September 12, 2006

More Fun with Tom, Rex, and the Housing Market: A Case Study in Business Reporting Bias and Ignorance

Filed under: Economy,MSM Biz/Other Bias,MSM Biz/Other Ignorance — Tom @ 3:10 pm

Sept. 15: Rex Nutting, in the first comment below, noted that he e-mailed me support for how he calculated the item I contended needed correcting (which he believes does not, and therefore will not correct). I had to spend some time reverse engineering what he sent, because he did not provide a detailed calculation to support any of the figures he provided; those figures did check out, but doing so took time.

I will cover the dispute in detail Monday. I apologize for the delay, but will give away the ending in the interest of a peaceful weekend — His calculation uses an averaging method that, while commonly used and therefore not “requiring” a correction, is nevertheless mathematically incorrect, as I will show in detail when I put the post up on Monday.

Overview: Over the past few weeks, in his reports, his e-mails, and his BizzyBlog comments, MarketWatch reporter Rex Nutting has demonstrated stunning bias in assuming that the home prices are already in decline and that such a decline is an indicator that the downside of a housing bubble has commenced. Along the way, he has shown a lack of faith in the market’s ability to adjust in terms of supply and demand, and has committed a factual error in reporting on home-price history that I would expect MarketWatch to correct. The thought that the business press may be dominated by reporters such as Mr. Nutting is troubling indeed. Sept. 13 Overview Update: Mr. Nutting isn’t just anyone at MarketWatch; he’s the Washington Bureau Chief. To have someone in that position so clearly vested in the untenable idea that the housing market is in the midst of an “implosion” when the evidence isn’t there is more than troubling.


NOTE: I don’t think it’s necessary, but in case you feel you need to know what led to this point, see the “Recap” below the fold for more background than is provided in the body of this post.

The starting point for this post is MarketWatch reporter Rex Nutting’s comment (#2) at the “Fun with Tom and Rex” post. I will repeat the comment verbatim, put in the graphs Rex sent in a separate e-mail, and then respond. Though it is painful to contemplate, please remember that this guy is among the cadre we rely on to get straight business news.

Rex’s Comment

Clearly, I won this “debate.” Unlike Tom, I do not have my mind made up before I see the facts. Unlike Tom, I looked at the evidence and followed where it led me. Unlike Tom, I am not fixated on dictionary definitions, but on what’s happening in the real world. Unlike Tom, I can call a spade a spade. Unlike Tom, I don’t see this as some sort of media or political conspiracy, where the only thing that matters is whether you’ve scored a debating point against the hated MSM or DNC.

It’s not a liberal or a conservative view to see that the housing market is in a free fall. Just look at a few facts: Starts down 13% y-o-y; new home sales down 21.6%; existing home sales down 11.2%; home builders stocks down 40% y-o-y.

If Tom had had his way, I suppose we’d have seen lots of headlines in 2001 saying: The Nasdaq hasn’t been in a bubble; it’s just returning to normal!!!!

Or this one in 1638: “Don’t worry about losing your life savings!!! Tulip prices are just returning to normal!”

“Normal” can be a long ways down, my friend. A lot of money can be lost on the way to “normal.”

One more thing: If home prices are now returning to “normal,” what were they before? Maybe…. abnormal??

Wow. Before I cower in the corner, let’s take a look at the six graphs Rex helpfully supplied to “prove” his point that we’re in a housing bubble-implosion-free fall-recession-collapse (click on each graph to see a larger version):

To say that Rex doesn’t get it is an understatement:

