WASHINGTON (AP) — The Federal Reserve is widely expected Wednesday to stick with its aggressive efforts to strengthen a still-subpar economy.
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No policy changes are expected as Fed ends meeting
Tuesday, April 30, 2013
No policy changes are expected as Fed ends meeting
No policy changes are expected as Fed ends meeting
Nielsen: Q1 2013 Consumer Confidence Increases in Key Economies around the World
Nielsen: Q1 2013 Consumer Confidence Increases in Key Economies around the World
Global Consumer Confidence Measures at 93, Up Two Points from Q4 2012;
60 Percent of Total Markets Surveyed Report Higher Confidence Levels,
Up from 33 Percent in Previous Quarter
NEW YORK–(BUSINESS WIRE)– Global consumer confidence indexed at 93 in the first quarter of 2013, as key economies in North America, Asia, and northern and central Europe reported improvements in economic sentiments, according to consumer confidence findings from Nielsen, a leading global provider of information and insights into what consumers watch and buy. The measure of 93 is one point lower than the index in Q1 2012 (94) and two points higher than it measured in Q4 2012 (91).
“Economic perceptions signaled positive momentum as global job prospects, personal finances, and spending intentions cautiously edged up in Q1 2013,” said Dr. Venkatesh Bala, chief economist at The Cambridge Group, a part of Nielsen. “Encouraged by positive signs in the U.S. economy and moderately steady performance in China, consumer confidence in developed Asian economies rebounded strongly last quarter, as Hong Kong, Japan, South Korea, and Taiwan posted double-digit confidence increases.”
The Nielsen Global Survey of Consumer Confidence and Spending Intentions, established in 2005, measures consumer confidence, major concerns, and spending intentions among more than 29,000 respondents with Internet access in 58 countries. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism. In the latest round of the survey, conducted February 18-March 8, 2013, consumer confidence rose in 60 percent of global markets measured by Nielsen, compared to a 33 percent increase reported in Q4 2012.
Consumer confidence increased in several key economies, including the U.S. (93), which increased four points over the previous quarter and one point since Q1 2012; Germany (91), up four points since the last quarter and one point over the previous year; and Japan (73), up 14 points since Q4 2012 and 15 points since the same quarter last year. China held steady from Q4 2012 at 108 (-2 from Q1 2012).
Global Consumers Resilient Despite Continuing Recessionary Mindset
While global economic sentiment showed improvement in Q1 2013, Nielsen’s index indicated that many global respondents believed a full economic recovery was not in sight, as nearly half (49%) said they believed that the recession would last for at least another year. More than half of global respondents (56%) said they were in a recession in Q1, an improvement from 59 percent the previous quarter and 62 percent from six months ago.
Nevertheless, on average, across all countries in the survey, every confidence indicator increased in Q1 2013, compared with the previous quarter. Forty-seven percent of global respondents were optimistic about job prospects over the next 12 months, an increase of two percentage points from Q4 2012, 54 percent were confident in their personal finances (+1), and 36 percent were ready to spend (+2).
Highlights From Around the World
North America (94) reported the biggest quarter-on-quarter regional consumer confidence rise of four points in Q1, followed by Asia Pacific (103), which increased two index points. Consumer confidence declines were reported in the Middle East/Africa region (85), which decreased 11 index points since Q4 2012 and in Latin America (94), which declined two index points from the previous quarter. Europe’s regional consumer confidence index of 71 held steady from Q4 2012. At the end of last year, consumer confidence fell in 20 of 29 European markets. In Q1, the opposite trend was reported, as consumer confidence rose in 20 of 29 markets.
“We suspect that fears of the European debt crisis spreading beyond recession-stricken southern European countries may have eased in the first quarter,” said Dr. Bala. “However, weak labor market conditions in troubled economies, including Greece, Ireland, Italy, Portugal and Spain, and the recent Cyprus financial crisis are further indications of the fragile state of the European economy, which continue to hinder a full recovery in the region.”
North America led the global regions for spending intentions over the next 12 months. Forty-two percent of North American respondents said they plan to spend on discretionary items during the year—a six-point increase from Q4 2012. Respondents in the region reported marginal increases in discretionary spending intentions for the home, vacations, and entertainment expenses.
“Buoyed by a nascent revival of the U.S. housing market and strengthening employment conditions, Americans demonstrated an eagerness to spend again,” said Dr. Bala. “However, higher payroll taxes and the effect of government budget cuts coupled with volatility in job hiring and sluggish personal disposable income continue to impact U.S. households, which will make continued growth an ongoing challenge.”
Hong Kong reported the biggest index increase since Q1 2012, gaining 23 points to 108; Egypt saw the biggest decline, decreasing 20 points to 74. Indonesia reported the highest consumer confidence index at 122, a five-point increase from Q4 2012. Portugal reported the lowest index at 31.
Double-digit consumer confidence declines were reported in Egypt (-20) and Saudi Arabia (-17), compared to Q4 2012. Pakistan declined six index points to a score of 88, and United Arab Emirates dropped five index points to 108, which was the highest index reported in the region.
Consumer confidence in South Africa increased three index points to 79, and Israel rose one point to a score of 91.
Consumer confidence in Latin America decreased two percentage points from Q4 2012 with an index of 94, reflecting double-digit confidence declines in Colombia (-14) and Venezuela (-12).
