All in a day's work

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Anonymous said...

One of the possible reasons why global stock markets suddenly collapsed past couple of weeks - personal view posted by 自由战士, dated 1st Feb'08.

日元升值才是本次全球股市暴跌根本原因

美联储降息，会使得到美国去的资金越来越少，到日本和中国来的却越来越多。由此导致美国的金融机构流动性枯竭，美元继续大幅度贬值，股市则没完没了的暴跌！这与美联储的降息初衷完全相反1月18日，布什宣布准备实施一揽子紧急刺激经济方案，结果市场用黑色星期一加黑色星期二给予回答。全球股市两天跌去市值15000亿美元。星期二美国股市开盘之前，美联储决定紧急降息，幅度为75个基点，再次表现出“被市场牵着鼻子走”的本质。

虽然，美联储大幅度降息会刺激美国经济避免“恐慌型”衰退，但对美国经济最有用的一定不是大幅度降息。

日元升值才是病根

国际市场在犯什么病？流动性紧缺，或者说是因为大银行不敢对同业拆借所引发的市场资金紧缺？大银行为什么捂紧腰包？一是因为情况不明，怕被卷进次贷危机的无底洞；二是因为担心因市场挤提所导致的资金紧张。

我们可以看到，在全球股市大跌时，日元却大涨。在美联储降息前半个月的时间内，日元兑美元涨幅达5.15％。日元兑欧元的升值幅度更是高达9.3％。这说明，2007年2月的情形又来了——借日元买全球股票的投资者大规模平仓了。

由此我想提醒市场注意一个一直被掩盖的事实：全世界为什么有那么多的金融机构出现巨额亏损？大家都说是美国次级债危机搞的鬼。我说未必。大家只要看一看去年6月前各大机构的汇市预测就知道，几乎百分之百的机构都在说美元兑日元要达到13.5～148，结果美元兑日元从124就开始大幅度下跌。套息交易开始大规模平仓。由于各家金融机构运用高杠杆做空日元，现在不得不用日元还账，因此导致股市大跌，日元大涨。

因此，2007～2008年美国的房市和股市危机与日元的套息交易有千丝万缕的联系，是互为因果的。

对付这类危机，大幅度降息是没有用的，甚至会出现相反的效应。为什么？因为美国若继续降息，日本却没有了降息空间，甚至由于流动性及老年社会的效应不得不大幅度升息。因此，全球资金流会出现逆转：到美国去的资金越来越少，到日本和中国来的却越来越多。由此导致美国的金融机构流动性枯竭，美元继续大幅度贬值，股市则没完没了的暴跌！这与美联储的降息初衷完全相反。

强势美元必然回归

我长期以来一直坚持一个观点：现在世界大多数国家的货币政策都是反方向操作，比如明明知道，美国现在的危机是金融系统流动性紧缺的危机，却仍然大幅度降息，打压美元。这个方法能行吗？我抱极大怀疑。

一个重要的信号是：在美国经济预期越来越坏时，美元却开始反弹了。由于美元反弹，去年11 月、12月出现了国外资金向美国大幅度回归。这种回归已经向美联储发出正面信号：强势美元可以带动流动性回归信贷市场，从而帮助银行渡过信贷危机的难关。

虽然布什仍对美元贬值不以为然，甚至津津乐道于“相信市场是决定汇率的最佳场所”，但他最后会明白：任何时候经济的基本面都不能决定货币的市场价值——我们所说的基本面研究不是指经济本身的基本面研究。相反，货币的强弱却在一定程度上可以影响经济的基本面。

2008年是美国的选举年、政治年，至于会不会形成美元的反弹年，关键在于美联储能不能看到美元升值对美国经济摆脱困境的作用。对美联储来说，错误没犯够，不会回头，不到招数用完，它不会想到重新给美元定价，更不会想到，美元的大幅度走强可能是帮助美国经济反转的最有利武器。

有一点我们必须清楚：美联储和美国总统是可以让美元走强的。美国政府对美元的供需几乎拥有绝对的控制权。他们一旦明白就会行动，而且会像现在一样坚决。这也是我坚信美元会在2008年下半年出现“远反转”的原因之一。

February 2, 2008 at 1:40 PM  

Anonymous said...

