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With The Supply So Great, Buyers Want To Negotiate

A report from Market Place on New York. “Christa Chi sells Manhattan apartments and homes for a living. So when she listed her one-bedroom midtown apartment in August 2017, she expected buyers to jump. The place had rooftop access and a doorman, so she thought a price of $745,000 made sense. ‘I was saying, ‘Well, everything is new. It’s got light. It’s got space. Maybe I can command a premium.'”

“Chi could not. It took her seven months to secure a buyer. She declined a lowball cash offer, pulled the property off the market, relisted it, then dropped her asking price to $660,000 before finally selling.”

“According to Stribling & Associates, the median sales price for Manhattan property fell 4.4 percent in 2018. Garrett Derderian, director of data and reporting for the firm, said part of the reason is because a lot of new development has given buyers options.”

“‘With the supply so great, buyers who are entering the market, they want to negotiate,’ he said. Derderian found that Manhattan properties spent more time on the market in 2018 than they had in six years. This, he said, is because sellers were hesitant to lower asking prices. He said he has found that sellers have had to reduce their prices two to three times before finding a buyer.”

“‘It’s harder to convince a seller that we’re no longer in the peak of a market and really that prices have come down in Manhattan,’ he said.”

“Steven James, CEO of the New York City office, added that the new federal tax law, which puts a cap on property tax deductions, has made buyers wary of high property taxes. ‘The justification for paying the high taxes was that you got a big, hefty tax deduction on that. That isn’t the case anymore,’ he said.”

From Curbed Los Angeles. “For most of the last decade, Los Angeles has been a seller’s market. Since 2012, when housing prices began to recover from the Great Recession, competition among buyers has been fierce and real estate values in the area have ascended rapidly.”

“But market analysts and real estate agents say those trends are changing. Home prices have leveled off in recent months, and the number of overall sales is far below the historical average. ‘Things have slowed down,’ says Keller Williams realtor Heather Presha, who specializes in the South LA market. ‘The buyer pool is smaller. Normally I’m pretty even-steven with buyers and sellers, but starting in October, I didn’t have any buyers and I had a bunch of sellers.'”

“Compass realtor Emily Bregman, who specializes in Westside properties, agrees that the market is shifting. ‘When you talk about families buying homes,’ she says, ‘they may not be willing to stretch the same way that they were a year ago.'”

The Charlotte Business Journal on North Carolina. “The latest evidence of a possible looming slowdown in Charlotte’s housing market arrived this week in the December report from the National Association of Realtors. The organization found signs of cooling across the nation at the end of 2018, noting gains in inventory and price reductions among several key indicators.”

“While 38 of the nation’s top 45 markets saw a jump in price reductions, Charlotte stood out as having the highest rate of increase — the share of properties with reduced prices surged to 24% last month from 14% a year ago. The report also notes Charlotte saw a decline in median listing prices.”

The Register Guard on Oregon. “For several years now, Lane County’s housing market has been a seller’s delight and a buyer’s pain. Prices have soared into unknown territory over the last four years. In mid-2015, Lane County’s median single-family home sale price was $229,000. By early 2018 the median was up to a Lane County record of $274,900.”

“The median sale this year peaked at $299,000 in August, according to the Portland-based Regional MLS. It’s typical for prices and sales activity to dip heading into the fall and winter months — the county’s median sale price was down to $277,500 in November. But there were also signs that something more than a seasonal slowdown might be in play.”

“Inventory rose above two months in September. As mortgage interest rates continue to rise, economists like Brian Rooney say Lane County’s housing market in 2019 could offer signs of the overall strength of the economy. ‘Housing is always an indicator of what’s going on locally,’ Rooney said. ‘We’ve been seeing a little slowing in sales and inventory there.'”

From ABC 15 in Arizona. “Unlike in New York City or San Francisco, owning your own home is an American dream that is very attainable in Arizona. Just a few months ago, real estate agents said they were getting 15-16 offers on a home. ‘Now it has slowed down. Buyers can breathe, take their time, really look at the properties out there,’ said real estate agent Mara Benson.”

From WLOX on Mississippi. “2018 was a good year for real estate on the Gulf Coast, with sales up 10 percent from the previous year. No doubt, all eyes are on the action of the Fed, from stockbrokers, to real estate brokers, to commercial lenders. One person familiar with the actions of the Fed is a Pass Christian man who actually served on the Fed for more than six years and is concerned with the upward movement of interest rates.”

