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What We Read Today 07 May 2014

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

  • The Commercial Office Market - An Illusion of Recovery (Keith Jurow, Advisor Perspectives) Keith Jurow contributes to GEI. Keith says that the commercial real estate "recovery" is as much of an illusion as the housing "recovery" which now appears to be unwinding much as Keith has predicted it would for several years. The parabolic spike of the 2007 bubble is well underway again in commercial real estate. See graph after the Read more >> jump.

comm-re-spikes-jurow-2014-may-05

  • Apple, Google, and the Hubris of Silicon Valley's Hiring Conspiracy (Paul M. Barrett and Brad Stone, Bloomberg Businessweek) Hat tip to Marvin Clark. This is all about, crony capitalism, non-competitive and non-free markets, oligarchical sense of entitlement and the repression of labor. Anyone who doubts that unfettered capitalism is preferable to control of the economy by unions needs to read this. Both are anti-free market.
  • Just 7 percent of journalists are Republicans. That’s far fewer than even a decade ago. (Chris Cillizza, The Washington Post) Large changes have occurred in the political associations of journalists over the last ten years. After relative less movements in the numbers from 1971 to 2002, affiliations with the Democratic party have decline more than 1/3 of all reporters to just above 1/4. Republican ranks have been decimated with a drop from 18 % in 2002 to 7% in 2013. That means that after decades when less than half of all reporters were not associated with one party other the other, now nearly 2/3 are in that classification.

journalists-political-affiliation

  • Bernanke to Einhorn: You're Wrong About QE (YouTube) Hedge fund manager David Einhorn of Greenlight Capital recently had dinner with former Fed chairman Ben Bernanke. Einhorn has been critical of the ultra-low interest rate policy of the Fed for several years and this dinner was the first opportunity he had to talk with Bernanke directly. Einhorn discussed the conversation on Bloomberg TVs "Market Makers" 06 May 2014. Watch the video and then ask the question: Who is actually wrong?

Today there are 16 articles discussed 'behind the wall'.

First there are 4 articles about investing topics, followed by 2 on the Chinese real estate market situation and then 10 related to U.S. housing market news.

Please support all that we do at Global Economic Intersection with a subscription to our premium content 'behind the wall'.

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  • The Top Five Government Policies I’m Watching This Week (Frank Holmes, U.S. Global Investors) Frank Holmes has contributed to GEI. Five policies Holmes is watching come two from China, two from the U.S. and one from Europe. The correlation between U.S. interest rates and gold has caught his attention. Gold soared 2009-2011 from $900 to $1,800 as real U.S. interest rates dropped from +5% to -3% (5-year treasury). Over the past two years real interest rates have recovered to near neutral and gold has declined from $1,800 to $1,300. Holmes says follow interest rate trends to read the gold trend.

Click on graph for larger image.
gold-vs-real-interest-rates-600px

  • Omnicare: Prognosis Positive (Thomas Scarlett, Investing Daily) The author is bullish. Omnicare (NYSE: OCR) is one of the leaders in providing pharmaceutical services to nursing homes and other long-term care facilities. The company's recent numbers demonstrate that it may be moving into the dominant position in this rapidly expanding sector.
Omnicare is a Fortune 500 company based in Cincinnati. It specializes in the drugs and related services that are used by older patients with chronic conditions. The firm has well-established relationships with several of the country's top health insurers, which allows it to offer its health solutions to many millions of potential customers.
  • Asset Allocation: What's the Right Amount of Risk? (Allan S. Roth, Financial Planning) The author cites work by Nobel Laureate (Economics, 2002) Daniel Kahneman who studied how investors react to gains and losses. Kahneman found that investor behavior was irrational. Most people will decline to gamble where there is a 50:50 chance of gaining $150 dollars and losing $100 on a coin flip. The expectation for that event (the average for many flips) is a 25% gain and most will not make the bet. The pain of loss exceeds the satisfaction from gain for most people. Another empirical observation: People on average are more risk averse after a big market drop (when the likelihood of future gains has increased) than after a big market advance (when the probability of future losses has increased). For another short but sweet summary by Roth read Portfolio Construction Is Boring, But Advisors Need to Read This Anyway.
  • An illustrated guide to why China’s housing bubble may finally be bursting—and what that means for the economy (Gwynn Guilford, Quartz) Before we get to the U.S. housing market let's look at the real estate market in China. This article is one of the best data summaries of that situation we have seen. Housing development and construction is currently about 16% of GDP in China, after hitting a recent low between 12% and 13% in 2009. In the U.S. housing contribution to GDP peaked above 6% in 2006 and is currently less than 3%. If China's numbers were to fall close to the U.S. peak, GDP would decline from today's 7.5% annual growth to near 5%, provided all other contributions were maintained. Among the several factors discussed by the author is the fact that China's working age population has peaked (first graph below) while development and construction is continuing full apace, even after the inventory to demand relationships have dramatically changed in some of the largest markets (second graph below).

