Friday, April 19, 2013 - A Bizarre New Normal

A Bizarre New Normal

by Sinclair Noe

DOW + 10 = 14,547
SPX + 13 = 1555
NAS + 39 = 3206
10 YR YLD +.02 = 1.70%
OIL =.27 = 88.00
GOLD + 14.40 = 1407.50
SILV + .01 = 23.39

You've probably heard the stories out of Boston today. Late yesterday police released a photo of two young men; it turns out to be two brothers, Tamerlan and Dzohkhar Tasarnaev; originally from Chechnya and living in Boston for the past 10 years. Last night the two brothers tried to flee; they robbed a convenience store. The two men then fatally shot an MIT campus police officer and carjacked a sport-utility vehicle at gunpoint, keeping the vehicle’s owner hostage for about a half-hour. The owner was released at a gas station in Cambridge. He wasn’t injured.

As police pursued the vehicle, explosive devices were thrown from the car. There was an exchange of gunfire between police and the suspects. A Massachusetts Bay Transportation Authority officer was wounded during the exchange. Hundreds of police officers descended on the Cambridge and Watertown areas as the violence unfolded Thursday night.

The older of the suspects was shot by police; the younger brother, still in a car, managed to drive away. At some point he abandoned the vehicle, and he is still at large, believed to be in the Boston neighborhood of Watertown. Police had locked down Boston. It is a voluntary lockdown. Millions of Bostonians are asked to stay in their homes. Streets are empty, trains are not running, and a no-fly zone is in effect over the Watertown area. Police have been going house to house in Watertown, searching for the second suspect.

As of now, they have not found the second suspect.

You've probably heard all that, because it has been all over the TV and the radio and the internet. It's “breaking news”. Wall to wall coverage; the information is a mile wide and one inch deep and heavy on emotion. Sometimes it was completely wrong. The New York Post published front page photos of two men in the crowd at the marathon; but it was the wrong guys. By the way, yesterday Reuters ran an obituary on George Soros, the billionaire hedge fund manager behind the Quantum Fund, also known as the man who broke the Bank of England back in 1992. Soros is still alive. But I digress, let's get back to breaking news.

It is all very bizarre. And at the same time it is part of day to day life. The CDC estimates there are about 120,000 unintentional injury deaths in the US each year; that includes things like car accidents, people falling, people being poisoned, drownings. And then there are about 200,000 people who will die this year due to medical errors; don't forget more than 3,000 people have died since the start of the year in firearm homicides; nearly triple that number have committed suicide.

Officials are still searching for 60 people who remain unaccounted for following an explosion at the West Fertilizer plant in Texas; 200 people were injured in that blast. It has not resulted in calls for changes to immigration policy; the president isn't going to visit West, Texas. Nobody is asking questions about the religious beliefs of the plant operator.

And nobody knows how many people have died from coding errors associated with Microsoft Excel spreadsheets; it's estimated that pain has been inflicted on millions, but an actual number is impossible. Somebody should figure out a way to calculate these things.

The world is a dangerous place, and it is usually dangerous in mundane and boring ways that don't attract wall to wall media coverage. So, we go on with the day to day.

For the week, the S&P 500 ended down 2.1 percent. The index, however, managed a finish above its 50-day moving average after ending below the level on Thursday for the first time this year. Still, the S&P 500 remains up about 9 percent for the year, and within 3% of all time highs. For the week, the Dow slid 2.1 percent, while the Nasdaq lost 2.7 percent. McDonald's and General Electric reported weak earnings. Google posted better than expected results. IBM posted disappointing numbers.

The 10-year Treasury yield is near 1.70%, down steeply from 2.05% five weeks ago. An auction Thursday of Treasury Inflation-Protected Securities, or TIPS, which compensate investors for future inflation, drew the weakest bidding interest in five years, suggesting the markets have little fear that inflation will be a major concern in coming years. It feels a bit deflationary.

