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The Depression led to an effort to enhance and expand data collection on employment, and I was hoping the housing bubble and bust would lead to a similar effort to collect better housing related data. From the BLS history:
[T]he growing crisis [the Depression], spurred action on improving employment statistics. In July [1930], Congress enacted a bill sponsored by Senator Wagner directing the Bureau to "collect, collate, report, and publish at least once each month full and complete statistics of the volume of and changes in employment." Additional appropriations were provided.In the early stages of the Depression, policymakers were flying blind. But at least they recognized the need for better data, and took action. All business people know that when there is a problem, a key first step is to measure the problem. That is why I've been a strong supporter of trying to improve data collection on the number of households, vacant housing units, foreclosures and more.

But unfortunately some people want to eliminate a key source of data ...

From Matthew Philips at Businessweek: Killing the American Community Survey Blinds Business
On May 9 the House voted to kill the American Community Survey, which collects data on some 3 million households each year and is the largest survey next to the decennial census. The ACS—which has a long bipartisan history, including its funding in the mid-1990s and full implementation in 2005—provides data that help determine how more than $400 billion in federal and state funds are spent annually. Businesses also rely heavily on it to do such things as decide where to build new stores, hire new employees, and get valuable insights on consumer spending habits. Check out this video of Target (TGT) executives talking about how much they use ACS data. From Catherine Rampell at the NY Times: The Beginning of the End of the Census?
“This is a program that intrudes on people’s lives, just like the Environmental Protection Agency or the bank regulators,” said Daniel Webster, a first-term Republican congressman from Florida who sponsored the relevant legislation.

“We’re spending $70 per person to fill this out. That’s just not cost effective,” he continued, “especially since in the end this is not a scientific survey. It’s a random survey.”

In fact, the randomness of the survey is precisely what makes the survey scientific, statistical experts say. The good news is this vote is being criticized across the political spectrum ...

From the WSJ: Republicans try to kill data collection that helps economic growth
The House voted 232 to 190 to abolish the Census's American Community Survey, or ACS, which is the new version of the long-form questionnaire and is conducted annually. Republicans claim the long form—asking about everything from demographics to income to commuting times—is prying into private life and is unconstitutional.

In fact, the ACS provides some of the most accurate, objective and granular data about the economy and the American people, in something approaching real time. Ideally, Congress would use the information to make good decisions. Or economists and social scientists draw on the resource to offer better suggestions. Businesses also depend on the ACS's county-by-county statistics to inform investment and hiring decisions. As the great Peter Drucker had it, you can't manage or change what you don't measure.
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Since the political class is attempting to define the GOP as insane and redefine "moderation" as anything President Obama favors, Republicans do themselves no favors by targeting a useful government purpose. From the NY Times: Operating in the Dark
The Web site of Representative Daniel Webster, Republican of Florida, instructs visitors to click on a link for “Census data for the 8th district” to learn about the area’s economy, businesses, income, employment, homeownership and other important features. And yet, on Wednesday, Mr. Webster declared that the Census Bureau’s American Community Survey — the source for much of that data — is an unconstitutional breach of privacy. From AEI's Norman Ornstein at Roll Call: Research Cuts Are Akin to Eating Seed Corn
significant was the House vote to eliminate the annual American Community Survey and the Economic Census to provide basic information on the state of businesses and industries in the country and data used for generating quarterly gross domestic product estimates.

If ever we need evidence of ideology run rampant, these actions become exhibit A. Learning about the population and about the economy are fundamental for a society to understand where it has been and where it is going ... From the WaPo: The American Community Survey is a count worth keeping
Every year, the Census Bureau asks 3 million American households to answer questions on age, race, housing and health to produce timely information about localities, states and the country at large. This arrangement began as a bipartisan improvement on the decennial census. Yet last week the Republican-led House voted to kill the ACS. This is among the most shortsighted measures we have seen in this Congress, which is saying a lot. And from Menzie Chinn at Econonbrowser: The War on Data Collection

Pretty sad. The only good news is this vote was condemned across the political spectrum.

