Housing Bubble 2.0: U.S. Homeowners Made $2 Trillion On Their Houses In 2017

Americans who are lucky enough to own their own little slice of the ‘American Dream’ are about $2 trillion wealthier this year courtesy of Janet Yellen’s efforts to recreate all the same asset bubbles that Alan Greenspan first blew in the early 2000’s. After surging 6.5% in 2017, the highest pace in 4 years according to Zillow data, the total market value of homes in the United States reached a staggering all-time high of $31.8 trillion at the end of 2017…or roughly 1.5x the total GDP of the United States.
If you add the value of all the homes in the United States together, you get a sum that’s a lot to get your mind around: $31.8 trillion.
How big is that? It’s more than 1.5 times the Gross Domestic Product of the United States and approaching three times that of China.
Altogether, homes in the Los Angeles metro area are worth $2.7 trillion, more than the United Kingdom’s GDP. That’s before this luxury home on steroids hits the market.

This post was published at Zero Hedge on Fri, 12/29/2017 –.

The EU Bad Loan Crisis to Get Much Worse – The Solution = Financial Pandemic

The bad loan (‘non-performing loan’ (NPL)) crisis in Europe is well known and many have been calling for this issue to be addressed. In Italy, the bad loan crisis has reached 21% of GDP. While NPLs dropped to 4.8% of all loans in the EU as a whole during the first quarter of 2017, they remained well above 40% in Greece and Cyprus, at 18.5% in Portugal, and 14.8% in Italy according to the European Banking Authority.
Now comes the bureaucrats with zero experience to save the day – or is that to create a financial pandemic in the EU? The EU Commission (EUC) along with the European Central Bank (ECB), want to ensure that banks promptly sell real estate, stocks, bonds and other assets that serve to collateralize loans according to their Mid-term Review of the Capital Markets Union Action Plan. Member States are required to adopt laws that facilitate the central directive. At this time, any bank cannot just sell a property that secures a loan. The problem is, all loans, whether secured or not, are valued the same.

This post was published at Armstrong Economics on Dec 29, 2017.

Always, Always Income

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
Just before Christmas 2014, the Bureau of Economic Analysis upgraded Q3 2014 Real GDP to +5.0%. That represented a huge acceleration from earlier that year when during the depths of its Polar Vortex infused winter Q1 2014 GDP had contracted sharply (according to contemporary estimates). One need not be a betting man to hazard a correct guess as to which quarter gained all the attention and focus.
The statement from the White House three years ago was rather typical:
Today’s upward revision indicates that the economy grew in the third quarter at the fastest pace in over a decade. The strong GDP growth is consistent with a broad range of other indicators showing improvement in the labor market, increasing domestic energy security, and continued low health cost growth. The steps that we took early on to rescue our economy and rebuild it on a new foundation helped make 2014 already the strongest year for job growth since the 1990s.
This was a sentiment widely shared, an assurance, almost, that the worst was finally over and the recovery about to commence – if, indeed, it hadn’t already during that 5% whirlwind of activity.

This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ December 26, 2017.

“You All Just Got A Lot Richer” – Trump Confirms The Biggest Problem With The GOP Tax Cut

As we’ve pointed out time and time again, the biggest problem with the Trump tax cuts is that they overwhelmingly benefit the rich. In fact, shortly after the initial nine-page outline of the program was unveiled by Gary Cohn and Steven Mnuchin, the nonpartisan Tax Policy Center released an analysis that showed the wealthiest 1% of Americans would accumulate more than 80% of the benefit from the tax bill.
One need only glance at this chart from JP Morgan to see how shabbily middle- and working-class voters are treated by the tax bill.
This is a big problem – particularly if the administration hopes to come anywhere near the 2.9% rate of GDP growth sustained over the next 10 years, a feat that would amount to the longest period without a recession in US history. That’s because when the wealthy receive tax breaks, they tend to save the money instead of putting it to productive use – at least at first – as we discussed last week.

