Morning Report – Existing Home Sales 6/23/14

Vital Statistics:


Last Change Percent
S&P Futures 1954.0 0.8 0.04%
Eurostoxx Index 3291.2 -11.1 -0.34%
Oil (WTI) 106.6 -0.2 -0.22%
LIBOR 0.233 0.002 0.87%
US Dollar Index (DXY) 80.32 -0.050 -0.06%
10 Year Govt Bond Yield 2.59% -0.02%
Current Coupon Ginnie Mae TBA 106.5 0.2
Current Coupon Fannie Mae TBA 105.8 0.0
BankRate 30 Year Fixed Rate Mortgage 4.22


Markets are flat this morning on no real news. Bonds and MBS are up.
We have some important housing-related economic news this week, with existing home sales today, Case-Shiller and FHFA home price indices tomorrow. We will also get new home sales tomorrow. We also have some big macro numbers, with personal income and personal spending, and the third revision to Q1 GDP.
The Chicago Fed National Activity Index came in at .21, more or less in line with expectations. The Markit US Manufacturing PMI also improved.
Existing Home Sales rose to 4.89 million in May from an upward-revised 4.66 million in April, according to the National Association of Realtors. This is up 5% on a sequential basis, but down 5% on an annual basis. Total inventory rose 2.2% to 2.28 million homes which represents a 5.6 month inventory (6 months is considered a “balanced” level). The median home price rose to 213,400 which is up 5.1% on an annual basis. Distressed sales were 11%, down from 18% a year ago. The first time homebuyer continues to be MIA, with only 27% of sales going to first-time buyers. All cash sales were 33%, and median time on market was 47 days.
In Yellen We Trust. The bond market is assigning a 100% probability to the idea that the Fed will be able to prevent inflation from rising over 2%. Last week’s spike in CPI caused bonds to sell off for a day, and then Yellen dismissed the report as “noisy.” The thing is, you already have decent inflation at the commodity price level. The thing that is holding back full-blown inflation is wages. Bond investors should watch wage growth like a hawk, and once you start seeing evidence of wage inflation it is time to grab your coat and start heading for the exit.
Speaking of bonds, the SEC is looking into why technology has reduced trading costs for stocks, but not really for bonds. Of course bonds are not stocks, and it is a dealer-driven market. That said, it looks like dealers are going to be forced to reveal more information about their order book.

25 Responses

  1. Frist!

    An interesting article by Hank Paulson:

    here, kevin


  2. My state Senator gets way too much name recognition on this site.


  3. Where’s the link to the article, btw?


  4. Mark, what about the article did you find interesting?


    • Mark, what about the article did you find interesting?

      First, that Paulson wrote it.

      Second, that he has become actively engaged in the discussion, apparently long before this op-ed [that was not known to me].

      Third, that he proposes a carbon tax.

      Fourth, that his foundation counts outreach to China on climate change as a central function

      Fifth, that he sees technology as effective to make the changes in global carbon usage.

      Sixth, that he thinks the costs of doing something are much less than the costs of doing nothing.

      There was one more but I forgot it while I was writing the first six.


    • I wonder how Hank explains this.


  5. Mark,

    Am I wrong for being immediately skeptical of Paulson giving us advice on Climate Change? Or anything that involves prediction, ever, in any area?

    I find lots of things interesting in the article, McWing:

    “The solution can be a fundamentally conservative one that will empower the marketplace to find the most efficient response. We can do this by putting a price on emissions of carbon dioxide”

    Maybe that would work (dubious), maybe it wouldn’t (that would be my vote) but in either case that solution is the opposite of fundamentally conservative. This would either be essentially a free-floating tax with all sorts of carve-outs to let 1st world countries collect free money while giving a pass to all 2nd and 3rd world nations who produce so much of the world’s pollution . . . or just a free-floating tax. Or a public utility strictly in the business of selling indulgences. I would challenge Mr. Paulson to come up with a similar proposition that anyone would agree is fundamentally conservative in the light of history. Or an active breakdown of how this “fundamentally conservative” solution would be conservative in the particulars.

    “Putting a price on emissions will create incentives to develop new, cleaner energy technologies.”

