Rather then just put this year in the past, I urge you all to look forward to a brighter 2009.
Best wishes to all and a happy New Year.
-Jake
This decline of housing values in CA is absolutely going to destroy seniors who had counted their house value in their net worth, and planned on that being there for retirement. Add to that what has happened to the value of CA bonds that they were booking income off of. If they were planing on selling those and CA is on the rocks they might be in for a surprise there. Now add in every other asset they held is likely down as well and lots of blue chip dividends they had relied on might be chopped entirely.
Plus add in that CA is going to raise taxes. Where does this leave CA seniors? Those that had planned to retire in CA may no longer be able to retire here. This is going to send them state shopping for sure for a low tax retirement state that they can afford.
FIRST: What if the graph showed the few years before this price drop? You would see those same housing prices skyrocketing. Seniors (who presumably mostly owned their homes before that run-up) are still way ahead. They just don't get the windfall from the bubble.
Also, why does the scale start at $250K? That just makes the chart look steeper than it really is. The numbers are grand enough not to require that kind of trite distortion.
In addition, I am positive that some seniors retired on the notion that their home had a specific value (while the others included this inflated price to calculate their wealth). I personally know of multiple individuals who have postponed their retirements these past 6-8 months as their wealth has declined at an alarming rate. Those that retired in 2005-06 with the notion that their home was worth 50% more are crushed.
2) Below is the same data with a scale starting at zero. I'll agree that I should have done it this way in the first place, but it sure as hell doesn't make the information look any rosier.
The world’s foreign exchanges were today readying themselves for parity between sterling and the euro after further selling sent the pound to within touching distance of a one-for-one exchange rate against the European currency.
The euro has risen by almost a third against the pound in the course of 2008, with an 18% appreciation in December alone. Sterling’s trade-weighted index against a basket of currencies fell to 74.2% of its 2005 value, its lowest since the Bank of England first kept daily records in 1990.
“you’ll be better off asking me on 12/31/09 at 3:59 pm.”
Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae, so the Federal Reserve's exposure to the credit risk of the underlying mortgages is minimal.Click for ginormous picture
The Conference Board Consumer Confidence Index™, which had increased moderately in November, declined to a new all-time low in December. The Index now stands at 38.0 (1985=100), down from 44.7 in November.Below is as a chart of EconomPic's 'Armageddon Index' (details here) for December. As can be seen, consumer confidence was crushed in December for current business conditions and labor markets, but those surveyed are more optimistic (on a relative basis) in their outlook than in October.
Record volumes of government bonds from the industrialised nations – intended to reverse what could be the worst recession since the Great Depression – threaten to curb access to credit markets by emerging economies.How dependent are Emerging Market countries to credit markets? Well, as can be seen below BRIC countries alone have~$3.5 trillion in External Debt Payments to make in 2009.
Analysts warn that emerging market borrowers could be crowded out of the credit markets by $3,000bn of government bonds expected to be issued by the big developed economies in 2009 – three times more than in 2008. The US alone is expected to issue about $2,000bn next year....
Mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the U.S. will break into six pieces -- with Alaska reverting to Russian control.So why can't I take Dr. Panarin seriously, besides the fact that he also mentions Texas will be taken over by Mexico? The #1 Google result when searching 'Igor Panarin' turns up this russiahouse.org bio (bold mine):
Prof. PANARIN is the author of nine books, "Infowar and power”, “Infowar and world”, “Infowar and election”, and others, and of many political essays published in various journals.And...
His main interests are history, philosophy, psychology, computer science, communication, election technology, conceptual problems of globalization, the theory and practice of infowar.A quick search for 'information warfare' (i.e. infowar) on Wikipedia reveals infowar includes:
Collection of tactical information, assurance(s) that one's own information is valid, spreading of propaganda or disinformation to demoralize the enemy and the public, undermining the quality of opposing force information and denial of information-collection opportunities to opposing forces.Not that the United States isn't an expert at infowar (and at times has focused that expertise directly on Russia), but it isn't typically this obvious.
Prof. Panarin, 50 years old, is not a fringe figure. A former KGB analyst, he is dean of the Russian Foreign Ministry's academy for future diplomats. He is invited to Kremlin receptions, lectures students, publishes books, and appears in the media as an expert on U.S.-Russia relations.And why did Mr. Osborne only once mention information warfare, but in that case make it nothing to do with one of his books or "hobby"?
