amazing quote

“we're living in a totally artificial real estate economy”

Robert Shiller

Don't Get Snookered by Rising Home Prices, Shiller Warns

CNBC.com | Tuesday, 26 Mar 2013 | 3:51 PM ET

Housing data released Tuesday was mixed, showing home prices jumped while new home sales dropped, prompting renowned economist Robert Shiller to call the housing recovery positive in the short-term, but not without many headwinds. There might even be a bubble, he said.

"One thing that makes it very hard to forecast home prices right now is that we're living in a totally artificial real estate economy," said Shiller, co-creator of the Standard & Poor's/Case-Shiller Index, a widely followed measure of housing prices.

Shiller pointed to the Federal Reserve, which last week reaffirmed its policies on bond purchases and record-low interest rates. In September, the Fed launched a third round of quantitative easing (QE), in which it has bought $40 billion of mortgage-backed securities per month, primarily in mortgage-backed bonds.

Meanwhile, Fannie Mae and Freddie Mac, the two largest U.S. home funding sources, remain in government conservatorship as Congress looks for ways to raise new tax revenues, Shiller noted.

"All of these things are weighing on the futures of housing," Shiller said on CNBC's "Futures Now," adding the recovery might even be a bubble. "One thing you learn from history is that bubbles can occur at any time."

The Case-Shiller Index on Tuesday soared 8.1 percent compared to a year ago, kicking off the year with the biggest year-over-year increase since 2006. Home prices in the 20 major U.S. cities tracked by the index gained 1 percent in January versus the month prior, topping estimates for a gain of 0.9 percent.

To Shiller, the Phoenix and Las Vegas housing markets have grown incredibly fast, suggesting the recovery might be a little frothy. Both markets joined the housing bubble in 2004, he noted, only to later crash by 50 percent. Today, home prices in both cities are rising "with some exuberance," which troubles Shiller.

Nevertheless, Shiller thinks a full housing recovery is a long way off. He thinks it could take 40 years before home prices rise to pre-2007 levels.

David Blitzer, chairman of the S&P 500 Index Committee, took a more bullish view on the housing recovery.

"We seem to be cranking at all cylinders," said Blitzer, adding the rise in home prices is "clearly buoyant" thanks to improved economic data, such as a 5.7 percent rise in durable goods orders in February as demand for transportation equipment rebounded. Economists polled by Reuters had expected orders to rise 3.8 percent after a 4.9 percent decline in January.

Blitzer acknowledged that real estate investors are driving some sales, but contested a "The Wall Street Journal" article on Monday that reported that cash buyers, largely investors, make up about 32 percent of sales nationally.

"That sounds very high, except for maybe in one or two spots," Blitzer said on CNBC's "Squawk on the Street." "But this clearly is picking up the market. It's probably pulling a lot of houses that are under water or in some state of foreclosure off the market or helping renovate them to help the neighborhoods look better. So all of that is a plus."

Lending to Shiller's skepticism, though, new home sales declined 4.6 percent in February to a seasonally adjusted annual rate of 411,000 units, according to the Commerce Department, missing estimates for a reading of 422,000. Last month's decline followed a 13.1 percent jump in January.

— By CNBC's Drew Sandholm with Reuters

A reflection of the jagged edge of economic recovery in the new normal……

Ten Year Treasury Yield

Economic Calendar

Date/Time(Central)	Indicator	Period	Est.	Actual	Prior	Revised
3/19/2013 7:30 AM	Housing Starts	FEB	915K	917K	890K	910K
3/19/2013 7:30 AM	Building Permits	FEB	925K	946K	925K	904K
3/20/2013 6:00 AM	MBA Mortgage Apps.	15-Mar	--	-7.1%	-4.7%
3/20/2013 1:00 PM	FOMC Rate Decision	20-Mar	0.25%	0.25%	0.25%
3/21/2013 7:30 AM	Initial Jobless Claims	16-Mar	340K	336K	332K	334K
3/21/2013 7:30 AM	Continuing Jobless Claims	9-Mar	3050K	3053K	3024K	3048K
3/21/2013 9:00 AM	Philadelphia Fed Index	MAR	-3.0	2.0	-12.5
3/21/2013 9:00 AM	Existing Home Sales	FEB	5.00M	4.98M	4.92M	4.94M
3/21/2013 9:00 AM	Existing Home Sales (MoM)	FEB	1.6%	0.8%	0.4%	0.8%
3/21/2013 9:00 AM	Leading Indicators	FEB	0.4%	0.5%	0.2%	0.5%

Forget Cyprus, Nobody Is Stealing from Depositors More than Bernanke

After the Federal Reserve reaffirmed its easy money policy Wednesday, Chairman Ben Bernanke was asked whether the U.S. would ever think of taxing bank depositors as Cyprus has done. He said that was very unlikely but Jim Rickards, senior managing director of Tangent Capital Partners, says the Fed already has its hands in depositors’ pockets.

