Warning! Don’t read today’s post if you have a weak stomach or a strong affinity for consumer debt.
This is your only warning.
Hang on, Alice, as we bolt through the rabbit hole on an adventure to financial Wonderland. Come with me on a fantastic journey to the Great Lakes to save fish falling prey to evil bloodsuckers, and along the way we will save borrowers from the evil of debt peddler, Louie the Lender Lamprey.
The Sea Lamprey and the Great Lakes
Prior to canals of the nineteenth century, the Great Lakes were a thriving fishery. With over fishing and the introduction of the sea lamprey through the canals, the fisheries of the Great Lakes were devastated. According to Wikipedia:
The Sea lamprey (Petromyzon marinus) is a parasitic lamprey (a kind of jawless fish) found on the Atlantic coasts of Europe and North America, in the western Mediterranean Sea, and in the Great Lakes. It is brown or gray on its back and white or gray on the underside and can grow to be up to 90 cm (35.5 in) long. Sea lampreys prey on a wide variety of fish. [Pictured right: Louie the Lender Lamprey] The lamprey uses its suction-cup like mouth to attach itself to the skin of a fish and rasps away tissue with its sharp probing tongue and teeth. Secretions in the lamprey’s mouth prevent the victim’s blood from clotting. Victims typically die from excessive blood loss or infection. [emphasis is mine]
The sea lamprey and the fish the lamprey scrapes and chugs is an allegory for the modern lender and the borrower the lender infests.
Lenders and the Sea Lamprey
The similarities between sea lampreys and lenders are as follows:
- The sea lamprey’s sole purpose is to attach itself to a productive organism and syphon a steady stream nutrients from the host’s bloodstream. A lender’s sole purpose is to attach itself to a borrower and obtain a steady stream of cashflow from the borrower’s productive financial life. [Pictured right: Louie's courtship dance]
- The sea lamprey provides no value to the fish, and once attached it remains attached. The value of lending to borrowers is debatable (mortgage debt is tolerable, but consumer debt is not); however, with the “sophisticated” borrowers of today who believe debt is something serviced and not retired, once a lender becomes attached to a borrower, they stay attached for life.
- Sea lampreys were not a problem in the past, and fish populations had to adapt or die when the sea lamprey was introduced. Modern credit cards were introduced in 1958, and with the explosion of debt availability over the last 50 years, our population has come to accept borrowing — and its associated lending sea lampreys.
- If the sea lamprey were eliminated, nutrients diverted to its existence would instead remain with the fish resulting in stronger fish populations. If lenders were eliminated, particularly those focused on providing consumer debt, billions of dollars flowing in to lending would be spent by a stronger, debt-free population on more productive economic uses. Consumer credit only benefits lenders.
- Sea lampreys tend to seek out juvenile fish because the young have fewer defenses, the young are stronger and more resilient and thereby less likely to die, and the young fish can nourish the lamprey indefinitely. Lenders indiscriminately target 18 to 21 year-olds through credit card offers and mountains of student loan debt in order to acclimate teens to debt and assist them in sustaining debt through their funeral pyre.
- If a sea lamprey causes the death of its host, it detaches itself and moves on to another. If a lender bankrupts a borrower — causes a financial death — the lender detaches itself and moves on to another borrower. No emotion when pulling out.
Mortgage Debt
Most home buyers allow lenders to suckle financial excretions through a home mortgage. If the cost of the mortgage is offset by saving on housing expenses, the debt is actually beneficial, and the relationship is symbiotic, like a clownfish (Nemo) and its protective sea anemone, or perhaps the Trill from Star Trek. However, if mortgage interest exceeds comparable rents, the excess lender slurp is parasitic and the borrower loses life force to the lender lamprey.
A typical borrower during the Great Housing Bubble looked like a fish with the two implanted sea lampreys [Pictured right: Big and Little Louie after borrower attachment]. The first mortgage is like the lamprey attached at the throat, and the second mortgage is like the one attached at the nether regions.
Do you know that sensitive spot on the soft tissues of your throat about an inch above your collarbone? Taking on mortgage debt is akin to allowing Louie the Lender Lamprey to drive his dagger teeth deeply into your epiglottis with a cartilage-cracking crunch; let him rasp a gaping gash, ply you with salivary siphon grease, and deflect your financial food toward his gullet.
