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Todd Neel
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Does IMF Stand for Impressive Macroeconomic Flexibility?
So the IMF is holding a meeting on rethinking macroeconomic policy (I was invited but couldn’t make the timing work.) And the Fund’s chief economist has already made it clear that he’s open to some serious revision of the prevailing paradigm.
http://www.zerohedge.com/news/david-rosenberg-explains-what-if-anything-bulls-are-seeing
David Rosenberg takes a domestic and Republican view.Contagion from European bank failures is discounted.He also believes in hard money only.David Rosenberg Explains What (If Anything) The Bulls Are Seeing
Submitted by Tyler Durden on 01/11/2012 15:56 -0500
"While we have long asserted that any attempt to be bullish this market (and economy) by necessity should at least involve the thought experiment of eliminating such pro forma crutches as trillions in excess liquidity from the Fed, not to mention direct and indirect intervention by the central planners in virtually all asset classes, which in turn drives frequent periods of brief decoupling between various geographies and asset classes (which always converge) and thus economic performance (because as Bernanke will tell you gladly, the economy is the market), an exercise which would expose a hollow facade, a broken market and an economy in shambles, in never hurts to ask just what, if anything, do the bulls "see" and how do they spin a convincing case that attempts to sucker in others into the great ponzi either voluntarily, or like in China, at gun point. Alas, our imagination is lacking for an exercise such as this, but luckily David Rosenberg has dedicated his entire letter to clients from this morning precisely to answer this question. So for anyone who is wondering just what it is that those who have supposedly "climbed the wall of worry" see, here is your answer. From David Rosenberg at Gluskin Sheff
It never hurts to keep an open mind — I say that as I debate Wells Capital's famously bullish strategist Jim Paulsen at a CFA event — and tip your hat to the other side of the argument.
When asked if there is anything — even one thing! — that I can identify that is market-positive, what would it be?
Well, it's certainly not any shift in view over the economy. The leading indicators of activity are not behaving nearly as well as the coincident or lagging indicators have been of late. Indeed, averaging out the wiggles and real GDP growth, at best, was 1.7% in 2011, far short of the 3% advance reading in 2010. And we head into 2012 with many imbalances yet to be fully addressed and a variety of headwinds, none stronger than the looming hit to exports, manufacturing activity and profits from even a mild European recession
What has changed is valuation and the high-bar regarding investor expectations.
Let me explain.
The story for 2011 was one of P/E multiple contraction as risk aversion set in. The year ended with operating EPS growth in high-single-digit terrain, which was slower than the string of double-digit gains since the profit recovery began nearly three years ago, but positive nonetheless. What held the market back was the multiple, which contracted roughly 3 points on the year — and remember: every multiple point equates to nearly a 10-point shift in the S&P 500. This often counts more than earnings do when formatting your targets for the year. In the end it is the direction and the multiple that investors were willing to pay for that caused so many pundits to be so wrong last year.
So we have a situation now where the trailing P/E ratio is sitting at 13x. That may not be a classic trough by any means, but only 20% of the time in the past quarter century has the multiple been this low. Okay — something to consider.
Now, trailing P/E is the proverbial "bird in the hand" whereas forward multiples are "hit and miss" and subject to the vagaries of analyst earnings estimates, which have been declining in dribs and drabs for the past three-to-six months. But as it now stands, on this basis, the multiple is now just a snick below 12x. In the past quarter century, we only saw one other time when it was this low on a one-year "forward" basis, and it was the first quarter of 1988. A year later, the S&P 500 rallied 15%. Not my call, but something to at least mull over and debate.
Now we must keep in mind that valuation is not a timing device. If all you did was focus on such metrics, you would have missed out on the final three years of the late-1990s tech boom. That said, a respect of valuations will also help keep you out of trouble, as we saw following the tech wreck and the bust of the housing and credit bubble seven years hence.
But we do understand that P/E ratios at current low levels do serve up a certain degree of confidence (a source of some comfort, if you will) that there is some downside protection to the overall market here. While I'm still on the cautious side, I do see the case for why the floor may be higher than it was before. Of course, that is due to valuation metrics. The key going forward will be how earnings perform — and I'm not expecting any growth this year. In fact, we could see a contraction, based on where margins are (60-year highs) and the impact of slower global growth and the stronger U.S. dollar on foreign-sourced revenues (40% of the pie).
