 False
Housing: Gold Headwind
Jim Willie
CB
Jim Willie CB is the editor of the "Hat Trick
Letter"
May 17, 2007
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The newest deceptions are with
jobs and housing. Each is much worse than reported. The housing
decline might be as much as 15% worse than reported, which leads
to much bigger job loss than is reported. Most of the home construction
job loss is under the table, to people not on state jobless insurance
programs, and to immigrant workers paid in cash. Both fall through
the statistical cracks in those home frames and plywood floors
underlayments. A quick preface on the two biggest corrupted statistics
first, since of paramount importance. The US Federal Reserve
will likely respond to more rapid job loss, and to more rapid
home sector erosion decline. When they do, expect an official
rate cut sequence to resemble that of 2001. As in, sharp &
sudden. The signals surround us, that the major powers are in
the process of permitting the USDollar to fall.
Premeditated doctored and falsified
economic statistics are the laughing stock of the USGovt reporting
system. The are the tarnish on a once respected emblem. The two
most important chronically corrupted pulse measures for the USEconomy
are the Gross Domestic Product (GDP) on the economic growth,
and the Consumer Price Index (CPI) on the price inflation.
The GDP is lifted improperly by 4% to 5% in order to conceal
the ongoing fight with a recession since the 2000 stock bust.
The enabling device is a ridiculously low price inflation figure
which might be wrong by 7% to 8%. Most reported growth is merely
improperly adjusted price inflation. Be sure that the practical
benefit from suppressing the CPI is to keep Social Security payments
down, along with federal pensions related to agency workers,
military retirees, and those who used to sit on judge benches.
The direct market motive is to sell USTreasury Bonds and other
debt securities, while painting a picture of fiscal health for
a nation far more sickly than official statistics reveal. Lying
has become an institutional feature of US government, if not
corporate life.
The objective is to achieve
plausible deniability of falsehood by means of abstruse goofy
confusing indefensible methods behind the calculations. Like
who besides math/stat jocks knows the effect of using a geometric
average rather than simple arithmetic average? Doing so drops
the CPI by at least 1%, a useful gimmick. Does anyone realize
milk and cheese were absent from the March CPI carefully crafted
calculation founded in convenient deception? If an item rises,
remove it or substitute it. We all buy milk and cheese. Former
USFed Chairman Arthur Burns starting the nonsense, which has
taken a life of its own. He first removed volatile food &
energy from the CPI, now a standard practice. The moral of the
CPI/GDP story is that if you lie by at least 5% on the CPI, you
not only save on the USGovt budget deficit but you enable a 5%
lie on the economic growth. Who wants to report the USEconomy
is stuck in a recession, now at minus 2% to 3% decline?
HOUSE SECTOR IS CRASHING
Every reason looms
large that housing data is equally inaccurate as most other major
economic statistics. Whether intentionally falsified or incompetently
calculated by the National Assn of Realtors (NAR), it is irrelevant.
Call it financial engineering. My guess is again a premeditated
doctoring of the statistics, since their motive is so clear,
to sell homes. In a worse declining market, sales would halt,
pure and simple. We are in an age where those parties with
the worst, most egregious, vested interest are given charge of
assembling, calculating, and reporting their own statistics.
This is laughable. Imagine the mafia in charge of reporting on
crime levels, or children in school reporting on actual valid
sickness and missed days in class.!
Both existing home sales and
new home sales data are providing misleading national sales information.
The new home curve ball involves cancellations, which are not
properly recorded in current data. The housing market has
declined much more sharply than is being reported, like 13% to
15% worse. When looking to confirm data, a triangular method
is effective, meaning related and supporting information must
be consistent. It is not. Look to other sources of information,
and attempt to confirm or refute the aggregate. One inconsistency
is possible, but not a set of inconsistent figures that presents
itself. Independent research outfit John Burns Real Estate Consulting
sampled 181 key counties with just over half of the US population
where the large home builders are active. Their work is the most
comprehensive and well organized to cross my desk (thanks to
intrepid hound Kevin F).
Home sales have fallen 22%
on a 12-month basis versus the prior 12 months, in reality. On
a simple year-over-year monthly comparison, the decline is even
worse. Contrast that to a mere 10% in the compromised NAR reports.
It is hard to call theirs or USGovt's work analysis, when it
is more like a fraudulent marketing promotional effort.
1) Mortgage Bankers Association
(MBA) seasonally adjusted purchase application index is down
18% from its peak in September 2005. Not all applications are
accepted, and oftentimes people fill out more than one. So how
could reported sales have fallen by less than 18%, by NAR data?
