Perspectives on the global economic meltdown- (Nov 28 2010)

[Hari Seldon]

Hari Seldon,

Do you get the idea that Westhaplian nation-state system as reaffirmed by UN charter is at risk here? How are these states different from Somalia?

Partially true, Ramana garu.

Just like Westphalia didn't exist when it came to India or Indian princely states pre-1947, similarly, many submerging nations will find sovirginity eroded mighty fast only. Already in G-7 member Italy, Mario Monti lords as Governer General for phoren financial interests. What then to talk of lesser states like Ireland - whose PM, after winning a landslide in 2010 on the promise of sparing aam aadmi economic pain on account of overweening IMF & EU conditionalities did a prompt turnaround the moment poll results were declared.

Anyway, at some point somewhere, some country will snap, default on its bond payments and exit the eurozone in a disorderly way. CDSes will trigger, a million competing claims will spray around, liquidity will freeze, and the music will stop playing at least for a while. Perhaps. Not looking forward to it but there's a good chance this can happen.

nachiket wrote:
I have never understood this. The countries above Greece in that chart Theo has posted should be deeper in pakistan than Greece no? How come UK and japan are sitting pretty even with all that debt?

The joys of owning and running your own currency. But also, the composition of the buyers of your debt matters a big deal. Japan sells JGBs almost entirely domestically. That model is in danger with ever larger numbers of retirees finally drawing down on their savings and stopping buying fresh ones. Erstwhile sooperpawar UKstan has historically, due to overlordship of India too no doubt, had overly long maturities for its gilts. 7-14 yrs types. So they're set for now but hopefully their karma will catchup with them again soon when the debt matures and fresh debt needs to be sold in a contracting economy with soaring welfare bills.

[Singha]

Europe's lost generation: how it feels to be young and struggling in the EU
Viola Caon left her Italian home to find work. Now she returns to see how her former classmates are faring… and in the week that shocking figures showed how badly Europe's youth is being hit by the unemployment crisis, we also talk to hard-hit twentysomethings in Athens and Madrid
http://www.guardian.co.uk/world/2012/ja ... n-young-eu

reading the tales of these struggling youths in italy, spain and greece - notice how well fed they look and how well dressed...they easily spend as much money on clothes as the rich in india.

methinks lot more fat to burn before things get ugly.

[abhischekcc]

Burn baby burn!!!

[Singha]

http://online.wsj.com/article/SB1000142 ... picks=true

some fascinating stats on the f*ed up nature of the saudi economy. apparently 80% of saudi workers do so for the govt, and govt spends 40% of its budget on paying this army of people...and pvt employers pay 30% of saudi salaries to foreign workers.

[abhischekcc]

Same in UAE - 90%. And a majority in police and armed forces.

[Singha]

great..nothing like employing the entire population as religious police to keep an eye on each other!

[Christopher Sidor]

The Euro-Zone core is realizing some facts
1) Greece's Debt reduction by private players, with a 50% reduction in face value of bonds, 4%(approx) interest bonds of 20-30 years is just not enough. They are asking for private lenders to take more losses.
2) The 2nd installment of Greek debt, which is approximately worth 130 billion, will have to revised upwards to 145 billion and may be more.
3) Greece has not kept its end of bargain. It has not privatized fast enough nor has it liberalized fast enough.
4) Till now the unstated assumption was that private lenders would have a loss only on Greek bonds, but not on other countries. But signals are now coming that Portugal might go down the same path as Greece.

The recent proposal by Germany to appoint a monitor for Greece for the so called reforms was shot down by the french, who said that there was no plan to put Greece under "guardianship"

But in all of this there is a silver lining. It does appear that there are some voices in the Euro Zone core who want to target growth/stimulus instead of austerity.

[pankajs]

The politics of the situation is who will pay for the free lunch enjoyed by some countries. Germany and France do not want to pay for the mess. They want Greece to settle the major portion of its debt and not the German/French tax payer.

[Hari Seldon]

^^^ Time 'em bondholders got a haircut and then some. Lusting after higher nominal returns the weak greek economy promised back when times till looked good implies the risk part of the equation also be borne, not just the reward part.

Meanwhile, from the excitable zero hedge:
Greece Warns It Will Soon Be In "Condition Of Absolute Poverty"
http://www.zerohedge.com/news/greece-wa ... te-poverty

[svinayak]

http://blog.jasonhsu.org/

India is out of this scenario. Check this out.

SATURDAY, JANUARY 28, 2012

Will the U.S. be like Japan?

Japan is aging rapidly and is, already, one of the oldest countries in the world. The Japanese government is heavily in debt—more in debt than most European countries and the U.S. What can we learn from Japan? Many pundits are fond to compare the U.S. to Japan, suggesting that the U.S. may enter an extended period of near zero interest rate coupled with zero growth. Is that an optimistic or a pessimistic forecast?

