Sunday, January 29, 2012

notes on the SOTU, the FOMC, 4th qtr GDP, December’s LPS report, et al

unless you've been living under a proverbial rock, you all probably know that obama gave a major campaign speech disguised as a "state of the union address" on tuesday night...since he tried to mention something he has done or would do for almost every constituency, rather than detail his speech a point by point, i'll just point you to the full text of the SOTU at the WaPo, and note that a lot of what he proposed therein will take congressional approval, and we all know how likely that is...what is likely more interesting than his speech itself is what was not in it, and even more importantly, what he had planned to include but couldnt...for at least two weeks before the speech, it was widely assumed and reported that he'd be announcing the so called "50 state foreclosure fraud settlement" with the nation's 5 largest mortgage servicers, as the administration had been applying pressure to get it done in time - they even went so far as to offer california attorney general kamala harris a bribe of $10 billion of the proposed $25 billion settlement to sign on...but with a number of state attorneys abandoning the administration driven talks, and activists lobbying their state attorneys, a last minute change of strategy was apparently forced on the administration when iowa's tom miller, who was leading the negotiations on behalf of the states, announced that he couldnt complete the deal in time...so what obama did in lieu of announcing a settlement was to announce a new housing fraud unit within the previously ineffective "Financial Fraud Enforcement Task Force" (the obama administration has had less financial fraud prosecutions than any president back to & including reagan, and they've all been small fry) and appoint NY attorney general Eric Schneiderman, one of the original opponents of the settlement, as a co-chair, in the hopes of appeasing his progressive base...but as Schneiderman is only one of 5 co-chairs of the task force, and Holder, Breuer & Khuzami are known to be bank friendly, the appointment has been viewed with skepticism, as some feel schneiderman is selling out, and others think he's being co-opted…and perhaps the most interesting appointment to chair this new task force is that of Tony West, a previously unknown assistant attorney general, whose claim to fame seems to be that he’s california attorney general Kamala Harris’s brother in law…speculation is that West is on this committee at least in part to pressure her to take the administration's foreclosure fraud deal

Appropriate Pace of Policy Firming we also had a 2 day FOMC (Fed Open Market Committee) meeting this week, followed by a Bernanke press conference...although these are usually boring affairs unless some major monetary policy change, such as QE or Twist, comes out of them, they're widely followed in the econo-blogosphere, and examined for every nuanced change from the previous meeting...what made this months meeting unique, however, was that it was the first meeting conducted under a new Fed transparency regime, largely a policy initiated by Bernanke, by which they intend to be quite clear about what they're thinking, what they intend to do, and why...to that end they've even produced a number of childlike graphics to explain how they've arrived at their policy decisions & projections for the future of the economy...one such is included here; each dot on this graphic represents the opinion of one member of the FOMC as to what the Fed's funds rate should be set at in each of the next three years, and then for the longer term; you can see that most of them favor rates near zero (ZIRP) for at least 2 years, & even into 2014, while consensus is that they should return to a range of over 4% sometime in the future...at any rate, there were two relatively important changes that came out of this fed meeting...first was the widely reported announcement that they intended to keep the federal funds rate at "exceptionally low levels" at least through late 2014, because they expect economic conditions to remain sluggish until then....this changes their previous commitment to leave rates near zero till spring of 2013, so its obvious that their consensus longer term outlook has deteriorated...the second policy change made this week was the decision to announce a formal inflation target of 2 percent...what didn't get widely reported, however, was their decision to use PCE (personal consumption expenditures) inflation (from the BEA) rather than the BLS core consumer price inflation rate (which excluded food & fuel) as the measure by which they will set policy...this change may be as important than anything else that came out of this meeting, because with food & fuel now included in the Fed inflation target measure, monetary policy decisions may well be influenced by swings in commodity prices…

the Fed's apparent intention in keeping rates near zero is to encourage borrowing, & as they've even explained "operation twist", was to bring longer term rates down as well, providing some rate relief to the housing market...to that extent they've been successful, as we've noted new record low mortgage rates several times this past year, and as Treasury rates fell immediately after this weeks meeting, with the 5 year note hitting another new record low...but there are potential downsides to a long term commitment to near zero interest rates...if one was thinking about borrowing for a business expansion or a mortgage loan but unsure of economic conditions, the Fed's commitment to keeping rates low likely encourages potential borrowers to wait until improving conditions are more certain, which could in itself tend to prolong a slump...another problem with low rates is that those who are retired & living on fixed income will have less to live on, and that reduces demand accordingly...and we've seen that those approaching retirement are more likely to delay retirement because their savings will no longer generate enough cash flow for them to live on, and thus there are less job openings for young people with the labor force participation rate for seniors at record highs...and low rates exacerbates the problem with public pension funds...funding for most of them is predicated on a return of 7% or more, and they're already in bad shape after 2 years of losses...this week returns for 2011 on the two largest were reported at 1.1% for CALPERS & 2.3% for CALSTRS; both of those plans assume a 7.75% return...& in arguing for changes in worker contracts, mayor Bloomberg claimed that NYC's pension fund was $8 billion in the hole...there have been reports that even with normal return expectations, government worker pension funds are underfunded by $3 trillion, so we'll likely see another crisis with those on the horizon...

