Why I am Not A Chartist

Charting is an occult practice.  Humans seek patterns, even invent them when there are none.  Witness the 6 years of GDX (Gold miners ETF)and F (Ford) lockstep:

 

Now see what happened in the ensuing 18 months.  

How about this then?  Gas prices.  Lower highs and lower lows.  Clearly the future is spelled out for anyone who can read a graph.  

 

Or is it?  Same chart expanded to ten years from 18 months:

 

Here's how far I trust charting: 

CalSTRS Digs Deeper

From the SacBee:

The California State Teachers’ Retirement System estimates that the cost to fully fund the teachers’ pension debt will be almost $4.5 billion in the coming year, $4.6 billion the year after that, and more in each subsequent year.

CalSTRS calculates that 30 years from now – and many veteran teachers who retire now will live another 30 years – the annual cost of fully funding the system will be $13.9 billion.

The Bee’s editorial board last wrote about this issue in December 2012. The total unfunded liability stood at $65 billion then. Now, the amount is $71 billion.

Remind you of a negative amortization loan?  It should.  California is fast running out of productive class donors to the entitlement society. 

Getty Center

Okay, back to the shed in the back yard aka the office.  While I wade through the ephemera here's a fun pic I took Friday:

I take unusual pictures. 
Here's what everyone does:

And here's what I saw:  

EMRATIO

Labor force participation.  The Federal Reserve of Atlanta has an interesting blog post:

We find that the effect on exit from unemployment occurs primarily through a reduction in labor force exits rather than through exit to employment (job finding). This is important because it implies that extended benefits do not delay the time to re-employment substantially and so do not have first-order efficiency effects. The major effect of extended benefits is redistributive, providing income to job losers who would have exited the labor force otherwise (consistent with Card et al. 2007). 

In other words, if a significant decline in unemployment benefits comes to pass, we may well see another bump downward in the labor force participation rate. Although a decline in LFP associated with the expiration of extended UI benefits would fall in Dunne and Terry’s nondemographic category, the Farber and Valletta results suggest that we should interpret any such decline as structural. And structural in this case means not directly amenable to correction by policies aimed at stimulating spending.

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 My guess is that once the Fed realized the effect on headline U-3 from the cancellation of extended benefits that was when we saw them back away from the 6.5% UE target for cessation of easing.  The rest of the article is d4ense "fedspeak" but interesting. 

What's In the Hopper?

Here's a list of EN draft posts that will be coming out over the next week or so:

Peripheral Tunnel/Canal, Same Thing
Local Softness
Why an "Oil Economy?"
Living Wages Compared
Income Gap? Wealth Gap!
ICECAP and Other CAGW Resources
ACS 2012 Median Household Income
Bill McBride asks good questions 10

Of course the usual atrocious local listings and newsworthy posts as we go along but is there anything you'd like as a top post?  Anyone want to guest post?  And no sk, posting my method for n-secting an arbitrary planar arc is not for discussion.  ;)

Eh.. Wha.... What Year is it?

 

2014 looks interesting.  Let's take it for a spin. 

Run Into Town on a Rail

High Speed Rail still on track, says representative

[Gilroy] to receive $600,000 grant for station planning in early 2014

Despite three recent court rulings viewed by some as strikes against the California High-Speed Rail Authority, the $68 billion project is still steaming along locally in Gilroy and statewide, according to a representative with the group.Ben Tripousis, northern regional director with the CHSRA, says he's working with City staff to better plan the proposed station in downtown Gilroy through a $600,000 grant the City will likely receive by Jan. 1. ....
 “The Authority won't select a preferred alignment and station location until the environmental review process is complete for the San Jose to Merced project section in roughly 2016,” Tripousis added. “The process will include significant community outreach and input before coming to a decision.”Ketchum is confident that if the CHSRA hasn’t decided on the Gilroy station’s location by then, the City can surely plan for it during the next General Plan process.The statewide high-speed rail system, according to documents provided during the Gilroy High-Speed Train Station Visioning Process, are forecasted to carry up to 100 million passengers each year as early as 2035. The 800-mile system will link the Bay area, the Central Valley and southern California together through 24 stations, all with an expected travel time of 160 minutes.“We're talking about development in and around the downtowns of all of our stations, increasing densities in the downtown cities and allowing for greater economic development,” Tripousis said.

This disaster keeps getting worse.  Gilroy is is a community of 50,000.  $600,000 to add HSR to their General Plan?  No, a $600k bribe to grease the tracks.  Come on.  The construction of the station shouldn't cost much more than a million or two. 

Nota bene.  Almost every number uttered in the excerpt above is incorrect.  No points for guessing in which direction. 

