Linking ≠ endorsement.
⇧ Assessing the Health of the Labor Market: The Unemployment Rate vs. Other Indicators
The U.S. economy has recently experienced the largest economic downturn in postwar history. Five years have passed since the official end of the recession, yet the difficult question on how far we are from full employment remains.
With unemployment returning to normal levels, it has been argued that the unemployment rate may not properly capture the current amount of slack in the economy; as a result, labor market conditions indexes have been proposed as a new measure of labor market health. These indexes have the advantage of summarizing information from many different variables. At the same time, they are the result of a statistical procedure requiring several steps to compute and a nontrivial amount of judgment.
In this article, I showed that the unemployment rate is reflective of underlying labor market health, as represented by the indexes. In addition, a closer inspection of the figures suggests that this strong link between the indexes and the unemployment rate does not appear to have changed recently, which suggests that the unemployment rate is still as good at measuring labor market conditions as it has been in the past.
We’re sorry, but we don’t feel that this article’s conclusions are nuanced enough.
⇧ 5 banks did very bad things – Bankrate, Inc.
Is it really a punishment to fine giant banks hundreds of millions of dollars? No one seems to have any better ideas to deal with theft on a global scale.
What we aren’t told is how much money the banks made on the schemes. How far up the corporate ladders did the authorization for the schemes go?
“Fischer Says Bankers Should Be Punished for Financial Crimes”: https://propertypak.com/2015/06/02/news-real-estate-risk-economics-june-2-2015/#0602158
⇧ With trade on Congress’ agenda, just what does the U.S. import and export? | Pew Research Center
Trade is without question a bigger piece of the U.S. economy than it was in the early 1990s, when the last major trade deal, the North American Free Trade Agreement, was negotiated. Last year, according to data from the Bureau of Economic Analysis, exports totaled $2.34 trillion, equal to 13.4% of gross domestic product (up from 9.7% in 1992). Imports were $2.88 trillion, or 16.5% of GDP (up from 10.2% in 1992); the difference between the two is the trade deficit.
While the U.S. runs a sizable trade surplus in services (more than $230 billion last year), it’s dwarfed by the $771 billion trade deficit in goods: U.S. goods exports amounted to more than $1.6 trillion last year, but the country imported nearly $2.4 trillion worth of goods.
Supporters argue that TPP would give a much-needed boost to U.S. trade, which has been flat or slightly down since 2011, by opening markets in Japan, Southeast Asia and elsewhere to U.S. products. But opponents say the deal could cost U.S. jobs, limit availability of generic drugs, threaten financial reforms and increase inequality.
⇧ ALERT: Wire Fraudsters Targeting Real Estate Transactions
In recent months, real estate professionals have reported an upswing in a particularly insidious wire scam. A hacker will break into a licensee’s e-mail account to obtain information about upcoming real estate transactions. After monitoring the account to determine the likely timing of a close, the hacker will send an e-mail to the buyer, posing either as the title company representative or as the licensee. The fraudulent e-mail will contain new wiring instructions or routing information, and will request that the buyer send transaction-related funds accordingly. Unfortunately, some buyers have fallen for this scheme, and have lost money.
If a situation arises in which you have no choice but to send information about a transaction via email, make sure to use encrypted e-mail.
It isn’t foolproof, as sophisticated enough hackers can gain access to encryption keys, passwords, signatures, etc., on both the senders and recipients.
⇧ Coppola Comment: The Latvian financial crisis
State-owned banks can serve a useful function as “buffers” in a systemic crisis, as Unibank did in Latvia, provided they are well managed and are “relatively free from political influence”.Perhaps we should not be quite so quick to privatise everything, or to assume that only the private sector can run banks efficiently and effectively?
A century ago, fewer than six percent of all households consisted of people who lived alone. By 2013, that percentage has jumped to 28 percent, with single-person households now making up the second most common household type just behind married couples without minor children (at 29 percent), according to U.S. Census Bureau data. What’s more, single households have now surpassed married households with minor children (19 percent).
Build and buy accordingly.