The pain is necessary evil perhaps, but one to be minimized to the degree possible and removed at the earliest convenience. Unfortunately, most borrowers want to secure the largest toothy leech available and nourish the sponger’s growth until the borrower’s death. ~Gulp~ 
The second mortgage — the lamprey biting the borrower’s butt — is usually a non-lethal pain in the a$$. In fact, this biting flesh wound is similar to any consumer borrowing like home equity lines of credit, car loans, credit cards, and other payment liabilities like forgotten subscriptions to magazines, websites, or software. Taking on debt may have delivered a fleeting pleasure, but like gonorrhea, debt plagues borrowers until the debt-disease is treated and ultimately banished forever for optimum financial health.
As our foreclosure crisis illustrates, many borrowers who take on excessive debt and hope to manage their parasites underestimate the tissue damage and succumb to the vampiric excess. Like Louie’s former customers [pictured to right], many people bought McMansions, they took out multiple mortgages, and they used financing terms requiring accelerating home price appreciation in order to function. The collapse of hundreds of thousands of personal Ponzi Schemes litters America with of rotting financial carcasses — a pungent and painful reminder. Renting-former-owners spend their hours in fear or denial of the collection call yet to come from a long-forgotten mortgage debt holder.
Like most others, I will select a lender lamprey and hope my self discipline prevents him from growing out of control. Images like the ones from this post should ensure I remain focused on his removal.
[seven seconds you will enjoy]
The lamprey earrings are a nice adornment, aren’t they?
$102,000 washed away
The owner of today’s featured property got a “deal” after prices fell in 2007. I imagine he was ecstatic to get such a good price, after all, real estate prices always go up. He paid $510,000 using a $408,000 first mortgage and a $102,000 down payment.
This property was in shadow inventory for quite a while. There were no notices issued on this property before mid 2012, but apparently he quit paying his HOA dues long before then. The HOA foreclosed on the property (probably believing there was equity in it) on 1/27/2012. Unless he was paying the mortgage and not paying the HOA dues, both payment were likely delinquent for a very long time in order to get the HOA to foreclose.
The bank finally did foreclose on 10/25/2012 for $423,958. Perhaps the flippers missed this one. If the bank gets their $544,900 asking price, they will make a good profit on the deal.
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Proprietary OC Housing News home purchase analysis
103 VIA PRESA San Clemente, CA 92672
$544,900 …….. Asking Price
$510,000 ………. Purchase Price
11/30/2007 ………. Purchase Date
$34,900 ………. Gross Gain (Loss)
($43,592) ………… Commissions and Costs at 8%
============================================
($8,692) ………. Net Gain (Loss)
============================================
6.8% ………. Gross Percent Change
-1.7% ………. Net Percent Change
1.3% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$544,900 …….. Asking Price
$108,980 ………… 20% Down Conventional
3.46% …………. Mortgage Interest Rate
30 ……………… Number of Years
$435,920 …….. Mortgage
$111,802 ………. Income Requirement
$1,948 ………… Monthly Mortgage Payment
$472 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$136 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$332 ………… Homeowners Association Fees
============================================
$2,888 ………. Monthly Cash Outlays
($303) ………. Tax Savings
($691) ………. Equity Hidden in Payment
$119 ………….. Lost Income to Down Payment
$88 ………….. Maintenance and Replacement Reserves
============================================
$2,102 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,949 ………… Furnishing and Move In at 1% + $1,500
$6,949 ………… Closing Costs at 1% + $1,500
$4,359 ………… Interest Points
$108,980 ………… Down Payment
============================================
$127,237 ………. Total Cash Costs
$32,200 ………. Emergency Cash Reserves
============================================
$159,437 ………. Total Savings Needed
The property above is available for sale on the MLS.
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40 Responses to “Think you want consumer debt? Think again…”
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Too bad …. but the one thing the parasitic-class cannot guarantee is that the money they print will have value.
You have to figure the lenders making long-term loans will get dollars back worth much less than the money they lent out.
Sort like the Chinese and Japaneses’ US Treasury purchases.
Yes. Of course, they are just printing the money too, so I guess it’s a wash.
Do you think it will a race on who can devalue first? It’s getting a little scary.
Yes. It is a race to see who can devalue first. It’s called “beggar thy neighbor,” and it’s a big problem nobody knows how to resolve.
The printing wars are essentially a race to the bottom, but the silver lining lies in the near majority desire for sound money afterward.
Right now, nobody wants it. After the printing war, everyone will.
