Monday, October 26, 2009

CA Real Estate Recovery: Home Sales Increase for 15th Straight Month, Median Prices for 7th Month

LOS ANGELES (Oct. 26)Home sales increased 2.1% in September in California compared with the same period a year ago, while the median price of an existing home declined 7.3%, the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) reported today.

Closed escrow sales of existing, single-family detached homes in California totaled 530,520 in September at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR associations statewide. Statewide home resale activity increased 2.1% from the revised 519,530 sales pace recorded in September 2008 (see chart above). Sales in September 2009 increased 0.6% compared with the previous month.

The median price of an existing, single-family detached home in California during September 2009 was $296,090, a 7.3% decrease from the revised $319,310 median for September 2008, C.A.R. reported. The September 2009 median price rose 1.1 percent compared with August’s $292,960 median price.

“A new milestone was reached in September, when five C.A.R. regions reported positive year-to-year increases in the median price, the first such increase since January 2008,” said C.A.R. Vice President and Chief Economist Leslie-Appleton-Young. “September also marked the seventh consecutive month of month-to-month increases in the statewide median price and the first single-digit decline in the year-to-year median price since October 2007, after 22 consecutive months of double-digit decreases.

C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in September 2009 was 4.2 months, compared with 6.5 months for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

MP: Now that year-over-year unit sales have increased for 15 consecutive months, median prices have increased for 7 straight months, and unsold inventory has dropped by more than two months over the last year, can we now declare that the California real estate market is in a full state of recovery? And if this isn't a full recovery, how would it be any different than the current conditions?

The Health Care Debate is Part of a Moral Struggle

Arthur Brooks, president of the American Enterprise Institute, writing in today's WSJ, suggests that the health-care debate is part of a larger moral struggle over the free-enterprise system, here's an excerpt:

We will continue to hear both sides of the health-care debate argue about particulars of insurance markets, the deficit impacts of reform, and the minutiae of budgetary assumptions. These arguments, while important, do not address the deeper issues involved.

The health-care debate is part of a moral struggle currently being played out over the free enterprise system. It will be replayed in every major policy debate in the coming months, from financial regulatory reform to a cap-and-trade system for limiting carbon emissions. The choices will ultimately always come down to competing visions of America's future. Will we strengthen freedom, individual opportunity and enterprise? Or will we expand the role of the state and its power?

Chicago Fed Index Increases for 8th Straight Month and Suggests That The Recession is Over

CHICAGO FED -- At –0.63 in September (up from –0.96 in the previous month), the index’s three-month moving average, CFNAI-MA3, suggests that growth in national economic activity was below its historical trend. However, the CFNAI-MA3 in September improved to a level greater than –0.70 for the first time since the early months of this recession. For the four previous recessions, the first month when the CFNAI-MA3 was above –0.70 coincided closely with the end of each recession as eventually determined by the National Bureau of Economic Research (see top chart above showing the last three recessions).

MP: The bottom chart above shows the monthly change in the CFNAI-MA3, which has been positive for the last eight months (February through September), the first time since 1975 of eight consecutive monthly increases, and similar to the seven consecutive monthly increases from December 2001 to June 2002 that marked the end of the 2001 recession (see shaded areas).

Sunday, October 25, 2009

Florida Home Sales Increase 13th Straight Month

ORLANDO, Fla. – Oct. 23, 2009 -- Florida’s existing home sales rose in September, which marks more than a year (13 months) that sales activity has increased in the year-to-year comparison, according to the latest housing data released by Florida Realtors. September’s statewide sales also increased over sales activity in August in both the existing home and existing condominium markets.

Existing home sales rose 34% last month with a total of 14,419 homes sold statewide compared to 10,778 homes sold in September 2008, according to Florida Realtors (see chart above). Statewide existing home sales last month increased 4.1% over statewide sales activity in August. Florida’s median sales price for existing homes last month was $142,000; a year ago, it was $174,900 for a 19% decrease.

Legalize It, Part II

In America, 37% of adults have tried marijuana; in the Netherlands the figure is 17%. Heroin usage rates are three times higher in the United States than in the Netherlands. Crystal meth, so destructive here, is almost nonexistent there. By any standard -- drug usage rates, addiction, homicides, incarceration and dollars spent -- America has lost the war on drugs.

And just as escalating the drug war over the past three decades hasn't caused a decrease in supply and demand, there's no good reason to believe that regulating drugs instead of outlawing them would cause an increase. If it did, why are drug usage rates in the Netherlands lower? People start and stop taking drugs for many different reasons, but the law seems to be pretty low on the list. Ask yourself: Would you shoot up tomorrow if heroin were legal?

From today's Washington Post, by Peter Moskos, professor of criminal justice at John Jay College and the author of "Cop in the Hood: My Year Policing Baltimore's Eastern District." He is a former Baltimore City police officer.

Legalize It!

George Mason economist Don Boudreaux makes the case for legalizing (decriminalizing) insider trading, a potentially victimless "crime," in the Wall Street Journal. Here's an except:

Not only do insider-trading prohibitions slow economic growth, promote corporate mismanagement and discourage investment diversification, their application also is unavoidably biased.

These prohibitions are meant to prevent all insiders with non-public information from profiting from the use of such information before it becomes public. It follows that unbiased application of these prohibitions should target not only traders whose inside information prompts them to actively buy or sell assets, but also traders whose inside information prompts them not to make asset purchases or sales that they would have made were it not for their inside information.

The insider who learns that the Food and Drug Administration will approve a new blockbuster drug developed by a major drug company, for example, obviously profits from this information if it prompts him to buy 1,000 shares of the company that he otherwise wouldn't have bought. So, too, though, does the insider profit who, upon learning the same information, abandons her plans to sell 1,000 shares of the company. But because insider "nontrading" is undetectable, only the former insider is practically subject to prosecution and punishment.

And because opportunities to profit through insider "non-trading" might well occur with the same frequency as opportunities to profit through insider trading, as many as half of those investment decisions influenced by inside information might be undetectable.

