Links: 2013-04-07
This is the next-to-last links catch-up post. I expect to fully caught up tomorrow when I will resume a normal posting schedule as well.
Cheers.
Edward
P.S. – I like this set of links because I think they are important, diverse and unique stories to consider.
News links for 7 Apr 2013
Sheila Bair: Regulators Let Big Banks Look Safer Than They Are – WSJ.com
“as part of the Federal Reserve’s recent stress test, the Bank of America reported to the Federal Reserve that its capital ratio is 11.4%. But that was a measure of the bank’s common equity as a percentage of the assets it holds as weighted by their risk—which is much less than the value of these assets according to accounting rules. Take out the risk-weighting adjustment, and its capital ratio falls to 7.8%.
On average, the three big universal banking companies (J.P. Morgan Chase, Bank of America and Citigroup) risk-weight their assets at only 55% of their total assets. For every trillion dollars in accounting assets, these megabanks calculate their capital ratio as if the assets represented only $550 billion of risk.”
The Future of Bitcoin : The New Yorker
“The weakness in existing currencies stems from lack of faith in institutions—particularly central banks, which are often in league with commercial and investment banks. When a government bails out a failed bank or insurance company—in essence, by printing money—the net effect is that the currency as a whole is debased, in favor of a few and at the literal expense of everyone else, which amounts to a fair description of today’s global financial system. Hence the sudden appeal of bitcoins, which appear, for the moment, at least, to be immune to the machinations of inept or crooked bankers and politicians.”
Humble Student of the Markets: A time bomb in the Canadian financials?
Risk for Canadian financials in a housing bust lies in the credit and income losses associated with non-government guaranteed HELOCs, which are all the rage now in Canadian finance. Caveat Emptor.
“I have since had various discussions with mortgage brokers and realtors that indicated that my $1.0-1.2 million estimate is too low. It was suggested to me that a couple with 200K in annual income and 20% down could afford a $2.0 million home.
At first I couldn’t figure out how this could happen. Using a standard mortgage calculator, assuming a 3% mortgage rate for mortgage with a 25 year amortization, I got a monthly payment of $7571, or roughly 91K a year. How could a couple with 200K pre-tax income manage with those kinds of numbers? How would they eat? Even assuming a 2% mortgage rate, I got mortgage payment of 81K a year – still a bit of a stretch for our hypothetical couple with 200K pretax income.
HELOCs to the rescue
After chatting with a couple of realtors, they revealed to me the answer: These people aren’t financing their purchases with mortgages. They are financing their entire debt load with Home Equity Lines of Credits (HELOCs), which offer the “flexibility” of being secured, floating rate, interest-only loans!”
The reserve requirement confusion | FT Alphaville
“Excess bank reserves are no more likely to cause credit expansion than full tanks of petrol cause driving.
Any sound microeconomic textbook will explain why, in general, using the price system (taxes or tariffs) is superior to quantitative rationing (quotas or coupons). That is why central banks in developed countries have virtually always used interest rate policies to indirectly influence macroeconomic variables whether their targets were credit, inflation, or broad monetary aggregates. The only significant experiment with using reserve requirements as a tool was undertaken by the Federal Reserve in 1936-37 and was associated with the most sudden and severe recession in US history.”
ekathimerini.com | Euroskepticism and ineptitude
“Growing euroskepticism, as reflected in recent surveys, is a welcome development for it could finally awake the nation’s political class from the intellectual paralysis to which it appears to have succumbed. This state has resulted in practical problems like the Greek debt and deficit being treated in metaphysical terms by means of one-size-fits-all dogmas.
That said, Greece’s main problem is the complete breakdown of public administration, the total degeneration of the political system, rampant corruption and the close ties between political parties and vested interests. All these traits are present also in the current administration, as its members had been in the governments that ruled the country after the end of the military dictatorship in the early 1970s.”
Bitcoin as fiat | FT Alphaville
“The term fiat is foremost used in the post to differentiate a faith-based non-collateral-backed currency system from a collateral-backed currency system. Bitcoin, however, is described as the “fiat of all fiats” due to its decentralised fiat nature and because its value lies in the mutual interests of its users rather than a collateral pool. It is, in that sense, a fiat that supersedes all other fiats, because it depends on an algorithmic self-dictated “law” for authority.
Paypal or M-pesa units, on the other hand, are examples of collateral-backed parallel (digital) currencies that operate within the rules of existing state law.”
