Update on Residential Investment
Submitted by
CalculatedRisk on Sat, 01/23/2010 - 2:10pm (77 comments)
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Just remember, in the long run, we are all in the short run.
Bueller?
OT-- "Socialists for Obama"
Just found this while digging through old files-- hope you all can enjoy a laugh. Use WinRar to open.
http://www.prism.gatech.edu/~gth873q/Socialists%20for%20Obama%20Archive.rar
Obviously these things get taken down-- it's not printed, it's on the internet; as we were discussing last thread.
So when I find something gold like this I always save the entire page and back it up on my harddrive to show others later, and to laugh at myself.
"The following graph shows total housing starts and the percent vacant housing units"
Nice to see those red and blue lines moving inversely to each other again...but SHEESH!
Other thought-- this discussion page desperately needs a way to rank comments or vote as helpful/insightful. Some of us don't have the time to track the discussion in realtime so it would be immensely helpful to be able to sort by most helpful.
Along with this, better quoting support-- so that you don't have to go back and edit it a million times to make double and triple quotes turn out OK.
Do the MBS purchases include what the Fed is buying?
In Platoon, a Viet Nam war movie, one man says "Sarge. I got a bad feeling about this." This is just before they get overrun. Me? I got a bad feeling about this too. Meaning the short term future. I having this feeling, that for me at least, all the time spent reading the Internet is over. Now is the time to return to real time and get ready.
Oh, I have to get ready to go see the NSO play Mozart. I booked a table at the Kennedy Center 5 hours before show time. I was able to buy tickets for the concert with no problem. The money is drying up even in Mordor
I would think the whole idea of recovery is wishful thinking and a pipe dream. Personally, I lean more and more to Kunstler every Monday morning.
@ Bond Girl -- I dumped more stocks on Friday, now at 93.12% bonds.
I moved out of equities before this past week to have some dry powder, so to speak. Am glad because banks on the war path and uncertainty at the Fed kind of rekindles the fear trade. I was expecting a rise in rates, now not so sure....
If things move sideways long enough, doesn't that define the "new normal"?
OT-- "Socialists for Obama"
This administration, with its urgency about saving Wall Street, has a funny way of displaying socialist credentials.
This has to be the funniest blog name I've ever seen (which I encountered via a comment on Baseline Scenario):
Economists for Firing Larry Summers
Actually, a lot of people I hear calling up Cspan, seem to use the word 'socialist' the way they used to say 'witch' in the 17th century.
Burn them!
nova wrote:
having this feeling, that for me at least, all the time spent reading the Internet is over. Now is the time to return to real time and get ready.
The lack of awareness of the opportunity cost of information is probably the preeminent characteristic which may spell the end of our society as a force for individualization. We are entertaining ourselves to death, not altogether unlike the monkey with the pleasure center of its brain wired to a button, which would forego sleep, sex, and food to press that button again and again...
Bond Girl wrote:
Burn them!
I was thinking more of the money honeys, personally... Ready the dunking stool!
As a socialist, let me assure you that Obama isn't of my kind.
YouTube - She's a witch!
The Wedding Ring, and other poems:
The Poetry of Pavel Chichikov
Bond Girl wrote:
Exactly. And more unemployment and deflation ahead. Money supply going nowhere, people are just doing without.
My Elliot wave guy says wave 3 down has begun with the close below 10,200. Next stop 9725, with few hundred point bounce followed by more drops and bounces to 2750.
sm_landlord,
Just got back, in the last thread were you actually arguing that manufacturing was a bubble and the decline in manufacturing employment in the USA over the last thirty years has represented the unwinding of that bubble?!
Comment by energyecon from thread 'More on Bernanke'
Comment by sm_landlord from thread 'More on Bernanke'
... having this feeling, that for me at least, all the time spent reading the Internet is over.
I feel as if I'm in good company here. As an older person, I feel that in many ways it's very helpful.
scone wrote:
I am seeing the same stuff. As I was wrapping up account for 2009 today, I noticed a tiny IRA account that is sitting in a money market account. In the last 6 months, the monthly interest has gone from $4.00 to $0.32 per month. That tells me that MM cash has nowhere to go.
