Existing Home Sales Drop 5.3% in January 2009 from December 2008

National Association of Realtors Report

Existing Home Sales Drop -5.3% in January 2009 from December 2008

Existing home sales:
December 2008: 4.74 million annual pace

January 2009: 4.49 million annual pace
-5.3%


45% of total sales involve distressed property, including foreclosures

Home sales price:
January 2008 median price: $199,800
January 2009 median price: $170,00
-14.8%


Average 30 year mortgage (According to Freddie Mac):
December 2008: 5.29%
January 2009: 5.05%
-4.54%


Home prices are down 27% from their 2006 high, according to the Standard & Poor's/Case-Shiller data released on Feb. 24th. The massive overhang in the supply of housing was down to 9.3 months in December from 11.2 months in November, the l
argest drop since the NAR started keeping records in 1999. However, the supply of housing is still over twice its long-term average of 3.5 months, insuring that the plentiful supply of houses on the market will continue to depress prices.

Supply of Pre-Owned Homes on the Market Measured in Months

The Fed's Forecast on Unemployment, Inflation, and GDP

Fed data released Tuesday (2/24/09):

Delinquency rates on home mortgages in 4th quarter 2008: Almost 7% of outstanding mortgages

Unemployment rate in 4th quarter 2008: 7.6%, expected to rise to 8.8% this year

The Consumer Board's Consumer Confidence Index: 25, lowest level since data were first collected in 1967

February 2009 views on the job market:

"Jobs are hard to get": 48% of people surveyed, highest since Feruary 1992

"Expect jobs to decrease in the months ahead": 47%, highest percentage since December 1973

The Fed's Economic Forecast for the Next Few Years:

Unemployment, Inflation, GDP

The Depression-Recession: How We Got Here

In a negative feedback loop, job loses and falling corporate profits are creating new loan defaults, hurting banks beyond the original damage caused by the home mortgage crisis. The banks' falling stock prices together with the loan defaults make it harder for them to raise capital and more reluctant to lend. All of this saps spending by consumers (which makes up 70% of the US economy) and business which results in more job cuts, more loan and mortgage defaults, ... and so the negative feedback loop spirals down. The government keeps threatening to step in to save the failing banks, which raises the specter of nationalization which would wipe-out bank stock holders, who become even more reluctant to buy bank stocks and makes it harder again for the banks to raise capital for loans... And so it goes.

How Bad Are the Times? Photographer Annie Leibowitz Hocks Her Entire Life's Work to Pay the Mortgage

Iconic photographer Annie Leibowitz has hocked her entire ouevre for 10 million pounds to help pay the mortgages on the homes she inherited from lover Susan Sontag. Leibowitz is famous for her photographs of iconic figures such as John Lennon and Yoko Ono, Demi Moore pregnant, Michelle Obama (for the March 2009 cover of Vogue Magazine) and Queen Elizabeth. And they say the recession will end by 2010? Do 'ya think?

Obama Hopes to Boost Number of Health Care Professionals Using Electronic Medical Records

Both former President George W. Bush and President Obama have endorsed the goal of having electronic health records in wide-spread use by 2014, just five years from now. But previous efforts to introduce electronic patient records into the health care system have not gone far.

According to a report released by the New England Journal of Medicine in 2008, 83% of physicians polled had no electronic patient records whatsoever and 13% had a very basic system. Only 4% had fully functional systems.

Percentage of Physicians Using Electronic Patient Health Records

From a survey of 2,758 U.S. physicians conducted Sept. 2007 - March 2008

In addition to the problem of providing physicians with point of care terminals and devices that can be used to enter patient data and information, there is the further problem of inter-connecting multiple electronic patient records from different health care centers as well as physician offices. Recent health care privacy legilation in the form of HIPAA privacy requirements also complicate the intoduction of electronic patient records.

I remember sponsoring research into this area while at Digital Equipment Corp. in the early '90s. There was alot of enthusiasm for this in many quarters then, but not much progress has been made in the the 18 years since. Two weeks ago House Democrats introduced a fiscal-stimulus bill that includes $20 billion for health-care information technology. While a good start, given the long time that electronic health care records have taken to make this minor a penetration into the market, and given the ultimate cost of having full-fledged, inter-connected electronic patient records, it seems that greater sums and a longer time frame than 5 years will be required to generate the desired results.

