Mourning Report

Posted on April 5, 2012 by Brent Nyitray

RIP Jim (Guv’nor) Marshall – the man who made heavy guitar sound so awesome

Vital Statistics:

Last Change Percent
S&P Futures 1388.0 -5.2 -0.37%
Eurostoxx Index 2373.3 -25.1 -1.05%
Oil (WTI) 101.66 0.2 0.19%
LIBOR 0.4692 0.000 0.00%
US Dollar Index (DXY) 80.046 0.268 0.34%
10 Year Govt Bond Yield 2.16% -0.06%
RPX Composite Real Estate Index 170.92 0.3

Markets are continuing the sell-off that began when the Fed hinted that QEIII isn’t going to happen. Bonds are up over a point and MBS are up half a point. Euro sovereign yields are wider again, and you are starting to see   bids in bank credit default swaps, particularly in some of the traditional European ne’er do wells – Dexia and Intesa SanPaolo. Spain is the new one to watch.

Today is the first Thursday of the month, which means retailers are reporting same store sales for March. Generally, they appear to be strong, particularly in department stores and Men’s / Women’s apparel. Discounters and Teen Apparel were weaker with some exceptions (Zumiez and Target).  Overall, the numbers look good and a few took up Q1 earnings estimates. The “yes. but…” is that March had some unseasonably warm weather, and that undoubtedly helped get people out of the house and into the stores.

Initial Jobless Claims came in at 357k.  Continuing Claims were 3,338k.

REO asset managers may want to watch this developing situation – allegations of discrimination regarding the maintenance and upkeep of homes in minority neighborhoods. The National Fair Housing Alliance put out a report alleging that REO properties in predominantly minority neighborhoods lack “for sale” signs, have boarded-up windows, and trash, as opposed to REO in white neighborhoods. This study was put out with a grant from HUD and will undoubtedly be fodder for a lawsuit.

The US is far behind on reforming the country’s housing finance system, Geithner said at a speech at the Chicago Economic Club. The reality is that our current housing finance system is more or less nationalized and we are far from being in the position to have private capital carry the load.

The Census Bureau released a study discussing the changes in growth patterns since 2010.  Interestingly, of the 50 fastest-growing metro areas over the last decade, only 24 were still in the top fifty since the 2010 census. Unsurprisingly, the areas most affected by the real estate boom fell out (Las Vegas, Palm Coast FL) fell out of the top 50 and it appears some of the energy-centric areas (TX, ND) are entering.

Filed under: Morning Report, music | 9 Comments »

Bartlett on Health Care in the Financial Times

Posted on April 4, 2012 by markinaustin

Lapsed R Bruce Bartlett says government can do it better.  Hmmm.

 

America
The folly at the heart of the US healthcare debate

America is the only developed country that does not offer some form of national health insurance to all its citizens.

Those over the age of 65 have coverage through Medicare and the poor are covered through Medicaid, both established in 1965. Those who are neither poor nor old are expected to obtain their own health insurance or get a job that provides coverage. The federal government does subsidise private insurance through the tax code by allowing its cost to be excluded or deducted from taxable income. This reduces federal revenues by some $180bn per year.

In 2009, the Obama administration put forward a plan for extending health insurance to those who did not have it through an employer, those who could not afford it and those who could not obtain coverage due to a pre-existing medical condition. A complex system of subsidies was established to make coverage affordable to everyone and a mandate was put into place requiring people to get coverage or else pay a fine.

The mandate is by far the most controversial element of the Affordable Care Act. Its rationale is that insurance companies cannot be forced to cover those with pre-existing conditions without it, or else people will simply wait until they are sick before buying health insurance. Nevertheless, many Republicans view the mandate as an unconstitutional intrusion into the economy and they have brought a case before the Supreme Court to declare the legislation null and void for that reason. Court watchers believe the case could go either way, with a final decision expected just before the election in November.

Exactly what would replace the Affordable Care Act if it is found unconstitutional is a mystery. The Obama administration appears to have no back-up plan and Republicans have steadfastly refused to offer any proposal for expanding health coverage. One problem is that before Barack Obama became president, Republicans were the primary supporters of an individual mandate, viewing it is as a more market-oriented way of expanding health coverage without a completely government-run health system. Indeed, Mitt Romney, the likely Republican presidential nominee, established a healthcare system in Massachusetts, where he was governor, that is virtually identical to the national system created by Mr Obama.

Simultaneously, Republicans are keen to cut spending for Medicare and Medicaid, because they are among the most rapidly expanding government spending programmes. A plan supported by Republicans in the House of Representatives would effectively privatise Medicare, giving the elderly a government voucher to buy insurance or health services, in lieu of the pay-for-service system that exists now. Medicaid would be devolved to the states.

