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This and That
More CIA numbers
The CIA updated its estimate for global external debt and GDP this week.
I have watched these numbers for years. This is the first time that I
have seen a significant drop in total debt and a meaningful expansion of
global GDP. Two possibilities. Either the CIA has the numbers wrong, or 2010 was a fluke that can’t be repeated.
I am going with the “this can’t be repeated” as the answer to the
puzzle. Either global debt increases significantly this year, or global
growth is going to have to slow down. You can try to fight Mother
Nature, but you can’t fight the basic laws of economics. In the world
that we live in Debt = Growth. This rule will not change.
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On Multifamily Default Rates
Fitch had this report out yesterday:
U.S. CMBS Market Trends: Large Multifamily Defaults Fuel 36-bp Rise in Delinquencies
Looking through it is a breakdown of default rates on asset classes. Multifamily homes are at the top of the Fitch list.
- Multifamily: 17.40% (from 15.63%)
- Hotel: 14.43% (from 13.99%)
- Industrial: 8.53% (from 6.24%)
- Retail: 6.88% (from 7.20%)
- Office: 5.50% (from 5.69%)
I find the bad result for Multifamily interesting. Not so much that the
default rates in the Fitch pools are so high, it is that the good folks
at Fannie Mae are doing so well with their portfolio of Multifamily
homes. The Fannie default rate is only .72%. The private pools are
defaulting at a rate 24X’s Fannie.
To
be sure there are different RE portfolios involved. That the results
could vary significantly is reasonable. But 24Xs? Either the folks at
Fannie have been doing a heck of a job, or they are sandbagging. I don’t
mean to imply they are fudging with numbers. There are too many bean
counters around for that to be the case. My suspicion is that Fannie has
actually done a heck of a job in HAMPing, HARPing and generally
extending and pretending their multifamily portfolio. That way they do
not have big numbers on the “serious” default multifamily line. Why on earth would Fannie do that?
If the measuring stick for “success” was: How many families did the government help out? Then it would behoove the government to help out a multifamily borrower over a single-family borrower.
It’s about the optics….
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More on “Hot Money”
George Washington had an article at Zero Hedge
with information that Mubarak may have stashed away $70b . I suspect
that this is more or less correct. This money will pop up all over. The
US, UK and the Swiss banks are no doubt sitting on the bulk of it.
Let me give you a likely scenario. Mubarak leaves. Whoever comes into power the first thing they say is “We want our money back”. This creates a potential problem. Whose $70b is it after all?
I wrote
about a subset of this earlier in the week. My focus was on the Swiss
bank angle of the story. I quoted from NZZ. Well NZZ is back on the
topic again today. I have no doubt that the NZZ is talking about it
because the Swiss bankers and political leaders are talking about it. And they all think that something is going to blow. The NZZ interviewed a private Swiss banker. I thought it was worth noting: (my translation from German)
NZZ: What
about a potential client such as a Russian oligarch who is now
legitimate, but has come to his first millions years before by dubious
circumstances?
Private banker: There are certain oligarchs, who were 10 or 20 years ago so bad that we do not do business still today. Other cases are less clear.
NZZ: And what about with countries like Saudi Arabia, Kuwait and the Emirates, where state and private property may overlap to such an extent that the term "corruption "would be redefined?
Private banker: The acceptance of funds from these countries is, in principal, in order.
Read through the lines. If you were a crook ten years ago but are now
rich and respectable there is no problem to open a Swiss account. When
the private banker says that it is “proper” that Swiss banks should have
large banking relationships with the players from Saudi, Kuwait and the
Emirates what he is really saying is that they have boatloads of their money already.
This gets back to where I started. When Potentates lose their “Po” the
people left holding the bag are going to be asking for the dough. We will hear more of this in the weeks to come.
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The SEC is going broke
From the WSJ this morning:
Securities and Exchange Commission Chairman Mary Schapiro said Friday that budget constraints were hampering the regulator's ability to enforce the securities laws.
The agency doesn’t have the funds to hire market experts it needs to keep ahead of fraudsters and market manipulators.
The budget strain was forcing market analysts to use decades-old technology to "monitor trading that occurs at the speed of light.
This certainly is an American story. Two years ago the country was
brought to its knees over financial abuses that the SEC should have seen
coming. The Dodd/Frank bill that was passed with much fanfare a year
ago is actually just a joke . Now there is no money to do the follow
through. We are destined to revisit the sins of the past.
**************************************
On the labor force
You’ve seen these graphs before but they are worth repeating. The US has
gone through a structural change when it comes to labor force
participation. This phenomenon is not going away. A significant number
of people who were in the labor force a few years ago are now no longer
interested in finding work.
