Posts Tagged ‘underwater mortgages’

It’s unanimous: Propping up underwater mortgages is a bad idea

It’s unanimous: Propping up underwater mortgages is a bad idea

Courtesy of Edward Harrison at Credit Writedowns 

Families Are Evicted From Homes As Economic Crisis Worsens

What follows is a more comprehensive re-write of my take on the latest bailout proposals by the Obama Administration. I felt the original write-up was a bit rushed and one-sided. I have tried to outline the objectives of the bailout plans more dispassionately. And I have added some historical references from prior posts to demonstrate the basic merits of the idea.

Clearly the mindset will not change. It’s all bailouts, all the time in the Obama Administration, as it was at the end of the Bush Administration. I want to talk about the most recent bailouts, why they were proposed, what’s wrong with them and why bailouts generally don’t work. My remarks will concentrate on the principal reduction program since this is the newest bit.

Why bailouts won’t work

What should be clear to you as an observer by now is that these bailouts implicitly assume that government can stuff financial institutions full of taxpayer money and in so doing adequately recapitalize them so that they can lend again.

The thinking is that, these policies, while "deeply unpopular, deeply hard to understand," are necessary to prevent another systemic breakdown and a deflationary spiral.

Also implicit is the assumption that economic weakness depends in large measure on supporting home price values by increasing the supply of credit via bank lending and securitizations. But, as I argued 14 months ago when Barack Obama came to the White House, the financial system is so fundamentally unsound that bailouts are like catching a falling knife. The writedowns that needed to be taken – in the absence of serious house price appreciation – are just too large to be handled quickly via bailouts.

Moreover, it is the demand for credit which is critical here because households are over-indebted and reluctant to take on further debt. While I do believe officialdom can be successful in creating mild but brief cyclical upticks in consumer demand, weak consumer spending will last for years. The secular trend is clearly going to be toward increasing savings and reducing debt.

So bailouts alone cannot address the debt problem which is behind the reduction in credit demand growth. Nor are they likely to be adequate to deal with the scale of unrealized losses on bank balance sheets.…
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Housing: Round Trip to Pre-Bubble Prices Underway

Charles argues that bubbles retrace all the way to pre-bubble levels, which means housing has another 25% further to fall. – Ilene

Housing: Round Trip to Pre-Bubble Prices Underway

Courtesy of Charles Hugh Smith Of Two Minds

Popped speculative bubbles tend to retrace to their pre-bubble prices. Housing has already retraced 75% of the bubble--only 25% still to go.

When it comes to post-bubble retraces, the fundamental reasons may not matter as much as the technical case for a full reversion to pre-bubble prices. We all know the fundamental reasons why housing shot up--a credit bubble of epic proportions plus securitization, fraud and low interest rates, to name but a few factors--and why housing has plummeted: foreclosures and inventory are rising, tightening of credit standards by private lenders, etc.

But the ultimate predictor of price is technical: speculative bubbles retrace to their pre-bubble prices, or in many cases even crash below those levels.

Those arguing the fundamentals are always grasping at various straws to support the case that prices won’t drop all the way back to pre-bubble levels, and they’re always wrong.

Thus when the NASDAQ dot-com bubble topped above 5,000 in 2000 and then sank to 3,000, the fundamental analysts piled on reasons why 3,000 was "the bottom." Indeed, the market did recover the 4,000 level briefly--at which point it reversed and drifted all the way down to 1,100, it’s pre-bubble level.

In other words, regardless of the fundamental reasons offered (they’re not making any more land, inventory is drying up, foreclosure rates are dropping, etc.), markets tend to fully revert to pre-bubble prices.

Here is a chart of the national median prices which have already reverted to 2002 levels. The future full retrace has been added as a projection:

While there is no absolute way to project the final bottom, many bubbles exhibit a symmetry in their rise and fall. Thus if a bubble took eight years to reach its apex, there is some history to suggest that it will bottom out in roughly the same time span.

That would put the final bottom in the 2013-2014 time frame.

The truly bubblicious markets have already reverted fully 75% of the bubble. Take a look at this chart of median prices in California. Median rices have already dropped to 2001 levels--a staggering 55% decline and a 76% retrace of the entire bubble…
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Kimble Charting Solutions

Health Care & Merck Working A Bullish Breakouts!

Courtesy of Chris Kimble

Health Care (XLV) ETF has lagged the S&P for the past few years. Is the lagging trend about to end? It sure could and we should find out very soon!

This chart looks at the Health Care/S&P Ratio (XLV/SPY), which reflects that it has created a series of lower highs and lower lows inside of falling channel (1). Over the past 6-months the ratio has created a series of higher lows, reflecting out performance of XLV to the broad markets.

The ratio is testing a support/resistance line at (2). If the ratio breaks out at (2), it would suggest that health care stocks wi...



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Zero Hedge

China Set To Make History With Record Number Of Bond Defaults In 2019

Courtesy of ZeroHedge View original post here.

