October 11, 2015

When Things Started Going Wrong

A weekend topic on the housing bubble. USA Today, “In Phishing for Phools: The Economics of Manipulation & Deception by George Akerlof and Robert Shiller, the authors note that free markets are capable of generating unimaginable wealth and innovation. And yet, this system also ‘tends to spawn manipulation and deception.’ Because the goal of every business person is to get you to spend your money, they will often come up with ingenious ways of tricking you. This frequently results in consumers choosing things that aren’t very good for them.”

“The authors define the word ‘phish’ as “getting people to do things that are in the interest of the phisherman, but not in the interest of the target.” In other words, ‘phisherman’ are those businesses that are trying to get you to buy something that may not be in your best interest. A ‘phool,’ according to the authors, is ’someone who for whatever reason is successfully phished.’”

“The authors argue that phishing is one of the prime reasons behind the volatility of asset prices. Misleading accounting, media hype, investor sales pitches — these are just some of the ways that asset prices become inflated. When the inflated assets have been purchased with borrowed money, huge losses will eventually snowball and ‘then credit dries up; and the economy tanks.’ We experienced that back in 2008 and 2009, of course. Phishing hurts investors in a variety of ways.”

“By PAUL KRUGMAN Published: August 2, 2002″

“If the story of the current U.S. economy were made into a movie, it would look something like ‘55 Days at Peking.’ A ragtag group of ordinary people — America’s consumers — is besieged by a rampaging horde, the forces of recession. To everyone’s surprise, they have held their ground. But they can’t hold out forever. Will the rescue force — resurgent business investment — get there in time?”

“Consumers kept spending as the Internet bubble collapsed; they kept spending despite terrorist attacks. Taking advantage of low interest rates, they refinanced their houses and took the proceeds to the shopping malls. But predictions of an imminent recovery in business investment keep turning out to be premature. Most businesses are in no hurry to go on another spending spree. And those that might have started to invest again have been deterred by sliding stock prices, widening bond spreads and revelations about corporate scandal.”

“The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

From Bloomberg. “In a new note titled ‘The real cost of QE,’ Bank of America’s FX strategist Athanasios Vamvakidis takes a critical look at the U.S. central bank’s particular brand of unconventional monetary policy, and its changing relationship with financial markets. He contends that ‘excessive reliance on unconventional monetary policy’ is not without side effects, many of which are only now being felt in markets.”

“‘At some point during Fed QE, the markets started reacting positively to bad news. In our view, this is when things started going wrong. Bad news became good news for asset prices, as markets expected more QE by the Fed. Asset prices were increasingly deviating from fundamentals, as the markets were trading the Fed instead of the economic reality. This was clearly not sustainable.’”

“‘We should have known something is wrong. The Fed ‘taper tantrum’ could have been the first signal that QE had gone too far. The second warning may have been the across-the-board emerging markets sell-off that started in mid-2014, as QE tapering was coming to an end and the market started pricing Fed tightening, a sell-off that intensified substantially this year.’”

“He notes that despite the continued expansion of balance sheets at a number of central banks around the world, monetary policy conditions have tightened and liquidity has fallen. So what happens next? Vamvakidis contends that markets are embarking on a big readjustment: ‘The story of the year so far may be that of a negative feedback loop leading to a bad equilibrium. First, risk assets sold off expecting the Fed to tighten. Then, the sell-off went too far and started affecting the real economy, including in the US. Now, the Fed is not tightening as a result. However, postponing Fed tightening does not necessarily increase the demand for risk assets. This is a new regime, in which bad news is bad news. This is how it is supposed to be, but the adjustment back to normal has not been and is not going to be smooth, in our view.’”

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Comment by Ben Jones
2015-10-10 07:38:18

Take a look at the liquidity index.

It’s all fun til someone loses an eye.

Comment by Professor Bear
2015-10-10 08:26:58

Any speculation on how long it will be until QE4 is rolled out?

Comment by Ben Jones
2015-10-10 08:46:35

‘Jack Dorsey was named permanent CEO of Twitter on Monday, and a big reason he got the job was that as a co-founder, Dorsey isn’t afraid to make the tough, necessary decisions. He isn’t wasting much time. Twitter is planning company-wide layoffs next week, according to multiple sources. It’s unclear how much of the staff will be culled, but insiders say it will likely affect most, if not all, departments.’

‘The downsizing comes at the same time Twitter is restructuring its engineering organization to make it leaner and more efficient, these sources say. It’s likely that many of those impacted by the layoffs will be engineers, which make up about half the staff.’

Twitter, Inc.


52wk Range: 21.01 - 53.49

EPS (ttm): -0.95


Probably the single most important economic force at work now is that QE has been and continues to be deflationary. Sure, money losers like twitter can hire thousands, but eventually it falls apart. Look at the oil industry or coal. Consider how stark this is to conventional economics; inflation is low so the central banks can create as much money as they like.

I continue to follow the actions of Amazon with related interest. This week they announced entry into the cloud biz. Goodbye profits everybody! This company represents the best example of the dry-cleaning effect; they can sell stock (IMO thanks to easy money and stock speculation), so they continue on losing money and destroying profits for normal industries.

Comment by In Colorado
2015-10-10 09:53:52

Amazon has been a boon for UPS and FedEx.

