February 28, 2016

Drinking The Homebuilder Kool-Aid

A weekend topic on this Aurora Sentinel editorial from Colorado. “There’s only one thing left to do in the controversy over whether Colorado should back off requiring homebuilders to stand behind the condos they build and end so-called construction defect laws: Call it the total bull crap that it is.”

“Bull. Crap. It’s cockamamie construction bull crap that the home-builders have been using to blackmail Colorado into letting them off the hook when they build stuff that falls apart. And you’re lying to yourself, me and everyone else in Colorado if you say that there hasn’t been a past plague of crappy condos built here in the metro area, There’s been a city-full of poor suckers who got left holding the bag on the junky homes they bought.”

“Not only were there projects bursting with junk, but there were evaporating homebuilders that would claim bankruptcy under one name and reappear as a new company to do it all again. The problem was so bad that state lawmakers actually mustered the nerve to change the laws in 2007. The change made it easier to create group lawsuits against these shoddy and shady homebuilders. It did nothing to stack the deck in court in favor of homeowners saddled with buckling concrete floors and driveways, warping siding and a long list of expensive, rampant problems. It just helped to even the playing field for victims of an industry that has long owned endless numbers of city councilmen, county commissioners and state legislators.”

“Few industries like homebuilders and developers donate as heavily year after year after year into the campaigns of so many. And in many ways, they get what they pay for. For the past several years, many of these homebuilders have complained and whined that the reason they no longer build affordable condos in the Aurora-Denver metro area, is because their insurance costs too much. They say that when legislators evened the playing field, some insurance companies raised rates.”

“Maybe. But that’s because these shoddy builders had to pay for their mistakes, and then were successful at charging it back to insurance companies.”

“But here’s the real reason why this entire argument is bull crap. Builders say they haven’t been pounding nails in affordable condos because they can’t afford to, given the price of insurance to cover their shoddy mistakes. The real reason why is because ever since the economy tanked in 2007, there was no market for anything. For the past few years, rental rates have gone up faster and more seriously than gasoline prices have plummeted. While the anemic housing market has slowly been coming back to life, the market is for 1. High-end homes. 2. Apartments. And that’s exactly what builders are putting up.”

“This from Metrostudy, the industry’s communication organ in Colorado: ‘Along with trade labor shortages, the other major impediment to stronger housing growth in 2015 and into 2016 are rising home prices,’ said John Covert, Director of Metrostudy’s Denver market. ‘Strong demand for move-up buyers combined with rising costs have placed more emphasis on higher priced product over the course of the last several years. The most prominent change in the past year has been in the $400,000-$499,999 price band where 34 percent of all homes started in 2015 were concentrated. 2015 was a low water mark for new home starts below $300k, representing only 7 percent of total starts for the year.’”

“Even in Aurora, home of the three-story walk-up, hardly anybody is building condos — because the market for apartments and high-end homes is hot, and so are the margins.”

“Want more proof? Even though cities like Denver, Aurora and Lakewood drank the homebuilder Kool-Aid and wrote their own anti-construction-defect bills, those cities are building, guess what? High-end homes and apartments. If someone builds a condo, and it isn’t in Aurora or Lakewood, you’d be laughed out of town if you called it ‘affordable.’”

“Why build lower-margin condos when the market is so hot for expensive homes and easy-to-sell apartment complexes? The profits are so much better than hawking condos.”

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Comment by Ben Jones
2016-02-27 08:51:55

And what was affordable is getting gobbled up and rents jacked. Courtesy of Mel Watts and the tax code:

‘Tenants are being evicted from the Admiral Manor apartments in Bremerton as a new owner prepares to renovate the buildings. One group of residents was given 20-day notice and has until Monday to move out, according to tenants who spoke with the Kitsap Sun on Thursday and provided copies of their eviction notices. The tenants said they were told the apartments will be upgraded and rents will be raised substantially. The 118-unit Bloomington Avenue complex offers some of the lowest rents in the area, with one-bedroom units costing about $650 a month.’

‘Laurleen Smith was moving boxes out of her Admiral Manor apartment Thursday. She’d been given another unit in the complex to move to temporarily. The new owners want to attract a higher-end demographic, Smith said. She paid $635 a month for her apartment and heard rents would be going up to $1,100 after the remodel. “We’re not the right monetary demographic, or any other demographic,” said Smith, who commutes to a call-center job in Tacoma.’

‘Displaced Admiral Manor residents are wading into a tight rental market. The vacancy rate at large apartment complexes in Bremerton was about 2.6 percent at the end of 2015, according to Tom Cain of Apartment Insights Washington.’

‘A representative of Madrona Estates, an Auto Center Way apartment complex that offers similar rents to Admiral Manor, said he had 40 names on a waiting list for units.’

Where’s that sh*t-eating grin ass-hat at HUD? Hey Castro, send me another email telling me how you are pouring multiple millions into some “affordable” solution to this problem you guys are in charge of.

Comment by Blue Skye
2016-02-27 10:50:05

“Affordable” for the rentiers, not the renters.

Comment by Bluto
2016-02-27 11:54:09

A similar story from the Calif. wine country…

“What especially irked some people was a prospectus put out by Drake Property Group, the Larkspur investment firm that purchased the apartment complex, stating it is seeking “a tenant demographic more appropriate to the refined nature of the Healdsburg community, tenants who value good design and beautiful surroundings.””


