Mar312015
The unjust enrichment of delinquent mortgage squatters
Tens of thousands of delinquent mortgage squatters may be awarded free housing if attorneys prevail with their statutory claims.
“In law, unjust enrichment is where one person is unjustly or by chance enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing,” according to Wikipedia. In terms of delinquent mortgage squatters, they are clearly being enriched at the expense of the lender who provided a loan in good faith on the assumption the loan would be repaid with interest.
Our real estate finance system functions because lenders believe they will get their money back either through repayment or foreclosure if the borrower becomes delinquent. If lenders didn’t have this assurance, they simply wouldn’t loan the money. Would you?
At common law, a claim based on unjust enrichment can be submitted to five stages of analysis. These can be summarized in the form of the following questions:
- Was the defendant enriched?
If delinquent mortgage squatters get free housing by not making payments, and perhaps a free house by never repaying the loan, then they are certainly enriched.
- Was the enrichment at the expense of the claimant?
The lender clearly expected to be repaid in accordance with the Promissory Note, and they believed they had a right to call an auction in accordance with the Mortgage agreement. The lender losses to the same degree a borrower benefits.
- Was the enrichment unjust?
Despite the plethora of rationalizations for squatting (lost paperwork, unclear loan terms, evil banks, and so on), there is no equitable justification for enriching borrowers at the expense of lenders.
- Does the defendant have a defense?
None that withstood any reasonable challenge in court.
- What remedies are available to the claimant?
Foreclosure and deficiency judgment, unless they are barred by the courts, which is what some delinquent mortgage squatters and their attorneys argue today.
Foreclosure to Home Free, as 5-Year Clock Expires
By MICHAEL CORKERYMARCH 29, 2015
MIAMI — In September, Susan Rodolfi celebrated an unusual anniversary: five years of missed mortgage payments.
She is like a ghost of the housing market’s painful past, one of thousands of Americans who have skipped years of mortgage payments and are still living in their homes.
What are we coming to when we begin celebrating deadbeats?
Now a legal quirk could bring a surreal ending to her foreclosure case and many others around the country: They may get to keep their homes without ever having to pay another dime.
The reason, lawyers for homeowners argue, is that the cases have dragged on too long.
There are tens of thousands of homeowners who have missed more than five years of mortgage payments, …
Just the group of people we want to reward with free houses, right?
People respond to incentives. If judges start rewarding delinquent mortgage squatters with free houses, what is everyone encouraged to do?
“No one gets a free house,” Judge Michael B. Kaplan of the United States Bankruptcy Court in Trenton wrote in an opinion late last year, reflecting what he characterized as a longstanding “admonition” he and others made during the foreclosure crisis. But after effectively ending a New Jersey homeowner’s foreclosure case in November because the state’s six-year statute of limitations had expired, he wrote in his opinion, “With a proper measure of disquiet and chagrin, the court now must retreat from this position.” …
What is the proper measure of disquiet and chagrin that goes along with destroying our property finance system?
Bank of America, for example, has initiated the foreclosure process on roughly 20,000 mortgages that have not been paid in at least five years. The bank estimates that 90 percent of those homes are still occupied.
How many of you got free housing over the last five years? How do you feel about the benefit these deadbeats enjoyed while you continued to make payments?
Lawyers for homeowners in Florida contend that lenders have five years to file for foreclosure after a homeowner defaults, normally after several months of missed payments, and the mortgage is “accelerated,” meaning that the bank says that the debt is due all at once. …
The issue is now before the Florida Supreme Court.
The lenders’ lawyers have warned in court papers that if the state’s high court sides with the homeowners, “it would spawn a public policy hazard” and dissuade banks from extending mortgages in Florida in the future.
For as much as I don’t like siding with bankers, in this instance they are correct. A ruling to give free houses to delinquent mortgage squatters is the worst possible outcome.
In New Jersey, where the statute of limitations on foreclosures is six years, the issue has just started being argued in the courts. In November, a bankruptcy judge in Trenton grudgingly allowed a Madison, N.J., man to walk away from a $520,000 mortgage that had been in default since 2007.
In concluding his opinion, Judge Kaplan wrote, “the court will proceed to gargle in an effort to remove the lingering bad taste.”
The lender has appealed.
It’s difficult to imagine the specifics of the case that prompted the judge to make such a bad decision. We can only hope the appeals court removes the bad taste from everyone’s mouth.
