patrick.net

Right, was just wondering if the State of Nevada gets much of a cut on it.

Brings back memories of me telling people that low interest rates were a bad thing for new buyers back in 2004, and people thought that was crazy talk. The truth is that now rates have dropped to all time lows at the same time prices have fallen, albeit not quite to where they should have. However, the rates have fallen to the point that if people do want stability, like Patrick says, you can get a house for a very low stable payment right now if you do just want your own place.
Will inflationary pressures stop the free fall? I think it is anyone's guess. My guess though, wait until later this year, maybe next year for the bottom, but risk a higher rate. I'd rather have a lower cost basis, I'd even pay a slightly higher monthly payment. You can always refinance if rates drop, it is hard to improve your situation buying high with a low interest rate.

Malcolm Says:
Brings back memories of me telling people that low interest rates were a bad thing for new buyers back in 2004, and people thought that was crazy talk.

I have been saying the same thing for years, with the same reaction - and even now, people still think that a low interest rate means it is a 'good time to buy'. Even now, I frequently have conversations over lunch (still free, btw :-)) where someone lets loose with this foolishness.

The only thing that has changed since 2004 is that back then, if you weren't regurgitating the bullish kool-aid, people ignored everything you said. In 2008, they are now becoming dimly aware that something doesn't add up. At least with my cow-orkers, the counterpoint seems to sink in pretty quickly now once it is outlined.

Texas is a much better no-income-tax state.

SP,

I wonder about the psychology of the phenomenon that you describe.

Once you say "low interest rates are bad because they make housing prices rise", does this create such a big cognitive dissonance that the listener automatically shuts out everything you are saying?

OK, so what about the whole ECB rate cut, and the general interest rate level in Europe.

Again, the europeans are showing a quite different propensity. They do not like very low interest rates, and are trying to avoid them. Trichet pays some lip service to "avoiding a liquidity trap". but I think that is just talk. You don't avoid the liquidity trap by not lowering interest rates to 0. The trap is either there or it is not, whether you actually lower the rate to 0% and *prove* it is beside the point.

Anyway, what is the deal here? I'm thinking that the Europeans are leaning more towards protecting the savers and the value of the currency, rather than bail out the financial elites with cheap money (and let the people pay for it). In other words, they are exhibiting some real balls and a truer adherence to free market principles. If the free market thought that lower interest rates were called for, then there would be no need for the central bank to *force* it to occur.

In the US, the trickonomic-reaganomic-miltonomic mantra has been for 30 years that there is no problem that cannot be solved with (a) tax cuts AND (b) interest rate cuts. This is of course wrong but nevertheless the republicans are living by rule (a) and the Fed is living by rule (b), so there you have it.

Posted for a reader:

Hi Patrick,

I saw something really pathetic the other day with my real estate agent. We went to see a 3 bdrm in Laguna Niguel. It was built in 1971 on 0.25 acres of land. The neighborhood was mediocre, and the house was built on a hill overlooking Costco. It was a foreclosure and the bank wanted $649K. The house itself was a joke. It looked like something out of “Swiss family Robinson”. The second floors had a series of connecting rooms with no hallway. It looked like some illegal hairdressing salon was there. Most of the upstairs plumbing fixtures and mirrors were ripped out of the wall. The roof was sagging, and there was a sagging deck built around the perimeter of most of the house. The land lot was ok. It was a teardown at best. It wasn’t even advertised as a fixer, but as a beautiful home with new granite counters. I joked with the realtors “Did anyone bring some crack? We’re in a crackhouse, we may as well.” They smiled and agreed it was a horrible place.

The following week, the realtor send me an advertisement of the same house “priced to sell at $619. Will not accept any lower offers”. The banks are so cocky with their bailouts. They’re still desperately trying to push this junk on us. Bailouts and all, no one will buy this disgusting house.

I’m sure you know thousands of stories like this, but I just wanted to share my experience. Take care.

Regards,
Aaron

Are the banks even incentivized to take market prices for REO? Wouldn't they prefer to lobby congress for easy money, with potential upside later?

Brand,

In other words, has the Fed and Congress created an expectation that is it better for the banks to keep the homes on their books at inflated values rather than sell them at true values?

I would not be entirely surprised if the FED at some point creates a "facility" where banks can pledge the houses themselves (in the form of the deed or title of the houses) rather than just mortgage securities as collateral.

I have not seen anywhere a suggestion that this would happen, I think it would revolutionary. ;-)

Dubai Skyscraper Delayed Amid Cutbacks, Layoffs

Sweet Justice for treating people who build these stuff like crap.

Societe Generale said on Thursday that the United States' economy looks likely to enter a depression and China's could implode.

In a highly bearish note, veteran cross asset strategist Albert Edwards said investors should now cut equity exposure after a turn-of-the-year rally and prepare for a rout.
...
"While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere," Edwards wrote.

"It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression."