  • NASDAQ graph: What does NASDAQ’s meteoric rise and distastrous plunge have to do with a few years of double-digit home-price increases followed by one “back to normal” quarter (so far)? Absolutely NOTHING (except wishful thinking?).
  • Building permits graph: What does the fact that building permits are falling have to do with home prices? It means that supply is adjusting to demand — an indicator that new-home prices may hold steady. In terms of the construction industry it’s not the best of news, but Nutting should know that an industry in trouble doesn’t necessarily lead to price collapses. Did car prices tumble by double digits during Ford’s and Chrysler’s crises in the late-1970s and early 1980s? Are car prices tumbling now at double-digit rates?
  • Unsold: What does the rising inventory of unsold homes mean for home prices? POSSIBLY trouble. I say “possibly” because overall national home prices have, as of June 30, NOT declined. What often happens when people can’t sell their homes is that they take them off the market in favor of staying put or renting the property to someone else. Sometimes people don’t get to do exactly what they want exactly when they want to do it; that’s life. It remains to be seen whether the supply will be worked off that way, or will be reflected in lower prices.
  • Existing home sales: What does the fact that existing home sales are falling have to do with home prices? IF the supply of available homes doesn’t adjust accordingly, it COULD mean lower prices or slower increases. Based on results so far, the answer nationally has been “slower increases” and NOT lower prices. Based on the graph, if there was a strong correlation between falling sales and falling home prices, those prices would have begun to fall in the middle of 2005. But they didn’t, and nationally, they haven’t yet.
  • Selling price increase graphs: What about the fact that the INCREASE in the median selling price of homes per the government’s Office of Federal Housing Enterprise Oversight (OFHEO) dropped to 1.17% during the previous quarter, just a bit more than overall inflation (final graph), or that the Census Bureau/Haver report has prices barely increasing in the past few months (second-last graph)? In OFHEO’s case, it means that home-price increases have retreated to a level that, as of the second quarter, is still above we saw during the entire decade of the 1990s! In the Census Bureau/Haver case, it may indicate a genuine decline. For what it’s worth, the OFHEO data is considered more reliable, as several publications, including MarketWatch, have noted. It may or may not be a precursor of longer-term price declines; that depends on whether or not supply and demand can balance out at current prices, which, despite the hysteria, remains an open question.

Now let’s get back to the comment itself. To say that it’s unprofessional is to give it too much credit:

  • Rex has never, in the course of all of our correspondence, done anything more than tell us that “we’re in a housing recession, I just KNOW that we’re in a bubble, and I just KNOW that prices are going to tumble.” Again, the housing INDUSTRY may very well be in a recession, but because of supply-demand adjustment, prices haven’t declined yet, may not decline at all, and may not trail or match inflation long enough to be fairly characterized as a bubble.
  • Rex doesn’t like the dictionary definition of a real estate bubble, so I guess he thinks he gets to define it as he sees fit. If he’s going to do this, he at least needs to grant his readers who are “fixated” on the idea that words mean what the dictionary says they mean the courtesy of knowing that words mean what he, Rex Nutting, wants them to mean.
  • As to “scoring debating points,” and the DNC/MSM, please. This was a debate about conditions in the housing market. I don’t know Rex, whether he’s Democrat, Republican, or Independent. I DO know that if he thinks that, as of June 30, we were already in the downside of a housing bubble, he’s ignorant, as, according to OFHEO, the real prices decreases necessary to claim that we’re in one simply hadn’t taken place at all, let alone for a long-enough time. I have conceded that if we have roughly 4 quarters of real declines (i.e., compared to general inflation), the CLAIM that we’re in a bubble will have some credibility. But the POSSIBLE “bubble” won’t even start as long as OFHEO keeps on reporting quarterly price gains that are greater than current inflation.
  • His citations of sales decreases have been dealt with. Supply may or may not adjust to demand without prices going down; we don’t know yet. As to homebuilder stocks going down, well, that’s where the NASDAQ effect comes. The market probably got too excited about the homebuilder stocks during the boom of the past few years, so of course there’s going to be an adjustment when the froth comes off. But, again, the price activity of certain stocks doesn’t predict home-price declines.
  • His NASDAQ analogy is, of course, incorrect. If you’re going to compare NASDAQ stock prices to anything, you’d compare them to homebuilder and mortgage-company stocks, NOT the product they sell or finance. That’s a pretty elementary concept. As former Internet bubble hero Webvan’s stock declined from ridiculous to nothing, did the prices of the food it delivered or its other services go down? Uh, no. And Rex’s rant on tulips is simply absurd, and immature to boot.
  • Of course it’s possible that the housing market is in for some kind of steep, long, systemic decline. I’ll hold out that possibility, even though there’s very little evidence, while Rex, absent relevant evidence, just KNOWS we’re there already. I will say this: I don’t think that there has been a double-digit year-over-year decline in national real estate prices (which I will use as a proxy for Rex’s “long way down”) since the Great Depression, and I don’t see any reason to think one is coming. When I do, I’ll let you know, because, unlike Rex, I’m not locked in to my assessment; I just do the best I can with the information available.

