Economic Stories of Relevance in Today's World -- August 25, 2013

We Will Now See Massive Panic Across World Markets - King World News - Michael Pento - August 24, 2013 - While officials from the Federal Reserve gather in Jackson Hole Wyoming this week to bemoan that inflation isn’t yet high enough for their liking, the truth is that inflation is already ravaging the middle class....

To prove my point, the government’s official reading on core CPI inflation (one of the Fed’s preferred metrics that removes food and energy prices) increased just 1.7% from July 2012.  So, in the mind of those who control the value of our currency, inflation is well below their target of 2%; and therefore needs to be increased.

Nevertheless, let’s try another, more real-world way of calculating the data.  The labor department correctly judges that prices paid for shelter should be a significant proportion of the core CPI calculation (about a 40% weighting).  According to the Labor Department, prices for shelter increased only 2.3% from July of last year.

However, according to the National Association of Realtors, existing home prices surged 13.7% year-over-year.   And according to the Commerce Department, new home prices jumped 8.5% year-over-year.  If you include the increase in the other items in core CPI ex-housing (up 1.2% year-over-year), a more accurate measurement of core CPI can be achieved.  Consumer prices would be up 5.1% from the year ago period -- assuming you simply average the cost of purchasing a new home with that of an existing home. 

In reality, existing home purchases exceed the number of new home sales and would therefore increase the core rate reading.  The difference between the government’s data and what is collected from private sources is that the Bureau of Labor Statistics measures the imputed rental value of homes, instead of actual increases in what consumers have to pay for real estate.

A core rate of inflation that is rising north of 5% year-over-year should send shivers down the spines of those at the Fed, and consumers alike.  However, amazingly Mr. Bernanke is still debating if a $3.6 trillion Fed balance sheet and the $85 billion worth of new credit creation each month is doing enough damage to the value of the dollar.  The Fed’s inflation is especially painful to the middle class, due to the fact that real median incomes have fallen 6.1% since the start of the Great Recession, which began in December 2007.

Our economy is so addicted to money printing that the Fed can’t agree on when, or even if, it should reduce the level of its asset purchases.  Mr. Bernanke’s confusion over monetary policy is evident, despite the fact that he has built up a stock, bond and real estate bubble.  This trifecta of asset bubbles exists concurrently for the first time in American history.

Our central bank will soon have to decide whether or not it will continue allowing these bubbles to grow to a more dangerous level (intractable inflation); or to start selling trillions of dollars worth of bonds and send interest rates soaring.  We have already witnessed what a mere one percent increase in mortgage rates did to new home sales (down 13.4% in July, the lowest level in 9 months). This occurred without the Fed tapering its purchases of MBS and Treasuries by even one dollar.  Just imagine what will happen to interest rates when the Fed not only stops buying that debt; but also starts unloading its balance sheet.

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Jobless picture is worse than you think: Gallup - CNBC - August 22, 2013 - While Gallup's numbers have offered significant divergences from the Bureau of Labor Statistics data, the two numbers had been running fairly close for most of the year. In fact, Gallup's tally actually briefly slipped below the government's in April when it recorded 7.4 percent, compared to the BLS number then of 7.5 percent.                        Since reaching that April bottom, though, Gallup's numbers have surged and tracked above 8 percent for August, reaching their highest level since hitting 8.7 percent in mid-March 2012.                          The trend comes at a ticklish time for the economy.                      The Federal Reserve is contemplating an exit from its quantitative easing program in which it buys $85 billion a month in Treasurys and mortgage-backed securities.                          Central bank policymakers have tied the potential QE pullback to an unemployment rate—as recorded by the BLS—in the 7 percent range, while 6.5 percent would be the minimum hurdle before the Fed would start raising its target interest rate again.                            While Gallup's numbers can be volatile, they have portended rises in the official rate.                            The data set is limited, but in previous occasions when the divergence was more than 1 percentage point "the BLS unemployment rate was flat to up over the next three months," Bespoke Investment Group said.                         To be sure, there are major caveats.                           The Gallup numbers are not seasonally adjusted, and surveying methodologies differ substantially.                    "The BLS method is statistically more rigorous. With the Gallup, you're basically doing a poll," said Jacob Oubina, senior economist at RBC Capital Markets. "The Gallup is more of a sentiment-type indicator. Either way, the unemployment rate doesn't really give you a good indicator of the true state of the labor backdrop."                   Instead, Oubina recommends focusing on the employment-to-population ratio.                          The news doesn't get any better there, though.                           The government puts that number at 58.7 percent, a level from which it has deviated little over the past four years since the end of the financial crisis and Great Recession.                            According to Gallup, that measure is 43.8 percent, plunging over the years from 63.5 percent in January 2010.                         It's not known whether the Fed is paying attention to what Gallup's polling shows. If it is, the discussions at the September Open Markets Committee meeting over tapering QE could take on a different tone.                            "The employment-to-population ratio is basically bumping along the lows of the cycle," Oubina said. "We definitely still have a long way to go."