    Except probably for the people who actually put out most of the pollution.

    “It’s true that the United States can’t solve this problem alone. But we’re not going to be able to persuade other big carbon polluters to take the urgent action that’s needed if we’re not doing everything we can do to slow our carbon emissions and mitigate our risks.”

    Wasn’t the real estate bubble a problem with acting on feeling and excitement and potential, rather than a judicious and dispassionate crunching of the numbers? So where are the numbers? Who are the biggest polluters? Really? Worldwide, I mean. How do those numbers compare to productivity: energy and economic output produced?

    What sort of conservative analysis completely ignores that?

    “I was secretary of the Treasury when the credit bubble burst, so I think it’s fair to say that I know a little bit about risk, assessing outcomes and problem-solving.”

    Isn’t that like saying, “I murdered a man in cold blood and then lied about it on the stand, so I think I know a little about jurisprudence.” Or: “I was a horrible failure at assessing risks and predicting the future, so now I know how to assess risks and predict the futures. Predicate all your future behaviors on my soothsaying!”

    ” Looking back at the dark days of the financial crisis in 2008, it is easy to see the similarities between the financial crisis and the climate challenge we now face.”

    It possible to find differences, as well. Numerous differences. Not to mention, negative analogs: that is, government micromanagement helped contribute to the financial crisis in the name of “addressing problems”. Why are we to take it on faith that government micromanagement in the case of climate change will not create worse problems that those it ostensibly solves?

    And what the hell do we do if (a) climate change is real and serious and coming and unavoidable and (b) it’s not our greenhouses gases or it’s too late to do anything about? Let’s say we’re just moving toward a new heat age, a millennial summer, and nothing we do can change a damn thing. Are we preparing for that entirely possible reality? No?

    Tell me again how this is like the credit bubble?

    “We are building up excesses (debt in 2008, greenhouse gas emissions that are trapping heat now).”

    That would be a great argument for getting a woman to have sex with you. “I’m building up excesses, baby. Debt in 2008, lust right now. We need to do something before the bubble bursts!”

    “Our experts (financial experts then, climate scientists now) try to understand what they see and to model possible futures.”

    He’s trying to make the case that we should listen to climate experts now because they are like financial experts before the crash?

    “Back then, we narrowly avoided an economic catastrophe at the last minute by rescuing a collapsing financial system through government action.”

    Recently, I brought a much needed rain to my area with a fancy dance. It was me! I take credit for it! I danced: rain came. Done.

    That just blithely assumes a causal relationship between government action and our current state (which is presumed superior to what would have happened absent government intervention, which is debatable).

    “The carbon dioxide we’re sending into the atmosphere remains there for centuries”

    Is this accurate? What if there was a doubling of plant-life? Doesn’t the ocean absorb more as more is produced? And doesn’t carbon dioxide do less to retain heat than water vapor? Isn’t the the carbon dioxide focus a matter of visibility?

    “To protect New York City from rising seas and storm surges is expected to cost at least $20 billion initially, and eventually far more. And that’s just one coastal city.”

    What if the seas are going to rise no matter what we do? Isn’t that conceivable? Potentially even likely? At least a good 30% chance, right? That’s a number.

    “New York can reasonably predict those obvious risks. When I worry about risks, I worry about the biggest ones, particularly those that are difficult to predict — the ones I call small but deep holes.”

    Worried about amorphous and perhaps imaginary risks, but not specific and highly likely negative consequences of overly-aggressive “climate change” legislation that ends up punishing businesses and raising tax revenue more than changing greenhouse gas output?

    “Already, observations are catching up with years of scientific models, and the trends are not in our favor.”

    Really? I feel like there is a re-writing of the history of what was predicted by scientific models going on here.

    “The lack of reflective ice will mean that more of the sun’s heat will be absorbed by the oceans, accelerating warming of both the oceans and the atmosphere, and ultimately raising sea levels.”

    And cloud cover. And rain. Both of which cool. So maybe it will get too cold.

    “Now that this process has begun, there is nothing we can do to undo the underlying dynamics, which scientists say are “baked in.””

