March 30

QOTD:

Won't it be cool if subsequent versions of QE are referenced with Roman numerals like the Super Bowl?
John Roque, WSJ.

The unbelievable truth about Ireland and its banks. BBC.

To prevent Irish banks toppling over one after another, the European Central Bank has lent 117bn euros to them and the Central Bank of Ireland has lent them a further 71bn euros. So that's 188bn euros of loans from the eurozone's taxpayers to Ireland's banks - which makes the 67.5bn euros lent directly by the eurozone and IMF to the Irish government look like peanuts. And a further 20bn euros of bank bonds - another form of bank debt - is still guaranteed by the Irish state through the Eligible Guarantee Scheme. So that is 208bn euros of taxpayer loans to Ireland's banks - equivalent to a remarkable 154% of GDP.

[Irish] Bank bailout cost (so far). Corner Turned.

The 'grand bargain' is just a start. Martin Wolf, FT.

It would be helpful – and honest – for the German government and the governments of other creditor countries to tell their people that they are rescuing their own savings in the guise of rescuing peripheral countries. The alternative is to write off loans and recapitalise their banks directly. To admit this would be to admit their policies have been at fault. That would surely be helpful.

Europe needs debt relief, not decades of austerity. The Guardian.

From Donegal to the Algarve, to the streets of Athens, voters on Europe's "periphery", as economists dismissively call it, are slowly waking up to a sobering truth – they face years of austerity, yet wage cuts, job losses and crumbling public services will not extricate them from financial crisis. In fact, by driving their economies into an ever deeper slump, it may even make things worse. The pain could just bring more pain....

Markets and voters across the eurozone have grown wearily accustomed to watching the cycle of a looming fiscal crisis as bond yields rocket, followed by just enough action from Brussels to jolt investors out of panic mode, followed by another bout of the jitters as they realise the rhetoric from euro leaders isn't matched by reality.

As Steen Jakobsen, chief economist at Saxo Bank, put it in a note on Friday: "It's clear that the electorates are beginning to realise that all solutions offered by the policymakers are based on the promise to do something in the future, and never right here, right now."

But time is running out, and Europe has two choices. It can continue hammering the economies of Greece, Ireland and soon Portugal deeper into crisis, while their already furious voters become increasingly resentful about the pain being imposed by their European "partners"; or it can accept that the scale of debts has simply become unsustainable, and open negotiations now about an orderly default.

As Obama and Congress fiddle, America liquidates housing sector. Chris Whalen.

the current national policy mix of more regulation, decreased government subsidies and, to add further urgency, a shrinking banking system, is the perfect storm for the housing, which is now down six months in a row. Despite my long-held desire to see market-based reform in the US housing sector, I think all parties need to be aware of the precarious situation facing the American economy and banks as home prices collapse for lack of credit....

The net, net here is that the available pool of credit available for the housing sector is shrinking and thus prices must also decline to adjust for that supply of credit. This fact of continued decline in home prices is going to have a chilling effect...

I estimate that Fannie and Freddie alone are hiding $200 billion worth of bad loans on their books simply because there is no market for these foreclosed homes. Ditto for the largest servicer banks such as Wells Fargo, Bank of America, JPMorgan Chase and Citigroup. To clean up this mess with finality is going to cost $1 trillion or so in round numbers. But nobody in Washington wants to go there.

Where the bailout went wrong. Neil Barofsky, NY Times Op-Ed.
As per James Kwak:

Back in late 2008 and early 2009, there was a lot of talk about how a true solution for the problems of the banking system would require a solution for the problems of homeowners, since the banks’ losses were largely the result of mortgage defaults. One of the major technical achievements of the administration was showing that it was possible to stabilize the financial system and restore the banks to short-term profitability without doing much for homeowners.

The Federal Open Mouth Committee is back in action. Pater Tenebrarum.

Hawks (relatively speaking) and doves within the Fed are busy trading slightly contradictory statements in public again, in a performance that is eerily reminiscent of the 'exit talk' (exit from unusual monetary accommodation measures that is) that proliferated about one year ago.....

led to this campaign of advance burying of 'QE3' by means of 'QE2' funeral eulogies. Surely 'QE3' won't be talked about so much anymore if even 'QE2' comes under official scrutiny. Since the current QE program is slated to end in June, market participants are given fair warning not to expect more 'coups de whiskey' for the stock and commodity markets immediately thereafter. This in turn means that the times are set to become slightly more interesting. Given that there is not the slightest evidence yet that private sector deleveraging has run its course, a cessation of excessive monetary pumping may end up stopping various bubble activities in their track in very short order. This is to say, both financial markets as well as the economy may slump again fairly quickly....