Gallup: Unemployment Rate Jumps from 7.7% to 8.9% In 30 Days - Breitbart - John Nolte - August 21, 2013 - Outside of the federal government's Bureau of Labor statistics, the Gallup polling organization also tracks the nation's unemployment rate. While the BLS and Gallup findings might not always perfectly align, the trends almost always do and the small statistical differences just haven't been worthy of note. But now Gallup is showing a sizable 30 day jump in the unemployment rate, from 7.7% on July 21 to 8.9% today.              This is an 18-month high.                         At the end of July, the BLS showed a 7.4% unemployment rate, compared to Gallup's 7.8%. Again, a difference not worthy of note. But Gallup's upward trend to almost 9% in just the last three weeks is alarming, especially because this is not a poll with a history of wild swings due to statistical anomalies. Gallup's sample size is a massive 30,000 adults and the rolling average is taken over a full 30 day period.                         Gallup also shows an alarming increase in the number of underemployed (those with some work seeking more). During the same 30-day period, that number has jumped from 17.1% to 17.9%. 


Obamacare, tepid US growth fuel part-time hiring - Reuters through CNBC - August 21, 2013


The end of the dollar store recovery - CNN Money - Nin-Hai Tseng - August 23, 2013 -  Dollar stores were one of the few bright spots in U.S. retail during the Great Recession as cash-strapped consumers looked to do more with less. And while many are still going to these discounters for bargains, they're also buying less.                 On Thursday, Dollar Tree (DLTR) reported that its second-quarter profit rose 4.6% from a year earlier -- its stock jumped after the discount retailer raised its forecast for the rest of the year, but profits reflected a relatively modest increase for a company that saw double-digit earnings growth for the past five years.                   This follows as other dollar stores saw sales slow down from their rapid rise during the recession. The discounters are still generally pleasing Wall Street, but they acknowledge that shoppers are being more cautious about spending. In July, earnings for Family Dollar (FDO) topped analysts expectations, but Chairman CEO Howard Levin warned consumers are cautious about their spending, adding that while sales of items like food and beauty products did well, sales of discretionary items (wants vs. needs) continued to slow. Similarly, Dollar General (DG) noted many consumers had less to spend.


Why the new homes plunge doesn't tell the full story - CNBC - August 23, 2013 - Don't let the sharp plunge in new home sales mislead you: it's a tale of two housing markets, says one investor.                    "What we're learning about the housing market over here is that it's really bifurcated in that you have a lot of private-equity type money and more leveraged-type money buying up some of the older houses that have been in foreclosure, short sales," said Yra Harris, partner at Praxis Trading.                      This sizable investment has propped up sales of existing homes in the U.S. to their highest level in more than three years. But homes fresh to the market aren't faring nearly as well, new data showed on Friday, casting a shadow over the country's housing recovery.
"The new housing market where they're not as involved is showing a different pattern," Harris said.
New home sales drop - Sales of new single-family homes in the United States fell sharply in July to their lowest level in nine months. They dropped 13.4 percent to an annual rate of 394,000 units, the Commerce Department said on Friday.                            While government housing data is often subject to large revisions, the reading was well below expectations and could be a sign that a recent surge in mortgage rates is weighing on the economy.                         The data could weaken the case for the U.S. Federal Reserve to reduce its support for the economy by the end of the year. It also casts doubt on Wall Street expectations that the Fed will begin reducing monthly bond purchases next month.


Bee-killing pesticide found in garden store plants: What does it mean? - NBC - Alan Boyle - August 14, 2013 -A type of pesticide that's a focal point in the controversy over endangered honeybees has turned up in garden-store plants sampled by Friends of the Earth. Other bee experts say the pilot study on neonicotinoids adds an important twist to the plight of the bees — but stress that more rigorous research needs to be done.                          The study, co-authored with the Pesticide Research Institute and titled "Gardeners Beware," reported finding traces of neonicotinoid pesticides, or neonics, in seven of 13 plants purchased from garden stores in California's San Francisco Bay area; the Washington, D.C. area; and Minnesota's Twin Cities. The plants included tomatoes, squash, salvia and flowers that would be attractive to pollinators.                           “Our investigation is the first to show that so called 'bee-friendly' garden plants contain pesticides that can actually poison bees, with no warning to gardeners," Lisa Archer, director of the Food and Technology Program at Friends of the Earth-US, said in a news release accompanying Wednesday's 34-page report. “Bees are essential to our food system and they are dying at alarming rates. Neonic pesticides are a key part of the problem we can start to fix right now in our own backyards."
Friends of the Earth kicked off a "BeeAction" campaign to draw attention to the pesticide issue. It said petitions bearing more than 175,000 signatures were delivered to Lowe's, Home Depot, Target and other garden retailers, asking the stores to stop selling neonicotinoids and plants pre-treated with the pesticides...







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