Economic Charts

All economic charts are at the bottom of the page.

Saturday, August 14, 2010

Devaluation of the Dollar

While discussing the value of dollar with various people, I realized that a lot of people don't understand how much our dollar has devaluated over time. I think this is due to the dollar being the reserve currency and when I have $100 and put it in a drawer, it is still $100 dollars a decade later.  This makes it hard to envision how the dollar has devaluated.  I decided to use the CPI calculator provided courtesy of the great people at that allowed me to create screenshots of a few scenarios. First we look at how the dollar devaluated from the year 2000 compared to 2010.  The green rectangle represents results from ShadowStats analysis.
What you see is that in the year 2000, what you could purchase for $79.26 now costs you $100 in 2010.  This is a depreciation of 20.74%.  Formula to obtain: (1-(79.26/100))*100  .  Next we look at how much the dollar has depreciated from 1970 till 2010.
From this calculation you see that there was a 82.11% depreciation in the dollar.  That is pretty significant depreciation in the dollar vs assets.  Now to put this into perspective for you, lets look at the depreciation of the dollar since 1920 till 2010.
From 1920 to 2010 we have a total depreciation of 90.46%.  Finally we look at the debt chart from 1920 to 2010.  We noticed depreciation increased in the last 40 years, so did debt.  Now things are not this cut and dry, but in the spirit of keeping things simple I came up with this scenario to show the amount our currency has depreciated and its correlation to U.S. National debt.

Friday, August 13, 2010

Pumping Sunshine in the Housing Market

A video clip from a CNBC interview posted to youtube on August 12th, 2010 argues against a double dip recession in the housing market.  The arguments against a double dip, used in this video, seem like they are looking at the housing market through blinders.

Here are my problems with the arguments made.  In an earlier post today the U.S. showed an increase in the foreclosure rate over 2009 and accelerating from June to July of this year.  Short Sales continue to be a negative force.  We are lining up for another round of foreclosures over the coming year.  The rate of unemployment is still high, food stamps and bankruptcies continue to rise.  Housing market inventories rose in June.  Not too mention what the impact of new taxes in 2011 and the very real possibility of the rolling back of taxes will have on persons living month-to-month.  All of these events act as a negative force against the housing market.  I agree with Sherry Olefson that the government support has been giving a possible appearance of an increase in house prices.  Barry Ritholz says that the Case-Shiller Index shows house prices up (indeed in most areas they are slightly up), but prior to that stated that he said "Case-Shiller was the worst in showing the biggest decline in house prices".  So why would we take that data seriously now?  Another point that should be made is that S&P was so off on their credit ratings prior (refer to the big financial crisis we are trying to get through), to the point where the international communities do not want to rely on them (apparently neither does the US) so why would this data be validated.  Barry's point about apartment rentals going higher (yes, this is true, the rental market is going up and that market is getting tighter) is not an argument for higher house prices as renters are becoming renters due to losing their homes.

For a housing improvement to occur we need; natural demand for housing rising, jobs rising, housing inventories decreasing and less foreclosures/short sales.  These are signs of a healthy or recovering housing market.

Geography of unemployment

With the unemployment situation worsening and hitting the youth of our nation at staggering rates, I found this video to sum up the situation pretty telling.

Foreclosures gaining momentum

An article titled "Homes lost to foreclosure up 6% from last year" in USA Today Finance reported banks took back 92,858 properties last month, a 9% increase from June and a 6% increase from July of 2009.  July marks the 8th month of increasing foreclosures, a trend that is not a good sign for the economy or the banks that hold the paper.  Below is a chart that shows where in the US foreclosures are at their highest.

Thursday, August 12, 2010

CNBC Cramer Recommends Gold

Wednesday night CNBC's Jim Cramer recommended people buy gold Thursday 8/12/2010, stating that gold would pull back on Thursday and open up an opportunity to buy.  Well this didn't actually happen. Gold went sideways in the morning and then started up at 6am till about 8:30, where it leveled off.   Volume was unimpressive on the rise.

I think it is great that Jim Cramer and CNBC's Fastmoney has recommended that people own a little gold bullion in their portfolio, unfortunately his call was off or maybe his call in gold started a buying spree.

He also recommended buying the gold miners and the GLD ETF.  I would say GLD is good for a short term trade, but I don't treat it as a long term bullion holding, as the amount of gold that paper gold owns has been called into question recently and carries counter-party risk.   GLD says it is backed by gold, but does not promise redemption in gold.   So if you think that your GLD stock will be redeemed in gold if the dollar devalues considerably, you'd be wrong.

