Saturday, December 20, 2014

The Housing Bubble Explained in One Little Gem of an Excerpt...The Housing Bubble Explained in One Little Gem of an Excerpt...

Published on Zero Hedge (

Home > The Housing Bubble Explained in One Little Gem of an Excerpt...


By Tyler Durden

Created 12/19/2014 - 18:55


Submitted by Thad Beversdorf via First Rebuttal blog [9],

For some reason I feel like this is a good time to review what we can expect when our government and its agencies attempt to create wealth out of thin air.  We can see the absurdity and hubris of our policymakers who believe they can circumvent economic laws in the following excerpt from the “The National Homeownership Strategy: Partners in the American Dream” [10].  This is a document that was put together by HUD and some other private and public stakeholders at the request of President Clinton way back in 1995.  Isn’t it amazing how poor policies that seem so right at the time, to some, end up kicking us in the ass for decades.  And as much as the government has gotten comfortable with the storyline suggesting banks are responsible for the entire mortgage bubble mess of the mid 2000′s, it was, in fact, all started by government agenda.  Have a look at this little gem which I am suggesting is the document that led us to the economic devastation from which we are yet to crawl out. 

For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.

And while we all love a bit of creativity in life, maybe best to avoid creativity in an effort to ignore risk fundamentals.  Yet our government was certain it could defy gravity. A child could tell you that if a person doesn’t have sufficient money to pay back a loan, well they shouldn’t have a loan in the firsplace.  And so to force banks to lend depositors’ money to borrowers who have neither the required down payment nor the cash-flow to cover monthly payments is simply absolute unadulterated stupidity.  Most of us, if we had been made aware of that thought process, would have put a stop to it straight away.

So what lesson did we learn the hard way? Looking around today, absolutely nothing.  Our government officials and policymakers continue to operate under the presumption they are gods, not subject to the laws of this world.  Despite creating such immense devastation last time around they have actually convinced themselves that they are not responsible (evidenced by the $350 billion they have pillaged from the banks in the name of justice for having created the housing bubble).  And so by not acknowledging their mistake it allows them to still believe they can make pigs fly.  Specifically, the central bank is printing incredible stocks of money and pushing it directly into the stock market in an effort to create economic growth from nothing.  Their storyline is that such a strategy will create so much wealth at the top that it will spill over onto the rest of society.  They also believe there will be no consequence to printing an unprecedented supply of dollars despite the laws of economics very clearly telling us there most certainly will be consequences.

Now while they have managed to delay the inevitable devastation, it is coming. You see everything is a trade off.  You can create long drawn out overpriced markets but ultimately fundamentals will trump all and the subsequent recalibration will be that much more painful.  The fundamentals always come back into the equation.  Like anything, if you want to reduce the iterations you can but each iteration will then be larger.  Let me show you what I mean by reviewing historical market trends.

The following charts depict monthly returns (green line) and S&P price level (blue line) with a 24 month moving average (black line).  Note each chart depicts a different time period.  The first chart is 1950 to 1981, the second is 1981 to 1993 and the last chart is 1993 to present.  I’ve separated them in this way because there are 3 very distinct characteristics that are present between the three periods.  Look closely at the 24 month moving average and compare them across the three periods.

Screen Shot 2014-12-17 at 12.35.11 PM

Screen Shot 2014-12-17 at 12.34.33 PM [11]

Screen Shot 2014-12-17 at 12.56.06 PM

What we discover from the first chart is that between 1950 and 1980 we see very even cyclicality in the 2 year moving average of quite moderate positive peaks and negative troughs repeating every 2 or 3 years.  However, subsequent to 1981 we see something quite different.  Our 2 year moving average no longer has negative troughs.  In fact, the 2 year moving average stays positive and very calm from the end of ’81 through to mid ’93.  The third chart takes us into the extreme bubbles phase.  Here we see a strong positive trend with more variation than in the previous phase but with intermittent significant drawdowns.  This is different from the first phase where drawdowns were very regular but minimal in size and not catastrophic.  Whereas in this latest phase we have much longer periods in between drawdowns but each drawdown is many times more severe than in the first phase.

