THE PRAGMATIC CAPITALIST Wed 2010-02-10 11:22 EST

AN INSIDER'S VIEW OF THE REAL ESTATE TRAIN WRECK

TPC

The first time I spoke with real estate entrepreneur Andy Miller was in late 2007, when I asked him to serve on the faculty of a Casey Research Summit...what most intrigued me about Andy was that he had been almost alone among his peer group in foreseeing the coming end of the real estate bubble, and in liquidating essentially all of his considerable portfolio of projects near the top...he remains deeply concerned about the outlook for real estate...the United States home mortgage market has been nationalized without anybody noticing...If government support goes away, and it will go away, where will that leave the home market? It leaves you with a catastrophe...eventually the bond market is going to gag on the government-sponsored paper...commercial properties are not performing and that values have gone down, although I've got to tell you, the denial is still widespread, particularly in the United States and on the part of lenders sitting on and servicing all these real estate portfolios...The current volume of defaults is already alarming. And the volume of commercial real estate defaults is growing every month...When you hit that breaking point, unless there's some alternative in place, it's going to be a very hideous picture for the bond market and the banking system...second quarter 2010 is a guess...the FDIC and the Treasury Department have decided that rather than see 1,000 or 2,000 banks go under and then create another RTC to sift through all the bad assets, they'll let the banking system warehouse the bad assets. Their plan is to leave the assets in place, and then, when the market changes, let the banks deal with them. Now, that's horribly destructive...it's exactly a Japanese-style solution...The entire U.S. residential mortgage market has in effect been nationalized, but there wasn't any act of Congress, no screaming and shouting, no headlines in the Wall Street Journal or the New York Times...That's a template for what they could do with the commercial loan market.

insider's view; pragmatic capitalists; Real Estate Train Wreck.

The Economic Populist - Speak Your Mind 2 Cents at a Time Sun 2010-02-07 18:20 EST

Is Residential Real Estate a Ticking Time Bomb?

...First is the latest SIGTARP report saying the Government has become the mortgage market with U.S. taxpayers shouldering the risk. From the SIGTARP report we have a 100% government mortgage market at this point...Fannie and Freddie now have an unlimited bailout and it is estimated they have lost $400 billion dollars. The plan is to purchase $1.25 trillion mortgage backed securities from these two GSEs until the end of March...The number of homeowners who are strategically walking away from their mortgages is up to 10% this year...All of the above free money, the government pouring in trillions of dollars to prop up the housing market. Yet while price declines have slowed, prices are still declining and the above simply cannot go on forever. In fact one thing isn't going on forever. The Fed will stop buying MBSes at the end of March, 2010. So, when our government created illusion does pop, do we then have the real housing bubble implosion?

economic populist; Mind 2 Cents; residential real estate; speaking; ticking time bomb; Time.

Jesse's Café Américain Wed 2010-02-03 20:10 EST

Official World Gold Holdings

Jesse

...Is gold a bubble? As someone who has been a close observer of bubbles for the past ten years the data does not recommend that conclusion. And what makes me even more curious about this point of view is that the very people who for the most part denied the existence of the obvious bubbles in tech, housing, risk, banking and credit, even to the point of absurdity, who could not or would not see a bubble if it perched on the end of their nose, who are card carrying members of the international monied fraternity, are the most vocal in calling gold a bubble with emotional arguments lacking any fundamental data. What's up with that?

Jesse's Café Américain; Official World Gold Holdings.