Annualized growth in the public and private sectors.on friday, we got our first estimate of GDP growth for the 4th quarter, which came in at a disappointing 2.8% annualized over the 3rd quarter's reading...recall these first “guestimate” GDP reports are on flimsy data & are often subject to revisions; for instance, the 3rd quarter was first reported at a 2.5% annual rate, but it was subsequently reduced to 2.0% on the second estimate, then to 1.8% for the final take, and that may even be subject to further revision years hence, as we saw the last quarter of 2008 recently revised fron an initially reported negative 3.8% to a minus 8.9%...nonetheless, a read on GDP is important because its generally accepted by economists that it takes 3% GDP growth over a year to bring down unemployment one percent...but even though this report at 2.8% is fair, especially after reports for this years previous quarters of 0.4%, 1.3%, & 1.8%, the internals are much weaker than the headline number, because much of the growth came from $56 billion inventory rebound (from fukushima), which contributed 1.9% to the total...personal consumption expenditures, which is the major component, were up 2.0% in the 4th quarter compared to 1.7% in the 3rd, weakened largely by an anemic 0.2% growth in services...as we've seen with most of the recent reports, government spending remains the major drag on GDP, as it subtracted 0.93 from the total; had it remained constant, we'd have seen a 3.7% GDP uptick…the adjacent chart from the NYT economix blog shows this; the blue line is the rate of government growth or contraction quarterly since 2007; the red shows the same for the private sector; you can see that after the private sector collapsed in 2008, government stimulus contributed positively to the rebound in 2009, but now that the stimulus has wound down & state & local budgets are being cut, government austerity is the drag in the face of an improving private sector….
    the handful of other economic reports out this week tended to confirm an improving trend; the Chicago Fed’s National Activity Index increased to +0.17 in december from –0.46 in november, and the 3 month average was –0.08, the best its been since march; the American Trucking Associations’ trucking index for december showed a tonnage increase of 6.8%, & it also posted the largest annual increase in 13 years; durable goods orders for december were up a better than expected 3%; the conference board’s leading economic index, meant to show future trends, rose 0.4% last month after a revised 0.2% gain in november…and all of the Fed regional manufacturing surveys also indicate stronger expansion in january over december’s rate…

on friday we also saw the release of the monthly LPS (Lender Processing Services) Mortgage Monitor (pdf) for december...this report has been tended to be so devastating that LPS has turned to headlining it's press release with whatever good news they can find, & this month was no different, as they led with the fact mortgages originations for 2010 & 2011 were the best quality yet, not too surprising since banks have tightened lending standards & only those who are financially secure are applying for new mortgages...the report's internals are as bad as ever; 12.26% of home loans, or 1 in 8, are delinquent or in foreclosure; of those, 2.07 million loans, 4.11% of all mortgages, are in the foreclosure process, 2.31 million loans are less than 90 days delinquent, and another 1.79 million loans are over 90 days delinquent...from the pdf itself, which is mostly headlined graphics, we see that foreclosure starts were at the lowest level of the recession in december (p14), that 50% of the homes in foreclosure in judicial states have been there more than 2 years without payment (p16; see the adjacent graph), and that foreclosure sales rates in judicial states are at 1.6%, compared to 6.8% where judicial action is unnecessary (p19), stats reflecting the problem the servicers are having proving their right to foreclose; even though non judicial states have the same delinquency rate (p17)...p 13 of the pdf provides a table of percentage of non-current loans by state, also included below should you want to check yours; as of december, loans florida were in the worst shape, with 22.7% of homeowners no longer paying on their mortgages...

 LPS states

this is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…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, January 22, 2012

taxes, SOPA, keystone XL, the great gatsby curve, et al, week ended Jan 21st

it was a bit of a weird week, because a number of the stories which garnered the most press & posting fell out of the purview of what i'd normally cover; namely the saber rattling with iran, the internet protest against the "stop online piracy act"(SOPA), and election year politics, & most specifically the tax situation of mitt romney, who admitted that only he paid around 15% taxes on proceeds from his vulture capital ventures, which precipitated a feeding frenzy in the left econ blogosphere as dozens of posts were produced showing how the wealthiest americans only paid a maximum of 15% tax on capital gains (paul krugman mustve had a half dozen posts on it all by himself), or less tax than those making $34,000; sadly, its all been said before, several times, in several contexts, ie, by warren buffett, who noted that his secretary was taxed at a higher rate, and by others in regards to the top 25 hedge fund earners who garnered $22.07 billion in 2010, and who by virtue of the special treatment of their earnings, paid taxes at a lower rate than the typical middle class household...anyhow, all of this rehashing did bring back an old graph of interest, which is included here to the right, showing effective tax rates for certain ranges of income, from those below $34,390, who average a 6.7% tax rate, to the 4 high bars of incomes between $74,700 and $345 million who all pay an average around 21% of their income in taxes, to the 400 richest households, who all take in more than $345,000,000 yet pay only 16.6%, less that the rest of the high brackets...

  even if you werent online wednesday, i imagine you heard something about the protest against SOPA & its senate sister PIPA, as most news outlets at least gave mention to the fact that wikipedia had shut down (you can read the Wikimedia press release here)... the two bills had their origins with the music & movie industries, who wanted to stop pirated downloading of their works...but the bill was so all inclusive that it would also hold liable not only those who copy copywritten material (like yours truly), but also website owners such as facebook & wikipedia where the public might post such material, & even anyone who linked to such a site, and also would effectively require every blog administrator to police his comment section for such material posted by anonymous outsiders...those in violation could have their IP addresses blocked, or would no longer be recognized by their domain name servers (ie, www.google.com would no longer get to google)...as a result of the protest over 100 websites shut down (list here), most linking users to a petition to be sent to congresscritters & the administration...by thursday key congressional sponsors of SOPA abandoned the bill, and at least 18 senators withdrew their support from PIPA...but dont be surprised if it comes back in another form, as most in congress still believe in possession of ideas & ownership of thoughts, and the independent power of the internet runs counter to the ongoing attempts to impose a police state in this country...

