Links: 2013-03-05
News links for 5 March 2013
Return of the housing bubble – Business – Macleans.ca
I am less afraid of the uptick in house prices. I wouldn’t call it a bubble since prices are not at bubble levels. But it does defy the normal course of price corrections and suggests that the last downturn in prices could re-assert itself if the uptick is too far too fast.
“Around the world, housing is fuelling a whole new frenzy of speculation and unrealistic optimism”
Wall Street’s latest idea – FT.com
“Yet in the financial industry, collateral transformation is viewed simply as a tool to comply with new rules. The process involves banks helping funds pledge their illiquid securities, in exchange for more liquid collateral which can then be used to back derivatives trades.
“It’s a new cottage industry that’s emerging,” says Supurna VedBrat, co-head of electronic trading and market structure at BlackRock. She estimates that her company, the world’s largest asset manager, will need far more high-quality collateral to comply with the new rules on derivatives trades. And she is seeking help to meet the growing demand for good collateral.
Wall Street banks, including Bank of America, Goldman Sachs and JPMorgan Chase, are ready to assist. The banks plan to create the collateral that customers such as BlackRock need to back derivatives deals.
At Bank of New York Mellon, Nadine Chakar has for several months been discussing with clients its new transformation service. The bank – which specialises in safeguarding trillions of dollars of assets – told its investors last year that it hopes to offset lower income from its older businesses with new demand for collateral transformation.”
N.J. Unfunded Pension Liabilities Widen to $47.2 Billion – Bloomberg
“New Jersey’s public pension deficit swelled 13 percent to $47.2 billion in fiscal 2012 as the state continued to make partial contributions to its retirement plans.
The system had about 64.5 percent of assets needed to cover promises to current and future retirees as of July 1, 2012, compared with 67.5 percent a year earlier, when the gap stood at $41.7 billion, according to data posted on the state Treasury Department’s website.”
The expropriation of YPF has caused Repsol’s reserves to fall by 42%.
“North Korea is vowing to cancel the 1953 Korean War cease-fire because of sanctions and ongoing U.S.-South Korean joint military drills.
North Korea’s Korean People’s Army Supreme Command made the statement Tuesday amid reports that Washington and North Korean ally Beijing have approved a draft of punishing resolutions that is expected to be circulated among U.N. Security Council members this week.
North Korea’s latest nuclear test on Feb. 12 was its third. The United States and others worry that North Korea is pushing closer toward its goal of having nuclear-armed missiles that can reach America.”
Belgian finance minister resigns – FT.com
“The exit of a leading member of the Flemish Christian Democratic party is seen as likely to destabilise the government led by Elio Di Rupo, prime minister and socialist leader, at a time when Belgium is under mounting pressure to toughen its austerity measures to meet its EU-mandated deficit targets.”
Rumor: iPhone 5S slated for August release following next-gen iPad launch in April
“A new rumor claims that Apple will accelerate its launch schedule for the next-generation iPhone and debut the handset in August, while successors to the company’s current tablet lineup could see a debut in April, just six months after the iPad mini and fourth-generation iPad were released. “
Italy, Spain Close the Bond-Risk Divide – WSJ.com
Italy has re-coupled fully after it started to uncouple. The election uncertainty has undone all of the recoupling and more. Remember, the Spain/Italy crisis started in late 2011 with Italy. Spain was the country with lower yields at that time.
“Italy’s political uncertainty, coupled with relative stability in Spain, brought the gap between the two countries’ bond yields to the narrowest point in almost a year on Monday.
Financial markets shuddered when last month’s parliamentary election in Italy left Europe’s third-largest economy without any clear leadership. Since then, yields on 10-year Italian bonds have risen by half a percentage point to 4.867% on Monday, according to Tradeweb.
At the same time, yields on Spanish bonds have dropped, an indication that investors view that country as a more attractive bet. Yields on 10-year Spanish sovereign debt crept down on Monday to 5.087%.”
Hopes for retail revival as sales hit three-year high – Telegraph
“The pickup is reaching deeper into the high street, fuelled by demand for electronic goods, while fears of a downturn in the grocery business because of the horse meat scandal have so far proved wide of the mark. Figures released today from the British Retail Consortium (BRC) show that sales last month rose 2.7pc on a like-for-like basis after stripping out the effects of new shops and expansion and 4.4pc when they are included.”
Twitter kills Tweetdeck apps for iPhone and Android in favor of web apps — Tech News and Analysis
“Twitter announced that it’s shutting down its Tweetdeck apps for iPhone and Android, encouraging users to take advantage of the Tweetdeck web app instead.”
