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I am traveling this morning will look at ISM and other data this afternoon. Meanwhile here a a few quick hits on propriety trading, bizarre charts of robo trader patterns, walking away from boats, Blogger fees in Philadelphia, birth rate demographics, and other potpourri.
JPMorgan to Shut Proprietary Trading Unit over Volcker Rule
Bloomberg Reports JPMorgan Said to Shut Proprietary Trading to Meet Volcker Rule
JPMorgan Chase & Co., the second- largest U.S. lender by assets, told traders who bet on commodities for the firm’s account that their unit will be closed as the company begins to shut down all its proprietary trading, according to a person briefed on the matter.The bank eventually will end all proprietary trading to comply with new curbs on investment banks, said the person, who asked not to be identified because JPMorgan’s decision isn’t public. The New York-based bank will shut proprietary trading in fixed-income and equities later, the person said.
Closing the prop trading desk for commodities affects fewer than 20 traders, including one in the U.S. and the rest in the U.K., the person said.
This is a baby step in the right direction.
Developer Sells Zero of 141 Luxury Condos
The Press Enterprise reports Lack of sales spurs developer to lease
After two months of marketing his 141 luxury condos with not one sale, Mark Rubin said he has given up wooing buyers to the Raincross Promenade project in downtown Riverside that cost him $40 million to build.Prospective buyers kept trying to beat down his prices, even after he shaved $30,000 off the initial list prices ranging from $240,000 for a one-bedroom, one-bath condominium to $475,000 for a two bedroom, 2 ½-bath townhouse. “There were no sales,” Rubin said. “Everyone wants a bargain. They read about foreclosures and think they can buy for distress prices.”
Rubin paid cash for the property and is now looking to lease units.
Walking Away From Boats
The USA Today reports Abandoned boats litter waters in tough economy
States across the USA are taking steps to deal with an armada of derelict boats abandoned by their owners in a tough economy:In Massachusetts,Democratic Gov. Deval Patrick signed a bill this month that gave local governments the power to seize abandoned vessels. The problem was growing faster than the state’s ability to deal with it, says Michael Nichols, legal counsel to Democratic state Rep. Antonio Cabral, who introduced the bill.
“The recession was affecting people’s ability to keep and maintain a boat,” Nichols says. “To have abandoned vessels taking up valuable space in the marinas and harbors was a problem.”
Fines for abandoning boats in state waters vary. In Massachusetts, it’s $10,000. In South Carolina: $475.
In the San Francisco Bay Area, as many boats were reported abandoned by the Coast Guard in the first quarter of 2009 as in all of 2008, says Deb Self, executive director of San Francisco Baykeeper, an environmental group. The number of eyesores, many of them leaking fuel and chemicals, continued to grow this year, from 64 in February to 76 this month, even after 12 boats were hauled away, Self says.
Twelve states, including Kansas, Missouri and Tennessee, have passed laws on abandoned boats in the past five years, according to the National Conference of State Legislatures. Most streamline the process of taking title and disposing of boats when owners cannot be found.
If you are going to walk away from your boat, do it in South Carolina, not Massachusetts which has a $10,000 fine. Better yet, donate the thing or haul it to the dump.
Birth Rate Drops Second Year
Physorg reports Recession may have pushed US birth rate to new low
The U.S. birth rate has dropped for the second year in a row, and experts think the wrenching recession led many people to put off having children. The 2009 birth rate also set a record: lowest in a century.Births fell 2.7 percent last year even as the population grew, numbers released Friday by the National Center for Health Statistics show. “It’s a good-sized decline for one year. Every month is showing a decline from the year before,” said Stephanie Ventura, the demographer who oversaw the report.
The birth rate, which takes into account changes in the population, fell to 13.5 births for every 1,000 people last year. That’s down from 14.3 in 2007 and way down from 30 in 1909, when it was common for people to have big families.
“It doesn’t matter how you look at it - fertility has declined,” Ventura said.
The situation is a striking turnabout from 2007, when more babies were born in the United States than any other year in the nation’s history. The recession began that fall, dragging stocks, jobs and births down.
The US looks more Japanese every month.
Philadelphia Imposes $300 Blogger License Fee
The Washington Examiner reports Philly requiring bloggers to pay $300 for a business license
Between her blog and infrequent contributions to ehow.com, over the last few years she says she’s made about $50. To [Marilyn] Bess, her website is a hobby. To the city of Philadelphia, it’s a potential moneymaker, and the city wants its cut.In May, the city sent Bess a letter demanding that she pay $300, the price of a business privilege license.
“The real kick in the pants is that I don’t even have a full-time job, so for the city to tell me to pony up $300 for a business privilege license, pay wage tax, business privilege tax, net profits tax on a handful of money is outrageous,” Bess says.
When Bess pressed her case to officials with the city’s now-closed tax amnesty program, she says, “I was told to hire an accountant.”
To say that these kinds of draconian measures are detrimental to the public discourse would be an understatement.
The Broad Street Hockey Blog comments on City of Philadelphia Charging Bloggers
City Hall wants your money. A lot of it.We don’t get into politics on this blog often. In fact, I don’t believe we ever have. This, however, is an issue that could directly impact this blog and, honestly, any one of you.
When I started blogging two years ago, I wouldn’t have been able to afford a $300 fee. Yet at the same time, I needed to keep ads on my pre-SBN site to earn enough to cover the server costs and the domain registration. None of the money went into my pocket. It wasn’t a lot of money and the small ads were enough to cover costs, but without them, I wouldn’t have been able to run the site.
