US Housing Data gets Worst, BofA starts demolitons

Bank Of America Bulldozes And Gives Away Homes To Cut The Glut

Read more: http://www.businessinsider.com/bank-of-america-gives-away-bulldozes-homes-2011-7#ixzz1TagBtPwV

BofA, Goldman Sachs Find State Mortgage Cases Hard to Shake.

http://www.businessweek.com/news/2011-07-29/bofa-goldman-sachs-find-state-mortgage-cases-hard-to-shake.html.

The US Banks have still drawning Under the Sub Prime Mortgage Crisis and are getting desperate to shake the ailment. BofA, has started removing the houses by bulldozer, and saving the cost of maintainable expenses. The indicators are much similar to as given in ' Rich Dad, Poor Dad'.

However, Never thought I shall witness them.

                                       The Analysis of New Home sales in US 

The warmer weather of spring and early summer has yet to bolster new home purchases, as sales of new single-family homes were down again in June 2011. Sales dipped another 1.0% in June to a seasonally adjusted annual rate (SAAR) of 312,000 homes, according to a July 26, 2011, report published by the U.S. Census Bureau.

Not all of the country suffered, however. The Northeast and West saw declines in sales of 15.8% and 12.7%, respectively, while sales were up 3.4% and 9.5% in the South and Midwest, respectively. But despite the pockets of improvement, the overall drop in June brings annualized home sales closer to record lows after declining 0.6% in May. Sales peaked at 1,389,000 homes in July 2005 and declined 77.5% through June 2011.

Meanwhile, the inventory of new homes for sale (164,000 units) in June declined to the lowest level since 1963. When new home sales are slow and inventory is depressed, it creates less competition and price strain on existing homes. However, an imbalance exists between supply and demand in the housing market; the lack of demand and high supply of existing homes (including shadow inventory) continue to hurt both the new and existing housing markets. This week's weak new home sales and last week's disappointing existing home sales data highlight the continued weakness in the overall U.S. housing sector.

The median price of new houses sold in June was $235,200, while the median price of existing homes sold during the same month was $184,300. As a result, median prices on new homes were 28% higher than prices on existing homes in June, which is higher premium than the historical level of roughly 15%. Therefore, when making a choice based on price, buyers are likely to prefer existing or even distressed homes over new ones. We expect this high premium to continue to sway consumer demand to existing homes and somewhat damper new home sales. We see this as a positive for existing home sales and prices to an extent. Overall, however, we believe it will take years for the new home market to regain a strong footing.

The home sales activities provide insights on the direction and movement of U.S. home prices as key economic trends. In general, new home sales data tend to lead existing home sales. This is because new home sales are counted in the report when the buyer signs the initial home sales contract (similar to the pending sale of existing homes) versus existing home sales, which are counted when buyers complete the purchase. Despite a modest decline in new home sales this month, we believe low levels of new home sales and a record low new home inventory may somewhat aid in the slow recovery of the existing housing market.

The Interest rate Arrow here on …

The FED Inflation Target

- The Federal Reserve continues to hold to its mantra that it will keep U.S. interest rates low for an "extended period of time." However, that message seems to be meeting deaf ears. U.S. corporate...

Economic Research: It's Only Up From Here

The Federal Reserve continues to hold to its mantra that it will keep U.S. interest rates low for an "extended period of time." However, that message seems to be meeting deaf ears. U.S. corporations are racing ahead of what everyone knows is coming eventually: the day when the Fed will start to tighten monetary policy after nearly four years (and counting) of easy money.

Corporate America's expectations aren't unfounded. With interest rates at historic lows, the U.S. economy continuing to grow, and rising fears that inflation is lurking around the bend, it doesn't take an expert to conclude that U.S. interest rates have only one way to go: up. The questions, then, are how fast and how much? Will the upcoming moves derail the recovery and who will feel the most pain?

However and whenever the Fed acts, we don't expect its moves to derail the recovery. Although the recent shock of oil reaching $100 per barrel and the supply shock from the Japanese crisis are having a much bigger effect on economic growth, the U.S. Economic recovery still looks to be in place. Household and corporate balance sheets have improved since the financial crisis (partly at the expense of the public-sector balance sheet). Personal savings rates have increased, and corporate profit margins have widened to record highs. With private demand finally picking up, businesses have started to hire again--though only enough to keep the pace of recovery at half-speed.

With the unemployment rate stubbornly above full employment levels and the current soft patch pointing to another modest GDP figure for second-quarter 2011, the Fed will likely tread carefully with its interest-rate moves, giving the economy more time to heal. At Standard & Poor's, we expect the Fed to only start increasing interest rates by early 2012 and to continue to do so through 2014 until they reach 4.0% by year-end. Higher rates will increase borrowing costs in the U.S. and slow down growth, since the better returns from higher interest rates for cash-rich investors would only partially offset the slow down.

