Could This Be The Bottom?

Despite getting caught in the cross hairs of the mortgage and credit debacle of September new homes sales were up month over month. Sales in the west were up a remarkable 38% in September. Since the west led this housing recesssion, possibly it will soon lead the U.S. out...............

excerpts from WSJ

New-Home Sales Rose Last Month,But August Drop Revised Lower

........Overall, the median price of a new home increased by 5.0% to $238,000 in September, compared with September 2006. But the average price declined by 2.8% to $288,000 from a year earlier.

The ratio of new houses for sale to houses sold, an indicator of supply, fell during September, going to 8.3 from 9.0 in August. There were an estimated 523,000 homes for sale at the end of September, down from August's 531,000.

Regionally last month, new-home sales increased 37.7% in the West and 0.5% in the South. Sales decreased 6.6% in the Northeast and 19.5% in the Midwest.

By ELIZABETH PRICE - WSJ

Venture Capital Best since 2001

Venture Capital is the main leading indicator of job growth and strengh in the bay area economy. Also note that 2.52 billion dollars flowed into bay area companies last quarter which represents over 31% of all venture capital in the united states. California accounted for 44% of U.S. venture capital..........

U.S. Venture Capital Investment Reaches Highest Level Since Q1 2001, Rises 8% to $8.07 Billion in Third Quarter of 2007

Venture capitalists continued to put more money to work with entrepreneurial companies, as overall U.S. venture capital investment climbed 8% in the third quarter of 2007 compared to the same period last year to reach $8.07 billion, according to the Quarterly Venture Capital Report released today by Dow Jones VentureOne and Ernst & Young LLP. This marked the ninth consecutive quarter of gradual year- over-year growth in dollars invested and is the highest quarterly investment total since the first quarter of 2001.......

.......Two-thirds of all capital invested in the third quarter -- some $3.81 billion -- was put to work in 224 later rounds, the most invested in late- stage companies since 2001, while combined seed and first round investment remained steady year-on-year at $1.74 billion. These sizable later rounds helped to push the overall median for a venture capital deal in the third quarter to $7.92 million, a new record.

......California dominated the venture capital activity in the third quarter, representing 44% of both the nation's deal flow and its capital invested. ...........................

-AP Newswire

Full Story Link Here

More Jobs for Bay Area

Bay area is definitely on a roll with new job announcements....

One of the world's largest manufacturers of solar power systems has chosen San Francisco for its North American headquarters, a move that could bring hundreds of jobs and solidify the city's place at the forefront of clean energy.

Suntech Power Holdings Co. has subleased half of the eighth floor at 188 Embarcadero, said Roger Efird, president of Suntech America, its U.S. subsidiary. Up to 15 senior employees are expected to be working there within 30 days and more than 50 by the end of 2008. The company is "in merger and acquisition mode," Efird said, and depending on its success with that in the months to come, could easily employ "four, five, six times that many."

Based in Wuxi, China, Suntech rocketed to the top of the solar industry in a short time. Founded in 2001 by Zhengrong Shi, it employs 4,000 worldwide and maintains four factories in China. It listed on the New York Stock Exchange in 2005 and now has a market cap of $6.45 billion. Shi, Suntech's 44-year-old CEO and chairman, made Forbes' list of the world's billionaires this year with an estimated net worth of $2.2 billion.

Suntech America has been operating out of Olney, Md., and was heavily recruited by cities and states around the country, including Oakland. An announcement of its move to San Francisco is expected within days.......

-Excerpt from San Francisco Business Times - by Elizabeth Browne

MySpace Adding Jobs in Bay Area

Story from San Francisco Chronicle........


MySpace, the popular social-networking destination, is opening an office this week in San Francisco and plans to hire as many as 200 employees as it moves to redesign its site, introduce features and fend off rivals such as Facebook.

The San Francisco office, in the SoMa neighborhood near AT&T Park, will focus on enhancing MySpace's infrastructure, creating products and forging strategic partnerships - some of which are expected to be announced this week.

The move is the latest sign of growth for the Los Angeles company, which was acquired two years ago by Rupert Murdoch's News Corp.

Most of the new hires will be engineers.

