Posts By Lee Adler – The Wall Street Examiner http://wallstreetexaminer.com Busting the myths Sun, 25 Sep 2016 01:47:36 +0000 en-US hourly 1 Housing Inflation- A Simple Case of Supply and Demand Exacerbated By Low Rates http://wallstreetexaminer.com/2016/09/housing-inflation-simple-case-supply-demand-exacerbated-low-rates/ http://wallstreetexaminer.com/2016/09/housing-inflation-simple-case-supply-demand-exacerbated-low-rates/#respond Sun, 25 Sep 2016 01:47:36 +0000 http://wallstreetexaminer.com/?p=307095 Housing demand growth is slowing, so why is housing inflation continuing at a steady pace more than twice the rate of the CPI? The answer is simple- tight supply and a mortgage rate subsidy that reduces the effective cost of a house to the buyer, thereby increasing the purchase price that buyers can pay. The initial…

The post Housing Inflation- A Simple Case of Supply and Demand Exacerbated By Low Rates was originally published at The Wall Street Examiner. Follow the money!

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Housing demand growth is slowing, so why is housing inflation continuing at a steady pace more than twice the rate of the CPI? The answer is simple- tight supply and a mortgage rate subsidy that reduces the effective cost of a house to the buyer, thereby increasing the purchase price that buyers can pay.

The initial effective cost of a house purchase is the monthly payment. If you own a home or are considering buying one and if, like most homeowners, you have a mortgage, your first concern is not the price of the house. First you determine what you can afford to pay. This is based on the ratio of the monthly payment, what those in the industry call “PITI,” to your household income. Under the standard qualifying ratio,  the monthly PITI should not exceed 28% of gross household income. Buyers look at the cost of a purchase as being limited to that amount. Loan underwriting gets a little fuzzy around the edges, but there’s a market wide qualifying ratio limit somewhere just above that level. Once the preponderance of buyers in the market has hit that level, they can’t and won’t pay more for home purchases than that line in the sand. When that limit is reached, sales volume begins to recede and inventory increases. Sale prices then fall.

PITI really is a pity for us suckers who have mortgages. With insurance and taxes, in the end we pay a total of roughly 2.5 times the initial purchase price of the house to pay off the loan with interest, plus the taxes and insurance. That doesn’t even begin to account for the lifetime cost of maintaining the property. Houses depreciate physically if not maintained. More importantly they depreciate economically as market tastes change. If you haven’t remodeled your house to current standards at least once near the end of your 30 year holding period, it becomes a classic “fixer upper”. As we all know from the vast real estate expertise we gather from watching HGTV, fixer uppers are deeply discounted.

If we hold the property for 30 years, leverage and inflation could bail us out from our initial stupidity. But there are no guarantees. When all the long term costs of homeownership are added up, in most markets you’d be lucky to break even.

While many buyers are aware of those facts, the long term cost is not the issue.

Read the rest of this post at David Stockman’s Contra Corner. 

The post Housing Inflation- A Simple Case of Supply and Demand Exacerbated By Low Rates was originally published at The Wall Street Examiner. Follow the money!

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Falling Mortgage Rates Increase Buyer Subsidy But Don’t Stimulate Sales http://wallstreetexaminer.com/2016/09/falling-mortgage-rates-increase-buyer-subsidy-dont-stimulate-sales/ http://wallstreetexaminer.com/2016/09/falling-mortgage-rates-increase-buyer-subsidy-dont-stimulate-sales/#respond Fri, 23 Sep 2016 16:43:30 +0000 http://wallstreetexaminer.com/?p=307018 There were two important releases on the US housing market today. One is the widely followed Existing Home Sales report from the NAR and the other is a lesser known but more in depth report from the online real estate brokerage Redfin.com. The Wall Street Journal reported that “Existing-Home Sales Fall for Second Straight Month,” referring to…

The post Falling Mortgage Rates Increase Buyer Subsidy But Don’t Stimulate Sales was originally published at The Wall Street Examiner. Follow the money!

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There were two important releases on the US housing market today. One is the widely followed Existing Home Sales report from the NAR and the other is a lesser known but more in depth report from the online real estate brokerage Redfin.com. The Wall Street Journal reported that “Existing-Home Sales Fall for Second Straight Month,” referring to the NAR report. Redfin’s report took a more positive slant on its data, but it gets more media coverage. Redfin also pointed out, correctly, that calendar factors played a significant role in the August numbers.

Summarizing the data, the Journal reported that, “Sales of previously owned homes fell 0.9% from a month earlier to an annual rate of 5.33 million, the National Association of Realtors said Thursday. Economists surveyed by The Wall Street Journal projected home sales would reach a rate of 5.46 million in August.” Oops, there’s the bugaboo of seasonally adjusting a month and then multiplying that number by 12 to magnify whatever adjustment error is inherent in the monthly report.

The WSJ summarized its analysis thusly. “The latest drop is fueling concerns that the market is becoming a victim of its own success, with a run-up in prices in big metro areas leaving many homes unaffordable for middle-class families, including first-time home buyers.” Fair enough. That sounds reasonable to me.

