Baltic Dry Index. 1761 +29
LIR Gold Target by 2019: $3,000.
The fairness of taxing more lightly income from wages, salaries or from investments is beyond question. In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it; in the other, the source of income continues; the income may be disposed of during a man’s life and it descends to his heirs. Surely we can afford to make a distinction between the people whose only capital is their mettle and physical energy and the people whose income is derived from investments. Such a distinction would mean much to millions of American workers and would be an added inspiration to the man who must provide a competence during his few productive years to care for himself and his family when his earnings capacity is at an end.
Andrew Mellon.
We open today with the latest residential real estate stats from America, where the ending of first time buyer subsidies seems to have ended American’s interest in buying homes, first time or not. Ignored by the now seriously detached ever optimistic stock market, to me it’s another red flag, like the BDI and the ECRI, warning of economic trouble ahead. And America hasn’t even started on an austerity plan. Below, the Journal on yesterday’s developments.
"…it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now."
Cyril Moulle-Berteaux. Managing partner, Traxis Partners LP. May 6, 2008. WSJ.
JULY 21, 2010
Housing Market Stumbles
Construction Slows, Inventories Build Amid Weak Job Growth, Tax-Credit End
The housing market, whose collapse pulled the economy into recession in late 2007, is stalling again.
In major markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans. The expiration of a federal home-buyers tax credit at the end of April is weighing on the market.
On Tuesday, the U.S. Census Bureau said single-family housing starts in June fell by 0.7%, to a seasonally adjusted annual rate of 454,000. The U.S. started 1.47 million homes in 2006, before the housing bubble popped.
Future construction looks even weaker. Permits for single-family starts fell 3% in June, following big declines in both May and April. "We're hovering at post-World War II lows," said Ivy Zelman, president of Zelman & Associates, a research firm.
While the housing downturn dragged the economy into a recession nearly three years ago, now it is the economy that is pulling down housing, says economist Patrick Newport at IHS Global Insight. Without sustained job growth, the housing market likely won't improve. That in turn will ricochet across manufacturing, retail and other trades heavily dependent on home building and consumer spending.
The Wall Street Journal's quarterly survey of housing-market conditions in 28 major metropolitan areas shows that inventory levels have grown in many markets. But inventory fell in some of the weakest ones, including several Florida markets, Atlanta, and Charlotte, N.C.
At the end of June, inventory was up 33% from year-ago levels in San Diego, and by 19% and 15% in Los Angeles and Orange County, Calif., respectively, according to data compiled by John Burns Real Estate Consulting. Rising inventory can lead to price declines later.
---- Even falling interest rates aren't enough to whet consumer appetites for housing. Last week, the average rate on a 30-year fixed-rate mortgage was quoted at 4.57%, according to Freddie Mac, the lowest since its survey began in 1971. But demand for home-purchase mortgages sits near 14-year lows, according to the Mortgage Bankers Association, down 44% over the past two months.
The government last fall extended tax credits worth up to $8,000 to home buyers who signed contracts by April 30, causing sales to surge early this year. Those buyers had until June 30 to close their sales until Congress, concerned that the backlog of sales wouldn't close in time, extended the deadline through September.
Analysts long expected the withdrawal of a federal tax credit, which had juiced sales, to lead to a slower-than-usual summer.
"It's the magnitude that's been the issue,'' says Douglas Duncan, chief economist at Fannie Mae. "The drop-off in activity has surpassed expectations.''
Next, more on the highly entertaining battle between the spendthrift Keynesians and the dour Calvinist “Hooverites.” Ding, ding, ding, round two.
"liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
Andrew Mellon.
Krugman versus Ferguson: Round Two
By Jeremy Warner Economics Last updated: July 20th, 2010
Not since Ken Rogoff’s famous attack on Joe Stiglitz has the dismal science of economics provoked such pompous, self-important, personalised squabbling. Professors Paul Krugman and Niall Ferguson, of course, have form; they’ve been at it on and off for nearly a year now over the efficacy of deficit spending in fighting the downturn, and today they return to the fray.
