Mish's Global Economic Trend Analysis

Another Yuan Devaluation Already?
Hooray! Huge Rent Hikes Coming; How Will It Affect Price Inflation?
Dutch Report Concludes MH17 Shot Down by Ground-to-Air BUK Missile; Puzzle Still Missing Pieces

Posted: 13 Oct 2015 08:37 PM PDT

I was intrigued by a Zerhedge post this evening entitled Gold Jumps As China Devalues Yuan By Most In 2 Months, "Boosts Reforms" Of Corporate Bond Bubble.

OK - Gold is up a bit, but I cannot find any reference to China devaluing the Yuan again.

ZH made this claim "The Yuan has been fixed stronger for 8 straight days... but tonight PBOC devalues Yuan by 177pips - the most in 2 months," accompanied with this chart.

I cannot find a reference to "China weakens yuan most since August 13" other than ZH. I assume Bloomberg made that statement as ZH claims "Charts: Bloomberg".

Here is a bit of perspective on the "devaluation" claim.

USD vs Yuan

Is that a devaluation, or is that a reversal of a correction to a previous devaluation?

The answer of course is the latter.

Mike "Mish" Shedlock

Hooray! Huge Rent Hikes Coming; How Will It Affect Price Inflation?

Posted: 13 Oct 2015 10:54 AM PDT

In news that is bound to make the inflationists at the Fed as well as property owners happy, Landlords Will Hike Rents by 8% this Year.

Some 88% of property managers raised their rent in the last 12 months and 68% predict that rental rates will continue to rise in the next year by an average of 8%, according to a survey of more than 500 of Rent.com's property management customers, which the site says represents thousands of rental properties and hundreds of thousands of rental units. That's nearly three times the wage increase that most employees can expect this year.

What's more, 55% of property managers said that they are less likely to offer concessions or lower rents in order to fill vacancies. One reason why they're getting even tougher: They are in a stronger position than they were this time last year.

More than 46% of property managers surveyed reported a decrease in rental vacancies in Rent.com's survey and, in the second quarter of 2015, vacancy rates in the U.S. for rental housing was 6.8%, the lowest it has been in almost 20 years, according to data from the U.S. Census Bureau.

Despite this, many renters are spending more than 30% of their income on rent (the amount generally recommended) and need help qualifying for the lease.

Yardi Survey

Reader "BJ" is retired but works part-time a number of hours each week, surveying apartments for rent. He reports ...

Hi Mish

I am retired but work part-time for Yardi from my home, surveying apartments for rents. Yardi runs a full survey 3 times a year, Jan, May and Sept. These generally run about 6 weeks.

Yardi has the country divided into 24 sectors and we normally work 6-7 sectors once a month for a week on a rotating basis. Toward the end of the survey, we can work any market and I've been keeping track of a few select places. From what I see, rents are up and up a lot. Some of the places I watch are up 7% or more than last year for the same apartments.

The absolute worst places to be looking for a rental unit are San Fran and North LA. If anyone does answer the phone in those areas, it's either a new building just opening, or they don't have anything. You can't even get on a waiting list. I've seen apartments in tight areas where they want you to make 3X net before they will talk to you.

Portland, Seattle, Washington DC, northern NJ, Miami and Boston are also difficult. I talked to a complex in Portland last week that had 3500 apartments under management with a total of 7 open apartments.

I am amazed by the amount of apartments that are either tax credit or subsidized in some manner. All of them have long waiting lists.

Measuring Housing Inflation

The Fed wants inflation. But how do they measure it?

The Fed's preferred measure is PCE (personal Consumption Expenditures) price changes, not the CPI. The housing components are quite dissimilar.

Sam Ro writing for Business Insider explains the Difference Between PCE And CPI.

Why does the Fed prefer PCE over CPI? Societe Generale's Aneta Markowska explained in a June 19 research note:

"The official switch from CPI to PCE occurred in 2000 when the FOMC stopped publishing CPI forecasts and began to frame its inflation projections in terms of the PCE price index. This shift, announced by Alan Greenspan during his testimony to Congress, came after extensive analysis done by the Fed. The conclusion was that the PCE has several advantages over the CPI, including (1) the changing composition of spending which is more consistent with actual consumer behavior, (2) the weights, which are based on a more comprehensive measure of expenditure, and (3) the fact that PCE data can be revised to account for newly available information and improved measurement techniques."

PCE vs CPI

Doug Short at Advisor perspectives Deconstructs the CPI as follows.

That pie chart was produced from the December 2014 BLS PDF on the Relative Importance of Components in the Consumer Price Index

But housing contains shelter, insurance, fuel, rents, and other items. Here is a breakdown of shelter.

Housing Components in CPI	42.173
….Shelter	32.711
……..Rent of Primary Residence	7.159
……..Lodging Away from Home	0.839
……..Owners' Equivalent Rent	24.339
……..Tenants' and Household Insurance	0.375
….Fuels and Utility	5.273
….Furnishings	4.189

Please note that home prices are nowhere to be found. The Fed believes homes are a capital expense.