"We literally planned out all the products we're going to build in the next year or two. We don't have enough engineers to do what we want to do," MySpace Chief Executive Officer Chris DeWolfe said. "Clearly, San Francisco and Silicon Valley attract the top engineering talent in the world. ... It's going to allow us to develop incredibly rapidly."

By Ellen Lee, San Francisco Chronicle

For Full Story Link Here

Bright Spots in Real Estate

It's not all bad out there in the residential real estate world. Areas with less for sale inventory and lower supplies of land have faired quite well this last year despite national woes. Areas such as Portland, Seattle, and some trophy areas of California. I was especially intrigued by this relatively recent article in Wall Street Journal regarding America's Riviera, Santa Barbara, and the strength of its housing market..............

The New Gold Coast
One Stretch of California Defies Housing Slump;
Median Sale, $1 Million

CARPINTERIA, Calif. -- Other than an 18-foot-tall rooftop Santa Claus visible from the highway, this middle-class beach town used to be but a blur for wealthy vacationers speeding toward tony Montecito and Santa Barbara, about 10 miles up the road. Today, the statue is gone, and a clutch of the megarich have made Carpinteria an unlikely stop for buyers who can afford any ocean view in the world.

Public records show that New York billionaire hedge-fund manager Bruce Kovner spent $83.3 million this year to amass 15 bluff-top acres, including a luxury villa, near the end of a highway exit ramp. He also has agreed to buy part of Kevin Costner's field of dreams next door: Last year, the actor acquired 17 grassy acres dominated by a polo field for $28.5 million. Just down the road, a beachfront house on a mere quarter-acre is listed for sale at $24 million.

Carpinteria's arrival on the luxury-estate scene illustrates how California's gold coast is defying the downdraft in the national housing market. Eye-popping sales are spreading along a 40-mile stretch of southern Santa Barbara County, through sprawling ranch lands and past hillside homes, to the enclave of Carpinteria. In July, when existing-home sales slumped by 9.3% nationally and plummeted 23% in California compared with a year ago, sales along the county's southern coast soared nearly 28%, according to the California Association of Realtors. It also was the only region of California where the median sales price surpassed $1 million.

Estates in the exclusive Hope Ranch and Montecito communities set the standard in an area long prized by tycoons and Hollywood players for its mild climate, natural beauty and low-key sophistication. Indeed, at Oprah Winfrey's Montecito fund-raiser tomorrow for Democratic presidential candidate Sen. Barack Obama, more than her political firepower will be on display. Ms. Winfrey's 40-acre hillside estate, bought six years ago for around $50 million, has swelled in value to $84.7 million, according to public county-assessor records.

Santa Barbara's high-end housing market is set for its best year ever, according to Wendy Gragg, chief executive of the Distinctive Real Estate agency. Just counting properties with a value of at least $10 million, the area notched more than $195 million in sales so far this year, putting it on track to beat last year's local record of $219 million............

By JONATHAN KARP - WSJ

For rest of article click here

Keep Cutting

Below are some excerpts from and excellent article by James C. Coooper from the October 1 issue of Businessweek. He makes a strong case (and I concur) that the Fed definitely has further to go on rate cuts......

Rate Cuts: The Fed May Just Be Warming Up
The half-point reduction isn't enough to erase the risk of recession Score one for the Fed.

Facing both deteriorating financial conditions and new risks to economic growth, the Federal Reserve stepped up to the plate on Sept. 18 and hit more than just a solid single. This one went for extra bases. The Fed's half-point cut in its target interest rate, to 4.75%, was well beyond the quarter-point reduction most Wall Streeters were expecting. And the policymakers left the door cracked for further trimming "as needed." The question now: Will more be necessary?

Probably. The big cut lessens, but does not eliminate, the chance the Fed will cut again at its Oct. 30-31 meeting. The Fed sounded as uncertain about how the recent credit turmoil will play out as anyone, so much so that it avoided offering its usual assessment of whether economic growth or inflation was its primary concern.Nevertheless, as long as uncertainty and fear continue to prevent the proper functioning of the credit markets, economies in the U.S. and abroad will be at risk. The Fed's action will go a long way toward restoring confidence in businesses' access to the funding they need to operate, but even a half-point decrease won't quickly thaw out frozen markets or reverse the downdraft already hitting economic activity........

