Recent comments

  • I covered some of this in the magic money article. Yup Goldman Sachs, Barclays, and Credit Suisse want to buy up old AIG MBSes held at the NYFed.

    There is some "claim" running around that buying up MBSes, (I'm not sure about issuing new, your analysis makes a hell of a lot of sense to me), will somehow revitalize construction, residential real estate.

    I'm thinking that's 100% BS there is no correlation between MBS values/yield and new construction.

    But this latest round of QE3 rumors (WSJ) will be the Fed buying up more MBSes and that's the latest claim.

    I suspect all of this is just lobbyist generated lies and muck to keep their MBS derivatives going.

    I was wondering if anyone has gone into deep research to find any correlation between buying up these toxic assets, derivatives and the real world economy, i.e. production, construction, hiring and so on. Beyond spurious conclusions, I'm betting there isn't any, but getting to the classes of MBSes and their values/yield over time, then running some correlations seems to be the needed analysis.

    Reply to: Ben Bernanke Runs Out of Options   12 years 7 months ago
    EPer:
  • The Fed and the TBTF banks have been able to issue asset-backed securities for some classes, such as credit cards. In an interest-rate starved market, some investors have been querying what the yield might be on new issues of mortgage-backed securities. I don't see, though, how the industry is going to get around overall investor reluctance to participate in a market that was so obviously flawed legally and structurally, against the interest of the investors. It's hard to see banks, for example, putting in the effort to register thousands of mortgages with county recorders of deeds every time one of these securities is resold in a secondary market. The banks barely have enough staff, and certainly very few experts, to review the existing backlog of distressed securities.

    What does seem to be happening, though, is vulture funds are scouting out some of these distressed securities in the hopes of buying them cheaply. After all, in most of these securities the bulk of the mortgages are still performing and generating some yield. This is part of the reason the Fed was able to report the miraculous "income" of $77 billion the last quarter - it was declaring the cash flow from its vast MBS pool as income payable to the Treasury.

    I do recall seeing about a month or so ago a private deal between the Fed and one of the banks - maybe it was Goldman Sachs - to buy some of the Maiden Lane properties. The deal was not shopped around exactly, though the Fed insisted it received a fair market price for the assets. That was funny - it is supposedly the inability of the banks to discover any fair market prices in the first place that has allowed them to suspend mark to market for their mortgage backed securities portfolios.

    Reply to: Ben Bernanke Runs Out of Options   12 years 7 months ago
    EPer:
  • I didn't get Bernanke was pushing for QE3, although it could be construed that way. See Wall Street Selective attention problem. I got he was talking about how labor markets are anything but normal and a huge drag on the overall economy at the moment. In the above link I ask are workers being used as a pawn to justify more quantitative easing...when we know QE doesn't do anything for workers, labor, jobs, hiring per say.

    Just to sound CT for a moment, have you noticed politicians start to get serious about curtailing oil speculation and magically the price goes back down and politicians stop talking about oil speculation so nothing happens?

    Yes, oil is correlated to demand, i.e. recessions but still, I find the latest projections oil will drop by $1.50 by next winter so "don't worry about it" message most interesting.

    Numerian, have you read anything correlating MBSes to actual physical residential real estate activity?

    Reply to: Ben Bernanke Runs Out of Options   12 years 7 months ago
    EPer:
  • Bernanke's speech takes a lot of statistics from JOLTS, BLS report. We usually overview JOLTS, here.

    I couldn't get to the report for January data but the next release is April 10th. Not much changed from December 2011 and the Beveridge curve the BLS creates is located on this page. It shows, as it has every month, slight improvement but completely "out of whack" still in comparison to 2007.

    Another thing Bernanke mentioned is Okum's law. We showed it "broke" in 2009, but this needs original graphs created, some number crunching to see where it is today, although that's another thing never mentioned in GDP to employment and Okun's ratio, offshore outsourcing, labor arbitrage. Anywho to really examine Okun is a lot of work, so hopefully I can get to number crunching up some graphs with regression analysis.

