Sunday, November 20, 2011

notes on the week ended Nov 19th

you can stick a fork in the congressional supercommittee which has garnered so much media attention these past couple weeks; it's obvious from the coverage of it that most of the news media hasnt understood that the supercommittee no longer has enough time to have a plan scored by the CBO & back to them by monday, in time for them to have the required 48 hours to review it and pass it before the Nov 23rd deadline; nonetheless, every proposal that was put on the table by one party's members & rejected by the committee members from the other party was covered as if might be part of a final package (one summary of proposals as of midweek here)...they even proposed to kick the decisions back to the regular congressional committees, even though their inability to agree was the reason for establishing a supercommittee in the first place...so what happens now?  if you recall, the supercommittee was created by the budget control act which came out of the debt ceiling impasse, and it provided for an outline of $1.2 trillion in sequestered deficit cuts to be enacted starting fiscal 2013 (Oct 2012) should the supercommittee fail to produce a package...the sequestered cuts include a $600B cut to defense, 2% to medicare, and the remainder from other non-safety net discretionary spending; this deal, (all spending cuts & no tax increases), was what the tea party insisted on when the bargain was struck...but now the defense hawks are squawking & they're having second thoughts about the cuts to defense; both jim demint and john mccain have urged a rejection of the sequestered cuts, fearful it would "set off a swift decline of the United States as the world's leading military power." ...so it appears we might even expect an attempt by the republicans to rewrite provisions of the budget control act; so when all is said & done, this may not lead to cuts as bad as we first feared, unless the democrats negotiate away the upper hand they now have as they have so often in the past...

there hasnt been much progress on the other business that we're expecting congress to complete by year end, either...they've been waiting on the supercommittee to negotiate an extension of the payroll tax cut which was part of obama's much hyped jobs plan; with the administration still stumping for it, it may run into opposition, and if it isnt extended, the average taxpayer will find his paycheck $900 shorter next year; there are also a few bills to extend the extra unemployment rations past the end of the year; the stumbling block in this deficit centric congress is the expected $49 billion cost; should neither bill pass, another 2 million will be cutoff without a check after december 31st...and they have yet to take up the annual Medicare "doc fix"; in the late 90s, congress wrote provisions into medicare attempting to control rising payments to doctors; every year, the doctors threaten to quit medicare if the formula is enacted, so every year since congress has passed a "doc fix" to stop the cuts to doctors from taking effect; if they would fail to do that this year, doctors would see a 27.4% pay cut in their Medicare payments for 2012...at any rate, congress did get something done this week; you may recall the impasse over a continuing resolution at the beginning of the fiscal year (oct 1st), wherein eric cantor & his tea party band attempted to hold the federal budget hostage for offsetting cuts to a rider for increase FEMA disaster relief funding after hurricane ilene; well, late this week a "minibus" spending bill passed unheralded without difficulty or threat to shut the government down, including a continuing spending resolution to keep the government running through december 16th...

this week we saw the first felony charges brought against some of the perps in the version of foreclosure fraud popularly known as robo-signing… prosecutors from nevada attorney general Catherine Cortez Masto’s office filed a 606 count criminal indictment against two LPS (Lender Processing Services) supervisors who ran operations in which they hired dozens of $10/$12 per hour employees (who knew nothing about real estate) to sign thousands of affidavits per day testifying that foreclosure paperwork used to take someone’s house was in order, often many of them using the same title of “Linda Green, Vice President”, which was exposed nationally on 60 Minutes (posted here) and had not yet been prosecuted anywhere else; it’s hoped that these first prosecutions will slow down this version of mortgage fraud (which is still ongoing) and maybe fry some bigger fish as well; the Nevada AG’s office has said they will follow the fraud trail as far as it goes as “There’s no MBA in Foreclosure by Stateprovision under the law for an industry to collectively decide to circumvent Nevada statutes.”…it’s obvious if we’re gonna put any of the perps in jail the slack will have to be taken up by state prosecutors, because under the obama administration, federal prosecutions for financial fraud are down 60% over the decade to at least the lowest in at least 20 years (graphic)…another ruling in a chapter 13 bankruptcy foreclosure has also slowed down bank activity in Arkansas, where it was ruled that JP Morgan had not been following proper procedures in that state, leaving foreclosed property that passed through their non-judicial foreclosure process in limbo, as title companies will not insure titles when the home sale did not comply with state law…other foreclosure cases in california & new york went against the banks as well, as judges are increasingly fed up with bank attorney BS…the California attorney general’s office has also subpoenaed Fannie Mae & Freddie Mac in a wide ranging investigation into lending and foreclosure practices by the GSEs, who are also coming under fire from congress for charging mortgage servicers millions of dollars in penalties for not moving fast enough on foreclosures…an audit by HUD on the condition of the FHA, which insures over a trillion dollars in home loans, indicated a 50% chance that it might also need a taxpayer bailout next year…                                                                                              

