Inflation Watch -- Last Week of Feb-2013 Edition | TigerDroppings.com

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Doc Fenton
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Houston, TX
Member since Feb 2007
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Inflation Watch -- Last Week of Feb-2013 Edition


The zen master of the housing market, the great Lawrence Yun, released the revised 2012 annual figures for NAR recently, and housing inventory has already dropped to the low level of 4.2 months...



Existing Home Sales from NAR
(S.A. annualized volume in millions, median sales price in thousands of dollars, housing inventory in months)
2013-Jan, 4.92, 173.6, 4.2
2012, 4.66, 176.8, 5.9
2011, 4.26, 166.1, 8.3
2010, 4.19, 172.9, 9.4


NOTE: I think the annual 2012 figures from Case-Shiller will come out on Tuesday, February 26.

And that 4.2 figure probably won't shoot up soon again, as nationwide foreclosure notice listings (as calculated by RealtyTrac here), hit a 6-year low last month of 150,864 (i.e., lowest monthly total since June 2006).







And then there's consumer inflation, in the form of the rising CPI-U numbers, which only gave annual inflation of 3.16% & 2.07% in 2011 & 2012, but which also have recorded higher than usual (at least in the post-2008 environment) core inflation numbers for the last 5 months...

CPI Data from BLS (Department of Labor)
(Month, m-o-m core inflation [excluding food & energy])
2013-Jan, 230.280, 0.3%
2012-Dec, 229.601, 0.1%
2012-Nov, 230.221, 0.1%
2012-Oct, 231.317, 0.2%
2012-Sep, 231.407, 0.2%

That is only the 4th time since the summer of 2008 that the BLS has recorded 0.3% core inflation for a month, the others being in April 2009, May 2011, & June 2011.

I know there are significant rounding errors and that those 5 months still only account for an annualized rate of about 2.2%, but still these are the winter months when inflation is typically at its lowest levels of the year, so we can expect the inflation to be higher later in the year, other things being equal.

I suppose there is the counter argument that the sequester, along with continuing state budget tightening and recession in Europe, will slow inflation, but I guess we'll just have to wait and see about that.



Finally, there is how the inflation argument relates to the monetary policy debate ( LINK) about whether or not "even the short term effects of ZIRP are stimulative."

I guess I'm still not ready to hit that argument with full force, because I've been too busy with other things, but to my old list, I think I can add John B. Taylor's " Fed Policy Is a Drag on the Economy" (Tue., Jan. 29, 2013) & Andy Kessler's " When Interest Rates Rise, Watch Out" (Fri., Feb. 22, 2013).

From Taylor...

quote:

Consider the "forward guidance" policy of saying that the short-term rate will be near zero for several years into the future. The purpose of this guidance is to keep longer-term interest rates down and thus encourage more borrowing. A lower future short-term interest rate reduces long-term rates today because portfolio managers can, in a form of arbitrage, easily adjust their portfolio mix between long-term bonds and a sequence of short-term bonds.

So if investors are told by the Fed that the short-term rate is going to be close to zero in the future, then they will bid down the yield on the long-term bond. The forward guidance keeps the long-term rate low and tends to prevent it from rising. Effectively the Fed is imposing an interest-rate ceiling on the longer-term market by saying it will keep the short rate unusually low.

The perverse effect comes when this ceiling is below what would be the equilibrium between borrowers and lenders who normally participate in that market. While borrowers might like a near-zero rate, there is little incentive for lenders to extend credit at that rate.

This is much like the effect of a price ceiling in a rental market where landlords reduce the supply of rental housing. Here lenders supply less credit at the lower rate. The decline in credit availability reduces aggregate demand, which tends to increase unemployment, a classic unintended consequence of the policy.

Research presented at the annual meeting of the American Economic Association this month by Eric Swanson and John Williams of the San Francisco Fed is consistent with this view of credit markets. It shows that during periods of forward guidance, the long-term interest rate does not adjust to events that shift supply or demand as it does in normal periods. In addition, while credit to corporate businesses is up 12% over the past two years, credit has declined to noncorporate businesses where the low rate is more likely to be a disincentive for lenders. Peter Fisher, head of fixed income at the global investment-management firm BlackRock and a former Fed and Treasury official, wrote in September: "[A]s they approach zero, lower rates ... run the significant risk of perversely discouraging the lending and investment we need."

Ironically, the harmful effects of these interventions lead policy makers to expand them, which further increases their harmful effects. No one should want a continuation of this vicious circle.


Kessler just talks about what kind of damage interest rate hikes do once they actually become reality.

Neither of these things, however, gets to the main precursor point that needs to be made about if and when consumer inflation will occur in the first place.

