Evening Reading – January 10, 2011
FT Alphaville: The economic impact of the foreclosure slowdown
There are several things happening here, and we’re not sure we understand all of them or how they interact, so perhaps it’s best simply to summarise.
On the one hand, the decline in the pace of newly-initiated foreclosures (and the delays in processing already-initiated foreclosures) might be good for the economy because:
– Fewer houses come to market, thereby propping up prices (or slowing their decline)
– Therefore fewer people go underwater on their mortgages
– Foreclosures have a devastating impact on the prices in the surrounding neighborhood
– Households preserve more wealth and are therefore more likely to spend rather than save
– Consumer confidence in housing increases
– More loan modifications (though how many successful ones is unclear)
– Time is bought for the rest of the economy to recoverOn the other hand, this might not be good for the economy because:
– The problems in the housing market have simply been put on hold, not solved
– The excess inventory in the market won’t clear unless prices fall to a more natural level, and the sooner the inventory is cleared, the sooner the housing sector recovers and builders can get started again
– It’s unlikely that loan modifications will ever work on a large enough scale to make a difference
– Foreclosure delays are a distorting incentive on mortgage borrowers, who will be more likely to strategically defaultWhat else? We have a nagging feeling that there are unintended consequences (or even straightforward expected consequences) that we simply haven’t thought of. What, for instance, is the effect of these delays on labour mobility?
But we also have a feeling that our readers have thought of some, too, so please feel free to set us straight in the comments.
FT Alphaville: Commerzbank fact du jour
On a day when the Markit iTraxx Senior Financials CDS index traded at a wide not seen since March 2009…
FT Alphaville: QE counter-factuals and counter-arguments
Here’s a pop quiz for macro fans: Federal Reserve asset purchases were equivalent to an X hundred basis point reduction in the federal funds rate and contributed Y million jobs. What are X and Y?
FT Alphaville: Smouldering in Belgium
Portugal is loudly occupying bond markets as they look for the next bailout candidate. But its always the quiet ones you should watch out for.
So we’d suggest looking closer at how markets have repriced Belgian risk lately. It’s getting a higher profile, but investor reactions to the country are still something to behold.
The Slope Of Hope: COT Report Week Ending 1/4
Normally the COT report comes out every Friday for the prior week ending on Tuesday but with the holidays of late the reports have been coming out on Monday, hence the double COT report this week. In the prior post I mentioned how it looked like based on commercial traders positions in oil, copper and the long bond that the SPX could in fact be ready to turn here.
Calculated Risk: Lawler: Early Read on December Existing Home Sales
While I don’t have sales data from that many parts of the country, my “early” read is that the pace of existing home sales increased noticeably on a seasonally- adjusted basis in December from November. Right now my “best guess” is that existing home sales will come in at a seasonally adjusted annual rate of about 5.13 million, up 9.6% from November’s pace.