Inflated Prices And Funny Money Spending Patterns
A weekend topic on credit, deflation and the housing bubble. Reuters, “China’s central bank cut interest rates on Saturday, just days before the annual meeting of the country’s parliament, in the latest effort to support the world’s second-largest economy as its momentum slows and deflation risks rise. Globally around 20 central banks have eased policy this year to counter deflationary pressures driven in part by the plunge in oil prices. The surprise interest rate cut in November, followed up by a February reduction in the RRR that poured fresh cash into the financial system, had little apparent effect on business confidence, although the liquidity was welcomed by the stock market.”
“China’s annual consumer inflation hit a five-year low in January while factory deflation worsened, underscoring deepening weakness in the economy. Export and import growth had also tanked in the same month, performing worse than expected. Deflationary cycles, once entrenched, can stall investment for years or even decades, as the case of Japan highlights, and is considered a nightmare scenario by many economists in China.”
The Tribune Live in Pennsylvania. “It’s getting easier for people without much money in the bank to buy a home, triggering concerns that the nation is setting the stage for another housing bust. Edward Pinto, codirector of the American Enterprise Institute’s International Center on Housing Risk, worries the steps are the first onto a slippery slope that leads back to the years before the 2008 financial crisis — the origins of which have been blamed on a housing boom driven by low or no down payments and easy credit.”
“‘The problem with that is the risk of default goes up as the down payment goes down and the FICO score goes down,’ Pinto said, referring to the credit score calculation developed by Fair Isaac Corp. ‘We’ve seen this movie before and how it plays out.’”
“Sam Lombardo, 47, of Mt. Lebanon was pre-approved for a 3.5 percent down-payment loan backed by the Federal Housing Administration and hopes to close on his purchase in Beechview in April. The bartender at Rivers Casino said he could have scraped together 20 percent down for the house, but it would have involved depleting his savings and borrowing against his retirement savings plan. ‘I just figured what I was pre-approved for and what I can afford,’ he said. ‘I don’t want to be house poor. … It does make it nice when these FHA loans only do the 3.5 percent. It makes it more affordable.’”
The Valley News in California. “Those hoping for a jump-start to the valley’s moribund housing market were in for some disappointment in January. Not only were sales down 30 percent from December (865/614), but they were down five percent from last January (649/614), which was the slowest sales month on record for 2014.”
“Rising inventory coupled with weak sales will conspire to keep prices soft for awhile. January’s median price was down four percent from December but managed to stay just one percent ahead of January 2014. January 2014 median was 22 percent ahead of January 2013 but those days of rapid appreciation are gone, at least for now.”
“Distressed sales as a percentage of closed sales jumped five percent in January, up to 15 percent of closed transactions. Indication is that we will see more of this as the year winds on for two reasons – first being that banks have now had a year to get comfortable with, and in compliance with, the so-called Homeowners Bill of Rights ushered in by Attorney General Kamala Harris in 2012. The second reason is that folks who were among the first round of loan modifications are seeing those loans start to re-set this year. If their personal economic circumstances have not improved we will see an increase in short sales and ultimately foreclosures from this market segment as well.”
“Homeowners who had their loans modified to interest only for three years or into an adjustable interest rate are seeing re-sets nearly doubling their monthly mortgage payment while their household income has remained the same (if they’re lucky). Historically nearly 50 percent of modified loans have ended up in default anyway so we’ll see what this new round of re-sets bring us.”
The Lodi News Sentinel in California. “California’s economy has always been boom or bust broken up by occasional stable periods. Starting with the Gold Rush era in the 1850s to California’s aerospace industry surge a century later to today’s tech bonanza, people have rushed to California — mainly Los Angeles and the Bay Area — to make their fortunes and then spend their money as if there were no tomorrow.”
“Now economists are concerned that California’s revival from the subprime mortgage meltdown era that began in 2006 and resulted in homeowners losing billions in equity may be on the verge of collapse. They point to preposterously inflated housing prices and the funny money spending patterns of Silicon Valley’ high tech industries as alarm bells that should be heeded.”
“Harvard- and MIT-educated financial analyst Wade Roush warns that the bubble may be about to burst. Pointing to Facebook — which recently spent $19 billion in cash, stock and restricted stock units to purchase the 5-year-old, $20 million in revenues startup WhatsApp and also laid out an additional $2 billion to buy another startup, Oculus, that hasn’t even introduced its product to the market — conditions are teetering on the edge.”
“To put $19 billion in perspective, Roush notes that the sum is greater than the gross domestic product of Honduras, Jamaica, Iceland, Nicaragua and 80 other nations, exceeds the annual revenues of 355 of the Fortune 500 companies, and equals the net worth of hedge fund multibillionaire George Soros, who’s wealthier than all but 29 people in the world.”
“For wealthy Silicon Valley residents, money is no object — especially when it comes to real estate that’s seen a huge price surge even in the smallest houses, some no bigger than detached garages. One 900-square-foot Palo Alto house with two bedrooms and one bathroom sold recently for $3 million, above the 2014 $1.7 million median price in Palo Alto for homes with less than 1,000 square feet.”
