By encouraging asset bubbles and permitting Wall Street to extract undue gains from the volatility, policymakers in Washington encourage bad behavior on a large scale. I recently opined that quantitative easing and mortgage interest rate stimulus bail out Wall Street, not Main Street. Quantitative easing serves to inflate house prices, and although homeowners benefit from this policy, the banks benefit even more; in fact, it's necessary for their survival. However, inflating asset values through quantitative easing is not the only way decisions made in Washington help Wall Street over Main Street. No, the problem goes deeper than that. Who benefits from bubbles? In an ideal world, asset prices would rise and fall gently based on the productive value of the…[READ MORE]

Homebuilders bidding on the Marblehead property on the coast in San Clemente are overbidding in anticipation of another year of rapid appreciation. A prime piece of Coastal California real estate is for sale, and the homebuilders vying for the opportunity to erect sticks and bricks on the site are bidding heavenly sums. In any competitive bidding situation, the bidding party with the most aggressive assumptions wins the day. The large homebuilders all face the same basic cost challenges, so it's the one with the most aggressive assumptions on future home price revenues who will ultimately get this property. If those assumptions don't come to pass, they won't make any money, and they just might lose a bundle. Lehman Puts California…[READ MORE]

In our previous post we told of events at the COMEX and today we will discover a bit more about the COMEX.  By the end of this series you will have a bit more knoweldge, find the gold market a little less confusing, and realize just how little I know, about gold or anything else. The COMEX is a commodity exchange, one of five that comprise the CME, (Chicago Mercantile Exchange).  Forget the technical definitions of a commodity exchange.  They are confusing.  I like to think of the Comex as a market, (think outdoor open air where folks are yelling and haggling), where sellers and buyers meet to 'exchange' precious metals for federal reserve notes.  Rarely do they ever exchange the…[READ MORE]

Most proposed changes in government housing subsidies remove incentives for high wage earners to take on excessive debts to inflate house prices. Coastal California would be strongly impacted by any changes to the current tax regime. Congress considers changes in the mortgage subsidies in the United States. Most realize the current regime doesn't boost home ownership rates, but it does inflate house prices and exacerbate home price volatility, mostly through encouraging excessive debt -- and these subsidies are very expensive. The question is what should we replace the current incentives with? My preference is for total elimination. When a costly subsidy achieves none of the goals legislators desire, why keep the subsidy at all? The subsidies remain because those that…[READ MORE]

 Housing market stimulus must be removed before house prices cross the threshold from recovery to new housing bubble. [dfads params='groups=165&limit=1']Asset prices exhibit normal values established by historically tested and conceptual sound valuation metrics.  When asset prices differ from their normal values, either overvalued or undervalued, the market value of these assets generally reverts to the mean over time and reestablishes an equilibrium price at levels determined by fundamentals. The key characteristic of an asset bubble is an extremely overvalued condition ripe for a major decline. If analysts correctly identify and quantify the fundamentals, asset bubbles can be identified in advance of the price collapse; however, opinions differ on the soundness of even the most tried and true methods of valuation,…[READ MORE]

Excessive debt-service burdens reduces a borrower's ability to leverage themselves to buy houses at today's inflated prices. During the 00s lenders saddled borrowers with excessive loads of debt: housing, car, consumer, student. Debt was cheap and apparently getting cheaper every day, so neither lenders nor borrowers concerned themselves with worries of repayment, particularly with housing debt because the house was supposed to pay that off for the borrower, the borrower never needing their own income or savings to repay. Like all unsustainable constructs, it went on until it collapsed of its own weight in excess. In the past such episodes of excess were followed by painful purges, most painful for bankers who didn't get repaid; however, this time around, with…[READ MORE]

David J. Stern, the infamous robo-signer, lost his law license. He walks away with the $58 million he earned from selling his law firm in 2010. Delinquent mortgage squatters in Florida will still lose their homes. Nobody symbolizes the foreclosure purge like David J. Stern, the former owner of the largest of Florida's foreclosure mill, now defunct. Mr. Stern and his associates filled out thousands of foreclosure filings and routinely fabricated paperwork when the original lender files missed key documents. This fabrication of paperwork infuriated judges who didn't want to see the public record inundated with forged documents. David J. Stern was never charged with or convicted of any crime, and the people who lost their homes in foreclosure were…[READ MORE]

The housing market shows early signs of a new housing bubble; market psychology shifts toward foolish optimism, and lenders provide toxic loans to enable foolish buyers. The rapid increase in house prices since early 2012 concerns many housing market analysts. Federal reserve economists noted the 2013 housing recovery was different, in a bad way. Further, Mark Hanson and Nobel prize winner Robert Shiller warn of a housing bubble because of rising prices, excessive valuations, and changing consumer psychology. In the post OCHN Housing Market Update: Is OC forming a bubble?, I argued that we are not in a housing bubble -- at least not yet. My analysis of value -- a method of establishing value that properly identified the housing…[READ MORE]

If you repeat something enough times, does it make it true? One of the great Real Estate canards of the past year is the “myth of shadow inventory”. The realtor community had been drum beating this meme throughout 2013 in an effort to show how strong the market has been, and why you need to buy because inventory isn't coming back.  A simple Google Search for that phrase yields hundreds of articles posted just last year.... A myth-busting cacophony, or conspiracy, if you like. But does repeating that shadow inventory is a myth mean it’s true? I don't think so. Yes, there are fewer foreclosures thanks to market interference/consumer protective laws like California’s “Homeowner’s Bill Of Rights” and Nevada’s similar…[READ MORE]

 The price of gold is heavily manipulated. On Monday, January 6, a sell order for 4,200 contracts of February gold futures was executed; all at once.  If you are familiar with the gold futures market, and who is, you would know that a sell order for 4,200 contracts of gold futures represents a future sale of 420,000 troy ounces of gold in February, and the market price of those 420,000 ounces of gold on Monday morning was about $516,600,000.  In words, that is over 516 million dollars or about half a billion dollars.  Another report gives the figure as 11,000 contracts, or  1,100,000 ounces of gold, or 1.3 trillion in dollars.  But the exact numbers are not so important to this particular post.…[READ MORE]