Sunday, October 30, 2011

notes on the week ended Oct 29th

there were a number of reports out this week that i felt were related; so hopefully as i run through the list we'll be able to connect the dots....let's start at the top of the list with the report that covers the value of all goods & services in the US, the first estimate for 3rd quarter GDP from the BEA, which grew at an annualized rate of 2.5% over the weak 2nd quarter, the best growth since the 3rd quarter last year...and the GDP component which i've learned to check first, inventories, were down a little over 1%, so this was solid growth, not just shelf stocking; & as there is a known relationship between GDP & unemployment, we can at least say that growth at this rate will not lead to an increase in job losses, though it's not at a level to bring it down rapidly either...in a change from previous reports, government was not a drag; federal spending increased by 2%, with defense spending more than offsetting the decline in non-defense spending, and that was enough to neutralize the decline in the state & local components...probably the most important component, personal consumption expenditures, anchored the GDP increase by growing 2.4% (all figures are annualized rates, 3rd qtr over 2nd), with a 4% increase in durable goods, reflecting the rebound in autos from the japan supply disruption of the 2nd quarter...(auto sales, btw, are looking good for october as well)...what really pulled the GDP up, though, was investment spending; there were increases in non-residential structures of 13.3%, and equipment & software of 17.4%; even residential investment increased 2.4%...

what i want to focus on next is the personal consumption expenditures, because consumer spending is still 2/3 of the economy, and the Personal Income and Outlays report for september was also released by the BEA this week; consistent with the kind of numbers i've been seeing the past couple of months, it showed that consumer spending rose 0.6 percent last month, but disposable personal income only increased 0.1% for the month...this has been the pattern, with expenditures outpacing income, for several months; ie, in august, both were lower, with spending up only 0.2 while incomes were down 0.1; so obviously personal savings have been falling, and they're now at their lowest level since december 2007, which was before the recession really took hold...so the spending at the rate we're now seeing doesnt appear to be unsustainable...

  the box people are in may be what we're seeing in the 3 reports on consumer sentiment that were reported this week; first, we saw the Conference Board index of consumer confidence fall to 39.8, its lowest level since March 2009 & the lowest non-recession reading of all time, from an already low reading of 46.4 in September…the WSJ further reported that confidence fell most among high income consumers; not a good sign for the coming season, as you’ll recall we’ve observed that retail sales gains have been concentrated in the upscale chains; the next report was the final reuters / UofM index of consumer sentiment for october, which showed a slight uptick to 60.9, up from the 59.4 reading for september; & lastly, the bloomberg consumer comfort index Index dropped to -51.1 from minus 48.4 the prior period; moreover, 95% of the people surveyed had a negative opinion about the economy, a low reading comparable to the depth of the recession…

   although not directly related to consumer spending or sentiment, the congressional budget office came out with a senate requested study which compared trends in the distribution of household income over the 1979 to 2007 timeframe; it showed that although real average household income grew 62% across the entire population, when the gains were separated by income groups, households at the higher end of the income scale incomes rose quite a bit more than it did for households in the middle and at the lower end of the income scale…ive got one chart from the report here; labelled "growth in real after tax income from 1979 to 2007", what it shows exactly is that for the lowest 20%, incomes gained only 18%; for the middle 60%, income gains averaged under 40%, & for the top quintile, household income grew by over 65 percent…this meant that of the total household income in the US, 53% was going to the top 20%, compared with 43% in 1979…further separating out the top 1% of households, the CBO found that their real (inflation adjusted) after-tax household income grew by 275 percent; thus the share of after-tax household income for the top 1 percent of the population more than doubled, climbing from nearly 8 percent in 1979 to 17 percent in 2007…let me explain this further by creating my own example; a typical family with a $20,000 income in 1979 would have had their income grow to $23,600 by 2007, on the other hand, a typical corporate CEO making $500,000 in 1979 would have seen his income grow to $1,875,000 by 2007…

  this is something bloggers & the media should be aware of when writing about personal consumption expenditures, disposable personal income, and household saving rates; essentially, more than half of those gross reported figures really only apply to 20% of the population...we really need separate reports for consumption, income, & savings rates for the rest of us....

the Center on Budget and Policy Priorities observed that this report meant that virtually all of the decline in the bottom 80% of households share of the nations income ended up going to the top 1%; this can be illustrated by a table from a similar earlier study, which shows that if national household incomes were all growing at the same rate, a family in the middle quintile should have been seeing an annual income increase of $10,100, instead, the lion's share of increases in national household income has been going to the top 1%...the adjacent table was posted this week by kevin drum with a comment that "for practical purposes, every year about $700 billion in income is being sucked directly out of the hands of the poor and the middle class and shoveled into the hands of the rich"...

