Housing: The New Risk Factor

Housing remains a weak spot for the US economy, as suggested in yesterday’s news of a surprisingly large decline in new home sales for June. The report follows last week’s update on new residential construction, which also slumped more than expected last month. On a brighter note, existing home sales, which constitute the lion’s share of transactions for residential housing, posted a sharper-than-predicted gain for June. Nonetheless, housing’s overall profile looks mixed at best. Given this sector’s influential link with the business cycle, it’s fair to say that housing is a leading risk factor at the moment.
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Jobless Claims Drop To 8-Year Low

Is it a game-changer? A tipping point? A moment when the economy finally turned a corner for the better in a meaningful way? Possibly. Meantime, one can argue that this is why the stock market has been rallying this year: anticipating better economic news. And we certainly have some in this morning’s weekly update of new filings for unemployment benefits. Initial jobless claims unexpectedly dropped to 284,000 on a seasonally adjusted basis for the week through July 19. That’s the lowest level since February 2006 and a strong sign that the moderately stronger gains in private payrolls in recent months will continue if not accelerate.
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Research Review |7.24.13 | Momentum Investing

Momentum Has Not Been ‘Overgrazed’: A Visual Overview in 10 Slides
Claude B. Erb | May 10, 2014
The return to “momentum” does not seem to be the victim of “overgrazing”. Conceptually, overgrazing occurs when too much capital chases too few investment opportunities which in turn leads to low returns. The “equity risk premium”, the “size premium” and the “value premium” seem to be getting close to a no-man’s land of return-free risk. A high degree of belief in “the kindness of strangers” could be driving the low equity risk premium, size premium and value premium. A high degree of disbelief in momentum could be driving what appears to be a trend large cap momentum excess return of about 7%.
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The Great Deceleration In The Monetary Base

The Federal Reserve’s tapering is underway. The central bank’s quantitative easing (QE) program that generated record levels of monetary liquidity in recent years is on track to fade into history by the end of the year. The approaching demise of QE lays the groundwork for what’s widely expected to be the first interest rate hike sometime next year, probably around mid-2015, based on the consensus projection. The details and timing still depend on the incoming economic data, of course, as Fed Chair Janet Yellen reminded last week. But barring a run of weak numbers, which looks unlikely at this point, it appears that the tapering will roll on.
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The Case For Higher Rates Looks Weak… Again

Some analysts are again projecting that the age of higher interest rates has finally arrived. The Fed is tapering and the US economy is expanding moderately, despite a first-quarter setback. David Kotok last week wrote that the central bank’s tapering has now passed the tipping point and reflects a “tightening” of monetary policy. Recent inflation readings have perked up as well. The consumer price index jumped 2.1 percent through May on an annual basis, the most in more than two years. But last year’s mild rise in interest rates, measured by the benchmark 10-year Treasury yield, has reversed course again and has trended lower so far in 2014. The great rise in rates has been delayed once more. What gives?
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Chicago Fed Nat’l Activity Index: June 2014 Preview

The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to decline to +0.10 in tomorrow’s update for June, according to The Capital Spectator’s median econometric forecast. The projection is moderately below the previously released +0.18 reading for May, which reflected above-average economic growth relative to the historical trend. Only values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Based on today’s estimate for June, CFNAI’s three-month average is expected to remain at a level that’s historically associated with growth, and at a moderately above-trend pace.
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Book Bits | 7.19.14

The Next Economic Disaster: Why It’s Coming and How to Avoid It
By Richard Vague
Summary via publisher, University of Pennsylvania Press
Current debates about economic crises typically focus on the role that public debt and debt-fueled public spending play in economic growth. This illuminating and provocative work shows that it is the rapid expansion of private rather than public debt that constrains growth and sparks economic calamities like the financial crisis of 2008. Relying on the findings of a team of economists, credit expert Richard Vague argues that the Great Depression of the 1930s, the economic collapse of the past decade, and many other sharp downturns around the world were all preceded by a spike in privately held debt. Vague presents an algorithm for predicting crises and argues that China may soon face disaster. Since American debt levels have not declined significantly since 2008, Vague believes that economic growth in the United States will suffer unless banks embrace a policy of debt restructuring.
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US Economic Profile | 7.18.14

There’s still plenty to worry about (or rant about) when it comes to macro analysis, but conspicuous signs of trouble are still the exception for the broad trend. The June update of a diversified set of 14 economic and financial indicators continues to reflect growth. Near-term projections point to a softer run for the expansion in the months ahead, but there are no overt hazards at the moment in terms of estimating business cycle risk.
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Is The Soft Housing Starts Data For June A Warning Or A Sign Of A Maturing Recovery?

Housing starts were surprisingly weak in June, the Census Bureau reports. The consensus forecast was looking for a modest gain to a 1.026 million annualized rate. Instead, the actual number dipped to 893,000—the lowest since last September. Newly issued permits for housing construction suffered a similar setback. In fact, housing has been a weak spot in the economy this year and today’s release doesn’t tell us otherwise. But the outlook for the sector isn’t as dark as it appears when focusing on the latest monthly changes. As we’ll see, the annual growth for starts and permits leaves more room for optimism. Not a lot, but there’s a decent if still unproven case for thinking that the housing sector is stabilizing, albeit at a substantially slower rate of growth vs. 2012 and early 2013.
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