The Australian. “Here is yesterday’s news: - share prices surged to new seven-year highs; housing is booming; wages growth is the lowest on record; interest rates are the lowest ever. And when I say ‘ever,’ I mean just that. Interest rates have never, ever been this low. So to sum up: savers and workers are being crushed; owners of assets are big winners. The reason savers and workers are copping it is that there is an oversupply of everything: labour, money and stuff — savings, liquidity, energy, commodities, goods, services and people.”
“There is a glut of everything, and as a result prices can’t rise and unemployment is stubbornly high, depressing wages (the ABS ‘wage price’ index rose only 2.5 per cent last year, the weakest growth since measurements began in 1998). For central bankers, low inflation and high unemployment depressing wages growth can mean only one thing: insufficient demand. That’s because aggregate demand is the only thing central banks can influence through the price of money. When the only tool you have is a hammer, everything is a nail.”
“It is hoped, consumer and business demand for goods and services will rise, driving up prices and driving down unemployment. But so far, so bad. Earlier this month we learned that retail sales finished 2014 poorly: consumers lack confidence and are not spending. That’s not surprising given low wages growth and uncertainty about government welfare spending. More importantly, businesses are not investing much.”
“Federal Reserve chair Janet Yellen started to prepare markets for the Fed funds rate in the US to rise this year after six years (and counting) at zero or thereabouts. But then she indicated that the Fed is now officially ‘data driven’ — that is, anything could happen, actually. In other words, savers now depend for their livelihoods on whether central banks can get the world’s consumers to start spending and to soak up the glut of everything. It will happen eventually of course — everything always does happen eventually. But for a while, at least, we live in interesting times.”
‘One 900-square-foot Palo Alto house with two bedrooms and one bathroom sold recently for $3 million, above the 2014 $1.7 million median price in Palo Alto for homes with less than 1,000 square feet’
No bubble there.
‘Zhang Ping, deputy head of the Institute of Economic Research at the academy, said that in view of deflation, especially in the manufacturing sector, it will be hard to maintain 7 percent growth in the second quarter of this year if economic deterioration continues, and without any large stimulus measures in the first quarter.’
‘In January, the Producer Price Index, which indicates industrial inflation, dropped to its lowest level since the global financial crisis, declining by 4.3 percent from a year earlier, compared with a 3.3 percent fall in December. The PPI reading has remained negative for more than three years.’
‘Zhang said that under pressure from deflation, companies’ profits have been dropping, increasing commercial banks’ nonperforming loans and adding risks to the financial system.’
“China needs to cut benchmark interest rates further and launch a special asset purchasing plan, learning from the International Monetary Fund’s reform and asset replacement measures,” he said.’
“nonperforming loans”
There it is. The only thing nobody likes about deflation. No problem, lend them more.
‘One 900-square-foot Palo Alto house with two bedrooms and one bathroom sold recently for $3 million, above the 2014 $1.7 million median price in Palo Alto for homes with less than 1,000 square feet’
No deflation in Palo Alto.
“‘One 900-square-foot Palo Alto house with two bedrooms and one bathroom sold recently for $3 million, above the 2014 $1.7 million median price in Palo Alto for homes with less than 1,000 square feet’”
And they’ll tear it down to build a big house. My great aunt lived in Old PA (same house since the 40’s)…the neighbor offered her some ridiculous sum so they could tear down her house and have a bigger yard.
Here’s a really dumb question about deflation. Wouldn’t the prospect of lower prices in the future create incentives for saving money, instead of blowing it all today? It seems like a nation full of broke-ass losers who responded to the incentives for spending every last penny instead of saving a bit results in a very unstable economy.
How is the U.S. savings rate these days, anyway?
Here’s How Much the Typical American Saved Last Year — How Do You Compare?
By Brian Stoffel
February 2, 2015
Read the financial news with any regularity and you know we Americans could probably do a better job of saving money. But most people don’t know that we’re actually living within our means far better than we did just a decade ago.
According to Moody’s Analytics, in 2006, the median American below the age of 54 — which most of us are — actually had a negative savings rate. Even worse, those age 44 and under averaged a savings rate worse than negative 10%!
Apparently, many folks have learned since the financial crisis that we don’t need to finance our future to afford a house we don’t need.
So how much does the average American now save? Instead of giving you just one number, we’ll break out the data a bit more. The first two variables we need are the typical savings rate by age (provided by Moody’s Analytics) and the median household income by age (courtesy of the U.S. Census Bureau).
…
“…savers now depend for their livelihoods on whether central banks can get the world’s consumers to start spending and to soak up the glut of everything.” It will happen eventually of course — everything always does happen eventually. But for a while, at least, we live in interesting times.”
Perhaps I’m missing something, but don’t savers actually depend on earning an income and…saving some of it?
Of course, higher interest rates eould increase the incentive for savers to save.
“It will happen eventually of course — everything always does happen eventually. But for a while, at least, we live in interesting times.”
Heat death of the sun will also happen, eventually.
“The important thing to recognize here is that any money saved this year and invested in the stock market could return about 6.9% after adjusting for inflation, using historical returns as the benchmark.”
Hah!
Monkey’s COULD fly out of my butt….
“It seems like a nation full of broke-ass losers who responded to the incentives for spending every last penny instead of saving a bit results in a very unstable economy.”
It results in a false economy - a borrowed money economy - if a lot of this “spending every last penny” included a lot of David Lereah-inspired equity cash-outs.