the home price index most used by the media, the Case-Shiller index, was released this past week for the 3 months ending august; not seasonally adjusted, both the 10 city & 20 city composites were up 0.2%, about in line with a normal seasonal increase for the summer months…bill mcbride, who seasonally adjusts case-shiller’s index, has the 10 city down .2% and the 20 city down .1%, with the composite 20 down 32% from the peak; S&P had 10 of the 20 cities showing price gains, seasonally adjusted, prices only increased in 6 cities; the WSJ produces an interactive sortable table of home prices of the 20 cities in the index, if you’re interested in more detail…the FHFA (Federal Housing Finance Agency), which heads up Fannie & Freddie, also reported home prices for august, showing they fell 0.1% from july and 4% from a year ago; regions hardest hit were the southwest & far west…other price indexes which reported earlier include CoreLogic, which reported home prices for august decreased 0.4 percent on a month-over-month basis; FNC, whose 30 city index showed 0.8% decline in august, and Radar Logic, whose 25 city index also declined 0.8%… the census bureau reported seasonally adjusted new home sales for september were up 5.7% from august to 313,000, which is the number they report after the adjustment & likely has little to do with reality; they also report the median sales price of new homes sold was $204,400, down 2.2% from $209,100 in august, & that the average sale price fell to $243,900 from $246,000 in august, which was the lowest since early 2009…moody’s also reported its commercial real estate index for august, which covers prices for malls, warehouses & the like, and it showed prices up 2.4% over july, and 7.2% over the same month last year…commercial real estate is still averaging 41% lower than the peak in 2007, but the pending disaster for small banks, which hold much of the CRE paper, that we feared last year when prices were still falling seems to have been alleviated…but Moody’s warns that CMBS underwriting standards are again becoming lax, with the prevalence of interest only debt rising from 21.1% in the 2nd quarter to 33.6% in the 3rd quarter…

i should make mention of the home mortgage relief program that obama touted in several speeches this week, aka Harp II; first, this is only for homeowners whose mortgage has been owned or guaranteed by Fannie or Freddie since may of 2009; homeowners must  also be current on their house payments for 6 months to qualify; the plan doesnt include principal reductions, just refinancing at todays lower rates; and the banks may not go along any more than they did with the first version of HARP…Obama also announced a similar program for college grads with federally held student debt, whereby they could cut their interest by as much as half a percent & reduce their payback rate to 10% of their “discretionary income”, which should serve to keep them as indentured slaves that much longer...and i should also note that the 6 democrats on the supercommittee, which is charged with finding $1.2 trillion in deficit reductions over 10 years by thanksgiving, have proposed a $3 trillion dollar plan with deep cuts to medicare, a jobs package, and tax increases, which apparently will be rejected by the 6 republicans on the committee...

after 9 intense meetings over 5 days, the european leaders late wednesday came up with a plan that they hope will get them out of daily crisis mode for a while; markets rallied & there was dancing in the streets... first, they've told the bondholders of greek debt that they will voluntarily accept 50% of the face value of the bonds they now hold in new bonds of an undetermined maturity (probably long) and at a yet to be set yield (probably low)...(those bondholders have been told they will do this voluntarily, so they cant collect on their bond insurance (CDS) because no one knows where the CDS bodies are buried & we wouldnt want morgan stanley to fail like lehman would we?), & oh, btw, greek bonds held by the ECB and IMF don't get a haircut, so the greek govt didn't get half of their debt cut - only the part of it investors hold, so they'll be in trouble again soon...to help clairfy this for you, i've posted explaining yet another euro bailout plan…(a youtube animation)...the second part of the plan involves a €106 billion recapitalization of weak banks, normally done by selling stock but who would want to buy a weak italian bank? so what the banks will likely do is sell their best assets & shrink, & thats just what europe needs, monetary contraction, right? the last part of the plan is an expansion of their EFSF, aka the bailout fund, from €440bn to over €1 trillion, so that it will be large enough to cover spain & italy, not achieved by adding any funds, but by leveraging the funds currently available (less than the €440bn cause some's been spent) and trying to get suckers from china, brazil & japan to buy in; what, you say the chinese aint that dumb? of course not!! china will get to buy the senior tranches of the special-purpose vehicles (SPVs) that the EFSF will capitalise, leaving the europeans holding the subordinated debt, which is guaranteed by spain & the italians, among others...sounds like a plan, huh?  lets see if it lasts a week...& as a euro crisis bonus, i'll link you to the NY Times 18X21 euro mega-graphic, which shows the inter-connectivemess of debt in europe & around the world...

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


Monday, October 24, 2011

notes on the week ended Oct 22nd

there was an interesting and probably nationally significant ruling on real estate ownership handed down by the Massachusetts Supreme Court on tuesday that will at least affect those homes with clouded titles which have be foreclosed on and then sold by the banks, and may affect any other number of homes in which the banks failed to convey title properly through securitization and thus have clouded the titles; in the case of "Bevilacqua v. Rodriguez", (scribd) the court ruled that a  home buyer cannot claim title to a home if the bank that sold it to him didn’t have the right to foreclose on the original owner (a legal clarification of the ruling by law professor adam levitin is here)...this case was a followup to a 2009 decision, U.S. Bank v. Ibanezdiscussed here, wherein a foreclosure initiated in 2006 was overturned because the bank failed to show proof of ownership on the home that they foreclosed on, because the documentation of the numerous title transfers during securitization was never filed...i have long known this to be a problem, but seeing the property records of my neighbors declared "unreliable and unverifiable" last week sure brought the problem into focus; i assume that any "homeowner" losses that may occur as a result of this decision will be covered by the title insurance companies, but i have not seen an official opinion on this either..nor do i have a clue what one's liability would be should one attempt to sell a home with such a clouded title...this decision still seems to leave those toxic titles transferred during this process out there in limbo, and whether all the kings horses & all the kings men will ever be able to put this mess back together again still remains to be seen...

there was what was called a “trial balloon” floated in the mortgage-fraud settlement being pushed by the administration, the OCC, & the majority of the state attorney generals whereby the banks would pay a small fine & be released from future liability in exchange for refinancing homes that are underwater, current on payments, & owned by the banks outright (ie not securitized) – the banks would be giving up the higher income stream they’ve been receiving from those few underwater homeowners who’ve been unable to refinance, but they cant do that for the majority of loans that are securitized because there are 3rd parties are involved…as of now, 7 attorney generals remain opposed to the settlement, & california’s kamala harris, who’s been on & off the fence, this week subpoenaed Bank of America for selling toxic mortgage-backed securities to california investors “under false pretenses”...

