Links: 2013-06-03
You know I disagree with this here. I think Greece has been through the wringer and it is not going to get much worse. Though I don’t think it is going to get much better either. I do believe that part of the boosterism is to help justify prior policy choices. But the uptick in economic numbers is real and I believe can be sustained.
“Bank bosses and politicians are trying to convince the world that Greece is on the mend – but this boosterism is all about justifying the shock therapy imposed on the eurozone”
“81% of people in a study lied about themselves during job interviews, with the more extroverted being more apt to tell untruths, say Brent Weiss and Robert S. Feldman of the University of Massachusetts. When the job requirements were more technical, deception increased, probably because applicants were trying to compensate for their lack of job-required skills. Participants in the study told an average of 2.19 lies per 15-minute interview.”
Unrepentant Economists by Robert Skidelsky – Project Syndicate
“A bit of history to remind us where the economists stood on the matter of fiscal austerity”
A Greek bond raid | FT Alphaville
“We are not quite sure what is going on here.
Japonica Partners, a self-styled “entrepreneurial co-investment firm” based in Providence, Rhode Island, has launched a tender offer for almost 10 per cent of all Greek government bonds in circulation.
It’s ready to buy paper worth €2.9bn at par, paying a minimum of 45 per cent of face value.”
Is this the “big one” for global bonds? | Gavyn Davies
“In the absence of a full-blown crisis of confidence, it is hard to see how the bond yield can rise very far, provided that the Fed keeps forward short rates at virtually zero for several years to come. It is true that the term premium – ie the difference between the long term yield and the expected path for short rates – is abnormally low at present, and has started to adjust upwards (see this blog). If it went fully back to normal, it would take long yields to about 3 per cent, but an adjustment of that scale seems improbable in the extremely subdued state of the global economy at present.”
ekathimerini.com | Alpha Bank raises enough capital to avoid nationalization
“The country’s third-largest lender by assets said on Monday that foreign investors contributed significantly to its rights issue and private placement, which were held last month.
Greece’s banks are being bailed out by a national rescue fund. To avoid nationalization, however, they must raise a tenth of their capital needs from private investors.
Alpha needed a total 4.57 billion euros ($5.94 billion) to remain solvent. It raised 457 million euros by placing shares with investors, with demand 1.65 times the amount offered.”
Merkel se planta: no cederá más competencias a la UE | Economía | Cinco Días
German Chancellor Angela Merkel is against ceding more power to the EU. It isn’t clear if this is a tactical electoral position or an ideological one. But it is noteworthy that the Spanish press are talking about it.
Poland: little sign of recovery in PMI | beyondbrics
The 2nd derivative is positive in both cases. SO I think the headline misses the target.
“Polish manufacturing remained in contraction for the fourteenth month running but there were signs on Monday the downturn is easing as new orders, output and employment all fell at slower rates.
May’s purchasing managers index, compiled by Markit Economics for HSBC, edged up to 48.0 from 46.9 in April. PMI figures of less than 50 denote a contraction of manufacturing.
There was better news from the Czech Republic where the PMI rose to 50.1 in May from 49.5 a month earlier, signalling the end to 13 months of worsening business conditions.”
El crédito a las familias cae en abril a su nivel más bajo desde 2007 | Economía | EL PAÍS
Household debt in Spain is falling and is now at 2007 levels.
“APRIL 27TH, 2012
Last weekend, I attended the Just Banking conference in Edinburgh, organized by Friends of the Earth. I gave a talk titled, “Five Tools and Six Steps towards global economic recovery: Making finance servant, not master of the economy” and have posted my speech notes below”
What We Owe to Each Other | Boston Review
“In the second part of our interview with David Graeber about his latest book, Debt: The First 5,000 Years, he explains how student loan debt is perverting the value of education, how those who break windows aren’t necessarily the true barbarians, and how academics are a lot like hunchbacked dwarves.”
What We Owe to Each Other | Boston Review
“In part one of his two-part interview, Web editor David Johnson talks to Graeber about why we don’t put babies’ lives ahead of Citibank’s shareholders, what it means to be a conservative nowadays, and whether we should renew the tradition of debt jubilees.”
Dean Baker correctly identifies the blowing of bubbles by central banks for causing the crisis.
