Month: February 2014

Missed today’s follow up Janet Yellen testimony before the Senate Banking Committee? Don’t worry: you didn’t miss much, all the bases were covered including winter weather during the winter, the Fed’s complete cluelessness about what “full employment” means (because the definition changed thoroughly from December 2012 when it was 6.5%), what the “quantitative” definition of quantitive easing is (Yellen has no idea), why the Fed isn’t subject to a haircut on its MBS holdings while all the other banks have to suffer under the intolerable Basel III 15% haircut (something to do with illiquidity of MBS, and specifically – something to do with the fact that the Fed has soaked up more than all net issuance of MBS in the past year, but don’t worry – the Fed is on top of it), and, of course, Bitcoin.

For everything else, here is Goldman’s post-mortem of Yellen’s Day Two testimony.

BOTTOM LINE: There were few surprises from day two of Chair Yellen’s semi-annual monetary policy testimony before the Senate Banking Committee (originally scheduled for February 13 but delayed due to snow). At the margin, she indicated a bit more concern about the soft recent data, though not to the degree of signaling an end to the QE tapering process.

MAIN POINTS:

1. Regarding the recent string of weaker economic data, Chair Yellen briefly deviated from her prepared text during her introductory remarks, and noted that “…a number of data releases have pointed to softer spending than many analysts had expected. Part of that softness may reflect adverse weather conditions, but at this point it is difficult to discern how much.” Responding to a question from Senator Schumer on whether that Fed would cease tapering in light of the recent data, Yellen indicated that “if there’s a significant change in the outlook, certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions.”

2. Yellen did not clearly indicate a preference for any specific change to the forward guidance. At different points in time during the Q&A, Yellen suggested several indicators to supplement the unemployment rate in assessing the amount of slack remaining in the labor market, including the number of individuals working part-time for economic reasons, the broader “U-6” measure of unemployment, the long-term unemployment rate, wage inflation, and labor market flows. She declined to provide any quantitative information on her view of what constitutes full employment.

3. On the potential approach to managing the Fed’s expanded balance sheet during monetary policy exit, Yellen stated that “there is no need to bring down the size of our portfolio to tighten monetary policy. We have a range of tools that we can use to raise the level of short-term interest rates at the time the Committee deems appropriate.” This was consistent with past statements from Chairman Bernanke and represents a change from the June 2011 exit strategy principles. We forecast portfolio reinvestments at least until the time the Fed starts increasing the funds rate.

4. When asked about potential imbalances in financial markets due to the stance of monetary policy, Yellen stated that “at this stage I don’t see concerns.” However, consistent with past statements from Federal Reserve officials, she did highlight “pockets of concern,” including underwriting standards in leveraged lending and farmland prices.

via Zero Hedge http://ift.tt/1dF6MiZ Tyler Durden

Wolf Richter   http://ift.tt/NCxwUy   http://ift.tt/Wz5XCn

In real estate, national averages paper over the gritty details on the ground and are a crummy, often contradictory indicator as to what is happening in specific metro areas. When a new trend starts or when a reversal takes place in some locations, it’s watered down by data from other unaffected locations to form the overall averages. But even with this caveat, a national average suddenly sounded an alarm for the housing market: the smart money has started to bail out.

The smart money entered the housing market gingerly in 2011 then piled in helter-skelter over the next two years, gobbling up vacant single-family homes out of foreclosure. The forays were funded by Wall Street, awash in the Fed’s crazy-money. The smart-money operators trained their guns on specific markets, such as Phoenix and Las Vegas, and bought homes by the thousands that they tried to rent out. Then they spread their campaigns to other cities.

The tally has reached 200,000 single-family vacant homes for which they’re now trying to find tenants. In the process, mega-landlords have emerged. On top of the heap: Invitation Homes, a unit of private-equity giant Blackstone Group, and American Homes 4 Rent, a highly leveraged REIT that went public last August.

As in the heyday before the financial crisis, their smartest minds are now feverishly at work trying to figure out how to shuffle risks and future losses off to yield-desperate investors who’ve been driven to near-insanity by the Fed’s relentless repression of interest rates. So Blackstone and American Homes 4 Rent have started selling synthetic structured securities that are backed, not by mortgages, like the toxic waste before the financial crisis, but by something even classier, rental payments – based on the rickety hope that these single-family homes will stay rented out. Wall Street is already jubilating: the market for this type of synthetic monster is estimated to be $1.5 trillion [read…. The Exquisitely Reengineered Frankenstein Housing Monster].

