Links: 2013-01-08
North America
Consumers Take on More Debt – Real Time Economics – WSJ
“U.S. consumers’ overall borrowing expanded in November at a quicker pace than the previous month, led by bank loans and student borrowing.
The total outstanding dollar amount of credit card, auto and other loans excluding home loans increased from October by a seasonally adjusted $16.05 billion to $2.768 trillion, a Federal Reserve report showed Tuesday.
Consumer credit rose at a 7% annualized rate in November, after expanding 6.17% the previous month. That marks the fourth straight month of gains.”
‘Joke’ Solution to Debt-Ceiling Clash Gets Serious Study – WSJ.com
“What if Washington’s next debt clash, widely expected to be as bitter as the “fiscal cliff” fight, could be resolved with the minting of a $1 trillion coin?
That is the idea being pushed by a handful of policy wonks and columnists, and it has caught the attention of lawmakers even though it is an unlikely solution.”
Kludges: America going platinum | The Economist
“AMERICA’S government is full of oddities, and here’s one: it is possible for the government to pass spending and tax bills which lead to an illegal amount of accumulated debt. The government’s borrowing results from all the tax and spending choices made by past and present elected officials and leads to annual deficits that add to a strock of public debt. Once the tax and spending choices are made, the resulting debt load is a fait accompli, a residual. Yet said elected officials have also seen fit to pass a law declaring that debt must fall below a specific limit. From time to time, then, Congress has to pass a law raising the limit—essentially, declaring its past choices legal—or face dire fiscal consequences. If the limit is reached and not raised government outlays must be cut immediately and dramatically or the government must default on some of its debt-interest payments. Those are both terrible options, and so until recently the government has simply raised the limit when necessary.”
Be Ready To Mint That Coin – NYTimes.com
“Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious.”
Arizona Stadium Proving Trojan Horse for Taxpayers: Muni Credit – Bloomberg
“Glendale, Arizona’s bet on becoming the Phoenix area’s sports and entertainment hub is resulting in higher taxes, fired workers and rising penalties on its debt.
The city confronts new budget cuts after agreeing last month to pay $308 million over the next 20 years to keep the National Hockey League’s Phoenix Coyotes, which had the worst attendance in the NHL last season. After downgrades by both Standard & Poor’s and Moody’s Investors Service that cited the hockey payments, investors demanded a 7.5 percent higher penalty on city debt compared with 11 months ago.”
BBC News – Bank of America to pay Fannie Mae billions to settle mortgage claims
“Bank of America has agreed to pay US government mortgage agency Fannie Mae $3.6bn (£2.2bn) to settle claims relating to residential home loans.
In addition, it has agreed to buy back 30,000 mortgages for $6.75bn, and pay a further $1.3bn in compensation.”
US joins misguided pursuit of austerity – FT.com
“When viewing the US fiscal stand-off from Europe, it all looks eerily familiar. The US has become very European. But for me the main problem is not an inability to deal with the structural deficit, as the Economist argued in its latest cover story, but rather the contrary. I fear that the US is blindly rushing into semi-automated austerity, which is exactly the mistake we have made in Europe. The problem is not the size of the national debt as such, which is manageable in both cases, but our policies in dealing with it.”
Calculated Risk: Question #9 for 2013: How much will Residential Investment increase?
“I expect growth for new home sales and housing starts in the 20% to 25% range in 2013 compared to 2012. That would still make 2013 the sixth weakest year on record for housing starts (behind 2008 through 2012), and the seventh or eight weakest for new home sales. So I expect further growth in 2014 too.”
Europe
Ireland Makes Market Progress – WSJ.com
This is very good news. It says that Ireland is on its way to recovery – barring another economic dip. The big wild card is housing because prices are still falling. Let’s see how Spain does on Thursday.
“The country’s debt office, the National Treasury Management Agency, said it added €2.5 billion by way of a syndicated tap to its 5.5% bond maturing October 2017. It paid a yield of just over 3.31%, which is sharply lower than the 5.9% yield at the time when the bond was launched last July.”
