Archive for December 13th, 2012
In the week ending December 8, the advance figure for seasonally adjusted initial claims was 343,000, a decrease of 29,000 from the previous week’s revised figure of 372,000. The 4-week moving average was 381,500, a decrease of 27,000 from the previous week’s revised average of 408,500.
Let’s have a peek at the big table….
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Retail Trade: Uh, Where’s The Sales?
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $412.4 billion, an increase of 0.3 percent (±0.5%)* from the previous month and 3.7 percent (±0.7%) above November 2011. Total sales for the September through November 2012 period were up 4.3 percent (±0.5%) from the same period a year ago. The September to October 2012 percent change was unrevised from -0.3 percent (±0.2%).
I don’t like this number much, albeit the headline number looks ok.
It’s all autos — ex-autos the number was flat.
The bigger issue is that food and bevereage and general merchandise (think “department stores”) were both down, with the latter down 0.9% monthly. November includes Black Friday!
Online’s share continued to increase, however. I guess if there’s a “bright spot” it’s there.
Note that without seasonal adjustment the figures for general merchandise were up, but they darn well better be given the “start of the holiday season.”
My overall take? Shrug.
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PPI: -0.8% (!)
The Producer Price Index for finished goods fell 0.8 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods decreased 0.2 percent in October and rose 1.1 percent in September. At the earlier stages of processing, prices received by manufacturers of intermediate goods declined 1.2 percent in November, and the crude goods index edged up 0.1 percent. On an unadjusted basis, the finished goods index advanced 1.5 percent for the 12 months ended November 2012, the smallest increase since a 0.5-percent rise for the 12 months ended July 2012. (See table A.)
Ah, a look inside tells the tale — the bottom line is that it’s all energy. Foods were up 1.%; ex-food and energy the index was up 0.1%, or basically flat.
Of course nobody actually eats anything, right?
Within the internals trend shifts are evident in energy prices, which is good (they’re coming down) but the paradox is that this usually signals internal economic weakness.
The interesting internal trend here is the compression of margins in the food category, which now has been going on since July. This too is an indicator of economic weakness.
There’s nothing that stands out in this report, other than those two markers — but they are simply further confirmation of the regional fed indices that I’ve been warning about since the summer.
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Why in the world would anyone want to live in the state of California at this point? The entire state is rapidly becoming a bright, shining example of everything that is wrong with America. It is so sad to watch our most populated state implode right in front of our eyes. Like millions of Americans, I was quite enamored with the state of California when I was younger. The warm weather, the beaches, the great natural beauty of the state and the mystique of Hollywood all really appealed to me. At one point I even thought that I wanted to move there. But today, hordes of Californians are racing to get out of the state because it has become a total nightmare. It is the worst state in the country in which to do business, taxes were just raised even higher, unemployment is more than 20 percent higher than the national average and the state government is drowning in debt. Meanwhile, poverty, gang activity and crime just seem to get worse with each passing year. On top of everything else, the insane politicians in Sacramento just keep on passing more laws that make the problems that the state is facing even worse. Unfortunately, what is happening in California may be a preview of what is coming to the entire nation. The old adage, “as California goes, so goes the nation”, has been proven to be true way too many times.
In dozens of different ways, the state of California is showing the rest of us what not to do. Will we learn from their mistakes, or will we follow them into oblivion? Please share the list below with as many people as you can. In addition to a large amount of new research, this list also pulled heavily from one of my previous articles and from outstanding research done by Richard Rider. The following are 55 reasons why California is the worst state in America…
1. One survey of business executives has ranked California as the worst state in America to do business for 8 years in a row.
2. In 2011, the state of California ranked 50th out of all 50 states in new business creation.
3. According to one recent study, California is the worst-governed state in the entire country.
4. Thanks to Proposition 30, California now boasts the highest state income tax rate in the nation.
6. California has the highest sales tax rate in the United States.
7. California has the 8th highest corporate income tax rate in the country.
8. California has the highest “minimum corporate tax” in the country. Each corporation must pay at least $800 to the state even if a corporation does not make a single dollar of profit.