Sun 2010-01-31 23:06 EST

The Formula for This Market Rally In Simple Terms

The first, most obvious trend is the Manic Mondays trend...for the 43 weeks ended Friday January 8, 2010, stocks have rallied on 30 out of the 43 Mondays...these Monday ramp jobs have contributed the bulk of the market rally's gains since March 2009...The second trend that has dominated this market since the March 2009 bottom is the Bernanke Options Expiration juicing. In simple terms Ben Bernanke has shown a REAL preference for pumping money into the financial system on the exact week when options are expiring...The final trend that has dominated this market is cousin to the Manic Monday Ramp Job. It is the Night Session Ramp Job...from September 13, 2009 until year-end, ALL of the stock market's gains occurred in the over-night futures session from 4:00 ET to 9:30 AM ET...So there you have it, the three most dominant trends of this market rally. None of them are pretty. None of them involve fundamentals. And ALL of them are directly related to the Fed's liquidity pump.

Formula; markets Rally; simple terms.

Clusterfuck Nation Sun 2010-01-31 11:40 EST

Marching Toward Zombieland

James Howard Kunstler

...The questions lately revolve around whether the nation is destroying itself by inflation or deflation - by the willful destruction of the value of our currency to evade the repayment of debt, or by the hapless destruction of households, companies, and governments by default and bankruptcy. It's a fire-or-ice debate. Either way the nation is going down as a viable enterprise. The fiction that we can return to a Crate-and-Barrel credit card orgy has sustained the false of heart and mind for some months now, but even that pleasant reverie will come to an end as the foreclosures mount. Only remember, men living in their cars who have lost nearly everything else will still have guns.

Clusterfuck Nation; March; Zombieland.

Jesse's Café Américain Fri 2010-01-29 16:15 EST

Why Are 86% of the NY Fed's MBS Purchases Occurring During Option Expiration Weeks?

Jesse

My friends at ContraryInvestor have published some remarkable data...This data suggests that the Fed's purchases of Market Backed Securities serves not only to artificially depress mortgage rates and the longer end of the yield curves. The purchases occur, with a remarkably high correlation of 86%, during monthly stock market options expiration weeks in the US...Talk about timing of liquidity injections to get maximum effect in the equities market...option expiration in the US stock indices occurs on the third Friday of every month. We have pointed out in the past that this monthly event is often the occasion of some not so subtle racketeering by the funds and prop trading desks.

86; Jesse's Café Américain; NY Fed's MBS Purchases Occurring; options expirations week.

Tue 2010-01-12 23:31 EST

Here Comes the Screw Job

Garrett Johnson

...Like America, Argentina sold off its public enterprises for pennies on the dollar in privatization schemes. Like America, Argentina had an artificially inflated currency which crushed its industrial base and led to an over-sized trade deficit. Like America, Argentina tried to disguise these problems by borrowing from foreign creditors. In the end, the Argentine government seized the retirements savings of their own citizens in order to continue to function after foreign creditors abandoned them. They shoved that savings into treasury-like bonds and then massively devalued their currency. In so doing, 70% of the retirement savings of the Argentinian people was wiped out overnight...

comes; screw job.

Thu 2010-01-07 19:54 EST

Conversation with John Rubino <<; Phil's Favorites -- By Ilene

John Rubino is the co-author, with GoldMoney's James Turk, of The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998)...``This is the end of a long era and the beginning of another that is not going to be nearly as nice.''...go to a coin dealer and buy some gold and silver coins and then store them in a safe place. And gold and silver mining stocks will go up if the dollar goes down...Clean tech is interesting...which of the twenty different possible clean tech sectors do you want to focus on first? ...The best of them is called smart grid....

conversations; Ilene; John Rubino; Phil's Favorites.

Thu 2010-01-07 19:18 EST

'Greater Depression' More Bullish for Gold than 1930s -- Seeking Alpha

...The current, global financial system is in the process of coming to an end -- one way or another. History teaches us it is highly unlikely that this transition can be accomplished without economic catastrophe. As the only superior currencies in existence, it is inevitable that gold and silver will benefit, as the inferior paper currencies (which we mistakenly call ``money'') suffer the same deaths that have awaited every other fiat currency, throughout history.

1930s; bullish; gold; Greater Depression; Seeking Alpha.