But now the party appears to be running out of booze. This frantic institutional buying has driven up home prices – in some areas above the levels of the prior bubble. Trying to make money by buying these homes at inflated prices and renting them out into a tough job market where strung-out consumers with declining real wages have trouble making ends meet has become a precarious business model.

In some of the formerly hottest metro areas, purchases by large institutional investors – those having bought at least 10 properties over the past 12 months – plunged in January from a year ago, according to RealtyTrac’s Residential & Foreclosure Sales Report: in Jacksonville, Florida, by 21%; in Tampa, by 48%; in Tucson, 59%; Memphis, 64%; in Cape Coral-Fort Myers, Florida, by 70%!

Institutional purchases hit the skids in over three-quarters of the 101 metro areas that RealtyTrac analyzed, their share dropping to 5.2% overall, from 7.9% in December, and from 8.2% in January 2013. It was the lowest monthly share since March 2012, at the infancy of this whole bonanza.

But 23 of the 101 metro areas had year-over-year gains, some of them late starters. In Atlanta, institutional purchases rose 9% to where a quarter of all homes were purchased by institutional investors. That’s how the Fed has “fixed” the housing market. In Austin, the institutional share soared by a mind-boggling 162% to reach nearly a fifth of all purchases. In Denver, their share rose 21%, in Dallas 30%.

And in Cincinnati 83%. “Big hedge fund investors,” explained Michael Mahon, Executive Vice President at HER Realtors, which covers the area. “I think that’s contributing to the lower levels of inventory available on the market,” he added, seeing how these vacant homes have been pushed from the much scrutinized for-sale listings to the ignored for-rent listings.

“Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening,” said RealtyTrac VP Daren Blomquist. “It’s unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago.”

So forget the by now ubiquitous all-encompassing polar-vortex explanation. Which begs the question: if not institutional investors, who the heck is going to buy these homes at these prices?

Existing homeowners who buy a home and sell their old home don’t count. They’re just swapping homes, not creating demand. But foreigners are buying in certain cities – Chinese and Argentine buyers and others who want to deposit their wealth while they still can in a reasonably safe place. So they’re creating demand.

But the most powerful economic force in the housing market, first-time buyers? Normally, they’d swarm all over these homes and create real and lasting demand and make the housing market grow. But prices have soared, and mortgage rates have crept up, and young people are teetering under piles of student loans, and so that economic force has collapsed to record low levels. Read…. Without Them, The Housing ‘Recovery’ Remains A Sham

via Zero Hedge http://ift.tt/1cWpRjO testosteronepit

While the “developed” world scrambles to find a way to provide Ukraine with a bailout in such a way that Russia doesn’t turn off the gas, Ukraine is doing some scrambling of its own to assure the local banks, which have been plagued by both bank runs and a collapse in the currency to record lows over the past few days, that it will be there to provide funding on a business as usual basis. Itar-Tass reports that “Ukrainian banks will be provided with necessary liquid assets, including cash.” But there is a condition: the funding will only come “if they will remain under open control of the National Bank of Ukraine, the newly-appointed NBU Chairman Stepan Kubiv is quoted as saying on the bank’s official website.”

From Itar-Tass:

“Financial and payment systems, which are of vital importance, operate normally, as well as the open market operations do. The situation is under control. We are getting feedback from all of the country’s banks, regardless their size”, he said.

 

Kuvib stressed that the National Bank’s gold reserve includes high-liquidity assets. He mentioned such priorities of the Ukrainian banking system as the protection of clients’ interests, as well as the resumption of negotiations with external creditors, the International Monetary Fund in the first place, right after the country’s new government is formed and elaboration of a strict new plan for economic and financial reforms.

 

“We are very determined regarding the measures, which will be applied to those who break the mandatory requirements and are involved currency speculations. I am certain the National Bank’s measures will calm the markets and the people and ease devaluation fears”, the bank’s chief said.

In other words, any and all banks that want to continue operating must pledge allegiance to the brand new central bank governor Kubiv, who previously did not work for Goldman Sachs, but instead was one of the commendants for the EuroMaidan demonstrations. That is not say he has no banking experience at all: previously he used to be head of Kredbank. Who is Kredbank? As it turns out, it is the bank with the largest Polish investment in banking institution in Ukraine. Kredobank national network contains central branch and 130 outlets throughout Ukraine. Today, European investment is 99.6% in the share capital of Kredobank, Ukrainian capital is 0.4%.

At least it is clear where the Ukrainian central banker’s allegiances lie, and under whose “open control” suddenly the entire Ukrainian banking sector has fallen under. And just like that, Europe knows everything these is to know about all assets held within the Ukrainian banking system by the local population.

via Zero Hedge http://ift.tt/1dF2wQr Tyler Durden