As property prices decline the cost of property taxes - as a % of true valuation must rise - because the cost of providing the services paid for by have not declined in cost. That's just math.
There well may be a foreclosure tsunami; Without some legal intervention to straighten out the legal mess that seems inevitable. On-selling tranches of mortgages, to numerous investors while retaining management, as many Banks have done, means there is no-one for a distressed mortgagee to negotiation with. A negotiated solution is often better for both parties.
The effect of the tsunami will depends on rentals. If rentals are far below fundermental value then prices will fall like a stone. If they are above or at fundermental value then buyers will come forward. If buyers avoid negatively geared properties they should be ok.
Spain - The Next Domino Is Getting Ready To Tumble [View article]
There is much talk here of naughty bankers, inaudible auditors, irresponsible politicians, bad bureaucrats, various economists (all of whom are wrong), and an ever-growing ocean of blame.
But at the core is "we the people". We are the ones who bought houses at prices that were too bad to be true. Who always favoured the slightly cheaper short term, interest only mortgage over the slightly dearer (and much safer) long term P&I one. Those of us who are investors often spurned "buy and hold" in favor of speculation. Too many of us voted for politicians that looked good, and spoke in cliches, rather than those who looked like hell and sounded like they had a brain.
I think that blaming ourselves for the problem is not only fair but wise. We can fix what we have broken. We don't have to wait until a solution is adopted by the "powers that be".
This is good time to be smart and in control. Houses, mortgages, and money products are cheaper than they have been for years. The employment market, and the economy in general, is recovering slowly.
When will things get back to normal? Hopefully never. But people are easily lead and more easily mislead. The only person you can change is yourself.
Spain - The Next Domino Is Getting Ready To Tumble [View article]
Fail and bail, I get it. My mistake. I accept too that after blatant reluctance the ISDA did in fact issue a default notice.
CDS are IMO very dangerous to the EZ and to others. They provide a cheap mechanism to ramp up the pressure on all players. Many market commentators seem to view this as as a game of chicken where the Europeans have no alternative but to blink.
I don't see it that way. One alternative is to play for time. CDS expire. Another alternative is to play around with the rules. I would argue that the Europeans have already done both.
A third alternative is to declare CDS to be insurance products and invoke a requirement for there to be an insurable interest. Most CDS would fail this test.
They could legislate against them. I would. There are many other options, some likely, most not.
You argue that the preservation of CDS is vital to the Sovereign debt market, and therefore to the EZ. I don't agree. I think CDS distort the Sovdebt markets and encourage speculators to take risks that they would not otherwise take. I expect it will end badly for them.
Is Iceland Really Going To Peg Currency To Canadian Dollar? [View article]
Interesting article.
I am always amazed by how fast sentiment changes. I know it will happen , I expect it, I am looking for it, and yet it still catches me by surprise!
A month ago the world seemed convinced that Greece would default and leave the Euro, re-adopt the drachma and devalue itself to Nirvana. (Starvation as cure.) Then there would be a string of collapses of peripheral states as the "fatally flawed" Eurozone disintegrated. The Government of Greece was seen as a helpless spectator, unable to help as the lives of millions were destroyed.
Commentators showed a grotesque enthusiasm for this litany of destruction.
Today we have this story, which directly contradicts that narrative. The Icelandic Government has directly confronted the problems, and implemented solutions, which have worked pretty well. Going it alone, however, is now seen to be risky, there is safety in numbers. The choice is between the Loonie and the Euro, (a fair reflection of Iceland's Geography).
Has there been some new discovery in economic theory? No. Then how do we explain the sudden change?
Perhaps by remembering that markets are mostly about greed and fear. Logic and consistency live elsewhere.
Spain - The Next Domino Is Getting Ready To Tumble [View article]
You argue that Spain is "too big to fail". OK, but remember that to Merkel and Sarcozy, Greece was too big to fail also.
