Tuesday, September 27, 2016

Great Recession Causes and Case Shiller as Explained by Marcus Nunes

 This article was first published by me on Talkmarkets: http://www.talkmarkets.com/content/bonds/great-recession-causes-and-case-shiller-as-explained-by-marcus-nunes?post=99707&uid=4798

Before ending with ideas offered by Marcus Nunes, it is helpful to explain Case-Shiller. The leading indicator of the housing crash was the Case-Shiller Home Price Index, abbreviated C-S HPI. It is a 20 city measurement of house prices. The leading indicator of the housing crash was in serious decline prior to the subprime housing crisis of August, 2007. The subprime crash of August was brought into being when the commercial paper market was destroyed, commercial banks were forced to take back loans hidden in SIVs, and subprime loans went away completely.

The banks could have solved at least part of this problem prior to the August crisis, with starter loans for first time buyers, who were either priced out of the market or forced to take subprime mortgages. Starter loans for first time buyers would have been new lifeblood interjected into a housing market where subprime was dying!

If the central bank had 1. encouraged this starter loan program, and 2. had not permitted mark to market, 3. banks would have honored promises to refi toxic loans, and 4. had embarked upon an effort to buy commercial paper in early 2007, the banks would not have stopped lending in the real estate market in general (though the bubble states may have suffered), and the following chart would not have looked the way it now looks.

There may have been a decline in prices, but surely not the decline that took place. After all, the real subprime (including Alt A) debacle came from 4 states, California, Florida, Nevada and Arizona. 

We can see that the crash started before the subprime financial crisis took place. The question is why? The C-S HPI clearly was the leading indicator of crash. The chart is shown below:

The decline in prices began in April, 2007. Again, this was way before the subprime crisis of August, 2007. But the decline was as intense in April as it was after August. The question remains, why?

Clearly, the bankruptcy of New Century Finance must have had a major affect on kick starting the real estate decline. The trouble started in January of 2007, increased in March, 2007, and culminated in the April 2, 2007 bankruptcy of the firm.

This should not have affected the entire housing market. However, the MBSs that were pledged as collateral were undermined by the bankruptcy. The mortgages were simply not worth what people thought they were worth. The collateral derived from the MBSs was not worth what was claimed.

The derivatives catastrophe that resulted from the mispricing of MBSs by the Fed made the New Century Finance demise that much more significant than it ever should have been. Banks had bet on the stability of these MBSs, making things even worse, undermining the these bonds

This derivatives catastrophe was all made possible by the creation of securitization of mortgages. Getting rid of the paper brought profits based on the volume, not the soundness, of the loans.  The bonds, mispriced by the Fed itself, were then used as collateral in other deals until shown to be faulty.

New Century was ruined when it was forced to repurchase failed mortgages which were no longer being securitized, and it ran out of money. According to Investopedia New Century was over leveraged, controlling 25 billion dollars of assets with 2 billion dollars of equity. Leverage played a key roll in the destruction of subprime lending. Yet it was all sanctioned by commercial banks until the CP market went under. Once New Century and more subprime lenders went under, the commercial banks had to bring the bad loans back onto their balance sheets. Lending to the subprime market effectively ended.

I take issue with the conclusion of the Investopedia article. The article author blames New Century, but really the fault was with those responsible for allowing deregulated entities like New Century to exist in the first place.  That would seem to fall at the feet of congress and central banks.

As Marcus Nunes has pointed out, once the subprime crisis had stalled, the next shoe to drop was the ability to borrow on your own wealth. That HELOC source of credit was destroyed in mid 2008, and with the demise of HELOCs, housing wealth as shown by the CS20 chart above was cratering too. That probably was the back breaking development.  Once nominal income and spending declined, and people had no access to credit from their own vanishing equity wealth, the economy collapsed!

Nominal spending is still below trend, as Nunes goes on to say. Therefore, recovery just isn't progressing as it should. Of course, that article was written in 2013, and it appears that the economy is a little stronger now, but not strong like past recoveries.

But, as Prof. Nunes points out, forcefully, the destruction of housing wealth, and the ability to borrow on that wealth, was a key driver of financial decay in the entire system, leading to the Great Recession. Not only did the banks experience a financial crisis, but so did many homeowners, the backbone of the middle class. Banks would not lend, and borrowers could not borrow.

If you want to keep an economy going, you have to give the people access to credit. Cut off credit in a widespread manner and you risk upending the financial system's solvency. Heloc destruction and the inability to refinance easy loans, caused a mark decline of wealth, and were key to the take down of the real estate market.

Yet the wealthy were able to blow the bubble back up in the last few years without the help of the middle class. Therefore, keeping credit going for the middle class during the financial crisis would not necessarily have been an exercise doomed to failure in most states. I just think it was failure that was wanted by those who would profit.