At that point, the economy will begin to recover
Look at the comps on this one from redfin. 8 sales in the past 6 months in the same complex, all in the mid-high 400s.
How will they get financing for north of 500? I would be curious to read a follow-up with the loan info from the sale
I’ve been told anecdotally that appraisers are hitting the numbers if the asking price is withing about 10% of recent comps. Apparently, their banking masters have told them they want prices to go up.
but….. i thought we introduced regulatory changes for appraisers.
New Loan Servicing Rules Expected to Reduce Nonprime Lending
The final servicing rules, which were released January 17, include rules on communication procedures with borrowers and loss mitigation practices for homeowners facing foreclosure, among other requirements and restrictions.
The rules will take effect January 10, 2014, but there are certain exemptions for small servicers, which CFPB defines as servicers who service 5,000 or fewer loans and service only mortgage loans that they or an affiliate originated or own.
While the largest servicers have already implemented a number of servicing requirements due to the $25 billion national mortgage settlement with federal and state officials, as well as consent orders from regulators, a key change to the CFPB’s rules is the “greatly extended scope, as they will govern both banks and nonbanks of all sizes and types,” Fitch explained.
“While these changes should be manageable for larger servicers, Fitch believes their impact will be most directly felt by mid-sized to smaller institutions due to the greater impact of compliance costs,” the rating agency stated.
As smaller and mid-sized servicers get squeezed, they may also feel pressure to leave the servicing business due to the raised compliance costs coupled with insufficient returns. Large banks, on the other hand, are expected to focus on core prime servicing while substantially decreasing their nonprime presence as a result of increased scrutiny and compliance risks, according to Fitch.
I don’t know about Orange County, but rental increases should stop on a national scale.
Why Home Builders Are Turning to Rental Apartments
By Diana Olick | CNBC – Fri, Jan 25, 2013 10:33 AM EST
As the old adage goes, if you can’t beat ‘em, join ‘em. Precisely what some of the nation’s home builders are doing. Faced with heavy competition from a hot rental market, they are turning some of their resources to building multi-family, rental apartment buildings.
“There is always a need for construction of multi-family, and it has always been an important part of the housing picture,” says Stuart Miller, CEO of Miami-based Lennar (LEN), one of the nation’s largest public home builders.
Lennar executives announced that the company has a development pipeline of over a billion dollars earmarked for multi-family and expects to build over 6500 units. It will start construction on 3000 of those in 2013. In partnerships with other developers, Lennar is already building 264 units in suburban Atlanta and 316 units in Jacksonville, Florida. Both are expected to be delivered by the middle of this year. Pennsylvania-based Toll Bros (TOL) has also expanded into the rental market.
Since 2005, according to the U.S. Census Bureau, every new household formed has been a rental household. The sector has been underbuilt since 2004, so there is a lack of product available, which in turn has caused rents to rise steadily in most markets. New construction is increasing, but it is not even close to outpacing demand.
“This increase in new construction is congruous with the strength in market fundamentals – strong performance is serving as a catalyst for new development,” said Ryan Severino of Reis Inc. “If anything the amount of new completions that have been delivered up to this point is low relative to the strength of the apartment market. ”
There were just over 200,000 multi-family housing starts in 2012, according to the U.S. Commerce Department, far lower than the annual average of 340,000 over the past decade.
“We are still woefully short of what’s going to be coming in terms of demand,” says Buck Horne, a housing analyst at Raymond James. “Lennar is going where the demand is going to be. They’re going where they know they can make money.”
Lennar has positioned itself with offices in Atlanta, Charlotte, Chicago, Dallas, Denver, Miami, Orange County, San Francisco and Seattle, all markets where apartment demand is high, despite a recovery in the housing market.
“You’ve got to be very selective about your locations,” warns Miller. “We stay pretty thoughtful about where there are imbalances and too much building going on. This is not a market where you can start building any place.”
Miller is not concerned with competition from investors in the single family rental market, again focusing on location as his leg up. A lot of the foreclosed properties being absorbed by hedge funds and the like are not concentrated in the top markets targeted by Lennar. They are either inner city or third-level suburban, according to Miller.
Expanding household formations, coupled with credit and down payment-challenged new home buyers will benefit the rental sector for the foreseeable future. Many renters will eventually move to home buying, especially as their families expand. For Lennar, getting those potential buyers into a Lennar rental can only benefit the builder in the future.
