Friday, January 27, 2012
Capital Markets Update
By Louis S. Barnes Friday, January 27th, 2012
“‘Stranger and stranger’, said Alice,” and so it was this week at the Fed, in Europe, and Mr. Obama’s State of the Union.
Some brave souls thought the Fed would surprise by rolling out QE3, and begin to buy more MBS, driving mortgage rates down. Everyone expected a pair of meaningless inside-Fed jokes (more transparency, and an inflation target) and we got those. Nobody expected this: to extend its zero-percent rate from 2013 to the end of 2014.
Bonds have rallied, the 10-year T-note back down to 1.92% and mortgages close to 4.00%, markets still adjusting. Bernanke’s term expires a year before the end of the new zero-rate period! 2014 is so far off in the economic future that nobody can know its conditions, but you can bet — bet a lot — that the Fed would make a three-year commitment only if it is seriously worried. That anxiety has penetrated even the stock market, which has sold off for the first time in years after a new easing by the Fed. The Fed’s concern was justified by today’s weaker-than-looks Q4 GDP report.
Europe… the ECB will NOT allow a bank to fail. Those dominoes are off the table. The ECB may or may not play the ultimate card, buying or second-stage monetizing Club Med wallpaper, but banks will not be the trigger for ultimate euro collapse.
However, the underlying disaster is still rolling along. Christine LaGarde, French Minister of Finance until last summer, now Managing Director of the IMF, this week delivered a speech worthy of the White Queen. “Why, sometimes I’ve believed as many as six impossible things before breakfast.” In grand French style, her speech soooo important, soooo without consequence: demand European growth measures simultaneous with cutting spending and raising taxes; a larger financial firewall but no source for the money; and deeper integration among cultures farther apart every day. Banks not in play, European economies will determine the next stage there.
“The state of the union is getting stronger.” Uh-huh. Fifteen hours and fifteen minutes after the President spoke those words, the Fed announced an economy in such peril that its previously unprecedented aid would extend over the horizon.
Okay. All Presidents have the right to use lipstick. However, forty minutes and 58 paragraphs into his words, words, and words, the President first mentioned “homeowner.” Gave it three sentences to describe a refinance proposal that does not exist and will not. Three weeks after the Fed Chairman, a Fed White Paper, and four other Fed governors and regional presidents identified housing as the most serious risk to the economy, why it is, and what to do about it… three empty sentences in the SOU.
The 12th and 69th paragraphs (only) contained the word “deficit” in self-congratulation for last year’s painful mini-cut. Nowhere in the speech was a reference to a domestic spending cut or planned spending discipline of any kind.
We are entering the second year of an inert White House. Blame the Tea party, rightly, but a second year with no meaningful, Congressional pass-able economic proposal? At all? When in modern times has the White House been so dormant?
FDR was active, heaven knows. Some still argue about what he did, but not that he tried with mighty invention. Harry Truman let no grass grow in a deadly time and with a hostile Congress. Ike knew how to use staff better than anybody; it got him time for golf, but he got stuff done, and ornery Democrat Sam Rayburn ran Congress. JFK’s two years had questionable result, but action! Statues of LBJ would be common had he not become entangled in Vietnam, as any President might in 1965. Odd, brilliant Dick Nixon was plenty productive until the last six months, and never had a Republican Congress. Gerry Ford restored faith and fought inflation. Jimmy Carter never connected, and micromanaged his way to oblivion, but was anything but asleep. Anything Ron Reagan got done in eight years had to be negotiated with Tip O’Neil. Daddy Bush faced nothing but Democrats, and Bill Clinton had to make deals with the Mad Hatter. Newt.
These last 11 years… I find no parallel except the emptiness of Harding and Coolidge. Hell, even Herbert Hoover tried hard.
Fourth Quarter GDP arrived plus 2.8%, but consumer spending rose only 2.0% (after all that media jive through the holidays), and the savings rate fell below 4%, leaving little slack in household budgets. Inventory rebuilding aside, GDP rose only 0.8%, and that was boosted by an improbable 10.9% jump in residential construction, likely to be revised closer to Q3′s 1.3% gain.
“‘Stranger and stranger’, said Alice,” and so it was this week at the Fed, in Europe, and Mr. Obama’s State of the Union.