Some groups will be at risk once the Fed takes the air out of the economy's sails. The still-fragile housing sector will likely be the first to feel the effects of higher interest rates. Debt-poor consumers will cut back on spending as they attempt to cover their higher debt charges. Businesses that are losing revenue will reduce hiring, which will further slow down growth.

The baseline forecast is for a gradual increase in interest rates. But there are risks to this outlook. Even if the Fed raises rates in baby steps, long-term rates could climb more quickly than expected over worries that inflation will climb higher or that the government cannot manage its massive debt.

As Low As We Can Go

Any increases will be relative, of course. Over the past few years, the Fed has lowered the federal-funds rate to nearly zero--the lowest it can go--in hopes of spurring lending. Even that wasn't enough to stimulate consumer spending and raise employment rate. So the Fed followed with an alphabet soup of measures aimed at boosting liquidity in the economy, plus new insurance programs, which aimed to help calm investor fears. These strategies helped spur private demand that had all but dried up. By the spring of 2009, the financial markets had started to heal.

In the process of engineering a steady, although painfully slow U.S. recovery, the Fed flooded markets with liquidity, and created a $2.86 billion balance sheet that needs to be unwound at some point. Everyone is wondering when the Fed will initiate its exit from easy money, how fast the withdrawal pace will be, and what the effect on growth might be.

Although a few members of the Federal Open Market Committee (FOMC) had expressed concern over the current loose monetary policy, the recent economic slowdown kept the Fed on the side-lines at the FOMC meeting in June, and the Fed continues to hold back on tightening, keeping the federal funds rate between 0% and 0.25%. The discount rate is set at 0.75% and is below the historical spread from the federal funds rate.

In fact, no one dissented from that position at the June FOMC meeting. The Fed continues to label inflation in the economy as transitory and unemployment as elevated. At the post-meeting news conference, Fed Chairman Ben Bernanke, while not calling inflation a long-term concern of the Fed, did call it distressing for consumers.

The upshot is that the Fed does seem to be thinking about when to begin raising rates. Its recent decision to stop buying long-term Treasury debt, while reinvesting as the notes mature to keep its portfolio level, signalled a revisiting of its easy policy at the next meeting. However, Mr Bernanke's statement on June 22 that the Fed doesn't "have a precise read on why this slower pace of growth is persisting," sounds like the Fed's "transitory" mantra is running thin. The Fed expects the economy to settle into a disappointing recovery and seems to believe that it has done all that it can do, for now. Mr Bernanke reiterated that no new quantitative easing program, or QE3, is in the works.

At the April FOMC meeting, members extensively discussed their stimulus plan exit strategy, according to the meeting minutes. There has been some internal debate at the Fed about raising the discount rate to 1.25% to maintain the traditional one percentage point spread over the Fed funds rate. If that happens, consumers would likely be lightly affected because the prime rate would probably remain at 3.25%. But it would be viewed as a precursor to a Fed-rate increase.

We expect that the Fed will move slowly in tightening policy rates for several reasons. Unemployment rates are high, and wages are sluggish. With industrial companies still operating at low capacity rates, growth will likely remain slow through next year, with inflation (excluding energy and food) staying soft.

When the Fed eventually raises nominal interest rates, the increases will likely lag behind the increase in inflation. In short, monetary and fiscal conditions, like the rest of the world, will continue to be easy and should make the recovery resilient for now.

Why So Slow?

Some observers think policy should soon shift from easing to tightening to ward off inflation. But with the U.S. economy hitting a few bumps along the road to recovery, we expect that the Fed won't overact. GDP grew a tepid 1.9% in first-quarter 2011. In our opinion, that means low interest rates are still needed to spur growth.

Inter-National Data Summary: US, Europe, Asia-Pacific

U.S.