The way all this filters into a market outlook is to reinforce the Fed’s message that it is in no hurry to cut back on its easing efforts to try to spark a quicker credit-creation cycle and hungrier consumer and business demand. Deflationary tendencies should put a damper on talk of near-term Fed tapering of its asset-buying program. That should place some support beneath financial markets as they digest the mixed growth signals. It also means that this present choppy earnings season is likely to usher in a prolonged period in which companies struggle to persuade investors they can grow. 

A slowdown from the economy's already slow rate of growth would not be surprising given the impact of the "sequester" and tax increases that went into effect earlier this year. These moves trimmed government spending across the board and increased taxes on most Americans. A new AP poll finds only one in four Americans expects their financial situation to improve over the next year. So, we face a few challenges.

With the world’s finance ministers, central bankers and development experts gathered in Washington for the spring meetings of the World Bank and International Monetary Fund, the mood is certainly aspirational. World Bank President Jim Yong Kim calls for universal education.  Jim Yong Kim is the new president of the World Bank, he used to be president of Dartmouth.  Treasury Secretary Jack Lew calls for universal women’s empowerment. IMF managing director Christine Lagarde says we need: “a full-speed global economy — growth that is solid, sustainable, balanced, but also inclusive and very much rooted in green developments.”

Piece of cake. 

Thursday afternoon the World Bank alone held major events on the importance of protecting women’s economic rights, meeting universal education goals, and incorporating the value of ecosystems into economic analysis. The IMF had its own agenda underway as well. And then the think tanks had their own agendas; with the Brookings Institution, the Peterson Institute for International Economics, the Bertelsmann Foundation and others battling for attention, and so many central bank governors and finance ministers lined up to speak they all sort of cancel each other out.

Communiques will be issued by the World Bank and the IMF, and other organizations like the Group of 20 major economic powers and the G24 committee of developing nations. They may even be of substance. Kim, for example, is expecting an endorsement of his broad strategic goals for the bank; the G24 endorsed a plan by Brazil, Russia, India, China and South Africa – the so-called BRICS nations – to set up their own development bank as a complement/competitor to the World Bank.

Kim also addressed the urgency of climate change and how World Bank is working to combat its effects. He says they must increase financial resources for sustainable energy, use innovative agriculture and partner with major cities to reduce their carbon footprint. The World Bank also issued a report that says it wants to end world poverty by 2030. I think we should aim for 2025. The new goal to eradicate poverty is accompanied by the concept of shared prosperity. The World Bank wants to examine how income of the country's poorest 40 percent has developed over the years to see whether this group has been profiting from economic growth at all, and they want to see the bottom 40 percent get a better deal. Sounds crazy, right?

Maybe not. Economic growth plays a major role in fighting poverty. China and its economic boom have contributed tremendously to eradicating poverty. In just the past few years, Uganda has seen  the number of people living below poverty drop tremendously from 38 percent to under 24 percent.

Climate change, universal education, eradicating poverty. It sounds impossible. But then the world is impossible, in a rather, boring, mundane and predictable way; we face huge dangers every day, and sometimes we get knocked down. If you are looking to find happiness in life, try dedicating you work to the most difficult problems. Turning around inner city schools, finding solutions to homelessness, finding ways to make drinking water safe, offering hope to people with terminal illness. Face the seemingly worst of the world with a conviction that you can do something, even if it's just a tiny little bit that serves others.

Sometimes the challenges can seem daunting and the goals impossible; sometimes the world just seems so bizarre that it's easy to get sidetracked. It's one thing to say people should find their purpose and passion; it's another matter to maintain progress. It's like we all have two jobs: our immediate tasks and the chance to make a difference.