The BLS also ignores home prices, and neither accurately count rents.

Of the 32.711% weighing to CPI "shelter" only 7.159 percentage points are assigned to rent. The largest single item is Owners' Equivalent Rent (OER) accounting for a whopping 24.339% of the CPI.

Owners' Equivalent Rent

The BLS Explains How the CPI Measures Price Change of Owners' Equivalent Rent.

The expenditure weight in the CPI market basket for Owners' equivalent rent of primary residence (OER) is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence: "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?"

The following questions, asked of consumers who rent their primary residence, are the basis of the weight for Rent: "What is the rental charge to your [household] for this unit including any extra charges for garage and parking facilities? Do not include direct payments by local, state or federal agencies. What period of time does this cover?"

From the responses to these questions, the CPI estimates the total shelter cost to all consumers living in each index area of the urban United States.

Essentially the BLS asks home owners how much rent they would pay if they rented their own homes from themselves. And that is the single largest component in the entire CPI.

Not only does the Fed and BLS miss housing bubbles, they do not even accurately measure "rent".

But hip, hip, hooray! This will have at least some impact on the CPI and PCE so the inflationist fools will be cheering as the average renter gets crushed.

Mike "Mish" Shedlock

Dutch Report Concludes MH17 Shot Down by Ground-to-Air BUK Missile; Puzzle Still Missing Pieces

Posted: 13 Oct 2015 08:21 AM PDT

The Dutch investigation into flight MH17, a shot down over Ukraine officially concluded today. The Official Report Confirms MH17 Shot Down by Missile.

Dutch officials have confirmed that Malaysia Airlines flight MH17 was brought down by a missile and criticised Ukraine for not closing its airspace over its eastern regions despite the conflict, in the first official investigation findings into the crash that killed 298 people in July last year.

The year-long investigation determined that MH17 was shot down by a Russian-made Buk anti-aircraft missile but did not seek to establish who fired it because this was not part of its mandate. "Flight MH17 crashed as the result of detonation of [a] warhead outside the airplane," said Mr Joustra, who chaired the investigation.

Kiev and its western allies blame Russian-backed Ukrainian separatists, while Russia has insisted it was the Ukrainian armed forces.

Earlier on Tuesday, Moscow gave its own version of events, which implicated Ukrainian troops on the frontline.

Yan Novikov, general director of the Russian state arms producer Almaz-Antey, which manufactures the Buk system, said experiments carried out by the company proved initial findings presented in June. These included evidence that the Buk M1 missile that brought down MH17 was fired not from the village of Snizhne that was controlled by pro-Russian rebels but from nearby Zaroshchenske.

There is a difference of opinion over who controlled Zaroshchenske at the time, with the Russian military claiming it was in the hands of the Ukrainian military while Kiev insists it was held by Russian-backed rebels. Mr Novikov declined to comment on who was in control when the plane crashed.

But he said tests had confirmed that the missile that brought down MH17 was an old model, the 9M38, which was first manufactured in the Soviet Union in 1986 and decommissioned by the Russian army in 2011. The statement implied that the missile complex could not have come from Russia.

The Dutch Safety Board report will not directly address the issue of who was responsible for the MH17 disaster. A separate Dutch-led criminal investigation is continuing.

In July, Russia vetoed a draft resolution at the UN Security Council to set up an international tribunal into the disaster.

BUK-Type

The type of BUK cannot determine whether the rebels or the Ukrainian troops fired the missile, but it does seem to rule out Russia directly.

The Guardian provides this interesting snip from the report:

"The damage observed on the wreckage is not consistent with the damage caused by the warhead of an air-to-air missile in use in the region in amount of damage, type of damage and type of fragments. The high-energy object damage on the wreckage of flight MH17 is therefore not caused by an air-to-air missile."

"Of the investigated warheads only the 9N314M contains the unique bowtie shaped fragments found in the wreckage. The damage observed on the wreckage in amount of damage, type of damage, boundary and impact angles of damage, number and density of hits, size of penetrations and bowtie fragments found in the wreckage, is consistent with the damage caused by the 9N314M warhead used in the 9M38 and 9M38M1 BUK surface-to-air missile."

The idea that Russia itself was responsible always seemed silly, at least to me. And evidence was clearly doctored to point the finger at the rebels. But that still does not mean the rebels did not launch the BUK.

Flight Path

Russia could have and should have closed down that airspace. But so could have Ukraine.

And countries may also have wisely decided on their own accord it does not make sense to fly over a war zone.

Tribunals

Mistakes are not grounds for a tribunal. The US never faced tribunals when it accidentally shot down planes.

On the other hand, if Kiev purposely directed MH17 into an area where rebels might make a mistake, that would be another indeed.

Missing Pieces

We are one step closer to understanding what happened.

But where are all the recordings in the black box that show why MH17 was at an altitude that could be hit by a BUK?

It was Kiev that would have benefited from a purposeful rebel mistake, not the rebels.

Lots of questions remain, even if the Rebels fired the BUK.

Mike "Mish" Shedlock

Economy News

13.10.15

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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