The next question is whether the P/E multiple can expand in 2012. As was the case in 2011, in a year when profit growth was positive but the broad market flat, the multiple may yet again hang in the balance.
Well, it may pay to assess what the factors were in 2011 that caused the P/E multiple to shrink. I can think of a few. The ECB pulled a 2008-style bonehead move and raised rates to combat inflation (surreal). China was draining liquidity as it moved to rein in a potentially destabilizing uptrend in inflation — with its stock market and the emerging market space taking it on the chin. All the while, the Fed more or less stood on the sidelines for much of the year, notwithstanding Operation Twist and the verbal pledge to keep the funds rate at the floor through to mid-2013 at the earliest.
If we look at what could possibly go right, we have the Chinese central bank now easing policy — that is a shift from a year ago. If inflation there falls further, which has already slowed from the 6.5% peak to sub-5% (we get the key December CPI data-point later this week), then the latitude for more policy stimulus will become even greater. This is why the Chinese stock market has rallied more than 6% in the past four days — it is sniffing something out here. Remember that Chinese stocks lead commodities. Furthermore, the Canadian stock market, which turned in a rare underperformance last year relative to the U.S., has about half its market capitalization in basic materials.
We also have the ECB, with a new chief, not only cutting rates but in some sense going even further than the Fed did. Perhaps not in the way of non-sterilized purchases of government bonds, but the move toward lending to the banks for three-year terms with the junkiest of collateral (one-third more products that the banks can now put up on the central bank balance sheet) has dramatically reduced tail-risks (a French bank or two would have gone down absent this ECB intervention) and we see that now in terms of Libor rates easing.
Furthermore, Eurozone politicians were completely in denial this time last year, believing that the problems would stay "contained" to Greece. Over the last few months of 2011, a view was building in the markets that either Germany was going to exit the euro area or kick Greece out. So far, neither seems likely.
Merkel and Sarkozy seem dedicated on using the crisis as a way to foster more integration — with a common fiscal policy — not less. Of course, it remains to be seen how many of the other members will opt for German-style austerity at a time of intensifying recession pressures. But this is a problem of their own making since it was their decision to load up on debt to fund their welfare states, and the move to fiscal probity is probably the lowest cost strategy for them (us too). And Merkel came right out and said earlier this week that Germany wants Greece to remain in. So...in a sea of uncertainty, at least we have more clarity now that the Eurozone experiment is about to disintegrate in a destabilizing fashion.
Finally, based on the latest comments from two Fed bank presidents (Dudley and Williams) there seems to be some momentum building for a QE3 program out of the Fed.
What is different about 2012 is that while there are many headwinds, global policy is moving into a higher gear. We have no doubts that the beta-junkies will go to town on the prospect of a "coordinated" global stimulus cycle. This is what the market has been feeding on repeatedly since the March 2009 lows. It's called government mixed juice.
What also is different is the level of expectations. We went into 2011 with everyone geared up for 3% real U.S. GDP growth and we will be lucky to get 1.7% when the final results for the year come in. Now the consensus is much closer to 2%. While growth may in fact come in softer than that, we do start the year with more realistic expectations than was the case 12 months ago. The next few weeks will be key as Q4 earnings come out. Keep in mind that the bottom-up estimates right now have penned in a sequential quarter-on-quarter contraction, which has only happened 2% in the past 25 years outside of recessions. There may still be one, but it didn't start in Q4 of 2011.
Meanwhile, the survey data continue to flash a green light. The NFIB small business sentiment index improved in December for the fourth month in a row to 93.8 from 92 in November. This is the best reading in 10 months, though the components were not universally positive.
For example, the job openings subindex dipped to 15 from 16. Hiring plans also dipped one point to 6. Moreover, the index assessing whether small businesses added jobs in the past three months edged down to 1 from 2 in November, not exactly in line with those booming results from the ADP survey.
