Oct 22, 2009 | No Comments | Sean Mills
This global recession will turn into a “full-blown depression,” Nicu Harajchi, CEO of N1 Asset Management, said Friday, adding that global stimulus hasn’t come down to Main Street.
Wall Street is making money, while consumers aren’t, Harajchi told CNBC.
“We have seen the G20 coming out with cross border capital injections of $5 trillion this year… But [...]
This global recession will turn into a “full-blown depression,” Nicu Harajchi, CEO of N1 Asset Management, said Friday, adding that global stimulus hasn’t come down to Main Street.
Wall Street is making money, while consumers aren’t, Harajchi told CNBC.
“We have seen the G20 coming out with cross border capital injections of $5 trillion this year… But a lot of this money hasn’t really come down to Main Street,” he said.
“When it comes down to corporate America, corporate Europe or even in Asia, in Japan, we are not seeing Main Street making any money,” he said. “Consumers are losing their jobs. They are struggling with their mortgages, with their credit. And we are just seeing this continuing.”
The $5 trillion injection is “monetary expansion,” according to Harajchi. “At some point, which we believe to be 2010/11, some of the central banks are going to recall some of that money and that will turn from monetary expansion to monetary contraction.”
He also said he doesn’t see the corporates or the public “being able to pay back that debt.”
“We see 2010 becoming a much more risky year than 2009,” he said.
Harajchi said unemployment data are “a leading indicator” instead of a lagging indicator.
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Mike Lenhoff, chief strategist at Brewing Dolphin Securities, told CNBC that the recovery will depend on the improvement in cyclical sectors.
“The sooner companies generate their profits, and I think it is moving towards mainstream, it’s not just the financials now,” Lenhoff said. “If present trends continue, we’re talking about jobs being created sometime in the second quarter of next year. That could do a lot for consumer confidence.”
Weak Dollar is Everybody’s Friend
It is no longer up to the U.S. but more to the rest of the world to decide about the dollar’s status as the global reserve currency, Harajchi said.
China and the Gulf countries which have their oil pegged to the dollar “would like to see some other currencies, maybe the euro, playing a more dominant role,” he said.
Lenhoff disagreed with Harajchi, saying he believes the dollar will continue to play a dominant role in global trade and global finance.
Central banks will continue to keep interest rates very low in order to avoid a depression, he said. The reason for the dollar’s recent weakness “is really down to Fed policy,” he added.
“The Federal Reserve has made it crystal clear that interest rates are staying where they are for an extended period of time. We’re getting to see a more confident tone to global growth, to a recovery, and as a result of that, we’re seeing the tolerance towards risk aversion drop and that in turn has washed back onto the dollar as investors go in search of risk assets,” he said.
“This is something we’re going to see for a while, until there is a change in Fed policy. That doesn’t seem imminent and certainly it doesn’t seem at all likely until sometime in the latter half of next year.”
The dollar’s depreciation will help boost the S&P 500 index over the coming quarters, Lenhoff told CNBC.
“A weak dollar is everybody’s friend,” he said.
“If the dollar serves the role of an additional stimulus in reflating the U.S, then I think that it’s very good,” he said.
Oct 20, 2009 | No Comments | Sean Mills
Wow spin off Fannie and Freddie and let BofA and Wells Fargo control them now that is an interesting idea, for whom….you know the answer. At what point do we let off the gas which is the Federally sponsored bailout. I am not sure I can keep looking at the news doesn’t anyone else feel [...]
Wow spin off Fannie and Freddie and let BofA and Wells Fargo control them now that is an interesting idea, for whom….you know the answer. At what point do we let off the gas which is the Federally sponsored bailout. I am not sure I can keep looking at the news doesn’t anyone else feel disgusted by it?-Sean
Oct. 19 (Bloomberg) – Fannie Mae and Freddie Mac each fell 22 percent, to the lowest prices since August, after analysts at KBW Inc. said the shares of the government-run mortgage finance companies are probably worthless.
Analysts led by Bose George cut the companies’ price targets to zero today from $1 set in April, saying the entities need to be recapitalized by mortgage banks that use their services.
Fannie Mae fell 32 cents to $1.14 at 4:15 p.m. on the New York Stock Exchange, the lowest price since Aug. 20. Freddie Mac fell 37 cents to $1.35, the lowest since Aug. 19.
The government-sponsored entities, which more than tripled in August, have retreated from 13-month highs of $2.40 for Freddie and $2.04 for Fannie on Aug. 28.
