Monday, July 4, 2011

notes on the week ended July 2nd

Real House Prices the popular Case-Shiller home price index was released this week, and depending on where you may have first seen the news, you may have heard that home prices in fell 4% in april from a year ago, or that home prices were up for the 1st time in 8 months, or home prices fell by most in 17 months, or that home prices dropped less than expected; so let me try to clear up that confusion; first of all, case shiller, as well as most home price indices, are not seasonally adjusted, so typically the spring months do show more gains, and winter more losses, so the 3 month price index ending april was up 0.7% over march prices, but it was still 3.9% below where last april's index stood...that 3.9% YoY drop was indeed the worst YoY drop in 17 months, but nonetheless, even an unadjusted gain was better than most had expected... calculated risk reports a seasonally adjusted case-shiller, and he has the 10 city index up slightly, & the 20 city index down slightly, both on the order of 0.1%...remember, march prices were the lowest since 2002, and average prices are still down 31.8% from the peak...the CoreLogic index home price index for the 3 months ending May was also released this week; this front weighted index used by the Fed showed a 0.8% increase, similar to case shiller...these home prices, of course, are nominal, and not adjusted for inflation; as i've pointed out previously, houses are a depreciating asset, and eventually deteriorate; so it's useful to look at home prices in real terms, adjusted for inflation...bill mcbride @ calculated risk does just that and produces the adjacent chart of home prices with that adjustment; it shows case shiller national prices are back to 1999 levels, the case shiller 20 are back to sept 2000, and corelogic back to january 2000 (click to enlarge)

lender processing services also reported homes in foreclosure and delinquent for May this week; the total number of mortgages not being paid on is still close to 1 in 8, although at 12.07%, its down a tick from the last report; 4.11% of homes are still in foreclosure, and some have been there for a long time: 34% of the loans in the foreclosure process have not made a payment in over 2 years, & another 35% of them have not made a payment in over a year...the backlog is worse in the judicial foreclosure states; last week a new york times reporter extrapolated the number of houses in default and foreclosure and the rate that they're being seized and found that in NY state, it would take 62 years to clear the backlog; in new jersey, it would take 49 years to foreclose on all those outstanding, & in florida, massachusetts & illinois, it'd take over 10 years...

since i highlighted the overly optimistic growth forecasts by the Fed last week, i ought to at least make mention of what kind of growth rates the IMF sees for the US; for 2011, they see 2.5 percent; 2012: 2.7 percent; 2013: 2.7 percent; 2014: 2.9 percent; 2015: 2.9 percent; & 2016: 2.8 percent;  they also forecast no improvement in unemployment for us over that six year span; the caveat i'll attach to that forecast myself is that growth rates seldom stay in such a narrow range for such a long period; so it would seem sometime in the next six years we'll either see an improvement, or regression...tim duy points out that the current expansion is nearly the average length of a post war expansion already, typically, we'd have just 2 more months of good times before the next recession hits...

  despite the fact that obama himself joined the debt ceiling talks, i still dont see any sign that progress is being made; they couldnt even agree to a time to have the principals continue talks over the weekend...all i see are warnings from those outside the negotiations as to how bad it can get if an agreement is not reached by august, or even july 22, to allow for time to convert any agreement into legislation by Aug 2...the bond market is still nonchalant, but looking at numbers i still see gridlock; the tea party faction of 103 will refuse to sign anything without a 50% cut this year, unworkable spending caps, & a balanced budget amendment; the democrats are insisting on revenues being included in any package, something boenher says no republicans will agree to...and any attempt to prioritize already legislated spending without default is likely to be chaotic...reagan economic advisor bruce bartlett is advising that the debt ceiling itself is unconstitutional; as the 14th amendment reads: "The validity of the public debt of the United States, authorized by law... shall not be questioned,", and the president should order the treasury to meet its obligations, debt ceiling notwithstanding, which some speculate would lead to his impeachment...so shutdown or not, summer could get messy...and speaking of shutdown, minnesota was unable to come to a budget agreement by the mandatory june 30 date, and started shutting down state offices & parks thursday, with 23,000 nonessential workers there already furloughed...no talks are scheduled next week...

