The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Friggin brilliant:

You need only two things to fix the housing crisis: Readily available consumer credit, and lower real estate prices.

The second part of that equation is being helped along by Foreclosures:

Southern California home sales rose 51 percent in December as a surge in foreclosures pushed prices of single-family houses and condominiums down from a year earlier, MDA DataQuick said.

A total of 19,926 new and existing houses and condos sold last month in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties, up from 13,240 a year earlier, the San Diego-based research company said today in a statement. The median home price in the region fell 35 percent to $278,000…

Foreclosures, which often sell at steep discounts, lured buyers as President-Elect Barack Obama worked on plans to revive the housing market using the second half of the $700 billion Troubled-Asset Relief Program. Lenders including Bank of America Corp., and financial institutions such as Goldman Sachs Group Inc. benefited from the government’s initial distribution of bailout money as their mortgage-related assets plunged in value.

Foreclosed homes accounted for 56 percent of Southern California’s December sales, more than double the amount a year earlier, MDA DataQuick said. Such transactions made up almost 70 percent of sales in Riverside County, where the median price plummeted 41 percent to $209,000. Sales jumped 77 percent to 4,435, MDA DataQuick said.

The median price for all of Southern California plunged as a smaller proportion of properties changed hands near the coast and more were sold inland in areas including Riverside and San Bernardino, where mortgage defaults have surged.

The bottom in Housing won’t be in until prices come closer to historical means. One of the factors driving pricing is the ongoing foreclosures.

I don’t have any problem with the government engaging in assistance to those people who 1) did not engage in reckless behavior; 2) can reasonably afford their homes with a modest modification.

It is unfortunate, but for most of the homes foreclosed upon, there aren’t many other options.

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Source:
Southern California Foreclosures Push Sales Higher
Daniel Taub
Bloomberg, Jan. 19 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9tuBSHCY5JM&

See also:
Banks Foreclose on Builders With Perfect Record
JOHN COLLINS RUDOLF
NYT, January 19, 2009

http://www.nytimes.com/2009/01/20/business/economy/20builders.html

Special Report: A Look Back at Bush’s Legacy
Analysis and Discussion with Ben Phillips of Casey Quirk & Associates

In-Depth Look: The Obama Administration’s Impact on Financial Markets
Analysis and Discussion with Daniel Clifton of Strategas Research Partners

Very cool little video vignette’s from the NYT and Floyd Norris

click for interactive video

The Troubled Asset Relief Program: Report on Transactions Through December 31, 2008

This is the first of CBO’s statutory reports on the TARP’s transactions. Through December 31, 2008, those trans-actions totaled $247 billion. Valuing those assets using procedures similar to those specified in the Federal Credit Reform Act (FCRA), but adjusting for market risk as specified in the EESA, CBO estimates that the subsidy cost of those transactions (broadly speaking, the differ ence between what the Treasury paid for the investments or lent to the firms and the market value of those transactions) amounts to $64 billion.

01-16-TARP

Warren Buffett was interviewed by Tom Brokaw on Dateline NBC

January 18, 2009

Hat tip distressed volatility

via NYT

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Source:
Cost of Borrowing Zooms Up for Corporations
JACK HEALY and VIKAS BAJAJ
NYT, January 18, 2009

http://www.nytimes.com/2009/01/19/business/economy/19debt.html

There are several different ways to calculate annual consumer inflation.

The two most common ways BLS officials do this is to compare a) December to December, calendar year data; b) annual average CPI for 2008 versus average for 2007.

Most years, the variations between these approaches is quite minor. However, given the volatility we have seen in inflation data — most especially food, energy and commodity prices — this year, the two approaches produce very different results:

A mathematical oddity in Friday’s consumer price index means you can claim with some statistical backing that inflation last year was either 0.1% or 3.8%.

Measured on a December to December – or calendar year – basis, the consumer price index only grew 0.1% in 2008, according to Labor Department figures, the smallest gain in over 50 years and well below the 4.1% gain in 2007. But when the annual average of the CPI for all of 2008 is compared to the average for 2007, the increase was much higher, 3.8%. That was actually up from 2007’s rate. . . .

When it comes to assessing near-term trends, economists prefer calendar-year changes, which is why Wall Street research notes universally mentioned the 0.1% figure, and not the 3.8% one. The two series should even out over time, and in 2009 the calendar-year increase will probably be much higher than the average annual increase given the low base that the CPI index is starting at this year

Labor Department analysts noted the large differences were quite unusual: The two series usually line up exactly; when they don’t, the differences are only a few tenths of a percentage point.

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Source:
Did Inflation Really Dry Up Last Year?
Brian Blackstone
Real Time Economics, January 16, 2009, 3:02 pm

http://blogs.wsj.com/economics/2009/01/16/did-inflation-really-dry-up-last-year/

Geithner and the NY Fed Code of Conduct by David Kotok
January 18, 2009

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).

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We will start with two quotes.

“It is indispensable to the proper functioning of, and the maintenance of public confidence in, the Federal Reserve Bank of New York (“Bank”) and the Federal Reserve System (“System”) that every employee perform his or her duties with honesty, integrity and impartiality, and without improper preferential treatment of any person. Each employee has a responsibility to the Bank and to the System to avoid conduct which places private gain above his or her duties to the Bank, which gives rise to an actual or apparent conflict of interest, or which might result in a question being raised regarding the independence of the employee’s judgment or the employee’s ability to perform the duties of his or her position satisfactorily. Each employee should conduct his or her financial affairs with integrity and honesty. To ensure the foregoing, each employee, including all Bank officers, shall respect and comply with the principles and standards of conduct contained in this Code. An employee who needs assistance in interpreting the provisions of the Code or who desires additional information should contact the Bank’s Ethics Officer.”