The Journal did note that, “The market remains steady over a broader period, with existing-home sales up 0.8% in August compared with a year earlier.”  Oddly enough at this time last year the Journal reported that August 2015 sales were down by 5.3%, a truly terrible performance that was much worse than this August. Could it bee-e-e-e-e, SEASONAL ADJUSTMENT? 

Read the rest of this report and see the charts at David Stockman’s Contra Corner. 

The post Falling Mortgage Rates Increase Buyer Subsidy But Don’t Stimulate Sales was originally published at The Wall Street Examiner. Follow the money!

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Here’s How We Know The Census Bureau Report On Household Income Is Bogus http://wallstreetexaminer.com/2016/09/another-way-looking-household-income-shows-virtually-no-gain/ http://wallstreetexaminer.com/2016/09/another-way-looking-household-income-shows-virtually-no-gain/#respond Thu, 22 Sep 2016 17:28:00 +0000 http://wallstreetexaminer.com/?p=306871 The US Government publishes lots and lots of economic data, much of it conflicting, and much that’s highly suspicious. We know that the Household Income data released this week was suspicious, but I could not quite figure out what the problem was. I had surmised that it was due to an increase in household size,…

The post Here’s How We Know The Census Bureau Report On Household Income Is Bogus was originally published at The Wall Street Examiner. Follow the money!

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The US Government publishes lots and lots of economic data, much of it conflicting, and much that’s highly suspicious. We know that the Household Income data released this week was suspicious, but I could not quite figure out what the problem was. I had surmised that it was due to an increase in household size, or a family member getting a first job or taking a second job, hardly a sign of workers and households improving their lot in life. The government’s methodology in collecting, repurposing, and reporting the data is so obscure however, that we can’t definitively identify the source of the absurd 5.2% reported annual increase in real household income.

To illustrate, I’ll take you through some of the ideas I tested to try to find an explanation. Even though those exercises did not clear up the problem, they are enlightening, showing clearly that government data can’t be trusted for any specific short run time frame from a year to several years.

One of the things that I questioned was the issue of household size. The Census Bureau reported in its annual report on Income and Poverty that the number of households increased by 1% in 2015, to 125.8 million from 124.6 million. They also reported that average household size was virtually unchanged at 2.53 persons per household vs. 2.54 in 2014. This indicated that the gain in household income could not have come from an increase in household size.

Unfortunately, between the decennial census years, neither population, nor households, or average household size are actually counted. The interim years are all based on government statisticians’ projections, otherwise known as wild guesses.

Read the rest of this post at David Stockman’s Contra Corner. 

The post Here’s How We Know The Census Bureau Report On Household Income Is Bogus was originally published at The Wall Street Examiner. Follow the money!

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Housing Starts Disappoint, Big Picture Worse, But Does It Matter? http://wallstreetexaminer.com/2016/09/housing-starts-disappoint-big-picture-worse-matter/ http://wallstreetexaminer.com/2016/09/housing-starts-disappoint-big-picture-worse-matter/#respond Wed, 21 Sep 2016 03:00:18 +0000 http://wallstreetexaminer.com/?p=306739 The Commerce Department reported that the headline number for August housing starts was 1.142 million units. This was below the overly optimistic consensus estimate of economists of 1.186 million, and below the July figure of 1.212 million. The numbers are reported on a seasonally adjusted annualized basis, which means that any month to month error…

The post Housing Starts Disappoint, Big Picture Worse, But Does It Matter? was originally published at The Wall Street Examiner. Follow the money!

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The Commerce Department reported that the headline number for August housing starts was 1.142 million units. This was below the overly optimistic consensus estimate of economists of 1.186 million, and below the July figure of 1.212 million. The numbers are reported on a seasonally adjusted annualized basis, which means that any month to month error in the seasonal factor finagling is multiplied times 12.

We prefer to look at the actual data on a rate of change basis, comparing years for a measure of whether the current report was weak or strong.

The actual data showed total starts for August to be 100,700 units. It was indeed a weak performance, up just 1.5% year over year. The month to month change was far weaker than August 2015, and the second worst August performance since housing began to collapse in 2007.  While August is always a down month, this year’s drop of -13.5% was far worse than last year’s August decline of 8%. It was also more than twice the average August decline of -6% for 2006-2015.

Those figures include both single and multifamily units. Single family alone did even worse, rising just 0.5% y/y. This is a complete stall in the single family housing industry.

Read the rest of this post and view charts at David Stockman’s Contra Corner. 

The post Housing Starts Disappoint, Big Picture Worse, But Does It Matter? was originally published at The Wall Street Examiner. Follow the money!