While China is bracing for what may be a historic D-Day event on December 9, when the "unprecedented" default of state-owned, commodity-trading conglomerate Tewoo with $38 billion in assets may take place, it has already been a banner year for Chinese bankruptcies.

According to Bloomberg data, China is set to hit another dismal milestone in 2019 when a record amount of onshore bonds are set to default, confirming that something is indeed cracki...



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Phil's Favorites

NATO meeting: solidarity reinforced despite uncomfortable time for alliance to be in the spotlight

 

NATO meeting: solidarity reinforced despite uncomfortable time for alliance to be in the spotlight

Courtesy of Megan Dee, University of Stirling

Anniversaries are meant to be a celebration. They represent a moment of reflection – a marker, a milestone, a time to look back. And therein lies their biggest problem. For anniversaries have that unfortunate effect of turning any subject – be it a past event, a married couple, or indeed an international institution – into an object of intense scrutiny. For the North Atlantic Treaty Organization (NATO) celebrating its 70th anniversary in London on December 3-4, that scrutiny has come at an unfortunate time.

Founded in 1949 with the signing of the Washington Treaty, NATO at 70 represents one the longest-standi...



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Insider Scoop

38 Stocks Moving In Wednesday's Mid-Day Session

Courtesy of Benzinga

Gainers
  • Ibio Inc (NYSE: IBIO) shares surged 47.8% to $0.2778 on continued momentum after the company joined the manufacturing USA's tissue Biofabrication initiative.
  • Protagonist Therapeutics, Inc. (NASDAQ: PTGX) shares climbed 44% to $6.75. On Tuesday, Protagonist Therapeutics announced results from mid-stage study of PTG-300 in transfusion-dependent beta-thalassemia.
  • Relmada Therapeutics, Inc. (NASDAQ: RLMD) gained 19.2% to $41.07. Relmada Therapeutics price...


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Digital Currencies

Chinese Crypto Exchange IDAX Locks Cold Wallet As CEO "Goes Missing"

Courtesy of ZeroHedge

By William Suberg via CoinTelegraph.com

Chinese cryptocurrency exchange IDAX has suspended deposits and withdrawals after its CEO allegedly disappeared.

In a blog post on Nov. 29, IDAX, which earlier this week warned it was seeing a run on withdrawals, said the whereabouts of Lei Guorong were currently unkno...



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Chart School

RTT browsing latest..

Courtesy of Read the Ticker

Please review a collection of WWW browsing results. The information here is delayed by a few months, members get the most recent content.

Date Found: Tuesday, 09 July 2019, 01:48:48 AM


 

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Comment:
FED has no ammo in the next crisis!


Date Found: Friday, 12 July 2019, 02:38:12 AM
 

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Comment:
YIP Corporate debt blows up when econ...



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Members' Corner

Sacha Baron Cohen Uses ADL Speech to Tear Apart Mark Zuckerberg and Facebook

 

Sacha Baron Cohen Uses ADL Speech to Tear Apart Mark Zuckerberg and Facebook

By Matt Wilstein

Excerpt:

Sacha Baron Cohen accepted the International Leadership Award at the Anti-Defamation League’s Never is Now summit on anti-Semitism and hate Thursday. And the comedian and actor used his keynote speech to single out the one Jewish-American who he believes is doing the most to facilitate “hate and violence” in America: Facebook founder and CEO Mark Zuckerberg.

He began with a joke at the Trump administration’s expense. “Thank you, ADL, for this recognition and your work in fighting racism, hate and bigotry,” Baron Cohen said, according to his prepared...



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Lee's Free Thinking

NY Department of Welfare Announces Increased Subsidies for Primary Dealers, Thank God!

 

NY Department of Welfare Announces Increased Subsidies for Primary Dealers, Thank God!

Courtesy of , Wall Street Examiner

Here’s today’s press release (11/14/19) from the NY Fed verbatim. They’ve announced that they will be making special holiday welfare payments to the Primary Dealers this Christmas season. I have highlighted the relevant text.

The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released the schedule of repurchase agreement (repo)...



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The Technical Traders

VIX Warns Of Imminent Market Correction

Courtesy of Technical Traders

The VIX is warning that a market peak may be setting up in the global markets and that investors should be cautious of the extremely low price in the VIX. These extremely low prices in the VIX are typically followed by some type of increased volatility in the markets.

The US Federal Reserve continues to push an easy money policy and has recently begun acquiring more dept allowing a deeper move towards a Quantitative Easing stance. This move, along with investor confidence in the US markets, has prompted early warning signs that the market has reached near extreme levels/peaks. 

Vix Value Drops Before Monthly Expiration

When the VIX falls to levels below 12~13, this typically v...



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Biotech

Why telling people with diabetes to use Walmart insulin can be dangerous advice

Reminder: We are available to chat with Members, comments are found below each post.

 

Why telling people with diabetes to use Walmart insulin can be dangerous advice

A vial of insulin. Prices for the drug, crucial for those with diabetes, have soared in recent years. Oleksandr Nagaiets/Shutterstock.com

Courtesy of Jeffrey Bennett, Vanderbilt University

About 7.4 million people ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Promotions

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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