So this all begs the question why?  What caused the normal market cyclical iterations to change so significantly seemingly out of nowhere?  Well think about Fed policy between the three phases.  In the early phase our monetary policy was constrained by Bretton/Woods.  The second phase coincides with Volker taking over as Fed Chair and implementing very tight monetary policy with a focus shift to inflation control and so limiting money supply expansion.  The final phase corresponds with a very sharp increase in M2 expansion that continues today.

And so these variations in market trends seem to correlate to the underlying monetary policies.  Certainly there are significant changes within the sophistication of the market itself however, human behaviour is the same over time and markets react to market forces the same way over time.  And so what is different then are the underlying market forces.  And we see three very distinct market trends indicating there are three very different underlying market forces between the three periods.  Understanding these differences should make it easy to identify and acknowledge how monetary policy is affecting markets.

There is perhaps no natural best trend but the people should decide which market behaviour suits what we want out of a market and then apply the appropriate policies accordingly.  If large bubble build ups followed by infrequent but devastating crashes is the objective well then it appears our policymakers are right on point.  But let’s try to understand exactly what is taking place.

Screen Shot 2014-12-17 at 1.15.12 PM [12]

You can see the acceleration of M2 expansion in the mid 1990′s that has yet to slow down.  But money supply is not the only major underlying economic shift.  Thing is if we are allocating that money supply efficiently then economic growth would be extraordinary and that would support the notion of all time high markets.  So let’s see how efficiently we are deploying our money.

Screen Shot 2014-12-17 at 1.49.48 PM

We can see back in the ’60′s and ’70′s efficiency of money allocation was fairly steady around 1.75. Then into the Volker years money velocity improved slightly in the first half of the decade and then really took off toward the end of the ’80′s and into the first half of the ’90′s.  However, monetary efficiency seems to have peaked around the time M2 money stock started into it’s hyper-acceleration phase in the mid 1990′s.  Since then monetary efficiency has been a falling knife, yet to hit the ground. And if we look at the next chart it really ties this altogether for us.

fixed-cap-to-div [13]

Right up until the early to mid 1990′s we were allocating money to economic boosting investments.  Things like fixed capital reinvestment.  However, toward the mid ’90′s we began to reallocate money toward financial markets and away from economic investments.  This trend too continues today. The end result is that our economic policymakers and really the consciousness of society is so narrowly focused on “The Market” that we seem uninterested in all things not securitized.  And what this suggests is that once again our policymakers believe they can ignore economic laws.  That they can somehow create economic growth from nothing.

Last time it was handing out houses to folks who had not earned those assets in hopes that would somehow become real.  This time its printing endless amounts of dollars, sticking them in the stock market money machine and expecting that to somehow create economic prosperity to  all. It is mind boggling that men with so much power can be so incredibly thick.  The hubris is par for the course with such power, but one would not expect such stupidity.  The real ugliness of it all is that while those on top will ultimately create more wealth from the coming devastation, the vast majority of Americans have been forced to play along.  Forced to put their savings in the money machine that is now the only game in town.

And so when it does inevitably all come tumbling down only 6 years after the last policies failure, it will mean the end for so many.  And because those stories would reflect poorly on the prominent men whose stupidity led to such destruction those stories will not be told with truth.  They will be told as though retirees were taking outrageous risks late in life when everybody knows you should not be in the market.  Just as it was the banks, the borrowers and the brokers who were solely responsible for the housing bubble that devastated so many, including the folks you never hear about who lost 30% equity in their homes but continued to quietly and responsibly pay their mortgages.  Yes once again those responsible will profit from their misguided policies and will bear no accountability for the horrible consequences of their decisions.  Ah yes, America…. ain’t she wonderful!

Gun Violence In America (In 6 Uncomfortable Charts) (Zerohedge)


Tyler Durden's picture

Submitted by Tyler Durden on 12/19/2014 22:25 -0500


A recent report, The Annual Review of Public Health, summarizes the basic facts of firearm violence, a large and costly public health problem in the United States for which the mortality rate has remained unchanged for more than a decade. It presents findings for the present in light of recent trends. Risk for firearm violence varies substantially across demographic subsets of the population and between states in patterns that are quite different for suicide and homicide. Suicide is far more common than homicide and its rate is increasing; the homicide rate is decreasing. As with other important health problems, most cases of fatal firearm violence arise from large but low-risk subsets of the population; risk and burden of illness are not distributed symmetrically. Compared with other industrialized nations, the United States has uniquely high mortality rates from firearm violence.


