What If I Am Wrong About Europe?

I have long stated the eurozone will breakup. Historically speaking, no currency union has ever survived in the absence of a political union.

Moreover, in It's Just Impossible I noted

1. The Bundesbank said there should be no banking union until there is a fiscal union.
2. Angela Merkel said that there should be no fiscal union until there is political union.
3. François Hollande said that there should be no political union until there is a banking union.
4. The German supreme court will not allow a political union nor a fiscal union, nor a banking union without a German referendum.

Mathematically Speaking

Mathematically speaking, I also fail to see how the eurozone can stay intact.

Specifically, please consider point number nine of Michael Pettis: Long-Term Outlook for China, Europe, and the World; 12 Global Predictions

9. Disruptive European Politics

European politics will become much more difficult and disruptive. The historical precedents are clear. During a debt crisis the political system becomes fragmented and contentious. If the major parties don’t become radicalized, smaller radical parties will take away their votes.

Remember that the process of adjustment is a political one. We all know someone has to pay for the massive adjustment countries like Spain must make. The only interesting question is about who will be forced to take the brunt of the payment – workers in the form of unemployment, the middle classes in the form of confiscated savings, small businesses in the form of taxes, large businesses in the form of taxes and nationalization, foreigners, or creditors.

Deciding who pays is a political process, and because the stakes are so high it will be a very bitter process. This means, among other things, that politics will degenerate quickly, and of course if Europe doesn’t arrive at fiscal union in the next year or two, it probably never will. This conclusion is also the reason for my next prediction.

That prediction was made by Michael Pettis, and I am in complete agreement.

But what if I am wrong?

Can Politics Triumph Over Math and History?

What if the eurozone in spite of all obstacles stays intact? Daniel Hannan is a writer and journalist, and Conservative MEP for South East England since 1999 offers an interesting viewpoint for The Telegraph in Spain teeters on the brink

All of a sudden, the talk is of the breakdown, not just of the single currency, but of the parliamentary system on which it rests. Commentators across Europe fret that Spain, which emerged from dictatorship less than 40 years ago, might give up on multi-party politics.

Every round of economic figures is worse than the last. The deficit is massively larger than forecast. A bailout of unprecedented size is becoming inevitable, even as the prime minister gives his countrymen a ‘one hundred per cent assurance’ that he won’t apply for one. (He said much the same thing a few days before applying for the last one.)

Hundreds of thousands of people are protesting, some violently.  ....

The real tragedy of the euro is not that it will come crashing down upon the financial system, as Smaug upon Esgaroth, splintering it to sparks and gledes. The tragedy, rather, is that the monetary union will limp on, condemning hundreds of millions to gradual immiseration.

I am still trying, as gently as I can, to suggest that there is an alternative to the euro-imposed bailout racket. I did so again in our most recent parliamentary session, as you can hear in the clip above.

The trouble is that, while Spaniards recognise the folly of imposing cuts while at the same time bailing out banks, they shy away from the logical conclusion: that leaving the euro is now the least bad option.

The real threat to Spanish democracy is not internal but external; not a pronunciamiento but a Brussels-imposed civilian junta, as happened in Italy.  Mario Monti, the EU’s proconsul in Rome, indicated yesterday that he ‘might seek a second term’. Oddly, I don’t remember him seeking the first.

Sad Reality

The sad reality is Spain and Italy may linger on just as Greece did, destroying their countries in the process.

Consider once again what I said on September 26, in Firebombs, Teargas, Riots Near Greek Parliament; 57% Say Greece Should Abandon Pledges Made to Troika

Sentiment Has Turned

Sentiment in Greece has turned, and likely turned for good. 57% of Greeks have had enough of austerity to the point they would rather default.

Turn back the hands of time a bit and think how this might have played out if Greece simply left the euro and defaulted three years ago as it should have. Tourism would likely have increased and if  Greece had implemented true structural reforms rather than tax hikes, its economy would be stable or recovering now.

Instead, the country is in ruins, tourism is down, and in an on-again-off-again fashion, absolute chaos breaks out.

Another round of austerity and tax hikes can only make things worse at this point, and the people know it. This will pressure political parties to not go along with Samaras.

If another round of elections were held today, there is no way Samaras would win. Instead, the radical left, and radical right (both of which want to exit the euro), would be fighting over the pieces.

The nannycrats in Brussels and Chancellor Merkel are to blame for this sad state of affairs.

Finally, please note that the big fear of the nannycrats and Merkel is not that Greece leaves the euro per se, but rather Greece leaves the euro and the Greek economy starts to recover.

Well, here's the deal and it is something I said years ago: the sooner Greece abandons the euro, tells the Troika to go to hell, and defaults, the better off it will be

Same Track, Wrong Track

Spain, Greece, Portugal, and Italy are all on the same track and the wrong track. All need work rule reform and lower taxes. Instead, the countries have been short on productivity improvement, short on pension reform, short on work rule reform, and long on tax hikes.

It is no wonder their economies are imploding. It is no wonder protests are getting louder. Yet the political class, beholden to the banks and the IMF have taken the wrong track.

In the end, I highly doubt I will be wrong.

In the meantime, however, Telegraph writer Daniel Hannan appears to be correct in his assessment "the tragedy is that the monetary union will limp on, condemning hundreds of millions to gradual immiseration."

Mike "Mish" Shedlock

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Another Big Push for Southwest Revamp

The federal government has issued a Notice of Intent that could potentially remake part of Washington D.C.'s Southwest quadrant, asking the private sector for input to make better use of the agency-heavy neighborhood.  The area, now dominated by superblocks, highways, feeder roads, checkpoints and nondescript, outdated federal buildings that make it feel more like a secure compound than one of the city's neighborhoods, was intentionally erased in the 1950's when urban planners last redesigned the area and has since faced scrutiny by myriad planners.