What neither party has made any effort to grapple with is the extraordinarily high cost of health, public and private. According to the Organisation for Economic Cooperation and Development, the US spends more of its gross domestic product on health than any other country by a large margin. Americans spent 17.4 per cent of gross domestic product on health in 2009 – almost half of it came from government – versus 12 per cent of GDP or less in other major economies. Britain spends 9.8 per cent of GDP on health, almost all of it through the public sector. The total government outlay is almost exactly the same in the US and the UK at 8.2 per cent of GDP. This suggests that for no more than the US government spends on health now, Americans could have universal coverage and a healthcare system no worse than the British.

However, the option of a completely government-run health system was never seriously considered in the US when the Affordable Care Act was debated in 2009. Americans are too convinced that everything government does is less efficient and costs more than if the private sector does it. The fact that this is obviously wrong in the case of healthcare has never penetrated the public consciousness.

At the moment, everyone is waiting for the Supreme Court to speak before moving forward on any serious new health reform plan. Whichever way the court rules, it is likely to give some push to further action next year regardless of the election outcome. Moreover, the growing governmental cost of Medicare and Medicaid is something that has to be addressed if there is any hope of stabilising the national finances. That alone would be an impetus for action even if the Affordable Care Act had never been enacted.

The writer is a former senior economist at the White House, US Congress and Treasury. He is author of ‘The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take’

Filed under: aca, health insurance, healthcare, politics | 29 Comments »

Morning Report

Posted on April 4, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1397.8 -11.0 -0.78%
Eurostoxx Index 2429.9 -29.0 -1.18%
Oil (WTI) 102.74 -1.3 -1.22%
LIBOR 0.4692 0.000 0.00%
US Dollar Index (DXY) 79.723 0.240 0.30%
10 Year Govt Bond Yield 2.26% -0.04%
RPX Composite Real Estate Index 170.61 0.0

Markets are continuing their sell-off that started after the Fed released the minutes of their last FOMC meeting. The message:  The economy has to weaken for the Fed to consider another round of quantitative easing. Ironically, the FOMC statement noted more strength in the economy, but the markets are selling off.

A lousy Spanish bond auction has people wringing their hands over Europe again. Euro sovereign spreads are wider across the board, and Greek spreads continue to widen. Post restructuring, the Greek 10 year yield bottomed at 18% two weeks ago. It is now 22%. The ECB also kept rates unchanged at their meeting today and forecast the eurozone economy will shrink .3% this year. The ECB is in a pickle as inflation is becoming a risk in Germany while deflation is a risk in the South.

ADP released their March National Employment Report, suggesting nonfarm private employment increased by 209,000 in March. After declining for 4 years, we are seeing modest growth in construction and finance.

Steven Davidoff (The Deal Professor) lambastes the JOBS act. The punch line: Decimalization could explain why small IPOs are lagging as much as inability to access VC funds. Essentially, Congress is clueless about the financial markets (true) and legislates to the political winds (true). The reason why this bill got pushed through is so that Washington can have the appearance of “doing something” about jobs in the US. The unintended consequence is that it makes it easier for a dodgy company to raise capital, and if we have a couple of Sino Forests on our hands, multiples could contract across the market.

The WSJ has a story discussing how much credit has tightened. Loans closed in February had an average FICO of 750 and LTC of 76%. The average denied loan had a FICO of 699 and LTV of 83. 699.  83.  Denied. They go on to say that even as credit conditions ease in the greater economy, credit conditions in residential mortgages are still getting tighter. Of course, this is one of the side effects of abnormally low interest rates – as a lender, you are almost guaranteed to lose money lending for 30 years at 3.75%. Unintended consequences rear their ugly head again.

Is your local savings bank becoming a credit union? If it is, perhaps it is due to the new regulatory environment. As the OTS gives way to the OCC, many smaller banks are opting to become credit unions or state regulated.

Filed under: Morning Report | 53 Comments »

Cops Fishing for Cash With Bogus Drug Stops

Posted on April 3, 2012 by Kevin S. Willis

Just add this to the list of reasons to avoid Illinois. Alas, they are hardly the only place stopping folks for things they didn’t do in order to attempt to confiscate their cash and cars.

Asset forfeiture is the process by which law enforcement agencies can take possession of property suspected of being tied to illegal activity. Under these laws, the property itself is presumed to be guilty of criminal activity. Once the property has been seized, it’s up to the owner to prove he obtained the property legitimately.

In about 80 percent of civil asset forfeiture cases, the property owner is never charged with a crime. And in Illinois — like many states — the law enforcement agency that makes the seizure gets to keep the cash or the proceeds of the forfeiture auction (in Illinois, the prosecutor’s office gets 10-12 percent).

Critics say civil asset forfeiture is rife with poor incentives, and violates the Fifth Amendment’s protection against seizure of property without due process of law. Police can seize a car, cash, even a home on the flimsiest of evidence.

