Paul Krugman come across this picture:
This would indicate a Democratic blowout, neh?
Category: Economy
Economics Update
The numbers are out for March pending home sales, and they are very grim, with the pending home sales index falling to it’s lowest level since its founding in 2001, a 1% one month and 20% year over year drop. Of course the NAR is seeing a turnaround in the next few months, like they always do.
We are also seeing increasing signs of inflation, with Federal Reserve Bank of Kansas City President Thomas Hoenig suggesting that inflation pressures may lead to rate hikes soon, and Toyota to raising prices on their cars, largely as a result of the falling dollar.
On the plus side, however, productivity increased by 2.2% in the first quarter, more than the 1.5% predicted, which should moderate inflation some.
On a more general, “we in a recession” note, retail imports fell 4.8% in March, yet another indicator of a slowdown, that the retailers are cutting back.
Oil hit another record today too.
Bad Financial Journalism
I gotta call out Steven Weisman on his article saying that the dollar is showing signs of strengthening after a 6 year trend down. I
It’s very basic. The dollar has been heading down for 6 years…It’s been heading up for 2 weeks.
Please wait at least a few months before declaring the trend over? At this point it is likely still a dead cat bounce.*
*No cats were harmed in the preparation of this blog post.
Economics Update
People are now shocked that Fannie Mae has posted a $2.51 billion loss and cut its dividend. Do I need to quote Claude Raines in Casablanca?
Oil set another new record, $122.73, before settling at $121.84. Any bets on when we hit $130 for the first time?
Finally, we have this tidbit from the Wall Street Journal
And in a more-worrisome trend, borrowing from these retirement plans is surging. At the end of last year, 18% of workers had loans outstanding from their plans, up from 11% in 2006, according to a survey of 2,011 full-time employees released in February by the Transamerica Center for Retirement Studies, a nonprofit corporation funded by Aegon NV’s Transamerica Life Insurance Co. With home prices falling nationwide, the loans may be a sign that cash-strapped consumers are raiding their nest eggs to stay afloat, no longer able to tap their houses for cash and up against their credit-card limits.
This is a foreseeable consequence of defined contribution plans, and notwithstanding the Randroid utopian claims, it has always been the problem with having people make a bet in which, if they die young, they win.
It’s the YOYO (You’re On You’re Own) society.
Economics Update
Gee, Alan “bubbles” Greenspan is now saying that we are having an, “awfully pale recession.” Well, I guess he can still afford to eat at the Four Seasons, so it’s someone else’s problem…Neh?
Actually, I’m surprised that he did not use the unexpected growth in the service sector, with the ISM numbers rising to 52 from 49.6 (50 indicates growth).
His goal has always been more to prevent government intervention than giving an accurate assessment anyway, because he believes that preventing government action is the only thing that he can do of value.
Of course, the fact that oil busted the $120 barrier, hitting $120.21/bbl doesn’t bode well for the economy anyway.
Oil is up on supply fears from potential attacks in Nigeria and Kurdistan, along with the dollar weakening because of the Fed rate cuts.
Interest rates in the private sector, however, appear to be on the way up, with 30-year mortgages rates rising despite the Fed rate cuts. Additionally, the Fed is reporting that banks are tightening up on their lending at a historically high rate.
The fact that consumer bankruptcies are up almost 48% year over year in April might have something to do with this, or perhaps the other way around. It’s a chicken egg thing to me.
However, the fact that S&P has decided to stop rating bonds backed up by second mortgages seems to indicate that this still has a way to go on the way down.
The fact that companies cannot refi right now may very well take down ResCap, the 8th largest mortgage lender wing of GMAC:
ResCap, the eighth-largest U.S. residential lender in 2007, today began offering as little as 80 cents on the dollar to exchange or buy back $14 billion of bonds to extend maturities and stave off bankruptcy. To finance the debt restructuring, ResCap is seeking a new $3.5 billion credit line from its parent GMAC, which is owned by General Motors Corp. and an investor group led by Cerberus Capital Management LP.
