Wednesday, June 13, 2007
Excuse The Light Posting
Non-economic major stories: Hamas gains in Gaza civil war. Will it move to the West Bank? The flood of immigration is destroying medical services in areas with high populations of immigrants. Here's the reality - a woman dying in a hospital lobby. Portland mayor protests arrests of illegal immigrants. He doesn't mind the Feds arresting the people who were providing them with the faked docs to work, but he's schizoid on the workers themselves. Without faked docs, they are not going to be hired!
I believe the increase in retail sales (smart others are questioning it), because WalMart reported 1.1% increase. But the MoM only looks so good because April was so bad. If you compare the 5 month totals (YTD against YTD prior year), the net increase seems to be pegged at about real inflation (the government's numbers are understated for several reasons). YTD gas sales are up about 1.5% overall YoY. Again, flat to slow decline.
The last three months of data are a bit hard to compare YoY or MoM, because Easter was early, shifting sales into March, and Memorial Day was early, shifting sales into May. When June figures roll in, we'll get a better comparison. But for now, the best way to do comparisons on retail sales and inventories are by using two month rolling averages adjusted by real inflation (which is danged hard to do).
Economically speaking, I believe that we are in the first stages of a recession. But will it turn out to be a skimming recession (which in fact, may not even show in official stats due to bad inflation data)? Or will this just plow deeper and deeper into the ground? The answer to that question, I think, depends on how quickly we see the small business pickup I am expecting. Larger businesses are not investing much in the US at this time which does create some relative opportunity for small businesses; we have a population flow now moving to the rural and southern areas, and that population flow will create additional small businesses. We also have a big bulge of people in their later 40's and 50's, some of whom have considerable capital and business expertise. They may kick in and keep the larger business trends from controlling the economy.
The kicker is, we won't know for about seven months. It depends on timing now. As for consumer spending, we did get FOR and it confirms what I thought was happening (as does Compucredit). Consumers are maxed out; in order to spend more they have to cut down debt. We are in the early 70's.
Mortgage rates moved up to about 6.50%, and that's prime. Given the risk factors, they need to go up to close to 7% to get stability. Needless to say, this is going to cause a lot more heartburn. This Bloomberg article sums up both the recent madness and how far in denial we still are:
Tullis's latest clients are a married couple that banks ought to love. Between them they make $70,000 a year and they've been renting the same apartment for three years with zero late payments, he said.Whoa!!! Later in the article there is some pontification from MBA:
Lenders won't approve them because they don't have enough money in the bank, said Tullis, Virginia sales director at A. Anderson Scott Mortgage Group in Falls Church. With mortgage companies cracking down due to rising subprime defaults, Tullis needs them to sock away two months of payments for the $500,000 townhouse in Fairfax.
``Six months ago, these folks might have qualified, a year ago, definitely,'' Tullis said. ``It's a lot, lot harder than it used to be for first-time home buyers.''
Shutting out borrowers won't improve those numbers, said Doug Duncan, the Mortgage Bankers Association chief economist.Dream on, you financial pimp. If requiring 5% down and/or two months of reserves for first time home buyers who are buying far, far over their heads is going "too far", then mortgage rates should be at about 12% to compensate for the expected risk. The couple cited have an income of $70,000 and want to buy a $500,000 home. That's over 7 times their gross income, and in that area and with that income they shouldn't be spending any more than 4 times gross income at the absolute limit.
``There were clearly weak underwriting standards in 2006 and the pendulum has swung pretty hard in the other direction,'' Duncan said. ``It's probably gone further than it should have gone.''
As bond yields overall go higher, little matters like risk become relatively more important. There's another round of credit tightening ahead of us this summer. Gas prices mean everything right now, and they are beginning to fall (at least locally):
This year gas rose earlier than last year. Below $2.60 a gallon, gas would be a stimulator. Above $2.70, it's a drag. Above $2.90, it's a real drag on consumer spending. If by any chance gas fell below $2.50, it would be a powerful economic stimulant.
This was local to me, so here are some things that didn't make it to the main news services:
The hospital in question used to be known as King Drew, in the South Central/Watts area of LA. It is literally the worst hospital in Greater LA; they kill patients through neglect and/or incompetence almost every week.
(The last time they got in the news for killing a patient, it was an Intensive Care patient who coded; the attending nurse couldn't be bothered to answer the alarm as she was engrossed in her magazine.)
There have been attempts to clean up and/or shut down that hospital, but all have failed due to the hospital's front woman on the City Council playing the race card.
You see, King-whatever is a BLACK! hospital for the BLACK! community (built as a bribe to the BLACK! community after the last set of riots, even though the area is now half Mexican), and they won't let Whitey get his filthy Paleman hands on it.
It is an AFRICAN-American hospital, and is run about as well as a Third World AFRICAN! hospital. Cops in South Central (the roughest part of town) have an unwritten pact "If I get shot, don't ever take me to King-Drew's ER".
And why they let this patient die? Simple, once I saw the dead patient's picture. "SORRY, BEANER, WRONG COLOR!" As I said, Drew-whatever is a BLACK! hospital, and this patient wasn't.
Headless Unicorn Guy