Daily: Bullish US housing starts numbers show the US in full recovery mode

Economic data in the US is not trending down. It is stabilizing and perhaps trending marginally higher. We have seen a slew of data showing that the US data are outperforming expectations. The data for the housing market in the United States are particularly good. The latest on housing starts shows a climb of 82.5% from April 2009 lows when the US economy was mired in the last recession. That’s such a huge uptick that one has to recognise that this recovery is for real and could have legs. Some analysts don’t believe this will have a material impact on GDP growth in the short-term. Nonetheless, I am beginning to believe the US recovery right now is a lot like it was in the 2004 time frame when recovery was well advanced but job growth was still slow. Eventually that recovery turned into a full-grown housing bubble and bust due to accommodative policy. Still, from a cyclical perspective, by 2004 a sustainable recovery was intact.

My concerns have always been of a longer term and a political economy nature. First, I don’t believe the upturn in housing is sustainable on a secular basis because of the still large private debt overhang and the lack of policy space both on the fiscal and the monetary level (large deficits and low interest rates). Second, large deficits are not politically sustainable and so I believe they will be cut. I have been saying since 2009 that 2013 was the longest I saw this upturn lasting before we moved into deficit hawk mode. We’ll just have to wait and see if that’s correct. Third, accommodation of the level we have seen on the monetary side will definitely result in resource misallocation which will come a cropper in the next recession. How bad the spate of bad loans and busted credit is depends on how long accommodation lasts. This is what we know from the last two US business cycles as well. 

With continued policy accommodation, the US recovery has legs and could continue past 2013. If it continues long enough, we just might work through enough secular issues to keep the next recession mild. But, if the next recession hits with consumer debt levels high, deficits high and policy rates low. Then that’s a recipe for a bad recession and a continued downturn in house prices. Regardless of the secular issues, we will still have the resource misallocation and bad debt issues. Bottom line: good numbers today show the potential for continued upside on the economic front (and that’s a different issue than share prices). But caution is still warranted.

US housing starts jump to four-year high, says commerce department | World news | guardian.co.uk

“US builders started construction on homes in September at the fastest rate since July 2008, a further indication that the housing recovery is strengthening and could help the economy grow.

The commerce department said Wednesday that builders broke ground on single-family homes and apartments at a seasonally adjusted annual rate of 872,000 in September, an increase of 15% from the August level. Single-family construction rose 11% and apartment building increased 25.1%. Applications for building permits, a sign of future construction, jumped nearly 12% to an annual rate of 894,000, also the highest since July 2008.

“If there was any doubt that the housing market was undergoing a recovery, even a modest one in the face of the terrible 2008 decline, those doubts should be erased by now,” said Dan Greenhaus, chief global strategist at BTIG.”



BBC News – Germany slashes its forecast for 2013 GDP growth

“The German government has slashed its forecast for economic growth in 2013 from 1.6% to 1%.

“We are still talking about 1% growth [for 2013], so there’s no talk about a crisis for Germany,” said Economy Minister Philipp Roesler.

The economy ministry also raised its forecast for 2012 to 0.8% from the 0.7% it predicted in April.”

Only big debt restructuring can save euro – FT.com

“To save the euro, a faster move towards full banking union is needed.

This means the ECB becomes supervisor of all euro area banks, there is a single eurozone-wide bank resolution regime and one deposit guarantee regime and fund, covering redenomination risk, too. Banking union is necessary to restore the eurozone’s monetary transmission mechanism, destroyed by pernicious feedback loops between weak sovereigns and banks and national banking supervisors in the core imposing de facto capital controls disguised as prudential regulation.

Also necessary to save the euro and create the conditions for a resumption of growth is a restructuring of the debt of the most likely insolvent sovereigns – Greece, Portugal, Ireland, Cyprus and possibly Spain, Italy and Slovenia. Austerity fatigue in the periphery and growing bailout fatigue in the core mean that the ECB/euro system is the only Santa Claus capable of filling the solvency gaps of sovereigns and banks in the euro area. However, any attempt by the ECB/euro system to play this role on a sufficient scale to make a material difference would cause an exit of the strong, who reject the ECB as an open-ended Santa. The coming year will be a lively one.”

Nigel Farage and the Euro : The New Yorker

“Farage had come not so much to flatter supply-side sympathies as to embroider his contention that the euro is toast. “I’m not anti-European at all. I’m married to a German, for goodness’ sake, so I know the dangers of a German-dominated household.” But, he said, “The idea that we should take all these different countries in Europe, force them together against their democratic will, and put them under the control of people like Herman Van Rompuy is, frankly, beyond belief.”

S&P cuts credit rating for Santander and Bilbao Vizcaya Argentaria banks | South China Morning Post

“Standard & Poor’s cut its credit ratings on Banco Santander and Banco Bilbao Vizcaya Argentaria, Spain’s biggest lenders, along with nine other banks after lowering the country’s sovereign rating.

The ratings company said in a statement yesterday it lowered Santander’s long-term counterparty credit rating two levels to BBB with a negative outlook, from A-minus.”

