While the Achilles heel to the endless "economic data" BS coming out of China may be its electric production and demand, both of which show a vastly different picture than what the Beijing politburo's very wide brush strokes paint, the US itself is not immune from indicators that confirm that anything the BEA dishes out should be taken with a grain of salt. One data set that we showed recently that paints a drastically different (read slowing) picture of the US economy which we noted recently is railcar loading of waste and scrap for the simple reason that "The more we demand, the more waste is generated by that production." Of course, the propaganda manipulation machinery only focuses on the "entrance" of production, and completely ignore the "exit." But an even far more important metric of the general health of the US economy may be none other than broad energy demand, in the form of petroleum deliveries and gasoline demand. If this is indeed the relevant metric to observe, then things are about to get far, far worse. As Dow Jones notes: "U.S. petroleum deliveries, a measure of demand, fell by 2.7% in July from a year earlier to the lowest level in any month since September 2008, the American Petroleum Institute, an industry group, said Friday." It gets worse: "Demand in the world's biggest oil consumer, at 18.062 million barrels a day, was the weakest for the month of July since 1995, the API said. Year-to-date demand is down 2.3% from the same period in 2011."
"It's defining a new category in real estate" is how the ultra-luxury apartment business is seen in New York. Goldman's Lloyd Blankfein and his buddies (including Sting) at 15 Central Park West are set to double their money as Bloomberg reports four condos in the Richie-Rich style extravaganza of a building have hit the market at asking prices at an average 192% over what owners paid in 2007 and 2008. The most expensive (a five-bedroom 35th floor pied-a-terre), topping Oaktree's Howard Mark's previous $52.5mm record purchase at 740 Park, is priced at a stunning $95mm. Testing the glass ceiling of a $100mm apartment is nothing though - as just like the rest of the nation's apparent house price recovery 'tight supply is supporting the current spate of eye-popping asking prices' which obviously will mean an influx of 'very expensive' inventory hitting the market in the coming years. For $95mm we wondered exactly what the apartment comes with? Perhaps $90mm of gold bars on the coffee-table? Perhaps Hugh Verrier and his wife Celia sum up the largesse perfectly: "we just thought of it as a living space". Indeed, Hugh, indeed.
Crony Socialism Strikes Back: Geithner Retaliates Against DeMarco; Accelerates Wind Down Of GSE Treasury BackingSubmitted by Tyler Durden on 08/17/2012 08:41 -0400
Two weeks ago we reported in Geithner To DeMarco: "I Do Not Believe [Un-Socialism] Is The Best Decision For The Country" that TurboTax Tim did not take lightly to FHFA head Ed DeMarco's snubbing of the worst treasury secretary ever, when DeMarco refused to comply with Tim Geithner's "proposal" for mortgage principal reduction in effect forcing responsible taxpayers to bail out irresponsible ones. Lots of media posturing and free-market bashing ensued. Today, Tim has once again taken the offensive, and is announcing plans that the Treasury is accelerating the winddown of its backing of Fannie and Freddie and that going forward instead of a 10% dividend, the Treasury will be entitled to a "full income sweep" of the GSEs on behalf of the US Treasury. One can only hope that the loan loss reserve reduction which was the sole source of Fannie and Freddie "profit" (see Bank of America) will continue. And since it won't, it is once again Tim Geithner who ends up with the short end of the stick in his idiotic attempt to escalate a matter which is far beyond his meager comprehension skills. And here is the kicker: "The agreements require an accelerated reduction of Fannie Mae and Freddie Mac’s investment portfolios. Those portfolios will now be wound down at an annual rate of 15 percent – an increase from the 10 percent annual reduction required in the previous agreements. As a result of this change, the GSEs’ investment portfolios must be reduced to the $250 billion target set in the previous agreements four years earlier than previously scheduled." Oops MBS market, unless of course there is someone who will miraculous step up and buy the "excess investment portfolio"... who could that be... who could that be? Ah yes: Giethner just greenlighted the MBS purchases (sorry MBS twist - no cookie for you) portfion of QE3. And finally, following today's unambiguous renationalization of the GSEs, does this mean that US debt is now $16+6 trillion or over $22 trillion courtesy of the GSEs which are now on the US balance sheet?