What we have here is someone we rely on for informed, objective, fair, and balanced business news who is showing in the comment above that he has none of those four characteristics, and that our reliance on him is misplaced.

How many other business reporters have Rex Nutting’s mindset?



Wall Street Journal, 9/8/06 (free link); “Housing Slowdown Takes Its Toll Economists Say Selling Prices May Stagnate, Or Decline, in 2007 as Cool Down Continues” — yes, there’s pessimism here, but last time I checked, “may decline” does not mean “are declining.”

Reuters via Money/CNN, 9/7/06; “Realtors slash home sales forecast” — Money quote from National Association of Realtors economist: “Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a build-up in housing inventory.” A “temporary dip” is not a long-term decline. It’s an adjustment of supply and demand.

MarketWatch, 9/7/06 (requires free registration); “Realtors expect home prices to fall” — This one’s by our good friend Rex. You can decide whether or not it has a more pessimistic tone that the WSJ piece noted above. I will note one reporting error. Rex reported that “The OFHEO index has never shown an annual decline in its 30-year history. The smallest gain ever was 1.3% in 1991.” He must have been looking at a different OFHEO report, because the 1991 annual increase he cited isn’t there — it was 2.59% (PDF — go to pages 3 and 4, quarterly; annualized, previous-four-quarter data for 1990-1999 can be found in the graphic at this previous post). Two other calendar years since 1990 have come in lower than the 1.3% Rex cited, specifically 1990 (0.26%) and 1994 (0.83%). Additionally, five other four-quarter periods not ending on December 31 came in below Rex’s supposedly calendar year-based 1.3% (1991Q1, 0.62%; 1991 Q2, 1.10%; 1991Q3, 0.73%; 1993Q1, 1.06%; and 1995Q1, 0.73%). I expect that MarketWatch will correct this error.

USA Today, 9/7/06; “Realtors forecast what home builders know: Home sales this year will tumble” — “Prices are still expected to rise above last year’s highs, if just barely.” There is no indication of a long-term trend.

Recap — (click “more” if on the home page to see capsule information about prior housing-market posts)



Filed under: Taxes & Government — Tom @ 12:45 pm

From a Wall Street Journal subscription-only editorial on Chicago Mayor Dictator for Life Daley’s veto of the “Big Box” ordinance that would have mandated minimum wage and benefit levels at those stores:

It turns out that the wage bill’s chief sponsor, Alderman Joe Moore, shops at suburban big-box retail stores, for the usual reason. His campaign committee has purchased $30,589 worth of supplies at big-box retailers outside the city, according to disclosure forms. Alderman Moore isn’t alone out there with a cart among the high stacks. A review of Illinois State Board of Elections disclosure forms finds that the 35 aldermen who voted to stick it to the “big box” retailers have spent $114,000 patronizing these non-Chicago stores.

“Path to 9/11″ Night Two Thoughts

Filed under: Business Moves,MSM Biz/Other Bias,Taxes & Government — Tom @ 12:14 pm

I doubt that much of anything was cut out of Night two. Madeline Albright argues against retaliation over the USS Cole because of the presidential election. Condi Rice doesn’t really jump on the Al Qaeda problem until a week before the attacks. “The Wall” between the FBI and CIA gets highlighted, and is largely what leads John O’Neill to leave the FBI. Then there’s the maddening missed opportunity to read the laptop of one of the eventual hijackers in Minneapolis because of legalities.

