Sunday, November 27, 2011

notes on the week ended Nov 26th

as was expected, the congressional supercommittee announced it would not reach an agreement on monday, & the focus of the economic blogosphere turned to post mortems and what happens next...most of the concern is over the expiring programs that we discussed last week; the prospect of emergency unemployment rations not being extended, abandoning those out of work longer than 26 weeks without a safety net; whether the payroll tax cut will be extended, the "doc fix", and other annual budget provisions that congress had hoped their supercommittee would solve with one package; with the short week i didnt see any congressional activity on any of the budget related items, although some congresscritters & several commentators made a point that the supercommittee's failure likely doomed renewall of the bush-obama tax cuts for the rich, which were extended till the end of 2012 last december and the continuation of which were one of the elements of the republican supercommittee's proposals (ie, they alleged the rich would create so many jobs that the deficit would fall)...

what we're facing now is the spending cuts sequestered by the budget control act; the act's provisions allows the debt ceiling to be raised $1.2 trillion, tripping in the automatic $1.2 trillion in cuts over 10 years, half to defense, & half to other non-safety net discretionary spending...however, for all the weeping & gnashing of teeth that the defense hawks have been doing about this provision, these so called cuts arent even cuts at all; the defense budget had been expected to rise 23% over the period, the sequestered reductions would apply to that, and as a result, the defense budget would only rise by 16% over the ten year period...nonetheless, the militarists are still talking about undoing even those reductions, but they wont get past obama's threatened veto unless they raise tax revenue to pay for the increases...

those of you who have been on the receiving end of these missives from me since last spring might remember that during an earlier deficit debate, i mentioned a "do nothing plan" that was proposed by annie lowrey, then of Slate, now writing for the NY Times; wherein if we let all the laws currently in effect expire as scheduled, the federal budget would come into balance by the end of the decade...strangely enough, a version of that plan was advanced this week by her husband, ezra klein, at the washington post; the chart to the left shows the deficit reductions that occur if laws currently in effect are allowed to continue or expire without congressional intervention; the lions share, of course, would come from allowing the bush-obama tax cuts for the wealthy & estate taxes to finally expire, the budget would also be reduced by the budget cuts initiated last spring, the aforementioned sequestered cuts, skipping the doc fix, the expiration of the annual exemption under the alternative minimum tax, and various & sundry other "temporary" tax cuts that congress passes almost automatically every year...

however, all is not a bowl full of cherries if we just send congress home & have them do nothing; glance at the table of expiring programs from JP Morgan in the upper right corner; that shows the projected impact to GDP from over the next two years if fiscal policy is unchanged & ongoing programs are not renewed; notice that they project a 2.4% hit to GDP this year, and a 2.6% hit next year, if all temporary cuts and programs expire; similar, but less severe, GDP projections were made by goldman sachs, shown in the adjacent chart; the dashed blue line is with unemployment & the payroll tax cut extended; the dashed grey line is with both of them expiring; & that chart should open larger in a new window if you click on it...

while i'm talking about the potential future paths of GDP i should mention that this year's 3rd quarter GDP growth was revised downward, from the first reported “advance estimate” of 2.5% annualized, to 2.0% annualized, based on more complete source data than they had a month ago; the downward revision was mostly due to a large decrease in the "change in real private inventories", which is now reported to have sliced over 1 1/2% off 3rd qtr GDP growth; the silver lining in that is that it sets the stage for a rebound in inventories and a better report in the 4th quarter…even so, with a first quarter report of 0.4%, & the second quarter at 1.3%, it will take at least 4% annualized growth in the 4th quarter to bring the GDP growth for 2011 up to an anemic 2% for the year…and because an alternate measure, GDI, (gross domestic income) only rose 0.4% in the third quarter, it led at least one economist to point out that “we are only one small data revision away from declaring the US is in a recession, which began in mid-2011”...and there’s no good estimate of how much contagion from the worldwide slowdown will affect our exports, either; china’s manufacturing purchasing managers index surprised everyone by contracting in november for the first time in 32 months, reading 48.0, down from 51.0 last month, on a scale where 50 is stagnant; japan saw its exports decline 3.7% in october from a year earlier…and the Eurostat release of new industrial orders for september showed they fell by 6.4% for the 17 nations in the euro area, which is an indication that europe is seriously contracting….

