Tuesday, September 30, 2014

The Housing Market's Lost Decade - Looking Ahead

While the American housing market has shown improvement since the collapse that began in 2006, it is still not back to its pre-Great Recession levels as shown on this graph:

In fact, according to Clear Capital, as shown on the red line, U.S. nominal housing prices are just back to 2005 levels, completely ignoring inflation.  This means that many homeowners today have no more equity in their homes than they did when they bought a decade ago.  Even two and a half years of real estate market recovery has not brought an end to the lost decade for many markets and the nation as a whole.

How unusual is this?  Over the past 30 years, on a rolling ten year period, housing prices have increased 55 percent on a nationwide basis.  That said, individual real estate markets have performed far differently with some markets showing no losses over the past decade and some markets showing that prices have not increased for more than 15 years, particularly those in the Midwest.

Let's look at the data on a national and regional basis from August 2013 to August 2014 and on a quarter-over-quarter basis:

The high distressed saturation in both the South and Midwest is of great concern and will continue to put downward pressure on price increases going forward.

Let's look at the 10 poorest performing markets over the last quarter:

Notice how in each case, on a year-over-year basis, the metropolitan area is under performing the national average price increase of 8 percent.  In fact, in the Hartford area, over the year between August 2013 and August 2014, the market has shown almost no increase in the price of homes.

What does Clear Capital see for the year ahead?  The growth rate of 8 percent over the last year is more than twice the average historical annual house price increase of 3.5 percent but it is not likely to continue.  Weakness in price appreciation is already taking place with August 2014 house price growth falling 0.4 percentage points from 8.4 percent in July 2014 which itself was down from 9.0 percent the month before.  This downward trend has Clear Capital projecting that through 2015, house prices will increase by only 1.8 percent, suggesting that the "lost decade" will continue for more than ten years.

Here is a chart showing Clear Capital's six month house price appreciation forecast by region:

Over the next six months, Clear Capital projects that the worst performing markets will be:

As if Detroit's real estate market hasn't been hit hard enough over the past decade!

With real wages doing this over the past six years...

 ...it is highly unlikely that America's strained housing market will show significant price appreciation over the coming years since so much of our economic health depends on the perception of household wealth.

Monday, September 29, 2014

Placing the Blame for Africa's Ebola Outbreak

As most of us are aware, parts of western Africa are experiencing the largest outbreak of Ebola since it was first noted in 1976.  A recent letter in the Liberian Observer, a newspaper in Monrovia, by Dr. Cyril E. Broderick, Sr., a Professor of Plant Pathology at Delaware State University lays the blame for the recent outbreak in an interesting direction.

Let's open by looking at a chart from the Ministry of Health and Social Welfare in Liberia showing us the current situation:

A total of 3458 cases of Ebola have been noted in Liberia up to September 23, 2014.  Of the 3458 cases, 1830 have resulted in death for a death rate of 57.7 percent.  As well, there have been 184 cases affecting health care workers with a total of 91 deceased health care workers for a death rate of 49.5 percent.  Most of the workers infected have been nurses (46) and nurse aids (20).

Here is a graph showing the ramping up of the number of cases as the weeks passed:

Here is a map showing the cumulative number of deaths by geographic area up to September 22, 2014:

 Most of the deaths have occurred in Montserrado County where 68 percent of those infected die as a result of contracting Ebola.  Note that Liberia's capital city, Monrovia, is located in Montserrado County.  Monrovia, named for United States President James Munroe, has a population of just over 970,000 and is the largest city in Liberia.

Now, let's look at Dr. Broderick's letter.  Here is the graphic that accompanies the submission:

Here is the opening paragraph:

"Dear World Citizens:

I have read a number of articles from your Internet outreach as well as articles from other sources about the casualties in Liberia and other West African countries about the human devastation caused by the Ebola virus. About a week ago, I read an article published in the Internet news summary publication of the Friends of Liberia that said that there was an agreement that the initiation of the Ebola outbreak in West Africa was due to the contact of a two-year old child with bats that had flown in from the Congo. That report made me disconcerted with the reporting about Ebola, and it stimulated a response to the “Friends of Liberia,” saying that African people are not ignorant and gullible, as is being implicated...Because of the widespread loss of life, fear, physiological trauma, and despair among Liberians and other West African citizens, it is incumbent that I make a contribution to the resolution of this devastating situation, which may continue to recur, if it is not properly and adequately confronted."

