Signs of the Economic Apocalypse, 3-6-06

From Signs of the Times 3-6-06:

Gold closed at 567.20 dollars an ounce on Friday, up 1.1% from $562.00 the week before. The dollar closed at 0.8307 euros on Friday, down 1.4% from 0.8420 for the week. That would put the euro at 1.2038 dollars, compared to 1.1876 at the end of the week before. Gold in euros, then fell to 471.17 euros an ounce from 472.38 for the week, a drop of 0.3%. Oil closed at $63.67 a barrel, up 1.2% from $62.91 at the previous week’s close. Oil in euros also fell, closing at 52.89 euros a barrel, down less than 0.2% from 52.97 for the week. The gold/oil ratio ended at 8.91, down 0.1% from 8.92 at the end of the previous week. In U.S. stocks, the Dow closed at 11,033.20, down 0.3% from 11,061.85 at the close of the week before. The NASDAQ closed at 2,306.08, up 0.8% from 2,287.04 for the week. Bonds fell last week in the United States, with the yield on the ten-year U.S. Treasury note rising to 4.68% up 11 basis points from 4.57 the week before.

As we can see from comparing the price of gold and oil in euros and against each other, oil and gold did not rise last week, rather, the dollar fell. The fact that this happened as U.S. interest rates rose, which usually strengthens currencies, is not a good sign for the imperial economy. Record low approval ratings for the U.S. president G. Bush, while continually downplayed by the mainstream U.S. media, who never refer to him as “the phenomenally unpopular president” or “the widely despised George Bush” even though that is true, cannot be hid from international investors. Nor can the U.S. media hide the disastrous news coming out of Iraq and Afghanistan from the savvy international banking and investment community. They are even having a hard time hiding it from the United States public. The small town next to where I live, a white, rural town with a population of less than 3,000, saw a protest of more than 20 people on the town common calling for the impeachment of Bush and for the reinstating of the Constitution last week. That’s almost 1 in 100 people. If a similar proportion showed up in New York it would number over 100,000. Significantly, the protest was covered positively and prominently in the conservative small-town newspaper. It can be argued, though, that they don’t need to hide anything anymore, now that the Patriot Act as been expanded and made permanent last week. The treasury and the broader common wealth (understood literally) has been plundered and the Constitution has breathed its last breath.

Last week I wrote “The mainstream media’s economic news was particularly positive until the end of last week, when no one could hide the bad news for the U.S. empire. The shocks on Thursday and Friday drove the price of gold and oil up and made even optimists uneasy.” I am not so sure upon rereading it that that is exactly true. What MSM is actually doing is splitting. I have seen articles demonstrating optimism about the U.S. economy side-by-side with articles bemoaning the perilous geopolitical situation or the bad straits of the U.S. empire. Or vice versa: optimism about the empire and pessimism about the economy. One of the things the pathocrats have done is first to separate economics from everything else (politics, morality, geopolitical power relations, etc.), then elevate it above everything else. They do the same with the environment, as if the basic underpinnings of economic life, natural resources, can be somehow separated from the health of the economy. It is hard to tell if it’s denial or deliberate creation of congnitive dissonance.

Signs are multiplying that the housing bubble is about to turn into the housing crash.

U.S. Economy: Sales of New Homes Decline, Inventory a Record

Feb. 27 (Bloomberg) -- New-home sales in the U.S. fell to the lowest level in a year in January and the number of properties on the market was the most ever, more signs housing is losing its luster after five record years.

Sales declined a greater-than-expected 5 percent to an annual rate of 1.233 million from a revised 1.298 million in December, the Commerce Department said today in Washington. The number of homes for sale rose to an all-time high of 528,000 in January from December's 515,000.

Higher mortgage rates and home prices will push down sales and may contribute to a slowing of the economy in the second half, economists said. Home construction may not add to economic growth this year for the first time in more than a decade, leaving homebuilders less optimistic.

“The combination of slower demand and looser supply is likely to put downward pressure on housing-price growth,” said Jonathan Basile, an economist at Credit Suisse in New York. “Housing won't be the driver for growth as it has been.”

The following report from Massachusetts shows how the places where housing rose the most during the bubble will be the places that fall the most during the crash:

Mass. home sales plummet 21%
January prices also slip but condo deals climb
By Chris Reidy, Globe Staff
March 1, 2006

The number of single-family homes sold statewide fell 21 percent in January, the largest year-to-year decrease in monthly home sales since April 1995, and another sign that the once red-hot local real estate market is cooling, the Massachusetts Association of Realtors reported yesterday.

Based on the supply of homes for sale, up sharply from a year ago, the real estate market favored the buyer in January.