Stress Testson tuesday, the Fed announced plans to "stress test" the nation's largest 19 banks in light of those deteriorating conditions in europe, to see what kind of losses they'd incur, and ostensibly to insist that they build defensive capital buffers against what the Fed thinks might be worst case repercussions... furthermore, the 6 TBTF banks will have to present their plans for dealing with this scenario...unlike the widely mocked stress tests that were conducted in conjunction the bank bailouts in 2009,  i believe these stress tests are supposed to be annual, a provision of dodd-frank, and somewhat less of a smokescreen, although their seriousness has been questioned...if we look at some of the stress test's scenario provisions (PDF - pp 32 &33) we see that the Fed wants the banks to report their condition should the US GDP contract 7.98%, unemployment rise to 13.1%, the Dow drop more than 50% from its current level to around 5600, housing prices decline another 20%, and commercial real estate go in the tank even more than that; there's 8 other domestic conditions in the test, including inflation, bond rates, etc, and 11 conditions in major economies, if you want to peruse the whole scenario in the table on p32 & p33 of the cited pdf; offhand, it looks tough enough to me, with the one caveat being that the worst europe gets is a 6.91% contraction in the 3rd quarter of 2012, which isnt even as serious a hit as the 10.81% they took in the 1st quarter of 2009...after chartmeister bill mcbride got wind of how the worst case scenario in these stress tests would influence housing prices, he produced the adjacent inflation adjusted housing chart, which includes the popular 20 city case shiller price index (yellow), the national case shiller index(red), and the corelogic index that the Fed uses (blue), extended into the future to show the future home price drop that the banks will be testing against...in this scenario, real house prices drop to a level not seen since 1984…

TANF 11-21-11pov-f2 a couple weeks ago we talked about the new measure of poverty, called the Supplemental Poverty Measure (pdf), that the census bureau released in order to better measure actual disposable income; this week, another part of that report was released which likely includes many of us, the 51 million americans who are considered "near poor", or those who have effective disposable income less than 50% above the poverty level; not only was that number was a surprising 76% higher than the official poverty count published in september, it shows that 100,000 americans, almost a third of the population, were living in poverty in 2010 or were right on the edge of it...note that that census measure is on stats from 2010, and thus includes unemployment rations that some were collecting then as part of their disposable income...but remember, the big layoffs occurred at the end of 08 & early in 09, so there's less than half of the unemployed still receiving a check late in 2011, and thus the current numbers are much higher than the census or the cited articles alludes to...a separate survey, released by the advocacy group Wider Opportunities for Women (WOW), found that 45 percent of us are living in households who are struggling to make ends meet; considered "economically insecure"...these are the 39% of the adults & 55% of the children among us who are in households living paycheck to paycheck without savings for emergencies or for future plans such as college or retirement...also this week, analysts at the center on budget & policy priorities produced an extensive look at the TANF program; the 1996 clinton initiative also called "welfare reform" and found that the safety net is failing miserably; another 6 states & the district of columbia have cut allowances over the last 12 months, and rations for needy families have now fallen to below 30 percent of the poverty line in the majority of states, and below 50% of the poverty line in all states; much less than they were worth when the program was initiated in 1996; the adjacent map is taken from that report, which also has several other graphics & state by state tables; it shows TANF rations per state as a % of the federal poverty level; you can see that only a handful of dark blue states approach a dole of 50% of the poverty line, while there’s the whole southern tier of grey states where the rations are only 10% to 20% of what is needed to live in poverty; in those 14 states, monthly rations are less than $300 for a family of three…in addition, the department of agriculture reported that in 2010, over 17 million households, or 14.5%, lacked the resources to provide enough food for all family members, and 6.4 million of those had normal eating patterns disrupted due to lack of food…the nonprofit network of foodbanks called Feeding America also reports one in five children are at risk of hunger…

