Mish's Global Economic Trend Analysis

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• Zandi Loses His Mind (Assuming He Ever Had One)
• USD liquidity provisions: EUR relief likely to be temporary says Barclays Capital Research
• Sarkozy, Merkel "Convinced" Greece will Remain in Eurozone; Market Convinced of Default; Gold Declines US Dollar Drops; Band-Aids and Rubber-Bands

Zandi Loses His Mind (Assuming He Ever Had One) Posted: 15 Sep 2011 04:44 PM PDT I have really had it will bailouts, all of them, but especially bailouts that come at with a huge cost to taxpayers. The latest heap of Keynesian clown bailout madness comes from economist Mark Zandi on how to jump-start HARP (Obama's Home Affordable Refinance Program). Please consider Experts back expanding Obama mortgage refi effort At issue is the White House's Home Affordable Refinance Program, or HARP, which has seeks to provide refinancing options to millions of underwater borrowers who have no equity in their homes as long as their mortgage is backed by Fannie Mae and Freddie Mac, the government-controlled housing giants. "Jump-starting HARP requires that Fannie and Freddie not charge add-on rates, even for refinancing borrowers who have lost a lot of equity in their homes or have relatively low credit scores," said Mark Zandi, the chief economist of Moody's Analytics. As it stands now, the HARP program only allows borrowers to refinance at current low interest rates into a mortgage that is at most 25% more than their home's current value. David Stevens, president of the Mortgage Bankers Association, acknowledged that allowing borrowers who are even more underwater, that is they owe even more than that cap, to participate would enable more qualified borrowers to refinance. Zandi made additional suggestions, including proposing that Fannie and Freddie could forgo borrower income verification and detailed home appraisals to keep costs down. As of June, roughly 840,000 borrowers have refinanced their mortgages through HARP. However, RealtyTrac reports that about 16 million of the 40 million U.S. mortgages are underwater. According to CoreLogic, the number of mortgages that are 25% or more underwater is 4.6 million and the number that is 50% or more is 2.3 million Look at the self-serving circular thinking of David Stevens, president of the Mortgage Bankers Association who acknowledged that including borrowers who are even more underwater "would enable more qualified borrowers to refinance". Of course it would. Loosen standards and more qualify for loans, by definition. You can temporarily jump-start nearly anything if you throw enough money at it, and that is exactly what Keynesian clown fools want to do. Unfortunately, no amount of taxpayer money is too great for any cause any fool believes in. Common sense dictates (and history proves), losses accelerate as you loosen standards. Forgo income verification and ignore credit scores as Zandi proposes and losses would soar. It is ludicrous to propose loan modifications to those with no job or no income, and those significantly upside down on their mortgage. The former cannot afford any payment and history proves the latter will walk away anyway. No income and no verification liar loans are among the reasons we are in this mess in the first place. Thus, Zandi clearly has a short memory, if any memory at all, coupled with no common sense whatsoever. The best way to "jump-start" housing is to let the market find a bottom. Once prices get sufficiently low, investors and buyers will step in. Meanwhile, any steps that artificially prop up prices and postpone foreclosures at taxpayer expense will delay the bottom in housing, delay household formation, and delay a jobs recovery as well. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

USD liquidity provisions: EUR relief likely to be temporary says Barclays Capital Research Posted: 15 Sep 2011 11:14 AM PDT Via email, I have no link ... USD liquidity provisions: EUR relief likely to be temporary The ECB has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months on October 12, November 9 and December 7. These will be conducted in addition to the ongoing weekly seven-day operations announced on 10 May 2010 at a fixed rate that is yet to be announced. In the past, that rate was equal to 3m USD OIS +100bp. European banks, in particular French ones, have been reported to be facing USD funding pressures over the past few weeks. These have also been evident in the recent fall in the EUR basis and rise in the spread between Euribor and OIS spreads. The EUR has rallied as a result of the measure: it offers term USD liquidity to strained European banks and gives some breathing room to the European authorities. However, the move is being amplified by short positioning and is likely to be short lived. This measure just alleviates one of the symptoms of the euro area debt crisis and, if anything, confirms the liquidity constraint that banks are facing. It also illustrates why the USD is the best hedge for real problems in the EA, not European currencies such as the NOK or SEK. If the crisis intensifies, investors will likely continue to favor the greenback: USD haven demand will always be a safe way out in times of trouble. I agree with Barclay's analysis calling the liquidity measures a Band-Aids and Rubber-Bands Approach earlier today. Band-Aids and Rubber-Bands That the ECB, FED, Bank of Japan, and Swiss National bank have to provide liquidity to calm the markets is hardly calming news, yet the market continues to react well to band-aid and rubber-band measures ... for now. It won't last because nothing has been solved and attempts to revive the Eurobond idea is Dead-on-Arrival. Either Merkel and Sarkozy are attempting to buy time, hoping beyond hope to preserve their failing legacies, or are delusional. I suggest a combination of the three. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Sarkozy, Merkel "Convinced" Greece will Remain in Eurozone; Market Convinced of Default; Gold Declines US Dollar Drops; Band-Aids and Rubber-Bands Posted: 15 Sep 2011 09:22 AM PDT Equities continued their choppy overlapping rally today on news of more liquidity support from the ECB and statements from German Chancellor Angela Merkel and French president Nicholas Sarkozy that Greece will Remain in Currency Union. Bloomberg reports German Bunds Decline as ECB Provides Dollars to Banks; Greek Bonds Surge German two-year notes slid for a fourth day as the European Central Bank said it will lend dollars to euro-region banks to ensure they have enough of the U.S. currency, damping demand for safer assets. Ten-year bund yields climbed above 2 percent for the first time since Sept. 5 as stocks gained after French President Nicolas Sarkozy and German Chancellor Angela Merkel said yesterday they're "convinced" Greece will remain in the currency union. Greek bonds surged as investors trimmed bets the nation will default. Spain's 10-year yields approached a one- month high after the country sold 3.95 billion euros ($5.4 billion) of debt. The ECB said it will conduct three U.S. dollar liquidity- providing operations in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank. European stocks and the euro rallied. It will offer the loans on Oct. 12, Nov. 9 and Dec. 7. Greek Bonds Surge? The Bloomberg headline reads "Greek Bonds Surge". Did they really? No, not really, at least in any meaningful perspective if one bothers to look closer. One-Year Greek Bond Yield That may be a surge, but all it represents is a possible delay in bankruptcy, not that bankruptcy will be avoided. Italy 10-Year Bond Yield No surge where it really matters, that's for sure. Meanwhile the gold-dollar reverse correlation play is back in vogue today, with gold down $41 and the Euro hitting a high of 1.39. Band-Aids and Rubber-Bands That the ECB, FED, Bank of Japan, and Swiss National bank have to provide liquidity to calm the markets is hardly calming news, yet the market continues to react well to band-aid and rubber-band measures ... for now. It won't last because nothing has been solved and attempts to revive the Eurobond idea is Dead-on-Arrival. Either Merkel and Sarkozy are attempting to buy time, hoping beyond hope to preserve their failing legacies, or are delusional. I suggest a combination of the three. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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