Stocks opened higher on strong earnings, but slipped late and look to end the week mixed. Since Monday the DOW is up almost 200 points or 1.5% while the NASDAQ has slipped about 15 points or ½%.

So far this earnings season 245 companies in the S&P 500 have reported earnings and to date things are off to a fine start. Nothing like lowering the growth estimates to about zero. At this juncture the earnings beat rate stands at 72% and is the highest beat rate since late 2006. The revenue beat rate is running 70% the highest figure since late 2009.

Despite the recession officially ending in 2009 and the recent jump in petroleum inventories as reported by the EIA. Oil and gasoline use continues to slip, a trend that has been going on since 2007. Many claim erroneously that it is due to increased fuel efficiency, yet this has been going on since the 70’s. The real reason is that people are driving less for the first time since WW2, particularly the younger generation hardest hit in this recession. As your average American drove 6% less in 2011 than they did in 2004, nothing like high prices and unemployment to change behavior.

Some other noteworthy data since the recession ended in 2009 include 46.5 million folks on Food Stamps or the SNAP program as it is now called, some 15% of the population or about 1 in 7 people. This figure is up over 10-million since the official end of the recession in June of 2009, though it did decline slightly with the latest release. As per the latest data 47% of SNAP recipients are children, America’s austerity program along with unemployment benefits.

Unemployment is another big sticking point post recession. Particularly the long term unemployed who are exhausting benefits at a rate between 150,000 and 200,000 individuals per month on a three-month average basis. Beginning in June of this year this rate will jump dramatically and accelerate through the beginning of 2013. Something that will bring significant societal and economic costs with it should employment growth falter.

After opening mixed, stocks dropped in early trade on generally disappointing economic and earnings data. The Philly Fed survey missed to the downside falling 4 points to 8.5 in April. New orders fell .6 to 2.7, while prices paid increased 4 points.

Existing home sales fell 2.6% in March to 4.48 million units annualized, expectations were for a .4% gain. Inventory slipped 1.3% to 2.37 million units annualized a supply of 6.3 months’. On a year ago basis inventory is 21.8% lower. The median price increased 2.5% to $163,800 as distressed sales slipped to 29% of the total as per the NAR.

I have criticized MERS repeatedly, created by the banksters and GSE’s to facilitate MBS trading and in turn circumvent the need to pay various county recording and filing fees. In turn this has made an utter mess out of real estate titles in this country. The latest legal complaint against MERS is a big one. Filed by the state of Louisiana under the RICO statutes, which carry treble damages, the suit alleges MERS deliberately avoided paying county recording and filing fees and unlawfully separated the note from the mortgage, which is a very large no-no.

Many folks, myself included figure this year will feature a significant jump in foreclosure activity now that the robosigning settlement has opened the way for the banks to resume clearing their considerable backlog of distressed properties, a very important step in the process of repairing their balance sheets. But will it? Banks are increasingly offering various incentives to do short sales and these have been increasing significantly of late and result in lower loss ratios for the banks in question. Another factor is the REO to rental program offered by the GSE’s like Fannie Mae and Freddie Mac, under way and the initial significant investor interest in these platforms. Then of course there is the new HARP program. The real issue here is what effect on real estate prices will this have going forward. Certainly, real estate inventory levels are down to what is considered normal or price neutral or about 6-months’ supply and interest rates remain at or near record lows, both positives from a price perspective. Of course comps or comparable sales are a significant determinant of both price and of equal importance, the ability to obtain financing. While short-sales may be less damaging in this regard than foreclosures both serve to drive prices lower as they are of the distressed variety. As a result, I seriously doubt 2012 will see price stability or increases, usual spring bounce notwithstanding and come the end of the year I fully expect real estate prices to be lower as a direct result of distressed sales.

Some excerpts from The long debt emergency has arrived from the Blog . Keep in mind that the Japanese and US governments can easily print money and buy their own debt, other nations can’t. Japan gets away with it because they have positive balance of trade. We get away with it because the Dollar is the worlds reserve currency.

