Links: 2013-05-15
Italy recession becomes longest on record as GDP slumps | Reuters
“Italy’s economy shrank by more than expected in the first quarter, extending the country’s recession to seven straight quarters and making it the longest since quarterly records began in 1970.
Gross domestic product fell 0.5 percent following a 0.9 contraction in the fourth quarter of last year and contracted 2.3 percent on an annual basis, national statistics bureau ISTAT reported on Wednesday.”
“The ACLU last night condemned the DOJ’s acts as “press intimidation” and said it constitutes “an unacceptable abuse of power”. The Electronic Frontier Foundation denounced it as “a terrible blow against the freedom of the press and the ability of reporters to investigate and report the news”. The New York Times’ Editorial Page Editor Andy Rosenthal called the DOJ’s actions “outrageous” while Washington Post Executive Editor Marty Baron said they were “shocking” and “disturbing”. Even Democratic Sen. Pat Leahy, chairman of the Senate Judiciary Committee, said: “I am very troubled by these allegations and want to hear the government’s explanation.””
Canadian Household Debt-to-Income Ratio Rises to Record 165% – Bloomberg
“The ratio of Canadian household debt to disposable income rose to another record last quarter, calling into question Bank of Canada Governor Mark Carney’s assertion that families are listening to his warnings about the risks of borrowing too much.
Credit-market debt such as mortgages rose to 165.0 percent of disposable income, compared with 164.7 percent in the prior three-month period, Statistics Canada said today in Ottawa.”
Full Recourse Loans Won’t Save Canada’s Housing Market
“First, it’s not true that the U.S. is uniformally nonrecourse. Two states with among the highest foreclosure rates, Florida and Nevada, are full recourse. In fact, the Federal Reserve classifies most states as full recourse. Ireland has full recourse mortgages and some of the harshest bankruptcy laws in the developed world. But as of December 2012, 11.9 percent of Irish mortgages were delinquent by 90 days or more.
In 2010, two economists produced a working paper for the Richmond Fed showing that recourse laws made a significant difference when a homeowner is underwater on the mortgage. That is, they appear to provide lenders some protection against people with negative equity “just walking away” from their mortgages. But the study found no major difference when a mortgage has become unaffordable because of changes in the borrower’s economic circumstances.”
Mohamed El-Erian: Pimco’s Big Take on Global Investing – Barrons.com
“the role of central banks came up a lot in our analysis. By venturing deep into experimental policy territory, and by remaining there for quite a while, central banks have tried to support growth and counter financial instability, thus buying time for economies to heal endogenously and for politicians to deliver on their policy responsibilities.
In the process, they have inserted a remarkable wedge — a disconnect — between market prices and underlying economic and financial fundamentals. Despite their innovative and courageous efforts, central banks are still unable to deliver sufficiently robust growth and jobs to Main Street. But they have been investors’ best friends.
Their unprecedented policy activism (including, most recently, Japan’s boldest post-war economic policy experiment) has — to use Bill Gross’s southern Californian analogy — induced the vast majority of investors to grab their risk surfboards and ride a large and growing wave of global liquidity.
Investors are enticed to take more and more risk at ever more elevated prices. Most see no need to kick out of the wave anytime soon; and quite a few believe that, if it eventually breaks, it will do so gently, delivering investors to a world where improving fundamentals validate and push even higher asset prices initially rendered artificial by unconventional policy actions.
By seeking to lessen the twin problems of deficient aggregate demand and structural impediments, and by financing debt problems, central banks have delivered investors a down payment on future growth and future returns. Well, that is the hope and intention. But if growth fails to materialize over time, reality will snatch back the returns from investors in the period ahead.”
Toronto Condos Finding Eager Demand…Among Renters – Canada Real Time – WSJ
“condo leases rose by 31% in the first quarter compared with a year earlier. The average cost of renting a condo in Toronto was up 4.4% from last year to a record 1,856 Canadian dollars ($1,828) a month. That works out to C$2.33 a square foot, Urbanation said.
“Demand for renting condos has heated up with less first-time buyers. Rental transactions have exceeded resale volumes in the condo market since mid-2012, when the latest round of mortgage rule changes came into effect,” Shaun Hildebrand, the firm’s senior vice-president, said in a statement.
