Monday, April 14, 2014

Today's links

Today's quote:  "More and more people are turning against the EU and see it for what it is—a tool of the most powerful banks and corporations, directed against working people and creating the conditions not for the progressive unification of Europe, but for the intensification of nationalist conflicts." Peter Schwartz, world socialist we site

1---Recovery for Whom?, NYT

Another shocker is that those in the 25-to-34 age group are the best educated cohort in American history, with more than a third having a bachelor’s degree or higher. Education is important. But clearly, education alone does not create jobs and opportunities that lead to prosperity. For that, a fair and functional economy is needed — one in which the government plays a robust role, alongside consumers and businesses, to promote full employment and to ensure a just distribution of gains....

Americans age 25 to 34, the leading edge of the so-called millennials, the generation born in the 1980s and 1990s. They are worse off than Gen Xers (born from the mid-1960s to the late-1970s) were at that age and the baby boomers before them by nearly every economic measure — employment, income, student loan indebtedness, mobility, homeownership and other hallmarks of “household formation,” like moving out on their own, getting married and having children.

This group had the bad luck of entering the work force in the depressed and slow-growth years that started when the recession hit in 2007. Instead of spending the crucial early years of their work lives laying the groundwork for a solid economic future, many of them have struggled with unemployment and underemployment, and many have fallen so far behind where they would hope to be that recovering lost ground may well be impossible.

According to the latest census data, nearly 16 percent of those in their mid-20s to mid-30s were in poverty in 2012, compared with just above 10 percent of Gen Xers in 2000 and baby boomers in 1980. Nearly 14 percent of that age group were living with their parents in 2013, a higher percentage than in previous generations. And of those living at home, 43 percent (2.5 million people) would be counted as being in poverty if they were on their own. Only 38 percent of those who were on their own were homeowners, compared with 46 percent from this age group who were on their own in 2000.

The median household income of this age group — $51,381 in 2012 — is nearly $8,000 less than the median for the same age group in 2000 and virtually unchanged from 1980, adjusted for inflation...

 in a study by the Pew Research Center of the entire millennial generation, 74 percent were unmarried; many of them said they wanted to marry but lacked the economic wherewithal. Even among those age 25 to 34, only 44 percent were married in 2013, compared with 55 percent in 2000 and 66 percent in 1980.

2---U.S. Crude Reserves Hit Highest Levels in nearly 40 Years, oil price

3---The Consumer as a “Shadow of its Former Self”, House of Debt

Chicago Fed President Charles Evans noted last week that “the U.S. consumer is slowly improving but is just a shadow of its former self.” We couldn’t have said it better. Retail sales for March is out this morning, and we thought it would be a good time to examine why household spending has been so weak using data that were just updated through 2013.

The chart below plots spending of U.S. households from 2006 to 2013. We split states into five groups, and we plot household spending for the 20% of states that had the worst housing crash from 2006 to 2009 and the 20% of states that had the smallest decline in house prices over the same period. Both groups contain 20% of the population, and the states in the worst housing crash group are Arizona, California, Florida, Michigan, and Nevada. The states where house prices fell the least include about 15 states scattered throughout the country. Both series are indexed to be 100 in 2006, which allows one to calculate the percentage change relative to 2006 for any year by simply taking that year’s spending position on the y axis and subtracting 100.

Two things jump out. First, spending declined during the Great Recession by much more in states where house prices fell the most. This is something we have documented in our own research. But perhaps more importantly, the recovery in spending has been very weak in these areas. In 2013, spending in states where house prices fell the most finally increased above its 2006 level. It has taken 7 years for spending to recover in these states! This is related to an earlier post we did using furniture spending to see the legacy of the housing bust.
The chart above shows clearly that any explanation of the severe recession and weak recovery must have housing as a central feature. Even though house prices have risen more in areas that had the worst crashes.

Prime Minister Shinzo Abe’s bid to vault Japan out of 15 years of deflation risks losing public support by spurring too much inflation too quickly as companies add extra price increases to this month’s sales-tax bump. ...

he challenge for Abe and the Bank of Japan is to keep the public focused on the long-term benefits of exiting deflation when wages are yet to pick up and, according to BOJ board member Sayuri Shirai, most people still see price gains as “unfavorable.” Any jump in inflation that’s perceived as excessive by a population more used to prices falling could worsen consumer confidence and make it harder to boost growth.
“Households are already seeing their real incomes eroding and it will get worse with faster inflation,” said Taro Saito, director of economic research at NLI Research Institute, who says he’s seen prices of Chinese food and coffee rising more than the sales levy. “Consumer spending will weaken and a rebound in the economy will lack strength, putting Abe in a difficult position.”

Fast Retailing

The Topix index of shares fell for a seventh day, its longest losing streak since October. The gauge was down 0.1 percent at the close, extending its decline this year to 13 percent after climbing 52 percent in 2013. The yen was little changed at 101.62 per dollar at 4:12 p.m. in Tokyo.
Tadashi Yanai, the billionaire president of clothing retailer Fast Retailing Co., said April 10 that he’s not optimistic about the outlook for consumption, ahead of a plunge in his company’s shares that contributed to this year’s 13 percent slide in the Topix index.

Accelerated inflation would squeeze households, with wages excluding overtime and bonuses declining in February for a 21st straight month, down 0.3 percent from a year earlier, according to April 1 labor ministry data. Saito, ranked No. 3 forecaster last year, sees the risk of a 3.6 percent increase in the April consumer price gauge, which excludes fresh food, after a 1.3 percent gain in February.
A consumer confidence gauge fell for a third straight month in February to 38.3, down from a six-year high of 45.7 last May and the lowest since September 2011, according to a Cabinet Office survey. ...

