Morning Report: Housing starts flat in May 6/17/16

Markets are flattish on no real news. Bonds and MBS are flat as well.

Housing starts came in at 1.16 million in May, a tiny decline from the downward-revised April number. Building Permits rose slightly. Starts rose the most in the West and fell the most in the Northeast. It is amazing that we have a shortage of housing and are building very little. Take a look at the chart below: It is housing starts divided by population. We have just barely touched the low from the 91-92 recession, which also was the result of a frothy real estate market. If the government wants to get the economy going, it should be asking the question why housing is still so depressed in the face of such tight inventory and high demand.

The Brexit campaign is on hold after a member of Parliament was murdered yesterday. Officials don’t have a motive, however there have been calls on both sides to tone down the rhetoric.

The current global economy resembles the 1930s in many ways, and can help explain why the Fed is going so slowly in raising interest rates. Of course there are major differences as well – rates didn’t go negative in the 1930s, the world was on the gold standard, and capital was much less mobile. Still, we have a recession in the aftermath of an asset bubble and the hangover is debt that needs to be worked down. The Fed is trying to avoid the mistake of the 1937 “depression within the depression” where they hiked rates too quickly. Of course by that time, FDR was on an anti-business tear with the undistributed profits tax, and that certainly put a wet blanket on business investment.

The most deadly words in investing are “this time is different.” That said, we are in a world of negative bond yields, and massive central bank balance sheet growth, which you won’t find in your Econ 101 textbook. This time is indeed different. Or, is the answer more simple: we are in a bubble for sovereign debt? When you are purchasing a German Bund for no yield whatsoever, the only reason why you would make that investment is because you anticipate a capital gain – in other words you are making the investment on the “greater fool” theory. Which is of course no different from paying 60x earnings for Cisco Systems in 1999 hoping to flip it to someone willing to pay 61x earnings. Or flipping condos in Palm Beach for that matter.

I went on Louis Amaya’s Capital Markets Today podcast after the Fed decision and discussed the Fed, the economy, housing and regulations. You can hear the podcast here.

46 Responses

  1. Frist! For the win. Copying over from previous post . . .

    Orlando attack was caused by American racism and Islamaphobia (audio clip). It’s an audio clip, but the best part is at the end: “There is a not insignificant overlap between queers in Muslims, although they are being set up, in this instance, as being somehow in conflict.”

    But Muslims and the gay community (dear friends) are in the same boat: victims of white males and the patriarchy and Christian evangelicals! Or at least, that’s the only conclusion I can draw.

    This will not end well.


  2. Rape culture update: Colleges with no reported rapes worrying that the lack of reported sexual assaults will discourage students from reporting all the rapes they know are happening. Also, they don’t want to boast about the lack of rapes on campus, because they don’t want people to get the wrong idea.

    “It’s a harsh reality that a lot of parents and others in society don’t want to deal with: Sexual violence is on every campus,” said Laura L. Dunn, founder and executive director of the advocacy group SurvJustice. “Any time you have a zero, it is not an indicator of safety. It is an indicator of comfort in reporting.”

    Sen. Kirsten Gillibrand (D-N.Y.) said there are two explanations for why schools would have no rape reports: “Either they don’t have an adequate reporting system … or they know about the rapes and are putting them under the rug.”

    The 3rd possibility, that there were no rapes on that campus thanks to campus security, quality of students, etc., etc., is so absurd as to be laughable.


  3. @brentnyitray: On the podcast, is that crowd noise in the background sweetening? Or is the guy who hosts the podcast in a murmuring crowd?

    Not sure that’s a good idea. It may just be me, but I have a hard time focusing on the actual discussion for all the background murmuring. Also, you have a better voice than the host. 😉


    • I wasn’t aware of the background noise… I’ll have to check it out. And I always thought my voice sounded like the late night jazz DJ… “That was the Miles Davis Quintet with the composition Walking….”

      Liked by 1 person

  4. Hat tip to Ace of Spades . . . did not know you could buy mortars online. Without a background check!

    It’s difficult and expensive, but you can legally buy a fully operational tank!

    And apparently your use of the weapons such vehicles are equipped with are regulated by state and local law.

    But I’m sure banning assault rifles will help. 😉

    You can also buy industrial strength lasers in portable gun-like form.

    If you’ve got a pilots license, you can buy a working fighter jet. All the weaponry apparently has to be deactivated. But, still . . .

    You can also legally own anti-tank cannons. Dang. Doesn’t seem to be much you can’t legally own in America that isn’t a daisy-cutter or an A-Bomb!


  5. Scott Adams doubles down on Trump.

    “Where’s That Trump Third Act?
    Posted June 16th, 2016 @ 9:55pm”

    He’s either a genius, or the equivalent of Cef from Plumline.