Helicopter pilot Ben Bernanke has been rather quiet, letting the rest of the board spread the message. Alas, we suspect he's personally still firmly in the pro easy money camp. At least this is what we would have to conclude considering his well known views on the Great Depression as well as Japan's post bubble era. His usual refrain was that policy makers were 'too timid' in these instances, but as it were, the BoJ is a veteran of two (now 2.5) QE programs as well, so if one wants to be 'less timid', then 'QE1' and 'QE2' alone obviously won't cut it. In that sense we would be inclined to discount the advance funeral rites for 'QE3' as just more hot air. Nevertheless, there will be a pause, and should the economy's momentum not falter again immediately, then we'd expect the 'exit' palaver to increase in both volume and frequency.

Surpluses, debt and depressions.... Randall Wray via Pragmatic Capitalism.

China's 5-year plan and global interest rates. Martin Feldstein.

Visualizing the food and energy crunch. Pragmatic Capitalism.

Debt: The first five thousand years. David Graeber.

The biggest urban legend in finance. Rob Arnott.

Fannie and Freddie hiding over $100 billion of losses? naked capitalism.


other fare:
Exceptional And Unexceptional America. Andrew Sullivan, The Atlantic.

March 7

Saudis mobilise thousands of troops to quell growing revolt. The Independent.

SocGen's Three Scenarios For Oil See Crude Price Between $110 And $200. zerohedge.




Growth and renewal in the U.S.: retooling America's economic engine. McKinsey.

for an executive summary, see: Why the American economy will stay slow. Big Think.

Royal Bank of Scotland investigation: the full story of how the 'world's biggest bank' went bust. Telegraph.



Is Canadian housing the next domino? Business Spectator.

February 7

QOTD1:
Faced with the choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy on the proof. ~ John Kenneth Galbraith

QOTD2:
People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome. ~ George Orwell


Canadian corporate bonds an expensive proposition. FP.
according to PIMCO's Ed Devlin.

“The fundamental problem with the Canadian corporate bond market is that there is are too many investors chasing too few issuers,” Mr. Devlin said in a recent note to clients.

He noted that 59% of Canada’s main corporate bond benchmark is concentrated in just 10 issuers. By comparison the percentage of the index concentrated in 10 issuers is 20% in the U.S., 26% in Great Britain and 35% in the Eurozone.

Housing prices to drop 25%, [Capital Economics] forecaster predicts. The Star.

Negative annualized stock market returns for the next 10 years or longer? It's far more likely than you think. Mish.

Entranced by China's bubbling economy. Edward Chancellor, FT.

Mr Mansharamani starts out with George Soros’s theory of reflexivity.... markets are determined by a “two-way feedback mechanism in which reality helps shape the participants’ thinking process and the participants’ thinking helps shape reality”. Chaos rules as errors of perception feed back into reality.

The financial instability hypothesis of the late Hyman Minsky complements Mr Soros’s reflexivity.... already inflated asset prices can only be sustained by further price appreciation and ever increasing leverage. 

According to Mr Minsky, when Ponzi finance is widespread, the economy is likely to develop into a “deviation-amplifying system”. All great bubbles have easy money and growing leverage. Mr Mansharamani turns to Friedrich Hayek and the Austrian economists to show how inappropriately low interest rates fuel credit growth and over-investment.

Behavioural psychology also helps explain why bubbles develop. Humans have a chronic tendency to overconfidence. We underestimate the probability of events that we haven’t recently experienced... For instance,...  it was generally believed house prices could not fall because they had been on a continuously rising trend in earlier decades.

Mr Mansharamani surveys recent research into swarm behaviour in the insect world. While ants lay and follow trails of pheromone, the speculative crowd follows a trail of recently minted money. Politics provides yet another prism for identifying bubbles. Great speculative booms are often stimulated by governments, sometimes with the intent of lining the pockets of public officials. All bubbles are accompanied by fraud.

China today has the characteristics of a truly great bubble. The value of the housing stock is set to exceed 350 per cent of GDP this year... Construction accounts for around one-quarter of economic activity in China...

A reflexive process appears to be at work as the anticipation of future Chinese economic growth drives new construction, while new construction drives economic growth.

Ponzi finance proliferates in China. Wasteful infrastructure projects are funded with bank loans and land grants from local governments, which themselves depend on land sales for the bulk of their income. Chinese banks bypass credit restrictions by securitising loans to developers, while state-owned enterprises boost profits by dabbling in real estate. China’s financial system has become in Mr Minsky’s phrase a “deviation-amplifying system”.

December 25

as opposed to the new normal:
In defense of the "Old Always". James Montier, GMO.

Outlook 2011 and the next decade: is the smart money right on China? Dian Chu.

The opening act to the broader crisis. Scott Minerd, Guggenheim Partners.

The Fallacy of a Pain-Free Path to a Healthy Housing Market. FRB Dallas.

other fare:

Searching for Jesus in the Gospels. New Yorker.

December 24

QOTD:

"Yesterday is history. Tomorrow is a mystery. And today? Today is a gift. That's why we call it the present." ~ Babatunde Olatunji

Things I believe. John Hussman.


ECRI WLI turned positive - the first time since May. dshort.

An inflation - or lack thereof - chart show. David Altig. FRB Atlanta.