⇧ Act Local, Solve Global: The $5.3 Trillion Energy Subsidy Problem | iMFdirect – The IMF Blog
The IMF has long argued that getting energy prices right can help national governments achieve their goals not only for the environment but also for inclusive growth and sound public finances. Increasing energy prices gradually and predictably to reflect their true costs would generate fiscal gains of about 3½ percent of GDP. The fiscal gains are less than the total amount of subsidies (6½ percent of GDP) because higher prices would drive down energy consumption.
The fiscal gains from subsidy reform are sizeable and could be a game changer for fiscal policy in many countries. This would give room, for example, for governments to reduce some types of taxes (such as those imposed on labor) that weigh down growth; raise growth-enhancing public expenditure (e.g. for infrastructure, health and education); and finance targeted cash transfers for the poor. Furthermore, there would be appropriate incentives for investment in green technology because dirty energy would no longer be artificially cheap.
The icing on the cake is that the benefits from subsidy reform—for example, from reduced pollution—would overwhelmingly accrue to local populations.
The fiscal implications are mammoth: at US$5.3 trillion, energy subsidies exceed the estimated public health spending for the entire globe. It also exceeds the world’s total public investment spending. The resources freed from subsidy reform could be used to meet critical public spending needs….
⇧ Niall Ferguson’s Wishful Thinking by Robert Skidelsky – Project Syndicate
Keynes never thought that an economy, felled by a shock, would remain on the floor. There would always be some rebound, regardless of government policy. What he emphasized was the “time-element” in the cycle. With depressed profit expectations, an economy could remain in a semi-slump for years. There would be alternating periods of recovery and collapse, but this oscillation would occur around an anemic average level of activity.
Neither the suddenness of the financial collapse of 2008-2009 nor the sluggishness of the recovery since then would have led Keynes to change his mind; nor has it discredited the claims of today’s Keynesians. While Ferguson includes several quotes from my past commentaries, he omits a very important passage: “All economies recover in the end. The question is how fast and how far.” The task of government was — and remains — to strengthen whatever “natural forces” of recovery exist, if necessary by providing businesses with a larger market, and, beyond this, to offset the inherent volatility of private investment through a stable program of public investment.
Keynes was correct for a mixed economy, and a totally capitalistic economy wouldn’t work.
⇧ 7 Inspiring Examples of Multifamily Living | Dwell
These seven residences offer insight to the growing trend of shared communities.
⇧ Confessions Of An Insurance Claims Adjuster | Bankrate.com
Ever wonder what it’s like to be an insurance claims adjuster? We asked New York-based Scott Congiusti, assistant vice president of claims for HUB International insurance brokerage, to take us behind the scenes of a claims adjuster’s life.
⇧ 10 tips to avoid tenant complaints
Question: We own 75 units in 20 buildings. My husband has a good day job and I manage the apartments; it is not easy work. We have had tenants occasionally complain, but we have shrugged it off as sour grapes or “It goes with the turf.” Yesterday we got a complaint letter that several tenants signed, which is upsetting. What makes a good landlord?
Answer: Owning and managing apartments is hard work. Management practices must be tailored to the environment, the clientele and working conditions. That said, there are principles to use that can reduce or eliminate complaints. The result is less turnover, less management intervention and happier employees and occupants.
The article gives some good advice.
⇧ For American pundits, China isn’t a country. It’s a fantasyland. – The Washington Post
… because China is so vast, its successes can be attributed to whatever your pet cause is. Do you oppose free markets and privatization, like John Ross, former economic policy adviser for the city of London? Then China’s success is because of the role of the state. Do you favor free markets, like the libertarian Cato Institute? Then China’s success is because of its opening up. Are you an environmentalist? China is working on huge green-energy projects. Are you an energy lobbyist? China’s building gigantic pipeline projects. Are you an enthusiast for the Protestant work ethic, like historian Niall Ferguson, who describes it as one of his “killer apps” for civilizations? Then credit China’s manufacturing boom to its 40 million Protestants — even though they’re less than 5 percent of its 1.3 billion people.
Finding China’s realities can be hard simply because lying is so common here, whether it’s fraudulent government data, false ambulances or tainted baby formula. The collapse of social trust as a result of decades of Maoism, followed by a get-rich-first ethos, has made honesty a rare quality. With no external controls from a free media or civil society, Potemkinism is an everyday skill across the country, whether directed at outside investors or official inspectors.