• Housing starts jumped 14.6% over May to an annualized 629,000 units in June, the highest level since January. Housing starts are up 16.7% over last June. The reading was much stronger than the consensus expectation of 575,000, though after May starts were downwardly revised to 549,000 (previously 560,000 units). Multifamily starts surged 31.8% over May to 170,000 units. Single-family starts were up 9.4% to 453,000 units. Building permits, a leading indicator for future construction activity, were up 2.5% to 624,000 in June.
• U.S. existing home sales fell for the third straight month by 0.8% month over month to an annualized 4.77 million units in June, weaker than consensus expectations of an increase to 4.9 million. The 7.0% month-over-month drop in condo/co-op sales to 530,000 units largely explains the overall decline. Single-family sales were flat for the month. Condo/co-op sales are down 18% year over year while single family home sales are down 7.4% year over year. The months' supply of unsold homes rose to 9.5 from 9.1 in May and is still above the six-month historic average. The sales price jumped to $184,300 from $169,300 in May and is up 0.8% over last June.
• The S&P/Experian consumer credit default rates decreased in June to 2.14% from 2.23% in May and 3.44% a year ago. All loan types saw declines.
• Industrial production edged up 0.2% month over month in June, which is the first rise seen in two months, offsetting the 0.1% decline in May (previous 0.1% gain). Auto production remained weak again, down 2.0% in June after dropping 1.5% the month before because of continued Japan-related weakness. Manufacturing capacity utilization remained at its May level of 74.4%, and it is still less than the 80-point benchmark rate.
• Consumer prices (CPI) fell by 0.2% month over month in June, which was a larger drop than the 0.1% decline that the consensus expected, after a 0.2% month-over-month increase was seen in May. Core CPI, excluding food and fuel, was up 0.3% over May, the same rate as in May, though stronger than the 0.2% increase that the consensus expected. On a year-over-year basis, overall CPI is up 3.7%. Core CPI is up 1.6% over last year and is still within the Fed's implicit 1% to 2% comfort zone. Energy prices fell 4.4% month over month but are up 20.1% over last June.
• The New York Fed Empire State index climbed four points to a disappointing negative 3.8 reading in July, partially offsetting the near 20-point drop to negative 7.8 in June, and still less than zero, indicating contraction, for a second time. New orders edged down to negative 5.6 after plummeting to less than zero (negative 3.6) in June. The employment index dropped again in July to 1.1 from its 14-point plunge to 10.2 the month before. The price readings also weakened.
• The initial jobless claims fell 22,000 to 405,000 in the week ended July 9 from an upwardly revised 427,000 the week before (was 418,000). Continuing claims climbed 15,000 to 3.727 million for the week ended July 2, though after the week before was upwardly revised to 3.712 million (previously 3.681 million).
• The U.S. Treasury budget deficit was $43.1 billion in June and narrower than the $68.4 billion deficit seen in June 2010 and the consensus expectation of $65.5 billion. Receipts edged down 0.6% over last June to $249.7 billion, Outlays fell 8.4% year over year to $292.7 billion. The deficit now stands at $970.5 billion for the first nine months of the fiscal year, narrower than the $1.004 trillion deficit for the same period in fiscal year 2010.
• Oil prices increased to $100 per barrel on (Thursday- midday) from $97.37 per barrel the previous week on rising speculation that debt problems on both sides of the Atlantic would be resolved soon and signs that crude stocks and Natural Gas are shrinking in U.S. The Energy Information Administration (EIA) inventory data showed a 3.7 million-barrel fall in crude stocks, which was larger than the 1.5 million-barrel drop that markets expected. Total product demand was up 1.6% year over year.
• U.S. bond yields edged down two basis points (bps) to 2.93% on Wednesday (midday), after a disappointing existing home sales report increased worries that the recovery is losing steam. Mortgage rates slipped marginally to 4.54%. Mortgage applications increased to 15.5% during the week ended July 15 following a drop of 5.1% the previous week. The refi index increased by 23.1% from a 6.2% drop the previous week. The purchase index decreased by 0.1% this week, following a decline of 2.6% the previous week.
• The dollar weakened against most trading partners this week as signs of progress on a U.S. budget deal prompted a rise in risk tolerance. The euro rose to $1.422/€ on Wednesday (midday) from $1.404/€. The yen rose to ¥78.77/$ from ¥79.31/$.
• LEI rose by 0.03% Month over Month ( see the separate post giving the Details, Dow trading @12735 and Nasdaq@ 2838, S&P 500 @1345   
• In The Anvil :
  •  S&P/Case-Shiller Home Price Index (July 26; negative 4.2). Consumer confidence (July 26; 57.0). New home sales (July 26; 0.31 million). Durable orders (July 27; 0.5). Beige Book for FOMC Meeting (July 27). Initial claims (July 28). Advance second-quarter GDP (July 29; 1.7%). Employment cost index (July 29; 0.6). Chicago ISM (July 29; 60.0). Consumer sentiment (July 29; 64.0).

