Sunday, February 27, 2011

notes on the week ended Feb 26th

as some of you already know, i had a major power interruption this week, as an ice storm sunday took down powerlines and trees over much of northeast ohio, including a 75 foot maple in front of my house that split the powerline across the street in 3 places, and i was without power all monday...as the globalglassonion blog alone normally takes me about 60 hours a week to do right, there were hardly enough hours left during the rest of the week to catch up...so although it seems i did, what i have left today aint much, so what follows may come up a little short of the usual...

i did find a IMF table on how "advanced counties" compared in 9 different categories which might be said to be a measure of their level of civilization; the US actually ranked "worst of the worst" in four of the categories, and last overall; it's really a sobering comparison, and i posted it on here as shame on US!

the GDP for the 4th quarter was revised from 3.2% down to 2.8%, largely because state & local governments cut their spending by 2.4%…this highlights something that ive been trying to get at…with all the arguments about the mounting deficits, everyone seems to deal with it as a problem of how much spending you cut or how much you raise taxes...even the interactive budget balancing tools handle the problem in this manner…but it’s not that simple; the fiscal balance sheet is dynamic, and if government cutbacks push the country back into a recession, government revenues will fall, and the deficit may well increase… let me repeat that: cutting spending does not reduce deficits if the impact of the cuts is to push the country deeper into recession, because during a contraction, revenues from all sources shrinks...cutting government spending may increase the deficit…and indeed, analysis by goldman sachs economists of the proposed $60 billion in cuts in the GOP house continuing resolution showed it would cost jobs and slow the economy by 2% over the next 2 fiscal quarters… 

Case-Shiller Price Declinesthis week marked the release of the popular case-shiller index of home prices for december, and for the 20 cities in the index they were down for the 6th month in a row, .4% from the previous month, 2.4% YoY, with 11 of the cities hitting new recession lows...with my usual caveat that these are lagging prices, covering the months of Oct-Dec, and that it only covers the 20 cities in the index, home prices are now down 31.2% from the peak...and according to the usually conservative robert shiller, co-creator of the index, house prices may fall as much as another 25% as government support is withdrawn from the market...before housing prices stabilize, we must first unwind the past quarter century of "mania" based on homes as "investments"...as i was known to rant a few years back, the only reason houses seemed to increase in value was because of the bubble and because the dollars they were "valued" in became worth less at a faster rate than the houses did, & because low interest rates kept payments monthly payments relatively low, encouraging more low down-payment buyers...absent dollar inflation, houses are a depreciating asset, albeit with a longer time span, just like cars are...and im speaking as someone who has watched his own home deteriorate in "real" value over almost 40 years...

(the above graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices; the one below is a record of new home sales - click on either)

New Home Sales and Recessions

 

in other housing related news, existing home sales increased 2,7% YoY, and new home sales for january were the lowest since '67, at a seasonally adjusted 284K...also, essex county, MA, has sued the electronic mortgage consortium MERS for $22 million for county deed recording fees it evaded, this many just be the first one of many counties nationwide who try to collect the fees banks have scammed them out of...and the republican legislature in arizona passed by an overwhelming vote a law to require a full chain of title before banks could foreclose...if what ive read about the number of times some deeds have been transferred & the poor record keeping by the banks is even half true, it would seem this law may just about void every foreclosure in that state....

 

the big news this week has to be what's been happening in no. africa & the middle east, and its attendant influence on the price of oil, as WTI spiked about $9 this week, settling near $98 brl after briefly touching $100...the brent crude price, which is for all practical purposes the price we're paying, got to within pennies of $120 before falling back to $115 after the saudis said they would pump more (whether thats possible is questionable; they couldnt increase output during the oil price spike in 2008)...there should be no doubt that no monetary or fiscal policy, or any political gamesmanship, can have more of an impact on the economic well being & standard of living in this country than the price of oil; whether this will turn out to be a major black swan still remains to be seen, but it's certainly at least another black egret, following on the heels of the weather related food supply disruptions earlier this year...compared to other major oil shocks, the move in oil so far this year is just a wiggle, but even so gasoline alone is already commanding more than 10 cents out of every dollar spent at retail, and that doesnt even count other oil influenced costs, such as heatoil, tires, plastics, and asphalt...and the rising cost of diesel fuel means everything you buy will cost more to transport, especially bulky items like food...

you cant hardly miss the news on libya, as gadhafi's ranting makes for some interesting sound bites, and it wouldnt surprise me if many of you have followed that closer than i have (for a play-by-play on that, check the daily link collection at End of Empire News); libyan oil is pretty much shut in now, but libya only produces 2% of the worlds oil annually, so even if that turns into a long simmering crisis, making up the shortfall shouldnt cause a catastrophe...of greater concern is probably is the situation in Bahrain, where a majority shia underclass is in open revolt against the sunni monarchy...if this should spill out into the rest of the gulf, it could involve shiite iran and the sunni saudis, which also has a large shia underclass...with predictions of $220 oil already being predicted by Nomura on the back of a libyan/algerian shutdown, it's hard to imagine how our oil based civilization could continue should a real war break out in the gulf and those major supplies be cut off or damaged for an extended period...

there was quite a bit of debate, some of it quite partisan, regarding the attempt by several republican governors to rewrite union contracts, forcing employees to pay for their own health care & pensions, and eliminate collective bargaining, especially in wisconsin, where it's become quite complicated: there are also provisions in the wisconsin budget to privatize "any state−owned heating, cooling, and power plant or may contract with a private entity for the operation of any such plant, with or without solicitation of bids, for any amount that the department determines to be in the best interest of the state' as well as provisions to cut 70,000 off the rolls of BadgerCare, Family Care, SeniorCare and other health plans..to hear the right wing media talk about problem, its all about greedy schoolteachers, who are being portrayed in the same light as "welfare queens" were in the 80s; if unions are the problem, why are heavily unionized countries like germany & the nordic countries so successful & civilized? (see the chart again)...not a week goes by where i dont have a handful of links about a number of schoolteachers being cut in one district or another...im starting to think that the plutocracy understands all too well the implications of the depletion of our energy & other resources, and their thinking is that the rest of us are consuming too much, so they'd like to drive us all to a level where we will only be useful insofar as they need a population of illiterate gophers to support them & their offspring in the style to which they have become accustomed...it may be helpful to recall what life was like before labor unions and big government ....& like sheep, we're on our way back there...

the reason for the tenfold increase in ECB emergency lending i mentioned last week was revealed to be by irish banks, & there was an article by martin wolf in the FT that ireland would need more help with its debt than it's received so far; both irish and portuguese debt remained at crisis levels, as portugal is facing a major rollover, at which time it's likely they will become the third european country to need a bailout, although that need may fall on deaf ears after merkel's party was crushed in a german regional election; italy also became a target this week, with bond yields blowing out, because of their exposure to tunisia & libya, supporting gahdafi until the last minute as their largest bank, unicredit, is 7.5% owned by libyan investors; also, egypt asked for britain's help in getting debt relief from the EU and a 24hr nationwide strike shut down greece again...

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, most coming from the aforementioned GGO posts, contact me...

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