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Misery Index: The Obama Depression - "Private sector doing just Fine"

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Soul Crusher: Home sales fell 9.6 pct. in February (Median home price hit 9-year low) AP via Yahoo Finance ^ | 3/21/2011 | Derek Kravitz WASHINGTON (AP) -- Fewer Americans bought previously occupied homes in February and those who did purchased them at steep discounts. The weak sales and rise in foreclosures pushed home prices down to their lowest level in nearly 9 years. The National Association of Realtors said Monday that sales of previously occupied homes fell last month to a seasonally adjusted annual rate of 4.88 million. That's down 9.6 percent from 5.4 million in January. The pace is far below the 6 million homes a year that economists say represents a healthy market. Nearly 40 percent of the sales last month were either foreclosures or short sales, when the seller accepts less than they owe on the mortgage. (Excerpt) Read more at finance.yahoo.com ...

Soul Crusher: General Motors lays off workers at NY plant ap ^ | Mar 21, 2011 | DEE-ANN DURBIN General Motors Co. on Monday is halting some production and temporarily laying off workers at a Buffalo, N.Y., engine plant. ... GM spokeswoman Kim Carpenter Carpenter said Tonawanda has the parts it needs to make the engines, but it's not producing the engines because Shreveport doesn't need them. She said GM doesn't know when production will resume at either plant. (Excerpt) Read more at breitbart.com ...

Soul Crusher: Running for the Exits. Hedge funds are dumping US Treasury bonds. Do they know something? National Review ^ | 03/22/2011 | Jim Lacey The wisest and most successful bond investor of all time, Bill Gross, has dumped his bond fund’s $150 billion investment in U.S. bonds. One should not ignore the importance of this event. The largest bond fund in America no longer believes that Treasury bonds are a good investment. Moreover, Gross is not alone. Blackrock, the world’s largest money manager, is now underweighting Treasuries overall and reducing the duration of the bonds it still holds. That means they are dumping their long-term bonds, which are the most sensitive to interest-rate changes, in favor of Treasury instruments that mature in a year or less. Other bond funds, such as the $20 billion Loomis Sayles funds, are also forgoing Treasuries in favor of high-yield corporate bonds. Virtually everywhere you look, from great investors such as Warren Buffett to insurance companies such as Allstate, everyone is dumping their long-term U.S. debt and either buying debt that matures in less than a year or moving their money elsewhere. So who is still buying U.S. debt? According to Bill Gross, the “old reliables” — China, Japan, and OPEC — are still in the market for 30 percent of all new debt. The rest, however, is being purchased by the Federal Reserve. There is no one in else in the market. For the first time ever, Americans are refusing to purchase their own country’s debt. Gross estimates that the “old reliables” are still good for $500 billion a year in purchases, and will be for some time in the future. This is pretty much the amount they’ve had to buy in the past to rebalance capital flows distorted by the U.S. trade deficit. Gross, however, may be wrong this time. Japan, needing to finance its reconstruction, is much likelier to be a net seller of U.S. debt, while China’s economy is slowing and actually ran a trade deficit in the last quarter. That leaves only one buyer of consequence — the Federal Reserve. Researchers at Gross’s firm, PIMCO, estimate that in the last quarter, the Fed purchased 70 percent of all new Treasury debt. This is a disaster in the making. By printing new money to buy debt, the Fed is both holding interest rates artificially low and flooding the world with dollars. Fed purchases have lowered rates to the point where there was no room for further decreases. With no more upside potential to holding debt, investors are fleeing on the assumption that the Fed will soon exit the market, causing rates to rise dramatically. Such a rate rise lowers the value of all current U.S. debt: Who will pay $1,000 for a bond paying 3 percent when she can get one paying 5 percent? Anyone who wants to sell a $1,000 bond they already own is therefore forced to lower the price if they wish to attract buyers. No one holding any of the almost $10 trillion in U.S. public debt is getting much sleep these days. When the Fed’s $600 billion QE2 buying spree ends, there will not be enough buyers left to purchase the $1.4 trillion in debt the administration has built into this year’s budget, at least not at current interest rates. Gross believes interest rates have to rise approximately 1.5 percent (150 basis points) to attract sufficient buyers. This may be optimistic. The Fed is not only looking to stop buying new debt, it also wants to get rid of the nearly $1.3 trillion currently on its balance sheet. Absorbing $1.4 trillion in new debt, rolling over maturing debt, and simultaneously purchasing debt the Fed bought during its quantitative-easing forays is a lot to ask of the market. Moreover, there is a real risk that bondholders who see the value of their assets fall will stampede for the doors. There are already signs that the smart money is looking for just such an event. Short sellers — those betting on a bond sell-off — pumped over three-quarters of a billion dollars into short positions in just the last quarter. This compares with a negative flow of short funds in the same period last year. If the short sellers are right, and there is a stampede, all bets are off. The bond-market bubble that the Fed’s purchases created will explode, likely setting off a renewed financial crisis. Come June, the Fed will be in a bind of its own making. If it stops pumping money into the system, interest rates will increase, and not just on Treasury bonds. Mortgage rates will rise and business credit will become more costly. The recovery could be strangled in its infancy. If it keeps on buying bonds, however, it risks never being able to wean the markets off the equivalent of monetary crack. Worse, the flood of dollars will continue to drive down the value of the dollar, raise commodity prices, and propel global inflation. There are already signs that inflation, while still subdued in the United States, is looking to break out. It has begun wrecking havoc through many areas of the globe, for example providing the catalyst for much of the upheaval in the Middle East. And when it strikes here, the Fed will be out of options. It will have to turn off the money pumps, raise interest rates, and batten down the financial hatches. The resulting recession will be long and nasty. It is time to face facts. Spending is so out of control that Treasuries are no longer a safe haven for investors. The markets are saturated with U.S. debt and increasingly unwilling to absorb more. There is only one way out of this mess — cut spending, fast and deep. Given that the Congressional Budget Office last week stated that the administration’s budget would raise the debt by $2.3 trillion more than the White House Budget Office claims, these cuts are going to hurt. They will probably hurt a lot. That is the cost of fending off a true catastrophe. — Jim Lacey is the professor of strategic studies at the Marine Corps War College and the author of the forthcoming book The First Clash. The views in this article are the author’s own and do not in any way represent the views or positions of the Department of Defense or any of its members.

