News: Real Estate, Risk, Economics. Mar. 3, 2015

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Table of Contents
(Click to sections below.)

1) Experts: New Homes Have 'Plenty of Runway' in 2015 ‹ Zillow Real Estate Research

2) The Big Four Risk Management Process Don't's

3) ekathimerinicom | Tsipras unveils coalition's first bills, due next week

4) Greek PM accuses Spain, Portugal of anti-Athens 'axis' | Reuters

5) globalinequality: What remains of Pareto?

6) The Costs of Grexit by Jean Pisani-Ferry – Project Syndicate

7) Leverage on CMBS Multifamily Loans Gets Higher | Multifamily content from National Real Estate Investor

8) Debt Collective: 'Corinthian Fifteen' Demand Free College Education, Refuse To Pay Student Loans

9) The Negative Way to Growth? by Nouriel Roubini – Project Syndicate

10) A hated rally – YouTube

11) HSBC Offshore Tax-Evading Scandal Widening – YouTube

12) Nonresidential Construction Spending Dips in January | Associated Builders and Contractors

13) Will the Patient Protection and Affordable Care Act (ACA) Stand or Fall?

14) Years of Sewer Backups in South Dakota Town Prompt Lawsuits

15) Massachusetts Official Surveys Storm Damage Along Coast

16) mainly macro: Eurozone fiscal policy – still not getting it

17) Does The Fed Have a Currency Problem? – Tim Duy's Fed Watch

18) Greece's Next Move – The New Yorker

19) Roubini: Robust US Growth, Bumpy Landing for China, and No Grexit | Middle East Investment Conference

20) Europe's Sovereignty Illusion by Javier Solana – Project Syndicate

21) Austerity Is Not Greece's Problem by Ricardo Hausmann – Project Syndicate

22) Goldman Secret Greece Loan Shows Two Sinners as Client Unravels – Bloomberg Business

23) China's Dual-Track Challenge by Andrew Sheng and Xiao Geng – Project Syndicate

24) Michael Shellenberger – Energy and the Economics of Renewables – YouTube

25) European Parliament's Martin Schulz says cuts not enough for Greece – YouTube

26) Greece sets out its first anti-poverty measures – YouTube

  1.    Experts: New Homes Have 'Plenty of Runway' in 2015 ‹ Zillow Real Estate Research

    We mention developers rather often by way of suggesting that they should create more units to lower rental costs to get more people moving to stimulate the economy, etc. In addition to completed-project cap rates likely being lower for a time as a result, land values to begin with can be a problem.

    Thanks to Kevin Simpson-Verger for the link: us/571465467774275584

    The following applies also to the multi-family sector.

    Svenja Gudell:

    …developers today may be more apt to sell their land to a different type of developer rather than undergo a project themselves, or choose to build a different type of home than they normally would, based on data.

    High land costs, and perhaps unrealistic value assessments by landowners, are a big reason why developers are having difficulty developing more entry-level, lower-cost communities and homes, said Greg Vogel, CEO and founder of Land Advisors Organization, a Scottsdale, Ariz.-based land brokerage.

    Developable tracts of land appreciated very quickly in value during 2012 and 2013 in anticipation of a building boom in 2014 that largely has yet to materialize, Vogel said, calling 2014 "a dud" compared to expectations for new development. But strong recent years have convinced today's landowners — tomorrow's land sellers — that their land may be worth more than it is.

    "[Land] sellers are very sticky on the up," Vogel said, in reference to land price appreciation. "We'll offer a price, and they'll tell us, 'See you next year.'"

    As a result, builders are increasingly forced to put higher-priced homes on the developable lots they do control, in order to recoup their higher land-acquisition costs.

    Zoning and proximity to the rest of what a given urban area has to offer are also key considerations.

    Nevertheless, we think more of what would ordinarily be considered risk taking (not recklessness) in the multi-family sector would be wise. Still, invest at your own risk. We are not professional financial advisors.

    Add your comment.