Las Vegas, The New Canary?

DQNews - Las Vegas-area home sales fell last month to the lowest level for a November in five years, the result of a constrained supply of homes for sale, waning affordability and the ongoing decline in investor purchases. The median sale price dipped slightly month-to-month but was still 26 percent higher than a year earlier, marking the 20th consecutive month with a year-over-year gain, a real estate information service reported.

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 Excuses, excuses. 

Bill McBride asks good questions 6-9

Bill's questions for 2014 are about housing.  Interesting that they are about "housing" not "real estate."  There's a difference and keep that in mind as you read.  



6) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013.  Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  Even with the recent increases, RI is still at a historical low level. How much will RI increase in 2014?

A:  Rather a lot really.  The category of deferred maintenance in particular will be fueled by residential reinvestment and increased materials prices.  The rule of thumb is that repair costs 3-4 times what upkeep costs and there has been a lot of ignored upkeep.

7) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 12% or so in 2013.   What will happen with house prices in 2014?

A:  Momentum will carry through until the spring selling season where flat to slightly down will continue through summer.  By then it will all depend upon any Fed response to the stalling market.

8) Housing Credit: Will we see easier mortgage lending in 2014? Will we see positive mortgage equity withdrawal (MEW) after six years of negative MEW?

A:  Yes.  If only for the reason of long time owners using equity to buy a downsized home and then renting out the original property in the good school district where you raised the kids now gone.  Renting the Dawghaus would yield enough to keep paying off the place and buy another more modest abode.

9) Housing Inventory: It appears housing inventory bottomed in early 2013.  Will inventory increase in 2014, and, if so, by how much?

A:  Y-o-y listings will grow steadily but slowly through the spring selling season and then get the same clamp we see now at a maybe 10%+ 2013 through the rest of the year.  Again depending upon the Fed response to slowing in the second half.

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What do you guys think?

Coming up: Bill's final question.  Deserving of an entire post all its own. 

Bill McBride asks good questions 4-5

Bill's questions 4-5 are monetary in nature.  

4) Inflation: The Fed has made it clear they will tolerate a little more inflation, but currently the inflation rate is running well below the Fed's 2% target. Will the inflation rate rise in 2014?  Will too much inflation be a concern in 2014?

A: Trick questions all around.  Inflation is what the Fed says it is.  The idea that house prices and taxes are not part of inflation is absurd on the face.  The excuse for house prices is that they are assets.  Okay then, only count the non-asset contributions of housing costs.  The obvious reason is that the current system games the results favorably. 

5) Monetary Policy: It appears the Fed's current plan is to reduce their monthly asset purchases by about $10 billion at each FOMC meeting in 2014.  That would put the monthly purchases at close to zero in December 2014.  Will the Fed complete QE3 in 2014?   Or will the Fed continue to buy assets in 2015?

A: Interesting phrasing.  The Fed is poised to continue to provide stimulus for at least another year.  In a year the Fed will still own a three quarters of a trillion more than they do now.  That's just QE3.  As we have seen there are other tools in the burglar's bag.  More than $400 per family in the US QE3 alone.  I don't need to tell readers of EN that you aren't the average "family" with respect to this burden. And yet strangely despite this added debt burden our disposable personal income seems not to go down.

So, in summary.  Inflation will be what they say it is and the purchases will continue under current and different guises. 

In 1980 the US boycotted the Olympics because the Soviet Union was in Afghanistan.  In 2014 the US is participating in the the Olympics despite being in Afghanistan. 

What good are "Estimates?"

Not good for much.  Seems like getting the sign right is barely achievable.  Every year Calculated Risk publishes a table of housing sales and starts.  Here are 2014, 2013, and 2012:

FWIW, my estimate is for 560,000 new home sales and 1,200 total starts but a far higher component of "not" SFR. 

In the mean time keep in mind the "value" of "estimates." 

Wicked Draw Down

From the EIA site:
Working gas in storage was 3,248 Bcf as of Friday, December 13, 2013, according to EIA estimates. This represents a net decline of 285 Bcf from the previous week. Stocks were 488 Bcf less than last year at this time and 261 Bcf below the 5-year average of 3,509 Bcf. In the East Region, stocks were 207 Bcf below the 5-year average following net withdrawals of 132 Bcf. Stocks in the Producing Region were 23 Bcf below the 5-year average of 1,138 Bcf after a net withdrawal of 99 Bcf. Stocks in the West Region were 31 Bcf below the 5-year average after a net drawdown of 54 Bcf. At 3,248 Bcf, total working gas is within the 5-year historical range.

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Just barely within the historical range.  Good for Nat Gas prices.  Provided you are selling of course. 