The occassion was another piece that Ferguson, an eminent economic historian, has penned for the Financial Times on the dangers of attempting to spend your way to economic recovery. Foolishly – or perhaps deliberately, for it is sometimes possible to imagine that the two have secretly agreed to slag each other off for the publicity – he mentions Krugman by name. “Those economists, like New York Times columnist Paul Krugman”, he writes, “who liken confidence to an imaginary “fairy” have failed to learn from decades of economic research on expectations. They also seem not to have noticed that the big academic winners of this crisis have been the proponents of behavioural finance, in which the ups and downs of human psychology are the key”.
Quick as flash, Krugman has risen to the bait. On his New York Times blog, he writes “Brad DeLong does the necessary on Niall Ferguson; no need for me to pile on”. But then he attempts to do precisely that, and with a ladle too. The detail of the argument need not bother us here. You can follow it by clicking on the links.
But it has to be said that as an encore, it is not nearly as entertaining as the first round, where Krugman ended up accusing Ferguson of being a racist on account of his reference to “Felix the black cat”, and of not being qualified to comment on economics since Ferguson is a “mere” historian of finance. Krugman, by contrast, is a Nobel prize winner.
------Surface cleverness? Never let it be said that Krugman might be guilty of the same. I see very little serious economic analysis on his daily blogs; what I see instead is well and consistently argued political polemic, peppered with selective use of graphs and statistics to give the veneer of dedicated research. The debate over deficit spending has always been more political than economic.
The reality is that nobody knows what cutting the deficit into a weak economic recovery is going to do to output and jobs. We won’t know until it is tried, and even if there is a double dip, it will be impossible to say whether it was the deficit reduction wot did it. The way things are at the moment, the US economy may well slip back into recession without any deficit cutting at all. As far as I can see, much of the stimulus has just been money down the drain.
And as for citing the historical evidence of the Depression, where apparently premature fiscal tightening caused the economy to dip back down again, the precise mechanisms by which this occurred are again highly debatable. Whacking up business taxes as a way of cutting the deficit not unnaturally killed the investment recovery stone dead.
What we do know about US Federal spending is that it is unsustainable at present levels, and unless something is done about it soon, America can kiss goodbye to its world leadership role. But don’t take it from me. This is what Krugman said about it in early 2006, when the deficit was not nearly as bad as it is today:
More.
http://blogs.telegraph.co.uk/finance/jeremywarner/100006939/krugman-versus-ferguson-round-two/
In European news, the great 2010 austerity band wagon rolls on. Below, Spain’s minority government limps on to another success. But will the votes still be there once the real pain kicks in?
Zapatero Wins Spending Vote, Setting up Budget Fight
July 21 (Bloomberg) -- Spanish Prime Minister Jose Luis Rodriguez Zapatero won parliamentary approval for next year’s spending plan by four votes in the first phase of a battle over the 2011 budget that could decide the fate of his government.
Aided by 13 abstentions, Zapatero’s Socialists carried the vote 170 to 166, Speaker Jose Bono said yesterday in Madrid. Smaller groups including the Basque Nationalist Party that Zapatero relied on to pass his minority government’s program voted against the spending limit, which is the first stage of the budget process.
Zapatero also lost a separate, non-binding vote yesterday calling on the government to scrap a freeze next year on pensions, part of the austerity plan passed in May. The motion was carried 178-163, increasing pressure on the government to backtrack on the measure.
As a 20 percent unemployment rate and the deepest budget cuts in three decades erode support for the government, Zapatero has also lost the backing of smaller parties in parliament that he relied upon. He pushed through emergency austerity measures with a margin of one vote on May 27, and failure to pass the 2011 budget by the end of the year would probably bring down the government.
Zapatero has riled unions and some members of his Socialist party with a policy U-turn aimed at cutting the third-largest budget deficit in the euro region and stemming a surge in borrowing costs.
