3 Things: Strong Dollar, Oil, Missed Employment Submitted by Tyler Durden on 03/12/2015 15:16 -0400 BLS Bureau of Labor Statistics ETC Federal Reserve Fisher Gallup headlines Payroll Data Personal Consumption Recession Richard Fisher Tyler Durden Unemployment Unemployment Claims Unemployment Insurance in Share 1 Submitted by Lance Roberts of STA Wealth Management , In a recent Reuter's article , Dr. Richard Fisher of the Dallas Federal Reserve stated: " Sharp gains in the U.S. dollar are good for the U.S. labor market." This is not actually the case as I will discuss in all three parts of today's "3 Things." A Strong Dollar Is Not Good For Exports In today's globally interconnected world exports have become a critical component of both corporate profitability and economic growth. Increases in the labor market are a by-product of stronger economic growth and corporate profitability. The chart below shows the US Dollar as compared to the annual percentage change in exports on a quarterly basis. I have inverted the scale of exports to more clearly show the correlation between a rising dollar and weaker exports. Importantly, a strongly rising dollar has also been witnessed just prior to the onset of an economic recession. Companies tend NOT to aggressively hire employees when profitability is coming under pressure from weaker exports. Falling Oil Prices Are Not An Economic Boon What is interesting about Dr. Fisher's statement is that he recently stated the collapsing oil prices are not good for the economy or the labor market. This is something I addressed recently in "Oil Prices, Rig Counts And The Economic Impact:" "Oil and gas production make up a hefty chunk of the "mining and manufacturing" component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve." (Read more here) It is difficult to suggest that a surging dollar is good for the labor market when it is exactly the surging dollar that exacerbated the collapse in oil prices. Furthermore, despite the fact that nearly 100% of all economists expected that falling oil and gasoline prices would be reflected in a boost of consumer spending, this has yet to be the case. I explained the fallacy of this premise previously : "Graphically, we can show this by analyzing real (inflation adjusted) gasoline prices compared to total Personal Consumption Expenditures (PCE) .I am using "PCE" as it is the broadest measure of consumer spending and comprises almost 70% of the entire GDP calculation." "The vertical orange line shows peaks in gasoline prices that should correspond (according to mainstream consensus) to a subsequent increase in retail sales. The majority of the jobs 'created' since the financial crisis have been lower wage paying jobs in retail, healthcare and other service sectors of the economy. Conversely, the jobs created within the energy space are some of the highest wage paying opportunities available in engineering, technology, accounting, legal, etc. In fact, each job created in energy related areas has had a 'ripple effect' of creating 2.8 jobs elsewhere in the economy from piping to coatings, trucking and transportation, restaurants and retail. Simply put, lower oil and gasoline prices may have a bigger detraction on the economy that the 'savings' provided to consumers. Newton's third law of motion states: "For every action there is an equal and opposite reaction." The Case Of Missing "Oil Gas" Jobs I discussed previously that the Bureau Of Labor Statistics was overstating employment since the end of the financial crisis by more than 3 million jobs. To wit: "However, that does not completely resolve the issue of the disparity between reported employment and the large number of individuals sitting outside the labor force. The answer likely resides in the BLS's employment calculation process and the subsequent adjustments that may potentially be overstating employment gains. The most questionable of those adjustments is the birth/death model which is a monthly guess at the addition and subtraction of businesses to the economy. This is an extremely important point as it suggests that employment, as presented by the BLS, has been significantly overstated over the past six years. If we take the differential as stated by Gallup and compare that to the annual birth/death adjustment used by the BLS, we find that jobs have been overstated by 3,678,000 or more than 613,000 annually." "...this goes a long way in explaining the existing slack in the labor force and lack of wage growth." Political Calculations has recently added to this analysis by supplying an answer to the missing "job losses" that have yet to be reflected in the monthly employment report. "Casey Mulligan has worked up the numbers and wonders if the U.S. job market for adults has really been shrinking recently:" The headline payroll employment was (seasonally adjusted) higher in February than in January. However, the headline does not include the self employed or agricultural workers. If we add those in (from the household survey), the number of jobs fell from Jan to Feb. If we also look at it per capita terms, jobs per capita fell two months in a row after being essentially constant Nov-Dec. Jobs in Thousands through Feb 2015 Jobs per Adult through Feb 2015 To be clear, I am measuring the vast majority of jobs from the same establishment survey that makes headlines. All I'm doing is adding an estimate for the narrow category of workers known to be excluded (in terms of FRED series , my formula is PAYEMS + LNS12027714 + LNS12032184). Interestingly, self employment fell 340,000 in the past month and 238,000 over the past year. "We think we can explain part of what Professor Mulligan is seeing in the data, and also solve the mystery that is perplexing ZeroHedge's Tyler Durden. The key to resolving Tyler Durden's mystery and Casey Mulligan's