  2.    The Big Four Risk Management Process Don't's

    Here are four such don'ts to avoid during the vendor risk management process:…

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  3. | Tsipras unveils coalition's first bills, due next week

    Very importantly timed proposed legislation for Greece by Alexis Tsipras:

    …the bulk of Tsipras's speech was focused on outlining what legislation his government plans to bring to Parliament next week. The prime minister said that the first bill would introduce measures aimed at tackling the "humanitarian crisis," including the provision of free electricity to 300,000 households living under the poverty threshold.

    The second bill relates to the introduction of a new payment plan for overdue taxes and social security contributions. The scheme is set to allow applicants to pay in up to 100 installments and will mean that anyone owing up to 50,000 euros cannot be arrested over their debts.

    The third draft law will protect primary residences with a taxable value of up to 300,000 euros from foreclosures. Finally, the government also intends to introduce legislation next week that would pave the way for public broadcaster ERT, shut down in June 2013, to be reopened.

    The Greek people appear to be giving Alexis Tsipras all the room he needs to maneuver. They are showing confidence that he will not cave in to German demands but will rather demonstrate real progress on multiple fronts that Germany will be very hard pressed to gainsay.

    Add your comment.

  4.    Greek PM accuses Spain, Portugal of anti-Athens 'axis' | Reuters

    Certainly true concerning Spain:

    …Alexis Tsipras accused Spain and Portugal on Saturday of leading a conservative conspiracy to topple his anti-austerity government, saying they feared their own radical forces before elections this year.

    "Their plan was and is to wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries," he said, adding: "And mainly before the elections in Spain."

    Spain's new anti-establishment Podemos movement has topped some opinion polls, making it a serious threat to the conservative People's Party of Prime Minister Mariano Rajoy in an election which must be held by the end of this year.

    Prime Minister Alexis Tsipras has made a smart move there concerning European public opinion, bringing the issue to the fore where it belongs.

    He's been walking a tightrope over a minefield and doing so very deftly. That is not lost on the Greek people, who hopefully now have a much more worthy government in a long, long time.

    The German people should get behind Syriza as being good for Europe, which relatively speaking, it most certainly is.

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  5.    globalinequality: What remains of Pareto?

    Branko Milanovic:

    It is just a minor simplification to say that Pareto thought that there was an iron law of income distribution, namely that inequality did not change whatever social system was in power. It gave consistency to his theory of the circulation of the elites, because whatever elite be in power (land-owning, capitalist or bureaucratic), income distribution would be the same although the people who would be rich or poor would be different. It was a serious critique of the idea that Marxist socialism would reduce income inequalities.

    … What he said of Marxist socialism proved half true and half false. Socialist systems indeed created a "new class", with incomes depending on bureaucratic position and no longer on ownership of assets. But socialism also succeeded in reducing the spread of income which Pareto believed impossible.

    Add your comment.

  6.    The Costs of Grexit by Jean Pisani-Ferry – Project Syndicate

    Jean Pisani-Ferry:

    Market tension has eased considerably; Ireland and Portugal are not under assistance programs anymore; the eurozone financial system has been strengthened by the decision to move to a banking union; and crisis-management instruments are in place. A Grexit-induced chain reaction would be significantly less likely.

    But it does not follow that the loss would be harmless.

    It's strange to us that he didn't mention Spain. Plus, Portugal isn't exactly booming. We could go on and discuss Italy's and France's problems too, but you get the point.

    Add your comment.

  7.    Leverage on CMBS Multifamily Loans Gets Higher | Multifamily content from National Real Estate Investor

    CMBS lenders continue to offer financing to properties and buyers who may not find financing from other sources. Interest rates for CMBS loans continue to be roughly 15 basis points higher than the leading competition for comparable properties—usually provided by Fannie Mae or Freddie Mac lenders, experts say. As a result, most CMBS loans are being made in secondary or tertiary markets to Class-B or lower multifamily properties.

    These properties are also showing more strength as the economic recovery is finally spreading towards the relatively low-income renter who rent these apartments, allowing rents to rise. "We have seen a lot of rent growth," says JLL's Board.

    Add your comment.