“People who are paying their mortgage might see this as a windfall for the homeowner,” said one of her lawyers, Martin G. McCarthy. “But the lenders are more than partly to blame, and in Susan’s case, I wouldn’t feel bad for them.”
Truly one of the lamest justifications for unjust enrichment I’ve ever read.
And for the record, just how upstanding a citizen was the defendant here?
For her part, Ms. Rodolfi, 47, said, “If they had just agreed to modify my loan, I would be paying my mortgage, and we wouldn’t be at this point.”
Remember that statement. It turns out to be a bold-faced lie.
It is easy to see why she has been fighting all these years to keep her home, which Nationstar says is worth $272,000.
Her working-class neighborhood is a short drive from Coconut Grove, a wealthy waterfront enclave of Miami. Her bedroom opens up onto a pool, shaded by palm trees. Outside her house, she parks a small motorboat she named Mermaid. The property includes an adjoining house that she rents out.
Good to know she’s kept up her entitlements. She even makes money from the property.
Instead of making her roughly $1,300 monthly mortgage payment, she pays her lawyer $500 a month to represent her in court.
In June 2010, Aurora agreed to modify her loan on a trial basis, she said, but waited months to send her the modification deal. When she received the contract in the mail, she refused to sign it, saying that documents had arrived too late.
So the statement earlier about Aurora not agreeing to modify her loan was a lie. She refused to sign the loan modification. Apparently, the deal wasn’t as lucrative as continued free housing, so she didn’t see the need.
Ms. Rodolfi, who now drives a shuttle boat at a local marina, applied for another modification, but Nationstar denied the request.Again, she applied and was rejected. One reason: “excessive forbearance,” which suggests she was too far behind on her mortgage to ever catch up.
Ms. Rodolfi says she accepts responsibility for falling behind on her mortgage, but she blames her lenders for delaying the modification process. She does not relish the idea of keeping her home through a legal maneuver.
She doesn’t relish the idea of keeping her home through a legal maneuver, but she continues to spend $500 per month on attorneys to keep her home through a legal maneuver.
She is still seeking a modification, hoping to rebuild her damaged credit and begin a business.
“I screwed up and they screwed up, so now what?” she said.
Now what? Now she gets out of the home she didn’t pay for. Does she think she deserves to keep this house without paying for it?
Perhaps David J. Stern was one of the good guys. Put him on the case.
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Many states are considering legislating required modification efforts by creditors when mortgages become delinquent. This further complicates the foreclosure process. Creditors must be able to prove they made a reasonable and sufficient effort to assist the troubled borrower.
Requiring banks to modify mortgages, or even just check off the statutory boxes, is going to drive up the cost of mortgages for everyone else. Mortgages go into arrears mainly from loss of income (generally, the loss of a job). How do you modify loan payments when income falls from 100% to 0%? Even $0 payment may be too high if the homeowner has little or no savings.
Maybe we could invent a mortgage vehicle that allows the borrower to choose how much they pay every month depending on their economic circumstances. We could call it a pick-a-pay loan. We could even allow the borrower to pay less than the interest and add that interest to the existing principal. We couldn’t allow this forever, obviously, so after a certain number of years we would have the loan recast into a fixed rate loan at prevailing interest rates. Wait. Isn’t that how we got here?
The parallels between loan modifications and Option ARMs is intentional obfuscated by everyone who advocates loan modifications. Teaser rates, negative amortization, interest-only, payment shock, every negative feature of loans that caused the mortgage crisis are present in loan modifications. And what’s worse is that each of these terms is controlled by lenders rather than borrowers, so borrowers are completely at the mercy of their lenders — mercy that will become much less merciful as incomes rise and prices near the peak.
IR, the judges in these cases did not make “bad decisions”- they had to make the best decisions they could within the framework of bad laws, and you will note that they did it holding their noses.
When you are a judge, you must make decisions in keeping with the laws. You are not permitted to rewrite them. These judges did their best to find a way to rule against the defendants, but they were stuck with laws that protect the takers and plunderers of our society while punishing the innocent.
It would be interesting to know the details that prompted such a repugnant judgment. I don’t know how the judge looked past the problems of unjust enrichment and the potential to destabilize our entire property finance system.
Laws don’t have to be “bad,” for judicial decisions to be difficult. No statute or regulation is going to account for all possible factual scenarios. This is why applying facts to law can be so difficult (and why governments have created high hurdles for people desiring to practice law).