In actuality, one of the great strengths of the Chinese system over the past 35 years has been cautious experimentation, from health-care reform to open markets, in a few villages; then, if successful, ramping projects up to the provincial level; then to a national scale. This is how private farming began in 1979. Some of China’s ambitious projects have been genuine successes, some abysmal failures, but most have the mixed and complicated legacies of any political scheme. If we praise Beijing for the wrong reasons, we miss the lessons it is actually t rying to learn.
Washington State has had the highest minimum wage in the nation for several years—at $9.47, it’s a full 30 percent more than the federal minimum of $7.25. Washington’s unemployment rate of 5.5 percent isn’t the best in the country, but it’s not the worst, either. In fact, it perfectly matches the national rate. But Seattle was until recently the fastest growing big city in the country. And speaking of evidence, the first part of the $15 minimum wage rollout was successfully implemented in April, and unemployment in our county promptly plummeted to 3.3 percent.
An even more dramatic example of the goofiness of this so-called “economic theory” is the impact of the wages of tipped workers on the restaurant industry. In Washington, these workers earn at least $9.47 plus tips, a whopping 440 percent more than the federal tipped minimum of $2.13 plus tips. Despite the predictions of “economic theory,” and despite the warnings from the National Restaurant Association that eliminating the tip credit would cause food armageddon, Seattle has one of the most robust restaurant scenes in the USA. Why? Because when restaurants pay restaurant workers enough so that even they can afford to eat in restaurants, it’s really good for the restaurant business. If economic “theory” were correct, if paying workers more resulted in higher unemployment, we would have no restaurants in Seattle.
The most powerful forces in economics are not numbers or facts. They are prejudices and preferences. No amount of evidence will ever change the degree to which many of the rich and powerful prefer themselves to be richer and more powerful, and others poorer and weaker. The $15 minimum wage will work, just like all the other big historical increases in the minimum wage worked. Workers will be better off and unemployment rates will be largely unaffected. But the people who prefer the rich to be richer and the poor poorer, and the economists who are sympathetic to them, will i gnore this evidence in the same way they ignore all of the present and past evidence. It’s really just about deciding which side you’re on.
Having an airtight tenant screening process is one of the best ways that you can protect yourself and your properties from potential devastation. Let’s look at a few tasks that can help you build a metaphoric hedge around your property that helps prevent unsavory tenants from getting in.
Read the article for good advice.
What would you add?
What does their car look like? Is it taken care of?
What about their personal appearance? Are they neat and clean?
Noise? Do they like music, TV, etc.? Do they play musical instruments?
When they are looking at the rental, do they slam around or are they gentle?
⇧ Soaking The Rich Won’t Make America Happy – Will Wilkinson – POLITICO Magazine
When this evidence that money does buy happiness, at both the individual and national level, came to light, the left-leaning prophets of the new politics of happiness did not suddenly change their minds about the wisdom of taxing rich people at high rates. Nor has the relative income hypothesis withered away, despite attempts to confirm it coming up short. It’s still out there on the left delivering comfort to the faithful, much as the dubious Laffer Curve, which suggests that the government can raise revenue by cutting taxes, continues delivers comfort on the right.
The article is based on a confused argument. Whether that’s deliberate, we cannot say.
Readjusting the tax rate back to where it was when the middle and lower economic classes were doing better isn’t about simply increasing people’s sense of happiness in relative terms. It’s about real increases in standard of living and quality of life.
In general, if you give someone living on one dollar a day an extra dollar, of course he or she will feel better. Is that an argument for not greatly increasing the taxes on the superrich? Hardly.
Read the full text of PM Tsipras’ article.
We think he’s making a historic statement.