Housing Meltdown

Why home prices could drop 25% more on average before the market finally hits bottom

By Peter Coy
BusinessWeek
1 February 2008

As Washington policymakers struggle to keep the U.S. out of recession, the swirling confusion over the housing market is making their job a lot tougher. Will American consumers keep shopping or be forced to pull back? Will banks lend freely or be hamstrung by mortgage defaults? What are the best policy options right now? Those and other important questions simply can't be answered without a good idea of whether home prices will rise, flatten out, or keep dropping.

Some experts have begun to suggest that a bottom is in sight. Pali Research analyst Stephen East wrote in a research note to his firm's clients on Jan. 25 that "the sun is not shining very brightly, but at least the worst of the storm has likely passed." With optimism budding, Standard & Poor's beaten-down index of homebuilder stocks soared 49% from Jan. 15 through Jan. 29.

But it's considerably more likely that the storm is still gathering force. On Jan. 30 the government said annual economic growth slowed to just 0.6% in the fourth quarter as home construction plunged at a 24% annual rate. The Standard & Poor's/Case-Shiller 20-city home price index fell 7.7% in November from the year before, the biggest decline since the index was created in 2000.

And that could be just the start. Brace yourself: Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30.

While a 25% decline is unprecedented in modern times, some economists are beginning to talk about it. "We now see potential for another 25% to 30% downside over the next two years," says David A. Rosenberg, North American economist for Merrill Lynch (MER), who until recently had expected a much smaller slide.

Shocking though it might seem, a decline of 25% from here would merely reverse the market's spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation. There's a recent model for this kind of return to normalcy after the bursting of a financial bubble. The stock market decline that began in 2000 erased most of the gains of the boom of the second half of the 1990s, leaving investors with ordinary-sized returns.

Why might housing prices plunge violently from here? Remember the two powerful forces that pushed them up: lax lending standards and the conviction that housing is a fail-safe investment. Now both are working in reverse, depressing demand for housing faster than homebuilders can rein in supply. By reinstituting safeguards such as down payments and proof of income, lenders have disqualified thousands of potential buyers. And many people who do qualify have lost the desire to buy. "A down market is getting baked into expectations," says Chris Flanagan, head of research in JPMorgan Chase's (JPM) asset-backed securities group. "People say: I'm not buying until prices are lower.'" He predicts prices will fall about 25%, bottoming in 2010.

Nobody can be sure how far prices will decline. Still, if prices drop that much, it could mean big trouble for the U.S. economy, which is already on the brink of recession. It would blow a hole in the balance sheets of banks and households, slicing more than $5 trillion off household wealth. That's roughly the size of the drop in stock market wealth from the peak in early 2000, a big reason for the recession of 2001. Yale economist Robert J. Shiller, a longtime housing bear, points out that a housing decline that started in 1925 and ran until 1932 weakened banks and contributed to the Great Depression, which started in the U.S. in 1929.

MACARONI AND CHEESE

It has become a cliché, but an accurate one, that Americans used their homes as ATMs during the boom years. They lined up for cash-out refis or home-equity loans to turn housing wealth into spending money.

So far, the amount of equity being withdrawn has remained surprisingly strong—$700 billion at an annual rate in the third quarter. But it's bound to dwindle if prices keep falling, giving the economy a further downward push. According to an analysis conducted for BusinessWeek by Zillow.com, the real estate Web site, a further 20% decline in prices nationwide would mean that two-thirds of people who bought in the past year would owe more than their homes would be worth, meaning they couldn't take out cash if they wanted to.