“For the last few years, buyers often outnumbered the supply of homes for sale, allowing prices to escalate rapidly, but that's no longer the case," said association president David Wluka.

The median selling price for a single-family home dropped to $345,500, compared with $346,000 in January, 2005, when the sales total was the second highest on record for January.

Sales of single-family homes fell for the fourth month in a row, something that hasn't happened since early 2003.

More significantly, single-family home prices in January fell 0.1 percent, breaking a 114-month streak of rising prices. At the peak of the market, between April 2004 and March 2005, prices rose at a double-digit percentage clip for 11 of those 12 months.

The state's real estate market is cooling much faster than the national market. Nationwide, home sales were down last month 4.8 percent from the pace of the previous January, according to the National Association of Realtors, but prices were still rising. Across the country, the median price for an existing single-family home was up 13.1 percent from a year ago, to $210,500.

Thus, a similar report from the other coast:

California home sales drop 24% in January
Decline reflects rising mortgage interest rates and weakening consumer confidence.
February 28, 2006: 7:26 PM EST

SAN FRANCISCO (Reuters) - California's housing market is slowing as analysts had predicted, underscored by a slump in home sales in January, according to the California Association of Realtors.

Sales of existing, single-family detached homes in California totaled 500,470 at a seasonally adjusted annualized rate in January, down 24.1 percent from a year earlier and 5.9 percent from December, according to the report from the association.

The declines reflect a weakening in consumer confidence, and a rise in mortgage interest rates which have sidelined nervous home buyers, the association said.

"We have now seen three months in a row where sales have dropped more than expected," said Robert Kleinhenz, an economist with the association. "At least some home buyers have adopted a wait-and-see attitude."

Declining sales had been expected. January is a slow month for sales and financing for home purchases is becoming more challenging with interest rates on the upswing and home prices holding at lofty levels.

And this from Florida:

Florida Bubble Busts Wide Open

Wednesday, March 01, 2006

Sarasota Bradenton

The Herald Tribune is reporting a 48% home sales drop in Sarasota-Bradenton.

The high season peaked in mid-February but so far there is little evidence of a long-awaited and often-predicted real estate recovery.

In fact, the Sarasota-Bradenton market had the dubious distinction of being the Florida market with the biggest decline in sales during January: a precipitous 48 percent drop when compared with the same month a year ago -- more than double the state's 19 percent decline.

The Charlotte County-North Port market saw its sales drop 18 percent during the same time frame, the Florida Association of Realtors reported Tuesday.

But values held steady. Sarasota-Bradenton posted a 23 percent increase in median sales price to $353,500 while its neighbor to the south climbed 16 percent to $227,400 when comparing January with the same 2005 month.

"I can tell you the buyers are here," said Scott Sosso, president of Sarasota-based Prudential Palms Realty, which saw its closings dip 10 percent during January. "The problem is with the sellers who don't have their homes priced correctly."…

In Charlotte County-North Port, the condo action was far more anemic, dropping a whopping 92 percent as prices swooned 18 percent to $165,000…

Palm Beach County

The Palm Beach Post is reporting Palm Beach County has a mini-blood bath going.

Wednesday, March 01, 2006

Maybe the housing bubble hasn't burst, but it's losing air fast.

The median price of an existing home sold in Palm Beach County in January fell to $393,700, well below the November peak of $421,500 and the first time the typical home has sold for less than $400,000 since July.

Meantime, sales volumes plunged as buyers — wary that prices will keep falling and a better deal could be around the corner — waited out the slowdown. The number of sales in Palm Beach County plummeted 39 percent compared with a year ago, the Florida Association of Realtors said Tuesday."

Palm Beach County has a mini-blood bath going," said David Dweck, a Boca Raton real estate agent and investor who heads the Boca Real Estate Investment Club.…

The price dip in the Treasure Coast was less dramatic. The median home price in Martin and St. Lucie counties was $261,500 in January, down slightly from December and 3 percent below September's record high of $269,400.

Sales volumes also fell in the Treasure Coast, dropping 44 percent compared with a year ago.

Broward County

The South Florida Sun-Sentinel is reporting The boom is gone: Home sales fall 36% in Broward.

South Florida's five-year housing boom is over.

Prospective home buyers are finding prices falling to more affordable levels. Sellers are waiting impatiently as their houses sit on the market for weeks and months, only to receive tepid interest before reducing their asking prices.

"We're entering a new part of the cycle," said Brad Hunter, a West Palm Beach housing analyst. "We're in the process of returning to reality."

