Contrarian Signal — Barron's Cover Blasts "This Time is Different"

The sentence "This Time is Different" is usually known as the most expensive sentence in the history of investing: it is always used as a exuberant reaction trying to rationalize unsustainable and impossible trends into the future.

Additionally, Barron's is a first class candidate for the Magazine Cover Indicator. 

While I haven't read the full report, amazingly, Barron's states on the cover they know that this the "most dangerous words on Wall Street", but we still dare to say it. 

The magazine is dated the 8th of December (yesterday), which, unsurprisingly to contrarian investors, marked a big down day. Today seem to be another down day too.

So the conclusion from this post should be that we have either already hit the top of the multi-year bubble, or are very very close to the crest — probably a few weeks maximum.

I keep my ammo for a shorting early Jan, but I might change my mind before that, in which case, I'll mention it on the blog.

Ukraine Property Prices Down approx 83% from Peak

In 2010, when I wrote a post titled: Massive inflationary booms always end in tears induced by the resulting deflationary bust — Here's the case of Ukraine. I had concluded that:

Prices will have to decline by 82% from the 2007 top to reach the 2002 levels, after a 562% boom. As corrections are always overdone, I wouldn't be surprised to see a 90% decline. Remember: if you buy an asset after a 80% decline, but that the actual peak to trough is 90%, you loose 50% on your investment.
Ukraine is just another story of inflationary boom from a corrupt political class that allowed banks to push credit so much without any of the limits that a Free Market would impose. The resulting deflationary bust is going to be extremely hard, specially since the global economy is also falling into the abyss. There isn't going to be any exogenous support possible...

Remember that By March 2010 Kiev house prices had dropped 40.5% from their August 2008 peak

By 2012, prices had dropped by about 50% from the peak:

The housing market has been in a downward spiral since the global financial crisis, making Kiev a buyers’ market. “Since 2008, prices have fallen twice,” said Igor Darmogray, a lawyer in the Kiev office of the Berlin firm Werner & Partners. “Two years ago, the prices were simply unimaginable, they were extremely high. The apartments which cost $1 million, now it’s difficult to sell them at $500,000.”

According to the data found on this page, the second leg of the price collapse has started as is even more violent that the first one, with prices crashing by about 30% just in Q2 and Q3, in nominal terms:

Now, add to the fact that the local currency, the Hryvnia has also crashed by about 50% against the USD in the past 12 months alone, and you'll get a picture of the devastation that has happened in the property prices of Ukraine.

Quoting Mish

Since November 30, 2013, the Hryvnia has gone from 8.15-per-US$ to 15.34-per-US$. That's a decline of 46.87% in just over a year.

With the very little details I have been able to find, we can try to do some basic calculations, starting from a price of 100 in 2008, the price would have been about 50 in 2012. They dropped another 30 odd percents in 2014 after staying relatively flat in 2013. So we're now at 35. Finally, accounting for a 50% drop in the currency against the USD, it means that in USD terms, the prices is now about 17. This is an 83% drop in property prices in a bout 6 years, and there's still room for further drops, since Q4 2014 should also mark a decline given the situation in Ukraine. I wouldn't buy yet, but prices should now start looking attractive.

Of course, some will argue that with civil war in Ukraine, it's expected for the prices to have fallen so much and that nobody could have forecast that. This would be wrong. It would be easy to argue but difficult to convince that war is a consequence of economic depression and not the other way around. Should Ukraine be a country with a booming economy, chances are none of the clashes and wars would have started in the first place.

This is my thesis, and this is why it is possible to forecast the price drop without knowing which event will trigger the crash.

Peak Confidence in, Peak interventionism by Central Banks

The interventions of the past 4-5 years are really incomparable with anything in the past 70-80 years and the era of modern, fiat based, Central Banking. These John Laws of modern time have had no result to show for their massive amounts of printing except for enormous debt loads on the sovereign balance sheet of their countries.

Yet, it seems that money printing is the cure for many seemingly totally unrelated issues. Indeed, printing money:

• Creates jobs
• Creates economic growth
• Saves currencies
• Saves political unions
• Improves exports
• Put here whatever you like, money printing will do it for you.

To be honest, one must really have a critical mind to be able to see through most of these urban legends perpetrated by mainstream media and parrot journalists for decades. The still, one of these stands out as the most inept statement ever; yet people seem to believe in it, it's the one about printing an unlimited amount of Euros to save the Euro. The fact that the whole world is still buying into the ever increasing amount of lies and non-sense coming out of the mouth of lunatic central bankers is very telling about the overall sentiment of the market.

Moreover, the amount of intervention done in the past few months alone is so gigantic and its scale so much beyond imagination that it is completely unsustainable going forward, even for a short period of time. Yet, in spite of all this, "inflation", defined as the growth of overall money and credit, is not happening in those economies (namely, in the UK, the EU, the US and Japan).

We have reached what I would like to call the peak confidence in, and peak interventionism by, Central Banks from where there's only one way ahead: disappointment and reduction of interventions:

• Bernanke Options to Stimulate Growth Include Open-Ended QE Plan
• Fed Stuck at Zero Into 2015 Seen in Swaps, QE Odds Reach 99%
• Draghi Lured by Fractious EU Leaders to Build Euro 2.0
• Draghi Says Officials Agree on ECB Unlimited Bond-Buying 
• Draghi Told Lawmakers ECB Must Buy Bonds for Euro’s Survival
• Mario Draghi’s Big Moment, Continued - ECB to "do whatever it takes"
• SNB’s Franc Defense Swells Reserves to 71% of GDP
• SNB’s $380 Billion Pile Makes Jordan Wonder

All these plans will come crashing down to the earth, and most of those expecting the Fed doing QE and the ECB buying bonds will be sourly disappointed. I have already been through the reasons before; and the fact that the Central Bankers are talking the markets up without intervening will end up badly for those who believed the lies.

In addition to my previous posts here are quotes from Graham Summers who writes a great newsletter at GainsPainsCapital.com:

Super Mario's Big Bluff

The financial world has entered a new state of mania with the announcement by the ECB that it will engage in "unlimited" bond buying to maintain lower interest rates for trouble EU sovereigns.

As you no doubt know, our firm's forecast was that the ECB would not engage in any large-scale bond purchasing programs.

We maintain this view today regardless of the ECB's announcement. The reason? The ECB stated very clearly that new bond purchases would only be made under strict conditions. Those conditions involve:

1. Applying for a bailout from the EFSF
2. Meeting fiscal budget requirements
3. Implementing major spending cuts and various other austerity measures
4.  

[...] Let's cut through the BS here. The use of the word "conditions" completely negates the word "unlimited." Saying that you'll buying "unlimited" bonds as long as EU sovereigns meet certain "conditions" actually means nothing.
[...] The ECB says it will buy EU sovereign bonds if EU nations apply for bailouts from the EFSF. Spain and Italy (the very countries that need bailouts) are meant to supply 30% of the EFSF's funding.
So this new program involves Spain and Italy bailing themselves out, while simultaneously implementing austerity measures so the ECB will buy their sovereign bonds?!?!

Oh, and by the way, the EFSF only has €65 billion in funding left. That will definitely be enough to bailout Spain and Italy, seeing as Greece has received over €200 billion in bailouts is still imploding.

What's the Fed Going to Do?

Today we turn our attention to the US's Federal Reserve where the whole world expects the Fed to announce QE 3 at its FOMC meeting this Wednesday and Thursday.
There is a small problem of math with this. The Fed currently owns all but just $650 billion of the outstanding 10-30 year Treasuries. At this point, even a $200-300 billion QE program would create serious liquidity problems for the financial system. So scratch that idea off the list.