The government's notice, issued on Friday and calling the area "Federal Triangle South", could be the beginning of the most significant reshuffling of GSA-controlled space in the greater DC area, though the area covered in Friday's issuance is only a small portion of the land dominated by government agencies.  The notice was also admittedly vague, with no timetable and an official "inquiry" only to be released in 90 days.  But the space at issue is also part of the "Southwest Ecodistrict," a 110-acre redevelopment zone.  Along with the reinvention of the Southwest Waterfront, now just months away from beginning, and the rebuilding of 10th Street, the redevelopment could herald an entirely new neighborhood, transforming housing, roads, railroad tracks, parks and streetscapes.

The Southwest Ecodistrict, shepherded by the National Capitol Planning Commission, would stretch from Constitution Avenue along the Mall down to the edge of the waterfront.  But because the land is controlled by a mash of private, municipal and federal entities ("walkability" sites don't even consider it a neighborhood) that make any coordinated redevelopment not unlike herding barnacles, the project has remained in the planning stages.  The project centers on recreating Maryland Avenue which, like Pennsylvania Avenue, radiates from the Capitol Building, but which has been subordinated to railways, highways and monolithic buildings.

The government's solicitation notes the value of the land and its incongruent underuse: "Challenges in the Federal Triangle South include older buildings that are driving high operating costs, a backlog of required capital improvements, land use inefficiencies, space inefficiencies, and lack of area amenities...GSA seeks to leverage the value of its real property assets to provide more efficient facilities for Federal Customers and potentially create the catalyst for a revitalization of this area of Southwest Washington."

Challenges abound.  It is not clear how entire federal agencies could be moved, nor how far the federal government is willing to go toward allowing mixed-use development and relocation of federal agencies.  But, if the concerned parties permit, the vastness of the area could allow planners to start over much as was done 6 decades ago when the government opted to tear down troubled neighborhoods in favor of a pristine federal enclave.

Washington D.C. real estate development news

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At Some Point the Hat Runs out of Rabbits; First Catalonia, Now Basque Separatists Call for Independent Country; El Pais Survey Shows 43% Catalans For Independence, 41% Opposed

Calls for the splintering of Spain have picked up steam. Euskal Herria Bildu (EHB, a left-wing, Basque nationalist party) has called for "A Great National Act" in Favor of Independence according to El Pais.

EH Bildu has called "a great national political act" in favor of the independence of the Basque Country for the next October 13 in the BEC Barakaldo (Bizkaia), announced its candidate for lehendakari, Laura Mintegi in an appearance before the media at EA headquarters in Bilbao.

Mintegi explained that the purpose of the meeting is to claim a free Basque state in Europe. The nationalist left has led in recent times to BEC, in a space with a capacity for 15,000 people, some of his most important acts to demonstrate their ability to mobilize. force.

The sovereignist coalition vindicate independence there to say "clearly and directly" to those "who do not want to hear, who kidnap our rights in the name of the Constitution imposed on us" you want "a free state in Europe."

Mintegi has defended "the pressing need to build a framework sovereign" in the Basque country that allows this community to have the tools to address their own economic, social and employment. "Only from the sovereignty we orient our policies towards true social justice," said the candidate.

In his view, "it is truly reckless remain at the expense of a corrupt system like Spanish, you're sacrificing the rights and freedoms of all the people to ensure the interests of a political and economic elite." With the "corrupt system" called on "break ties".

El Pais Survey Shows 43% Catalans For Independence, 41% Opposed

According to El Economists, Catalan Separatists Not Quite at Absolute Majority.

About the option of independence for Catalonia, El País published a survey in which, in case of a referendum, 43% would vote for secession, compared with 41% who would decide against.

The complete data interpretation contrasted with other numbers registered in June, when only 21% of respondents said anti-secession and another 21% abstained. The current difference can be understood as a translation of abstention towards not to Catalan independence, which in June this survey enjoyed the favor of 51%.

Various surveys seem to be fluctuating wildly so I am not sure any of the are accurate at the moment. That said, it is clear anger over austerity measures is picking up steam. Protests in numerous countries is proof enough.

At Some Point the Hat Runs out of Rabbits

I am sticking to my long held belief that "Eventually will come a time when a politician will hold up a copy of the EMU treaty, declare it null and void, and the debt null and void right along with it. That politician will be elected."

Yields have come down since my July 24, appearance on Capital Account: Discussion of Social Media Panic in Italy, Soaring Yields in Spain, and the Upcoming 20th Euro Summit, Bound to be Another Failure so it appears there was another rabbit left at the time.

However, the government of Portugal recently had to back off announced austerity measures following a mass protest, and additional protests elsewhere have become more frequent and more violent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Austerity Programs Hit France; Marchers Demand Vote on Treaty; Hollande Reneges on Campaign Promise

Following protests in Portugal, Spain, and Greece, a wave of Leftists march in Paris against austerity.

Thousands of leftists marched through Paris on Sunday demanding a referendum on the EU’s new fiscal discipline treaty in the latest of a series of anti-austerity protests in countries hit by the eurozone crisis.

The demonstration, the biggest political rally in France since May elections brought Socialist president François Hollande to power, followed protests on the streets of Madrid and Lisbon on Saturday.

The communist-backed Left Front and 60 other organisations backing the Paris march said tens of thousands of supporters turned out for the protest, timed to coincide with the opening this week of a parliamentary debate on ratification of the fiscal treaty, which Mr Hollande had originally vowed to renegotiate.

Jean-Luc Mélenchon, the Left Front leader, said austerity policies were “dangerous for all the people of Europe”. Demanding a vote on the treaty, he added: “Democracy is sicker than we thought.”

analysts worry that the recent upsurge in political unrest in Portugal, Spain and Greece – where the neo-Nazi Golden Dawn party has risen to third in national surveys – could be a sign of more trouble ahead as repeated rounds of austerity bite even further into daily lives.