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Disaster In The European Banking System Exposed http://wallstreetexaminer.com/2016/09/slow-moving-disaster-european-banking-system-revealed/ http://wallstreetexaminer.com/2016/09/slow-moving-disaster-european-banking-system-revealed/#respond Fri, 16 Sep 2016 20:28:00 +0000 http://wallstreetexaminer.com/?p=306400 ECB data on bank deposits for the Eurozone shows total bank deposits down sharply in July, breaking the uptrend in force since the low in 2014. That’s shocking considering that the ECB just boosted its money printing QE programs. Deposits should be rising steadily in concert with the amount of QE, not falling. But cash extinguishment and capital flight are increasing faster than the ECB can print.

The post Disaster In The European Banking System Exposed was originally published at The Wall Street Examiner. Follow the money!

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This report is a condensed version of the Macroliqudity Pro Trader European Banking Report, a service of the Wall Street Examiner Pro Trader. Macroliquidity Pro subscribers , click here to download complete report in pdf format.

ECB data on bank deposits for the Eurozone shows total bank deposits down sharply in July, breaking the uptrend in force since the low in 2014. That’s shocking considering that the ECB just boosted its money printing QE programs. Deposits should be rising steadily in concert with the amount of QE, not falling. But cash extinguishment and capital flight are increasing faster than the ECB can print.

We continue to see evidence that funds are fleeing the European banks for the relative “safety” of the US. My long running thesis that the US is and will be The Last Ponzi Game Standing is still well supported by the data. The looming problem is that all Ponzi schemes eventually collapse. The only question is the timing, which we deal with in other reports.

The charts below show that the European banking system is in a slow moving disaster. Only smoke, mirrors, and the unwarranted confidence of most Europeans in their banks and the ECB are keeping the system afloat.

The source of all European bank data in the charts that follow is the ECB Statistical Warehouse.

7/1/16 Money printing in the form of the ECB’s asset purchases should cause a euro for euro increase in deposits, but that has not occurred. Sorry to be repeating this, but it’s because a substantial portion of the ECB’s newly printed money flees the Eurozone to avoid the NIRP tax.

Euro Area Deposits - Click to enlarge

The problem grew worse in July when bank deposits in Europe actually contracted in spite of €70 billion per month in QE.  Deposits contracted by €95 billion in July and are down by €112 billion since April. Over that span the ECB printed €284 billion. The net effect was that all of that, plus another €95 billion was either extinguished or fled the European banking system. Imagine that!  €379 billion gone! Poof! You have to hand it to Super Mario. That is some disappearing act.

Bank deposits should increase euro for euro with the amount of ECB purchases.  When the ECB buys securities, it debits the dealer’s account at the ECB. That cash then flows into the banks as the dealers trade with other parties. Another means of transmission is when governments spend funds they raised in debt sales funded by the ECB indirect purchases via dealers.

Since the inception of NIRP in September 2014 the ECB balance sheet has grown by €966 billion. But bank deposits have only grown by €409 billion.  €556 billion of the €966 billion that the ECB has printed and pumped into the banking system has disappeared from the face of the European continent.  That, ladies and gentlemen is the magical effect of NIRP.

To illustrate the point, let’s compare what has happened in Europe to what happened in the US under QE and ZIRP from March 2009 to the end of 2014 when QE ended.

The ECB reports total combined deposits of all types as a line item. The Fed reports various types of deposits separately and then in various groupings, none of which are an exact match to the ECB’s total deposits figure. I keep a total US deposits figure combining all checkable deposits and savings deposits. It grew by $4.30 trillion from March 2009 until the end of 2014. During that period, the Fed added $3.66 trillion to its balance sheet (printed).

In other words, US checking and savings deposits grew by 117% of the amount which the Fed injected into the system. Contrast that to Europe where bank deposits have grown by only 42% of the amount of ECB injections in the latest round of QE. Europe’s experience demonstrates the massive drag effect of NIRP.  While not passed through to most bank depositors yet, sovereign yields have dropped below zero, encouraging holders to sell and take a windfall profit, then move the money to the US. It also encourages potential buyers to send their cash to the US rather than accept a penalty for holding the paper.

capture

We also see that US deposits grew at a steady pace throughout QE. Fed policy may have been insane, but at least its effect was stable and predictable (massive asset inflation).  Conversely, in Europe bank deposit growth has been whipped around by whatever crazy idea that Mario Draghi might come up with at any moment, including the idea that taxing deposits and thereby driving money out of Europe would stimulate the European economy.

As crazy as Fed policy has been, the Fed hasn’t gone there and probably won’t.  That may just be a lucky accident, but so far the Fed hasn’t descended to the depths of depraved policy which the ECB and BoJ have.

Note: Indented, minified sections below are from earlier reports. 

3/2/16 Where’s it going? I have constructed the chart below to illustrate what is happening. That chart shows the correlation between the ECB’s asset growth, and the size of its various deposit facilities–what economists call reserves–along with the correlation to total European bank deposits and the direction of US Treasury bond prices.

European Bank Deposits, QE and US Treasuries- Click to enlarge

Note the correlation between European bank deposits and the direction of US Treasury note prices (yield inverse) at the top of the chart. We obviously know that some European deposit holders have been buying Treasuries. I have shown charts similar to this in the past which depict this correlation over the long term. This chart shows what has happened since the ECB started NIRP in June 2014.

