Standard and Poor's released the March data (.pdf) for the S&P/Case-Shiller Home Price Indices showing a 14.4 percent year-over-year decline for the 20-City Composite Index, the steepest decline on record. Indices for individual cities are shown below:
On their current trajectories, Los Angeles and Miami should overtake Washington D.C. and New York within a few months.
David M. Blitzer, Chairman of the Index Committee at Standard & Poor's noted:
The steep downturn in residential real estate continues. There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path, with 19 of the 20 metro areas reporting annual declines, and six of those now at negative rates exceeding -20%. Looking closely at these returns, you can see that 15 of the metro areas are also reporting record lows, and eleven are in double digit decline, with Chicago being the latest metro area to join these ranks.
The monthly data paints a similar picture, with 18 of the metro areas reporting at least seven consecutive months of negative returns. For the first time in as many months, we finally saw monthly price appreciation in two of the metro areas – Charlotte was up 0.2% in March over February, and Dallas was up 1.1%.
In tabular form, the data looks like this:
Charlotte remains the only metropolitan area in the index with a gain from year ago levels with a modest 0.8 percent increase, down from last months year-over-year gain of 1.5 percent.
Read More...
Summary only...
It's been at least a few weeks since the former Fed chairman weighed in on the likelihood of a recession in the U.S. This report from Reuters confirms what many former Fed watchers have suspected - there's still better than a 50-50 chance.
"I still believe there is a greater than 50 percent probability of recession," Greenspan told the Financial Times in an interview published on the newspaper's website.
"(But) that probability has receded a little and I think the probability of a severe recession has come down markedly," said Greenspan.
He said it was "too soon to tell" whether the worst of the financial crisis was over as this would depend on what happened to house prices.
The Financial Times said Greenspan estimated house prices would fall by another 10 percent from their February levels, for a total peak-to-trough decline of roughly 25 percent.
Too sharp of an increase in the savings rate (after tax income minus consumption) was cited as the main risk to his current economic forecast.
Translation: if people start living within their means, we're in real trouble.
Read More...
Summary only...
Ambrose Evans Pritchard notes in this Telegraph UK report that the German government is about to make things worse in world energy markets.
German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.
It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.
Uwe Beckmeyer, transport chief for Germany's Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. "It's an extreme step but it has to be done," he told the Berlin media.
Mr Beckmeyer said the last 25pc rise in the price of oil to $135 a barrel had nothing to do with underlying supply and demand. “It’s pure speculation,” he said.
Well, pure speculation plus the fact that the world now consumes more oil than it can produce and that is likely to be the case for years to come.
Is there an election in Germany this year?
Read More...
Summary only...
Among many other things that Michael Masters might have you believe is that soaring commodity prices are somehow unprecedented in history. The chart below was an integral part of his congressional testimony (.pdf) last week when he asserted that institutional investors "are one of, if not the primary, factors affecting commodities prices today."
Look at those level prices up until the point that institutional investors starting moving money out of stocks and bonds and into commodities. That's some pretty convincing chart-work there.
Get the pitchforks! We'll teach those "index speculators" a thing or two.
But didn't commodity prices rise sharply back in the 1970s?
Apparently not - at least not according to the "S&P GSCI Spot Price Commodity Index", an index that is new to me. The venerable CRB Index seems to tell a little different story about commodity prices over the last 40 years.
In fact, that move from 1972 to 1980 makes the recent move look a little tame by comparison. Note that the chart above is a year or so old - the CRB currently stands at about 430 which is a little over double the level in 2002.
By comparison, the index more than tripled from 1972 to 1980.
Maybe it's just the index - "spot" GSCI versus CRB - that accounts for such a big discrepancy. Using data from Dr. Craig Israelson's paper The Benefits of Low Correlation, this is what a $10,000 investment in the "non-spot" GSCI would look like since 1970.
That looks like a pretty steady progression over the last 40 years with a big surge over the last decade.
But, as I learned long ago and discussed in "Fun with multi-decade charts", for a single curve going back almost 40 years, you really should use a log scale.
Wow - that's a completely different curve than the first one in this post - the one that was presented to Congress last week as "proof positive" of the undue influence of speculators on commodity prices.
You know, I've got a couple speaking gigs under my belt now, maybe I should see if I can present my data before some Senate panel. Maybe we can talk about Alan Greenspan and fiat money while we're at it.
Note: There will likely be more on the Masters report later in the week.
-----------------------------------
UPDATE: Monday, May 25th, 1 PM PST
Here's the CRB "spot" index going all the way back to the 1960s - it tells much the same story as the CRB Index above. When it rises another 30 percent or so we can all say, "Gee - that's as big as the increase in commodity prices from back in the 1970s (when there were no index speculators)".
Read More...
Summary only...
Justin Lahart at the Wall Street Journal adds to the increasingly sensible talk about whether or not we are currently experiencing a "commodities bubble". This report is just one more reason why the Journal continues to be about the smartest newspaper around.