“The figure below shows that UK debt/GDP was above 80% for most of the last 300 years. Enthusiasts for austerity tend to ignore the vast majority of that timeframe, focusing on the increase in debt from below 40% to around 80% of GDP in the last few years. But If Britain is broke at the moment, then the graph shows that it was also broke for a whole century between 1750 and 1850, and for 20 years after the second world war. In reality, in neither case did the UK default, and reveal itself as bust – both periods were times of investment, growth and national renewal.”
ekathimerini.com | Cyprus Turks share pain as banking crisis revives talk of unity
“For five years, Ertan Ercantan made a living selling Turkish rugs to Greek Cypriots coming across the border that splits Cyprus’s capital Nicosia in half. Overnight, they’re gone, he said.
“If things are bad for them, they are bad for us too,” Ercantan, 70, said as he smoked a cigarette and sipped traditional Turkish coffee in his empty shop on March 27. “Look at the street here. Normally these streets are full of people. Now, they are empty.””
EconoMonitor : Ed Dolan’s Econ Blog » Why Hasn’t the US become another Greece?
“If the Greek and U.S. governments were students in my fiscal policy class, I would give the former an “F” and the latter no better than a “C-.” Both countries have conducted systematically procyclical policies. By running underlying primary deficits during the boom years of the early 2000s, both entered the global financial crisis with insufficient fiscal space to conduct an adequate countercyclical response.
Greece deserves a failing grade for policies that were even more irresponsibly populist than those of the United States and for making matters worse with outright falsification of its economic statistics. The country is paying a heavy price for its transgressions. The price is made all the heavier by its membership in the euro area, which has forced the government into partial default on its debt and deprived it of the safety valve of devaluation.”
Demand for space in U.S. strip malls still weak in first quarter | Reuters
“Limited supply of new U.S. strip malls helped offset weak demand for space in the first quarter, easing the national vacancy rate to 10.6 percent from 10.7 percent the prior quarter, according to a report released on Thursday.”
Fifth consecutive dip for UK building industry – Independent.ie
“UK construction contracted for a fifth consecutive month in March as the industry suffered from bad weather and poor demand, Markit Economics said. An index of activity was at 47.2 in March, compared with 46.8 in February, when it reached the lowest in more than three years, reported Markit and the Chartered Institute of Purchasing and Supply.”
Cloud computing reaches tipping point, survey shows – Independent.ie
“The survey from industry magazine ‘Irish Computer’, in association with Let’s Operate, found 85pc of IT specialists had customers who have enquired over the last 12 months whether they should be using cloud services. And 87pc expect increased interest and enquiries from customers over the next year.
“Cloud computing has been around for a long time but Irish businesses are now seriously investigating implementation and asking their IT-support companies about it,” commented David Owens, managing director of hosted desktop company, Let’s Operate, which sponsored the study.
Three-quarters of IT companies say they have a cloud option to offer customers. Over half of IT companies which do not have a cloud option are actively investigating one.”
Econbrowser: The death of peak oil
“Perhaps it’s the case that Saudi Arabia isn’t willing to maintain its previous production levels, or perhaps it’s the case that Saudi Arabia isn’t able to maintain its previous production levels. But whatever the explanation, this much I’m sure about: those who assured us that Saudi production was going to continue to increase from its levels in 2005 are the ones who so far have proved to be dead wrong.”
Poll – Pakistani Youth Disenchanted With Democracy – NYTimes.com
“About 94 percent of young Pakistanis believe the country is going in the wrong direction, compared with 86 percent in 2009, the study found. Less than a quarter believe democracy has benefited themselves or their families.
Given these figures, it is perhaps not surprising to find relatively low levels of support for democracy among the youth. Only 29 percent of young Pakistanis believe democracy is the best political system for the country, according to the poll.”
Slovenia May Be First To Access ECB OMT – Business Insider
“the OMT program still hasn’t actually been activated yet, and still, no one knows how it’s actually supposed to work.*
According to Intesa Sanpaolo interest rate strategist Sergio Capaldi, who describes Slovenia as a “likely OMT target” in a note to clients, that may be about to change.
Slovenia is the country the market appears to be viewing as the next likely candidate for a bailout from the euro zone.”
ekathimerini.com | Ex-SYRIZA leader Alavanos launches party advocating Greek euro exit
“Former SYRIZA leader Alekos Alavanos officially launched his new “Plan B” party on Thursday, advocating Greece leave the euro and return to the drachma.
