On Monday April 9, 2012, Louis Cammarosano, General Manager of HomeGain, was a guest on the Real Estate 360 Live radio show on The Big Talker 1580 WNEW AM, hosted by Ryan Sloper.
Listen to the show.
Part 1 (14:46)
Ryan and Louis discuss the jobs report. Ryan notes that the unemployment rate actually dipped even though more people are unemployed as the participation rate in the labor force has dropped. Louis notes that once a worker is classified as no longer in the labor force, they are no longer considered “unemployed”.
Louis notes the disconnect between companies doing well and consumers doing well. Louis notes that the stock market is up in part because companies with a lot of cash are purchasing their own stock. Louis also notes that companies are in a different position than consumers as many companies are not in debt and have huge cash balances while many consumers have little cash and large debt balances.
Louis notes that Apple’s over performance makes the overall market appear to be doing better than it is. Louis notes that perhaps Apple is overvalued. Ryan notes that many companies have their cash overseas. Louis notes that companies also hold US treasuries and that when they decide to free up their cash, they will have to sell their US Treasuries which will put downward pressure on those securities. Louis notes that 61% of US Treasuries last year were bought by the Federal Reserve.
Louis notes that the US government engages in deficit spending and relies upon the Federal Reserve to print money to purchase the US Treasuries to fund the spending. Louis notes that up to 20-30 years ago most of the US Treasuries were bought domestically by US companies and individuals.
More recently China and Japan bought large percentages of US Treasury issuances, however in the past two or three years they have cut their purchases of US Treasuries. Louis notes that the US government has increased spending each year which means it relies more heavily on debt issuances to fund its spending-debt issuances that are increasingly purchased by the Federal Reserve Bank. Louis notes that if the Federal Reserve was not buying the debt, interest rates would be much higher.
Ryan notes that the Federal Reserve can’t continue to be the purchaser of last resort forever. Louis notes that the Atlantic is calling Ben Bernanke a hero and that Paul Krugman is arguing that inflation is too low! Louis notes that Krugman thinks that because money is cheap that we should be spending more of it. Louis argues that is akin to telling someone the morning after who is hungover to have more beers because they are cheaper in the morning than they were last night. Louis notes that the less money you make the greater percentage food and energy are as part of your budget.