If we examine the Japanese debt and demographics situation in more detail, we will see that the Japanese problem is very different from the European and the U.S. problem. Instead, Japan provides a more relevant lesson to the Asian economies, like Taiwan, Singapore, Korea and China, which are all aging quickly as well.

The Japanese Debt Situation
The Japanese government debt level, which stands at 230% of its GDP or 12.5 Trillion USD, is one of the worst in the world. However, its corporate + household savings more than offset the government debt. Most of the Japanese government debt is held by its own people. Japan, as a country (public sector + private sector) owes external countries only about 2.4 Trillion USD, or just under 40% of its GDP, while running a 120 Billion USD trade surplus against the world and holding foreign currency and gold reserve of more than 1 Trillion USD. If we include Japanese foreign investments (stocks and other securities), Japan’s net investment position stands at positive 3 Trillion USD, or roughly 56% of its GDP. Japan is a significant net global capital supplier.

By comparison, the US government and private sector combined has an external debt of 14.8 Trillion USD, which is just above 100% of its GDP. It runs a 750 Billion USD trade deficit against the world and a reserve of 130 Billion USD. Its net investment position stands at negative 2.4 Trillion USD, or roughly -17% of its GDP. Recent research shows that the U.S. external debt and its negative net investment position are both significantly understated, making the actual balance sheet health substantially worse.

From a net investment perspective, Japan is in a significantly better shape than the U.S. and most European countries. Japanese government debt can be resolved without renegotiation with foreign governments. The government debt can be settle internally with its own people through higher implicit and explicit taxes (higher income and consumption taxes in combination with low interest rate and high inflation). Since the debt renegotiation will occur entirely as domestic wealth transfers, this will leave no appreciable impact on international trades. The European nations and, to a lesser extent, the U.S. do not have such a “pleasant” option.

The Japanese Households and their retirement planning
The Japanese households are probably one of the most sophisticated and responsible in terms of how they plan for retirement. They appear to have been particularly prudent in the face of aging global demographics.

The Japanese post war boomer households, seemingly aware of the reality that they will be retiring near the top of a demographics bust--where the population will be dominated by old and non-productive retirees--have saved enormously. In 1980, there were nearly 6.5 working persons producing goods and services for every 1 retired Japanese person. In 2030, there will be only 1.8 working persons producing goods and services for each retiree. The massive shortfall in per capita production means a massive short fall in domestic goods and services available for domestic consumption.

As a people, the Japanese worked diligently and saved diligently, running large trade surpluses (consuming less than they produce) and acquiring foreign assets with their national savings. The assets that the Japanese households have built over time are meant to help them when they retire near 2025. The boomer’s savings will be used to purchase goods from foreign producers and to afford the higher cost for scarce domestic services, like assisted living and healthcare.

This may largely explain why regardless of how strong the Japanese economy grew or how high their per capita GDP was, the Japanese households always studiously saved. The Japanese households acted as if they were exceptionally aware of their looming demographics problem, even if the problem was decades away. With 266 Billion USD (56% of GDP) in net foreign investments, the Japanese households have a substantial claim to future global productions to buffer their own GDP decline associated with declining workforce.


Japanese Government Intervention
Many economists like to tell the joke that Japan has the world’s first rated workers, second rated bankers and third rated politicians. There seems to be some truth to that assessment. The high savings rate of the Japanese workers has been significantly offset by the huge and persistent Japan government deficit. The government’s fiscal imprudence has, over time, developed into one of the largest government debt in the world; only Zimbabwe has a higher government debt-to-GDP ratio. The government debt has eroded significantly the value of the retirement assets and the purchasing power of the Japanese savers.

In the last 20 years, the Japanese government has kept interest rate near 0%, which has resulted in zero interest income for the Japanese households on their trillions of dollars in savings. This is essentially a policy of transferring the workers’ wealth accumulation to subsidize out-of-control government spending. The consequence of this policy has meant that Japanese household must further reduce consumption and save even more aggressively.

While low interest rate and excess government spending are classic Keynesian stimulus policy tools, neither has proven effective, in Japan, at inducing more private sector consumption or real investments or at creating subsequent GDP growth. Instead, the Japanese households have had to engage in one of the most aggressive savings programs in the developed world due to the need to combat their government’s persistent low interest rate monetary policy and a spendthrift fiscal policy.

And it comes full circle
Have we saved enough for our future retirement, which unfortunately will occur at a time of worsening demographics and therefore reduced availability of domestic goods and services? Has the deterioration of government finances created a black hole in the national balance sheet that the household sector cannot offset, regardless of how much the household de-leverage and save? Are we prepared to face the reality that our standard of living, in the future, must decline substantially because we have not saved enough to offset our demographics trend but have, in fact, overspent to exacerbate the problem? Are we prepared to ship our scarce domestic production to the Japanese and Chinese consumers near the boomer retirement peak in 2025? Are our boomers ready to delay retirement to work for the Japanese and Chinese retiring boomers over the next few decades in the same way that they have worked for us, in their prime, in the previous decades?

by jason c hsu

[svinayak]

http://blog.jasonhsu.org/2012/01/compet ... nited.html

The “real” competition between China and America
However, there is a very real and very significant competition between China and America that is yet unseen to the casual observer. While there are plenty of positives associated with the rise of China as a global economic power, there is one unavoidable consequence that Americans must take notice. Surprisingly, it is the one factor that has thus far been ignored by scholars, policy makers and the media.