Right now, we have little evidence that it will besides rising asset prices and a higher-than-normal core inflation figure for January. Even so, a little bit of evidence is still evidence.

So right now we just continue to wait on the "green shoots" of consumer price inflation.



This post was edited on 2/24 at 7:10 am



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Meauxjeaux
Memphis Fan
Team Vag
Member since Jun 2005
16203 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


Winter of Recovery!





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ItNeverRains
LSU Fan
Franklin, TN
Member since Oct 2007
5918 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


It's a full blown sellers market here. Over asking price under contract in 24 hrs. for last two properties. My clients will likely be unaffected by new FHA guidelines 4/1/13, but we'll see how it affects the overall housing market.





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Doc Fenton
LSU Fan
Houston, TX
Member since Feb 2007
50453 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


quote:

Winter of Recovery!


... or winter of moving toward Carter-esque stagflation?

Just kidding. I know inflation needs a lot of momentum to build up to those levels, and we're not anywhere near them yet--but still--we could be moving toward 3-4% annual CPI inflation along with horrible employment and growth figures going right into a further storm of future interest rate hikes, and that is legitimately scary.






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BennyAndTheInkJets
Arkansas Fan
NYC
Member since Nov 2010
3642 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


quote:

Just kidding. I know inflation needs a lot of momentum to build up to those levels, and we're not anywhere near them yet--but still--we could be moving toward 3-4% annual CPI inflation along with horrible employment and growth figures going right into a further storm of future interest rate hikes, and that is legitimately scary.

Since unemployment probably will not be going anywhere anytime soon, I guess get your night light ready. I doubt we'll come close to hitting 4% annualized inflation, breakeven rates don't even have that type of inflation priced in and implied inflation is usually lower than realized.






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Kolbysfan
Denham Springs, La
Member since Jun 2007
1428 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


I am sure this is all very good information since I plan to put a house on the market in the next month, but I have no idea WTF any of this information says.....





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Doc Fenton
LSU Fan
Houston, TX
Member since Feb 2007
50453 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


NAR
(Year, Median Price, Annual Volume, Inventory Supply)
2009, $172.5k, 4.34m, 8.8 months
2010, $172.9k, 4.19m, 9.4 months
2011, $166.1k, 4.26m, 8.3 months
2012, $176.8k, 4.66m, 5.9 months

2013-Jan, $173.6k, 4.92m, 4.2 months


Case-Shiller 20-City HPI
(Year, Low, High)
2009, 139.26 (Apr), 146.63 (Sep)
2010, 142.39 (Dec), 148.88 (Jul)
2011, 136.60 (Dec), 142.97 (Aug)
2012, 134.07 (Mar), 146.09 (Sep)

2008-Aug = 164.65
2012-Dec = 145.95


Monthly U.S. Foreclosure Filings
(Year, total listings according to RealtyTrac)
2009 -- 2,824,674
2010 -- 2,871,891
2011 -- 1,887,777
2012 -- 1,836,634

2013-Feb -- 150,864 (lowest monthly total since June 2006)






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Doc Fenton
LSU Fan
Houston, TX
Member since Feb 2007
50453 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


I'm just looking for reasons to hope for inflation so we can get out of ZIRP and start the medicinal rate hike pain sooner rather than later.

Right now, inflation numbers remain quite low, and the European recession doesn't seem to be getting any better, and that combined with low government spending in the U.S. and attempts at intrusive regulatory implementation will likely result in inflation remaining very low for 2013.

However, it is possible to have high inflation in the midst of a stagnant economy and persistently high unemployment levels. The rise of home prices and U.S. equities hints that monetary policy might finally be running a little bit hot right now, and the core inflation figure of 0.3% for January gives a faint signal that inflation might finally start to pick up.

Right now, the odds are against a 3-4% inflation year, but I'm just keeping on the lookout for any signs that might appear on the distant horizon.


EDIT: And while revolving consumer credit has remained stagnant for the last 2.5 years (in my opinion due to new credit card regulations), overall consumer credit is steadily rising, with the $1.93 trillion figure for Dec-2012 being much higher than the pre-crash peak of $1.56 trillion in Jul-2008, or for that matter, the $1.51 trillion trough in Feb-2010: LINK. In general I think the credit card legislation and the steep rise in the minimum wage since 2007 have had much larger effects in dampening GDP growth than is commonly recognized.



This post was edited on 2/26 at 2:14 pm


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Doc Fenton
LSU Fan
Houston, TX
Member since Feb 2007
50453 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


Core inflation was running at a 3.0% annualized rate for the first 2 months of 2013.

Foreclosure filings from Feb-13 came in at 154,281, and bank repossessions were at a 65-month low (i.e., the lowest since Sep-07): LINK.

The dollar rose to about 95 yen per dollar, and to about 1.30 dollars per euro, over the past month.