Of course, the Fed could potentially implement another agency/MBS QE program. But that would be a very political move with the Presidential election so close. This, combined with current food and energy prices, makes it unlikely the Fed would want to do this: too many consequences with too little to gain (stocks are at four year highs).
Indeed, if anything, the Fed is likely to pull a "ECB" move, namely promising something vague that it actually cannot deliver on. Why would the Fed do this? Because, like the ECB, the Fed is running out of bullets. Indeed,  St Louis Fed President James Bullard all but admitted this to the Financial Times:

"I am a little - maybe more than a little bit - worried about the future of central banking," said James Bullard, president of the Federal Reserve Bank of St Louis, in a Financial Times interview at Jackson Hole. "We've constantly felt that there would be light at the end of the tunnel and there'd be an opportunity to normalise but it's not really happening so far."

The biggest worry on display at Jackson Hole was whether these bureaucrats, sitting at the heart of every mature economy, still have the power to influence demand now that interest rates cannot fall much further. Lurking behind many debates was this question: if central bank policies are so effective, why is the global economy not growing faster?

Here's a Fed official, not only openly admitting that Fed policies aren't working, but even calling the future of Central Banking into question. Take note: underlying realities are beginning to be asserted by officials at Central Banks around the globe. They're running out of bullets.

So where does this leave us? Well, it's highly unlikely the Fed will actually implement anything major this week. What we could see is a large, but hollow promise for action, much like the ECB's promise of "unlimited" bond purchases based on certain "conditions" being met (an empty promise if ever there was one).

Finally, see for yourself some quotes from various reports listed above which I have collected over past few weeks.

Bernanke Options to Stimulate Growth Include Open-Ended QE Plan

Federal Reserve Chairman Ben S. Bernanke, who last month defended his unorthodox monetary policies, has a new tool at hand should he seek one to a revive a flagging economy and labor market: open-ended bond buying.
Barclays Plc forecasts the Federal Open Market Committee this week will announce monthly purchases of $50 billion to cut the jobless rate while holding inflation at 2 percent. Economists at Goldman Sachs Group Inc. (GS) and BNP Paribas, responding to last week’s report of slowing job growth, also say they expect an announcement of an open-ended plan on Sept. 13 after a two-day FOMC meeting.
The Fed’s practice of specifying an amount and an end-date for purchases has resulted in abrupt withdrawals of stimulus that later was renewed after the central bank failed to reach its goals. By contrast, an open-ended program would tie purchases to a sustained improvement in the economy, said Michael Gapen, senior U.S. economist at Barclays and a former member of the Fed Board’s Division of Monetary Affairs.
“As a Fed chairman, 2 percent growth isn’t doing it for you, 8 percent unemployment isn’t doing it for you -- they need a faster acceleration,” said Gapen, who is based in New York. “So, the decision is, ‘OK, let’s hit the pedal.”

Fed Stuck at Zero Into 2015 Seen in Swaps, QE Odds Reach 99%

Just six months ago, money market traders expected the Federal Reserve to raise interest rates by the end of 2013. Now, they see borrowing costs staying at record lows for about three more years as the economic outlook worsens.
Bond market measures from overnight index swaps, which indicate no rise in the federal funds rate until mid-2015, to a 62 percent decline in a measure of volatility in government bonds signal that rates will stay near zero for longer. The gap between two- and five-year Treasury yields, which decreases when traders expect benchmark rates to remain subdued, is more than 50 percent narrower than its average since 2008.
Investor expectations for sluggish growth and low inflation remain intact even though the collapse of Lehman Brothers Holdings Inc., which triggered the worst financial crisis since the Great Depression, happened four years ago. While the economy expanded in the second quarter, the unemployment rate remained above 8 percent for the 43rd-straight month in August.
“The problems have been bigger than anticipated and it will take a while to work our way through these issues,” Larry Dyer, a U.S. interest-rate strategist in New York with HSBC Holdings Plc’s securities unit, said in an interview on Sept. 6. “The bond market is pricing in pretty close to a very prolonged period of low growth,” said Dyer, whose firm is one of the 21 primary dealers that trade with the central bank.

 Draghi Lured by Fractious EU Leaders to Build Euro 2.0

The European Union’s 19th crisis summit was winding down when European Central Bank President Mario Draghi made an unusual request. He wanted some alone time with EU President Herman Van Rompuy to thank him for charting the path toward a shock-proof euro zone.
Only later did the significance of the blueprint sketched out at the June summit in Brussels emerge. The commitment to tighter bank supervision, budget coordination and a nebulous “political union” was instrumental in persuading Draghi that governments are putting the currency on a sounder footing, leading to yesterday’s ECB decision to buy bonds to help them get there.

Draghi Says Officials Agree on ECB Unlimited Bond-Buying

European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond- purchase program as they try to regain control of interest rates in the euro area.
The ECB needs to be in a position to ensure the transmission of its rates in all euro-area countries, Draghi said after the ECB held its benchmark rate at a record low of 0.75 percent.
“We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability,” Draghi said at a press conference in Frankfurt today.
Draghi has staked his credibility on the bond plan, telling lawmakers in Brussels this week that the ECB needs to intervene to wrest back control of rates in a fragmented euro-area economy and save the single currency. Now it’s up to governments such as Spain and Italy to trigger ECB bond purchases by requesting aid from Europe’s rescue fund and signing up to conditions.
“Governments must stand ready to activate” the rescue fund in bond markets when needed “with strict and effective conditionality,” Draghi said.
The ECB reserves the right to terminate bond purchases if governments don’t fulfil their part of the bargain, Draghi said.
Purchases will be fully sterilized, meaning that the overall impact on the money supply will be neutral, he said.

Draghi Told Lawmakers ECB Must Buy Bonds for Euro’s Survival

European Central Bank President Mario Draghi said the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival.
Mounting his strongest case yet for ECB bond purchases, Draghi told lawmakers in a closed-door session at the European Parliament in Brussels yesterday that the bank has lost control of borrowing costs in the 17-nation monetary union. Bloomberg News obtained a recording of his comments, some of which were published by Italian news agency AGI yesterday.
“We cannot pursue price stability now with a fragmented euro area because changes in interest rates affect only one country, or two countries at most,” Draghi said. “They have no importance whatsoever in the rest of the euro area.” ECB bond purchases are therefore “a way to comply with our primary mandate,” he said, adding: “Frankly, all this also has to do very much with the continuing existence of the euro.”
The Frankfurt-based ECB referred to the closed-door format of the hearing and did not provide any further comment. Draghi’s comments come two days before the ECB’s Governing Council is due to decide on his bond-buying proposal, expectations for which have already driven down yields in Italy and Spain. In the testimony, Draghi rebuts arguments that bond purchases stretch the central bank’s mandate.
“Do we give up our primary mandate for maintaining price stability?” he said. “It’s exactly the opposite situation.”

Mario Draghi’s Big Moment, Continued

Europe emerges from its summer torpor with untapped disasters in waiting.
On Thursday, attention turns to Mario Draghi, the president of the European Central Bank, and the plans, if any, he will announce to help manage the European Union’s financial crisis. Next, on Sept. 12, Germany’s constitutional court will rule on the legality of the European Stability Mechanism, the euro area’s new permanent bailout fund, and the fiscal pact that curbs government deficits. If either event goes badly, watch out.
In July, Draghi aroused expectations that he has so far been unable to meet when he promised the ECB would do “whatever it takes” to defend the euro system. This was seen as a pledge of unlimited bond buying aimed at lowering the long-term interest rates that Spain, Italy and other distressed sovereign borrowers must pay.