This is the best exposition I've read on how debt causes deflation, when the bubble bursts. Good chart porn, too:
The End Game: This Time Isn't Different
The stock market is TBTF...
scone wrote:
That sounds safe.
Flaming Dumbass Barney "Economic Rubble" Frank said in 2003.... "I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis....I do not think at this point there is a problem with a threat to the Treasury.
sm_landlord wrote:
I actually bought a TIPS bond fund, not because I believe we'll have inflation, but because it gets good returns simply by having very low expense ratios. The Costco of bond funds!
These are interesting times. As much as I'm sure they want to sack Bernanke, I'm not sure I see them doing it when people have taken up watching the Dow again. Besides, they already have a scapegoat in Geithner. How many scapegoats do they need?
That's what I told myself in 1999.
rich wrote:
It isn't. There is no safe. But it's a bit less volatile at the moment, which saves expense in migraine pills and Maalox.
Bond Girl wrote:
I think Ben will probably squeak by, but taking all these guys to the woodshed helps come November.
energyecon wrote:
There was a little more to it than that, but basically yes. Looking at the charts you linked, you can see that each sector went through a period of rising employment, followed by a period of falling employment.
Let's take a narrow sector as an example: automobiles. You can see a lot of employment growth related to the boomers passing through the snake, as it were, coupled with designs that produced automobiles with short lifetimes. As the boomers settled in, automobile lifetimes improved (arguably due to overseas competition), and automation and outsourcing increased, employment in the sector waned. To me, that looks like a bubble in retrospect, especially looking at the auto sector employment.
I don't know. November is a ways off still. Ditch Ben now and watch people vote according their portfolios then.
scone wrote:
scone,
If you look closely at TIPS funds, you'll see there are four drivers of returns. In an average fund, they would be roughly:
50-60% Treasury prices of comparable maturity
15% CPI
15% Manger skill
15% Expense ratios
So, if Treasury prices drop, you're probably going to lose in TIPs. Prices will drop if rates go up, which many smart people expect.
I agree with CR that we could do better (easy call), but I do not see it happening thanks to Obama. It is easy enough for other Democrats to distance themselves from Obama, but not so much if they get associated with the chaos that throws the financial markets into turmoil.
scone wrote:
I have money in several TIPS funds, and they did quite well last year. I'm not putting any more money there right now, because they are looking a bit pricey to me. For example, I bought TIP at around 95, and now it's around 105.
I thought rates would increase until this week.
It would not surprise me if banks put this economy in an absolute chokehold in response to cutesy reform efforts. Think about the effect of that on investment and employment. Then tell me rates will rise.
rich wrote:
IMO there is zero risk of a significant rise in rates, or I wouldn't have bought it. And the expense ratio is 0.05%, IIRC, which I haven't found anywhere else.
And I think reform types are about to get a lot of lip service:
Obama Calls Team From 2008 for Races in Fall - NY Times
Not actual reform, but lip service.
sm_landlord wrote:
Agreed. But right now I'd rather have that than the volatility of GOLDX, for example, which is what I exchanged. Right now I'm more concerned with preventing losses than making big bucks, because I think it's going to be a sideways, muddling through kind of year. The big whoosh of last year is over.
I doubt many of the people who would replace Bernanke would make a difference. Has anyone ever watched any central bankers-type of meeting on C-SPAN?
Here's a speech by Bernanke...
What could go wrong with this monetary policy "innovation"?
that chart looks downish sideways to me!
Went to see South Pacific.
Theatre full. Nearly all gray heads. Was a matinee of course.
Passed by several restaurants with very full parking lots.
Maybe enough chains have become deceased so the rest are
fuller?
Ditch Benny? I grant that he screwed up royally by not doing reverse repo originally on all the garbage that is now a large part of our hedgy-fund Feddy. But he's been creative. And managed to keep those reserves the bankers hoard on the Fed's account from being called into green. Some here argue that they'd like a wee bit of inflation (and obviously we're not in danger of that right now). But spring forward a spell and if he doesn't wind down those reserves, somehow someway, tshtf. But I figure we get a currency crisis a fore then. What's the dif...
I'm all crisis-ed out.