The DJIA broke its old high from October 2007, and the S&P 500 got within 2 points of its old closing high.

The $16 billion jump from Dec-12 to Jan-13 in non-revolving consumer credit ( LINK) is the most in a year.

NAR montly data on February home prices will be released next Thursday ( LINK), and Case-Shiller data on existing home prices for Nov-Dec-Jan will be released on Tuesday the 26th ( LINK).

From his statements from the end of last month, Bernanke is still not even thinking of raising rates, but the Fed is becoming more and more complicit in subsidizing government inflation of assets, including homes:

quote:

...

The GSEs' business in mortgage-backed securities is thriving, with Fannie having issued $865.5 billion of these instruments in 2012. The Fed is buying up $40 billion of mortgage-backed securities a month to keep interest rates for home buyers at rock bottom. So the two mortgage giants may be able to sustain their earnings recovery.

...

On the website ProPublica, Jesse Eisinger totaled up the numbers. As of December, he found that government agencies--mainly Fannie and Freddie but also the burgeoning Federal Housing Administration--bought or insured more than nine out of 10 home mortgages originated last year, a $1.3 trillion business. In 2006, the government share was only three in 10.

... LINK


Why is the Fed still trying to goose home prices by purchasing so much MBS? Consumer price inflation is currently at healthy levels, and home prices are starting to rise sharply. For what purpose?



This post was edited on 3/16 at 9:22 am


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Interception
Providence Fan
Member since Nov 2008
11089 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


My feeling is they don't believe the market is cooking hot enough yet for their taste. There is still a sizable spread between MSB yields and mortgage rates. Credit is still tight and if or when the get loosened credit the housing sector should improve dramatically. Mortgage Purchase Originaters is at it's lowest since the early 90's. I believe there is a strong correlation between the high rates of refinancing and the banks processing home loans at a lower rate. I have no way to prove that but it's a hunch.





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Doc Fenton
LSU Fan
Houston, TX
Member since Feb 2007
50453 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


quote:

Credit is still tight and if or when the get loosened credit the housing sector should improve dramatically.


How much improvement is too much though?

And how can we make sense of this allegedly tight credit if levels of consumer credit are at record levels and currently rising at an alarming pace?

I mean, sure, mortgage origination and home construction may still be well below 2006 levels, and credit card debt still lacks a pulse, but what about everything else? Stocks are back their old highs, and home prices this summer might get within 5% of their summer 2008 levels (at least in nominal terms). Given the almost total lack of economic and employment growth since then, that's somewhat shocking.

It all very much looks like the result of having a flood of money with nowhere else to go.






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gatorsimz
Florida Fan
cafe risque
Member since Feb 2009
5346 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


Good insight

I'm keeping a close eye on the CPI. I think its rise will be the harbinger to a bear market.






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Interception
Providence Fan
Member since Nov 2008
11089 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


quote:

How much improvement is too much though?


I don't know if Ben Bernanke himself could answer that loaded question

quote:

And how can we make sense of this allegedly tight credit if levels of consumer credit are at record levels and currently rising at an alarming pace?


Maybe the consumer credit levels are being boosted by revolving credit and non removing credit? I would have to look into it but that's my hunch.

quote:

Stocks are back their old highs, and home prices this summer might get within 5% of their summer 2008 levels (at least in nominal terms). Given the almost total lack of economic and employment growth since then, that's somewhat shocking.


Doc, this says it all to me. We are in a jobless recovery according to the U-6 (very modest job gains). The Fed has sucked all the yield out of bonds, savings, CDs etc. and has forced whatever investors there still are into the stock market. It's all a mirage.

Additionally, the net jobs lost since January 2009 is 2.8 Million amongst ages 26-54. Over 40% of college grads are in jobs that don't require a college degree and ages 55-Older wont get out the job market. The millenials are drifting into downward mobility because the are saddled with student loan debt, have a shity jobs (if they even have one) and are poised to be the largest generation to ever live at home with their parents.

Sorry, I got off topic a little there but I wanted to stress the job market and housing correlation as I see it.




This post was edited on 3/16 at 11:39 am


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Doc Fenton
LSU Fan
Houston, TX
Member since Feb 2007
50453 posts

re: Inflation Watch -- Last Week of Feb-2013 Edition


quote:

Maybe the consumer credit levels are being boosted by revolving credit and non removing credit?


I'm not sure what the definition of non-removing credit is, but revolving credit is slumping in a major way, still well over 15% below it's July 2008 peak of $1.028 trillion.

I've gotten into arguments on here before about why that's the case, but whatever the reason why, historically speaking revolving credit has never taken anywhere near this long to bounce back.

I posted the stats link above, but here it is again: LINK.







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