Sales of existing condos plummeted 17% in the first quarter from a year earlier, the Toronto Real Estate Board said earlier this month, though prices fell a much smaller 0.5%. New-condo activity was even harder hit, with Urbanation saying sales fell a whopping 55% in the period.”
Ireland plunges down the rankings for rents – Independent.ie
“Dublin was the 15th most expensive place in the world to rent retail space at the height of the boom but is now the 40th, according to a new survey by CBRE.
“The report highlights the improvement in competitiveness since the peak of the market. Open market rents are down more than 50pc from 2007 which is a real positive for Ireland and will be instrumental in attracting new overseas retailers,” said Michael Harrington of CBRE in Dublin.
Falling property prices mean that even with lower rents the yield for new property investors is improving, according to the report.
Retail yields improved by around 0.25pc this year to about 5.75pc. Prime yields on shopping centres are currently in the order of 7.75pc, according to the data.”
Farage factor powers Ukip support to record high | Politics | guardian.co.uk
“Support for Britain’s established parties is splintering, as Ukip appears poised to break the political mould by doubling its support within a single month, according to a Guardian/ICM poll.
Nigel Farage’s party has surged from its previous record best with ICM, the 9% it notched up in April, to 18% after its council election victories earlier this month.
Labour, the Conservatives and the Liberal Democrats have been left reeling, with all shedding four points on the month to 34%, 28% and 11% respectively.
For all three established parties to be falling substantially at the same time is unprecedented in the 29-year history of the Guardian/ICM series”
Bank of Ireland says lending to SMEs is up by 25pc – Independent.ie
“Launching its ‘National Enterprise Week’, the country’s largest bank claimed it had handed out €1bn in new funds to small firms since the beginning of the year, and was on track to hit its target of €4bn by the end of 2013. That is up from €3.5bn last year.
The bank says its approval rate is up at about 85pc so far this year. While there has been some uptick in lending requests this year, Bank of Ireland’s head of small business lending said demand for credit was still low.
“We can’t get the money out, the demand is not there,” said Mark Cunningham. “Businesses have been deleveraging. We have seen an increase in working capital utilisation in the first quarter and that is the first we have seen of some momentum.”
The Great Netflix Doom-Avoidance Machine – Justin Fox – Harvard Business Review
“So how does Netflix stay profitable in streaming? One answer — probably the most important answer — is that it’s really good at software engineering. Hastings is a veteran software engineer, and Netflix pays its engineers more than the competition and sets them loose to solve interesting problems. Delivering its programming via tens of thousands of Amazon Web Services data centers and getting it to work seamlessly on myriad gaming consoles, tablets, smartphones, and other devices takes tons of code and some really smart design. “We’re using Amazon more efficiently than the retail arm of Amazon is,” Netflix’s cloud architect told Businessweek’s Vance.”
U.S. tax dollars promote Monsanto’s GMO crops overseas: report | Reuters
“U.S. taxpayers are footing the bill for overseas lobbying that promotes controversial biotech crops developed by U.S.-based Monsanto Co and other seed makers, a report issued on Tuesday said.
A review of 926 diplomatic cables of correspondence to and from the U.S. State Department and embassies in more than 100 countries found that State Department officials actively promoted the commercialization of specific biotech seeds, according to the report issued by Food & Water Watch, a nonprofit consumer protection group.”
Spain sets 10-year bond offering at €7bn; books exceed €21bn | Capital City | IFRe
“The Kingdom of Spain, rated Baa3/BBB-/BBB, set the size of its 10-year bond offering at €7bn, leads said on Tuesday, as order books exceeded the €21bn mark. The final spread came in at mid-swaps plus 278bp, banks managing the deal said on Thursday.”
Fed’s Plosser Wants Bond Buying to Taper at Next FOMC Meeting – Real Time Economics – WSJ
““Labor market conditions warrant scaling back the pace of purchases as soon as our next meeting,” Mr. Plosser said in the text of a speech to be delivered in Stockholm. The next FOMC meeting is scheduled for June 18 and 19.
He added “unless we see a significant reversal in current trends that jeopardizes my forecast of near 7% unemployment rate by the end of this year, then I anticipate that we could end the program before year-end.””
