News: Real Estate, Risk, Economics. Mar. 21, 2015

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Table of Contents
(Click to sections below.)

1) Americans' Expectations for Home Value Growth Grounded Strongly in Past Performance ‹ Zillow Real Estate Research

2) Arctic sea ice reaches lowest maximum extent on record | Arctic Sea Ice News and Analysis

3) Underwater Homeowners Sink Deeper | Zillow Blog

4) Uneven State Rules And Trade Secrets Fuel Fracking Debate | March 16, 2015 Issue – Vol. 93 Issue 11 | Chemical & Engineering News

5) [315] Boom Bust, Fed edition – YouTube

6) NASA | Arctic Sea Ice Sets New Record Winter Low – YouTube

7) [316] Boom Bust, Fed Edition (Part II) – YouTube

8) The Grand at Papago – YouTube

9) The Asian Infrastructure Investment Bank: The infrastructure gap | The Economist

10) Making Space for China by Jim O'Neill – Project Syndicate

11) The Bidding Wars Are Back – Bloomberg View

12) The Agenda to Raise America's Pay | Economic Policy Institute

13) Product Council Outlook for Affordable Housing – Urban Land Magazine

  1.    Americans' Expectations for Home Value Growth Grounded Strongly in Past Performance ‹ Zillow Real Estate Research

    Aaron Terrazas:

    When markets are rising quickly (as they have during the recent housing recovery), consumers tend to underestimate the increase. When markets are falling quickly (as they did during the housing crash), consumers tend to underestimate the fall.

    And it may be easy to criticize consumers' forecasts, but professionals aren't much better.

    Neither are home and apartment developers much better.

    Add your comment.

  2.    Arctic sea ice reaches lowest maximum extent on record | Arctic Sea Ice News and Analysis

    On February 25, 2015 Arctic sea ice likely reached its maximum extent for the year, at 14.54 million square kilometers (5.61 million square miles). This year's maximum ice extent was the lowest in the satellite record….

    Add your comment.

  3.    Underwater Homeowners Sink Deeper | Zillow Blog

    "For the longest time, the housing market was working off its negative equity, and now we've seen a reversal," said Svenja Gudell, Zillow's senior director of economic research.

    We've actually thought all along that this price level should interest bulk buyers. They seem to think that there would be too many headaches dealing with poorer renters. However, with the economy generating more jobs (albeit with plenty of slack remaining), they should reconsider, especially now that they have experience handling single-family rentals.

    Add your comment.

  4.    Uneven State Rules And Trade Secrets Fuel Fracking Debate | March 16, 2015 Issue – Vol. 93 Issue 11 | Chemical & Engineering News

    To protect rivers, lakes, streams, and groundwater from contamination with fracking fluid, environmentalists might argue for federal regulations by the Environmental Protection Agency under the Clean Water Act or Safe Drinking Water Act. But Congress included a provision in the Energy Policy Act of 2005 that forbids EPA from regulating fracking fluids. This part of the 2005 law is nicknamed the Halliburton loophole because it was inserted reportedly at the urging of then-vice president Dick Cheney, a former executive at energy giant Halliburton. Attempts in Congress to reverse the policy through amendments to the law have so far been unsuccessful.

    …the compounds in fracking fluids are not regulated, and disclosure of chemical identities does not address gaps in data about the environmental characteristics and toxicity of these substances, says William T. Stringfellow, an environmental engineer and director of the Environmental Measurements Laboratory at Lawrence Berkeley National Laboratory.

    "Is the chemical biodegradable? What's the water solubility? Does it have a toxicology profile?" Stringfellow asks. Without this information, it is difficult for researchers to carry out the risk assessments of fracking fluid chemicals that the public is clamoring for, he adds.

    To estimate the real risk these additives pose, he says, "we need full disclosure of the information in an organized and complete manner."

    We for full disclosure. The protection of underground drinking-water and people's health should easily far outweigh any fracking company's right to protect any trade secret.

    Add your comment.

  5.    [315] Boom Bust, Fed edition – YouTube

    Good debate, and we're glad there will be a Part 2 [we have "Part II" below]:

    Over the past six years, the world's major central banks have lowered interest rates and expanded their balance sheets to varying degrees, all in an effort to stimulate growth. But are the central banks getting the job done or are they doing more harm than good? Can twelve guys and gals in a room make effective decisions about one of the central inputs into our economies, interest rates? Or are policy errors all but inevitable? To answer these questions, we brought together four economists and commentators of with different ideas to debate whether central banks are good for the economy. In part one of this panel debate, we discuss the US Federal Reserve.

    To discuss the Fed and central banking in general, we were joined by a panel of guests including Peter Schiff, CEO of Euro Pacific Capital; Marshall Auerback, director of institutional partnerships at the Institute for New Economic Thinking; Mark Weisbrot, co-director of the Center for Economic and Policy Research; and Richard Ebeling, BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. Take a look at what they had to say on policy and regulation within the central banking systems across the world.