Comment by Ben Jones
2016-02-27 13:01:48

It’s been going on all across the country for at least three years. In Portland Maine the rents went up 40% in three years and apartment returns went down from 9% to 7%, meaning complex buyers were paying very large amounts. Do a search in news for luxury apartments. You can find these examples all day every day.

So where are the politicians? Where is HUD? Doesn’t anyone care that the poorest in this country are getting hurt badly? Look at this:

‘a tenant demographic more appropriate to the refined nature of the Healdsburg community, tenants who value good design and beautiful surroundings’

How in the heck can this be going on?

Comment by GuillotineRenovator
2016-02-27 17:03:40

“How in the heck can this be going on?”

The desperate search for “yield” in a low-rate environment.

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Comment by Ben Jones
2016-02-27 18:16:11

‘Chicago-based Waterton recently announced the acquisition of a massive apartment community in the Dallas suburb of Garland, Texas. Called Parkside at Firewheel, the property offers 594 rentable units.’

‘At the time of construction, approximately 30 percent of the units in each phase were finished with a higher interior amenity package that included hardwood-style flooring and upgraded kitchens with stainless steel appliances, granite countertops and tile backsplashes. Waterton now plans to upgrade the remaining 70 percent of units to offer a similar level of finishes.’


And up go the rents. This is almost always the case with apartment sales these days and there are huge numbers changing hands. The new buyer can depreciate the property (less the 1031 exchange flip from the last one). The seller takes the cash and 1031’s into a bigger property, and so on.

Comment by Ben Jones
2016-02-27 18:21:19

‘Average apartment rents continued to soften in January, marking the fifth consecutive month that metro Denver has seen rents decrease, according to Axiometric.’

;The average effective apartment rent was $1,321 per month per unit in the Denver-Aurora-Lakewood area in January. That was down $2 from December’s average and $43 below the peak reached in August.’

‘Axiometrics estimates that the occupancy rate for apartments in metro Denver was 94.3 percent in January, down from 94.5 percent in December and 95.5 percent in January 2015. The company attributes the softening rental market to the new supply that is hitting the market.’


Comin’ to getcha Mel Watts.

Comment by GuillotineRenovator
2016-02-27 18:57:32

It’s essentially complete and total domination over the common citizenry by the Oligarchy.

Comment by Bluto
Comment by Ben Jones
2016-02-27 17:38:57

‘Tune into any of the Democratic debates and you’ll hear a lot about income inequality but very little about the issue that is (depending upon the economist you talk to) one of the driving factors behind today’s major symptoms of inequality: rising rents, lack of affordable housing, and the fact that home ownership is now at its lowest point in decades.’

‘Peruse the transcripts from the last debate in Milwaukee: Hillary Clinton talked a lot about how she’d like to discuss housing but never actually got around to it. Bernie Sanders said nothing. Ditto for this week’s CNN town hall.’

‘Yet round up any random group of Miamians who are struggling or feeling financially stressed, and one of the first issues to come up would likely be rent. As study after study after analysis after factoid after ranking tells us, out-of-control rent is a major issue in Miami, and though it’s particularly pronounced here, it’s a problem in most major cities in the country as well.’

‘Sure, a president will never have as much of a direct impact on local housing and development issues as a local government (hint, hint — we’ll also elect a new county mayor this year), but the notion that housing should be a concern to the national government is a legacy of the Democratic Party.’

‘The United States Housing Authority was a major component of Franklin Roosevelt’s New Deal, while the creation of the Department of Housing and Urban Development was a key component of Lyndon Johnson’s Great Society Program.’

‘So it stands to reason that a Democratic presidential candidate should have a detailed housing platform from the get-go, especially in this election cycle. But neither Hillary nor Bernie has one.’

‘First, let’s look at where each candidate stands on the issue.’


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Comment by Prime_Is_Contained
2016-02-27 22:25:17

‘Sure, a president will never have as much of a direct impact on local housing and development issues as a local government

The author clearly has no idea how much HUD financing is backing the renovation and subsequent rent-jacking of the “local housing”.

Comment by Ben Jones
2016-02-27 09:09:19

‘Another Day, Another Story of Displaced Renters’

‘The Portland Press Herald story “Nonprofit searching for homes for evicted tenants of Portland apartment complex” reports on the efforts of Shalom House to relocate tenants displaced from 61-69 Grant Street in Portland, Maine, when the owners decided to reap the harvest of profits from Portland’s hot rental market.’

‘NPQ has already covered the problem of gentrification in “Promoting Affordable Housing Development: A Tale of Two Portlands,” which contrasted the efforts of Portlands on both coasts to cope with rising rents and limited rental housing stock. The Press Herald story makes this point. “So far, options are limited in Portland because high demand for apartments is driving up rents and the real estate market is attracting investment in market-rate and luxury housing.”’

Comment by Ben Jones
2016-02-27 09:32:03

This was posted today:

‘Now It’s Even Worse Than it Was When Lehman Collapsed, But It’s “Contained”

‘Part of this eerie calm on the surface is the still-widespread and ceaselessly propagated notion that all this is contained somehow, that it’s only the oil-and-gas sector, and well, the minerals-and-mining sector that got obliterated. And yet, beneath the fading gloss on the surface, all heck has broken lose.’

‘These junk bonds are precursors. Hundreds of stocks hidden in the bowels of the big indices have gotten totally crushed as that “spillover effect” is doing its magic. And that’s what it looks like when a central-bank induced mega-credit bubble is left to its own devices and starts unraveling from the bottom up.’

