SNL Pokes Fun at the Administration and it's Clunker-Bailout Economic Policies... Hillarious!

The official SNL link as well... enjoy!

Existing Home Sales Report: October 2009

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for October showing a continuation of the epic government sponsored surge in home sales activity particularly for condos and lower end properties.

In fact, the stimulative effects have been so pronounced that sales of single family homes were up over 21% annually while sales of condos jumped a whopping 40% over the same period.

As for prices, they are still declining with single family home prices declining at 6.8% annual rate while condos declined at a 10.4% annual rate.

It’s important when reflecting on the sales results to consider that 70% of all sales were for properties priced below $250,000 while only 7.7% were priced at or above $500,000.

Clearly, today’s results unequivocally indicate that the government’s tax gimmick drove a surge in demand, bringing a renewal of speculative animal spirits but the cost has been high with at least $500 million of outright fraud and an FHA that is on the rocks.

This is probably as good a time as any to reflect on the fact that without Realtor campaigning, carping and lobbying of federal representatives as well as publishing a constant flow of propaganda directed at first-time “homebuyers”, the misguided homebuyer tax gimmick would either have never existed or would have had much more limited effects.

So, while the Realtors have brought home the commission bacon to their independent Realtor constituents it will again be the typical American (current and future) that will be picking up tab for this new housing binge.

The following (click for larger versions) are charts showing sales for single family homes, plotted monthly, for 2006, 2007, 2008 and 2009 as well as national existing home inventory and month supply.







Below is a chart consolidating all the year-over-year changes reported by NAR in their most recent report.

The Chicago Fed National Activity Index: October 2009

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that national economic activity contracted in October with all four component indices declining and with the employment and personal consumption and housing components showing the weakest results.

The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of “production and income”, “employment, unemployment and income”, “personal consumption and housing” and “sales, orders and inventories”.

The Chicago Fed regards a value of zero for the total index as indicating that the national is expanding at its historical trend rate while a negative value indicate below average growth.

A value at or below -0.70 for the three month moving average of the national activity index (CFNAI-MA3) indicates that the national economy has either just entered or continues in recession.

It’s important to note that at -0.91 the current three month average index value is well within the official recessionary indicator mark while October’s literal value dropped to -1.08, well below the recessionary mark.

The following charts (click for full-screen interactive zoom-able version) plot the national activity index as well all of its four components.

Two Great Bounces! - November 20 2009

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 51% in a little over 160 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… even far stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…

Massive Unemployment: Mass Layoffs October 2009

Today, the Bureau of Labor Statistics (BLS) released thier latest installment of the Mass Layoff Report showing continued weakness in nation’s job market with 2127 mass layoff events resulting in 217,182 initial unemployment claimants on a seasonally adjusted basis.

On a seasonally un-adjusted basis, the mass layoff events totaled 1934 with 193,904 initial claimants.

The BLS considers a mass layoff event to be a condition where there are at least fifty initial claims for unemployment insurance originating from a single employer over a period of five consecutive weeks.

Sinking Ships – MA vs. RI October 2009

Subtitle: MA Unemployment … At The Peak?!

As I had noted in my original post, historically it has been very unusual for there to be more than a 1.5% difference (either more or less) between the unemployment rates if Massachusetts and Rhode Island.

Recently though, we have seen a historically unusual spread between Rhode Island’s high rate and Massachusetts’ far lower rate.

In fact, the latest 4% spread now exceeds ALL spreads seen in at least 40 years.

This indicates that either Rhode Island’s current rate would need to fall dramatically or the Massachusetts rate would need to increase sharply…. My sense, especially in light of the financial turmoil seen since September 2008, is that Mass will be continually playing catch-up.

The latest regional unemployment report shows that, in September, the Rhode Island unemployment rate declined to 12.9% while the Massachusetts rate declined to 8.9%.

Massachusetts is still experiencing large year-over-year increases to unemployment jumping 53.45% on a year-over-year basis continuing to indicate that Mass is slogging through a period of serious job weakness.

Philadelphia Feeling: Federal Reserve Bank of Philadelphia Business Outlook Survey November 2009

Today, the Federal Reserve Bank of Philadelphia released the results of their Business Outlook Survey for November showing a slight increase in manufacturing activity with the current activity index still indicating expansion with a reading of 16.7.


Also, today’s results show that any recent parallel to the stagflationary eras of the 70s and early 80 which had given way to a stronger stag-deflationary force, and then mildly inflationary inline with the government stimulus now appears to be, at least temporarily, looking marginally double-dipish as latest release shows predictions on future employment flattening.