It also occurs to me that my legacy employer, which made $10B net profit this fiscal year, looks brilliant by comparison.

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Comment by ibbots
2015-10-11 09:35:00

USPS does the Amazon Sunday deliveries around here. I thought it was pretty weird when the mail truck pulled up to my house on Sunday afternoon.

Comment by rms
2015-10-10 23:41:17

“The downsizing comes at the same time Twitter is restructuring its engineering organization to make it leaner and more efficient, these sources say. It’s likely that many of those impacted by the layoffs will be engineers, which make up about half the staff.”

HER: “Why are you home early… you sick?”

HIM: “Twitter is “clarifying ownership.”"

HER: “See these legs? They’re welded shut!”

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Comment by George
2015-10-10 10:40:43

Ben Bernanke was on CNBC last week commenting on his book, and he said that the Fed under his leadership does not bear any responsibility for the real estate bubble, that the bubble causes were the lose lending and the government policies that was favoring home ownership vs honest financial decisions by lending institutions. Mr Bernanke does not view that zero interest rate is as well part of the cause that most investors moved their money out of zero bearing account into real estate with the hope of getting some decent return.

I think this low interest rate and the push to move more people into the developed world, with the Japan as an exception, is and will continue to be the norm for a long time to come, at least for the next 50 plus years.

Interest rates will continue to be a historical lows for many more years, till around 2040.

Eventually the price of housing will start coming down and more and more housing units are being built with the excess money.

there are funds now that are crowd-funding home building in specific geographical areas in the US. Soon, more like it in other countries.

Yes, we are in temporarily bubble, and yes the bubble will burst and another will quickly form, this will be the norm going forward.

Anyone remember what was Mr.Greenspann solution to extra housing units after the bubble?

This is a new economic era. And it’s changing the way we think about saving money, where to invest it and how to retire, how actuaries are calculating their risk/returns, etc..

Comment by Ben Jones
2015-10-10 11:21:38

I don’t think it’s new. In the 90’s I would watch the government create a bunch of money and the price of gold did nothing. Inflation was low. By then what had been held as an economic truth no longer was true.

From yesterdays post:

‘up to 1970…since then something has changed. Home prices in California used to be about the same as home prices in Michigan or Connecticut.’

‘the 1970s were also a time when we began to think of our homes not just as places to live, but as financial investments for the future….‘That’s when people began to look around and say ‘well what might threaten the value of this home?’ Fischel says of the 1970s’

Inflation in the US was at one time a function of money creation. It still is in some places. Wages have been flat in the US for much of this time. Interest rates have declined for 30 years. Whatever is going on here has been in place for possibly 30 or 40 years. Remember the Japanese bubbles, the reaction and the subsequent deflation. Here we sit in a similar situation as does China. It is interesting that Japan engaged in dumping exports (selling below cost). I don’t think it was much different than what globalism has brought us; a race to the lowest costs, from country to country. Now factories are leaving China because wages have risen.

These high house prices are deflationary too. We often read how much of our income goes to housing. That means there is less available to spend on other things. More debt is the result. This thing is strangling the real economy.

Comment by Professor Bear
2015-10-10 14:45:48

“This thing is strangling the real economy.”

And top economists are either clueless or lying about it.

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Comment by IPFreely
2015-10-10 16:52:11

Lying right to our faces. At least Bernanke maintains a shred of decency though and specifically advises you not to trust him since telling the truth is too risky.

Question from Twitter: “Does chairman Bernanke think there are asset bubbles in the global markets now?”

Bernanke: “I don’t see any obvious major mispricings – nothing that looks like the housing bubble before the crisis, for example. But you shouldn’t trust me. What you should do is make your own judgments about individual asset prices.

Comment by snake charmer
2015-10-10 19:08:37

It’s the same deal with healthcare, or higher education. For example, ACA or no, my insurance premium continues to rise by 10% per year, with no end in sight. That’s money we could have saved, or spent on something else. When I look at how much my allegedly elite alma mater now costs to attend, it’s a joke.

And despite the vast sums being spent on healthcare and education, Americans aren’t getting healthier or smarter.

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Comment by rms
2015-10-11 00:03:08

“I think this low interest rate and the push to move more people into the developed world, with the Japan as an exception, is and will continue to be the norm for a long time to come, at least for the next 50 plus years.”

There are 10,000 baby boomers retiring every single day, and this will continue until 2029 according to demographers. Roughly 10-yrs ago most of the large pension systems were counting on 8% returns from Wall street. They’re lucky to see a third of that these days after expenses. Unless Logan’s Run becomes popular the squeeze will probably last another 14-yrs.

Comment by Mafia Blocks
2015-10-11 16:10:47

That’s an ugly chart. Either direction it goes it’s ugly.

Q4= Demand continues to erode due to grossly inflated prices.

No QE= Prices continued to fall to dramatically lower and more affordable levels.

So what is it? No buyer or a buyer at price levels 70% lower. That is the choice.

Comment by TerribleThings
2015-10-10 07:45:36

That first blurb from Shiller sounds a little commie anti business. Hopefully it’s just the context. I hate crony capitalists and scammers more than most but there still needs to be people selling an honest hamburger or the whole thing collapses. Maybe that’s coming.

Comment by Ben Jones
2015-10-10 08:01:09

‘Do we like free markets? Yes. But.’

