Wednesday, January 26, 2011

notes on the week ended Jan 22nd

as much as i hate to revisit this, im going to review what we've known about QE2 from the beginning...because it isnt working as it was originally prescribed, the Fed and it's apologists have taken to changing their talking points...quantitative easing was first theorized in bernanke's famous helicopter speech, and the theory was built on in several speeches thereafter, as a method whereby monetary stimulus could be achieved when the Fed funds rate is at or near zero already...what QE was supposed to do is LOWER longer term interest rates...the Fed would buy large amounts of medium term treasuries and thereby lower rates along the entire yield curve; that is not happening, in fact, the yield curve between the 2 year note and the 30 year bond was the steepest on record this week...so now bernanke and other officials are citing rising stock prices as proof that QE2 is working; even Fed research has been leant to this cause, leading some to ask when did the Fed get a mandate to manipulate stock prices...other Fed apologists are saying that although nominal interest rates have risen, "real" interest rates (such as you would compute by allowing for inflation expectations) aren't, and that's all the Fed intended in the first place...the "real" interest rate would apply, for instance, if one is saving for retirement; you'd want to keep the purchasing power of your savings intact; but one cant distinguish between real and nominal interest rates with regards to the purpose of QE, because the small businessman wanting a loan or person in the market to buy a home doesnt; payments on a loan reflect the nominal rate...nor will the banks consider the difference between real and nominal when they reset the trillion dollars worth of Alt 1-A and adjustable ARM mortgages over the next two years...nominal interest rates, which are rising, have real consequences for real people; the only consequence of real interest rates is imaginary...

in another change you can believe in, obama appointed jeffrey immelt, CEO of GE, to replace paul volcker, rounding out his pro-bankster team of economic advisers...lest you labor under the assumption that GE is just a lightbulb & motors company, GE Capital is one of the big six TBTF shadow banks, second only to citi in bailout guarantees, and they were the biggest buyer of political favors in the year just ended...Immelt joins Daley from JPMorgan and Sperling from Goldman to advise obama on what's good for the plutocracy; obama will likely say that immelt will be engaged in increasing american competitiveness or job creation or some such, but it was only three weeks ago that immelt agreed to fold all of GE's existing world-wide business in nonmilitary avionics into a joint venture with AVIC of china so they could compete with Boeing's commercial jet business...

a house republican study committee, aka "the caucus of conservatives," has released a list of proposed spending cuts that it suggests will cut the deficit by $250B a year over ten years for a total saving of $2.5 trillion...while their talking points include mohair subsidies and foreign aid, those arent the big items; included in big ticket items are cutting off all remaining stimulus money (got a half built bridge in your city?), privatizing Fannie and Freddie (Wells Fargo & other banks want to run them with govt  guarantees in place) and already promised medicaid payments to the states...rather than go into more details, ill just link to the whole list here

there have been a few interesting developments on the robo-signer/foreclosure fraud front this week; first, a maryland court ruled that all 10,000 GMAC foreclosures signed by jeffery shephan, the first robo-signer who was exposed, were invalid; basically what GMAC must now do is start over from square one on each of those foreclosures, properly prepare & notarize the paperwork, refile a foreclosure notice, offer modifications to the former owners, and proceed from there as if the original foreclosures had never occurred...also, taking cues from the massachusetts ibenez decision, one judge in new york has halted foreclosures, and banks are apparently halting foreclosures of their own volition in florida...in utah, the states laws apparently will not allow for a remote entity (a note in MBS mortgage trust transferred electronically) to foreclosure on property, and various pieces of legislation in virginia would similarly end the use of MERS transfers and give homeowners facing foreclosure a myriad of new rights; there is pushback in Va, however, as a bank board member/representative is attempting to have the uniform commercial code for Va changed to allow for MERS transfers, and thus allow for blank endorsements of property transfers, gutting the normal contract procedures...and in Massachusetts, the Ibanez decision has opened a whole new can of worms, in that the buyers of homes previously foreclosed on illegally may no longer have clear title to the homes they're now in; the Mass supreme court will next be deciding whether these buyers actually own the property they've bought...

