Links: 2013-05-28

Analysis: Housing price gains mask lingering market weaknesses | Reuters

“The recovery in the housing market is showing a pattern far different from what followed previous downturns, experts say, suggesting that the dramatic price gains of recent months may not be sustainable.”

How Businesses’ Bad Investments Drag Us All Down – Bloomberg

“I wish that Avent were right that we could live in a world where the only people who pay for bad investment decisions are the people who made those decisions. On balance, however, that seems unlikely. Avent’s preferred solution (printing money) might be the best approach to our current troubles, but it still would cause harm to plenty of innocent bystanders.”

Spy on your neighbours, says former MI5 head Stella Rimington – Telegraph

“Dame Stella Rimington invoked the wartime spirit as she said the public had a duty to act as the “eyes and ears” of the security services in combating terrorists.
She made the plea as she warned that MI5 could not be expected to spot every danger and that further attacks were likely unless Britain wanted a “Stasi” state where everyone was monitored.
However, Dame Stella, who was Director General of MI5 from 1992 to 1996, said she supported the Conservatives’ plans to give the police and spy agencies the power to monitor every phone call, email and web visit.
She also warned against using drones to gather intelligence saying they should only be “weapons of war”.”

Idea of Euro Exit Finds Currency in Portugal –

“The book, “Why We Should Leave the Euro” by João Ferreira do Amaral, has helped ignite a public debate in Portugal about the real cause of the country’s economic pain: Is it only the hated austerity needed to secure European bailout loans, or is the euro?”

Finland still had a few secrets | FT Alphaville

“These new documents make clearer what Finland actually got from all its huffing and puffing in late 2011 and early 2012: a derivatives transaction with four banks, rather than the Greek ‘collateral’ paraded before an increasingly bailout-jaded Finnish public.” | New Democracy takes 1.8% lead over SYRIZA as 68% fear rise of Golden Dawn, poll shows

“The GPO poll, made public on Mega TV on Monday night, puts New Democracy on 21.3 percent, up 1 percent from last month. SYRIZA is in second on 19.5 percent, which is almost 1 percent lower than last month.
Golden Dawn is third with 10.1 percent, followed by PASOK on 6.7, Independent Greeks with 6.4, the Communist Party (KKE) with 5.8 and Democratic Left on 5 percent.
Almost 68 percent of respondents said they felt the rise of far right Golden Dawn, which increased its support by 1.1 percent over the last month, was a threat to democracy.” | Greek economy optimism seen in yield-curve switch

Remember, I have been saying this is the government bond trade of 2013. So I called this. The problem, just as with Japanese equities, which I also called, is the froth factor. The gains are pretty substantial at this point. Taking profits is not a bad thing.
“The nation’s bonds are the best performers in the world this quarter, offering more than seven times the return of their next closest peer. Trading of Greek debt on electronic secondary securities markets is set this month to be the highest in at least two years and contracts linked to the nation’s growth are surging.”

VW agrees hefty pay deal for German workers | Reuters

“Germany faces federal elections in September which have emboldened unions to press for salary increases popular with the public. But Berlin is also hoping the round of salary increases can encourage Germans to spend more on goods and services from weaker euro zone economies, evening out imbalances and boosting the bloc as a whole, after the International Monetary Fund pressed the German government to act.
VW’s pay deal – which lifts wages 3.4 percent from September, then by another 2.2 percent from July 2014 – matches an agreement negotiated earlier this month by the IG Metall union for Germany’s 3.7 million engineering and metal workers. Inflation is currently running at just 1.2 percent.
“This and other similar wage deals will encourage Germans to spend more, supporting German economic growth but also helping euro zone rebalancing,” said Christian Schulz, an economist at Berenberg Bank.”

Japan retains status as top creditor nation | The Japan Times

“Tokyo was followed by mainland China and Germany in the ranking, which reflects the difference between the value of assets held abroad, including foreign debt and property, minus a nation’s liabilities, such as foreign purchases of its own debt and domestic assets.
In Japan’s case, net overseas assets stood at ¥296.3 trillion at the end of last year, up 11.6 percent from a year earlier, the Finance Ministry said. The rise for the second straight year came mainly because the yen equivalent value of the assets grew under the currency’s depreciation.”