jobs data is to recognize that 84% of workers in the U.S.' oil, gas and mining industries are employed as independent contractors, who are not counted as being actual employees of the firms that have announced they are laying off workers. Instead, as workers who get 1099 forms as contractors instead of W-2 forms as employees from the firms that employ them for filing their federal income tax returns, they are considered to be self-employed. As such, many job losses that might be resulting from the ongoing simultaneous declines of global oil prices and extraction-industry-related business revenues would not necessarily be captured in the nonfarm payroll data, because they're really being counted as self-employed, who aren't counted as part of the nonfarm payroll. Unless one does exactly what Casey Mulligan has done - add the number of farm workers and self-employed individuals to the non-farm payroll numbers to get the bigger picture. But that's not because the BLS isn't counting them - it's because their definition of the nonfarm payroll isn't sufficient to capture the particular dynamic playing out in the nation's oil, gas and mining industries. Or for that matter, any other industries with high percentages of self-employed independent contractors . And that situation isn't just limited to the nonfarm payroll data. Many of these independent contractors being laid off from their jobs would not be eligible for unemployment insurance benefits either, so the data for first-time unemployment claims is also unlikely to register their displacement from the U.S. labor force until the numbers reach deep into the actual payrolls of these firms." With all deference to Dr. Richard Fisher, the surging dollar is not good for either the economy or ultimately a stronger labor market. This is particularly the case when the dollar is only stronger because the rest of the world is on the brink of recession and or deflation. The negative impact of a surging dollar in a weak economic environment will more than likely outweigh any positive inputs for the U.S. consumer. Time will tell, but the evidence is mounting that the we are likely closer to the end of the current economic cycle than the beginning. Average: 4.75 Your rating: None Average: 4.8 ( 8 votes)
How Much Does Basic Health Insurance Cost Around The World Submitted by Tyler Durden on 05/14/2014 11:11 -0400 Deutsche Bank ETC in Share How does one definemost basic health insurance? If one is Deutsche Bank, as follows: "Health insurance annual premium is for a basic policy for a local resident between 25-35 years. Since the definition of a standard package varies between countries, we have tried to stick to an insurance policy which covers inpatient events and no extra covers like dental, etc.... The data has been sourced mainly from local providers of heath insurances, reports of organizations engaged in research of health care and news clippings." And how much does "most basic health insurance" cost around the world? According to Deutsche Bank the answer, when presented in dollar terms, is as follows: Clearly what the US, with its highest in the world costs, needs is for the government to step in and really fix the problem. Average: 4.72222 Your rating:None Average:4.7 (18votes)
Q3 2013 Earnings\Financials: The Party is Over Submitted by rcwhalen on 09/26/2013 07:01 -0400 Bank of America Bank of America Ben Bernanke Case-Shiller ETC Fannie Mae Federal Deposit Insurance Corporation Financial Accounting Standards Board Freddie Mac headlines Housing Market Mortgage Bankers Association Mortgage Loans non-performing loans Real estate recovery in Share 1 "The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis." Benjamin Bernanke It’s once again earnings season and a great deal of attention will be focused on financials. Over the past three months, the equity market values of most of the largest universal banks have traded off as investors have started to appreciate that the party is ending in terms of new mortgage originations driven by refinance transactions. As I noted in the last post, the guidance from all of the big banks is decidedly negative for Q3 because of the prospective decline in revenue and transaction volumes in mortgages. While refinance transactions are falling rapidly, mortgage loan purchases volumes are not growing nearly enough to make up for the drop in overall volumes. The chart below shows the total loan originations, refinance and purchase volumes for all lenders from the Mortgage Bankers Association through Q1 2013: Close your eyes and imagine what this chart will look like next year. Looking at the banking industry as a whole, the mortgage story is likely to dominate the headlines next month during earnings season -- even if the financial media wants to ignore the implication for the “housing recovery.” A lot of analysts want to believe that the relatively modest rise in interest rates since the bottom last summer is the culprit in terms of falling mortgage loan volumes, but my view is that three factors – declining affordability, a stagnant job market and flat to down consumer income – are the structural factors behind the anemic demand for mortgage loans, particularly mortgages for home purchases. While banks are happy to make loans, especially jumbos, to existing customers for refinance transactions, the new Basel III rules and GSE lending standards make it problematic for banks to move down the risk curve, especially if doing so takes us outside the agency bucket patrolled by the New Calvinists at the Consumer Finance Protection Bureau. Loans that are not “qualified mortgages” that can qualify for a federal guarantee are very costly for banks, both in terms of capital costs and charges for liquidity, MSRs, etc. The chart below shows bank mortgage portfolios for first and second liens, and