Germany shocks EU with fiscal overlord demand – Telegraph

Hasn’t this been the German view of fiscal union all along? Why is this a surprise. AEP is just demagoguing the issue with the tabloid headline. The reality is that the Germans want countries to sacrifice their national sovereignty to prevent free riders. That’s always been the position. 

Inflation falls to three-year low of 2.2pc in September – Telegraph

Don’t know what this means in context. I think the UK has seen pretty high inflation during this downturn – at least relative to other European countries or the US. Is this a trend down or just a blip? Not clear yet. 

Insight: Spain bank rescue signals legal battle for duped savers | Reuters

“They have come to demand their money back, taping up posters that read: ‘Tricked by the banks. Plundered by the government’ in what has become a weekly protest.

“There are people on the edge of destitution. Their savings are all they have,” says 60-year-old retired factory worker Argimiro Martinez, a customer of NovaGaliciaBank (NGB) since he was 7 years old and one of the protest organizers.”

Retirement No Option for Older Workers in Europe’s Crisis – Bloomberg


“a generation of European workers retiring later as the worst economic downturn in 70 years and higher retirement ages induce workers to stay longer. The proportion of over-55s in jobs has climbed even as unemployment rates have soared across the European Union.
While many economists say increased work for elders doesn’t reduce job opportunities for the young, deferred retirement has become a political issue for those who say otherwise, especially as youth unemployment in the EU exceeds 20 percent.”

Europe needs a Soros Salvation Army – Telegraph Blogs

“If the world could somehow persuade Germany to pull out of EMU, Europe’s never-ending crisis “would disappear in thin air”.”


United States

Industrial output rises 0.4 percent in September | Reuters

This isn’t a big deal given the previous month’s drop:

“Industrial production rose by 0.4 percent, the Federal Reserve said on Tuesday. Analysts polled by Reuters had forecast a 0.2 percent rise compared to a 1.4 percent decline in August. This was initially reported as a 1.2 percent drop.”

Goldman takes less risk, executives strike cautious tone | Reuters

“Goldman Sachs Group Inc took less risk and earned less money from customers’ trading last quarter, even as the Wall Street bank reaped big gains from the rising values of its stock and bond investments.

Its return-on-equity, a key measure of how much profit a company can wring from its balance sheet, also remained low at 8.6 percent. That’s below the 15 percent level that shareholders generally expect investment banks to earn in better times and far below the 30 percent or more Goldman posted just before the financial crisis.”

U.S. military judge: ‘Torture’ is not ‘relevant’ in Guantanamo cases | The Raw Story

“Five alleged al-Qaeda conspirators accused of aiding the 9/11 hijackers all say they were tortured for years while in CIA custody, but sitting in a military courtroom on Monday, they all heard a judge insist that “torture” is not “relevant” to their cases.”


US Election

Obama Wins on Points, But Squabbles Cast a Pall Over the Debate – Ron Fournier – The Atlantic

“Who won? The answer may be Obama, because his goal following a catastrophically sluggish first debate was so clear: Show some life. And, indeed, the president aggressively criticized Romney, labeling him a hypocrite and a liar who favors the rich at the expense of the middle class and poor.

But Romney got his licks in, too, wrapping a miserable economy around the incumbent’s neck. “The middle class is getting crushed by the policies of a president who does not understand what it takes to get the economy working again,” Romney said.

Bottom line: Obama and Romney scored points while turning off independent voters with their point-scoring. Democratic and Republican partisans will find reason to celebrate the debate but it likely did nothing to reshape the closely fought race.”

David Stockman: Mitt Romney and the Bain Drain – Newsweek and The Daily Beast

Interesting take on the private equity business. I am a lot more positive about the need for private equity and so-called creative destruction. Where I believe the problem lies is in favoring of debt over equity to finance investment. And that has certainly been a boon for PE as the yield on bonds has come down and stock prices have risen. So I see this as more about a secular decrease in interest rates and increase in stock prices and the distortions from favoring debt finance. Romney was certainly lucky to be there while it all happened.

Mish’s Global Economic Trend Analysis: Debate II: Did Obama Right a Sinking Ship? Call It a “Spirited” Tie

“I watched the debate once again and I thought it was a very spirited tie although an instant poll had Obama winning.

One thing is certain, Obama did much better in this debate than the first. He also delivered a solid close in contrast to a miserable flop last time. Romney did OK but not as good as last time.

The instant poll of undecided voters had Obama winning 37% to 33% with 33% calling it a tie.”

Nobel Laureate Spence Favors Obama’s Economic Plan Over Romney’s – Real Time Economics – WSJ

“Economics Nobel Laureate Michael Spence explains to WSJ Live’s Simon Constable what it will take for the U.S. to get back its economic mojo, plus why he favors Obama’s economic policy over Romney’s.”

Why Obama and Romney Aren’t Talking About Housing on the Campaign Trail – Developments – WSJ

“Mr. Obama has learned how difficult the housing problem is to fix, while Mr. Romney has discovered how hard it is to talk about in a sound-byte-driven campaign cycle.