“In many instances, the very first introduction to housing is through rentals and through branding and knowing consumers. Being there gives us a leg up and advantage in terms of new home sales later,” says Miller.
My apartment lease expires in July. Let’s hope the IAC rental increases aren’t as severe this year! The last time my lease expired, in March 2012, their letter tried to justify our 6% proposed increase because at that time, a propaganda piece in the OC Register had just touted the average apartment rent in Irvine had increased 6% yoy.
Anyone out there had a recent lease renewal at an IAC community? How much did they try to raise?
What many fail to realize is that all the subsidy, ZIRP, debt monetization, bailouts, etc in the past few years is helping to buoy rents just the same as house prices are being buoyed. The entire economy is being buoyed,
That’s what the federal reserve wants. They know they are buoying the economy. That’s the goal of their money-printing policies, and apparently, that’s what everyone wants irregardless of the hidden consequences.
I guess Fannie and Freddie want to recycle these loan owners into buyers very soon.
Fannie Mae (FNMA) and Freddie Mac will let some borrowers who kept up payments as their homes lost value erase their debts by giving up the properties, helping Americans escape underwater loans while adding to losses at the mortgage giants bailed out with $190 billion of taxpayer money.
Fannie Mae and Freddie Mac have drawn almost $190 billion in taxpayer aid since they were taken into conservatorship in September of 2008 when investments in risky loans pushed them to the brink of insolvency.
Non-delinquent borrowers with illness, job changes or other reasons they need to move will become eligible in March to apply for a so-called deed-in-lieu transaction that erases the shortfall between a property’s value and the size of its mortgage. It follows a change in November that lets on-time borrowers sell properties for less than they owe, known as short sales, wiping out the remaining mortgage debt. Normally, the lenders could pursue people to recoup their losses.
“It’s an extraordinarily generous approach for companies still in debt to American taxpayers,” said Phillip Swagel, a professor at the University of Maryland’s School of Public Policy in College Park, Maryland. “We’re giving people an incentive to walk away, right when the housing market is starting to right itself.”
Previous foreclosure-prevention programs were designed to help only borrowers on the verge of losing their homes, in effect penalizing those who kept paying, according to homeowner advocates such as Julia Gordon, director of housing finance and policy at the Center for American Progress in Washington. In some cases, servicers have advised borrowers to stop making their mortgage payments to qualify for help, leading to evictions if their applications are denied, Gordon said.
Underwater Properties
U.S. residential real estate lost about a third of its value after home prices peaked in 2006. The collapse of the mortgage market in 2008 sparked a global financial meltdown and created the worst foreclosure crisis since the Great Depression. In the last year, home prices have started to revive. The median price of an existing home rose about 7 percent in 2012 from 2010, when it fell 5 percent from the year before.
There are about 7 million underwater properties, worth less than the mortgages on them, down from 11 million in 2011, according to JPMorgan Chase & Co. (JPM) Within two years, the number of upside-down home loans could drop to 4 million, the New York bank said.
“Fannie and Freddie are playing catch-up, making these changes when defaults are falling and the housing market is coming back to some extent,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California. “It should have happened a long time ago.”
Taxpayer Aid
Fannie Mae and Freddie Mac have drawn almost $190 billion in taxpayer aid since they were taken into conservatorship in September of 2008 when investments in risky loans pushed them to the brink of insolvency. They’ve paid a combined $50 billion in dividends back to the U.S. Treasury. The companies own or guarantee $5.2 trillion of mortgages, more than half the outstanding U.S. home loans.
“The government is saying you can just turn in your home and we’re not going to come after you for the money you still owe,” said Peter Schiff, chief executive officer of Connecticut-based brokerage firm Euro Pacific Capital. “Some of these are going to be people who might otherwise have stayed in their homes and kept making payments.”
Gordon, the homeowners’ advocate, argues that while the change may be late, it’s still good policy.
‘Finally Recognizing’
The deed-in-lieu transactions, which require homeowners to leave properties in good condition, preserve the value of homes by preventing owners from abandoning them to take a new job or cope with an illness, Gordon said. Vacant and dilapidated real estate drags down values of nearby houses, increases expenses for Fannie Mae and Freddie Mac, and reduces the amount they’ll recover when the property is sold, she said.
“Fannie and Freddie are finally recognizing that some people are stuck in their homes,” she said. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their mortgage — not the investor, not the homeowner, and certainly not the neighborhood,” Gordon said.
