Links: 2013-10-22
Housing
Bostadsmarknaden närmar sig överhettning – DN.SE
This Swedish article says the Swedish residential property market is overheating.
North America
Five things you need to know about the US payroll data – FT.com
“The long-awaited September payroll data on Tuesday underwhelmed as the US economy added 148,000 jobs, missing market forecasts and supporting the Federal Reserve’s earlier decision not to start scaling back its monetary stimulus programme”
America’s jobs report: Still sluggish | The Economist
“When the Federal Reserve began open-ended bond buying with newly printed money last fall, it hoped to generate forward momentum in the labour market. And as recently as August it seemed to have succeeded. But the recent data suggest a frustrating reversal of that momentum, with no clear explanation. Non-farm payroll employment rose just 148,000 in September from August, well below Wall Street’s consensus expectation of 180,000. This was the second weak reading in a row, and vindicates the Fed’s decision not to dial back its $85 billion of bond-buyding, dubbed quantitative easing or QE, last month.”
Does No QE = Recession ? | The Big Picture
This chart is interesting because it suggests that QE has kept the US out of recession. If true, the question becomes what kind of economic growth has QE created. Is this growth that is itself sustainable or leads to sustainable growth? And I assume sustainable growth would be predicated on wage growth, which has thus far been notably absent. The jury is still out.
Utah Senator Mike Lee: The Man Behind The Shutdown Curtain | TIME.com
” Mike Lee is—and Cruz is not—the understated, policy-oriented leader behind the Defund Obamacare movement, according to several conservative leaders who spoke to TIME. He’s also one of the biggest hammers driving the wedge in the national Republican party to establishment and moderate Republicans. And to supporters of the health care law, like Majority Leader Harry Reid, he’s “living in a dreamland.” Given Lee’s influence on Defund Obamacare, and the resulting government shutdown, he is also a person whose national stature may soon rise to match his influence.”
Canada’s Balanced-Budget Law Plan May Mean Easy Monetary Policy – Canada Real Time – WSJ
““I think it’s fair to say that’s a relatively aggressive stance to take,” Douglas Porter, chief economist of BMO Capital Markets, told Canada Real Time. While it’s unclear if there will be any consequences for monetary policy in the next couple of years, “in future it might imply somewhat tight (fiscal) policy and somewhat looser Bank of Canada policy,” Mr. Porter said.”
Obama’s Job Approval Declines to 44.5% in 19th Quarter
“The 19th quarter, which ran from July 20-Oct. 19, is now the third in a row in which Obama’s job approval rating has declined. The current slump followed five consecutive quarters — the 12th through the 16th — of higher job approval.”
Who Said It? President Obama Or An Infomercial? | TechCrunch
“instead of providing more details about why most people still can’t sign up for the new healthcare plans online, the press conference turned into a bizarre sales pitch for how Americans can still purchase insurance . I don’t think I’ve ever seen a U.S. Commander-in-Chief say “1-800″ so many times.”
Fed Doves Need to Think Big – Bloomberg
“I would find Evans’s plans to suppress interest rates far less troubling if I shared his confidence that the instability in the financial system had been removed. But all the big firms remain insufficiently capitalized to withstand losses in a severe recession, much less the liquidity drain that would attend a flight by short-term creditors in a panic.”
Top Bear’s Bullish Tilt Has Followers Growling – WSJ.com
It seems that some of Rosenberg’s readers were reading him as confirmation bias.
Holiday present: $3.15 a gallon gas by Christmas
This is very positive for household finances if it is driven by oversupply and not cutbacks. The US expansion needs more room to grow from increased household income.
“Gasoline prices are likely to continue sliding for the rest of the year and could fall to $3.15 a gallon by Christmas, the lowest national holiday season average since 2010.
That’s about 20 cents a gallon lower than current prices, now averaging $3.36 a gallon.
Crude oil prices fell below $100 a barrel Monday for the first time since July, settling at about $99. The 1.8% drop came on word of a fresh Energy Information Administration report on higher-than-expected domestic supplies.”
Signs of a new credit bubble emerge in business lending
“The Federal Reserve’s latest economic report raises the prospect that credit standards in loans to businesses may be slipping.”
