Category: Economy

Economics Update

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It’s the last day of the year, and we are finally getting a picture of how retail did during the holiday season, and it is not pretty.

ShopperTrak is revising its original holiday sales figures downward, from a sales increase of 0.1% and a traffic drop of 9.9%. which was already pretty grim, to a sales decrease of 2.3% with a 16% drop in traffic.

The estimates now are that 2009 is not going to be good either and that over ¼ of all retailers are at significant risk for bankruptcy (see graph pr0n above), which will hose suppliers too.

The unemployment claims numbers from last week were better than recent reports, 492,000 new applications, down 94,000 from the last week’s 586,000, and the 4 week moving average fell by about 1%.

I would note, however, that there are two things that make this news less good than it sounds, first, we are talking about the week of Christmas which means that everything was shut down on last Thursday, and, perhaps more significantly, continuing jobless claims continued to rise, hitting a 26 year high of 4.5 million.

Real estate still appears grim, with Manhattan office rents down about 25% (h/t Calculated Risk), though mortgage application activity remains at a 5 year high.

My real question though would be as to the number of mortgages granted, not the number of applications, which are likely multiple refi applications driven by even lower mortgage rates.

Additionally, the Federal reserve is to start buying mortgage backed securities, so they are going even deeper into the sh&%pile.

In currency, the dollar is up, and infact it’s up against the Euro this year, the first time 2005 that this has happened.

I guess that investors still think of the US Dollar as a safe haven, though the same cannot be said about the Ruble, which is down again.

In the stock market the VIX, the Chicago Board Options Exchange Volatility Index, fell below 40 for the first time since October 2, to 39.9, which indicates that traders are a bit less twitchy.

But that’s only a bit, because before the Lehman collapse, it was around 25, and a year and a half ago, it hung around 10-15.

In energy, oil rose about 5½ bucks/bbl, to settle at $44.60/bbl.

What a Twofer from the WaPo Editorial Page

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So today, on the last day of the year, they give us Amity Shlaes and Ruth Marcus.

Let’s start with the skinny on Ms. Shlaes: she is simply the beneficiary of wingnut welfare. After graduating with a bachelors in English, she proceeds to spout the most predictable right wing economic theory imaginable, and following her marriage to the right wing founder the New York Sun, gets herself columns, and becomes a senior fellow at the CFR. As Matthew Yglesias notes:

I have a really, really, really hard time imagining the CFR doing something comparable for a liberal with so little in the way of relevant qualifications or track-record outside an ideological cocoon.

That being said, some of the beneficiaries are not outright stupid, and Amity Shlaes is either naturally or deliberately so.

Because in her WaPo OP/ED, she continues with riffing on her thesis, pulled from lord knows where, that the the 1937 recession was a result of rich people tucking their money back in their mattresses.

Not even Milton Friedman believed that. He blamed then Fed Chairman Marriner Eccles for tightening credit requirements.

The stupid, it burns us.

That being said, Amity Shlaes is in this instance not the columnist most deserving of opprobrium today, that honor belongs to Ruth Marcus, who does not merely set herself up as an advocate for stupidity and ignorance, but instead advocates for the aggressive protection of evil.

After getting what I am sure is hundreds of outraged emails for her last justification of letting the architects of a torturer regime go free, she thinks that she step up to the plate again 11 days later.

How, some readers asked, could future law-breaking be prevented if past misdeeds go unpunished?

First, criminal prosecution isn’t the only or necessarily the most effective mechanism for deterrence. To the extent that they weigh the potential penalties for their actions, government officials worry as much about dealing with career-ruining internal investigations or being hauled before congressional committees. Criminal prosecution and conviction requires such a high level of proof of conscious wrongdoing that the likelihood of those other punishments is much greater.

Second, the looming threat of criminal sanctions did not do much to deter the actions of Bush administration officials. “The Terror Presidency,” former Justice Department official Jack Goldsmith’s account of the legal battles within the administration over torture and wiretapping, is replete with accounts of how officials proceeded despite their omnipresent concerns about legal jeopardy.

This is because there is already a culture of impunity among Republicans in Washington, DC, and it’s been there ever since Gerald Ford pardoned Richard Nixon before even an indictment was handed down.