    • Cons (on Plum Line) did a “fixed it for you”, replacing “Cef level idiocy” with “inc level idiocy”, but that was not enough. He had to top post an exact duplicate of your quote, with “jnc level idiocy” to make the point. Finally put him on ignore. And jkrogman. I’m done with the folks who just can’t stop sniping at other people on the forum for no good reason. I let the first one pass, but when there had to be a second one, I saw where that was going . . . and not the first time he’s felt it necessary to spend comment after comment attacking other commenters. You’re stuff is always informed . . . just tired of the goobers.

      As far as Scott Adams is concerned, I just don’t see what that 3rd act can be at this point. Trump’s persuasion skills, intentional or accidental, just can’t work on Democratic partisans the way they could on Republican partisans.


      • KW:

        Trump’s persuasion skills, intentional or accidental, just can’t work on Democratic partisans the way they could on Republican partisans.

        They only have to work on the non-partisan independents. Not sure whether they will, but that is what he needs.


      • “I’m done with the folks who just can’t stop sniping at other people on the forum for no good reason”

        I actually sort of enjoy the fact that he’s reduced to following me around yipping like a little dog much like Cao did to John/Banned Again. Note the lack of response from me to pretty much anything he posts, which is what bothers him the most I believe.

        Cons is easily the biggest troll there now with all of his repetitive top posting of the same spam over and over again with multiple sock puppet accounts. I wear the fact that I’m his nemesis as a badge of honor.


        • Good for you. Got tired of it, ignored both him and jk today. Might undo it at some point but he’s more irritating than Brigade and his many subsequent iterations. There’s a certain wry humor in the 700th post on Hillary’s imminent indictment. Less humor in just being a dick.


      • Regarding Trump’s third act, I would think it would have to be event driven. I’m surprised he hasn’t gotten more mileage out of the most recent attack, but I think AS might be right that the particulars of this case aren’t quite the scenario that Trump envisioned.

        If there’s another border surge this summer, that could do it.


      • I don’t think Trump’s act works on Republican partisans either, he constituency is perhaps the least partisan group out there, hence his ability to be on all sides of every issue depending on the day.

        Liked by 1 person

  6. “…which you won’t find in your Econ 101 textbook.”

    That was a fact.

    Do you think it will now become a part of the second macro course in the sequence?

    When I was an Econ major the first four semesters were Price Theory, Macro, then Micro 2 and Macro 2 before jumping off into more specialized courses like Public Finance, Econometrics I, Game theory Intro, Labor, Taxation, International Trade, Industrial Organization, Banking, etc.

    And the liberal arts college offered a B.A. with minimal math req’d
    [stat, I think] while both the B-School and the lib arts school offered a B.S. if you had a heavy math/finance/accounting concentration.

    Is it still similar?


    • Mark, Pretty much, but I completed my undergrad in the 80s, so I am not sure how much had changed. I did get the BS and the econ with a math emphasis, but I had to complete 3 semesters of calculus and 1 semester of linear algebra (which ain’t normal algebra)


      • but I had to complete 3 semesters of calculus and 1 semester of linear algebra (which ain’t normal algebra)

        I had to do the same, plus differential equations and a probability and statistics post calculus sequence.

        Did my senior research paper on taxation and urban land use – lots of regression aanalysis, without a computer, in 1964. Don’t recall a thing except that it is inefficient having multiple governing units over one geographical area.

        Scott – I thought that leaving the Euro Union would end up with The City losing business to Germany and Wall Street.

        General note on crazed asshole shooters – media should not use the phrase “Lone Wolf”. Too romantic and appealing to a shooter. Should use “Crazed Arsehole” or “Pissant” instead.


        • Mark:

          I thought that leaving the Euro Union would end up with The City losing business to Germany and Wall Street.

          That seems to be the dominant theme from the TV talking heads that oppose Brexit. But I wonder what the logic of it is. Certainly there is no reason to think that doing business out of New York, which is also outside the EU, would have any competitive advantage (that it doesn’t already have) over doing business out of London. And none of the talking heads ever point to any specific regulation or law that would give a center inside the EU some kind of banking advantage over a center outside of it. And without that, I just don’t know why to expect that any bank would go through the not-insignificant expense of moving its center from London to somewhere else.


        • “General note on crazed asshole shooters – media should not use the phrase “Lone Wolf”.”

          I think we should standardize on “Giant Pathetic Loser Piece-of-Shit” … I think that would send the right message.


  7. Scott, you worked in London. Do you think there is anything to be said in favor of BREXIT?

    It seems to me it would be especially hard on “The City”.


    • Mark:

      Scott, you worked in London. Do you think there is anything to be said in favor of BREXIT?

      I think so, but largely because of my politics, not because of economics, and so unlikely to be convincing to you.