Bond Girl wrote:
Even if the banks were angelic, it would be the same. Massive deleveraging and demand destruction, industrial overcapacity, 10% and higher unemployment. It's a cycle feeding on itself.
Bond Girl wrote:
Bank of America II, whereas the Fed lends directly to mom & pop, or some version thereof? No wait.... they actually tried to do that through existing banks. Why use a middle man?
Q&A period starts up ~ 32 minutes during that speech...
Banks will not be angelic.
Well, the banks response may show people it actually is a
war, as per AllenM.
soccerballtux, reply in last thread
lawyerliz wrote:
Not all the banks would lose due to the Volcker Rule. Some would win. Wells Fargo stock went up on Friday, significantly. Here's the Insider on who might win and who might lose. Essentially it's a redistribution of power, rather than an across the board hit:
Meet The Winners And Losers In Obama's New Wall Street
Oh, brevard's unemployment rate was 12.1%.
The newspaper is still calling it a recovery. Well.
Sniff. . . A pretend recovery.
lawyerliz wrote:
Sniff. . . A pretend recovery.
Another satisfied customer of the recovery-less recovery?!
Yeah.
Banks May Get Help to Escape Risk Limits - DealBook Blog - NYTimes.com
Not until someone bails me out, or at least buys me
some cash for caulkers new carpet, or pool refinishing.
As someone said, 24 hours is a long time in politics.
2 Senators Predict Bernanke to Be Confirmed - NY Times
Can we talk about important stuff? What will be the economic impact of the collapse of Brangelina?
If, as Friedman assumed, the velocity of money is stable (MV=GDP) then nominal GDP expansion in the ensuing quarters can be expected to grow about 3%. If prices rise about 1.5%, then real GDP growth would also rise about 1.5%, which is far below the level of growth needed to employ new labor force entrants and existing unemployed or to more fully utilize our present unused capacity in our factories. In the last six months the growth rate of M2 has slowed to near zero. If this pattern continues, it would be rational to expect GDP to grind to zero with no change in the price level.
The very first step toward an inflationary cycle has to be to get the monetary aggregates expanding vigorously. That cannot be accomplished with the Fed "printing money", i.e., adding more reserves into banks that cannot or will not make loans. The reason this process has not begun (and will not for a time) is the overhang of excessive indebtedness and asset price depreciations. No one needs to borrow, or has the resources or balance sheet to borrow, and banks are busily writing off bad debt.
(Emphasis added.)
The End Game: This Time Isn't Different
Q1: Interest on reserves... and GSEs...
BB: Spread between interest rate on reserves and funds rate target; due to GSE funds market. GSE not eligible to receive interest on reserves. Don't think it will be a problem. a) There's an incentive for banks to intermediate in that process, as spread gets wider it pays banks to borrow from GSEs and put money into FR. b) GSEs will do reverse repos with us and get a return on their balance sheet. Pulling liquidity out of the federal funds market, and we need to think harder about how we establish the target federal funds rate.
Q2: Early on, trying to encourage banks to loan to businesses and households. Would it have been a good idea to charge 0 interest on reserves to encourage it?
BB: We're pretty close. The only reason not to go to zero, which would add a litte more stimulus, would be concerns about certain short term money markets. Looked at issue in 2003... had some concerns that money markets and bill markets and federal funds markets won't function. As we have gotten low, they have functioned. The reason not to go to zero is create some return and allow those markets to function correctly.
Q3: You've been articulate on absence of credit risk in the federal reserve portfolio. Imagine if there was a circumstance in which you took some losses. Is there any reason a central bank has to have positive capital? What would be different if your balance sheets showed liabilities in excess of assets.
BB: Let me first say, we do not expect that to happen. Were it to happen, so long as there were sufficient assets to do open market operations and get the money supply where you want it, it wouldn't impede policy. We do not feel that is much risk.
Q4: Ben, to what extend are you concerned that the actions during this crises have exacerbated moral hazard. And what is your sense on dsirable proposals to reduce the incidence of those problems.