Thursday, April 18, 2013 - Elvis and Other Ongoing Investigations

Elvis and Other Ongoing Investigations

by Sinclair Noe

DOW – 81 = 14,537
SPX – 10 = 1541
NAS – 38 = 3166

10 YR YLD - .02 = 1.69%

OIL + 1.68 = 88.36
GOLD + 14.60 = 1393.10
SILV - .03 = 23.38

Emergency teams went house to house through mounds of debris in a devastated four-block area of West, Texas; that's the name of the town – West; it's near Waco. An explosion at a fertilizer plant leveled a big part of the town and there are 15 dead and perhaps 160 injured. Officials said there was no initial indication that the blast was anything but an industrial accident, but it is an ongoing investigation. Maybe someone will look into the wisdom behind building a fertilizer plant right next to a residential area and even a nursing home.

Meanwhile, an interfaith service was held in Boston today to mourn the victims of the bombing. It was actually a very good service. Several dignitaries spoke, including President Obama, who promised that the perpetrators will face justice. But it is an ongoing investigation. The FBI has released pictures of a couple of guys carrying large backpacks; they think they might be suspects in the bombings.

Meanwhile, the FBI has arrested a man in Mississippi for mailing letters laced with the poison ricin. The suspect is an Elvis impersonator. I can't make this stuff up.

We’re seeing economic growth cool off a little bit after a strong start to the year. The index of leading economic indicators declined 0.1% in March. The LEI looks forward about 3 to 6 months; the biggest challenges seem to be weak consumer demand and slow income growth.

Meanwhile, the Philadelphia Fed’s factory index declined, reflecting a drop in orders that prompted managers to cut back on hiring and inventories.. Manufacturing activity in the region is still growing, it's just sluggish growth.

This week, the IMF released new economic forecasts lowering its estimates for global growth, while also citing diminished risks of a severe financial disruption in Europe or sharp fiscal policy adjustment in the United States. Today, at the spring meeting of the World Bank and the IMF in Washington, Christine Lagarde, the director of the IMF gave her blessing to recent actions taken by the Bank of Japan to help bolster growth. She also said the European Central Bank had more room to aid a recovery in Europe.

But it was cautious support for more easing. The IMF still believes unconventional monetary policies meant to prop up economic growth around the world are still needed now, but they also raise the risk of creating new bubbles that would jeopardize financial stability. Policy reforms are needed before any problems created by central bank stimulus start to arise.

At a separate news conference, Jim Yong Kim, the head of the World Bank, called for eradicating extreme poverty by 2030 and for fostering income growth for the bottom 40 percent in every country.

Meanwhile, the argument for austerity has suffered a devastating blow. Carmen Reinhart and Kenneth Rogoff, two economists, of the University of Maryland and Harvard respectively, wrote a paper, “Growth in the Time of Debt” that has been used by everyone from Paul Ryan to Olli Rehn of the European Commission to justify austerity policies. The authors purported to show that once a country's gross debt to GDP ratio crosses the threshold of 90 percent, economic growth slows dramatically. Debt, in other words, seemed very scary and bad. Cut budgets now or crash your economy. Problem is that their math didn't add up, and some other economists went back and checked the math, and Rogoff and Reinhart now say there was a problem with the Microsoft Excel spreadsheet; maybe some other problems they haven't taken credit for yet.

When properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2%, not -0.1% as published in Reinhart and Rogoff. It kind of changes the whole debate.

The House of Representatives has passed legislation designed to help companies and the government share information on cyber threats, though concerns linger about the amount of protection the bill offers for private information. US authorities have recently elevated the exposure to Internet hacks and theft of digital data to the list of top threats to national security and the economy. This is the second go-around for the Cyber Intelligence Sharing and Protection Act after it passed the House last year but stalled in the Senate after President Obama threatened to veto it over privacy concerns. The White House repeated its veto threat if further civil liberties protections are not added. Some lawmakers and privacy activists worry that the legislation would allow the government to monitor citizens' private information and companies to misuse it.

Too late.

Every time you mindlessly give a sales clerk your zip code at checkout, you're giving data companies and retailers the ability to track everything from your body type to your bad habits.

That five-digit zip code is one of the key items data brokers use to link a wealth of public records to what you buy. They can figure out whether you're getting married (or divorced), selling your home, smoke cigarettes, sending a kid off to college or about to have one.

