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Updated: 26 min 32 sec ago

Market Update: our live blog of this week's stock chaos

Tue, 2015-08-25 05:36

Here's another way the markets are not like the real world: in the markets, the B word is worse than the C word. So much worse!

C is for Correction, a sharp drop in prices, with a defined ending and a recovery.

B, on the other hand, is for bear market, a long-term drop, with no obvious end.

 

 

 

 

Here's a short video explaining the difference: 

Right now it looks as though we are in correction territory. We've had a sharp drop — a very sharp drop — but it doesn't feel like that relentless, long-term slide that we were on back in 2008, where day after day it just got worse and worse. In fact, today the market is up, prices appear to have stabilized in most markets (China is a notable exception), and most commentators are cautiously optimistic. Few are using the B word. Instead, they're pointing to health of the U.S. economy, and the upward growth trajectories of the large economies in Europe.

But that doesn't mean we're out of the woods. The situation in China is unstable, and China is one of the biggest economies in the world. If things go really bad there, it will have enormous ripple effects, and it will definitely affect the U.S. economy. But even with the Chinese government's inept futzing with its currency and its banks, and even with the meltdown in the Chinese stock market, the country is still projected to grow at around 6.7 percent this year. That's not as good as the 7 percent China would prefer, but it's hardly a bearish forecast.

So for now, call it a correction. But keep your weapon clean and your bear ammo close. Just in case.

Market Update: Is it a correction?

Tue, 2015-08-25 05:36

Here's another way the markets are not like the real world: in the markets, the B word is worse than the C word. So much worse!

C is for Correction, a sharp drop in prices, with a defined ending and a recovery.

B, on the other hand, is for bear market, a long-term drop, with no obvious end.

 

 

 

 

Here's a short video explaining the difference: 

Right now it looks as though we are in correction territory. We've had a sharp drop — a very sharp drop — but it doesn't feel like that relentless, long-term slide that we were on back in 2008, where day after day it just got worse and worse. In fact, today the market is up, prices appear to have stabilized in most markets (China is a notable exception), and most commentators are cautiously optimistic. Few are using the B word. Instead, they're pointing to health of the U.S. economy, and the upward growth trajectories of the large economies in Europe.

But that doesn't mean we're out of the woods. The situation in China is unstable, and China is one of the biggest economies in the world. If things go really bad there, it will have enormous ripple effects, and it will definitely affect the U.S. economy. But even with the Chinese government's inept futzing with its currency and its banks, and even with the meltdown in the Chinese stock market, the country is still projected to grow at around 6.7 percent this year. That's not as good as the 7 percent China would prefer, but it's hardly a bearish forecast.

So for now, call it a correction. But keep your weapon clean and your bear ammo close. Just in case.

Here's one reason bank-owned homes sit vacant

Tue, 2015-08-25 03:00

This summer, a group of Chicago men were arrested for taking over 14 vacant, foreclosed homes in prosperous neighborhoods — living in some and renting out the rest. How do foreclosed houses stay vacant so long?

One of the houses, a brick three-bedroom on the corner of 98th and Damen, went into foreclosure in five years ago.

The foreclosed homeowner didn't move out until early 2014. Ruben Nodal, who lives across the street, remembers when a new family arrived a few months later. "I went across the street and said, 'Welcome, neighbors!'" he recalls with a laugh. "I didn’t know. I was this close to having my wife bake them cookies."

He didn’t know until later that the new family was illegally; they were squatting. But he does know local real estate. He flips houses for a living.

With this house empty again, back on the market, he thinks the owner. Fannie Mae, set the $514,900 price too high.

"That’s crazy for a foreclosed home that needs a lot of work," he says. "I know. I've been in that house. It’ll sell at 450, if we’re lucky, when somebody puts a hundred grand into it."

Seven years after the financial crisis, Nodal thinks financial institutions still don’t have their act together.

"It’s bureaucracy," he says. "They don’t care! I'm dealing with a closing right now...."

He says he's trying to pay cash for a foreclosure, but the bank that owns the house just won’t schedule the closing.

Another local expert shares Nodal's opinion. Maurice Hampton, who lives in the neighborhood and works there as a broker, also thinks the house on 98th is overpriced. "The banks are not realistic," he says. "They’ve never been realistic throughout this process."

He does appreciate the logistical challenge institutions faced after the crash, dealing with bad loans and big real estate portfolios.

"These banks went from lending money — their sole job every day, and all their employees, was to give money away —  and then it turned around to, 'We have to absorb massive losses, and we have to pay staff who are completely untrained in finance, short sales, real estate?' So you open up brand new departments, and these people just push paper from one end to the other with very little direction, very little guidance."  

