Wednesday, February 29, 2012

a brief and crucial history of the United States


let your life be a friction to stop the machine..

Sunday, February 26, 2012

notes on home sales, the fraudclosure fix glitch, gas & oil prices, et al

Existing Home Sales NSAfor the most part, it was a pretty slow week for news & economic data; but there was a bit of news related to housing this past week, and not just to the mortgage fraud whitewash we've been discussing recently...we'll start with the existing homes sales report, which seems to be the one most often reported by the media with misleading headlines & hence has generated the most confusion...once again, the problem arose from a seasonal adjustment, which we've seen are ubiquitous to most of these reports, and sure enough on a seasonally adjusted basis, the NAR (natl assoc of realtors) reported existing home sales rose at an annual rate of 4.57 million homes, which was 4.3% greater than the downwardly revised 4.38 million-unit annual pace they rose at in december, (which was originally reported as 4.61 million, btw)...intuitively you should all realize that the winter months are typically the slowest for all housing reports, and this was no exception; as you can see from the adjacent chart, which includes a bar for each month's actual home sales going back to january 2005, the red bar representing this january's sales were actually quite a bit below december's sales, as well as sales for most every month except winter of recent years…and over and above that, we know that this january’s weather was the mildest in the populated eastern US in a decade..yet this january's report resulted in media headlines such as "home resales at a 1 1/2 year high", "housing perks up" and even "home sales jump to the fastest pace in almost two years”...and a good share of these sales well may have been investors, as well, as 31% were all-cash transactions...the NAR also reported housing "inventory", which in the sense of their report means only those houses which are on the market, ie. publically listed as for sale; combining the normal seasonal reduction of homes on the market with delays in listing foreclosed properties for resale, inventory of homes on the market fell 0.4% to 2.31 million & the "months of supply" (inventory divided by the month’s sales) fell to 6.1 months, the lowest its been at since april 2006; however, we know from the census that there are still 18 million vacant homes, so all the fuss about a new record low of homes on the market is likely just a statistical coincidence, a combination of a normal seasonal slowdown, sellers waiting for better prices, and uncertainty related to the pending mortgage fraud settlement; analysts at merrill lynch believe inventory will climb back to 8 months once the mortgage fraud settlement allows the foreclosure process to accelerate...

   new home sales for january were also reported this week at 321,000 units by the census bureau, again at a seasonally adjusted annual rate, which was down from a upwardly revised rate of 324,000 in december…and even though october & november sales were also revised upwards, 2011 still turned out to be the worst year for new home sales since they started tracking new home sales in 1963; with the end of year sales trending upward, and a shortage of rental units, a minor recovery in both home construction and sales is expected in 2012…we also got our “first look” at unpaid overdue mortages from LPS (Lender Processing Services) this week; there were 2,084,000 properties in foreclosure in january, a slight increase from december, and nearly 4 million delinquent, a slight decrease from last month; while we’ll likely look at that in more detail when they produce their full report with charts & tables next week, its worth noting now that RealtyTrac reports that the largest increase in foreclosures has been observed in the McMansion catagory, with a 115% increase in walkaways from homes valued over $1 millon, and a 273% increase in foreclosures of houses valued over $2 million…meanwhile, the number of foreclosures on homes valued between $500,000 and $1 million fell by 21%…

  there also seems to be a major glitch in the foreclosure fraud settlement, at least for those who would be getting a principal reduction in their outstanding mortgage as a result…prior to 2007, any cancelled debt or loan forgiveness had to be reported as income and was taxed; in 2007, with a large number of families facing short sales or restructured mortgages, congress passed a “mortgage debt forgiveness act” which ensured that those who took a loss on their homes wouldnt have to pay taxes on their loss…however, the provisions of this act expire at the end of this year, and since the principal writedowns & mortgage modifications amount to $17 billion of the mortgage fraud settlement, the expected cost in lost taxes amounts to an extra $2.7 billion…and since conservative members of congress have already voiced their opposition to any further bailout of homeowners, an expected attempt by the administration to get this 'mortgage forgiveness act' extended will likely run into opposition from them…

there has been a lot of discussion, mostly in the blogosphere, but also in a series of articles at the Brookings Institution, about the importance of manufacturing to the US economy...it seems this all started with the protectionist sentiments voiced by obama in the state of the union speech and subsequent specifics in his budget, but it really picked up steam when chisty romer, obama's former economic advisor, pushed back against special treatment in an NY Times op-ed early this month, who said we could do well with a service centered economy, and was answered by laura tyson, the former chair of the economic advisors under clinton, the next week in an NYT economix column, wherein she said manufacturing still matters...much of the blog discussion involved the importance of innovation & the fact that manufacturing jobs are typically better paid, but not much about our balance of trade…we have been fortunate in this country as the issuer of the reserve currency, wherein we’ve been able to pay for oil & whatever else we’ve wanted from overseas with our dollars, but eventually our country will have to have something more than weapons and wheat to trade for what we want; service jobs may well support the domestic economy, but you cant sell haircuts to the saudis to pay for oil…

