Five Things You Need to Know: You Picked a Fine Time to Leave Me Lucille; Speaking of Crops: Sowing the Seeds of Deflation; Housing Problems Now Contained to Tax Revenues; And Employment; And Commercial Real Estate Too
What you need to know (and what it means)!
Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. You Picked a Fine Time to Leave Me Lucille
With four hundred children and not a crop in the field! Wait, is that four hungry children, or four hundred children? Never mind. The larger point is that Lucille picked a fine time to leave me without a crop in the field... because crop prices are soaring.
- According to a story in the Wall Street Journal demand for ethanol and biofuels is creating food-price inflation.
- The article notes that the rise in food prices is causing distress among consumers in many parts of the world, especially in India and China.
- Worse, if the trend continues it could contribute to slower global growth by forcing consumers to spend less on other items.
- Hmm, that sounds like stagflation.
- Meanwhile, the inflation in food prices motif is approaching a full scale media blitz:
- "Consumers could feel effects of corn prices through basic groceries," warns the Cadillac News (MI)
- "Inflation climbs on food price hike," says the Bangladesh Daily Star
- "Rent, food drive Saudi inflation rise," notes the Khaleej Times (UAE)
- "Survey: Food prices rising," says the Appleton Post Crescent (WI)
- "Shock of Soybean, Corn Price Spikes Ripples Through Food Chain," says Cattlenetwork.com of KS
- Fortunately politicians are getting involved, the article notes, moving to counter rising prices before they take a bigger economic toll.
2. Speaking of Crops: Sowing the Seeds of Deflation
Want to see how stagflation becomes deflation? Look no further than Friday's Boston Globe.
- "Start saving, a new period of 'stagflation' may be just around the corner," Linda Stern wrote in the Boston Globe on Friday.
- It's this very move toward consumer "balance sheet repair" and savings versus "pushed forward consumption" that lurks beneath the surface these days.
- In fact, that's what makes "this time different" when compared to past bouts with stagflation when the credit boom was in its infancy.
- Stern's "stagflation prescription" is a smart one for today's consumer:
"Worry about yourself first. Collectively, consumers do need to continue spending to keep the economy on the move. But it's probably better for your own finances to shirk this responsibility for a while. Reign in spending and start paying off credit card balances and other bills in the biggest chunks possible."
- Reign in spending and start paying off credit card balances and other bills in the biggest chunks possible?
- Sounds like deflation to us.
3. Housing Problems Now Contained to Tax Revenues
The housing slowdown is now contained to state tax revenues, according to a New York Times story from this past Saturday.
- Not surprisingly, Florida is perhaps the state hardest hit with tax revenues projected to drop this year for the first time since the energy crisis of the 1970s.
- But other states are facing budget shortfalls as tax collections slow, the article says.
- New Jersey could face a $2.5 billion shortfall by mid-2008, Gov. Jon S. Corzine has said.
- In California income tax receipts in January where $1 billion less than projections.
- Maryland's real estate transfer tax revenue has fallen by 22% this fiscal year.
- Connecticut's real estate transfer tax revenue is down 13.3% so far this year.
- Also at odds with comments on "housing containment" by Fed officials in recent weeks are these nuggets:
- 16% of new car purchases in Florida were being made with home equity loans in 2006, compared with 7% nationally.
- 30% of new car purchases in California were made with home equity loans.
4. Housing Problems Also Now Contained to Employment
According to Challenger, Gray & Christmas, job losses nationwide in the category that includes mortgage lending, real estate and construction climbed 346% in the first quarter.
- Job losses nationwide in the category that includes mortgage lending, real estate and construction climbed 346% in the first quarter, to 21,245 from 4,764 in the same period last year.
- The Chicago Tribune on Friday took a closer look at how the turmoil in the subprime sector is spreading to workers.
- Consider the case of Tamika Williams.
- The 29-year-old mother of four lost a job that paid $21 an hour, plus commissions, the Chicago Trib said.
- On March 2 she landed a new job making $12 an hour handling collections for a bank.
- "I'm surprised I haven't called myself yet," she said.
5. And Housing Problems Also Now Contained to Commercial Real Estate
Fitch Ratings last week said commercial mortgage loans originated this year will likely see a 15% greater default rate than other vintages of loans.
- The warning stems from what Fitch sees as a combination of aggressive loan underwriting and unrealistic expectations for continued price appreciation.
- Today, many properties are purchased and financed with virtually no equity and loan-to-value ratios often exceed 100%.
- "Experience has taught us that continuously upward trending rents and real estate values are not guaranteed," said Fitch Managing Director Zanda Lynn.
- "In the overly optimistic view of the current market, future corrections or economic fluctuations are not contemplated."
- That sounds so familiar.
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