QUOTES OF THE DAY

“The flaw with The Fed’s model of real earnings growth is that it is not organic growth, but a massive block of sugar. And a sugar crash invariably follows.”

Anthony Sanders

“There is no clean way to make a hundred million bucks. Somewhere along the line guys got pushed to the wall, nice little businesses got the ground cut out from under them. Decent people lost their jobs. Big money is big power, and big power gets used wrong. It’s the system…

The tragedy of life, Howard, is not that the beautiful die young, but that they grow old and mean.”

Raymond Chandler, The Long Goodbye

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Cyclone! The Fed/Obama Labor Recovery In 5 Charts (And They Are Ugly!)

Guest Post by Anthony Sanders

Both outgoing President Obama and lingering Federal Reserve Chair Janet Yellen are making claims about the number of jobs added under their leadership.

Yellen: “Job market strong, signs of wage growth.” And the “strongest job market in nearly a decade.”

Obama (during his farewell press conference last Friday): “Since I signed Obamacare into law, our businesses have added more than 15 million new jobs,”

Sounds impressive, unless you look closely at the numbers.

First, about the 15 million new jobs added since Obama signed Obamacare into law. The black box in the chart below shows the real average hourly wages since 2010 (through 2014). They were declining.

declining-wages

Continue reading “Cyclone! The Fed/Obama Labor Recovery In 5 Charts (And They Are Ugly!)”

Actually, The US LOST 1,030 Million Jobs in July (Teachers’ Summer Break)

Guest Post by Anthony Sanders

To better understand the July Jobs report, one has to understand the seasonal adjustments that the Bureau of Labor Statistics employs.

Nonfarm payroll jobs added in July on a seasonally adjusted basis were +255,000 in July. But the raw or NON seasonally adjusted numbers were -1,030,000 jobs. Or 1.03 million jobs lost.

nfpnsasa

Notice in the above chart that you get big downward dips in the nonfarm payroll numbers in January and July.  And it repeats every year. For January, this is the release of seasonal employment for the holidays. For July, this is the transformation to summertime employment, mostly for teachers. Local government education NSA fell by -1,093,000 in July. Total PRIVATE jobs added amounted to +85,000.

Continue reading “Actually, The US LOST 1,030 Million Jobs in July (Teachers’ Summer Break)”

20 Years Of Progress? Real Median Household Income Back To 1996 Levels, Home Prices Exploding!

Guest Post by Anthony Sanders

Like Sgt Peppers Lonely Hearts Club Band,

It was twenty years ago today
Sgt. Pepper the government taught the band economy to play
They’ve been going in and out of style (not really)
But they’re guaranteed to raise a smile (but not incomes)
So may I introduce to you
The act you’ve known for all these years
Sgt. Pepper’s Lonely Hearts Club Band  Sgt. Yellen’s Flat Income Band

Yes, real median household income as of 2014 is back to 1996 levels. Not quite 20 years, but you get the point.

Unfortunately, real home prices are considerably higher than 20 years ago.

realimchp

While Bloomberg doesn’t have a real home price index, I am forced to use a nominal home price index. But you still get the point. Home prices are considerably higher as is the stock market than nearly 20 years ago. But real median household income is the same as in 1996.

rmichtoday

Yes, government policies enacted to spread the wealth and make housing affordable have seemingly backfired. American households are worse off now than (almost) 20 years ago.

And, of course, The Federal Reserve has made asset prices skyrocket, but not real median household income.

beatles 5


Skew (S&P 500 Crash Risk) Rises To Highest Level Ever!

Guest Post by Anthony Sanders

The CBOE Skew index, a measure of tail risk for the S&P 500 index, just exploded.

skeweisk

It is now at the highest level on record.

skewlt

It looks like an S&P 500 index downturn follows the SKEW breaching the 140 level.

skewsp500

Continue reading “Skew (S&P 500 Crash Risk) Rises To Highest Level Ever!”