in a separate BofA issue, associated with it’s third quarter accounting gimmickry, the bank moved what was said to be $75 trillion in risky derivatives from its Merrill Lynch unit to a bank subsidiary “flush with insured deposits”, with Fed approval, but over strenuous objections from the FDIC…the derivatives themselves arent insured by the FDIC, but they would have senior status over the deposits, which means that the bank could use its deposit base to pay off the derivatives if necessary, forcing the FDIC to step in to make the depositors whole…as bad as all that is, what i want to focus on is the amount, $75 trillion, which was confirmed by the comptroller of the currency; that's 5 times the annual GDP of the entire country! i’ve had a long running unease about the nominal amounts of derivatives outstanding, now said to be $600 trillion, down from a crisis high of over a quadrillion, but i’ve always been told not to worry, that’s only the nominal amount, they cancel each other out when they’re settled and the banksters pocket their fractional percentages; that may be true in the universe of derivatives, but any subset of them is enough to destabilize a systemically important institution – just ask AIG!

Total Housing Starts and Single Family Housing Starts there were a few monthly housing related reports to note this week; first, seasonably adjusted existing home sales fell from an annual rate of 5.06 million in august to a rate of 4.91 in september; still 11.3 percent above the 4.41 million unit pace the same month last year; sellers were said to be holding properties off the market, hoping for higher prices...but not boding well for future sales, mortgage applications fell to their lowest in 15 years this week, after a post "operation twist" spike in mortgage rates, which had been at records lows....new home starts in september, at a seasonally adjusted annual rate of 658,000, were 15% higher than september, almost entirely on the strength of multi-family starts (click adjacent chart); realizing that housing starts usually slow going into fall, i meant to check both of these reports for actual figures but time didnt permit…bill mcbride at calculated risk, who follows housing closer than anyone, forecast that this years housing completions will again hit a record low, breaking last years record, but that rising starts of multifamily units will showing completions of those rising by year end (see his graphs)

realizing we’ve got an inventory of 3.5 million homes for sale nationwide, and an even larger shadow inventory of homes held off the market or delinquent and likely to be foreclosed on, two senators introduced a bill on thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the US; something i’ve always advocated (i actually thought we could auction off such visas)…but the bill falls short of what i would like to see; first, in the high mcmansion level limit, which wouldnt apply to most of our housing inventory, and second in that the visas are for residence only, hence immigrants wouldn't able to work

i should mention the flurry of excitement in the econo-blogosphere over a goldman sachs economic note which recommended the Fed abandon their low inflation target and instead target nominal GDP, which was subsequently endorsed by paul krugman; this isnt a new idea, in fact, it's been advocated for years by a couple market monetarists who've i've always thought to be somewhat quixotic, scott sumner and david beckworth...obviously, IF the Fed could goose nominal GDP, it would likely increase employment, and i dont see inflation as a problem; but there has been no indication from anyone at the Fed they would consider targeting nominal GDP (written as NGDP), nor is that considered to be part of the Fed's mandate, so there'd likely be political pushback against such a change; nonetheless, if you're interested in the proposals, there's a bunch of links on it near the beginning of this weeks GGO blogpost, right after the handful on bernanke's speech...

as we figured would happen last week, the president's jobs bill is being re-introduced in the Senate piecemeal, to see what parts of it might pass; the first segment introduced this week was a $35 billion bill to help re-hire teachers police and firefighters who've been laid off at the local level; but senate republicans, joined by three conservative members of the democratic caucus, blocked any floor debate on it in a 50-50 vote to support a filibuster, so it went nowhere; indications are also that the supercommittee of congress which is charged with finding $1.2 trillion of spending cuts is also going nowhere, which may mean the automatic $1.2 trillion in cuts negotiated during the debt limit standoff would take effect after thanksgiving; on wednesday, the supercommittee was said to have met privately with the notorious "gang of six", who had advocated cuts to medicare, social security COLA, tax cuts for the rich, & an end to the mortgage interest deduction...

i should also mention that a new study released this week which was led by physicist Richard Muller, a prominent climate-change skeptic, and funded in part by the anti-science Koch brothers, reviewed more than a billion temperature records dating back to the 1800s from 15 sources around the world and confirmed what NASA & the british Met office have been saying all along, that the planet has in fact warmed by 1.8F since the 1950s; while this should settle it for the scientists, there's already been pushback from the deniers...i've always accepted that the planet was warming, but i’ve always suspected that heating incidental to human activity might be a greater contributor to AGW than the greenhouse effect, but i had never seen it quantified; but this week Takashi Hirose, a japanese scientist, in showing that nuclear power is no answer to warming, computed that in japan's nuclear energy program before fukushima, two thirds of the heat energy, or approximately 100,000,000 kilowatts of energy per day, was being lost; meaning "that every day they were pumping into the sea energy equivalent to 100 of the atomic bombs dropped on Hiroshima"...i am guessing the heat loss from other forms of electric generation is comparable, but whatever the case, it's obvious that our heating of the planet goes far beyond the heat trapped by human generated greenhouse gases...a separate studied show that our global warming is already baked in, & that sea levels would continue to rise for 500 years irregardless, so i'd think that rather than being overly concerned about mitigation, adaption planning should become part of policy...

