The Mess That Greenspan Made - Part 11

U.S. Home Price Gains Slow … or Reverse

Standard & Poor’s reported(.pdf) that U.S. home price gains have slowed dramatically in recent months and, on a seasonally adjusted basis, home prices have now declined for the first time in two-and-a-half years as shown below.

As the the non-seasonally adjusted data and the year-over-year data in this report traditionally receive more attention than the adjusted data, few news headlines are indicating (gasp!) U.S. home price declines, but that may soon change.

The 20-City Home Price Index rose 1.1 percent during the month of May, however, this is less than half the increase reported for the same month in 2012 or 2013. As is the case for home sales, seasonality plays a big role in home prices, and after adjustments are made the result is a decline of 0.3 percent in home prices.

On a year-over-year basis, both the raw and adjusted indexes showed a gain of 9.3 percent, however, this is down sharply from an annual gain of almost 14 percent six months prior.

While unadjusted data showed home price gains across the board during one of the strongest month of the year for price gains, some 14 cities in the 20-city index showed declines in adjusted prices, paced by a drop of 0.9 percent in Atlanta and a decline of 0.8 percent in Chicago. In April, the adjusted data showed only five cities with falling prices and, all told, this should serve as another warning sign of a faltering housing market.

Tuesday Morning Links

MUST READS
The Fed in denial – CNBC
A third of Americans delinquent on debt – USA Today
Geopolitical Risk Rises for Global Investors – Bloomberg
Israel Strikes Fuel Tanks at Gaza’s Only Power Plant – NBC News
Significant new EU sanctions on Russia expected – Washington Post
Argentine Default Drama Nears Critical Stage – WSJ
Social Security – The Train Wreck That Doesn’t Need to Happen – Fiscal Times
Medicare, Social Security Disability Fund Headed in Different Directions – WSJ
Is This The Chart That Has High-Yield Investors Running For The Hills? – Zero Hedge
I quit working full-time years ago—here’s why I recommend it highly – Quartz
Grieving parents hit with $200,000 in student loans – CNN/Money
Our Totalitarian Future – Part One – The Burning Platform
And That’s a GOOD Thing?? – Dollar Collapse

MARKETS/INVESTING
Europe, Asia stocks up ahead of US data – AP
Markets: Exuberance is not always ‘irrational’ – Reuters
Japan stocks close at six-month high on upbeat earnings – MarketWatch
China Stocks Rise for 6th Day in Longest Winning Streak in Year – Bloomberg
Here’s What Wall Street Bulls Were Saying In December 2007 – Contra Corner
Why the 10-year Treasury could yield 4% by Thanksgiving – MarketWatch
Bund Yield Falls to Record, Surpassing Euro-Crisis Levels – Bloomberg
Gold rises on Ukraine, Middle East conflicts; Fed eyed – Reuters
Gold Price Projection Based On Elliott Wave Since 1970 – GoldSilverWorlds
Gold retailers wind down installment schemes in India – Mineweb
Three Signals For A Huge Silver Spike In 2014 – SRSrocco Report

ECONOMY/WORLD/HOUSING/BANKING
Inflation OCD – Krugman, NY Times
Shilling: U.S. may fall back into recession – Financial Post
U.S. Economic Confidence Down Sharply From Last Week – Gallup
Inflation Hawks Have Been Wrong for Years. Should We Listen Now? – New Republic
Modi’s New Indian Government Is Off to a Bad Start – Bloomberg
Keep UK interest rate low for now, IMF tells Bank of England – Guardian
South Korea posts largest current account surplus in H1 – xinhuanet
U.S. housing market still isn’t all fine and dandy – MarketWatch
Goldman unit eyes foray into China amid metals financing scandal – Reuters
China’s Banks Pose World’s Largest Systemic Risk – WSJ
Tame inflation expectations a trump card for Fed doves – WSJ
Don’t Be Fooled by the Fed’s Facade – Bloomberg

 

Too Low for Too Long?

With U.S. equity markets making new record highs on a weekly (if not daily) basis, there’s been a notable increase in the amount of “bubble talk” recently, said talk normally reaching a crescendo in the days leading up to another Federal Reserve policy meeting.

