or Bulgaria were sliding into chaos. But Greece will be different. It will be important to the rest of the eurozone nations not only that Greece fails but that it is seen to fail and fail badly. After all, the worst thing that could happen would be for Greece to flourish outside the single currency — which, with a massively depreciated currency, and lots of financial aid, is what could happen pretty quickly. So the rest of Europe may sit on its hand, even if it collapses.

You might also expect the IMF to step in. Rescuing states that have failed financially is, after all, its job. That is what it has done in Argentina and Thailand and many other countries. And yet, under its French managing director Christine Lagarde, the Fund has proved to be more interested in supporting whatever the EU wants than preserving global financial stability. If the EU wants Greece to fail, the IMF may go along with that.

Who does that leave? Greece can turn to Russia for help, and the new government has already struck up a friendly relationship with President Vladimir Putin. The Chinese may want to increase their influence in the region. But it mainly leaves the U.S. Only one country has the financial resources and the technical expertise to help a country collapsing financially — and that is America.

The U.S. doesn’t want Greece to turn into a failed state — there are already too many of those on the other side of the Mediterranean. Nor does it care one way or the other whether the euro succeeds as a currency or not. Indeed, as a long-term rival to the dollar, it would probably prefer if it didn’t.

The chances are that no one in Tennessee or Idaho really wants to bail out the Greeks. But if this mess doesn’t get fixed soon, come the summer that might well be what happens.
…

Europe Markets
Greek deal hopes boost Stoxx 600 to highest since 2007
Published: Feb 18, 2015 10:12 a.m. ET
Greece to submit loan-extension request on Thursday
Greek Finance Minister Yanis Varoufakis is determined to renegotiate his country’s bailout conditions.
By Sara Sjolin
Markets reporter

LONDON (MarketWatch) — European stock markets moved firmly higher on Wednesday, boosted by reports that Greece will ask for an extension to its loan agreement later this week.

The Stoxx Europe 600 index (SXXP, +0.72%) picked up 0.8% to 379.83, setting it on track for the highest level since November 2007. Greece’s Athex Composite index (GD, +1.17%) added 0.9% to 845.42, reversing after a 2.5% slide on Tuesday. Greek banks rallied, with shares of Piraeus Bank SA (TPEIR, +5.57%) up 4.9%, Eurobank Ergasias SA (EUROB, +7.48%) rising 4.8% and National Bank of Greece SA (ETE, +6.78%) 5.9% higher.

Greek progress: Sentiment in Europe was lifted by hopes that Greece and its international creditors were getting closer to an agreement on the structure of Greece’s bailout that will keep the country financially afloat when the current bailout program expires on Feb. 28.

Spokesman Gabriel Sakellarides said the Greek government was preparing to submit a request for an up to six-month extension to its loan agreement on Thursday, a day later than what was initially reported. So far, Greece only wants a new loan deal and is not looking for a continuation of the full bailout program, arguing that the attached conditions are hurting the country’s economy and society.

Germany has already indicated that it won’t accept a loan agreement without a formal extension of the bailout program, including the strict austerity terms. Eurozone finance ministers have tentatively scheduled a meeting on Friday to discuss Greece’s debt deal, but will only meet if Greece has submitted a “credibly worded request” for an extension, according to a European official.

Meanwhile, Greece’s minister of state Alekos Flamboraris reportedly said the government might ask for an emergency EU summit to be held as the Greek crisis is as much a political as an economic issue.

If Greece doesn’t get some sort of loan or program extension before the end of the month, the country risks running out of money and defaulting on its debt. A meeting of eurozone finance ministers — the Eurogroup — broke down abruptly on Monday.

“The Greek government is proposing to reverse reforms, which is completely unacceptable for parliaments in Berlin, Den Haag or Amsterdam. We are still far away from a deal, and the risk of ‘Grexit’ remains elevated, at 35%,” said Christian Schulz, senior economist at Berenberg, in emailed comments on Wednesday.

Concerns have risen that Greece may withdraw from the eurozone if the country’s new antiausterity government is unable to come to an agreement with its international lenders.

The European Central Bank will on Wednesday review the emergency liquidity assistance granted to Greek banks, and economists largely expect the funding line to remain open.
…

Why should we do it? We’re already the world’s cop. Let the EU be the world’s homeless shelter, especially for their own.

http://www.picpaste.com/IMG_20150218_080344_746-tOHIzztz.jpg

Vector RAGE!!!!!!!!

