In just the last couple of weeks interest rates on US Treasuries (I watch the 2 yr. treeas, but since the yield curve is almost flat this applies to all treasuries) have risen from about 4.6 to 4.95, and they do not appear to have peaked. I have a fair amount of CDs maturing in June. I decided to continue to wait for a peak before reinvesting in CDs or treasuries.
The sudden move appears to be related to the sale of bonds by one or more large hedge funds - just guessing.
Saturday, June 2, 2007
Saturday, May 5, 2007
Pressure building
The US economy is totally dependent on transportation. Americans need it, inter alia, to get to and from work, to go to malls, to bus or drive children to and from school, to bring food into the house, pleasure driving, boating. As the price of gasoline rises Americans will conserve their money by reducing or eliminating some gas consuming activities as well as some activities that are optional to their way of life. I have already observed some less traffic at local malls and restaurants.
But at $3.00/gal for gasoline the impact on economic activity still seems moderate although it is possible that the impact could worsen if the price remains high or increases substantially. The $.75 increase over the past few weeks was dramatic and is causing economic pain. Another $.75 increase during the course of the summer driving season could have a very serious negative impact on an American economy which is 70%-80% dependent on consumer spending.
This week Joe and I are preparing our boat for the sailing season. Soon I will have a chance observe if there is an imact on the marina and the local businesses that are dependent on water activities.
But at $3.00/gal for gasoline the impact on economic activity still seems moderate although it is possible that the impact could worsen if the price remains high or increases substantially. The $.75 increase over the past few weeks was dramatic and is causing economic pain. Another $.75 increase during the course of the summer driving season could have a very serious negative impact on an American economy which is 70%-80% dependent on consumer spending.
This week Joe and I are preparing our boat for the sailing season. Soon I will have a chance observe if there is an imact on the marina and the local businesses that are dependent on water activities.
Sunday, April 29, 2007
Bubble taxes
The following material corrects my impression that the cost of running the US government is presently attributable in large part to receipts from the sale of US treasuries. Although Treasuries obviously contribute somewhat to that burden, unexpectly I have discovered here that taxes attributable to the bubles take up most of the burden. So what happens in the soon to arrive recession? or depression? No wonder the government has been able to keep interest rates so low. Its because its demand/need for money from bond sales is relatively low. When this need increases its going to have to pay much more interest to attract money. Ka-Chung!!
http://wallstreetexaminer.com/blogs/winter/?p=724#more-724
"Let’s look at the mix, focusing on employment taxes withheld, taxes not withheld, and corporate taxes. I’m using the fiscal year to date (last Thursday in April) for all years to compare apples to apples.
2003: employment taxes: 815.9; not withheld: 169.4 (15.55% of total); corporations: 104.5 (9.6%)
2007: employment taxes: 1.017.4; not withheld: 283.6 (18.7%); corporation: 215.2 (14.2%)
As you can see overall tax reciepts have exploded 39.1% in just four years, but that corporate and not withheld today accounts for 32.9% of the mix, versus 25.5% in 2003. Let’s look at 2003 and 2006 to get the full effect in dollars for a whole fiscal year.
2003: employment taxes: 1.390.2 not withheld: 284.5 corporation: 187.7 = 1.862.42006: employment taxes: 1.617.5 not withheld: 417.6 corporation: 368.0 = 2.403.1
That’s a whopping $541 billion growth in tax receipts ($313 from not withheld and corporations) from these sources. That’s more than enough for the government to run a war machine, Katrina and ethanol scams, pad the pockets of corporate cronies, and run highly stimulative, irresponsible fiscal policies all nicely financed in large measure through price insensitive vendor lending from our “friends” in China. Little wonder that Hilary Clinton is setting this up as a central theme of her campaign. After all she may also inherit the Depression that results from this fiasco, and would be wise to set the stage".
http://wallstreetexaminer.com/blogs/winter/?p=724#more-724
"Let’s look at the mix, focusing on employment taxes withheld, taxes not withheld, and corporate taxes. I’m using the fiscal year to date (last Thursday in April) for all years to compare apples to apples.
