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↑ JPMorgan directors raise Dimon’s pay after prior cut | Reuters
(Reuters) – Jamie Dimon, chairman and chief executive of JPMorgan Chase & Co (JPM.N), got a 74 percent pay increase for 2013, when $20 billion of legal settlements weighed on the bank’s income.
The CEO received $20 million, including $18.5 million of restricted stock recently awarded, the company said in a public filing on Friday. Dimon’s base salary is $1.5 million.
Dimon was paid $11.5 million for 2012, half the $23 million compensation in each of the prior two years, according to company filings, after the company lost $6.25 billion on bets known as the “London Whale” derivatives trades. When those trades first came to light in April 2012, Dimon dismissed them as a “tempest in a teapot”.
Most employees at JPMorgan did not get pay increases for 2013 because profits declined as a result of high legal bills to settle government and private claims against the bank.
This is a moral hazard. This is rewarding huge, predictable errors and what William K. Black calls accounting-control fraud on an unprecedented scale.
↑ How Far Will Your 2014 Housing Dollar Stretch? | Zillow Blog
Vera Gibbons, a financial journalist based in New York City, is a contributor to Zillow Blog. She thinks inflation in pretty much everything will continue apace and names house prices and mortgage rates and also mentions residential-rent rates, due to a lack of construction. We think it’s especially too early to be sure about mortgage rates.
According to a recent report by Harvard Joint Center for Housing Studies, half of all U.S. renters are spending more than 30 percent of their income on rent, up from 19 percent a decade earlier.
↑ New Loan Safeguards Leave Path for Higher-Risk Borrowers – Bloomberg
Interesting report on a little-known topic that won’t stay that way:
Exempt HFAs [Housing-Finance Agencies] can make any type of loan without exposing themselves to liability under the CFPB’s [Consumer Financial Protection Bureau] rules.
Anthony Sanders, a professor of real estate finance at George Mason University in Fairfax, Virginia, said the HFA loans may fail if home prices fall again.
“There are still enormous risks to low down payment loans,” Sanders said. “You’re putting borderline borrowers into risky products again. We’re going to repeat the same experiment, this time at the state level.”
… Fannie Mae guarantees 3 percent down mortgages from the state agencies because of their low default rate.
MassHousing and other HFAs also benefit from Fannie Mae’s risk-sharing program, which allows them to avoid requiring mortgage insurance. …
The Illinois HFA goes further than MassHousing, providing borrowers up to $10,000 in down payment and closing cost assistance. Borrowers bring as little as $1,000 to [the] table. The group’s average credit score is 695.
The default rate is low; but if there’s another crash, it could become extremely difficult for those borrowers. Let’s hope they are buying less home than they can “afford” under the programs — less by at least 20%.
↑ Contagion Spreads in Emerging Markets as Crises Grow – Bloomberg
Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.
The International Monetary Fund predicts that the growth advantage of emerging markets over advanced economies will shrink this year to the smallest since 2001. The Washington-based group kept its expansion forecast for developing countries this year at 5.1 percent on Jan. 21, while raising the outlook for advanced economies to 2.2 percent, from the 2 percent estimated in October.
A Bloomberg customized gauge tracking 20 emerging-market currencies fell 0.4 percent to 89.8 today, the lowest level since April 2009. The index has tumbled 9.7 percent over the past 12 months, bigger than any annual decline since it slid 15 percent in 2008.
While differentiation is important, the end of China’s “investment and export boom” may still put emerging-market currencies on a declining trend, according to Morgan Stanley.
“We continue to see the risks surrounding China’s macro trajectory as having a negative impact on EM,” Rashique Rahman, the New York-based co-head of foreign-exchange and emerging-market strategy at Morgan Stanley, wrote in a note yesterday. “As capital costs rise and investment slows, commodity prices should come under pressure, boding poorly for economies linked to China’s old growth model.”
↑ The most – and least – expensive Bay Area cities for renters – San Francisco Business Times
Nice little article by Blanca Torres:
The city with the lowest average, Antioch, has an average rent of $1,120, which represents a 5.5 percent bump in growth during 2013. In comparison, the most expensive city (you guessed it!) San Francisco boasted an average rent of $3,056 with 10.6 percent growth during the past year.
So within a 50-mile radius, rents can drop by nearly two-thirds.
… What can those cities do to offer more perks of urban living: active streets, cool restaurants and bars?
