new home sales fall to historical lows

If one were to look at the graph that is here, one might extrapolate from the information that the trend line that began in 1992 and ran through 2006 was an 'abhoration' - its speed increased dramatically from prior periods.
New home sales went 'atmospheric' during that time frame.
Gee, I wonder what was the 'stimulus' behind this amazing anomaly?
The question today is how long will it take new home sales to recover from the 'irrationally exuberant' pace that took place in the late 90's and ran through the first half of this decade?

prb

Subject: May 2010 new home sales fall to historical lows
Date: Wed, 23 Jun 2010
From: "Stone & Youngberg Portfolio Strategy Group"

* Earlier today (6/23) the Census Bureau reported a dramatic -32.7% drop in new home sales for May. The (seasonally adjusted, annualized) number of new homes sold during the month was a depressing 300,000; the lowest number of monthly sales since the Census Bureau began tracking new home sales in 1963.

* The actual, non annualized, non seasonally adjusted, number of new homes sold in the US during May was an infinitesimal 28,000. (There are roughly 130 million housing units in the US.)

* Today's data clearly indicates that the housing sector is mired in a very deep recession. Unfortunately, historically low mortgage rates and new tax incentives are not sufficient to engender a recovery.

* The chart below suggests that in previous recessions, housing/construction was a big contributor to leading the US economy out of recessions. New home sales generally bottom out just before the start of a recession and start to rise during the recession - obviously that is not the case today.

The making of history or how revisionism works (the tale of FDR's failed policies)

The debate will most likley live on until we are out of the woods of this economic quagmire....which, with continued government intervention, should go on for quite some time....
prb

A Mind-Changing Page
by Thomas Sowell
Thursday, June 17, 2010

Sometimes you can read a book that will change your mind on some fundamental
issue. Rarely, however, is there just one page that can undermine or destroy a
widely-held belief. But there is such a page-- page 77 of the book "Out of Work"
by Richard Vedder and Lowell Gallaway.

The widespread belief is that government intervention is the key to getting the
country out of a serious economic downturn. The example often cited is President
Franklin D. Roosevelt's intervention, after the stock market crash of 1929 was
followed by the Great Depression of the 1930s, with its massive and long-lasting
unemployment.

This is more than just a question about history. Right here and right now there
is a widespread belief that the unregulated market is what got us into our
present economic predicament, and that the government must "do something" to get
the economy moving again. FDR's intervention in the 1930s has often been cited
by those who think this way.

What is on that one page in "Out of Work" that could change people's minds? Just
a simple table, giving unemployment rates for every month during the entire
decade of the 1930s.

Those who think that the stock market crash in October 1929 is what caused the
huge unemployment rates of the 1930s will have a hard time reconciling that
belief with the data in that table.

Although the big stock market crash occurred in October 1929, unemployment never
reached double digits in any of the next 12 months after that crash.
Unemployment peaked at 9 percent, two months after the stock market crashed--
and then began drifting generally downward over the next six months, falling to
6.3 percent by June 1930.

This was what happened in the market, before the federal government decided to
"do something."

What the government decided to do in June 1930-- against the advice of literally
a thousand economists, who took out newspaper ads warning against it-- was
impose higher tariffs, in order to save American jobs by reducing imported
goods.

This was the first massive federal intervention to rescue the economy, under
President Herbert Hoover, who took pride in being the first President of the
United States to intervene to try to get the economy out of an economic
downturn.

Within six months after this government intervention, unemployment shot up into
double digits-- and stayed in double digits in every month throughout the entire
remainder of the decade of the 1930s, as the Roosevelt administration expanded
federal intervention far beyond what Hoover had started.

If more government regulation of business is the magic answer that so many seem
to think it is, the whole history of the 1930s would have been different. An
economic study in 2004 concluded that New Deal policies prolonged the Great
Depression. But the same story can be found on one page in "Out of Work."

While the market produced a peak unemployment rate of 9 percent-- briefly--
after the stock market crash of 1929, unemployment shot up after massive federal
interventions in the economy. It rose above 20 percent in 1932 and stayed above
20 percent for 23 consecutive months, beginning in the Hoover administration and
continuing during the Roosevelt administration.