you probably have all noticed that gasoline prices have been slowly rising over the past several weeks, and since they suddenly spiked this week, it seems to have finally attracted the attention of  the blogs & media, as there were a plethora of posts on gas prices & US driving habits this week...a good part of the price pop, if not all of it, has been in response to tensions in the middle east stemming from our government's attempts to influence domestic energy policies in iran with sanctions & strong arm tactics...as the week started, WTI (west texas intermediate, the domestic oil grade the media most often quotes) was priced over $103, which was already higher than it had been in recent months...but overnight monday, reacting to threats from our european allies that they would stop importing iranian crude by july unless iran dismantled their nuclear program, iran turned the tables on the closest US allies, and unilaterally announced that they would stop selling oil to both the UK & france...oil prices have been up virtually every day since, with WTI closing the week near $110, and Brent was over $125, which, if you'll recall our previous discussions, is the price most US coastal refineries pay...moreover, crude prices hit a new all-tiime high in the UK on thursday, and also hit its all time high in euros on friday, which will likely exacerbate the recession already underway in europe...chart& it appears that we're also getting into the range where the cost of energy will be impacting our economy as well, so we're going to have to keep a eye on this going forward, as forecasts of $5 gas this summer are already appearing in the press…unsurprisingly, the rising gas prices have become a political issue as well, with republicans blaming them on obama’s energy policy, a major green blog calling for using the strategic petroleum reserve, and obama responding in a speech on thursday; obama had most everything right; no amount of domestic drilling will put a serious dent in oil prices in a world where china continues to put more new cars on the road than the US and chinese & indian demand is growing at rates exceeding 10% annually; and the only effect completing the keystone pipeline would have would be to bring WTI oil prices in line with prices in the rest of the world, which would likely raise prices in those central US states which are now benefiting from the glut of landlocked oil at Cushing (see interactive US states gas price map)...there was an interesting post with a number of charts at business insider showing the historical record of how many hours a week or year the average worker would have to work to fill his gas tank; i'll insert a shrunk copy of one here which shows the number of hours it takes an average worker to buy a year's worth of gas; it was less than 100 hours early in the 90s, spiked to 220 hours prior to the crisis in 2008, and is 170 hours now; problem is that an average income, which is skewed by the wealthiest, doesnt capture the impact gas prices have at the bottom of the income scale; with more employers hiring temporary workers at low wage jobs for less than 30 hours a week to avoid paying for benefits, a typical minimum wage worker at a big box store or fastfood joint might well spend an entire 6 hour day’s pay to fill a 15 gallon gas tank once a week...it was just about a year ago when food prices were also rising that i included this chart to show just how much of their total income the lowest deciles among us have to spend on just food & fuel...

   while we're on the subject, you may recall the little chart of retail gasoline sales from a few weeks ago that showed a precipitous decline in gasoline sales that didnt make any sense to me; jazzbumpa at angry bear took that up in the first of a series of three posts & by the second post in the series he included a more complete version of the same chart; Roger Chittum had pointed out to him in comments that graph only covered a subset of total gasoline deliveries; while there's still quite a decline, its not as extreme as the chart i posted had showed; if you're interested in more details & speculation as to why, check out his entire "Has America Lost its Drive?" series, linked here, including the comments...

(the above 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…)

punk economics (lesson 2)

Irish economist David McWilliams explains the ECB's massive cash for trash scheme -- bailing out banks with your money.

(lesson 1 here)