Fannie Mae Is At It Again——Loan-To-Value Ratio Now Higher Than During Housing Bubble

Guest Post by Anthony Sanders

At last. Residential mortgage (1-4 unit) lending is almost back to zero percent growth!

mortgcre

It has been a tough time for mortgage lenders since the passing of Dodd-Frank and the creation of the Consumer Financial Protection Bureau (CFPB). The Urban Institute has this chart showing that the absence of risky loans in the economy is the answer.

goldilocks

Now, hold on one second! I am unclear as to how Laurie Goodman and company define “risky,” but low down payment loans are more risky than 20% down payment loans empirically. I don’t know if the Urban Institute counts 3-5% down payment loans as risky in their chart.

Continue reading “Fannie Mae Is At It Again——Loan-To-Value Ratio Now Higher Than During Housing Bubble”

NIGHT OF THE LIVING FED

Guest Post by Anthony Sanders

The Night Of The Living Fed! Short-term Rates Down 500 Basis Points Since Dec 2006 Zombifying Savers (And Not Helping Mortgage Borrowers)

The Federal Reserve Open Market Committee (FOMC) will be meeting Wednesday to decide whether to raise the Fed Funds target rate or continue to taper The Fed’s asset purchases.

fed102714

The Federal Reserve helped to push down interest rates, particularly compared to the end of 2006. Short-term rates (those utilized by savers and seniors) by 500 basis points. Long-term rates (those utilized by mortgage borrowers) have fallen by 250 basis points, about half the decline of short-term rates.

yc06now

But has The Fed’s aggressive easing (and rate lowering) done any good for the target mortgage borrowers? Mortgage debt outstanding continues to fall, house prices continue to rise as mortgage purchase applications deteriorate.

fedmbapfff

The FOMC will look at inflation compared to labor market “improvements.” While inflation is only 1.7% (according to the CPI YoY), Urban Consumers Owners Equivalent Rent of Residences is growing at a rate of 2.7%.

fedhome

While Owner’s Equivalent Rent of Residences is growing at 2.7%, average wage growth is lagging at 2.0% growth.

wagesfed

Food is shooting through the roof, which is an important cost to American consumers.

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The US Dollar?

dllarfed2

Yes, it is “The Night of the Living Fed!” where wages and interest rates remain zombified.

JanetzombiesCourtesy of Jessie’s Cafe Americain.

EXISTING HOME SALES FALL VERSUS LAST YEAR, WHILE INVENTORY RISES – LET’S CELEBRATE!!!!!

In classic MSM fashion, the headlines about existing home sales crow that they are the highest in a year. The truth is they are 1.7% LOWER than last September. But at least inventory for sale is 6% HIGHER than last September. Lower sales and higher inventory always do wonders for prices. Right?

First time home buyers as a percentage of buyers remains at historic lows of 29%. This number should be 40%. The Chinese and the flipper morons continue to drive cash purchases at 30% of all sales. Mortgage applications remain at two decade lows despite mortgage rates below 4%.

Yeah – this is a wonderful report. Buy stocks.

Via Anthony Sanders

Existing Home Sales Rise 2.4% In September (But Down 1.70% YoY), Back To 2001 Levels

Existing home sales in September rose 2.4% to get back to 2001 levels. Year over year change in existing home sales were down 1.70%.

ehstablesept14

If it wasn’t for 30% cash sales, the existing home sales numbers would be dreadful.

cash_sales_price_range

The growth was mostly in the West and South.

We can thank The Federal Reserve’s quantitative easing programs (particularly QE3) for juicing existing home sales in the face of lower/stagnant real income and “Death Valley” mortgage purchase applications.

ehs102114

The Fed Futures data is pointing to a Carnival Cruise trip with The Fed Funds rate likely to rise in the near future. Or at least more likely than it has been in the past year.

fedintates

Here is The March of The Federal Reserve as it distorts prices and incentives.

marchofthefed

LETHAL TAPER

Guest Post by Anthony Sanders

 

Lethal Taper: The Buffett Valuation Indicator Flashing Red (Are Stocks And Housing Too “Frothy”?)

Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett, the Oracle of Omaha.

