Home Price Growth Accelerates To 5.9% YoY While Hourly Earnings Growth Is At 2.31% YoY (Seattle Leads Growth At 13.5%, DC And Chicago Last At 3.3%)

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.9% annual gain in July, up from 5.8% the previous month. The 10-City Composite annual increase came in at 5.2%, up from 4.9% the previous month. The 20-City Composite posted a 5.8% year-over-year gain, up from 5.6% the previous month.

Seattle, Portland, and Las Vegas reported the highest year-over-year gains among the 20 cities. In July, Seattle led the way with a 13.5% year-over-year price increase, followed by Portland with a 7.6% increase, and Las Vegas with a 7.4% increase. Twelve cities reported greater price increases in the year ending July 2017 versus the year ending June 2017.

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The SLOWEST growing cities? Washington DC and Chicago at 3.3% increase YoY.

The Case-Shiller 20-City home price index YoY is still 2.52 times hourly earnings growth for most workers.

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The Case-Shiller index is now at an all-time high!  Along with the S&P 500 index.

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US household equity holdings to GDP are back to bubble highs!!!

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Instead of tiny bubbles, we have big bubbles!

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BIS Hunts for ‘Missing’ Global Debt, Inflation (Try Including Housing!)

Just like global central banks, the Bank for International Settlements can’t seem to find inflation and $114 trillion in off-balance sheet FX derivatives.

ZURICH – Nonfinancial companies and other institutions outside of the U.S., excluding banks, may be sitting on as much as $14 trillion in “missing debt” held off their balance sheets through foreign-exchange derivatives, according to research published Sunday by the Bank for International Settlements.

These transactions, which resemble debt but for accounting purposes aren’t classified that way, aren’t new. Rather, researchers from the BIS — a consortium of central banks based in Basel, Switzerland — used global banking data and surveys to estimate the size of this debt for the first time.

The implications for financial stability are unclear because FX swaps are backed by cash collateral and can be used to hedge exposure to currency swings, thus promoting stability. Still, the debt “has to be repaid when due and this can raise risk,” the authors wrote.

According to the paper, published with the BIS’s quarterly update on global financial conditions, non-banks outside the U.S. owed roughly $13 trillion to 14 trillion through foreign-exchange swaps and forwards. That exceeds the nearly $10.7 trillion in dollar debt held on their balance sheets at the end of the first quarter

“Non-banks” include nonfinancial companies, households, governments, and certain financial institutions that aren’t classified as banks and international organizations.

Globally, there are $58 trillion in FX swaps and related exposures, BIS said, which equals about three-quarters of global gross domestic product.

The authors explained that “in an FX swap, two parties exchange two currencies spot and commit to reverse the exchange at some pre-agreed future date and price.” In a forward contract, parties agree to swap currencies at a future date and price. “Accounting conventions leave it mostly off-balance sheet, as a derivative, even though it is in effect a secured loan with principal to be repaid in full at maturity,” the paper noted.

This short-term funding is backed by cash and it carries little credit risk. “Even so, strains can arise,” the authors wrote, citing the funding squeeze experienced by European banks during the global financial crisis.

The BIS’s quarterly review didn’t just examine missing debt, it also examined what it called “missing inflation” in the global economy, which has helped spur risk taking and drove up financial asset values in recent months.

The implications are big for stock and bond markets that have moved largely in tandem, with bond yields staying super low while equity markets reached record highs. Whereas faster growth typically implies higher inflation and central bank rate increases, the prospect of significantly tighter monetary policy in the U.S. and other big economies has receded.

“This puts a premium on understanding the ‘missing inflation’, because inflation is the lodestar for central banks,” said BIS chief economist Claudio Borio.

Annual inflation in the U.S., measured by the price index for personal-consumption expenditures, was 1.4% in July. Annual eurozone inflation was 1.5% in August. Both are well below the 2% rate that most big central banks consider optimal. Economists typically cite sluggish wage growth, heightened global competition, low oil prices and the effects of technological changes as explanations for subdued price pressures.

“Despite subdued inflation in advanced economies, the global macro outlook was upbeat. Market commentators label such an environment the Goldilocks scenario — where the economy is ‘not too hot, not too cold, but just right,'” BIS said.

Still, there are risks if bond yields eventually start to rise on the back of firmer global growth, given the sensitivity of the private and public sectors to debt.

Thus, the absence of inflation “is the trillion dollar question that will define the global economy’s path in the years ahead and determine, in all probability, the future of current policy frameworks,” said Mr. Borio.

Dear Federal Reserve and BIS. Try including house prices which are growing at fantastic rates of growth.

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Tell folks in New Zealand and Australia that there is “no inflation.”

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The US almost looks tame in terms of housing pirces compared to Britain and its former colonies where housing prices are growing over twice as fast as wage growth for the majority of the population.

