Links: 2013-10-21
Markets
Weighing the Week Ahead: Will Disappointing Earnings End the Stock Market Rally?
“I expect much less Washington politics and much more focus on corporate earnings. While economic data reports are still delayed and distorted, we will gradually get back to analysis of economic fundamentals as well.”
Treasuries Lose Cachet on Lowest Foreign Demand Since ’01 – Bloomberg
“The $11.6 trillion U.S. government bond market is losing some of its luster.
America’s borrowing costs are on the cusp of exceeding the rest of the world for the first time since 2010 after a political stalemate over public funding triggered a 16-day government shutdown and jeopardized the nation’s ability to pay its debt. Yields on Treasuries, which averaged less than 1 percent as recently as May, are now within 0.2 percentage point of the 1.57 percent for sovereign debt outside the U.S., according to Bank of America Merrill Lynch indexes. “
How Shiller helped Fama win the Nobel – The Washington Post
“The Efficient Market Hypothesis, as Fama called it, meant that stock-picking was a futile exercise. He described the details in a 1965 paper titled “Random Walks in Stock Market Prices.”
The relevance to finance was soon obvious: Most investors are better off owning the entire market, rather than guessing which stocks might do better or worse. We can quibble with some of Fama’s reasoning. It turns out that prices are not all that rational and frequently deviate from known data — but Fama got the big concept right: Markets behave unpredictably in the short term.
For this, Fama is thought of as the intellectual father of indexing. The entire concept of passive investing in indexes grew around his insights. His work became hugely influential, and remains so to this day. If you own a Standard & Poor’s 500-stock index, you do so because of Fama the Younger’s observations. “
United States
U.S. existing home sales fall, price appreciation slows | Reuters
“The National Association of Realtors said on Monday that sales of previously owned homes fell 1.9 percent last month to an annual rate of 5.29 million units.
At the same time, the median price rose 11.7 percent in September from a year ago to $199,200. While that was the 10th straight month of double-digit gains, it was the smallest increase since April.
“This softening had been expected in response to the increase in mortgage rates that began in May,” said Daniel Silver, an economist at JPMorgan in New York.”
The shutdown is over, but the austerity fight continues | Al Jazeera America
“The bruising battle on Capitol Hill over the debt ceiling is not over. It has simply been postponed until a longer-term budget negotiation. Congress has agreed to fund the government through Jan. 15 and extend its borrowing authority through Feb. 7, at which point the turmoil of the past few weeks might recur.
Although the immediate goal of tea party Republicans in Congress was to defund President Barack Obama’s health care law, it is important not to lose sight of their larger purpose. The recent drama is only the latest battle in a decades-long war by radical conservatives, joined by pro-business interests in both parties, to gut the governmental supports for the middle and lower classes responsible for America’s postwar prosperity. “
Conservative DeMint Group Endorses McConnell Primary Challenger | TIME.com
This is another skirmish within the Republican party between the pro-business wing and the Tea Party
US business groups consider action against Tea Party candidates – FT.com
““The shutdown exposed how high the stakes are. It is time to get back involved,” says David French, senior vice-president for government relations and chief lobbyist at the National Retail Federation (NRF), which represents many US retailers.
“Business has woken up to the reality that it can’t allow the GOP [Republicans] and the political process to be dominated by a few activist types whose agendas are not necessarily as closely aligned with the pro-growth agenda that the business community has traditionally supported.”
The 2014 midterm elections are more than a year away but the primary races will start in the spring. And if business decides en masse to challenge Tea Party lawmakers, they will be locking horns with conservative groups such as Heritage Action, the Club for Growth and the Senate Conservatives Fund (SCF), who are determined to ensure more representation for rightwing purists. On Friday, the SCF announced its backing for a conservative challenger in Kentucky to Mitch McConnell, the top Republican in the Senate, who helped craft the 11th-hour deal to avert a default. “
Washington’s Republicans gear up to take on Tea Party radicals – FT.com
“Republican leaders are showing their willingness to confront Tea Party conservatives, raising hopes that the US will avoid another government shutdown in January.
Mitch McConnell, the Republican minority leader in the Senate, said on Sunday that there would be no more shutdowns, even as he brushed off the challenge he faces from a hard-right opponent in elections next year.
“Shutting down the government, in my view, is not conservative policy,” said the Kentucky senator on the CBS programme Face the Nation. “So there will not be another government shutdown. You can count on that.””