The rise of China necessarily means a rise in the income for the 1.5 billion Chinese consumers, which predicts the creation of a middle and an upper class that outnumbers collectively the middle and upper class families in the U.S. These new consumers will be competing for global goods and, indirectly, for the consumption of global labor supply and raw resources.

[bIn many ways, the competition between global consumers is far simpler to analyze—the consumer with the greatest wealth and credit line wins the consumption war at the end of the day. The simplicity of this competition gives us some very stark predictions about prices and consumptions in the future.

Low savings rate and, in many cases, negative savings rate have resulted in significant household debt. American households have begun a long road of de-leveraging, which reduces their ability to consume and their willingness to pay high prices. The Chinese households are facing the opposite situation. As more and more Chinese continue to join the rank of global consumers and, in the process, bidding up prices for goods, global producers will increasingly cater to this consumer group, which is increasing in numbers as well as purchasing power. Due to the enormous trade surplus which China runs against the U.S., the RMB must ultimately appreciate to restore trade balance and to reduce the high U.S. labor costs in international trade competition. This further increases the purchasing power of the Chinese households.

The combination of poor household balance sheet and declining real wealth due to weakening dollar means that U.S. households will be increasingly less competitive as consumers for goods and services.[/b] Indirectly, this means global labor, capital and raw resources will increasingly be reconfigured to supply the consumption needs of the Chinese households.

[svinayak]

http://blog.jasonhsu.org/2011/11/how-bi ... dwind.html

Aging and retirement trends to create surprise shocks for global economies

Support ratio will deteriorate significantly over the next two decades
As developed countries struggle to deal with funding the retirement benefits and medical care for the aging Boomers, they will also need to prepare for other impacts associated with the changing demographics. Most significantly, countries must face the dramatic decline in the support ratio associated with an aging population. It is projected that the support ratio in developed countries will decline from an average of 3.5 working adults per retiree today to below 2:1 by 2050. By comparison, in 1970, the support ratio was above 5:1. Not only will countries need to care and provide for the largest pool of retired workers in history, they will also be supporting these retirees with untenably few number of workers. A key consequence of reduced support ratio will be high domestic inflation as the large number of consumers bid up prices for the services and productions from the few laborers.

Aging population and trade deficit
People consume goods and services which are produced by workers. A sharp decline in the American and other developed country workforce means that developed economy households must either reduce consumption drastically or increase reliance on imports from emerging countries. Thus, the trade deficit between developed countries and the emerging countries must continue to widen aggressively, or the per capita consumption, and therefore, the standard of living for developed countries must decline precipitously.

However, the only way for most developed countries to maintain (and increase) their trade deficit against the emerging countries is to borrow heavily from the emerging countries. If the PIIGS are any indication of what is to come, the balance sheet, and ultimately the credit rating, of the developed economies simply would not allow further aggressive borrowing or further trade deficit. This foretells a significant deterioration in the standard of living for many developed countries.

Boomers and their retirement planning
Demographic shifts are generally considered to be non-risk events, in that they can be fully anticipated ahead of time. Saving, consumption, and investment decisions would allow individuals to largely manage the (adverse) effects of (unfavorable) demographic shifts. Boomers should have anticipated the untenable support ratios in their retirement. They were supposed to save aggressively during their working years (delaying pre-retirement consumption) and then convert their large and plentiful retirement assets into retirement consumption, particularly paying up for imported goods. Boomers should also have anticipated a significant rise in the cost of domestic services, which cannot be effectively imported from foreign labor markets.

Instead, what we observe today is inadequate retirement savings. First of all, it is long understood that the pay-as-you-go (vs. fully pre-funded) social security scheme cannot work effectively as a credible mechanism for inter-generational risk-sharing in the face of declining support ratios. There are insufficient numbers of young people paying into the system to support the social security payments for those who have retired. Whether the U.S. social security is a Ponzi scheme or not is largely semantic. The reality is that the social security payments are not pre-funded and the U.S. government must either change the terms of the payments (a soft default on the obligations) or miraculously find significantly more tax revenue in the near future. The backstop plan, pension schemes, or forced retirement savings, are meant to protect workers from the risk of social security insolvency. Unfortunately, low contributions, high costs, and poor governance/institutional design have generally led to poor funding and adequacy ratios as well as poor coverage for pension plans.

No matter what the existing laws governing retirement benefits (which of course were passed under the Boomers' watch) might say, the unfortunate truth is that there is insufficient funds. The problem is far beyond taking from the savers and giving it to the non-savers; in the aggregate, we didn't save enough--this cannot be dealt with by simple wealth sectional transfers from one part of the population to another. It is an unavoidable outcome that the Boomers retire later and with lower retirement benefits than they were expecting.

