A Defining Act Of The Housing Crisis
CTV Vancouver reports from Canada. “Metro Vancouver’s April real estate numbers point to a red-hot housing market that’s having trouble keeping up with demand. Despite soaring sales both Metro Vancouver and the Fraser Valley last month, excessive inventory in areas like the Township of Langley’s Willoughby community has actually seen some prices drop. Solon Bucholtz of Royal Lepage said condos that would have cost around $300,000 before tax a couple years ago are now being offered at $275,000 – taxes included.”
“‘I’ve been licensed for eight years, I haven’t seen prices this low for condominiums in the Langley area,’ Bucholtz said.”
The Edmonton Sun. “While the number of housing sales in Edmonton in April dropped by 13% compared to last year, the average sale price climbed 3%, show the latest numbers. ‘If inventory keeps increasing, I think it’s reasonable to expect that we would see a little bit of a decrease in price at some point in the year, but so far the spring market has been maintaining,’ said Geneva Tetreault, president of the Realtors Association of Edmonton.”
“The total residential listings in Edmonton jumped to 3,298 in April, up from 2,977 in April of last year, the highest number of listings for this period over the last five years. ‘We’ve always felt and maintained for quite a long time that we are not on the verge of a bubble popping in the housing market, and I think the report is just reinforcing what we’ve been saying all along,’ said Tetreault.”
The Globe and Mail. “Altus Group Ltd., which tracks the Alberta condo market, said in a report this week that sales of new condominiums in Calgary were down 61 per cent in the first three months of this year compared with the same time last year, and 53 per cent lower than the average of the last five years. It was the same story in Edmonton, where first-quarter sales were down 60.5 per cent year over year and 41.5 per cent below the five-year average.”
“Avi Urban, a builder-developer of low-rise condominiums, says that since last December, there has been a ‘marked’ decline in absorption numbers, particularly among investors. ‘Sales budgets were revised down by 30 per cent in March and will likely end closer to 50 per cent off initial projections by year-end if there isn’t a significant increase in market interest,’ says Avi Urban president Charron Ungar. Despite a decline in consumer interest, Mr. Ungar says sales prices are holding steady, although the company, unlike a year ago, is now relying on buyer-incentive programs.”
From CBC News. “Calgary house sales in the first three months of 2015 dropped by 33 per cent. At the same time, there was a flood of new listings as Calgarians tried to sell properties before the impact of low oil prices took hold. Those conditions are creating a buyer’s market, according to the Calgary Real Estate Board. ‘With fewer buyers making purchase decisions and improved selection for resale, new home and rental property, sellers have been either adjusting their expectations on price or delaying their plans about when to list their home,’ CREB president Corinne Lyall said in a news release.”
“Particularly hard to sell were higher-priced homes, with far more on the market than buyers interested in them, CREB said. ‘This does not come as a surprise as many of the job losses in recent months have occurred in the higher paying sectors,’ said CREB chief economist Ann-Marie Lurie.”
The Regina Leader Post. “Saskatchewan’s economy is being ‘tripped up by the slide in oil prices,’ with real GDP expected to grow at a tepid one per cent in 2015, according BMO Capital Markets. Housing demand has also weakened, with home sales down more than 12 per cent year over year in the first quarter. In the resale market, the months’ supply of homes for sale has shot up to more than nine per cent, the highest in at least a decade. As a result, prices are correcting with Regina’s benchmark price down more than six per cent since its late-2013 high.”
“Robert Kavcic, senior economist with BMO Capital Markets, noted the labourmarket performance has weakened in recent months, with employment growth slowing to 0.4 per cent year over year in the first quarter alongside a drop in private sector jobs. ‘Population growth remains historically high at 1.5 per cent year over year, but those inflows are facing a higher unemployment rate; the jobless rate is still relatively low at just under five per cent, but that’s up from just 3.4 per cent as recently as November.’”
The Financial Post. “Francis, a 34-year-old welder from the mining town of Grande Cache, Alberta, says he wishes he could get out of the townhouse he bought four years ago. ‘At the time it seemed cheaper. I didn’t want to spend money on rent. But now I think I can find something cheaper to rent,’ says Francis, who asked that his last name not be used.”