                                                                            Europe :

• Italy's lower house of parliament approved a EUR48 billion austerity package on July 15, 2011, in record time to calm the increasing contagion fears spreading from the Greek debt crisis. The mix of spending cuts and tax measures is aimed at ensuring the government reaches its target of balancing the budget by 2014.
• The minutes of the July 6 - 7 meeting of the Bank of England's Monetary Policy Committee (MPC) revealed a more dovish tone, indicating that any rises in interest rates are being put off into the future.
• Germany's ZEW index of economic sentiment slipped for the fifth consecutive month to negative 15.1 in July, its lowest level since January 2009, from negative 9.0 in June. Europe's government debt crisis weighed on optimism despite the continuing strength of the German economy.
• Russian industrial production increased by 5.7% year over year in June. The manufacturing sector, which grew 7.1% year over year during the period, led the growth.
• The eurozone trade deficit declined to EUR0.6 billion from EUR2.5 billion in April. Exports grew 1.5% month over month in May, faster than April's rise of 0.2%. Meanwhile, import growth slowed to 0.2% from 0.8%.
• The eurozone inflation rate remained steady at 2.7% in June but continues to remain at more than the target that the European Central Bank set.
• European Data update is being done separately. Greece Talks are being viewed ... European Markets Closed +ve  cac 3816.25, Dax 7290.14  , FTSE: 5899.89
•  Flash PMI's from Markit tomorrow and 
  •  EMU industrial orders (July 22). Germany Ifo expectations (July 22). France production outlook (July 22). Italy retail sales (July 22). Germany retail sales (July 25). Germany consumer confidence (July 26). U.K. GDP (July 26). Hometrack house prices (July 26). Germany import price index (July 27). CPI (July 27). Switzerland leading indicator (July 27). U.K. total orders (July 27). Germany unemployment rate (July 28). EMU, U.K. consumer confidence (July 28). U.K. nationwide house prices (July 29). France consumer spending (July 29). PPI (July 29). Spain, EMU CPI (July 29). U.K. consumer credit (July 29). France, Germany, EMU PMI manufacturing (Aug. 1). EMU unemployment rate (Aug. 1). EMU PPI (Aug. 2). France, Germany, EMU PMI services (Aug. 3). EMU PMI composite (Aug. 3). Retail sales (Aug. 3).

                                                                  Japan And Other Asia-Pacific

• South Korea's central bank left its key interest rate unchanged at 3.25% in its policy meeting held on July 13 because of rising uncertainty on the global economic recovery, including the eurozone debt crisis.
• New Zealand's economy rose by 0.8% quarter over quarter in the March quarter, stronger than the 0.5% quarter-over-quarter growth in the last quarter of 2010 and consensus expectations of just 0.4% quarter over quarter, owing to the February Christchurch earthquake. The increase was the fastest quarterly expansion since the December 2009 quarter.
• Singapore's economy contracted 7.8% quarter over quarter in the second quarter, after a 27.2% jump in the first quarter. On a year-over-year basis, the pace of economic growth slowed to a mere 0.4% in the second quarter. The manufacturing sector, where output contracted by 5.5% year over year after a 16.4% year-over-year jump in the previous quarter, led the deceleration.
• New Zealand consumer prices (CPI) rose 1% during the second quarter, increasing year-over-year inflation to 5.3%. The reading was much stronger than the consensus forecast of an increase of just 0.7% quarter over quarter and 5.1% year over year.
• India's wholesale price index (WPI) rose by 9.4% year over year in June 2011, up from 9.06% in May.
• Coming releases:  Retail sales (July 27). Trade balance (July 27). CPI (July 28). Unemployment rate (July 28). Personal income (July 28). PCE (July 28). Industrial production (July 28). Shipments (July 28). PMI (July 28). Housing starts (July 29). Auto sales (Aug. 1). Trade balance (Aug. 4). Leading index (Aug. 5). Current account (Aug. 7). Consumer confidence (Aug. 9).

Moody' s Housing Prices Rose, Home sales Fall

US commercial real estate prices rose 6.3% in May, according to Moody's. It was the first positive move in six months and the largest single month jump since they began tracking the sector in 2000. Moody's noted that much of the gain was due to an increase in the prices of distressed properties, which rose 4.8% on the month. "Accounting for 27% of the total repeat-sales during the month, they switched from being a drag on aggregate prices to contributing to their increase," Moody's said.
                                    
Sales of existing homes slipped in June to a seven-month low, with a trade group attributing the weak economy and a spike in cancellations for the surprise downturn. The National Association of Realtors on Wednesday reported sales of single-family existing homes fell 0.8% to a seasonally adjusted annual rate of 4.77 million from 4.81 million in May. Economists polled by MarketWatch had anticipated a 4.9 million rate of sales. The data caught economists by surprise in part because pending homes sales had gained 8.2% in May. Lawrence Yun, the chief economist of the NAR, said "a very weak economy [led] to weak sales," and cancellations jumped to 16% from just 4% in May. The NAR also downgraded its 2011 sales projection to 5 million from a range of 5.1 million to 5.2 million. The median existing home price was $184,300, an increase of 0.8% from June 2011.0.