Fed Chairman Bernanke uses trillions of dollars of taxpayer money and the Treasury uses billions of dollars of TARP money to save the stock and bond holders of failed banks, thereby weakening the ability of the US economy to quickly bounce back from this recession because failure is rewarded rather than success. Bernanke’s futile attempt to prove that Milton Friedman’s monetarism theory is practical hasn’t worked because failed banks will continue their wayward policies as long as the taxpayers are making good their losses. Dr. Bernanke, the ivory tower academician, is acting like a megalomaniac who needs to be stopped before he dooms the American economy to the Japanese disease of a lost decade of economic growth. Using the tried-and-true Swedish model now is imperative.

justme Says:
Once you say “low interest rates are bad because they make housing prices rise”, does this create such a big cognitive dissonance that the listener automatically shuts out everything you are saying?

I don't know about cognitive dissonance - it is just that everyone is conditioned (by realtwhores and media) to assume that low interest rates are "good for housing" and help to keep the howmuchamonth lower.

So when someone (i.e. me) popped up in front of them and said the opposite, their reaction was to disagree and then discount everything else I say.

These days, though, that is changing because "everyone knows" (ha!) that housing is going down - so they are open to ideas that are more aligned with ground reality.

it is just that everyone is conditioned (by realtwhores and media) to assume that low interest rates are “good for housing” and help to keep the howmuchamonth lower.

Low interest rate is good for housing. High interest rate is good for housing because inflation is good for housing.

See, it is ALWAYS a good time to buy. :)

LOL!!!

So, how about that Bankrupt of America bailout-redux...

Any ideas on what other banks are good places to park a little cash? I want to close the account there - they surely don't need my measly savings, since their rich uncle Sam is fronting them a few billion more...

Any ideas on what other banks are good places to park a little cash?

Wells and JPM are not too far behind. Banking on TARP to solve all ills, they probably ate more they can chew. I would say FDIC is our bank.

Citibank is splitting itself into two pieces an parking all (?) the bad assets in the "brokerage" portion. Interesting tactic, different than those who are turning brokerages into banks.

"This is a managerial separation and that is where we are starting and we believe there is a lot of value in clarifying focus on these things and having them managed in a way to harness value," he told listeners on a conference call with analysts and investors. (Citigroup CEO Vikram Pandit).

##

I don't know about this ,Vikram. Do you not usually manage your assets to harness value? Are your highly paid managers not able to think straight if they are part of a bank?

Since one and half years ago when I found out that Schwab does everything that a bank does, I closed all my bank accounts. Here are the advantages:

1) brokerages are covered by SPIC which covers up to $500K per account, unlike FDIC which only covers up to $100K. And of course you can do the same thing of splitting your money among several brokerages.

2) Schwab charges NOTHING for check books, BOA, my last bank charged me $20. International wiring is FAR cheaper at brokerages than at commercial banks. Commercial banks are completely fee hungry right now.

3) It is harder to steal money from brokerages electronically because you can only wire to yourself, or an authorized account electronically. No such thing with commercial banks, people can wire away your money very easily once they know your passwords.

4) Poor people don't have brokerage accounts. So when bailout hits the road, the government is far more likely to bailout the rich than the poor.

We let go of the "American Dream" as it relates to housing so very reluctantly.

Even now, as Rome burns, there seems a need to debate how to arrange the chairs. It is so interesting that folks still *believe*. That our media industrial complex has conspired with numerous interests to create this multilayered belief and value system, this religion, of housing and consumption and suburbia. It is an utterly empty dream, of course.

I don't believe folks understand how our economic downside is truly going to impact housing markets. Housing finance will not and cannot ever be the same in the US, it will continue to exist solely as a government owned enterprise. What does that mean for housing valuations? Our overstock and massive household consolidation coming, what does that mean? Persistent war and conflict of increasing intensity and scale will make much of the debate over housing seem so very quaint.

This country desperately needs a new belief system, and quick.

What belief system will ultimately replace the housing wealth myth post bubble deflation? This answer to this question will largely drive the direction of the country forward. Who are we anyway, and what do want out of life? As the country reflects and images of breadlines and misery occupy the glowing screens, what zeitgeists will take hold? And who will create them for what purpose?

Our confidence in the monetary system has been permanently shattered, our trust in currencies blown. Inflation will inevitably render debate over interest rates and valuation mute. Coming soon to a theatre near you.

When US treasury auctions stumble, the printing press begins in earnest.

Hang on tight. Things are going to get very, very scary.

JPM won't go down unless Fed is ready to fall apart. JPM owns the Fed.

If there is only ONE bank I can bank with, it will be JPM Chase. If Fed falls apart, no financial institution is safe, hold on to physical gold and guns.

If Fed falls apart, no financial institution is safe, hold on to physical gold and guns.

Two "central banks" failed before. Some other banks still survived.

Is Fidelity safe? Its logo has what some people call a NWO symbol. :)

Vanguard is safer than Fidelity.

... because Vanguard is used by Dick Cheney :-). Anyway, I tend to agree. Vanguard is hard core. Not banking advice.

