With the Fed taking a slow walk to the sidelines, diminished returns ahead seem to be on the minds of many market participants.» Read More
For most of the past decade, renting a home has been a smarter move than buying one in most areas of the United States. The cost of renting a similar home has been far less than owning one, even after things like mortgage interest tax deductions are taken into account.
Many believed that falling home prices would change this reality. As home prices fell, buying a home would seem more attractive. What’s more, foreclosures would push former owners into rental apartments—driving up rental rates and making home-buying even more attractive.
The end result—at least according to the conventional wisdom—was that rising rents would provide a floor to falling home prices. Eventually—fingers crossed—rising rents could even lead home prices to rise if the balance between renting and buying swung too far in the opposite direction.
As it turned out, this was way too rosy of a scenario. Even after the housing bubble deflated, the Rent Ratio—the purchase price of a house divided by the annual cost of renting a similar one—remained elevated in much of the country. It was still better to rent than to buy in most places.
Today, a new idea that is at least as unsettling: Fragmentation in Europe, not just along national lines, but along class and economic lines as well.
Michael Pettis, a Professor of Finance at Peking University and a frequent writer on international economics wrote in a recent blog post , in reference to Europe's most economically troubled nations:
"Political radicalism in these countries will rise inexorably as a consequence of rising class conflict. As Keynes pointed out as far back as 1922, the process of adjusting the currency and debt will primarily be one of assigning the costs to different economic groups, and this is never an easy or conflict-free exercise."
This is indeed a frightening scenario. If, as Milton Friedman suggested in 1965 "We are all Keynesians now," perhaps it is time to think through some of the darker ramifications for Europe.
The idea of decriminalizing insider trading—and perhaps even removing some of the securities regulation rules that impose civil sanctions on insider trading—is finally becoming respectable.
For a long time, legalization of insider trading was a cause restricted to a few libertarians, some hardcore efficient market types, and a handful of academics. But in recent years, the idea has gone mainstream—in part, I suspect, because the government’s costly and legally extravagant attempts to enforce the rules seem to have so little effect at deterring insider trading.
The backlash against legalized insider trading has already begun. One forcible critique comes from Bruce Carton, a former senior counsel in the enforcement division of the Securities and Exchange Commission who now runs Securities Docket —an online publication monitoring securities enforcement.
Writing at Compliance Week , Carton imagines what would happen if we let our ban against insider trading fall by the wayside:
Although deal volume is still running at less than half of the 2007 peak of nearly $1 trillion, M&A is making a comeback this year. A good portion of the growth has come not from the headline grabbing mega-mergers but from middle market deals ranging from $50 to $500 million, according to the independent research firm Accordion Partners.
After 20 years, Mary Meeker is leaving Morgan Stanley to join the venture capital firm Kleiner Perkins Caufield & Byers as a partner.
Meeker became known as “Queen of the Net” during the Internet mania of the late 1990s. Her Net Queen title was first intended to lionize her as a visionary. The phrase then came to symbolize something else entirely: The excesses of the dotcom bubble—and possibly the conflicts of interest inherent at investment banks during the same period. Meeker survived the waves of allegations that eventually forced analysts Jack Grubman and Henry Blodget out of the securities industry. In fact, in a fascinating and redemptive third act, the term “Queen of the Net” largely returned to its original usage — which is to say un-ironical.
It's the festive color of the holidays. It’s also what the U.S. Postal Service is seeing. Lots of red, without a bailout in sight.
Even though Cyber Monday, one of the busiest shopping days for online retailers, is expected to bring in more sales than last year, the Postal Service is not in much of a position to benefit.
"The problems are much bigger than one holiday season… The postal service needs to work on its cost structure," said Morgan Keegan Transportation Analyst Arthur Hatfield.
The Postal Service is trying to stamp out a multi-billion dollar budget shortfall. Its net loss in its fiscal year ending September 30 was $8.5 billion. Operating revenue came in at $67.1 billion - down one billion from 2009 due mainly to lower volume.
The foreclosure crisis still divides us into two camps. There are those who believe that foreclosing rapidly on homes subject to defaulted mortgages is vital to clearing the market. Others believe we should do everything we can to keep people in their homes, urging loan modifications to forestall foreclosures.
John Taylor, President and CEO of the National Community Reinvestment Coalition, falls solidly in the latter camp. Taylor would like to see widespread mortgage modifications that would allow homeowners in danger of defaulting to keep their homes. Taylor is on the board of directors of the Rainbow/PUSH Coalition and the Leadership Conference for Civil Rights. He has also served on the Consumer Advisory Council of the Federal Reserve Bank Board, The Fannie Mae Housing Impact Division as well as The Freddie Mac Housing Advisory Board. He is extremely passionate on why his idea is the right choice to help turn around the real estate market.