                   The Slow and Tepid growth to be wobbly affair and its best to take both simultaneously.  

5th of S&P 500 Reports and Housing Data, Debt Crisis wait Next Week

The European Banking Drama and Italian/ Spanish Banks, (De) stressed Test will Continue to Haunt the Market, as Last Weeks Legacy. The Hectic activity at White House and failed Summit, may drive the Monday.
The Bond Market may usurp the Yields, as a Feat Gauge. While, US Markets closed with VIX above 20%.
The Monday's Earning reports are IBM, Mosiac, Haliburton, Chales Schwab.

Tuesday,  A Banking Day :  The course will begin the with Australian Bank Rate decision. Indian market would have HDFC Bank and Crompton Greaves, Chambal fertilizer results. Soon, ZEW survey will take the Shot at German Economic Sentiment and other consumer surveys. The US markets shall open with Building Permits and Housing Starts. But, the Bank of America, Goldman Sachs, Wells Fargo, Coca Cola and Novartis  all will bring the markets live. While, Apple, Blackrock, Yahoo will  post Closing Bell. While, Crude oil is expected to play the rear. The Dodd-Frank Regulation will catch the talks.

Wednesday : The China will fire its Economic Leading Indicators, to Kick start the Trade. The Chinese Banks are expected to take it slow on Rates and reserves, for a while. In India, Dr Reddy's will bring out results. The Minutes of Bank of England should a passing event. The Existing Home Sales are expected to be show More Ghost Inventories live and MBA Purchase applications being sideways. The banking agenda continues with Bank of Canada declaring Rate decision. CAD $/ USD movement will be the trade.
 The EIA Petroleum Inventories may impress the Fresh series for the Crude/ its Derivatives. FED will have its bytes. AMR, BlackRock, EMC and Abbott will spread the result card. Intel, eBay, American Express add on Bell.

Thursday :  The Japanese Merchandise data and Import/Export to Opens the Yen/$. The Indian Markets digets the results from Hero Honda, Hind.Zinc, Sesa Goa, Kotak-Mah. Bank. The Inflation figures will set the back drop for the forthcoming RBI meet. The European summit on Greece will rumble at Brussels.
The Flash PMI's of Germany, France and Major Euro area will echo the activity. The US FHFA Housing Index, Jobless claims and LEI may push the DEBT talk in Full Focus. AT&T, Morgan Stanley, Pepsico, and the Market will close the bell with Microsoft, along with Roche, AMD.

Friday :  The China PMI is trade opener. Indian market have Axis Bank, Canara and Allahabad Bank results.
The Candian CPI carries to the US Trade, Where, Caterpillar, GE, Verizon, Honeywell may reflect what is passed on the Consumers and what is absorbed.

All the impasse will not over shadow the US Debt reaching the Crisis Point

Fannie Mae And Freddie Mac Update: Recent Weak Performance Hasn’t Changed Our Taxpayer Cost Estimate

Fannie Mae And Freddie Mac Update: Recent Weak Performance Hasn’t Changed Our Taxpayer Cost Estimate: "The loan portfolios of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac (both have senior debt we rate AAA/Negative) continued to perform weakly in the first quarter of 2011 because of ongoing residential mortgage losses, primarily for loans made during 2005-2008. The GSEs’ operating performance is likely to worsen before it improves, Standard & Poor’s Ratings Services believes. In fact, we expect Fannie and Freddie to keep requiring funds to pay the rising dividend they owe to the U.S. Treasury under its Senior Preferred Stock Purchase Agreement the government used to bail out the two. Despite a modest, gradual decline in total mortgage delinquencies, the GSEs continue to recognize losses from the seriously delinquent (three or more months in arrears; SDQ) segments of their portfolios and from ongoing foreclosures. Moreover, weak GDP growth in April and May plus stubbornly high unemployment could create another round of challenges for the U.S. housing and mortgage market.



In November 2010, we estimated the total taxpayer cost to keep the GSEs solvent at about $280 billion, including $207 billion of credit losses embedded in the combined portfolios of Fannie and Freddie, as of June 30, 2010. Our projection for the ultimate cost to resolve Fannie Mae and Freddie Mac hasn’t changed. But we’ve updated our loss assumptions to reflect the housing market’s performance since then plus GSE-specific data through March 31, 2011. Based on recent data, we now believe there to be $190 billion of lifetime losses remaining in Fannie and Freddie’s combined single-family portfolios. When we add the $22.3 billion in combined credit losses Fannie and Freddie have taken since our last estimate on June 30, 2010 data, to our updated estimate, our total credit loss expectation tracks very closely with our previous estimate.



