Of Interest

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Monday, January 27, 2014

Most Germans Don't Buy Their Homes, They Rent. Here's Why

It's just a fact. Many Germans can't be bothered to buy a house.

The country's homeownership rate ranks among the lowest in the developed world, and nearly dead last in Europe, though the Swiss rent even more. Here are comparative data from 2004, the last time the OECD updated its numbers. (Fresh comparisons are tough to find, as some countries only publish homeownership rates every few years or so.)
And though those data are old, we know Germany's homeownership rate remains quite low. It was 43% in 2013.
This may seem strange. Isn't home ownership a crucial cog to any healthy economy? Well, as Germany shows—and Gershwin wrote—it ain't necessarily so.
In Spain, around 80% of people live in owner-occupied housing. But unemployment is nearly 27%, thanks to the burst of a giant housing bubble.
Only 43% own their home in Germany, where unemployment is 5.2%.
Of course, none of this actually explains why Germans tend to rent so much. Turns out, Germany's rental-heavy real-estate market goes all the way back to a bit of extremely unpleasant business in the late 1930s and 1940s.
Germany%20Rentals.psd
By the time of Germany's unconditional surrender in May 1945, 20% of Germany's housing stock was rubble. Some 2.25 million homes were gone. Another 2 million were damaged. A 1946 census showed an additional 5.5 million housing units were needed in what would ultimately become West Germany.
Germany's housing wasn't the only thing in tatters. The economy was a heap. Financing was nil and the currency was virtually worthless. (People bartered.) If Germans were going to have places to live, some sort of government program was the only way to build them.
And don't forget, the political situation in post-war Germany was still quite tense. Leaders worried about a re-radicalization of the populace, perhaps even a comeback for fascism. Communism loomed as an even larger threat, with so much unemployment.
West Germany's first housing minister — a former Wehrmacht man by the name of Eberhard Wildermuth — once noted that "the number of communist voters in European countries stands in inverse proportion to the number of housing units per thousand inhabitants."
A housing program would simultaneously put people back to work and reduce the stress of the housing crunch. Because of such political worries — as well as genuine, widespread need — West Germany designed its housing policy to benefit as broad a chunk of the population as possible.
Soon after West Germany was established in 1949, the government pushed through its first housing law. The law was designed to boost construction of houses which, "in terms of their fittings, size and rent are intended and suitable for the broad population."
It worked. Home-building boomed, thanks to a combination of direct subsidies and generous tax exemptions available to public, non-profit and private entities. West Germany chopped its housing shortage in half by 1956. By 1962, the shortage was about 658,000. The vast majority of new housing units were rentals. Why? Because there was little demand from potential buyers. The German mortgage market was incredibly weak and banks required borrowers to plunk down large down payments. Few Germans had enough money.
It's worth noting that Germany wasn't the only country with a housing crisis after World War II. Britain had similar issues. And its government also undertook large-scale spending to promote housing. Yet the British didn't remain renters. The UK homeownership rate is around 66%, much higher than Germany's.
Why? The answer seems to be that Germans kept renting because, in Germany, rental housing is kind of nice....

Sunday, January 26, 2014

Terrifying Technicals

Average house prices have surged beyond the £1 million mark in almost 50 areas of the country, with Britain's economic recovery creating a new generation of property millionaires, a study shows.
The report, an authoritative analysis of sale values in England and Wales, identifies 43 locations where houses now sell for an average of more than £1 million, including several outside London.
It highlights how dozens of property hot spots have emerged not just in the South East, but also across the country, with average prices in areas of Buckinghamshire and Oxfordshire reaching more than £900,000.
In parts of Somerset, homes now sell for an average in excess of £800,000, while in several areas of the North and the Midlands, the average sale price is more than £500,000....
*** UK Daily Telegraph / link
S%26P%20Plunge.jpg 
What kind of blowback should we prepare for? The lesson of history is that trying to force things to get better does not merely create unwelcome repercussions. It does not merely slow the pace of natural evolution. Attempts to enforce a certain outcome always appear to create the opposite effect. We do not find a law of adverse consequences. We find a law of opposite impacts.
Let us review the sample examples from the previous charts. Every effort to jam an ideology or a plan down the throat of the world only creates the opposite of the intended effect. I would maintain that this is one of the few lessons from history that can be relied on.
If the Federal Reserve is trying to force feed us prosperity then the inevitable blowback will be adversity. If the Fed is trying to compel the most dramatic economic recovery in history, then the blowback may well be the deepest depression in history. If the Fed is trying to enforce confidence and optimism then the blowback will be fear and despair. If the Fed is trying to force consumers to spend then the blowback will be a collapse in consumer confidence.
I sincerely hope that I am completely wrong here, that I am missing something, that there is a flaw in my logic. However until I can locate such a flaw I must trust the technical case for treating this Fed force-fed rally in the stock market as something that will end badly.
Here's how it plays out....
*** Walter Zimmerman (via Zerohedge) / link
At the top, the only 3 countries in the world that DON'T use the metric system.
At the bottom, the only 22 countries in the world that the British haven't, at one time or another, invaded.
These two maps were plucked from 40 that will change how you see the world.
Fascinating stuff.
*** A sheep no more / link
Maps.psd 
Source: asheepnomore.com