This not only makes no sense, but nobody seems to question it.
Applications are NOT final sales, and furthermore, canceled sales
make for even worse final sales figures. Go with confirmed sale
closings, which is available but not utilized by the NAR. Suspect
a vested interest in keeping a favorable spin!
2) DR Horton and Lennar, two
largest homebuilders in the United States, have announced orders
being down 27% to 37%, on an annual basis. The parent company
of the group Century 21 serves as another excellent triangular
data point. Their subsidiaries Coldwell Banker and ERA accounted
for roughly 1.9 million brokerage related transactions in 2006
compared to 2.3 million in 2005. That comes to an annual decline
of 18% nationwide. The NAR state data does cite big corrections
in three major states: 28% drop in Florida, 24% drop in California,
and a 28% drop in Arizona. The independent data shows the sales
have probably dropped by 34%, 27% and 38%, respectively on final
sale basis.
So the housing decline is much
worse than reported, LIKE TWICE AS BAD. See their report (click
here).
Spin versus reality might look like this, in a great chart composed
by JBREC.
TWO FALLOUT FACTORS ON JOBS
Many workers in the
home construction industry do not typically participate in the
state unemployment insurance programs. The construction firms
wish to keep their labor expenses down, and payment in cash accomplishes
that objective. Paying immigrant workers in the special trades
also is done on a cash basis more than is recognized by those
who actually trust official data compiled by compromised bureaucrats
and party apparatchiks eager to follow orders or even impress
via new clever deceptions. So the official job loss data collected
by the US Dept of Labor does not count those cash basis jobs.
That is convenient. Financial engineering. Not only do Ripple
Effect job losses occur with those involved in carpets, light
fixtures, faucets, landscaping, and so on, but their lower or
missing paychecks act like a contagion agent back home.
Remittances are payments made
by many types of immigrant workers outside the United States
to other lands, simple cash disbursements like to family members
via bank wires. Agriculture and construction are the two biggest
sectors with such workers. The Mexican families have seen the
biggest brunt of the slide, joined by those in central American
locations, alongside Dominica and some South American nations.
Between 2000 and 2006, almost 20 thousand Latino workers were
added in cement masonry alone, with another 72k as drywall hangers,
another 140k as painters, according to the US Dept of Labor Statistics.
The Mexican economy has felt the impact in pockets. Even Brazil
has seen a dropoff, from $330 million in remittances in February
2007 versus a monthly average of $446 million a year ago. In
previous reports, it has been noted that job cuts are under-reported
among home builders. Remittances are the evidence. A tiny fraction
of the workers sending less money home are inside the state system
of state unemployment insurance. Not only is contagion evident
in the USEconomy and US mortgage banking industry (all denied
loudly), but that contagion extends to Latin America south of
the border. The problems have spread to the overall economies
in the entire hemisphere. The Wall Street Journal provides
this excellent graphic.
THE JOBBED JOBS REPORT (AGAIN)
How does MINUS 229
THOUSAND JOBS sound for April ??? Take away the indefensible
nonsensical but convenient Birth-Death model addition of 317
thousand jobs for the month, all nicely hidden and never cited,
and that is what you see. Look instead to the Household Survey,
and no better. You see MINUS 463 THOUSAND JOBS. Flick a switch,
trigger a statistical device, and poof, just weak jobs creation
during the current recession. Financial engineering.
The jobs picture confirms troublesome
growth signals. The official promotional piece known as the 'March
Jobs Report' explained non-farm job growth rose by a mere 88
thousand jobs, far below the 125 to 150k required to keep pace
with the population. It was the weakest report in three years.
Worse still was the downward revision by 26k jobs in January
and February. Revisions down are an accurate forward indicator
generally, a signal of weakness ahead. Look to the trend, and
downward revisions mean things are changing for the worse. The
0.4% drop in average hours worked is another confirming bad signal.
Here is the GIANT LULU.
The Birth-Death Model actually added 317k jobs. ON WHAT BASIS???
From a housing decline and related fallout? Without that indefensible
lift, the March jobs figure would have been MINUS 229 THOUSAND. The +95k B-D adjustment from leisure
& hotels, and the +49k adjustment from construction seem
way off, very contrived. The labor participation rate fell by
0.2%, which means fewer people even look for work. That kept
down the jobless rate, which is a measure of state jobless
insurance collection only. People are dropping out of the
system. A huge 262k rise (5.8%) was seen in people NOT counted
in the labor force who would like to have a job. Sounds like
a jobless person to me!!!
