The Unknown Ideal

CNBC, Fox News, and others are blowing a lot of gas around about the Dow Jones Industrial Average's brief record-high moment this morning, and (predictably, comically) some commentators are even giving credit to George W. Bush.

A tiny bit of perspective: The US stock market is doing well, but when measured by the S&P 500 (a much better measure than the price-weighted, Dow Industrial average of only 30 stocks), which closed at 1336.50, is still below its level of 1,342.90, where it was when George W. Bush took office. Even factoring into returns the S&P's annual dividend yield of 1.8%, an investor who bought an S&P 500 index fund on the first day of the Bush administrations would have failed miserably to even match the rate of inflation by yesterday's close.

The stock market has historically done much better under Democratic administrations than under Republican administrations, as Professor Jeremy Siegel himself a Republican booster (if only for the sake of his precious dividend tax cut), showed in the last edition of Stocks for the Long Run.

Forbes has noted that the US economy has historically done better under Democrats. And the Stock Trader's Almanac provides this handy comparison of the Dow under Democrats and Republicans:

DJIA, 1981 - 2004
Republican years Avg. annual change: 6.9%
Democratic years Avg. annual change: 13.3%

Right-wingers have nothing to crow about with regard to the level of US stock market. Yet they still crow. Remember: their community is not reality-based.

Atrios kindly points us to this Think Progress report that helpfully reiterates, in response to Fox News nonsense, that the Bush tax cuts have done nothing for the US stock market:

A 2005 study by four Federal Reserve Board economists “fail[ed] to find much, if any, imprint of the dividend tax cut news on the value of the aggregate stock market.” According to a Wall Street Journal article, the study concluded that Bush’s tax cuts were “a dud when it came to boosting the stock market.”

Analysts at the Tax Policy Center found that the link between capital gains tax rates and stock market growth is “weak” and capital gains have historically risen with “little apparent effect on the stock market.”

Posted by The Unknown at 9:15 AM | Permalink

James Grant thinks the Fed is through raising short-term rates and that the FOMC is willing to call it a day at 4.5%. Grant thinks Bernanke sees trouble in the savagely inverted yield curve, at least that's what I think I read in a stranger's copy of Grant's Interest Rate Observer. Of course Grant's rant preceded what Bernanke told Congress about the inversion, namely that the inversion reflects strong foreign demand for longer Treasuries, and so on.

Meanwhile the Brothers Lehman have raised their forecast for the Fed to 5.5%, anticipating four more quarter point rate increases. The Bros' analysts cite, among other reasons, a failure of housing prices to deflated as quickly as expected, for their new Fed rate target.

Paul McCulley sees some trouble ahead due to the Fed's hyper-anality.

And his PIMCO colleague Bill Gross sounds a bit pissed about all the liars and spenders in the Bush Administration, and urges investors to diversify globally. We're there, dude.

Posted by The Unknown at 4:05 PM | Permalink

Pensions & Investments had a dopey editorial in their January 9th issue lamenting the failure of Bush's idiotic and costly PR campaign to trash Social Security. Actuary David Langer calls the editors on their crap in a February 20 letter::

The truth is [Bush] exercised poor judgement in attempting to substitute an iffy privatization program for the well-established Social Security program. By doing so, he arbitrarily dismissed the positive experience of over 150 million workers and 47 million beneficiaries . . .

You complain, "Most opponents proposed no solution to the looming funding problems of the system." The widely published conclusion of my private actuarial studies is that there are no such problems and therefore nothing needs to be solved. My findings noted the trustees' projections in their reports for each of the years for 1992 to 2001 grossly understated actual 2002 assets and in their 1983 to 2005 reports their asset projections to the same future year (such as 2030) were not as close as one would expect. These projection comparisons raise questions about the credibility of their estimates.

The trustees, who are largely hostile to Social Security (a strange posture for a trustee), control the actuarial output in their reports, and it appears they "cooked" the 2% deficits --- if done slowly, this is easily unobserved.

P&I's editorial page cud chewers, like the Wall Street Journal's Bushbotic pontificators, have a regrettable tendency to ignore their own rag's good reporting (for instance an April 4th report on Robert Shiller's dissection of the Bush privatization scheme as a federalized margin-loan ripoff that would ensure huge deficits in the program) in the service of their infantile, misguided, and predigested pro-Bush opinions.