You point out that the risk spread CDS on Spanish Sovereign debt is trending higher, but how much of that, reflects the decreased security and increased risk that CDS can be seen to offer given the Greek haircut and the blatant reluctance to issue default ruling? How to we distinguish between risk in the indicator itself from risk in the subject that the indicator is testing?
Spain - The Next Domino Is Getting Ready To Tumble [View article]
“Raj Badiani, an economist at IHS Global Insight, said government data indicates Spanish house prices are down more than 20% from the 2007-2008 peak, even though other evidence points to a possible drop of more than 30%. [actually, there is still other evidence indicating it's more like 40% to 50% by now, ed.]
You display a graph from the Wall Street Journal that shows the % change in house prices from the year previous. Plotting that graph and looking at the changes I get a house price fall of 31% from the peak of the high, as shown in the graph.
In my opinion a casual reader might get a totally different idea of the severity of the problem from looking at that graph. Some might think that house prices had fallen about 11% in total. That where the bottom figure is. This is important as the graph as shown has the capacity to mislead some.
Housing price graphs could be made better by showing the future value of rental income. This is the best objective measure of the value of a house as an investment. In this case the percentage increase/decrease in rental income should be shown.
In many ways this action has restored common-sense.
An investor, knowing that in an emergency a state may change the rules, will be reluctant to lend to any state that appears to the investor to be financially weak or unsound.
This is as it should be. There was something weird about people claiming the legal right to something they they knew did not exist.
This may result in a state being denied funds if they cannot quickly get their house in order. That is how markets are supposed to work.
The Darkest Star In The Commodities Boom [View article]
I had no idea that coal used water in such quantities. Thanks for the info.
It seems to me counter-intuitive that so much water is consumed by cooling steam after it has been used to generate power. Recovering this heat seems a much better option financially and environmentally, at least in theory.
It is comforting to know that the potential for significant improvements in this important industry are so vast. "Clean Coal" may be only a slogan, but "cleaner coal" is clearly possible.
The Darkest Star In The Commodities Boom [View article]
Clearly, many readers are, like me, surprised, by the volumes of water that is used in coal production and consumption. You are educating me Mark, and I appreciate that.
It seems to me counter-intuitive that so much water is consumed by cooling steam after it has been used to generate power. Recovering this heat seems a much better option financially and environmentally, at least in theory.
It is comforting to know that the potential for significant improvements in this important industry are so vast. "Clean Coal" may be only a slogan, but "cleaner coal" is clearly possible.
Will The Greek Default Bring A Market Crash? [View article]
I accept your point re notional value and purchase price.
I don't have a problem with CDS as a hedge for a particular bond or share. There is nothing particularly new or sinister about that.
What worries me is the CDS as a straight gamble. If everyone was allowed to insure your house against fire, I think that it would be reasonable to suppose that the risk of fire would increase. That is the basis for the prohibition except where there is an insurable interest.
We see numbers that indicate that the notional value of Greek CDS is around three times the value of Greek bonds. (Again we should question whether this is accurate. Perhaps no-one knows.)
CDS have been out there since 2008. Since that time there has been constant turmoil and crisis on financial markets. making naked CDS contracts unenforceable might help calm things down.
The Darkest Star In The Commodities Boom [View article]
Good artical Mark.
I go on about "fundamental value" = rental income putting a floor under the housing market. I argue that it must happen. In many ways a similar point.
Much of the criticism to your viewpoint comes from those who seek to extrapolate from the present, but yours is a strategic view.
I don't however buy the "Peak Coal" idea. Coal reserve calculations must include a cost element. "If coal is worth $x then reserves total y bt". Change the price change the quantity. Just like for oil.
The Darkest Star In The Commodities Boom [View article]
I have not researched the "new EPA regulations regarding heavy metal smokestack discharges that will require costly post-combustion technology," so you may well be right in your prediction.
But it is the normal business tradition to exaggerate the costs and difficulties of complying with laws that seek to resolve problems that business would rather not solve.
Like most technology, it is likely that the costs of smoke stack processing will fall over time. For large corporations with many smokestacks, starting early but spreading out the costs over time makes economic and political sense.