    But let’s focus on carbon dioxide emissions which may have little or nothing to do with this trend, and we can’t change even if we do, instead of addressing actual problems as they arise.


    • Mark,

      Am I wrong for being immediately skeptical of Paulson giving us advice on Climate Change?

      Nope. Which is why the first most interesting point is that it is Henry Paulson.

      I think the effects of methane are greatly underestimated by him [from what I have read]. But otherwise I am no longer a climate change skeptic.

      I do think that because we cannot do double blind experiments we can never know with certainty the human contribution to climate change or predict the future effects of human contributions.


  6. I guess I should have asked if Paulson is a credible advocate for you.

    To end the suspense, he is not credible to me. I would start doubting the direction of the sunrise if he were to state it.


  7. … cont …

    “It is true that there is uncertainty about the timing and magnitude of these risks and many others. But those who claim the science is unsettled or action is too costly are simply trying to ignore the problem.”

    Which sounds to me like: “People who disagree with me are retarded. Also, the risks are too great for us to wait for useful information. We must start throwing money down holes now!”

    “We must see the bigger picture.”

    You must see the picture at the size I want you to see it, not larger and not smaller. By the way, any one who disagrees with me is selfish and only looking at their own pocketbook, not caring about the whole planet and all of humanity, like I do, because I’m a good person.”

    “That sort of contagion nearly took down the global financial system.”

    I am suffering from cognitive dissonance here. The sort of fantasizing and micromanagement that led directly to the credit crisis is good when applied to climate legislation. Because it’s clear the gods are angry and demand many virgins to sacrifice, so the time for talking is over.

    “With that experience indelibly affecting my perspective, viewing climate change in terms of risk assessment and risk management makes clear to me that taking a cautiously conservative stance”

    I’m not mugging you, I’m liberating your wallet from the oppression of your pants.

    That is not a cautiously conservative stance.

    ” that is, waiting for more information before acting — is actually taking a very radical risk.”

    Standing up is actually sitting down. Aiming before firing makes you more likely to miss the target!

    “But we know enough to recognize that we must act now.”

    Well, then, do it. Stop driving your car. Stop buying products where greenhouse gases are emitted. Live your own life consistent with your espoused ideals.

    “There is virtually no debate among them that the planet is warming and that the burning of fossil fuels is largely responsible.”

    As I’ve noted elsewhere, then they either have the power to advance their agenda accordingly by themselves or they do not. If not, then they need to convince skeptics and the general public, and these kinds of arguments are purely preaching to the choir, long on rhetoric but short on substance.

    “Our goal for the Risky Business project — starting with a new study that will be released this week — is to influence business and investor decision making worldwide.”

    Which sounds like a money making opportunity for Mr. Paulson. Good for him!

    “We need to craft national policy that uses market forces to provide incentives for the technological advances required to address climate change. ”

    This sounds like one of those things that sounds like a good idea but turns out to be a horrible.

    “As I’ve said, we can do this by placing a tax on carbon dioxide emissions. Many respected economists, of all ideological persuasions, support this approach.”

    Really? Libertarians and self-identified conservatives outside the beltway support this approach? Not to mention, I’ve personally always find the “everybody agrees with me so conform” argument to be deeply alienating. Even if he’s fundamentally right, I would still hate that style of argument. And if it’s such a great idea, don’t lie. Placing a tax on carbon dioxide is the exact opposite of a fundamentally conservative approach. It’s not cautious, and it’s the idea of very rich man who will not have to pick between eating Alpo and sawdust with the energy tax quintuples the price of everything from getting to work to buy bread and butter.

    “At the same time, all fossil fuel — and renewable energy — subsidies should be phased out.”

    Hey, I’ve got an idea: why don’t we do that, all by itself, first. Because we want to wrap it in a cornucopia of hurt that will never see the light of day, and makes it easy for everybody who wants to continue to support oil subsidies has to actually vote for or against that “one” thing?

    “Renewable energy can outcompete dirty fuels once pollution costs are accounted for.”

    I can defeat Mike Tyson in the ring if you tie his hands behind his back and I get a Taser. And a crowbar. And three other guys to help me.