About the Nielsen Global Survey
The Nielsen Global Survey of Consumer Confidence and Spending Intentions was conducted between February 18-March 8, 2013, and polled more than 29,000 online consumers in 58 countries throughout Asia-Pacific, Europe, Latin America, the Middle East, Africa, and North America. The sample has quotas based on age and sex for each country based on their Internet users, is weighted to be representative of Internet consumers, and has a maximum margin of error of ±0.6%. This Nielsen survey is based on the behavior of respondents with online access only. Internet penetration rates vary by country. Nielsen uses a minimum reporting standard of 60-percent Internet penetration or 10M online population for survey inclusion. The China Consumer Confidence Index is compiled from a separate mixed methodology survey among 3,500 respondents in China. The Nielsen Global Survey, which includes the Global Consumer Confidence Index, was established in 2005.
About Nielsen
Nielsen Holdings N.V. (NYS: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows, and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA, and Diemen, the Netherlands. For more information, visit www.nielsen.com.
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Jennifer Frighetto, 847-605-5686
jennifer.frighetto@nielsen.com
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elizabeth.wolf@nielsen.com
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Nielsen: Q1 2013 Consumer Confidence Increases in Key Economies around the World
Siri, meet your new competitor, Google Now
You’ve heard of Siri? It’s Apple’s personal assistant. You can talk to it and it’ll help you find information online, show you the weather and answer random questions.
Well, Google is taking on Siri on its home turf. The search giant released its own personal assistant — called Google Now — on the iPhone this week, after a successful run on Android phones.
I couldn’t resist, I had to ask Siri what she thought about it.
Her answer?
“I don’t really have anything to say about Google Now or ever.”
Well Siri, you might want to reconsider that.
Google Now takes all the data we feed it — like what we search for, what we buy, where we are — and learns our habits, giving us information before we ask for it. I use an iPhone and downloaded Google Now yesterday but so far, it’s not very useful — just information about the weather and nearby bus stops.
“If you just started using “Google Now” it hasn’t learned that much about your habits yet,” said Liz Gannes, a senior editor at the tech blog All Things D.
She’s got an Android, which has had Google’s personal assistant app for almost a year now, and so Google Now knows a lot about her. It tells her how long her commute will be, when she has a restaurant reservation.
Her favorite example: “I was taking a United Flight so my boarding pass was emailed to my GMail account. So the morning of the flight, it pops up in Google Now with your boarding pass right there,” she said.
Tony Costa, an analyst at Forrester, says anticipatory computing is the next frontier in mobile search. Right now, search is mostly about asking for information, but the trend is to give you information before you ask for it.
“It’s that aspect of these devices becoming active participants with their users rather than just passive order-takers,” Costa said.
In this respect, Google Now has a big head start over Siri, said Tammy Madsen is professor at Santa Clara University’s School of Business.
“There’s a lot to catch up on if we think about the search capabilities behind a “Google Now”-type feature,” Madset said.
She says whereas Apple’s focus is hardware, Google’s spent more than a decade collecting our data or getting to know us better.
Siri, meet your new competitor, Google Now
Gun Barrel City, Texas Encourages Everyone To Get A Gun
GUN BARREL CITY, Texas — Six-shooters are their logo.
Their slogan? “We’ll shoot straight with you.”
Gun Barrel City doesn’t shy away from its name.
“I think the name is a commerce,” said City Manager Gerry Boren. “It’s a trademark.”
Gun Barrel City is a young town, incorporated just 44 years ago in Henderson County. It sits on the shores of Cedar Creek Lake.
City leaders there are now dipping their toes in deeply-politicized water. They unanimously passed a resolution Tuesday encouraging every homeowner to own a gun.
Read more:
Gun Barrel City, Texas Encourages Everyone To Get A Gun
Dollar pressured before Fed policy outcome
1 of 4. Tokyo Stock Exchange (TSE) employees work at the bourse at TSE in Tokyo April 24, 2013.
Credit: Reuters/Yuya Shino
TOKYO |
TOKYO (Reuters) – The dollar was pressured on Wednesday ahead of the outcome of the U.S. Federal Reserve’s two-day policy meeting later, while the euro drifted on expectations for a rate cut when the European Central Bank meets later in the week.
Investors were cautious ahead of some big monetary policy decisions due this week, and lacked incentives to trade actively with many Asian markets closed for the Labor Day holiday.
One highlight during the Asian session is the release of official Chinese Purchasing Managers’ Index (PMI) due at 9.00 a.m. ET, which is expected to hit a 12-month high.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was nearly flat after climbing to a seven-week high on Tuesday.
The Australian benchmark share index .AXJO was down 0.1 percent after reaching its highest in nearly five years in the previous session.
Japan’s Nikkei stock average .N225 opened down 0.2 percent. The index posted its best April in 20 years, reflecting a sharp improvement in investor sentiment as the government promotes aggressive policies to end the country’s stubborn deflation and bolster growth. .T
The dollar was down 0.2 percent against the yen at 97.26 yen and inched down 0.1 percent against a basket of six major currencies .DXY. The dollar index .DXY hit its lowest since the end of February at 81.598 on Tuesday.
“No one should be expecting either a change in the (Fed’s) $ 85 billion monthly quantitative easing (QE) pace or a hint that the case for tapering QE has grown,” Sean Callow, a senior currency strategist at Westpac in Sydney, said in a note to clients.