it is turning out to be a bad year for nuclear facilities...this week conditions at both of the flood threatened nuclear power plants on the missouri river deteriorated, and a monster wildfire caused the evacuation of the los alamos national laboratory (the site of the WW2 manhatten project) & threatened stored & abandoned radioactive materials...first, last sunday afternoon, an 8 foot high 2000 foot berm protecting the ft calhoun nuke plant near omaha from flooding collapsed when it was accidentally torn & deflated...yep, torn, as the floodwall protecting the nuclear plant was not much more that a water-filled poly inner-tube...my first reaction, maybe 3 weeks back, when i heard that the fort calhoun nuclear power plant was being protected by an inflatable 2000 foot poly berm can only be described as "WTF?" but after thinking about it for a minute, i figured, hell, this is a highly regulated nuclear power plant, these guys are paid well & they must know what they're doing, and that poly berm must be a lot tougher than it was described...as it turned out however, my first reaction was right on the money, because last sunday a heavy equipment operator nicked it and the whole 2000 foot wall deflated... subsequently, the building housing the main electrical transformers was flooded and the cooling pumps were switched to run on backup diesel generators (this plant has been described by the media as in "cold-shutdown" but that doesnt mean it's cold; a number of the fuel rods were withdrawn & the plant stopped generating enough heat to generate electricity, but the unit still must be cooled, which means the pumps must be kept running)...ironically, last sunday, the same day that the innertube levee failed, the NYTimes ran an article as to how the omaha public power district had fought the NRC tooth & nail and had finally, over the last year, installed such defenses as the innertube & steel walls to protect it against a 1014 foot flood; flood waters are now at 1007, and presumably without the berm, the plant's vitals are only protected to 1010...since the plants buildings are virtually sandbagged islands in the missouri river (when the NRC director toured the plant, he wore a lifejacket), even keeping them supplied with fuel has become a logistical problem; midweek, spilled gasoline caught fire & one worker was badly burned, and lifeflighted to a hopsital in lincoln...

the other plant, Cooper nuclear, is about 70 miles downriver from ft calhoun, and it was still running full power when a privately owned levee upstream was dynamited yesterday, apparently to protect private property; it caused the river to rapidly rise about 4 inches and threatened the already weak levees downriver; cooper, however, is at a higher elevation relative to the river and is not expected to be in immediate trouble...the problem that may stil arise is with the six major damn/reservoirs upriver from the plants which have been full & spilling water for several weeks; federal nuclear regulators have asked the corp of engineers for an appraisal of their condition, since there has never been this much floodwater spilled over them previous to this year; on friday, floodwater spilling was halted at the big bend dam in south dakota to check for possible erosion...

the other nuclear predicament is at los alamos; the town & the nation's preeminent nuclear weapons complex were evacuated monday when the fire was within three miles, and it was a battle against 40 MPH winds most of the week; because this facility has been in operation since 1942, and because it was known that some nuclear materials had been buried in shallow trenches off site, the EPA brought in air monitors to test for radiation; furthermore, a watchdog group warned that 30,000 barrels of low level nuclear waster were stored in fabric tents on the site, which was initially denied, until such time as NBC Nightly News ran a report on the situation, complete with photographs & video of the drums in open tents...fortunately, the fire line was held, as of saturday morning the winds had died down, but the fire is still mostly uncontained; and los alamos fire (also called the Las Conchas fire) is still expected to be the largest wildfire in new mexico history...the arizona wallow fire, which i mentioned a few weeks back, will also go down as the largest in arizona's recorded history...

while im at it, i might as well update you all on fukushima, which despite being out of the news, is still out of control and posing new problems each week; last week, an attempt to filter radioactive cesium from thousands of tons of contaminated water failed after just 5 hours; also, new contaminated hot spots were found outside of the evacution zone and subsquently the evacuation zone was expanded to 19 miles, with a mandatory evacuation order now for 15 miles around the plant; this past week, leaks were found circulating cooling pipes, as well as underground leaks into a trench outside reactor 2 leading to the pacific...also, corrosion in the racks which separate fuel rods in reactor 3's spent fuel pool was discovered, necessitating adding boric acid to the 90 tons of water in that pool

an article i was pointed to this week on working families need for childcare reminds me how much this country has changed…it alleges that more than 70 percent of american parents have difficulty finding affordable childcare...growing up in a middle class suburb the 50s, i didnt know any family that needed daycare or a nanny.…because then, only one middle class job was needed to support a large family, and all the mothers were able to stay at home to take care of the kids…

where we left greece last week was waiting for a loan from the institutional troika of the EU, the ECB & the IMF, contingent on a vote of confidence for their puppet prime minister & an approval of an austerity agreement by their parliament...and under a barrage of threats, the greek parliament caved & gave the troika what it wanted...reporters in front of the parliament building wore tear gas masks as they reported on the “success” of the austerity vote (CNBC has an article which details the greek belt-tightening)...so the loan package went through, right? not so quick; the guardian reported friday that the finance ministers cancelled their sunday meeting because they need more time - as much as two months - to put together the package...& let me clarify that this "bailout" is actually to be a $124 billion loan, at high interest rates, that the contracting greek economy will unlikely be able to pay back anyway...so what we have is essentially european taxpayers loaning greece money so they can continue paying back french & german banks, indefinitely...

the above is my weekly commentary 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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