Financial Skeptic Bulletin, February 2007

Prev | Contents | Next

February

[Feb 11, 2007] G-7 Presses China on Yuan Flexibility

Paulson pressures China to support devaluation of dollar

"Over the last two days, we discussed ways to keep the global economy growing in a balanced way, including stimulating domestic demand in Japan and Europe and pressing for greater exchange-rate flexibility in China," U.S. Treasury Secretary Henry Paulson said.

[Feb 10, 2007] Financial Sense Storm Watch Update The Next Rogue Wave by James J. Puplava 12-15-2006

Watch the credit markets—especially subprime lenders.

Looking back over the last three decades, there have been at least a dozen such episodes that erupted in the wake of the various Fed tightening cycles. So far, real estate is falling, the economy is slowing, but we have had no major financial mishaps. But it is still early and the fallout from real estate has much further to run. Watch the credit markets—especially subprime lenders. And watch the U.S. dollar. I am assuming Hank Paulson and Ben Bernanke went to China for other reasons than "to see The Great Wall." I suspect their motive is to obtain Chinese cooperation in devaluing the dollar.

[Feb 9, 2007] How the Fed Lost Control of Money Supply  by Axel Merk

In this phase, we will see monetary contraction: money that has subsidized not only the real estate market, but also consumer spending, stocks, bonds and commodities may dissipate.

 Feb 6th 2007. (Merk Hard Currency Fund) The world is awash in money. This money has flown into all asset classes, from stocks to bonds, from real estate to commodities. In a world priced for perfection, should we enjoy the boom or prepare for a bust? Let us listen to Wall Street’s adage and “follow the money.”

After the tech bubble burst in 2000, policy makers in the U.S. and Asia set a train in motion they have now lost control over. In an effort to preserve U.S. consumer spending, the Federal Reserve (Fed) lowered interest rates; the Administration lowered taxes; and Asian policymakers kept their currencies artificially weak to subsidize exports to American consumers.

These policies have lead to one of the longest booms in consumer spending ever – U.S. consumer growth has not been negative since the early 1990s. However, it was credit expansion, rather than increased purchasing power, that has fueled the growth. Until about a year ago, consumers took advantage of abnormally low interest rates to print their own money by taking equity out of their homes. This source of money is drying up as home prices no longer rise and sub-prime lenders (those providing loans to financially weak consumers) are facing difficulties. More prudent homeowners have not yet been affected as they buy their home based on longer-term interest rates; until December these interest rates have stayed abnormally low. In recent weeks, these rates have ticked up significantly, and we may see the next and more severe round of pressure being exerted on the housing market. In this phase, we will see monetary contraction: money that has subsidized not only the real estate market, but also consumer spending, stocks, bonds and commodities may dissipate.

[Feb 9, 2007] Housing Crash Continues, Bubble Pops

The rogue wave can emerge from the subprime lending markets.

1. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate.
    
2. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he's bankrupt in the real world.
    
3. It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is at least 5%. On a $600,000 house, that's $30,000 lost even if prices just stay flat. So a 5% decline in housing prices bankrupts all those with 10% equity or less.
    
4. Surplus of speculators. Nationally, 25% of houses bought in 2005 were pure speculation, not houses to live in. It is now possible to buy a house with 103% financing. The extra 3% is to cover closing costs, so the speculator needs no money down. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets."
    
5. Baby boomers retiring. There are 77 million Americans born between 1946-1964. One-third have zero retirement savings. The oldest are 61. The only cash they have is equity in a house, so they must sell.

[Feb 9, 2007] National Mortgage News - Mortgage Data

Top Subprime Lenders.  New bubble fall guys ?  30-50% haircut ?

[Feb 9, 2007] immobilienblasen / where is your stabilization Mr. Toll

• FY 2007's first-quarter home building revenues were approximately $1.09 billion, a decline of 19% compared to the first-quarter record of $1.34 billion in FY 2006
• FY 2007's first-quarter-end backlog was approximately $4.15 billion, a decline of 30% compared to the first-quarter record of $5.95 billion in FY 2006.
• FY 2007's first-quarter net signed contracts were approximately $749 million, a decline of 34% compared to FY 2006's first-quarter total of $1.14 billion
• Net of cancellations, first quarter contracts totaled 1,027 units, down 33% from 1,544 units in the first quarter of FY

With that kind of fundamentals/performance no wonder the builders are flying high again.......