early this week, articles were appearing saying that Oct 23 was some kind of deadline for europe, suggesting that if there wasnt an agreement by today, europe would go to hell in a handbasket and the rest of the world would quickly follow...but first germany threw cold water on the timetable, then france, threatened by a moodys downgrade, backed off of their commitment to a $2 trillion plan...so now they are planning a six day marathon meeting starting today to iron out their differences; although they approved the next tranche of funds for greece, they still have yet to increase the funding of their EFSF to cover spain & italy (whose ten year bond rate spiked to over 6% this week), renegotiate the haircut on greek debt from 21% to something near 60%, and come up with a better plan for bank recapitalization than the €80bn floated this week (some estimates are of as much as €413 billion of recap)…& of course, the european whole play by play is at the end 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

Sunday, October 16, 2011

notes on the week ended Oct 15th

as expected, the obama stimulus, aka "the american jobs act", that was introduced with the hoopla of speech before a televised joint session of congress on sept 8th was defeated in the senate on tuesday - or i should say it wasnt even taken up, as two democrats joined the republicans to assure that it wouldnt have nearly enough votes to get the 60 votes needed to shut off an expected filibuster & have it considered; at least now it wont even have to go to the republican house to be defeated...the administration is now expected to turn to what components of the plan that might be salvaged and pass both houses of congress piecemeal...its likely that the portion of the payroll tax cut that is now in place (as of last december's mcconnell-obama deal) will be re-introduced, and possibly some of the hiring incentives for business may also see the light of day if introduced separately...but the critical portion of that package we'll have to keep our eyes on would be the $49 billion extension of unemployment rations to cover the 6 million of us who've been unemployed more than 26 weeks...if you recall, those rations expired for weeks at a time last year, first at easter, then at the end of june, & again at thanksgiving, as they were being extended in short term fixes of a couple months each until the year end deal solidified them for this year...but unless they're extended before Dec 31st, the unemployed will start getting cut off every week as whatever tier of those rations an individual is on expires...

on the same day as the jobs bill was killed, the senate also took up & easily passed a bill charging china with currency manipulation, which would impose unilateral and broad-based tariffs against them; so instead of a jobs bill, we have political scapegoating likely as ill advised as the smoot-hawley tariffs were in the Great Depression, as everyone loses in a trade war; china's currency has been undervalued, but they had been letting the yuan float up slowly; their reaction to congress's action was to defiantly push the yuan lower...there is nothing unique in the way china controls it's yuan's value; 58% of IMF-member nations do the same; & while only 14% allow their money to float freely, even some of those, such as japan & the swiss, have recently intervened to hold theirs below certain levels...since 2005, when they first allowed the yuan to float to a limit, china's yuan has gained 30% against the dollar, at a even pace of 1/2% a month (except for a hiatus at the height of the crisis), which impresses me as a reasonable way to assure an adjustment with as little domestic dislocation as possible...& even if chinese goods were to suddenly become more expensive here, this country would be slow to retool its industry to produce those same goods domestically...

then on wednesday, the house approved 3 free trade deals, with colombia, south korea and panama, which had been languishing since the Bush years, which moved quickly through the senate so they could be signed by the president before the korean president's visit thursday...to clear the path for the passage of those deals, both houses also approved a renewal of the Trade Adjustment Assistance program, which will aid companies & retrain workers who lose their jobs to outsourcing to those countries...the trade deals are also expected to increase US exports to those countries by $13 billion...

i was quite surprised on thursday to see the ohio county i live in, Geauga, enter into a class action against MERS (Mortgage Electronic Registration System), MERSCORP, & its member banks, on behalf of all counties in ohio…you'll recall that the banks formed MERS in the 90s to get around the requirements (& fees) of state laws that required every mortgage (deed of trust) and note (obligation to pay the debt) to be recorded manually at the county courthouse where the real estate transaction took place...since it's inception, most every mortgage transferred has gone through this MERS system, and MERS has claimed to now hold title to roughly half of the home mortgages in the nation — something between 60 & 65 million loans...we've talked about challenges in several states as to whether MERS had legal status to foreclose, and the fabrication of documents used in that process, but the geauga lawsuit goes to a deeper problem...the complication that arose during the securitization process (wherein banks packaged the loans into MBS, then sliced & diced them into CDOs of multiple tranches) was that the electronic record keeping of the multiple rapid security transfers broke down, & no reliable paper trail was maintained...so the geauga county lawsuit addresses this problem, & charges that the "defendants systematically broke chains of title throughout Ohio counties' public land records by creating "gaps" due to missing mortgage assignments they failed to record, or by recording patently false and/or misleading mortgage assignments. Defendants' purposeful failure to record has eviscerated the accuracy of Ohio counties' public land records, rendering them unreliable and unverifiable -- damage to public land records that may never be entirely remedied" ...what we see here is that because of the banks slipshod record keeping, even those people who have been paying faithfully on their mortgages may not have clear title to their homes when their mortgage is paid off, possibly making it difficult for subsequent owners to get title insurance...it goes without saying that this is national problem; there is no way of telling from this lawsuit how many home titles may be clouded, but i know that this county & its politicians are very conservative, low-key & laissez-faire, so they wouldnt have acted if it werent a serious problem & they didnt have MERS dead to rights...

the mortgage servicers themselves will be coming under some pretty heavy scrutiny as well; the CFPB (Consumer Financial Protection Bureau), the dodd-frank agency inspired by elizabeth warren, has published a set of servicer examination procedures, so they may soon be faced with complying with the laws they have heretofore been ignoring...& realtytrac reported 3rd quarter foreclosure statistics. which were reported on by MSM with an array of confusing headlines; first time default notices were up 14% over the 2nd quarter, but total activity - default notices, scheduled auctions, and bank repossessions - was up only 1% over the second quarter; moreover, most of that was in August, during the surge of filings by BofA i reported on at that time, and it slowed again in September...overall, foreclosures fell 34% from a year earlier in Q3, and the average time to process a foreclosure in New York State, where courts have required that the foreclosing attorney certify the accuracy of documents, is now up to a record 986 days...

