Some analysts pay particular attention to oil prices, thinking they might give an advance signal of changes in inflation. However, using a variety of statistical tests, we find that adding oil prices does little to improve forecasts of CPI inflation. Our results suggest that higher oil prices today do not necessarily signal higher CPI inflation next year, although they do help to explain short-term movements in the CPI.Being able to predict changes in inflation could make investors a lot of money, but apparently using oil prices to foretell those changes isn't the golden goose some people thought.
Saturday, February 8, 2014
Thursday, November 7, 2013
After catching up a bit on all the commentary related to the Federal Reserve’s ongoing money printing effort such as this item from yesterday and today’s offering from Jim Jubak at MSN Money where it was concluded that “The Fed has no endgame“, refreshing the simplified graphic of the central bank’s balance sheet below seemed like a good idea, particularly since they are rapidly closing in on the $4 trillion mark.
Of course, there is a growing consensus that this is all benign (or at least irrelevant as long as stock prices are rising) and that argument is lent some credence by the low rates of inflation for consumer prices reported in the West (inflation in developing nations is an entirely different matter). Somehow, it seems the quadrupling of the Fed’s balance sheet (and then some) will prove to be anything but benign.
This article was republished with permission from Tim Iacono.
Saturday, September 21, 2013
What is transactional funding?
Transactional funding refers to a transaction-based short term loan that you use to purchase property that you will turn around and sell. The proceeds of that sale are then used to pay back the loan, allowing you to avoid a long-term debt. The loan is transaction-based because the purchase by you, called the A-B side of the transaction, as well as your subsequent sale to another buyer, the B-C side of the transaction, must already be arranged in order to obtain this type of loan.
What are the advantages?
You can enjoy several advantages from a transactional funding loan versus a regular hard money loan, including:
- No credit checks
- No proof of income required
- No money down
- Loan covers closing costs
- Lower loan costs
What types of transactions can be funded?
While the loan cannot be used for mobile homes or non-real estate transactions such as vehicle purchases, you can take advantage of the loan for most real estate properties. Qualifying properties include commercial real estate, for sale by owner homes, bank owned/foreclosed homes and apartment buildings. As a savvy investor, you can make an excellent profit purchasing properties at a discount, such as bank foreclosed homes, flipping and selling them at a higher profit margin.
This article was originally published on realestatemoney.com.
Thursday, March 28, 2013
Declining Wealth Brings a Rising Retirement Risk, by Bruce Bartlett, Commentary, NY Times: ...[In] defined-benefit ... pension plans..., workers are promised a specific income at retirement, which the employer provides. The employer bears all the risk of market fluctuations. Under a defined contribution scheme, such as a 401(k) plan, the worker and the employer jointly contribute to a tax-deductible and tax-deferred account from which the worker will finance retirement. ...
Now the first generation of workers who have virtually all their pension saving in defined-contribution plans is nearing retirement, and the news isn’t good. According to a March 19 report from the Employee Benefit Research Institute, only about half of workers nearing retirement have confidence that they have enough money saved for an adequate retirement.
Not surprisingly, retirement saving has taken a back seat to more pressing concerns – coping with unemployment, maintaining standards of living during an era of slow wage growth, putting children through increasingly expensive colleges and so on. ...
This problem is much more severe for black Americans. ... The wealth gap isn’t only racial, it’s generational...
What’s really depressing about these studies is the lack of solutions and the likelihood that the problem will only get worse.
Republicans in Congress have pressed for years to convert Social Security, a classic defined-benefit pension, into a defined contribution plan, and also to convert Medicare into a voucher program. These changes would shift even more of the financial risk in retirement onto families that have yet to adapt to fundamental changes in employer pensions and the economy over the last 30 years. The future doesn’t look pretty.Members of Congress appear to be eager to cut retirement benefits even further to show they can make the hard choices (and the president seems to be on board). They should raise the payroll cap instead, but the "hard choice" that would hit the people who can afford it isn't under consideration. It's not hard to imagine why.
Thursday, March 21, 2013
From year ago levels, housing starts are up 27.7 percent and permit issuance is 33.8 percent higher.
