Tuesday, August 27, 2013

Todays links

1---Amid cuts and closures--A new school year begins in Chicago (austerity agenda smacks Chicago), wsws

Over the summer, CPS instituted the largest school closures in American history, shutting about 50 schools and laying off more than 3,000 teachers and staff. Due to the closures, an estimated 10,000 students will walk longer, more dangerous routes to school each day.

Across the city, and concentrated on the south and west sides where most of the 50 schools were closed, shiny new “Safe Passage” signs contrast with run down or abandoned lots, homes and businesses, pot-holed streets, and closed school buildings. Some parents protested this morning in front of the closed schools....

For some schools, this means spending per-pupil will drop as much as 20 percent, with cuts per school totaling in the millions of dollars. Raise Your Hand, an education advocacy group, reports that 92 schools have lost art teachers, 58 lost physical education teachers, 54 lost music teachers, and 40 lost librarians. Over 160 CPS schools do not even have a library.

This is only a portion of the thousands of staff that have been laid off this year. In May, 550 probationary appointed teachers were let go. In June, 855 staff, including 545 teachers, were laid off as a result of the school closures. In July, more than two thousand—1,036 teachers and 1,077 support staff—were let go. In early August, 200 more lunchroom workers were laid off.

2---As investors shift, housing is the new stock market, CNBC

Housing has morphed from a form of shelter to one of the most popular tradable assets, thanks to a huge influx of institutional investors in a mammoth, albeit decreasing, supply of distressed properties. That is why it should come as no surprise the housing market is now nearly as volatile as the stock market.
"We've seen more volatility in real estate in the past five years than we have in the past 500," said Glenn Kelman, CEO of Redfin, an online real estate sales company.
Nothing proved that better than news last week that sales of newly built homes had plunged over 13 percent month-to-month in July while another report showed healthy gains in sales of existing homes in July. Suddenly, bulls became bears, and blame poured from every blog. Rising mortgage rates, sagging confidence, tight credit, tight supply, even bad weather made the long list of woes, but one stood out in particular—investors pulling out of the housing market....

Investors made up just 16 percent of home buyers nationally in July, according to the National Association of Realtors, compared with 22 percent in February and 25 percent at the beginning of 2009. During the worst of the foreclosure crisis, in some of the hardest hit markets, investors had made up more than half of all buyers.
Large funds like Colony Capital, Blackstone and Waypoint bought thousands of properties, and drove prices higher, faster than most expected. Now they are focusing on filling those houses with renters

3---Japan's pump-primed recovery proves US deficit hawks wrong, Dean Baker, Guardian

Prime minister Shinzo Abe is kickstarting Japan's economy with expansionary policies. So why must the US have a 'lost decade'
At the end of 2010, the interest rate on a 30-year mortgage was just under 5 percent… 4.97% to be more precise.  Over the next 28 months actions taken by the Fed pushed that rate down as low as 3.42%....
But, according to the Wall Street Journal on August 15, 2013… an analysis conducted by economists at Goldman Sachs showed that more than half of all homes sold in in 2012 and 2013 were purchased for all cash… as in without a mortgage.  The Goldman analysis estimated that only 44 cents of every $1 of homes sold currently is being financed.

The Goldman study used figures from the Census Bureau and the National Association of Realtors to analyze  home sales, and the Mortgage Bankers Association and Lender Processing Services provided the data on mortgage-originations.

 The study also stated that, “purchase-mortgage origination volumes have fallen from around $1.5 trillion in 2005, when the housing market peaked, to around $500 billion in each of the last two years.”
Wow.  From $1.5 trillion to $0.5 trillion?  Gosh, I don’t have a calculator with me, but offhand I’d say that’s quite a drop… like, correct me if I’m wrong, but on an annual basis, isn’t that showing a U.S. housing market today that’s only about one third of the size that it was back in 2005… which is like 8 YEARS AGO?...

About July’s decline in new home sales, Bloomberg said, “Last month’s decline was the biggest since May 2010,” which as I recall was the last time our housing markets fell off a cliff as some other stimulus program came to what should have been an expected end, nonetheless “surprising” absolutely everyone.

5---Wage Stagnation and Market Outcomes, NYT

new paper from the Economic Policy Institute provides both diagnosis and prescription of what is arguably the fundamental problem of the United States economy in recent years: wage stagnation.  I’ll briefly describe the findings, but given that these trends have persisted for a long time, it’s more important to think about solutions, particularly ones that go beyond conventional wisdom.
From the report:
Between 2002 and 2012, wages were stagnant or declined for the entire bottom 70 percent of the wage distribution. In other words, the vast majority of wage earners have already experienced a lost decade, one where real wages were either flat or in decline.
This lost decade for wages comes on the heels of decades of inadequate wage growth.