Comment by Ben Jones
2016-02-27 09:45:05

G20 to say world needs to look beyond ultra-easy policy for growth

‘Divisions have emerged among major economies over the reliance on debt to drive growth and the use of negative interest rates by some central banks, such as in Japan. Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.’

“It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said.’

Comment by Mafia Blocks
2016-02-27 09:42:31

“The real reason why is because ever since the economy tanked in 2007, there was no market for anything.”

Correct. With housing demand collapsing to 20 year lows and 25 million excess empty and defaulted houses out there, there truly is no reason to build more houses.

Comment by Neuromance
2016-02-27 09:54:14

I’ve noticed a pattern to debt-based… let’s call them bubbles so everyone has a model of what’s generally going on:


1) More and more debt is generated. Profits grow quickly.

2) All eligible debtors with a high likelihood of repayment are used up.

3) In order to keep making profit, lower quality debtors are given loans.

4) A race to the bottom ensues.

5) The system fails.

I noticed this while reading an article on “Social Finance”, a “fintech” lender. The quote:

“But SoFi faces three obstacles if it is to keep growing fast enough to justify a recent investment that valued it at around $4 billion (it is not listed). The first is growing without lowering its lending standards. Of the $6 billion it has lent in total, more than $4 billion went out the door in 2015 … SoFi has made a packet by refinancing student loans which were in effect mispriced by government programmes.”

In “The Big Short”, this exact mechanism was described as well, with the explosion of subprime and alt-A mortgages.

Comment by Ben Jones
2016-02-27 10:02:43

‘While the anemic housing market has slowly been coming back to life, the market is for 1. High-end homes. 2. Apartments. And that’s exactly what builders are putting up.’

Why buy high end shacks? Because you can resell them for a lot more. Why build high end apartments? Same reason, plus you get a slew of tax free cash flow until you sell, so billions are pouring into A+ multi-family. Neither of these markets does a thing for sheltering ordinary people. Both are largely financed with government backed loans.

Comment by Neuromance
2016-02-27 10:20:53

When a consumption item become a speculative vehicle, this acts as a tax on people who wish to consume those items.

When government pumps money into a market, it causes massive inflation in that market. Medical drugs, housing, education are examples.

Comment by Ben Jones
2016-02-27 10:28:08

One bank CEO outlines what will happen to your bank account if the Fed takes interest rates negative

A comment:

‘The Fed is trying to force and manipulate people to put their money into riskier asset, such as the stock market, creating various bubbles which eventually pop, taking peoples savings with it. Negative interest rates are just an acknowledgment that the end of the game is near. It’s the final desperate move to kick the can with one final weak kick.’

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Comment by Neuromance
2016-02-27 10:58:04

The Fed is trying to force and manipulate people to put their money into riskier asset, such as the stock market, creating various bubbles which eventually pop, taking peoples savings with it.

A bubble pop doesn’t make money go poof. It’s just a transfer of money from buyer to seller. One still has that precious share of ownership they purchased, one or a hundred of a billion. Just like spending money to buy a bottle of wine.

The stock market goes up when more money comes into the market than leaves. More money chasing a set quantity of goods leads to higher prices as people bid to buy them.

The problem is that Goldman Sachs’ or JP Morgan’s trading desks don’t lose money. A guy who works as a barber or mechanic stands no chance against them.

So, forcing people into riskier assets is just another Reverse-Robin-Hood policy, just like putting more pressure on them to go into debt in order to consume basic, non-luxury goods.

These RRH policies are just transfers of currency and wealth from outsiders to insiders. A popping stock bubble is just a massive wealth transfer, from outsiders to insiders.

Why do they - the Fed and the government - implement RRH policies? The people running the Fed and the people advising politicians and the Fed are luminaries of the FIRE sector typically. They became luminaries by being focused on making profits for themselves and thus their industry.

Comment by Ben Jones
2016-02-27 11:45:01

‘A bubble pop doesn’t make money go poof. It’s just a transfer of money from buyer to seller’

I’ve thought about this some. When does money go away? One is when a debt (asset to the holder) is written down. Although in the mind of the borrower, he is poorer when he realizes he overpaid.

Same with over-capacity. Too many points of production reduces the value of all. Look at the oil biz. Yesterday someone posted some charts showing the volume of world trade hasn’t fallen, but the prices have plunged. This has been the downfall of money creation in a globalized economy. So much money has been conjured up, inflation should be through the roof. But we’ve got exactly the opposite. The natural conclusion is that QE/ZIRP is deflationary. We’ve had a 30 year experiment in Japan and about 7 years in the US. China tried it, the EU tried it, all with the same result: deflation.

Comment by Blue Skye
2016-02-27 14:25:29

“When does money go away? One is when a debt (asset to the holder) is written down…”

I think of that as losing one’s claim on money that has been loaned. If the loan isn’t paid back, all the way to the Fed where it was conjured up, it is still out there somewhere. Just another way of looking at it. Is the loan that might or might not get repaid money?

I’ve been thinking about recent calls for elimination of cash type money. This is probably to fight terrorism, for sure. I think the reason the Fed targets an inflation rate is that this is their skim. Money is created at interest and unless there is expansion, there is no blood in the stone for the skim. I may be an odd duck, but I do not have any debt, so the bank is not getting much of a skim from me. One would think so anyway. However, when I present my bank card and make an electronic payment, Visa or MC takes let’s say 2%, even though I am not borrowing.