Such information is the cornerstone of a multi-billion dollar industry that enables retailers to target consumers with advertising and coupons. Yet, data privacy experts are concerned about the level at which consumers are being tracked without their knowledge -- and what would happen if that data got into the wrong hands.

Acxiom, one of the biggest data brokers in the business, claims to have a database that holds information -- including one's age, marital status, education level, political leanings, hobbies and income level -- on 190 million individuals.Major competitors, like Datalogix and CoreLogic, tout similarly vast databases.

In most cases, all that is needed to match the information these data brokers compile with what you buy is your full name — obtained when you swipe a credit card — and a zip code.

Once a retailer identifies you, it can track and analyze your spending behaviors and background in order to predict what you might buy next. In the data world, this is often called predictive analysis or predictive modeling. Some retailers sell this information back to the data brokers which then sell it to other companies -- including retailers, banks, credit card issuers, airlines, hotels, auto manufacturers and many, many more -- in a seemingly never-ending cycle.

Currently, data brokers are required by federal law to maintain the privacy of a consumer's data only if it is used for credit, employment, insurance or housing. But there are some gray areas. Medical records and prescription purchases are off limits, but data brokers are allowed to track purchases of over-the-counter drugs and other related medical items, as well as web searches and medical surveys that consumers fill out online

I hope you've heard some of the talk about the foreclosure settlement fiasco. The quick rundown is that the Office of the Comptroller of the Currency and the Federal Reserve tried to take over an investigation into foreclosure abuses by the big banks and mortgage servicing companies. They looked into abuses such as foreclosing on active duty military, forged foreclosure documents, robo-signing, foreclosing on the wrong houses, foreclosing on people who were paying their mortgages on time, and other little problems. But it was too much work for the regulators, so they told the banks to hire outside consultants to review the mortgage files one by one. But it was too much work for the outside consultants, even though they were paid $2 billion to do the review. So, after two years, the regulators just decided to guess; they said there were probably 4.4 million homeowners who had been abused and they should be paid $3.6 billion. Some would be paid up to $125,000 for the big messes, but most homeowners would get a check for $300 or less.

The first round of the settlement checks was mailed last week; 1.4 million checks for abused homeowners, or maybe not abused; nobody is really certain because they never finished reviewing the files; but they sent the checks anyway. And now the checks are bouncing. Not all of them; just a few. The company hired to distribute the checks says it has corrected the problem.

Meanwhile, the journal, Science reports that NASA scientists have discovered two planets which they think could support life. The planets are very, very far away; 1,000 light years; part of a five planet solar system. The host star -- the equivalent of Earth's sun -- takes the name Kepler-62, where the individual planets are designated by letters thereafter. The planets are the right size and the right distance from the host star, and the scientists think they might have polar caps and water and all the other stuff of life; although probably no Elvis impersonators.

When former Governor Arnold Schwarzenneger signed an executive order in 2007 creating the first-in-the-nation rule ordering reduced carbon emissions for cars and trucks, the oil industry seemed to be on board. Chevron helped write the rules. Chevron's biofuels chief spoke at the signing ceremony and pledged to develop biofuel replacements to gasoline. Two years ago, California started phasing in the mandate aimed at global warming. Now Chevron is leading a lobbying campaign to undercut the mandate they helped to write.

Chevron, the second largest US oil company quietly shelved most of its biofuels work in 2010; they just didn't see enough profit potential. The oil companies can make a profit making advanced biofuels, they just can't make as much profit as they would like.

ExxonMobil, the largest US oil company, has also retreated from a biofuels effort. It cut funding for research into making fuel from algae. Now ExxonMobil and Chevron are pressing California to postpone the low-carbon standard, and they are lobbying to stop other states from following California. The Big 2 oil giants acknowledge that carbon emissions contribute to global warming but they claim the mandate would push up prices at the pump, and the technology isn't currently available and would be expensive to produce.

