Links 1/31/10

Disaster brewing as cyclone stalks Queensland ABC (hat tip reader Skippy). This looks like a BAAAD one.

Super Bowl losses can increase cardiac death PhysOrg

Google would (just) beat Bing at Jeopardy! TechBlorge (hat tip reader Sugar Hush)

House Republicans aim to redefine rape to limit abortion coverage RawStory

What happened to CNN? Nemo (hat tip Richard Smith, who just finished moving into a new, well actually really old, house)

Sunday Fun: How To Keep Up With the Latest News on Egypt The Disciplined Investor

Moody’s downgrades Egypt to Ba2 FTAlphaville

Update on conditions in Ireland…another letter from Ireland rdan, Angry Bear

Underground world hints at China’s coming crisis Telegraph (hat tip reader Michael Q)

The China domino MacroBusiness

Perth Home Prices Slide Even as W.A. Has Mining Boom Bloomberg

Misusing House-Price-to-Income Multiples MacroBusiness

Long Island Tax Cut Debacle A ‘Black Eye For The Tea Party’ ThinkProgress

Commodities: This Time is Different Paul Krugman (hat tip reader Matt). *Groan*. Long established readers will remember I had a long running argument with Krugman (not that he deigned to pay attention to me although he had previously taken note when I said things more to his liking) during the 2008 oil bubble (which I also shorted when oil was over $140, one of the few times I caught a peak pretty well). Krugman simply refused to consider that oil pricing does not hew to the classic “futures are just hedging/speculation” story, a great deal of oil is sold on contract with prices set by the BWAVE, which is an average of futures prices. And why did a lot of oil move to this pricing scheme? Due to manipulation of the cash market! There are more legs to the argument re oil, but here we see Krugman again insisting all commodities are the same and the prices all reflect fundamental forces. Help me.

Loneliest Man in Davos Foresees 2015 Bank Crisis While Global Elites Party Bloomberg

Gross Derivatives Exposure jck. OMG, a random outbreak of serious regulation?

Was the Financial Crisis Avoidable? Room for Debate, New York Times. Be sure to see our comment, “Follow the Money“.

Bank legally bound by loan-modification promise SFGate (hat tip reader Lisa Epstein)

Fitch on Spanish mortgage walkaways FTAlphaville

Second-guessing the WaMu seizure and sale: FCIC report HousingWire (hat tip Richard Smith)

Don’t Look Back, New Yorker (hat tip reader bob). This is a must read. Don’t be fooled by the tame first 40%.

Antidote du jour:

Screen shot 2011-01-31 at 5.17.28 AM

Print Friendly
Tweet about this on TwitterDigg thisShare on Reddit0Share on StumbleUpon0Share on Facebook0Share on LinkedIn0Share on Google+0Buffer this pageEmail this to someone

38 comments

  1. Steve T

    Regarding the IBM supercomputer playing Jeopardy…just wait until this technology becomes widely available and affordable. The potential to automate all kinds of jobs in the service sector, including very high paying jobs that require substantial education, is likely to be significant.

    Check out these videos and think about the implications:

    http://econfuture.wordpress.com/2011/01/28/ibm-watson-videos/

    1. NataliaGonchenarovnaya

      @Steve T

      You are being taken in by marketing hype from IBM. The fact that they referenced Big Blue and chess in the second video, shows that their claims are greatly exaggerated.
      AI is IMPOSSIBLE, particularly strong AI.

      But then, maybe you’re doing some viral marketing for IBM?

      Signed,
      Natalia

  2. attempter

    Re black eye for tea prty:

    I read that yesterday and couldn’t understand why it’s a black eye for the tea party. It’s exactly the result they seek.

    (As for any notions of how the vaunted voters “won’t get fooled again”, I’ll believe it when I see it.)

    Re a court actually trying to hold a bank to its contracts:

    The only thing surprising about this is how rare it is, how surprising it seems to be. That it’s simply taken for granted that banks can make thousands of such fraudulent contracts, directing people to severely expose themselves (missing payments, failing to protect themselves during bankruptcy, etc.) and then simply breaking the contract, is a metric of what a lawless and immoral cesspool the US has become.

    People need to learn what commentators like Brent White have been saying for a long time now – when the bank tells you it will modify if you do this or that, it’s lying.

    If you really want a mod, there’s only one way – you have to credibly threaten to walk away. If they say “miss a payment”, you reply, “If I stop paying, that’s it; I’ll never pay again.”

    If they say “don’t protect yourself in bankruptcy”, that ought to be a no-brainer. There especially the homeowner has a strong position. You’re already filing for bankruptcy, ferchrissakes, the mere specter of which is usually an arrow in the banks’ quiver. Once you go ahead with bankruptcy, the bank loses all its leverage. Why would one still act like the bank is the strong party in that case?

    There especially this kind of propaganda should lose all its force:

    The bank argued that Aceves acted in bad faith by seeking refuge from foreclosure in bankruptcy proceedings. But the court said a Chapter 13 bankruptcy filing is a legitimate way for a borrower to reinstate a home loan and does not violate the lender’s rights.