It was very good; I would agree with Rush that Disney’s Bob Iger for the most part held firm, and is to be congratulated for it. The only thing I would like to have seen is a scene from one of the celebrations that took place in Middle East when the towers fell.

“Somebody” Is Unhappy with Me; The Feeling’s Mutual

Filed under: OH-02 US House,Taxes & Government — Tom @ 11:02 am

I held back on this yesterday because I didn’t want to sully the solemnity of the 5-year mark since the 9/11 terrorist attacks.

But now it’s time.

Sunday morning, “somebody” sent me and five other illustrious members of the SOB Alliance what he believes is important and “disturbing” news about election-reporting violations by a candidate in Ohio’s 2nd District congressional race. This candidate (gasp!) may not have reported accrued payroll and/or professional services that would appear to amount to (oh my) several hundred dollars on their June 30 Federal Election Commission Expenditures report. This “somebody” also believes that a provider of graphic-arts services to this candidate may have a conflict of interest, because he is also a reporter at a twice-weekly publication in the eastern part of the district. But this “somebody” presented no evidence that the candidate, who, as noted, is using this person for unrelated services, knows that this person is a (probably part-time) reporter, or that said reporter is even covering the election or matters that might affect it.

I sent this “somebody” an e-mail response (copied to the other SOB recipents). First, I patiently explained that the amounts involved in the former matter are likely so small that no reasonable person would consider them important. Second, I said that the latter issue may have some importance, but that there is much more that would need to be known and was not provided. Finally, I asked this “somebody” — “Please, PLEASE, don’t bother responding to this e-mail. I think I can stand the suspense of waiting to see whether ______ (MSM reporter) considers all of this ‘disturbing’ stuff newsworthy.”

Did “somebody” listen? I should have known better.

“Somebody” responded. I intentionally didn’t read the response, and sent an e-mail back saying “I said not to respond, and I didn’t read.”

That brought forth “somebody’s” remarkable comeback:

Great to see you have an open mind. I guess I can drop your blog from my short list. I’ll be sure to pass the word about you. How much is Jean paying you?

This is a veiled threat (depending on what “the word” is), and an implied lie. If “somebody” wasn’t a candidate for public office, I would have just let it ride. But he is, so I won’t.

Of course, “Jean,” the person he unsuccessfully accused of falsifying a photo from a 13 year-old marathon race everyone acknowledges she actually ran, is incumbent congresswoman Jean Schmidt. No, I have never received any money from her, her office, or her campaign, not even a dime (or 9 cents, 8 cents, or 7 …..), nor have I failed to criticize her when I have felt she deserved it (here, at “Delayed Cunningham Interview” comments; here; and here, in the process of criticizing many Republicans). And I’ll just have to take my chances on the reactions of reasonable people to “the word” this “somebody” intends to pass about me — but I do think voters need to know that a candidate for Congress has said that he’ll “be sure” to do this.

Because of the veiled threat and the implied lie, I also felt I had to go back and read that response I requested this “somebody” not send. Here it is:

Thanks for the insight. The FEC law is very, very clear: “expenditure” includes: “a written contract, promise, or agreement to make an expenditure.” Whether it’s $5 or $5,000 it must be reported, and the expense is incurred when agreed to, NOT when cash is distributed. I’m sure you know GAAP and this is a liability that is legally required to be on the books. It sounds like you would have let Enron slide by from the verbiage of your response.

Not sure why you of all people would come to the aid of a tax and spend progressive that wants to bring abortions to Africa with OUR tax dollars.

I won’t bother you again with what you seem to think is “trivial.” However, there will be additional illegal activities I’ve already uncovered that I release to the press and the public, I guess you can read about it in the paper like everyone else.