“He bought the home for $175,000 with a five per cent downpayment but still owes $150,000 on his mortgage. He says the market for his home has collapsed in his town and a realtor just told him the best price he could expect is $75,000. ‘This town is mostly about mines and now the price is down. The town is dead,’ he said, frustrated about his situation. He’s also out of luck, if he wants to walk away, because his loan is backed by Canada Mortgage and Housing Corp., the Crown corporation that controls a majority of the mortgage default insurance market.”
“Since the loan is ‘under water,’ his bank would be left with a shortfall that CMHC would have to cover. The Crown corporation would likely sue him for any losses it has to cover, so if he has any assets, CMHC will go after him.”
“Handing over the keys to the house and walking away from your mortgage, called ‘jingle mail,’ was a defining act of the American housing crisis and helped send the market south of the border into a deeper tailspin. It can’t happen here, we’re told. So-called non-recourse mortgages are the rule in at least 10 U.S. states where consumers jumped at the opportunity to escape a mortgage that was more than the actual value of their house once the market started to fall.”
“The problem is it can happen here, namely in Saskatchewan and Alberta – the only two provinces that have similar rules. Considering how much listings have spiked in Alberta as people test the market, there is clearly concern among homeowners about whether the value of their property will hold. And guess what? Albertans did take advantage of the rule in 1983 and 1984 when home prices fell more than 30 per cent and mortgage delinquency rates rose sharply.”
McClean, VA Sale Prices Plunge 16% As Housing Correction Resumes
http://www.zillow.com/mc-lean-va-22101/home-values/
‘Don Campbell, senior analyst with the Real Estate Investment Network, said a perfect storm is poised to hit the Alberta real estate market with the slowdown normally associated with spring breakup in the oilpatch coinciding with the 10th and 11th months of the oil price drop.’
“The numbers are about to get pretty ugly, so prepare yourself,” he wrote recently on his website. “Although we are seeing slight drops in average sale prices in the larger cities we are not yet witnessing the ‘panic selling’ that can have a very negative effect on average sale prices.”
“However, those who listed their property in November, December or January will now be feeling the pressure to either lower their price or take it off the market. This, if they do need to sell, will lead to lower average sale prices.”
A comment:
‘Seeing oil producers posting loses and further cuts across much of the industry, unfortunately this is leading to lower prices out there. They don’t get reported but the renos folks have to do on homes now to sell them and still take a lower price then last summer means you get that extra $50,000 of work on a house and can negotiate down another $10,000 on a $500k house. In other words, the stats show a 2% drop, reality is we’ve seen a 10-15% real price drop..’
‘watching the Haysboro/Southland/Kingsland area since Monday there have been 4 days worth of postings and 14 postings in total on my house search:
- 5 New Listings (this will probably bump to 10 today as Friday’s the big day for new Listings)
- 2 Had Price Drops
- 2 Houses Sold
- 5 Listings Expired prices ranging between $525-$635k’
‘So 2 Houses selling to 10 Houses (5 new + 5 expired) that will enter/Re-Enter the market. So when I see 5 Listings Expiring, 2 Houses with Price Drops, 5 New Listings and only 2 houses selling (and the expired number if low compared to previous weeks), it shows where the actual price on houses probably are and only 2 out of 14 people have their house priced right to sell.’
‘There is one house in Haysboro, a 1200+ sq foot bungalo that put itself back on the market for the 3rd time after expiring again at a price of $599,000. For fun I asked the Realtor if the client was going to look at something more in the $500-525k price range which is around where houses like this are selling for? Response: the client has his house back on @ $599k, nothing more.’
