"What can I do?" Robert Reich. (not sure letters from Canadians will help, but couldn't hurt)
Betraying the planet. Paul Krugman, NYT.
Temperature trends; and Scary picture. Krugman's blog.
Tuesday, June 30, 2009
Thursday, June 18, 2009
Worthwhile Reading - June 13 to 18
Where are we now? Five point summary. Simon Johnson, The Baseline Scenario.
Do you see what I see? James Hamilton, Econbrowser.
SocGen: Expect new equity lows in H2; China is the global Achilles heel. Zero Hedge.
Where are profits going? Sudden Debt.
Bankers are scared. Are you? Gary North.
Do you see what I see? James Hamilton, Econbrowser.
SocGen: Expect new equity lows in H2; China is the global Achilles heel. Zero Hedge.
Where are profits going? Sudden Debt.
Bankers are scared. Are you? Gary North.
Friday, June 12, 2009
Worthwhile Reading - June 12
Just who bought all the Treasuries issued in late 2008 and early 2009? Brad Setser.
those of us who compare the U.S. now to Japan in the '90s often get shot down by critics who point to the fact that Japan had a huge pool of domestic savings, whereas the U.S. relies on foreign creditors; therefore, although the economic dynamics may be similar (aging demographics, crashed housing bubble and stock market bubble, messed up banking system, similar monetary and fiscal policy attempts (albeit with different timing), sub-potential economic growth, disinflationary if not deflationary predilections due to excess capacity, deleveraging, etc.), the interest rate outcome can't be the same; my counterpoint, influenced largely by Rosie, has been that U.S. household balance sheets have historically (VERY) low levels of bond holdings, and that the impetus to save (pay down debt and re-build retirement portfolios) left plenty of scope for domestic financing of incremental government debt; so, although the U.S. was starting from a low level of savings, that was immaterial (its not the stock the matters, its the flows) and on a prospective basis, that level of U.S. savings was bound to pick up significantly; and even if households themselves do not hold Treasuries outright in their own names, by paying down debt to financial institutions, those institutions could also be the new marginal buyers of Treasuries (what? they're going to lend out that extra cash to other households who are also trying to save? they're going to lend out that extra cash to businesses that are retrenching?).
As per Setser, the expert in the field of tracking fund flows,
Central bank custodial holdings continue to rise — just look at the last week’s custodial data. But the world’s central banks are no longer buying up all the debt the Treasury issuing. And Americans are now saving, creating a new pool of funds that needs to be lent out. Moreover, the financial sector isn’t borrowing — it actually is scaling back — which means that the household sector is lending less to financial firms, freeing up funds to flow into the Treasury market. Obviously, the price that pulls US investors into Treasuries matters greatly. But the basic sources of demand for the huge amount of Treasuries the US is now issuing aren’t really a mystery.... [W]e aggregated Treasuries held by mutual funds with Treasuries held directly by households. At the end of 2008 mutual funds were the main buyers of Treasuries. In q1 2009, though, households themselves were the main buyers of Treasuries.
Price stability and the monetary base. David Altig, of the Atlanta Fed, at his macroblog.
why anyone worries about what Art Laffer is saying, like worrying about what Ben Stein is saying, seems to me a waste of time and energy; one could just accept at face value that they live in their own little worlds and there should be little expectation of them always making sense (but guys like Felix Salmon picked up the "Ben Stein Watch" thing once Brad deLong got tired of it)
in any case, Altig felt it worthwhile to combat Laffer's assertions about what the increase in the monetary base means and whether or not the Fed is up to the task of taking away the stimulus when the time is right, most importantly pointing out that the reason to be concerned that monetary base expansion would be inflationary is if there was expansion in loan growth; but, as Altig says,
but in my opinion it is a bit of a stretch—so far, at least—to correlate monetary base growth with bank loan growth: [see his chart]... Let's call that more than a bit of a stretch.
The fiscal black hole in the U.S. and a follow-up, Limits to inflating away debt, and political commitments to future public spending. William Buiter, Maverecon.
Rebalancing the U.S.-China economic relationship. Kenneth Rogoff, Project Syndicate.
main point, just as Pettis, Roach and others have argued: if everyone is just trying to get things back to normal --- the same normal that relied on global imbalances --- then short-run stability might be achieved, but only at the expense of another (greater) financial crisis down the road
As global slump is set to continue, poor countries need more help. World Bank.
The world economy is set to contract this year by more than previously estimated, and poor countries will continue to be hit hard by multiple waves of economic stress, said World Bank Group President Robert B. Zoellick today. Even with the stabilization of financial markets in many developed economies, unemployment and under-utilization of capacity continue to rise, putting downward pressure on the global economy. According to the latest Bank estimates, the global economy will decline this year by close to 3 percent, a significant revision from a previous estimate of 1.7 percent.
Is Eastern Europe on the brink of an Asia-style crisis? Nouriel Roubini, Forbes.
China's case of the missing cars. Stuart Burns, MetalMiner.
more games being played with China's data:
There are some apparently contradictory numbers coming out of China at the moment. Take those car sales as an example. Our man on the ground tells us BYD, a noted Chinese car maker, reported 30,000 car sales of one model by end of last year, but the number plate agency recorded only 10,000 new cars of that model registered for use on the road. What happened to the other 20,000 are they running around without number plates? In a police state, I don’t think so. Our understanding is auto sales are recorded in China when they leave the factory, not when they are registered on the road, so dealers can build up inventory while car “sales” are rising.
Coming back to Mr. Setser in a fine analysis on the impact of a fall in China’s exports he explores the apparent dichotomy of falling electricity consumption, falling industrial production and yet rising GDP. Even Mr. Setser wasn’t able to conclusively get to the bottom of that one although his overall conclusion was that the economy was growing and it must largely be on the back of domestic consumption as exports and employment remain depressed.
These disconnects call into question our tendency to take official proclamations at face value, and we should also be careful about taking one or two months data and extrapolating that to a longer term trend. In a market so heavily influenced by state controls, a short term trend can be the distorted result of government actions rather than the more reliable measure of a sum of company actions taken over an unfettered economy. Growing China certainly is a trend, but how comprehensively across the economy and how sustainably remains to be seen.
Recent average CDS auction recovery rate? 10%. Tylder Durden, Zero Hedge.
so much for that 40% assumption
Thinking the unthinkable: the Treasury black swan, and the LIBOR-UST inversion. Zero Hedge again.
food for thought; as Durden says, "now that we have gotten to a point where 6 sigma events are a daily ocurrence, it might be prudent to consider all the alternatives"
Where does the public sector end and the private sector begin? Ian Lienert, IMF Working Paper.
haven't read this yet, but got to do so to see if it furthers the point made earlier (let it be resolved, there is no credit market)
*** The household driven deflation? Tylder Durden again, with some Rosenberg included.
True or false: economic stats lie? SmartMoney.
mostly about John Williams and his ShadowStats.
those of us who compare the U.S. now to Japan in the '90s often get shot down by critics who point to the fact that Japan had a huge pool of domestic savings, whereas the U.S. relies on foreign creditors; therefore, although the economic dynamics may be similar (aging demographics, crashed housing bubble and stock market bubble, messed up banking system, similar monetary and fiscal policy attempts (albeit with different timing), sub-potential economic growth, disinflationary if not deflationary predilections due to excess capacity, deleveraging, etc.), the interest rate outcome can't be the same; my counterpoint, influenced largely by Rosie, has been that U.S. household balance sheets have historically (VERY) low levels of bond holdings, and that the impetus to save (pay down debt and re-build retirement portfolios) left plenty of scope for domestic financing of incremental government debt; so, although the U.S. was starting from a low level of savings, that was immaterial (its not the stock the matters, its the flows) and on a prospective basis, that level of U.S. savings was bound to pick up significantly; and even if households themselves do not hold Treasuries outright in their own names, by paying down debt to financial institutions, those institutions could also be the new marginal buyers of Treasuries (what? they're going to lend out that extra cash to other households who are also trying to save? they're going to lend out that extra cash to businesses that are retrenching?).