Re: Flight 1549

I have not yet seen a video of the emergency landing on the Hudson River. There's got (?) to be someone who has a video of this -- if not a random tourist (in January) then somebody's highrise webcam or even a Port Authority surveillance video?

By the way, there are some obviously faked videos available.

I have to congratulate the pilots for their clam and decisive actions. They are the heroes.

Birds are evil.

JPM won’t go down unless Fed is ready to fall apart. JPM owns the Fed.

OO,

JPM might not fall apart but it's share price could be like citi. BofA/citi hasn't fallen apart. I can easily bank upto 250K in citi or any other bank with FDIC.

RE: SIPC

Tell that to those whose money got made-off.

Okay, I cribbed this story from Socketsite, but is bears repeating. Talk about negative cash flow...
San Francisco’s largest residential landlord, a voracious acquirer of properties during the boom, has deeded 51 of its apartment buildings back to lender UBS.... Lembi said the buildings were losing $3 million a month.

Link to the Lembi story in the Business Times.

WW3 is only a matter of time. It is quite likely that we will see one in our lifetime.

I am of the belief that that most people who lost money to Madoff will be made whole somehow by taxpayer money. Of course this will happen a bit down the road when no media is looking.

They can claim fraud and have the government cover the loss to "restore investor confidence". Our government runs on the premise that the taxpayers always have to bailout the rich guys.

SP,

the problem is, I have to bank $250K of CASH with bank, but I can bank $250K worth of stocks holding companies that I believe won't be printed away.

It comes down to the fundamental belief if USD Cash will be king. I do not believe so, therefore I would rather hold $250K today's worth of stock, which will do fine in an intentional devaluation event.

On a side note, the Fed has eventually moved onto buying Treasury. That's what I said before, quit beating around the bushes, just go straight to the point.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aoz6joAbOPoA&refer=home

Now let me repeat the last step of Uncle Ben's playbook
--"A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years)"
--Bernanke's 2002 helicopter speech

The above, in laymen's term, means unabated printing with no cap. Whatever the government wants to spend, whatever Fed will buy.

I don't know why people keep calling Bernanke bluff, he has published all his actions more than 4 years ago before he became the chairman. How much clearer do you want him to be? I know these academia types, and I know they will go through with their academic belief once they get to test their thesis on the entire world. Follow Uncle Ben and you will be saved.

I think Ben is a great Fed Chairman, at least he doesn't mince words like Greenspan. The only fault of him is he didn't print fast enough.

It comes down to the fundamental belief if USD Cash will be king.

Well, looks like either you or I will be a distinct winner or loser. I put nearly all my savings into insured CDs, including a one-year bought two days ago at 3.75% I do have my own paid-for residence house along with a paid for rental house, so I have a hyperinfation hedge as well.

If we have some strange inflation that runs up the prices on everything except houses, at least I can use my cash to buy more rental properties.

You are quite the cheerleader for the Guttenburg boy, but HeliBen may not be able to print fast enough to outpace the credit collapse. In that case, your $250k of "today's price" stocks may be like someone's "2006 price" house.

No, I am not betting on hyperinflation or even inflation.

I am betting on the collapse of the USD (or severe weakening) against all real assets, especially oil, gold, agriculture and the like. My house is almost paid for, so I don't really care if it goes up or down, but I am in a locked fixed rate and locked in tax base, so I naturally welcome inflation that reduces my repayment cost and tax to almost nothing.

I keep cash, just not in USD. Ben will print fast enough, they are just trying to save the USD as much as possible while trying to save the economy and our current government (primary goal), but the economic fundamentals will force them to give up on USD, and that is good enough for my bet to pay off.

The fundamental is, our government cannot survive in its current form given our debt load if we allow deflation to persist.

If our government collapses, we get hyperinflation, but that is not the most desirable outcome for me, because I need a stable society to cash out my chips and enjoy life. So the best scenario for me personally is a stagflationary environment, in which stuff I invest in (necessities) goes up, stuff I desire goes down. And the stagflation must be not too severe or we go back to hyperinflation, which usually leads to extremely ugly social outcome.

For a country with military power, hyperinflation is quite unlikely. But we may head into that direction, and before we get there we may already end up in social chaos.

JustMe says:

I have not yet seen a video of the emergency landing on the Hudson River.

One nagging thought. When you have an engine failure/fire in flight, you are supposed to shut down the affected engine. This procedure is practiced during Emergency Procedure Sims and during in-flight simulated engine failures. I remember from my old AF days how sometimes the pilot would reach for the wrong T-handle and/or throttle, effectively shutting down a good engine. Since a bird strike that would kill more than one engine is very rare, this thought occured to me.

The investigation will most likely show that both engines injested birds, so my nagging thought is just that.

OO says:

Ben will print fast enough

That is the crux. If I thought so too, I would do similar to you. Perhaps I am too "Mish Conditioned" to believe in anything but a deflationary future. That includes falling prices for stocks, gold, wages, and even "necessities."