This bias is not only a source of prosecutorial unfairness; its existence casts doubt on the assumption that insider trading is so harmful that it must be treated as a criminal offense. After all, if capital markets continue to function as well as they do given that many investment decisions potentially influenced by inside information are unstoppable because they are undetectable, why believe that the detectable portion of investment decisions influenced by inside information would be harmful if they were legal?

Brookings' MetroMonitor Now Tracks America's 100 Largest Metro Economies Quarterly

Alternative graph with California on the right axis:
BUSINESS WEEK ("The U.S. Metros Least Touched by Recession") - America's strongest economies have one thing in common -- home prices that never got too hot or too cold (see charts above comparing the home price index in California to Arkansas, Texas and Oklahoma over the last ten years).

Home prices in metros such as San Antonio, Oklahoma City, Pittsburgh, Rochester, Little Rock, Ark., and Baton Rouge, La., remained steady through boom and bust. Although no metropolitan area entirely avoided the economic downturn, the most resilient metros were protected by a potent mix of recession-resistant jobs.

The upstate New York areas of Syracuse, Rochester, Albany, and Buffalo suffered from declining jobs in manufacturing, but got significant boosts from sizable health-care, education, and government sectors. Construction is booming in Baton Rouge, Louisiana's capital, as firms take advantage of financing for post-Katrina hurricane recovery work and service-related companies expand to meet the needs of a growing population. Omaha and the state of Iowa have relatively strong insurance sectors.

Texas, the last state to enter recession, has been bolstered by its oil and gas industries -- which have also helped Oklahoma, North Dakota, and Louisiana. Texas also has many other things going for it, including affordable home prices and relatively low wages, which attract corporations.

MP: BusinessWeek then uses data from the
Brookings Institution's new MetroMonitor to identify the 40 strongest-performing metro areas. According to Brookings:

The MetroMonitor is a quarterly, interactive barometer of the health of America’s 100 largest metropolitan economies. It examines trends in metropolitan-level employment, output, and housing conditions to look “beneath the hood” of national economic statistics to portray the diverse metropolitan trajectories of recession and recovery across the country. The aim of the MetroMonitor is to enhance understanding of the particular places and industries that drive national economic trends, and to promote public- and private-sector responses to the downturn that take into account metro areas’ unique starting points for eventual recovery.

From the
MetroMonitor's September report:

The 100 largest metropolitan areas have varied greatly on changes in employment, unemployment rate, gross metropolitan product (GMP), and housing prices over the course of the recession. We rank all 100 metropolitan areas on measures of their changes in these indicators since their peak or over the past year, depending on the indicator. We then group the areas by their average rank across all four indicators. This overall performance index yields a striking illustration of disparate economic performance among the nation’s largest metro areas.

The chart below shows the top 20 strongest metro areas and the bottom 20 weakest metro areas during the recession, and the map shows the 100 metro areas ranked by quintiles:

It's pretty easy to see that California, Florida, Nevada and Arizona got hit the hardest by the recession, along with some Rust Belt areas like Michigan and Ohio. The entire middle of the country from Texas up through Iowa did much better (so did North and South Dakota but they must not have any cities in the top 100), as did areas along the east coast and New England.

Brookings also reports on each variable separately (employment, unemployment, gross metro product and real estate prices) and also reports Real Estate Owned (REO) data for each metro area in its 21 page report. The MetroMonitor is a new and rich source of data that tracks the economic performance of our metropolitan economies.

Saturday, October 24, 2009

Intrade Odds: 2009 Governor Races Split 1-1

Based on futures contracts trading on Intrade ("The Prediction Market"), Republican candidate Bob McDonnell will easily win the Virginia's governor's race (94.9% probability), and the Democratic candidate Jon Corzine will likely win in New Jersey (63% probability in recent trading, more than double the 30% odds on October 1) in a 3-way race including an independent candidate, although recent polling shows the two leading candidates in a statistical dead heat.

Driving A La-Z-Boy While Intoxicated (DALWI)

STAR TRIBUNE -- The operator of a La-Z-Boy chair converted into a motorized vehicle -- complete with a stereo and cup holders (pictured above) -- has admitted that he crashed the piece of furniture after leaving a bar in Proctor, Minn., extremely drunk.

Dennis LeRoy Anderson, 61, of Proctor, pleaded guilty Monday to hopping on the chair on the night of Aug. 31, 2008, after visiting the Keyboard Lounge, then crashing into a more traditional vehicle in the parking lot. Anderson's blood-alcohol content was 0.29 percent, more than three times the legal limit for driving in Minnesota.

HT: J. Howe

Friday, October 23, 2009

Rx: The Interstate Insurance Competition Cure

Click to enlarge.
Rhetoric about monopoly notwithstanding, Congress's reform proposals are not designed to increase competition in private health insurance. The House bill proposes a government-run insurer. The Senate Finance Committee proposes creation of quasi-public cooperatives. Both bills (and the Senate HELP bill) include restrictions on health insurance underwriting, pricing, profitability and policy design that would essentially turn private health insurers into regulated public utilities.

If the goal were to promote robust competition in private health insurance, Congress would focus on reducing impediments to competition. It could do so by allowing consumers to buy insurance across state lines at terms that do not require them to subsidize other buyers or to buy coverage for state-mandated benefits they are unwilling to pay for. Congress could also eliminate tax and regulatory rules that favor employment-based coverage over individual coverage.

~Scott Harrington in the
Wall Street Journal

All of this talk of health reform in Washington has created the illusion that we have a single health care system in America with prices that are roughly similar once adjusted for local costs of living. But in fact we have 50 different health care systems. Our states, through their insurance commissioners and legislatures, exercise enormous influence over the shape of health insurance by mandating to residents and businesses what kind of coverage they must have, and to insurance companies what kind of illnesses and therapies they must cover. The result is sharply different rates across the country.

~Steve Malanga in
Real Clear Markets

MP: The chart above shows the wide variation in average annual insurance premiums among selected states, according to a recent study from America's Health Insurance Plans. The average annual premium for individual coverage was $2,985, but ranged from a low of $2,606 in Iowa to $6,630 in New York. Family coverage ranges from $5,120 in North Carolina to $13,296 in New York.