“There is a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June 2008,” Minneapolis-based ResCap said in a filing to the Securities and Exchange Commission today.
With all this going on, it’s not surprising that UBS is looking at cutting 8000 jobs.
It Looks Like It’s Happening With Cars Too
The down payment for cars has decreased, which means that people have less skin in the game, and so defaults on car loans are rising.
Between home, car, and college loans, I think that we may very see walk-aways skyrocketing through society.
Americans Expect $5.00 Gas
According to a CNN/Opinion Research:
- 94% Expect $4/gal this year
- 78% Expect to see $5/gal this year
I would note that we are already seeing 4 buck a gallon dino juice in Hawaii and California.
When Will the US’s Creditors Start Calling the Shots
Look at this commentary on Bloomberg. It’s noting that increasingly, Asian investors in the United States are demanding higher interest rates.
Central banks are starting to make noises about moving their capital elsewhere, at least via proxy, and if that becomes a movement, it then becomes a stampede, and the dollar drops precipitously.
The Coming Collapse of the Middle Class
Very good, but it’s about an hour long, so have the time to be really depressed.
In listening to the changes, I can only conclude that this is a direct result of avarice, stupidity, and malice by the leaders in the US in the political and business spheres.
The unspoken meme of the Reagan revolution was that if you were not rich, it was because you are evil, and thus the not rich must be punished.
Social Security Ain’t the Problem
H/t Brad DeLong for the pic:
No crisis in Social Security, though there is one in healthcare.
For Europe’s Middle-Class, Stagnant Wages Stunt Lifestyle – New York Times
The New York times has an article about how the European middle class is seeing its wages stagnate and the standard of living plateau or decrease.
They don’t bother to give a reason, but strongly imply that it’s Europe’s stultified economy, as opposed to those dynamic Anglo-Saxon ones, even though one of the examples given is in the UK.
That’s the standard line, too much regulation causes wages to stagnate.
But if one looks at Europe, and the US, median wages have stagnated because of deregulation.
Simply put, when an executive gets over a billion dollars in remuneration, this is money that does not go toward other people’s wages and benefits, and deregulation and reductions in marginal tax rates increase wage disparities.
This is not happening because Reaganomimics has not been adopted at some level, this is happening it has been adopted at some level.
Economics Update
Well, we just got a jobs report that shows just how screwed up our statistics have gotten, with non farm jobs falling by 20,000 but the unemployment rate went down, which just does not work.
Additionally, the so called birgh death corrections are completely bogus:
+45k construction jobs v 37k April 2007
+8k jobs were added in financial activities versus 1k last April.
+72k in professional/business services versus 48k last April.
+83k in leisure/hospitality (95k last April).
The idea that construction and financial added 53,000 jobs in April comes from somewhere west of the planet Skaro.
The financial press is uncritically applauding, of course.
In energy, oil is upto over $116 for the first time in a few days, but gasoline is down, not hitting a new record for the first time in 17 days.
Meanwhile, the Fed and other central banks are pouring yet more money into the frozen financial system. The Fed is allowing more types of bonds in its trash for cash auctions, but it does not appear to help. The LIBOR, from which much of the adjustable rate loan rates are derived has been largely unmoved.
It’s pushing on a string, as I’ve said before, because it’s a solvency crisis, not a liquidity crisis, as I’ve also said before.
The is still strengthening a bit, but I’m a bear long term, but I’m a bear on everything.
In more pushing on a string news, the US treasury is offering 0% on its inflation protected savings bonds.
A small distinction, mypost of 4 March had was about TIPS, not inflation protected savings bonds, just in case you are wondering if I’m repeating stuff.
Finally, in real estate, 63% of home sales in San Diego are short sales and REOs, which means that either the owner has sold for less than they owe, or it’s been foreclosed on.