‘So, what must be done? First, remember that the authors believe strongly in the power of free markets. They’re not advocating for a “people’s paradise” with centrally planned outcomes.’

‘Instead, they just want us to recognize that people don’t always do what is good for them. That’s why we need sensible securities regulation in our public markets. We also need more prudent and smart oversight in both the economic and political realms. Leaving everything to free markets alone, the authors argue, will result in bad outcomes.’

When the SHTF, Shiller was one of the first to say the government had to “save” the housing market.

Comment by Ben Jones
2015-10-10 08:08:01

“The movie ‘99 homes‘ is making its way into a limited number of theaters this week. The premise of the movie is this: A man loses his job, gets his house foreclosed on, moves his family into a motel, and then lands a job working for the ‘very ruthless’ real estate investor that evicted him. He then goes about helping cheat banks and evicting other people all in a bid to get enough money to move his family back into their foreclosed home.”

“The truth, of course, is stranger than fiction. For starters unless the character the man plays is a slow learner, by the time the foreclosure crisis was in full swing most people figured out it would take between six to 18 months before the bank you stopped making payments to kicked you out of your home. By that time you’ve saved enough money to buy a luxury car.”

“To sell tickets, you’ve got to jazz up the story line. So in case anyone has short-term memory issues, let’s recap what happened: People were buying more home than they could afford. Buyers were lying on - or at the very least not reading - loan documents that stated their alleged income. Unscrupulous young Turks were taking short cuts on approving loans. Flippers - from professionals to doting grandparents eager to raise enough cash to send four grandkids to Stanford University - leveraged their homes and investments in a bid to get rich quick.”

“People were buying homes with little skin in the game making it easy for them to stop making payments when the financial seas got a little rough. Opportunists saddled with higher payments on an expensive home they could still afford to make payments on, bought a second home. After they signed on the dotted line for a bigger home with a lower monthly payment they stopped making payments on their first house. In most cases they could afford to make both payments but didn’t think it was fair to expect them to do so since home values dropped.”

“High level financial institution executives looked the other way even when they were told of loan improprieties. The banks, once they realized they were saddled with questionable loans, then started slicing and dicing them among each other to spread the risk. In some cases as many as six different banks would own interest in one home loan. Buyers would leverage homes by taking low introductory rates for three years or so that would then have a balloon payment and jump to the higher rates. They did it knowing they couldn’t make higher mortgage payments down the road let alone a balloon payment. They said they were investors but they were actually gambling values would go up.”

“Congress crafted ‘profit’ tax forgiveness on home loans buyers walked away from without requiring any kind of test on financial stress. That meant a number of buyers that weren’t in trouble gamed the system by walking away from homes that had dropped in value without suffering a dime in tax consequences. Including such tidbits gets in the way of the storyline.”

“To bring what really happened to the screen - the fact ‘victims’ played a large role in their demise as homeowners - wouldn’t sell very many tickets. The popular sentiment is the greed of Wall Street drove the housing crisis. The truth is it took a lot of little guys looking the other way, being complacent with erroneous financial information on final loan documents because they wanted a house, swallowing more house than their financial stomach could handle, and they wanted to get rich quick.”

Like a resident flipper on this blog. And any of us can watch a TV show on flipping. Flipping houses is bad for everybody. Brad Pitt made a movie about it. Yet there we are, salivating about making money from basically doing nothing to a house and getting some sucker to hand us many thousands of dollars. These bubbles have become policy, and they are inherently bad for everyone involved. It’s one thing to create a stock bubble, as the Chinese recently did. It’s another to create or even encourage the conditions for a housing bubble.

Comment by Professor Bear
2015-10-10 08:19:32

“These bubbles have become policy, and they are inherently bad for everyone involved.”

Do any economists of note tout them as s plus?

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Comment by Ben Jones
2015-10-10 08:26:25

Is there any doubt that the Federal Reserve targeted house prices? Four trillion bucks into MBS and treasuries? Here’s what one poster said this morning:


‘Paul Krugman, one of the few bright lights who actually understand how modern economics actually works, calls out maybe-speaker-to-be Paul Ryan for his really bad prior budget proposals and for being dead wrong on the economy:

“[Ryan's] big contribution to discussion of economic policy was his stern warning to Ben Bernanke that quantitative easing would “debase the dollar”, that rising commodity prices in early 2011 presaged a surge in inflation.”

‘Of course we know today the opposite has occurred — the dollar is strong and commodities have cratered.’

“Ryan is to budget analysis as Carly Fiorina is to corporate leadership: he’s brilliant at self-promotion, but there’s no hint that he’s actually able to do the job.” Ryan’s budgets repeat the same old voodoo failed math: slash trillions from spending while assuming new revenues that appear out of nowhere due to “trickle down.”

Of course WPA won’t notice I’ve posted this as he never ventures out of the bits bucket to read what this blog is about.

Comment by Professor Bear
2015-10-10 08:40:34

“Is there any doubt that the Federal Reserve targeted house prices?”

Oh yeah. I periodically have to remind myself by reposting the Fed’s white paper from early 2012 that states the bubble reflation plan.

Comment by Professor Bear
2015-10-10 09:18:29

“And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

So Ben Bernanke’s Princeton Econ Department colleague Paul Krugman was touting a housing bubble as an economic fix already back in 2002…interesting.