I find this fascinating. What the hell are all these people doing that have dropped out?
Just collecting UE and DI checks? Have they gone underground and are
now day workers getting paid cash off the books? We’re talking about 8mm
people here. 5% of the total workforce seems to have disappeared. How is that possible?
Should this trend continue for a few more years it will have very
significant effects on Medicare, Social Security and general tax
revenue. At the moment everyone in Washington is assuming that we are
going to revert to the labor force participation rates of 2006. With
that will come higher taxes at every level and the budget picture will
magically come back into closer balance.
But I think these workers are gone for good. Should that be the outcome
the budget picture is just a disaster for as far into the future as they
eye can see.
There are no “fixes to this problem and it will not go away. Ben
Bernanke is trying to fix this with a monetary policy that is upsetting
the world and accomplishing nothing good.
*******************************
Quote of the week
Texas Federal Reserve President Fisher during Bloomberg interview with Kathleen Hays:
The United States is the best looking horse at the glue factory.
Enough said.
»
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"I find this fascinating. What the hell are all these people doing that have dropped out? Just collecting UE and DI checks? Have they gone underground and are now day workers getting paid cash off the books? We’re talking about 8mm people here. 5% of the total workforce seems to have disappeared. How is that possible?"
Let's assume you have a small business and the margin squeeze is killing you. You have to cut costs, but where? You have a great manager. In fact you can't do without him. So you approach your manager and ask, "Hey Tony, do you want a raise?" Tony says, "Yes!" So, you "fire" Tony. Tony starts collecting unemployment. Tony keeps working for you, but it's cash and it's 50% less than you previously paid him. Tony gets a raise, gets cash, reduces taxes...You cut your labor cost by 50% and get to keep your business going for the next 99 weeks. We'll see how it works out.
What an adaptation you describe! I bet there are a ton of these workarounds going on that we are unaware of.
isnt multifamily housing usually bought by investors who rent out the multiple units?
in which case would it really look like a loan mod is saving multiple households as opposed to a single owner?
Wearing your Regulatory heart on your sleeve again Brucie Baby? And Swiss bashing again too? SEC under-funded to monitor micro-second transactions (cue Brucie on the violins). They were given patent statistics on Madoff, all they had to do was follow a simple instruction to look at the newspaper and verify the market was smaller than Madoffs actual claimed turnover. How simple could it be verifying 1 figure against another, even a 12 year old slow learner could manage that Brucie. But still the SEC fuked up. So what chance they get 12,000 transactions a second Brucie Baby? Even for a slow learning pro-regulatory fascist like yourself you must realise the SEC should be chasing Wall Street mass systemic fraud not high frequency trading. How they doing on that score Brucie???????
You think I am a fan of the SEC? Go read my bio.
Don't you see the irony here? How much did Dodd/Frank cost? Big. Was it worth it? Right or wrong? I don't know.
But if it was worth passing Finra you would think they would fund the enforcing agency for a year or two.
Slow learning, pro regulatory, fascist.....
There a few thousand people who read me on a regular basis. I welcome them all. Even you. I'm not slow learning and if you read what I write you would know that I am not pro regulatory. Think what you will.
But you have no basis to call me a fascist. I object to that. So I'm asking you nice to drop your ugly talk. Continue and you will not be welcome.
You think I am a fan of the SEC? Go read my bio..
No thanks. You've written above you think the SEC are underfunded to watch/spy on nano-second trading. On what basis when the SEC can't even compare 2 figures on Madoffs scam with any professional competence? The CRA's have rated sacks of shit 'AAA' and the major Wall Street banks have sliced and diced them for years defrauding pension and sovereign wealth funds. What is the over-paid, over-staffed SEC done about it, arrested anybody, shut any WS banks yet???
So on what basis do the SEC deserve anymore funding when they've already proved beyond reasonable doubt their incompetence and they've been a waste of money to date?
How much did Dodd/Frank cost? Was it worth it? I don't know.
AIG had 130 regulators worldwide. They all failed. Madoff had dozens of US regulators. They all failed. Wall Street mortgage fraudsters are walking free despite dozens of US regulators. They are all failing (they're chasing Hedgies instead for 'insider trading' a technique that's not illegal in any other industry).
You think you're not a slow learner but how many times has reguilation got to fail right in front of your nose before you wise up regulation DOES NOT WORK and has NEVER WORKED. Then you'd be able to answer your own Dodd-Frank Bill question with something more informed and intelligent than "I don't know" (Doh!)
I know a lot of moms who have dropped out of the rat race. We just live frugally and enjoy the kids. More fun than working 70hrs a week and paying half my income in taxes. Plus now that I have time to pay attention to the economy I make plenty on investments.
