There were many skeptics when I said that housing values would go so low that banks wouldn't even find it cost effective to foreclose. Many relatively bright people dismissed my statements as sensationalist or unrealistic. Well, I suggest some explain that to those folks in Chicago where banks are probably walking away from thousands of homes.
Philly Fed's Plosser once again releases a slam dunk speech which is the most vocal critique of Ben Bernanke's interpretation of the freedoms afforded to him by monetary policy to date. "How do you use monetary policy to burst a bubble in Las Vegas real estate, where house prices were appreciating at a 45 percent annual rate by the end of 2004, without damaging the Detroit market, where prices were increasing at less than a 3 percent annual rate? Because monetary policy is such a blunt instrument, asking monetary policy to do what it cannot do, such as seeking to deliberately influence the evolution of asset prices, risks creating more instability, not less. Moreover, the moral hazard created by the belief that the central bank would intervene if prices of a certain class of assets became “misaligned” might, in fact, cause more inefficient pricing and more instability, not less...monetary policy cannot reverse the sharp decline in house prices when the economy has significantly over-invested in housing" And more: "I have advocated the elimination of Section 13(3) of the
Federal Reserve Act, which allowed the Fed to lend directly to
“corporations, partnerships and individuals” under “unusual and exigent
circumstances.”" Plosser's conclusion is spot on, and means that Congress should immediately enact a limit on the Chairman's recently self-appointed 3rd mandate, which is to not only reflate the biggest asset bubble in history, but to get the Russell 2000 to 20,000: " I too am concerned that we are in the
process of assigning to monetary policy goals that it cannot hope to
achieve. Monetary policy is not going to be able to speed up the
adjustments in labor markets or prevent asset bubbles, and attempts to
do so may create more instability, not less. Nor should monetary policy
be asked to perform credit allocation in support of particular sectors
or firms. Expecting too much of monetary policy will undermine its
ability to achieve the one thing that it is well-designed to do:
ensuring long-term price stability."
"The Fed No Longer Even Denies that the Purpose of Its Latest Blast of Bond Purchases ... Is To Drive Up Wall Street"Submitted by George Washington on 01/15/2011 13:10 -0400
Some good charts ...
General Motors confirmed today that it has made a $2 billion contribution to its underfunded U.S. pension plans, giving it 60.6 million shares in common stock. Is GM loosening its pension noose?
Inflation is occurring but it is not what you think it is.
The bottom 80% own a 7% share of the nation's financial wealth. That is 7% of $45 trillion, or $3 trillion, including all stocks, bonds and securities in IRAs, 401K retirement funds, savings and other accounts. That's $3 trillion held by 108 million households, compared to $32.4 trillion held by the top 5% of households (72% of $45 trillion), roughly 7 million households. In other words, the vast majority of assets held by the Baby Boom generation are in the top 5% of households, and most of the remaining assets are owned by the 15% tranch just beneath the top 5%. The bottom 80% don't have much home equity or directly owned bonds or stocks. So the Fed propping up housing and the stock market only benefits the top 20%, and most of the benefit flows to the top 5%--not exactly what most Americans think of as "middle class."
Vincent McCrudden, CEO Of Alnbri Management, Arrested For Threatening To Kill Members Of SEC, FINRA And CFTCSubmitted by Tyler Durden on 01/14/2011 12:45 -0400
Yet another person appears to have flipped out, and attracted the government's attention, this time luckily without any actual casualties. Curiously the target of the latest FBI arrest is not some insane gun toting troglodyte, but a 20 year Wall Street veteran: Vincent McCrudden of Alnbri Management. Presumably the reason for the arrest is that the commodities trader had threatened to kill 47 members of the SEC, CFTC and Finra in a post on his website. The following information has been pulled from his website. While McCrudden's fund appears to have been modest if at all notable, it would be curious to discover just what recent perceived action on behalf of the government may have forced the manager to take the step. The kicker: an email from McCruden to CFTC attorney T.M. sent on December 16, 2010: "You corrupt mother fucker! You're not getting away with this....Merry Christmas!"... Much more in the charge against McCruden presented inside.
Rosenberg On The Illusion Of Prosperity, The 7 Biggest Downside Risks, And The Fed's Third Mandate: "Higher Equity Valuations"Submitted by Tyler Durden on 01/14/2011 11:54 -0400
It is refreshing to see that an economist of David Rosenberg's statute agrees with Zero Hedge that the third mandate (we personally believe it is the one and only) of the Fed is "Higher Equity Valuations." While a faux-indignant Corker pretends to attempt to cull the Fed's powers and remove the inflation mandate, maybe someone can finally eliminate the one mandate that the Fed does not even have in its charter, yet which is the only one that it is beholden to: namely to get the Dow to 36,000. Which brings us to another point: instead of giving us his forecast on the GDP, maybe Bernanke can simply give everyone his price target for the Russell 2000. It will save everyone a lot of second-guessing effort: after all the Fed now has complete control over the stock market, and the whole frontrunning the Fed shtick is getting old.
Goldman out right lies to investors and the SEC, exactly as I said they were (in explicit and illustrious detail) throughout all of the financial crisis. Who wants to bet against the presumption that the SEC will let them get away with it?
Government Says No to Helping States and Main Street, While Continuing to Throw Trillions at the Giant BanksSubmitted by George Washington on 01/13/2011 17:19 -0400
How is the government STILL bailing out the giant banks? Let me count the ways ...
You might think the banks have all the leverage in the world, the big secret is it's actually the opposite. Who do you think has more leverage, those who make payment on 7 trillion in securitized mortgage debt, or those who collect the payments? Who do you think is more worried? You probably make your income from a wage, they make their income from an investment, you wouldn't believe how quickly investors can become insecure, that's why your servicer doesn't want you talking to them directly, their brokers, and make a handsome living at it. Our thinking is the guy who writes the check has the leverage. After all, if you owe the bank $100,000 dollars you've got a creditor, If you owe them 7,000,000,000,000.00 we're pretty sure you've got a partner. Stop making rental payments on the home your supposed to own, then just sit back and feel the love.
We have already seen Chinese ghost cities, rickety buildings, and a construction spree that makes our own unionized labor force seem positive antiquated. Time to add empty malls to the list. The latest confirmed sighting of Chanos' "treadmill to hell" China real estate bubble thesis comes from Bloomberg's Paul Allen who reports from Dongguan, China on the New South China Mall, which has remained mostly vacant since it opened in 2005. Allen tours the South China Mall, originally conceived as the world's largest mall, and finds retail space that has been largely vacant since 2005. Allen reports, "The reality at South China Mall is somewhat different: shuttered shops, unfinished, never occupied by a single tenant. The few retailers that are here have favorable leases, but little profit." Allen also states that despite obvious problems, the mall’s owners plan to expand to more than one million square meters of retail and residential space will be available.
What a Year It Was! If you followed my pieces in Zero Hedge during 2010 you made a fortune. Nailing it with every asset class allocation. Only one small hickey from a short yen position.
You gotta trust the WSJ, right?
The NIA, traditionally known for cutting to the chase and not really mincing its words today focuses on the latest trillion + dollar bubble: that of US higher education, which is getting increasingly more funded directly by the US Government. "The National Inflation Association believes that the United States has a college education bubble that is set to burst beginning in mid-2011. This bursting bubble will have effects that are even more far-reaching than the bursting of the Real Estate bubble in 2006. College education could possibly be the largest scam in U.S. history." And the kicker: unlike housing debt, college debt has that extra oomph to it that it typically is not discharged in bankruptcy: as such it is the ultimate subjugation mechanism. This one sure is set to get interesting...