there were two major areas of protracted debate on the economic blogs this week; first, with the House GOP repealing the health care reform act, there was considerable debate as to whether its repeal would add to or cut the deficit; to me, this was all just hypothetical, because the action in the house was largely symbolic, since the repeal could never get past the senate, nor a presidential veto...the other area where the economist heavy hitters weighed in was a debate on what was the cause of continuing unemployment, and whether some workers had a "zero marginal product" making them worthless for a company to hire; i have not included links to either of those tete-a-tetes with todays selection, but if anyone's interested, they can navigate to the appropriate section in this week's blog post for the entirety of either exchange...if you want to catch just one, i'd recommend Three ZMPs and two Co-ordination failures by nick rowe, who has a way of simplifying the most complex of macroeconomic ideas...

several states are still sorting out serious shortfalls in revenues in dealing with their budgets, and most are enacting major cutbacks, even though for many of them those wont even be enough...as of this time, only illinois has opted to raise taxes to keep programs running, and there is already a recall campaign for the illinois governor, as well as mayors in omaha and miami who raised taxes...for several weeks a proposal by newt gingrich to pass a law to allow the states to declare bankruptcy had been mentioned, most in connection with allowing the states to renege on promises to retirees and union contracts, but this week for the first time the idea of some form of state bankruptcy seems to be under serious consideration, as both the NYTimes & latimes ran articles to wit "policy makers are working behind the scenes" to hatch such a plan; one option mentioned would force both retirees and muni-bond holders to take a haircut...if this works anything like the GM bankruptcy did, retiring state workers would also lose their paid health care and have to buy their own insurance...

even though oil in the US (WTI) slipped below $90 a barrel this week, brent crude in Europe continued to hover just under $100, and low sulfur sweet oil from nigeria breached $102 & indonesian crude touched $104, influencing energy prices in asia and africa, prompting calls that OPEC raise output, which were stonewalled...BP agreed to a multi-billion-dollar share swap with russian state oil major Rosneft to drill in the arctic, output of which will replace declining siberian production & keep russia and the world's top producer...a parliamentary group in britain proposed rationing energy and heat oil, whereby each household would get "tradeable energy credits" which could then be bought and sold for access to more or less fuel...t boone pickens computed that we spent $337 Billion on oil imports last year, while bob graham, chair of the gulf spill commission, warned that if we 'drill baby drill" we will "drain the last drop of US oil in the year 2031"

on the back of supply disruptions in india & the chinese new year, iron ore prices have hit a new high, and high coal prices resulting from aussie flooding are also impacting cement prices in asia...steel is up over 1/3 over the past two months, enough to impact future appliance & car prices...argentines are buying cars in record-breaking numbers as an inflation hedge, as they would rather hold a car than currency...and wheat and corn prices also hit new highs...

even though below normal temperatures remain entrenched over the midwest and are moving into the east this week, record warmth continues over northern canada and greenland, and greenland smashed its previous annual record for ice melt, with the melting continuing 50 days longer than normal...lake erie is starting to freeze over, while large areas of hudson bay, at the edge of the arctic, remain ice free...this may turn out to be the first year that lake erie freezes over before hudson bay...

in europe, the Irish central bank was given the go ahead to print euros independent of the ECB as irish savers moved their money out of the country; as expected, the irish govt collapsed and new elections will be held in march...after "successful" bond auctions in portugal & spain, germany pulled out of any plans to expand the EFSF (the financial stability fund) meanwhile, european finance ministers are discussing a plan whereby greece might restructure its debt; it now seems to be a foregone conclusion that greek bondholders will not be repaid in full...

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...