Sunday, February 19, 2012

notes on the week ended Feb 18th

most everyone seemed genuinely surprised early this past week when the house republican leadership caved in, virtually without a fight, on extending the payroll tax cut for the rest of the year without extracting offsetting spending cuts...seen as a defeat for the tea party contingent, this rare bit of co-operation began the process towards passage of a package on Friday which included a "reformed" extension of federal unemployment rations,  & the "doc fix", as well as the payroll tax cut...the payroll tax cut itself was unchanged from the "temporary cut" which has been in effect since the beginning of 2011, ie, adding back 2% to paychecks up to the payroll tax limit of $110,100 per year; thus, those making $500 per week will see $10 more per week, while those making $2000 per week will see $40 more per check...since the payroll tax is meant to fund social security, funds foregone as the result of this cut by the social security trust fund will be replaced by revenues from the general fund…the “doc fix” averts what would have been a 27.4% cut to doctors caring for the elderly under the medicare program, a health care cost control measure which had been legislated in 1997 & eliminated by legislation every year since….there was something of a compromise on the extension of unemployment rations, however, and for every unemployment level the federal addition to state insurance will be cut from anywhere between 19 and 36 weeks, and this also adds a bundle of requirements for eligibility, including a job search requirement, prerequisite for drug testing in some states, and “works” program for 10 individual states (see the 3 page scribd document from house ways & means committee for all the details -- interesting in that it closes the "strip club loophole" that had allowed legions of welfare mothers to go out carousing all night rather than feed their babies)…in those high unemployment states currently eligible for 99 weeks of rations (dark red on the top adjacent map), the rations will be cut to 73 weeks for those states with a U-3 rate over 9%, and 63 weeks for the those in the states with a U-3 rate between 8.5% & 9%; those in states with over 7% unemployment, now eligible for between 86 & 93 weeks, will also be cut to 63 weeks total; those in states state with an unemployment rate between 6 & 7% will see their total aid cut to 54 weeks, & those in states with a U-3 rate below 6% (yellow) will only see 40 weeks of rations…since this bill just passed friday, estimates are unavailable as to how many will lose their stipends under its provisions, but with 5 1/2 million currently receiving federal aid, and with the average duration of unemployment near a record 41 weeks, we can guess its likely to be over a million...the lower adjacent map represents the state insurance share in each case, which is 26 weeks for most, (not particularly relevant now, but these maps from the CBPP (Center on Budget and Policy Priorities) came together & were easier to shrink & paste that way rather than use an accessory program to crop the lower map off)... the total cost of this package is expected to be $52 billion, and will be paid for by making federal employees contribute more to their pensions, by the sale of broadcast spectrum, and by cuts made to specific Medicare hospital and specialist fees....

   the house also passed a $260 billion transportation bill which would be paid for in part by expanding oil and gas drilling off the nation’s coasts, opening the national wildlife refuge (ANWR) on the alaskan north slope, & fasttacking the keystone pipeline to create gazillions of new jobs...however, TransCanada, the pipeline's builder-operator, now indicates it cannot start the pipeline until 2015 at the earliest, as they are still planning a new route around the environmentally sensitive Nebraska Sandhills...

the administration sent their budget for fiscal 2013 (starts oct 1) to congress on monday, generally a formality since the president's budget seldom gets passed as submitted, and as you may recall, no budget has even passed on time for at least the past 2 years anyhow, as congress funded the government through a series of continuing resolutions...nonetheless, since it's the 1st salvo in the budget wars for next year, its worth looking at what the obama team has proposed in what can be considered largely a campaign document...proposing total spending at $3.8 trillion, the administration optimistically expects revenues to increase 18% to just under $3 trillion, primarily accomplished through tax increases on the rich, leaving the deficit at $901 billion, which would be the first deficit under a trillion since fiscal 2008...floating a lot of the same proposals made in the "obama jobs act" advanced late last summer, such as spending for infrastrucure & education, this budget leaves entitlement spending virtually untouched, with the only real cuts coming out of defense, which at $614 billion would be the first real cut in defnese spending in more than a decade; unsurprisingly, this dismayed the hawks in congress, who quickly called in defense secretary panetta & general dempsey to testify, even though most of the savings were already realized from ending the war in iraq...but other than taxes changes and defense cuts, most of this 256 page budget was business as usual, so there were only a handful of other sections that attracted press or blog coverage, including a proposal for an inexpensive, easy to administer automatic IRA, which would encourage all workers to save for retirement, the elimination of funding for the nation's only program that regularly tests produce for bacteria, which should put an end to those pesky food recalls, funding for a new trade enforcement arm of the commenrce dept which would presumably would get tough on countries which try to give us products for less than it costs them to produce them, and new funds to advance R&D & other initiatives geared toward rebuilding domestic manufacturing...

as bad as the foreclosure fraud settlement seemed on the initial examination last week, it looks like it's turning out to be even worse than we had expected...first of all, its worth noting that even with all the hoopla last week over a settlement and agreement in principle, the details arent even finalized and nothing has been signed, and likely wont be until next month…one of the things we’ve learned is that the states have broad latitude into how they will use the funds provided by the banks as part of the settlement; already, missouri has diverted $40 million of its take to offset budget cuts to its universities, and both wisconsin and maine are allocating large portions of their settlement for their general funds…and a good portion of the mortgage principal writedowns, which if you recall is the lion’s share of this settlement, will be funded by the taxpayers, because the banks will get triple credit for those writedowns under changes to HAMP that were made in january to incentivize writedowns, wherein instead of the 18 cents on a dollar credit they originally got from HAMP for writedowns, they now get 63 cents for every dollar of mortgage writedown they make, which has been confirmed to also apply to those writedowns under this settlement as well…moreover, the immunity from prosecution for the mortgage servicers now seems it will much broader than what was originally described in the press releases…

  we also got results from another audit of recent foreclosures, this time in san francisco, wherein the county officials examined records of 400 homes and found that 85% of the mortgage transfers were faulty, with 45% of the homes sold at auction sold by “a ‘stranger’ to the deed of trust,” hence invalidating those sales; this was pretty much in line with findings elsewhere, ie, the registrar of southern essex county massachusetts had found 75% of the assignments of mortgage were invalid, & one of two counties in new york where there was a complete failure to transfer notes during securitization, and others…as this seems pervasive across the country, a real estate correspondent writes that the trouble is once the chain of title is broken, you can no longer get clear title on any of those homes anymore; she believes the banks or corporations will eventually end up holding them for rental because they can no longer be sold with title insurance...