The budget shortfall was 11.2 percent of gross domestic product last year and the government aims to cut it to 6 percent in 2011 by paring public workers’ pay by 5 percent, reducing infrastructure investment and raising taxes.
http://noir.bloomberg.com/apps/news?pid=20601095&sid=ahtM9S.ZcUs0
Next, more from Bloomberg on the rising real estate tension in China. It’s not just America on edge.
Tianjin Says ‘Wait a Minute!’ to Wen as China Property Slumps
July 21 (Bloomberg) -- Three dozen cranes tower over the Tianjin West Railway Station, part of a 501-billion yuan ($74- billion) government-funded building boom in this city of 9.8 million southeast of Beijing.
Like hundreds of other local Chinese projects, Tianjin’s construction is financed in part by land sales that are dropping as China’s real-estate slump takes hold. Property sales slid at an annual 8 percent rate in June. Selling land produced 41 percent of Tianjin’s income last year, according to China Index Academy, a Beijing real-estate research firm.
A cascading collapse in local finances could force the central government to shore up banks that lent to local government entities, said Jim Walker, chief economist at Hong Kong-based Asianomics Ltd., in a June 7 interview. Banks could “easily” be saddled with bad loans of more than $400 billion over the next two years, he said.
“These local-government vehicles probably hope their projects will be able to service their debts,” Walker said. “If they don’t I doubt they’ll worry about repaying the loans; they will just assume that somewhere else in government will have to take on the bad debt.”
After their success in propelling growth, local authorities are now faced with the consequences of Premier Wen Jiabao’s crackdown on the real-estate bubble. Falling property sales risk an erosion of revenue accounting for as much as 30 percent of local budgets, according to Standard Chartered Bank.
Must Do Something
The China Se Shang Property Index has tumbled 42 percent in the past year, underperforming the 23 percent drop in the benchmark Shanghai Composite Index.
“Local governments were encouraged to invest in these projects and now they’re feeling like, ‘Hey, wait a minute!’” said Barry Naughton, author of the 2007 book “The Chinese Economy: Transitions and Growth” and a China specialist at the University of California San Diego. “They will be taking their funding platforms to Beijing and saying: ‘We’re going to go bankrupt. You have to do something about it.’”
http://noir.bloomberg.com/apps/news?pid=20601089&sid=aOxoWUVhVLzA
While Eur-Asia struggles though one of the hottest summers in a century, in South America it’s one of the coldest winters in years. Another sign of our lingering sunspot minimum ushering global cooling and a new Dalton Minimum, or merely background noise to an ever changing natural world? It’s way too early to tell, but my take is that it tends to support the case for global cooling. What will the coming winter bring to us snow challenged Brits and the UK?
175 people killed in South America cold spell
20.07.2010 08:22
At least 175 people have died in the coldest winter in South America in recent years, officials in six affected countries said, dpa reported.
The cold was worst in southern Peru, where temperatures in higher altitudes of the Andes dropped to minus 23 degrees Celsius. Officials said Monday that since the beginning of last week 112 people died of hypothermia and flu.
Argentina measured the coldest temperatures in 10 years. Sixteen people froze to death and 11 died of carbon monoxide poisoning due to faulty heaters.
In Bolivia, 18 people died, in Paraguay five and two each in Chile and Uruguay. Nine people died of the cold in southern Brazil.
Thousands of cattle also froze to death on their pastures in Paraguay and Brazil. There are no stables for the animals as temperatures usually do not drop that low.
Several regions in Bolivia and Peru closed schools until the end of the week and larger cities opened emergency shelters for homeless people.
Electricity and gas networks are operating at capacity limits in many of the affected regions. Argentina reported natural gas shortages in several provinces.
The poorest population groups are worst affected by the cold spell with their homes poorly equipped to deal with the cold, lack of heating and access to health care.
http://en.trend.az/regions/world/ocountries/1723309.html
We end for the day with bad news from Bosnia. It’s not just the whole world that’s against the people who occupy the Balkans, now Aliens are getting in on the sport too. Below, MSN UK News covers all the news that’s fit to print in the UK’s silly-season of high summer. I think I can help out the unfortunate, long suffering, meteorite challenged Mr. Lajic. I think the aliens want him to move. He’s obviously living on top of something they need.