Ambrose Evans-Pritchard - Finance and business comments Thu 2010-01-07 19:00 EST

Global bear rally of 2009 will end as Japan's hyperinflation rips economy to pieces

The contraction of M3 money in the US and Europe over the last six months will slowly puncture economic recovery as 2010 unfolds, with the time-honoured lag of a year or so. Ben Bernanke will be caught off guard, just as he was in mid-2008 when the Fed drove straight through a red warning light with talk of imminent rate rises -- the final error that triggered the implosion of Lehman, AIG, and the Western banking system. As the great bear rally of 2009 runs into the greater Chinese Wall of excess global capacity, it will become clear that we are in the grip of a 21st Century Depression -- more akin to Japan's Lost Decade than the 1840s or 1930s, but nothing like the normal cycles of the post-War era. The surplus regions (China, Japan, Germania, Gulf ) have not increased demand enough to compensate for belt-tightening in the deficit bloc (Anglo-sphere, Club Med, East Europe), and fiscal adrenalin is already fading in Europe. The vast East-West imbalances that caused the credit crisis are no better a year later, and perhaps worse. Household debt as a share of GDP sits near record levels in two-fifths of the world economy. Our long purge has barely begun.

2009; Ambrose Evans Pritchard; Business Comment; ending; finance; Global Bear Rally; Japan's hyperinflation rips economy; pieces.

naked capitalism Mon 2009-12-28 16:40 EST

Will Continued Stealth Bailout of Housing Produce Unwanted Side Effects?

The Treasury Department...considerably increased its Freddie and Fannie safety net, by removing all limits on the amounts on offer (an increase from a ceiling of $400 billion) and simultaneously allowing the two GSEs to increase their balance sheets near term. Previously, they had been required to shrink their portfolios by 10% per annum; now it is their ceiling which will be lowered by 10% a year, and that ceiling is much higher than their current exposures ($900 billion versus roughly $760 billion for Freddie and $770 billion for Fannie as of the end of November)...So one has to conclude that the agencies might well (ahem, are likely to) throw their firepower behind the ``prop up the mortgage market'' program, particularly with Obama's ratings plunging and mid-term elections coming this year. But if this comes to pass, what might the collateral damage be?

Continued Stealth Bailout; Housing Produce Unwanted Side Effects; naked capitalism.

zero hedge Mon 2009-12-28 15:12 EST

Quantitative Easing Has Been A Monetary Failure; Persistent Deflation Means More Fed Intervention Coming Soon

As more and more pundits discuss the spectre of inflation, with gold flying to all time highs which many explain as an inflation hedge, not to mention stock price performance which is extrapolating virtual hyperinflation, the market "truth" as determined by Fed Fund futures and options is, and continues to be, diametrically opposite...Bernanke is very likely about to unleash Quantitative Easing 2: If the $1.7 trillion already thrown at the problem has not fixed it, you can bet that the Chairman will not stop here. Furthermore, as the Fed has the best perspective on the economy, which is certainly far worse than is represented, the Fed has to act fast before things escalate even more out of control. Which is why Zero Hedge is willing to wager that not only will the agency/MBS program not expire in March as it is supposed to, but that a parallel QE process will likely begin very shortly. The end result of all these actions, of course, is that the value of the dollar is about to plummet: when Bernanke announces that not only will he not end QE but that he will launch another version of the program, expect the dollar to take off on its one way path to $2 = €1. And when that happens, look for global trade to cease completely. In its quest to continue bailing out the banking system and rolling the trillions of toxic loans it refuses to accept are worthless (for if it did, equity values in the banking system would go, to zero immediately), the Fed will promptly resume destroying not only the US middle class, but the entire system of global trade built through many years of globalization. Look for America to end up in an insulated liquidity bubble in a few short years, trading exclusively with its vassal master: the People's Republic of China.

Fed Intervention Coming; Monetary Failure; Persistent Deflation Means; Quantitative Easing; Zero Hedge.