Liquidity Preference, Loanable Funds, and Erskine Bowles – NYTimes.com
“the central bank sets interest rates, and under current conditions that means holding them at zero. So what happens instead is that your currency depreciates, making exporters and import-competing industries more competitive. The effect on the economy as a whole is therefore expansionary, not contractionary.
Things might be different if the private sector had large debts in foreign currency, as was true in Asia in the 90s. But it doesn’t.
So the conventional wisdom about how we have to fear a Chinese bond-buying strike just doesn’t make sense — and in fact it falls down in exactly the same way as fallacious arguments about the harm done by fiscal deficits in a depressed economy; basically, Erskine Bowles is making the same error as whatshisname.
You may find it hard to believe that so many important and influential people could be dead wrong about the basic economics of our situation. But as far as I can tell, this is simply something “everyone knows”, and none of them have ever thought it through.”
Europe
Euro Zone May Not Have Emerged from Recession, CEPR Says – WSJ.com
“”While it is possible that the recession ended, neither the length nor the strength of the recovery is sufficient, as of 9 October 2013, to declare that the euro area has come out of recession,” the committee said.
The committee said that for it to conclude that the euro zone had emerged from recession, it would have to see “evidence of sustained growth, corroborated by a range of indicators.”
Eurostat will publish GDP figures for the third quarter on Nov. 14. While business surveys suggest the economy continued to grow in the three months to September, official figures for industrial production are less clear, while unemployment remains close to record highs. “
Portugal and Italy are still getting protests against austerity as this Swiss article demonstrates. Also note that Serbia and Slovenia are undergoing austerity. This is something to note given all the focus on the eurozone periphery. But right across Europe, fiscal policy is tighter. Even in Germany, the central bank is warning against loosening fiscal policy.
La interminable historia autonómica | Economía | EL PAÍS
This Spanish story points out that Spanish local governments have reduced outlays by 13% since 2009, 2.2% of GDP. And this austerity is expected to continue. Local governments are expected to end 2014 with a deficit of 1% of GDP according to targets set by Brussels.
ekathimerini.com | Tourist arrivals up 12.3 pct in first half of 2013, revenues also up by 18.1 pct
“Visitors from the European Union spent a total of 1.9 billion euros, which was 7.7 percent up on 2012. Non-EU visitors spent 1.3 billion euros, an increase of 37.7 percent on last year.”
ekathimerini.com | In Greece, wisdom of privatizations under question
“economists are divided on the net effect of privatizations carried out under a tight time pressure and in a depressed market environment, with some critics fearing the potentially corrupting power of vested interests.”
Germany’s Central Bank Warns of Local Housing Bubbles – Real Time Economics – WSJ
“the Bundesbank said that prices in urban housing markets could be as much as 10% higher than the level suggested by fundamentals, such as demographic and economic factors.
Furthermore, “in the attractive large cities, the upward deviations in this segment are as high as 20% in some cases”, the report said, referring to Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf.”
Germany’s opposition SPD sets out demands for coalition deal – FT.com
“Germany’s opposition Social Democrats cleared the way on Sunday for weeks of hard bargaining on a coalition agreement with Chancellor Angela Merkel, setting out a string of minimum demands for a deal.
They included a statutory minimum wage, a financial transaction tax, new rules to give immigrants dual citizenship and an investment drive in transport and schools to boost economic growth. But there was no mention of tax increases for top earners, a central SPD election demand.”
Bundesbank head warns Merkel on increased state spending: report | Reuters
“The head of the German Bundesbank has told Chancellor Angela Merkel to keep a tight grip on government spending in coalition talks with the center-left Social Democrats (SPD) next week, in which she faces pressure to boost investment funding.”
Spanish Jobseekers Stranded in Germany – SPIEGEL ONLINE
“They were promised new jobs in Germany — but their hopes have now been quashed. Nearly 130 would-be Spanish workers are stranded in Erfurt after private employment agencies apparently failed to follow through.”
The Myth of German Euroskepticism by Daniel Gros – Project Syndicate
“There is much speculation about the composition of Merkel’s next government and what it will mean for Germany’s position toward Europe. But the details of coalition politics in Germany matter much less for Europe than Germans’ broad support for the euro. Germany will not turn its back on the single currency – or on the European project in general.”
Porsche will Wochenarbeitszeit senken – SPIEGEL ONLINE
Things in Germany are going so well that Porsche is cutting hours at its factories as productivity remains high. It is incredible how well parts of the German economy are doing.
BBC News – Serbia: Lazar Krstic outlines new austerity reforms
“Serbia has announced plans to cut public sector wages by as much as a quarter, as part of wide-ranging austerity measures.