[Feb 1, 2007] FRB FOMC Minutes - December 16, 1997 (retrospective post)

M2 and M3 grew rapidly in November. M3 at a rate substantially above the upper bound of its range. Total domestic nonfinancial debt has expanded in recent months at a pace somewhat below the middle of its range.

M2 and M3 grew rapidly in November. For the year through November, M2 expanded at a rate slightly above the upper bound of its range for the year and M3 at a rate substantially above the upper bound of its range. Total domestic non-financial debt has expanded in recent months at a pace somewhat below the middle of its range.

In October, the latest month for which data were available, sales of new homes were well maintained, and sales of existing homes rose. Housing starts increased somewhat in October and November from the already high level reached earlier in the year.

Consumer price inflation had remained at a low level in recent months, reflecting a variety of influences including a favorable labor cost environment, falling import prices, small increases in energy prices, and declining inflation expectations.

[Feb 1, 2007] FRB Press Release--FOMC statement--January 31, 2007

They want to protect dollar: "The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters. [ They are off the mark, aren't they ?]

Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.

The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

[Feb 1, 2007] immobilienblasen

My critical point is that asset prices are no longer entirely a function of the real economy: it can be just the reverse. The real economy is being driven by asset prices, which in turn are influenced by financial flows of non-historic origin, composition, and uncertain longevity.

...., [citing Pimco Bill Gross] my critical point is that asset prices are no longer entirely a function of the real economy: it can be just the reverse. The real economy is being driven by asset prices, which in turn are influenced by financial flows of non-historic origin, composition, and uncertain longevity.

What used to be an Economics 101 “CIG + exports-imports” analysis leading to predictions for interest rates and stock prices has turned into an Economics 2007 analysis of corporate buybacks, international reserve flows and hedge fund/private equity positioning seeking to front run or take advantage of the first two.

And it’s not simply a question of analyzing the animal spirits or “exuberance” of investors wherever they may be.

Corporations are buying back stock with their historically high profits not really because they’re enthusiastic about their own company’s value, but because they have little else to do with the money. Likewise, foreign central banks and petroreserve recyclers are turned on more by capping their own currencies or geopolitical considerations in the Middle East.

[Feb 1, 2007] immobilienblasen

Nationwide, almost 971,000 foreclosure filings were reported last year, 51 percent more than the 641,000 in 2005, according to the annual report.

Foreclosures increased 94 percent last year to 157,417 homes in California, as homeowners struggle with fast-rising home payments and a slow-selling market, according to ... ForeclosureS.com. Nationwide, almost 971,000 foreclosure filings were reported last year, 51 percent more than the 641,000 in 2005, according to the annual report. ( and the pace is accelerating....../ uund das tempo nimmt rapide zu)

......... He [Bill Gross] has been predicting bonds will rally this year as a weakening U.S. housing market prompts the Fed to cut rates.

Etc

Society

Groupthink : Two Party System as Polyarchy : Corruption of Regulators : Bureaucracies : Understanding Micromanagers and Control Freaks : Toxic Managers :   Harvard Mafia : Diplomatic Communication : Surviving a Bad Performance Review : Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime : PseudoScience : Who Rules America : Neoliberalism  : The Iron Law of Oligarchy : Libertarian Philosophy

Quotes

War and Peace : Skeptical Finance : John Kenneth Galbraith :Talleyrand : Oscar Wilde : Otto Von Bismarck : Keynes : George Carlin : Skeptics : Propaganda  : SE quotes : Language Design and Programming Quotes : Random IT-related quotes :  Somerset Maugham : Marcus Aurelius : Kurt Vonnegut : Eric Hoffer : Winston Churchill : Napoleon Bonaparte : Ambrose Bierce :  Bernard Shaw : Mark Twain Quotes

Bulletin:

Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law

History:

Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOS :  Programming Languages History : PL/1 : Simula 67 : C : History of GCC development :  Scripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

The Peter Principle : Parkinson Law : 1984 : The Mythical Man-Month :  How to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

Most popular humor pages:

Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

The Last but not Least Technology is dominated by two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt. Ph.D

The statements, views and opinions presented on this web page are those of the author (or referenced source) and are not endorsed by, nor do they necessarily reflect, the opinions of the Softpanorama society. We do not warrant the correctness of the information provided or its fitness for any purpose. The site uses AdSense so you need to be aware of Google privacy policy. You you do not want to be tracked by Google please disable Javascript for this site. This site is perfectly usable without Javascript.

Last modified: March 12, 2019