Housing Hit The Wall Of Wall Street In May

Wolf Richter www.testosteronepit.com  www.amazon.com/author/wolfrichter

It always starts with a toxic mix. Last fall when sales that had been predicted to continue their miraculous ascent were suddenly swooning, soothsayers dealt with it by developing a whole plethora of excuses. At each new disappointment, they dragged out new excuses. But in May, the toxic mix came to a boil, and now there are no more excuses: sales plungedand inventories jumped. The housing market is buckling under its own inflated weight.

And what excuses they’d come up with! Last fall, the fiscal cliff, the threat of a government shutdown, the possibility of default that was belittled by everyone supposedly made home buyers uncertain. But these issues were swept under the rug, and sales continued to drop into the winter. Polar vortices were blamed, though in California, where the weather was gorgeous, sales dropped faster than elsewhere. Then the spring buying season came around when massive pent-up demand was supposed to sweep like a tsunami over the land. But sales continued to decline. So tight inventories were blamed. There simply weren’t enough homes for sale, it went.

Alas, in May, new listings rose 6.5% from a year ago to a four-year high in the 30 markets that electronic real-estate broker Redfin tracks. People were dumping their homes on the market; new listings soared 25.5% in Ventura, CA, 15.8% in West Palm Beach, and 15.4% in Baltimore. This is what it looked like for all 30 markets combined:

The onslaught of new listings added to the unsold inventory and pushed up the total number of homes for sale by 9.1% to the highest level since August 2012. And in this elegant manner, the final excuse of tight inventories causing the plunge in sales went up in smoke.

This rise in inventory has been going on all year. Yet, as Redfin pointed out with a soupçon of irony, it was “surprising to some, given the speculation about extremely low inventory creating intense pent-up demand among buyers who have been waiting for months with low interest rates burning holes in their pockets.”

Real estate is local. During the last housing bust, some areas started to crater in early 2006, while others hung in there for a while longer. San Francisco’s bubble hit its peak in November 2007, and everyone thought that the city, being so unique, would be immune to the pandemic of housing mayhem. A month later, it cratered. So this time too, it isn’t impacting all markets equally. In 10 of the 30 markets, inventories were actually down. But in some of the hottest markets a year or two ago, inventories skyrocketed: up 14.6% in Los Angeles, 15.5% in Washington, DC, 16.2% in San Diego, 23.1% in Sacramento, 27.9% in Orange County, 30.9% in Riverside-San Bernardino, CA, and up – I’m not kidding – 33.4% in Phoenix.

And this inventory isn’t selling: in the 30 markets, sales in May plunged 10% from a year ago. Now that homes are coming on the market in large numbers, buyers, faced with sky-high prices and higher mortgage rates, went on strike:

In some of the hottest markets of 2012 and 2013, sales are falling off a cliff: down 11.6% in Las Vegas, 12.2% in Chicago, 12.3% in Seattle, Orange County, and Los Angeles, down 12.5% in Washington, DC, 13.1% in Long Island, 13.5% in San Francisco, 14.6% in Sacramento, 20% in Phoenix, and down 20.8% in San Diego. These are ugly numbers.

But, but, but… the median sales price still rose 8.2% in May from a year ago, though that’s down from the 14.5% increase in May 2013, and from the 20% at the peak of 2012. Redfin reported that its agents had observed “the shift away from a sellers’ market, with buyers having more power and less competition.” But apparently, “many sellers still haven’t read the memo.”

Since early 2012, Wall Street players, armed to the teeth with the nearly free and limitless money that the Fed in its infinite wisdom has made available specifically for these purposes, piled into the market, buying up hundreds of thousands of homes helter-skelter and turning them into rental properties. It switched these homes from for-sale lists to for-rent lists, where many languished unperturbed, and it drove up prices in record time. Current homeowners welcome that.

But first time buyers, the natural force in the housing market, were effectively pushed aside and are now priced out of the market. Even many current homeowners who want to sell are locked into their homes as they cannot afford the next home, given higher mortgage rates and sky-high prices. At these prices, even investors can’t buy these homes and rent them out at a profit. In many areas of the country, that business model is kaput. So they pulled back too. This is how the Fed fixed the housing market.