These people knew that George W. Bush would pardon them, like he pardoned Libby, because he was protecting his own neck.

The cycle of impunity, which appears to extend only to Republicans, needs to stop.

Third, punishment is not the only way to prevent wrongdoing. If someone is caught breaking into your house, by all means, press charges. But you might also want to consider installing an alarm system or buying stronger locks. Responsible congressional oversight, an essential tool for checking executive branch excesses, was lacking for much of the Bush administration.

I’m sure that the guy with the electrodes attached to his genitals is happy that you are considering closing that barn door after the arsonist has set fire to the cow.

There was no good will here. There were no honest mistakes. Waterboarding is torture, and has been considered so for hundreds of years, what’s more, the people with experience in the field have been saying consistently that torture does not work.

Bush and Cheney and Rumsfeld were torturing not because there was a ticking bomb, there wasn’t, and not because they were desperate for information, because it wasn’t getting good intel, they were torturing because it made them feel like they were taking it to the terrorists.

They authorized torture because it made them feel good, and they continued it after they were shown that it did not work because it made them feel good, this is a classic definition of sadism, and absent some jail time, the sadism will be institutionalized.*
*No intention to condemn the S&M crowd. Where informed consent is present, the moral equation is different.

Robert J. Samuelson: F$#@ You White Man

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Some background here, I belong to a membership only* BBS called Stellar Parthenon.

On December 21, 2003, I posted a thread on SP, called We are Unbelievably Screwed, which has continued to this day, with more than 3500 posts.

5 Years before Robert J. Samuelson wrote “hoocoodanode”, I said:

  • US Society was entering into unsustainable debt.
  • Housing prices were at unsustainable levels.
  • That finance and housing were creating a phony economy.
  • A reckoning was at hand.

While I was wrong on some stuff:

  • Predicting that the dollar would fall off a cliff.
  • Assuming that this would cause a spike in interest rates which would destroy housing.

That being said, I have evidence that I was predicting the problems, and their basic causes, 5 years ago (actually I was doing this even earlier, but my posts on the Netslaves BBS went away when the website got shut down).

So now Mr. Samuelson, who rarely misses an opportunity to bash labor protections interfering with free trade, and to suggest that the only way our society will ever be prosperous is to gut the social safety net, particularly Medicare, Medicaid, and Social security, is wringing his hands and asking what went wrong, and why was everyone caught by surprise.

Well, I have 4 Words to Robert J Samuelson: F@#$ You White Man!!!!!

What is this “we” shit about anyway?

Roubini predicted this, Krugman predicted this, Dean Baker predicted this, and I predicted this!!!

I’m not an economist. I’m not a Wall Street type. I’m not a business writer.

I’m just an engineer with a background in design, and I recognized the problem.

Humbled By Our Ignorance

By Robert J. Samuelson
Monday, December 29, 2008; A15

It’s the end of an era. We [what do you mean we, f@#$ you white man] know that 2008, much like 1932 or 1980, marks a dividing line for the American economy and society. But what lies on the other side is hazy at best. The great lesson of the past year is how little we understand and can control the economy. This ignorance has bred today’s insecurity, which in turn is now a governing reality of the crisis.

Go back to the onset of the crisis in mid-2007. Who then thought that the federal government would rescue Citigroup or the insurance giant AIG; or that the Federal Reserve, striving to prevent a financial collapse, would pump out more than $1 trillion in new credit; or that Congress would allocate $700 billion to the Treasury for the same purpose; or that General Motors would flirt with bankruptcy?

Me, that’s who you pig felching soak the poor putrescence! The system was a lie, and it was created to extract savings from the poor and give them to the rich.

In 2008, much conventional wisdom crashed.

No, conventional stupidity crashed. People were willfully blind because it made them money, and it got them cushy gigs writing for the Washington Post or Newsweek.

It was once believed that the crisis of “subprime” mortgages — loans to weaker borrowers — would be limited, because these loans represent only 12 percent of all home mortgages. Even better, they were widely held, diluting losses to individual banks and investors.