“Nobody is stealing more money from bank depositors than Ben Bernanke,” Rickards tells The Daily Ticker. Bernanke's doing that, Rickards says, by maintaining interest rates near zero.

“At this stage of a recovery normalized interest rates should be around 2-3%,” says Rickards. “Apply that 2-3%…to the entire multi-trillion-dollar deposit base of the United States of America and that’s a $400-billion per year wealth transfer from savers to bankers so they can pay themselves bigger bonuses or make crazy bets.” Over time, Rickards says, that wealth transfer could reach $1 trillion.

Rickards says zero interest rates are just one way the Fed is fleecing depositors. Others include increasing inflation, which Bernanke is trying to do, and taxing deposits like Cyprus is pushing for. “Bernanke is stealing more money from depositors than Cyprus is... looting everyday Americans—teachers, firemen and retirees,” says Rickards.

There’s another way, of course, to view Fed policy: that near-zero interest rates and $85 billion worth of asset purchases every month are helping to boost economic growth and employment and maintain low interest rates for both short-term and long-term debt. Bernanke himself, testifying before the Senate Banking Committee late last month, said, “The benefits of asset purchases, and of policy accommodation more generally, are clear…monetary policy is providing important support to the recovery.”

But Rickards says the easy money policy is creating asset bubbles that may feel good for now but will eventually crash. Cyprus could crash much sooner than that.

The ECB today set a Monday deadline for the island nation to finalize an agreement with the bank, the European Union and IMF in order to qualify for emergency funding. If no deal is reached by the Monday deadline Cyprus will lose access to emergency funds and its banking system could collapse. That’s especially bad news for the Cypriot economy because not only does it depend on its banks, as most economies do, but its banking system is 7 to 8 times the size of its 70-billion-euro GDP.

About 30% of those deposits are reportedly from Russia.Talks are expected to continue throughout the weekend and now reportedly include Russia.

"‘At least now the Russians and the Europeans are talking…so there’ll be some kind of resolution,” Rickards says.

There's even speculation that Russia’s gas producer Gazprom (OGZPY),which has its own bank, could lend Cyprus some money.

it's raining money.....

In an article about how the financial world will soon tumble we get this quote from Robert Wiedemer about Bernanke, saying that his “money from heaven will be the path to hell.”

moneynews.com 

Awesome!

where are we headed....

Something to ponder upon as we see a continued new normal paradigm within the global financial world – and Europe is setting the pace for new and unconventional methods to deal with the past’s years of living beyond ones means and subsequent build up of large quantities of debt…and unfunded promised ‘entitlements’……

The Mindset

Submitted by Tyler Durden on 03/26/2013 

In all of the tortuous moments that have taken place with the European Union the one thing that has become apparent is a radical change of mindset. In the beginning there was a kind of democratic viewpoint. All nations had a voice and while some were louder than others; all were heard. This is no longer the case. There is but one mindset now and it is decidedly German. It is not that this is good or bad or even someplace in between. That is not the real issue. The Germans will do what is necessary to accomplish their goals. There is nothing inherently bad or evil about this but it is taking its toll on many nations in Europe. It is the occupation of Poland in a very real sense just accomplished without tanks or bloodshed as money is used instead of armaments to dominate and control a nation. Politically you may "Hiss" or you may "Applaud" but there are consequences here for investors that must be understood. First and foremost is that they will not stop.

The Economic Outlook and the Role of Monetary Policy

William C. Dudley, President and Chief Executive Officer

Remarks at the Economic Club of New York, New York City

Conclusion
The FOMC is committed to the dual objectives of maximum sustainable employment in the context of price stability. Currently we are falling well short of our employment objective and the restrictive stance of federal fiscal policy is a factor. On inflation, we are also falling short, but by a considerably smaller margin. As a consequence, we need to keep monetary policy very accommodative.

