Links: 2013-05-24

Don’t Get Too Excited About Record New-Home Prices – Real Time Economics – WSJ

“they reflect a changing mix of homes being purchased. Builders are selling fewer cheap, starter homes, and more of what are called first- and second-move up homes, which are typically a little more expensive, and often bought by people with growing families and bigger space needs.”

ekathimerini.com | Irish model inspires Samaras as Stournaras eyes primary surplus, more debt relief

““Even after some problems on international markets led to Ireland finding itself in a serious crisis, its competitiveness and its outward-looking nature soon led it out of the crisis,” he said. “Ireland also made another major choice many years ago: To have low rates of taxation. We will follow this example as well as soon as we start coming out of the crisis.”
Samaras repeated his long-standing commitment to lowering corporate tax to a flat rate of 15 percent and said he was hopeful the troika would accept Greece’s request for value-added tax in the food service sector to come down from 23 percent to 13.
The prime minister also pledged to follow Ireland’s lead when Greece takes up the six-month rotating EU presidency at the beginning of next year. Ireland holds the presidency until next month and Samaras said he would also like to focus, as Dublin has done since January, on the issue of job creation and how EU funds could be used in this direction.
The International Monetary Fund, however, clarified that its loans to Greece would not suffer any haircut. “Our projections show that further debt relief will be needed for Europe to meet its commitment to reduce Greek debt significantly to the program level,” said IMF spokesman Gerry Rice, adding that the Fund’s status as preferred creditor, meaning its loans have to be repaid in full, “is not under discussion in Greece or anywhere else.””

US HY issuers turn to risky structures as investors snap up deals | Capital City | IFRe

“Payment-in-kind toggle notes, which re-emerged in the US in late 2012 for the first time since the 2008 financial crisis, and other structures that come with weakened protections for investors have featured in recent deals.
Bankers and investors are comfortable that the risk is contained – at least for now.
“At the margin as you move through the credit cycle, you’ll see companies that push the envelope in terms of covenants and structure to essentially give them more optionality,” said Sean Slein, portfolio manager at First Eagle Investment Management.
“In general though, companies are still using proceeds to refinance and push near-term maturities so the market is still in pretty good shape.””

New home sales rise, prices surge to record highs | Reuters

“Sales of new single-family homes rose 2.3 percent in April, and prices climbed to record high levels, offering strong proof the sector’s rebound trend is intact.”

Europe’s Lost Keynesians by Kenneth Rogoff – Project Syndicate

“To my mind, using Germany’s balance sheet to help its neighbors directly is far more likely to work than is the presumed “trickle-down” effect of a German-led fiscal expansion. This, unfortunately, is what has been lost in the debate about Europe of late: However loud and aggressive the anti-austerity movement becomes, there still will be no simple Keynesian cure for the single currency’s debt and growth woes.”

GREXIT Unlikely Says Analyst Who Coined Term

“Over time, the mix of persistent economic weakness and nearterm tolerance of deficit slippage implies that the periphery countries will continue to face escalating general government debt/GDP ratios. We continue to expect that financial market strains will oblige Italy and Spain to enter some form of ESM program and access the OMT facility at some point. Longer term, we believe there are sizeable risks of restructuring of government and/or bank liabilities in a range of euro area countries, and this may extend to privately-held liabilities as well as official exposures.”

WikiLeaks tears apart ‘We Steal Secrets’ documentary in full annotated transcript | The Verge

“On the eve of the international release of Alex Gibney’s WikiLeaks documentary We Steal Secrets, the organization is blasting the film, leaking a complete, annotated transcript reporting dozens of factual errors and instances of “sleight of hand” from the Oscar-winning director. In the transcript, WikiLeaks points to, among other things, the use of a “crude gay caricature” to paint Bradley Manning’s decision to leak US military and diplomatic documents as “a failure of character, rather than a triumph of conscience.””

Swedish police seek reinforcements after fifth night of clashes – FT.com

“Police in the Swedish capital are to seek reinforcements after youths again set cars ablaze and threw stones at police for a fifth night running, officials said on Friday.
About 30 cars were set on fire in poorer neighbourhoods in northwestern and southwestern parts of Stockholm on Thursday night and rioters caused widespread damage to property, including schools, police said.”