Comment by Professor Bear
2015-10-10 09:39:10

FRB Housing White Paper
January 4, 2012

Comment by In Colorado
2015-10-10 09:58:24

So Ben Bernanke’s Princeton Econ Department colleague Paul Krugman was touting a housing bubble as an economic fix already back in 2002…interesting.

DC comics should add him to their Pantheon of villains. They could call him “The Bubbler”

Sorry, I couldn’t resist.

Comment by TerribleThings
2015-10-11 19:11:46

WPA did not notice the Easter egg. All Lolaing aside, I thought WPA was female.

Comment by scdave
2015-10-10 08:22:27

Flipping houses is bad for everybody ??

I agree….

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Comment by Mafia Blocks
2015-10-10 08:25:32

That doesn’t quite align with your posts.

Comment by goedeck
2015-10-11 08:18:07

Remember those Trump seminars with the big ads in city newspapers about making money in RE.

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Comment by scdave
2015-10-11 08:23:26

Trump seminars with the big ads in city newspapers about making money in RE ??

$99. seminars….Tells you all you need to know about the guy…

Comment by Ben Jones
2015-10-11 08:57:46

I posted this article when it came out:

‘More than 100 new people have come forward to complain that Donald Trump’s now-defunct “university” was a ripoff, the Daily News has learned. They come from New York and 25 other states and say they were wrongly promised they could get rich quick if they enrolled in an expensive mentoring program that investigators say was a sham, a source familiar with Attorney General Eric Schneiderman’s investigation said.

‘Schneiderman filed a $40 million lawsuit against Trump in Manhattan state Supreme Court in August — accusing the mega-rich developer-turned-reality TV star of defrauding more than 5,000 people nationwide through his Trump University.’

‘One of those who have come forward is Gary Smith, a former city transit worker who says he shelled out $36,000 — and got very little in return. When Smith, 51, of Manhattan, saw the ad, he thought he’d attend a free seminar that could help him become a real estate investor.’

‘He said the seminar was a sell-job for a $1,000 three-day class in which the instructor made a heavy sell for a $35,000 mentoring program with the goal of a 205% return on his tuition investment within 90 days.’

‘But after using his credit cards to pay the $35,000, Smith was told by his mentor not to expect a quick return.’

‘Smith, who provided The News with emails of his complaints to Trump University officials, said they never responded. He had three other mentors, he said, and bought a $30,000 property in Wilmington, Del., but never made a profit.’

“Trump, as far as I can tell, had no real involvement in this program at all, other than collecting money, obviously. The thing’s a joke,” he said.’

‘ Trump lawyer Jeffrey Goldman, who filed a written response to the lawsuit in court Thursday, told The News the case was “intellectually dishonest, factually inaccurate, intentionally or recklessly deceptive and misleading, and legally unsupportable.”

‘He said the overwhelming majority of students rated the courses highly. Goldman also said he was not surprised more people have come forward. “If someone told you that something you were happy with four years ago you could now possibly get money back, wouldn’t your perception change? Goldman said. “Where were they during the three years of the investigation?”


Comment by Blue Skye
2015-10-11 11:11:38

“A ‘phool,’ according to the authors, is ’someone who for whatever reason is successfully phished”

Phinch by phinch?

Tears of Joy.

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Comment by Professor Bear
2015-10-10 08:33:40

Kudos to Shiller and Akerlof (aka Janet Yellen’s husband) for standing Adam Smith’s notion of mutually-beneficial self interest on its head after two centuries.

Comment by taxpayers
2015-10-10 08:47:56

No free markets since the 1920s

Comment by Ben Jones
2015-10-10 09:30:23

Greenspan’s Bubbles by William Fleckenstein

‘Fleckenstein’s underlying thesis is that Alan Greenspan’s entire time as the head of the central bank was defined by his propensity to cut interest rates when they did not need to be cut, and to leave them low for far too long.’

‘The asset bubbles we have experienced in the last decade are Alan Greenspan’s fault, per Fleckenstein, as his easy monetary policy created a culture that condoned speculative risk taking, and encouraged moral hazard. Fleckenstein does one thing very, very well to defend his thesis – he uses Greenspan’s own words as his primary evidence over and over again. Fleckenstein appears to have caught Greenspan in a massive lie, citing his repeated quotes throughout the pre-dotcom meltdown, as well as the pre-housing meltdown, that we were not in bubbles, and contrasting those with post-crash quotes from Greenspan that asset bubbles can not be identified as a matter of basic definition.’

‘Greenspan can not have it both ways. He can not say that they looked to see if we were in a bubble and concluded we were not, but then say years later that bubbles are fundamentally unidentifiable. Greenspan is almost pathological in his denial of wrong-doing in the midst of the 2008 meltdown. And while some of us may be tempted to look at the specific policy errors of 2002-2005 to indict Greenspan, this book finds that conclusion insufficient in its identification of Greenspan’s wrongdoing. The problem of this Fed chair did not begin in 2002, but rather, existed throughout his entire reign.’