Ireland is looking to go to the public markets with a debt issuance out to 2017 – 4 years. They believe their recovery warrants their ability to tap bond markets at decent yields. They had already gone to market for short-term paper in the summer but now they are putting a toe in the long end to see appetite for Ireland. Given BBVA’s low yield and the appetite for risk it shows, this seems like a good time for Ireland to go to market.
Spain Plans Record Bond Issues – WSJ.com
These bond sale figures don’t mesh with what we saw earlier. The 158 billion euro number is the rollover number we saw. I will check to see what the real numbers are.
“Spain announced plans on Tuesday to issue a record amount of government bonds this year, kicking off Thursday with an auction that investors and analysts say will likely benefit from a recently improved market appetite for riskier euro-zone debt.
The Spanish Treasury said it aims to sell €121.3 billion ($158.53 billion) worth of bonds this year, 7.6% more than in 2012. This figure includes €23 billion for the country’s semiautonomous regions, most of which have lost access to financial markets. It will offer €4 billion to €5 billion on Thursday, split between a new two-year bond and reopened 2018 and 2026 bonds.”
Comrade Barroso, the existential threat to the euro is mass unemployment – Telegraph Blogs
“Mr Barroso may well be right about the debt crisis. The ECB’s `Draghi Put’ has effectively taken default risk off the table (though not entirely, since political strings are attached to any rescue).
But the EMU disaster is not at root a public debt crisis, and never was. As EMU leaders themselves say – correctly – Euroland’s aggregate public debt is lower than in the UK, US, and Japan as a share of GDP.
What Europe faces is a north-south incompatibility crisis, the result of ramming together misaligned economies and countries into a single currency.”
Italy jobless records put heat on Monti in poll race | Reuters
“Italy’s jobless rate remained at a record high in November while youth unemployment jumped to a new peak above 37 percent, data showed on Tuesday.”
Immobilier: les prix ont résisté malgré une chute des transactions en 2012 – LExpansion.com
Transaction volume down 25% in France. A harbinger of declining prices?
“Les ventes de logements anciens ont chuté de 25% l’an passé selon Century 21, alors que les taux des crédits n’ont jamais été aussi bas. Parce que les prix, eux, n’ont baissé que de 1,6%.”
Analysis: Doom scenario far-fetched but euro gloom to deepen | Reuters
“It would be fair to say that U.S. hedge-fund manager Kyle Bass does not expect the explosion in global debt in recent years to turn out well.”
EU banks race to 17-month high as liquidity rules softened | Reuters
“Global regulators on Sunday gave banks four more years and greater flexibility to improve their funding positions, due to fears that a draconian earlier draft would have choked economic recovery.
The pullback from the original liquidity coverage ratio (LCR) draft went further than many analysts had expected.
Most banks should have no problem meeting the easier standards when they are phased in from 2015 and will have time to build up to full implementation in 2019, which could have been a challenge for some major French and German banks and others in the euro zone, analysts said.”
European banks rally as Basel rules eased – FT.com
“Italian and Spanish banks, among the most likely to benefit from lighter capital requirements, made some of the biggest gains. Bankinter’s shares rallied 6.7 per cent to €3.95, while Banco Popular climbed 4.3 per cent to €0.68.
Spain’s main Ibex 35 index, which is heavily weighted towards financials, was up 0.3 per cent at 8,458.2.
In Italy Banca Monte dei Paschi surged by as much as 12 per cent in early trading after chief executive Fabrizio Viola told local newspaper Il Messaggero that the bank could return to profit and avoid state intervention.”
ING Bank may cut more costs as bad loans weigh | Reuters
“Dutch banking and insurance group ING (ING.AS) said it may need to cut more costs to cope with new regulations and high provisions for bad loans, highlighting the pressures on banks to shrink their businesses.”
BBC News – House prices will change little in 2013, Halifax says
“UK house prices fell by 0.3% in 2012 and will remain at the same level during 2013, the Halifax has said.
Property prices were 1.3% higher in December than they had been in November, with the average home valued at £163,845, it said.”