Fannie Mae and Freddie Mac have supported most mortgage funding in the U.S. since the domestic housing crisis arrived in 2007. Combined with Ginnie Mae (not rated), the GSEs have guaranteed more than 90% of single-family conforming mortgages since 2007. They benefit from the U.S. government’s effective guarantee of their obligations because of their public policy role, and have relied on capital injections from the U.S. Treasury as their losses mounted, eroding their capital. The U.S. Treasury has said it will stand behind Fannie’s and Freddie’s obligations, and will continue to provide them with necessary capital, but has also voiced its desire to downsize and re-focus these entities. Until then, these entities must continue to manage existing exposures lower while providing liquidity to the market in order to minimize future taxpayer costs.



The combined balance sheets of Fannie and Freddie support more than half of all existing mortgages in the U.S. At a time when home prices continue to fall, unemployment rates remain high, and economic growth is sluggish, the GSEs remain far from recovery, in our view.

Legacy Assets Continue To Hinder Earnings

The performance of Fannie and Freddie diverged somewhat in the first quarter of 2011. Fannie reported a net loss of $6.5 billion (before recording $2.2 billion in preferred dividends), while Freddie reported a net profit of $676 million (before recording $1.6 billion in preferred dividends).



At the same time, Freddie’s capital position benefitted from a $2.1 billion improvement in accumulated other comprehensive income (AOCI), reflecting gains on its available for sale (AFS) securities. It ended the quarter with a net worth of $1.2 billion, and did not need to request additional funding from the U.S. Treasury.

Semiannual Monetary Policy Report to the Congress Chairman Ben S. Bernanke

 

Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

July 13, 2011

Chairman Bachus, Ranking Member Frank, and other members of the Committee, I am pleased to present the Federal Reserve's semiannual Monetary Policy Report to the Congress (PDF). I will begin with a discussion of current economic conditions and the outlook and then turn to monetary policy.

The Economic Outlook
The U.S. economy has continued to recover, but the pace of the expansion so far this year has been modest. After increasing at an annual rate of 2-3/4 percent in the second half of 2010, real gross domestic product (GDP) rose at about a 2 percent rate in the first quarter of this year, and incoming data suggest that the pace of recovery remained soft in the spring. At the same time, the unemployment rate, which had appeared to be on a downward trajectory at the turn of the year, has moved back above 9 percent.

In part, the recent weaker-than-expected economic performance appears to have been the result of several factors that are likely to be temporary. Notably, the run-up in prices of energy, especially gasoline, and food has reduced consumer purchasing power. In addition, the supply chain disruptions that occurred following the earthquake in Japan caused U.S. motor vehicle producers to sharply curtail assemblies and limited the availability of some models. Looking forward, however, the apparent stabilization in the prices of oil and other commodities should ease the pressure on household budgets, and vehicle manufacturers report that they are making significant progress in overcoming the parts shortages and expect to increase production substantially this summer.

In light of these developments, the most recent projections by members of the Federal Reserve Board and presidents of the Federal Reserve Banks, prepared in conjunction with the Federal Open Market Committee (FOMC) meeting in late June, reflected their assessment that the pace of the economic recovery will pick up in coming quarters. Specifically, participants' projections for the increase in real GDP have a central tendency of 2.7 to 2.9 percent for 2011, inclusive of the weak first half, and 3.3 to 3.7 percent in 2012--projections that, if realized, would constitute a notably better performance than we have seen so far this year.¹

FOMC participants continued to see the economic recovery strengthening over the medium term, with the central tendency of their projections for the increase in real GDP picking up to 3.5 to 4.2 percent in 2013. At the same time, the central tendencies of the projections of real GDP growth in 2011 and 2012 were marked down nearly 1/2 percentage point compared with those reported in April, suggesting that FOMC participants saw at least some part of the first-half slowdown as persisting for a while. Among the headwinds facing the economy are the slow growth in consumer spending, even after accounting for the effects of higher food and energy prices; the continuing depressed condition of the housing sector; still-limited access to credit for some households and small businesses; and fiscal tightening at all levels of government. Consistent with projected growth in real output modestly above its trend rate, FOMC participants expected that, over time, the jobless rate will decline--albeit only slowly--toward its longer-term normal level. The central tendencies of participants' forecasts for the unemployment rate were 8.6 to 8.9 percent for the fourth quarter of this year, 7.8 to 8.2 percent at the end of 2012, and 7.0 to 7.5 percent at the end of 2013.