Wednesday, January 19, 2011

superpowers square off

it’s been a while since we looked at the coming chinese hegemony, and as the Peterson Institute for International Economics has recently opined that China has now overtaken the US in purchasing power, it seems an update in in order…

the measure for purchasing power parity i’ve always used comes from the CIAs world fact book, and according to their 2010 estimates, the US is still #1 @ $14,720,000,000,000, while china is still a distant second @ $ 9,854,000,000,000; my original extrapolation of growth rates had china passing us circa 2014 or 2015, and i see nothing in the cards to alter that assessment yet…

recently, The Economist put together a tool which allows you to plug in growth, inflation & appreciation assumptions to determine when China will overtake the US as the world's largest economy…even using nominal GDP, you can play with this and see it’s pretty difficult to imagine a scenario where the US can remain on top much longer than 10 more years…

this past march, the economist suggested that the yuan was 49% undervalued; so even with the 5% appreciation in the yuan since, it would still be nearly 44% undervalued by their measure today; so to determine today’s purchasing power parity using the Economist’s figures you’d have to add about 78% to the current nominal GDP; obviously, this gadget lets you apply that appreciation gradually over time…

there are other means of comparison we could use as well, for instance, we know that this past summer, China passed the U.S. to become the world's #1 energy consumer, moreover, their electricity consumption is still growing at a 15% rate annually…and although they just passed the US in car sales in 2008, they’re well on their way to dwarfing our sales now: chinese new vehicle sales grew to 18.06 million units last year, while US dealers sold only about 11.5 million new cars and trucks in 2010…

Tuesday, January 18, 2011

notes on the week ended Jan 15th

i usually dont follow closely the few economic releases that were out this week: industrial production and capacity utilization were both up, but we've had a fairly steady rise in those numbers & and 18 month run in positive ISM manufacturing numbers without impacting factory employment, so until those numbers start to indicate more than potential corporate profits, they're nothing to get too excited about...retail sales were up slightly to a new record, but since it was driven by double digit increases at tiffany's, saks fifth ave, louis vuitton, nordstrom and other high end retailers, punctuated by increases of 35% in sales of cadillacs and 29% in porsches, it appears that was all driven by the same top 1% who will be getting the big obama tax cuts...

QE2 or other monetary policy options arent even being discussed or defended anymore...and only one area where fiscal policy might be impacted garnered much ink, that being the artificial federal debt ceiling, which most expect will be exceeded about March...incoming House freshmen, having campaigned on cutting spending, are rumored to be planning to hold the country hostage, hoping negotiate some non specific cuts...some were worried about the US defaulting on its debt, but it's become clear that the worse that could happen is some vendors may not be paid on time, some benefit checks may be held up, and maybe the troops in afghanistan would have to go without ammo for a while; certainly there would still be enough revenues to pay the interest on the debt and forestall a default...associated with that debate, there were interesting results when two major news organizations, reuters & CBS, polled the public about what should be done; they "overwhelmingly opposed" raising the debt limit even at the risk of raising borrowing costs, moreover, the people also opposed spending cuts to the benefit programs that account for half federal spending, and also opposed any tax increases to balance the budget...foreign aide, at 1% of the budget, was the only cut most people were willing to make...

there were some interesting revelations from the release of old transcripts of the Fed's FOMC meetings in 2005...of what i read, i was struck by greenspan's disinterest in anything that spoke of crisis, often attempting to deflect it with inappropriate jokes that everyone had to laugh at, as he was, after all, the maestro chairman at the time; for instance, in talking about greek interest rates, he asked "can we borrow from the greeks?", or joking about the condition of bear sterns and lehman well before they precipitated the crisis...at one FOMC meeting hearing where the Fed was being warned about the bubble by the Atlanta chairman, who talked about people flipping houses in florida, greenspan abruptly cut him off by calling for a coffee break..

the Fed is planning to conduct another round of bank stress tests relating to their ability to withstand more real estate related writedowns, but plan on keeping the results secret this time...several reports are out that the banks have a lot to worry about with the Ibanez decision, the Massachusetts supreme court decision of last week that returned foreclosed homes to the delinquent owners...moodys also reported that CMBS delinquencies rose 79% in 2010, and commercial loan delinquencies continued to increase...RealtyTrac reported that there were 2.87 million foreclosure filings in the year just ended and opined that properties receiving foreclosure filings would have easily exceeded 3 million in 2010 had it not been for the fourth quarter drop in foreclosure activity due to the robo-signing scandal and associated foreclosure moratoriums; nonetheless, 9% of all homes in Nevada and nearly 11% of the home in clark county (las vegas) already had a foreclosure filing this past year...