    This is just like the housing market, it's just shocking what even the slightest better news creates in the press, as if "everything is ok now". It absolutely is not ok, that's how severe the damage is.

    Reply to: Wall Street's Selective Attention on Quantitative Easing Buzz   12 years 7 months ago
    EPer:
  • This looks like a research project. I have a hard time believing MBSes trump good old fashioned stable job, income for residential anything. If you find someone who has done some analysis on derivatives pimping vs. actual real demand, please post up a link or something. I'll keep this in mind to see what I can number crunch up but getting to classes of MBSes, I'm not sure where to go digging for that to be honest.

    Reply to: Wall Street's Selective Attention on Quantitative Easing Buzz   12 years 7 months ago
    EPer:
  • I have no research, and I agree that the buying up of MBSes hasn't sparked residential construction.

    It's just a theory -- that when Daniel Tarullo said last October that buying more MBS would have a good result for employment, he was implying increased employment in construction. But I don't know for sure what Tarullo intended since he, like all the Fed types, tends to speak around the issues rather than directly to them. I suppose that's to be expected, given the nature of the Fed and monetary policy.

    What Tarullo mentioned specifically, I believe, was "aggregate demand" implying a good result for aggregate employment. Since Tarullo was targeting the housing sector, and since he "talks the talk" about unemployment, I supposed that he was saying that increased demand for housing would result in increased construction employment. But maybe he just meant it would result in increased fees for banks and commissions for real estate brokers and so forth. (Employment for paper-shufflers but not necessarily for nail-benders.) Or maybe he just thought the scheme would work somehow, even though he had no idea about what the specifics might be.

    I wondered how does an increase in demand for goods imported from China improve the USA unemployment situation? By comparison, if it's demand for housing, then most of that has to come from domestic production, almost by definition -- but that's only after the backlog of existing homes (foreclosures, etc.) has been bought up. And, I suppose, the idea is that you have to try to get market values to approximate costs of new construction (that condition would be, like, a target).

    There was a popular theory back around 2008 that the key to recovery was to get residential construction up and going again, since that's supposedly what drove the economy in the 2000s, before 2008. But I guess that idea is pretty much gone away.

    Bloomberg (20 October 2011): 'Tarullo Says Fed Should Consider New Purchases of Mortgage Debt"

     

    Reply to: Wall Street's Selective Attention on Quantitative Easing Buzz   12 years 7 months ago
  • The Fekete ('Real Bills doctrine') school would say, not without justification, that they do not confuse 'store of value' with 'medium of exchange' functions at all -- but that their theory reconciles the two (as no other theory or approach to policy, supposedly, can).

    Fekete differs from von Mises, going straight back to Adam Smith, and also differs from what might be considered the v. Mises Institute (Murray Rothbard) approach to monetarism and fractional reserve banking. There's a good treatment of the many subtleties at the Wiki article on Fekete --

    en.wikipedia.org/wiki/Antal_E._Fekete

     

    I just don't buy into Fekete's ideas about uniqueness of gold (some elements are more unique than others?) and about necessity for gold (over and above any commodity basket) -- and I'm skeptical of the entire Real Bills doctrine, at least when tied to the gold standard. Also, Fekete quite simply does (IMHO) misrepresent the monetary provisions of the U.S. Constitution.

    Reply to: Magic Money the Government Makes   12 years 7 months ago
  • If you have research, but I don't think MBSes, at least the toxic ones the Fed was buying, Treasury (Maiden Lane as an ex. ) have much to do with construction.

    What bothers me is "anything but the obvious", i.e. infrastucture, tax the hell out of HTF, Wall street, offshore outsourcing, give a 0% tax rate for anything in the production economy that hires U.S. citizen workers. Unfortunately politicians are the ones who could do something so that explains what we see (assuming the Fed are actually someone honest about what they are trying to do), Rube Goldberg QE and such "stimulus", but I'm not one of these "monetary policy cures all things" person.

    Reply to: Wall Street's Selective Attention on Quantitative Easing Buzz   12 years 7 months ago
    EPer:
  • I'm thinking that 'GSE' (government sponsored entity) here just means Fannie Mae and a 'carry trade' is a rollover.

