Relevant and even prescient commentary on news, politics and the economy.

16 Weeks – Old Enough to Drive, not Working

Will those who are claiming that the economy is recovering and things are better please explain why, as of today, we have sixteen straight weeks of seasonally adjusted” UI claims above 400,000?

I’m now convinced that there will be no troop reductions in Afghanistan, Iraq, Libya, or any of the other places where we’re conducting unpaid-for, possibly illegal, wars between now and late 2012 if only because those soldiers would come home and raise the unemployment rate.

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Wilder’s News on Europe

Rebecca Wilder has shifted to publishing her insightful articles on Europe back to her Newsneconomics platform, but will continue to publish on US topics and US/Europe connections on Angry Bear.

I think that the shift is smart…the audience for Angry Bear is focused more on the US and as the election cycle is already quite heated probably will remain so. The material on Europe tends to get lost.

The Financial Times, for instance, picks up her material rather quickly through the Newsneconomics name. Therefore, for now Rebecca has chosen to write for Angry Bear and to keep us abreast of the Eurozone through Newsneconomics.

Such an arrangement allows for a different audience to communicate with each other in comments, many who are economists and readers who live in the Eurozone and whose primary interest is in their own news.

But Eurozone news remains quite pertinent to Angry Bear readers, hence I will post excerpts and a link to her posts through Angry Bear.

Ireland’s Bank run by Rebecca Wilder

I knew that the Irish deposit base was shrinking – I just didn’t realize the severity of the situation. In sum, €21.4 bn in household and non-financial business deposits have been drawn down since their respective peaks.

Irish businesses in aggregate have been in a silent bank run since 2007, households since 2010. So how big is €21.4 bn? Roughly 14% of Irish GDP.

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Screw Austerity, I have a new theme song

by Daniel Becker

Being that we’re about to experience austerity because we are convinced we can’t spend money properly such that we actually end up with more after rather than less …  which is very depressing to me and defeatist in presentation, I present my new theme song:  That’s how it goes.

I just find it fascinating that we will accept the argument that government needs to run as we run our own houses and thus need to not spend more than we have, blah, blah, blah yet we seem not willing to apply the concept that we apply daily in our own household to get ourselves an education, a house, our own business, improvement to our property and self.  We do this all the time because we understand it is building our wealth, and we do it even though we can’t print our own dollars like the government can.  (Yeah, we’re not Greece in that way.)

Really, just listen to both sides presenting the austerity program arguments.  Can’t you hear how disjointed the reasoning is?  Can’t you hear how selective they are in presenting examples of proof of their argument which is resulting is a totally disjointed line of reasoning.  Ask one question you are told we need to save to prosper.  Ask another question you are told we need to spend less just like you, to prosper.  Ask a third question and you are told we have no money, just like you.  Ask a forth question and we’re told the economy is growing (more money produced) NOT LIKE YOU.  Ask a fifth question and we are told to better yourself, NOT LIKE WE THE PEOPLE.  Ask a sixth question and we are told to get an education, NOT LIKE WE THE PEOPLE.  Ask a seventh question and we are told to…(fill in your own).

My favorite verses of the song and why it is my new theme song:

I help you and you help me
That’s the way the world should be
Tit for tat and give and take
Just be good for goodness sake
I’ll pick you up if you should fall
It works both ways if it works at all
Hold in your heart the people you love
Always thank the powers above
Everyone deserves a share
So keep your promise, fair is fair

So gather ‘round me people
And help me while I sing this song
I’d rather have you with me
Together as we travel along
It’s the feeling of the wind in your face
The sound of the music they play
The friends you make along the way
Don’t you know, that’s how it goes

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Home Values: Delusional Buyers, Bank Squeezers and Zillow

by Mike Kimel

Home Values: Delusional Buyers, Bank Squeezers and Zillow

Via Barry Ritholtz, a link to a post at Time Moneyland post which led to a post at the Zillow blog:

Zillow recently compared the asking price of 1 million for-sale homes with those homes’ previous purchase price, then factored in the change in the Zillow Home Value Index at the ZIP code level to determine the home’s current market value.

We found sellers who bought after the housing bubble burst, in 2007 or later, price their homes 14 percent above market value. Those who bought before the housing run-up, prior to 2002, overprice by nearly 12 percent. Somewhat surprisingly, sellers who bought during the run-up, from 2002-2006, seems to be the most realistic, pricing their homes 9 percent over market value.

The Moneyland post goes on:

How to explain this pattern? We suspect that homeowners who bought around the market peak are painfully aware of having bought at the height of the market and have no real hope of getting back what they paid upon re-sale. Homeowners who bought after the market peak, on the other hand, may be patting themselves on the back a bit too much for having bought after prices began to correct — not realizing just how much prices have continued to fall even after their purchase.