since too much happened in europe this week for me to easily summarize, you’ll have to check this week’s blogpost to get the whole story again; for now, ill just note some of the week’s low points; the irish goverment was embarrassed to have their budget for 2013 publically discussed in the german bundestag before it was released in ireland & complained to the EU; the Spanish voters ousted their government and installed conservatives who promised more austerity; because of this economists at JP Morgan expect Spanish unemployment to hit 27% by the end of next year; after considerable maneuvering and arm-twisting, Antonis Samaras, leader of the minority party in greece finally signed a letter of submission to the troika; austrian bank supervisors restricted lending to eastern europe, necessitating a formal request of aid from hungary to the troika; Portugal, Hungary & Belgium were hit with credit rating downgrades (portugal & hungary are now junk), and a german attempt to sell 6 billion worth of their bonds failed, forcing the german central bank to retain nearly 40% of the bunds they were attempting to sell, after which interest rates pretty much all over europe soared to new records the rest of the week…if you've got any interest in reading about the collapse of western civilization in real time, there's links to over 100 articles on the news in europe in the last quarter of this weeks blogpost, best catch it today rather than wait for the history books to be written...

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, November 20, 2011

notes on the week ended Nov 19th

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

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

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

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

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

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

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

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me

Monday, November 14, 2011

the occupy LA teach-in

bio: professor william black, UMKC; the bank regulator who jailed perps during the S&L crisis (website)

bio: robert reich – secretary of labor under bill clinton  (website)

bio: robert scheer -  writer, author, Editor in Chief – Truthdig


bio: ellen brown – author “Web of Debt” and other books

more from the Occupy LA YouTube channel

Sunday, November 13, 2011

oklahoma fracking quakes & other notes, week ended nov 12th

there werent any headline economic reports i normally cover this week, and the few reports that did come out showed little surprising, except for a new post recession high in exports...& there's not much certain out of the supercommittee which has been charged with conceiving a ten year budget plan, either, but we should watch what happens there closely this coming week, because there's only 11 days left for them to agree on a recommendation for cutting the deficit by $1.2 trillion, or else the automatic "sequestered" cuts kick in starting in fiscal 2013...and since the CBO (Congressional Budget Office) must score whatever plan they propose, ie, provide an official estimate of how much the plan would change the deficit, before it can be voted on, that length of time is even shorter, especially if new elements are introduced that the CBO hasnt previously figured on...it is this timeframe that makes the cuts to social security COLA by changing the inflation measure used, which we discussed previously, even more likely to be included, because that was scored by the CBO when it was first introduced...and there's another glitch in the schedule; the debt limit deal which created the supercommittee ruled that these committee members must have 48 hours to look at any proposal before voting on it...

at any rate, a small piece of legislation which was introduced as part of the obama jobs act did manage to pass this week; the tax break for companies that hire unemployed veterans; the legislation would give companies a $5,600 tax credit for each veteran they hired who had been unemployed for at least 6 months, with a smaller tax credit for hiring vets who had been jobless for less than six months; there were no votes against it in the senate, since no one wanted to be on record as against employing vets on veterans day, and unlike demands associated with other jobs packages, no one demanded offsetting spending cuts...there are still parts of the obama bill which have not received much attention; the payroll tax cut of 2% for 2011, which was initiated in the mcconnell-obama deal last december, will expire on december 31st; obama had proposed increasing it, but if no action is taken, that extra 2% will come out of everyones paycheck except for those who make more than $110,100, who will only be taxed up to that limit...the extension of unemployment rations will also expire at year end; without that, the time one will be able to be unemployed before being cut off will reduced to 26 weeks...when this was renewed last year, we discussed that because massive layoffs started at the end of 2008 and continued thru early 2009, a number of long term unemployed would run out of rations even with the 99 week extension, but that's been below my radar since; this week it was reported that it's worse than we expected; most of the unemployed no longer receive weekly checks at all; those still on rations now only number 48% of the 14 million who are unemployed; if the emergency rations expire, another 2 million would be cut off, the ratio of the unemployed receiving rations would be even lower, & poverty & homelessness would likely increase...

