Sunday, March 10, 2013

Today's links

1---Will there be a steady supply of homes for sale from aging baby boomers in this decade? Who will they sell to and at what price?, Dr Housing Bubble

From 2010 to 2020 we are going to have a large number of baby boomers entering into their retirement years. Many will look to downsize and the projections have been, that this would add a steady supply of housing.....

“(The Atlantic) In the coming years, baby boomers will be moving on (inching further through the python, if you will). “They will want to sell their homes, and they’re hoping there are people behind them to buy their homes,” says Nelson, director of the Metropolitan Research Center at the University of Utah. He expects that in growing metros like Atlanta and Dallas, those buyers will be waiting. But elsewhere, in shrinking and stagnant cities across the country, the story will be quite different. Nelson calls what’s coming the “great senior sell-off.” It’ll start sometime later this decade (Nelson is defining baby boomers as those people born between 1946 and 1964). And he predicts that it could cause our next real housing crisis.”
The big challenge will be at what price will future buyers purchase these homes for. For the moment, about 30 percent of the market is being sopped up with gusto by Wall Street and investors. However yields are now being squeezed. There is no way investor demand will stay this hot. So what other group is going to step in? We’ve also had the FHA insured buyer making up another 20 to 25 percent of buying for the last few years but the FHA is having financial issues. The assumption of course is that we’ll somehow have another baby boomer wave that will have the same buying habits as prior generations:
“Ok, if there’s 1.5 to 2 million homes coming on the market every year at the end of this decade from senior households selling off,” Nelson asks, “who’s behind them to buy? My guess is not enough.”
homeowner demo data
Source: Census
So essentially 50 percent of all owner-occupied homes are owned by those 55 and older

2---And yet the labor force participation rate is still falling, marginal revolution
From Peter Coy, source here. (And broken down by age here, I never find that disaggregation reassuring however, since the elderly are working more and the young less.) Here are related comments and charts from Dylan Matthews. Yet perhaps Felix Salmon has the clincher:
The number of multiple jobholders rose by 340,000 this month, to 7.26 million — a rise larger than the headline rise in payrolls. Which means that one way of looking at this report is to say that all of the new jobs created were second or third jobs, going to people who were already employed elsewhere. Meanwhile, the number of people unemployed for six months or longer went up by 89,000 people this month, to 4.8 million, and the average duration of unemployment also rose, to 36.9 weeks from 35.3 weeks
3----It's Not Just the Fed, Barrons

The market has more going for it than easy monetary policy. If the Fed starts to tighten, stocks could fare surprisingly well.

Like Mae West, the stock market seems to believe that too much of a good thing can be wonderful. Extraordinary central-bank support has delivered us in four short years from the brink of depression to new stock-market highs. Yet there are those who hope our Federal Reserve will keep printing money with crisis-era urgency, preferably indefinitely...

A shift from exceptionally loose monetary policy would rattle the market, but it might not prove all that debilitating. For a start, any change will come at a glacial, well-telegraphed pace. And while the Fed tripled its balance sheet, not all that money gushed through to the real economy—one reason why inflation is just 2%—as banks funneled the money to mend their balance sheets, corporations hoarded cash, and Americans paid off loans and saved more.....

Many investors also remain underinvested in stocks, although margin debt is climbing, and bearish bets have shrunk to a six-year low. Two of the year's three best sectors—both with gains topping 10%—are health care and consumer staples, another sign that stock buyers remain defensive.
Meanwhile, political impasse has deferred—but not destroyed—economic growth. "Despite uncertain fiscal policy, business confidence is off the lows, and investment is accelerating, if new orders are any indication," notes Sean Darby, Jefferies' chief global equity strategist.

4--On the up and up, Big Picture

5---Why Canada's economy is in trouble, sober look

6---Donald Rumsfeld must be indicted over Iraq militias, Guardian

What he knew of detention centres is not the only point. He was in charge, and if he had a plan the militias wouldn't have existed
So that's the good news. Here's the bad. Since Abe's election, Japan has slipped back into deflation:

FRED Graph

But inflation expectations, as measured by breakevens on the Japanese version of TIPS, are up - to 1%. So maybe we'll see this deflation turn around soon.

As for Japan's current account, it has continued to log a deficit, as the weak yen made imports more expensive. As for whether or not export demand will pick up...I guess we'll see. Capital expenditures by Japanese firms were still falling in December, but we'll just have to wait for more recent data.
In summary: Abe seems to have shifted a lot of people's expectations. He seems to have convinced many foreigners that Japan will print a lot of money; this has caused a fall in the yen. And those expectations of a falling yen seem to have convinced many foreigners that the weaker yen will boost the profits of Japanese companies, since foreign investors are behind Japan's stock market rally. And he has also convinced some Japanese people that deflation will soon give way to weak inflation...though these expectations have not yet translated into real inflation.

But now comes the real test. Convincing foreigners that big changes are coming to Japan is an easy trick, but it won't help Japan's economy a lot. The shift to 1% inflation expectations is more promising. But 1% is still pretty darn low.

Yet I still stand by my initial evaluation - Abe is generating a brief fillip of optimism and a sense of economic movement in order to secure an LDP majority in the all-important upcoming upper house election. Securing that majority would allow him to get on with his true all-consuming priority - revising Japan's constitution. After that, his conservative instincts, and the conservative instincts of the Finance Ministry (which is arguably a lot more powerful than the Prime Minister), will take over, as will the worries of the LDP's elderly voters that inflation would destroy their hard-earned life's savings. At that point, talk of radical monetary reform will evaporate, and the recent movements in the yen and the Japanese stock market will begin to slowly unwind.

This is a pessimistic scenario, but, like Japanese consumers' expectations of deflation, my beliefs about the effectiveness of Japan's Liberal Democratic Party are strongly anchored, and will require more than a bit of tough talk to dislodge.
8----Unpopped Housing Bubbles Abound, of two minds
With the DOW blowing by milestones I went looking for other things that were at record levels. The first one that I looked at was M2. No surprise at all, M2 is bigger than ever. Charts of the long and short term trajectory of money supply:

Screen Shot 2013-03-08 at 12.57.43 PM

The money supply is $3T higher than it was at the start of the 2008 recession. GDP is up $2T.
Screen Shot 2013-03-08 at 1.01.33 PM

My thoughts on the chart:

- It's fairly clear that sharp declines in the velocity of money is consistent with periods of recession


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