Tuesday, February 8, 2011
Saturday, November 13, 2010
Govt Borrowing, it's a biggie
They Need to Borrow How Much? Really?
The team over at Recovery Partners sent this note along:
"This week we heard from the IMF that the total borrowing requirements of key governments in 2011 will amount to around $10.2 trillion. The estimate represents a rise of 7% from 2010 and over 27% of the annual GDP of the developed economies.This rollover profile exposes the vulnerabilities in thematurity composition of Sovereign liability portfolios and thelikelihood that most Sovereigns will find it impossible to appropriately de-risk their financial exposures by extending term or otherwiseexecuting an immunization strategy. The bottom line is that unless deficit control and the establishment of debt management performance benchmarks is adopted as a matter of urgency in many economies, it becomes very easy to envision the near term onset of another round of severe financial turbulence."
That is obviously a lot of money. It is also government borrowing that is crowding out private investment. And as we look over the "pond," the euro is again under pressure. Just when you thought QE2 was going to tank the dollar.
More BS at the BLS
First, Let's Lower the Bar
I was sitting in London when the employment numbers came out last Friday, and I didn't have time to really get into the data. I did send you Lacy Hunt's quick analysis as to why it was weaker than it appeared, but something else did not seem right. I follow a few people who are pretty good at predicting the employment numbers (like Philippa Dunne of The Liscio Report). Most were expecting numbers in the 60,000 range. Most unusual for there to be such a big miss from these guys. I read the press release and saw nothing to raise my eyebrows. And then Alan Abelson in Barron's gave us the following, after reciting the headline number:
"Happily, the always astute Stephanie Pomboy of MacroMavens provided a quickie explanation:
" 'The seasonal bar which the payroll data must jump was (inexplicably and dramatically) lowered from prior Octobers.
" 'Thus, in October 2009, the BLS set the bar at 870,000 jobs, similar to the 840,000 it anticipated in October 2008. This year, by contrast, it lowered the bar to 768,000. Mumbo, jumbo, payrolls presented "an upside surprise" of 100,000.'
"According to John Williams at Shadow Government Statistics, the BLS' fiddling with the figures via what he calls 'seasonal-factor games' actually created 200,000 phantom jobs last month. John cites such finagling as the reason his prediction of an October decline and a rise in the jobless rate was wrong. It also explains why seasonally adjusted payrolls were revised upward by 110,000 in September, including 56,000 in August."
In the opinion of your humble analyst, if they are going to make such changes, they should be announced up-front or noted prominently in the press release. People (foolishly) trade on these numbers and money is made and lost. This is serious stuff.
Thursday, October 28, 2010
David Hale on Gold
I have know David for over 25 yrs. He is not known as a gold bug.
Potentially the most important new factor in the gold market is China. China now has more than $2,400bn of foreign exchange reserves, but only 1.7 per cent of this is invested in gold. The IMF is projecting that China will run a current account surplus of $2,600bn during the next five years. If it does, its forex reserves could rise to the $5,000bn-$6,000bn range. Even if it keeps the gold share of its reserves constant, it will have to buy a further 1,000-1,500 tonnes. Yet the odds are high that China will want to expand the gold share of its reserves in order to lessen its vulnerability to dollar devaluations and strengthen the renminbi’s status as a global currency.
As with the US 100 years ago, China will probably regard large gold holdings as a way to project financial power. In 1913, before the dollar had emerged as a global currency, the US had 2,293 tonnes of gold compared with 248 tonnes for Britain, 439 tonnes for Germany, 1,030 tonnes for France and 1,233 tonnes for Russia. The Americans’ large gold reserves made the dollar a natural replacement for sterling when the first world war crippled Britain’s financial position. The US is now running a fiscal policy that has parallels with Britain during wartime, which could undermine the dollar’s global role at some point.
Some Chinese officials have publicly called for the central bank to purchase 10,000 tonnes of gold. The central bank has declined to comment on these proposals, but they will become increasingly attractive if the US pursues a policy of dollar devaluation while the renminbi emerges as a global currency.