Asian Demographics
Unfortunately, the major Asian economies are also aging rapidly. Japan is already quite old. Taiwan, Korea and other Asian Dragons are aging rapidly due to low birth rate. This means these net exporters and supplier of global consumption goods will start to export less as they also face domestic decline in labor force.

In fact, these Asian countries will start to reverse their trade surplus and begin to import more aggressively to fill their domestic production gap. (Please see the blog posts "Does Asia export too much?" and "Understanding cheap currency policy). The mechanism will likely be a combination of strong currency policy and decumulation of savings for the Asian countries. The latter of which would equate to demanding debt repayment, in the form of consumption goods, from the Western countries. The combination of weakening U.S. and European currencies, which makes Asian goods less affordable to Western retirees, and the debt repayment to Asian countries through increased exports, means that Boomers will face an even more severe price inflation than what is predicted by the massive reduction in support ratio.

Debt and demographics interact (in a bad way)!
The problem is further compounded by an inability to further borrow against the future. This failure is not due to a lack of political will and mechanism to exploit our children, but by the inconvenient reality that the future has already been fully monetized. Rating agencies and international lenders are starting to be uncomfortable with the debt capacity of the developed countries.

The European debt crisis truly came at the utmost inconvenient time—just before the Boomer retirement wave. To understand the negative interaction between demographics and debt, one merely needs to understand why banks would not lend large sums of money to an old retiring senior with hefty existing debt.

The heavy debt burden for the Western world will have negative impact beyond preventing additional borrowing to smooth retirement shortfalls. The debt also needs to be repaid. By the very same argument above, the Asian countries, which have been saving and running a trade surplus against the Western world, will start to decumulate their retirement savings and demand debt repayment, in the form of import goods, to deal with their own demographics challenges in their retirement. This means the few Western working adults would need to ship a significant portion of their outputs overseas at a time when there is already insufficient production.

Conclusion:
What was a predictable inevitability—the reality of an aging population—that could have been managed, will likely become a shock that surprises economies and markets in a most unfriendly way. Instead of saving during their peak earning years, Boomers spent. Instead of building wealth for retirement, Boomers accumulated debt. Now the chickens are coming home to roost; instead of a gradual and smooth change in rates and prices corresponding with the gradual shift in demographics, the likely outcome is a volatile and violent transition from the old equilibrium to the new. In that new equilibrium, not only will Boomers retire later with significant benefit abrogation, they will simultaneously face tremendous price inflation, which erode what little purchasing power they may have left.

by jason c hsu

[SwamyG]

Europe is becoming like India. The King and his courtiers, sitting in a capital region, receive taxes and provide protection to the people in far regions. This was done using vassal chiefs and smaller rajahs. So is the case in EU. The powers will be concentrated in UK, France and Germany; and the powers, powered by the Rich, will control the peripheral regions like East Europe, Southern Europe ityadi through puppet regimes. These puppet rajahs will ask for their share of the meat to keep its populace under check. I guess French or the Germans do not have the stomach and resources to individually take over or influence these far outpost regions.

If they do not, the individual regions will be easy prey to whoever chooses to attack/impact them - China, India, USA economically.

EU members must share military resources to cope with change in US strategy. EU members do not have the money. Zimple onlee.

[akashganga]

It Is Safe to Resume Ignoring the Prophets of Doom ... Right?


Please provide at a minimum the link title.

Thanks, ramana

[svinayak]

http://wealthmanagement.ml.com/wm/pages ... idebar_1x1

Massive shifts in the geopolitical landscape will continue into 2012. Watch our panel of experts discuss the major events shaping world economies in the coming year.

[svinayak]

http://wealthmanagement.ml.com/publish/ ... r-2012.pdf

TOP RISKS OF 2012
As we begin 2012, political risks
dominate global headlines in a way
we’ve not experienced in decades.
Everywhere you look in today’s global
economy, concerns over insular,
gridlocked, or fractured politics affecting
markets stare back at you. Continuation
of the politically driven crisis in the
eurozone appears virtually guaranteed.
There is profound instability across the
Middle East. Grassroots opposition to
entrenched governments is spreading
to countries such as Russia and
Kazakhstan that were thought more
insulated. Nuclear powers North Korea
and Pakistan (and soon Iran?) face
unprecedented internal political pressure.

[Christopher Sidor]

Deutsche Bank Moves Toward an Uncertain Future --- Der Spiegel Dated 2-Feb-2012

With the Deutsche Bank's CEO retiring, we are seeing the rise of the investment bankers in Deutsche Bank.

In the wake of Ackermann's departure, the bank is to be led by a triumvirate: Jain and Fitschen will pair up as co-CEOs and Paul Achleitner -- formerly a board member at Allianz and the ex-Germany head for the US investment bank Goldman Sachs -- will take over as chairman of the board of directors. At the economic summit in Davos, the trio posed for several photos. The fact that Ackermann wasn't involved in the photo ops speaks volumes.