“The cracks are showing in Spain’s social and economic fabric,” said Nicholas Spiro, a London-based sovereign risk consultant. “The risk is that in seeking to retain as much domestic ownership of the terms attached to any [EU rescue] programme, the government [of prime minister Mariano Rajoy] overdoes it and sparks an even more intense social and political backlash.”

In Portugal, tens of thousands of trade unionists turned out in Lisbon’s central square for a peaceful protest against terms of the country’s €78bn EU-IMF bailout.

Greek unions have also vowed to hold big protests if the government moves forward with a new €13.5bn austerity programme agreed last week by the coalition government.

The recent upheavals in Portugal – where there had been widespread bipartisan support for the bailout since it was launched 16 months ago – has come as a particular shock to eurozone leaders, forcing Lisbon to reverse a rise in social security taxes designed to hit mandated budget targets.

Hollande Reneges on Campaign Promise

Recall that Hollande ran on a platform to rework the Merkozy Treaty.

We now clearly see that was just another campaign lie. However, Hollande has followed through on all of his economically destructive ideas including massive tax hikes, lowering retirement age, and pressuring companies to not lay off workers.

Destructive follow-through of the worst ideas, with no follow-through on the best campaign ideas is typical of presidential elections everywhere.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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JPMorgan, Bank of America Forgive Debts that No Longer Exist; Wonderful News! But For Whom?

In February, five of the nation's largest banks agreed on a $25 billion settlement over widespread, systemic mortgage fraud and related issues.

The $25 Billion Deal, announced with huge fanfare, was supposed to help up to a million struggling homeowners, primarily via debt forgiveness.

Let's flash forward a few months to see how debt forgiveness is working out in practice.

Today, the New York Times notes Banks Forgive Debt That Isn't There.

GREETINGS, unhappy homeowners! Here’s some wonderful news: “We are canceling the remaining amount you owe Chase!” says a letter that JPMorgan Chase sent recently to thousands of home loan borrowers. “You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America.

Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn’t elated — because she doesn’t owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out.

Others have received similar letters about phantom debts. A borrower in Florida received word this month that Chase was erasing $190,065.10 of debt that had already been wiped out. Bank of America told a Virginia resident that a $231,767 home equity loan was being forgiven, even though the debt was discharged last May.

Are the banks’ forgiveness letters a way to gain credits for debts these institutions are improperly claiming to have extinguished? The banks say no.

But Chase appears to be claiming to release a lien on Ms. Esposito’s property that it does not hold. And under the mortgage settlement, it could receive a credit.

As for Ms. Esposito, she said she found the bogus loan forgiveness letter from Chase especially upsetting because of the years she has spent trying to have the bank modify her first mortgage. She pays 9 percent on her loan and cannot refinance it into a lower-rate mortgage, given her recent bankruptcy.

Chase won’t help her modify her loan, Ms. Esposito said, but it is happy to help by forgiving a loan that has already been discharged and releasing a lien that is already gone.

Wonderful News! But For Whom?

If these events are happening on a broad scale, and I suspect they are, that $25 billion settlement will end up costing peanuts.

Bear in mind, I have little sympathy for people who themselves purposely took out loans they knew they could never pay back, nor do I have sympathy for people who were willing partners in bank fraud.

Regardless, I wondered at the time how the banks would take a $25 billion hit without getting crushed. Well, now we know.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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China New Export New Orders Decline At Fastest Pace in 42 Months; China's Precarious Rebalancing Act

HSBC China Manufacturing PMI™ shows Output falls at fastest pace since March.

Key points

• New export orders fall at fastest rate in 42 months
• Output and input prices continue to fall
• Purchasing activity declines amid weak demand and lower production requirements

Data in September signalled a stronger decline in Chinese manufacturing output, as the volume of new orders fell for the eleventh consecutive month. New export orders declined at the sharpest rate in 42 months amid reports of weak international demand, while lower workloads were linked to a fall in backlogs of work.

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – posted 47.9 in September, up slightly from 47.6 in August, and signalling an eleventh successive month-on-month deterioration in Chinese manufacturing sector operating conditions. However, the latest data signalled the rate of deterioration eased marginally.

The rate of reduction in manufacturing output in China accelerated during September, signalling the strongest contraction since March. A number of respondents that reported a fall in production levels attributed this to lower order volumes as both domestic and international demand weakened. However, the rate of reduction in new export orders remained stronger than the decline in overall new orders. Panellists commented on tough trading conditions in a number of key trading markets.

China's Precarious Rebalancing Act

Discounting the continually over-optimistic comments from Markit economists in general, I would otherwise be puzzled by comments of Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC who said: "Chinese manufacturing growth is likely to be bottoming out. However, the sharper contraction of new export orders and the lingering pressures on job markets mean that Beijing should step up easing to support growth and employment. Fiscal measures should play a more important role in the coming months."

What indication is there that manufacturing growth is bottoming out? In the first place, China manufacturing is in contraction, not growth. Moreover, the European recession is strengthening and a US recession is underway (just not recognized yet in my opinion). Thus it would be logical to assume China's export-driven economy is going to take another hit.

Trade matters with Japan, and the debate over ownership of islands in the East China Sea are also unsettling. For a discussion, please see Japan PMI: Output and New Orders Contract Further

Is Beijing going to step up and support employment and growth? I do not have the answer to that, but China needs to rebalance, and that rebalancing act will be painful. The transition to a consumer-led economy from an export and infrastructure-building economy will be slow and painful, but also very necessary.

For further discussion of the need to rebalance and the problems facing China please see.

• The Dating Game: Michael Pettis Challenges The Economist to a Bet on China
 
• 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?
 
• By 2015 Hard Commodity Prices Will Collapse; Australia's Mining Boom Dies (and the Official Denials Start)

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Your Next Place

This massive former embassy is on the market for the first time in over fifty years; most likely all the U.S. government listening devices have been deactivated, though of course I can't be sure.  (Just to be safe, turn loud music on before discussing anything against the law, such as selling heroin, terror plots, or same-sex marriage.)

