Sept 21. Still about real estate
Contrast these two snippets that were cited in Prudent Bear:
September 16 – Bloomberg (Dan Levy): “Tom Perkins, the venture capitalist whose firm helped finance Google Inc. and Amazon.com, paid $9.35 million for a penthouse condominium in the Millennium Tower, San Francisco’s tallest residential tower. The 4,806 square-foot apartment is on the top floor of the 60-story building in the city’s South of Market area… ‘It’s a good time to buy things other than paper,’ Perkins, 77, co-founder of… Kleiner Perkins Caufield & Byers, said…”
September 15 – Bloomberg (Chia-Peck Wong): “A one-bedroom apartment in Hong Kong’s Kowloon district was bought by a local businessman for HK$30,025 ($3,874) a square foot, a record price for properties of that type in the city… The broker sold the property for HK$24.5 million ($3.2 million).”
The Hong Kong property is $3874 sq ft, while the SF penthouse is $1945 sq ft. Just for fun I looked at the Trump Tower in Chicago, where there is a 2 BR on the 73rd floor for $543 sq ft. (price has been slashed 30%). In the Gold Coast area in Chicago an expensive 1 BR is $360 sq ft, or one tenth the HK price.
I don’t know what conclusion to draw except to say that China’s stimulus package has perhaps created a bubble, while the US actions have simply stabilized the real estate market.
–Interesting Jim Grant article in WSJ
In the post World War II era, the government has attacked recessions with an average fiscal stimulus of 2.6% of GDP and an average monetary stimulus of 0.3% of GDP, for a combined countercyclical lift of 2.9%. (Fiscal stimulus I define as the cumulative change in the federal budget, monetary stimulus as the cumulative change in the Fed’s balance sheet, both measured from the peak of the boom to the trough of the bust.) This time out, the fiscal stimulus is likely to measure 10% of GDP, monetary stimulus 9.5% of GDP, for a combined pick-me-up equivalent to 19.5% of GDP. Our Great Recession would be marked for greatness if for no other reason than by the outpouring of federal dollars to repress it.
–From the Chicago Tribune
Retail sales in the metropolitan Chicago area fell a record $5.8 billion, or 11.5 percent, to $44.8 billion in the first six months of 2009 from the same period a year ago, said the report, based on recently released sales tax data from the Illinois Department of Revenue. The decline ranks as the biggest percentage decrease in local retail sales in at least two decades.
Sept 21. Yields rose Friday, in front of this week’s FOMC (Wed) and supply in the form of 2’s, 5’s and 7’s (Tues $43B, Wed $40B, Th $29B). Ten year yield up 7.5bps to 3.475%. According to the Atlanta Fed there is about $15B left in treasury purchases under QE, but about $410B left to buy MBS in the next 3 1/2 months or approximately $125B per month.
–Leading Indicators today expected +0.7% the fifth increase in a row.
–The FHA, now insuring about 23% of all new loans, up from 3% in ’06, is likely to see cash reserves fall below the minimum level set by Congress. ‘It’s very serious,’ FHA Commissioner David H. Stevens said..(Wash Post)
–(Reuters) “Payment option ARMs are about to explode,” Iowa Attorney General Tom Miller said….”That’s the next round of potential foreclosures in our country,”
–It still seems to be all about real estate, which appears to have stabilized in the US. The surge in consumption (to a record % of GDP) had been spurred by property value increases and mortgage equity withdrawals. That dynamic has ended, as shown in the Q2 Flow of Funds report. Home Mortgage Debt has declined for the past 5 qtrs. Q2 -1.4% to $10.4T. Consumer Credit has accelerated to the downside, contracting 6.5% in Q2 from -3.7% in Q1 and -2.9% in Q4. All growth is currently flowing directly from government actions/borrowing.