Economics Update
First, initial unemployment insurance claims increase, ba by 35K to 380K. Note that this is an inherently noisy figure, but it’s been bad for over a month, which indicates a trend.
Becasue of the Fed’s signals regarding future rate cuts, as na ga na do it, the dollar has strengthened, and oil has fallen a bit.
That being said, the Euro zone appears to be under increasing stress from the different economic trajectories of its members.
Citi appears to need more money, so it’s raising it through a $4½ billion stock offering, further diluting its stock holders equity.
Seriously, it’s like a dog chasing its own tail…down the drain.
We have a number out of San Diego, with house prices off dropping 19.2% since February 2007.
This means that if someone bought a 30 year fixed mortgage, with 20% down, that they would be under water on the loan if closing and broker costs are included.
Nouriel Roubini on the GDP Numbers
As promised, some more commentary, Courtesy of Nouriel Roubini, on why the Q1 GDP numbers are a contraction:
- The obvious one is that when inflation exceeds growth, fewer goods and services are bought or delivered, which is what has happened in the past 2 quarters.
- Increasing inventories of unsold resulted in a +0.8% to the GDP numbers, which is not economic growth, though it can lead to increased growth.
- My analysis of this tidbit is that this is actually increased hoarding of things people believe are inflating rapidly.
- Residential spending was recorded to have dropped an astonishing 26.7%, and that this number does not include cancellations on new homes, so it’s even bigger.
- Durable and non durable goods sales contracted.
Go read the whole thing.
Economics Update
The big news, as it is on any day when the fed meets, is the decision, which was to cut the federal funds rate by 25 basis points. Of note that that they are no signaling no more cuts.
Of course, with the rate at 2%, it’s not like they can really cut much further.
Then we got the GDP numbers for the first quarter of 2008. The number is that U.S.GDP increased at an 0.6% annual pace, though this will likely drop when a final reading is released.
I will provide more detail, but the spin that this is not a contraction is false” initial reading, will fall. Also, we’ve already had 0.6% so far this year, we will likely see 3-4% inflation even with the bogus government data, it would be closer to 10% with honest data, and 0.6%-3%=-2.4% that’s a recession.
I, with the aid of the good doctor Roubini, will provide more detail in a later post.
Oil prices have dropped, which should come as no surprise. The spikes of the past few days were as the result of short term news, though the trend still seems to be up.
In real estate, we have
ortgage application volume falling 11.25% last week, and we have an analysis from Barclays Capital that upwards of half of Alt-A and subprime mortgages will be under water by year’s end, and they are predicting a fair amount of “jingle mail” as a result.
McCain Knows Nothing of Foreign Policy
And Fareed Zakaria is too much of a coward to say so
In his speech McCain proposed that the United States expel Russia from the G8, the group of advanced industrial countries. Moscow was included in this body in the 1990s to recognize and reward it for peacefully ending the cold war on Western terms, dismantling the Soviet empire and withdrawing from large chunks of the old Russian Empire as well. McCain also proposed that the United States should expand the G8 by taking in India and Brazil—but pointedly excluded China from the councils of power.
Let’s be clear on this one of the reasons that Russia is increasingly hostile to the West is that we have repeatedly lied to them.
We promised no Western expansion of NATO. We lied.
And then there was that whole privatization thing, which was sold as a way to prosperity for the whole society, as opposed to a campaign of rape and pillage that would have made Genghis Khan proud.
Now he’s talking about breaking another promise.
McCain is an idiot who has spent his life poking people in the eye, and unsuited to be president.
Economics Update
Well, the consumer confidence index fell to its lowest level in 5 years, what’s more, the Frog consumers are bumming more than they have in 20 years.
Sarkosy is not going to find a lot of support for making the French economy more “Anglo-Saxon” right now.
In real estate, foreclosures jumped 23% in 1Q of 2007, which is on a pace for a 200% increase in foreclosures in 2008, while the Case-Shiller Home Price index fell 13% year over year in February.