“The US Federal Reserve and European Central Bank heads played large roles in the crisis, yet they collect public pensions”
On the new purpose of government debt | FT Alphaville
“In a nutshell it’s all about balance. Balance between output, spending desire, investment desire and the relative abundance or scarcity of consumable assets. In the process of achieving that balance, money takes on the characteristics of either debt or equity. And when it makes sense for a private entity to hold its liabilities in debt form, it makes sense for a government to equitise its liabilities — and vice versa.
Currently we’re going through something of a “corporate liability switch“, where it’s becoming increasingly logical for corporates to turn equity into debt. The opposite, however, is true of central banks, which are de facto equitising their own governments’ debt. After all, what else do you call the process by which a central bank guarantees to backstop its own government debt no matter what, and promises at the same time to absorb gains or losses — from what is effectively a position in national equity — onto its own book?”
Why Modern Monetary Theory is Wrong About Government Debt | azizonomics
“But what Japan empirically illustrates is the fact that all debt matters. Japan’s private debt levels have reset to below the pre-crisis norm, yet the economy remains depressed while public debt continues to climb (both in absolute terms, and as a percentage of GDP). If excessive private debt was the sole factor in Japan’s depression, Japan would have recovered long ago. What we have seen in Japan has been the transfer of the debt load from the private sector to the public, with only a relative small level of net deleveraging.
And high and growing public sector deficits lead to contractionary tax hikes and spending cuts. This happened time and again during Japan’s lost decades.”
The Fed’s been keeping the economy afloat. That’s the problem.
“The Fed in September introduced a policy meant to boost housing and stock prices, and now, nine months later, housing prices and stock prices have risen quite a bit. Enough, indeed, to (so far) offset the impact of higher taxes that went into effect Jan. 1 and federal spending cuts that took effect March 1.
So far so good. The bad news, though, is that these channels through which monetary policy affects the economy tend to offer the most direct benefits to those who already have high incomes and high levels of wealth.”
What Sequester? Washington Booms As a New Gilded Age Takes Root – WSJ.com
“the region has shown surprising resilience, thanks to an economy that has steadily broadened beyond the government. More than a generation of heavy federal spending, it turns out, has provided the seed money for a Washington economy that now operates globally—less tied to the vicissitudes of the capital’s political rhythms.
The new moneyed brain trust is being led by professionals in defense, intelligence and data—many of whom excelled initially due to government ties. They’ve propelled the D.C. region as a leader in the cybersecurity and data sectors, as well as in more-specialized arenas including educational products and health-care data management.
In the first decade of the 21st Century, government spending was the major source of growth in metropolitan D.C., an area that includes the neighboring Maryland and Virginia suburbs. In 2010, federal spending, comprising mostly private-sector contracts, made up 40% of the local economy.
By 2012, that proportion had slipped by four percentage points.”
Has Obama tightened US drone strike policy, or not? – CSMonitor.com
“Administration officials had said Thursday’s address by President Obama would contain big changes on drone attacks. But some sections were so carefully worded as to be ‘opaque,’ according to one expert.”
Obama administration targets reporters in crackdown on leaks | McClatchy
““Despite longtime warnings that the Obama administration’s ‘war on whistleblowers’ had become a ‘war on journalists’. . . the U.S. media has obviously not taken the full First Amendment implications seriously enough,” said Coleen Rowley, a former FBI special agent and whistleblower who is affiliated with the liberal Institute for Public Accuracy, a nonprofit group that tries to promote alternative views on a variety of subjects.
At the White House, tensions between reporters and administration officials have been brewing for months. Obama’s aides have always revealed little information to the media, often choosing instead to deliver their own news through government-sponsored websites, blogs and Twitter accounts that include government photos and video. In recent weeks, the atmosphere has gotten worse as reporters have begun to wonder how to protect themselves against possible government intrusion.
White House spokesman Jay Carney, a former reporter for Time magazine, has been besieged by questions about the AP and Fox News cases and, at times, struggled to explain the administration’s policies on targeting journalists. He said he and the president learned of both cases from the news media.”
Scalia vs. Roberts: Conservatives face off on the Supreme Court. – Slate Magazine
“While the Roberts vs. Scalia face-off is mainly about style and tactics, not ideology—they both agree on the goal of reducing the size of the federal government—it’s real and likely to last. For sure they will put aside their differences in many cases, starting in all likelihood with the upcoming ruling in an Alabama county’s challenge to a key part of the Voting Rights Act. Still, the court’s right flank is divided, and that is producing some surprising and important legal victories for the Obama Administration.”
