Weekly Open Thread (2014-07-28)

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Here is your open thread for the week of July 28th, 2014. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.

Note: The comment limit in open threads is 25 comments per person.

NOTICE: If you have comments to make about politics or economics that do not somehow directly relate to Seattle-area real estate, they may be posted in the current Politics & Economics Open Thread.  If you post such comments here, they will be moved there.


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

60 comments:

  1. 1
    Bill Johnson says:

    I was at an open house yesterday and spoke with the agent about our difficulty finding a home in Seattle. She claimed that the banks were to blame for holding off inventory and that it was common knowledge among those in the real estate industry, and that they had a load of homes that they were not listing in order to manipulate the market. I had dismissed this notion after reading many posts on SB regarding this issue. Can anyone here offer me any real evidence or even a strong argument in support of the shadow inventory theory, or should I dismiss her comment as more foil helmet talk?

    Rate this comment: Thumb up 2

  2. 2

    RE: Bill Johnson @ 1 – Dismiss her. While foreclosures take longer now due to changes in the law, and there are some properties which seem to take forever to foreclose for no apparent reason, I don’t think there’s any significant evidence that they are holding a great deal of properties off the market.

    I thought there was local news lately of foreclosure taking less time to complete recently, but I can’t find that article.

    What I want to know is what she thought she was gaining by making up such a story (or disclosing it if she thinks it’s real)?

    Rate this comment: Thumb up 1

  3. 3
    Blurtman says:

    This is by no means a free market economy. The Fed creates false demand for MBS and UST’s by acting as a trader in these securities. Bubbles are caused by false demand.

    Rate this comment: Thumb up 1

  4. 4
    pfft says:

    By Blurtman @ 3:

    This is by no means a free market economy. The Fed creates false demand for MBS and UST’s by acting as a trader in these securities. Bubbles are caused by false demand.

    but the market knows this so it is already priced in. the Fed isn’t having a huge effect therefore no bubble.

    Rate this comment: Thumb up 0

  5. 5
    wreckingbull says:

    RE: Blurtman @ 3 – Indeed. This is explained quite well in the Bubble Bible. Don’t buy an asset without it.

    http://www.economist.com/node/1923462

    http://www.amazon.com/Manias-Panics-Crashes-Financial-Investment/dp/0471389455

    Rate this comment: Thumb up 2

  6. 6
    Blurtman says:

    RE: pfft @ 4 – Significant false demand does indeed alter price. That is why the Fed is engaged in the behavior.

    Rate this comment: Thumb up 2

  7. 7
    pfft says:

    By Blurtman @ 6:

    RE: pfft @ 4 – Significant false demand does indeed alter price. That is why the Fed is engaged in the behavior.

    But certainly not enough to cause a bubble.

    All of that information is priced in. Remember the Fed actually publicly stated what it was doing? Yeah, priced in. Now if you can actually give me a study that says it’s not priced in…

    Rate this comment: Thumb up 0

  8. 8

    I continue to hear stories from people across the state who know homeowners that have been in their home, not making any payments for anywhere from 2-3 years, and have heard nothing from the bank. This does not mean we have huge shadow inventory looming but it is something to consider.

    Rate this comment: Thumb up 1

  9. 9
    Blurtman says:

    RE: pfft @ 7 – Your “priced in” exhortations sound a lot lie Kramer’s “write it off” idea, and iabout as accurate. https://www.youtube.com/watch?v=XEL65gywwHQ

    Home prices were “priced in” when no income home buyers and speculators were buying homes. Homes were again priced in when that false demand vaporized.

    The Fed is distorting the market by essentially becoming the market for US Treasuries. It purchased almost 3/4 of yearly issued UST’s in the recent past. That is false demand, that results in distorted prices which are “priced in.”

    No Surprise, Fed Was Biggest Buyer of Treasuries in 2013
    “THE Federal Reserve financed most of the government’s deficit in 2013, in sharp contrast to the year before, when the Fed did not add to its holdings of Treasury securities. The American private sector appears to have been a net seller of Treasuries in 2013, but the foreign private sector was a substantial buyer, according to government estimates released this week.

    In 2013, the government issued a net $759 billion in Treasury securities to the public. That was the lowest figure in six years, as the budget deficit declined because of a healthier economy, which increased tax receipts, and to government austerity that cut spending.