I do not claim that there are no costs or risks associated with our unconventional monetary policy regime. But I see greater cost and risk in moving prematurely to a policy setting that might not prove sufficiently accommodative to ensure a sustainable, strengthening recovery. I remain confident that the benefits of a stronger and earlier economic recovery will trump the costs associated with our unconventional monetary policy measures.

Excerpts: Today, I will focus on the economic outlook and the role of monetary policy. I will argue that the fundamentals underpinning the U.S. economy are improving and monetary policy is gaining additional traction. But this may not immediately lead to stronger growth because of the recent increase in fiscal restraint. As a result, I expect that labor market conditions will improve only slowly and that inflation will remain muted. Consequently, it will be appropriate for monetary policy to remain very accommodative.

Economic Outlook: Tug of War Between Improving Fundamentals and Fiscal Restraint
The U.S. economy remains on the slow growth track that has persisted since the recession ended in mid-2009. However, in the near-term, this improvement in fundamentals is being offset by increased fiscal drag.

Let's first examine the fundamentals, which have improved in at least six ways.

First, household deleveraging is now well advanced.

Second, the structural adjustment in housing has largely run its course.

Third, the international economic outlook has improved somewhat.

Fourth, U.S. corporate profits relative to national income are at an all-time record  and cash balances are very high.

Fifth, the U.S. is in the middle of an energy revolution marked by a steady rise in oil and natural gas production.

Sixth, financial conditions have become increasingly accommodative, as monetary easing has passed through to a broad range of financial asset prices.

So why isn't the U.S. economy growing more quickly? The fact that fiscal policy has turned significantly more restrictive is the most important reason.

In my opinion, a U.S. fiscal policy well-suited for the current set of circumstances would start with a very mild degree of restraint in the near-term that would credibly build to substantial consolidation over the next several decades.

Nevertheless, the aging of our population and simple math suggest that entitlement reform would need to be part of such a plan.

Instead, we have nearly the opposite: significant retrenchment in the near-term, but no credible action over the long-term, with partisan divisions and significant uncertainty about what will happen next. Will the sequester, for example, be sustained or not?

Economic Outlook

Looking at the outlook for 2013, I believe that growth in the first half will be sluggish as the fiscal contraction blunts the economy's forward advance. While first quarter GDP growth will likely rebound to a 2 to 3 percent annualized rate following the dip in the fourth quarter, this will be due in large part to temporary factors.

Inflation, as measured by the personal consumption expenditure deflator, is currently below the Federal Reserve's 2 percent objective. Moreover, inflation expectations remain well anchored at levels consistent with our 2 percent longer-run objective. Thus, I conclude that the risk that inflation could significantly exceed our 2 percent objective is quite low over the next few years, even if the recovery were to strengthen considerably.

The Labor Market Outlook
So how are we doing relative to our objective of a substantial improvement in the labor market outlook?

Since we provided additional stimulus in September there has been some improvement in labor market conditions. The unemployment rate is modestly lower and private non-farm payroll growth a bit higher than earlier in 2012, which is certainly welcome. However, other important indicators including the employment-to-population ratio and job-finding rates are essentially unchanged. This suggests that the labor market is far from healthy.

Moreover, our policy is based on the outlook for the labor market, not the level of employment or unemployment today. In this context I note that the recent improvement in payroll employment growth, which gets much of the attention, is out-sized relative to the growth rate of economic activity that supports it. We have seen this movie before. When this happened in 2011 and 2012, employment growth subsequently slowed. Because growth this year will be constrained by fiscal consolidation, there is a risk that this could happen again. As a result, it is premature to conclude that we will soon see a substantial improvement in the labor market outlook.

http://www.newyorkfed.org/newsevents/speeches/2013/dud130325.html 

http://www.newyorkfed.org/newsevents/speeches/2013/dud032513_charts.pdf   

worth pondering

Are Businesspeople Really Fooled?

Submitted by CapStruc on 03/22/2013

The Austrian Business Cycle Theory (ABCT) rests on the idea that the manipulation of interest rates disrupts the coordination between the intertemporal utilization of resources and intertemporal consumer demands. In other words, the divergence of the interest rate from the natural rate that would prevail in the absence of manipulation causes business to invest in resources differently than they otherwise would. This skewed investment creates a production structure for which there is insufficient support, demand, or both.