Ben Bernanke Pens First Blog Post, Defends Fed, Says He “Was Concerned About Seniors”
It would appear the $250,000/hour speaking opportunities for Ben Bernanke have ground to a halt, and as such, the former Chairsatan has decided to dispense his wisdom for free to anyone who cares, by becoming a blogger at Brookings. And, not surprisingly, in his first post, the person who less than a decade ago said the following, in exactly those words…
… is out and about defending the Fed and central banks from pushing rates so low, in Europe you are now paid to borrow money, and are charged to save.
So, to those who are too lazy to click on the following link to the Brookings blog where Bernanke is now blogger emeritus, here is the punchline.
In what can only be described as a litany of defensive insecurity, Bernanke launches a full-on assault on all those who accuse the Fed of crushing the economy, which now includes not only tin-foil fringe blogs of the Austrian economics persuasion, but such “very serious people” as Guggenheim’s CIO Scott Minerd who over the weekend said “The long-term consequences of global QE are likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity” and rhetorically asks “Why are interest rates so low? Will they remain low? What are the implications for the economy of low interest rates?”
His response to this rhetorical question, is the following: “If you asked the person in the street, “Why are interest rates so low?”, he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense.”
Actually, it is true inn every sense. What is Bernanke’s loophole? He introduces the concept of the equilibrium real interest rate. In Bernanke’s words:
He is absolutely right. What he just fails to notice is that the entire world is gripped in ZIRP, and increasingly NIRP, is that the current bubble implosion aftermath, now 7 years after the Lehman collapse, is merely the 3rd consecutive bubble burst in the past 15 years. In other words, the Fed may spout whatever mumbo jumbo it wants about why its response to the crisis was required, what it has zero defense against is why its only policy under the Greenspan “Great Moderation” paradigm has been to inflate bubbles, and replace a post-bubble vacuum with another bubble, ultimately leading to a complete and global economic halt, and a world in which central banks now have to monetize all net developed world issuance!
In essence there is no Weimar state any more – the entire world has become Weimar, and the only reason why no currency is hyperinflating in isolation is because absolutely everyone is doing the same cardinal monetary sin at the same time.
Of course, none of this will get much exposure.
What will, however, is the former Chairman’s surprisingly defensive pivot in which it is almost as if he sense what is coming over the horizon when he unexpectedly says it wasn’t his fault the entire nation’s senior population was decimated due to his and Greenspan’s ludicrous policies.
And the punchline:
Perhaps he is referring to seniors such as Omaha Octagenarians who had tens of billions in investments in a financial system that would have gotten insolvent overnight if he hadn’t bailed it out?
Well thank you for the admission that there really is no getting out of a world in which three consecutive and ever larger bubbles has burst, and now with central banks all-in to support the last one, the final outcome will be a global catastrophe with a good global war thrown in for good measure, unlike any seen before.
Yet the funniest part of Bernanke’s diatribe is when he tacitly shifts away from the Fed as the culprit for all that is wrong, and implicitly blames the government.
Let us guess: features such a Congress which is now completely and utterly incapable of passing even one law perhaps because the passage of any real reforms is vastly unpopular for any politician (just look at Greece), and after all why bother: “get to work, Mr. Chairman” has been the operative principle of the US Congress since 2009, a Congress which has had some $4 trillion in deficit funding to keep America going, monetized by Bernanke’s own Fed.
But don’t expect any mention of that in Bernanke’s blog. And likewise, don’t expect your comment to appear on the Brookings blog.
By selected they of course mean only those which praise the man who threw America’s seniors under the bus, er pardon, didn’t.
The FED was founded to prevent the boom/bust cycles of the late 19th and early 20th centuries. Mission Accomplished! By preventing the bust after the housing boom, the FED has prevented any sort of V-shaped recovery. Breadth for depth.
Significant deflation can stimulate the economy. Look at the currency markets. When the Euro dropped relative to the dollar, tourism increased in Europe. Look at the energy market. Lower fuel costs (if sustained) increases spending on consumer goods, and lowers the costs to produce those goods.
Asset preservation keeps the amount of available assets chasing marginal borrowers high, which lowers the rates. If assets had been allowed to find their own value, then rates would be higher. Can’t have it both ways.
If Bernanke really wanted to help seniors, he would have allowed deflation. That way, their fixed income dollars would have stretched farther, and they would have had better rates as well.