‘I truly find his unwillingness to own his mistakes in this crisis repugnant. It seems surreal to me that he never admitted that increasing margin requirements would have been a good idea at subduing the tech bubble of the late 1990’s, and it seems positively extra-terrestial to me that he will not admit the 1% fed funds rate that he left in place for all of 2003 was an utter disaster. By utter disaster, I am accusing the Fed chairman of pouring gasoline all over the fire that had already ignited. And I am further charging him with refusing to pull out the firehoses, or call the fire authorities, once it was up and burning.’

‘But there is something else that Fleckenstein does that needs to be addressed. He not only calls out Greenspan for a career of bailing out speculators, but he slams Greenspan for his role in justifyng the speculation itself.’

‘Throughout the tech boom of the 1990’s, Fleckenstein writes, Greenspan preached to any audience who would listen the sermon of “productivity” and “new economy”. In the mid-2000’s, he could not be quieted on the beneficial role that mortgage equity withdrawal was playing in stimulating the economy.’

‘Alan Greenspan was completely and totally out of bounds to assume the role of market cheerleader. It is beyond inappropriate for a central banker to do anything other than call balls and strikes. Market observers and speculators may form their own opinions about what is happening in the economy at given times; they do not need to have the undue influence of the Federal Reserve chairman while they do their work.’

‘When someone in the position of authority and reputation as the chief central banker of the world decides to preach the new paradigm of eternal productivity, he encourages others to join particular sides of trades that may be wholly inappropriate.’

‘I close with the following quote from the September 7, 2002 issue of The Economist, cited by Fleckenstein in this fine work: “The correct test is not whether a bubble can be deflated without some loss of output. Rather, it is whether the early pricking of a bubble causes less pain than letting it grow only to burst later. The longer a bubble is allowed to inflate, the more it encourages the build-up of other imbalances, such as too much borrowing and investment, which have the power to turn a mild downturn into something nastier.”

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Comment by Professor Bear
2015-10-10 14:50:14

“…too much borrowing and investment,…”

China is getting schooled in this pitfall right now!

Comment by Professor Bear
2015-10-10 14:55:18

IMF: Up to $3 Trillion in Over-Borrowing in Emerging Markets
By frank bajak, associated press
LIMA, Peru — Oct 7, 2015, 3:50 PM ET

The biggest risks to the global economy are now in emerging markets, where private companies have racked up considerable debt amid a fifth straight year of slowing growth, the International Monetary Fund said Wednesday.

“We estimate that there is up to $3 trillion in over-borrowing in emerging markets,” Jose Vinals, a top IMF official, said in presenting the body’s Global Financial Stability report at its annual meeting.

He told reporters that an unprecedented lending spree has come to an end with the plunge in prices for oil, minerals and other commodities that economists attribute to China’s slowdown.

The risk is that shocks from bankruptcies in the developing world’s private sector, particularly in heavily commodities-dependent Latin American economies, could be amplified in global financial markets.

The worst-case scenario, said Vinals, is “a vicious cycle of fire sales and volatility.”

Vinals said over-borrowing in China, where an August devaluation sent global markets reeling, amounts to nearly 25 percent of the Asian power’s economic output and will need to be managed gingerly.

Comment by snake charmer
2015-10-10 19:14:47

Fleckenstein used to have a regular column online. He was one of my favorites. He’s also possibly the only financial commentator ever with a mullet haircut.

Comment by Senior Housing Analyst
2015-10-10 09:55:24

29,784 nearby properties found Los Angeles, CA Real Estate and Homes for Sale


9,600 nearby properties found Los Angeles, CA Price Reduced Homes for Sale


A full 32% of all sellers slashed their price at least once.

Comment by localandlord
2015-10-10 17:09:11

And now the Beverly Hillbillies can’t afford to move back to Tennessee. The housing bubble has hit the heart of the heartland in a big way:


Comment by Mafia Blocks
2015-10-10 17:26:24

That should explain why housing demand is at 20 year lows…. and falling.

Comment by localandlord
2015-10-10 17:36:11

Demand is not falling in Nashville.

You should program your “bot” to “read” the article in the link.

That’s the thing about bubbles, they are so localized and can get so intense.

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Comment by Blue Skye
2015-10-11 11:13:25

That hardly explains how we have bubbles in just about every teeny tiny corner of the globe. Your place is not special.

Comment by localandlord
2015-10-10 17:40:42

you should ask a tech wizard to reprogram your “bot” to read articles before commenting.

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Comment by Mafia Blocks
2015-10-10 18:00:31

Sorry my friend but housing demand in Nashville is no higher today than it was in 2014….. and down 25% since 2006. See for yourself.


Remember…..A housing recovery is collapsing demand resulting in dramatically lower and more affordable levels by definition.

Comment by scdave
2015-10-11 08:29:58

to read articles before commenting ??

Thats not his desire or intent….His daily purpose is to be a antagonist….don’t respond to his post…Ignore him…

Comment by Mafia Blocks
2015-10-11 08:33:36

Use the JT extension please. You too Dave.


Thanks again.

Comment by In Colorado
2015-10-11 14:27:15

His daily purpose is to be a antagonist….don’t respond to his post…Ignore him…


Comment by Mafia Blocks
2015-10-11 15:05:34

Either respond to the data or use the JT extension please.


Comment by Ben Jones
2015-10-10 17:01:00

‘A report by the Group of Thirty, an international body led by former European Central Bank chief Jean-Claude Trichet, warned on Saturday that zero rates and money printing were not sufficient to revive economic growth and risked becoming semi-permanent measures.’