11-7-11pov2[2] after much criticism over the method used over the past 50 years to compute poverty in the US, the census bureau released new poverty figures which corrected the count to allow for such safety net payments as unemployment comp, food stamps and the like...what makes the new report especially interesting was an attempt last week by 3 NYTimes reporters to front run the report with a story about how poverty wasnt really as bleak as had been previously reported, & showing how new calculation methods would produce much lower poverty figures...but when the census bureau finally released its report (PDF), the new numbers left mud on the NYT reporters faces, as the total number of people living in poverty America is now higher than the previous simple computation had showed, because the new supplemental measure does not just take into account the positive effects of tax credits and the safety net programs, it also calculated the negative effects of childcare costs, out-of-pocket medical costs, geographic differences and the country's overall standard of living...so, according to the old method, the official poverty rate in 2010 was 15.2%, with the new statistical adjustments it's now up to 16.0%... the new supplement does show a lower percentage of children living in poverty, but that's offset by an even larger number of senior citizens who've fallen below the poverty line...the adjacent chart, from the Center on Budget and Policy Priorities, which should enlarge, uses a different definition of poverty, but gives you a picture of the impact of the safety net programs, many of which have been under attack in congress, on the overall level of poverty in the US…

in a similar vein, a Brookings report on the Pew Economic Mobility Project (EMP) put to test the theory that anyone can rise above their birth status if they just work hard enough at it; covered in a long article in the National Review, it showed that while 60% of the last generation who were born into the upper class remained there into adulthood, only 17% of those born into the bottom one fifth made it to the top two/fifths by the time they were 40...so if you want to do well in this country, you best pick the right parents...last sunday i posted a table resulting from a study by the german bertelsmann stiftung foundation comparing the OECD countries by their social justice scores; the title i used tells the story: we’re (not quite) at the bottom of the heap...

the new september CoreLogic home price index was out this week, and not being seasonally adjusted it showed a second straight month over month decline of 1.1%; this is a weighted index 3 month index used by the Fed where the most recent month counts heaviest...compared to the same month last year year, prices have fallen 4.1%, and they're expected to fall through the winter months as they normally do...according to a quarterly report released by Zillow this week, 28.6% of homeowners with mortgages now owe more on their loans than their homes are worth; according to a CNBC article on that report, half of US homeowners now have "effective" negative equity, meaning if they attempted to sell their house, the amount realized after real estate fees & the like would be less than the amount they still owe...TransUnion reported that the number of serious mortgage delinquencies is now higher than any time since 2009; 5.88% of homeowners have now missed two or more house payments...according to RealtyTrac, there was also an 7% increase in foreclosure activity in october over september's count; it's now at the highest level it's been in 7 months; however, in Nevada, where they passed a law effective October 1 that made it a felony to falsify a real estate title, foreclosures fell 88%...foreclosures also fell from triple digits per day to single digits after a similar law in new york was implemented, where attorneys are now required to verify the accuracy of documents they submit to the court...

we're still watching developments in the proposed multistate mortgage settlement which would release the banks from claims against them for all that fraud; according to the latest, the 16 banks that do mortgage servicing who've been guilty of submitting up to 10,000 false affidavits per month would pay fines of 5 billion, write down $20 billion of the approximately $700 billion of underwater mortgages, and promise to never do it again...in exchange, they would receive immunity from all servicing claims, all mortgage origination claims including discrimation, & a release of all MERS-related claims, leaving the shell corporation MERS, which has no assets, as sole defendant for MERS related lawsuits...