“Despite what should be low expectations for firm hints in the statement, USD may well be whippy after the release, with a bias to the weak side,” he said, referring to the statement that accompanies the monetary decision.
The euro held steady around $ 1.3168 against the dollar but fell 0.2 percent against the yen at 128.02 yen
“The euro is catching attention this week ahead of the ECB meeting and a key non-farm payroll release…instead, we think meaningful EUR moves will be driven by three fairly unrelated factors, none of which relates to monetary policy in the eurozone,” Barclays Capital said in a research note.
The three factors are the effect of a weak yen on Germany’s growth, impact from Italy’s new coalition government’s austerity policies, and a recovery in the U.S. economy,
European shares slipped on Tuesday but still ended the month in positive territory for the longest monthly winning streak since 1997. April was the 11th straight monthly gain for the broad STOXX Europe 600 index .STOXX..
Inflation in the euro zone has fallen to a three-year low and unemployment has hit a new record, cementing expectations of a 25-basis-point interest rate cut by the ECB on Thursday.
In the U.S., the Standard & Poor’s 500 Index .SPX settled at an all-time high on Tuesday, despite a mixed bag of economic reports.
The Institute for Supply Management-Chicago business barometer unexpectedly contracted in April to its lowest level since September 2009 as a gauge of employment pulled back.
But other reports were more upbeat, including the S&P/Case-Shiller index of 20 metropolitan areas showing single-family home prices rose 9.3 percent in February from a year earlier at the fastest pace since May 2006, and a separate data showing consumer confidence rebounded in April.
These data precede the key U.S. non-farm payrolls report for April due on Friday. March’s number came in well below expectations, at 88,000, triggering a sell-off in risk assets.
(Editing by Eric Meijer)
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Dollar pressured before Fed policy outcome
33 Months of Falling Retail Sales in Spain; Austerity the Wrong Way
Guru’s blog in Spanish highlights the dramatic retail spending situation in Spain.
Here is a Mish-modified translation.
Last month I discussed the retail drama in Spain.March data is more of the same. Sales have fallen 33 consecutive months coupled with 56 months of job destruction.
This month overall sales fell by 10.9%. Accounting for seasonal effects, sales are down 8.9%. Single location business sales fell 14.1% (10.9% accounting for seasonal effects). Small business sales are down 12.7% (9.2% seasonally adjusted).
Spain is in a national emergency with no consumer spending, no credit, and no job creation, coupled with strongly rising unemployment.
Austerity the Wrong Way
This is what happens when you implement austerity the wrong way, by raising taxes instead of cutting needless bureaucrats.
Addendum: Couple of typos were corrected by reader Bran.
Here are the revised sentences: “Single location business sales fell 14.1% (10.9% accounting for seasonal effects). Small business sales are down 12.7% (9.2% seasonally adjusted).“
The percentages did not change but I had the word “spending” instead of “sales”.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
33 Months of Falling Retail Sales in Spain; Austerity the Wrong Way
New forms in health care"s reform
Forms for health care reform are getting reformed. (Try saying that three times fast.)
Under the health care reform law, Americans without health insurance will soon be able to buy coverage through a program called a health insurance marketplace, also known as an “exchange.” The federal government will begin accepting applications in October.
Today, the Centers for Medicare & Medicaid Services (CMS) posted those applications online. It called them “consumer-friendly” and stressed their relative simplicity.
“They’re pretty short,” says J.B. Silvers, who teaches health care finance at the Case Weatherhead School of Management. “Less than an awful lot of individual forms that people fill out these days.”
One of the applications — for individuals whose employers don’t offer health coverage — is just three pages long. A similar form, for families, is only seven pages.
It took me four minutes to fill out that form for families. It probably would have taken even less time if I didn’t have to dig up my most recent tax return. That tax return was the only other piece of paper I needed. I was able to fill out the rest from memory.
Draft versions of these forms were much longer and more complex, and some policy analysts worried they’d stay that way.
When it was first released in January, the form for families was 21 pages long, and it was written in confusing bureaucratic language. For example, “Does PERSON 1 plan to file a federal income tax return next year?” instead of “Do you plan to file a federal income tax return next year?”
Application for Health Coverage (NEW) by marketplaceapm
Application for Health Insurance For Those Seeking Financial Assistance (OLD version) by marketplaceapm
An important three pieces of paper
At a news conference today, President Barack Obama said the new, shorter forms exemplify “the kind of refinements we’re going to continue to be working on” as the government continues to implement provisions of the healthcare reform law.
Timothy McBride, a health economist at Washington University in St. Louis, says the current applications are easier to follow.
“I was very pleased to see these revised forms, because I had seen some of the draft forms they were considering, and I was getting pretty nervous.”
In a statement, the CMS said, “the paper application was simplified and tailored to meet personal situations based on important feedback from consumer groups.” Over these last few months, the agency encouraged the public to submit suggestions, comments and complaints.
It seems a little strange to put so much weight into a few blank lines, but McBride says the forms are important for enrollment.
When a form is too complicated, “it turns people off or it turns people away,” McBride says. “Health insurance is quite complicated even for those of us who know a lot about it.”
Paving the way for other changes?
From a design perspective, these forms look similar to prototypes the Consumer Financial Protection Bureau has released, including a simplified credit card agreement.