Posted by The Unknown at 7:34 PM | Permalink | Comments (1)

Charles Biderman's crew over at TrimTabs has interesting news for stock market longs:

"The build-up of cash in M2 savings and large-denomination CDs since 2003 and the recent slowing of the real estate market are bullish for U.S. equities," adds Schnapp. During the first four weeks of January, TrimTabs Savings and Investment Flow totaled $75 billion, which was 82% higher than the total during January 2005.

"We have long tracked the Federal Reserve's money supply data, particularly M2 savings," said Charles Biderman, Chief Executive Officer of TrimTabs Investment Research. "While this data is useful over the long-term, its short-term volatility limits its value. We've developed TrimTabs Savings and Investment Flow to measure consumer cash more fully."

Posted by The Unknown at 6:18 PM | Permalink

Posted by The Unknown at 7:07 PM | Permalink

Natural gas, food, and housing prices kept top-line consumer inflation at 0.2%, even as gasoline prices fell precipitously. "Core" inflation, which excludes food and energy popped up to 0.2% from 0.1% in September, possibly reflecting some pass-through costs of higher energy costs into other consumer goods and services.

Posted by The Unknown at 5:41 AM | Permalink

Forbes reports that Warren Buffett has pulled in his bad, if rational, bets against the US Dollar. The Sydney Morning Herald estimates Buffett's losses in the neighborhood of $1.2 Billion.

One wonders if Bill Gates has already followed suit. The ol' dollar: she didn't go down after all.

Posted by The Unknown at 10:33 AM | Permalink

Once again Alan Greenspan warns on the unprecedented US budget deficits he helped create by championing the Bush tax cuts.

"There are no easy choices. Easy choices are long gone," said Greenspan, whose 18-plus year run at the Fed comes to an end on Jan. 31.

Easy choices are long gone? The Droning Chairman helped get rid of easy choices when he helped Bush get rid of the US budget surplus.

Posted by The Unknown at 2:37 PM | Permalink

"Accommodation" is a cool word, because it contains almost the entirety of the cooler word "commode," a very genteel word indeed, one often used in the phrase "commode-huggin' drunk" by my friend Cliff.

The FOMC voted again today to continue removing accommodation at a measured pace, which is to say they raised their Fed Funds rate target and discount rate yet again, by the quarter point everyone is now so accustomed to. Most futures market money is now betting that the FOMC will do the same thing at its final two meetings with Greenspan as its droning chair.

Reuters took a picture for us. US Stock and bond markets seemed quite blase about everything, though longer interest rates did edge up just a bit. Banks began to move the Prime Rate to 7%, so pay those darned credit cards off.

As I mentioned so early this morning that it now seems like hours ago, the Institute for Supply Management's manufacturing index remained much stronger than had been expected during October. It was later reported that US construction spending hit another new record today. You can read about it all right here.

Meanwhile outside the Senate chambers, Lying Bill Frist became Crying Bill Frist, throwing a very public hissy fit that still has them howling in Peoria, not to mention Dubuque.

Posted by The Unknown at 2:28 PM | Permalink

Atrios has an understatedly funny post about Friday's market action, Libby's indictment, and media coverage. Paging Dr. Shiller: you'd love this one.

Before we cut to the chase of what happened while we were distracted by rock and roll, and the continued denouement of Team Bush lies in service of Team Bush Disasters, we'll just note that there's something they never warned you about in coffee-house blogging school: the counterperson might be playing a CD by the ineffably twee Belle and Sebastian. Gacky poo.

Okay, big number: GDP growth for the third quarter of 2005 surprised on the upside, coming in at 3.8% annualized. That is all ye know on earth and all ye need to know. Well, not really. Bloomberg adds these helpful notes:

"Growth in the U.S. has exceeded 3 percent for 10 straight quarters, the longest string since the 13 three-month periods that ended in March 1986 and the best performance in the Group of Seven industrialized nations, which includes the U.S., Japan, Germany, the U.K., France, Canada and Italy.

The U.S. economy grew 3.6 percent in the 12 months ended in September. By comparison, only the economies of Japan and Canada exceeded 2 percent growth during the 12 months ended in June, according to the latest available data.
. . .
The government's personal consumption expenditures index, a measure of prices tied to consumer spending, rose 3.7 percent after a 3.3 percent gain in the second quarter. The index excluding food and energy, a measure favored by Fed policy makers, rose at a 1.3 percent annual rate, the slowest since a 1 percent pace in the second quarter of 2003."

