Housing Prices

Obama Lays Out His Latest "Mortgage Plan"

Listen to the Landlord in Chief lay out his REO to LBO plan live and in stereo. Since everyone will end up paying for it, directly or indirectly, sooner or later it probably is relevant.

Art Cashin Explains What Is Really Happening In Iran

Despite the barrage of geopolitical headlines involving Iran, and as of today, the US and Israel, especially as pertains to wargame exercises in the Straits of Hormuz, a different, and potentially much more important story is to be found in the country's capital markets, and specifically its currency, which has continued to tumble ever since Obama signed the Iran financial boycott on New Year's Day as reported here. And, as we predicted, it is the aftershocks of the boycott which may have the most adverse impact on geopolitics. Because if the Iran regime finds itself in a lose-lose situation with its economy imploding and its currency crashing, the opportunity cost of doing something very irrational, from a military standpoint or otherwise, gets lower and lower. Then again, something tells us the US administration has been well aware of this sequence of events all along. Here is Art Cashing explaining it all.

Guest Post: Headwinds For Housing

It’s no secret that housing and employment are correlated, and the causation is intuitive. If more people have jobs, then more people have incomes that support the purchase of a home. In the other direction, the more houses that are built to meet rising demand, the more jobs will be created in construction and real estate. We can see the correlation in this chart from the St. Louis Federal Reserve displaying one measure of employment for workers age 45-54 and the index of home prices. As employment of those in their peak earning years rose, so did home prices. This is partly a function of basic supply and demand: Rising demand pushes prices higher. As employment fell, demand declined, and so did home prices. The Federal Reserve famously has a dual mandate: to maintain stable inflation and employment. The Fed attempts to pursue these goals with monetary tools such as setting interest rate targets, while the Federal government supports housing by subsidizing mortgage interest via tax policy and guaranteeing mortgages via the housing-lending agencies of Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA). The Fed’s primary tool for stimulating demand for housing has been to lower mortgage interest rates, by buying the US Treasuries that set the baseline cost of long-term debt and also mortgage securities. Indeed, the Fed’s first quantitative easing (QE) program was to buy about $1 trillion in distressed mortgage debt outright. This removed the impaired debt from banks’ balance sheets and also served to lower mortgage rates.

Forget Copper: Steel Is The True Indicator Of The Chinese Hard Landing

Last week we pointed out some curious observations from Fortress on commodities and the state of the Chinese market courtesy of secondary industrial metals, notably steel: "The investment landscape for industrial metals is becoming increasingly more difficult to navigate. As highlighted in last month’s letter, we are continuing to see a rapid deceleration of growth in China, specifically within the cyclical industries. A recent trip to visit steel companies outside Beijing underlined the impact of extremely tight liquidity and continued restrictive policy in the Chinese housing market. Steel capacity cuts – through idling or accelerated maintenance outages – are now commonplace and the speed of these cuts has certainly surprised the market. Construction is the principal end-market blamed for this weakness; given the very large inventory overhang and the continued lack of liquidity, this is not surprising. In our equity universe, we have also seen numerous companies expressing concerns regarding China construction demand. Zoomlion, China’s second largest construction machinery company, recently said, "Demand for construction  machinery has shrunken drastically and growth will no doubt continue to slow next year." Within the context of declining housing starts, plummeting transaction volumes and the beginning of a meaningful move down in housing prices, these shifts in the steel market have been an interesting harbinger of more substantial problems in the Chinese economy. Our principal concern is the extension of housing weakness into the banking system through the mechanism of both failing developers as well as the opaque and informal lending. We are concerned that the recent strength in iron ore, steel and copper has been misinterpreted by the market. In our view, any suggestion that the Chinese market is undergoing a substantial restock is misplaced." Today, we get a confirmation of just this warning courtesy of Citigroup which has charted weekly Iron Ore China port inventories and of broad steel inventories. Needless to say, domestic steelmakers, who better than anyone know the state of domestic end product demand, have seen the writing on the wall, and have one message for the world: short Brazil and Australia.

Fortress Commodities Fund "We're Long Gold, Short Base Metals, And A Seller Of Crude"

While one of the bigger commodity funds out there, in this case Fortress Commodities Fund, has not done too hot recently (down 7.4% in October), which it humbly admits to and says, "the month of October was a wakeup call for us and we are adjusting accordingly" here are some must read perspectives that lead the Fortress Commodity group to conclude that "We're Long Gold, Short Base Metals, Patient Crude Strength Seller & Buyer Of Corn On Any Real Flush In Prices." Oh, and that it's "macroeconomic outlook remains pessimistic."

Guest Post: Psychopathic Economics 101

Psychopaths flew financial weapons of mass destruction (derivatives) into the twin towers of our economy, the housing market and the stock market.  Ten trillion dollars of wealth imploded in a cloud of dust. Ninety-nine percent of the economic experts – financial planners, economists, economic professors, brokers, and investors – missed the largest bubble in history as well as the systemic risk that the bubble posed. The National Board of Economic Research (NBER) (who is responsible for declaring a recession) was 9 months late calling the worst recession since the Great Depression.

Guest Post: Unleashing the Future: Advancing Prosperity Through Debt Forgiveness (Part 4)

Simply put, “productivity” is giving to the future, instead of taking from the future. Parasitism is the opposite: Borrowing from the future to fund present desires without credible connection to future healthy growth. Successful productivity requires the development of beneficial new approaches to value creation and the rigorous identification and confrontation of approaches that destroy value and that destroy the environmental, financial, social, and personal fabric of human endeavor. Debt forgiveness is initially brought into play to address the latter requirement, but cannot be viable over the long haul without affirmative new ways to create and exchange value. Given that we have the collective integrity, self-preservation instinct, human will, and the sense of necessity to confront our broken system, let’s first establish philosophical and practical corollaries to guide debt forgiveness as “giving to the future instead of taking from it”:

Weekly Bull/Bear Recap: Thanksgiving Edition, 2011

Risk markets are losing their patience.  The Eurozone situation is approaching a major climax.  This is by far the most important story to follow in the coming days and weeks.  U.S. Economic data has been quite encouraging and the economy remains muddling along.  If Europe took care of business quickly, global stock markets would rally sharply.  The S&P 500 could possibly make a run at the bull market highs. Unfortunately, there is a major ongoing political crisis in the region.  There are 3 options. Still, a Eurozone blowup would undoubtably sink the U.S. recovery.  The ball's in Europe's court and they need to take action.  If they act now, it may still be on time to avert a Chinese hard-landing.  The bulls would end up as winners and risk assets would make a comeback.  It has really all come down to this binary variable in the short-term.  Government officials wanted Globalization, well they've got it.