This post was published at Zero Hedge on Dec 24, 2017.

Why Monetary Policy Will Cancel Out Fiscal Policy

Authored by MN Gordon via EconomicPrism.com,
Good cheer has arrived at precisely the perfect moment. You can really see it. Record stock prices, stout economic growth, and a GOP tax reform bill to boot. Has there ever been a more flawless week leading up to Christmas?
We can’t think of one off hand. And if we could, we wouldn’t let it detract from the present merriment. Like bellowing out the verses of Joy to the World at a Christmas Eve candlelight service, it sure feels magnificent – don’t it?
The cocktail of record stock prices, robust GDP growth, and reforms to the tax code has the sweet warmth of a glass of spiked eggnog. Not long ago, if you recall, a Dow Jones Industrial Average above 25,000 was impossible. Yet somehow, in the blink of an eye, it has moved to just a peppermint stick shy of this momentous milestone – and we’re all rich because of it.
So, too, the United States economy is now growing with the spry energy of Santa’s elves. According to Commerce Department, U. S. GDP increased in the third quarter at a rate of 3.2 percent. What’s more, according to the New York Fed’s Nowcast report, and their Data Flow through December 15, U. S. GDP is expanding in the fourth quarter at an annualized rate of 3.98 percent.
Indeed, annualized GDP growth above 3 percent is both remarkable and extraordinary. Remember, the last time U. S. GDP grew by 3 percent or more for an entire calendar year was 2005. Several years before the iPhone was invented.

This post was published at Zero Hedge on Dec 22, 2017.

A Merrier Christmas Sales Season

Our theme that a new business cycle expansion began in 2016 is easy to see when looking at the renewed strength in the basic industrial and material sectors, which we have highlighted in past newsletters. Less obvious – and just as important however – is the persistent consumption trends since the 2008-2009 Great Recession.
While consumers have been the backbone of most expansion cycles, they have been the only GDP component keeping our economy from a long economic winter this decade. Now that the industrial sector is making a comeback with a rare boost to the investment component of GDP, consumers are even more optimistic. Euphoria surged upon Trump’s election and boosted our merriment to finish 2016. It looks like 2017 will be even merrier as the National Retail Federation estimates record spending in their most recent survey after the subdued decade that preceded

This post was published at FinancialSense on 12/22/2017.

Taking Turns With The B(L)S

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
The worst aspect of this economy is by far the real effects pressed upon especially American workers. Of that there is no doubt, including young adults who would be working rather than ‘studying’ if the economy was at all like it has been described. The second worst part is watching politicians trade their descriptions for whomever occupies the White House. It does nothing to advance the cause of the American worker (or the global economy for that matter).
In early 2015, within the recent shadows of the BEA’s Q4 2014 GDP report that estimated growth that quarter of better than 5%, Republicans were more and more criticized for their economic criticism. The left-leaning Washington Post in February 2015 wrote:
A robust economy marked by a boom in jobs and a plunge in gas prices is threatening the longtime Republican strategy of criticizing President Obama for holding back growth and hiring, forcing the GOP to overhaul its messaging at the beginnings of a presidential campaign…
The improvement may mark a turning point in the nation’s seven-year-long debate over the state of the economy. Obama came to office amid a financial crisis, promising to turn the economy around. Republicans repeatedly – and, in the 2014 midterm campaign, successfully – argued that he had fallen short, with an economy suffering slow growth and unnecessarily high unemployment.

This post was published at Wall Street Examiner on December 21, 2017.

Architecture Billing Index Shows Continued Growth

The folks at the American Institute of Architects, aia.org, publish an interesting set of data each month, collectively known as the Architecture Billing Index, or ABI. The main ABI represents actual billings that member firms have sent out in the previous month. They also have an ‘Inquiries Index’, which measures potential business as opposed to actual business.
The reason why I find examining the ABI so useful is that it correlates pretty well with GDP data, and we get the ABI data well ahead of the GDP numbers, which only come out quarterly and which take several weeks to tabulate before they are released.
The latest release out this week showed a value of 55 for the ABI, which is the 4th highest monthly reading since the 2009 depression. It says that there is strong demand for architectural services, which is a forerunner of actually building a new home or other type of building. The implication is that there is no slowdown to the building boom going on now, at least as far as such a slowdown might show up in the architectural services part of that market.