The only thing lacking in this “fixed” housing markets are willing and able buyers. So inventories are piling up, and someday sellers will “read the memo.” Then prices will be whittled down to where they make economic sense in this economy. We’ve been through this before. Only this time, it’s different: the Fed, which so eagerly took credit for having “fixed” the housing market, is going to be hard-pressed to cut interest rates further, or do anything else it isn’t already doing.

“Recently, the billionaire venture capitalist Vinod Khosla went hunting for one-bedroom apartments in San Francisco.” And then he opened his mouth. Read… The untimely end of San Francisco’s Tech and Housing Bubbles 

The roots of Eric Cantor’s defeat

The House majority leader was involved in a lengthy war with his own party in Virginia

House Majority Leader Eric Cantor, R-Va., center, joined at left by Speaker of the House John Boehner, R-Ohio, …

National reporters tend to prefer national storylines. So it made perfect sense, in the wake of House Majority Leader Eric Cantor’s stunning and perplexing loss in his Republican primary on Tuesday, that many attributed the outcome to a national controversy: immigration.

There’s no question that Cantor’s on-again, off-again support for some form of comprehensive immigration reform hurt his standing among some Republicans, or that his challenger — university professor Dave Brat — hammered the theme incessantly.

But Cantor wouldn’t have lost if Brat’s message hadn’t found fertile ground to flourish in the suburban and rural counties ringing Richmond. Instead, Tuesday’s upset is better seen as just the latest skirmish in a fierce battle for the soul and control of the Virginia GOP that has raged over the past few election cycles as Democrats have become increasingly adept at winning statewide races.

Virginia’s intraparty Republican war has pitted grass-roots activists — some of whom identify with the tea party movement and some of whom don’t — against the party establishment, peopled largely by big donors and Richmond’s lobbyist-consultant class.

Increasingly, Cantor and his allies had become the face of the “establishment” wing, on the wrong side of at least three defining internal fights that inflamed the GOP’s most passionate activists — exactly the kinds of people most likely to show up and vote in a primary. His loss is just the latest example of that establishment wing losing a fight against the insurgent activists in the state, who finally believe they can steer the party in their direction after years of frustration.

Bolling vs. Cuccinelli
Tuesday’s primary matchup had its roots in another GOP contest that never actually happened: the race between Bill Bolling and Ken Cuccinelli for the 2013 gubernatorial nomination.
The nod was supposed to go to Bolling, the congenial lieutenant governor, while Cuccinelli, the brash attorney general, waited his turn. That was the way the Republican establishment saw it, but Cuccinelli didn’t and decided to jump in anyway.
Cantor endorsed his friend Bolling, saying the lieutenant governor “has the right experience, the conservative values and the ability to unite our party so we can win in 2013.”
But Cuccinelli’s supporters in the state GOP engineered a switch, swapping out a primary in favor of a party convention to pick the nominee (more on that later). Bolling realized he could never win at a convention dominated by hard-core conservatives — he might not have been able to win a primary either, polls suggested — so he grudgingly exited the race.

Then Bolling did something that earned him the enduring enmity of many conservatives: He began telling anyone who would listen, and any reporter with his phone number, that the Virginia Republican Party was broken. That it had become too extreme, and Cuccinelli was too divisive to beat Democrat Terry McAuliffe for governor.

Bolling’s longtime consultant, Boyd Marcus, went even further, offering his full-throated endorsement to McAuliffe during the homestretch of the general election. After McAuliffe won, he tried to hand Marcus a lucrative job on the state Alcohol Beverage Control Board. The Republican-run state House killed that nomination, as the state party chairman likened Marcus to Judas Iscariot seeking his “30 pieces of silver.”
Here’s where things got complicated for Cantor: Marcus wasn’t just a Bolling adviser; he had also worked for Cantor, even serving as the congressman’s chief of staff early in his Hill tenure. Plenty of conservatives around the state took note of the headlines: “Ex-Aide to Cantor Backs McAuliffe.”
And Marcus’ longtime consulting partner, Ray Allen, was even closer to Cantor, serving as his most important in-state adviser right up until Tuesday’s shocking loss.