The headline says it all: “France has moved into attack mode in the debate over austerity and stimulus in Europe”. The gulf between the Germans and the French is widening.
“Analyst Ming-Chi Kuo of KGI Securities, who has a notable track record in predicting Apple hardware launches, forecasts the Cupertino company will announce a successor to the iPhone 5 alongside a low-cost handset model in June ahead of a rollout in July.”
Euro Chiefs Won’t Rule Out Cyprus Depositor Losses – Bloomberg
Ireland wants a bail-in. The Dutch under Dijsselbloem did a bail-in just recently. There are some inconsistencies here.
“European finance ministers left open the possibility of saddling bank depositors and bondholders with some of the costs of an aid package for Cyprus, potentially unsettling markets as the bailout negotiations drag on.
Dutch Finance Minister Jeroen Dijsselbloem declined to rule out a “bail in” of Cypriot depositors, even after concern over the treatment of bank account holders prompted the first signs of capital flight from the island.
“All the questions on the elements” will be dealt with by late March, Dijsselbloem told reporters after chairing a meeting of euro-area finance ministers in Brussels yesterday. “That is my answer to all these questions, I’m afraid.””
The Immorality of the Interest Rate Hawks – NYTimes.com
This is totally wrong. The ECB was just as easy as the Fed when it came to real interest rates in Ireland and Spain where the housing bubbles were. The fact is easy money does have an impact on private portfolio preferences and it caused excess credit growth in the US and in Europe.
Brave Ireland is the poster-child of EMU cruelty and folly – Telegraph
“It has endured a fiscal squeeze of 16pc of GDP. It has stabilized the colossal debts left from taking on the gambling losses of Anglo Irish Bank at EU behest, that is to say from shielding German, British, Dutch and Belgian lenders from systemic contagion at a critical moment.
It has clawed its way back to market credibility, issuing bonds at respectable rates. “Our last issue of routine 3-month treasury bills was at 0.26pc, not quite what Germany gets but very low,” said finance minister Michael Noonan.
It was spared serious contagion from last week’s anti-austerity revolt in Italy, evidence of sorts that the Celtic Tiger is off the sick list. Deo volente, it will be the first of the EMU victim states to regain its sovereignty by early next year and escape control of the EU-IMF Troika, though it will answer to inspectors for another 20 years and the yet unborn will be paying off the €67bn of Troika indenture until 2042.
“If measured in terms of what the Troika expects, we have been very successful,” said Mr Noonan.
Other measures are less cheerful.”
Calculated Risk: Housing: The Two Bottoms
“Now it appears activity bottomed in 2009 through 2011 (depending on the measure) and house prices bottomed in early 2012.”
Euro zone ministers ‘close to agreeing’ bailout for Cyprus – The Irish Times – Mon, Mar 04, 2013
“Euro zone finance ministers said tonight said they were close to agreeing a bailout for Cyprus, but details of whether a rescue package would affect depositors is still unclear.
Speaking after a meeting of euro zone finance ministers, which was attended by Cyprus’ new finance minister Michalis Sarris, euro group chairman Jeroen Dijsselbloem, said that he expected a deal would be agreed this month as expected.”
A Sneaky Way to Deregulate – NYTimes.com
“Unveiled a year ago by House Republican leaders, the proposal was rushed into law with large majorities just two months later; its provisions are gradually taking effect.
Its enticing acronym notwithstanding, the JOBS Act has little to do with employment; it’s a hodgepodge of provisions that together constitute the greatest loosening of securities regulation in modern history.”
Air-purifier makers capitalise on smog | South China Morning Post
I have one of these in my bedroom.
“Blueair, a Sweden-based maker of air-purifiers whose products are sold in more than 50 countries, said its sales in mainland China soared 300 per cent year on year in the three months from last December to 20,000 units.
High levels of air pollution have raised the awareness of Chinese people about indoor air quality, said Sam Li, general manager of Blueair China. “The smoggy weather conditions have helped accelerate sales of our premium air cleaners,” he said, noting that all the products in the Blueair range saw record sales in China over the past two months.”
Inflation Expectations May Be Rising in Japan – WSJ.com
“Economists say some of the more interesting indications of a change in expectations come from surveys that track spending, showing more consumers may be feeling better about an economic pickup, which could bring higher prices. That would make buying today better than buying tomorrow.
A recent government survey showed household spending rose 2.4% on year in January, from a 0.7% fall in December, supported by spending on overseas tours and hotels. The showing seems strong because much of the spending was on optional items rather than essentials, indicating that consumers may be feeling a little richer, according to SMBC Nikko Securities economist Koya Miyamae.
