Mar 16, 2012 17:35 UTC

Dollars everywhere – so where’s the inflation?

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By Martin Hutchinson and Christopher Swann
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Money supply is rising fast, so where is the inflation? U.S. consumer prices rose 0.4 percent in February, but that was mostly gasoline. Year-on-year, inflation is above the Fed’s 2 percent target but not by much. Yet money supply is going through the roof. Either inflation is on the way, or Milton Friedman should lose his Nobel prize.

Friedman argued that “inflation is always and everywhere a monetary phenomenon.” He proposed that central banks should increase money supply at a constant annual rate, ignoring economic cycles, so as to minimize self-reinforcing bouts of inflation and deflation.

COMMENT

Confusious say, “He who flirts with inflation will soon end up marrying her”. It’s on the way folks. Like a tsunami, first the water draws back revealing the sand sea bed, then the 50 foot high wave rushes in at the speed of a train. And then the wreckage. Fasten your seat belts.

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Mar 15, 2012 21:04 UTC

U.S. market rumblings point to revved up growth

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By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.Rising oil prices and interest rates are election-year bait for U.S. politicians. But in reality – along with higher stock markets – they suggest a long-awaited strengthening of the economy. But sticker-shock at the pump and more expensive debt could yet knock confidence.

This week, even bearish bond traders seem to have conceded that growth prospects look brighter. U.S Treasury yields, which had been stuck in a narrow, low range since October, rose substantially, with the 10-year yield adding more than 0.3 percentage points to 2.35 percent before settling back a bit on Thursday. Stocks have been on a tear for more than five months, with the S&P 500 Index breaching 1,400 this week for the first time since 2008.

Mar 12, 2012 21:26 UTC

Facebook’s underwriter friends are cheap insurance

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By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Facebook has friended a raft of new underwriters for its forthcoming initial public offering. According to the company’s latest filing, there are now 31 of them, up from an initial six. That may be overkill, but the social network’s clout means it can line up the extra resources and reputational buffing at little, if any, cost.

Mar 8, 2012 17:29 UTC

Just let housing regulator DeMarco do his job

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By Agnes T. Crane and Daniel Indiviglio
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

The knives are coming out for Edward DeMarco. The acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has been coming under increasing attack recently from Democratic lawmakers as well as housing lobby groups. His crime: he won’t cut principal on underwater home loans backed by Fannie and Freddie. But his critics should cut him some slack.

Principal reduction can have a role to play in helping out underwater homeowners. There is, after all, some $700 billion of negative equity in U.S. housing, according to CoreLogic. Providing some relief on the amount a borrower owes could make the difference between keeping up payments and lurching into default. DeMarco’s critics argue that such a strategy should be a no-brainer for such loans held by Fannie and Freddie. They argue that since taxpayers are already on the hook for mortgages guaranteed by the government, it’s better to take a modest hit to prevent a much bigger loss should a mortgage default.

COMMENT

DeMarco is wrong to assume that most underwater loans will not end up in default, just because they haven’t yet. My loan is guaranteed by Freddie Mac, I have two empty homes next door, I have never made a late payment… but eventually I MUST stop paying.

My wife and I sold our modern, multi-level home six years ago when our youngest moved away to college and we bought a small 1960′s rambler for 210K. We put 50K down. We intended to live in the rambler for about 10 years. Our two dogs would die of old age right around the time we were ready to retire and right around the time we would no longer be able to take care of our 1 acre property. We would sell then to recover our 50K, collect any profit that we earned after making 10 years of payments and improvements and move to a condo with underground parking.

One of the ramblers next door started out on the market at 79K and just got marked down to 58K. I still think I could sell my place for 80K, but I could be wrong about that.

At some point soon, I will be forced to walk away because selling my home won’t generate 160K to pay off the mortgage… and I’m getting old. I cut up three large tree stumps yesterday and I can really feel it today.

Minnesota is a non-recourse state so when I finally stop making payments, the lender cannot pursue me for the difference between what I still owe on my mortgage and the paltry amount they will get when the re-sell my house.

However, non-recourse laws only apply to mortgages that were taken out on the original date of purchase, not to refinanced mortgages. If I would have accepted Freddie Mac’s offer coordinated through CitiMortgage to reduce my interest rate by 2%, my non-recourse status would have changed and CitiMortgage could have come after me for the 80K difference between what they would get when they sell my house and what I still owe on the mortgage. I will NEVER refinance without a principal reduction.

I’m mad as hell about what has happened to my property value. As a taxpayer, I helped bail out all the corporations that caused this problem. I have incurred large personal financial losses caused in large part by CitiMortgage and Freddie Mac’s participation in the vast real estate/mortgage fraud. CitiMortgage didn’t even have the courtesy to inform me that I would lose my non-recourse status if I accepted their “generous” offer.