Friday, January 24, 2014

U.S.Retail-CRE The First Domino to Fall:

The domino of retail CRE will not fall in isolation; it will topple the domino of debt next to it.

That the retail trade is stagnating has been well-established: for exampleThe Retail Death Rattle (The Burning Platform).
Equally well-established is the vulnerability of the bricks-n-mortar commercial real estate sector to this downturn: further analysis by Mark G. makes the case:After Seven Lean Years, Part 2: US Commercial Real Estate: The Present Position and Future Prospects.
I’d like to extend Mark’s excellent analysis a bit because it suggests that the retail CRE (commercial real estate) sector will likely be the first domino to fall in the next financial crisis–the one we all know is brewing.
Let’s start with two charts of retail that I have marked up: the first is a chart of retail traffic from The Burning Platform story above. Note the phenomenal building boom in retail space from 2000 to 2008: nine straight years of adding about 300 million square feet of retail space each year.

The second chart shows department store sales, which fell by 15% during the retail building boom.

It might be possible to argue that this additional 2.7 billion square feet of retail space was needed as competitors ate the department store chains’ lunches, but let’s start by considering the foundation of retail sales: consumer income and credit.
One way to measure income to adjust it for inflation (i.e. real income) and measure it per person (per capita) on a year-over-year (YoY) basis. Notice how real income per capita has absolutely cratered in the “too big to fail” quantitative easing (QE) era masterminded by the Federal Reserve: if this is success, I’d hate to see failure.

Another way to measure median household income:

There’s a big problem with per capita (and mean or average) measures of income: a significant gain in the the top 10%’s income will mask the decline in the bottom 90%’s income. If households earning $150,000 annually get a boost to $200,000, that $50,000 increase not only offsets the decline of nine households who saw their income decline from $35,000 to $31,500 annually, but pushes both the per capita income metrics higher even as 9 of 10 households experienced a 10% decline in income.
The point here is that the declines are far deeper for the bottom 90% than shown on the per capita chart, as the top 10%’s increase in income has skewed per capita income higher. We can see this clearly in this chart:

Notice how the income of the top 10% diverged from the bottom 90% once the era of financialization and asset bubbles started in the early 1980s. Each asset bubble–housing in the late 1980s, tech in the 1990s and housing again in the 2000s–nudged the incomes of the bottom 90% briefly into marginally positive territory while it spiked the incomes of the top 10% into the stratosphere.
There are only two ways households can buy stuff: with income or credit/debt, as in charging purchases on credit cards. We’ve seen that income has tanked for the bottom 90%; how about credit/debt?
Courtesy of Chartist Friend from Pittsburgh, we can see that revolving consumer credit has flatlined:

There’s another component to the erosion of bricks-n-mortar and the ascent of eCommerce, as Chartist Friend from Pittsburgh explains:
This M2 (money) velocity chart is better because it reminds us of the days when you would drive to the mall to make a purchase, and while you were there you’d stop at the food court to have lunch, and then maybe you’d walk around afterwards and see some other item you wanted to buy, or run into friends and decide to catch a movie or have a drink, etc. At the mall there are lots of ways for money to change hands – online not so much.