9. California is tied with New York for the highest gasoline tax rate in the country.
10. California is the only state in America that taxes carbon emissions.
11. The state of California issues some of the most expensive traffic tickets in the nation. This is another form of taxation.
12. As of October, only Nevada and Rhode Island had higher unemployment rates than California.
13. The unemployment rate in California is more than 20 percent higher than the overall unemployment rate for the rest of the nation.
14. The state of California requires licenses for 177 different occupations (the most in the nation). The national average is only 92.
16. California accounts for 12 percent of the U.S. population, but a whopping 33 percent of Americans that receive TANF (Temporary Assistance for Needy Families) live there.
17. Only the state of Illinois has a lower bond rating than the state of California does.
18. Including unfunded pension liabilities, the state of California has more than twice as much debt as any other state does.
19. Average pay for California state workers has risen by more than 100 percent since 2005. That is good news for those state employees, but it is bad news for the taxpayers that have to pay their salaries.
20. More than 5,000 California state troopers made more than $100,000 last year.
21. One highway patrol officer ended up bringing home almost $484,000 in 2011.
22. One state psychiatrist in California was paid $822,000 in 2011.
23. Since 2007, the number of children living in poverty in the state of California has increased by 30 percent.
24. Sadly, an astounding 60 percent of all students attending California public schools now qualify for free or reduced-price school lunches.
25. The American Tort Reform Association has ranked the state of California as the worst “judicial hellhole” in America.
26. Businesses all over the state of California are being absolutely suffocated to death by ridiculous regulations.
27. According to the Milken Institute, operating costs for California businesses are 23 percent higher than the national average.
28. According to CNN, the state of California had the worst “small business failure rate” in America in 2010. It was 69 percent higher than the national average.
29. The number of people unemployed in the state of California is roughly equivalent to the populations of Nevada, New Hampshire and Vermont combined.
30. Residential customers in California pay about 29 percent more for electricity than the national average.
31. So many poor people and illegal aliens have taken advantage of the “free” healthcare at emergency rooms that many of them have been forced to shut down in California. As a result, the state of California now ranks dead last out of all 50 states in the number of emergency rooms per million people.
32. Political correctness is totally out of control in California.
33. One California town is actually considering making it illegal to smoke in your own backyard.
34. The traffic around the big cities is horrific.
35. Los Angeles
36. San Francisco
40. The rampant gang activity in the state gets even worse with each passing year.
41. Crime continues to rise all over the state.
42. Just recently, the city attorney of San Bernardino, California told citizens to “lock their doors and load their guns” because there is not enough money to pay for adequate police protection any longer.
43. The murder rate in San Bernardino is up 50 percent this year.
44. In Oakland, burglaries are up 43 percent so far this year.
45. Today, Oakland is considered the 5th most violent city in the United States.
46. There have been more than 250 gold chain robberies in Stockton, California just since the month of April.
47. In Stockton, the police budget cuts got so bad that the police union put up a billboard at one point with the following message: “Welcome to the 2nd most dangerous city in California. Stop laying off cops.”
48. Jerry Brown.
49. The absolutely insane California state legislature.
52. The state of California lies directly along the infamous “Ring of Fire“. Approximately 90 percent of all the earthquakes in the entire world happen along the Ring of Fire and the “Big One” could hit the state at any moment.
53. According to the U.S. Census Bureau, approximately 100,000 more people moved out of the state of California in 2011 than moved into it.
54. During 2011, more than 58,000 people moved from California to the state of Texas.
55. Overall, the state of California has experienced a net loss of about four million residents to other states over the past 20 years.
How much phantom housing collateral is still on the books? Nobody knows, and that in itself renders the housing/mortgage sector fragile.
Mortgage debt doubled in a mere decade. If we go back to pre-bubble 1997, residential mortgages totaled $5.1 trillion. (Source: mortgage debt outstanding, 1959-2003). This was roughly 50% of real GDP of $10 trillion (source: Real U.S. GDP).
At the top of the bubble, residential mortgage debt was $10.57 trillion, more than double the total of 1997. (Source: Balance Sheet of Households, Federal Reserve). This was 79.3% of real GDP–a rise of 30%.