“‘Candidly, I think they have probably overshot their mark this time,’ said Dave Dennis. ‘When you overcompensate, which is probably what they’re trying to do, you take some first time home builders and buyers out of the market.'”

“He also had another problem with recent Fed action. ‘What I’m concerned about is if rates are too high, the home market suddenly becomes a renter’s market,’ Dennis said.”

This Post Has 85 Comments
  1. ‘When you talk about families buying homes,’ she says, ‘they may not be willing to stretch the same way that they were a year ago.’

    Golly, I hope no one over-borrowed in such an environment…

    ‘Just a few months ago, real estate agents said they were getting 15-16 offers on a home’

    This is freaking Arizona. They can build for the next 200 years. Is it really that hard to see a mania?

    ‘Now it has slowed down. Buyers can breathe, take their time, really look at the properties out there’

    Surprise, surprise…

    1. Phoenix started slowing down a few months ago, based on my own observations. Still quite a bit of aspirational pricing but that stuff just sits. Hallelujah.

  2. ‘It’s harder to convince a seller that we’re no longer in the peak of a market and really that prices have come down in Manhattan’

    The peak was 2015 to 2016 NPR. Smart as a whup those guys.

  3. ‘One person familiar with the actions of the Fed is a Pass Christian man who actually served on the Fed for more than six years and is concerned with the upward movement of interest rates.’

    “Candidly, I think they have probably overshot their mark this time,’ said Dave Dennis. ‘When you overcompensate, which is probably what they’re trying to do, you take some first time home builders and buyers out of the market.”

    ‘He also had another problem with recent Fed action. “What I’m concerned about is if rates are too high, the home market suddenly becomes a renter’s market,’ Dennis said.’

    It’s easy to distort markets, not so easy to handle the consequences.

  4. “Christa Chi sells Manhattan apartments and homes for a living. So when she listed her one-bedroom midtown apartment in August 2017, she expected buyers to jump.

    But…but…I thought realtors, being self-described experts on local housing markets, would’ve priced their skyboxes correctly the first time around. Unless…unless…(gasp) they’re not as knowledgable on local RE markets as they would have their marks, er, clients, believe.

    1. knowledgable

      Possibly she was living in the mania. Knowledge (reality) has nothing to do with that.

  5. “He also had another problem with recent Fed action. ‘What I’m concerned about is if rates are too high, the home market suddenly becomes a renter’s market,’ Dennis said.”

    F**k you, Dennis, and the horse you rode in on. Artificially suppressed rates were what made housing so unaffordable in the first place as the speculators went hog wild. The first house I bought had an interest rate of 8% and required 20% down. I also paid $250K, back in 1999, and the last time I checked it’s Zillow value was listed at $850K. My wife was a stay-at-home mom while our kids were young because even though I was just starting out on my professional career, I made enough to cover the mortgage and provide for my family. Today that would be impossible; we’d both have to work and keep the kids in a daycare kiddie kennel to keep a roof over our heads. So bring back 8% interest rates and 1999 prices, and let the speculators and FBs who overpaid end up living in trailer parks.

    1. You tell it. If housing prices are lower, later-born generations will be better off. But older generations hoping to cash out at high prices and their lenders might be worse off.

      If stock prices are lower, later-born generations will be better off. They’ll earn higher future returns on their savings. But older generations and C-suite executives cashing in options will be worse off.

      Gee, Dennis, what does the Fed need to do? Cut interest rates to keep asset prices inflated? Or raise interest rates to keep the average wage rising at less than the overall rate of inflation, including housing?

      1. Coast businessman ready to give back in new role on Airport Authority board

        August 14, 2017

        “Dennis, who owns Specialty Contractors in Gulfport, served three terms as chairman of the New Orleans Federal Reserve Board, and as chairman of the Mississippi Gulf Coast Chamber of Commerce, president of the Gulf Coast Economic Council, chairman of the Walter Anderson Museum of Art, state chairman of the Business and Industry Political Education Committee and President Pro Tempore of the Coast Coliseum Commission. He ran for governor in 2011, losing to Gov. Phil Bryant in the Republican primary.”