Journalists file suit against Manning trial secrecy – Salon.com
“A group of journalists including Glenn Greenwald, Julian Assange, Amy Goodman and Kevin Gosztola — all of whom have closely followed the Bradley Manning pretrial proceedings — are filing suit to see the veil of fierce military secrecy lifted from the accused whistleblower’s court martial.
The military judge presiding over the case can currently close a courtroom to the press and public for “security” reasons — citing sensitive classified information. The plaintiffs are calling on the judge to grant public and press access to the historic trial and its attendant documents.”
How Prosecutors Fought to Keep Rosen’s Warrant Secret : The New Yorker
“The Obama Administration fought to keep a search warrant for James Rosen’s private e-mail account secret, arguing to a federal judge that the government might need to monitor the account for a lengthy period of time.
The new details are revealed in a court filing detailing a back and forth between the Justice Department and the federal judges who oversaw the request to search a Gmail account belonging to Rosen, a reporter for Fox News. A 2009 article Rosen had written about North Korea sparked an investigation; Ronald C. Machen, Jr., the U.S. Attorney who is prosecuting Stephen Jin-Woo Kim, a former State Department adviser who allegedly leaked classified information to Rosen, insisted that the reporter should not be notified of the search and seizure of his e-mails, even after a lengthy delay.”
In e-books trial, U.S. says Apple conspired with publishers | Reuters
“Apple is going to trial alone after the five publishers agreed to eliminate prohibitions on wholesale discounts and to pay a collective $164 million to benefit consumers.
The five publishers were Pearson Plc’s Penguin Group, News Corp’s HarperCollins Publishers Inc, CBS Corp’s Simon & Schuster Inc, Hachette Book Group Inc and MacMillan.
The U.S. government is not seeking damages but instead an order blocking Apple from engaging in similar conduct. However, if Apple is found liable, it could still face damages in a separate trial by the state attorneys general, who would seek civil penalties on behalf of consumers.”
Calculated Risk: ISM Manufacturing index declines in May to 49.0, Lowest since June 2009
“The ISM manufacturing index indicated contraction in May. The PMI was at 49.0% in May, down from 50.7% in April. The employment index was at 50.1%, down from 50.2%, and the new orders index was at 48.8%, down from 52.3% in April.”
U.K. natural gas reserves may quadruple from IGas shale licenses | Energy | News | Financial Post
“IGas Energy, which plans to start drilling this year, surged as much as 15 percent in London trading after saying today its licenses probably hold about 102 trillion cubic feet of gas. Should 30 percent be extractable, U.K. reserves would jump about 30 tcf compared with BP Plc’s estimate now of 7 tcf.”
“On May 14th, some emails containing a phishing link entered the FT from external email accounts. Some of these were from the personal accounts of FT staff, suggesting that they had already been targeted personally, even though the email account targeted was not technically associated with the FT. The emails contained a link, which appeared to be an article on CNN.com, but was actually a link to an already hacked WordPress site (rather a high profile one but we thought it rude to name them, and they’ve since fixed it). The site was hosting a file called ft.php. Because the email was HTML formatted, it could link to one URL while displaying another, so the link didn’t look like the URL it actually linked to”
Bank Loans vs. High Yield Bonds And The Hunt For Safety – Forbes
“The average credit rating of a typical High Yield Corporate bond portfolio is higher than that of the Credit Suisse Leveraged Loan Index.
Drill down into the individual investments and the story becomes even more compelling. Much is made of the fact that leveraged loans have a senior position in the capital structure – i.e., if a default happens leveraged loan holders get paid first.
But that’s where disciplined credit analysis and selection comes into play. Many of the high-yield bonds held by Matt Philo, head of MacKay Shields High Yield Group and his team, and more broadly across high yield bond managers, have stronger credit profiles as measured by asset coverage, than leveraged loans – despite where they stand in the capital structure.
If you’re still not convinced bonds can hold their own, take a look at Matt, a longtime investor in both high yield bonds and loans, who believes that six of the 10 largest loan issuers in the CS index have unusually high leverage and carry real risk of future default.