More junk to keep outside of your brainpan: The Fed will raise them gol-darned short-term rates to 4.00% next week. The 10-year Treasury Note stands at 4.57%, and the S&P 500 stands at 1198. Jeremy Siegel thinks this means stocks are undervalued, or so he said in a note to subscribers today. Well, he's the Prof.

But I continue to be dismayed by the Prof's seeming insistence that preserving the dividend tax cut is the end-all of good government, and the lynchpin of good economic policy. Siegel seems to want a popular Bush administration so that these tax cuts can stay in place.

Perhaps good policies, fiscal and otherwise, would have led to a popular Bush administration.

As it is, Bush is a weak, worried little manny man. He is weaker than a squished worm on a drying sidewalk. May we be rid of his disastrous administration quickly.

And as I sign off, the counterperson is playing a live version of the Clash's "Complete Control". That's more like it.

Posted by The Unknown at 4:48 PM | Permalink

Business Week claimed that some people were surprised by today's drop in Consumer Confidence. I wonder what world these surprised people are living on.

At least somebody mentioned in the article seems to live on the same planet that I do:

"Much of the decline in confidence over the past two months can be attributed to the recent hurricanes, (gas) pump shock and a weakening labor market," Lynn Franco, director of the private research group's Consumer Research Center, said in a statement.

She said the "degree of pessimism, in conjunction with the anticipation of much higher home heating bills this winter, may take some cheer out of the upcoming holiday season."

In a separate report,
Existing home sales hung right in there, with the median home price up 13.4% over last September.

Posted by The Unknown at 2:04 PM | Permalink

Rumors are aswirl that Bush will announce his pick to replace Greenspan today at 1 Eastern time. The betting at online futures markets and bookie shops heavily favors Ben Bernanke.
. . .
Update: Everbody is confirming Bernanke. The stock market, at this hour, is breathing a big sigh of relief that it won't be the OEOB's accounts payable clerk.
. . .
Update 2: It's Bernanke. Mark Thoma has a good analysis.

Posted by The Unknown at 8:03 AM | Permalink

Gross Domestic Product growth for the third quarter will be reported Friday, with averaged herds of economists expecting annualized growth in the neighborhood of 3.6%.

The week will also bring us two measures of how US consumer's are feeling: Tuesday's Consumer Confidence report from the Conference Board, and Friday's survey on Consumer Sentiment, from the University of Michigan.

Stats for home sales, old and new, will be released on Tuesday (old) and Thursday (new), to give us a little clue as to how gaseous that housing bubble may still be, and Thursday's Durable Goods Orders report will give us another window on how the US manufacturing sector is faring.

Posted by The Unknown at 3:42 PM | Permalink

via Eschaton

FAIRBANKS, Alaska (AP) - The federal government could sell bonds to cover the cost of disaster recoveries under legislation introduced by U.S. Rep. Don Young, R-Alaska.
. . .
"Buying bonds that are specifically designated for these types of disasters can help bring together Americans and create a sense of patriotism."
. . .
"We must find a way to meet the inevitable needs that will arise after future disasters," he said. "We cannot continue deficit spending."

Note to the Gentleman from Alaska: selling bonds = borrowing money.

Posted by The Unknown at 3:31 PM | Permalink

The Conference Board's Index of Leading Economic Indicators lost ground for the third straight month, with a consensus-beating decline of 0.7% in September. Thus spake the Board: the largest negative contributors to the leading index were the index of consumer expectations and initial claims for unemployment insurance. A double Katrina bummer, in other words, though the index had begun its descent prior the arrival of the hurricanes.

Today's unemployment claims reports were a bit more mellow than those that helped sink the Leading Indicators: Initial claims fell to 355,000, down 35,000 from the prior week. Continuing claims continuing rose to 2,894,000, 36,000 more than last week, as some of the nearly half-million estimated Katrina-related claimants flow through the benefits systems.

A few years ago, Wall Streeters maintained a superstition that initial claims below 400,000 correlated with an expanding job market. I'm not sure when exactly that faith collapsed, but nobody talks about it much any more.

Another big deal today was the decline in crude oil futures, with NYMEX crude below $60/barrel. Energy stocks took a beating, as did the broad market, which lost everything it had gained yesterday.