Fewer trips to the mall (correlated to maxed out credit cards, declining real disposable income and the ease of online shopping) also translates into fewer miles driven and fewer gallons of gasoline purchased:

All this boils down to one simple question: can the top 10% (roughly 11 million households) support the billions of square feet of retail space that were added in the 2000s? If the answer is no, as it clearly is, then the retail CRE sector is doomed to implode.
Let’s try a second simple question: what’s holding the retail CRE sector up?Answer: leases that will soon expire or be voided by insolvency, bankruptcy, etc. as retailers close stores and shutter their businesses.
One last question: who’s holding all the immense debt that’s piled on top of this soon-to-collapse sector? The domino of retail CRE will not fall in isolation; it will topple the domino of debt next to it, and that will topple the lenders who are bankrupted by the implosion of retail-CRE debt. And once that domino falls, it will take what’s left of the nation’s illusory financial stability down with it.

The First Domino to Fall: Retail-CRE (Commercial Real Estate)

The domino of retail CRE will not fall in isolation; it will topple the domino of debt next to it.
That the retail trade is stagnating has been well-established: for exampleThe Retail Death Rattle (The Burning Platform).
Equally well-established is the vulnerability of the bricks-n-mortar commercial real estate sector to this downturn: yesterday’s analysis by Mark G. makes the case:After Seven Lean Years, Part 2: US Commercial Real Estate: The Present Position and Future Prospects.
I’d like to extend Mark’s excellent analysis a bit because it suggests that the retail CRE (commercial real estate) sector will likely be the first domino to fall in the next financial crisis–the one we all know is brewing.
Let’s start with two charts of retail that I have marked up: the first is a chart of retail traffic from The Burning Platform story above. Note the phenomenal building boom in retail space from 2000 to 2008: nine straight years of adding about 300 million square feet of retail space each year.

The second chart shows department store sales, which fell by 15% during the retail building boom.

It might be possible to argue that this additional 2.7 billion square feet of retail space was needed as competitors ate the department store chains’ lunches, but let’s start by considering the foundation of retail sales: consumer income and credit.
One way to measure income to adjust it for inflation (i.e. real income) and measure it per person (per capita) on a year-over-year (YoY) basis. Notice how real income per capita has absolutely cratered in the “too big to fail” quantitative easing (QE) era masterminded by the Federal Reserve: if this is success, I’d hate to see failure.

Another way to measure median household income:

There’s a big problem with per capita (and mean or average) measures of income: a significant gain in the the top 10%’s income will mask the decline in the bottom 90%’s income. If households earning $150,000 annually get a boost to $200,000, that $50,000 increase not only offsets the decline of nine households who saw their income decline from $35,000 to $31,500 annually, but pushes both the per capita income metrics higher even as 9 of 10 households experienced a 10% decline in income.
The point here is that the declines are far deeper for the bottom 90% than shown on the per capita chart, as the top 10%’s increase in income has skewed per capita income higher. We can see this clearly in this chart:

Notice how the income of the top 10% diverged from the bottom 90% once the era of financialization and asset bubbles started in the early 1980s. Each asset bubble–housing in the late 1980s, tech in the 1990s and housing again in the 2000s–nudged the incomes of the bottom 90% briefly into marginally positive territory while it spiked the incomes of the top 10% into the stratosphere.
There are only two ways households can buy stuff: with income or credit/debt, as in charging purchases on credit cards. We’ve seen that income has tanked for the bottom 90%; how about credit/debt?
Courtesy of Chartist Friend from Pittsburgh, we can see that revolving consumer credit has flatlined:

There’s another component to the erosion of bricks-n-mortar and the ascent of eCommerce, as Chartist Friend from Pittsburgh explains:
This M2 (money) velocity chart is better because it reminds us of the days when you would drive to the mall to make a purchase, and while you were there you’d stop at the food court to have lunch, and then maybe you’d walk around afterwards and see some other item you wanted to buy, or run into friends and decide to catch a movie or have a drink, etc. At the mall there are lots of ways for money to change hands – online not so much.

Fewer trips to the mall (correlated to maxed out credit cards, declining real disposable income and the ease of online shopping) also translates into fewer miles driven and fewer gallons of gasoline purchased:

All this boils down to one simple question: can the top 10% (roughly 11 million households) support the billions of square feet of retail space that were added in the 2000s? If the answer is no, as it clearly is, then the retail CRE sector is doomed to implode.
Let’s try a second simple question: what’s holding the retail CRE sector up?Answer: leases that will soon expire or be voided by insolvency, bankruptcy, etc. as retailers close stores and shutter their businesses.
One last question: who’s holding all the immense debt that’s piled on top of this soon-to-collapse sector? The domino of retail CRE will not fall in isolation; it will topple the domino of debt next to it, and that will topple the lenders who are bankrupted by the implosion of retail-CRE debt. And once that domino falls, it will take what’s left of the nation’s illusory financial stability down with it.