MSN UK News, 20/07/2010 08:30
Man hit by six meteorites; blames 'aliens'
A Bosnian man insists he is being targeted by extra-terrestrials after his house was hit by meteorites six times in three years.
Radivoje Lajic, 50, who lives in the northern village of Gornji Lajici, believes aliens are responsible for the meteor strikes.
"I am obviously being targeted by extra-terrestrials," he insists. "I don't know what I have done to annoy them but there is no other explanation that makes sense.
"The chance of being hit by a meteorite is so small that getting hit six times has to be deliberate."
The strikes, which experts at Belgrade University have confirmed are all meteorites, always happen when it is raining heavily.
"I have no doubt I am being targeted by aliens," the Metro reports Lajic as saying. "They are playing games with me. I don't know why they are doing this. When it rains I can't sleep for worrying about another strike."
Lajic has had to reinforce his roof with a steel girder for fear of the strikes causing lasting damage.
He paid for the girder by selling one of the meteorites to a university in the Netherlands.
http://news.uk.msn.com/odd-news/features/articles.aspx?cp-documentid=154165831
"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."
Shi Jianxun. China People’s Daily. September 16, 2008
At the Comex silver depositories Tuesday, final figures were: Registered 51.77 Moz, Eligible 58.89 Moz, Total 110.66 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today it’s the crooks and scoundrels that work for America’s SEC watchdog. With a watchdog like this, can the next Lehman be very far away?
“The world is a place that’s gone from being flat to round to crooked.”
Mad Magazine.
JULY 21, 2010
SEC Had 'Window Dressing' on Radar for Years
Federal regulators were aware of and concerned about potentially questionable accounting of short-term trades on Wall Street long before Lehman Brothers' collapse raised the issue, a report indicates.
Since 2004, the Securities and Exchange Commission has questioned 115 transactions by 102 different companies to assess if they accounted properly for repurchase agreements, or "repos," among other short-term trades, according to AuditAnalytics.com. The research firm reviewed more than 115,000 comment letters the SEC sent to companies asking questions about their securities filings.
An SEC spokesman declined to comment on the report.
In March, a bankruptcy examiner said Lehman improperly moved $50 billion off its balance sheet by misclassifying short-term trades as "sales," when they should have been classified as borrowings.
The strategy, dubbed, "Repo 105," triggered an SEC inquiry.
The new report suggests that the SEC has for years been concerned about potential Wall Street "window dressing"—finding ways to shed debt before reporting finances to the public. Since the financial crisis, window dressing has increased, according to a Wall Street Journal analysis, as banks have grown more sensitive about showing high levels of debt and risk.
"The SEC at least knew of this issue and tried to inquire when they could," said Don Whalen, AuditAnalytics.com's director of research.
Though window dressing isn't illegal, intentionally masking debt to deceive investors violates regulatory guidelines. In recent weeks, Bank of America Corp. and Citigroup Inc. have said they mistakenly booked some repo trades as sales when they should have been borrowings, but said the amounts were immaterial.
The SEC's questions don't indicate the companies did anything wrong, or that the SEC took any action against them, except for a few instances in which the regulatory request apparently prompted companies to restate earnings.
Among the 102 companies to which the SEC posed such questions are Bank of America and Citigroup. The BofA and Citi transactions the SEC questioned that are part of the new report's figures apparently were accounted for properly, and the SEC didn't take any action against the banks.
A BofA spokesman didn't provide any comment. A Citi spokesman declined to comment.
"We finished the year, and we reported that we had $17 billion of cash sitting at the bank's parent company as a liquidity cushion. As the year has gone on, that liquidity cushion has been virtually unchanged."
Bear Stearns CEO Alan Schwartz. March 12, 2008. Failed March 17th, 2008.
The monthly Coppock Indicators finished June:
DJIA: +269 Down. NASDAQ: +460 Down. SP500: +290 Down.
The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators.
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