Dr. Broderick goes on to note that during the Cold War, the CIA and KGB were involved in the "manufacturing" of AIDS-like viruses with the intention of using them as a weapon.  In a book by Leanard Horowitz titled "Emerging Viruses: AIDS and Ebola - Nature, Accident or Intentional, the author confirms the existence of an American military-medical-industrial complex that conducts biological weapons tests under the guise of vaccinating "black Africans overseas".  

Here is another quote from his letter:

"The World Health Organization (WHO) and several other UN Agencies have been implicated in selecting and enticing African countries to participate in the testing events, promoting vaccinations, but pursuing various testing regiments. The August 2, 2014 article, West Africa: What are US Biological Warfare Researchers Doing in the Ebola Zone? by Jon Rappoport of Global Research pinpoints the problem that is facing African governments. 

Obvious in this and other reports are, among others: 

(a) The US Army Medical Research Institute of Infectious Diseases (USAMRIID), a well-known centre for bio-war research, located at Fort Detrick, Maryland; 

(b) Tulane University, in New Orleans, USA, winner of research grants, including a grant of more than $7 million the National Institute of Health (NIH) to fund research with the Lassa viral hemorrhagic fever; 

(c) the US Center for Disease Control (CDC); 

(d) Doctors Without Borders (also known by its French name, Medicins Sans Frontiers); 

(e) Tekmira, a Canadian pharmaceutical company;  

(f) The UK’s GlaxoSmithKline; and 

(g) the Kenema Government Hospital in Kenema, Sierra Leone. 

Reports narrate stories of the US Department of Defense (DoD) funding Ebola trials on humans, trials which started just weeks before the Ebola outbreak in Guinea and Sierra Leone. The reports continue and state that the DoD gave a contract worth $140 million dollars to Tekmira, a Canadian pharmaceutical company, to conduct Ebola research. This research work involved injecting and infusing healthy humans with the deadly Ebola virus. Hence, the DoD is listed as a collaborator in a “First in Human” Ebola clinical trial (NCT02041715, which started in January 2014 shortly before an Ebola epidemic was declared in West Africa in March. Disturbingly, many reports also conclude that the US government has a viral fever bioterrorism research laboratory in Kenema, a town at the epicentre of the Ebola outbreak in West Africa. The only relevant positive and ethical olive-branch seen in all of my reading is that Theguardian.com reported, “The US government funding of Ebola trials on healthy humans comes amid warnings by top scientists in Harvard and Yale that such virus experiments risk triggering a worldwide pandemic.  That threat still persists.'

Dr. Broderick states that the United States, Canada, France and the United Kingdom are implicated in this Ebola outbreak and that African nations need to seek criminal and civil compensation for damages from these countries and the corporations that are responsible.

The author notes that:

"There is urgent need for affirmative action in protecting the less affluent of poorer countries, especially African citizens, whose countries are not as scientifically and industrially endowed as the United States and most Western countries, sources of most viral or bacterial GMOs that are strategically designed as biological weapons. It is most disturbing that the U. S. Government has been operating a viral hemorrhagic fever bioterrorism research laboratory in Sierra Leone. Are there others? Wherever they exist, it is time to terminate them. If any other sites exist, it is advisable to follow the delayed but essential step: Sierra Leone closed the US bioweapons lab and stopped Tulane University for further testing."

While some of this has a tin foil hat ring to it, here is an interesting news release from the Facebook page of Sierra Leone's Ministry of Health and Sanitation dated July 23, 2014:

Note that during the outbreak, Tulane University was to stop Ebola testing during the current Ebola outbreak.  