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New Zealand takes the cake for crazy housing prices, particularly in Auckland, their largest city.

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There BIS. We found your missing inflation. 

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Hurricane Equifax II: Even Wells Fargo Says To Consider A Credit Freeze

How bad is the Equifax data breach? Where 143 MILLION consumers potentially had their Social Security numbers, credit card numbers and birthdates revealed? It is so bad that a major US bank, Wells Fargo, suggested that customers consider placing a freeze on their credit.

That is fine for those who don’t use credit on a regular basis, but what about those people who still wish to borrow funds to purchase a home or automobile? By NOT freezing your credit, you are at risk of loans being (fraudulently) taken out in your name.

Although Equifax was the primary recipient of market wrath, the other major credit monitoring companies Transunion and the UK’s Experian have experienced declined in their equity values as well.

And with real estate, automobile and credit card lending already in a decline YoY, imagine what a credit freeze will do?

Here is the Federal Trade Commission’s FAQ on freezing your credit.

Now the Wells Fargo wagon is suggesting freezing your credit which means no more loans.

Where’s The Unwind? Fed Actually Adds $15 Billion To Balance Sheet (As “Inflation” Remains Low And Home Prices Soar)

The Federal Reserve has been jawboning their intent to unwind their almost $4.5 trillion balance sheet, nearly all of which is either Treasurys or mortgage-backed securities.

The Fed’s Balance Sheet has pretty much been on hold (treading water) since 2014 and the end of QE3, their third round of asset purchases.

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But the System Open Market Account (SOMA) report from 9/13/2017 shows that The Fed actually added around $15 billion to its balance sheet.

soma091317So, no balance sheet unwind yet.

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Remember, The Fed’s notion of inflation (US Personal Consumption Expenditure Core Price Index YoY) remains under their target rate of 2% at 1.40% YoY.

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And core CPI growth YoY is at 1.7%, also under the 2% target.

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And with asset prices such as for housing exceeding wage growth by over 2x, The Fed has quite a bit to consider before pulling the handle on the balance sheet unwind.

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The US Treasury 10Y-2Y curve slope has declined from around 280 basis points in 2010-2011 to under 82 basis points today.

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Here is inflation that is hiding that The Fed doesn’t want to consider.

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Winter is Coming! The Fed And Volatility Suppression (Stocks And Bonds)

Volatility for the 10 year Treasury note (TYVIX) has been suppressed since The Fed hammered down on vol starting in late 2008.

The same holds true for equities and the VIX. Suppressed since 2008.

But what happens IF The Fed (and other central banks) begin their great unwinds?

Winter is coming!

Atlanta Fed Increases Q3 Real GDP Forecast To 3.0% As Catastrophe Bonds Plunge (Fed Not Likely To Raise Rates Again Until September 2017 Meeting)

The Atlanta Fed’s GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 3.0 percent on September 8, up from 2.9 percent on September 6. The forecast of the contribution of inventory investment to third-quarter real GDP growth increased from 0.87 percentage points to 0.94 percentage points after this morning’s wholesale trade report from the U.S. Census Bureau.

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Of course, these GDP numbers do not yet include the horrific damages caused by Harvey or Irma (while Jose is pushing out into the Atlantic Ocean). The damage to housing, commercial real estate and automobiles from Harvey and Irma will be quite extensive.

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Catastrophe (Cat) bonds took a big plunge on Irma.

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The extensive hurricane damage is likely to reduce the chance of a Fed rate hike. As of today, the implied probability of a Fed rate hike does not exceed 50% until the September 26, 2018 meeting. And then it is only 55.3%.

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The most likely path of Fed rate hikes is beginning to look like the train from the movie “Snowpiercer.”

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Be safe Texans and Floridians.

 

Unit Labor Costs Decline YoY To -0.2% As U-3 Unemployment Hits 4.4% (Phillip’s Milk of Magnesia Curve)

Today, US Unit Labor Costs Nonfarm Business Sector QoQ % SAAR was reported for Q2 FINAL. It declined 0.2% from 0.6% in Q1.

Aren’t we in a supposed tight labor market when wages (and labor costs) should be rising? That is the prediction of The Phillips Curve. But somehow it isn’t happening.

Unit labor costs YoY fell to -0.20% while U-3 unemployment is at 4.4%. This is the “Phillips Milk of Magnesia Curve” because it is giving Fed Chair Janet Yellen and my friend Raphael Bostic (Fed of Atlanta President and CEO) acid indigestion.

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With labor costs declining -0.2% YoY and home prices rising 5.65% YoY, Congress we have a problem.

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Here is another view of the Phillip’s Milk of Magnesia curve.

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Janet Yellen and her bottle of Phillip’s Milk of Magnesia.

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