Well Lubed by Oil...

After pushing the $100/barrel threshold last week, oil closed today on the market at $96.89/barrel. The national average for gas is now at $3.37/gallon.

Now, let's remember this post I had back in October of 2008.

To re-interate, in July of '08 oil peaked at $147.27/barrel and gas peaked at $4.11/gallon, nationally ($4.65/gallon in my area of California). Using that as the benchmark, if oil is currently at $96.89/barrel then that means it is at 65.7% of it's high. This SHOULD translate into a 65.7% of $4.11/gallon of gas.

But 65.7% of the national peak of $4.11 is... $2.70. And 65.7% of my area's peak of $4.65 is... $3.06.

So, WHY is the current national average 67-cents more than it should be?

And, WHY is my local area gas prices currently at $3.69 to $3.79/gallon, depending on the gas station (63- to 73-cents more than it should be)?

Housing Update...

This just in:

National home prices fell 4.1% during the last three months of 2010, compared with 12 months earlier, according to the latest report from the S&P/Case-Shiller home price index, a closely watched indicator of market trends. They were down 1.9% compared with three months earlier.

"Despite improvements in the overall economy, housing continues to drift lower and weaker," said David Blitzer, spokesman for S&P.

And things may get a lot worse, said Robert Shiller, a Yale economist and half of the Case-Shiller team, in a web conference after the report's release.

"There's a substantial risk of home prices falling another 15%, 20% or 25% more," he said.

Shiller cited a few reasons for his bearish stance. The government is expected to reduce the presence of Fannie Mae and Freddie Mac in the housing market. These agencies currently provide loan guarantees for about two-thirds of mortgages. If they fade away, private mortgage money will have to fill the gap and the cost of mortgage borrowing will surely rise. That will hurt home prices.

There's also talk of possibly ending the mortgage interest tax deduction for many homeowners. Meanwhile, the weak economic recovery may be threatened by higher oil prices as a result of turmoil in the Mideast.

UPDATE: HotAir has a new post that gives newer statistics on the mess:

... the Census Bureau announced that new residential sales dropped 12.6% over a mild bump upward in December, down to a seasonally-adjusted annual rate of 284,000 units. That number barely avoids the low-water mark reached in October 2010 of 280,000 units, which was itself the lowest such figure in the entire historical run of the data, which goes back to 1963...

The actual number of houses sold in January, not seasonally adjusted, was 19,000 — which is the lowest number in a month in the entire 48-year history of sales tracking. That beats the monthly low hit in November by 1,000, and is 3,000 less than December.

Housing Woes Continue...

Back in November there was a news report that housing prices were continuing to drop:

Millions of foreclosures and weak demand from buyers are forcing home prices down in most major U.S. cities.

Prices are falling even in places like San Francisco and San Diego, which had posted strong increases just a few months ago. Analysts say many markets won't improve until they see fewer foreclosures and more job gains.

"Unemployment is still high, people are afraid of losing their homes and credit is hard to get," said Maureen Maitland, vice president of Standard & Poor's indices.

A report Tuesday underscored the weakness. Home prices declined in 18 of the 20 cities, according to the S&P/Case-Shiller 20-city index.

The foreclosure crisis (as I had predicted in the past) will continue to steamroll this year:

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and industry experts say more people will miss payments because of job losses and also loans that exceed the value of the homes they are living in.

"2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year.

The blistering pace of foreclosures this year will top 2010, when a record 1 million homes were lost, RealtyTrac said Thursday.

One in every 45 U.S. households received a foreclosure filing last year, a record 2.9 million of them. That's up 1.67 percent from 2009. [emphasis mine]

Housing starts in December were the worst in a year:

Housing starts fell 4.3 percent to a 529,000 annual rate, the lowest level since October 2009, Commerce Department figures showed today...

Home sales for 2010 was the worst since 1997:

The number of people who bought previously owned homes last year fell to the lowest level in 13 years...

The National Association of Realtors says sales dropped 4.8 percent to 4.91 million units in 2010. That was slightly lower than 2008, which had been the weakest level since 1997. [emphasis mine]

Home prices have been depressed by a record number of foreclosures and high unemployment. Many potential buyers held off on purchases last year, fearful that prices hadn't bottomed out yet.

Bank of America suffers a loss on the mortgage sector.

Via HotAir, the Washington Post had this interesting tidbit:

This “double dip” in real estate represents one of the worst fears of housing analysts and is developing just as it appeared that the overall economy was recovering. For now, many economists expect prices to keep slipping at least through the first half of the year, dragged down by the nation’s large volume of foreclosures and high unemployment rate.

HotAir then analyzes:

The reason for the upcoming “double dip,” which really has been upon us for a while, is because of ill-advised federal interventions after the bubble popped. Congress passed tax breaks for people buying homes, which did nothing to create more qualified buyers — that still required the normal income-to-debt ratios that got ignored during the bubble period — but instead subsidized sales that would have occurred anyway with tax dollars. It also stole demand from future sales, which has contributed to the poor performance in the second half of 2010.

Otherwise, we wouldn’t have needed a second “dip” to reach the proper market valuation for housing. These interventions only delayed the inevitable, which was the reset of prices to a norm outside of the bubble — perhaps back to 1998-2000 pricing, adjusted for inflation. Those who bought during the bubble understandably resist this, but the valuation of housing had always been coupled to the rate of inflation until Congress and successive administrations made home ownership into a fetish and incentivized lenders to give mortgages out to people who couldn’t afford them. [emphasis mine]

However, those millions of people whose mortgages are underwater make a powerful political force. They want Congress to address a problem that they believe Congress created to support at least the current valuation of homes. The only real way to do that, though, is to create more qualified buyers — and the only way to do that is to create public policy that stimulates growth in large quantities. That can be done through monetary policy, tax policy, and regulatory policy. The Obama administration has gone the wrong direction on the latter throughout its first two years, and until that gets reversed, expect home sales and values to continue their downward drift.

