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Medvedev must have read “Bad Money”
New Russian President Dmitri A. Medvedev must have picked up a copy of Kevin Phillips’ new book Bad Money : Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, a review of which will hopefully be forthcoming here in the week ahead.
According to this New York Times report , in his first major economic speech, he said that the world might be headed toward The Greater Depression, thanks to the good ‘ol US of A:
In a keynote address that underscored his knowledge of corporate terminology, Mr. Medvedev spoke of “economic egoism” and “economic nationalism,” and he made specific reference to the United States overreaching its economic capabilities.
“It turned out to be an illusion that one country, even the most powerful, could take upon itself the role of global government,” he said.
“Moreover, namely, the dissonance between the formal role of the United States of America in the world economy and its actual capabilities was one of the central causes of the current crisis. However big the American market, and however reliable the American financial system, it’s not capable of replacing global goods and financial markets.”
There’s more from Bloomberg here including this gem of a quote:
“An underestimation of risks by the largest financial companies together with the aggressive financial policy of the world’s largest economy led not only to corporate losses; unfortunately, the majority of people on the planet became poorer.”
Lighten up Dmitri!
This week’s cartoon from The Economist :
Household assets and liabilities
Some of us non-economists have long thought that an economy based on keeping asset prices forever rising faster than debt was not only impossible but dangerous. The latest data from the Federal Reserve’s Z1 report shows that the same problems from earlier in the decade are back only this time both real estate and stocks are falling.
These are all year-end figures, so the peak in household assets in 1999 actually grew a little bit in 2000 prior to the modest overall decline in the years following. The reason for just the “modest” overall decline was due to housing - note the expanding violet area that greatly helped to offset the contracting green area up until equity markets rebounded in 2003.
Of course, the debt doesn’t go away nearly as fast as the asset value as shown below.
Since only the first quarter data is available for 2008, extrapolating out through the rest of the year would paint a quite dismal picture - higher debt and perhaps much lower real estate assets.
There’s got to be a better way to run an economy.
Housing Relief Bill Could Help 500,000
Headlines on CNNmoney.com but we will see since this is going to really happen the earliest date of October, 2008.
Housing relief: Help, but for how many?
Sponsors of the Senate’s bipartisan mortgage bill say it will help 500,000 people. But an Oct. 1 start date means many homeowners could be out of luck.
By Jeanne Sahadi, CNNMoney.com senior writer
May 23, 2008: 10:39 AM EDT
NEW YORK (CNNMoney.com) — When the Senate Banking Committee passed a housing bill intended to limit foreclosures, panel Chairman Christopher Dodd, D-Conn., said he expected the measure could help 500,000 borrowers stay in their homes.
While the bill could help a lot of people, it’s unlikely to help 500,000.
The bill’s key provision would allow the Federal Housing Administration (FHA) to insure up to $300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers’ homes.
The Congressional Budget Office has not yet released its official estimates of the bill’s FHA proposal.
But in analyzing the potential costs and reach of a similar proposal passed by the House in May, the CBO estimated that 500,000 borrowers may enter the program - and that 35% of them could still default. So the best estimate of the net number of borrowers who will stay in their homes under the program is 325,000.
That would reduce anticipated foreclosure filings by 8% over the next few years, according to an estimate from Goldman Sachs analyst Alec Phillips.
That’s not the only factor that could reduce the number of homeowners helped by the Senate bill. In making its estimates, the CBO assumed a June 1 start date for the FHA program. But the Senate version of the legislation - considered more politically viable than the House bill - would start the program on Oct. 1.
That four-month difference is likely to flush from consideration a segment of the bill’s immediate target group: the 1.5 million subprime borrowers with adjustable-rate mortgages (ARM) whose loans are scheduled to reset in 2008.
http://money.cnn.com/2008/05/23/news/economy/senate_housing_bill_effect/index.htm?postversion=2008052310
Housing data crybabies and deceivers
With a name of a publication like the one you see at the top of this blog, if there are any biases by the writer (which surely there are), you probably have a good idea what they are. Not so with outfits like MarketWatch where columnists can write whatever they want while keeping their true motives unknown to readers.
Either that, or they just don’t understand the data.
Such was the case in yesterday’s report by Chris Pummer about how recently reported home price declines of unprecedented magnitude should not be trusted.
Writers should be careful when prying into data reporting, especially when they side with Lawrence Yun and the National Association of Realtors.
Chris writes:
Commonly cited measures of U.S. home prices are overstating the degree to which the vast majority of Americans’ home values have declined in the last year, producers of two of the most widely tracked indexes acknowledged this week.
Yes, all statistics are flawed - some more so than others. Get used to it.
More importantly, where did that “vast majority of Americans’ home values” line come from? That’s not what the NAR or S&P said about their home price indexes.
There are two arguments here, both of which are valid, neither of which makes the condition of the nation’s housing market demonstrably better than reported in the mainstream media.
First is the “misleading median” that tends to be pulled up or down depending upon the mix of high-priced and low-priced homes being sold:
“If there are a lot more homes sold on the low end and fewer on the high end, the median price is bound to drop dramatically,” NAR Chief Economist Lawrence Yun said. “In normal times, a median price would reflect typical homeowner equity changes, but these are not normal times. The jumbo (mortgage) market is frozen and the buying activity is more concentrated in lower-value homes.”
