Home Sales!

New home sales for January 2011 were down 12.6% from December 2010, but even worse, the raw numbers were 284,000, which compares to monthly sales of 800,000 to 1 million before 2007.  That is an approximate 70% decline and suggests the recession continues on despite what the Administration, Fed, and Wall Street want you to believe.  And, mortgage applications are near the lowest levels in 15 years. 

Is the Bull Dead, Yet????

STATES!

 Karl Denninger over at the "Market Ticker" had some insightful words to say about that thing we refer to as States.  My "two cents" are in italics.

"You know, that thing that has all of the powers of government not explicitly delegated in The Constitution to the Federal government.  (Yes, we still have a Constitution, but I am beginning to wonder if those in Washington realize it.)  There are 50 of them in my last count referred to “The United States.”  Notice, that we don't call the nation "The United Federal Government."  We call it "The United STATES."  (That's because States should have supremacy, but more and more our Federal Government has forgotten about that.)  They originally joined together under a promise of a limited Federal government, which was mostly about the common defense and little more."


I am very glad to see that some States are starting to realize and wake up to the real reason why this country is referred to as THE UNITED STATES and not The United Federal Government.

What is Going on in Wisconsin with its Governor, State Employees and Teachers?

First, I am from Wisconsin and love visiting the state, especially Door County in the summer time, not in winter.  Second, I have been an educator most of my life and have a true passion for it.  Simply put, that is why I went into the teaching profession.  And, I would say the majority of individuals chose teaching as a profession, because they share the same passion.  However, we live in a period of time when everything appears to be "upside down, downside up."  In other words, nothing makes sense anymore.  What is going on in Wisconsin is just a microcosm of what is going on in each of the other fifty states.  We as a nation have become so self-centered and selfish that it will ultimately be our doom.  The handwriting is on the wall.  I hope you can see it.  

Ok, enough said about my Wisconsin interest and diatribe.  What is going on there? Wisconsin’s Governor Walker is facing a $3.6 billion budget deficit, and he wants state workers to pay one-half of their pension costs and 12.6% of their health benefits.  Currently, most state employees pay nothing for their pensions and virtually nothing for their health insurance.  (Think private sector where pensions or defined benefit plans are outdated and replaced with 401 (K) Plans or defined contribution plans.  In other words, these state employees and teachers have a good thing going and are about to blow it big time.)

What else does he want?  He would end collective bargaining for everyone except police, fire, and state troopers.  Unions could still represent workers, but they could not get pay increases above the CPI.  Also, they could not force employees to pay union dues.  And in exchange for all this, Governor Walker promises no furloughs or layoffs. 

Why is the state employee union dead set against any of this?  I believe it is all about the potential of losing its annual cash flow of millions!  Let’s look at the cash flow.  (These are estimates, because when President Obama came into office, he shielded government unions from transparency by ending their reporting requirements to the Department of Labor.  As a result it is impossible for the American people to know for sure how much of their taxpayer revenue is being diverted into union coffers.)  However, we can estimate the cash flow by looking at the most recent numbers available from the National Center for Education Statistics and U.S. Census Bureau.  The number of teachers and state workers in Wisconsin are approximately 60,000 and 57,000, respectively.  And, if we assume that each one pays approximately $750 annually in dues, that means the government union industry in Wisconsin is worth at least $88 million a year.  The question I would be asking, if I was one of these involuntary members, is what is my union doing with an annual cash flow of $88 million.  Inquiring minds would like to know! 

Debt Now Equals Total U.S. Economy as Measured by GDP

President Obama projects that the gross federal debt will top $15 trillion this year, officially equaling the size of the entire U.S. economy, and will jump to nearly than $21 trillion in five years' time, according to the Washington Times. 

Does anyone really know what the ramifications of this massive debt means to us as a free society?  I am beginning to wonder what the masses of humanity really know.  When it comes to economics, not much! If you want to get a clue you just might pick up your Scriptures and read Proverbs 22:7.  If you don't have your Scriptures readily available.  Proverbs 22:7 states, "The rich rules over the poor, and the borrower is servant to the lender."  Let's see now.  Simply substitute United States for borrower and China for lender.  Do you comprehend the picture?  I hope you do!

Who Owns What?

In the 2nd quarter of 2009, the Fed's purchases of Treasury debt amounted to 48% of the new debt issued in that period by the Treasury.  The following chart illustrates that the Fed is currently the world's largest single holder of Treasury securities, surpassing China.  And, that is what is meant by monetizing the federal deficits!

