Case Shiller index for July

Composite 10 : -4.5%
Composite 20 : -3.9%

“The decline in home prices clearly continued into the summer months,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “The year-over-year decline reported for the 10-City Composite is the lowest since July 1991. The lowest annual decline in this Index, which dates back to January 1987, was -6.3%, which was reported in April 1991. The further deceleration in prices is still apparent across the majority of regions, with 16 of the 20 metro areas showing a drop in their annual growth rate from what was reported in June.”

We are fast approaching the 1991 bottom, we will soon be out of chart maybe in october, maybe as i speak ...

January1991 -4.57
February 1991 -5.33
Mars 1991 -6.12
April 1991 -6.33
May 1991 -5.73
June 1991 -5.07
July 1991 -4.25

The consumer take a hit

The MEW appears to be weakening maybe the fed has cut also for for economic reasons...

The ICSC-UBS retail chain store sales index
for the week ending September 22 declined by
1.0% compared with the previous week, which
marked its largest back-to-back dip since December 2, 2006














Consumer confidence slumped to the lowest level in almost two years

Hard landing

Dollar Hits 22-Year Lows

A victory for the bulls

At least for the near term ...

Squeezing the Real estate market

Today a Bloomberg journalist asked a good question to Nouriel Roubini :

"why haven't we entered into a recession already ?"

Nouriel repeated the usual contagion story, from sub prime to prime etc ...
But i think there is a much more simple answer, considering that 72% of US GDP is due to consumer spending, if the economy is still performing relatively well, the consumer is still alive. So the right question should be:

where the money is coming from now ?
Certainly not from the credit market, the private saving is also near zero, and i see no new bubbling market yet. Maybe the answer lies in the question, the money is still coming from the same place but in a reverse way.
The real estate market may be headed for a crash but nationally the home value started to fall only since June 2006 and the prices remains around june 2005 level. So some juice remain in there for the MEW.

Gloomy mood at Jackson hole

"There's a pretty strong consensus that this has gotten a lot more serious." Ethan Harris

Bernanke's Pledge Fails to Dispel Pessimism at Jackson Retreat
Sept. 3 (Bloomberg)

I came to Jackson Hole thinking there would be no recession, but I'm leaving thinking we could well have one,'' said Susan Wachter, a professor at the University of Pennsylvania's Wharton School, who co-wrote the first academic paper presented at the conference.
There are no optimists in the crowd here,'' said Ethan Harris, chief U.S. economist at Lehman Brothers
Martin Feldstein of Harvard University warned of a ``very serious downturn'' and called on policy makers to cut interest rates by 1 percentage point.

Yale University professor Robert Shiller said house prices in some U.S. cities may fall by as much as half, while Leamer predicted declines in some areas of 30 percent to 40 percent. Feldstein saw the chance of a ``substantial decline'' in spending because consumers won't be able to borrow as much against the value of their homes.

Bernanke said in the opening speech that the Fed will ``act as needed'' to protect the expansion.

link

Edward E. Leamer knocked out the audience by discussing business and housing cycles.
worth a read

Pushing the yields down

During August we've seen really strange events, one was the falling of the effective fed funds rate, 5.25% is just a target and some times the hunter miss it.
The august 10 the fed key rate suddenly felt near 4.6%.


And for the first time since September 2001 the fed funds traded three times at zero.



While everybody was talking about the symbolic discount rate cut and the several injections the fed was silently doing much more serious moves.
This kind of emergency action is very effective to quickly send short term rates lower for few weeks. The fed funds rate daily average for the past 20 days is at 4.92%.
And you are still asking for a 25 basis-point rate cut ?

The flight to safety was just a part of the recent yield story.

Real Fed funds Vs a Mortgage ARM index (weekly)