Source: Code of Conduct, Federal Reserve Bank of New York.

“There will be false starts and setbacks, frustrations and disappointments. I will make some mistakes, and we will be called to show patience even as we act with fierce urgency.”

President-elect Obama, in Philadelphia, before he commenced his historic rail trip to Washington.

We thank our readers for the many emails regarding the nomination of Tim Geithner for Treasury Secretary. His hearing is scheduled for January 21, one day after our newly elected President Obama officially takes office. Remember that this is the new US Senate at work, too. Many eyes around the world are watching to see how they handle this hearing, now that the facts around the Geithner tax scofflaw behavior have been disclosed.

Our email and conversations have revealed several things. The email critical of Geithner and suggesting that his name should be withdrawn is consistent and in high volume. He has no defenders. Only two emailers responded that this is not a “big deal” and “what difference does it make,” since all the politicians are like that.

Most emailers did not extend the error to Obama. They noted that Obama’s staff people and vetting process were at fault for letting the nomination proceed, but they were not ready to extend Geithner’s apparent judgment error to the new President. Obama enjoys the “honeymoon” status that most observers affirm.

One member of Congress I spoke with noted how appalling this Geithner revelation is and that “it is no wonder” the public holds “such a low opinion of politicians.” Several political staffers said the same. All of this was “off the record.” After all, no one in Washington wants to publicly alienate the future Treasury Secretary in case Geithner gets confirmed.

A former IMF employee noted how they were advised about these taxes repeatedly and in writing and that the IMF was very proactive in getting tax compliance from its staff. They saw Geithner’s excuse as lame and they found his claim of innocence “inconceivable.” The IMF has confirmed the story about the written documentation that they gave out.

Federal Reserve officials are silent on this matter, as they must be. And the board of the New York Fed is silent as well, even as they conduct a search for Geithner’s replacement. There are six names in play for the NY Fed presidency; they include prominent NY Fed senior officers. The Fed’s Washington-based Board of Governors has its input into this replacement choice and is also publicly silent.

The Geithner affair has become an embarrassment to the Federal Reserve. We can expect the vetting process for new Fed presidents and governors to become more intense as a result. In a way this is a good thing. Obama will be appointing several more Fed governors and has the option to replace Bernanke as chairman within a year. We will not see any more tax scofflaws holding Fed positions.

Several readers commented on the double standard that would prevail if Geithner is confirmed. They recalled the facts around the “pulled” judicial appointments of Kimba Wood and Zoe Baird for the judicial vacancies at that time. In the case of Wood, she paid her taxes legally and on time and she violated no law. She did employ a “nanny” who was an undocumented person (illegal alien status). Perception alone was enough to end her consideration for the nation’s highest court.

The Geithner affair is now in the hands of the US Senate. They have heard from the press (lots of critical editorials and letters to editors). They are aware of the facts. And they know that the world is seeking a new and trustworthy level of integrity and transparency in the post-Lehman, post-Madoff environment. Senators know that the qualities of good character and sound judgment are needed by the Treasury Secretary. Senators also know from the behaviors within their own ranks that the tests of character and judgment are most profound when they are determined by behavior that occurs when no one is watching.

The only open item is whether the Senate has heard from you. Email is nice and easy but a phone call with a message to a Senator’s office carries a lot more weight. Politicians know that emails are easily sent. They have greater respect for constituents who pick up the phone. The US Capitol switchboard number is (202) 224-3121. If you do not know the name of your Senator, ask the operators; they will help you. The same is true for your Congressman. They can connect you to an office so that you may leave a message.

We close by remembering an interpretation of an ancient text.

God was talking with Adam in the Garden of Eden. He was describing all the trees that would be in the world since they were all there for Adam to see in that special garden. The trees were the metaphor for all the decisions that men and women would be making in the future. Adam asked God what he was going to do with the trees. God replied, “I am going to give them to you. What you do with them will be your decision.”

On January 21 a piece of a tree will gavel a Senate hearing to order. Tim Geithner’s confirmation or rejection will be determined. And then newly inaugurated President Obama will see if his Philadelphia quote was prescient.

Readers who wish may find the full 15 page Code of Conduct of the NY Fed on the New York Fed website by searching under the words “code of conduct.”

David R. Kotok, Chairman and Chief Investment Officer, email: david.kotok -at- cumber.com

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Copyright 2008, Cumberland Advisors. All rights reserved.

The preceding was provided by Cumberland Advisors, 614 Landis Ave, Vineland, NJ 08360 856-692-6690. This report has been derived from information considered reliable but it cannot be guaranteed as to its accuracy or completeness.

For a list of all equity sales/purchases for the past year, please contact Therese Pantalione at 856-692-6690, ext. 315. This report is currently about 600 pages in length. It is not our intention to state or imply in any manner that past results and profitability is an indication of future performance. This does not constitute an offer to sell or the solicitation or recommendation of an offer to buy or sell any securities directly or indirectly herein.

Cumberland Advisors supervises approximately $1 billion in separate account assets for individuals, institutions, retirement plans, government entities, and cash management portfolios. Cumberland manages portfolios for clients in 42 states, the District of Columbia, and in countries outside the U.S. Cumberland Advisors is an SEC registered investment adviser. For further information about Cumberland Advisors, please visit our website at www.cumber.com.

The WSJ has a nice interactive map showing the details of the Israeli/Hamas battle:

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click for interactive graphic:

via WSJ