KeNo's Housing and Economic Portal: Tuesday July 2 Housing and Economic stories

TOP STORIES:

Obama Axes Bank-Harrassing Gary Gensler at CFTC, Plans to Install Lightweight Ex-Goldmanite - (www.nakedcapitalism.com) Obama is no longer bothering to pretend that he is anything other than a stooge for banks and other big money interests. The president is effectively dismissing Gary Gensler, the ex-Goldman partner who headed theCommodities Futures Trading Commission. Gensler used his post at a secondary financial regulator to push for reforms. It was his office that blew the Libor scandal wide open by taking referrals from British regulators seriously (by contrast, Geithner, who heard about widespread, deliberate mismarking in 2008, passed the buck to the Bank of England). Gensler has also been making himself unpopular by taking the view that swap dealers, which includes foreign branches of US banks and parties that conduct business with US parties, must comply with Dodd Frank. As Automated Trader noted in April: “As the CFTC completes the cross-border guidance,” Gensler said, “I believe it’s critical that Dodd-Frank swaps reform applies to transactions entered into by branches of US institutions offshore, between guaranteed affiliates offshore, and for hedge funds that are incorporated offshore but operate in the US.”

Can Bernanke Avoid a Meltdown in the Bond Market? - (www.bloomberg.com) The past few weeks have given us a hint of what might happen when the Federal Reservestarts to reverse its super-easy monetary policy. Expect turbulence in financial markets, especially for assets that have moved far above normal or reasonable valuations. A return to normality eventually implies a benchmark 10-year Treasury yield of 4 percent or more. It won’t happen all at once, but that’s where we’re heading. With yields at roughly 2.2 percent, there’s a long way to go. This transition will mark a recovery of the equity culture and the cooling of investors’ protracted love affair with bonds. Because of this prospect, markets are sensitive to the merest whiff that Fed Chairman Ben S. Bernanke might be forced by colleagues on the Federal Open Market Committee to reduce the scale of quantitative easing. This nervousness has affected asset prices across the maturity spectrum, not just at the short end of the money market as you might expect.

Greece First-Ever Developed Market Cut to 'Emerging' - (www.bloomberg.com) Greece became the first developed nation to be cut to emerging-market status by MSCI Inc. (MSCI) after the local stock index plunged 83 percent since 2007. Greece failed to meet criteria regarding securities borrowing and lending facilities, short selling and transferability, said MSCI, whose equity indexes are tracked by investors with about $7 trillion in assets. Qatar and the United Arab Emirates were raised to emerging markets, while Morocco was cut to a frontier market. New York-based MSCI kept South Korea and Taiwan as emerging markets, and placed Chinese shares traded on local exchanges on review for inclusion in the emerging category, according to a statement yesterday. The ASE Index fell 1.4 percent to 882.99 at 1:49 p.m. in Athens. The gauge has dropped 10 percent this week as Greece failed to win any bids in a sale of the country’s gas monopoly. The unsuccessful attempt to sell Depa SA dented Greece’s state-asset sales program, which underpins 240 billion euros ($318 billion) of bailout loans from the euro area and International Monetary Fund.

Will lenders and investors find owner-occupant buyers when they liquidate? - (www.ochousingnews.com) The current housing market price rally is largely being fueled by investors competing for restricted inventory. Both the banks that are restricting the inventory and the investors who are buying it are counting on selling these properties to owner-occupants who are willing to pay higher prices for a place to shelter their families. Conventional wisdom is that a resurgent economy and low mortgage rates will bring owner occupants back to the housing market with a willingness and ability to pay higher prices. But will it really work out that way? As proof that the current market rally is entirely fueled by investors, the chart below shows total home sales versus purchase applications. As you can see, purchase applications have been flat for three years, yet home sales are up. The only way to fill the gap is with all-cash investors.

Fed Mortgage Stockpile Seen Cushioning Pullback - (www.bloomberg.com) The $1.2 trillion of mortgage-backed securities the Federal Reserve has amassed to stoke economic growth is creating a potential firewall that dealers say is shielding the bond market from a rapid decline as policy makers debate scaling back debt purchases. The stockpile, which has made the Fed the biggest holder of government-backed mortgage bonds, is cutting the risk that a sudden jump in Treasury yields will lead to an even bigger surge as investors place bearish bets to protect against housing-debt losses triggered by rising rates, a practice known as convexity hedging, according to dealers from Deutsche Bank AG to Barclays Plc. The Fed, which doesn’t hedge, owns about 21 percent of agency mortgage bonds, up from zero a decade ago. The share owned by investors that typically hedge has dropped. The shift is reducing the odds that the bond market relives 2003, when convexity hedging fueled a 1.45 percentage-point increase in 10-year (USGG10YR) Treasury yields in two months and led to a 4.03 percent loss that July in the Bank of America U.S. Corporate & Government Index, the biggest monthly decline in more than two decades. That index lost 2.07 percent in May, the biggest decline since the 2008 credit crisis, as Treasury yields increased 0.45 percentage point.

OTHER STORIES:

China Stocks Fall to 6-Month Low After Holiday on Economy - (www.bloomberg.com)

Nikkei Plunges 6.4%; Re-Enters Bear Market - (www.cnbc.com)

Banks seized more U.S. homes in May, RealtyTrac report shows - (www.reuters.com)

China Local Debt Audit ‘Credit Negative,’ Moody’s Says - (www.bloomberg.com)