Monday, November 25, 2013

Today's Links

1---Washington turns bond market upside down, FT

2---Where the Empty Houses Are, (Er, don't we call this "shadow inventory"?) atlantic cities

The 2013 third quarter Census Homeownership and Vacancy survey shows that the vacancy rate is still above its pre-bubble level and remains unchanged from one year unusually high share of vacant homes today is being held off the market. The elevated vacancy rate discourages new construction activity and is therefore one of the major hurdles to a full housing recovery...

In the third quarter of 2013, 10.2 percent of housing units were vacant, excluding vacant homes that the Census classifies as "seasonal," such as beach homes. Vacant homes include those for sale or for rent, as well as homes "held off market" for various reasons. This vacancy rate of 10.2 percent  – the share of homes that are empty – was unchanged from 2012 Q3 and well above the pre-bubble level. In fact, the vacancy rate today (10.2 percent) is closer to its peak during the recession (11.0 percent in Q3 2010) than before the bubble (8.8 percent in Q3 2000)....

How can the for-sale inventory be relatively low while the vacancy rate is high? Because the share of vacant homes being held off the market – that is, neither for sale nor for rent – is rising. In 2013 Q3, 53.5 percent of vacant homes were held off market, up slightly from 52.9 percent in 2012 Q3 and from a low of 45 percent at the height of the housing bubble in 2006.

 In other words, the for-sale inventory is back down to its 2000 level, and tight inventory has helped fuel sharp price increases across the country over the past two years. That means there’s an inventory shortage, but not a housing shortage:...

How can the for-sale inventory be relatively low while the vacancy rate is high? Because the share of vacant homes being held off the market – that is, neither for sale nor for rent – is rising. In 2013 Q3, 53.5 percent of vacant homes were held off market, up slightly from 52.9 percent in 2012 Q3 and from a low of 45 percent at the height of the housing bubble in 2006.....

At the same time, there were declines in the number of vacant homes in foreclosures or other legal proceedings, which is consistent with other data showing big drops in the share of homes in the foreclosure process.
Many of the vacant homes now being held off the market won't stay off the market forever. Homes under repair or being prepared to be sold or rented could come onto the market. These homes would then be added to the active inventory, which would slow down or even reverse price and rent increases while giving house hunters more housing options. However, the trend in the vacancy rate also depends on how fast vacant homes fill up, which hinges on the growth in the number of households. The Census survey showed that household formation, at 380,000 over the past year in Q3, remains below the normal level of 1.1 million; the underlying survey data showed a slight year-over-year increase in the share of Millennials (age 18-34) living with their parents. Without more new households, vacant homes will fill up slowly....
The vacancy rate, therefore, remains a hurdle for the housing recovery. Even though listed inventory is tight, many vacant homes are being held off the market. The overall vacancy rate is above its pre-bubble level and moving downward slowly and irregularly. For construction, and the housing market overall, to return to normal, more vacant homes must be occupied.
...Right from the start, you can see that there has been a lot of semantic drift in the word “bubble”. From having once referred to a specific model of how prices could depart from fundamentals in a rational expectations model, to referring to any general inflation of securities valuations, Summers and Krugman appear to be using “a succession of bubbles” to refer to “any period during which personal gross debt increased based on rising asset values”. As an opponent of linguistic inflation, I’m already prejudiced against this way of thinking of the economic history of the last two decades. But  in describing the growth in debt as if it was a purely exogenous phenomenon, due to nothing other than animal spirits and irrationality, there’s a really dangerous kind of mistake being made.

It was policy! For more or less the entire period in question (call them “The Greenspan Years”), the growth of consumer spending, financed by increased consumer debt, was the main instrument of policy. I suppose I might be misremembering but I really don’t think I am, and I was there and I read a lot of FOMC minutes. The US authorities wanted to manage aggregate demand, but during the entire period, the fiscal authorities had either a deficit reduction target (Clinton) or a massive unfunded war (Bush), and so they made the goal of interest rate policy the management of consumer demand. This consumer demand was financed by debt, but nobody paid attention to this, in my opinion largely because the idea of stock/flow consistency didn’t really feature in the economic models they were using.
4---The Looming Bond Fund Crash , Paul Avery (repeat)
In 2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ….
This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.
The government that permits this to happen is complicit in a vast crime.
Galbraith also says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.
Galbraith recently said that “at the root of the crisis we find the largest financial swindle in world history”, where “counterfeit” mortgages were “laundered” by the banks.