    “The Fed bought a net $543 billion of Treasuries during 2013. That was not a record amount — in 2011 it had purchased $656 billion — but it enabled the Fed to finance 71 percent of the net Treasury borrowing during the year. That was the highest proportion since the government resumed running deficits in 2002. The 2011 purchases amounted to 61 percent of the money the government borrowed that year.”

    http://www.nytimes.com/2014/02/22/business/economy/no-surprise-fed-was-biggest-buyer-of-treasuries-in-2013.html?_r=0

    Rate this comment: Thumb up 3

  10. 10

    RE: Bill Johnson @ 1

    She’s Probably Right If If Was a Betting Man at Vegas

    The problem is getting true facts from the banks and MSM….IMO, that just isn’t gonna happen.

    Rate this comment: Thumb up 1

  11. 11

    RE: Jillayne Schlicke @ 8

    Grim News

    Travels slow or get mired in lies lately….some of my best news stories on Seattle or America come from outside our country or outside our state.

    Rate this comment: Thumb up 2

  12. 12

    Scroll Down and Read the MSFT Layoff News Article from Wash DC

    http://immigrationreform.com/2014/07/28/todays-immigration-headlines-july-28-2014/

    Engineer College Graduates Face 75% Unemployment or Severe Underemployment?

    Like working sales jobs at Radio Shack?

    There goes the MSM lie go to college and become an engineer, that’s where all the jobs are….LOL

    I bet MSFT will lay ‘em off then in come the cheap subpar ones from Neptune….

    Its not just MSFT, Boeing has its butcher ax out for engineers too.

    http://www.komonews.com/news/local/SPEEA-engineers-accuse-Boeing-of-age-discrimination-268499652.html

    There goes the Seattle allegation all is well with STEM workers in Seattle.

    Rate this comment: Thumb up 1

  13. 13
    One Eyed Man says:

    RE: Blurtman @ 9

    Distortion of interest markets by the Fed is no surprise. Isn’t the whole point of the FOMC to distort interest markets in order to attempt to promote price stability, maximum employment and moderate long term interest rates?

    For several years, you’ve complained about high unemployment and the participation rate. Then you complain about the distortion of the market place for Treasuries (and the effect on interest rates) when the Fed acts to comply with its legislative mandate to counteract high unemployment and control deflation thru QE and ZIRP.

    The system may suck but unless you’ve got some new and brilliant economic theory and legislation to propose to change the financial structure of the western world, I think you’re pissing in the wind. Would you prefer the laissez faire market place and enlighten self interest of Ayn Rand? I don’t like the Fed, but I don’t want Adam Smith’s invisible hand reaching into my pants either. Your complaints taken together remind me of one of Woody Allen’s old movies where he tells the story of two old Jewish women in a restaurant. The first one says “the food here is terrible” and the second says “yes, and such small portions.”

    The member banks may “own” the Fed in that they in a sense own the asset base, but they don’t own it in the sense of owning control of its management and decision making. They don’t appoint or elect the Board. The member banks don’t own and control the Fed in the same way that shareholders elect a board of directors to manage a corporation or an LLC may appoint a manager to run its business.

    The primary purpose of setting the borrowing rates the Fed controls and undertaking open market operations to buy treasuries is literally to distort the interest rate markets to achieve the purposes of controlling inflation/deflation and unemployment. Complaining about distortion of the credit markets by the FOMC is like the guy who sees the two gay men kissing and says, “hey, which one of you is the guy.” One of the two gay men answers back, “that’s the point, we’re both guys.”

    If you’ve got a better mouse trap, I’m interested. But its no surprise that the Fed distorts the interest markets. That’s part of their job. And yes, it has side effects (economic collateral damage?) throughout the economy, to savers, and in the potential development of asset bubbles and perhaps in other areas. But that’s the price you pay to control inflation/deflation and high unemployment with the blunt tools the Fed has. If you think a laissez faire economy would be better without the Fed, you have a lot more faith in the enlightened self interest of the market place championed by Any Rand than I do. In a deflationary environment, you make money by going to all cash, cutting jobs and closing down operations. The enlightened self interest of a capitalist isn’t always what’s best for the macro economy.

    Rate this comment: Thumb up 3

  14. 14
    whatsmyname says:

    By Blurtman @ 3:

    This is by no means a free market economy. The Fed creates false demand for MBS and UST’s by acting as a trader in these securities. Bubbles are caused by false demand.

    The fabulous premiums these instruments command after so many years of Fed pumping must be driving the speculative community wild!

    Rate this comment: Thumb up 0

  15. 15
    Blurtman says:

    RE: whatsmyname @ 14 – If by fabulous premiums, you mean yield, if the Fed were not buying, they would rise. That is why they are buying.