The following chart shows the latest results of the “current new orders” “current prices paid” and “future employment” components (click for larger versions).

The following chart (click for larger) shows these measures during the last stagflationary era seen between 1976 – 1980. Notice the clear divergence of rising prices and falling growth.

Follow The Leader: Index of Leading Economic Indicators October 2009

Today’s results of the Conference Board’s Leading Economic Indicators showed another monthly increase climbing .3% compared to September bringing the annual increase to 4.22% and leaving the index at a level of 103.8.

On the face of it this is clearly a Bullish “Green Shoots” development as this series (an aggregate of 10 component leading indices) is signaling a clear shift from leading contraction to expansion though the leading index is strongly influenced by stocks (i.e. the inclusion of the S&P 500 as one of the leading indicators) and the pronounced “V”-shaped bounce coming directly on the back of such a dramatic period of decline appears suspicious.

Could we be headed into a second dip (… similar to mid-1981) as the government’s Keynesian chicanery shows itself to have only propped demand but failed to encourage real “organic” demand?

Only time will tell…

Mid-Cycle Meltdown!: Jobless Claims November 19 2009

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims went unchanged at 505,000 claims from last week’s upwardly revised 505,000 claims while “continued” claims decreased 39,000 resulting in an “insured” unemployment rate of 4.3%.

As with the last few weeks, today’s results indicate that initial claims are continuing to stay elevated while the continued claims series is presenting a slow descent.

It's important to consider that with net non-farm payrolls (as well as likely job hires and job openings) are still firmly in decline, declines to the continued claims series could be due, in part, to the fact that many recipients have simply reached the end of their benefit period.

With the busiest seasonal job cutting period of the years fast approaching, are we on the verge of a new upturn in joblessness or just in a slow trend down from last year’s epic shakeout?

If firms go for another substantial round of layoffs and job cuts during the fall to early winter we could see an unemployment super-spike form whereby two years of significant job cutting activity merge into one large spike of unemployment.

Of course there are many ways that the job picture could trend but if firms underestimated their cutting last year and need to cut even deeper this year, it would clearly differentiate this period from most of the past post-WWII recessionary periods.

Clearly, careful attention needs to be paid to these indices to see how they reflect the state of the job market as we move further into the second half of the year.

***

The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

I have added a chart to the lineup which shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

As you can see, acceleration to claims generally precedes recessions and vice versa.


Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).


In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until late 2007, one could make the case (as Fed chief Ben Bernanke did on several occasions) that we were again experiencing simply a mid-cycle slowdown but now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth had been very weak, not succeeding to reach trend growth as had been minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential “mid-cycle” slowdown that appeared to be shaping up in late 2007, had been traded for a less severe downturn in the aftermath of the “dot-com” recession, and resulted, instead, in a mid-cycle meltdown.

Bob Toll: "Yesterday's Sub-Prime Is Today's FHA...and I'm a Liberal Democrat"

Mr. Toll is a complex man to say the least… Today’s Toll Brothers portion of the UBS Building and Building Products CEO Conference was easily one of the more interesting (though slightly odd towards the end) that I have listened to in recent years.

The following is an interesting excerpt concerning FHA as well as an odd ball… almost bizarre account of American culture from an obviously conflicted vantage point of one of the country’s largest luxury home builders.

Questioner: On the FHA stat, a lot has been made about the whole industry going there right now, not that it’s a big number for you guys but I’m surprised that even 8% of your volume would be … If that is supposed to be “low income” qualifiers how does that jive?

Bob Toll: How do we get 8% of our action into FHA? We do multi’s at $480, $490 … we do multi’s as low as $350 in some cases and that adapts to FHA real easily… Joel?

Joel Rassman: and we also have two condo-convert buildings that qualify for FHA in general … between multi’s that are built units and the condo convert it runs about 8%...

Questioner: Is it income limit? What’s the income limit run these days for that?

Joel: Well it’s a combination of income and price point for your house but I don’t know the FHA statistics.

Bob: Income… I’m not aware that there is any barred income to taking advantage of FHA if you’re a multi-millionaire… I thought you could still do it… I didn’t think you had to be poor…

Questioner: What’s the governor on the usage then though? Or why wouldn’t obviously everybody take advantage of it… that was the intent originally… Right?

