Wednesday, March 31, 2010

Krugman On Interest Rate Spreads

Understanding bond spreads, comparing yield of different bond's, is an art as much as it is a science. As an example, it seems to me that the current narrowing of spreads between Treasury debt and credits is saying that the bond market demands higher Treasury yields. That reflects market recognition of the possibility of a US debt crisis/renegotiation at some time in the future, and signaling inflation forces are genuinely lurking nearby. It seems pretty easy to say that. Paul Krugman puts a different perspective on this in a recent post titled "A Note on the Term Spread". In his post he makes this interesting point...

Tuesday, March 30, 2010

FHA Home Financing Guideline's Tightened?

The NYTimes, in January, reported on the new lending standards required for loans insured by the FHA. If you believe loans are now more difficult to get, read on.

As of December, the F.H.A. was insuring 5.8 million single-family residences that had a total loan balance of $750 billion. More than half a million of the loans were seriously delinquent and heading toward foreclosure.

Many of these troubled loans were made in 2007 and 2008 as the market was plunging. Last fall, the agency said its cash reserves had tumbled to 0.5 percent of its loans outstanding, far below the 2 percent mandated by Congress.

Monday, March 29, 2010

Weekly Market Data: March 26, 2010

BEA News: Personal Income and Outlays, February 2010

The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:  
Personal income increased $1.2 billion, or less than 0.1 percent, and disposable personal income (DPI) increased $1.6 billion, or less than 0.1 percent, in February, according to the Bureau of Economic Analysis.
The full text of the release on BEA's Web site can be found at

U.S. Bureau of Economic Analysis · 1441 L Street NW · Washington DC 20230 · 202-606-9900

Friday, March 26, 2010

BEA News: GDP (third estimate) and Corporate Profits, 4th Qtr 2009

The BEA makes three estimates of GDP each quarter. This is their final for Q4 2009.

The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 5.6 percent in the fourth quarter of 2009, (that is, from the third quarter to the fourth quarter), according to the "third" estimate released by the Bureau of Economic Analysis.
The full text of the release on BEA's Web site can be found at

U.S. Bureau of Economic Analysis · 1441 L Street NW · Washington DC 20230 · 202-606-9900

Tuesday, March 23, 2010

"New York City, Where the Future Comes to Rehearse"

Lately I am spending time reading, less time posting. My reading is on the topic of financial crises. It is not a cheery subject but it is also less frightening than I would have guessed. There have been a number of crises in my lifetime around the world. The good news is that they are survivable, though not necessarily without harm. Examples are the oil shock in the US in the early 1970's accompanied by high inflation lasting into the early 1980's, the Asian currency crisis in 1997-98, and Argentina's domestic and external debt default in 2002. The recovery from these episodes lasted many years. In Argentina's case, they may still not be able to borrow at preferred rates and may have difficulty finding a lender. What possible other harm is there?

Saturday, March 20, 2010

Observations on Bernanke's Dilemma: Hyperinflation and the US$

I am having a little trouble accepting one important message in an earlier article, Bernanke's Dilemma: Hyperinflation and the US Dollar, written by Ron Hera, describing his perspective on the economic course we are on. It is an excellent article, a must read. For me, one of his core beliefs is that if "the credibility of a government, or of its central bank, breaks down, the recognition of this fact is expressed as a race to shed the currency and to divest of the government’s bonds. One way to evaluate the possibility of hyperinflation is therefore to gauge the transparency, completeness and veracity of government and central bank statements regarding their balance sheets, budgets and bond issues."

Wednesday, March 17, 2010

Alternative Energy is Being Kicked Down the Road

I found an article on Bloomberg today describing the conditions challenging producer's of solar panels. The problems can be summarized as new and less expensive competition rising from China, health care legislation swamping everything else in the US Congress, and state subsidies shrinking in Europe. See article snips under "Read more".

Meredith Whitney on Banks & Housing Deflation

This 6 minute video clip from CNBC features Meredith Whitney who is well known as a banking analyst. In this interview she tells us that the banking model is broken and likely to shrink, new payment systems are likely to take market share from legacy banks and the housing market is definitely going to go through a second round of deflation.

Tuesday, March 16, 2010

Aging Japan / Keynesian theory / Inflation or Deflation

Andy Xie writes yesterday about the impact an aging population has on an economy, using Japan as the study case. In this article, he describes the point-of-view (POV) decisions people make. In other words, seniors have a POV that will be different than that of someone two generations younger. The impact will have economic implications that simply cannot be swayed when the numbers of people in the less productive older labor population are greater than the younger and physically productive working labor population. Most of his article addresses issues building over many years. The title of his article is "Our Next Economic Plague: Japan Disease" and includes a brief critique of Keynesianism because it is being promoted in Japan too. He says "Keynesianism is a prescription for a short-term economic hiccup. It's like a painkiller, not a cure. It tries to minimize output loss during a down cycle. It doesn't mean much for an economy in the long run. Without Keynesian stimulus, an economy is supposed to adjust properly. Using Keynesianism to explain or cure long term economic problems is just plain wrong." Using Keynesian theory makes for good policy when politicians are running for re-election, and after the election they can resume partisan games that produce token repairs to the damage brought on by Keynesian policies, like unlimited government borrowing and money printing.

Friday, March 12, 2010

Mutual Fund Flows for February

Here is the February summary of mutual fund flows from Strategic Insight...