    Rate this comment: Thumb up 0

  16. 16
    Blurtman says:

    RE: One Eyed Man @ 13 – I like the joke about the fellow who finds out that his best friend is sleeping with his wife and he says “Bob, I have to, but you?”

    An admission by rhetoricians that we have a managed economy and not a free market economy would be nice.

    Why is the Fed taking this action? Because of the economic problems the country is experiencing. And what precipitated the economic meltdown? The meltdown of the financial system which included a great degree of fraud. And who committed the fraud? Primarily the owners of the Fed. And who was president and CEO of Goldman Sachs when they committed fraud? Hank Paulson. And what was his sentence for these crimes? Appointment as US Treasury Secretary. Who was the complicit head of the NY Fed when the crime spree was raging? Tim Geithner? And what was his sentence? Appointment as US Treasury Secretary.

    And you are asking a guy who posts as Blurtman what the solution is?

    As I’ve said, kill the bankers.

    Turn banks into utilities. Treat investment banks as investment companies without the ability to create money and without FDIC backing. Reinstate Glass-Steagall.

    Rate this comment: Thumb up 5

  17. 17

    RE: One Eyed Man @ 13 – There are also people who think that medical conditions are best treated by letting nature take its course. Most of us know that is total nonsense, but that doesn’t mean that every action taken by every doctor is the right action.

    So having both fiscal and monetary policy is probably a good thing, but that doesn’t mean that the decisions made are good. As I have repeatedly mentioned, I favored what was done in 2008, 2009 and maybe even 2010, and would have even liked to see something more aggressive. After that not so much. Would my way have worked better than what occurred, or would doing nothing at all have worked better? We’ll never really know until the day we can invent a time machine and go back and explore different branches of time making different decisions.

    Rate this comment: Thumb up 0

  18. 18

    By Blurtman @ 16:

    RE: One Eyed Man @ 13 -An admission by rhetoricians that we have a managed economy and not a free market economy would be nice.

    Why is the Fed taking this action? Because of the economic problems the country is experiencing. And what precipitated the economic meltdown? The meltdown of the financial system which included a great degree of fraud. And who committed the fraud? Primarily the owners of the Fed.

    Wait, I thought it was banks and AIG? I’m getting confused! /sarc

    As to your first point, a free economy is a matter of degree. I doubt there is a free economy anywhere on earth because that would require an economy without taxes. If you tax you affect economic activity, so the method of taxation selected will affect the economy. That said, we are far from a free market economy, and I would point back to the IRS code to demonstrate that. A lot of investment is affected by the provisions of the tax code. Tax credits for this, accelerated deprecation for that. Congress tries to control economic activity just through that sort of thing.

    As to the second point, I’ll place the blame for the collapse on people with MBA degrees (and not just W). Unless something has change in 30 years, the MBA is a BS (not Bachelor of Science) degree, in part because you don’t have to have a BA to get an MBA. Get that BS degree and it gives you a leg up into corporate management. And unfortunately that fills corporate management with people who didn’t learn that just because something is “secured by real estate” that doesn’t make it valuable. And they apparently didn’t learn about the risks associated with guaranteeing risky investments. Just look at WAMU. Apparently they had their risk control department sending out all sorts of alarms, but the morons with MBA degrees didn’t understand relatively simple concepts, and completely ignored them. Arguably the decisions were driven by greed, but they were fueled by incredible stupidity and ignorance.

    Rate this comment: Thumb up 0

  19. 19
    pfft says:

    By Blurtman @ 9:

    RE: pfft @ 7 – Your “priced in” exhortations sound a lot lie Kramer’s “write it off” idea, and iabout as accurate. https://www.youtube.com/watch?v=XEL65gywwHQ

    Home prices were “priced in” when no income home buyers and speculators were buying homes. Homes were again priced in when that false demand vaporized.

    The Fed is distorting the market by essentially becoming the market for US Treasuries. It purchased almost 3/4 of yearly issued UST’s in the recent past. That is false demand, that results in distorted prices which are “priced in.”

    i really don’t think you understand what priced in means. if it’s publicly available information and everyone knows about it it’s priced in. using housing as your example only proves my point. nothing was priced into housing. expectations were that housing would only go up. with treasuries people have been wringing their hands about treasuries for years. I can’t remember how many times I’ve heard interest rates have nowhere to go but up.

    “The Fed is distorting the market by essentially becoming the market for US Treasuries. It purchased almost 3/4 of yearly issued UST’s in the recent past.”

    dude, the treasury market is WAAAAAAAAAAYYYYYYY bigger than newly issued treasuries.