By enforcing this law on bloggers who make little-to-no-money off of their sites, the City of Philadelphia is robbing its citizens of the opportunity to create. It’s robbing them — and the city itself, really — at a change to innovate.
Philadelphia is amazingly desperate. Any city that would take this action is clearly in deep trouble.
401K withdrawals spike
CNN Money reports 401(k) Withdrawals Spike
Hardship withdrawals from 401(k) retirement saving plans rose to the highest level in 10 years during the second quarter, Fidelity Investments said on Friday, in the latest sign of a dismal economy.Fidelity reported that, as of the second quarter, 2.2% of all 401(k) participants had made a hardship withdrawal at some point over the preceding 12 months. That’s up from 2% in the prior year, and was the highest level in 10 years.
At the same time, the percentage of 401(k) participants that had an outstanding loan from their account rose to a record high of 22% in the second quarter. The average loan amount was $8,650 at the end of the quarter.
Borrowing against IRAs to meet unsustainable lifestyles or to pay mortgages on underwater homes are both horrendous ideas.
Market Data Firm Spots the Tracks of Bizarre Robot Traders
The Atlantic says Market Data Firm Spots the Tracks of Bizarre Robot Traders
Mysterious and possibly nefarious trading algorithms are operating every minute of every day in the nation’s stock exchanges.
What they do doesn’t show up in Google Finance, let alone in the pages of the Wall Street Journal. No one really knows how they operate or why. But over the past few weeks, Nanex, a data services firm has dragged some of the odder algorithm specimens into the light.
No matter why the bots end up executing these behaviors, the Nanex charts offer a window onto a kind of market behavior that’s fascinating and oddly beautiful. And we may never have seen them, if not for the mildly obsessive behavior of one dedicated nerd.
“Who looks at millisecond charts?” Donovan said. “You’d never see those patterns in any other fashion. The SEC and CFTC certainly weren’t.”
Here are a few more bots at work with explanations of what’s going on.
Here we see a “flag repeater” being executed on the BATS Exchange, the third-largest equity market after the NYSE and NASDAQ. 15,000 quote requests were made in 11 seconds in a repeating pattern. Each iteration upped the quote a penny until $9.36, and then the algorithm went down the same way, a penny at a time.
This chart shows a different kind of strategy. It represents 56,000 quotes in one second all at the same price (the top chart) but with the size of the order increasing by one (i.e. 100 shares) all the way up to 40,000.
There are several other interesting patterns in the article, some with explanations of what they mean. Does anyone think this serves an legitimate purpose? If so what purpose?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
President Obama’s declaration on ending the U.S. combat mission in Iraq did not address crucial questions about America’s military role in Iraq, as well as Afghanistan, writes CFR President Richard N. Haass.
Leslie H. Gelb argues that Iraq and Afghanistan threaten to derail President Obama’s greater goal of revitalizing the American economy.
Stephen Sestanovich comments on the “short war” within every long war fought by the United States.
Inquiring minds are investigating the FDIC Second Quarter 2010 Quarterly Banking Profile.
Quarterly Earnings Are Highest in Almost Three YearsReductions in loan-loss provisions underscored improvement in asset quality indicators during second quarter 2010. The industry’s quarterly earnings of $21.6 billion are up dramatically from the year-ago loss of $4.4 billion and represent the highest quarterly earnings since third quarter 2007. Almost two out of three institutions (65.5 percent) reported higher year-over-year quarterly net income. The proportion of institutions reporting quarterly net losses remained high at 20 percent but was down from more than 29 percent a year earlier.
Reduced Loan-Loss Provisions Boost Net Income
Insured institutions added $40.3 billion in provisions to their loan-loss allowances in the second quarter. While still high by historic standards, this is the smallest total since the industry set aside $37.2 billion in first quarter 2008 and is $27.1 billion (40.2 percent) less than the industry’s provisions in second quarter 2009. Fewer than half of all institutions (41.3 percent) reported year-over-year reductions in quarterly loss provisions. Only 40 percent of community banks (institutions with less than $1 billion in assets) reported year-over-year declines. Reductions were more prevalent among larger institutions. More than half (56.2 percent) of institutions with assets greater than $1 billion had lower provisions in the second quarter.
Charge-Offs Fall for First Time Since 2006
Net charge-offs totaled $49 billion in the second quarter, a $214-million (0.4 percent) decline from a year earlier and the first year-over-year decline since fourth quarter 2006. Charge-offs were lower than a year ago in most major loan categories except for credit cards and real estate loans secured by nonfarm nonresidential properties. Charge-offs on loans to commercial and industrial (C&I) borrowers were $3.1 billion (37.0 percent) lower than a year ago, while charge-offs on real estate construction and development (C&D) loans were $2.7 billion (34.6 percent) lower. Charge-offs of one-to-four family residential mortgage loans were down by $1.4 billion (16.0 percent). Credit card charge-offs were $8.6 billion (86 percent) higher than in second quarter 2009. Most, if not all, of this increase was attributable to the inclusion of charge-offs on securitized credit card balances, which were not included in reported charge-offs in previous years. The change in reporting was the result of the application of FASB 166 and 167. In contrast, the $1.8 billion (107.2 percent) year-over-year increase in charge-offs of nonfarm nonresidential real estate loans reflected further deterioration in commercial real estate portfolios. Almost half (49.1 percent) of insured institutions with more than $1 billion in assets reported lower net charge-offs, while only 43.6 percent of community banks reported year-over-year declines.