“Central banks have described their actions as ‘buying time’ for governments to finally resolve the crisis… But time is wearing on, and (bond) purchases have had their price,” the report said.’

‘Reuters calculates that central banks in those four countries alone have spent around $7 trillion in bond purchases. The flow of easy money has inflated asset prices like stocks and housing in many countries even as they failed to stimulate economic growth. With growth estimates trending lower and easy money increasing company leverage, the specter of a debt trap is now haunting advanced economies, the Group of Thirty said.’

‘The G30, however, warned that the 40 percent decline in commodity prices could presage weaker growth and “debt deflation”. Rates would then have to remain low as central banks would be forced to maintain or extend their bond programs to try and bolster growth and the price of financial assets would fall.’

‘That is not just a developed-world problem. In China, credits to state-owned enterprises and increasingly by the shadow banking sector have been a driving force in an investment splurge in the world’s second largest economy.’

‘According to an IMF report issued this week, there is “excessive” lending of $3 trillion in emerging market economies, an average of 15 percent of gross domestic product, which runs the risk of unwinding should economic conditions worsen. “Capital losses would affect many investors, including banks, and the process of extend and pretend for poor loans would have to come to a stop,” the G30 report said.’

‘With the consequences of an exit from easy money so unpredictable, the G30 said the risk was of exiting too late for fear of sparking another crisis. “Faced with uncertainty, the natural default position is the status quo,” the G30 said.’


Comment by Senior Housing Analyst
2015-10-10 18:08:31
Comment by rms
2015-10-11 05:16:38

Similar to housing, the automobile industry and upper education there is so much old debt that new debt cannot be issued until someone steps up and provides guarantees. It’s a race to the bottom for main street.


“Puerto Rico Congressman Seeks U.S. Guarantee on Island Debt”

“The U.S. Treasury would have the ability to guarantee new Puerto Rico debt and the Federal Reserve could buy the commonwealth’s bonds under a bill proposed by the island’s Congressional representative.”


Comment by Ben Jones
2015-10-11 05:49:39

‘California’s soaring comeback looks to be losing altitude’

The soaring comeback was just bubbles. Read it for yourself and tell me it’s not true.

Comment by rms
2015-10-11 06:07:26

“Read it for yourself and tell me it’s not true.”

The MSM will wheel-out Christopher Thornberg to refute the obvious.

Comment by Ben Jones
2015-10-11 08:05:11

‘Where we are is in dire and uncharted waters, with a record 46,000 homeless in the city, a 12 percent increase in the past two years — victims of the recession and soaring rents amid a real estate boom that has raised L.A. home prices by 27 percent in just three years. Three groups in particular have swelled the ranks, Garcetti says: veterans, many with mental health issues; emancipated foster youth; and nonviolent offenders released from prison after the 2014 passage of Proposition 47 reduced penalties for some drug crimes. Many are migrating out of areas like downtown’s Skid Row — where up to 70 percent of the homeless are addicted to meth and other hard drugs, notes Garcetti — and into the shadows of some of the city’s most expensive enclaves.’

‘In neighboring Santa Monica, where there are about 740 homeless (a 14 percent increase from last year), police prohibit sleeping overnight, pushing street-dwellers northward toward the Palisades, which falls under the far laxer jurisdiction of the LAPD. “If we are harder on the homeless, we usually get sued by advocates,” explains Garcetti. “We’ve had a lot of court cases specifically around whether or not you can move them at all.”

“Community members are saying, ‘My kid has to walk by tents where people have syringes hanging out of their arms. Do something about it,’ ” says Garcetti, who has pledged to throw $100 million at the problem annually.’

Comment by Mafia Blocks
2015-10-11 08:27:07

That’s the California we’ve all come to know all too well. Out of control crime, fraud, illegal aliens everywhere, shameless behavior in public, poverty and everything and anything unacceptable is encouraged.

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Comment by Professor Bear
2015-10-11 09:25:57

‘Where we are is in dire and uncharted waters, with a record 46,000 homeless in the city, a 12 percent increase in the past two years — victims of the recession and soaring rents amid a real estate boom that has raised L.A. home prices by 27 percent in just three years.’

We’ve been told repeatedly in MSM reports that rising home prices are an “improvement. ” What’s this talk of “victims” of higher home prices?

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Comment by Ben Jones
2015-10-11 06:21:17

‘With over 1,000 new apartments moving on line in a couple of years, most well over $2,000 a month in rent, will supply drown demand and pop New Haven’s wee rental housing bubble?’

‘Time, it seems, will tell. Market rate rental housing saw a huge success in the efforts of Becker & Becker at 360 State, and in over 1,000 units renovated into “desirability” by Pike International. But what’s next? As a dozen proposals are being built or getting approvals — all using “wood frame over podium” construction that reduces costs enough to embolden risk in an otherwise scary economic climate — I dive in to see.’

Comment by Senior Housing Analyst
Comment by Mafia Blocks
2015-10-11 06:46:55

A Californica degenerate gamblers face while reading the HBB


Comment by rms
2015-10-11 09:43:40

Hehe, that’s a good one.