This post was published at FinancialSense on 12/21/2017.

Don’t Just Do Something, Sit There!

Have you heard of the depression of 1920-21?
Unless you’re a pretty hard-core economics geek, you probably haven’t.
The most striking aspect of this depression was its duration. It lasted just 18 months. And how did the US get itself out of this sharp economic downturn?
By essentially doing nothing.
A collapse in GDP and production led to a sharp spike in unemployment to double-digit numbers. Modern policymakers would immediately launch economic stimulus. Consider the 2008 crash. On top of government programs such as the $700 billion TARP and $800 billion in fiscal stimulus, the Federal Reserve pumped $4 trillion in new money into the system. For 165 out of 180 months, the Fed pushed interest rates down or held them at rock-bottom levels.
The result? A tepid recovery at best with 2 million fewer ‘breadwinner’ jobs than during the 1990s. Oh. And a whole slew of bubbles waiting to pop.
Lew Rockwell compares this to the how things played out in 1920.

This post was published at Schiffgold on DECEMBER 20, 2017.

Despite Record Levels, the Stock Market Is Actually Shrinking in Size

Like that box of macaroni in your kitchen cupboard, the U. S. stock market has become a lot more expensive but has actually shrunk in terms of quantity.
In 1975, U. S. domestic companies that traded on U. S. exchanges totaled 4,819. Forty years later, the market has shrunk to less than 4,000, despite a tripling in GDP.
If you take a shorter time span of 20 years, which included the dot.com craze of listing companies known to Wall Street insiders as ‘crap’ and ‘dogs,’ the numbers are worse. In September of last year, Jim Clifton, the Chairman and CEO of Gallup, the polling company, reported the following:
‘The number of publicly listed companies trading on U. S. exchanges has been cut almost in half in the past 20 years – from about 7,300 to 3,700. Because firms can’t grow organically – that is, build more business from new and existing customers – they give up and pay high prices to acquire their competitors, thus drastically shrinking the number of U. S. public companies. This seriously contributes to the massive loss of U. S. middle-class jobs.’
As of early 2017, according to Ernst & Young, just 140 of these publicly traded companies represented more than half of the total market value of all stocks traded in the U. S. Another stark example of the dangerous trend of wealth concentration in the U. S.

This post was published at Wall Street On Parade on December 20, 2017.

Saudi Economy Contracts For First Time In 8 Years, Unveils Record Spending Spree To Boost Growth

Back when oil was at $100 and above, the Saudi economy was firing on all cylinders, and nobody even dreamed that the crown jewel of Saudi Arabia – Aramaco – would be on the IPO block in just a few years. However, with oil stuck firmly in the $50 range, things for the Saudi economy are going from bad to worse, and today Riyadh – when it wasn’t busy preventing Yemeni ballistic missiles from hitting the royal palace – said its economy contracted for the first time in eight years as a result of austerity measures and the stagnant price of oil, as the Kingdom announced record spending to stimulate growth.
OPEC’s biggest oil producer said 2017 GDP shrank 0.5% due to a drop in crude production, as part of the 2016 Vienna production cut agreement, but mostly due to lower oil prices. The last time the Saudi economy contracted was in 2009, when GDP fell 2.1% after the global financial crisis sent oil prices crashing. Riyadh also posted a higher-than-expected budget deficit in 2017 and forecast another shortfall next year for the fifth year in a row due to the drop in oil revenues: the finance ministry said it estimates a budget deficit of $52 billion for 2018.
More surprising was the Saudis announcement of a radically expansionary budget for 2018, projecting the highest spending ever despite low oil prices in a bid to stimulate the sluggish economic, saying it expects the GDP to grow by 2.7%. While we wish Riyadh good luck with that, we now know why confiscating the wealth of ultra wealthy Saudi royals was a key component of the country’s economic plan…

This post was published at Zero Hedge on Dec 19, 2017.