Here is a chart of the market cap to nominal GDP, aka the Buffett Valuation Indicator. Note that we are currently in the second highest spike since 1952.

buffettrule

Here is the Buffett Valuation Indicator since 2000 versus the Wilshire 5000 Total Market Full Cap Index. Note that they both peak in 2007, then decline.

buffettwilshira

In fact, both the Buffett Valuation Indicator (BVI) and Wilshire 5000 index are higher than their peaks in 2007.

But what about house prices? Like the BVI, they peaked in 2007 (if I use the FHFA Purchase Only House Price Index). But while BVI is now higher than in 2007, house prices are not. But they are rapidly increasing.

buffettfhfaa

Of course, the Federal Reserve’s massive intrusion into capital markets certainly helped float the Buffett Valuation Indicator to frothy heights.

buffettfed

The question is whether these frothy stock and house prices can withstand the withdrawal of the unprecedented Fed stimulus.

Doctor, Doctor (Yellen), give me the news, have we got a bad case of … asset bubbles?

bernanke-cop

The NEW Affordability Crisis in Housing (House Prices And Apartment Rents Rising While Income Remains Stagnant)

Guest post by Anthony Sanders

The Federal Reserve’s zero interest rate policy and quantitative easing programs are contributing to rising home prices and apartment rents while not contributing to household income gains. The result is the “new” housing affordability crisis or as The Talking Heads sang “Burning Down The House” as in burning down housing affordability.

Bloomberg: The U.S. apartment-vacancy rate rose for the first time in almost five years, a sign that supply is starting to catch up to rental demand after a boom in multifamily construction.

The vacancy rate rose to 4.2 percent in the third quarter from 4.1 percent the previous three months, the first increase since the end of 2009, Reis Inc. (REIS) said in a report. Net leasing gains of 37,233 units lagged behind the 46,055 new units completed, the New York-based real estate research firm said.

Although the rise in the apartment vacancy rate is small (in the red circle), it may be a turning point if it repeats for several months. Notice that homeownership rate continues to fall as real median household income is making feeble increases.

apartvacrent

Then again, mortgage purchase applications remain in “Death Valley”, incomes are stagnant or rising slowly, but home prices and effective apartment rates are rising.

hpent

Is The Federal Reserve contributing to the this neo-affordability crisis with its flooding of capital markets with liquidity? It appears that the third round of quantitative easing (and The Fed;s zero interest rate policies) are associated with rapidly rising house prices and apartment rents, but NOT real median household income and mortgage purchase applications.

fedrents

The is the NEW affordability crisis where cheap money benefits investors who drive up asset prices (but not family income).

Is The Fed helping “Burn Down The House?” At least, burning down affordability.

Janet-Yellen-laugh

Destruction of America’s Middle Class

Guest Post by Anthony Sanders

America’s middle class is having a difficult time. They are not sharing equally in the Fed-induced stock market surge and real median household income is the lowest since 1995.

incchqt

Rising home prices (albeit slowing), stagnant wage growth and rising mortgage rates are leading to a decline in home affordability.

Take the National Association of Realtors Homebuyer Affordability Index. You can see that UNaffordability peaked in 2006 when home prices peaked and real median household income was recovering from the 2001 recession.

afford

You can also see that AFFORDABILITY peaked in 2012 after home price declined and mortgage rates hit a low since 2000. Unfortunately, real median household income had also fallen preventing a true housing recovery.

Mortgage purchase applications remain at a 14 year low (like real median household income, mortgage purchase applications are back to 1995 levels). This results in an affordability gap due to rising home prices, rising mortgage rates and declining/stagnant income.

mbaphp

Unless members of the American Middle Class over substantial holdings of the S&P 500 and/or Commercial Real Estate, there massive Federal Reserve asset purchases and interest rate repression scheme has NOT helped the Middle Class.

crededaa

Is loosening credit standards the answer? Do you think Federal housing policy should heap MORE debt on households that are already suffering from the aftermath of a housing/credit bubble that burst? I would say no.

The solution is not more debt, it is adopting policies that allow that economy and wages to grow. Not stifle recovery.