In other words, allowing interstate competition for health insurance would allow families in New York to save more than $8,000 by buying insurance from a provider in North Carolina. That seems like an attractive option for New York residents, even if they have to accept a lower level of medical coverage for the $8,000 savings.

Instead of new massive government interventions in the U.S. health care system, maybe the best cure is to simply allow interstate competition for health insurance.

Health Insurance Companies Rank #86 By Industry Profit Margin, Earning $98 on Average Per Policy

Click to enlarge.

During his weekly radio address last Saturday, President Obama attacked health insurers for allegedly making excessive profits and paying excessive bonuses, for spreading "bogus" misinformation about the impact of Democrats' reform agenda on the cost of health insurance, and for "figuring out how to avoid covering people." He opined that health insurers are "earning these profits and bonuses while enjoying a privileged exemption from our antitrust laws, a matter that Congress is rightfully reviewing."

Mr. Obama's comments followed hearings by the Senate Judiciary Committee last week. In an unusual move, Majority Leader Harry Reid testified as a witness, alleging that "exempting health insurance companies [from antitrust] has had a negative effect on the American people" and that "there is no reason why insurance companies should be allowed to form monopolies and dictate health choices."

~Scott Harrington's article "
Competition and Health Insurance" in Wednesday's Wall Street Journal

MP: As I reported several months ago the industry "Health Care Plans" (includes Humana, Aetna, WellPoint, Magellan, etc.) ranks #86 by profit margin at only 3.3% (see table above, data here for the most recent quarter), not exactly strong evidence of "excessive profits" or monopoly power. Four health insurance companies (Molina, Health Net, Coventry, and Universal American) have profit margins below 1% for the most recent quarter, and another four (Humana, Magellan, WellCare and Centene) have profit margins between 1 and 2 percent (data here).

America's Health Insurance Plans (AHIP), the industry's trade association representing 1,300 members (how could that be a monopoly?), recently reported that annual health insurance premiums averaged $2,985 for individual coverage and $6,328 for family plans in 2009. Using the industry average profit margin of 3.3% means that insurance companies make less than $100 per policy in profits for individual coverage, and a little more than $200 in profits for each family policy. Doesn't seem too "excessive" or an indication of monopoly power, does it?

Alternatively, even if we could strip away 100% of the health insurance profits, it would only result in about $100-200 of annual savings for consumers of health insurance. Is that what we could expect then from a government-sponsored "public option" that wasn't "profit-driven" - annual savings of only $100-200?

Home Sales (Inventory) Highest (Lowest) In 2+ Yrs.

Highlights from today's report on existing home sales:

1. Existing-home sales – including single-family, townhomes, condominiums and co-ops – jumped 9.4% to a seasonally adjusted annual rate of 5.57 million units in September from a level of 5.10 million in August, and are 9.2% higher than the 5.10 million-unit pace in September 2008. Sales activity is at the highest level in over two years, since it hit 5.73 million in July 2007 (see top chart above).

2. The inventory of existing homes for sale in September fell to 3.63 million homes, the lowest level since January, and 642,000 units below last September's inventory of 4.272 million homes. At the current sales pace, there is now a 7.8 months supply of existing homes, which is the lowest level since March 2007, two and a half years ago (see top chart above). Compared to the peak of 11.3 months supply of inventory in April, September's 7.8 months supply represents a reduction of 3.5 months.

3. The median home price in September was $174,900, which was up by 6% from the January low of $164,800, but 8.5% below last September's $191,200 price, and $2,400 below the August level of $177,300.

Bottom Line: The national real estate market is gradually recovering, and the worst is definitely behind us.

Markets In Everything: Anti-Michael Moore Movies

Cottage Industry of Filmmakers Targets The Combative Director.

Thursday, October 22, 2009

Drug Decriminalization: Latin America Leads Way

Latin American frustration with the “war on drugs” is growing. Harsh anti-drug laws have failed to stem apparently rising drug use, and incarceration rates are climbing—up 40% on average in Mexico and South America over the last decade—with more drug users and low-level dealers behind bars. But high-level drug traffickers carry on with impunity.

Increasingly, many countries are leaning toward decriminalization as an alternative approach, hoping that it will be effective both in reducing consumption and dealing with associated health problems. This approach treats drug abuse as a public health and social policy issue rather than as a criminal justice problem. The goal is to encourage addicts to seek help, reduce prison overcrowding and free law enforcement to focus on dismantling drug-trafficking organizations.

Read more here about how Mexico, Argentina, Uruguay, Brazil, Colombia, and Ecuador have all taken steps towards various forms of drug decriminalization.

Here's a related Washington Post front page article "U.S. eases stance on medical marijuana."

Volatility Index Falls Below 21 to New 13-Mo. Low

The CBOE Volatility Index (^VIX) fell to a fresh 13-month low today of 20.69, closing at the lowest level since August 28, 2008. From the high of 80.86 on November 20 of last year, the VIX has fallen by more than 60 points, and is back to the pre-financial crisis level. Just another indication that the worst is behind us.

Commodities, Copper, Even Baltic Index Suggest That Global Economic Activity is Coming Back

The Dow Jones-AIG Commodity Index (^DJC) is a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities (e.g. natural gas, live cattle, wheat, copper, silver, cotton, etc., see the full list and current weights here and see the chart above) and was launched on July 14th, 1998.

Blogging maven and fellow chartaholic Scott Grannis has been regularly graphing and reporting on commodity prices
over the last six months, particularly copper, because he says that "Commodity prices are an excellent way of keeping tabs in real time on the progress of the global economy."

Here's a chart below of the Dow-Jones AIG Commodity Index back to 2007 (in semi-log format a la Scott), showing that the commodity price index reached a one-year high yesterday, closing at the highest level since October 14, 2008.

