This chart (courtesy of Mish), shows that contrary to hype, retail has not recovered to anywhere near pre-crash levels, though the consumer culture is still very much alive.
Your tax dollars at work:
The Economics and Human Biology journal uses an example that an average American woman, 5 feet 4 inches tall, will be 5.8 pounds (2.6 kg) heavier if she is on SNAP than someone who is SNAP eligible, but not receiving food assistance.
I’ve lived on both continents, and poor people in the US have what middle-class europeans do, but they eat more and on average are far dumber. What this video makes clear is that most of their fundamental problems do not arise from a lack of purchasing power.
From Bloomberg:
City and state government workers were huge beneficiaries of the boom years, since not only did their houses appreciate by double digit rates, so did their salaries. Since taxes are based on home values, the bubble meant that government got just as bloated as the real estate market. Now that homes are worth less, it is in bureaucrats’ best interest not to admit it.
This story comes out of Nevada, but it could be anywhere.
“Case 804!”
Don came to the lectern and leaned into the microphone, a resolute, if rumpled, man with thick white hair, a Col. Sanders mustache and glasses.
“Before we came down here,” he told board members, whose faces were mostly hidden behind computers, “we drove around. There are 10 foreclosures within a mile of my house!”
Don mentioned the home that sold for $132,000. Board member Tio DiFederico, a commercial appraiser, had some questions: Was that a bank sale?
“Yes, sir.”
“OK, it probably wasn’t in very good shape.”
“Actually, I was in that house. It was in fairly decent shape.”
DiFederico wasn’t swayed. “We’ve discussed this before — these bank sales sell for about 25% less than owner-occupied homes. They need to get rid of them faster.” He suggested the Knights’ home was worth $140,000.
In the audience, Janet grimaced. Still too high.
“The problem with short sales and foreclosures is they always go submarket,” said board Chairman James Howard, in a somewhat conciliatory way. “And if you try to set your values based on those short sales and foreclosures, you’ll always be a little bit low.”
The Knights lost on a 4-to-1 vote. The house’s value was set at $140,000.
“I’m sorry we weren’t able to help you today, sir,” Howard said.
The story says the home in question could have fetched well over $300,000 at the peak.
From Chart of the Day:
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What was that about credit being the lifeblood of the economy? Well, the 2000s saw the greatest bubble ever, and all it got us was richer bankers. Robert Prechter often says that the depression started with the bursting of the dot-com bubble and deflation of social mood from the euphoria of the late ’90s. This chart, like the Dow:Gold ratio (down to 9 today from a peak of 44), give you and idea of what he’s talking about. After all, there was no net growth last decade — it was all a sham.
Hat tip Evilspeculator
They counted 48 vacant properties (I presume mostly street-front) from 59th to 14th Streets on 5th Avenue in Manhattan. I don’t have any stats to compare this to, but it is clear that times are not so good for landlords (and their banks) in NYC. I used to live on the same block as one very large storefront shown here, and I happen to know that that particular property has been vacant for over 18 months, ever since its former tenant, a nationwide retail chain, went bankrupt.
I have noticed that many of the “for rent” signs you see in Manhattan bear the name of Vornado or other such REITs. That sector is still doomed, though traders seem to have forgotten to ask, “where’s the equity?” I suspect that in most cases, an honest accounting would reveal that net of debt and marked to market, there is none at all.
Why shouldn’t someone walk away from overbearing consumer, student or mortgage debt, so long as it is non-recourse? I can’t think of any reason to keep servicing debt if you have no hope of repaying the principal. What good is a high FICO score if you don’t want to run up another credit card balance or buy a home? Yes, landlords run credit checks, but it is getting harder and harder to fill vacancies, and this is what deposits are for anyway.
The “just walk away” attitude is gaining traction. It could snowball into next year as yet more mortgages reset and U-3 unemployment enters the double digits. What can the legal system do if tens of millions of people decide to stop paying their unsecured loans? This lady is right — there is safety in numbers and government inefficiency. You get a fresh start in five years anyway, which should be right around the time real estate has a chance of recovering.
This is exactly what needs to happen. The unpayable debt will by definition be defaulted on, so the sooner the better. The banks that issued it need to go under. Stories like this are refreshing, because we need to clear the air.
This morning’s Breakfast With Dave is good one.