Jim suggests that gold could go as high as 1300 by September based on historical trends from August into September, demand for gold from China and India and the scarcity of gold in the world.  There are more motivators for gold than those 3 stated reasons and frankly 2 of the 3 have been on the table for quite some time.  China has been acquiring gold for a some time now, but doing it slowly as to not affect the price.  Not helping gold is the unmonitored manipulation in the metals market which has suppressed both gold and silver. General consensus is that gold will do well long-term, but we may be in for a bumpy ride during summer months.  As you can see from the chart above, getting into gold after the media suggests it may not have been the best opportunity (as prices increased). there was no apparent pull back.  It will be interesting to see how this plays out over the next couple of days.

I have read over and over, that the general public seems to be afraid of buying physical gold and silver for some reason (this is a problem the wealthy does not have, the own it and have been increasing their holdings).  Why does the general public not hold a percentage in their portfolio?  From what I can gather, it seems to be confusion on where to buy it (Goldline scandal has not helped), lack of knowledge about metals value (its store of value), tax treatment and fear that it is too expensive for them.  As of this writing, spot price on gold sits at 1215.70 per ounce.  You can purchase it in smaller denominations like 1gram for 51.01, 2.5 gram for 110.56, 5 gram for 213.01.  Coins have a similar pricing based on weight.  Accumulating a little at a time can help diversify your portfolio.  If gold is still out of price range Silver can also add value to the metals portion of your portfolio, but starts at 1 ounce and higher.  Currently a one ounce bar is $20.14, not terribly expensive (that is spot of 18.09 plus a small commission that any dealer will charge).  What is the tax treatment for gold, well as of this writing it is treated as a collectible and is taxed at a 28% rate on the capital gain.  Having said that, because GLD is structured as a grantor trust, not a mutual fund (meaning the grantor is ignored for tax purposes, so the investor is treated as owning the pro-rata share of the underlying holds), GLD is considered a collectible and taxed at a 28% rate as well.

The next question I always hear is bars vs coins?  That one is a little tougher and really depends on you plus your reason for purchasing metals.  If you believe the dollar will continue to devaluate and want to protect yourself against inflation then straight bullion is the way (you pay spot plus a small commission charge as stated prior).  If you feel you want collector gold coins because you want to be a collector, then you can pay the extra fee to get those as well (this can be a considerable fee).  Just keep in mind, just because they are collectors coins doesn't mean that if the government decides to confiscate them, they cannot (because they can if it comes down to that situation).  As usual, consult a financial advisor of your choosing to assess the proper allocation for your portfolio.  Here are a few examples of what gold coins look like:

These are the American Golden Eagle, the South African Krugerrand and the Canadian Maple Leaf.  Examples of the bars are as follows:

I prefer my bars to be sealed in these packages, as they have serial numbers on the back and are easier to track if you purchase them for a metals IRA.  Yes, you can get an IRA that stores physical bullion bars and coins in a vault.  If there is interest this topic can be discussed more. 

Initial Unemployment Claims Up

The BLS released last weeks initial unemployment claims and were up 484k from the prior weeks 482K and forecasts called for a number at 465k.  This is a reflection the weaker economy and decreasing market fundamentals.

My Case for Irresponsible Spending

To cover a prior point on the Paul Krugman article in a previous post.  I came across this article that demonstrates some of the irresponsible spending the government has done.  The article was written by Marcy Gordon in the Huffington Post and covers Elizabeth Warren's findings of where government bailout funds ended up.  Turns out that Billions of dollars of these funds went to foreign banks, which helped out the foreign banks more than their own countries stimulus.  Those said countries took a more narrow focus ensuring their bailout funds stayed in their borders.  She also comments on the fact that there was no data on where the dollars were going?  That seems irresponsible to me and once again lands on the American taxpayers plate, like it or not.  [ read more... ]

Thousands Crowd Housing Authority for Section 8 Waiting List

The Huffington post reported that thousands of people turned out for the East Point housing authorities section 8 housing vouchers, in East Point GA.  The line formed 2 days prior and grew so large that police had to show up in riot gear.  Housing officials delayed opening the doors at the posted time due to feeling completely overwhelmed by the turnout.  People showed up from Tennesse and other areas surrounding Georgia.  People suffered from the heat and tempers were flaring.  When the doors opened, people rushed up to the doors to get their application.  The police had to maintain order at the event to ensure things didn't get out of hand.  It really shows you how bad things are around the country.  [ read more ... ]