The lower half of the chart shows that as the ECB purchases assets (green line) there is a like increase in bank reserve deposits at the ECB. This is basic Accounting 101. The ECB buys the bonds from the banks by crediting their deposit accounts at the ECB with money it materializes by waving its magic money wand through the electronic ether.

Those reserve deposits which didn’t exist prior to that moment instantly become very real, and absolutely immutable. They can move around on the liability side of the ECB’s balance sheet, but they can’t leave it. Banks can get rid of their reserve deposits by buying assets from other banks, dealers, investors, businesses, or governments, but that only leaves another bank with the reserve deposit. Somebody will always be stuck paying the interest on the deposit.  That makes those reserve deposits a hot potato that nobody wants, but nobody can escape as cash circulates through the banking system. Gone today, here tomorrow, oops.

The problem for the bagholding banks is that when they try to pass on the negative interest rates to customers, those customers with international connections do the rational thing, because, unlike central bankers, they are not insane. Deposit holders find the best option for their cash outside the European banking system, and the deposit leaves that system for greener pastures, most often in the US. Those deposits move frequently via the purchase of US Treasury securities or even US stocks. When the depositor buys Treasuries or US stocks, his bank exchanges his Euro deposit for US dollars and transfers the US dollars into the US account of the seller of the Treasuries. That could be a dealer, another investor, or the US government itself. The Euro deposits are thus converted to dollars and become US bank deposits.

This is basic interest rate arbitrage, and NIRP exacerbates that to the nth degree. That’s how the ECB can pump 650 billion euros into the European banking system, and deposits in that system manage not to grow at all. Depositors aren’t stupid. They’re getting the hell out of Dodge.  The only stupid ones are Mario Draghi and his fellow central banksters at the ECB and more recently the BoJ. This raving lunatic is singlehandedly keeping the US Ponzi Game markets rolling while doing absolutely nothing for Europe.

As insane US central bankers may be, I suspect that they are just lucid enough to understand the benefits of NIRPitrage to the US Ponzi. That’s why I doubt that we will ever see NIRP in the US, and why the Fed may just follow through on its threat to gradually raise the sham Fed Funds rate (n0body really trades Fed Funds).  The bigger the gap between positive rates in the US and negative rates in Europe becomes, the more capital will be encouraged to flee Europe and float US bond prices higher.

As we’ve seen recently, and as I previously forecast, it has also been enough to foment intermittent rallies in US stocks. This ridiculous pattern can go on for a long, long time.  While buy and hold is dead, these policies result in trading opportunities on both long and short sides of the market for those who are paying attention.

2/10/16  Negative interest rates have been a disaster, so what did the ECB do? It made them more negative in December [2015]. Central bankers are insane.  The more negative interest rates become, the more contractionary they are.

10/27/15 Negative deposit rates cause falling deposits and banking system contraction, the opposite effects of what the policymakers expect. This is exactly what common sense told us would happen when the negative rates were announced in 2014. Yet in spite of a year of proof, central bankers seem incapable of making the connection.  The shrinkage of deposits is a sign that the funds are either flowing out of Europe or are being used to extinguish debt. In either case it would be a bad sign for the European economy and if it’s the latter it would be bad news for world markets.

2/25/15 The weakening trend of 2013 was apparently largely due to the paydown of ECB emergency loans. That simultaneously extinguished deposits. Since the ECB instituted an interest charge on deposits held at the central bank, banks had been liquidating outstanding loans again in order to extinguish deposits.

The decline in deposits since the institution of the negative central bank deposit rate was entirely predictable, but the ECB pundit community was foaming at the mouth in panic, determined to see the ECB institute outright government bond purchases. That finally happened.

German (and some other European) households, however, continue pouring money into German banks. While financial corporations and institutions flee the system, the public has been successfully hoodwinked, or it has no other options.

German Household Deposits- Click to enlarge

There are similar trends in both France and, amazingly, Italy The question is whether, if and when the crunch can no longer be papered over, households will be bailed out or will be the bagholders.

Meanwhile, financial institutions continued to flee German banks in July. The downtrend in that series has been unrelenting. Conversely, France had been stable, but then it broke down in July.

Financial Institution Deposits in France and Germany- Click to enlarge

6/10/16 If any picture illustrates the problem in Europe, it’s that flight of bank cash from Europe’s largest banking system. Confidence in the system is falling apart. It’s probably the real reason that the ECB keeps boosting QE, buying more and more assets from the banks.  The resulting deposits are at the ECB, not Deutsche Bank.

I talked about the issue in a bit more detail here.

Banks Fleeing Banks in Europe - Click to enlarge

Meanwhile, are QE and NIRP working to stimulate credit expansion in the economy? The answer is no. Loans to households have grown at an annual rate of around 2% since October 2015. Accrued credit card interest alone could account for most of that increase. There’s no evidence of real growth in consumer lending. Loans to nonfinancial businesses fell to a new low in December 2015 and have barely budged off that low since then. This is hardly growth. It is below the peak of the 2015 dead cat bounce.