As per Setser, the expert in the field of tracking fund flows,
Central bank custodial holdings continue to rise — just look at the last week’s custodial data. But the world’s central banks are no longer buying up all the debt the Treasury issuing. And Americans are now saving, creating a new pool of funds that needs to be lent out. Moreover, the financial sector isn’t borrowing — it actually is scaling back — which means that the household sector is lending less to financial firms, freeing up funds to flow into the Treasury market. Obviously, the price that pulls US investors into Treasuries matters greatly. But the basic sources of demand for the huge amount of Treasuries the US is now issuing aren’t really a mystery.... [W]e aggregated Treasuries held by mutual funds with Treasuries held directly by households. At the end of 2008 mutual funds were the main buyers of Treasuries. In q1 2009, though, households themselves were the main buyers of Treasuries.
Price stability and the monetary base. David Altig, of the Atlanta Fed, at his macroblog.
why anyone worries about what Art Laffer is saying, like worrying about what Ben Stein is saying, seems to me a waste of time and energy; one could just accept at face value that they live in their own little worlds and there should be little expectation of them always making sense (but guys like Felix Salmon picked up the "Ben Stein Watch" thing once Brad deLong got tired of it)
in any case, Altig felt it worthwhile to combat Laffer's assertions about what the increase in the monetary base means and whether or not the Fed is up to the task of taking away the stimulus when the time is right, most importantly pointing out that the reason to be concerned that monetary base expansion would be inflationary is if there was expansion in loan growth; but, as Altig says,
but in my opinion it is a bit of a stretch—so far, at least—to correlate monetary base growth with bank loan growth: [see his chart]... Let's call that more than a bit of a stretch.
The fiscal black hole in the U.S. and a follow-up, Limits to inflating away debt, and political commitments to future public spending. William Buiter, Maverecon.
Rebalancing the U.S.-China economic relationship. Kenneth Rogoff, Project Syndicate.
main point, just as Pettis, Roach and others have argued: if everyone is just trying to get things back to normal --- the same normal that relied on global imbalances --- then short-run stability might be achieved, but only at the expense of another (greater) financial crisis down the road
As global slump is set to continue, poor countries need more help. World Bank.
The world economy is set to contract this year by more than previously estimated, and poor countries will continue to be hit hard by multiple waves of economic stress, said World Bank Group President Robert B. Zoellick today. Even with the stabilization of financial markets in many developed economies, unemployment and under-utilization of capacity continue to rise, putting downward pressure on the global economy. According to the latest Bank estimates, the global economy will decline this year by close to 3 percent, a significant revision from a previous estimate of 1.7 percent.
Is Eastern Europe on the brink of an Asia-style crisis? Nouriel Roubini, Forbes.
China's case of the missing cars. Stuart Burns, MetalMiner.
more games being played with China's data:
There are some apparently contradictory numbers coming out of China at the moment. Take those car sales as an example. Our man on the ground tells us BYD, a noted Chinese car maker, reported 30,000 car sales of one model by end of last year, but the number plate agency recorded only 10,000 new cars of that model registered for use on the road. What happened to the other 20,000 are they running around without number plates? In a police state, I don’t think so. Our understanding is auto sales are recorded in China when they leave the factory, not when they are registered on the road, so dealers can build up inventory while car “sales” are rising.
Coming back to Mr. Setser in a fine analysis on the impact of a fall in China’s exports he explores the apparent dichotomy of falling electricity consumption, falling industrial production and yet rising GDP. Even Mr. Setser wasn’t able to conclusively get to the bottom of that one although his overall conclusion was that the economy was growing and it must largely be on the back of domestic consumption as exports and employment remain depressed.
These disconnects call into question our tendency to take official proclamations at face value, and we should also be careful about taking one or two months data and extrapolating that to a longer term trend. In a market so heavily influenced by state controls, a short term trend can be the distorted result of government actions rather than the more reliable measure of a sum of company actions taken over an unfettered economy. Growing China certainly is a trend, but how comprehensively across the economy and how sustainably remains to be seen.
Recent average CDS auction recovery rate? 10%. Tylder Durden, Zero Hedge.
so much for that 40% assumption
Thinking the unthinkable: the Treasury black swan, and the LIBOR-UST inversion. Zero Hedge again.
food for thought; as Durden says, "now that we have gotten to a point where 6 sigma events are a daily ocurrence, it might be prudent to consider all the alternatives"
Where does the public sector end and the private sector begin? Ian Lienert, IMF Working Paper.
haven't read this yet, but got to do so to see if it furthers the point made earlier (let it be resolved, there is no credit market)
*** The household driven deflation? Tylder Durden again, with some Rosenberg included.
True or false: economic stats lie? SmartMoney.
mostly about John Williams and his ShadowStats.
Tuesday, June 9, 2009
Worthwhile Reading - June 6 to 11
The depression quietly deepens. Ambrose Evans-Pritchard, Telegraph.
intro:
Those of us who still question whether the world has purged its toxins are reduced to the same tiny band of moaning Druids from early 2007, when we shook our heads in disbelief as the carry trade swept Iceland to fresh madness and bankers laughed off sub-prime rot at Bear Stearns.
key excerpt:
Yes, the Baltic Dry Index for bulk shipping of resources has quadrupled since January, but this reflects China's bid to stockpile metals while prices are low.
Stephen Roach, Morgan Stanley's Far East chief, fears an "Asian Relapse", saying the region is prisoner to its fatal dependency on exports to the West. The export share of GDP has risen from 36pc to 47pc across developing Asia over the last decade.
"China's incipient rebound relies on a time-worn stimulus formula: upping the ante on infrastructure spending in anticipation of an eventual rebound of global demand," he said. The strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the "pre-bubble norm" of 67pc, if not more.
David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78m baby boomers face the looming threat of penury in old age. "The big story is that the personal savings rate hit a 15-year high of 5.7pc in April. I believe it could test the post-War peak of 15pc. Too many pundits are still living in the old paradigm of Americans shopping till they drop," he said.
If he is right, this will shatter the surplus economies of China, Japan, and Germany, unless they adjust fast to the new world order.
Europe swings right as depression deepens. Evans-Pritchard again.
excerpts:
The savings rate is rocketing in the deficit states of the US, UK, Spain, et al, as the "sinners" belatedly tighten their belts, but their fall in consumption is not being matched by an offsetting rise among the surplus "saints" states, China, Japan, Germany-Netherlands, which all points to an implosion in world demand. Yes, the West is printing money. But that is a harder to trick to pull off than Friedman and Bernanke ever realized....