        “All he said he could promise is hard work and honesty. “I would never breech the public trust, that’s just the way it is,” he said.’

        https://www.sunherald.com/news/local/counties/harrison-county/article167172552.html

      2. “Cut interest rates to keep asset prices inflated?”

        The QE unwind will affect asset prices (real estate, stocks) more than rising interest rates. Recall that interest rates were already low, but housing prices and stock shares continued to slide until QE was implemented to “put a floor under asset prices.”

        1. Now that the Fed has successfully inflated asset prices, don’t they have an implicit obligation to keep them inflated.

  6. “Chi could not. It took her seven months to secure a buyer. She declined a lowball cash offer, pulled the property off the market, relisted it, then dropped her asking price to $660,000 before finally selling.”

    Did a little PI work on this one.

    https://www.elegran.com/blog/2016/04/nyc-seller-stories-a-look-inside-christa-chis-gut-renovation

    Found the address:

    https://www.realtor.com/realestateandhomes-detail/357-E-57th-St-Apt-8B_New-York_NY_10022_M36480-39733#photo3

    She bought Jan 8 2016 for $512,500

    Sold June 1 2018 for $660,000

    1. Looks like she spent a fair bit on renovation, so I would say the apparent “profit” maybe isn’t.

    2. “How were neighbor relations during construction?”

      “Our neighbors were quite understanding, although we do like to give people cookies and cupcakes. Hand delivering a card and macaroons to the managing agent during the holidays also allowed us to form a more personal relationship which helped to provide a relatively smooth renovation process.”

    3. She managed to sell for more than she paid, but what did she pay in transaction, rennovation, and HODLing costs?

      1. More importantly, was she able to monetize the unique and special quality of her dream condo that gave her such joy?

  7. Check this one out. Housing, stocks, bonds.

    https://www.marketwatch.com/story/stock-market-investors-its-time-to-hear-the-ugly-truth-2019-01-05

    “For years critics of U.S. central-bank policy have been dismissed as Negative Nellies, but the ugly truth is staring us in the face: Stock-market advances remain a game of artificial liquidity and central-bank jawboning, not organic growth. And now the jig is up.”

    After a long series of charts, this conclusion.

    “What’s the larger message here? Free-market price discovery would require a full accounting of market bubbles and the realities of structural problems, which remain unresolved. Central banks exist to prevent the consequences of excess to come to fruition and give license to politicians to avoid addressing structural problems. And by preventing these market forces from playing out at each sign of trouble, the can gets kicked further and further down the road. Each successive recovery keeps the illusion alive, but ‘accommodation’ requires ever-lower rates before the monsters return. In the meantime, debt keeps expanding, while each recovery produces less and less organically driven growth, and ever-higher wealth inequality. This is what this system produces.”

    Consider this:

    “Central banks exist to prevent the consequences of excess to come to fruition.”

    I thought it was to prevent the excess from happening to start with? But Greenspan and Bernanke and Summers thought otherwise…better to clean up afterward.

    1. the excess

      The excess is profitable. The cleanup is profitable, all at the expense of the populous. What’s not to like in rinse and repeat?

    2. 1) RRE
      From LAT article: “But market analysts and real estate agents say those trends are changing. Home prices have leveled off in recent months,…”
      – So according to just about every RE agent commentary I’ve read recently, prices are NOT declining, but rather only reaching a “plateau” or “leveling off”, or something. Apparently the “prices only go up” narrative must be defended at all costs, at least until reality sets in and it becomes impossible to do so.

      “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.” – Irving Fisher, Ph.D. in economics, Oct. 17, 1929

      “It is difficult to get a man to understand something when his salary depends on his not understanding it.” – Upton Sinclair

      2) The Fed + Everything Bubble
      From MarketWatch article: “Free-market price discovery would require a full accounting of market bubbles and the realities of structural problems, which remain unresolved. Central banks exist to prevent the consequences of excess to come to fruition and give license to politicians to avoid addressing structural problems.”
      – I follow Sven Henrich. He’s sharp, and is on top of this key issue of central banks destroying economies of nation-states worldwide. I’m surprised this was article was allowed to be published! Spot on!