David B. Kendall, a senior fellow for health and fiscal policy at Third Way, a Washington think tank, says these new applications for health coverage could encourage other agencies to reexamine their own forms.
“I think this particular application will be more influential in the way we do other things in government services,” Kendal says, suggesting applications for Medicaid and food stamps could be redesigned.
New forms in health care"s reform
IRS eyes U.S. accounts at Caribbean bank
A woman walks out of an Internal Revenue Service office in New York April 18, 2011.
Credit: Reuters/Lucas Jackson
(Reuters) – The Justice Department said on Tuesday that a federal court had authorized the Internal Revenue Service to seek information on U.S. taxpayers who may have accounts at Canadian Imperial Bank of Commerce FirstCaribbean International Bank (FCIB).
In a move resembling a recent IRS inquiry into Americans with Swiss bank accounts, the Justice Department said a court order would let the IRS serve a ‘John Doe’ summons seeking records of FCIB’s U.S. correspondent account at Wells Fargo & Co. A correspondent account is a bank deposit account maintained by one bank for another bank.
The order would allow the IRS to identify U.S. taxpayers with “interests in financial accounts at FCIB and other financial institutions that used FCIB’s Wells Fargo correspondent account,” the Justice Department said in a statement.
“Our work here shows our resolve to pursue these cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil,” IRS Acting Commissioner Steven Miller said in a statement.
A spokesman for Wells Fargo said the bank would “review the summons and respond as legally required.”
An FCIB spokeswoman said the bank intended to “cooperate with authorities in accordance with the respective laws of all jurisdictions involved” and to comply with legal and regulatory requirements. The bank was working with Wells Fargo to understand the court order, she said in a prepared statement.
FCIB, based in Barbados, has branches in 18 Caribbean countries. According to its website, the bank was formed in 2002 by Britain’s Barclays Bank and Canadian Imperial Bank of Commerce (CIBC). In 2006, CIBC became the bank’s majority shareholder, according to the website.
CIBC did not immediately reply to requests for comment.
FCIB does not have U.S. branches but it has a correspondent account in the United States at Wells Fargo, Justice said.
The IRS uses ‘John Doe’ summonses to get information on possible tax law breakers whose identities are unknown. “This John Doe summons directs Wells Fargo to produce records identifying U.S. taxpayers with accounts at FCIB and other banks that used FCIB’s correspondent account,” the statement said.
In a declaration filed to the court, a senior IRS revenue agent said many FCIB customers in the John Doe class may have been under-reporting income, evading income taxes, or otherwise violating the internal revenue laws of the United States.
The FCIB case stemmed from information from 129 customers of the Barbados bank and its predecessor banks who took part in an IRS voluntary disclosure program, the Justice Department said.
In a similar case in January 2013, a federal court allowed the IRS to serve a ‘John Doe’ summons on Switzerland’s UBS AG, seeking records of Swiss bank Wegelin & Co.’s U.S. correspondent account at UBS.
That action was part of a wide-ranging U.S. government effort to crack down on tax avoidance by Americans.
Wegelin, Switzerland’s oldest bank, in March agreed to pay nearly $ 58 million in penalties and said it would shut its doors after admitting to helping wealthy Americans evade taxes.
The serving of ‘John Doe’ summons on correspondent accounts is likely to become more common as the government widens its tax inquiries beyond Switzerland, Luxembourg and Liechtenstein, said William Sharp, a lawyer who represents taxpayers.
(Editing by Kevin Drawbaugh, Chris Reese and Andrew Hay)
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IRS eyes U.S. accounts at Caribbean bank
Exclusive: Tim Hortons investor agitates for buybacks, new strategy
NEW YORK |
NEW YORK (Reuters) – Canadian coffee-and-donut chain Tim Hortons Inc (THI.TO) is under pressure from one of its top investors to buy back a large chunk of its shares, pare back in the United States and get more money out of its real estate assets, according to documents seen by Reuters and two sources familiar with the matter on Tuesday.
Hedge fund Highfields Capital, which owns about 1.5 percent of the company, wants Tim Hortons to borrow $ 3.4 billion to buy back more than one-third of its outstanding shares at $ 59 apiece, the documents show.
The investor also wants Tim Hortons to spin off or sell its distribution business and create a real estate investment trust to house its real estate assets, according to the documents.
The documents include correspondence between Tim Hortons and Highfields executives since March and a Highfields presentation to the restaurant chain.
Tim Hortons had a market value of $ 8.3 billion. It is working with Citigroup Inc (C.N) and RBC Capital Markets as strategic advisers, the documents show.
A spokeswoman for Highfields declined to comment on the matter, except to note that the firm did not provide a copy of the documents to Reuters. Tim Hortons did not immediately respond to requests for comment. RBC and Citigroup declined to comment.
(Reporting By Lauren Tara LaCapra, Jessica Toonkel and Olivia Oran; Editing by Soyoung Kim and Paritosh Bansal, Gary Hill)
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Exclusive: Tim Hortons investor agitates for buybacks, new strategy
Here We Go Again - Builders Hold Lotteries for Right to Buy a House
Here’s that “froth” thing again: Builders hold lotteries for eager new homebuyers.