See more about Market Monetarist Marcus Nunes

Sunday, September 25, 2016

It Appears Donald Trump Is a Pedophile or Condones Pedophilia

Update: For the sake of the nation, I hope these accusations are untrue. I really do. The nation needs prosperity. I don't know if Donald Trump can provide that prosperity, and I have my doubts. But, let us put these accusations into the past until other information surfaces.


Donald Trump may very well be a pedophile, not proven in a court of law, and/or condones pedophilia.

From the blog link above:

About Epstein, Trump said:
"I've known Jeff for fifteen years. Terrific guy,'' Trump booms from a speakerphone. "He's a lot of fun to be with. It is even said that he likes beautiful women as much as I do, and many of them are on the younger side. No doubt about it — Jeffrey enjoys his social life."[Emphasis mine]
Epstein is a known pedophile, convicted in 2008. He has settled with 50 young women, and is said to have supplied a sex ring of young underage women, for powerful businessmen and other powerful figures in NYC. Trump is toast if we show people he condones pedophilia. And it appears he does!

The blog link is useful as it goes into detail about certain Trump pedophilia issues. He can squash this claim about donating to pedophile groups simply by showing his tax return. It is clear Mr Trump had a close relationship with Jeffrey Epstein no matter what his attorney says.The link above spells it out.

I do not believe Trump can fix his unwholesome ties with Jeffrey Epstein, since he was found in Epstein's little black pedophilia book in 2004. He had numerous contacts with Epstein during those years, and even flew with him on his private jet according to Epstein's brother Mark, in sworn testimony.

A new lawsuit has emerged, filed in NYC, alleging Trump raped and beat a girl, then 13, and promised to kill her if she told his family. That is a serious charge. There is a witness who has given her testimony to the court. 

Sunday, September 18, 2016

Currency Hegemony, GDP Growth, and Why BREXIT Was Good for the UK

 This article was first published by me on Talkmarkets: http://www.talkmarkets.com/content/global-markets/currency-hegemony-gdp-growth-and-why-brexit-was-good-for-the-uk?post=98496&uid=4798

Currency Hegemony was in the works for the UK and all nations committed to a single Eurozone. This hegemony would be applied soon after 2020 according to a report from the Telegraph. Those who make the mistake of arguing that this sort of strong arm requirement would not be imposed upon the UK, as a reason to stay in the EU, are possibly undermining the future stability of the UK as a nation

Certainly, members of the EU have ducked the Eurozone and the Euro currency up til now. But according to the report, that would change. The Single European State is slated to come into existence. Can you imagine reports of plots to block the BREXIT coming out in the light of only a few years before a currency will be enforced upon the Brits with the pound being made extinct?

Eventually, this issue will rise to the top since it is the top issue. It is a top issue because of the need for Brits to eventually 1. abandon the pound, and 2. be required to disarm their nuclear deterrent force. It will start out as a Syncronized Armed Forces Europe. but will eventually be expected to operate as the USA operates. It is one thing to merge soldiers, quite another to merge and give up sovereignty regarding one's nuclear deterrent. Ask the state of California how much sovereignty it has over the US nuclear arsenal! Unelected technocrats in the EU (Eurocrats) would eventually take over the arsenals in establishing the Single European State.

So, just as US citizens would never allow the dollar to replaced, I believe that the UK will never allow the pound to be replaced. Had they put the BREXIT vote off, this backlash would have been certain to occur.

I don't hold out much hope for a Single European State and looking at the Peggers and the Floaters with Lars Christiansen explains why. 

As the link indicates, those nations that pegged their currencies to the Euro have not grown much. GDP has languished. But those who float against the Euro have had real GDP growth. As for GDP, the floaters have grown 5 times faster than the peggers. A central bank policy that attempts to fix all the nations with one policy has failed. The UK wants its GDP to grow, so it makes no sense to adopt the Euro.

Leave the UK alone, in other words. We have financial shocks from time to time, like the credit and asset crisis of 2008. In times of shock, having one's own currency is essential to real and quicker, recovery.

Monday, September 12, 2016

France Bosses the UK But Eurozone is the Flawed Organization

 This article was first published to my personal blog at Talkmarkets: http://www.talkmarkets.com/contributor/gary-anderson/blog/global-markets/france-bosses-the-uk-but-eurozone-is-the-flawed-organization?post=98430&uid=4798

If anyone had any doubts regarding the real position of the Eurozone versus the UK and how that would have played out had Brexit failed, one only has to turn to the behavior of France as an example. With Brexit succeeding,  France ordered the UK to quickly choose the new Prime Minister after David Cameron had resigned. That is quite rude behavior. Now we find out that more than half of French voters want a referendum on Frexit!