What Might Apple's iPhone 5 Look Like? [View article]
I was sitting at a meeting yesterday, and a woman pulled a key board, iPad and stand out of her handbag, and started taking the minutes.
This made me wonder what else she had in her handbag. It still looked full. The other contents of that bag potentially suffer the bumps and scraps that the iPad survived. Alas, my knowledge of such matters is too low to make my fortune.
The market for Godzilla glass may be very large indeed.
Housing Prices To Fall Even More? [View article]
There well may be a foreclosure tsunami; Without some legal intervention to straighten out the legal mess that seems inevitable. On-selling tranches of mortgages, to numerous investors while retaining management, as many Banks have done, means there is no-one for a distressed mortgagee to negotiation with. A negotiated solution is often better for both parties.
The effect of the tsunami will depends on rentals. If rentals are far below fundermental value then prices will fall like a stone. If they are above or at fundermental value then buyers will come forward. If buyers avoid negatively geared properties they should be ok.
Weighing The Week Ahead: Time To Worry About China? [View article]
On the face of it that should be a good long term investment.
Spain - The Next Domino Is Getting Ready To Tumble [View article]
But at the core is "we the people". We are the ones who bought houses at prices that were too bad to be true. Who always favoured the slightly cheaper short term, interest only mortgage over the slightly dearer (and much safer) long term P&I one. Those of us who are investors often spurned "buy and hold" in favor of speculation. Too many of us voted for politicians that looked good, and spoke in cliches, rather than those who looked like hell and sounded like they had a brain.
I think that blaming ourselves for the problem is not only fair but wise. We can fix what we have broken. We don't have to wait until a solution is adopted by the "powers that be".
This is good time to be smart and in control. Houses, mortgages,
and money products are cheaper than they have been for years. The employment market, and the economy in general, is recovering slowly.
When will things get back to normal? Hopefully never. But people are easily lead and more easily mislead. The only person you can change is yourself.
Spain - The Next Domino Is Getting Ready To Tumble [View article]
CDS are IMO very dangerous to the EZ and to others. They provide a cheap mechanism to ramp up the pressure on all players. Many market commentators seem to view this as as a game of chicken where the Europeans have no alternative but to blink.
I don't see it that way. One alternative is to play for time. CDS expire. Another alternative is to play around with the rules. I would argue that the Europeans have already done both.
A third alternative is to declare CDS to be insurance products and invoke a requirement for there to be an insurable interest. Most CDS would fail this test.
They could legislate against them. I would. There are many other options, some likely, most not.
You argue that the preservation of CDS is vital to the Sovereign debt market, and therefore to the EZ. I don't agree. I think CDS distort the Sovdebt markets and encourage speculators to take risks that they would not otherwise take. I expect it will end badly for them.
From Silicon Valley To Florida - 2 Extremes In A Recovering Housing Market [View article]
But rental prices provide a pricing floor too. A $12,000 property that rents at $700 per month is a good investment. IMO.
What would that "modest" $2,million dollar house rent for in Silicon Valley? I doubt that that property will prove to be successful as an investment.
Is Iceland Really Going To Peg Currency To Canadian Dollar? [View article]
I am always amazed by how fast sentiment changes. I know it will happen , I expect it, I am looking for it, and yet it still catches me by surprise!
A month ago the world seemed convinced that Greece would default and leave the Euro, re-adopt the drachma and devalue itself to Nirvana. (Starvation as cure.) Then there would be a string of collapses of peripheral states as the "fatally flawed" Eurozone disintegrated. The Government of Greece was seen as a helpless spectator, unable to help as the lives of millions were destroyed.
Commentators showed a grotesque enthusiasm for this litany of destruction.
Today we have this story, which directly contradicts that narrative. The Icelandic Government has directly confronted the problems, and implemented solutions, which have worked pretty well. Going it alone, however, is now seen to be risky, there is safety in numbers. The choice is between the Loonie and the Euro, (a fair reflection of Iceland's Geography).
