Wednesday, June 1, 2011

Today's links

1--The data continues to slow, The Big Picture

Excerpt: According to the S&P/CaseShiller home price index, home prices have officially double dipped, falling to the lowest level in 8 years. Prices fell .23% m/o/m and 3.6% y/o/y in the 20 city composite. Washington, DC is the only city to see a y/o/y gain for reasons obvious. The y/o/y declines were led by Minneapolis, Phoenix, Chicago, Portland and Seattle in that order. Aside from the hit to household net worth by declining home prices, the US banking system is still very vulnerable as bank balance sheets don’t expect and thus aren’t priced for another downturn in home prices.

Following a string of softer regional manufacturing numbers in May, Chicago PMI also moderated more than expected. At 56.6, its the lowest since Nov ’09, below estimates of 62 and down 11 points from April. New Orders fell almost 13 pts to the lowest since Sept ’09 at 53.5 and Backlogs were down almost 10 pts to the weakest since Nov at 51.7. Production fell 14 pts to 56 and Employment was down by almost 3 pts to 60.8. Also of note, inventories rose by 8 pts to the most since Sept ’06. The ISM on Wednesday will reconcile all the regional surveys but the message is clear, manufacturing moderated in May with the question being whether its a change in trend or just a midcycle lull. Considering the concerted effort taken on by most Asian nations to slow growth to slow inflation, Europe ex Germany/France growing modestly and a US recovery that is still lackluster, one has to be worried more about the former. Certainly the US treasury market has voted with yields falling sharply over the past month.

Add the Dallas Fed mfr’g survey to the list of moderating data. Similar to the Richmond survey, Dallas Business Activity in May went negative with a -7.4 reading, well below expectations of +8.5 and from +10.5 in April...

Consumer Confidence in May fell 5.2 pts from April to 60.8 and was well below expectations of 66.6. It’s the lowest since Nov as the future Expectations component fell to the weakest since Oct, down 8 pts from April. .... Bottom line, its a heavy week for economic data just as its beginning to soften, thus making the US news more relevant this week to markets than whether Greece is getting saved again or not.

2--Like a Virus, Falling Home Prices Spread the Pain, Kathleen Madigan, Wall Street Journal

Excerpt: The troubles in housing feel like the summer cold you just can’t shake.

The latest sniffles came from Tuesday’s S&P/Case-Shiller report. It showed national home prices dropped 5.1% in the year ended in the first quarter. Prices have lost all the gains made in 2009 and 2010 when home buyers received federal tax credits. The index is back down to readings of 2002.

Calling this month’s report a “confirmation of a double-dip in home prices,” David M. Blitzer, chairman of the S&P Index Committee said that “prices continue on their downward spiral with no relief in sight.”

The second down leg of home prices will keep housing from making any meaningful contribution to real gross domestic product growth this year.

The drag on the outlook doesn’t end there, however. Dropping home values will be a big problem for small businesses, local-government finances and consumer confidence, which is already tumbling thanks to high gasoline prices and worries about paychecks.

3--Drop in Jobless Rate Partly Tied to End of Benefits, Wall Street Journal

Excerpt: Some of the drop in the joblessness seen since the unemployment peak nearly two years ago is tied to the exhaustion of extended jobless benefits.

New research from the Federal Reserve Bank of Chicago, released Tuesday, argued the end of these benefits “contributed modestly” to the drop in unemployment seen between October 2009, when it peaked at 10.1%, and January 2011. They note the former date lines up with when many jobless started losing their extended benefits.

4--Share of Population on Food Stamps Grows in Most States, Wall Street Journal

Excerpt: The share of residents turning to food stamps has risen in nearly every state nationwide in the past year even as unemployment has moderated.

After a temporary plateau in February, the number of Americans receiving food stamps ticked up again in March. Nearly 44.6 million received food stamps in March, up more than 11% from the same time a year ago, the Department of Agriculture said Tuesday.

The share of the population receiving food stamps nationwide has also risen as households struggle with high unemployment and stagnant wages. Some 14.4% of Americans relied on food stamps in March, up 1.4 percentage points from a year earlier.

All but three states reported a larger share of the population relying on food stamps compared to March 2010. And those states that saw the largest increases in recipiency were scattered across the country....

The number of people on food stamps rose in every state.

5--Like a Virus, Falling Home Prices Spread the Pain, Kathleen Madigan, Wall Street Journal

Excerpt: The troubles in housing feel like the summer cold you just can’t shake.

The latest sniffles came from Tuesday’s S&P/Case-Shiller report. It showed national home prices dropped 5.1% in the year ended in the first quarter. Prices have lost all the gains made in 2009 and 2010 when home buyers received federal tax credits. The index is back down to readings of 2002.

Calling this month’s report a “confirmation of a double-dip in home prices,” David M. Blitzer, chairman of the S&P Index Committee said that “prices continue on their downward spiral with no relief in sight.”

The second down leg of home prices will keep housing from making any meaningful contribution to real gross domestic product growth this year.

The drag on the outlook doesn’t end there, however. Dropping home values will be a big problem for small businesses, local-government finances and consumer confidence, which is already tumbling thanks to high gasoline prices and worries about paychecks.