The one-year high for the commodity price index indicates that global commerce and economic activity are rebounding from the early 2009 lows, and that a global economic recovery is well under way, especially considering the other recent positive reports on global economic activity picking up (here and here). Even the Baltic Dry Index is showing some signs of life again, closing above 3,000 today for the first time since early August.

Haven't We Learned Anything From the Meltdown?

From the article "Yes, The CRA Is Toxic: So Why is Congress Thinking About Expanding It?" by Edward Pinto, who was the chief credit officer at Fannie Mae in the 1980s.

There is no question that as the government pursued affordable-housing goals—with the Community Reinvestment Act providing approximately half of Fannie’s and Freddie’s affordable-housing purchases—trillions of dollars in high-risk lending flooded the real-estate market, with disastrous consequences. Over the last 20 years, the percentage of conventional home-purchase mortgages made with the borrower putting 5% or less down more than tripled, from 8% in 1990 to 29% in 2007 (see chart above). Adding to the default risk: of these loans with 5% or less down, the average down payment declined from 5% to 3% of the loan’s value.

As for Fannie and Freddie, most of the loans with 5% or less down that they had acquired by 2005 had down payments of 3% or even no down payment at all. From 1992 to 2007, the two entities acquired over $3.1 trillion in low-down-payment or credit-impaired loans and private securities backed by credit-impaired loans—and these are performing horribly: the delinquency rate on Fannie’s and Freddie’s remaining $1.1 trillion in such high-risk loans is 15.5% as of this past June 30, about 6.5 times the rate on the entities’ traditionally underwritten loans. All this risky lending, of course, drove the nation’s homeownership rate up and inflated a housing-price bubble.

Incredibly, the House Financial Services Committee is considering legislation that would broaden the scope of the CRA. Before it takes any action on HR 1479—which would expand the CRA’s mandates from banks to bank subsidiaries, mortgage bankers, credit unions, insurance companies, and other nonbank financial institutions.

If that's not enough to make you wonder what's going on, then check out this story "20 Year Old Buys Home With $183,000 FHA Loan And Just 3.5% Down":

Denise Tejada bought a house last month at the age of 20, thanks in large part to a loan guaranteed by the Federal Housing Authority. This story offers a dramatic demonstration that, despite the housing bubble causing the worst economic downturn in generations, the ideology of home ownership is alive and well in the United States and still being supported by the government.

Without question, Tejada's loan is toxic--to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada's loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house.

The monthly payments on her debt amount to $1,328. Her income is $2,470, leaving her with just $285 a week to live on. She's paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments.

Thanks to Gettingrational for the second story.

6th Straight Monthly Increase in Leading Indicators; Largest 6-Month Gain Since 1983; Recession's Over

WASHINGTON (Reuters) - A gauge of the U.S. economy's prospects rose for a sixth-straight month in September to a two-year high (see chart above), a private research group said on Thursday, suggesting the U.S. recovery was building steam.

The Conference Board said its index of leading economic indicators rose 1% to 103.5, the highest level since October 2007. It said the sixth month growth rate for the index was at its highest pace since 1983. "These numbers strongly suggest that a recovery is developing," Conference Board economist Ken Goldstein said in a statement. "However, the intensity of that recovery will depend on how much, and how soon, demand picks up.

MP: The chart below displays the monthly change in the Leading Economic Index back to 2004, showing that the last time there were six consecutive monthly increases was in mid-2004, more than 5 years ago. On a percentage basis, the 5.72% March-September increase is the largest half-year gain since August of 1983, more than 26 years ago. Further, the unadjusted 5.6 point gain from 97.9 in March to 103.5 in September is the largest six-month gain in Conference Board history going back to 1959.

The Great "Teen-Cession" Thanks to the Min. Wage

It’s been well-documented here and elsewhere that the recent recession has been especially hard on men, to the point that it’s frequently been referred to as a “man-cession.”

But there’s another group that’s been hit equally hard by the recession, but without as much attention – teenagers. Although the national jobless rate of 9.8% in September is still a full percentage point below the record 10.8% set in 1982, the teenage jobless rate soared to a record-setting 25.5% in August, and then raised again in September to yet another post-war high of 25.9%. The current teenage jobless rate is now almost two full percentage points above the previous record of 24.1% in December 1982 (see chart above), and will probably continue to climb even higher in the coming months.

Who or what can teenagers blame for the worst job market in history for their age group, the "Teen-Cession of 2008-2009"?

They can certainly blame the recession, one of the worst since the early 1980s. But they also might want to blame Congress for raising the federal minimum wage from $5.15 per hour in 2006 to $7.25 per hour by July 2009, a 41% increase over the last three years and the largest inflation-adjusted minimum wage increase over a 3-year period in more than fifty years.

Unfortunately, Congress priced teenagers right out of the labor market by hiking the minimum wage more than $2 per hour at the same time the pool of unemployed, skilled workers was increasing from the recession. The 41% increase in the minimum wage along with increased competition from more skilled workers for the jobs teenagers typically fill, worked together to send teenage unemployment soaring to record levels.

The chart above of the teenage jobless rate and minimum wage over the last four recessions helps to illustrate how the 2008-2009 recession by itself would have been bad enough for teenage employment, but coupled together with the 41% minimum wage increase it created the worst teenage job market in history.

Teenage unemployment rates have always risen during recessions, and there were several minimum wage increases that happened around the time of recessions, which likely pushed the teenage jobless rate up even higher. There was an 8.1% increase in the minimum wage close to the 1981-1982 recession, and a 27% increase in the minimum wage around the time of the 1990-1991 recession, but those increases were nothing compared to the 41% increase in the minimum wage that took place in three steps starting in 2007 just preceding the recession, followed by increases in 2008 and 2009 in the midst of the recession. The chart clearly illustrates the fact that the minimum wage increased by 41% at the same time that the teenage jobless rate spiked to record-highs, and it’s likely that the positive relationship is no coincidence.

