The Keep: All Households Created During “Recovery” Were Renters

There was a movie from 1983 called “The Keep” with Scott Glenn, Gabriel Byrne, Jürgen Prochnow and Ian McKellen. A great cast, to be sure, but the nemesis in the movie was … a man in a rubber suit.

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The title “The Keep” is more appropriate for the NON recovery of the US economy and housing in particular. That is, did The Fed’s monetary policy help KEEP households in rentership mode? (And its another name for The Federal Reserve building on Constitution Avenue in Washington DC).

If we look at households created during “the recovery” and all The Fed’s monetary stimulus, all households created were renters.

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This is not all that surprising since home price growth is 13.3X wage growth.

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But the US is not alone in poor wage growth. Europe, UK, Japan and the US are all suffering stagnant wage growth. While house prices are booming in many countries.

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The US homeownership rate keeps falling despite The Fed’s massive intervention.

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Any wonder why the M1 Money Multiplier and M2 Money Velocity are so low?

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Like in the movie “The Keep” you will have to rent.

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Janet Yellen’s “Pat Paulsen” Speech: The Fed May Or May Not Raise Rates

Janet Yellen gave yet another speech, this time in her home base of San Francisco. Here it is! 260150092-Yellen-Speech-March-27

In short, she said … nothing. The Fed may raise rates or they may not. And they don’t know when.

To conclude, let me emphasize that in determining when to initially increase its target range for the federal funds rate and how to adjust it thereafter, the Committee’s decisions will be data dependent, reflecting evolving judgments concerning the implications of incoming information for the economic outlook. We cannot be certain about the underlying strength of the expansion, the maximum level of employment consistent with price stability, or the longer-run level of interest rates consistent with maximum employment. Policy must adjust as our understanding of these factors changes. However, if conditions do evolve in the manner that most of my FOMC colleagues and I anticipate, I would expect the level of the federal funds rate to be normalized only gradually, reflecting the gradual diminution of headwinds from the financial crisis and the balance of risks I have enumerated of moving either too slowly or too quickly. Nothing about the course of the Committee’s actions is predetermined except the Committee’s commitment to promote our dual mandate of maximum employment and price stability.

While I only have the written speech, here is a film of Pat Paulsen speaking. It contains the same gibberish as the Yellen speech.

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Bubbles In The Wind: US Home Prices Rising Over 13X Wage Growth (Blistering Home Price Growth Since QE3 With Dormant Wage Growth)

Kansas once sang “Dust In The Wind” that reminds me of rapidly rising home prices that are 13.3 times wage growth.

I close my eyes only for a moment, and the moment’s gone
All my dreams (of homeowernship) pass before my eyes, a curiosity

Dust in the wind, all they are is dust in the wind (with low wage growth

RealtyTrac has a new study that verifies what I have been saying since 2012: home prices are growing faster than wages (in fact, 13.3 times faster).

median home price vs wages_0

Here is my version of the RealtyTrac chart:

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Detroit, San Francisco and Atlanta lead the nation is home price growth/wage growth disparity. Even Washington DC made the list.

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There are urban areas where wage growth exceeds home price growth, such as in Tulsa and Oklahoma City.

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Here is a snapshot of home price growth and wage growth since The Fed enacted the third round of quantitative easing (QE3).

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Here is Fed Chair Janet Yellen singing “All YOU are is dust in the wind.”

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‘Twas The Night Before The GDP Report: Atlanta GDP NOW Forecasts 0.2 Percent Q1 GDP Growth

‘Twas the night before THE GDP RELEASE, when all through the house
Not a creature was stirring, not even a mouse

Apparently the same applies to the US economy. The Atlanta Federal Reserve’s GDP NOW is forecasting a pathetic Q1 GDP read of 0.2 percent.

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Here is the breakdown. From the beginning of February until today, Personal Consumption Expenditures (PCE) on Goods dropped severely. And Fixed Investment in Structures fell as well.

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Meanwhile, the 10 year – 2 year yield curve slope is near the low since December 2007.

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Let’s see what Friday’s GDP release brings. I forecast … a lump of coal.

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I wonder if The Fed will still consider raising interest rates this year?