So, we may lose three or four governments in Europe in coming days or weeks -- or even worse, they may survive. The drama is unfolding as I feared. Half way through the depression, we are facing the exactly the sort of political disintegration that occurs in times of profound economic rupture. Remember, the dangerous phase in the Great Depression was Stage II, after the collapse of Austria's Credit-Anstalt in mid-1931 set off a disastrous chain-reaction that Autumn (until then, most people thought they faced no more than a bad recession, like today).
The green shoots crowd liked the NFP labour market data, but looking at the jobs data detail (including that the B/D model has "added" 220k more jobs yet again; and there were 790k more unemployed), its hard to see why; for starters, Menzie Chinn shows some charts which certainly make the prevailing wisdow questionable, in:
James Pethokoukis: "An improving job market"[?] at Econbrowser.
and a member of the NBER Business Cycle Dating Comittee had this to say:
The labour market has NOT yet signaled a turning point. Jeffrey Frankels blog.
excerpt:
all of us [on the NBER business cycle dating comittee] agree, on the one hand, that a decline in economic activity is a decline in economic activity, and therefore still a state of recession, even if the rate of decline has moderated a lot. But I believe that we also agree, on the other hand, that employment is usually a lagging indicator of economic activity. [emphasis on "usually" is mine (see below)]...
Unfortunately, as reported by Forbes, pursuing this logic leads to second thoughts about whether the most recent BLS announcement was really good news after all. The length of the average work week fell to its lowest since 1964!
and then there's this:
Jobless recovery redux? Federal Reserve Bank of San Fran.
the study compares labour market data to that in past recessions and the conclusions are pessimistic on the prospects of a labour market recovery ---- agreed on that front, but I just don't see how in a balance-sheet recession you get any "recovery" without jobs/income growth.
meanwhile, amidst lousy labour market, with the employment-population ratio under 60% for the first time since the early 1980s (when there was a structurally/demographically different labour market profile) there's this...
Why home prices may keep falling. Robert Shiller, NYT.
Home prices in the United States have been falling for nearly three years, and the decline may well continue for some time.
and this...
Consumer credit declines at 7% annual rate in April. Calculated Risk.
and this...
Mortgage market remains solidly frozen. Michael Shedlock.
and this...
Flow of Funds Accounts of the United States, First Quarter 2009. Federal Reserve.
household net worth down again, down to $50T, and both business debt and household debt contracted in the first quarter
and this...
The still over-leveraged consumer. Barry Ritholtz.
and, as per Rosie above, there's little reason to think this trend of increased savings is over.
i.e. aggregate income falling + consumers saving up = consumption falling faster than income => AD < as =""> output gap increasing => no incentive for biz investment -------- govt trying to fill the gap, but seems like a vicious circle to me
which is why...
The economy is still at the brink. Sandy Lewis and William Cohan, NYT.
though there is:
An easing pace of deterioration in some major economies. OECD Composite LEI.
but...
Japan, China and German green shoots looking doubtful. Yves Smith.
and Smith also points out that "China is not playing nice in the sandbox":
Chinese steel export rebate to fuel trade war?
while Ritholtz points out lack of green shoots in this U.S. data:
The American Trucking Association tonnage index. Big Picture.
Where's the money coming from? Paul Krugman.
Krugman also gave a few lectures for which he's posted his slides:
Lecture 1: The sum of all fears
Lecture 2: The eschatology of lost decades.
Lecture 3:
amazing timing: in my last post, I noted that Simon Johnson was asking "what would Gorbachev say?"; well, now we know:
We had our perestroika. It's high time for yours. Mikhail Gorbachev, Washington Post.
Can the Fed execute a perfect landing? Ritholtz.
The return of the great debt scare. Robert Reich and Mark Thoma, Economist's View.
What deleveraging? Rolfe Winkler.
The future of retirement; its time to prepare. HSBC.
more reason why Rosie's savings rate prognosis may not be at all absurd.
Be it resolved: there is no credit market. John Carney via Paul Kedrosky.
should've seen this one coming; if bank debt is guaranteed, either explicitly or implicitly, spreads should be minimal, and spread compression need not come just from the top-down, but also from the bottom-up
*** Which way forward? Rob Parenteau, Richebacher Letter, via nakedcapitalism.
intro:
Those of us who still question whether the world has purged its toxins are reduced to the same tiny band of moaning Druids from early 2007, when we shook our heads in disbelief as the carry trade swept Iceland to fresh madness and bankers laughed off sub-prime rot at Bear Stearns.
key excerpt:
Yes, the Baltic Dry Index for bulk shipping of resources has quadrupled since January, but this reflects China's bid to stockpile metals while prices are low.
Stephen Roach, Morgan Stanley's Far East chief, fears an "Asian Relapse", saying the region is prisoner to its fatal dependency on exports to the West. The export share of GDP has risen from 36pc to 47pc across developing Asia over the last decade.
"China's incipient rebound relies on a time-worn stimulus formula: upping the ante on infrastructure spending in anticipation of an eventual rebound of global demand," he said. The strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the "pre-bubble norm" of 67pc, if not more.
David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78m baby boomers face the looming threat of penury in old age. "The big story is that the personal savings rate hit a 15-year high of 5.7pc in April. I believe it could test the post-War peak of 15pc. Too many pundits are still living in the old paradigm of Americans shopping till they drop," he said.
If he is right, this will shatter the surplus economies of China, Japan, and Germany, unless they adjust fast to the new world order.
Europe swings right as depression deepens. Evans-Pritchard again.
excerpts:
The savings rate is rocketing in the deficit states of the US, UK, Spain, et al, as the "sinners" belatedly tighten their belts, but their fall in consumption is not being matched by an offsetting rise among the surplus "saints" states, China, Japan, Germany-Netherlands, which all points to an implosion in world demand. Yes, the West is printing money. But that is a harder to trick to pull off than Friedman and Bernanke ever realized....
So, we may lose three or four governments in Europe in coming days or weeks -- or even worse, they may survive. The drama is unfolding as I feared. Half way through the depression, we are facing the exactly the sort of political disintegration that occurs in times of profound economic rupture. Remember, the dangerous phase in the Great Depression was Stage II, after the collapse of Austria's Credit-Anstalt in mid-1931 set off a disastrous chain-reaction that Autumn (until then, most people thought they faced no more than a bad recession, like today).
The green shoots crowd liked the NFP labour market data, but looking at the jobs data detail (including that the B/D model has "added" 220k more jobs yet again; and there were 790k more unemployed), its hard to see why; for starters, Menzie Chinn shows some charts which certainly make the prevailing wisdow questionable, in:
James Pethokoukis: "An improving job market"[?] at Econbrowser.
and a member of the NBER Business Cycle Dating Comittee had this to say:
The labour market has NOT yet signaled a turning point. Jeffrey Frankels blog.
excerpt:
all of us [on the NBER business cycle dating comittee] agree, on the one hand, that a decline in economic activity is a decline in economic activity, and therefore still a state of recession, even if the rate of decline has moderated a lot. But I believe that we also agree, on the other hand, that employment is usually a lagging indicator of economic activity. [emphasis on "usually" is mine (see below)]...
