What's Hot and What's Not
Volume 15 Issue 2
February 2010
By:
U.S. Senator John Seymour (ret.)
NATIONAL ECONOMY:
Gross Domestic Product (GDP) grew at a 3.7% pace in the final quarter of last year. That's hotter than Yemen terrorist Abdulmutallab's underwear, when he tried to blow up the Christmas airliner. Not since the second quarter of 2006 have we seen such strong growth. This surprisingly strong growth followed a 2.2% GDP increase during the third quarter of 2009. By definition, two consecutive quarters of positive growth means that the recession is officially over. However, don't ask any one of the 15 million Americans who are currently unemployed and looking for a job. For them, GDP growth is nothing more than a hopeful sign that their depression might soon end.
The national unemployment rate stubbornly remains at 10% and might well reach 10.5% before it begins a slow decline. Expectations are, that by year end, unemployment will have dropped to the 8.5% - 9.0% range. The good news is that many businesses, which have previously cut their payrolls, have now begun to hire "temporary" help. These businesses are poised to expand, with new permanent jobs, however; every time Washington talks of tax increases or more stringent regulations on business, these businesses simply pull their "help wanted" signs. What the Obama administration and Congressional leaders don't seem to get is that Wall Street and Main Street America are joined at the hip. Meaningful job creation will not occur as long as the war between Washington and Wall Street continues. Like it or not, that's the way our capitalistic economy works.
ECONOMIC STIMULUS & JOBS: Despite the fact that the Obama Administration claims credit for "creating or saving" 2,000,000 jobs in 2009, as a result of their $787 billion stimulus program, very few believe it to be true. Originally promising, that with the stimulus program, unemployment would not rise above 8%, the White House, faced with 10% unemployment, has now officially changed the job-counting rule. It's no longer about counting a job saved or created: now it's a matter of counting jobs "funded" by the stimulus. That means that any stimulus money used to cover payroll will be included in the jobs credited to the program, including pay raises for existing employees and pay for people who never were in jeopardy of losing their positions. You can "sugar coat" it any way that you want; however, the hard facts are that there are nearly 4,000,000 more Americans unemployed today than there were one year ago. President Obama has clearly taken political "spinning" to a new and higher level. Unfortunately for him, the American people aren't buying the "spin" and, as a result, the President's credibility has taken a huge hit.
Economic Stimulus III is now being debated in Washington. The House version is for $150 billion. The Senate version has yet to be announced. The President's latest plan is for "small" business tax credits of $5,000 for every new hire. The President has not yet estimated how many new jobs might be created as a result of his proposal. Cost of his new proposal is estimated to be $100 billion, according to the administration.
According to the White House's economic stimulus website, www.recovery.gov, as of January 22, 2010, $268.8 billion (34.1%) of the total $787 billion has been spent. So far it has been as "stimulating" as Osama Bin Laden wearing nothing but a "thong" to his vestal virgins party. President Obama signed this proposal, with great fanfare and hope for the American people that help was on its way, one year ago. What an embarrassment! After one year, only slightly more than one-third of his stimulus program has been injected into a sick economy with over 15 million people unemployed. Former President Bill Clinton had it right… "It's the economy stupid!"
ELECTION EARTHQUAKE: Not since the Boston Tea Party have the people of Massachusetts caused such a tremendous political disruption. With the election of Republican Scott Brown as the U.S. Senator to replace the deceased Ted Kennedy, Massachusetts voters have sent a clear message of, "we're mad as hell and we're not going to take it anymore." Massachusetts has been a very liberal leaning state for over five decades. With just 15% of the voters registered as Republican, little known State Senator, Scott Brown, won 52% of the total vote. Of voters who self-describe themselves as members of organized labor, 22% of them voted for Brown.
This voter rebellion began almost one year ago with a truly grass roots movement of angry voters. They were angry about the growing high rate of unemployment. They were angry about high taxes, angry about growing government spending, and angry about trillion dollar
deficits. Contrary to the beliefs of some, the "tea party" movement was not orchestrated by the Republican Party, but much like California's citizen led Howard Jarvis's anti-property tax rebellion of 1978 with Proposition 13, it grew out of anger and resentment against any political person who was perceived to be part of the government and therefore part of the problem.
Then came the Obama Nationalized Health Care Plan with which a vast majority of voters concluded that they were going to have to pay more and or suffer health care provider reductions so that the uninsured could benefit.
Congress went into their summer recess, only to be met by 'in your face outraged voters' at "town hall meetings." Worse yet, the outrage of senior citizens, an important voting bloc, was the loudest. By Labor Day, many of the angry anti-health care voters had joined the tea party movement and the voter unrest continued to grow. The strength of the movement resulted in Democratic Gubernatorial losses, first in Virginia and then in New Jersey. Some political pundits said that Virginia and New Jersey were State anomalies and not reflective of Congressional politics. The U.S. Senate race in Massachusetts dispelled all doubt.
For the Republicans to conclude that voters have returned to their party is a serious mistake. Angry voters vote against the existing political establishment and in favor of the outsider, notwithstanding any party loyalty. That is how Obama won the presidency, first over Hilary Clinton and then John McCain.