one blogger broke out labor participation for men by age group (see chart) and found that it had fallen below 80% for men aged 25-34, and was a dismal 45% for men under 24; furthermore, only one in three young black men have been able to find work...of the jobs that have been created since the recession started, 60% were in the low paying categories of temporary help, leisure trade, retail, and temporary help...

state budgets solutions again provided a study in contrasts this week, with california closing a $25 billion budget gap by cutting a number of programs, including welfare & cuts to the university budgets, and offloading other programs on the counties, leaving LA county in a $2 billion hole, texas dealing with their $27B gap by laying off 8000 workers and cutting medicaid & education, and illinois raising their personal income tax from 3% to 5% and their corporate rate from 7.3% to 9.5% to close a $13 B budget deficit deficit; contrast that with new jersey and florida who both cut corporate taxes even while cutting programs...governors of both wisconsin & indiana both responded to the illinois increases by inviting illinois businesses to cross state lines to take advantage of lower taxes...with the end of the stimulus program that gave the states interest-free loans to pay unemployment benefits, the states will now have to start paying interest on their massive unemployment borrowing, and in another hit to the cash-strapped states, the ending of the build america bond program bond led mutual fund giant Vanguard to scrap plans to roll out 3 new muni funds and forced new jersey to cut a planned bond offering in half, and caused a wisconsin debt issue to cost 3.75% instead of 2.24%...AAA muni-bonds topped 5% for the first time in two years..

commodities were in the news again this week, especially food & energy, elements which the Fed believes it can ignore in the measures of inflation they track when setting monetary policy...the headline news that drove corn and soybean prices to new cycle highs was a report out of the USDA revising the estimates for the feed & grain crops in the US & worldwide; prices of both jumped 4% when the report was released, with corn futures up 94% from their lows, soybeans up 51% and wheat up 80%...the worldwide supply deficit of wheat, already impacted by the russian fires and pakistani floods this summer, has gotten worse, as virtually the entire winter wheat crop in australia was destroyed by widespread flooding over most of the arable part of the continent...there were food-price related riots in tunisia, algeria, morrocco & mozambique, and the Indian cabinet met in a special session to consider how to deal with the rising price of onions (much to my surprise, ive learned that two previous indian goverments were toppled by unrest over onion prices; similar situations exist in sri lanka with dependence on coconuts, and indonesia with chili peppers) the financial times is covering the global food crisis in depth with dozens of articles, but since FT is a pain in the butt to copy ill just link to it here http://www.ft.com/foodprices the energy price rises were attributed to cold weather, as heat oil ended the week at a 27 month high and brent crude in europe touched $99 dollars, but possibly contributing was the shutdown of the aleyska pipeline, 12% of our domestic supply, due to a leak...riots over fuel prices were reported in bolivia & chile, with two deaths in chile...the US dept of Energy forecast that gasoline could top $4 gallon again this summer; curiously, this all followed an forecast early in the week by the US EIA that oil would hit $99 by the end of 2012...

after the year just past saw the worst heatwave in russian history, once in a century heatwaves in a dozen other countries, and once in a century flooding in pakistan and elsewhere, both NOAA & NASA released data showing that it was indeed the wettest year in history, and tied 2005 for the hottest year ever...meanwhile, the once in a century flooding in australia continued with more heavy rains this week, and an area of the country bigger than texas and california combined was declared a disaster...there was also once in a century flooding in brazil, with a death toll well over 500 making these rain caused mudslides brazil's worst weather related disaster in history...an international study concluded that a meltdown of greenland is now close to inevitable, and a canadian study predicted that the results of greenhouse gases already in the atmosphere would result in warming that could not be reversed for centuries...