SNB’s Franc Defense Swells Reserves to 71% of GDP

The Swiss central bank’s foreign- currency reserves surged to a record in July as the euro region’s increasing turmoil forced policy makers to step up their defense of the franc ceiling.
Switzerland’s cash pile swelled 11.3 percent in the month to 406.5 billion Swiss francs ($420 billion), the Swiss National Bank said on its website today. That pushed holdings to 71 percent of gross domestic product. Walter Meier, an SNB spokesman in Zurich, said “a large part” of the increase resulted from currency purchases to defend the minimum exchange rate.
SNB President Thomas Jordan has pledged to enforce the franc ceiling of 1.20 per euro “with unlimited purchases of foreign currencies if needed.” The central bank implemented the cap in September to fight deflation and help exporters. Its reserves have soared 44 percent since the end of that month, according to SNB data calculated to International Monetary Fund standards.
“The SNB can keep its pace of interventions for a pretty long time unless there is a massive disruption like the collapse of the euro area,” said Maxime Botteron, an economist at Credit Suisse Group AG (CSGN) in Zurich. “As they increase liquidity through their purchases, the only limiting factor is inflation. However, that is not a concern at the moment."

SNB’s $380 Billion Pile Makes Jordan Wonder

Swiss central bank President Thomas Jordan is wondering how to invest his currency reserves as euros pile up at the bank at a record pace.
“The SNB has the same problem as lots of wealth managers,” said Ursina Kubli, an economist at Bank Sarasin in Zurich. “Safe assets have become very expensive. So for the time being, they prefer cash over investing.”
With Europe’s debt crisis hurting returns on the least risky bonds, the Swiss National Bank is keeping reserves in cash after its policy to cap the franc swelled currency holdings by 50 percent in the four months through June to a record 365 billion francs ($380 billion). Money held at central banks, the International Monetary Fund and the Bank for International Settlements accounted for 72 percent of the gain.
The SNB has been piling up euro holdings to defend the franc ceiling of 1.20 versus the single currency introduced in September 2011. While the central bank previously mainly invested foreign currencies in government bonds of AAA-rated nations, the surge in cash reserves suggests policy makers are finding it more difficult to find the right investments.

Australia Update: Real Estate Bust Continues — Retail Collapse Begins

Real Estate is imploding, and denial will help the bust to be of historical proportions

(Bloomberg) 2012-08-31 — Melbourne Hasn’t Seen Worst of Housing Drop as Glut Builds

Melbourne, where home prices have fallen more than in any other major Australian city, may see further declines as a record number of new developments approved in the boom years hit the market.

Home values in the capital of Victoria state lost 6.6 percent in the year ended in June, the biggest drop among the eight state capitals, according to researcher RP Data.

Building work started on a record 47,293 homes in Melbourne in the 12 months ended June 2011, compared with estimated demand of 32,334, according to figures from researcher BIS Shrapnel.

“You’ve got developers who’re producing a massive surge of supply and they’re all facing losing money unless they sell soon, so there’s huge discounting pressure,” said Steve Keen, author of the book “Debunking Economics” and associate professor in economics at the University of Western Sydney. “And listings are rising because demand has fallen severely.”

[...] “New construction will keep a lid on any major recovery” in Melbourne, said Louis Christopher, managing director of Sydney-based property advisory firm SQM Research.

[...] Melbourne’s rental vacancy rate was 2.9 percent in July, up from 2.5 percent a year ago, according to SQM. The number of homes listed for sale climbed 4.8 percent from a year earlier to 48,322 as demand slowed, SQM said. Both levels were the highest among Australia’s eight state and territory capitals. Victoria’s moves to do away with tight land-release policies and zoning restrictions had won praise in a nation where such controls are blamed for a housing shortage that’s driving home prices beyond the reach of ordinary workers.

Amazingly, people keep on talking about 'housing shortage' as the cause of the prices skyrocketing.

[...] The median price of a home in Melbourne was $493,688 as of July 31, according to RP Data, based on the exchange rate on that day. That compares with $340,600 in New York, according to real estate data provider Zillow Inc., and $564,593 as of June 30 in London, based on the most recent figures from the Land Registry.

[...] Homes under construction in the city are now 80 percent above the 20-year average, the analysts wrote. Relative to incomes, Melbourne had the fourth-most unaffordable homes among metropolitan areas with populations of more than 1.5 million people in the developed world, consultancy Demographia said in a report in January, behind Hong Kong, Vancouver and Sydney.

[...] Despite the concerns about a glut, “it’s too early to conclude that Victoria’s planning policy failed or created a massive oversupply problem,” Matthew Hassan, Sydney-based senior economist at Westpac Banking Corp. (WBC), said in a telephone interview. “We expect a few moves downward from the Reserve Bank next year, which will bolster a very patchy stabilization process.”

Denial and incompetence illustrated

[...] “We’re in a period in the short-term where we have seen some signs of oversupply,” Brett Draffen, chief executive officer of Mirvac’s development division, said in a telephone interview from Sydney. “But underlying fundamentals will be strong for the medium term and beyond, and that’s when those projects come online.”

Exactly the same thing we were hearing in the US in 2006 and 2007. Stupidity Illustrated.

Via Mish:
Retailers want RBA action as sales dive

Retailers hope the biggest monthly drop in consumer spending in nearly two years will trigger alarm bells at the central bank when its board meets to discuss interest rates.

Retail trade fell by a seasonally adjusted 0.8 per cent in July to $21.4 billion, after being bolstered in the previous two months by government handouts and earlier interest rate cuts by the Reserve Bank of Australia (RBA).

Economists had expected an overall spending rise of 0.2 per cent in the data collected by the Australian Bureau of Statistics.

But department stores' sales slumped 10.2 per cent, the largest fall since April 2005.

The Age reports Food, fashion jobs in jeopardy as companies collapse

In another blow to Australia's already shaky retail sector, women's fashion chain Ojay and a ready-to-eat food manufacturer have reportedly been put into administration, threatening hundreds of jobs nationwide.

Food jobs also in jeopardy

It was reported early this afternoon that Australian Convenience Foods Group, which makes sandwiches for petrol stations and supermarkets, had collapsed.

Deloitte has been appointed managers of the company, with up to 400 jobs at risk. The company's history goes back to the 1970s. A receptionist at ACF’s office confirmed the company had collapsed.

Australian Convenience Foods fell into voluntary administration on August 28 and Deloitte is currently running a sale process to sell the business as a going concern to a new owner. Expressions of interest for buyers close tonight.

Another Illustration That the Mania is not Over

Yet another day, and another "new paradigm" during this Great Mania which started decades ago now.

(Bloomberg) — BlackRock Inc.’s Quintin Price has advised his 80-year-old mother-in-law to hold more stocks as rising life expectancy pushes the elderly to seek higher investment returns.

“The conventional advice, when life expectancy was lower in the past, was to move more investments into fixed income,” Price, who is responsible for active equities and fixed income as BlackRock’s head of alpha strategies, said in an interview yesterday at the firm’s offices in Zurich.

“This conventional wisdom was born during a time when life expectancy was much lower and is simply no longer valid,” he said.
[...]
“We’re going to see this kind of investment evolve to the point where people are going to change behavior and going to take longer-term views and going to own more high-yielding equities,” Price said. “A shift to this new investment strategy will give investors a better inflation-hedged income.”

Barry Ritholtz on the Real Estate and Zombified US Housing Market

A few days ago, I wrote a post titled No End in Sight for the Housing Bubble in the US given the amazing amount of speculation going on in that market and the bullishness which accompanied it.

Yesterday, the Census Bureau reported that sales were down — and this was unexpected by the market and economists (who could have known??).