So, like in the movie “The Incredible Burt Wonderstone,” we have succeeded in making the Middle Class disappear!

disappearingaudiencce

littlejanet

BE VEWWY QUIET, I’M HUNTING BUBBLES

ACTUAL PICTURE OF FEDERAL RESERVE VICE CHAIRMAN STANLEY FISCHER HUNTING BUBBLES

Guest Post by Anthony Sanders

Fed’s Fischer Leads Committee Watching for Asset-Price Bubbles (Here Are Bubbles To Watch, Stan!)

The Federal Reserve’s Stanley Fischer is now leading a committee to watch for asset bubbles. Fed officials want to ensure that six years of near-zero interest rates don’t lead to a repeat of the excessive risk-taking that fanned the U.S. housing boom and subsequent financial crisis.

Let me help you out, Stan!

Here is a chart of the S&P 500 stock market index against The Fed’s Balance Sheet to proxy for near-zero interest rates. Yes, it looks a bubble to me!

sp500bubble

Here is a chart of average hourly wage earnings growth YoY against The Fed’s Balance Sheet. No bubble in wages.

vgwgebubb

Similarly, there is no bubble in real median household income since The Fed’s massive intervention. Quite the opposite, in fact.

rmincbubble

How about home prices? Yes, there appears to be a bubble in home prices since 2012 given the poor growth in wage earnings.

csbubble

Gold? Gold was soaring until 2011 with the growth in The Fed’s Balance Sheet, but has been declining/stagnant since then. So, no current bubble.

goldbubble

There you go Stan! Home prices and equity markets are in a bubble (thanks to NO bubble in wages and earnings). And no current gold bubble either. It’s hard to sustain housing and stock market bubbles with stagnant wage earnings and household income.

Rich vs Poor

So I would watch the equity markets and home prices for excessive risk taking by wealthy investors.

Stanley Fischer with “Orange Lady” Christine Lagarde from the International Monetary Fund (IMF) looking for asset bubbles over coffee. And apparently Lagrade has been promoted to General in the Global Monetary Army.

fisher-stanley-christine-lagarde-fmi_imf

globetable

WALL STREET RECOVERY vs MAIN STREET RECOVERY

The $3.5 trillion pumped into the Wall Street banks by the Federal Reserve had the sole purpose of covering up their insolvent balance sheets, providing them risk free profits, and providing cash for their front running HFT deep pools to fleece the public and generate profits 99.9% of the trading days. Wall Street has fully cooperated with the government by manufacturing a home price recovery through foreclosure manipulation and the buy to rent scheme, thereby further boosting their insolvent balance sheets. Meanwhile, the middle class has been shot in the head, knifed, run over by a car and left to die in the street as jobs are non-existent or shitty, they can’t earn a penny on their savings, and affordable housing is a pipe dream.

 

Guest Post by Anthony Sanders

Broken Transmission: Bank Credit As Percentage of Monetary Base Hits All-time Low (Explains Poor Mortgage Growth)

It is no secret that money velocity keeps falling. And has continued to fall despite the extraordinary increase in the monetary base of the US.

mzmvadjmonbase

If we look at bank credit at all commercial banks divided by the St Louis Adjusted Monetary Base, we see a distinct “stall” as The Fed increased the monetary base in 2008. In other words, after 2008. there is substantial money in the banking system that is NOT being loaned. Now we sit at a new historical low of bank credit as a percentage of monetary base.

bcgadjbase

The answer to this puzzle is declining/stagnant income growth which can be seen in this chart of declining/stagnant average hourly wage earnings growth since 2007.

bcgavginc

We can use real median household income (Green) to make the same point.

bcgstladmormince

Or declining labor force participation.

bcglfp

Declining/stagnant incomes and declining labor force participation coupled with rising home prices isn’t a recipe for a middle class recovery. To the contrary.

casebcmonbase

Suffice to say that stuffing money into commercial banks has not worked as expected since wage income growth is stagnant and labor force participation continues to decline.

As a result, gross domestic product (GDP) also has hit an all-time low as a percentage of monetary base.

gdpmonbase

If households don’t have enough income to borrow (particularly for a home loan), then what good is The Fed’s monetary expansion? To quote Mel Gibson from the movie Payback, “Then what good are you?”

600px-PaybackS&W27-8