Thursday, July 28, 2016

Home Sales, Consumer Confidence Still Rising

The Mortgage Corner

Sales of newly built, single-family homes rose 3.5 percent in June from an upwardly revised May reading to a seasonally adjusted annual rate of 592,000 units, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales are up a huge 9.3 percent in the second quarter of 2016 from the first quarter.

And the National Association of Realtors’ pending home sales index rose to 111.0 from 110.8 in May. The index is 1.0 percent higher than a year ago, due mostly to record low mortgage rates and the loosening of conventional qualification requirements by Fannie Mae and Freddie Mac. That was probably an inevitable correction following a massive three-month increase totaling 9 percent from February through April, said Reuters.

And this is severely crimping supply, pushing down housing inventories into the 4 month range, which in turn should push housing construction to new highs. But that should five another boost to growth, and consumer confidence.

“The fact that new home sales reached their highest pace in over eight years shows the housing market is gaining momentum,” said NAHB Chief Economist Robert Dietz. “The market should continue to firm throughout the year, propelled by low mortgage interest rates and solid growth in employment.” 

Consumer confidence is also near post-recession highs, at 97.3 in July and nearly holding onto June’s 5 point jump. “Consumer confidence held steady in July, after improving in June,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers were slightly more positive about current business and labor market conditions, suggesting the economy will continue to expand at a moderate pace.”

The main reason for their optimism is real, after tax incomes are now rising some 2.5 percent, which is enough that consumers are able to pay down their debt. Morgan Stanley in a recent research note says the amount of debt relative disposable income has fallen sharply. It currently stands at about 106 percent, down from 135 percent in 2008. And the ratio of payments to after-tax income has slipped near the lowest levels of the past three decades.

But Morgan Stanley expects the ratio of capital spending-to-sales at S&P 1,500 companies to slip to 4.6 percent by the end of 2016, excluding energy and utilities. That metric stood at 6 and 9 percent before the last two recessions, not a good sign for future robust growth. If so, it means slow, steady growth for the foreseeable future. Capital spending declined in key sectors like energy, materials, telecom and consumer staples during the third quarter, which means corporations aren’t investing much in these areas. And nonfinancial companies in the S&P 1500 are now sitting on some $1.7 trillion in cash, with nowhere to put it but into more stock buybacks and higher CEO salaries.

Jobs-hard-to-get, a subcomponent of the present situation index for consumer confidence, hints at a better July employment report, falling to 22.3 percent from 23.7 percent in June which was already a very strong month for the labor market. And readings on future employment, which is a subcomponent of the expectations index, also show improvement with slightly more seeing more jobs opening up and fewer seeing fewer jobs ahead, said the Conference Board report.

Fannie and Freddie’s conforming and non-conforming Hi-Balance loan terms are also more accommodating, with mortgages now obtainable up to 95 percent loan to values even for Hi-Balance maximum loan amounts of $625,500. They have also removed some of the additional charges for credit scores below 720, which will help to make those mortgages more affordable.

There is of course the slim possibility that the Federal Reserve will raise interest rates sometime later this year, which could ultimately slow down consumer spending and this housing recovery. In just released minutes from its latest FOMC meeting, Fed Governors said “Near-term risks to the economic outlook have diminished,” which some pundits believe could hint at a possible rate hike in upcoming FOMC meetings.

This could hurt Morgan Stanley’s prediction of future growth, as well. So stay tuned!

Harlan Green © 2016

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Tuesday, July 26, 2016

Judge Tentatively Denies Dismissal of Trump RICO Charges

Financial FAQs

It looks like Donald A Trump will be on trial under RICO, or The Racketeer Influenced and Corrupt Organizations Act. A federal judge strongly indicated last Friday he would allow a lawsuit to move forward against Republican presidential nominee Donald Trump under RICO by former customers who contend they were defrauded by his defunct real estate program, Trump University, reports Greg Moran, for the San Diego Union-Tribune.