One of the questions raised by this theory is: what if the businesses were fully aware that interest rates were being manipulated? What if they knew exactly how and why this was happening? Would they still misallocate their investments?

As it happens, I find myself in exactly this position right now. I’ve followed the Austrian school economists through the tech and housing booms and, through this experience, have gained an appreciation of just how accurate they’ve been. I’ve been following the most recent operations of the Fed as they’ve pumped money into the system. I could tell you where the money has gone and why it’s gone there. Now, I’m faced with the prospect of making a significant business investment decision.

I’m a commercial real estate appraiser. For the past several years, I haven’t pursued bank lending work. Most banks require that appraisers be added to their approved appraiser list before they will use them. Getting on this list requires providing each bank with whatever documentation they request. Among the items that I’ve been asked to provide in the past are proof of errors and omissions insurance and various sample appraisal reports. Since professional appraisers are bound by confidentiality to their clients, the clients must either all agree to the release of the reports to the banks or the reports must be “sanitized,” so that neither the property nor the client can be identified. All of this requires a significant amount of time and expense. With the implementation of Dodd-Frank, I’m sure the requirements are now even more onerous. Since the banks have not been doing very much commercial lending, I decided not to pursue it.

Instead, I’ve kept myself busy with property tax appeals and corporate reorganization work. These types of work do not require the same regulatory compliance that the banks do. Furthermore, I have been assisting in the reallocation of resources so that they would be better coordinated with the structure of production.

Recently, however, bank lending has made a roaring comeback. On March 11, the Mortgage Bankers Association released the latest Commercial Real Estate/Multifamily Finance Mortgage Debt Outstanding report for the fourth quarter of 2012. It indicates that banks lent $17.1 billion more in the fourth quarter than in the third quarter. This is the largest increase in lending since the second quarter of 2008. Furthermore, in my personal discussions with bankers they have confirmed that they are expanding their lending.

All of this puts me in a rather awkward position. Assuming that the increased bank lending will continue for a while, there will be fewer opportunities for property tax appeals and reorganizations. Meanwhile, the opportunities for lending work will increase. I know that much of this increased lending will contribute to another bubble, but, in the mean time I have to make a living.

I’ve decided that I will pursue the lending work. I do this with full knowledge that, by doing so, I will be contributing to a bubble that will eventually collapse. My only adjustment to strategy that comes from my additional knowledge is that I will shift as many expenses as I can from the fixed category to the variable category.

I admit that my decision is this regard is just one anecdotal example. Nonetheless, I’m convinced that most businesspeople, facing a similar situation, would make similar decisions. Knowing that resources are being misallocated does not allow businesses to forego the profit opportunities that are created in the process. If they are to survive, they must operate in the system as it is, not as it should be.

Who is driving this economy anyway??

“The economy will continue to improve as spending picks up given the steady improvement in the labor market,” Carl Riccadonna, senior U.S. economist at Deutsche Bank AG in New York, said in a telephone interview March 20. “The end result of that is an increase in interest rates.”

Riccadonna forecasts 10-year Treasury yields will rise to 2.75 percent by year-end, above analysts’ median estimate of 2.25 percent, according to a Bloomberg News survey.

Consumers pulled back after the October 2008 collapse of Lehman Brothers Holdings Inc. froze financial markets. Home mortgage debt fell to $9.4 trillion at the end of 2012 from a record $10.6 trillion in 2008, reflecting foreclosures, lower property prices and tighter credit, according to Fed data.

Instead households, which include individuals, domestic hedge funds, private equity funds, and personal trusts, funneled $1.04 trillion into Treasuries last year, compared with $648 billion in 2011, according to Fed flow of funds data.

Deposits at U.S. financial institutions exceeded loans by $2.03 trillion as of March 6. In the month before Lehman’s bankruptcy loans exceeded deposits by $205 billion.

“We’ve seen many forms of this grand increase in deposits, even as interest rates are low and people are not earning much,” David Ader, the head of U.S. government bond strategy at CRT Capital Group LLC in Stamford, Connecticut, said in a telephone interview March 21. “If there isn’t much loan demand, it’s going to stay this way for a while.”

Ader forecast 10-year Treasury yields will rise to 2.5 percent by year-end.

While the Fed has injected more than $2.5 trillion into the economy since 2008 to revive growth, GDP is forecast to grow 1.9 percent this year, below the 2.5 percent average the past two decades, according to the median estimate in a Bloomberg News survey of 93 economists.

