Links: 2013-10-30


“Hay burbujas continuamente” | Economía | EL PAÍS

Good interview with Robert Shiller on his ideas about markets, bubbles and the economy. Highly recommended

Big banks muscle in on peer-to-peer lending –

“Earlier this year, 15 employees from Bank of America, Citigroup and JPMorgan Chase applied for a collective $235,000 worth of loans. They did not ask their own employers – some of the biggest banks in the US – for the money.

Instead they got the funds from Lending Club, part of the growing “peer-to-peer” sector that uses the internet to match directly would-be borrowers with lenders.”

High profits to keep equity bubble at bay –

“Bubbles exist when market prices become substantially divorced from the behaviour of underlying fundamentals. For equities, the most important fundamental to watch is the expected growth of profits, discounted by the required rate of return.

Many investors are concerned that the recent strong performance of profits in the developed economies cannot be sustained in the future, because it has been based on an abnormal rise in the share of profits in GDP, and a corresponding decline in the share of wages. Over very long periods, the profit share has tended to revert to its mean, and a repeat of this tendency would substantially reduce the growth of corporate earnings in the next few years.”

Bear hunting | FT Long Short

“Where are all the bears? Even some of the usual suspects have stopped growling, with David Rosenberg of Gluskin Sheff going so far as to dispute the idea that he’s a permabear. There are a few still carrying the flame – Russell Napier, the stock market historian, thinks the S&P 500 will fall to 500 – but with the S&P now at 1,772 there are few willing to listen to the growls.”

North America

Calculated Risk: Freddie Mac: Mortgage Serious Delinquency rate declined in September, Lowest since April 2009

“Freddie Mac reported that the Single-Family serious delinquency rate declined in September to 2.58% from 2.64% in August. Freddie’s rate is down from 3.37% in September 2012, and this is the lowest level since April 2009. Freddie’s serious delinquency rate peaked in February 2010 at 4.20%.”

Calculated Risk: Fed: Household Debt Service Ratio near lowest level in 30+ years

“the homeowner’s financial obligation ratio for mortgages (blue) is at a new record low. This ratio increased rapidly during the housing bubble, and continued to increase until 2008. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined to an all time low.”

New Retirement Trend: One-Third of Americans Need to Work Until 80

“According to the just-released annual Wells Fargo & Company Middle Class Retirement Study, about 60% of middle-class Americans say that getting monthly bills paid is their top concern. This number stood at 52% in the 2012 study. (Source: Wells Fargo & Company, October 23, 2013.)

But there are more depressing results of the survey…

34% of middle-class Americans say that they will work until they are 80 years old, because they will not have enough money saved up for retirement! In 2012, the number of respondents with a similar opinion stood at 30%; and in 2011, this number was at 25%. While the U.S. economy is supposed to be in recovery mode, the trend shows more Americans will need to work after retirement.”

Fed Balance Sheet Not Seen Returning to Normal Until at Least 2019 – Real Time Economics – WSJ

“The Federal Reserve’s balance sheet, which is fast approaching $4 trillion in total assets, won’t return to normal until sometime between mid-2019 and mid-2021, according to new projections prepared by central bank researchers.”

Inflation Stays Tame, Supporting Fed on Easy-Money Strategy –

“The consumer-price index, which measures what Americans pay for everything from bread to dental care, rose 0.2% from August, the Labor Department said Wednesday. Core prices, which exclude volatile food and energy costs, increased 0.1%.

From a year ago, overall prices were up 1.2% while core prices were up 1.7%.”

Fed to maintain aggressive policy stimulus amid soft data | Reuters

Those who were saying the market was way ahead of itself in pricing in early hikes have been vindicated. Now, the market realizes that the Fed will not hike any time soon.

Brad DeLong : Is There Any Appropriate Reaction to This on the Part of Eugene Fama?

“Santelli was watching financial markets in the spring, and registered the datum that when Ben Bernanke talked about shifting the future path of quantitative easing purchases, asset prices jumped. And Santelli is trying to incorporate this into his thinking–hence he sees Fama’s claim that QE has no effect on interest rates as something so bizarre that it just doesn’t register on his mind.”