Alesandra Sanchez, who works for the city of Las Vegas, and her husband, Craig Mireles, a project manager for an architect, are living that problem. Their house in Summerlin, Nev., has quickly gone from a money geyser to a drain. The couple raised about $70,000 in cash in 2005 by refinancing less than a year after they bought their home. They put the money toward student loans, medicine for Sanchez's rheumatoid arthritis, and other things. Now the cash is gone and the interest rate has ratcheted up to 11%. Alesandra says the new payment of $4,200 a month "is doablebut it's like eating macaroni and cheese: It doesn't leave room for anything else." No wonder that retail sales fell 0.4% in December, and economists are projecting a sharp slowdown in overall consumer spending this year.

The second shock to the economy from the housing bust will come from the financial sector, which has been weakened by losses on mortgages as well as mortgage-backed securities and more exotic derivatives. Banks borrow so much money to fund their investments that if a loss on some holding reduces their capital by $10, they have to reduce their lending by $100 to avoid exceeding their self-chosen leverage targets, calculates Goldman Sachs (GS) chief U.S. economist Jan Hatzius. He estimates that banks and other financial institutions will suffer about $200 billion in real estate losses and respond by cutting their lending by $2 trillion, or about 5% of total lending. The cutback could be even more extreme if they react to the turmoil by lowering their leverage ratios, he says, rather than keeping them intact. Banks have already begun tightening lending standards. In the third quarter, mortgages were harder to get than at any time in the 17-year history of the Federal Reserve's survey of senior loan officers.

Prices won't fall uniformly, of course. Once-booming cities such as Las Vegas and Miami and weak economies like Detroit are likely to fare worse than Seattle or Charlotte, N.C. The price decline will be smaller if it's stretched out over longer than, say, two years, because inflation will have more time to do some of the job of eroding the real value of homes. Still, if the national average decline is anywhere near 25%, the entire U.S. economy is in for trouble. Keep in mind, says Merrill's Rosenberg, that the relatively puny price decline to date has already pushed home-loan delinquencies to their highest level in 20 years. The plunge in residential construction reduced the economy's annual growth rate by a full percentage point in the third quarter of 2007. A bigger decrease would wipe out even more jobs—carpenters, real estate agents, mortgage brokers, furniture salespeople.

For American consumers, meanwhile, huge losses would almost certainly undermine the long-held premise that homeownership is the most reliable way to build wealth and a middle-class life. "I know you're not supposed to say I told you so,' but I'm at the age where I can do it: Homeownership was oversold," says 67-year-old House Finance Committee Chairman Barney Frank (D-Mass.).

One look at the long-term home price chart tells you all you need to know: Starting in 2000, prices crossed above their trend line and just kept going up. The spike had never happened in modern U.S. history, according to data dating back to 1890 that Shiller painstakingly compiled for the second edition of his book, Irrational Exuberance, in 2005. Back then he predicted a sharp drop in house prices.

Now he says lawyers won't let him publicly forecast home prices because he's involved in preparing the market-sensitive Standard & Poor's/Case-Shiller home price indexes. All he'll say is: "This is a historic turning point."

Optimists point out that the Fed, Congress, and the White House are all committed to keeping housing aloft so it doesn't kill the economy. The Fed reduced the federal funds rate by three quarters of a percentage point on Jan. 22 and followed with a half-point cut on Jan. 30—an extremely rapid move for a major central bank. Homebuilders also are doing their bit to support prices: They've cut production so drastically that even though home sales fell more than expected in December, the backlog of unsold new homes shrank slightly. Douglas Duncan, chief economist of the Mortgage Bankers Assn., predicts existing home prices will slip less than 2% this year before beginning to rebound in 2009.

Pessimists aren't impressed. One of the first high-profile bears on housing, Ian Shepherdson of consulting firm High Frequency Economics, is looking for a 20% decline in prices from their peak but says 40% wouldn't shock him. "We've never been here before, so there's no road map," he says.

There's even uncertainty about where prices are right now, since many would-be sellers are refusing to cut them enough to make a sale. A Harris Interactive (HPOL) survey for Zillow.com in December found that 36% of homeowners thought their homes had increased in value over the past year, vs. 23% who thought they had decreased. That willful optimism translates directly into the record overhang of unsold existing homes: more than 4 million.