Employment Rate of the U.S. Population

On February 8, 2011, Richard Fisher, President and Chief Executive Officer of the Federal Reserve Bank of Dallas made the following statement: "U.S. nonfarm payrolls fell by 8.75 million jobs from their peak in January 2008 to their trough in February 2010. Estimates are that the population of Americans of working age increased by 4.4 million during the same period, creating a shortfall of over 13 million jobs. Since February 2010, the shortfall has only gotten worse: Although employers have added approximately 1 million new jobs, the working-age population has increased by an additional 1.7 million. All in all, we have approximately 6 million more people of working age than we did when the recession began—and a net loss of 7.7 million jobs. Divining policies that will encourage the private sector to increase hiring by enough to make up some of this lost ground is both an urgent and a daunting task."

The above statements by a Fed President should have everyone "pause, take notice and mediate" on his words that depict a very dire economic situation if we do not create jobs. (Look at the following graph that illustrates the negative trend of our employment rate.) Yes, it is definitely all about creating jobs.  That is, no jobs, no income, no spending, no tax revenue for Uncle Sam, no GDP growth, no nothing. Governments do not create jobs, only the private sector.  If our government is serious about job creation, it must get out of the way and implement user-friendly business polices.  Will it happen? In all sincere honesty, I don't believe it will. I, for one, am losing hope that America has the intestinal fortitude to win this battle.  It has entered that "slippery slope" of no return.

Maturing Commercial Mortgage Loans A Big Headache For Business Owners

Major problem with commercial real estate.  Fitch Rating reports that 30% of commercial mortgage-backed securities loans set to mature in 2011 do not pass their refinance test.  Say it is not true.  Can we not just forget about it and bury these problem loans in the same way that we did with sub-prime residential loans?  That is, not "mark-to-market" the true value of the loan, simply carry the loans at their face value of 100%, which once again protects the Mega-money Center Banks and Wall Street at the expense, once again. of the American taxpayers.

Food for Thought (No Pun Intended)

Visit msnbc.com for breaking news, world news, and news about the economy

Dylan Ratigan gets it right!  Thank you, Dylan

Visualization of Obama's Budget Cuts

A very simple video but yet so very powerful and profound.  Thanks to one of my Macroeconomics students for bringing it to my attention.

 

Smiley Face

Let's all put on that smiley face.  Now, what does this have to do with economics and/or finance?  Absolutely nothing.  I am just trying to make you feel better before the financial bubble burst.  So, enjoy.  Everything is going to be just fine.  Believe me.  That is what Washington wants you to believe. By the way, is the turmoil in Egypt the new Black Swan?

Chicago Fed National Activity Index for December 2010

As I have previously posted, I consider the "Chicago Fed National Activity Index" as the best macroeconomic measure that portends to the overall strength and direction for GDP.  Why this index? Because this index is a weighted average of 85 indicators of national economic (GDP) activity. The indicators are drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth. Each month, the Fed of Chicago provides a monthly index number, which reflects economic activity in the latest month, and a three-month moving average. Month- to-month movements can be volatile, so the index’s three-month moving average provides a more consistent picture of national economic growth.

Now, what is the index saying for December?  According to the Fed of Chicago, "Led by gains in employment- and production-related indicators, the Chicago Fed National Activity Index increased to +0.03 in December from –0.40 in November. December marked the first time in five months that the index had a positive reading. Three of the four broad categories of indicators that make up the index made positive contributions in December, while the consumption and housing category continued to make a large negative contribution."

For December 2010, the index is encouraging, because it moved to the plus column, which indicates that GDP is expanding above its historical tend rate of growth.  However, when you look at the 3-month moving average, the index is still below its historical trend rate of growth.  And, that is still the problem.  According to the Fed of Chicago's own statement, "consumption and housing continue to make a large negative contribution to GDP." And, I don't expect that consumption and housing are going to make a positive impact on GDP anytime soon, especially for 2011.

 

It is Only Money

Yesterday, the Fed repeated its previous announcements that it will continue its course of action, which we all know has worked, so very will (LOL), by purchasing $600 billion of bonds from Wall Street.  It also repeated its short-term interest rate target of “zero percent,” and suggested it sees no change in its policies coming any time soon.  The Congressional Budget Office (CBO) reported that the Federal Deficit would reach $1.5 trillion in 2011, as I posted yesterday, that the U.S. Government would borrow 40 percent of the money it spends in 2011.  The CBO, also, pointed out that tax revenues, as a percent of GDP, will sink to the lowest level since 1950.  That is NOT good news, which definitely tells us that the economy remains sick, because consumers, who account for 70 percent of GDP, are struggling, as are small businesses.  QE1 is over.  Did that assist you?  No, because you are not Wall Street.  Now, QE2 is underway and again it will only benefit Wall Street, not you.  QE1 and QE2 are designed to boost GDP through your wealth effect of a rising stock market.  (That is, your perception is that you are wealthier because of your unrealized stock market gains.  Therefore, you will consume more, which increases GDP.  However, what about those really, weak real estate values out there?  Oh, that should have the opposite impact on your wealth effect.  But, the Fed doesn’t want you to think about that.)  Keep-in-mind that the stock market is not the economy, but that is the association Washington and the Fed want you to make.  The result of this false association will be an eventual stock market decline that reverses the entire, manipulated rise in prices since March 2009.

