Mish's Global Economic Trend Analysis

Bill Gross says QE3 Unlikely Even as Job Growth Slows; Gross Still Shuns Treasuries, Likes Dividend Yielding Equities

Posted: 04 Jun 2011 10:10 PM PDT

Bill Gross says QE3 Unlikely Even as Job Growth Slows

Pacific Investment Management Co.'s Bill Gross, manager of the world's biggest bond fund, said the Federal Reserve is unlikely to do a third round of quantitative easing even with the economy adding fewer jobs than forecast.

Central bankers are likely to "extend the extended period" language for longer in their policy statements, Gross said in a radio interview on "Bloomberg Surveillance" with Tom Keene. The less-than-projected pace of jobs growth in May that the Labor Department reported today shows that "there is a persistency here. It's back to our old new normal," he said.

"We don't see a QE3. There has been too much discussion and dissent within the Fed to permit that type of program," Gross said in the interview from Pimco's headquarters in Newport Beach, California. Given the current pace of growth and inflation "they will speak to a fed funds rate that persists for an extended period of time, which in effect caps interest rates in the process."

Investors could seek higher real returns than those now offered from government debt through investing in shares of "conservative" companies such as Procter & Gamble Co. (PG), Merck & Co. or those of utilities, according to Gross.

"The Treasury market up to seven or eight years is negative in terms of real interest rates, and that's not a positive for savers," Gross said. "But if they took that money and invested it in a conservative stock, such as a Proctor or a Merck or a utility yielding 4 percent; then that's 3.5 to 4 percent real yield in comparison to those negative real yields in the Treasury side. So you have to take a little bit of a chance in order to avoid getting your pocket picked here."

Video

I concur with Gross about the likelihood of QE3 in the near-term horizon and suggested the same thing in a recent interview on Market Ticker with Aaron Task. The key to that sentence is the phrase "near-term".

Right now, the Fed does not want more froth in junk bonds, nor does it want higher commodity prices or $150 crude, especially since QE2 was a miserable failure in producing jobs or reviving housing.

However, should the economy enter a sustained downturn, and if commodity prices plunge (giving the Fed some breathing room), it's a given the Fed will try something. Whatever the Fed tries will likely be good for gold.

Please see Why I Continue to Like Gold for a video discussion.

The problem with Gross's dividend stock play is that it is likely all stocks get hit in another sustained downturn. A 4% yield may be nice, but not if it comes at the expense of a 25% haircut in equity prices.

With valuations stretched everywhere one looks, there is a lot to be said for waiting on the sidelines for better opportunities.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Deputies and Movers Show Up at Bank of America to Seize Bank Property Including Computers for Homeowner Wrongly Foreclosed On; The Way Forward

Posted: 04 Jun 2011 11:02 AM PDT

In Florida, a couple that paid cash for their home, and never had a mortgage was foreclosed on by Bank of America. It took 18 months to straighten out and Bank of America agreed to pay the legal expenses of the homeowners.

When the bank did not pay the couple, they foreclosed on Bank of America. A Judge authorized a deputy to seize desks, copiers, and computers that could be sold to pay the expenses.

Please consider Tables Turn: Deputies and movers show up at bank to seize property for homeowner

The foreclosure nightmare started when Warren and Maureen Nyerges paid cash for a home owned by Bank of American in the Golden Gate Estates. They never had a mortgage whatsoever. But, the bank fouled it up and wound up issuing a foreclosure through their attorney.

The couple took their case to court and after a year and a half nightmare the foreclosure was dropped. A Collier County judge said Bank of America has to pay the couple's $2,534 legal fees for the error. After more than five months the bank still hadn't paid up. So, the homeowners' attorney did just what the bank would do to get their money, legally seize their assets.

"I instructed the deputy to go in and take desks, computers, copiers, filing cabinets, including cash in the drawers," Attorney Todd Allen told WINK News.

Outside the Bank of America on Davis Boulevard, several deputies stood by with movers ready to start hauling out the bank's office supplies and furniture.

Inside, the homeowners' attorney was locked out of the bank manager's office by deputies while the bank manger tried to figure out what to do.

After about an hour the bank finally cut a check to satisfy the debt, and no furniture was taken. A representative for Bank of America issued a statement saying they are sorry for the delay in issuing funds. They claim the original request went to an outside attorney who is no longer in business.

Sensational cases like this make all the headlines, but are statistically meaningless, with a bordering on zero percentage.

That said, I side with the couple. Indeed I think suing for expenses only is a travesty of justice. Something like $100,000 would be more appropriate.

It is preposterous that it would take 18 months to determine there was never a mortgage. Unfortunately, that is how fooked the system is. Alternatively, that is how fooked Bank of America is. Most likely, it's both.

That said, two wrongs do not make a right. Letting people live in houses for years without payment is simply wrong. Either MERS is valid or not. Adding to the confusion, differing courts in differing states have ruled differing ways.

Fixing the Structural Problems

Sadly, I see little effort by anyone in proposing a solution to the mess. States Attorneys General want $17 billion in fines, but how do fines resolve the basic issues at hand? Are big fines justified? Why? How much?

I discussed some of the key issues in Foreclosure-Gate Screw Tightens: Banks Face $17 Billion in Suits Over Foreclosures; Common Sense Says $5 Billion is Very Generous

I failed to discuss one key issue: recording fees. Cities and counties may be entitled to back fees. I will leave that to the negotiators to decide.

To arrive at $17 billion, one would have to do something like charge a $5,000 to $10,000 fine for every missed recording fee. If that math is correct, I find that proposal preposterous. Note: I did not do the math, I read the number in a couple places.

I really do not care what the math is, I just want to see it.

Once again, I do not object to huge fines for complete blatant stupidity as depicted by Bank of America in the above article. If there are more cases than I think, so be it.

The Way Forward

First we need to start with a realistic assessment of errors and a breakdown of how serious those errors are. In the above instance, it is clear there was a severe error, and an errors that should have been rectified in 2 days, not 18 months. I do not object to punitive fines in such instances.

Second, we need to see a proposal as to what to do about MERS. Instead, I see cases like the above trumped up as if they are common, and I see people clamoring to give homes to people free and clear because of a messed up MERS and "show me the note" objections.

The current focus is not on justice, but rather maximum punishment.

Those who want the courts to conclude that MERS has clouded every title, better be careful of what they wish. Should that be the ultimate ruling, no one who owns a home that went through the MERS system will currently have a valid title.

Want to sell your home? Sorry you can't. Want to buy a home? Sorry, you better not because the title will be clouded. This is serious stuff. If the MERS opponents get their way, Housing in the US would literally shut down.

In their desire to punish banks and let people live in their houses for free, few have bothered to figure out the severe consequences on innocent parties who simply want to sell or buy a home.

Punishing the banks to the maximum extent possible to slay the evil MERS dragon, consequences be damned, should not be the focus. Instead, we need to determine actual damages before sensible fines can be levied. Meanwhile, and far more importantly, we need to determine what we need to do to fix this mess, determine how to fix or scrap MERS, and do everything we can to get the foreclosure backlog behind us.

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

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Saturday, June 4, 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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