Some brave souls thought the Fed would surprise by rolling out QE3, and begin to buy more MBS, driving mortgage rates down. Everyone expected a pair of meaningless inside-Fed jokes (more transparency, and an inflation target) and we got those. Nobody expected this: to extend its zero-percent rate from 2013 to the end of 2014.
Bonds have rallied, the 10-year T-note back down to 1.92% and mortgages close to 4.00%, markets still adjusting. Bernanke’s term expires a year before the end of the new zero-rate period! 2014 is so far off in the economic future that nobody can know its conditions, but you can bet — bet a lot — that the Fed would make a three-year commitment only if it is seriously worried. That anxiety has penetrated even the stock market, which has sold off for the first time in years after a new easing by the Fed. The Fed’s concern was justified by today’s weaker-than-looks Q4 GDP report.
Europe… the ECB will NOT allow a bank to fail. Those dominoes are off the table. The ECB may or may not play the ultimate card, buying or second-stage monetizing Club Med wallpaper, but banks will not be the trigger for ultimate euro collapse.
However, the underlying disaster is still rolling along. Christine LaGarde, French Minister of Finance until last summer, now Managing Director of the IMF, this week delivered a speech worthy of the White Queen. “Why, sometimes I’ve believed as many as six impossible things before breakfast.” In grand French style, her speech soooo important, soooo without consequence: demand European growth measures simultaneous with cutting spending and raising taxes; a larger financial firewall but no source for the money; and deeper integration among cultures farther apart every day. Banks not in play, European economies will determine the next stage there.
“The state of the union is getting stronger.” Uh-huh. Fifteen hours and fifteen minutes after the President spoke those words, the Fed announced an economy in such peril that its previously unprecedented aid would extend over the horizon.
Okay. All Presidents have the right to use lipstick. However, forty minutes and 58 paragraphs into his words, words, and words, the President first mentioned “homeowner.” Gave it three sentences to describe a refinance proposal that does not exist and will not. Three weeks after the Fed Chairman, a Fed White Paper, and four other Fed governors and regional presidents identified housing as the most serious risk to the economy, why it is, and what to do about it… three empty sentences in the SOU.
The 12th and 69th paragraphs (only) contained the word “deficit” in self-congratulation for last year’s painful mini-cut. Nowhere in the speech was a reference to a domestic spending cut or planned spending discipline of any kind.
We are entering the second year of an inert White House. Blame the Tea party, rightly, but a second year with no meaningful, Congressional pass-able economic proposal? At all? When in modern times has the White House been so dormant?
FDR was active, heaven knows. Some still argue about what he did, but not that he tried with mighty invention. Harry Truman let no grass grow in a deadly time and with a hostile Congress. Ike knew how to use staff better than anybody; it got him time for golf, but he got stuff done, and ornery Democrat Sam Rayburn ran Congress. JFK’s two years had questionable result, but action! Statues of LBJ would be common had he not become entangled in Vietnam, as any President might in 1965. Odd, brilliant Dick Nixon was plenty productive until the last six months, and never had a Republican Congress. Gerry Ford restored faith and fought inflation. Jimmy Carter never connected, and micromanaged his way to oblivion, but was anything but asleep. Anything Ron Reagan got done in eight years had to be negotiated with Tip O’Neil. Daddy Bush faced nothing but Democrats, and Bill Clinton had to make deals with the Mad Hatter. Newt.
These last 11 years… I find no parallel except the emptiness of Harding and Coolidge. Hell, even Herbert Hoover tried hard.
Fourth Quarter GDP arrived plus 2.8%, but consumer spending rose only 2.0% (after all that media jive through the holidays), and the savings rate fell below 4%, leaving little slack in household budgets. Inventory rebuilding aside, GDP rose only 0.8%, and that was boosted by an improbable 10.9% jump in residential construction, likely to be revised closer to Q3′s 1.3% gain.
Friday, January 20, 2012
Capital Markets Update
By Louis S. Barnes Friday, January 20, 2012
More positive US data and relaxation of European frights have combined for higher interest rates and support for Wall Street's warm-fuzzy machine.