IMO the case for cash intensifies. Cash and cash flow.
Cash flow = a good paying SECURE job, a job that doesn’t depend on the continuing insanity of large chunks of the population.
Does the prospect of a global economic pandemic greatly concern you?
David Blanchflower: Deflation is bad news - and Britain is likely to be next to get it
Despite what Governor Mark Carney has claimed the Bank of England does not have the tools to make it go away
David Blanchflower
Sunday 01 March 2015
There is major economic pandemic spreading around the world. There is contagion in the air. It is called deflation, which means falling prices.
Some have claimed that deflation is a good thing. But if it was so good why have successive Chancellors set a goal for the Bank of England’s Monetary Policy Committee of generating 2 per cent inflation? If deflation was so good why didn’t successive Chancellors set minus 2 per cent as a goal?
The problem with deflation is that once you have it you can’t get rid of it. Central banks know what to do about inflation but they are pretty clueless about what to do about deflation when interest rates are as low as they can go (known as the zero lower bound). Just look at Japan, which had deflation in nine separate years from 1999-2012, with two additional years at zero, averaging minus 0.3 per cent. The highest in any single year was minus 1.3 per cent in 2013, but even a little wouldn’t go away. In 2008 there were fears of deflation coming but central banks had the ability to slash interest rates by nearly 5 percentage points.
Europe now, in particular, has a problem of deflation. The data from the European Union’s statistical agency last week made clear that both the eurozone and the EU28 had entered deflation, with prices falling at 0.6 per cent and 0.5 per cent respectively.
This was driven primarily by declines in energy, but there was also deflation in non-energy industrial goods and telecommunications. As the table makes clear 23 of the 28 EU countries are now in deflation, plus Iceland and Switzerland. The UK looks to be the next to tumble over the precipice, with inflation at 0.3 per cent. Watch out for the next data release on the 24 March, when it is likely that the CPI will go into negative territory for the first time in 170 monthly observations since the index was started in January 2001. Only Norway, Sweden, Austria, Romania and Malta are not in deflation yet.
Then on Thursday we had data for the United States. The US now also has a problem of deflation. The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.7 per cent in January on a seasonally adjusted basis, the US Bureau of Labor Statistics reported. Over the last 12 months, the all items index decreased 0.1 per cent – the first negative 12-month change since the period ending October 2009.
The food index was unchanged in January, with the food at home index falling for the first time since May 2013. Used cars and apparel also saw price falls. Fed chair Janet Yellen made it clear in her congressional testimony this week that rate rises will depend on inflation rising and moving back to the 2 per cent target. Everyone is hoping this is just because of the fall in the oil price and not down to a broad collapse in global demand.
The collapse in the Baltic Dry, which indicates the cost of shipping dry goods, potentially suggests something deeper is going on. Fingers crossed it goes away. Despite what Mark Carney has claimed, the MPC does not have lots of tools to make deflation go away if it becomes entrenched and broad-based. It’s like being up that famous creek without a paddle.
There was also some not so good pre-election economic news as the ONS confirmed that the UK economy slowed in the fourth quarter of 2014. Business investment fell by 1.4 per cent, which is the fastest rate since the financial crisis, and for the second month in a row. This is bad news for the MPC, who need investment to grow like gangbusters so that productivity rises.
There was also evidence of an increase in the number of zero hours contracts (ZHC) by 110,000, or a 19 per cent increase over the last year. Of the 700,000 workers who said they had such contracts, 20 per cent said they wanted more hours, compared with 10 per cent of workers who were not on such contracts. A further 10 per cent said they wanted a replacement job with longer hours, versus 2 per cent of workers not on these contracts. This adds to the view that the growth in jobs is mostly low-paid, insecure jobs.
There were a couple of other interesting UK specific developments last week that were not good news for the Coalition. First there was the evidence that net migration was close to 300,000 in the year to September 2014, which was highly embarrassing to the Prime Minister, who made a “no ifs, no buts” promise to cut the number to “tens of thousands”. There were just lots of tens of thousands. Indeed, net migration was 54,000 higher in the latest data than it was in June 2010, just after he took office. It never made sense to make such a boast, especially as the Government has zero control over the number of people who leave the UK, let alone the numbers who move to this sceptred isle. A pre-election gift to Ukip.
The Treasury Select Committee (TSC) published a highly critical bipartisan report on the UK’s EU Budget contributions and a damning indictment of the claims made by George Osborne that he had “halved the bill” of £1.7bn demanded by the EU. He later described this as the result of “hard-fought negotiation” with the Commission to ensure that the consequential change to the UK’s rebate would apply. The TSC noted that the calculation of the rebate, and the circumstances in which it applies, are embedded in EU law. The Committee concluded that “it does not appear… that these documents left a great deal of room for uncertainty”.
The Chancellor and his senior adviser had insisted that there was “real doubt” and “absolutely no clarity” that the rebate would apply. The TSC found such arguments “unpersuasive”. The Committee concluded that “it should have been unambiguously clear to the Treasury… that the UK was entitled to a rebate on any additional budget contributions… We note that the Commission did not at any stage suggest to HM Treasury that the rebate would not apply”. The TSC concluded the Chancellor’s claim that the EU bill had been halved was not supported by the facts. Not good just before an election.