In short, housing doesn’t fit easily onto a bumper sticker. At least until next month’s presidential debates, a serious discussion may have to wait.”



Meredith Whitney: No CEO Can Fix Citigroup – MarketBeat – WSJ

““Citigroup is ‘the incredible shrinking bank,’ and the least interest of the big four, in our opinion,” Whitney said. “No CEO will be able to change these facts in the near-term. It appears the board feels the same way, as they have appointed an unknown to the outside to the new CEO position, Mike Corbat.””

Vikram Pandit Took Home About $221.5 million Over His 5 Citi Years – Deal Journal – WSJ

“True, there were several years he wasn’t quite paid the way other bankers have been paid and two of his five years at the bank he didn’t even break out of six digits, a pittance on Wall Street.

But add up all the earnings Pandit made based on Citi’s annual proxy statements and the widely reported boon he made from selling his hedge fund to Citi in 2007 (the deal that brought him aboard the good-ship Citi), Pandit has taken in about $221.5 million since joining.”

Pandit’s Legacy: Citigroup Shares Lost 89% During His Tenure – MarketBeat – WSJ

“One way to gauge Wall Street’s thoughts on a CEO’s performance is by how the stock performed during that person’s tenure. Since Dec. 11, 2007, the day Vikram Pandit was named CEO of Citigroup, the stock has tumbled a split-adjusted 89% through Monday’s closing level.

Over the same time JPMorgan is down 7.7% and Bank of America Corp. has slumped 79%. “

Greg Smith’s Boring First Chapter on Goldman Sachs – Deal Journal – WSJ

““Why I Left Goldman Sachs.” (Practically the same title as his March op-ed, showing a certain lack of creativity.)

The first chapter, now available for preview, is, to put it lightly, boring.

Except his hell is dull. Demeaning? Sure. But not much more so than most internships, and not really worth the time it takes to read.”


Lance Armstrong

Because I am a cycling fan, I have a section today dedicated to Lance Armstrong. The views vary on these posts and it gives you a more complete picture.

Read Lance Armstrong’s entire Livestrong resignation statement – latimes.com

Nike may have had impact on Lance Armstrong scandal, possibly involved in what USADA called ‘most sophisticated’ doping program ever – NY Daily News 

BBC Sport – Lance Armstrong dropped by Nike over doping evidence

“Former England footballer Geoff Thomas was inspired to set up his own foundation after reading Armstrong’s autobiography days after being diagnosed with chronic myeloid leukaemia in 2003.

Thomas, who was awarded the 2005 BBC Sports Personality Helen Rollason Award in recognition of his charity work, said Armstrong “had done the right thing” by stepping down as chairman.

“I think it’s damage limitation while everything is going as it is – there’s a news story about Lance every day,” the 48-year-old told BBC Sport.

“Lance stepping down will probably take the heat away from the charity itself and put the focus solely on him.”

Thomas contacted Armstrong on Twitter  , writing: “@lancearmstrong please for your sake, come clean. If not yours, for the millions you have inspired over the last 15+ years.””

Nike Terminates Lance Armstrong Endorsement – FanSided – An Independent Sports Blog Network

“Due to the seemingly insurmountable evidence that Lance Armstrong participated in doping and misled Nike for more than a decade, it is with great sadness that we have terminated our contract with him. Nike does not condone the use of illegal performance enhancing drugs in any manner. Nike plans to continue support of the Livestrong initiatives created to unite, inspire and empower people affected by cancer.”

Nike denies Armstrong cover-up – Cycling | IOL.co.za

““In response to the offensive allegations in today’s New York Daily News, Nike vehemently denies that it paid former UCI president Hein Verbruggen $500 000 to cover up a positive drug test,” the statement read. “Nike does not condone the use of illegal performance enhancing drugs.””

Lance Armstrong Beyond Defending On Doping Claims: Robbie McEwen

“Australian cycling great Robbie McEwen says he can no longer defend Lance Armstrong from doping allegations, given the weight of evidence against the American.

McEwen said on Triple M this morning that the week since the US Anti-Doping Agency released its 1000-page report of evidence against Armstrong had been one of “cringing and head-shaking”.

“I think the real tragedy would be if something like the Livestrong foundation crumbled, because of the great work it’s doing.””



Foxconn says underage workers used in China plant | Reuters

“Foxconn Technology Group, the world’s largest contract electronics maker, has acknowledged hiring teenagers as young as 14 in a Chinese factory, in breach of national law, in a case that raises further questions over its student intern program.”

Crazy Gross Internet Troll Caves Will Make You Feel Better About Your Dirty Keyboard (PHOTOS)

This is purely for the entertainment factor.

Large Cash Transactions Banned in Mexico – Forbes

“For real estate transactions, cash payments of more than a half million pesos ($38,750) will be forbidden and, for automobiles or items like jewelry, art, and lottery tickets, cash payments of more than 200,000 pesos ($15,500) will be forbidden. The law carries a minimum penalty of five years in prison.”

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