‘Translation: More house pricing drops are coming, it may take an expired listing to show this and as more and more houses sit on the market eventually that 10 house to 2 houses selling will cause price drops…’
Yesterday Alberta elected a majority NDP (vaguely socialist) government with a landslide majority. The Dippers, as we call them, were elected on the usual socialist platform, i.e.. tax the rich and corporations and everybody else for that matter. This morning the platform and elected members resumes have been removed from the party site. The Premier elect has told everyone to calm down, all is fine. The new members are an assortment of students, union reps, social workers and tree huggers. Bottom line on all this is that Albertans are really pissed and worried. They tossed the previous Conservatives who had held office since 1971. Yes 1971, 44 years. The big oil revenue fund was almost gone and the province is nearly broke. Alberta was the engine of Canada’s economy, thanks to oil. Now it’s being run by a bunch of oil hating, corporate loathing clowns who replaced a bunch of oil loving corporate licking clowns. Should be interesting.
‘A UBC professor says the lack of government control over foreign real estate investment in Vancouver is surprising, because other cities that have a large amount of foreign ownership have measures to control soaring housing prices.’
“This is quite unusual for government to have a hands-off position to an important public need,” said David Ley, a UBC geography professor who has studied five cities with housing bubbles, including Hong Kong, Singapore, Sydney, London, and Vancouver. “In other countries there is a much more active attempt to respond to the shelter needs of citizens,” said Ley.’
‘Ley said one of the challenges is that data is not being collected, so any time there is a complaint about foreign investment, the government says it is purely anecdotal.’
‘The Australian government recently announced foreigners who purchase homes illegally could face jail time and fines up to $600,000. Hong Kong penalizes mainland China buyers, while London has a capital gains tax.’
“The federal and provincial government is missing in action,” said Ley. “The municipal government with very limited resources is aware of the problem and trying to address the problem through a variety of means, but clearly they do not have the taxation capacity to get involved in the scale we need.”
“A UBC professor says the lack of government control over foreign real estate investment in Vancouver is surprising, because other cities that have a large amount of foreign ownership have measures to control soaring housing prices.”
Foreign real estate investment = lots of money coming in from somewhere else.
Lots of money coming in from somewhere else can really solve a lot of budget problems. Vancouver is fortunate in that, for whatever reason, money is pouring into the place.
If you are in a position to be able to kill a golden goose that you have, why would you want to?
Here’s a place that could use a bit of foreign investment. If one can get rich people in China the believe that this place is the “in” place to pour in money then a lot of its problems would be solved.
https://www.google.com/search?q=bodie&biw=1813&bih=857&tbm=isch&tbo=u&source=univ&sa=X&ei=HxFKVfr0CpemoQT57YCQCw&ved=0CDwQsAQ&dpr=0.75
BTW, Crested Butte, CO used to be a ghost town similar to Bodie but then it became the “in ” place to go and - presto! - Crested Butte came back from the dead.
Go here for some pictures:
https://www.google.com/search?q=crested+butte+colorado&biw=1813&bih=857&source=lnms&tbm=isch&sa=X&ei=vxJKVeOIKpbaoATejYCIDQ&ved=0CAYQ_AUoAQ&dpr=0.75#tbm=isch&q=crested+butte+colorado+ghost+town
When in college we used to call it “crusted butt”.
Jerome Arizona is another ghost town that has had a mild renaissance over the years.
Any place on earth can experience a “renaissance” in a bubble. I’m surprised Bodie wasn’t a hot spot for condos.
‘A prominent Vancouver real estate developer wanted by the Chinese government on corruption charges has made numerous political contributions over the years, particularly to the B.C. and federal Liberal parties, and also has a daughter who heads the provincial branch of the Young Liberals of Canada.’
‘Michael Ching Mo Yeung, who founded several real estate companies after arriving in British Columbia from China and has built business relationships with some of the province’s big real estate players, has donated roughly $17,000 to various political parties and leadership campaigns since 2007.’
‘In late April, Mr. Ching was named in a list of the top 100 fugitives wanted by the Chinese government on suspicions of graft, bribery and other corruption charges. The Chinese government – which calls him Cheng Muyang, the Mandarin version of Ching Mo Yeung, the Cantonese-style name he now uses – has been conducting a widespread crackdown on corruption at home. Mr. Ching, who has worked on several developments in B.C. including the Collection 45 condo in Vancouver’s trendy Mount Pleasant neighbourhood, is reported to be the son of Cheng Weigao, a former governor of China’s Hebei province who was expelled from the party on corruption charges in 2003.’