One fact ought to tell you all you need to know about the risks faced by homeowners signing leases for natural gas drilling on their property: Wells Fargo & Company, both the largest home mortgage lender in the United States and a major lender to the country's second largest producer of natural gas, Chesapeake Energy Corp., refuses to make home loans for properties encumbered with natural gas drilling leases.

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One fact ought to tell you all you need to know about the risks faced by homeowners signing leases for natural gas drilling on their property: Wells Fargo & Company, both the largest home mortgage lender in the United States and a major lender to the country's second largest producer of natural gas, Chesapeake Energy Corp., refuses to make home loans for properties encumbered with natural gas drilling leases.

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One fact ought to tell you all you need to know about the risks faced by homeowners signing leases for natural gas drilling on their property: Wells Fargo & Company, both the largest home mortgage lender in the United States and a major lender to the country's second largest producer of natural gas, Chesapeake Energy Corp., refuses to make home loans for properties encumbered with natural gas drilling leases.

read more

One fact ought to tell you all you need to know about the risks faced by homeowners signing leases for natural gas drilling on their property: Wells Fargo & Company, both the largest home mortgage lender in the United States and a major lender to the country's second largest producer of natural gas, Chesapeake Energy Corp., refuses to make home loans for properties encumbered with natural gas drilling leases.

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Door-to-Door May Drive Irish Towards Yes Vote in Referendum on Merkozy Pact.
In a hard-fought battle to convince Irish voters to back Europe’s unpopular fiscal discipline treaty, Ireland’s deputy finance minister has the task of convincing the leafy Dublin suburb of Templeogue.

Going door-to-door, Brian Hayes faces scepticism and occasional abuse. One constituent calls him “a waste of space”, another “just a yes man”.

“If Greece goes down we are next in the firing line. I know people who are trying to put their money into US dollars. We just don’t know what is going to happen here,” says Mr O’Reilly.

“This referendum is all about fear on the one side and anger on the other,” says David Farrell, professor of politics at University College Dublin. “Most people have no great deal of enthusiasm for it and will only vote reluctantly in this referendum.”

“The sight of soup kitchens in Greece on TV screens is concentrating minds,” says Mr Hayes, as he goes door-to-door hammering home his message.

The dominant theme of the campaign so far is a claim by the government that rejecting the treaty would bar Ireland from receiving funds from Europe’s new bailout fund – the European Stability Mechanism. Without this insurance policy, Dublin says, Ireland will struggle to exit its EU and International Monetary Fund bailout programme on schedule at the end of 2013.

“The government is scaremongering rather than arguing the merits of the treaty. Most people are opposed to this treaty but are scared out of their wits,” says Paul Murphy, a Socialist member of the European Parliament and prominent No campaigner. Nothing bad can possibly happen if this treaty is rejected. Accepting more bailout funds from the IMF or ESM would be the absolute worst thing for Ireland.

Indeed, accepting funds from the Troika is one of the things that destroyed Greece, and it is pathetic that clueless, brainless, scare-mongering political shills for Brussels are now going door-to-door in an attempt to convince Irish voters the exact opposite.

Heading into the Greek June 17 national elections, expect to see door-to-door fear-mongering in Greece as well.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

BBC Interview with Nassim Taleb on JPMorgan

Hat tip Jesse’s Cafe Americain

My colleague UCSD Professor Valerie Ramey has an interesting new paper looking at the effects of higher government spending on GDP.

Ramey (2012) approaches the question from a forecasting perspective. Suppose a certain event (examples of which are detailed below) causes you to revise your forecast of how high government spending is going to be over the next few years. How would this news cause you to change your forecast of how high private GDP (that is, all the components of GDP other than government spending) is going to be? If your prediction of private GDP goes up, that is evidence consistent with a fiscal multiplier greater than one-- added government spending not only contributes directly to GDP from the accounting identity, but also helps boost private spending as well. If private GDP goes down, that suggests a multiplier less than one.