Update (2/25/09): Although little formal research has been done into the effects of medical information technology on patient outcomes, a study just published in the "Archives of Internal Medecine" points to improved outcomes for patients where medical decision support systems are used. The study, led by Dr. Ruben Amarasingham, found that "hospitals with automated notes and records, order entry, and clinical decision support had fewer complications, lower mortality rates, and lower costs."

"For all medical conditions studied, a 10-point increase in the automation of notes and records was associated with a 15% decrease in the adjusted odds of fatal hospitalizations (0.85; 95% confidence interval, 0.74-0.97). Higher scores in order entry were associated with 9% and 55% decreases in the adjusted odds of death for myocardial infarction and coronary artery bypass graft procedures, respectively. For all causes of hospitalization, higher scores in decision support were associated with a 16% decrease in the adjusted odds of complications (0.84; 95% confidence interval, 0.79-0.90). Higher scores on test results, order entry, and decision support were associated with lower costs for all hospital admissions (–$110, –$132, and –$538, respectively; P < .05)."

In an editorial in this same issue of Archives of Internal Medicine, Dr. David Bates cites studies which show a potential $88 billion in savings over ten years were health information technology (HIT) to be adopted broadly.

DVR Adoption Rises Quickly in the US

According to a survey by J.D. Power and Associates, DVR adoption in the US among paid TV subscribers rose from 38% in 2007 to 44% in 2008.

DVR Adoption in the US

The Pew Research Center for the People & the Press found that DVR ownership in the US was 3% in 2002 and rose to 35% in 2008.

Technology Adoption Rates in the US, 1996 - 2008

Auto Industry Workers by Segment

A total of 3 million workers were employed in the automotive and related fields as of September 2008.

Auto Industry Workers by Segment, as of September 2008

US Unemployment Rate: 1994 - 2008

The unemployment rate crept up to 6.5% in October from 6.1% in September. This is the highest it has been since 1994. So far in 2008, 1.179 million jobs have been lost.

US Unemployment Rate: 1994 - 2008

In retail sales, usually the last bastion of employment for those thrown out of other jobs, the cumulative number of jobs lost since November 2007 ( a year ago) is 325,000.

Cumulative Jobs Lost in Retail Since November 2007

Defense Spending as a Percent of GDP, 1940-2009

After reaching 38% of GDP during World War II, defense spending dropped below 5% of GDP in the years immediately following the war, rose to nearly 15% at the start of the cold war as the US rearmed and built up its stock pile of atomic weapons, declined through the late '50s and early '60s to 7%, jumped again during the Vietnam War to 10%, declined throughout the '70s and early '80s, headed up again during the Reagan era of rearmament as we spent the Russians into state failure, droped again in the late '80s and early '90s until Desert Storm, declined until the beginning of the millennium until 9/11 when it rose steadily to almost 5% of GDP in 2008.

Defense Spending as a Percentage of GDP, 1940-2009

India Gets Caught up in Whirlwind of Credit Card Debt

It looks like credit woes are pretty much the same around the world. The Indian middle-class, enjoying rising prosperity, has gotten caught up in fast-rising revolving credit card debt that they seem to little understand and have difficulty managing.

Unsecured loans and credit card receivables more than three months overdue: 7%-9% of total loans outstanding this year; expected to rise to 15% according to ratings agency Crisil Ltd. in Mumbai.

Number of credit cards in India: 30 million, up 3x in the last 5 years.

At the end of FY '08 (ended March 31) Indians charged more than $14 billion on their credit cards, over 3x the amount charged four years ago.

Indians have little experience with handling revolving credit and more people are turning up desperate for help with their credit card payments, according to V.N. Kulkami, chief counselor at Mumbai's Abhay Credit Counseling Center, which advises borrowers.

Credit Card Payments in India 2004 - 2008

Source: WSJ

What a Real Bear Market Looks Like

The nominal definition of a bear market is one in which securities prices drop 20% over a period of time. In today's Wall Street Journal Arthur B. Laffer reminds us what a real bear market is:

I saw up close and personal Presidents Gerald Ford and George H.W. Bush succumb to panicked decisions to raise taxes, as well as Jimmy Carter's emergency energy plan, which included wellhead price controls, excess profits taxes on oil companies, and gasoline price controls at the pump.