    Rate this comment: Thumb up 0

  20. 20
    Blurtman says:

    RE: pfft @ 19 – I think you believe that prices that are “priced in” are infallible. If that were the case, risk would be zero, and it is not. “Priced in” prices are frequently wrong.

    While I hate analogies, you do realize that there are more used cars on the road than new cars, and that the price of new cars impacts the price of used cars.

    Rate this comment: Thumb up 0

  21. 21
    Blurtman says:

    RE: Kary L. Krismer @ 18 – Now wait a cotton picking minute! Why, I have an MBA from UC Berkeley, and in fact, was instructed by THE Janet Yellen. What exactly are you implying???!!!!???

    Rate this comment: Thumb up 2

  22. 22

    RE: Blurtman @ 21 – Seriously? If so, out of curiosity, what was your undergraduate degree?

    RE: Blurtman @ 20 Although pfft may know what priced in means, I don’t think he knows how it operates. That’s what you two are really arguing about.

    Rate this comment: Thumb up 0

  23. 23
    Blurtman says:

    RE: Kary L. Krismer @ 22 – BS Biology, summa cum laude. I was elected to Phi Beta Kappa, too. But soon dropped out and moved to San Diego where I fell in with a notorious gang of immunologists. After 8 years, went back to get my MBA at Bezerkeley. And its all been down hill since.

    Re Pfft, yes, he/she either is a boob or plays at being one.

    And just feigning outrage at the attack on the MBA degree. You cannot possibly criticize it any more than I have. I did learn knew things about securities, which probably helped with investing. I think that’s about it, though. And yes, Bezerkeley has a heavily promoted securitization program which they call financial engineering, not to be confused with real engineering.

    Rate this comment: Thumb up 2

  24. 24
    One Eyed Man says:

    RE: Blurtman @ 16

    I like that one too. I think Billy Crystal did that line in America’s Sweetheart’s but like the others its probably from some stand up comedian long before that.

    I wouldn’t have a problem with treating financial institutions more like utilities but to some degree, they are already in that the Fed sets certain interest rates just like utility rates are subject to rate hearing approval. Even if they were more like utilities you’d probably still have some regulatory agency with a Yellen at the top throwing darts to decide how to pull the strings. And we all know that Nationalization is a dirty word in the land of efficiency through competition. Subject to several caveats, I wouldn’t have had a problem with nationalizing the financial sector in 2008 (rather than keeping it alive with TARP and other actions).

    But even if the FDIC essentially nationalized all the big banks in 2008, the business community and the vast majority of American politicians would have forced the privatization of the sector as quickly as possible, probably with each institution more or less fully in tact and at stupidly low liquidation prices, and without much consideration to changing the system in any ways other than were eventually enacted in the Financial Reform Act. The FDIC wouldn’t have been able to muster the manpower to run the institutions and all the boards and officers probably would have been kept in place to give buyers a turn key deal. And the new buyer’s probably would have had full immunity from the civil fines that the banks have had to pay. The upside would have been that the investigators and prosecutors might have gotten immediate unrestrained access to all documents and files much like what happened when S & L’s were taken over in the late 1980’s and early 1990’s. Criminal discovery becomes a lot easier when you control the defendants records.

    Rate this comment: Thumb up 0

  25. 25
    pfft says:

    By Blurtman @ 20:

    RE: pfft @ 19 – I think you believe that prices that are “priced in” are infallible. If that were the case, risk would be zero, and it is not. “Priced in” prices are frequently wrong.

    no actually they aren’t. the market does a pretty good job of pricing in current information. it’s when everyone agrees is when there is a problem. remember when oil was $150 and going to $200? remember when everyone wanted to buy tech stocks? remember when everyone wanted to buy homes? everyone knows treasuries are a bubble right? they just keep keeping on.

    There is a quote that what everyone knows isn’t worth knowing. so true.

    look at the Dow. at 17,000 and everyone is waiting for it to fall.

    Rate this comment: Thumb up 0

  26. 26
    whatsmyname says:

    By Blurtman @ 15:

    RE: whatsmyname @ 14 – If by fabulous premiums, you mean yield, if the Fed were not buying, they would rise. That is why they are buying.

    The premium is what you pay over face value on a fixed income security because you are willing to accept a lower yield, say, as a result of excessive buying competition (although more likely because the issue rate was higher than current market for the maturity). This forces the asset price higher. I thought an MBA would know that.