‘In a statement, Mr. Ching’s Vancouver lawyer David Lunny has denied the graft charges levelled against his client, and says Mr. Ching has been an “exemplary and upright” member of the community who made political contributions because he “strongly believes in Canadian democratic values and has a firm confidence in the rule of law in Canada.” The statement, which does not mention Mr. Ching’s father, stresses that Mr. Ching himself was never a state official, that he came here in 1996 and never fled or hid, and suggests that the charges are political.’
“The accusations which are now made against him by the Chinese government and repeated in the media here are without foundation and they emanated only after a change in the leadership of the Chinese political regime,” the statement reads. “Anyone familiar with the inadequacies and failings of the criminal justice system in China would certainly endorse his reluctance to place himself at its mercy.”
“Michael Ching Mo Yeung, who founded several real estate companies after arriving in British Columbia from China and has built business relationships with some of the province’s big real estate players, has donated roughly $17,000 to various political parties and leadership campaigns since 2007.”
LOL, $17,000? Is that how cheap they are? Seriously…
Mountain View, CA Sale Prices Sink 5% YoY; Dive 10% MoM
http://www.zillow.com/mountain-view-ca/home-values/
‘At the time it seemed cheaper. I didn’t want to spend money on rent. But now I think I can find something cheaper to rent,’
Can’t say that HA didn’t warn him.
Yes, too bad he didn’t understand the difference between a recourse and non-recourse state/province (not that he necessarily had a choice in his situation).
Jingle mail + recourse = a trail of debt collectors
‘Fund managers are trapped between the devil and the deep blue sea. Crowded trades are selling off, and that’s a real dilemma because both the supposedly safe and risky corners of the market look crowded. We all go down together. Years of ultra-low interest rates have forced investors into higher-yielding corners of the market and at the same time encouraged many to reach for riskier growth stocks, including those in the biotechnology sector.’
‘But all that has been changing of late, particularly in the bond markets, where the yield on the 10-year Treasury is approaching highs not seen since mid-March, now at 2.18%. The iShares 20+ Year Treasury Bond ETF (TLT) is slumping 0.7%, now down 5.5% since the start of last week.’
‘Declines in U.S. stocks have been subtle, but damage has been inflicted under the hood. The iShares Nasdaq Biotechnology ETF (IBB), the market’s de facto risk barometer over the past year, is down 1.5% on Tuesday, having slumped 8% over the past eight sessions. The Utilities Select Sector SPDR Fund (XLU) is down 2.3% on Tuesday, on pace for its lowest finish in nearly two months. Real estate? Yep, it’s down, too, with the Vanguard REIT Index ETF (VNQ) sinking 2.1%.’
“The crowded trades are starting to unwind. You’re seeing sales across assets,” Yousef Abbasi, global market strategist at JonesTrading Institutional Services, tells Barron’s. “Bonds that are crowded, the Bund, Treasury; the dollar. European equities, which have been pretty big winners. If you are a portfolio manager, you own safe haven trades that are crowded. Risky trades are also crowded, and that’s what is getting pushed to the forefront of the sell off.”
‘We all go down together. Years of ultra-low interest rates have forced investors into higher-yielding corners of the market and at the same time encouraged many to reach for riskier growth stocks, …’
Actually, isn’t it just the greater fools who piled in to risk assets at a time of record low yields who are now taking a bath?
I am 38% cash today, going to 50% by the end of May. Sell in May and go away…….
Dump those underwater shanties while you’re at it.
“And guess what? Albertans did take advantage of the rule in 1983 and 1984 when home prices fell more than 30 per cent and mortgage delinquency rates rose sharply.”
And guess what else? 1983-1984 was at the onset of the last major oil price crash before the present episode.
Any thoughts on for how much longer the short squeeze in oil will last?
“Get shorty!”