Cheer up, everybody: we're almost two-thirds of the way through Octoberfest on Wall Street.

Posted by The Unknown at 2:52 PM | Permalink

The Federal Reserve issued its "Beige Book" today, finding that "Economic activity continued to expand in September." Retail sales, particularly auto sales, were noted as slowing, though manufacturing, services, and even employment were said to be growing in most regions. Inflation, of course, provided no surprises. It exploded in September. We knew that.

Housing Starts report was surprising, though, growing 3.4% month-over-month in September. Bloomberg helpfully notes that "30-year fixed mortgage rates that are still within a percentage point of a four-decade low fueled demand."

US stocks had quite a run today, with the S&P finishing up some 17 points to close at 1,195.76, possibly helped by today's positive economic assessments, and an earnings reporting season that has not been too bad.

Looking at our valuation worksheet, we see a price-to-earnings ratio for the US large-cap market that is still quite close to the long term historical average, and still well below the average P/E of the "irrational exuberance" years.

Posted by The Unknown at 1:37 PM | Permalink

First, Economist John Schmitt on the long-term, broad outlook, in a new paper from CEPR:

After controlling for improvements between 1979 and 2004 in the “human capital” of the U.S. workforce —American workers today are, on average, older and much better educated than they were at the end of the 1970s—the economy now produces 25 to 30 percent fewer good jobs than it did 25 years ago.

Then, John Challenger, on recent decimation of Tech Sector jobs in the US:

Technology sector job cuts for the first three quarters of the year were up 18.8% over the same period in 2004, according to Challenger, Gray & Christmas Inc., a global outplacement company.
. . .
Unlike other U.S. industries that have seen cuts -- even as new jobs were being added -- the tech segment has lost jobs without a similar rate of hiring to offset the cuts, John Challenger, CEO of Challenger, Gray & Christmas, said in a statement.

"The gradual slowdown in job cuts would be more encouraging if it were complemented by a rise in hiring, but job creation simply has not materialized," Challenger said. "The industry may indeed be recovering when it comes to revenue, profits and earnings, but certainly not when it comes to employment."

Posted by The Unknown at 8:00 PM | Permalink | Comments (1)

Growth in the Producer Price Index for September was expected to be high, but this morning's report beat a lot of expectations, coming in, month-over-month, at 1.9% and 0.3% at the core level (excluding food and energy). Inflationary pressures and flow-throughs, particularly from energy prices, are beginning to manifest themselves in the production of goods.

The Fed will march on, in its crusade to Whip Inflation Now.

Posted by The Unknown at 9:51 AM | Permalink

The Conference Board said some things today, among them that the US economy would rebound as early as Q1, 2006 from Katrina's bludgeoning.

But the Board seems to have made a weird assumption:

Unlike many private economists, the Conference Board said its outlook assumes the Federal Reserve Board will not raise the federal funds rate higher than 4.0 percent.

"Should the Fed continue to hike rates and the yield curve invert, the outlook will be significantly worse," [the Conference Board] said.

Huh.

Posted by The Unknown at 3:11 PM | Permalink

The high cost of energy not only figured into Friday's CPI whopper, but also assuredly factored into last week's retail sales number from the Commerce Department, where higher spending on gasoline was behind much of the increase.

That American consumer, short on savings and high on debt, just keeps on spending, though the retail sales increase for September of 0.2% was short of the consensus estimate of a 0.5% increase. August's US Trade Deficit number, at $59 billion for the month, the third highest in history, underscores the profligate consumption of resources, goods, and services by the United States; the "global imbalances" drumbeat is now heard almost daily in the previously oblivious mainstream media's finance reports.

The Fed reported that Industrial production dropped 1.3%, due largely to the two hurricanes and resultant ripple-through impacts. Industrial capacity utilization fell to an anemic 78.6%, after taking the same hits from the storms.

Longer interest rates rose last week, with the Ten-year Treasury Note yield closing at 4.48% on Friday, erasing again, according to some, almost half of Greenspan's "conundrum."

This week, Tuesday gives us the Producer Price Index (PPI), Wednesday gives us new home construction and the Fed's Beige Book, and Thursday gives us the Conference Board's Index of Leading Economic Indicators. Will the Beige Book and the Leading Indicators tell similar or contradictory stories? Will the PPI send the markets into a tizzy? And what will be the longer term impacts of the hurricanes, energy prices, and the coming winter heating crunch on economic growth? That word "stagflation" is getting some play these days, as is the word "recession."

