Links: 2013-04-18
Here is the second batch of links for today in anticipation of my not writing tomorrow. See you Friday.
Edward
News links for 18 Apr 2013
Are Central Banks Putting Their Independence at Risk? – Real Time Economics – WSJ
“Over the past 20 or so years, central banks have won, cherished and defended their independence from elected politicians. If you want to keep inflation down, they said to the politicians, don’t meddle when we move interest rates up or down. In country after country, the politicians, recognizing that they would tend to want a little more growth now at the cost of a little more inflation later, gave the central bankers their wish. And until the financial crisis hit in 2007, it seemed a very comfortable arrangement.
Now some central bankers — and the economists who made the case for independent central banks — are suggesting that it’s not so simple. Not only have central banks greatly expanded their toolkit — in some cases buying huge amounts of long-term government bonds — but the mandate of central banks has expanded beyond resisting inflation to maintaining “financial stability,” that is, avoiding the excesses that create financial crises.
And that, it turns out, is a big change, one that could complicate — some say undermine — the hard-won independence of central banks.”
Russia and less than $100 oil | beyondbrics
“With oil prices dropping below $100 a barrel this week Russia’s economic growth story is looking dodgy. The economy ministry has already downgraded its forecasts for full year 2013 growth from 3.6 per cent to 2.4 per cent and warned of the risk of recession. First quarter economic results released on Wednesday were mixed but not encouraging.”
“Union rejection of €1bn in spending cuts means the Irish government find itself forced to slash public sector pay by 7%”
Canadian banks should consider special dividends | Trading Desk | Investing | Financial Post
This proposal is dangerous. You see, this is the tension that always exist. When times are good, shareholders want their money back but that money is supposed to be a buffer against bad times. And those times have yet to come to Canada though the data say they may well do.
Reinhart, Rogoff, and How the Macroeconomic Sausage Is Made – Justin Fox – Harvard Business Review
“This is watching the sausage of macroeconomics being made. It’s not appetizing. Seemingly small choices in how to handle the data deliver dramatically different results. And it’s not hard to see why: The Reinhart-Rogoff data set, according to Herndon-Ash-Pollin’s analysis, contained just 110 “country-years” of debt/GDP over 90%, and 63 of those come from just three countries: Belgium, Greece, and the UK.
This is a problem inherent to macroeconomics. It’s not like an experiment that one can run multiple times, or observations that can be compared across millions of individuals or even hundreds of corporations. In the words attributed to economist Paul Samuelson, “We have but one sample of history.” And it’s just not a very big sample.”
Fed’s Stein Favors Staying the Course on Regulation – Real Time Economics – WSJ
“A Federal Reserve official Wednesday rejected proposals to cap the size of the nation’s largest financial firms and instead urged policy makers to stick to the current regulatory process, ratcheting up certain rules if necessary.
Jeremy Stein, one of the Fed’s seven governors, said that regulators “have a long way to go” to solve the problems posed by large, complex financial firms, but he believes “that the way to get there is not by abandoning the current reform agenda, but rather by sticking to its broad contours and ratcheting up its forcefulness on a number of dimensions.”
Specifically, Mr. Stein proposed requiring the biggest banks to build up even fatter cushions against losses– beyond the heightened capital requirements imposed on them since the 2008 financial crisis.”
Young Student Loan Borrowers Retreat from Housing and Auto Markets – Liberty Street Economics
“While highly skilled young workers have traditionally provided a vital influx of new, affluent consumers to U.S. housing and auto markets, unprecedented student debt may dampen their influence in today’s marketplace.”
The Fed messed with the wrong senator – Salon.com
“Rather than complying with congressional requests for additional information on the canceled reviews, OCC and the Fed decided to shroud the entire process in secrecy. And they picked maybe the worst person in Washington to stonewall: freshman Sen. Elizabeth Warren.”
Slower China Growth Signals Days of Miracles Are Waning – WSJ.com
“Shanghai property developer Sun Ping recalled offering a bloc of villas for sale in 2006, a time when buyers queued overnight and traded spots in line for money. He sold 62 houses in three hours and figures those homeowners quickly saw their investments triple in value.