One week ago, downgraded credit in Europe and another failure in Greek debt negotiations had taken the 10-year T-note to 1.85% and big-equity refis a hair below 4.00%. Today, nothing is resolved in Europe, but nothing is falling, either, so 10s are back to 2.02% and even a 20%-down low-fee mortgage is near 4.25%. Adios, refis.
The mortgage spread to 10s -- 2.25% -- is very wide, now opened in part by the new-mortgage surcharge inflicted by Congress and the White House to pay for part of the payroll tax cut. Which the public doesn't know, because mainstream media can't be bothered to cover the madness, and the Fed every day trying to close the spread.
The most striking US data is the decline in weekly claims for unemployment insurance, which seem decisively to have dropped below 400,000 (352,000 last week) where we had been stuck for most of 2011. Fewer layoffs is not hiring, but it is good news. Regional Feds report up-ticks in manufacturing. Inflation is receding from its commodity push last year, overall zero change in December CPI.
Then a data-interpretation argument, this time housing. The consensus is very optimistic that housing is past its bottom and 2012 will mark beginnings of recovery for construction and resales. I wish… oh, how I wish. The optimists assert pent-up demand, household formation, lower listed inventory, and faith. Halleluiah, brothers and sisters.
Always-suspect NAR has reported a 5% gain in sales of existing homes in December. Also a balmy, La Nina split-jet December, northern-city NFL finales and playoffs in dry 30-degree sunshine. Economic data is adjusted for season, but not weather. NAR also reported that one-third of contracts failed, its members correctly blaming mortgage underwriting and appraisals.
There is some legitimacy to hopes for new construction because builders are agile in shifting location and price point, and some places really are short of housing (North Dakota). However, new delinquencies are not improving, there is no work-off of distressed inventory, and all major measures of prices resumed their declines early last fall. The household-formation argument is based on recent historical pattern, but a hard look contradicts: we have a 1930s-style decline in birth rate, and for good or ill a sharp drop in illegal immigration. Pent-up demand is offset by pent-up caution about prices.
The void in political leadership continues, and among economic thinkers of all stripes the widening, hysterical scatter of what-to-do-if-you-were-king.
Heaven help moderates: Democrats were thrilled this week by Mitt Romney's exposure as wealthy (who knew?) and paying completely legal taxes, if low in some parts. This guy tithes, 10% of his considerable income to his church. Lefty Democrats think that tithing is taking 10% of somebody else's income, and Righty Republicans are in a 16th century argument about what a church is, and whose is acceptable.
Economic policy has two centers of confusion: stimulus versus austerity, and the central banks. Ordinarily sensible people chant: short-term stimulus, then austerity. Pardon: when is then? Less sensible people demand spending on infrastructure. Maybe we could avoid Japan's bridges-to-nowhere, but even nifty new bridges to somewhere add what multiplier to economic growth? Governor Moonbeam's California bullet trains are the most questionable public investment since the projects at Pruitt-Igoe.
The central banks. I hear more and more center-thinkers drifting toward the Libertarian posse. A good guide for 10 years has been the www.hoisingtonmgt.com quarterly, but the newest issue demands "a five-year moratorium on all new Fed actions." A bright, studious investment manager and friend (better nameless) refers to Fed "meddling." As we enjoy better US data, and no new recession, please understand that the Fed and ECB are holding open our living space against crushing deflationary pressures. And until accidental healing, or somebody finds the support to do useful things, the issue is in doubt and central banks are playing for time.
More positive US data and relaxation of European frights have combined for higher interest rates and support for Wall Street's warm-fuzzy machine.
One week ago, downgraded credit in Europe and another failure in Greek debt negotiations had taken the 10-year T-note to 1.85% and big-equity refis a hair below 4.00%. Today, nothing is resolved in Europe, but nothing is falling, either, so 10s are back to 2.02% and even a 20%-down low-fee mortgage is near 4.25%. Adios, refis.
The mortgage spread to 10s -- 2.25% -- is very wide, now opened in part by the new-mortgage surcharge inflicted by Congress and the White House to pay for part of the payroll tax cut. Which the public doesn't know, because mainstream media can't be bothered to cover the madness, and the Fed every day trying to close the spread.
