September Looking Good – Tim Duy’s Fed Watch
“A lot of data will be coming in the door over the next week and a half, culminating in the all-important employment report on Friday, June 5. I think even a moderately positive run of data will further cement a September shift. And I think the Federal Reserve would place less weight on a weak employment report than a strong employment report. The recent pattern of general upward revisions argues for a asymmetrical response. Moreover, I sense they are wary of being trapped by one weak number – I don’t think they would have expanded QE last September if they knew that job growth for August was 165k rather than the initially reported 96k. They don’t want to make that mistake again.
Bottom Line: I think the Federal Reserve is leaning toward a September policy shift. While it is as always data dependent, I think the data will need to be pretty weak to push the Fed to December. “
Steady As She Goes – Tim Duy’s Fed Watch
“Policymakers are trying to look past the fiscal drag to see if it is bleeding through to the broader economy. If not, they will conclude that growth is set to jump next year as the fiscal impact wanes. And they want to be ahead of the jump with respect to QE. Hence why the next few months of data are so important.
Bottom Line: Today’s data is not likely to have an impact on monetary policy. “
The Frannie gamble | Felix Salmon
“Every so often the financial markets throw up a security which doesn’t make any sense from an intrinsic-value perspective but which traders love to trade anyway. A large amount of cocktail chatter than springs up around the question of whether this is all just a game, where traders try to second-guess each others’ moves, or whether there might actually be some value buried in there somewhere.”
Fed Says U.S. Household Debt Declined to 2006 Level – Bloomberg
“Household debt fell to $11.2 trillion in the first quarter compared with a peak burden of $12.7 trillion in the third quarter of 2008. Consumers reduced debt by $110 billion after increasing their borrowing by $31 billion in the fourth quarter of 2012, while delinquency rates fell “across the board,” the Fed district bank said in a statement. Student debt bucked the trend, rising to a record $986 billion.
“Household deleveraging has resumed its previous trajectory,” Wilbert van der Klaauw, a senior vice president and economist at the New York Fed, said today in a statement. “We’ll look to see if this pace of debt reduction and delinquency improvements will persist.””
“Borrowing against brokerage accounts hit an all-time high earlier this year, according to data from FINRA, and has continued to go higher. Margin loans outstanding totaled nearly $409 billion at the end of April. That compares to $381 billion back in July 2007, the last time stock-market-fueled lending peaked.
Debt is often seen in bubbles, and loose lending was a key part of what led to the housing bust. So the recent rise in stock market borrowing has some people nervous, especially at a time when the market is already making new highs, and seemingly headed straight up. Despite being down on Wednesday, the market has not suffered a three-day string of losses all year, which is not typical. Nonetheless, according to a recent Wall Street Journal article, investors should be less worried about all this margin debt because people aren’t using the borrowed funds to buy more stocks, they are using it as a cheap source of fast cash.”
Don’t be fooled by the false economic recovery | Heidi Moore | Comment is free | guardian.co.uk
“The reason to maintain skepticism of good times a-coming is that an economic recovery can – and is – used to package a lot of political snake oil. As long as people believe in a recovery, Congress can keep ignoring the unemployment and equality crises and enjoy ginning up imaginary problems like the plague of corporate tax rates. If Americans believe in a recovery, CEOs can keep claiming that they don’t need to invest in the United States or hire American workers.
A recovery allows real estate agents and banks to tell Americans that they can’t borrow money for the home they want, that they can’t participate in the housing market, while wealth private investors scoop up as much as they can. A recovery allows lawmakers to pretend that their destructive policies of deficit cutting and austerity were productive, rather than destructive.
A mythical recovery, in short, gives cover to a lot of irresponsible people hoping that Americans won’t look behind the curtain.”
Average US Household Far From Regaining Its Wealth – NYTimes.com
“The average U.S. household has a long way to go to recover the wealth it lost to the recession, a report by the Federal Reserve Bank of St. Louis concluded Thursday.
The typical household has regained less than half its wealth, the analysis says. A separate Federal Reserve report in March calculated that Americans as a whole had regained 91 percent of their losses.
Household wealth plunged $16 trillion from the third quarter of 2007 through the first quarter of 2009. By the final three months of 2012, American households as a group had regained $14.7 billion.
Yet once those figures are adjusted for inflation and population growth, the average household has recovered only 45 percent of its wealth, the St. Louis Fed concluded.”
Analysis: Europe’s austerity-to-growth shift largely semantic | Reuters
“To listen to some European leaders, especially in France, you would think the era of austerity was over and the euro zone was going full steam ahead to revive economic growth.