  there was also other housing related news this past week; the MBA (mortgage bankers assoc) reported that 11.96% of mortgage loans were either delinquent or in foreclosure in the 4th quarter, which, since they seasonally adjust delinquencies, is a finding pretty much in line with the reports from LPS that we cover in detail monthlyTransunion, the credit reporting agency, also reported mortgage holders more than 60 days delinquent for the 4th quarter at 6.01% of those they track, which was the second quarter over quarter increase in a row for their report…and RealtyTrac reported a 3% rise in foreclosures in january, with one out of every 624 homeowners receiving a new foreclosure filing for the month…tom lawler, a real estate economist using proprietary software, estimated from reports that foreclosures were down about 21.2% in 2011 and short sales were up 12% YoY in the 4th quarter…and there was guarded optimism that home construction had bottomed out, as housing starts rose 1.5% over december on a seasonally adjusted basis, which is easy to explain considering january was 6F degrees above normal for a large part of the country...

chart

few more economic reports to note: january retail sales reported by census.gov were up 0.4% over december, which month’s sales were revised down to unchanged; adjusting for seasonally holiday differences but not for prices, this january was up 5.8% over january of 2011…spending increased on electronics, home and garden supplies, sporting goods, & general merchandise & decreased on cars, even though auto makers reported higher unit sales, as did the commerce dept…the BLS reported consumer prices rose 0.2% in january on a seasonally adjusted basis, and that CPI-U was up 2.93% from last yearcore inflation, or the CPI less food and energy, was up at a 2.7% annualized rate, higher than the Fed’s target, although the Fed is now using PCE inflation instead of this measure…and somewhat ominously, Gallup’s survey of unemployment for this week, which will be the reference week for the Labor Dept release on March 9th, finds unemployment at 9%, up from 8.6% in january and up from 8.3% for january’s BLS reference week…they also find their underemployment measure corresponding to U-6 to have risen to 19%

i just want to add one last graph here, something to think about next time you hear someone ranting about our unsustainable debt….what this graph to the right shows is the annual interest payments on the Federal government debt as a percentage of GDP…this is the metric that really matters, ie, its how much it’s costing us as a percentage of the economy to service that debt, and as you can see, the cost of our debt in those terms is still less than half of what it was during the Reagan-Bush years…

(the above 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, February 15, 2012

there’s no tomorrow

an animated documentary about resource depletion and the impossibility of infinite growth on a finite planet…

Monday, February 13, 2012

notes on the fraudclosure bailout, the dysfunctional congress, consumer credit, et al (updated)

you have likely all heard the depressing news this past week that all the state attorney generals caved in & "agreed in principle" to the administration's $25 billion mortgage fraud settlement with the 5 major banks who are mortgage loan servicers (oklahoma's AG reached a separate settlement worth $18.6 million); since virtually nothing had changed in the terms of this that we knew about a few weeks ago, it's apparent that all the rhetoric about bringing the perpetrators to justice of recent weeks was either orchestrated for public consumption or positioning as a way of negotiating for those state attorneys a bigger piece of the national pie...the lion's share of this deal is a three year $17 billion "commitment" to "homeowner relief" by the 5 servicers, which is expected to be through principal reduction, and since those loans are effectively owned by the holders of the mortgage backed securities those loans are pledged to, it will be the investors in those MBS that take the hit, not the banks; furthermore, since the total underwater equity in the US is estimated at $700 billion, this $17B is less than 3% of the total, and will like only be distributed to one million of the approximately 11 million borrowers who are underwater; loans outstanding that are owned or controlled by fannie & freddie, the majority of the total, will not be participating in this settlement...the servicers also "commit" an additional $3 billion to refinance underwater homes at 5.25%, a lower mortgage rate than they are now paying...both the principal reduction and the refinancing aspects of this settlement tend to help the banks, because they encourage underwater homeowners to stay current & keep making house payments; as we've seen, over 6 million, or one in eight indebted homeowners, have already stopped paying on their mortgages...there will also be $5 billion in direct payments ($4.25 billion to the states and $750 million to the federal government)...of those funds to the states, about $3 billion will be distributed to whatever portion of the approximately four million homeowners who have already been fraudulently foreclosed on between 2008 and 2011 who apply and are determined to be eligible; this is expected to amount to a payment of between a $1500 and $2000 each for those who've already had their homes taken illegally...the remainder will go to the state attorney generals offices, to defray their expenses in managing this program…to put it in perspective, the total price tag on this settlement of $25 billion is only one tenth the cost of the state's 1998 medicaid settlement with the tobacco companies, & thats not even adjusting for inflation...bank stocks responded favorably, with BofA up 6% on the announcement...    

