Mish's Global Economic Trend Analysis |
- Humorous Clarke and Dawe Video - Same Special Subject as Everyone Else - Ben Bernanke
- Outlook for Jobs and Confidence in Economy Sink
- New Home Sales Plunge 13.4% in July, June Revised Lower; Blame Rising Mortgage Rates; Starts 896,000 - Sales 394,000 - Hmmm
- Ivory Tower Academics, Inflation, and Kindness
| Humorous Clarke and Dawe Video - Same Special Subject as Everyone Else - Ben Bernanke Posted: 23 Aug 2013 07:02 PM PDT Here's a bit of weekend humor on Ben Bernanke. Link if video does not play: Clarke and Dawe - Same Special Subject as Everyone Else Here is a flashback to another Clarke and Dawe Video, one of the funniest ever. Link if video does not play: Clarke and Dawe: Lending merry-go-round Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Outlook for Jobs and Confidence in Economy Sink Posted: 23 Aug 2013 12:40 PM PDT Gallup reports Americans Sour Slightly on Quality Jobs Market. The market for quality jobs may be cooling. The 21% of Americans who say now is a good time to find a quality job is down from 25% in July -- and the most negative reading this year. Now, 76% say it is a bad time to find a quality job, up from 70% in July.Confidence in the Economy Sinks  It should not be surprising to discover confidence in the economy has slipped along with availability of jobs given a huge rise in polled unemployment. For a complete detailed analysis of Gallup employment trends, please see Gallup Unemployment Rate Spikes from 7.9% on Aug 1 to 8.9% on August 20! Sampling Error or Seasonal Effect? Expect a Jump in BLS Reported Unemployment I expect to see a strong jump in the BLS unemployment rate unless the Gallup unemployment trend reverses significantly, and soon. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Posted: 23 Aug 2013 10:39 AM PDT On August 14 I penned Mortgage Applications Decline 13th Time in 15 Weeks; Are Mortgage Rates Cheap? What's Next For Housing?. Pertinent Snips 30-Year Fixed Rate Mortgages  Explaining the Rebound in Housing If you are looking for what fueled the rebound in home sales and the increase in home prices, look no further than the above chart. In the two-year period from December 2010 until December 2012, the rate on popular 30-year mortgages fell from 4.97% to 3.42%, a decline of 155 basis points (1.55 percentage points). In April, rates were still near record lows at 3.56%. Treasury Yields and Housing Affordability On June 24, in 10-Year Treasury Yield Up 100 Basis Points Since May; What's That Mean for Mortgage Rates and Housing Affordability? I commented ... Anyone who stretched to buy is no longer qualified unless they locked some time ago.Sales Plunge Starts Rise Today, the Census Bureau reports New Home Sales Plunge 13.4%  June was revised lower to 455,000 from previously reported 497,000. Why the Surprise? None of this should be a surprise given what I said on August 14. Nonetheless, it was a surprise. USA Today posted charts of new and existing sales along with this comment "Sales of new homes plunged in July. The seasonally adjusted annual sales pace of 394,000 missed analysts' expectations of 487,000." New Home Sales  Existing Home Sales  Comments From Bloomberg Here's a few comments from Bloomberg. Sales of newly built homes declined 13.4 percent to a 394,000 annualized pace, the weakest since October, following a 455,000 rate in the prior period that was lower than previously estimated, Commerce Department figures showed in Washington. The median estimate of 74 economists surveyed by Bloomberg called for a decrease to 487,000. Last month's decline was the biggest since May 2010.That's a rather curious statement from the head of global foreign exchange strategy at Bank of Montreal. New home sales are recorded at signing while existing home sales are recorded at closing. The surge in existing sales reflects contracts written months ago and possibly contracts rushed to closing to beat rate increases. Thus, we need to wait a month minimum to see what effect rising rates had on existing sales. The plunge in July new home sales coupled with June revisions lower perfectly coincides with rising rates and "Mortgage Applications Decline 13th Time in 15 Weeks". Builders Still Optimistic Don't worry! Builders aren't. Housing starts are up 5.9% to a whopping 896,000 with sales coming in at an annual rate of a mere 394,000, a decline of 13.4%! Is that optimistic or what? I sense a drop in prices and a further plunge in home buying if mortgage rates continue to rise. Home builders and analysts will be surprised when that happens. Addendum: Reader Michael responded Permits include condos. He also commented "A housing start is recorded when the permit is issued so it doesn't necessarily mean the house will be built in the immediate future if ever." Actually a "start" is recorded when ground-breaking begins. But, as Michael points out, total permits to new home sales are not directly comparable. Nonetheless, rising permits with declining sales does seem to reflect a bit of unwarranted optimism. If homebuilders learned their lesson, those permits will gather dust. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Ivory Tower Academics, Inflation, and Kindness Posted: 22 Aug 2013 11:56 PM PDT Bloomberg writer Caroline Baum pinged me with her latest article Ivory Tower Types Fall for Bigger Inflation Fix complete with a veritable "Who's Who" of inflation proponents. Inflation Proponents
The biggest missing entry was Paul Krugman. IMF economist Olivier Blanchard says "the benefits of a 4 percent inflation target might outweigh the costs" Rogoff goes even further, recommending "a short burst of moderate inflation" -- two years of 6 percent inflation -- would speed the deleveraging process." Mankiw emailed Baum "Think of it as the Fed announcing it will keep future short rates lower, for any given inflation rate, than it otherwise would have" Baum offered a series of pertinent rebuttals: "If a 6 percent inflation target would accelerate the deleveraging process, why stop there? Why not 8 percent? Or 10 percent? Wouldn't that speed the process? You get the point." "In theory, Mankiw is right. Ceteris paribus -- Latin for with other things equal. But other things aren't equal; they never are." "In the real world, bond investors are going to look at 6 percent inflation and project 8 percent or 10 percent. Nominal bond yields will rise to incorporate higher inflation expectations. Real yields might not rise, but it's unlikely they would fall. And long-term rates