Capex spending plans stagnated at 24. The good news for bonds at least was the subdued inflation readings. The index measuring pricing power stayed at zero and the percent raising wages was stuck at 10. Even better were the forward-looking "planned" figures. Intentions to raise prices dipped from 15 to 14 and plans to boost wages slipped to 5 from 9 to stand at the lowest level since last January. In fact, the share of respondents citing inflation as their top worry fell from 6% to 5% (it has been sliced in half since last May) — it hasn't been this low since early last year.
A bright spot was in the credit measures; the thaw continues as the index measuring how tough it is to secure financing receded from 10 to 8 in December — the lowest since June 2008. One of the most acute concerns evident in the survey are taxes, with the share saying this is first and foremost on their minds rising to 21% from 19% in November and 16% three months ago. Just wait until the realization sets in that President Obanna is going to remain in the White House and the Bush-era tax cuts go the way of the Do-Do bird by the end of 2012 (not to mention the health care tax on "high-income" earners).
The JOLTS data (Job Opening and Labor Turnover Survey) more or less confirmed that the labour market has less pep in it than many believe (but consistent with the aforementioned NFIB employment readings). Job openings actually declined 63k in November on top of a 153k plunge the prior month. Hirings did rebound 107k but that only recouped the like-sized decline in October. Finally, firings came to 96k and belie the recent downtrend we have seen in the jobless claims numbers."
http://bonddad.blogspot.com/2012/01/bonddad-linkfest_11.html
Wednesday, January 11, 2012
Bonddad Linkfest?
- Euro drops on Fitch statement (BB)
- US farmers probably planted the most wheat in three years (BB)
- Treasury sees record bid for latest 3-year auction (BB)
- Germany on brink of recession (BB)
- EU banks hoarding cash (BB)
- EU businesses welcome the declining euro (FT)
- Why Best Buy is going out of business gradually (Forbes)
- The people v. Best Buy, Round 2 (Forbes)
- US Homebuilders surge (FT)
- Will South Carolina be different for Romney? (TPM)
What's Holding the Economy Back?
For the last year and half, the US economy has not been able to get to "escape velocity" -- a rate of growth over 3%. There are several reasons for this with the biggest one being the lower level of consumer spending. Consider this chart of the seasonally adjusted annual rate of change of personal consumption expenditure growth:
For the latest expansion, we've seen growth rates right around 2.5%. However, this rate is low when compared to the last two expansions. Consumers are spending; just not in the same amounts as before. As such, we are seeing lower growth. Because consumers make-up 70% of GDP growth, this is a very important issue. In addition,
austerity is hurting growth. The above chart shows the impact of government spending on overall economic growth. Over the last 8 quarters, government spending has subtracted from growth. In other words, a contractionary policy is, well, contractionary.
The above chart shows the percentage contribution to GDP from commercial real estate and the bottom charts shows the percentage contribution from residential construction. The commercial chart is a bit more positive, but it's still very weak. The residential charts is terrible. At least it's been hurting less over the last four quarters.
Both of these charts show that we're not building anything right now which has a tremendous impact on the economy. First, it creates jobs. But the actual building requires raw materials such as wood, copper etc.. which have to be mined. The process involves heavy machinery -- which increases durable goods manufacturing. And once the structure is build, we have to put furniture in it. In short, construction has a very large multiplier effect that we're simply not seeing right now. For more on this topic, see this paper from Edward Leamer.
So, we have the following:
1.) A weaker consumer. Consumer spending comprises 70% of the economy. While the consumer is spending, he's simply not spending as much.
2.) Austerity. Since 1970, federal government spending has accounted for about 20% of overall GDP. As I've shown in the Bonddad Economic History Project, government spending for the Korean War was a tremendous driver of the early 1950s expansion. For 6 of the last 8 quarters, we've seen government spending subtract from overall growth.
3.) A lack of housing participation. Housing -- and it's incredibly important multiplier effect -- are absent from this recovery.
Remember, the GDP equation is
Consumer spending + gross investment + net exports + government spending = GDP.
