A Tale of Two Recoveries

Fritz Pfister
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Posted: May 03, 2013 12:01 AM

In a recent Frank and Earnest cartoon; as Frank leaves a bank he says ‘they aren’t paying interest on savings anymore’, and Earnest replies ‘the point of no returns’? There’s an element of truth in all good humor.

Sad for seniors that there’s a massive amount of truth in that cartoon. They are the generation who did their job, saved diligently, retired, and now are forced to settle for little to no return on their savings or risk it in the Wall Street casino. C’est la vie.

Seniors don’t realize the game is rigged by Bernanke’s ZIRP policy to inflate another housing bubble. The main store of wealth for the middle class who are the engine for the economy, is the value of their home. Artificially raising home prices to induce the ‘wealth effect’ to get consumers to spend, not save is the plan. It’s working, the savings rate is at a five year low.

Interesting how the media is infected with all the good news regarding housing. Every outlet was giddy with the news released this week on home prices. Here is but one small sample.

From the Christian Science Monitor:

The good news for the housing market just keeps on coming. The latest report of the S&P/Case-Shiller Home Price Indices showed that average home prices for 20 cities increased by 9.3 percent for the year ending in February 2013. That same index rose 0.3 percent between January and February of this year. It was the biggest annual increase in residential real estate prices since May 2006.

What’s driving prices up? Analysts point to lean inventories, low interest rates, a rise in employment, and a drop in the share of foreclosed homes (which typically sell at a reduced price).  [close quote]

Odd they didn’t include the news from the day earlier when the bad news was reported that the homeownership rate in America fell to the lowest level since 1995. What is it with Obama trying to match or beat prior Democrat presidents? He’s matched Carter on the workforce participation rate (lowest since 1979) and now Clinton’s homeownership rate.

Amazing that story didn’t receive the banner headlines of the darling Case Shiller. However if you look you can find some honest reporting. Here is a sample from ZeroHedge:

As the US Census Bureau reported earlier today, the US homeownership rates in the first quarter of 2013 dropped by another 0.4% to a fresh 18 years low, or 65% - the lowest since 1995!

That this progressive, ongoing decline in ownership is taking place despite allegedly record home affordability is without doubt the most troubling feature of the economic “recovery” which has forced ever more Americans to shift away from owning and into renting. [close quote]

Back to the Christian Science Monitor and scores of other media outlets reporting the administration’s talking points that home prices are rising due to ‘a rise in employment’. Really? Here’s an excerpt from a CNBC article this week:

The mere size of gross domestic product won’t hide the reality that in terms of actual growth, this is also the worst economy in 83 years. GDP growth is in the midst of its longest sub-3 percent annual growth rate since 1929, the beginning of the Great Depression.

A state-by-state look at the numbers, released a few days ago and current through the first quarter, shows that just six states have real [unemployment] rates below 10 percent. [close quote]

It will be interesting to see the April jobs report that is published after this column is written. Following the March print of 88,000 jobs will it be excuse time again for why Obama economic policy isn’t working, or will anemic numbers be reported as headed in the right direction again?

The question asked time and again; is this a real recovery in housing? It’s real today but it is a manufactured real from the magical Bernanke policies. Tomorrow the reality will change when the artificial can no longer imitate the reality of the laws of economics or Milton Friedman’s conclusion that inflation is strictly a monetary phenomenon.

There can be no recovery unless there is legitimate job growth. There will be sales activity as long as interest rates are kept at record lows. But when Bernanke is faced with events beyond his control and the Fed is forced to raise interest rates, game over. Friedman will be proven correct again.

So you have a choice. You can believe the media reporting the joke that rising employment is causing home prices to rise, or you can look beyond your nose to see a recovery built upon a foundation of sand, by the water’s edge.

Yes there are elements of truth in all good humor. Whether it be from Bernanke, the water carriers in the media for Obama, or from Obama himself who said at the White House correspondent’s dinner: “I’m not the strapping young Muslim socialist I used to be.”

The opinions expressed here are solely those of Fritz Pfister or identified sources, and not necessarily those of RE/MAX Professionals of Springfield or RE/MAX International.