And again, Alt-A and all the rest of the exotic mortgage products were headed for a crash, and the rent to own ratio was out of whack, while people like you and Alan “Bubbles” Greenspan (remember him?) were suggesting that people really should go with adjustable rate, negative equity mortgages from Mars.

Roubini predicted this, Krugman predicted this, Dean Baker predicted this, and I predicted this, you festering lump of pig droppings.

Wrong. Subprime mortgage losses (20 percent are delinquent) triggered a full-blown financial crisis. Confidence evaporated, because subprime loans were embedded in complex securities whose values and ownership were hard to determine. Similar doubts afflicted other bonds. Demand for all these securities shriveled. Lenders hoarded cash and favored safe U.S. Treasuries. Because investment banks and others relied on short-term debt (a.k.a. “leverage”), a loss of confidence and credit threatened failure. Lehman Brothers failed. The financial system had overborrowed and underestimated risk.

It was once believed that American consumers could borrow and spend more, because higher home values and stock prices substituted for annual savings. Consider: From 1985 to 2005, the personal savings rate dropped from 9 percent of disposable income to almost zero. But over the same years, households’ net worth (assets minus liabilities) quadrupled, from $14 trillion to $57 trillion.

Which, of course, means nothing, because for 90% of the population, that net worth went to other people.

That growth in net worth was mostly going to the top 1% in our society.

What you speak so glowingly of was nothing more than the efforts of the connected to extract the wealth of those who work for a living, and put it in their back pocket.

Wrong. In recent years, consumers increasingly overborrowed, especially against inflated home values.

Wrong….People borrowed because contemptible greed heads like you have spent the past thirty years waging an assault on wages and the social safety net.

People borrowed because they could not earn the money they needed, because of a war on labor and labor rights.

With the housing “bubble” now collapsed, net worth is falling. Homeowners’ equity in their homes — the share not borrowed — is at a record low of 45 percent, down from 59 percent in 2005. Consumers have responded by retrenching big-time. Retail sales have dropped for five straight months; vehicle sales are a third below 2006 levels.

It was once believed that the rest of the world would “decouple” from the United States. As Europe, Asia and Latin America expanded, their buying would cushion our recession. A better-balanced world would emerge, with smaller U.S. trade deficits and lower surpluses elsewhere.

Wrong. The crisis has gone global; economic growth in 2009 will be the lowest since at least 1980. Even China has slowed; steel output was down 12 percent in November from a year earlier. The crisis has spread through two channels: reduced money flows and reduced trade. Global financial markets are interconnected. Customer redemptions forced U.S. mutual funds and hedge funds to sell in emerging markets (such as Brazil or Korea), whose stocks have dropped about 60 percent from their peak. Credit has tightened, as money flowing into developing countries is expected to shrink 50 percent in 2009 from 2007 levels, estimates the World Bank. The bank expects trade, up 7.5 percent in 2007, to fall in 2009 for the first time since 1982.

So much that has happened was unexpected that the boom and bust’s origins are obscured. These lie in the side effects of declining inflation that started in the 1980s and, in the process of reducing interest rates, boosted stock prices and housing values.

Only the dropping inflation was a fiction created by the BLS with the acquiescence of Alan “Bubbles” Greenspan (remember him?), who has been calling for even more extreme massaging of the inflation numbers since at least 1980.

Recall that in 1981, when inflation was 9 percent, 30-year mortgages averaged 15 percent. As rates fell (mortgages were 10 percent by 1990, 7 percent by 2001), home prices rose. People could afford more. With lower interest rates, stocks became more valuable.

Homes did not become more affordable, people buy on monthly payment, not price, so falling interest rates just raised the price of the house, and falling interest rates did not make stocks more valuable, it chased people away from other, more secure, investments because their returns fell…It’s basic economics, but I guess that it’s beyond you.

All the bad habits of recent years — excessive borrowing by consumers and money managers, careless and reckless lending — grew in a climate when gains seemed ordained. Even after the “tech bubble” burst in 2000, stock prices at year-end 2002 were seven times their year-end 1981 level. Home prices increased steadily; in the 1990s, they rose 45 percent.