Caleb Lawrence

One thing is very interesting in the data above. From the 1950s to 1980 the ratio remained around 1.5 but that changed in the 1980s when we suddenly went into “deficits don’t matter” mode and haven’t looked back since. However global debt does have a maximum inflection point. Ask Ireland, Spain, Portugal, Japan, and Greece how good it is to have debt that surpasses annual GDP.

On a micro level, we understand why the fiscal crisis hit. If you are making a per capita income of $25,000 a year there is no way that you can be driving around in a leased $50,000 car and carrying a $300,000 mortgage on a McMansion. Of course many Americans lived it up on debt for the last decade and now a painful deleveraging is occurring.

The whole thing can be found .

Some excerpts from the SF Fed paper, well worth a read, on the significance of credit and its relationship to recessions. A good piece but it does not address the the residual productive investment value of the mis-allocated capital (credit) made during the boom. Much of what was borrowed during the boom ended up in residential real estate, a largely unproductive asset class. Another noteworthy item also omitted is the change in consumer attitudes. The dominant pre-bust paradigm was “I can borrow my way to success”, post bust it is all but certain to become the opposite, “debt equals modern slavery”.

Caleb Lawrence

Credit is a perennial understudy in models of the economy. But it became the protagonist in the Great Recession, reviving a role it had not played since the Great Depression. In fact, the central part played by credit in the downturn and weak recovery of recent years is not unusual. A study of 14 advanced economies over the past 140 years shows that financial crises have frequently led to severe and prolonged recessions. Shining the spotlight on credit turns out to be crucial in understanding recent economic events and the outlook.

Attention has focused once again on leverage and excess credit—the “Achilles’ heel of capitalism,” in the words of James Tobin’s (1989) review of Hyman Minsky’s book Stabilizing the Unstable Economy. Of course, this was not the first such rude awakening.

Credit is critical to correctly understanding current economic events. The Great Recession broke the mold cast in the typical post-World War II downturn. The recovery appears to be following a different model as well.

The march of economic history is punctuated by a few landmark events. One worth highlighting is the dramatic explosion of credit that followed World War II. Schularick and Taylor (2012) show that, up until then, real private lending had grown apace with economic activity. After World War II, and especially when the Bretton Woods international monetary system broke down in the early 1970s, credit grew at about twice the rate of output. The outsized role played by the financial sector in the past few decades has become a focus of controversy in studies of the recent crisis and the post-crisis period.

The whole thing can be found here.

Stocks struggled in late trade, despite little real data as the markets continue to show a lack of conviction. Crude oil inventories continue to rise adding 3.9 million barrels last week as per the EIA, something that would normally drive down prices were it not for our embargo against Iran and speculation.

The MBA latest reports shows mortgage activity increased 6.9% last week as refi’s jumped 13.5% and purchase apps fell 11.2%. About 1/3 of the refi activity is compliments of the Fed’s new HARP program. The 30-year contract rate slipped to 4.05%.

The SF Fed is out with a new paper looking at credit and financial crisis induced recessions, such as our current one and makes some interesting conclusions including that GDP growth estimates should be lowered .6 to .8% in 2012 and .5 -.7% in 2013. Additionally the paper figured that inflation estimates should be lowered by 2/3 to 1% over the next 3-years, as it noted the omission of banks and finance from modern macroeconomic models. Additionally the paper noted that this recession was unlike any other in the post WW2 period due to its credit crisis origin. As evidenced by employment being about 10% below where it should be at this stage in the recovery, while investment is 30% below where it should be, that despite massive government stimulus and a dramatic reduction in interest rates.

Stocks moved sharply higher on strong earnings reports ignoring disappointing economic data. If the DOW can hold today’s gain, it would go a long way to suggesting that the correction is over.

2012 is well on its way to becoming the year of the short sale as LPS reports that short sales made up 23.9% of the market in January, a big jump from the 16.3% rate seen a year ago. Foreclosure sales fell to 19.7% considerably lower than the 24.9% seen last year. Realtor.com reports that inventory was 21.5% lower than last year in March as the median asking price increased 5.56%, the usual spring bounce. Something that didn’t find its way into the March housing starts data as they fell 5.8%, on a year ago basis starts are up 10.3%, permits gained 4.5% last month.