O’Brien Homes started holding a monthly housing lottery for its 228-unit development called Fusion in Sunnyvale, Calf., after seeing throngs of prospective buyers camp out at the openings of other new condo complexes in the area.Each month, as new sections of the development came under construction, roughly 50 buyers would show up at O’Brien Homes’ sales office hoping to be picked for one of the 10 or so sites available. The participants were already pre-qualified for a mortgage and had their down payment in place. After being assigned a number, they crossed their fingers and waited for each bingo ball to be plucked from the tumbler.
“Some people would come back month after month,” said Frimel. “It got very frustrating for them.”
Adding to that frustration was that home prices rose virtually every time a new group of homes went on sale. The two-, three- and four-bedroom homes started out between $ 420,000 and $ 620,000. The last grouping went for $ 555,000 to $ 815,000, a 32% increase.
Even with the price hikes, buyers kept returning. O’Brien started issuing returnees an extra bingo ball. If they lost for four straight months, they would get five chances the next time.
Here’s my Greenspan imitation: “Don’t worry, it’s only some sections of the country. Besides it’s well supported by the fundamentals. And as we all know, home prices never drop.”
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Here We Go Again - Builders Hold Lotteries for Right to Buy a House
Best Buy Shares Jump on Europe Exit
Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.
What: Best Buy shares jumped again today, climbing as much as 11% after the struggling electronics retailer announced that it will ditch its European operations.
So what: The big-box chain said it would sell its 50% stake in Carphone Warehouse Group back to Carphone for about $ 775 million. Carphone shares finished up over 15% on the news. Management said it made the decision to focus on its core business in the U.S., which has been sputtering lately. Best Buy will taking a steep loss on the investment, as it originally purchased it in June 2008 for $ 2.15 billion, but the deal turned into a boondoggle as the recession killed hopes for a Best Buy-style chain in Europe. The decision to sell seems to be an admission of failure.
Now what: After falling to nearly $ 11 a share last year, Best Buy shares have rebounded strongly, more than doubling since the beginning of 2013 and often gaining on non-events. First, founder Richard Schulze made a since-scuttled attempt to take the company private, then shares jumped after Best Buy made a deal to host Samsung kiosks in its stores, and now we have the divestment from Europe. Despite the gains in share price, sales continue to fall, and the company has taken some large write-offs as it attempts to restructure. The recent moves to by Amazon.com to begin collecting sales tax may help Best Buy stay afloat, but the operational weakness continues to persist. That’s a good enough reason for me to stay away.
The article Best Buy Shares Jump on Europe Exit originally appeared on Fool.com.
Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
Best Buy Shares Jump on Europe Exit
Payments to Goldman Sachs and Morgan Stanley borrowers covered by foreclosure agreement to begin May 3
Payments to Goldman Sachs and Morgan Stanley borrowers covered by foreclosure agreement to begin May 3
FRB: Press Release – All Releases
FRB: Press Release – All Releases
Payments to Goldman Sachs and Morgan Stanley borrowers covered by foreclosure agreement to begin May 3
Will The New Housing Bubble That Bernanke Is Creating End As Badly As The Last One Did?
Federal Reserve Chairman Ben Bernanke has done it. He has succeeded in creating a new housing bubble. By driving mortgage rates down to the lowest level in 100 years and recklessly printing money with wild abandon, Bernanke has been able to get housing prices to rebound a bit. In fact, in some of the more prosperous areas of the country you would be tempted to think that it is 2005 all over again. If you can believe it, in some areas of the country builders are actually holding lotteries to see who will get the chance to buy their homes. Wow – that sounds great, right? Unfortunately, this “housing recovery” is not based on solid economic fundamentals. As you will see below, this is a recovery that is being led by investors. They are paying cash for cheap properties that they believe will appreciate rapidly in the coming years. Meanwhile, the homeownership rate in the United States continues to decline. It is now the lowest that it has been since 1995. There are a couple of reasons for this. Number one, there has not been a jobs recovery in the United States. The percentage of working age Americans with a job has not rebounded at all and is still about the exact same place where it was at the end of the last recession. Secondly, crippling levels of student loan debt continue to drive down the percentage of young people that are buying homes. So no, this is not a real housing recovery. It is an investor-led recovery that is mostly limited to the more prosperous areas of the country. For example, the median sale price of a home in Washington D.C. just hit a new all-time record high. But this bubble will not last, and when this new housing bubble does burst, will it end as badly as the last one did?
Federal Reserve Chairman Ben Bernanke has stated over and over that one of his main goals is to “support the housing market” (i.e. get housing prices to go up). It took a while, but it looks like he is finally getting his wish. According to USA Today, U.S. home prices have been rising at the fastest rate in nearly seven years…
U.S. home prices in the USA’s 20 biggest cities rose 9.3% in the 12 months ending in February. It was the biggest annual growth rates in almost seven years, a closely watched housing index out Tuesday said.
In particular, home prices have been rising most rapidly in cities that experienced a boom during the last housing bubble…
Year over year, Phoenix continued to stand out with a gain of 23%, followed by San Francisco at almost 19% and Las Vegas at nearly 18%, the S&P/Case-Shiller index showed. Most of the cities seeing the biggest gains also fell hardest during the crash.