Families With Kids Go Homeless as U.S. Rents Exceed Pay: Economy – Bloomberg
“When Montoria Freeland separated from her husband of 15 years in 2008, she left a four-bedroom house and economic security. Before long, her pay and hours as a pharmacy technician were cut and she found herself and her son facing homelessness. “
Europe
Spain’s ruling party hit by fresh slush fund allegations – FT.com
“Spain’s ruling Popular party was confronted with a fresh batch of damaging allegations about a party slush fund on Friday, after the former PP treasurer revealed in court that he personally handed cash-stuffed envelopes to one of the party’s most senior leaders.
Luis Bárcenas, the disgraced ex-party official at the centre of the affair, told a court in the city of Toledo that the recipient of the cash was Dolores de Cospedal, the PP secretary-general and a close aide to Mariano Rajoy, the prime minister. Speaking from prison via video link, he said: “It was my hand that gave the envelope to Ms de Cospedal.””
Italian unions to strike over government budget | Reuters
“Italy’s three main trade union confederations will hold rolling strikes and protests against the government’s 2014 budget plan, they said on Monday, piling more pressure on Enrico Letta’s fragile coalition.”
We should be watching this story because it has immigration and nationalist overtones within the EU. I know that in Germany for instance, despite low unemployment rates, resentment over eastern immigration exists.
“The news was today feeding long-festering resentment against the Roma community in Tallaght, with several local people telling the Daily Beast of their ‘hatred’ for the Roma.
One local person told the Daily Beast that Roma families have been settled in Tallaght by the city which has taken to using the suburb as a ‘dumping ground’ for Romanian immigrants, who are, under EU law, entitled to Irish social welfare and housing benefits.
One said that they believed the family had occupied a house in Tallaght West, a particular disadvantaged pocket of the area to the south west of the city centre.
Local people told the Daily Beast today that the family were living in private housing provided by the local council, as opposed to a traditional halting site.”
BBC News – UK QE has failed, says quantitative easing inventor
Interesting historical footnote here, but notice how Werner says the policy was about credit creation. That’s totally wrong and based on the false money multiplier way of thinking. The credit comes first and reserves are created so the CB can maintain the interest rate target. Adding reserves DOES NOT create credit.
“In the mid-1990s, Prof Richard Werner, a German academic fluent in Japanese, was working as an economist in Tokyo. Japan’s real estate bubble had burst and property and share prices were tumbling. The country was locked in a debate about the use of unconventional monetary policy to support asset prices and boost broader commercial activity.
Prof Werner submitted an article to Nikkei, a leading business newspaper, advocating a new type of radical monetary measure.
Rather than attempting to shift interest rates, he argued that the country’s central bank, the Bank of Japan should instead intervene directly to influence the size of the money supply by taking steps to encourage commercial banks to extend more credit.
Prof Richard Werner Prof Werner argued against lowering interest rates or expanding central bank reserves
“I was promoting a policy that involved more credit creation, rather than changing the price of money,” says Prof Werner.”
Asia
Singapore Shows Asia How To Crack Down on Housing Bubble – Bloomberg
“The government this year ramped up efforts to bring down property prices that surged to a record, adopting some of its strictest measures, including a cap on debt at 60 percent of a borrower’s income, higher stamp duties on home purchases and an increase in real-estate taxes. The combination and timing of the curbs is the most comprehensive among governments battling housing bubbles, according to Vishnu Varathan, an economist at Mizuho Bank Ltd.
The curbs are proving more successful than in Hong Kong and China where policy makers have experimented with a variety of initiatives to temper soaring housing markets. Home prices in Singapore have gained 33 percent since 2009, while they have more than doubled in Hong Kong in the period. “
China’s Growth Quickens, but What About Consumption? – China Real Time Report – WSJ
“China’s economy has long depended on the twin pillars of exporting manufactured goods to the rest of the world and big spending on projects like highways and airports. But that mix isn’t a recipe for long-term growth. China’s growing affluence has eroded its manufacturing cost advantages, and those big projects can be wasteful, adding to China’s overcapacity problems.