Raising the minimum wage in the United States by 41% during the last three years has denied job opportunities and training to those who need those experiences the most – unskilled teenage workers. If the goal was to destroy job opportunities for hundreds of thousands of teenage workers and drive teenage unemployment into record territory, raising the minimum wage by more than $2 per hour over the last three years certainly accomplished that goal. But if maximizing job opportunities for teenagers during both economic recessions and expansions is the goal, the correct minimum wage should be $0.00 per hour.

Markets In Everything: $500,000 Twitter Ad?

Microblogging site Twitter has been offered half a million dollars to feature a single banner advertisement on its pages for just one day.

Americans Get Their Driving Mojo Back Over the Summer; Largest 3-Month Increase Since 2004

The chart above shows the percent change in U.S. traffic volume through August (from the same month in the previous year), in a report released today by the Federal Highway Administration (data and report here). After falling for 17 consecutive months starting in November 2007, traffic volume has increased in 4 out of the last 5 months. The 0.7% August increase follows increases of 2.2% in July and 1.9% in June, and is the first time since late 2006 of 3 consecutive monthly increases in traffic volume, and the largest 3-month increase since early 2004 (see shaded areas in chart above).

The chart below displays traffic volume as a moving 12-month total, showing a similar pattern to the percentage monthly increase above. After falling for 16 straight months going back to December 2007, the moving 12-month total has now increased 3 months in a row, and in 4 out of the last 5 months, and marks the largest 3-month increase in traffic volume (12-month total) since the spring of 2006, more than three years ago.

MP: The rebound in traffic volume over the summer of 2009 is another sign that the recession probably ended in June.

Wednesday, October 21, 2009

The Government's Obsession With Home Ownership and Its Role in Predatory Lending

Since the early 1990s, the government has been attempting to expand home ownership in full disregard of the prudent lending principles that had previously governed the U.S. mortgage market (see chart above showing the huge 5% government policy-induced spike in home ownership from 64% in 1994 to 69% by 2004, following a decade of stable homeownership at 64%). Now the motives of the GSEs fall into place. Fannie and Freddie were subject to "affordable housing" regulations, issued by the Department of Housing and Urban Development (HUD), which required them to buy mortgages made to home buyers who were at or below the median income. This quota began at 30% of all purchases in the early 1990s, and was gradually ratcheted up until it called for 55% of all mortgage purchases to be "affordable" in 2007, including 25% that had to be made to low-income home buyers.

It was not easy to find candidates for traditional mortgages—loans to people with good credit records or the resources for a substantial downpayment—among home buyers who qualified under HUD's guidelines. To meet their affordable housing requirements, therefore, Fannie and Freddie reduced their lending standards and reached into the FHA's turf. The FHA, although it lost market share, continued to guarantee what it could, adding to the demand that the unregulated mortgage brokers filled. If they were engaged in predatory lending, it was ultimately driven by the government's own requirements. The mortgages that resulted are now problem loans for the GSEs, the FHA and the big banks that were required to make them in order to burnish their CRA credentials.

Thus, almost two-thirds of all the bad mortgages in our financial system, many of which are now defaulting at unprecedented rates, were bought by government agencies or required by government regulations.

~AEI's Peter Wallison writing in last week's Wall Street Journal

Tuesday, October 20, 2009

The No Insurance Club: Innovative Prepaid Medical Plans That Restore the Doctor-Patient Relationship

The No Insurance Club on FOX:

What's the No Insurance Club?

For an annual fee of just $480 for singles ($580 for couples and $680 for families) The No Insurance Club offers affordable pre-paid health care plans that cover basic medical services from a participating board-certified physician, with no deductibles, no additional premiums, and no co-payments. Services vary slightly depending on your location, but a $480 individual plan with this Atlanta physician covers 12-16 annual office visits, flu shot, pregnancy testing, EKG, an annual checkup, one sports physical, vision test, among other services, see full list here.

The No Insurance Club creates an entrepreneurial Internet marketplace where patients and doctors can enter directly into a patient-doctor relationship, without going through a third-party. Prices for basic medical care are completely transparent, and patients receive most basic health services cheaply. They can still get catastrophic health care coverage separately at competitive, reasonable rates to cover major medical expenses.

Meanwhile, the doctors in this direct arrangement with patients can unshackle themselves from the bureaucracy of insurance companies or the government (Medicare and Medicaid), and they no longer need to have basic procedures approved by an insurance or government bureaucrat. Physicians are no longer burdened with having to send in mountains of bills to insurance companies and Medicare, and carry a collections department to make sure the bills are paid. So it's a real win-win outcome for both the patients who receive affordable health care with transparent prices, and the doctors who are now in a direct medical and financial relationship with patients instead of with insurance companies or the government.

So while Congress debates a government takeover of the entire U.S. health care system, entrepreneurial businesses like The No Insurance Club are providing health care to Americans for about the same monthly cost as a cell phone. Oh, and do you have any pre-existing conditions? With The No Insurance Club, that's not a problem.

Increasing Income Inequality: Lessons from the NFL

Click to enlarge.
An analysis of the USA Today Salaries Database for the National Football League (NFL) reveals that the share of total team payrolls in 2008 going to the highest-paid 20% of players ranged from a high of 69.8% for the Indianapolis Colts to a low of 49.2% for the Tampa Bay Buccaneers, and averaged 59.5% for all NFL teams (see chart above). That compares to an NFL average of 56.3% in 2000 for the share of team payrolls going to the highest-paid 20% of players.

For the entire U.S. population, the top 20 percent of American households earned a 50% share of total income in 2008
according to the Census Bureau, slightly higher than the 49.8% share of income for the top fifth of households in 2000.

In other words, there is significantly greater income inequality in the NFL than in the general U.S. population, both in terms of the share of income going to the top 20% in 2000 (56.3% for the NFL vs. 49.8% for the entire U.S.) and 2008 (59.5% vs. 50%), and also in terms of the increase over time for the top quintile’s share of total income (56.3% to 59.5% for the NFL between 2000 and 2008 vs. 49.8% to 50% for the general population).

What can we learn from the significant income inequality in the NFL? Find out here at
The Enterprise Blog.