More importantly, there was also a great interview of Barry Ritholtz on Capital Account this week, available on YouTube. Barry goes into the details of why and how there will NOT be a rebound, and what are the sources for a massive shadow inventory:

Even in Bankruptcy, Lehman is Still Speculating in Real Estate — No End in Sight for the Housing Bubble in the US

Bullishness and speculation in the real estate sector of the US is showing that the mania is not over, and signals that we are still far from the bottom. Look for yourself:

Chart of the Day:

For some perspective on the all-important US real estate market, today's chart illustrates the inflation-adjusted median price of a single-family home in the United States over the past 42 years. Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased -- increased. All those gains were given back during the following 6.5 years. Over the past five months, however, the median price of a single-family home has surged by over 20% -- the biggest five-month gain on record (the data goes back to 1968). The sharp downward trend that began in mid-2005 is now over.

So not only prices have jumped — something that will look like a blip in a few years — but the bullish tone of this report and the overconfidence are gutting.

And now, so staggering I checked my calendar to see if we weren't the first of April: Lehman Brother is still speculating in the real estate market. And the report below gives the tone: not only Lehman is not selling its assets, but they are actually buying more, hoping to sell at a higher price in a couple of years. We all know how good the real-estate forecasters were last time, and how Lehman went down, but they don't seem to remember what happened in 2009, only 3 years ago. How MAD!


(Bloomberg) 2013-08-14 — Hawaiian-condo investors, homebuyers in Montana and travelers seeking a room at Miami Beach’s upscale Setai Hotel all can turn to one company to meet their needs: Lehman Brothers Holdings Inc.

Four years after filing the largest bankruptcy in U.S. history amid soured real estate bets, Lehman is still in the property business, wagering it can recover about $12.9 billion from mortgages and assets around the globe. Its $3 billion purchase this year of the remaining 53 percent of apartment owner Archstone Inc. made it the biggest buyer of U.S. commercial property by value in the last 12 months, according to research firm Real Capital Analytics Inc.

Lehman has invested $5 billion in real estate since its demise, acquiring loans and buying out joint venture partners. Instead of selling to vulture investors, it’s waiting for opportune times to unload properties as the commercial and residential markets recover. The company last week moved to take Archstone public to capitalize on soaring demand for rentals.

“The entire strategy was ‘don’t put yourself in a position of having to sell,”’ said Jeffrey Fitts, Lehman’s New York- based head of real estate and a managing director at Alvarez & Marsal, the advisory firm managing the liquidation. “If you’re selling with a gun to your head and people know it, you’re dead and you will leave hundreds of millions of dollars on the table.”

[...]  It intends to retain some assets at least through 2015, according to a statement last month, in which the firm boosted its forecast for real estate recoveries by $1.6 billion compared with its outlook a year ago.

The bank filed for bankruptcy in September 2008, 158 years after its founding as a cotton brokerage in Alabama, and five months after David Einhorn, president of New York-based Greenlight Capital Inc., said he was betting against Lehman’s stock because he believed it overvalued some real estate assets.

[...] Even as housing prices began to fall in 2006, the bank continued making loans, including for commercial properties. In October 2007, it financed and invested in the $22 billion takeover of Archstone with Tishman Speyer Properties LP, eventually converting the loans to equity after Archstone faltered during the credit crisis.

[...] As of March 31, the firm reported commercial real estate holdings of $9.6 billion, including more than $2 billion of commercial mortgages and mezzanine loans. The tally doesn’t include the final 26.5 percent stake in Archstone that Lehman acquired in the second quarter from Bank of America Corp. and Barclays Plc.

“If I were a creditor and I were not real estate savvy, I would almost look at Lehman as my real estate department,” said Lawrence Longua, director of the REIT Center at New York University’s Schack Institute of Real Estate. “They’re taking an asset and maximizing it. That should be beneficial to me as a creditor.”

[...] Lehman’s largest bet since filing for bankruptcy is on rentals. The Archstone acquisition in May valued the business at $16.5 billion, according to Real Capital, making the bank a bigger buyer than Blackstone Group LP (BX), the world’s largest private-equity firm, and Simon Property Group Inc. (SPG), the No. 1 U.S. mall owner.

It also turned Lehman into the eighth-largest apartment manager in the country, overseeing 78,000 units, according to the National Multi Housing Council, an apartment industry group in Washington.

It announced plans to take Archstone public as rising national rents fuel investor demand to own apartment buildings.

Sales of apartment properties totaled $16.2 billion in the three months ended June 30, the second highest quarterly total since 2007, according to Real Capital. Apartment developers are also hastening their acquisition of land sites, buying $2 billion worth in the first half of the year -- almost double the total for all of 2011.

“The timing makes sense,” Rod Petrik, an analyst with Stifel Nicolaus & Co. in Baltimore, said in a telephone interview. “You have at least a two-year window where fundamentals are going to be strong and you are not going to have the competition of new supply. So the matter of getting it out and public gets Lehman a step closer to liquefying their position.”

Petrik estimates Archstone may raise more than $1 billion in the initial public offering, and that the stock would be sold in several stages “over the next few years.” He expects Lehman to sell assets as a way of paying down Archstone’s debt.

Lehman’s also in the hospitality and homebuilding business. In January it acquired Mooonlight Basin, a ski-and golf resort community in Montana, and plans to begin marketing land to homebuyers while operating a resort there, Fitts said. It’s also planning to sell 73 unsold condo units at the Ritz-Carlton Kapalua in Hawaii that it took over through foreclosure in December after the borrower defaulted on a $260 million mortgage.

[...] In Miami, where hotel revenue per available room climbed 11 percent in the year through June, Lehman isn’t planning to sell the Setai, its luxury hotel on South Beach, Fitts said. Lehman replaced the hotel management in March, bringing in Trevi Luxury Hospitality Group Inc.

Lehman also is keeping the On the Avenue Hotel on Manhattan’s Upper West Side, which it gained control of through a deed in lieu of foreclosure in June 2011, said Fitts. While revenues per available hotel room in Manhattan climbed 5.7 percent in the year through June, Lehman is mulling whether to renovate the 282-room property.

[...] Lehman is holding onto a 21-story Manhattan office building at 237 Park Ave., after buying a $255 million junior note from an investor in 2010 as a way of protecting its claim to the property. The company financed the acquisition in 2007 with about $1.23 billion in loans, according to a July 2011 filing.

[...] Lehman has $8.2 billion of cash available for creditor payments after raising $4.7 billion in the second quarter from real estate sales, derivatives and settlement of a lawsuit, according to a July regulatory filing.

The firm plans semi-annual distributions, including a second payment to creditors in September and is “focused” on maximizing cash for that purpose, according to the filing.

“I can’t tell you how many lunches and dinners and meetings I’ve had with opportunistic guys, all of them very smart and very good,” Fitts said of vulture real estate investors seeking to buy some of Lehman’s assets.

“And I say to them: ‘If I sell to you I haven’t really done my job.’ ”

Peak Over-Confidence and Denial in Australia Confirms Economic Collapse Has Begun

Here are a couple of Bloomberg reports showing just how much Australian policy makers are in denial and plain incompetents (or liars?). From a contrarian perspective, this confirms to me that their bubble-economy has already began its bust is now confirmed. It will soon be time to short their equities and the infamous AUD, THE bubble currency.

Ironically, the public is not a fool, because they feel the pain in their wallets, and hence cannot believe the massaged numbers coming out of the government, nor the lies.

Finally, something I haven't picked up lately, but my forecast from about 2 years ago now, where I predicted rates would go down and not up in complete disagreement with ALL the economists, has been proven wrong.

