Financial Armageddon

Podcast: Finally Waking Up to Reality

In my latest weekly Panzner Insights podcast, "Finally Waking Up to Reality," I discuss a number of unfolding financial, economic, and geopolitical developments that were previously (and exclusively) highlighted at my members-only site. A commercial interruption? Perhaps, but the truth, nonetheless.

As a special treat, this 30-minute program is also available to non-members. To listen now or download, please click here.

Pensions: The Need-to-Know Guide

Pensions. A concern for the older generations? Another deduction from your pay packet? Or a golden opportunity to secure your future?

The world of pensions can be an overwhelming and confusing affair to the eyes of the unknown. With so much emphasis on saving now, it can sometimes be impossible to think of saving for your future.

Whilst the current economic climate is somewhat unstable to say the least, the new NEST Pension Laws implementing the auto-enrolment of employers and their employee’s onto singular workplace pensions aims to revitalise the way we save.

October’s New NEST Pension Scheme

Whilst many may already have pension schemes in place, a resounding number of UK adults are still not contributing to their pension; fewer than one in three in fact! Which raises the question; why is this so?

The thick and thin of it can be traced down to the simple fact that many people are unsure about the purpose, function and benefits of pensions in both the short and long term. So what do you need to know?

1. What is a Pension?

In Lehman’s terms, a pension is simply a ‘pot’ of money that you, your employer and the Government contribute to in order to secure your finances for the future.

There is no involvement from the taxman and it means that, come your retirement, you can draw money from your pension or gain annuity, a method of selling your savings to an insurance company for a regular income.

1. Why should I set up a pension?

The real selling point, apart from saving for the future, is the tax relief. Depending on your rate earnings, you will receive an automatic percentage back. You can claim an additional percentage depending on your rate earnings.

This percentage you receive back is worked out with the earnings on your contribution amount before the tax was deducted, in which you will receive the difference between your contribution and your pre-tax earnings.  

1. Auto-Enrolment & NEST Pensions…What’s this about?

As of October 2013, employers will be obliged to offer employees access to an auto-enrolment NEST Pension scheme. This is a recent introduction by the government to ease the strain on State Pensions as well as making people aware of the importance of saving for their retirement.

This auto-enrolment scheme emphasises the need for employees to save and is aimed at providing a sole pension. This pension stays with you throughout your employment career even if you change job, become self-employed or stop working. Simple.

1. How much should I contribute into my pension?

How much you and your employer will contribute will depend on your annual income. 2% (of which 1% is from your employer) must be paid of your qualifying earnings (salary, overtime, bonuses etc) if you earn £5,564 or more, although these figures are annually reviewed.

Ideally, you should be contributing more than the minimum requirements in order to gain the benefits later on in life. The sooner you contribute, the longer your money has to grow. Whilst you are encouraged to put away more for the future, it is important to ensure your current financial security so make sure you find the right balance.

1. Still unsure? Call in the professionals!

With changing percentages, fluctuating rates and a variety of saving options, it can be difficult to understand just how to look after and gain the most from your hard-earned money. So, when pensions are concerned, make sure you approach an established and specialist financial advice firm and with their experience and expertise, you can begin to save for the future.

When it comes down to it, saving for your future really should be one of your top priorities. The introduction of these new pension schemes, along with the emphasis on making employers and employees aware of the importance of early pension planning, really is a step in the right direction as we look to repair our economy and ensure our futures.

This post was composed by Phil Warrington on behalf of Guardian Wealth Management; a reputable and established financial advice company who specialise in offering advice on a variety of pensions as well as financial planning and investment.

Sooner Rather Than Later

In the days leading up to and following this past Sunday's Japanese election, various experts have been advocating selling the yen and buying Japanese stocks. Their view was that a change in leadership means the country will soon embark on an aggressive round of money printing that will weaken the currency and benefit Japan's export-sensitive industries.

I believe they are right (in the longer-term, at least). In fact, I posted two commentaries (including custom charts) at Panzner Insights, my members-only website, on Japan's currency and its equity market, on November 21st and November 23rd, respectively, where I essentially argued the same thing.

Needless to say, those of you who believe this perspective makes sense would probably agree that if would have been better to hear about it a month ago, when the yen-dollar rate was 2 percent higher and Japan's Nikkei-225 index was almost 6 percent lower.

If so, then you might want to consider joining Panzner Insights.