In fact, the ONLY thing that DeMarco can do to prevent my eventual default is to give me principal reduction to my home’s current fair market value.

Even with a principal reduction, I will never get my 50K back when I finally sell my house. I would only break even on the new mortgage balance. If I am allowed to break even, I could keep my credit intact, perhaps purchase a small condo rather than rent one.

I might be a fool for continuing to make such large payments on a property worth less than half of what it was once worth, but I’m not going to reward Freddie Mac and CitiMortgage for the harm they have done to my property value and my retirement plans by paying off my original mortgage balance with a check for 160K when I sell my house for 80K.

DeMarco is dead wrong about that. The property value is gone. There are losses to be taken.

I will be taking more than 50K in losses, whether DeMarco gives me a principal reduction… or not. Freddie Mac will also take 80K in losses whether DeMarco gives me a principal reduction… or not.

With a principal reduction, the property won’t sit empty, I will continue to take excellent care of the property until I sell and I will still have a good credit rating so I can participate more fully in our nation’s economic regrowth.

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Mar 5, 2012 22:32 UTC

U.S. stock bubble is in profit, not value metrics

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By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

There’s a bubble in U.S. stocks – but it’s in profitability, not valuation metrics. The S&P 500 Index trades at 14 times historical earnings, so the valuation multiple isn’t excessive. But a measure of domestic U.S. profit margins stands 50 percent above its long-term average. Global profitability has soared even higher. This is unlikely to last long.

Feb 23, 2012 16:03 UTC

New US finance sheriff carves out shadowy domain

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By Rob Cox and Daniel Indiviglio
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.The American banking industry has had a rough few years. The subprime meltdown, financial crisis and economic hardship have slammed stocks, slashed bonuses and crunched jobs. But life has been pretty sweet for a motley crew of companies – from cash checkers and credit bureaus to money wirers and debt collectors – operating on the edges of the regulated financial services industry. That may be about to change.

The recent recess appointment by President Barack Obama of Richard Cordray to lead the newly formed Consumer Financial Protection Bureau will, for the first time ever, throw a federal regulatory lasso around the biggest players in the shadows of finance. In the same way that enhanced regulation has curbed many of the excesses on Wall Street, so, too, may the increased scrutiny of this netherworld of the money industry.

COMMENT

Talk about being out of touch! Consumers are not endangered by payday loans. Nobody is forcing us to use them, and it’s unclear how many actually do use them… Yet far too many of us took out risky mortgages to buy over-valued homes in our communities. Interest rates are at an all time low, yet many of us can not refinance, or even find our mortgages as they have changed so many hands in the derivatives market. What’s being done about that?

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Feb 21, 2012 22:12 UTC

Happy stock highs belie bonds teetering on edge

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By Robert Cole
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Some nice round numbers have equity investors smiling. The Dow Jones industrial average crossed the 13,000 level for the first time since before the crisis and Britain’s FTSE 100 index is headed towards 6,000. Many in the market may be wondering if the run can be sustained. But the real danger may be lurking for bondholders.

Feb 8, 2012 22:35 UTC

Renters need to flex muscle in U.S. housing debate

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By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Though America’s mortgage system subsidizes homebuyers, its dysfunction has cost all taxpayers dearly. Few constituencies with much clout are pushing for change. But the nation’s 39 million rental households – often an afterthought in the housing debate – ought to be up in arms. They might find unlikely allies, too.

COMMENT

It certainly is understandable that renters would be less organized than the Real Estate Industrial Complex made up of brokers, agents, owners, banks, etc… Unfortunately, their control of the legislative process and policy in this realm is as strong as it gets. Renters get a break every now and then when market forces convulse under horrible policy – but policy makers get right back to punishing renters.

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Feb 8, 2012 15:45 UTC

Still a long slog ahead for U.S. jobs

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By Daniel Indiviglio and Richard Beales

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

There’s still a long slog ahead for the unemployed in America. Jobs growth has started picking up. But even at a rate of 250,000 a month, a hair above January’s figure, full employment may not be reached until 2020. A new Breakingviews calculator shows how a faster or slower rate of job creation changes that picture.

Jan 31, 2012 20:12 UTC

Gingrich makes Goldman 4-letter word – to no avail

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By Daniel Indiviglio

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The Florida Republican primary’s big winner tonight may be Wall Street’s most infamous bank. Front-runners Newt Gingrich and Mitt Romney are trying to connect one another to the financial crisis. Gingrich paints his rival as an agent of the giant vampire squid, while Romney criticizes his opponent for being paid handsomely for advising Freddie Mac to inflate the housing bubble. But in a state still in pain from the bust, Romney’s line is winning.