    Marshall Auerback's observation of "status quo ante" is exactly right. However, the stronger dollar really is extremely important concerning whether the Fed can avoid more QE. So, hat tip to Peter Schiff, though we think he's being a bit too confident about it. Also, status quo ante and bubble really is the same thing.

    The Fed thinks it can re-inflate but with stress tests and rules in place and enforced that will prevent a bursting. The rest of the world isn't playing along though because its engaging the US in the currency wars.

    What we want to see is less protecting of the bankers and more emphasis on full employment. If that means simplifying the system and letting the banks fail (which could include nationalizing them and whether temporarily or not), then so be it.

    As for the Fed's monetarism versus a "free market" approach, we had that "free market" approach before the Fed. It wasn't pretty (more recessions, deeper recessions, runs on banks, etc.; Mark Weisbrot made the point after we made that note while we were watching along).

    That said, a "free market" approach is definitely not the only option. Democratizing the currency is another and vastly better approach. Of course, Marshall emphasized simplifying banking, which by his FDIC-mention, we take as suggesting that killing Glass-Steagall was a terrible idea (which it was, along with a number of other bad deregulation-changes).

    We really like Mark Weisbrot's focus on wage rates and the like. The Libertarians will argue that it's inflationary, but the truth is that less of the profits could go to top executives.

    As for the Fed being able to control things, well, at the zero lower bound or even negative rates, they've been stuck. Otherwise, we think they do have the data and enough variables being watched and enough history now (along with the cold shower to wake them up) that they can tune the economy but not alone. Fiscal policy, as Marshall mentioned, is even more important. What they aren't going to do again is repeat the Greenspan era where he left rates way too low while pointing out "irrational exuberance."

    Add your comment.

  6.    NASA | Arctic Sea Ice Sets New Record Winter Low – YouTube

    Arctic sea ice has reached its peak winter extent for the year, and it's the lowest winter maximum on record.

    Add your comment.

  7.    [316] Boom Bust, Fed Edition (Part II) – YouTube

    As with the prior segment (Part I above), we will be taking notes and generating our commentary as we watch and listen along. Therefore, if we write what some other panelist also stakes out, it won't mean that we're trying to steal anyone's thunder but rather that great minds think alike (ha).

    Peter Schiff actually says that the FDIC is the problem. It makes us wonder just how far Peter would go. It would be nice were the show's hosts to ask him if he's an anarchist (albeit a capitalist one). How in the world would average depositors be able to conduct sufficient due diligence concerning a depository institution not to be wiped out by a crafty bank that can fudge financial statements and buy high ratings? Without consumer protection, people with other things to do would be at the mercy of wolves who would enter the banking system and make the current crop of bankers look like saints by comparison.

    As for the current bubble, it's mostly in derivatives and due to insufficient regulation, not too much of it.

    As for the Great Depression happening on the Fed's watch, that's true; however, the Fed did the opposite about it than it just did concerning the Great Recession, which is part of the reason it wasn't worse than the Great Depression. In response to the crash and Great Depression, the Fed did not increase the money supply. Through QE, it did increase it this time, though the money didn't move into the real economy much, which has been the problem all along. The government's fiscal stimulus did move more money into the real economy but not nearly enough by magnitudes of order. The stimulus should have been at least three times as large just for starters, and there should have been at least another round of it at that increased size.

    Peter mentioned volatility and then the great growth of the country before the Fed, as if that made the volatility okay or even good. People were greatly hurt in each recession and depression before the Fed. Only the Great Depression was comparable. The Great Recession has been underpinned by what didn't exist back before the Fed: a New Deal welfare state (safety net), no thanks to the laissez-faire types like Peter.

    Peter than goes into defending deflation without saying that there is good versus bad deflation. Debts are much harder to pay with a deflated dollar. People hold off on purchases hoping that the price will be still lower tomorrow. That all slows the economy. It cuts demand. In general, supply doesn't remain profitable going in that direction. Businesses cut back. It becomes a vicious downward spiral.

    Then he speaks to the fiscal deficit and calls for spending cuts at a time when even yet, the private sector is still deleveraging, as if everyone (private and public) slowing spending by avoiding increasing debt will stimulate the economy.

    Mark's chiming in by pointing out Europe's austerity errors was right on while Richard Ebeling replied that Europe's problem is too much regulation but also that inflation isn't good. Well, it isn't that the central bankers think inflation is good. It's that they think they need to stay away from deflation and that there is a Phillip's Curve wherein a certain amount of manageable inflation allows for lower unemployment and higher wages.