Boehner Declaring No Debt Crisis Revealed in Lending Data

http://www.bloomberg.com/news/2013-03-25/boehner-declaring-no-debt-crisis-revealed-in-lending-data.html

More of the same…..

FOMC Tweaks Statement, Projections for Fed Funds Rate Little Changed

by Mark Evans, CFA

Bond yields rose on Wednesday. The ten-year rose 5bp while the five-year rose about 3bp. About half of the rise came after the FOMC announcement. Overall, the FOMC announcement met expectations by changing little. The economic assessment was tweaked to acknowledge the improving (albeit slowly) economic conditions and to note the fiscal drag. It deleted a reference to strains in global financial markets. The committee also added a consideration about the size, pace, and composition of asset purchases. While still saying that they will continue purchases until the “outlook for the labor market has improved substantially” they added a note saying that the FOMC will take account of “the extent of progress toward its [the Committee’s] economic objectives.” That statement is in addition to consideration of the “efficacy and costs” of the purchases. This slight adjustment implies that the decision on purchases may no longer hinge on complete satisfaction of “substantial improvement.” This change effectively tweaks the Statement to be slightly less dovish, although there is no reason to doubt that purchases will continue for the foreseeable future.

In the Summary of Economic Projections, the Members’ projections for the future target Fed Funds rate was largely unchanged. The average projection calls for the overnight target rate to be at 0.50% by the end of 2014, 1.30% at the end of 2015, and at 4.00% in the long term. Interestingly, nine of the nineteen FOMC Members expect the target rate to still be below 1.00% at the end of 2015, which is unchanged from last quarter’s economic projections.

gaseous growth...

U.S. retail sales surprised to the upside in February, rising 1.1% on the back of higher gasoline prices.

housing trends....

Housing - gaining some momentum or bouncing around attempting to find equallbrium....

Housing starts for the month of February rose from 910k to 917k.

The January data was also revised higher from 890k to 910k.

This still represents a mild pull-back from the big December report but, at the same time, shows continued improvement.

February’s 917k housing starts is the second highest pace of new starts since 2008, only lower than December’s 982k.

Also encouraging is the February building permits report which shows 946k permits filed, up from 904k in January. This is the largest number of permits filed in any month since 2008.

The March NAHB Housing Market Index, released yesterday, fell from 46 to 44 on a downturn in expectations about present sales. Expectations for future sales inched higher along with foot traffic from prospective buyers. The rapid gains in homebuilder sentiment have stalled out over the past three to four months.

While the underlying trends in housing continue to improve, there is a bit of a slowdown in the offing.

Date/Time(Central)	Indicator	Period	Est.	Actual	Prior	Revised
3/19/2013 7:30 AM	Housing Starts	FEB	915K	917K	890K	910K
3/19/2013 7:30 AM	Building Permits	FEB	925K	946K	925K	904K

The Market Today ONLINE

the bumpy road to mortgage production

U.S. 30-Year Mortgage Rates Rise to a Six-Month High

By Prashant Gopal - Mar 14, 2013

U.S. mortgage rates for 30-year loans rose to a six-month high after stronger-than-expected employment growth drove up yields for the government securities that guide home loans.

The average rate for a 30-year fixed mortgage was 3.63 percent in the week ended today, up from 3.52 percent and the highest level since late August, McLean, Virginia-based Freddie Mac (FMCC) said in a statement. The average 15-year rate climbed to 2.79 percent from 2.76 percent.

The 10-year Treasury yield reached an 11-month high on March 8, after the Labor Department said employers added 236,000 workers in February, more than economists projected, and the jobless rate fell to 7.7 percent. The U.S. property market is recovering from a five-year slump as job gains and low interest rates fuel demand.

“There is a feedback loop between the state of the economy and the housing market,” Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts, said in a phone interview yesterday. “When you get more jobs, people are more likely to buy homes.”

The Mortgage Bankers Association’s index of home-loan applications declined 4.7 percent in the period ended March 8, after climbing 14.8 percent in the prior week. The refinance gauge fell 5.2 percent, while the purchase measure dropped 2.5 percent, the Washington-based group reported yesterday.

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

http://www.bloomberg.com/news/2013-03-14/u-s-30-year-mortgage-rates-rise-to-a-six-month-high.html