Wednesday, December 18, 2013

Today's links

1---Obama Least Popular President In 4 Decades, Washington's blog

A new Washington Post/ABC poll released today shows that Obama is the least popular president in 39 years:

The president’s overall approval rating stands at 43 percent, while disapproval is at 55 percent.

Obama ends his fifth year in office with lower approval ratings than almost all other recent two-term presidents. At this point in 2005, for example, former president George W. Bush was at 47 percent positive, 52 percent negative. All other post-World War II presidents were at or above 50 percent at this point in their second terms, except Richard M. Nixon, whose fifth year ended in 1973 with an approval rating of 29 percent because of the Watergate scandal that later brought impeachment and his resignation.

Why is Obama so unpopular?

Because – as horrible as Bush was – Obama is worse than Bush in favoring the super-elite, bailing out the big banks, protecting financial criminals, targeting whistleblowers, keeping government secrets, trampling our liberties and starting military conflicts in new countries.

Obama is even worse than Bush in redistributing wealth from the American people to a handful of fatcats and trampling civil liberties.

2---More proof QE is deflationary: CPI, Jobs, Hourly Earnings, Real Retail Sales Show QE-ZIRP Fail, Testosterone Pit 
The headline Consumer Price Index for November was 0%. Since the onset of QE3 and 4 in November 2012, CPI has trended from an annual rate of 2% to now 1%. With the latest CPI data now posted, it’s an opportune time to go back and look at several other economic indicators, including key measures adjusted for inflation to show the growth rate in real constant dollar terms.

Fed Policy and CPI - Click to enlarge
Fed Policy and CPI – Click to enlarge

Last week I posted a chart of PPI showing that the Fed’s policies, far from boosting inflation, which is the Fed’s aim, are actually deflationary. The CPI shows more of the same. The latest round of QE accompanying a Fed Funds rate near zero have seen the CPI go negative month to month and approach 1% year to year.

The Fed is like a rat chasing its tail. The more money it prints and the more income it steals from America’s middle class and elderly savers, the less inflation it gets. The less inflation it gets, the more it is encouraged to print more money and keep ordinary Americans from earning a dime on their savings. In fact, the Fed is content to force many elderly Americans to consume their savings and be forced on to food stamps and Medicaid. Oh, sorry. No food stamps for you! Congress has cut those benefits to save a pittance on the deficit while restoring billions in military cuts.

The Fed’s primary goal of QE and ZIRP is for stocks to rise so that all that newly created wealth (AKA fictitious capital) in the hands of the top 7% of the income strata will trickle down to the masses. After nearly 5 years, we are still waiting for that to happen, as a growing number of Americans constantly fall out of the labor force, and those who remain see their wages stagnate.  Five years of pumping  free money to banks and leveraged speculators have left us with still only 47.5% of Americans having full time jobs....

While the Fed has enforced ZIRP, the nominal growth rate of average hourly earnings has been stuck around 2%. For most of the past 4 years, that’s been at or below the CPI growth rate. Real wages have not grown at all.  This has held whether the QE spigot was on or off. The Fed has pumped furiously for the past year and wages of the 48% of Americans who actually have a job have stayed stuck at 2% nominal growth. At least that’s better than for the millions who don’t have work at all. Meanwhile housing prices have risen 12.5% and stock prices 28%....

The data show that QE and ZIRP are failing to stimulate retail spending. Real retail spending growth per capita peaked at 5.8% in November 2010 after a 6 month pause in QE. The Fed started pumping again through June 2011 (QE2). Retail spending growth fell to zero over the course of QE2....