there werent any economic reports that i normally follow closely this week, but there was a surprising jump in september retail sales of 1.1%, led by new car sales, but even ex car sales retail sales were still up 0.6%...this flies in the face of declining consumer sentiment as reported by Thomson Reuters / UofM and Gallup, and a Pulse of Commerce Index which tracks diesel fuel, which is showing a 3 month decline an annualized rate of 10 percent; moreover, if retailers were optimistic, we wouldnt be seeing YoY declines of as much as 15% at the five busiest US container ports, at a time when christmas shipments should be coming in...

europe, of course, is still the elephant in the world's economic crisis room...& it continues to be frustrating to try to get a handle on what's happening; one can read on one hand of leaders like merkel & sarkozy coming to a broad agreement which they say will solve europe's problems, & on the other hand see slovakia block the expansion of the stability fund which would require they put up 12% of their GDP to help save greek pensions, which are 4 times more than slovak pensions...and the major reason the fund needs to be expanded would be to protect italy; yet italy's own contribution amounts to 18% of the fund, so they'd have to pony up more, too...and banks are expected to need more capital in anticipation of a greek default, but even the wall street journal reports estimates of needs as low as €7.6 billion to as much as €413 billion...greek bondholders agreed to take a 21% loss in july, now there's talk that may be as much as a 50-60% haircut...greece, portugal and spain are now all reporting they will miss their deficit targets, but it's easy to see why; imposed austerity left them with unemployment rates of 16 1/2%, 12.3%, & 21% respectively, & the pay has been cut for those who are working, so of course they're collecting less taxes! and as those countries are continuously bled by foreign investors, less remains in their domestic economies, & their downward spiral accelerates...in greece, refinery strikes have just about shut down transportation, garbage is piling up, and even the tax collectors are on strike because of pay & pension cuts, so it seems whatever their government has agreed to is moot...

yesterday, the protests against the banks inspired by "Occupy Wall Street" spread to at least 1500 cities in 93 countries; obviously, as i've been working on this & my link package while they were ongoing, i havent watched the news on them & cant report much...i know they started yesterday at sunrise in wellington, auckland, & christchurch, new zealand, and noticed as they followed the time change to sydney, tokyo, & hong kong; although generally peaceful, some violence had been reported in a takeover of a goldman sachs building in milan, and anarchists were said to be leading the demonstrations in rome...in this country, i've seen that much of the left establishment wants to guide OWS & Occupy Together into an agenda with specific demands on the system…i disagree; our system has been captured by plutocratic special interests, & solutions to our problems will not arise through our corrupt & dysfunctional politics...our generation blew it; we screwed it up, or let it be screwed up, for these kids, so we should just shut up & get out of the way; it’s time to let them decide where they want to take it from here; it’s their world now, & they have the most to lose if they get it wrong…i can only hope they can find it in themselves to reject most of the failed structures we've left them...

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


Monday, October 10, 2011

notes on the week ended Oct 8th

before we even start looking at this months unemployment report, you should review the notes i wrote with last month's report on the methodology Part Time Workersused by the BLS, so you know that any seemingly exact numbers they give us must be taken with a few grains of salt; namely: "the confidence interval for the monthly change in...employment from the establishment survey is on the order of plus or minus 100,000"; even so, with revisions & over time, we can get a picture of where we're heading...so, on the face of it, the unemployment report that came out friday wasnt all that bad, & was better than the forecasts leading up to it; in the establishment survey, BLS reported (pdf) that 103,000 jobs were added in september, arrived at by subtracting the 34,000 govt jobs lost from the 137,000 added by the private sector; the caveat is that 45,000 of those were Verizon strikers returning to work, so only 58,000 were really new jobs...but the (relatively) good news was that for once employment for july was revised up 42,000, and the change for august was revised up 57,000, the first time i recall positive revisions of that magnitude...ex the verizon strikers, which were subtracted last month, last's months dismal report of "zero jobs" was actually better than this months +103K after the revision...both the average workweek and average hourly earnings showed minor improvement...the sector gaining the most jobs was again health care workers, with 44,000 more than the last report; the sector losing the most jobs was again state & local government, down 35,000; the total decline in government payrolls in this recession is now the most since the winding down of the korean war...14 million of us are counted as unemployed by BLS definition, of those, 6 1/4 million have been without work for more than 27 weeks...in the volatile household survey, taken from a smaller sample, BLS reported the number employed rose by 398,000 and the total labor force rose by 423,000, of which 224,000 were those not counted in august who started looking for work in september; thus, with the numerator & denominator rising in tandem, the unemployment rate remained 9.1%...the household survey also showed an increase of 444,000 temporary or part time jobs, which means that full time jobs actually decreased by 46,000...this showed up in the U6 percentage, which includes those working part time who want full time work, which increased to 16.5% in september from 16.2% in august and now stands at its high for the year (see the adjacent chart from bill mcbride - other charts are indicated in the links below)...nonetheless, with more people having at least some work, the declining metrics we were concerned about earlier this year improved: the labor force participation rate increased from 64.0% to 64.2%, and the employment / population ratio also increased from 58.2% to 58.3%...