Without a dramatic improvement among the ranks of the unemployed before the November elections, and at this point it appears unlikely, the Democrats may well lose their majority in the House as well as five to six more seats in the Senate, including the seat of California's Barbara Boxer.
In 1789, Thomas Jefferson wrote in a letter, "it is to me a new and consolatory proof that wherever the people are well-informed they can be trusted with their own government; that whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights." Jefferson was describing Democracy in action. Today, Democracy is alive and well and political blood at the ballot box, in retaliation to government run amuck, is much more civilized than bloody revolution in the streets.
THE FED WATCH & MORTGAGE RATES: Embattled Ben Bernanke, Federal Reserve Bank Chairman, won Senate confirmation for another six year term, but not without a political backlash. Reeling from the political earthquake of the Massachusetts Senate election, many of Bernanke's former Senate supporters suddenly ran for the weeds and threatened a "NO" vote, blaming the FED chief for the lousy economy. For about 24 hours, Bernanke's confirmation was in doubt until the political panic subsided and he was confirmed on a 70 to 30 vote.
At their last meeting, on January 27, Bernanke and his Federal Open Markets Committee (FOMC) left interest rates unchanged and foresaw no change for "an extended period." With inflation continuing not to be a problem, expectations are that there will be no rate increase for at least the next ninety days. The Consumer Price Index rose a scant 0.1% in December and was a negative 0.4% for the entire year of 2009.
One FED action could boost mortgage rates by about 50 basis points, 0.5%, by the end of March. That FED action would be the promised end of their $1.25 trillion mortgage purchase program scheduled to end on March 31st. Whether their cessation results in less liquidity in the mortgage markets, and therefore higher rates, remains to be seen. The next FED meeting is scheduled for March 16.
NATIONAL REAL ESTATE: December sales of existing homes dropped dramatically by 16.7% compared to the previous month, according to the National Association of Realtors (NAR). Considered as a one month "blip," the blame was bad weather and a threatened halt to the federal homebuyer tax credit program. New home sales also fared poorly with a 7.6% December decline.
Unsold inventories of both new and existing homes continue to improve and the rate of foreclosures appears to have bottomed out. With home prices pretty much stabilized, jobs and mortgage rates should determine strength of a housing market in recovery.
CALIFORNIA ECONOMY & STATE GOVERNMENT: California's unemployment rate stubbornly remained unchanged at 12.4% in December. However, a couple rays of sunshine have broken through the otherwise cloudy sky. According to the State's Economic Development Department, new jobs were added in the following industries, Information-2,000, Financial Activities-1,100, and Education and Health Services-6,500. Beyond that, three Southern California Counties experienced overall net job gains in the month of December. Riverside/San Bernardino gained 1,800 new jobs. Orange County gained 600 new jobs. Yet, another positive sign was a conversation I had with an employee of a company, based in Irvine, that does background checks on potential new hires in the Inland Empire and Orange County. The employee told me that their requests for new hire background checks had been running around 450 per month. In January, requests more than doubled to 1,000. Just maybe our unemployment has topped out and recovery has begun. We'll see… One month does not make a trend.
California's Governor Arnold Schwarzenegger and the State Legislature are faced with another $20 billion shortfall in next year's budget. In order to partially fill the gap, Schwarzenegger has asked Washington for $7 billion in federal aid. Before going to Washington to meet with the California Congressional delegation and others to seek their support, the Governor blasted them on national television for not doing enough for their state. For that "bonehead" move, Schwarzenegger deserves the Nobel Peace Prize for diplomacy. As for his $7 billion federal aid request… "Sayonara Baby!" Never bite the hand that feeds you.
CALIFORNIA REAL ESTATE: According to the California Association of Realtors (CAR), December existing home sales notched another positive month, up 1.7%. Southern California did considerably better than the rest of the state. December sales, compared to November, were up 15.7% in Los Angeles, up 4.5% in Orange County, up 21.1% in the Coachella Valley, up 13.6% in Riverside/San Bernardino, and up 22% in San Diego.
Foreclosures appear to be headed down, at least for now. Notice of Default filings for the fourth quarter of last year dropped a whopping 24.3% compared to the previous quarter. Foreclosure re sales also continued to decline, accounting for 40.7% of total sales compared to 42.7% in the previous quarter and 54.4% in the fourth quarter of 2008. It's still too early to close the book on the potential "shadow inventory" question. As I reported last month, my bet is that lenders will not "flood" the market with REOs. It's not in their financial interest.
DISCLAIMER: This monthly newsletter is posted by Orange Coast Title Company and its family of companies. The opinions expressed herein are solely those of the author and not of management or their employees. Any opinions, comments or criticisms are welcomed at jfseymour@verizon.net.
SOURCES: LA Times, Wall Street Journal, Barrons, Desert Sun, OC Register, San Bernardino Sun, San Diego Tribune, DataQuick News, CAR, NAR, NAHB, MBA, CBIA, CMBA and recovery.com.