Historically, another appealing characteristic often brought up by fans of leveraged loans is that they carry “covenant protection” – which typically restricts the borrower from actions by the company that could impact its creditworthiness.”
“A Moody’s report, issued last week, said “robust issuance” of both covenant-lite loans and high-yield bonds with weak protections suggest a “covenant bubble” that could leave fixed-income investors exposed to losses in a credit-cycle downturn. But investors continue to gobble up speculative-grade debt.”
Regulators on alert as US banks boost commercial loans – FT.com
Pickup of smaller banks making commercial and industrial loans.
““If a corporation can issue debt in the bond market that’s very cheap, then why use the banks?” asks Brian Klock, an analyst at KBW. “That’s another source of competition.”
Mr Klock says the market may see more “cov lite” bank loans, a reference to the lax borrowing agreements that characterised pre-crisis lending but largely disappeared in the years immediately after 2008.
The decline in covenants mirrors trends in the US debt market. Moody’s index of bond covenant quality is hovering around record lows, indicating that lenders are demanding fewer protections from borrowers amid buoyant investor support.
Still, other banking industry experts indicate that regulators and credit rating agencies are simply taking a much more cautious stance towards lending after the injurious experience of the financial crisis.”
The Aleph Blog » How Competition Drives Pricing, Yield and Risk Cycles
“After a disaster, insurance surplus levels are low, and pricing is generous, with terms & conditions tight. Additional competition lowers profitability to levels that justify the cost of capital employed. After that, pricing stays at that level, and terms and conditions deteriorate, until they can decline no more. After that, pricing deteriorates further until the next disaster uncovers their folly. Conservative insurers drop out before the disaster, and return capital to shareholders rather than writing bad business.
With bull markets in stocks the first phase is disbelief, the next phase is belief. During that phase, parties lessen risk controls and buy what is hot. In the last phase, valuation plays little role for the marginal decision-makers, until the bull market peaks.
Maybe I am overgeneralizing here, but to me there seems to be an inflection point in bull markets where in order for equity managers to compete, they toss away risk discipline. After that, managers stretch their willingness on valuations.
In closing, two articles that relate to this:
The Price and Risk of Playing Defense Are Up
Rising Stock Prices Flash a Warning…Selloff Ahead?
Both of these articles make me think we are in the last phase of a bull market. Valuation is getting ignored. Be wary, and play some defense, but avoid the idea that traditional defensive stock types will be defensive, particularly with low volatility and dividend paying stocks.”
So you think Paul Krugman is a Keynesian? I’ll be dipped! | LARS P SYLL
“One of Keynes’s central tenets – in clear contradistinction to the beliefs of classical economists – is that there is no automatic tendency for economies to move toward full employment levels in monetary economies.
Money does not matter in neoclassical macroeconomic models. That’s true. But in the real world in which we happen to live in, money does certainly matter. Money is not neutral and money matters in both the short run and the long run”
Bashing crises predictions | LARS P SYLL
“Leading active members of today’s economics profession… have formed themselves into a kind of Politburo for correct economic thinking. As a general rule—as one might generally expect from a gentleman’s club—this has placed them on the wrong side of every important policy issue, and not just recently but for decades. They predict disaster where none occurs. They deny the possibility of events that then happen. … They oppose the most basic, decent and sensible reforms, while offering placebos instead. They are always surprised when something untoward (like a recession) actually occurs. And when finally they sense that some position cannot be sustained, they do not reexamine their ideas. They do not consider the possibility of a flaw in logic or theory. Rather, they simply change the subject. No one loses face, in this club, for having been wrong. No one is disinvited from presenting papers at later annual meetings. And still less is anyone from the outside invited in.”
Trending: #SteveKeen – The Case For Concerted Action
“Steve Keen is trending in Twitter for other reasons. Noah Smith seems to have concluded that Post-Keynesianism is a giant hoax.”
Non-prophet Economics – NYTimes.com
“A few days ago Noah Smith had a good piece on the many people who beat their breasts and loudly boast about having “predicted the crisis”. As he says, by and large, the louder the boasting, the thinner the evidence for any special achievement. And anyway, also as he says, there’s the question of what you’re predicting. The housing bust? The fall of Lehman? The sluggishness of the recovery?”