Also, seniors as a group hold more assets than younger people (particularly housing equity). So, by propping up assets, Bernanke was helping seniors to the detriment of young people. Shoot, ZIRP probably added $100k to the value of my Dad’s house. Of course, he also hurt some seniors who are living on savings account but he can legitimately say he helped seniors. He certainly helped seniors more than he helped Millennial.
The problems with entrenched deflation are bad, but the side effects of combating deflation are also bad, albeit bad in a different way.
I believe seniors would have been better off if deflation would have been allowed to run its course. Many seniors store their money in very liquid savings accounts rather than other assets. They would have been better served by deflation and higher interest rates. The seniors with riskier assets would have been hurt by deflation as the value of their risky assets would have dropped. I fail to see the great virtue in preserving the value of risky assets, particularly when it tends to promote misallocation of scarce resources and asset bubbles.
Zillow: When ListHub agreement ends, we’ll have most listings ever
realtor.com is big loser
It appears that the Zillow Group (Z) is more than ready for the imminent disappearance of listing data provided by ListHub in a little over a week.
When Zillow canceled its agreement with ListHub in January, a Zillow spokesperson told HousingWire that the site expected a “few hundred thousand” out of the 3.6 million listings on Zillow to be affected when the Listhub agreement ends on April 7, but thanks to a set of newly signed direct listing agreements, Zillow and Trulia are now saying that they’re about to host more listings than ever before.
According to Zillow, the sites signed new direct listing agreements with 16 more multiple listings services in the last week. The inclusion of the listing feeds from those MLSs plus the dozens of other recently announced listing providers will push Zillow and Trulia’s listing count to new heights for either site.
“Notwithstanding seasonality and market inventory fluctuations, as a result of the increase in direct feeds, Zillow and Trulia will have a larger percentage of active listings than they would have if the ListHub contracts had not ended,” the Zillow Group said in a release.
More than one-third of America holds no emergency savings
Despite marked improvement in the economy since the end of the housing crisis, millions of Americans are still on the brink of foreclosure due to a lack of savings, a new study from NeighborWorks America found.
According to the second annual financial capability survey from NeighborWorks America, more than 34% of adults – more than 72 million people – say they don’t have any emergency savings, up from 29% reporting no emergency savings one year ago.
Additionally, the survey found that 47% of adults said that their savings would last three months or less, a significant increase from the 41% in last year’s study.
Of the 34% of adults that say they have no emergency savings, 50% of African-American and 42% of Hispanic adults said that they had no emergency savings, up from 43% and 39%, respectively, in 2014.
“These data are sobering, but not that surprising for those of us who have been working on the front-lines to help families rebuild their finances,” said Paul Weech, president and CEO of NeighborWorks America. “The hole that many people found themselves in due to the Great Recession – dug by sharply reduced home equity during the crisis and lagging wages during the recovery — was deep and digging out is going to take more time.”
Report: GSEs’ HAMP Modifications Perform Better Than Non-HAMP Mods
Non-HAMP private loans were designed to benefit banks, not borrowers
The number of delinquent mortgage loans backed by Fannie Mae and Freddie Mac that were modified through the government’s Home Affordable Modification Program (HAMP) is in many cases less than half the delinquency rate of GSE loans not modified through HAMP, according to the Q4 2014 Foreclosure Prevention Report released late last week.
On Fannie Mae’s modified loans completed through HAMP, 5 percent were 60 days or more delinquent just three months after the modification through the end of Q3 2014. The delinquency rate for non-HAMP loans three months after modification as of Q3 was double that rate, 10 percent. Six month after modification, 8 percent of Fannie Mae’s HAMP loans with a modification through Q2 were 60 or more days delinquent, compared to 16 percent for non-HAMP loans. Nine months after modification, 9 percent of Fannie Mae’s HAMP loans at the end of Q1 were 60 or more days delinquent, compared to a delinquency rate of 18 percent on non-HAMP loan mods.
For Freddie Mac, the delinquency rates are 7 percent on HAMP loans three months after modification as of the end of Q3 2014, compared to 14 percent on non-HAMP loans; 11 percent on HAMP loans six months after modification as of the end of Q2, compared to 17 percent on non-HAMP mods; and 11 percent for HAMP mods as of the end of Q1 compared to 18 percent on non-HAMP loans.