Back in 2007, Chevron committed to a plant to extract biofuels from forest-based biomass; pretty much using the parts of the tree that don't get cut into lumber. The researchers developed a process, known as solvent liquefaction, that could produce fuel on a commercial scale at a cost of about $2.18 per gallon, back when crude oil was around $70 a barrel. The plants were expected to generate profits around 5 to 10%, but that's not quite the profit margins for oil and gas exploration, so they shut down the venture three years ago.

So, the big oil companies have shifted from research to lobbying against low-carbon fuels, including a lobbying group called Fueling California, which has received hundreds of thousands of dollars from Chevron.

This year, 30 bills to kill or weaken renewable rules have been considered in 16 states. None have passed so far. California is the front line, and the state is outgunned. Chevron had its second most profitable year in 2012, posting net income of $26 billion on $222 billion in sales, the vast majority from petroleum. California’s revenue in fiscal year 2012 was $87 billion.

Emission controls enacted in California since 1966 have been models for federal car-pollution and miles-per-gallon rules. The state’s 32 million vehicles consume 15 billion gallons of gasoline each year, and emit 160 million metric tons of greenhouse gases annually, 36 percent of all such emissions in California. The state began to phase in the low-carbon standard in 2011. When it’s fully in effect in 2020, greenhouse gas emissions associated with transportation fuels are supposed to be 10 percent less than they were in 2010. Right now, the state is on track to achieve the goal, but the Air Resources Board, Chevron, and ExxonMobil won't disclose how the companies are complying with the rule. It could just be that Californians are driving less, or driving more fuel efficient and cleaner burning autos.

Some of the main arguments against the California low-carbon standard have been that it could raise the state's already high gasoline prices, force refiners out of business and even harm the economy by requiring the importation of more foreign oil. But it turns out that California's railroad infrastructure, including planned West Coast terminals, will increase the logistical capacity to transport oil to California from the Bakken oil field in North Dakota. That creates a sidebar play for energy by looking at the railroad companies, but it also means that the 2020 standards aren't a death knell for California refineries. The oil from the Bakken field is cheaper than the average barrel price in the US, and Bakken crude has been given a relatively low carbon intensity rating. The use of Bakken crude in California should exert downward pressure on gasoline prices in California, and Bakken crude is considered clean enough to help the state reach its 2020 low carbon emissions standard.

The USC Schwarzenegger Institute recently hosted a forum on Climate Change. California is uniquely vulnerable to rising sea levels. It's estimated that the past decade was 2 degrees warmer than it had been historically, and it was the hottest the Southwestern US has ever experienced. It's estimated the temperatures could rise 6 to 9 degrees over the next 50 years, if we do nothing.

And that looks like the current path, or at least the current path is next to nothing. This probably isn't the way things were expected to turn out in 2007; the idea of slightly less dirty fossil fuels is not nearly as good as truly clean alternatives, but until the economics change, that's what we'll be stuck with. And that leaves the question of what we've learned. We've learned that the big oil companies will break their promises in the pursuit of higher profit margins, and this should be remembered as new standards are considered or as new oil fields, such as the Monterrey Shale fields are explored.

Tuesday, April 16, 2013 - Love That Dirty Water

Love That Dirty Water

by Sinclair Noe

DOW + 157 = 14,756
SPX + 22 = 1574
NAS + 48 = 3264
10 YR YLD + .02 = 1.72%
OIL + .20 = 89.90
GOLD + 16.70 = 1370.30
SILV + .65 = 23.44

If home is where the heart is, then Boston is everybody's hometown today. No significant developments to report. The death toll stands at 3, with 176 people reported as injured, some in very critical condition. Officials now say it was just two bombs; yesterday, there was speculation there were more. There is no indication that the bombing was part of a broader plot. We still don't know if it was one evil lunatic or a group of evil lunatics. We don't know if it was done by someone from this country or elsewhere. There have been no arrests, and it is a very intensive ongoing investigation. We should not speculate on some things. What we do know is that people responded by running toward the blast to help the victims. We do know that the medical personnel and others responded heroically. And we do know that the good, decent, and heroic people outnumber the evil lunatics; always have, always will.