Long-term funds added $34 billion in February, raising year-to-date net flows to nearly $80 billion. Bond funds continued to dominate the long-term fund net intake, pulling in $27 billion in February driven by persistent demand for income by safety-seeking investors in a near-zero cash-yield environment, a trend we expect to persevere for a while. Concerns about European sovereign debt and fears that the global economic recovery would prove to be disappointing led investors to curtail their net new commitments to international/global equity funds in February, while flows into US equity funds remained minimal as continued economic uncertainty fed into investor caution.

Thursday, March 11, 2010

One Eye on China: Dispelling the Bubble Hype

Stephen Roach is the Chairman of Morgan Stanley Asia and IMHO, he is a level mind. His views on the inner dimensions of China cut through the fog and focus on the facts of the conditions and interprets them for us Westerners. Not many of us get to spend very much time in China so that we can grow more knowledgeable of the country, making his observations more valuable. Here is a link to a Bloomberg interview discussing the frequent concerns in headlines about inflation and bubbles in the China economy. Scanner

Wednesday, March 10, 2010

Bernanke’s Dilemma: Hyperinflation and the US Dollar

Here is an analysis of the questions surrounding the existing condition of the US government as it struggles to save its legitimacy, that is, restore trust in it as a governing body. Then there are the questions surrounding the Keynesian policies of quantitative easing and the consequences of issued government debt hitting near 90% of GDP. Pile on top of that, the commitments for additional debt that have not been financed but must be, along with the total of private debt, yours and mine, and now we have debt to GDP approaching 300%! No wonder Ron Hera has done a great deal of research on the questions facing Bernanke, and the rest of us. Read this.
Bernanke’s Dilemma: Hyperinflation and the US Dollar

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Sunday, March 7, 2010

One Eye on China: It's Economic Foundation is Being Built

The US Government finds itself entangled in the global financial crisis that it started and has, as financiers of it's spending, two of the largest Eastern governments, Japan and China. Perhaps the single largest owner of US Treasury bonds in the world is the Bank of Japan. The Chinese government investment in U.S. Treasury bonds officially shrank to $755.4 billion in December, down $34.2 billion from the previous month, and that technically allowed Japan to jump China as the owner of the world's largest holding of Treasury securities.In addition, China has foreign exchange reserves of $2.4 trillion US dollars which has accumulated after years of trade deficits. It also has almost $9 trillion of US dollars held on deposit in China's banks. I guess that makes it clear why we must be aware of China and it's $US strategy.

Saturday, March 6, 2010

Economic Scenario Planning: The Day the $US Collapsed

One of the most provacative messages about what might be the outcome of decisions the government makes today is to watch a video clip, illustrating in a clear message, what a high probability result looks like on mainstreet. In other words, define a high probability future result, using a panel of credible experts. Curious George (ht) has discovered in his reading a series of video clips that do just that. The high probability result portrayed is the collapse of the US dollar! It makes little difference that the video is subtitled quite a bit, though the critical messages are from english speakers whose names are well known, such as Andy Xie, Peter Schiff and Steven Roach to name a few high profile experts involved in this work. There are six parts and they are 9-10 minutes each. The series are titled "Worst Case: The Day the Dollar Falls".

Thursday, March 4, 2010

Interview with Prof Robert Shiller on Real Estate Trends

Robert Shiller, Yale professor, author and co-creator of the S&P Case-Shiller Index, has several concerns about the condition of the national real estate markets. Mainly, the size of the shadow inventory of homes that have been taken back by banks through foreclosure but have not yet been marketed to prevent a flood of inventory driving market prices lower. As a result of this action, the Case-Shiller Index has reported home prices increasing for seven months in a row through December. In addition to this so-called shadow inventory, "I think people will become less resistant to defaulting on their mortgage," Shiller says.

To see a five minute video interview, from Yahoo Finance, click on "read more".

Tuesday, March 2, 2010

Let's Print Money, Here's How.

Axel Merk writes today about the issues in the currency markets and Greece in particular. His article today is fascinating, telling his story of what has conspired to create the problem Greece finds itself in, without doing anything differently from what it has always done. The title of his article is Greece - From Hard Money to Fool's Gold. In this article he also describes very simply a money printing scheme that helped me better understand this transaction. Turns out it is more of a concept or virtual transaction. Here is his description...

Monday, March 1, 2010

BEA News: Personal Income and Outlays, January 2010

The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:  
Personal income increased $11.4 billion, or 0.1 percent, and disposable personal income (DPI) decreased $47.6 billion, or 0.4 percent, in January, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $52.4 billion, or 0.5 percent.
The full text of the release on BEA's Web site can be found at 

U.S. Bureau of Economic Analysis · 1441 L Street NW · Washington DC 20230 · 202-606-9900

One Eye on the Fed: Fannie & Freddie Refinance Plan

John Hussman has written a conspiracy theory, a seven step process, that describes a sketchy process on how the Fed and Treasury, working in concert, will refinance the low quality loans held by Fannie and Freddie. As a result, the two end up getting cleared of their low quality debt and holders of US Treasury bonds will collect the interest from this refinancing. The rest of us will simply pay the interest (higher taxes). The good news in this scenario is there will not be a collapse of the two giants. The bad news is... it's just more of the same. Taxpayer's without representation.

His conspiracy theory of monetary manipulation without Congressional approval is similar to what has already occurred with TARP funds, and recently in HERA funds. His conspiracy story may soon be another reality story.