“Evidence so far suggests that participating in the HAMP program has a positive influence on the borrower’s performance in a modification,” said Mark McArdle, Chief of the Homeownership Preservation Office at the U.S. Department of Treasury. “The program’s deep payment reduction, standardization, and homeowner protections likely play a role as do the incentives HAMP offers both homeowners and servicers for borrower success.”
China’s Central Bank Cranks Up Printing Press
China’s most recent effort to prop up its softening real estate market is not enough, analysts say, noting that a series of interest rate cuts from the central bank is the best remedy.
“I’m virtually certain we’ll see further interest rate cuts and a lot more easing, probably bank reserve requirement ratio (RRR) cuts, in the coming months,” Macquarie Asset Management’s Senior Portfolio Manager Sam Le Cornu told CNBC. “I think people are underestimating the degree of liquidity that will be put into the market and the number of interest rate cuts.”
Chinese homebuyers were given a break on Monday after authorities lowered the threshold of down payments on mortgages for second homes to 40 percent from 60 percent and waived the business tax on the resale of property after two years.
The measures follow Beijing’s effort to spur the economy by cutting interest rates twice since November and lowering the reserve requirements of major banks. But that isn’t enough for many investors who continue to call for further easing.
“[China still needs] further across-board monetary policy easing,” Nomura’s China economics team said in a note on Monday. It expects “more policy easing, with three more interest rate cuts and three more reserve requirement ratio cuts over the remainder of 2015.”
However, Nomura believes that Mondays’ move will “see the pace of property market correction stabilizing in the second half of the year.”
Crunching real estate
Monday’s move comes amid growing concerns over slowing economic growth.
China set its 2015 growth target “at around 7 percent” in early March – it’s lowest target in 11 years – after posting its slowest annual growth rate in 24 years in 2014.
The housing sector accounts for around 15 percent of China’s economy, and recent housing data suggests that growth continues to slow.
In February, new home prices fell for the sixth consecutive month amid tepid demand, according to Reuters calculations based on National Bureau of Statistics data. Prices fell an annual 5.7 percent, marking the largest drop since the current data series began in 2011.
But the measures introduced on Monday should help slow the trend, analysts said.
“These measures are positive for housing demand in the short term, especially in top-tier cities,” although they may not be enough to boost investment, which is important for gross domestic product growth forecasts, said Nomura in the note.
Hello Irvine Renter…
I have a “yes but” perspective on this. If it is UNLAWFUL enrichment I am 100% opposed to it. If it’s “unjust” enrichment (as in “unfair,” but not illegal) my opinion is more nuanced. I think that much of the time the enrichment of private equity firms is unjust, but it is perfectly legal. Some of what happens on Wall Street seems unjust, but if a team of high-priced lawyers says its legal it probably is. If a little guy exploits loopholes I may be upset but my anger is tempered by the fact that bazillionaires spend huge amounts of time and money trying to figure out how to do this.
I’m not sure I agree with your “I’m not mad this guy robbed a liquor store because that other guy over there robbed a bank” rationalization. I do get where you’re coming from but both types of exploiters (squatters and banksters) hurt you and me, the little guys.
So if this lady gets a free house, so what? Well, that house, and thousands like it, have been kept off the market for years, making it harder for me to find a house for my family (and propping up prices). If enough people like her get free houses don’t you think there will be a lot of pressure on the banks to increase their fees and rates to maintain their margin? I think so, and that hits you and me right in the pocketbook.
Also, her behavior is disingenuous, immoral, and pathetic. I don’t give her a pass (or a nuanced opinion) just because some other people’s behavior is MORE disingenuous, immoral, and pathetic.
I have to go with AnalogGuy on this one.
The behavior of others provides no justification for bad personal behavior. Whatever banks or hedge funds may have done doesn’t justify the enrichment this woman received. Further, her bad behavior certainly doesn’t deserve a reward.
And the larger impact of the collective behavior of the tens of thousands of people like this woman hurts all of us, just as AnalogGuy describes.
IR, I dunno, what’s so wrong with a a statue of limitations on foreclosure? You’ve been complaining for years about the shadow inventory of homes that should have been on the market but were not as the lenders refused to foreclose on their delinquent loan-owners. Yeah, I hate the idea of someone getting a free house but if that’s what it takes to light a fire under the lender’s butts then so be it! Bring it on! Remember, there is a a statue of limitations on financial fraud…
Personally, I think that both the banks and the squatter have abandoned their interest in the property. Neither has acted as though they expected a continuing right in the homes. The squatter has failed to make timely payments on the note. The bank has failed to exert their ownership interest in a timely manner. Escheat to the state. Sell them at auction to the highest bidder.