  you might recall the Treasury’s 3rd request to raise the debt ceiling, a provision of the 'debt control act', was withdrawn over the holidays to allow congress to lodge their protest votes; as a result of the delay, the borrowing limit was approached this week, which necessitated the same kind of accounting gimmickry we saw last august; on tuesday, the Treasury started dipping into federal pension funds in order pay government bills, while waiting the mandatory 15 days for congress to weigh in on the debt limit increase; even if they would attempt block it, obama could veto that, so this should be resolved by next week…in addition to the payroll tax cut, unemployment rations & the doc fix, which were only extended till february, congress will also likely be taking up roughly four dozen other temporary tax cuts that expired at the end of last year

most of you have probably also heard that the Obama administration turned down the permit to build the Keystone XL pipeline this wednesday, an action forced by the congressional attachment of a 60 day deadline on it to the year end bill which extended the payroll tax cut and unemployment insurance; although the decision is already being used politically, there was really no alternative to denying the permit at this time; approval of the original pipeline route was delayed in part because it would cross over the permeable nebraska sandhills, putting at risk the ogallala aquifer, the water source for parts of 8 states, a very real possibility since the Keystone XL's leak detection system would not register spills less than 700000 gallons per day (1.5-2% of its capacity)...there is no reason to hurry to complete this pipeline now; we've crapped up enough of this country (& the planet) already without rushing helter skelter headlong into a 1700 mile pipeline across the some of the most  sensitive landscape in the country... make no mistake, every drop of oil from the alberta tar sands will eventually be exploited, and this pipeline &/or others from alberta will be built...they will be built because all of us continue to put gas in our cars, continue to purchase food which is shipped half way across the county (if not halfway around the world), and those who exploit the oil will continue to be driven by our dependence; furthermore, the oil will be extracted because even those who protest the pipelines drive or fly to the protests in conveyances run on petroleum distillates...like it or not, civilization as we know it is dependant on oil, and the planet is running out...but i am not in the "drain america first" camp on energy policy; our future energy security is best served by leaving what oil we have in the ground...since oil will become scarcer & more difficult & expensive to extract, as long as this country can get relatively cheap oil shipped to us from overseas in exchange for our fiat currency we should do so, the oil we have within our borders is better than money in the bank, because it will only become more valuable as easy to exploit fields are depleted...

so, this decision to reject the pipeline route is already being used politically to accuse obama of costing the country jobs during a time of high employment...supposed numbers being bantered around by the right wing talkers are that the pipeline would employ range from 20,000, which was the number claimed by pipeline’s owner TransCanada, to more than 250,000 jobs claimed by the US Chamber of Commerce...putting aside the obvious contradiction voiced by those who say government spending on infrastructure doesnt create jobs but oil pipeline company spending on infrastructure does, an earlier study on jobs created by the construction of the keystone pipeline by the Cornell University Global Labor Institute (40 pp pdf) indicated there would only be between 500 and 1400 temporary construction jobs for americans, & only 50 full time long term jobs, because the other jobs would be taken by those canadians already employed by TransCanada, the company that will be building the pipeline...if we want to create jobs in energy infrastructure, we would be better served by starting the move to renewables such as wind and solar, as other wise nations are doing; belgium, germany & switzerland are building renewables & phasing out their nukes; both denmark & portugal already have significant wind power, and scotland is well on their way to being 100% renewable energy by 2020…even oil rich countries such as dubai & the arab emirates are building significant solar installations...

there were a handful of economic reports out this week worth mentioning…according to the NAR, sales of previously owned homes rose 5% in december over sales in november on a seasonally adjusted basis; the 3rd consecutive monthly gain; on the other hand, the census reported that housing starts declined 4.1% in december to 657,000, again a seasonally adjusted rate; although that’s nearly 25% above the rate of last december, we will still end 2011 with the least total new homes completed since the census started tracking completions in the '60s…industrial production rose 0.4% in december, which is a better number than apparent considering that utilities output fell 2.7% due to unusually warm weather; the same report from the Fed showed the capacity utilization rate for total industry rose to 78.1%, which means over 20% of our industrial capacity is still idle, which means tax cuts to spur investment will be just about useless…intermodal rail traffic was up 7.4% for the week, so the decline in the 1st week of january appears to have been noise…and the CPI inflation rate was virtually unchanged, as declining gas prices offset higher prices for other items…next month will likely reverse that trend, since gas prices have been rising for 4 weeks in a row, mostly due to iranian tensions…