Industrial production was unchanged in March for a second month, capacity utilization slipped to 78.6%. Through the first quarter industrial production increased 5.4% on an annualized basis.

The wrangling between Jefferson County Alabama and its creditors continues as it petitions the court to divert funds from debt service to sewer maintenance following its bankruptcy brought on by a predatory bond offering sponsored by JP Morgan Chase and others. At issue is whether or not municipal bond holders will continue to get paid despite the bankruptcy of the bond issuer. Something that could have significant ramifications for municipal entity’s nationwide choking on excessive debt levels, the 3.7 trillion dollar muni bond markets and investors. While some will be quick to point out the “insurance” backing said muni bonds, the companies offering said insurance are not in a position to cover significant defaults following all of the MBS claims post bust.

Stocks struggled to begin the week producing mixed results with an example of the trend is your friend, until it isn’t, with the up and to the right crowd led by Apple, Google and Priceline all showing sharp reversal, that despite decent numbers from Google.

Home sales remain moribund but remodeling continues to increase gaining 3% in February as per the BuildFax index. On a year ago basis this index is 23% higher as homeowners plagued by underwater mortgages are choosing remodeling over relocating.

The NAHB confidence index fell 3 points to 25 in April. All three sub-components slipped, current sales conditions dropped 3 points 26, sales expectations fell 3 points to 32, buyer traffic slipped 4 points to 18. The western region was unchanged, the North East increased 4 points while the South fell 3 points and the Mid-West plunged 8 points.

Retail sales increased .8% in March as per Census. On a year ago basis sales are up 6.5%. From the recession low, retail sales have increased 23.6% and stand 8.6% above the pre-recession peak. The Empire State Regional Fed Manufacturing Index plunged nearly 14 points to a still positive 6.6 for April, new orders were largely unchanged.

The February TIC report showed a net gain of 10.2 billion as corporate debt was sold off though treasuries and equity’s remained popular during the month.

Remember too big to fail? Despite promises to end the too big to fail banks, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs post bust we find the opposite is true. Prior to the crises, these 5 banks held assets equal to 43% of GDP. As of the end of 2011 these same 5 banks held assets equal to 56% of GDP as per Bloomberg. Just the latest example that nothing has really changed for the banksters post bust, we have more regulation but less enforcement, a pile of empty bankster promises to do better, a blatant continuation of a business model based on lie cheat and steal as evidenced by their lengthy string of court losses. More taxpayer funded and or backed sweetheart deals such as the States AG’s 25 billion settlement that gave the banks immunity from prosecution for their misdeeds related to the fraudclosure and robosigning scandals for crimes involving both fraud and forgery, and that’s just for starters.

Excerpts from:
The Food Bubble
How Wall Street starved millions and got away with it
By Frederick Kaufman
HARPER’S MAGAZINE / JULY 2010

The global speculative frenzy sparked riots in more than thirty countries and drove the number of the world’s “food insecure” to more than a billion. In 2008, for the first time since such statistics have been kept, the proportion of the world’s population without enough to eat ratcheted upward. The ranks of the hungry had increased by 250 million in a single year, the most abysmal increase in all of human history.

The gratuitous damage of the food bubble struck me as not merely a disgrace but a disgrace that might easily be repeated. And so I traveled to Minneapolis—where the reality of hard red spring and the price of hard red spring first went their separate ways—to discover how such a thing could have happened, and if and when it would happen again.

I told him that at least one analyst had estimated that investments in commodity index funds could easily increase to as much as $1 trillion, which would result in yet another global food catastrophe, much worse than the one before.

The worldwide price of food had risen by 80 percent between 2005 and 2008, and unlike other food catastrophes of the past half century or so, the United States was not insulated from this one, as 49 million Americans found themselves unable to put a full meal on the table. Across the country demand for food stamps reached an all-time high, and one in !ve kids came to depend on food kitchens.

Unlike the wheat producers and the wheat speculators, or even Goldman’s own customers, Goldman had no vested interest in a stable commodities market. As one index trader told me, “Commodity funds have historically made money—and kept most of it for themselves.”

