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↑ Kenneth Rogoff looks beneath the turmoil roiling emerging economies’ equity and currency markets. – Project Syndicate
Kenneth Rogoff, Professor of Economics and Public Policy, Harvard University: “… the Fed’s retreat partly reflects growing confidence in the US economy, which should mean a stronger export market for most emerging economies.” Should, if. Big if.
“… if there ever is a pause in China’s heady growth, today’s emerging-market turmoil will seem like a mere hiccup compared to the earthquake that will ensue.” Now you’re talking.
“There are other notable, if less consequential, fundamentals in the mix. The shale-gas revolution in the US is changing the global energy equation. Energy exporters such as Russia are feeling the downward pressure on export prices. At the same time, hyper-low-cost energy in the US is affecting Asian manufacturers’ competitiveness, at least for some products. And, as Mexico reforms its energy sector, the range of pressures on Asian manufacturing will expand; Mexico is already benefitting from cost pressures in China.” That’s his strongest paragraph, but he’s overstated Mexico’s current situation a bit.
“Unlike in the 1990’s, when fixed exchange rates were widespread, most countries now have shock-absorbing flexible rates.” We shall see how well they do.
↑ How Germany Just Undercut the Euro – Bloomberg
The German Constitutional Court had to rule on whether the bond-buying program complied with German law, which forbids monetary financing of the budget. Following a closely-watched debate in the court last September, most analysts expected it would offer a “yes, but” ruling that accepted the bond buying was legal, pending a few small revisions to make the Germans feel they had more control.
Instead, the German court has surprised many analysts by offering a “no, but” ruling ….
… likely, the bond-buying program will be considered in force and then ruled on retroactively. Given the German court’s position, the Bundesbank could refuse to participate in any bond purchases until the program is adjudicated. The eurozone doesn’t have a banking union, a fiscal union or a political union, but at the very least it can claim to have a fully functioning monetary union. If the largest national central bank refuses to participate in an ECB program, that claim could be called into question, to the great dismay of investors.
Here’s what the Germans want:
… the acceptance of a debt cut must be excluded, that government bonds of selected Member States are not purchased up to unlimited amounts, and that interferences with price formation on the market are to be avoided where possible.
That’s a tough nut.
↑ Student Debt in the News: What It Means for REALTORS®
Why they’ll rent:
Student loans are one of the fastest rising sources of debt. Student loans are of increasing concern in light of the regulations pertaining to qualified mortgages that require a consumer to have a debt to income ratio of no more than 43 percent.1
As of the third quarter of 2013, student debt stood at $ 1.027 trillion or about 9 percent of total household debt, up from about 3 percent in 2003. It is now the second largest component of household debt next to mortgage debt.
↑ Forget the Unemployment Rate, Let’s Talk About the Employment Rate – Real Time Economics – WSJ
Gary Burtless, an economist at the Brookings Institution, calculates that over half of this decline is the result of an aging population. That means it won’t be reversed as the economy recovers and lures discouraged job-seekers back into the workforce.
We wouldn’t bet on it. With lower and middle class retirement funs having been zapped, we think plenty of Boomers will hop back into the population of those looking for work once the economy heats up enough.
↑ Administration reports continued gains in housing help | 2014-02-07 | HousingWire
The U.S. Department of Housing and Urban Development and the U.S. Department of the Treasury sent out its recent self-evaluation and both entities are pleased with the progress of the housing recovery.
However, the report card states that despite positive trends in the housing market, there is still a ways to go.
↑ [Highly Recommended] How to partner with the largest real estate company in the world | Inman News
Alex Perriello, president and CEO of Realogy Franchise Group, talks with Inman News founder and Publisher Brad Inman about a subject of interest to just about every tech startup: how to partner with the largest real estate company in the world.
We must say, the first part of the video can easily apply to just about any industry.
Some industries and those within it just drag and drag and drag their feet, missing out on being at the cutting edge over and over, just watching both retaining and growing market share pass on by.
In the 20 years since the 6.7 magnitude Northridge Earthquake rocked California, the gap between the insured and uninsured has grown exponentially.
↑ Number of the Week: $2 Million Homes Going Like Hotcakes in California – Real Time Economics – WSJ
$2 million: The entry price for California’s fastest growing segment of home sales.
California’s $2 million-and-up home market is sailing past its prebubble highs, even as the rest of the market continues to play catch up. In other words, while the state’s housing market is still on the road to recovery, the number of $2 million-and-up home sales is back to normal.
… these prices aren’t adjusted for inflation ….
If they were adjusted for inflation, it would indicate a major bubble at that price range.
The interesting thing will be to watch what happens as a result of the Fed’s taper, California’s extremely serious drought, and a number of other factors.