But this incredibly property is bursting with unlimited potential, sort of like a new relationship.  The best part is that this building is guaranteed not to eventually disappoint you by drinking too much wine when meeting your parents and asking, "if evolution is real, why haven't the chimpanzees in the zoo turned into humans yet, huh?!"  A potential what, eight-bedroomer (!), this house's ceiling is limited only by your imagination.  The brick Colonial-style facade is definitely a keeper, with its timeless qualities, as well as the distinctive details (check out those windows!).  The spiral staircase, dazzling M.C. Escher-like piece of work, is also worth preserving.  Ah, who am I kidding, this place is fine as is.  You could just scatter some IKEA furniture around and call it a home.  (Protip: a tablecloth thrown over a four-by-four quadrangle of unpacked moving boxes makes a sort-of-convincing table)  The back area is paved over, which you could keep and use as a parking lot or you could tear up the concrete and make it into a gloriously large yard. Who knows, poke around a bit and you might find an old diplomatic license plate the previous tenants forgot to pack during the move.  Imagine, a world where no traffic or parking laws apply to you:  in some religions, that's their definition of heaven.

Of course, with 7500 square feet of space to work with, you could turn this into a one-in-a-million dream home with just a little imagination and elbow grease (and a few hundred thousand dollars for renovations).  This building brought back a lot of memories of when I was a child and my father became smitten with the idea of buying and renovating an old high school into our family home.  My mother was against this idea, as she wanted our next house to be, well, a house.  My father replied that, yes, good point, but the abandoned school comes with a full-sized basketball court AND a glass-front trophy case he could use for all his office bowling league trophies.  In retrospect, this was the first (but by no means the last) time she realized she'd married a big grown-up child.

2310 Tracy Place NW
$2,700,000
6 Bedroom, 2 Full Baths, 2 Half Baths

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Japan PMI: Output and New Orders Contract Further

The global economy continues to weaken most everywhere you look. The focus of this post is Japan where the Markit/JMMA Japan Manufacturing PMI™ shows Modest deterioration in operating conditions recorded in September.

Key points:

Output and new orders both down again, albeit at slower rates
Weaker underlying demand and strong yen impact on export orders
Charges cut at sharpest rate for over two years



Summary:

Operating conditions in Japan’s manufacturing sector continued to worsen at a modest pace in September. Output and new orders both fell amid reports of a general stagnation of economic activity in domestic and overseas markets. Manufacturers continued to deplete inventories, while they made further sharp inroads into their work outstanding. Payroll numbers were little changed.

On the price front, companies responded to the weaker demand environment by discounting their charges to a greater degree. These efforts were aided in part by a further modest reduction in input prices.

After adjusting for seasonal factors, the headline Markit/JMMA Purchasing Managers’ Index™ (PMI™) improved to a three-month high of 48.0 in September (August: 47.7) but, by remaining below the 50.0 no-change mark, again signalled a modest deterioration in operating conditions.

Production and new order volumes continued to decline on a monthly basis. Although slightly weaker than in August, rates of contraction remained marked, particularly in the investment goods sector.

Looking ahead, the widening rift between Japan and China over disputed islands certainly cannot help yet Voice of America reports there is No Sign of Progress in Dispute.

September 26, 2012
A bitter territorial dispute between China and Japan showed no signs of improvement Tuesday, as foreign ministers from both countries held high-level talks to ease tensions.

Relations have sunk to their lowest point in years, with anti-Japan protests breaking out across China and many Chinese refusing to buy Japanese-made goods. On Wednesday, Japanese automakers Toyota and Nissan said they are reducing production in China because of lessened demand.

[Foreign Minister Yang Jiechi] warned that bilateral relations could not "return to the track of sound and steady development" unless Japanese officials "take concrete measures to correct its mistakes."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Kevin James Throws It Down in Delray Beach

BUYER: Kevin James
LOCATION: Delray Beach, FL
PRICE: $18,500,000
SIZE: 26,509, 8 bedrooms, 9 full and 3 half bathrooms

YOUR MAMAS NOTES: Thanks to a brief note from The Bizzy Boys at Celebrity Address Aerial—and a previously overlooked report by the intrepid peeps at the Palm Beach Post way back in mid-August (2012)—Your Mama has learned that Emmy- and Razzie-nominated stand-up comedian, sitcom success and low-brow comedy movie superstar Kevin James shoveled out some serious, unambiguously Tinseltown-A-lister type of loot for a humongous house in the somewhat unexpected and out-of-the-way Delray Beach, FL.

In late August (2012) Mister James and his part-time-actress wife and baby momma Steffiana De La Cruz shelled out $18,500,000 to purchase an honest-to-goodness, ding-dang celebrity-style doozy of a (sort-of) oceanfront residential compound in Delray Beach that sprawls across two lots that total 1.85 acres. The Palm Beach County Tax Man shows the main mansion has 12,808 square feet, as does listing information easily conjured out of the interweb. Listing information we peeped also states—it should be noted—the actual living spaces encompassed by the entire "Mediterranean Revival estate" spans a far more substantial, real estate baller-sized 26,509 square feet with a total of 8 bedrooms and 9 full and 3 half bathrooms.

Does it seem surprising or odd to any of the children that Mister James—a man whose professional shtick is pretty much summed up by portraying stupid but lovable middle class straight guys—can afford to acquire and maintain an estate of this magnitude? For chrissakes, the 2011 taxes alone, even after an 11.3% reduction, came to a nauseating $240,492, according to public records. Believe it or not, booter beans, that's a hefty and even prohibitive annual tax nut for a just-regular-rich person, especially since the taxes don't cover the—likely to be exorbitant—costs associated with property insurance, staffing and security, landscaping upkeep and swimming pool maintenance. The utility bills—we can only to imagine—could probably choke a middle class Clydesdale and quickly drive a run-of-the-mill millionaire to the poorhouse.