The reform package also includes raising taxes and slashing subsidies for loss-making companies.
Finance Minister Lazar Krstic said Serbia would be bankrupt within two years if it did not take action now. “
BBC News – Slovenia may seek help for its faltering banks
“The head of Slovenia’s central bank, Bostjan Jazbec, has said it will consider asking for outside help if the country’s funding costs stay high.
He also said Slovenia’s GDP would shrink by 2.6% this year, more than April’s 1.9% forecast.”
London house prices jump by £50,000 in a month | Money | The Guardian
“London’s booming housing market is rising at an unsustainable rate, the UK’s largest property website warned on Monday, with the average asking price of a home in the capital surging by more than £50,000 last month.
Such is the acceleration in the capital’s property market, according to Rightmove, that many buyers will need help from deep-pocketed parents despite the expansion of George Osborne’s Help to Buy scheme.”
Britain has got economic recovery – but it’s the wrong sort – Telegraph
“Low interest rates and improved credit conditions are finally working their magic on demand. George Osborne, the Chancellor, has timed this juicing-up of the economy to apparent perfection. Even the squeeze on living standards, a seeming Achilles’ heel in the Government’s economic credentials, should with a fast-improving jobs market be over by late next year – just in time for the election.
All good then, at least from the Coalition’s perspective? Unfortunately not. It’s still far too early to make that sort of judgment, for what we are seeing is very much the wrong sort of growth. “Low interest rates and rising house prices are the opposite to the UK’s long-term needs,” says Simon Wells, chief UK economist at HSBC. Much the same point is made by Michael Saunders at Citi: “The rebound is led by demand rather than supply-side improvements, and is not rebalancing the economy towards investment and exports.” “
Asia
Abe Invokes Thatcherism as Reform Push Raises Disparity Risk – Bloomberg
““Abenomics, at least in its initial stage, is rewarding those who have assets, and the gap between the haves and the have-nots is widening,” said Soichi Okuda, chief economist at Sumitomo Shoji Research Institute, a think tank owned by Sumitomo Corp., Japan’s fourth-biggest trading house. “The fate of Abenomics, which aims to end deflation, will be determined by whether wages go up.”
Thatcher’s Policies
Abe cited Thatcher in a speech in London in June, saying of his economic growth strategy: “There is no alternative,” a phrase the former U.K. prime minister used for her policies of monetarism, financial deregulation and restructuring of state industries in Britain in the 1980s.
Within seven years, Thatcherism had driven unemployment to a record of more than 3 million people and widened the gap between rich and poor. Yet her policies also reversed a sense of terminal decline, epitomized by the so-called winter of discontent in early 1979 when strikes by groups from teachers to rail workers plunged the country into crisis. Annual gross domestic product growth peaked at 6.6 percent in the first quarter of 1988. “
BBC News – Japan posts trade deficit for 15th consecutive month
“Japan’s imports have grown at a faster rate than its exports in all but one of the past 11 months.
Analysts said that imports have been rising over these months partly due to higher demand for fuel, which has been triggered by the shutdown of all of Japan’s nuclear reactors.
At the same time, a recovery in Japan’s economy is also helping spur domestic demand.
Last month, revised data showed that Japan’s economy expanded 0.9% in the April-to-June period, from the previous three months. That translates into an annualised growth of 3.8%.”
Japan Posts Trade Deficit for Record 15th Month – Real Time Economics – WSJ
“The merchandise trade balance showed a ¥932.1 billion ($9.5 billion) deficit in September, making the run of monthly deficits the longest since January 1979, when the data were first compiled in the current format, finance ministry figures showed Monday. It was also the largest deficit ever for the month of September.
The previous record of 14 straight months stretched between July 1979 and August 1980 in the wake of the 1979 energy crisis.”
Technology
Twitter quitters dog IPO | Reuters
“According to a Reuters/Ipsos poll, 36 percent of 1,067 people who have joined Twitter say they do not use it, and 7 percent say they have shut their account. The online survey, conducted October 11 to 18, has a credibility interval, a measure of its accuracy, of plus or minus 3.4 percentage points.
In comparison, only 7 percent of 2,449 Facebook members report not using the online social network, and 5 percent say they have shut down their account. The results have a credibility interval of 2.3 percent.
People who have given up on Twitter cite a variety of reasons, from lack of friends on the service to difficulty understanding how to use it. Twitter declined to comment for this story, saying it is in a quiet period ahead of its IPO.