“Both the common and preferred equity of the GSEs should be worthless” if the companies are recapitalized, the analysts wrote in a research note. The companies “are acting as a direct arm of the federal government providing massive federal aid to support and revive the U.S. housing market in the midst of a crisis,” the report said.
Fannie Mae and Freddie Mac remain the two largest sources of housing money in the U.S., financing about 70 percent of new mortgages, according to government statistics. Regulators seized their operations and placed Fannie Mae and Freddie Mac into conservatorship in September 2008 amid fears that the two were failing and posed a risk to the broader U.S. economy.
Recapitalizing Fannie, Freddie
The Congressional Budget Office projects the two will require $389 billion of the $400 billion in taxpayer aid Treasury pledged last year to keep them solvent.
“The only viable option to limit taxpayer expense and recapitalize Fannie Mae and Freddie Mac is to set up a Bad Fannie and Bad Freddie,” KBW said, adding that the plan would wipe out existing common and preferred shareholders.
The government could spin off new companies that are cooperatively owned by mortgage banks such as Wells Fargo & Co. and Bank of America Corp. that sell loans to Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, mirroring the Federal Home Loan Bank system, the analysts wrote.
The companies have booked a combined $165.3 billion in net losses during the past two years and have received or requested $95.6 billion in taxpayer aid since November.
Oct 16, 2009 | No Comments | Sean Mills
Just a little back up for the last post where I issued the warning about the stock market.-Sean
The Dow Jones Industrial Average closed above 10,000 today for the first time in a year, and more than a decade after first breaking the mark. Since hitting lows in March, the Dow is up an astounding 50%, [...]
Just a little back up for the last post where I issued the warning about the stock market.-Sean
The Dow Jones Industrial Average closed above 10,000 today for the first time in a year, and more than a decade after first breaking the mark. Since hitting lows in March, the Dow is up an astounding 50%, while the S&P 500 has gained 60%.
Before you get your broker on the phone or start trading that dormant online brokerage account, take heed of this warning from Mike “Mish” Shedlock, the blogger behind MISH’S Global Economic Trend Analysis: “Five years from now, I think its quite likely the Dow is not going to be much more than 10,000,” he says.
Source Article
Why so negative?
“We’ve still not solved any of those structural problems” in the housing, banking and debt markets, that caused last year’s crisis, he claims.
Shedlock’s advice: ignore the euphoria, and “take some chips off the table. Now’s just not a good time to be invested.”
Shedlock, also an investment advisor representative for SitkaPacific Capital Management, thinks investors are better positioned in gold and cash.
Oct 16, 2009 | No Comments | Sean Mills
All in all some good advice for a newbie homeowner the only problem I see with this is the stock market you could be investing in is even more unstable than the real estate market. A 40-50% decline in the stock market in less than 6 months now that was a wild ride. I will [...]
All in all some good advice for a newbie homeowner the only problem I see with this is the stock market you could be investing in is even more unstable than the real estate market. A 40-50% decline in the stock market in less than 6 months now that was a wild ride. I will acknowledge the stock market has rebounded but how long will it last?-Sean
Oct. 14 (Bloomberg) — Unless you want to stay in a neighborhood for life, renting a home may make more sense.
With more foreclosures and huge inventories of unsold homes looming and mortgage rates held down by the government, the housing market may not stabilize for years.
It’s no longer a given that you will build home equity. The housing debacle may have depressed housing prices for a generation in all but a handful of areas.
Am I spouting American housing heresy? After all, can’t you still build wealth by simply buying a home and holding it? And with 30-year, fixed-rate mortgages dipping below 5 percent, isn’t your buy signal flashing “go”?
A rent-versus-buy decision is a complicated one. You will need to make some blunt assumptions and do some in-depth homework on the neighborhood in which you want to buy.
The first layer of your decision-making is the duration of your investment. If you are fairly certain you are going to be in a neighborhood for an extended period — say you have a young family, like the local schools and have a secure government job — check the “buy” category and calculate ownership costs.
Those facing relocation, looking to downsize or retiring should strongly consider renting.
It’s difficult to recoup all of your closing costs and down payment in a short period of time. This is the easy part.
Rent Versus Buy
Now comes some gnarly cash-flow analysis for those leaning toward buying.
Let’s say you were considering a $300,000 home, put down 20 percent, and obtained a 5 percent, 30-year fixed-rate mortgage. You are in the 33 percent federal-tax bracket and you will pay $7,000 annually in property taxes and about $1,000 for insurance and maintenance. Your total monthly payments are $1,945.