Luckily for Mister James, he's not just a run-of-the-mill millionaire. See children, for his Showbiz efforts and talents he is extraordinarily well compensated and, more importantly to his future working opportunities, Mister James pretty much mints money for movie studios. In 2007 it was reported his salary for the final years of the now heavily syndicated sitcom King of Queens was upwards of $400,000 per episode, and possibly as much as $500,000 per episode for the final season. That's a lot of damn chicken scratch, you know. Rudimentary calculations on our bejeweled abacus indicate the professionally charmed Mister James very well may have hauled in over four million clams just for the abbreviated 9-episode final season. And that's not counting the piles and miles of greenbacks, one imagines, he earns in residuals. Not bad work if you can get it, right?

Since King of Queens went dark in 2007 Mister James has steadily built his professional reputation as a comedic movie star who can deliver prodigious profits with a handful of starring roles in sophomoric, fart-humor movies like I Now Pronounce Your Chuck & Larry, Paul Blart: Mall Cop, Grown Ups and Zookeeper. Your Mama freely confesses that we've never seen any of these movies so we can't and won't speak to their quality as cinematic entertainment but we can tell the children that hordes and swarms of people paid good money to see them. Just those four movies, according to Box Office Mojo, have a total of $810,648,293 in worldwide box office receipts. The residuals from non-theater revenues must also, one imagines, boggle the brain.

Now it makes perfect sense that Mister and Missus James can afford a Wall Street fat cat-priced residence, right?

The nearly two acre lot isn't directly on the beach but sits across the street. The location allows for plenty of direct and oblique ocean vistas from the house, for sure, but, unless there's a a tunnel we don't know about, actually getting to the beach requires a mad dash across a probably not usually very busy two-lane road and a trek across a short stretch of rolling dunes.

The cavernous formal living room, with massive fireplace, lighted built-in display niches and soaring beamed ceiling, has three, exceptionally tall arched French doors that open out to an ocean side loggia. The baronial formal dining room has yet another massive stone fireplace as well as a series of arched French doors separated by tall, Macedonian stone Doric columns.

Other spacious and luxurious entertaining spaces include a mahogany-paneled billiard room with inlaid stone floors and built-in wet bar, an adjoining, carpeted "club room" with another fireplace,  and a bookcase-lined library with—you got it—yet another fireplace.

The colossal and expensively equipped eat-in kitchen has an undulating, barrel-vaulted brick ceiling, all the top-grade appliances money can buy, both butler's and storage pantries and a walk-in fridge/cooler. The nearby family room contains—yep—a fireplace, built-in bookshelves and a trio of towering arched French doors that connect to a second outdoor living loggia that overlooks the swimming pool complex.

Upstairs five family/guest bedrooms each have access to a private bathroom and share a separate playroom/den. The house-sized master suite has a column-encircled entry vestibule and a behemoth bed chamber defined by a rather monolithic wood fretwork panel. The suite opens privately to a deep covered terrace with fireplace and ocean view. The suite is complete with an adjoining meditation lounge, a pair of "wardrobe rooms" and a titanic bathroom with his and her areas plus a free-standing, egg-shaped soaking tub set on an inlaid, free-form bed of stone in the center of the room.

The luxury appointments and accouterments extend down into the extensive finished basement area where, according to listing information, there are staff quarters, a wine room, a game room, a fitness room, and a professional-style spa with hydrotherapy tub, massage area, shower space and steam room.

In addition to the sumptuous main house, the double-gated, resort-like seaside estate contains several motor courts and parking areas, an underground 8-bay garage, fairway-like lawns, stone pathways that meander through lush tropical gardens, several shaded porches and loggias for escaping the relentless south Florida sunshine, a slightly sunken sport court with viewing platform and a separate guest house that overlooks the saltwater swimming pool and semi-circular spa. A monumentally-scaled, stone-columned poolside cabana is outfitted with a colossal carved stone fireplace, pool bath and summer kitchen.

In addition to his dee-luxe new digs in Delray Beach, Mister James still owns, according to our resources, two homes in the, like, oh-muh-gawd, ur-suburban Los Angeles community of Encino (CA), both of which he bought before he was married. In May 2002 he dropped $1,450,000 on a 5,386 square foot mock-Med mini-mansion in an itty-bitty gated enclave just a couple blocks north of Ventura Boulevard and in August the following year he forked over $3,200,000 for a far more substantial 10,042 square foot mock-Med mansion with 7 bedrooms and 11 bathrooms tucked privately up a shared drive and behind gates in the foothills a few blocks south of Ventura Boulevard. Your Mama does not know an oscillating fan from a palm tree so we really can't say what plans Mister and Missus James have for their west coast abodes but as of this morning, based on our brief and unscientific research, neither home appears to be on the open market.

listing photos: via Zillow

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France Piles €20 Billion in Tax Hikes on Businesses and Wealthy

It's now official. The top tax rate in France is now 75% for those who make over a million euros. Moreover, there is a new band of 45% for those who make over 150,000 euros. Don't forget the existing VAT on all purchases.

Europe is imploding and instead of fixing onerous work rules, France Hits Rich and Business to Slash Deficit.

Socialist President Francois Hollande unveiled higher levies on business and a 75-percent tax for the super-rich on Friday in a 2013 budget aimed at showing France has the fiscal rigor to remain at the core of the euro zone.

Of the total 30 billion euros of savings, around 20 billion will come from tax increases on households and companies, with tax rises already approved this year to contribute some 4 billion euros to revenues in 2013. The freeze on spending will contribute around 10 billion euros.

To the dismay of business leaders who fear an exodus of top talent, the government confirmed a temporary 75 percent super-tax rate for earnings over one million euros and a new 45 percent band for revenues over 150,000 euros.

Tough New Measures or Idiotic Measures?

The Financial Times reports France unveils tough budget measures

The measures announced on Friday included the controversial 75 per cent marginal tax rate on earned income above €1m a year, put in place for two years.

But, as promised by President François Hollande, France was largely spared the kinds of hefty cuts in public spending, pensions and salaries imposed in other eurozone countries struggling to contain their sovereign debt.