European Bank Loans To Households and Business - Click to enlarge

It’s also notable that the TLTRO, which is the ECB’s targeted loan program that was supposed to stimulate commercial lending, began in September of 2014.  It has had no impact. This is just another example of central bankers acting out their delusions regardless of the feedback that reality provides. Meanwhile, Super Mario’s bag of tricks has run out of magic.

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The post Disaster In The European Banking System Exposed was originally published at The Wall Street Examiner. Follow the money!

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Chart Shows 5.2% Household Income Gain Vs. Reality http://wallstreetexaminer.com/2016/09/chart-day-5-2-household-income-gain-vs-reality/ http://wallstreetexaminer.com/2016/09/chart-day-5-2-household-income-gain-vs-reality/#respond Wed, 14 Sep 2016 17:01:36 +0000 http://wallstreetexaminer.com/?p=306176 The US Census Bureau said yesterday that annual household income rose 5.2% in 2015. Compare that with the gain in BLS reported average weekly earnings through August 2016. If median household income really rose as fast as the government said, the only way that could be is if household size increased. More adult children moved…

The post Chart Shows 5.2% Household Income Gain Vs. Reality was originally published at The Wall Street Examiner. Follow the money!

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The US Census Bureau said yesterday that annual household income rose 5.2% in 2015. Compare that with the gain in BLS reported average weekly earnings through August 2016.

Average Weekly Earnings Growth- Click to enlarge

If median household income really rose as fast as the government said, the only way that could be is if household size increased. More adult children moved back home. More parents moved into the mother-in-law suite. And more single people shacked up.

But more people were not better off.

Welcome to the world of government statistics.

The post Chart Shows 5.2% Household Income Gain Vs. Reality was originally published at The Wall Street Examiner. Follow the money!

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Median Household Income Rose 5.2%! Yeah. PLA says That’s The Ticket http://wallstreetexaminer.com/2016/09/median-household-income-rose-5-2-yeah-thats-ticket/ http://wallstreetexaminer.com/2016/09/median-household-income-rose-5-2-yeah-thats-ticket/#comments Wed, 14 Sep 2016 01:41:36 +0000 http://wallstreetexaminer.com/?p=306112 New York Times- Binyaming Applebomb-  Household incomes for American families rose strongly in 2015, breaking a yearslong pattern of income stagnation. The median household’s income in 2015 was $56,516, an increase of 5.2 percent over the previous year — the largest one-year rise since at least 1967, the Census Bureau reported on Tuesday. Wowza! We’re on…

The post Median Household Income Rose 5.2%! Yeah. PLA says That’s The Ticket was originally published at The Wall Street Examiner. Follow the money!

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New York Times- Binyaming Applebomb-  Household incomes for American families rose strongly in 2015, breaking a yearslong pattern of income stagnation. The median household’s income in 2015 was $56,516, an increase of 5.2 percent over the previous year — the largest one-year rise since at least 1967, the Census Bureau reported on Tuesday.

Wowza! We’re on our way now!

The income gains represent an important turning point in the recovery from the 2008 recession, showing that recent economic gains are being distributed more broadly.

“It has been a long slog from the depths of the Great Recession, but things are finally starting to improve for many American households,” said Chris G. Christopher Jr., director of consumer economics at IHS Global Insight.

The economic recovery, however, remains incomplete. The median is still 1.6 percent lower than in 2007, before the recession. It also remains 2.4 percent lower than the peak reached during the boom of the late 1990s…

Still, most economists saw the report as remarkably positive. In an exuberant tweet, Jason Furman, chairman of the White House Council of Economic Advisers, called it “unambiguously the best” such census data “ever.” Household incomes in 2015 were higher than when President Obama entered office, and it is likely that the gains are continuing during his final year in office.

Binny usually covers the Fed, and usually gets said coverage wrong, but this piece probably wins the Pull-it-sir for breathlessness.

Now, here are the facts straight from the horse’s (Census Bureau’s) mouth.

Median household income was $56,516 in 2015, a 5.2 percent increase from the 2014 median in real terms, but 1.6 percent lower than the median in 2007, the year before the most recent recession, and 2.4 percent lower than the median household income peak that occurred in 1999.

So far, so good.

The 2015 real median earnings of men ($51,212) and women ($40,742) who worked full time, year round increased 1.5 percent and 2.7 percent, respectively, between 2014 and 2015.

Oops.

So the 5.2% increase in median household income came from the man of the house earning 1.5% more and the woman of the house earning 2.7% more? That’s some math!

If a couple earned an average of 1.9% more, where did the other 3.3% increase come from?

The report shows the number of men and women working. Could that have been the source of the gain in household income? Nope. The number of men working increased by just 2.3% and the number of women working rose by 1.9%. Obviously some of those formed additional households. So an increase in the number of working persons per household could not account for the 5.2% in median income per household.

Working women did see an increase of 6.4% in their total earnings. But women working full time had income gains of only 2.7%. Apparently many women took a second job to help keep their households afloat. Is needing a second job an improvement in economic well being for those households?