you may have heard on the news that there were a few large earthquakes in oklahoma over the past weekend...normally, i dont pay much attention to quakes, but this roused my curiosity because i knew that oklahoma was one of the areas where there were shale gas plays being worked by hydraulic fracturing, more commonly known as fracking...initial reports dismissed the connection, but since i knew that fracking had been previously identified as a cause of minor earthquakes in blackpool england, and swarms of small quakes in arkansas, i did some digging for more information...reports had the 5.6 quake, the largest in oklahoma history, at a depth of 3 miles, and searching the woodford shale, which is the shale formation where gas is being extracted in the area, i found "The Woodford Shale is considered to be one of the most important ...  and ranges in depth from 13000 to more than 40000 ft (estimated)." (pdf)... further checking the USGS record, i found there were 15 quakes over 3.0 magnitude about 5km deep in the same area in a 24 hour period...in fact, over a 4 day period, more than 1/4 of the worldwide earthquakes over 2.5 on the USGS record were in Oklahoma at the same depth, with large aftershocks continuing....obviously, all this activity didnt go unnoticed, & others started asking questions, & by the end of the week there were reports that both the USGS & the US Army had confirmed man made earthquakes associated with injecting water into deep rock formations; AP also reported Oklahoma had only experienced about 50 earthquakes a year before fracking, but last year there were 1,047 small quakes in the area...some of you are quite familiar with fracking, but for those who arent, fracking is the process of injecting millions of gallons of water, sand and chemicals into wells at extremely high pressure in order to break up deep rock formations that have gas or oil trapped in them...it's not a new process, but it's now become common in the US where most of our easy to get to domestic oil reservoirs are depleted...there are several environmental concerns associated with the practice; first, it takes copious amounts of water (about 5 million gallons per well, with thousands of wells per field), which becomes polluted by the hundreds of chemical additives, including some which are toxic, known carcinogens, or neurotoxins...inadequate water alone has inhibited fracking in some dry western states, and water must be trucked in from the Missouri river to work the bakken oil shale in north dakota (no link; request bakken water study from my files)...there have been dozens of reports of the pollutants reaching home water supplies, and small streams in pennsylvania, where some civil war era disposal rights are grandfathered in; even this week there was a SciAm article on one such incident in Pavillion, Wyo, where wells for 42 homes were poisoned...moreover, some home water supplies have been contaminated by the methane gas itself, such that water coming out of the tap is actually flammable...it is because of these problems that fracking has been banned in france, and moratoriums on it put in place in South Africa and New South Wales Australia...although fracking was originally exempted from US regulation in 2005, the EPA has recently agreed to reopen an investigation into its impacts on water quality...in addition, significant amounts of methane gas escape into the atmosphere during fracking operations, and as methane is 25 times as potent a heat-trapping gas as CO2, but 72 times more potent over 20 years, using gas from fracking could have twice as potent a near term affect on the climate as burning an BTU equivalent amount of coal...although it would seem that blasting large portions of the bedrock into tiny fragments might be the cause of the earthquake problems, it is not the fracking itself that is implicated in earthquakes, but rather the common practice of injecting the contaminated spent frack water into disposal wells far underground; this water is thought to seep through cracks in the bedrock and lubricate previously dormant faults where pressure had been building; then, once one fault breaks, adjacent rock formations have pressure applied  from the shifting, resulting in the quake swarm phenomena that has been observed...according to a new report by Common Cause, the petrochemical industry has pumped millions of dollars into Congress to avoid regulation of fracking, and this past week CNBC obtained audiotapes of an industry conference in houston where it was recommended to oil & gas execs that they hire former military “psy ops” specialists to plan tactics against citizen "insurgencies"...

it was also another busy week in europe, with prime ministers in both greece & italy stepping down & being replaced, and europe still unable to fund their trillion dollar bailout fund in order to make sure the bankers get paid; there’s a hundred or so links on the euromess included in this week's blogpost, most of which relate to european politics, so if you want the entire play by play you'll have to go to the last quarter of the post to find 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, November 7, 2011