Cuccinelli’s loss to McAuliffe sowed bitterness on both sides of the GOP divide. Some Republicans agreed with Bolling that their nominee was simply out of step with an increasingly purple state. But many conservatives believed their man was abandoned. Cuccinelli himself heaped blame on unnamed national Republican Party leaders (a group that would presumably include the leader from Virginia) for failing to give him more money and strategic help in the closing weeks of the race.

Conventions vs. Primaries
Cuccinelli and Cantor clashed more directly on the question of how the party should pick its nominees, an issue that sparked intense controversy in 2013.
Like the rest of Bolling’s team, Cantor preferred the idea of holding a primary to select the Republican gubernatorial nominee. But Cantor made it known he saw this as a larger problem. Conventions can be controlled by relatively small groups of conservative activists, he argued, hurting the GOP’s ability to grow the party. And conventions could make it easier for grass-roots movements to take out incumbents. (Ironically, that’s exactly what happened to Cantor on Tuesday — in a primary.)
The debate even prompted Cuccinelli to send Cantor a terse note in December 2012, first reported by Politico, in which Cuccinelli swore he “never supported any effort to eliminate primaries as a method of nomination” and added, “In the future, should you have any concerns, I would appreciate a call.”

Then came the 2013 convention in Richmond, which handed Cuccinelli the gubernatorial nomination but also led to the selection of E.W. Jackson, a Chesapeake minister with a long history of controversial statements and financial problems, for the lieutenant governor ballot line. Jackson’s disastrous campaign, which helped drag down the GOP ticket, was Exhibit A for those, like Cantor, who were anti-convention.

More recently, Ray Allen, Cantor's Richmond-based political adviser, earned the wrath of the grass roots by using controversial parliamentary tactics at local party committee meetings around the state to put allies in key positions. Those meetings helped determine which delegates got to attend conventions in each congressional district, as well as the statewide GOP convention held in Roanoke earlier this month.
Conservative activists took note, and in May they got some revenge: Cantor was booed at his own 7th Congressional District Convention, and the incumbent district chairman, a Cantor ally, was booted from his job in favor of a tea party-backed candidate. In retrospect, it was a portent of what was to come.
Deal-makers vs. Stand-takers
Of course, immigration did play a role in dooming Cantor’s re-election. But it wasn’t just because Republicans in his district don’t want a reform bill or “amnesty.” It was also because the issue helped confirm in the minds of activists that Cantor was what they most feared — a deal-maker.
The charge might surprise some on Capitol Hill, who view Speaker John Boehner, R-Ohio, as far more eager to negotiate with the enemy than his No. 2. Yet many on the right, in Washington and the Old Dominion, also see Cantor as a squish — a supporter of immigration reform who voted to raise the federal debt ceiling in 2011 and pass the TARP bank bailout in 2008, the measure that helped spark the entire tea party movement.
The deals haven’t just happened in Washington. In 2013, a divided General Assembly passed Republican Gov. Robert McDonnell’s massive transportation package, changing the way the state pays for infrastructure projects and raising a host of state taxes.
Most conservatives, including Cuccinelli, hated the bill and saw it as a symptom of all that was wrong with the Richmond power establishment. Cantor’s allies in Richmond supported the measure.

Conservatives in Cantor’s district have long feared that he might be willing to cut exactly that kind of bad bargain with President Barack Obama, whether on immigration or tax reform or entitlements. On Tuesday, they ensured Cantor will never get the chance.

 

U.S. In Eye Of ‘Gigantic Financial Hurricane’

Casey said the US economy is in the eye of a “gigantic financial hurricane.”
Read more at http://investmentwatchblog.com/u-s-in-eye-of-gigantic-financial-hurricane/#6BIzueb0JmoLpHAp.99