The forecasting models she looks at are vector autoregressions, in which one tries to predict a set of variables such as the log of real government spending per capita, log of real private GDP per capita, the marginal tax rate, and the 3-month T-bill rate based on what all of those 4 variables have been doing over the last year. In her simplest exercise, Valerie looked at how the forecasts of each of the 4 variables would change if real spending this quarter comes in higher than you would have expected according to the model. The top panels in the figure below are based on forecasting relations using data all the way back to 1939. The graph in the left panel shows how the model's k-quarter-ahead forecast of real government spending would change in response to news of higher government spending at time 0, plotted as a function of k, how far into the future you're looking. (It will help economist readers, but perhaps not anyone else, if I were to describe this as an impulse-response function based on a Cholesky factorization with government spending ordered first as in Blanchard and Perotti (2002)). Given the positive serial correlation in government spending, if you learn spending is about 0.4% higher this quarter, you'd expect further spending increases over the next year, with the graph normalized such that the news causes you to expect 1% higher real spending per person 4 quarters following the original information.

The right top panel shows how the model's forecast of future real GDP per person excluding government spending would change in response to the news. The model predicts that private spending will be 0.7% lower after a year. This negative effect is statistically significant.

Revision in forecast k quarters into the future following an unanticipated increase in real government spending per person at time 0. Left panels: change in forecast (in percentage points) of real government spending per person. Right panels: change in forecast (in percentage points) of real GDP less real government spending per person. Estimates based on sample period indicated at top, 95% confidence regions in gray. Source: Ramey (2012).

In part this inference is based on what happened during World War II. Between 1941 and 1944, real government spending increased by $75 billion (in 1937 dollars), but real GDP only rose by $60 billion. That's consistent with the patterns above, in which private spending falls in response to higher government spending. One might argue that there were other special factors such as rationing that reduced private GDP at the time. The second row in the figure above leaves out the World War II data, and just bases the inference on what we saw over 1947-2008. The effects are similar to those found using the full sample. The last panel of the above figure leaves out both World War II and Korea. With less data, the inferences are less reliable, but the overall estimates remain quite similar to those for the full sample.

Valerie's paper explores a number of other possible ways one could form the forecasting question. One concern is whether government spending rose in response to some other events that might have had direct effects on the economy, in which case the revision in forecasts might represent the consequences of those events instead of an effect of government spending itself. The next graph uses an alternative idea proposed by Perlotti (2011) of specifying the news variable in terms of defense spending alone rather than overall government spending (this is now a 5-variable VAR with defense spending ordered first). Results are essentially the same as for the first exercise.

Revision in forecast k quarters into the future following an unanticipated increase in defense spending at time 0. Left panels: change in forecast (in percentage points) of real government spending per person. Right panels: change in forecast (in percentage points) of real GDP less real government spending per person. Estimates based on sample period indicated at top, 95% confidence regions in gray. Source: Ramey (2012).

In yet another approach, Valerie used a news series constructed in Ramey (2011) that is based on reading of Business Week and other historical sources to construct a series of changes in the expected present discounted value of government spending caused by military events. Although the effects on private GDP are not measured as precisely using this indicator, the overall inference confirms the view that higher government spending raises GDP by less than the spending itself.

Revision in forecast k quarters into the future following an unanticipated increase in future defense spending as measured by Ramey (2011). Left panels: change in forecast (in percentage points) of real government spending per person. Right panels: change in forecast (in percentage points) of real GDP less real government spending per person. Estimates based on sample period indicated at top, 95% confidence regions in gray. Source: Ramey (2012).

Ramey (2012) concludes:

Using a variety of identification methods and samples, I find that in most cases private spending falls significantly in response to an increase in government spending. These results imply that the average GDP multiplier lies below unity.

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Own the Crash Course Special Edition Set with Presenter’s Pack (NTSC or PAL)

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Way back in 2005, I posted a graph of "the Real Estate Agent Boom". I saw the following article, and decided to update the graph of the number of real estate licensees in California.

Eric Wolff at the NC Times writes: Real estate agents bailing out, except in Southwest Riverside County
Real estate agents are getting out of the profession in California ---- except in Southwest Riverside County, according to the California Department of Real Estate and the Southwest Riverside County Association of Realtors.

A housing crunch left real estate agents faced with selling houses for less than what homeowners owed in mortgages, working with lenders suddenly terrified to give out loans, and otherwise battling headwinds that dramatically reduced their sales.