Yes, that’s true - the only problem is, this works both ways and unless Chris was one of the very few writers who complained last year around this time, then he should pipe down today.
Early in 2007, when the subprime problems were gathering steam and lender’s were cutting back on making loans to shady borrowers, the sales mix shifted to the high end as jumbo loans were still considered to be “safe”. This pushed the “median” higher than it would otherwise have been.
Once the credit crunch hit in August and jumbo lenders started to make up for lost time, realizing that they too might not get paid back after home prices started to fall, a sharp pullback in jumbo loans has skewed prices downward.
If you didn’t complain about the first, you can’t complain about the second.
The next arguments for home price declines being overstated involve the limited coverage of the Case-Shiller Home Price Index (yes, this is true - that’s why they call it a 20-city index - it only covers 20 big cities) and one of the loopiest bits of reasoning I’ve read lately.
The S&P/Case-Shiller index, which Tuesday posted a 12.7% decline for February, is skewed for two reasons of its own — it tracks just 20 major markets, many among the hardest hit, and its “repeat sales” survey by design pulls in individual homes both bought and sold in the last few years. Many of those are now being dumped by distressed homeowners and investors who bought at peak market prices and face higher mortgage-rate adjustments.
In other words, ignore how prices got to such lofty levels while the housing bubble was inflating and remember that a home hasn’t declined in value until it is sold.
It’s only the distressed properties that are being sold at much lower prices - forget about the impact that these prices have on determining the value of other homes. As soon as this multi-year wave of foreclosures passes, things will be back to normal.
How dumb!
But Chris’ biggest mistake when complaining about other statistics being misleading (and the real motivation for going off on this rant this morning) comes when he cites NAR data to counter what is being reported in the media:
The glaring discrepancy in this case is that 17 of the 20 metro areas posted record annual declines, and yet 78% of the 330 metropolitan regions that NAR tracks reported price increases in the latest period — and that despite the acknowledged downward bias in current price readings.
The most recent Metropolitan Median Price data from the NAR which included data through the fourth quarter of last year is available for anyone to see at the NAR website - while overall prices declined during the fourth quarter, 49 percent of the metroplitan areas showed price increases. Housing hotspots such as Yakima, Washington and Bismark, North Dakota top the list of areas with price increases.
Talk about misleading statistics!
The data cited in the MarketWatch story - 78% of metro areas showed increases - is actually from the third quarter report, data that was used liberally by the NAR to refute misleading reports of home price declines up until the fourth quarter report came out.
This most recent data is up to seven months old and the data cited in the MarketWatch report is an astounding 10 months old, going all the way back to July of 2007 before the credit crisis began.
Appropriately, the piece concludes with more wisdom from Lawrence Yun, who really does seem to be choosing his words much more carefully than his predecessor:
“The only way to tell what your own home is really worth is to look at local-market conditions, do Internet research and utilize professionals (such as licensed appraisers) to help determine the value of your home.”
OK.
Nothing is selling. They’re dropping the prices of bank-owned properties faster than they were a couple months ago and the banks can’t seem to keep up with the mounting number of properties that they are collecting from buyers who either can’t or don’t want to pay their mortgage anymore.
There are a huge number of sellers out there with prices that are far removed from what they could reasonably expect to get today, no thanks to the claptrap coming from people like Chris Pummer.
Just eleven days away …
The New York Hard Assets Investment Conference is just eleven days away! The schedule has been pretty much finalized - the important parts are excerpted below:
Click to enlarge
The conference starts on Monday, but I won’t be speaking until Tuesday. I’m on a panel at 8:30 hosted by Al Korelin - Causes and Consequences of the Credit Crisis.
I have a pretty good idea whose name will come up.
Then everyone will sit and listen to Dennis Gartman talk about oil and gold. Since the long-time newsletter writer famously announced that he’d sold all his gold a week or two ago, it should be interesting to hear what he has to say to an audience that likely hasn’t sold theirs.
Attendees will hopefully be cheered back up again by Dr. Martin Murenbeeld who will offer some bullish thoughts on the metal.
At 10:30, I’ll be conducting one of four “Masterclasses” that run in parallel for a half-hour. The title of my presentation is “Buy the Stocks, or Buy the Commodities?” and, this week, I feel fortunate to have been kept busy preparing it so as not to have too much idle time to think about the latter.
You can still register at no charge if you are interested in attending. Click here for info.
As reader Chet reminded me via email earlier today, on its current trajectory, gold will be about $750 by the time the conference kicks off.
Thanks Chet.
To learn more about investing in natural resources using commonly traded ETFs, stocks, and mutual funds, see this description at Iacono Research . Or, sign up for a free trial .
Do You Think Your House Is Tiny? Ok…Look At This One!
TORONTO (Reuters Life!) - To exit through the back door of Toronto’s “smallest house,” first fold the Murphy bed back into the wall; it takes up the entire seven-foot width of the bedroom.
Built in 1912, the pint-size “Little House” features one bedroom, a kitchen with folding table and chairs, a living room and a full, […]