banks have already set aside reserves to cover their out of pocket expenses, and most of the principal write-downs have already been taken by the banks, who knew going in that these underwater mortgages are worth far less than their nominal value; they now gain immunity from prosecution for servicer related abuses, including document fabrication and foreclosure of homes they had no right to take, no one goes to jail for forgery and they have promised to never do it again...on the other hand, the attorney generals retain the right to pursue civil claims outside of the agreement including securitization fraud and criminal cases; nor does the agreement prevent homeowners or investors from pursuing individual civil cases against the five servicers...it appears that Schneiderman’s & Biden's lawsuits against MERS will survive, but the nevada & arizona lawsuits against BofA for Countrywide violations of previous consent decrees will be "folded into" the new consent decree...so essentially, the banks are absolved of all crimes against the people; on the other hand, if they defrauded another bank, or investors, they might still be held liable; their rights were the only ones that the administration and the AGs wanted to preserve...our government exists to protect the banks, everything & everyone else is secondary...

you should all recall that congress left last year with a lot of unfinished business regarding routinely renewed  tax breaks and only passed a two month extension for unemployment rations, the payroll tax cut, & the "doc fix"...to facilitate coming to an agreement that would last for the rest of the year, a conference committee composed of members of both houses has met several times so far this year in an attempt to hammer out their differences, and they haven't met with much success; although there's been bipartisan agreement to extend the payroll tax cut, they're still encumbered by the ridiculous provision of the debt control act that they must "pay for it", and how to do that is the source of the conflict; republicans proposed a package of spending cuts including layoffs & a pay freeze for federal workers, while democrats want a surtax on those earning over a million; for the "doc fix:, which you'll recall would correct the legislated mandate that would cut medicaid doctors reimbursements by 27.4%, the republican rejected a democratic plan to pay for it with savings from war funding; the greatest contention, however has been as to how long to extend rations for the unemployed; while the democrats lean toward cutting 6 weeks from 99 to leave 93 weeks of payments, the republicans would cut as much as 40 weeks, leaving the unemployed with only 59 weeks of assistance, since they're of the belief that only congresscritters should get a check for doing nothing for two years...but even if they extended the unemployment plan now in place, changes they made to the complex eligibility formula when they passed the two month extension will still result in the 32 states that still have the maximum number of weeks  gradually having their federal stipends shortened, something that has already happened to the unemployed in michigan, because its jobless rate fell from 11.1 percent at the end of 2010 to 9.3% in december, enough to trigger the state off the extended program...of course, with interest rates for government borrowing effectively negative, they could borrow now at today's rates to pay for these programs, and then pay back less than they borrowed at such time in the future as the economy improves and revenues increased; but understanding that demands that their economic advisers know a little accounting, and as steve roth at angry bear has pointed out, that's not part of their training...

it's been a rather light week for economic reports; probably the most important of those released was for our trade deficit for december (pdf), which came in at a larger than expected deficit of $48.8 billion, up from $47.1 in november...imports of $227.6 billion were far from covering the exports of $178.8 billion, most of which could be accounted for by oil imports averaging over $104 a barrel and a $23 billion trade deficit with china...the report we're going to take a closer look at this week is the december report on consumer credit from the Fed, because the unusual spike of 9.9% we noticed in the november report seems to have started a trend, as december's consumer credit increased at an annual rate of 9.3% over that...remember, these amounts are already seasonally adjusted, so we're not just seeing a normal holiday related jump, we're looking at increases that are at a 9.9% & 9.3% jump above what would have been expected for those months...now, this was widely reported as a surge in holiday credit card borrowing, but if you check the Fed report, you'll see that the 9.3% increase resulted from only a 4.1% increase in revolving credit (ie, credit cards) up $2.76 billion, to $800.98 billion, while non revolving credit (cars, yachts, student loans) increased 11.8%, up $16.55 billion, to $1.697 trillion...this is shown clearly in the adjacent chart from zero hedge, which shows revolving credit monthly increases or decreases in blue, and non-revolving credit in red, over the past 5 years...scroll down to the third table in the Fed release, where unadjusted amounts of consumer credit outstanding are reported,  and you'll see debt increases by holder; and what stick outs like a sore thumb is consumer debt held by the federal government, which is almost increasing exponentially: $98.4B in 2007  $111.0B in 2008, $186.0B in 2009, $316.4B in 2010, & $425.1B at the end of 2011...since this report doesnt include home loans, it's pretty clear we're seeing a spike in borrowing for education...and since approximately the same number of young people are entering college each year, this more than likely is indicative of underemployed adults borrowing to enhance their education, which is exactly what a “credit karma” analysis of student debt found; for those between age 35 and 49 saw their student debt burden increase by 47%..and just this week, the NACBA (National Association of Consumer Bankruptcy Attorneys) warned of a student loan "debt bomb", now nearly a trillion dollars, which cant be discharged thorough bankruptcy, & which they believe could be the next bubble to burst…& btw, that's something else congress has to address, as the interest rate on federal student loans is scheduled to double from 3.4% to 6.8% unless Congress acts before summer...