Goldman and all the other banks that followed them into commodity index funds had figured out how to safeguard themselves, but there was a lot more money to be made if the banks could somehow convince everyone else that an inherently risky product designed to protect the banks—and only the banks—was in fact also safe for investors. Good news came on February 28, 2005, when Gary Gorton, of the University of Pennsylvania, and K. Geert Rouwenhorst, of the Yale School of Management, published a working paper called “Facts and Fantasies About Commodities Futures.” In forty graph-and-equation filled pages, the authors demonstrated that between 1959 and 2004, a hypothetical investment in a broad range of commodities—such as an index—would have been no more risky than an investment in a broad range of stocks. What’s more, commodities showed a negative correlation with equities and a positive correlation with inflation. Food was always a good investment, and even better in bad times. Money managers could hardly wait to spread the news.

As I left the office, I remembered the rumors I’d heard at a grain-crisis conference in Washington, D.C., a few months earlier. Between interminable speeches about price ceilings and grain reserves, more than one wheat expert had confided, strictly on background, that at the height of the bubble, Minneapolis wheat had been cornered. No one could say whether the culprit had been Cargill or the Canadian Wheat Board or any other party, but the consensus was that as the world had cried for food, someone, somewhere, had been hoarding wheat.

Truly evil, the whole thing can be found here in PDF form, the-food-bubble.

Stocks enter the final hour on a down note despite the earnings season getting off to a decent start. Since Monday, the DOW has lost a little over 1% while the NASDAQ has slipped about ½%. Indeed, unlike the first quarter when stocks roared the 2nd quarter finds the major averages struggling with losses though they remain positive year to date.

The March CPI increased .3%, annualized the rate is running well below the historical average of 3.1% coming in at just 2.4%. Using the Cleveland Fed trimmed mean CPI and the figures are plus .2% in March and plus 2.2% from a year ago. Once again inflation shows it’s not a threat in the aggregate a theme that is repeated over and over again with the assorted price measuring metrics post bust and what inflation there is primarily comes from the commodities sector, mostly energy and substantially derived from speculation.

Nothing like bad news to generate eye catching headlines. With many pointing to the recent jump in Spanish Sovereign bond spreads as proof the European financial crisis is coming back to life I note the following. This week, relative to their 10-year German counter parts Spanish bond yields increased .22%, Portugal jumped .32% while Italy increased just .07%. France, Belgium, Ireland and Greece all saw yields decline over the same period. On a year ago basis, again relevant to their 10-year German counterpart Spanish yields are .98% higher, Greece is unchanged while Italy, France, Belgium, Portugal and Ireland are all lower, some significantly. Once again, data without context isn’t particularly useful.

Despite all the recent headlines about stocks reaching 4-year highs and analyst comments about Apple hitting a thousand, I remember they said similar things about Amazon at the height of the Dot-Com bubble, in case you’ve forgotten that didn’t end well, but I digress. A piece in the Financial Times shows that equity mutual funds continue to see significant outflows as last week was the highest this year with almost 1% of total assets going out the door, led by withdrawals from domestic stock funds.

For those who think that oil prices can only go up, up and away from here on out, I am still waiting to hear how plummeting demand for crude oil from refineries, which are now dropping off like flies, will contribute in the short-term. Some may argue that the developing economies of the East will single-handedly keep prices elevated, but they are ignoring a) the speculative premium built in to oil prices and b) the fact that these emerging economies do not exist in a bubble that is isolated from the effects of demand destruction in the West, i.e. a decoupled global economy.

Demand for oil is certainly still rising in the emerging economies at a rate faster than demand is falling in the West, but the question is how long before the latter burns out the former. In our hopelessly inter-connected global economy, there is little doubt in my mind that it will happen, just like higher oil prices will burn themselves out by feeding back into downstream demand destruction in the refinery industry and businesses/households. Anyway, here is the latest on the Iceberg that has had its way with Western refineries, courtesy of the Financial Times:

From the blog The Automatic Earth, the whole thing can be found Here.