Links: 2013-05-30
More bridges, less war spending for America | MuniLand
“Bear in mind that neither war nor infrastructure spending creates cash flows to cover their own costs, so it’s a clear case of setting priorities.
I have proposed that the Federal Reserve substitute buying infrastructure bonds instead of mortgage-backed securities in its bond-buying program. There are many ways to fund infrastructure, but the nation needs to consider cutting war spending to do it. The economic returns are much higher, and it would help America readjust its role globally while limiting the economic impact of demilitarization.”
Detroit Survival Depends on Speed of Destruction – Bloomberg
““We have a city built for 2 million and only 700,000 people living here,” said John George, who has run the grassroots Motor City Blight Busters organization for the last quarter century, tearing down about 300 dwellings mostly by hand in the city’s impoverished Brightmoor neighborhood. “We have to get rid of what we don’t want, don’t need and can’t use.”
On some streets in Brightmoor, just one or two houses per block are occupied, with another two or three fire-damaged, while the rest stand open to the elements, stripped of anything of value.”
Exclusive: Japan public pension mulls shift after stock rally – sources | Reuters
“Japan’s public pension fund – a pool of over $1 trillion – is considering a change to its portfolio strategy that could allow its investment in domestic stocks to grow with a rallying market, according to people familiar with the deliberations.”
U.S. Treasury Yields at 13-Month High – MoneyBeat – WSJ
“The extra yield investors require to hold ten-year Treasurys instead of German Bunds widened to 0.71 percentage point Wednesday, from 0.58 percentage point just a week ago. This is the largest premium demanded since 2010. Treasury yields climbed to a 13-month high of 2.19% Wednesday, while Bunds yielded 1.49%.
Market action underscores the contrast in outlook for monetary policy in the U.S. and the euro zone, where feeble economic activity has bolstered hopes of further rate cuts by the European Central Bank, and even the distant prospect of negative deposit rates, a situation in which investors would essentially be paying the bank to hold their cash.”
Two Japan charts | FT Long Short
“If shares decisively break the 50 day moving average, they could be poised for a big further drop as the foreigners and hedge funds who had heavily bought into the weak yen/strong shares story continue dumping their positions.
But with the Japanese government still to embark on most of its reforms, and the central bank showing every sign of being firmly committed to its easy money policies, a move further down offers opportunities to buy in more cheaply. Japan may go horribly wrong, as hedge fund manager Kyle Bass and plenty of others argue. But it is far too soon to write off the efforts of the government, and there is lots of scope for more good news from Prime Minister Shinzo Abe before a doomsday debt scenario starts to play out.”
Tokyo Shares Down Sharply – WSJ.com
“Tokyo stocks fell sharply again Thursday, bringing the Nikkei Stock Average’s one-week drop to 14.7% and calling the “Abenomics”-inspired rally into question.
The Nikkei fell 5.2%, putting it decisively in a correction just a week after reaching a 5 ½-year high on May 23, when it violently reversed and plummeted 7.3% the same day. Over the past week it has wiped out all of its gains for May and more, amid rising skepticism about a rally that had been fueled largely by optimism over the policies of Prime Minister Shinzo Abe.”
Volcker warns on limits of Fed’s easy money | Reuters
“Volcker, who led the U.S. central bank’s aggressive battle against inflation in the 1970s, said the decision to adjust policy will come down to good judgment, leadership, and “institutional backbone” in the face of political pressure.
“Here and elsewhere, the temptation has been strong to wait and see before acting to remove stimulus and then moving toward restraint,” Volcker, 85, told the Economic Club of New York.”
Altman Says Credit Markets Reminiscent of 2006 and 2007 | Enterprising Investor
“”I see many similarities to 2006 and 2007 in the credit markets today,” Edward I. Altman, professor at the Stern School of Business at New York University, said when speaking recently at the 2013 Asset and Risk Allocation conference in New York. A highly respected researcher of the high-yield bond markets, Altman took the audience through his analysis of current economic conditions and his outlook for corporate and sovereign credit markets. Altman presented his new research on sovereign default risk. “When you think about credit risk today, sovereign default risk is the number one concern for investors, while the corporate bond market has been relatively benign since 2008-2009.””
“Fears that Greece may exit the eurozone are now remote but its economy will stay in recession for a sixth straight year in 2013 and unemployment will rise further before recovery sets in next year, the country’s central bank said on Wednesday.
The Bank of Greece sees the economy contracting by 4.6 percent this year, slightly more than a previous 4.5 percent forecast.