“That was a miraculous time,” Mr. Sun said. A recent open house he hosted drew only a handful of shoppers.
The days of miracles appear to be over in China, the world’s second largest economy. A cleanup is under way, following an economic party of epic proportions that lifted incomes but left behind debt, corruption and a mess of the environment.”
Why Well-Informed People Are Also Close-Minded – Bloomberg
“One group of participants was provided with a 2009 news article in which Sarah Palin claimed that the Barack Obama administration’s Affordable Care Act created death panels and that these panels included bureaucrats authorized to decide whether seniors were “worthy of health care.” A separate group was given the same news story, but with an appended correction saying that “nonpartisan health care experts have concluded that Palin is wrong.”
The study’s big question: Would the correction have any effect? Would people who saw the correction be less likely to believe that the Affordable Care Act calls for death panels?
Not surprisingly, the correction was more likely to convince people who viewed Palin unfavorably than those who had a high opinion of her. Notably, the correction also tended to sway the participants who liked Palin but who didn’t have a lot of political knowledge (as measured by their answers to general questions, such as how many terms a president may serve).
Here’s the most interesting finding in the study. Those who viewed Palin favorably, and who also had a lot of political knowledge, were not persuaded by the correction. On the contrary, it made them more likely to believe Palin was right.”
Inflation sticks at highest level since May 2012 | Business | guardian.co.uk
“The rate of inflation stayed at its highest level for almost a year in March, keeping up the squeeze on consumers.
The annual rate of consumer price inflation held at 2.8%, according to official data. That is the highest since last May and in line with economists’ forecasts.”
Euro zone inflation continues to ease in March | Reuters
“Annual euro zone inflation fell to 1.7 percent in March, its lowest level since August 2010, Eurostat said, compared with the European Central Bank’s target of close to but not above 2 percent.
The figure was in line with the average expectations of 41 economists polled by Reuters, and confirmed Eurostat’s flash inflation estimate made earlier this month.”
The IMF must quit the troika to survive – FT.com
“the fact that decisions about IMF-supported adjustment programmes are seemingly being taken in Berlin, Frankfurt and Brussels should horrify its members. The commission and the European Central Bank are not even members of the IMF yet they seem to be running the show. Together with the IMF, they are the troika running the continent’s rescues. Being part of this approach means political meddling has been institutionalised. The approach to the eurozone crisis also undermines the long-running efforts to reform the governance of the IMF, which were, after all, intended to reduce the disproportionate influence of western European governments.”
Spotify Confirms Expansion Into Eight New Markets – WSJ.com
“Spotify AB has confirmed it is expanding its music-streaming service to eight new markets, including Latin America and Asia.
The Stockholm-based company, which rivals Pandora Media Inc. and Deezer, on Tuesday released a short statement on its website saying, “We’re thrilled to announce we’re bringing a new world of music to eight new markets across the globe.” The list of new markets includes Mexico, Hong Kong, Malaysia, Singapore, Iceland and the Baltic States, bringing Spotify’s global presence to 28 markets.”
Apple Stock Hits New Low – Business Insider
“For the last couple of months, Wall Street has been dreading Apple’s first quarter earnings report. The prevailing theory is that Apple will not only report a lousy quarter, but will also offer guidance for the second calendar quarter that is well below Wall Street’s current estimates. The hope among some Wall Street bulls is that this double-whammy of bad news will reduce expectations for the company just as anticipation begins to build about the summer and fall launch of several new products. This combination, the theory goes, could put in a bottom for the stock.
Of course, if Apple’s swoon over the past six months is the start of a long-term decline, this respite will likely be short-lived.
What Has Gone Wrong?
Some of the issues plaguing Apple’s stock are fundamental, having to do with changes in Apple’s business.”
