I've issued several warnings late last year warning of the real estate bubble peaking and popping. I feel I'm especially qualified to do such since I quite accurately called the bubble burst of 2007 - namely housing (look here and here), homebuilders (look here), commercial real estate (look here and here and here and here and there) and banks (Bear Stearns and  Lehman, among many others). Well, exactly ten years later, guest what?

20160202 171444

Published in BoomBustBlog

During the financial crisis of 2008, money market funds who subjectively agreed to hold their NAV (net asset value) unit prices at $1 “broke the buck”. That is, the unit of share of the fund fell below $1 (the $62.5 billion Reserve Fund, to be specific, one of only two funds to “break the buck”), which was a significant problem for the investors who used (and considered) said money market funds as cash in the bank. All of a sudden, everyone’s cash account at the Reserve Fund just dipped in value. Uh Oh! This caused short term credit to literally freeze, worldwide, because others were concerned that their bank-like security and liquidity was no longer that secure nor liquid.

Regulators stepped in to make sure this didn’t happen again by demanding that all money funds who do not invest in sovereign securities (those entities who “should” be able to print their own monies, but we’ll get into that in a later post) allow their NAV to freely float with market prices.

The result? Money flew out of prime money funds into perceived safer vehicles.

Published in BoomBustBlog

Last week I queried "Is There A Bubble In The Canadian Condo Market?" We Drilled Down Into The Facts To Find Out and offered our researched opinion to paid subscribers (see below). Boombustblogger backwardsevolution has shared some interesting charts that appear to go straight into the heart of the matter..

Vancouver house prices - 40 years

All paying subscribers, feel free to download.

File Icon Is There A Canadian Condo Bubble? (Residential Real Estate)

Non-subscribers can purchase this report through a day pass subscription via PayPal or Credit Card

Published in BoomBustBlog

With rates spiking and equities dropping, all due to the long overdue realization that Bernanke can't goose the markest forever, I take this time to review my many warnings of this moment as it it approaches.

Reggie Middleton Featured in Property EU, one of Europe's leading real estate publications

Those who wish to download the full article in PDF format can do so here: Reggie Middleton on Stagflation, Sovereign Debt and the Potential for bank Failure at the ING ACADEMY-v2.

Here comes that lost decade, albeit three years tardy...

At the ING Valuation Conference in Amsterdam: Inflation + Deflation = Stagflation

Published in BoomBustBlog

Ireland has finally admitted the horrendous condition of its banking system. I actually give the government kudos for this, and await the moment when the US, China and the UK come forth with such frankness. That being said, things are a mess, I have forewarned of this mess for some time now.First, the lastest from Bloomberg: Ireland's Banks Will Need $43 Billion in Capital After `Appalling' Lending

March 31 (Bloomberg) -- Ireland’s banks need $43 billion in new capital after “appalling” lending decisions left the country’s financial system on the brink of collapse. The fund-raising requirement was announced after the National Asset Management Agency said it will apply an average discount of 47 percent on the first block of loans it is buying from lenders as part of a plan to revive the financial system. The central bank set new capital buffers for Allied Irish Banks Plc and Bank of Ireland Plc and gave them 30 days to say how they will raise the funds.

“Our worst fears have been surpassed,” Finance Minister Brian Lenihan said in the parliament in Dublin yesterday. “Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come.”

Dublin-based Allied Irish needs to raise 7.4 billion euros to meet the capital targets, while cross-town rival Bank of Ireland will need 2.66 billion euros.Anglo Irish Bank Corp., nationalized last year, may need as much 18.3 billion euros. Customer-owned lenders Irish Nationwide and EBS will need 2.6 billion euros and 875 million euros, respectively.

‘Truly Shocking’

The asset agency aims to cleanse banks of toxic loans, the legacy of plungingreal-estate prices and the country’s deepest recession. In all, it will buy loans with a book value of 80 billion euros ($107 billion), about half the size of the economy. Lenihan said the information from NAMA on the banks was “truly shocking.”

...

Capital Target

Lenders must have an 8 percent core Tier 1 capital ratio, a key measure of financial strength, by the end of the year, according to the regulator. The equity core Tier 1 capital must increase to 7 percent.

AIB’s equity core tier 1 ratio stood at 5 percent at the end of 2009 and Bank of Ireland’s at 5.3 percent. Those ratios exclude a government investment of 3.5 billion euros in each bank, made at the start of 2009.

...

Credit-default swaps insuring Allied Irish Bank’s debt against default fell 6.5 basis points to 195.5, according to CMA DataVision prices at 8:45 a.m. Contracts protecting Bank of Ireland’s debt fell 7 basis points to 191 and swaps linked to Anglo Irish Bank’s bonds were down 3.5 basis points at 347.5.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A decline signals improving perceptions of credit quality.

