The Mess That Greenspan Made - Part 8

The Commerce Department reported(.pdf) that U.S. housing starts rose 2.8 percent last month, from an upwardly revised seasonally adjusted annual rate of 920,000 in February to 946,000 in April, however, this was below the consensus estimate of 955,000 that was expected, at least in part, due to better weather in the spring after a severe winter.

After jumping in February in anticipation of warmer temperatures in most parts of the country, permits for new construction actually declined last month, falling 2.4 percent from a downwardly revised rate of 1,014,000 to 990,000.

Both measures of U.S. homebuilding activity came in below consensus estimates that were a bit higher than they would otherwise have been, working on the assumption that there would be a larger spring bounce than usual, however, that was not to be.

On a year-over-year basis, permits for new construction – a key leading indicator for the industry – rose 11.2 percent, however, housing starts are actually lower than a year ago, down 6.4 percent, in what was the widest contraction in almost three years.

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Wednesday Morning Links

China’s 7.4% growth beats forecast – BBC
China growth dips as property fears rise – Washington Post
As Credit Dries Up, Smaller Companies in China Feel the Pinch – NY Times
Armored vehicles in eastern Ukraine raise Russian flag – MarketWatch
Rivals show force in eastern Ukraine before talks – Reuters
Is Vladimir Putin Another Adolf Hitler? – Forbes
Ukraine Says Russia Exporting ‘Terror’ Amid Eastern Push – Bloomberg
Rebuttal for Rajan: Bernanke Defends U.S. Policy in Visit to Mumbai – WSJ
It’s Official: America is an Oligarchy and NOT a Democracy – Washington’s Blog
Peterson’s Guide to Financial Blog Commenters – Aleph Blog
How Much Trading Should There Be? – Bloomberg
The problems of HFT, Joe Stiglitz edition – Salmon, Reuters
Get Used to It: The Rich Do Get Richer – Fiscal Times

Stocks close higher as volatility returns – USA Today
Global shares up on China relief, Ukraine strains remain – Reuters
Stumbling S&P 500 Reaches Worst Stretch of Election Cycle – Bloomberg
Some advisers are getting a head start on selling stocks this year – MarketWatch
Bonds shine again as Great Rotation gives way to Asset Reflation – Reuters
Treasuries Fall as Stocks Gain Before Housing, Factory Reports – Bloomberg
Gold steadies above $1,300/oz, supported by Ukraine tensions – Reuters
Mainstream Gold Analysis: Out of Touch, Out of Context and Off the Mark – SCI
Goldman Sachs Is Highly Motivated To Low-Ball The Price Of Gold – SRSrocco Report
SGE Withdrawals Equal Chinese Gold Demand, Part 3 – In Gold We Trust
Year to the day of $200 shocker, another strange gold price plunge –
Can gold confound the markets and hit $1,400? – CNBC

Has inflation in the US bottomed out? – Sober Look
Losing Benefits Isn’t Prodding Unemployed Back to Work – FiveThirtyEight
About That “Strong” March Retail Sales “Bounce” – Contra Corner
UK unemployment falls to 6.9 percent – Telegraph
US Treasury declines to name China as currency manipulator – China Daily
What the Heck is Going on With US Treasuries In Belgium? – Testosterone Pit
British house prices increase by 9.1 pct in February – xinhuanet
Housing Market Slow to Hit Its Normal Spring Stride – WSJ
SoCal Home Sales at 6-year Low; Median Price Rises to 6-Year High – Dataquick
Out of Ammo? The Eroding Power of Central Banks – Spiegel
More Rounds of BOJ Easing May Be Needed – WSJ
The IMF is Dead Wrong on Low Interest Rates – Mises


This World Gold Council report about demand for the precious metal in China was blamed for much of today’s sell-off, a move lower that brought back memories of  what happened exactly one year ago, on April 15th, 2013, when the gold price plunged more than $150 an ounce, this following a free-fall of almost $100 the Friday before.

Of course, the Reuters report China may have 1,000 tonnes of gold tied in financing – WGC and the Wall Street Journal’s China Is Losing Its Taste for Gold didn’t help matters.

Also, like a year ago, it didn’t help that Goldman Sachs analysts were out with what seems to be a weekly reiteration of their very bearish forecast for metal prices.

Recall that, a year ago, Goldman loudly expressed their negative view on where prices were headed – taking the unusual step of recommending that clients short the metal – and it didn’t take long for twitchy futures traders to act upon that advice.

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Gas Price Increases Adjusted Out of CPI

Anyone looking for a good example of the impact of seasonal adjustments in general and how rising pump prices can translate into falling fuel prices when the government reports its monthly inflation data need look no further than today’s report on consumer prices.

As noted here earlier, despite the roughly five percent increase in the cost to fill your tank, the Labor Department said it actually cost 1.7 percent less and the table below showing the change in pump prices from February to March over the last few years explains why.

For whatever reason (most likely reduced supply due to the beginning of the winter/summer switchover and spring refinery maintenance), prices usually increase sharply from February to March and the raw data collected by the Energy Department and the Labor Department is consistent in that regard as shown above.

But, the Labor Department then attempts to smooth this data to remove this effect and better see the underlying trend, so, in this case, that results in a downward adjustment of almost seven percentage points for gasoline prices for the month of March.

Interestingly, that doesn’t appear to make the monthly chart look much smoother as shown below, but there’s probably an explanation for that too.


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