Sunday, September 29, 2013

Today's Links

1---Consumer sentiment falls, CNBC

US consumer sentiment slid in September to its lowest in five months as consumers saw higher interest rates and sluggish economic growth ahead, a survey released on Friday showed.
The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment slipped to 77.5 in September from 82.1 in August — the lowest final reading since April

2--Housing Bubble Alert Wall Street Examiner

Earlier this month, electronic real estate broker Redfin released current contract data for August for the 19 US metro markets it covers. This includes all contracts reported to the regional MLS’s for those markets. The 19 markets are mostly in the Northeast and on the West Coast, with only four markets in the US interior hinterlands, but it’s broad enough to give us a reasonably good idea of where the market stood and was headed a month ago based on contracts signed in August.
It seems abundantly clear from that data that the US housing market is in a bubble and is a lot hotter than Case Shiller says. According to Redfin, home prices per square foot were down 0.4% month to month but were 17.7% higher than August 2012 in those markets...

Dataquick shows that as of September 26, the latest 4 weeks of reported closed sales rose 16.2% in price over the prior year period.  That is the same as the gain of 16.2% as of August 22, and better than the 15.9% gain as of August 29. The rate of price gain is steady. The total gain since the cycle low in March 2012 was 36.1%.
Dataquick reported sales volume of 256,733 properties as of the 30 days ended September 26, for an annual increase in sales volume of 17%, a minimal slowing from the 18.3% reported a month earlier....

Restricted supply appears to be the primary driver of the house price bubble. At some point, higher prices should bring forth a torrent of supply, but part of the problem is that ZIRP also  restricts supply because it renders too much of a penalty for cashing out equity. Millions of baby boomers reaching retirement age with substantial equity in their properties either opt not to sell, or if they do sell, to remain in the market as purchasers rather than renting and investing cash elsewhere. This is one reason why the percentage of all cash sales remains so high. Boomers are essentially swapping properties with one another rather than buying bank CDs and moving to Costa Rica. ZIRP not only inflates demand, it restricts supply.

This supply constraint will only be alleviated if interest rates are allowed to rise to an attractive enough level to motivate property owners to cash out. Otherwise older owners will continue to opt to hold property rather than liquidate.  ZIRP eliminates the incentive for them to do so.

3---The dirty secret of the housing market boom: Insiders are riding the low interest rate and low inventory trend. What happens when inventory and interest rates rise?, Dr Housing Bubble

4---Abenomics speeds corporate investment, but not in Japan, Reuters

Japanese Prime Minister Shinzo Abe got an early sign of how his blueprint to revive Japan's industrial vim and economic vigor was working when two of his country's biggest car makers unveiled $900 million worth of investments to boost production.
There was one drawback: the new assembly plants and expanded factories announced by Mazda Motor Corp (7261.T) and Honda Motor Co Ltd (7267.T) are not in Japan, but more than 2,000 miles away, in Thailand.

Since taking office last December, Abe's stimulus efforts have barely dented a slide in private-sector investment at home, but they have done wonders for accelerating Japanese investment elsewhere in Asia.
Capital expenditures in Japan fell 4 percent in the first six months of this year, compared with the same period of 2012. Japanese investment in Asia, meanwhile, rose 22 percent, according to the Japan External Trade Organization, or Jetro.

5---More people express uncertainty in chance to achieve the American Dream, WA Post

My dream has gone out the window,” said Edwards, 56, a former stay-at-home mom who reentered the workforce doing inventory at a firm near her home in Martinsburg, W.Va.

It’s increasingly difficult to make ends meet. Almost two-thirds of people express concerns about covering their family’s basic living expenses, compared with less than half the public four decades ago. One in three say their money worries are with them all or most of the time, and the number who say they worry “all the time” about paying the bills has doubled.....

Fear of being thrown out of work is greater than it has been in polls taken since the 1970s. More than six in 10 workers worry they will lose their jobs because of the economy. Today’s worries exceed those in 1975, at the tail end of a harsh recession marked by high unemployment and high inflation. Less than half of Americans expect to move up in their economic class over the next few years. Slightly more predict they will stay in place — or slip down a rung.

●As they struggle to keep up, a majority of people question a basic precept of the American Dream: that the next generation will enjoy a higher standard of living. While slightly more than half of respondents, 54 percent, say their standard of living is better than that of their parents, just 39 percent believe their children will have a better life than they have...

Almost eight in 10 Americans say they worry they won’t have enough saved for retirement, concerns that peak among those approaching age 65....