Noncurrent Loans Post First Decline in More than Four Years
The amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) declined by $19.6 billion (4.8 percent) during the second quarter. This is the first quarterly decline in noncurrent loans since first quarter 2006. Noncurrent levels declined in most major loan categories during the quarter. The sole exception was nonfarm nonresidential real estate loans, where noncurrents increased by $547 million (1.2 percent), the smallest quarterly increase in three years. The largest reduction in noncurrent loans in the quarter occurred in real estate C&D loans, where noncurrents fell by $5.9 billion (8.3 percent). This is the third consecutive quarter that noncurrent C&D loans have declined. Noncurrent C&I loans also declined for a third straight quarter, falling by $2.7 billion (7.3 percent), while noncurrent residential mortgage loans declined by $4.7 billion (2.5 percent) and noncurrent credit cards fell by $4.2 billion (19 percent). Slightly fewer than half of all institutions (48.9 percent) reported declines in their noncurrent loan balances during the quarter. Noncurrent loan balances fell by 5.3 percent at institutions with more than $1 billion in assets and rose by 0.3 percent at community banks.
Reserves Fall as Large Banks Reduce Loan-Loss Provisions
Total loan-loss reserves of insured institutions fell for the first time since fourth quarter 2006, declining by $11.8 billion (4.5 percent), as net charge-offs of $49 billion exceeded loss provisions of $40.3 billion. Almost two out of three institutions (61.7 percent) increased their loss reserves in the second quarter, but a number of large banks reduced their loss provisions, producing net declines in their reserve balances. In particular, some institutions that converted equity capital into reserves in the first quarter in accordance with the requirements of FASB 166 and 167 reported lower provisioning in the second quarter. Although the industry’s ratio of reserves to total loans fell from 3.51 percent to 3.40 percent during the quarter, it is still the second-highest level for this ratio in the 63 years for which data are available. The industry’s “coverage ratio” of reserves to noncurrent loans improved for a second consecutive quarter, from 64.9 percent to 65.1 percent, as the reduction in noncurrent loans slightly outpaced the decline in loss reserves.
Rising net chargeoffs are a legitimate reason for loan loss reserves to decline, but this report shows other interesting things. For example, 61.7% of banks increased loan loss provisions but total loan loss reserves declined because “a number of large banks reduced their loss provisions“.
Here are a few bank charts to consider. Click on any chart for sharper image.
Wells Fargo (WFC) Daily Chart
Bank of America (BAC) Daily Chart
Citigroup (C) Daily Chart
JPMorgan Chase (JPM) Daily Chart
The S&P 500 is down less than 15% from the April highs and in spite of that glowing bank report, especially for the big banks, Wells Fargo is down about 32%, Bank of America is down 37%, Citigroup is down by 26%, and JP Morgan is down by 25%.
The above charts do not necessarily imply large banks have insufficient loan loss reserves. Correlation is not causation. There could be any number of reasons for bank stocks to be taking a hit.
Nonetheless, additional data does not seem to pass the smell test.
Allowances for Loan Losses as Percentage of Nonperforming Loans
After reading the glowing report above I thought it might be interesting to compare loan loss allowance percentages between banks of various sizes.
The charts below depict the ratio of loan loss provisions to nonperforming loans. Click on any chart for a sharper image.
Banks with Total Assets up to $300M
Banks with Total Assets from $300M to $1B
Banks with Total Assets from $1B to $10B
Banks with Total Assets from $10B to $20B
Banks with Total Assets over $20B
Allowances for Loan Losses as Percentage of Nonperforming Loans
By Bank Size
The most striking comparison is between the adjacent classes of Banks with Total Assets from $10B to $20B and Banks with Total Assets over $20B.
Possible Explanations
The sad thing is it is not really possible to know. It could be a combination of various factors, but whatever it is, it does not feel right.
California Banker Chimes In
I discussed loan loss provisions a couple days ago in Banks Recruit Investors to Oppose Honest Valuation of Assets; Just how Unprepared are Banks for Major Losses?
If you have not done so, please check it out for many additional charts and comments.
I asked my California Commercial Banker friend to chime in on the post.
“California Commercial Banker” writes …
Hello MishI’ve had a chance to talk to my Chief Credit Officer to confirm accounting for nonperforming loans and reserves, which in turn impacts net income and profitability.
When a loan is charged off, nonperforming assets decrease by that amount of the loan while reserves also decrease by the same amount, as the reserves being used pay for the loss at final recognition.
In the case where a bank is continually downgrading a loan and increasing its expectation of losing money on a loan, one of two things happens. If the bank feels its reserves are adequate to support the entire bank plus that potential loss then they do not need to add to reserves. If reserves are inadequate, the banks would then need to add to reserves which decreases income and impacts the bank’s profitability.
Many people don’t understand the magnitude within the banking industry to “Kick the Can” or “Extend and Pretend”. We see a lot of this within the industry.
Banks with existing balance sheet issues (nonperforming loans) really don’t want to recognize more loan issues because it could force the FDIC to close them down.
In that light, a bank can take a commercial real estate loan or a business line of credit having issues and do a 3 month extension at loan maturity or change loan payments to interest in an attempt to give the borrower with more time to work things out or bring more capital to the table.