Commodity Prices Soar, But Are They in a Bubble?
After being buffeted by the dot-com, housing and credit bubbles -- not to mention the Chinese stock-market bubble -- there is a readiness by people on Wall Street and elsewhere to ascribe the term "bubble" to all sorts of things. But when it comes to commodities like crude oil and corn, that may be off the mark.
...
In commodity markets, what is traded aren't physical commodities but contracts that are essentially bets on where prices will go, Harvard's Mr. Mankiw says. The final effect of the bets is limited unless they encourage speculation in the commodity itself -- encouraging, say, a coffee broker to warehouse coffee in hopes of getting a higher price later.
And that is what is happening, according to Mr. Mankiw's Harvard colleague Jeffrey Frankel, who says such speculative behavior is due to the sharp reduction in interest rates by the U.S. Federal Reserve. Low rates encourage commodity stockpiling, he says, by making it less attractive to sell commodities and put the proceeds into bonds and other debt instruments.
Critics of Mr. Frankel's theory say the expected rise in commodity inventories hasn't shown up. Mr. Frankel has acknowledged that, but also notes that perhaps oil producers are leaving those inventories in the ground. That could be one reason why the Saudi king rebuffed U.S. President George W. Bush's request for increased oil production earlier this month.
While appearing in this report only in passing, the possible connection between soaring energy prices and "peak oil" now shows up much more frequently than ever before in the financial media.
The odds didn't look too good a few months ago, but Matt Simmons' prediction that peak oil would be a bigger 2008 election issue than global warming is looking better with each passing week and with each $10 increase in the price of crude oil.
Read More...
Summary only...
Sometimes it seems that the graphic artists at The Economist are a wee bit sharper than the magazine's writing staff, particularly in the area of, uh, economics. 
Take note of the guy with the huge nose in the middle of the cover above who complains, "It seems the price of everything is going up!!!"
There are two stories in the current issue about inflation, however, as might be expected when the authors are economists, you get the standard take on inflation in the West in the cover story Inflation's back:
By slashing interest rates as inflation has climbed, has the Fed sowed the seeds of a new inflationary era? That case looks hard to prove in the rich world. Inflation rates of 3.9% in America and 3.3% in the euro area are far higher than central banks want, and inflation expectations are rising. If growth in the euro area remains robust, the ECB should certainly worry more about inflation. Yet so far there is little sign that higher food and oil prices are pushing up other prices in the rich economies.
Yes, inflation at three or four percent pales in comparison to what we saw back in the 1970s but the way the inflation number is calculated also pales in comparison.
The other report An old enemy rears its head deals with inflation in emerging economies and while I haven't gotten around to reading that one yet, I'll add to this post sometime later today if anything interesting appears.
That's one of the best magazine covers in quite some time.
ooo
This week's cartoon:
Read More...
Summary only...
I had the pleasure of listening to Dr. Ben Steil, Senior Fellow and Director of International Economics at the Council on Foreign Relations, speak at the New York Hard Assets Investment Conference about ten days ago on the subject of the U.S. Dollar, specifically, whether or not it is doomed.
They've put a transcript and recording up at the Resource Investor website that is well worth a look (note that the audio begins playing automatically.)
He didn't really answer the question posed in the the title of his speech, but it was sure interesting getting to the non-conclusion.
A lot of reporters ask me these days whether we're in the midst of a commodity bubble. In fact, next week I'm going to Washington to give a Senate testimony. Our good folks in Congress are examining whether we are in fact experiencing a commodities bubble driven by irrational speculation, and what we need to do about it.
My perspective is that the more interesting, and indeed more important, question to ask is whether we're at the end of what I would call a ‘fiat currency bubble.’ If we go back to the early 1980s, under the Volcker effect, inflation, and at least equally importantly inflation expectations, were driven out of the system through a pretty ruthless policy of very tight money, high interest rates.
...
In the 1990s, I'm sure many of you remember that central banks around the world sold off most of their gold reserves, and said, “We don't need this anymore. We don't need hard assets. We've got a hard U.S. dollar, managed by a responsible central bank. The stock pays interest. Gold doesn't pay interest. We don't need this stuff anymore.”
Now, fast-forward to today, and what do we have? Is this Federal Reserve dedicated to price stability? Well, we have a Fed Funds Rate at 2%. We've got consumer price inflation at 4%; wholesale price inflation at 7%; a broad measure of U.S. money to supply growth. M3, interestingly enough, is no longer calculated by the Federal Reserve. We rely on private estimates going at around 17%. It is not surprising that people around the world are beginning to lose faith in this fiat dollar.
So I think it's a mistake to characterize what we're seeing now as somehow a commodity's bubble. It may be in the grand historical sweep of things a return to normality; that may not be necessarily a good thing. The world of a responsible fiat dollar may very well be very desirable for all of us. But we have to ask, given the broad sweep of history, whether that's really possible.