We know that many households have a single wage earner, and that many of those are headed by women. But men earned only 2.3% more. Considering the 6.4% increase for women, even if the ratio of households headed by men and those headed by women were 50/50, that would only mean an average earnings gain per household of 4.3% thanks to women taking second jobs.

The Census Bureau lists 15 sources of household income.

1. Earnings
2. Unemployment compensation
3. Workers’ compensation
4. Social security
5. Supplemental security income
6. Public assistance
7. Veterans’ payments
8. Survivor benefits
9. Disability benefits
10. Pension or retirement income
11. Interest
12. Dividends
13. Rents, royalties, and estates and trusts
14. Educational assistance
15. Alimony
16. Child support
17. Financial assistance from outside of the household
18. Other income

The report doesn’t break out the dollar amount of any source other than earnings. Since earnings did not account for the 5.2% gain in household income, what did? None of these other sources could have been the source. Virtually none of them would have increased by that much, and none of them would apply to more than a fraction of total households. Therefore they would not have had much impact on the median of all households.

Given these facts, the 5.2% increase is “a riddle, wrapped in a mystery, inside an enigma.” Churchill used that phrase to describe politics in the Soviet Union. I think that’s an apt analogy for US government statistics.

Assuming that 5.2% increase wasn’t just a fabrication or a data error, I’m still wondering, where it came from. It’s not earnings and not the increase in the number of men and women working. It’s not the other sources of income. By deduction, there could only be one source of the increase– an increase in household size. For instance, if Junior is making $28,000 a year working as an assistant manager at McDonald’s, and he or she decides that the rent is too damn high, he moves back in with Mom and Dad. Voila, if household income increases by 50% in 6% of households, that would account for the increase not caused by the increase in individual earnings.

Does that mean that households were actually doing better 5.2% better?

No. But the headlines sound good.

Yeah, that’s the ticket.

The post Median Household Income Rose 5.2%! Yeah. PLA says That’s The Ticket was originally published at The Wall Street Examiner. Follow the money!

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Max and Stacy Interview Lee Adler about the Luxury Housing Market http://wallstreetexaminer.com/2016/09/max-stacy-interview-lee-adler-luxury-housing-market/ http://wallstreetexaminer.com/2016/09/max-stacy-interview-lee-adler-luxury-housing-market/#respond Sun, 04 Sep 2016 19:04:35 +0000 http://wallstreetexaminer.com/?p=305414 By Max Keiser and Stacy Herbert at Double Down, SputnikNews.com Property sales volumes are plunging and some insiders are telling investors ‘not to panic.’ Is this a reason to panic? With the US and Canadian governments cracking down on anonymous all cash buyers and developers stuffed to the gills with ‘luxury’ condos to sell, it looks like the property markets could…

The post Max and Stacy Interview Lee Adler about the Luxury Housing Market was originally published at The Wall Street Examiner. Follow the money!

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By Max Keiser and Stacy Herbert at Double Down, SputnikNews.com

Property sales volumes are plunging and some insiders are telling investors ‘not to panic.’ Is this a reason to panic? With the US and Canadian governments cracking down on anonymous all cash buyers and developers stuffed to the gills with ‘luxury’ condos to sell, it looks like the property markets could look set for a big fall. Lee Adler of WallStreetExaminer.com tells Double Down, however, that while the smart money may be selling now, prices might not follow for another year or two.

Listen here!

Read more: http://sputniknews.com/radio_double_down/20160830/1044767292/sales-plunge-panic-us.html

The post Max and Stacy Interview Lee Adler about the Luxury Housing Market was originally published at The Wall Street Examiner. Follow the money!

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Lower August Tax Collections Suggest US Near Recession, Fed To Delay Again http://wallstreetexaminer.com/2016/09/lower-august-tax-collections-suggest-us-near-recession-fed-delay/ http://wallstreetexaminer.com/2016/09/lower-august-tax-collections-suggest-us-near-recession-fed-delay/#respond Sun, 04 Sep 2016 16:47:20 +0000 http://wallstreetexaminer.com/?p=305406 Real time withholding tax collections slumped badly in August after skyrocketing in July. The growth rate is now back to the lowest levels of the past year. As of September 1, the annual rate of change was +1% in actual, nominal terms versus the corresponding period a year ago.  That would be a negative number…

The post Lower August Tax Collections Suggest US Near Recession, Fed To Delay Again was originally published at The Wall Street Examiner. Follow the money!

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Real time withholding tax collections slumped badly in August after skyrocketing in July. The growth rate is now back to the lowest levels of the past year. As of September 1, the annual rate of change was +1% in actual, nominal terms versus the corresponding period a year ago.  That would be a negative number in real terms, although we cannot be sure how much because of the uncertainty of the wage inflation adjustment. The current rate is down from a nosebleed territory +11% a month before and from +2.9% three months ago.

The August slowing appears to be within the normal short term cycle of tax collections which typically runs 3-4 months. That cycle should bottom this month. A break below current levels would signal a probable recession.

