Links: 2013-10-24
Markets
Bubble watching, with Albert | FT Alphaville
Albert makes some good points here with his charts. But this upcycle has had legs and no signs of its coming to an end are immediately present. That IS the problem for investors.
“Albert Edwards, the SocGen strategist, is pretty much beside himself. His latest Global Strategy Weekly recycles his usual spit, sweat and fury, thrown again at “bozo” policymakers.”
United States
Currency Talk: Dollar Weakness Here to Stay Amid U.S. Uncertainty – Real Time Economics – WSJ
““The Fed is caught in a corner in a street it cannot get out [of],” he said. Ongoing Fed bond purchases will keep the dollar under pressure, and instead send investors in search of higher-yielding assets, like equities and emerging-market assets, he added.
In that scenario, U.S. Treasurys should also outperform, he said, adding that he expects the yield on the 10-year U.S. Treasury to stay below 2.5%, and possibly head closer to 2%, in coming months. The 10-year yielded 2.505% on Thursday. Bond prices move inversely to yields”
Why Hasn’t the Budget Deficit Decline Hurt Corporate Profits More? | PRAGMATIC CAPITALISM
“Profits have definitely declined to a slower pace (5% YoY in 2013 vs 7.25% in 2013), but it hasn’t been catastrophic even though we’ve seen a pretty substantial decline in the government’s deficit. Why not? Well there are a lot of moving parts in the profits equation. And you can’t really apply the old “ceteris paribus” effect that economists love to apply to certain environments because the economy is non-linear and dynamic. When one piece of the puzzle changes it’s likely the result of other pieces changing at the same time.
If we look at the components of profits the overall changes (or no changes) since 2012 have been:
a substantial decline in overall government deficits (-31% YoY)
modestly expanding private investment (+7.2% YoY)
a substantial decline in private saving (-15% YoY)
some deterioration in foreign saving (-5.8% YoY)
a big rise in dividend payments (+40%)
In other words, the two main drivers that have offset the decline in the budget deficit have been dividend payments and household saving declines while investment growth has remained pretty steady in the high single digits.”
Fed should try to break boom-bust cycle, says ex-RBNZ chair | Reuters
“The U.S. Federal Reserve should try to stop a damaging cycle of booms and busts by breaking investors’ expectations that it will mop up after future asset price bubbles, one of the pioneers of inflation-targeting said.
Arthur Grimes, who developed inflation-targeting at the Reserve Bank of New Zealand in the late 1980s, said the Fed had inadvertently made bubbles more likely by promising to help the economy after they burst.”
NY Fed Fired Examiner Who Took on Goldman – ProPublica
“Before she could formalize her findings, Segarra said, the senior New York Fed official who oversees Goldman pressured her to change them. When she refused, Segarra said she was called to a meeting where her bosses told her they no longer trusted her judgment. Her phone was confiscated, and security officers marched her out of the Fed’s fortress-like building in lower Manhattan, just 7 months after being hired.
“They wanted me to falsify my findings,” Segarra said in a recent interview, “and when I wouldn’t, they fired me.””
Here’s Why Winning The House Is Still a Long Shot For Democrats | TIME.com
“Public opinion polls since the shutdown and debt-ceiling standoff ended on Oct. 17 consistently show Americans blaming Republicans most for the Washington dysfunction. A CNN poll Tuesday found that three-quarters of Americans think most Republican members of Congress don’t deserve re-election. In an ABC poll released the same day, only 43 percent said they approve of their own member of Congress, and just 25 percent of registered voters said they’re inclined to re-elect their representative. A day after Congress voted to end the shutdown, the influential Cook Political Report moved its forecasts on 14 congressional races in Democrats’ direction (and one seat in the GOP’s direction).
But in politics, money and good will isn’t everything. Here are four reasons why, as many party insiders privately acknowledge, House Democrats still face very long odds in 2014.”
Europe
Spain still trapped in ‘perennial jobs slump’ despite tourism surge – Telegraph Blogs
I would like to know what the transmission mechanism is for HGDP targeting. What gets one from a 5% target to actually achieving that target? I am sceptical about monetary-only solutions to debt deflation.
“You cannot ask any more from the long-suffering Spanish people. Europe must do its part. A nominal GDP target of 5pc would work miracles in Euroland. The ECB refuses to do this. It is monetary policy failure.
Let us place the blame squarely where it belongs.”
Letta wil meer Europees geld : De Tijd
This Dutch article is titled simply, “Letta wants more money”. The gist here is that the Italian PM wants to get the EU to reduce the pain in Italy by making EU funds available as a quid pro quo for structural reform. We will see movement on this issue when the SPD joins the coalition in Germany.
BBC News – Eurozone business growth slows
“The preliminary Purchasing Managers’ Index (PMI) from research firm Markit fell to 51.5 from 52.2 in September.
However, a reading above 50 still implies expansion, and activity has now grown for four months in a row.
Markit said expansion was “broad-based” across the eurozone, although growth slowed in both Germany and France.”