State Aid

If Allied Irish can’t raise enough funds privately, the state will step in with aid, Lenihan said. It is “probable” the government will then end up with a majority stake, he said.

...

Ireland may not be able to afford to pump more money into the banks. The budget deficit widened to 11.7 percent of gross domestic product last year, almost four times the European Union limit, and the government spent the past year trying to convince investors the state is in control of its finances.

The premium investors charge to hold Irish 10-year debt over the German equivalent was at 139 basis points today compared with 284 basis points in March 2009, a 16-year high.

Ireland’s debt agency said it doesn’t envisage additional borrowing this year related to the bank recapitalization. It is sticking to its 2010 bond issuance forecast of about 20 billion euros, head of funding Oliver Whelan said in an interview.

“The bank losses, awful as they are, represent a one-off hit. It’s water under the bridge,” said Ciaran O’Hagan, a Paris-based fixed-income strategist at Societe Generale SA. [What is the logic behind this statement? Has the real estate market started increasing in value? Are the banks credits now increasing in quality? Will the stringent austerity plans of the government create an inflationary environment in lieu of a deflationary one for the bank's customer's assets???] “What’s of more concern for investors in government bonds is the budget deficit. Slashing the chronic overspending and raising taxation by the Irish state is vital.” [This is a circular argument. If the government raises taxes significantly in a weak economic environment, it will put pressure on the bank's lending consituents and the economy in general, presaging a possible furthering of bank losses!]

 

and...

 

Juckes Says Outlook `Frightening' 
March 31 (Bloomberg) -- Kit Juckes, chief economist at ECU Group Plc, talks with Bloomberg's Linzie Janis about the outlook for Ireland's banks after the government set out plans to revive the country's financial system.

Now, notice how prescient my post of several months ago was, The Coming Pan-European Sovereign Debt Crisis: 

Ireland has finally admitted the horrendous condition of its banking system. I actually give the government kudos for this, and await the moment when the US, China and the UK come forth with such frankness. That being said, things are a mess, I have forewarned of this mess for some time now.First, the lastest from Bloomberg: Ireland's Banks Will Need $43 Billion in Capital After `Appalling' Lending

March 31 (Bloomberg) -- Ireland’s banks need $43 billion in new capital after “appalling” lending decisions left the country’s financial system on the brink of collapse. The fund-raising requirement was announced after the National Asset Management Agency said it will apply an average discount of 47 percent on the first block of loans it is buying from lenders as part of a plan to revive the financial system. The central bank set new capital buffers for Allied Irish Banks Plc and Bank of Ireland Plc and gave them 30 days to say how they will raise the funds.

“Our worst fears have been surpassed,” Finance Minister Brian Lenihan said in the parliament in Dublin yesterday. “Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come.”

Dublin-based Allied Irish needs to raise 7.4 billion euros to meet the capital targets, while cross-town rival Bank of Ireland will need 2.66 billion euros.Anglo Irish Bank Corp., nationalized last year, may need as much 18.3 billion euros. Customer-owned lenders Irish Nationwide and EBS will need 2.6 billion euros and 875 million euros, respectively.

‘Truly Shocking’

The asset agency aims to cleanse banks of toxic loans, the legacy of plungingreal-estate prices and the country’s deepest recession. In all, it will buy loans with a book value of 80 billion euros ($107 billion), about half the size of the economy. Lenihan said the information from NAMA on the banks was “truly shocking.”

...

Capital Target

Lenders must have an 8 percent core Tier 1 capital ratio, a key measure of financial strength, by the end of the year, according to the regulator. The equity core Tier 1 capital must increase to 7 percent.

AIB’s equity core tier 1 ratio stood at 5 percent at the end of 2009 and Bank of Ireland’s at 5.3 percent. Those ratios exclude a government investment of 3.5 billion euros in each bank, made at the start of 2009.

...

Credit-default swaps insuring Allied Irish Bank’s debt against default fell 6.5 basis points to 195.5, according to CMA DataVision prices at 8:45 a.m. Contracts protecting Bank of Ireland’s debt fell 7 basis points to 191 and swaps linked to Anglo Irish Bank’s bonds were down 3.5 basis points at 347.5.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A decline signals improving perceptions of credit quality.

State Aid

If Allied Irish can’t raise enough funds privately, the state will step in with aid, Lenihan said. It is “probable” the government will then end up with a majority stake, he said.

...

Ireland may not be able to afford to pump more money into the banks. The budget deficit widened to 11.7 percent of gross domestic product last year, almost four times the European Union limit, and the government spent the past year trying to convince investors the state is in control of its finances.

The premium investors charge to hold Irish 10-year debt over the German equivalent was at 139 basis points today compared with 284 basis points in March 2009, a 16-year high.

