Saturday, April 13, 2013

Today's links

1---IMF to cut US growth forecast amid downbeat retail and confidence data, Guardian

International Monetary Fund warns on the effects of budget spending wrangles on a slowing US economy
As predicted by so many, the attempt to drive down wages in modern democracy is not only brutal but often impossible. What you gain from wage compression you lose from lagging productivity as investment collapses.
Did nobody ever explain this to them?

3---Signs of Trouble, zero hedge

Consumer Confidence
As I mentioned above, consumer confidence in the U.S. just had its biggest miss relative to expectations that has ever been recorded.  The following is from an article posted on Zero Hedge on Friday...

Well if this doesn't send the market into all-time record high territory, nothing ever will: seconds ago the UMich Consumer Confidence plummeted from 78.6 to 72.3, on expectations of an unchanged 78.6 print. This was not only a 9 month low in the index, but more importantly the biggest miss to expectations in recorded history!
Retirement Accounts

According to Wells Fargo, the number of Americans taking loans from their 401(k) accounts has risen by 28 percent over the past year...
Through an analysis of participants enrolled in Wells Fargo-administered defined contribution plans, the bank announced today that in the fourth quarter of 2012, there was a 28 percent increase in the number of people taking loans out from their 401(k) and that the average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011 - a 7% increase from $6,662.

Of the participants who took out loans, the greatest percentage were to people in their 50s (34.2%), followed by those in their 60s (28.9%) and then by those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those under 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.

“The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” said Laurie Nordquist, director of Wells Fargo Retirement...

Demand For Energy
Just like we saw back in 2008, the overall demand for energy in the United States is falling rapidly.  There are some shocking charts that prove this that were recently posted on Zero Hedge that you can find right here.

Yes, it is good for people to use a bit less energy, but it is also a clear indication that economic activity is really starting to slow down.

But despite everything that you have just read, the Dow and the S&P 500 have been setting new record highs.

And if you listen to the mainstream media, you would think that this stock market bubble can continue indefinitely

4---US Economic Data Plunges Most In 10 Months To 4-Month Lows, zero hedge

Judging by the stock markets the last two weeks have been one of the best periods ever but the reality - hidden behind a smoke-screen of central bank liquidity and jawboning mirrors is dire. The last ten days have seen miss-after-miss in macro economic data - in fact this is the biggest plunge in macro data in 10 months. Despite the stock market's exuberance (at all-time highs), macro data has rolled over dramatically to 4-month lows. Of the major economic data points we have missed 18 of the last 20. With sentiment sagging, GDP revising lower, and earnings season disappointing, we can only imagine the BTFD opportunities that await.

  • Markit US PMI    Miss
  • ISM Manufacturing    Miss
  • ISM New York    Miss
  • Vehicle Sales    Miss
  • ADP Employment    Miss
  • ISM Services    Miss
  • Challenger Job Cuts     Miss
  • Initial Claims    Miss
  • Trade Balance    Beat
  • Non-Farm Payrolls    Miss
  • Hourly Earnings    Miss
  • NFIB Small Business    Miss
  • Wholesale Inventories    Miss
  • MBA Mortgage Apps   Miss
  • Import Prices    Miss
  • Initial Claims    Beat
  • Retail Sales    Miss
  • PPI    Miss
  • UMich Confidence    Miss
  • Business Inventories    Miss
5----NY Times: "Fewer Home Loans Start to Affect Banks"

Wall Street knew the craze wouldn’t last.
The nation’s biggest banks, capitalizing on government efforts to bolster the housing market, have raked in handsome mortgage profits of late. On Friday, that started to change.

Wells Fargo, the nation’s largest home lender, disclosed that it originated fewer home loans and recorded lower mortgage banking income in the first quarter of 2013. JPMorgan Chase, the biggest bank by assets, reported limited appetite for new mortgages and a drop in mortgage banking income.

Since the 2008 financial crisis, the banks’ mortgage business had hinged on government intervention rather than fresh demand from consumers. When the Federal Reserve cut interest rates in recent years, it spurred millions of borrowers to refinance their home loans to reduce costs.
Now, as mortgage rates inch upward from their lows late last year and refinancing enthusiasm wanes, the pipeline of borrowers is drying up.
“You need a next level of people that are willing to buy and that simply isn’t there,” said J. J. Kinahan, a strategist at TD Ameritrade.
The Federal Reserve has also stoked a refinancing boom after keeping interest rates at record lows. But the results on Friday signaled that those gains were unsustainable.