Bob: The governor on it was that it was impossible to deal with, you had all sorts of inspectors and qualifiers and administrators… that made it a big pain in the butt… and so Fannie Freddie was around with the same limits and much easier financing so why would you go FHA?

Well the reason you go FHA is… um... FHA is the new Sub-Prime.

What the government is doing is beyond belief in that “once upon a time” ... I’m talking about these glorious days of like… a year and a half ago… FHA did very small percentage of the business of the country. I don’t know what the actual percentage was… I bet it was 2% or 3%... and today FHA is doing like 30% of the business and the reason is yesterday’s sub-prime is today’s FHA.

Whereas on a Fannie Freddie you’re talking 20% down … you can go get the last 10% if you struggle hard from another guy and give a combo-rate but on FHA you’re talking 3.5% down… now if you’re doing business at $120,000 and your giving and $8000 credit and your only making the guy put down 3.5% not only does he get the house but he gets some cash to walk away from the settlement table with… so yesterday’s sub-prime is today’s FHA…. I think its nuts.

Questioner: So it’s another train wreck again?

Bob: It’s a definite train wreck… the flag will go up within the next couple of months… it already has preliminarily gone up… “Bail us out”… “give us some more money”…

Questioner: I mean… not you guys but again … some of the other publics have 60% or 70% of their volume now coming that way…

Bob: Thank god the country is rich enough to afford it if we don’t keep going on and on and on…

You see how much money they say expect will be coming in because the guys that came back from Switzerland clean? (… SAT: a reference to the IRS’s recent voluntary amnesty program) … how much did they say… ten…

Joel: I’m not sure this is the appropriate conversation in this room… Bob…

[Laughter]

Bob: …tens of billions?... oh that’s right… UBS.

[Laughter]

Joel: Sorry guys…

[Laughter]

Bob: Any other questions?

LATER…

Questioner: … as you move forward, I understand that things haven’t really changed and you’re not really seeing a change maybe in the size of the house or the demands of the house or what buyers want… we talk to a lot of private builders and we consistently hear that they believe that the future for the business is going to be dramatically different in terms of the kind of houses buyers want… they want stuff that is more urban… they want stuff that is closer to transportation… they are willing to sacrifice size for that and I’m just wondering how you think about that within the context of your buyers…

Bob: That’s a lot of bull…

[Laughter]

Bob: I was through it in ‘68, and I was through it in ’74, I was through it in ’80 ’81 ’82, I was there in ’88 ’89 ’90… now I’m here in Katrina ’05 to probably March of ’09 and every time we go through one of these cycles it is almost exactly the same movie… if they dropped you into the theater and didn’t tell you what year it was you couldn’t tell if it was ’09 as apposed to ’81 ’82.

It’s always the same thing… we want smaller, more affordable, more energy efficient … we want to be closer to the city… we want more urban … we want more flex space… it’s all bull.

As soon as it straightens itself out and the market gets healthy again… if the market doesn’t get healthy… if the society reflects an economy that is running at half the speed the economy ran at during the good times of the cycle, the you’ll see a paradigm change in our business.

But unless that occurs, I don’t think you will. The same drives and ambitions that drove the market will once again drive it.

I don’t know how deeply we want to get into this… It would require also a political socio-economic group thesis feeling (SAT: WOW!.. What?!) to occur in order to change the business.

Up until Regan… which means coming from the second world war through Jimmy Carter… it was embarrassing to a certain extent to show your wealth by building a 20,000 square foot manse… by having three in help… most of the country was pretty demure… and kept it under its seat…

And then came along the Regan Revolution… and “trickle down” economics… and it was not only alright … it was deserved and right and applauded to have wealthy people buy boats… buy big homes… have multiple homes… for they were the drivers of industry and the Capitalist system in this country… and the middle class would derive benefit from that.

Let forget about whether that is true or not… doesn’t matter… what happened was a different mindset took the public entirely and it was alright to get bigger and better and show the wealth… that is still with us.

Now, Obama has spoken about changing the makeup of society … but every time he has he’s gotten slapped around for it.