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It’s official: America has deflation
By Patrick Gillespie
February 26, 2015
@CNNMoney
America experienced something in January it hasn’t seen in years: deflation.
Prices for goods actually declined -0.1% in January from a year ago, according to the Labor Department. That means it actually cost less to buy things in America this year than it did in January 2014.
It’s the first time since October 2009 that the U.S. economy experienced annual deflation. But economists say don’t hit the panic button yet: the economy is still improving overall.
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How about a little rocket science humor to lighten the subject?
ft dot com
Last updated: February 27, 2015 9:31 am
Japan flirts with return to deflation
Robin Harding in Tokyo
Shoppers wait to cross a road in the Ameya Yokocho shopping district of Tokyo, Japan, on Tuesday, Dec. 30, 2014. Japan’s government approved a 3.5 trillion yen ($29 billion) fiscal stimulus package on Dec. 27 to boost the economy after April’s sales tax hike caused consumption to slump. Photographer: Tomohiro Ohsumi/Bloomberg©Bloomberg
Japan is flirting with a return to deflation after the annual pace of price increases fell to just 0.2 per cent in January, according to the measure preferred by the Bank of Japan.
The figure, down from 0.5 per cent the previous month, suggests Japan is highly likely to suffer a period of falling prices from this spring and poses a deep challenge to the central bank.
While the latest drop is caused by falling oil prices — good news for the Japanese economy as a whole — it makes it hard to hit the BoJ’s 2 per cent inflation target quickly.
That threatens the credibility of the BoJ’s aggressive campaign of monetary easing. In a speech on Friday, governor Haruhiko Kuroda said the BoJ could only break Japan out of deflation by getting inflation to 2 per cent as fast as possible.
“In order to escape from deflationary equilibrium, tremendous velocity is needed, just like when a spacecraft moves away from Earth’s strong gravitation,” said Mr Kuroda. “It requires greater power than that of a satellite that moves in a stable orbit.”
…
‘just like when a spacecraft moves away from Earth’s strong gravitation’
20 years of the same thing and they can’t see it is making matters worse. Space ships?
You know something funny is up when bankers or economists resort to examples involving aliens or space travel.
1:13 pm ET
Feb 26, 2015
central banking
‘Good Deflation’? It Doesn’t Exist
Commentary
By Greg Ip
CONNECT
Deflation, narrowly defined, returned to the U.S. in January for the first time since 2009 as consumer prices fell 0.1% from a year earlier. Because this was due to cheaper gasoline, economists were quick to dismiss the significance. Excluding food and energy, “core” prices were still up 1.6% from a year earlier.
But just because the drop in prices is narrowly based and short-lived, it should not be reflexively dismissed as harmless, much less good.
To explain why, we’ll need to get a little bit wonky. Bear with me.
Economists will sometimes distinguish between bad deflation and good deflation. Bad deflation is the result of feeble demand, which drags down prices and wages. Good deflation might have two causes. One, like the present, is when the price of something of which Americans are net importers (such as oil) falls, which boosts purchasing power. Another is when a technological innovation enables firms and workers to produce more, or better, goods and services at lower prices. Neither, according to this definition, is cause for alarm.
But this is potentially misleading, because it conflates the cause of the deflation with the deflation itself. Deflation caused by weak demand isn’t bad just because weak demand is bad; it’s bad because it neuters monetary policy.
The central bank stimulates demand by reducing the real interest rate, that is, the nominal interest rate minus inflation. Really weak demand can only be revived with a negative real rate. Clearly that is not possible if inflation itself is negative. Even with a nominal rate of zero, zero minus a negative will always be a positive.
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Europe Economy
Deflation Threat Grows in Europe
Pedestrians walk in front of sales posters displayed at a department store in Berlin. According to data released last month, consumer prices in the eurozone fell at the fastest pace since July 2009. Photo: Associated Press
By Paul Hannon
Feb. 24, 2015 5:00 a.m. ET
Consumer prices across the European Union fell in January at the fastest rate since records began in 1997, increasing the risk that the 28-member bloc will slide into deflation.
Separate data released at the end of last month showed that consumer prices in the eurozone, comprising 19 countries that use the euro as their currency, fell at the fastest pace since July 2009.
Eurostat on Tuesday said consumer prices in the 28-nation bloc fell 0.5% in January from a year earlier, and confirmed data that showed prices in the eurozone were 0.6% lower.
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Why do big name economists believe it is healthy for households everywhere to mire themselves in unrepayable debt by purchasing houses and other luxury consumption items they cannot afford?
Herve van Caloen, Belpointe Asset Management
Long/short equity, value, long-term horizon, hedge fund manager
The Deflation Hoax
Feb. 28, 2015 3:01 PM ET
Summary
Deflation is good.
Deflation is good.
Inflation is bad.
I will not eat bread today because I expect the price of bread to be lower next week. Sounds crazy, right? What about the idea that people will postpone buying the iPad 6 because they know it will be cheaper in a year from now? Tell that to the tens of millions of people who just paid the full price to get a product they desperately want.
Short of a deflationary spiral, deflation is good. Deflation is usually the result of competition, innovation and productivity. It is years of deflation that makes it possible for most Americans to own a car that would have been the envy of the top 1 percent only 50 years ago. If it were not for the constant deflationary forces of better technology and productivity, only the rich would be driving a car today.