Posted by The Unknown at 10:17 AM | Permalink

Bureau of labor statistics reports a 1.2% increase in consumer prices for urban consumers in September, over August levels. This is the largest month-over-month increase in 25 years. The core inflation number, though, which the Fed and the markets look at most closely, stayed very tame, with a 0.1% month-over-month increase. Stocks are heading up, as I type this, possibly buoyed by the tame core number, though also not discouraged by GE's earnings report.

Post-Katrina energy prices led price category increases with a 12% surge over August levels. Not surprisingly, transportation also had a big jump, coming in at 5.1% above August.

Year-over-year topline consumer inflation is running at 4.7%, with core inflation (no food, no energy) rolling along at a cool 2%.

Jumping categories here for a second, it looks like I Bond holders will have some hefty yields come November 1. It's anybody's guess what Treasury will do to the fixed rate component of new issues with inflation numbers like these, but holders of existing I Bonds will, for the next six months, probably be paid yields ranging from 6.7% on recently purchased I Bonds all the way up to 9.4% for I Bonds bought around 1999 and 2000, if Treasury keeps its promise to holders of these issues.

Update: Tom Adams, the author of Savings Bond Alert has similar numbers in mind for the I Bond yield.

A lot of economic numbers have flowed through the pipe this week. We'll try to have a round-up this evening.

Posted by The Unknown at 6:28 AM | Permalink

Morgan Stanley's Steve Roach has worries about Bush's coming appointment of a successor to Greenspan. A brief excerpt:
. . .
In other words, America’s dependence on the “kindness of strangers” is likely to increase significantly at precisely the point of an historically-delicate transition to a new a new Fed chairman.

As I look to January 31, 2006, those are precisely the risks I see in the immediate phase of the post-Greenspan era. The rocky financial market history of recent Fed chairmen transitions is a warning, in and of itself. America’s heightened vulnerability to the foreign confidence factor amplifies those risks. And President Bush’s appointment record points to a candidate who could seriously compound the perception problem. This is potentially a very tough combination. It leads me to believe that the curse of the Fed transition is about to strike again.

Posted by The Unknown at 8:36 AM | Permalink

ISM's September survey shows a slowing of growth in the US's dominant "services sector," with bad news on employment, inflation, and "new orders" indicators included in the report.

The services sector accounts for around 80% of the US economy.

Not surprisingly, John Challenger's layoff report showed an increase in job cuts. Reuters reports:

U.S. firms planned slightly more layoffs in September compared to August, led by the struggling airline sector and a consolidating retail industry, a report said on Wednesday.

Employment consulting firm Challenger, Gray & Christmas Inc. said employers announced 71,836 planned layoffs in September, 33 percent lower than September 2004, but more than the 70,571 announced in August.

Looks like the skinny manufacturing sector hogged all the good news in September.

Posted by The Unknown at 7:52 AM | Permalink

". . . the US stands alone in the excesses of consumerism, with personal consumption averaging fully 71% of GDP since early 2002 -- well above the 67% norm that prevailed over the 25-year period, 1975 to 2000. That’s a record for America, and undoubtedly a record for any leading economy in modern history. By comparison, other major economies are clear laggards: Europe’s consumption share is only 58%, Japan’s 55%, and China is at the bottom, with private consumption amounting to just 42% of its GDP."

Morgan Stanley's Steve Roach

Posted by The Unknown at 8:31 PM | Permalink

ISM's Manufacturing Index surged most unexpectedly in September, indicating a robust expansion in the sector, which by some accounts represents around 20% of all US economic activity. US stock and bond markets were spooked not only by the 59.4 reading, which is seen by some as a clear signal that the Fed will keep tightening, but also by some scary inflation news embedded in the report. Some wags see Katrina figuring into the top-line number, while some see Katrina being ignored by the factories.

Meanwhile, the yield on the 10-year Treasury Note is over 4.38% now, rising as it slowly eats away at more and more of Greenspan's old conundrum.

Posted by The Unknown at 11:03 AM | Permalink

Caroline Baum noticed in her most recent column Greenspan's recent reversion to his Randian discipleship, something pointed out, with a shudder of aversion, on this very page last week.