    Reply to: Magic Money the Government Makes   12 years 7 months ago
  • "explained to me how the bank has to make a profit" (Frank T.)

    Frank, was that a real person or one of those computer-generated synthesized voices? You know, the voice that says:

    Sorry. I didn't understand you ... For example, you could say, "I want to give the bank some money."

    laugh blush angry

    AI ... final solution to the outsourcing problem?

    Reply to: Magic Money the Government Makes   12 years 7 months ago
  • Great blog and great comment, including the scary part about "unless ... to once again inflate MBSes."

    There are still a few out there talking up that the way to "restart" the economy is some kind of residential construction boom, and that's what more MBS "rescue" could produce -- or accelerate, supposing that a nascent boom exists (?).

    It isn't completely inconceivable that such a scheme has the support of some on the FOMC, those persons theorizing that there will need to be the final great clearing of the books in 2012 in order to set the stage for a recovery based on broad and basic economic reforms presumed possible or inevitable in 2013-14, reversal of unemployment trends, etc.. But it just seems that there won't be any consensus on the FOMC for the foreseeable future. It's too late into the election cycle to think of any such thing before November ... and after November? ... that's a fantasy land of unknowable unknowns.

    Of course, the election cycle is irrelevant since the Fed is "apolitical" wink

    Reply to: Wall Street's Selective Attention on Quantitative Easing Buzz   12 years 7 months ago
  • We have the St. Louis Federal Reserve President,James Bullard on the record about QE3 possibilities:

    "I think QE3 would require the economy to deteriorate somewhat from where it is right now," Bullard said. "The basic story on the U.S. economy is that we've had good news over the last six months or so, especially compared to the recession scenario that was being painted in the August-September time period of last year."

    Injecting too much liquidity into the system will also have the effect of driving commodity prices higher and reducing real spending power, Bullard said.

    I am one of the few contrarians of the financial sites, I don't believe they will do QE3, mainly due to inflation/commodities, very specifically oil. We wrote no QE3 for you earlier.

    Europe is "at bay" for now, there is nothing to imply a sudden collapse in commodity demand here, so I just don't think it will happen.....unless....of course....it's some sort of hidden contraption to once again inflate MBSes.

    I skipped overviewing JOLTS, mainly because we had no Internet for 4 days so I let it go, but considering Bernanke's speech and the desire to put the focus on jobs, labor markets I'm going to try to overview that BLS report, over a week late.

    Reply to: Wall Street's Selective Attention on Quantitative Easing Buzz   12 years 7 months ago
    EPer:
  • What am I missing here on GSE w.r.t. the carry trade, link, reference, etc.?

    Yeah, I agree this entire money game is like vultures high in the sky circling the bodies below known as the middle class...

    no QE is raining down on anyone to wash the stink away.

    Reply to: Magic Money the Government Makes   12 years 7 months ago
    EPer:
  • That's us, folks. Negative real interest rates for America's savers at the local banks. These are the same institutions that will charge you usurious rates on credit card balances. You gotta love the Fed! If only they would refinance my mortgage instead of my having to borrow at 2 percent above the 10 year treasury and pay "fees" to banks for the "privilege" of refinancing. I brought this point up to a lender who currently has my mortgage (actually, Fannie Mae has it, so the bank has no risk) and they explained to me how the bank has to make a profit and then Fannie Mae also has to make a profit. I have never heard a satisfactory explanation of why the "vig" on a GSE carry trade has to be so high if the USG can borrow for 10 years at half the rate.

    Reply to: Magic Money the Government Makes   12 years 7 months ago
    EPer:
  • I hope people know to click the read more link since there is some dynamite video clips to see.

    If we missing anything in the economic related round up of funnies, please share in a comment. Comedy on economics, finance that's laugh out loud is hard to find (and do!)!

    Reply to: Sunday Morning Comics - The Capitalist & Muppets Edition   12 years 7 months ago
    EPer:
  • These are templates which I use each month, else I would have to re-create all of these graphs instead of updating the base ones and adding. CR is great and it's pretty rare when I disagree with him generally (although I have), but I like him because he's extremely data centric, knows macro economics, knows how to analyze from 1st principles.