⇧ Bill Black: Sorkin on the Street’s Surge of Suicides — Ignoring the Obvious | naked capitalism
Earth to Sorkin: Wall Street and the City of London represent horrific failures, not “success.” You do recall that they blew up the global financial economy, right? You recall that they did so by leading the three most destructive epidemics of accounting control fraud in history? You recall that they engaged in at least three massive cartels, two of which were, by three orders of magnitude, the largest cartels in history? You recall that they committed over a million felonies collectively in money laundering/illegal sanction busting for the most violent drug cartels, regimes engaged in genocide, regimes believed by the U.S. and EU leaders to be developing nuclear weapons? You recall that even DealBook now admits that the banksters engage in rampant recidivism and commit massive new felonies even as they settle old felonies without any personal accountability? You recall that in the course of blowing up the global economy they systematically misallocated capital causing waste? You recall the Notre Dame study that shows that Wall Street and City of London finance participants are frequently — and increasingly — convinced that they need to cheat to counter their rival’s cheating in order to avoid being “eaten” in the corrupt “culture” of these two giant financial sectors? Sorkin could, of course, be right that the Wall Street banksters “thrive” in an inherently unethical “eat-or-be eaten culture,” but he has defined a moral and economic failure rather than a “success.”
⇧ New Research Does Not Provide Any Reason to Doubt that CEO Pay Fueled Top 1% Income Growth | Economic Policy Institute
I am skeptical of the authors’ claim that there was not a large rise in the gap between pay of the median worker and the CEOs in large firms. We know that CEO pay grew tremendously in these large firms. I would like to see evidence that median pay in these firms grew correspondingly. Given that a typical worker’s pay in that same industry grew far less than that of the CEOs (this is what our results show) their claim can only be true if the median wage in the firms where CEOs pay escalated grew far faster than the median wage in other firms in the same industry. To believe their claim is to believe that a tremendous pay gap (comparable to what we show between CEOs and workers!) has grown between the median worker in large firms and the median workers in other firms in the same industry. I find this implausible. If it were true it could only have resulted from a huge change in the character of the median worker, such that the median worker used to be a factory operative but now is a software engineer.
… There are many reasons why the divergence in earnings across firms took place, including the “fissuring” of the workplace that David Weil (of Boston University) documented—firms establishing a core scope of work and contracting out all other functions, where the subcontractors end up paying less and bearing the risks. There’s offshoring and other explanations. There is no basis for jumping to some conclusion that we live in the best of all possible worlds. The speculation by the authors of Firming up Inequality about highly productive superfirms is not empirically grounded and, in fact, remains totally unexamined by them using their data.
⇧ Are Apartment Asset Prices Too High? – YouTube
Industry professionals weigh in with their opinions. Who do you agree with? What do you think about prices?
⇧ City seeks to declare landlord of ‘substandard’ properties as ‘nuisance’ | News – Channel3000.com
Officials said Peterson’s repeated violations of municipal ordinance and the continuing complaints from people about the condition of his rental properties qualify him as a public nuisance.
⇧ Former Harbor Properties CEO named new head of Seattle affordable housing group – Puget Sound Business Journal
Bellwether made a splash last month with the opening of the Parker Apartments. To help fund the rehabilitation of the property, Bellwether used money from private investors to redevelop the Parker, where rents are as low as $735 a month.
⇧ Is rent out of reach? Study shows how 11 US cities stack up | Dallas Morning News
Renters’ median household incomes varied widely over the years. Housing experts like to gauge affordability by the percentage of income that goes to housing costs, with anything over 29 percent being rent-burdened. Over 49 percent is considered severely burdened.
On that scale, the landscape is uneven. The percentage of rent-burdened tenants grew in six cities while dropping in the rest, and the findings were full of seeming contradictions. San Francisco had the highest median rent but the lowest percentage of rent-burdened tenants, 45 percent; Miami had a far lower median rent, but 68 percent of tenants were burdened.
One reason: San Francisco renters’ median household income was $61,200 a year, nearly 1.5 times what their Miami counterparts made.
⇧ Mansfield man pleads guilty to real estate scam that netted him $3.5M – The Sun Chronicle : Local News
Michael David Scott was not deemed “Too Big To Fail”; but then again, he wasn’t a mega-banker.
The defendants worked with dirty loan originators to help get the loans approved as well as bank insiders, such as Raetz, to dummy up verifications of deposits so it appeared the unqualified buyers had substantial bank account assets, according to court records.
The mortgage lenders, nine national mortgage companies and a Boston bank, were led to believe that the straw buyers had made substantial down payments and paid substantial sums at closings, according to court records.