It also states:

Two underlying impulses appear to lead sellers who purchased after 2006 to over-price their homes. First, there’s classic loss aversion: Sellers who purchased more recently are loath to sell for a loss. Second, they may be unaware that home values have declined further since their home purchase – a mistake that leads them to view their purchase price as a useful criterion in setting their selling price.

Zillow has a lot of data, but I suspect they are missing something because their categories are too broad. (This is something I’m keenly interested in because, being on the job market and living in a relatively small city, I expect we will be moving in the foreseeable future… which means I expect we will be selling our house, and we bought ours in December of 2009. We also expect (and hope) it would sell for quite a bit more than we paid for it, and more than the Z-estimate of the price based on the sales of comparables since that time.)

I think what Zillow is missing is that by late 2009 and early 2010, in some markets, home sales in many markets had dried up. I can’t prove it – I don’t know where one can find data on this – but my experience is that many banks started accepting a lot of short sales at this time. It also seems to me that many banks seemed not to have much of an idea of what their inventory was worth. I can tell you from my own two eyes that at that time you could see two otherwise very similar homes on the same block owned by the same bank, and the one with the enormous crack in the foundation that ran all the way up the living room wall was priced twenty five percent higher than the other. We made a few offers on homes at the time that our real estate agent considered ludicrous, and she didn’t even want to turn in the offer to her counterpart. The ludicrous offer that got accepted was the one we bought.

On the other hand, I noticed that houses that weren’t short sales or REOs were selling for prices that assumed a steady upward trajectory. That is to say, among those buying at the time were many who weren’t aware of the process for buying short sales or REOs, or who didn’t have the willingness (in many cases, the patience) to go through process. And plenty of homeowners were willing to oblige by trying to sell their homes at prices that were higher than 2007 and 2008.

I remember commenting to our real estate agent that there were two categories of home sales going on at the time: those involving people unaware of the downturn in prices and sales and who thought was the same as it always was, and those involving people squeezing banks. I suspect the buyers in former group is in trouble now, and buyers in the latter group are not. Now, there are two dynamics at play. First, the delusional buyers from the time bought less house for the buck than the bank-squeezers. But, perversely, the Z-estimate price of the homes bought by the delusional buyers is, today, higher than the Z-estimate price of the home bought by the bank-squeezers. After all, the Z-estimate price of the home depends a lot on the previous sales prices of the home; if two similarly situated homes (same number of bedrooms and bathrooms, same square footage, etc.) sell for very different prices in December 2009, I assume Zillow’s algorithm is going to assume that the one that if one sold for a better price, it was in a better state of repair or otherwise had better features that aren’t measurable by Zillow’s data (e.g., it is more aesthetically pleasing or has a better view), and that the differences carry on today.

So the question is… what should Zillow do? Is it possible to determine if a home sold for way below Zillow’s Z-estimate because it was trashed v. because someone squeezed the bank on a short sale? Theoretically, property taxes would take care of the problem – homeowners who acquired a trashed home, in theory, would have an easier time getting their property taxes reduced. In practice, I suspect bank squeezers are more likely to go through the effort and successfully argue for a a reduction in their property taxes. Regardless, that clearly isn’t the solution to the problem.

Because foreclosures (and people requiring a short sale) are contagious, I imagine Zillow must track how many homes on a block or within a given radius have gone into foreclosure or are otherwise sold for well below Z-estimates at a given time. I imagine having information about the home owners (which I assume Zillow does) must help. A former flipper who found himself with eight homes in 2010, and unloaded most of them for well below Z-estimates is clearly someone who worked out a deal with the bank. And perhaps it is possible to correlate unemployment rolls with home ownership – I don’t know.

What would you do if you worked for Zillow?

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Republicans fed up with Republicans

The latest Washington Post ABC poll has some dramatic results

” Even among Republicans, 58 percent see the GOP as too resistant to a deal, up from 42 percent in March.

In the new poll, fully 50 percent of conservative Republicans and “strong” tea party supporters say the GOP leadership is too unwilling to make a deal on the deficit. “

When they’ve lost the tea partyers they are in trouble.

Also

More than eight in 10 — including 80 percent of Republicans — say there would be serious harm to the U.S. economy if the government could not continue to borrow money to fund its operations and pay its debts after Aug. 2.

I wouldn’t be surprised if, had the question been asked that way, a plurality would say they opposed raising the debt ceiling.

But best of all, 54% of self identified Republicans want to soak the rich, that is rais taxes on incomes over $250,000.

Finally cutting Medicaid is the least popular option for reducing the deficit opposed by 74%. You read that right Medicaid.

Full results can be found with repeated clicking (in the past, the Washington Post didn’t hide them so thoroughly).