Prosperity, apparently forgiving of mistakes, bred the complacency that undid prosperity. On bad mortgages, losses could be recovered by selling the homes at higher values. Thus rationalized, bad loans were made. Some stocks might decline, but over time, most would rise. Risk seemed to recede, so investors and money managers undertook riskier strategies.

People undertook risky strategy because, like the people at Long Term Capital Management, because Alan “Bubbles” Greenspan (remember him?), was always there to bail them out, and they undertook riskier strategies.

So, you were arguing that that regulation was the problem, when it turned out all you were doing was handing our economy to sociopaths with capital.

What will emerge from these shattered illusions? Will the crash stir social unrest, abroad if not here? Will Americans become so thrifty that they hamper recovery? Will economic nationalism surge? How will capitalism be reshaped? Much depends on whether the frantic policies to combat the recession succeed. Probably they will, but there are no guarantees. Our ignorance [your ignorance, not mine, I spotted this, as die Mssrs Roubini, Krugman, Baker, Ritholtz, Tanta, etc.] is humbling.

(end of OP/Ed)

No sir, you are just stupid and venal, and because you cannot see … because you refuse to see that the policy of supporting the phony economy of Wall Street and basic shelter as a revenue stream was an illusion just as certain as the Dutch Tulip mania.

You did so because because you and yours benefited from the system, even as it hollowed our society and our nation.

*It’s membership only because it was started by refugees from the old Netslaves board when it was torn apart by right wing trolls.† SP is a chatty community with a decidedly liberal bent, with a refreshing absence of trolls, though there are still arguments, but there are good faith exchanges of opinion…Which is good…I like to argue.
†The trolls were never dealt with because the sysop, Splat ,was getting paid off by one of the worst trolls‡ who fed him consulting contracts.
‡F$#@ You Lauren Bandler, aka “Uncle Meat”.

Economics Update

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It’s a heavy news day. I know this because I was not sure whether or not consumer confidence falling to its lowest level ever recorded, and the Conference Board’s sentiment index began in 1967.

Economists were predicting an increase from 44.9 to 45.5.

This probably explains why the International Council of Shopping Centers says that this has been the weakest holiday sales season since 1970.

Well, the Standard & Poor’s/Case-Shiller home price index fell 18% from October 2007 to October 2008, so the index is now at March 2004 levels, and by all indications, it’s still headed down.

Will the last realtor please turn off the lights?

Finally, in 4th place in the competition for which story should be the lede, we have
assets in mutual funds falling 3% in November, they are down 22.7% since December 2007.

What we are seeing here is a slow run on mutual funds by investors who are fleeing to quality.

Banks are fleeing to quality too, with banks cutting lending this year by 55%, to the lowest level since 1994.

In currency, Russia has devalued the ruble again, it’s now down about 18.6% from its peak.

The dollar fell again against the Yen and Euro, though it rose against the Pound, largely because the UK appears to be in worse shape than the US.

I wonder if this might give additional impetus for the UK to move from the Pound to the Euro.

The fall of both the USD and the Pound are largely because of “quantitative easing”, otherwise called printing money, by the central banks.

One bit of financial news that surprises me is that the
Israeli Shekel just had it’s biggest pop vs. the dollar in 10 years, and this was despite the fact that the central bank cut its benchmark rate by 75 basis points (¾%).

The claim is that it’s year end repatriation of profits that drove the Shekel up, but my guess is that it’s people who think that the current fighting will calm things down in the short term (3-18 months) and are trying to flip the currency for a quick buck.

In energy, both oil and retail gasoline were down today, and this picture is from today. (Click picture for link)

Economics Update

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It appears that credit is still easing, with the 3 month LIBOR (London interbank offered rates) falling.

The spread between LIBOR and Treasuries is still awful, but it’s a bit better, largely because the Treasuries are effectively 0% right now.

On the other hand, the Chicago Federal Reserve Bank’s Midwest factory index dropped to the lowest level in 12 years.

I’m a mechanical engineer, so I believe that manufacturing and services, and not banking, are the core activities of the economy, so I tend to believe the factory index more than LIBOR spreads.

In international currencies, Pound hit an all time low vs the Euro £0.9798:€1.000, nearly parity.

The experts are saying that they believe that the Pound will gain vs the Euro in the coming because the Bank of England won’t be lowering rates much more.