Bill McBride asks good questions 1-3

1) Economic growth: Heading into 2014, it seems most analysts expect faster economic growth.  So do I.  Will 2014 be the best year of the recovery so far?  Could 2014 be the best year since the '90s?  Or will 2014 disappoint?

A: 2014 will be by far and away the best momentum recovery year in a very long time.  This is easy. Keep this answer in mind when we get to question #10.  The first quarter will shrug off the disappointing holiday retail season.  Besides the online growth was at the high end of projections.  The talking heads will focus on that. 

2) Employment: How many payroll jobs will be added in 2013? Will we finally see some pickup over the approximately 2.1 to 2.3 million job creation rate of 2011, 2012, and 2013?

A: This is tough.  Not a lot of real jobs will be added but that is no assurance that in an election year that lots of jobs won't be reported.  Short answer; No.  Total employment will lag behind growth of working age population.  Even with 2.4-2.6 million, which is my estimate, we will barely eat into the huge gap created by the great recession. 

3) Unemployment Rate: The unemployment rate is still elevated at 7.0% in November. For the last three years I've been too pessimistic on the unemployment rate because I was expecting some minor bounce back in the participation rate. Instead the participation rate continued to decline. Maybe 2014 will be the year the participation rate increases a little, or at least stabilizes.

A: Down.  Pick a down number.  I'll take the under.  There's no way the unemployed pool mix doesn't shrink from getting too old, giving up, getting a crap job, plain old no longer being counted doesn't drop the headline number. 

3a) What will the unemployment rate be in December 2014?

A: Guess?  5.8%.  Headline U-3.

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Any other ideas?  The HCN answers were about wolf urine and chipolte and the usual.  In later posts we can discuss questions 4-10. 

Solstice Wishes

Wishing everyone a solemn Alban Arthan as we honor the souls of the trees we sacrifice then deify in our living rooms. Hang the revered kerm-oak, drink the blessed wassail. "Yule" feel so much better. The Norse had the right idea taking 12 days for Jole. 

Oh and for all you recent religion adoptees a translation: Christmas, Christmas Trees, holly, sacramental wine and the 12 days of Christmas

Changing the name makes little difference; Merry Christmas.

Four Million Sounds About Right

Hard to prove.  Harder to punish.  These ladies got a nice present under the tree.

4 Woodland Hills restaurant workers awarded $5.7M in age discriminaton lawsuit

By City News Service

Posted: 12/24/13, 8:51 AM PST |

LOS ANGELES - Four former servers at a Woodland Hills restaurant were collectively awarded $5.68 million in a lawsuit alleging they were laid off from their jobs because of their ages.
The plaintiffs, Martha Aboulafia, 61, Cheryl B. Colgin, 61, Regina Greene, 49, and Patricia Monica, 70, had a combined 47 years of service at Cable’s Restaurant at 20929 Ventura Blvd. All were let go by the restaurant’s new owner in 2010, according to trial testimony.
The women sued Cable’s and its owners, GACN Inc., in Los Angeles Superior Court in September 2011, alleging age discrimination and wrongful termination. On Dec. 17, a jury deliberated for less than two hours before unanimously awarding a combined $1.68 million in compensatory damages to the women for lost wages and emotional distress.
In a second phase of trial the same day, the jury added a combined total of $4 million in punitive damages after finding that the restaurant acted with fraud, oppression and/or malice after terminating all four, then replacing them within a short time with younger women in their 20s.
The restaurant was advertising for the plaintiffs’ replacements even after promising them that their minimum-wage jobs were safe, according to their attorney, James Rosen.

Death of Bitcoin

One of those things that seem small, like the shooting of a Duke, that turn out in retrospect to be really big deals.

From Rawstory:


Bloomberg TV anchor Matt Miller gave two colleagues, Adam Johnson and Trish Regan, $20 in digital currency in a “12 Days of Bitcoin” segment.
But Johnson unwittingly displayed the digital QR code for his money to the camera, and a viewer was able to use the private key to take his Bitcoin.
Reddit user milkywaymasta said he used his smart phone to scan the QR code that was displayed in high definition for about 10 seconds, allowing him to take the money.

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 No need for commentary. 

The Cold Reality

Thankfully that little breeze cuts 0.7° from the heat.  I was concerned a few weeks back because my fancy lime tree was just starting to yield and the avocados were still small.  The limes are like double concentrate flavor.  The flesh is still green but the skin is yellow.  Perfect for fancy drinks. 

EN Policy Change

By request let's try allowing anonymous posting.  The volume is low enough it should be workable. 

The Secret to a Happy Holiday

Easy.  Stay flexible and keep your sense of humor.