Excise taxes declined 1.5% year over year in August. The -1.5% year to year decline compares with -4.5% in July. This continues a string of declines (or narrow gains) which have suggested that the economy entered recession this year.  Excise taxes are based on unit volume, not prices. Therefore they may be an accurate gauge of economic activity independent of any need to adjust for inflation.

The latest weekly data from the EIA on gasoline consumption, as of August 26 shows a 0.8% year to year gain in gas sales, which supports the conclusion that August was not a strong month for the US economy.

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The post Lower August Tax Collections Suggest US Near Recession, Fed To Delay Again was originally published at The Wall Street Examiner. Follow the money!

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Current Housing Bubble Varies By Metro http://wallstreetexaminer.com/2016/09/current-housing-bubble-varies-metro/ http://wallstreetexaminer.com/2016/09/current-housing-bubble-varies-metro/#respond Fri, 02 Sep 2016 17:49:20 +0000 http://wallstreetexaminer.com/?p=305291 The Case Shiller home sales price indexes (CSI) overweight the sales of old houses and bank REO sales. The CSI indexes do not count sales of newer homes in good condition. As a result of that methodology, the CSIs seemed to do a good job showing when metro housing markets were beginning to roll over at the Great Housing Bubble…

The post Current Housing Bubble Varies By Metro was originally published at The Wall Street Examiner. Follow the money!

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The Case Shiller home sales price indexes (CSI) overweight the sales of old houses and bank REO sales. The CSI indexes do not count sales of newer homes in good condition. As a result of that methodology, the CSIs seemed to do a good job showing when metro housing markets were beginning to roll over at the Great Housing Bubble top. Lower quality properties and increasing distress sales would obviously lead the market way down.

However, because Case Shiller indexes overweight older properties and distress sales, they missed the beginnings of the price bottom in 2010-12, and they typically lag the current housing market inflation on the way up.

In many US metros, median home prices are now well above the 2006-07 peak bubble levels. Newer, better quality homes perk up in price first and they inflate the most. As markets get frothier on the way up, the sales of better properties become an ever greater weight in the market. If you ignore them, then the fact that a market is in a bubble will be invisible. That’s what Case Shiller does. It ignores the hottest parts of the metro markets, either minimizing the magnitude of the bubble, or hiding it altogether.

Earlier this week I gave the example of Chicago. Median sale prices show that that market is clearly in a raging bubble. But Case Shiller shows that the market is still depressed because it overweights older properties and distress sales while not counting the hottest parts of the market. The Chicago downtown and lakefront markets are underrepresented because many of the properties are new or flipped rehabs. In cases of older home paired sales in the hottest neighborhoods, new rehab resales are excluded. If someone buys an old house, fixes it up and resells it within 6 months of his or her purchase, the second sale isn’t counted even though it represents the current state of the market.

Conversely, houses which have become functionally obsolete (out of style) or have years of physical depreciation are counted in the index. These older, unrenovated houses normally inflate at a slower rate than newer properties. So the market looks a lot lower than it is. Case Shiller measures what it measures. But it does not measure “the market.” It should be named the Case Shiller This Old House Index.

I looked at several other markets to compare the performance of the CSIs with the median home sale prices in those markets. I described the methodology I used to compare the CSIs with a like price index representing the entire market but excluding bank sales in the Chicago piece.

Using the same methods, I developed charts of Boston, Miami, DC and San Francisco. I was also interested in Los Angeles but was unable to find data on the 2000-2009 period but I did find another source that enabled a graphical perspective.

So, ladies and gentlemen, without further adieu, I present to you the Boston, Miami, DC, San Francisco, and Los Angeles show.

Boston shows how CSI led the way at the initial downturn from the top of the late Great Housing Bubble by emphasizing old houses and bank REO sales. But it lagged badly at the upturn from the crash lows and has understated the size of the rebound. The median price in Boston is now up 20% from the bubble peak. CSI shows only a 5% gain.  But to give credit to the MSSR (Soviet Socialist Republic of Massachusetts), per capita income is up 20.8% (nominal actual) from 2007 to 2015 according to the BEA. Boston shows a similar trend through 2014 available data. Personal income gains have kept pace with housing price increases. Affordability was a huge problem in the Great Bubble. It is less so today only because the Fed has provided a huge mortgage subsidy to buyers. Boston Home Sale Prices - Click to enlarge 

Washington DC is an interesting case. The CSI has gained the same percentage peak to peak as median sale prices at 5% and it is up more than the median price since the bottom. It did lag the turn significantly at the low, but this is one market where the CSI has mirrored overall median market price performance.

Washington DC Metro Home Sale Prices - Click to enlarge

Per capita personal income in the DC market is actually up more than house prices, with a gain of approximately 12% between 2007 and 2015. With prices above the last bubble peak, Washington probably has a bubble, but it appears to be less severe that the Great Housing Bubble, and less severe than other bubble markets around the US.

Miami is back in bubble territory, but is not above the 2007 peak. However it is much closer to that peak than the CSI suggests. Actual median sale prices are just 3% from the Great Bubble high. The CSI shows them still down 24%.

