Homebuilders And Their Shareholders Are Drinking The Kool-Aid [View article]
Builders keep building and banks keep lending to them because if they don't they'd default and the final chapter of the housing bubble popping would be upon us.
Many home builders are not solvent and rely on a constant flow of credit from their banks for building new projects so they can use some of it to pay their debt payments making things even worse. Like they care. If TBTF banks can make the problem big enough they can claim ignorance and demand the taxpayer pay the losses yet once again. Watch out taxpayer. Your country's debt limit will be maxed out by financial institutions begging for money one of these days.
It never ceases to amaze me how little government cares or supports small business. Considering they represent 2/3 of all business you think they'd care. It just goes to show money speaks not anything else. Small businesses have little extra to give to Washington in the form of bribes like banking, insurance, oil, etc.
U.S. Money Supply Plunges to Levels Unseen Since the Great Depression While Housing Index Dives [View article]
"The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever.", this is actually good news. For too long have people blissfully been putting money into banks and then been getting fooled into moving them into non-FDIC backed money market funds which don't require banks to meet reserve requirements which then makes the money multiplier go haywire.
If there was a depression requiring banks to fold (as opposed to getting sold off nowadays) many people's presumably safe bank deposits would be wiped out. Of course, some would say what's the difference, under this scenario the FDIC and SIPC would go under too. However, undoubtedly the US government would rescue these institutions even if they couldn't afford money market guarantees.
It is interesting to note that the Federal Reserve temporarily backed money market bank deposits, but that will go away. In fact, they shouldn't without requiring premium to cover the risk. What they essentially did was reward people and banks for taking more risk for higher interest rates by shifting it all to the taxpayer. The Federal Reserve certainly knows that this is what it was doing and should know better.
Anyway, you can say M3 drops are more reflective of people becoming more aware of the risk they take with their money. Compounded by increased savings this is good for America in the long run even if not in the short run.
To be honest Paulson's hedge fund looks like the average Joe's fund. Just because he got a giant one off striking big deals in a collapsing derivatives market doesn't mean he's a genius.
In many ways his gamble was a free roll. If the market surged up he would just close shop and begin anew. Like fellow derivatives players, similar to those who lost when the market went down, there is no way his investment company could have covered their losses if the market went up. Yet no one talks about this fact. It just proves, its not hard to take huge risks with other people's money, especially if you make loads doing it. Especially if the only downside is letting the company goes broke. Smart in the market means taking advantage of the system more and more.
If you are going to buy late in the game, which undoubtely some are, look for the ones that are just now rising to catch up with the bubble. Bubbles are all about momentum trumping fundamentals and can be persistent and last for a while. Soit's so very hard to stay away. Of course still make sure that your stock has some semblance to rational valuation. That probably means stay away from the big banks sitting on big juicy run-ups.
Better Housing Numbers Could Boost GDP Growth [View article]
Hmm so banks loan to people to buy houses at l;ow rates only if Freddie Mac or Fannie Mae promise to buy them. Then They sell them to Fannie Mae and Freddie Mac. Then thesae mega companies owned and backed by the government which are virtually insolvent and filled with bailout capital have to sell their bad loans top the Fed and Treasury just so they have enough capital to continue to by defunct loans.
Even with that, bank mortage loans are down close to 3% YoY and the only ones being sold are ones bought by Freddie Mac and Fannie Mae. Sure, thank goodness that we had a seasonal uptick in home loans this summer like normal, but it's almost impossible to call this market sustainable or even healthy. If the Fed raised rates to curb inflation, which they inevitably will have to do, the whole house of cards is liable to collapse again.
In general if you are a speculator, you buy houses when rates are high and prices are low (paying mostly cash is best at this point) and sell them when rates are low and prices are high. In this case, buying when the Fed is at Zirp is the exact opposite of the rate cycle you want to be at if you want to make a profit buying property.
Considering we are already at the 8.9% unemployment level of the stress test I agree fully with you Tyler that the next stress test will be played out not as a theoretical scenario but in the real world.
And we all know how poorly the Treasury and Fed acts in real time. They tend to give away the farm.
California Housing Recovery? Not So Fast [View article]
Anyone selling their house in California can tell you that the prognostications of a recovery by the brokers is pure hyperbole. With California instituting government cuts and the tech sector finally getting slammed by the recession (tis a lagging down indicator) even the Northern California Bay Area and San Francisco won't be immune to the weak real estate market in 2009.
The good news for California is that the tech sector and export market tends to be a leading indicator out of a downturn. So brighter days are in the cards eventually.
For the forseeable future, I would not plan on making a killing in the real estate market. Rather I'd suggest for people to look at a home for what it should be seen as: a place to live.
Homebuilders And Their Shareholders Are Drinking The Kool-Aid [View article]
Many home builders are not solvent and rely on a constant flow of credit from their banks for building new projects so they can use some of it to pay their debt payments making things even worse. Like they care. If TBTF banks can make the problem big enough they can claim ignorance and demand the taxpayer pay the losses yet once again. Watch out taxpayer. Your country's debt limit will be maxed out by financial institutions begging for money one of these days.
Double-Dip Recession Signs Materializing [View article]
U.S. Money Supply Plunges to Levels Unseen Since the Great Depression While Housing Index Dives [View article]
If there was a depression requiring banks to fold (as opposed to getting sold off nowadays) many people's presumably safe bank deposits would be wiped out. Of course, some would say what's the difference, under this scenario the FDIC and SIPC would go under too. However, undoubtedly the US government would rescue these institutions even if they couldn't afford money market guarantees.
It is interesting to note that the Federal Reserve temporarily backed money market bank deposits, but that will go away. In fact, they shouldn't without requiring premium to cover the risk. What they essentially did was reward people and banks for taking more risk for higher interest rates by shifting it all to the taxpayer. The Federal Reserve certainly knows that this is what it was doing and should know better.
Anyway, you can say M3 drops are more reflective of people becoming more aware of the risk they take with their money. Compounded by increased savings this is good for America in the long run even if not in the short run.
Inside Paulson's Latest Moves [View article]
In many ways his gamble was a free roll. If the market surged up he would just close shop and begin anew. Like fellow derivatives players, similar to those who lost when the market went down, there is no way his investment company could have covered their losses if the market went up. Yet no one talks about this fact. It just proves, its not hard to take huge risks with other people's money, especially if you make loads doing it. Especially if the only downside is letting the company goes broke. Smart in the market means taking advantage of the system more and more.
Friday Options Recap [View article]
Better Housing Numbers Could Boost GDP Growth [View article]
Even with that, bank mortage loans are down close to 3% YoY and the only ones being sold are ones bought by Freddie Mac and Fannie Mae. Sure, thank goodness that we had a seasonal uptick in home loans this summer like normal, but it's almost impossible to call this market sustainable or even healthy. If the Fed raised rates to curb inflation, which they inevitably will have to do, the whole house of cards is liable to collapse again.
In general if you are a speculator, you buy houses when rates are high and prices are low (paying mostly cash is best at this point) and sell them when rates are low and prices are high. In this case, buying when the Fed is at Zirp is the exact opposite of the rate cycle you want to be at if you want to make a profit buying property.
Next, the High-Yield Stress Test [View article]
And we all know how poorly the Treasury and Fed acts in real time. They tend to give away the farm.
California Housing Recovery? Not So Fast [View article]
The good news for California is that the tech sector and export market tends to be a leading indicator out of a downturn. So brighter days are in the cards eventually.
For the forseeable future, I would not plan on making a killing in the real estate market. Rather I'd suggest for people to look at a home for what it should be seen as: a place to live.