Elements 1 and 2 are weaker, element 3 has subtracted from growth for the last 10+ years and we've deliberately letting element 4 subtract from growth.
http://brucekrasting.blogspot.com/2012/01/social-security-january-2012-and-beyond.html
Here is the drop in unemployment:"(1) 10,000 additional people sign up for benefits every day of the week" 2,600,000 additional Social Security recipients every year would make a dent. Or is that 3,652,500?Bruce Kastring is a Westchester Republican."Wednesday, January 11, 2012
Social Security - January 2012 and Beyond
The January 2012 numbers for Social Security (SS) show a mixed picture. The results mirror what is going on in the economy. There is clear evidence that revenues at SS are recovering; there is equally clear evidence that America’s social expenditures are rising at a rate that exceeds the rate of recovery.
The following numbers are adjusted for any consequences of the 2% payroll tax deduction for 2011 and 2012. As a reminder, the Treasury pays into to SS every month an amount equal to the 2% shortfall. The country ends up more indebted, but there is no net consequence to SS. Some YoY comparative data on the key numbers:
Clearly, the problem is that benefit payments are increasing more rapidly than revenues. There are two contributing forces pushing up costs, (1) 10,000 additional people sign up for benefits every day of the week and (2) inflation (COLA) is rising. The January 2012 YoY increase in benefit payments was $4.1B. Of that amount, approximately $2.1B is attributable to inflation; the balance of $2B is due to more folks getting checks.
We crossed a big corner at SS in 2010 when the first annual cash flow deficit was reported. SS will never again see a cash surplus. The only question is how rapidly the deficits will rise. It’s a bit early in the year for me to provide a credible 2012 forecast for SS. My read of the January numbers confirms my suspicions. The improvement in the economy will be trumped by increasing benefit costs. Net-net, a modest deterioration in the cash position is my base case. I think SS will produce a $56B cash shortfall in 2012 (2010 = -49B, 2011 – 47B). The changes in the net cash position at SS over the past seven years show the extent of the deterioration:
The expense side of the SS equation can’t be altered. The only variables that make a difference are interest rates and the economy (jobs).
The interest rate side of the equation is easy to contemplate. SS’s income from interest is going to decline in 2012 and beyond. Ben Bernanke’s ZIRP, QE and Twist have seen to that. Ben has made it clear that interest rates will remain at historical lows for well into the future. SS is America’s biggest saver ($2.6 Trillion), it will therefore pay a price as the low interest rate environment is endlessly extended.
In June of this year, SS will re-invest its maturing bonds (and any cash it has) in a new strip of securities that have maturities from 1 to 15 years. The interest rate for these Special Issue Treasury Securities is set by a (stupid) 60-year old formula. This year, the formula will produce a yield for the new investments that is the lowest in history. Take a look at the historical interest rates that SS has received on its surplus:
The following shows the maturities and the interest rates on SS's holdings of Treasury securities. Note that in the next few years, all of the high coupon bonds will be rolling off. The old bonds will be replaced with much lower yielding assets.
This is the expectation for interest income at SS based on its 2011 report to Congress:
Here is the forecast on interest rates on which the above interest income forecasts were made.
This simply does not add up. SS will have to significantly revise downward its projections for interest incomes (there is no way the Fed is going to back off ZIRP anytime soon).
The economy is much harder to ponder. As of today, there is a case than can be made for continued job growth. But for how long? America has a bad habit of slipping into a recession every four years or so. The last one was in 2008, so we’re due. I think that the US will muddle through the first part of 2012 with continued modest job growth. However, a slowdown looks to be in the cards by the end of the year. As of today, there are a dozen economic headwinds that will kick in as of 1/1/13 - all of the Bush tax cuts, the SS payroll reduction and a substantial cutback in government spending (the sequestered amounts).
If we experience a recession in 2013, and the Fed maintains its low interest rate policies, it will be a very bad year for SS. The cash deficit would explode under these conditions. It could easily exceed $100b. The wheels will come off of SS’s cart. As we are seeing now, it is extremely difficult for SS to bounce back in good times. it will be impossible if we hit another economic slow patch.
This is precisely the scenario I’m anticipating for 2013. It will be a decisive year. If we end up going down an economic road as I have described, then SS will fall into full deficit (operating cash deficit + interest income). That would happen circa 2015. The Social Security Trust Fund is forecasting this event but it believes it will happen in 2021. When people realize that the Trust Fund has topped out, and the implications are understood, significant changes at SS will follow.