Tech workers are going to continue maturing, and many will want to have families, perhaps smaller families by historical standards but still. Therefore, be prepared for them wanting more family oriented communities.
↑ Are rental bonds driving up the rent? | HousingWire
Rep. Mark Takano, D-Calif., sent a letter to House Financial Services Committee Chairman Jeb Hensarling and Rep. Maxine Waters, D-Calif., asking for an investigation into rental-backed securities deals.
His fear: rental prices are going up, and a surplus of investors in rentals — along with new rental-backed securities deals — could have the effect of artificially raising rental prices, making housing even more costly in parts of California.
In our view, there’s no harm in thinking ahead before another downturn.
We don’t see Blackstone misgauging the economics of their deals to the extend of causing a catastrophe, but inquiring about such things at this stage is far from panicky but rather prudent.
↑ Why are US corporate profits so high? Because wages are so low | MacroScope
… according to Jan Hatzius, chief U.S. economist at Goldman Sachs:
The strength (in profits) is directly related to the weakness in hourly wages, which are still growing at just a 2% nominal pace. The weakness of wages and the resulting strength of profits are telling signs that the US labor market is still far from full employment.
Companies have been unable to raise prices much because of the economic recovery has been fragile. But they’ve still managed to boost profits beyond anything ever seen before because they’ve got away with employing as few workers as possible at as low a rate as possible.
Why have they gotten away with it? Is the following the answer?
Money buys political decisions even though those with that kind of money are in a very, very small minority and most of the politicians plan to leave politics to join those moneyed people.
If that is the answer and if things aren’t going to change any time soon, renting will remain a well-fixed feature of the US economy.
↑ Former Fed Economists Call For Central Bank to Scrap Fed Funds Rate Target – Real Time Economics – WSJ
To move the rate up in the future, the Fed would have to drain trillions of dollars from the banking system. Under the Gagnon and Sack proposal, the Fed would manage interest rates through two new facilities, one called a reverse repurchase facility and another called interest on reserves, which wouldn’t require the Fed to drain reserves. In effect, it would allow the Fed to push up interest rates even with an enormous balance sheet, which already has $4 trillion in assets.
Our loyal readers will no doubt recognize our call for interest on reserves there.
We are still waiting for an explanation of how money markets would be harmed by interest on reserves.
We’ve laid out our case for adding strings to the reserve accounts and for increasing the call for banks to educate borrowers while retaining skin in the game.
↑ How Washington enables Wall Street to ransack Main Street – OC Housing News
Who benefits from bubbles?
In an ideal world, asset prices would rise and fall gently based on the productive value of the asset; volatility would be minimal; entrepreneurs and corporations would create businesses with viable, long-term prospects; businessmen would be honest and fear punishment for bad deeds; and investors would carefully evaluate the risks and returns of stable and predictable investments. This ideal world would have no asset bubbles. However, that isn’t the world we live in; it’s slow, it’s boring; you can’t make a quick fortune, retire on your yacht, and sail the sea of greed. So we create unnecessary volatility so those who understand the movements of financial markets can profit from those who don’t.
There are two main types of Wall Street desperadoes who profit from financial bubbles: (1) those who serve to inflate asset prices and cash out at the top, and (2) those who recognize value and buy at the bottom. The natural reaction of ordinary citizens and investors is the opposite of those who profit from asset bubbles; ordinary people buy with enthusiasm at the top of asset bubbles, and they sell in despair at the bottom. In both cases, the professional investor takes the other side of the trade.
Unfortunately, that about sums it up.
↑ Push for Fannie, Freddie to fund affordable housing | Inman News
A third of the nation’s senators have sent a letter to Mel Watt, the new head of the Federal Housing Financing Agency, urging him to use funds from mortgage giants Fannie Mae and Freddie Mac to fund affordable housing.
The National Housing Trust Fund (NHTF) and the Capital Magnet Fund (CMF) were designed to send grants to states and nonprofits primarily for affordable rental housing projects, but neither has been funded in five years. The FHFA suspended allocations to both funds when Fannie and Freddie were placed in conservatorship in 2008.
But Fannie and Freddie have since become profitable and paid more than $185 billion in dividends to the U.S. Treasury.
↑ Argentina to Ease Currency Controls After Devaluation – Bloomberg
Argentina scrapped some of its currency controls a day after devaluing the peso as policy makers sought to stem a financial crisis and restore investor confidence by reversing measures that drove foreign reserves to a seven-year low.