He’s speaking from experience. He and his wife missed a mortgage payment in 2009 and ended up in foreclosure. He says the bank wound up settling last December after his attorney documented the many times an ever-changing lineup of bank representatives had dropped the ball.

"The reps would turn over every month, twice a month, three times a month at times," he recalls.

About the house on 98th, he thinks $330,000 is more like it.

Fannie Mae executive P.J. McCarthy, a vice president in the company's real estate division, says Fannie's pricing savvy is worth defending. "It is not beneficial to anybody to overlist a property," he says. "But we believe we’re very good at valuing properties, and we believe we are very good at selling those properties quickly. The vast majority of our homes sell within the first two months."

A few days after McCarthy spoke to Marketplace, Fannie dropped the price on the house by $35,000.

Housing market is one upbeat note right now

Tue, 2015-08-25 02:00

A key asset class for many American households that is not suffering from a crisis of investor confidence and wild volatility is the U.S. housing market.

After the recession, housing was the missing leg of the recovery, beset by depressed prices, extremely tight credit, millions of homeowners underwater and a large percentage of properties in default, foreclosure or bank-owned. Home construction ground to a halt. 

Now, housing is finally contributing consistently and strongly to overall economic growth. Home prices have been rising steadily — by 4 percent to 5 percent per year for several years, and decent houses (homeowner-owned, in good condition) don’t stay “for sale” very long in many markets.

Economist Christopher Mayer at Columbia University credits low mortgage rates and says the current stock market meltdown could actually help.

“The upside of global financial unrest is people rush to U.S. treasuries for safety,” says Mayer. The yield on the 10-year Treasury fell below 2 percent on Monday as the stock market plunged. That will tend to drive mortgage rates—which are already low, averaging under 4 percent for a 30-year fixed-rate mortgage right now — down even further.

“That really makes mortgage rates very attractive for people who do have a down payment and excellent credit,” says Mayer. “Potential homebuyers, and homeowners who want to refinance, all benefit — as long as the global unrest doesn’t translate into a recession.”

Builders are showing more appetite to break ground for starter and luxury homes, says economist Robert Dietz at the National Association of Home Builders.

“We expect additional growth as household formations recover, as renters become home buyers,” says Dietz. “And that will be helped by the good job numbers that we’ve been seeing, and that we expect to continue.”

On the other hand, rents have been going up as housing remains tight and few new single-family homes have been built (in historic terms) since the recession. So some renters are finding it hard to save for a down payment. Plus, in the hottest real estate markets, places like Los Angeles, San Francisco, Seattle, New York, Boston and Washington, D.C., sharply rising home prices are putting home ownership out of reach for many.

China cuts interest rates yet again

Tue, 2015-08-25 02:00

China's central bank has stepped in after the Shanghai Composite Index sank more than 7 percent for a second day. The bank has cut interest rates for the fifth time since last November, and lowered the amount of cash banks must set aside to help its slowing economy. We consult Marketplace China Bureau Chief Rob Schmitz on whether this is the right move to save China's stock market rout. 

"I think it would've worked a heck of a lot better had the central bank done this three days ago, so they could've avoided a global ripple effect," Schimtz says. "It would've saved everyone billions of dollars."

While lowering interest rates may offer a short-term boost to the global economy, as Wall Street is likely to respond positively, in the long run, Schimtz doesn't think this is the answer to China's economy.  

"This is the fifth time since November that China's central bank has cut this lending rate. If it had worked the first time, they wouldn't have had to keep doing it," Schimtz adds.

If China keeps cutting interest rates, its currency, the renminbi, will become cheaper — which might create a problem for U.S.-China trade relations.

"Suddenly it makes Chinese exports more affordable and U.S. exports to China more expensive," Schmitz says.

 

The stock market freaks out ... but you don't have to

Mon, 2015-08-24 14:50

You've heard by now that the stock market took a pretty steep downturn, but not everyone is concerned. Click below to hear our survey of listeners from across the country to see how they're feeling about all the chaos:

 

Calm, cool and collected, right? Too bad we can't say the same for the media outlets today. Click the below audio player to see what we mean:

 

 

Joke stealing is no laughing matter

Mon, 2015-08-24 13:56

When the self-titled internet comedian the Fat Jewish, aka Josh Ostrovsky, got picked up by a talent agency, people took note.

“This guy basically built a career around aggregating/stealing, depending on how you want to call it, other people’s content … often without attribution,” says Adriene Hill. "The news that he got picked up by CAA sort of made everybody’s head explode a little bit.”

