30 Year Mortgage
The reasons to hold gold (and silver), and we mean physical bullion, are pretty straightforward. So let’s begin with the primary ones:
- To protect against monetary recklessness
- As insulation against fiscal foolishness
- As insurance against the possibility of a major calamity in the banking/financial system
- For the embedded 'option value' that will pay out handsomely if gold is re-monetized
The punch line is this: Gold (and silver) is not in bubble territory, and its largest gains remain yet to be realized; especially if current monetary, fiscal, and fundamental supply-and-demand trends remain in play.
This is Washington, where nothing makes sense.
One could see this one coming from a mile away.
"Property taxes are equitable and efficient, but underutilized in many economies. The average yield of property taxes in 65 economies (for which data are available) in the 2000s was around 1 percent of GDP, but in developing economies it averages only half of that (Bahl and Martínez-Vázquez, 2008). There is considerable scope to exploit this tax more fully, both as a revenue source and as a redistributive instrument, although effective implementation will require a sizable investment in administrative infrastructure, particularly in developing economies (Norregaard, 2013)." - IMF
The divergence between the NAHB index and other housing indicators has continued to suggest that sentiment was “getting ahead of itself" and as Citi's Tom Fitzpatrick warns would suggest that the qualitative nature of the overall housing recovery is less robust than one would like. Housing should pause/consolidate possibly even for most of this year as the weather argument that is trotted out by so many commentators does not seem to hold up to even a basic examination with the worst data coming from the West Coast. Simply put, Citi warns, we think housing sentiment got carried away as it did into 1994 and 1998 post the housing/savings and loan crisis of 1989-1991.
Reality will reassert itself in 2014, with lemmings, flippers, and hedgies getting slaughtered as the housing market comes back to earth with a thud. The continued tapering by the Fed will remove the marginal dollars used by Wall Street to fund this housing Ponzi. The Wall Street lemmings all follow the same MBA created financial models. They will all attempt to exit the market simultaneously when their models all say sell. If the economy improves, interest rates will rise and kill the housing market. If the economy tanks, the stock market will plunge, creating fear and killing the housing market. Once it becomes clear that prices have begun to fall, the flippers will panic and start dumping, exacerbating the price declines. This scenario never grows old.
The Fed's announcement Wednesday to begin the tapering of its bond buying program (to our surprise) has been followed by a spike in the US 10 year yield; however, Citi's FX Technical group cannot help but feel that we have seen this dynamic play out before.
Who Is Going To Buy The US Debt If This War Causes China, Russia And The Rest Of The World To Turn On Us?Submitted by Tyler Durden on 09/07/2013 15:51 -0400
Yesterday we implied a difficult question when we illustrated the huge size of US Treasury bond holdings that China and Russia have between them - accounting for 25% of all foreign held debt - implicitly funding US standards of living (along with the Federal Reserve). The difficult question is "Can the U.S. really afford to greatly anger the rest of the world when they are the ones that are paying our bills?" What is going to happen if China, Russia and many other large nations stop buying our debt and start rapidly dumping U.S. debt that they already own? If the United States is not very careful, it is going to pay a tremendous economic price for taking military action in Syria.
There are very few segments of the U.S. economy that are more heavily affected by interest rates than the real estate market is. When mortgage rates reached all-time low levels late last year, it fueled a little "mini-bubble" in housing which was greatly celebrated by the mainstream media. Unfortunately, the tide is now turning.
After everything that Barack Obama, the U.S. Congress and the Federal Reserve have tried to do, there has been no real economic recovery and now the U.S. economy is suddenly behaving as if it is 2009 all over again. A whole host of recent surveys indicate that the American people are starting to feel a bit better about the economy, but the underlying economic numbers tell an entirely different story. If we were going to have an "economic recovery", it should have happened in 2010, 2011 and 2012. Now we are rapidly approaching another major economic downturn.
In almost every asset class, volatility has made a phoenix-like return in the last few days/weeks and while equity markets tumbled Friday into month-end, the bigger context is still up, up, and away (and down and down for bonds). From disinflationary signals to emerging market outflows and from fixed income market developments to margin, leverage, and valuations, here is the 'you are here' map for the month ahead.