From Panzner Insights: Complacency Everywhere You Look

Here is a brief commentary from Panzner Insights, which I posted on Thursday:

When trying to get a handle on investor sentiment, the benchmark of choice for many market-watchers is the CBOE S&P 500 Volatility Index, or VIX. However, this popular “fear gauge” only offers a snapshot of implied volatility, or relative pricing levels, for equity index options, which might not necessarily tell us all we need to know about the mood on The Street.

In theory, stock traders could be overreacting to equity-specific developments that are not relevant to other markets.

That said, there is data that suggests the high levels of complacency in the stock market are also being seen elsewhere. As the chart shows, gauges of implied volatility levels for equity, bond, currency, gold, and oil markets are at or near multi-month lows, suggesting that “the crowd” is unanimous in its belief that nothing untoward is going to happen in the immediate future.

Should we be worried?

~~~

Otherwise, here is a sample of other unique content published this past week that is only available to subscribers:

Dollar Rally Sees a Few Holdouts

Moving in the Same Direction

Vietnam: Every Dog Has Its Day?

Faltering Amid an ‘Accelerating’ Recovery

Mid Cap Growth a Notable Underperformer

Interested in signing up for instant access? Please click here.

From Panzner Insights: The Out-of-Touch-With-Reality Crowd

Here is a brief commentary from Panzner Insights, my members-only website, which I posted earlier today:

In “The Biggest Myth About the Fed,” David Beckworth, an assistant professor of economics at Western Kentucky University, suggests that the pessimists are wrong to be concerned about what Mr. Bernanke and Co. are up to.

There many myths about Fed policy over the past few years, but the biggest one has to be that the Fed has been monetizing the national debt.  This simply is not true, but it does not stop some folks from making this claim.  For example, at last week’s Cato Monetary Conference we find former Fed officials pounding the Fed-is-monetizing-the-debt drums:

Mr Warsh and Mr Poole (who was filling in for Allan Meltzer) made a sharp distinction between the “legitimate” efforts to fight the crisis and the subsequent easing actions that were, allegedly, unjustified by the economic fundamentals. According to them, the interventions of 2007-2009 were required to ensure that “the markets could clear”, as Mr Warsh put it, while the second round of easing was done to satisfy “political masters” by monetising the debt. In fact, Mr Warsh said that the Fed was being actively unhelpful by “crowding in” Congress’s supposedly poor policy choices.

My first response is how can they can say this with historically-low U.S. treasury yields and muted inflation expectations? Surely, if the Fed were truly monetizing the debt we would be seeing a 1970s-repeat in the bond market, but we are not.  And this is happening, in part, because the Fed is not that big of a treasury purchaser.  Consider the figure below.  It shows the Fed’s stock of treasuries by remaining maturity compared to the total stock of marketable treasuries as of the end of October, 2012.  Though the Fed’s share of treasuries increases by remaining maturity, at most it hits 32% of the total for 10-30 years category. That means that after many months of Operation Twist that roughly 68% of long-term treasuries are still held outside the Fed. Overall, the Fed holds about 15% of marketable treasuries as seen in the “All Years” category.  It is hard to square these numbers with the allegations that the Fed is monetizing the debt.

Leaving aside the questions of whether:

• the Fed’s share of the Treasury market will remain as low as it is now if other investors start heading for the hills;
• the central bank’s current intentions with respect to their securities holdings will remain the same if the economic, financial, political, or social landscape changes for the worse; or,
• we can really know for sure that the debt has been monetized until after the fact;

the notion that current benign market conditions are a reason for optimism sums up just how out of touch with reality most academic economists (and other alleged experts, including journalists-cum-forecasters who parrot this nonsense) are.

By this sort of logic:

• Mid-2005 was the right time to be optimistic on housing
• January-2007 was the right time to be optimistic on the banking sector
• The spring of 2007 was the right time to be optimistic on credit markets
• The fall of 2007 was the right time to be optimistic on global equity markets
• Mid-2008 was the right time to be optimistic on commodities
• This past September was the right time to be optimistic on technology stocks

Of course, we know how those all worked out (hint: not well).

(Note: for those who are interested, this is a taste of what I touch upon in today’s podcast, “Simple Minds.”)

For Those Who Are Interested...

Today's Panzner Insights podcast, "An Increasingly Unstable World" is accessible to non-subscribers. Feel free to check it out.

Otherwise, here is a sample of other unique content published this past week that is only available to subscribers:

Household Products Poised to Follow the Leaders

Israel: Markets Fall as Tensions Increase

Falling Off the (Fiscal) Cliff

Technicals Signaling Trouble Ahead for U.S. Credit Markets

Bearing the Brunt of the Dollar’s Strength

Separatism Gaining Ground

Another Big Breakdown

