Is The Housing Market Turning the Corner?

Existing home sales increased in April from the low sales in March and were down 7% year over year. Is that enough to declare a housing turnaround? No.

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Podcast Summary:

0:00-7:25 Introduction

Initial Jobless Claims

7:25-13:22 Discussion of how the initial jobless claims number is not an predictor of job growth even when the number of claims declines. Review of how the media and Fed insist that the job market is improving. When the initial jobless claim number is lower they trumpet greater job gains when its higher, they dismiss it:

AP on Higher Initial Jobless Claims:

Rueters on Higher Initial Jobless Claims:

Smaulgld on Initial Jobless Claims:

Existing Home Sales up 1% from March But Down 7% YOY & the Law of Small Numbers

Is there a Housing Turnaround?

Discussion of the “rise” in existing home sales in April and discussion of the law of small numbers. Home sales rose in April from March’s low levels but were down 7% from April 2013. Yet the media touted the “increase” in home sales a sign of further “recovery” in housing:

Reuters headlines:

Housing Sector Turning The Corner; Jobs Market Firming
Existing Home Sales Rebound, Inventory Increases

USA Today headline:

Spring Arrives in Housing Market As Sales Rise

Wall Street Journal‎ headline:

Existing Home Sales Rise for First Time This Year

Los Angeles Times‎ headline:

Existing Home Sales Rise in April For First Time This Year

Philadelphia Federal Reserve President, Charles Plosser on real estate:

Housing fundamentals are sound!

Federal Reserve President Charles Plosser noted the impact this winter has had on the economy: the “stiff winter weather with snowstorms and frigid temps affected every aspect of the economy” but the economy is on “firmer footing” providing “cause for optimism.” Plosser believes “the fundamentals of the housing market remain sound, including stronger household formation, solid job growth, and consumers with stronger balance sheets.”

“Just because housing starts are slower or sales are slower, that doesn’t mean the housing market is weak, because that’s not consistent with a continued increase in prices,” Plosser said. “I’m not panicky about the housing market.”

But housing market is telling us otherwise:

BlackRock CEO Laurence Fink said recently that the housing market is “ structurally more unsound ” than prior to the financial crisis due to its reliance on Fannie Mae and Freddie Mac.

In contrast New York Fed Bank President Charles Dudley recently noted :”there’s a deep and protracted housing downturn”, while Fed Chair, Janet Yellen has also expressed some concern over the recent slowdown in the housing market.

13:22 – 16:30 discussion of the Federal reserve meetings and reflections on Janet Yellen’s stewardship and the impact of quantitative easing (QE).

16:30 -19:00 Discussion of the national debt and Dr. Ben Carson. Discussion of the U.S. debt used to be headlines but it has become less of a covered issue since the debt ceiling has been raised, even though the deficit and unfunded liabilities have increased. Discussion of how foreigners purchasing U.S. treasuries funded a good portion of the U.S. deficit and how in recent years the Fed through QE has funded much of it.

Where is Belgium Getting the Money to Buy Enormous Amounts of U.S. Treasuries?

19:00-21:30 discussion of the staggering amounts of U.S. Treasuries that Belgium is buying relative to their GDP. In order for the deficit to be cut, spending needs to be cut as there is no market appetite for further issuances of US treasuries. How are interest rates dropping while the Fed is tapering? Why does Belgium need to have such a large increase in its U.S. Treasury holdings?

21:30-26-45 discussion of proposed Freddie Mac and Fannie Mae lower lending standards to get more people to buy homes since lower interest rates did not do the trick. Belgium is buying massive amounts of treasuries and the media is silent. Is the European Central Bank buying the treasuries? Belgium can’t afford to buy $100+ billion worth of treasuries in a few months. Is the Fed providing the funds? The U.S. government would want to know why a foreign entity has bought such a large amount of treasuries.

26:45-28:05 discussion of a home price expectation survey

Do We Have Enough Inflation Yet?

28:05 -30:50 discussion of the recent Consumer Price Index and Producer Price Index numbers. Both were higher than expectations: .3% and .6%, respectively and effectively above the Fed’s annual target inflation rate of 2%. (at which point the Fed is supposed to raise rates, just like they are supposed to raise rates when the unemployment rate hits 6.5%). The Fed wants people to think inflation is a good thing. Inflation, however, does not help consumers or create jobs.

Minimum Wage

30:50-38:40 discussion of the efficacy of a $15 an hour minimum wage. Why not $100 an hour? Inflation at 2% is also supposed to be optimal. Why not 5% or 10%? Discussion of what employers say they will do if the minimum wage is raised vs. what economists say they will do. Governments listen to the economists rather than employers but restrain employers from doing what they say they might do! Discussion of impact on the increase in Obama care premiums on the housing market and the economy. Discussion of rising food, energy, insurance, housing and higher education costs. Discussion of Justice Robert’s decision re the constitutionality of Obamacare. Discussion of increasing government benefits vs. increasing the minimum wage.

Change in the System?

38:40-48:05 Discussion why the system won’t change. People don’t want to change the system, they want what they want out of the system. The last time the economy was systematically changed was in the early years of the Reagan administration with the raising of interest rates and tax cuts. Comparison of Obama and Jimmy Carter. Carter did not have rising and stock prices. Discussion of whether an overhaul of the U.S. economy is possible today. The economy has been patch over rather than been restructured. Discussion of the economic tones that President set. Obama has said in the interest of “fairness” that he would rather raise taxes even if such a move is tax neutral or negative to government tax receipts. The primary purpose of politicians is to get reelected and enjoy personal aggrandizement rather than to serve.

Political Labels

48:05 -56:50 Discussion of labelling people and politicians on the basis of their political views as “extremists” “liberal” “racist” “communist” “tea bagger” and the difficulty of politicians or movements (eg. occupy wall street, tea party, UKIP) to rise above those labels and the vested interest in the existing power structure to silence alternative views. People are more worried about being called repugnant names than defending their own self interests. Discussion of Hilary Clinton’s presidential prospects. Discussion of Watergate vs. Bengazi and the media’s role in characterizing a scandal.

Advice to Listeners

56:50 pay attention to what the Fed is doing. Action brings good fortune – Pink Floyd.

Do We Have Enough Inflation Yet?

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Further Reading:

Reuters Reports on Belgium Buying of U.S. Treasuries

Millennials Not Part of the Club Yet

Initial Jobless Claims

Obama, Fannie Mae and Freddie Mac Hit the Panic Button on Housing

The Dark Side of Artificially Low Interest Rates

Is a Euro Dollar on The Way?

Royal Canadian Mint

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