Wall Street (And Fed) Vs. Main Street (Similar To Cassius Clay And Sonny Liston)

Main Street USA is starting to resemble the late boxer Sonny Liston while Wall Street (with The Federal Reserve in their corner) is starting to resemble former heavyweight boxing champion Muhammad Ali (aka, Cassius Clay).

Since the housing/credit crisis, Wall Street has been smoking while Main Street has been choking.

wall vs main street

It’s hard to lose when you have The Federal Reserve as your corner man who fixes your cuts and gives you extra energy.

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Here is the Ali-Liston second fight after Clay (later Ali) won the first fight.

Does that mean that The Fed’s Quantitative Easing (QE) is a phantom punch?

Surprise! Europe Economic Surprise Index Trumps US and China

One would think with all the uncertainty about Greece, the ECB and IMF (not to mention Angela Merkel of Germany), that Europe would have a terrible Citi Surprise index.

So while Greece flings gyros and lit saganaki at Angela Merkel, the IMF and ECB, the European Praetorian guard are returning fire with threats to Greece’s banking system.

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You know, the banking system with evaporating deposits.

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But in reality, there was never a belief that Greece would be solved in short order (they have devastating unemployment and staggering debt).

It turns out that China and the US have negative Citi Surprise scores since January.

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Yes, even with the good housing news in the US, the US surprise index is bad news.

Surprise! China isn’t looking so good.

Surprise

Personal Spending Surges Most Since End Of Great Recession (Will This Signal End To Bond Bull Market?)

The Great Recession allegedly ended in June 2009, yet it has taken 6 years of wandering through the desert to finally get personal spending to surge.

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Will this signal the end of the bond bull market that has been around since September 1981?

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Bear in mind that personal spending YoY is only 1.24%. And inflation as measured by the CPI is -0.04%. We have seen interest rates rise since the end of January.

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So, the 10 year Treasury yield is rising despite low inflation and PCE growth. Could it be that The Fed is going to raise The Fed Funds Target Rate at the next meeting (the market looks like it anticipates a rate hike).

Meanwhile, Bloomberg proclaims that the labor market has healed!!!

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I wonder if they were thinking of CEO pay at US’s largest companies up 54% since recovery began in 2009.

Let’s see if 30 year mortgage rates continues to accelerate upwards.

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Hot fun in the summer time!

The Grim Game: Bubbling Asset Prices And Stagnant Wage Growth May Signal Correction

The manager of one of Britain’s biggest bond funds has urged investors to keep cash under the mattress.

In the UK, the prices of nearly all assets – property, shares, bonds – have been rising for years. Just like the US!

Jed Kolko at Trulia has an interesting chart depicting the bubble in house prices, particularly in The West.

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But Kolko thinks that New York City and Washington DC home prices are correctly priced? Sorry Jed, they are in a bubble too.

Here is the Case-Shiller repeat sales index for the US and Los Angeles compared with average hourly wage growth. While Los Angeles is clearly pulling away from other US cities, even the US home price index is pulling away from average wage growth.

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And with US real GDP humming along at a dismal 1.9% as of June 16th, one can argue that the massive Fed stimulus with low GDP growth is a recipe for a systemic event.

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Although stuffing your mattress with cash might not be the best recommendation.

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Starting in 2008, The Federal Reserve has helped repress interest rates and benefit large investors. The Middle Class needs Harry Houdini to help them, not Janet Yellen.

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The Greek Runs: ECB Said to Plan Emergency Greek Aid Call Amid Deposit Flight

Yes, Greece has a serious case of the (bank) runs.

Greek bank deposits have declined rather severely in recent years.

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Prompting this reaction from the ECB:

(Bloomberg) The European Central Bank plans to hold an emergency session of its Governing Council on Friday to discuss the deteriorating liquidity situation of Greek banks, three people familiar with the matter said.

The call is scheduled for noon Frankfurt time on Friday, and the officials will consider a Bank of Greece request for an increase of more than 3 billion euros in Emergency Liquidity Assistance, one of the people said. All three asked not to be identified as the plans aren’t public. An ECB spokesman declined to comment.

The request comes just a day after Greece received an increase in its liquidity line of 1.1. billion euros ($1.25 billion), which raised the limit to 84.1 billion euros.

The short interval may be a signal that deposit flight is accelerating as the latest bailout talks ended without progress on Thursday. With Greece cut off from global markets, the country’s financial system depends on central-bank liquidity to replace deposits withdrawn amid the political uncertainty over the country’s place in the euro.

Greek credit default swaps are rising on the short-end most noticeably. Compare Greek CDS to their leading credit, Germany.

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Sadly, Greek unemployment is over 25%.

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Skittishness about the future of the Greek economy coupled with 25+% unemployment will give any country the (bank) runs.

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Opa! Their banks are on fire!

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Yellen Says Tentative Signs of Wage Growth ‘Not Yet Definitive’ (But Definitively Lower Than In 2007)

Bloomberg – Federal Reserve Chair Janet Yellen said she is encouraged by tentative signs that wage growth is picking up, but these are “not yet definitive.”

“We have seen an increase in the growth rate of the employment-cost index, and the growth of average hourly earnings,” Yellen said at a press conference Wednesday in Washington following a meeting of the policy-making Federal Open Market Committee. “I would call these tentative signs of stronger wage growth. I think it is not yet definitive, but that’s a hopeful sign.”

As the rate of unemployment has declined, companies are finding they must offer higher pay to attract workers. Wages for private-sector employees rose 2.8 percent in the 12 months through March, the biggest gain in more than six years, according to the employment cost index published by the Labor Department. The U.S. jobless rate stood at 5.5 percent in May, down from 6.3 percent a year earlier.

The committee has said it will raise interest rates when it sees further labor-market improvement and is “reasonably confident” that inflation will rise to its 2 percent goal over time. Higher wages could strengthen that confidence.

Yellen said she wants to see “additional strength in the labor market” for her to have confidence that inflation will move back up to 2 percent, “but have made some progress.”

The Fed’s favorite price gauge, based on the personal consumption expenditures index, was unchanged in April from the prior month and was up 0.1 percent from a year earlier. That was the smallest 12-month gain since October 2009.

Damn it, Janet. Wage growth IS definitively lower than in 2007;

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Go (Mid)west, Young Man! Millennials Priced Out Of Coastal Cities

As newspaper publisher Horace Greeley famously stated, “Go West, young man.”

But times are different now than when Horace Greeley uttered that advice in 1871.

Today, housing is priced out of reach of many millennials in the West. And the East coast as well.

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San Jose is the most unaffordable city in the US for millennials. Washington DC is ranked 9th of the unafforability index.

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So, go (Mid)west, Young Man … where you can better afford to purchase a home.

Even at 3% down payment, housing prices are too high for many even with FHA guaranteed loans.down_payments_loan_type_Q1_2015

And rising mortgage rates won’t help!

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So go (Mid)west or to less expensive areas of the country. Like Richmond VA!

HoraceGreely