Opinion: Oil in the $30s? It may happen as a ‘short squeeze’ ends
By Howard Gold
Published: May 6, 2015 5:45 a.m. ET
Crude has soared 40% from its low this year, but weaker demand and high production might lead to another leg down
Getty Images
It’s springtime, and the birds are singing, the trees and flowers are blooming, and oil prices are soaring.
On Tuesday, ICE Brent crude hit its 2015 high near $68 a barrel. It’s been a remarkable comeback: Brent rallied 21% in April alone, its strongest month since 2009, and it’s gained almost 40% from its January low just above $49.
The rally has been so powerful that people who called for much lower oil prices earlier this year have been drowned out by a chorus of bulls who say the worst is over for crude.
Not so fast. Sharp countertrend rallies like this are common in extended bear markets. The oversupply that caused crude to tank has eased a little, but Saudi Arabia’s price war against Russia and U.S. shale-oil producers continues.
In fact, despite some slightly improved fundamentals, this rally was likely a reaction to overcrowded hedges against lower oil prices and near-unanimity on the strength of the dollar. Those trades have unwound sharply, so the consensus appears to have swung 180 degrees in the opposite direction.
That’s happening just as gasoline prices may be hitting their seasonal highs and weeks before oil prices usually peak. Too much complacency may surprise the bulls now as much as it shocked the bears back in March.
…
Just wait until the spike in interest rates catches up with commodities. Would you rather own oil that pays zero income and is likely to see further price declines, thanks to an eighty-five year glut, or hold super-safe interest-bearing Treasurys?
It’s a no-brainer!
I was looking at it yesterday and the yield curve is steepening. The 30 year is killing the REITs.
If there’s a bubble in stocks, the most ridiculous numbers are bio-tech. The social media like stuff has seen 20% drops in a day. The most interesting to me has been Apple.
http://finance.yahoo.com/echarts?s=AAPL+Interactive#{%22range%22:%221mo%22}
They reported a good quarter, and the market spanked the stock. I’m sure there is some adage about stumbling market leaders somewhere.
‘Bond traders aren’t waiting, pushing down Treasury bond prices and pushing up long-term yields as market-derived inflation expectations rise with a ferocity not seen since 2013. The 10-year yield is threatening to cross its 200-day moving average for the first time since early 2014, hitting 2.2 percent on Tuesday from a low of 1.7 percent in February. There has also been a lot of chatter about the rise in Eurozone government bond yields, with the German 10-year yield pushing above 0.5 percent after touching a record low of 0.05 percent less than two weeks ago. High-yield corporate bonds are looking vulnerable in all this. A selloff in this area will weigh on stocks in a big way via all kinds of linkages, such as the flow of debt-funded share buybacks and interest expense.’
“We are witnessing the first, potentially major, signs of the air coming out of the bond bubble,” Peter Boockvar, chief market analyst at the Lindsey Group, wrote Tuesday. “The U.S. bond market is not waiting around for the Fed to hike rates, it is doing it themselves.”
‘Remember that bonds, overall, have been in a bull market going back more than 30 years — and that run could be set to end.’
“We are witnessing the first, potentially major, signs of the air coming out of the bond bubble,” Peter Boockvar, chief market analyst at the Lindsey Group, wrote Tuesday. “The U.S. bond market is not waiting around for the Fed to hike rates, it is doing it themselves.”
Didn’t we hear exactly the same story beginning in May 2013?
One of these days what initially looked like just another head fake will prove otherwise. Not sure if this is the Big One just yet…
‘It all seemed so certain. Market participants watched the yield on the 10-year German sovereign bund tick ever closer to the zero mark in April, all the time taking bets on when, not if, it would mean that investors would be paying for the privilege of holding German government paper.’
‘But like many times before, market consensus got it wrong and the fixed income markets snapped back causing a reversal in global assets like major equity benchmarks and foreign exchange.’
‘Many see a growing debate about inflation as the real reason behind the move, with a resurgent oil price causing both stocks and bonds to move downwards. Meanwhile, 10-year German bund yields continued their reversal on Wednesday and hit a fresh 2015 high of around 0.547 percent. 10-year U.K. gilts broke above the 2 percent level on Wednesday morning and benchmark 10-year Treasury note yields traded around 2.19 percent Wednesday having touched a high not seen since March 10 on Tuesday.’