This is not over. It’s not close to being over.
In the ever entertaining Countrywide sage, the mortgage lender posted a $893 million first-quarter loss.
I still wonder when some Bank of America investor finally starts screaming about a proxy fight over their purchase of Nationwide. Every day, the deal looks worse and worse.
As to energy, oil is down, but gasoline is up.
More Signs (and Pictures) that Official Government Inflation Stats are BS
We are starting to see more articles, like this at San Diego Union Tribune, noting that official government inflation statistics are a crock.
I will note that the changes in 1983 to a large degree took housing out of the picture, which is why Alan “Bubbles” Greenspan was so bullish on real estate*, and those in 1998 used hedonic mumbo-jumbo to create the illusion of low inflation.
If you assume that inflation is 2% more than official numbers over the past 35 years, prices have doubled relative to official inflation at 3¼% more, it’s triples, and at 4%, it quadruples.
We may be seeing a tremendous drop in the standard of living of the average American over that time that has been deliberately masked by our government.
*It allowed him to call inflation in a necessity, housing, an increase in wealth. If memory serves, Greenspan was at the center of both adjustments
OK, this Is Corruption, and if it is Not Criminal, it Should Be
Dean Baker notices the following bit of self-admitted corruption in a New York Times article on former Clinton Treasury Secretary Robert Rubin:
Mr. Rubin encouraged Goldman to move into more treacherous markets like proprietary trading and commodities trading. Even so, he now says he was always concerned about the dangers posed by risky futures and derivatives trades, having seen how the pell-mell use of futures contracts exacerbated the 1987 stock market crash.
Shortly before leaving Goldman to head up President Clinton’s National Economic Council, Mr. Rubin says, he met with Richard B. Fisher, the chairman of Morgan Stanley, to discuss the idea of imposing stricter margin requirements on futures trading. Mr. Rubin says the idea died after the Chicago Board of Trade told him “we will make sure Goldman Sachs never trades another future on the C.B.O.T. if this went ahead.”
Bob Rubin just said that he changed his recommendations policy for the benefit of his company in has capacity as head of the National Economic Council. This is completely corrupt, and he is freely admitting it.
Where is one of Bush’s DoJ political vendettas when you need them?
Economics Update
I think that the best indication that we are well into a recession is that unpaid utility bills, as well as service cutoffs, are going through the proverbial roof. People can’t afford the mortgages, or the utilities, or so it seems.
BTW this is a very good pictorial representation of the credit freeze:
Click pic for PDF. (H/t econobrowser)
Oil hit an all time high, less than a dime less than $120/bbl, which means that inflation is still a problem, but don’t tell helicopter Ben, because the markets have already priced in another rate cut from the Fed.
As I’ve said before, it won’t matter, the fed is pushing on a string, but the fact that the Euro zone looks to be in for a round of slow growth and inflation, aka stagflation, with inflation of over 3% (their goal is 2%), so they will likely raise rates, as the ECB does not have maintaining employment as a part of its charter, just controlling inflation.
Rates going up in Europe should push the dollar down, which is why I find it confusing that the done better against the Euro in the past three days than it has since 2005, but I’m not sure how long this will last, as Japanese investors are moving away from US treasuries, which is significant, as they are the largest holders of US treasuries.
In real estate we have a new record for vacant homes in the US, 2.9%, the highest level since record keeping began in 1959.
Note that this does not include rental properties, and it’s pretty grim.
For those of you who are considering picking up something cheap in foreclosure, be warned, trash outs are way up Trashouts, here are stories from Massachusetts and Nevada.
We are talking serious stuff, sinks and bathtubs ripped out, and in some cases, vandalism along the lines of cement down the pipes. Factor that into a sales price.
I would also argue that it’s likely that we may shortly start seeing violence against people who purchase at auction, so do not enter into this likely.