The Japan Department Store Association notes that upbeat sentiment has loosened shoppers’ wallets. While nationwide sales rose just 0.2% on year in January, sales of luxury items like watches and jewels were up 6.8%, “amid expectations for an upturn and a change in consumer sentiment with the yen weakening and stocks rising since the year’s end.”
In January, a closely watched government consumer-confidence survey posted the biggest monthly gain since the survey began in 2004, prompting Mr. Abe to tell parliament, “it’s proof that the people’s predictions about the future are changing more and more from expectations for deflation to those for inflation.””
The Grumpy Economist: The banker’s new clothes — review
“I wrote a review of Anat Admati and Martin Hellwig’s nice new book, “The banker’s new clothes” for the March 2 2103 Wall Street Journal.
Bottom line: Banks should issue a lot more equity, a lot less debt, especially short term debt, and a heck of a lot less nonsense.”
The Grumpy Economist: Monetary policy with large debts
This goes to what I was saying about the consolidated balance sheet approach.
“Monetary policy depends on fiscal policy in an era of large debts and deficits. Suppose that the Fed raises interest rates to 5% over the next few years. This is a reversion to normal, not a big tightening. Yet with $18 trillion of debt outstanding, the federal government will have to pay $900 billion more in annual interest.
Will Congress and the public really agree to spend $900 billion a year for monetary tightening? Or will Congress simply command the Fed to keep down interest payments, as it did after World War II, reasoning that “Fed independence” isn’t worth that huge sum of money? “
Janet Yellen and the Fed’s labour market dashboard | FT Alphaville
“the Fed says it will keep on buying assets, currently at a pace of $85bn a month, until it gets that substantial improvement. Ms Yellen sets out five measures which basically form a Fed dashboard for the labour market. Here they are”
Of Krugman & Minsky | azizonomics
“To any competent central banker, it should have been obvious that the debt load was becoming unsustainable and that dropping interest rates while the debt load soared was irresponsible and dangerous.
Unfortunately Greenspan didn’t see it.
And now, we’re in the long, slow deleveraging part of the business cycle. We’re in a depression.
In endorsing Minsky’s view, Krugman is coming closer to the truth. But he is still one crucial step away. If stability is destabilising, we must embrace the business cycle. Smaller cyclical booms, and smaller cyclical busts. Not boom, boom, boom and then a grand mal seizure.”
White House: It’s Time to Legalize Cellphone Unlocking – Ina Fried – Mobile – AllThingsD
““And if you have paid for your mobile device, and aren’t bound by a service agreement or other obligation, you should be able to use it on another network,” wrote R. David Edelman, White House senior adviser for Internet, innovation, and privacy. “It’s common sense, crucial for protecting consumer choice, and important for ensuring we continue to have the vibrant, competitive wireless market that delivers innovative products and solid service to meet consumers’ needs.”
The Librarian of Congress, who has authority over the matter, ruled last October that the Digital Millenium Copyright Act should be interpreted to mean that unauthorized cellphone unlocking was a violation. As of Jan. 26, newly purchased phones can no longer legally be unlocked.”
White House Supports Cell Phone Unlocking, Big Victory For Tech Activism | TechCrunch
““The White House agrees with the 114,000+ of you who believe that consumers should be able to unlock their cell phones without risking criminal or other penalties,” wrote White House Senior Advisor R. David Edelman on the White House Blog. “In fact, we believe the same principle should also apply to tablets, which are increasingly similar to smart phones. And if you have paid for your mobile device, and aren’t bound by a service agreement or other obligation, you should be able to use it on another network. It’s common sense, crucial for protecting consumer choice, and important for ensuring we continue to have the vibrant, competitive wireless market that delivers innovative products and solid service to meet consumers’ needs.””
Another Annual Decline For PC Sales – Arik Hesseldahl – News – AllThingsD
“Market research firm IDC just released its forecast for the personal computer market for 2013, and it’s about what you’d expect.
After a decline in shipments by 3.7 percent in 2012, the PC market is expected to contract further in 2013, by at least 1.3 percent, the firm projects.”
BOJ nominee Kuroda sets out aggressive policy ideas | Reuters
The central bank plays a dominant role ACROSS the entire yield curve if it wants to. People saying rates would rise are dead wrong.
“The Japan government’s nominee to be the next central bank governor outlined more forceful policy prescriptions on Monday to finally defeat deflation, saying he would not set any limits on the amount of cash the Bank of Japan pumps into the economy.
The prospect of the BOJ buying longer-dated bonds prompted a market rally, led by the longer end. Yields on 20-year bonds dropped to 1.49 percent, their lowest level since 2003. Yields on 5-year debt hit a record low of 0.095 percent.”