Natural Gas Changes the Energy Map; New Data Show 90 Years Supply at Current Consumption

Experts now believe that the country has far more natural gas at its disposal than anyone thought three or four years ago. The revised estimates are largely due to advanced drilling techniques that make it economically feasible to extract the fuel from shale. And while the Marcellus is the most recently discovered and possibly the largest shale-gas deposit (covers PA, NY, VA and OH), others are scattered throughout the country.

The U.S. consumes about 23 trillion cubic feet (TCF) of natural gas a year, according to the Department of Energy's Energy Information Agency (EIA). The Potential Gas Committee (PGC), an organization headquartered at the Colorado School of Mines, put the country's potential natural-gas resources at 1,836 TCF in a biennial assessment released in June. That's 39% higher than its estimate of two years earlier. Add to that the 238 TCF that the EIA has calculated in "proved reserves" (the gas that can be produced given existing economic conditions) and the PGC pegs the future supply at 2,074 TCF.

In other words, there is enough natural gas to supply the country for 90 years at current consumption rates. Even if we used natural gas to totally replace coal in generating electricity, domestic supplies would last for 50 years.

Natural gas offers advantages over other fossil fuels. It burns cleaner than coal, producing much less carbon dioxide. Since coal-fired power generation is responsible for a third of U.S. carbon dioxide emissions, replacing at least some of that coal with gas could significantly reduce such pollution. And using natural gas to replace gasoline and diesel fuel in vehicles could reduce the country's reliance on foreign oil.

"It doesn't matter what the exact number is," says Mark Zoback, a professor of geophysics at Stanford University. "The numbers are all so big it means we have an extremely large domestic resource that is going to play a significant role in the country's energy future."

The availability of vast natural-gas resources in the Marcellus shale and similar sediments around the United States has changed energy calculations in a fundamental way. The discovery of this large and seemingly economical new source of fossil fuel has surprised even geologists who have spent their careers studying the shale. Little wonder, then, that policy makers and politicians are just beginning to try to figure out what the discoveries mean.

MIT Technology Review via Paul Kedrosky

Watch a video here that illustrates how advanced horizontal drilling allows gas producers to follow a shale deposit for up to a mile, greatly increasing the productivity of the well.

Monday, October 19, 2009

Random Roundup (And Some Fun With the Titles)

1. "Golf Cart Stimulus" (or "You Just Can't Make This Stuff Up?") - We thought cash for clunkers was the ultimate waste of taxpayer money, but as usual we were too optimistic. Thanks to the federal tax credit to buy high-mileage cars that was part of President Obama's stimulus plan, Uncle Sam is now paying Americans to buy that great necessity of modern life, the golf cart.

2. "
What Happened to Global Warming?" (or "Global Cooling Returns?") This headline may come as a bit of a surprise, so too might that fact that the warmest year recorded globally was not in 2008 or 2007, but in 1998. But it is true. For the last 11 years we have not observed any increase in global temperatures.

3. "
New Tax Cramps Real Estate Market" (or "If You Tax Something, You Get Less of It?") -- A new capital gains tax effective late last month has hit the Ho Chi Minh City property market hard, with many realtors reporting sharp declines in transactions. The number of transactions this month has dropped by 80% from a month ago, a real estate broker said, blaming the business slowdown on the new capital gains tax.

4. "
Commercial Real Estate Bounces Back" (or "There's Always a Bull Market Somewhere?") -- Canada's commercial real estate market is on the mend, as an 18-month slump in Toronto has ended. After almost two years of flat or declining activity, industry tracker RealNet Canada said investments in commercial property in the Greater Toronto Area increased by 46% in the third quarter over the second quarter, to $1.31 billion, while the number of transactions increased by 20%.

Sunday, October 18, 2009

Gender Employment Equality Still a Few Yrs. Away

USA Today (September 3, 2009)-- Women are on the verge of outnumbering men in the workforce for the first time, a historic reversal caused by long-term changes in women's roles and massive job losses for men during this recession. Women held 49.83% of the nation's 132 million jobs in June and they're gaining the vast majority of jobs in the few sectors of the economy that are growing, according to the most recent numbers available from the Bureau of Labor Statistics.

That's a record high for a measure that's been growing steadily for decades and accelerating during the recession. At the current pace, women will become a majority of workers in October or November.

Center for American Progress -- Women are now half of workers on U.S. payrolls, according to USA Today. This is an important new trend in the U.S. economy and a stunning transformation from a generation ago. In 1970, women made up 43.8% of workers, while in July 2009 (the latest data available), women held 49.9% of all jobs.

Although women are now half of all workers, they are not half of workers in all kinds of jobs. Thus, while the news that women are half the workers is a marker on the long path toward equality, it is also a testimony about the current economic malaise.

MP: Actually the reports about women being a majority of workers, or even half of American workers is not quite accurate. It's partly true - if you look only at payroll employment (nonfarm wage and salary jobs), currently about 131 million workers, and ignore about 8 million workers who are included in the more comprehensive household employment data of about 139 million workers (current
BLS data here, historical data here), which includes self-employed and agricultural workers.

According to the more comprehensive measure of employment from household data, there is still a 5.4% difference between male employment (52.7%) and female employment (47.3%). And although women's share of total jobs has increased, it's been fairly constant and gradual, increasing by only 1% over the 15-year period from 1995 (46.3% of total jobs) to 2009 (47.3% of total jobs).

I'm not sure this is really monumental in its significance, but is probably somewhat important in pointing out the difference between payroll employment and household data employment. If complete gender employment equality is somehow significant or important, it won't happen for a few more years at least, according to household survey employment measures.

Markets In Everything: Foot Tanner

If you always feel like people are gawking at your white feet and the unsightly tan lines around your ankles when you wear sandals or pumps, then you need the Solafeet foot tanner. Those tan lines can be gone in 5 to 10 days with just fifteen minutes a day. Then you can go from the golf course to the clubhouse in confidence. The Solafeet is ideal for flip-flop wearers, tennis players and joggers. Only $229.99.