China is getting a diminishing growth bang for its credit buck | South China Morning Post
“First-quarter GDP figures seem at first blush to be in sustainable territory but credit creation numbers show a different story”
If gold is not a haven, what is? – The Globe and Mail
““I think people who really felt that gold was the ultimate safe haven are obviously very perplexed right now and looking for an alternative,” observed Gary Shilling, founder of A. Gary Shilling and Co., a New Jersey-based money manager and advisory firm.
The simplest place to run is cash, at least in countries with a stable banking system operating under the rules of law. Unlike gold on Monday, cash won’t suddenly lose nearly 10 per cent of its value in a few hours of trading.”
Italian judges order seizure of 1.8 billion euros in Monte Paschi probe | Reuters
“Italian judges ordered the seizure of more than 1.8 billion euros ($2.4 billion) of assets as part of a probe into suspected fraud against troubled lender Banca Monte dei Paschi di Siena (BMPS.MI), prosecutors said on Tuesday.”
Why Japan Bears Are Wrong And Retail Investors Should Stay Away | Daily Ticker – Yahoo! Finance
“The idea that the market will figure out Japan is broke and force a mass exodus from the bond market is a myth, according to Harrison.
“Japan is a fiat currency issuing nation, meaning that they can always make good on their promises,” he says. “The question is what happens when they print money in order to make good on those promises. It’s not that interest rates go up. The release valve is the currency, and that’s what we’ve been seeing. The currency has been depreciating as the BOJ has become more aggressive in its policy.”
Merkel Denies Talk She Wants to Quit in 2015 – SPIEGEL ONLINE
“A new book by the mass-circulation newspaper Bild’s Berlin bureau chief, Nikolaus Blome, has fanned talk in Berlin that Merkel may decide to call it quits halfway through her third term, when she would be 61 and would have served as chancellor for 10 years.
The opposition center-left Social Democrats predictably pounced on the speculation. The party’s candidate, Peer Steinbrück, said: “People must be informed whether they are electing a candidate for two or four years. She has to respond to the report.””
Researchers Finally Replicated Reinhart-Rogoff, and There Are Serious Problems. | Next New Deal
“People are responding to the Excel error, and that is important to document. But from a data point of view, the exclusion of the Post-World War II data is particularly troublesome, as that is driving the negative results. This needs to be explained, as does the weighting, which compresses the long periods of average growth and high debt.”
As global price slumps, Abenomics risks drive Japan gold bugs | Reuters
“Yamashita and other contrarian, individual Japanese investors understand that gold is a volatile investment, but say that buying the precious metal is better than the alternatives.
They cite worries that the new high-octane economic policies of Prime Minister Shinzo Abe, designed to shock the economy out of nearly two decades of deflation, might prompt a collapse in the yen or that the recent rally in stock prices might fizzle.
“Bank deposits generate virtually zero interest,” said Yamashita, as he bought two gold coins worth almost $5,000 on Tuesday with some of the money he made from the recent sale of his house.
“Stock prices have jumped like crazy but there are concerns about the risk of war (from North Korea). So I try to buy gold when I can.””
BBC News – S Korea in $15.3bn stimulus bid to spur economic growth
“South Korea is the latest Asian country to try and boost economic growth by spending hard, unveiling a 17.3tn won ($15.3bn; £9.2bn) stimulus plan.
The funds will be used to help small and medium-sized exporters, create jobs, boost a stagnant property market and cover a shortfall in tax revenue.
South Korea has been hurt by weak exports and subdued domestic demand.”
Thoughts on the future of finance blogging | FT Alphaville
“The incremental bloggification of newsrooms is great for readers who love finance blogging, and it forces those of us who get paid to blog to think more creatively about how we do our jobs. FT Alphaville has certainly evolved over the years — gradually moving away from its emphasis on news and markets and shorter posts; and towards fewer, longer posts with more analysis. We were always wonky, but we’ve become increasingly esoteric.
But newsroom bloggification also has a couple of other consequences.
One is that expansion in the professional finance blogosphere has stopped. I’m talking about the finance blogs staffed by people who do this for a living, full-time.”