Comment by Ben Jones
2015-10-11 08:08:52

‘Winsway Enterprising Holdings Ltd. failed to pay interest on dollar-denominated bonds for a second time this year as it seeks to sell assets and find new investors. The Chinese coking-coal importer didn’t honor a $13.15 million semi-annual coupon due Thursday on $309.3 million of 2016 notes, it said in a filing to the Hong Kong stock exchange. It defaulted on the securities in May after skipping the April coupon payment.’

‘China’s economic slowdown has caused a slump in commodities, with the price for coking coal used in steel making falling 55 percent in the four years through 2014. Winsway is asking bondholders to take unspecified losses.’

‘Winsway’s 8.5 percent 2016 bonds traded at 14.63 cents on the dollar Friday in Hong Kong, according to Bloomberg-compiled prices. The notes have fallen about 23 cents this year and touched a record low 13.5 cents on Sept. 9. The company originally sold $500 million of the securities in April 2011.’

‘Winsway has entered a standstill agreement with some bondholders since it became the second Chinese issuer to default on dollar-denominated bonds after Kaisa Group Holdings Ltd. That expires on Oct. 15.’

Comment by Senior Housing Analyst
2015-10-11 08:13:41

San Mateo, CA Housing Demand Plummets 12% YoY; At 2010 Levels


Comment by Ben Jones
2015-10-11 08:33:06

‘It’s time to spread awareness for veterans as one nonprofit group says only five-percent of Nevada vets are taking advantage of housing options for their well-being. The Veterans Associate Real Estate Professional’s hosted dozens of veterans to show them ways to buy a home. According to experts, there are 227,000 military veterans in Nevada and there are underutilized programs for them.’

“We educate veterans on the benefits they deserve and there’s a lot of misconceptions on the VA loan,” one group member said. “We want to teach them that they can truly get a zero-down loan with no mortgage insurance and with down payment assistance and also closing cost assistance with grants locally.”

Comment by Prime_Is_Contained
2015-10-11 08:48:54

Sounds like nicely-targeted affinity fraud—with taxpayers taking all the risk. Yippee, here we go again!

Comment by rms
2015-10-11 09:57:11

“We educate veterans on the benefits they deserve…”

The hucksters have us in an awkward position, and they have the keys to the treasury. Who would say no to this cohort in these rabid times?

Comment by Senior Housing Analyst
2015-10-11 09:47:39

Santa Rosa, CA Housing Prices Crater 13% YoY


Comment by Professor Bear
2015-10-11 10:10:47

Honolulu homeless scatter, structures destroyed as city clears giant homeless encampment
By CATHY BUSSEWITZ Associated Press
October 9, 2015 — 10:55pm

HONOLULU — Honolulu officials began the final sweeps of what was one of the largest homeless encampments in the nation, tearing down structures that have been home to some for over a year.

The final push to clear out the Kakaako homeless camp, located just steps from the Pacific Ocean and not far from Waikiki, began Friday amid a chaotic scene of people trying to gather their belongings before they were taken away by officials.

People dragged items away from their makeshift homes while police cars blocked off one of the streets of the encampment. Families waited with their belongings in a nearby park, some hoping to go to a shelter, but sprinklers in the park turned on so they had to move.

“We just want to make sure folks know the park is not a place for people to live,” said Lindsay Doi, spokeswoman for the Hawaii Community Development Authority, which manages the park. “It’s a place for the public to enjoy.”

Comment by rms
2015-10-11 14:58:24

Seems like a small island for them could be found nearby.

Comment by Professor Bear
2015-10-12 00:24:21

Is China’s stock market in store for another leg down?

Comment by Professor Bear
2015-10-12 00:27:13

Beijing’s Market Rescue Leaves China Stocks Stuck in the Doldrums
Chinese authorities succeeded in halting stocks’ downward spiral, but aggressive moves have scared off many investors
An investor takes notes in front of an electronic board showing stock information at a brokerage house in Fuyang, China’s Anhui province, on Thursday.
Photo: Reuters
By Chao Deng
Updated Oct. 11, 2015 12:00 p.m. ET

Six weeks after the Chinese stock market hit a floor following a sustained selloff, Beijing can claim credit for halting the decline—but not much else.

The Chinese government, which some analysts estimate has spent hundreds of billions of yuan buying stocks to stop the crash, is now left with a market in the doldrums. Shares are languishing near their lows, trading volume is down by about 70% from a peak in June, and volatility has fallen by more than half since July’s record. Valuations in some parts of the market remain among the most expensive anywhere.

“Low volume, low volatility and a tight trading range” are hallmarks of a market getting stuck, said Hao Hong, managing director at Bank of Communications Co.

If history is a guide, the market could be stuck for some time. Shanghai’s largest selloff on record, which lasted more than four months during the global financial crisis, knocked 50% off the market’s value. After the benchmark rallied in 2009, it languished for years thereafter.

In the heat of this summer’s selloff, Beijing promised that brokerages would buy shares as long as the Shanghai Composite Index remained under the 4500 level. But authorities appear to have given up. After plunging as much as 41% from June to its low point on Aug. 26, the benchmark settled into a tight trading range for more than a month.

The Shanghai index rose 4% in the two trading days the past week, after the market reopened on Thursday following a weeklong holiday. It closed up 1.3% on Friday at 3183, still 41% away from the 4500 level.