I point readers to a raging debate going on in Japan. To cover the growing deficits at Japan’s equivalent of SS, consumption taxes are being increased from 5% to 10% on everything purchased in the country. This massive tax increase is far too low to cover the problem. To bring balance to the system, VAT taxes have to rise to 17%.
Japan is in a different situation than the US. Its population is even older (and aging more rapidly) than ours. As in many other examples, the US is about ten-years behind Japan. But we are catching up quickly. In just a few years, America will have a similar raging debate on SS. We too will be faced with a dilemma. Either taxes have to raised, or benefits have to come down. The alternative is that the US follows Japan into the land of 200% debt-to-GDP. Unlike Japan, The US can’t survive at that rate. We will blow up before we get to 200%.
We won't see any reforms in America’s entitlement programs in 2012. The election will see to that. The immediate priorities of 2013 will not include SS. The other problems facing the economy will be more pressing. But by 2014, the jig will be up. By then, there will have been so much damage to SS that a very significant set of changes will be required to minimize what will then be seen as a systemic risk.
Note: I get the occasional beef about using graffiti in my articles. "Phooey" is what I say to that. This one by Banksy is perfect for this piece. No?
http://www.calculatedriskblog.com/2012/01/realtytrac-bank-seizures-of-homes-fell.html
“Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year,” said Brandon Moore, chief executive officer of RealtyTrac.Thursday, January 12, 2012
RealtyTrac: Bank seizures of homes fell to four year low in 2011 due to process issues
by CalculatedRisk on 1/12/2012 01:13:00 AM"From RealtyTrac: 2011 Year-End Foreclosure Market Report: Foreclosures on the Retreat
RealtyTrac® ... today released its Year-End 2011 U.S. Foreclosure Market Report™, which shows a total of 2,698,967 foreclosure filings — default notices, scheduled auctions and
From Reuters: Foreclosure filings hit four-year low in 2011bank repossessions — were reported on 1,887,777 U.S. properties in 2011, a decrease of 34 percent in total properties from 2010. Foreclosure activity in 2011 was 33 percent below the 2009 total and 19 percent below the 2008 total.
“Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year,” said Brandon Moore, chief executive officer of RealtyTrac. “The lack of clarity regarding many of the documentation and legal issues plaguing the foreclosure industry means that we are continuing to see a highly dysfunctional foreclosure process that is inefficiently dealing with delinquent mortgages — particularly in states with a judicial foreclosure process."
Bank seizures of homes fell to 804,423 from 1,050,500 in 2010, also marking the lowest level in four years.
This is close to Tom Lawler's estimate of the number of completed foreclosure sales using data from Hope Now.
"A big part that is inflating the size of the decrease is a continuing extended foreclosure process," said Daren Blomquist, director of marketing communications at RealtyTrac.
Earlier this week I argued foreclosure activity would increase in 2012:
There are 4 million seriously delinquent loans (90 day and in-foreclosure). This is about 3 million more properties than normal. Probably when the mortgage settlement is announced, some of these loans will cure as part of the settlement with loan modifications that include principal reduction, but many of these properties will become REOs fairly quickly.
So even though REO inventory is declining, there are still many more [foreclosures] to come ...
My guess is the policy changes will all be announced in the next few months, and that foreclosure activity will increase significantly. Some portion of these REO will be sold in bulk to investors and rented, so it is difficult to tell how many REOs will come on themarket ."There is a great deal of fiction in the accepted view of present conditions.
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Part of the Team
The only way to learn is to pay attention.
The language asside from the jargon is coledge level survey course.
If you follow the links it gets into calculus quickly.
Paul Krugman points out that the arguments are among the models
and not in the models.
you only have to understand the assumptions.
Let the pros do the manipulations.
I am violating the expert advice and trying to time the market.
I am neither smart or quick enough to do it well.
I should be all in cash but I have not seen the end signal I expect.
The European Banks also expect the same signal.