the european crisis looked like it was heading for a replay of the ireland bailout with germany and france pressuring portugal to accept aid from the EFSF at the beginning of the week, with portugal facing a major refunding with interest rates over 7% and rising, and rising costs to insure greek, irish, belgian, & portuguese debt pushing an index of western europe swaps to a record high...but the ECB (euro-Fed) stepped in and started buying portuguese debt, and following commitments by both china and japan to also buy euro debt, the portuguese bond auction was successfully completed at 6.7%...now it's just a matter of seeing how many of such successes they can take, as european attempts to raise the funding of the EFSF (financial stability fund) are still being blocked by germany...a few links are included here, or you can get the entire blow by blow at the end of this weeks blog post...according to the Peterson Institute for International Economics, China has now overtaken the US by purchasing power parity; but similar measures by the CIA & the Economist Intelligence Unit still have the US as #1...

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...

Monday, January 10, 2011

notes on the week ended Jan 8th

the headline on the jobs report was that unemployment had fallen to 9.4%, but that was largely because of the shrinking of the denominator, as 260,000 americans no longer count in the official statistics because they've dropped out of the workforce, which is now at the lowest it's been in over 27 years, back to the time before women were forced to enter the workforce by anti-labor policies that made it impossible to support a family with just one wage earner...only 103,000 jobs were added, less than needed to make up for population growth....these are seasonally adjusted numbers and i havent checked the exact data, but december is typically an outlier, and seasonal hiring this year was the highest since 07....since the recession ended in july of 2009, we're now well into our second year of recovery; over the past year the economy has only added back 1.1 million of the 8.4 million jobs that were lost during the recession; however, just to create jobs to make up for the increase in the population, we should be adding 1.5 million jobs a year; thus at the rate jobs are being added in this recovery, the labor force participation rate will continue to shrink, and we'll never get out of this hole...

Part Time for Economic Reasons
Part Time Workers

  click on either graph to enlarge

a blog post that had me unsettled most of the week was from a Pew survey that wasnt covered by the lamestream media or the blogs except to quote from the executive summary, which only had some rather general statements about the number who are unsatisfied with economic conditions; the only one who appears to have read the details to the end was dave cohen; and he found the depressing details that 29% are having trouble affording food, and 48% are finding it difficult to pay for electric and heating bills...i posted the results in comments on several blogs early this week, but when i google searched for it, the only places where these details showed up were where cohen's article was reprinted or my web comments; as cohen asks, why isnt this a page one story: 29% Of Americans Say It's Difficult To Afford Food ?

there were a few important pieces of mortgage securitization news this week; first, there was a settlement in the lawsuit of BofA by fannie mae, wherein fannie was attempting to force BofA to buy back mortgage securities it had misrepresented; BofA agreed to pay $1.28B to settle claims on $127B of loans sold by their countrywide unit, setting a template for another bailout of the banks who have been offloading their toxic junk on the taxpayer guaranteed GSEs...the second was an important ruling by the Mass Supreme court that the "one size fits all" automated securitization transfer process developed by the banks does not meet the requirements of massachusetts real estate law...the unanimous decision acknowledged that the borrowers were in default, but the foreclosures were invalid because the banks didn’t prove they owned the mortgages in question, in that the note and deed were not properly conveyed properly to Wells Fargo & US Bancorp in accordance with Mass. law; the ownership of the properties was thus returned to the defaulted borrowers...

Option ARM Recast

with the caveat that this only applies in one state so far, the banks have been told that if they want to take people's mortgages & create a multitude of financial products to create income streams for investors in those products and skim off profits on the side, they still have to treat the mortgages as titles to a person's home...they have to keep the paperwork in order, and each step in the many transfers in their securitization process must be accompanied by complete paperwork...without the properly notarized paperwork, foreclosures are invalid because none of the banks can prove they own the mortgages...