There are so many headwinds confronting the U.S. consumer it’s not even funny. For a look at the new harsh reality of soaring usage of grocery vouchers, as well as other supplements to the household budget, have a look at the grim article on page 2 of the weekend FT (Families Take Up Food Stamps as Wages Shrink). On the very same page, there is an article on the latest trend in terms of 21st-century breadlines — Middle Classes Turn to Car Park Handouts. To think we still get asked why we aren’t more bullish over the outlook for spending. Truly amazing.
TREMENDOUS UNDEREMPLOYMENT
The U.S. economy is actually 9.4 million jobs short of being anywhere remotely close to being fully employed, which is why any inflation that can somehow be created by the Fed is simply going to be unsustainable noise along a fundamental downtrend in pricing power. After last Friday’s report, we have now lost 6.9 million positions that have been cut during this recession and we have to count in the additional 2.5 million jobs that need to be created — but never were — just to absorb the new entrants into the labour market. The ‘real’ unemployment rate is now 16.8%, so to suggest that this down-cycle was anything but a depression is basically a misrepresentation of the facts.
MONEY AND CREDIT AGGREGATES ARE NOW DEFLATING
It is interesting that the equity market has begun to wobble (fade last Friday’s rally on such low volume) because we have noticed that some key liquidity indicators are not behaving very well, all of a sudden. M1 fell 1.0% in the August 24th week and over the past four weeks is down at a 6.5% annual rate. M2 has contracted in each of the past four weeks too and over that time has slipped at a 12.2% annualized pace, which is a near-record decline. We see the same trend in the broad MZM money measure — off at a 15.8% annual rate over the past month. Bank credit also remains in a fundamental downtrend — contracting at an epic 9% annualized pace over the past four weeks.
So for the first time in the post-WWII era, we have deflation in credit, wages and rents, and from our lens this is a toxic brew that in the end will ensure that the focus on capital preservation and income orientation will be the winning strategy over a strict reliance on capital appreciation.
This story in Bloomberg today about Montauk, Long Island’s sport fishing industry should surprise no one:
One reason why boat operators are suffering is that regular customers aren’t booking appointments. Taylor Herman, 28, an avid angler who works with structured credit markets at HSBC Investments USA Inc. in New York City, usually makes five or six charter trips every year.
Now he is fishing off the beach at Montauk Point. The cost of a fishing trip and uncertainty in an industry that has bled New York of thousands of jobs in the past year are keeping him ashore.
“What’s at the forefront of my mind is that even if there is a bonus in this industry, in this market I probably wouldn’t let it go,” Herman said. “It is almost the most luxurious thing you can do, to drop $500 on a fishing trip that is a complete gamble.”
There you have it. Frugality is in. This guy has the cash, but knows he should hold onto it.
Herman said he knows a dozen people who have lost jobs at financial companies, and only one has found work. Employment in the securities industry in New York City dropped by 10,600 jobs, or about 5.5 percent, from mid-August 2007 through mid-July, said Jim Brown, an analyst with the New York State Labor Department.
This summer the tourists have cut discretionary spending, reflecting a regional economy down 18 percent in the last year, according to the Bloomberg New York City Metro Index….
18 percent? Jeez… if that is what an honest accounting of economic activity looks like, can you blame the BEA for cooking the books to inflate GDP?
Ripple Effect
“It’s a chain reaction,” said DeFina, 47, the owner of On The Dock. “The boats are empty, the docks are empty, the parking lot is empty. When people see that, they keep going.”
Fuel sales at Montauk Marine Basin this year may total 700,000 gallons, down from about 1 million in 2007, said Darenberg, the owner. That has cost him at least $200,000 so far this year, he said. The decline comes as he faces a $1 million bill in 2009 to install new fuel tanks to meet environmental rules.
“If boats don’t move, they don’t break,” said Darenberg, who also repairs fishing vessels and has a bait and tackle shop. “We’re trying to keep the prices down so people will go fishing.”
They’re trying to keep prices down – – that’s just what they should do, and is exactly how deflation works. Fishing tackle is actually a huge industry in the US, and as a fisherman, I have noticed soaring prices in the last 20 years. A decent light rod used to cost $15, with $50 being upscale, but now the respective figures are more like $50 and $200, and the number of highly discretionary gizmos for sale has exploded. Tackle manufacturers are going to have to retool for lower budgets: think Wal-Mart’s fishing aisle, not Montauk yacht clubs.
Remember the sub-plot in Jaws about the fragile tourism-based economy on fictional Amity Island? These towns are in for the toughest of times, since they rely on an overflow of cash and the confidence to spend it. In a depression, people will still come to the beach, but businesses like marinas and upscale restaurants, caterers and boutiques will find it hard to stay afloat.
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