    “Some members of my political party worry that pricing carbon is a “big government” intervention. In fact, it will reduce the role of government”

    Oh, well then.

    I can see why we had a financial crisis.

    “This is already happening, with taxpayer dollars rebuilding homes damaged by Hurricane Sandy and the deadly Oklahoma tornadoes.”

    Thank goodness there wasn’t extreme weather before fossil fuel usage. Oh, wait, there was constantly horrible weather. Damage is worse because we now build things where floods and hurricane happen in 30 or 100 years cycles that weren’t there 30 or 100 years ago.

    “A tax on carbon emissions will unleash a wave of innovation to develop technologies, lower the costs of clean energy and create jobs as we and other nations develop new energy products and infrastructure.”

    Almost all the innovation will be found in getting out of paying the tax or moving in to industries not-so-hobbled. Or getting special dispensation for flouting the spirit of the law while barely sticking to the letter. Unless this time is different than every other time in history.

    And so on. Not compelling. It’s sort of like a coded message: get angry and fight against people trying to pass climate change legislation! I’ve got an undisclosed investment strategy to get rich the longer this nonsense drags on. So I’m going to make a horrible and contradictory case, just to push your buttons. Because I’m going to make money off of that. Somehow.


  8. @MarkInAustin: “I think the effects of methane are greatly underestimated by him”

    My understanding is that methane is both much more heat retentive and, unlike water vapor and even carbon dioxide, not subject to easy re-assimilation. It our methane output increasing radically, or has it over the past few years? Do you know? I should, but I’m too busy reading Jack Reacher novels.

    I am a climate change skeptic on a few fronts. The first one being, of course the climate is changing, it has always changed. Stepping in and claiming responsibility for it is like claiming responsibility for an eclipse. Potentially, at any rate. But I am much more skeptical of climate change legislation. That is, even granting that man made global warming is a real thing, I remain highly skeptical that anything being proposed thus far won’t be far worse than the problem it’s meant to fix.

    I am also a consequences skeptic. That is, the world underwater, with only Kevin Costner to save us, is a movie fantasy, not the reality. A hotter planet, for whatever reason, is going to be better than a colder planet, and better generally than it was the last time our planet was this hot. Even a new ice age, as terrible as that would be, is going to be way more survivable now that it was the last time one happened. The likely shifts in weather and temp that may happen either naturally or due to AGW do not spell doom and aren’t likely to be either a heat age or an ice age. They spell expense and inconvenience. Which, grant you, is heresy, but . . . I’m skeptical. In the end, I only get one vote, usually cast for someone who will not win, so nobody has to convince me.


    • Kevin:

      Outstanding rant. I agree with pretty much everything.


    • A better use of Paulson’s particular persuasive skills would have been to assume: 1) an audience that believed climate change would be costly, say, large casualty insurers; and then 2) explain the technical reasons why a carbon tax is the “best” way to raise the funds to either stifle the change or prepare for it.

      Audience #1 would be eager to hear this and then to resell it. Otherwise audience #1 will raise premiums or refuse to sell coverage. Which could lead to public support for a tax supported response.

      Which leads to other questions such as whether tax supported responses should be first and foremost, local? If the federal constitutional mandate is for the USA to maintain/control its maritime and riverways, should a federal (carbon or not) tax be limited to addressing levee heights on the Mississippi and port enhancement and floodgates and dams and the raising of the road beds of threatened US and Interstate highways, and other similar projects? Which raises the question of “why not a general tax?” Which focuses on the punitive nature of a carbon tax, which is intended to drive up the cost of coal, mostly, then gasoline.

      Frankly, my own energy desire is for the power companies to build thorium reactors to replace coal fired plants as they wear out. Is there some non-coercive help with that that could come from the government?


      • Mark:

        Is there some non-coercive help with that that could come from the government?

        Coercion is the only tool in the government’s tool box. The only purpose to enlist the government in accomplishing any task is to make use of its monopoly on legal coercion.


        • Scott – I was thinking along the lines of sharing government research on thorium reactors with the power companies.