BIS records startling collapse of eurozone interbank loans – Telegraph
“The BIS said the eurozone’s share of the global interbank market has fallen from a record high of 55pc at the top of the EMU bubble in 2008 to just 38pc at the end of 2012, a sign of fragmentation as banks return to their home markets.
Cross-border loans to emerging markets grew in the fourth quarter, rising to $2.4 trillion from $2.2 trillion a year earlier, but much of the money went to economies already near the end of their credit cycle. These loans now threaten to become a worry as currencies tumble in South Africa, Brazil, Mexico, Turkey, and across East Asia.”
Flooding Worsening in Parts of Germany, 6 Dead in Europe so Far – SPIEGEL ONLINE
“The death toll from flooding in central Europe has reached nine so far and more heavy rain is expected. In Germany, soldiers have been called out to help evacuate towns and pile sandbags while the historic old town of Passau is already under water. Chancellor Angela Merkel has promised full support.”
ekathimerini.com | Sharp rise in Greek doctors leaving country
“The number of doctors leaving Greece to practice abroad was 2.5 times higher in the first quarter of this year than during the same period in 2012, the head of the Athens Medical Association, Giorgos Patoulis, has told Kathimerini.
Earlier this year the Athens Medical Association published a report saying that about 4,000 doctors had left the organization over the past three years, since the economic crisis took grip of the country.”
Austerity, like a B-movie monster, will keep coming back – FT.com
“apparent shift in policy amounts to little more than a tactical retreat by the champions of austerity. Rather than being abandoned, austerity has simply been prolonged. I struggle to think why people consider this to be a relief. In addition, since structural reforms are, by definition, structural, they will not have any short-term effects – if, in fact, they are ever enacted. So let us focus on austerity.”
BBC News – Energy firm says UK’s shale gas resources could be huge
“UK firm IGas says there may be up to 170 trillion cubic feet of gas in the areas it is licensed to explore in northern England.
But it remains unclear how much of the gas will be economically extractable.
Shale gas is extracted by fracking – pumping water and sand at high pressure into rock to release gas within it.
Critics argue that the process may cause earth tremors and want investment in green energy.
Fracking has revolutionised the US energy market and the energy industry has hopes for a similar transformation in the UK.”
BBC News – Eurozone’s manufacturing downturn eases in May
“In Germany, Europe’s largest economy, the PMI figure rose to 49.4, just below the 50 threshold and marking its highest level for three months.
Spain and Greece saw the most dramatic improvements. Spain’s PMI reading of 48.1 was a 24-month high, while Greece’s reading of 45.3 was a 23-month high.
“It is reassuring to see the rate of decline ease to such a marked extent,” said Chris Williamson, chief economist at Markit.
“The sector still seems some way off stabilising, however, and therefore remains a drag on the economy.”
Mr Williamson said the survey indicated that eurozone GDP was likely to have fallen by 0.2% in the second quarter of the year.
If GDP falls again in the April-to-June quarter, it will mean the eurozone’s economy has contracted for seven successive quarters.”
Brazil real hits 4-year low against USD | beyondbrics
“Brazilian real dropped as low as R$2.1496 per USD on Friday – its weakest level since May 2009.
Let’s hope all those Brazilian companies that have been issuing dollar bonds have a currency hedge out.”
Mexican homebuilders: a cautionary tale for EM bond investors | beyondbrics
“Dollar bonds totalling $2.75bn issued by the three homebuilders have plunged by an average of 55 per cent this year. Having traded as much as 3 per cent above par in January, Urbi bonds, which have bore the brunt of the sell-off, are currently trading at just 20 cents to the dollar.
All three have defaulted on some of their debt and have hired advisers to help them review their options – including debt restructuring.”
Retirement at 70 will be ‘new norm’ – Telegraph
“Only 45pc of adults are putting enough aside for their retirement, according to a stark report from Scottish Widows – the lowest figure since the pensions giant began tracking savings nine years ago.
Households are prioritising living expenses, paying off debts and mortgage repayments over saving for retirement in the current uncertain economic climate, Scottish Widows found.”
BBC News – Japan’s Nikkei falls to six-week low amid growth fears
The yen is also appreciating. As I have said here, the good scenario is growth underpinned by a weaker currency and lower deflation. The deflation trend has not yet been turned and the currency is strengthening again.