I mentioned the other day that I sometimes get a discount for cash. I take advantage of it. Now if the banks pass a law that I can’t have even stupid FRNs in my pocket, they will get this skim on everything I buy. Greedy little bastards.

Comment by Neuromance
2016-02-27 15:07:27

Ben Jones:The natural conclusion is that QE/ZIRP is deflationary. We’ve had a 30 year experiment in Japan and about 7 years in the US. China tried it, the EU tried it, all with the same result: deflation.

One possibility is that QE/ZIRP are desperate attempts to save the status quo and failed companies. The status quo works very well for a large group of people. But the reason the system failed is that the current system is not satisfying the desires of a significant number of participants in the economy. They are becoming worse off, and hence they draw down their spending. Which sets off a chain reaction of reduced demand which leads to deflation.

I just heard a Bloomberg radio piece on how banks and big businesses are being bashed relentlessly. And yet, they are winning strings of legislative victories in Congress. The two I recall they mentioned were the re-authorization of the Export-Import bank, and the creating of fast track trade agreement power for the president, which didn’t exist not too long ago. And that corporate profits are at record highs.

The Fed claims to be data-driven but there also seems to be a strong “seat of the pants” component to their decision making. I suspect their seat-of-the-pants sense reflects the world they personally live in (big money/power), not the world as it exists for many - most - members of the economy.

Comment by Neuromance
2016-02-27 15:11:55

Blue Skye: I’ve been thinking about recent calls for elimination of cash type money.

When you use a credit card, you’re really asking for permission to buy something. That permission can be declined.

Comment by Blue Skye
2016-02-27 18:04:54

It isn’t a credit card, it’s a debit card. I sucks the money out of my checking account. I’m not asking for credit when I use it. Visa or MC still collect a skim of 2% (+/-) from the merchant.

Comment by Neuromance
2016-02-27 18:35:07

Italy’s already got a cap on cash payments, ostensibly to stop cash evaders. This happened back on December 4, 2011, so it’s not new.

When Italians pay the rent every month, many go to the ATM and take out wads of cash, which most landlords prefer over checks. Newly appointed Prime Minister Mario Monti wants landlords, tenants, and Italians of all sorts to stop using so much cash, a habit that makes it very easy to evade the taxes needed to shore up Italy’s dire finances. So on Dec. 4, Monti banned cash payments of over €1,000 ($1,340). As part of a wide-ranging emergency decree, the cash cap takes effect immediately, even though Parliament must formally vote on it later on.

Italians are the euro region’s least indebted consumers and among its biggest savers, according to Eurostat data. This frugality is linked to distrust of noncash methods of payment. Italian credit-card holders make only 26 transactions on their plastic each year, on average—five times less than in the U.K., according to the Bank of Italy.


Comment by Prime_Is_Contained
2016-02-27 22:37:19

The natural conclusion is that QE/ZIRP is deflationary.

Alternate explanation, Ben: bubble-busts are deflationary. QE/ZIRP are an attempt to counteract that deflation (that is already baked into the cake); to-date, they have not managed to achieve their intended goal. I guess we should be thankful, really—if they had erred on the other side, we would be in a different world of hurt.

Comment by GuillotineRenovator
2016-02-28 01:26:43

The recent comments by Larry Summers to eliminate the $100 bill is proof that these bankers and politicians aim at complete and total control of citizens. It’s an attempt to force everyone to use plastic so every single transaction can be tracked, but more importantly, a fee charged as well. The bankers essentially want to help themselves to your paychecks. RIP, USA.

Comment by Ben Jones
2016-02-28 06:59:06

‘bubble-busts are deflationary’

It could be said the primary deflationary force on wages is globalization. Recall how hundreds of factories in Mexico were closed and moved to Mexico after China got into the WTO. Because labor was cheaper. Now factories are leaving China and heading to cheaper labor. The easy money facilitates this and results in overcapacity. BTW, gasoline hit $1.37 at my corner station yesterday.

It’s not one simple explanation. The bubble busts are deflationary, eventually. The overcapacity is deflationary. The race to the bottom wages that is globalization is deflationary. I think you have to put them all together. I came up with the bubbles on a sea of deflation when I worked on a beach. I would watch the tide go out, and breaking waves would create bubbles that floated even as each successive pattern of waves drew further out. If you’ve ever watched a tide recede, it doesn’t go one way. It will rise for a couple of waves, then pull back more, then repeat. Stock prices act similarly in a correction.

It’s important to remember globalization is a central bank project. They talk about it a lot at the BIS and other confabs they have. A web search for Greenspan and globalization for instance:

FRB: Speech, Greenspan–Globalization and innovation …
Federal Reserve System
May 6, 2004 - Remarks by Chairman Alan Greenspan Globalization and innovation. At the Conference on Bank Structure and Competition, sponsored by the …
FRB: Speech, Greenspan – Globalization – October 24, 2001
Federal Reserve System
Oct 24, 2001 - Chairman Greenspan presented identical remarks at George Washington … The strife we had witnessed over economic globalization was the …
FRB: Speech, Greenspan–Globalization–March 10, 2005
Federal Reserve System
Mar 10, 2005 - We do, however, seem to be undergoing what is likely, in the end, to be a one-time shift in the degree of globalization and innovation that has …
Alan Greenspan on Globalization - The Globalist
The Globalist
Alan Greenspan has outlasted four U.S. Presidents, five Federal Reserve vice chairmen and six secretaries of the Treasury. For almost 14 years, he has been …
Greenspan’s Final Act: Calculating the Impact Of …
The Wall Street Journal
Jan 9, 2006 - Alan Greenspan’s last great intellectual pursuit at the Fed could be a quest to understand the impact of globalization on U.S. inflation and …
[PDF]The Globalization of Finance - Cato Institute
Cato Institute
THE GLOBALIZATION OF FINANCE. Alan Greenspan. As a result of very rapid increases in telecommunications and com- puter-based technologies and …
[PDF]Globalization and Inflation - European Parliament
European Parliament
Dec 4, 2007 - The effect of globalization on (dis)inflation seems to be robust, but … In a speech in 20041, former Fed Chairman Alan Greenspan argued that …
The Welfare State, Globalization, and International Law
Eyal Benvenisti, ‎Georg Nolte - 2011 - ‎Law
Introduction: Challenges to the Welfare State in an Era of Globalization Eyal Benvenisti … See as well Alan Greenspan, Globalization, Speech at the Institute for …
FRB: Speech, Greenspan — Globalization — November 14 …
Nov 14, 2000 - Globalization. Introduction I am honored to be speaking before this distinguished group on the occasion of the Bank of Mexico’s seventy-fifth …
Globalization and the American Century
Alfred E. Eckes, Jr, ‎Thomas W. Zeiler - 2003 - ‎Business & Economics
Greenspan was renewed for four terms, the last ending in June 2004. … Greenspan especially appreciated the power, dangers, and benefits of globalization.

Comment by Ben Jones
2016-02-28 09:41:04

Is this money going poof?

‘Morgan Stanley slashes value of stakes in Palantir, Dropbox’

‘Even the highest-flying unicorns are being brought lower amid the market turmoil of recent months. Morgan Stanley on Friday marked down by 32 percent the value of its stake in Palantir Technologies, the Palo Alto intelligence analytics company that had been figured to be worth about $25 billion and the fourth most valuable venture-backed company in the world.’

‘The mutual fund giant also slashed 25 percent from the value of its stake in San Francisco-based collaboration and storage company Dropbox and 27 percent from the value of Indian e-commerce company Flipkart.’

‘Dropbox was valued at its last private funding at about $10, the 11th highest among VC-backed businesses. But Fidelity had previously cut its estimate of that company’s value as the stock of publicly owned rival Box has been underwater compared to its IPO price for months.’

‘The Morgan Stanley valuation drop on Palantir runs counter to reports that the company had seen one of the biggest valuation jumps of 2015, more than doubling its previous value estimate of about $10 billion. The secretive company has been gobbling up space in downtown Palo Alto, where it occupies about 250,000 square feet of space in about two dozen buildings. It also this month acquired San Francisco-based Y Combinator alumnus Kimono Labs.’

‘Palantir includes government intelligence agencies among its clients and has at times appeared to be constantly raising money.’

‘Morgan Stanley invested in Palantir in 2012 and 2013. In a filing by its Institutional Fund Trust Mid Cap Growth Portfolio mutual fund, the firm said its stake in Palantir is now worth $45 million. It said it had cut the value it assigned to Palantir’s shares to $7.70 as of December, down from the $11.38 it had when it invested in the Palantir’s most recent fundraising round.’


Comment by Combotechie
2016-02-28 09:53:38

“When does money go away? One is when a debt (asset to the holder) is written down…”

“I think of that as losing one’s claim on money that has been loaned. If the loan isn’t paid back, all the way to the Fed where it was conjured up, it is still out there somewhere. Just another way of looking at it. Is the loan that might or might not get repaid money?”

If I take a million dollars out of my mattress and send to Vanguard and Vanguard sends me back a statement that says my account contains a million dollars, am I still a millionaire? If the answer is yes then what about the situation with Vanguard; Vanguard may not OWN the million dollars I sent them but they are in a position of ACTIVATING the million dollars - activating it by spending it.

So in effect I took a million dollars out of storage and Vanguard put this same million dollars into circulation, but when I look at my Vanguard statement it still shows that I have a million dollars in storage, but in storage in a different form, in storage in the form of some entries on an account statement.

So money can be effectively in two places at the same time; It can be stored up in an an account statement and at same time it can be activated - activated by circulating throughout the economy. How weird is that?

Try this with, say, a full tank of gas in your car. Fill your gas tank up and then start driving. As you drive you convert stored miles (stored in the form of gasoline) into active miles. Once you are out of gas your driving comes to a halt.

This is the way it is with most things - you can have something stored or you can have it activated but you don’t to get to have both. But with money you do.

Comment by Ben Jones
2016-02-28 10:16:49

Yeah, and if 1% of a stock sells for 10% more in a day, 100% of the stock is valued 10% higher.

Comment by Combotechie
2016-02-28 10:34:20

“Yeah, and if 1% of a stock sells for 10% more in a day, 100% of the stock is valued 10% higher.”

A miracle! The actions of a few affect the well-being of the many.

If the few buyers that set the prices for the many are crazy then you will end up with some crazy prices.

These crazy prices aren’t destined to remain in the form of prices only, they also get to be expressed in the form of values - values as expressed in the form of entries on account statements.