Key Events In The Last Week Before Christmas

It might be the last full week before Christmas – with both newsflow and trading volumes set to slide substantially – but there’s still a few interesting events and data releases to look forward to next week. Among the relatively sparse data releases schedule, we get US GDP, core PCE, housing and durable goods orders in the US, as well as CPI and GDP across Euro area and UK PMI. After last week’s central bank deluge, there are a handful of leftover DM central bank meetings include the BOJ and Riksbank, with rates expected to remain on hold for both. In Emerging markets, there will be monetary policy meetings in Czech Republic, Hungary, Thailand, Taiwan and Hong Kong.
Perhaps the most significant will be in China when on Monday the three-day Central Economic Work Conference kicks off. This event will see Party leaders discuss economic policies for the next year and the market will probably be most interested in the GDP growth target. Deutsche Bank economists have noted that it will be interesting to see if the government will change the tone on its growth target by lowering it explicitly from 6.5% to 6% or fine-tuning the wording to reflect more tolerance for slower growth.
Away from this, tax reform in the US will once again be a topic for markets to keep an eye on with final votes on the Republican legislation in the Senate (possibly Monday or Tuesday) and House (possibly Tuesday or Wednesday) tentatively scheduled. Also worth flagging in the US is Friday’s release of the November personal income and spending reports and the Fed’s preferred inflation measure – the core PCE print. Current market expectations are for a modest +0.1% mom rise in the core PCE which translates into a one-tenth uptick in the YoY rate to +1.5%.

This post was published at Zero Hedge on Dec 18, 2017.

Bank of Canada’s Poloz Is Right to Be Worried

Three possibilities come to mind. By Peter Diekmeyer, Canada, for Sprott Money: Bank of Canada governor Stephen Poloz cited numerous worries plaguing the economy during his speech to Toronto’s financial elites at the prestigious Canadian Club. However, the title of Poloz’s presentation, ‘Three things keeping me awake at night’ seemed odd, given positive recent Canadian employment, GDP and other data.
Poloz highlighted high personal debts, housing prices, cryptocurrencies and other causes for concern, along with actions that the BoC is taking to alleviate them. His implicit message was (as always) ‘We have things under control.’ But if that’s all true, then Canada’s central bank governor should be sleeping like a baby. So, what is really keeping Mr. Poloz up at night? Three possibilities come to mind.

This post was published at Wolf Street on Dec 17, 2017.

Four Charts Prove The ‘Economic Recovery’ Is Just A Fed-Induced Entitlement Program For The Wealthy

“Economic recovery” in America no longer means what it used to mean. Historically “economic recovery” was largely characterized by job and wage growth, distributed across the income spectrum, and a rebound in GDP growth to north of ~3%-5%. These days, the notion of “economic recovery” has been hijacked by the Fed and bastardized in such a way that they celebrate “asset bubbles” rather than real growth in economic output.
Presented as ‘exhibit A’, here is the Fed’s modern-day definition of “economic recovery” (chart per Bloomberg):

This post was published at Zero Hedge on Dec 15, 2017.

“Suspense Mounts” – Timing Of Tax-Reform Votes In Limbo As More Senators Get Cold Feet

With Bloomberg writing this morning that “Mystery, Suspense Mount” two days after President Donald Trump told the American public that Congress was ‘just days away’ on tax reform, two more senators – including one-time Trump rival – Marco Rubio appear to be getting cold feet – much to the market’s chagrin. Yesterday afternoon, stocks dropped and the VIX jumped above 10 as Rubio and Utah’s Mike Lee said they had reservations about the draft bill being put together by the conference committee.
Worries about the bill’s impact on the deficit have persisted, and if anything, they only intensified after the Treasury Department released a laughable one-page report about the tax plan’s impact on GDP and revenue that was widely ridiculed.
As the fast-moving Republican tax package has evolved, it has tilted increasingly toward benefiting businesses and wealthy taxpayers, a trend that aides were saying privately is a growing concern for some lawmakers. Provisions for offsetting the revenue costs of last-minute changes also were becoming worrisomely unclear, they said.