The larger issue around this is whether or not jokes fall under copyright law.

Hill asked New York University professor Christopher Sprigman about the copyright laws regarding jokes. He told her that “a comedian who’s interested in lifting a joke could possibly just lift the underlying comedic idea and express it somewhat differently and escape the reach of the copyright law.”

Hill found that comedians do a good job of policing themselves. She says that if the comedy community sees someone stealing jokes, that person is essentially shunned.

But online is another world, Hill says. Some people will tweet another person's joke, gain followers and make money, an Austin comedian tells her. In those cases, advertisers don't care about that informal code, they care about how many followers are next to a person's name.

Comedy writer Mara Quinta, who has been outspoken about joke stealing, thinks change will come from public opinion — that advertisers won't want to be associated with someone tweeting another's work.

“If we take away the financial incentive, this becomes a much smaller problem,” Quinta tells her.

As 911 outages increase, FCC considers new rules

Mon, 2015-08-24 13:00

Imagine this scenario: You have an emergency. You pick up the phone and dial 911. And no one answers.

It seems unthinkable. But a year ago, more than 6,600 emergency calls went unanswered in an outage that affected 11 million people. Officials say there were no deaths as a result.

The cause of the outage was a software glitch. And outages like it are happening more often, as the nation's 911 system transitions from analog to digital.

A look inside a 911 center in Evanston, Illinois. 

Nova Safo/Marketplace

"We are in this uneasy transition phase between old and new technology," says Henning Schulzrinne, former Chief Technology Officer at the FCC who now teaches computer science and engineering at Columbia.

Eventually, an internet-based system will allow emergency operators to know exactly where callers are located — no matter the kind of phone they are using, in addition to be able to receive texts, photos and videos from callers.

But right now, we are in an in-between phase, and experts say the transition isn't happening fast enough.

One reason is that it is expensive. The bulk of the cost of the 911 network is covered by small fees on phone bills.

"It's all about cost pressure, both on the public side and on the carrier side," says telecom analyst Roger Entner of Recon Analytics, "and [companies] regularly get beaten up by consumers and regulatory bodies alike, who are saying: Why is this fee going up?"

In that environment, companies have been looking for cost savings, and various speeds of technology adoption across the country has created a 911 system that is a patchwork of workarounds: not fully internet-based, not completely analog.

To deal with the complexity and hold down costs, telecom companies have outsourced 911 routing to subcontractors, which consolidate customers from multiple states. That's created the potential that a single point of failure can knock out service for millions.

"It makes the system more complicated, in some sense more brittle, and it leads to less redundancy," Schulzrinne says.

This has federal regulators paying attention.

"We've seen a number of 'sunny day' outages in the last year or so, outages that, instead of affecting maybe a single community, they were affecting an entire state or an entire region," says David Furth, a deputy bureau chief at the FCC's Public Safety and Homeland Security Bureau.

That's what happened in April 2014, when a software glitch in one operations center in Colorado knocked out 911 service in parts of California, Florida, Washington and four other states. Callers got busy signals when they dialed 911.

The FCC fined two subcontractors involved in the outage more than $17 million and ordered them to implement better outage alarms to respond to incidents more quickly.

The FCC has also drawn up new national guidelines, proposing that companies be required to conduct regular audits to ensure that they have working backup systems, among other rules. The comment period for the proposal has ended, but Furth won't say when the agency might move forward.

"We take 911 very seriously," Furth says. "So there is a sense of importance, in terms of making the changes that need to be made."

Some in the telecom industry have objected to the FCC's proposal, saying the agency is overreaching into areas of oversight that are the purview of states. AT&T filed comments arguing that "it is impossible for the Commission to regulate the 911 ecosystem to a zero-defect and outage-free world and a rush to expand the 911 Reliability Rules will be costly, burdensome, and, possibly, unworkable."

Today, burritos. Tomorrow, a company car?

Mon, 2015-08-24 13:00

Chipotle announced today it’s going on a hiring spree, planning to hire 4,00 people in just one day next month.

The burrito maker is pitching the jobs as the commencement of an entire career, instead of a short-term gig. Chipotle needs to make those jobs sound attractive because a tight labor market means there’s a lot of competition for restaurant workers right now.

“Heading into the fall is typically a time when we see something of a slowdown in the number of applications we receive, and yet our hiring needs really remain,” says Chipotle spokesperson Chris Arnold. He says that's because many younger workers are quitting their summer jobs and heading back to school, and workers with kids may cut back on hours to be more available during the school year.