For many agents, especially those attracted by a housing boom that made the profession seem like easy money, that meant it was time to leave. But in Southwest Riverside County, a few people decided a slow market was just the time to jump in. Click on graph for larger image.

Here is a long term graph of the number of real estate licensees in California. The number of agents peaked at the end of 2007 (housing activity peaked in 2005, and prices in 2006).

The number of salesperson's licenses is off 29% from the peak, and has fallen to 2004 levels. But brokers' licenses are only off 7% and has only fallen to early 2007 levels. Even if activity and prices have bottomed, the number of agents will probably continue to decline.

Yesterday:
• Summary for Week Ending May 18th
• Schedule for Week of May 20th

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My Sunday Washington Post Business Section column is out. This morning, we look at the JPM debacle: Has the Economy been made safe from Wall Street? The short answer is not very.

The print version had the full headline Four short years after AIG, Wall Street is back to its old tricks (The online version is merely JPMorgan’s debacle, and its parallels to AIG).

Here’s an excerpt from the column:

“Finance has become a low-margin, high-leverage business. This is not surprising in an environment in which trading volumes are exceedingly low and interest rates even lower. In any other industry, a slowdown in economic activity sends management scurrying to cut costs, develop new products, become more productive. In short, to innovate. Companies can throw money at new products, marketing campaigns or discounted pricing, but a slowing economy brings down demand. What we have today is a deleveraging economy, and that is even more challenging — limiting the options that CEOs can take to increase their company revenue.

The world of finance refuses to accept that reality. Whenever Wall Street is confronted with a decrease in profits, we see the same response: Increase leverage. We usually don’t hear about it until some market wobble causes the excessive leverage to blow up in someone’s face. This time, the novelty cigar was smoked by Dimon, and the damage was inflicted on his reputation. The losses, we learned, were a “mere” $2 billion, described as manageable.

Consider any major finance disaster of the past 30 years, and what you will invariably see is the result of trying to spin dross into gold. The magic of finance is that this can work for a while. The reality of finance is simple mathematics. Eventually, the probabilities play themselves out and the dice come up snake eyes.”

Not much in terms of what the Post did in the dead tree version of the paper.
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click for ginormous version of print edition

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Source:
JPMorgan’s debacle, and its parallels to AIG
Barry Ritholtz
Washington Post, May 20 2012
http://www.washingtonpost.com/jpmorgans-debacle-and-its-parallels-to-aig/2012/05/18/gIQAPJxLbU_story.html

Washington Post,  May 20 2012(PDF)

A rare bipartisan effort to benefit the environment.

It feels as though we now have the first informed American report on the oil issue. One is struck by how well they describe the problem that ASPO and my research group have attempted to raise awareness of during the last 10 years. That this group of Americans perceive reality in a different way than is common in the USA is presumably because they are diplomats who have been outside the USA’s borders and have studied their nation from a different perspective.

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It feels as though we now have the first informed American report on the oil issue. One is struck by how well they describe the problem that ASPO and my research group have attempted to raise awareness of during the last 10 years. That this group of Americans perceive reality in a different way than is common in the USA is presumably because they are diplomats who have been outside the USA’s borders and have studied their nation from a different perspective.

read more

It feels as though we now have the first informed American report on the oil issue. One is struck by how well they describe the problem that ASPO and my research group have attempted to raise awareness of during the last 10 years. That this group of Americans perceive reality in a different way than is common in the USA is presumably because they are diplomats who have been outside the USA’s borders and have studied their nation from a different perspective.

read more

It feels as though we now have the first informed American report on the oil issue. One is struck by how well they describe the problem that ASPO and my research group have attempted to raise awareness of during the last 10 years. That this group of Americans perceive reality in a different way than is common in the USA is presumably because they are diplomats who have been outside the USA’s borders and have studied their nation from a different perspective.

read more

It feels as though we now have the first informed American report on the oil issue. One is struck by how well they describe the problem that ASPO and my research group have attempted to raise awareness of during the last 10 years. That this group of Americans perceive reality in a different way than is common in the USA is presumably because they are diplomats who have been outside the USA’s borders and have studied their nation from a different perspective.