U.S. District Court Judge Gonzalo Curiel issued a tentative oral ruling from the bench at the start of a hearing in San Diego on a motion to dismiss the case by Trump’s lawyers. The ruling came a day after Trump accepted the GOP nomination at the Republican National Convention in Cleveland, said Moran.

RICO is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization, says Wikipedia. The RICO Act focuses specifically on racketeering, and it allows the leaders of a syndicate (such as a corporation) to be tried for the crimes which they ordered others to do or assisted them in doing, closing a perceived loophole that allowed a person who instructed someone else to, for example, murder, to be exempt from the trial because he did not actually commit the crime personally.

Curiel said that plaintiffs had met the legal requirements to move the case forward and have a jury decide it.  Trump “participated in a scheme to defraud” people who signed up for the seminars, some at a cost of about $35,000.

The complaint, filed in 2013 by former customer Art Cohen, is one of two class-action lawsuits that Trump is facing in San Diego over Trump University before the same judge. Trump also faces a lawsuit in New York.

The lawsuits allege that Trump University gave seminars and classes in hotel ballrooms across the country that were like infomercials, constantly pressuring customers to buy more and, in the end, failing to deliver. Cohen went to a three-day seminar in 2009 in Palo Alto, California, for $1,495 and bought into the "Gold Elite" mentorship program for $34,995.

But that may not be the most serious financial crime Trump is guilty of. He won’t release his tax returns, even though he has said he would in the past. And that means he could be hiding a whole lot of sins.

It’s been well-documented that Donald Trump has a history of promising to release his tax returns — and then not doing so. In 2011, when Trump was spearheading the movement questioning whether President Obama was born in the United States, Trump told ABC News that he would release his tax returns if Obama released his long-form birth certificate. “I’d love to give my tax returns,” he said, in the ABC interview.

But once Obama released his birth certificate, Trump hedged. “At the appropriate time I’m going to do it,” he said. The appropriate time never came.

Then, in 2012, Trump criticized Republican presidential nominee Mitt Romney for being slow to release his tax returns. Trump was asked by Fox News whether he’d ever have a problem releasing his returns.
“No,” he said. “I actually think that it’s a great thing when you can show that you’ve been successful, and that you’ve made a lot of money, that you’ve employed a lot of people. I actually think that it’s a positive.” But again, he refused.
This is even though such Republican luminaries as former GOP presidential nominee Mitt Romney has criticized Donald Trump for failing to disclose back taxes, repeatedly suggesting that the billionaire’s financial records may contain “a bombshell” that could damage his White House bid.
“I think we have good reason to believe that there’s a bombshell in Donald Trump’s taxes. I think there is something there,” Romney said on Fox News’ “Your World” with Neil Cavuto. “The reason I think there is a bombshell in there is because every time he is asked about his taxes, he dodges and delays.”
What could he be hiding? The first thing the public would find is Trump's tax rate. The candidate has bragged about paying a very low tax rate and taking advantage of the complex US tax code with its many loopholes. This is what Romney’s tax returns revealed—that he paid a lower tax rate than his secretary.

Then there is the much-publicized claim that he has a net worth of “billions”, even ten billion, he has claimed most recently.  This would be hard to ascertain from tax returns alone, as they report income rather than assets. Tax expert David Cay Johnston has uncovered past audits of Donald Trump from the 1980s and 90s that show no income at all, but lots of undocumented expenses.

In fact, Trump’s taxes may have been fraudulently filed, in some cases.  When shown a photocopy of Trump’s 1984 tax return during an appeal, Jack Mitnick, Trump’s accountant for more than 20 years, testified that “we did not” prepare that return, referring to himself and his firm, and he said did not know who did. However, Mitnick did not dispute that it was his signature on the photocopy.

The original tax return was never found, the judge noted.  “Among the issues raised by Mitnick’s 1992 testimony is whether Trump or someone acting on his behalf substituted a return that he or someone else prepared and then transferred Mitnick’s signature using a photocopier,” said Johnston.