The new programs are separate from the government’s Making Home Affordable foreclosure-prevention efforts that require homeowners to be in or near default. The Fannie Mae and Freddie Mac programs don’t require borrowers to be turned down for a modification before applying, as does the Treasury-run Home Affordable Foreclosure Alternative program, or Hafa.
Aligning Rules
The companies changed their programs in tandem to satisfy a directive from their regulator, the Federal Housing Finance Agency, to align some of their servicing rules, said Brad German, a spokesman for McLean, Virginia-based Freddie Mac. While Freddie Mac previously accepted applications from on-time borrowers, “approvals were rare,” German said.
For either a deed-in-lieu or a short sale, the failure to pay off the full mortgage balance will be reported to credit bureaus even as the amount is forgiven. The effect on scores will be nearly as bad as foreclosures, according to Fair Isaac Corp. However, if borrowers keep current with their payments during the process, they won’t take additional hits for delinquencies.
To qualify for the programs, borrowers are required to have a 55 percent debt-to-income ratio — meaning 55 percent of their monthly gross income goes to paying debt. To be eligible, homeowners have to document a hardship, such as illness, for Fannie Mae and Freddie Mac to consider the deal. For a deed-in- lieu transactions, servicers must confirm the property is being left in good condition.
Well, not very fast really. Three years to get another Frannie or FHA loan, and that’s assuming that you can save 20% for the next house while overpaying for a crappy rental.
If you’ve been sucking wind for several years and you have several more to go, this is far from a quick turnaround. It is, however, going to free up hundreds of thousands of saleable properties, which is likely the point. Now that the corpse is dead we can release the hand around his windpipe.
Still, the part about letting people with vacation homes slip out of their primary homes in this manner is really offensive. But there’s not much demand (yet) for vacation homes (at least not for the masses–Florida still stinks but the Hamptons are fully recovered, thank God!).
Again, we make a mistake if we consider this to be about the loanowner and not the property markets in general.
But that’s just it. The feds want Fannie and Freddie to make more money they charging higher fees on new loan products. FHA is needs a bailout, so Fannie and Freddie (the rumor is) might do lower down payment loans with much higher fees. Basically, swapping FHA with GSE. And under the new rules starting in 2014 they would be qualified mortgages.
Yegads! I had not heard that rumor. Banks had better worry that home loans will go the route of the student loan–government as lender, cutting out the middle man. But really, what we’re talking about with low interest rates but high fees is renting from Uncle Sam, with all the maintenance and taxes on you.
There appear to be a million roads to socialism. This is the sneakiest.
Sellers Keeping Properties Off Market to Sell for More Later
Redfin’s latest survey of homeowners presented a mixed bag for future inventory, the company reported.
According to Redfin’s latest Real-Time Seller Survey, 81 percent of sellers believe home prices will rise in their area over the next year, up from 75 percent in the fourth quarter of 2012. While the increase in seller confidence should translate to increased inventory, the results have yet to be seen.
“Responses to Redfin’s Real-Time Seller Survey present a classic good news/bad news scenario. The good news is that homeowner confidence continues to rise—22 percent of sellers believe now is a good time to sell, up from just 15 percent three months ago—indicating a potential easing of tight inventory in the coming months,” Redfin analyst Tim Ellis wrote in a blog for the company.
“The bad news is that many would-be sellers continue to opt for renting out their homes rather than selling, so any increases in listings are likely to be modest. Even when (or if) more inventory comes, it’s likely to hit later this year
than most years, as many sellers have shifted their timelines a few months into the future,” he continued.
According to the survey, 49 percent of respondents indicated they were planning to sell, up from 45 percent in last quarter’s survey. However, the percentage of respondents who indicated they were selling “right now” fell by nearly half to 16 percent.
Meanwhile, the number of respondents saying now is a good time to buy fell 4 percentage points to 54 percent.
“According to Redfin’s latest Real-Time Seller Survey, 81 percent of sellers believe home prices will rise in their area over the next year, up from 75 percent in the fourth quarter of 2012″
That’s a lot of hope. Most homeowners don’t realize the affect of mortgage rates on home values.
You can’t be a government bureaucrat, and not be willing to give away things. That’s why you exist!