6---China's Central Bank Announces Job Creation Program for the United States, Dean Baker

According to Bloomberg, YI announced that the bank would no longer accumulate reserves since it does not believe it to be in China's interest. The implication is that China's currency will rise in value against the dollar and other major currencies.
This could have very important implications for the United States since it would likely mean a lower trade deficit. Since other developing countries have allowed their currencies to follow China's, a higher valued yuan is likely to lead to a fall in the dollar against many developing country currencies. A reduction in the trade deficit would mean more growth and jobs. If the deficit would fall by 1 percentage point of GDP (@$165 billion) this would translate into roughly 1.4 million jobs directly and another 700,000 through respending effects for a total gain of 2.1 million jobs.

Since there is no politically plausible proposal that could have anywhere near as much impact on employment, this announcement from China's central bank is likely the best job creation program that the United States is going to see. It deserves more attention than it has received.

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Even the most bullish investor would admit that sluggish economic growth, a lacklustre labour market, and political discord are hardly the logical bedfellows of a stock market at new highs,” says Nicholas Colas, chief market strategist at ConvergEx.
“The current market action of a year end melt-up coming after five years of truly solid returns for US stocks, seems at first blush to be irrational performance-chasing. And who knows, it may end up being exactly that.”
Certainly the return of money into US stocks after outflows in 2011 and 2012 has been one catalyst for outsized performance. According to Lipper, investors have pumped a net $285bn into US equity mutual funds and exchange traded funds in 2013, the best year for the market since their records began in 1992.

7---On a roll. Stocks will rise forever! A "permanently high plateau." What Bubble? NASDAQ Rises Above 4,000, Back To Year 2000, Dot-Com Bubble Levels, zero hedge

8--Pending homes sales tank 5 months straight, cnbc

Signed contracts to buy existing homes fell for the fifth straight month in October, as the government shutdown added to an overall slowdown in the U.S. housing market. So-called pending home sales eased 0.6 percent from an upwardly revised September reading and are down 1.6 percent from October 2012, according to the National Association of Realtors.
This is the lowest sales pace since December 2012. Pending home sales are an indicator of closed sales in November and December.
While the Realtors' survey, which draws its data from regional multiple listing services, showed a big drop in the usually investor-heavy West, another report saw investors returning to the market in October after stepping back earlier in the year. After surging to 23 percent of the market in February, investors made up just 16.6 percent of home buyers in August, according to Campbell/Inside Mortgage Finance. Over the past two months, however, that share has climbed back to 17.4 percent.
(Read more: Map: Tracking the recovery)
"The two-month rise in investor activity is significant given that it occurred at the same time the proportion of distressed properties in the housing market has continued to fall," the report said

9---Economists trim short-term US growth forecasts, cnbc

The economy is expected to grow at a rate of 1.7 percent for all of 2013 and 2.6 percent in 2014...

The most recent official unemployment rate released by the government edged up to 7.3 percent in October from 7.2 percent.
The Fed has promised to hold interest rates near zero until unemployment hits 6.5 percent, provided the outlook for inflation stays under 2.5 percent.
Inflation was expected to remain muted, with year-on-year headline consumer price inflation averaging 1.4 percent in the fourth quarter of 2013 and 2 percent in the fourth quarter of 2014. Those numbers were unchanged from prior estimates.
The year-on-year core reading of CPI, which removes food and energy, was also steady at 1.8 percent in 2013 and 2 percent in 2014.
(Read more: Treasurys remain boosted by Fed reassurance)
On a quarter-on-quarter basis, core CPI was forecast at 1.7 percent in the fourth quarter and 1.9 percent in the first three months of next year. Both were revised down slightly from the previous forecast.

10---The 16,000 Dow, wsws

The Dow Jones Industrial Average closed above 16,000 for the first time ever on Thursday, following seven consecutive weeks of gains. This was immediately followed by another milestone: the Standard & Poor’s 500 stock index closed at 1,804, the first time it closed above 1,800 in history.
The Dow is up by 24 percent over the past year, having doubled since 2009. The S&P 500 is up by 28 percent.

Far from expressing a genuine economic recovery, the rise in the stock market coincides with economic stagnation or outright contraction in the US, Europe and much of the rest of the world. More than five years after the September 2008 Wall Street crash, the US and world economies remain mired in the deepest slump since the Great Depression of the 1930s.

The fever chart of soaring stock prices, corporate profits and CEO pay occurs alongside growing poverty, mass unemployment, and ever more staggering levels of social inequality.
There is a parallel between the upward arc of stock prices and the upward trajectory of the indices of social misery and deprivation. The number of people receiving food stamps in the US climbed from 28.2 million in 2008 to 47.7 million in April 2013, an increase of 70 percent. This number continues to swell, with over 1 million new food stamp recipients added between 2012 and 2013.....

The urgent task is the building of an independent political movement of the working class based on a socialist program. The Wall Street casino must be shut down and the trillions of dollars stolen from the population impounded and used to meet the needs of the people for jobs, decent wages and benefits, education, and health care. The banks and corporations must be nationalized and placed under public ownership and democratic control, and the economy reorganized to meet social needs, not private profit.

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