So the fact that Trump is worth "billions" would be hard to ascertain from tax returns alone.  But his repeated promises to release his taxes, and then refusing to do so, should be a red flag to voters. What is he hiding that he is willing to break the precedent of every President since Richard Nixon to release their taxes and that will further damage his reputation for truthfulness?

We should know within days what Judge Curiel’s verdict will be on Trump’s RICO indictment. It doesn’t look good, needless to say, as he could be convicted of a felony, which would be grounds for impeachment should he be elected President.

Harlan Green © 2016

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Monday, July 25, 2016

The Real Economy Trumps Republicans' Dark Ages

Popular Economics Weekly

Marketwatch’s Jeff Bartash is just one economic journalist busting the Donald’s ‘Disstopian’ views (Maureen Dowd’s term, not mine). Our economy is doing incredibly well for most people, including the bottom of the economic ladder—whose incomes are being helped by the rise of minimum wages in many cities and states, and maybe nationally if Hillary takes the White House

Then why does The Donald keep harping on the doom and gloom?  Because he has no other issue, or economic policy, that can refute the last 8 years of prosperity under President Obama.

The number of Americans who applied for unemployment benefits last week fell by 1,000 to 253,000, matching the second lowest level of a seven-year-old economic expansion that shows no signs of flagging, says Bartash.

Claims have been below the key 300,000 benchmark for 72 weeks — the longest such stream since 1973 — and show no sign of rising. The weekly report has a track record of being one of the best indicators at predicting several months in advance if the economy is headed toward expansion or recession, says Bartash.

Barron’s free market economist Gene Epstein doesn’t see any economic trouble on the near horizon, either. “I share the view that the government does far more to destabilize the economy than stabilize it,” he said. “With all that said, however…Armageddon is not about to happen. In fact, economic growth in 2016 could even show a pickup from 2015’s dismal rate.”

Actually, it’s because of government action, in the face of congressional inaction, that we are doing so much better than most of the rest of the developed world. It’s because of the stabilizing influence of our United States of American government. For instance, we are doing much better than the Eurozone because our centralized government and financial system enables retirement income and other benefits—so-called government transfer payments—to flow to the poorest states (almost all red and Republican leaning, by the way) from the wealthiest, thus preventing a Greek-style financial debacle.

So who is the Donald talking to that would believe his Disstopia? It is basically his angry, white primary supporters that continue to fight the US Civil War, as I’ve said. For to generate such fear and loathing of minorities and ‘other’ ethnic groups and races, Donald has to offer them up as scapegoats, much as Hitler’s Germany did to harness and heighten their anger—to which he has added Hillary and the Washington establishment.

Even banking giant Morgan Stanley, part of the Wall Street establishment sees no coming Disstopia. Their economists believe this economic recovery could last until 2020—that is 13 years from the official end of the Great Recession in June, 2009, which would bust Bill Clinton’s record 10-year recovery.

Some of the reasons given are the U.S. added about 200,000 jobs a month in 2015, its second-best year of employment gains since 1999. And such labor strength and is buoying consumer confidence, a powerful force in an economy that is mostly driven by consumer spending. The University of Michigan's consumer sentiment index averaged 92.9 last year, the highest since 2004. That's a big improvement from the 2008 low of 55, says Morgan Stanley.

And home sales are soaring, with existing plus new-home sales now topping 6 million units, a nine-year high. Also, consumers have been hard at work fixing their balance sheets. Morgan Stanley notes that the amount of debt relative disposable income has come down a lot. It currently stands at about 106 percent, down from 135 percent in 2008.

The flip side is that corporations are hoarding their record profits, instead of spending much towards future growth. Morgan Stanley expects the ratio of capital spending-to-sales at S&P 1,500 companies to slip to 4.6 percent by the end of 2016, excluding energy and utilities. Whereas capital expenditures stood at 6 percent and 9 percent before the last two recessions.