111007bas i've mentioned before, most estimates are that we need at least 125,000 jobs per month just to keep up with the increase in the number of working age teens & adults in the population; so far this year we've added a total of 1,074,000 jobs or an average of just 119,000 per month, so we're not even treading water; our difficult situation is illustrated by the adjacent chart from the Atlanta Fed's macroblog (enlarge), which compares the 158,000 rate of job recovery in the 2001-2003 recession to the rate from the bottom of this recession, and to the rate of job addition in recent months; the 158k rate of 2001 would reduce unemployment from the present rate as shown by the red line; the green horizontal line shows that unemployment would not fall at all at the rate we’ve been adding jobs since february 2010; and at the rate we’ve been adding jobs recently, the unemployment rate would gradually rise as shown by the purple line…zero hedge takes it one step further, and computes that we would need to generate 261,000 jobs per month just to return to the weak pre-recession unemployment rate by the time obama’s hypothetical second term ends in 2016…but looking forward, we see nothing but gloom; according to the employment firm Challenger, major announced layoffs more than tripled from last month's, to a level not seen since the depth of recession in april 2009; the hedge on that is that the lions's share of the increase comes from a 50,000 troop reduction announced by the Army (since we can now kill anyone anywhere in the world from a remote compound in nevada, & never have to see blood or dismembered bodies, we dont need boots on the ground), and an announced job cut of 30,000 by the insolvent Bank of America...furthermore, a PNC Financial survey of small and mid-sized businesses owners showed that only 20% planned to hire in the coming 6 months, less than the 24% who so planned in the last such survey...

as long as i'm talking unemployment reports, i should also mention the preliminary annual benchmark revisions which BLS released last week...this is the first guestimate snapshot of the benchmark revisions which will be released in february and will show up in the unemployment report that month...the revisions are taken from the full collection of the unemployment insurance data, and therefore determines the final unemployment levels...over the last two years, i've become accustomed to this showing that all the reports in the preceding year had underreported unemployment (by over 900K in 2009), and i've got a few old rants about that to prove it, but this year the revision appears to be showing that payroll employment was underreported by 192,000 jobs over the past year...this will not show up in the monthly reports, but the increase in jobs will magically appear in february as if it hadnt happened...

even though it's clear that we have a crisis in which millions of americans are looking for work, having their skills erode, or working at a job below their capability, congress remains gridlocked on even the lame jobs act that obama proposed, and this report didnt produce headlines that would encourage urgency; it wasnt unexpected that eric cantor would declare the bill dead in the house, but even the democrats in the senate had been using it as leverage so they can get an ill-advised bill passed to crack down on what they contend is china’s policy of manipulating their currency, which they believe is the reason multinationals are outsourcing manufacturing jobs; again, this is a purely political ploy, as they want to use their support for it to run against china in the 2012 elections...late in the week harry reid did float a modification of the obama jobs bill, with the offsets in the president's proposals replaced by a 5% surtax on those with incomes over a million that would raise about $445 million; but as ive complained time & time again, there is not even a need to attempt to "pay for" any fiscal initiatives with offsetting spending cuts or tax increases at this time…a few weeks back, goldman sachs produced the adjacent chart, which shows the effect of fiscal policy since the beginning of 2009; you see the obvious boost to GDP from the first stimulus, but as that wound down state & local government cutbacks have been a drag on the economy, and even if the Obama jobs plan (the blue line) were to be enacted in full, it would only be enough to neutralize the effects of the other programs winding down…

among other economic reports out this week included both of the ISM (Institute for Supply Management) purchasing managers indexes; the manufacturing PMI was at 51.6% in september, up from 50.6% in august, with a solid uptick in the employment component of that index to 53.8%; the ISM non-manufacturing index, on the other hand, was at 53.0%, down from 53.3% in august, and the employment component of that was 48.7%, down from 51.6% in august; readings over 50% in both these indexes indicate expansion; in a separate report, orders for capital equipment rose 0.9%, the most in 3 months…the Fed reported that consumer credit contracted $9.5 billion to $2.44 trillion in august, the largest decline in 16 months; (those who worry about the Fed “printing money” seldom look at the similar effect of consumer credit) – last friday, the BEA reported that personal incomes fell for the first time in 2 years in august, and although spending increased 0.2%, in real inflation adjusted dollars it was zip…the best coverage of that Personal Income and Outlays report i’ve ever seen came from the economic populist this week, complete with 10 charts, if you want a detailed analysis…

this was also the week of the monthly report that has become the most interesting to me, the LPS Mortgage Monitor; i've covered it before; it quantifies delinquent mortgages & homes in foreclosure; in august, foreclosure starts were up 20% over july (you may recall reports BofA stepping up their activity in non-judicial states), although the total 2.15 million homes in the process was down 12% from last year...there were also a total of 4.25 million homeowners who had missed at least one housepayment; 2.38 million of those were less than 90 days delinquent, and 1.87 million loans were over 90 days delinquent...a total of 12.24% of mortgages were in trouble, & those in foreclosure numbered 4.11% of all mortgages...with banks in many cases unable to prove the right to foreclose, the length of time homes are in foreclosure continues to increase, with the average loan in foreclosure now having not paid on their loan for a record 611 days...