⇧ Wall Street’s Trojan Horse: Shelby Bill Deregulates Big Banks in the Guise of Saving Small Banks – Public Banking Institute
… the Senate Banking Committee approved Senator Richard Shelby’s regulatory reform bill for financial institutions. Although the process between committee approval and actual floor debate and passage will take some time, proponents of tougher regulations on big banks are already voicing fierce opposition to the bill, which purports to free smaller banks (those with less than $500 billion in assets) of the more stringent requirements of Dodd-Frank. However, all is not what it seems.
Americans for Financial Reform released a statement about the bill on May 12. They say: …
⇧ Federal Reserve Bank San Francisco | The Puzzle of Weak First-Quarter GDP Growth
The very weak initial estimate of first-quarter real GDP growth this year surprised many forecasters, in part because it was at odds with other fairly positive data, including solid employment gains over the past six months. We show that, although the BEA adjusts for seasonal movements at a disaggregated level, the published real GDP data still exhibit calendar-based fluctuations—that is, residual seasonality. After we apply a second round of seasonal adjustment directly to the published aggregate data, we estimate much faster real GDP growth in the first quarter of this year. We conclude that there is a good chance that underlying economic growth so far this year was substantially stronger than reported.
⇧ Weekly mortgage applications plunge 7.6% on higher rates
Rates took a tiny step backward, but the rise over the past month was enough to deter borrowing.
Would a Fed rise shoot the real estate market?
⇧ Why tech loves quirky, old buildings
The office sector as a whole was hit hard during the recession and has been slow to revive, as mainstream companies look for smaller spaces to house fewer, telecommuting workers. Tech, however, is the outlier, but one that could drive an old sector of the office market into a brave new world.
For a while anyway.
A landlord conference meeting in Oakland, California is interrupted by protesters when landlords and tenants don’t see eye to eye.
Market forces can be unbridled or reined in or …?
Rents rise when demand outstrips supply. Why hasn’t construction kept pace with rising demand in Oakland? What should be done about it, if anything, and by whom?
Should poorer people simply constantly have to move? Is it just their tough luck?
How should society respond? Is there a way to leave the market flexible while taking care of the less economically fortunate?
How should Oakland encourage construction of more rentals to satisfied the growing demand of the “highly-skilled tech-industry professionals” moving into the area and also so those who already live and rent in Oakland may remain in decent, affordable housing, all while not ruining private-sector real-estate investments and investing?
⇧ April Gains for Residential Construction Spending | Eye On Housing
On a year-over-year basis, the pace of single-family construction spending was up more than 9% from April 2014, while multifamily spending was almost 25% higher.
The Census construction data (indexed in the graph below, so that the January 2000 pace is equal to 100 for both variables) illustrate the degree to which multifamily spending is thus far leading the recovery for the residential construction sector. NAHB expects gains for multifamily to slow in 2015….
Let’s hope they’re wrong.
⇧ The Liquidity Time Bomb by Nouriel Roubini – Project Syndicate
Dr. Doom (Nouriel Roubini) is back.
…before the 2008 crisis, banks were market makers in fixed-income instruments. They held large inventories of these assets, thus providing liquidity and smoothing excess price volatility. But, with new regulations punishing such trading (via higher capital charges), banks and other financial institutions have reduced their market-making activity. So, in times of surprise that move bond prices and yields, the banks are not present to act as stabilizers.
…combination of macro liquidity and market illiquidity is a time bomb. So far, it has led only to volatile flash crashes and sudden changes in bond yields and stock prices. But, over time, the longer central banks create liquidity to suppress short-run volatility, the more they will feed price bubbles in equity, bond, and other asset markets. As more investors pile into overvalued, increasingly illiquid assets — such as bonds — the risk of a long-term crash increases.
This is the paradoxical result of the policy response to the financial crisis. Macro liquidity is feeding booms and bubbles; but market illiquidity will eventually trigger a bust and collapse.
Is the answer deregulation? Perhaps the current regulations are insufficient instead.
If banks were restricted to making their money via lending deposits, they’d be more stable.
How about reining in high-frequency trading?
Plus, the Fed doesn’t have to “unwind.”
What other measures could be taken that would make the system stable and finally truly productive?