This makes sense. The BOE is already bumping up against zero interest rates.

The US dollar is down too, largely on concerns that the Gaza conflict will drive up oil prices and because the Fed’s zero target lending rate makes it a less attractive currency.

The conflict in Gaza has also driven oil up, though retail gasoline is near a 5-year low at $1.619/gal.

Yowza, I gots to buy me a Hummer!

Tom Friedman, Suck on This: Part II

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The Buksbaum family, one of whose members is Tom Friedman’s wife, has been ejected from the management of General Growth Properties Inc., after financial irregularities were discovered.

Basically, what happened here is that GGP fueled its growth by leveraging itself up to its eyeballs:

Rather than apply for bank loans, General Growth began taking out short-term mortgages on its malls. As the mortgages came due, the company would replace them with even larger mortgages to provide cash for additional acquisitions.

This is what happens when you let the finance folks drive your business, rather than the other way around….It’s also why people wonder how different Bernie Madoff was from business as usual in the US financial system.

Will Russia Buy the Crimea from Ukraine?

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This is all pure speculation on my part, and my record on predictions is only marginally better than that of the Detroit Lions with regards to football, but I think that there is a distinct possibility that this might happen.

We have a number of developments going on simultaneously, with Medvedev and Gazprom playing hardball on a $2.1 billion debt and warning of a cutoff of gas if there is no resolution.

Then we have Edward Hugh’s amusingly named essay, “As The Politicians Battle It Out Ukraine’s Economy Tunnels South In Search Of Australia,” (H/T, Paul Krugman Blog for the link) which provides us with the included chart pr0n.*

You see industrial production falling by nearly 25%, and inflation and the central banks both topping 20%.

Simply put, this is an economic meltdown that starts looking like something out of Mad Max.

When you juxtapose this with reports that Russian PM Vladimir Putin Ukrainian PM Yulia Timoshenko are holding talks to resolve the issue, it appears to me that the Ukrainians have very little leverage.

About the only thing that I think that the Ukrainians can offer Russia is the Crimea, which is already primarily a Russian speaking province, and had been a part Russia until Khrushchev gifted it to Ukraine in 1954.

I’m not sure whether a “sale” of the Crimea to Russia would involve an actual negotiated transfer of territory. We could see extensions regarding treaty rights for the Russian naval base at Sevastopol, increased autonomy for the region, and perhaps agreements to protect the “heritage” of the province, which would mean that the Russian speaking nature of the the Crimea would be preserved.

In the long run though, a full separation of the Crimea from the Ukraine might be beneficial for both sides. For the Russians, the benefits are obvious, the protection of ethnic Russians and national pride, and for the Ukrainians, it creates a less ethnically diverse state, which means that you will likely have real issues of governance, as opposed to the current paralysis which is driven by the Russian minority being largely disengaged.

*I tend to disagree with Hugh’s thesis that demographic issues are at the root of much of this problem. While the Ukrainian population has fallen by a remarkable 11% since 1992, and with the death rate exceeding the birth rate by over 50%, I do not believe that a growing population is necessary for economic well-being.†
†Case in point what happened in Europe following the Black Death, which had a with a mortality rate of around 50%. There was a marked increase in social mobility and wages for the average worker, largely at the expense of the landholders and other members of the economic elite, despite largely ineffective anti-labor laws that were instituted. The lesson here is that if population falls, the total GDP may fall, it certainly did during the black death, but per capita GDP went up, and if you can pry this out of the hands of the economic elites, life can be better for everyone.

Economics Update

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Retail sales tanked in the Christmas shopping season, down 5.5% in November and 8% in December, though ex-retail gasoline sales, where the fall in prices drove things further down, the numbers were -2.5% and -4%, which are pretty worrying too.

I think that when the numbers are adjusted later with more complete data, they will be worse, because customer visits to retailers fell 24% on the weekend before Christmas.

FWIW, it does not look like the rest of the world will be pulling themselves, or anyone else, out of recession soon, as Japanese industrial production fell 8.1% YoY in November, and the Japanese central bank has no where to go with interest rates, having just lowered them to 0.10% (no misplaced decimal).

