Wednesday, April 20, 2016

Today's links

1--Venezuela oil minister says U.S. helped ruin deal in Doha

2--How are millions still underwater as home prices rise?

Fast-rising home prices brought 1.5 million borrowers up from underwater on their mortgages in 2015, but there are still twice as many drowning. In total, 3.2 million homeowners nationally still owe more on their mortgages than their homes are currently worth, according to a new count by Black Knight Financial Services.

That brings the average negative equity rate to 6.5 percent, a vast improvement from the worst of the housing crash, but still well above historical norms. More concerning is that negative equity is now concentrated at the bottom price tier of the market. More than 16 percent of borrowers in these homes are underwater, which means they are frozen in place, unable to sell without losing money; these are the homes the market needs most, in order for young renters to become homeowners...

As with everything in real estate, the underwater numbers vary depending on location. Nevada, where home prices are still 34 percent below their peak, wins the dubious distinction of having the largest share of underwater borrowers at 14 percent.

Looking beyond states, at the lowest end of local markets, the bottom 20 percent in terms of price, Memphis, Tennessee, Cleveland, Detroit and St. Louis show negative equity rates at more than 40 percent. Again, these borrowers cannot move without paying into their homes and are 10 times more likely to default on their home loans than those who have even a small amount of equity.

Ironically, the negative equity on the low end of the market is fueling overheated price growth across even the midtiers of the housing market. That is because it plays heavily into the severe lack of supply of homes for sale this spring. Underwater borrowers are less likely to move. On top of that, homebuilders are not focused on the low end, because they can't make enough money on cheaper homes to offset their rising costs for land and labor. The resulting short supply pushes prices higher for what is available on the low end

3--Rent growth eases: Why it is happening here and not there

Sky-high apartment rents are finally beginning to crack.

Annual gains in the first quarter were still a relatively strong 4.1 percent nationally, but that is a significant drop from the 5 percent gains the market was seeing one year ago, according to Axiometrics. The first quarter rate was also 52 basis points lower than that reported in the fourth quarter of 2015. Rent growth has been 4 percent or higher for seven-straight quarters, but wage growth is nowhere near strong enough to meet the gains, leaving renters more cash-strapped than ever before. ...

Sacramento and Portland, Oregon, reported double-digit rent growth in the first quarter....

Occupancy remains high at 94.8 percent nationally in the first quarter, tied for the highest first quarter rate since the 95.7 percent at the start of 2001. It is about the same as one year ago, but down slightly from the fourth quarter of 2015.

4--Wages Are Increasing 2.3% per Year: What Does That Mean?              

Employment and wages are key indicators for the Fed 

Aside from employment, the most important indicator of economic well-being is wages. Despite falling unemployment, one of the conundrums facing the current labor market is flat real or inflation-adjusted wages. Over the past decade, wages have more or less kept pace with inflation, but they haven’t increased

Wages Are Increasing 2.3% per Year: What Does That Mean?

Before the financial crisis, much of the rise in consumption was due to asset price inflation, not wage inflation. Instead of getting big raises, people took out home equity lines of credit to fund consumption. This approach worked as long as housing prices kept rising

However, since the bubble burst, wages have had to fund consumption, and they’ve been more or less flat. In the above chart, you can see how the line changed with the Great Recession in early 2009. Investors are watching closely for the slope to increase.

Is wage growth finally breaking out?

Average hourly earnings rose $0.07 month-over-month in March 2016 and rose 2.3% year-over-year to $25.43. Average weekly hours fell 0.1 hours to 34.4. Given the rough patch in the global economy, the Fed might have an excuse not to hike rates in June. If wage inflation is returning, their hands will be tied.
On another practical level, once inflation starts again, you’ll also see a rise in long-term rates, which you can trade through the iShares 20-year Treasury Bond ETF (TLT).

Implications for homebuilders

Historically, real estate prices have correlated closely with wage growth. That relationship began to change in the late 1990s as wages grew at the inflation rate and real estate prices began posting double-digit gains. Recently, home prices have been rising again, but that’s due to low inventory.

If you use the median home price data from the National Association of Realtors, you’ll find that the ratio of median home price to median income is again approaching bubble-type highs. As the Fed removes accommodation, further home price appreciation will depend on wage growth.

Home price appreciation rates have deteriorated

Virtually all homebuilders’ average sales price growth rates have deteriorated. They’ve been content to keep a lean inventory and raise prices. That strategy seems to have been pushed as far as it can go.

5--Chinese "fire sale" of US stocks

...a falling dollar is good for US stocks because it lures foreign money into the market. And a jumpy dollar, like last year, causes foreign money to flee.

So what’s the outlook for stocks?

Um, despite taking some pretty good licks recently with its bet, Goldman remains a dollar bull. If the bet proves correct, it would send foreign money fleeing. And that’s bad for US stocks...

Chinese companies, supported by state-owned banks and PE firms, have pushed into global M&A on a large scale, including in the US, buying companies lock, stock, and barrel.

But at the same time they’ve been dumping US stocks and bonds.

