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Monday, June 23, 2014

The Volcano of Recession Is Rumbling

The last strong leg holding us out of a decline is autos. It's not clear to me how long that can stand, esp. given the administration's fixation on honeybees, dreamers and increasing consumer and business power costs. 

There is only one chart you really need to look at to understand why the ground seems to be quivering. I did not make it.

Here, from our dear NAR is a graph of May's existing home sales YoY broken out by sales price:
Ah! The economic weather report rears its ugly head once again. It only rains and snows on the less well-off.

Now compare this to the CW rhetoric:
“While the housing market has improved dramatically overall compared to where it was a couple of years ago, the recent recovery has been a little more choppy,” Chief Executive Officer Ara Hovnanian said during an earnings conference call on June 4. 

 Household formation will be the primary driver of long-term housing demand, he said and “the creation of well-paying jobs will go a long way” toward boosting the market. “Given the low levels of total U.S. housing starts, we remain convinced that we are still in the early stages of the housing industry recovery,” Hovnanian said. 
Well, it appears that starter homes ain't exactly where the market is, right? 

In other news, the Clintons aren't really well off! Fortunately, oil and gas prices are rising nicely, which should help to stimulate a few more sales in that 1 mil plus price range.

Existing home sales are down 8.2% YoY for May if you look at the raw numbers. You can get all the NAR stats here.

The economy is not in a recession now, but it's losing steam rapidly, and unless the administration's initiative to protect honeybees somehow bears strong economic fruit, next year is highly problematic. If real wages aren't rising, and if aggregate hours worked aren't rising, the only thing we can count on to spur spending is SS & Disability. Those cash flows get sapped quite quickly by inflation.

Rail data for the first quarter showed a strong contraction, which we will get confirmed in the next GDP report. It's something like an annualized -1.8%. But rail data then picked up strongly, and now shows a much, much healthier picture. Both Mexican and Canadian data show the continuing difficulties for NA as a whole, so I am not expecting honeybee miracles.

Some might claim that trying to ban pesticides when food prices are this high might be self-defeating, but hey, give the dream a chance.

Thanks MoM.
Thank heavens, you're still alive!

Thanks for the economic update; also please let us know how YOU are doing (and the Chief, and your brother's family, and SuperDoc too!)


Glad to hear from you, M_O_M. May I respectfully request that you drop a note every couple of months or so, so that we don't worry...

I'm wondering about the "creation of well-paying jobs" Hovanian was talking about. Granted, I'm seeing good job creation in the areas where I play, but there's a strong selection bias in the "where I play" function. I'm not sure job creation is exactly broad-based.

Good to see you're back, MOM.

Your picture of the economy verifies what I've been thinking.

The question is, who's buying the stocks? Mr. Market is acting like he's really high. Maybe on Fed money. (Thank you Janet!) And the VIX is in the tank. Who me worry? Of course there's the old saw that Mr. Market can ignore reality a lot longer than you can imagine.

If you were a European, would you figure your money is safer in Euros in a EU bank, or in a share of the S&P? If you were running an annuity firm, would you trust sovereign debt right now, or cash-rich U.S. blue chips?

Capital's gotta land somewhere...

Missed you! Really......Glad your back

M_O_M, glad to see a post from you. Not so glad at the economic news, but it tracks what I see at work ... vendor and freight sales contacts pestering us more frequently (frantically?).
Most people cannot afford a home even if you gave it to them for free…

“As many as two-thirds of people in the U.S. don’t have the recommended six months of expenses saved. The percentage of people with savings enough to cover at least three months shrank to 40 % in 2014, compared with 45%, a year earlier.”


50% of Detroit residents can’t pay their water bills.


Never seen so much focus on home sales data… none of which mentions drop in mortgage rates as catalyst
FNM: ARM origination as share of dollar volume of loan applications has risen to 18% in April from 11.2% in April 2013
Total home sales will post “a small decline” y/y in 2014 while home price appreciation will slow to ~5% y/y from a 7.6% gain in 2013
MoM, It is a great pleasure to see you are still 'here'. Thank you !!
Glad to see you're back, MOM!
Well, at least all is right in this part of the world! I'm somewhere between Stagflationary Mark stocking up on toilet paper and Doomsday Prep. I have a small garden this year. We've sweated through the usual property tax payment and we really do need to rent out this house to catch that up. I am taking out some 401k money and I think a bulk food run to Costco and Bob's Red Mill is in order. Inflation is really hitting grocery prices in a bad way.

Hope the Chief and family are doing well (and you too!)
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