sales and securitization volume, for all FDIC insured banks. As you can see from the chart, the total retained portfolio of real estate loans held by US banks has dropped about 20% since 2007, from ~ $5 trillion to $4 trillion today. The major area of shrinkage has been in 1-4 family loans, while second liens have also been shrinking slowly. Sales and securitization of second liens is very small and was not included in the chart. The series for 1-4 family loan sales and securitizations is also falling, again owing to the secular decline in agency volumes and other factors. As the watering hole shrinks, the GSEs and TBTF banks will consume one another in vicious competition. By the way, has anybody noticed that Freddie Mac is discounting its loan guarantee fees in competition with Fannie Mae? We’ll come back to that soon… Jumbo loans were the only part of the mortgage complex to show growth in 1H 2013, up 17% YOY according to Inside Mortgage Finance. Jumbo originations were about $115 billion in 1H 2013. The sharp inflection point in 2009, of note, is attributable to the new FASB rules regarding off-balance sheet accounting for special purposes entities. While banks still sell most of their origination volumes into the agency market, the portion being retained on balance sheet is slowly shrinking. So given that the Case-Shiller national survey of home prices is up 12% YOY, how does one interpret the decline in bank financing for home purchases over the same period? The easy answer is that about half of the gains reflected in Case-Shiller over the past couple years are attributable to the gradual resolution of bank REO and the disappearance of the spread between distressed home sales and voluntary home sales. About half of all home purchases were cash during 2012. But when you consider that the ex-REO gain in Case-Shiller is about half of that 12% figure YOY and that bank credit underlying the housing market has been shrinking all the while, how does that make you feel about the future prospects for home price appreciation (HPA)? Hold that thought. In terms of industry revenue and earnings, the general is more important than the particular. For example, the increase in Q2 2013 earnings was largely driven by increases in non-interest income and reserve releases. Trading income also spiked. There is not a lot of organic revenue growth in the US banking industry today. Thus as some of the larger players have been guiding down on mortgage lending volumes, they have also warned of potential losses on the mortgage line because there is nothing available to take up the slack. The FDIC’s excellent Quarterly Banking Profile summarizes the situation: “Noninterest income was $6.7 billion (11.1 percent) higher than in second quarter 2012. Income from trading rose by $5.1 billion (238.3 percent) compared with a year ago, when the industry reported a net loss on credit derivatives. Net gains on sales of loans and other assets were $1.9 billion (63.7 percent) above the level of a year earlier. For the third quarter in a row and fourth time in the last five quarters, net interest income posted a year-over-year decline, falling by $1.8 billion (1.7 percent) as interest income from loans and other investments declined faster than interest expense on deposits and other liabilities. Banks set aside $8.6 billion in provisions for loan losses during the quarter, a $5.6 billion (39.6 percent) reduction from a year earlier. This is the lowest quarterly loss provision for the industry since third quarter 2006, when quarterly provisions totaled $7.6 billion. Total noninterest expense was $1.4 billion (1.4 percent) lower than in second quarter 2012, when industry expenses were elevated by restructuring charges.” So the clear message to take away from the Q2 2013 data on the US banking industry is 1) cost cutting in terms of operations, 2) lower loan loss provisions and 3) increased non-interest fees are the key factors in terms of revenue drivers. There is no real visibility in terms of revenue growth. In Q3, however, the sharp drop in mortgage volumes is going to upset the carefully scripted ballet that has kept large bank earnings within an acceptable range for the Sell Side analyst and media communities. Given that mortgage origination and sale has been the dominant revenue line item for many of the largest banks over the past ten years, you would think that the financial media would be all over this story. After all, JPM has actually guided to an operating loss in mortgage in Q3-Q4. But no, instead we talk about pointless government litigation against bank shareholders and the London Whale. Go figure. Keep in mind that Q2 earnings were also helped by a 10% increase in the “fair value” of mortgage servicing right or MSRs, a non-cash adjustment that goes right to income thanks to the idiocy of fair value accounting. Just as the market for non-performing loans was a little fluffy in Q1 of this year, the market for MSRs is also showing a bit of foam right now. The real question is whether these markups will need to be adjusted, again, as and when the excitement subsides. Normally public companies don’t toy with the valuation of intangibles except at year-end. So when we actually start the Q3 earnings cycle for financials, watch for the word “surprise” in a lot of news reports and analyst opinions. Nobody seems to want to take notice of the very public guidance coming from some of the largest names in the banking complex because of what it implies for housing. But just to show you that God has a sense of humor; Bank of America and Citi have actually outperformed their asset peers in the TBTFgroup over the last three months. Hey, that’s what we need, an index comprised of TBTF banks. Be a useful surrogate for the credit quality of the United States. See you at Americatyst 2013 in Austin TX next week. Average: 5