For a truer picture of the market, look at sales by banks and builders, which don't have the luxury to wait things out because they have to worry about cash flow. Deutsche Bank (DB), among other banks, has been slashing prices on repossessed homes to get rid of them. In a recent transaction mentioned on BusinessWeek's Hot Property blog, Deutsche Bank sold a house in Woodbridge, Va., in December for $150,000, less than half its last sale price of $315,000 in the spring of 2005. In November, Lennar (LEN), the big builder, sold 11,000 home sites to a joint venture it formed with Morgan Stanley Real Estate for $525 million, 60% below what they were valued on Lennar's books. That's capitulation, and it's likely to occur more often as sellers get the idea that waiting won't solve their problems.

MORTGAGE HURDLES

Plenty of other evidence supports the notion that home prices have further to fall. There's a crisis of confidence in the securitization of mortgages, which pumped up housing demand by giving buyers access to nationwide and even global pools of capital. The loose links in the securitization chain allowed risky loans to be made at low rates. Trust in that system is broken and will not be mended quickly.

Almost the only mortgages being securitized successfully are the ones bought by Fannie Mae (FNM) and Freddie Mac (FRE), the private companies with implicit government backing. They accounted for about 87% of mortgage securitizations in December, vs. fewer than half in 2005 and 2006, according to the publication Inside MBS & ABS and the investment bank UBS (UBS). Subprime lending is nearly shut down, home-equity loans and lines of credit are scarce, and jumbo mortgages (too big for Fannie and Freddie to purchase) command premium rates. A survey of real estate agents found that a third of planned home sales were canceled or delayed last fall because of loan problems.

Even Fannie and Freddie, which style themselves as the last resort of the home buyer, have tightened standards and raised fees. And they remain reluctant to raise funds to buy mortgages if it means lowering returns to shareholders.

Fannie Mae Chief Executive Daniel H. Mudd joked to Wall Street analysts in December that the process of cutting the dividend and selling preferred shares to raise money pained him so much that "I wanted to cut off both my arms and both my legs, and my head, and my kidney."

Cheaper mortgages won't necessarily ride to the rescue, either. Thirty-year conventional fixed-rate mortgages failed to fall after the Fed's two January rate cuts, averaging 5.5% on Jan. 30. Financing remains cut off for subprime borrowers (BusinessWeek, 12/11/07) and for owners whose home equity has dipped too low to qualify for a new loan. Fed rate cuts will ease, but not eliminate, the pain from resets on adjustable-rate loans.

For another bearish view, there's what economists refer to as the Mankiw paper. In 1989, long before working in the White House as chief economic adviser or writing his best-selling textbook, Principles of Economics, Harvard University economist N. Gregory Mankiw co-wrote a paper that was startlingly negative on housing. He and David N. Weil predicted that home prices would decline by 47% after inflation over the next 20 years, based on a shrinking pool of potential first-time buyers and an expectation that baby boomers as a group would spend less on housing as they grew older.

It could be that Mankiw and Weil were not so much wrong as premature. Although boomers have thwarted expectations by adding on rooms and second homes as they age, they won't thwart nature. "At some point, death or illness will cause baby boomers' houses to come onto the market," observed John Krainer, a senior economist at the Federal Reserve Bank of San Francisco, in an in-house publication in 2005. When the huge boomer generation shuffles off, the nation's housing needs will wane. That will create an oversupply unless builders see it coming and reduce construction. Judging from the recent overbuilding binge, though, their forecasting abilities leave a lot to be desired.

NECESSARY EVIL

Observers with a Calvinist streak see a housing crash as not only necessary but also positive. It will force Americans to live within their means, which will enable the U.S. to work off some of its towering debt, says Peter D. Schiff, president of Darien (Conn.) brokerage Euro Pacific Capital, who was early in predicting the crash. In 2005 the share of gross domestic product devoted to residential construction reached the highest since 1950, when the U.S. was racing to house the baby boom generation and make up for the lack of construction during the Depression and World War II. Now, says Schiff, "if there's any construction, it's going to be factories, oil exploration, mines." He takes almost unseemly delight in predicting tougher times ahead: "Americans are going to have their credit cards taken away from them by the lenders. We're going to turn the American economy into a cash economy."