When real estate prices made a vertiginous ascent in the 1980s Japan the bullish refrain was that there wasn’t enough land. However, Japanese real estate prices, and even those of crowded Tokyo, have glided downwards over the subsequent two decades, accompanied by rents - interrupted by the Karate-Kid-esque 'recovery-on; recovery-off' hope that we have also started to witness in the US. Very low economic growth and a demographic headwind, despite reasonably high employment, have led to a depressed real estate market. Is this a harbinger for the West? And what defines recovery - price, volume, net equity?
The vital question of the moment is whether of not The Bernank will signal an intention of moving towards QE3 in his much-anticipated 'Jackson Hole' conference in two weeks. Citi's Tom Fitzpatrick believes "it would be irresponsible to do so and that we need a more 'responsible fiscal policy' which will not materialize as long as we have an 'irresponsible monetary policy' bailing policymakers out". However, what we think in this regard is totally irrelevant to this discussion for it is what we think the Fed thinks that is critical. Recent data seems to have been a little more supportive of the economy (on the face of it) and may lead the Fed to stay on hold in the near term (September meeting). This will almost certainly raise the bar extremely high for further easing as we head into the Presidential race proper. If this window closes then a move before December will be extremely unlikely barring a major financial/market/economic shock, since after the 9/13 meeting, there are no more meetings until 12/12. However this increases the danger of the Fed getting 'caught behind the curve' which must be balanced with the 'mistake' of one-monetary-step-too-far with very real inflationary consequences.
The US is clearly heading into another recession in the context of a larger depression. And it’s doing this while in the worst economic shape in its post-WWII history. We’ve never once entered a recession when the average duration of unemployment is at an all time high, industrial production has failed to break above its previous peak, and food stamp usage is at a record high. We’ve never done this.
Tyranny, true tyranny, thrives on our selective awareness, and our ability to bend our minds and our vision to avoid seeing that which is really there. In the end, victory over tyranny is less about guns, bombs, mass dissent, and civil fury; it instead requires an acceptance of the dark side of the world, and the unwavering will of honorable men ready to face it. That is to say, the defeat of tyranny begins and ends in the mind. In America today, many minds are not ready to handle the trials ahead. Maybe it’s the ease of several generations of uninterrupted prosperity. Maybe it’s the Babyboomers. Maybe it’s Generation X. Maybe it’s the public education system. Maybe it’s the water. Maybe it’s all of the above and more. At this point, we have little time to debate symptomatic culprits. It is time to go to the root of the problem, and cut it out. What we need is a foundation, a set of “personal rules for combat” when engaging a tyrannical establishment. This “code” should above all else provide a way of mentally and spiritually confronting one’s own weaknesses and presumptions. Dictators and oligarchs are not our primary concern. Our inner state is.
When observing the trends in the housing market, one has two choices: i) listen to the bulls who keep repeating that "housing has bottomed", a common refrain which has been repeated every single year for the past four, or ii) look at the facts. We touched briefly on the facts earlier today when we presented the latest housing starts data:construction of single family residences remains 46 percent below the long-term trend; the more volatile multifamily houses is 15 percent below trend and demand for new homes 47 percent below. This is indicative of reluctance by households to make long-term investments due to fear of another downturn in housing prices. Bloomberg summarizes this succinctly: "This historically weak demand for new homes is inhibiting the recovery of demand for construction workers as well, about 2.3 million of whom remain without work." But the best visual representation of the housing "non-bottom" comes courtesy of the following chart of homes in negative or near-negative equity, which via Bloomberg Brief, is soared in Q4, and is now back to Q1 2010 level at over 13.5 million. What this means is that the foreclosure backlog and the shadow inventory of houses on the market could be as large as 13.5 million in the future, which translates into one simple word: supply.