In a striking change of tone, European Commission President Jose Manuel Barroso said last month that austerity – the policy of cutting public debt by reducing spending and raising taxes – had reached the limits of public acceptance.
In reality, the shift is more in words than deeds. The rhetoric has changed but there has been no policy U-turn.”
UK house prices again up in May, says Nationwide | Money | guardian.co.uk
“Housing market continues to gain pace with 0.4% rise in May according to figures from Nationwide building society
Nationwide’s latest house price index showed the average price of a UK home increased to £167,912 during the month, up 1.1% on May 2012’s figure.”
No saviour in sight as world credit cycle rolls over – Telegraph
“The US may yet shake off its fiscal tightening this year, the most in half a century, but as David Rosenberg, from Gluskin Sheff, points out, real personal income fell at a 5.8pc rate in the first quarter. It is hard to spend your way through that sort of drop.
After almost five years we are still in a contained global depression, struggling with a world record saving rate of 25pc, and a chronic shortage of demand. The US has kept the world afloat by running down its own saving rate to 2.7pc this year. This is not a remotely tenable equilibrium. Hang on to your seats when that snaps back.”
French jobless total rises to fresh record in April | Reuters
“The rise took the number of registered job seekers in mainland France to 3,264,400, the worst level since records began in 1996 and marking two uninterrupted years of monthly rises.
Looking at the last five years, it was the 53rd month out of 61 showing a rise, highlighting France’s chronic job crisis as the economy fell back into recession in the first quarter and jobless figures are being driven up by industrial layoffs.”
Exclusive: Europe plans major scaling back of financial trading tax | Reuters
“European countries plan to scale back a proposed financial transactions tax drastically, initially imposing a tiny charge on share deals only and taking much longer than originally intended to achieve a full roll-out.”
Japan’s April Core Consumer Price Index Falls 0.4% Year-on-Year
“Japan’s core consumer prices fell 0.4 percent in April from a year earlier, marking the sixth straight month of declines, government data showed on Friday, underscoring the challenges the central bank faces in meeting its 2 percent inflation target.
The fall in the core consumer price index, which includes oil products but excludes volatile prices of fresh food, matched a median market forecast, and followed a 0.5 percent year-on-year decline in March.”
Japanese Housewives Cooling on Aussie Uridashi – Bloomberg
“Japanese individual investors, a group often nicknamed Mrs. Watanabe because many are housewives, are piling into local assets as unprecedented Bank of Japan monetary easing drives the best equities gains in the developed world. Pacific Investment Management Co. said yesterday Stevens is likely to lower the RBA’s benchmark interest rate again after cutting it on May 7 to a record 2.75 percent. The yield premium benchmark Australian bonds offer over Japan’s touched a half-year low this month.
“What is becoming clear is that Japan is falling out of love with new buying of Australian dollar assets,” Martin Whetton, a Sydney-based interest-rate strategist at Nomura Holdings Inc., wrote in a May 25 e-mail. “If the RBA continues to cut rates, the investment is likely to remain light.””
“We believe New Zealand’s economic vulnerabilities, including a material dependence on external borrowings, persistent current account deficits, and recent strong growth in house prices, could escalate. In our view, this increases the risk of a deterioration in New Zealand banks’ credit qualities.
• As a result, we are revising our outlooks on eight New Zealand banks to negative from stable. The financial institutions affected are: Co-operative Bank (The), Heartland Bank Ltd., TSB Bank Ltd., Credit Union Baywide, Credit Union South, First Credit Union, New Zealand Association of Credit Unions, and Police and Families Credit Union. The negative outlook does not reflect deterioration in our assessment of bank-specific credit factors. “
Pimco Flags RBA Rate Cuts as New Normal Arrives Down Under – Bloomberg
“Australia’s central bank may need to cut record-low interest rates at least two more times as mining investment peaks and slowing growth in China damps exports, said Pacific Investment Management Co., manager of the world’s biggest bond fund.
With resources investment providing 60 percent of Australian economic growth last year, policy makers need to act to support other sources of domestic demand, Sydney-based portfolio managers Adam Bowe and Robert Mead said today. The Aussie dollar is still high enough to restrict the economy even after dropping to a 1 1/2-year low, they said.”
New BoE chief Carney will devalue sterling, Pimco warns – Telegraph
“Mark Carney will try to devalue the pound by as much as 15pc after he takes over as Bank of England Governor in July in a last ditch attempt to cement the UK recovery, Pimco, the world’s largest bond house, has warned.”