• Australia’s Strong Economy Proves ‘Doomsayers’ Wrong, Swan Says
• Stevens Praises Australian Economy, Warns on Asset Bubbles

(Bloomberg) June 10, 2012 — Australia’s economic performance is proving the “doomsayers” wrong, Treasurer Wayne Swan said ahead of a government conference this week to address challenges including an elevated currency and uneven growth. 

[...] Public support for Gillard’s government isn’t getting a lift from one of the fastest-growing economies in the developed world, led by the resource-rich regions in the north and west. Consumer confidence is subdued and her governing Labor Party trails in opinion polls as tourism, manufacturing and retail industries across the south and east struggle with the sustained strength of the local currency.

“There are always those who are all too ready to talk down our nation’s prospects,” Swan said. “Over the past week, the doomsayers have been proved to be completely and absolutely wrong.” 

[...] Still, consumer confidence in May was near the lowest level this year
[...] Australia’s central bank cut interest rates by 50 basis points late last year and a further 75 points in the past two meetings. At 3.5 percent, the overnight cash rate target is still the highest among major developed economies.

(Bloomberg) June 10, 2012 — Reserve Bank of Australia Governor Glenn Stevens expressed optimism about the nation’s economy and cautioned against monetary policy settings that could reignite asset bubbles, the risk of which he said was low. 

[...] Stevens’s speech, titled “The Glass Half Full,” urged Australians to embrace more subdued spending and borrowing, and steadier asset prices, as a path to sustainable economic expansion and wealth. Employment growth this year and a gross domestic product report showing the economy grew 1.3 percent last quarter, more than twice the level forecast, underscore the nation’s resource-fueled strength.

Iceland Growing It's Real Estate Bubble Just 3 Years After Their Complete Economic and Financial Collapse

Who could have guessed that people's more so short sighted and their memory so close to a goldfish's?

(Bloomberg) May 30, 2012 — Iceland’s crisis-management policies are creating the island’s next property bubble less than four years after its banking meltdown threw the economy into its worst recession. 

Prices for new homes touched a record last quarter, having surged 40.1 percent since the final three months of 2010, according to estimates by the National Registry of Iceland in Reykjavik. Average house prices have risen 11.3 percent since the market bottomed at the end of 2009, according to central bank data at the end of the first quarter. 

[...] “Last year, investors finally realized that the capital controls aren’t going anywhere any time soon,” Jonsson said. “That has led to a change in investors perspective, and they’re now moving in greater numbers into longer assets and snapping up properties.”

Another unintended consequence of stupid government actions.

An average apartment cost about 28 million kronur in May, the National Registry of Iceland estimates. That compares with 12.4 million kronur in 2001. The average Icelandic household earned about 4.4 million kronur in 2011, according to Statistics Iceland.
“The exorbitant prices in the housing market, so early after the collapse of the Icelandic economy, are quite shocking,” said Finnur Eiriksson, a computer scientist living in Reykjavik. “I’ve decided to stay in the rental market for some time to come. For anyone that has been shopping around, the drop in property prices after 2008 hasn’t been significant enough.”

Well, looks like Finnur is sport on!

European Financial Companies to Fund European Ratings Agency — Denmark Is a Massive Subprime Base of Mortgages and Hosting One the Biggest Real Estate Bubbles in the World

I guess when you're not happy with the ratings you have because you cannot control the rater, you should fund your own rating agency. Note that in the US, only rating agency has dared to lower the rating of Uncle Sam, which gives them their oligopoly and hence funds their very useless but very lucrative business.

(Reuters) - European financial companies have agreed to back the creation of a European Rating Agency to compete with Standard & Poor's, Moody's and Fitch, a strategy consultants involved in setting up the new agency said on Thursday. 

"Following intensive talks conducted across Europe, a number of financial companies have now agreed to support the establishment of a global rating agency of European origin," said Markus Krall, a partner at Roland Berger Strategy Consultants. 

"We will soon wrap up the fundraising and complete operational realization of the new independent agency. We are currently in the process laying the institutional and corporate groundwork," he added, declining to name the companies that will provide the financial backing. 

A number of organisations are evaluating how to launch a new European rating agency after European policymakers criticised Standard & Poor's, Moody's and Fitch during the euro zone debt crisis, saying they have been too quick to cut the credit ratings of indebted European Union states despite bailouts and austerity drives. 

In a recent move, S&P downgraded the credit ratings of nine euro zone countries, stripping France and Austria of their coveted triple-A status. 

Markus Krall will relinquish his role as senior partner at Roland Berger to become the founding chief executive of the new agency, Roland Berger said in a press release. 

Efforts to launch a European rating agency are also being made by the Bertelsmann Foundation which is seeking to overhaul the way rating agencies rate sovereign debt.
The Bertelsmann Foundation has said it will lead a group of international experts to develop a model for a non-profit rating institution. 

The foundation, based in Guetersloh, Germany is a politically nonpartisan think tank dedicated to making an "enduring contribution to society" including a "just and efficient economic system." 

Funded from its income from shares in publishing giant Bertelsmann AG, the foundation has offices in Brussels and Washington. (Reporting by Edward Taylor; Editing by Mark Potter)

Personally, I would be more supportive of simply ditching the ratings agencies, or making them a creation of the free market: that is, they should be created by entrepreneurs, and they should be selling their reports to the investors who want to invest in company X.

Currently, ratings agencies are an oligopoly created the US government (and the Chinese) ; and company X fund the report (basically, meaning that there's a massive conflict of interest).

Looks like investors in Denmark are getting there, but because their investments have been downgraded (meaning they are about to lose or have already lost money as a result of falling prices of their bonds).

The report below contains a few extra interesting points:

• Denmark has the 3rd largest mortgage bond industry in the world, for such a tiny country — expect a massive bubble to pop
• Investors don't care about the ratings, because those mortgages are safe — we all know how this story ends
• Marc Stacey explains why ratings agencies have to herd — meaning they are basically non-independent, due to conflicts of interest and lack of independent thinking as well.
• Adjustable-rate loans, as well as loans that delay principle payments by as much as 10 years, make up more than half Denmark’s outstanding homeowner debt — meaning that the whole mortgage industry is a massive subprime one, based on a pyramid of debt with delayed repayment 

(Bloomberg) — 2012-04-19 Denmark’s biggest banks are firing Moody’s Investors Service as they win assurances from some of the country’s biggest investors that the opinions of ratings companies hold limited value. 

Nykredit A/S, Denmark’s biggest mortgage lender and Europe’s largest issuer of covered bonds backed by home loans, terminated its contract with Moody’s on April 13, citing its “volatile” views. Danske Bank A/S (DANSKE)’s mortgage unit Realkredit Danmark A/S, the country’s second-largest home-loan provider, dropped Moody’s in June. Jyske Bank A/S, Denmark’s second- biggest listed bank, is looking into ending its dealings with Moody’s, according to Steen Nygaard, its head of treasury. 

“They have just crossed the line for fairness,” Nygaard said in an interview. “It’s not just that we have an opinion and if they rule against us, we are mad and walk away. It is about the fundamentals where we simply cannot follow Moody’s arguments.” 

Moody’s in June criticized Denmark’s $470 billion mortgage- bond industry, the world’s third largest after the U.S. and Germany, for failing to curb refinancing risks fueled by a mismatch in funding and lending maturities. Since then, Nykredit’s benchmark index of Denmark’s most-traded mortgage bonds has risen 6.3 percent to a record, signaling investors are disregarding the warnings. 

[...] “It’s not that ratings don’t matter. Of course they do,” said Inger Huus Pedersen, head of fixed-income investments at Hellerup, Denmark-based pension fund PKA, which oversees about $27 billion in assets. “These mortgage bonds, we feel pretty secure about. It’s an old system that’s gone through a lot, which is why I’m quite secure about the system. History has shown us that ratings agencies make mistakes as well.”