The sales tax increase is Abe’s biggest attempt since he took office in December 2012 to a get grip on the world’s heaviest debt burden. While his reflationary effort has helped boost the job market, the blow from the higher levy is forecast to trigger a 3.35 percent annualized contraction in the three months from April, according to a survey of economists by Bloomberg.
Abe’s attack on deflation -- spearheaded by unprecedented easing by the central bank -- has helped weaken the yen by 23 percent against the dollar over the past year and a half, boosting the cost of imported goods and energy for Japanese companies....

The BOJ is ready to act if prospects for achieving its price target are at risk, Governor Haruhiko Kuroda said on April 11 in Washington, where he was meeting with finance and central bank officials from the Group of 20.
“If something happens to hobble our progress toward achieving price stability, we are of course prepared to make the necessary monetary policy adjustments,” Kuroda said.

Should data for the April to June period signal a risk to the BOJ’s scenario, there’s a “high likelihood” that the central bank will add to easing at its July meeting, when the board will review of its April Outlook Report, said Goldman Sachs economists Baba and Tanaka.

The central bank could double the 1 trillion yen annual pace it accumulates exchange-traded funds, boost purchases of long-dated government bonds and possibly extend the average maturity of its JGB purchases, the Goldman economists wrote in the April 12 report.

6---Christopher Whalen: The death of mortgage lending, HW

It's not the CFPB's fault

The reality is that mortgage lending is a tough, miserable business with shrinking spreads and rising costs. ....

In the most recent Q1 2014 earnings reported by JPMorgan Chase, for example, the bank reports that its loan applications fell by 57% year-over-year. The readers of HousingWire might be tempted to believe that this precipitous drop in new loan applications is the result of aforementioned regulatory pressures, but in fact the folks at Chase don’t really want to make mortgage loans.
Since 2010, it seems, the overall lack of profitability in mortgage lending has caused Chase, and others, to slowly move away from this asset class. This is why that total mortgage banking headcount at JPMorgan was down nearly 3,000 since the end of the year and about 14,000 since the beginning of last year, according to the conference call on Friday.

Areas such a commercial real estate, commercial lending, credit cards and investment management are going to receive the lion’s share of the capital and management attention. The gross yield on earning assets at all Federal Deposit Insurance Corp. insured banks focused on mortgage lending was less than 3.6% at the end of 2013, for example, but was more than 10% for credit card specialization banks. Even with a higher cost of funds, credit cards is a far better lending business that residential mortgage lending.....

Simply stated, there is nobody available to take that theoretical loan application.
“The new regulations are a very convenient excuse for the large banks to get away from what is a crappy business,” one former senior mortgage banker recently told me.  “When you look at mortgage lending compared to buying more Treasury bonds, the choice is clearly the latter. Mortgage lending was a loss leader even before the new CFPB regulations were put into place.”....

Were there no CFPB or Dodd-Frank Wall Street Reform and Consumer Protection Act, banks and non-banks alike would be backing away from the mortgage business. The significant withdrawal of players such as Nationstar and Bank of America from retail lending, and the collapse of the mortgage wholesale and correspondent markets, is just the start of a more generalized retreat of capital from residential mortgage lending that has its origins long before 2010, before Dodd-Frank passed and the CFPB was created.

The simple reason for this statement is that the mortgage business, as it stands today, is not particularly profitable, in a nominal sense.
If you actually take the time to look at mortgage lending based on a risk-adjusted return on capital, it quickly becomes clear that no rational investor would want to put capital behind a standalone lending operation.

7---Flashing Red Warning: Q1 Earnings Growth Plunges To Lowest Since 2012, zero hedge
Citi Mortgage Originations Drop To Record Low, zero hedge

8---"Teetering at the brink" of WW3, WSWS

The UN Security Council held an emergency meeting Sunday night in New York, a few hours after it was announced that Russia had requested “urgent consultations.”
In calling the meeting, Russia pointed to the danger posed by the declaration of the unelected, Western-backed regime in Kiev that it would launch large-scale military operations to crush protests across pro-Russian regions of eastern Ukraine. The Russian Foreign Ministry said the situation was “extremely dangerous,” adding: “It now depends on the West to avoid the possibility of civil war in Ukraine.”
The convening of an emergency meeting between the world’s leading nuclear-armed powers was an acknowledgment that the rise of civil war conditions in Ukraine, between a pro-Western regime and pro-Russian protests, could lead to a clash between the major powers—that is, of world war.
Russian ambassador to the UN Vitaly Churkin said: “Further escalation must be swiftly stopped.” He stated: “It is the West that will determine the opportunity to avoid civil war in Ukraine. Some people, including in this chamber, do not want to see the real reasons for what is happening in Ukraine and are constantly seeing the hand of Moscow in what is going on. Enough. That is enough.”

9---European Union: From economic community to alliance of warmongers, wsws

More and more people are turning against the EU and see it for what it is—a tool of the most powerful banks and corporations, directed against working people and creating the conditions not for the progressive unification of Europe, but for the intensification of nationalist conflicts.

NATO has begun to move aircraft, ships and troops toward the Russian border and carry out military maneuvers.

Social relations are strained to the breaking point. Within the EU, there are officially more than 26 million unemployed, corresponding to a rate of 11 percent. There is abject poverty in many regions, especially in the Eastern European countries that were incorporated into the EU 10 years ago and in the countries that have had to submit to the austerity programmes dictated by the EU and the International Monetary Fund. But even in supposedly rich Germany, one in three employees is deemed to be working under precarious conditions and 6 million people depend on welfare benefits.
More and more people are turning against the EU and see it for what it is—a tool of the most powerful banks and corporations, directed against working people and creating the conditions not for the progressive unification of Europe, but for the intensification of nationalist conflicts.

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