2003: employment taxes: 815.9; not withheld: 169.4 (15.55% of total); corporations: 104.5 (9.6%)
2007: employment taxes: 1.017.4; not withheld: 283.6 (18.7%); corporation: 215.2 (14.2%)
As you can see overall tax reciepts have exploded 39.1% in just four years, but that corporate and not withheld today accounts for 32.9% of the mix, versus 25.5% in 2003. Let’s look at 2003 and 2006 to get the full effect in dollars for a whole fiscal year.
2003: employment taxes: 1.390.2 not withheld: 284.5 corporation: 187.7 = 1.862.42006: employment taxes: 1.617.5 not withheld: 417.6 corporation: 368.0 = 2.403.1
That’s a whopping $541 billion growth in tax receipts ($313 from not withheld and corporations) from these sources. That’s more than enough for the government to run a war machine, Katrina and ethanol scams, pad the pockets of corporate cronies, and run highly stimulative, irresponsible fiscal policies all nicely financed in large measure through price insensitive vendor lending from our “friends” in China. Little wonder that Hilary Clinton is setting this up as a central theme of her campaign. After all she may also inherit the Depression that results from this fiasco, and would be wise to set the stage".
Saturday, April 28, 2007
Mauldin- recession now a 50% chance
http://www.2000wave.com/article.asp?id=mwo042707
"The homeowner vacancy rate rose to a new all-time high, even as rental vacancy rates fell slightly. Overall home ownership in the US is falling and is now at a three-year low. Including new homes under construction, there are a total of 2.5 million homes vacant, which is well over 3% of the total of the US housing stock (77.2 million non-rental homes). "
He notes that it will adversely impact spending by reducing on home improvements, furniture and appliances, and building materials: it will adversely impact housing-related employment which was up 50,000 jobs a month during the boom and is now an increasing drag on employment; there is a clear drag on household wealth, where there is an estimated 9 cents of consumer spending for each dollar in the increase in the value of a home; and, the boost from mortgage equity withdrawal (MEW) is reversing. The largest part of MEW came from the realization of capital gains as homes were sold. "The only source of MEW that remains strong is cash-out refinancing," Hoyt notes.
"It should be pointed out that spending from the wealth effect and MEW impact spending with a lag. The wealth effect is understood to play out over about two years. Spending from MEW occurs more quickly, but can still take up to three quarters."
"The homeowner vacancy rate rose to a new all-time high, even as rental vacancy rates fell slightly. Overall home ownership in the US is falling and is now at a three-year low. Including new homes under construction, there are a total of 2.5 million homes vacant, which is well over 3% of the total of the US housing stock (77.2 million non-rental homes). "
He notes that it will adversely impact spending by reducing on home improvements, furniture and appliances, and building materials: it will adversely impact housing-related employment which was up 50,000 jobs a month during the boom and is now an increasing drag on employment; there is a clear drag on household wealth, where there is an estimated 9 cents of consumer spending for each dollar in the increase in the value of a home; and, the boost from mortgage equity withdrawal (MEW) is reversing. The largest part of MEW came from the realization of capital gains as homes were sold. "The only source of MEW that remains strong is cash-out refinancing," Hoyt notes.
"It should be pointed out that spending from the wealth effect and MEW impact spending with a lag. The wealth effect is understood to play out over about two years. Spending from MEW occurs more quickly, but can still take up to three quarters."
Thursday, April 26, 2007
The Sub prime mtg model for corp debt.
http://news.yahoo.com/s/ft/20070425/bs_ft/fto042520071733283602
The bank of England warns that "(risky) bank loans (including loans for the private equity industry) are repackaged and resold to new investors, such as pension and hedge funds." In other words, the banks are now using investors' money for new kinds of loans that are just as risky as sub-prime liar mortgages.