Krugman Accused of ‘Uncivil Behavior’ – Real Time Economics – WSJ

“The gloves are off in the roiling academic dispute over the merits of austerity and the dangers of debt.
In the latest round, Harvard economists Kenneth Rogoff and Carmen Reinhart accused Princeton economist and New York Times columnist Paul Krugman of “spectacularly uncivil behavior” and the inaccurate allegation that they refused to share data supporting their work linking heavy debt levels to subsequent slow economic growth.”

Obama’s terrorism speech: seeing what you want to see | Glenn Greenwald | Comment is free |

“The clear purpose of Obama’s speech was to comfort progressives who are growing progressively more uncomfortable with his extreme secrecy, wars on press freedom, seemingly endless militarism and the like. For the most part, their discomfort is far more about the image being created of the politician they believed was unique and even transcendent than it is any substantive opposition to his policies. No progressive wants to believe that they placed such great trust and adoration in a political figure who is now being depicted as some sort of warped progeny of Richard Nixon and Dick Cheney. That creates internal discomfort and even shame. This speech was designed to allow progressives once again to see Barack Obama as they have always wanted to see him, his policies notwithstanding”

BOJ board rift over ambitious price goal will test Governor Kuroda | Reuters

“”We’re still seeing potential instability in the bond market,” one member was quoted as saying in the minutes released on Monday.
The rift and the market volatility, which also hit Tokyo shares, pose a challenge to Prime Minister Shinzo Abe’s sweeping monetary and fiscal expansionary policies aimed at reviving Japan’s long-dormant economy.
They also underscore concerns, even within the BOJ, over the central bank’s stimulus plan that relies heavily on lifting sentiment and creating expectations of future inflation and growth.
“Given how extreme the April easing step was, it’s natural for disagreements to exist within the BOJ,” said Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo.
“Failure to meet the price target will test the BOJ’s credibility. But the bank’s policy itself is contradictory. When expectations of inflation heighten, bond yields will rise. The BOJ can’t really do anything to stop that.””

Putting paid to Chinese debt myths | Business Spectator

“under certain kinds of conditions or balance sheet structures, an adverse shock, or slowing growth, causes an explosion in contingent liabilities, most often through the banking system, and it is this explosion in contingent liabilities that creates the debt problem for the country. If growth slows in China, in other words, this should cause a sharp rise in NPLs, especially if borrowers are counting on rising prices to service the debt, which will itself cause slower GDP growth, and so on in a self-reinforcing way. If we want to understand the debt problems facing China we have to consider not just the current debt on the balance sheet but also what the balance sheet is likely to look like after an adverse shock.”

Home Prices Jump 10.9%, Largest Annual Gain in 7 Years –

“Home prices are still down by 28% from their 2006 peak and have returned to levels last seen in late 2003. One year ago, home prices were 35% below the 2006 peak. The Case-Shiller index reached a bottom last March, which means the year-over-year comparisons could begin to show less dramatic growth in the months ahead.”

‘Cov-lite’ loans soar in dash for yield –

“The proportion of so-called “cov-lite” loans has soared to more than 50 per cent of all leveraged loan issuance so far this year, twice the level seen during the credit boom in 2007. Leveraged loans are issued by high-risk companies, such as those owned by private equity firms, and sold to investors through the credit markets.
Some strategists argue that cov-lite lending could be a “new normal”, the wisdom of which will be tested in the next economic downturn. Moody’s, the credit rating agency, last week said it saw signs of a “covenant bubble” that poses dangers for loan investors when the US Federal Reserve begins to tighten monetary policy.”

A Look at Case-Shiller, by Metro Area – Real Time Economics – WSJ

“The composite 20-city home price index, a key gauge of U.S. home prices, was up 10.9% in March from a year earlier. All 20 cities posted year-over-year gains for January, February and March.
Prices in the 20-city index were 1.4% higher than the prior month. Adjusted for seasonal variations, prices were 1.1% higher month-over-month. Only two cities, Minneapolis and New York, posted monthly drops. But on an adjusted basis, no city reported a monthly decline.”