January sales of existing single-family homes declined dramatically in Broward and Miami-Dade counties compared with January 2005, the Florida Association of Realtors said Tuesday. The number of home sales fell 36 percent in Broward to 552 -- the fewest used homes sold in the county in one month since the Orlando-based state Realtors group started tracking home sales and prices in 1994. In Miami-Dade, home sales in January dropped 28 percent from a year ago to 580.

The real estate slowdown also has spread to the once-frenetic condominium market. The state Realtors association Tuesday reported monthly condo sales for the first time. Existing condo sales for January dropped 21 percent in Broward and 13 percent in Miami-Dade, compared with the same period last year. The median price rose 31 percent to $211,500 in Broward and 11 percent to $259,000 in Miami-Dade.

Despite the slowdown, Hunter doesn't foresee a bubble bursting and said the housing market should remain strong through the rest of the year.

Naples

Naples News is reporting Naples home sales down 31 percent.

Naples home sales down 31 percent

Hardly surprising, and certainly not devastating.

Naples home sales plunged 31 percent in January 2006 compared with January 2005, while condominium sales dropped 41 percent in those same months.

In Lee County, sales of existing homes fell 9 percent in January compared to the same month a year ago. The $287,200 average price of Lee County homes sold in January was 31 percent higher than 12 months ago, but down almost 11 percent from the $322,000 average price in December…

Lee County

The News-Press is reporting Lee existing-home sales, prices drop in January.

Prices and the number of sales for existing single-family homes in Lee County fell sharply in January as the inventory of unsold houses soared.

The median sales price was $287,200, down 10.9 percent from December's $322,300. Sales declined 30.7 percent from 1,084 to 751.Compared to a year ago, Lee County's January median price was up 31 percent and the number of sales declined 9 percent.

Meanwhile, said Fort Myers-based real estate broker Denny Grimes of Denny Grimes & Co., "The inventory's still climbing. There are more than 11,000 houses on the market, triple what it was at the low point in the second quarter of last year."

Summary
· Sarasota-Bradenton - 48 percent drop in home sales
· Sarasota-Bradenton - 41 percent drop in condo sales
· Charlotte County North Port - 18 percent drop in home sales
· Charlotte County North Port - 92 percent drop in condo sales
· Palm Beach County - 39 percent drop in sales
· Martin and St. Lucie counties - 44 percent drop in sales
· Broward County - 36 percent drop in sales
· Broward County - the fewest used homes sold in the county in one month since 1994 Miami-Dade County - 28 percent drop in sales
· Naples - 31 percent drop in sales
· Lee County - 9 percent drop in sales

Even lower mortgage rates couldn’t spur demand:

US home loan applications fall despite rate dropWednesday March 1, 7:04 am ET By Julie Haviv

NEW YORK (Reuters) - U.S. mortgage applications fell last week as lower interest rates failed to spur demand for loans to purchase homes, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended February 24 fell 1.2 percent to 571.5 from the previous week's 578.5.

The MBA's seasonally adjusted purchase mortgage index decreased 1.9 percent to 400.8 from the previous week's 408.7. The index, considered to be a timely gauge of U.S. home sales, was also below its year-ago level of 440.0.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.18 percent, down 0.04 percentage point from the previous week.

The 30-year fixed-rate mortgage, the industry benchmark, is substantially above its 2005 low of 5.47 percent in late June, but below its 2005 high of 6.33 percent reached in the week of November 11.

Fixed 15-year mortgage rates averaged 5.84 percent, down from 5.87 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.64 percent from 5.60 percent.

Last week's drop in rates, however, managed to marginally impact demand for home refinancing.

Theroxylander in Flame blogger makes a simple yet effective point:

Two very simple statistical data: new home starts at 2.28 million annual rate in January, new home sales at 1.23 million rate. The supply exceeds the demand by 85%, and this supply is coming as a wave just few months from now.

Because the housing asset bubble is one of only two things keeping the U.S. economy alive (the other is military spending), no effort will be spared by the Federal Reserve Board to keep the bubble inflated. Yet, in spite of these inflationary policies, they are still having trouble keeping the boom going.

US Fed chairman Bernanke will not prick asset bubbles

By Nick Beams1 March 2006

Like his predecessor Alan Greenspan, the new chairman of the US Federal Reserve Board, Ben Bernanke will take no measures to deflate housing or other asset bubbles in the American economy.

Bernanke made his position clear in response to a question that came at the conclusion of his first major speech on monetary policy since taking over from Greenspan a month ago. The central bank, he claimed, “doesn’t really have good instruments for addressing asset price bubbles should they exist, particularly if they are in one particular segment or another.”