‘Marshall Gittler, the head of global forex strategy at brokerage IronFX, is another that has emphasized what impact a higher oil price is having on the price of bonds. “Yield curves around the world are steepening sharply,” he said in a note on Wednesday. “That’s usually a harbinger of stronger growth to come. In that case, why are equities down across the board, too? Perhaps the rebound in energy prices has something to do with it.”
‘A rise in oil prices due to a reduction in supply would be bad for growth unlike a rise in prices caused by an increase in demand, Gittler explained. “It could be that the markets are starting to sense mild stagflation - a recovery in inflation before a recovery in growth. That would be bad for all markets, ” he added.’
If oil in the 60’s is causing bonds to fall, why didn’t oil over $100 result in the same thing?
‘Federal Reserve Chair Janet Yellen on Wednesday pointed to high valuations in the stock market and said the central bank needs to keep close tabs on the non-bank lending sector.’
“I would highlight that equity market valuations at this point generally are quite high,” Yellen said. “There are potential dangers there.”
‘In a question from Lagarde about financial stability concerns, Yellen said that she sees risks as moderated and does not see any bubbles forming, though the central bank is watching the issue closely.’
‘Yellen also pointed to open-ended mutual funds, and the potential liquidity risks the funds could face amid a wave of redemptions.’
The 30-year yield has seen quite a runup since bottoming out earlier this year on the latest wave of Grexit fears. Now it is rocketing up with no end in sight, much as it did beginning in May 2013.
Bankers and Regulators Voice Fears on Bond Market Volatility
By PETER EAVIS
MAY 5, 2015
Barney Frank, former representative from Massachusetts and an author of the Dodd-Frank Act, says fears over bond market volatility are overstated. Credit Chip Somodevilla/Getty Images
Wall Street chieftains, huge investment firms and top bank regulators are all sounding the same alarm.
In recent months, they have been warning that the world’s bond markets, where companies and countries borrow trillions of dollars, are in danger of breaking down.
Their fear is that in an event like a surprise increase in interest rates, trading could rapidly dry up, causing violent movements in bond prices and even disrupting the functioning of the market. According to this view, the destabilizing volatility in the bond market could make it harder and more expensive for companies and countries to borrow.
With the Federal Reserve contemplating a rise in interest rates, turbulence in European bond prices and currency markets in flux, there is no shortage of places where the next jolt could come from.
But is the bond market really as fragile as the doomsayers say? Bond prices have plummeted in the past, but recovered if the wider economy was in reasonable health. Why wouldn’t that happen again?
…
‘While oil futures prices rebound with vigor as analysts cite strong demand, the physical crude market tells a much more cautionary tale. Tens of millions of barrels are struggling to find buyers in Europe with traders of West African, Azeri and North Sea crude blaming poor demand.’
‘The deep disconnect between the oil futures and physical markets looks similar to the events of June 2014 when the physical market weakness became a precursor for a futures price crash.’
“Being large physical buyers of crude we have a direct pulse of the market and feel immediately when it is well supplied, as is happening now,” Dario Scaffardi, executive vice resident and general manager of independent Italian refiner Saras, told Reuters. “In the short-term, futures prices do not necessarily reflect accurately the physical market.”
‘Data from OPEC and the International Energy Agency show the world is still pumping 1.5 million barrels per day more crude than it consumes. Traders say they are seeing increased evidence of crude barrels struggling to find a home.’
‘Traders in Azeri Light crude, usually one of Europe’s favorite grades due to its high quality, said some 10 cargoes from the May tanker loading program are struggling to find buyers, just two days before June volumes are due to go into the market.’
‘As a result, the Azeri price premium to benchmark dated Brent is the weakest since December, when it hit a five year low.’
‘In the North Sea, Norwegian Ekofisk crude fell to its weakest since August last year due to a significant number of unsold May cargoes, despite June program already trading.’
