Tuesday, January 4, 2011

notes on the week ending Jan 1st

it was a fairly slow week, as several bloggers took all or part of the week off, others cut back on posts, and still others did retrospectives or predictions, which for the most part i dont cover...the major economic release of the week was the case-shiller home price index for october, and the composite for 20 major cities was down 1% from the previous release, and 30.5% off the peak...since even the WSJ called it the "december update" without clarification, it's worth noting that this is a lagging index, in that that the months measured by it are actually aug, sept & oct, and the home prices referenced are only logged after reported by the deed recorders, so it's basically the average prices houses exchanged at in late summer...so for the most part we're seeing prices as influenced after the home buyer tax credit expired, but before the robo-signing mortgage fraud crisis hit & while mortgage interest rates were at their lowest, before the impact on rates of quantitative easing & the big spike caused by the tax cut package...

another housing related report came out from lender processing services, which showed the foreclosure inventory rising for the 5th straight month and 6.9 million mortgages either delinquent or in foreclosure; the average number of days that it takes for foreclosure proceedings to be instituted after the homeowner stops paying on his mortgage is now a record 499 days nationally, with a couple of states approaching 2 years...the newly released census stats revealed that 15.5 households, or almost 1 in 7, now included two or more families, as the recession forced people to double up, something that should have been obvious to anyone who noticed that 19 million homes were now standing vacant...

the higher interest rates are also impacting the mostly underwater commercial realestate loans still being held on the the banks books at face value; in order to avoid having to write those loans down & take losses in 2009 or 2010, the banks have simply extended the maturity on them, and they're now they're coming due for refinancing when the rates are higher...and indication of how badly overvalued these loans may be came this week when credit suisse sold a $2.8 billion portfolio of commercial-property loans to apollo for $1.2 billion...if rates remain high and CRE remains depressed, elizabeth warren's original prediction of 3000 banks in trouble may yet come to pass...

a report out from The Center on Budget and Policy Priorities is highly critical of the new changes to House rules to be instituted in the incoming session;  first is a change in the pay-as-you-go rules that will no longer require proposed tax cuts to include offsets so that there's no increase in the deficit; there's also a similar change on treatment of tax cuts in reconciliation procedures, another rule that proposed mandatory spending increases could only be offset with reductions in other mandatory spending, not taxes, as well as a number of potentially huge deficit increasing policies to be adopted without offsets, including in an expansive re-definition of "small business"...

first time claims for unemployment were reported at at 388,000, the lowest since july 2008, extending the string of lower reported new layoffs; the only caveat to that is taking out the seasonal adjustment, new claims were actually up 25K to 521K...its hard to call a trend at this time of year, when seasonal adjustments occasionally skewer the numbers, but if the adjusted decline continues, we may see the total unemployment rate start to drop going forward...

most of the commodities i mentioned last week as having hit new high prices, either long term or all time, continued to increase this week; ongoing weakness in the value of the dollar left the year ended on friday at highs for a range of commodities, with copper hitting an all-time high, US oil hitting $92 for the first time since 08, and corn and soybeans also at the highest since mid-2008...the entire CRB Index of 19 raw materials jumped 29% in the past six months, the most ever in any 6 month period...while the grains should correct with normal weather next year, copper going forward faces the same problem as oil in that all the easy to get at ore is being mined already; there are only days of supply, and the deficit in supply is expected to be doubled this year...i shouldnt have to tell anyone about the impact of high gases prices, but heating oil is up as well, about the price of diesel, and the unemployed and working poor are being squeezed; one report indicated 2/3rds of those ordering heat oil were buying in 50 gallon or less increments so its obvious that some are faced with choosing between heating and eating...i dont know how those on social security or minimum wage are making it, if they are...

there was some excitement early in the week among the doomer contingent of the blogosphere when economist paul krugman put his imprimatur on peak oil, saying that as oil production has not increased over 4 years, peak oil had arrived...but as important as it was to have a leading economist recognize and write in a widely circulated newspaper that the world's resources are finite, i think its equally important to understand the context in which he wrote about it...for several weeks he has been writing in defense of the Fed's policy of quantitative easing, saying that it was necessary to head off deflation, and comments on his blog as well as criticism elsewhere was that the disinflation he saw was a myth; so in at least a half a dozen posts he's tried to show the disinflation story, complete with all kinds of charts...but the pushback continued, with many critics pointing to rapidly rising commodity prices...so his "peak oil" post, "The Finite World" was to answer those criticisms & should be seen in that light; sure, he's writing that our resources are finite, but his closing reveals that his reason for writing was still in defense of QE2: "rising commodity prices are basically the result of global recovery. They have no bearing...on U.S. monetary policy...this is a global story...it’s not about us."

the global commodity story also includes rare earths, which china restricted exports of by another 11%...japanese stockpiles are already depleted, so companies such as sony and toyota are looking for alternative materials to use in lieu of REs in order to keep their manufacturing operations going; other countries who's currencies are pegged to the dollar are experiencing the same commodity inflation we are; except that in some of those emerging markets, food & fuel makes up the lion's share of a family budget, and thus in those countries the inflation is especially painful - hurt even worse is india, where shortages of food staples is already occurring, complicated by a dispute over payments between the RBI (reserve bank) and iran, where they get 12% of their oil ...the planning institute of australia is out with a report that the coming oil shortages make the suburbs unviable, suggesting lifestyle and transportation changes...and korea, taiwan, malaysia & thailand all intervened in the currency markets to slow their surging currencies, with all but taiwan buying dollars outright...

news from china included a new anti-ship missile designed to threaten US aircraft carriers, altering the balance of power in the pacific, their 15th successful space launch, matching the US total, and a forecast by the Economist that chinese auto sales would again top the world, beating those in the US and Europe by 3 million next year; coal shipments to china are curtailed by queensland flooding covering the area of texas, meanwhile US coal companies arch & peabody are negotiating exports to china...for access to the chinese market, GE agreed to fold all of GE's existing world-wide business in nonmilitary avionics into the joint venture ...

in europe, italy's attempt to sell 8.1 billion euros of longer term government debt on thursday fell short; they were able short term debt earlier in the week at interest rates about 2/3% higher than the previous auction; the ECB was unable to fully offset its purchases of peripheral government bonds; and a major UK think tank gave the euro a 20% chance of survival...

of interest to climate watchers, earlier in december, while the central US, europe and china were all in the grip of well below normal freezing weather, the extent of the arctic sea ice was actually decreasing; and receded to the least ever recorded for the month...the phenomena is even more remarkable when one realizes that at this time of year, much of the area above the arctic circle receives no sunlight...

the above are my weekly comments that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, mostly from the aforementioned GGO posts, contact me...

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