Small-Business Sentiment Ticks Up – Real Time Economics – WSJ
““Nothing in the NFIB data suggests that the small business half of the economy is growing other than by an amount driven by population growth and associated new business starts now in excess of terminations,” the report said.
For all that grim talk, there was generally good news in the sub-indexes of the report. The job creation index was up by 6 points, while inventories gained ground. There was a 13-point jump in firms’ expectations of business activity over the next six months. There was also an 8-point jump in expectations of higher real sales. Only two readings–capital outlays and credit conditions–showed small declines.”
New Book Suggests Angela Merkel Was Closer to Communism Than Thought – SPIEGEL ONLINE
“A biography focusing on Chancellor Angela Merkel’s time growing up in East Germany is making headlines because it suggests she was closer to the communist system than hitherto known. Her spokesman has denied she has covered anything up.”
“Windows Blue will be called Windows 8.1 and will launch as a public preview on June 26, Microsoft revealed today. While the company remains mum about what exactly we can expect from Windows 8.1 (boot to desktop? the return of the Start menu?), Microsoft says that Windows 8.1 “will help [it] to deliver the next generation of PCs and tablets with our OEM partners and to deliver the experiences customers— both consumers and businesses alike —need and will just expect moving forward.” The update will be available for Windows 8 and the ARM-based Windows RT.”
Apple adds Samsung’s Galaxy S4 to patent infringement suit
“In a court filing on Monday, Apple extended its ongoing litigation struggle with Samsung, adding the company’s recently released Galaxy S4 to the list of devices Apple says infringe on its patented designs.”
Are Stocks Cheap? A Review of the Evidence – Liberty Street Economics
“Why is the equity premium so high right now? And why is it high at all horizons? There are two possible reasons: low discount rates (that is, low Treasury yields) and/or high current or future expected dividends. We can figure out which factor is more important by comparing the twenty-nine models with one another. This strategy works because some models emphasize changes in dividends, while others emphasize changes in risk-free rates. We find that the equity risk premium is high mainly due to exceptionally low Treasury yields at all foreseeable horizons. In contrast, the current level of dividends is roughly at its historical average and future dividends are expected to grow only modestly above average in the coming years. “
It’s a ‘My Cousin Vinny’ Market, Bullish Tepper Says
“Hedge fund titan David Tepper, founder and president of Appaloosa Management, told CNBC on Tuesday he’s still bullish on stocks and investors shouldn’t worry about the Federal Reserve tapering its massive bond-buying program.
“There better be a true [Fed] taper or else you might be back into the last half of 1999,” Tepper said in a “Squawk Box” interview. “So like guys that are short, they better have a shovel to get themselves out of the grave.”
“If the Fed doesn’t taper back, we’re going to get into this hyper-drive market,” he explained. “It’s a backwards argument. To keep the markets going up at a steady pace the Fed has to taper back.””
Most Human Males Never Retired (they just died) | The Big Picture
“here is the crazy thing we often forget: Throughout history, most people never really got to retired. Men typically were working at age 65 and beyond. In 1880, 78% of Men over the age of 65 were still working. Most men worked til they dropped. Only recently — since the 1940s — have less than a majority of over 65 year old men not been employed in some capacity.
That is an astonishing data point. Retirement as we know it today is a less than century old phenomena. The truth of the matter is that most Humans (particularly males) never had the opportunity to retire. They simply worked until they died. You could not work, but then you wouldn’t eat — leading to the same resolution.”
My Medical Choice – NYTimes.com
“I wanted to write this to tell other women that the decision to have a mastectomy was not easy. But it is one I am very happy that I made. My chances of developing breast cancer have dropped from 87 percent to under 5 percent. I can tell my children that they don’t need to fear they will lose me to breast cancer.”
Amazon hit by German strike action – FT.com
“Amazon employees in Germany have gone on strike in what is believed to be one of the first such stoppages to hit the US internet retailer.
About 850 workers at warehouses in two German cities had joined the stoppage by lunchtime on Tuesday, with union representatives saying more would strike when a later shift at the facilities was due to begin.