This post was published at Zero Hedge on Dec 15, 2017.

Why We Should Worry About China

Many of our readers might remember the late 80s. There were hundreds of movies, songs and books about the inevitable Japanese economic invasion. The ones of you that did not live that period can see that it did not happen.
Why? Because the Japanese growth miracle was built on a massive debt bubble and, once it burst, the country fell into stagnation for the better part of two decades. It still has not recovered.
China presents many similarities in its economic model. Massive debt, overcapacity and central planned growth targets.
Many economists and investors feel relieved because China is still growing at 6.8%. They should think twice. On one side, that level of growth is clearly overestimated. By any realistic measure of growth, China’s Gross Domestic Product annual increase is significantly lower than the official figures show. Patrick Artus, global chief economist at Natixis Global Asset Management, as well as other economists have noted that there has been a significant decoupling since mid-2014 between the government’s official growth reading and more reliable indicators. On the other hand, even if we agree with the official readings, this growth has been achieved using a worryingly high level of debt.

This post was published at Ludwig von Mises Institute on December 15, 2017.

The Running Of The Japan Bears

We’ve done a National Geographic – style deep dive into the world of the Japan bears, reading the scare stories about demographic decline, old people dying alone, underrepresentation of minorities on corporate boards, and other anecdotal ‘evidence’ of stagnant economic prospects. We tried to find the best examples of Japan bearishness: the scariest pieces of evidence we could find, stuff that portrays the world’s third largest economy as a zombie death trap for equity investors.
The two most established predictors of future equity returns are value and momentum. Academic research says buy stocks that are cheap and improving, at the fulcrum when other investors are starting to recognize that they are undervalued.
We believe Japanese equities today are at the fulcrum. Japan is the cheapest developed market in the world, and sentiment is shifting as other investors recognize the undervaluation. Japan bears are on the run.
Renowned investor and manager of the Yale endowment, David Swensen, recently highlighted his newfound enthusiasm for Japanese markets: ‘There are some very interesting things going in Japan, one of the places I’m most optimistic about. It seems like capitalism might actually be taking root, making progress there.’
Japan just hit its seventh consecutive quarter of positive GDP growth for its longest streak in 16 years. As the Wall Street Journal noted in November, ‘Japan’s economy has been remarkably consistent since the beginning of 2016, growing at an annual rate between 0.9% and 2.6% every quarter.’

This post was published at Zero Hedge on Dec 13, 2017.

Tax-Reform Opponents Blast Treasury Report As “Nothing More Than One Page Of Fake Math”

Yesterday, we highlighted a one-page report prepared by the Treasury Department which claimed that – in what was perhaps one of the most unrealistically optimistic budget projections to ever be produced by the US government agency – the Senate’s version of the Republican tax plan would, somehow, bolster GDP to a 2.9% real growth rate over 10 years.
The report – a transparent attempt to distract from the plan’s elimination of more than $1.5 trillion in total receipts, while emphasizing its potential pro-growth aspects – relies on a scenario where the economy achieves a baseline of 2.9% GDP growth over the coming decade, compared with the Treasury’s previous projection of 2.2%.
This additional 0.7 percentage point of annual growth, the report claims, will lead to an increase in tax revenue of $1.8 trillion. Treasury “expects approximately half of this 0.7% increase in growth to come from changes to corporate taxation, while the other half is expected to come from changes to pass-through taxation and individual tax reform, as well as from a combination of regulatory reform, infrastructure development, and welfare reform as proposed in the Administration’s Fiscal Year 2018 budget.”

This post was published at Zero Hedge on Dec 12, 2017.