Las familias españolas reducen la compra de comida por falta de dinero | Economía | EL PAÍS
This article says that the unemployment and austerity in Spain have combined to cut people’s pay so much that households are actually cutting back on the purchase of food, the most important consumer staple. That is serious.
“El paro, las subidas de impuestos y las rebajas salariales se han combinado en los últimos meses no solo para contener el presupuesto que los hogares españoles destinan a la alimentación, sino para reducir en sí misma la cantidad de comida que entra en las casas.”
Australia
Australian Stores See Record Sales With Rates at Lowest Levels – Bloomberg
“Australia’s A$249 billion ($258 billion) retail industry will see its best-ever month of sales in December as the cutting of interest rates to record lows revives flagging consumer sentiment, an industry group said.”
Australia Sees Surplus in 2014 as Forecast Slips on Revenue Drop – Bloomberg
“Australia’s budget should return to surplus in 2014 even as a drop in tax revenue forced the government to give up a pledge to balance its books in the current fiscal year, the country’s trade minister said.
The original target of a surplus in the fiscal year ending June 2013 could be achieved if positive signs around household spending continue through the rest of the year, Craig Emerson said in an interview on Sky News television yesterday. The country’s Treasurer Wayne Swan said Dec. 20 the government was unlikely to have a surplus because of a fall in tax revenues.”
November Australia Manufacturing PMI – Business Insider
“Australia’s manufacturing PMI slumped in November, falling to 43.6 from 45.2 in October.
This is the ninth straight reading below 50, and any reading below 50 signals contraction.”
Where to for house prices in 2013? | Steve Keen | Commentary | Business Spectator
“Unfortunately, that once popular rap is out of tune with the actual performance of the market for the last two and a half years. House prices peaked in June 2010, and have fallen 4.1 per cent in nominal terms and 9.8 per cent in real terms between then and September 2012 (the most recent date for the ABS existing dwelling price index).
There was a slight uptick in nominal prices in the last two quarters, but the first of these was equal to the rate of consumer price inflation, and the second was slightly below it – so that real prices at best flatlined, and then fell, as figure 1 shows.”
Technology
Galaxy lifts Samsung profit to record – FT.com
“The South Korean group’s operating profit hit a record for the fifth straight quarter, rising 88 per cent from a year earlier to about Won8.8tn ($8.27bn), it said in preliminary guidance published on Tuesday. Revenue rose 18 per cent to approximately Won56tn.”
“Although Amazon declined to provide hard figures, it says that sellers’ sales were up 40 percent year-over-year from 2011, and that sellers on Amazon sold “hundreds of millions of units worth tens of billions of dollars.”
The Amazon Marketplace allows business customers to sell on Amazon, tapping into the e-commerce giant’s worldwide reach for a monthly subscription fee plus a selling fee when the item is purchased. According to today’s release, there are now over 2 million of these third-party sellers on Amazon, reaching the company’s 188 million active customers around the world, including the 50 U.S. states.”
BBC News – HTC profits slump 90% on strong competition
“Taiwanese mobile phone maker HTC has reported a slump in profits as it continues to suffer at the hands of rivals Apple and Samsung.
Unaudited net profit in the fourth quarter was T$1bn ($34m; £21m), down more than 90% on the T$11bn the firm made a year ago and below analysts’ expectations. Revenue was T$60bn.”
Elsewhere
Abe Seen Spending 12 Trillion Yen to Boost Japan’s Economy – Bloomberg
“The Japanese government will announce around 12 trillion yen ($136 billion) in fiscal stimulus measures to boost the nation’s shrinking economy, Japanese media reported today.
The Yomiuri newspaper and Kyodo News both reported the figure for extra spending in the fiscal year through March, with the Yomiuri saying that 5-6 trillion yen will be directed to public works projects, without citing anyone. Prime Minister Shinzo Abe told business leaders today that he hopes to compile the measures this week.”
Japan stimulus plans include $4.9 billion business support: draft | Reuters
“Japan’s new government will set up schemes worth nearly $5 billion to boost businesses, including helping them buy foreign companies, according to a draft economic stimulus package seen by Reuters on Monday that could be approved this month.”
This is pretty funny. I highly recommend it.
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