Wednesday, August 11, 2010

America Goes Dark

An article by Paul Krugman released by the NY times describes how cities across America are cutting off the street lights, as well as the cutting of our nations education systems by laying off teachers (which is going to get funded to keep teachers employed by the federal government) in an effort to bring their budgets in-line.  I agree with Mr. Krugman that this is a shame.   The article also illudes to how our quality of life is steadily going down and will continue to do so.  The article can be read here.  I differ with Mr. Krugman on a few items though,  in one exert he says "And the federal government, which can sell inflation-protected long-term bonds at an interest rate of only 1.04 percent, isn’t cash-strapped at all.".  To sell these long-term bonds to raise the money, you have to have buyers other than the Fed.  Foreign debt holders are looking for short-term debt holdings so they are not stuck later on.  Back in 2009, China and Japan were almost exclusively buying short-term debt (see ref).  If the Fed is the buyer of the bonds, because nobody else will, the fed has to print the money out of thin air to essentially monetize the government debt ( and the Fed has definitely increased its buying of long-term bonds).
The risks to this strategy are when the Fed takes this onto its balance sheet we are trading government IOU's for Fed IOU's which could become destabilizing to the dollar and U.S. Inflation (per Scott Anderson Sr. Economist at Wells Fargo).   We also expand our debt (which happens when the Treasury issues the bonds), sure it is at a low interest rate, but it is money we didn't owe before, adding to the bill that will eventually come due.  Another quote "How did we get to this point? It’s the logical consequence of three decades of antigovernment rhetoric, rhetoric that has convinced many voters that a dollar collected in taxes is always a dollar wasted, that the public sector can’t do anything right.".  Well the government has a great track record of doing so.  The amount of expansion in government over the past few decades has caused a more costly government.  Especially now, more financial agencies are being created to watch the watchers who missed it the first time (I remember a whole slew of agencies being rattled off in 2008 and 2009 who were asleep at the wheel).   We don't need more watchers, we need enforcement of laws that are being side stepped.  Out of the whole 2007-to present debacle who has been arrested from the financial institutions that caused this (nobody really).  We need real leadership to get us out of this mess.  Yes, it is going to take pain (more taxes) that we shouldn't have had to pay while big financial institutions that caused the mess, by taking unnecessary risks,  give record bonuses.  It is a sad sight that the public is the one held account for these actions.

Investors sell off prior to Trade Balance announcement

There was a sell off after hours yesterday as you can see from the chart below.  The sell off was gradual  up until 9:30, then you see a deeper sell off.

You can see in this chart the volume and depth of the sell off at 9:30.   It started in full force at market open.  This tells me that others can see the impact to the economy from the worse than expected trade balance numbers and the slow down in China imports.

Should be interesting how the market handles this news in the coming days, as previous bad news was blown off almost the same day with midday or end of day reversals (like on July 29th with the initial claims)

Trade Balance figures released

The Trade Balance is the difference between imported and exported goods and services during the reported month.  Export demand impacts production and prices at US manufacturers and can be used as an indicator of health of the economy.  Decreasing exports indicate demand for our products/services is slowing.  Figures are released by the BEA or Bureau of Economic Analysis.  In June exports were at $150.5 billion and imports were at $200.3 billion, leaving a trade imbalance of -49.9 billion.  This exceeded expectations as forecasts sat at -42.0 billion.

Economic Growth Slowdown

We hear that businesses aren't investing in new jobs currently due to fears on the economy and a slowdown that is being felt in the U.S. as well as the UK and more.  So what are businesses investing in? [ see video... ]

A view of the fed's balance sheet

The feds balance sheet has changed considerably since 2008.  We hear about the fed adding to its balance sheet all the time, but until you actually look at it, it is hard to envision how many changes have been made and the new power the fed has added to itself.  In an article by Catherine Rampell, she makes the point that the heavy navy blue area and the purple area above it (which looks like the magma layer under the earths crust) is Mortgage backed securities and agency debt.   This chart depicts the amount of changes the fed has undertaken since 2008.  [ read more... ]

Also Take note in the chart below the amount of lending to financial institutions and Fed Agency Debt Mortgage-backed Securities. Significant changes since 2007 and before.

Tuesday, August 10, 2010

Reasons for a double dip recession in 2011

Many economists are starting to come around to the idea of a double dip recession.  Aside from the ECRI dropping to a -9.8 (a drop below -10.0 indicates a recession is coming) and M3 money supply indicating a contraction in credit, here are some other reasons we may see a double-dip recession in 2011.

1. Rollback of tax cuts across the board and the new taxes/fees imposed by the healthcare bill.
2. Import demand from China weakening and Chinese exports surging (i.e. Trade deficit widening).
3. Increased State and Nationalized bank bailouts (ex. Fannie Mae, Freddie Mac, Teachers & medicare increasing our debt).
4. Continued irresponsible lending policies ($1000.00 down for a mortgage by Fannie Mae and States)
5. Upper class or Americas wealthy spending less and saving more.
6. Reigning in on hiring due to double-dip fears (data suggests confidence is down)
7. Increased job losses and temporary jobs attempting to fill the gap (less money to spend in an economy that is addicted to spending)
8. Stimulus money drying up effecting the auto industry.
9. Inflation in key areas like energy & food (ex. wheat price surge) and deflation in asset prices (ex. housing and wages)
10. Interest rates tumbling indicating a weak economy.