Unfortunately, as reported by Forbes, pursuing this logic leads to second thoughts about whether the most recent BLS announcement was really good news after all. The length of the average work week fell to its lowest since 1964!
and then there's this:
Jobless recovery redux? Federal Reserve Bank of San Fran.
the study compares labour market data to that in past recessions and the conclusions are pessimistic on the prospects of a labour market recovery ---- agreed on that front, but I just don't see how in a balance-sheet recession you get any "recovery" without jobs/income growth.
meanwhile, amidst lousy labour market, with the employment-population ratio under 60% for the first time since the early 1980s (when there was a structurally/demographically different labour market profile) there's this...
Why home prices may keep falling. Robert Shiller, NYT.
Home prices in the United States have been falling for nearly three years, and the decline may well continue for some time.
and this...
Consumer credit declines at 7% annual rate in April. Calculated Risk.
and this...
Mortgage market remains solidly frozen. Michael Shedlock.
and this...
Flow of Funds Accounts of the United States, First Quarter 2009. Federal Reserve.
household net worth down again, down to $50T, and both business debt and household debt contracted in the first quarter
and this...
The still over-leveraged consumer. Barry Ritholtz.
and, as per Rosie above, there's little reason to think this trend of increased savings is over.
i.e. aggregate income falling + consumers saving up = consumption falling faster than income => AD < as =""> output gap increasing => no incentive for biz investment -------- govt trying to fill the gap, but seems like a vicious circle to me
which is why...
The economy is still at the brink. Sandy Lewis and William Cohan, NYT.
though there is:
An easing pace of deterioration in some major economies. OECD Composite LEI.
but...
Japan, China and German green shoots looking doubtful. Yves Smith.
and Smith also points out that "China is not playing nice in the sandbox":
Chinese steel export rebate to fuel trade war?
while Ritholtz points out lack of green shoots in this U.S. data:
The American Trucking Association tonnage index. Big Picture.
Where's the money coming from? Paul Krugman.
Krugman also gave a few lectures for which he's posted his slides:
Lecture 1: The sum of all fears
Lecture 2: The eschatology of lost decades.
Lecture 3:
amazing timing: in my last post, I noted that Simon Johnson was asking "what would Gorbachev say?"; well, now we know:
We had our perestroika. It's high time for yours. Mikhail Gorbachev, Washington Post.
Can the Fed execute a perfect landing? Ritholtz.
The return of the great debt scare. Robert Reich and Mark Thoma, Economist's View.
What deleveraging? Rolfe Winkler.
The future of retirement; its time to prepare. HSBC.
more reason why Rosie's savings rate prognosis may not be at all absurd.
Be it resolved: there is no credit market. John Carney via Paul Kedrosky.
should've seen this one coming; if bank debt is guaranteed, either explicitly or implicitly, spreads should be minimal, and spread compression need not come just from the top-down, but also from the bottom-up
*** Which way forward? Rob Parenteau, Richebacher Letter, via nakedcapitalism.
Friday, June 5, 2009
Worthwhile Reading - June 2 to 5
Non-farm payrolls trend mismatch. Jesse's Cafe Americain.
yet more B/D B.S.
From the subprime to the terrigenous: recession begins at home. Gavin Putland, Land Values Research Group.
as if we haven't been talking about this for 3 years now, from UCLA's Ed Leamer's warnings and those of Calculated Risk to the more recent research reports of Rogoff and Reinhart, but this is a good research paper that provides yet more evidence that a downturn in the domestic property market is a leading indicator of recessions; has housing bubble and recession data for 32 countries.
*** Treasury market: Gonk! and Smackdown Week: Now consumers are all but extinct. Accrued Interest.
What makes this all tough for the serious analyst is that you have to balance holding firm to your viewpoint while admitting you could be wrong. Its another way of saying that the toughest thing in investing is a sell discipline. I'm long Treasuries now (only avoided a real shellacking based on some good technical analysis). I believe in my deflation thesis, but I know I could be wrong. The inflation camp isn't stupid. There is a valid argument for much higher interest rates. The smart trader puts his ego aside and admits when he's wrong.
Bond market close: June 4. John Jansen, Across the Curve.
no need to read the full article; I just thought this point worthwhile:
I hesitate too say this and it is probably the death knell for the bear market in bonds but it is difficult to envision any scenario tomorrow in which the market can rally. One has consistently been paid this year to short the supply and cover back later. There has been no reward for buying early. I think that we will see higher yields into the refunding next week and surely a steeper yield curve. We are in a new age and that new era is governed by supply. There is no refuge from it. It just keeps coming and until there is some sign that the fiscal situation in the US is a road to rehabilitation, the treasury market will remain a cold lonely venue.
The bond war. Daniel Gross, Slate.
more on the Krugman vs. Ferguson debate on inflation/deflation and higher/lower rates.
Fall in LIBOR fails to paint a true picture. FT.
analysts and bankers warn that Libor rates may not be telling the full story.
That is because there are wide differences between the rates at which individual banks can borrow. The biggest institutions are able to fund themselves at around Libor levels while smaller institutions have to pay, in some cases, more than 100 basis points above Libor. This is explained by continuing counterparty risk in what remains an uncertain economic environment. That contrasts with the situation before the credit crisis when institutions paid similar rates to borrow. Meyrick Chapman, fixed income strategist at UBS, says: “We should not build up our hopes that the fall in Libor is such a positive sign for the markets. We have a very tiered market, where many smaller banks are still having to pay relatively high rates to borrow.”
the article does go on to admit that even 100bps back of LIBOR is still low on a historical basis, but the main point is that LIBOR isn't as generally reflective of funding costs as it once was, particularly beyond 3 months.
More on bank lending data. James Hamilton, Econbrowser.
short post, and worthwhile issue to be aware of
Q1 2009 Bank Ratings Update: Zombie dance party just heating up. Chris Whalen of Institutional Risk Analyst, via The Big Picture.
Households saving the fiscal stimulus; possible deleveraging while consumption stabilizes. Rebecca Wilder, News N Economics.
and
What personal consumption data means for the stock market. Ed Harrison, naked capitalism.
of the previous two articles, I favour Harrison's viewpoint, in no small part because of the following:
Retail chain store sales plummet. Tyler Durden, Zero Hedge.
and this:
Personal consumption declining for durables and non-durables, and Durable goods. Jake, EconompicData.
and this:
From powerhouse to funhouse. Sudden Debt.
Trade - it's not just the currency. Michael Pettis, China Financial Markets.
long article, worth just skimming, but the main point, one that Pettis has been arguing for quite some time, is this:
What the world needs from China is not an increase in total consumption but rather an increase in net consumption – i.e. the excess of new consumption over new production – that is roughly in line with the decline in US net consumption. If consumption grows, but production grows just as fast, or even faster (and we can tell by looking at the trade balance corrected for various pricing effects and one-off purchases or sales), then the world imbalance is getting worse and the overcapacity problem will not have been addressed.
i.e. we're not going to solve our global economic problems without significantly reducing global imbalances, so any green shoots we're seeing right now that just exacerbate the current structural imbalances will not be long-lasting green shoots -- they'll lead to further problems down the road
Change, or more of the same? Brad Setser, Follow the Money.
