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Seven Things You Need to Know Right Now

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AT A GLANCE
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1. Home Ownership Rate Now Down to 1998 Levels
Remember 1998? The New York Yankees swept the San Diego Padres in the World Series. Kentucky won the NCAA National Championship in basketball. The band Neutral Milk Hotel was formed. Miley Cyrus was only six years old! Also, some people owned houses.

In fact, the same amount of some people who owned houses in 1998 own some houses today. Which is surprising, but true. Check out the chart below from Bloomberg.

This is the quarterly home ownership rate in the United States from 1996 to present.




2. Housing Affordability At Record Levels! Except It's Not
Here is a long-term look at something from the National Association of Realtors called the Housing Affordability Index. The index is designed to measure whether a "typical family" can qualify for a mortgage on a "typical home." A typical home is defined as the national median-priced, existing single-family home. The most recent national median price of an existing home was about $155,000. The typical family is one earning the median family income based on most recent census data, which was about $50,000.

On the chart below, a value of 100 -- and we're currently at 191 -- means a family with the median household income has exactly enough income to qualify for a mortgage on the median-priced home.



Hahaha. The reason that chart is so funny is because there are no longer any mortgages out there being offered based on income. You need to have income, which many still do, but ALSO cash, at least 20% of the house's price in cash to be exact. For the median-priced home, a 20% cash down payment is $31,000. If you make $50,000 a year, and live in a "typical family" household, do you happen to have $31,000 in cash lying around? I didn't think so.


3. About That Fed Paper... "Are Large-Scale Asset Purchases Fueling the Rise in Commodity Prices?"

Remember that Fed paper making the rounds patting itself on the back for not causing a rise in commodities prices? This is what it said:
"Prices of commodities including metals, energy, and food have been rising at double-digit rates in recent months. Some critics argue that Federal Reserve purchases of long-term assets are fueling this rise by maintaining an excessively expansionary monetary stance."
It's true! Some critics have argued that the Federal Reserve purchases of assets are fueling this increase in commodities prices! But hold on just a minute, the Fed researchers say in this paper:
"[D]aily data indicate that Federal Reserve announcements of large-scale asset purchases tended to lower commodity prices even as long-term interest rates and the value of the dollar declined."
Got that? It means that if, unlike the Federal Reserve, which in implementing monetary policy maintains that it is critical to ignore short-term commodities price movements, you only look at the daily commodities price movements, our purchases are actually lowering commodities prices. Hahaha! I am not the only person laughing at this ridiculous paper and conclusion. So is Bloomberg economist Michael McDonough, though he is not laughing out loud like me but laughing the way Bloomberg economists do, inside, with charts and statistics and stuff. To wit:
"Commodity prices show a strong correlation with large-scale asset purchases, evidence that contradicts Federal Reserve Bank of San Francisco research published earlier this week that indicated quantitative easing has not caused commodity price increases. The research found that “commodity prices fell on average on days of LSALSALSAP announcements;” using the one-day price change may not capture wider macro-economic trends."
McDonough is being kind. If this research paper were turned in to almost any professor in virtually any college or university in the United States the professor would reject its conclusions and point out that matching up daily data with day-of-announcement Large Scale Asset Prices is the worst kind of meaningless research and a waste of both the student's and the professor's time... as the Bloomberg chart below clearly illustrates.



Interestingly, it took McDonough only 292 words and one chart to refute the Fed's 1,800 word "research paper."


4. What Happens If the Government Shuts Down?
If the stalemate in Washington over the federal budget isn't resolved by end of Friday, the government will begin to shutdown. What does that even mean? Minyanville's Justin Rohrlich takes you through the entire process and what to expect.


5. You Are Increasing Your Productivity Simply by Reading This Article!
You know how when you are at work and someone in charge of you kinda turns the corner before you really see him or her coming and then you have to start furiously closing tabs and windows so they don't see that instead of doing work you are really on Twitter, reading Tumblr, ordering clothes, putting in your delivery from Fresh Direct and gambling on horse racing online? It's so awkward, right?! Well, don't worry so much about it. By doing all that stuff you are actually increasing your productivity.


6. Meet the Vig
Speaking of gambling, this is a horrifying, yet very instructive tale of a woman who stole from her own family members to support her multi-million dollar gambling habit. It's instructive because it reveals exactly why casinos exist and how they make money. You do not think Las Vegas Sands (LVS), MGM Grand (MGM) or The Wynn (WYNN) exist to make you money, do you? It is called "The Vig." The Vig is what the casino charges you to play the game. It's hidden in myriad ways, from the odds on the games themselves to the "free drinks" you are offered while gambling, etc etc. In this tale, the woman earned $13 million gambling over the past two years. Some people call that Winning! But here's the catch:
"Jennifer Dennison, the report stated, spent more than $14 million at the Seminole Hard Rock Hotel & Casino in Tampa over a two-year period. Her winnings' were about $13 million."
That's obviously a significant deficit! But one carefully hidden over a two-year period due to the illusion of winning. The illusion of winning in this case inevitably crumbled in the face of The Vig. All gamblers die broke. Period.


7. 10 Most Ridiculously Unrealistic Weed Scenes

From SplitSider, and Minyanville's own Mike Schuster, Hollywood's 10 Most Ridiculously Unrealistic Weed Scenes. My number one is this one from Dragnet's Jack Webb.



POSITION:  No positions in stocks mentioned.

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