A Question for Warren Buffett – PRAGMATIC CAPITALISM
“as the firm is getting larger and finding more “elephants” they are becoming more and more like the market. Obviously, the firm isn’t getting any smaller and Mr. Buffett’s plan to look for more “elephants” will only make the company more closely resemble the market.”
German car sales plunge as Europe’s auto crisis deepens | Reuters
“New car sales in Germany fell by more than 10 percent year-on-year in February, signaling the crisis for Europe’s auto makers is deepening as recession-hit consumers curb spending.”
Currency War Turns Stimulus War as Brazil Surrenders – Bloomberg
“The currency wars declared by Brazilian Finance Minister Guido Mantega are proving more a battle to salvage economic growth than a spiral of competitive devaluations.
While the yen and pound slide on the prospect central banks will intensify stimulus and South Korea’s won and Chile’s peso strengthen, volatility in the currency market is below its average of the past decade and global stocks have gained $2.15 trillion since the start of 2013. Policy makers reduced intervention over the past 12 months as foreign reserves grew at the slowest pace in four years, data compiled by Bloomberg show.”
Ireland: poster child for austerity | FT Long Short
“Ireland has met every one of the 190 requirements of the Troika of the IMF, ECB and European Commission overseeing its rescue programme. But IFAC, Ireland’s equivalent of Britain’s Office of Budget Responsibility, thinks forecasts for the effect of the next round of budget reductions are too optimistic.
IFAC adjusted the Troika’s predictions for errors made in economic forecasting in the years before the crisis. Even excluding the massive error of missing the crisis itself, they estimate that similar errors in future mean there is a 30 per cent chance of missing the goal of stabilising the debt-to-GDP ratio by 2015.
None of this is to denigrate Ireland’s efforts at internal devaluation. The country has put up with an extraordinary amount of pain as it tries to correct the triple disasters of an extreme housing bubble, unsustainable public spending and a banking collapse: the country is three-quarters of the way through a planned fiscal consolidation of 20 per cent of GDP.”
Israel to launch ‘Palestinians-only’ bus service | World news | The Guardian
Warren Buffett says Apple should buy back stock & build value, ignore Einhorn
“The Berkshire CEO admitted that he talked with late Apple co-founder Steve Jobs about what Apple could do with its cash. He believes the best use of Apple’s $137-billion-and-growing cash pile is to buy back stock at a reduced price.
“If you could buy dollar bills for 80 cents, it’s a very good thing to do,” Buffett said.
Beyond that, he believes Apple’s best strategy is to simply run its business well. If Cook can continue to do that, Buffett believes shares of AAPL will respond accordingly.
As for hedge fund manager David Einhorn’s push for Apple to offer “iPref” preferred shares, Buffett believes the best thing for Cook and Apple to do is ignore it. He noted that his own Berkshire has lost 50 percent of its stock price four times in its history.
“When that happens, if you’ve got money, you buy it,” he said. “You just keep working on building the value.””
Latvia goes for the euro | beyondbrics
“Latvia on Monday formally decided to join the troubled common currency, with the prime minister, finance minister and central bank governor jointly signing the application.
It might not make headlines in the ECB’s headquarters in Frankfurt. But for Riga this is big news – its most important economic decision since it joined the European Union in 2004.
Unlike older EU members such as the UK, the countries that joined the EU in 2004 are formally committed to entering the common currency when they are ready and can meet the economic entry criteria.”
FRB: Yellen, Challenges Confronting Monetary Policy
“The large shortfall of employment relative to its maximum level has imposed huge burdens on all too many American households and represents a substantial social cost. In addition, prolonged economic weakness could harm the economy’s productive potential for years to come. The long-term unemployed can see their skills erode, making these workers less attractive to employers. If these jobless workers were to become less employable, the natural rate of unemployment might rise or, to the extent that they leave the labor force, we could see a persistently lower rate of labor force participation. In addition, the slow recovery has depressed the pace of capital accumulation, and it may also have hindered new business formation and innovation, developments that would have an adverse effect on structural productivity.
In contrast to the large gap between actual and maximum employment, inflation, apart from fluctuations due to energy and other commodity prices, has been running for some time now a little below the rate of 2 percent per year that the Committee judges to be consistent with the Federal Reserve’s dual mandate. The Committee anticipates that inflation will continue to run at or below 2 percent over the medium term. Moreover, expectations for inflation over the next 5 to 10 years remain well anchored, according to surveys of households and professional forecasters.
With employment so far from its maximum level and with inflation running below the Committee’s 2 percent objective, I believe it’s appropriate for progress in the labor market to take center stage in the conduct of monetary policy. Let me therefore turn to the FOMC’s recent actions and describe how I see them promoting this important goal.”
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