Two pieces of economic data came out in the past couple of days that I think are worth a look. I want to start with inflation; my other post deals with the recent retail sales numbers.

Two major banks, J.P. Morgan and Wells Fargo, reported substantially stronger profits over the weekend, largely due to mortgage lending. The weekend Wall Street Journal (WSJ) had “JP Morgan and Wells Fargo: Housing on Mend” on page B1, and the weekend Financial Times had “Dimon bullish on US housing market” on the front page. The weekend New York Times (NYT) had two housing stories on B1: “Mortgage Lending Helps JPMorgan Profit Rise 34%” and “Which House Is Worth More?”

The first point I want to make is that as housing recovers, it helps across the board. Rising home values generate more transactions, which generate multiple business spin-off benefits: realtor fees, mortgage fees, furniture sales, and everything that goes with the transaction and the new property. For existing owners, rising prices make them wealthier. For underwater owners, the power of leverage that made them broke on the downside is now making them whole just as fast. Fewer underwater owners means fewer foreclosures going forward. The fact that the improving housing market is showing up in the financials of the largest banks is a sign of how large and widespread the recovery is becoming. The publicity around it can help build confidence even further.

I am very proud to announce that five members of the Commonwealth Investment Research team have once again been named All-Star analysts by Financial Advisor and Private Wealth magazines. This is an honor for the whole team, as well as for Commonwealth. Eight firms had analysts named: six firms each had one analyst honored, one had three analysts, and one firm—that’s us—had five individual All-Stars! We are very fortunate to have such a wide and deeply talented team.

Read the full story.

Up the wall of worry

A couple of good things to talk about today for the U.S. economy. The first relates to the generally improving demand environment. I have talked before about the fact that the housing market is getting better; the trend continues today with mortgage applications increasing by 16.6 percent, which is a lot. Cheaper mortgages continue fuel the housing recovery, and the story is not over yet.

Progress in Europe

No prizes for guessing what the lead story is today—the launch of the good ship QE3. Front pages for all: “Fed Links New Aid to Jobs Recovery in Forceful Move” in the New York Times (NYT), “Fed Acts to Fix Jobs Market” in the Wall Street Journal (WSJ), and “Bernanke takes plunge with QE3” in the Financial Times (FT).

This is a big story. Although more QE (i.e., quantitative easing) is not necessarily a big deal, the way it’s being done shows that the Fed is all in: the open-ended nature of the program, the specific commitments, and the fact that it will go in conjunction with the existing Operation Twist. This is well in excess of what the Fed had to do, and well in excess of what many—mostly Republicans—thought it should do. The FT described the move as “stunningly bold” in a sidebar on the front page. This is a political bet, made necessary by the Fed’s conviction that—in the face of fiscal and political uncertainty in the U.S.—the economy would continue to be very weak and unemployment unacceptably high, if nothing more were done.

The common front-page story yesterday was, of course, the anniversary of 9/11. The Financial Times (FT) led with “9/11 remembered – Thousands gather at NY memorial,” the Wall Street Journal (WSJ) with “Where Towers Stood, Memories Cast a Long Shadow,” and the New York Times (NYT) with “Indelible Date, Unforgettable Lives.” It is fitting that this terrible event continues to get this level of coverage. Never forget.

No other real common front-pagers, but a couple of stories snagged two of three. The big one was the $104 million payout for the whistle-blower who led the IRS to systematic evidence that UBS had enabled thousands of Americans to evade taxes. He needs the money, as he just got out of jail on similar charges, but this will certainly aid his re-entry into society. “‘Tarantula’ snares record $104m reward for whistleblowing in UBS tax case” hit the front page of the FT, and “Get Out of Jail Free? No, It’s Better” landed on the front page of the NYT, but “Whistleblower Gets $104 million” was relegated to page C1 of the WSJ. Think this will encourage others to run to the IRS with evidence of tax evasion? Incentives work, although the jail sentence will probably mitigate any effect.

One story consistently made the front pages this morning: where is China’s presumptive new leader? “Mystery as China’s leader-in-waiting vanishes” in the Financial Times (FT), “Communist Leader’s Absence Sets Off Rumor Mills in China” in the New York Times (NYT), and “China Mystery: Where is Xi Jinping” in the Wall Street Journal (WSJ) all report the same speculation, but no one has any facts. Imagine, not all that long before inauguration, the vanishing of a U.S. president-elect. Problems? Quite possibly.

As well as China has done economically, it is clear that the political system does not operate at the same level of sophistication. Most predictions of continued Chinese economic success hinge on the ability of the government to manage the economy; to my mind, this type of story calls that ability into serious question. The FT has a good overview article, “The Ascent of the Bureaucrat” (p. 7), which discusses some of the issues associated with the current system. Given those issues, the downfall of Bo Xilai and his wife, and the current absence of Xi Jinping, you have to wonder what is happening at the top levels of Chinese politics and what that will mean for the economy, not to mention for the people.

No news is good news