The consequences of these actions were disastrous. Just look at the stock market from the post-Kennedy high in early 1966 to the pre-Reagan low in August of 1982. The average annual real return for U.S. assets compounded annually was -6% per year for 16 years. That, ladies and gentlemen, is a bear market. And it is something that you may well experience again. Yikes!

Laffer has a new book out on the subject: "The End of Prosperity: How Higher Taxes Will Doom the Economy--If We Let It Happen"

Laffer says we are making the same mistakes as previous generations of politicians, whether Republican or Democtratic, with hasty solutions cooked up under panic conditions that will set the stage for "the end of prosperity".

Credit Derivatives and the Modern Financial System

University of Chicago Economist and Nobel Laureate Gary Becker on the state of the economy:

U.S. unemployment 1931-1941: 25 percent
U.S. unemployment September 2008: 6.1 percent

The main problem with the modern financial system based on widespread use of derivatives and securitization is that while financial specialists understand how individual assets function, even they have little understanding of how the whole incredibly complex financial system operates when exposed to various types of stress.

William Engdahl on Credit Default Swaps (CDS), (June 6, 2008):

Like many exotic financial products which are extremely complex and profitable in times of easy credit, when markets reverse, as has been the case since August 2007, in addition to spreading risk, credit derivatives, in this case, also amplify risk considerably.

Now the other shoe is about to drop in the $62 trillion CDS market due to rising junk bond defaults by US corporations as the recession deepens. That market has long been a disaster in the making. An estimated $1,2 trillion could be at risk of the nominal $62 trillion in CDOs outstanding, making it far larger than the sub-prime market.

No regulation

A chain reaction of failures in the CDS market could trigger the next global financial crisis. The market is entirely unregulated, and there are no public records showing whether sellers have the assets to pay out if a bond defaults. This so-called counterparty risk is a ticking time bomb. The US Federal Reserve under the ultra-permissive chairman, Alan Greenspan and the US Government’s financial regulators allowed the CDS market to develop entirely without any supervision. Greenspan repeatedly testified to skeptical Congressmen that banks are better risk regulators than government bureaucrats.

Alan Greenspan, former Chairman of the Federal Reserve, on the use of credit derivatives (e.g., CDOs) to transfer risk outside the banking system (May 5, 2005):

Use of Credit Derivatives to Transfer Risk outside the Banking System
Perhaps the most significant development in financial markets over the past ten years has been the rapid development of credit derivatives. Although the first credit derivatives transactions occurred in the early 1990s, a liquid market did not emerge until the International Swaps and Derivatives Association succeeded in standardizing documentation of these transactions in 1999. According to the BIS, the notional value of credit derivatives outstanding increased sixfold between 2001 and 2004, reaching $4.5 trillion in June of last year. Moreover, this growth has been accompanied by significant product innovation, notably the development of synthetic collateralized debt obligations (CDOs), which allow the credit risk of a portfolio of underlying exposures to be divided or "tranched" into different segments, each with different risk and return characteristics. Recent growth of credit derivatives has been concentrated in these more-complex structured products.

As is generally acknowledged, the development of credit derivatives has contributed to the stability of the banking system by allowing banks, especially the largest, systemically important banks, to measure and manage their credit risks more effectively. In particular, the largest banks have found single-name credit default swaps a highly attractive mechanism for reducing exposure concentrations in their loan books while allowing them to meet the needs of their largest corporate customers. But some observers argue that what is good for the banking system may not be good for the financial system as a whole. They are concerned that banks' efforts to lay off risk using credit derivatives may be creating concentrations of risk outside the banking system that could prove a threat to financial stability. A particular concern has been that, as credit spreads widen appreciably at some point from the extraordinarily low levels that have prevailed in recent years, losses to nonbank risk-takers could force them to liquidate their positions in credit markets and thereby magnify and accelerate the widening of credit spreads.²

A definitive evaluation of these concerns about nonbank risk-takers would require information on the extent of credit risk transfer outside the banking system and on the identities and risk-management capabilities of the entities to which the risk has been transferred. Unfortunately, available data do not provide this information.