Housing Stocks: Watch Out Below

Interested in signing up for instant access? Please click here.

Interview with Max Keiser

Although I've often watched the shows hosted by the man Britain's Independent refers to as "the most widely watched news commentator on the planet," I've never been a guest...until now:

A Post on the Housing Market...and the End of an Era at Financial Armageddon...

After almost six years, 2,200 posts, and eight million page views, I am moving on from posting regular updates at Financial Armageddon so I can devote my energies to an exciting new members-only website called Panzner Insights, where I'll be focusing on markets, economics, and geopolitics.

While I will be keeping Financial Armageddon up and running for the time being and may occasionally post new material at the site, it won't be a priority for me. Needless to say, that doesn't mean I believe the nightmare is over—far from it. I just think it's time to look at things a little differently, to try and handicap the bigger picture going forward, and to offer some suggestions drawn from my experience on Wall Street that might enable members to capitalize on current developments.

Hopefully, those of you who have found my posts, books, columns, and other work interesting or helpful will visit Panzner Insights and check out what is on offer.

And now for today's post...

 

Housing: Plenty of Reasons to Be Pessimistic

There’s plenty of debate about—and money riding on—the question of whether we are in the midst of a sustainable recovery in the housing market. Nobody knows for sure, of course, but there are plenty of reasons to be pessimistic.

For one thing, the supply of homes, in terms of what is currently on the market and what is potentially for sale whether or not prices rebound further—the so-called shadow inventory—remains significant relative to demand, even though data from the National Association of Realtors (NAR) shows that inventories of existing homes are back to where they were eight years ago.

Aside from the question of whether developments that have occurred since then—including the fact that their are more ways to sell property than by going through a broker—have distorted the inventory calculation, the composition of sales has changed from what it was. Nowadays, a much greater share of transactions are in the “distressed” category than before the bubble burst. Given that more than 20 percent of sales are foreclosures and short sales makes the current ratio look healthier than it is in comparable terms.

Needless to say, shadow inventory is far greater than it was during the go-go years, when people were happy to remain long despite a booming market. With prices having fallen sharply since then, we now have a situation akin to those seen in other post-collapse markets: Holders can turn seller on a heartbeat as prices move closer to what they paid or owe on their mortgages. Given that more than 20 percent of mortgagees are underwater, that represents a sizable overhang.

The tide of past, present, and future foreclosures—actual and de facto—has also left lenders with substantial holdings of “real estate owned” (REO) properties that will undoubtedly be offered for sale at some point. These are not voluntary investments being held for the long-term; they are unwanted assets that are costing money by the day to finance and maintain. According to HousingWire, nearly half of mortgage giant Fannie Mae’s REO holdings are unable to reach the market at present.

It’s not just about supply, however. Demand is significantly less than it used to be for a variety of reasons, most notably because it is much harder to get financing now than it was when the property market was booming. Despite some recent loosening of credit conditions and ultra-low mortgage rates, anecdotal and other reports make it clear that lenders are generally unwilling to grant loans except on stringent terms to the highest quality borrowers.

But even if you discount the fact that traditional home buyers are having a difficult time borrowing the money they need to buy a home, it’s apparent that other factors, including societal shifts, are undermining demand—and will likely continue doing so for the foreseeable future.

Number one among them are economic conditions in the post-crisis era, which are having an adverse affect on prospective homeowners’ willingness and ability to take the plunge. A structurally weak employment market, where temporary and low-paid services jobs comprise the lion’s share of the jobs being created and where the odds of finding another, better paying, and more secure opportunity are low, is not the catalyst for people to step up and make what could be the biggest investment of their lives.

Demographic factors are also playing a role. The upheavals of the past decade or so have reaffirmed the truism that growing older means trading down and taking less risk. And while ultra-low interest rates have pushed some of those who survive on their savings to invest in something other than a bank CD, real estate is definitely not the investment of choice. At the same time, broader societal changes, including more people living alone and more single-parent households, is undercutting demand for what has traditionally been a nuclear family-oriented investment.