Baum, though, seems just a bit miffed that Greenspan seemed to stray so, during his public service, from the principles of one who had once been in Ayn's hallowed inner circle.

Moving on from this sordid business, though, what would a Caroline Baum column be without some gurgling by James "Dow 36,000" Glassman?

Who knows what earnings metric Glassman used to come up with this assertion, conveyed by Baum : "The price-to-earnings ratio of the Standard & Poor's 500 Index averaged 19.21 in 1996 compared with 19.59 in the first nine months of 2005."

You might be able to torture some spreadsheet enough to come to such a conclusion, or you could compare 1996 "operating" earnings to 2005 "core" earnings to get close to the Baum/Glassman assertion, but if compare Price-to-trailing-as-report-earnings ratio for 12/31/1996 to today's P/E ratio using the same metric, you get a 1996 P/E of 20.6 comparied with a P/E today of 17.2. Apples to apples, with today's P/E nearly equal to the average market P/E since 1960.

But it's probably unreasonable of me to expect a rational comparison from the author of Dow 36,000. Especially in the column of a free-market fetishist and sometimes Bush apologist.

Posted by The Unknown at 9:15 AM | Permalink

Not really a surprise, given August's already reported retail sales slump in the US, but new figures for August show personal spending down, incomes down, and inflation up.

``This was bad, but September is going to be terrible,'' said Christopher Low, chief economist at FTN Financial in New York. ``Consumers are clearly shaken badly by the storm.''

And winter with record natural gas prices is just around the corner.

Posted by The Unknown at 6:46 AM | Permalink

The Commerce Department said this morning that the US Gross Domestic Product grew at an annualized rate of 3.3% for the second quarter of 2005 (this on the heels of a 3.8% annualized rate for the first quarter). And USA Today online had a really dumb headline about it, declaring "GDP flat". I guess maybe the headline writer thought it was flat because it had been unrevised from the previous Q2 estimate.

I heard a couple of finance industry economists yesterday projecting, without a great deal of conviction in their voices, GDP growth for 2006 in the 3.5% - 4% range. We shall see, but with interest rates rising across the curve, energy prices biting everybody in the wallet pocket, and that all-important American consumer beginning to back off a bit, durables notwithstanding, it certainly doesn't seem a sure bet. A cold winter with record heating prices is just one torpedo that could sink that kind of growth.

Yesterday, Durable Goods orders showed some strength and today, jobless claims backed off a smidge from their post-Katrina highs, though some people, workers included, are still spooked by this morning's report.

Next week, I hope to have some year-to-date asset class returns in celebration of the end of the quarter, as well as a summary of where economies in different regions of the globe are said to be heading.

Posted by The Unknown at 7:32 AM | Permalink

Larry Kudlow could be seen jizzing his drawers on CNBC today following Alan Greenspan's unseemly reversion to the Ayn Rand discipleship of his youth. Greenspan's paean to the beauty of the free market came during a television address to a gathering of the National Association of Business Economics.

The Chairman also employed his dreary monotone to warn, ""History cautions that extended periods of low concern about credit risk have invariably been followed by reversal, with an attendant fall in the prices of risky assets." Um, fucking duh?

Speaking of that, sales of new homes fell 9.9 percent last month, but prices still managed to rise by 2.5 percent from July. Interesting data points for bubble trackers, especially when combined with yesterday's report of a surge in existing home sales for the same period.

Posted by The Unknown at 2:42 PM | Permalink

The Conference Board's index of Consumer Confidence shocked on the downside this morning. Various mouthpieces are blaming Hurricane Katrina and energy prices, but nobody is fingering the other obvious culprit: Americans were jolted, courtesy of the disastrous Bush Administration response to the hurricane, by the realization that the country is being "run" by a starting line-up of Michael Browns, backed by a very deep bench of Michael Browns.

And that sort of epiphany is a bummer, not only for citizens but also for consumers.

Posted by The Unknown at 8:32 AM | Permalink

Bloomberg reports politely on the latest manifestations of the residential real estate frenzy. At least I wasn't the only one who was surprised.

Sept. 26 (Bloomberg) -- U.S. sales of previously owned homes unexpectedly surged to the second-highest level on record and prices reached an all-time high in August, spurred by job growth and interest rates within a percentage point of historic lows.