France could have taken the high road, the dignified road. But it showed its true colors even though as I show later, it should get out of the Eurozone yesterday. The Eurozone would have eventually shown its true colors, maximum austerity and settling for negative interest rates, had the UK experienced any financial shock that could have changed its fortune. And if the UK had prospered, it would have teamed with Germany to control the entire block. But the concept of nations held hostage to negative rates may run against the grain of UK economics, which rejects negativity in most corners.

It looks like France was a loser in Brexit. The French CAC was down 8.04 percent. The FTSE was only down 3.15 percent. Spain was another loser in the market. The UK does not export goods and services that are important to maintaining a union. But Spain, which may benefit from free trade, is facing massive, horrendous unemployment by staying in the Eurozone.

Growth seems to be fleeting in Italy, Spain and most of the Eurozone, especially opportunity for the young. An entire generation is at risk. This was true before the Euro, but the hopes from adopting the Euro as a solution to this problem have evaporated. A chart listed below proves this to be the case.

Attributed to Sodacan, Wikipedia
Spain needs a cheaper currency, but Spain will only get that if it follows the lead of the UK. The amazingly shrinking Eurozone economic system shows us that Italy should come out too. What good is it to have massive youth unemployment and a smaller economy than Italy possessed in 2000? It makes no sense.

Investors are fleeing the markets that will be hurt the most by rumblings of discontent. The UK FTSE is not one such market. The UK maintained its sovereignty, remember?

The British have a natural separation from the rest of Europe. It is called the English Channel. It is a natural course of things that this separation be maintained. It as a symbol, translates into the need for sovereignty in governmental affairs as well.

Perhaps some of you remember the cry, "no taxation without representation", that guided the fathers of America. Certainly when it comes to the Eurozone, we could be crying for "no regulations without representation." This is what the Eurozone has become, essentially a fraudulent organization imposing it's will on lesser nations. This great source explains it in a nutshell:

Concepts of "shared sovereignty,"  "pooled sovereignty" and "joint national sovereignties" are covers for having one's laws and policies decided by European Union bodies one does not elect, that are not responsible to one's own people and that can have significantly different interests from them. As EU members countries can no longer decide their own laws over a wide range of public policy. In practice countries and peoples that surrender their sovereignty to the EU become ever more subject to laws and policies that serve the interests of others, in particular the bigger EU states. The claim that if a nation or state surrenders its sovereignty to the EU, it merely exchanges the sovereignty of a small state for participation in decision-making in a larger supranational EU, is simply untrue. The reality is different. The EU continually reduces the influence of smaller states in decision-making by abolishing or limiting national veto powers. Even if bigger states divest themselves similarly of formal veto power, their political and economic weight ensures that they can get their way in matters decisive to them.

There is no doubt that the UK and Germany would ultimately gang up on France and the periphery nations like and Spain. So, one wonders how it could be that France would want to weaken it's position within the Eurozone by seeking to admit the UK. Truth is, France has better reasons to leave the Eurozone than the UK does! France has many members who want out. For France, staying in gives little benefit, only order. France cares about order, not so much about prosperity.

Cameron wanted austerity, and ultimately power to direct the Eurozone as part of an economic mafia of sorts, in order to avoid disorder that would result from the overspending poorer nations in the zone. Germany and the UK would have comprised a formidable financial mafia against the periphery nations, formerly known as PIIGS. Even the FT is aware that France wants out, and that the Eurozone is showing signs of decay. What other signs could a failed concept show? There may even be a plot to use investors to finance government of the chosen among the Eurozone nations through getting these investors to pay interest for selected Eurobonds.

As for America, let's get real. We have our own currency. We are not in a zone. We are sovereign as to our currency. Like the UK can still do, we can issue helicopter money. We can revive off the negative interest rate floor in a way that the Eurozone may not ever be able to do. We can devalue our currency if we have to. It appears the Eurozone has settled for negative rates even for long bonds and seek to end cash in some instances.

And the Eurozone has settled for massive youth unemployment, from almost 50 percent of the youth workforce in Greece to a horrendous 19.4 percent average in all of the Eurozone. Yet Germany's youth unemployment stands at 6.9 percent! I hope the US and UK do not go down that road of a shared currency with certain destruction of opportunity for the youth, unless you are the lead nation.  As we see by the FRED chart, the hope of the Euro in reducing youth unemployment in France has evaporated and an extension of the chart would show that the rate has leveled off but not declined even into 2016.

Click to Enlarge

As for investing, lots of caution in the air is being floated by pundits. No one really knows how much the Eurozone can do to make the UK "look like it made a bad decision".  But the EU clearly had more to lose than the UK in this vote, over the long run. How that plays out in the markets for the next couple of years should prove interesting.