It's much more fun, I know that...
I am officially jealous.
That is not to say that such a change in lifestyle is without its worries. You don't have to worry about your next paycheck because there isn't one. There can be a lot of comfort in working for the man. Snide people would call them the "sheople" but such a comfort as having some money somewhere for at least two more weeks is a secure feeling.
My income has been cut to zero while I build my account in this crazy market. My family has faith in me.
They also like fresh food and a clean house and the funny thing is, the kids come out of the woodwork when you're home. They <gasp!> talk to you and smile and seem much, much happier in a brief time.
If you have kids and a supportive spouse, I say do it. The benefits outweigh the rewards, I think. There may come a time when I wash out and have to go back to work for the man, even part time. I know I am going to do everything in my power to not let that happen because I have a much happier home now than I did six months ago.
:D
I still remember how much happier my sibs and I were before our mom went to work. In retrospect, we were pretty poor, but we didn't realize it and didn't much care. I regularly have the conversation with my kid about whether mom should go back to work so we can buy the crap in the stores and the decision is always no.
You would be amazed, too, at how much you can save with someone able to actually comparison shop and find bargains, make decent meals. Fast-food, while it seems relatively cheap at the time you buy it- three bucks for a burger- by the end of the month, it adds up something fierce.
I can now shop in four stores by focusing my shopping on specifics to find at each store, according to their strengths. They send a flyer to the mailbox, too, so it's not like I have to do some heavy-duty research. The farthest grocery on the list is a mile and a half and you could throw a rock between the others, so please spare me the "wasting gasoline" thing. Just by using this technique, I have been able to save forty percent on groceries alone.
Remember, kids don't care about money unless you're all about the money and/or keeping up with the Jones'. When your family values have been centered around getting new stuff, the world-view of your kids becomes grounded there also. Think about what would be different if your children had grounding in love, togetherness and understanding- you know, all that stuff that the media makes us feel guilty for having around us.
Instead, what if you could take that once-in-a-lifetime opportunity to teach them to ignore the latest iGadget and actually have some sympathy for people who chase such things. Your kids will gain an appreciation to the things in life that are truly important...things I am only just now really beginning to appreciate myself.
Had I not been raised that way, my kids wouldn't have been raised that way and they could have had a head-start on undertanding life much better. I wish I had decided to do this much sooner.
Had our society not bought into the "two taxpayers in every house" paradigm that we have allowed to overcome us, we would be a much, much happier country. It makes me sad to think of it, now that I see most of my time on this planet has been spent chasing ubiquitous debt. It really is sad.
I do our shopping the same way -- some stores I only go to for the BOGO's. Every store is a different adventure for the kid -- and she is learning about bargains and comparison shopping. (And about real money (gold and silver) and funny money. Can't wait until her school starts teaching about money and she gives everyone a lecture.)
I think on these issues daily. I do like having the money and no debt, but I'd love to dump the empty stress aspect of it. And yes I think it affects my son. But I carry the health insurance... I can't figure out how to get around that one. So I stay...
I don't watch the food budget, but I do buy organic, local, etc. I may not do it smart, but at least I know the food going into those tummies has better odds of nourishing them than poisoning them.
My meals are simple, elegant. Wilted spinach w/ butter & garlic with blackened Salmon. I am getting ready to cook a hearty breakfast of eggs, sausage, cheese, and Pitas as soon as I hit the save button.
Nice to eavesdrop on your conversation.
The health insurance part is tough. We were both self-employed partners, paying our own premiums, when I stopped working. Now we have a high deductible plan and an HSA, but it is still very expensive. I know of families where everyone is young and healthy, and they were able to get a very high deductible single family plan at a very reasonable cost.
We also were debt-free when I stopped working, which makes a big difference.
Sounds like you already have your mind right, MsCreant. Truth be told, if my spouse did not get health insurance from work, it would not be possible.
That's the real kicker, isn't it?
Sadly, I think that it was corporations who pushed the "womens' movement" in order to garner more fodder. Now things reverse...