‘The worst situation, however, is in Angolan and Nigerian crude, which has struggled in the past two years due to the U.S. oil boom. Traders said around 80 million barrels of Nigerian and Angolan crude oil are on the market with at least a dozen May-loading cargoes still available.’
http://finance.yahoo.com/news/oils-bull-run-hides-deep-disconnect-crude-traders-145851012–finance.html
More crow for Dan.
“More crow for Dan.”
I’m sure he enjoys the taste by now.
Market Extra
Mohamed El-Erian warns of trouble as bond liquidity dries up
Published: May 6, 2015 3:15 p.m. ET
By William Watts
Deputy markets editor
Bloomberg
LAS VEGAS (MarketWatch) — The leap in German bund yields over the last two weeks is another sign that liquidity issues could eventually present serious problems for financial markets, former Pimco Chief Executive Mohamed El-Erian on Wednesday warned at the annual SALT investment conference in Las Vegas.
“There isn’t the countercyclical risk-taking we need,” said El-Erian, chief economic adviser at Pimco parent Allianz. That could spell trouble when there is a big shift market positioning, he warned at SALT, a gathering of around 1,800 hedge-fund and investment-industry professionals.
That is because investors may not be able to reposition at a low cost. Bond liquidity is a “delusion, not an illusion,” he noted.
El-Erian’s remarks came during SALT’s opening panel, which included Peter Schiff, CEO of Euro Pacific Capital, and Gene Sperling, a former economic adviser to President Barack Obama and the Clinton White House.
Sperling argued that a lackluster U.S. economic recovery is the aftermath of a financial crisis, which typically gives way to less robust recoveries as banks, businesses and consumers focus on eliminating debt. Meanwhile, the Federal Reserve was left to do much of the heavy lifting as the federal government’s stimulus efforts were offset by fiscal contraction at the state and local level.
Schiff, a persistent Fed critic, charged that the U.S. economy is witnessing a bubble rather than a recovery and that the Fed was crowding out small businesses who would otherwise be creating jobs.
Fed Chairwoman may not entirely disagree with Schiff’s bubble assessment, On Wednesday, Yellen referred to stock valuations as “quite high,” and hinted that bond values may be even higher during a conversation with International Monetary Fund head Christine Lagarde sponsored by the Institute for New Economic Thinking.
Schiff, who has long argued that quantitative easing would be a disaster for the dollar, compared being long the U.S. currency now with being long subprime mortgages back in 2006. In other words, doomed to implode.
El-Erian later waded into the debate, saying that Schiff and Sperling were engaged in a backward-looking conversation. He likened quantitative easing to a “painkiller” that initially worked, but that policy makers now have become dependent.
…
Join the conversation
31 comments
413 people listening
Terje Haakonsen
1 hour ago
Tomorrow is important day in bond market. It could just unravel. Although, the junk market is doing well. It’s other yield vehicles getting hammered.
al jardine
2 hours ago
Ba-Ba Boooey
mike long
2 hours ago
wait’n for the big sell off el oreo’s talkn bout ” should I stay or should I go now? if I stay there will be trouble…if I go it will be double ” there it is folks
Ted Gray
1 hour ago
@mike long Yeah, I kinda agree, “if I stay there will be (trouble)”. The risk reward ratio is just not to my liking~!
Question for Schiff or any of his disciples who read and post here:
If the dollar did not completely collapse under QE1, QE2 and QE3’s ultra-low interest rate regime, why would it collapse now that QE has ended and the Fed is talking about rate normalization.
Isn’t it more likely that risk assets with dismal returns will collapse as the dollar strengthens and investors reallocate towards dollar-denominated bonds paying higher than zero interest rates?
It seems as though gold traders are the ones running for cover on Yellen’s hints that higher rates may soon be on the way.
Got crow?
Asia Markets
Asia stocks fall after Yellen warning
Published: May 6, 2015 11:38 p.m. ET
Hong Kong stocks on course for sixth straight day of losses.
By Chao Deng
Reuters
Stocks across Asia fell Thursday on concerns about the sluggish U.S. economy and overvalued equity markets, with Shanghai dropping the most and extending a deep two-day correction.