That’s a solution I hadn’t thought of. It’s typically been portrayed as whether or not the delinquent mortgage squatter or the evil banker should end up with the property. Screw them both: give it to the State. As a taxpayer, it’s a solution that works for me.
IR, man, again you nailed it – Screw them both: give it to the State. As long as “the State” = “we the people”…
It’s an interesting idea, particularly since both people on the left and the right can get behind it.
OK…I get where AnalogGuy and Irvine Renter are coming from on this one. It just makes me mad when I see the private equity guys and others on Wall Street do all kinds of cr*p and its perfectly legal.
I share your sentiments. I don’t want to see bankers gain benefit of their bad behavior either. I really like Russ’s idea of letting the State take the money so both parties to the transaction end up with nothing.
Economy/markets are now addicted to QE, and as you can clearly see in the SocGen chart below, the upside of QE3 has essentially been maximized (as it was when QE1 & QE2 ended).
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/03/socgen%20question%202.jpg
Problem is, QE has become a political hot potato, so the fed/banks et-al need a good crisis to sell QE4.
Expect rates to rise this year.
Let’s review…
FFR
Dec03: 0.98
Dec04: 2.16
+118 bsp in 12 months. Ouch!
The collapse of the Chinese housing bubble will be the catalyst for QE4.
That meteoric rise in 2004 is what led to much of the financial innovation of the last crisis. That was the year that IO mortgages really became mainstream and it wasn’t long after that Option ARM’s and NINJA’s made houses “affordable” for everyone. It will be interesting to see what a rising FFR does for financial innovation this time around.
The 04 rise was preceded by an even more meteoric fall…
Dec2000: 6.40
Dec2001: 1.82
-458 bsp in 12 months
That move set the ‘foment the bubble’ table.
Mellow Ruse,
In my mind the big issue with future financial innovation is whether or not anyone will buy the paper. If Wall Street starts buying toxic paper again, lenders will originate it. If they don’t buy the garbage, lenders won’t bother because they certainly don’t want to carry it on their balance sheets. Even will all the pressure to chase yield due to the fed’s ZIRP, so far investors haven’t clamored for high-yield mortgages again — so far.
I think the main difference this time is that investment banks won’t be leading the charge, but rather hedge funds will. A few have already stepped into the non-QM space and there’s some chatter that others are soon to follow. I’d imagine the deals are being negotiated as we speak.
It’s like watching a train wreck in slow motion.
Paul Krugman is Sworn Enemy of Wealth
Missing Deflation and the Argument for Inflation
Matthew Klein has been going through Fed transcripts from 2009, and notes that the Fed was surprised at the persistence of inflation despite the Great Recession. Oddly, however, he seems to suggest that this episode weakens the case I and others have been making for a higher inflation target. Actually, it strengthens that case.
First of all, the Fed wasn’t alone in being surprised by the failure of actual deflation to emerge; so were many of us, and we treated it as a problem to be solved. And what emerged as at least one likely culprit was downward nominal wage rigidity, which has been overwhelmingly obvious in recent years, with a clear spike in the distribution of wage changes at precisely zero:
http://graphics8.nytimes.com/images/2015/03/31/opinion/033115krugman1/033115krugman1-tmagArticle.png
What does this have to do with the case for a higher inflation target? That case rests on the problem of the two zeroes: it’s very hard both to cut interest rates below zero (not impossible, we’ve learned, but hard), and it’s also very hard to get cuts in nominal wages. Both problems are much more likely to be serious problems for the economy with, say, 1 percent inflation than with 4 percent inflation.
Now, economists and central bankers were aware of the two-zeroes problem back when they converged on the 2 percent inflation target. That’s why the target was 2, not 0. But they wrongly believed that 2 was enough — that with a 2 percent target neither zero would be binding except in rare cases.
What we’ve learned since then is that the zeroes are a much bigger issue than the consensus had it; that you can spend 6 years and counting at the zero lower bound on interest rates, that you can face many years of grinding, painful adjustment as countries or regions try to achieve “internal devaluation.”