As Casey Stengel used to say, "You could look it up." It is all there on that
one page.

Those who are convinced that the government has to "do something" when the
economy has a problem almost never bother to find out what actually happens when
the government intervenes.

The very fact that we still remember the stock market crash of 1929 is
remarkable, since there was a similar stock market crash in 1987 that most
people have long since forgotten.

What was the difference between these two stock market crashes? The 1929 stock
market crash was followed by the most catastrophic depression in American
history, with as many as one-fourth of all American workers being unemployed.
The 1987 stock market crash was followed by two decades of economic growth with
low unemployment.

But that was only one difference. The other big difference was that the Reagan
administration did not intervene in the economy after the 1987 stock market
crash-- despite many outcries in the media that the government should "do
something."

Tuesday June 15th

It truly is an interesting and amazing economic situation that we find ourselves in today.

Here we have an 'influential' Fed economist who indicates that we should have a negative Fed funds rate as result of the status of our economy! Yet the government continues to spend, create and borrow more money than was thought humanly possible which in 'normal' times would create an inflationary panic - thus pushing rates skyward. And add to this that as of late we have the 'deflation' word being tossed around again!

What is our true economic reality? (Maybe we need to come up with a reality TV show about our economy - it could combine the best of the Wheel of Fortune and Jeopardy....! ! !)

For such unusual times as these and with the continued volatility that has stirred the market's pots, the road to economic stability seems to be out of our reach. Continuing levels of high joblessness, volatile and unpredictable consumer spending, continued housing stress, weak manufacturing levels, global economic chaos - these are the variables that we are dealing with.

And what is the answer to our economic malaise? Well there are enough people out there telling us what they believe - from more government spending to freer, open markets and less taxes. From my perspective the answer is time, a return to conservative financial foundations and perseverance - but no one wants to hear that!

prb

Subject: S&Y PSG Morning Market Update for Tuesday June 15th
Date: Tue, 15 Jun 2010

A report published yesterday by Glenn Rudenbusch, the influential economist and director of research at the SF Fed, indicated that the Fed will not shift monetary policy anytime soon and will probably not raise interest rates until 2012.
The report indicated that that by some policy benchmarks or rules of thumb, the fed funds rates should theoretically be negative, -2.9% (current fed funds rate = 0.25%).
Obviously the fed funds rate can not be negative; however, the report suggests that the rate will be theoretically negative until late 2012. At that time, the Fed would then initiate the policy shift to tightening.

Update for Tuesday June 8th

We seem to have lost the 'need for transparency' that is so oft spoken of and promised at all levels of our government. Now Bernanke is speaking in 'vaguely optimistic' terms about all that is going on in our world's economic systems. With continued trouble abounding in just about every economy that is looked at, leverage (debt) continuing to grow at unparalleled levels and the interconnectedness of all of the industrialized economies of the world, I don't believe Mr. Bernanke is as forth coming as he might should be at this time…
I do appreciate this comment from this economic update -
"Unlike the US, these European nations have determined that the greater risk to stability is the growing level of sovereign debt, rather than a weak economy."
So, when do we wake up?
prb

Subject: S&Y PSG Morning Update for Tuesday June 8th

In an interview yesterday (6/7), Fed Chairman Bernanke said
- he does not expect a “double dip” recession and
- that the US recovery is proceeding at a moderate pace.

He also said the
- unemployment rate will remain high for a while and
- the Fed would begin raising rates before the economy reached full employment.

The Chairman also addressed the problems in Europe and suggested the steps the EU, IMF and individual nations have taken recently are appropriate and should help resolve the crisis. This vaguely optimistic macroeconomic outlook by the Chairman is not unexpected, but contrasts with the generally pessimistic attitude of the fixed income markets that the European debt/deficit situation is far from over and sovereign risk continues to represent a real threat for investors.
Both the Germans and British announced additional austerity measures yesterday (6/7) that will entail relatively large cuts in government spending.

Such austerity programs will inevitably
- dampen the strength of the economic recovery,
- reduce global aggregate demand and
- affect growth rates not only for Europe but also Asia and North America.

Unlike the US, these European nations have determined that the greater risk to stability is the growing level of sovereign debt, rather than a weak economy.