In essence, a bank is hoping for a positive “cure” to the situation by providing time. As long as payments are made on time, a bank might not downgrade that loan as far as it should, which in turn means reserves for the loan are not as big as they should be.
It’s not uncommon for a bank to do multiple extensions in the mode of working out a loan with principal reductions over time. I’ve been in the situation where extensions have lasted 1-2 years. In normal recessions, extensions have worked quite well because borrowers could take equity out of their house or sell stock market assets to cure the loan.
Unfortunately, those dynamics do not exist today. Currently, Extend and Pretend in most cases is the wrong direction and could easily increase the bank’s loss in the long run because there are no assets to cure the issue. In the case of housing or commercial real estate loans, the assets are negatively appreciating. This adds to the future problem of nonperforming loans.
I believe there are lots of bad loans not being recognized as accurately or quickly as they should be within the industry at many banks. It’s really a case by case basis on how liberal/conservative a bank recognizes loan issues.
I know of one CEO at a community bank who was rumored to be fired for not disclosing problem loans to the directors of that bank.
The other issue that’s totally ignored regards borrowers making monthly payments on time even though the collateral is very much underwater.
Knowing the collateral value is below the loan amount would increase the potential for loss and thus force a bank to increase loan loss reserves, thereby lowering earnings. No bank really wants to do that, so most of them don’t.
Lastly, I know of certain cases where loan officers at other banks are afraid to tell bank executives when they have real loan issues in the making. Bank officers might take 2-4 months to notify their executives of a potential loan loss. This too delays the recognition of the need to increase reserves for those loans.
In my estimation, if every bank had the collateral of all loans accurately appraised and each loan’s loan grading was finely tuned for an expected loss based on financial performance and collateral values, the number of essentially bankrupt banks in this county would increase by a factor of 4-5 from the current level.
In other words, there is a potential pool of 2000-3000 banks that would be on the FDIC radar’s for getting closed.
The health of the industry is not accurately reported by any means.
California Commercial Banker
So, there’s the data, complete with an opinion from someone in commercial banking.
There is a lot of guesswork here, but I am sticking with what I said earlier … Banks in general are sitting on assets, not marked-to-market, both on and off their balance sheets, for which they have made no loan loss provisions.
Meanwhile credit risk for new loans is exceptionally high. Is it any wonder banks seem reluctant to lend?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
From the dysfunctional state of Oregon comes news that Measure 66 fell about 50% short of its revenue predictions. Balance that with 4.75% pay hikes and it adds up with a continuing refusal by Oregon to address its problems.
Oregon Grants Unions 4.75% Pay Hike
5 percent pay increase for Oregon state union employees begins Wednesday
A step pay increase of nearly 5 percent for Oregon state workers represented by unions goes into effect Wednesday. The 4.75 percent increase will cost the state as much as $16 million through the end of the two-year budget period.
Measure 66 Falls Short
Oregon tax revenues from Measure 66 coming up short of predictions
Early indicators suggest the state won’t receive nearly as much as officials expected from a tax increase on wealthy Oregonians — raising questions of whether January’s bitterly fought election was worth it.The latest numbers show Measure 66, which set higher tax rates on households making more than $250,000 a year, and on individual filers making half that, has brought in about $70 million in additional collections to date.
“We’re thinking we’re right around half of what we expected about this time,” said Paul Warner, head of the Legislative Revenue Office.
Here’s the deal. Oregon raised taxes for the benefit of unions and now they have to raise taxes again because the state only got half as much revenue from the tax hike as expected. When does the madness stop?
I have written about Oregon a lot recently.
Dysfunctional Oregon
August 22, 2010: Dysfunctional Oregon
Sight unseen, I am willing to state that Oregon should get rid of all 64 state boards, no matter what they are supposed to do. Sight seen, it’s time Oregonian voters relegate Gov. Ted Kulongoski to the ash heap of history.
Overoptimism Oregon Style
August 18, 2010: Oregon Wins Blue Ribbon for Unfounded Optimism; Everything “Weaker than Expected”
In July of 2009 state revenue projections were $222.8 million to the plus side. Now just one year later, smack in the midst of a “recovery”, a $577.2 million June 2010 deficit is too optimistic by as much as another $500 million.Congratulations of sorts go to Oregon for winning the blue ribbon for unfounded optimism.
Oregon has already cut state spending by 9%. Another 9% may be on the way.
We can now add Measure 66 to the list of overoptimistic misses in Oregon.
Edge of the Financial Chasm
July 25, 2010: Edge of Financial Chasm
Four Problems Oregon Faces.
- Problem 1: Our income is shrinking
- Problem 2: We have more people in need
- Problem 3: We’ve locked up a lot of money
- Problem 4: We can’t grow our way out
End of the Line for Meaningful Can-Kicking DelaysWhen it comes to state budgets, the low lying fruit has been picked. Indeed all the fruit has been picked and next year’s harvest has been spoken for as well. Thus it’s the end of the line for state’s ability to kick the can down the road in a meaningful way, if employment does not dramatically pick up soon.
Here’s a hint: it won’t.
Oregon Taxpayers at Huge Risk over PERS
July 24, 2010: Oregon’s Public Employee Retirement System (PERS) in Deep Trouble, Taxpayers on the Hook
If we finish the year here the system will only be 70% funded. Pray tell what happens if the stock market finished the year down a modest 15% and is flat next year?Notice the article says “Actual pension rates vary by individual employer”. Although the rates will vary, it is not “employers” who pick up the tab. Rather it is taxpayers who have to pay taxes to pick up the tab.
