Thursday, January 2, 2014

Today's Links

1---Scarred U.S. consumers a hard sell for traditional retail, Reuters

If there was one lesson from this year's holiday shopping season, it is that many traditional retailers are having to work a lot harder to persuade Americans to open their pocketbooks.
A lot of stores had to discount heavily to eke out a modest increase in sales, likely squeezing profit margins in the process.

Some improvement in the U.S. economy and declines in the jobless rate, plus gains in stock and home prices, are failing to resonate with many Americans whose incomes are struggling to catch up to where they were before the financial crisis.

But to many retail experts and economists there are other less cyclical factors at play. Consumers are spending more. Government figures show monthly personal consumption has risen for seven straight months, with November's outlay marking the fastest increase in five months. But they just are not spending in the shopping malls like they used to.

And that means that, even if the economy picks up significantly, retailers of many products could still struggle....
In addition, increasing healthcare costs have been eating up discretionary income, with many employers seeking higher contributions from their staff.
According to the Commerce Department, spending on services hit an annual rate of $7.1 trillion in November, by far the biggest slice of overall consumption...

As data from MasterCard showed last week, it took deep discounts and hefty promotions to spur a 2.3 percent rise in holiday sales between November 1 and December 24 compared with a year earlier. The figures include apparel, jewelry, electronics, luxury goods and home furnishings.
...
The improvement in the economy and gains in asset prices have also clearly not trickled down to large segments of the broader population.
Hiring has picked up, helping to push the jobless rate to a five-year low of 7 percent in November, but some 11 million Americans are still unemployed, and many are earning less than before the recession. When adjusted for inflation, average weekly wages have barely budged since late 2008.
That has made Americans, particularly those in middle- and lower-income brackets, far more discerning when it comes to their spending.

"There's been psychological scarring for people from this recession, much like how some people who lived through the Depression said they were scarred," said Hoffman. "There are still a lot of people who can't afford to do much, and those who can are holding back."

2--US mortgage applications tumble to a 13-year low, NYT

3--A distorted picture of poverty in America, Everett Herald

the traditional media's one-sided image of poverty has contributed to the misconception that most poor people are black and that most black people are poor -- although more than 70 percent are not.

This stereotype, like most stereotypes, harms black people in myriad ways, especially because the political right has linked poverty with moral failure as a trope to undermine public support for government programs -- remember Ronald Reagan's welfare queen? These tactics didn't end in the 1980s. Last week, for example, Fox News' Brad Blakeman said the government was "like a drug dealer" peddling "dependency" to food-stamp recipients.

Social scientists and others have long made the observation that the media overemphasizes people of color in coverage of poverty and government benefits. But if the message hasn't yet reached even the New York Times, it clearly needs to be said again.

4---Stock Market Has Great Year, You... Not So Much, mark gongloff

. For Corporate America, the days are pretty daggum happy, with profits hitting record highs along with the Dow and S&P 500. Those of us lucky enough to own stocks are, on paper, a bit wealthier than we were a year ago. At least part of the rally in stocks has been driven by signs of a resilient, if not exactly gangbusters, economy. It is a far, far better thing for stocks to be rising than for them to be falling, all in all.

But only about half of Americans own stocks, including those in retirement accounts. Meanwhile, corporate profits are soaring largely because companies have been squeezing costs -- especially labor costs.

You guessed it: The lagging line is your sad hourly earnings. They have barely budged since the market bottomed in 2009, while the Dow has skyrocketed 153 percent. Between November 2012 and November 2013, the latest data available, hourly wages for nonsupervisory workers rose just 2.1 percent, just barely ahead of inflation.

This may be why, despite a steady drumbeat of good news out of the stock market, more than half of Americans still think the economy is getting worse, not better

5--Americans on Wrong Side of Pay Gap Run Out of Means to Cope, Bloomberg

Rising income inequality is starting to hit home for many American households as they run short of places to reach for a few extra bucks.
As the gap between the rich and poor widened over the last three decades, families at the bottom found ways to deal with the squeeze on earnings....