In September 1998, he attended a conference in Linz, Austria, devoted to information warfare, the use of data to get an edge over a rival. It was there, in front of 400 fellow delegates, that he first presented his theory about the collapse of the U.S. in 2010.Let me see if I can't wrap this whole thing up and come up with a conclusion...
“The spreads have widened and investors are getting much more compensation for California bonds,” said Paul Brennan, who oversees about $12 billion in municipal-bond funds for Nuveen Asset Management in Chicago. “There’s still a lot of ups and downs to come unless there’s some dramatic budget agreement that could change all that.”As we can see below, yields on 10 Year California General Obligation "GO" Bonds have indeed increased, in a period in which the 10 year note has rallied ~200 bps.
The nation’s most-populous state will run out of money to pay bills as soon as February unless lawmakers end an impasse over how to close the funding gap. California has the second- lowest credit ratings in the country because of perennial fiscal shortfalls and legislative gridlock.Going back to The Bond Tangent... while some states and municipalities will have issues funding their budgets, California will make due. Why? For one... the negative stigma associated with a failure to make the payments.
It is not difficult for me to see more smaller government entities going bankrupt. But one of the world's largest economies? People really need to get a handle on what this would mean.I can't agree more...
Industrial production fell as much as 8.1% in November from the previous month -- the biggest drop in the measure since the government started releasing comparable figures in 1953 -- as Japanese companies produced less automobiles and other machinery on vanishing demand.
$7.08 Trillion in wealth has vaporized in the past year. Figure 2008 Q4 to be as bad as Q3. If so, roughly $10 Trillion in household wealth will be vaporized in little over a year. And looking ahead, there is no reason to believe the stock market, the housing market, or the economy will show signs of recovery anytime soon.
Corporate profits after taxes were revised a bit lower. After-tax earnings fell 3.2% to $1.300 trillion in July through September from the second quarter, the report showed. Profits previously were estimated falling 3.0%. Second-quarter earnings decreased 0.4%. Year over year, profits fell 10.1% since the third quarter of 2007.
November is never a great month for home sales, but don't let that fool you: today's reports are truly gruesome, falling significantly short of very bearish expectations. New home sales, at an annualized rate of 407,000, are at their lowest level since 1991; existing home sales, which were running at a rate of over 7 million a year in 2005, are now down to less than 4.5 million.
The median home price in the US is now just $181,000 -- down from $215,000 as recently as June -- and total housing inventory for sale rose in months-supply terms (thanks to the drop in sales) and is now hitting all-time record levels of about one year's supply.
All this is happening, remember, in an economy where roughly two-thirds of American households are owner-occupied. Owning one's own home, something which for most of this decade was a definite asset, is now a serious liability. Millions of workers can't move to somewhere with a better job market, and to make matters worse their net worth is now negative -- which means that no one will lend them any money, even if they are current on their mortgage payments.Source: NAR
Real federal government consumption expenditures and gross investment increased 13.8 percent in the third quarter, compared with an increase of 6.6 percent in the second. National defense increased 18.0 percent, compared with an increase of 7.3 percent. Nondefense increased 5.1 percent, compared with an increase of 5.0 percent. Real state and local government consumption expenditures and gross investment increased 1.3 percent, compared with an increase of 2.5 percent.
With government spending accelerating with financial bailout funds and a possible economic stimulus package on the way, government's share of the economy is projected to exceed 25 percent of the nation's $14.4 trillion economy in 2009, USA Today reported Thursday.Source: BEA
The previous record in the post-World War II era was 23.5 percent, set in 1983. In 1943 and 1944, government spending hit 44 percent of the total economy.
“The thing about the last 12 weeks, … the world has completely changed,” Howard Lanser, director of mergers and acquisitions at investment bank Robert W. Baird, told Reuters. In the fourth quarter, merger volume plunged 44 percent, making it the lowest quarterly volume since the third quarter of 2004, Thomson Reuters data showed.
As the financial crisis deepens, the world’s central banks and financial authorities have gained broad support for their efforts to reintroduce liquidity to the credit markets, get banks to lend again and bring down spreads and bond yields. But these sensible and indeed required steps to avoid a repeat of the 1930s may come with a drawback: a rapid decline in corporate bond yields, which threaten to produce rapidly rising funding shortfalls in defined benefit (DB) pension funds.The reason is that the present value of these pension liabilities are discounted at roughly the yield of a AA Corporate bond. While markets sold off this year hurting plans, the plans did benefit from a higher AA Corporate rate (spreads widened significantly), which reduced the present value of their liabilities (i.e. future benefit payments).