↑ Home sellers return for spring market as buyers get relief – Newsday
… as the market’s busiest season approaches, escalating values are spurring more listings as homeowners regain equity lost in the worst crash since the 1930s. While new-home construction at a third of its 2006 peak will keep inventory tight, the supply increase is poised to damp price gains while higher mortgage rates cut into demand.
For would-be buyers, more choice would mean relief from the bidding wars of last year, when the supply was at a 12-year low leading into the key spring season. The period traditionally starts in mid-February, with deals picking up in the following months as weather in much of the country starts to warm.
Buyers of existing homes will face less competition from investors, who have caused shortages in many areas. Bulk purchases will start to slow as the foreclosure crisis fades and bargains disappear, according to Khater of CoreLogic. Multibillion dollar private-equity firms such as Blackstone Group LP — which helped drive up prices by buying thousands of single-family homes to rent in Arizona, California and Florida are already looking elsewhere.
The township manager said that he is still working to get property owners in compliance with the “vacant properties ordinance.” Under that ordinance, owners of properties vacated for more than 60 days must register with the municipal Code Enforcement Office, pay a $500 initial fee, pay $250 in additional fees every six months, and pay for property violations such as overgrown lawns.
A 60-day vacancy isn’t that unusual in some parts of the country. Forking out such additional money could present a hardship. However, these owners are unresponsive and may lose their properties altogether.
↑ [Highly Recommended] World risks deflationary shock as BRICS puncture credit bubbles – Telegraph
Ambrose Evans-Pritchard gives a fantastic global overview of the huge economic mistakes being made that are the result of earlier mistakes: bad actions and bad reactions to those. The following is just a snippet on the Fed.
Growth of M2 money has been slowing even faster than it did in the nine months before the Lehman crash in 2008, but then the Fed no longer pays any attention to such data so it may all too easily repeat the mistake. The Fed is surely courting fate with $10bn of bond tapering each meeting into the teeth of incipient deflation, as Minneapolis Fed chief Narayana Kocherlakota keeps warning.
↑ Fannie To Allow Walkaways by On-Time Borrowers: Mortgages – Bloomberg
This is a smart move on the part of Fannie Mae and Freddie Mac, but qualifying by the underwater homeowners will be tough.
It will be interesting to see how many homes come on the market as a result. Will it register as more than a blip?
Fannie Mae (FNMA) and Freddie Mac will let some borrowers who kept up payments as their homes lost value erase their debts by giving up the properties, helping Americans escape underwater loans while adding to losses at the mortgage giants bailed out with $190 billion of taxpayer money.
Non-delinquent borrowers with illness, job changes or other reasons they need to move will become eligible in March to apply for a so-called deed-in-lieu transaction that erases the shortfall between a property’s value and the size of its mortgage. It follows a change in November that lets on-time borrowers sell properties for less than they owe, known as short sales, wiping out the remaining mortgage debt. Normally, the lenders could pursue people to recoup their losses.
↑ Office Trends Q4 2013 | Reis Reports
Reis VP of Economics & Research, Dr. Victor Calanog, provides an update on Office sector performance for the 4th quarter of 2013.
Vacancies have declined by 10 basis points or less since the fourth quarter of 2007.
Occupancy improved in 39 out of 82 primary markets.
Acceleration in rent growth is expected during 2014.
He hits it right on the head when he discusses job numbers. We’ve been calling for jobs, jobs, jobs. Now is not the time for austerity.
The time to trim the deficit is when unemployment is extremely low and inflation is scary. We aren’t facing either of those right now. In fact, with the decrease in the labor-market-participation rate, which is far from fully attributable to those desiring early retirement (under such tough times?), and with the Fed’s taper (premature), we face disinflation and a slowdown, which will only exacerbate problems.
Can the US economy pull out the hard way? Yes, but why do it? We could have private enterprises fail and deal with them as nationalized (perhaps temporarily, as we did with AIG) entities rather than liquidate millions of productive jobs.
↑ State Lawmaker Wants All Insurance Fraud To Be A Felony – CBS Denver
Colorado has no crime of insurance fraud, but that could soon change.
Insurance fraud nationwide has grown to an $80 billion a year racket.
“That’s just going to go back to persons like me and you and other consumers, and our rates are going to go up,” Williams [Rep. Angela Williams] said.
↑ 2 Owners Surrender in Deadly Bangladesh Factory Fire – TheStreet
The two owners of a Bangladesh garment factory who are facing homicide charges for a 2012 fire that killed 112 workers surrendered to a court Sunday and were denied bail.
The factory outside the capital, Dhaka, which produced clothing for big retailers including Wal-Mart (WMT_) had no emergency exits, and its location in a narrow alley prevented firefighters from responding quickly to the deadly blaze in November 2012, said prosecutor Anwarul Kabir Babul.