The official forecast of 0.8 per cent growth next year is above most independent forecasts, but Mr Pierre Moscovici [finance minister] said: “I am certain that if Europe steadies, then we are going to achieve this 0.8 per cent or more.”

For starters, with government spending in France accounting for 55% of GDP, those are not "Tough Measures" those are idiotic measures. France needs to reduce government spending and ease work rules. Instead it has tightened pressure on companies laying off workers.

If Wishes Were Fishes

The French Finance minister is "certain that if Europe steadies, France will achieve 0.8 per cent growth or more". That is about as meaningful as this statement by me "I am certain that if I had a billion dollars, I would be a billionaire".

Simply put, neither Europe nor France is going to steady, but given France's growth is currently 0%, steady would not be enough anyway.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Real Estate Market Pulse | Who’s Market is it?

As we continue to see the ever changing real estate market take a positive turn upward, some people are asking themselves what to do in these times. Based on recent home sale statistics, homes are being sold at a much faster rate than we have seen in years. A healthy real estate market usually has about 6 months of supply at any given time. Today we have seen that number cut in half, and the shelf life of homes for sale has dropped to about 69 days. A clear sign that the real estate has shifted to a seller’s market.
August 2012 posted numbers for existing home sales that surpassed 9% increases from this time last year! Chief economist of the National Association of Realtors, Lawrence Yun said, “The Florida market is experiencing inventory shortages, which are placing pressure on prices.” This shortage of real estate inventory could lead to other advantageous recovery factors like new construction projects, which in turn stimulates the market with job growth.


Lending conditions also play a significant role in the way the market continues to shake out. Yun also noted that at least a half million more homes could be sold in the coming year if the tight credit standards that exist today are modified. The time it takes to process a real estate loan application is far too long and the documents borrowers are required to show is considered excessive in the eyes of many realtors. Last month alone, 53% of loans went to borrowers with credit scores above 740. Last year the 12 month default rate was at 0.4% compared to 2007 when it was closer to 3%.

Shelf life, inventory, and recent home sale trends combined with loosening these tight restrictions and guidelines would all stimulate job growth in the related trade and service industry. All of these factors play a key role in how and who is influenced the most by these changes and trends in the real estate market.


SI Real Estate offers highly personalized, multilingual, full-spectrum real estate purchase and sales services. We are a boutique for sophisticated investors, select owners or renters who may be upgrading locally, or those making traditional relocations. We also provide turnkey landlord and tenant management. Blending comprehensive insight into the Tampa Bay area with international perspectives for a worldwide clientele, we like to think that “SI Real Estate is Global Real Estate in Every Way!” How can we help you?

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Pending Home Sales Index Continues To Show Strength

Nationwide, homes continue to sell briskly.

According to the National Association of REALTORS®, the Pending Home Sales Index read 99.2 for August -- the fourth straight month in which the index hovered near its benchmark value of 100.

A "pending home" is a home that is under contract to sell, but has not yet closed. The index measures with fair accuracy the future strength of the U.S. housing market.

For today's Seattle home buyers, the August Pending Home Sales Index is relevant for several reasons.

First, the index remains near its highest point since April 2010, the last month of that year's federal home buyer tax credit. This implies that the current housing market is performing nearly as well as the "stimulated" market of two years ago -- except without the accompanying federal stimulus.

The housing market is standing on its own, in other words.

Second, the Pending Home Sales Index suggests that today's housing market is among the strongest of the last decade. We can make this inference because the Pending Home Sales Index is a relative index, benchmarked to the value of "100" which represents the housing market as it behaved in 2001.

2001 was strong year in housing. With today's Pending Home Sales Index remaining near 100, it tells us that 2012 is similarly strong.

And, third, the Pending Home Sales Index is relevant because it's a forward-looking housing metric -- one of the few that are regularly published. As compared to the Case-Shiller Index or Existing Home Sales report which both report on how housing fared in the past, the Pending Home Sales Index projects 30-60 days to the future.

Based on August data, therefore, we can expect for home sales volume to remain high as 2012 comes to a close.

If you're currently shopping for a home, you've likely noticed a change in the market. Multiple-offer situations are more common and sellers are regaining negotiation leverage. The longer you wait to buy, therefore, the more you may pay for a home.

Read the complete Pending Home Sales Report on the NAR website. 

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Morning Real Estate Fix

Reports show housing market continues to improve (Examiner)  A snapshot of the Maryland market by county...

...But a new ULI report says things are looking less promising in the commercial sector (Commercial Property Executive) In its most recent semi-annual survey of the next 3 years, economists and analysts are downgrading their expectations for the commercial real estate market to predict a smaller bounce than previously hoped for.

Homebuying: fall is the new spring (NASDAQ) While practical considerations may motivate spring purchases, the fall comes with its own psychological reasons for people to move up.

Investors continue to look to DC as the hottest apartment market (Apartment Finance)  With its high performing buildings, the DC area continues to lead in attracting investors of multi-family housing with its low vacancy rates and high rent growth.

Greysteel names Director of multi-tenant retail division  - Gil Neuman joins the multi-family seller to head the multi-family retail division.

Skyland demolition finally underway (Washington Examiner) The infamous eminent domain case aroused passions on all sides as developers and the city worked to build a large mixed-use project at the site.

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Can the Fed Fight Droids and Win? Apple's SIRI, Driverless Trucks, What's Next? Riveting Video: Are Droids Taking Our Jobs?

Today, a single farmer can produce as much goods as 100 farmers a half-century or less ago. That freed up labor for manufacturing and the service economy.

However, droids are now replacing humans in both manufacturing and services.

When does it stop?

Every time I go into a grocery store, I see more self-service checkout lanes and fewer manned ones. When RFID checkout comes into vogue, and it will quickly, an entire grocery basket will be scanned at once, and even fewer checkout clerks will be needed.