In today’s financial crisis, US corporations and state and local governments with a DB pension plan have so far been hit in different ways. The large recent declines in global stock markets have hit pension plan asset valuations hard, and without doubt the Pension Protection Act (PPA) of 2006 (for corporations) as well as the gradual introduction of accrual accounting methods for state and local government pension funds by the Governmental Accounting Standards Board (GASB) will require future increases in pension plan sponsors’ pension contribution levels.
A year ago, ABN (ABN) was purchased by Royal Bank of Scotland (RBS) with some help from Fortis, Santander (STD) and Bank of America (BAC). The purchase price was $100 billion approximately. The chart dismally shows what you could buy today with that money. Once again, the people that should have known what something was worth, what the assets on the balance sheet were truly worth, vastly overpaid. It’s stunning.
Opinion
Dollar Crushed / Why the Dollar Had Rallied
Greed
FT's Madoff-o-Meter
Ecuador Defaults... "We Borrowed, but Now Feel it is Immoral”
Goldman Earnings Hit, Pay Down to a Puny $395,000 ...
Rates
Real Mortgage Rate is Not So Nice
Mortgage Financing on the Cheap... Will It Work?
Who Wants to Receive 2.5% / Pay LIBOR for 30 Years?
Breakeven Inflation... How Low Can We Go
Currency
Dollar Carry Trade Version 2.0
Economic Data
Leading Economic Indicators Point to Worsening Economy
CPI November (All About Transportation)
Real GDP Declines in Recessions
Housing Starts Down... Housing Stocks Up
Stimulus Needed to Fill Under-Utilized Capacity
Industrial Production
States / Regions
State Revenue Down in Q3... Just Wait til Q4
Regional Personal Income Breakdown: No Stimulus Here
Muni Market Whacked
The average rate on a fixed 30-year mortgage fell to 5.18 percent last week from 6.47 percent in October, according to Mortgage Bankers Association data.Looking at daily data, I'll go ahead and project that next week's figure will look much better. After the Fed announced Tuesday they would be buying mortgages, rates tightened another 60-70 bps to a rate of ~4.4% (according to Barclays)!
Why would there be such a reversal while the American markets have "rallied"?My response (I'd love feedback):
When markets sold off / dollar rallied in Sept-Nov it was due in large part to levered investors (ie. hedge funds) that were forced to sell off their positions. The dollar has been used as a carry trade (investors borrowed cheaply in dollars then exchanged these dollars for the local currency of their investment).Get ready for additional waves / volatility as leverage continues to work its way through the system.
One example is Russia, where many investors borrowed in dollars, exchanged for Rubles (hence Rubles had rallied) and invested in Russia. Then from Sept-Nov, ~$100 billion in "hot money" was pulled and these investors closed their dollars / ruble positions to close their dollar borrowings (Russia may actually be a bad example as their dependence on oil is causing magnificent problems now... but ignore them for this thought experiment).
One can assume that the majority of this unwind ended ~Nov. 20th (though I think this is just the first wave). Now that these trades are unwound and equity markets have rallied, there is no longer the need or demand to buy dollars to close such trades. Thus, the dollar has sold off after being overbought due to:
- The end of this unwind
- The incredibly low interest rates, which will likely stimulate another wave of carry trades
State tax collections continued their downward trend in the July-September quarter, according to preliminary data the Rockefeller Institute of Government gathered from 42 states. Total taxrevenue for these states was essentially flat, rising by 0.1 percent over the same quarter last year. That rate of change was down sharply from the 50-state growth rate of 3.6 percent in the April-June quarter, and 17 states reported declines in total tax revenues from the same quarter of 2007. After adjusting for economy-wide inflation of 2.7 percent, real tax revenue declined by 2.6 percent nationally and was down in 31 of the 42 states.
The leading index continued to fall in November, due mainly to large declines in building permits, stock prices, and initial unemployment claims, which offset the continued positive contributions from real money supply (M2) and the yield spread. Without the very large increases in inflationad justed money supply since September, the leading index would have been significantly weaker. The six-month change in the leading index has continued to fall -- to -2.8 percent (a -5.6 percent annual rate) in the period through November, down from -0.9 percent (a -1.7 percent annual rate) during the previous six months. In addition, the weaknesses among the leading indicators have remained widespread in recent months.