In the context of everything that’s happening today and why TheHousingBubbleBlog exists, it is probably unfair to use virgins as an example. A virgin is innocent and inexperienced. Everyone today is experienced, we went through this nonsense that ended just 7 years ago.

I know this was not the context used in Oxide’s OP.

Either way, it’s still going to be a mess.

Interesting overlay of commodities price and dry bulk index.

http://www.zerohedge.com/news/2015-02-13/worlds-largest-shipbuilder-reports-3-billion-loss-baltic-dry-index-hits-new-record-e

There is going to be a lot of scrap iron available.

Somebody linked to an article yesterday or Monday claiming that the decline in the level of that index was mostly caused by a reduction of the amount coal being imported into China.

Invade the world invite the world.

Another “feature” of an empire on a perpetual war.

Summary of today’s neocon clickbait (United States taxpayers’ edition)

Top Drudge headline - Obama letting ISIS in?

Washington Times - Jeb Bush: Obama has left America ‘less influential in the world’

Fox News - New ISIS Barbarism? Claims of dozens burned alive, organ harvesting

Weekly Standard - Jeb: ‘America Does Not Have the Luxury of Withdrawing From the World’

Breitbart - Report: Obama’s New Anti-ISIS Propaganda Head Tied to Muslim Brotherhood

World Net Daily - New Intel: ISIS Planning Attacks on U.S. Soil

And when you’re done clicking all those links to launch America’s next trillion dollar war, you can go click on some other links about “shrinking the size of government to where you can drown it in the bathtub”

There is no push for war in conservative circles beyond a few fringe players. They are out of touch. Without another 9/11+ or Pearl Harbor style attack it ain’t gonna happen. Small deployments of boots here or there sure, but no war.

The bulk of it went into US Treasuries.

This is why we won’t see “confiscation” to pay the bills. Why confiscate, when “investors” beg you to take their money?

How much more bad news can the stock market ignore this year ??

Where else do they have to go ??

‘obama always goes reckless in words and deeds like a monkey in a tropical forest’ — kim jong un

Housing is expensive but stawks are cheap at 30 PE.

There hasn’t been a building permit “5th dead cat housing rebound bounce”. The sideways to slowly rising trend since 2009 has yet to break out one way or the other.

When we launch our ground offensive in Ukraine I want the children and grandchildren of every member of Congress who voted for it parachuted in on the front lines

Keep poking a sleeping bear with a stick @ssholes and see what happens

I think Obama and the neocons wanted to start a cold war, but Putin gave them a hot war. Now these neocons a$$licking fookers just have no idea how to deal with it. Russia is not your Iraq, Afghani, Libya, Syria, etc. Russians can fight toe-to-toe with anyone.

Nothing to see here - no red line to cross - just move along folks.

Brett Arends’s ROI
Opinion: Why the U.S. market is one of the most dangerous in the world
Published: Feb 18, 2015 6:30 a.m. ET
Some global markets are cheap by historic standards, but not here
MarketWatch
The U.S. stock market is expensive, according to the Shiller cyclically adjusted price-to-earnings ratio.
By Brett Arends
Columnist

Which are the most dangerous markets to investors around the world?

Which countries’ stock markets are most likely to blow up your retirement plan, your kids’ college funds, or your hopes of saving up enough to buy that yacht?

If you think it’s markets such as Russia or Greece, or even China, you may want to think again. According to some fascinating research produced by Wellershoff & Partners, an investment firm in Zurich, Switzerland, the real dangers are in very different places.

Based on data comparing the current valuations of each stock market to its historic averages, Wellershoff comes up with a list of five markets most at risk of producing miserable returns over the next five years — and fourth on that list is the stock market of the United States.

Ireland ranks at the bottom, according to Wellershoff’s calculations. Over the next five years the Irish market is most likely actually to lose investors about 16% of their money, after accounting for inflation. Other markets offering the lowest returns include South Africa, plus the very minor emerging markets of the Philippines and Thailand.

Wellershoff’s estimate for the U.S. is for a total stockholder return between now and 2020, measured in constant dollars, of just 8%. Not 8% a year — 8% overall. The historic average would be a gain of about a third, in constant dollars, over five years.