Tulane University researchers have been operating in West Africa for the past several years as part of the Viral Hemorrhagic Fever Consortium along with Harvard University, the Kenema Government Hospital in Kenema, Sierra Leone, Irrua Specialist Teaching Hospital in Nigeria, Autoimmune Technologies (a biomedical company located in New Orleans), Corgenix Medical Corporation (a Colorado-based medical diagnostics company)  and the Scripps Research Institute

While his conclusions may be a bit off target, at the very least, Dr. Broderick's thesis gives us cause to ponder the source of the recent Ebola outbreak in Africa.  

Friday, September 26, 2014

The World's Jobs Gap

As a matter of habit, we all concern ourselves with the employment/unemployment situation in our home countries and pretty much ignore what happens elsewhere unless it happens to impact us directly.  A recent report prepared for the G20 Labour and Employment Ministerial Meeting looks at the global employment picture and provides us with a glimpse of the outlook and key challenges that face global labour markets.

As we all know, persistent low growth rates in most of the world's Western economies are having a dampening effect on employment which, in turn, is having a dampening effect on the economy.  The world's economy is caught in a cycle from which there is no easy escape.  Just ask your friendly central banker.  None of their usual monetary magic has been able to resuscitate the world's moribund economy.  On top of the job creation issues, the jobs that are being created are of poor quality with real wages stagnating at levels that are resulting in even greater income inequality.  

Over the past 12 months, most of the G20 economies have seen what can only be termed as modest reductions in their unemployment rate and in those nations where the unemployment rate has declined, the decline was often due to a shrinking labor force participation rate with the United States being a prime example as shown here:

In the United States, the current labour force participation rate is 62.8 percent, down from a high of 67.3 percent in 2001 and about the level that was seen in 1978.

As well, in nations like Spain, the United States, Italy and South Africa, long-term unemployment has increased.  Here is a bar graph that shows the long-term unemployment rate in the fourth quarter of 2007 on the blue bars and the long-term unemployment rate in the first quarter of 2014 with a grey dot:

Among the G20 as a whole, the median of long-term unemployment as a percentage of total unemployment has risen from 24.6 percent at the end of 2007 to 30.2 percent in the first quarter of 2014, an increase of 22.8 percent.

Here is a chart showing the year-over-year changes in the labour markets of the G20 nations:

You'll notice that the situation for younger potential workers is dire; of the 20 nations, 6 have youth unemployment rates in excess of 20 percent with Spain coming in first place at 53.1 percent and South Africa coming in second at 52.5 percent.  Here is a bar graph showing the unemployment rates for youth aged 15 and 16 to 24 years of age for 2007 in blue and the second quarter of 2014 in grey:

Here is a graph that shows the relationship between the growth in real GDP and the growth in total employment over the period from 2008 to 2013:

Notice the 45 degree line?  That line marks the points where real GDP growth equals growth in total employment.  In almost all G20 nations, real GDP has grown at rates in excess of the rate of growth of total employment, making this a relatively jobless recovery.  You will also notice that the US economy has among the lowest real GDP growth and the lowest increase in total employment among its G20 peers.

This has resulted in a jobs gap among advanced G20 economies as you can see on this graph:

Had the world's economy continued along its growth pattern that was established prior to the Great Recession, it was projected that there would be about 480 million employed workers in the advanced G20 economies by 2014 as shown on the blue dashed line.  Right now, there are only around 445 million employed workers, a jobs gap of 35 million.  On top of the jobs gap in the G20 advanced economies, there is a jobs gap of around 40 million in the G20 emerging economies as shown on this graph:  

As you noticed on the chart summarizing the labour market changes over the past year, employment rates vary widely by age.  This graph shows the employment rate by age grouping and gender for all G20 nations:

The total share of the population that has found work varies widely across the G20, from 42 percent in South Africa to 75 percent in China with the United States coming in at 67 percent and Canada coming in at 72 percent.

It is obvious that central banks around the world have been completely incapable of creating sufficient high quality jobs to eliminate the jobs gap that has appeared since the beginning of the Great Recession.  When potential workers have no means of support other than temporary government social programs, they cut back on consumption.  In our consumption oriented economy, without that consumption, we can only expect that the world's economy will continue to grow at rates that are nowhere near what we experienced prior to 2008. 