The bank's future now depends on which of the three takes over the leadership role. Most anticipate that Jain, a native of India, will be the one. Achleitner, after all, will have no operative role in the bank's management and Fitschen, who turns 64 this autumn, is widely seen as an interim solution.

Furthermore, investment bankers such as Jain are seen as being the strongest faction within Deutsche Bank. In recent years, they have received such a huge quantity of stock options that they have become the bank's largest shareholders, owning around a fifth of the company. Achleitner will not be in a position to ignore their voting strength.

The Ackermann era, however, was much less profitable for the rest of the shareholders. Deutsche Bank's stock price has halved in the decade he has been at the top -- despite his target of increasing shareholder value.

So now we have people who have vested interest in continuing the things the way they were. More than 3 years after the Lehman Fiasco, things have not changed. We can now hopefully see "efficient market hypothesis", "government is not the solution but is the problem" and "self-regulation" being adopted once again. And kicker is that despite all of these, there has not been any benefits to the share holders of the banks.

[Christopher Sidor]

Things are not looking good in Greece

Greece on ‘Razor’s Edge’ as Debt Talks Drag On --- Bloomberg Dated 5-Feb-2012

The story so far. Greece will get a second bailout amounting to 100+ billion euros only if two conditions are satisfied
1) Greece is able to clinch a deal with its private creditors to have its debt written off/reduced.
2) Greece is able to implement Austerity measures which it has not done till date

“The distance between success and failure, which could come from misfortune or misunderstanding, is very small,” Greek Finance Minister Evangelos Venizelos told reporters in Athens yesterday after consultations with euro area finance ministers. “We are on razor’s edge.”
Venizelos said while agreement had been found on issues such as bank recapitalization and state asset sales, the government and the so-called troika of international creditors were still at odds over labor reforms and fiscal measures for this year. The talks with euro-area finance ministers were “very difficult,” he said.
....
....
Open questions involve how much more aid Greece needs, how much more austerity is required, and how to involve the European Central Bank in the debt swap.
....
....
Venizelos said everything needed to be completed by tonight. (i.e. 5-Feb-2011)
....
....
Deutsche Bank AG Chief Executive Officer Josef Ackermann said a collapse of Greece’s economy would open a “Pandora’s box” that would kill a euro-area recovery. (And with it herald atleast a world recession which will make the 2008 disaster seem like nothing. This is the optimistic side. The pessimistic side is saying that we are headed for a world wide depression, like 1930s.)
....
....
With Papademos’s [the current Greek PM] term set to end when general elections are held, most likely in April, EU and IMF officials seek guarantees from political leaders in Greece that they[i.e. the new Greek leaders] will stick to pledges made to receive the financing.
....
....
The troika[i.e. EU, ECB and IMF] demanded the minimum wage be cut to less than 600 euros a month and that at least one holiday allowance be abolished, Mega TV said, citing unidentified ministers who met with Venizelos yesterday. Supplementary pensions should be cut by 35 percent, the Athens-based channel said.
....
....
Greece has lagged behind budget targets set when it won an initial, taxpayer-funded rescue of 110 billion euros in May 2010, prompting euro-area threats to cut off aid and hastening a German push to make bondholders contribute.
....
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“We can’t pay into a bottomless pit,” German Finance Minister Wolfgang Schaeuble said on Feb. 2. “Greece needs a new program, there’s no question about that, but Greece must create the conditions for it.”
More austerity risks triggering a “social explosion,” Hieronymos II, the head of Greece’s Orthodox Church, said in a statement on Feb. 3.
....
....
[Private] Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds in the exchange, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet.

Just to recap, certain Euro-Zone nations are asking for an average coupon rate of as low as 3% instead of 3.6%.

[Neshant]

between the govt and con artist bankers, its going to be a challenge preserving the fruits of your labor. The only way to keep what you have earned is to get your money out of the country on the quiet.

The inevitable end result of a wortless paper money system is more & more theft from the productive until a collapse occurs.

[yogi]

between the govt and con artist bankers, its going to be a challenge preserving the fruits of your labor. The only way to keep what you have earned is to get your money out of the country on the quiet.

The inevitable end result of a wortless paper money system is more & more theft from the productive until a collapse occurs.

This is one of the most ludicrous and crackpot argument I've ever read from you. Don't save for retirement through 401k, because government is going to eat it?
So 20 years down the line, if this wet-dream doesn't come true, are you going to pay for the loss and all the misinformation?

BTW, 401k is just a kind of financial account. Someone looking for diversification can buy gold, real-estate, currency, and commodities through their 401k account. Not just that, but also Inflation Protected Treasuries. But I guess, you don't quite believe in those as well. The real advantage is that its tax-deferred. If you like to pay 25-30% tax on what you earn, good for you. But why confuse others, who can get a benefit out of it. I so hope that you follow what you preach others.