      Global central bank liquidity over the past 10 years got us to this point (i.e. past the bubble peak). Now that “liquidity” is being withdrawn (read removing artificial stimulus, easy $, low rates (ZIRP, NIRP), QE, “the punchbowl”, etc.), the economic system is reverting to pre-stimulus levels. The process takes time, but is now underway and can’t/won’t be stopped. We’re definitely now in the early stages of a severe bear market here in the U.S. due to QT + rising rates, but it won’t likely become apparent to most until later this year. The outcome is, however, “baked into the cake” from the 10 years of artificial stimulus. Yup, the U.S. economy is now in rehab., which will be a slow and painful process, just as it is for the addict/alcoholic. Centrally planned, command economies are doomed, as shown by history. Oh, please! There’s never been a “soft landing” outcome from Fed/central bank-induced asset bubbles.

      “The enduring lesson of the 20th century is that socialism is a failure, and free markets are a success. But the politicians keep advocating just a little more socialism.” – Milton Friedman

      https://twitter.com/Not_Jim_Cramer/status/832718086302101504
      The Panic of 1907 was so severe that it led to the creation of the Federal Reserve. Amen
      – 1907 Panic: DJIA down -49%
      -2008 Panic: DJIA down -53%
      – Great job Fed! Exactly why do you exist again? Oh yeah, that wealth transfer thingy; from the 99% to the 1%. Follow the $
      – “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” – Milton Friedman

      1. Now that the stock market has seen a couple of the best single-day advances in the history of investing within the past two weeks, is it safe to assume that the bear market turned out to have merely been a “scare” market?

        1. Jan 5, 2019, 6:00 am
          Bear Market’s Concerns Become Reality – Now What?
          John S. Tobey, Contributor
          Markets
          A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, April 27, 2018. U.S. stocks were mixed as euphoria from better-than-forecast earnings reports faded with investors contemplating the implications of higher interest rates in an economy that may be cooling.
          Photographer: Michael Nagle/Bloomberg© 2018 Bloomberg Finance LP

          Slowing growth measures are now appearing, confirming the bear market’s price “adjustments.” The question is, “Was the 4th quarter 2018 bear market’s drop enough of an adjustment, or is there more decline to come?”

          Clues to the answer are coming

          The answer is neither in the current fundamental reports nor in the negative reporting and forecasts. Today’s news is what yesterday’s bear market anticipated – it is why stocks fell 15% to 20% on average. In addition, today’s negative commentary is a typical reaction to a dramatic stock market decline.

          To determine whether there will be another bear market shoe to drop, we need to look forward, particularly to the 2019 summer months coming. The task is neither easy nor clear, but we do have many major indicators coming soon: Company earnings reports that will both close out 2018 and provide managements’ (think insiders’) forward views of 2019.

          1. Also characteristic of bear markets: Selloffs at the opening bell which are miraculously erased by the close. I remember watching the major homebuilder stocks do this for many months preceding the 2007-2009 financial collapse; but at some point, da boyz on Wall Street gave in and decided that it was time to flush them down the toilet.

          2. “The burst of the bubble, known as the dot-com crash, lasted from March 11, 2000, to October 9, 2002.”

            It took seven months of pain and suffering for the tech stock collapse to play out, something those eager to buy the dip during the current episode may want to bear in mind.

        2. The Economist print edition
          What the market turmoil means for 2019

          Fears that the Fed will tighten too much are among the reasons the stockmarket has fallen
          Print edition | Finance and economics
          Jan 5th 2019

          AFTER A ROTTEN October and limp November, the S&P 500 tumbled in value by 15% between November 30th and December 24th. Despite an astonishing bounce of 5% the day after Christmas, the index finished the year 6% below where it started (see chart). The first trading day of 2019 extended the market wobble, with stocks closing down in Asia and gyrating in Europe. After markets closed in America, Apple warned that a sharp slowdown in China’s economy, and weak sales in other emerging markets, meant revenues in the fourth quarter would undershoot expectations by up to 10%. Coming a day after news that China’s manufacturing sector contracted in December, that spooked investors globally. S&P 500 futures dipped before Wall Street re-opened on January 3rd.

          That investors have become more risk-averse can also be seen in the bond markets. The high-yield spread, or excess interest rate over government debt, paid by companies with a poor credit rating has been rising. Meanwhile the yield on the ten-year Treasury bond has dropped from 2.98% to 2.63% over the past month, as investors have rushed to the safety of government paper. What is more the yield curve—the difference between yields for short- and long-dated government debt—is almost flat. The market’s response to signs of slowing growth is itself a cause of jangling nerves. Economists at J.P. Morgan have developed a model based only on the historical predictive power of the stockmarket, credit spreads and the yield curve; that implies the probability of a recession in America in 2019 is as high as 91%.