Filed under: War on Drugs | Tagged: , , | 95 Comments »

Unprecedented?!?!

Posted on April 3, 2012 by ScottC

President Obama is nothing if not bold. Yesterday, in an abuse of language for which there is unfortunately a great deal of precedent, the president opined on SCOTUS’s recent hearing regarding the fate of ACA.

Ultimately I am confident that the Supreme Court will not take what would be an unprecedented, extraordinary step of overturning a law that was passed by a strong majority of a democratically elected Congress

Unprecedented and extraordinary? Really? No law passed by Congress has ever been overturned by the court before?

Politics is politics, of course, and we all know the games of semantic deception that are regularly played by politicians. But, especially for a former professor of constitutional law, this is a particularly embarrassing departure from reality. Doesn’t it debase our politics even more than is already the case to have a Chief Executive who is so shameless in his disregard for the meanings of the words he uses and the reality he pretends to describe?

Filed under: 2012, aca, Obama, Supreme Court | 54 Comments »

Morning Report

Posted on April 3, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1410.0 -2.6 -0.18%
Eurostoxx Index 2486.0 -15.2 -0.61%
Oil (WTI) 104.53 -0.7 -0.67%
LIBOR 0.4692 0.001 0.21%
US Dollar Index (DXY) 78.934 0.114 0.14%
10 Year Govt Bond Yield 2.16% -0.02%
RPX Composite Real Estate Index 170.63 0.1

Equity markets are slightly lower this morning on no major news. Bonds are up half a point and MBS are up about 1/4 of a point. After spiking to 2.38%, the 10 year bond has been slowly rallying, with yields back to 2.16%.

Regulators are trying to figure out how to apply some of the terms of the landmark $25 billion settlement to other financial firms. Iowa AG Patrick Madigan fires a shot across the bow of servicers: “Loan servicing has been a mess for the past four of rive years. Reforming that industry is very important and very challenging.” He goes on further to say that it isn’t only the servicer / borrower relationship that he is focused on, it is also the servicer / MBS investor. Of course this helps explain why you can’t give away MSRs right now. Regulators are going after another 8 banks – SunTrust, US Bancorp, PNC, EverBank, GOldman, OneWest, MetLife, and HSBC.

The $25 billion settlement included a foreclosure moratorium which kept a lot of property off the market. They are about to be released, and RealtyTrac estimates that prices could drop as much as 10 percent. Moody’s estimates sales of REO will probably rise 25% this year. A lot of these properties could be 100% losses. Interesting statistic from the Federal Reserve Bank of Cleveland:  Foreclosures held less than a year lose about 35%.  After two years, the loss is close to 60%.

The NYT has yet another piece on institutional investors buying REOs and turning them into rentals.

The markets will be looking to the release of the FOMC meeting minutes for more clues into QEIII and what replaces Operation Twist. They should be released around 2:00 – 2:15 EST.

Filed under: Morning Report | 21 Comments »

Morning Report

Posted on April 2, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1402.3 -0.9 -0.06%
Eurostoxx Index 2455.6 -21.7 -0.88%
Oil (WTI) 102.66 -0.4 -0.35%
LIBOR 0.4682 0.000 0.00%
US Dollar Index (DXY) 79.015 0.011 0.01%
10 Year Govt Bond Yield 2.20% -0.01%
RPX Composite Real Estate Index 170.51 0.4

Stocks are flattish this morning on no real news in the US. Bonds and mortgages are up slightly. Construction Spending and ISM reports are out at 10:00 this morning. There was some disappointing economic data out of Europe – Eurozone unemployment was 10.8%, which suggests Europe is in a recession. France, Germany, and Italy Purchasing Managers Indices all came in below 50, indicating manufacturing conditions are in a decline. The Japanese Tankan survey was disappointing as well.

The Washington Post had a long article about rentals over the weekend. Big investors are using proprietary algos to analyze and manage rental properties. Oaktree, Carrington, Starwood, Apollo, and Zell are getting into this business. Private equity fund Waypoint reported a return of 8% to 9% in Q4 buying foreclosed properties and renting them. Interesting. RTWT.

Bill Gross’s Total Return Fund gained 2.83% in Q1, outperforming the benchmark by 2 percentage points on an aggressive bet on mortgages. He increased the mortgage exposures from 38% in September to 52% at the end of February. This is a bet on either (a) QEIII or (b) The fed replacing Operation Twist with a more aggressive stance on mortgage purchases. In other words, mortgage rates have been pushed lower by two big behemoths – PIMCO and the Fed – aggressively buying mortgage backed securities. If the Fed doesn’t provide an exit for Bill (either by not doing QEIII or not replacing Operation Twist with a mortgage support program), then mortgage rates could back up in a hurry. Something for lock desks to think about..

