Mish's Global Economic Trend Analysis

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Goldman Sachs President Inadvertently Explains Why Cantor Lost; Reflections on the Bush Years Posted: 11 Jun 2014 09:16 PM PDT On Wednesday, Eric Cantor resigned as House Majority Leader following his shocking primary loss to Tea Party candidate Dave Brat. A majority leader has never in history lost a primary election. Shock waves reverberated in both Republican and Democratic camps. Most wonder how it happened. Explanations abound. CNN gives 7 Reasons Eric Cantor Lost. I find those explanations lacking. Instead, I propose people are fed up with Washington. But that has been the case for years if not decades. So why such a shocking upset now? Gary Cohn Explains Gary Cohn, President and COO of Goldman Sachs, inadvertently answers the question "why now?"  in the following Bloomberg video.    "I think Eric has been a great leader. He's been a great public servant. And I think we've all enjoyed having Eric in the Congress," said Cohn. Indeed! Wall Street enjoyed having Cohn in office, too much so. But what about the average Joe? Cantor's Arrogance Cantor's arrogance, combined with the right message, was all it took. Dave Brat explains in an interview with Sean Hannity: GOP "Paying Too Much Attention To Wall Street And Not Enough To Main Street". SEAN HANNITY: What do you attribute this big win tonight to? DAVE BRAT , REPUBLICAN NOMINEE for VA-7: It's pretty much been in my stump speech, and it basically just lays out… If you go door to door knocking, the American people know this country is headed in the wrong direction: the debt, the deficits, the economic growth is terrible. The regulatory burden is terrible. And the representation in D.C. won't address those major issues. And so, I think the people are ready for some major changes in this country, and it's a miracle. I ran on Republican principles. We have this Republican creed in Virginia and the only problem with the Republican principles is no one is following them. The first one is commitment to free markets. We don't have any free markets in this country any more. Then equal treatment under the law, fiscal responsibility, constitutional adherence, peace through strong defense and faith in god and strong moral fiber. That's what I ran on: The Republican creed. Some of this goes back to constitutional principles, and everybody wants the federal government to solve every problem in their life. So part of the issue is, on some of these issues, we've got to look at these issues in the mirror. The cultural issues, that's not due to politicians. Our educational system, everyone thinks can be solved with spending infinite money on it, a lot of it just comes down to personal responsibility and discipline The Republican party has been paying too much attention to Wall Street and not enough to Main Street. The American people want to take the country back and what motivated the race for me was after the financial circumstance we had Fannie [Mae] and Freddie [Mac] collapse. I thought surely our political leaders, we're on our knees economically, we'll learn some lessons and get it right and they didn't. We're still roughly in the same mess. Reflections on the Bush Years What do Republicans have to show for the Bush years? A Real Clear Politics article explains. Analysts need to understand that the Republican base is furious with the Republican establishment, especially over the Bush years.  From the point of view of conservatives I've spoken with, the early- to mid-2000s look like this: Voters gave Republicans control of Congress and the presidency for the longest stretch since the 1920s. And what do Republicans have to show for it? Temporary tax cuts, No Child Left Behind, the Medicare prescription drug benefit, a new Cabinet department, increased federal spending, TARP, and repeated attempts at immigration reform.  Basically, despite a historic opportunity to shrink government, almost everything that the GOP establishment achieved during that time moved the needle leftward on domestic policy. Probably the only unambiguous win for conservatives were the Roberts and Alito appointments to the Supreme Court; the former is viewed with suspicion today while the latter only came about after the base revolted against Harriet Miers. The icing on the cake for conservatives is that these moves were justified through an argument that they were necessary to continue to win elections and take issues off the table for Democrats. Instead, Bush's presidency was followed in 2008 by the most liberal Democratic presidency since Lyndon Johnson, accompanied by sizable Democratic House and Senate majorities. You don't have to sympathize with this view, but if you don't understand it, you will never understand the Tea Party. Good riddance to Cantor. He won't be missed. Boehner should step down as well. Let's get some Republicans in Congress who truly believe in free markets, smaller government, and fiscal sanity. The current leadership has been pathetic. Let's also elect a president willing to do more than pay lip service to free markets. My choice: Rand Paul. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Average Cost of New Home is 6 Times Median Income (Historically 3); Sales of Priciest 1% of Homes Soar (Bottom 99% Down) Posted: 11 Jun 2014 08:28 AM PDT A couple of recent reports will help put the bifurcated US home "recovery" in perspective. Priced Out First, please consider Many Seek New Homes Near Cities but are Priced Out The average price of a newly built home nationwide has reached $320,100 — a 20.5 percent jump since 2012 began. That puts a typical new home out of reach for two-thirds of Americans, according to government data. Yet many builders have made a calculated bet: Better to sell fewer new homes at higher prices than build more and charge less. Their calculation is partly a consequence of the growing wealth gap in the United States. Average inflation-adjusted income has declined 9 percent for the bottom 40 percent of households since 2007, while incomes for the top 5 percent exceed where they were when the recession began that year, according to the Census Bureau. Buyers have historically paid about 15 percent more for a new home than for an existing one, a premium that's reached 40 percent today, according to the real estate data firm Zillow. An average new home costs about six times the median U.S. household income. Historically, Americans have bought homes worth about three times their income. Construction has yet to rebound with vigor. Just 433,000 new homes were sold on an annualized basis in April. Over the previous half-century — when the United States had a smaller population — annual sales had averaged 660,000. Sales of Priciest 1% Homes Soar (Bottom 99% Down) Second, please note that a Redfin research luxury report shows Sales of Priciest 1% of Homes Climb While Rest of Home Sales Still Down Home sales so far this year are lower than they were in 2013, but there's one sliver of the housing market that's going strong: the very top of it. Sales of the priciest 1 percent of homes are up 21.1 percent so far this year, following a gain of 35.7 percent in 2013.  Meanwhile, in the other 99 percent of the market, home sales have fallen 7.6 percent in 2014. Nationwide Sales Select City Sales The price to reach the top 1 percent of the housing market varies widely by metro. In San Francisco, the most expensive 1 percent of homes sold for $5.35 million or more. In Los Angeles, joining the high-end luxury market will set you back at least $3.65 million, but if you're willing to live a bit farther south in Orange County, you can squeeze into a luxury home for just $3.45 million. The budget luxury buyer could look to Atlanta ($861,000), Minneapolis ($881,000) or Raleigh ($815,000), where access to the top 1 percent of the market can be purchased for six figures rather than seven. So who can afford these luxury homes? Banks don't offer conventional loans for homes in this price range. But to put things in perspective, here's what it would take: In San Francisco, a luxury homebuyer would need a million-dollar down payment and an annual salary of $916,000 to qualify for a 30-year fixed-rate loan, and to afford what would be a $21,369 monthly mortgage payment. In a lower-priced luxury market such as Raleigh, an annual income of just $140,000 could keep a buyer comfortably among the 1 percent in this hypothetical scenario. Redfin reports 44.7% of luxury buyers paid cash. The overall average was 32%. For additional details, please see Cash is Still King in Home Buying Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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