Chipotle’s pitch to hourly workers is that they could become managers, maybe netting a six-figure salary and a company car.

Chipotle compensation chart 

(Courtesy Chipotle)

“There’s a saying in the industry that you can go from the dish room to the boardroom, and that’s certainly true,” says Hudson Riehle, senior vice president of the National Restaurant Association’s research and knowledge group.

The association says about nine out of 10 managers in the restaurant industry started as hourly workers. But it’s rare for people to make the kind of money Chipotle’s talking about.

Robert Krzak is the president of Gecko Hospitality and recruits for restaurants, including Chipotle.

“It is a candidate-driven market. Candidates right now can choose from ... an abundance of different opportunities right now, a different amount of offers.”

So it's a tough time for everyone in the restaurant business, but Chipotle may have to work harder than its competitors: The company’s been embroiled in a number of class action lawsuits. Some promoted managers say they were pushed to work longer hours without compensation.

But the National Restaurant Association points out wages are rising faster in the restaurant industry compared to other sectors of the economy, making a career in fast food not a bad choice.

 

Stop worrying about China

Mon, 2015-08-24 13:00

Yes, markets are shedding value on fears that China’s economy will slow sharply and more deeply than expected. 

Markets, however, “can go off on a path on their own that’s not very much connected with reality,” says Nicholas Lardy, senior fellow at the Peterson Institute for International Economics.

“People have gotten spooked a bit with some specific numbers coming from industry — China’s exports are down, the so-called purchasing manager’s index of industry is down,” says David Dollar, senior fellow at the Brookings Institution’s China Center. “But that’s just one part of the economy, and it’s an increasingly less important part of the economy. They’ve been growing primarily on the service sectors ... one of the main sources of employment in China.” Part of the nervousness is that there’s not a lot of updated data on those sectors.”

The Peterson Institute’s Lardy agrees. 

“I look at all the evidence, and it’s hard to say the [Chinese] economy is slowing dramatically,” he says. “Wage growth is strong, 10 percent, the service sector is expanding at more than 8 percent, and there are a number of other indicators that suggest this economy is still doing reasonably well.”

To the extent markets are concerned for the U.S., that concern may be an overreaction.

“The U.S. has relatively little vulnerability to a slowdown in China — if it were to occur,” says Lardy.

First, the U.S. is not strongly linked to China via direct exports. Dollar estimates it’s less than 1 percent of U.S. economic output. Those sectors that do export directly would be affected: aircraft, some sophisticated machinery and power plants. 

“There are a lot of important companies — Caterpillar, General Electric, United Technologies just to name a few — that produce goods in China that they mostly sell in China,” says Lardy. “And many of those are in capital-intensive sectors, and the sales of those companies in China have already been slowing down quite a bit. Because investment in property has declined, there’s less construction activity.”

To the extent that a Chinese slowdown would depress economies of countries that export commodities to it, that can reduce demand for U.S. products. “If the Chinese slowdown really hurts other economies that are connected to the U.S., then we, of course, we feel this indirectly,” says Dollar. But he says a more significant source of pressure is the strong dollar itself, which has made U.S. exports less attractive.

A decrease in demand in China could also further depress oil and commodity prices, which would have various effects on the U.S. economy. Cheaper commodities and oil would be a boon to consumers, but exacerbate problems in the U.S. oil and gas industry.

“It really depends on if you see China as a consumer, if you see them as a source of goods, if you see them as a partner or a potential competitor,” says Clara Gillispie, director for trade economic and energy affairs at the National Bureau of Asian Research. Different firms and sectors will experience a Chinese slowdown differently.

Even the scary market fluctuations are not as scary as they seem. Justin Wolfers, professor of economics and public policy at the University of Michigan, says market watchers need a dose of context.

“U.S. financial markets are down a few percent, as are other major countries',” he says. “But take a step back from last week and look at the last seven years — the U.S. stock market has more than doubled. So stocks are still up literally hundreds of percent over the period since the Great Recession ended. So over that broad historical context, this move matters and affects your savings, but it’s not large, and it’s just clawing back some of the extraordinary gains of recent years.”

So yes, the U.S. is a little bit vulnerable to a Chinese slowdown, but we’re also vulnerable to a lot of other things. Like the weather. Or the Federal Reserve.  

The long party for commodity producers is so over

Mon, 2015-08-24 12:59

The S&P 500 index is down less than 1 percent from last year, but an index of global commodities is down more than 30 percent. You name it: cotton, oil, sugar, nickel, wheat.

