Links: 2013-05-17
From Brooklyn to California, Housing Bubble Threat Grows – Bloomberg
“The gains in some U.S. areas aren’t sustainable for a healthy market, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
“If prices keep going up at this rate for another six months, we will have a bubble, and people will get hurt,” he said in a telephone interview.”
ekathimerini.com | Eurozone consumer inflation drops to a three-year low in April
“Falling prices in Germany and France pulled eurozone consumer inflation to a three-year low in April while imports fell 10 percent in March, as new data showed the depth of the bloc’s downturn.
The sharp drop in annual consumer inflation to 1.2 percent, confirmed by the EU’s statistics office Eurostat on Thursday, highlights the risk of deflation in the eurozone, which slipped into its longest ever recession at the start of this year.”
Video: France is in recession, but you can still invest in Europe – Telegraph
“Investing in Europe now is definitely less risky than it was 12 months ago. The politicians have a better understanding of the crisis as does the European Central Bank,” said Mr Ducoin.
Buying European shares is still cheaper than investing in the US right now, but defensive stocks are no longer looking as attractively priced as they were 12 months ago. Investors should ensure they are not paying over the odds for safety.”
Gold Continues to Slide – WSJ.com
“Gold prices on the spot market dropped below $1,400 a troy ounce late Wednesday and continued their slide Thursday toward an April 15 low of $1,335.30, when gold fell 9% in the steepest single-day drop in 30 years. Gold now trades at nearly a $100 discount to platinum.”
Euro Zone Runs Record Trade Surplus – WSJ.com
“The trade surplus for the euro zone hit its highest level in March since the bloc was formed in 1999, driven by a continued decline in imports that reflects very weak demand at home as well as steadily rising exports.
The figures released Thursday indicate that the region’s trade surplus increased in the first quarter as a whole, suggesting that weak demand was also responsible for the decline in output during the period.
That weakness was also reflected in declining prices across the 17 countries that share the euro. The statistics agency Eurostat said that consumers paid less for goods and services in April for the fourth straight month, the longest stretch since 2009.”
A Newcomer’s Guide to the 3 Obama Scandals – James Fallows – The Atlantic
“AP Seizure of Phone Records and Leak Investigation. Now, this is bad, and I say that not simply because the targets are people in my line of work. This is a decision Obama himself appears to have supported — rather than criticized, as with the IRS — in a way that reflects badly on him.”
BBC News – European car sales in first rise for 18 months
“New car sales across Europe rose in April for the first time in 18 months, boosted by strong demand in the UK.
Registrations rose 1.8% to 1.08 million in April, compared with a year ago. The last rise was in September 2011, said the industry association, ACEA.
But although the figure was an improvement on last year, in absolute numbers it was the third lowest total for April on record.
However, UK sales were 15% higher and were the best for April in five years.”
Pimco’s El-Erian: Why Zombies Threaten Markets – US News and World Report
“He says the global economy is struggling against “zombification” from companies living off easy money but not investing in growth.
El-Erian sees a chance that growth could recover, but it’s still unclear. He says there are “multiple possibilities of what the British would call a ‘T-junction’ – where the current road eventually ends, giving way to one of two contrasting outcomes.”
El-Erian is not sure which fork the economy will take, but is preparing for both.”
Trade surplus widens in March to €3.49bn – Independent.ie
“IRELAND’S seasonally adjusted trade surplus widened to a better-than-expected €3.49bn in March as exports rose and imports shrank.
The surplus jumped from €3.13bn in February to bring the cumulative surplus in the first quarter of the year to €8.96bn. The March surplus widened as exports increased 3.9pc in March while imports fell 2.1pc.”
What’s the Prognosis for Greece’s Amazing Bond Rally? – MoneyBeat – WSJ
“More crucially, it’s taken significantly less time for Portuguese yields to fall below the other thresholds in the study (although 10-year Portuguese bond yields at 5.23% are higher than Irish equivalent at 3.45%). The decline in the benchmark 10-year government bond’s yield from below 10% to under 6% took less than seven months in Portugal compared to almost a year in case of Ireland. Financial markets are now more resilient and investors are more confident (some would even say cavalier) in lending to countries and companies with shaky finances if the returns are higher than those offered in alternatives, quickening the pace of their recovery.
This should offer some encouragement to Greece, where the decline in yields from under 10% to below 9% was achieved in under two weeks, faster than both Ireland and Portugal.”
It Is That Simple: Europe’s Problem is the Banks. | It’s Not That Simple
“These two series are a long way from directly comparable but they’re close enough that the divergence is interesting. US firms are borrowing again, European ones aren’t. This looks like a clear-cut job for monetary policy.”