Total housing starts in March were up 46.7% from the March 2012 pace, although some of that increase was due to a surge in multi-family starts in March. Single family starts were up 28.7%. Even with this significant increase, housing starts are still very low.

The consumer price index decreased 0.2% in March, led by lower energy and apparel costs. Energy prices decreased 2.6% in March, retracing half of the 5.4% rise in February. Gasoline prices fell 4.4% in the month. Electricity prices also declined. The only big gain came in prices for used cars and trucks.

In the past year, the CPI has risen 1.5%. So,today's report may actually add to concerns about deflationary pressure; at the very least, it leaves plenty of room for the Federal Reserve to continue QE.

Industrial production rose a seasonally adjusted 0.4% in March, and February’s growth was revised higher to 1.1% from the initially reported 0.8% advance. The March gain wasn’t necessarily a great sign for the economy; utilities output rose due to unusually cold weather, and manufacturing and mining output actually decreased. Still, the annualized 5% gain in output during the first quarter was the best since the first quarter of 2012, and came as consumer goods output shot up 6.2%, the best quarterly gain since the end of 1999. The auto industry was a major factor in the first quarter numbers. Strong demand for new cars pushed automotive product output up 2.6% higher in March and 13.2% for the quarter.

Coca-Cola reported first-quarter results above Wall Street's forecasts. Coke also said it struck a deal to start refranchising its business in the US, which will lower costs.

WW Grainger, which sells power tools and other industrial equipment, said its first-quarter net income climbed 13 percent.

Intel reported a widely expected drop in first-quarter earnings on Tuesday, though the final results were in line with diminished expectations. Intel reported net income of $2 billion, or 40 cents per share, compared with net income of $2.7 billion a year ago.

US Bancorp reported first-quarter earnings that fell short of analysts' expectations. The Minneapolis bank's net income rose 7 percent to $1.43 billion as it set aside less cash to cover soured loans. Goldman Sachs reported first-quarter profit of $2.2 billion, or $4.29 a share, driven by strength in its investment banking business as well as its investing and lending unit.

European lawmakers have voted to cap banker bonuses at the region’s largest institutions, as part of a major set of reforms designed to curb the financial industry’s risky behavior.

The legislation had faced major opposition from Britain, home to Europe’s largest financial center, but it was eventually outvoted by other European Union countries that wanted to rein in the excesses. It's not like the bankers will starve. Compensation limits will restrict bonus payments to one year’s base salary, though that figure can be doubled if a majority of shareholders approve. The legislation will apply to all banks active in Europe, as well as the international divisions of European firms like Barclays and UBS.

Meanwhile, Italian officials broadened their investigation into whether the Japanese investment bank Nomura helped hide losses at the troubled lender Monte dei Paschi di Siena, ordering the police to seize assets worth $2.35 billion and naming a former top Nomura executive as a suspect.

The unusual move to seize such a large sum, and go after prominent bankers, underlined the importance of the case in Italy and the euro zone, where people are still a little nervous about banks, following that little episode in Cyprus. Monte dei Pashci is the oldest bank in the world and the third largest in Italy, and it apparently has to do with some transaction that left the bank in need of a bailout for more than $5 billion by the Italian government.

For the past few years I've talked with you about the foreclosure frauds perpetrated by the banksters. Lots of things went wrong, including: fake documents, forged documents, robo-signing, illegal foreclosures, foreclosures on military families while they served overseas, foreclosures on homes with no mortgages, foreclosures on people who paid on time, foreclosures on people who were truly trying to work out some sort of reasonable deal, kickbacks, and in general a complete lack of accountability for these crimes and abuses.