Charles Gave Warns: "Should The Fed Lose Control, The Downside Move In Markets May Be Terrifying" Submitted by Tyler Durden on 06/10/2013 14:25 -0400 Ben Bernanke Ben Bernanke Bond fixed Global Economy Gross Domestic Product Hong Kong Hyperinflation Insurance Companies Japan Nominal GDP None Rate of Change Reality Renaissance Renminbi Reserve Currency Trade Balance Charles Gave of GaveKal has a fascinating summary of where the nearly five-year long experiment in central-planning has taken the US, and by implication, global economy. To wit: What kind of failure? By propping up asset markets, the Fed has created an illusion that wealth is being created. The next step, according to Bernanke’s plan, should be for growth to follow. In fact, there is no reason why the rise in prices of financial assets should lead to actual investments or a rise in the median income . So far, it has not. There has been no real increase in the private sector propensity to borrow, and the danger may be that any further public sector borrowing will hasten the decline because of our “permanent asset hypothesis”. This means that, should the Fed lose control of asset prices (is this what is now happening in Japan?), then the game will be up and the downside move in markets may well be terrifying. Most at risk would be low and medium quality credits, banks, commodity producers, and any companies with negative cash-flow. It is obvious, then, that if Bernanke’s experiment fails, it will be a profoundly deflationary failure. The best hedges in a deflation and in financial panic are US long bonds and the US dollar. Renminbi bonds seem also to be developing safe-harbor status. In fact, we found it interesting how, in May, every bond market around the world sold-off, except for the RMB bond market. We agree completely with Gave on his proposed "permanent asset hypothesis" (as explained further below) which is a simple derivation of what happens in a world in which the Keynesian multipler is now negative. It is what we have been saying for over a year , namely that in an environment of permanent low interest rates there is no impetus on behalf of the private sector to spend for growth, either in the form of capital spending or the hiring of incremental workers. The only net money exchange is the issuance of debt to fund dividends and stock buybacks: or simple EPS-boosting balance sheet arbitrage as shown most recently here . We also obviously agree that if and when Bernanke finally loses control, there are simply no words to describe what would ensue as a situation like that - one where not just the Fed, but every single central bank has gone all in on reflating the world's biggest asset bubble - has never been encountered before . However, we disagree that the final outcome will be a "profoundly deflationary failure." This will be an interim step. Recall that the Fed and its private bank conspirators simply can not accept deflation as a resolution. Which means that faced with the specter of full on deflationary collapse, Ben Bernanke will simply resolve to doing what he has hinted, if jokingly, in the past: he will literally paradrop money out of helicopters. Maybe not in that fashion, but he will find a way to bypass the banking sector as a monetary transmission mechanism, and bring crisp, fresh, just off the press banknotes into the hands of consumers in order to finally get the much needed inflationary spark as too much cash chases after too few products and services. And remember: hyperinflation is and always has been a phenomenon concurrent with the full loss of faith in a given currency, be it reserve or not. It may emerge for economic, monetary or purely political reasons. It is also why the most valuable commodity a central bank has is credibility, and faith in fiat, or fiat h as we like to call it. Furthermore for those who say that the Fed has a reserve currency premium, we like to show one of our favorite charts: reserve currencies through time... ... as well as our two favorite axioms: Nothing is forever , and this time is never different. * * * But those are all thought experiments for the future: a future, in which if we may remind readers, not one nation in history has collapsed due to hyper deflation ... As for the present, and going back to Gave's wonderful analysis of the can of worms Bernanke's tinkering has unleashed, here is the balance of Charles Gave's "More On the Deflationary Bust Risk" just released paper highlights: More On the Deflationary Bust Risk This is what I will, for the purposes of this paper, call my “Keynesian multiplier” - it is simply the arithmetical difference between growth in wealth and growth in public debt—on which I compute the seven-year rate of change. If the multiplier is expanding, this tells us that an increased level of debt should lead to a greater increase in the household net worth over seven years. And vice-versa. This allows us to roughly evaluate how many dollars of private wealth are created by one more dollar of public debt. Let us look now at the relationships between our Keynesian multiplier and certain economic variables. The chart below shows that the marginal efficiency of public debt, at least in the US (public spending in emerging markets from a low base usually improves productivity) has been declining structurally since 1981. And it seems that this marginal efficiency has now reached a negative level. One initial indication that the Keynesian multiplier was now shrinking was the US boom that followed the Clinton/Gingrich balanced budgets and era of government deleveraging between 1997 and 2000. A reality which brings us back to one of the greatest debates between Keynesians and Austrians as to whether Milton Friedman’s “permanent income hypothesis” makes sense, or not; i.e., are economic agents rational