are what matter for capital investment, which is key to increasing the economy's growth potential and raising productivity." What Baum Left Out Baum's rebuttal was well stated. However, she forgot to mention that asset bubbles that do not even count as "inflation". What about the housing bubble? The dotcom bubble? They don't count either, at least to the Fed. We are in this mess precisely because of inflation. The Fed does not even know how to measure it. From 1997-2000 the Fed ignored a major bubble in the stock market. From 2003-2006 the Fed ignored major bubbles in home prices, then commercial real estate Here's the deal: The Fed can inflate money supply, but it cannot control where the money goes. And typically monetary inflation goes into asset bubbles (which the Fed ignores until they burst). Then in an effort to bail out the banks (typically overweight bubble assets) the Fed steps on the gas again. The end result of inflation is a series of boom-bust cycles of ever-increasing amplitude. The biggest losers in these inflationary boom-bust scenarios are those with last access to money and credit, typically the poor. The housing bust is a prime example. By the time those lowest on the totem pole had access to credit, it was far, far too late to buy houses to benefit from inflation. Bernanke brags "inflation" has been lower under him than any other Fed chairman. He conveniently ignores the fact he was on the Fed in the Greenspan years, that he presided over the biggest property bubble in history, and he also ignores the stock market bubble we are in now. Bernenke is now stepping aside, hoping to pass the buck to Janet Yellen or Larry Summers. How Convenient! For a comparative analysis of the leading candidates to replace Bernanke, please see Tweedle Dum vs. Tweedle Dee; Does Janet Yellen Have What It Takes? Totally Ignoring Reality Baum referred to inflationist Noah Smith who on August 20, wrote Learn to stop worrying and love (moderate) inflation. Not Just Wet, Soaked Noah's not just wet, he's soaked to the bone. Let's take a look at Noah's wage theory vs. practice, starting with Top 1% Received 121% of Income Gains During the Recovery, Bottom 99% Lose .4%; How, Why, Solutions. Also consider my followup post Reader Asks Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else). Here is the key section. Real US Household IncomesReality While Noah can sit in his ivory tower and express an ill-formed opinion on what should happen, I posted the reality of what did happen - with price inflation every step of the way save a brief period at the bottom of the great recession. Here is the reality: Those with first access to money, the banks and already wealthy are the only ones who benefit from inflation. Noah concluded with "We don't want to let inflation get out of hand. But a higher Fed inflation target for the next decade - say, 4% or 5%, instead of our current 2% - would probably be a good thing for most Americans." In essence, Noah proposes a mathematical absurdity: "If it doesn't work, do 200% more of the same." The absurdities don't stop there. Amazing List of Noah's Ridiculous Statements
Inflation benefits conservatives!? Inflation, as I have shown, benefits those with first access to money, typically the banks and already wealthy (most likely not the blazing liberals). Inflation makes you richer!? That statement by Noah is so ridiculously absurd that only a complete fool could believe it. The housing bubble proves otherwise, so does the dotcom bubble, so does common sense, and so does Hello Noah, Meet Stephanie. Federal Debt Goes Away With Inflation!? What about interest on the national debt? What about demographics? WWII debt did not go away because of inflation. In fact, it never went away at all. To the extent it was reduced, it was because of the tide of boomer demographics and the fact that unlike Europe and Japan, the US did not lose productive capacity in WWII. "Balance sheet recession" might go away!? We have a balance sheet recession precisely because of an inflationary asset bubble gone bust. Reflections on Kindness Caroline Baum was far too kind with her rebuttal, concluding with a simple message "Bad ideas never die. ... That won't stop academics, who are enthralled with an idea that looks good on paper." I propose the suggestions of Noah, Mankiw, Blanchard, Rogoff go far beyond "bad ideas". These guys are economic illiterates living in some alternate universe, where lack of common sense is the norm and lessons of history nonexistent. Here's a simple question for you: If "Federal government debt goes away in inflation" as Noah states, then why the hell do we have any? Indeed, with near-constant inflation, why is there any debt at all? But hey, along comes Noah and a parade of academic wonks devoid of all common sense, promoting the idea that if 2% inflation doesn't work, then 5% must! And in the process we must praise things like the dotcom bubble and the housing bubble (because those sure worked out well last time, didn't they?) Clearly the poor and not the conservatives benefited from both! And let's forget about the lessons of Japan, because it's clear Japan did not try hard enough either. Assume Nirvana Let's assume we reach Nirvana of 5% inflation. What would that do to food stamp costs, medical costs, and the price of gasoline? Not all things go up equally in price, or maybe in academic wonderland they do. And what about interest on the national debt? Is it "inflating away" now at 2% inflation (with the long bond yielding 3.9% and the 10-year note yielding 2.9%)? If inflation was 5% what would the rate be on the long bond? 7%? In academic wonderland can we hold the rate to 0% while inflating away? If we can, then why is the long bond yielding 3.9% now? What about jobs? If printing trillions did not create many jobs, then why would doubling it? Or are we supposed to have government provide more fiscal stimulus too (because deficit spending of $1 trillion a year isn't enough?) Sorry, I forgot. In academic wonderland, the way to fix deficits is to increase them! And all of this money sloshing around will supposedly make everyone wealthy (instead of creating more income inequality as it does now). Why? Because 5% is the magic Nirvana number, that's why! Noah knows! Pitiful It is pitiful what complete ridiculous nonsense spews forth from ivory tower academic wonderland. Baum was kind in her rebuttal, and so was I. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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