⇧ People Are Worried About Bond Market Liquidity – Bloomberg View
After Dr. Doom above, we immediately ran into this, by Matt Levine, which spells out some of the additional regulatory steps that might be taken.
Attentive readers have noticed that my morning newsletter often contains the sentence “People are worried about bond market liquidity.” A Google search finds 16 instances of that phrase, and we’re adding at a frenetic pace. I had to double up on liquidity worries in both today’s and yesterday’s newsletters: You’ve got ICAP, JPMorgan and Deutsche Bank worrying about Treasury volatility, Gary Cohn and Anshu Jain worrying about bond fund liquidity, and Nouriel Roubini worrying about all sorts of liquidity. And here’s Pimco worrying about flash crashes, shortly after the cut-off for today’s newsletter. People are worried about bond market liquidity, is the point I’m trying to make here.
Why does any of this matter to real-estate investors? Mortgage rates, for just a start.
If nothing is done in the regulatory sphere and Dr. Doom’s scenario comes to pass, the entire economy will be slapped and slapped hard!
The fixes seem simple enough, but there are many people out there who are simply and even masochistically opposed to all regulations.
⇧ ‘Scandinavian Dream’ is true fix for America’s income inequality
Income inequality has gotten so bad in America that it’s now easier to get ahead in many other countries, says Nobel Prize-winning economist Joseph Stiglitz.
Decades of deregulation and lowering taxes for the wealthy and businesses — with the hope of it eventually benefiting the middle and working classes — has created a chasm between the rich and everyone else, Stiglitz told CNNMoney.
To get back to a more equal society, he suggests we take a page from some of our European neighbors and restore the balance between government, business and labor.
“Maybe we should be calling the American Dream the Scandinavian Dream,” he told CNNMoney.
⇧ Where the Housing Crisis Continues – NYTimes.com
…we have to start taking principal reduction seriously. Regulators at every level, as well as the Financial Accounting Standards Board, must encourage financial institutions to do what they should have done in the fourth quarter of 2008: recognize their losses and write down the value of mortgages to current market levels.
A similar shift is needed at the Federal Housing Finance Agency, which regulates the housing giants Fannie Mae and Freddie Mac. National mortgage modification programs should be adjusted to encourage lenders to pursue principal reduction. Tax relief for homeowners who receive reductions should be extended so that write-downs aren’t taxed as income….
We hear many people pooh-pooh this approach as helping out people who had no business borrowing so much in the first place. Well, when the bankers who caused the Great Recession by pumping money into toxic securitizations of mortgage loans take the same hit that the poor they enticed, then maybe (maybe) we’ll listen about how dupes shouldn’t be bailed out the way those bankers who’ve all walked free were bailed out.
⇧ Leading Economists Now Lean Left – Bloomberg View
Would canceling trade agreements really bring factories back to the U.S.? Maybe, maybe not. Would higher federal minimum wages boost working-class incomes without causing a long-term rise in unemployment? Maybe, maybe not. …
… Laissez-faire may have reached the end of its shelf life, but we don’t yet know what is going to replace it.
We aren’t just talking about “liberals.” At least we shouldn’t be. We’re talking about progressives too. Social democracy and democratic socialism (two different things) are both experiencing more interest from the youths who will soon takeover and in many cases, already have.
So, when it comes to trade, the term “fair” is still there as an alternative to “free” trade. The trade agreements would be reworked and not necessarily abandoned.
As for minimum wages, unemployment isn’t a bad thing when its replaced by tuition-free higher education and training.
We’ve barely scratched the surface here too.
⇧ Pending Home Sales Hit Nine-Year High – YouTube
The National Association of Realtors Pending Home Sales Index continued its upward trend in April.
The pending home sales index (PHSI) includes existing homes with signed contracts that haven’t completed the closing process. Home buyers and sellers generally complete the closing process within one to two months after a purchase contract is signed. However, sometimes a pending sale fails to make it to closing. For example, a home buyer can renege if financing falls through or an inspection turns up something unexpected.
Generally, the PHSI is a pretty solid predictor of existing home sales one or two months into the future. But April’s existing home sales numbers failed to live up to the expectation created by February and March’s pending home sales numbers. So is there a reason why pending home sales and existing home sales diverged?