Sure, the US fiscal deficit is up, something China’s state media now likes to highlight.*** And the Fed has cut policy rates in the midst of a severe downturn. But that is only half the picture. Household savings are up. Household borrowing is down. The private sector’s financial deficit is way down. The trade deficit is down too. Foreign inflows finance a trade deficit not the fiscal deficit and, in my book, financing a 6% of GDP trade deficit is more risky than financing a 3% of GDP trade deficit. What has changed is China’s own perception of the risks.
meanwhile, as Geithner's China visit made clear, he believes:
the goal of both US and Chinese policy should be to move away from the current unbalanced relationship
but how, pray tell, are they working towards that goal??
as per Pettis' article, China is trying to get out of the slump by stimulating its export and investment sectors, while the U.S. is trying to get out of the slump by rescuing the banks so as to sustain lending, while also also offering tax cuts, both so as to pump up consumption (albeit with a modest mix of infrastructure spending and auto bailouts which should boost domestic production more than consumption); talk is cheap (particularly from Tim G.)
and yet,
Global crisis inevitable unless U.S. starts saving, Yu says. Bloomberg.
is that what the mercantilist, export-dependent countries of Asia want, for the U.S. to start consuming less than they produce, and have trade surpluses? oh, wait, a deficit is okay, as long as its smaller.
the Chinese could have worse things to worry about; at least the U.S. is not Peru:
Sovereign debt repayment in shit. Paul Kedrosky, Infectious Greed.
meanwhile, as if the situation with the federal deficit were our only concern, there is that issue of what's going on at the state and local level, and it is NOT good:
The fiscal survey of states. National Association of State Budget Officers.
its not just a California problem:
The 50 states are facing one of the worst fiscal periods in decades. Fiscal conditions deteriorated for nearly every state during fiscal year 2009, and weak fiscal conditions are expected to continue in fiscal 2010 and possibly into fiscal years 2011 and 2012....
Expenditure pressures continue as demand for additional funding of programs such as Medicaid increase during tough economic periods and states deal with looming long-term issues such as funding pensions, demographic shifts, and maintenance and repair of infrastructure. Unfortunately, when revenue growth declines as a result of a weakened economy, spending pressures for social programs and health care increase. While the American Recovery and Reinvestment Act of 2009 has helped states avoid draconian levels of cuts, it will not end the need for states to cut spending as exhibited by the 2.5 percent decline in governors’ recommended budgets for fiscal 2010.
Reflections and outrage. Robert Rodriguez, First Pacific Advisors.
Bill Gross: "Staying rich in the new normal." Ed Harrison, naked capitalism.
The view from the top. James Kwak, The Baseline Scenario.
quotes Colin Negrych:
“What constituency is there for pessimism? People believe optimism is necessary, an American right. The presumption of optimism is the problem. That’s what creates the debt we have now.”
Debt and money. David Altig, macroblog.
on the question of whether the Fed is monetizing the Treasury's debt; see charts, but here's conclusion:
And, as I see it, so far allegations that extraordinary steps are being taken specifically to accommodate fiscal deficits are properly characterized as risk rather than fact.
Bernanke: current economic and financial conditions and the federal deficit. Mark Thoma, Economist's View.
a condensation of Bernanke's recent speech, in the form of a simulated interview.
Obama's Gorbachev moment. Peter Boone and Simon Johnson, NYT.
suggests that Geithner's promise to the Chinese that their holdings are money good; and that Bernanke's speech which pointed out that Geithner was less-than-convincing but offered no credible policy changes himself other than platitudes, are insufficient ----- actions, not words, are required, i.e. structural reform
for more, see:
What would Gorbachev say? On the U.S. China and Saudi Arabia. Simon Johnson, The Baseline Scenario.
A tale of two depressions. Barry Eichegreen and Kevin O'Rourke, voxeu.
an update to their April post; they still make the same points: today's recession is at least as bad as the Great Depression was at this point, although the policy response is more favourable; the outstanding questions are whether or not the better policy response will ultimately be sufficient, and whether or not those better policy responses get un-done by optimistic green-shoot thinking or political or other considerations.
Why the present depression will be deeper than the great crash of 1929. Charles Hugh Smith, of two minds.
The fate of nations (graphs to contemplate). The Animal Spirits page.
The stock market in context with the Great Crash of 1929 - 1932. Jesse's Cafe Americain.
in particular, take a look at the last chart which shows what Treasury bond yields did in the 1930s:
It is also easy to forget that in 1931 the business community and the leading economists were convinced that the worst was over and that a recovery was underway. Their concerns shifted to inflation, and dealing with the then unprecedented expansion of narrow money in the adjusted monetary base to ease short term credit problems.
Benefit spending hits $2 trillion, highest percent since 1929; one dollar out of every 6 from vouchers. Michael Shedlock.
1 in 9 Americans now on food stamps.
CFO Survey, June 2009. Duke.
RECESSION TO DRAG ON FOR REST OF 2009, CREDIT CONDITIONS DETERIORATE FOR MANY FIRMS, CAPITAL SPENDING AND EMPLOYMENT TO BE SLASHED
What we're watching to identify the economic recovery. Richard Yamarone, Argus, via Scribd.
Speculative bets against the dollar highest since July 15 2008. Mish again.
Kostorhyz:
Next time you run across one of these Dollar Cassandras, please ask them to tell you the names of the currencies that the Dollar going to decline against, and to please speak to you in detail about the relative fundamentals of these nations. Ask them about sovereign debt ratios. Ask them about external debt ratios. Ask them about bank capitalization ratios. My experience has been that when you pose this question to the perma-bears, it usually elicits a long pause and empty stare.
Mish:
Short-term, I do not know where the dollar goes, nor does anyone else. What I do know is anti-dollar sentiment is quite extreme and that signals caution on anti-dollar bets.
Not so loonie. Martin Hutchinson, Breaking Views.
I agree that if China is worried about diversifying its foreign holdings and wants to reduce its purchases of Treasuries, Canadian bonds should be a natural alternative, as should the real assets that Canada possesses. this has been part of my thinking related to why Canadian bonds should outperform Treasuries; and, ultimately, I think it should be one relatively supportive factor of the C$ vs the greenback, but there are other "legs of the stool" that aren't as supportive, including the fact that we're a small open economy very susceptible to global economic weakness, and, in particular, very dependent on exports to the U.S. So, all in all, hard to know what constitutes a fair value level on the C$. But, like Carney, I suspect that a 90 cent C$ doesn't help Canada nearly as much as an 80 cent C$!
[Oil] Demand is in the toilet. FT Alphaville.
and
Oil: supply up, demand down. Jake, EconompicData.
More sausage hiding: banks. Karl Denninger, the Market Ticker.
don't bother reading this, unless you really care about reactionary regulation; I just love the title:
Hubris, nemesis and catharsis. Con Keating, voxeu.
Understanding Taleb. Felix Salmon, Reuters.
the Black Swan Protection Protocol-Inflation, is not really a bet on hyperinflation, as the WSJ would have it. Rather, Taleb describes it as a bet that the error rate in global fiscal and monetary policy is being systematically underestimated. “Forecasting errors can compound either way”, he says, and if you have an incompetent pilot flying a plane, then inevitably there’s going to be some kind of crash, whether it flies into a mountain or into the sea. Essentially, the fund is going long volatility in macroeconomic variables, on the pretty reasonable grounds that policymakers are likely to get things wrong, one way or another.