Those that have already got don’t want to hear that f you belong to a country club and you have your own plane and you have multiple houses that something is wrong with you… and that you should get back into supporting what made America great… well… it’s debatable as to what made America great …

By the way… just so you know where I stand… I’m a liberal Democrat and raised tons of money for Obama so I don’t want you to think that this comes off of my personal feeling... I was the only builder that voted against the NOL extension (SAT: tax carryback from recent legislation) but that’s politics and I don’t want to get into that…

But what I want to get into is where the society now stands… It’s going to take a mighty tough guy to convince this society that it ought to go back to pre-Regan philosophy… which is that it is wrong to show your wealth… so unless you believe that were going to have a socio-economic tidal wave change the way we live, I don’t think you’re going to see a difference… I think people are still going to want three bedrooms instead of two bedrooms. I think they are still going to want 5000 feet instead of 4 or 4 instead of 3 or 3 certainly instead of 2… and that goes for high-rise as well as suburban luxury.

Sorry for all of that…

Two Great Bounces! - November 18 2009

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 53% in a little over 160 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… even far stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…

New Residential Construction Report: October 2009

Subtitle: Government Sponsored Bounce Be Gone!

Today’s New Residential Construction Report was another blow to the “Green Shoots” crowd with both single family permits and starts declining significantly on a month-to-month and year-over-year basis in most regions.

This continues to indicate that the bounce seen in new construction activity that occurred between March and July was NOT the start of an “organic” V-shaped housing recovery but rather an induced bounce brought on by the government homeborrower tax handout which worked to fuel unusually strong seasonal activity (… thus thwarting seasonal adjustment) from pent-up demand sidelined by the epic financial panic at the end of 2008.

It’s important to consider that at 476K single family units (SAAR), the level of national housing starts still remains substantially below that seen in October 2008.

Another important factor in today’s results was the significant declines to multi-unit structures with permits for structures with at least 5 units dropping 18.3% month-to-month and 62.4% year-over-year while starts dropped 33.3% month-to-month and 78.1% year-over-year.

Permits for multi-unit structures with less than 5 units declined 15.8% month-to-month and 51.5% year-over-year while start appears to have dropped so substantially that the Census Bureau held back the seasonally adjusted results citing that “[the data] Does not meet publication standards because tests for identifiable and stable seasonality do not meet reliability standards.”… though seasonally unadjusted there was a 50% month-to-month and 60% year-over-year decline.

Single family housing permits, the most leading of indicators, again suggests declining future construction activity dropping 4.0% nationally as compared to October 2008 and an astonishing 74.11% since the peak in January 2005.

The one slight “green shoot” in today’s data, however, was that although most regions showed declines to permits with the Northeast declining 4.1%, the Midwest declining 12.2%, the South declining 3.7%,... the West actually registering the first year-over-year gain in permits in 46 consecutive months, a slight move up of 2.13%.

Keep in mind that these declines are coming on the back of the last three years of record declines.

To illustrate the extent to which permits and starts have declined, I have created the following charts (click for larger versions) that show the percentage changes of the current values on a year-over-year basis as well as compared to the peak year of 2004.




Here are the seasonally adjusted statistics outlined in today’s report:

Housing Permits

Nationally

• Single family housing permits down 4.0% as compared to October 2008.

Regionally

• For the Northeast, single family housing down 4.1% as compared to October 2008.
• For the Midwest, single family housing permits down 12.2% as compared to October 2008.
• For the South, single family housing permits down 3.7% compared to October 2008.
• For the West, single family housing permits up 2.13% as compared to October 2008.

Housing Starts

Nationally

• Single family housing starts down 10.9% as compared to October 2008.

Regionally

• For the Northeast, single family housing starts down 17.5% as compared to October 2008.
• For the Midwest, single family housing starts down 16.8% as compared to October 2008.
• For the South, single family housing starts down 4.9% as compared to October 2008.
• For the West, single family housing starts down 16.5% as compared to October 2008.

Housing Completions

Nationally

• Single family housing completions down 30.2% as compared to October 2008.

Regionally

• For the Northeast, single family housing completions up 1.7% as compared to October 2008.
• For the Midwest, single family housing completions down 41.0% as compared to October 2008.
• For the South, single family housing completions down 32.9% as compared to October 2008.
• For the West, single family housing completions down 26.6% as compared to October 2008.

Housing Starts Down 10.6% Month on Month - Nuff Said!

The government sponsored housing bounce is dead... more on the new residential construction numbers later....

Reading Rates: MBA Application Survey – November 18 2009

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage decreased 7 basis points since last week to 4. 83% while the purchase application volume decreased 4.7% and the refinance application volume decreased 1.4% over the same period.

It’s important to recognize that despite the Federal Reserve’s “quantitative easing” measures and record low interest rates, the purchase application volume has now dropped to the lowest reading since 2000.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).