The Fed’s aims for QE and ZIRP are to stimulate the economy, create jobs, and drive just a little inflation. It’s clear that the more it pursues these programs, the less they work. They were correlated with a rebound in 2009 and 2010, but whether they actually caused that rebound or the economy had simply stretched as far as it was going to on the downside and was destined to recoil anyway can’t be known. The pundits who proclaim that the Fed “saved the world” are stating their assumptions, not fact.
Since the 2009-2010 rebound, it has become abundantly clear that the apparent correlation between QE/ZIRP and economic recovery no longer exists.  Stock market gains have not trickled down. Inflation is subsiding, not increasing. While the rich get richer from their QE driven stock market gains, ZIRP continues to rob millions of Americans of their life savings and reduce their spending power.
These immoral policies can no longer be justified on the grounds that they work

3---The Employment-Population Ratio falls to 1980's lows, Testosterone Pit

While the unemployment rate has come down nicely into a politically correct ballpark, the Employment-Population Ratio – workers as percent of total working-age population – stubbornly clings to lows last seen in the early 1980s. It peaked at 64.7% in April 2000. Last month, it stood at a miserable 58.6%. It says: yes, companies have been hiring, but only enough to keep up with the growth of the working-age population.

For many individuals, the situation has gotten worse: Median household income, adjusted for inflation, fell 8.3% between 2007 and 2012, the Census Bureau reported. The top 5% are back at their real income peak, with the top 20% getting closer. But incomes of the remaining 80% are drifting ever lower (graph by quintile). An insidious twist for a recovery – and for retailers that cater to the increasingly hollowed-out middle class.

So luxury retailers have done well. But....
“The middle-tier types of firms are suffering,” explained Jack Kleinhenz, chief economist for the National Retail Federation. “There is a lot of competition in retail, and they have very thin margins. There’s going to be a sorting among retailers

4---The Plunge in Phoenix, housingwire

While there is a 40% increase in active listings from Nov. 1 last year to Nov. 1 of 2013, the demand has tumbled, with the amount of single-family home sales activity falling 19% from October a year ago to this year.
According to Orr, supply is expected to exceed demand before the end of the year, even though supply is still 15% to 20% below what would be considered normal. This is attributed to the sudden weakness in consumer sentiment, including concern over the recent government shutdown.
  
"When you ask people under 30 whether they want to buy a home, they’re not planning on it like past generations," Orr noted. "Also, demand for starter homes is limited by the difficulty of first-time home buyers in qualifying for loans. Plus, less than 3% of the new homes sold in Maricopa County in October were priced below $150,000, so new entry-level homes are getting very scarce."
But the dwindling demand runs even deeper than just locally.

Investors and out-of-state buyers are losing interest in the area as well.

5--Hot housing market turns cold, Reuters

AFTER rapid gains, some of the hottest housing markets in the United States look like they are starting to roll over.

Whether this is a reaction to the run-up in mortgage interest rates in recent months or represents a waning bid from the all-cash financial investors who have so often been marginal buyers is unclear. Either way, volatility in house prices may now prove to be a feature of the system rather than a bug.

In Phoenix, where house prices have risen more than 40% in less than two years, pending sales fell 32% in October, while the number of months (at current sales rates) of supply is up 111% from May.

In Sacramento, the October figures are equally grim, with year-on-year supply up 93% and sales down 20%.

Both Sacramento and Phoenix are markets that have seen a large influx of financial buyers, private equity firms and others trying to put together large portfolios of single-family homes to manage and rent.

Volume isn’t slumping just in the classic boom and bust towns. Washington, DC house sales fell 14% in November, while sales in Silicon Valley, now in the midst of a technology IPO boom, fell 20.9% in November.

Mark Hanson, a real estate adviser and mortgage banking veteran, argues that as supply and volume usually lead price, we could be on the verge of a substantial downdraft in values. “I feel like it’s 2006-2007 again,” Hanson said. “Data are everywhere but nobody is looking, or wants to look.”

To say the current state of the real estate market is unusual is an understatement.

6--Budget agreement: Plenty of austerity but no growth, Dean Baker

it is important to note one of the items not included in the deal. There was no extension of unemployment benefits. As a result, more than 1 million laid off workers will see their benefits cut off in 2014. According to the Congressional Budget Office this will slow growth by 0.2 percentage points and reduce the number of jobs by around 300,000.