But instead of giving voice to thousands upon thousands of victims of illegal foreclosures, instead of documenting the banks’ criminal practices, maybe what we all should have done is simply let the Office of Comptroller of the Currency – part of the Treasury Department — and the Federal Reserve construct their own settlement with the banks. Then, when it utterly unraveled — as it has over the past couple of months — the unimaginable fraud heaped upon homeowners would get more attention than ever before.

Indeed, despite OCC and the Fed’s best efforts to protect banks from harm, they’ve actually exposed them like never before. Two years ago,  the OCC, the primary regulator for the banks doing the lion’s share of the foreclosing, had to answer for their complete lack of oversight and enforcement. So they came up with a solution.

Instead of joining with other regulators and leveraging their authority to generate the biggest penalties possible, OCC would break off (the Federal Reserve would join them), and pursue its own settlement. Announcing that 14 mortgage servicers committed “violations of applicable state and federal law,” OCC would allow 4.2 million homeowners in foreclosure in 2009 and 2010 to petition for an “independent” review, and would mandate specific restitution for any foreclosure found to be improper. The real goal was to find as few irregularities as possible, to “prove” that the problem was contained to a few isolated cases of sloppy paperwork, and to undermine the other state and federal regulators’ investigations. It was the perfect plan, if your idea of a good plan is to downplay bank malfeasance and subvert justice.

This plan began to take water from the moment it began. The Independent Foreclosure Reviews weren’t independent: OCC and the Fed, in their infinite wisdom, decided to let the banks hire and pay for their own third-party reviewers. The predictable consequences included a windfall for the bank consultants hired for the job – they made a combined $2 billion off the reviews – and numerous cases of reviewers deliberately trying to make the banks look better, or even hiding evidence of bank malfeasance. The OCC faced a moment of truth: Power through with expensive and obviously flawed reviews, or pull the plug. They did the latter. Instead of completing the 500,000 reviews requested by individual borrowers, they would merely slot all 4.2 million, whether victims of foreclosure fraud or not, into several broad categories, and pay out a total of $3.6 billion. The regulators refused to release the methodology underlying that process, or any of the completed reviews from the third-party consultants.

This all spilled out in an ugly manner over the past week. The vast majority of aggrieved homeowners will get less than $300. The main stream media has picked up on the story. Politicians have picked up the story. The regulators are now stonewalling Congress. Where does this go from here? Hard to say, but the whole story has revealed a nasty mess that will be difficult to sweep under the rug.

Economic leaders gathering in Washington for the World Bank and International Monetary Fund  spring meetings this week. So, the IMF updated its economic forecast. The IMF now predicts global growth of about 3.3 percent this year and 4 percent in 2014. That is a reduction of 0.2 percentage point since its January estimate for 2013; it did not change its estimate for next year’s growth.

Still, the report underscored that financial conditions had improved markedly since last year, in no small part because of aggressive monetary easing undertaken by the Federal Reserve, the Bank of Japan and the European Central Bank. Recession continues to afflict Europe, and the world still struggles with high unemployment, but risks to the downside; in particular from the threat of a country’s leaving the euro zone and from fiscal policy uncertainty in the United States, have faded.

Kind of strange that they think things are getting better and they lower their growth estimates.

The fund lowered its estimate of United States growth this year to 1.9 percent, down 0.2 percentage point from its January forecast. But it said the United States was “in the lead” in seeing an acceleration of growth, in part because Washington policy makers were able to avoid the so-called fiscal cliff of tax increases and spending cuts at the turn of the year.

The I.M.F. also said that the United States had proved too aggressive in carrying out budget cuts, given its still-sluggish rates of growth and high unemployment levels. It said it anticipated that the across-the-board $85 billion in budget cuts known as sequestration would push down growth levels this year and beyond.

The report says: “The growth figure for the United States for 2013 may not seem very high, and indeed it is insufficient to make a large dent in the still-high unemployment rate. But it will be achieved in the face of a very strong, indeed overly strong, fiscal consolidation of about 1.8 percent of G.D.P. Underlying private demand is actually strong, spurred in part by the anticipation of low policy rates under the Federal Reserve’s ‘forward guidance’ and by pent-up demand for housing and durables.”