BB: Important question... if we were to stay in status quo forever, we would've increased moral hazard... put in another way we have a serioius TBTF problem and we need to address it. FR has been vocal about addressing this and we have a number of proposals, which are the same as the Treasury suggested. First, there is a need for strong supervision and regulation of these firms to prevent risktaking and moral hazard. For example, in particular we are working with Basel commitee to develop additional capital charges and liquidity requirements for firms whose failure would threaten the broader system. One approach is to have tougher oversight. We would agree, to address if you need market discipline as well as supervisory oversight. To do that, more than a year ago I called for the creation of a special rsolution regime, a bankruptcy, that would allow a TBTF to wind down, that would not caosh the market, but would allow losses for credit and equity holders. I support that action in Congress... certainly three would be liabilities that would not be protected, and we would have a strong signal of quality of the firm, and market discipline. One of the major lessons of the last year is that TBTF is an enormous problem, in terms of taxpayer burden, in terms of financial market problem, and giong forward moral hazard issues. Combination of these measures can take us to a better place than we started.
Q5: To the extend that the fiscal stimulus package is ramping up. Do you think the Fed unwinding will precede faster than it is working?
BB: We want to see how the stimulus affects the real economy. Fiscal stimulus and economic stimulus are substitutes. As I said in my reamrks, looking at excess capacity in economy and low rate of inflation, conditions will warrant policy accomodations for extend period. The time will come when we have to tighten, and we'll make an assessmnet. Fiscal policy is part of broad outlook, and we'll have to tie it into thae appropriate time and place to tighten policy.
lawyerliz wrote:
Not until someone bails me out, or at least buys me
some cash for caulkers new carpet, or pool refinishing.
We must all sacrifice for the good of the collective goal of making banks whole, since we all decided this would be the best course of action.
OT but Frank Rich is spot on.
- NY Times
They are too big to fail.
We?? We? Which we is that?
Me is not part of WE.
Everybody gone away?
lawyerliz wrote:
Multitasking.
lawyerliz wrote:
Catching up on the last thread
lawyerliz wrote:
We?? We? Which we is that?
Why, we the world citizens, highly-mobile knowledge workers in the service economy of global capitalism!
scone wrote:
GDP has become a derivative of mark to model accounting.
By your criteria then, any sector that goes through growth and decline is a bubble...and we got to this endpoint in the discussion starting with your assertion that by systematically overpaying workers, employers were pushed to go outsource those jobs...have I misstated your position? Just trying to wrap my head around it...
EE,
If you're still around, there's another couple of things:
This is a BIG contradiction in the 'recovery'. Obviously manufacturing has been trending down regardless.
energyecon wrote:
Well, not any sector, depending on how you define the sectors. If there were a buggy whip sector, for example, you probably wouldn't call it a bubble burst when demand collapsed. For a "transportation" sector, things would look different over the same period, but there would be immense disruption in employment as buggys were replaced by automobiles.
But going back to my original suggestion, if a sector grows more rapidly than the supply of trained skilled labor, you're going to see untrained and possibly some untrainable labor hired. Highly competent skilled labor will be able to demand a premium for some period. This will eventually drive costs up, as untrained labor will have high costs of training, untrainable labor will cause defects, and highly skilled labor will consume a large amount of the costs. The highly skilled labor might even develop the local political clout to obtain lifetime employment, rich pensions, etc., and fairness might even extend those benefits to the unskilled.
If all of this goes too far, someone will eventually look at the bottom line and take action. It might be a competitor that decides that they can do the same manufacturing for less money, so it goes into business in another locale and undercuts the existing industry. It might be shareholders demanding a piece of the action. Or the company (or industry) might eventually just collapse in locations where the economics did not work. Or, management might look at the numbers and decide to find "creative" ways of shedding costs.
So yes, employers can find themselves in a position where they are systematically overpaying for labor, and outsourcing would be an attractive solution if they could create the opportunity, or if someone created the opportunity for them, and they took it.
In the case of IT, government programs in Asia created the opportunity. You could probably argue that the same thing happened in the auto industry.
steelhead wrote:
Agreed, steelhead. This guy (Frank Rich) gets it right here. Obama comes out swinging against the banks, and then we hear that Geithner is following that up with a toothless rule that ensures GS, JPM etc suffer little pain, and none at all right now. Instead what is needed right now is a solid punch in the gut for GS and JPM.