At the end of the day it looks like a lot of investrors who would never make these risky loans are going to end up owning them, and the banks that made them will have collected large fees and have no exposure.
The US government is apparently unconcerned since the FDIC insured money that the banks use is not being risked.
The bank of England warns that "(risky) bank loans (including loans for the private equity industry) are repackaged and resold to new investors, such as pension and hedge funds." In other words, the banks are now using investors' money for new kinds of loans that are just as risky as sub-prime liar mortgages.
At the end of the day it looks like a lot of investrors who would never make these risky loans are going to end up owning them, and the banks that made them will have collected large fees and have no exposure.
The US government is apparently unconcerned since the FDIC insured money that the banks use is not being risked.
Tuesday, April 24, 2007
US Housing Slump hurts Latin Amer.- wsj
One could note that US employment numbers do not include illegals, but I believe that the more important point here is that the home building bust will be at least as big as the dot.com bust, and like the dot.com bust it will destroy or diminish the businesses, wage earners and economies that have any relationship to it. Here is the content of the article:
"The rapid slowdown of the U.S. housing sector could have dangerous implications for Latin America and the other emerging market countries that depend on remittances for their balance of payment needs.
Remittances became important a few years ago, when they began to eclipse other forms of capital flows, such as foreign direct investment, multilateral assistance and loans. In 2005, the World Bank estimated that the total level of money sent home by immigrants from emerging market countries was $223 billion. In 2006, Latin America received $62 billion in remittances, of which 75% was from the U.S. The multilaterals and Latin American governments were ecstatic about the increase in remitted funds. They attributed the inflows to changes in regulatory framework, the proliferation of financial transfer networks and a reduction in transfer costs. Some Central American governments issued long-term bonds, modeling their balance of payments on the steady increase in remitted funds. However, few people bothered to realize that much of the generated money was a result of the large increase in U.S. home construction and associated services. A jaunt around most U.S. construction sites revealed a cacophony of Spanish and Portuguese accents, along with a sea of Latino food vending cars. Latin American electricians, masons, painters, carpenters, plumbers and landscapers thrived as North American homeowners used second mortgages to modernize their dwellings. Unfortunately, everything that goes up must come down—and the decline in the U.S. housing market has dangerous implications for some emerging market countries.
A look at the remittance data and U.S. housing starts reveals a worrisome correlation. Regressing panel data provided by the IMF on annual remittances to Latin America against annual U.S. housing starts shows a high degree of correlation between 1997and 2005. The panel data consists of 15 countries, and the correlation was higher than 90% in 12 of the cases. The outlier was Paraguay, which had a negative correlation of .03%. This was not too surprising, given that most Paraguayan immigrants head off to Argentina. Unfortunately, Argentina suffered a severe crisis during the sample years, explaining the massive decline in Paraguayan remittances. Although the conclusions were fascinating, the sample sets had a small N (number of observations). Therefore, we decided to examine another sample set. Banco de Mexico has monthly remittance data through February 2007, and the fit was remarkable. Monthly remittances peaked in May 2006, at the same time that housing starts reached their zenith. However, the decline in remittances is occurring at a faster pace than the drop in housing starts, falling 26% from the peak. This is logical, given that Mexican immigrants will harbor their savings as they see job opportunities evaporate. The implication of these results is that some Latin American countries could see pressure on their current account balances, despite the increase in commodity prices. The contraction in remittances will dampen domestic consumption and hamper GDP growth rates. Countries which are extremely dependent on remittances, such as Mexico, Colombia and the Central American states, could see weaker exchange rates as transfers decline. The problems in the U.S. housing sector could have dire implications for home construction activity in Europe and the Middle East. This could affect emerging market countries in North Africa, as well as Pakistan and the Philippines, which also depend on remittances to cover their balance of payment requirements. "
"The rapid slowdown of the U.S. housing sector could have dangerous implications for Latin America and the other emerging market countries that depend on remittances for their balance of payment needs.