[...] In Denmark, Moody’s has been tougher on mortgage banks than other rating companies. [...] “Moody’s has shown a harsh stance on banks ratings compared to the other agencies,” said Marc Stacey, a fund manager at BlueBay Asset Management Ltd. in London, which oversees $42 billion in credit. “If Moody’s upcoming announcements show that they are an outlier, compared to where the other two rating agencies are, then you may find the Moody’s rating being dropped by more and more issuers.” 

[...] Denmark’s two-century-old mortgage market has moved away from traditional, fixed-rate 30-year loans and started offering adjustable rates in 1996 and interest-only loans in 2003 to attract more customers. The country is still struggling to emerge from a recession triggered by a burst housing bubble in 2007. A regional banking crisis claimed three lenders last year. 

“We agree there are risks, but they are less than when the house prices were in a bubble phase,” Nygaard said. “We cannot see the huge risk to the Danish economy. Jyske Bank is much stronger today that it was in 2007.” [...]  

While Denmark’s government debt is half the euro-area average at 44.6 percent of gross domestic product in 2012, the European Commission estimates, its private debt is the world’s highest. Household debt reached 310 percent of disposable incomes in 2010, according to Exane BNP Paribas. Danes’ savings, while high, are mostly “locked up” in hard-to-access pension and real estate assets, central bank Governor Nils Bernstein has said. 

Adjustable-rate loans, as well as loans that delay principle payments by as much as 10 years, make up more than half Denmark’s outstanding homeowner debt, according to the Association of Danish Mortgage Banks. Bernstein has urged the industry to phase out interest-only loans, which he says erode economic stability. 

Foreclosures jumped an annual 32 percent last month to a 17-year high, after Denmark’s economy fell into a recession in the second half and house prices sank an annual 8 percent in the fourth quarter. 

“What Moody’s is doing is putting pressure on the system, and that is not necessarily a bad thing,” said Peter Lindegaard, head of investments for Danica Pension, a unit of Danske Bank. Still, Lindegaard said Danica, which holds 20 billion kroner in mortgage debt, won’t exit Nykredit’s bonds after the lender dropped Moody’s. 

“We think we know as much as Moody’s about how the system works,” Lindegaard said in an interview. “We still deem them a very secure investment.”

Thanks for my friend Blbl for sending me the links a while ago! 

Asking Prices for London Home Back To All Time Highs

Just a couple of days ago, we wrote about the Homeowners Would Be Moguls Make Comeback in U.K and the massive real-estate bubble still growing in the UK. Today, Righmove says London House Prices Surge to Near Record High.

Feb. 20 (Bloomberg) -- Asking prices for London homes rose to close to a record in February, helping push national values the most in almost a decade, Rightmove Plc said. 

Average asking prices in the U.K. capital rose 2.5 percent from January to 449,252 pounds ($710,300), less than 1,000 pounds below the record reached in October, the operator of Britain’s biggest property website said in a report today. Prices in England and Wales rose 4.1 percent on the month, the most since April 2002. 

“Confidence in bricks and mortar in the capital seems set to continue, with ‘seller-power’ twice as strong in London compared to the rest of the U.K.,” Miles Shipside, commercial director of Rightmove, said in a statement. “Upwards price- pressure is likely to be maintained in 2012.” [...]

The number of new property listings in London fell 9 percent in January from a year earlier, Rightmove said. This is an “early indication that shortage of sellers and upwards price pressure will again feature in 2012,” it said. 

Nationally, home prices rose 1.4 percent in January from a year earlier to an average 233,252 pounds. In London, the annual price increase was 4.3 percent. 

The London districts of Richmond-upon-Thames, Kingston- upon-Thames and Wandsworth recorded the largest monthly increases in asking prices within the capital, Rightmove said. 

Nationally, all 10 regions of England and Wales tracked by the company showed asking prices gained. The southeast led the increase, up 6.9 percent. 

About the shortage, I said two days ago: "Shortage of property? Right? Well, Findaproperty.co.uk lists 918,441 properties for sale and rent from 13,586 estate agents. Close to 1 million properties on the market, for a country with about 55 million inhabitants. Does that sounds like shortage? " and things haven't changed.

But the fact that Olympics in London might be driving people to reach an even higher level of speculation is not to be ignored.

Crisis Spreads the two Out of the Eurozone Scandinavian Economies: Norway and Sweden

The credit bubble will go bust in Sweden and Norway — even though the mainstream economists believe that these countries do not suffer from one, and that they resilient, and greatly managed by central planers and socialist governments.

Thanks to my friend SS for forwarding me these two Bloomberg reports:

Feb. 17 (Bloomberg) -- Sweden’s economy, Europe’s strongest as recently as 2010, will hardly grow this year as the crisis that started in Greece spreads north, killing jobs, sapping confidence and tipping the housing market into a decline. 

“Judging by the central bank’s outlook, the Swedish economy has shifted down to a dramatically lower gear,” Anders Kjaer, a senior analyst at Nykredit A/S in Copenhagen, said in a note. “Growth in the fourth quarter looks to have been negative.” 

The central bank yesterday cut its main interest rate a quarter point to 1.5 percent and abandoned plans to raise rates through the first quarter of 2013 as it predicted Europe’s debt crisis will hurt exporters more than first estimated. Sweden, which grew more than any other European Union economy in 2010, has been unable to protect its exporters from the fallout of the debt crisis, prompting the central bank to raise its forecast for unemployment as trade weakens.[...] 

At the same time, Sweden’s property values are declining from what Robert Shiller, the co-creator of the S&P/Case-Shiller home-price index, last month characterized as bubble levels. The European Union on Feb. 14 said Sweden is under review for “increasing household indebtedness,” after debt as a share of disposable incomes rose to a 170 percent last year from about 100 percent in 2000. 

“It’s not unreasonable to assume that house prices may fall a bit, or at least park at today’s level,” Ingves said yesterday in an interview in Stockholm. “The pace of lending is significantly lower now than before and we have a generally weaker economic development.” 

The International Monetary Fund said back in June that Swedish homes “appear overvalued with enduring price falls likely.” Property values fell 2 percent last quarter, sliding from a record that had been fueled by tax cuts, historically low central bank interest rates and the fastest economic expansion in four decades in 2010. 

Ingves said household debt levels remain “manageable” after borrowing slowed down. 

Feb. 14 (Bloomberg) -- Norway’s overheated credit and property markets are vying with export-eroding krone gains for policy makers’ attentions as officials risk fueling either an asset bubble or currency appreciation. 

According to Morten Baltzersen, director general of the Financial Supervisory Authority in Oslo, the country’s credit markets face “severe” imbalances as households continue to amass debt at unsustainable levels. At the same time, continued krone gains pose a “challenge” for the government, Trade Minister Trond Giske said this week. [...]

In September last year, Olsen warned that the bank was ready to take measures to prevent further krone appreciation, and signaled he would use the policy interest rate to do so. 

[...] Norway’s government boasts the biggest budget surplus of any AAA rated nation and has no net debt thanks to a $560 billion sovereign-wealth fund. [...] 

“Growth rates on household debt and house prices are not following a sustainable path,” Baltzersen said. “The longer these developments go on, the greater the risk is of a severe imbalance evolving.” 

Robert Shiller, the co-creator of the S&P/Case-Shiller home-price index, said in January Norway is in the grip of a house price bubble, while the International Monetary Fund on Feb. 2 warned of real estate and credit market risks in Norway. 