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Tyrus
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Cold-Brewing Coffee and Tea - The Curious Cook
“Cold-Brewing Coffee and Tea - The Curious Cook - http://nyti.ms/r31ACg”The problem is that I am drinking it for the caffine boost.I sleep on demand. I spend more time in a fog than I want.
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The C.E.S. No-Shows
About 1:39 he points out that hardware has been having trouble competing this year.
The problem of the year has been system control and information transfer.
These are software and ownership problems. -
walterrhett
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Bank Said No? Hedge Funds Fill a Void in Lending
“Bank Said No? Hedge Funds Fill a Void in #Lending - http://nyti.ms/jMVYJX #banks #fraud #crisis #wallstreet”
The difference between a hedge fund making loans and a loan sharkIs imperceptable with the exception of the frighteners. The hedge fund starts with lawyers.
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Winning Progressive
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Bank Said No? Hedge Funds Fill a Void in Lending
“Bank Said No? Hedge Funds Fill a Void in #Lending - http://nyti.ms/jMVYJX #banks #fraud #crisis #wallstreet”For me it is far too early to look for financing.You should talk to your agency.
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Age 52, and Still Working the Streets
http://www.nytimes.com/2012/01/01/nyregion/at-52-a-prostitute-still-working-the-streets.html
Text is easier for me.Dependance is a mutual support relationship.Child support is important.The independent do not ask for much more than to be left alone.Dependance without mutuality is parasitism.http://en.wikipedia.org/wiki/Parasitism -
Vasile Stoica
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Cold-Brewing Coffee and Tea - The Curious Cook
“Cold-Brewing Coffee and Tea - The Curious Cook - http://nyti.ms/r31ACg”Harold McGee has a lot to say but the key statement is "lower caffine".I like coffee but I drink it for the kick.
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Cassie
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Does IMF Stand for Impressive Macroeconomic Flexibility?
So the IMF is holding a meeting on rethinking macroeconomic policy (I was invited but couldn’t make the timing work.) And the Fund’s chief economist has already made it clear that he’s open to some serious revision of the prevailing paradigm.
http://www.telegraph.co.uk/finance/financialcrisis/Debt crisis: live
Greece's finance minister to hold talks with Institute of International Finance on a deal with private investors for a voluntary 50pc reduction in the value of their Greek bond holdings.
12 Jan 2012| CommentRBS cuts 3,500 jobs at investment bank
Royal Bank of Scotland, the lender that is 83pc owned by the British taxpayer, is to cut around 3,500 jobs as it sells and shrinks its investment bank.
12 Jan 2012| CommentHuge ECB loans fail to boost eurozone economy
Eurozone banks have deposited nearly all the money they borrowed last month from the European Central Bank back with the lender, according to analysts at Barclays Capital.
12 Jan 2012| 4 CommentsDebt crisis: Eurozone waters down tough fiscal rules in new treaty
European countries will be allowed to ignore new fiscal rules in difficult economic times, according to a draft of the region's new treaty which appears to water down plans for a tough pact.
11 Jan 2012| 66 CommentsDebt crisis: as it happened January 11
European leaders have dropped plans to alter the rules of the single market as part of a new fiscal compact in a move that signals a significant victory for Britain.
11 Jan 2012| 478 CommentsBritain could hold on to its place in the world after all
At the height of empire, Britain accounted for somewhere between 15 and 20pc of global output in manufactured goods.
11 Jan 2012| 32 CommentsItaly's more than the Mafia
While Italy’s various mafia groups can now boast an annual turnover of €140bn (£116bn), the legitimate part of the economy relies on the manufacture of cars, fashion and textiles, luxury goods, industrial equipment and world-beating food and wine.
11 Jan 2012| CommentAngela Merkel praises Italy for implementing tough reforms
Angela Merkel has praised Italy's new government for its speedy implementation of austerity reforms, as Prime Minister Mario Monti reiterated the importance of markets following suit and recognising its economic progress soon.
11 Jan 2012| 6 CommentsNew eurozone-plus draft treaty dilutes role of EU institutions
EU leaders have dropped plans to alter the rules of the single market as part of a new fiscal compact. Here is the latest draft in full.
