Friday, February 15, 2008

Depression risk might force U.S. to buy assets


Reuters By John Parry
NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.

That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.

Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.

While Connolly already sees some parallels with the 1930s, he expects that a more pro-active central bank and government will probably help avert a repeat of that scenario today.

The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said.
Then, investors were very optimistic about new technologies, and stocks rose against a backdrop of low inflation, and a trend toward globalization. There was even an equivalent of the modern day subprime mortgage debt meltdown in the form of U.S. loans to Latin American countries which had to be written off.

"The big difference is the attitude of central banks and specifically the attitude of the Fed," Connolly said.

Some economists have blamed the U.S. economy's travails in the 1930s on the Federal Reserve's hesitation to inject reserves into the banking system.

However, today's Fed has tried to preempt the danger of a protracted economic slump and has responded swiftly to a credit crunch in the past year and gathering signs of deterioration in the economy, Connolly said.

The Fed has stepped up its temporary additions of reserves to the banking system, and swiftly slashed its benchmark fed funds target rate to 3.0 percent from 5.25 percent in September. Analysts expect at least another 0.5 percentage point cut in next month.

At the same time, "the fed funds rate can't stay significantly above the 2-year note yield," Connolly said.

On Tuesday, the 2-year Treasury note yield was at 2.00 percent, not far above the lowest level since 2004.

The Fed "almost certainly" has to cut the funds rate to 2.0 percent by the end of this monetary easing cycle, he said. If conditions in the banking sector worsen, the Fed could cut the funds rate to 1.0 percent, a low last seen in June 2004.

Global banks have already written down more than $100 billion of bad debts associated with the U.S. subprime mortgage debt meltdown and housing market decline.

However, Fed rate cuts alone are unlikely to avert a prolonged period of economic weakness because the danger still exists that a burdened banking sector will choke off credit to consumers and households.

"The Fed probably can't fix it all on its own now," Connolly said. "There is a chance the Fed gets forced into unconventional cooperation with government," which could involve buying a range of assets to reflate their value.

That would be reminiscent of some steps the U.S. government took in the 1930s when the economy was mired in deflation and high unemployment.

One turning point came when agricultural prices were restored to their pre-slump levels, Connolly said. Such measures were among the New Deal programs that President Franklin D. Roosevelt launched to bolster the economy.

Either way, investors face bleak prospects now without some kind of further government intervention, he said.

Those steps might offer clues to investors in stocks and commodities, which Connolly expects the government might be ultimately force to step in and buy to stabilize markets. He expects that a depression may be averted, but only by the state and the Fed reinflating the price of such assets.

Beleaguered housing, non-government fixed-income securities and even the now overvalued Treasury market have little hope of generating substantial returns for investors over the next few years, he said.

"If we don't avoid depression, the only thing worth holding is cash," he added.

Condos getting Blacklisted

I can't say I'm surprised that banks no longer want throw money at at every Joe that wants to flip a condo but to go as far as to list the projects you won't lend to?
Can we call this a vote of NO-confidence!

South Florida Bsn Journal reports BankUnited blacklists 191 condo projects

How long before other banks decide not to lend on these projects? I didn't see ToC on this list but they're already in Ch.11