enough that when they see an increase in government debt, they will increase their savings, safe in the knowledge that they will have to pay for the debt increase down the road? Or whether economic agents are just too shortterm focused to project themselves that far? Modifying the above idea somewhat, we have, in the past, come up with a “Permanent Asset Hypothesis” which probably best applies in asset-rich, ageing countries. Basically, as interest rates move ever lower, retirees, pension funds and insurance companies needing to a certain fixed amount of return are forced to buy ever more fixed income. So low rates and rising public debt issuance, instead of encouraging more risk and renewing animal spirits, instead pushes investors feeling ever poorer into increasingly defensive, and yield generating, assets. In essence, the perception that assets will not generate enough income going forward encourages the average saver to increase his savings, which is the precise opposite of the stated goal . This law of unintended consequences may help explain why the private business sector’s demand for credit remains limp, even though money is being lent for free. Of course, credit demand may also be weak because there is no immediate reason to expect the rise we have seen in US (and global) financial assets should help boost median incomes. So far it has not: And in a world where it does not pay to borrow, one should expect a structural decline in the velocity of money to take place. Which is what the next chart is indicating: A decline in the velocity of money is equivalent to less money circulating in the system, and should lead to a structural decline in the inflation rate: With the Keynesian multiplier now negative, one would expect very low growth in volumes and nominal GDP. And this, of course, is what we are seeing. Despite the massive stimulus, and the improvement in the US trade balance (thanks to the energy revolution and the US manufacturing renaissance), the US economic expansion remains rather unimpressive. The recent moves in bond yields would seem to suggest that markets are expecting that the economic lift-off is finally about to arrive; either that or that Ben Bernanke will soon throw in the towel and start normalizing monetary policies. Given that the odds of the latter are lower than a snowball in hell (from afar, it usually feels as if the Fed chief has made his motto that of George Bidault’s: “I don’t know where we are going, but we will get there without detours”), it is more likely to be the former than the latter. The problem, for me, is that I struggle to believe that we are on the verge of a new global economic expansion. Instead, if structural growth is to now be dragged lower by the fact that the Keynesian multiplier has gone negative, and with governments continuing to spend like sailors on shore leave in Hong Kong despite the drag on productivity and structural growth, then we cannot really expect long rates to move decisively higher. * * * Summarizing the above: if Bernanke is honestly curious why the economy remains broken, and none of his "central" tinkering has done much to boost the Keynesian multiplier and with it any prospects for real economic growth, he suggest he take a long, hard look in the mirror. Average: 4.68182 Your rating: None Average: 4.7 ( 22 votes) Tweet - advertisements - Login or register to post comments 24915 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Tuesday Humor: Jersey Truck Driver Sneezes, Loses Control, Slams Into Home Dylan Grice On Ignoring The Economists' Perpetuation Of The Illusion Of Control, And Instead Focusing On What We Do Know 20 Facts About US Inequality That Everyone Should Know (With An Update On The Uber-Wealthy And Global Wealth Inequality) The Seeds For An Even Bigger Crisis Have Been Sown Guest Post: Are Central Bankers Losing Control?
Presenting The Findings Of The Working Group On Extreme American Inequality Submitted by Tyler Durden on 08/29/2010 17:26 -0400 Ben Bernanke Chesapeake Energy Federal Deposit Insurance Corporation Federal Reserve Great Depression Gross Domestic Product Jim O'Neill Meltdown Real estate Recession Savings Rate Securities and Exchange Commission America has long had a working group on financial markets (whose sole purpose some suggest is to keep stocks from plunging in times of turbulence ), so why not have a working group on that other much more critical phenomenon of US society: a trend of unprecedented unequal wealth distribution, which can be summarized as simply as pointing out that 1% of US society holds more wealth (or 33.8% of total), than 90% of the remaining portion of America (26.0%), and also is in possession of more than half of all stocks, bonds and mutual fund holdings in the US . Well, there is, even if is not formally recognized, and made up of the same distinguished professionals as the PPT (Geithner, Bernanke, Gensler and Schapiro). Hereby we present some of the key findings of the Working Group on Extreme Inequality . Percentage of U.S. total income in 1976 that went to the top 1% of American households: 8.9. Percentage in 2007: 23.5. Only other year since 1913 that the top 1 percent’s share was that high: 1928. Combined net worth of the Forbes 400 wealthiest Americans in 2007: $1.5 trillion. Combined net worth of the poorest 50% of American households: $1.6 trillion. U.S. minimum wage, per hour: $7.25. Hourly pay of Chesapeake Energy CEO Aubrey McClendon, for an 80-hour week: $27,034.74. Average hourly wage in 1972, adjusted for inflation: $20.06 In 2008: $18.52. A look at income data: Median household income in 2008 was $50,303, according to Census data. Half of American households had income greater than this figure, half had less. Between the end of World War II and the late 1970s, incomes in the United States were becoming