There's noting like a good rant with a fact or two thrown if for good measure. Damn, I luv this job:-)
One of the most vocal advocates of a NEW QE announcement next month, at either the FOMC meeting or Jackson Hole - Goldman Sachs - has just pulled the plug. From Jan Hatzius: "The US economic data continue to look a bit stronger. Tuesday’s retail sales report for July beat expectations, while inventory accumulation showed a further slowdown in June. Our Q3 GDP tracking estimate edged up to 2.3%. The recent news also has implications for Fed policy. While QE3 at the September 12-13 FOMC meeting remains possible, our best estimate is that it will take until late 2012/early 2013 before Fed officials return to balance sheet expansion." Just as we have been saying. Which means the Fed is now out of the picture until the end of 2012. And with corn prices where they are, so is the PBOC. As for the ECB - talk to Rajoy, who will do nothing as long as 10 Year yields are under 8%. Which means that, as explained previously, Spain and Italy, and in fact the entire world, must all be destroyed first, before they are saved.
We have said it over and over, we'll say it again. For all those who for one reason or another would like to boycott the broken markets, yet trade gold in paper form, please understand that all the invested capital is at risk of total loss and can and will be lost, commingled and rehypothecated, not necessarily in that order, with little to zero recourse and the residual claim on liquidating assets pushed to the very end of the queue. Because if Lehman, MF Global, Peregrine, and countless other examples were not enough, here comes Amber Gold: a gold-based investment ponzi scheme out of Poland, in which it is likely needless to say that the gullible investors never had actual possession of the gold. And when they tried, it was gone. All gone.
How does the current 'recovery', which according to the NBER officially began in June 2009, compare to those of the past? The Council on Foreign Relations updates its recovery chartbook and succinctly notes that "the current recovery remains an outlier among post-war recoveries along several dimensions." Consumers remain reluctant to take on new debt and the stock of debt is lower than it was when the recovery officially began. The global economic slowdown is beginning to manifest itself in world trade. After staging the strongest recovery of the post–World War II era (thanks to the depth of the plunge), growth in world trade has begun to decelerate.
The two major overnight data points were European Q2 GDP which printed at -0.2%, or the expected continuation of the European double dip. As SocGen explains, these numbers continue to paint an all too predictable picture of growth in Europe, with expansion in Germany driven by exports and consumption, growth in France stagnating and deep recessions continuing in southern Europe. The European GDP pattern is now expected to be a copy of 2011. Amongst the country details, growth beat expectations in Germany (+0.3 q/q), Austria (0.2%), Slovakia (+0.7%) and the Netherlands (0.2%) but this was offset by deep declines in Finland (-1.0%) and Portugal (-1.2%). Amongst data already published we know Italy declined 0.7%, Spain declined 0.4% and Belgian GDP declined 0.6%. And while the market was clutching at the German GDP beat straw, it was the German ZEW Survey which threw a cog in the spikes of German economic perception, after the number came at a whopping -25.5, declining for the 4th consecutive month and far below expectations of -19.3, and a drop from the already negative -19.6. Finally, while there may be hopes that this is the bottom, already weak IP data confirms that the weakness in Europe has continued into Q3 and as such as the continental contraction will likely not stop contracting for the foreseeable future.
Conjuring images of Jack Nicholson in 'A Few Good Men', Alan Simpson laid out the sad and terrible truth that none of us or our politicians can handle in a very direct and sincere interview with Bloomberg TV's Deirdre Bolton. "Medicare costs stand to squeeze out the rest of domestic government spending," Simpson said, "it is on automatic pilot. It will use up every resource in the government." Simpson also said that the current path of debt, deficit and interest is “totally unsustainable” confirming once again the facade that his 18 years in Washington proved to him that he "never saw any projection of any economist ever come true." From Paul Ryan's plan to the 'simple math' of CBO budget projections, and whether older Americans should be afraid, Simpson pulls no punches as he sums up American society thus: "we don't care about our money, all we want is more money for our money."
With less than three months to go, the outcome of the November election remains highly uncertain. SocGen notes that, as always, economic performance over the coming months will be a key determinant of who wins and who loses. If the elections were held today, the most likely outcome would be a Republican win in both Congressional races and a Democratic win in the race for the White House. This means that any new significant legislation will almost certainly have to be a product of compromise. In this sense, we may very well be looking at a status quo in terms of bipartisanship and gridlock which have dominated Washington politics over the past few years. This would be bad news at a time when the country faces a number of serious challenges with significant long-term implications. From the economy to long-term fiscal health, and from the debt-ceiling to Housing, Healthcare, and Energy policy differences, the following provides a succinct review.