Thursday, August 31, 2006

Economic Tales – with links

From the hit counters it looks like people like it when I pull together themed groups of items for people to review. From now on I’ll be doing this more often as well as posting my usual full-fledged articles and stock calls.

Some cautionary economic tales – with links


Economist Nouriel Roubini says Wednesday's revision to second-quarter GDP isn't as good as it looks, and maintains his assessment that the U.S. economy faces a 70% chance of a recession in the next several months. He also goes after Dallas Fed President Richard Fisher, who he calls a "spin doctor" in a frenzy "to prove that the economy is fine."
All is not fine, Mr. Roubini writes. "Beware of these spin doctors. Behind the headline figure, the numbers in the revised Q2 figures are much worse than the initial estimate."
"Essentially, almost all of the upward revision to the figures comes from a much larger increase in inventories of unsold goods, an ominous signal for future growth as firms saddled with unsold goods will soon start cutting production (as it is happening, for example in the auto sector)."


The good folks at Pimco post their monthly outlook on their Web site every 30 days or so, with missives from bond managers Bill Gross and Paul McCulley, who constructs his September commentary as an interview with his pet rabbit, Morgan le Fay.

Notwithstanding this format, Mr. McCulley raises some points about how this recent economic expansion has been a "boom for capital, not for labor." He also notes how he's mildly distressed at seeing Federal Reserve policymakers and others at the Fed's recent conference fret about rising inflation at a time when workers are just starting to "live off the fat of the land," as George and Lennie, a couple of other guys who had an affinity for rabbits, might have put it.

He sees inflation rising a bit cyclically because of wage gains finally catching up -- but it bothers him less than it seems to bother the talking Feds. Mr. McCulley acknowledges being a dove, adding that he thinks the Fed will want to see several more indications of declining housing, spending and job growth before any rate cut is on the table, which is what he foresees happening. "Right now, they are willing to look the other way about inflation above the too-low comfort zone and resist further tightening, but my gut says that actual easing will be a harder step for them -- though certainly feasible -- with inflation above the zone," he writes. "It'll take weak real-side data, period."


One puzzle about yesterday's existing-home-sales data from the National Association of Realtors is that, while the number of sales plummeted and inventories rose to a 13-year high, the median price nationally was up year-over-year. At least according to the press release.

Some skeptics have begun to wonder whether that reflects reality.

The NAR system has leeway for local brokers to enter price information about home sales into the database, according to analysts. Kynikos, Jim Chanos's short-selling hedge fund, has been watching the Florida market closely and noticed something odd about the Florida Association of Realtors press release, put out yesterday along with the national release.

Yesterday, the FAR said statewide realtor sales fell 33% in July to 14,451 from 21,691 a year earlier. But the median price went up 1%, the association said, to $250,800 from $248,200 in July 2005.

Mr. Chanos was suspicious and had his analyst pull the data from last year's press release. Sure enough, last year's chart for July 2005 has different numbers. Last year's chart says 21,669 homes were sold in July 2005, 22 fewer than the July 2005 number in this year's chart. More strikingly, the FAR said last year that the median price in July 2005 was $252,300, more than $4000 higher than the number in this year's chart.

Did you follow that? The Realtors association changed last years data retroactively to keep from reporting a price decrease!!!

Use the price figure the FAR used last year for July 2005 and compare it with the price figure for July 2006, and the median price drops year-over-year.

Perhaps those 22 fewer homes made the difference, but why were they excluded? There is no explanation in the release or the chart. It's important to note that economic data get revised all the time. Indeed, NAR has changed its numbers, as well. Last August, it said national sales clocked in at a 7.16 million-unit seasonally adjusted annual rate in July 2005. Today, the NAR said July 2005 sales rose at a 7.13 million-unit pace.
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