They’re following the Chinese government, which unloaded $510 billion of foreign exchange reserves in 2015, including $292 billion in US Treasuries, the first ever annual net sell-down, after having religiously piled them up year after year. China still holds about $1.4 trillion in US government debt. So it has a lot left to sell.

That can no longer be said for Chinese holdings of US stocks. From 2008 through the first quarter of 2015, China bought $117 billion of US stocks, riding the big Fed-induced bull market to its peak. Q1 of 2015 was particularly strong, with $20 billion in share purchases.

But in Q2, Chinese investors dumped a net of $14 billion of US stocks; in Q3 $34 billion; and in Q4 they threw another $68 billion out the door, according to a note by Goldman Sachs, reported by MarketWatch. In total, they sold $116 billion in shares over the last three quarters of 2015!...

Other foreigners too lost confidence in US equities. And oil producers – budgets mauled by the oil price plunge – also unloaded US stocks:

  • Canadian investors dumped $80 billion in US stocks after having been loyal buyers for many years. They still have $102 billion left to sell.

  • The Middle East unloaded $39 billion in US stocks, after having already dumped $20 billion in 2014 and $22 billion in 2013. Their holdings are down to a measly $33 billion.

  • Europe sold $24 billion, and still has $556 billion left to sell. If Europe gets more nervous about US stocks, watch out!

In total, foreign investors unloaded a net $171 billion in US equities. And they may lose whatever is left of their appetite for US stocks if China continues to rattle everyone’s nerves, and if the dollar continues to rise....

Goldman estimates that US corporate buybacks will total $450 billion in 2016 – way more than its estimate of foreign selling. Yes, our trusty financial engineering hocus-pocus machine, the relentless and dumb bid that purposefully buys high to push share prices up. That companies prop up the market by buying back their own shares mostly with borrowed money is, as the report put it, “a means of generating shareholder value.”

While that would be down from $561 billion in share buybacks last year, and nothing to write home about, it would still be head and shoulders, so to speak, above the five-year average of $360 billion and the ten-year average of $240 billion. But it would not measure up to the all-time record of $710 billion in 2007, a huge and final bout of “generating shareholder value” just before it all collapsed

6--Leak worsens in massive Hanford tank holding nuclear waste

A leak in a massive nuclear waste storage tank at the Hanford Site has expanded significantly, KING 5 learned this weekend.

After leak detector alarms sounded early Sunday morning, crews at Hanford lowered a camera into the two-foot-wide space between the tank's inner and outer walls. They discovered 8.4 inches of radioactive and chemically toxic waste has seeped into the annulus.

The U.S. Department of Energy released a statement Monday calling the leak an "anticipated" outcome of an ongoing effort to empty the tank in question. The Washington state Department of Ecology said, "There is no indication of waste leaking into the environment or risk to the public at this time."

But one former tank farm worker said the leak should be considered a major problem.

“This is catastrophic. This is probably the biggest event to ever happen in tank farm history. The double shell tanks were supposed to be the saviors of all saviors (to hold waste safely from people and the environment),” said former Hanford worker Mike Geffre.

7--Six Years Later, Worried Gulf Residents to Hold Online Town Hall on BP Spill Health Impacts

Joe Yerkes is a Florida fisherman who joined the cleanup effort of the disaster after he was put out of work by the oil in his fishing waters.

Yerkes was exposed to both oil and dispersants while cleaning up oil.

"I have spent the years since the spill happened literally trying to survive," Yerkes told Truthout in 2014. "I've lost five friends now who were also exposed to BP's oil and dispersants, who were unable to seek proper treatment to extract the chemicals from their bodies before the exposure killed them."

"Not long after his exposure, Yerkes became violently ill, started bleeding from his nose and ears, and began vomiting blood. When he couldn't get well, he had his blood tested and found it contained high levels of chemicals, which his physician attributed to BP's oil disaster," Truthout reported in 2014.

Yerkes said at the time that he had to regularly give himself intravenous treatments of saline flushes and various medications. "I have chronic headaches, a fever, and suffer chronic unbearable pain in my muscles and joints, and have had chemical pneumonia twice so far," he told Truthout.

8--Criminal charges today in Flint water crisis

The charges, which will be brought against individuals connected with the Michigan Department of Environmental Quality and the City of Flint, relate to the lead contamination of Flint's drinking water and not to the possible link between Flint River water and an outbreak of Legionnaires' disease that is tied to the deaths of 12 people, one of the sources said....

One of the more important pieces of evidence, the sources said, was how city and state officials submitted documentation related to the federal Lead and Copper Rule, which governs acceptable levels of those substances in drinking water. The person familiar with the matter said that some officials who worked on and submitted these reports included information they knew to be incorrect.

9---Nomi Prins: Break up the banks

New York based banks were involved in crimes ranging from mortgage securities fraud, to foreign exchange rate manipulation to interest rate rigging to violation of anti-money laundering laws to a host of other financial shenanigans.  Just last week, Goldman Sachs dusted off another $5 billion settlement (much of it tax-deductible) for misleading investors. It isn’t over. ....