Perspectives about what really matters are evolving as well, especially among the younger generation. Whereas in the past the milestones of getting married, buying a car, and acquiring a home represented the natural progression of things when children reached adulthood, priorities have changed. A recent Bloomberg report noted that 4G wireless telephones trumped V-8 cars for the 80 million U.S. consumers born from 1981 to 2001. Meanwhile, the still-ailing post-crisis economy has convinced a growing number of young people to embrace “the age of frugality.”

In addition to shifting preferences, many of those who are at the lower end of the demographic scale already have a big financial burden hanging around their necks, which precludes them from taking on other big commitments like a mortgage—that is, student loans. Aside from the fact that, for many graduates, these obligations are far higher than they were, proportionally speaking, even a decade ago, the prospect of being in the hole for as far as the eye can leave a lasting impression on impressionable individuals.

Policy-making in Washington and by the Federal Reserve further underscore doubts about taking big risks that might backfire. While the latter keeps reassuring everyone that it has matters under control and that interest rates will remain low for years to come, given how many promises they and other authorities have broken over the past several decades, it’s not surprising that people are hesitant to count on that on those assertions going forward.

Lastly and perhaps most importantly, demand is being undermined by broader-scale mood swings. People are beginning to accept that it isn’t necessary to own your own home, nor is it necessarily a long-term goal. That might seem like heresy in a country where property ownership has been viewed as a God-given right, but when you consider that in economic powerhouse Germany the share of residential property accounted for by rentals is more than 60 percent in most states and 90 percent in the capital, Berlin, it’s not all that strange.

In sum, while it is easy to focus on the traditional indicators of supply and demand and start believing that the long-awaited recovery in the property market has arrived at last, the fact is that much has changed in the wake of the events of the past decade, a development that is likely to weigh on prices for many years to come.

Charts for Thought

Consumer recovery?

(Source: Business Insider)

 

Low risk investment?

(Source: Liberty Street Economics )

 

Optimistic outlook?

(Source: The Economist)

 

Improving job market?

(Source: Zero Hedge)

Stocks are 'cheap'?

(Source: Zero Hedge)

The Great American Wealth Transfer

Home prices around the country remain significantly below their housing bubble peaks, but some areas have fared far worse than others.

In Detroit, for example, which once represented the heart of the U.S. manufacturing industry, property values are nearly half of what they were back in December 2005, and are just 14% above the levels that prevailed two decades ago.

But it's a different story in Washington, DC., the seat of our nation's government. There, prices have only dropped by a quarter from their May 2006 peak, but are still more than twice as high as they were back in 1991.

While some might argue that myriad idiosyncratic influences account for the disparity, I reckon the differing fortunes of those two regions serves as an apt metaphor for what has happened to our nation as a whole.

Shout Out Time

Like most writers, I appreciate the fact that visitors find my work interesting or useful. I also appreciate those who send some of those visitors to Financial Armageddon through links posted at their sites. With that in mind, I thought it was about time for another shout-out to my top referrers -- virtually all of which are sites I happen to visit on a regular basis -- over the past six months (in alphabetical order):

Alex Jones' Infowars
The Automatic Earth
The Big Picture
Calculated Risk
Daily Capitalist
The Daily Crux
DollarCollapse.com
Dr. Housing Bubble
The Economic Collapse
The Exiled
Fall Street.com
FT Alphaville
Jesse's Café Américain
MarketBeat
Naked Capitalism
Of Two Minds
Rense.com
Silver for the People
Some Assembly Required
SurvivalBlog.com

I urge you to check them out (if you haven't done so already).

Good Skill Set

(Image: source)

I hear there's also an opening at the White House...

Another Reason Not to Like the Insurance Industry

I've made it clear how much I dislike the insurance industry, which has done a phenomental job making other areas of the financial services industry seem almost virtuous by comparison.

For the latest example of how these people operate, I refer you to the Introduction from a new report by the Consumer Federation of America, entitled Low Ball: An Insider’s Look at How Some Insurers Can Manipulate Computerized Systems to Broadly Underpay Injury Claims (italics mine):

Over the past ten to fifteen years, the payment of bodily injury claims covered by automobile or home and property insurance has evolved from a system based primarily upon the experience and knowledge of claims’ adjusters to a computer-based assessment that has the potential to be easily and broadly manipulated by insurers. This technology has enabled many insurers to increase profits by reducing the amount paid to consumers who file bodily injury liability claims, including uninsured and underinsured motorist claims. Insurers have also been able to hire less-experienced employees to handle these types of claims, since the computer programs conduct much of the decision-making. Few consumers have knowledge of these practices, while even less understand the significant impact that the practices can have on their financial lives. The authors’ primary objective in writing this report is to inform regulators about the technical complexity of this topic and the need to exercise better oversight regarding how these systems can be manipulated to the detriment of consumers. Expanding on a previous CFA report, we hope to further educate consumers filing bodily injury claims about how they can avoid unfair tactics employed by some insurers who use computer-based assessment systems and receive a fair settlement.