This downturn comes after a long, long commodities party, which has some wondering if the hangover will last just as long.

This bust goes back a ways, to a commodity boom that started around 2000. You may know the story: China went modern. It bought soybeans to feed pigs to feed people. And iron ore for steel. And coal for power.

“Definitely a super cycle,” says futures broker Pratik Patel of tradefutures4less.com. “You saw the prices rally, and they stayed higher for a very long time. Even when prices dipped, buyers would step in and markets would rally back up.”

There’s a history of super cycles, according to economist Bilge Erten of Northeastern University. In a recent paper, she found long commodity booms often were built on colossal demand: from the U.S. reconstructing itself after the Civil War, and from Europe and Japan rebuilding after World War II.

Commodity super cycles since 1960. See the darkest line. (Bilge Erten/Northeastern University)

Then they ended, Erten says, just as China’s industrial peak has come and is going, too. 

“In the future, it won’t be China that’s going to be demanding more and more commodities,” Erten says. “So there doesn’t seem to be another country that’s going to be another powerhouse, that’s going to demand all these commodities.”

She figures prices may stay low for a while. Producers of commodities like copper, silver and coffee have overinvested and produced oversupplies. And in the oil market, too many drillers are hanging on. So the glut continues.

“Now we are in the downturn for only about three years,” Erten says. “It could last another five to 10 years, potentially, in terms of the historical trend.”

If that’s the case, the big resource countries that partied the last decade — Australia, Brazil, the oil states — will have to find something else to sell in the next.

 

The bright side of the dark side

Mon, 2015-08-24 10:46
$1.50

That's the price per gallon that gasoline may fall to in the next few weeks, analyst Ian Shepherdson of Pantheon Macroeconomics predicts. It's the bright side of Monday's stock plunge and sell-off of commodities like oil; a slowdown in China means less need for raw materials. And it appears the oil savings will have some legs. "The holiday season, as far as retailers are concerned, is not very far away. And for them, to see their customers enjoying a big cash flow boost from falling energy prices, is really pretty good news," he says.

30

That's how many sites, together known as Politwoops, were shut down by Twitter, the Verge reports. The network tracks tweets deleted by politicians and archives them. But Twitter suspended access to the accounts over the weekend, telling overseer Open State Foundation, "Imagine how nerve-racking — terrifying, even — tweeting would be if it was immutable and irrevocable?" Twitter shut down Politwoops' U.S. arm in June. "It’s a terrible shame that Twitter has made this decision," Jules Mattsson, who runs the British Politwoops account, tells the Guardian. "Politwoops has been an important new tool in political accountability in the U.K. and abroad." 

23,000

That's how many tax-delinquent parcels the Cook County Land Bank Authority is tasked with clearing from the backlog of vacant foreclosed homes in the Chicago suburbs. It's a great opportunity to buy into a prosperous neighborhood, but also a chance for opportunists to move in. Police recently arrested four mean for taking over 14 homes and living in them or renting them. These "zombie" properties are stuck in foreclosure limbo for years; proceedings have begun, but the lender hasn't taken title. That's because Illinois has more protections for homeowners than many states.

 

Tweeting the market plunge

Mon, 2015-08-24 10:06

A dip in Chinese stocks on Monday has sent other world markets sliding, with the Dow Jones falling more than 1,000 points at its open.

China’s main index dropped 8.5 percent — its biggest one-day drop since 2007 — in the wake of concerns about a slowdown in the country’s economy.

Here's a brief Twitter history of Monday's chaotic morning:

Officially busiest trading day on Wall Street since Oct 2011 - more than 12.3bn shares traded with 14 minutes to go http://t.co/blqQWnINpM

— Eric Platt (@EricGPlatt) August 24, 2015

   

More: Already more than 11.5bn shares have traded hands on the NYSE, Nasdaq and NYSE MKT http://t.co/blqQWo0oOm pic.twitter.com/NMEDz7nmeV

— Eric Platt (@EricGPlatt) August 24, 2015

   

Dow off 682 now

— Joseph Weisenthal (@TheStalwart) August 24, 2015

   

Here's how your S&P intraday chart (going back to Friday) is looking. Warning: may cause dizziness. pic.twitter.com/bJgILEq2CP

— Neil Irwin (@Neil_Irwin) August 24, 2015

   

This is wild. GE lost and gained $50 billion in market cap in a matter of minutes. https://t.co/08yU9RDith

— Joseph Weisenthal (@TheStalwart) August 24, 2015

   

Look, it doesn't matter what you bought or what you sold. The important thing is that you panicked.