If you break up a bank, you break up its ability to scam the public, to stuff loans into fraudulently presented toxic assets and trade them to unsuspecting pension funds. That's what Glass Steagall prevented for decades. You also reduce the cost of investigation and settlements. You reduce the possibility of anyone’s deposit account or mortage loan or insurance contract being held hostage during the next government bailout. You reduce the power inequality that spawns economic inequality. You create longer-lasting global stability. You vote for Bernie.

10--Lack of Household Income Gain Explains Trump & Sanders Appeal

census empl dec

the 90th percentile had a 69 percent increase during the same period, from $93,200 to $157,500. That’s an increase of 1.1 percent a year, almost triple the rise for the median. Households in the 95th percentile saw incomes rise from $117,800 to $206,600. That’s a gain of 75 percent, and an annual growth rate of 1.2 percent. (If you want to see how much more households at the upper extremes of the income distribution did, you can find it here.)

11--Russia calls Saudi bluff after Riyadh threatens to boost oil output

12--'Gold-Fix Cartel': How Western Banks Were Caught With Pants Down

John Crudele, an exceptionally persistent financial journalist with The New York Post and John Williams of Shadow Government Statistics and an exceptional economist, informed me at the time of the gold manipulation reports," Engdahl continues.

"The reason for the fix, which then-Fed chief Alan Greenspan reportedly orchestrated, was to prevent a stampede by panicked investors out of risky stocks and bonds into gold. Had gold profited from the stock panic, it could well have been an early end to the dollar system. It worked then to prevent a gold rise," the researcher underscores.

13--Obama flies to Saudi Arabia amid rising tensions

At the heart of the controversy over the 9/11 report is the fact that this alliance has, since the CIA-orchestrated war for regime change in Afghanistan in the 1980s, involved the use of the Saudi regime and prominent Saudi citizens, such as Osama bin Laden, to mobilize Islamist fighters as US proxies. This has continued through the 2011 war in Libya and the ongoing conflict in Syria, which will no doubt be one of the main topics of discussion at the meeting in Riyadh.

US officials recently revealed that Washington is preparing to implement its “Plan B” in Syria should the cessation of hostilities negotiated at the end of February collapse and the talks between the Syrian government and Western-backed “rebels” in Geneva break down. It would involve the pouring of new and more deadly weapons into the conflict, in particular, anti-aircraft weapons that could be used to bring down both Syrian government and Russian jets.

The unraveling of both the cease-fire and the talks now appears to be taking place. The Syrian Al Qaeda affiliate and its CIA-vetted allies launched an offensive in Aleppo province earlier this month, prompting a government counteroffensive.

The Saudi- and US-backed “High Negotiations Committee” representing the Islamist militias fighting the Syrian government announced Monday that it was suspending its participation in the UN-brokered talks, while the “rebels’” chief negotiator, Mohammed Alloush, the leader of Jaysh al-Islam (Army of Islam), a rabidly sectarian militia fighting to impose an Islamic state in Syria, wrote on Twitter urging a new offensive. “Strike them at their necks. Strike them everywhere,” he said, quoting a passage from the Quran.

The Saudis have long urged the provision of more weaponry, including man pads, i.e., portable surface-to-air missiles capable of bringing down both military jets and passenger planes.

14--Once again on Saudi complicity in the 9/11 attacks

Even without making public any new details from the 28-page chapter, Senator Graham made an effective argument to substantiate his claim that the official claim of no Saudi role in the 9/11 attacks has no credibility. He told “60 Minutes,” “I think it is implausible to believe that 19 people, most of whom didn’t speak English, most of whom had never been in the United States before, many of whom didn’t have a high school education, could’ve carried out such a complicated task without some support from within the United States.”

Graham’s language is significant, since it could suggest not only official Saudi support to the hijackers during their months in the US—the focus of the “60 Minutes” report—but support to the hijackers by other individuals or other agencies, including the US government itself. It was reported after 9/11 that the lead hijacker, Mohammed Atta, was well known to the US government, and had been under surveillance during his residence in Germany before he came to the United States to get flight training....

Kerrey said that the Commission had neither the resources nor the authority to conduct a thorough investigation of the Saudi connection. In truth, the entire 9/11 Commission was a whitewash, not only of Saudi Arabia but of the vast US military-intelligence apparatus, which was certainly tracking the activity of some, if not all, of the future hijackers. The $15 million budget for the commission to investigate an attack in which nearly 3,000 people were killed was only one quarter of the $60 million spent by Independent Counsel Kenneth Starr to investigate Bill Clinton’s relations with Monica Lewinsky

15--Housing starts debacle

(Housing) Starts and permits down and below expectations. I see this as removing any hope of any kind of sustainable growth. The traditional sources of private sector credit expansion- housing, vehicles, and general investment are continuing to decelerate when acceleration is needed just to replace the capital expenditures that were being generated by $100 oil. And even then GDP growth was modest, at best.

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