It is also possible that the massive expansion of China’s foreign exchange reserves could spawn faster monetary growth and increase China’s inflation rate. If it does, there could be a sharp rise in Chinese private demand for gold.
China has deregulated its gold market since 2008 and private demand is increasing rapidly. It totalled 143 tonnes during the past 12 months compared with 73 tonnes in 2009 and 17 tonnes in 2008. It could easily rise to several hundred tonnes if investors perceive that China’s monetary growth is going to produce higher inflation.
The US government has been critical of China’s policy of pegging the renminbi to the dollar, but it would abandon this criticism if China pursued a policy of unsterilised currency intervention and allowed inflation to accelerate. The renminbi would then appreciate in real terms, and make Chinese goods less competitive.
There is no way to predict the timing of China’s future gold purchases, but there can be little doubt they will create a demand for gold that will dwarf all other factors during the next quarter-century and guarantee large price gains irrespective of what happens to Federal Reserve policy.
Monday, October 25, 2010
Why the Fed will print money
SATURDAY, OCTOBER 23, 2010
Best Quote
Kenneth Rogoff, a Harvard professor and former International Monetary Fund chief economist, puts it differently. He likens the Fed’s predicament to a golfer stuck in a sand bunker. Tap lightly and the ball will not get out of the hazard. “I would say: ‘I am now going to slam the ball and I don’t know where it is going to go but if it ends up on the fairway I am going to hit it towards the hole,” he says of the Fed’s next step.
FRIDAY, OCTOBER 22, 2010
Huge Drop in Home Prices?
Clear Capital™ Reports Sudden and Dramatic Drop in U.S. Home Prices
“Clear Capital’s latest data through October 22 shows even more pronounced price declines than our most recent HDI market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician, Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration.”
This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months and are now at the same level as in mid April 2010, two weeks prior to the expiration of the recent federal homebuyer tax credit. This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture that will likely show up in other home data indices in the coming months.
... if previous correlations between the Clear Capital and S&P/Case-Shiller indices continue as expected, the next two months could be ugly.
“Clear Capital’s latest data through October 22 shows even more pronounced price declines than our most recent HDI market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician, Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration.”
This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months and are now at the same level as in mid April 2010, two weeks prior to the expiration of the recent federal homebuyer tax credit. This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture that will likely show up in other home data indices in the coming months.
... if previous correlations between the Clear Capital and S&P/Case-Shiller indices continue as expected, the next two months could be ugly.
BLS data State by State
THURSDAY, OCTOBER 21, 2010
Philly Fed Index
![Philly Fed Index](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEga8nA_GcThk0J6N8_OI8v9m4mXds7Tk7IfoMLiYfqypqtwHlsX8mBTzxVmFbvgLKdYuR7arw96tLxJWvtXnhOiFLIkhI35SwFFiYBLCWMwwFAseNLn3JHyFdh_inSFpi_TiwUf_Bxh9E8/s320/PhillyFedOct2010.jpg)
This graph shows the Philly index for the last 40 years.
This index turned down sharply in June and July and was negative in August and September (indicating contraction). The index was barely positive in October, and the internals (new orders, employment) are still weak.
Thursday, October 14, 2010
Trade Deficit, Back to the Future (redux)
![U.S. Trade Deficit](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoXtAAV1JxoRF5XYeNzogYi9Pab2W2SLdnhtujGVy8FvyFZHHpzkpCoX0a8o8xq3C8_zYlxTeUcsKvDN08iydT2DszCT_82c9ZoELYm_KJGxETTRyujf_xiJ6OGUq9_Gg294DNnvFZGqI/s320/TradeDeficitAug2010.jpg)
The increase in the deficit in August was due to both oil and China, although the bulk of the increase was because of trade with China. The trade deficit with China increased to $28.0 billion in August from $25.9 billion in July (NSA).
The imbalances have returned ...
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