        3. The Economist: “Never been a better time for dips to buy!”

          Buttonwood
          Returns on stocks in 2018 were down across the board

          For long-term investors that is good news
          Print edition | Finance and economics
          Jan 5th 2019

          ONE DAY in 1985 P. J. O’Rourke, an American humourist, invited a few friends to his home to take ecstasy. He wrote about the experience for Rolling Stone. For a veteran of the Age of Aquarius, the side-effects of recreational drugs—the frequent toilet trips; the grimy feeling on the skin; the fitful sleep later on—were familiar. It was all rather underwhelming. “Drugs are a one-man birthday party,” he explained. “You don’t get any presents you didn’t bring.”

          Those who make a living navigating financial markets might understandably be reaching for the happy pills, or at least a couple of painkillers. For them, 2018 was a rotten year. Stockmarket losses were spread widely across the globe (see chart). The total return—capital gains or losses plus dividends—from the S&P 500 index of leading American shares was negative for the first time in a decade. Other markets were worse, notably China’s, where the Shanghai index fell by a quarter. Safe assets eclipsed risky assets. Treasury bonds outperformed stocks. There were worse places to be than in gold, and few better than in cash.

          The source of much of the red ink is concern about the world economy. China’s economy is weaker; there are growing fears of a recession in America this year. Yet the truly far-sighted investor can see through such ups and downs. Indeed for people with a long-term saving goal, such as retirement or children’s college fees, there is an upside to falling stock prices. Over the business cycle, stockmarket returns are also like Mr O’Rourke’s one-person birthday party. Bad returns today imply better returns in the future and vice versa. For those looking to build their stockholdings through recessions and recoveries, falling asset prices are good news.

  8. Are the prices in the Sacramento area still holding up? Or is it only a question of time there too?

    1. Question of time when it catches up with itself. Over built, poor quality ecru developments with high HOA’s, long commutes, high crime…the next modesto really.

    2. Are the prices in the Sacramento area still holding up?

      Not seeing big cuts yet…just lots of stalemate. I think it’s waiting for spring at this point. Both sides convinced the other side will blink after the Super Bowl.

  9. I haven’t given this much thought, but I imagine that a prolonged federal shutdown would somehow affect the mortgage financing process somehow and most likely worsen the collapse of the housing bubble. Appreciate any comments or input.

    1. Affected agencies

      Department of State
      Department of the Treasury
      Department of Justice
      Most of the Department of the Interior
      Department of Agriculture
      Department of Commerce
      Department of Housing and Urban Development
      Department of Transportation
      Department of Homeland Security
      Some Department of Health and Human Services agencies
      [show]
      Executive Office of the President
      Most independent agencies
      Judicial Branch

      Unaffected agencies

      Department of Defense
      Department of Labor
      Most of the Department of Health and Human Services[4]
      Department of Energy
      Department of Education
      Department of Veterans Affairs
      Some Department of the Interior agencies
      Some independent agencies
      District of Columbia[5]
      Legislative Branch

        1. Just got back from Yellowstone and then San Francisco. Much less poop in the national park. I think I might have hit one frozen buffalo poop under the snow with my snowmobile the whole trip.

          1. I guess it is all perspective. I’ve been reading stories about poop piling up at national parks, but I suppose that is nothing compared to some CA and CO streets.

    2. Many sellers in my area have pulled their unsold properties of the mls and plan to put them back on. I guess after Super Bowl or mabye right before. From what I have heard from the horses mouth (realtor’s), they would be smart to keep them off until the gov shutdown ends. Looking at the local search I have saved, I see 3 listings have appeared that we’re removed 30+ days ago so I don’t know if the experts warnings are very effective. I personally think it’s just another small factor to add in and won’t deter potential knife catchers from jumping in but not many of them left…

    3. I don’t believe the Government Sponsored Enterprises, Fannie Mae and Freddie Mac, are affected by the shutdown.

    1. another classic:
      Zillow predicts home prices in Seattle will rise by 6.2% in 2018 and average home prices will hit a lofty $702,000 by the end of the year. With multiple offers the norm, sellers won’t need bidding war strategies to get a record offer on the table or worry about the best home renovations to grow ROI.