Soul Crusher: Economic Fears Spike as Gas, Food Prices Rise: All-America Survey The Financial ^ | March 22, 2011 Deep pessimism about future economic growth is weighing on Americans as they hunker down from the effects of higher gas and food prices and fear that those prices could remain elevated for years, a poll from CNBC has found. Results of Survey was published on late Friday on CNBC website. It reveals that Americans’ attitudes toward home ownership and expectations for housing prices are both deteriorating sharply. An astonishing one out of every two Americans knows someone who is being foreclosed upon or facing the threat of foreclosure, writes Steve Liesman, Senior Economics Reporter of CNBC. The survey of 800 Americans, from across the nation, income groups and ages, finds the percentage of Americans who believe the economy will get worse in the next year spiking to 37 percent, a 15 point gain from December. It’s now just five points below the all-time high in the series of 43 percent in June 2008, which came in the midst of a surge in gasoline prices. Those negative attitudes were registered just before the disaster in Japan and, if anything, could have worsened since then. Americans see inflation as widespread and are cutting back on non-essentials to make ends meet. On average, respondents see prices rising 6.6 percent over the next 12 months, up from 3 percent in December and the second highest median gain in the survey’s four-year history. Three-quarters of Americans says they have seen food prices rise over the past six months, and 61 percent believe the increases will last longer than a year. A similar percentage believes that higher gas prices are here to stay. When it comes to coping with those higher prices, more than 60 percent of Americans say they are either saving, traveling or driving less. More than 70 percent say they are spending fewer dollars on restaurants, movies and concerts, making leisure cutbacks the number one way the nation is economizing in the face of higher gas and food prices. In one of the most dramatic responses to the survey, Americans also do not believe that their wages will keep up with rising prices. Americans see their wages falling by 1.1 percent in the next 12 months, the biggest expected decline in the survey’s history. Less than a third of the nation expects wage gains in the next year, and most of these see only a modest 1 percent to 3 percent boost to their paychecks. Americans expect their home values to fall along with their wages. After a brief blip upwards in December, expectations for housing price declines resumed in the latest survey, with Americans looking for a 1.2 percent mean decline, compared with the 0.3 percent increase they expected in the December survey. It’s the biggest drop in the mean in the survey’s history. The survey also found that attitudes toward owning a home have gotten more negative. Just 63 percent of Americans believe it is better to own than rent, which compares with 89 percent registered in a 1996 survey by Fannie Mae. And 48 percent of the nation know someone who has been foreclosed upon or is facing the threat of foreclosure, up from 33 percent in September 2008, wrote Steve Liesman, Senior Economics Reporter of CNBC. Still, 73 percent of Americans believe that owning a home is an essential part of the American dream, compared with 25 percent who say it is not.

Soul Crusher: Fed's Fisher: U.S. debt situation at tipping point Reuters via Yahoo Finance ^ | 3/22/2011 | Marc Jones and Sakari Suoninen FRANKFURT (Reuters) - The U.S. debt situation is at a "tipping point," Dallas Federal Reserve Bank President Richard Fisher said on Tuesday, and urged the U.S. central bank to refrain from any further stimulus measures. "If we continue down on the path on which the fiscal authorities put us, we will become insolvent. The question is when," Fisher said in a speech at the University of Frankfurt. Fisher, seen by economists as one of the most hawkish policymakers within the Fed, said that although debt-cutting measures would be painful, he expected the U.S. to take the necessary actions. "The short-term negotiations are very important. I look at this as a tipping point." [Snip] Fisher warned there were signs that the speculative style of trading that had helped fuel the financial crisis was beginning to resurface. "We are seeing speculative activity that may be exacerbating (price rises in ) key commodities such as oil." (Excerpt) Read more at finance.yahoo.com ...

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