But is this really a reason for celebration? Instead of addressing the fundamental problems in our economy that caused the last housing crash, Bernanke has been seemingly obsessed with reinflating the housing bubble. As a recent article by Edward Pinto explained, the housing market is being greatly manipulated by the government and by the Fed…
While a housing recovery of sorts has developed, it is by no means a normal one. The government continues to go to extraordinary lengths to prop up sales by guaranteeing nearly 90% of new mortgage debt, financing half of all home purchase mortgages to buyers with zero equity at closing, driving mortgage interest rates to the lowest level in 100 years, and turning the Fed into the world’s largest buyer of new mortgage debt.
Thus, with real incomes essentially stagnant, this is a market recovery largely driven by low interest rates and plentiful government financing. This is eerily familiar to the previous government policy-induced boom that went bust in 2006, and from which the country is still struggling to recover. Creating over a trillion dollars in additional home value out of thin air does sound like a variant of dropping money out of helicopters.
And the Obama administration has been pushing very hard to get lenders to give mortgages to those with “weaker credit”. In other words, the government is once again trying to get the banks to give home loans to people that cannot afford them. The following is from the Washington Post…
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
We are repeating so many of the same mistakes that we made the last time.
But surely things will turn out differently this time, right?
I wouldn’t count on it.
Right now, an increasingly large percentage of homes are being purchased as investments. The following is from a recent Washington Times article…
Much of the pickup in sales and prices has been powered by investors who, convinced that the market is bottoming, are scooping up bountiful supplies of distressed and foreclosed properties at bargain prices and often paying with cash.
With investors targeting lower-priced homes that they intend to purchase and rent out, they have been crowding out many first-time buyers who are having difficulty getting mortgage loans and are at a disadvantage when competing with well-heeled buyers. Cash sales to investors now account for about one-third of all home sales, according to the National Association of Realtors.
And as we have seen in the past, an investor-led boom can turn into an investor-led bust very rapidly.
If this truly was a real housing recovery, the percentage of Americans that own a home would be going up.
Instead, it is going down.
As I mentioned above, the U.S. Census Bureau is reporting that the homeownership rate in the United States is now the lowest that it has been since 1995.
In particular, homeownership among college-educated young people is way down. They can’t afford to buy homes due to crippling levels of student loan debt…
For the average homeowner, the worst news is that these overleveraged and defaulting young borrowers no longer qualify for other kinds of loans — particularly home loans. In 2005, nearly nine percent of 25- to 30-year-olds with student debt were granted a mortgage. By late last year, that percentage, as an annual rate, was down to just above four percent.
The most precipitous drop was among those who owe $ 100,000 or more. New mortgages among these more deeply indebted borrowers have declined 10 percentage points, from above 16 percent in 2005 to a little more than 6 percent today.
“These are the people you’d expect to buy big houses,” said student loan expert Heather Jarvis. “They owe a lot because they have a lot of education. They have been through professional and graduate schools, but their payments are so significant, they have trouble getting a mortgage. They have mortgage-sized loans already.”
And the truth is that there simply are not enough good jobs in this country to support a housing recovery. In a previous article, I used the government’s own statistics to prove that there has not been a jobs recovery. If we were having a jobs recovery, the percentage of working age Americans with a job would be going up. Sadly, that is not happening…
And as I mentioned above, the “housing recovery” is mostly happening in the prosperous areas of the country.
In other areas of the United States, the devastating results of the last housing crash are still clearly apparent.
For example, the city of Dayton, Ohio is dealing with an estimated 7,000 abandoned properties.
As I wrote about the other day, there are approximately 70,000 abandoned buildings in Detroit, Michigan.
And all over the nation there are still “ghost towns” that were created when builders abruptly abandoned housing developments during the last recession. You can see some pictures of some of these ghost towns right here.
So the truth is that this is an isolated housing recovery that is being led by investors and that is being fueled by very reckless behavior by the Federal Reserve. It is not based on economic reality whatsoever.
In the end, will the collapse of this new housing bubble be as bad as the collapse of the last one was?
Please feel free to post a comment with your thoughts below…
Will The New Housing Bubble That Bernanke Is Creating End As Badly As The Last One Did?
Deal maker Valeant reaches for biggest prize yet
WINNIPEG/NEW YORK |
WINNIPEG/NEW YORK (Reuters) – After five years and some 60 deals that have turned Valeant Pharmaceuticals International Inc (VRX.TO) into a stock market darling with a market capitalization of $ 22 billion, Chief Executive Michael Pearson still has some surprises up his sleeve.
One was the Canadian drugmaker’s pursuit of U.S.-based generic pharmaceutical company Actavis Inc (ACT.N), a prize worth more than $ 13 billion that would be both Valeant’s biggest deal by far and a move into less familiar territory.
The deal stalled after the companies failed to agree on terms, people familiar with the situation said. An Actavis spokesman declined to comment and Valeant did not respond to inquiries. It was not clear if the deal could be revived.
Montreal-based Valeant, known for prescription drugs such as anti-depressant Wellbutrin and over-the-counter remedies such as Cold-FX, has built up its dermatology and anesthetics portfolio in a dozen deals in the past year, most recently for Obagi Medical Products.
When Canada’s Biovail Corp acquired California-based Valeant in 2010 for $ 3.3 billion, assuming its name but keeping the head office in Canada, the deal signaled the brisk pace of M&A that was to follow.