Read more at http://www.maxkeiser.com/2014/01/the-first-domino-to-fall-retail-cre-commercial-real-estate/#KmJyxH0Et5R77Pyu.99

Tuesday, January 21, 2014

US Retail-CRE The First Domino to Fall

The First Domino to Fall: Retail-CRE (Commercial Real Estate)

The domino of retail CRE will not fall in isolation; it will topple the domino of debt next to it.
That the retail trade is stagnating has been well-established: for example, The Retail Death Rattle (The Burning Platform).
Equally well-established is the vulnerability of the bricks-n-mortar commercial real estate sector to this downturn: yesterday’s analysis by Mark G. makes the case:After Seven Lean Years, Part 2: US Commercial Real Estate: The Present Position and Future Prospects.
I’d like to extend Mark’s excellent analysis a bit because it suggests that the retail CRE (commercial real estate) sector will likely be the first domino to fall in the next financial crisis–the one we all know is brewing.
Let’s start with two charts of retail that I have marked up: the first is a chart of retail traffic from The Burning Platform story above. Note the phenomenal building boom in retail space from 2000 to 2008: nine straight years of adding about 300 million square feet of retail space each year.

The second chart shows department store sales, which fell by 15% during the retail building boom.

It might be possible to argue that this additional 2.7 billion square feet of retail space was needed as competitors ate the department store chains’ lunches, but let’s start by considering the foundation of retail sales: consumer income and credit.
One way to measure income to adjust it for inflation (i.e. real income) and measure it per person (per capita) on a year-over-year (YoY) basis. Notice how real income per capita has absolutely cratered in the “too big to fail” quantitative easing (QE) era masterminded by the Federal Reserve: if this is success, I’d hate to see failure.

Another way to measure median household income:

There’s a big problem with per capita (and mean or average) measures of income: a significant gain in the the top 10%’s income will mask the decline in the bottom 90%’s income. If households earning $150,000 annually get a boost to $200,000, that $50,000 increase not only offsets the decline of nine households who saw their income decline from $35,000 to $31,500 annually, but pushes both the per capita income metrics higher even as 9 of 10 households experienced a 10% decline in income.
The point here is that the declines are far deeper for the bottom 90% than shown on the per capita chart, as the top 10%’s increase in income has skewed per capita income higher. We can see this clearly in this chart:

Notice how the income of the top 10% diverged from the bottom 90% once the era of financialization and asset bubbles started in the early 1980s. Each asset bubble–housing in the late 1980s, tech in the 1990s and housing again in the 2000s–nudged the incomes of the bottom 90% briefly into marginally positive territory while it spiked the incomes of the top 10% into the stratosphere.
There are only two ways households can buy stuff: with income or credit/debt, as in charging purchases on credit cards. We’ve seen that income has tanked for the bottom 90%; how about credit/debt?
Courtesy of Chartist Friend from Pittsburgh, we can see that revolving consumer credit has flatlined:

There’s another component to the erosion of bricks-n-mortar and the ascent of eCommerce, as Chartist Friend from Pittsburgh explains:
This M2 (money) velocity chart is better because it reminds us of the days when you would drive to the mall to make a purchase, and while you were there you’d stop at the food court to have lunch, and then maybe you’d walk around afterwards and see some other item you wanted to buy, or run into friends and decide to catch a movie or have a drink, etc. At the mall there are lots of ways for money to change hands – online not so much.

Fewer trips to the mall (correlated to maxed out credit cards, declining real disposable income and the ease of online shopping) also translates into fewer miles driven and fewer gallons of gasoline purchased:

All this boils down to one simple question: can the top 10% (roughly 11 million households) support the billions of square feet of retail space that were added in the 2000s? If the answer is no, as it clearly is, then the retail CRE sector is doomed to implode.
Let’s try a second simple question: what’s holding the retail CRE sector up?Answer: leases that will soon expire or be voided by insolvency, bankruptcy, etc. as retailers close stores and shutter their businesses.
One last question: who’s holding all the immense debt that’s piled on top of this soon-to-collapse sector? The domino of retail CRE will not fall in isolation; it will topple the domino of debt next to it, and that will topple the lenders who are bankrupted by the implosion of retail-CRE debt. And once that domino falls, it will take what’s left of the nation’s illusory financial stability down with it.