Click here to read the rest of the report.

Well-Suited to the Times

Here are two YouTube videos that offer contrasting perspectives on the events of the past few years:

The first is a trailer from a new documentary premiering on HBO on July 9th, "Hard Times: Lost on Long Island":

And the second is a commentary by an individual who, based on prior uploads, comments, and likes, leaves little doubt about which way he leans:

As those who've been following Financial Armageddon since it began more than five years ago can attest, I've always made it clear that I am politically agnostic. I believe that both parties have a share of the blame for the mess we're in, largely because their interests are not aligned with those of the man on the street.

While many people might naturally think that I sympathize with the right -- which is true in certain respects -- I did write any number of posts criticizing President Bush, his apparent incompetence and detachment from reality, and his Administration's mishandling of the economy -- and the financial crisis -- while he was in office.

That said, it's hard to look at where things stand nowadays -- as evidenced by the first video and what I've been writing about day after day -- and what President Obama has done since he came into office, riding on a huge wave of popular approval and with lots of political capital to spend, and not think the creator of the second video has a point -- that is, what an utter clown show the current Administration has been.

(Image: source)

Still, in light of my expressed views that the sun is setting on the American empire, a key theme of my third book, I guess I shouldn't be surprised that we keep ending up with leaders -- or should I say failures -- who are well-suited to the times.

Reprehensible Behavior a Cornerstone of its Business Model

Time for a rant.

Although I (and many others) have long been critics of Wall Street's incredibly sleazy, recklessly psychopathic, and relentlessly self-destructive underbelly, there is another corner of the financial services industry that seems to have made reprehensible behavior a cornerstone of its business model.

As the New York Times reports in, "Insurers Alter Cost Formula, and Patients Pay More," the insurance industry seems intent on making Congress look like a bastion of honesty and ethical behavior.

Despite a landmark settlement that was expected to increase coverage for out-of-network care, the nation’s largest health insurers have been switching to a new payment method that in most cases significantly increases the cost to the patient.

The settlement, reached in 2009, followed New York State’s accusation that the companies  manipulated data they used to price such care, shortchanging the nation’s patients by hundreds of millions of dollars.

The agreement required the companies to finance an objective database of doctors’ fees that patients and insurers nationally could rely on. Gov. Andrew M. Cuomo, then the attorney general, said it would increase reimbursements by as much as 28 percent.

It has not turned out that way. Though the settlement required the companies to underwrite the new database with $95 million, it did not obligate them to use it. So by the time the database was finally up and running last year, the same companies, across the country, were rapidly shifting to another calculation method, based on Medicare rates, that usually reduces reimbursement substantially.

“It’s deplorable,” said Chad Glaser, a sales manager for a seafood company near Buffalo, who learned that he was facing hundreds of dollars more in out-of-pocket costs for his son’s checkups with a specialist who had performed a lifesaving liver transplant. “I could get balance-billed hundreds of thousands of dollars, and I have no protection.”

That's not the end of it, of course. In fact, all it takes is about 10 minutes of Googling to come up with plenty of other stories about an industry that apparently feels really good about doing bad:

"MetLife Settles Suit Over Missed Beneficiary Payments"

"Insurers Probed by New York Over Force-Placed Coverage"

"Hartford in $24 Mln NY Insurance Settlement"

"Will Farmers Insurance Settlement Turn into a Good Deal For Customers?"

"A Class Action Lawsuit Alleges Wells Fargo Partnered With Insurers To Rip Off Homeowners"

"ANALYSIS: Health Insurers Try To Fool Congress With Fuzzy Math"

"Adjusters: Insurance Companies Preventing Policy Payouts"

"Insurance Company Ordered to Pay $34 Million For Kicking 90-Year-Old Arlene Hull Off Plan"

"As Weather Gets Biblical, Insurers Go Missing"

"Insurance Company Sued By Sewage Plant Owners: Binghamton, Johnson City Say Company Improperly Withheld Payment"

"Aetna Rate Hike Is Deemed 'Excessive' By California Regulator"

"Maryland Law Would Ban Insurers From Requiring Consumers ‘Bundle’"

"Class Action Lawsuit Filed Against Citizens Property Insurance Corp."

"MetLife Must Defend Lawsuit Over Retained Asset Checkbook"