Reminds me of one of my favorite coffee mug quotes: "I'm out of the loop and I like it that way!"
slewie,
I agree that a change in behavior is starting. In addition, the residental zone North of Detroit is seeing an increase in random break ins and petty theft.
well, i hope my old gf, ann arbor, is still ok.
i don't encourage lawlessness, except for purely victimless crimes.
i tried to examine my con-science around the stuff you are mentioning, got to 900, and decided to quit.
detroit would be ideal for the little coffins 4 export, doncha think? and, i don't think you'll need to steal any equipment. just pay $200 for a building, fee simple, and advertise for carpenters w/ their own tools, telling them what you've got in mind, and pay top dollar (!) for scrounged wood. do the advertising using bartenders. everyone will need to wait a few months to get paid, and i think piece-work might be workable, to keep track of things. pay the woodchux by the mbf. one account for everybody, let them worry about the details. you might wanna outhouse the shipping functions. i got a migraine started, just w/ the thought. maybe some of the local churches might help w/ the utilities, and places to eat, assuming everybody w/ be on stamps. you'll have plenty of good music, but i would suggest beginning each morning with this:
Cee-Lo Green – Fuck You (Lyrics On Screen) KillerHipHop.com
send me and the donk Q 10 cents a box, and you'll have no competition from us. 2 in 10/net 30 for the stuff that has gone out the door, monthy. the front door, ok?
remember: cash talks, b.s. walk. do not let the SBA get involved, and just shoot the tires out if you even suspect a goobermint vehicle. [that's a joke, ok?]
oh yeah, offer the carpenters free zigzags, when you get started in the bars. image is important. maybe some local paraphenalia folks would grease the skids for the franchise.
i just love it when a plan gets arced into cyberspace!
Bruce,
The SEC has no money to hire consultants to do the employee's work? Quel dommage!
Catching Bernie Madoff required no special equipment or training. All they had to do was to stop turning a blind eye. They couldn't manage that.
Who cares if a govt agency isn't funded. They will never do their job (except to the extent their job is to extract tribute and crush citizens to demonstrate their power).
Defund all the agencies!
The only solution to compel the SEC to Stop the Looting & Start Prosecuting is to do the following, at the very minimum:
1> Merge it into the FBI
2> Outlaw FBI/SEC employees from gaining employment in the industry they regulated for a period of 5-10 years, thus ending the revolving door policy of insider industry kickbacks (With STIFF sentencing penalties for violation thereof)
3> Grant regulators DIRECT access to real-time access to all investment platforms
4> Hire based on IQ/Aptitude and not based on nepotism/cronyism/politically correct quotas
Won't happen until we hit the reset button.
Great set of recommendations. What happened was that this, like so many other agencies, became co-opted by big corporate power.
I have no illusions that big corporate power can be checked. Money rules, and corruption will ALWAYS occur.
I tend to agree with the "anti-govt" people, but only in that, unlike them, I believe that corporations will collapse when the govt goes away: much of their cheerleading has been programming from the big corporations (and most can't figure this out- pawns to the left of me, pawns to the right). And the same people tend to believe that the earth's resources are infinite. Clearly this will be a case of "be careful of what you wish for" (and they'll need to figure out what to blame their predicament on).
Peter Schiff said that about the dollar (best looking horse in the glue factory) about a year ago...
Growth stopped? Say it ain't so! Can't happen, I mean, we've clicked our heels together and everything!
Its called clawback and the US isn't good at it at all, in fact the US is far worse than the Swiss. But at least you are no longer singleing out the Swiss for your scorn, they constantly get whooped on by the US, the EU and the entire OECD anyway. BTW, the NZZ is nothing more than the Swiss NYT. You need to start looking for a Swiss news source that at least pretends to be fair and balanced. How about the www.dailybell.com ?
FYI. My firewall decided the dailybell was an unsafe website. This may not be the case, but...
Good writing for sure - but for me, I'm tiring of articles from authors that flip like a coin. So today apparently its a "half empty" day I guess. Next up, rays of light that represent a short term opportunity. Sorry, just pissed I guess. Good article.
"I find this fascinating. What the hell are all these people doing that have dropped out?"
Two words: black market.
When you don't pay any taxes, you can get by on a lot less. People are also finding that freedom >>> junk from China. If this way of thinking catches on, the USA will never go back to the post WWII social order.
Same thought I had - Atlas Shrugged, anyone?
Drop out, stop feeding the beast. Do you think it could work?
The black market economy is not a Randian political statement. The beast can continue. I just don't participate.
only if we all play it together until it dies.
5% of the total workforce seems to have disappeared. How is that possible?
It was cold this morning, as I climbed into my old truck to drive in for an early-Saturday morning host upgrade (Unix/IT). I noticed all the wax on my hood was gone by now, and the rain was just sheeting off flatly.
As I drove to work, I saw a young couple walking down the side of the freeway (this is a semi-Interstate with no pedestrian traffic allowed). They walked carrying a single grocery-plastic bag and the guy held a big umbrella over them. They walked opposite to traffic flow, so they weren't thumbing...
And I wondered...who waits until 7AM Saturday morning, cold and raining, to go walking to a nearest grocery store that is almost two miles away and buying ONE bag of groceries?