    2. It would be difficult to find a place with more decrepit, rotting housing stock than the greater Seattle area. Anything old has mold and rot. Period. The prices represent a hyperinflated bubble, not the cold, hard reality that the structure is oftentimes unfit for habitation.

      1. The Seattle climate is very damp, which seems conducive to mold growth and other factors that hasten structural rot. Seattle is also overdue for a subduction zone earthquake that could dwarf the damage of any earthquake to hit California or even Alaska since they became U.S. states.

        1. Government ranks 18 US volcanoes as ‘very high threat’
          By SETH BORENSTEIN
          October 25, 2018

          WASHINGTON (AP) — Government scientists have classified 18 U.S. volcanoes as “very high threat” because of what’s been happening inside them and how close they are to people.

          The U.S. Geological Survey has updated its volcano threat assessments for the first time since 2005. The danger list is topped by Hawaii’s Kilauea , which has been erupting this year. The others in the top five are Mount St. Helens and Mount Rainier in Washington, Alaska’s Redoubt Volcano and California’s Mount Shasta .

          “This report may come as a surprise to many, but not to volcanologists,” said Concord University volcano expert Janine Krippner. “The USA is one of the most active countries in the world when it comes to volcanic activity,” she said, noting there have been 120 eruptions in U.S. volcanoes since 1980.

          Ewert said the threat rankings aren’t about what will blow next, but “the potential severity” of the damage.

          Eleven of the 18 very high threat volcanoes are in Oregon, Washington and California.

          Of the highest threat volcanoes, Washington’s Mount Rainier “has the highest number of people in the downstream hazard zone,” about 300,000 people, said USGS geologist Angie Diefenbach, a report co-author.

        1. Been there – you find out all kinds of things wrong in the first few months. E.g. – two weeks in, checking our bill, I realized it was certainly going to be well over $600 for the month (July in LV). Found out in a search they had removed an (admittedly ugly) plastic partition between the zones. No clue what it would have been in the winter – we never turned the second AC/heating unit on again, and we’ve been here three and a half years.
          Since the heating bills, even though do our best to keep them down, keep getting higher and higher (rate hikes, single pane windows) we’ve resorted to space heaters.
          Complained about this to PM when rent last hiked. Response was “So?” Special place in hell for these aholes, I hope.

          1. we’ve resorted to space heaters.

            My utilities are less than $100/mo. I love Western NY. Also insulation and thermal windows.

      2. Environment
        Study: Future 9.0 Cascadia quake could produce 18-foot tsunami along Bellingham waterfront
        KOMO Staff, KOMO News | July 3, 2018
        Map shows areas in blue where tsunami waves would be several feet deep around the Bellingham waterfront in a worst-case scenario of a Cascadia Subduction Zone Quake.
        Photo: Maps Via Washington Dept. Of Natural Resources Study

        BELLINGHAM, Wash. — Scientists studying the effects of a future massive earthquake off the Washington Coast have learned that it could produce devastating tsunamis along the far northern Washington waters along the Salish Sea.

        Studies have shown partial ruptures along the Cascadia subduction zone off the Pacific Northwest Coast and ensuing large destructive quakes and catastrophic tsunamis happen roughly every 300-500 years (the last one happening in January, 1700.)

        1. I’ve driven around Bellingham with my daughter, and there’s no shortage of un-reinforced masonry buildings, which will crush its occupants. California mandated seismic retrofitting while Oregon and Washington are betting on the odds.

  10. Despite the government shutdown, including the Treasury Department, quite a few news stories have recently suggested that the government has intervened to support the stock market. Is this considered to be an essential role of the government?

    1. Opinion: Stock-market investors, it’s time to hear the ugly truth
      By Sven Henrich
      Published: Jan 5, 2019 6:45 a.m. ET

      The Federal Reserve is propping up the market — and here’s the evidence
      Reuters
      Federal Reserve Chairman Jerome Powell

      For years critics of U.S. central-bank policy have been dismissed as Negative Nellies, but the ugly truth is staring us in the face: Stock-market advances remain a game of artificial liquidity and central-bank jawboning, not organic growth. And now the jig is up.