Comment by Combotechie
2016-02-28 11:00:24

If a method could be dreamed up that would allow a corporation to borrow money against itself and use this borrowed money to buy up the 1% of the company’s shares that are offered for sale every day then they could perform the miracle of supporting the price (and thus the value) of ALL the company’s shares - the 1% of the company’s shares that are traded every day and also the remaining 99% of the company’s shares that aren’t.

Since much of the money made in the executive suite is made in the form of stock options and such (which means the higher the stock price the higher the amount of pay the inhabitants of the executive suite get) I am surprised that the inhabitants of the executive suite - the ones who call the shots - haven’t yet thought of doing this.

Comment by Combotechie
2016-02-28 11:12:13

If the true owners of the corporation (aka the stockholders) were to catch on to executives doing this (”this” = borrowing money against the corporations assets in order to support stock prices) then they would most likely be outraged - totally outraged! - because doing so would weaken the corporation, the same corporation that they are the true owners of.

Common sense would prevail - as it always does.

Comment by Combotechie
2016-02-28 11:20:50

“… because doing so would weaken the corporation, the same corporation that they are the true owners of.”

A clarification is in order: The corporation would be weakened not as measured by its price but as measured by its fundamentals - the fundamentals that should go into determining its price but (alas, for now) do not. But stay tuned.

Benjamin Graham: “In the short term the stock market is a voting machine. In the long term it is a weighing machine.”

Comment by Combotechie
2016-02-28 11:40:51

If the executive suite guys were to ever dare to loot the corporate balance sheet by borrowing money against it in order to support stock prices (hence the value of their stock options) then they would have to find a way to sell this idea to the stockholders (aka the true owners) by telling them that they are “returning value to the owners” - or some such thing.

Comment by Combotechie
2016-02-28 11:43:04

Shareholders, they are returning value to the shareholders.

This is a phrase that will probably work.

Comment by Neuromance
2016-02-27 10:40:33

And when government indemnifies the lenders who provide the funds to speculators, it’s a true Reverse-Robin-Hood policy.

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Comment by Combotechie
2016-02-27 10:14:44

1) More and more debt is generated. Profits grow quickly.

Prices grow quickly. Growing prices grows equity. Growing equity translates to growing wealth.

Presto! The debt growing machine becomes the wealth growing machine.

Or, to look at it another way, the wealth growing machine is really a debt growing machine.

Whatever. Party on.

Comment by Ben Jones
2016-02-27 09:55:59

‘The Group of 20 economies were unable to agree on a joint push for new stimulus measures at a meeting which ended on Saturday. Bank of England Governor Mark Carney said on Friday that the global economy risked becoming “trapped in a low growth, low inflation, low interest rate equilibrium.”

‘Political risks are also on the rise. Businessman Donald Trump could extend his lead as the front-runner to be the Republican contender for the U.S. presidency on Tuesday when voters in 11 U.S. states choose among the candidates. The idea of Trump in the White House is a worrying one for some investors who balk at his populist, unpredictable style.’

‘Politics is becoming a factor in Britain, too. With a referendum now set for June 23 on its membership of the European Union, sterling has touched seven-year lows against the U.S. dollar. A decision to leave the EU could hurt growth more in Europe as well as Britain, economists say. Economists at SocGen said they saw the possibility of a so-called Brexit as their top risk for the global economy, topping the chance of a severe economic slowdown in China.’

“We would classify a UK exit from the EU as a powerful geopolitical shock, a negative shock,” Italian Finance Minister Pier Carlo Padoan said at the G20 meetings in Shanghai on Saturday, echoing the concerns of other policymakers.’

A comment:

‘”Economists at SocGen said they saw the possibility of a so-called Brexit as their top risk for the global economy…”
That’s NONSENSE! Could someone please explain to me why is that a risk to global economy?!’

This guy has a good point. The UK leaving the EU is more important than China’s meltdown? Boy, it’s good we have a bunch of geniuses running the global economy. And check out the photo, with that cackling dope from the IMF surrounded by $2,000 suits and Italian shoes.

Comment by Gary R
2016-02-27 16:03:48

I thought Global Warming was the biggest threat to the world economy?

Comment by Senior Housing Analyst
2016-02-27 09:56:23

Denver, CO Housing Market Craters; Prices Plummet 19% YoY


Comment by Neuromance
2016-02-27 10:01:05

“Emergent properties of systems”

Just because something works for one system of a particular size, doesn’t mean it’ll work for a differently-sized system.

Take traffic circles. Smaller traffic circles are brilliant. You have more traffic flowing through them, no inefficiencies of waiting at light with no other cars, they require little maintenance and no electricity and they typically look more pleasing than lights.

Once the traffic flow through the circle passes a critical level, the system breaks down. Even if lanes are added and the circle is bigger. Around here, they wind up just putting lights on the various intersections in the circle.

Having said that, one question I ask myself about economic and social policy is, “Would this policy achieve the stated goals in Haiti? Why or why not?” It’s an interesting exercise, to me anyway, and can force some clarity of thought.

Comment by Neuromance
2016-02-27 10:23:54

So - one cannot say “traffic circles don’t work”. One has to look at the traffic volume and design of the circle. For social and economic policy, it is possible that a policy may work for a system of one size or design, but not for another. Figuring out why that is, exactly, can provide some insight about the situation.

Comment by rms
2016-02-27 19:08:02

“Would this policy achieve the stated goals in Haiti? Why or why not?”