I don't understand this at all:
Fed's Hoenig calls for rate hikes. Calculated Risk.
Basically, Hoenig says, the consumer is going to be weak for a long time, so the economic recovery is going to be very weak; but the bond market is selling off, so that must mean they're worried about inflation, so we'd better start normalizing the Fed funds rate sooner rather than later.
Is that really the kind of thinking that goes on in some of those Fed meetings??!!
Let's say the market is selling off b/c of supply concerns (which could ultimately prove inflationary) --- how does higher short-term rates do anything to reduce thos supply concerns?! --- if anything, it aggravates them (less monetary stimulus implies need for more fiscal stimulus implies even more issuance; plus, if Treasury is paying higher interest on its debt due to Fed hikes, that means more issuance)
Absurd!
this is too funny:
Sign-o-the-times: Geithner rents home out. Barry Ritholtz, The Big Picture.
yet more B/D B.S.
From the subprime to the terrigenous: recession begins at home. Gavin Putland, Land Values Research Group.
as if we haven't been talking about this for 3 years now, from UCLA's Ed Leamer's warnings and those of Calculated Risk to the more recent research reports of Rogoff and Reinhart, but this is a good research paper that provides yet more evidence that a downturn in the domestic property market is a leading indicator of recessions; has housing bubble and recession data for 32 countries.
*** Treasury market: Gonk! and Smackdown Week: Now consumers are all but extinct. Accrued Interest.
What makes this all tough for the serious analyst is that you have to balance holding firm to your viewpoint while admitting you could be wrong. Its another way of saying that the toughest thing in investing is a sell discipline. I'm long Treasuries now (only avoided a real shellacking based on some good technical analysis). I believe in my deflation thesis, but I know I could be wrong. The inflation camp isn't stupid. There is a valid argument for much higher interest rates. The smart trader puts his ego aside and admits when he's wrong.
Bond market close: June 4. John Jansen, Across the Curve.
no need to read the full article; I just thought this point worthwhile:
I hesitate too say this and it is probably the death knell for the bear market in bonds but it is difficult to envision any scenario tomorrow in which the market can rally. One has consistently been paid this year to short the supply and cover back later. There has been no reward for buying early. I think that we will see higher yields into the refunding next week and surely a steeper yield curve. We are in a new age and that new era is governed by supply. There is no refuge from it. It just keeps coming and until there is some sign that the fiscal situation in the US is a road to rehabilitation, the treasury market will remain a cold lonely venue.
The bond war. Daniel Gross, Slate.
more on the Krugman vs. Ferguson debate on inflation/deflation and higher/lower rates.
Fall in LIBOR fails to paint a true picture. FT.
analysts and bankers warn that Libor rates may not be telling the full story.
That is because there are wide differences between the rates at which individual banks can borrow. The biggest institutions are able to fund themselves at around Libor levels while smaller institutions have to pay, in some cases, more than 100 basis points above Libor. This is explained by continuing counterparty risk in what remains an uncertain economic environment. That contrasts with the situation before the credit crisis when institutions paid similar rates to borrow. Meyrick Chapman, fixed income strategist at UBS, says: “We should not build up our hopes that the fall in Libor is such a positive sign for the markets. We have a very tiered market, where many smaller banks are still having to pay relatively high rates to borrow.”
the article does go on to admit that even 100bps back of LIBOR is still low on a historical basis, but the main point is that LIBOR isn't as generally reflective of funding costs as it once was, particularly beyond 3 months.
More on bank lending data. James Hamilton, Econbrowser.
short post, and worthwhile issue to be aware of
Q1 2009 Bank Ratings Update: Zombie dance party just heating up. Chris Whalen of Institutional Risk Analyst, via The Big Picture.
Households saving the fiscal stimulus; possible deleveraging while consumption stabilizes. Rebecca Wilder, News N Economics.
and
What personal consumption data means for the stock market. Ed Harrison, naked capitalism.
of the previous two articles, I favour Harrison's viewpoint, in no small part because of the following:
Retail chain store sales plummet. Tyler Durden, Zero Hedge.
and this:
Personal consumption declining for durables and non-durables, and Durable goods. Jake, EconompicData.
and this:
From powerhouse to funhouse. Sudden Debt.
Trade - it's not just the currency. Michael Pettis, China Financial Markets.
long article, worth just skimming, but the main point, one that Pettis has been arguing for quite some time, is this:
What the world needs from China is not an increase in total consumption but rather an increase in net consumption – i.e. the excess of new consumption over new production – that is roughly in line with the decline in US net consumption. If consumption grows, but production grows just as fast, or even faster (and we can tell by looking at the trade balance corrected for various pricing effects and one-off purchases or sales), then the world imbalance is getting worse and the overcapacity problem will not have been addressed.
i.e. we're not going to solve our global economic problems without significantly reducing global imbalances, so any green shoots we're seeing right now that just exacerbate the current structural imbalances will not be long-lasting green shoots -- they'll lead to further problems down the road
Change, or more of the same? Brad Setser, Follow the Money.
Sure, the US fiscal deficit is up, something China’s state media now likes to highlight.*** And the Fed has cut policy rates in the midst of a severe downturn. But that is only half the picture. Household savings are up. Household borrowing is down. The private sector’s financial deficit is way down. The trade deficit is down too. Foreign inflows finance a trade deficit not the fiscal deficit and, in my book, financing a 6% of GDP trade deficit is more risky than financing a 3% of GDP trade deficit. What has changed is China’s own perception of the risks.
meanwhile, as Geithner's China visit made clear, he believes:
the goal of both US and Chinese policy should be to move away from the current unbalanced relationship
but how, pray tell, are they working towards that goal??
as per Pettis' article, China is trying to get out of the slump by stimulating its export and investment sectors, while the U.S. is trying to get out of the slump by rescuing the banks so as to sustain lending, while also also offering tax cuts, both so as to pump up consumption (albeit with a modest mix of infrastructure spending and auto bailouts which should boost domestic production more than consumption); talk is cheap (particularly from Tim G.)
and yet,
Global crisis inevitable unless U.S. starts saving, Yu says. Bloomberg.
is that what the mercantilist, export-dependent countries of Asia want, for the U.S. to start consuming less than they produce, and have trade surpluses? oh, wait, a deficit is okay, as long as its smaller.
the Chinese could have worse things to worry about; at least the U.S. is not Peru:
Sovereign debt repayment in shit. Paul Kedrosky, Infectious Greed.
meanwhile, as if the situation with the federal deficit were our only concern, there is that issue of what's going on at the state and local level, and it is NOT good:
The fiscal survey of states. National Association of State Budget Officers.
its not just a California problem:
The 50 states are facing one of the worst fiscal periods in decades. Fiscal conditions deteriorated for nearly every state during fiscal year 2009, and weak fiscal conditions are expected to continue in fiscal 2010 and possibly into fiscal years 2011 and 2012....
Expenditure pressures continue as demand for additional funding of programs such as Medicaid increase during tough economic periods and states deal with looming long-term issues such as funding pensions, demographic shifts, and maintenance and repair of infrastructure. Unfortunately, when revenue growth declines as a result of a weakened economy, spending pressures for social programs and health care increase. While the American Recovery and Reinvestment Act of 2009 has helped states avoid draconian levels of cuts, it will not end the need for states to cut spending as exhibited by the 2.5 percent decline in governors’ recommended budgets for fiscal 2010.