Credit Default Swaps (CDS) Growth 2001-2007
Notional Amount in Trillions of Dollars

Economic Realities Knock Advertising for a Loop

ZenithOptimedia today lowered its forecast for advertising growth both in the US and worldwide.

Zenith, whose forecasts are closely followed by the industry, said it expects ad spending in the U.S. to grow just 1.6% this year and by less than 1% in 2009. In June, the ad-buying firm, a unit of Publicis Groupe, predicted growth of 3.4% and 2.6%, respectively, for this year and next.

World-wide, Zenith says it now expects ad spending to grow 4.3% to $506.3 billion this year and 4% in 2009. In June it predicted 6.6% growth for 2008 and 6% growth for 2009.

Number of Ambulances in New Dehli, India

According to the government, there are 35 working public ambulances with life-saving equipment to serve the needs of a population of over 14 million in New Dehli, India. This greatly contributes to the loss of life during terrorist attacks when the "golden hour" turns into the "golden four hours".

By way of contrast, there were 1,363,893 ambulance runs in New York City in 2007 (population est. 8,274,527), over 3300 per day, with an average response time of 8 minutes and 13 seconds throughout all five boroughs.

Ambulance Runs and Incidents New York City 2007

Source: FDNY

China Drives Growth of Global Commodities Demand

I was amazed to discover to what extent demand for commodities world-wide is driven by growth in China. In 2009 Deutsche Bank forecasts that almost 100 per cent of the growth in demand for aluminum, around 80 per cent of the growth in demand for iron ore, oil, and steel, and 60+ per cent of the growth in demand for copper will come from China.

Forecast of China's Share of the Growth in Demand for Commodities Worldwide in 2009

Although growth of the Asian manufacturing economies of India and China has slowed in response to slowing global markets and the recent credit crash, commodity prices remain high. Economist Jeffrey Frankel believes that that low real interest rates have been the cause as the continued strength of commodity prices:

One wouldn’t want to try to reduce commodity markets to a single factor, nor to claim proof of any theory by a single data point. Nevertheless, the developments of the last six months provided added support for a theory I have long favoured: real interest rates are an important determinant of real commodity prices.

• High interest rates reduce the demand for storable commodities, or increase the supply, through a variety of channels:
• by increasing the incentive for extraction today rather than tomorrow (think of the rates at which oil is pumped, gold mined, forests logged, or livestock herds culled)
• by decreasing firms’ desire to carry inventories (think of oil inventories held in tanks), by encouraging speculators to shift out of spot commodity contracts, and into treasury bills.

All three mechanisms work to reduce the market price of commodities, as happened when real interest rates were high in the early 1980s. A decrease in real interest rates has the opposite effect, lowering the cost of carrying inventories, and raising commodity prices, as happened in the 1970s, and again during 2001-2004. It’s the original “carry trade.” (http://www.voxeu.org/index.php?q=node/1002)

Hybrid Vehicle Market Share in the US through August 2008

Toyota: Prius, starting price $22,000; Lexus; Highlander
Honda: Insight, starting price below $20,000, to launch at the Paris Auto Show this month (Oct. 2008); Civic
GM: Volt, launch in 2010
Chrysler: Launch in 2010
Ford: Escape

Toyota plans to sell 160,000 Priuses in the US this year.
Honda plans to sell 100,000 Insights in its first year in the US.

Hybrid Vehicle Market Share in the US
2008 Total Hybrid Vehicles Sold in the US through August

Source: Autodata

U.S. Auto Sales and Automobile Manufacturer Market Share

U.S. auto sales reached a 15-year low with a double digit decline in September as sales of cars and light trucks fell 27% to 964,873 units in September (2008), down from 1.31 million a year earlier, according to Autodata Corp. Tightening credit, a financial system in shambles, and consumer fear all contributed to a seasonally adjusted annualized rate of 12.5 million units, down from 16.19 million units in September 2007.

US Auto Sales and Market Share

Piracy in Somalia Threatens Global Trade - Feeds Local Wars

A report by Chatham House.