As for deflation due to excess capacity, let’s just observe that it is an integral part of capitalism. It comes with creative destruction. Improved production techniques make old capacity obsolete and creates disruptions. But the beauty of capitalism is that this constant relative pain not only helps progress, it also prevents cataclysmic disruptions. Such constant adjustments - like tiny tremors instead of huge earthquakes - is what makes a capitalist system “antifragile”.* Not believing in deflation is not believing in the basic forces of capitalism.
Yet, prominent economists have convinced public opinion that deflation is bad for growth. They argue that in a deflationary environment consumers will spend less. Consumers will delay immediate satisfaction and wait for prices to come down. Some may even decide not to borrow money to buy that house they cannot afford. “When people expect falling prices, they become less willing to spend, and in particular less willing to borrow” writes the Nobel Prize Paul Krugman.**
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The REIC is pushing the propaganda wheel again. Sales are up, up up! Then there’s this:
‘There’s been a damper on the housing market. The number of people owning homes is at a 20 year low across the nation according to he U.S. Census Bureau.’
‘Real-estate broker Don Jones with Bellator Real-estate and Development says he sees the shift. He’s been in the housing business for 20 years. “We’ve seen a trend over the last several years coming out of the economy meltdown in 2009. There was complete upheaval within the mortgage regulations and so they became tighter to make sure that didn’t happen again.” Jones says it’s both a buyers and sellers market, but several factors are keeping people from closing a deal.’
‘One is stricter regulations. “The national average credit is about 650, and for someone to go FHA financing, which is the least expensive in terms of down payment, but you really have to have about a 720 right now.” Jones says other factors include student debt and the fear of homeownership. “After the economy meltdown a lot of people lost their homes to foreclosure. Left a very bad taste in their mouth about homeownership. I guess the back of their mind they knew that if it could happen once in the economy who knows whether it could happen again?”
I dunno, maybe somebody’s a lion.
” it’s both a buyers and sellers market, ”
More lyin realtor talk.
‘Sam Lombardo, 47, of Mt. Lebanon was pre-approved for a 3.5 percent down-payment loan backed by the Federal Housing Administration and hopes to close on his purchase in Beechview in April. The bartender at Rivers Casino said he could have scraped together 20 percent down for the house, but it would have involved depleting his savings and borrowing against his retirement savings plan. ‘I just figured what I was pre-approved for and what I can afford,’ he said. ‘I don’t want to be house poor. … It does make it nice when these FHA loans only do the 3.5 percent. It makes it more affordable.’
‘Facebook…recently spent $19 billion in cash, stock and restricted stock units to purchase the 5-year-old, $20 million in revenues startup WhatsApp and also laid out an additional $2 billion to buy another startup, Oculus, that hasn’t even introduced its product to the market.’
‘To put $19 billion in perspective, Roush notes that the sum is greater than the gross domestic product of Honduras, Jamaica, Iceland, Nicaragua and 80 other nations, exceeds the annual revenues of 355 of the Fortune 500 companies’
Since I recently joined the ranks using a real smart phone, I can now see the world of mobile computing a bit more clearly. There are a ton of apps available for free. How hard is it to devise a similar app? But then again, accepting the idea that Uber is worth more than Safeway eludes me too. BTW, Uber’s app came pre-installed on my phone. I might give it a try on one of the once-in-three-year times I use a taxi.
“Facebook…recently spent $19 billion in cash, stock and restricted stock units to purchase the 5-year-old, $20 million in revenues startup …”
(doin’ some math here …)
Let’s see, 19 billion dollars is $19,000,000,000, and 20 million dollars is $20,000,000, so if I divide $19,000,000,000 by $20,000,000 I will get a number that looks like …
950.
Yes! The number is 950! And this number, this 950, is the number of times the price for the company exceeds the company’s revenues!
That does it! Such a deal! I’m sold! I’m going all in!
http://www.bloomberg.com/news/articles/2014-10-28/facebook-s-22-billion-whatsapp-deal-buys-10-million-in-sales
‘In a regulatory filing yesterday, Facebook disclosed WhatsApp’s financial results for 2012 and 2013. The messaging service, which reached 400 million active users in December, generated less than 3 cents in revenue for each one last year. By comparison, Facebook paid $55 per user when it acquired the company. WhatsApp’s net loss was $138.1 million for 2013.’
‘the results illustrate how far Facebook has to go to get its money’s worth for the app, which generates revenue by charging 99 cents for subscriptions after a user’s first year.’
‘The app now has more than half a billion users, and revenue for the first half of this year reached $15.3 million, Facebook said yesterday. The unit’s losses are still widening — its net loss for the six months that ended in June was $232.5 million.’
99 cents a year? I’d bet the transaction costs more than that to process and record.
Apps and web portals get stale and unfashionable too, happened to Yahoo in a big way and many predict it is just a matter of time for Facebook…from what I’ve read that is already the case for many teenagers who predictably do NOT want to hang out on the same site as their parents or grandparents.
I’m not denying that these phones and mobile web devices are interesting and powerful technologies that the consumer has taken to with gusto. But aren’t the big winners companies like Verizon? So what about that valuation?