Full Story Article Link Here

Green is Good: In Silicon Valley

Silicon Valley companies going green in a big way

Silicon Valley companies are focusing more than ever on climate change, energy and the environment, turning the area into a hub for "clean tech" research.

That's the conclusion of a report released today by the Silicon Valley Leadership Group, a public policy organization whose members include many of the region's biggest companies.

More than 100 Bay Area companies now concentrate on solar power research, development or installation, according to the report. Venture capitalists are pouring money into clean technology companies, with most of that money - about $1.13 billion in 2005 - going to California companies.......

David R. Baker, Chronicle Staff Writer
Monday, September 24, 2007

For rest of story go to Link Here

Finally!

Well the Fed finally seems to be listening. The market, myself, anyone who lives in the real world have begged for this cut for many months. The Fed acted boldly after playing it close to the vest, waiting it out, then cutting 50 basis points from the Funds rate today to the cheers of many. I'm terribly relieved that they acted, and I hope they continue to move in the neighborhood of 50-100 more by the end of the year. There is no inflation threat right now, only deflation of many American assets as the demand for money increased and liquidity stalled out. I think Larry Kudlow did an excellent job of calling for the cut, some excerpts from his latest blog postbelow describe the immediate market affects:

Bernanke Gets It Right

Once in a while you get it right. One time in a row.

I talked about this in my last column,

Goldilocks 2.0.

The Bernanke Fed made a good strong move this afternoon. The stock market applauded loudly with a 250-point rise in the Dow. Essentially, the Fed followed Treasury market rates lower. The 4 percent Treasury bill rate had been urging the Fed to make this move.

By itself, this action will not heal the credit markets overnight. But it will help. Lowering the cost of money will -- over time -- raise asset values across-the-board. New cash injections at the new target rate of 4.75 percent will raise the low 2 percent growth of the monetary base in order to accommodate the banking system’s unusually high cash demands.

Adjustable rate mortgage holders will get almost immediate relief.

This is a confidence-inspiring move by the Fed. Lenders will be more apt to lend and investors will be more apt to take risks..........

Link to rest of story at Kudlow's Money Politics Blog

Roll the dice: 25 or 50?

As the Fed prepares to make one if it's most important policy decisions under Bernanke, I'm elated that we are at least seemingly locked into a rate cut which I have been clamoring for months. Unfortuantely, I don't think the Fed will take out the insurance policy necessary by cutting 50 basis points this week. They will again, continue to fall behind the curve of the economic slowdown and most likely take it 25 basis points at a time. This will be a defacto rate increase as the effective Fed Funds rate has been hovering below 5.00% and the market and the economy will be disappointed. We can only hope for more cuts sooner rather than later.......


Economists predict/debate on WSJ economics blog.........

Economists Debate: A Quarter Point or a Half?

This Tuesday, the Fed is expected to lower the target for the federal-funds rate — therate at which banks lend to each other — for the first time in over four years. The key question is how much will the Fed cut? Economists preview the rate decision, and what they expect the Fed statement to say, below.

We look for a 25-basis-point rate cut from the FOMC this Tuesday …, although we believe a larger 50-basis-point cut still carries significant probability. We expect further cuts in the discount rate [currently at 5.75%], possibly of greater magnitude than the drop in the funds rate [currently at 5.25%]. We expect the FOMC statement to emphasize that the downside risks to the growth outlook are the predominant policy concern. – Credit Suisse

While we certainly would not be surprised if the FOMC cut the fed-funds target rate by 50 basis points [by 1/2 percentage point, to 4.75%] next Tuesday, in our view, a 25 basis point cut by a slim margin seems the more likely outcome. Even though the FOMC appears to be trying to move toward greater transparency, we think that this Tuesday’s FOMC statement may be a situation in which the less said, the better. …. The outlook for the economy, the credit markets, and the financial markets is highly uncertain right now. In times of great uncertainty, we think the FOMC generally favors an incremental approach to policy changes. – Friedman, Billings, Ramsey Economic Research

For blog link and further debate click link here

Productivity Strong and Inflation Low

Simply stated - more head room for the Fed to do what it needs to do - cut the Fed Funds Rate................

Productivity Grows at Faster Pace
US Worker Productivity Rebounds Strongly, Wage Pressures Ease Sharply in the Spring

WASHINGTON (AP) -- Worker productivity rebounded, growing at the fastest pace in nearly two years, while wage pressures eased sharply in the spring -- developments that should reduce inflation worries.

