Real estate

7 Charts Of The Market's Complete Divorce From Reality

The mainstream media would have us believe that the U.S. economy must be in great shape since the stock market has been setting new all-time record highs this month.  But is that really true?  Yes, surging stock prices have enabled sales of beach homes in the Hamptons to hit a brand new record high.  However, the reality is that stock prices have not risen dramatically in recent years because corporations are doing so much better than before.  In fact, the growth in stock prices has been far, far greater than the growth of corporate revenues.  The only reason that stock prices have been climbing so much is because the Federal Reserve has been flooding the financial system with hundreds of billions of dollars that it has created out of thin air.  The Fed has created an artificial stock market bubble that is completely and totally divorced from economic reality. Meanwhile, everything is not so fine for the rest of the U.S. economy.

Cyprus 37.5% Depositor Haircut Upgraded To 47.5% Brazilian Wax

Once upon a time (in April) the Troika slammed large Cypriot depositors with a "bail-in" template that included not only a forced assignment of equity in broke Cypriot banks, but far more importantly a haircut that amounted to 37.5% of deposits over €100,000. Since then a few things have happened in Cyprus neither of them good, i.e., a record collapse in bank deposits despite capital controls and a record crash in the local real estate market. The confluence of both these events meant that as bank liabilities shrank (deposits), asset fair values (home mortgages) collapsed even faster. Which, as we warned in March, would entail bigger and more aggressive deposit haircuts. Today, we learn that while the inevitable next bailout of Cyprus is still on the table, the deposit "haircut" just upgraded to an aggravated Brazilian wax, as the 37.5% gentle trim initially proposed was revised to 47.5%.

Are We Investing Or Are We Just Dodging Thieves?

If all one's assets are real-world possessions and immaterial assets such as skills, personal integrity and networks of trusted associates, one is indeed poor in financial assets. But if control of one's assets is the only real measure of wealth, then the individual with complete control of all his assets is the only truly wealthy person in a kleptocracy. So the skill we need today is not traditional investing skill; it is thief-dodging skill.

Frontrunning: July 29

  • More Doctors Steer Clear of Medicare (WSJ)
  • Syrian Looters in Bulldozers Seek Treasure Amid Chaos (BBG)
  • Siemens CEO Peter Löscher Is Set to Leave His Post After Series of Earnings Misses (WSJ)
  • Silver Vault for 200 Tons Starts in Singapore as Wealthy Buy (BBG)
  • Omincom and Publicis merger shows that advertising is now firmly in the business of Big Data: collecting and selling the personal information of millions of consumers (NYT)
  • Apple supplier accused of labour violations (FT)
  • 'BarCap was the Wild Wild West – that’s what we called it’ (Telegraph)
  • P&G chief seizes opportunity in era of three-day stubble (FT)
  • Federal Reserve 'Doves' Beat 'Hawks' in Economic Prognosticating (WSJ) - LOL: Fed "hawks"

It Is Happening Again: 18 Similarities Between The Last Financial Crisis And Today

If our leaders could have recognized the signs ahead of time, do you think that they could have prevented the financial crisis of 2008?  That is a very timely question, because so many of the warning signs that we saw just before and during the last financial crisis are popping up again.  Many of the things that are happening right now in the stock market, the bond market, the real estate market and in the overall economic data are eerily similar to what we witnessed back in 2008 and 2009. It is almost as if we are being forced to watch some kind of a perverse replay of previous events, only this time our economy and our financial system are much weaker than they were the last time around. We have been living so far above our means for so long that most of us actually think that our current economic situation is "normal."

Guest Post: "Housing" - Is It Really Recovering?

The optimism over the housing recovery has gotten well ahead of the underlying fundamentals.  While the belief was that the Government, and Fed's, interventions would ignite the housing market creating an self-perpetuating recovery in the economy - it did not turn out that way.  Instead it led to a speculative rush into buying rental properties creating a temporary, and artificial, inventory suppression.  The risks to the housing story remains high due to the impact of higher taxes, stagnant wage growth, re-defaults of the 6-million modifications and workouts and a slowdown of speculative investment due to reduced profit margins.  While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2013 and beyond - the data suggests that it might be quite a bit of wishful thinking.