the adjacent chart is an update to a chart i used in a post last year: banks insolvent? extend and pretend… although the subprime loans criris which was responsible for most of the toxic MBS assets now on the banks books played out in 2008 & 2009, there are still over a trillion $ of option ARMS (adjustable rate mortgages) which will reset as indicated over the next three years...as long as interest rates remain low over this period, there shouldnt be much of a problem will ballooning housepayments, but it's just something to watch for in light of the fact that interest rates have spiked in the face of the Fed's best efforts to keep them down... (this updated chart from SNL Financial : Credit Suisse: $1 trillion worth of ARMs still face resets )

in the change we can believe in department, obama appointed bill daley as white house chief of staff, in order to improve his relations with the banksters...daley, the son of ex-chicago kingpin mayor richard daley, was the former right hand man of JPMorgan chief jamie dimon; he has opposed health-care reform and opposed the creation of the Consumer Financial Protection Bureau and worked for the Chamber of Commerce in attempts to loosen post-enron accounting and auditing rules...elizabeth warren is now engaged in a search to find someone acceptable to head the CFPB...also, former goldman sachs exec & clinton rubinite gene sperling, who negotiated the tax cuts for the rich, will take over for larry summers as head of the national economic council, and paul volcker was shown the door...and as the door revolves, former chief of staff rahm emanuel goes to chicago to try to take richard daley's old job...it should be clear to anyone watching by now that it has hardly mattered which party has been in the white house, its still run by the banksters...even the clinton administration was the one that initiated the financial deregulation that got us into this mess, twice reappointed alan greenspan, promoted free trade polices to the benefit the corporate globalists, and started the shredding of the new deal welfare safety net; they even talked about privatizing social security...and after this years "Citizens United" supreme court ruling that gives corporation unfettered control of campaign finance, control of the government by the plutocracy is only going to get worse...

with many states changing administrations at this time of year, the multitude of budget problems faced by the administrations in each has been in the news, and the proposed solutions have been as varied as the states, running the gamut from pay freezes (NY), union busting (NJ), tax increases (cal & ill), cutting state funding for health care and education (Texas) to shifting programs to the cities or counties....with the end of the build america bond program negotiated in the GOP-obama tax deal, issuance of muni-bonds collapsed 91% this week from previous levels, and muni-bond holders continued to unload them at the fastest pace in 14 years; it was suggested that the Fed could step in & buy muni-bonds, but in testimony before congress on Friday, bernanke rejected that idea...

the widespread flooding in queensland has shut down the coal mines there and it may take as long as two months for the mines to be pumped out & put back in operation...although a small part of global thermal coal, these mines produce 50% of the world's metallugical coal, primarily used in steelmaking...prices are already up by one-third, and as china produces 50% of the worlds steel, they are the ones being hit, with US producers of coking coal profiteering...since most US steel is made in mini-mills from scrap, our steel industry is not expected to be affected...the index of 55 food commodities tracked by the UN's food & agriculture unit hit a new all-time high, surpassing the levels seen in 2008, when food riots were widespread...in light of high copper prices, the US department of energy reports a $1 billion/year problem with copper theft, with everything from construction sites to foreclosed homes to isolated utility installations being stripped...

i know this sound like a repeat (it does to me), but the european crisis was back again in full force again...portuguese 10 year bonds approached 7%, irelands was back over 9%, and greek bonds hit a record 12.64% last i checked; moreover, the costs to insure the bonds from the 15 western europe economies is now higher than a similar index of insurance costs for eastern european countries such as hungary, poland & ukraine...in irish bailout news, it was revealed that as a participant in the IMF portion of the bailout, U.S. taxpayers will contribute $5 billion...

there were also a couple disconcerting scientific studies in the news this week; first, four major species of bumblebees have been documented to have declined 96% over the last 20 years, and their range has declined by as much as 87%...since they fly at cooler temperatures than the already depleted honeybees, a new range of native plants can be considered threatened...at this rate, we'll all be limited to a grass & pinecone diet eventually...the other study found a "drastic" shift in north atlantic currents, most notably the cold labrador current, which interacts with the warm gulf stream near new england...together they have a complex interaction with weather in north america, and especially europe...a decrease in gulf stream flow could mean much colder winters for western europe...

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...

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...