Friday Lite

Foiled again! Another terrorist plot was thwarted in the U.K. yesterday as British police arrested 24 people suspected of planning to blow up ten U.S.-bound jetliners over the Atlantic Ocean, possibly killing thousands.

Liquid explosives concealed as ordinary carry-on items were purportedly to be used in combination with common electronic devices serving as detonators. The suspects were believed to be British Muslims, some with ties to Pakistan.

That's not a very lite start for a Friday morning.

Post-Pause Ruminations

The chart below from this AP story was, by far, the most interesting graphic spotted since the big economic news of the week - the decision by the Fed to leave short-term interest rates unchanged for the first time in over two years. Did anyone ever think that 17 baby-steps could look so steep?

As if it wasn't bad enough before the Fed meeting, now nearly everybody is offering their opinions of whether this non-move was the right one. According to this Bloomberg report, there's quite a mix of opinion.

"The Fed is going out on a limb,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. "Bernanke has given us a story: moderating economic growth will lead to moderating inflation. That is going to be the test of his credibility.''
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"It's very likely they're going to be forced into a few more interest-rate increases during the fall,'' said Stephen Cecchetti, an economics professor at Brandeis University in Waltham, Massachusetts and former New York Fed research director.
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"If I'm sitting at the Fed, I have a tough choice here,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. "Which war am I going to fight: is it the growth slowdown or the inflation pickup? To me the inflation story looks a lot more serious at this stage.''
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"Inflation pressures will continue to rise,'' said Michael Pond, Barclays's interest-rate strategist in New York. "There is certainly the risk that the Fed could be increasingly seen as behind the curve.''
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"The property market is slowing very meaningfully, and I think it would be a mistake to keep chasing inflation,'' said Paul McCulley, managing director at Pacific Investment Management Co. in Newport Beach, California. He said the Fed's two-year rate campaign is "done'' and expects the central bank to cut rates in the first half of 2007.
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"I used to make jokes about how bad Fed forecasts are when I was there,'' said William Ford, former Atlanta Fed president and now a professor at Middle Tennessee State University in Murfreesboro. "The Fed is no better than most private economists, worse than some. I don't think you can put that much weight on forward-looking inflation expectations as opposed to actual inflation.''
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"They're going to have to see if the slowdown is going to persist,'' said former San Francisco Fed President Robert Parry. "They're probably going to reach a conclusion that their job is not done.''

As long as everyone else is offering their thoughts, one will be offered here as well.

"Ben Bernanke should continue to raise interest rates until homebuilders start sending truckloads of sawed up two-by-fours to the Federal Reserve building in Washington D.C., as they did when Paul Volcker was the Fed chief in the 1980s", said Tim Iacono of Iacono Research, a California-based market research and investment advisory firm. "Attempts to engineer a soft-landing will only result in him receiving more of the blame for conditions that were created by his predecessor's easy money policies."

If it doesn't kill you, it'll make you stronger.

Pet Peeve of the Week

Will people please stop talking about the advance estimate of second quarter real GDP growth like the U.S. economy has just fallen off a cliff? Big third quarter, little fourth quarter, big first quarter, little second quarter - setting aside for the moment the question of how real real GDP really is, it's not like we hit a brick wall at the end of June.

It is simply wrong to say that economic growth fell off a cliff from the first quarter to the second, when in fact last year's hurricanes have been playing havoc with economic statistics for the last nine months.

If final Q2 growth and subsequent GDP reports show a slow down (which, at the moment, is more likely than not), then cliffs can be discussed, but until then, please, look at the chart before you call for a priest.

A New "Friday Lite" Challenger (We're Doomed!)

Well, let's hope that this doesn't become a habit. After a hard won battle to carve out a little piece of the internet in the form of search results for the phrase "Friday Lite", and after securing the top spot on all three major search engines for the first time just a week ago, there is bad news to report.

A political blog has invaded this particular little area of search engine results space, and with a readership of more than a hundred times that of the blog you are now reading, there seems little chance that this will be a fair fight (or any kind of fight at all, actually).

Let's just hope that Michelle moves on to other choices of words for her Friday fare, and with the passage of time, and the continuing slow and steady pace of Friday submissions here, the top spot at Google will once again return to where it rightfully belongs.

A New Economic Indicator (More Interesting Searches)

After having written on the subject a short time ago in Managing Deflation Expectations, this article($) was happened upon in Barron's the other day touching on the same subject, using the same phrase.

The Fed Should Have Taken a Hike

AS WIDELY EXPECTED, the Federal Open Market Committee (FOMC) decided to suspend its tightening campaign today after 17 consecutive rate hikes, leaving the funds rate target at 5.25%.
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In other words, the Fed believes that the potential for deflation in the housing market overwhelms the risk that core inflation remains at (or above) their 2% ceiling. The FOMC also seems to believe that weakness in housing and a slowdown in the broader economy likely will reduce pressures on labor and product markets (the output gap) and restrain inflation in the not-to-distant future. We're not so sanguine.

The natural question to ask is, "Who else is using the words deflation and housing in close proximity, within the same sentence these days? A search on "housing deflation" at Yahoo! shows yours truly in position number four, however, that is not likely to last very long, given what's been happening with real estate prices lately.
This may be a good indicator to watch. Just as "housing bubble", currently at over 3 million results, may have only been in the hundreds a couple years ago, there's no telling where "housing deflation" might end up. The current count is: Google - 875, Yahoo! - 251, and MSN - 339.