Euro-Krise: Arbeitslosigkeit Frankreichs auf neuem Höchststand – Konjunktur – Politik – Handelsblatt
Unemployment has reached a record in France at 3.29 million. The government says it sees a positive trend developing, but the numbers give the lie to this talk. I see this as a reason to see Europe’s incipient recovery as extremely weak.
So stark wie zuletzt 2011: Euro lugt über die Schwelle – n-tv.de
The fall in the dollar during and after the shutdown debacle is turning into a problem for the euro. This German article highlights the dollar at 1.38 to the euro, the lowest since 2011.
Citi forecasts Greek devastation, unstoppable debt spirals in Italy and Portugal – Telegraph Blogs
“If Citigroup is right, the slight rebound in Europe over the summer will not be enough to stop Club Med going from bad to worse, with a string of soft defaults/restructurings.
I pass their latest forecasts on to readers. I do not endorse them.”
Europeans Import U.S. Mortgage Models – WSJ.com
“The Dutch government recently announced it will seek to develop its own version of Fannie and Freddie to take some pressure off its banks’ balance sheets and help revitalize the local housing market. Meanwhile, U.K. and Italian officials are implementing policies aimed at helping more people buy homes by getting the state to partly guarantee certain types of home loans-a project that resembles the mandate of the U.S. Federal Housing Administration.
The shift toward explicit government subsidies in these European mortgage markets is raising eyebrows. The plans reflect mounting concern among policy makers that a dearth of bank lending is stymying fragile economic recoveries. But some experts question whether these policies will instead stoke housing bubbles or lead to a system where banks increasingly lean on governments to back their lending to riskier borrowers.”
UniCredit may sell stake in German unit: report – MarketWatch
“Italy’s UniCredit SpA (UCG.MI) is considering floating a minority stake in its German unit HVB on the stock market to pass the asset quality review the European Central Bank is set to conduct next year, German weekly magazine Der Spiegel says in its Sunday edition, without saying where it obtained the information. “
Europe already has one foot in ‘Japanese’ deflation grave – Telegraph
“Europe is sliding into a deflationary trap, displacing Japan as the world’s epicentre of policy error. The effect is already causing debt ratios in half a dozen countries to ratchet upwards to the point of no return, making a mockery of the EMU debt crisis strategy. “
German private sector expands at slower pace in October: PMI | Reuters
“Germany’s private sector grew at the slowest pace in three months in October, a survey showed on Thursday, in a sign that Europe’s largest economy is expanding, but only moderately.
Markit’s preliminary composite Purchasing Managers’ Index (PMI), which tracks growth in both the manufacturing and services sector and covers more than two-thirds of the economy, slipped to 52.6 in October from 53.2 the previous month.”
Technology
Twitter IPO pegs valuation at modest $11 billion | Reuters
“Seeking to avoid a repeat of Facebook Inc’s much-maligned public debut, Twitter Inc revealed more modest ambitions on Thursday, saying its initial public offering would raise up to $1.6 billion and value the company at up to $10.9 billion”
Microsoft beats profit forecasts, shares jump | Reuters
“”Beating on revenue and earnings handily will boost confidence that the reorganization is pivoting them in the right direction.””
BBC iPlayer viewers abandon computers for smartphones and tablets – Telegraph
The move to mobile is everywhere
LinkedIn Hits 38% Of Unique Visits From Mobile, Up From 8% In Q1 2011 | TechCrunch
The shift to mobile is inexorable and breathtaking in speed. Microsoft has to be very worried about these trends, the reason it has pulled the trigger on Nokia. But it’s tablet offerings are still way to expensive.
Poor mobile data coverage in Britain is a result of limited competition
Wall Street pleased by high-profit pricing of Apple’s new Retina iPad mini, iPad Air
“Analyst Timothy Acuri said the higher $399 starting price for the new iPad mini with Retina display should help drive Apple’s margins higher.
He believes the fact that the device is $70 more expensive than last year’s model, and that it will launch later in November, are signs that Apple does in fact face yield issues with the 7.9-inch Retina display — something that was rumored before the product was announced on Tuesday.”
Analysis: T-Mobile strategy could eat into business of ATandT, Verizon | Reuters
The benefits of competition will accrue to consumers. In economics, the ideal market is supposed to be one in which both buyers and sellers are many and competition is unfettered by monopoly or oligopoly pricing. We should want more competitors and lower prices.
“Intensifying competition from T-Mobile, the No. 4 wireless provider, and a challenges from No. 3 Sprint Corp, may deplete revenue growth at AT&T and the market-leader Verizon Wireless at time of slowing overall growth.”
Mobile Advertising Begins to Take Off – WSJ.com
“Mobile-ad spending in the U.S. totaled $3 billion in the first half, up from $1.2 billion a year earlier, the Interactive Advertising Bureau estimates. “
PC Sales See Single-Digit Drops in 3rd Quarter – WSJ.com
“IDC said world-wide PC shipments fell 7.6%, less than the 9.5% drop it had projected. Rival Gartner, meanwhile, put the decline at 8.6%, in line with expectations. Both firms reported double-digit declines in July for the second quarter.