The One Thing That Makes Eugene Fama Question Market Efficiency

“All the hullaballoo about Fed tapering, quantitative easing and artificially low interest rates is silly. If “anything will shake my faith” in efficient markets, this is it, famed finance professor Eugene Fama told attendees at IMCA’s annual conference in Chicago, although his explanation for his belief left some advisors asking for more detail.”

U.S. Death Penalty Support Lowest in More Than 40 Years

“Sixty percent of Americans say they favor the death penalty for convicted murderers, the lowest level of support Gallup has measured since November 1972, when 57% were in favor. Death penalty support peaked at 80% in 1994, but it has gradually declined since then.”

U.S. consumer confidence at six-year high, Europeans also more upbeat – survey | Reuters

These data reflect the situation before the shutdown, when confidence plummeted. Other surveys from the shutdown period show big dips. We will need to see the data in two months, post shutdown.

Mexican bad debt: piling up | beyondbrics

“bad news earlier this month on mortgage arrears, which are also at a 10-year high.

What has been driving the bad debt pileup? Arrears on credits to construction companies rose 156 per cent – clearly a result of Mexico’s homebuilders’ crisis. But consumer credit bad debts also jumped by a third.

Standard & Poor’s has already warned about this worrying trend, which has deepened as the year has gone on.”


Bank Born Out of Black Death Struggles to Survive – Bloomberg

“Banca Monte dei Paschi di Siena SpA, Italy’s third-largest lender, is struggling to survive as it seeks to repay a second bailout or face nationalization. Its downfall proved a boon to global investment banks. They offered merger and investment advice to executives beholden to politicians that helped wipe out 93 percent of Monte Paschi’s value. Then they sold it complex derivatives that hid, even worsened the losses.

Efforts to rescue the 541-year-old lender have cost Italian taxpayers 4.1 billion euros ($5.6 billion). “

Dutch Copy Fannie Mae Seen by BlackRock as Taxpayer Risk – Bloomberg

“The Dutch, whose economy is suffering from a housing-market collapse made worse by tighter regulation, plan to issue government-backed mortgage bonds to loosen lending and ensure the country avoids a repeat of the 2008 crisis when credit dried up.

Banks, pension funds and the Dutch government agreed last month to establish a finance company that will buy some of the highest-rated securitized mortgages from lenders with funding from government-guaranteed home-loan bonds. The program would issue at least 50 billion euros ($69 billion) within five years to reduce lenders’ reliance on capital markets for funding. “

Greek Government Bonds Pay Off Big for Fund Managers –

“Three Funds Deliver Returns of More Than 100% in the Past Year”

The euro zone: Europe’s other debt crisis | The Economist

“The corporate-debt problem is worst in Portugal, Spain and Italy, where the IMF says that 50%, 40% and 30% of debt, respectively, is owed by firms which cannot cover their interest payments out of pre-tax earnings. These firms are unable to invest or grow. They are zombie companies, much like those wafting through Japan in the 1990s.

The household-debt burden is especially heavy in Ireland and, surprisingly, the Netherlands—exceeding 100% of GDP in both places. Paying the mortgage strains household finances and crimps consumer spending. Whereas in America the share of income that the average household spends on servicing debt is now the lowest in decades, in Spain it is higher than during the boom years.

If the euro zone’s recovery is to strengthen, this burden of private debt must be lightened. According to the IMF, private debt is a bigger drag on Europe’s growth than government debt. One prerequisite, which even Germany’s chancellor, Angela Merkel, is beginning to accept, is less draconian austerity. It is virtually impossible for the private sector to reduce debt when governments try to slash their borrowing too. Another necessity is for banks to recognise, and write down, non-performing loans.”

Farmland outperforming central London property – Telegraph

“Farmland in Britain has outstripped prime central London property for the first time in 16 years, amid predictions the average price of an acre could soon hit £11,000. “

Währungsunion: Defizitsünder sollen sich Reformen unterwerfen – Wirtschaftspolitik – FAZ

Jeroen Dijsselbloem, as head of the Eurogroup, has proposed making changes to the stability and growth pact in Europe in order to limit the ability of deficit countries to backload their austerity. If these countries what backloading, they must commit to structural reform, Dijsselbloem told the German newspaper FAZ. I think this is an important piece of news that I am not seeing in the English-language press.