Filed under: Morning Report | 10 Comments »

Why Some States are “Donors” and others are “Donees”

Posted on March 31, 2012 by markinaustin

Fix and PL commenters are quick to allege that R states are “donees” and D states are “donors”.  The reality eludes them.  But what is the reality?

In the map above, the deepest green states are the biggest donors and the deepest red states are the biggest donees.

The average state should be light green, that is, a small donor, to cover spending outside the USA.  We should look at the average states, the light green ones, like Texas, last.

We can quickly deal with some of the red states.  MD and VA house much of the federal bureaucracy.  They are understandably donees.  NM and AK have huge native American and national park and national forest burdens.  They are understandably donees.  Notice, btw, that of those first four, only one is reliably Republican.  That always falls on deaf ears at PL.

NJ, an industrialized state with plenty of manufacturing and commerce and limited support from AG subsidies or military bases or national parks or Indian reservations, is an understandable big donor.

I have more trouble understanding IL’s situation.  Like TX, it is big in industry and agriculture. IL should be light green, as far as I can see.   Why is it such a big donor?

Why is WVa such a big donee?  If I had to guess, I would think it was purely the legacy of Robert Byrd, but that is cynical, no?  Why is FL a net donee?  Indians and parks?  Could be the Everglades and Key West and the military are enough to explain it, coupled with AG subsidies.  Or are they counting where the social security checks are going?

I am curious as to y’all’s deep thoughts, this not being either The Fix or PL.

Filed under: Economic data, power, taxes | 10 Comments »

NCAA Men’s Final Four: A Word from Madame Commish

Posted on March 31, 2012 by msjs0315

A number of the pundits I’ve read this week seem to think the championship is Kentucky’s to lose.  Ahhh, but tournaments are won one game at a time and today it’s Louisville vs. Kentucky, followed by Ohio State-Kansas.

The two Bluegrass State teams met earlier this season.  In that matchup, Kentucky committed a lot of turnovers and shot badly from the floor, yet still managed to win.  And the Wildcats have played very well during the tournament, averaging 88 points per game and shooting over 50%.  ‘Course, they haven’t met anything like the Cardinals’ defense in the last two weeks, either.  And it’s the Louisville defense that holds the potential for an upset.

The evening’s second game features two solid defenses with rugged playing styles.  Kansas beat Ohio State back in December, but OSU’s key player, Jared Sullinger, didn’t play that day.  Kansas has to stay out of foul trouble and have better accuracy with three-pointers, while OSU needs a balanced offensive attack.  Most of the pundits I’ve read are giving this one to the Buckeyes of OSU.

Filed under: Basketball, NCAA Basketball | 10 Comments »

5 Reasons You Don’t Really Want to Win all that Lottery Money

Posted on March 30, 2012 by Dave!

For the last couple days, I had been planning retirement and trying to figure out just how I was going to spend my share of the winnings from the MegaMillions lottery (I do it with my company pool and my share would be a paltry 11 mil).  Then I see this article on why I don’t want to win it.  So naturally I read it. Here are the 5 reasons why they say I don’t want to win it (go to the article for more details about each):

1) Your friends will take advantage
2) Your relationship could fail
3) You’ll have an increased risk of bankruptcy
4) You’ll have to fight off a host of long-lost family members
5) You’ll be a target for a litany of lawsuits and scams

My thoughts on this are:

1) People I know will take advantage – my friends won’t. If ‘friends’ do, then really, how good a friend are they?
2) According to the example they gave (emotionally unprepared for the enormous responsibility and pressure of winning the lottery, took to gambling and womanizing to deal with the troubles adjusting to his new lifestyle), I have a hard time thinking that either my wife or I would not be able to handle it. It could happen I guess but given the chronic savers we are and the money sense we have, I’m willing to risk this one.
3) The theory is that winners have more credit available to them, use it, and overextend themselves. We are not credit people. Other than mortgage, we have lived debt free, paying off credit cards each month, not spending money we don’t have. I don’t think this is really in our DNA.
4) And? If they were long lost, it’s not like I am going to miss them when they come, are denied and leave.
5) Target of scams? Having been fortunate enough to have my Barrister and Libyian email friends already contact me to send over the fortunes that they have gotten for safe keeping, I feel safe in saying that while I am sure people will try and try more often, I think I am ok with the scam part. The lawsuit part I could see as problematic. Will need to up my liability insurance and probably install security cameras around my house. I should be able to afford those measures however.

To sum it up, I am still ready to win my 11 million this evening and begin retirement.  One may have problems when you are rich but they are a better set of problems than if one is poor.  I will be sure to let you all know if, er, when I win.  The first (and only) round is on me.  Cheers!

Filed under: Bits and Pieces, fun stuff | 6 Comments »

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