Computer makers have been going through tough times lately, in large part because consumers have put new spending into devices like tablets and smartphones instead of upgrading their laptop PCs. “
‘Dutch sandwich’ grows as Google shifts €8.8bn to Bermuda – FT.com
“Google funnelled €8.8bn of royalty payments to Bermuda last year, a quarter more than in 2011, underlining the rapid expansion of a strategy that has saved the US internet group billions of dollars in tax.
By routing royalty payments to Bermuda, Google reduces its overseas tax rate to about 5 per cent, less than half the rate in already low-tax Ireland, where it books most of its international sales. “
T-Mobile Announces Uncarrier For Tablets, 200MB Of Free Monthly LTE Data For All Compatible Devices
This is why it is good that the AT&T – T-Mobile merger was blocked.
“you should be able to buy a compatible tablet, like the new Nexus 7 for example, take it to T-Mobile, and leave with a SIM and free 200MB monthly data plan. No fees, no charges, no questions asked. This actually sounds too good to be true, so we’ve reached out to T-Mo for clarification and will update with a response as soon as we hear something back.
Of course, those who need more than 200MB of data can opt for a higher plan, though charges will apply (naturally). Current T-Mo customers can grab 500MB of data for $10 a month, and it jumps in 2GB increments for $10 each there.”
Civil Liberties
U.S. Internet Users Less Concerned About Gov’t Snooping
“Despite revelations this year that the National Security Agency has been monitoring Americans’ activities online, U.S. Internet users are not as concerned about the government’s having access to suspects’ home computers or email accounts as they were in 2000 — during an earlier Internet age.”
Italian PM says spying by allies unacceptable | Reuters
“Alleged monitoring of Italian telecommunications by U.S. and British intelligence is “inconceivable and unacceptable”, Prime Minister Enrico Letta said on Thursday.”
Merkel Calls Obama Over Suspicions US Tapped Her Mobile Phone – SPIEGEL ONLINE
“Berlin is taking seriously indications that Chancellor Angela Merkel’s mobile phone might have been tapped by US intelligence, according to SPIEGEL information. Merkel spoke with President Barack Obama on Wednesday about her concerns.”
Merkel Comments on Allegations the US Spied on Her Cell Phone – SPIEGEL ONLINE
“German Chancellor Angela Merkel broke her silence Thursday over German allegations that US intelligence agencies tapped her cell phone. Upon arriving at an EU summit in Brussels, Merkel told reporters that the trust between Germany and the US “now has to be built anew.””
“The European Parliament has asked the European Commission to suspend a deal with the U.S. that allowed the sharing of financial data, in order to track terrorist funding. However, that call appears to have been rebuffed.”
Canadians sue spy agency over mass data collection — Tech News and Analysis
“A Canadian spy agency is collecting meta-data about its citizens’ phone records and internet activity, according to a new lawsuit, which is the first such case in the country since the PRISM scandal broke in the US this summer.”
““Six government employees, plus two contractors including Edward Snowden, have been subjects of felony criminal prosecutions since 2009 under the 1917 Espionage Act, accused of leaking classified information to the press—compared with a total of three such prosecutions in all previous U.S. administrations,” said the committee’s report, prepared by Leonard Downie Jr., the former executive editor of The Washington Post.
In a 2008 campaign speech, however, Obama said: “I’ll make our government open and transparent so that anyone can ensure that our business is the people’s business. No more secrecy.”
Downie wrote that, because of the revelations of the NSA’s surveillance efforts by Snowden, government officials are “reluctant to even discuss unclassified” information amid fears that “leak investigations and government surveillance make it more difficult for reporters to protect them as sources.””
Report: Obama Brings Chilling Effect on Journalism | TIME.com
“The Committee to Protect Journalists conducted its first examination of U.S. press freedoms amid the Obama administration’s unprecedented number of prosecutions of government sources and seizures of journalists’ records. Usually the group focuses on advocating for press freedoms abroad.
Leonard Downie Jr., a former executive editor of The Washington Post, wrote the 30-page analysis entitled “The Obama Administration and the Press.” The report notes President Barack Obama came into office pledging an open, transparent government after criticizing the Bush administration’s secrecy, “but he has fallen short of his promise.””
“Given its roots as a project born at the U.S. Naval Academy, it’s a tad ironic that the NSA dislikes it so much, but it’s pretty clear from a slide deck on the subject leaked by former NSA contractor Edward Snowden and published by The Guardian today that its opinion is clear. The title of the deck is “Tor Stinks.””
Want to Evade NSA Spying? Don’t Connect to the Internet | Wired Opinion | Wired.com
“Since I started working with Snowden’s documents, I have been using a number of tools to try to stay secure from the NSA. The advice I shared included using Tor, preferring certain cryptography over others, and using public-domain encryption wherever possible.
I also recommended using an air gap, which physically isolates a computer or local network of computers from the internet. (The name comes from the literal gap of air between the computer and the internet; the word predates wireless networks.)
But this is more complicated than it sounds, and requires explanation.”
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