A Warning About The Dangers Of Central Planning And Moral Hazard By... Ben Bernanke

... Well, not today's Ben Bernanke of course - a far more honest version of the current Fed Chairman, one speaking before the New York Chapter of the National Association for Business Economics, on October 15, 2002.

"I worry about the effects on the long-run stability and efficiency of our financial system if the Fed attempts to substitute its judgments for those of the market."

So do we Ben.

Guest Post: Bankruptcy Litigation Does Not Generate New Wealth

As municipal bankruptcies become the New Normal, it's worth noting that litigation does not generate more wealth to distribute, it simply burns existing wealth, leaving less to distribute. Yes, this is stating the obvious, but what's obvious is precisely what's ignored when fantasy attempts to trump reality. Every constituency in every municipal bankruptcy believes they're the most deserving, and they believe that litigation will reveal the obvious truth of their claim. Unfortunately for those counting on the Grand Federal Bailout, the queue at the Federal bailout window is already long: $100+ billion bailout of FHA, which issued hundreds of billions of dollars of mortgages to unqualified buyers; $100+ billion in uncollectible student loans owned or guaranteed by Federal agencies, and of course the $1+ trillion annual deficits needed just to fill the massive feeding troughs of the Status Quo.

Frontrunning: July 25

  • The Department of Justice has opened an initial probe into the metals warehousing industry (WSJ)
  • Obama Says Budget Debate a Battle for Middle Class Future (BBG)
  • Death Toll From Spanish Train Crash Hits 77 (WSJ)
  • ‘Fabulous Fab’ takes to witness stand (FT)
  • Banks Said to Weigh Suspending Dealings With SAC as Charges Loom (BBG) - what about Anthony Scaramucci?
  • How the Muslim Brotherhood lost Egypt (Reuters)
  • German Business Confidence Rises for a Third Month (BBG)
  • Fraternities Lobby for Tax Break Without Hazing Penalties (BBG)
  • China charges Bo Xilai with corruption, paves way for trial (Reuters)
  • Airbus Pushes Higher-Density A380 to Counter Luxury Image (BBG)

Obama's Economic Report Card

As the President prepares to address Congress (and the nation) with his next new new 'better bargain' deal to secure the economic future for the US, we thought it appropriate to dust off the economic scorecard for how things are going under his old new deal. Obviously, the President of the United States is not really solely responsible for where we are economically. The condemnation, or praise, must be applied equally to all branches of government responsible for the fiscal and monetary policy decisions made. The problems that exist today were not due to just the last few years of excess but rather come as a result of more than 30 years of fiscal irresponsibility that spans both Republican and Democratic Administrations alike. However, since President Obama has taken the position of responsibility for "clearing away the rubble and getting us back to where we were", we can review the economic data to see whether, or not, this is indeed the case.

Anchoring Bias And 'A Market P/E'

Kate and William had a boy. Our bet on a name is George, but only because that appears to be the odds-on favorite among the London bookies.  Still, all that money flowing around must at least be a little “Smart”, right?  But as ConvergEx's Nick Colas notes, the same dynamic applies, albeit on a larger and hopefully more informed scale, when it comes to how capital markets price securities.  We have our baselinesthe price-earnings ratio of the market, the interest rate on Treasuries, the average price per square foot for real estate, and so forth – and then we tweak everything else up or down from there.  That method has the benefit of simplicity, but comes with problems as well.  More than anything, Colas warns, it pushes investors to “Anchor” their notions of valuation to benchmarks which may move when the wind shifts.

Guess The World's Most Expensive City

While Edward Snowden can perhaps breathe a sigh of relief at being abale to avoid the humdrum beat of airport food for a while, he will be stepping out into the 2nd most expensive city in the world. Based on a survey of over 200 items, Moscow ranks 2nd in the world (with $8 cups of coffee and $4,600 average apartment rental costs), and Tokyo 3rd (with $5 newspapers and $7 coffees). But the most expensive city in the world will come as a surprise to most and likely create the need for a Google Maps search. With 40.5% of the population of this nation living in property and the average monthly rent a sky-high $6,500, this southern African country's capital is the most expensive city in the world (it would seem the Chinese arrival in resource-rich African nations - N'Djamena, Chad is 4th - has had its hot-money inflationary effects).