How many of the sales are for middle-and-lower class properties rather than upper class?
⇧ Wikileaks releases ‘largest’ trove of docs exposing secret TiSA trade deal — RT News
Why in the world are we having to rely upon WikiLeaks to give us the details of planned US legislation about international trade?
WikiLeaks has published 17 secret documents related to a controversial trade agreement currently being negotiated behind closed doors between the US, EU and over 20 WTO members. NGO Global Justice Now called the leak [the fact that the deal is secret] “a dark day for democracy.”
We recommend watching the video and also listening to the audios.
US Congressman, Representing Florida’s 9th district in Congress, Alan Grayson:
⇧ Greece Defers IMF Payment as Merkel Says Resolution Far Away – Bloomberg Business
“The Greek authorities have informed the fund today that they plan to bundle the country’s four June payments into one, which is now due on June 30,” IMF spokesman Gerry Rice said in an e-mailed statement. “Under an Executive Board decision adopted in the late 1970s, country members can ask to bundle together multiple principal payments falling due in a calendar month.”
That’s not a big deal in and of itself. The big deal will be when Greece can’t make a payment and must issue its own IOU’s or establish a new currency.
The IOU’s or currency will have to be accepted for tax payments by Greece and shouldn’t be issued based upon also issuing any debt or bonds.
⇧ Real Estate Analyst Jurow: Housing Market Is Ready to Collapse
“Keith Jurow, author of the Capital Preservation Real Estate Report newsletter”:
“For nearly five years, I have shown why this housing recovery has never been anything but an illusion — a mirage that disappears on closer examination.”
Jurow’s advice for clients is to “sell the big three bank stocks before they are forced to mark down the value of their weak first- and second-lien mortgage portfolios, sell your mortgage REITs before the true value of their mortgages becomes evident and unload your investment homes before the home price decline worsens.”
Bottom line: “the housing collapse is ready to resume in earnest.”
We remember Keith Jurow from shortly after the housing collapse saying that mortgage resets would collapse the market. We didn’t know as much then as we do now. His statements worried us at the time. Slowly, we read how the resets wouldn’t impact enough of the market to do what Keith claimed they would. Those follow-up articles turned out to be correct.
As for his current predictions, even though we saw the Great Recession coming, we don’t see any evidence of a housing collapse at all.
There is no generalized housing bubble. There’s a lack of supply, so prices are artificially high (which was part of the Fed’s plan to re-inflate the banking sector’s assets). That though is not a big enough bubble to pop and crash the economy.
⇧ Employment Situation Summary
Total nonfarm payroll employment increased by 280,000 in May, and the unemployment rate was essentially unchanged at 5.5 percent.
⇧ After Texas Floods, A New Test for FEMA’s Beleaguered National Flood Insurance Program
See our Disclaimer at the end of this post.
⇧ Understanding the CFPB and its closing disclosure: Part 1 | Inman
Why the need for such dramatic regulatory retooling? As explained in a legislative dissertation on Dodd-Frank and the mortgage crisis, “During the last decade, the [mortgage] market went through an unprecedented cycle of expansion and contraction … fueled in part by the securitization of mortgages and … sophisticated derivative products. So many other parts of the American financial system were drawn into mortgage-related activities that when the bubble collapsed in 2008, it sparked the most severe recession in the United States since the Great Depression.”
However, the author, Craig Roberts, of this article seems to tip his hand against the regulation when he writes, “There’s a whiff of the parent-child relationship in the CFPB-consumer paradigm stipulated under Dodd-Frank.”
We disagree with that choice of wording. What are laws against “snake-oil salesmen”? We see absolutely nothing wrong with government regulations designed to thwart what Bill Black correctly characterizes as the criminogenic mentality that definitely permeated the Mortgage-Backed Securities system of Wall Street bankers that crashed the economy.
⇧ Understanding the CFPB and its closing disclosure: Part 2 | Inman
It does not apply to reverse mortgages, equity lines of credit, mobile home loans, loans made by a private lender making five or fewer mortgages per year, loans for vacant land with no proposed new construction, or commercial loans. The traditional (1974) HUD-1 settlement statement can be used in closings for any of these excepted transactions. The HUD-1 can also be utilized in cash transactions.