more equal. In other words, incomes at the bottom were rising faster than those at the top. Since the late 1970s, this trend has reversed. For example, data from tax returns show that the top 1% of households received 8.9% of all pre-tax income in 1976. In 2007, the top 1% share had more than doubled to 23.5%. There is reason to suspect that this level of income inequality is dangerous to our economy. The only other year since 1913 that the wealthy claimed such a large share of national income was 1928, when the top 1% share was 23.9%. The following year, the stock market crashed, which led to the Great Depression. After peaking again in 2007, the U.S. stock market crashed in 2008, leading to what some are now calling the “Great Recession.” Between 1979 and 2008, the top 5% of American families saw their real incomes increase 73%, according to Census data. Over the same period, the lowest-income fifth saw a decrease in real income of 4.1%. In 1980, the average income of the top 5% of families was 10.9 times as large as the average income of the bottom 20 percent, according to Census data. In 2008, the ratio was 20.6 times. The current recession has hit incomes hard across the board. Median household income declined 3.6% in 2008, the largest single-year decline on record . Adjusting for inflation, incomes reached their lowest point since 1997. (Center on Budget and Policy Priorities analysis of Census data). Wealth Facts Wealth is equivalent to “net worth,” which is equal to your assets minus your liabilities. Examples of assets include checking and savings accounts, vehicles, a home that you own, mutual funds, stocks and bonds, real estate, and retirement accounts. Examples of liabilities include a car loan, credit card balance, student loan, personal loan, mortgage, and other bills you still need to pay. Median net worth in 2007, the latest year for which figures are available, was $120,300. Half of American households had net worth greater than this figure, half had less. Net worth is even more unequal than income in the United States. In 2007, the latest year for which figures are available from the Federal Reserve Board, the richest 1% of U.S. households owned 33.8% of the nation’s private wealth. That’s more than the combined wealth of the bottom 90 percent. The top 1% also own 50.9% of all stocks, bonds, and mutual fund assets. Retirement accounts like 401(k)s are more equally distributed. The top 1% owns only 14.5% of all retirement account assets, while the bottom 90% owns 40.5%. The total inflation-adjusted net worth of the Forbes 400 rose from $502 billion in 1995 to $1.6 trillion in 2007 before dropping back to $1.3 trillion in 2009. Net Worth is highly unequal when it comes to race. In 2004, the latest year for which Federal Reserve figures are available, the typical white household had a net worth about seven times as large as the typical African American or Hispanic household. Since the 1980s, Americans have spent more and more of their income on expenses, leaving less for savings. The U.S. Personal Savings Rate declined from 10.9 percent in 1982 to 1.4 percent in 2005 before rising to 2.7 percent by 2008. Facts on CEO Pay: From 2006 through 2008, the top five executives at the 20 banks that have accepted the most federal bailout dollars since the meltdown averaged $32 million each in personal compensation. One hundred average U.S. workers would have to work over 1,000 years to make as much as these 100 executives made in three years. (Institute for Policy Studies, Executive Excess 2009) Since January 1, 2008, the top 20 financial industry recipients of bailout aid have together laid off more than 160,000 employees. In 2008, the 20 CEOs at these firms each averaged $13.8 million, for a collective total of over a quarter-billion dollars in compensation. (Institute for Policy Studies, Executive Excess 2009) These Top 20 Financial Bailout CEOs averaged 85 times more pay than the regulators who direct the Securities and Exchange Commission and the Federal Deposit Insurance Corporation. These two agencies, many analysts agree, have largely lacked the experienced and committed staff they need to protect average Americans from financial industry recklessness. (Institute for Policy Studies, Executive Excess 2009) And lastly, wage facts : Between 1972 and 1993, the average hourly wage dropped from $20.06 to $16.82 in 2008 dollars. Since 1993, the average hourly wage has regained only a part of the ground lost, rising to $18.52. Adjusted for inflation, the average wage in 2008 was still lower than it was in 1979. So now that we know that the US middle class is making less than it did in 1970 in real terms, that the uber-rich control the majority of America's wealth, and control more net income that 90% of society, the rich are getting richer, the poor are getting poorer (and in general all of society is starting to read like a skewed non-Gaussian distribution curve comparable to something one would find in a Taleb novel), it is more than clear that the US middle class is now on the endangered species list. And while the slow by sure decline of that social buffer that has kept the civil peace within American society for so many years is a fact, it is no surprise that pundits like Jim O'Neill is suggesting to forget the historical driver of 70% of US GDP (and 30% of the world's), and focus on those up and coming societies whose middle class still has at least a fighting chance. Full working group presentation
