Friday, March 2, 2012

Friday Charts: Bank Runs, Real Estate, Gas Prices

Happy Friday everyone!  I am pleased to once again offer the Friday chart fest for your viewing pleasure.

We begin of course with everyone's favorite topic: sovereign debt.  The following chart shows demand deposits for Greece, Portugal, and Ireland.  The trending chart down means that money is leaving these banking systems and either moving outside the country or moving under the mattress.  This is the equivalent of an electronic bank run and it is happening all across Europe in the weakest countries.


Next up we have the global central bank response to the sovereign debt crisis (and demand deposit run): money printing.  The chart shows the size of the G4 (US, Europe, Japan, the UK) central bank's balance sheets in relation to their GDP.  Balance sheets grow when they print money and purchase assets.  GDP (Gross Domestic Product) is the total measure or the size of an economy


We received a large amount of data this week on the housing market. I discussed the most popular index earlier in the week in Case Shiller Index: New Price Lows In All Indexes.  The following shows the total housing activity by combining new and existing home sales, permits, and starts.  This chart does not include completions (as many homes don't get there) which would make the numbers even uglier.


The following shows shadow inventory hanging over the housing market and the gap up to the red dot shows the coming shadow inventory from those that are underwater on their homes but still making payments.  I believe this chart, as scary as it is, actually underestimates the true size of the shadow inventory.  For my analysis on the topic you can review 2012 Real Estate Outlook Supply - Shadow Inventory.

CoreLogic released a graphic this week showing the percentage of homes underwater in each state.  The big surprise for me continues to be Georgia at close to 40%.  The peach state has also seen tremendous prices declines over the past few months.  While not known as one of the major "bubble" states on the way up, it is taking a tremendous beating on the way down.


A final piece to the housing "recovery" is the mortgage application index released this week from the mortgage bankers association.  You can see the number of home purchase applications remains at depression levels.


The following chart shows that Q1 Earnings Per Share estimates continue to decline as stock prices continue to rise.  This trend will not continue forever with stock prices falling to reflect realistic earnings or earnings rising to reflect the sky high stock prices.


The following shows the disconnect between the rise in stock prices and the individual investor who have stayed on the sidelines (and have been selling) through the entire rally.  Americans, now terrified of stocks, have moved all their assets into bond funds; the next great bubble set to burst.


Now we move on to oil.  The month of February showed a new record high for the month in gas prices (January prices were also at a record high for the month).  Jim Puplava has done tremendous research and writing recently discussing the idea that the price of oil and gas have now become the new Fed Funds Rate.  In normal times the Federal Reserve would raise rates to cool down the economy and lower them to give it a boost.  Now, with interest rates at 0% forever, the price of oil is creating this expansion/contraction process on its own.  When prices rise too high it contracts consumer spending slowing the economy.  As prices fall it provides a boost to the economy spurring investment and business demand.


The following cartoon illustrates this concept further showing how the economy is now literally tied to gas prices.  


Then there is the nationwide price of gasoline, which is closing in on an all time record high.
The VIX index, which measures volatility in the stock market, has once again come down considerably.  This shows the current complacency in the market.  Investors believe that everything is under control.

Zero Hedge threw up an excellent chart this week titled "Name That Credit Bubble"  Can you guess which area of debt expansion is now growing exponentially and unsustainably?  It is student loans, the debtors prison for America's younger generation.  Student loans are the only form of debt that cannot be wiped away in a bankruptcy.  They hang over you forever.


Sources: Zero Hedge, JS Mineset, The Big Picture, JP Morgan, Wall Street Journal

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