Ireland Gets 85 Billion Euro Package (Bloomberg) Bloomberg's lede graf provides a good index of the sentiment: "European governments sought to quell the market turmoil menacing the euro, handing Ireland an 85 billion-euro ($113 billion) aid package and diluting proposals to force bondholders to bear some cost of future bailouts."
Four words— 'sought', 'quell', 'turmoil', and 'menacing' —would seem to capture the current tone of the markets in Europe. Also, German Chancellor Angela Merkel's initial insistence on haircutting Irish bondholders would appear to have been removed. But: "The twin decisions were not enough to placate investors today that the crisis is now contained. Irish 10-year bonds erased an early advance, European stocks and the euro declined and the cost of insuring the debt of Spain and Portugal against default soared to record highs." Investors seem to believe that if you plug the hole in Ireland, the fear just migrates south and east.
Greece Bailout Repayment Timeline Extended \(CNBC via Reuters\) Greece will have an additional six years to pay back its 110 Billion Euro bailout loan to the EU and IMF. The loan, which was originally due to be repaid in 2015, has been extended to 2021. In exchange for the extension, Greece will pay another 30 basis point of interest – bringing the total rate to 5.8 percent, from an initial interest rate of 5.5 percent. The plan has been agreed to informally, with details expected to emerge after a formal agreement during the next Eurogroup and Ecofin councils on Dec 6-7.
Will Senior Bondholder of Irish Banks Take a Haircut? (Bloomberg) "European Union and International Monetary Fund officials are taking legal advice on how senior bondholders can share the cost of Ireland’s 85 billion-euro ($113 billion) bailout without triggering lawsuits, the Irish Times reported today, without saying where it got the information. Negotiators plan to finalize the aid package on Nov. 28 before markets re-open after the weekend, an EU official said on condition of anonymity." Junior bond holders have expected to come out less than whole—but analysts in Dublin long believed that senior bondholders were 'sacrosanct'. Perhaps not so, as the situation continues to deteriorate.
"China Protests U.S.-South Korea Exercises" (Wall Street Journal) Add this to the list of thorny issues between The U.S. and China:
"China made its first official protest over plans by the U.S. and South Korea to hold joint military exercises involving the aircraft carrier USS George Washington in the Yellow Sea on Sunday." The Journal article suggests the that the protests were "noticeably more restrained than when the U.S. announced similar plans," and that "The statement also appeared to offer all sides a face-saving compromise," —but still, skepticism perhaps should remain the order of the day. Have we so soon forgotten Chairman Bernanke's remarks on currency issues made just a week ago today?
"Stocks Sink as Worries over Europe's Debt Linger" (Yahoo Finance via AP)
"Stocks are sinking during a shortened session on Wall Street amid lingering uncertainty surrounding Europe's debt troubles and a warning from North Korea.European stock markets and the euro fell Friday as worries mount that Portugal will need cash from other European Union countries to help manage its debts. The Dow Jones industrial average fell 100, or 0.9 percent, to 11,086. The S&P 500 index was down 8, or 0.7 percent, to 1,190. The Nasdaq composite index fell 10, or 0.4 percent, to 2,533." The trading session will close at 1:00 p.m. today.
It's almost an open secret: American businesses are on strike.
Hiring remains staggering slow and unemployment grimly high. Business expansion is at a slow-slog. Banks aren't lending, but businesses aren't borrowing either.
Anyone paying attention to these things has heard a lot of explanations. It's Obama's fault: the threats of higher taxes, Obamacare and Dodd-Frank is creating regulatory uncertainty. Or it's the fault of Republicans and deficit hawk Democrats who are resisting calls to replace falling private sector spending with more government sector spending. Or it's the animal spirits haunting us for our past sins of excess.
But what is really going on, I think, is a refusal by businessmen to play the business cycle.
John Carney is a senior editor for CNBC.com, covering Wall Street and finance and running the NetNet blog.
Jeff Cox is finance editor for CNBC.com.
Lawrence Delevingne is the ‘Big Money’ enterprise reporter for CNBC.com and NetNet.
Stephanie Landsman is one of the producers of CNBC's 5pm ET show "Fast Money."
Mastercard capped a busy year by executing one of the main drivers of the stock rally: A buyback.
With the Fed taking a slow walk to the sidelines, diminished returns ahead are on the minds of many market participants.
It's time for bond traders to place their bets on whether the Fed is ready to begin tapering its bond buying program.