There you are. In three paragraphs, “somebody” gave me three more reasons to believe he is the last person voters should send to Congress:

  • Total lack of perspective — He takes my assessment of a most-likely trivial situation and blows it up into an Enron, and demonstrates a misunderstanding of Generally Accepted Accounting Principles, or GAAP, to boot. You see, GAAP has a concept called “materiality” (which in essence says that if an overlooked or unaccounted-for item doesn’t involve a lot of money, don’t bother accounting or adjusting for it) that has totally escaped “somebody.” Technically, FEC law doesn’t have a materiality threshold, but in the real world the FEC and the accounting types who work on campaigns have to have one; otherwise we would have endless election-law complaints over the $5-type amounts “somebody” apparently fantasizes over.
  • No sense of fair play — “Somebody” clearly believes that no one who disagrees with a political candidate’s issue positions should ever defend them, no matter how deserving they are of defense, and will engage in slash-and-burn tactics against those opponents over as little as five bucks. (Note: I do not know whether his characterization of the opponent’s position is correct; if it’s not, add “misrepresents other candidates’ positions” to the pile.)
  • No coherent campaign strategy — Finally, his principal campaign strategy would appear to be uncovering opponents’ “illegal activities” to the apparent exclusion, or at least crowding out, of any kind of constructive campaigning. This should be considered a free preview of someone who would very likely be a singularly ineffective legislator.

I feel this post was necessary to ensure that voters have information they need to judge Nate Noy’s temperament and fitness (or lack thereof) for public office. I also feel that it should be on the record in case he has future political aspirations. So it is.

Gas Prices: Glad Drudge Took the Time to Notice

Filed under: Business Moves,Economy,MSM Biz/Other Bias — Tom @ 9:08 am

That poor web site is getting slammed right now, so I’ll take Drudge’s word that gas is down to $2.05 there (oh, after about 5 minutes, I confirmed). The absolute lowest is in Greater Cincinnati right now is $2.03, with over a dozen stations at either $2.07 or $2.08.

“Funny” — When prices are high or heading upward, the press opens its eyes, notices price spikes, looks for high-priced outliers the day they happen, and puts the news on the front page. But when they’re coming down, they’ll wait for the “official word” from AAA and the others and bury the news, if it’s carried at all.

There Are No Agreements in China, Only What the Government Chooses to Allow at Any Given Moment

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 8:07 am

Western financial information companies are learning this (Wall Street Journal link requires subscription):

China’s government issued sweeping restrictions on foreign news in China yesterday as it also moved to bar international financial-information companies from selling directly to Chinese customers.

The restrictions, announced by China’s official Xinhua news agency, make it illegal to distribute articles that “undermine China’s national unity, sovereignty and territorial integrity” and that “endanger China’s national security, reputation and interests.”

They also place curbs on access to a multimillion-dollar financial-information market for companies such as Reuters Group PLC and Bloomberg LP, which currently sell directly to Chinese banks, brokerage firms and corporations. Chinese traders rely on this information to buy and sell financial products in global markets.

The new rules appear to nullify a hard-fought agreement reached between U.S. and Chinese officials a decade ago that gave foreign financial-information companies direct access to the China market.

Under the new rules, Reuters and other companies will have to sell their products through the China Economic Information Service, an agency appointed by Xinhua, according to an official at Xinhua’s Foreign Information Administration Center. The rules take effect immediately.

Big-Box Bashing Update: Mayor Daley Vetoes Chicago’s Ordinance

Filed under: Business Moves,Taxes & Government — Tom @ 8:02 am

Non-elitist residents of that Toddling Town should be very relieved (HT The New Editor via Instapundit), especially since it appears that Mayor Dictator for Life Daley’s veto won’t be overriden (Update, Sept. 14it wasn’t):

Mayor Richard Daley on Monday vetoed the “big-box” minimum wage ordinance, setting the stage for an override vote at Wednesday’s City Council meeting.