Alavanos led SYRIZA between 2004 and 2008 but has been mostly on the political sidelines over the last few years. Over recent months, he has criticized the party he used to lead, arguing that its goal of rejecting the terms of the EU-IMF bailout but remaining in the single currency was not credible.”
Preventable Chronic Conditions Plague Medicaid Population
“U.S. adults whose primary health insurance source is Medicaid are in significantly worse health than are adults who get their coverage from an employer or union. More than three in 10 adults on Medicaid are obese, and more than two in 10 say they are being treated for depression (22%) and high blood pressure (24%). Medicaid recipients also struggle disproportionately with asthma and diabetes.”
T-Mobile Slows Defections, Pushes Merger – WSJ.com
“T-Mobile said it lost a net 199,000 contract customers, compared with net losses of 515,000 for the previous quarter and 510,000 for the first quarter of 2012.
The company also said Wednesday the percentage of customers canceling their contracts, known as churn, dropped to 1.9% in the quarter from 2.5% in the previous three months. It said the churn rate was the lowest since the second quarter of 2008.”
German eurosceptics strong enough to nudge Merkel | Economics Intelligence
“A new anti-euro party is unlikely to make it into parliament in the 2013 elections, but its appeal will make it harder for the chancellor to appear too generous to troubled periphery nations, despite her popularity. The rest of the euro zone should understand her predicament.”
Euro-Zone Retail Sales Fall Again – WSJ.com
“Retail sales fell in the 17 countries that use the euro in February, underscoring the weakness in consumer demand that threatens to delay an economic recovery that leaders hope to see this year.
But while consumers within the currency area remain wary of spending, German manufacturers reported a substantial rise in orders from overseas in February, fueling hopes that an export-led pickup in the euro zone’s largest economy may yet help bring the currency bloc’s long contraction to an end.
Eurostat, the European Union’s official statistics agency, said Friday that retail sales in February fell 0.3% on the month and by 1.4% on the year.”
QE Forever? « naked capitalism
“Do you think the Fed is going to be very eager to impose losses on people it just enticed into the deep end of the pool? The Fed has increasingly come to take a very asset-fixated view of the world, and it is likely to be loath to lower the price of financial assets, save very cautiously. Mind you, like Evans-Pritchard, I don’t think the state of the economy will warrant that any time soon, but that means the Fed will continue to pump up asset prices in an increasingly-desperate effort to get transmission to the real economy. Japan in the late 1980s was the first central bank to deliberately goose asset prices to encourage spending. We know how that movie ended.”
Number of Britons on ‘zero hours’ contracts hits record high – Telegraph
“Record numbers of British workers are being employed on “zero hours” contracts which keep staff on standby and deny them regular hours, official figures disclose.”
Belgische langetermijnrente zakt onder 2 procent – De Standaard
I consider Belgium to be in the group of core countries most at risk for contagion. So it is notable that Belgian bonds now yield less than 2%. That tells you that the Cyprus affair has not destabilised the European sovereign debt markets.
Diversity programs give illusion of corporate fairness, psychologists find
“Diversity training programs lead people to believe that work environments are fair even when given evidence of hiring, promotion or salary inequities, according to new findings by psychologists at the University of Washington and other universities.
The study also revealed that participants, all of whom were white, were less likely to take discrimination complaints seriously against companies who had diversity programs.”
Deep in the Red of Texas, Republicans Fight the Blues – WSJ.com
“In no state is the Republican grip at once so firm, and under such challenge from Democrats, as it is in Texas. And nowhere is that grip of more consequence to the fortunes of the national GOP.
Meanwhile, Texas has some of the country’s lowest voter-participation rates, especially among groups that typically skew Democratic, That leads some Democrats to compare the state to a vast oil field that has yet to be tapped. The state has 13.6 million registered voters. But Democrats say there are nearly three million eligible but unregistered Hispanics and African Americans, and at least half that many who are registered but don’t vote.”
India Plans to Raise $3.7 Billion Selling Coal India Shares – Bloomberg
“India plans to raise 200 billion rupees ($3.7 billion) selling part of its stake in Coal India Ltd. (COAL), the world’s biggest producer of the fuel, and narrow the widest budget deficit among major emerging economies.
The government, which owns 90 percent in the monopoly coal miner, plans to sell a 5 percent stake to the public and a similar holding to the company, according to a finance ministry’s draft proposal obtained by Bloomberg News.”
Spanish Pension Fund Profits From Draghi After Rajoy Raid – Bloomberg
“Spain’s pension reserve-fund ramped up its holdings of domestic debt last year, profiting from a rally across southern Europe and making it easier for Prime Minister Mariano Rajoy to raid the fund to finance his budget.