notes on the week ended Nov 5th

 Percent Job Losses During Recessionsas has become the norm, the unemployment report for october released by the BLS on friday was nothing to write home about; according to the more reliable establishment survey, only 80,000 non farm jobs were added, with 24,000 government job losses subtracted from the 104,000 jobs added by the private sector (remember, these numbers are from a small sample and inexact)...the silver lining was another substantial revision in the jobs added in the 2 previous months, with september being revised up to 158,000 from 103,000, and august revised up from 57,000 to 104,000, which is pretty spectacular if you recall that august originally reported a goose egg...the jobs added in those 3 months together are just about enough to cover the increase in the working age population & no more, so about all we're doing is treading water...the household survey, from an even smaller sampling of only 60,000 households, reported an increase of 277,000 jobs, and although the labor force increased by 181,000, that was enough to lower the headline unemployment rate to 9.0%...earlier in the year, the household survey was showing lower numbers than the establishment survey, but they've reversed that over the past three months, & i'd guess the two surveys would now be pretty close if annual numbers were compared...  

Seasonal Retail Hiring

other stats from the report include the average workweek unchanged at 34.3 hours, and the average private hourly pay up 5 cents to $23.19 (remember what we know about averages; this could be one exec & 100 peons at minimum wage)...nonetheless, adjusting for inflation, weekly earnings are down about 2% over last year...sectors contributing the most jobs included business services, health care, and retail, and of course state & local government was the big negative…the employment/population ratio increased to 58.4% from 58.3%, but the labor force participation rate remained unchanged at 64.2%....there was also improvement in other areas that have been problems; the U-6 measure, which includes those forced to accept part time work when they want full time work, declined from 16.5% to 16.2%, as the involuntary parttimers decreased by 374,000 to 8.9 million, and the number of long term unemployed, ie., those who've been out of work more than half a year, declined from 6.2 million to 5.9 million, although there arent statistics differentiating those who got a job from those who quit looking and thus arent counted... the adjacent chart is our first read on seasonal hiring, with red indicating annual october hires, yellow showing november hires, & blue those hired in december…in october, retailers hired 141,500 seasonal workers, which is about par for a normal holiday season…the chart at the top, also from calculated risk, shows total jobs losses from the beginning of this recession compared to the other post war recessions…both charts should expand to full size in a new tab or window if you click on them...

Foreclosure Sales

also released this week was the monthly mortgage monitor from LPS Analytics, which is the one report which probably tells us more about the mortgage crisis & condition of the housing sector than all the rest of the housing reports put together…you’ve heard this story before; people stop paying on their mortgages for years and although foreclosure notices are sent out, the process stalls & homeowners remain in limbo…this report, for september, showed that the number of days homeowners remain in their homes while in foreclosure has again lengthened, to an average of 624 days; that timeline has increased every month this year and is now 140 days more than the same month last year; in judicial states, where the laws force banks to foreclose through the courts, the average is even longer, at 761 days, or over two years…of the 2.17 million loans in foreclosure, which is now 4.18% of all mortgages, 72% havent made a payment in a year, and 40% havent made a payment in 2 years; in the accompanying chart, which shows the number of loans in foreclosure by length of delinquency, you can see that there has never been a monthly decrease in the orange segment, ie, those not making a house payment for over 2 years…moreover, new problem loan rates increased sharply over the last two months, with 1.6 percent of loans that were current six months ago now 60 or more days in arrears, so the number entering foreclosure is likely to increase; there are now 1.84 million loans over 90 days delinquent, & 2.36 million loans less than 90 days delinquent, in addition to those in foreclosure…