Can Obama Close Guantanamo and End the War on Terror? | TIME.com

“In his broad address on drone strikes, al Qaeda terrorists, and the prison at Guantanamo Bay Thursday, Barack Obama wrestled with some of the hardest moral questions that have defined national security policy since September 11: Who is the enemy? Who can we kill, and where, and how? What to do with suspected terrorists we hold in captivity? And when, if ever, will this war as we know it end? Along the way, Obama issued a strong defense of his reliance on drones to kill suspected terrorists in places where other military means are infeasible or risk more civilian deaths. He announced higher standards for drone strikes, limiting them to situations where the confidence about a target’s location is extremely high and the possibility of civilian casualties is virtually nil. He reiterated his belief that the Guantanamo prison is a stain on America’s honor and image around the world and should be closed, and vowed new action to make that long-delayed goal a reality.”

Schellenberg Wittmer – 2013-02: Loss Absorption and Bail-in for Swiss Banks

“In the event that a bank is failing or where its capitalization is no longer adequate, the Swiss Financial Market Supervisory Authority (“FINMA”) may take measures to improve such bank’s financial viability rather than liquidating it. “Loss absorption” and “bail-in” are important instruments to support any such measures. This is now possible as a result of a revision of the Banking Act of 8 November 1934 (the “Banking Act”) in 2011 and the taking effect of a revised Bank Insolvency Ordinance on 1 November 2012 (the “Bank Insolvency Ordinance”) and of a revised Capital Adequacy Ordinance on 1 January 2013 (the “Capital Adequacy Ordinance”).”

Construction on world’s tallest building to begin next month and end this year | The Verge

“Dubai’s Burj Khalifa may have its status of “world’s tallest building” usurped at the end of the year by a rival yet to break ground. BSC is set to begin construction next month on the 2,750-foot (838-meter), 220-story high Sky City in Changsha, China, and thanks to a process where the building’s components are mass-produced in factories ahead of time, the project is planned for completion by the end of the year. A total of 19,000 workers will prefabricate the parts in four months before commencing a three-month assembly process on site.”

Vancouver home sales in April lowest since 2001 (updated)

“This April’s sales were the lowest April total since 2001 and 20.9 per cent below the 10-year sales average for the month, the Real Estate Board of Greater Vancouver reported Thursday.
“While the number of home sales remains below average, properties that are priced right are selling and we’re seeing greater balance between buyer demand and the number of homes listed for sale,” says Sandra Wyant, REBGV president.”

Canada April Home Sales Rise 0.6 Percent, Realtors Say – Bloomberg

“Canadian existing home sales rose 0.6 percent in April on advances in Toronto, Winnipeg and Calgary, according to a realtor group.
Sales increased to 36,043 units, from 35,837 in March, the Canadian Real Estate Association said in a statement from Ottawa today. Sales were up 1.8 percent to 7,051 units in Toronto, 2.9 percent to 2,379 units in Calgary and 12.3 percent to 958 units in Winnipeg. Vancouver sales dropped 1.5 percent to 1,981 units.
Canada’s housing market has been supported by some of the lowest mortgage rates on record, with Bank of Canada data showing the five-year conventional mortgage rate at 5.14 percent, the lowest since at least 1973. Governor Mark Carney has softened language about the need to raise the central bank’s 1 percent policy interest rate, partly on evidence the housing boom is slowing.
Sales fell 3.1 percent in April from a year earlier, CREA said. The average price rose 0.2 percent to C$374,338 ($367,650) on a seasonally adjusted basis, the report said.”

Canada US Real Estate Chartbook « Pacifica Perspectives

“Unlike with the US, Canadian markets are undergoing a period of price weakness; home prices in major markets of Toronto, Montreal, Vancouver, and Calgary are all lower from their all-time highs as the chart below illustrates.  Notably, Canada’s three largest cities, Vancouver, Toronto, and Montreal are only into the first year of a potential lengthy period of price weakness.
However, even these early signs of weakness are significant because they are being accompanied by a systemic “drying up” of home sales volume. In some markets the volume drought has been large in magnitude.  Vancouver in particular experienced April 2013 sales which were the lowest April sales since 2001, or 20.9% below the ten-year April average (Vancouver Sun). This reduction in sales volume is not just in Vancouver.”

Jobs, housing data show economy has some muscle | Reuters

“Initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 340,000 last week, the Labor Department said on Thursday. Economists had expected claims to fall to 345,000.
The drop unwound most of the prior week’s jump and suggested employers were not laying off workers in response to fiscal austerity, especially the $85 billion in across-the-board government spending cuts.
The labor market is being closely watched by the Federal Reserve as debate heats up over the future of its expansive monetary stimulus.
A separate report from the Commerce Department showed new single family home sales rose 2.3 percent last month to a 454,000-unit pace. The median sales price for a new home jumped 14.9 percent from a year ago to a record $271,600.”