The jobless rate will peak at around 28 percent from currently 27 percent and will start declining in 2015, the central bank said in a monetary policy report.”
ekathimerini.com | Greek 7-year slump seen by OECD testing limit of bailout aid
“Gross domestic product will decline 1.2 percent next year, after falling 4.8 percent in 2013, the Paris-based OECD said in a report on Wednesday. The drop in 2014 output is smaller than the OECD’s 1.3 percent forecast in its last report in November. The European Commission forecasts Greece will return to growth next year with a 0.6 percent expansion in output.”
Italy places 50-year bond, eases refinancing pressure | Capital City | IFRe
“Sole bookrunner Barclays managed the €500m deal, which carries a coupon of 4.75% and matures in May 2063, said market sources on Wednesday. The buyer was not disclosed.
The bond comes just weeks after the eurozone country, rated Baa2/BBB+/BBB+, issued its first 30-year deal since 2009, helping alleviate a refinancing burden that has stepped up in recent years. (Full Story)
The average maturity of Italy’s debt has fallen steadily from seven years in 2011, with cautious investors showing preference for shorter-dated bonds during the sovereign debt crisis.
At the end of April, the average maturity of Italy’s curve stood at 6.47 years, according to Italian treasury data.”
Easing of deficit rules exposes rifts in Italy’s government – FT.com
““We are among the most virtuous countries in Europe in terms of our deficit and our debt has risen more slowly than others,” said Renato Brunetta, economics spokesman and parliamentary leader for Silvio Berlusconi’s centre-right party.
“But Europe’s blood-and-tears austerity policy of [German chancellor] Angela Merkel led us into recession and produced more costs than benefits,” Mr Brunetta told the Financial Times on Wednesday. “The antibiotics of austerity have resulted in a chronic depression. What we need are the vitamins of growth.”
Mr Brunetta’s comments underscore the deep divisions over economic policy within the grand coalition led by Enrico Letta, centre-left prime minister. “
Francois Hollande tells European Commission it can’t ‘dictate’ to France – Telegraph
““The European Commission cannot dictate to us what we have to do. It can simply say that France must balance its public accounts,” he said.
“As far as structural reforms are concerned, especially pension reforms, it is up to us, and us alone, to say which is the best path to attain this objective.””
Brazil economic growth disappoints again | Reuters
“Brazil’s economic growth fell short of forecasts once again in the first quarter as President Dilma Rousseff’s numerous stimulus packages failed to aid manufacturers while consumers, frightened by rising inflation, grew more conservative.”
Foreclosure sales tumble in first quarter: RealtyTrac | Reuters
“There were 190,121 properties sold that were in the foreclosure process or already seized by lenders, down 18 percent from the last quarter of 2012 and a decrease of 22 percent from the first quarter the year before.
That accounted for 21 percent of all home sales, down from 25 percent in the first quarter of 2012.”
Return of the Housing Bubble? | Op-Eds & Columns
“If the hedge funds and flippers end up taking a hit when the music stops no one could be too upset. Presumably they understood the risks when they got into the market.
The real problem is that many ordinary homeowners may get caught in the middle just as they did in the last bubble. If these markets go into bubble territory and then prices fall back by 20-30 percent new homebuyers will have seen their equity disappear and find themselves underwater, just as happened in 2008-2010.
While people have to make up their own minds on whether homeownership makes sense for them, it would be good if the government and non-profit sector made the push against homeownership this time if these markets go back into bubble territory. There are many advantages to homeownership, but that’s not the case when it comes to buying a home in a bubble market. No one builds assets by paying 30 percent too much for a house.”
Paul Krugman: ‘We are, in economic terms, all Japanese’ | Economy | News | Financial Post
“So the overall verdict on Japan’s effort to turn its economy around is so far, so good. And let’s hope that this verdict both stands and strengthens over time. For if Abenomics works, it will serve a dual purpose, giving Japan itself a much-needed boost and the rest of us an even more-needed antidote to policy lethargy.
As I said at the beginning, at this point the Western world has seemingly succumbed to a severe case of economic defeatism; we’re not even trying to solve our problems. That needs to change – and maybe, just maybe, Japan can be the instrument of that change.”
Worthwhile Canadian Initiative: Monetary policy is not interest rate policy – Japanese version
“This is not the “beginning of the end” of the Japanese economy. But it might be, and I hope it is, the beginning of the end of Japan’s long recession.