Head fake. Bruce Krasting.                           

Outlook 2011: Crude oil and gasoline, escalator up, elevator down. Dian Chu.

Garth Turner discusses how Canadian bankers are no less greedy and no more conservative than U.S. bankers were re: mortages.

November 11

must read explanation of QE:
Just what is Bernanke up to? L. Randall Wray.

With QE2, the Fed proposes to buy longer-term treasuries. Since these are not toxic, it will not help the banks. It is like transferring funds from CDs they hold at the Fed to their checking accounts, thereby reducing their interest earnings. I suppose the idea is that the Fed is going to reduce bank income, impoverishing banks to the point that they will finally throw caution to the wind and begin to make loans to struggling firms and households. It is simultaneously a strange view of banking and also a scary remedy to a financial crisis that was created by excessive bank lending to those who could not afford the loans. It’s sort of like sending a covey of nymphomaniacs to the hospital bed of a nonagenarian suffering from myocardial infarction initiated by an age-inappropriate tryst.

Fasten your seatbelt. John Taylor.

On the day after the Fed’s move, [Bernanke] wrote in a Washington Post editorial piece that QE2 would push up the equity market, bonds, and other risky securities thereby stimulating consumption and economic activity. Even Greenspan did not publicly proclaim his “put,” but now Bernanke has made it the centerpiece of US strategy. Equities are already overpriced, with profit margins at all-time highs and PE ratios far above average. Speculation is now more American than apple pie – but this is a very risky time to practice it.

It’s Going to Be Another Long, Hard Winter in Housing. Zillow Real Estate Research.

Annual State of the Residential Mortgage Market in Canada. CAAMP.



other fare:
Robert Reich makes some excellent points about why Obama should take a stand, but Reich is naive if he thinks Obama will do so --- he's clearly gonna cave in.

Oh, look at that, it might as well be official --- the Huffington Post says White House gives in on Bush tax cuts.

October 25

Ben Davies: On trading and the markets. via Jesse.

Noam Scheiber on Richard Koo's balance sheet recessions. Rortybomb.

The housing double dip is here. Pragmatic Capitalism.
never mind today's existing home sales release, which, at 4.53 million, was both up from last month and beat expectations of 4.3, because (a) it, plus the previous 2 months, represent the worst 3 months on record (albeit back to only 1999); (b) this September data precedes foreclosuregate, and given that 1-in-3 existing home sales was a distressed sale, this portion of the market can be expected to be less busy if rights to title are questionable; and (c) with inventory still at double-digit levels (10.7 months), pressure on prices will persist (Case-Shiller and Core Logi data both suffer a lag, as each of their reports due this week will represent 3mth weighted averages of June, July and August)



other fare:

about the rally in D.C. on Saturday:
Can Jon Stewart restore our sanity? Olivia Scheck, 3QD.

Of course this tendency isn’t new or unique to American politics. My own view, best articulated by the psychologist Jonathan Haidt, is that humans are actually wired to behave this way during instances of disagreement, acting more like lawyers, committed to defending their own moral and political intuitions, than like scientists in search of truths about the world. We see this tendency – to search for evidence that proves our point rather than that which might undermine it – in our own discussions with friends and colleagues, but nowhere is it more overt than in partisan politics.

E-mail auto-response. Martin Marks, The New Yorker.

The origin of complex life: it was all about energy. Discover.

The poetry of science: Richard Dawkins and Neil DeGrasse Tyson. 3QD.

October 15

mortgage industry expert Laurie Goodman and colleagues at Amherst Securities put together a report: The Housing Crisis -- Sizing the Problem, Proposing Solutions.


other fare:
Future Chaos: There Is No "Plan B". Chris Martenson re: peak oil.

Changing Education Paradigms. RSA Animate.

Dead Cats

Hope You Enjoyed the Housing Recovery ... Because It's History, Says Suttmeier. Henry Blodgett, Yahoo Finance.

The temporary increase in prices has been driven by government efforts to prop up the housing market, Suttmeier says, and those measures have come to an end. A new wave of foreclosures is hitting the market. Fannie Mae and Freddie Mac have become black holes into which taxpayers must shovel endless billions just to keep the mortgage engine running.Most importantly, as measured by the Case-Shiller index, housing prices are still way too high.

In most major house-price indexes, prices have already begun to roll over and head back down. Suttmeier thinks this trend will continue. In fact, he thinks prices could fall another 25% nationwide.

Whitney Tilson's T2 Partners Unveils Latest Mega-Case Against Housing And The Homebuilders Business Insider.
check out their chart-laden powerpoint presentation

U.S. Mortgage Holders Owing More Than Homes Are Worth Rise to 23% of Total. Bloomberg.

Bank repossessions in the U.S. rose 35 percent in the first quarter from a year earlier to a record 257,944, according to RealtyTrac Inc., an Irvine, California-based company.

Sales of foreclosed properties by banks accounted for more than a fifth of all U.S. home sales in March, Zillow said.