ever since OWS & the 99% woke up the economists, there have been a plethora of posts & papers on the degree that inequality has become a problem in this country over the last three decades...this week was no exception; what garnered the most attention was a graph produced during a speech by Alan Krueger, the chairman of the obama's economic advisors, which for reasons beyond me he dubbed the great gatsby curve…what the chart shows for several countries on the horizontal axis is the Gini coefficient, a widely recognized measure of a society’s inequality, wherein 0 is complete income equality, ie, everyone is paid the same, and 1 would be a hypothetical country where one person earns all the income…the vertical axis shows a measure of intergenerational mobility, which is the relationship between one’s relative income and that of his or her parents; in this, zero means a country would have equality of opportunity; ie, the offspring of the poor can earn as much as the kids of the rich; a score of 1 means relative income of the offspring of each generation would be exactly equal to that of its parents, in other words, would have no opportunity to advance past that of its parent’s class…what krueger is showing is that not only are we the most unequal of the countries graphed, which we already knew, but that there is a correlation between inequality and intergenerational mobility, such that among the wealthier countries of the world, the US is the one which affords it’s children with the least opportunity to advance

this is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…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, January 15, 2012

notes on housing policy & other econ news, week ended Jan 14th

there have been a few papers & pronouncements on housing policy & the mortgage crisis over the past few weeks, so maybe its worth taking a look at what's been advised & proposed, & what among all that may actually come to fruition...the catalyst for a lot of this seemed to be a 26-page white paper (pdf) from the Fed that first made the news on the 4th, although subsequent announced actions by other agencies may have been co-incidental...the Fed appears to have finally realized that not much they have attempted to do to alleviate the mortgage crisis, whether it be plain vanilla quantitative easing, direct buying of MBS (mortgage backed securities), or the lowering of long term interest rates by their "Twist" operations has produced results, so the paper was directed to the financial services committees in both houses of congress, suggesting policy changes to be initiated by them or by the administration, which is a move fraught with peril, as the Fed is already being accused of meddling in matters fiscal...out of the dozen initiatives they suggested, the one that seems to have received the most attention has been the proposal to convert the significant inventory of REO (real estate owned) by the GSEs (Fannie & Freddie) and FHA into rental units...since we're talking something on the order of a quarter million homes that are in effect owned by government agencies, it would mean unloading a lot of properties relatively quickly...this would be done by bulk sales of such houses so that investors could obtain "geographically proximate properties to achieve efficiencies of scale" ...a similar proposal was made that would allow banks to rent properties rather than sell them that could in effect turn them into landlords...while there is a developing shortage of rental apartments (the 5.2% vacancy rate is now as low as it was in 2001), one wonders if this would be just another program create risk free opportunities for the well-connected elites & socialize any losses...maybe its entirely coincidental, but yesterday it was reported that Philip Angelides, former chair of the FCIC, has just formed a company to buy distressed mortgages, promising to use "legal and political leverage" to acquire the loans could generate a 20 percent annual return for investors...

  the release of that Fed white paper was followed by a number of speeches on housing policy by Fed officials that went further than the housing proposals sent to congress; most notable among them was NY Fed president dudley's suggestion to allow principle writedowns, for which homeowners would give up rights to any future capital gains, and Fed Board Governor Sarah Bloom Raskin's speech recommending the Fed & other regulators impose penalties on mortgage servicers for deficiencies that resulted in "unsafe & unsound practices", which apparently is Fed speak for the widespread robosigning & document fabrication in foreclosure proceedings...

  among other housing policy initiatives, Fannie Mae will now require mortgage servicers to provide at least 6 months and up to a year’s relief to homeowners who have become unemployed; the FHFA, which supervises fannie & freddie, is starting to initiate some changes to HARP to allow homeowners with GSE loans and with negative equity who are current on their mortgages to refinance at lower interest rates, which co-incidentally hit new lows this week at 3.89% for a 30 year fixed mortgage, & 3.16% for a 15 year fixed; the CFPB put out a 20 page guidebook instructing its examiners on procedures to crack down on non-bank lenders who are in violation of consumer protection laws, & the justice department got on the bandwagon by calling for more funding and support for state foreclosure mediation programs

  the so called “50 state” mortgage settlement that the administration has been pushing also hit a pretty big bump this week, as at least a dozen state attorney generals started holding separate talks on how they could jointly investigate and potentially file lawsuits against abusive mortgage lenders and fraudulent servicers; joining prosecutors from NY, Delaware, California, & Mass were attorney generals from Hawaii, New Hampshire, Missouri, Mississippi, Maryland, Kentucky and Minnesota, with rumors that Colorado & Oregon might also join this breakaway group…obviously, with attorneys representing about a third of the US mortgage market now out of the national settlement, the immunity from future liability & prosecution the banks had hoped would come out a national settlement has gone by the boards…