in other real estate news, corelogic released it's home price index for august, which is the not-seasonably-adjusted weighted index of the 3 preceding months used by the Fed; it showed home prices in the U.S. decreased 0.4 percent over the july report, the first monthly decline in four months; typically; home price reports going forward will trend downward as the prime summer home sales season ends; the weekly report from Freddie Mac had 30 year mortgages below 4% for the first time in history at 3.94%; 15 year fixed mortgages were also at a record low of 3.26%...the real estate firm Reis also reported on vacancy rates for three classes of commercial real estate for the 3rd quarter; the apartment vacancy rate fell to 5.6% from 6.0% in the second quarter and effective apartment rents were up 2.4% from a year ago; office vacancy rates declined slightly to 17.4%, with average office rents up 13 cents to $27.85 a square foot, still well below the average of 29.37/sq.ft prior to the recession, and the vacancy rate for large shopping malls reached its highest level in 11 years at 11%, only a tenth of a percent off the all time high vacancy rate for mall space...

the situation in europe continues to threaten to explode into another major worldwide financial crisis that could put us into a deeper depression; i’ve got links to what i feel were the several dozen most important stories at the end of this week's blogpost, if you want to read everything on it that i've collected...

you may have noticed that the MSM is now reporting on the occupy wall street & other demonstrations going on in major cities around the country; they also have become a hot topic in the econoblogosphere, with considerable discussion of what changes or policy might come out of them; they've also garnered support from two nobel prize economists, with Joe Stiglitz at the NY site speaking with the protesters; accordingly, i've added that coverage to my blog, & have even more links in the miscellaneous section at the end of my emailed package...i also posted occupy wall street / occupy together - livestream video & info here on MW666 this week; i dont have to know what they're for...i know what they're against, & thats enough for me to support them...

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

Tuesday, October 4, 2011

occupy wall street / occupy together - livestream video & info

Watch live streaming video from globalrevolution at livestream.com

For current news and information go to OccupyTogether.org, OccupyWallSt.org, Adbusters.org, AnonCentral, “We Are The 99 Percent,” and NYC's Independent Media sites: The Indypendent and Gothamist.    contributions can be sent to the following:

The UPS Store
Re: Occupy Wall Street
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Money orders only please, cannot cash checks yet. Non-perishable goods only. We can accept packages of any size…currently low on food.

Here Be Monsters is broadcasting live daily @4pm eastern time on BlogTalkRadio with news and information on OWS.

Sunday, October 2, 2011

notes on the week ended Oct 1st

not entirely unexpectedly, the government will continue to run this week, and likely will do so for at least 6 weeks more after that, as the impasse over disaster relief funds was solved by adding $2.65 billion to the continuing resolution to fund the government until november 18th; the Senate stayed on monday to pass the stopgap measure, which was less than the $6.9B FEMA requested, but didnt include the offset cuts to the Bush clean car program that the house had wanted...since the vote in the senate was bipartisan, the house is expected to follow through; they also passed another short continuing resolution to tide the government till the 4th, so the House could approve that by unanimous consest without having to travel back to DC...

  the postponing of the budget for fiscal year 2012 until Nov 18th seems likely to open a whole new can of worms at that time, since it will fall the week before the thanksgiving deadline for the 12 member supercongress to present their $1.5 trillion in spending cuts that was negotiated in the debt limit deal; moreover, by that time they should have an entire budget for 2012 on the table, not just FEMA emergency funds; whether they do or no remains to be seen; it took 7 continuing resolutions over 6 months to get a budget for this year, and there's no telling what kind of riders that the tea party might want to add in an attempt to control or influence policy...also, we've yet to see movement on obama's jobs bill (it hasnt even been introduced) nor his tax the rich "buffett plan"; another problem we might want to think about is that with the economy tanking, if the jobs bill were passed while tax receipts plunge, it will start to become likely that the debt limit could be reached again before the election next year - so much for the best laid plans...

   in somewhat of a surprise, the administration has asked the supreme court to rule on the constitutionality of the health care reform law, known as the Affordable Care Act; specifically, they are appealing a decision by a 3 judge panel in the 11th circuit court of appeals in atlanta; as far as i know, that is the only ruling that has gone against the act; there have been at least two, maybe more, rulings by other courts that the law was constitutional; although i havent followed it closely, most of the challenges to the law involve the individual mandate, which requires individuals to purchase health insurance, which i always thought was just another sop to the insurance industry (my own not well articulated position during the health care debate was for single payer, to the left of kucinich; i would have abolished the insurance companies entirely & replaced it with something akin to medicare, which is less expensive) ...that individual mandate is also what the atlanta decision related to...

   there was another major health care story as well this week; the kaiser foundation's annual study of health care costs found that family insurance costs rose 9% this year to $15,073; that's double what the cost for a similar insurance policy was a decade ago...the kaiser report also showed that lower cost, high deductible plans had risen to over 16% of health insurance plans; as recently as 2006, they numbered only 4% of plans...& even though most of the articles about the study clearly stated that as per kaiser only 1-2% of the increase could be attributed to the Affordable Care Act (pdf), i've already seen several posts laying all the health care cost increases at the feet of "obamacare"...

New Home Sales and Recessionsthere were a few housing related reports out this week; new home sales for august were down 2.3% from july at a seasonally adjusted annual rate of 295,000; looking at the report from the census bureau (pdf), it seems they dont actually report the actual number of homes sold; even the regional figures are adjusted to that annual rate, which i find odd...even though both the total of completed homes and those under construction is at the lowest level since records were kept, the new home inventory, although down from the peak, is still at an unusually high 6.6 months of supply, and at the rate homes are selling, this is shaping up to be the worst year on record for new home sales (click chart) despite an incrementally higher population... competition from distressed properties on the market knocked the median new home sales price down nearly 9 percent to $209,100...with interest rates still moving in anticipation of the Fed's operation twist, both the 30 year & 15 year fixed mortgage rates were again at all-time record lows, at 4.01% and 3.28% respectively...