Guest Post: Why The Government Is Desperately Trying To Inflate A New Housing Bubble Submitted by Tyler Durden on 03/25/2013 14:30 -0400 Bond Case-Shiller ETC Fail Fannie Mae Federal Reserve Freddie Mac Germany Gross Domestic Product Guest Post Home Equity Housing Bubble Housing Prices Insurance Companies Reality Sovereign Debt Student Loans Subprime Mortgages Too Big To Fail Submitted by Charles Hugh-Smith of OfTwoMinds blog , The Federal government and Federal Reserve are trying to inflate another housing bubble to save the "too big to fail" banks from a richly deserved day of reckoning. If we want to understand why the U.S. government is doing its best to inflate another housing bubble, we must start with the Devil's Pact partnership of the government and the "too big to fail" banks. Simply put, the TBTF banks would not exist without the Federal Reserve and Federal government bailouts, subsidies and protection from transparent marked-to-market pricing of the banks' collateral and risk. The basis if this partnership is simple: the banks' enormous profits and financial power have enabled them to capture the regulatory machinery of the government (the Central State) and the political machinery controlled by its elected officials. To understand the true meaning of the housing bubble, we need to understand how banks reap outsized profits. In classic capitalism, banks earn profits by maximizing the allocation of capital. In practical terms, this means lending money to low-risk, high-growth, high profit-margin enterprises, and avoiding lending to high-risk, low-margin enterprises. In the industrial era, banks reaped profits by funding large, centralized industrial corporations. In the post-industrial economy, banks began skimming huge profits from credit cards and other consumer loans. Mortgages remained a low-risk, low-yield business that operated more like a utility than an investment bank. When domestic opportunities for profit shriveled in the stagflationary 1970s, U.S. banks went international , loaning billions of dollars to South American nations at high rates of interest. The money-center banks assumed that sovereign debt (i.e. loans to governments) were low-risk. These loans generated enormous profits for the banks, until the unthinkable happened: the debtor-nations defaulted on their sovereign debt. The Federal government and the Federal Reserve had to step in and save the banks from the consequences of their faulty risk assessment and rapacious pursuit of high-risk, high-yield profits. By the 1990s, the new knowledge economy corporations had little need for bank credit. Technology companies generated so much cash, they either didn't need bank loans or if they chose to borrow money, they did so via the corporate bond market. Having already tapped almost every qualified borrower with a mortgage, auto loan or credit card, the big U.S. banks had once again run out of highly profitable markets to exploit. The government and Fed-created housing bubble handed the big banks a new market to exploit: high-yield mortgages to marginally qualified buyers guaranteed by Federal agencies (Fannie Mae, Freddie Mac, FHA, VA, etc.), i.e. subprime mortgages. Federal agencies loosened lending standards so those who by prudent risk-management would not qualify for mortgages were now able to borrow vast sums with little or no money down, and the Fed pushed interest and mortgage rates down to lows not seen in generations in the wake of the dot-com bust of 2000. For PR purposes, this vast expansion of bank lending was sold as a high-minded extension of the "ownership society" (i.e. homeownership) to those households who had previously been denied the opportunity to become debt-serfs due to unfairly tight lending standards. In reality, the entire "ownership society" campaign masked the true intent, which was to open new and unexploited territory for the big U.S. banks to plunder. Even better (from the bankers' point of view), loosened regulations and oversight enabled banks to carve up mortgages into tranches that were then bundled into mortgage-backed securities (MBS) that could be peddled worldwide as "safe" investments for pension funds, townships, insurance companies, etc. The housing bubble enabled big banks to skim tens of billions of dollars in profits from originating mortgages to marginal buyers and securitizing mortgages into MBS. This is the heart of what I call the Neocolonial Model of Financialization : rather than make risky sovereign-debt loans to international borrowers, the big U.S. banks came home and exploited the low-risk domestic housing/mortgage market. When the bubble burst, as all speculative bubbles eventually do, the banks were rendered insolvent: their collateral (the mortgaged housing) had lost much of its value, and mortgages that had been sold as essentially risk-free were revealed as defaults waiting to happen. The Fed and Federal government immediately stepped in to save their treasured partner, the parasitic banking sector, from righteously earned destruction. The bailouts, guarantees and backstops totaled about $23 trillion, roughly 150% of the entire American Gross Domestic Product (GDP), and roughly twice the 2008 value of all U.S. residential mortgages (almost $12 trillion). The housing index has yet to decline to an inflation-adjusted pre-bubble level: valuations are still higher than they were before the bubble. To enable the TBTF banks to once again skim billions in profits, the Federal government and Federal Reserve immediately began trying to reflate the housing bubble. Tax credits were lavished to new home buyers, mortgaged rates were driven even lower, and the Fed began buying $1+ trillion of private mortgages. The first tax-credit frenzy faded once the credits expired, but the Fed's zero-interest-rate policy (ZIRP) gave investors no choice but to put their money in risky assets: stocks, high-risk corporate bonds or residential housing. As we can see in this year-over-year percentage chart of the Case-Shiller Index, these policies have sparked another spike up in housing prices (restricting inventory played a key role in this, of course). As a result, the housing bubble is alive