Market cap
201.37B
P/E ratio (ttm)
19.64
Dividend yield
4.45%
Smartphones
Planet of the phones
The smartphone is ubiquitous, addictive and transformative
Feb 28th 2015 | From the print edition
Timekeeper
THE dawn of the planet of the smartphones came in January 2007, when Steve Jobs, Apple’s chief executive, in front of a rapt audience of Apple acolytes, brandished a slab of plastic, metal and silicon not much bigger than a Kit Kat. “This will change everything,” he promised. For once there was no hyperbole. Just eight years later Apple’s iPhone exemplifies the early 21st century’s defining technology.
Smartphones matter partly because of their ubiquity. They have become the fastest-selling gadgets in history, outstripping the growth of the simple mobile phones that preceded them. They outsell personal computers four to one. Today about half the adult population owns a smartphone; by 2020, 80% will. Smartphones have also penetrated every aspect of daily life. The average American is buried in one for over two hours every day. Asked which media they would miss most, British teenagers pick mobile devices over TV sets, PCs and games consoles. Nearly 80% of smartphone-owners check messages, news or other services within 15 minutes of getting up. About 10% admit to having used the gadget during sex.
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Funny money needs a home same as you and I need one.
Such a deal!
They clearly didn’t buy it because the P/E was attractive; however, the growth rate, combined with the competitive landscape (e.g. WhatsApp has great demographic adoption in the segment that was foregoing FB alltogether) made it not such a ridiculous acquisition, IMHO. The absolute dollar amount was insane; but considering that it was purchased largely with FB stock, which is also priced somewhat insanely, made it not such an insane deal on either side of the table.
Prime, I like your thinking. Obviously you have it together.
Why not drop by my office Monday morning for a free cup of coffee and maybe we’ll talk over what I like to think of as my Dotted Line Special.
maybe we’ll talk over what I like to think of as my Dotted Line Special.
Ha! I’ve got too much of my own cash burning a hole in my pocket—don’t really want to consume it, can’t see anything reasonably-priced enough in which to invest it.
So, thanks, but no thanks, on accepting your cash, and then not knowing what to do with it either.
Mr. Banker what keen insight you have to pounce on an opportunity now that his rent has increased.
Well I for one agree with you. While I think über is a huge black hole , I think facebooks overpriced acquisitions are probably pretty strategic.
People are dismissing Facebook as a hasbeen - Facebook knows it - it’s buying stuff that hopefully will hedge that or turn it around. If they are faced with oblivion , gambling on buys that amount to a reasonable percentage of their overall value makes sense. Facebook has a lot of Monopoly money to play with - why not play with it while they can?
And Zuckerberg (and lots of other Facebook-ites) live in Palto Alto. There is the money that is buying homes and tearing them down.
If you believe that What’sApp is worth $20B, then surely a piece of land where you can build a modest house must be worth $3MM, right?
The Valley News piece was written by Gene Wunderlich. Since he never said what valley he was talking about:
Areas Served: Hemet, Lake Elsinore, Murrieta, Sun City, Temecula, Wildomar, Winchester
http://www.realtor.com/realestateagents/Gene-Wunderlich_Wildomar_CA_43639_084994608
Just to give you a visual reference how grossly inflated housing prices are and how far they have to fall to get to long term trend.
http://picpaste.com/pics/56b0bfc3360db56e5a50c4a6a6bde756.1425146885.jpg
Taking the long-and-wide trough of the last RE downturn and arguing that that is the long-term trend-line strikes me as rather ridiculous.
Case and Shiller argued quite convincingly that the long-term trend-line is really the rate of inflation.
Do you really believe that the rate of inflation is 0%?
Given the deflationary environment of the last 30 years, what do you think?
The CS is supposedly inflation adjusted. Along the same lines, inflation adjusted median household income is exactly what it was in 1995.
I do not believe that is correct, Blue Skye; CS is normalized to a January 2000 value of 100.0, but I do not believe that it is inflation-adjusted.
I posted something that didn’t show up. I think you’re right Prime, that graph was raw price, not “real” inflation adjusted price. Either way, there is a long way down.
Look at Shiller’s data from his Yale website.
Factor in the changes in CPI due to the Boskin Report (how the CPI was calculated changed in the middle of Shiller’s dataset). This changed the calculation by several 10’s of basis points per year over the past 10+ years (it’s a nudge to the numbers, not a massive shift).
The result is that we hit an inflation adjusted trough a few years back.
We are now consistent with an inflation-adjusted cyclical peak.
In other words, we have already had our cyclical low, and have reached a cyclical high. Now the question is what will cause us to cycle down again?
I’ll submit (again) that we won’t see a down-cycle until housing development has ramped back up again for a little while. We simply don’t have enough supply to have a significant down-leg.
There is nothing “cyclical” about that chart or housing in general Rental_Fraud. It’s all unprecedented graft and fraud.
Now the question is what will cause us to cycle down again?
I would tend to guess that the cause will be the same as it was in 2006: buyer exhaustion. The financial crisis came _after_ we ran out of greater fools, not before. And lending tightened after as well, not before.
Remember, we are at peak levels again in some areas, on the backs of far worse fundamentals; in other words, things are even more out of whack than they were the last go-around.