“The worries are that a slowdown in the US bond buying programme and weakness in China, two of Japan’s biggest export markets, may hurt its recovery.
There have also been concerns over whether Japan’s recent policy moves will be sustainable in the long run.
The Nikkei 225 index fell 3.7% on Monday, to a six-week low of 13,261.82.
It has fallen 15% since hitting a five-and-half-year high in May.”
China factory activity shrinks, adds to growth fears | Reuters
“The HSBC/Markit Purchasing Managers’ Index (PMI) for May dropped to 49.2, the lowest level since October 2012 and down from 50.4 in April, as domestic and overseas demand fell.
The figure was slightly lower than a preliminary reading of 49.6 released on May 23. Fifty divides expansion from contraction compared with the month before.”
Climate change linked to more pollen, allergies, asthma
“Joseph Leija counts the pollen and mold spores that collect on slides inside an air-sucking machine atop the six-story building. “There’s been an increase, no doubt about it,” he says of the 5 a.m. weekday counts that he’s been doing as a volunteer for 24 years.
“My allergies are much worse than they used to be,” says Amanda Carwyle, a mom of three who lives 95 miles south in Pontiac, Ill. “I used to be able to take a Benadryl or Claritin and be fine.” Now, despite three medications and allergy shots that make her feel a bit like a zombie, she says her eyes are watery and her head stuffy. “I’m so miserable.”
Climate change might be partly to blame.”
Is Force-Feeding Torture? – NYTimes.com
“For decades, the international community, including the International Red Cross, the World Medical Association and the United Nations, have recognized the right of prisoners of sound mind to go on a hunger strike. Force-feeding has been labeled a violation on the ban of cruel, inhuman and degrading punishment. The World Medical Association holds that it is unethical for a doctor to participate in force-feeding. Put simply, force-feeding violates international law.”
Mitt Romney Inc.: The White House That Never Was | TIME.com
“In the months before the 2012 election, a group of high-powered consultants and political operatives prepared a secret report for candidate Mitt Romney, explaining how he should take over and restructure the federal government should he win the presidency.”
What the government isn’t telling us : Columbia Journalism Review
“You probably haven’t heard of “Operation Boulder,” a Nixon-era program that scrutinized the activities of Arab Americans and profiled visa applicants with Arab-sounding names. Possibly you should know about it—it’s one of the clearest precedents to the sort of policies the US government pursued after September 11 when it starting building anti-terrorism tools, like the no-fly list, around questionable metrics. But the State Department is pretty interested in keeping the program secret.
Matthew Connelly, a professor of history at Columbia University, came across Operation Boulder after a tool he and his colleagues built pointed right to it. They had just started up the Declassification Engine, a project led by Connelly and Columbia statistics professor David Madigan, with the idea that they would develop analytic tools that could coax new information out of secret or declassified documents. One of their inaugural research efforts began with a group of 250,000 diplomatic cables from the State Department. The cables were classified, but their metadata—bits of information about the embassy where a cable originated, the topic, the sender—were not. Analyzing the metadata, Connelly says, he and his colleagues found they could reveal what topics the State Department has chosen to hold most closely to its chest. And the word that stood out most prominently was “Boulder.””
The beginning of the end for Eurozone austerity? | Gavyn Davies
“In previous years, member states have often been forced to “chase their own tails” by immediately acting to keep deficits on track as recessions have deepened. The full use of fiscal stabilisers for countries that exhibit “good behaviour” is an important change.
Apart from that, the planned path for future fiscal tightening in the eurozone has been modified, though the tightening has not been eliminated altogether.”
Franco-German challenge to eurozone bank rescue plan – FT.com
“The leaders of France and Germany agreed to an outline for the future of the eurozone’s financial and economic governance that strongly leans towards Berlin’s vision of more control from Brussels on fiscal matters but more leeway for national authorities on banks.
In a nine-page “contribution” issued after a meeting in Paris between François Hollande, French president, and Angela Merkel, German chancellor, the two leaders laid down their most detailed vision on issues bedevilling the eurozone since Mr Hollande came to office last year.
Most significantly, it calls for repair and recapitalisation of eurozone banks to largely be left in the hands of national bank authorities, a German demand that is strongly at odds with a proposal being prepared by the European Commission and demands made by the European Central Bank.”
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