    Anyway, I am not disputing the linkage. I am looking for the degree of UST or MBS asset inflation that would evidence the sort of speculative activity to remotely justify your dark inferences of bubbles in these instruments.

    For the other side, I am totally with you on Glass-Steagle.

    Rate this comment: Thumb up 0

  27. 27

    By softwarengineer @ 10:

    RE: Bill Johnson @ 1

    She’s Probably Right If If Was a Betting Man at Vegas

    The problem is getting true facts from the banks and MSM….IMO, that just isn’t gonna happen.

    The banks aren’t going to give you the true facts. Nor is the mainstream media. You just have to trust those paragons of honesty, real estate agents.

    Rate this comment: Thumb up 1

  28. 28
    Blurtman says:

    RE: whatsmyname @ 26 – Hard to say what the price and yield of UST’s might have been w/o Fed intervention. You can look up the 10 year over the decade below, for example, and observe when QE kicked in. You could make the argument that Fed intervention lowered the yield by 2.5% at the widest point. The inverse would describe your sought after premium.

    http://www.marketwatch.com/investing/bond/10_year/charts

    Keep in mind that the Fed manipulates the risk free rate, and the risk free rate impacts the price of all assets, as CAPM instructs. You can rev up CAPM to price the market at a risk free rate of 4.0%, at 1.5%, at 2.5%. That will also describe the contribution to the premium due to changes in the risk free rate, ceteris parabus.

    Rate this comment: Thumb up 0

  29. 29
    One Eyed Man says:

    RE: Blurtman @ 21

    Blurt, was Dave Mowery a prof in the Haas School at UC Berkeley when you were there? I think he’s been there since the late 1980’s.

    Rate this comment: Thumb up 0

  30. 30
    Bill Johnson says:

    What’s theory?

    RE: Ira Sacharoff @ 27 -

    Rate this comment: Thumb up 0

  31. 31
    ChrisM says:

    RE: One Eyed Man @ 13 – I’m kind of late to the party here, but I’ll respond to “The system may suck but unless you’ve got some new and brilliant economic theory and legislation to propose to change the financial structure of the western world, I think you’re pissing in the wind.”

    My modest proposal is that, if we have institutions that are Too Big To Fail, then we break them up. That hasn’t been done.

    Obviously I’d also reinstate https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

    I’d also enforce rule of law by severly punishing banks that violate existing laws (for example regarding money laundering, and there are some good SEC-type laws as well) with more than the completely bogus settlements we’ve seen so far. My preference is to see C-level officers banned from ever serving again, and optimally, hard jail time. I really don’t see why Board members can’t be held liable as well, but that is just idle speculation on my part.

    Those aren’t particularly new nor brilliant, but I think would be effective. Naturally, since they attack power structures, that won’t happen until we see Blurtman’s fantasy come to pass.

    Rate this comment: Thumb up 1

  32. 32
    Blurtman says:

    RE: One Eyed Man @ 29 – Don’t know. I did enjoy a finance course taught by Hayne Leland. Seemed like a decent fellow.

    And my joke is an old Borscht Belt standard, popularized by Henny Youngman, amongst others.

    Rate this comment: Thumb up 1

  33. 33
    whatsmyname says:

    RE: Blurtman @ 28 – A better comparison period would be the recession and years of 1953-55; a less severe recession, but 10 year T rate in the 2’s. To my point, your very complaint demonstrates no speculative spiral in UST purchasing and pricing – which is the definition of a bubble.

    Perhaps your real complaint is that a managed economy doesn’t provide a deep enough panic to really shear the sheep. The bottom wasn’t as fun as you thought it would be?

    Rate this comment: Thumb up 0

  34. 34

    By ChrisM @ 31:

    My modest proposal is that, if we have institutions that are Too Big To Fail, then we break them up. That hasn’t been done.

    Not only has that not been done, but few mergers and acquisitions have been rejected. Some have even been encouraged, although some of those were in lieu of the FDIC taking over a bank.

    When was the last forced breakup of a company? The last one I remember was AT&T, and that was probably in the 70s. And that one probably wasn’t well thought out. But short of that I think the government could do a much better just by just restricting the number of mergers and acquisitions that they do allow.