11 Jan 2012| 1 CommentTony Blair was the Great Gatsby of our time
A new film version of The Great Gatsby is to be released this year. Rachel Salvidge wonders whether Fitzgerald's great novel has lessons for the 21st century.
11 Jan 2012| 49 CommentsNew draft of EU treaty a victory for Cameron and UK
European leaders have dropped plans to alter the rules of the single market as part of a new fiscal compact in a move that signals a significant victory for Britain.
11 Jan 2012| 74 CommentsNYSE deal hits EU block
Top stories: Bank rate, Sainsbury's, rail scheme and exchange mergers
11 Jan 2012| CommentGerman growth grinds to halt
Germany grew by a robust 3pc last year but the debt crisis brought Europe's biggest economy almost to a halt in the final months, official data showed this morning.
11 Jan 2012| 26 CommentsUK trade gap widens more than expected as exports fall
Britain's trade gap with the rest of the world widened more than expected in November, as falling exports unwound the previous month's record narrowing.
11 Jan 2012| 81 CommentsCantona strikes out at politicians with threat to run for president
Football legend Eric Cantona has threatened to run for French presidency.
11 Jan 2012| CommentItaly's Monti: Debt crisis risks rise of anti-EU populists
The European Union must recognise Italy's efforts in fighting the sovereign debt crisis or risk the third-largest eurozone economy falling into the hands of anti-EU populists, Italian Prime Minister Mario Monti has said.
11 Jan 2012| 41 CommentsThe best and worst paid graduate jobs
The jobs market for new graduates is getting tougher, with average starting salaries remaining stagnant for the third consecutive year. Here are the job sectors that pay the best salaries, and those that lag behind, according to graduate research specialist High Fliers.
11 Jan 2012Siemens and Philips sound alarm over forecasts
Siemens and Philips, two of Europe's heavyweight companies, have warned of the difficulties ahead for the region's major corporates in the face of the debt crisis.
10 Jan 2012| Comment
http://www.calculatedriskblog.com/2012/01/pettis-on-europe-and-china.html
Yesterday, in answering a question on China, I mentioned that Professor Michael Pettis is an excellent source about China. He also comments on Europe.
An excerpt from Michael Pettis: If no trade reversal now, then when?
Europe’s underlying problem is not budget deficits or even unsustainable debt. These are mainly symptoms. The real problem with Europe is the huge divergence in costs between the core and the periphery – in the past decade costs between Germany and some of the peripheral countries have diverged by anywhere from 20% to 40%. This divergence has made the latter uncompetitive and has resulted in the massive trade imbalances within Europe.
It doesn't appear European policymakers are addressing the imbalances at all.
Trade imbalances, of course, are the obverse of capital imbalances, and the surge in debt in peripheral Europe in the past decade – debt owed ultimately to Germany and the other core countries – was the inevitable consequence of those capital flow imbalances. While European policymakers alternatively sweat and shiver over fiscal deficits, surging government debt, and collapsing banks, there is almost no prospect of their resolving the European crisis until they address the divergence in costs. Of course if they don’t resolve this problem, the problem will be resolved for them in the form of a break-up of the euro.
And on China:There isn’t nearly as much (at least visible) antagonism and undermining behavior among Chinese policymakers, but I worry that there is nonetheless the same lack of logical thinking among them in regards to their “right” to a trade surplus – although at least they are not facing massive defaults in the countries to whom they have lent. As China’s trade surplus declines dramatically, more and more people within the country are calling for interventionist steps to halt the decline, including depreciating the RMB, or at least halting its appreciation.
...
But we would have to ask the same question of China as we would of Germany: if now is not the right time for China to run a trade deficit, when its reserves are sky high, when rebalancing the Chinese economy away from investment to consumption is more urgent than ever, when global imbalances have thrown the world into crisis, when will it ever be the right time?
Not [this] year, apparently. There is developing in Beijing, I think, almost a panic about global economic prospects and the impact of the European crisis on China. This panic is going make the rebalancing process harder than ever ..."January 11, 2012
Reducing Petroleum Consumption from Transportation
MIT Professor Christopher Knittel has a new paper on the potential for the United States to reduce petroleum consumption.