They probably don’t make anything other than babies in Haiti.

Comment by scdave
2016-02-27 10:35:54

and wrote their own anti-construction-defect bills ??

10-15 years ago California had a 10 year construction defect law that was so strict that law firms were created for the sole purpose of lobbying Condo associations to file lawsuits against the developers…It was beyond frivolous but it worked…Congress modified the law to force arbitration and not litigation…Its still a tough 10 year statute but it has basically eliminated the dirt bag attorneys filing their lawsuits for their own benefit…

Comment by Neuromance
2016-02-27 11:24:13

““Few industries like homebuilders and developers donate as heavily year after year after year into the campaigns of so many. And in many ways, they get what they pay for.”

Awww, they just give money to politicians ’cause they like them so much, not because they expect anything in return :)

Comment by frankie
2016-02-27 12:39:53

There was an old snake named Mandavishya, who lived near a mountain.

Due to his old age, he was unable to prey on frogs. He thought, “I am too old to hunt for food. I will not be able to live long without food, and it is only going to make me weaker to hunt, as well. I have to think of something”.

Suddenly, an idea struck him. As planned, he went to a nearby pond, which was full of frogs, and relaxed on the bank of the pond without any intention to hunt. He behaved as though he had nothing to do with the frogs.

At first the frogs ran away, but as he was not hunting, the frogs gathered some courage and approached him. One of them asked, “O Snake! Why do you not hunt, as is your behaviour?”

The snake replied casually, “I have no desire for food, as I am unfortunate. I’ll explain to you. Last night, when I was wandering about in search of frogs, I bit a Brahmin’s son in frustration of not finding any prey. The Brahmin cursed me. He said, ‘From now onwards, you shall be able to do nothing but serve frogs. You will have to live off what frogs offer to you!’ And so, I lie here, to serve any frogs who wants my services. I can give a ride on my back to any frog who wishes for a ride”

When the news reached the king of frogs, he visited the snake along with his ministers. On being assured by the snake that he means no harm, the king decided to take a ride on the snake’s back. The snake rode him around the pond, and the king was very entertained. Even the ministers and other snakes took turns to ride the snake, and they were very entertained, too.

The snake, too, proved himself a good entertainer by exhibiting various styles of crawling. The frogs, especially the king of frogs, were delighted. The frogs jumped and hopped all the way.

The next morning the snake pretended to be weak and crawled slowly on purpose. The king of frogs, on the other hand, was excited to start the morning with a ride on the snake’s back. He observed the snake’s behaviour and enquired.

The snake replied, “I am too weak to crawl. I have not eaten for so long, and must eat something to be strong to give you a ride.”

The king of frogs thought for a while, consulted his ministers, and decided that they must serve the snake one frog a day to keep him strong. This was what the snake had planned for. He praised his kindness, and gave him and the other frogs a ride on his back.

From then onwards, the snake gave ride to the frogs, and got to eat one frog every day. In a short time, he regained strength. On the other hand, the king of frogs was too excited to realize the frogs were rapidly decreasing in numbers and there were only a handful of them that remained.

The frog king was so completely taken in by the snake’s talk that he did not understand his real motive.

One day, a big black snake arrived at the bank of the pond. He was very surprised to see the excited frogs hopping in joy, and riding on the snake’s back.

The black snake enquired, “O friend! Why are you carrying frogs on your back? They are our food!”

The old snake explained everything to the black snake. He continued, “I have discovered many different tastes after eating many different frogs here. I have this easy way of life, and enjoying it here.”

Over time, the snake had eaten even the larger snakes, and started eating the ministers and the king’s relatives. Finally, one day, he ate the king also and thus, the entire frogs in the pond perished.

And that alas is the economy we life in, we are all riding on a snake, eventually the snake may eat us.

Comment by Ben Jones
Comment by Blue Skye
2016-02-27 18:22:37

“…the median household income in San Francisco is $75,600 (it has gone up a little since that estimate).

“The monthly costs – principal, interest, taxes, and insurance, but not including the benefits of income tax deductions – for this median home amount to $6,350.”

Looks like house expense is more than take home pay (on the median). Is that a problem? Who pays for the gardener?

My PITI is $150/month. Am I missing the boat?

Comment by Prime_Is_Contained
2016-02-27 23:18:18

Am I missing the boat?

How can you miss the boat, when you OWN the boat?? :-)

Comment by scdave
2016-02-28 08:12:20

Looks like house expense is more than take home pay (on the median ???


Comment by Mafia Blocks
2016-02-28 11:58:48

Well…. Not really. Not at all.

Massively inflated prices for a depreciating asset always results in loss.

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Comment by Blue Skye
2016-02-28 16:42:22

DINK. No Kids.

Well Kids do not make you rich, if you value life in dollars. However, there will be no furniture, no groceries, no car, no light or A/C, No entertainment, no clothes, no nothing unless you ATM the soaring house equity. Indeed, they need to ATM the house to make the payments.

If prices do not go up, they are fooked. There lies something like 30% of the population. It is pretty sad.

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Comment by Senior Housing Analyst
2016-02-27 16:34:24

San Jose, CA Housing Market Implodes; Prices Crater 9% YoY On Collapsing Housing Demand


Comment by DaveBro in SonomaCo
2016-02-28 14:50:40

From the link:

“Market temperature
Very Hot
Buyers’ Market
Sellers’ Market

The median home value in Almaden Valley is $1,301,500. Almaden Valley home values have gone up 10.7% over the past year and Zillow predicts they will rise 2.1% within the next year.”

