Just in from Case-Shiller/S&P:
New York, January 31, 2012 – Data through November 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed declines of 1.3`% for both the 10- and 20-City Composites in November over October. For a second consecutive month, 19 of the 20 cities covered by the indices also saw home prices decrease. The 10- and 20-City Composites posted annual returns of -3.6% and -3.7% versus November 2010, respectively. These are worse than the -3.2% and -3.4% respective rates reported for October. In addition to both Composites, 13 of the 20 MSAs saw their annual returns decrease compared to October’s data. New York and Tampa saw no change in annual returns in November; while Charlotte, Cleveland, Denver, Minneapolis and Phoenix saw their annual rates improve. At -11.8% Atlanta continued to post the lowest annual return. Detroit and Washington DC were the only two cities to post positive annual returns of +3.8% and +0.5%, respectively, in November. While positive, both cities saw these annual rates fall versus October’s data.
Main thing, as I see it, is not the percentage chart above but rather the resumption of the decline in prices shown in this chart:
US markets are up a tad…but we’ll see how that holds over the course of today’s session… Remember, the December government figures were bad, so a continuation of the decline in this chart into December’s report – a month from now – should be…oh, you know….a shocker….
The War Between the “D” Words
While the main event, center ring, in the global economic circus is occupied with the Case Shiller/S&P Housing figures which we will post shortly, the bigger action is out back where the International Swaps and Derivatives Association (ISDA) is about to decide the fine line which exists being something being a “credit event” and when that becomes a “default” – most likely this week.
We’ve be wondering how this will play out, especially after a couple of readers sent us the link to the Ellis Martin interview with Jim Sinclair Monday covering this point.
Before looking ahead, however, let’s look at what’s involved in the ISDA decision-making process. When a large company runs into financial trouble (can’t pay its bills) one of two tracks becomes likely:
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In a bankruptcy, if I’m following how all this works, there is an auction of the credit derivatives swaps. That’s why when the ISDA determines an event – like the recent case of Eastman Kodak going toes-up (a rather telling of morgue & cop shop term), an ISDA determination like this one (definition decision) pushes the company decision onto the agenda here.
Now, with a company which has been in the decline mode, for a good long while, this isn’t exactly unexpected; digital cameras and Fuji Film have taken their toll.
On the other hand, there are at least five major US Banks who have huge exposures to the pending Greek [mess is as good a word as any] and the ISDA has been pondering how to “make the call” on Greece. A bankruptcy decision would force an auction, or if it’s called a “restructuring even” then securities holders take the haircut, not the banks.
The way this plays is the application of processes called the Collective Action Clauses (CACs). Truly a question of “Who to screw?” as this explanation leaps out of the ISDA Greek Debt Q&A:
“…the inclusion of a CAC would not, in and of itself, be expected to trigger a Credit Event. On the other hand, the use of such a clause to effect a reduction in coupon or principal or one of the other events set out in the definition of the Restructuring Credit Event could trigger if the other requirements of the Restructuring Credit Event were met (for example decline in creditworthiness), as its effect would be to bind all holders of the relevant debt.”
So that’s due shortly: If the Greek mess is called a restructuring, then the debt holders are “bound” to their paper. If it’s called a bankruptcy then there are some major banks (as guarantors) who will be screwed.
This is truly a war between the “D” words: If “default” can be painted up with enough lipstick and sold as “a restructuring”, and holders given the haircut, then that is likely to set off one chain of dominoes. But, on the other, if it’s a default and in “bankrupt” then another set of dominoes falls. All roads seem to lead to Greater/Worst Depression. Thesde are the noises of the dominoes going one way, or the other.
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At the heart of this, while we wait for the Comptroller of the Currency’s office to issue the Q4-11 derivatives, this rather telling chart shows how US Commercial Banks – after all the hype in the wake of the Housing Bubble’s implosion have continued to rack up ever-higher levels of notional debt.
Want to see the chart of bankers acting badly? I ask you: Is this the picture of financial restraint and good judgment?
Don’t look now, but this levels of debt just held by US banks is more of less 16.66 times total US GDP. I know the term is notional but all it takes is the wrong decision by a governing body somewhere along the line and the whole world falls apart, since at least in credit derivatives, there’s no analog that I’m aware of that provides the functional equivalence to continuous settlement in foreign exchange, which almost collapsed the global economy way back in 1976 in the Bank Herstatt affair. That’s was the financial world’s analog to the Cuban Missile Crisis, but few people have studied it closely and understand how really bad, bad can be. Seems like something we’re going to find out shortly.
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Parallel discussion: Some talk emerging about the value of breaking up Bank of America...
Leaky Nukey
News tip of the day:
George – Longtime reader, P-nomics subscriber, and former news director. I find it ODD there’s been NO network (lame-stream media) or even Chicago local coverage of the above event! I found it on a FLORIDA TV news report: a nuke power plant losing power and venting radioactive steam toward millions of residents in Chicago?!? NRC issued a Level 4 (Don’t worry – be happy!) alert, calling it an “unusual event!” Not a nuke plant engineer, but I’m thinkin’ venting radioactive steam to reduce pressure and heat are NOT the early steps toward avoiding a disaster. Hello? 3-Mile Island? Fukushima? Those were downplayed by the gubmint and media lapdogs, too – only later did we find out how really REALLY BAD those were. Now Chicago bein’ dusted by Tritium? On the day before the news-grabbing FL GOP primary vote? What an inconvenient truth! Stay tuned! Oh – wait; nevermind, since the MSM ain’t talkin’ about it!
Er…..you got it, cowboy: Which gets me to “What does Ron Paul have in common with nuclear accidents?” {MSM won’t cover either…}
Vote Like It Matters
Florida goes to the polls today. Pretend it matters and vote. Just not for that guy who took all that consulting money from the federal GSE in housing, OK?
March to War, Redux
If you’re playing the home game of “When to nuke Iran” there’s a report from Israel National News says “It may be too late to attack Iran after the summer…”
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This ain’t exactly proper English, but the shit’s about to hit the fan, wrong as we’d like the predictive linguistics/ And I make this claim why?
The US Navy site lists five US aircraft carriers out, including two in the Atlantic and two in the Fifth Fleet and SIX amphibious assault ships including one in the Fifth Fleet and four in the Atlantic. Wanna make a bet where they’re going?
If the carrier Carl Vinson (CVN 70) transits Hormuz in early March, or is attacked, I’ll be the guy under the the table three days later for the Big Show, since that’s one way to read references from older predictive lingo runs. Fortunately, our rule of thumb is “If George thinks it, it will not work out that way..”
I assume you have the new one that looks back at the now present from the 2020 perspective?
But, Syriously
Syrian president Assad seems to be coming down with a light case of paranoia…massing loyal troops in Damascus and worrying about a coup. Gee, who’d want to replace a mean dictator (emphasis on the dick part) who’s killing protesters?
Bee Scam?
Say, if you think a large company might be behind efforts to kill off natural honey bees, have you read this article off a Chinese/English board?
More after this:
