While everyone and their pet rabbit 'Dave' in the media seems to 'believe', there’s plenty of debate about—and money riding on—the question of whether we are in the midst of a sustainable recovery in the housing market. Nobody knows for sure, of course, but there are plenty of reasons to be pessimistic. While it is easy to focus on the traditional indicators of supply and demand and start believing that the long-awaited recovery in the property market has arrived at last, the fact is that much has changed in the wake of the events of the past decade, a development that is likely to weigh on prices for many years to come.
History has shown us countless times that centrally-?planned, command style economies do not produce long-?term economic growth. We’ve seen this will the Soviet Union, the UK, the US-?since the Tech Crash, and today in China.
The nature of what is ‘legal’ has become a truly bizarre concept these days. Developed nations of the west have hundreds of thousands of pages of rules, codes, regulations, laws, decrees, executive orders, etc., many of which are contradictory, archaic, and incomprehensible. Across these ‘free’ nations, the law is selectively enforced, selectively applied, and completely set aside whenever it pleases the state. As such, even the most harmless of activities (operating a lemonade stand, collecting rainwater, etc.) can be cast as illegal… while the direct theft of people’s wealth through taxes and manipulation of the currency is considered legal. There is no morality anymore in the law. And even still, whatever few activities may still be considered ‘legal’ are subject to consequences if the enforcers simply decide they don’t like it.
- Romney dominates presidential debate (FT)
- What Romney’s Debate Victory Means (Bloomberg)
- Obama Lead Shrinks in Two Battlegrounds (WSJ)
- "Everything will fall apart unless the Spanish conditions are extremely tough" German policy-maker (Telegraph)
- Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting (Bloomberg)
- RBS facing loss after Spanish property firm collapse (Telegraph)
- Burdened by Old Mortgages, Banks Are Slow to Lend Now (WSJ)
- The Woman Who Took the Fall for JPMorgan Chase (NYT)
- European Banks Told to Hold On to $258 Billion of Fresh Capital (Bloomberg)
- Europe Weighs More Sanctions as Iran’s Currency Plummets (Bloomberg)
Ultraluxury NY Real Estate Market Cracking As Legendary 740 Park Duplex Sells 45% Below Original Asking PriceSubmitted by Tyler Durden on 10/03/2012 10:43 -0500
Even as the media desperately tries to whip everyone into a buying frenzy in an attempt to rekindle the second housing bubble, the marginal, and less than pretty truth, is finally starting to emerge. Over the weekend we presented the first major red flag about the state of the housing market - in this case commercial - when we exposed that "New York's Ultraluxury Office Vacancy Rate Jumps To Two Year High As Financial Firms Brace For Impact." What is left unsaid here is that if demand for rents is low, then, well, demand for rents is low: hardly the stuff housing market recoveries are made of. Today, on the residential side, CNBC's Diana Olick adds to this bleak picture with "Apartment Demand Ebbs as ‘Avalanche’ of New Units Open." In other words rental demand for both commercial and resi properties is imploding. But at least there is always owning. Well, no. As we have shown, the foreclosure, aka distressed, market is dead, courtesy of the complete collapse in the foreclosure pipeline as banks are effectively subsidizing the upper end of the housing market by keeping all the low end inventory on their books (who doesn't love the smell of $1.6 trillion in fungible excess reserves to plug capital holes in the morning. It smells like crony capitalism). But at least the ultra luxury, aka money laundering market was chugging along at a healthy pace. After all there are billions in freefloating dollars that need to be grounded in the US, courtesy of the NAR which is always happy to look the other way, another issue we discussed this weekend. Now even that market appears to be cracking, following the purchase of a duplex in New York's most iconic property: 740 Park, by, who else but a former Goldman partner, at a whopping 45% off the original asking price.
It is apparent, according to Jim Grant in this excellent discussion on CNBC, that we are living in a world where only PhDs know what is best for us all. As the Fed hides behind the political cover of its dual mandate to centrally-plan our lives, the Fed-fighter notes "we are off the common-sense-mandate and in a PhD-Standard." In the brief and wonderfully erudite segment Grant guides the erstwhile CNBC Fed-cheerleaders to a new reality of inflation not being what they think it is (i.e. not the PCE Deflator but more prosaically too much money chasing too few products exemplified in bloated real estate prices in the past and now equity prices), of a '32-inch' yard, and of a dream-like world where we "return to capitalism", and markets are finally "allowed to clear." As ever, Grant is worth the price of admission as he explains how the 'monetary mandarins' have interjected themselves between us and the public price mechanism as the Fed's 'influence' has grown exponentially since its inception.
The ISM stunners continue. After two days ago we got a manufacturing ISM number which was not cooroborated in any other data points, and which was the biggest beat of expectations in years, we now get the Services ISM, which did a double down on the manufacturing report and rose to 55.1, from 53.7, on expectations of a decline to 53.4. And while the headline number was better than expected, the reason why futures are completely unimpressed is that the Employment index declined from 53.8 to 51.5, refuting any good ADP news, while the stagflationary specter to the economy rose, with Prices spiking from 64.3 to 68.1 - the highest since February, and leading to the biggest 3 month surge in Prices Paid since September 2005. Finally, in terms of Q3 GDP drivers, Inventory which is an input into the GDP bean count declined below 50, meaning Q3 GDP will likely be revised lower yet again, even as Backlogs dropped also to just over 50.