The Euro Crisis is Calming Down. Sell Euros. – MoneyBeat – WSJ
“In the words of Bilal Hafeez and George Saravelos at Deutsche: “The big story over the last five years has not been a lack of inflows into the euro area, which have remained remarkably steady. It has been domestic risk aversion. This has seen large waves of repatriation and the building of more than EUR1 trillion worth of underweights in foreign assets. Lower tail risks and a gradually improving business cycle should see a return of these outflows.”
Take that, mix in a resurgent dollar, and you have an easy recipe for the euro to fall to $1.20 by the end of the year, from around $1.28 now, says Deutsche.”
“Earlier this week, Yahoo CFO Ken Goldman spoke at JP Morgan’s Global Technology conference and underscored the need for the aging Silicon Valley Internet giant to attract more users from the coveted 18-to-24-years-old age bracket. Along with more marketing, he explicitly said Yahoo needed to be “cool again.”
“One of our challenges is we have had an aging demographic,” said Goldman at the Boston event. “Part of it is going to be just visibility again in making ourselves cool, which we got away from for a couple of years.”
According to sources close to the situation, that could mean a strategic alliance and investment in or outright buy of perhaps the coolest Internet company of late: Tumblr.
Sources said the talks were serious, but any kind of deal — of course — could come to naught.”
China property: bigger index, bigger bubble | beyondbrics
“China’s property market is suddenly looking a whole lot hotter.
A new housing index covers more cities than any other available gauge, reaching into many of the smaller towns where development has been most frenetic. And lo and behold it has produced a striking conclusion: that property prices are rising twice as fast as official data suggests.
According to the new index, released this week by E-House, a real estate services company, the prices of new homes in China’s biggest 288 cities rose 8.9 per cent year-on-year in April, up from a 7.2 per cent pace in March.”
Hedge Funds Bet on Freddie, Fannie Rise – WSJ.com
“Paulson & Co. and Perry Capital LLC are among a handful of hedge-fund firms that have bought so-called preferred shares in Fannie and Freddie, which collapsed in value in 2008 after the companies were taken over by the federal government.
These firms are hoping Fannie and Freddie’s recent return to profitability on the back of a recovering housing market will lead the companies eventually to make payments to preferred shareholders.”
Rising Pickup Demand Sparks Fierce Competition – WSJ.com
“Sales of large pickups are up 20% for the first four months of this year compared with a year ago—bigger gains than in small cars or midsize cars, according to Autodata Corp. In Texas, pickups accounted for a whopping 23% of the state’s 22.6 million registered vehicles last year.
The battle for shoppers is expected to intensify into 2014. Last year, 1.6 million pickup trucks were sold in the U.S.; this year, analysts and industry executives expect sales nationally to hit 1.8 million and possibly 2 million in 2014.”
UK’s worst property loans rise to near quarter of total – study | Reuters
“Almost a quarter of commercial property loans in Britain are higher in value than the underlying real estate, a study showed on Friday, highlighting the toxic legacy of reckless lending before the financial crash.
The figure grew to 23 percent at the end of 2012 from 20 percent a year earlier, according to De Montfort University, or about 45 billion pounds of a total of some 195 billion.
The increase means the worst-quality loans are deteriorating as property prices drop in many parts of the country, exacerbating the problem for banks as they attempt to purge their books of property debt amassed during years of profligate lending in the run-up to the crash.”
Moody’s lifts Turkey’s credit rating to investment grade | Reuters
“Turkey earned its second investment-grade credit rating on Thursday with an upgrade to Baa3 by Moody’s Investors Service, a factor that now allows more investors to put money to work in an economy whose rapid growth has recently tapered.
Moody’s said the decision to lift the rating one notch and put a stable outlook on the credit was based upon structural improvements in the economy as well as its public finances that will better insulate it from external shocks.”
Fiat Considering U.S. Headquarters Sparks Italy Concerns – Bloomberg
“Fiat SpA (F)’s deliberations over moving its headquarters to the U.S. after a merger with Chrysler Group LLC. sparked concern among Italian unions and politicians about the plans of the country’s biggest manufacturer.”
Global Insight: Smaller parties could yet topple mighty Merkel – FT.com
“In spite of her personal popularity, the chance of a shock defeat for Germany’s chancellor has unsettled the mood among her supporters and revived the hopes of an opposition that has been trailing in the polls.
So what would it take to unseat Ms Merkel, the most powerful politician in Europe?
For a start, it may not depend on the big issues – managing the eurozone financial crisis or tackling social injustice – debated by the big parties. It may be decided by the marginal mathematics of the smallest parties, including the unpredictable intervention of the Alternative for Germany (AfD), a eurosceptic alliance led by an economics professor.”