Has there been some new discovery in economic theory? No. Then how do we explain the sudden change?
Perhaps by remembering that markets are mostly about greed and fear. Logic and consistency live elsewhere.
Spain - The Next Domino Is Getting Ready To Tumble [View article]
You point out that the risk spread CDS on Spanish Sovereign debt is trending higher, but how much of that, reflects the decreased security and increased risk that CDS can be seen to offer given the Greek haircut and the blatant reluctance to issue default ruling? How to we distinguish between risk in the indicator itself from risk in the subject that the indicator is testing?
Spain - The Next Domino Is Getting Ready To Tumble [View article]
You display a graph from the Wall Street Journal that shows the % change in house prices from the year previous. Plotting that graph and looking at the changes I get a house price fall of 31% from the peak of the high, as shown in the graph.
In my opinion a casual reader might get a totally different idea of the severity of the problem from looking at that graph. Some might think that house prices had fallen about 11% in total. That where the bottom figure is. This is important as the graph as shown has the capacity to mislead some.
Housing price graphs could be made better by showing the future value of rental income. This is the best objective measure of the value of a house as an investment. In this case the percentage increase/decrease in rental income should be shown.
Greece Kills The Rule Of Law [View article]
An investor, knowing that in an emergency a state may change the rules, will be reluctant to lend to any state that appears to the investor to be financially weak or unsound.
This is as it should be. There was something weird about people claiming the legal right to something they they knew did not exist.
This may result in a state being denied funds if they cannot quickly get their house in order. That is how markets are supposed to work.
The Darkest Star In The Commodities Boom [View article]
It seems to me counter-intuitive that so much water is consumed by cooling steam after it has been used to generate power. Recovering this heat seems a much better option financially and environmentally, at least in theory.
It is comforting to know that the potential for significant improvements in this important industry are so vast. "Clean Coal" may be only a slogan, but "cleaner coal" is clearly possible.
The Darkest Star In The Commodities Boom [View article]
It seems to me counter-intuitive that so much water is consumed by cooling steam after it has been used to generate power. Recovering this heat seems a much better option financially and environmentally, at least in theory.
It is comforting to know that the potential for significant improvements in this important industry are so vast. "Clean Coal" may be only a slogan, but "cleaner coal" is clearly possible.
Will The Greek Default Bring A Market Crash? [View article]
I don't have a problem with CDS as a hedge for a particular bond or share. There is nothing particularly new or sinister about that.
What worries me is the CDS as a straight gamble. If everyone was allowed to insure your house against fire, I think that it would be reasonable to suppose that the risk of fire would increase. That is the basis for the prohibition except where there is an insurable interest.
We see numbers that indicate that the notional value of Greek CDS is around three times the value of Greek bonds. (Again we should question whether this is accurate. Perhaps no-one knows.)
CDS have been out there since 2008. Since that time there has been constant turmoil and crisis on financial markets. making naked CDS contracts unenforceable might help calm things down.
The Darkest Star In The Commodities Boom [View article]
I go on about "fundamental value" = rental income putting a floor under the housing market. I argue that it must happen. In many ways a similar point.
Much of the criticism to your viewpoint comes from those who seek to extrapolate from the present, but yours is a strategic view.
I don't however buy the "Peak Coal" idea. Coal reserve calculations must include a cost element. "If coal is worth $x then reserves total y bt". Change the price change the quantity. Just like for oil.
The Darkest Star In The Commodities Boom [View article]
But it is the normal business tradition to exaggerate the costs and difficulties of complying with laws that seek to resolve problems that business would rather not solve.
Like most technology, it is likely that the costs of smoke stack processing will fall over time. For large corporations with many smokestacks, starting early but spreading out the costs over time makes economic and political sense.
What Might Apple's iPhone 5 Look Like? [View article]
This made me wonder what else she had in her handbag. It still looked full. The other contents of that bag potentially suffer the bumps and scraps that the iPad survived. Alas, my knowledge of such matters is too low to make my fortune.
The market for Godzilla glass may be very large indeed.