Capital spending is down for governments, as well, which is why we have a deteriorating infrastructure that is at least 75 years old. Government hasn’t stepped up to the line to fill the void, as it did during the New Deal. Millions of new jobs would be created when and if those deferred public works’ projects will be done.

And many of Donald’s blue collar supporters would benefit. The bottom line is without someone to blame, Disstopian Donald has no issue. We could even have the longest economy recovery on record, longer than Bill Clinton’s 10 years from 1991 to 2001 that resulted in 4 years of budget surpluses.

Harlan Green © 2016

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Thursday, July 21, 2016

Higher Housing Sales, Leading Indicators Mean More Growth

Financial FAQs

Two more signs of improved economic growth came out today. Boosted by a greater share first-time buyer sales not seen in nearly four years, existing-home sales maintained their upward trajectory in June and increased for the fourth consecutive month, according to the National Association of Realtors. Only the Northeast saw a decline in closings in June, and sales to investors fell to their lowest overall share since July 2009.
This is while the Conference Board’s Index of Leading Economic Indicators, a predictor of future growth, rose 0.3 percent in June. “The U.S. LEI picked up in June, reversing its May decline,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “Improvements in initial claims for unemployment insurance, building permits, and financial indicators were the primary drivers. While the LEI continues to point to moderating economic growth in the U.S. through the end of 2016, the expansion still appears resilient enough to weather volatility in financial markets and a moderating outlook in labor markets.”

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, climbed 1.1 percent to a seasonally adjusted annual rate of 5.57 million in June from a downwardly revised 5.51 million in May. After last month's gain, sales are now up 3.0 percent from June 2015 (5.41 million) and remain at their highest annual pace since February 2007 (5.79 million).

The share of first-time buyers was 33 percent in June, which is up from 30 percent in May and a year ago and is the highest since July 2012 (34 percent). Through the first six months of the year, first-time buyers have represented an average of 31 percent of buyers; they were 30 percent in all of 2015.

But very low housing inventory is hampering many entry-level homebuyers. Total housing inventory at the end of June dipped 0.9 percent to 2.12 million existing homes available for sale, and is now 5.8 percent lower than a year ago (2.25 million). Unsold inventory is at a 4.6-month supply at the current sales pace, which is down from 4.7 months in May.

On the other hand the Federal Housing and Finance Authority’s price index that documents conforming, more affordable home prices, is slowing, which should help affordable homebuyers. The FHFA house price index rose only 0.2 percent in May for the weakest performance since August last year and one of the weakest of the whole recovery. The year-on-year rate is likewise sagging at recovery lows, at plus 5.6 percent for a 3 tenths dip from April.
“First-time purchasers have begun coming back to the housing market, more slowly than expected and more slowly than they have historically,” Stuart Miller, chief executive of Lennar Corp. said during the builder’s call Wednesday to discuss its fiscal second quarter results with investors. “They’ve had the most difficulty accessing the mortgage market. And although that is beginning to open up … they are not yet jumping into the marketplace.”
New England is among the weakest regions, down 1.3 percent in the month with a year-on-year gain of only 3.9 percent. The Pacific and Mountain regions are the strongest, the former down slightly in the month but up 7.9 percent on the year with the latter up 1.2 percent in the month for an 8.5 percent year-on-year gain.
"The modest bump in June sales to first-time buyers can be attributed to mortgage rates near all-time lows and perhaps a hopeful indication that more affordable, lower-priced homes are beginning to make their way onto the market," said NAR chief economist Lawrence Yun. "The odds of closing on a home are definitely higher right now for first-time buyers living in metro areas with tamer price growth and greater entry-level supply — particularly areas in the Midwest and parts of the South."
So let us hope that builders can fill the dearth of entry-level housing that could bring in more young homebuyers as they form their own families.

Harlan Green © 2016

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Wednesday, July 20, 2016

Who Is the Real Donald Trump?

Popular Economics Weekly

It certainly behooves US voters to know the real Donald Trump. Tony Schwartz, ghost writer for Trump’s best-selling “Art of the Deal” has just come forward after 30 years with a ‘tell all’ New Yorker interview based on the 18 months he spent with Trump when writing the book.