From the paper's abstract:
The United States consumed more petroleum-based liquid fuel per capita than any other OECD-high-income country-- 30 percent more than the second-highest country (Canada) and 40 percent more than the third-highest (Luxemburg). This paper examines the main channels through which reductions in U.S. oil consumption might take place: (a) increased fuel economy of existing vehicles, (b) increased use of non-petroleum-based low-carbon fuels, (c) alternatives to the internal combustion engine, and (d) reduced vehicles miles traveled. I then discuss how the policies for reducing petroleum consumption used in the US compare with the standard economics prescription for using a Pigouvian tax to deal with externalities. Taking into account that energy taxes are a political hot button in the United States, and also considering some evidence that consumers may not correctly value fuel economy, I offer some thoughts about the margins on which policy aimed at reducing petroleum consumption would have the largest impact on economic efficiency.
Knittel begins by noting that fuel taxes differ tremendously across OECD countries.
Motor fuel taxes (dollars per gallon) in different countries as of Jan 1, 2010. Source: Knittel (2012).
And these differences in taxes are associated with huge differences in per capita consumption. The graph below shows a pretty strong correlation: countries with lower fuel prices have higher fuel consumption. The slope of the fitted curve raises the possibility that, given time, long-run responses to higher gasoline prices could be substantially stronger than time-series correlations might suggest.
Vertical axis: consumption of transportation fuel per person. Horizontal axis: gasoline price. Source: Knittel (2012).
Knittel feels that while raising gasoline taxes may be politically infeasible for the U.S., corporate average fuel economy (CAFE) standards are a reasonable alternative. Current standards call for an average fuel economy of 34 miles per gallon by 2016 and 54.5 by 2025. One of the reasons Knittel thinks these may be attainable is his earlier research (which we called to the attention of Econbrowser readers last year) showing that historically, technological improvements have gone more toward increasing weight and horsepower than to fuel efficiency. He thinks those CAFE standards could be attained by a combination of further technological improvements, modest reductions in size and horsepower, and more electric and hybrid vehicles.
Attributes of Honda Accord over time. Top row: weight and horsepower. Bottom row: torque and fuel economy. Source: Knittel (2009).
As U.S. oil consumption continued to increase during the oil price run-up over 2003-2007, I became pessimistic about how hard it would be to make adjustments in the quantity consumed, and indeed Knittel himself produced some earlier research consistent with that conclusion. However, the more recent data do suggest Americans have started to make some significant adjustments.
U.S. petroleum products supplied, average of most recent 12 weeks, in millions of barrels per day, Jan 25, 1991 to Dec 30, 2011. Data source: EIA.
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It's Electric. Should It Look Electrifying?
5 days ago ... A CENTURY ago, when electric cars were popular — especially in cities and among women drivers — they looked discernibly different from ...
The car companies are still fighting the idea.
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greggholman
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Ex-C.I.A. Agent Goes Public With Story of Mistreatment on the Job
“Ex-C.I.A. Agent Goes Public With Story of Mistreatment on the Job - http://nyti.ms/fOzHtP”
A very sad tale.I am not the right person to solve such a problem.You are a civilian professional employee and quite senior.Your agency is not secret.Start by talking to your boss.Get an Orec electrostatic percipitator. These really work.http://www.oreck.com/Air-PurifiersGet a good water filter.Run the heat and dry the place out.Paint with a modern paint.Move when you can.
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silpol
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Ex-C.I.A. Agent Goes Public With Story of Mistreatment on the Job
“Ex-C.I.A. Agent Goes Public With Story of Mistreatment on the Job - http://nyti.ms/fOzHtP”Talk with your boss.Take corrective action.Move when you can.
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Karen Garcia
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No Mortgage Lenders in Jail, but a Borrower Lands There
The government did send someone to prison for actions related to the subprime mess. But not who you’d expect.Take legal advice. Contracts can be enforced.There are many asigning blame. Do not be their target.
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Fatal Stampede in South Africa Points Up University Crisis
The crisis I see is the change in policy.
Applicants could have been asked to apply by mail and interviewed in the field.People just do not believe in random numbers.At 33% unemployment people will be desperate for any possible advantage.
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