BBC News – Turkey’s Bosphorus sub-sea tunnel links Europe and Asia

This is very cool.

“The Marmaray tunnel is the world’s first connecting two continents, and is designed to withstand earthquakes.

It was inaugurated on the 90th anniversary of the Republic of Turkey.”


BIS sees risk of 1998-style Asian crisis as Chinese dollar debt soars – Telegraph

“The world’s banking watchdog warns that foreign loans to companies and banks in China has tripled over the last five years and may be large enough to set off financial tremors in the West “

China banks’ bad loans point to trouble ahead –

“China’s state-owned banks reported healthy profit growth in the third quarter, but big increases in loan impairments and decreases in their cushions to absorb losses pointed to accumulating stresses in the country’s financial system.

Industrial and Commercial Bank of China, the world’s biggest bank by market value, reported a 7.6 per cent increase in net profits from Rmb62.4bn to Rmb67.2bn in the July-September period, about two percentage points below forecasts. A relatively big rise in bad loans was one of the main sore spots for the bank – they increased at an annualised pace of 30 per cent in the third quarter.”

Are China’s Banks Next? by Simon Johnson – Project Syndicate

“Despite its advantages, China harbors a weakness that is quite similar to what has caused so much trouble in the US and Europe: big banks that have an incentive not to be careful. While China may enjoy some years of greater prominence, its encouragement of its financial institutions to go global is likely to lead to serious trouble.”

Property Measures Drive Divorces in China – China Real Time Report – WSJ

““The larger-than-usual rise in divorces could be attributed to the property policies,” said Li Ziwei, vice president of the Beijing Marriage and Family Building Association. “People are thinking of their own interests, and if a divorce enables them to save on paying taxes, or to qualify to buy an additional home, who’s to judge them?”

In March, China’s State Council, or cabinet, said it would strictly enforce a 20% tax on profits from the sale of the seller’s second or subsequent home. Typically, most sales are taxed at only 1% to 3% of the home’s value.”

Abenomics One Year On | Gavyn Davies

“The early results of the BoJ policy changes have been encouraging. Although the huge balance sheet expansion has had the usual limited effects on bank lending, it has sent a powerful signal to the foreign exchange markets, which have devalued the yen by about 22 per cent. It is this devaluation which has been responsible for the 59 per cent rise in the equity market. Devaluation was not the stated objective of the new strategy, but it has been by far its most important instrument so far.

The recovery in GDP growth to about 4 per cent at an annualised rate in the first half of 2013 has also been encouraging.

More important for the long term strategy, inflation has broken into positive territory after many years below zero.

Without significant structural reforms, the markets may focus their attention back onto the sustainability of fiscal policy, which is very far from being fully addressed. In fact, when combined with the ageing of the population, this is by a long distance the most intractable problem which Japan faces.”

BBC News – India raises interest rates for the second month running

“India’s new central bank governor has raised interest rates for the second consecutive month by a quarter of one percent to 7.75% to try to fight inflation.”


Samsung is pulling another Amazon on Android, but this is even bigger — Tech News and Analysis

“At this point, Samsung is taking advantage of its dominant position as the Android device leader to become the “de facto” Android phone and crush any remaining competition. And I’m not sure what Google can do about it save for pulling more and more key functions out of the Android software and instead make them standalone apps in the Google Play store. Even if it does, the damage is already done from where I stand: Samsung has built its mobile business on Android and can now push forward with less “help” from Google.”

LinkedIn Beats In Q3 With Revenue of $393M, EPS of $0.39, But Weak Q4 Guidance Sends Its Stock Lower | TechCrunch

“Investors, it appears, are disappointed with what appears to be slowing top-line growth at LinkedIn. LinkedIn is a very richly valued company. Before its stock moved, following its earnings release, LinkedIn had a trailing PE ratio in the hundreds, a forward PE of 111, and a PEG ratio of 2.92, according to Yahoo Finance. That means it cannot afford missteps, as investors are expecting consistently strong results.”

Review roundup: Apple’s new iPad Air is light, powerful with extended battery life

AnandTech | The iPad Air Review

“The weight of the iPad Air does its name justice. Without any covers attached the iPad Air weighs an even pound. Even the LTE version tips the scales at just 1.05 lbs. I weighed my LTE review sample at 474 grams, that’s still a lot compared to a 7 or 8-inch tablet, but compared to the 3rd and 4th gen iPads it’s a huge improvement.