The central bank estimates private debt burdens will grow to about 204 percent of disposable incomes this year. The FSA in December turned a recommendation that credit standards be tightened into an official guideline and told banks to cap loan- to-value ratios at 85 percent from 90 percent. The decision has yet to filter through to credit markets.
[...]

Homeowners Would Be Moguls Make Comeback in U.K

It seems like the mega-real-estate bubble in the UK is still blowing and Bloomberg published this amazing report about it:

Feb. 9 (Bloomberg) -- Mortgages that helped fuel speculation during the U.K.’s housing boom by turning homeowners into aspiring property moguls are making a comeback. 

Investor demand for bonds backed by so-called buy-to-let mortgages surged last week by the most in almost two years, according to JPMorgan Chase & Co. New lending to rental property investors rose 40 percent last year to 14.1 billion pounds ($22 billion), the Council of Mortgage Lenders said today. [...] 

The extra yield investors demand above benchmark rates to hold 3-year senior bonds backed by U.K. buy-to-let mortgages contracted to [...] 3.3 percentage points, JPMorgan data show. That’s narrowed from 11 percentage points in June 2009 and is the least since August. 

“There’s a realization that buy to let is a prime credit- quality risk,” said John Heron, director of mortgages at Paragon Group of Companies Plc, which lends mainly to landlords with more than 10 properties. 

Paragon raised 163.8 million pounds in November by selling bonds backed by buy-to-let loans, its first issue since July 2007. The mortgage provider has climbed almost six-fold in London trading since November 2008 after losing 97 percent of its market value during the previous 32 months. [...] 

Landlord financing became easier to obtain starting in the 1990s, when the government allowed more companies to provide mortgages. That fueled a 19-fold increase in buy-to-let lending in the decade ending Dec. 31, 2007, during which U.K. home values tripled, Savills Plc estimates.

The government, by allowing fiat-currency, partial reserve banking, and the absurd mortgage laws created the mess. The banks are working downstream the government.

TV shows promoted rental property as a way to diversify savings. In the final years of the investment boom, buy to let developed a reputation for get-rich-quick schemes as property investment clubs offered seminars to persuade novice investors to put savings in new residential development projects. 

[...] “A small minority gave buy-to-let a bad name,” said Law. “People didn’t use it to fund a landlord business, but as a speculative way of making lots of money.”
The boom ended with the freeze in global credit markets triggered by the U.S. subprime mortgage crisis. Companies scaled back or withdrew from the market after a 15 percent slide in U.K. property values in the 18 months through March 2009. 

[...] While property values fall, investor demand for buy-to-let loans has increased because of the attractive income rental properties generate compared with other financial assets.
“Now’s a good time to invest,” said Richard Blanco, 45, who plans to buy a property a year to add to the 10 rental homes he already owns in East London and Nottingham. “Prices are depressed and people are struggling to get finance so there’s less competition.” [...] 

Increased competition has led some lenders, including Clydesdale Bank, to start offering mortgages with only a 20 percent down payment requirement for borrowers instead of the 25 percent deposit prevalent since 2008. 

[...]“The tests are still to come for buy-to-let, when interest rates start to rise,” said Jonathan Livingstone, a senior analyst at Moody’s, who covers U.K. residential mortgage-backed securities.
[...] A shortage of properties to lease lifted rents by 4 percent last year, LSL estimates, based on a survey of more than 18,000 homes in England and Wales. Countrywide estimates that 3.3 people competed for each rental property on its books in the final quarter of last year and it took less than two weeks on average to lease a home.

Shortage of property? Right? Well, Findaproperty.co.uk lists 918,441 properties for sale and rent from 13,586 estate agents. Close to 1 million properties on the market, for a country with about 55 million inhabitants. Does that sounds like shortage?

[...] “Buy-to-let came through the recession showing it was much more resilient that many thought,” Charcol’s Boulger said. “What appeals to lenders is the higher margin for less risk.”

Higher interest rates mean more risk, and not the opposite. Only someone living in a bubble can make the above comment. "Market is resilient", "margins are high" and "risks are low" should all be seen as flashing red light by any rational person.

Thanks to my friend SS for sending me that report.

Silver down for the year — Portfolio Update: closing silver shorts

What a year for silver, the restless metal. It is now about to close the year down, after being up as much as about 100% in late April.

How many people where forecasting a drop in silver back when it was trading above $40?

SLV is trading at $26.50 as I'm writing this post.

As you can see on the SLV chart that I'm using as a proxy, the drop was nice but not as dramatic as the rise, which allowed for people to remain extremely bullish — including the crazy lunatics Eric Sprott and John Embry who bet the house on Silver... 

As you know, I have been short silver since the $40 and nicely profited from the drop. In October, and closed my $42 and $40 puts on SLV and acquired a bunch of $30 puts on SLV.

With only 5-6 trading left on those puts, I have decided to close the position, with an extra gain of +86% although I expect the drop to continue over the next few months. A rally in silver should be expect at some point, given that the drop from about $35 to now close to $26 didn't see much resistance. I will use any such rally to enter a new short position.

Please note that all the options are on the table as I might use further weakness to bet on a short term gain as well.

Irish property prices to fall by as much as 90 percent

"homes built in commuter towns in Ireland’s midlands may fall as much as 90 percent". Finally, someone who is realistic about where prices will go.

As you can see from the report below, prices are already close to 50% below where they were 4 years ago, and yet, Irish people are still obsessed with owning property. This means we are far from hitting the bottom.

I have stated many times that prices should reach drop by above 90% to have finally, durably, bottomed. And I'm now finally finding echoes of that on major publications — I admit, I would find an 85% decline to be acceptable as well :-)

Nov. 30 (Bloomberg) -- Irish homes may sell for as little as 21,000 euros ($28,000) today as owners dispose of foreclosed properties in the country’s biggest residential auction.

“The Allsop auctions are really the only mechanism we have now for the revelation of prices, because transactions outside of them are so thin on the ground,” said Constantin Gurdgiev, a lecturer in finance at Trinity College Dublin.  [...]

“Contrary to what people want to think, Irish people are still obsessed with owning property.” 

The average asking price for a home in Ireland was 195,000 euros in the third quarter, compared with 366,000 euros during the height of the property boom in mid-2007, according to Daft.ie, Ireland’s largest property website. 

The central bank estimated in March that prices may fall as much as 60 percent from their peak. While properties in the city of Dublin may regain close to half their highest values, homes built in commuter towns in Ireland’s midlands may fall as much as 90 percent, Gurdgiev said.[...]

Harry S. Dent and Arch Crawford Interviews on GoldSeek Radio

Both Arch Crawford and Harry S. Dent were interviewed last Friday on GoldSeek Radio.

As usual, Arch Crawford is talking about astrology and apocalypse.

And Harry S. Dent is talking about the crash ahead — probably in 2012 — and the China Bust that's coming as well.

You can listen to the interview from the link above or the embedded player below: 

 

Arch Crawford's interview starts at about 0:37:00

Harry S. Dent's interview starts at about 0:51:30

The Reasons For China's Imminent Bust

Here is a very good interview of Gordon Chang, by hyper-inflationist and exponential-extrapolator Chris Martenson, available on YouTube and embedded below.

Gordon Chang does a very good job at explaining all the issues with the Chinese economy and he goes into a fair amount of details that I was actually able to learn quite a few things :-)

The global dominant narrative about China is wrong, claims Gordon Chang. Don't expect it to be the 'pocketbook of last resort' that will rescue world markets from their current malaise. 

And don't expect its remarkable economic growth to continue. In fact, expect a "hard landing" for China - and soon. 

[...] Gordon sees these as the inevitable harbingers of a coming collapse in China due to excessive stimulus policies the government undertook starting in 2009. The bubbles and malinvestment created by this stimulus have not been addressed, and increasing weakness and transitions inside the political system are making it less likely they will be before market forces intervene.