He acknowledged that while the Fed needed to “pay close attention” to changes in asset prices because they had an impact on spending and economic growth, it was “generally a bad idea for the Fed to be the arbiter of asset prices.”

“The Fed doesn’t really have any better information than other people in the market about what the correct value of asset prices is,” he told his audience at a symposium held last Friday at Princeton University.

This is the same position adopted by Greenspan when confronted by critics who suggested that the Fed should have taken action to halt the stock market bubble in the 1990s. In fact, Greenspan knew full well that the escalating stock market was a financial bubble. The reason he took no action was not due to lack of information or a belief that the “market knows best” but the opposition that such measures would have generated from leading figures in the financial elite.

When the stock market spiral ended in 2001, Greenspan cut interest rates to record lows in order to prevent a recession. But this has led to a rapid rise in house prices over the past five years—55 percent overall according to the Office of Federal Housing Oversight—and much more in some areas.

If Bernanke is wary of pricking this latest bubble, it is because of the crucial role that escalating house prices have played financing debt and consumption spending. Household debt has become an increasingly important factor in maintaining American economic growth because of the decline in real wages for the majority of ordinary wage earners.

According to a survey by the Federal Reserve issued last week, the growth in US household incomes has fallen sharply compared to the last years of the 1990s.
Between 2001 and 2004, the median inflation-adjusted income in the US rose by 1.6 percent before taxes, compared to an increase of 9.5 percent in the three years to 2001. This change was “strongly influenced by a 6.2 percent decline in the overall median amount of wages measured in the survey,” the Federal Reserve noted in a summary of its findings.

While Bernanke wants to continue the policies of his predecessor, how long he is able to do so is another matter. Paul Volcker, who was Fed chairman from 1979 to 1987, pointed to the mounting balance of trade deficit—$726 billion last year—as the main problem confronting the new chairman.

In an implicit criticism of Greenspan, Volcker said in an interview following the speech: “Bernanke is not inheriting the best of situations. How would you like to be responsible for an economy that’s dependent upon $700 billion of foreign money every year? I don’t know what I would do about it, but he’s going to have to do something about it sooner or later.”

Last April, in a comment published in the Washington Post, Volcker warned that the US economy was “skating on increasingly thin ice” and that at some point confidence in capital markets, which was supporting the inflow of funds into the US, could fade. Since then the ice has got even thinner, as the balance of payments deficit has blown out to more than 6 percent of gross domestic product.

Interestingly, George Ure thinks that the policy to deliberately introduce inflation to maintain asset prices may work—for a while:

It appears there is a well coordinated effort of the G7/G-8 to instigate a global round of inflation of equities and other instruments in order to cause a short term bout of inflation to preserve the values in real estate equity. (That's why the Dow is going up when inflation numbers come out - the Dow is being prices like a hard asset - a very strange turn indeed.)

In the background, the Fed, you'll recall, is less interested in maintaining "honest money [e.g. money that will have the same purchasing power tomorrow as it does today] than it is in maintaining predictability of monetary performance. In other words, the Fed's deep thinkers know that if we have some measure of inflation, the country can survive with its power class holding on to the reigns of power and to some extent, the retirement savings of the Baby Boomers intact. That's why our Global Index (and aggregate of more than a half dozen stock markets and available to subscribers) has made a move above trend line recently. I expect this came well in advance of the global bad news about housing.

Of course, the $64 gazillion dollar question is whether this global inflation plan will work. Short term my answer is yes, or Elaine and I would not have purchased the adjoining 16 acres. Long term, it will all blow up at some point because when corporations run out of ways to cut costs they cut worker incomes and cut workers, which is what brings about deflation and TEOTWAWKI (the end of the world as we know it) financially. Consumption drops and the economic engine reversed and drives the world into the dirt - as happened in the 1930's.

Nick Beam’s annual report on the world economy for the World Socialist Website goes into more detail about the vulnerabilities:

Nick Beams: Report on the world economy in 2006

Part One
By Nick Beams

28 February 2006
This year has opened with predictions of further strong growth in all the major industrial economies and in the global economy as a whole, following a world growth rate of 4 percent in 2005—the highest level for some time.

The president of the European Central Bank, Jean Claude Trichet, told a meeting of bankers on January 9 that global economic growth in 2006 could even exceed that of last year. Others share this view. According to Trichet, central bankers believe that “global growth is continuing at a pace that is dynamic and we don’t even exclude that global growth could be a little bit higher in 2006 in comparison with 2005.”

As if to confirm this rosy outlook, the Dow Jones industrial average went past 11,000 the following day—the first time it has reached that level since June 2001—after having gained more than 2 percent in the first four trading sessions of the New Year. The last time the Dow went past 11,000 there were predictions it could go to 36,000. Such claims are no longer made but there is, at least on the surface, the appearance of optimism.