Foreclosure counselors such as Mildred Wilkins foresee similar changes, except in looking back they put more of the blame for the fiasco on builders and lenders and less on borrowers. "We have been fed the illusion that acquiring a home was a magic key to stability, to wealth-building," says Wilkins, who travels the country advising lawyers and others on how to handle foreclosures. Even though she is president and founder of an Indianapolis company called Home Ownership Matters, which promotes responsible ownership, Wilkins says she never believed the "poppycock" that homeownership was a sure path to wealth, calling it a myth foisted on lower-income Americans by politicians serving the builders and bankers.

The sense of betrayal is probably most intense among the working-class families who were supposed to be the greatest beneficiaries of easy access to low-down-payment mortgages. The less-pricey outskirts of expensive cities such as Los Angeles and San Francisco are precisely the areas where the biggest share of recent buyers are underwater on their mortgages. Cindy and Larry Chaffold, who live in the desert east of Los Angeles in Apple Valley, bought a house for $216,000 in 2005 that's now appraised at $190,000. Cindy was ready to hand the keys to the bank until she got her loan modified.

Says Chaffold: "I have been screwed, chewed up, and spit out."

HARKING BACK TO FDR

If home prices really fall an additional 25%, Washington's rescue program is likely to seem seriously inadequate. So far the Bush Administration is pushing two main ideas: FHASecure, which offers new mortgages to certain well-qualified borrowers, and Hope Now, a private-sector program to streamline the modification of unaffordable loans. But FHASecure isn't open to people who are underwater on their mortgages—in other words, those who most need help. And the Hope Now alliance doesn't seem to be coping successfully with the mounting backlog of loan delinquencies. The other big Washington initiative, to crack down on loose lending practices, could be ineffective and even counterproductive, because it's making loan funding less available right when it's needed most.

The next big reform ideas may hark back to President Franklin D. Roosevelt. Many of the housing market's props today—including Fannie Mae and the Federal Housing Administration—were launched during the 1930s. If things get bad enough, say some analysts, it could raise interest in renewing another innovation of the Depression years, the Home Owners' Loan Corp., which lent money directly to hard-pressed borrowers to prevent foreclosure. If enough banks get into trouble, Congress might even create something roughly parallel to the 1980s-era Resolution Trust Corp., which cleared up the savings and loan crisis by shutting down weak thrifts, thus wiping out the investments of the owners, and then selling off their assets to the highest bidders.

And with homeownership no longer seeming like such a sure thing, national housing policy could become more evenhanded toward renters. Congress is weighing the creation of a National Affordable Housing Trust Fund that would build, rehabilitate, and preserve 1.5 million units of housing for the lowest-income families over the next 10 years. The national homeownership rate has already fallen about one percentage point from its peak, to 68.2% in last year's third quarter.

However things unfold, the changes are likely to be wrenching. The bigger the boom, the harder the fall.

Coy is BusinessWeek's Economics editor.

February 2, 2008 at 8:45 PM  

Anonymous said...

Pareto Distribution: "Markets move in a way that will cause most people pain."

The Pareto distribution, named after the Italian economist Vilfredo Pareto, is a power law probability distribution that coincides with social, scientific, geophysical, actuarial, and many other types of observable phenomena. Outside the field of economics it is at times referred to as the Bradford distribution.

Pareto originally used this distribution to describe the allocation of wealth among individuals since it seemed to show rather well the way that a larger portion of the wealth of any society is owned by a smaller percentage of the people in that society. This idea is sometimes expressed more simply as the Pareto principle or the "80-20 rule" which says that 20% of the population owns 80% of the wealth.

February 3, 2008 at 1:16 PM  

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