The Labor Department reported Thursday that productivity, the amount of output per hour of work, jumped to an annual growth rate of 2.6 percent in the April-June quarter, even better than the 1.8 percent increase that was originally reported.

Wage pressures, as measured by unit labor costs, slowed to an annual growth rate of 1.4 percent, slower than the initial estimate that labor costs were rising at a 2.1 percent rate..................

................The increase in productivity and the reduction in labor costs were better than had been expected, raising hopes that the Federal Reserve will have the leeway to cut interest rates at its next meeting on Sept. 18...........

-By Martin Crutsinger, AP Economics Writer

For rest of story link here

Rate Cuts = Stronger Dollar

Fed Ease Means Dollar StrengthRate
Increases have rarely constituted “tightening” when it comes to restoring the greenback’s value.
By John Tamny & Paul Hoffmeister

The Federal Reserve’s change in bias last week toward cutting the federal funds rate, along with its half-point cut in the discount rate, offers an opportunity to test the widely held belief that rate cuts weaken the dollar while exacerbating existing inflationary pressures. In truth, the opposite is typically the case, since dollar-demand shifts when the Fed acts.

Last week, the market response to the Fed’s new course was profound: Gold began a new short-term downtrend. The dollar adjusted for gold started a short-term uptrend compared with the euro adjusted for gold. The 30-year Treasury yield began a short-term downtrend. And the Russell 2000 Index — comprising small-cap companies and arguably the most sensitive equity index to monetary policy error — ended its recent short-term downtrend.

Overall, lower gold prices, a stronger dollar against the euro, lower long-term bond yields, and rising equity valuations are indisputable hallmarks of a disinflationary environment — not a resurgence of inflation........


Full Story Link Here

Fed Needs to Finish the Job - Part 2

Joseph Mason, an economist at Drexel Univerisity, discussed today why the Fed's Discount Rate cut is only a short term bandaid at best...............


Mr. Mason’s comments:

Let’s be direct. While markets may have been temporarily assuaged by Friday’s Discount Rate cut, the problem at the heart of current credit difficulties is over-leverage. Structured finance conduits (like subprime) are failing because they sold too much high-rated credit and not enough risky credit. That is, they over-leveraged. CDOs bought those over-leveraged structures and then leveraged the structures some more. Hedge funds bought the CDOs and then borrowed to buy more, leveraging themselves 10 or more times over in the process. Over-leverage is a condition of over-borrowing. While discount window lending to insolvent institutions as a broad based bailout policy was attempted in the Thrift Crisis and the Great Depression in the US, and many times elsewhere, it has never once meaningfully addressed industry-wide problems of over-leverage or help restore banks to solvency.

The point is, over-borrowing has not once been reconciled through more borrowing, whether through the discount window or elsewhere. Here are two relevant articles. One is the Federal Reserve Bank of St. Louis’ Homer Jones Memorial Lecture given by Anna Schwartz (Milton Friedman’s co-author on the Monetary History of the United States) in 1992, and one is authored by myself, published in 2001. Both show the frivolity of discount window lending in cases of industry-wide difficulties. Discount window policy will help the industry weather a few weeks of transitory market difficulties, but discount window policy is unlikely to help in the long term. Given the magnitude of interest rate resets increasing well into 2008, more meaningful policy geared toward providing transparency toward RMBS, CDO, Hedge Fund, and Mutual Fund holdings needs to be developed in the few weeks we have bought with the discount window policy. Financial panics tend to happen in the fall, and that time is soon upon us.

- From WSJ Real Time Economics Blog

Blog Link Here

CNBC says Silicon Valley Housing Sizzling

I've been posting about the strong bay area and silicon valley economy since Q3 last year, and it's continuing to show up in the housing market...........

Here is a very pertinent special report in video form from CNBC:

Link Here

Fed Needs to Finish the Job

Cutting the discount rate was a nice gesture, but the market needs a a dramatic Fed Funds rate cut immediately. To wait is only to deepen the chance of a recession and create more uncertainty in the market. As I mentioned Friday, I can only attribute this lack of action on the Funds rate as to stubbornly protect a flawed Fed forecast just weeks ago forcing them to admit they have been out of touch with the real world.