If articles like the one quoted explained things properly, there would be much more needed outrage.
The system is broke and the only way to fix it is to get rid of it. Defined benefit plans at taxpayer expense have to go.
Oregon Faces Decade of Budget Deficits
May 23, 2010: Governor’s Study Shows Oregon Faces Decade of Budget Deficits; Support for Unions Wanes in Illinois
A study conducted by Oregon Governor Ted Kulongoski shows that Oregon will not be bailed out by a rebounding economy, assuming of course the economy rebounds at all.Oregon Overestimates the Recovery, Underestimates What Needs to be Done
My sense is that states are all overestimating what the recovery will do. That aside, Oregon is a step ahead of others in realizing the recovery alone will not fix the problem.
The report made no recommendations even though it is crystal clear what needs to happen. For starters, the state needs to kill defined benefit plans for new hires. Next, the state needs to outsource everything possible with the goal of getting rid of all public unions.
Anything else is just pecking at the fringes of the problem.
Business Owners Move Out
January 27, 2010: Oregon’s Death Spiral; Business Owners Say “I’m moving out”
On Tuesday, unions in Oregon won a charred earth victory that will drive already troubled Oregon, straight off the cliff.Oregon voters passed Measure 66 which raises tax rates on individuals who earn more than $125,000 and couples with incomes greater than $250,000. Voters also passed Measure 67 which increases business taxes.
Complete fools in Oregon just voted to save bloated union salaries and pensions, while driving away the real source of tax revenue, private business.
Unions that take hold of states inevitably wreck them. Oregon should take a good hard look in the mirror. It will see a reflection of Michigan. Good luck with that.
Look’s like that was a decent call on Measure 66.
Increased taxes will drive away business. For whose benefit are these tax hikes? Unions that need to be eliminated. Oregon’s problems cannot and will not go away as long as political pandering to unions continues.
Public union salaries and benefits are Oregon’s biggest problem.
A tip of the hat to Oregon Live for excellent articles on the economic plight of Oregon.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
UK house prices fell during August, according to figures from Hometrack.
The property intelligence group’s data highlights that the average house price dropped 0.3 per cent across the month to £158,300, following a 0.1 per cent decline in July.
August’s drop has been attributed to a fall in the number of people looking for a new home.
Richard Donnell, director of research at Hometrack, said: "The unmistakable fact is that the availability of homes for sale has improved markedly and this has reduced the support for house prices provided by the scarcity of housing for sale over 2009 and early 2010. This comes at a time when there is growing weakness on the demand side - a weakness which represents more than just a seasonal blip."
However, recent research conducted by economists at Oxford Economics suggested that a shortage of new homes being built over the next few years will lead to house price growth, meaning people should act quickly if they want to invest in UK property.
The researchers stated that average residential prices will increase by 7.5 per cent this year.
Florida property is back in favour with British buyers, according to Orlando-based firm Coldwell Banker Feltrim.
Speaking to A Place in the Sun magazine, the company’s chief executive officer Garrett Kenny said that the state’s reputation as a tourist hotspot makes it a popular destination for Brits wanting to buy property abroad.
"Now is a great time to buy property in Florida as prices have fallen by as much as 50 per cent in some cases and some condos are now selling for less than they cost to build. With prices so low there is nowhere for them to go but up," he said.
Mr Kenny added that savvy investors could buy a modern family home in Florida near the world-class theme parks, golf courses and natural wonders for much less than the cost of an average home in the UK.
Earlier this month, Shelter Offshore suggested that Florida property can offer solid rental returns from holidaymakers and can also be bought at bargain prices.
The US National Home Price Index rose 4.4 per cent across the second quarter of 2010, according to Standard & Poor’s latest S&P/Case-Shiller Home Price Indices.
This followed a drop of 2.8 per cent in the first three months of the year and puts US property prices 3.6 per cent higher than a year ago.
Of the 20 cities included in the index, 15 saw a year-on-year increase in property prices, with San Francisco and San Diego showing the biggest leaps of 14 per cent and 11 per cent respectively.
David M Blitzer, chairman of the Index Committee at Standard & Poor’s, said: "Even with concerns about near term developments, we recognize that the housing market is in better shape than this time last year. Further, California’s cities have moved from some of the hardest hit to three of the four leading cities based on year-over-year gains."
Last week, Mayfair International Realty said that the US offers some good opportunities for British property investors as home sales in the nation are currently slowing.
Parliamentary elections in Afghanistan next month will be seen as a test of long-term stability. But analyst Candace Rondeaux says pre-election violence and corrupt candidates will undermine the vote’s legitimacy.
Here is an interesting snip from August 31 Market Commentary by Art Cashin for UBS. Sorry, no link.
Monday’s market evaporated nearly all the gains from Friday’s rally. Despite lighter volume, it was a 90% down day. That means the bears got a lopsided advantage in negative breadth and negative volume. In Friday’s rally, the bulls had had a similar 90% advantage. Robert McHugh of Main Line Investors says 26 of the last 88 trading days have been 90% days – one way or another. Any wonder the public is wary.
Are these 90% Days a Good Thing?
While the big boys push the market around, small investors have thrown in the towel and are not coming back.
Market volume now consists of black boxes pushing all stocks one way or the other on 30% of the days. Is this a good thing? For who? Investors or Goldman Sachs?