You will note that Craig Roberts, the author, is “the president of Capstone Settlement Inc.” The new rules under the CFPB are “shifting the traditionally placed burden away from the settlement agent.”
That may explain in part Craig’s wording we discussed in the link above and his possible pessimism about how things will turn out in the near term for consumers and lenders.
…there are things that can be done. Almost all macro-economists advise a sizeable increase in public infrastructure spending (and, when possible, in education funding). Despite the recent advice of IMF economists, the UK government has shown an extreme aversion to public debt, even if it is used to raise investment in productive public assets. Now that the chancellor has decisively won the political debate on this issue, it is possible that he will allow Lord O’Neill to devise innovative ways of financing a large increase in infrastructure spending.
These might include public-private partnerships, with the private sector providing the equity and the government providing loan guarantees. Since the UK has always massively under-invested in public infrastructure, the scope for change here is great. In fact, the Treasury has somehow found a way to triple the intended level of the road-building programme in the next few years. Where there’s a will, there’s a way.
“Now that the chancellor has decisively won the political debate on this issue….” Debate, no. Election, yes (for a while).
⇧ Fracking and the Texas Non-Miracle – NYTimes.com
…fracking-related growth has been big enough that the Texas slowdown now that oil prices are way down makes a lot of sense.
Of course it does. However, it appears Paul’s point is that, therefore, the Texas Miracle wasn’t. The issue here is whether or not the fracking boom, while it lasted, was part of what the more libertarian-minded called the reasons for the “Miracle.” We say the lack (a bad thing) of environmental regulation was libertarian and did allow for fracking.
⇧ Deleveraging: Facts, drivers and forecasts | VOX, CEPR’s Policy Portal
Serkan Arslanalp, Reinout De Bock, and Matthew Jones:
First, monetary policies (including QE) should help support private sector deleveraging by boosting asset prices and generating wealth effects;
However, the positive impact of such policies could wane if potential growth remains low. In such cases, countries need to boost their longer run growth potential through comprehensive reforms.
Second, debt restructuring and write-offs of non-performing loans can improve the financial and economic transmission of monetary policy by unclogging the monetary transmission mechanism and restarting the flow of credit.
Having efficient debt restructuring mechanisms in place is an essential element of a smooth deleveraging process.
Not a word about fiscal stimulus while the private sector deleverages?
We already dealt with the “debt supercycle” theory starting here: https://propertypak.com/2015/06/02/news-real-estate-risk-economics-june-2-2015/#0602158
⇧ Solid Employment Report – Tim Duy’s Fed Watch
The resilience of the job market – clearly foreshadowed by the initial claims data – suggests that the weakness in recent GDP numbers is less than meets the eye. That weakness, however, already deterred Fed officials from a June rate hike, leaving next week’s meeting something of a nonevent. Fed Chair Janet Yellen will likely use the press conference to outline the case for a 2015 rate hike, but emphasize the data dependent nature of that decision and, more importantly, a focus on the path of rate hikes after the first hike. That is what the Fed would like us to be watching, and the data still suggests a fairly modest pace of tightening. Attention now shifts to the September meeting as the first in which we might anticipate sufficient data to support a rate hike.
Now that Janet Yellen has talked up inflation fears and overheating more than persistent unemployment and low-wage problems, we are leaning in Tim’s direction though still more reservedly than he is.
⇧ Mansion on the move: $3.5 million house barged to Bainbridge | Local & Regional | Seattle News, Weather, Sports, Breaking News | KOMO News
A 1923 Madison Park brick mansion was recycled and barged to Bainbridge Island saving landfills’ space and new owners’ money.
⇧ A maritime ‘coalition of the willing’ must confront China, urges US analyst | Inquirer Global Nation
This is actually a big deal and holds extremely deep ramifications for the global economy.
China must be made to choose between losing “soft power” if it continues saber-rattling, or gaining respectability as a superpower willing to engage in the peaceful joint exploration of resources in the area.
We think China has been making a huge mistake. Just looking at the map and the sea area China claims shows they’ve been ridiculous. Why they think they’ll gain if they persist in claiming all that area makes no sense. What they’re doing is increasing US importance in the area, as if it wasn’t already hugely present.