The easing of controls is an attempt to stem panic among Argentines, said Siobhan Morden, head of Latin America fixed income strategy at Jefferies Group LLC. “They are hoping it creates less panicky demand for dollars.”
↑ All-cash offers crushing first-time homebuyers – NBC News.com
Why they continue having to rent: Diana Olick:
Insatiable demand from hedge funds, private equity investors and foreign buyers, all armed with ready cash, are elbowing first-time buyers out of the housing market.
First-time buyers tend to purchase lower-priced homes, but all-cash investors have cornered the market on those, leaving little behind. All-cash purchases accounted for 42.1 percent of all U.S. residential sales in December, up from 38.1 percent in November, and up from 18.0 percent in December 2012, according to a new report from RealtyTrac.
The phenomenon is putting up another roadblock for young Americans already assailed by high student loan debt, poor wage growth and less-than-pristine credit.
“Below the surface of last year’s market, a number of unsettling trends started to emerge as a result of rapid and ultimately unsustainable appreciation, setting up a bit of a mixed bag for 2014,” said Zillow’s chief economist, Stan Humphries.
“Affordability issues will help put the brakes on many markets that saw huge appreciation rates, like California and the Southwest, creating volatility that could potentially cause whiplash for homebuyers and sellers.”
↑ MortgageOrb: RealtyTrac: Despite Drop In Foreclosures, Distressed Sales Increased In 2013
Considering that the national foreclosure rate has dropped significantly in the past year, it would make sense that distressed sales also declined, right?
Not so, according to RealtyTrac’s December and Year-End 2013 U.S. Residential & Foreclosure Sales Report, which shows that short sales and foreclosure-related sales – including sales to third-party buyers at public foreclosure auctions and sales of bank-owned (REO) properties – together accounted for 16.2% of all residential sales in 2013, up from 14.5% in 2012 and up from 15.2% in 2011.
REO sales accounted for 9.3% of all residential sales in December, up from 8.7% in November and up slightly from 9.2% in December 2012.
↑ Real Estate Reshaping the Future – YouTube
We’ve covered this before, but this video boils it down and focuses upon 2nd-tier cities.
As the 2014 World Economic Forum Meeting in Davos kicks off, President and CEO of Jones Lang LaSalle, Colin Dyer discusses how real estate is reshaping the future.
↑ Oklahoma real estate briefs for Jan. 25, 2014. | News OK
Austin, Texas-based Aspen Heights said it is moving forward with development of its newest location of cottage-style student housing in Norman, its second property in Oklahoma, after the Norman City Council approved it in December. Aspen Heights will break ground near Classen Boulevard this spring. The 194-unit, 684-bed property is expected to open in time for the fall 2015 semester.
Pretty nice digs for the college set.
↑ Slow real estate growth expected | Local News | The Olympian
The Chinese slowdown will impact the US in many ways. Here’s just one.
The China economy is expected to slow, which could be a challenge for Washington state because China is its No. 1 export partner, he [Washington state’s Chief Economist Steve Lerch] said.
↑ Stocks Fall as Slide in Emerging Markets Sends Bonds, Yen Higher – SFGate
The yield on 10-year Treasury notes fell six basis points to 2.72 percent and touched 2.70 percent, the lowest since Nov. 26. The rate on 10-year U.K. gilts dropped five basis points to 2.76 percent.
Mortgage rates will continue falling if this holds or drops even further.
The Fed may be tempted to take all of this the wrong way and falsely imagine that more tapering will help mortgage rates so therefore only help the economy as a whole, while in reality, this sort of drop in mortgage rates is only a perverse sign that the economy is heading for trouble via the Fed’s premature move and more importantly, the US governments error in not providing more and much better targeted fiscal stimulus.
↑ Social Responsibility Weighs Heavy on Economic Chieftains at Davos – NYTimes.com
Richard Branson of Virgin said those lucky enough to have “made wealth” should support philanthropic causes. “Once you have paid for breakfast, lunch and dinner, once you have paid for your children’s education, once you have a roof over your head, you don’t need that much more,” he said, urging fellow billionaires to give generously.
It isn’t just giving that matters. It’s giving to real causes that aid the poor and others and not simply that make the social life of the super wealthy more comfortable. Some think giving all to the “arts” that they like is just as good as helping those in the direst of poverty. There are struggling artists, and we think it’s fine to help them but not primarily before the starving have been fed.
What’s your view on it?