Two weeks ago I had all but written off the bigger iPad. It was too bulky and just no where near as portable as the iPad mini. Once the latter gets a Retina Display and equal hardware across the board, why would anyone consider the bigger model?

The iPad Air changed my perspective on all of that. It really does modernize the big iPad.”

iPad Air Review by Walt Mossberg –

“I’ve been testing the iPad Air for about a week and found it a pleasure to use. This new iPad isn’t a radical rethinking of what a tablet can be, but it’s a major improvement on a successful product. It is the best tablet I’ve ever reviewed.

These latest iPads do have some downsides. They are pricier than many competitors. Samsung’s Galaxy Tab 3 10.1 can be bought starting at $360. Dell has just introduced a new small tablet, the Venue 7, for $150.

And iPads can get even more costly once you start adding features, because Apple charges hefty prices for extras like cellular connectivity and more storage. A fully tricked-out iPad Air, with both Wi-Fi and cellular connectivity and the maximum 128 gigabytes of storage (up from 16 gigabytes in the base model) will set you back $929.”

iPad Air Review: Apple Makes Big Tablets Beautiful All Over Again | TechCrunch

“It doesn’t feel arduous doing work on the iPad; you can start to remember why people touted the iPad as a PC-killer when it debuted, and it edges ever closer to being able to truly replace notebooks for the majority of everyday users.

The iPad Air is a huge improvement over the iPad 4th-gen, or the iPad 2, pictured in the gallery. Its form factor is the best currently available for a 10-inch tablet, and it provides a great blend of portability and usability that leans towards the media device end of the spectrum.”

Nokia Had A Stunning Q3 In North America, With Device Volume Up 367% From Last Year | TechCrunch

“Nokia’s device unit volume in North America spiked from 500,000 units in the second quarter of 2013 to 1.4 million devices in the third. For comparison, in the first quarter of this year, Nokia shipped 400,000 devices in North America. In the year ago third quarter, that figure was 300,000. To therefore have Nokia almost triple its volume in the region in a single quarter, comparing sequentially, is more than surprising.”

Civil Liberties

Proposed USA FREEDOM Act Would Dramatically Curtail The NSA’s Surveillance | TechCrunch

“Senator Patrick Leahy and Representative Jim Sensenbrenner have introduced a new bill, called the Uniting and Strengthening America by Fulfilling Rights and Ending Eavesdropping, Dragnet-collection, and Online Monitoring Act (USA FREEDOM Act), designed to dramatically curtail the ability of the NSA to collect information on the average United States citizen.

The bill is broad. Its key elements are the reformation of how Section 215 of the Patriot Act, and Section 702 of the Foreign Intelligence Surveillance Act (FISA) can be used by the NSA to support their operations. Limiting those authorities could dramatically undercut the NSA’s reach.”

NSA Spying Allegations Put Google on Hot Seat in Brazil – Bloomberg

“The U.S. National Security Agency’s eavesdropping on foreign heads of state from Angela Merkel to Dilma Rousseff is poised to produce its first high-profile corporate casualty: Google (GOOG) Inc.’s operations in Brazil. “

U.S. Says France, Spain Aided NSA Spying –

“Millions of phone records at the center of a firestorm in Europe over spying by the National Security Agency were secretly supplied to the U.S. by European intelligence services—not collected by the NSA, upending a furor that cast a pall over trans-Atlantic relations.

The revelations suggest a greater level of European involvement in global surveillance, in conjunction at times with the NSA. The disclosures also put European leaders who loudly protested reports of the NSA’s spying in a difficult spot, showing how their spy agencies aided the Americans.”

Germany must stop moralising and embrace espionage –

This piece basically calls for a cyberwar. Is that where this is headed – a technology, cyberspace arms race? That might be the answer. Sad

US spying denial poses headache for France –

“When Le Monde newspaper first published the allegations that the NSA had swept up data on 70m French telephone calls in the space of a month last December and January, President François Hollande and his government reacted with instant indignation.

The US ambassador was summoned to the Quai d’Orsay, the imposing foreign ministry in Paris, and Mr Hollande and his ministers demanded swift explanations from Washington”

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