Pimco warns of eurozone ‘zombification’ – Telegraph
“Mired in recession, regional growth is unlikely to exceed 0.5pc per year over the next three to five years, said Andrew Balls, Pimco’s head of European portfolio management and brother to shadow chancellor Ed Balls.
Rather than a collapse of the eurozone, he forsees an ongoing “muddling through – or ‘zombification’ of the eurozone’s economies and institutions”. But he added that weak growth means political and social tensions will continue to build.
The eurozone has been in recession since the end of 2011 and the region’s economy shrank an additional 0.2pc in the first quarter of this year – the region’s sixth straight quarterly contraction.”
Promiscuous media | Felix Salmon
“Everybody is a curator, these days: publishers design platforms for certain types of content, editors shape publications by deciding what to leave out; journalists try to make sure that the stuff they’re doing is expressed to its best possible effect on the best possible platform. The result is a more fluid media ecosystem than we’ve been used to, but also a more effective one. Let content live where it works best; that way, the publishers of that content will be able to present something with maximal coherence and a minimum of feeling that they’re trying to do something they’re not particularly good at. The publishers who win are going to be the ones with addictive, compelling, distinctive content. Rather than the ones who are constantly flailing around, trying to copy everything that’s good somewhere else.”
Germany’s largest tabloid newspaper to go behind paywall – Telegraph
“German tabloid Bild said Monday it will introduce a paywall for part of its online offerings starting next month, the first to charge for content in Europe’s largest economy.”
Politico will test a metered paywall in 6 states and abroad, but DC gets a break — paidContent
“In a memo to staff that was also posted on Politico’s website, the site’s editors explain, “We chose smaller states, spread across the country, so our experiment captures any regional trends and also limits any potential loss of traffic to the site. This will last at least six months, so we have a large enough sample to appraise the results.” They’ll experiment with different price points and with the number of stories that a reader can access for free before the meter kicks in. (I’ve asked Politico about the range of prices and will update the post when I hear back.)”
Oil guru says US shale revolution is ‘temporary’ – FT.com
“The oil trader known by rivals as “God” predicts the US shale revolution will only “temporarily” boost production and oil prices will remain high, siding with Saudi Arabia and the Opec cartel in a debate gripping the energy market.
Andy Hall, whose lucrative bets on oil prices earned him a $100m salary at Citigroup in the 2000s, told investors that the rapid decline in output suffered by shale wells is “likely [to] mean that the bounty afforded by shale resources is temporary”.”
US shale threatens to divide Opec – FT.com
“Ask any two Opec oil ministers about the impact of the US shale oil revolution and you are likely to get opposing answers.
In a speech last month, Ali Naimi, Saudi oil minister and de facto leader of the producers’ cartel, went out of his way to welcome increased US oil production. But barely a fortnight later Diezani Alison-Madueke, his Nigerian counterpart, said the shale oil revolution was “one of the most serious threats” for the group.
The split view will be aired this week as Opec gathers in Vienna for its twice-yearly meeting to discuss the health of the oil market.”
Marc Jarsulic and Simon Johnson: A Big-Bank Failure Scenario – NYTimes.com
“Defenders of big banks are adamant that we have fixed the problem of too big to fail. Organizations such as the Bipartisan Policy Center and the law firm Davis Polk & Wardwell assert that the critical breakthrough was the introduction of new orderly liquidation powers under the 2010 Dodd-Frank financial reform legislation, enabling the Federal Deposit Insurance Corporation to handle the resolution or managed failure of very large financial companies.
This is the core of their argument that no financial reforms or higher capital requirements are needed.”
Britain can’t abandon austerity for fiscal stimulus – EC – Telegraph
This is from earlier in the month and contrasts with what the IMF is saying:
“Britain’s increasing debt burden and poor growth prospects means it cannot abandon austerity for fiscal stimulus measures, the European Commission has warned in its spring economic forecast.”
From early in the month:
“Home sales in one of Canada’s most expensive cities posted their worst April in more than a decade, according to the Real Estate Board of Greater Vancouver.
The board said Thursday sales in Greater Vancouver through its MLS system were down 6.1% at 2,627 last month compared with 2,799 in April 2012. Sales were off 11.9% compared with 2,347 in March 2013.
The results were also 20.9% lower than the 10-year sales average for April and the lowest for the month since 2001.”