Underscoring a slowdown in refinancing, Wells Fargo said those loans accounted for 65 percent of mortgage originations in the first quarter, down from 76 percent in the period a year earlier. The bank’s mortgage banking income also slipped 3 percent, presenting potential problems for Wells Fargo, whose fortunes rise and fall with the mortgage market. And while handling $109 billion in mortgage originations might be a feat for some banks, it was a 16 percent drop for Wells Fargo.

6---Inflation Is Miserable. Unemployment Is Worse NYT

Unemployment makes people unhappy, according to economic research. So does inflation. But here’s the part the economists are paid for: evidence that unemployment makes people more miserable than inflation.
About four times as miserable, according to a new paper.

7---March Retail Sales Fell as Consumers Cut Back, NYT

8---The One-Chart Summary Of All That Is Wrong With The US Financial System: JPM Deposits Over Loans, zero hedge

The chart below may be the best one-chart summary of all that is wrong with the US financial system. It is a very simple chart - it shows total JPMorgan deposits, loans and the excess difference of deposits over loans.

Why is it a good summary? Because as the blue bar shows, total loans issued by the biggest US bank were $723 billion in Q1 2013: about $30 billion less than in the quarter Lehman blew up. Four years later, and the US commerical bank lending apparatus is still in a state of depression. Or so it would appear on the books.

But why doesn't JPM lend out more: after all that is the main pathway to stimulate the economy as all pundits will tell us. Simple: it doesn't need to. As the red bars show, total consumer deposits held by the bank just rose once more, this time to a record $1202.5 billion, up $9 billion in the quarter, pushing the deposit-over-loan difference to a new record $480 billion. This is happening exclusively due to the Fed, which when banks do not "create" money from loans (as they obviously don't), has to step in with QE and create money on its own.

It also means that JPM has to allocate this excess capital somehow and until a year ago, was simply funding its prop trading desk with this deposit cash as "dry powder" to manipulate and corner various derivative markets courtesy of the London Whale traders. Another result of course is that risk assets are bid up to record highs even as the actual flow through of the Fed's "wealth effect" is halted precisely due to the complete collapse in new loan creation - the primary "transmission mechanism" of economic growth.

In other words, by keeping the pedal to the metal on QE, the Fed is giving the banks all the benefits of money creation (soaring deposits), without any of the risks (loan creation in a record low Net Interest Margin environemnt). Any if you are JPM you will be perfectly happy with this arrangement and not seek to lend out any money, as the case has been for the past four years. Which means consumers who wish to take out loans to fund ventures and other growth strategies are fresh out of luck, because the banks that ordinarily supply them with this risk capital have simply shut down the process entirely.

And that is precisely the jist of all that is broken in the US financial system, and why the Fed is in fact making things worse, not better, and is progressively destroying the wealth of the middle class, stunting any growth opportunities the US may have, and all the residual wealth is pumped into the hands of those benefiting solely from rising asset prices

9---The only increase in housing demand is coming from investors, ochousing

As I’ve repeated many times, owner occupant demand is showing no signs of life. If not for investor demand, the housing market would still be languishing with prices and sales volumes lingering at the bottom. However, both prices and volume are up, and those who want that outcome have investors to thank for it.

10---Demand Slowdown Puts Inventories in Spotlight, WSJ

The distinction will determine whether the current economic slowdown is only a small pothole or something more serious. With consumers feeling downbeat in April after pulling back their spending in March, businesses have to ensure their stock of goods-on-hand don’t get out of hand.
So far, the inventory data ring no alarm bells. But an unwanted overhang of goods at a time of weak demand could fall back on ordering and production activity later on.

That risk is worth remembering in light of the downbeat news on consumers. Retail sales fell a larger-than-expected 0.4% in March. Part of the drop reflected falling gasoline prices; but even excluding gasoline, sales were down.

11---Shiller warns housing still risky, mortgage orb

One of the most prominent thought leaders in housing is looking at the market with significant apprehension.

In an interview with the Daily Ticker, Robert Shiller, co-creator of the S&P/Case-Shiller Index and a professor of economics and finance at Yale University, expresses concern that the housing market "is becoming more of a speculative asset." He stresses that housing remains "very abnormal" because the federal government underwrites the majority of new mortgages, and he warns that a rapid recovery is not in the foreseeable future.

"People shouldn't assume the housing market is off to the races," says Shiller. "[For] the country as a whole, it's rather unlikely that we’ll have another boom like the one we recently had because that's such a rare and unusual event."

Shiller adds that investors should view housing as a risky asset and consider renting a house while placing money for a home purchase into a "real diversified portfolio

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