Morning Report – Why the recovery has been so tepid 8/7/14

Markets are higher on earnings and a low initial jobless claims number. Bonds and MBS are down small.

Today is the first Thursday of the month, which means same store sales from the retailers. So far it looks like they are coming in a bit better than expected.

Initial Jobless Claims came in at 289k, the lowest level in 8 years. Bloomberg’s weekly consumer comfort index fell to 36.2.

Mortgage delinquencies fell to 6.04% in the second quarter, according to the MBA. Foreclosures fell to 2.49%.

Fannie Mae earned $3.7 billion in Q2, of which all went to Treasury. They modded 32,000 loans in the quarter as well. Delinquencies dropped to 2.05%.

The next global economic headache is the bursting of China’s real estate bubble and the potential for a protracted slowdown. There is a “buyer’s strike” going on and so far developers are not lowering prices yet. So inventory builds. Inventory is 23 months worth of sales in the top 20 cities. To put that number into perspective, 6 months is considered normal, at least in the US. This is generally how busts begin. If it becomes “the one” then trophy properties in the US, particularly the West Coast will become vulnerable.

The WSJ has a good piece on the weakness of housing, particularly housing construction. As we know, housing starts have been mired below 1 million units for what seems like forever. Normalcy is around 1.5 million units historically. When you look at residential construction’s contribution to GDP, it is been about 2.5% – 3%, much lower than its pre-bubble level of 4% to 5%. Not only that, but residential construction usually leads an economy out of recession. I had hoped this would be the year starts got back to normalcy, but the homebuilders have seemed content to increase the top line through price hikes, not volume increases.

Residential construction as a percent of GDP

33 Responses

  1. Updated state-of-play report from Cook Political:

    Democrats need to win 5 of the 9 most competitive Senate races to
    hold the chamber. Republicans would need to win 5 of these 9 seats—including unseating
    3 Democrats—to win a 51-seat majority in the Senate. Six of these states were won by
    Romney in 2012 (AK, AR, LA, NC, GA, KY), and three were won by Obama (CO, IA, MI).

    for the house:

    Bottom Line: Democrats would need to win all Solid Democratic, Likely Democratic, Lean
    Democratic, Toss Up, Lean Republican, and four of the 17 Likely Republican districts to take
    back the House.


  2. I’m having a hard time seeing the benefit of a R senate. Who gives a shot who gets to hand out the spoils. So, to our progressive and or Liberal friends, what do you think will happen with. A R Senate with a 1 to 3 vote majority?


  3. Salon:

    ” Government employee suspended from her job for posting nude selfies
    Most people sext at work. Is it fair to suspend them when the photos are for public consumption?

    Jenny Kutner
    Wednesday, Aug 6, 2014 05:46 PM EST”

    No, in fact most people don’t sext at work.


  4. Brent,does your band play mostly cover tuned or originals?


  5. No, in fact most people don’t sext at work.

    I would hope not! Social media at work again in the workplace. I think people, college professors and government employees, and the rest of us all need to be a little more circumspect. It’s too bad I guess in a way, but how embarrassing to have all of that become public……………yikes.


  6. At a different firm we had a partner that had a porn problem. it was kind of sad, actually. but he was gone that day. fired* on the spot.

    *or whatever it is you do to remove someone from the partnership.


  7. you all should see Liam at the PL. he’s gone full-Hodor.


  8. Or “I am Groot!”


  9. What I think she was trying to say was that most sexting occurs at work, but that’s not the same thing as most people sext at work.

    Someone needs to retake Statistics 101.


  10. Brent,does your band play mostly cover tuned or originals?

    I am in two bands at the moment – a female fronted pop band and a metal band. The metal band is originals, while the pop band is covers…


  11. Most people sext at work

    I can’t imagine that many people sext to begin with…


  12. Thanks Brent.

    What cover song would you love to do that you don’t currently? Also, what type of metal do you play?


  13. Groot. nice.


  14. Cover song: La Villa Strangiato

    Type of metal – 90s – 00s. Think Alice in Chains, Pantera, Tool, Breaking Benjamin. Think grunge with tighter rhythms and ripping solos, and modern metal with a singer that that sings normally and not like cookie monster.


  15. Serious question, is this just because Biden is an idiot or because the Administration thinks it’s base are idiots?

    Or both?


  16. Thanks Brent. RIP Dimebag Darrell.

    I like that Rush tune.

    And Geddy Lee is, um, a unique looking guy.


  17. Hilarious!

    The models enthusiasm is what sells it.


  18. How to remove all actual meaning from the term “racism”.


  19. Q: recommended cigar for a novice. guys weekend coming up and figured i’d be a cliche.


  20. Funny, my wife was actually featured in Regretsy. Luckily I never had to model her stuff.

    Here Etsy shop is here:


  21. lol, breitbart bagger. nothing in breitbart can be true..


  22. “I’m having a hard time seeing the benefit of a R senate.”

    Harry Reid won’t be the Majority Leader?

    We get to listen to Democrats (esp. pundits) shift from It’s The End of Republicans to It’s The End of The World and The American Public Are All Idiots and Diebold Stole the Election? Fun stuff like that?

    It will be obvious evidence on the left that democracy is broken, and we need to find a better system. When before a Democrat win was going to mean democracy was working and it was the end of Republicans dominating in elected office, ever.


  23. “novahockey, on August 7, 2014 at 2:18 pm said:

    Q: recommended cigar for a novice. guys weekend coming up and figured i’d be a cliche.”

    Arturo Fuente Hemmingway series.

    I’d recommend picking up some Short Stories if you don’t want to smoke a full cigar, and some Classics if you do.

    The Grand Reserva series is good too, especially the Churchhills


  24. Even Salon admins that the administration is cooking the economic stats.


    • Ed Whelan over at NR comments on that Greenhouse piece that lms linked to yesterday:

      Linda Greenhouse thus gets things backwards when she complains that judges haven’t been willing to treat abortion as “a right like any other.” But she inadvertently stumbles on the truth when she observes that “there are constitutional rights and then there is abortion” and distinguishes abortion from “those rights the Constitution actually protects.”


      • I truly do not understand people sometimes.

        Following a minimum wage hike in Minnesota, a small cafe owner, rather than simply increase all his prices to cover his (government mandated) increased costs, added an explicit “minimum wage fee” to each bill. This has apparently caused an outrage in some local circles, with calls on social media for people to boycott the cafe. I don’t get it. Why should anyone care whether he simply incorporates this new cost into his general pricing or if he charges for it explicitly? It is like being outraged over the fact that the bill explicitly identifies how much was for the food/service, and how much was taxation, which virtually every bill already does.

        Particularly bizarre was this, which makes me wonder how someone with the mentality of a 10 year gains a position of authority.

        “We believe that the industry is overreacting,” Wade Luneburg of the MN State Council of UNITE HERE Unions told the Star Tribune this week. “Putting [minimum wage] fees on tickets and passing the cost on to consumers directly is strange at best, and creates an ‘us against them’ mentality while ordering dinner.”

        Passing costs on to consumers is “strange”. How stupid is this guy?


  25. Thx JNC – i’ll look for those in the shop. catch you guys in a couple days.


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