For virtually the entire period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage growth for most workers has been weak. The median worker saw an increase of just 5 percent between 1979 and 2012, despite productivity growth of 74.5 percent — while the 20th percentile worker saw wage erosion of 0.4 percent and the 80th percentile worker saw wage growth of just 17.5 percent...(gov should be employer of last resort) 
6---Real Durable Goods Orders: US Manufacturing Remains In A Slow Motion Collapse, Testosterone Pit

The headline number on durable goods orders was shockingly bad, which we all know is bullish. For a change the SA data wasn’t misleading. Underlying the seasonally massaged (SA) headline data (see Note below), the actual data, not seasonally adjusted (NSA), was just as bad. After backing out inflation, real durable goods orders continue to trend down, a fact that virtually no one in the mainstream media, Wall Street, or economic establishment is paying any attention to, partly because they think there’s no inflation. So we keep hearing BS about the US manufacturing renaissance when the reality is US manufacturing remains solidly entrenched in a secular downtrend with no sign of recovery.
New orders for manufactured durable goods in July decreased $17.8 billion or 7.3 percent to $226.6 billion, the U.S. Census Bureau announced today. This decrease, down following three consecutive monthly increases and followed a 3.9 percent June increase. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders decreased 6.7 percent.
Transportation equipment, also down following three consecutive monthly increases, led the decrease, $16.7 billion or 19.4 percent to $69.7 billion. This was led by nondefense aircraft and parts, which decreased $14.5 billion......

Nominal durable goods orders including inflation apparently track with stock prices pretty well, but that simply camouflages the reality that manufacturing remains in a slow motion collapse while rising stock prices include inflation. But don’t tell the Fed or the “no inflation” crowd that.  Their heads would explode.

 7---What's wrong with Abenomics? Plenty, Testosterone Pit

Abenomics not good for disposable income of the average Japanese: only 6.8% of the Japanese found that their disposable income has increased, while 17.0% lamented a decrease, and 76.1% figured it stayed the same, according to a survey by Orix Bank, a subsidiary of leasing, lending, and financial services mega-conglomerate Orix Corp. But the consumption tax hikes from 5% to 8% scheduled to take effect in April 2014, and to 10% in 2015, are already influencing behavior as we have seen big-ticket items, such as homes, starting to fly off the shelf, so to speak, before the tax hike makes them more expensive. And so to dodge that increase, 14% of the respondents are planning to buy appliances, 13.8% might buy a car, and 13.3% would blow some money on domestic travel. If they do that, it will frontload consumer spending and create – it is already creating in some areas – a mini-bubble that will deflate when the tax hike takes effect. That’s what happened when the consumption tax was hiked in 1997 from 3% to 5%, and Japan fell into a recession afterwards. But it looked good beforehand!

Inflation sneaks further into Japanese economy: The Corporate Services Price Index in July rose 0.4% over July last year, the fourth month in a rose of year-over-year gains. While some sectors saw price decreases, such as information and communication services (down 0.9%), prices in most sectors were up – they rose 0.8% in the huge Finance and Insurance sector. The transportation sector jumped a red-hot 2.7%, after a 1.9% rise in June. Among the items: prices for ocean freight transportation soared 18.3% and international air freight 27.5%, result of the weakened yen. This is going to be lovely for exporters that are already facing tough competition, and it gives them one more reason to offshore production to be closer to their markets.

Abenomics and the price of gasoline in Japan: one of the goals of Abenomics is to devalue the yen, and this has been accomplished very quickly earlier this year. Now the weaker yen is used to buy more expensive oil (currently $104 per barrel), with the predictable consequence that the average price of regular gasoline has been stuck for the third week in a row at the highest level in nearly five years, at ¥160.2 per liter, or $6.12 per US gallon, according to the Agency for Natural Resources and Energy. But in 2008, when the peak occurred, oil sold for $150 per barrel. Just one more detail how Abenomics is raking Japanese consumers over the coals with higher prices.