The policy of the Status Quo since 2008 boils down to this assumption: if we prop up an artificial economy long enough, it will magically become real. This is an extraordinary assumption: that the process of artifice will result in artifice becoming real. This is the equivalent of a dysfunctional family presenting an artificial facade of happiness to the external world and expecting that fraud to conjure up real happiness. We all know it doesn't work that way; rather, the dysfunctional family that expends its resources supporting a phony facade is living a lie that only increases its instability. The U.S. economy is riddled with artifice: millions of people who recently generated income from their labor have gamed the system and are now "disabled for life." Millions more are living in a bank-enabled fantasy of free housing. Millions more are living off borrowed money: student loans, money the government has borrowed and dispensed as transfer payments, etc. Assets are artificially propped up lest a banking sector with insufficient collateral be revealed as structurally insolvent. It's not difficult to predict an eventual spike of instability in such a system; the only difficulty is predicting the date of the instability. Hiding a broken, dysfunctional economy behind a facade of artifice and illusion can't fix what's broken, it only adds to the system's systemic instability as resources that could have gone to actually fix things are squandered on propping up phony facades of "growth" and "health."
Church of England - and Religious Leaders Worldwide - Say Bankers Should Repent and Change Their Ways
Even now, after the Chinese economy has consistently disappointed everyone, we still get the impression from market participants that it will all be fine in the end, because the Chinese government know what they are doing, and all they need is to let the floodgate of money open. Whenever a bad data point comes out, the market interprets that as more easing ahead, and it will most certainly save the economy. If only running the Chinese economy is that easy. Every growth engine of the Chinese economy is failing, and there is only one thing which can sustain these failing engines for longer, which is government stimulus, and whether the government is actually willing to deploy massive stimulus that is questionable.
One by one all the money-laundering loopholes in a broke world are coming to an end. First it was Swiss bank accounts, which for centuries guaranteed the depositors absolute secrecy, and as a result saw money inflows from all the wealthiest savers in the world, who felt truly safe their wealth (obtained by legal means or otherwise) would not be redistributed forcefully. In the ecosystem of finance, Switzerland was the depositor bank. Then 2008 happened, and starting with the US, shortly to be followed by every other insolvent country, demands were issued for a full list of people who had used Zurich and Geneva bank vaults to avoid the risk of asset taxation, capital controls and confiscation on their own native soil. The result was the end of the Swiss banking sector as the ultimate target of all global money laundering. In the ensuing power vacuum, others have sprung up to take its place, most notably Singapore, but its days as a tax-haven are numbered by how long it takes China to fall face first into a hard landing at which point no saving on the Pacific seaboard will be safe.
Now, it is the turn of real estate.
New York's Ultraluxury Office Vacancy Rate Jumps To Two Year High As Financial Firms Brace For ImpactSubmitted by Tyler Durden on 09/29/2012 12:14 -0500
Traditionally, when it comes to reading behind the manipulated media's tea leaf rhetoric and timing major inflection points in the economy, the most accurate predictor are financial firms, whose sense of true economic upside (or downside) while never infallible, is still better than most. Yet unlike employment, which is usually a lagging, or at best concurrent indicator, one aspect that has always been a tried and true leading indicator, has been real estate demand, in this case rental contracts. Due to the long-term lock up nature of commercial real estate contracts, firms are far less eager to engage in rental transactions (and bidding wars) when they expect a worsening macroeconomic environment. Which is why news that office vacancy in Manhattan's Plaza district, the area between Sixth Avenue and the East River from 47th to 65th streets, anchored by the landmark Plaza Hotel at Fifth Avenue and Central Park South which is home to some of the nation’s most expensive and prestigious office towers, and where America's largest hedge funds and PE firms have their headquarters, has just risen to 12.3%, or a two year high, is probably the most troubling news for the economy and a real indicator of what to expect of the immediate future.
- China accuses Bo Xilai of multiple crimes, expels him from communist party (Reuters), China seals Bo's fate ahead of November 8 leadership congress (Reuters)
- "Dozens of phone calls on days, nights and weekends" - How Bernanke Pulled the Fed His Way - Hilsenrath (WSJ)
- Fed won't "enable" irresponsible fiscal policy-Bullard (Reuters)
- PBOC Adviser Says Easing Restrained by Concerns on Homes (Bloomberg)
- Data Point to Euro-Zone Recession (WSJ)
- Fiscal cliff dims business mood (FT)
- FSA to Oversee Libor in Streamlining of Tarnished Rates (Bloomberg)
- Monti Says ECB Conditions, IMF Role Hinder Bond Requests (Bloomberg)
- Japan Heads for GDP Contraction as South Korea Weakens (Bloomberg)
- Moody’s downgrades South Africa (FT)
- Madrid Struggles With Homage to Catalonia (WSJ)
The financial crisis of 2008 shook politicians, bankers, regulators, commentators and ordinary citizens out of the complacency created by the 25-year "great moderation". Yet, for all the rhetoric around a new financial order, and all the improvements made, many of the old risks remain (and some are far larger). The following 'story' suggests a scenario based on an 'avoidable history' and while future crises are not avoidable, being a victim of the next one is.
"John Banks was woken by his phone at 3am on Sunday 26th April 2015. John worked for Garland Brothers, a formerly British bank that had relocated its headquarters to Singapore in late 2011 as a result of..."
Last summer, two researchers from the New England Complex Systems Institute published a short paper examining the correlation between rising food prices and civil unrest. It was a timely analysis, to say the least. A number of food riots were occurring throughout the world, not to mention waves of revolution sparked by the high cost of food. This is nothing new; throughout history whenever people have struggled to put food on the table for their families, social unrest has been a common consequence. If food prices continue to rise, agriculture will be one of the best investments of the decade. Even if all the world's food challenges are magically solved, it's hard to imagine being worse off for having your own food supply.