6---Why Have Americans' Income Expectations Declined So Sharply, Fed

In summary, the pessimism of households about their future income is deep and broad based. The large and persistent decline in income expectations in the aggregate data is evident among several different types of households. This analysis also shows that adverse experiences of households can account for half of the net decline in income expectations since 2007. Given the only modest improvement in household finances and the labor market seen in the aggregate, it is perhaps not surprising that income expectations remain downbeat. Moreover, the large, unexplained shock to income expectations might suggest a permanent change in households' views-a phenomenon that would continue to weigh against a recovery in consumer spending. Or the unwinding of this excess pessimism might provide an extra boost to spending as the economy picks up further. This article highlights some recent work on income expectations-an area of ongoing study.

7---Companies Holding Lots More Cash, WSJ

21.4%: Share of corporate cash holdings held in, well, cash.
U.S. nonfinancial companies has $1.8 trillion in cash on their books at the end of the second quarter, according to the Federal Reserve’s quarterly “flow of funds” report (now known formally as the “Financial Accounts of the United States”). But that figure includes a lot of assets that most people wouldn’t consider “cash” in their day-to-day lives, such as treasury securities, mutual fund shares and commercial paper. Use a narrower definition of cash –just checking-account deposits and literal currency — and companies had about $386 billion on hand, or a bit more than a fifth of their total liquid assets.

8---QE and the epic credit bubble, prag cap

9---More Americans Worried About Their Finances, WSJ

Americans aren’t too happy about their finances.
About 42% of Americans feel negative about their income and 51% feel negative about their savings, according to a new survey by CEB, a business advisory firm. Nearly 40% are discouraged about their progress toward financial goals.

The culprit? The erosion of real income, said CEB managing director Peter Aykens. Stagnant wages translate to weak spending power, particularly as Americans are battling high – and rising – costs for rent, groceries, gas and other basic necessities, according to the group’s latest Consumer Financial Monitor survey.

People aged 30-46 who are less affluent are feeling the most financial pressure, the report said.
That group of Americans said they’re feeling worse about their paychecks now than they were earlier this year. Only 24% felt positive about income in the third quarter, down from 38% in the first three months of the year. Confidence about paying off debt and satisfaction with credit and borrowing products also declined in the time period.
The overall negative feelings could directly influence how Americans feel about financial-services providers, even if those institutions haven’t done anything wrong, the group warned. That could spur consumers to move bank accounts or close credit cards.

The respondents that felt more positive about their incomes in the third quarter than they did in the first were young people (ages 18-29) with more than $100,000 in investable assets, and older middle-income earners (ages 47-65) with fewer assets.
The survey, which started in 2011, measures and tracks the financial sentiments and activities of consumers in 24 countries

10---QE distortions from misunderstanding?, Prag cap

 I didn’t actually say that I thought credit markets were in a bubble and if that’s the message some people got then let me be clear that I have no idea.  What I was trying to say was that QE can cause market distortions that might not be healthy and that QE is so widely misunderstood that people tend to react irrationally to it.
Personally, I think the evidence is pretty cut and dry that QE has distorting elements.  Hell, even Brian Sack, who ran the SOMA desk said one of the main goals of QE was to “keep asset prices higher than they otherwise would be”.  Do we need more confirmation that QE is actually designed to distort markets?  Anyone who doesn’t think QE is distorting the market is either not paying attention or still doesn’t understand how it works (thereby contributing to the distortion!).  Now, that doesn’t mean QE is causing bubbles everywhere or that there are even any bubbles at present, but I find it rather disturbing how some people approach QE in such a blase manner.  There are real potential risks (and benefits) to this program.  And we shouldn’t downplay them without looking at what the program has actually done and what it is intended to do and how that might influence the future economic environment

11---The class issues in the US budget crisis, wsws

What is the budget crisis really about? The threat to shut down the government is, in the first instance, yet another attempt to impose massively unpopular spending cuts by whipping up a crisis atmosphere...

The Affordable Care Act lays the groundwork for corporations and local governments to shed their insurance coverage for employees, offloading their workers onto the newly established health care exchanges, where they will be required to purchase private insurance. Today, Obama administration officials are meeting with Detroit’s emergency manager, Kevyn Orr. Along with the gutting of city workers’ pensions, Orr is proposing to eliminate health care benefits for retirees and shift them onto the exchanges or, if they are over 65, onto Medicare.

The Affordable Care Act is essentially a Democratic Party appropriation of health care “vouchers,” which Republicans have championed for decades as a means of undermining employer-provided health coverage and privatizing Medicare, the government-run program for seniors. Under Obama and the Democrats, this reactionary policy is presented as a “progressive” social reform in an attempt to fool the people and provide political cover for the trade unions and liberal and pseudo-left organizations that orbit around the Democratic Party to back it.

The entire budget “debate” takes place amid record corporate profits, soaring inequality, and a booming stock market fueled by $85 billion per month pumped into the financial system by the Federal Reserve.
The fact that under conditions of mass unemployment, growing poverty and falling wages the conflict between various sections of the political establishment is over how quickly to implement measures that will throw millions more into poverty says a great deal about the character of the US political system.

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