The third quarter personal income growth was the weakest for the nation since the first quarter of 1994 and contrasts with the 1.6 percent increase in the second quarter of 2008. State personal income growth rates in the third quarter ranged from a 1.4 percent increase in Wyoming to a 1.6 percent decrease in Mississippi.
The lack of personal income growth in the third quarter reflects the concentration of Economic Stimulus Payments in the second quarter. Only $5 billion in economic stimulus payments were made in the third quarter, down from $113 billion in the second. This decline offset increases in the other components of personal income.
Swap spreads moved wildly. The 2 year spread narrowed 6 basis points to 82. Three year spreads tightened 7 ¼ basis points to 76 ¾ basis points. Five year spreads narrowed 1 ¼ basis points to 70 basis points. Ten year spreads moved wider 17 basis points to 17 ½ basis points. Thirty year spreads widened 20 basis points to NEGATIVE 22.
U.S. builders broke ground in November on the fewest new homes since record-keeping began, signaling the housing slump will extend into a fourth year.Looking at data from the Census we see that new starts are now down ~50% since last November.
Construction starts on housing fell 18.9 percent last month to an annual rate of 625,000 that was the lowest since the government started compiling statistics in 1959, the Commerce Department said today in Washington. The annual rate was lower than all 70 estimates in a Bloomberg survey of economists.
Multi-family housing starts in New York City fueled a spike in June of the number of building permits and overall housing starts, according to a report published by the United States Commerce Department on Thursday.So with all this gloom, housing stocks must have been hit... WRONG. Not when the Government is handing out money!!!! Lets go to Marketwatch:
The government said the number was deceptively buoyed by a zoning rule change in New York. If you exclude multi-family data in the Northeast, starts actually fell by 4.0%.
U.S. housing starts plunged to record lows in November as the residential real estate bust persists.
However, builder stocks jumped Tuesday along with the broad market after the Federal Reserve said it will use every tool at its disposal to get the economy back on its feet.
I do think some / a lot of the move we've seen over the past few months was largely due to the deleveraging of global investments, and I do expect that to reverse in the coming months.And here we go...
The decline in inflation has driven the 10-year breakeven rate, the difference in yields between 10-year Treasury Inflation Protected Securities and comparable U.S. notes, to 0.13 percentage point, near the narrowest since the government started selling TIPS in 1997.
“The near-term deflationary forces are here in the numbers, and it will remain that way for the next several months,” said Kevin Flanagan, a Purchase, New York-based fixed- income strategist for Morgan Stanley’s individual-investor clients. “From an inflation standpoint, the kind of numbers we are seeing will not take us to levels outside of the realm of where we are now.”
Ecuador will not pay interest on its 2015 global bonds on time, Finance Minister Elsa Viteri said on Monday, as the market wondered if the country was leaving open the chance of honoring that debt.AND, as Rakesh Saxena reports it is not due to the inability to pay:
The sovereign debt market is still unable to appreciate the fact that President Rafael Correa's decision to formally default on its foreign obligations on Monday is rooted in ideology, not in any shortage of funds. The ideological premise, that Ecuador's borrowings from international lenders are tainted by corruption and are thus "immoral", is certain to gather momentum in 2009.This type of risk is very difficult to measure. Back to Rakesh:
Those diminishing the impact of Ecuador's default (on $3.9 billion of global bonds) may be failing to grasp the fact that both, a significant component of the sovereign debt matrix and South American equities, are now subject to political risks which are extremely difficult to quantify.And default has been a common outcome for Ecuador (chart via data from 'Serial Default and the “Paradox” of Rich-to-Poor Capital Flows (2004), C. Reinhart and K. Rogoff' via Infectious Greed:
Goldman Sachs paid its average employee sharply less in fiscal 2008 than in 2007 amid one of Wall Street's most dismal years ever. Speaking to reporters on a conference call Tuesday, Chief Financial officer David Viniar said, "compensation will be significantly lower this year (FY 2008)." Earlier, Goldman reported its first ever loss as a public company. When it reported those results, it also reported that its average compensation per employee in 2008 fell to about $395,000, down sharply from more than $660,000 in fiscal 2007. And, the firm said it set aside $10.93 billion for total compensation and benefits in 2008, down 46% from $20.19 billion a year ago.