And if this is indeed the beginning of the end of Japan’s long recession, it will also be the beginning of the end of Richard Koo’s thesis that monetary policy is powerless in a balance sheet recession, and that only fiscal policy can offset private sector deleveraging. And we can only regret that Japan did not do this many years earlier, instead of wasting all those years and letting Japan’s government debt/GDP ratio climb. Because that high debt/GDP ratio is the only reason why someone might want Japan’s economic recovery but not want the higher interest rates that will accompany that recovery. Which is no reason to try to stop the recovery. Though it is one additional reason to regret not having done something like Abenomics a lot earlier.”
BOJ’s Kuroda says pain from bond yield rise is manageable | Reuters
“Kuroda said estimates by the BOJ in April showed a rise in interest rates by around 1-3 percentage points would not cause major concerns over Japan’s financial system, as long as the rise is accompanied by improvements in the economy.
That is because the economic recovery would lead to increased lending and help improve banks’ earnings, he said.
But Japanese banks will take a hit if the rise in interest rates is not accompanied by improvements in the economy and is driven by heightened concern over Japan’s fiscal state, Kuroda said, calling on the government to keep up efforts to curb the country’s huge debt.”
BOJ’s Kuroda Calls on Banks to Ramp Up Lending – WSJ.com
“Mr. Kuroda said that unlike in the late 1990s, when Japanese banks were saddled with mountains of nonperforming loans, banks now have the capital to expand lending and are resilient to external shocks, such as a rise in interest rates.
Referring to a question of whether banks have been fulfilling their role in the economy, he said that low profit margins in lending have kept them from being “full of vigor and dynamism.””
Japan to Outline Long-Awaited Growth Plan – WSJ.com
“A key piece in the package is an industrial competitiveness bill, to be submitted to parliament this autumn. The bill is aimed at promoting consolidation in industries and creating industrial giants that can vie with global behemoths, such as South Korea’s Samsung Electronics Co.
The industrial competitiveness bill is also expected to include a government-backed leasing program that will allow companies to make investments in new technology without making heavy financial commitments.
The government is also expected to propose new stock market guidelines mandating that listed companies have at least one independent director. Corporate-governance reform is seen as long overdue, following a major accounting scandal at Olympus Corp.”
LDP OKs outline of bills to create U.S.-style National Security Council | The Japan Times
“The envisioned institution would enable Tokyo to respond in a more timely and strategic manner to Asia’s changing security environment, including North Korea’s nuclear and missile threats.
Under the plan, the prime minister, chief Cabinet secretary, the foreign and defense ministers will first decide on Tokyo’s basic stance on foreign and defense policies.”
Seductive super models of supply and demand | Business Spectator
“One of the many schisms in economics is between economists – new and old – who believe that prices are set by supply and demand, and economists – also new and old – who believe they are set by a mark-up on the cost of production.
The former argument is the overwhelming favourite today, but two centuries ago, it was the minority view. Though modern ‘neoclassical’ economists are wont to claim Adam Smith as one of their own, he disowned their preferred ‘supply and demand’ pricing model to argue that products exchange at prices that are related to their relative costs of production.”
The Economic Outlook and Monetary Policy – Boston Fed
“In terms of monetary policy, it would in my view be premature to stop the Fed’s large-scale asset purchase program at this time. I believe the Fed should continue the purchase program until we see more sustained improvement in labor markets and have greater confidence that the economic recovery is sufficiently self-sustaining to yield continued progress in reducing the still very high unemployment rate.
However, I would also say that it may be undesirable to abruptly stop purchases, so it may make sense to consider a modest reduction in the pace of asset purchases if we see a few months more of gradual improvement in labor markets and improvement in the overall growth rate in the economy – consistent, by the way, with my forecast, which is somewhat more optimistic than that of many private forecasters.”
“Media outlets and journalists have finally awakened to the serious threat posed by the Obama administration to press freedoms, whistle blowing and transparency. Apparently, what was necessary for them to be prodded out of their slumber was watching people they perceive as “one of them” have their emails secretly seized and be accused of serious felonies. The question now: what, if anything, will they do to defend the press freedoms they claim to value? By design, there are many options the press corps has for thwarting government attacks like these. Doing so requires a real adversary posture, renouncing their subservience to government interests and fear of alienating official sources. It remains to be seen whether any of that will happen.”
Sallie Mae to Split Into Two Companies – WSJ.com
“The largest private lender to students said it will separate into an education-loan management business and a consumer-banking operation.”
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