If investing is poker, fund managers are a busted flush – FT.com
“The structure of the industry condemns many of them to underperform”
Hyperinflation? No. Inflation? Yes. – Business Insider
“While inflation seems to be on everyone’s mind these days, misconceptions abound. Indeed, few concepts in economics are as misunderstood as inflation. This month I take a look at some common questions about inflation, and a few that I wish more people were asking.”
Kafka, meet Orwell: peek behind the scenes of the modern surveillance state – Boing Boing
“Journeyman Pictures’ short documentary “Naked Citizens” is an absolutely terrifying and amazing must-see glimpse of the modern security state, and the ways in which it automatically ascribes guilt to people based on algorithmic inferences, and, having done so, conducts such far-reaching surveillance into its victims’ lives that the lack of anything incriminating is treated of proof of being a criminal mastermind”
Annals of the Security State: ‘Is Puerto Rico in America?’ – James Fallows – The Atlantic
“Homeland Security has a huge budget to fund government agencies and the agencies have to justify the money. Both of my friends had Homeland Security give them funding for similar projects. I believe this will just continue until the money runs out!”
Michael Gerson: Eric Holder’s tenure marked by incompetence – The Washington Post
“Justice Department officials attributed Holder’s actions to the “withering pressure to investigate leaks from both within the intelligence community and the Congress.” So the weather vane complains about the wind. Apparently the attorney general’s convictions about the First Amendment could not survive a pelting hail of interdepartmental memos.
The article cited sources close to Holder as saying he was “particularly stung by the leak controversy, in large part because his department’s — and his own — actions are at odds with his image of himself as a pragmatic lawyer with liberal instincts and a well-honed sense of balance.” Whatever Holder may see in his mirror each morning, this likeness is not visible to the rest of us.”
Why Gitmo Will Never Close | TIME.com
“According to this vision, Gitmo would close when the war on terrorism is finally considered over. Lawyers for detainees might argue that should happen once the U.S.’s lead combat role in Afghanistan ends in late 2014, for instance. Obama also says he’d like Congress to revisit the AUMF, perhaps to narrow its scope or even to declare the war over. “Usually if you’re holding prisoners of war, you release them at the end of hostilities,” says C. Dixon Osburn of Human Rights First.
But at a recent Senate hearing on the AUMF, a top Pentagon official testified that the war on al-Qaeda could last 10 to 20 more years. Some Republicans, including Senator John McCain, have suggested that the law should be broadened, not narrowed or repealed.”
Obama’s Gitmo Problem – NYTimes.com
“Whenever he talks about Guantánamo, the president gives the impression that that’s what he believes. The shame — his shame — is that, for all his soaring rhetoric, he has yet to show that he is willing to act on that belief.”
Obama’s Artful Anguish – NYTimes.com
“PRESIDENT OBAMA’S speech on national security last week was a dense thicket of self-justifying argument, but its central message was perfectly clear: Please don’t worry, liberals. I’m not George W. Bush.”
“James Comey becomes just the latest symbol of the Obama legacy: normalizing what was very recently viewed as radical”
“The US by itself could go a long way to moving reform along: any firm selling goods there could be obliged to pay a tax on its global profits, at say a rate of 30%, based on a consolidated balance sheet, but with a deduction for corporate profits taxes paid in other jurisdictions (up to some limit). In other words, the US would set itself up as enforcing a global minimum tax regime. Some might opt out of selling in the US, but I doubt that many would.”
Northern Ireland Town Fakes Prosperity for G8 Summit | @pritheworld
The harsh reality behind Here Comes Honey Boo Boo | Rob Lavine | Comment is free | guardian.co.uk
“TLC’s show seems sympathetic to its characters but, like much reality TV, plays into the idea of a moral divide between classes”
Why Men Work So Many Hours – Joan C. Williams – Harvard Business Review
“We can’t get mothers to work more hours. We’ve tried, and failed, for forty years. Mothers won’t bite for a simple reason: if they work 55 hours a week, they will leave home at, say, 8:30 and return at 8:30 every day of the workweek, assuming an average commute time. Most moms have this one little hang-up: they want to see their children awake. Increasingly, many fathers do, too.
And yet, after forty years of intensive effort, the work-life frontier looks grim. It’s not innovation. It’s identity. If you’ve lived a life where holidays are a nuisance, where you’ve missed your favorite uncle’s funeral and your children’s childhoods, in a culture that conflates manly heroism with long hours, it’s going to take more than a few regressions to convince you it wasn’t really necessary, after all, for your work to devour you.”