Existing home sales rose 2.0 percent to a 7.29 million annual pace last month from a revised 7.15 million rate in July, the National Association of Realtors said today in Washington. The median price rose 15.8 percent to a record $220,000 and the supply of homes for sale rose from the previous month.
. . .
The increase in median home prices in August was the strongest rate of appreciation since July 1979. Economists surveyed by Bloomberg News expected home resales would fall 0.6 percent to 7.12 million from July's previously reported 7.16 million pace. Estimates ranged from 7 million to a high of 7.4 million.

Two slightly different ways of expressing what's going on here:

``We have some way to go before we get into a range of balance between home buyers and sellers,'' said David Lereah, chief economist for the Realtors' group. ``As a result, we will continue to see above-normal home-price appreciation for the foreseeable future.''

Contrast:

``Home resales are surprisingly resilient in the face of rising energy costs,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. in New York. ``The froth in the existing home sales market continues, and buyers are trading homes like they once did internet stocks.''

Posted by The Unknown at 7:37 AM | Permalink

How poignant. Alan Greenspan, early champion of the now infamous Bush tax cuts (back in the day when the Bush/Hastert/Frist spending spree was really getting going), now laments (to a Frenchman, no less) that the US has lost control of its deficits:

"'We have lost control,' that was his expression," Breton told reporters after a bilateral meeting with Greenspan.

"The United States has lost control of their budget at a time when racking up deficits has been authorized without any control (from Congress)," Breton said.

Please pass the Failure Fries.

Posted by The Unknown at 11:16 AM | Permalink

My bus pass, my walking shoes, my bicyle, and my Prius are the strongest holdings in my portfolio.

Rita and the Oil Rigs: An Interactive Map

Like most people, I hope for the safety and health of everyone down there facing that. (If you don't say something like that while talking about an economic aspect of something like a hurricane, even in the context of an econo-blog, many will assume that you don't care about people and that you only care about the price of gasoline. To cop a line from the first President Bush, Message: I Care!).

Posted by The Unknown at 4:38 PM | Permalink

One percent is a very popular number for economists who are projecting a GDP slowdown. A recent note from a regional Fed office carried a calculation that gasoline prices, made higher though circumstances both pre- and post-Katrina, would effectively shave one percent of US annual GDP growth in the near term.

About a month ago, I read a note from another economist who had calculated that the rise in crude oil prices (which are, of course, not the same as gasoline prices, though crude prices provide a significant input to gasoline prices) already sustained through the course of the year would, you guessed it, shave one percent off of annual US GDP growth.

Interestingly, I saw the same economist the other day on one of CNBC's worst shows (I know, how do you even distinguish?) claiming that Katrina would shave one percent from US GDP growth.

As whatever remaining hatches there are are battened down against Hurrican Rita, now expected to blossom into a Category 4 hurricane Wednesday afternoon, one wonders just how all of these one percents overlap. Yes, a Venn diagram would be helpful.

Posted by The Unknown at 2:27 PM | Permalink

As predicted by analysts and futures markets, the FOMC raised its ovenight funds rate to 3.75% today.

The Fed statement referred to Hurricane Katrina and acknowledged that the storm's devastation posed short-term problems for the economy, but apparently Greenspan believes that the underlying dynamics of the economy will get us past any ruts or soft patches created by the storm. The FOMC reiterated its belief that inflation, excluding useless stuff like food and gasoline, is under control, but reiterated its intention to fight inflation at the core level.

Text of FOMC Statement (Bloomberg)

Is the Fed still worried that the job market is strengthening, in spite of recent, rather anemic, reports on job creation? Maybe not worried, just vigilant:

"With underlying inflation expected to be contained, the committee believes that policy accommodation can be removed at a pace that is likely to be measured." That old line. It'll be interesting to hear that all parsed by the CNBC screamers. Meanwhile, I didn't hear any indication of an intention to pause hikes.

I haven't gauged the impact of the move on the year end Fed Funds futures contract, but as of an hour ago, the markets were pricing in a year-end fed rate 4%.

On a tangential note, probably the worst commentary I heard on Hurricane Katrina, that didn't come from the White House itself, was from a renowned economist who advised subscribers in a note following the hurricane that a Katrina-induced failure by Congress to make the Bush tax cuts permanent could result in devastation equal to or exceeding the devastation caused by the hurricane itself. Ridiculous, surprising, and a bit disgusting.

Posted by The Unknown at 10:57 AM | Permalink