Fed may have to cut federal funds rate
Most economists believe Fed will cut at or before its Sept. 18 meeting

WASHINGTON (MarketWatch) -- U.S. credit markets remained extremely fragile Monday, and observers said the Federal Reserve may have to lower its federal funds target rate to inject permanent liquidity into the market and provide investors with more assurances that the central bank will act to keep the economy growing.

Yields on short-term Treasurys plunged on Monday, evidence that fund mangers were parking their cash in the safest and most liquid assets rather than risk them in any asset backed by mortgages or even in the normally sedate commercial paper market.

The yield on the three-month Treasury fell more than a full percentage point at one point, finishing at 3.09%, down 66 basis points on the day and down about 150 basis points in a week. It was the largest decline since the day the market crashed in 1987.

By Rex Nutting, MarketWatch
Last Update: 6:03 PM ET Aug 20, 2007


Full Story Link Here

It's a start..............

This is a start, but I don't understand the stubbornness of not lowering the fed funds rate.........

Fed OKs Reducing Discount Rate on Loans

Friday August 17, 9:52 am ET

Federal Reserve Approves Half-Percentage Point Cut in Discount Rate on Loans to Banks
WASHINGTON (AP) -- The Federal Reserve approved a half-percentage point cut in its discount rate on loans to banks Friday, a dramatic move designed to stabilize financial markets roiled by a widening credit crisis.

The action had an immediate positive impact, sending stocks soaring on Friday right at the opening bell. The Dow Jones industrial average surged by more 300 points at the start of trading.

The decision means that the discount rate, the interest rate that the Fed charges to make direct loans to banks, will be lowered to 5.75 percent, down from 6.25 percent.

The Fed did not change its target for the more important federal funds rate, which has remained at 5.25 percent for more than a year. Friday's move was not expected to have an immediate impact on consumer borrowing...............

Friday August 17, 9:52 am ET
By Martin Crutsinger, AP Economics Writer

For rest of article click here

C'mon Ben....This is getting ridiculous

Ok, Ben Bernanke is going to transform me from Dr Brightside to Dr Evil. I'm just going to chalk it up to stubbornness and rhetoric, I suppose. I heard Steve Liesman of CNBC make a great point this morning about Big Ben; he descends from academia so until he can touch and feel the data he's going to sit on the sidelines, that he's not going to look at what's coming until it's here. I find that quite frustrating, but I have to imagine pressure is mounting hourly and the Fed will be forced to cut rates soon or they will be losing any real credibility that they are worried about inflation. They have a looming financial crisis on their hands that they can relieve and allow the underlying relatively strong U.S. economy keep it's momentum.

Just the facts to state my case

-The Fed should follow the markets, the 91 day treasure closed today at 4.038% down nearly 100 basis points in a week. This is an incredible turn of events.

-The headline CPI is moderating nicely gaining only .1% . Also the chain weighted 12 month core CPI is at 1.8%, well within the feds comfort zone, so I believe this gives the Fed room to duck and cover and cut.

-Liquidity in the financial markets is almost frozen. Commercial paper is not trading as it should thus not allowing many institutions to meet their daily obligations. This is despite the Fed's various attempts in the last few days to inject liquidity.

We are what we believe

The reason for birthing this blog is my contention the main stream media has been overtly negative about our economic situation the last few years and that there needed to be a counterbalance, even if it's a grass roots effort of one person and one blog at a time(read the mission statement above). I understand glorifying news to sell papers and advertising, but the last few years the negative slant has been ridiculous. If find alas, the artful prose of Brian Westury in a recent WSJ Op Ed piece describing the business that is economic news.............

Fair but Unbalanced
How the media promote false pessimism about the economy.
BY BRIAN S. WESBURY

Not that it needed any help, but the already energized debate about journalistic bias was electrified when Rupert Murdoch, owner of the "fair and balanced" Fox News Channel, struck a deal to buy The Wall Street Journal.

I have no desire to take sides in this debate, or question anyone's integrity, but my role as a business economist gives me a unique view of this subject.......

.......For example, the most recent Wall Street Journal economic forecasting survey, from July, shows that 49 out of 60 forecasters expect real GDP to grow at an average annual rate of 2%, or faster, in 2007. Of the remaining 11 forecasters, only two expect growth of less than 1%, and only one expects a recession. For 2008, the forecasters are even more optimistic, with none expecting recession......