    Rate this comment: Thumb up 0

  35. 35
    Blurtman says:

    RE: whatsmyname @ 33 – Not sure what you mean by speculative buying. When the Fed buys almost 3/4 of issued Treasuries at an artificially low interest rate, that creates a “premium” on bond prices, and if you believe in CAPM, all asset prices. Folks may be taking speculative positions in assets including bonds based upon an expectation of rising rates with the taper. I am pretty sure some are. One might argue that folks are taking speculative positions in assets including stocks under the assumption that rates will not rise, thereby paying what might be in retrospect considered to be premium prices if rates rise and asset prices fall. And my complaint is summarized a bit in post 16. A fraud caused financial meltdown shared the sheep. While reforming or replacing an inept and complicit fire department might be one solution, preventing fires from starting in the first place might be a more practical way to go, including taking appropriate action against the arsonists.

    Rate this comment: Thumb up 0

  36. 36

    RE: whatsmyname @ 33 – Isn’t any bubble from Fed intervention in the bond market more likely to create a bubble in the stock market as people move out of bonds as the Fed eases? In any case I would think we are well past any speculative bubble period in bonds resulting from Fed action.

    As to your not a deep enough drop during the “Great Recession” comment, seemingly the bottom of the “Great Depression” was a bit harder to find. That earlier event wasn’t one without any government intervention, but it probably was less government intervention. If so, seemingly less is not better.

    Rate this comment: Thumb up 0

  37. 37
    DrRick says:

    RE: ChrisM @ 31

    I agree, I’m also thinking that if they are “too big to fail” then at some point they become “too big to bail out,” and that’s a problem.

    Fel Temp Reparatio

    Rate this comment: Thumb up 1

  38. 38
    DrRick says:

    I was ready for a 1.5% GDP increase and this hit today, 4%.
    http://www.usnews.com/news/business/articles/2014/07/30/us-economy-grew-at-strong-4-percent-rate-in-spring

    Wow, guess the great recession must be over, maybe good times are here again. Or maybe I’ll wait for the revision numbers before I jump to conclusions.

    Fel Temp Reparatio

    Rate this comment: Thumb up 2

  39. 39

    RE: DrRick @ 38 – About a third of that was building inventories, so someone is optimistic.

    Rate this comment: Thumb up 0

  40. 40
    pfft says:

    The parties are just the same! Smart people told me so so it must be true.

    HOUSE VOTES TO SUE OBAMA
    http://www.businessinsider.com/obama-lawsuit-sued-boehner-obamacare-2014-7#comments

    Rate this comment: Thumb up 0

  41. 41
    whatsmyname says:

    By Blurtman @ 35:

    RE: whatsmyname @ 33 – Not sure what you mean by speculative buying. When the Fed buys almost 3/4 of issued Treasuries at an artificially low interest rate, that creates a “premium” on bond prices, and if you believe in CAPM, all asset prices. Folks may be taking speculative positions in assets including bonds based upon an expectation of rising rates with the taper. I am pretty sure some are. One might argue that folks are taking speculative positions in assets including stocks under the assumption that rates will not rise, thereby paying what might be in retrospect considered to be premium prices if rates rise and asset prices fall. And my complaint is summarized a bit in post 16. A fraud caused financial meltdown shared the sheep. While reforming or replacing an inept and complicit fire department might be one solution, preventing fires from starting in the first place might be a more practical way to go, including taking appropriate action against the arsonists.

    Where to start. I do believe in CAPM, at least weak form. But current issues are so dwarfed by the full treasuries universe, and there are so many points of friction and uncertainty across the risk spectrum of over the $100T bond universe (and we’re not even to stocks yet), that the net effect on the total is extremely small. -and as you would have it, somewhat quarantined from the larger market by the Fed ownership. Pretty weak stuff for a bubble.

    What’s more, Investors anticipating rising rates and taper would want a discount, not a premium. (You realize that the idea of redefining a current or future loss as a past premium is pure semantics. It’s funny, but simply strips both ideas of any useful meaning.) So now we seem to be going in the other direction entirely.

    Are there people speculating? Always, even in a panic – so that’s neither here nor there until you see the purchase spiral large across the population. Remember too, that one can speculate to the negative. That is what short sellers do.

    Was there outrageous fraud? And cronyism? And mistakes? Yeah. And it was free market fantasies that paved the way, and still pave the way. The cure is Glass-Steagal; the cure is anti-monopoly trust busting; the cure is FDR, or someone like him.

    Rate this comment: Thumb up 1

  42. 42
    Blurtman says:

    RE: whatsmyname @ 41 – I think you may misunderstand what I was trying to say. When the Fed manipulates the market by buying 70% of issued Treasuries, thereby manipulating the yield, buyers of those Treasuries are paying a premium, even if they had not intended to do so. The premium is the difference between the price of the bond in the manipulated market and the price of the bond at true market rates. For example, if buyers were buying UST’s that yielded 1.5% due to artificial Fed demand versus buying UST’s that yielded 3% without.