china-working-age-populationchina-real-estate-inventory-demand

  • What keeps China’s biggest property developer up at night (Peter Cai, China Spectator) Here is more on the unauthorized leak of comments by Mao Daqing, one of China's leading real estate developers which we discussed last week. This article is particularly good in its discussion of the affects of the government's crackdown on corruption on the real estate market. See also Frank Li's article today on his observations about the crackdown from his trip to China last month.
  • Home buyers want new, but won't pay for it (Diana Olick, CNBC) While 40% of Americans say they would prefer to buy a new home (Trulia survey is quoted) almost half of them said they would not pay the 20% premium per square foot that new construction sells for. Realism seems somewhat lacking here. No wonder home sales are struggling.

  • Senate panel to vote on housing finance bill next week, aide says (Margaret Chadbourn, Reuters) The Senate Banking Committee will likely vote on a bill to start the wind down of government owned mortgage financiers Fannie Mae and Freddie Mac. The bill has bipartisan support but the sponsors want the support to be overwhelming to force Senate leadership to bring it to a full Senate vote.
  • 60 Percent of First-time Buyers Put Down 6% or Less ((Scholastica (Gay) Corporation, Economics Outlook Blog, National Association of Realtors) First time home buyers often buy "on a shoestring" but the percentage paying 6% or less is down from 77% in the summer of 2009.

  • Buffett predicts problem in housing market (Terry Keenan, New York Post) Warren Buffett says he's surprised the housing market has not picked up yet. He is also looking for another major financial crisis (he called it a "discontinuity") because of the proliferation of financial derivatives in the wake of the Great Recession.
  • Concentration of Single-Family Housing 2005 to 2012 (National Association of Home Builders) Over the 8 years 2005-2012 the single family percentage of total housing units for the U.S. remained between 61.1% and 61.9%. But among the 354 individual metro markets many had deviations from the average. Below are the top ten markets gaining in share of single family housing followed by the bottom ten (biggest losers of single family share).

single-family-share-of-housing-NAHBsingle-family-share-of-housing-NAHB-2

  • U.S. mortgage market index hits lowest since December 2000: MBA (Caroline Valetkevitch, Reuters) As we roll into the spring buying season, The Mortgage Bankers Association (MBA) reports its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 5.9 percent to 333.2 in the week ended April 25. That was the lowest level since December 2000. Higher mortgage rates, continued tight mortgage underwriting and a variety of household financial woes (underwater mortgages, high student loan debt loads, etc.) are producing what MBA chief economist Mike Fratoni calls a "weaker spring market than we have seen in years".
  • Which Foreigners Had the Greatest Interest In U.S. Homes in 2013? (Jed Smith, Economics Outlook Blog, National Association of Realtors) We recently discussed the increase in interest in U.S. homes by Chinese (and the decrease in interest by Russians and Eastern Europeans). However, inquiries about U.S. real estate from abroad in 2013 found China ranked 10th. To put this in perspective there was approximately 80 times as much interest per capita from the Netherlands than from China and about 11 times as much interest from the Philippines. For India there was approximately 1.7 times the interest per capita compared to China.

foreign-interest-us-real-estate


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