REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Asset Class Mean Reversion

Here’s another fascinating chart by Jake over at EconomPicData in which the reversal of fortunes (well, at least, relatively speaking) for various asset classes is plotted in a scatter chart, a graphic format that, in my view, is underused by those wielding spreadsheets.

Of course, upper right being best and lower left being worst, it’s clear to see which assets have been the most consistent performers. But, interestingly, going back to the start of 2011 and using the iShares Barclays 20+ Year Treasury ETF (TLT), Long Treasuries are still outperforming spot gold, the former up 29.3 percent and the latter 25.1 percent higher.







Existing Home Sales Rise, Prices Fall

The National Association of Realtors reported that sales of existing homes rose 4.3 percent last month, from a downwardly revised annual rate of 4.38 million in December to 4.57 million in January, and the inventory of unsold homes was down, along with home prices.

The months of supply metric fell from 6.4 months to 6.1 months, the lowest level since the economic recovery began, as overall inventory dropped 0.4 percent to 2.31 million units.

As expected, prices continued their descent during the winter months where the share of purchases by bargain hunting investors grows, the median home price falling 4.6 percent for the month, 2.0 percent lower on a year-over-year basis.

Foreclosures and short sales accounted for 35 percent of all January sales, up from 32 percent the month before, and the share of sales to investors rose from 21 percent in December to 23 percent with all-cash sales unchanged at a 31 percent share.

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Why Save When Borrowing is So Cheap?

Federal Reserve Chairman Ben Bernanke is clearly winning his war against savers as the freakishly low interest rates mandated by the central bank combined with a weak economy here in the U.S. are making it either impracticable or impossible for many Americans to maintain even a tiny amount of cash set aside for a rainy day.

According to a survey by Bankrate.come that included the graphic to the right, a full one-quarter of Americans now have more credit card debt than emergency savings which, when you think about it, shouldn’t be too surprising.

But, what was surprising (at least to me) was that a full 30 percent of those earning $75,000 or more could not say that they have more savings than credit card debt and 36 percent of college grads were characterized the same way.

One could make allowances for the avalanche of zero interest rate offers from credit card companies and how recent college grads have been having a tough time in the current economy, but still, these numbers seem quite high.

As might be expected, for non-college grads and low wage earners, things are much worse with nearly two-thirds of the respondents saying they had less savings than credit card debt, but things seem to be deteriorating rapidly for the middle and upper-middle class.

Overall, just over half of Americans now have more emergency savings than credit card debt while another 21 percent either don’t know what they have or have neither.

When asked how they feel about their level of savings as compared to a year ago, only 14 percent said they were more comfortable while 38 percent said they were less comfortable.

Don’t look for any of these numbers to improve much in the years ahead – at least not until 2015 when the Fed’s low interest rate policy might finally come to an end.

How Goldman Sachs Masked Greece’s Debt

Lest we forget that everyone’s favorite investment bank played a key role in the Greek tragedy that has been playing out for over two years now, this BBC video reminds us how some complex financial engineering by Goldman Sachs helped mask Greece’s debt for years, that is, right up until a new government was elected.

The term “loan shark” comes to mind when listening to this depiction of what Goldman did and, paraphrasing former Fed Chairman Paul Volcker, financial innovation that, over the long-run, benefits the economy stopped with the ATM machine.

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RealtyTrac’s Latest Foreclosure Stats

From a RealtyTrac presentation on foreclosures last week comes the chart below showing the dramatic increase in the amount of time it takes for lenders to take back a property that goes into default. After the recent robo-signing settlement, you’d think these numbers will start coming down this year, but, then again, no one earns big bonuses at the big banks for helping management realize losses faster.

There are some other interesting charts in there as well, including pie charts on underwater mortgages, delinquent loans, and properties that have made it all the way through the foreclosure process, along with bank loss data for California properties where, to me, $41K sounded a little low given that average loan amounts were north of $400K.

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China Cuts Reserve Requirements

China’s central bank cutting bank reserve ratios on Saturday in order to spur lending and boost economic growth was one of the weekend’s major stories, that is, along with more Middle East geopolitical turmoil and surging oil prices … perhaps they’re all connected.

Reserve requirements will be reduced from 21.0 percent to 20.5 percent for large banks, leaving China with what are still some of the highest bank reserve ratios in the world. Wikipedia provides a good discussion of this subject that includes the following caveat to the official reserve ratio of 10 percent here in the U.S.:

Effective December 27, 1990, a liquidity ratio of zero has applied to CDs, savings deposits, and time deposits, owned by entities other than households, and the Eurocurrency liabilities of depository institutions. Deposits owned by foreign corporations or governments are currently not subject to reserve requirements.

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