Of course Congress could still vote to extend benefits when it comes back in January. However even if this is the case, many unemployed workers will still up ending missing one or two checks.
While Congress did do some reshuffling of funds to make the sequester cuts less painful, one item on the reshuffling list deserves special attention. It is requiring that federal employers increase their contributions to their retirement, effectively cutting their pay by another 1.0 percent. This cut comes on top of pay freezes that effectively cut real wages by more than 5.0 percent over the last three years. Apparently, Congress has not yet tired of beating on air traffic controllers, food inspectors and other members of the federal work force.

But the biggest issue for most of the public is that this is a federal budget that will continue to impose a drag on the economy by preventing the sort of growth that we need to return to full employment. While the stimulus approved by Congress boosted growth and added between 2-3 million jobs, the steep deficit reduction of the last three years has slowed the economy, costing millions of jobs..
The basic point is straightforward. The economy still does not have a source of demand to replace the demand generated by the housing bubble. Bubble inflated house prices led to a new record pace of construction and a consumption boom as homeowners spent based on their illusory bubble-generated housing equity.

With the bubble gone, we are missing close to $1 trillion in annual demand in the economy. There is no mechanism in the private sector that will cause it to replace this demand on its own. Businesses don’t invest just because we profess love for job creators. They invest when they see demand, which is not the case in the current economy.

7--Homebuyers unprepared for reality of rising interest rates, oc housing

 the Fed’s easy-money policies since the housing crash have trained buyers to expect mortgage rates that start with threes and fours. Even more worrying, buyers are showing a high degree of intolerance toward mortgage rate fluctuations, another revelation from this month’s survey. More than 40 percent said they would be unable or unwilling to buy a home if rates rose much further....

This summer gave us an idea of what we can expect. Two weeks after mortgage rates spiked about 1 percentage point in June, the number of Redfin customers taking tours and signing offers dropped 14 percent and 12 percent, respectively. At the same time, the number of brand new homes sold across the country plunged 13.4% from June to July...

Past appreciation was manufactured

In the post, Housing market impact of 25 years of falling mortgage interest rates, I documented how falling rates manufactured significant appreciation over the last 25 years, appreciation which would not exist if rates remained flat.

From this data, the impact of 25 years of falling interest rates can be deduced. Look carefully at the cost of ownership line. Notice that in 1989-1991, the monthly cost of ownership was about $2,000 per month at the peak of that housing bubble. In 2012, the cost of ownership was again $2,000 per month. Twenty-four years apart, the cost of ownership on a monthly basis was unchanged, yet house prices were nearly double. Why is that? Because in 1989, mortgage interest rates were north of 10%, and in 2012, they were 3.5%. All the appreciation from 1989 to 2012 was a direct result of declining interest rates. All of it....

By lowering mortgage rates, the federal reserve pulled-forward seven to ten years of appreciation. The market must endure seven to ten years of below average appreciation to balance the equation, or as a statistician would say, we must revert to the mean.

Take-out buyers will not be as highly leveraged

Back in April of 2007 I first wrote about Your Buyer’s Loan Terms. The future resale value depends on how much future buyers borrow. For future house prices to be higher, future buyers must borrow more than today’s buyers. Ordinarily, future buyers would finance larger mortgages because wage inflation would allow them to make larger payments. However, for that system to work, mortgage interest rates must be steady or falling. Rising mortgage interest rates causes the borrowing power of future buyers to decline, and if wage growth isn’t strong enough to keep up, then mortgage balances don’t grow larger, and house prices don’t go up.