The most striking US data is the decline in weekly claims for unemployment insurance, which seem decisively to have dropped below 400,000 (352,000 last week) where we had been stuck for most of 2011. Fewer layoffs is not hiring, but it is good news. Regional Feds report up-ticks in manufacturing. Inflation is receding from its commodity push last year, overall zero change in December CPI.
Then a data-interpretation argument, this time housing. The consensus is very optimistic that housing is past its bottom and 2012 will mark beginnings of recovery for construction and resales. I wish… oh, how I wish. The optimists assert pent-up demand, household formation, lower listed inventory, and faith. Halleluiah, brothers and sisters.
Always-suspect NAR has reported a 5% gain in sales of existing homes in December. Also a balmy, La Nina split-jet December, northern-city NFL finales and playoffs in dry 30-degree sunshine. Economic data is adjusted for season, but not weather. NAR also reported that one-third of contracts failed, its members correctly blaming mortgage underwriting and appraisals.
There is some legitimacy to hopes for new construction because builders are agile in shifting location and price point, and some places really are short of housing (North Dakota). However, new delinquencies are not improving, there is no work-off of distressed inventory, and all major measures of prices resumed their declines early last fall. The household-formation argument is based on recent historical pattern, but a hard look contradicts: we have a 1930s-style decline in birth rate, and for good or ill a sharp drop in illegal immigration. Pent-up demand is offset by pent-up caution about prices.
The void in political leadership continues, and among economic thinkers of all stripes the widening, hysterical scatter of what-to-do-if-you-were-king.
Heaven help moderates: Democrats were thrilled this week by Mitt Romney's exposure as wealthy (who knew?) and paying completely legal taxes, if low in some parts. This guy tithes, 10% of his considerable income to his church. Lefty Democrats think that tithing is taking 10% of somebody else's income, and Righty Republicans are in a 16th century argument about what a church is, and whose is acceptable.
Economic policy has two centers of confusion: stimulus versus austerity, and the central banks. Ordinarily sensible people chant: short-term stimulus, then austerity. Pardon: when is then? Less sensible people demand spending on infrastructure. Maybe we could avoid Japan's bridges-to-nowhere, but even nifty new bridges to somewhere add what multiplier to economic growth? Governor Moonbeam's California bullet trains are the most questionable public investment since the projects at Pruitt-Igoe.
The central banks. I hear more and more center-thinkers drifting toward the Libertarian posse. A good guide for 10 years has been the www.hoisingtonmgt.com quarterly, but the newest issue demands "a five-year moratorium on all new Fed actions." A bright, studious investment manager and friend (better nameless) refers to Fed "meddling." As we enjoy better US data, and no new recession, please understand that the Fed and ECB are holding open our living space against crushing deflationary pressures. And until accidental healing, or somebody finds the support to do useful things, the issue is in doubt and central banks are playing for time.
Friday, January 13, 2012
Capital Markets Update
The one bright spot in the world is the resilience of the US economy, not re-entering the recession so widely forecast last fall, and so far impervious to events in Europe.
However, the failure of leadership in Europe, and here -- hell, everywhere -- seems to be coming together in another chaotic moment. There is no dominant thread to events, instead a tangle rather like the first time the kids helped to take down the Christmas lights. Find the end of one string, then another….
Here in the US: a surge in consumer credit (10% annual growth rate in November) may or may not indicate consumer and banking revival, or survive revision, but beats contraction. Consumer confidence numbers are in a sustained rise, sometimes correlating with a better job market. Tempering that enthusiasm, the ballyhooed holiday retail sales did not take place: fibbers on the stock-market channels oversold a mere point-one percent gain in December sales. Small-biz surveyor NFIB found a fourth-straight monthly gain, but shallow- slope, net index no better than last January.
On concern for the rest of the world, 10-year T-notes have fallen to 1.85% today, but there is no mortgage follow-through, largely because of the unspeakably stupid mortgage-rate surcharge imposed to pay for part of the Social Security tax cut.
Outside the US, in approximate order of importance:
The flame is rising under long-simmering Iran. Sanctions imposed to halt their nuclear program may produce unintended blowback in Hormuz, and today's news of US troop and naval movements add to the burden of already jumpy markets.