That’s exactly what’s happening early this week in advance of a gathering of central bank officials as reports like Is the Fed fueling a giant stock market bubble? at USA Today via Motley Fool present graphics like the one below before answering their own question with an emphatic ‘No’. Stock investors are comforted with logic such as “the fact that the Fed’s monetary policies have caused stock prices to soar, doesn’t mean there’s a bubble”.

A more thoughtful take on the subject is offered up by none other than Dallas Federal Reserve President Richard Fisher who notes The Danger of Too Loose, Too Long in the Wall Street Journal that includes the following conclusion:

…with low interest rates and abundant availability of credit in the nondepository market, the bond markets and other markets have spawned an abundance of speculative activity.

There are some who believe that “macroprudential supervision” will safeguard us from financial instability. I am more skeptical. Such supervision entails the vigilant monitoring of capital and liquidity ratios, tighter restrictions on bank practices and subjecting banks to stress tests. All to the good. But whereas the Federal Reserve and banking supervisory authorities used to oversee the majority of the credit system by regulating depository institutions, these institutions now account for no more than 20% of credit markets.

My sense is that ending our large-scale asset purchases this fall will not be enough.

I’ll never forget former Fed Chief Alan Greenspan telling Congress back in 2004-2005 how U.S. banks showed no signs of stress when, meanwhile, the “shadow banking system” was a veritable Wild West in mortgage lending. I’d say the odds are pretty good that the term “macroprudential supervision” will come back to haunt current Fed Chair Janet Yellen.

Monday Morning Links

MUST READS
Banks accused of rigging silver price – BBC
The Danger of Too Loose, Too Long – WSJ
Is the Fed fueling a giant stock market bubble? – Motley Fool
Ultrawealthy pile into private equity, hold line on stocks, cash – CNBC
EU Agrees to Russia Sanctions; US Could Arm Ukraine – Fiscal Times
Reports: Ukrainian Fighter Jets Were with Malaysian Flight 17 – Washington’s Blog
Secret Tunnels Under Israel Reveal Threat From Gaza – Bloomberg
Why the super rich are running scared of inequality – Business Spectator
California High-Speed Rail—Some Views from the Valley – Atlantic
China food crisis spreads to foreign brands – MarketWatch
Yes, This Is An Equity Bubble – Hussman Funds
Bubbles & Schemes – Prudent Bear
No Decency – aucontrarian

MARKETS/INVESTING
China profits boost Asia stocks, Europe unenthused – AP
Even modest GDP bounce may support market – Reuters
Heads or Tails? Either Way, You Might Beat a Stock Picker – NY Times
The Case for a Bull or Bear Market in Two Charts – of two minds
An Emotional Gut Check For An Aging Bull Market – Forbes
How investors should react to a nervous bond market – Telegraph
Treasuries Fall Before Fed Policy Makers Meet, Bond Sales – Bloomberg
Gold slips on steady dollar ahead of U.S. data, policy meeting – Reuters
Gold for bitcoin new fad as e-currency count nears 500-mark – Business Standard
Gold Bugs Meet Bitcoin Believers to Supplant the Dollar – Bloomberg
A Chinese Gold Standard? – NY Sun

ECONOMY/WORLD/HOUSING/BANKING
Get ready for 48 hours of economic fury – MarketWatch
The Typical Household, Now Worth a Third Less – NY Times
Swedes in Household Debt Binge Seen Provoking Policy Slap – Bloomberg
No meeting scheduled between Argentina and court mediator – Reuters
China’s industrial profit surges, headwinds lurk – MarketWatch
China’s financial risk – Econbrowser
No plan to ease property curbs in Beijing – China Daily
U.K. homebuyer confidence tumbles over high prices – Telegraph
Cities Reacting to Drought, SoCal’s Tough Housing Market – LA Curbed
3 reasons Yellen’s FOMC remains dovish – Sober Look
Financial stability and monetary policy – voxeu
In praise of… Janet Yellen – Guardian

 
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