Reflections and outrage. Robert Rodriguez, First Pacific Advisors.
Bill Gross: "Staying rich in the new normal." Ed Harrison, naked capitalism.
The view from the top. James Kwak, The Baseline Scenario.
quotes Colin Negrych:
“What constituency is there for pessimism? People believe optimism is necessary, an American right. The presumption of optimism is the problem. That’s what creates the debt we have now.”
Debt and money. David Altig, macroblog.
on the question of whether the Fed is monetizing the Treasury's debt; see charts, but here's conclusion:
And, as I see it, so far allegations that extraordinary steps are being taken specifically to accommodate fiscal deficits are properly characterized as risk rather than fact.
Bernanke: current economic and financial conditions and the federal deficit. Mark Thoma, Economist's View.
a condensation of Bernanke's recent speech, in the form of a simulated interview.
Obama's Gorbachev moment. Peter Boone and Simon Johnson, NYT.
suggests that Geithner's promise to the Chinese that their holdings are money good; and that Bernanke's speech which pointed out that Geithner was less-than-convincing but offered no credible policy changes himself other than platitudes, are insufficient ----- actions, not words, are required, i.e. structural reform
for more, see:
What would Gorbachev say? On the U.S. China and Saudi Arabia. Simon Johnson, The Baseline Scenario.
A tale of two depressions. Barry Eichegreen and Kevin O'Rourke, voxeu.
an update to their April post; they still make the same points: today's recession is at least as bad as the Great Depression was at this point, although the policy response is more favourable; the outstanding questions are whether or not the better policy response will ultimately be sufficient, and whether or not those better policy responses get un-done by optimistic green-shoot thinking or political or other considerations.
Why the present depression will be deeper than the great crash of 1929. Charles Hugh Smith, of two minds.
The fate of nations (graphs to contemplate). The Animal Spirits page.
The stock market in context with the Great Crash of 1929 - 1932. Jesse's Cafe Americain.
in particular, take a look at the last chart which shows what Treasury bond yields did in the 1930s:
It is also easy to forget that in 1931 the business community and the leading economists were convinced that the worst was over and that a recovery was underway. Their concerns shifted to inflation, and dealing with the then unprecedented expansion of narrow money in the adjusted monetary base to ease short term credit problems.
Benefit spending hits $2 trillion, highest percent since 1929; one dollar out of every 6 from vouchers. Michael Shedlock.
1 in 9 Americans now on food stamps.
CFO Survey, June 2009. Duke.
RECESSION TO DRAG ON FOR REST OF 2009, CREDIT CONDITIONS DETERIORATE FOR MANY FIRMS, CAPITAL SPENDING AND EMPLOYMENT TO BE SLASHED
What we're watching to identify the economic recovery. Richard Yamarone, Argus, via Scribd.
Speculative bets against the dollar highest since July 15 2008. Mish again.
Kostorhyz:
Next time you run across one of these Dollar Cassandras, please ask them to tell you the names of the currencies that the Dollar going to decline against, and to please speak to you in detail about the relative fundamentals of these nations. Ask them about sovereign debt ratios. Ask them about external debt ratios. Ask them about bank capitalization ratios. My experience has been that when you pose this question to the perma-bears, it usually elicits a long pause and empty stare.
Mish:
Short-term, I do not know where the dollar goes, nor does anyone else. What I do know is anti-dollar sentiment is quite extreme and that signals caution on anti-dollar bets.
Not so loonie. Martin Hutchinson, Breaking Views.
I agree that if China is worried about diversifying its foreign holdings and wants to reduce its purchases of Treasuries, Canadian bonds should be a natural alternative, as should the real assets that Canada possesses. this has been part of my thinking related to why Canadian bonds should outperform Treasuries; and, ultimately, I think it should be one relatively supportive factor of the C$ vs the greenback, but there are other "legs of the stool" that aren't as supportive, including the fact that we're a small open economy very susceptible to global economic weakness, and, in particular, very dependent on exports to the U.S. So, all in all, hard to know what constitutes a fair value level on the C$. But, like Carney, I suspect that a 90 cent C$ doesn't help Canada nearly as much as an 80 cent C$!
[Oil] Demand is in the toilet. FT Alphaville.
and
Oil: supply up, demand down. Jake, EconompicData.
More sausage hiding: banks. Karl Denninger, the Market Ticker.
don't bother reading this, unless you really care about reactionary regulation; I just love the title:
Hubris, nemesis and catharsis. Con Keating, voxeu.
Understanding Taleb. Felix Salmon, Reuters.
the Black Swan Protection Protocol-Inflation, is not really a bet on hyperinflation, as the WSJ would have it. Rather, Taleb describes it as a bet that the error rate in global fiscal and monetary policy is being systematically underestimated. “Forecasting errors can compound either way”, he says, and if you have an incompetent pilot flying a plane, then inevitably there’s going to be some kind of crash, whether it flies into a mountain or into the sea. Essentially, the fund is going long volatility in macroeconomic variables, on the pretty reasonable grounds that policymakers are likely to get things wrong, one way or another.
I don't understand this at all:
Fed's Hoenig calls for rate hikes. Calculated Risk.
Basically, Hoenig says, the consumer is going to be weak for a long time, so the economic recovery is going to be very weak; but the bond market is selling off, so that must mean they're worried about inflation, so we'd better start normalizing the Fed funds rate sooner rather than later.
Is that really the kind of thinking that goes on in some of those Fed meetings??!!
Let's say the market is selling off b/c of supply concerns (which could ultimately prove inflationary) --- how does higher short-term rates do anything to reduce thos supply concerns?! --- if anything, it aggravates them (less monetary stimulus implies need for more fiscal stimulus implies even more issuance; plus, if Treasury is paying higher interest on its debt due to Fed hikes, that means more issuance)
Absurd!
this is too funny:
Sign-o-the-times: Geithner rents home out. Barry Ritholtz, The Big Picture.
Monday, June 1, 2009
Worthwhile Reading - June 1
Making sausages, data in China. WSJ.
The focus these days is on the mismatch between China’s electricity consumption and a key measure of industrial output.
For most of the past decade, China’s industrial value-added growth (IVA) –industry output less input costs – has moved broadly in step with movements in electricity consumption. But the relationship’s broken down recently: electricity use is still seeing negative growth, while IVA is growing at a decent positive rate again.
Some China analysts are crying foul: If IVA growth figures are being cooked, surely that means China’s recent GDP data have been overstated too. China’s statisticians use IVA output to estimate what accounts for nearly half of China’s GDP.
China’s association of electricity generators has a solution: it’s stopped publishing consumption data.
Record demand, record angst; and More government borrowing doesn't necessarily mean more total borrowing. Brad Setser, Follow the Money.
if central banks believe that the only acceptable, safe alternative to long-term Treasury notes is short-term Treasury bills, they will end up lending to the US at incredibly low rates so long as the Fed keeps rates low. Key countries end up piling up short-term Treasury bills at a rate that has to make everyone nervous. US policy makers have to worry about the weak foreign bid for long-term bonds, and the risk that the rise in mortgage rates will choke off the recovery. And at some point, foreign central banks will have to worry about the lack of interest income of their (now once again growing) foreign portfolio.
