Housing? What Housing? I Don't See Any Housing: Caroline Baum

nothing to add.... / dem ist nichts hinzuzufügen.....

April 30 (Bloomberg) -- Excluding housing, the U.S. economy is doing just fine.

That's the latest rationalization of a select group of operators who think that the Bush administration's 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate can protect the economy from any and all ills.

To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush's Middle-East policy is a rousing success.

How valid is the claim that outside of housing everything is hunky dory? Let's go to the videotape to see how housing- centric the U.S. economy's weakness really is.

The Commerce Department reported Friday that real gross domestic product rose 1.3 percent in the first quarter, the slowest pace in four years. The year-over-year growth rate slipped to 2.1 percent, also a four-year low.

Investment in housing, the purported culprit, fell 17 percent, less than in the fourth quarter. Residential investment, as it's known in the GDP accounts, subtracted from growth for the sixth consecutive quarter, something that hasn't happened since 1980.

thanks to http://calculatedrisk.blogspot.com/

The first quarter's sluggish growth wasn't confined to housing, however. Exports declined, inventories were a small drag, and capital spending (investment in equipment and software) rebounded 1.9 percent -- better than expected based on monthly data on shipments but nothing to write home about after declines in the second and fourth quarters of last year.

``The initial weakness was in housing, but the weakness in capital spending is not a cross-infection from housing,'' says Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Housing Plus
One year ago, capital spending was growing at a 9 percent year-over-year rate, he points out. Now it's zero.

``A year ago, people said capital spending was going to rescue us as housing slowed,'' he says. ``Capital spending is down to zero (year-on-year). There's been an unambiguous slowdown.''

In only one quarter of this entire expansion did capital spending add 1 percentage point or more to growth compared with an average contribution of 1 percentage point from the end of 1992 through the middle of 2000. The first-quarter contribution was 0.1 percentage point.

``Are businesses going to step up their pace of capital spending with the utilization rate falling and consumer demand slowing?'' asks Paul Kasriel, director of economic research at the Northern Trust Corp. in Chicago.

He clearly doesn't think so.

Boxes of Wallboard?
The American consumer keeps on trucking at a healthy pace. Consumer spending rose 3.8 percent last quarter, the only sector outside of government to contribute to growth.
Granted it's the biggest sector of the economy: 70 percent in 2006. But even the consumer is showing some signs of fatigue.

The rate of growth in retail sales has slowed in the past year, High Frequency's Shepherdson says. He uses a measure of core sales, which strips out building materials (the GDP ex- housing crowd can relate to that), price-driven food and gas, and autos, and is growing at a 4.7 percent pace now compared with 8.6 percent in March 2006.

Companies that haul the stuff consumers buy -- United Parcel Service, for example -- are reporting weakness in their domestic operations. UPS, the world's largest package-delivery company, said U.S. volume showed no change in the first quarter from a year ago.

``I don't think much of UPS's business is housing related,'' Kasriel says. ``They don't ship lumber, wallboard and toilets.'' ....

Excluding Everything
Another quarter of growth with a 1 percent handle is apt to make Fed officials nervous for the simple reason that there is no mandate for a recession with inflation running at 2-something percent. When growth is that slow, all it takes is a big quarterly inventory decline to thrust a negative sign in front of GDP, which in turn leads to a diminution in confidence.

While Fed Chairman Ben Bernanke's reaction function is different than Alan Greenspan's -- he's not a politician, looks uncomfortable at hearings, and keeps his answers short and to the point -- he isn't immune to what's going on around him.

Imagine how it would look if Congress were to ask him to explain why the Fed let the economy slip into recession with inflation so low. Would Bernanke be able to keep a straight face when he told them that GDP ex-housing was solid?

Heck, GDP excluding consumer spending, business investment, housing and exports was robust in the Great Depression, too.