Japanese luxury sales up, the rest not so much: Same-store sales at convenience stores, where average workers buy onigiri and chilled tea for lunch, slid 0.8% in July, from prior year. During the first half of the month, as the heat wave weighed on the country, sales of drinks, ice cream, and summer items were holding up, but then cooler weather settled over northern regions, and sales slowed. But... the major chains had added 5.7% more stores during the 12 months, and overall sales, including at the new stores, rose 4.6%. Sales at department stores, the upscale shopping enclaves, fell 2.5% in July, the first drop in three months. But luxury items were flying off the shelf. Sales of art and jewelry jumped 14.2% in July, and for June and July combined, they jumped 15.2%, up for the 11th straight month – the true impact of Abenomics (the Fed’s money printing accomplished the same in the US). Clothing sales were soft. The Japan Department Stores Association, which reported these numbers, said that August sales would be solid as hopes were riding high that expensive items would once again do exceedingly well.

Japanese pile into foreign debt to diversify out of harm’s way, from Japan toward the perceived safer shores overseas: they bought a net of ¥1.61 trillion ($16.4 billion) in foreign bonds and notes in the week of August 4-10, the largest net purchase of overseas debt since August 2010, and the sixth week in a row of net buying. Biggest buyers: banks. For months, the BOJ has told banks to unload their vast holdings of JGBs (to the BOJ!), ostensibly so that they would lend that money to businesses and stimulate economic activity, but in reality so that they would get out from under that pile that is likely to lose value and threaten the survival of these banks. As readers of this column saw on August 2, the three TBTF banks got rid of ¥23.8 trillion ($242 billion) in JGBs in the April-June quarter, with Sumitomo dumping about half of its holdings, after having already dumped a bunch in the prior quarter! But the banks aren’t lending; there just isn't any demand for loans as corporations still aren’t investing. Instead, in an ingenious move, banks parked the money they got from the BOJ at the BOJ, and excess reserves at the BOJ soared sevenfold from mid-January through mid-June! Now, the banks found another place to park their money: foreign bonds. How any of this is helping the Japanese economy remains unknown

From the text (jumbled)---the s&p case-shiller index showing home prices rising a the a slower pace in June. earlier on squawk on the street we talked to index co-author Robert Shiller. well, none of this is for real. the housing market has gotten very speculative and it goes to big cycles. i think there's a risk of a weakening housing market. it's a speculative market. and this has been my research, it's driven by irrational exuberance. and that can just suddenly change. it's a story. it's an evolving story and there's nobody that can really predict this for sure. it's risky. using a phrase he himself came up with. let's get to rick santelli. you have some thoughts on this, rick. yeah. not only do i some thoughts but maybe more importantly i think mark nson has some thoughts. welcome. first time with me as a guest. can you react to robert schiller's comments? i think that's right on the nail there. i was surprised to see june case-shiller actually not increase as much as we even estimated. that's from april, may, and june closings which means february, march, and april contracts, right in the middle of the spring busy season. i was expecting it to be a lot -- up a lot more than it was. and you brought up a great point. sometimes the simple things elude many. i was passing your little note around what you were saying, that prices come before contracts and these are very old. let's go to another area. you know, the who, won't be fooled again. stimulus, how did it affect housing and how does it affect the psyche of the housing players?
Mark Hanson---In 2003 when house prices reached a level, they became unaffordable. the banks and investment banks created leverage in structure, interest-loans. house prices collapsed to reset to the going 30-year fixed rate mortgage. then again in 2011 on operation twist, e4, rates created 20% more affordability out of thin air. over the last 20, 22 months, house prices have responded to that. now that's gone again. we're back to 5%. i don't know exactly how it's going to go forward, but if new home sales in july were any sign of what we're going to see, demand has fallen off a cliff and house prices have to again reset to the new levels of finance.
all right. inventory. that seems to be the big bullish thread that many are still clinging to in the housing industry, all the analysts. what are your thoughts on current inventory and current irntory levels? one house is too much inventory in a city of dead people. if demand drops, which i think it already has given the interest rate surge catalyst, and we see people listing their properties, even at the same level they were, but i believe it's going to come increasingly as investors get out, as retailers always late to the party list their houses in bigger numbers on the rise in interest rates, we could wake up 24 days from now when the existing home sales number is released and find out we have more supply than we have had in the past 24 months. 
9---Housing takes a bearish turn,(Housing's toxic cocktail" Diana Olick, Realty Check, CNBC video