* 50 Biscayne in Miami
* 600 Biscayne in Miami
* 1650 Biscayne in Miami
* 900 Biscayne Bay in Miami
* 500 Brickell in Miami
* 1390 Brickell Key in Miami
* 1001 Center in Miami
* 1600 Club in Miami
* Allure in Las Vegas
* Altas de Miami in Miami
* Asia in Miami
* Atlantis Condo in Miami
* Avenue in Miami
* Axis on Brickell in Miami
* Bay Lofts in Miami
* Bayshore Place in Miami
* Beacon in Miami
* Belle Plaza Efficiency in Miami
* Biscayne Tower in Miami
* Blue in Miami
* Boulevard Condos in Miami
* Brickell Bay Club in Miami
* Brickell Bay Tower in Miami
* Brickell Biscayne in Miami
* Brickell City Center in Miami
* Brickell Commons in Miami
* Brickell East in Miami
* Brickell Forest in Miami
* Brickell Harbour in Miami
* Brickell Key in Miami
* Brickell Key I in Miami
* Brickell Mar in Miami
* Brickell on the River in Miami
* Brickell Park in Miami
* Brickell Place in Miami
* Brickell Station in Miami
* Brickell Tennis Club in Miami
* Brickell Townhouse in Miami
* Brickell View in Miami
* Brickell Vista in Miami
* Bristol Tower in Miami
* Capital at Brickell in Miami
* Captiva-F in Miami
* Carboneil in Miami
* Carriage Hills in Hollywood
* Cima Condo in Miami
* Cite in Miami
* City 24 in Miami
* Club at Brickell in Miami
* Commodore Bay in Miami
* Coral Station in Brickell in Miami
* Costa Bella in Miami
* Courts Brickell Key in Miami
* Courvosier Courts in Miami
* Cynergi in Miami
* Delray Estate Condominium in Delray Beach
* District in Green Valley in Las Vegas
* Downtown Lofts 4 in Miami
* Elliot House in Miami
* Emerald at Brickell in Miami
* Empire Towers in Miami
* Epic-Dupont in Miami
* Espirito Santo Plaza in Miami
* Everglades on the Bay in Miami
* Filling Station Lofts in Miami
* Flagler First Condo in Miami
* Fortune House in Miami
* Four Ambassadors 1 in Miami
* Four Ambassadors 2 in Miami
* Four Ambassadors 3 in Miami
* Four Ambassadors $ in Miami
* Four Seasons Hotel & Tower in Miami
* Golden Bay Club in Miami
* Houses of Brickell in Miami
* Ice in Miami
* Ice 2 in Miami
* Icon in Miami
* Imperial in Miami
* Infinity at Brickell in Miami
* IOS on the Bay in Miami
* Ivy in Miami
* Jade Residences at Brickell in Miami
* Kenland Bend south in Miami
* Lake Beach Condo in Miami
* Lakewood Village in Miami
* Latitude on the River in Miami
* Loft in Miami
* Loft II in Miami
* Lofts on Brickell 1 in Miami
* Lofts on Brickell 2 in Miami
* Los Suenos De Brickell in Miami
* Lyghte Miami Condos in Miami
* Lynx in Miami
* Manhattan Condos in Las Vegas
* Marina Blue in Miami
* Mark in Miami
* Marquis Miami in Miami
* Mary Brickell Village in Miami
* Mayfield in Miami
* Meridan at Hughes Center Condo in Las Vegas
* Met 1 in Miami
* Met 2 in Miami
* Met 3 in Miami
* Metropolitan in Miami
* Midtown Miami in Miami
* Mint at Riverfront in Miami
* Mirage Condominium in Las Vegas
* Neo River Lofts in Miami
* Neo Vertica in Miami
* Newport Lofts in Las Vegas
* New Wave in Miami
* Nu River Landings in Fort Lauderdale
* Oasis on the Bay in Miami
* One Broadway in Miami
* One Miami in Miami
* One Miami West in Miami
* One Plaza in Miami
* One Queensridge Place in Las Vegas
* One Riverview Square in Miami
* One Tequesta Point in Miami
* Onyz 2 in Miami
* Opera Tower in Miami
* Overtown Miami in Miami
* Palace in Miami
* Panorama Towers in Las Vegas
* Paramount on the Bay in Miami
* Paramount Park in Miami
* Parc Lofts in Miami
* Park Avenue Condo in Las Vegas
* Park Place in Miami
* Platinum in Miami
* Plaza on Brickell in Miami
* Point at Brickell in Miami
* Point View in Miami
* Pompeii in Miami
* Premiere Towers in Miami
* Provincial Gardens
* Pyramids of Key Biscayne
* Q Club Condo Hotel in Fort Lauderdale
* Quantum on the Bay in Miami
* Regency Towers in Las Vegas
* River Breeze in Miami
* River House Lofts in Miami
* River Oaks in Miami
* Riverfront in Miami
* Riverfront Wind in Miami
* Sail in Miami
* Sail Boat Cay in Miami
* Samari Lake East in Miami
* Seacoast Towers in Miami
* SIAN Ocean Residence Condo in Hollywood
* Sky Las Vegas in Las Vegas
* Skyline Mary Brickell Village in Miami
* Skyline on Brickell in Miami
* SMA in Miami
* Soeil Miami in Miami
* Soho Lofts in Las Vegas
* Solaris Brickell Bay in Miami
* South Miami Ave Condo in Miami
* Summit Brickell in Miami
* Star Lofts in Miami
* Sunset Harbour
* Ten Museum Park in Miami
* The Carriage House
* The Jade Condominium
* The Mark on Brickell Bay
* The Palace Condominium
* The Resort at Singer Island in Riviera Beach
* The Village of Kings Creek
* Three Tequesta Point in Miami
* Turnberry Place in Las Vegas
* Turnberry Towers in Las Vegas
* Two Tequesta Point in Miami
* Uptown Lofts in Miami
* Vanderbilt Gulfside
* Venetian Bay Villages Condo in Kissimmee
* Villa Brickell in Miami
* Villa Magna in Miami
* Villa Regina in Miami
* Village at Hawk's Cay
* Villagio Condo in Port Orange in Port Orange
* Vue at Brickell in Miami
* Wind by Neo in Miami
* Yorker in Miami

Friday, February 01, 2008

TMA - Start of Demo