Ireland’s debt agency said it doesn’t envisage additional borrowing this year related to the bank recapitalization. It is sticking to its 2010 bond issuance forecast of about 20 billion euros, head of funding Oliver Whelan said in an interview.

“The bank losses, awful as they are, represent a one-off hit. It’s water under the bridge,” said Ciaran O’Hagan, a Paris-based fixed-income strategist at Societe Generale SA. [What is the logic behind this statement? Has the real estate market started increasing in value? Are the banks credits now increasing in quality? Will the stringent austerity plans of the government create an inflationary environment in lieu of a deflationary one for the bank's customer's assets???] “What’s of more concern for investors in government bonds is the budget deficit. Slashing the chronic overspending and raising taxation by the Irish state is vital.” [This is a circular argument. If the government raises taxes significantly in a weak economic environment, it will put pressure on the bank's lending consituents and the economy in general, presaging a possible furthering of bank losses!]

 

and...

 

Juckes Says Outlook `Frightening' 
March 31 (Bloomberg) -- Kit Juckes, chief economist at ECU Group Plc, talks with Bloomberg's Linzie Janis about the outlook for Ireland's banks after the government set out plans to revive the country's financial system.

Now, notice how prescient my post of several months ago was, The Coming Pan-European Sovereign Debt Crisis: 

I've been telling readers and subscribers that the housing market has a considerable amount to fall before we reach income parity. With income currently falling along with rising underwriting standards, that point is actually being pushed even farther into the (event) horizon! We are now at a point where interested parties would be remiss in not pursuing blogs (both in addition to and instead of the mainstream media) to get the nitty gritty analysis on a wide variety of topics. With that being said, I have finally decided to bite the bullet and expand BoomBustBlog by accepting partners in a bid to grow the business. Lethargic media and financial concerns, look out, here comes the BLOGS!!! I am open to ideas and suggestions. Interested parties may contact me here.

From the WSJ.com: Home Resales Drop

The latest data on the housing market underscored its fragility and showed that a glut of homes for sale and a wave of foreclosures and fire sales are holding down housing prices...

Sales of existing homes fell 0.6% in February from a month earlier to a seasonally adjusted annual rate of 5.02 million, the National Association of Realtors said...

The median price for an existing home was $165,100 in February, down 1.8% from February 2009, the Realtors said. Distressed homes, generally sold at discount, accounted for 35% of sales last month.

A separate report Tuesday from Federal Housing Finance Agency showed that house prices fell 0.6% in January and December's numbers were softer than previously reported. The FHFA index -- which tracks the prices of the same houses over time, but only those sold to or guaranteed by Fannie Mae, Freddie Mac or the Federal Home Loan Banks -- is 13.2% below its April 2007 peak.

Inventories of existing homes increased 9.5% at the end of the month to 3.59 million available for sale, the Realtors said. That represented a 8.6-month supply at the current sales pace, compared with a 7.8-month supply in January.

 Of course this isn't news at all to the Green Shoots disbelieving BoomBustBlog subscriber. Excerpts from previous posts over the last quarter that ran in direct contravention of both mainstream media and sell side analyst reports are below:

 The chart below illustrates the seasonal ebbs of month to month price changes.  On a month to month basis, we see hills in the spring and summer and valleys in the fall and winter. During the onset of the bursting of the (first) bubble, this cycle was compressed, but was still there. and lasted throughout the bubble. With the onset of the government stimulus (ex. housing credits and MBS market manipulation), the peaks were significantly exacerbated. Now we are entering into the winter months again, and guess what's happening, as has happened nearly every winter cycle before. The only difference is that this dip is extraordinarily steep! I would also like to add that the month to month price changes coincide exactly with the S&P 500 move downward and upward for 2008 and 2009, to the MONTH! What a coincidence, huh? If this relationship holds,,,, well you see what direction the month to month lines are going and how steep they are, don't you?

csmtmlong.png

  image027.png

As you can see, the residential housing uptrend is now apparently over, and we are resuming the downward decent.

Let's look at the improvement in delinquencies and losses as compared to home prices in the grand scheme of things, a birds-eye view so to speak...

janimage032.png

For data heaving presentations and analysis, feel free to click the links below.

Reality Check for Bank Investors, Mortgage Investors and Home Buyers (March 10th)

It's Official: The US Housing Downturn Has Resumed in Earnest (March 2nd)

It's HELOC Deja Vu,All Over Again (January 19th)

A Fundamantal Investor's Peek into the Alt-A Market (Jan 14, 2010)

Deflation, Inflation or Stagflation - You Be the Judge! (January 12th)

If Anybody Bothered to Take a Close Look at the Latest Housing Numbers...