The weeks of late-day stock surges—indications of intervention by state-backed funds—have been absent recently. Shares of resource-investment company Guangdong Meiyan Jixiang Hydropower surged as much as 153% after disclosing in early August that government agency China Securities Finance Corp. had become its largest shareholder. They have since plummeted 38%.

By late September, trading volume for China’s domestic stock market thinned to below 30 billion shares in a single session. That compares with a record of more than 100 billion shares in early June. The average daily volume last month was at its lowest since February.

Volatility has fallen by more than half since a record in July. During the selloff, the Shanghai Composite swung as much as 10% in a single session. In the past 10 trading days, the range has narrowed to an average of less than 2%.

One reason for the relative quiet is that regulators have clamped down on the official and unofficial channels that funded investors’ stock-buying. Debt provided by mostly local brokerages has dropped below one trillion yuan ($157 billion) for the first time since last year, having hit a record 2.27 trillion yuan in June.

Comment by Professor Bear
2015-10-12 00:29:18

This Analyst Says China’s Stock Rally-to-Rout Is About to Repeat
Jonathan Burgos
October 11, 2015 — 9:00 AM PDT
Updated on October 11, 2015 — 7:44 PM PDT

In August, Thomas Schroeder correctly predicted a rebound in Chinese stocks wouldn’t last. Now, he says, the benchmark equity gauge will plumb new lows as a bear-market rally fails.

The Shanghai Composite Index will climb to 4,100 in the next three months before slumping as much as 41 percent to 2,400 in early 2016, Schroeder, the Bangkok-based founder and managing director of Chart Partners Group Ltd., said in an interview in Singapore. The benchmark index added 2.4 percent to 3,259.53 as of 10:37 a.m. local time on Monday. Schroeder, a former Asian technical analysis chief at UBS Group AG, cited triangle and wedge patterns in making his call.

The Shanghai Composite tumbled 29 percent in the third quarter, the biggest slump among benchmark global gauges, as a stock boom turned to bust amid concern about the slowdown in China’s economy and a crackdown on using borrowed money to buy equities. The bottoming of oil prices and a rebound in emerging market currencies will help bolster a rally in the nation’s equities in the next two months, which will reverse as the Federal Reserve starts raising interest rates, Schroeder said.

“As oil starts to move and materials follow, investors will by default feel more positive about China,” he said. “This is a bear market rally.”

Schroeder predicted in August that the Chinese equity rout will worsen, with the Shanghai Composite likely sliding below 3,100 within two months. The measure fell to as low as 2,927.29 on Aug. 26. Technical analysts use past patterns to try to predict future movements.

Oil Prices

Oil posted its steepest rally since August last week, with West Texas Intermediate climbing briefly above $50 a barrel. A measure of global emerging equities jumped 4.4 percent, extending its rebound from a Sept. 29 low to 8.2 percent. Odds of a Fed liftoff this year have fallen to below 50 percent, with traders predicting a 62 percent chance of a rate hike by March. Investors pulled $40 billion out of developing economies in the third quarter when Fed concerns were at their height, fleeing emerging markets at the fastest pace since the height of the global financial crisis.

“We haven’t seen a major low for the emerging markets,” said Schroeder, whose Chart Partners Group is a provider of trading strategies linked to technical analysis. “There’s likely to be more pain next year as the U.S. starts lifting rates.”

Comment by Professor Bear
2015-10-12 00:31:39

Meet the mom-and-pop investors of China’s stock market
Lucinda Shen
China investors
Aly Song/Reuters

The Chinese stock markets were hit by a $2.8 trillion market rout earlier this year that Wall Street analysts say will reverberate through the global economy for months to come.

But in China, it wasn’t the big banks or brokerage firms that absorbed the brunt of the financial shock.

It was the “mum-and-pop” investors: pensioners, students, security guards and electricians, most with limited knowledge of their stock market. They make up 80% of all transactions on the Chinese market.

Reuters photographer Aly Song traveled through Shanghai during the time, capturing the moments of these ordinary Chinese investors as they go about their daily lives.

It’s a surprisingly intimate portrait of a nonexclusive community.

They gather at parks, play cards at the brokerage firm, or rally around a computer screen hitched on a bike to check stocks.

And despite losses in the stock market, many are still optimistic they’ll win it back, or express confidence in the communist party’s directions.

So scroll down to meet a few of these investors, who range from 16 to 90-years-old with occupations just as varied.

Comment by Professor Bear
2015-10-12 00:33:22

Markets Asia Stocks
China Shares Rally on Stimulus Plans
China’s central bank announces program to expand bank lending
By Chao Deng
Updated Oct. 12, 2015 12:39 a.m. ET

Stocks in China and Hong Kong rallied Monday on stimulus measures from Beijing and signals of reform in the country’s telecommunications sector.

The Shanghai Composite Index rose 3.3% while Chinese firms in Hong Kong led the Hang Seng Index up 1.3%.

China’s central bank announced over the weekend that it would expand a pilot program that would boost banks’ lending abilities. The plan, currently in place in Shandong and Guangdong, allows banks to pledge certain assets to secure loans from the central bank. It will be expanded to nine provinces including Shanghai and Beijing.

The market has widely interpreted the move as China’s version of quantitative easing,” said Jacky Zhang, analyst at BOC International.

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