So, how bad is it, really?:

Buyers purchased the fewest number of new homes last year on records going back 47 years.

Sales for all of 2010 totaled 321,000, a drop of 14.4 percent from the 375,000 homes sold in 2009, the Commerce Department said Wednesday. It was the fifth consecutive year that sales have declined after hitting record highs for the five previous years when the housing market was booming... [emphasis mine]

... economists say it could be years before sales rise to a healthy rate of 600,000 units a year.

It's gonna be a long 2011 (and even 2012).

Hidden Inflation...

This January article points to something I've been saying for quite some time now.

A recent Consumer Reports investigation found that the amount of dish detergent, toilet tissue, and first aid spray in those same old containers has shrunk as much as 20%...

Blame it on the rising costs of producing these goods, such as raw materials, energy, and facility costs, say manufacturers. As their expenses rise, they've got to find ways to make up the difference: Either charge more for the product, or give less of it to you for the same money.

The latter strategy -- charging the same amount for less-generous servings -- is the safer bet: Studies show that shoppers are more sensitive to price increases than product volume decreases. And manufacturers go to great lengths to get you to overlook the downsized items in your shopping cart.

I'm sure you've noticed in recent years that a half-gallon of ice cream is now 1.5 quarts. Orange Juice is in 59 ounce cartons instead of half-gallon ones. Cheese-its are in 13 oz boxes instead of 1 lb. Coffee is sold in 13 oz cans instead of 1 lb cans. The list goes on and on and on.

And now food commodities are going through the roof (via Daily Eudemon):

“Corn spot up 7.76%, wheat up 5.63%, Rice up 10.08%, Hogs up 10.16%, Sugar up 5.64%, Orange Juice up 3.33%, and cotton…. up 17.08%. That’s in one month!”

Here's what's also interesting about commodities and pricing (from Daily Eudemon, again):

So what are the TBTFs doing with they money that they’re getting from the Fed? They’re buying stocks, bonds, and commodities (known as “prop trading“). As a result, the prices of everything are going up (see Friday’s TDE post). It makes Bernanke happy, because the stock market is up, and when the market goes up, Americans stop thinking about economic issues. In the words of Albert Jay Nock, “A falling stock market seems to clarify and stimulate thought. When it is rising, nobody cares to know why or how, but when it falls, everyone is very eager to know all about it.”

Unfortunately, commodity prices are increasing the fastest, and the people who are hurt worst by increasing food prices are the poor. Especially the poor in developing countries. As the price of food in these countries increases, so does the discontent. As discontent increases, the chances of rioting breaks out.

Yet another reason many intelligent people think Bernanke must be insane or evil or both.

The World Bank is very concerned about food prices being at dangerous levels:

Global food prices have hit "dangerous levels" that could contribute to political instability, push millions of people into poverty and raise the cost of groceries, according to a new report from the World Bank.

The bank released a report Tuesday that said global food prices have jumped 29 percent in the past year, and are just 3 percent below the all-time peak hit in 2008. Bank President Robert Zoellick said the rising prices have hit people hardest in the developing world because they spend as much as half their income on food.

Clothing prices to go up 10% in the Spring:

Cotton has more than doubled in price over the past year, hitting all-time highs. The price of other synthetic fabrics has jumped roughly 50 percent as demand for alternatives and blends has risen.

Clothing prices are expected to rise about 10 percent in coming months, with the biggest increases coming in the second half of the year, said Burt Flickinger III president of Strategic Resource Group.

Inflation? Or stagflation? Ace knows what's going on, too.

Double-Dip?

Back in August on 2010, Yahoo Financial also had this article about the potential double-dip recession. The article looks at 11 key factors that could show signs of a double-dip:

Housing (still dropping and stalling)

Unemployment (starting to inch up again)

Consumer Spending (stagnant)

Consumer Confidence (fickle)

Auto Industry

Trade

Budget (Hah!)

National Debt (Double Hah!)

Stock Market (not acting realistically in this economy... can you say "bubble"?)

Banking (will more banks fail in 2011?)

Interest Rates

It really makes you wonder.

So... let's look at the economy, shall we???

And let's start with an article from way back in July of 2010 in Yahoo's financial section. It's regarding the shrinking of the American middle class. Below are the 22 stats from the article:

• 83 percent of all U.S. stocks are in the hands of 1 percent of the people.

• 61 percent of Americans "always or usually" live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.

• 66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans.

• 36 percent of Americans say that they don't contribute anything to retirement savings.

• A staggering 43 percent of Americans have less than $10,000 saved up for retirement.

• 24 percent of American workers say that they have postponed their planned retirement age in the past year.

• Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.

• Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.

• For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.

• In 1950, the ratio of the average executive's paycheck to the average worker's paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.

• As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.

• The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.

• Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.

• In the United States, the average federal worker now earns 60% MORE than the average worker in the private sector.

• The top 1 percent of U.S. households own nearly twice as much of America's corporate wealth as they did just 15 years ago.

• In America today, the average time needed to find a job has risen to a record 35.2 weeks.

• More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.

• or the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.

• This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.

• Approximately 21 percent of all children in the United States are living below the poverty line in 2010 - the highest rate in 20 years.

• Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.

• The top 10 percent of Americans now earn around 50 percent of our national income.

So, why the lack of posts???

Among other things... I'm putting the pieces of the puzzle together for a wedding in June. :-)