The most recent data attest to the continuing weakness of the labor market: The unemployment rate increased to 9.2 percent in June, and gains in nonfarm payroll employment were below expectations for a second month. To date, of the more than 8-1/2 million jobs lost in the recession, 1-3/4 million have been regained. Of those employed, about 6 percent--8.6 million workers--report that they would like to be working full time but can only obtain part-time work. Importantly, nearly half of those currently unemployed have been out of work for more than six months, by far the highest ratio in the post-World War II period. Long-term unemployment imposes severe economic hardships on the unemployed and their families, and, by leading to an erosion of skills of those without work, it both impairs their lifetime employment prospects and reduces the productive potential of our economy as a whole.

Much of the slowdown in aggregate demand this year has been centered in the household sector, and the ability and willingness of consumers to spend will be an important determinant of the pace of the recovery in coming quarters. Real disposable personal income over the first five months of 2011 was boosted by the reduction in payroll taxes, but those gains were largely offset by higher prices for gasoline and other commodities. Households report that they have little confidence in the durability of the recovery and about their own income prospects. Moreover, the ongoing weakness in home values is holding down household wealth and weighing on consumer sentiment. On the positive side, household debt burdens are declining, delinquency rates on credit card and auto loans are down significantly, and the number of homeowners missing a mortgage payment for the first time is decreasing. The anticipated pickups in economic activity and job creation, together with the expected easing of price pressures, should bolster real household income, confidence, and spending in the medium run.

Residential construction activity remains at an extremely low level. The demand for homes has been depressed by many of the same factors that have held down consumer spending more generally, including the slowness of the recovery in jobs and income as well as poor consumer sentiment. Mortgage interest rates are near record lows, but access to mortgage credit continues to be constrained. Also, many potential homebuyers remain concerned about buying into a falling market, as weak demand for homes, the substantial backlog of vacant properties for sale, and the high proportion of distressed sales are keeping downward pressure on house prices.

The Financial Meltdown In Europe ? Eurozone break up…? Asia is the default Saver ?

The Portugal was today downgraded to Junk by Moody’s and Greece is in a Mortgage Crisis like Lehmann .. The biggest Hit of this will be taken by French Banks, who Lent and recklessly Engineered the Greece, Portugal and Spain in the Web.

Surprisingly, euro is still holding its head well above the lower level, it sought against $, earlier, in the year. Today, Citi bank cut its earning forecast for banks. The safe heaven of Gold again saw entrants, below $1500/Ounce.

The Rise in ISM Manufacturing Index saw the hopes still pinned . The Investors preferring to ignore, what is happening in the Washington and hoping it bail out itself of the incredible warnings of Rating agency warnings. The Housing data in US again sought newer lows in construction spending.

All this are giving currencies a very diabolical and critical view. Possibly the drivers to invest lie in the Relative Appraisal of various currencies. So, here   Dr. Clarida is an executive vice president in the New York office and PIMCO's global strategic advisor. Since 2008

This what PIMCO’s Richard Clarida thinks….

End of Currency Wars?

• International capital is flowing to countries with good growth prospects and to countries with central banks confident enough to raise interest rates.
• Certain nations are placing controls on capital or intervening in currency markets with an eye to maintaining economic competitiveness.
• We see central banks in the U.S. and the U.K. winding down monetary stimulus that has exacerbated the situation. Also, we see potential for emerging market currencies to appreciate, and that may give developed nations a boost.

Nations generally benefit when their currency valuation is low enough to assist domestic industry, making their exports cheap and imports expensive. But when a trading partner intervenes in currency markets to enforce a low valuation, then international tension may arise.
In the fourth of a series of Q&A articles accompanying the recent release of PIMCO's Secular Outlook, portfolio manager Richard Clarida discusses PIMCO’s outlook on currencies and argues that global currency tensions may ease in the years ahead.
Q. Could you discuss efforts some nations appear to be taking to direct the exchange value of their currencies to favor domestic industry? Is this a source of long-term global tension (previously some media reports spoke of “currency war”)?
Clarida: Taking a step back, our secular outlook for the next three to five years is for a two-speed global recovery with emerging markets (EM) leading the way. One natural consequence is that international capital is flowing to countries with good growth prospects and also to countries with central banks that have the confidence to raise interest rates. Much of the focus, rightly, has been on emerging markets, but developed nations such as Australia, Canada and Norway have been hiking interest rates, and their commodity producers are benefiting from booming emerging growth.
Some countries are resisting the upward pressure that these capital flows are putting on their exchange rates. They are placing controls on capital or intervening significantly in currency markets with an eye to maintaining economic competitiveness. We do see this dynamic as a source of long-term global tension, but we believe it is a tension that most likely will be manageable. For example, we see central banks in the U.S. and the U.K. winding down monetary stimulus that has exacerbated the situation; rate hikes could be on the horizon in 2012.
Q. Could you elaborate on how PIMCO sees this issue playing out?