Shrinking eurozone output points to recession in second quarter – FT.com

“While country-specific readings for Germany showed it was at best stagnating, with a reading of 49.9, up from 49.2 in April, the broad-based downturn in France remained fierce. The French composite manufacturing and services index was unchanged at 44.3 in May.”

Euro-Zone Business Activity Falls Again – WSJ.com

“Markit Economics said its composite purchasing managers’ index for the euro zone—a measure of activity in the services and manufacturing sectors—rose to 47.7 from 46.9 in April, a stronger outcome than that forecast by economists but still below the level of 50 that separates growth from contraction.”

Elementary, My Dear Watanabe-san (Somewhat Wonkish) – NYTimes.com

“The impact of expected future monetary policy on long-term interest rates is ambiguous — rates might rise because they expect the BoJ to tighten, or fall because they fear that it will fail to end deflation. But worry about the BoJ’s resolve should have a clear impact on the yen, which should strengthen — which it did.
So to the extent that this wasn’t just markets doing their occasional panic thing, it looks like a sudden outbreak of concern about whether the Bank of Japan has really changed as much as it seems.”

Falling inflation complicates the Fed’s QE exit plan | Gavyn Davies

“After yesterday’s evidence, it is clear that the Fed’s decision on tapering will be “data determined”. But the relevant data include inflation reports as well as employment reports. The Fed is now missing both parts of its twin mandate in the same direction. This will complicate, and perhaps delay, the decision on when to start tapering QE.”

Fears grow over EM sovereign bond bubble – FT.com

“Even investment bankers that orchestrate these bond sales are becoming concerned that the market is overly frothy as cash-rich fund managers seek out any securities that still offer some yield – almost irrespective of the risks.
“I hate to say this, but in five years’ time a lot of this will get hammered,” concedes one. Another senior banker who considered pitching for Rwanda’s bond mandate says he decided against it because “we couldn’t look investors in the eyes and tell them it’s a good deal”.”

Austerity in the Eurozone and the UK: Kill or Cure? | Martin Wolf’s Exchange

“Austerity has failed.
It has failed in the UK and it has failed in the eurozone. Its failure was predictable and, by some at least, predicted. It turned a nascent recovery into stagnation. That imposes huge and unnecessary costs, not just in the short run, but in the long term, as well: the costs of investments unmade, of businesses not started, of skills atrophied and of hopes destroyed.
This is not, as many seem to believe, a debate about the short term versus the long term. It is a debate about both the short and the long term, because what we do in the short term shapes the long term. What is being done here in the UK and also in much of the eurozone is worse than a crime, it is a blunder. If policymakers listened to the arguments put forward by our opponents, the picture, already dark would become still darker.”

Bernanke Saves the Day – Tim Duy’s Fed Watch

“Expect Bernanke to use the June press conference to lay the ground work for a reduction in the pace of purchases as early as September. 
From a different viewpoint, Bernanke might have just sandbagged his colleagues.  Recent comments from Federal officials suggest they reasonably believed they were close to cutting the pace of purchases, and it seems like they received this impression from the discussion in the last few FOMC meetings.  Hence, for example, why San Francisco Federal Reserve President John WIlliams felt comfortable suggesting an imminent reduction in the pace of purchases as recently as Monday of this week. Bernanke, however, sets everyone straight.  It’s not going to happen this summer.  Maybe fall.”

Canada’s Flaherty Sees No Sign of Canadian Housing Bubble – Canada Real Time – WSJ

“Mr. Flaherty told senators Canada’s real-estate market is softening, especially in the condominium market – which he cited last year as reason enough to tighten the country’s mortgage-financing rules – but says that isn’t a bad thing.
“This is a good thing,” Mr. Flaherty said of the cooling housing market, which is proving to be a drag on Canadian economic growth. “I see some people worrying about it, but we don’t have a bubble. If we had failed to take some action, we would have had a bubble.”
Still, Mr. Flaherty — the longest serving finance minister among Group of Seven countries — acknowledged there is a risk of asset bubbles popping up, telling Canadian lawmakers he’s worried there’s too much capital “sloshing” around the global economy.”