this week also marked the release of the popular case-shiller home price index for july (which is an average of prices from may thru july); affected by normal seasonal demand, the prices in the 20 major cities covered rose 0.9% from the june report; that's still down 4.2% from last years prices, and 31.8% down from the bubble peak; on a seasonably adjusted basis, bill mcbride reports the 10 city price index down slightly, & the 20 city index up slightly...case shiller reports prices up in 18 out of the 20 cities, but on a seasonably adjusted basis, prices only rose in eight...(WSJ has an interactive table of prices in the 20 cities, if anyone is interested)...recent reports from other indexes for july were comparable; both corelogic & FHFA reported prices up 0.8%, FNC reported prices up 0.1, & radarlogic reported prices unchanged in july...related to this home price release, i had the unfortunate experience of catching robert shiller being interviewed by a talking airhead from reuters...although he repeatedly told her that prices would likely be flat for years, and possibly fall further, she kept probing for when there would be a "recovery"...some of you have heard this from me before, but homes are not an appreciating asset any more than a car or other durable is, & they are no more like to "recover" to their former high prices than are dutch tulip bulbs going to recover to the prices they sold for in 1637...houses deteriorate over time & eventually are torn down, just as automobiles deteriorate & are eventually junked...originally, the reason houses seemed to appreciate in value was the inflation of the 70s; because money depreciated faster than houses, houses went up in price...if inflation was 100% per year, cars would appear to go up in price every year too; you could then buy a car & drive it three years & sell it for more than you bought it for...as shiller said, the history of house prices in this country (before the bubble) was that they barely kept up with inflation...measures of inflation expectations are now low; the expected rate of inflation over the next 30 years, as measured by the difference between Treasury Inflation Protected Securities, (TIPS) and regular treasury bonds, dropped to 1.85% this week; moreover, as we saw a couple weeks ago, household median income is down 6.4% over the recession, so there is less household money available to go into housing...

it appears that the mortgage fraud settlement with the banks negotiated by the state attorney generals & pushed by the administration is finally toastcalifornia attorney general kamala harris, who had been on the fence, said she will no longer be a party to it; so with new york, delaware, nevada, massachusetts, kentucky, & minnesota now opposed, a national settlement is impossibleharris complained the banks wanted broad immunity from other claims that might arise, & she couldnt go along with that…the SEC has also launched a fraud investigation of several banks, including RBS & credit suisse, on securities tied to mortgage loans, JP Morgan & BofA were sued by german lenders for $4 billion for “knowingly providing false information to credit rating agencies” about RMBS that the germans were sold, & BofA is facing another $50 billion securities fraud suit over their merrill acquisition…i havent been mentioning it, but there have been ongoing decisions by various state courts of appeals as to the legitimacy of mortgage titles only recorded by MERS (electronic records); most states have ruled them invalid, but a California appellate court affirmed MERS right to foreclose, so it wouldnt surprise me to see MERS heading to the supreme court as well..

it's becoming increasingly difficult for me to get a handle on what's happening in europe...the seriousness of the situation seems to have finally gotten thru to the world leaders - they've been described as frightened, angry & visibly scared at their meetings by the financial times - yet every deal that seems to be making headway is denied by those who would approve it...at any rate, some kind of "leveraging up" of the EFSF, their bailout facility, seems to be in the works, but i've yet to see an explanation of that i could wrap my head around...& although an expansion of the bailout has been passed in germany, german polls show 75% opposition, so it may not survive the next election there - even if it should be approved by parliaments in all 17 countries; the latest is that slovakia is holding out...& more pay cuts & pension cuts have been imposed on greece, as well as a punitive property tax which will be assessed as part of their electric bills; if its not paid, the implicit threat is that their power will be cut off...so of course, the strikes in opposition to austerity continue in greece...& again, there are links to more than 80 stories & opinions on the situation in europe are at the end of this week's blogpost...

i want to close with a short personal story...every week, i receive news forwarded from legitgov (http://www.legitgov.org/# breaking_news) at my yahoo mail email address - this week's package included 3 links to stories about the protests in new york known as "occupy wall street" (https://occupywallst.org) ...i had heard that yahoo mail was censoring mention of those protests but it never occurred that it might happen to me; but what i encountered when i tried to forward that package was exactly what the video in this post from thinkprogress shows:  Yahoo Appears To Be Censoring Email Messages About Wall Street Protests ... i was repeatedly confronted with a captcha, which i always completed correctly, yet i was continually blocked from sending that link package with the message "Your message was not sent. Suspicious activity has been detected on your account. To protect your account and our users, your message has not been sent."  i was able to send other test emails from my yahoo account without hindrance, but not the one with "occupy wall street" in it...twitter had also been censoring mention of those protests; here's the post by yves smith where that is described: Welcome to the Police State: NYC Cops Mace Peaceful Protestors Against Wall Street...so once again, i am surprised by my own naivete...i thought this only happened to protesters in iran or china, but i guess i was wrong...our whole system system is geared to protect the banks; the people, the bill of rights, & everything else is secondary...
    these wall street protests - which are going national - do not really fall within the purview of my blog, but i've accumulated links to a few of the stories about them that i've encountered during the week, and they're included in the miscellaneous links section at the end of my emailed links package, where i also deposit links on political & other stories that i encounter during the week that i think someone might be interested in...as i was working on this last evening, i had the live feed from the protests in the background, and as i understand it, their were 700 arrests; protesters said the police had tricked them, herding their march onto brooklyn bridge, and even escorting them partway across, only to trap them in orange police netting after they were all on the bridge...so if anyone's interested, there's gonna be a bunch of naive kids who will be needing bail money this morning...

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