[ramana]

San Jose Mercury News reported on Sunday that atleast 1500 homse worth over a Million are all under foreclosure. Those in short sale is atleast double that. These numbers are three to four times that in 2008.
That is a risk in 2012 that is not factored in : the collpase of high end mortgages.

[Theo_Fidel]

^^^

The particular term in the USA is 'Jumbo loans'. Typically $500,000 and above.

Historically these were only for the very wealthy. Interest rates are higher and more money down is required. But there were advantages. You could get them at 40 to 50 year terms. Also could go interest only and flip the house at higher valuation gains. So for a similar risk capital you could get greater return. The rules were loosened dramatically by the Bush administration. They were heavily marketed. There were at least 2-3 calls during the peak at my house with people offering to turn my house into a jumbo loan with the difference paid out in cash as home equity loan. At least one of my neighbors succumbed and bought a brand new jet ski with the money.

Of course now all most all of these mortgages are underwater. Some by 50% or more. I saw an add for $1.2 million house that has been marked down to $550,000. Talk about being underwater.

[yogi]

San Jose Mercury News reported on Sunday that atleast 1500 homse worth over a Million are all under foreclosure. Those in short sale is atleast double that. These numbers are three to four times that in 2008.
That is a risk in 2012 that is not factored in : the collpase of high end mortgages.

Ramana, for every million dollar lost in foreclosure in Silicon Valley, there is a brand new millionaire being made. Each time a major IPO goes out (like Zynga, LinkedIn, etc.), or an acquisition of a startup happens (several dozens in past 12 months) there are new people, flush with cash, willing & capable to buy a million dollar home. And then there is the mother of all IPOs - Facebook, which is going to make hundreds of millionaires.

All this is typical boom-bust cycle in silicon valley, where the new millionaires move in, and the old settlers move out due to one reason or the other (today its foreclosures, previously it was job loss or company shut-down, e.g. Sun, SGI)

I can tell from personal experience, that there is no slowing down of Bay Area real estate. I have been looking to rent a single family home in Sunnyvale/Mountain View area. But in every open house, there are about 10-15 other people, who are willing to rent the place, and also willing to pay 100-150$ above asking monthly rent. A friend (who is looking to purchase) told me last night that whenever he found a good home for purchase, there were at least 10 bidders, who have deeper pockets, and this scenario was repeated for him for every single property he looked at.

Btw, here is the SJMN article link

[ramana]

Yes. However all those new web 2.0 millionaries are all 'urban loft' type people. So no relief for the existing high value home owners to get off the roller coaster.

[VikramS]

Regarding BayArea RE, the desirable districts with good schools et. al. are solid. Listings do not stay on for more than a week. The problem is in the not-so-great areas which rocketed up during the boom which is gradually deflating. There was no reason why a giant home in South San Jose, at the edge of the urban belt would sell for $1M above its building costs. The land there is just not as valuable as something at the center of the Y created by the south Bay; the lower tip of the Y (S. San Jose) and the East Bay areas (left arm) are the parts affected badly. Both of these areas have a lot of land just across the road to build on.

While it is true that a large number of workers in the Web 2.0 were the loft types, once they are rich and slightly older, they are not against moving from the loft to the estate. Just look at home prices in Palo Alto.

[pgbhat]

Yes. However all those new web 2.0 millionaries are all 'urban loft' type people. So no relief for the existing high value home owners to get off the roller coaster.

Was helping a friend scope out for apts in SFO. He was planning a move from Mtn view to SFO. Rents in SFO are We looked at some and they were like 4000-5000 USD/month for two bedroom.

[Suraj]

The Greek kabuki theater is going to continue until:
a) Greece agrees to the Troika's measures (very unlikely) or
b) the LTRO 2.0 is setup to install the firewall around Greek debt so the subsequent default and CDS trigger isn't catastrophic to German and French banks.

Most of the foreclosures in the bay area are Contra Costa county, and south San Jose areas. The 'fortress' areas of Palo Alto, Cupertino etc will remain stuck in the stratosphere for a long time to come, with only homes much above median prices in the area having any potential for a foreclosure. Elsewhere on the other hand, entire tracts have gone into foreclosure.

[Prem]

http://www.bloomberg.com/news/2012-02-0 ... -says.html

China Risks 4-Point Growth-Rate Cut in Case of Europe Worsening: Economy

China’s economic expansion would be cut almost in half if Europe’s debt crisis worsens, a scenario that would warrant “significant” fiscal stimulus from the nation’s government, the International Monetary Fund said. Based on the IMF’s “downside” forecast for the global economy, China’s growth could drop by as much as 4 percentage points from the fund’s current projection, which is for 8.2 percent this year, the organization said in a report released today by its China office in Beijing. The outlook expands on the IMF’s warning last month that the world could plunge into another recession if Europe’s woes deepen. Premier Wen Jiabao reiterated last week his government will “fine-tune” policies to support growth amid the region’s debt crisis and the cooling domestic property market. “China’s growth rate would drop abruptly if the euro area experiences a sharp recession,” the Washington-based IMF said. “However, a track record of fiscal discipline has given China ample room to respond to such an external shock.” The government should cushion the impact of a deeper slowdown with measures including tax cuts that amount to about 3 percent of gross domestic product, it said.