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Why The Fed May Raise Rates Soon (What Big Sister Is Watching!)

There was an excellent Bloomberg article entitled “Yellen Is Watching These Four Indicators for Signals on When to Raise Rates.”

Forget the Federal Open Market Committee’s pledge to be “patient” in raising rates from near zero. Forget “considerable time” and unemployment “thresholds.”

The new buzzword at the Federal Reserve is “reasonably confident.”

That’s the phrase Chair Janet Yellen and her colleagues at the Fed used in the statement this week to describe their need to feel pretty sure that inflation is on the way back to their 2 percent target before liftoff.

In her press conference on March 18, Yellen laid out the markers for what “reasonably confident” means. While “I don’t have a mechanical answer for you,” there are four targets that matter.

1. Jobs, jobs, jobs
Labor markets need to continue to improve. “A stronger labor market with less labor market slack is one factor that would tend to, certainly for me, increase my confidence,” Yellen said.

One key measure of slack is the unemployment rate, which was 5.5 percent in February. The FOMC this month lowered its estimate of longer-term unemployment to 5-5.2 percent. That is a kind of speed limit at which further declines would push up inflation as the stronger hiring spurs faster wage gains. So the labor market has a little further to run before officials expect to see wages rise.

2. Core inflation
Inflation without the food and energy components needs to stabilize. “We expect inflation to remain quite low because of the depressing influence of energy price declines and the dollar,” Yellen went on. “We will be looking at the inflation data carefully” to discern what’s happening beyond those short-term influences.

In other words, a stabilization or rise in core prices, excluding food and energy, might have more weight than the actual headline price data.

3. Wage growth
Wages need to break out of their slump. “We will be looking at wage growth” as a signal of inflation though “I wouldn’t say either that that is a precondition to raising rates.”

There is plenty of anecdotal evidence from the likes of Target Corp. and Wal-Mart Stores Inc., for example, that wages are edging higher. Yet there’s not much support in the data. Average hourly earnings rose just 2 percent over the past year through February. That is in line with the average since the recession ended in June 2009.

4. Inflation expectations
What households and investors expect inflation to be in the future has to rise a bit. “We’ll be watching inflation expectations.” For one thing, “market-based measures” of expectations are too low. “If they were to move up over time, that would probably serve to increase my confidence.”

The measure that looks at inflation expectations five years from now fell as low as 1.75 percent in January. A move back to 2 percent would add to confidence.

But there is a fifth consideration: bank net interest margins. Net interest margin (NIM) is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their (interest-earning) assets.

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Let’s use JP Morgan Chase (JPMC) as an example. Their Net Interest Margin (NIM) like that of other banks has been in a nosedive.

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And if we look at JPMC’s annual report for 2014, you can see that a +100/+200 parallel shift in the yield curve could add billions to their value.

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Another reason for The Fed to raise the Fed Funds Target rate is to “normalize” the situation and give The Fed room to maneuver on the downside … again.

So while The Fed is lowering their expectations of when to hit targets for a rate increase, there is also pressure from lenders to increase interest rates. Particularly if The Fed can STEEPEN the yield curve slope (perhaps through Operation Twisted).

Big Sister is watching … key economic indicators (and bank net interest margins)!

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US Inflation Rises …. To Zero

Everyone is watching The Federal Reserve like a hawk for tell-tale signs of a rate increase.

As Janet Yellen has already said, The Fed is watching inflation.

Today’s inflation report found that the CPI rose 0.0 percent year over year.

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This does not look like a trend that is likely to stimulate a rate increase.

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New Home Sales Rise 7.8 Percent In February (Rises 153 Percent In Frozen Northeast, Down 6 Percent in Sunny West)

So much for the cold weather meme.

New home sales rose 7.8 percent in February and … 153 percent in the frozen Northeast.

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Well, I guess it wasn’t THAT cold. And new homes sales declined 6 percent in the sunny West.

Once again, a bit of an anomaly rears its ugly head. Mortgage purchase applications remain at 1995 levels while income remains lower than in 2007. On the other hand, the employment to population ratio is growing.

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At least new home sales are back to 1991 levels, a far cry from the heady days of 2005.

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