    Rate this comment: Thumb up 0

  43. 43

    RE: pfft @ 40 – You do realize that when W was in office the Democrats were claiming that the Executive branch was too powerful? Oh wait, no you don’t because your memory sucks. You can’t remember last month, let alone over six years ago.

    But in any case, you can quit referencing the parties are both the same argument, because it’s clearly something that is over your head. You can’t remember what you don’t understand in the first place.

    Rate this comment: Thumb up 1

  44. 44
    Blurtman says:

    RE: whatsmyname @ 41 – So I would argue that intent does not change the math. Last analogy for a while, I hope. You decide to buy a home in Pomegranate Hills, and as your spouse really wants to get the 7,000 starter home you have chosen to buy, she convinces you to pay over market price, that is, to pay more per square foot than the market price. Let’s say you pay a $100,000 premium. What do you care, you make millions fleecing lazy pension fund managers, it’s part of a quarterly bonus, and happy spouse, happy life. So you intended to pay a premium, and you do.

    Scenario #2: There are better things you can do with that $100,000, like that “business trip” with the young eye candy in your office and associated gifts. So you pay market price and still get the 7,000 starter home nonetheless, and do not pay a premium price. Sometime after the purchase becomes binding, the relevant regulatory body redefines square footage calculations, and now your home is actually smaller than you had assumed. In fact, the market price is now $100,000 less that you had paid.

    In either scenario, you are underwater $100,000. Intent did not change the math.

    What I am arguing is that there is a real interest rate, ex-manipulation, and a real price of bonds.

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  45. 45

    By Blurtman @ 44:

    RE: whatsmyname @ 41 – So I would argue that intent does not change the math. Last analogy for a while, I hope. You decide to buy a home in Pomegranate Hills, and as your spouse really wants to get the 7,000 starter home you have chosen to buy, she convinces you to pay over market price, that is, to pay more per square foot than the market price. Let’s say you pay a $100,000 premium. What do you care, you make millions fleecing lazy pension fund managers, it’s part of a quarterly bonus, and happy spouse, happy life. So you intended to pay a premium, and you do.

    Not quite the same situation, but I know someone years ago who knowingly overpaid for property in the Bay Area, knowing that in California it was a non-recourse obligation. In this case though it as second done through seller financing. In the end it all worked out for both parties, but that required substantial appreciation.

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  46. 46

    This might be the greatest threat to local house prices and the national economy.

    http://www.nytimes.com/2014/08/01/world/africa/sierra-leone-declares-health-emergency-over-ebola.html

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  47. 47

    By Kary L. Krismer @ 39:

    RE: DrRick @ 38 – About a third of that was building inventories, so someone is optimistic.

    Here’s an article focusing on the changes, particularly inventory.

    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/30/gdp-growth-is-the-same-its-always-been-thats-the-good-and-bad-news/

    Apparently those business inventories were reduced in the winter due to the weather. /sarc

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  48. 48
    whatsmyname says:

    RE: Blurtman @ 44
    Scenario 1: For the prudent seller, the market price is the highest price someone in the market is willing to pay. The seller in this case seems to have achieved the market price.

    Scenario 2: It is not intent, but time. The market price has changed. (Special note: when your analogies requires devices to the extreme of regulatory square footage measurements regimes changing the market price of houses – it is time to start rethinking why you want to pursue this chain of argument.)

    I understand your point. Market price for T’s would be different without the Fed action. They would also be different in a stronger current economy, a weaker current economy, a high inflation economy, a great depression economy, and many other scenarios that the government and other powerful forces purposefully manipulate. But this one item is your holy grail. OK. There is a real price for T’s. It is the one you have to pay in the real world.

    But consider: If there is $1T of new issue, and the FED takes (and essentially quarantines) 70%, there is about $300B with some un-calculated premium hitting the $17T government debt market – which is part of the $100T global bond market If you can make a bubble out of that, I would like to know how.

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  49. 49

    I mentioned this elsewhere a few days ago, but thought people here might also find it interesting. I don’t usually comment on transactions, but we recently had a FHA short sale close 47 days after mutual acceptance. That’s pretty much a normal closing time and it’s because the FHA does what I suggested banks do way back in 2008–get involved before the property is listed and approve the list price in advance.

    http://blog.seattlepi.com/realestate/2008/04/11/short-sales-a-step-forward-or-backward/

    47 days wouldn’t have been fast enough for the buyer client I mentioned in that blog piece, but for most buyers it would be. It’s a fairly normal closing time.