The public already knew that Trump has sued and been sued thousands of times in court over his business practices, declared bankruptcy 4 times (plus 2 more BKs by investors left with the casino’s assets), and been indicted on RICO charges in a San Diego court over Trump University.

His supporters maintain his racist, wall building, anti-abortion, Putin-loving, anti-trade remarks aren’t the real Trump. He is really a loving and lovable family man, who supports his friends and treats his employees fairly, whatever their ethnicity.

But Schwartz maintains there is no real Trump. He is whoever you want or would like him to be, and totally focused on making deals that benefit him. It can be either sad, or terrifying.
“Trump has been written about a thousand ways from Sunday, but this fundamental aspect of who he is doesn’t seem to be fully understood,” Schwartz told Jane Mayer, author of the New Yorker article. “It’s implicit in a lot of what people write, but it’s never explicit—or, at least, I haven’t seen it. And that is that it’s impossible to keep him focussed on any topic, other than his own self-aggrandizement, for more than a few minutes, and even then. . . .If he had to be briefed on a crisis in the Situation Room, it’s impossible to imagine him paying attention over a long period of time,” said Schwartz.
“I put lipstick on a pig,” he said. “I feel a deep sense of remorse that I contributed to presenting Trump in a way that brought him wider attention and made him more appealing than he is.” He went on, “I genuinely believe that if Trump wins and gets the nuclear codes there is an excellent possibility it will lead to the end of civilization.”
There is more to come on the real Trump. A hearing this Friday is scheduled in Judge Gonzalo Curiel’s San Diego courtroom on whether to dismiss RICO charges in the Cohen vs. Trump class action lawsuit that says Trump intentionally defrauded hundreds of students who enrolled in Trump University.

The case contends that Trump University amounted to civil racketeering, a fraud that lured customers into spending thousands of dollars by making false promises that they would learn the businessman’s secrets, taught by his hand-picked instructors—which is why the case is being made under the Racketeer Influenced and Corrupt Organizations Act, or RICO.
However, it isn't very likely that Judge Curiel will honor Trump’s request to dismiss the very damaging RICO charges. That’s because, in the words of the plaintiff’s attorneys, representing those defrauded by Trump University, "Trump denies operating and managing the 'fraudulent marketing scheme' alleged here because he only starred in the marketing materials; signed the marketing materials; corrected the marketing materials; and approved the marketing materials. And therefore, he deserves summary judgment. Because he did not operate and manage the Trump University 'fraudulent marketing scheme.' He only starred in the marketing materials. Signed them. Corrected them. And approved them.”
If he were writing “The Art of the Deal” today, Schwartz said, it would be a very different book with a very different title. Asked what he would call it, he answered, “The Sociopath.”

Presidential candidate Trump might not want the public to know the real Trump, even if there is such a person. That’s because he has branded himself as the ‘best of the best’. He has attempted to enshrine his name—and therefore himself—as synonymous with success, when the facts under increasing scrutiny seem to be just the opposite.

Harlan Green © 2016

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Tuesday, July 19, 2016

A Record Year For Mortgages?

The Mortgage Corner

First quarter mortgage numbers are in, and we could be having a very good year for mortgage originations, says Equifax, among others. According to Equifax’s report, the total dollar amount of first-mortgage originations during the first quarter of the year was $450.5 billion, which represented a year-over-year increase of 12.3 percent, the highest amount for a first quarter total since 2013.

And privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,189,000, according to the US Census Bureau, which will create future demand for mortgages when completed. This is 4.8 percent above the revised May estimate of 1,135,000, but is 2.0 percent below the June 2015 rate of 1,213,000.

Single-family housing starts in June were at a rate of 778,000; it is 4.4 percent above the revised May figure of 745,000. The June rate for units in buildings with five units or more was 392,000. But starts are still not keeping up with demand, with soaring rental rates and falling vacancy rates in most metropolitan areas, a sign of a very tight—and expensive—rental market, which has to motivate many renters to become homebuyers.