so what can we make of this?  i think it’s safe to assume that in markets where houses are not moving, banks would rather have the houses they claim they own occupied than vacant (remember, they cant prove ownership anymore); a separate report from Housing Pulse showed nearly 15% of foreclosed homes damaged so seriously they needed major repairs before they were habitable, reducing their marketable price by 20-30%; we might also guess that in judicial states, where the banks have to “show the note” in court, they know they cant produce paperwork without forgery, because paperwork doesnt exist, they never recorded the mortgage assignments, & they are reluctant to proceed until they get the immunity from prosecution promised them by the deal worked out for them by the administration (specifically, Treasury & the OCC) and the majority of attorneys general who are taking part in the negotiated foreclosure fraud settlement...and there's been a recent change proposed to that deal which on the surface might give it more traction; originally, the banks were to pay a relatively small fine ($25 billion), say 5 hail marys, promise to sin no more, and all their sins would be forgiven; however, in the new version, only $3.5 to $5 billion of the fine would be paid in cash; the rest would consist of credits to banks that agree to reduce the amount of principal owed on mortgages;  however, the banks have no legal authority to write-downs loans that they service on behalf of investors, so less than 20% of underwater mortgagees might be helped by this settlement, still leaving the rest - nearly 9 million homeowners - still stuck with the terms they now have...moreover, the banks have not given up the practice of fraudulently fabricating mortgage assignments and there is no indication that this settlement even addresses that ongoing crime...

Freddie Mac & Fannie Mae also reported serious delinquency rates on the mortgages that they hold; for Fannie, serious single family delinquencies were down to 4.00% in september from 4.03% in august, and down from 4.56% a year ago; Freddie Mac reported an increase from 3.49% to 3.51%, compared to 3.80% a year ago...Freddie Mac also reported a 3rd quarter loss of $4.4 billon, and in turn asked for an additional $6 billion bailout from taxpayers, bringing their total cost since they were put into receivership to $72.2 billion...and outgoing Freddie Mac CEO Ed Haldeman will receive a $4 million bonus for a job well done...

we’re getting close to the time the congressional supercommittee must come up with a deficit-cutting plan, lest the automatic $1.2 trillion in “sequestered” budget cuts be enacted; even though they’ve been quiet about their negotiations, social security is clearly on the table, since they havent received much in the way of under the table cash from the old folks…they heard from catfood commission chairmen simpson & bowles this week, who seemed to advise raising the eligibly age for medicare…a tiny tax on financial speculation which has been requested by european leaders is getting no traction…since whatever plan they might come up with will have to be scored by the CBO before it can go to the full congress, a process which could take a couple weeks, it would seem that any delay past this coming week would be cutting it close, since this must be passed by thanksgiving…considering that half the sequestered cuts are to defense, which hasnt been mentioned in committee discussions, i think our best hope is that the committee fails to compromise…

also in congress, the portion of the obama jobs act that involved a $60 billion funding of transportation infrastructure projects was introduced in the Senate, but it failed to get the 60 votes needed to reach the floor….congressional democrats introduced a bill in the house to renew the extension of unemployment rations that was passed last december, which would give those in the worst hit states up to 99 weeks of rations instead of the standard 26 weeks, but it has not yet been taken up, because the house was busy with other critical legislation, such as re-affirming “in God We Trust” as the national motto, and debating silver & gold commemorative coins for baseball

the Fed also held an (FOMC) Open Market Committee meeting this week, which they do approximately monthly (dates for future meetings are set at the meetings), at which they re-committed to holding interest rates low, re-affirmed operation twist, and made virtually no changes to their post meeting statement; much to the dismay of the econo-bloggers who feel that major monetary intervention is needed; there were at least 2 dozen posts advising or advocating changes to monetary policy, if you’re interested, links to them are at the beginning of this week’s blog post…my reason for mentioning this Fed meeting here is in the adjacent table, which shows the changes to the Fed’s economic forecasts for this year and beyond (pdf) from those they made at the June FOMC meeting; notice that they’ve reduced the projected GDP growth rate considerably, and now expect unemployment to remain near 8% through 2013…yet, in the face of this forecast, and projections of below par inflation as far as the eye can see, they took no action