[vina]

The land there is just not as valuable as something at the center of the Y created by the south Bay; the lower tip of the Y (S. San Jose) and the East Bay areas (left arm) are the parts affected badly

How is Marin county holding up ? I guess along with the grittier and more "latino" areas of south san jose, the overbuilt gigantic developments in east bay .. Dublin, San Ramon, Pleasanton and the chi chi estates in Camino Tassashara /Black Hawk kind of places with golf courses would be lot less desirable now.

The usual peninsula (Burlingame, San Mateo, San Carlos, Belmont, Palo Alto, Cupertino, Los Altos, Mountain View,Sunnyvale, Saratoga, Los Gatos), especially, the uber chi-chi lining the I280 (truly among the most beautiful places on earth, my land lord kept telling me, you can keep the entire universe to the east of bay I couldn't care, I just want the land between the Pacific and the bay) should be holding up extremely strongly. The me too boom areas should have cratered.

Dunno about Marin. That too should hold up decently I guess.

[Prem]

Mid peninsuela is still receiving multiple offers and appreciation was about 6% last year in Palo Alto,MenloPark, Atherton , Lost Altos etc. East bay is damaged heavely as they have been depreciated quiet a bit. Frisco is doing great. Los Gatos , Saratoga, Cupertino is always desireable. Dont know about old Marine county. Devestation happened in Sacrameneto area but the worst was actually in Reno/Vegas area of racist Nevada .And My retirement plant went to oblivion.

[kmkraoind]

Romania's Gov't Collapses After Protests - Time

(BUCHAREST, Romania) — Romania's government has collapsed following weeks of protests against austerity measures, the latest debt-stricken government in Europe to fall in the face of raising public anger over biting cuts.

Emil Boc, who had been prime minister since 2008, said Monday he was resigning "to defuse political and social tension" and to make way for a new government. Thousands of Romanians took to the streets in January to protest salary cuts, higher taxes and the widespread perception that the government was not interested in the public's hardships in this nation of 22 million.

Read more: http://www.time.com/time/world/article/ ... z1lgZqE2qj

[Prem]

Mighties has fallen

’s

biggest makers of phones, televisions and chips say they’ll lose about $17 billion this year, about three-quarters of what Samsung Electronics Co. will spend on research to lengthen the lead over its competitors.
Sony Corp. more than doubled its annual loss forecast for the year ending March 31 as it announced a new chief executive officer, while Panasonic Corp. (6752) and Sharp Corp. predicted the worst losses in their histories. Their combined losses compare with the $22 billion that Samsung, Asia’s largest consumer- electronics company, said it will invest in capital expenditures. Japanese companies hurt by a stronger yen, flooding that swamped Thailand factories and weaker demand for their TVs may not be able to regain ground lost to Samsung and Apple Inc. That’s prompting Sony and Panasonic to focus on sectors including medical devices, solar panels and rechargeable batteries in an effort to revive earnings

[Neshant]

This is one of the most ludicrous and crackpot argument I've ever read from you. Don't save for retirement through 401k, because government is going to eat it?

Stop being brain washed by idiot wealth managers - many of whom in recent times have managed their clientel into poverty - and start thinking for yourself. 401K is a scam in the making just like SS is a ponzi scheme.

BTW, 401k is just a kind of financial account. Someone looking for diversification can buy gold, real-estate, currency, and commodities through their 401k account.

Who care what you can buy if taxes are raised on it at the time of withdrawl or other suppliments are clawed back in increasing amounts based on the fact that others who haven't saved need it more.

Not just that, but also Inflation Protected Treasuries.

CPI figures are fake and the inflation statistics put out by the government are bogus. What inflation stats do you think interest on "inflation protected" treasuries are based on?

In a way, we have to be grateful for guys like you. Without suckers to take money form through inflation and taxation, where would the money come to pay off trillions in gambling losses of banking crooks now sitting on the govt balance sheet? Someone has to eat that loss and I'm not up for it. Suckers are in HIGH demand.

From what I've heard, in Australia, rules were changed such that 10% of retirement funds are now required to be parked in govt bonds. Its only a matter of time before the 10, 20, 30..etc % rule in enforced in the US & Canada. Regardless of what way it comes, taxes and clawbacks on retirement funds WILL be enforced.

Financial companies of course have it in their interest that people keep contributing to 401Ks and gamble in the stock market where they have the game rigged through easy access to money & credit - not to mention fees. Anyway the scope of the issue is too broad to answer in one message. It will surfice to say that guys like you just don't have the wearwithall to understand even the basics of the scam let alone the intricacies. I've got the PhD in scam detection.

[Neshant]

dang it!