Comparing your purchase to a similar property renting for $2,000 a month, you come out ahead buying and holding for 30 years. While your actual cash outlay is much less for renting — $583,267 versus $751,236 for buying — once you figure in the tax benefits over three decades, you are better off buying.
The combination of appreciation, leverage and tax breaks makes buying the winner over 30 years. Instead of having paid rent and gained no equity, this example will show a net asset value of $526,770 for buyers. This, of course, assumes a positive annual gain in your home’s price.
This example assumes a 1 percent annual return rate, stable property taxes and federal write-offs continuing untouched.
Property Taxes
Yet times have changed and it’s unlikely you will have the same mortgage, expenses and write-offs for three decades.
Real-estate taxes are wild cards that few brokers will discuss. Since public agencies are mostly dependent on property valuations for revenue, they are hurting in this housing recession and may be crippled for years from depressed home values. I’m seeing this in my area where the primary school district alone is facing a $3.5 million shortfall.
The most dangerous assumption is that property taxes will remain static. Ask your broker for past real-estate bills and the fiscal shape of local taxing bodies.
Another flawed assumption is appreciation. You can still lose home equity.
Check on median property values where you are buying. A few states were relatively untouched by the recent bubble, such as Texas, Utah, Wyoming, Oregon, Pennsylvania, Tennessee and North Carolina. Home-value declines were the worst in Nevada, California, Florida and Arizona, according to the U.S. Census Bureau’s most recent American Community Survey.
Invest the Difference
Still want to buy a home? Then dig even deeper in your targeted areas.
How many foreclosures are pending? Are there any vacant homes? What has been the mortgage default trend over the past two years? Is there a glut or shortage of unsold housing units? You can find local housing inventories by contacting area realtor associations.
Frank Armstrong III, a Coconut Grove, Florida-based financial planner and author of “Save Your Retirement” (FT Press, $14.99), says home ownership “is no longer a risk-free transaction. This has been the assumption for 30 years, and it’s been rebutted.”
An unstable or declining neighborhood usually translates into home-equity loss for buyers, most of whom have no idea when an area has hit bottom.
There’s no shame in not buying and exploiting the hidden upside in renting, though.
The money you would have spent on maintenance, taxes and insurance can pay off credit-card bills or be invested in an emergency fund, retirement or college savings. I know that few people will look at it this way, but renting might be a chance to recover financially.
Source Article
Oct 6, 2009 | No Comments | Sean Mills
It always is easier to look from the outside and see with such clarity, the old “your life my way.” Were down but we are not out. Even our friends in the UK are getting in on the debate.-Sean
Los Angeles, 2009: California may be the eighth largest economy in the world, but its state government [...]
It always is easier to look from the outside and see with such clarity, the old “your life my way.” Were down but we are not out. Even our friends in the UK are getting in on the debate.-Sean
Los Angeles, 2009: California may be the eighth largest economy in the world, but its state government is issuing IOUs, unemployment is at its highest in 70 years, and teachers are on hunger strike. So what has gone so catastrophically wrong?
Will California become America’s first failed state?
Los Angeles, 2009: California may be the eighth largest economy in the world, but its state government is issuing IOUs, unemployment is at its highest in 70 years, and teachers are on hunger strike. So what has gone so catastrophically wrong?
Patients without medical insurance wait for treatment in the Forum, a music arena in Inglewood, Los Angeles. The 1,500 free places were filled by 4am. Photograph: John Moore/Getty Images
California has a special place in the American psyche. It is the Golden State: a playground of the rich and famous with perfect weather. It symbolises a lifestyle of sunshine, swimming pools and the Hollywood dream factory.
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Oct 6, 2009 | No Comments | Sean Mills
Paul, my friend, this is for you as it references Brentwood and is something to think about in your search. Interesting but sound reasoning from a person with a more colorful venacular than myself, ok we are cut from the same rug. Please note the title and the website contains profanity but the article is [...]
Paul, my friend, this is for you as it references Brentwood and is something to think about in your search. Interesting but sound reasoning from a person with a more colorful venacular than myself, ok we are cut from the same rug. Please note the title and the website contains profanity but the article is good nevertheless.-Sean
As the old Real Estate aphorism goes “Only 3 things matter – location, location, location”. So the issue with relying on Case-Shiller (which has been “growing” for three months – yippity f-ing doodah!) is that the “city” used for valuation is usually a multi-county location with each location being at a different stage in the price cycle. The “San Francisco” area ranges from Pacific Heights to the Brentwood suburbs over 55 miles away. Brentwood may have bottomed but it will take some time for the Silicon Valley and the “City by the Bay” to follow it into the abyss. Oh and by-the-way Silicon Valley, typically considered Santa Clara county, is not actually in the index.