The result has been a downsizing of expectations. By almost two to one -- 64 percent to 33 percent -- Americans say the U.S. no longer offers everyone an equal chance to get ahead, according to the latest Bloomberg National Poll. The lack of faith is especially pronounced among those making less than $50,000 a year, with close to three-quarters in the Dec. 6-9 survey saying the economy is unfair.

“I’ve had good jobs and bad jobs. But it always seemed like something would come along and keep me from getting ahead,” said Diana Kraft, 54, a homemaker in Denton, Texas...

The diminished expectations have implications for the economy. Workers are clinging to their jobs as prospects fade for higher-paying employment. Households are socking away more money and charging less on credit cards. And young adults are living with their parents longer rather than venturing out on their own.

In the meantime, record-high stock prices are enriching wealthier Americans, exacerbating polarization and bringing income inequality to the political forefront. Even independent government agencies like the Securities and Exchange Commission and the Federal Reserve have been dragged into the debate.
“The basic bargain at the heart of our economy has frayed,” Obama said in a Dec. 4 speech in Washington. “This is the defining challenge of our time: Making sure our economy works for every working American.” ...

The recession actually interrupted the trend and temporarily narrowed the gap between rich and poor. Wealthy Americans were hurt by the bear market in stocks as the Standard & Poor’s 500 Index fell more than 50 percent, while the poor benefited from increased payments from the Medicaid health program and other government programs.

The disparity has widened since the recovery began in mid-2009. The richest 10 percent of Americans earned a larger share of income last year than at any time since 1917, according to Emmanuel Saez, an economist at the University of California at Berkeley. Those in the top one-tenth of income distribution made at least $146,000 in 2012, almost 12 times what those in the bottom tenth made, Census Bureau data show...

The recession actually interrupted the trend and temporarily narrowed the gap between rich and poor. Wealthy Americans were hurt by the bear market in stocks as the Standard & Poor’s 500 Index fell more than 50 percent, while the poor benefited from increased payments from the Medicaid health program and other government programs.
The disparity has widened since the recovery began in mid-2009. The richest 10 percent of Americans earned a larger share of income last year than at any time since 1917, according to Emmanuel Saez, an economist at the University of California at Berkeley. Those in the top one-tenth of income distribution made at least $146,000 in 2012, almost 12 times what those in the bottom tenth made, Census Bureau data show

5---How Changes in Expected Future Income Affect Spending Today, yahoo

What people believe they'll earn tomorrow affects what they spend today.
In macroeconomics, an underlying assumption is the consumption-smoothing motive, which means that people generally want a rather even level of spending over time, rather than periods of high spending alternating with poverty.

That means that a person's expectations for future income will affect his or her spending today.
For instance, say John is promised a bonus of $5,000 next year. He has it in writing in a legal contract, so there's no doubt that he will receive this money.
He might wait until he has the money next year to begin spending it. But more likely, his spending this year will also increase compared to what he would have spent if he didn't know he would get a raise.

This basically means that he will save less money this year. Some of the money that he would have saved for the future, he will instead spend on purchases this year, because he anticipates he'll have that bonus check next year....

But in general, the consumption-smoothing motive will also have an effect. If you expect your income to change, either for the better or for the worse, in the future, it is likely that you will start either saving less or more in anticipation for that upcoming income change.
One thing to note is that economists can't measure expected future income directly. They can approximate it, though, by surveying consumers and asking them about their expectations.

6---Over 10,000 Killed in Iraq in 2013, Worst Since 2007, antiwar
           1,180 Killed in December, Capping a Grim Year

7---Ron Paul blasts War in Afghanistan, antiwar

For years many of us had argued the need to get out of Afghanistan. To end the fighting, the dying, the destruction, the nation-building. To end the foolish fantasy that we were building a Western-style democracy there. We cannot leave, we were told for all those years. If we leave Afghanistan now, the Taliban will come back! Well guess what, after 12 years, trillions of dollars, more than 2,200 Americans killed, and perhaps more than 50,000 dead Afghan civilians and fighters, the Taliban is coming back anyway!