it was a wild week in europe; stories changed daily or even more often, leaving many of the analytical US blog posts dealing with the ramifications of a story reported earlier already overtaken by events by the time they were posted and hence made moot...early in the week, there were reports that both ireland & portugal wanted to renegotiate a writedown of their debts similar to the haircut enforced on greek investors, while sarkozy & the head of the euro bailout fund, Klaus Regling, went hat in hand to china and japan to ask for their participation in the expansion of the EFSF (financial stability fund) from €440bn to €1 trillion...meanwhile, the euphoria over the agreement of last wednesday waned in the face of higher italian borrowing costs, with 5 year rates climbing to euro-era highs at 5.80% and the 10-year over 6% & rising daily despite continued ECB buying of italian debt...but the wheels really came off the euro-bus when greek prime minister george papandreou, facing an increasingly disgruntled public, unexpectedly called for a referendum on the rescue package & a vote of confidence, & the markets, especially banks exposed to greek debt, went to hell...opposition politicians, as well as several in papandreou's own party condemned the move, and euro-group chairman juncker warned of of a greek bankruptcy if such a vote failed to ratify the bailout...with the greek government in chaos, and rumors of a possible coup, the defence minister quietly replaced the country’s top 4 generals (army, navy, air force, & natl defense) with party loyalists (that athens news story has since been changed to say it had been planned earlier)...with the bailout package unraveling, a first attempt to float a relatively small $3 billion 10 year bond to fund the irish bailout & expand the EFSF had to be withdrawn "due to market conditions"...subsequently, merkel & sarkozy (now dubbed merkozy) threatened to withhold funds or expel greece from the eurozone if greek citizens were allowed an opinion on their slavery, the greek cabinet split, and the finance minister, Evangelos Venizelos, went straight from his hospital bed to plead the Greek case before the G20 without consulting the prime minister and to argue for greek submission without the referendum...so papandreou caved, scrapped the plans for a vote, and called an emergency meeting with his opposition, and thus europe's elites were saved from a referendum...even though he survived the confidence vote on friday, word is that  papandreou will now step aside and venizelos is expected to form a new government...while all this was going on, similar political wrangling was going on in italy, where scandal ridden prime minister silvio berlusconi was holding a tighter rein and refusing to cooperate with the troika; merkozy responded by sending eurozone inspectors to italy to go over the country's books...facing deteriorating economic conditions across the eurozone, newly installed ECB chairman Mario Draghi cut interest rates by .25 to 1.25%, giving some hope for relief from the tight policies of his predecessor Jean-Claude Trichet, who will likely go down as one of Europe's greatest villains when all is said & done...but after a few hours of euphoria about the rate cut, bond rates in europe headed up again, some to new records after Draghi gave a speech reminiscent of trichet & indicative that ECB policies wouldnt be changing that much after all...economically, europe is going to hell in a handbasket...german manufacturing, which contracted for the first time in 2 years, led the overall eurozone manufacturing index into negative territory, with Italy's index dropping 5 points to 43.3 (50 is break even)...overall unemployment in europe went up as well, to 10.2%, with austerity measures driving spain's rate to 22.6% and greece's rate to 17.6...although the ECB is holding their forecast for european growth to slow to zero, JP Morgan is now forecasting a "longer & deeper' recession in europe, with all the peripherals save ireland experiencing severe austerity imposed contraction...it's hard to say how a collapse in europe might affect us; morgan stanley has often been mentioned as a major counterparty at risk as a writer of CDS (insurance) on european debt; MF global has already failed betting one peripheral debt, & certainly JP Morgan & Goldman Sachs are heavily involved in selling insurance on the PIIGS as well...are the banks betting europe is too big to fail, or that the Fed will bail them out if it does? it doesnt seem like the ECB is prone to massive monetary intervention, but one wonders what they’ll do if the euro-countries start falling like dominoes...the austerity imposed on the peripherals by the core countries almost assures they cant meet their deficit targets, so further defaults seem to be inevitable…& what about US multinationals that have significant sales in europe?  although there was a big push at the G20 meetings to have the IMF print more of its Special Drawing Rights in an effort to backstop the EFSF, world leaders failed to agree on additional funding, so it appears europe will be on its own for the time being...the rest of the world aint doing so hot either; in china, their Industrial PMI (Purchasing Managers’ Index) fell to its lowest in nearly 3 years at 50.4, and in britain, an influential think tank estimates that they have a 70% of returning to a recession, after cutbacks ostensibly intended to control their deficit backfired..

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