Holding the Line
Today, the 1040 level on the S&P held for about the 8th time on “fabulous” news consumer confidence rose to 53. Bear in mind number in the 70’s are typical of recession lows.
How long the 1040 level can hold is a mystery, but each bounce seems to be weaker and weaker.
Last Friday, I noted Market Cheers 1.6% Growth; Treasuries Hammered; while asking “what’s next?”
We have a partial answer already. Treasuries have regained the entire selloff that started (and ended) on the “great news” that 2nd quarter GDP was +1.6% instead of the expected +1.4%. Nevermind that growth was revised down twice from above +2.5% to +1.6%.
Looking ahead, I expect GDP to be negative in the 3rd quarter.
Art Cashin’s 17.6 Year Cycles
A little over a year ago Art Cashin commented Dow Trapped in 17-Year Cycle
Art Cashin, director of floor operations at UBS Financial Services, offered CNBC his stock-market insights. Cashin decried the idea of a second stimulus, in light of the “infamous” first attempt.“There was no ’stimulus’ in the stimulus package. It was mostly social engineering,” Cashin said. Thus, talk of a new plan is shaking markets with fears of even more debt — with “nothing to show for it.”
Cashin revisited his theory of “the 17.6-year cycle.”
“It’s like the Biblical story of the fat and lean years. During the fat, you can throw a dart at the wall, and anything you buy goes up.”
He believes one such cycle spanned 1982 to 2000. And he notes that from “1966 to 1982, the Dow went to 1,000 — then went back down.”
Barry Ritholtz described the 17.6 year cycle in Art Cashin on Secular Cycles
“Back On The Cycle – David Rosenberg, formerly chief economist at Merrill Lynch and now at Gluskin Sheff was a guest host on CNBC’s Squawkbox this morning. During the discussion he alluded to an 18 year cycle in the market. Not to quibble but many traders have thought of it as the 17.6 year cycle. Here’s how I outlined it back in May 2002: Yesterday, as the elders were being asked about the hiding place of the great Bull Market one of the fogeys mentioned the “near 18 year cycle.” Like the fat and lean years, it refers to so-called “easy” times to make money in the market versus times requiring much harder work. The fogeys suggested it was near 18 years because it was approximately 17 years, 7 months. For ease of explanation to the juniors, one of the fogeys decimalized the number as 17.6 years so they could use their calculators. He then postulated this example – Let’s say the markets topped out in about February 2000. Let’s call that 2000.2. Subtract 17.6 and your back in about July 1982 (1982.60). The Dow was around 900. So you could see why those were a fat (easy) 17 years. Take away 17.6 again and you are back around January of 1965 and the Dow is around 900. (Yup – just like 1982.) Many twists and turns in those 17 years. Lots of chances to make money. But you had to work for every penny. Take away 17.6 again and you are back around May of 1947. The war is over. The Dow is around 170. Lots of prosperity ahead. Take away 17.6 and you are back around Sept of 1929 and the Dow is around 350. He began to go on. The juniors had had enough. Folks don’t like to hear that you can do well only if you do your homework everyday. Having lived through two of those cycles, we can attest to the work cycle.”
From where the market is today, Cashin is essentially describing the Japanese scenario of two lost decades. That has been my preferred scenario for quite a long time.
Japan’s Lost Decades Rallies
If Cashin is correct, and I believe he is, it’s another 7 years of nowhere at best for the stock market. Nonetheless, there will be trading opportunities in both directions as the above chart from Business Insider shows.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Movie attendance is down but increased prices made up the difference for now. Bloomberg reports Summer Movie Box-Office Attendance Falls to Lowest Since 1997
Summer movie attendance fell to the lowest level since 1997, while soaring ticket prices produced record revenue for Hollywood studios and theater owners.The number of tickets sold from the first weekend of May through the U.S. Labor Day holiday is expected to drop 2.6 percent to 552 million, Hollywood.com Box-Office said yesterday in an e-mailed statement. That would be the lowest attendance since summer moviegoers bought 540.3 million tickets in 1997.
“The movies just didn’t excite people the way they needed to,” Paul Dergarabedian, president of Hollywood.com Box-Office, said in an interview. “When you raise prices and perceive that quality goes down, you have a major problem.”
Summer box-office revenue will rise 2.4 percent to a record $4.35 billion in the U.S. and Canada as higher prices more than make up for the lower attendance, Hollywood.com estimates. The average ticket price will increase 5.1 percent to $7.88 from last year’s $7.50, the biggest gain since a 6.3 percent jump in 2000, Hollywood.com said.
The price-conscious majority appears to be overwhelmed by the price-insensitive wealthy, at least for the time being. How much longer this lasts with cheap movie rentals and another downturn in the economy remains to be seen.
Regardless, the results portray an increasing dichotomy between the “haves” and the “have-nots”.
As long as Hollywood can get away with inceasing prices, they will do just that, even if it means an increasing percentage of customers are “priced out”.
Last Hurrah for Housing
Case-Shiller Home Prices in 20 U.S. Cities Rise More Than Forecast
Home prices in 20 U.S. cities rose more than forecast in June from a year earlier, reflecting the influence of a government tax incentive and a sign the market was stabilizing before sales plunged in July.The S&P/Case-Shiller index of property values increased 4.2 percent from June 2009, the group said today in New York. The median estimate of economists surveyed by Bloomberg News called for a 3.5 percent advance.