In Elliott Wave terms, Bear Markets usually have two huge down-legs separated by one rally between the two down legs.  The decline through March 2009 was the first major down-leg.  The rally from March 2009 is the fake-out rally.  Therefore, coming soon to your financial house will be the third-leg down, which will be more powerful than the 2007-2009 decline.

I am Back!

After my hiatus, I decided it was time to come back to life.  What triggered this decision?  Well, I would have to say it was the State of the Union message last night.  Not really, but it sounded good, at least to me.

Let see, President Obama’s State of the Union address stated that the following issues must be immediately addressed: (1) cutting the deficit, (2) reducing unemployment, and (3) ensuring the U.S. can compete with economic rivals, namely China.  I totally agree.

These are definitely laudable motives for improving our economy. However, how are we going to cut the deficit?  And how we going to make the U.S. competitive with economic rivals such as China?
Let’s see are we planning on repealing the Federal Minimum Wage?  You know - we have to pay people over $7/hour.  In China many people make $7/DAY.  Exactly how do we compete with that?

Or, are we going to disband the EPA and tear up all the environmental laws?  After all, in China you just dump your poisons in the water and spew them into the air.  Can anyone explain to me how, when entitlements are 56% of the budget, and we currently borrow between 40% to 43% of the budget, how one intends to be "learner and smarter" and get rid of the deficit - when you have to pay interest charges - without cutting those entitlements?

Today, the Congressional Budget Office said that Social Security will pay out $45 billion more in benefits this year than it will collect in payroll taxes, further straining the nation's finances. The deficits will continue until the Social Security trust funds are eventually drained, in about 2037.  Ouch, Ouch, and Ouch!!!  In addition, the CBO stated the federal budget deficit will reach nearly $1.5 trillion in 2011 due to the weak economy, higher spending and fresh tax cut.  I really believe (no, I know) that the majority of Americans do not realize what the shortfall in social security and the $1.5 trillion federal deficit means to the future of America, and, of course, to their future. 

Where is the sanity in all of this?  It is all very crazy, indeed.  As a nation, we can not deficit spend our way out of our economic problems.  What we have done is create the greatest financial bubble in the history of mankind.  Now, that is crazy!

How Much Debt Is Too Much?

We are on the verge of that famous 90%-100% debt-to-GDP ratio where many believe a sovereign debt crisis is inevitable. 

Surprise! The US Economy Is Now Everyone's "Surprise" Pick To Surge

Nomura's 2011 survey of clients suggests investors are suddenly confident in the outlook for the United States, and see it surprising to the upside next year.  Maybe I should send them the latest Federal Reserve Bank of Chicago's Economic Index.

S&P 500: The Market That Defies Gravity

Chicago Fed National Activity Index: Economic Activity Slowed in November

The Federal Reserve Bank of Chicago reported its findings for its latest economic index for November: "Led by declines in employment-related indicators, the Chicago Fed National Activity Index decreased to –0.46 in November from –0.25 in October.  For November of 2006, the index was +0.01." Why do I bring this index up?  Because I consider this to be the best overall measure of economic activity.  Why?  Because this index is a weighted average of 85 indicators of national economic activity. The indicators are drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

In other words, the economy is getting weaker, not stronger.  (See the following chart.) 

For the full article, click-on Fed of Chicago.

Ron Paul: My Monetary Hero

I like Ron Paul.  The reason being is his sound money philosophy, which is closely akin to Austrian Economics.  Of which, I am a great fan. 

Watch the video clip and then you can decide if he is your "monetary hero."

Does This Really Come as a Surprise to Anyone?

Who is Number 1 on test scores in math, reading, and science?  Of course, it is students from China.  Where do we rank?  See the following table.  Not too great as we prepare students to compete in a global economy.

Now, what is this abysmal student performance costing us as taxpayers?  Well, it depends on where you live.  An enlightened video clip from the Cato Institute provides some food for thought on the cost (explicit and implicit) at local level.  After viewing the clip, you may want to find out what you local school district's cost per student happens to be.  The national average per-student education spending (latest 2007) is approximately $10,000.  And, what is the common cry from educators for improving score performances on math, reading, and science?  More money, of course.  Isn't that the typical response and solution to all of our problems?  For the full report, click here.