Thursday, April 25, 2013

Today's links

1---Crisis for Europe as trust hits record low, Guardian

Poll in European Union's six biggest countries finds Euroscepticism is soaring amid bailouts and spending cuts
2-- CoreLogic acquires Case-Shiller, calculated risk
On March 20, 2013, the Company acquired Case-Shiller from Fiserv, Inc. for approximately $6.0 million. Case-Shiller, one of the most widely recognized experts in home price trends and property valuation services, is a highly complementary addition to CoreLogic’s existing residential property insights platform.
3---Afghan Violence Worsening, antiwar          

Civilian Deaths Soar in First Quarter of 2013 

4---Bank “Zombie Title” Rises, Hurting Communities and Borrowers, as OCC and Fed Sit Pat, naked capitalism

But there are bigger implications of this sorry trend. The first is that it means the “housing is on a firm footing, look how tight inventories are” story bears some scrutiny. From the article:
Housing experts speculate that banks are purposely refusing to take title of abandoned foreclosures as a strategic move to better manage their ballooning portfolios of real-estate owned or REO properties. If more properties were put on the market, it might dampen the nascent housing recovery, the thinking goes.
“I have long been convinced that the current run up in home prices is a false high,” says Ruhi Maker, a senior staff attorney at the nonprofit Empire Justice Center in Rochester, N.Y. “Once all these foreclosures are through the system we could see another decline in prices.”
James Kowalski, executive director of Jacksonville Area Legal Aid, says he has clients who have tried for years to get their servicers to foreclose and take title to their homes.
“There are literally thousands of borrowers who have been trying to hand the house back to the bank and they won’t take it back,” Kowalski says. “They can decide not to file, to rescind a notice of default, or to ask for continuances, and they’re doing it repeatedly in Florida. If you want any better proof that the banks are slowing down the process state-by-state, based on their own internal analysis, this is it. The banks control the pacing of the foreclosure process, not the homeowners, not the judges.”
5---Obama administration bypasses CISPA by secretly allowing Internet surveillance, RT

6---The slowdown is more than a soft patch, marketwatch

Despite repeated bailouts, programs, and interventions, economic growth remains mired at sub-par rates as consumers struggle in a low growth/high unemployment economy. Businesses, which have been pressured by poor sales, higher taxes and increased government regulations, have learned to do more with less. Higher productivity has led to less employment and higher levels of profits.

The dark side of that equation is that less employment means higher competition for jobs which suppresses wage growth. Lower wage growth and incomes means less consumption, which reduces the aggregate end demand. In turn, lower demand for products and services puts businesses on the defensive to “do more with less” in order to protect profit margins. Wash, rinse and repeat. This is why deflationary economic environments are so greatly feared by the Fed as that relationship between production and consumption is incredibly difficult to break.

I don’t believe that the current slowdown is just a “soft patch,” but is instead the end of the expansionary cycle that began in 2009. That belief is simply based on the fact that economies do not grow indefinitely but cycle between expansions and contractions

7---Housing market slows, Zillow

After months of robust and seemingly unsustainable annual home value appreciation, the housing market is showing signs of moderation in the first quarter, according to data from Zillow.
The Zillow ($59.79 0%) home value index increased 5.1% year-over-year to $157,600 as of the end of the first quarter.

March marked the 16th consecutive month that U.S. home values rose, although last month marked the second straight month of slowing annual appreciation. Additionally, home values appreciation was 0.5% in the first quarter, compared to 2.1% in the fourth quarter of 2012.

Typically annual home values appreciate roughly 3%, according to research done by Zillow. The Zillow Home Value Forecast anticipates national home values will rise 3.2% through March 2014, indicating an appreciation more in line with historic norms.

However, in some local markets, home values continue to rise at a rapid pace. According to Zillow, five markets it covers saw a year-over-year appreciation of more than 20%: Phoenix (up 24%), Las Vegas (up 22.3%), San Jose (up 22.1%), San Francisco (up 21.4%) and Sacramento (up 20.1%).

"The national housing market has rebounded strongly over the past year. But the sometimes dramatic home value run-ups experienced during these months were never expected to be sustainable, and recent slowdowns are indicative of a market that is slowly finding its natural level," said Zillow Chief Economist Dr. Stan Humphries.

8---Deficits matter, pragmatic capitalism

The problem is, we’re not close to being out of the woods.  The economy might being starting to feel a bit better, but the reality is that it’s still quite weak.  Yes, the de-leveraging has started to turn into a re-leveraging, but that’s just the beginning of a normal healing process.  And private investment is still lower than its been at any point in the previous recessions.
Goldman Sachs estimates that the budget deficit is set to come in at $775B this year.  That’s down from their earlier estimate of $900B and way off the consistent $1T+ deficits we’d seen in previous years.  But it’s still a rather large budget deficit at about 5% of GDP.  We were at risk of experiencing much larger cuts.  Still, this will likely impede growth going forward as the reduced deficit works against two trends – it reduces the flow through the economy that is still on life support AND it reduces the additional net financial asset contribution which has played a crucial role in the balance sheet repair process.  These are not good developments, but they’re also not going to send us into a Greek-like scenario.  In short, it looks like muddle through is probably here to stay.

9---The Fed does not print money, marketwatch

The Fed does not control the money supply; they control base money (or inside money), which is a small fraction of the broader money supply. In our fractional reserve system, the banks (loosely defined) control the other 90% or so of the money supply (a.k.a. outside money). And the banks have not been lending. This is why the money supply has not grown rapidly in response to years now of QE.