Consensus today has S&P downgrading the credit of most of Europe this weekend. Ordinarily downgrades would have no more effect than the downgrade of the US last summer; however, the European rescue funds (EFSF and ESM) are dependent on AAA ratings for contributors, especially France. No bailout funds… dawn of reality.
Greece faded in importance last fall as Italy and Spain came into play. The debt forgiveness that Greece needed seemed trivial by comparison, and nobody would be silly enough to tip the Greek domino by withholding pocket change. Right. Talks broke down today, and default is again imminent. Most exposed: the ECB and its holdings of $150 billion in Greek debt. You want that in 100,000-drachma notes, or 1,000,000?
Time out for ethics in financial leadership. During a sustained effort by the Swiss National Bank (its "Fed") to weaken the too-strong Swiss franc versus all other currencies, the wife of the SNB Chairman, Philipp Hildebrand, placed long-dollar trades with the family banker, who confirmed the trades with the Chairman. Upon exposure the Chairman attempted a cover-up with that banker, who refused (there are honest bankers). Philipp and Kashya Hildebrand met while working at a US hedge fund (dang, what kids learn in those places!); he has resigned and accepted a $1 million severance.
The largest Italian bank, Unicredit, attempted to raise capital in accordance with suicidal instructions to banks everywhere, and very nearly succeeded. In suicide. Its stock is now wallpaper; a good bet for the first of the nationalization dominoes.
The ECB flooded Europe two weeks ago with $700 billion in liquidity to banks to stop a run. A similar sum has returned to the ECB for safety. Its Chairman, Mario Draghi yesterday said, helpfully, that the returning cash was not from the banks who borrowed. Got it. The banks who borrowed paid back the banks from whom they had previously borrowed, and those banks are not going to loan money to anybody, sending it back to the ECB, where it now sits safely in mayonnaise jars under the ECB's porch. The ECB stopped the run for a while, but brought no economic or credit relief.
Yields on short-term Danish and German government bills have gone negative. In a phenomenon seen here in the 1930s, and very briefly in the current crisis, investors think it wise to pay 101 kroner or euros for the right to get back 100 ninety days later.
Financial people have been asking each other since last July, "What's the European endgame? What's the trigger?" At the moment, it looks as though the whole stack of procrastination, half measures, and self-deception is crumbling at once. But we're okay.
However, the failure of leadership in Europe, and here -- hell, everywhere -- seems to be coming together in another chaotic moment. There is no dominant thread to events, instead a tangle rather like the first time the kids helped to take down the Christmas lights. Find the end of one string, then another….
Here in the US: a surge in consumer credit (10% annual growth rate in November) may or may not indicate consumer and banking revival, or survive revision, but beats contraction. Consumer confidence numbers are in a sustained rise, sometimes correlating with a better job market. Tempering that enthusiasm, the ballyhooed holiday retail sales did not take place: fibbers on the stock-market channels oversold a mere point-one percent gain in December sales. Small-biz surveyor NFIB found a fourth-straight monthly gain, but shallow- slope, net index no better than last January.
On concern for the rest of the world, 10-year T-notes have fallen to 1.85% today, but there is no mortgage follow-through, largely because of the unspeakably stupid mortgage-rate surcharge imposed to pay for part of the Social Security tax cut.
Outside the US, in approximate order of importance:
The flame is rising under long-simmering Iran. Sanctions imposed to halt their nuclear program may produce unintended blowback in Hormuz, and today's news of US troop and naval movements add to the burden of already jumpy markets.
Consensus today has S&P downgrading the credit of most of Europe this weekend. Ordinarily downgrades would have no more effect than the downgrade of the US last summer; however, the European rescue funds (EFSF and ESM) are dependent on AAA ratings for contributors, especially France. No bailout funds… dawn of reality.
Greece faded in importance last fall as Italy and Spain came into play. The debt forgiveness that Greece needed seemed trivial by comparison, and nobody would be silly enough to tip the Greek domino by withholding pocket change. Right. Talks broke down today, and default is again imminent. Most exposed: the ECB and its holdings of $150 billion in Greek debt. You want that in 100,000-drachma notes, or 1,000,000?