.......Despite this, an NBC News/Wall Street Journal poll taken in late July found that 68% of Americans thought that the economy either was in recession already, or would experience a recession sometime during the next 12 months. Interestingly, this is not much of a change from the past. This same survey question has been polled at least five times since September 2002. Each time a robust majority of between 65% and 85% of respondents thought a recession either was under way or would occur within the year. Americans have been bearish on the economy for quite some time.

In short, over the past five years, forecasting economists from academia, consulting shops, financial services and industry have a perfect 5-0 record against a random sample of American citizens. It's important to understand that economists are not always right. Some even say that economists were put on earth to make weathermen look good......

For Rest of Story and Link to WSJ click here

I told You So

I've been asking the Fed to cut rates since the birth of this blog. In Bernanke's stubborness to show is monetary manhood he's overtightened and held on too long causing a freeze up in the credit markets. Memo to Bernanke, it's much easier to lower the Fed Funds rate than to continually pump daily emergency liquidity into the financial markets..............

U.S. Rate Cut Looks More Likely

Central banks pumped money into distressed markets for the second day to relieve strains in money markets, while investors concluded the Federal Reserve is increasingly likely to cut rates soon and that rate increases in Europe and Japan may be deferred.

Explaining that it was "providing liquidity to facilitate the orderly functioning of financial markets," the Fed injected $38 billion, following Thursday's $24 billion. The European Central Bank, saying that its "liquidity-providing fine-tuning operation" was aimed at assuring orderly market conditions, added $83.56 billion following the $130 billion it injected to euro-zone markets Thursday.......

........Futures markets place high odds on the Fed cutting the rate target to 5% at its Sept. 18 meeting, and some possibility of a cut before then. The decision turns on how conditions in credit markets develop in coming days. If they don't improve, officials would probably be inclined to cut rates to offset the negative impact.

By JOELLEN PERRY and GREG IPAugust 11, 2007 - WSJ

Stealth Rebound

It's always darkest right before the dawn.....................

U.S. MBA's Mortgage Applications Index Rose 8.1% Last Week

By Shobhana Chandra

Aug. 8 (Bloomberg) -- Mortgage applications in the U.S. rose last week by the most since January, as cheaper borrowing costs encouraged more Americans to seek loans for home purchases and refinancing.

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan jumped 8.1 percent to 656.5 from 607.1 the prior week. The group's gauge of demand for credit for home purchases gained 7.4 percent, while a measure of refinancing increased 9.1 percent.

A resilient labor market and lower home prices may support sales and eventually help reduce the glut of unsold properties, economists said. A report last week showed Americans signed more contracts to buy previously owned homes in June, a sign the weakness in the housing market may not get much worse.

``We're at the bottom right now in housing,'' said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina. ``The biggest declines are over.''


For Bloomberg Link Click Here

Place Your Bets

Ahead of tomorrow's Federal Reserve meeting the Dow had it's biggest daily gain in four years. What does this mean? Maybe investors are hoping the Fed will get back out of the way of the ongoing U.S. prosperity and cut rates to a more "market" rate level. My guess is the Fed will acknowledge more of the slowing its lagging monetary tightening has produced, but still keep rates unchanged and remain "vigilant" on inflation.

I've been saying ad nauseam this year that the Fed should let prosperity run and cut rates.

Here are a few of my recent posting links:

Inflation Calm Link Here

Memo To Bernanke to Cut Link Here

And Merrill Lynch Agrees............

"Still, there were some who did expect movement from the Fed, if not now, soon. Merrill Lynch put out a report predicting that the Fed funds rate would be at 4.50% by the end of the year, from 5.25% now. "Not only do we see the Fed cutting rates sooner than the consensus and markets currently expect, but we see the cuts being deeper, with the Fed eventually lowering the funds rate to 3.75% by mid-year 2008," they wrote."-courtesy WSJ.

With the core rate nicely in the Fed's "comfort" zone and decelerating it will be only stubborness and flexing of inflation fighting Bernanke manhood muscle that will allow him to beat the vigilance drum. Soon the beat will tire and cooler heads will prevail.