The long US war in Afghanistan never made any sense in the first place. The Taliban did not attack the US on 9/11. The Authorization for the use of force that we passed after the attacks of 9/11 said nothing about a decade-long occupation of Afghanistan. But unfortunately two US presidents have taken it to mean that they could make war anywhere at any time they please. Congress, as usual, did nothing to rein in the president, although several Members tried to repeal the authorization.
Afghanistan brought the Soviet Union to its knees. We learned nothing from it.

We left Iraq after a decade of fighting and the country is in far worse shape than when we attacked in 2003. After trillions of dollars wasted and tens of thousands of lives lost, Iraq is a devastated, desperate, and violent place with a presence of al Qaeda. No one in his right mind speaks of a US victory in Iraq these days. We learned nothing from it.

We are leaving Afghanistan after 12 years with nothing to show for it but trillions of dollars wasted and thousands of lives lost. Afghanistan is a devastated country with a weak, puppet government – and now we negotiate with those very people we fought for those 12 years, who are preparing to return to power! Still we learn nothing.

Instead of learning from these disasters brought about by the interventionists and their failed foreign policy, the president is now telling us that we have to go into Syria!

US Army Col. Harry Summers told a story about a meeting he had with a North Vietnamese colonel named Tu while he visiting Hanoi in 1975. At the meeting, Col. Summers told Tu, "You know, you never defeated us on the battlefield." Tu paused for a moment, then replied, "That may be so. But it is also irrelevant."

Sadly, that is the story of our foreign policy. We have attacked at least five countries since 9/11. We have launched drones against many more. We have deposed several dictators and destroyed several foreign armies. But, looking around at what has been achieved, it is clear: it is all irrelevant.

8---Ireland’s Nelson Mandela, RT

9---A housing boom driven entirely by speculators, OC housing

The current housing boom is the first nationwide boom since the postwar era not driven by increased demand for owner-occupied housing....

House prices have been appreciating across U.S. cities since 2012. Traditionally, rapid appreciation has been localized in areas with rapid economic growth and/or migratory flows. This time, things appear to be different....
According to the Zillow Home Value Index, house prices have risen in many areas with slow growth (i.e., Detroit or Memphis). This essay analyzes the recent housing boom and explains why this episode differs from previous ones....

This shift from owner-occupied to tenant-occupied housing has increased rental prices across all cities. The increased rental prices and the expectation of future capital gains have encouraged investors to purchase single-family homes in the low and middle tiers and generated a new housing boom. These observations suggest the current housing boom is the first nationwide boom since the postwar era not driven by increased demand for owner-occupied housing. The current episode could solidify the idea that housing booms can be driven entirely by investors.

10---Getting weirder all the time: RealtyTrac estimates that 47% of the nation’s foreclosed homes are currently occupied., Dr Housing bubble


“(CNN Money) RealtyTrac estimates that 47% of the nation’s foreclosed homes are currently occupied. The percentage actually tops 60% in some hot housing markets, like Miami and Los Angeles.
Those still living in repossessed homes include both former owners and renters. Either way, their time in the homes is mortgage and rent free.”
This is a big deal.  This is another factor contributing to the lack of actual inventory on the market.

Many of these homes were sold to investors.  In markets like those in Arizona and Nevada investors made the majority of purchases.  I’ve tried finding a parallel reference point in history for our current real estate market with no luck.  We are truly in uncharted waters here.  Yet I hear people speak with such conviction and certainty.  Once again we are in a new world of real estate and in no other time do you see investors taking on such a big role in housing.  Applying market analysis will work if this were truly a market.  It is not.  The Fed and banks have created an artificial real estate sector.  This is how you explain a dramatic rise in prices with a subsequent drop in inventory.

