You usually close your eyes.
Select your favorite caption for this photo.
1. I hate getting soap in my eyes.
2. I hate being surprised when the bubble pops.
3. I hope this doesn’t ruin my hairstyle.
4. Crap, I think we are in a bond bubble, debt bubble and a housing bubble, oh my.
Enjoy!
To get new posts, click on the Follow button. You will NOT get spam email.
Special thanks to Jerome Favre of European Pressphoto Agency.
No. I am NOT talking about the movie, Fool’s Gold.
I am talking about the Fed finding wealth and a strong economy where there is none.
Like the little boy who cried “Wolf!”, the Fed keeps saying “The Economy is good!”
Here is the fool’s gold the Fed uses to keep saying :The Economy is good!”
1. Auto sales are up. Well they were up until the recently released May report showed a drop of 6%. The recent auto sales were propped up by easy credit but now they have run out of buyers. Here are details.
http://www.reuters.com/article/us-usa-autos-idUSKCN0YN4K0
2. Home sales are up. Well they were up until the June 1, 2016 report. Again home sales have been boosted by easy credit and low interest rates until now. Here are details.
http://www.cnbc.com/2016/06/01/mortgage-applications-drop-because-of-rate-uncertainty.html
3. Unemployment is down. Well unemployment has dropped to 4.7% but the recent jobs report announced June 3, 2016 showed a shocking one fifth the average number of jobs created. Unemployment went down because more people have given up or are retired. Here are details.
http://money.cnn.com/2016/06/03/news/economy/us-economy-may-jobs-report/
=============
Here are the real concerns the Fed should be looking at.
1. Freddie Mac and Fannie Mae. These firms have been using derivatives to hedge against interest rate changes and lost $475 million last year. Here are details.
http://www.marketwatch.com/story/freddie-mac-may-need-another-taxpayer-bailout-next-week-2016-04-29
2. US Productivity. The statistics show it went down 1% in the first quarter and now one of the Fed members says it may go down again this month. Here are details.
http://www.reuters.com/article/usa-fed-evans-productivity-idUSU8N16O051
3. Corporate Bond Sales. These are still high and may match last year’s record in order to finance other mergers. Here are details.
In summary, the 2008 bailout involved lower interest rates. But the Fed should have raised interest rates in 2011 instead of maintaining the ridiculous 2% inflation target. Here is how:
https://michaelekelley.com/2015/03/27/the-kelley-monetary-policy-rule/
Or if you want more information on whether a recession is coming or not, read this.
https://michaelekelley.com/2015/03/02/why-another-recession-is-coming/
==================
The Fed is chartered with controlling inflation and encouraging job growth. One Fed member recently said they are too busy to add a third task aka improving the economy. Well they have dropped the ball on job growth which would have improved the economy. Here is what the Fed could have and still can do for job growth.
https://michaelekelley.com/2014/03/28/federal-reserve-can-create-jobs/
Good luck out there.
Homeowners, that are PAYING ONLY INTEREST, are in for a shock.
Many people bought homes during the crazy days before the Great Recession. Many of them have been paying only interest on those mortgages. Now their payments are about to jump up to include the principal. Many people will have their house PAYMENT DOUBLE!
The number of homes involved constitutes a bubble as seen in the graph above.
For 2014 about $22 billion worth of homes are involved in home equity loans. If the average house is $215 thousand, then that means a little over a 100 thousand homes are involved. That is about 2.5% of the current home sales.
For 2015 the amount of home equity loans involved doubles from the previous year. Thus over 200 thousand homes could be involved or about 5% of current home sales.
This could result in a lot of foreclosures again if they are not refinanced.
Then with Quantitative Easing ending by January 2015, we could see a return of cash payments to normal levels which could result in a 10% drop in home sales.
The 5% increase in home inventory combined with a 10% drop in buyers could be a double whammy to the housing recovery. Let’s hope for the best.
Michael E Kelley 