Is a $400,000 house with NINJA loan normal? How about a $200,000 REO with missing appliances, a dead yard, a long list of maintenance and no financing? Maybe normal is a $300,000 flip after the flipper fixed everything and colored up the yard, and did some upgrades to the interior. Some may suggest that normal is more like a $300,000 sale with a 5.5% fixed rate and 20% down. Then again, it may be more normal if this $300,000 sale is financed with a 3.5% down FHA loan at 4%. Of course, all of the above is actually referring to the same house. So what is normal? At the moment, we know prices are going up in certain markets, and so are sales. Mortgage rates are higher now than when QE3 started in September 2012. Investors are gobbling up everything in sight in their favored target markets. As an example, they are buying 30% of the houses in Southern California, 38% in Phoenix and 53% in Vegas. First time buyers do not stand a chance. The percentage of home ownership is declining. Are policy makers happy with these results? Are these intended or unintended consequences of public policies?
It’s easy to be pessimistic over the future prospects of liberty when major industrialized nations around the world are becoming increasingly rife with market intervention, police aggression, and fallacious economic reasoning. The laissez faire ideal of a society where people should be allowed to flourish without the coercive impositions of the state is all but missing from mainstream debate. In editorial pages and televised roundtable discussions, a government policy of “hands off” is now an unspeakable option. It is presumed that lawmakers must step up to “do something” for the good of the people. Thankfully, this deliberate false choice will slowly but surely bring the death of itself. Illogical theories can only go on for so long before the push-back becomes too much to handle. For those who desire liberty, it’s a joy that the statist economic policies of the Keynesians become even more irrational as the Great Recession drags on. The two following examples will illustrate this point.
While today the association of real estate advertising agents known as the NAR will tell us that the home market is improving - an economic observation which we will completely ignore as any data out of the NAR is now proven to be manipulated and fraudulent, a far better indication of the ongoing implosion in the housing market, and more importantly - the sheer powerlessness of the Fed to do anything about it - came out of the latest weekly Mortgage Brokers Association, which showed that refi applications were down 4.8% W/W, while purchases slid 2.9%, after collapsing 8.4% in the past week. This has taken the Purchase Application index back to the September lows, which just happens to be the lowest print in 16 years. And while this in itself would be ok if not exactly good, it took place at a time when the 30 year mortgage rate was down to all time record lows! In other words, Bernanke's sole prescription to fix the broken housing market diagnosis - low mortgage rates, has now been proven to be a complete disaster, even as Obama does everything in his power to get debt repudiation for deadbeats (at the expense of everyone else of course) and fails. So: what's the next plan?
A few days ago we presented an analysis by ConvergEx showing that due to the very close historical correlation between home prices and employment, it is the Fed's view that the only way to stimulate employment (aside from such BLS shennanigans as pretending that despite the natural growth of the labor force by 90k a month to keep up with population, those willing to work are in fact declining) is to raise home prices. Raising home prices be definition means either reducing supply - an event which is proving impossible with shadow inventory in the millions and rising, even as thousands of new delinquent mortgages appear each day while homebuilders keep on chugging out new homes that remain vacant for years, or increasing demand. It is the latter that the Fed targets, by attempting to make mortgage rates ever cheaper via LSAP, Operation Twist or other Treasury curve interventions that attempt to push down long-dated yields ever lower. This works in theory. In practice, however, as the chart below demonstrates, the Fed's entire ZIRP-targeting policy over the past several years has been one abysmal failure (for everyone expect those with immediate access to the Fed's zero interest rate capital - i.e., the Primary Dealers). As proof of this we present the following chart, which maps the SAAR in New Home Sales against the 30 Year Fannie Cash Mortgage. What appears very clearly on this chart is that despite ever declining mortgage rates, there is simply no interest in home turnover, and sales are at record low levels due to lack of demand, and lack of desire to sell into a bidless market, in essence causing the entire housing market to halt.