Click to View  there wasnt any clear direction discernable from the hodgepodge of reports that came out this week, which in each case surprised economists by reversing previous trends...we’ll start by looking at the november consumer credit report from the Fed, which showed a seasonally adjusted 9.9% rise over the october report, which was the biggest surge in consumer borrowing in 11 years; and it wasnt just people pulling out the plastic to charge black friday purchases, either, because although revolving credit was up the most in years at +8.5%, the real strength in this report was in non-revolving credit, which included longer term loans for cars, mobile homes, yachts, education, et al, which was up a seasonally adjusted 10.7%…although the financial press all thought it was great to see consumers spending, it was borrowing beyond our means was the problem that got us here…it’s still hard to guess what to make of this isolated report, because these credit numbers had been negative through 2009 & 2010, and had seen relatively modest increases in previous months this year…which leads us to the december retail sales report from the commerce dept (pdf)…total sales for the month were anemic, rising only a seasonally adjusted 0.1% (±0.5%) over november sales, but the weakness was especially pronounced in the types of sales that december is known for; there was a 0.8% decline in general merchandise, including a 0.2% decline in sales at department stores…while building material sales increased 1.6%, sales at electronic stores were off 3.9%, & even online sales fell 0.4%…so excluding a 1.5% gain in car sales, and a 1.7% increase in gasoline purchases, retail sales for the month actually fell 0.2% from november’s levels…YoY data looked a bit better; this december’s sales were up 6.5% (±0.7%) from those of december 2010...it’s important to recognize that these reported numbers are all nominal sales, & dont allow for price increases…so while most analysts are reporting sales up from the precession high, when the effects of inflation are taken into account, sales are still well off the peak…the above chart, from d.short at advisor perspectives, shows per capita retail sales adjusted for inflation; by that metric, sales are still 7% below their 2006 high (click for a larger image)…in the same post he includes a similar chart stripping gasoline sales out, & sans gas, retail sales are still 8.7% off the peak…according to demographer Harry Dent, we may be heading into a new paradigm for retail as well; Dent's website includes a PDF file illustrating the buying habits of households by the age of the head of household for about 240 different product categories; and according to his analysis, the aging of the boomers means that we’ve passed what he has identified at the peak spending years of those 45 to 50 years old...

   to look at some other economic data points from this week, the Ceridian-UCLA diesel fuel index for december showed a gain of 0.2%, the third positive month in a row for this index, but still not high enough to offset weakness in trucking this past summer; for the 1st week in january, rail traffic was down -9.3% while carloads declined -3.7%.; what we’re talking about here are significant declines of 20% in shipments of grain and 17% in steel scrap…the other major report out this week was for the trade deficit for november, which surprised to the upside at $47.8 billion, up from $43.3 billion in october; major factors in this gap were higher oil prices, which averaged $102.50 in november, and a 6.9% decline in exports to europe…

the facade of stability that european leaders had achieved after a series of december summits and the agreement to rewrite their treaty to insure austerity shattered on friday after S&P downgraded france and 8 other european countries; italy, portugal, cyprus and spain were downgraded by 2 notches, leaving portuguese & cypriot debt at a junk level, & austria, france, malta, slovakia & slovenia were cut by 1 notch each…as S&P explained “Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone."...with both france & austria cut from AAA to AA, the bonds of the European Financial Stability Facility (EFSF) which they back, are almost certainly to be cut to AA as well, making the proposed leveraging of that bailout fund well nigh impossible…and the downgrades werent the only bad news; talks between Greece & its consortium of creditor banks also broke off on friday, increasing the likelihood of a greek default; the market responded by pushing rates on one year greek debt to 408%...meanwhile, Fitch warned that if Italy didnt solved it's debt refunding the collapse of the euro would  be "cataclysmic", & btw, those overnight deposits by eurozone banks have continued to set new records almost every day during the past two weeks, indicating that despite the best efforts of the Fed & the ECB, the european banking system is still far from being out of the woods...

this is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…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, January 8, 2012

notes on Dec unemployment, LPS’s mortgage monitor, ohio’s fracking quakes, & arctic methane

 Unemployed Over 26 Weeks we'll start talking about the December unemployment report by reminding everyone what we had learned when we looked at the BLS technical notes, and most specifically, that "the confidence interval for the monthly change in total nonfarm employment from the establishment survey is on the order of plus or minus 100,000" -- just so you know when i parrot the numbers in this month's BLS employment report, or any government report for that matter, we have to realize that these apparently exact numbers are really no more than broad approximations taken from a small incomplete sampling, and that the subsequent revisions 2 months from now will be more accurate than these widely reported numbers...that said, from the broader establishment survey, BLS reports that 200,000 non farm payroll jobs were added in December, with 212,000 private sector job gains offset by the loss of 12,000 government jobs…the areas where we saw the largest job gains were transportation and warehousing (+50,000) and retail (+28,000), which brings us to our first caveat, as 42,000 of those were couriers and messengers, such as UPS drivers, which may mean we’ll lose most of those jobs next month….understand that December’s report is already seasonally adjusted, so what this is telling us is that there were 42,000 more couriers added than in previous decembers; on an unadjusted basis, there was a net gain of 718,500 retail jobs, on par with pre-recession decembers, which may hint that this month’s seasonal adjustment is skewed by lousy the decembers in 2008 & 2009; other strong sectors this month were hires in health care and “mining” which must include oil & gas…for the entire year, we’ve gained 1,640,000 jobs, which barely keeps up with the increase in the working age population; even at this month’s pace, it wouldnt be until well after romney’s second term that we’d restore full employmentFRED Graph…according to the smaller household survey, from which the widely reported unemployment percentage is calculated, the number of employed rose 176,000, the civilian labor force fell 50,000 (remember, those who give up are no longer counted) and unemployment fell by 226,000 as the number of those not in the labor force rose by 194,000, giving us an unemployment rate of 8.5% for december; U-6, which includes part-time workers who want full time jobs. fell from 15.6% to 15.2%; BLS also noted the household survey data is revised using updated seasonal adjustment factors at the end of each calendar year, which changed november’s rate from 8.6% to 8.7%, and other reports this year by 0.1% or less…the average workweek increased 0.1 hour to 34.4 hours with this report, and average hourly earnings increased 0.2% to $23.24; the 2 metrics that give us a better picture of how we’re doing, the labor force participation rate at 54.0% (adjacent chart) & the employment population ratio at 58.5%, were both unchanged this month; & the average length of unemployment is now 40.8 weeks, 2nd highest ever…the chart at the top shows the number of the unemployed who’ve been out of work for 27 weeks or more & still want a job; which is still unreal at 5,588,000 of us; noteworthy because the unemployment rations were only extended until febraury, & congress will be holding these people hostage when it returns to negotiate with the administration for a full year payroll tax cut extension…