Homeowner advocates target Demarco in Obama’s first 100 days
“…For the last few years, Ed DeMarco, head of the FHFA, has obstinately and ideologically opposed principal reduction/correction — resetting mortgages to fair market value — even though it’s been documented by FHFA, Fannie and Freddie themselves that this would be a good policy for homeowners and taxpayers. Principal reduction is the bold and fair policy we need at Fannie, Freddie and through the banks to fix the housing crisis, rebuild our communities, create jobs, and reset the economy…”
http://thehill.com/blogs/congress-blog/economy-a-budget/279041-president-obama-should-remove-ed-demarco-from-post%20
“even though it’s been documented by FHFA, Fannie and Freddie themselves that this would be a good policy for homeowners and taxpayers.”
That was a bullshit study that DeMarco called out as bullshit, but people on the Left take it as gospel because it suits their ideology.
I may use that article for a post. It’s the kind of crap that needs to be called out for the ideological bullshit it is.
At least the left is consistent in every facet of politics. There is no consequence in Utopia.
Of course there are consequences. They know that. But not for the Inner Party members — those who are on the public payroll deciding who gets the favors. Their salaries will continue, no matter what happens to their clients. Heck, they deserve a raise, don’t they, for their heroic efforts to fight poverty? Sure they do.
SOP for politicians and govt agency are to say 2 extremes over the course of a few years. OHB: I’m against a bank bailout to 3 trillion and do you want more. The studies are used to justify the vacillation and flip flop while they apply the Vaseoline. The studies are used to test the waters.
Debt credit was enforced by the Western powers’ military in the early 1900′s. How will it be enforced today? Banks gained super creditor status about 10 years or more ago.
The QE plans are working exactly as expected. High unemployment, suppressed wages and benefits, record corporate profits, inflation on consumables. This is a repeat of the 1930′s. We just need a war zone that we can sell the supplies to instead of buy the supplies for them.
The yield spread between the 30-year fixed mortgage and 10-year US Treasury Bond is decreasing. The 10 year Bond is at 1.98%.
The rate on our 15-year refi decreased ~25 bps after we had locked and right after the Fed announced its plans to purchase $40b in MBS every month with no definitive expiration date. I thought it was another case of unfortunate timing for us, but the 15-year rate is now right back to the rate we received in the refi.
We will probably see mortgage interest rates bottom out for this cycle early this year. Declining spreads is the first sign of pricing pressure on bonds.
With word out from the fed—last week—that during the Dec meeting, there was ‘QE4eva’ dissention building amongst the ranks + JPM, PIMCO and others out in the media recently yapping about the prospects of rising inflation, and now BoA joining-in, issuing a bond market crash alert:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9825363/Bank-of-America-issues-bond-crash-alert-on-Fed-tightening-fears.html
those who’re cynical (for good reason
) would easily conclude we’re merely seeing a talk the market down ‘flush weak hands’ power-play being orchestrated, where the big boys are standing-by ready to buy-up all the bonds they can get their hands on at reduced prices. If that is the case, expect yields to hit new lows (one more time before the big-bang) in the coming weeks/months 
Might be a headfake.
One of these times it wont be.
No, those who are cynical think the entire presumption there — that the US is going to resume strong 4-5% economic growth in 2013-14 — is a delusion so fully disconnected from reality that only a Wall Street banker or DC Democrat could swallow it.
Out here in the real world, real salaries are down, unemployment remains just as strong as ever (even if the government numbers are improving from people just quitting work entirely), and the prices of things are climbing unpleasantly. It doesn’t feel like economic recovery, let alone boom times, at all. It feels like 70s stagflation, at best.
But, you know, if you’re a big money man, why bother looking out the window when you can instead take your data from some ubercool spreadsheet chock ‘o’ block full of clever numbers, prepared specially for you by the bright young economics PhDs on the 5th floor?
Here’s an alternative POV. With graphs:
http://charleshughsmith.blogspot.com/2013/01/why-employment-is-dead-in-water.html
Note well, the argument here is that one of the very few sectors doing quite well in the Money Games new regime is finance, so the weirdly bullish perspective of a BofA investment strategist makes perfect sense, inside his bubble. The only people at the cocktail parties to which he goes are other finance guys, NGO lawyers, and industry group lobbyists representing Fortune 500 companies. He’s probably never met a plumber with 3 apprentices, a car mechanic, a journeyman carpenter or a guy with a $1M tile business except when he’s a customer of theirs. So what does he know about their on-the-ground actual experience? Zip.