For a discussion of RFID, please see JCPenney to Eliminate All Checkout Clerks, Instead Using RFID Chips and Self-Checkout.

With each technological advance more and more goods and services are produced by fewer and fewer people. In isolation, that drives down costs, and in the process, standards-of-living have soared.

Because of ever-increasing productivity, it's easy to show that deflation is the natural state of affairs.

But what does that mean looking ahead? Will there be any jobs left? If so where? And what happens to the Fed's effort to prevent falling prices?

Riveting Video: Droids Taking Our Jobs

Let's start off with an entertaining, yet scary video by Andrew McAfee who asks Are droids taking our jobs?



Working Age Population vs. Projected Jobs



Notice the widening gap. Moreover McAfee states "If these predictions are accurate, that gap is not going to close. The problem is I do not think these predictions are accurate. In particular, I think my projection is way too optimistic. ... Because when I look around I think we ain't seen nothing yet when it comes to technology."

Video Discussion Points

• Free Language Translation
• Apple's SIRI
• An article on Forbes about Apple, written by an algorithm (It's not decent it's perfect says McAfee). I tracked down the article: Forbes Earnings Preview: Apple, written by "Narrative Science".
• Jeopardy: IBM Watson computer vs. Human who won 74 times in a row
• If SIRI functionality increase according to Moore's Law (which it will) it will be sixteen times better than today, six years from now
• Google Autonomous Car

Google Autonomous Toyota Prius Car



Managing the Transition to a Workerless Society

"There are 3 and a half million truck drivers and they will be impacted by this technology. .... We are going to transition into an economy that is very productive and just does not need a lot of human workers. Managing that transition is going to be the greatest challenge that our society faces" says McAfee.

In spite of that gloom for 13 minutes, McAfee concludes on a positive note, quoting Freeman Dyson: "Technology is a gift of God. After the gift of life, it is perhaps the greatest of God's gifts. It is the mother of civilizations, of arts, and of sciences."

Play the 14 minute video. It is riveting.

Can the Fed Fight Droids and Win?

The Fed wants to increase jobs and wages. It is fighting a battle it cannot possibly win. Forcing down interest rates while hoping to force up labor costs simply increases desire of companies to replace humans with droids.

We would get there anyway, as technology always improves. However, the Fed, by attempting to do the impossible, is actually speeding up the loss of jobs.

Living Wages

Who (besides the Fed and seriously misguided economists) does not like falling prices?

The problem with the "living wage" concept is not that wages are too low, but rather excess money from the Fed has driven up costs of goods and services.

People have been conditioned (by the Fed) to believe they need higher wages. What they really need is lower prices.

Technology, demographics, attitudes, and increasing lifespans, all mandate a need for lower, not higher prices.

If the Fed "succeeds" in further driving up prices, it will destroy the middle class because the technological rampage is sure to increase job losses for skilled labor, at least for the foreseeable future.

The Fed cannot defeat droids. Unfortunately, the Fed does not understand it is exacerbating the problem. Sadly, the Fed does not even understand the nature of the forces it is fighting.

Addendum:

It never fails. Someone misses obvious implications of what I said.  One person ranted and raved that increased productivity is a good thing. Of course it is.

I specifically stated  "standards-of-living have soared" as a result of technology. And of course that is a good thing.

My problem clearly is not technology and the deflationary effect that has on wages and prices (both good things), my problem is the Fed's attempt to counteract those forces. The result has been an increase in the wealth effect of those with first access to money, namely banks, the already wealthy, and government bureaucrats.

If you are looking for a reason the 1% have done so well lately, simply look at the policies of the Fed coupled with technology that is going to reduce the need for human labor "for the foreseeable future".

I have stated many times there will be another wave of job creation based on new technologies (most likely energy) at some point in the future but I do not know when that may be.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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California Hit Parade Rolls On: Atwater Scrambles to Avoid bankruptcy

The California hit parade keeps on rolling as yet Another California city scrambles to avoid bankruptcy.

Atwater, a city of roughly 28,000 in California's Central Valley, may declare a fiscal emergency as soon as next week, but it is trying to avoid becoming the fourth California city to file for municipal bankruptcy this year, its mayor said.

Under California law, a local government must either declare a "fiscal emergency" or go through a 60-to-90 day confidential negotiation process with its creditors before it files for municipal bankruptcy. Since late June, three Golden State cities-Stockton, San Bernardino and Mammoth Lakes-have filed for bankruptcy protection.

"We are planning to stay current on our ... bonds," said Mayor Carol Joan Faul in a telephone interview with Dow Jones Newswires. "We are hoping to avoid" bankruptcy, she said, "but as far as I'm concerned, we may have to declare a fiscal emergency" on Oct. 3.

According to its fiscal 2011 financial statement, Atwater had roughly $95 million in outstanding debt, a mixture of bonds related to its sewer as well its now-defunct redevelopment agency. Ms. Faul said Atwater intends to make an upcoming bond payment of $2 million on its sewer bonds.

Atwater is Burnt Toast

Once things reach this stage, one does not even need to look at the details because it's a done deal.

Yet, I did look further and as expected, public unions appear to be smack in the middle of things as noted in a Reuters article on Potential Atwater Bankruptcy.

Atwater's economy is "pretty bleak" and starving the city of so much revenue its leaders must consider a drastic overhaul of the services, said Jim Price, vice president of operations at Gemini Flight Support at Atwater's Castle Airport.

"Police and fire, you keep them - and everything else is going to have to be privatized," Price said. "I just don't know how they can do it any other way."

RAISING REVENUE, CUTTING COSTS

Atwater's officials are just beginning to consider their options, Faul said, noting the city must consider raising 20-year-old rates for water services and 10-year-old rates for garbage services while clamping down on costs.

Union representative Nancy Vinson said she expects the city will seek concessions from its roughly 30 non-safety employees, who gave up 10 percent of pay last year through furloughs.