Daley’s action signaled his confidence that he has the necessary support in the council to sustain the veto, and even some backers of the measure acknowledged they expect the mayor to make it stick.

Ald. Shirley Coleman (16th) said Monday she is switching sides. “I am going to be changing my vote, joining the mayor in a veto,” Coleman said. “The community wants me to make sure than an opportunity exists for people willing to work for something other than $10 an hour, and Wal-Mart has expressed strong interest in building in my ward.”

It was passed by the council in July by a vote of 35-14. Backers need 34 votes to override the mayor’s veto, but Coleman’s switch and the expected absence Wednesday of another backer, Ald. Manuel Flores (1st), appear to leave the measure one vote short.


Previous Posts:

  • August 20 — Is Chicago Dumb Enough to Make the Wal-Mart Living Wage Take Effect?
  • August 3 — The Real “Redliners,” and Their Motivations

The September 11 Attacks Didn’t Stop the Economy

Filed under: Economy,Taxes & Government — Tom @ 7:57 am

Yesterday, in a subscription-only Wall Street Journal column, Brian Wesbury usefully reminded us that the terrorist plans to do serious harm to the US economy miserably failed:

The terrorists of 9/11 had bigger plans than just killing people and blowing up buildings. They hoped that the attacks would send shock waves through the American financial system and severely harm the U.S. economy. In December 2001, Osama bin Laden said that the attacks had “shaken the throne of America and hit hard the American economy at its heart and its core.”

The economy was already in recession on 9/11, and was theoretically vulnerable. At the time of the attacks, industrial production had fallen for 11 consecutive months, new orders for durable goods were down 8.5% from the previous year, retail sales were barely growing and the unemployment rate had jumped by a full point to 4.9%.

For the most part this recession had gone unrecognized. In July 2001, The Wall Street Journal’s semiannual survey of 54 economists found only five with forecasts of negative real GDP growth. The attacks changed this quickly.

Roughly two weeks after 9/11, a Bloomberg survey found 22 out of 30 economists predicting recession. Many feared that the direct and indirect costs of security would reduce profits and productivity, consumer spending would slow sharply, deflationary pressures could worsen, and fearful businesses would lower investment, boost inventories and think more local and less global.

But someone forgot to turn out the lights. Retail sales, excluding autos, were higher in October 2001 than they were in August. Real GDP expanded at an annualized rate of 1.6% in the fourth quarter of 2001, and since then has grown at an annual real rate of 3.2% — roughly equal to the 50-year average.

What a great story: The vibrant U.S. economy takes a tremendous blow and not only remains standing, but rebounds almost immediately.

Ho-Hum Hiring Headline (091206)

Filed under: Business Moves,Economy — Tom @ 7:52 am

In Tucson, AZ, a call-center employer is adding jobs, and pay at all call centers in the area is rising dramatically:

Competition among a growing number of call centers here is spurring an increase in pay for such jobs.

Not long ago, call centers paid $6 to $9 an hour. Recent growth is bringing jobs that pay $10 to $13 an hour plus benefits, said Laura Shaw, vice president of marketing and communication for Tucson Regional Economic Opportunities.

If you are bilingual or willing to work odd hours, that could be worth more pay.

On Friday, Citigroup announced it will add 1,000 jobs at the University of Arizona Science and Technology Park, 9000 S. Rita Road. That would bring Citigroup employment at the park to 2,450.


Related Post:

- August 18 — Myth: US Call-Center Jobs Are Disappearing Overseas

Positivity: 5 Years Without Another Large-Scale Domestic Terrorist Attack

Filed under: Positivity,Taxes & Government — Tom @ 6:01 am

I’m not one to mark a milestone prematurely, which is why this post appears on September 12.

The United States has not been the victim of a successful terrorist attack beyond the lone-gunman level since that awful day five years ago. Call it luck, better law enforcement, God watching over us in spite of ourselves, better use of intelligence — for the moment I don’t care.

On September 12, 2001, very few of us thought that would be the case.