The Case-Shiller index is a moving three-month average, which means the June data are still being influenced by transactions in April and May that benefitted from the government incentive. A pullback in demand since the credit ended, mounting foreclosures and an unemployment rate near a 26- year high may weigh on prices in coming months.
Nationally, prices increased 3.6 percent in the second quarter from the same time last year and were up 2.3 percent from the previous three months.
San Francisco, San Diego
Fifteen of the 20 cities in the S&P/Case-Shiller index showed a year-over-year increase, led by a 14 percent gain in San Francisco and an 11 percent increase in San Diego.
Compared with the prior month, 17 of the 20 areas covered showed an increase on an unadjusted basis, led by 2.5 percent gains in Chicago, Detroit and Minneapolis. Two cities were little changed and Las Vegas fell 0.6 percent.
Builders such as KB Home and Lennar Corp. reported falling sales after April 30, the deadline for homebuyers to sign contracts to purchase a home to qualify for the extended tax credit. The deadline to close transactions by June 30 was later extended to Sept. 30.
Donald Tomnitz, chief executive officer of D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, said he welcomes the end of federal homebuyer tax credits that boosted sales earlier in the year.
Back to Normal
“I don’t want the tax credit to be re-enacted or be recreated or extended,” Tomnitz said on an Aug. 3 conference call with investors. “We want to get back to a normalized market.”
Foreclosures may be an obstacle for the market for much of the year. A record 269,962 U.S. homes were seized from delinquent owners in the second quarter as lenders set a pace to claim more than 1 million properties by the end of 2010, according to RealtyTrac Inc., an Irvine, California-based data company.
Last Hurrah for Housing
Case-Shiller is a backward looking index. The increasing number of foreclosures, the complete collapse in new home sales, a massive increase in inventory, and the end of tax credits all suggest we are near the end of the line for this bounce in home prices.
Interestingly, even the home builders are against another home tax credit. Is that reflective of the massive distortions caused by the credit, the realization the tax credit was useless, or the fact that homebuilders recognize there is little chance Congress will back another tax credit?
Regardless, here’s the deal: New Home Sales Consensus 330K, Actual 276K, a Record Low. As a followup please see How Many New Home Sales Was That?
Expect to see new all time low prices in some cities later this year or next year as pent-up demand dries up along with incentives that merely brought that demand forward.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
An interactive slideshow detailing events since the U.S. invasion of Iraq in 2003.
People are still emailing me, making a mountain out of a molehill of a Rosenberg statement I quoted in Burning Down the House; New Home Sales Consensus 330K, Actual 276K, a Record Low; Nationwide, Zero New Homes Sold Above 750K
I failed to comment yesterday on the huge miss by economists on consensus new home sales, but Rosenberg has some nice comments today in Breakfast with Dave.
The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer — zero, nada, rien; and for the second month in a row. Only 1,000 units priced above 500,000 moved last month. That’s it! Over 80% of the homes that the builders managed to sell were priced for under $300,000. Just another sign of how this remains a full-fledged buyers’ market — at least for the ones that can either afford to put down a downpayment or are creditworthy enough to secure a mortgage loan (keeping in mind that 25% of the household sector does have a sub-600 FICO score).
How Many is Zero?
There are a couple of issues here.
1. New home sales are recorded at contract signing. So recent closings at a higher rate do not count. Nor do existing home sales. Many of those complaining were looking at closing data or existing home sales.
2. The other factor is rounding error. Rosenberg should not have been so emphatic.
From the Census Bureau New Home Sales Spreadsheet
Table 2 - $750K home sold
“(Z) Less than 500 units or less than 0.5 percent.”
Anyone targeting Rosenberg’s statement is making a mountain out of a molehill.
Let me put it this way “There was a statistically irrelevant number of new home sales above $750K, somewhere between zero and 500″.
This is not worth the amount of attention it has received.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Miami is bankrupt. Unfortunately the city refuses to admit it.
In an enormously foolhardy attempt to make ends meet, in spite of the fact that Miami home prices have been hammered and 1-in-8 are unemployed, the County keeps pouring on the painful tax and fee increases.
As you recoil from your tax warning notice today, ponder this: those multiple tax hikes aren’t the only charges set to rise. Besides Miami-Dade County’s plan to raise every taxpayer’s rates 12.2% for operations and an incredible 56% for capital spending on undisclosed projects, it also plans to raise retail water and wastewater rates 5%.And though County Manager George Burgess proposed the 5% water and wastewater hikes, that’s not because water and sewer are running in the red. They’re already quite profitable. But by raising rates, the county can dip into water and sewer cash and add $25 million to its operating spending cache while claiming it’s keeping our cost down. And for that $25 million slice the county would be right — unless you happen to drink water or flush a toilet.
“If you keep taking money it just goes to reason you’re going to be charging more so all the residents are paying more,” Commissioner Carlos Gimenez told us. “It’s actually a hidden tax. You’re just hiding it in water and sewer.”
One Miami-Dade worker in eight can’t get a job and commissioners don’t seem to notice. Instead, as the economy strangles the public and values of homes fall, the county plans double-digit tax hikes on every dollar of remaining value. Before the commission finally clamps the screws on taxpayers or, as it should, relieves pressure by backing off its massive increases, it will hold budget hearings at 5 p.m. Sept. 13 and 23.
What can we do?