Pipeline Ratio  LPS (lender processing services) reported this week on delinquent mortgages & those in foreclosure for November with somewhat of a strange lede: “the trend toward fewer loans becoming delinquent, which dominated 2010 and the first quarter of 2011, appears to have halted”; if we untangle that, its apparent that what they’re saying is more homeowners havent been paying on their mortgages since april than were previously…the total homeowners delinquent or in foreclosure for the month was 6,260,000, of which 2,330,000 loans were less than 90 days delinquent, 1,810,000 loans were over 90 days delinquent, and 2,210,000 homes were in the foreclosure process…given as a delinquency rate, 8.15% of mortgagees, or about 1 in 12 were not paying on their mortgages and had not yet been foreclosed on; an additional 4.16% of homeowners were in the foreclosure processforeclosure starts dropped sharply in november, down nearly 30 percent from october, which if you recall set a record as BofA nearly doubled their pace for the month...42% of those who were in foreclosure had been there for more than 24 months without action, up from 40% last month, which another new record; i couldnt find the exact average number of days that homes in foreclosure had gone without making a house payment in either the press release or the report (PDF) but extrapolating from the data given & their charts i’m guessing that also set a new record of around 645 days…as we’ve noted many times previously, mortgage servicers in those states which have have a judicial foreclosure process take considerably longer to foreclose, because for the most part they can’t prove they have that right because they either failed to record mortgage assignments &/or lost track of who owned the note during the securitization process; as of this report, foreclosure inventories in judicial states remained over 2 and a half times that of non-judicial states…their chart included here shows that; this is what they call the “pipeline ratio”, or the number of months it would take to clear the foreclosure backlog in a given state at that state’s current foreclosure rate; red are selected non judicial states; blue are judicial states; if you click on it you see that at the current rate, it would take 709 months to finish the foreclosure process in new york, and 669 months to clear new jersey…in other words, both states have a foreclosure backlog of more than 50 years..

i'm going to revisit the fracking / earthquake connection again this week, in part because this time it happened in my backyard...most of you should remember my drawing a connection between the early november swarm of record earthquakes in oklahoma & the fracking that was being done in the woodford shale in the months preceding them; however, all the evidence i presented was circumstantial, ie, the series of quakes were all at the same depth in the same area where the woodford shale gas play was being worked and the toxic wastewater was being injected into disposal wells into the bedrock...this time, geologists have a smoking gun definitively connecting the quakes to a specific injection well by seismograph readings being taken at several locations nearby...when the news broke on new years eve of a 4.0 earthquake in mcdonald ohio, just NW of youngstown and about 25 miles southwest of my location, both local & national news stories immediately made the connection between fracking and the quake, as it was the 11th in a series of minor quakes at the same location, and an investigation was already underway; John Armbruster, a Columbia University seismologist, had installed 4 seismometers at the state’s request around the site of the site of the injection well where 9 earthquakes had occurred earlier in the past year…so he was able to pinpoint with 95% accuracy (which is as good as its gets) that the 2.4 christmas eve quake and the 4.0 dec 31st quake were within 100 meters of each other, and within 0.8 kilometer of the injection well (see picture) and at the same depth where fluids had been injected…subsequently, the Ohio Dept of Natural Resources and the EPA closed the 4 injection wells in the vicinity, & ohio governor john kasich, who had been a promoter of the gas industry such that Ohio had invited pennsylvania drillers to use Ohio for waste disposal, spent most of the past week backpedalling faster than a clown on a unicycle…btw, this isnt the first time ive been on top of an injection well earthquake; in 1986 there was a 4.9 quake about 25 miles north of here that caused the evacuation of the perry nuclear power plant; which also cracked my chimney…as i was at the time marginally involved with the locals & environmentalists who opposed the 2nd plant at perry (the 345KV transmission corridor would have come close enough for the towers to cast a shadow on my house), i was told privately, off the record, by both a seismologist & by my congressman that they thought the perry nuclear quake was manmade, but it seemed so far fetched at the time that no one was willing to go public with it…

so, with the injection of toxic wastewater now clearly implicated as the cause of earthquakes, in some cases as large as Richter 5.6, the question now becomes is what does one do with the one to five million gallons of frack water per well that has been contaminated by hundreds of toxic chemical additives?  any process to treat the water would probably make it too expensive to drill using that method…the other alternative would be pretty expensive too; a thorough seismic survey to check the bedrock for potential slip strike faults below where fluid would be disposed of could help detect quake prone areas, but it would cost around $10 million per injection well…since the actual cost of producing gas is already a couple dollars more per kcf than the glutted market is paying for it, we may be at the point where the gas well investment bubble goes the way of the dot.com bubble, & all the get rich quick pipedreams of exporting gas go up in smoke...