8--EU stagnation and crisis to persist: Single banking union doomed to fail, Billyblog

9---Two key reasons for Japan's record trade deficit , sober look

10--Budget slashing deal set to be ratified by US Senate, wsws

11---“Almost Orwellian”: US Judge indicts NSA spying, wsws

In a moving “Open letter to the people of Brazil,” published in the daily Folha de Sao Paulo Tuesday, Snowden debunked these pretexts, writing that “these programs of dragnet mass surveillance that put entire populations under an all-seeing eye and save copies forever … were never about terrorism: they’re about economic spying, social control, and diplomatic manipulation. They’re about power.”

Snowden concluded that: “When all of us band together against injustice and the defense of privacy and basic human rights, we can defend ourselves from even the most powerful systems.”

The key questions raised by these fundamentally correct observations are: 1) Why does the US government continuously lie to and conspire against the American people, and indeed the people of the entire planet? and 2) How can an effective defense of basic democratic rights be mounted?
The government in Washington operates as a permanent conspiracy because it represents social interests that are diametrically opposed to those of working people, the vast majority of the population. This government—the Obama administration, the Congress, the courts and the vast military-intelligence complex—functions as the political instrument of a financial oligarchy that has vastly enriched itself by criminal and parasitic means, looting the social wealth produced by the working class, while driving down the living standards of the population as a whole.

Within this ruling social layer and among those who represent its interests, there is no constituency for democracy, which is untenable in the face of unprecedented social inequality. It views the masses of working people as an enemy and a threat to be dealt with by means of repression including not only unconstitutional surveillance, but also extra-judicial executions, carried out under Obama by means of drone missile strikes
       
A ruling handed down by a United States District Court judge in Washington Monday found the massive spying operation in which the National Security Agency sweeps up and stores the records of virtually every phone call made to, from or within the United States to be “almost Orwellian.”
While Judge Richard Leon’s decision does nothing to curb the illegal and unconstitutional domestic spying by the NSA, this extraordinary description nonetheless stands as an official admission that the US government is guilty of methods appropriate to a police state.

Edward Snowden, the NSA contractor who exposed the existence of the NSA domestic spying dragnet justifiably claimed the decision as a vindication of his decision to expose these secret operations to the American and world public.
“I acted on my belief that the NSA’s mass surveillance programs would not withstand a constitutional challenge, and that the American public deserved a chance to see these issues determined in open courts,” Snowden said in a statement. “Today, a secret program authorized by a secret court was, when exposed to the light of day, found to violate Americans’ rights.”

In his ruling, Judge Leon, an appointee of former President George W. Bush, said of the NSA’s “metadata” surveillance program: “I cannot imagine a more ‘indiscriminate’ and ‘arbitrary’ invasion than this systematic and high-tech collection and retention of personal data on virtually every single citizen for purposes of querying and analyzing it without judicial approval.”

12---Taper Day; Mortgage applications plummet amid uncertainty, cnbc

Mortgage applications fell 5.5 percent in the past week, to the lowest level in more than 12 years, according to a weekly report from the Mortgage Bankers Association released Wednesday.
The plunge follows a slight increase in interest rates. Refinance and home purchase applications dropped 4 percent and 6 percent, respectively, as investors wait for word from the Federal Reserve on whether it will reduce its bond-buying activity.
"It is a discordant note compared to the more positive data we are seeing in other parts of the economy, including the job market reports and industrial production," said Michael Fratantoni, the association's vice president of research and economics. "Credit tightening could be part of it, rates another part."

13---Why Abenomics will disappoint, martin wolf, FT


...the Japanese debate simply ignores the huge financial surpluses of the corporate sector and the low shares of household disposable incomes and consumption in GDP. So fiscal policy is aimed at raising taxes on consumption, which is now too low, and lowering taxation of corporate profits, which are too high.

Abenomics includes the usual list of “structural remedies”. But these are irrelevant to the real structural concerns. Andrew Smithers of Smithers & Co recommends lower depreciation allowances. Without a shift in incomes from corporate profits to households, the structural fiscal deficit cannot be eliminated, unless the current account surplus shifts into a gigantic surplus. It is bad enough that the eurozone is pursuing that strategy. Japan should not expect to do the same thing.




 

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