I don't know the answer to Bruce's question, but I do see something new: I see a people in unlikely places doing strange things at unusual times. If someone is wearing a fur coat at the beach in July, it doesn't take a genius to notice it. And it's not just occasionally, it is often.
I think we're on the verge of "Interesting Times".
The most distinguishing characteristic of this New Depression is that it lacks substantive narrative. It has no palpable immediacy to it. Which in turn, leaves it without any pragmatic influence for a sense of urgency to resolve it. It is clear that people yearn more for painful numbers to moderate, rather than their neighbor actually become re-employed.
The Great Depression of the '30s had an armada of writers, journalists, and photojournalists who were reporters of the unfolding story, to become its biographers as time passed.
I am quite convinced these times contain vast hidden realities. A good part of this is an unintentional consequence of progress.
I'm visual so, although Steinbeck and others drew a compelling background to their on-going journal or novel, it is the black and white photos of vast masses of beleaguered and tattered humanity at soup kitchens and public assistance centers which made the Great Depression real to me.
Now consider an imaginary suspension of the wonder of electronic transfer for one month. The simple replacement being a trip to the support center. What type of image does that bring to mind? And what kind of effect would the capture and display of such events garner from our employment conscious gov't representatives? (of course I'm refering to their employment in the Wash. money free-for-all) And what dynamics would this bring to , and surrounding, those who have captured the nation's wealth?
You eye for the inconsistent serves you well. From personal experience in part of my youth, you are picking up on a symptom of bare existence...
The day for the borderline or poor is 6 hrs longer. When it is cold, you are colder. When it is hot you are hotter. You quickly distinguish that which is a necessity from that which is convenience. Then you live in continual dred that any necessity will fail or for some reason become unavailable to you.
Because any work-around always involves more of your time in trade.
Interesting times, indeed.
Pike, I too enjoyed your post. Here are some depression images from Marion Post Wolcott:
http://www.youtube.com/watch?v=mI2K57dVtF4&feature=related
Good stuff. These days unemployment insurance and food assistance has kept the needy indoors, fed, and with a few bucks to pay the cable bill for cheap entertainment. Remove the bread and circuses and we'll have something to write about.
Very nice, deep and thoughtful, Pike Bishop.
Kind of reminds me of Robert Frost in an odd sort of a way, and I guess BK gets the credit for bringing you in to write.
I would like to take credit for that, but that would not be right.
Pike, you should consider writing a blog. You have a nice way with words.
If yr interested in this let me know. I will show you how you can get published.
BK
bkrasting@gmail.com
yup. liked the imaginary suspension.
i can go along w/ the b & w, as long as we can get a little sepia, now and then.
Very thoughtful post.
the couple was probably buying meds of some kind, even over the counter, maybe a sick kid at home, some pedialyte. you're a computer programmer? next time take an unemployed writer with you, to explain. (that's why we used to believe in a thing called a liberal arts eduation. I doubt if those Chinese or Indian math degrees need that sort of humanities training, as mostly they all live pretty close to the same reality, but soon they will need that too)
Maybe they just got paid on Friday night, were only able to cash their check first thing Saturday. Maybe they buy one meal and split it between them every two days and have to walk a mile to get it. Maybe she is real good at managing money while he is in school.
Either way, they wouldn't have left a sick kid at home while both of them went to the store.
A mother knows this...
maybe it's a bear.
from the hotel new hampshire...
chronic remorse...took late, too little...
Bruce, another great column, as always.
The item I found the most interesting is what will happen to all that dirty money in the Swiss banks.
I think you are right. This is an issue we will see LOTS more of in the years to come.
No reason to get carried away with the "CIA" stuff. This is just the world fact book. It's produced by absolutely ordinary government staffers in one of the agency's absolute above-the-covers divisions, drawing from the same public sources you or I can find - eg the World Bank, the IMF, the respective governments. They are systematic but not up to date.
So it wouldn't be at all surprising if the World Fact Book's math or its sources were simply wrong. There surely has been a fair amount of repatriating capital - eg foreign depositors fleeing Irish banks - but $3 trillion? That seems too much.
to answer a couple of your questions:
This is a grow box economy. People are growing pot in their homes.
yes people who have real jobs do work for cash.
recall a few years ago, during Clinton admin, when we were buying up nuclear weapons material from the Russians, that a lot of that money went into private hands and was invested in property along the French Riviera. the true definition of hot money goes something like this.
Bruce,
regarding world GDP and debt levels - as you agree with the numbers, could you kindly explain how that could happen without moving some debt off BS. It just escapes my mind.... and i know accounting 101.
Thanks,