— Downtown Josh Brown (@ReformedBroker) August 24, 2015

   

Dow's comeback, if it holds, is rare: Only 2x has Dow closed with a sub-3% loss .. after being down 6% intraday. (via @HumOnTheMarkets)

— Carl Quintanilla (@carlquintanilla) August 24, 2015

   

"and why do they even call it a bear market it is not our problem tbh" pic.twitter.com/p9Rq4Ihc29

— darth™ (@darth) August 24, 2015

   

Exxon hit $66 this am. Other intraday lows: @CNBC (Via @HumOnTheMarkets) pic.twitter.com/Rtw8qqMqZ6

— Carl Quintanilla (@carlquintanilla) August 24, 2015

   

Incredible. The Dow is up about 700 points from where it was right after the opening bell. pic.twitter.com/JkieUHDKw0

— Joseph Weisenthal (@TheStalwart) August 24, 2015

   

$CELG 23% off this morning’s lows. $NFLX 11% off this morning’s lows. $AAPL 12% off this morning’s lows Not a typo.

— Downtown Josh Brown (@ReformedBroker) August 24, 2015

   

Dow's down 6.5% this morning after dropping 5% in the last two trading sessions last week @CNBC

— Kelly Evans (@Kelly_Evans) August 24, 2015

   

Yield on the 10yr back below 2% now...latest 1.95%

— Kelly Evans (@Kelly_Evans) August 24, 2015

   

The Fed is looking at a very different dollar than Wall Street is. http://t.co/wdDbRKsWt5 via @MsAndreaWong pic.twitter.com/cpCyzKUUVL

— Joseph Weisenthal (@TheStalwart) August 24, 2015

   

Chinese stocks got destroyed last night and have now given up their gains for the year. http://t.co/qkd1UjW0Vd pic.twitter.com/scu4iE8HfY

— Joseph Weisenthal (@TheStalwart) August 24, 2015

PODCAST: The fallout from "Black Monday"

Mon, 2015-08-24 09:06

First up, we look how the global drop in share prices Monday morning — including an early, brief 1,000-point fall for the Dow — could affect the feds plans to raise interest rates. Then, as cars do more by themselves, with further innovation on the horizon, we look at the state of cyber-security on the road.

Repeat after me: This is not 2008

Mon, 2015-08-24 08:06

I said it Friday on the radio – I’ll say it again right now.

Take.  A deep.  Breath.

Yes, things look scary.

Yes, the Dow opened down 1,000 points today.

A. Thousand. Points.

But look. There’s a whole lot going on here — some of it bad, some of it not so much — and I think a little context will help. 

First of all, sure, it’s been a lousy couple of days. But go get a 10-year chart of the three major indices — Dow Jones industrial average, Nasdaq and Standard & Poor's 500. Yeah, not looking so bad now, is it? When stocks have been this strong for this long, we actually want to let a little air out every now and then. We just don’t want to do it all at once, which is what the past couple of days has been — and which is, by the way, why people are so jittery.

Second, China. Yes, the Chinese government is doing some, shall we say, interesting things, as it tries to get some kind of control over what is essentially an uncontrollable beast — market forces. And it is the second biggest economy on the planet, so what happens there — or doesn’t happen — will affect us to a certain degree. But we’re not, as Cardiff Garcia said on the program Friday, as exposed to what happens over there as people might think. A lot of the economic activity that happens here, starts here. 

Item three – 2008. Repeat after me. This is not 2008. This is not 2008. This is not 2008. Might things get worse before they get better? Sure. Will it be scary? Quite possibly. But where we are today is nowhere near the hyper-leveraged, credit-bubblicious place we were at when Lehman Brothers went under. 

Finally, I’ll also say, just for the record, that I have no idea what the Fed’s going to do with interest rates. September? December? The 15th of Never? No clue. What I do know? Because Janet Yellen says it all the time and I believe her: They’re going to see what the data says and then decide.

But right now, I’ll tell you, the data’s not looking so good.

Repeat after me: This is not 2008

Mon, 2015-08-24 08:06

I said it Friday on the radio – I’ll say it again right now.

Take.  A deep.  Breath.

Yes, things look scary.

Yes, the Dow opened down 1,000 points today.

A. Thousand. Points.

But look. There’s a whole lot going on here — some of it bad, some of it not so much — and I think a little context will help. 