Britain is hurtling along the road to a European exit – FT.com
“Cameron’s strategy to staunch pressure for a departure is falling apart”
Stress you next year | FT Alphaville
“This is one way to respond to the mess Euroland is in over who should make the calls for recapitalising banks…
The European Banking Authority is delaying its next banking stress test to 2014, to wait for both new asset-quality reviews and the ECB’s Single Supervisory Mechanism”
Lumping Everything into the Wealth Effect – Tim Duy’s Fed Watch
“even if Fisher does see the bigger picture, should he really be lumping together all the channels of monetary policy into the “wealth effect?” Doing so only feeds the bias against monetary easing by perpetuating the view it is about nothing more than creating an artificial boost of equity prices and benefiting speculators rather than stimulating the economy via a number of channels that subsequently enhance the profitability of firms and thus raises equity prices.
Of course, Fisher and Feldstein are deliberately trying to perpetuate a bias against quantitative easing. And even after all these years, I still find it odd that Fisher appears to believe his job is to undermine the institution that provides his employment.”
Dodged That Bullet – Tim Duy’s Fed Watch
“I think we dodged a bullet there. Indeed, it might be proof of a higher power. Martin Feldstein could have been Fed chair during the worst financial crisis since the Great Depression.
I understand that in the midst of the crisis there was a significant confusion about what monetary policymakers were doing and why. But we are well past that stage. We would hope that any potential Fed chair would by now have come to an understanding about what quantitative easing is and how it works. And we should be relieved that any candidate that has not made that leap did not get the pick for the top job at the Federal Reserve.”
Bank of Canada Warns of … Zombies – Canada Real Time – WSJ
““Low for long (rates) may lead to forbearance” as cheap loans are extended to firms that are not viable, Bank of Canada analysts Eric Santor and Lena Suchanek said in a report examining the costs of unconventional monetary policies.
This also applies to lenders who are being kept afloat by low rates, since banks also need to borrow from each other.
“These zombie firms/banks would impede the needed restructuring of the economy,” according to the analysts. In other words, these firms prevent resources going where they would be much more useful, such as the creation of new and more viable firms. In that sense, the zombies are limiting competition.”
EconoMonitor » There are No Currency Wars! We Are Just Devaluing
“But currency conflicts are merely skirmishes in the broader economic wars between nations. Most developed nations now have adopted a similar set of policies, to deal with problems of low economic growth, unemployment and overhangs of high levels of government and consumer debt.
In a shift to economic isolationism, all nations want to maximise their share of limited economic growth and shift the burden of financial adjustment onto others. Manipulation of currencies as well as overt and covert trade restrictions, procurement policies favouring national suppliers, preferential financing and industry assistance policies are part of this process.”
EconoMonitor » Current Monetary and Fiscal Policies Need to Be Replaced
“Current monetary and fiscal policy orthodoxies are demonstrably failing. New macroeconomic policy paradigms are needed in afflicted countries to address gross deficient private demand, deflationary tendencies and high and rising public debt.
Policy makers must prepare to deliver economic stimulus in order to raise aggregate demand, GDP and employment. They must do so in a way that does not increase public debt further or create new destructive asset price bubbles.
Policy interest rates are at zero bound. The options to better coordinate monetary and fiscal policies are, therefore, highly limited, but greater overall policy effectiveness is necessary, none-the-less.”
Dell’s profit dives as billionaire battle rages on | Reuters
“The disappointing results lend weight to Michael Dell’s effort. The man who started Dell from a college dorm room wants to take the world’s No.3 PC maker private for $24.4 billion, arguing that its transformation into a provider of enterprise computing services, from mainly a computer maker in a shrinking market, is best done away from public scrutiny.
Reflecting that shift in focus, Dell said on Thursday that revenue from enterprise solutions, services and software jumped 12 percent to $5.5 billion, while overall revenue slipped 2 percent. Its “end-user computing division,” linked to PC sales, slid 9 percent.
To augment its enterprise business and go head-to-head with more established players like International Business Machines Corp and Hewlett-Packard Co, Dell is investing heavily on research and sales to retain customers.”
Rating for Buffett’s Berkshire cut by S&P | Reuters
“Berkshire was rated “triple-A” by Moody’s and S&P as recently as 2009. It lost the ratings after the global financial crisis boosted potential liabilities, and Buffett bought the railroad Burlington Northern Santa Fe Corp for $26.5 billion.
S&P said that while Berkshire retains a “very strong financial risk profile,” with noninsurance operations generating a majority of operating profit, only Burlington Northern provides a significant portion of total dividends paid by those operating companies to the parent holding company.