Read more at http://www.maxkeiser.com/2014/01/the-first-domino-to-fall-retail-cre-commercial-real-estate/#CrqHUwoGCJgkkM7G.99

The First Domino to Fall: Retail-CRE (Commercial Real Estate)

The domino of retail CRE will not fall in isolation; it will topple the domino of debt next to it.
That the retail trade is stagnating has been well-established: for example, The Retail Death Rattle (The Burning Platform).
Equally well-established is the vulnerability of the bricks-n-mortar commercial real estate sector to this downturn: yesterday’s analysis by Mark G. makes the case:After Seven Lean Years, Part 2: US Commercial Real Estate: The Present Position and Future Prospects.
I’d like to extend Mark’s excellent analysis a bit because it suggests that the retail CRE (commercial real estate) sector will likely be the first domino to fall in the next financial crisis–the one we all know is brewing.
Let’s start with two charts of retail that I have marked up: the first is a chart of retail traffic from The Burning Platform story above. Note the phenomenal building boom in retail space from 2000 to 2008: nine straight years of adding about 300 million square feet of retail space each year.

The second chart shows department store sales, which fell by 15% during the retail building boom.

It might be possible to argue that this additional 2.7 billion square feet of retail space was needed as competitors ate the department store chains’ lunches, but let’s start by considering the foundation of retail sales: consumer income and credit.
One way to measure income to adjust it for inflation (i.e. real income) and measure it per person (per capita) on a year-over-year (YoY) basis. Notice how real income per capita has absolutely cratered in the “too big to fail” quantitative easing (QE) era masterminded by the Federal Reserve: if this is success, I’d hate to see failure.

Another way to measure median household income:

There’s a big problem with per capita (and mean or average) measures of income: a significant gain in the the top 10%’s income will mask the decline in the bottom 90%’s income. If households earning $150,000 annually get a boost to $200,000, that $50,000 increase not only offsets the decline of nine households who saw their income decline from $35,000 to $31,500 annually, but pushes both the per capita income metrics higher even as 9 of 10 households experienced a 10% decline in income.
The point here is that the declines are far deeper for the bottom 90% than shown on the per capita chart, as the top 10%’s increase in income has skewed per capita income higher. We can see this clearly in this chart:

Notice how the income of the top 10% diverged from the bottom 90% once the era of financialization and asset bubbles started in the early 1980s. Each asset bubble–housing in the late 1980s, tech in the 1990s and housing again in the 2000s–nudged the incomes of the bottom 90% briefly into marginally positive territory while it spiked the incomes of the top 10% into the stratosphere.
There are only two ways households can buy stuff: with income or credit/debt, as in charging purchases on credit cards. We’ve seen that income has tanked for the bottom 90%; how about credit/debt?
Courtesy of Chartist Friend from Pittsburgh, we can see that revolving consumer credit has flatlined:

There’s another component to the erosion of bricks-n-mortar and the ascent of eCommerce, as Chartist Friend from Pittsburgh explains:
This M2 (money) velocity chart is better because it reminds us of the days when you would drive to the mall to make a purchase, and while you were there you’d stop at the food court to have lunch, and then maybe you’d walk around afterwards and see some other item you wanted to buy, or run into friends and decide to catch a movie or have a drink, etc. At the mall there are lots of ways for money to change hands – online not so much.

Fewer trips to the mall (correlated to maxed out credit cards, declining real disposable income and the ease of online shopping) also translates into fewer miles driven and fewer gallons of gasoline purchased:

All this boils down to one simple question: can the top 10% (roughly 11 million households) support the billions of square feet of retail space that were added in the 2000s? If the answer is no, as it clearly is, then the retail CRE sector is doomed to implode.
Let’s try a second simple question: what’s holding the retail CRE sector up?Answer: leases that will soon expire or be voided by insolvency, bankruptcy, etc. as retailers close stores and shutter their businesses.
One last question: who’s holding all the immense debt that’s piled on top of this soon-to-collapse sector? The domino of retail CRE will not fall in isolation; it will topple the domino of debt next to it, and that will topple the lenders who are bankrupted by the implosion of retail-CRE debt. And once that domino falls, it will take what’s left of the nation’s illusory financial stability down with it.

Read more at http://www.maxkeiser.com/2014/01/the-first-domino-to-fall-retail-cre-commercial-real-estate/#CrqHUwoGCJgkkM7G.99