MBA Delinquency by Periodthe Mortgage Bankers Association’s (MBA) reported on the number of home loans delinquent or in foreclosure in the 3rd quarter, with delinquencies seasonally adjusted; a total of 12.48%, or more than one in 8 loans, are either delinquent or in foreclosure, although the total is down slightly from the second quarter…included here are two state by state graphs produced from that report by bill mcbride at calculated risk; the top one shows loans in the foreclosure process by state, with red for states with a judicial foreclosure process, and blue for states with a non judicial process…the red spike at the end is florida, where almost 14 1/2 percent of homes are in foreclosure (these charts should both enlarge to full window size)…the lower chart shows delinquent loans by state, with light blue being loans 30 days delinquent, dark blue 60 days, yellow greater than 90 days, and red again being foreclosures…in this graph, states are in order by seriously delinquent + foreclosures...calculated risk also has another post wherein 4 more graphs are created from this MBA report, wherein delinquent loans are further divided by loan type; prime loans, subprime, FHA & VA…a separate report from the nonpartisan Center for Responsible Lending found that based on loans made between 2004 & 2008, we’re not even halfway through the foreclosure crisis; they further found that the hybrid & risky types of loans aggressively marketed during this period are more likely to get into trouble, and that minority races were more than twice as likely to lose their home as white householdsseasonably adjusted housing starts for october were also reported as down slightly by the census bureau this week, at an annual rate of 628,000 residences; the same report indicated building permits were authorized at a seasonally adjusted annual rate of 653,000…housing starts have been trending in this range for about 3 years now, compared to the over 2 million annual rate that homes were being built at during the bubble, although the mix is now trending towards more multi-family units; at the current rate, multi-family starts will be in the 150K to 160k range in 2011, up from 104,000 in 2010…a residential remodeling index produced by BuildFax, which tracks remodeling permit activity, is now at its highest level ever, so there is some light in the construction trades tunnel…

seasonally adjusted retail sales for october came in estimated at 0.5% higher than september sales, & 7.2% higher than last years, and the report was accompanied by the typical media hoopla that goes goes with higher retail sales approaching the holidays…but a note on the report from goldman pointed out large gains in sales of electronics and online shopping, and thus they attributed the lion’s share of this months gain to the introduction of a new iPhone…and looking at the report itself (pdf), we can see that the annual YoY gain was carried by an increase of 19.4% in gasoline purchases from the last year, with all other categories but electronics in the low single digits…adjusted for inflation, october’s sales were still 8.3% below the seasonally adjusted pre-recession high of january 2006...though we dont have gains in same store sales yet to see if the trend towards upscale merchandisers that we noted last year is still holding, we do know that sales for sears & kmart were down, .7% & .9% respectively, lowes & penneys reported losses and store closings, and although walmart sales were up for the quarter for the first time in the last nine, sales gains at both walmart and target were driven by higher food sales, with more than half of walmart's sales now in the food aisles…then, to throw a curve into all the figures, the census bureau notes that the statistical confidence range on the reported sales is ±0.5%, because these retail sales reports are "based on a subsample of approximately 5,000 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms", which means, like unemployment figures, we are quoting exact numbers when the reality is far fuzzier…

you may have noticed that oil prices, & especially WTI (west texas intermediate), have been rising for the past six weeks, in spite of indications of economic weakness worldwide & renewed recession in europe, and that we’re now paying an average $3.436 for a gallon of regular gasoline; this U.S. average is up 1.2 cents from last week and 54.4 cents from a year ago, highest ever for november, even though U.S. gasoline demand is at a 12-year lowdiesel fuel and home heating oil are also at records for this time of year…we’ve talked previously about the spread between the price of WTI & Brent crude oil (here & here), and that because WTI was landlocked in cushing OK, most US refineries were using imported oil at the Brent price, or paying extra freight to use WTI; this week it was revealed that a canadian company, enbridge, bought the 350,000-barrel-per-day seaway pipeline which conoco phillips had been using to ship lousiana sweet crude to its refineries in the midwest, and they are planning to reverse the flow on that pipeline to deliver WTI from cushing to the gulf coast…this is expected to bring WTI up to near the world price, and its traditional parity with Brent; it may result in slightly higher prices for refined products in the midwest, & some moderation of prices on the coasts, but as it will take 6 months to complete, will not provide relief for this year’s new england heating season

in europe, we're still waiting to see whether another fall of rome will plunge the world into another dark ages; you'll recall last week i made brief mention of the fact that governments in both greece and italy had fallen & been replaced by unelected technocrats; early this week their was a bit of excitement because everyone found out that Mario Monti, the new italian prime minister, was the European Chairman of the Trilateral Commission, the think tank founded in 1973 by David Rockefeller, a leading member of the Bilderberg Group, & an international adviser to Goldman Sachs & Coca-Cola, and that the new Greek PM, Lucas Papademos, had previously been senior economist for the Boston Fed, & was also a member of the Trilateral Commission...clearly both had been approved by the Troika (IMF, EU, & ECB, ie, the International Monetary Fund, the European Union and European Central Bank) before being appointed, and citizens in both countries understood what had happened (after Monti installed a government entirely composed of unelected bankers & technocrats, italians were already calling it "government sachs") and inspectors from the troika were reported in greece yesterday to get signatures of submission from all greek political parties as condition for releasing the next loan tranche...but even with the obvious bank takeover of both troubled countries, and continued spanish & italian bond buying by the ECB, the markets werent calmed, and by the end of the week interest rates for spain, france, belgium, finland & the netherlands were all hitting new highs as well...again this week, the euro related links on my blog number over a hundred, so you can catch all of this weeks developments over there in the last quarter of this week's blogpost..

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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