No wonder, as the 30-year conforming fixed rate has dropped to as low as 3.0 percent for a 1.25 point origination fee in California on primary residences, as long as borrowers’ so-called ‘tri-merge’ mid-credit scores are above 740. This is the lowest rate since WWII, and such low rates are projected to continue through the fall, at least, according to Freddie Mac

Why? It’s fairly easy to understand, as Britain’s Brexit vote showed that the Eurozone may be a European Union in name only. The resultant uncertainty is causing a flight to safe haven investments, and US stocks and bonds provide the ultimate safe haven with US growth picking up while other countries show little or no growth.

Also, builder confidence in the market for newly built, single-family homes in July held, falling just one point to 59 from a June reading of 60 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released on Monday.
“The economic fundamentals are in place for continued slow, steady growth in the housing market,” said NAHB Chief Economist Robert Dietz. “Job creation is solid, mortgage rates are at historic lows and household formations are rising. These factors should help to bring more buyers into the market as the year progresses.”

Who will those future homebuyers be? First-time homebuyers now make up some 32 percent, according to the NAR. And Lawrence Yun, NAR chief economist, says although millennials have made up the largest share of buyers for three consecutive years, sales to first-time buyers and the homeownership rate for young adults under the age of 35 remain depressed at levels not seen in decades. This is despite historically low mortgage rates, escalating rental costs and low unemployment levels among those with a college education. 
“Even with potentially higher incomes, prospective millennial homebuyers residing in some of the most expensive cities in the country face the onerous task of paying steep rents while trying to save for an adequate down payment,” he said. “However, for those currently living in or looking to move to a more affordable part of the country, there are metro areas right now with solid job growth and that offer a smoother path to homeownership.”
So affordability will continue to be the main obstacle to homeownership, as well as historically heavy student debt loads for those same millennials, unless future Congresses will make public colleges in particular tuition-free, a benefit which all developed and many emerging countries already offer their young citizens.

Harlan Green © 2016

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Friday, July 15, 2016

Retail Sales Augur Better Economic Growth Ahead

Popular Economics Weekly

Many signs are pointing to better growth ahead, led by consumer, or retail spending. Ex-auto ex-gas offers a gauge on underlying trends in consumer spending, as non-store retailers popped a 1.1 percent surge in the month which follows even stronger gains in prior months.

Additionally, department stores, up 0.9 percent, show a big comeback in the month with sporting goods & hobbies strong for a second month. There was also a large 3.9 percent surge in building materials & garden equipment, a component that had been lagging. This is because of surging housing sales—both new and existing homes are now topping 6 million units per year and back to pre-recession (though not housing bubble) levels.

Graph: Econoday

And industrial production is reviving. Industrial production in June grew at the fastest monthly rate in eleven months, on the back of strong auto and utility output, but analysts said the sector was still likely to face headwinds in coming months.

The Federal Reserve said Friday that industrial production grew 0.6 percent in June, topping the economists’ consensus for 0.5 percent growth. This is the fastest growth since last July.

The production of motor vehicles & parts surged 5.9 percent in June following a 4.3 percent drop in May. Year-on-year, this component tops the list with 7.8 percent growth compared to only 0.4 percent growth for manufacturing as a whole. Only due to vehicles, manufacturing managed to put in a good showing in June, up 0.4 percent on the month to reverse a revised 0.3 percent decline in May.

In other words, the numbers look good enough to augur 3 percent GDP growth in Q2. Retail sales in particular are a major plus for the second-half economic outlook not to mention coming data on the second quarter (sales for April, after the second revision, are at a standout plus 1.2 percent, for instance). Monthly core retail sales were up a very large 0.7 less volatile auto and gas sales which translates to a 8.6 percent annual sales rate, but averages out to a 4 percent increase year to date.

So the job market (and so economic growth) is healthy and the consumer alive and spending.

Harlan Green © 2016

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