So the failure of inflation to fall as much as predicted in 2009 was part of a series of events that were trying to tell us that the initial inflation target was too low.
Here’s why it could get way worse for gold
http://finance.yahoo.com/news/heres-why-could-way-worse-100000960.html
Gold has gotten little love this year. With a 1.25 percent drop on Monday, the precious metal has sacrificed what little gains it had in 2015. And it could soon get even worse for bullion.
That’s because the Federal Reserve is finally expected to raise its key federal funds rate this year, perhaps as early as June. That could prove to be a highly deleterious event for gold, for several distinct but related reasons.
First, as short-term rates rise, holding gold becomes more painful. Gold is a not yield-bearing asset, a fact that hardly matters in a world in which dollars are hardly a yield-bearing asset, either. But as the risk-free rate increases, keeping dollars stashed in safe accounts becomes relatively more attractive, compared to hoarding gold.
Second, as rates rise, more people around the world will look to keep their money stashed in greenbacks. The increased interest will cause the dollar itself to rise in value-making the price of gold relatively more expensive for overseas buyers, as Erin Gibbs of S&P Capital IQ points out.
“Since about 60 percent of all buyers of gold are from the Asia/Pacific region, most of the buyers are buying it not in local currencies, but in terms of U.S. dollars,” she said. “So as we see this continued dollar appreciation, that makes gold expensive for foreign buyers,” tamping down on demand.
Finally, Fed tightening may finally shake out the true gold believers who believed that the Fed’s policies would lead to massive inflation (which would, in turn, make gold a safer long-term investment than cash or bonds). Quantitative easing did not spur this inflation, and even as the American economy continues to grow, inflation has actually remained below the Fed’s 2 percent target. Once the Fed tightens monetary policy, the inflation dreams may finally die.
According to technician Todd Gordon, the future for gold looks bleak indeed.
“When the dollar really does break [higher], perhaps when the Fed raises rates, that will be the thing that finally pushes gold through the downside,” Gordon said, adding: “And for traders, gold is a great trader to the downside. It tends to be very deliberate, very tradable.”
The scenario described above seems very reasonable. If rising rates causes a mass exodus from gold, we may finally see the true capitulation necessary to put in a durable bottom. When even gold bugs shun gold, then it will be time to buy.
One of the main cost-drivers for mining is fuel cost. With $50/bbl oil, gold becomes profitable at lower concentrations. If $7/yd is profitable at $100/bbl, then $5/yd might be profitable at $50/bbl. If oil falls to $25/bbl, then maybe we are at $3-4/yd – which essentially allows you to run the overburden. Production volumes rise which depresses the gold spot. Watching all those episodes of Gold Rush is finally starting to pay off.
Well, Q1-15 is a wrap.
Good time for a performance update?
http://finviz.com/fut_image.ashx?relative_ytd.png&rev=635634158025375390
Notable losers
Lumber -21.7% Ouch!
Pork -27%
WTI crude -15.5%
EUR -11.2%
Winners
USD +8.1%
Nikkei +10.7%
Cheers!
The performance of the dollar has been remarkable. During the bust, everyone on the Right complained about everything the federal reserve was doing to trash the currency. The moment QE stopped, the dollar explodes. Everyone who wants sound currency should rejoice this as the fulfillment of their dreams. So far I haven’t seen any blog posts celebrating the strong dollar and declaring “Life is Good.”
“So far I haven’t seen any blog posts celebrating the strong dollar and declaring “Life is Good.””
Doesn’t fit their agenda.
Which further confirms they have an agenda. If sound currency was what they really wanted, they should be writing posts on how the end of QE was the best policy decision the federal reserve could make. The soundness of the currency is hard to deny when it’s value rises so quickly.
It would be more beneficial for the US to have inflation than deflation for sure since we has so much debt and we’re a debt based society. Inflation would devalue these debts and make it less of a burden on public/private finances only if we try to reign in our spending (tough luck). The rise of the dollar is a signal that QE has failed since it has failed to conjure any time of inflation. At best today, we only have selected inflation in certain groups of expenses like housing, medical, or food that are caused by supply constraints and taxes more than the increase in aggregate demand.
On the other note, the real Ben Shalom [Bernanke] has indeed join the online web blog. I would fully welcome Ben apologetic comment to defend the FED [his] action in the last few years. Mr. I charge 250k per event has finally made his pearls of wisdom [or lack there of] available for the common man. Bravo.