One of the horrifying facts about modern American business life is that guys like BofA investment managers have direct access to the highest level of government — I am 100% sure Brian Moynihan can get President Obama, Secretary Geithner or Chairman Bernanke, Senator Reid, or Representative Boehner on the phone any time — and dominate policy discussions and prescriptions, but the huge bulk of small businessmen who hire the great majority of Americans are basically an alien race as far as Washington is concerned.
Perfect example here, Carl Pham… a business I own is hit with $1,000 of extra annual unemployment tax cost due to CA taking too much from the Feds and reducing UI credit to all CA businesses. We are also hit with $17,000 in additional Worker’s Comp insurance, due presumably in large part to frivolous claims in CA’s broken WC system coupled with escalating medical costs due to Obamacare. We also have $5,000 in additional legal costs due to frivolous actions in supposedly employee friendly states, for which we have to fight to dismiss. That alone, not even factoring in any other normal small increases in costs of doing business, accounts for $23,000.
We were considering hiring another administrative/sales office person for approximately $30,000/year in order to help grow the business. But seeing as economic growth opportunity is limited, coupled with a 30k hit out of the bottom line (as opposed to only 7-10k had we not had these other drastic items) we are NOT hiring anyone. And thus, that is one less person with a full-time job. Multiply by thousands of small businesses in OC, then CA… and the chilling effect is severe.
Add Deutsche Bank to the list….
————————————————–
A Gap Is Emerging That Shows Why The Bond Market Could Get Crushed
This has Wall Street buzzing about the “Great Rotation,” a big shift out of bonds and into stocks that is becoming widely expected sometime in 2013.
http://www.businessinsider.com/dislocation-between-risky-assets-and-rates-2013-1
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In other words: 1-1.25% yields on the10 yr are on the way
There is no way all that money in bonds is going to go into equities with unemployment at 8% and GDP growth at — the “Recovery Is Just Around The Corner!” Hooverville media cheerily tell us — a whopping 1.1% last quarter. Woo-hoo! Good times are a-comin’…record profits…startups and IPOs galore…!
Not. I’m as clueless as the next person as to where capital goes these days to get any kind of real return. It’s gone into bonds, it’s gone into real estate, it’s gone into gold. What’s left for the anxious Wall Street portfolio manager trying frantically to convert those millions of newly-printed dollars into a genuine real asset, so that the massive pension fund he’s managing can reap the 7% return they’ve promised the taxpayers? God knows. This is the big mystery of our time.
In one sense, our future is perfectly clear, because the endpoint of monetizing debt is always the same: savings are destroyed, debt evaporates, and the only thing worth having are hard (i.e. non-financial) assets that people need to actually live and work, in previous centuries things like land, oil or food. We know that’s the endpoint. We know anyone left standing with a bagful of dollars but no ownership of a hard asset will be ruined as the dollar reverts to the value of the paper on which it’s printed.
But which will be the “hard” assets of the society of 2020 that survive this monetary death spiral, and how they will reveal themselves, is still unknown. Will it be owning real estate? Corn futures? Shares in a natural gas pipeline or copper mine? Canadian or Australian dollars? Bonds sold by GE or the Treasury? Tech stocks? Non-tech stocks? Which will be the last man standing? Whoever figures this out today will be very rich in 10 years, and whoever does not will be impoverished. We’re all looking for clues.
Of course, we’d be better off working hard and saving, but when the central monetary-games tornado starts up that’s no longer an option. The vortex will sweep away the ants along with the grasshoppers.
Uh….. clearly, you have no clue about what cynics think.
Carl Pham also blindly thought Romney stood a chance of winning the Presidency.
Fools will be fools.
Thanks for the interesting perspective on bonds. The consensus is usually wrong, which means you stand an excellent chance of being right.
I dunno, Mellow. Romney won 24 states to Obama’s 26. Obama’s popular vote edge was a shade under 4 of every 100 votes cast. You call that an overwhelming victory?
Me, I call it a squeaker. And considering the enormous advantage of being (1) America’s First Black President(TM), (2) the incumbent, and (3) President in time of bad fortune, I’d say Obama quite nearly threw away what ought to have been a cakewalk. Romney had a very good chance indeed. But that’s not how the dice fell out, this time.
Anybody who reads anything larger-scale into the election of 2012 is a complete fool, just like Republicans who read too much into the election of 1984 or 2004.
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