there’s something else that was sent to me this week i want to call your attention to; below are three earth projections from an arctic view which show methane levels in the atmosphere in the northern hemisphere, from november 2002, 2010, and 2011 (their source was from a comment on a climate blog)...the colors are concentrations of methane as shown by the bar at the bottom of each map, any of which you can click on to view the measurements, with blue being the least and yellow and red showing higher amounts...quite obviously, even in these tiny versions shrunk to fit an email draft, you can see that there has been a dramatic increase in atmospheric methane in just the past year...you may recall a few weeks ago that there were a few articles included in that weeks package about russian scientists who had discovered vast plumes of methane bubbling to the surface of the arctic ocean off the coast of siberia; small columns of methane bubbles had been observed previously, but these were described as "powerful and impressive seeping structures more than 1,000 metres in diameter" and that they had observed hundreds of such plumes in a relatively small area, suggesting that there were likely thousands of them off the siberian coast...ok, so what is going on?  those who were with me last winter may recall my explanations of the unusual weather patterns in the northern hemisphere wherein lake erie was freezing before hudson bay and greenland's melt season was 50 days longer than normal; technically, we were seeing the effects of a negative arctic oscillation; the analogy i drew at the time to explain what was happening was to imagine a refrigerator door being opened, with cold air spilling down & warm air entering the top; whether this condition is becoming a new normal as it's enhanced by an ice free arctic is still a matter of speculation, but the fact is that the arctic has been bearing the brunt of climate change for years...now, both the frozen tundra and the arctic seabed contain tremendous amounts of methane, either from rotted organic matter stabilized for thousands of years in the frozen ground, or as methane-hydrates frozen at high pressure on the seabed; what appears to have happened over the past year is that the arctic ocean off the siberian coast has become warm enough to start a significant melting of the methane hydrates on the seabed, and they've begun entering the atmosphere at an increasing rate; methane is known to be a potent greenhouse gas, considered 25 times as potent a heat-trapping gas as CO2 over a 100 year time horizon, but 72 times as potent over 20 years; so we may be on the cusp of a rapid or runaway warming...i havent yet seen this connection elucidated by any scientists; obviously no one wants to seem hysterical, but the normally conservative IEA (International Energy Agency) sees us soon reaching a point where a 11°F global warming is irreversibly baked in, and James Hansen, the head of NASA's goddard institute, believes that a 5 meter sea level rise is possible this century as the greenland & antarctic ice sheets rapidly melt...  

 

 

 

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

Wednesday, January 4, 2012

"Brace Yourself! The American Empire Is Over & The Descent Is Going To Be Horrifying!"

in depth interview with Chris Hedges, Pulitzer Prize winning journalist, best selling author…

Sunday, January 1, 2012

notes on the week ended Dec 31st

Case-Shiller Price Declinesit's been a rather slow week in the blogosphere, with some websites taking the week off & others posting erratically or not much more than retrospectives, and there wasnt much in the way of breaking news from the MSM either...but we did have the release of the widely followed case-shiller home price index; for the 20 cities covered by the index, housing property prices fell 1.2% for the 3 months ending october, compared to prices of equivalent properties over 3 months ending in september; the narrower 10 city index was down 1.1%; 19 cities had declines for this report; only phoenix showed a monthly gain...these price declines are greater than would normally occur at this time of year; bill mcbride @ calculated risk seasonally adjusts the case shiller indices for his charts, & he reports the seasonally adjusted 10 city index down 0.5% in the report ending october & off 32.9% from the peak, and the 20 city seasonally adjusted index down 0.6% month over month & off 33.0% from the peak, which is a new new post-bubble low for the 20 city index….on an annual basis, home prices were 3.4% lower than they were in last year's october report, which is consistent with the year over year numbers we've seen from this report for the past several months...for city by city details, the WSJ  produces a sortable table of home prices in the 20 cities in the index, and mcbride’s 20 city year by year graph is included above…although detroit & washington are the only cities showing year over year gains, home prices in detroit, cleveland, las vegas & atlanta are now nominally lower than they were before the turn of the centuryReal House Pricesbill mcbride takes this historical comparison a step further, & looks at house prices in real terms (adjusted for inflation) and shows that in those terms, prices as per the case shiller national index is back to levels not seen since the first quarter of 1999...the adjacent chart shows his comparison for that national index(red), as well as the C/S 20 city index (yellow) & the corelogic index used by the Fed (blue)...since case shiller is the last of the home price indices to report, we can take this opportunity to compare the other readings for october; CoreLogic reported their home price index declined 1.3% in october on a month over month basis, and 3.9% YoY; FNC reported their national index based on only non-distressed home sales (ie, not incl short sales or foreclosures) and their reading showed october prices down 0.6% over the prior month’s prices....RadarLogic reports their 25 city index as being down 2.0% for the month of october, their worst monthly reading in 3 years, with a 5.4% decline year over year; and the FHFA (Federal Housing Finance Agency) only reported a seasonally adjusted index; by that metric, prices were down 0.2% for the month and 2.8% for the year...furthermore, Zillow estimated the total home equity value lost for the year will be almost $700 billion, which compares to the equity lost last year of $1.1 trillion, and a total of $9 trillion value lost since housing prices peaked in 2006...incidently, zillow will also estimate the market value of any home with their "zestimate" tool; type in the street address in the 1st search bar here, the city & state in the second bar, & you'll get room & space details as well as a satellite view of the house...caveat emptor, though, they have mine listed for quite a bit more than what its worth...

