Yesterday’s release of the Case-Shiller/S&P Home Price Index got me to thinking once again about just how precariously perched the US economy is. On the one hand, we have seen the Fed pressing on the gas pedal through creation of, what passes in this economy for, easy money. Last week’s H.6 Federal Reserve H.6 Report (Money Stocks) not only showed that the broader M2 rate was climbing at a three-months-annualized rate of 7.2%, but even more ‘transparent’ was the note that the M1 (cash & equivalents) was screaming up at a 20.5% annualized rate.
Meantime, the most recent Labor Department report on Consumer Prices showed a 12-month increase of 1.1% (unadjusted, CPI-U) and 1.3% (unadjusted, CPI-W).
The way I figure what’s going on goes like this:
- Suppose I had started a year ago with $100 and I wanted to figure out what the $100 would buy me this month. Then:
- I’d first discount the $100 of purchasing power 1.1%, which would reduce my effective purchasing power to $98.90.
- Then I’d adjust for the obvious deflation at a 7.2% annual rate (from M2) which would then push my 98.90 us to $106.02.
Naturally, this is a dangerously misleading calculation, since that’s the natural inclination of a number-cruncher to think about such things.
It would likely be more accurate is I used M3, but since Alan Greenspan took that off the table at the Fed (as they were playing hide the sausage as housing collapsed) not too many people would have found Trader Bart’s M3b Reconstructed page.
It shows most recently that M3b is going up somewhere around 14% annualized on a reconstructed basis with his methodology for the reconstruction over here.
The ugly part of the M3b calculation is the when applied to my hypothetical $98.90 I come up with purchasing power of around $112.85.
Now toss in yesterday’s Case-Shiller/S&P Housing Price Index
The chart above shows the index levels for the 10-City and 20-City Composite Indices. As of October 2010, average home prices across the United States are back to the levels where they were in mid 2003. Measured from June/July 2006 through October 2010, the peak-to-current declines for the 10-City Composite and 20-City Composite are -29.7% and -29.6%, respectively. The improvements from their April 2009 trough are +5.7% and +4.4%, respectively.
With both the S-H/S&P indices (10 city and 20 city) back to mid 2003 levels, we’d expect that interesting in buy a home would be dropping as the bubble appears to be continuing its deflation and may (if Elliott Wave theories are applicable to housing, be head down for another halving of present prices which could take the 10-city numbers from the president 150 range down to the 1991-1998 basing period level which was between (eyeballing this) 75-80.
If you’ve had enough caffeine to hold all this in your head, just one more item to toss on the discussion this morning and that would be the just-out weekly Mortgage Bankers Association activity report:
The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending December 17, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 18.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 20.0 percent compared with the previous week.
The Refinance Index decreased 24.6 percent from the previous week. The Refinance Index has declined six straight weeks and is at its lowest level since the week ending April 30, 2010. The seasonally adjusted Purchase Index decreased 2.5 percent from one week earlier. The unadjusted Purchase Index decreased 4.9 percent compared with the previous week and was 8.4 percent lower than the same week one year ago.
A couple of weeks back in a Peoplenomics report I speculated as to when might be a good time to buy a rental home or two. I think the data is starting to tilt seriously in the ‘Hold off – don’t do anything hasty” direction.
Toss in Tuesday word from The Conference Board on consumer confidence, too, why don’t we?
The Conference Board Consumer Confidence Index®, which had improved in November, decreased slightly in December. The Index now stands at 52.5 (1985=100), down from 54.3 in November. The Present Situation Index declined to 23.5 from 25.4. The Expectations Index decreased to 71.9 from 73.6 last month.
And somewhere in here I should mention that there’s more legal maneuvering going on with regard to leftovers of the Housing Bubble: You saw yesterday where Allstate has filed suit against Countrywide and parent BofA over so-called toxic investments?
It’s either me coming down from too many chocolate-covered cherries, or its something else: A return of the Housing Jitters.
Earth Jitters
If the worries about housing aren’t enough to shake you awake today, perhaps all the earthquakes down in the Vanuatu region will do something for you. The biggest, as of press time, was a 6.6 overnight which fuels our concerns about the long-term integrity of the Pacific Tectonic Plate and its surrounding “ring of fire.”
It was while reading up on this that a situation report popped in from Bernard Grover, our Indonesia Bureau Chief:
Thought you might like a quick update on the party poppers around the Archipelago.
Anak Kerakatau is reported to be increasing in activity. According to the report put out by Antara (Indo official news), the volcano’s monitoring device was damaged and the carrier signal lost sometime yesterday afternoon. Up to that point, they had recorded 4 deep quakes, 35 shallow ones and 158 explosions on the mountain. Fishermen have not been able to go in the local waters due to flying ash and debris. So far, easterly winds have kept the ash cloud away from major cities, but local villages are getting well dusted.