Wednesday, September 24, 2014

Washington is For Sale and the Defense Industry is Buying

Updated October 2015

There is a strong profit motive to war, even the limited engagement currently taking place in Syria - Iraq against ISIS.  In this posting, I'd like to examine the role of the defense industry in Washington politics, particularly, the use of their profits to sway policy.  

According to Open Secrets, while the defense industry is not one of the largest contributors to politicians, it is one of the most powerful sectors with individuals and political action committees associated with the defense sector contributing more than $27 million to political candidates during the 2012 Presidential Election Cycle.  Since 1990, the sector has contributed more than $220 million to politicians with 57 percent of the contributions going to Republican candidates and 43 percent going to Democratic candidates.  

Let's start by looking at the market sector totals for campaign contributions during the current election cycle.  Here is a list showing which sectors of the economy are the most active contributors to the federal political process in 2015 - 2016:

Note that defense comes in thirteenth place, spending a tiny fraction of what is donated by the finance, law and health sectors.

On the lobbying side, the defense industry has spent far more than they have spent on donations to specific candidates; in each year from 2005 to 2014 (and most likely 2015 as well), defense has spent over $100 million on getting Washington to see things their way as you will see later in this posting.

Let's look at more details on the contribution side first.  Here is a graphic showing the top defense corporate contributors for 2015 - 2016:

 Here is a bar graph showing the trends in contributions for each election cycle since 1990:

Total contributions have risen from $7.18 million in 1990 to a peak of $27.654 million in 2012 and have hit $6.9 million thus far at this early point in the 2016 election cycle. 

Here is a bar graph showing the split between Republicans and Democrats:

In only four election cycles (1992, 1994, 2008 and 2010) did the Democratic candidates benefit from more than half of the total contributed by the defense industry.  Note that in 2008, the split was almost even with Democrats receiving 51 percent of the total.

Now, let's look at the all-important lobbying side.  This is where the defense industry really shines. The main issue for the defense sector is securing government contracts and influencing the defense budget and various earmarks for their own gain. 

Here is a bar graph showing the annual spending on lobbying by the defense industry:

Total spending so far in 2015 has reached $95.276 million with $69.74 million coming from the defense aerospace industry subsector and the remainder split between the defense electronics subsector and the miscellaneous defense subsector.  Spending on lobbying peaked in 2008 when the defense industry forked over $152.3 million to get Washington to see things their way.  

The defense industry has a huge number of lobbyists as shown on this graph:

In 2014, there were 835 lobbyists, down from a peak of 1285 back in 2007.  In 2015, 67.2 percent of defense industry lobbyists are revolvers, that is, they have previous insider connections with the federal government of one form or another.

In closing, let's look at a couple of specific examples; Lockheed Martin and Boeing, the number one and two largest defense contractors in the United States:

Arms Sales: $35.7 billion
Total Profit: $2.9 billion
Employees: 132,000
NASA and the Defense Department account for 80 percent of annual sales

2014 Election Cycle Contributions: $4.104 million
Lobbying: $$14.582 million in the 2014 cycle (16th out of 3514)

Here is a graph showing Lockheed Martin's lobbying expenditures from 1998 to the present:


Arms Sales: $31.4 billion
Total Profit: $2.9 billion
Employees: 160,500
Boeing is a top recipient of government loan guarantees through the Export-Import Bank of the United States.

2014 Election Cycle Contributions: $3.523 million (48th out of 15,802)
Lobbying: $16.8 million in 2014 (10th out of 3514)

Here is a graph showing Boeing's lobbying expenditures from 1998 to the present:

As a Baby Boomer, I can clearly recall hearing about the dangers of the rising strength of the military-industrial complex, an issue that we were warned about in President Eisenhower's farewell address in 1961 where he states:

"Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations.

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the militaryindustrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together." (my bold)

If we wonder why Washington, particularly the Republican Party, leans toward military intervention, I think that seeing how much the defense industry spends on campaign donations and lobbying should give us some explanation.  With Washington being for sale, it looks like President Eisenhower's warnings of five decades ago have gone unheeded or unnoticed by those in powerful places.

Consider us warned.