From the text--jumbled--- Just when we with thought housing was on solid footing, rising interest rates and may be threatening that recovery. diana is in washington with the story. hey, diana. reporter: they certainly are. the enormous drop in july new home sales really shocked the market and today the bears are taking on the bulls in force. let's recap for a second. july new home sales dropped over 13% month to month. existing home sales actually bumped up a healthy 6 .5%. why the skep? new home sales numbers are based on signed contracts in july and existings are based on closings which were contract signed in may or june. there is the mortgage. if you take a look where rates went from may through july, the jump from 3.5 to over 4.5% according to analyst mark hanson made houses 15% more expensive and it is just the rates. home prices up over 8% from a year ago according to a new report today from lender processing services and this is a lower reading than others like case schiller out toep. they claim a larger survey sample and more accurate way of accounting for the impact of distressed sales on home prices, we know fewer stressed sales and you have rising rates and rising home prices and i call it a toxic cocktail for housing on the new home numbers sea breeze partners says housing, quote, blew up and others claim it is just seasonal.
one more factor is investors. this he have been fueling housing for the past few years and pumping up prices in the hardest hit markets and they made up just 16% of buyers in july according to the realtors and that's down from 22% in february and first time buyers are not filling in, not coming back and still at less than a third of the market and should be over 40%. so the bulls are saying, well, one month does not a trend make. i will say i have never heard more bears out than i have today, not in the last couple years anyway.
 diana, stick around while we talk about this with mike murphy, our resident housing bull. i mean, it is undeniable at this point it is having an impact if you listen and look at diana's report and the charge that she showed. you have a serious issue, investors dropping off and first time home buyers. here is one thing i point out. the numbers don't lie. you talked about rising mortgage rates. i would argue being bullish on this space, i would argue that mortgage rates have raisen and that's the past, and going forward, there is nothing out there really to tell you that rates are going to continue to rise and they have leveled off here and we also know and i think this is a key point, we know that the administration is very focused on keeping the housing recovery going. would you agree? yeah, but i would argue that you saw this jump up in rates two months ago and that had a lot of people on the fence jump off and jump into housing and worry that rates were going to go even higher and so you did have that bump up in sales that we saw through the summer and i wonder if that's not going to be pulling numbers forward from the fall home sales. i just got off the phone with greg kelman and he is seeing a huge slow down in existing home buyers now and says arm chair investors who are using credit are getting out. we may think that mortgage rates aren't going much higher, but a lot of folks out there think they still may. diana, thanks as always. housing guru diana olick and
10---On The Global QE Exit Crisis, Stephen Roach, project syndicate
The global economy could be in the early stages of another crisis. Once again, the US Federal Reserve is in the eye of the storm.

As the Fed attempts to exit from so-called quantitative easing (QE) – its unprecedented policy of massive purchases of long-term assets – many high-flying emerging economies suddenly find themselves in a vise. Currency and stock markets in India and Indonesia are plunging, with collateral damage evident in Brazil, South Africa, and Turkey.

The Fed insists that it is blameless – the same absurd position that it took in the aftermath of the Great Crisis of 2008-2009, when it maintained that its excessive monetary accommodation had nothing to do with the property and credit bubbles that nearly pushed the world into the abyss. It remains steeped in denial: Were it not for the interest-rate suppression that QE has imposed on developed countries since 2009, the search for yield would not have flooded emerging economies with short-term “hot” money.

As in the mid-2000’s, there is plenty of blame to go around this time as well. The Fed is hardly alone in embracing unconventional monetary easing. Moreover, the aforementioned developing economies all have one thing in common: large current-account deficits...

Central bankers have done everything in their power to finesse these problems. Under the leadership of Ben Bernanke and his predecessor, Alan Greenspan, the Fed condoned asset and credit bubbles, treating them as new sources of economic growth. Bernanke has gone even further, arguing that the growth windfall from QE would be more than sufficient to compensate for any destabilizing hot-money flows in and out of emerging economies. Yet the absence of any such growth windfall in a still-sluggish US economy has unmasked QE as little more than a yield-seeking liquidity foil.

The QE exit strategy, if the Fed ever summons the courage to pull it off, would do little more than redirect surplus liquidity from higher-yielding developing markets back to home markets. At present, with the Fed hinting at the first phase of the exit – the so-called QE taper – financial markets are already responding to expectations of reduced money creation and eventual increases in interest rates in the developed world.

Never mind the Fed’s promises that any such moves will be glacial – that it is unlikely to trigger any meaningful increases in policy rates until 2014 or 2015. As the more than 1.1 percentage-point increase in 10-year Treasury yields over the past year indicates, markets have an uncanny knack for discounting glacial events in a short period of time....

Developing economies are now feeling the full force of the Fed’s moment of reckoning. They are guilty of failing to face up to their own rebalancing during the heady days of the QE sugar high. And the Fed is just as guilty, if not more so, for orchestrating this failed policy experiment in the first place.

3---Interview with Bashar al Assad,  global research

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