Putin warns on Russia recession risk – Telegraph
“Mounting signs of a global economic slowdown have prompted Russian president Vladimir Putin to order a special meeting of the nation’s top economists in a bid to avert a double-dip recession.”
Austerity after Reinhart and Rogoff – FT.com
“The high levels of public debt were certainly not the cause of the growth collapse.
The case for austerity has never relied entirely on Prof Reinhart and Prof Rogoff. But the other major claims made recently by austerity hawks have also not held up well. Focusing on the US case, austerity supporters circa 2009-10 consistently argued (frequently in this newspaper) that the large US deficits would lead to dangerously high inflation and interest rates. Neither of these predictions came true. In fact, both inflation and the interest rates on US Treasuries were at historic lows in the four years, 2009-12, during which government deficits were at their peak.
It is also not true that the large deficits have created an unsustainable burden on US government finances. In fact, since 2009, the US government’s interest payments on debt have been at historically low levels, not historic highs, despite the government’s rising level of indebtedness. This is precisely because the US Treasury has been able to borrow at low rates throughout these high deficit years.”
Money Funds Are Likely to Face Rule Changes – NYTimes.com
“The prospect of a new reform proposal emerged on Tuesday morning when Laurence D. Fink, the chief executive of BlackRock, announced the company’s first-quarter results. In response to an analyst’s question about money market funds, Mr. Fink said the situation was “pretty dynamic.” But he suggested that with Ms. White in place, “I think we’re going to see some type of announcement from the S.E.C. shortly.”
The S.E.C. declined to discuss what the deal might look like, but Mr. Fink said he expected that it would involve some money market funds dropping their stable $1 a share value and moving to a so-called floating net asset value.”
FRB: Speech–Stein, Regulating Large Financial Institutions–April 17, 2013
“I should note at the outset that solving the TBTF problem has two distinct aspects. First, and most obviously, one goal is to get to the point where all market participants understand with certainty that if a large SIFI were to fail, the losses would fall on its shareholders and creditors, and taxpayers would have no exposure. However, this is only a necessary condition for success, but not a sufficient one. A second aim is that the failure of a SIFI must not impose significant spillovers on the rest of the financial system, in the form of contagion effects, fire sales, widespread credit crunches, and the like. Clearly, these two goals are closely related. If policy does a better job of mitigating spillovers, it becomes more credible to claim that a SIFI will be allowed to fail without government bailout.
So where do we stand? I believe two statements are simultaneously true. We’ve made considerable progress with respect to SIFIs since the financial crisis. And we’re not yet at a point where we should be satisfied.”
China GDP Growth Slows to 7.7% – WSJ.com
“China’s economic growth slowed unexpectedly in the first quarter, raising concerns that a recovery that started in the second half of last year is already losing steam.”
House prices shoot towards a ceiling | Business Spectator
” I expect this to be a sucker’s rally, and today I want to delve a bit more into that argument — with one final caveat motivated by my recent trip to Hong Kong, where I was a speaker at the recent Institute for New Economic Thinking annual conference. (Click here for my panel with Robert Lord Skidelsky and Norberg Haring.)
The basic reason that I expect this rally to peter out is that Australians haven’t de-levered from mortgage debt in the way that Americans have. Mortgage debt peaked at 86 per cent of GDP in America in March 2009, declined to 68 per cent, and is now rising slightly (see Figure 3). In Australia, debt peaked at over 87 per cent (with the First Home Vendors’ Boost reversing a trend to declining mortgage debt to GDP in 2008) and barely dropped — just a 3 per cent fall from 2010 till 2012, after which it has risen slightly.”
Merkel faces snub over women board quotas – FT.com
“Angela Merkel, the German chancellor, is facing a revolt by women parliamentarians in her own political party over the question of setting a statutory quota for female participation in the supervisory boards of companies in Germany.
They are threatening to vote against Ms Merkel’s ruling coalition in favour of a resolution in the Bundestag on Thursday that would require company boards to be at least 20 per cent female by 2018, rising to 40 per cent by 2023.”
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