Pearson, a former director at consulting firm McKinsey & Co and a proud Eagle Scout, the highest rank in the Boy Scouts program, left McKinsey to become Valeant CEO in 2008 and quickly began snapping up dermatology products like sunscreen and anti-aging items in a plan with aggressive revenue growth targets.
He tapped Howard Schiller, a former chief operating officer of the investment banking division at Goldman Sachs (GS.N), to be his chief financial officer in 2011, a move that has helped Valeant’s acquisitive strategy.
“I am pleased with what we have achieved … but will not be satisfied until we join the ranks of the true industry leaders,” Pearson said in the company’s 2012 annual report.
“He (Pearson) seems to be going for scale,” said a banker involved in the health care sector, although not the Valeant-Actavis talks. “Valeant isn’t only about racking up deals. They’ve also done a pretty decent job at integrating their acquisitions.”
But at least one investor, High Pointe Capital Management, a Chicago-based investment management firm that has slightly less than a 1 percent stake in the company, would not be disappointed if the Actavis deal does not happen.
“I would like Valeant to focus on deals that are similar to the deals done in the past, which were mid-sized but have bigger cost-cutting opportunities,” said Gautam Dhingra, a portfolio manager with High Pointe. “This (Actavis) deal would have limited its growth because the company would be too large.”
But others said a big deal may not be off the table, even if Actavis is no longer a target.
“This provided a glimpse into the size and type of deal Valeant is considering,” Stifel analyst Annabel Samimy said. “That Valeant had considered a leading generics and specialty brands company rather than another deal in the various areas of its expertise further suggests that any company could be on the table, not strictly those in its known wheelhouse,” she wrote in a note to clients.
Valeant’s stock price has doubled in the past 18 months to around $ 76 in New York, and Actavis is up more than 40 percent in the past year to around $ 104.88.
On Monday, Valeant and Actavis shares notched gains of 3.8 percent and 4.6 percent, respectively, reflecting the deal talk. On Tuesday afternoon, both stocks were little changed.
Valeant’s rise, unusual for a company poised for a costly deal, reflected confidence that the deal would add to earnings if it can be revived, said Morningstar analyst David Krempa, noting that Valeant has proven efficient at integrating its acquisitions and squeezing out synergies.
Typically, Valeant buys a product or company, shuts down or downsizes research and development, and focuses on sales.
“They don’t want to take the risk of R&D. They’d rather buy an existing product that’s already approved (by regulators), rather than swinging for a home run,” Krempa said.
“They’d rather get a reliable single or double.”
GENERIC DRUG PROFITS TO GROW
Actavis seems to be anything but a safe, simple play, but there’s a reason it landed in Valeant’s cross-hairs.
Generic drugmakers are expected to profit immensely as several top-selling branded medications lose patent protection between now and 2016. Generic drugs often sell at a fraction of the branded drug’s price, but are typically more profitable products.
And while there is limited overlap between the two businesses, tax synergies could have boosted profits.
If Valeant can fit Actavis under its lower, Canadian tax structure, a merger could take the Actavis tax rate from well over 20 percent down closer to Valeant’s 5 percent, said Gabelli & Co analyst Kevin Kedra.
“That creates a lot of earnings power that you can get out of the combined business,” he said.
Valeant aims to expand annual revenue from $ 3.5 billion last year to $ 10 billion or $ 20 billion in the near future, Pearson says.
In any case, Valeant isn’t the kind of company to wait, said Kedra. “When they see something they want, they go for it and they usually act quickly … or they walk away quickly,” he said.
(Additional reporting by Soyoung Kim and Bill Berkrot in New York, Ben Hirschler in London, Esha Dey in Bangalore and Euan Rocha in Toronto; editing by John Wallace)
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Deal maker Valeant reaches for biggest prize yet
Justice Dept. targets U.S. taxpayer accounts at Caribbean bank
April 30 |
April 30 (Reuters) – The U.S. Justice Department said on Tuesday that a federal court has authorized the Internal Revenue Service to seek information on U.S. taxpayers who may have accounts at Canadian Imperial Bank of Commerce FirstCaribbean International Bank (FCIB).
In a move resembling a recent IRS inquiry into Americans with Swiss bank accounts, the department said a court order will let the IRS serve a ‘John Doe’ summons seeking records of FCIB’s U.S. correspondent account at Wells Fargo & Co.
A correspondent account is a bank deposit account maintained by one bank for another bank.
The order will allow the IRS to identify U.S. taxpayers with “interests in financial accounts at FCIB and other financial institutions that used FCIB’s Wells Fargo correspondent account,” the Justice Department said in a statement.
Requests for comment to FCIB, CIBC and Wells Fargo were not immediately returned.
FCIB, based in Barbados, has branches in 18 Caribbean countries. According to its web site, the bank was formed in 2002 by Britain’s Barclays Bank and CIBC. In 2006, CIBC became the bank’s majority shareholder, the site said.
FCIB does not have U.S. branches, but has a correspondent account in the United States at Wells Fargo, Justice said.
The IRS uses ‘John Doe’ summonses to get information on possible tax law breakers whose identities are unknown. “This John Doe summons directs Wells Fargo to produce records identifying U.S. taxpayers with accounts at FCIB and other banks that used FCIB’s correspondent account,” the statement said.
In a declaration filed to the court, a senior IRS revenue agent said many FCIB customers in the John Doe class may have been under-reporting income, evading income taxes, or otherwise violating the internal revenue laws of the United States.