Other negative factors cited by S&P include Berkshire’s “high tolerance” for equity investments, which totaled $95.9 billion as of March 31 and can add capital volatility, and Berkshire’s eventual need to replace the 82-year-old Buffett.”
Jobless Claims Spike by 32,000 – WSJ.com
“Initial jobless claims, a proxy for layoffs, increased by 32,000 to a seasonally adjusted 360,000 in the week ended May 11, The Labor Department said Thursday. It was the largest one-week gain in new benefit requests since November 2012. The prior week’s level was revised up by 5,000.
Economists surveyed by Dow Jones Newswires had forecast 330,000 new applications last week.”
Housing Starts in U.S. Fell in April to Five-Month Low – Bloomberg
“Starts of new U.S. homes fell more than forecast in April to a five-month low, indicating a pause in the industry’s progress as builders slowed work on apartments. Building permits surged to an almost five-year high.
Housing starts slumped 16.5 percent, the most since February 2011, to an 853,000 annualized rate after a revised 1.02 million pace in March, the Commerce Department reported today in Washington. The median estimate of 81 economists surveyed by Bloomberg was for a 970,000 rate.”
Manufacturing in Philadelphia Fed Area Unexpectedly Contracts – Bloomberg
“Manufacturing in the Philadelphia region unexpectedly contracted in May for the first time in three months as new orders retreated and factories cut back on employment and hours.
The Federal Reserve Bank of Philadelphia’s general economic index declined to minus 5.2 from 1.3 the prior month. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of economists surveyed by Bloomberg called for a gain to 2.”
U.S. Labor Participation May Be Low for Years: Fed Study – Bloomberg
“”In the current recovery, it will probably take a few years before cyclical components put significant upward pressure on the participation rate because payroll employment is still well below its pre-recession peak,” Leila Bengali, Mary Daly and Rob Valletta said in a report released today by the San Francisco Fed.”
The unintended consequences of QE: not what you think | FT Alphaville
“By now, everyone is familiar with the mantra that QE is [arghh!] money-printing and that a major unintended consequence could be a chronic and uncontrollable inflation. (One could call this the goldbug, Austrian, Republican case).
Less well known, perhaps, is the theory that QE could be just as unexpectedly deflationary — because long-term micro yields come to threaten a number of financial sectors outright, as well as general expectations of risk-free returns which lead to capital destructive feedback loops.
Case in hand, the latest Federal Reserve Bank of Dallas working paper from William (Bill) White entitled “Ultra Easy Monetary Policy and the Law of Unintended Consequences“.”
Central banks saved world economy, now beware the fallout: IMF | Reuters
“Central banks got it right when they saved the world economy, but their unprecedented actions risk disruptive cross-border spillovers and potentially heavy losses when the time comes to reverse course, the IMF said on Thursday.”
The end of QE? | FT Alphaville
“Marc Ostwald at Monument Securities has spotted that an important theme is developing: a rise in the number of warnings about QE suspension and QE exit.”
Fed hawks call for retreat from mortgage stimulus | Reuters
“A trio of hawkish regional Federal Reserve officials are calling for the U.S. central bank to stop buying mortgage-backed bonds, citing the recent improvement in the housing market.”
Risk to US Treasury market as debate grows on end to QE – FT.com
At this point, I expect tapering mid-year and an end to QE by the end of the year.
““The bond market is not prepared for a debate about the end of QE,” says Zach Pandl, senior interest rates strategist at Columbia Management. “The market view is that QE continues until the end of the year and tapers next year, with a minority expecting an increase due to falling inflation.””
Political Conspiracy Theorists Seek To Label Merkel as Russian Sleeper Agent – SPIEGEL ONLINE
“Ever wondered what Angela Merkel had in mind with her decision to phase out nuclear energy? Dependency on Russian energy, if you believe some prominent conspiracy theorists. They’d like you to believe the German chancellor is some kind of KGB “sleeper agent” installed by Moscow at the end of the Cold War.”
France’s Hollande urges euro zone government | Reuters
“French President Francois Hollande called on Thursday for an economic government for the euro zone with its own budget, the right to borrow, a harmonized tax system and a full-time president.”
S&P downgrades Berkshire Hathaway – FT.com
“S&P reaffirmed the underlying strength of Berkshire’s financial stability – the conglomerate has a $49bn cash pile – but said this was offset in part by the chairman’s preference for large stock holdings in a small number of companies, making its capital base more volatile than peers. The credit rating agency added that “management succession at [Berkshire] is also an offsetting factor”.
