When it comes to the US housing market there appear to be three groups of people: those who who have either unlimited cash and/or access to credit, and like the most rabid of bubble-chasing speculators, are perfectly happy to engage in a game of Flip That House for a short-term profit pending the discovery of a greater fool (often times converting the house into rental properties as numerous hedge funds have been doing on cost-free basis courtesy of the government's REO-To-Rent program) - they are the vast minority of speculators; then there are those who currently rent and are opportunistically looking at home prices, willing to dip their toe at the right price - these too are few and far between and mostly represent a function of the natural growth of the US household offset by the availability of jobs; and then there is everyone else. Sadly, it is the "everyone else" that is the vast majority of the US population. It is this "everyone else" who comprises the bulk of those who have been kicked out of the American Dream, whose core pillar has always been owning your own home (with or without a massive mortgage attached), not renting. As the US Census Bureau reported earlier today, the US homeownership rates in the first quarter of 2013 dropped by another 0.4% to a fresh 18 years low, or 65% - the lowest since 1995!
"You will not see economic growth until you liquidate the debt and liquidate the malinvestment out there," is the hard truth that former Congressman Ron Paul lays on Bloomberg TV in this wide-ranging interview. Paul is concerned at "the erraticness of the dollar... and its devaluation," explaining that, "people think the gold price up and down is a reflection of something wrong with gold; no, I say it is something wrong with the dollar." The topic gravitates to inflation, which Paul explains is far from missing as, "Bond prices go up. Stocks are going up. Housing prices are starting to go back up again. Education costs are going up," adding that, "CPI is not reliable." Paul is buying gold, believes "we are in as much trouble as Greece," and while fascinated by the free market nature of Bitcoin, he notes that while he doesn't fully understand it, "if I can't put it in my pocket, I have some reservations about that."
We all know that double digit inflation in HPA is not a good thing for the long term recovery of the housing market.
By downplaying inflation you can overstate growth. All economic growth in the US accounts for inflation via a “deflator” measure. If GDP grows 3% and inflation was 2%, then real growth was 1% in very very simple terms.
Sam Zell: "This is a very treacherous market," thanks to the giant tsunami of liquidity, "the problems of 2007 haven't been dealt with," and given the poor macro data and earnings, "we are suffering through another irrational exuberance," leaving the entire CNBC audience speechless when he concludes, "the stock market feels like the housing market of 2006."
Back in late 2010, there was much hope that as a result of the unfolding robosigning "Linda Green" scandal, not only would banks would be forced to fix their ways by incurring crippling civil penalties (because not even the most optimistic hoped any bankers would ever face criminal charges for anything), but that the US housing market may even reprice to a fair price as for a brief moment there nobody had any idea who owned what mortgage. Ironically, what did end up happening was to provide banks with a legal impetus to slow down the foreclosure process to such a crawl that an artificial backlog of millions and millions of houses at the start of the foreclosure process formed, bottlenecking the foreclosure exits even more and in the process providing an artificial, legal subsidy to housing prices manifesting itself best in what is erroneously titled a "housing recovery" for many months now. What this did was to allow banks to aggressively reprice the mortgage-linked "assets" on their balance sheets much higher, and in the process unleash much capital, primarily for bonus and shareholder dividend purposes. Yet this epic self-benefiting act did not come without a cost. Yes, it turns out the banks will have to fork over some out-of-pocket change to put not only the robosigning scandal behind them but the indirect housing subsidy from which they have benefited to the tune of hundreds of billions. That quite literally change, which is what the final cost of the release and bank indemnity amounts to, is roughly $300 for each of the affected borrowers!
- Finally the MSM catches up to reality: Workers Stuck in Disability Stunt Economic Recovery (WSJ)
- China opens Aussie dollar direct trading (FT)
- National Bank and Eurobank Fall as Merger Halted (BBG)
- Why Making Europe German Won’t Fix the Crisis - The Bulgarian case study (BBG)
- Nikkei hits new highs as yen slides (FT)
- Housing Prices Are on a Tear, Thanks to the Fed (WSJ)
- Why is Moody's exempt from justice, or the "Big Question in U.S. vs. S&P" (WSJ)
- Central banks move into riskier assets (FT)
- N. Korea May Conduct Joint Missile-Nuclear Tests, South Says (BBG)
- North Korea Pulls Workers From Factories It Runs With South (NYT)
- Illinois pension fix faces political, legal hurdles (Reuters)
- IPO Bankers Become Frogs in Hot Water Amid China Market Halt (BBG)
- Portugal Seeks New Cuts to Stay on Course (WSJ)
If the economy is getting better, then why does poverty in America continue to grow so rapidly? Yes, the stock market has been hitting all-time highs recently, but also the number of Americans living in poverty has now reached a level not seen since the 1960s. Yes, corporate profits are at levels never seen before, but so is the number of Americans on food stamps. Yes, housing prices have started to rebound a little bit (especially in wealthy areas), but there are also more than a million public school students in America that are homeless. That is the first time that has ever happened in U.S. history. So should we measure our economic progress by the false stock market bubble that has been inflated by Ben Bernanke's reckless money printing, or should we measure our economic progress by how the poor and the middle class are doing? Because if we look at how average Americans are doing these days, then there is not much to be excited about. Unfortunately, that bubble of false hope is not going to last much longer. In fact, we are already seeing signs that it is getting ready to burst.