See also:

Westfalia Lost


Personal Thoughts on Brexit Politics

Sunday, September 4, 2016

Brexit: Cameron, the Architect of Austerity, Almost Fooled the Brits

 I first posted this to my personal blog at Talkmarkets: http://www.talkmarkets.com/contributor/gary-anderson/blog/brexit-cameron-the-architect-of-austerity-almost-fooled-the-brits?post=98397&uid=4798

Poor David Cameron must have the weight of the EU on his shoulders today. He had many tools that would lead him to victory against Brexit, and almost the full cooperation of the entire media establishment while crying wolf and scaring the Brits with the fear factor, if the Brits exited the Eurozone.  Anyone who looks at the Eurozone knows this psuedo sovereignty can't work, and the zone would have pilfered the wealth of the UK while putting the nation into a prison of strict austerity.

So, what happened to the globalist plan gone bad? It is simple to understand. The globalists simply wanted it all. They wanted regime change worldwide, which interfered with the natural order of things, the Westfalia Peace. They wanted refugees, and continued with plans for moving them into Europe.
It is interesting that regime change, an attack on Wesfalia, turned out to be the mechanism that resulted in even greater calls for sovereignty, a backlash against the refugees!

Had the economy of Europe been stronger, the refugees would not have been so big an issue. They were an issue because Cameron and many leaders in the Eurozone were just technocrats in sheeps' clothing. Cameron implemented austerity in order to get the UK ready for the vice of Eurozone membership. Anyone could see what was going on. He was working for Brussels all along. Even Vlad Putin can smell a rat in all this. Cameron had said that leaving the Eurozone would benefit Putin and cause destabilization in the UK. Putin responded with the obvious:
“The number of binding decisions taken by the European Parliament as a percentage, is much greater than the number of binding decisions taken by the Soviet Union’s Supreme Council of the Federal Republic. This means that the concentration of power there is very high. Some like that, some don’t…and it appears that the majority of people in great Britain don’t.”
It looks like, from the behavior of stock markets in the beginning, that British stocks held up well, being down under 3 percent while stocks in the Eurozone were down 8 percent! That tells me that the Eurozone needed the UK a lot more than the UK needed the Eurozone. Cameron's destabilization cry regarding Putin was simply a lie. Putin said he refused to interfere with sovereign decisions of another nation, something the west threw out when it threw out the Westfalia Peace.

Add to this plot to undermine sovereignty, that the fear factor campaign presented little evidence that specific damages to the British economy would happen, and many were able to see through the entire charade.

Again, the refugees would have caused little consternation had the British economy been more robust. The economy was overcome by the austerity, by the continued pockets of massively high unemployment of the young, much like you saw in Spain and in struggling EU nations. Tying one's hands in allowing this unemployment must have seemed like a futile exercise to the voters. Private jobs have increased in the EU but they are inferior to past jobs in pay, and government jobs have not come back. Liquidation is as good a term as austerity when considering the British economy, at least liquidation of the public sector.

When a nation has its own currency, at least there is hope that austerity can be put on hold when necessary. Tying the UK to the dreadful Euro, a currency without a nation, seemed to be a recipe for slow growth in the economy and extreme austerity moving forward.

What the nations gain in staying out of the Eurozone (leading to the Euro), is their own currency, their own immigration policies and their own sense of nationhood and culture. Sovereignty of the nations really is the natural order of things. Empire is not the natural order of things and empires have crashed repeatedly through the history of mankind.

Now, don't get me wrong. There can be a negative side to sovereignty of the nations. Nations can descend into the abyss, as Germany did in electing Adolph Hitler. Other demagogues have come to use sovereign issues as a means to vent their extreme racism, their intolerance of others and of other nations.

So, there is a good side of sovereignty, the natural order of mutual respect nation to nation. And there is a bad side to sovereignty, the rise of Hitler and others like him who could care less about the natural order and of mutual respect among the nations! 

The globalist clear mission of destroying the Peace of Westfalia or Westphalia, destroying the natural inclination of nations to respect their neighbors, through advocating regime change and financial shenanigans, like liar loans across many nations, is now easy for many to see.

The only potential danger with this move toward sovereignty is that predator politicians who want to treat their neighbor nations badly also jump on the sovereignty bandwagon. I don't even have to mention who these people are. You know who they are.

But a worse fear for the Brits was Germany bossing them around in the Eurozone. It has been said that France is on its "last legs", and the UK would bolster the union. Otherwise, Germany will more and more be the dominant force in the EU. I don't think the Brits want to have a nation known for projecting its will be one that can then tell the UK what to do. But the insidious nature of the EU certainly has become a factor, as even the flag of the UK would have to be changed to reflect the Eurozone. As the article says, Brussels gets what it wants.

As for David Cameron, he has proven to be a very cowardly little man, blaming the electorate when he himself put austerity in place. He himself tried to pull the wool over the eyes of the Brits and he never had their interests paramount. He had lots of help, but people saw through the plot in the nick of time.