QE is ‘pumping cash into the stock market’

The truth is, little of this money finds its way into the stock market. When the Fed implements QE, they are buying low-risk U.S. Treasurys and agency mortgages from the market, mostly from banks. About 82% of the money the Fed has injected since QE started has been re-deposited with the Fed as excess reserves. With the remaining 18%, banks have tended to buy other fixed income assets of a slightly riskier nature — moving out on the risk spectrum for a bank doesn’t mean jumping into equities, especially given the near-death experience that most of them have just experienced.

Of course, not all of the U.S. Treasury bonds (USTs) and mortgage-backed securities (MBSs) injected into the economy were purchased from banks. And some of the money does end up in equities. But, really, not all that much. The other big holders of USTs/MBSs who have been selling to the Fed for the most part have fixed-income mandates too, and they are also unlikely to take the cash from the Fed and cross over into equities with it. Read Minyanville’s “Why You Might Be Sharing a Cubicle With Your Windows Phone.”

So, the natural question is why — if the above is true — have equities gone up so much in response to QE? The simple answer? Psychology and misconception.

10--The economy is weaker than you think, prag cap

  • Household employment (-206k in March, the steepest decline in well over a year).
  • Real retail sales (-0.3% in March, down for the second time in three months).
  • Manufacturing production (-0.1% and also down in two of the past three months).
  • Core capex orders (-3.2% in February, and again, down in two of the past three months).
  • Single-family housing starts (-4.8% in March and negative for two of the past three months as well.
  • New home sales (-4.6% in February).
  • Philly Fed for April down to 1.3 from 2.0.
  • NY Fed Empire manufacturing index down to 3.05 from 9.24.
  • NAHB Housing Market index down to a six-month low of 42 in April from 44.
  • Conference Board consumer confidence index down to 59.7 in March from 68.
  • University of Michigan consumer sentiment down to 72.3 for April from 78.6, the lowest in over a year.
  • Conference Board leading indicators down 0.1% in March, first decline in seven months.

  • 11---The Boston lockdown and the Bill of Rights, wsws

    The ruling class, beset with fears of social upheavals arising from the further disintegration of the US and world economy, turns to methods of mass repression to preserve its power and wealth.

    Discussing the Boston lockdown at a press conference on Monday, New York Mayor Michael Bloomberg quipped: “[W]e live in a complex world where you’re going to have a level of security greater than you did back in the olden days, if you will. And our laws and our interpretation of the Constitution I think have to change.”

    With these clumsy and condescending words, Bloomberg, worth $27 billion, gave expression to the real attitudes that predominate within the narrow and ultra-rich aristocracy that rules America. Democracy was fine “back in the olden days,” but going forward this will need to change

    12---New report finds increase in social inequality during US “recovery”, wsws

    Basing itself on US Census data, the Pew report found that the poorest 93 percent of US households saw, on average, a four percent decline in their net worth during these two years of stock market boom, while the wealthiest seven percent saw their net worth increase by an average of 28 percent.
    The data give the lie to the administration’s claim that the rise in stock prices since the 2007 financial meltdown is part of an economic recovery. In fact, it merely gives expression to a vast transfer of wealth from the working class to the financial elite.

    Household wealth is measured by adding all assets—such as homes, cars, real estate, retirement accounts, stocks and other financial holdings—and subtracting from this all debts—such as home mortgages, car loans, medical debt, credit card debt and student loans.

    The upper 7 percent of households saw their aggregate share of overall national wealth increase to 63 percent in 2011, up from 56 percent in 2009. Put in another way, the mean wealth of households in this more affluent group was almost 24 times that of other households in 2011, whereas in 2009 it was only 18 times more.
    Breaking down the figures for those in the bottom 93 percent, the poll finds that:
    • A shocking 18 percent of the population has a net worth of zero or less (with debts meeting or exceeding all assets). The mean wealth of this group declined from −$34,777 in 2009 to −35,472 in 2011.

    13---Spring Slowdown Hits Factories, WSJ

    No matter how you slice it, the durable goods report was miserable.
    As with so many other data for March, Wednesday’s news on hardgoods orders and shipments confirm what reports from regional Federal Reserve banks has trumpeted: the factory sector has entered a spring slowdown.
    New orders for all durable goods plunged 5.7% in March, about double the 2.9% drop expected. Falling demand for aircraft and defense goods contributed much of the weakness, but not all of it. Of the major categories, only computer makers reported an increase in new orders.

    For the first quarter, new orders and the backlog of unfilled demand were pretty much flat compared to year-earlier levels. Shipments held up. But orders are the lifeblood for future production. Unless order books fatten up, gains in production and shipments will slow soon.

    Businesses have joined consumers in the spring siesta. New orders for core capital goods — which excludes aircraft and defense equipment — edged up 0.2% in March, but are no higher than they were a year ago. Business investment probably added to first-quarter gross domestic product growth, but the sector may not add much to this quarter or beyond.

    14--Debt jubilee? IFR

    In the same way, the Fed may be better off turning away from quantitative easing, which buys up financial assets, and towards something which would allow people to more directly retire the debts which are holding back spending and growth.
    Australian economist Steve Keen has long advocated a “modern debt jubilee” which would put money directly in the hands of households rather than funnelling all through financial markets.
    Dividends and dole-outs like the jubilee have huge advantages. They cut out middle-men, like executives, bond brokers and the like, putting cash directly in people’s hands. And they allow the money to be spent or invested by those on the ground with the best view of the action and the fewest conflicts of interest.

    15---In Utter Desperation to Reduce Delinquency, GSEs Allow No-Doc Modifications, DSNews

    16---Modified mortgages show ‘alarming’ default trend, marketwatch

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