      As I’ve been saying for a long time: There is zero evidence that markets can make or sustain new highs without some sort of intervention on the side of central banks. None. Zero. Zilch.

      And don’t think this is hyperbole on my part. I will, of course, present evidence.

      In March 2009 markets bottomed on the expansion of QE1 (quantitative easing, part one), which was introduced following the initial announcement in November 2008. Every major correction since then has been met with major central-bank interventions: QE2, Twist, QE3 and so on.

      When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history. The sum: More than $5 trillion between 2016 and 2017, giving us a grand total of over $15 trillion, courtesy of the U.S. Federal Reserve, the European Central Bank and the Bank of Japan:

      When did global central-bank balance sheets peak? Early 2018. When did global markets peak? January 2018.

      And don’t think the Fed was not still active in the jawboning business despite QE3 ending. After all, their official language remained “accommodative” and their interest-rate increase schedule was the slowest in history, cautious and tinkering so as not to upset the markets.

      1. The other problem with intervention to prop up prices regards the punchbowl removal problem: once investors become dependent on the Fed’s spiked punch for investment gains, it can become politically difficult if not impossible to undo the alcohol addiction. With so many addicts clamoring for more monetary stimulus alcohol, and the threat of blaming the Fed in case markets adjust downwards to a fundamentals-based equilibrium, will they have the will to overcome opposition to normalization plans? If they fail in this endeavor during the current expansion, what ammunition will they have available to fight the next recession?

        1. See Friedrich Hayek’s Tiger by the Tail compilation for a succinct explanation of how the Fed is between a rock and a hard spot:

          “…it has taken twenty-five years to reach the stage where to slow down inflation produces a recession. We now have a tiger by the tail: How long can this [asset price] inflation continue? If the tiger (of inflation) is freed, he will eat us up; yet if he runs faster and faster while we desperately hold on, we are STILL finished!” (Pg. 110)”

          “Hayek says that to limit price or wage-rate increases by an incomes policy is to “freeze a particular set of price and wage-rate interrelationships” while underlying circumstances of supply and demand are continually changing. “This is like the ‘stability’ of a set of defective gauges perpetually pointing to the same set of readings.””

          And there’s the rub: raising interest rates will and continuing to remove QE will almost certainly collapse housing prices, which will by and large hurt boomers since they have the vast majority of housing wealth. Furthermore, we know that the majority of median American wealth is in the form of housing equity. But if housing prices do not fall, then the Fed is doing what Hayek says and “freezing a particular set of price and wage-rate interrelationships”. In other words, they are basically saying that younger generations will pay a much higher income multiple than previous generations for the basic necessity of shelter. This is why I believe the crux of the issue is an inter-generational power struggle, which is pretty much what Glenn Kelman said the other day in his interview:

          “I view much of our economic policy as a way to defend the wealth of baby boomers.”

          I don’t think he’s wrong.

    2. Does propping up stock prices really work? It seems like the practice might inadvertently serve to encourage malinvestment, by delivering positive returns to projects lacking in fundamental value.

      Exhibit A: Cryptocurrency

      Exhibit B: Luxury condos in every major city on the planet

      1. Has anyone compiled a list of all the countries that prop up their stock markets, or analyzed the effectiveness of this approach? It seems like quite a few countries are doing this these days.

        Markets
        Saudi Arabia Pumps Up Stock Market After Bad News, Including Khashoggi Murder
        The government of Crown Prince Mohammed bin Salman has spent billions to counter selloffs in recent months
        By Justin Scheck,
        Bradley Hope and
        Summer Said | Data and graphics by Shane Shifflett
        Dec. 13, 2018 2:02 p.m. ET

        Saudi Arabia’s government has been spending billions of dollars to quietly prop up its stock market and counter selloffs that have followed repeated political crises in recent months.

        According to a Wall Street Journal analysis of trading data and interviews with multiple people with direct knowledge of government intervention efforts, the Saudi government has placed huge buy orders, often in the closing minutes of negative trading days, to boost the market.

    3. Despite on-again, off-again intervention in 2018, China stocks lost a quarter of their value. Is the U.S. government better at propping up stock prices than China’s government is?