‘We’ve seen this movie before and how it plays out.’
Spoiler alert:
CR8R!
“Deflationary cycles, once entrenched, can stall investment for years or even decades, as the case of Japan highlights, and is considered a nightmare scenario by many economists in China.”
“there is an oversupply of everything: labour, money and stuff — savings, liquidity, energy, commodities, goods, services and people.”
Something for the economists to consider; the nightmare was in the wasteful expansion of “everything”. It wasn’t sustainable. What comes next is a salvage operation the said economists helped make necessary.
You only get to this point after years of malinvestment spawned by an ongoing excess of command-and-control economic stimulus.
What I find interesting is the lack of MSM coverage of the flurry interest rate moves. There’s no crisis or broad equity collapse or bank runs. So why are the central banks freaking out, and so many of them? I do know this; there has to be some currency pegs straining out there. And China just had a developer kinda/sorta default on $10 billion of bonds, many of which funded outside of China. It’s going to be hard to pay back US dollar based debt with a depreciating local currency.
As far as a nightmare scenario, that would appear to be getting stuck in Beijing with the money one accumulated during the boom. The capital outflows are getting larger every month.
Zillow has
williston ND + 1.1%
denver + 5.8%
midland ,tx +4.1%
you would think they’d have an oil state/county adjust-o-matic logarithm
Oh dear…
http://www.movoto.com/las-vegas-nv/market-trends/
http://www.movoto.com/las-vegas-nv/market-trends/#city=&time=1Y&metric=Inventory&type=0
http://www.movoto.com/dallas-tx/market-trends/#city=&time=1Y&metric=Inventory&type=0
Holy sufferin $hit look at those inventory numbers.
http://www.movoto.com/houston-tx/market-trends/#city=&time=1Y&metric=Inventory&type=0
Check out the five year chart. Two years of bubbling vaporized in one month.
The Houston inventory chart is another bombshell.
Lotsa bombshells landing this winter!
…… leaving massive moon craters.
They were building more new single-family homes annually in the Houston MSA as in the entire state of California.
That’s the supply that leads to a downturn.
Do you think it might have something to do with the fact that there is no demand and a massive excess supply in CA?
Wow. I saw my emails with new listings here in Vegas go from none, one or two, to twenty in a the typical email, but I had no idea it was up that high.
I was listening to one of the local RE radio shows today and they had a Las Vegas Sun reporter (same guy who wrote this article Ben posted the other day
A Tale of Two Bargains). He was called it as he sees it - he’s pessimistic about the Vegas market. He talked about lower prices being a good thing and all the home owners squatting or still significantly underwater. The mortgage broker radio host was dismayed.
That Vegas inventory graph is a bombshell.
Los Angeles, CA Housing Inventory Skyrockets 70% YoY As Housing Demand Craters Nationally
http://www.movoto.com/los-angeles-ca/market-trends/
Interestingly to me, Phoenix area shows pretty much no change inventory wise. I wonder why.
From 4300 in December to 5079 in February. 1,618 price reductions in the latest month.
‘China’s central bank cut interest rates for the second time in less than four months, in a fresh sign that the country’s leadership is becoming more aggressive in trying to arrest flagging economic growth.’
‘The rate cut by the People’s Bank of China, announced Saturday, came sooner than some analysts and investors had expected and reflects growing worries over the world’s second-largest economy as it struggles with an array of ills: a slumping property market, more money being sent offshore and growing risks of falling prices that, in effect, are pushing up borrowing costs for businesses.’
“Deflationary risk and the property market slowdown are two main reasons for the rate cut this time,” said a central bank official in an interview late Saturday.’
‘ The latest easing step followed a rate cut in November–the first such move in two years–and an across-the-board measure lowering the amount of money banks need to hold in reserve, thereby freeing up more funds for lending. Economists and officials said it shows that the Chinese leadership is increasingly shifting toward using big-bang measures to support growth, which has been decelerating in recent years and last year slipped to 7.4%, its slowest pace in nearly a quarter century.’
“There’s a sense of urgency,” said Jianguang Shen, China economist at Mizuho Securities.’
‘Meanwhile, deflation is looming. Prices at the factory gate have fallen for about three years due to dropping commodity prices and persistent overcapacity problems in a wide range of industries including steel, cement and glass. Consumer prices, at the same time, rose at the slowest pace in more than five years in January.’
‘China is dangerously close to “slipping into deflation,” a newspaper owned by the central bank, Financial News, warned last week.’
‘The property-market’s troubles are in part due to a housing glut fed by developers taking on too much debt, and many developers are finding it hard to raise funds to complete projects. In Guangrao, a dusty industrial town in eastern Shandong province, a big housing project near a newly-developed industrial park sits abandoned after banks cut off its funding. “We’re trying to get the government involved to get our money back,” said Guo Xiang, a business owner in Guangrao who prepaid for an apartment in the half-built complex, which is ringed by empty roads.’
Borrowing money to build useless stuff is like opium.
‘A sustained period of lower oil pricing will clearly have some major negative impacts on the Middle East, a region that is driven by the proceeds of the hydrocarbon industry. Ultimately, lower oil prices in the long term could mean lower economic growth and thus fewer new jobs.’