The US economy is predicted to grow by 3.4 percent in the coming year, the eurozone by 1.9 percent, Japan by 2.0 percent, and the United Kingdom by 2.1 percent. China, having announced a 10 percent growth rate for 2005, is expected to expand by at least 8-9 percent in the coming year. Corporate profitability is also set to rise, with predictions of the profit increase for the S&P 500 at 13 percent.

However, behind the short-term optimistic outlook, serious economists have concerns about the state of the global economy. They point to a series of deep-going structural imbalances and tensions—above all generated by the mounting US balance of payments deficit and accelerating indebtedness—which, at a certain point, must give rise to rapid changes, if not a crisis. These concerns were reflected in a number of comments published as the year opened.

Adam Posen, an economist with the Institute for International Economics, in an article entitled “Batten down the hatches in case the storm hits,” drew an analogy with Hurricane Katrina, and warned of the “potential economic storm that will be generated by the inevitable adjustment of global imbalances.”

“No one could have prevented Katrina, but the damage from it could have been significantly reduced. Similarly, there are policy steps that should be taken to batten down the global economy ahead of a potentially severe shock from renewed trade protectionism or dollar adjustment.”

Little, however, had been done. “If the governments of the big economies wanted to learn from Katrina, though, they would take action to limit the damage that resolving the current global imbalances could bring” (Financial Times December 28, 2005).

While Posen did not explicitly make the point, there is a fear that if and when an economic Katrina does hit, the response of financial authorities will be on a par with that of the Bush administration when faced with the hurricane.

No doubt that response will also include Blackwell mercenaries patrolling the streets and a “cleansing” of a chunk of the population for the benefit of the oligarchy.

An article by Kenneth Rogoff, former chief economist at the International Monetary Fund (IMF), published on January 3, began as follows: “Let me first acknowledge that we are indeed living in boom times. The central scenario for 2006 is continued strong global growth. Rising global investment combined with higher demand by oil and commodity exporters should keep overall global demand growing briskly in 2006, even as US consumption and Chinese investment growth slacken.”

There were, he continued, numerous positive developments underpinning this happy scenario, including the rise of Asia, and especially China, the reduction of inflation and the decline in long-term interest rates. But this was not the end of the story.

“As good as the economic fundamentals are, it is easy to find more down-to-earth vulnerabilities. Top of the list has to be global housing prices—which are not actually that close to earth any more. With US prices up 60 percent since 2000 and even higher price inflation in many other countries it is not hard to imagine a collapse ...”

The Economist magazine drew a similar conclusion in a survey published on June 16, 2005, in which it described the global housing price boom as possibly “the biggest bubble in history.”

According to Rogoff: “[The] global financial system, while fundamentally a source of strength, is also a source of weakness. The explosion of unregulated hedge funds and the widespread use of derivatives such as credit default swaps pose risks that are simply impossible to calibrate until the system is stress-tested. This could come, for example, in the wake of a dollar collapse, still a considerable risk as global interest rates equalise and investors turn their attention to the US’s unsustainable trade deficit” (Financial Times January 3, 2006).

In a comment published the following day, Financial Times economics correspondent Martin Wolf noted that the fact that the dangers to world economy were not being recognised in financial markets was itself a factor in potential instability.

“For the world economy, a happy new year is now expected. But forecasters usually assume that recent trends will continue, modified where appropriate by reversion to a longer term mean. It is more useful, however, to ask what might change. When everything is going quite well, as now, that mostly means asking what could go wrong and, more important, whether the risks of its doing so are adequately priced. The answer is: they are not.”

The sources of these concerns were clear. For the present course to continue, Wolf noted, finance had to keep flowing into the US to meet its widening balance of payments gap, interest rates had to remain low, and debtors, especially in the US, must be willing and able to go on borrowing to finance consumption spending.

There were “many risks” of disruption arising from the “imbalances” in the world economy. The financial deficit of US households, he pointed out, was running at more than 7 percent of GDP. Indebtedness of the household sector had risen from 92 percent of disposable income in the first quarter of 1998 to 126 percent in the third quarter of last year. Household debt service payments had been pushed to an all-time high of 14 percent of disposable income. “What would happen if house prices ceased to rise or interest rates increased?”

“Large dangers of disruption exist. But markets are ignoring them. So we must recognise the danger not only that something will go wrong, but that markets will then multiply the needed corrections” (Financial Times January 4, 2006).

In other words, when a shift does take place, the consequences will be all the more severe because the possibility of such an event was ignored in the preceding period.