Comment by Mafia Blocks
2016-02-28 15:27:59

From the link;

Median price fell 9% YoY in San Jose, CA.

Remember….. Housing demand in CA is at 30 year low and falling.

Comment by Prime_Is_Contained
2016-02-28 16:14:21

Median price fell 9% YoY in San Jose, CA.

That’s called noise, poet.

Let’s check last month:

Dec 2014 $1.07M
Dec 2015 $1.16M
YoY change: UP 8.4%

Things don’t change that quickly in the RE market; seeing such wide swings month-to-month should make it obvious that you’re looking at noise. Of course, if you understand nothing about statistics, then I could see how you would think that that is signal.

Hint: try with a larger geographical area to separate the signal from the noise.

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Comment by Mafia Blocks
2016-02-28 16:21:41

And prices fell 9% YoY in San Jose, CA.

Statistics my friend statistics.

Comment by Mafia Blocks
2016-02-27 17:23:53

We advised over and over again. Did you listen?

“The Global Run On Physical Cash Has Begun: Why It Pays To Panic First”


Comment by Blue Skye
2016-02-27 20:10:32

“Did you listen?”

Very few have even retired their debt in these past ten years much less accumulated savings, much less some kind of savings that is cash in hand as insurance.

Whatever lunacy the Federal Reserve does now will only accelerate deflation.

Comment by Mafia Blocks
2016-02-27 20:28:51

In the absence of a complete collapse in demand, there is only one path forward.

Comment by Combotechie
2016-02-28 11:52:21

Cash = Useless, worthless, un-backed pieces of paper that will not be good for anything except for burning as fuel in order to keep warm.

This was the feeling of many here on this message board some - what? - eight years ago? Ten?

So … where are they now?

Comment by Combotechie
2016-02-28 12:06:00

Here’s a chart that shows the velocity of M1 (aka cash) …


If something is hard to get and hard to hang onto then its movement from one owner to another (one possessor to another) will be reflected in a chart that looks something like this chart.

Comment by Ben Jones
2016-02-28 12:22:37

It hit the all-time high in Q4 2007 and now is back to 1975 levels.

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Comment by Combotechie
2016-02-28 12:14:20

Wikipedia has this to say about the hyper-inflation of Germany’s Weimar Republic days, something that many who posted here declared was to be our destiny …

“Since striking workers were paid benefits by the state, much additional currency was printed, fuelling a period of hyperinflation. The 1920s German inflation started when Germany had no goods to trade. The government printed money to deal with the crisis; this meant payments within Germany were made with worthless paper money, and helped formerly great industrialists to pay back their own loans. This also led to pay raises for workers and for businessmen who wanted to profit from it. Circulation of money rocketed, and soon banknotes were being overprinted to a thousand times their nominal value and every town produced its own promissory notes; many banks & industrial firms did the same.”

“Circulation of money rocketed …”

Are any of you people here witnessing the circulation of money rocketing?

Comment by Mafia Blocks
2016-02-28 12:21:29

Bankrupt or so far underwater on a rapidly depreciating asset they’ll never recover. And there are tens of millions of others in the same situation.

Comment by taxpayers
2016-02-28 08:11:39

In my hood,a house listed for 2 days has 800 views and zillow only
Calls for appreciation of .7%
Why would buy for .7% ?

Comment by Mafia Blocks
2016-02-28 08:43:44

Doubtful. Post a link.

Comment by Senior Housing Analyst
2016-02-28 14:18:48

Reno, NV Housing Market Craters; Prices Freefall 17% YoY As Housing Prices Plunge Nationally


Comment by Tarara Boomdea
2016-02-28 21:26:36

YOY in my zip (Las Vegas, 89121) is up 10%.

LL paid $276K in May, 2015 and spent who knows how much renovating two bathrooms, tiling floors and replacing a rooftop AC. At 2,346 sq. ft. it must have been pricey for just the paint job, in and outside.

Chatty neighbor told me the new owner greatly underestimated the cost of renovation and cut it short.

The Zillow estimate for our rental has dropped almost $3K in the past 11 days. A recent high was $296K (August), peak high was $475K in April 2007 (included for laughs). So it’s dropped, according to Zillow, $26K total since August; the LL can’t be happy. Other estimates are higher, another much lower.

My worry is having the place sold out from under us again. It’s really getting old (as am I.)

Ben, are you still planning on a Vegas trip/report?

Comment by Ben Jones
2016-02-28 21:28:38

Yeah, gonna try and get out there next weekend. Been busy with work.

Comment by Tarara Boomdea
2016-02-28 21:44:15

Great. I can’t tell what’s going on. Too close to the forest to see the trees maybe. I don’t listen to the radio shows anymore since it’s just “buy, don’t think, buy”. The main one I used to listen was good because they’d report both good and bad news (only hype now.)

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Comment by Puggs
2016-02-28 14:39:51

“Even in Aurora, home of the three-story walk-up, hardly anybody is building condos — because the market for apartments and high-end homes is hot, and so are the margins.”

This sucker sounds WORSE than 2006.

Comment by Senior Housing Analyst
2016-02-28 15:35:04

Novato, CA Housing Market Implodes; Prices Tailspin 12% YoY As Housing Demand Craters To 30 Year Low


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