‘This, in turn, will directly impact upon all sectors of the real estate market, from new housing requirements to office leasing, tourism, retail and industrial. During the past six months, we have already witnessed a slump in Russian tourism – a situation brought about by the current EU sanctions, the subsequent collapse of the rouble and the decline in oil prices.’
‘It seems 2015 is likely to be a more testing year for the Dubai market as a whole, with a combination of lower demand, global economic uncertainty, low oil pricing and significant new supply across virtually every asset class.
The two sectors that appear most exposed are residential and hospitality. This is due to their position in their respective real estate cycles, the volume of upcoming supply and slowing demand. During 2015, over 10,000 new hotel keys and serviced apartments are set for delivery, which is close to 10% of existing supply.’
‘The residential sector will see handover of around 23,000 new units, compared with approximately 14,000 and 16,000 units during 2013 and 2014 respectively. These figures are significant and will clearly have some form of dampening effect on the market, continuing on from trends that emerged during the second half of 2014.’
TimkenSteel to lay off 52 as low energy prices cut steel demand
CANTON: The flip side of lower energy prices will cost more than 50 TimkenSteel workers their jobs, at least temporarily.
TimkenSteel Corp. on Friday said it will lay off 52 workers at its Faircrest, Gambrinus and Harrison steel plants in Canton, effective March 1. The company cited as the main reason lower energy prices, which reduces demand for its steel…”Orders remain solid in our other markets, and all of our operations are continuing to deliver customized alloy steel products and services.”
‘GONZALES, Texas – Maybe God knew the price of crude oil would fall so far so fast. Across Texas, drilling rigs would come down. The bust would leave behind disposal wells and empty hotels, ruined roads and men with no place to go.’
‘God was the one, Hollas Hoffman says, who called him out of retirement at the height of the boom, not even two years ago, to take up a new ministry in the oil fields. God sent him to address early morning safety meetings, to hand out his phone number and most of all to lend an ear in times of grief, addiction and loneliness. God told him, hale at the age of 70, to spread the good news of Jesus Christ to the transient workers of the Eagle Ford Shale.’
‘And God, as layoffs accelerate, has not given any clear order to stop. “The telephone calls have increased,” Hoffman said. “As they lose their jobs, we get calls. I get calls from people who just want to talk. You can tell they’re crying. I get calls from wives, I get calls from men. Marriage breakups are fairly common. We’ve had suicidal calls. We just try to respond to whatever they call about.”
‘Don’t think the decline in oil pricing is hurting parts of the economy? Think again. Many companies are shedding employees as low oil prices force energy companies to rein in spending. I am in North Dakota and yesterday drove out to Dickinson, a hub in the oil patch. Frankly things seemed a little quiet…’
‘As noted in the commentary recently, state income as measured in Gross State Product, has fallen in a handful of states. When profits start to fall in any sector there’s usually two sure things: no more flavored coffee in the break room, and layoffs are sure to come. Wells Fargo is forecasting this trend. “In dollar terms, Texas is likely to suffer the largest loss. The Lone Star State has by far the largest number of workers in each of the oil- and gas-related industries. However, it does not have the highest concentration of those workers as the state is relatively large and diverse economically. In Texas, only 2.6 percent of workers are employed in oil and gas extraction…By contrast, 6.0 percent of North Dakota’s workers are employed in those three industries, while 5.8 percent of workers in Wyoming are concentrated there.” Diversification is typically a good thing, something lacking in Alaska, Oklahoma, New Mexico and Louisiana, which all have a higher concentration of oil and gas workers than Texas. When employment data is released later this year, contraction in state gas and oil employment is expected.’
Good luck Pastor Hoffman, euphoric donations of gold dust are likely diminished. Good on you catching the wave.
BTW, there is no cozy retirement from a calling. It’s feet first or fraud. Just sayin.
“God give me another oil boom: I won’t screw it up.”
It is 30 years from the prior bust to this one. How many banked the bubble money instead of upsizing their lifestyle, only to face a painful downsizing?
Wall Street, Silicon Valley, the Asian Tigers, the real estate/broker/mortgage/developer industry or the oil patch, it’s always the same. The money is flowing in because they are the superior people - smarter, harder working, more God fearing, whatever. It isn’t luck and it isn’t temporary. And then?
Only the top executives and retired and soon to retire public employees get to keep the inflated winnings. Unless and until another Great Depression comes along to wipe them out.
At a glance, Tech Stock Bubble 2.0 looks bigger than the first one. Can anybody who understands the filtration system explain why so many billions of Bernanke bucks flow into laughably useless SillyCon Valley enterprises?
Where else?
Every asset class is overinflated, and heading for a fall. Might as well sit in cash, and take your losses in inflation-adjusted dollars, waiting for that fall. Or take a flyer.
From the NYT’s Sunday edition:
Unicorn, n.
Webster’s: a mythical horselike animal with a single horn growing from the center of its forehead.
Silicon Valley: a start-up business valued at $1 billion.
Riverside, CA Housing Prices Sink; Inventory Explodes 109%
http://www.movoto.com/riverside-ca/market-trends/
Looks like IE stands for Imminent Enema
“Realtor Arrested, Charged With Aggravated Assault”
http://www.pressregister.com/news/article_0a897726-b6fa-11e4-b194-1f5b719b9606.html
And this is news because…?