Iran defaults on rice payments to India

http://www.reuters.com/article/2012/02/ ... CX20120207

[Neshant]

Greek bonds are now at surreal 523%...

http://pigbonds.info/

[Christopher Sidor]

Greece is in the final stretch of negotiations. Hope it is settled soon enough.

After the failure to appoint a commissioner who would monitor Greece's obligations under the 130 billion euro bailout, who would have essentially been the pro-consol or viceroy of Greece, it appear that there is talk to set up a separate fund or account, which will be used to pay the interest payments of Greek Bonds. The money for this account will come from the 130 billion euro amount earmarked for Greece.

It also seems to imply that if Greece does not meet its obligations, part of the 130 billion euros will held up. So European financial institutions will get the interest amount that is due to them, thus avoiding a default, but Greece will not get the entire 130 billion euro. So the financial institutions avoid a default but Greece goes bankrupt. No CDS are triggered. This is like implementing the commissioner proposal without the commissioner.

Source is Bloomberg

[hnair]

Dunno about Marin. That too should hold up decently I guess.

Marin is doing ok, not as best as the other places you and Jhujar-saar mentioned above in the Peninsula. Some time back, I sort of was nosing around this place in Tiburon for some estate-sale loot and was talking to this lady, who inherited a house she wants to sell. She does not seem too happy. Even worse according to another dame I know of in Mill Valley. Good time to buy for some fine, fine, fine views

Btw, the Sierra Mountains resort type properties on the correct side of border (CA side) are ripe for a looting. Abysmal prices and year round rental possibility

[Neshant]

Greece is going milk all the money it can out of european suckers and then default on it all. European governments "lending" money to Greece already know this. The Greek bonds are screaming the obvious. So why are French & German governments putting their taxpayers at risk by lending Greece even more money?

Its basically a bailout to French & German banks. They get the "loans" back from Greece while the taxpayer gets to hold the IOU from Greece.

Everyone will act shocked when Greece defaults. But its all planned. Banking goons are once again offloading their losses onto the backs of suckers.

[Prem]

http://www.businessweek.com/news/2012-0 ... -data.html

China’s January Exports Probably Fell, Minister Says Before Data

Feb. 10 (Bloomberg) -- Chinese Commerce Minister Chen Deming said exports probably fell in January after foreign trade slowed in the second half of last year, as he pledged to maintain “stability” in the yuan’s exchange rate.Overseas sales last month “cannot make us optimistic” and are “expected to have negative year-on-year growth due to Chinese New Year and other factors,” Chen said yesterday in a written response to Bloomberg News. “Chinese trading companies, particularly small and micro businesses, have come under growing pressure.” Hong Kong’s Hang Seng Index fell as much as 0.4 percent following the comments.
Slowing trade adds pressure for monetary loosening to support economic growth even with officials yet to claim victory over inflation. Consumer-price gains picked up for the first time in six months in January, pushed up by holiday spending, a government report showed yesterday. Export data are due today, with the median estimate of analysts showing a 1.4 percent decline from a year earlier.We will keep the overall stability of our export and import policies,” including tax rebates, and maintain the stability of the yuan’s exchange rate and “relevant policies of processing trade,” Chen said in an English translation from the Ministry of Commerce. Any policy “fine-tuning” will be supportive, not discouraging, he said.
‘Underlying Weakness’
Fourteen of 31 economists in the Bloomberg survey had estimated an increase in exports last month from a year earlier, with 16 predicting a decline and one forecasting no growth. Forecasts ranged from a drop of 10 percent to a rise of 8.4 percent. A fall would be the first in more than two years.

[Suraj]

dang it!

Iran defaults on rice payments to India

http://www.reuters.com/article/2012/02/ ... CX20120207

Iran turns to barter for food as sanctions cripple imports

Iran is turning to barter - offering gold bullion in overseas vaults or tankerloads of oil - in return for food as new financial sanctions have hurt its ability to import basic staples for its 74 million people, commodities traders said Thursday.

Difficulty paying for urgent import needs has contributed to sharp rises in the prices of basic foodstuffs, causing hardship for Iranians with just weeks to go before an election seen as a referendum on President Mahmoud Ahmadinejad's economic policies.

New sanctions imposed by the United States and European Union to punish Iran for its nuclear program do not bar firms from selling Iran food but they make it difficult to carry out the international financial transactions needed to pay for it.

Reuters surveys of commodities traders around the globe show that since the start of the year, Iran has had trouble securing imports of basic staples like rice, cooking oil, animal feed and tea. Grain ships have been held at its ports, refusing to unload until payment can be received for cargo.

With Iran's rial currency tumbling, the prices of rice, bread and meat in Iranian bazaars have doubled or more in dollar terms in recent months.

Iranian grain importers have in the past side-stepped sanctions by booking business through the United Arab Emirates, traders said, but this option was cut off by the UAE government in response to sanctions.

Iran has been trading oil in currencies like Japanese yen, South Korean won and Indian rupees, but such deals make it difficult to repatriate profits.