In East Java, Bromo outside Malang, continues to increase in activity. Major ash clouds and other material have been blanketing the area. My friends report as much as 1 cm to 2 cm accumulated on the ground within a couple of kilometers of the mountain. The local mayor is reporting that no flights have been affected yet, and he hopes to keep it that way, at least through the coming holiday. Local tourism has dropped significantly (go figure) and is causing economic problems in the region. Aid is already being distributed to villages near the mountain, as work has pretty much ground to a halt there.
Meanwhile, Yogyakarta is being inundated with ‘cold lava.’ The volcanic ash from Merapi is combining with heavy rains to create heavy flows of slurry over the entire affected area. The rivers are grey and thick mud flows cover large areas with what will eventually become a kind of natural concrete when the whole mess dries up.
In a side note, the Sultan of Yogyakarta, one of three remaining royal dynasties in the country, was under attack by the federal government in a classic case of kick ‘em while they’re down. However, widespread support across the nation, as well as overwhelming re-election numbers have staved off the attack, for now.
Also, the previous spiritual guardian of Merapi was killed the first day of the eruption, and has yet to be replaced. Locals are getting concerned that the mountain will get REALLY angry if someone doesn’t step up to the job soon. Any volunteers?
Sampai jumpa, B
No fair suggesting members of our congress be ‘volunteered’.
Southwest Asia Arms Race?
With the US almost assuredly holding plans to help subdue any use of nuclear weapons by Pakistan, we find it interesting to see the report that India and Russia have signed a big arms deal.
Putting aside the count of high tech aircraft and nuclear reactors – all interesting stuff – the real question I have is unanswered: What currency was used as the basis of the deal?
Leading Edge of Hunger
You may have missed the Greely Colorado Tribune story this weekend, but worth a ponder: “Lack of moisture threatens winter wheat crop.”
All of which gets us to wondering “If this is going to be an especially bad winter, will that mean an especially bad spring and will that in turn ruin crop production and set us on the road to famine in 2011?”
Hungary For Media Control
Hungary looks to be the first country in the EU to pass laws which will effective censor the media if it covers things in a way that’s not according to how the ruling paradigm’s PowersThatBe sees things. No problem if small media keep $120,000 Euros in the legal kitty, of course.
By summer the sound of jackboots on the net should be globally obvious.
This is what we’d call foreplay. The screwing follows shortly thereafter.
Resistance if Futile
I trust you’re watching the case of a man who could face up to five years in prison for reading his wife’s email. At least, she was at the time, says the Detroit Free Press coverage. Seems she’s now divorced him…but with all the cost of government, soaring costs of housing, and so on, don’t we have better things to do?
Besides, I’m confident that DHS and other three-letter agencies had already read that email if it had any ‘trigger words’ (or phrases) before he got to it; or is that the point of having a monopoly on email spying?
And the Good New Is?
A reader who signs off “Fighting poverty by working” sent along this fine observation:
Next year, both Groundhog Day and the State of the Union address occur on the same day, February 2nd.
As Air America Radio pointed out, “It is an ironic juxtaposition of events: one involves a meaningless ritual in which we look to a creature of little intelligence for prognostication while the other involves a groundhog.”
Not sure if the SOU will really be on February 2nd, or not, but this has been kicking around the ‘net for several weeks now.
One that hasn’t gotten much traction is my observation that Punxsutawney Phil is a republican.
My logic? He’ll come out just long enough to see democrats back in the house and will immediately retreat back into his tax shelter.
Traveler’s Kidneys
Gotta wonder how dyed-in-the-wool coffee slurpers managed to sit on the airport runways up in the northeast for upwards of 7-hours at times the past few days. Airlines are still playing catch-up today.
Several long-time Northeasters are miffed at people making such a big deal about the snow: One writing….
“I do want to respond to the person who noted that this blizzard is not a normal New England event. Obviously he hasn’t lived here much. I grew up in New England and live there still. As Mark Twain said, “if you don’t like the weather here, wait a minute.”
I can remember many storms in child hood with 12 to 20 inches of snow. There was a blizzard in ’78 that dumped 4 feet on Boston. A couple of years ago there were parts of NH and VT that got 120 inches of snow. Blizzards are not abnormal, though not every year. What is interesting is that the past few years the snow line has moved to the mid Atlantic states and northern New England is bereft.
That article you mention from the Times gives a fairly cogent explanation that would encompass this effect. It was the same last year. And,… after some real cold in the winter, the Spring happened all at once. It was so immediately warm that everything that normally blooms in April and May all bloomed in April.
The air conditioners went on in the Boston area in mid May and ran straight till September. More like North Carolina than New England. This year seems to be shaping up the same way. Maybe its sun spots. Maybe it is just new patterns in the jet stream. But believe me, big snows are not rare in New England, no matter what your other readers may state.
There are times in the summer when weeks of 95-100º heat in East Texas sounds just terrible. But the payoff is 61º and 71º tomorrow. Think I’ll go work in the greenhouse a bit today and try to remember what snow is….
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