The real estate market has slim pickings for traditional buyers.  Funny thing that we have to use the “traditional” preface since the market is overrun with a hoard of investors.  I am seeing this with my own two eyes.  You are seeing it as well.  In most ordinary cases a rise in prices would be accompanied with some sort of rise in supply.  Yet this is no ordinary situation.  Scouring over a few reports I found that nearly half of foreclosed homes are still occupied.  In places like California and Miami this number is closer to 60 percent.  When these homes finally get fully repossessed, they are likely going to big money investors that end up holding on to the property, removing it completely from the market.  There is little doubt that investors are a big part of the market.  Since 2011 they have purchased over $1 trillion in real estate.  With razor thin inventory, this is a big deal.

Over 5 million repossessed homes and counting
5.4 million completed foreclosures occurred between 2006 and 2012

11---Wal-Mart Donkey meat recall in China, Reuters

Wal-Mart Stores Inc, the world's largest retailer, has recalled donkey meat sold at some outlets in China after tests showed the product contained the DNA of other animals, the U.S. company said.
Wal-Mart will reimburse customers who bought the tainted "Five Spice" donkey meat and is helping local food and industry agencies in eastern Shandong province investigate its Chinese supplier, it said late on Wednesday in official posts on China's Twitter-like Weibo. The Shandong Food and Drug Administration earlier said the product contained fox meat.

The scandal could dent Wal-Mart's reputation for quality in China's $1 trillion food and grocery market where it plans to open 110 new stores in the next few years. China is the largest grocery market in the world and is set to grow to $1.5 trillion by 2016, according to the Institute of Grocery Distribution.

12---U.S. and China: When the giants unwind, Andy Xie, marketwatch
Commentary: Withdrawal of stimulus could well cause a fresh crisis

What’s unstable in the United States is that its stimulus policy has vastly inflated non-tradables like housing, health care and education, which makes internationally competitive wages insufficient for a minimum living standard. This could be the driver for stagflation in the United States. As labor demands a living wage, say, doubling minimum wage to $15 per hour, the Fed may be forced to restart QE to counter its negative impact on labor demand, which leads to a price-wage spiral.
                                       
The Fed’s tightening cycle this time is far from predictable, even though the Fed tries to project such an impression. If a financial crisis breaks out, either at home or among emerging markets, the Fed would be back to pumping liquidity to stabilize the market, which would be another step toward stagflation. If a labor movement at home depresses labor demand, it would be back to QE again, which also leads to stagflation.
I predicted that stagflation is the ultimate outcome for the global economy
...
After the 2008 financial crisis broke out, I predicted widespread monetary and fiscal stimulus all around, and such stimulus wouldn’t bring back sustainable and sound growth, eventually leading to another crisis. I also predicted that stimulus advocates would blame the failure on insufficient stimulus. My predictions have come halfway true so far. Another financial crisis will make them wholly true....

Neither China nor the United States has built a sustainable growth dynamic with stimulus. As the stimulus side effects — bubbles and rising leverage — become the main show, unwinding stimulus becomes urgent. This is why both countries are likely to take tightening steps.

Smooth tightening is rare

Unwinding stimulus is usually a dangerous business. One never knows how much hot air the stimulus has created. When it leaks, it could cause a big explosion. For example, the Fed’s tightening cycle in the past usually triggered an emerging-market crisis. As the United States itself isn’t on a strong growth path, the risk at home is substantial.
I’m surprised by how weak the United States’ growth has been, considering how much household wealth has risen. Hindsight suggests that the wealth increase is concentrated in a small minority who are too rich to spend all the gains. Before 2007 property inflation was driving household wealth, which benefited most people. As Wall Street created financial products for the masses to borrow against property appreciation, the economy benefited from a powerful wealth effect

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