Housing Bubble Accomplices Preparing for Death: Caroline Baum

this clip is made for this great piece from caroline baum. if you havn´t seen it yet ..this is a must see!!!!!!!!!

dieser clip ist wie für diesen bericht von c.baum gemacht. wer den noch nicht kennt ....ansehen!

I first used this analogy in 1999 in writing about the bubble in Internet and technology stocks. The paradigm seems equally applicable to today's burst housing bubble.

First came denial: It isn't a bubble. Banks don't have any exposure to mortgages. Housing is a small sector of the economy. Subprime mortgages are a small segment of the home-loan market.

Then came the Feb. 7 double time-bomb from HSBC Holdings Plc, Europe's biggest bank, and New Century Financial, the No. 2 subprime lender in the U.S., that they were setting aside more money as a cushion against rising loan delinquencies. New Century filed for Chapter 11 bankruptcy protection on April 2, one of more than 40 lenders that have ceased operations or sought buyers since the start of 2006, according to Bloomberg data.



Accountability
Soon the anger set in. Delinquency and foreclosure rates rose. Everyone was shocked, shocked to learn there was risk in risky loans. The press bombarded us daily with tales of shady lenders preying on victimized homeowners who would soon be out on the street for non-payment of mortgage interest.

No one was more upset than our elected representatives. Congress wants blood. Whose is irrelevant.


``Members of Congress want someone to be accountable for sensible lending,'' says Andy Laperriere, a managing director at the ISI Group in Washington.

Let the bargaining begin. With the homeownership rate at 68.9 percent in the fourth quarter, just shy of the all-time high, the potential audience for congressional hearings and potential market for invasive action is huge.
Unfortunately, Congress comes up with some really loopy ideas.

``Ideas that seemed out of the mainstream today may become mainstream in the future,'' Laperriere says.

Options Open
On Tuesday, Bloomberg News reported that the top Democrat and Republican on the House Financial Services Committee, Barney Frank of Massachusetts and Spencer Bachus of Alabama, respectively, said that mortgage-bond investors should be liable for deceptive lending practices.

..Let's hope the committee calls some mortgage-bond investors to testify. If they can be sued for someone else's actions, they aren't going to buy any mortgage bonds. Period.

Higher yields may compensate an investor for increased risk, but they don't offer adequate protection against class- action lawsuits.

Precedent
Chairman Frank might want to call some folks from the state of Georgia, where the enactment of a Fair Lending Act in 2002 rocked the mortgage industry.

The law assigned liability for predatory lending to everyone along the food chain, from lender to securitizer to investor.

The reaction was predictable. Many lenders pulled out of the state, the rating agencies refused to evaluate the pools of home loans and the secondary market dried up.

The law, which took effect in October 2002, was amended the following March ``to address a number of unintended consequences'' and to limit assignee liability.

New Jersey's Home Ownership Security Act of 2002 had to be amended in 2004, too, because ``the market shut down,'' according to Robert Levy, executive director of the Mortgage Bankers Association of New Jersey. The amended law put limitations on assignee liability.

Liability ``does apply to high-cost mortgage loans, which carry more than 4.5 percent in points and fees and an interest rate greater than 8 percentage points over the comparable maturity Treasury,'' he says.

Aligned and Assigned
There is no market for securitized high-cost loans, Levy says, and not many loans originated. Which is probably what Congress is getting at. The common theme to the hearings on subprime lending has been that Wall Street is ``eager to securitize, rate and buy as long as the originators feed the beast,'' Laperriere says. ``Many members of Congress want the major players in the secondary market -- holders of mortgage-backed bonds and the investment banks -- to have their interests more aligned with homeowners.''

It would seem a lot easier to fix the problem at the source, tightening regulations on the lenders themselves.

But hey, we still have two final stages of dying before the bubble is fully exorcised: depression and acceptance. If Congress follows through on its legislative reforms of the subprime market, the housing recession may turn into a depression. If that happens, can the rest of us find acceptance?

disclosure: unlike nowitzki i hate david hasselhoff :-)