There are some positive developments for the Inland Empire but there are still some big challenges. San Bernardino is still facing a scarcity of good news as the city's financial consultant presented a proposed budget to the City Council last night. One significant improvement is that - as long as a large chunk of the city's debts continue to be deferred - the city won't be in danger of not making payroll as it was in the weeks leading up to several pay days in 2012. The budget proposes to resume payments to the California Public Employees' Retirement System, but defers more than $16 million in other funds. The most positive developments might not have anything to do with repairing broken municipalities, but with a new wave of businesses washing into the Inland Empire.

An article in the LA Times this past weekend identified the Inland Empire as the fastest growing industrial region in the country and the most desirable industrial real estate market. Among the many merchants running large-scale operations now are such household names as Amazon.com, Kohl's, Skechers., Mattel, and Stater Bros. Markets.

They come for warehouses; really big warehouses; some are bigger than 30 football fields under one roof; really, really big warehouses where they can store, process and ship merchandise such as clothes, books and toys to ever more online shoppers and handle the rising flood of goods passing through the ports of Los Angeles and Long Beach.

The demand for these big buildings is so intense in San Bernardino and Riverside counties that developers are erecting more than 16 million square feet of warehouses on speculation, meaning they are gambling that buyers or renters will rush forward to claim the buildings by the time they are complete.

Although the Inland Empire was hard hit by the recession and earned a reputation for mortgage foreclosures, evictions and high unemployment rates during the downturn, the industrial property business has remained a bright spot. And it is now picking up speed.

Southern California has long been a vital hub for major retailers and manufacturers; the region features major seaports, and an enormous population base, but with Los Angeles and Orange counties essentially full, the Inland Empire with its wide-open spaces is now where the big new buildings are flying up.

Los Angeles County's industrial vacancy is 2.5%, the lowest in the country, and some of the priciest industrial property in the country is around LAX. Orange County is the second-tightest market in the U.S., with 3.5% vacancy. The two counties and the Inland Empire have a combined total of more than 1.65 billion square feet of industrial property, which is twice as big as the next largest market, Chicago.

Key to all this is logistics; the organization and movement of goods to accommodate business. The Inland Empire is close to the ports, which in turn means that the Inland Empire is close to the Pacific Rim. Once upon a time, a warehouse was where you stored things for weeks or months, such as toys and canned food that retailers would grab to restock their shelves. Sorting, organizing and moving the inventory was a constant challenge.

Tracking goods in the modern age of bar codes, scanners and computers is a comparative breeze. The location of every widget can be identified with pinpoint accuracy and fetched by robots that can lift and carry 3,000-pound loads with ease. Technology has allowed larger facilities with more sophisticated equipment to be able to deliver products very efficiently, enabling businesses to consolidate their logistical operations into bigger warehouses.

And it's not just the Inland Empire; the general wave of industrial revival has hit many core markets, including Chicago, Atlanta, the Inland Empire, New Jersey and others. The expansion of e-commerce has sparked the need for big-box distribution centers in major distribution hubs. More than one-third of 2012 build-to-suit requirements were e-commerce related. According to the US Census Bureau, e-commerce sales totaled $225 billion in 2012, more than double the amount in 2005. Strong demand for big-box quality space in major logistics markets has triggered an increase in both BTS and spec development. Last year, 58 million square feet of supply was added to the nation’s inventory and 57.7% of that was built to suit,

In total, developers currently have 57 million square feet of industrial space under construction. The Inland Empire leads all markets with 6.8 million, and Dallas comes in second with 5.8 million. New starts remain well below historical norms, which means new demand can quickly tighten the market. In fact, supported by strong new demand, the vacancy rate declined 30 basis points in the fourth quarter of 2012, the largest quarterly decline since 2006. So, with any luck, this is something that won't turn into a bubble. Knock on wood.