      Bloomberg
      Tomohiro Ohsumi/Bloomberg
      Quicktake
      China’s Market Meddling
      By Enda Curran
      and Kana Nishizawa
      Updated on December 18, 2018, 5:02 PM PST

      China’s Communist Party leaders say they’re learning to love free markets – to a point. With an economy weighed down by overcapacity and surging debt, the government is overhauling a financial system that was built to fuel high-speed growth. Its stated goal: Give markets a “decisive” role in setting prices and interest rates. The unstated challenge: Avoid exacerbating the economic slowdown, triggering panic in global markets or weakening the party’s grip on power. China’s epic stock market boom and bust in 2015 revealed a leadership frantically shifting course. Leaders stepped in again to contain steep declines in 2018, albeit less aggressively. The fiddling reveals a conflict between the desire to embrace elements of capitalism and an instinct to shelve reforms and assert control when things go awry.

      1. desire to embrace elements of capitalism

        What they embraced is a monumental debt. It will be hard to let go of, kind of like holding a wolf by the ears.

        1. Debt is a growing monster that threatens to consume the developed world economies. Nobody on high seems interested to discuss how central bank yield suppression policy helped feed the monster’s rapid growth in recent years.

          Opinion
          Beware: The worldwide debt monster is rearing its ugly head
          by Quin Hillyer
          | January 03, 2019 02:18 PM

          The self-proclaimed progressive wing of the Democratic Party still doesn’t get it, but plenty of reality-based people are finally realizing that debt levels in the U.S. and worldwide, public and private, have entered a serious danger zone.

          CNN devoted considerable time this morning to Wednesday’s report that the official national debt at the end of 2018 was the tiniest hair short of $22 trillion, up a stunning 10 percent just in President Trump’s two years in office. Wednesday’s Wall Street Journal featured a special section devoted entirely to the American and world debt problems.

          “The world has never had as much debt as it has right now – nearly $250 trillion,” reported the Journal. Worse, the “biggest borrowers” are “the U.S., China, the Eurozone and Japan, which [together] have more than two-thirds of the world’s household debt, three-quarters of corporate debt and nearly 80% of government debt.”

          1. Central banking conundrum du jour:

            With $250 trillion or so in outstanding debt, the developed world economies can’t afford interest rates much above current historically-low levels. However, the abnormally low rates encourage more borrowing of money that is unlikely to ever be repaid.

          2. PS Since this massive debt pile is the liability side of the global financial balance sheet, across from the bubbleliciously valued asset column, winding down the debt will result in massive leakage of air out of bubbly asset valuations, producing lots of household financial pain, accompanied by heaping helpings of blame placed on activist central banks. These considerations make me wonder why central bankers would pursue punchbowl removal operations, given the option of indefinitely kicking the can further down the road.

            Of course, the problem with further can kicking is that the debt bomb will just keep biggering and biggering and biggering, until it can bigger no more.

            And what then!?

          3. “And what then!?”

            “If the economy stumbles at all (and the investment markets certainly seem to be anticipating that it will) the only recourse left for policymakers could be deliberately massive inflation.”

    4. Federal Reserve Chair Jerome Powell Tells Investors He Has Their Back After Another Stock Market Bloodbath
      January 5, 2019
      Erica Smith

      President Trump said he wants to fire him. Investors say he doesn’t know what he’s doing raising interest rates. Jerome Powell, Trump’s pick to run the Federal Reserve Board, is on the hot seat now that the stock market has turned into a bear. Some financial analysts say it’s still a bull market, but the bull seems to be relieving itself all over investment portfolios.

      Mr. Powell doesn’t usually defend Federal Reserve Board decisions. The Feds don’t have to tell investors why they raised interest rates four times in 2018. And they don’t have to let investors know they might not raise rates in 2019. But that’s what Powell did to relieve some of the pressure he’s getting from Trump and Wall Street, according to several news reports.

      Powell is under attack, so he came out swinging after the recent 660-point market bloodbath to reassure investors that the U.S. economy is great, and the central bank will be patient in 2019. In other words, Powell wants to curtail investment fears.

      1. What investors really want is the fed to purchase their upside-down schitt at massively inflated prices.

  11. BlueSkye
    January 5, 2019 at 11:02 pm
    we’ve resorted to space heaters.
    My utilities are less than $100/mo. I love Western NY. Also insulation and thermal windows.
    __________
    You are amazing.

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