6--Drop in Consumer Confidence Complicates Obama’s Re-Election Chances, Luca Di Leo, Wall Street Journal

Excerpt: The drop in U.S. consumer sentiment from already low levels may be a bad omen for President Barack Obama‘s re-election chances.

The consumer confidence index shrank in May to 60.8 from 66.0 in April as Americans grew more pessimistic about job prospects and future incomes, a report showed Tuesday.

Compiled by The Conference Board, a private research group, the index is normally used to gauge where the economy is heading. But Steve Blitz, economist at ITG Investment Research, notes the report has been a better predictor of the politics to come.

“There is plenty of time for the national mood to change, but the decline in income expectations is particularly telling,” he wrote in a research note.

Recent polls have shown Obama enjoys strong likability ratings, boosted in part by foreign-policy successes like the killing of Osama bin Laden, while Republicans have yet to announce their candidate for the November 2012 presidential elections. But the consumer morale report may be a warning sign that the weak economy could still hurt the president’s chances.

7--Renters and the Mini-Boom in Miami, Calculated Risk

Excerpt: From Arian Campo-Flores at the WSJ: Miami Renters Fuel a Boomlet

When the real estate market collapsed five years ago, this city's downtown soon became an emblem of the worst excesses of the building boom. Glittering new towers sat mostly vacant.

Those towers are filling up much sooner than some analysts predicted. The new arrivals, mostly renters, are spurring the establishment of restaurants, bars and shops.
...
Condo sales here began surging after property owners slashed prices about two years ago, sometimes by 50% or more. ... Fewer than 4,000 out of the 22,000 new units built since 2003 remain unsold, according to Condo Vultures.

This is an example of excess inventory being absorbed. Many of these condos were bought by international buyers and / or investors, and many are now occupied by renters. These are not "accidental landlords" (homeowners who rented their homes because they couldn't sell) - these are cash flow investors. Yes, some investors will sell if prices start to increase, keeping prices from rising quickly, but they can also be patient since many paid cash - so I wouldn't count this as shadow inventory.

Note: The Case-Shiller index indicated prices in Miami are off 50.4% from the peak - and many of these condos sold for more than half off.

8--From S&P:National Home Prices Hit New Low in 2011 Q1, Calculated Risk

Data through March 2011 ... show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.
...
As of March 2011, 19 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down compared to March 2010. Twelve of the 20 MSAs and the 20-City Composite also posted new index lows in March. With an index value of 138.16, the 20-City Composite fell below its earlier reported April 2009 low of 139.26. Minneapolis posted a double-digit 10.0% annual decline, the first market to be back in this territory since March 2010 when Las Vegas was down 12.0% on an annual basis. In the midst of all these falling prices and record lows, Washington DC was the only city where home prices increased on both a monthly (+1.1%) and annual (+4.3%) basis....

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation. The National Index, the 20-City Composite and 12 MSAs all hit new lows with data reported through March 2011. ... Home prices continue on their downward spiral with no relief in sight.” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Since December 2010, we have found an increasing number of markets posting new lows. In March 2011, 12 cities - Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland (OR) and Tampa - fell to their lowest levels as measured by the current housing cycle. Washington D.C. was the only MSA displaying positive trends with an annual growth rate of +4.3% and a 1.1% increase from its February level.

9--Banks demand savage austerity measures in Greece, Patrick O’Connor, WSWS

Officials with the European Central Bank (ECB), International Monetary Fund (IMF), and the European Commission (EC) have been deployed to Athens this week to finalise plans with the Greek government for another round of savage austerity measures.

The initial round of mass public sector layoffs, wage cuts, and destruction of welfare and social infrastructure programs impoverished wide layers of the Greek population, but failed to satisfy the European banks. They are now demanding control over the country’s economy, with representatives of the ECB, IMF, and EC (the so-called troika) to be placed directly in charge of a privatisation program that will see Greece’s public assets sold off and the proceeds funnelled to the banks.

The immediate concern for the European Union and the social democratic Greek government of Prime Minister George Papandreou is to finalise the terms for the additional financing—reportedly €12 billion ($17 billion) by the end of next month—required to service its debt repayments and avoid default. Further funding of about €30 billion will be required next year, and even more in 2013. Greece missed budget targets set last year when the IMF and Eurozone governments provided a €110 billion loan package. The country had been expected to return to private bond markets by 2012, but this is no longer regarded as realistic.

At the centrepiece of the new bailout package is a privatisation drive that is forecast to raise €50 billion by 2015. Publicly owned power and water companies, ports, banks, the former telecommunications monopoly, train operators, and other companies such as Opap, the largest European lottery and sports betting firm, will be included in the sell-off. In addition, there will be further sweeping spending cuts—more than €6 billion within twelve months, equivalent to 2.8 percent of Greek gross domestic product—and regressive tax hikes targeting the working class.

The Financial Times reported Sunday that the new loans would be conditional on an “unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets.” Yesterday, the Greek daily Kathimerini added: “The troika has insisted that its representatives have a say in the decisions [of the agency formed to implement the privatisations] and that they are able to block any moves they disagree with. They have also demanded that no representatives of the government be allowed to participate in the agency and that any decisions it takes should be protected by law so that they cannot later be reversed by a different government.”

These extraordinary developments make clear that the European financial oligarchy is dispensing all pretense of basic democratic norms and principles of national sovereignty in Greece.

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