read more

The Financial Times - JPMorgan unit has $100bn of risky bonds
The unit at the centre of JPMorgan Chase’s $2bn trading loss has built up positions totalling more than $100bn in asset-backed securities and structured products – the complex, risky bonds at the centre of the financial crisis in 2008. These holdings are in addition to those in credit derivatives which led to the losses and have mired the bank in regulatory investigations and criticism. The unit, the chief investment office (CIO), has been the biggest buyer of European mortgage-backed bonds and other complex debt securities such as collateralised loan obligations in all markets for three years, more than a dozen senior traders and credit experts have told the Financial Times. The bank has said its derivative activities were intended primarily to help balance risks on its overall balance sheet, but the revelation that it has built up other large, risky positions is likely to raise further questions about the CIO’s remit.

The Wall Street Journal – Inside J.P. Morgan’s Blunder 
CEO Dimon Blessed the Concept Behind Disastrous Trades; ‘Blood in the Water’
On April 30, associates who were gathered in a conference room handed Mr. Dimon summaries and analyses of the losses. But there were no details about the trades themselves. “I want to see the positions!” he barked, throwing down the papers, according to attendees. “Now! I want to see everything!” When Mr. Dimon saw the numbers, these people say, he couldn’t breathe. Those trading positions have produced losses that could total as much as $5 billion, tarnishing the record of an executive who had thrived through the global financial crisis and who has long been known for paying close attention to the bank’s trading activity, its risk profile and the activities of its senior employees. J.P. Morgan, the nation’s largest financial firm by assets, is struggling to contain the damage, which already has shaved off more than $25 billion in shareholder value.

Comment

The press is finally figuring out J.P. Morgan’s position are still open and they are subject to more losses.  We noted this on Tuesday in a post titled “How Jamie Dimon Might Lose His Job This Summer“:

Four days after the announcement of the loss by J.P. Morgan and we get the sense that most still do not understand what happened.  The stories above are typical examples of this.  Until these losses are better understood, those that do not understand are going to be shocked in the months ahead by the continued “surprises” in this story and may eventually call for Dimon to be replaced.

So what exactly is being misunderstood in this story?  Namely, the positions that J.P. Morgan lost money on are still open and could grow many times over.  They are still open because they are so large J.P. Morgan cannot find counter-parties to close them.  Instead, the story above writes about these losses as if they are a one-time loss and the positions are already closed.

J.P. Morgan’s stock performed poorly again yesterday presumably because this position continues to move against them:

Zero Hedge (blog) – It’s Not Over Yet For JPM
IG9 10Y spreads re-surged today and were very choppy into the close as they broke back above 155bps (at 155.5/157.5bps now) for the first time since Mid-December with a 31% rip in the last two weeks. This fits perfectly with our ongoing thesis of this being a tail-risk hedge (not a simple ‘spread’ as other ignorant commentators presume) whose risk management has exploded in their face. While the skew (the difference between the index and its portfolio fair-value) has collapsed and arbs will be happy and likely exiting – the same correlation shifts (that we discussed earlier) that drove the big bank to sell more and more protection into a spread compressing market are now back-firing as systemic risk re-surges and the correlation shift is forcing them to buy back more and more protection into a spread decompressing market. Oh the fun of negative convexity – especially when you ARE the market and there is no-one to unwind the actual tranches to. While we among others expected the selling to slow as the skew collapsed, the secondary effect of the actual rise in systemic risk is now taking over and forces the bank to buy protection back into a rising spread market…

Source: Bianco Research

Bugatti Veyron Super Sport

˜˜˜ Gumpert Apollo

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Hennessey Venom GT

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More after jump

Koenigsegg CCX

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Koenigsegg Agera R

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Saleen S7 Twin Turbo

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SSC Ultimate Aero

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McLaren F1

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Zenvo ST1

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Noble M600

Source: Market Watch

Simulation study finds Miller version of Scuderi engine can deliver twice the BMEP as naturally aspirated version, theoretically enabling 50% downsizing while maintaining performance. Source: Scuderi. Click to enlarge. A simulation study by researchers at the Southwest Research Institute (SwRI)... Mike Millikin