Best Santelli Rant in a while..

lol, QE3 going away will cause "many accidents".

That was some nice "Fed speak".

 

I am only referring to accidents in the labor mkt, i.e. payrolls suddenly dropping or stuff like that. My view is that nothing else will stop the "tapering" in Sep and I expect QE3 to stop fully by Dec. My view only.

 

So will I. I will respond piecemeal, if you don't mind, since I want to attach some graphs, but can't do more than one at a time.

I am not sure what you're basing this on, Maverick. I attach a chart of the two housing affordability indices (NAHB/Wells Fargo HOI and NAR HAI; higher = more affordable for both). If you have data that supports your assertion I would love to see it.

 

QE will cause payrolls to suddenly drop off?

Can you please tell me how the Federal Reserve directly influences the unemployment rate?

 

Well, again, other than Spooz, which we can definitely discuss separately, I am just not seeing this as clearly as you do. Maybe, it's 'cause I am just not involved in the high-end art, RE and diamond mkt, like yourself . In seriousness, having looked at a couple of indices (Rapaport for diamonds, LVX 100 for fine wines), I am just not seeing them shooting off into infinity and beyond. Moreover, in hopes of capturing something occurring in luxury space, I also plotted revenue growth for Sotheby's and LVMH both. I attach all the graphs. Maybe you have some other data that can help me see what you're seeing.

 

Sorry, I think you're misunderstanding me here. If, for whatever reason, QE or no QE, Fed or no Fed, there's a sharp slowdown in the labor mkt between now and September, I expect the "tapering" discussion will go away. Otherwise, if everything is proceeding at current pace, I expect QE3 to go away by the end of this year.

 

Ah, I did misunderstand you. Thanks for clarifying.

 

Here you go chap:

http://www.zerohedge.com/news/2013-...ing-non-recovery-led-record-income-inequality

I'm sure you are well aware of the Gini co-efficient.

Here are some of the highlights from the article:

"the Gini coefficient had apparently reached in 2006 the previous high seen in 1929, prior to the Great Depression." In other words, the US now has greater income inequality than even during its worst economic episode in history.

This means, unfortunately, not that the problem has been avoided but that the ‘great reckoning’ has been deferred to another day as the speculative classes have continued to game the system by resort to carry trades actively encouraged by the Fed and other central bankers, which is why fixed income markets freak out when they see signs of an exit."

" It also means, even simpler, that the rich are getting richer, while the poor not only can't afford to buy homes, but are getting poorer by the day."

"If housing has staged an impressive pickup in activity, GREED & fear’s view remains that the recovery in American housing is different from a conventional recovery from a housing bust in that it has been jump started to a huge extent by massive investor demand in the context of the unusual circumstances provided by unconventional monetary policy, including the Fed’s buying of mortgage backed securities (MBS). The Fed’s holding of MBS totalled US$1.2tn at the end of June."

"The degree to which yield-seeking investors, including specialised investment funds, have driven the housing recovery is best illustrated by the extent to which the new mortgage applications index has not recovered as much as say housing starts. "

" It is, therefore, necessary to continue to watch the new mortgage applications index closely for evidence that the baton in the housing recovery will be passed from investors to end buyers. In this respect, the obvious constraints on end buyers are a lack of income to service the mortgage and, more importantly, a lack of sufficient equity in terms of what is required by banks post-crisis to have a mortgage. "

Martin...please focus your attention on this last part as it sums up the problem nicely.

The above thesis of an investment property boom, as opposed to a conventional housing recovery, raises another consequence of unconventional orthodoxy. This is that the practical way these policies work is to lead to ever more extreme wealth distribution, as reflected in America’s Gini coefficient which measures the degree of income inequality. The Gini coefficient has risen from 0.386 in 1968 to 0.47 in 2006 and was 0.477 in 2011, according to the US Census Bureau (see Figure 6). This is because the wealthy are geared into rising asset prices, particularly prices of financial assets, whereas ordinary people are geared into average hourly earnings growth. In this respect the Gini coefficient had apparently reached in 2006 the previous high seen in 1929, prior to the Great Depression. This is a reminder that capitalism’s natural way of dealing with excesses is via business failure and liquidation; which is why wealth distribution would have become much less extreme as a consequence of the 2008 crisis if losses had been imposed on creditors to bust financial institutions, for example owners of bank bonds, in line with capitalist principles; as opposed to the favoured ‘bailout’ approach pursued for the most part by Washington.

This means, unfortunately, not that the problem has been avoided but that the ‘great reckoning’ has been deferred to another day as the speculative classes have continued to game the system by resort to carry trades actively encouraged by the Fed and other central bankers, which is why fixed income markets freak out when they see signs of an exit. But the point to remember is that the leverage taken on in such trades is highly risky because of the underlying deflationary trend.

 

Well, here's the thing. There's a LOT of research out there on tuition costs. In fact, in 1967 William Bowen first noted that tuition has been rising 2 to 3 percentage higher than inflation since 1900. There's a lot of work that people like, for example, Ronald Ehrenberg, have done. At any rate, my point here is that I do not understand what this long-term trend, for which there are lots and lots of reasons, has to do with Rick's point that, as I understood, was about the impact of QE3 on the level of prices.

 

Sorry, I am really confused here... Can we pls not digress and concentrate on the very specific point you have made and that I am responding to? I can certainly respond to the above as well, but I don't think I can keep pace with the subjects at this rate. So let me get back to your statement that I was specifically addressing. You said:

"If you measure housing prices here in the states as a function of avg income you will find that the ratio is as wide today as it's ever been. People today have to take out far bigger loans and use far more leverage to buy the same homes that their parents bought 40 years ago for cash and no leverage."

I have provided you with two separate, independent measurements of housing affordability, which appear to suggest the opposite (and they do measure the affordability of homes as a function of median income, among other things). In light of that, would you care to change the statement you've made above, which I have highlighted?