just one more thing i want to look at, that's been kicking around this week in some of the more obscure corners of the blogosphere...after a reader at Mish's blog noted a significant decline in gasoline consumption, charles hughes smith dug up this adjacent chart of gasoline retail (ie gas station) deliveries per monthly rate from the US EIA; its easy to see how much our gasoline usage has declined during the recession, and as he discusses, there are some obvious reasons; unemployment, more efficient cars, behavior changes, etc...what is of concern is the collapse over the past 2 months; its now down to nearly 30 million gallons a day, which is about half of what was being used early last decade...scanning the 90s, we can see that january is typically an outlier to the downside, but there doesnt appear to be any 2 month precipitous drop anywhere near as severe as we've just seen in the historical record...since there's nothing else in any of the other reports that i've seen that could explain this, i really dont know what to make of it...but it's something we'll have to keep an eye on...

SNL Image

UPDATE ----------------------foreclosure fraud update: each state gets a different amount of the mortgage fraud settlement...for instance, ohio gets $335 million, kansas gets $50 million, etc...yves smith has posted a Settlement Breakdown by State Plus Other Official Propaganda; i found the embedded scribd documents difficult to load and navigate; SNL Financial also has a detailed breakdown in a long article; link to that by clicking the copy of their table embedded here to the right:

 

 

 

 

 

 

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

Monday, February 6, 2012

punk economics (lesson 1)

David McWilliams, Irish economist, gives us our first lesson in punk economics, and a succinct primer on the euro mess…

Sunday, February 5, 2012

recent housing prices & policy, the january unemployment report, et al

Nominal House Pricesits been a busy week, in a lot of ways...lets start with the reports on the two major home price indexes, since both of them hit new record post bubble lows this week...the first one we got was the case-shiller index for november (pdf), which covers home prices in the metro areas of 20 major cities monthly...(the 10 city index has been in existence since the 80s & is useful for longer term comparisons); as this is a 3 month index, it covers prices in september & october as well as november, without weighting; moreover, the prices are for completed sales, which may mean the price was contracted for over 2 months earlier...that said, this months report showed actual price declines of 1.3% from prices registered in the october report for both the 10 & 20 city indexes, and declines of 3.6% & 3.7% respectively in prices since november of 2010...of the 20 cities (see table), only home prices in phoenix showed an increase of 0.6% this month, after being down 56.4% from the peak, and prices in chicago were down the most, off 3.2% for the month...the index values are arrived at by comparing repeat sales of the same house over time, so new houses & those which havent exchanged hands since the reference city was first covered arent included... both indexes are off 33.5% from the high prices recorded early in 2006 & down 0.7% on a seasonally adjusted basis from last months report, and both indexes are also at new post bubble lows on that same seasonally adjusted basis, although they're both still slightly above the unadjusted low prices... typically, home prices will continue to decline until spring, so the unadjusted records will fall before then as well...this month the NY Times featured an interactive graphic for each of the 20 metro areas covered by the case shiller index that goes back to january 2000; 6 of the cities really never had a "bubble", it appears likley cleveland & detroit prices never went up, & apparently dallas & denver prices were higher to begin the century & didnt rise much...the CoreLogic price index for december was also released this week; not only is corelogic's index more recent than case-shiller, it also covers more cities (6,645 ZIP codes accounting for 58% of the US population) and it's weighted to give most recent prices more influence in the index; thus it's the index the Fed has chosen to follow...this release reflects the last month of year as it reports that homes prices fell by 4.7% nationally in 2011; but it also reports that without distressed sales prices only fell 0.9% for they year; the report also shows that home prices including distressed sales decreased 1.4% in december from november, but there was a 0.2% uptick in prices for non-distressed sales month over month...with mortgage interest rates across the board continuing to hit new lows, its likely this uptick is because with lower monthly payments, homebuyers are able to afford a larger principal; expect this trend to reverse & house prices to resume their decline if interest rates should rise...the graph that ive included above shows the trends for both the case-shiller 20 (yellow) and the corelogic (blue) prices, as well as the case shiller national index as it was last reported (yellow), for the 3rd quarter 2011...of course, the prices measured by both of these indexes are in nominal dollars and not adjusted for inflation; each month, after both reports are out, bill mcbride at calculated risk computes real prices for both indexes & the case shiller national adjusted for CPI inflation less shelter; by his figures, the CoreLogic index is back to february 2000 prices, the case-shiller 20 is back to april 2000 prices, and the case shiller national prices the same as they were 13 years ago, in the 1st quarter of 1999...