Miami Metro Home Sale Prices - Click to enlarge

The Miami metro has only seen per capita income growth of around 6% total since 2007. That means that the rebound in house prices has been driven by something other than per capita income. Rising consumer prices have clearly outpaced gains in income, eating into purchasing power. Still, home prices are within 3% of the peak of the greatest housing bubble in history, here in one of the most extreme bubble locations.

I live in and own a home in this market. I also sold a house at the top of the bubble in 2005. While reported prices continued to rise until 2007, sales volume had collapsed by mid 2006.

If you were a seller during the 2006-2007 period, it was difficult to sell at any price, let alone the prices reported at that time. The market essentially froze. The peak prices of 2006-07 gave a false impression. There was really no longer a market. Active market prices actually peaked in 2005. Current prices are above 2005 levels. So I would classify the Miami-Ft. Lauderdale market as in a dangerously inflated bubble state.

The CSI it was concurrent with the price turn at the top of the Great Bubble in that market, but the CSI data releases lagged the beginning of the recovery from the crash by about 6 months. Redfin’s releases in July and August of 2012 showed the first evidence of the rebound. CSI didn’t show it until its December release which reflected August-October sale recordings. By that time the market was already up 18% from the low. It took Robert Shiller another couple of months in 2013 to realize that the market had turned, and he was already warning of another bubble. While correct to do so, he was at least 3 years too early. It’s good to be bearish and cautious, but if you needed to buy a house and wanted to time the market, you might still be waiting. Now it’s too late.

Again, this isn’t just in Miami. It’s typical of how the CSI indexes behave in any market. The question now is if they’ll again be concurrent with the turn as the current cycle tops out. I can only answer, “Maybe.”

The real data that you need to watch for the first sign of the end is sales volume. If demand starts drying up, the end is nigh. By then it may even be too late. Housing markets tend to turn with a vengeance. I remember the market turn in 1979-80 well because I was a young real estate salesman in a micro bubble market in Center City Philadelphia. One day the market was there. And then it wasn’t. One minute we were living high. Three months later, we were starving. So I got a job at McDonalds.

Another market that was in a hyper bubble during the Great Bubble was San Francisco. Case Shiller shows that market to be 5% above the bubble peak while actual median prices are up 6%.

Miami Metro Home Sale Prices - Click to enlarge

The CSI lagged the turn at the lows in 2012 by 6 months again, but since then it has caught up. San Francisco is just on fire in all types of property. The fact that since 2012 CSI has risen faster than median prices is a sign that the crappier a housing unit in San Francisco is, the faster it’s inflating. This is definitely not an indication of a healthy growing market. It’s a sign that speculation is completely out of control.

The housing price inflation in San Francisco has partly been driven by income gains, which are around 16% total since 2007. Affordability was a hideous problem for most people then. It is almost as bad today. The question in San Francisco is how far they can push the limits this time before the market crashes again. MLS data shows total sales volume for the last 6 months through July down by 10% versus last year. That could be the bell ringing for this cycle.

Last in this review is LA. Comparable market sales data for the  January 2000-2009 period wasn’t available but I found a chart of sales prices published by Trulia and compared that with the Case Shiller data. LA was a super bubble market during the great bubble. The Trulia data shows LA prices to now be 12% higher than at the peak of the great bubble.  Somehow Case Shiller shows prices still down 9% from the bubble peak. Trulia shows prices gaining 111% from the crash low while the CSI is “only” up 56%.

Los Angeles Median Home Sale Prices- Click to enlarge

Los Angeles Case Shiller Index- Click to enlarge

Meanwhile personal income per capita in the LA market is up approximately 17% through 2015. The affordability crisis may be less extreme today in LA, particularly in view of the central bank mortgage rate subsidy. LA has yet to see the volume contraction that San Francisco has. As long as the mortgage subsidy is in place, high prices can persist and maybe even go a little higher in LA. But unless I believed that the mortgage subsidy is permanent and that record low rates will persist indeterminately, this is not a bet I would make.

There are several takeaways overall. One is that Case Shiller is usually misleading during the mid to latter stages of a local bubble and that at best the next downturn in CSI data will be no better than concurrent with the turn in the markets. By the time the price downturns show up in the Case Shiller data or the median home price data, it will almost certainly be too late, because the markets will have already seized up, with few sales taking place.

With prices back into the stratosphere virtually everywhere, affordability is again an issue. The Fed has enabled the return of these bubbles by subsidizing purchases with  via super low mortgage rates. Without this subsidy, home purchases at these levels would not be possible for the vast majority of buyers. Consequently prices would again collapse, mortgages would be under water, and financial institutions would again come under extreme pressure.

It remains to be seen for how much longer the Fed can or will support the appearance of stability. It is playing a dangerous game. Under these conditions It would be prudent to take steps to hedge or protect your assets.

The post Current Housing Bubble Varies By Metro was originally published at The Wall Street Examiner. Follow the money!

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