      As I am sure you know, I am very much opposed to the concentration of political power, and I view the whole EU project as an attempt to subvert the sovereignty of individual nations and to concentrate political power in an EU administrative state. If I were living in the UK, I’d vote to pull out. But of course if I lived in Texas, I’d vote to secede, so that gives you some idea of where I am coming from.

      As an aside, back in 1999 when the Euro was first introduced, I predicted that it would eventually collapse because I figured a monetary union could not survive without political union (which, again, I think was the real goal of the designers), and I figured that most people would never go along with voluntarily giving up their national sovereignty. The on-going Greece debacle is an indication that I was right. And although Britain never joined the Euro, I think their departure from the EU could embolden other nations to rethink the whole project. So I am secretly pulling for Brexit to help make my predictions prescient.

      Why do you suppose it would be especially hard on the City? I don’t see any reason why the financial hub needs to be in an EU city, or why a bank would want to move their operations just to stay physically inside it.


      • Count the number of words in the EU “constitution”, and compare it to the US constitution. Look at what is innumerates just in the constitution. They’re doing it wrong.

        Then look at EU governance, and tell me it is not doomed to be a mess. And it is fundamentally undemocratic, with pretenses towards democracy, or at least lip-service. But as Bob Geldoff said: “The EU is awesome! Britain is allowed by Brussels to fish almost as much as Denmark, which is the epitome of fairness! It will work just as well as Live AID did when I ended hunger in Africa.”

        Ok, well maybe that’s not an exact quote.


  8. DOJ drops lawsuit against Angelo Mozillo of Countrywide fame. For all the leftists screeching about drawing and quartering “banksters” the reason why there were very few prosecutions is because the government doesn’t have a case.

    Think I’ll go piss off the PL with this one…

    Liked by 1 person

  9. Milo really needs to be Trump’s press secretary if he’s elected:

    “Of course, it was only a matter of time before I got the Muslims’ attention. As a Catholic homosexual of Jewish descent who regularly speaks out against Islam, the only way I could offend these guys any more is if I was sponsored by the National Pork Board.”


  10. This is going to be great:

    “The cost of running for office in America is about to go up — a lot

    By Catherine Rampell
    June 16 at 7:17 PM

    Running for political office is about to get astronomically more expensive, thanks to a new rule issued by the Obama administration.

    Last month, the Labor Department decided to expand the universe of workers who are entitled to overtime compensation — that is, time-and-a-half pay for working beyond 40 hours per week. Starting later this year, salaried workers earning up to $913 a week, or $47,476 annually, will be covered by overtime protections.”


    • I keep coming back to the theory that racism is the highest sin in leftism, and all of their policies, procedures, and prejudices stem from that.


  11. A true feminist.

    The kid’s a hero.

    Liked by 1 person

  12. Mark:

    This article is a good summation of how I feel about Brexit.

    Stripped of distractions, it comes down to an elemental choice: whether to restore the full self-government of this nation, or to continue living under a higher supranational regime, ruled by a European Council that we do not elect in any meaningful sense, and that the British people can never remove, even when it persists in error.


    • I get the idea, Scott. But Britain always has BREXIT as an out because of the nature of the consensual agreement. So I guess the question is why do it when it is working to UK’s economic advantage? Why not use it both as a threat when UK does not agree with proposed policy and an eventuality if the consensus does not work to the UK’s advantage?


  13. This should be great:

    “3 New York Police Commanders Are Arrested on Corruption Charges
    JUNE 20, 2016

    Three New York Police Department commanders, including a deputy chief, were arrested early Monday, along with a Brooklyn businessman, on federal corruption charges stemming from one of several continuing investigations into Mayor Bill de Blasio’s campaign fund-raising, according to court papers.”

    This seems tangential, but if the left’s golden boy de Blasio goes down for corrupt fund raising, that would be hilarious.


  14. WTF?

    Hat tip Ace of Spades.

    But seriously, editing out the stuff we already know is in there because of references to ISIS? What?


    • It’s to avoid giving Trump material for TV ads. He’s the threat they fear, not ISIS.

      Edit: Why it’s going to backfire

      “And as Obama angrily stated last week, refusing to name threats by their actual name is a major part of his counter-terror strategy. And only idiots would think that being truthful about threats would help combat them. Fine! But as Gabriel Malor pointed out, transcript deletion of ISIS is a good example of the Streisand effect. Wikipedia defines that as, “The phenomenon whereby an attempt to hide, remove, or censor a piece of information has the unintended consequence of publicizing the information more widely, usually facilitated by the Internet.”

      I’m not down with the goal of downplaying ISIS but if that’s your goal, removing information that the public eventually has access to in Florida, and going on talk shows to announce that you’ve deleted countervailing information from the transcript is not a good way to accomplish that goal.”

      Liked by 1 person

  15. Today’s brilliant legal minds on display:

    “The central point in Sotomayor’s dissent is that the case centers around “suspicionless stops” that are all too familiar for people of color, even though the defendant in this case is white.”


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