First of all, sure, it’s been a lousy couple of days. But go get a 10-year chart of the three major indices — Dow Jones industrial average, Nasdaq and Standard & Poor's 500. Yeah, not looking so bad now, is it? When stocks have been this strong for this long, we actually want to let a little air out every now and then. We just don’t want to do it all at once, which is what the past couple of days has been — and which is, by the way, why people are so jittery.

Second, China. Yes, the Chinese government is doing some, shall we say, interesting things, as it tries to get some kind of control over what is essentially an uncontrollable beast — market forces. And it is the second biggest economy on the planet, so what happens there — or doesn’t happen — will affect us to a certain degree. But we’re not, as Cardiff Garcia said on the program Friday, as exposed to what happens over there as people might think. A lot of the economic activity that happens here, starts here. 

Item three – 2008. Repeat after me. This is not 2008. This is not 2008. This is not 2008. Might things get worse before they get better? Sure. Will it be scary? Quite possibly. But where we are today is nowhere near the hyper-leveraged, credit-bubblicious place we were at when Lehman Brothers went under. 

Finally, I’ll also say, just for the record, that I have no idea what the Fed’s going to do with interest rates. September? December? The 15th of Never? No clue. What I do know? Because Janet Yellen says it all the time and I believe her: They’re going to see what the data says and then decide.

But right now, I’ll tell you, the data’s not looking so good.

Repeat after me: This is not 2008

Mon, 2015-08-24 08:06

I said it Friday on the radio – I’ll say it again right now.

Take.  A deep.  Breath.

Yes, things look scary.

Yes, the Dow opened down 1,000 points today.

A. Thousand. Points.

But look. There’s a whole lot going on here — some of it bad, some of it not so much — and I think a little context will help. 

First of all, sure, it’s been a lousy couple of days. But go get a 10-year chart of the three major indices — Dow Jones industrial average, Nasdaq and Standard & Poor's 500. Yeah, not looking so bad now, is it? When stocks have been this strong for this long, we actually want to let a little air out every now and then. We just don’t want to do it all at once, which is what the past couple of days has been — and which is, by the way, why people are so jittery.

Second, China. Yes, the Chinese government is doing some, shall we say, interesting things, as it tries to get some kind of control over what is essentially an uncontrollable beast — market forces. And it is the second biggest economy on the planet, so what happens there — or doesn’t happen — will affect us to a certain degree. But we’re not, as Cardiff Garcia said on the program Friday, as exposed to what happens over there as people might think. A lot of the economic activity that happens here, starts here. 

Item three – 2008. Repeat after me. This is not 2008. This is not 2008. This is not 2008. Might things get worse before they get better? Sure. Will it be scary? Quite possibly. But where we are today is nowhere near the hyper-leveraged, credit-bubblicious place we were at when Lehman Brothers went under. 

Finally, I’ll also say, just for the record, that I have no idea what the Fed’s going to do with interest rates. September? December? The 15th of Never? No clue. What I do know? Because Janet Yellen says it all the time and I believe her: They’re going to see what the data says and then decide.

But right now, I’ll tell you, the data’s not looking so good.

Shanghai Composite posts biggest one-day drop in years

Mon, 2015-08-24 06:37

"This has been quite a summer in China," says Rob Schmitz, Marketplace's China correspondent. "The thing that stands out to me is that Beijing decided to leave the market alone today, and look what happened. The biggest one-day drop in eight years on the Shanghai Composite – prompting markets everywhere else to spiral out of control." 

There had been some talk that China was going to take action over the weekend and everyone was waiting for it, but it didn’t happen. People wondered if they had given up, or if it was some kind of new strategy.

"I think it’s becoming increasingly clear that this whole 'we are going to open our markets' thing wasn’t that well thought out from the beginning," Schmitz says. "China’s economists should have foreseen the margin lending, the short selling, the market shenanigans that happen everywhere else, and they should have been prepared for it."

With things going downhill at the beginning of the summer, the state immediately intervened.

"Each time they stepped in, investors became less confident that China’s leaders knew what they were doing," Schmitz says.

The Chinese government has tried to flood its banking system with cash by freeing up more funds for lending. China’s government also announced over the weekend that it would allow $100 billion worth of pension funds to be invested into the stock market.

"Would you want your pension fund in a free-falling market right now?" asks Schmitz. "I think the essence of the problem here is that China’s government says it wants to reform its financial system, it says it wants a more open market, but it really doesn’t want to commit to doing the very painful things that it needs to do in order to make this happen."

Stock drop highlights Rule 48 and the market makers

Mon, 2015-08-24 06:15

Sure, you may not feel so worried about the stock market rout, now that shares are pulling higher, but that doesn't mean things aren't serious. 