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The "Standard" of The Price of Gold is This Century’s DeBoers

I’m writing a few long posts—you’ve been warned—but that machine doesn’t have Internet access right now.* So I’m just going to point to Kash, who writes about something else:

In looking at the data I was struck by how small (relatively) the worldwide market for gold really is. That means that relatively small inflows of funds into the market for gold could potentially have very large effects on the price of gold. And that in turn means that the price of gold could be very sensitive to a number of factors that have nothing to do with economic conditions or inflation….

[M]oving just 0.1% of the financial wealth of US households into gold could be enough to have a dramatic impact on the price of gold. Note that the same can not be said of other asset prices that we care about; it would be difficult to discern any price effects whatsoever of a move of an additional $50 billion more or less per year into the stock market (valued at over $50 trillion around the world), the bond market (also with a total value in the tens of trillions of dollars), or real estate.

[A] good advertising campaign by gold producers could be enough to move the price of gold. Imagine that an effective, sustained advertising campaign, targeted at wealthy, conservative individuals in the US, is able to persuade 25,000 of them per month to switch a portion of their financial assets into gold….Such an advertising campaign would have the effect of pushing $15 billion per year into the market for investment gold — very possibly enough to have a significant impact on the price of gold, given how small the overall market for gold is.

[A] very similar thing happened to the market for diamonds in the middle of the 20th century. The DeBeers diamond cartel used an incredibly successful advertising campaign in the 1950s to cement the idea of the diamond as the premier gemstone, and in so doing permanently changed the value of diamonds.

Whether or not you like that analogy, the central point here is a very simple one. Since the market for gold is so small, its price may be strongly affected by things that have nothing to do with the state of the economy.

Kash’s analysis—read the whole thing—should drive the final stake through the heart of the idea that, in the current economy, gold is anything more than what I quoted Warren Buffett as saying it is more than a year and one-half ago.

*In this context, does anyone know how to add the Windows Live Writer app to a Droid X?

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The current labor market expansion: third poorest performer 24 months after the recession’s end since 1948

It’s now two years after the end of the Great Recession, and the unemployment rate has ticked downward just 9 pps (percentage points) since its 10.1% peak. Pundits call this an expansion since GDP has fully retraced its recession losses; but the unemployment rate tells a very different story.

(click to enlarge)


The chart illustrates the unemployment rate after 24 months since each recession’s end spanning 1948 to June 2011. The business cycle dates are set by the National Bureau of Economic Research. The rates are indexed to the first month of each cyclical recovery for comparison, and the raw data are referenced in the table at the end of this post.

MORE AFTER THE JUMP!

Spanning the business cycles since 1948, the average decline in the unemployment rate is 20 pps from its peak to 24 months after the recession’s end. In the ’07-’09 ‘expansion’, the unemployment rate has fallen by less than half the average, -9 pps since the first month of recovery, July 2009.

In terms of relative labor market performance 24 months into the recovery/expansion, this cycle is the fourth worst – really the third worst since 24 months into the 1980 recovery is the 1981-1982 recession.

Technically, we’re not seeing a jobless recovery, since the unemployment rate peaked early on in the recovery (month 4); but it might as well be. Sticking with the household survey, employment (as opposed to the nonfarm payroll) is down by near 7 million since the economic peak and down 644 thousand since the recession’s trough. Yes, employment is net down since the recession ended. These numbers are affected by the annual population controls, but the trend (or lack thereof) is loud and clear.

The labor market is festering – we need a real policy response now.

Rebecca Wilder

Chart data (before index construction)

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Industrial Production

Industrial production was reported to have increased 0.2% in June as compared to – 0.1% declines in April and May. The entire gain was in mining and utilities as manufacturing output was unchanged.

The chart shows industrial production this cycle compared to other cycles. The old forecasting rule of thumb was that it took about a year from the bottom till industrial production surpassed its prior peak. You can see that on average this was a good rule in both mild and severe recessions. But this cycle some 19 months pass the bottom output is at 111.1 versus 120 at the peak. Despite all the talk of the rebound in manufacturing is clearly weak compared to historic norms and the thesis that manufacturing is returning to its old glory days is at best unproven.


I also calculate an estimate of monthly manufacturing productivity and according to that calculation productivity collapsed at an annual rate of -3.0% in the second quarter. The sharp drop in manfacturing productivity supports the idea that the drop in output caught firms by surprise and was due largely to supply chain disruptions after the Japanese disaster.


Even though industrial production is still about 10% below its prior peak firms are reporting that they are having trouble recruiting skilled labor. I wonder how much of the supposed shortage of skilled labor stems largely from American industry shifting its plants to places like Mississippi because the southern states have low taxes and cheap labor. If you move your plant to a low tax state firms you can save money, but there is no free lunch and you get what you pay for. If you move to Mississippi you have to draw your labor force largely from graduates of the Mississippi education system. If you want skilled labor that is able to do a little algebra and/or read a blue print, maybe you should leave your plant in states like Massachusetts or Washington where they
have higher taxes, but they also have good education systems.

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