Summary:

• Piracy off the coast of Somalia has more than doubled in 2008; so far over 60 ships have been attacked. Pirates are regularly demanding and receiving million-dollar ransom payments and are becoming more aggressive and assertive.
• The international community must be aware of the danger that Somali pirates could become agents of international terrorist networks. Already money from ransoms is helping to pay for the war in Somalia, including funds to the US terror-listed Al-Shabaab.
• The high level of piracy is making aid deliveries to drought-stricken Somalia ever more difficult and costly. The World Food Programme has already been forced to temporarily suspend food deliveries. Canada is now escorting WFP deliveries but there are no plans in place to replace their escort when it finishes later this year.
• The danger and cost of piracy (insurance premiums for the Gulf of Aden have increased tenfold) mean that shipping could be forced to avoid the Gulf of Aden/Suez Canal and divert around the Cape of Good Hope. This would add considerably to the costs of manufactured goods and oil from Asia and the Middle East. At a time of high inflationary pressures, this should be of grave concern.
• Piracy could cause a major environmental disaster in the Gulf of Aden if a tanker is sunk or run aground or set on fire. The use of ever more powerful weaponry makes this increasingly likely.
• There are a number of options for the international community but ignoring the problem is not one of them. It must ensure that WFP deliveries are protected and that gaps in supply do not occur.

Number of Piracy Attacks and Attempts in the Gulf of Aden

• 

Source: Chatham House

Links:

Pirates off Somalia Get $18 - $30 million in Ransoms

On November 10, the European Union (EU) launched a secunity operation to combat Somalian pirates

Update, November 18, 2008: Somali pirates have hijacked a Saudi supertanker carrying a cargo of $100 million in oil. The capture of Sirius Star 450 nautical miles southeast of Kenya's Mombasa port, and way beyond the Gulf of Aden where most attacks have taken place this year, is their boldest attack and the culmination of several years' increasing activity.

Circumcision Rates of Newborns Drop Dramatically Worldwide, Except in the US

Circumcision rates of newborns worldwide has dropped dramatically since World War II, except in the US where the rate has dropped from 64 percent of newborn males to 57 percent of newborn males. Doctors fear this is a serious public health issue since circumcision defends against many forms of sexually transmitted diseases, including HIV/AIDS. Arguments against the procedure include fear of desensitization of the penis, which doctors claim has never been demonstrated clinically.

Rates of Newborn Circumcision Have Dropped Dramatically Since WWII, Except in the US

Source: NewScientist, "Cut!", July 19-25, 2008

Female genital circumcision (mutilation) showed a drop from 35% to 20% in Ghana at the War Memorial Hospital from 1995 to 2003.

Prevalence of FGM among mothers delivering at the WMH (1996–2003)

Ghana Med J. 2006 September; 40(3): 87–92.

The WHO says that 3 million girls a year undergo female genital mutilation (FGM) in Africa.

"Prevalence of female genital cutting in Upper Egypt: 6 years after enforcement of prohibition law."

The objective of this study was to evaluate the prevalence of female genital cutting (FGC) in Upper Egypt, after 6 years of putting prohibition law into action. A total number of 3730 girls between the ages of 10-14 years were recruited to participate in this study. They were mainly preparatory school students (three urban and three rural areas). Social workers interviewed them as to whether they had undergone circumcision within the last 6 years or not. Subsequently, a questionnaire was sent to parents of girls who were positive for circumcision as to the circumstances surrounding the procedure. The prohibition law of FGC seems not to have altered the prevalence of this procedure. The majority of girls (84.9%) had had circumcision within the last 6 years with high prevalence in rural areas (92.5%). Circumcision was done for a combination of reasons, according to parents, with high rates of non-medical personnel participation (64.15%). This study's results indicate that the practice of FGC in Upper Egypt remains high despite enforcement of law. Extensive efforts are needed both to revise public awareness and to change attitudes regarding FGC.

PMID: 18348787 [PubMed - indexed for MEDLINE]

Employer Health Care Insurance Costs Trend - up 5% in 2008

Employer health care insurance cost trends continued their upward march in 2008, rising an average of 5% from 2007. This is a far cry from the 13% to 14% increases of five years ago, but it still makes employer paid health care one of the greatest benefits to employees in the US. The costs for family coverage in 1999 were an average of $5,900. In 2008 family health care insurance coverage averaged $13,000, an increase of 54% in nine years. But employers and employees are paying more for less, because today's insurance packages come with much higher deductibles, in some cases as much as $1,000 or more per year.

Estimated Average Annual Premiums of Employer Sponsored Health Benefits

Source: WSJ