          I don’t think federal research funding – whether at the NRL or in America’s research universities is coercive. In fact, I think grad school researchers are cheap labor and good bang for the buck. But I am actually not sure whether DoD, especially, ever shares its information until many years later.


        • Mark:

          I don’t think federal research funding – whether at the NRL or in America’s research universities is coercive.

          Where does the government get the funds it doles out to researchers? Again, the only reason to involve the government in funding research is to make use of the governments' coercive power to take money from one set of people and give it to another without the consent of the original owners.


        • BTW, I have it on good authority that lots of high level Goldman guys have been in on the enviro bandwagon for some time. Former Goldman partner David Blood was Algore’s partner in setting up Generation Investment Management back in the early 2000s. Mark Ferguson, another Goldman guy, was (is?) CIO of GIM. I’m told (again reliably) that Paulson’s wife is a big Greenie from way back.

          I'm sure each of their investment portfolio's are well positioned to benefit from whatever direction the government decides to take the energy market. At their urging, undoubtedly. If a bunch of Wall Street guys took to the op-ed pages to drum up public support for some right-wing cause, no doubt the cynicism over their motives would be legion (See Koch Brothers). But when they start doing the same over a left-wing cause, people seem to be way more credulous of noble intentions. Why is that, I wonder.


  9. Jesus Kevin, I just nutted.

    Keeeeerrrriiiiisssstttt, what a bagger!


  10. @McWing: “Jesus Kevin, I just nutted.
    Keeeeerrrriiiiisssstttt, what a bagger!”

    That’s me. I’m open to any argument for alternative energies, even public funding of alternative energies (useful ones, potentially, like public underwriting of new, modern nuclear plants, or public subsidies for outlets for electric vehicles, and a standard configuration therefor). A carbon tax seems to me to be ultimately self-defeating and self-terminating: the likely increase in the price of everything resulting from what is effectively an energy tax with cause an uproars, and opponents will be able to point to it for every increase in price.

    And the goal ultimately is not to decrease energy consumption or pollution, but to raise revenue from it.

    And most government insider advocacy for a carbon tax sounds like the dude at GNC explaining how you don’t need surgery for cancer, just the right kind of supplements. Which we just happen to sell, lucky you!

    And I’m open to arguments for AGW. But not arguments that essentially proceed like this: All the thinking has been done by people smarter than you. So don’t think about it, just conform.

    I suppose eventually doomsaying will be right, but generally, it never has been. Promising me the end of the world if I don’t sign on to a tax that threatens to choke the economy precipitously (and, ironically, slow or stop the actual technological innovation that will solve all sorts of energy and pollution related problems) is not compelling. If you choose to make your argument like a guy walking around with a sandwich board promising the end is near, don’t be surprised if 100% of people don’t take you seriously.

    Also, the Paulson argument (which is hardly new to him) that a carbon tax would magically provide the incentive to develop alternative fuels is logically flawed, IMO. If all competent scientists agree that AGW is real and that alternative energies are the way of the future and there is a tremendous amount of money to be made in alternative energies even without government intervention, all the incentives you need are present. You just don’t change the energy basis for an entire planet in a day or a week or a decade.

    The necessary innovation is happening already. Making it more expensive for the companies financing that research, and even the universities (as materials to develop things cost money, and if it’s more expensive to manufacture and ship those things, all necessary research will be more expensive and choices will have to be made, while the carbon tax funds dead-end committee after committee on how to feel more emotionally vulnerable about climate change—there, that’s my tea bagger showing).

    A carbon tax will most likely, in my opinion, slow down the progress it ostensibly is intended to create. And I don’t see any addressing of that point of view in Paulson’s opinion piece.


  11. Impressive:

    “While that may seem like what happens to anyone when they don’t pay their bills, Detroit is a unique case—nearly half of the 323,900 residents who use the utility are delinquent, according to the Detroit Free Press.”


  12. Goldman plays the left like a violin…


  13. He Whose Name Shall Not Be Spoken was on to Goldman & the environmental bandwagon a while back.

    “And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an “environmental plan,” called cap-and-trade.

    The new carbon credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.”


Be kind, show respect, and all will be right with the world.

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