Clarida: If indeed emerging economies are to continue to be centers of global growth, then at some point we believe they will move toward more of a local-demand-driven economic model and away from an export-reliant model. We see currency adjustment as part of that rebalancing.
Let me explain this dynamic. Think of an emerging economy with very rapid productivity growth – the amount of goods and services it can produce each year is expanding. If this hypothetical country relies on export demand, it requires a relatively weak exchange rate to absorb more and more supply. If this country fears export demand is tapering off, it may shift focus and begin nurturing domestic demand – selling local goods to local customers. But if goods and services shift to domestic demand that creates scarcity on the global market and prices rise. So to maintain domestic demand the emerging nation allows its currency to appreciate, which enables domestic consumers to compete globally. Theoretically, this eases global tensions and gives developed nations a boost: since their currencies are relatively cheaper their exports become more competitive.
Q. What does PIMCO mean when it speaks of a trilemma dilemma?

Clarida: The trilemma is a fundamental concept in international finance developed by Nobel laureate economist Robert Mundell, and the basic idea is that for any national economy operating in a broader global economy, there are three desirable outcomes. National leaders want an independent monetary policy that suits domestic circumstances. They want to benefit from the free flow of capital, especially capital inflows directed toward economic investment. And they want a stable exchange rate.
This trio is called a trilemma because theory and experience suggest at most a nation can only achieve two of those objectives. Thus, international policy making is always about trading off the desirability of exchange rate stability, monetary independence and capital flows. The U.S., for example, has had an independent central bank and certainly benefits from an open capital market reflected in our current account deficit – we borrow from the rest of the world. But the dollar fluctuates not only with U.S. events but also with global ones. China, on the other hand, has a very stable exchange rate because they manage it, and their central bank has some leeway to influence domestic interest rates. But China has restricted capital mobility.
Q. Is the U.S. dollar slipping as the world’s reserve currency? Which currency or currencies will dominate global commerce in the years ahead?

U.S. Pending Home Sales Rose In All Regions In May, Posting The First Annual Gain Since April 2010

U.S. pending home sales reversed course in May and increased 8.2% on a seasonally adjusted basis following an 11.3% decline in April, the National Association of Realtors reported on June 29. This increase also follows May's 3.8% decline in existing home sales and 2.1% decline in new home sales, which were reported last week. The pending home sales index is up 13.4% year over year, the first positive trend since the homebuyer tax credit expired in April 2010. However, the index is still about 30% below its early-2005 peak. This latest reversal suggests existing home sales are likely to increase in June because pending sales reflect contract signings rather than closings, and as a result they usually lead existing home sales by one to two months.

Standard & Poor's Ratings Services considers May's strong increase in pending sales to be a positive for the housing market and for the underlying collateral performance of U.S. residential mortgage-backed securities. However, the Mortgage Bankers Association's weekly mortgage applications index, which includes purchase and refinance loans, declined a seasonally adjusted 2.7% for the week ended June 24, following a 5.9% decline a week earlier. This was the fourth weekly decline during the past five weeks. The low level of mortgage applications for home purchases mean existing/pending home sales may not improve significantly just yet--even though mortgage rates are at a year-to-date low of 4.46%. This is a negative for the housing market. Overall, we expect home prices to remain weak this year, but mortgage applications, sales, and home prices are likely to improve at least during the summer months.

Highlights Of May Pending Sales

• U.S. pending home sales were up 8.2% based on contracts signed in May after declining 11.3% in April. The year-over-year change in pending sales has been negative since April 2010. However, the current index is 13.4% above the level reported a year ago.
• All regions posted increases in May. Sales in the West increased the most in May, rising 12.9%, and they are 13.5% above May 2010 levels. Sales in the Midwest increased 10.5% in May and are 17.3% above May 2010 levels. Sales in the South increased 4.1% in May, and are up 14.6% year over year. Sales in the Northeast rose 7.3%, and are up 4.4% year over year.
• Pending sales peaked in early 2005 and declined about 30% through May 2011. Overall, the index improved significantly from late 2009 to early 2010, primarily as a result of the now-expired tax incentives.

Pending Home Sales Index - Background

The National Association of Realtors has reported the pending sales of existing homes on a monthly basis for a large national sample since 2001. Pending sales reflect the time when the sale contract has been signed, but the sale has not been completed. As a result, the sales data represents contracts, but not closings. The actual sale usually is finalized within one to two months of contract signings, and as a result pending sales usually lead the existing home sales by one to two months. Pending sales is an index of 100, which is equal to the average level of sale contract activity during 2001. The pending home sales for June will be reported July 28 at 10:00 a.m. EST.


Posted By S&P