About the only piece of good news are The Big Picture’s Credit Crisis Indicators, which are showing a bit of improvement, with the TED spread and the LIBOR-OIS spread improving, though rates on Treasuries are still very low.

In the meantime, mortgage rates for a 30 year fixed mortgagehit the lowest number since at least 1971, when Freddie Mac started keeping these records, 5.14%, though there is the caveat that you can get these only if the banks are willing to lend at all.

Note that this is for the “conforming” mortgage, which is packaged and resold by the GSEs, which now have an explicit guarantee from the government, and, as noted earlier, “non-conforming” mortgages are at about 2% more, an all time high.

Oil was up a bit on announcements by suppliers of production cuts by the UAE and House of Saud.

Nothing much happened with currency. The 26th is a day off for most American traders, and Boxing Day in the UK, so there was not much activity.

One of the Consequences of the Financial Meltdown

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Is that it has shown to the world that the Neoliberal economic policies of the IMF and world bank are not applied to Europe and the US.

As such, the parties in power in many parts of the world are becoming far less receptive to “soak the poor” policies that have been foisted upon them by international institutions like the IMF and World Bank.

We are the fruits of that revalation going on in South Africa right now, where South African labor unions have extracted changes in policies from the ruling ANC.

The Congress of South African Trade Unions (COSATU) is getting commitments to poverty reduction in exchange for their support of Jacob Zuma in his confrontation with Thabo Mbeki, and now they want a change in focus for the next government.

Of course, moneyed interests are not amused:

Investors fear the left has gained influence over the African National Congress in the past year and believe it might pressure the government to ditch policies that helped spur nearly a decade of growth in Africa’s biggest economy.

Of course those policies haven’t benefited a majority of the population. The argument is that by keeping social programs sparse, and any minimum wage low, that growth would eventually trickle down.

It hasn’t in South Africa, or anywhere else.

In fact, what is arguably the best example of a formerly poor society becoming well off, Singapore.

Its leader in its formative years, Lee Kwan Yoo, made it clear to its capital class, that it would be unacceptable to take it all, that some of the profits had to find its way to everyone.

Fundamentally, if South Africa wants to follow this path, we aren’t talking going Sweden. Simply by raising the minimum wage, improving the access to health care, and making sure that public school is free, available, and universal, you can improve the lot of everyone.

Economics Update

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Ouch. Initial jobless claims for last week hit 586,000, the highest number since Nov. 27, 1982. The 4 week rolling average, which is a better metric, rose as well, to 558,000, though continuing claims declined to 4.370 million.

Even if you do have a job, it’s likely that you are seeing wages and or hour cut….And that 401(k) match, fuggedaboudit.

It’s no wonder that consumer spending fell in November, though it was less than expected, and when adjusted for inflation….OK, adjusted for deflation….It was actually up.

As Calculated Risk notes even as record low mortgage rates are boosting demand, a lot of that ReFi, the spread between “conforming” and “jumbo” 30 year fixed mortgages remain at an all time high of about 2%, which means that in expensive areas, the cheap mortgages are simply not available.

CRE is tumbling too, as we can see from the fact that Manhattan office vacancies hit a two-year high.

In currency, the dollar was down again today, and the Russian central bank devalued the Ruble…again.

I still think that a run on the dollar is a possibility when traders start to realize that the Treasury and Fed are printing money and dropping it from the proverbial helicopter.

In energy, increases in inventory, drove oil to $35.35/bbl.

The Genius of John Maynard Keynes

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As noted by FT columnist Martin Wolfe

I see three broad lessons.

The first, which was taken forward by Minsky, is that we should not take the pretensions of financiers seriously. “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.” Not for him, then, was the notion of “efficient markets”.

The second lesson is that the economy cannot be analyzed in the same way as an individual business. For an individual company, it makes sense to cut costs. If the world tries to do so, it will merely shrink demand. An individual may not spend all his income. But the world must do so.

The third and most important lesson is that one should not treat the economy as a morality tale. In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist. The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required. Socialists argued that socialism needed to replace failed capitalism, outright. These views were grounded in alternative secular religions: the former in the view that individual self-seeking behaviour guaranteed a stable economic order; the latter in the idea that the identical motivation could lead only to exploitation, instability and crisis.

Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge. He wished to preserve as much liberty as possible, while recognising that the minimum state was unacceptable to a democratic society with an urbanised economy. He wished to preserve a market economy, without believing that laisser faire makes everything for the best in the best of all possible worlds.

(emphasis mine)

In fact, this may be the best message to economics professors out there: that reality matters more than your philosophy.

Economics Update

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Will the last home builder please turn off the lights?

Because existing home sales fell 8.6% from October, new home sales fell 2.9%, home prices fell by 13.2%, and foreclosures and short sales were 45% of all sales.

Consumer sentiment improved more than forecast last month though, driven largely by the expectation of lower prices.

In currency, the dollar was largely mixed, though both the Yen and Pound were down.

It should be noted that the Yen is off a historic high, and the pound is near a historic low, it’s about to reach parity with the Euro, so the dynamics are different.

As to why the Pound is falling, it might be that the U.K. economy is shrinking at a pace not seen in 17 years, 0.6%, which is worse than
the US figure of -0.5% for the quarter.

EVen more than the US, the UK bought into the idea of the finance industry as an engine for the economy, and they are reaping the whirlwind.

Oil is down again.

Also, here is a story that I think we will see more of in the next few months,* there has been a default by Global Investment House (GIH) in Kuwait on a $200 million loan, one of the larger investment houses in the Arab world.

They aren’t going under just yet, but I think that this is the first crack in the armor of the petro-Arab investment houses.

*Because I am just so good at making predictions.†
†Considering my record, this may actually be a sign to go the other way….Or not.‡
‡Disclaimer: Matthew G. Saroff disclaims any responsibility for any actions taken as a result of the information displayed on any pages of this website.

Latvia Required to Steal from Poor and Give to Rich for Emergency Loan

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They are getting emergency loans from the EU and IMF to the tune of about €7.5 billion, and they come with an austerity package.

The bullet points on the austerity package:

  • Public sector wages are to be slashed by 15%
    • BTW, this will increase corruption in the public sector, because bureaucrats gotta eat too….Decent wages is the best line of defense against a culture of corruption in the public sector.
  • The VAT (sales tax) is to be increased.
    • Which hits poor people harder.
  • The income tax is to be cut.
    • Free money for the rich.

Mostly, this is to keep their currency, the Lat, fixed relative to the Euro in preparation for joining the monetary union.

It also has the effect of benefiting rich creditors over poor debtors…See
William Jennings Bryan’s “Cross of Gold” speech.

The country is in trouble: Save the rich, burn the poor for fuel.

Economics Update

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Well, most of the credit crunch indicators seem to be better today, or at least not as bad as expected.

First, we have the TED spread, the difference between the rates on interbank overnight loans and short term T-bills falling below 150 basis points (1½%) to 148 basis points, for the first time since Lehman collapsed.

Of course historically, the TED spread has been about 38 basis points.

Additionally, U.S. 2-Year T-Notes were auctioned off at a higher interest rate than predicted, 0.922%, which was better than the predictions of 0.912%, though the former is still near a record low, and still reflects a flight to safety at the expense of anything resembling returns.

You get the same picture from Calculated Risk’s Credit Crisis Indicators where things appear to be really bad, but better than they have been.

In terms of the real economy, things are still tough though with temp agency Manpower, Inc. withdrawing its forecast on weak demand, and temp employment is a bellwether, and we also are seeing the first decline in online holiday sales ever, according to a report from ComScore.

Considering the fact that online sales are still growing as a proportion of overall sales, the rest of retail is doing worse.

In energy, oil is down again, largely on reports of diminished Chinese demands.

In currency, the Dollar is up on the expectation that central banks will act to support it.

Because You Should Never Pass Up an Opportunity to Show Talking Heads Videos

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So, I come across this story describing how Bush’s push for home ownership, aka the “Ownership Society,” was responsible in part for the housing crash.

I tend to agree with the Shrill One, when he says that Bush’s support of home ownership had the same role in the housing bubble as his support for marital fidelity did in the overall rate of adultery in the USA, and that his most significant contribution was in stripping away regulation that protected people from predatory lendors.