The interesting U-6 all-inclusive
statistic (unemployment + under-employment) rose to 8.2% from
8.0% in April. The Shadow Govt Statistics folks believe the jobless
rate is closer to 12% in the United States. A final point is
that immigrant construction workers are not included in the official
statistics. Their numbers are 'mucho mas en realidad' (much more
in reality, just using my newfound Spanish skills) than what
is reported. The ripple effects are now beginning to take a bite.
Related niches to home building and remodeling, related niches
to home lending, these are shedding jobs in droves. Refer to
carpets, faucets, lighting, furniture, appliances, landscape,
plumbing, wiring. Refer to loan officers, property appraisers,
title search, legal, home inspectors.
Next come contradictions. The
Institute for Supply Mgmt (ISM) Manufacturing index for April
was 54.7, up from the 50.7 in March. Here is where the data does
not jibe. The diffusion index measures employees on mfg payrolls.
It fell to 53.4% in April from 58.1% in March. The surprise
positive ISM index jump to 56.0 in April from 52.4 in March SHOULD
BE DISMISSED. The direction of these two series goes in opposite
directions. Financial engineering. Job losses of 19k in mfg,
11k in construction, and 26k in retail testify to broad weakness.
The fact remains that 3.2 million factory jobs have vanished
since 2000, led by the car and downstream industries. The ISM
seems doctored heavily. This chart and the contradiction were
offered by Paul Kasriel of First Northern, grabbed with gratitude.
RETAIL SECTOR CONFIRMS SLOWDOWN
The investment community
and public at large is told that USEconomic activity is slowing,
housing remains in trouble, job growth is worse than anemic,
but the jobless rate is nice & low, and manufacturing is
perking up. SOUNDS LIKE RUBBISH. With a 30% decline in annual
housing starts, we have seen very little in lost construction
jobs in the official statistics.
Even the retail sector is weak, at its lowest growth rate in
three years, caught in a certain downtrend. Big negatives in
sales were announced last week in the retail arena by chains,
from Aeropostale to Abercrombie & Fitch, each more than 10%
down, even Wal-Mart at minus 3.5% was the worst showing in 27
years. In the retail group, 80% missed their forecast. The April
retail sales (excluding cars) was minus 0.2%, but terrible weather
might have hurt those sales. We are near the low end of retail
sales growth levels when a recession last hit. The following
graphic is provided by the excellent data compilers and analysts
at Contrary Investors.
STAGFLATION STRAIGHT JACKET
To compound the suspicions
that STAGFLATION is upon us, the GDP Deflator is now running
at 4.0% annually, more than double the 1.7% shown in the previous
Q4. The positive news is the 2.0% growth in business investment
for Q1. That rebounds from the last Q4 of 2006. The trend
has been for US corporations to invest more in stock buybacks
than in equipment to expand the business capital base, just like
what has been quantified here among the large energy companies.
Also the March factory orders showed a surprising +3.1% lift.
It should be noted carefully that the bulk of the new orders
for computer and business equipment were from OVERSEAS DEMAND,
not US-based demand.
An aside on gasoline and fuel
costs generally. They crimp consumer spending elsewhere. Sure,
never under-estimate the resilience of US spenders. Well, unless
gasoline becomes a problem. It is a unique cost, since IN OUR
FACES EVERY DAY, on television every day, in newspapers every
day, the things that Joe Sixpack & Soccer Moms pay attention
to. Just yesterday, a phone call came from a friend in a coastal
US city. He reports a rash of boat sales from owners who cannot
afford to pay the higher fuel costs (thanks, Tim S). So higher
costs have begun to force yet more liquidations of assets. How
will recreational vehicle sales do? Badly, but distressed sales
of currently owned RV's will shoot up. We have not yet heard
from the truckers, who are a loud rough tough bunch. Gasoline,
diesel, and jet fuel are the other weak links in a growing monstrously
long list of weak pressure points in the USEconomy. Their prices
rise with the falling USDollar, compounded by monumental irresponsibility
among gasoline refiners and USGovt officials beholden to environmental
causes. We keep clean surroundings but lose jobs.
The specter of stagflation
puts the USFed in a horrible bind. They have been facing the
double barred dilemma, to rescue the USDollar with a rate hike
or to rescue the Housing sector with a rate cut. Their inaction
led them directly into the nightmare of STAGFLATION, with little
in the way of policy options. AS THE USFED STRUGGLES WITH ITS
TOTAL ABSENCE OF POILCY OPTIONS, COST INFLATION WILL RAGE INSIDE
THE USECONOMY AS THE RELEASE VALVE, WHILE THE HOUSING CRISIS
WORSENS TO KILL JOBS. Now two years past the initial USFed initial
interest rate hikes, the system has had ample time to send higher
prices systemically throughout the economy. Plenty of resistance
remains, like price ceilings imposed by China and India via outsourcing.