  8.    Debt Collective: 'Corinthian Fifteen' Demand Free College Education, Refuse To Pay Student Loans

    Unfortunately, there could be catastrophic effects on the economy if a large enough percentage of students take heed of Debt Collective's message and default on their student loans. This is similar to how the housing bubble bursting caused the Great Recession, but that financial crisis only involved $900 billion, not the $1.2 trillion in student loan debt.

    We disagree.

    It would be an extremely easy matter for all such debt to be forgiven. The US government could simply create the money and pay off all the loans. Then, all college education could be similarly funded.

    Doing that would put needed money to work in the real economy. The debt-money would disappear because there would be no new student loans to replace the old. The new money pumped into colleges and universities would ramp up educational provisioning. The whole economy would benefit.

    The only people who would have to find a different source of gain would be the student-loan lenders.

    Add your comment.

  9.    The Negative Way to Growth? by Nouriel Roubini – Project Syndicate

    Nouriel Roubini spells it out.

    Why would anyone want to lend money for a negative nominal return when they could simply hold on to the cash and at least not lose in nominal terms?

    Add your comment.

  10.    A hated rally – YouTube

    There's no doubt that the Fed's actions have been behind the stock markets.

    Add your comment.

  11.    HSBC Offshore Tax-Evading Scandal Widening – YouTube

    Bill Black explains how the bankers got away with it and still are.

    Add your comment.

  12.    Nonresidential Construction Spending Dips in January | Associated Builders and Contractors

    Good analysis:

    Nonresidential construction spending fell 2 percent in January, which is the largest setback to spending since January 2014, according to the March 2 release from the U.S. Census Bureau. However, at $614.1 billion on a seasonally adjusted, annualized basis, nonresidential construction spending still is 4.8 percent higher than one year ago. In addition, the spending estimate for December 2014 was revised downward from $627.1 billion to $627 billion and November's figure was revised from $624.8 billion to $621.9 billion.

    "Interpreting January construction statistics is always tricky because the seasonal adjustments can never precisely reflect the impact of any given winter or weather system," said Associated Builders and Contractors Chief Economist Anirban Basu. "New England, among other places, was hit heavily by snow in January and this could explain the monthly decline in nonresidential construction spending.

    "Additionally, nonresidential construction spending enjoyed positive momentum through the end of 2014 and, until January, had registered spending growth in five of the previous six months," Basu said. "It is also possible that the West Coast port slowdown impacted construction volumes, including by reducing material availability."

    Add your comment.

  13.    Will the Patient Protection and Affordable Care Act (ACA) Stand or Fall?

    At issue: Are tax credits legal in a state where the federal government created the exchange rather than that state? tate_School_and_Hospital#Halderman_v._Pe nnhurst_State_School_and_Hospital -burwell-history :

    "During the time the Act was under consideration, no Member of Congress ever suggested that tax credits would be available only in States that established their own Exchanges—even though the language on which petitioners rely was in draft bills for months before the Act was enacted," the government writes in its Supreme Court brief. "Any such suggestion would have produced a firestorm of controversy, but there was none." n/2015/03/02/17-errors-omissions-in-voxs -otherwise-excellent-history-of-king-v-b urwell/ :

    This week, the Supreme Court will hear oral arguments in King v. Burwell, one of four legal challenges to an IRS regulation that purports to implement the Patient Protection and Affordable Care Act, but in fact vastly expands the IRS's powers beyond the limits imposed by the Act. Just in time for oral arguments before the Court, Vox's Sarah Kliff has produced what I think may be the best history of King v. Burwell and related cases I've seen. Still, there are a few important errors and omissions, listed here in rough order of importance.

    Add your comment.

  14.    Years of Sewer Backups in South Dakota Town Prompt Lawsuits

    All homeowners can insure against such risk, which many do, and unfortunately some do not.

    Well, premiums go up with too many claims, and some policies don't get renewed.

    For repeat events or occurrences, try an anti-sewer-backup valve. Perhaps installing one before even a first-loss event would be wise.

    Add your comment.