Saturday, October 17, 2009

The Great Man-Cession of 2008-2009 Was Real

From the article "The "Man-Cession" of 2008-2009: It's Big, but It's Not Great" by Howard J. Hall, Vice President of the St. Louis Fed:

Despite the sudden interest in the phenomenon, the relative effects of the recession on men and women are not the least bit unusual. At least since the 1969 recession, men have borne the brunt of job losses during recessions, and, compared with previous recessions, men have actually borne a smaller proportion of job losses in the current recession.

Women have a much larger presence in the work force now than between 1969 and 1991; so, a more-relevant comparison is to the 2001 recession.

For that recession, employment peaked in the first quarter of 2001 and bottomed out in the third quarter of 2003, with a total loss of a little more than 2.6 million jobs. Men accounted for 78% of those job losses, just as they have during the current recession. So, in terms of job losses, the current recession has hit men in roughly the same proportion as did the previous recession, but by a much smaller proportion than during earlier recessions.

MP: The charts below were created using monthly data from the
BLS for female and male employment.

The first graph shows the male and female job losses from March 2001 (when the recession started) and January 2002 when both male and female bottomed out, shortly after the recession ended in November 2001 (see shaded area). Therefore, this is the period of job losses that is directly associated with the actual 2001 recession, and not the jobless recession period that lasted until mid-June 2003, when the jobless rate peaked. But during the actual recession period (March 2001 to November) and the next two months (Dec. 2001 and Jan. 2002) when employment levels were still falling, it was actually a "she-cession," since 52.4% of the job losses were jobs held by women.

If we next consider the period that includes the 2001 recession and one additional year of the "jobless recovery" through December 2002, we get a period where male job losses were 61.4% of the total, but that is still nothing really close to the male job losses during the 2008-2009 "man-cession," as the next two graphs illustrate.

The graph below captures the first 13 months of the most recent recession, from December 2007 through December 2008, and shows that for that period, male job losses were 84% of the total, vs. only 16% for women. In other words, men lost 5.25 jobs for every one job lost for women. Now that's a real "man-cession." And by December 2008, the male-female jobless rate gap had risen to 1.5%, which was 5 times greater than the maximum male-female jobless rate gap of 0.30% during the 2001 recession, another sign that the "Great Man-Cession" of 2008 was real.

Assuming that the recession ended in June 2009, like many economists are now predicting, the next graph highlights the employment losses by gender from December 2007 and May 2009, to capture the period most likely associated with the most recent recession. Over this period, the job losses for men were 75% of the total, which is still much higher than a) the percent of job male jobs losses during the 2001 recession, b) the percent of job losses during the 2001 recession and the period of "jobless recovery" through end of 2002. Further, by May 2009 the male-female jobless rate gap hit 2.5%, the highest rate ever at that time, and almost 3 times the maximum gap of 0.90% in July 2003 during the jobless recovery following the 2001 recession.

Bottom Line: At least compared to the 2001 recession, the 2008-2009 recession was real, historic and unprecedented. And the recent record male-female jobless rate gaps are another indication that something historic and unprecedented happened during the most recent recession.

Finally, it's probably not really fair to compare job losses by gender during the actual recessionary months of the most recent recession, to the job losses from 2001-2003 that includes both the actual recession period from March 2001 to November 2001 and several more years of data after the recession was over. During the actual recession months of 2001, it was actually more of a "she-cession" than a "man-cession."

Worldwide Recession Is Over

Manufacturing Activity
NY TIMES -- The worldwide recession appears to have ended, with surveys showing manufacturing activity is on the rise nearly everywhere. “It is the emerging markets that are leading, with the U.S. following and Europe lagging,” said Chris Williamson, the chief economist of Markit, a company that surveys manufacturers in many countries.

The surveys, conducted in the United States by the Institute of Supply Management and in other countries by Markit, measure not the level of manufacturing output but the way it is changing. The surveys have a reputation for showing turns in the economy, often before other indicators do. In the charts above, the index figures have been converted to show the number of points over or under 50 for each of 12 countries, from the end of 2007 through September.

While details vary, the slump was sharp in nearly every country, reflecting the sudden decline that came after Lehman Brothers collapsed in September 2008. That worsened a credit squeeze, which meant some companies had no choice but to cut back on everything they could, from inventories to marketing expenditures to jobs. Others, fearing that the economic outlook could become much worse, cut back voluntarily.

It now appears that companies cut too much, and the surveys of manufacturing show that companies are expanding in most countries. Over all, the surveys indicate that the manufacturing sectors of China, Taiwan, South Korea and India had begun to grow by April, but that the United States did not follow suit until August.

Great Interactive Map Showing Job Gains & Losses

Click here for a great interactive map from MITACS showing monthly job losses and job gains for the 100 largest U.S. metropolitan areas and the 20 largest Canadian metro areas, from July 2002 to July 2008 (more details here). Notice the following:

1. You can see that the jobless recovery in the U.S. following the 2001 recession lasted well into 2003, with the jobless rate peaking in June 2003, and widespread, solid job gains not returning until 2004.

2. You can see the spike in job losses in the Louisiana area following the twin hurricanes of Katrina (August 2005) and Rita (September 2005).

3. During the years 2004, 2005 and 2006, there were consistent job gains around the country, until some job losses start showing up in Michigan in the fall of 2006, and those job losses in Michigan continued into 2007, and then really worsened in 2008 and 2009.

4. The next area of job losses leading into the recession was in Florida, starting in mid-2007, followed by job losses starting in California by the end of 2007.

5. By the middle of 2008 job losses were mounting, but were most heavily concentrated in California, Florida and Michigan. There were still employment increased in the central part of the U.S., especially in Texas and Oklahoma, and also job growth in the NYC-DC-Boston-Philadelphia area. Almost all areas of Canada were still experiencing job growth in June 2008.

6. By the fall of 2008, jobs losses were widespread across the U.S., except for Texas and Oklahoma; and by the spring of 2009 almost the entire country was experiencing job losses. Even into the summer of 2009, some parts of Canada were still seeing job gains, and it seems obvious that the Canadian economy survived the recession better than the U.S., at least in terms of jobs losses.