Twitter’s attrition rate highlights a challenge that has dogged the online messaging site over the years: while it has managed to enlist many high-profile and avid users, from the Pope to President Barack Obama, Twitter has yet to go truly mainstream in the way Facebook has.”
AnandTech | Microsoft Surface 2 Review
” It’s definitely a tough sell for the majority of the ARM based tablet market. I feel like at a lower price (and/or with a cover thrown in as part of the bundle) Surface 2 would have a much easier time attracting more than a niche. I can’t help but draw comparisons between Surface 2 and a modern day Chromebook. Both are limited in the sort of applications they can run, but whether or not they are suitable for you depends on how valuable Google/Microsoft browsers and services are to you. Surface 2 can be a fine recommendation – if the price is right. I’d love to see Surface 2 with type cover retail for $399, I feel like at that price point it’d be at least a competitive sell.
I really like everything about Surface 2 as a physical device. The chassis, the weight, the kickstand, the feel, everything. The software/services side of the story needs work, and until it gets there that puts a good amount of pricing pressure on Microsoft – at least if it wants broad adoption. “
AnandTech | Microsoft Surface Pro 2 Review
“Battery life is still not up to snuff with traditional ARM based tablets, and Surface Pro 2 seems to pay more of a penalty there than other Haswell ULT based designs – I’m not entirely sure why. Parts of the rest of the world have moved on to things like 802.11ac and PCIe based SSDs. Microsoft appears to be on a slightly strange update cadence with its Surface lineup, and for the brand’s sake I hope we see that rectified next round. It’s not enough to just put out a good product, you have to take advantage of all technologies available, when they are available. Just like last year, my recommendation comes with a caution – Surface Pro 2 is good, I’m happier using it than I was with last year’s model, but the Broadwell version will be even better. What’s likely coming down the pipe are improvements in the chassis and in battery life. You’ll have to wait around a year for those things, if you can’t, then this year’s model is still pretty good.”
NSA Hacked Email Account of Mexican President – SPIEGEL ONLINE
“The NSA has been systematically eavesdropping on the Mexican government for years. It hacked into the president’s public email account and gained deep insight into policymaking and the political system. The news is likely to hurt ties between the US and Mexico. “
Hope Springs at Nokia – WSJ.com
“The positive turn for Nokia’s smartphone sales comes as personal-computer sales fell 8% from a year earlier in the third quarter, according to market-research firms IDC and Gartner Inc., and shipments of PCs are expected to decline on an annual basis for the first time in 11 years. Microsoft and its allies are hoping to generate excitement with a new version of Windows and new devices designed to run the software.”
Opinion: Your life, under constant surveillance – CNN.com
“Historically, surveillance was difficult and expensive.
Over the decades, as technology advanced, surveillance became easier and easier. Today, we find ourselves in a world of ubiquitous surveillance, where everything is collected, saved, searched, correlated and analyzed.”
France in the NSA’s crosshair : phone networks under surveillance
“According to the documents retrieved from the NSA database by its ex-analyst, telephone communications of French citizens are intercepted on a massive scale. Le Monde has been able to obtain access to documents which describe the techniques used to violate the secrets or simply the private life of French people. Some elements of information about this espionage have been referred to by Der Speigel and The Guardian, but others are, to date, unpublished.
Amongst the thousands of documents extracted from the NSA by its ex-employee there is a graph which describes the extent of telephone monitoring and tapping (DNR – Dial Number Recognition) carried out in France. It can be seen that over a period of thirty days – from 10 December 2012 to 8 January 2013, 70,3 million recordings of French citizens’ telephone data were made by the NSA. This agency has several methods of data collection. “
The top 5 things we’ve learned about the NSA thanks to Edward Snowden | Ars Technica
“What we’ve learned:
American telcos are compelled to routinely hand over metadata to the government
Digital surveillance programs capture vast amounts of data: PRISM and XKeyscore
US companies have done little to resist government pressure
NSA’s sister organization, GCHQ, does what the NSA can’t
NSA analysts even used capabilities to spy on their exes
What has happened since:
As a way to prevent future leaks, the NSA fired nearly all its sysadmins
Privacy-minded e-mail providers shut themselves down under pressure
The Foreign Intelligence Surveillance Court (FISC) opened up and published docket and opinions
Patriot Act author said that NSA’s interpretation is overbroad
Congressional reforms introduced, remain slow-moving”
Backdoor found in D-Link router firmware code | Security – InfoWorld
“A backdoor found in firmware used in several D-Link routers could allow an attacker to change a device’s settings, a serious security problem that could be used for surveillance.”
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