However, the kicker is new price explosions from the gasoline
side. People must get to work. Companies must receive shipped
supplies. All transportation types must function along commercial
arteries, from car to truck to railroad to ocean vessels to airplanes.
Homes and buildings must be lit and kept cool.
Make no mistake. The USFed
has four storms brewing, each powerful, each blocking a change
in policy, plagued by one ancillary risk like a hemlock chaser.
They are reviewed, analyzed, and developed in the May Hat Trick
Letter.
- USDollar decline
- housing market distress
- mortgage cancer contagion
- teetering credit derivative
structure
- trade war with China
The USFed is in an unmanageable
position, sure to breed havoc upon any change, and maybe havoc
without any change! To say the USFed is stuck in policy quicksand
is a gross understatement. They are in a straitjacket on a platform
above quicksand inhabited by mobile adaptive crocodiles!!!
A rate cut is coming, with
the USFed kicking and screaming, together with denying reality
and adding indefensible credibility to utterly false economic
reports. They need a smoking gun to point to, so as to shed full
responsibility for their indecision and to defended credibility.
The USDollar decline both confirms the expectation and leads
the actual decision. The US$ decline seems an approved event.
If you need that smoking gun, look no further than the decline
in the 3-month Treasury Bill yield. It is analyzed in the May
HTL report, along with the lack of market expectation evident
in Fed Funds futures. The TBill opens the door for the USFed
to cut interest rates. Bond traders have begun to push down yields
in the short-term USTreasury. The USFed would then follow,
more obedient to the bond market than understood. Thanks
to Lance Lewis, posting on Minyanville, for the graph of the
2000-2001 timeframe comparison. We are seeing a repeat event
to 2000 pattern right now.
POTPOURRI
The Hat Trick Letter
issue for May is out. Among a host of other markets reported
on, stories include the IBM gigantic layoff, which will be difficult
to hide in the jobbed Jobs Reports. It includes the Executive
Decree which authorizes intelligence czar Negroponte to permit
NO DISCLOSURE by large corporations who do the USGovt bidding
in market manipulation, in the name of national security. In
other words, a knee-jerk assessment, is that fraud is in the
US national interest. It includes the story about EuroNext, which
moves us one step forward to the full integration of financial
markets. It links US and European financial markets. Their control
will certainly be made easier. It includes a Special Report on
the Credit Market Derivatives, some information on their complex
structure, and evidence of meltdown events in progress. It includes
an update on the German juggernaut economic success story and
the contrasting European housing bubbles in England and Spain.
Does anybody of sound mind
and clear thought process now doubt my claim made in the last
two years that the European Union economy is stronger than that
of the United States? They chose not to wreck their economy by
pumping housing equity via debt into it. Europe does not possess
a SUBPRIME MORTGAGE market, complete with associated toxic collateralized
bonds. My forecast made in 2005 and 2006 was that in time, THE
USECONOMY WOULD BE THE WEAKEST IN THE INDUSTRIAL WORLD. We are
here, but the USFed Keystone Cops are caught in a policy nightmare.
When they awaken to act, gold will zoom toward $1000 in price,
along with silver toward $30. An urgent interest rate cut cycle
will occur, come hell or high water with the doomed USDollar.
In fact, as analyzed in the
May report, the USGovt knuckleheads might want a lower USDollar
to 'teach China a lesson' akin to shooting Uncle Same in the
kneecap. Gold and silver are acting much like coiled springs.
To make matters worse, the energy market is looking strong, both
crude oil and natural gas. If not depletion, it is Nigerian bandits.
If not Saudi Ghawar on the downslope, it is Mexican Cantarell.
The US Military does its job in keeping Iraqi output low, making
huge demand on supplies for military equipment. The summer driving
season will draw more oil from inventories. The summer air conditioning
season is here, with more drain on electricity and natural gas
fuel supplies.
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May 17, 2007
Jim Willie CB
 Jim Willie CB is the editor of the "HAT
TRICK LETTER"
email: jimwilliecb@aol.com
Willie Archives
website:
Golden
Jackass
subscribe: Hat
Trick Letter
Jim Willie CB
is a statistical analyst in marketing research and retail forecasting.
He holds a PhD in Statistics. His career has stretched over 26
years. He aspires to thrive in the financial editor world, unencumbered
by the limitations of economic credentials. Visit his website
at www.GoldenJackass.com. For personal questions
about subscriptions, contact him at JimWillieCB@aol.com.
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