One suggestion: Let your commissioner know you’ll be taking names of those who vote to raise tax rates even a penny in today’s economy. Remind them that the purpose of government is not to remain bloated. Another suggestion: Wear a red “Cut Tax Rate” T-shirt to the hearings. Have your friends do the same. Remember, commissioners only count the hundreds of votes in the room, not the hundreds of thousands of suffering taxpayers back home fighting foreclosure.
Miami Breaks Employee Contracts
Inquiring minds are reading Broke City Breaking Employee Contracts
The city of Miami is so broke it’s forcing employees to take pay cuts, even though they’re under contract. Mayor Tomas Regalado said he’s never seen a financial mess like this before, and his options are grim.“It’s either that or we layoff 1,000 employees or we raise taxes to the max, and we’re not raising taxes to the max,” the mayor said.
Mish Comment: If you are looking for one of the most disingenuous comments in history there you have it. The only reason it is not a blatant lie is the ending phrase “to the max”. Regalado is clearly incompetent and needs to be removed.
The city is operating under a state of “fiscal urgency,” declared earlier this summer. The budget deficit for next fiscal year is about $110 million. The proposed cuts in salary, pension contributions and health insurance costs amounts to about $86 million in savings for the city.That fiscal urgency declaration allows city commissioners to impose salary cuts on employees, despite their contracts.
Charlie Cox, who represents about 1,100 general service workers, said employees with valuable knowledge will retire or find work elsewhere. “We’re going to have a ton of people leave the city and the institutional knowledge will be gone,” he said.
Mish Comment: Hello Charlie. Good luck in finding jobs with excessive benefits in this market. Hell, you don’t need luck you need a miracle.
Good riddance, the sooner you leave the better Miami will be. Every position vacated will be a gain to the city.
Miami’s police officers, firefighters and other union workers are all expected to choke down cuts. One police union official said the Fraternal Order of Police will sue the city if the cuts are imposed
Mish Comment: It is the right of the FOP to file a lawsuit. I hope they do. The correct response for the city would be to immediately declare bankruptcy so the overpaid union clowns can see just what benefits they get in bankruptcy court, ideally nothing.
Hell, the correct response is for Miami to declare bankruptcy now, whether the FOP is stupid and arrogant enough to sue or not. Miami is bankrupt, and the sooner the mayor and city council admit it the better.
Budget Hearing 5 p.m. September 13 and 23
If you live in Miami and you do not show up at the hearing you are part of the problem. You better show up because union will, en masse, and they will pack the halls demanding still more tax increases so they can go on receiving huge wages and even bigger pension benefits.
In the meantime, please flood the mayor’s office and all of the commissioners with phone calls, emails, and faxes.
Mayor Tomas P. Regalado
E-mail: tregalado@miamigov.com
Email Mayor Tomas P. Regalado
305-250-5300 VOICE
305-854-4001 FAX
Commissioner Wifredo (Willy) Gort
District 1
Email: wgort@miamigov.com
Email Commissioner Wifredo (Willy) Gort
305-250-5430 VOICE
305-250-5456 FAX
Commissioner Marc Sarnoff (Chairman)
District 2
E-mail: msarnoff@miamigov.com
Email Commissioner Marc Sarnoff
305-250-5333 VOICE
305-579-3334 FAX
Commissioner Frank Carollo (Vice Chairman)
District 3
E-mail: fcarollo@miamigov.com
Email Commissioner Frank Carollo
305-250-5380 VOICE
305-250-5386 FAX
Commissioner Francis Suarez
District 4
E-mail: fsuarez@miamigov.com
Email Commissioner Francis Suarez
305-250-5420 VOICE
305-856-5230 FAX
Commissioner Richard P. Dunn
District 5
E-mail: rpdunn@miamigov.com
Email Commissioner Richard P. Dunn
305-250-5390 VOICE
305-250-5399 FAX
Please flood the Mayor and all the commissioners with emails. Have your friends do the same (unless of course you want your taxes to rise for the sole benefit of unions and city employees).
If you are not in a public union or a city employee, please say so. Include your name and address and let them know you will not vote for anyone who raises taxes.
Those email links above contain a sample heading line. Please modify it so they do not all look alike.
In the body, let the mayor and commissioners know that Miami is bankrupt and politicians giving into union extortion is the reason. As I said, union thugs will show up en masse demanding more taxes, more benefits, and higher wages. Let the mayor and commissioners know that you support bankruptcy to avoid union ripoffs.
Finally, if you live in Miami, please have your friends do the same.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Turkey has been described as a "magnet for holidaymakers", which is great news for anyone thinking of buying property in the nation.
The Daily Mail recently featured an article on Turkey, suggesting that the nation’s Turquoise Coast is particularly popular with property buyers as it offers beautiful surroundings and value for money when compared with some other holiday hotspots.
Speaking to the newspaper, Angela Campbell of Properties Away said that UK buyers also like the fact they can buy Turkish property in sterling, as the strength of the euro is putting them off many other nations.
The newspaper suggested that the country is popular with both private buyers and investors looking to generate rental income.
Select Resorts recently stated that Turkey is one of the most exciting markets for property investors, having seen a significant increase in sales over the past two years.
The firm also stated that property prices in the region remain good value.
Employers are set to slash pension benefits to staff as a consequence of being forced to enrol millions of new employees into company schemes, a report warns today.
In this Der Spiegel interview, Iranian Foreign Minister Manouchehr Mottaki comments on Iran’s policy of stoning as punishment, the impact of sanctions, and the risk of a military attack on Iran.
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