As a percentage of disposable personal income, mortgage debt rose from 53% in 1960 to 113% in 2003. Income rose over those 43 years, of course, but mortgage debt rose much faster.
Mortgage debt has declined as lenders have written off losses. Mortgage debt has declined from $10.56 trillion in 2007 to $9.48 Trillion in 2012. Is it coincidence that this $1.1 trillion decline equals the Fed’s purchases of mortgages since 2009? The World’s Largest Money-Laundering Machine: The Federal Reserve (October 8, 2012) “The Fed is now where mortgages go to die” — Catherine Austin Fitts
This reduction in debt and the recent modest increases in housing prices has pushed homeowner’s equity up from $6.7 trillion in 2009 to $7.7 trillion in 2012. That extra $1 trillion has raised owner’s equity as a percentage of household real estate up from an abysmal 39.8% to 44.8%–but this is a far cry from the $10.2 trillion in equity logged in 2007. (Recall that 1/3 of homes are owned free and clear, with no mortgage at all. In these cases, homeowner equity is 100% of the market value of the home.)
Courtesy of Chartist Friend from Pittsburgh, here are two charts contrasting housing equity with debt: the first is mortgage debt, the second is total household debt.
Note the “wealth effect” as housing values soared, providing collateral for more debt, and the “reverse wealth effect” as phantom collateral vanished.
Was the equity in the bubble years real or phantom? It was real for those who sold and turned the bubble equity into cash. But how many of the 75 million mortgage holders sold and did not acquire another mortgage? Given that the number of mortgages has barely budged (around 50 million), not many.
For everyone else, borrower and lender alike, the equity and the collateral were phantom.
This rise and fall of phantom collateral leads us to ask: how much of the $17.2 trillion in household real estate is still phantom? How many homes on lenders’ books are valued higher than their real market value? How durable is this “housing has bottomed” surge in prices if the global economy slides into recession?
Why ask these questions? Consider this chart of income, courtesy of Doug Short:
If mortgage debt has fallen 10%, and household income has also declined by about 10%, then what’s changed? Recall that roughly 50% of household income flows to the top 10%. If the income of the top 10% rises while the income of the lower 90% falls, the median income will be skewed. In other words, the declines experienced by the lower 90% may well exceed the 9% shown on the chart.
As a percentage of disposable income and GDP, mortgage debt is still at historic highs. The fact that mortgage debt is down from its bubble highs does not mean all phantom collateral has vanished. It only means that all interested parties, borrowers, homeowners and lenders alike, have a stake in promoting the claim that housing has bottomed.
Where would households’ ability to borrow be if housing and income both decline? In a way, the Status Quo is desperately trying to boost housing to compensate for the reduction in income. What’s left to leverage if both income and equity are declining?
So here’s the basis for the “bottom is in”:
1. The global economy is sliding down a slippery slope into recession.
2. Real household incomes have declined by 10% or more.
3. Mortgage rates are already at historic lows and cannot fall much more, if any.
And last but not least, systemic mortgage fraud is a thing of the past: if you forget about rule of law and justice, that is:
How much phantom collateral is still on the books? Nobody knows, and that in itself renders the housing/mortgage sector fragile.
Charles Hugh Smith – Of Two Minds
A funny thing happened today. For the first time, the equity and bond market closed red (and VIX green) on a Federal Reserve QE-announcement day. Gold outperformed stocks and Treasuries underperformed everything…
The S&P 500 futures contract has never closed red on the day of a QE announcement before…
VIX closed higher for the first time ever on a QE announcement day…
10Y Treasury Yields rose for the first ime ever on a QE announcement day…
From the FOMC announcement, Gold and Silver closed green but stocks, bonds, oil, financials, and apple all lost ground (as did the USD very modestly)…
Across Asset Classes – Treasury yields ended at highs, stocks at lows…
FX markets dominated by JPY weakness and EUR strength…
and across ETFs – there was an attempt to lever HYG (which has worked to grab stocks higher in the past) but it seems like rotation from TSYs to less-duration sensitive HY as stocks and vol tracked each other all afternoon…
Financials post-FOMC – look at BofA’s ‘odd’ move into the close…
Charts: Bloomberg and Capital Context