These people didn’t even try Loss-Control Procedures. It was all about making as much money as possible under a very short-term vision. That’s come back to haunt them.
Be sure you have the very best Safety and Loss-Control Policies and Procedures in place and that you use them faithfully.
People’s lives are depending on it.
FORT WORTH, Texas — Researchers collecting seismic data hope it allows them to determine what role wastewater injection wells have played in a string of small earthquakes northwest of Fort Worth.
The area in northeast Parker County, about 15 miles northwest of Fort Worth, has experienced more than 30 small earthquakes since November. Last month more than 30 area residents traveled to Austin to ask the Texas Railroad Commission to consider shutting down injection wells there, but the commission said it didn’t have enough information.
University of Texas researchers studied seismic data gathered in the Barnett Shale between 2009 and 2011. Cliff Frohlich, senior research scientist at the university’s Institute for Geophysics, concluded that “injection-triggered earthquakes are more common than is generally recognized.”
↑ EconoMonitor : EconoMonitor – Better Capital Controls, and Less Interest Rate Hikes, Are What EMs Need
Christian R. Proano:
Can capital controls help EMs gain more macroeconomic independence and be less affected by volatile capital flows? Previous experience of some countries which have gone down this road, like Brazil and South Korea, seems to support this notion. In fact, given the (at least partially) successful experience on capital controls by certain countries, EMs should think of more sophisticated ways to implement such measures, for example through the design of pro-cyclical capital control rules which would automatically adjust to the need and availability of foreign capital according to predefined macrofinancial conditions.
Unfortunately, instead of following this or a related approach to ease the pressure on their currencies, some EMs like Turkey have opted for a policy of interest rate increases. While the rationale for a hiking rates is straightforward, the experience of previous episodes of financial turmoil suggests that interest rates increases are seldomly successful in bringing currency sell-offs to a lasting halt, and this previous experience has been corroborated by the recent developments. Furthermore, the main problem relying on interest rate hikes is that it is a double-edged sword: While it may (but most probably will not) succeed in repelling a currency attack, it will most certainly harm domestic economic activity through conventional channels of the monetary policy transmission mechanism.
We totally agree.
↑ Investors warned over real estate risks – FT.com
Two groups of investors in particular are running greater risks than they realise, Mr Hobbs [Peter Hobbs, IPD managing director] said. The first are new entrants to the property market from Asia and the Middle East who are eager to spend and do not have a sufficiently sophisticated understanding of property markets around the world.
The second group of investors at risk are large, sophisticated companies that believe they are correctly assessing risk but are using the wrong models and comparisons to do so, Mr Hobbs said. In particular, US-based investors are using domestically focused benchmarking data to assess their performance, despite a substantial proportion of their investments now being overseas.
↑ Real Estate Matters | Condo boards should think twice about limiting rentals
Excellent food for thought before buying a condo to rent out:
I did get permission to rent the condo from the homeowners association and have not had trouble doing so, as it is in a desirable area close to a large university. When I bought, the agreement was that 11 percent of the units could be rented out. The HOA now wants to make changes to this agreement and also change the rules for renting out.
… as far as we know, condominium associations are restricted in what they can do by their governing documents, any condominium laws in your state and court decisions. In some states, condominium boards have great latitude to make and change rules. Yet that power, and how it is used, ultimately comes back to how association members vote.
↑ NY Attorney General Eric Schneiderman Takes On Decaying “Zombie” Properties | New York Daily News
Eric Schneiderman on Monday will announce a plan to tackle thousands of what he calls “zombie properties” in New York.
The vacant properties have been abandoned and go unmaintained because banks delay or don’t complete the foreclosure process. They then become vulnerable to crime, decay, vandalism and arson, Schneiderman said.
↑ Updated 2: New Fed Head Janet Yellen Sticking To The Script – Forbes
… Yellen said that she was surprised [by] the pace employment did not meet her expectations in December and January. However, the data is not expected to be weak enough for the Fed to stop tapering its quantitative easing, she added.
Yellen said the market shouldn’t jump to conclusions when interpreting January’s report because weather could have been a factor for the weaker-than-expected report.
Weather was definitely part, but we don’t believe it accounted for a large percentage.
As we said in a previous post, we suspect that the Fed will have to see another taper cycle of bad news before backing off.
↑ Janet Yellen Humphrey Hawkins Testimony – Business Insider
… Treasuries are taking a hit and the dollar is strengthening …
Some of the recent softness reflects factors that seem likely to prove transitory, including falling prices for crude oil and declines in non-oil import prices.
… We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook. We will, of course, continue to monitor the situation.
The markets are moving in the wrong direction given Yellen’s statements.