Youth Unemployment is at Extreme Highs

Repatriating Taxes: An Unwarranted Gift to Unpatriotic Corporations

June 14 is Flag Day. It marks an important day in the nation’s history: the Continental Congress passed a resolution that established the nation’s first flag on June 14, 1777. This used to be a national secular holiday, when most households showed their patriotism and loyalty to the United States by flying its flag. But the nation doesn’t seem to be in a celebratory mood these days, and Flag Day may not offer a lift to our national pride.
We have a growing pile of unmet needs and yet are constantly told we can’t afford to address them. In recent days, bridges along major roadways have been closed because the lack of ongoing maintenance has made them too unsafe to travel. We’ve watched as the number of long-term unemployed denied access to emergency unemployment benefits has passed 3 million. And we’ve seen the annual struggle of cities seeking funds for summer jobs programs for youth since federal funding has dried up.
We are told there is no money for these important public services.
And yet, U.S. corporations reported record profits and the median pay of large-company CEOs has reached record levels. Corporate profits as a share of the total economy exceeded 12 percent last year while their share of federal taxes as a percent of the economy shrank to less than two percent, near an all-time low. A recent study by Citizens for Tax Justice found that, over the last five years, the average large corporation in America paid less than 20 percent of its profits in federal income taxes, substantially less than the posted 35 percent corporate tax rate and less than many middle-class families pay.
In the prosperous 1950s, under the leadership of Republican President Dwight Eisenhower, corporate profits accounted for around ten percent of the economy and their federal taxes accounted for more than four percent of the economy. Corporations, with fewer profits in those days, were asked to provide more toward the common good through the taxes they paid. They still had plenty of money to reinvest in their companies and prosper, and their taxes helped pay for public services like schools, roads, and investments in basic research that kept our nation strong and competitive.

Today, more and more companies are abandoning their incorporation in the U.S. and shifting their registrations to foreign countries. They are doing so to avoid paying U.S. taxes. Pfizer’s recently abandoned attempt to buy Britain’s Astra Zeneca was in large part about reducing the drug giant’s tax bill. Later this year, Walgreen’s shareholders will be asked to support a more direct path, simply swapping their registration as a U.S. corporation for new corporate papers issued by Switzerland. Efforts by these corporations to lower their tax bills mean they are choosing to contribute less to the upkeep of America.
Hundreds of other U.S. corporations are taking a simpler path, using gaping loopholes in the corporate tax code to legally shift profits earned  in the United States to places like the Cayman Islands, Bermuda, or Lichtenstein, where those profits are lightly taxed, if at all. Seventy-two percent of Fortune 500 corporations have subsidiaries in offshore tax havens, according to new research by U.S. PIRG and Citizens for Tax Justice. Offshore tax abuse by corporations costs the U.S. Treasury $90 billion a year, according to Reed College Professor Kimberly Clausing.
Now many in Congress – from both political parties – are seeking to recycle an old idea that has failed before. They say we need to give corporations a big tax break to entice them to bring some of the $2 trillion they have stashed offshore back to America to invest in this country. They say we can use the trickle of tax money that comes from this one-time deal to repair our nation’s roads and bridges.
This construction is wrong on three counts. First, the premise that those funds are “trapped offshore” and not available for investment at home is false. Most large companies are able to use these offshore funds as collateral to obtain low-cost loans, which means that while their profits technically remain offshore and therefore untaxed, they are able to use these funds to make investments in the U.S.
Second, giving corporations a tax holiday to pay for infrastructure projects forces taxpayers to pay twice – once for the tax break and again for the cost of the infrastructure project. A recent Joint Committee on Taxation report estimated that a tax holiday similar to the one passed by Congress in 2004 would cost almost $96 billion over ten years. Using trickles of funding from corporate tax holidays is a really expensive way to pay for roads and bridges.  It is far cheaper to pay for infrastructure spending directly out of tax revenues.
Third, such an approach is a one-time fix to a problem that needs a long-term solution.
A much better approach would be to close the loopholes that have turned the tax code into a sieve that leaks tax revenue from the public treasury. Instead of generating $100 billion of new money for infrastructure once, we need a steady flow. Closing offshore tax loopholes would deliver hundreds of billions of dollars of tax revenue to help fix our roads, improve our kids’ schools, and strengthen Social Security.
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License. Scott Klinger is Director of Revenue and Spending Policies at the Center for Effective Government. Prior to joining Center for Effective Government, Scott was the Tax Policy Director at the American Sustainable Business Council and an Associate Fellow at the Institute for Policy Studies, where he wrote about issues of tax and economic inequality.

How (and When) the Dollar Will Collapse | Jerry Robinson

NEGATIVE Interest Rates & Point of NO RETURN | Andy Hoffman

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