Starts for single-family homes rose 0.5 percent to a rate of 618,000 units, also the highest level since 2008, accounting for about two-thirds of the overall total, however, home building remains about one-third below the pre-housing bubble pace of about 1.5 million units per year.
It is once again worth pointing out that not too much should be inferred from housing data at this time of the year due to dramatically lower activity in most of the country during the winter months and the outsized impact of seasonal adjustments. Nonetheless, this offers more evidence of ongoing improvement in the housing market as builders ramp up their plans for new construction in the months ahead.
This blog post was republished with permission from Tim Iacono.
Thursday, March 7, 2013
So far in 2013, gold and silver have moved steadily lower based in large part on the idea that despite the central bank creating $85 billion per month in new money, inflation is not a near-term threat (and maybe not even a long-term concern).
In recent weeks, investment banks have been falling over themselves in an attempt to downgrade their precious metals price forecasts sooner and farther than their competitors and this has helped to sour sentiment. Also, record outflows from gold ETFs such as the SPDR Gold Shares (GLD) have added to the selling pressure.
Based on what you might read in the mainstream financial media these days, you may as well stick a fork in the secular gold bull market because it’s all but done (and maybe silver too), but there’s a very good argument to be made for why that is not so.
In short, now that the latest round of Fed money printing is causing the monetary base to grow, higher inflation is likely to follow. Then, perhaps suddenly, investors and traders will flock back to precious metals.
Allow me to explain.
[To continue reading this article, please visit Seeking Alpha.]
Thursday, February 21, 2013
They say that the essence of futility is to keep doing the same thing while expecting a different result. But is that what key government forecasters are doing in determining their outlook for the economy?Increasingly, it appears that this is one of those times when “it really is different” in that we’re not about to return to “trend growth” and for good reason – it was artificial, based on a reckless expansion of credit.
Throughout the halting economic recovery that began in 2009, the formal economic projections released by the Congressional Budget Office, White House Council of Economic Advisers, and Federal Reserve have displayed quite a consistent pattern: This year may be one of sluggish growth, they acknowledge. But stronger growth, of perhaps 3.5 percent, is just around the corner, and will arrive next year.
Consider, for example, the Fed’s projections in November of 2009. Sure, growth would be slow in 2010, they held. But 2011 growth, they expected, would be 3.4 to 4.5 percent, and 2012 would 3.5 to 4.8 percent growth. The actual levels of growth were 2 percent in 2011 and 1.5 percent in 2012.
What’s amazing is that the Fed’s newest projections, released in December of 2012, look like they could have been copy and pasted from 2009, just with the years changed: They forecast sluggish growth in 2013, 2.3 to 3 percent, followed by a pickup to 3 to 3.5 percent in 2014 and 3 to 3.7 percent in 2015.
Then again, another reckless expansion of credit might just do the trick.
This blog post was republished with permission from Tim Iacono.
Thursday, February 14, 2013
Seeing the Krugman commentary comparing real government spending under Obama and Reagan made me curious about what it looks like if you express it in per capita terms? In particular, how does the Obama period compare with other presidencies in terms of penury/austerity versus spendthriftness?
To compare presidencies, I did the calculation two ways. One starts in the quarter before the president was elected (e.g., 2008Q4), the other starts in the first quarter of the presidency (e.g., 2009Q1). (The ARRA probably had some effect in Q1, but most of the change was simply economic conditions that the incoming president had nothing to do with, so I think I prefer the Q1 to Q1 method). Ranking since Johnson (starting in 1968), and using the first-quarter comparisons, and calculating growth under Obama through 2011Q4, Clinton is the most austere, followed by Obama. The most spendthrift are (1) Nixon-Ford, (2) Reagan, and (3) Bush II. The figure is pasted below:
This blog post was republished with permission from Economist's View.
Thursday, February 7, 2013
What’s interesting about the first chart is that it’s being interpreted in two very distinct ways. Some say, “See there! The debt is stabilizing. There’s no need to do anything more.” while others (including the CBO) conclude, “This high level of debt will restrict policy choices during any future crisis”.
A small minority (including myself) think that the lower two graphics are the more important parts of this report since, for all the wrangling over taxes, spending, and debt that go into the numerator of the debt-to-GDP equation, the denominator gets far too little attention.