Time out for ethics in financial leadership. During a sustained effort by the Swiss National Bank (its "Fed") to weaken the too-strong Swiss franc versus all other currencies, the wife of the SNB Chairman, Philipp Hildebrand, placed long-dollar trades with the family banker, who confirmed the trades with the Chairman. Upon exposure the Chairman attempted a cover-up with that banker, who refused (there are honest bankers). Philipp and Kashya Hildebrand met while working at a US hedge fund (dang, what kids learn in those places!); he has resigned and accepted a $1 million severance.
The largest Italian bank, Unicredit, attempted to raise capital in accordance with suicidal instructions to banks everywhere, and very nearly succeeded. In suicide. Its stock is now wallpaper; a good bet for the first of the nationalization dominoes.
The ECB flooded Europe two weeks ago with $700 billion in liquidity to banks to stop a run. A similar sum has returned to the ECB for safety. Its Chairman, Mario Draghi yesterday said, helpfully, that the returning cash was not from the banks who borrowed. Got it. The banks who borrowed paid back the banks from whom they had previously borrowed, and those banks are not going to loan money to anybody, sending it back to the ECB, where it now sits safely in mayonnaise jars under the ECB's porch. The ECB stopped the run for a while, but brought no economic or credit relief.
Yields on short-term Danish and German government bills have gone negative. In a phenomenon seen here in the 1930s, and very briefly in the current crisis, investors think it wise to pay 101 kroner or euros for the right to get back 100 ninety days later.
Financial people have been asking each other since last July, "What's the European endgame? What's the trigger?" At the moment, it looks as though the whole stack of procrastination, half measures, and self-deception is crumbling at once. But we're okay.
Friday, January 6, 2012
Capital Markets Update
By Louis S. Barnes Friday, January 6th, 2012
It is an election year. In addition to the distorted economic "analysis" offered by the ever-cheerful stock-market channels, CNBC and Bloomberg, all year long this year political interests will add their garbled gabble.
Today's reports of 200,000 new jobs in December and unemployment down from 8.7% to 8.5% were greeted with happy bugles from the usual suspects. Ignore that and watch the markets themselves. Interest rates rise on legitimate good news; today's 10-year T-note yield has fallen to 1.94%, and mortgages are near 4.00% again. The stock market rises on good news, and today it is flat to down.
200,000 jobs is good news, but year-over-year earnings have risen only 2.1%. A few back to work, but not the job that it was. And even if employment growth persists at that level, and new unemployment claims stay down as they were in December from 400,000 weekly, it's not enough to dent the job losses since 2007.
Part of the tepid response from markets today is derived from ongoing concern for Europe. Perhaps the best indicator for markets this winter will be the pace of recession onset in Europe. But, here, genuine economic turn depends on housing. Many self-deceiving financial-market types in the last weeks have announced discovery of a housing turn; although there is none in the actual market, there is one in public policy.
The Fed is very reluctant to lecture politicians (because of its perpetual political peril), but has done so this week. Mr. Bernanke shot a very well done paper at Congressional committee chairs, laying out damage by insufficient credit, by pinched and self-destructive attitude at the regulators of Fannie and Freddie, and by exposing the total absence of administration policy. www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf. Today Bill Dudley, Prez of the NY Fed fired off another: www.newyorkfed.org/newsevents/speeches/2012/dud120106.html.
The President and Treasury Secretary have been so completely detached from housing that even a blast from the Fed may not get their attention. But I can hope.
We have 4.2 million homes in terminal delinquency, not yet foreclosed, and another 600,000 REO. The annual rate of sale of existing homes is a little over 4 million, one-third of that distressed resales, barely moving the newly distressed, no net gain. That absorption conundrum is bad, but masks a tough and unusual phenomenon in the ordinary non-distressed market, an odd freeze descending.
Here in my Denver backyard, the listed for-sale inventory dropped by one-third last year, ordinarily the precursor of rising prices. Maybe that will happen here -- we led the nation in foreclosures way back in 2004 -- but there is another force in play.
Down payments. Where to get one? The most common source is rolling over the equity in a current home to buy a new one. Right. Roger that. Although we do not have the under-water inventory that silly-Zillow fantasizes, with local prices roughly the same as 2001, price-appreciated equity a memory, there are fewer and fewer owners both wanting to move and with equity to roll, thus fewer and fewer listings.