    Marshall amazingly stands right up to the laissez-faire ideology, calling the austerity "poison." We must say that we fully agree with him that QE is woefully inadequate (our terms). He was referring to the fact that banking reserves can simply just sit there or are used to back speculation rather than to make solid loans (though the American and European systems are different). We are much less familiar with the German public banks (state- versus privately owned).

    Concerning the Fed, we think it hasn't had much to do with the recovery. It did though rescue the banking system (short of nationalization, which we advocated).

    Peter says that government can't stimulate the economy by spending. We couldn't disagree more. It was government spending via the New Deal and going into and through WWII that got the US completely out of the Great Depression. It was a cut in fiscal spending that caused the 1937-38 recession right in the midst of the recovery from the Great Depression, which 1937-38 recession Roosevelt quickly reversed by going back to spending.

    We hope you enjoyed both the show (both parts) and our commentary.

    The concept of central banking leaves many people scratching their heads. To get some insight, we were joined by a panel of guests including Peter Schiff, CEO of Euro Pacific Capital; Marshall Auerback, director of institutional partnerships at the Institute for New Economic Thinking; Mark Weisbrot, co-director of the Center for Economic and Policy Research; and Richard Ebeling, BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. Take a look at part two of the panel discussion to see what they had to say on the ECB and Sweden.

    Add your comment.

  8.    The Grand at Papago – YouTube

    This is one way JLL puts a real-estate project over. Note the household formation and rental stats at the end: just what we've been saying on this blog for months and months (toot-toot).

    A Legacy in the making

    Add your comment.

  9.    The Asian Infrastructure Investment Bank: The infrastructure gap | The Economist

    This is our take as well:

    The accession of so many financially strong shareholders to the AIIB will indeed make it more likely that the bank will adhere to the same sorts of standards that govern the World Bank and other international financial institutions. That is good for China's hopes of getting a decent return on its investment in the AIIB, but less so for any residual ambitions its leaders may have that the bank might become an arm of Chinese foreign policy.

    Add your comment.

  10.    Making Space for China by Jim O'Neill – Project Syndicate

    Jim O'Neill:

    By founding the AIIB and the New Development Bank, China and other emerging powers have signaled that they will not wait for their voices to be better heard. And decisions like that of the UK — and France, Germany, and Italy — show that they are not alone.

    Add your comment.

  11.    The Bidding Wars Are Back – Bloomberg View

    A relic from the days of the housing boom is making a comeback. The share of sales that feature bidding wars is up.

    It will help keep rent rates high too.

    Add your comment.

  12.    The Agenda to Raise America's Pay | Economic Policy Institute

    Lots of interesting ideas (food for thought and action):

    There is now widespread agreement across the political spectrum that wage stagnation is the country's key economic challenge. Wages for the vast majority of American workers have stagnated or declined since 1979—and wage stagnation's reach has broadened over the last dozen years to include college-educated workers.

    This is not a crisis of overall income growth. Over the same period that most workers' wages have stagnated, economy-wide productivity has risen by 64 percent. In short, the potential has existed for adequate, widespread wage growth over the last three-and-a-half decades—but these economic gains have not trickled down to the vast majority.

    As EPI's Raising America's Pay initiative shows, wage stagnation is not inevitable. It is the direct result of public policy choices on behalf of those with the most power and wealth that have intentionally suppressed wage growth.

    Because wage suppression stems from intentional policy choices, it can be reversed by making different policy choices. To boost Americans' wages, policymakers must intentionally tilt bargaining power back toward low- and moderate-wage workers. The following policies will generate robust wage growth and ensure that America's prosperity is broadly shared.

    Index minimum wage and overtime limits to price inflation at the same rate that existed when both provided workers with the highest pay relative to the then prevailing price-inflation rate.

    So long as we live in a mixed economy, collective bargaining appears to be a necessity to keep wages from falling so low that the vast majority live in poverty.

    As for immigration, it's a political land mine.

    Racism and ethnic bigotry are wrong. However, do we want open borders where anyone may enter the country and once in, be automatically granted the right to live in the country permanently and to obtain work and all the same benefits of full citizenship? To what extent is criminal background and criminal intent the issue? To what extent is overcrowding part of the issue? To what extent should entry against prevailing laws be something that should disqualify someone? Should political refugees ever be turned away?

    Those and other questions on the issue of immigration are being heavily discussed and debated.

    For our part, we'd like to see public policies and practices be designed and enforced around helping decent, struggling people as much as possible and feel that such people are only a blessing to the nation.

    Add your comment.

  13.    Product Council Outlook for Affordable Housing – Urban Land Magazine

    If you want to know some of the key things to consider concerning bringing forth affordable housing in the US, this is a good place to start.

    Experts on affordable housing and members of ULI's Affordable/Workforce Housing Council discuss how to make affordable housing less costly to build and more supportive for residents.

    Add your comment.

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