Mon 2009-12-21 19:18 EST

America's Head Servant? The PRC's Dilemma in the Global Crisis

Ho-fung Hung

...Despite all the talk of China's capacity to destroy the dollar's reserve-currency status and construct a new global financial order, the prc and its neighbours have few choices in the short term other than to sustain American economic dominance by extending more credit...the historical and social origins of the deepening dependence of China and East Asia on the consumer markets of the global North as the source of their growth, and on us financial vehicles as the store of value for their savings. I then assess the longer-term possibilities for ending this dependence, arguing that, to create a more autonomous economic order in Asia, China would have to transform an export-oriented growth model--which has mostly benefited, and been perpetuated by, vested interests in the coastal export sectors--into one driven by domestic consumption, through a large-scale redistribution of income to the rural-agricultural sector. This will not be possible, however, without breaking the coastal urban elite's grip on power.

America's Head Servant; Global Crisis; PRC's Dilemma.

Unqualified Reservations Fri 2009-12-18 10:03 EST

Expiring liquidity facilities: bad plan, Stan

Mencius Moldbug

I predict: serious financial disturbances will occur on or before February 1, 2010. Or soon thereafter...I also have a serious - ie, verifiable - prediction. I predict that before the end of 2010, probably well before the end of 2010, possibly even before the beginning of 2010, the Fed will be forced to renew these facilities or others like them. In other words, I predict that its attempt to kick the liquidity junk will not succeed. In the end, I believe all these "temporary" facilities will become substantively permanent - just like the original LF, deposit insurance.

Bad plans; Expiring liquidity facilities; Stan; Unqualified Reservations.

zero hedge Thu 2009-12-17 10:37 EST

Is Selling US CDS A Risk-Free Way To Short The Dollar?

There has been much conjecture on whether using CDS is an effective way to hedge against US default risk. Many theoreticians, especially those of the post-March lows variety, have sprung up and are speculating that buying Credit Default Swaps on the US is ultimately a futile and pointless endeavor. The main argument: a US default would likely mean that interconnected dealers won't recognize contracts on a US default event, as they themselves will be out of business. Even if they continued to exist, like cockroaches in a postapocalyptic world, the collateral which backs derivatives is mostly US Treasurys: the same obligations that would end up being massively impaired...the US CDS seller syndicate could easily be one of the key sources of dollar short funding: with sellers pocketing euros and immediately going to market and selling dollars...a dollar-short unwind would probably have repercussions in the US CDS market. Not only would the dollar spike, but paradoxically US credit risk would probably widen dramatically...any unwind at the heart of the prevalent risk trade now: the massive dollar carry, would impact virtually every investment product, quite possibly in self-referential feedback loops. If correct, it merely shows how much more the Fed has at stake in keeping the dollar depressed than merely getting mom and pop to buy Amazon at $130/share. Losing control of the carry trade will be the systemic equivalent of allowing Lehman's book to be marked-to-market: a potentially complete collapse in systemic confidence, which would have such far ranging implications as the $300 trillion interest rate derivative market. And when sudden volatility reaches this product universe which is 6 times bigger than world GDP, the events from last year will seem like a dress rehearsal.

CDS; Dollar; Risk-Free Way; sell; short; Zero Hedge.

naked capitalism Tue 2009-12-08 18:26 EST

Guest Post: Woman Who Invented Credit Default Swaps [Blythe Masters] is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade

...If the government allows massive carbon derivatives trading with as little oversight as over the CDS market, taxpayers will end up spending many trillions bailing out the giant banks and propping up the economy when the carbon market bubble bursts...(1) the giant banks will make a killing on carbon trading, (2) while the leading scientist crusading against global warming says it won't work, and (3) there is a very high probability of massive fraud and insider trading in the carbon trading markets.

Blythe Masters; capped; carbon derivatives; center; Guest Post; invented credit default swaps; key architect; naked capitalism; trading; Woman.