and well in markets such as Los Angeles: If you have any doubts that the banking sector dearly loved the housing bubble, take a look at this chart and note that mortgage debt more than tripled during the bubble . For context on the enormity of that $8.2 trillion expansion of mortgage debt: that $8.2 trillion is three times the 2005 GDP of Europe's largest economy, Germany. (The GDP of Germany in 2005 was $2.7 trillion.) Thanks to writeoffs and writedowns, mortgage debt has declined in recent years, but we need to remember that if pre-bubble growth trends in population and housing valuations had remained in place, total mortgage debt in the U.S. would be around $5 trillion, not $10 trillion. The $1 trillion writedown in mortgage debt is just the start; we only need to write down another $5 trillion to get back to a non-bubble level of debt. Meanwhile, total consumer debt has barely budged. In other words, that $1 trillion reduction in mortgage debt has been offset with rising student loans, auto loans and other consumer debt. The total debt load on U.S. households remains at bubble levels, more than twice the debt owed in 2000. Population growth since 2000 accounts for 9.7% of this additional debt, meaning that if debt had risen at pre-bubble rates, total debt would be around $6.5 trillion rather than $13 trillion. Recall that adjusted income for most households has declined sharply since 2000. So the Fed's zero-interest rate policy is simply a holding action that enables over-indebted households to keep making their debt payments to the banks. Many people claim the Federal government and Federal Reserve are trying to inflate a new housing bubble to trigger a new "wealth effect," i.e. people seeing their home equity rising once again will feel encouraged to borrow and blow money like they did in 2001-2008. But if we look at current income (down) and debt levels (still high), there is little hope for a renewed wealth effect from housing. That leaves us with this conclusion: The Federal government and Federal Reserve are trying to inflate another housing bubble to save the "too big to fail" banks from a richly deserved day of reckoning. To read more on this subject: The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012) Average: 4.694445 Your rating: None Average: 4.7 ( 36 votes) Tweet Login or register to post comments 16514 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Guest Post: It's Always The Best Time To Buy Guest Post: All Is Well Guest Post: Apparitions In The Fog Guest Post: Extend And Pretend Is Wall Street's Friend Excelsia's Cliff Draughn Goes In Search Of Your Sleeping Point
The NINJAs Are Back: Buy Life Insurance, Get A No Doc Mortgage Loan For Free Submitted by Tyler Durden on 03/05/2013 21:46 -0500 Asset-Backed Securities Foreclosures First we got GM subprime interest-free car loans , then we got subprime ABS securitizations , then we got soaring student loan defaults and delinquencies , then we got the opportunity to sell and short student loan exposure , and now, finally, the credit bubble is complete as FastFunds Financial Corporation is proud to announce that it has acquired exclusive mortgage servicing rights for an "Innovative New Mortgage Product." Why is it so innovative ? Because it requires no credit verification, no credit history, no docs and needs no personal guarantees. In other words, it is the very worst of the worst lending practices we saw in 2006: the NINJA . But there is a twist: " all that is required to qualify for a mortgage loan is qualifying for a life insurance policy, a down payment that usually amounts to 10% of the purchase price and verification that the borrower has the financial ability to pay the monthly payments. " In other words: buy life insurance, get a subprime, no doc mortgage for free. Ye olde days are truly back. From the FastFund credit bubble peak press release : NET LIFE is a development stage enterprise that has developed and is offering an innovative new mortgage product that is not based on credit history (no doc) or personal guarantees. It is only secured by the underlying collateral and a life insurance policy on the borrower. Therefore, all that is required to qualify for a mortgage loan is qualifying for a life insurance policy, a down payment that usually amounts to 10% of the purchase price and verification that the borrower has the financial ability to pay the monthly payments. NET LIFE believes this mortgage product will be attractive to a wide spectrum of potential borrowers including: first time homebuyers; borrowers who have experienced prior financial difficulties such as foreclosures, bankruptcies, late payments or credit problems; are presently employed and whose current income would qualify for a mortgage loan; but who couldn't otherwise qualify; and borrowers who may wish to bypass the traditional paperwork involved in the typical underwriting process but who would otherwise qualify. Since its formation in 2012, NET LIFE has completed development of its mortgage product and conducted testing via a limited number of successful closings. NET LIFE is now developing plans for a national launch of its product line. "We are excited to be on the forefront of launching this exciting new product and especially being on the servicing side where we can gain substantial benefit without the risk associated with traditional mortgage underwriting," stated Barry Hollander, acting Chief Executive Officer of FastFunds. * * * We, on the other hand, are just as excited to sit back and watch how this time the most speculatcular credit bubble ever created with the full complicity of every central banker in the world "will be different" and have a different outcome than the last time... Average: 5 Your rating: None Average: 5 ( 2 votes)
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