Verdi, one of Germany’s largest trade unions, called the strike to back demands for more pay for Amazon staff in the country. It says the company should pay the wage levels agreed between the union and other mail order retailers as part of sectoral wage agreements.”
ekathimerini.com | Greek 3-month borrowing costs hit lowest in two years
3-month T-bills at 1.75 bid-cover are a far cry from what Portugal and Ireland are getting to market. This is improved but Greece has a long way to go.
“The T-bills were priced to yield 4.02 percent, down from 4.05 percent in a previous auction last month. The sale’s bid-cover ratio was 1.75, up from 1.65 in the previous auction. Monthly T-bill sales are Greece’s sole remaining source of market funding.”
ekathimerini.com | Court rules Finland must reveal Greek collateral deal
“Finland’s government must reveal the details on a collateral agreement it made with Greece in exchange for providing funds for a second rescue loan, the Nordic nation’s top administrative court said.
The Finance Ministry must make the agreement public with the exception of names and other identifiers of the Greek banks that facilitated the asset swap, the Supreme Administrative Court in Helsinki said on Tuesday in a ruling posted on its website.”
IRS kept shifting targets in tax-exempt groups scrutiny: report | Reuters
“When tax agents started singling out non-profit groups for extra scrutiny in 2010, they looked at first only for key words such as ‘Tea Party,’ but later they focused on criticisms by groups of “how the country is being run,” according to investigative findings reviewed by Reuters on Sunday.
Over two years, IRS field office agents repeatedly changed their criteria while sifting through thousands of applications from groups seeking tax-exempt status to select ones for possible closer examination, the findings showed.
At one point, the agents chose to screen applications from groups focused on making “America a better place to live.””
IRS officials in Washington were involved in targeting of conservative groups – The Washington Post
“Internal Revenue Service officials in Washington and at least two other offices were involved with investigating conservative groups seeking tax-exempt status, making clear that the effort reached well beyond the branch in Cincinnati that was initially blamed, according to documents obtained by The Washington Post.”
Treasury, Fed may probe Bloomberg News breach
“Bloomberg could face federal scrutiny following the media firm’s acknowledgment that its reporters had access to sensitive information about customers’ activities on Bloomberg financial data terminals.
The Federal Reserve and the Treasury Department — Bloomberg clients that have leased numerous terminals for executives and staffers — are considering investigating the extent of Bloomberg reporters’ possible monitoring of their data and terminal use.”
Central banks question Bloomberg privacy – FT.com
“More central banks have raised questions about how Bloomberg tracks their staff’s use of its financial data terminals, with the European Central Bank and Germany’s Bundesbank saying on Monday they had both contacted Bloomberg over the issue.”
ekathimerini.com | Photograph of Afghan teen victim of race attack published
This incident is emblematic of the rise of anti-immigrant and right wing extremism in Greece in the wake of 64% youth unemployment. Young men without employment have been radicalized by the economic situation.
ECB clashes with Germany over euro zone bank resolution | Reuters
“”We want a single European resolution regime, together with a single resolution agency and a single resolution fund that is financed by a levy from the banking industry,” ECB Executive Board member Joerg Asmussen, who is German, said.
“This should come into place in parallel with the single supervisory mechanism hopefully by the summer of next year,” he told reporters on entering the finance ministers’ meeting.
The comments set him at odds with German Finance Minister Wolfgang Schaeuble, who has argued that while current EU law would allow the ECB to act as a single banking supervisor, setting up a new single resolution authority to restructure or wind up failed banks will require changes to EU treaties.
That process could take years and would be risky, as the revised treaties would need to be ratified by 27 EU parliaments.”
A Warning About Canada’s Banks
“We have estimated the potential losses for CMHC coverage claims for each Canadian bank, on average, in its residential loan portfolio. While many Canadian mortgages have low loan/value ratios because of recent home price appreciation, 28% of insured Canadian mortgages have ratios of 80% or greater. We worry that this creates a risk that CMHC’s liabilities could exceed its equity if Canadian home prices were to decline. We estimate that if home prices were to decline 20%, and if 20% of underwater loans defaulted and had 60% recovery rates, the resulting CAD 12 billion of losses would consume more than 90% of the insurance fund’s CAD 13 billion of capital. If 100% of underwater loans were to default, we calculate that even a modest 10% decline in prices would more than exhaust CMHC’s capital.”
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