(December 30th, 2009)

Housing sales and prices come in lower than estimated! What??? (December 24th)

Residential Lending Credit Losses Worsen as Unsustainable Government Support Proves... Unsustainable (December 21st)

The Truth! The Truth? Banker's Can't Handle the Truth!!!

On the Latest Housing Numbers (November 24th)

I've been telling readers and subscribers that the housing market has a considerable amount to fall before we reach income parity. With income currently falling along with rising underwriting standards, that point is actually being pushed even farther into the (event) horizon! We are now at a point where interested parties would be remiss in not pursuing blogs (both in addition to and instead of the mainstream media) to get the nitty gritty analysis on a wide variety of topics. With that being said, I have finally decided to bite the bullet and expand BoomBustBlog by accepting partners in a bid to grow the business. Lethargic media and financial concerns, look out, here comes the BLOGS!!! I am open to ideas and suggestions. Interested parties may contact me here.

From the WSJ.com: Home Resales Drop

The latest data on the housing market underscored its fragility and showed that a glut of homes for sale and a wave of foreclosures and fire sales are holding down housing prices...

Sales of existing homes fell 0.6% in February from a month earlier to a seasonally adjusted annual rate of 5.02 million, the National Association of Realtors said...

The median price for an existing home was $165,100 in February, down 1.8% from February 2009, the Realtors said. Distressed homes, generally sold at discount, accounted for 35% of sales last month.

A separate report Tuesday from Federal Housing Finance Agency showed that house prices fell 0.6% in January and December's numbers were softer than previously reported. The FHFA index -- which tracks the prices of the same houses over time, but only those sold to or guaranteed by Fannie Mae, Freddie Mac or the Federal Home Loan Banks -- is 13.2% below its April 2007 peak.

Inventories of existing homes increased 9.5% at the end of the month to 3.59 million available for sale, the Realtors said. That represented a 8.6-month supply at the current sales pace, compared with a 7.8-month supply in January.

 Of course this isn't news at all to the Green Shoots disbelieving BoomBustBlog subscriber. Excerpts from previous posts over the last quarter that ran in direct contravention of both mainstream media and sell side analyst reports are below:

 The chart below illustrates the seasonal ebbs of month to month price changes.  On a month to month basis, we see hills in the spring and summer and valleys in the fall and winter. During the onset of the bursting of the (first) bubble, this cycle was compressed, but was still there. and lasted throughout the bubble. With the onset of the government stimulus (ex. housing credits and MBS market manipulation), the peaks were significantly exacerbated. Now we are entering into the winter months again, and guess what's happening, as has happened nearly every winter cycle before. The only difference is that this dip is extraordinarily steep! I would also like to add that the month to month price changes coincide exactly with the S&P 500 move downward and upward for 2008 and 2009, to the MONTH! What a coincidence, huh? If this relationship holds,,,, well you see what direction the month to month lines are going and how steep they are, don't you?

csmtmlong.png

  image027.png

As you can see, the residential housing uptrend is now apparently over, and we are resuming the downward decent.

Let's look at the improvement in delinquencies and losses as compared to home prices in the grand scheme of things, a birds-eye view so to speak...

janimage032.png

For data heaving presentations and analysis, feel free to click the links below.

Reality Check for Bank Investors, Mortgage Investors and Home Buyers (March 10th)

It's Official: The US Housing Downturn Has Resumed in Earnest (March 2nd)

It's HELOC Deja Vu,All Over Again (January 19th)

A Fundamantal Investor's Peek into the Alt-A Market (Jan 14, 2010)

Deflation, Inflation or Stagflation - You Be the Judge! (January 12th)

If Anybody Bothered to Take a Close Look at the Latest Housing Numbers...

(December 30th, 2009)

Housing sales and prices come in lower than estimated! What??? (December 24th)

Residential Lending Credit Losses Worsen as Unsustainable Government Support Proves... Unsustainable (December 21st)

The Truth! The Truth? Banker's Can't Handle the Truth!!!

On the Latest Housing Numbers (November 24th)

The year 2009 was the year of reflation theories and bubble blowing. Theses of "Green Shoots", catching the bottom, and QE reigning supreme were the order of the day. Sure enough, asset prices (nearly all of them) went one direction, straight up. We all saw it coming, but guys like me who actually count the money and rely on the fundamentals didn't believe it was a sustainable gain. It wasn't a bull market, but a bear market rally. After nearly one year, the reflationists have had their hay day, or have they?

The year 2009 was the year of reflation theories and bubble blowing. Theses of "Green Shoots", catching the bottom, and QE reigning supreme were the order of the day. Sure enough, asset prices (nearly all of them) went one direction, straight up. We all saw it coming, but guys like me who actually count the money and rely on the fundamentals didn't believe it was a sustainable gain. It wasn't a bull market, but a bear market rally. After nearly one year, the reflationists have had their hay day, or have they?

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