1. The overall fatality rate from firearm violence has not changed in more than a decade.

2. Suicide is the most common form of fatal firearm violence (64.0% of deaths in 2012) and is increasing. Homicide is decreasing.

3. Homicide risk is concentrated to a remarkable degree among Black males through much of the life span. Mortality rates from firearm violence are very high and unchanged in this group.

4. Suicide risk is highest among White males beginning in adolescence. They also account for most fatalities from firearm violence and have increasing mortality rates.

5. As compared with other industrialized nations, the United States has low rates of assaultive violence...

...but uniquely high mortality rates from firearm homicide and suicide.

Full report can be found here (PDF)

Saturday, December 6, 2014

19 Signs That You Live In A Country That Has Gone Completely Insane (ZeroHedge)

Submitted by

Michael Snyder of The End of The American Dream blog

Do you ever feel like you are living in a “Bizarro World”? That is how I feel much of the time.  I look around and it seems as though some form of mass psychosis has descended on most of the population.  Things that would have had Americans angrily marching in the streets a generation or two ago are now just accepted as “normal” by the “sheeple” that populate this nation.  If the talking heads that endlessly spew nonsense at us through our televisions tell us to believe something, no matter how absurd it is, most people just go along with it.  Before we had televisions and radios and computers and movies and the Internet, people actually had to do the hard work of thinking for themselves. But now we are all plugged into this giant “matrix” that tells us what to think, what to believe and how to feel about things.  And unfortunately, the people that are telling us what to think and believe are delusional themselves.  The blind are leading the blind, and as a result our nation is coming apart at the seams all around us.

The following are 19 signs that you live in a country that has gone completely insane…

#1 When those occupying the highest offices in the land tell you that an $18,000,000,000,000 debt is “under control“, you live in a country that has gone completely insane.

#2 When your president starts acting like an emperor and begins ruling by decree and your elected representatives won’t lift a finger to do anything to stop it, you live in a country that has gone completely insane.

#3 When the greatest dream in life for millions of your fellow citizens is to win the Powerball jackpot, you live in a country that has gone completely insane.

#4 When dressing up sex dolls in fashionable clothing and photographing them is considered to be art, you live in a country that has gone completely insane.

#5 When only 36 percent of the population can name all three branches of government, you live in a country that has gone completely insane.

#6 When a boy can sue his high school for not letting him use the girls’ restrooms and win $75,000 in “damages”, you live in a country that has gone completely insane.

#7 When people that want to have sex with their own family members start demanding “equal rights”, you live in a country that has gone completely insane…

Sex With Son - Photo from izismile

#8 When pregnancy is considered to be a “disease” and babies are considered to be “liabilities”, you live in a country that has gone completely insane.

#9 When the federal government collects billions of our phone calls and emails and hardly anyone gets upset about it, you live in a country that has gone completely insane.

#10 When 30 million of your fellow citizens are taking antidepressants, you live in a country that has gone completely insane.

#11 When an endless stream of gang members, drug dealers, sexual predators, welfare parasites and Middle Eastern terrorists can enter the country illegally and nothing is done, but anyone who criticizes this is in danger of being put on an “enemies list“, you live in a country that has gone completely insane.

#12 When you can get arrested for “encouraging terrorism on Twitter“, but not for publicly burning the American flag in the middle of the street, you live in a country that has gone completely insane.

#13 When your military airdrops huge loads of weapons into the hands of the very terrorists that they are supposed to be fighting, you live in a country that has gone completely insane.

#14 When there are 2.5 million homeless children living in your nation and nobody is calling it a “national emergency”, you live in a country that has gone completely insane.

#15 When a fifth-grade student can get suspended from school for making an imaginary gun with his fingers, you live in a country that has gone completely insane.

#16 When Congress has to pass a law to keep federal workers from watching porn all day long, you live in a country that has gone completely insane.

#17 When the number of payday lenders is greater than the number of Starbucks locations, you live in a country that has gone completely insane.

#18 When an illegal immigrant can get a drivers’ license, but the head of a fire department of a major U.S. city is suspended from his job without pay for promoting sexual morality, you live in a country that has gone completely insane.

#19 When the general public knows far more about Kim Kardashian than it does about the Federal Reserve, you live in a country that has gone completely insane.