Calculated Risk: Public and Private Sector Payroll Jobs: Reagan, Bush, Clinton, Bush, Obama

“A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1990, 2000, and 2010.
The public sector grew during Mr. Reagan’s terms (up 1,414,000), during Mr. G.H.W. Bush’s term (up 1,127,000), during Mr. Clinton’s terms (up 1,934,000), and during Mr. G.W. Bush’s terms (up 1,748,000 jobs).
However the public sector has declined significantly since Mr. Obama took office (down 739,000 jobs). These job losses have mostly been at the state and local level, but they are still a significant drag on overall employment.”

Denmark Slashes Growth Forecast –

“Denmark more than halved its growth forecast for 2013, the latest evidence that malaise in the wider European economy is crimping the immediate outlook for the export-oriented Nordic states.
The Danish Finance Ministry on Monday said it now expects gross domestic product to grow at a modest clip of 0.5% this year, having six months ago expected a rate of 1.2%.”

Obama Accepting Sequestration as Deficit Shrinks – Bloomberg

“With the economy growing, unemployment falling, Republicans unmoved in resisting tax increases and little sign of the public backlash the White House expected, Obama is adjusting to the spending curbs he once derided as “just dumb.” Attacks on sequestration have receded as a major theme of his speeches.
“He probably has concluded that he can’t change it,” said Stan Greenberg, a Democrat who was a pollster for former President Bill Clinton. “He’s moved away from it because he thinks it’s giving Republicans leverage by focusing on it.””

Britain’s payday lenders are out of control – charity | Reuters

“Britain’s short-term lenders have become “a law unto themselves”, bullying borrowers into extending loans, offering loans to children and drunk people and harassing those heavily in debt, a charity said on Tuesday.”

Leaks Inquiries Show How Wide a Net Is Cast –

“The emerging details of these and other cases show just how wide a net the Obama administration has cast in its investigations into disclosures of government secrets, querying hundreds of officials across the federal government and even some of their foreign counterparts.
The result has been an unprecedented six prosecutions and many more inquiries using aggressive legal and technical tactics. A vast majority of those questioned were cleared of any leaking.
On Thursday, President Obama ordered a review of Justice Department procedures for leak investigations, saying he was concerned that such inquiries chilled journalists’ ability to hold the government accountable. But he made no apology for the scrutiny of the many officials whose records were searched or who had been questioned by the F.B.I.”

Leonard Downie: Obama’s war on leaks undermines investigative journalism – The Washington Post

“the Obama administration’s steadily escalating war on leaks, the most militant I have seen since the Nixon administration, has disregarded the First Amendment and intimidated a growing number of government sources of information — most of which would not be classified — that is vital for journalists to hold leaders accountable. The White House has tightened its control over officials’ contacts with the news media, and federal agencies have increasingly denied Freedom of Information Act requests on the grounds of national security or protection of internal deliberations.
The secret and far-reaching subpoena and seizure of two months of records for 20 Associated Press phone lines and switchboards — used by more than 100 AP reporters in three news bureaus and the House of Representatives — is especially chilling for journalists and their sources. “ | Some 34,000 Greeks moved to Germany in 2012

“Some 34,000 Greeks relocated to Germany last year, an increase of 43 percent compared to 2011 when 23,800 Greeks moved there, according to German government statistics.
It is not only Greeks who are increasingly seeking a better life in prosperous Germany but an growing number of people from other debt-hit countries in southern Europe. Last year, 29,000 Spaniards, 42,000 Italians moved to Germany, according to German government statistics. The largest influx, however, was from central Europe, with 176,000 Poles, 116,000 Romanians and 59,000 Bulgarians relocating to various parts of Germany.
In total more than a million new immigrants arrived in Germany in 2012, the largest influx since 1995. The average age of the migrants is 32.”

PAUL: Blocking the pathway to a national ID – Washington Times

“Many see measures contained in this bill, such as a strong E-Verify and a “photo tool,” as a means to control unlawful immigrants’ access to unlawful employment. I worry that they go too far.
I think there are better ideas that err on the side of individual privacy while still strengthening our borders. We should scrap a national identification database and pass immigration reform that secures the border, expands existing work-visa programs and prevents noncitizens from access to welfare. These simple ideas will eliminate the perceived need for an invasive worker-verification system and a government citizenship database.”

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