these ongoing real estate price declines are now starting to impact local community’s revenues as well; this week Maryland reported the results of property re-assessments over the past three years and found that home valued had declined by 17%, with 9 out of 10 properties losing value and suburban prince george's county showing the worst valuation decline at 37%…since reassessments are infrequent & typically lag price declines by 3 years, this will continue to impact local budgets for years to come, and as i pointed out earlier this year, this declining funding for school districts is one of the problems contributing to the crisis in US public education…there are no more foolish politicians than those who rant about deficits putting a burden on future generations who use that as an excuse to cut funding for their education… & as a country, we are going to have to come up with alternative ways of providing for that funding, because it isnt going to come from property taxes that local residents can vote on…and dont look for a “recovery in the housing market" that the pundits keep talking about….with declining median incomes, a return to a time where real home prices appreciate will not happen again in our lifetimes; as i’ve explained before (here & here) the lesson of this recession is that houses depreciate, just like cars...

in all the congressional commotion of the last few weeks in getting a fiscal 2012 budget passed & extending the three expiring programs (payroll tax cut, unemployment rations, & the doc fix) no one paid attention to the numerous other tax breaks & subsidies that will have also expired by the time you read this...of the roughly 90 "temporary" special interest tax breaks & provisions that congress has been routinely extending, 53 were expected to expire at midnight on the 31st, according to the congressional joint committee on taxation; many of them we wont miss; such as the corn ethanol subsidy, the post 9-11 tax break for developers in lower manhattan, or the special tax breaks for NASCAR race track owners, but among them is the $74,450 exemption that protects about 30 million middle-income households from the Alternative Minimum Tax; a fair guess is that this, as well as others, such as the accelerated depreciation for business capital investments, may be extended retroactively when congress gets back in session on the 17th...& also with congress out of session, the treasury announced early this week that it would be asking for the 3rd tranch of debt ceiling increase on friday, as they were within the statutory $100 billion of the current budget cap; if you recall the provisions of the "budget control act", the negotiated debt ceiling increases came in 3 tranches of $400B immediately, with $500B & the remainder of the $2.1 trillion to be voted up or down as needed later; however, if they were voted down, obama could veto the vote, & the ceiling would presumably be raised anyhow because there's no way the opponents could get the 2/3rds necessary to override a veto; however, due to the minor tempest in a teapot by those members of congress who wanted to be on record as voting against the ceiling increase, bipartisan barry caved in again & postponed the request until such time as his opponents would be back in town to bash his big-spending ways...& while im on the subject of bipartisan barry, this week obama nominated jerome powell to the Fed board; powell is a republican, a bush appointee no less, the former undersecretary of the treasury for domestic finance in the early 90s...if you recall, republicans had earlier blocked the nomination of nobel prize winning economist peter diamond to the same position...some people are saying obama did this so he could also get one of his own selections, jeremy stein, past congress at the same time...but if the man had any testicles, with congress out of town, he'd use recess appointments to fill these positions & all the judgeship vacancies with his people, just like Bush did....even the consumer financial protection bureau, the only part of dodd frank not written by financial lobbyists, is still waiting for confirmation of richard cordray to fill the top spot that should have been given to elizabeth warren...

the last time we looked at europe was after their summit which produced a new treaty imposed by merkel & sarkozy which would subject the 17 eurozone countries to strict deficit ceilings; that was shortly after the Fed & 5 other central banks had co-ordinated the 3 month dollar currency swaps so that the ECB could provide funding to the eurozone banks, which had grown so suspicious of each others solvency that interbank lending had virtually ground to a halt; last week i mentioned in passing that the ECB had further extended $641B in 3 year loans to the eurozone banks in an further attempt to alleviate those bank funding strains (and as some had speculated, possibly loan money to their governments in something of a back door bailout)...it doesnt appear to be working; every day since last thursday overnight deposits at the ECB by european banks hit new records, and although they declined slightly on friday, virtually all ($591bn) of the 3 year LTRO was being redeposited at the ECB, suggesting interbank lending in europe is still mostly frozen; furthermore, the ECB, which eschews monetization & QE, continues to report balance sheet records, which zero hedge characterizes as “rising parabolically” …and although there was some optimism when the first auction of 6 month italian debt was successful on wednesday; the thursday sale of 10 year bonds met weak demand, & cost them nearly 7%…the new year will bring €740 billion in gross debt issuance for the eurozone governments, including €82 billion in debt issuance in january alone, which means the old debt that they roll over will now have to be serviced at these ever higher rates…

some interesting stories also came out of the UK this week, & it gives us an opportunity to check on how the UK is doing after a year & a half of fiscal conservatism, which started last year with layoffs of a half million public employees; over the christmas holidays, the Cameron government snuck in a provision whereby their national hospitals could now get 49% of their income from private patients, in an attempt to “turn the NHS into a US-style commercial system, where hospitals are more interested in profits than people”'; hidden reductions in tax credits for the poorest britains are now imposing the equivalent of a £2.5bn 'stealth tax' on them, which when combined with price increases, are costing families £5 a day; meanwhile the average UK family now has only £161 of weekly disposable income, which is down 8.4% from this time last year; and last week it was reported that unemployment in the UK continues to rise, now highest level in 17 years, so it should be no surprise that they’re now seeing over 1,000 metal thefts every week, targeting rail lines, churches, war memorials, works of art, manhole covers and even cemeteries, as people try to make ends meet by steaing anything they can sell…

this is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…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