Ben Makes the Big Time (No, not Ben Bernanke)

Ben Jones of The Housing Bubble Blog was interviewed over at MSNBC.com the other day (is this in the print edition of Newsweek?). Ben comes off as a very likeable guy with a genuine interest in educating people about today's real estate market - that's probably because he really is a likeable guy with a genuine interest in educating people, and maybe he's also part priest.

Some readers use your blog as a confessional. Are you surprised that you get such revealing posts from those in the real estate, banking, mortgage and appraisal industries?

Many industry professionals had private misgivings about the housing market of the last few years. It was natural that they found the anonymous nature of blogging to be an avenue for them to have a voice. It surprised me at first, but now I see that it was a practical form of expression.

The nice thing about Ben's blog is that it will stand as a record of the real estate mania that has enveloped much of the world in the last few years - anyone wanting to see how we got to where we are today can look back on almost two years of news stories and see that the warning signs were there all along. Just like stocks in 1999 and early 2000, very few people were interested in reading about it, swept up as they were in doing what everyone else was doing and making boatloads of money - a classic mania.

Short Sale Mail

Since the publication of The Return of the Short Sale here about a month ago, an increasing amount of mail has come this way. This week alone, two potential short sellers wrote asking for advice and two businesses offering short-sale related services wrote inquiring about the story referenced above.

As marketing-challenged as we are around here, the thought of perhaps matching up these two groups of people never occurred to us and their queries were responded to with the normal light banter and well wishes.

Stupidest Real Estate Quote of the Week

From the California Central Valley comes the stupidest real estate quote of the week. The Fresno Bee reports on the reason for rising foreclosures:

Hundreds more homeowners in the central San Joaquin Valley are in danger of losing their homes to foreclosure this year because their houses are not gaining value fast enough, a real estate tracking company says.

And some in the industry say the numbers could increase as more buyers — especially those who purchased homes in the past year — default on variable interest rate and interest-only loans.

The solution is surely as simple as the cause - somebody, please, make house prices go up faster so these good people can keep their homes.

Hillary, Put On a Blouse (Please)

Sometimes when you read China Daily, you think that they have some strange news stories coming from their mainstream media. This story makes you wonder what they think of us sometimes.

Artist Daniel Edwards talks about his sculpture 'The Presidential Bust of Hillary Rodham Clinton: the First Woman President of the United States of America' at the Museum of Sex in New York August 9, 2006. Edwards claims to have been inspired to make the piece after actress Sharon Stone said Clinton could never be president because she is a sexual being.

Artists! Presidential Busts! Museum of Sex! Sharon Stone! Is there an election coming up?

A Free Weekend Pass

Congratulations for making it this far into today's post. As a reward for having come this far, if you've been wondering what the subscribers' section of the Iacono Research website looks like but just haven't gotten around to requesting a free trial (or frankly, given the time of year, have been too busy or maybe too hot), here's a free weekend pass:

Username: fwpexp0813
Password: wj2agto7bc

Feel free to send it to friends or family - it will expire sometime Sunday evening.

Eskimos and Air Conditioners

This story tells what happens when your insulation is too good.

With signs that the world is warming, even Inuit peoples of the far north are ordering air conditioning.

Better known for building igloos during hunts on the polar ice, Inuit in the village of Kuujjuaq in Quebec, Canada, are installing 10 air conditioners for about 25 office workers.

"These are the times when the far north has to have air conditioners now to function," said Sheila Watt-Cloutier, a leading campaigner for the rights of 155,000 Inuit in Canada, Alaska, Russia and Greenland.

"Our Arctic homes are made to be airtight for the cold and do not 'breathe' well in the heat with this warming trend," she said. Temperatures in Kuujjuaq, home to 2,000 people, hit 31 Celsius (88 Fahrenheit) in late July.

If global warming continues as some say it will, at least the Inuits will still be dry, unlike some people living in coastal areas, where the coast will be moving - with or without them.

The Silver Lining of High Fuel Costs

And finally, from The Onion comes this story of prohibitively high fuel costs as a possible solution to the current conflict in the Middle East.

As the cost of rocket fuel soared to $630 per gallon Monday, Middle Easterners who depend on the non-renewable propellant to power 10-kilogram rockets have been forced to severely restrict their daily bombing routines, bringing this latest round of fighting to an unexpected halt.

Frustrated Hezbollah fighters face astronomical rocket-fuel prices at the pump.

"The way things are going, I won’t have any money left over for other necessities, such as anti-aircraft missiles, land mines, and machine guns," said Hezbollah guerrilla Mahmoud Hamoui, who is just one of hundreds of Islamic militants compelled to scale back their killing until rocket-fuel prices return to their pre-2006 levels.
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Since the start of this year, the average Palestinian and Lebanese militant’s rocket-fuel consumption has surged from three gallons to 22 gallons per week—second only to Cape Canaveral, FL in propellant consumption.

Experts have warned for months that factors including Hezbollah’s insatiable demand for larger rockets, the increased dependence on gas-guzzling car bombs, and the war in the Middle East would all drive up demand for rocket fuel while putting a severe strain on its supply. However, most ignored the threat, finding it difficult to change their way of life.

This is funny, if only in a perverse sort of way.