PS: I appreciate very much Chris Martenson's economic Crash Course, but his conclusion are totally flawed due to his inability to understand the role of credit in a fiat currency system, and the possibility of deflation.

Agricultural Commodities Glut Across the Board — Farmland Price Bubble In The US

Short summary: the agricultural will, like any other of these inflationist trades, end in tears. Do not believe the hype, the Greater Depression will be just as the Great Depression was: deflationary, and full of oversupply, creating a self-sustaining declining spiral.






Record corn crop in China, but the Chinese government is still building inventories. This cannot last forever.

(Bloomberg) Nov 3, 2011 — China reaped its seventh record corn crop in eight years in the harvest now ending. 

That still won’t be enough to meet demand, driving a fivefold gain in imports as prices head for the highest-ever annual average. 

The world is awash with wheat.

(Bloomberg) Nov 14, 2011 — France may lose its place as the second-biggest wheat exporter after failing to win more than a dozen tenders in Egypt, the world’s biggest buyer, as shipments from Russia, Ukraine and Kazakhstan overwhelm markets. 

[...] France’s crop office expects a 23 percent drop in shipments in the 12 months ending in June, the most in at least a decade. 

[...] Output is also expanding elsewhere and the United Nations expects the biggest-ever global harvest. Wheat may drop another 20 percent in Paris by May, said Greg Grow, director of agribusiness at Archer Financial Services Inc. in Chicago.  “The world is awash with wheat and unless you can compete with the Black Sea you’re stuck,” said Tom Fritz, the Chicago- based co-founder of EFG Group LLC, a researcher and adviser to commodity traders. “The bias is for lower prices in an effort to clean up the glut.” Production reached 189.2 million metric tons in the harvest that began in September, 6.7 percent more than a year earlier, according to a survey of growers in the seven main producing regions carried out by Geneva-based SGS SA for Bloomberg.

Japan buys 800,000 Tons corn from Ukraine as U.S. substitute:

Nov. 16 (Bloomberg) — Japan, the world’s largest corn importer, made its biggest purchase of European grain in at least a decade, seeking a cheaper alternative to U.S. supply. 

The country bought about 800,000 metric tons from Ukraine after it removed a tax on exports last month. The purchase, made by five Japanese trading companies, was for shipments in November to March at prices that were about $20 a ton cheaper than U.S. corn, Nobuyuki Chino, president of Continental Rice Corp. in Tokyo, said in an interview today. 

Japan, which sourced almost 90 percent of its corn last year from the U.S., the biggest exporter, is seeking different options after a drought hurt the U.S. crop, driving annual prices to an all-time high and curbing global food supplies. 

“Japan joined other Asian buyers in finding cheaper alternatives to U.S. corn in feed as the American supply became too expensive,” Takaki Shigemoto, a commodity analyst at research company JSC Corp. in Tokyo, said today by phone. “A shift in demand will drag Chicago futures toward $6.”

We already discussed this a few days ago, but it's now making more headlines: the prices of farmland in the US have disconnected from their historical average yield. Their yield is now at a 40 year low.

Via Calculated Risk:

From the NY Fed earlier today: Conditions for New York manufacturers held steady in November

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers held steady in November. After a string of five consecutive months of negative readings, the general business conditions index rose nine points, to 0.6. While the new orders index edged down to -2.1, indicating that orders were a little lower, the shipments index rose to 9.4, indicating an increase in shipments. The inventories index fell to -12.2 — a sign that inventory levels dropped.
...
Employment indexes were mixed: employment levels were slightly lower and the average workweek slightly longer.

And from the Chicago Fed: Third Quarter Midwest Farmland Values Surge

At 25 percent, the year-over-year gain in agricultural land values in the third quarter of 2011 for the Seventh Federal Reserve District was the largest in just over three decades. Moreover, at 7 percent, the quarterly increase in the value of “good” farmland matched the highest since the late 1970s.

To Call The End of the Real Estate Bubble in France

With the liquidity and insolvency more and more apparent in the Eurozone banking sector, and the French bank decimated by the Greece debt woes, I think the banks will not be able to fuel the credit bubble en France and that the most obvious consequence, will be the long awaited collapse of the real estate bubble there.

The good news is that there are now some facts to back this assumption that I have been making for the past couple of months. See this quote from ZeroHedge:

Some data points on this from Thompson Reuters Loan Pricing Report today:

• French banks have been notably absent from high-profile EMEA loans including the US$6bn loan for commodity trader Xstrata and a $4.7 billion loan for Qatar's Barzan project financing.
• In Asia, BNP Paribas pulled out of an A$2.075 billion (US$2.14bn) refinancing for Australian media company Seven West after being shortlisted as one of the leads.
• In the US, Societe Generale declined to participate in a $15 billion, 364-day bridge loan for United Technologies Corp.
• The $6 billion loan for commodities trader Xstrata had no commitments from BNP Paribas, Societe Generale, Intesa and ING. "Banks structuring deals are mindful of the reduced demand for dollars - you have to factor in a big drop in appetite from French and Germans." a senior banker said.

Australia's Home Price Drop For the Third Consecutive Quarter — Central Bank Drops Rate

The Australian real estate bubble has popped and there is probably no end in sight, but here's the news about the third consecutive quarterly decline.

This is something I forecast more than a year ago, about actually 15 months ago and reiterated many times since then (including here): interest rates have peaked in Australia, and the next move is down.

Well, today, after much anticipation, I was proven right.

Nov. 1 (Bloomberg) -- Australian house prices declined in the three months through September, the third straight quarterly drop, as the developed world’s highest borrowing costs curbed demand. 

An index measuring the weighted average of prices for established houses in eight major cities dropped 1.2 percent last quarter from the previous three months, when it fell a revised 0.5 percent, the Australian Bureau of Statistics said in Sydney today. 

The median estimate of 19 economists surveyed by Bloomberg News was a 1.5 percent fall. They declined 2.2 percent from a year earlier.

Nov. 1 (Bloomberg) -- Australia’s central bank cut interest rates for the first time since 2009 and a Chinese manufacturing index slid, stoking concern that Europe’s debt crisis is weighing on Asia’s export-dependent economies. 

The Reserve Bank of Australia today reduced its key lending rate to 4.5 percent from 4.75 percent, saying Europe’s woes are starting to hit Asian trade. 

In China, a purchasing managers’ index fell to 50.4, the lowest level since February 2009, while South Korea reported the smallest gain in exports in two years. 

Nov. 1 (Bloomberg) -- The Australian dollar fell for a third day against its U.S. counterpart after the Reserve Bank cut interest rates for the first time in 2 1/2 years on signs global growth is moderating. 

The so-called Aussie declined against its 16 major peers after RBA Governor Glenn Stevens said inflation is close to the central bank’s target, adding to prospects policy makers may further reduce rates. 

Demand for the Australian and New Zealand dollars was limited after data showed manufacturing in China, the South Pacific nations’ major trading partner, slowed. “The Aussie is lower after the RBA rate cut,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. 

“It seems like they have opened the door for more rate cuts because they say that inflation is likely to be close to target. I think there’s a possibility there may be another cut in December.”

With China imploding, and the end of the commodities bubble, and the collapse of the real estate bubble, Australia will face the implosion of two enormous bubbles and the only engines of their bubble economy.

From here, I think the probability for the Australian Bubble Economy to fall into the abyss is very high. So high that I wouldn't be surprised to see the AUD/USD trade at 0.50. The probability for this to happen is in my opinion much much higher than to see it at 1.50 as one of my bullish blogger states.