The New York Stock Exchange thought so this morning — it invoked something called "Rule 48," a measure designed to smooth out trading and ease volatility. The rule means that market makers will not have to, as Dow Jones' Kristina Peterson puts it, disseminate price indications before the bell, making it easier and faster to open stocks.

You may now be asking yourself what "market makers" are, which means you probably thought that the markets worked all on their own, without any help from anyone. Well, I've got news for you, my friend — they don't.

Here's a short video explaining what they do: 

Markets need fine tuning just like the rest of us, and the market makers are the grease monkeys of the American stock exchanges: They put the oil in the market machine. When you show up to the market wanting to buy something exotic, they're there to sell to you. When you're running around trying to offload some junky stock that's going into freefall, they'll buy it. The market makers ensure liquidity, which is the ability to trade easily and with as little friction as possible. 

So where does Rule 48 come in? To extend the oil metaphor a little further, a smart mechanic always adds oil before she turns on the engine. So market makers usually tell everyone what they think stocks are worth before the trading day starts. That way, no one starts the day fumbling around, wasting time, trying to figure out how much they're going to have to pay or get paid. Liquidity, remember?

But on a day like today, that pre-open, price-setting activity would have slowed the market down. Why? Because global markets were getting hammered, and there was no real clarity about where stocks would open. Market makers were in danger of setting one price for a stock and then finding out that the stock was trading much lower elsewhere. That would merely have compounded the liquidity issue, as everyone would have to slow right down and figure out who was right, the market maker quoting you $60 a share or the guy on the phone quoting you $55.

By invoking Rule 48, the NYSE wanted to get out of the market's way. And it does this reasonably often.  Zerohedge notes it did so in January 2015 (during the blizzard), in June 2012 (amid a dramatic drop in pre-open futures) and in September 2011 amid the chaotic 400-point swings in the Dow Jones industrial average.

'Zombie' homes give Chicago operators an opportunity

Mon, 2015-08-24 04:38

In early July, Chicago police officers arrested four men for taking over 14 vacant foreclosed homes — living in some and renting out the rest — mostly in prosperous neighborhoods. Seven years after the housing market crashed, there are still enough vacant homes to provide opportunities for this kind of creativity.

Eight of the houses were in Beverly Hills and Morgan Park— South Side Chicago neighborhoods that look like suburbs, complete with big brick houses, winding streets and a vigilant neighborhood group, the Beverly Area Planning Association.

One of the homes sits a block and a half from the group’s office, on a street the association’s executive director, Margot Holland, describes as “beautiful,” lined with trees and spacious houses.

The taken-over house fits right in. The white-brick split-level is obviously well cared for, with tidy landscaping and a sign in front indicating that a security system is in place. “Yeah, it definitely doesn’t look suspicious,” Holland says.

So, how does a tidy home on a beautiful block end up ripe for the picking?

For help in understanding the context and in sorting through the public records, I turned to Rob Rose, director of the Cook County Land Bank Authority. Created in 2013 to help clear a backlog of vacant foreclosed properties, the land bank focuses on a collection of 23,000 tax-delinquent parcels.

Asked how long it might take him to dispose of all 23,000, Rose has a ready answer: “The rest of my life.”

His answer is based on a simple calculation. Rose thinks that clearing 500 properties a year — by finding new buyers or recommending targeted demolition — would be a pretty good pace for his small office. At age 44, that would keep him in the job until he’s 90.

However, as a public records search on the taken-over homes shows, there are far more than 23,000 vacant properties.

None of the eight properties in Beverly and Morgan Park are on Rose’s lists, because the property taxes are still being paid, presumably by the lender, as a hedge against forfeiting the parcel in a tax auction.

“This is the most difficult type of property to get to, because there’s no immediate red flags,” Rose says.

For the split-level, records show foreclosure started three years ago, but the lender hasn’t taken title. That’s about average in Illinois, which has more protections for homeowners than many states.

According to Daren Blomquist, vice president of the real-estate analytics company RealtyTrac, that delay means a foreclosed home in Illinois is more likely to be abandoned. “The longer it’s in that process, the better the chance that the homeowner is just leaving the property.”

Nationally, RealtyTrac counts about 127 thousand of these “zombie properties” stuck in foreclosure indefinitely. “When you consider that at any given time, there’s probably a couple million homes for sale, this isn’t an overwhelming number of properties,” Blomquist says. “Compared to overall inventory nationally, it really is a drop in the bucket. I think this really is a neighborhood issue.”

But even in a nice neighborhood, a few zombies here and there can provide an opening for creative operators.

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