In testimony before Congress a few days ago, Dr. Steil took much the same tack citing fundamental factors such as supply and demand along with declining inventories that were more likely responsible for recent commodity price increases.
What he probably should have said was that right-thinking people with lots of dollars now realize they might be better off trading in a goodly portion of those dollars for something that holds its value a little better.
Read More...
Summary only...
This is update #2 for the mid-year oil and gold contest - it's been an interesting two weeks since the initial update and some of those oil guesses don't look all that crazy anymore. 
For this update, the price of oil is pegged at $132 per barrel and gold at about $924 per ounce. When it gets down to the end, the New York closing prices will be used to eliminate any question in determining a winner.
As it stands today, Atox has a combined error of just 1.41 percent, followed by Linda M and AWC both of whom are under 4 percent combined error. It's too bad that there are more than five weeks left to go for these contenders.
Perennial favorite tj and the bear is not far off in 9th place, needing about a $50 bump in the price of the yellow metal, and your humble scribe is in 16th place with a bold guess of $140 for crude oil.
The winner receives a free one-year subscription to Iacono Research where the model portfolio is now up about six or seven percent on the year after this week's gains.
Gains this week you say?
Yes, gains.
The model portfolio performance thingy in the left sidebar will be updated in a few hours with the exact figures.
Read More...
Summary only...
In all the fuss about soaring commodity prices lately, it's easy to lose sight of the fact that "price" has two variables - money (e.g., dollars) and goods (e.g., a barrel of oil). Far too little attention has been paid to the numerator in this equation (dollars) when seeking to explain why prices (dollars divided by goods) have moved upward so sharply.
Further, the value of the U.S. dollar relative to other paper money has made the discussion unnecessarily complicated. Asking, "How could the price of oil triple while the value of the dollar has fallen by just 40 percent against the euro?" just confuses the issue.
No major currency is backed with anything other than a promise by the issuing government to act responsibly and therein lies the problem.
Nowhere is this problem more evident than in the announcement that the U.S. Mint has now imposed quotas for silver eagles.
In one of the most hubristic moves ever by a government - as a sort of bold proclamation that fiat money will endure forever, no matter how much of it the government creates - for many years now, the mint has manufactured silver and gold coins with market values far in excess of their fixed face value.
One dollar silver coins sell for $19 or $20 in coin shops or online at eBay. Similarly, a $50 gold coin (still accepted as legal tender at its face value) now fetches more than $900 on the open market.
People are beginning to figure out that there is something seriously wrong with this math.
This report($) in the Wall Street Journal provides the details on the new quotas:
The government rationed food during World War II and gasoline in the 1970s. Now, it's imposing quotas on another precious commodity: 2008 dollar coins known as silver eagles.
The coins, each containing about an ounce of silver, have become so popular among investors seeking alternatives to stocks and real estate that the U.S. Mint can't make them fast enough. In March, the mint stopped taking orders for the bullion coins. Late last month, it began limiting how many coins its 13 authorized buyers world-wide are allowed to purchase.
"This came out of nowhere," says Mark Oliari, owner of Coins 'N Things Inc. in Bridgewater, Mass., one of the biggest buyers of silver eagles. With customers demanding twice as many as they did last year, Mr. Oliari would like to buy 500,000 a week. But the mint will sell him only around 100,000.
The coins have a face value of $1. But the mint sells them for the going price of silver, plus a small premium, to a handful of wholesalers, brokerage companies, precious-metals firms, coin dealers and banks. The dealers mark the coins up a bit more and sell them to the public. Currently, the coins are fetching about $19 apiece, with some sellers seeking more than $20.
This is an interesting twist on Gresham's Law that posits "bad money will drive good money out of circulation" - individuals are increasing taking their "bad money" (U.S. dollars) and exchanging it for "good money" (precious metals) in a shocking example of how people aren't as dumb as the government might hope.
Read More...
Summary only...
The National Association of Realtors reported lower sales volume, higher inventory, and a year-over-year price decline of 8.0 percent but maintained that the housing market is "better positioned for a turnaround".
As long as sales continue to decline, inventory continues to grow, and prices continue to tumble, the "positioning" should continue to get even better in the months ahead. In fact, you might say that the "positioning for a turnaround" has improved almost every month for more than two years now.
We just might reach optimal "positioning" sometime next year.
The realtors' trade group reported a one percent decline in the sales of existing homes from March to April, a 17.5 percent decline from year ago levels. Inventory now stands at an all-time high of 11.2 months and the median sales price has fallen from $219,900 last year at this time to $202,300.
"It's a great time to buy or sell a home"
Read More...
Summary only...
Via the L.A. Land blog - they say this is from Death Valley so it doesn't really count, but this is what it will look like someday in other areas. 
Read More...
Summary only...
![[Most Recent Quotes from www.kitco.com]](http://kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)