Thanks to Scott Bury.

Friday, October 16, 2009

Long-Term Interest Rates Suggest Low Inflation?

In a previous post, I suggested that historically low 30-year mortgage rates reflected relatively low market expectations of future inflation. Some commenters (and Robert Shiller this afternoon on CNBC) pointed out that the Fed is buying mortgage securities, which is temporarily keeping 30-mortgage rates low, rather than low inflation expectations keeping rates low.

But the charts above that other long-term rates (30-year Treasury bond, 30-year AAA corporates and 30-year Baa corporates) are historically low, as well as the prime rate being historically low, and these low rates wouldn't necessarily have anything to do with Fed purchases.

Question: How could all of these long-term rates be so low if there were inflationary pressures building up in the economy, which would lead to higher expected future inflation, and higher nominal long-term interest rates, and not historically low long-term rates?

Canadian Real Estate Rebounds to Record Levels

OTTAWA (October 15th, 2009)National resale housing activity climbed to the highest level of any third quarter on record. Home sales via the Multiple Listing Service of Canadian real estate boards totalled 135,182 units in the third quarter of 2009, according to statistics released by The Canadian Real Estate Association (CREA). This is the highest level of activity on record for the period from July to September. The number of transactions was up 18% from the third quarter of last year, representing the biggest year-over-year increase since early 2002.

Seasonally adjusted national MLS home sales numbered 127,941 units in the third quarter, up 12 per cent from the previous quarter. Building on two previous quarterly increases, seasonally adjusted MLS home sales activity now stands 48 per cent above the low reached in the fourth quarter last year.

“Momentum for sales activity remained strong throughout the third quarter,” said CREA President Dale Ripplinger. “Low interest rates, rebounding consumer confidence and an improving overall sense of economic security continue to draw homebuyers to the housing market.”

Resale activity in September 2009 posted the fourth consecutive increase from year-ago levels, all of which exceeded 15%. Sales numbered 42,497 in September, up 17% year-over-year and a new record for the month (see graph above). The national MLS residential average price surpassed all previous monthly levels in September 2009, rising 13.6% year-over-year to $331,602 (see graph). July and August also posted new average price records for their respective months. A number of provinces set new average price records for the month of September, and Ontario posted the highest average price on record.

Nationally, the number of months of inventory was 4.9 months in September 2009. This is down slightly compared to August, and remains well down from the recessionary peak of 12.8 months in January 2009. The number of months of inventory is the number of months it would take to sell current inventories at the current rate of sales activity.

Industrial Production Grew at 5.2% in Q3

NEW YORK (Reuters) - U.S. industrial production rose in September for a third consecutive month, Federal Reserve data showed on Friday, suggesting the economy closed out the third quarter with surprisingly strong growth. For the third quarter as a whole, output advanced at a 5.2% annual rate, the first quarterly gain since the first quarter of 2008 and the largest increase since the fourth quarter of 2005.

The figures will likely reinforce the view that the longest recession since the Great Depression ended in the third quarter. Economists in a Reuters poll released on Thursday pegged the third-quarter growth rate at 3.1%.

MP: The chart above shows that industrial production grew for a third straight month in September, for the first time in almost four years (see shaded areas).

Mortgage Rates Below 5% = Inflation Will Be Low

McLean, VA Freddie Mac today released the results of its Primary Mortgage Market Survey in which the 30-year fixed-rate mortgage (FRM) averaged 4.92% with an average 0.7 point for the week ending October 15, 2009, up from last week when it averaged 4.87%. Last year at this time, the 30-year FRM averaged 6.46%.

"Mortgage rates rose slightly over the week, but rates on 30-year fixed mortgages remained below 5% for the third consecutive week," said Frank Nothaft, Freddie Mac vice president and chief economist. "Homeowners are taking advantage of these low rates to refinance their current balances. Over the past five weeks ending October 9, more than three out of five mortgage applications were for refinancing, according the Mortgage Bankers Association.

MP: The chart above shows monthly mortgage rates back to 1965 to help put the current situation into perspective. There has never been any comparable period since the 1960s when 30-year mortgage rates have remained so low for so long. On a weekly basis, mortgage rates have been below 5% for fourteen weeks so far in 2009, including the last three weeks.

Mortgage rates climbed to historically high levels in the late 1970s and early 1980s because of historically high levels of actual inflation and expected inflation.

If inflationary pressures are now building up in the U.S. economy, and future inflation is expected to rise, why aren't those inflationary pressures being reflected in the bond market (see related
CD post) or the mortgage market? For those worried about future inflation, this would be a great time to re-finance your mortgage at the current rates of below 5% for 30 years. All it would take is an actual inflation rate of above 5% sometime during the next 30 years to result in a negative, real interest rate, the best of all possible worlds for a borrower (it's like borrowing $100 from a bank, but only have to pay back $99, $95 or $90 in real dollars).

Bond Market's Expectation of Inflation: Only 1.75%

The top chart shows the bond market-based 10-year TIPS-derived expected inflation back to 2003, calculated as the weekly difference between 10-year regular, nominal Treasury yields and 10-year Treasury inflation-indexed yields (a measure of the real interest rate), both on a constant maturity basis (St. Louis Fed data here for 10-year TIPS and here for regular 10-year Treasuries); the bottom chart shows those yields graphed separately.

After an unusual period in late 2008 resulting in a narrowing spread when the TIPS 10-year yields were unusually high and approaching 3%, and regular Treasury yields were unusually low and approaching 2%, the Treasury market seems to have stabilized, and the bond market's 10-year expectation of inflation is now around 1.75%, lower than the inflationary expectations from 2003-2007 of around 2.5%.

Many analysts and economists seem to be worried about future inflation, resulting from the easy Fed monetary policy in 2008 (which has also contributed to a falling dollar). Apparently the bond market doesn't necessarily share those concerns. According to the inflationary expectations derived from the bond market, future inflation is less of a concern now in 2009 than it was during the 2003-2007 period.