That being said, I cannot allow this quote go unanswered:

Then his Treasury secretary, Henry Paulson Jr., told him that to stave off disaster, he would have to sign off on the biggest government bailout in history. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.

“How,” he wondered aloud, “did we get here?”

You just cannot read that and then not show a clip of the seminal music video from Talking Heads’ Once in a Lifetime.

The Nobel Prize Winner Sees the Big Picture

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Paul Krugman notes that it’s really very difficult to find meaningful differences between Bernard Madoff’s Ponzi scheme and business as usual in the financial markets:

The financial services industry has claimed an ever-growing share of the nation’s income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it’s not just a matter of money: the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole.

He is right when he says that, we are “looking at now are the consequences of a world gone Madoff.”

Economics Update

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The big news, the bail out, I’ve already discussed, though the fact that S&P has cut the ratings on 12 banks, Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland, UBS, and Wells Fargo, is not what I would call small news.

In any case, it appears that oil is down to $33.87/bbl, and the dollar is up.

I think that the announcement of the auto bailout strengthened the dollar, and as to oil, the world economy is still seizing up.

Retail gas was up above$1.67/gal today, so I think that we have hit bottom there.

Economics Update

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December 2008 Business Outlook Survey – Philadelphia Fed.
Calculated Risk gives us the following graph pr0n on the relation beteween the Philly Fed index and recessions

30-year mortgage lowest in 37 years of Freddie Mac survey – MarketWatch

Also note the Institute for Supply Management’s manufacturing index, which, as Bondad Notes, has fallen off a cliff over the past two months.

If you go to the ISM’s report, you will see that the pretty much everything is down, and down significantly:

The two industries reporting growth in November — listed in order — are: Apparel, Leather & Allied Products; and Paper Products. The industries reporting contraction in November are: Nonmetallic Mineral Products; Fabricated Metal Products; Textile Mills; Printing & Related Support Activities; Machinery; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Chemical Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Wood Products.

With industrial production cratering, it is no surprise that first time job claims are still at a high level, though they have retreated from last week’s catestrophic numbers, and the 4 week rolling average is up, though continuing claims are down, though I can’t tell if that’s from claim exhaustion, people giving up, or people going back to work, though my money would be on one, or both, of the first two.

Over on the other side of the pond, corporate sentiment is falling in Germany, and the ECB is taking rate cut like steps, even if they are not technically rate cuts, to boost the economy.

In the intersection of real estate and banking, the rate for a 30 year fixed mortgage hit the lowest number ever recorded, and records go back 37 years, though Calculated Risk (again) notes what the rate is for Jumbo loans, which not handled by Fannie and Freddie, who now have an explicit guarantee from the government, the numbers are very different:

As an example Wells Fargo is offering a 30 year fixed at 4.75% (up to $417K), but their rates are 7.375% for loans above that limit.

That’s a 7.375% is 55% more than 4.75%. That’s a lot of flight to safety.

In currency, the dollar is up a bit, which is not surprising. It’s enough time for the shock from the Fed’s rate cut to have worn off.

I still think that hte trend for the dollar is weaker.

In oil, even though OPEC announced large production cuts, fell below $36/bbl.

It could be that oil traders do not believe that the cuts will be followed, or that they think that the economy is so bad that it does not matter, or that there are still people who need cash and are selling oil contracts to get it.

My vote would be for all three.

Economics Update

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Starting with real estate, the Architecture Billings Index fell to an all time low in November, surpassing the all time low in October. (H/t Calculated Risk)

Also, if you read about houses moving in Southern California, please remember that 55% of those sales are foreclosures. (Again, H/t Calculated Risk)

We are also seeing treasury yields down in expectation of an abysmal Fed Bank of Philadelphia’s general economic index at 10:00am on Thursday.

In currency, what can you say? The fed cuts rates to basically 0%, and it’s down against other major currencies.

In energy, OPEC pledged cuts of 2.2 million bbl/day from production, but the price fell anyway, to below $40/bbl(!), because investors do not think that it is enough, and because they think that member nations will cheat.

On the other hand, it does appear that retail gasoline has finally bottomed out, as it’s up by $0.006/gal today.