  15.    Massachusetts Official Surveys Storm Damage Along Coast

    "Overall it's a story of the coastline being pounded."

    Add your comment.

  16.    mainly macro: Eurozone fiscal policy – still not getting it

    Simon Wren-Lewis:

    When monetary policy is stuck at the Zero Lower Bound, it is crazy to balance the output gap with what is your main instrument for correcting that gap, which is fiscal policy. Getting the fiscal gap right is important in the longer term, but in the short term it is the means by which you get the output gap to zero. As the studies mentioned at the beginning of this post show, the current recession is the result of trying to correct the fiscal gap at completely the wrong time. The right policy is to get the output gap to zero, so interest rates can rise above the ZLB, and then you deal with the deficit. Readers of this blog and the blogs of others must be sick and tired of seeing us make this same point over and over again, but the logic has yet to get through to where it matters.

    We want you to hammer and hammer and hammer on it until the Austerian ideology is crushed forever.

    Add your comment.

  17.    Does The Fed Have a Currency Problem? – Tim Duy's Fed Watch

    Why is core-inflation drifting lower? Federal Reserve Chair Janet Yellen offered this in her testimony last week:

    But core PCE inflation has also slowed since last summer, in part reflecting declines in the prices of many imported items and perhaps also some pass-through of lower energy costs into core consumer prices.

    While oil prices have stabilized, the dollar continues to gain ground, hitting an 11-year high today:

    If the dollar continues its upward gains – as might be expected given divergent monetary policy across the globe – further downward pressure on core-inflation is likely.

    That's exactly right. Where we differ with Tim is in that we see the Fed being more dovish.

    Add your comment.

  18.    Greece's Next Move – The New Yorker

    James Surowiecki:

    …the Grexit, was off the table, because Syriza had campaigned on staying in the eurozone, and polls show that this is what most Greeks want. But they may soon need to reconsider.

    The conventional wisdom is that returning to the drachma would be a catastrophe for Greece. Certainly, it would be traumatic: there would be an immediate devaluation; the value of savings would tumble; the price of imported goods would soar. But Greek exports would become cheaper and labor costs even more competitive. Tourism would likely boom. And regaining control of its monetary and fiscal policy for the first time since 2001 would give Greece the chance to deal with its economic woes.

    The conventional wisdom is wrong.

    We want Greece to stay but not because returning to the drachma would be a catastrophe. It wouldn't.

    We want Germany to change so Europe will finally grow up together.

    The Germans are still being way too nationalistic. They are not leading the EU but should and only will by being European first, democracy first, integration first in the political, monetary, and fiscal senses.

    Union needs to mean completely united as one nation-state: Europe.

    Add your comment.

  19.    Roubini: Robust US Growth, Bumpy Landing for China, and No Grexit | Middle East Investment Conference

    The United States is showing robust growth, China will have a bumpy landing, the oil price decline is a net positive for the global economy, and a Greek exit (Grexit) from the euro monetary block is unlikely, said distinguished economist Nouriel Roubini while delivering the closing keynote address at the 2015 CFA Institute Middle East Investment Conference in Kuwait City. In his characteristically enthusiastic style, and without using any slides or notes, Roubini gave a comprehensive review of the global economic outlook to an attentive audience of investment professionals. Here are the highlights.

    We disagree with him concerning the Saudis' motive for keeping oil prices low. They are killing several birds with one stone.

    We disagree even more with him concerning Russian intentions. Vladimir Putin isn't Trotsky (or Stalin), not even close, but it's true he isn't a pushover either.

    Add your comment.

  20.    Europe's Sovereignty Illusion by Javier Solana – Project Syndicate

    Javier Solana:

    The European Union has taken democratic integration — driven by the free will of its members, rather than military force — to unprecedented levels, securing its place at the forefront of institutional innovation. But today, sentiment in the EU seems to lean toward "conflict," rather than "cooperation."

    Some member states are touting their sovereign right to embrace unilateral action, even as they request financial assistance, while others are acting as mere creditors, ignoring the social suffering that the current debt crisis has caused. To return to the path of innovative integration, the EU needs a new framework for public debate that underpins effective cooperation among partners and friends, instead of fueling conflict among seemingly irreconcilable rivals.

    We largely agree with Javier's piece; however, if Germany won't change, Greece should definitely leave.

    Add your comment.

  21.    Austerity Is Not Greece's Problem by Ricardo Hausmann – Project Syndicate

    Ricardo Hausmann:

    …by 2007, Greece was spending more than 14% of GDP in excess of what it was producing, the largest such gap in Europe — more than twice that of Spain and 55% higher than Ireland's.

    Yes, but you shouldn't make the whole Greek people unnecessarily suffer due to bad prior government that drank the Goldman Sachs Kool-Aid: 012-03-06/goldman-secret-greece-loan-sho ws-two-sinners-as-client-unravels

    Add your comment.

  22.    Goldman Secret Greece Loan Shows Two Sinners as Client Unravels – Bloomberg Business

    We linked to this in the post above but want to draw extra attention to it. It's a large reason for Greece's current problems, and Germany should be targeting those who did the bad deal rather than making the common Greek people pay and pay and pay.

    Does Germany have closer ties with Goldman Sachs or with fellow EU and eurozone member, Greece?

    Is Goldman Sachs Europe or is Greece?

    Add your comment.

  23.    China's Dual-Track Challenge by Andrew Sheng and Xiao Geng – Project Syndicate

    The latest year-on-year data, from January, highlight the danger. The consumer price index dropped to 0.8%; the producer price index fell by 4.3%; exports contracted by 3.3%; imports were down by 19.9%; and growth of broad money (M2) slowed by 1.4%.

    Moreover, the renminbi has come under downward pressure, owing partly to economic recovery in the United States, which has fueled capital outflows. Given huge declines in industrial profit growth (from 12.2% in 2013 to 3.3% last year) and in local-government revenues from land sales (which fell by 37% in 2014), there is considerable anxiety that today's deflationary cycle could trigger corporate and local-government debt crises.

    The balance of the article is the same as always from these authors, Andrew Sheng and Xiao Geng: libertarian capitalism, which won't work.

    Add your comment.

  24.    Michael Shellenberger – Energy and the Economics of Renewables – YouTube

    In this interview we discuss the impact of Schumpeter's concept of creative destruction in economic thinking – and specifically in energy. Most crucially we debate the issues surrounding conservation and the use of new oil and gas technologies in the United States and around the world. The central question is whether moving away from coal and into shale – rather than directly into renewables – is a worthy move from an economic as well as environmental point of view. We also discuss the economics of renewables and what economic policy can do to foster cleaner energy and more sustainable development.

    We didn't hear water pollution and earthquakes mentioned concerning fracking. We also didn't hear about rapid advancements in battery technology for storing solar-generated electricity. Were they mentioned and we just missed them?

    Add your comment.

  25.    European Parliament's Martin Schulz says cuts not enough for Greece – YouTube

    German Social Democrat Martin Schulz has found himself at the head of the European Parliament for this crucial stage of the Greek crisis – a hot seat he found time to quit for a short time to talk to euronews' Efi Koustokosta.

    "Finally there is an agreement but what we see is different approaches on the text. The Greek government says it won the first battle but on the other hand the Germans and other international key players say that it's an old deal in new clothing. What do you think?"

    The lack of any mention of the humanitarian crisis in Greece is astounding. They are in a depression worse than the Great Depression in the US, and it's lasting longer. That's in modern-day Europe, which is supposed to be unified. If California let Nevada suffer that way, New Yorkers would be shocked at the Californians.

    Add your comment.

  26.    Greece sets out its first anti-poverty measures – YouTube

    Greece's leftist government is to announce its first measures to help those on or below the poverty line. They are to be approved by parliament in the coming days.

    Rent support, free electricity, food stamps and free access to public transport are just some of the proposals which will cost around 200 million euros.

    The draft bill comes after "Greece reached a hard-fought deal with European leaders."

    Let's not forget the very high suicide rate and all the homeless.

    Add your comment.

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