    Banks have proven themselves even more incompetent than government, and that’s hard to do. Imagine how much more money banks could have recovered on short sales over the years if their prices hadn’t been depressed by slow decision times? The banks have been getting faster, but they are still shooting themselves in the foot.

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  50. 50
    Macro Investor says:

    By whatsmyname @ 41:

    By Blurtman @ 35:
    RE: whatsmyname @ 33 The cure is Glass-Steagal; the cure is anti-monopoly trust busting; the cure is FDR, or someone like him.

    What a joke. Everyone’s “cure” is for criminals and liars to suddenly feel bad and allow an honest system to take over. Give me a side order of candy dropping unicorns to go, please.

    The only thing “regular” people can do is protect themselves as best as possible. Stay out of debt (the bankster’s life blood) and avoid bubbles. If you think it makes sense to buy a house in Seattle/Eastside then you’re not paying attention.

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  51. 51

    Here’s an interesting article from Housing Wire, an industry site:

    http://www.housingwire.com/articles/30895-freddie-mac-sells-659-million-in-deeply-delinquent-loans-to-unknown-buyer

    If I were to purchase a pool of deeply delinquent loans, first thing I’d do is run a credit report on all the borrowers to see what’s going on in their lives financially.

    Then I’d do a background check on them to see where they’re working/if they’re working.

    I’d offer some a loan mod, others a short sale, and the rest I’d immediately foreclose and evict. I wonder if we’re going to see more ppl chaining themselves to a bed around here:

    https://www.indiegogo.com/projects/safe-standing-against-foreclosure-eviction

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  52. 52
    whatsmyname says:

    By Macro Investor @ 50:

    What a joke. Everyone’s “cure” is for criminals and liars to suddenly feel bad and allow an honest system to take over. Give me a side order of candy dropping unicorns to go, please.

    Is it a bigger joke that anyone might expect to influence currently legal behavior by making it illegal, or that it worked when we did it before? Fresh out of candy dropping unicorns; would you like a history book with that?

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  53. 53
    Another Mike says:

    RE: whatsmyname @ 52 – I guess the fantasy bit is that a new President could be elected only after the next financial crisis, with a mandate to clean up the financial system and reimpose ethics that have been lost for two generations of financiers.

    American regulators are owned by Wall Street (regulatory capture) so the new President would have to come in and clean house before any new laws could be enforced. Too many monied & entrenched interests exist now to maintain the status quo. Human nature being what it is, voters won’t act until after the next crash and after many/most are ruined.

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  54. 54

    Perhaps Ebola from Africa Will Thin Out the World’s Overpopulation CDC Alleges?

    Let’s hope free trade and open borders doesn’t make it spread west too.

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  55. 55
    whatsmyname says:

    RE: Another Mike @ 53 – Lost ethics? Do you mean like those of Morgan and Rothschild? The difference is lack of controls, and the biggest part is Glass-Steagal. Only Congress can change that.

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  56. 56
    whatsmyname says:

    One year ago today.

    By Matthew :

    All of this before the rate surge.

    The top is in.

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  57. 57
    wreckingbull says:

    Thinking congress in its current form can change anything is dowright laughable.

    https://mayday.us/the-plan/

    So far the best plan I have seen. Not perfect, but would prefer it to guillotines being towed from town to town by a fleet of F-150s.

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  58. 58
    DrRick says:

    By wreckingbull @ 57:

    Thinking congress in its current form can change anything is dowright laughable.

    https://mayday.us/the-plan/

    So far the best plan I have seen. Not perfect, but would prefer it to guillotines being towed from town to town by a fleet of F-150s.

    What do you have against F-150s?

    Good link.

    Fel Temp Reparatio

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  59. 59
    DrRick says:

    RE: wreckingbull @ 57
    Bump for Wreckingbull.
    http://www.bloomberg.com/video/mayday-pac-s-campaign-to-get-money-out-of-politics-9XcMErBmSqKJ8~3zhTpFoA.html

    I predict real estate prices in Seattle would go down but I’m OK with that.

    Fel Temp Reparatio

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  60. 60
    Blurtman says:

    Pictures That You Will Not See on CNN and US Media Outlets

    Warning: Disturbing images of dead children and civilians.

    http://aqsatv.ps/war/index.php?action=details&nid=144

    http://aqsatv.ps/war/

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