"They could ask for a wage reduction, they could ask for a different contribution to the retirement system, they could ask for a higher health benefit contribution," Vinson said. "We have not been unwilling to talk to them."

Atwater must also seek concessions from its roughly 50 safety and management-level employees, Vinson said, adding she is concerned city officials are moving too fast on a plan for declaring a fiscal emergency.

Atwater's Choice: Bankruptcy Today or Bankruptcy Later

Atwater can enter bankruptcy today, saving taxpayers a lot of money, or it can waste taxpayer money for years, scrambling to make bond payments and then default.

Either way, Atwater is burnt toast. Attempts to make bond payments is a fool's mission.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Real Per Capita "Core" Durable Goods Orders

Courtesy of Doug Short, here is an excellent pair of charts on Real Per Capita "Core" Durable Goods Orders

Core Durable Goods



click on either chart for sharper image

Core Durable Goods Percent Decline From Peak



Doug Short does excellent work. Click on the top link to see additional charts.

I have little to add other than this is how recessions start, an opinion expressed earlier in Durable Goods Orders Ex-Transportation "Unexpectedly" Drop, Down Third Month, July Revised Lower; GDP +1.3% Second Quarter; June Recession Call Looking More Likely.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Update: Diddy's Digs

Last week all us celebrity property gossips jawed endlessly over the high-floor, one-bedroom party pad in Midtown Manhattan that rapper-mogul Sean Combs—a.k.a. Puffy Piddle or Diddle Daddy or P. Daddle or whatever—kerplopped on market with a heavy-duty $8,500,000 price tag.

At that time there weren't images included with online listings but we happened to notice today the addition of a treasure trove of jaw-dropping photographs that depict a sassy, supuh-swah-vey pied-a-terre done up pretty much exactly like what Your Mama imagines ordinary, non-VIP club goers imagine the invite-only VIP room of a swank Las Vegas nightclub looks like. Yes? No?

We don't know who's responsible for the chatoyant white lacquer ceilings, the thick, cement-colored wall-to-wall shag carpeting, the cushioned Lucite furniture or the disco ball-inspired column in the living room but it looks to Your Mama like maybe musician turned interior designer Lenny Kravitz done got nightclub-like decorating claws up in there. We're not hatin', we're just sayin'.

Anyhoo, just to recap, the 2,292 square foot spread—set 700-feet above the street with stomach-dropping Central Park and city views and equipped with a state-of-the-art home automation system—was originally designed with 3 bedrooms and 3.5 bathrooms, but two of the bedrooms were re-purposed into a media lounge with deep, black velvet sofas and a piano room with well-stocked wet bar and a glitzy, Lucite baby grand piano.

Mister Combs, who owns homes in Miami (FL), Alpine (NJ) and East Hampton (NY), acquired the sybaritic aerie in 2005 for $3,820,000 and is (allegedly) on the hunt for a much more substantial piece of the Manhattan residential real estate pie.

listing photos: Prudential Douglas Elliman

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New Loan Made, Another Loan Closing

First, the quick news: Hard Money Loan #23 was paid off a couple days ago. Those funds are now looking for a new home.

The other bit of news is that my funds from HML #19 have been reinvested. The new property is in a not so great part of town. If the borrower was not someone we have dealt with dozens of times in the past and whose knowledge of the area I respect, I would probably not have made this loan.

The property is a single family home in Oakland. County records list it as a 900 square foot, 1 bedroom, 1 bath unit, however, the property has two separate electricity and gas meters and a detached garage with what appears to be some added living space. Tax records do not indicate a garage or the additional living space. (While this means this could be a duplex, it also means the additions likely were done without obtaining the proper permits and inspections.) The back door has a doorbell and may indicate an entrance to a second unit. Obviously, we were not able to see the interior of the property and the MLS listing did not have interior photos. The roof and foundation appear to be in good shape, but there is some dry rot on the walls and around the windows, as well as peeling paint. Title records indicate the last owner received the property as a gift and  obtained a cash-out mortgage for $270,000 in 2005.

The problem then, is how to value this property. We've got discrepancies between what the tax records show and what the property appears to actually have. It's in a bad part of town and there are next to no comps that closely match this property. So, in addition to coming up with an estimate on his own, my partner hired another appraiser that we have worked with before to give his opinion.

Being that the neighborhood isn't that great, the location of the comps becomes fairly important. They also treated this as a 2 bedroom property for finding comps. Between the two of them, we ended up with 11 comps and you can see how widely the sales prices differ:

• #1 - $47K - REO, rehab, all cash sale. MLS listing noted some vandalism and stripped pipes.
• #2 - $30K - REO, sold as-is
• #3 - $55K - REO short sale, listed as a "fixer upper"
• #4 - $63K - REO - our hired guy said both the curb appeal and location of this property are worse than ours
• #5 - $65K - REO - another property with rooms not listed in tax records
• #6 - $86K - REO - rehab
• #7 - $130K - REO, detached garage
• #8 - $45K - REO
• #9 - $58K - REO with fire damage
• #10 - $136K - REO
• #11 - $160K - Regular sale, location is worse than our property

All the comps are 2 bedroom and have sold since April (except for one or two sold in January).

Our hired guy figures the property is worth $75,000 as-is and $110,000 after it is repaired. Our borrower bought the property at auction for $88,000. Our loan is for $63,000. Using the purchase price, our LTV is 72%.  Some other positives for this deal: Our borrower is personally guaranteeing the loan, he knows the area really well, and he has never defaulted or even had a late payment with us, the market is better than it was 6 months ago, if this really is 2 units, they would rent for $1,500 - $2,000 a month combined, and my partner's wife is also a lender on this one, so he has a vested interest in the safety of the loan. Some cons: no one else bid on this at the auction, property appears to be in conflict with tax records and extra living space might not have been built with permits, condition of the interior is unknown, bad neighborhood, and our borrower is personally guaranteeing several loans with us.

Sorry, I didn't get any pictures of the property on this one.


This property will be labelled Hard Money #25.

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