Before going any further, I need to point out that the future includes so much that’s random that all forecasts need to be taken with pinches of salt. “Never make predictions, especially about the future,” as Casey Stengel, legendary manager of the New York Yankees, once said, and he had a point.

Yet there is a broad gray area between thinking we can predict the future with a lot of accuracy and thinking we are living in a world of total chaos and we can’t predict anything at all. Over the next five years, I’m going to wager that the Februarys will be colder on average than Julys, the sun will rise in the east, and Kim Kardashian won’t be elected Pope. Call me a nut if you will.

Wellershoff’s analysis is not based on sticking a wet finger in the air. Instead it’s based on comparing share prices with average per-share earnings over the course of an extended economic cycle. That’s the methodology for “cyclically-adjusted price-to-earnings” ratios made famous in the U.S. by Yale University Professor and Nobel laureate Robert Shiller. The rationale for this model is to smooth out booms and busts and look at the underlying earnings power of the stocks. Wellershoff then compared today’s cyclical PE for each market with the average cyclical PE.

So, for example, since 1979 Australia’s average cyclical PE is about 18, according to Wellershoff. Today it’s 15. So although the future involves a lot of guesswork, it is reasonable to say that the Australian stock market appears to be cheaper than its average levels over the past 35 years. That may not sound like much, but it’s actually a huge statement.

There is an enormous body of research arguing that a key driver of financial returns — and probably the key driver — is the valuation of a stock or a market when you buy it. Buy cheap, sell dear.

And one of the key factors in the Wellershoff analysis is that it is based on currently observable facts, not on what somebody says Vladimir Putin or Angela Merkel is going to do next month.

Right now, Wellershoff says, the U.S. stock market sells for about 24 times its cyclically-adjusted per-share earnings, compared to an historic average of about 16 times. That is very expensive by historic standards. Shiller himself says the market sells for more than 27 times cyclical PE.

No, this doesn’t mean we should all rush to sell all our U.S. stock funds today and hide under the bed. But there are real, meaningful conclusions that every ordinary investor should draw.

The U.S. market is risky. Investing all or most of your risk capital in U.S. stocks alone, for example through a Standard & Poor’s 500 (SPX, -0.25%) stock market index fund, is foolish. Those who recommend it are actually recommending that you gamble. Maybe it will work out, maybe it won’t. Damagingly, they are not selling this gamble as a gamble, but as a “safe” and lower-risk strategy.

Financial intermediaries who are recommending this are doing so, in part, because the practice is so widespread that you won’t be able to sue them if it goes wrong.
…

He reminds me of Nixon, for some reason.

As a good little neo-con stooge and Wall Street fluffer, he has a bright future in politics.

“then I clicked on a link where Wisconsin governor Scott Walker said the social safety net has become a hammock”

boots in a hammock

Somebody left CNN on the TV in the exercise room, Wolf Blitzer reporting live now that “ISIS believes it can bring about the Apocalypse”

Nice to see that real journalists are on board with pimping the new war

Cue oligarch-controlled media stories of why is is good and necessary.

Like the stories about why cheap oil/gas is “bad”

They probably aren’t watching the news, but every young pup I know has a 60″+ TV and a pricey satellite/cable package.

sheldon adelson approves of this message

Kasich’s children must not be in armed forces.

‘Also, in January, only 74 new homes sold in San Diego County, a record low in CoreLogic’s data going back to 1988.’

maybe we can give isis midnight basketball instead of bombing them

http://www.bloombergview.com/articles/2015-02-18/islamic-state-of-boredom-how-jihadis-recruit-western-youth

midnight basketball worked so well to reduce violence in the black community since the 1990’s so no reason we shouldn’t try it with isis too

boots on the basketball court

“We’re killing a lot of them, and we’re going to keep killing more of them,” said Marie Harf.

Yeah, I thought I saw her out there shoulder to should with the Kurds, giving what for to ISIL. The State Department “spokespersons” are absolute jokes.

That’s regionist

It’s been that way since 2000. Fraud. Realtor fraud. Mortgage fraud. Income fraud.

It’s all fraud.

It is amazing that those ivory tower researchers could resist peeling the onion.

A house was supposed to be a wealth generation product. Lie like you deserved it.

Eazy-er Said Than Done:

http://m.youtube.com/watch?v=tFJQlFvkmQw

the Beastie Boys - Shadrach:

https://www.youtube.com/watch?v=j_QKKkWJjqk