   in addition to the home price reports, we also had a few housing policy moves and also seem to be moving towards a national settlement between the banks & the states for foreclosure fraud abuses....on wednesday, obama went public with a home loan refinancing plan which has been rumored & talked about for several weeks & pitched in the SOTU; for borrowers with private bank loans on a single family home with a loan-to-value ratio of 140 or less & who havent missed a house payment in 6 months, this plan would enable them to refinance into a federally insured loan at current interest rates; the only trouble is that because it could cost up to $10 billion which the administration intends to raise by a bank tax, it will require congressional approval, which seems unlikely…this plan comes on the heels of another administration plan introduced last week on the treasury blog which would expand the failed HAMP program by tripling incentives to investors in home loans for principal reductions, paying from 18 to 63 cents on the dollar, depending on the degree of change in the loan-to-value ratio; that plan was rejected by the FHFA, the regulator & conservator for Fannie & Freddie, because it would cost the GSEs $100 billion, a cost which would be borne by taxpayers…and while we’re talking about the GSEs, earlier this week we had a major flap around the blogosphere, which was initiated by an article at ProPublica, which alleged that Freddie was betting against homeowners because they retained the risky tranches of their mortgage bond offerings & hence were incentivized to disapprove of refinancing…this went back & forth as the propublica authors defended their allegations, although what Freddie was doing seems to be no more than a logical complex hedging strategy that any agency charged with making a profit for the taxpayers would engage in...nonetheless, with the FHFA blocking the administration’s HAMP expansion, the Treasury announced an investigation into Freddie’s practices, likely with the intention of applying a bit of pressure…the FHFA, for their part, announced a plan to sell their foreclosure inventory to investors, not unlike the recommendations we described in the Fed’s white paper from early last month…

   in the manner of the foreclosure fraud settlement, a new post-SOTU working group pressed ahead with a minimal agreement, which would absolve the banks from civil liabilities resulting from fraudulent mortgage origination & servicing practices in exchange for the $25 billion (or less, depending on what states signed on) which would be used in part to defray expenses of those homeowners who had been wronged, although no one wrongly foreclosed on would be made whole; the banks would still be subject to criminal investigations, and individual homeowners would not lose their right to reject the settlement & pursue claims against the bank...as of the latest, only california's kamela harris & delaware's beau biden have opted out, although the term sheet was obscure enough for nevada's attorney general, Catherine Cortez Masto, to submit a list of 38 specific questions...the deadline for the states to sign on & for this to have been wrapped up was friday, but it has again been delayed three more days to give the state attorney generals more time to come up with excuses for buying into it at the last minute...

you've all probably heard or read something about the january unemployment report that came out friday....on the face of it, the reported numbers were good; the establishment survey showed that nonfarm payroll employment rose by 243,000 in January, and the unemployment rate from the household survey decreased from 8.5% to 8.3%...but there were so many adjustments and revisions applied to both numbers its hard to see how anyone can read much into this report...first, we had the normal seasonal adjustment, which is initially skewed because it includes the lousier than normal months from the end of 2008 & early 2009, which causes an upward bias in subsequent adjustments for those months; additionally, we have the always awkward seasonal adjustment from december, when real employment is at its highest because of the holidays, to january, when seasonal workers are cut...for this report, the actual number for january non-farm payrolls was a loss of 2,689,000 jobs; knowing that the BLS confidence interval is on the order of plus or minus 100,000; seasonally adjusting that job loss to show 243,000 jobs gained leaves plenty of room for an error in the methodolgy...being the first report for the year, this report was also affected by the annual benchmark revisions; as we noted in october when the preliminary data was released, the revisions are taken from the full collection of the state unemployment insurance data, and therefore they determine the final unemployment levels for the year just past...although not specifically revising january, all the reports going back to last march were revised, with march showing 165,000 additional jobs & the preliminary revision for december showing 266,000 more; this was the first positve benchmark revision since 2006; reversals in previous years were as high as 900K...last but not least, all the numbers reported by the household survey were adjusted this month for december by population estimates developed for the BLS by the census bureau based on the 2010 census; as a result, the civilian noninstitutional population increased by 1,510,000, the civilian labor force increased by 258,000, persons not in the labor force was up 1,252,000, those employed increased by 216,000, and unemployment was up 42,000...so even though "those not in the labor force" decreased in january, the apparent reported increase was 1,177,000, and thus the labor force participation rate for january fell 0.3% to 63.7%, taking out a low set back before reagan busted the unions & forced mothers out of their homes & into corporate slave labor (see above graph)...Gallup's U.S. Underemployment Rate, Monthly Averages...at any rate, with all those adjustments and revisions as a caveat, we can look at the BLS data that was reported by the media & most of the economic blogs as if they were exact numbers; the 243,000 non farm jobs added was arrived at by subtracting the 14,000 government jobs lost from the 257,000 private jobs added; strong sectors included business services, with 70,000 jobs added, manufacturing with 50,000 more, & construction with 21,000 new jobs, reflecting a warmer than normal january, which also contributed to (an adjusted) 0.6% gain in hours worked to 33.7 hours; average hourly earnings also rose 4 cents to $23.24; however, real hourly compensation, taking into account changed in consumer prices, fell 1.2% in 2011...the household survey showed a gain of 843,000 jobs but over 200,000 of that was due to the population adjustments so the net reported was an increase of 631,000 jobs; there was also a record increase of 699,000 part time jobs noted in that survey, but since U-6, the measure of those involuntarily working part time, declined to 15.1%, its hard to say whether thats an artifact of the adjustments or indicative of an employer trend to hire more part time workers to avoid giving full time employee benefits...we might look at the gallup survey, which is a weekly polling similar to the BLS survey but not seasonally adjusted, for a better indication of trends in unemployment; gallup reported the unemployment rate increased in january to 8.6% from 8.5% in december, but still down from the 9.9% they reported last year; they also noted that their unemployment rate for the reference week of the BLS household survey (the 15th) was also 8.3%, which almost seems to indicate that the BLS survey was conducted in an abnormally good week; gallup also reports a measure of underemployment similar to BLS's U-6; for that gallup measure, they show an increase of those underemployed to 18.7% from their 18.3% in december, confirming the BLS surge in reported part time jobs...the gallup chart showing that is included to the right...