    This report is just full bore new homes, single family, so it does not have any home equity, home revisions and so on.

    Same with existing sales (which I skipped this month because I plain got locked over over 4 days total, Internet down for the entire region), but in the January overviews I think we said "wishful thinking, guess what gang, it's warm weather" or something to that effect.

    I could say residential real estate has stopped it's grand collapse but I just have a hard time believing home prices will not go significantly lower simply because the middle class is wiped out. We're all poor and something thinking importing a bunch of foreigners to "buy up house" is really smoking some of that funky pipe dream weed.

    While "not" with Bernanke on things like quantitative easing, lately his assessment of where the economy is, macro wise, to me seems dead on.

    Reply to: New Residential Home Sales Decline, -1.6% in February 2012   12 years 7 months ago
    EPer:
  • Thanks for link to Calculated Risk, a great website, but the link for "new home sales" is to a .coml [sic] page!

     

    I think what we want is --

    CalculatedRiskBlog: New Home Sales Decline in February (23 March 2012)

     

    Two miscellaneous comments --

     

    1. IMO, what probably is happening is that some families are building additions and remodeling -- taking advantage of what's perceived as relatively low construction costs (still at least $100/sf) and also possibly staying put simply because there's no liquidity. That could definitely be considered a "new normal," compared to the "old normal" of people trading out of the old place and into a new one (new and larger), 'profit-taking' on the old place while avoiding paying income taxes on the gain (under the IRS rules for sales after two years or more). When it's a move in the other direction, i.e., downsizing (as with 'empty-nesters'), it seems that people now are often thinking in terms of keeping the old (larger) place as a rental while taking out a conventional mortgage on the new smaller place (probably not new construction), based on downs of maybe 30% or more. It's remarkable how little we hear of places sold on contract, which was a very common practice back in the 1970s and 1980s (usually at 10% annual interest).

    2. I hear talk of tax assessors in some areas/states are tending toward replacement cost rather than market value. Seems likely there's a big disparity between the two. Cost per sf are mostly about $100 (although Oregon is $115, California is about $130) ... so just a 2000-sf new place -- after adding in costs of lot, excavation, foundation, permits, etc. -- that's like a minimum almost anywhere of about $300,000 (at least $250,000). You can probably buy comparable although 'used' for $100,000 less. Why build?

    Interesting webpage for costs per sf (with an applet) --

    www.home-cost.com/construction-cost-per-sf.html
     

    Reply to: New Residential Home Sales Decline, -1.6% in February 2012   12 years 7 months ago
  • On rate of change, there is a short paper from the St. Louis Fed on predicting gasoline prices from Brent vs. WTI and that's one issue is the rate of change in the highs and lows. Brent tracks a little better but misses the highs and lows. Paper at this link.

    For this piece, hopefully it's realized I "eyeballed" it in the above 50-60¢, I didn't run any regression analysis or come up with a specific correlation formula.

    Reply to: The Wall Street Surcharge On Your Gas Tank   12 years 7 months ago
    EPer:
  • This statistical view probably understates the importance of the speculator-driven changes. All human perception, including perception of numbers, is based on rate of change. When a number is constant we cease noticing it; the faster and sharper the change, the more we pay attention. The fastest changes are caused by speculation, so those are the ones that matter most in terms of public opinion or politics.

    Reply to: The Wall Street Surcharge On Your Gas Tank   12 years 7 months ago
  • We just reviewed some of the MSM press on new home sales. Good god, this is the reason we overview these reports. Reuters is trying to claim this report shows recovery. No, sorry, it does not really. They point to a rise in median price and that is absurd for median price is very statistically noisy, one at least should take quarterly numbers and a history.

    The press and vested interests want to manufacture a housing recovery so badly it's like they are seeing things!

    Here at The Economic Populist stick with the data. We'll tell ya straight as best as we can determine, from the statistics themselves.

    Reply to: New Residential Home Sales Decline, -1.6% in February 2012   12 years 7 months ago
    EPer:

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