- The revolving door continues: Mary Schapiro joins Promontory Financial (WSJ)
- First Peek at Health-Law Cost (WSJ)
- Abe warns over Japan inflation target: warns 2% inflation target may not be reached within two years (FT)
- BoJ's Kuroda tested by divided board (Reuters)
- Nanjing poultry butcher fourth person infected with H7N9 bird flu (SCMP)
- What time do top CEOs wake up? (Guardian)
- Cyprus Seeks More Time to Meet Targets in Talks With Troika (BBG)
- Investors Ignore Negativity at Their Peril (WSJ)
- Apple bows to Chinese pressure (FT)
- One can only laugh: North Korea to restart nuclear reactor in weapons bid (Reuters)
- Visa Demand Jumps (WSJ)
- Bloomberg's refutation of Stockman: yes, yes but... look over there, stocks are up! (BBG)
The smart money is selling Hong Kong and Singapore property. This implies real estate prices may be topping out, with far-reaching consequences.
Until this weekend's Cyprus black swan, the biggest red flag facing the market was the threat of persistent Chinese inflation, manifesting itself in very sticky and upward rising home (and many other) prices. In fact, quite recently the new Chinese leadership encouraged "bold" and aggressive steps to tame real estate inflation and instituting fresh curbs on house appreciation "speculation", which is a natural byproduct in a nation that has an underdeveloped and untrusted capital market - unlike in the US where the S&P absorbs all the Fed's reserves (with no money multiplier impact) keeping inflation elsewhere largely tame. It is this inflation that has kept the PBOC not only on the global "reflation" sidelines, but forced it to withdraw liquidity with several record repos in the days following the Chinese new year. It is also the downstream effects of this inflation that has pushed the Chinese stock market red for the year. So just how much of an issue is the soaring Chinese real estate market as global liquidity makes its way to triplexes in Shanghai? The chart below explains it all.
The American spirit is rooted in the belief of a better tomorrow. Its success has been due to generations of men and women who toiled, through both hardship and boom times, to make that dream a reality. But at some point over the past several decades, that hope for a better tomorrow became an expectation. Or perhaps a perceived entitlement is more accurate. It became assumed that the future would be more prosperous than today, irrespective of the actual steps being taken in the here and now. And for a prolonged time – characterized by plentiful and cheap energy, accelerating globalization, technical innovation, and the financialization of the economy – it seemed like this assumption was a certain bet. But these wonderful tailwinds that America has been enjoying for so many decades are sputtering out. The forces of resource scarcity, debt saturation, price inflation, and physical limits will impact our way of life dramatically more going forward than living generations have experienced to date. And Americans, who had the luxury of abandoning savings and sacrifice for consumerism and credit financing, are on a collision course with that reality.
- Cardinals head to conclave to elect pope for troubled Church (Reuters)
- Hyperinflation 'Unthinkable' Even With Bold Easing: Abe (Nikkei)
- Ryan Plan Revives '12 Election Issues (WSJ)
- Italy 1-yr debt costs highest since Dec after downgrade (Reuters)
- Republicans to unveil $4.6tn of cuts (FT) - Obama set to dismiss Ryan plan to balance budget within decade
- CIA Ramps Up Role in Iraq (WSJ)
- Hollande Hostility Fuels Charm Offensive to Show He’s No Sarkozy (BBG)
- SEC testing customized punishments (Reuters)
- Judge Cans Soda Ban (WSJ)
- Hungary Lawmakers Rebuff EU, U.S. (WSJ)
- Even Berlusconi Can’t Slow Bulls Boosting Euro View (BBG) - luckily the consensus is never wrong
- Funding for Lending ‘put on steroids’ (FT)
- Investigators Narrow Focus in Dreamliner Probe (WSJ)
- With new group, Obama team seeks answer to Karl Rove (Reuters)
In a stunning headline-making moment of clarity, it appears that all the major financials that the Fed monitors (except GMAC Ally) will survive a cataclysmic, Lehman-like moment based on their self-determined analytics of their deeply illiquid off-balance-sheet assets (and a comprehensive understanding of the co-dependence of all those assets). As Bloomberg notes,
*FED SAYS 18 BANKS PROJECTED LOSSES WOULD BE $462B UNDER TEST
*FED SEES 17 BANKS' TIER 1 COMMON RATIO ABOVE 5% IN WORST CASE
*GMAC ALLY ONLY STRESS-TESTED BANK SEEN WITH TIER 1 COMMON BELOW 5%
*TESTS SCENARIO ASSUMES EQUITY PRICES DROP MORE THAN 50%, HOUSING PRICES DECLINE MORE THAN 20%
Is it any wonder that Government Motors wanted to IPO its GMAC/Ally business recently - with a 1.5% stressed Tier 1 ratio.