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Oct 5, 2009 | No Comments | Sean Mills
Washington – The American dream means different things to different people. For some, it looks like a house on a leafy cul-de-sac with weekends spent mowing the lawn and planting shrubs. For others it’s a rented apartment in the big city with a building engineer to handle such tasks.
The government should not subsidize one dream [...]
Washington – The American dream means different things to different people. For some, it looks like a house on a leafy cul-de-sac with weekends spent mowing the lawn and planting shrubs. For others it’s a rented apartment in the big city with a building engineer to handle such tasks.
The government should not subsidize one dream at the expense of another. Sadly, though, that’s just what has happened. And as history so clearly demonstrates, one-size-fits-all policies don’t work very well.
During much of the last century the heavy hand of government has been used to turn the US into a nation of homeowners. It all began in 1913 with the inclusion of a deduction for mortgage interest when the federal income tax was enacted.
Two decades later, with the economy in the throes of the Great Depression, federal intervention exploded. Herbert Hoover signed the Federal Home Loan Bank Act in 1932. Over the next two years his successor, Franklin Roosevelt, created the Federal Home Owners’ Loan Corporation and the Federal Housing Administration. Fannie Mae was established in 1938.
Centralization of housing policy in Washington gave rise to interest groups representing home building, mortgage lending, and the real estate industries that pressured politicians to shower a never-ending stream of subsidies on owner-occupied housing.
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Sep 18, 2009 | No Comments | Sean Mills
I thought this chart was worth looking at in a bigger view. Please remember the unemployment rates will lag behing the economy even as it struggles to get a foothold and move north of this turbulant times. The “experts” think we are headed out of this deep recession and the consensus is we will not [...]
I thought this chart was worth looking at in a bigger view. Please remember the unemployment rates will lag behing the economy even as it struggles to get a foothold and move north of this turbulant times. The “experts” think we are headed out of this deep recession and the consensus is we will not double dip or have a “W” shaped recession. My hopes are they are right but with no stabilization of unemployment rates, no new job creations and so much shadow inventory of defaulted/foreclosure properties out in limbo I am not convinced yet. -Sean
Sep 10, 2009 | No Comments | Sean Mills
This is from Robert Reich’s blog. -Sean
Robert Reich was the nation’s 22nd Secretary of Labor and is a professor at the University of California at Berkeley. His latest book is “Supercapitalism.” This is his personal journal.
Why aren’t we hearing more about the worst job and wage situation since the Great Depression?
The latest employment figures (released [...]
This is from Robert Reich’s blog. -Sean
Robert Reich was the nation’s 22nd Secretary of Labor and is a professor at the University of California at Berkeley. His latest book is “Supercapitalism.” This is his personal journal.
Why aren’t we hearing more about the worst job and wage situation since the Great Depression?
The latest employment figures (released this morning) show job losses continuing to grow. According to the payroll survey, job losses are increasing more slowly than in previous months. According to the household survey, they’re accelerating — from 9.4 percent of the workforce in July to 9.7 percent in August. Bottom line: almost one out of six Americans who need a full-time job either can’t find one or is working part-time. Meanwhile, wage growth among people who have jobs has just about stopped. The Economic Policy Institute reports that between 2006 and 2008, wages grew at an annualized rate of 4.0%; by contrast, over the past three months annual wage growth has plummeted to just 0.7%. At the same time, furloughs — requiring workers to take unpaid vacations — are on the rise: recent surveys show 17% of companies imposing them. More than 20% of companies have suspended their contributions to 401(k)s and similar pension plans.
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Sep 9, 2009 | No Comments | Sean Mills
The Federal Reserve’s latest (through July) G19 update is out, showing consumer credit.
To say that these figures are ugly would be an understatement. In fact, there is simply no way you can spin this – while this contraction in credit has to happen it has horrifying implications if our Washington policymakers don’t get on the stick [...]
The Federal Reserve’s latest (through July) G19 update is out, showing consumer credit.
To say that these figures are ugly would be an understatement. In fact, there is simply no way you can spin this – while this contraction in credit has to happen it has horrifying implications if our Washington policymakers don’t get on the stick and deal with the underlying issues here and now instead of pretending that everything is ok or worse, try to “borrow our way to prosperity.”
Let’s start with the “Full Monte”; this is the “de-noised” version of The Fed’s “annualized” rate of change chart (click for a larger version of any of these):
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