So many (though not all) economists – and, increasingly, policy makers – are looking to China’s consumers. Household spending is considered a more reliable source of growth, a bedrock of more developed economies such as the U.S. The Chinese government has made rebalancing a priority, and economists will be watching a key meeting of Communist Party officials next month to see whether Beijing will unveil new measures to empower consumers.
So how’s the rebalancing going? Judging by the third-quarter numbers, it’s unspectacular.”
Technology
Can we trust the data brokers who store our most intimate private details? | Ars Technica
“An identity theft service that prosecutors say illegally sold social security numbers, birth dates, driver license numbers, and other sensitive data for more than 500,000 people purchased much of the information from credit service Experian, according to a report published Sunday night.”
CryptoSeal VPN shuts down rather than risk NSA demands for crypto keys | Ars Technica
“CryptoSeal is investigating “alternative technical ways” to comply with US law without sacrificing user privacy, but in the meantime it is offering customers refunds as well as “one year subscriptions to a non-US VPN service of mutual selection” and “free service for one year if/when we relaunch a consumer privacy VPN service.” CryptoSeal also encouraged people to donate to a Lavabit legal fund.”
How Apple’s Address Book app could allow the NSA to harvest your contacts | Ars Technica
“Overlooked in last week’s revelation that the National Security Agency is harvesting hundreds of millions of e-mail address books around the world was this surprising factoid: Apple makes this mass collection easier because the Address Book app that by default manages Mac contacts doesn’t use HTTPS encryption when syncing with Gmail accounts.”
“The premise that Amazon can, on a whim, change its business model from selling other people’s products at a razor thin margin while investing in capital-intensive distribution to selling other people’s products at a large margin while not investing in capital-intesive distribution is not credible.
I would argue that Amazon’s existing business model is a direct consequence of the market it’s in: that it could not be anything else given the circumstances it finds itself in. Enlightenment may be an illusion.[*]
That’s not to say that there is no wisdom in the management of Amazon. Quite the contrary; recall the respect that’s called for in creating a great business. Managing the business to this point was a work of decades of vision and creativity.
What I take issue with is the premise that Amazon is the “anti-Apple” in its hunger for growth and patience for profits. Apple has its own “Amazon-like-business”: iTunes has been growing at a steady 25% or more and it also has its ancillary zero-profit hardware analogue to the Kindle called Apple TV. iTunes is a great business in the Amazon vein, harvesting hundreds of millions of users (and their credit cards.) Presumably iTunes could also some day “flip the switch” and become profitable, but something magical needs to happen. Something like becoming a payments processor or retailer of other things. Analyst beware however. There might be conditions that make such switch flipping extremely difficult.”
Sales Are Colossal, Shares Are Soaring. All Amazon Is Missing Is a Profit – NYTimes.com
This is the difficulty in assessing Amazon. No one really knows how much free cash flow the business would throw off if Amazon went cold turkey and started to run as a mature business. I remember when the Internet bubble burst, we had jitters that Amazon would go bust due to some large convertible debt payments it had to roll over or finance from free cash flow. Amazon’s ability to stop reinvesting and generate cash in that environment convinced many people that it was for real.
Now, Amazon is for real and bankruptcy isn’t the issue. But I think we are clearly at the point again where people are wondering how ‘real’ Amazon is i.e. what is its real amount of maintenence capex and how much of its reinvestment is purely to grow the business and how much is to maintain its existing businesses.
Amazon crumbles on debt, sales growth worries – CNET News
From the year 2000:
“In his report, Suria didn’t pull any punches. “From a bond perspective, we find the credit extremely weak and deteriorating,” he wrote. “The company’s inability to make hard cash per unit sold, is clearly manifested in the weak balance sheet, poor working capital management and massive negative operating cash flow – the financial characteristics that have driven innumerable retailers to disaster throughout history. “
Nokia Unveils Six Devices, Including Tablet – WSJ.com
“Lineup Designed to Help Finnish Company Regain Lost Market Share”
This is a fascinating take on how connected the world we live in is today and what that means about ubiquitous surveillance. See Bruce Schneier’s piece at CNN that I posted yesterday for a macro view of what this means.
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