The so-called Fondo de Reserva de la Seguridad Social in 2012 increased its domestic sovereign debt holdings to 97 percent of its assets from 90 percent at the end of 2011, according to its annual report due to be presented to lawmakers today at 12:30 p.m. in Madrid and obtained by Bloomberg News.”
The Promise of Abenomics by Joseph E. Stiglitz – Project Syndicate
“Abenomics can only help the country’s recovery. Abe is doing what many economists (including me) have been calling for in the US and Europe: a comprehensive program entailing monetary, fiscal, and structural policies. Abe likens this approach to holding three arrows – taken alone, each can be bent; taken together, none can.”
Payroll-Tax Rise, Not Sequester, Blamed for Jobs Weakness – WSJ.com
“The retail sector shed 24,000 jobs in March, likely a reflection of consumers starting to rein in their spending as their paychecks shrink from higher payroll taxes. As part of the fiscal-cliff deal in January, Congress allowed the Social Security payroll tax to revert back to 6.2% from 4.2%.
Consumers with thinner wallets over time lead to retailers with fewer workers. Retail spending in January and February had remained resilient, as consumers cut back on their saving instead, but now the higher payroll taxes could be hitting retailers harder.
Democrats did little to preserve the payroll-tax cut during the fiscal-cliff standoff, despite pushing hard for it in prior years. Republicans generally opposed extending the tax break, which had benefited almost every American worker.”
‘Bitcoin is clearly a bubble’ – Telegraph
“Many people in the developed economies yearn for a financial system that does not have the option to rob them.”
Bill Gross: I’m Not a Great Investor, Neither Is Warren Buffett – MarketBeat – WSJ
“Gross’s point seems to be that great investors like himself have taken advantage of a very long cycle, or “epoch,” as he says, of credit expansion which has led to their success.
“All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience,” he writes.
Gross argues that the great investors will never know whether they’re truly great or not, because they will never have to adapt to a new epoch that will really test their abilities.”
Roosevelt’s gold confiscation: could it happen again? – Telegraph
“FDR forcibly purchased American investors’ bullion during the Great Depression. After Cyprus, could confiscations catch on again?”
Bank of Japan follows the Fed, on steroids | Gavyn Davies
“Haruhiko Kuroda, has imported into Japan the whole of the Federal Reserve’s post-Lehman balance sheet strategy, and he will implement it in under two years, instead of the five years or more taken by the Fed. The doubling in the Japanese monetary base over a period of 21 months is in itself remarkable. Taken together with the extension of the duration of bonds purchased from less than 3 years to an average of 7 years, the injection becomes of historic proportions.”
How embracing social media can give analysts the edge – Telegraph
“Fidelity is following tweets from more than 5,000 different sources. So, while investors, corporates, CEOs, journalists and others are engaging with social media sites, the sell side is yet to.
Perhaps this is out of fear as it is still unclear whether information sourced from sites such as Twitter is in the public domain. Things may be about to change, though, and only last week, the Securities and Exchange Commission (the US securities regulator) allowed companies to use social media such as Twitter and Facebook to disseminate information as long as shareholders are told in advance that these sites will be used.”
ECB’s Weidmann: Lesson from Cyprus is banks can be wound down | Reuters
“The Cyprus bailout shows banks can be wound down despite difficulties, European Central Bank (ECB) policymaker Jens Weidmann said in an interview broadcast on Sunday, adding the situation on the island had stabilized.”
We know why HBOS collapsed, but not the secrets of its disastrous rescue | Business | The Observer
“There is a shocking story that has still not been properly told. It concerns how the Halifax, a staid former building society, and safe-as-houses Scottish institution Bank of Scotland could embark on a £30bn merger and collapse just seven years later – with all of that value completely wiped out – into the arms of Lloyds, with a £20bn injection from the taxpayer to prevent it crashing.”
Why Bitcoin scares banks and governments | Technology | The Observer
“Bitcoin offers an alternative to the conventional, state-sanctioned banking system. Maybe that’s why powerful institutions are so wary of it”
83 per cent back writedown – Independent.ie
“The Sunday Independent Business Leaders Poll found that 83 per cent of Irish business leaders believe that the country deserves a debt writedown from the ECB in return for bailing out the banks. In February, Finance Minister Michael Noonan said that a writedown on the debt relating to the former Anglo Irish Bank “was never within the ambit of any possible negotiation”.”
Comments are closed.