Treasury myths. Models & Agents.
Anything but academic. John Hussman.
agrees with John Taylor, not Paul Krugman, about the likelihood of significant inflation over the next decade; also says:
There is very little chance, in my view, that the current downturn is over. We have enjoyed a nice reprieve – if over a trillion dollars in redistribution could not accomplish even a reprieve, it would be a surprise. It's clear that investors are hopeful that we can simply return to rich valuations, debt-financed economic expansion, and abnormal profit margins based on excessive leverage. From my perspective, this hope is as thin as those that we observed at the peak of the internet bubble, the housing bubble, and the profit margin peak of 2007.
Place your wagers. Contrary Investor.
We continue to believe the financial markets are trying their best to discount a typical consumer and/or corporate demand led economic recovery of the type seen over the past half century. Yet when we look at things like the credit markets, personal income circumstances and the complexion of household balance sheets crying out for deleveraging, current conditions are quite different than any recession of the prior half-century, with the government acting as Atlas holding up the world of "demand", per se, for now. Just what type of a valuation multiple do we put on a financial market under these character circumstances? We believe this is a very important question the financial markets will be facing head on during the second half of this year and early next. For now, the key recovery fingerprints of every single economic recovery of the last half century are missing from the current puzzle (housing demand, auto demand and reacceleration in consumer credit growth). Standing in for these classic drivers is the US government. For how long will this be the case and what should investors be paying for this stand in role?
*** Why there is more pain to come. T2 Partners.
see comments on slides 24/25, 30, 63/64 & 71 in particular
Zoellick warns stimulus 'sugar high' won't stem unemployment. Bloomberg.
Let's do the time warp again. Steve Keen.
basically debunks any forecasts (and specifically that of the Australian Treasury) produced by economists who (a) didn't foresee the credit crunch, (b) continue to use models that don't take account of the credit crunch, and (c) assumes that the credit crunch is just a short-term one-off event that shocks the economy below equilibrium, but from which point the economy will revert back to its long-run equilibrium growth path (as if nothing fundamental ever happened in the interim) which actually requires an above-average growth rate in the mid-term to make up for the short-term growth lapse; Keen then uses his own dynamic economic model, derived from Minsky's Financial Instability Hypothesis, which, unlike traditional static and DSGE economic models, accounts for asset markets and the level of debt, to make his own forecasts:
But what if the crisis is one of solvency instead? What if the real cause of the crisis is not merely a sudden drop in confidence resulting in lower rates of creation and circulation of credit, but too much debt altogether?
That possibility is captured in my Minsky model, in which a series of booms and busts leads to one final bust where the accumulated debt is so great that the economy can no longer service it. Output and employment collapse, and the only way out is to deliberately reduce the debt....
The Ponzi Finance system however is inherently unstable: the growth of unproductive debt during a boom–when people borrow money to speculate on rising asset prices–adds so much to debt that the amount accumulated in the previous boom is never completely repaid before the next boom takes off. The debt to GDP ratio therefore ratchets up over time, until ultimately, so much debt is taken on that the economy experiences not merely a recession but a Depression.
The focus these days is on the mismatch between China’s electricity consumption and a key measure of industrial output.
For most of the past decade, China’s industrial value-added growth (IVA) –industry output less input costs – has moved broadly in step with movements in electricity consumption. But the relationship’s broken down recently: electricity use is still seeing negative growth, while IVA is growing at a decent positive rate again.
Some China analysts are crying foul: If IVA growth figures are being cooked, surely that means China’s recent GDP data have been overstated too. China’s statisticians use IVA output to estimate what accounts for nearly half of China’s GDP.
China’s association of electricity generators has a solution: it’s stopped publishing consumption data.
Record demand, record angst; and More government borrowing doesn't necessarily mean more total borrowing. Brad Setser, Follow the Money.
if central banks believe that the only acceptable, safe alternative to long-term Treasury notes is short-term Treasury bills, they will end up lending to the US at incredibly low rates so long as the Fed keeps rates low. Key countries end up piling up short-term Treasury bills at a rate that has to make everyone nervous. US policy makers have to worry about the weak foreign bid for long-term bonds, and the risk that the rise in mortgage rates will choke off the recovery. And at some point, foreign central banks will have to worry about the lack of interest income of their (now once again growing) foreign portfolio.
Treasury myths. Models & Agents.
Anything but academic. John Hussman.
agrees with John Taylor, not Paul Krugman, about the likelihood of significant inflation over the next decade; also says:
There is very little chance, in my view, that the current downturn is over. We have enjoyed a nice reprieve – if over a trillion dollars in redistribution could not accomplish even a reprieve, it would be a surprise. It's clear that investors are hopeful that we can simply return to rich valuations, debt-financed economic expansion, and abnormal profit margins based on excessive leverage. From my perspective, this hope is as thin as those that we observed at the peak of the internet bubble, the housing bubble, and the profit margin peak of 2007.
Place your wagers. Contrary Investor.
We continue to believe the financial markets are trying their best to discount a typical consumer and/or corporate demand led economic recovery of the type seen over the past half century. Yet when we look at things like the credit markets, personal income circumstances and the complexion of household balance sheets crying out for deleveraging, current conditions are quite different than any recession of the prior half-century, with the government acting as Atlas holding up the world of "demand", per se, for now. Just what type of a valuation multiple do we put on a financial market under these character circumstances? We believe this is a very important question the financial markets will be facing head on during the second half of this year and early next. For now, the key recovery fingerprints of every single economic recovery of the last half century are missing from the current puzzle (housing demand, auto demand and reacceleration in consumer credit growth). Standing in for these classic drivers is the US government. For how long will this be the case and what should investors be paying for this stand in role?
*** Why there is more pain to come. T2 Partners.
see comments on slides 24/25, 30, 63/64 & 71 in particular
Zoellick warns stimulus 'sugar high' won't stem unemployment. Bloomberg.
Let's do the time warp again. Steve Keen.
basically debunks any forecasts (and specifically that of the Australian Treasury) produced by economists who (a) didn't foresee the credit crunch, (b) continue to use models that don't take account of the credit crunch, and (c) assumes that the credit crunch is just a short-term one-off event that shocks the economy below equilibrium, but from which point the economy will revert back to its long-run equilibrium growth path (as if nothing fundamental ever happened in the interim) which actually requires an above-average growth rate in the mid-term to make up for the short-term growth lapse; Keen then uses his own dynamic economic model, derived from Minsky's Financial Instability Hypothesis, which, unlike traditional static and DSGE economic models, accounts for asset markets and the level of debt, to make his own forecasts:
But what if the crisis is one of solvency instead? What if the real cause of the crisis is not merely a sudden drop in confidence resulting in lower rates of creation and circulation of credit, but too much debt altogether?
That possibility is captured in my Minsky model, in which a series of booms and busts leads to one final bust where the accumulated debt is so great that the economy can no longer service it. Output and employment collapse, and the only way out is to deliberately reduce the debt....
The Ponzi Finance system however is inherently unstable: the growth of unproductive debt during a boom–when people borrow money to speculate on rising asset prices–adds so much to debt that the amount accumulated in the previous boom is never completely repaid before the next boom takes off. The debt to GDP ratio therefore ratchets up over time, until ultimately, so much debt is taken on that the economy experiences not merely a recession but a Depression.
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