There is clearly no recognition that the U.S. has come to the end of a multi-decade credit boom that has goosed both economic growth and employment. Moreover, about the only way we’ll return to “trend growth” and a 5 percent jobless rate by 2017 is to inflate an even bigger (and, ultimately, more destructive) asset bubble than what we’ve seen over the last 15 years and this is clearly not factored into any of this forecast.
This article was republished with permission from Tim Iacono.
Thursday, January 31, 2013
Dean Baker on todays' news the GDP shrank in the 4th quarer of last year:
Falling Government Spending and Inventories Push Growth Negative in Quarter, by Dean Baker: A sharp drop in government spending, heavily concentrated in defense, coupled with a decline in inventories caused GDP to shrink at a 0.1 percent rate in the 4th quarter. Government spending fell at a 6.6 percent annual rate, driven by a 22.2 percent decline in defense spending, subtracting 1.33 percentage points from the growth rate in the quarter. A 40.3 drop in the rate of inventory accumulation reduced growth by another 1.27 percentage points. Without these factors, GDP would have grown at a 2.5 percent annual rate in the quarter.
Pulling out these extraordinary factors, the GDP data were largely in line with prior quarters. Consumption grew at a 2.2 percent annual rate, driven mostly by 13.9 percent growth in durable goods purchases, primarily cars. This number was inflated due to the effects of Sandy, which destroyed many cars, forcing people to buy new ones. Growth in this category will be substantially weaker and possibly negative in the next quarter. On the other side, housing and utilities subtracted 0.47 percentage points from growth in the quarter. This is likely a global warming effect with warmer than normal weather leading to less use of heating in the quarter. (There was a comparable falloff in the 4th quarter of 2011 when we also had unusually warm weather.)
One especially noteworthy item is the continuing slow pace in the growth of spending on health care services, which accounts for almost three quarters of all health care spending. Nominal spending grew at a just a 2.3 percent annual rate in the quarter. Over the last year, nominal spending is up by just 1.8 percent, far less than the rate of growth of GDP, and well below the projections from the Congressional Budget Office (CBO). It seems increasingly likely that we are on a slower health care cost trajectory. The deficit picture will look very different when CBO incorporates this slower growth trend into its projections.
Investment rebounded from a weak third quarter in which non-residential investment actually shrank. This quarter it added 0.83 percentage points to growth, with investment in equipment and software growing at a 12.4 percent rate. Housing continued to be a big positive in the quarter, adding 0.36 percentage points to growth.
Net exports were a modest drag on growth. While both exports and imports fell in the quarter, the 5.7 percent drop in exports more than offset the positive impact of a 3.2 percent decline in imports. The state and local sector government sector shrank at a 0.7 percent annual rate, knocking 0.08 percentage points off growth. Non-defense federal spending rose at a 1.4 percent annual rate.
The inflation hawks will be disappointed in this report with the overall price index rising at just a 0.6 percent annual rate. The core CPE rose at a 0.9 percent rate. Insofar as there is any trend in these data it is toward lower inflation.
One interesting item in the report was a $122.90 jump (85.2 percent at an annual rate) in dividend payouts. This was the result of companies deciding to pay out dividends to shareholders in 2012 when a lower tax rate was in effect on high-income taxpayers.
There is little evidence in this report to believe that the economy will diverge sharply from a 2.5- 3.0 percent growth path, except for the impact of the deficit reductions that Congress is considering or already put in place. Higher tax collections from the ending of the payroll tax holiday are likely to knock around 0.5 percentage points from growth. The sequester, or whatever cuts are put in place in lieu of the sequester, are likely to have an even larger impact on growth beginning in the second quarter.
One item worth noting is the GDP report provides zero evidence that "fiscal cliff" concerns had any impact on growth in the quarter. Consumer durable purchases and investment in equipment and software were the two strongest components of GDP. If worries over the fiscal cliff were supposed to cause people to put off purchases, consumers and businesses apparently did not get the memo.Nevertheless, with the slow recovery of output and employment all is not well no matter how we spin the numbers. We need more spending on infrastructure to help with the recovery.
This article was republished with permission from The Economist's View.