In a similar case in January 2013, a federal court allowed the IRS to serve a ‘John Doe’ summons on Switzerland’s UBS AG , seeking records of Swiss bank Wegelin & Co.’s U.S. correspondent account at UBS.
That action was part of a wide-ranging U.S. government effort to crack down on tax avoidance by Americans.
Wegelin, Switzerland’s oldest bank, in March agreed to pay nearly $ 58 million in penalties and said it would shut its doors after admitting to helping wealthy Americans evade taxes.
The serving of ‘John Doe’ summons on correspondent accounts is likely to become more common as the government widens its tax inquiries beyond Switzerland, Luxembourg and Liechtenstein, said William Sharp, a lawyer who represents taxpayers.
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Justice Dept. targets U.S. taxpayer accounts at Caribbean bank
California cities see revenue boost but budgets remain tight
* Improving economy helps fill coffers
* Focus remains on wages, pensions and healthcare costs
* San Jose eyes sales tax increase
By Jim Christie
SAN FRANCISCO, April 30 (Reuters) – Stockton, the biggest U.S. city to have filed for bankruptcy, forecasts $ 840,000 more in the current fiscal year than its officials initially anticipated, one sign of how local revenues in California are picking up after several years of declines.
How the modest increase plays out for Stockton, which has a $ 155 million budget, remains to be seen as the city of 300,000 is preparing a plan for adjusting its debt after recently winning court approval to press on with its bankruptcy case.
Other California cities have outlined more substantial revenue gains as the state’s economy gradually improves.
But the budgets of California cities, which shocked the $ 3.7 trillion municipal bond market last year with three bankruptcies filed in a matter of few weeks, will remain tight and face long-term fiscal challenges from pensions and healthcare costs.
In Los Angeles, the state’s biggest city, Mayor Antonio Villaraigosa has proposed pairing an additional $ 111 million in revenue with spending cuts, reducing funds for healthcare for many city employees and asking them to give up a pay raise to help close a $ 216 million budget gap.
San Diego’s revenues have also been strengthening and are seen expanding by about $ 31 million in the next fiscal year over the current year, allowing the mayor of California’s second-biggest city to propose spending increases.
The two Southern California cities are posting gains in revenue from property taxes as housing activity improves, from sales taxes as consumers shop more and from hotel-room taxes paid by tourists.
“Property values are increasing, retail sales are increasing, the city has an unprecedented number of visitors,” said Miguel Santana, Los Angeles’ city administrative officer and budget point-man. “Revenue, I think, is doing well.”
Northern California’s two largest cities, San Jose and San Francisco, are likewise collecting more money, thanks to high-tech businesses like Google Inc fueling their region’s economy, which has been California’s job engine in recent years.
California’s jobless rate fell to 9.4 percent in March, one of the highest rate among all states but the lowest level in more than four years.
San Jose Mayor Chuck Reed said his city, California’s third-largest, expects revenue to rise by 3 percent in its next fiscal year beginning in July. “There’s a lot more money floating around,” he said.
‘WE CELEBRATE FLAT’
By contrast, Fresno’s overall revenue is flat. But that’s good news for Mark Scott, city manager of California’s fifth-largest city. “It’s been negative the past couple years so it’s a better situation,” he said. “We celebrate flat around here.”
Despite improving revenue, California cities still face budget gaps and pressure to restore services cut in recent years, said Moody’s Investors Service analyst Eric Hoffman.
At the same time, cities must find ways to pare spending on, or raise revenue for, retiree health care and pensions, two types of spending that have been on the upswing.
Both are key issues in the Stockton bankruptcy. Like other cities paying into the California Public Employees’ Retirement System, Stockton’s pension fund contributions will increase due to a new policy to fully fund the system over 30 years.
Moody’s said on Monday it still expects more downgrades than upgrades this year for local governments, which “continue to grapple with ongoing credit pressures, including growing pension and healthcare costs and reduced support from higher levels of government.”
“You might say that cities are treading water,” said Moody’s Hoffman.
Fresno is treading strenuously. Moody’s in January downgraded to a junk-level Ba1 from Baa2 Fresno’s lease revenue bonds, citing the city’s “exceedingly weak financial position.”
To balance its books, Fresno needs more revenue, salary and healthcare concessions from city workers, and voter approval to outsource garbage services, Scott said. “To break even next year, those three things have to happen,” he said.
In contrast, San Francisco had its general obligation bonds upgraded by Moody’s, to Aa1 from Aa2, in the first quarter in part because of solid revenue growth.
But San Francisco also faces a shortfall, of about $ 124 million in its 2014 fiscal year, and officials expect the cost of services offered by California’s fourth-largest city, fueled by salary, pension and benefit costs, will outpace revenue growth over the next five years.
San Jose is on firmer financial footing after several years of austerity and a ballot measure last year to rein in pensions costs. Still, Reed wants to fill the city’s coffers more in case Silicon Valley slumps and chills the local economy.
Reed, who expects a $ 5.5 million budget gap for San Jose’s next fiscal year compared with a shortfalls of more than $ 100 million in 2011 and 2012, said he may try to rally San Jose’s city council to put a tax measure to voters next year. “The most likely candidate based on the polling we’ve done is a sales tax increase,” he said.
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California cities see revenue boost but budgets remain tight
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