This is not an all encompassing list, as there are many more reasons being stated.  What I see missing in other lists are the basic fundamentals listed here that will put the squeeze on the consumer and small business as well.

Safe Haven in Bonds?

With all the talk of the stock market being rigged (which I agree) investors are fleeing to bonds in an effort to obtain safe yields.  Problem is in this crazy market, the bond market can turn on a dime as well.  Regulation enforcement, re-instilling the uptick rule and stopping market makers from seeing stops (as well as other issues) are the only way we are going to get a semi-level playing field.

House prices, double-dip recession and jobs

A popular theme now seems to be that we are not emerging from the recession, that the market is disconnected from the fundamentals.  In prior blog posts I talk about why the housing market will continue to decline (stimulus not working, priming the pump is out of steam) and how jobs are actually falling off worse than what is being reported.  The market fundamentals are going sideways at best.  I was reading another article today about how small business optimism has declined ( article here ).  An earlier post today goes over the decline in imports from China, which will weigh heavy on business.  This does not bode well for business going forward.  Fannie Mae and Freddie Mac need another bailout to fund their losses in backstopping mortgages and putting out more programs to get more people into houses with near zero down.  This is all not healthy economic activity.

It seems we are bent on continuing to bail out states, nationalized banks and banks as well.  We may not be bailing out the banks with money currently, but we are backstopping there loans so they go risk free with there lending and can lend to as many mortgagors as needed as the risk is not carried on their balance sheets, its on yours (the tax payer).  We need to get back to honest and sound financial practices, with real government enforcement of regulations (as the bills being passed really miss the mark) and if we are going to spend money on bailing the economy out, why don't we do it productively.  Lets get America back to manufacturing, farming or just over all producing again.  Lets infuse money into our energy grids, improving transportation, re-educating the US workforce.  This is a productive use of money, by improving our infrastructure and creating jobs to do it, we create real jobs.  When people feel confident in their jobs, they will spend again, bringing demand.  This time around though I suggest we save as much if not more than we spend and only spend when you don't have to go into debt to do it.

China July Trade Surplus Widens On Import Slowdown

An article by the WSJ came out today about the slowdown in Chinese imports.  WSJ illudes to the fact that Chinese demand for materials from massive building is slowing, hence causing the Chinese economy to slow.  What does that mean for the U.S. recovery?  [ read more... ]

Bailouts are Back

Fannie Mae and Freddie Mac announced losses this quarter and are looking for a bailout from the Government.  Going back to an article I posted Thursday Aug 5th called "Morgage Mess, Haven't We Learned Anything Yet?" Fannie Mae and the States announced $1000.00 down for housing.  I point out that this will cause more irresponsible lending to occur and more defaults, which the States cannot afford.    Fannie Mae announced losses in the recent quarter and needs a Government bailout, but promise this will be the last (we've heard that one before).  The tax payers bill just went up.  When will this irresponsible policy end and responsible lending enter the picture?

Monday, August 9, 2010

Pension Funds feeling the Pain

Here is a video by the NY Times explaining the 1 Trillion dollar gap in Pension funds.    Some funds are less than 10 years away from running out of money.   The gap can be made up by tax payers or they can ask pension recipients to take a cut in pension pay.  [ see video... ]

Investor Appetite for Bonds in a Tepid Recovery Weighs on Rates

With fear of a double-dip recession looming investors are flocking to bonds thereby driving rates down.  This is great for borrowers, but horrible for savers.  The driving down of interest rates effects your savings accounts, CD's and Money Market rates.  Economists believe rates will continue to go down, punishing savers and rewarding borrowers.  It seems we are in a free fall that feeds on itself.  [ read more... ]

Fannie Mae: Home Prices To Decline Into Next Year

This article is inline with what I have been suspecting based on news and data on the economy.   Housing prices will continue to decline.  The article doesn't go into much detail as to why, but the next round of mortgage resets are on their way.  We continue to finance people with next to zero down through government programs that are not working.  With so little down and the amount of jobs being lost mortgagor's find it very easy to walk away from the deal.  With Fannie Mae backstopping the banks to make endless mortgages again, I think we will see this story for a while further.  [ read more... ]

6 Charts That Suggest The Unemployment Crisis Is WORSE Than It Looks

A deeper dive from last weeks unemployment numbers suggesting unemployment is worse than we expected and may be hard to turn around.  This links into a trend I saw last week where the number of employed actually contracted, so the question remained "where did they go?".  [ read more... ]