Eric Hedman, of S&P’s insurance ratings, told the Financial Times that “what that means is that they have a very unique individual, Warren Buffett, who continues to run the company”.”
Evidence Suggests Canada Mortgage-Lending Standards Higher than in U.S. – Canada Real Time – WSJ
“The proportion of new mortgage loans under Canada Mortgage and Housing Corp.’s mortgage-insurance program made to borrowers with low credit scores was 7% at the end of 2012, down from 13% in 2009 and down from about 14% midway through 2008, National Bank says.
The ratio in the U.S. peaked at 28% near the end of 2006, falling to 8% at the end of last year. That 8% level prompted U.S. Federal Reserve Governor Elizabeth Duke to suggest borrowing conditions were excessively tight, but it’s still above the 7% ratio in Canada.
Like many such metrics, the percentage of low-credit-score borrowers only portrays one aspect of a large and complicated phenomenon.
But it suggests a sharp correction in housing prices in Canada likely wouldn’t spark the kind of financial-market inferno suffered in the U.S. after the housing collapse.”
Japan’s first-quarter growth spurt shows early benefits of Abe’s policy gamble | Reuters
“Gross domestic product rose 0.9 percent from the previous quarter, against the median forecast of a 0.7 percent rise in a Reuters poll of 24 analysts.
That translated into an annualized 3.5 percent growth, the fastest in a year, and topped a 1 percent rise in the fourth quarter, cementing a turnaround from six months of contraction in 2012.
It also outpaced U.S. growth in the same period for the second straight quarter. The last time Japan’s growth trumped that of the world’s biggest economy was in the first quarter of 2012.”
BBC News – Japan’s economy shows recovery signs in boost for Abe
“Gross domestic product grew 0.9% in the three months to March compared to the previous quarter, indicating an annualised rate of 3.5%.
Japan grew at a rate of 1% at the end of 2012 as it emerged from a recession.
Analysts said it was a good report card for Prime Minister Shinzo Abe’s aggressive stimulus measures.”
Japan Posts Surge in Economic Growth – WSJ.com
“The country’s gross domestic product, the broadest measure of goods and services produced across the economy, grew at an annualized pace of 3.5% in the first three months of the year, as consumers loosened their purse strings and exports to the U.S. picked up, lifted by a weaker yen.
The figures reported by the government early Thursday marked a sharp improvement from the tepid 1% growth rate at the end of last year, which followed six months of contraction. It was also considerably stronger than the 2.8% forecast by economists polled in advance by The Wall Street Journal.”
TripIt Alerts You When a Better Seat on Your Flight is Available
“The new seat tracker is only available to TripIt Pro users ($49/yr, 30-day free trial available), which is well worth the money if you do any regular traveling. TripIt Pro also includes check-in reminders, live fare tracking so you always get the best price, and push notifications of any changes in your itinerary, like flight cancellations, delays, or other alerts. Free users get tons of features too, like a unified itinerary of all of your flights, hotel bookings, meetings, and more, complete with the reservation and booking information you’ll need when you get there, directions from place to place, and even the weather forecast for your destination.”
“IDC today was the latest to publish its numbers on smartphone market shares after the major handset makers released Q1 earnings, and like Gartner, Strategy Analytics and the rest, it underscores the power of Google’s Android platform at the moment: Android OEMs shipped 162.1 million handsets in the quarter, giving the platform a 75% share of total worldwide shipments, while Apple’s 37.4 million devices put it at an increasingly distant second position at 17.3%. Microsoft’s Windows Phone, driven primarily by its partner Nokia (79% of all WP shipments), grew the most of all platforms, with a rise of 133.3%, but that still puts it at a single-digit share, 3.2% on 7 million devices shipped.”
How can Amazon pay tax on profits it doesn’t make? | Alex Hern | Comment is free | guardian.co.uk
“Amazon pays barely any taxes because it makes barely any profit. And it makes barely any profit because it doesn’t try to, instead preferring to focus on, in the words of CEO Jeff Bezos, “proactively delighting customers” to earn “more business” from those customers. What’s amazing is that this strategy hasn’t just been weathered by the company’s shareholders – who are, presumably, hoping for a profit some day – it’s been positively embraced. Even as its net income has dropped, the company’s stock has risen ever higher. Its price-to-earnings ratio, a measure of how many more times the company’s price per share is than its profit per share, currently stands at more than 3,000.”
Nokia Lumia 928 (Verizon Wireless) Review & Rating | PCMag.com
“The Lumia 928 is the best Windows phone yet, but it isn’t Verizon’s best phone overall.”
“The controversies over the IRS and especially the AP phone records appear to have long-lasting effects”
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