The Shanghai Composite Index (SHCOMP, -1.41%) was down 1.6% at 4,159.42 after losing 5.6% in the past two sessions. In Japan, reopening after its golden week holiday, the Nikkei Stock Average (NIK, -0.91%) fell 1% to 19,338.67, while Australia’s S&P ASX 200 (XJO, -0.95%) and the Hang Seng Index (HSI, -0.56%) in Hong Kong were both down 0.6%, at 5,659.50 and 27,483.78, respectively.
Overnight, U.S. Federal Reserve Chairwoman Janet Yellen warned about high stock valuations during a panel discussion with the head of the International Monetary Fund, Christine Lagarde. Earlier Wednesday, data showed a slowdown in U.S. job creation, which could encourage Fed officials to delay raising interest rates beyond their June meeting.
“The basic premise that the U.S. economy is good and European economies are bad is changing,” said Hideyuki Ishiguro, senior strategist at Okasan Securities. But he added that solid Japanese earnings results and the prospect of a recovery in consumption should support the Tokyo market.
Shares in mainland China and Hong Kong have rallied this year, but the charge has been halted in recent days. The Hang Seng Index is on course for its sixth consecutive day of losses.
…
Looks like rank-and-file Iowa Republicans, at least, aren’t too keen on installing a neo-con plutocrat dynasty in the White House, even if the other one-percenter errand boys like Scottie Walker that drew more votes aren’t much better.
http://www.weeklystandard.com/blogs/quinnipiac-walker-leading-iowa_939909.html
“neo-con plutocrat dynasty in the White House”
Don’t voters have at least a couple of these to choose from?
Simi Valley, CA List Prices Sink 5% YoY; Housing Inventory Bloats Statewide
http://www.movoto.com/simi-valley-ca/market-trends/
inventory is way up
I am posting this as a matter of a ‘duh’ moment - Wonder what these wunderkind do when real work hits their desk…..
http://www.ritholtz.com/blog/2015/05/credit-supply-and-the-housing-boom/
BUT it got me to wondering….
I have not read or seen an analysis that looks into the affect of the Clinton dereg era in finance followed on by and combined with Shrub’s low tax policy that added gas to a highly fueled housing mess. Easy credick with low taxes makes for alot of money flying around me thinks.
Ben:
I typically see one article or the other but it seems to me that the combination of BOTH had a huge affect on what was to become the disaster of mortgage finance some 10 to 15 years ago. Anybody out there have a resource in this regard?
Huntington Beach, CA List Prices Sink 5% YoY As Housing Correction Resumes
http://www.movoto.com/huntington-beach-ca/market-trends/
Interesting that the Edmonton Sun reports April sales numbers for Edmonton real estate, which are down 15% yoy, but the Globe and Mail reports 1st qtr sales numbers, which are far worse: down 60.5% yoy.
The Canadian media have circled the wagons.
The Sun 13% is April YOY of realtor sales, the G&M 60.5% is Q1 YOY of new construction condo sales. Oh Canada, indeed.
‘One day only, live from Sin City — the economist formerly known as chairman of the Federal Reserve. Fifteen months after leaving the Fed and its trappings of mystery and power, Bernanke, 61, is settling into the peripatetic and highly lucrative life of a Washington former.’
‘Call it Bernanke Inc., a post-Fed one-man-show that’s worth millions annually on the open market. While the former chairman hasn’t disclosed his fees and compensation — nor, as a private citizen, is he required to — he is almost certainly pulling down many times what he did while in government.’
“He wouldn’t lend his name and reputation and time unless it was for a meaningful compensation,” said Hank Higdon, chairman of Higdon Partners, a New York-based executive recruiter for financial firms. “I would be disappointed if he did the consulting for less than $1 million -– that would show no understanding of the economics of Wall Street.”
A 15 or 30 year mortgage is a financial death sentence….
Remember this…. If you have to borrow for 15 or 30 years, you can’t afford it nor is it affordable.
What does a Looney Crater Rager® sounds like??
I dunno but there is a whole lotta CraterRage going on right here on the blog today.
Or is it PricePimpTantrums?