to note the other major economic reports of the past week; the ISM (Institute for Supply Management) purchasing managers manufacturing index increased to 54.1 in janaury, up from 53.1 in december; anything over 50 indicates increasing expansion; similarly, the january ISM Non-manufacturing index was at 56.8%, up sharply from 53.0% in december; that employment index increased 7.6 to 57.4%, indicating more hiring planssales of cars and light trucks rose 11 percent to 913,287 in january, a seasonally adjusted annual rate of 14.18 million, which would be the best for car sales since 2007; on the other hand, the confidence board’s index of consumer confidence fell to 61.1 this month from a revised 64.8 in december, with the present situation index reading dropping to  38.4…and the BEA reported that personal income had increased 0.5% in december, but personal consumption expenditures increased less than 0.1%, (negative 0.1% adjusted for inflation), resulting in an increase of 4% in personal savings

i also want to make mention of the annual report & 10 year economic outlook (pdf) from the non-partisan CBO (Congregational Budget Office) because it's a real game-changer; as dismal as the Fed forecasts were, the CBO projects even slower growth and higher unemployment, and made major changes to their forecasts regarding deficits & the solvency of government managed benefit programs; (see a summary on the CBO director's blog)...although they expect growth of 2% this year, they expect real GDP to slow to 1.3% in 2013 because of tax increases, already legislated spending cuts, and other factors; furthermore, they expect this year's unemployment rate to rise to 8.9% by year end, and average 9.2% for 2013, and remain above 7% through 2015; the 2012 deficit is expected to run $1.1 trillion and decline thereafter, to $585 billion in 2013 and $345 billion in 2014, as revenues increase due to expiration of temporary tax cuts; they also project spending under TARP to increase by $61 billion this year...the social security disability trust fund will be exhausted in 2016, & the medicare hospital insurance trust fund will be exhausted in 2022; furthermore, they project a trillion dollar deterioration in the social security trust fund, starting in 2019, & declining to $2.7 trillion by 2022, calling into question the social security actuary's projection of solvency till 2037...at 165 pages full of data, bloggers & reporters have barely scratched the surface, so we havent heard the last of it, stay tuned...

unemployed youth europe

the situation in europe remains difficult; 25 of the 27 EU nations signed the treaty this week that will impose fiscal discipline on all of them; britain & the czech republic refused to take part in this enforced austerity...results of negotiations between greece & its creditors are reported differently every day, with dozens of articles on that situation alone over the past few weeks; latest seems to be a 70% haircut for creditors, with new greek bonds issued at 3.7%; there's also a lot of talk of portugal following greece into default & a doubling of the crisis fund...and unemployment for the 17 countries that use the euro rose to 10.4 per cent at year end, up from 10.2% & at the highest level since the euro was introduced...but what is most notable about eurozone unemployment is the joblessness among the youth, which is summarized in this graph from zero hedge...in spain, 51.4% of those aged 16-24 are jobless; in greece, unemployed youth are 43% of the total….it’s going to be an interesting spring…


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