Other than appreciating value, nothing but loan amortization builds equity. See entry for "glacial", and kids google Rip Van Winkle.
If you're not an owner, down payments come by saving money. Good, healthy discipline. However, in prior times your savings earned something. Even in a bank. In the 1990s the stock market might have doubled your savings every other year.
Another reliable source of down payment: bonuses. As I ask clients about that, today I get a lot more wry chuckles in response than happy answers. Same for stock options, proceeds of IPOs, or growing commission income. And sad answers to the prospect of help from tapped-out families.
If mortgage credit began to flow on reasonable terms, and somebody running for office told the American people that modestly rising home prices are in the national interest, and we got a 5% or 10% rise in prices, we would unlock the entire economy.
Might ask a nearby politician about that.
It is an election year. In addition to the distorted economic "analysis" offered by the ever-cheerful stock-market channels, CNBC and Bloomberg, all year long this year political interests will add their garbled gabble.
Today's reports of 200,000 new jobs in December and unemployment down from 8.7% to 8.5% were greeted with happy bugles from the usual suspects. Ignore that and watch the markets themselves. Interest rates rise on legitimate good news; today's 10-year T-note yield has fallen to 1.94%, and mortgages are near 4.00% again. The stock market rises on good news, and today it is flat to down.
200,000 jobs is good news, but year-over-year earnings have risen only 2.1%. A few back to work, but not the job that it was. And even if employment growth persists at that level, and new unemployment claims stay down as they were in December from 400,000 weekly, it's not enough to dent the job losses since 2007.
Part of the tepid response from markets today is derived from ongoing concern for Europe. Perhaps the best indicator for markets this winter will be the pace of recession onset in Europe. But, here, genuine economic turn depends on housing. Many self-deceiving financial-market types in the last weeks have announced discovery of a housing turn; although there is none in the actual market, there is one in public policy.
The Fed is very reluctant to lecture politicians (because of its perpetual political peril), but has done so this week. Mr. Bernanke shot a very well done paper at Congressional committee chairs, laying out damage by insufficient credit, by pinched and self-destructive attitude at the regulators of Fannie and Freddie, and by exposing the total absence of administration policy. www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf. Today Bill Dudley, Prez of the NY Fed fired off another: www.newyorkfed.org/newsevents/speeches/2012/dud120106.html.
The President and Treasury Secretary have been so completely detached from housing that even a blast from the Fed may not get their attention. But I can hope.
We have 4.2 million homes in terminal delinquency, not yet foreclosed, and another 600,000 REO. The annual rate of sale of existing homes is a little over 4 million, one-third of that distressed resales, barely moving the newly distressed, no net gain. That absorption conundrum is bad, but masks a tough and unusual phenomenon in the ordinary non-distressed market, an odd freeze descending.
Here in my Denver backyard, the listed for-sale inventory dropped by one-third last year, ordinarily the precursor of rising prices. Maybe that will happen here -- we led the nation in foreclosures way back in 2004 -- but there is another force in play.
Down payments. Where to get one? The most common source is rolling over the equity in a current home to buy a new one. Right. Roger that. Although we do not have the under-water inventory that silly-Zillow fantasizes, with local prices roughly the same as 2001, price-appreciated equity a memory, there are fewer and fewer owners both wanting to move and with equity to roll, thus fewer and fewer listings.
Other than appreciating value, nothing but loan amortization builds equity. See entry for "glacial", and kids google Rip Van Winkle.
If you're not an owner, down payments come by saving money. Good, healthy discipline. However, in prior times your savings earned something. Even in a bank. In the 1990s the stock market might have doubled your savings every other year.
Another reliable source of down payment: bonuses. As I ask clients about that, today I get a lot more wry chuckles in response than happy answers. Same for stock options, proceeds of IPOs, or growing commission income. And sad answers to the prospect of help from tapped-out families.
If mortgage credit began to flow on reasonable terms, and somebody running for office told the American people that modestly rising home prices are in the national interest, and we got a 5% or 10% rise in prices, we would unlock the entire economy.
Might ask a nearby politician about that.
Subscribe to:
Comments (Atom)