Around the Globe 08.23.2013

Sales of New U.S. Homes Fell More Than Forecast in July – Bloomberg.

New-Home Sales Tumble –

U.S. new home sales fall sharply; house prices rise | Reuters.

New home sales hammered, prompting doubts about recovery.

Shiller: Rising rates will hurt home prices.

New Home Sales Since January 2006

No one should be surprised by the drop in new home sales.  Mortgage rates have skyrocketed since May raising monthly mortgage payments for the same house.  What I find interesting about the chart is how far we are from recovering to a healthy market.  Contrast the quick fall in new home sales from 2006 to 2009 as illustrated by the steep slope in the chart above with the slow, shallow rise from 2011 to 2013.  If we discard August’s results as an anomaly, at the current rate of change it will take us until another three years or so of growth to reach the healthy levels of the past.

Amidst falling incomes, rising prices and higher rates, this rally does not appear to have three years left in it.  QE4 anyone?

New Home Sales Since 1960

Jobless picture is worse than you think: Gallup.

Gallup Underemployment Rate 08.23.2013

Let’s discuss anecdotal evidence.  Calling something “anecdotal” is a common debating tactic today.   This is because anecdotes are a good place to start an examination, but a poor place to end it.  Additional evidence is always necessary to back up peoples’ stories.  You may deduce that the job market is doing poorly because several of your acquaintances were laid off, but your social circle is not be representative of the entire population.  If you discover that the unemployment rate in your city has jumped from 7 to 9% over the last few months, you have found evidence that confirms the anecdotes.

The problem with the Affordable Care Act is that it was written by someone who never worked in a low-wage environment.  Food and retail workers know that if the company promises you a raft of benefits for surpassing an a set amount of hours per week that you will rarely do so.  As soon as you become eligible for benefits, the restaurant must add another charge to its labor cost total reducing profits and the manager’s compensation.

These firms are experts in maintaining work weeks below certain thresholds, because they have been doing this for years.  Anecdotes from the food and retail industries  reducing people’s hours to avoid paying for these benefits abound in the mainstream media, but we require more evidence. The chart above illustrates the rise in the underemployment rate.  Now, this rate has risen before, so this still does not prove the trend.  Let’s add more evidence:

2103 Full vs. Part Time Jobs

These trends will continue, because the 30 hour requirement is just too big a loophole to plug. It is relatively easy for firms to cut hours to each worker by hiring more.  The legislation should have been crafted to make the requirement pro rated and not based on an arbitrary line.

For example, a firm would give a 20 hour a week worker a 50% payment to purchase health insurance, a 30 hour worker a 75% payment and a 40 hour worker full payment.  In this scenario, there is no benefit to managing worker hours because we have created a zero sum game.  Turning two 30 hour workers into three 20 hours workers does not save the firm any money, so the loophole is closed.  With the current composition of Congress, there is no way that this amendment could ever pass, so the transformation of the U.S. to a part-time economy will continue.

Lira in Freefall to Spur Off-Schedule Rate Boosts: Turkey Credit – Bloomberg.

USDTRY 08.23.2013

The imploding emerging market currency du jour is the Turkish Lira.  The lira has yet to cross the psychologically important 2 to 1 barrier, but that looks inevitable at this point.  A recent rate increase failed to staunch the flow of capital from Turkey and countermeasures in India have not stopped the rupee’s fall, either.  Commentators assess the blame for the emerging markets swoon to the taper talk, but this explanation is simplistic.  Lower levels of liquidity and demand in China seem the likely culprits here.


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