Remittances became important a few years ago, when they began to eclipse other forms of capital flows, such as foreign direct investment, multilateral assistance and loans. In 2005, the World Bank estimated that the total level of money sent home by immigrants from emerging market countries was $223 billion. In 2006, Latin America received $62 billion in remittances, of which 75% was from the U.S. The multilaterals and Latin American governments were ecstatic about the increase in remitted funds. They attributed the inflows to changes in regulatory framework, the proliferation of financial transfer networks and a reduction in transfer costs. Some Central American governments issued long-term bonds, modeling their balance of payments on the steady increase in remitted funds. However, few people bothered to realize that much of the generated money was a result of the large increase in U.S. home construction and associated services. A jaunt around most U.S. construction sites revealed a cacophony of Spanish and Portuguese accents, along with a sea of Latino food vending cars. Latin American electricians, masons, painters, carpenters, plumbers and landscapers thrived as North American homeowners used second mortgages to modernize their dwellings. Unfortunately, everything that goes up must come down—and the decline in the U.S. housing market has dangerous implications for some emerging market countries.
A look at the remittance data and U.S. housing starts reveals a worrisome correlation. Regressing panel data provided by the IMF on annual remittances to Latin America against annual U.S. housing starts shows a high degree of correlation between 1997and 2005. The panel data consists of 15 countries, and the correlation was higher than 90% in 12 of the cases. The outlier was Paraguay, which had a negative correlation of .03%. This was not too surprising, given that most Paraguayan immigrants head off to Argentina. Unfortunately, Argentina suffered a severe crisis during the sample years, explaining the massive decline in Paraguayan remittances. Although the conclusions were fascinating, the sample sets had a small N (number of observations). Therefore, we decided to examine another sample set. Banco de Mexico has monthly remittance data through February 2007, and the fit was remarkable. Monthly remittances peaked in May 2006, at the same time that housing starts reached their zenith. However, the decline in remittances is occurring at a faster pace than the drop in housing starts, falling 26% from the peak. This is logical, given that Mexican immigrants will harbor their savings as they see job opportunities evaporate. The implication of these results is that some Latin American countries could see pressure on their current account balances, despite the increase in commodity prices. The contraction in remittances will dampen domestic consumption and hamper GDP growth rates. Countries which are extremely dependent on remittances, such as Mexico, Colombia and the Central American states, could see weaker exchange rates as transfers decline. The problems in the U.S. housing sector could have dire implications for home construction activity in Europe and the Middle East. This could affect emerging market countries in North Africa, as well as Pakistan and the Philippines, which also depend on remittances to cover their balance of payment requirements. "
Sunday, April 22, 2007
Uh Oh!
http://www.safehaven.com/article-7399.htm
"In February net foreign buying of securities with maturities of more than a year plummeted to $43.2 billion from $83.7 billion in January, net buying of long term US securities would have totaled $58.1 billion in February, down from $98.8 billion in January. A subset of these numbers is the total collapse in net foreign purchases of debt issued by US government sponsored companies Fannie Mae and Freddie Mac which plummets to $2 billion in February down from $35.8 Billion in January."
It looks like the plan to bail out the US private mortgage industry via purchases by Fannie Mae and Freddie Mac of high risk mortgages, perhaps even mortgages in default, is running into difficulty.
"In February net foreign buying of securities with maturities of more than a year plummeted to $43.2 billion from $83.7 billion in January, net buying of long term US securities would have totaled $58.1 billion in February, down from $98.8 billion in January. A subset of these numbers is the total collapse in net foreign purchases of debt issued by US government sponsored companies Fannie Mae and Freddie Mac which plummets to $2 billion in February down from $35.8 Billion in January."
It looks like the plan to bail out the US private mortgage industry via purchases by Fannie Mae and Freddie Mac of high risk mortgages, perhaps even mortgages in default, is running into difficulty.
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