    We do indeed need to be far more “ruthless” (the banksters’ own parlance for when a normal person acts the way a bankster would in dispassionately acting upon his legal rights) and act toward the corporate enemy in exactly the way they act toward us.

    Clearly, far more public education is needed, in real-life community forums.

    1. skippy

      Thank you rjs, and CIMSS!

      I’ll be up in Rockhampton mid Thursday and turning tail to run back to Brisbane, so it might get personal. Near 1000 klms of coast line may see 200+ mm of rain (per day[s[?) on an already flood affected area (the ground is saturated, dams and reservoirs at 100%+ capacity. Here in Brisbane we were 60 cm from the non mechanical dam failure mitigation bungs activating (on-site recorders upstream went to 74 levels, past that and then gone[!] no inflow data)…phew.

      On the western side of the great divide they could see a meter of rain (days again), another great inland sea slowly marching south to NSW and Victoria.

      Skippy…got an umbrella I can have a barrow of?

  3. Diego Méndez

    Dear Yves,

    I am afraid I didn’t understand your case for oil’s high price being partly due to speculation.

    Could you please elaborate? I’ve read some old posts of yours about the fact that speculation doesn’t show in inventories because non-extracted oil *is* a kind of inventory.

    Yet I feel I do not understand your whole argument.

    1. MyLessThanPrimeBeef

      This is from Ambrose Evans-Pritchard:

      —————-

      France’s Nicolas Sarkozy blames the commodity spike on hedge funds, speculators, and the derivatives market (largely in London). He vowed to use his G20 presidency to smash the racket, but then Mr Sarkozy has a penchant for witchhunts against easy targets.

      The European Commission has been hunting for proof to support his claims, without success. Its draft report – to be released last Wednesday, but withdrawn under pressure from Paris – reached exactly the same conclusion as investigators from the IMF, and US and British regulators.

      “There is little evidence that the price formation process on commodity markets has changed in recent years with the growing importance of derivatives markets”, it said.

      As Jeff Currie from Goldman Sachs tirelessly points out, future contracts are neutral. For every trader making money by going long on wheat, sugar, pork bellies, zinc, or crude oil, there is a trader losing money on the other side. It is a paper transfer between financial players.

      ——-

      But if Currie is right, then, as for every home buyer there is a home seller, all those 90-day escrow contracts (kind of like future contracts as the purchase prices are set) have no impact on housing.

      You can point out that it’s different here because a home buyer actually takes possession and therefore this is more than just a paper transaction between two finanncial players. By taking possession, the buyer removes a house from inventory, from supply.

      But if you have a bunch of flippers flipping the same house, then after the first flipper, you don’t further reduce supply and the subsequent flippings shouldn’t impact price. And that’s what Currie will tell you.

      1. Whelks

        The whole “futures contracts are neutral” made me laugh. Like saying there’s never any sort of speculation because in the end there are both winners and losers. Typical efficient markets claptrap from Goldman Sachs.

        I don’t understand Krugman’s position either. He touts the argument that during recessions there’s a flight to safety, which manifests itself in people buying government bonds. I agree with that argument, but strangely he doesn’t seem to consider there’s a similar mechanism at work that pushes money into any asset that still (seems to) perform well. In this case that asset was raw materials. When even otherwise levelheaded traders (with no expertise in commodity trading) took a flutter on the exchanges it’s clear that the market was very frothy. Charitably you could say it was driven by momentum but sure looks speculative to me.

  4. Ignim Brites

    What happened to CNN? (Nemo). Yep. Zerohedge directed readers to Aljazeera and that where I went until their Cairo coverage was shut down. At one point I thought to check the web sites of CNN, ABC, FOX, etc. Then, just thought: “Why waste time.” Never saw anything about other news operations being shut down. Indicates who Mubarak thinks is important.

    1. NotTimothyGeithner

      The tin foil hat I wear is telling me Al Jazeera was shut down at the behest of foreign governments for fear of outsiders understanding what was happening. Egypt is more or less on a set path beyond immediate control.

      No one has to worry about CNN’s reporting. I would be shocked if Wolf Blitzer didn’t say to someone in the last few days, “wait is this Egypt the same one where all the mummies are from?”

      1. wunsacon

        >> I would be shocked if Wolf Blitzer didn’t say to someone in the last few days, “wait is this Egypt the same one where all the mummies are from?”

        Ya mean, even Wolf now knows where the dead bodies are buried?? Oh, no! He knows too much!

          1. Scott Oof

            So instead of Al Jazeera now we get to have Wolf Blitzer give us the Bankster/AIPAC version of the Egyptian uprising, assuming CNN gives it any coverage it at all.

            The mere thought of Wolfie Blitzer “reporting on” the Egyptian uprising is about as nauseating as it gets.

            And I remember that Michael Moore interview, but couldn’t stomach watching it again, unless there’s some way to edit out the Wolf Blitzer parts.

            Anyway, the onion has a hilarious take-down of this vacuous pretentious non-entity in the following video entitled “Girl Raised from Birth by Wolf Blitzer Taken into Protective Custody”:

            http://www.theonion.com/video/girl-raised-from-birth-by-wolf-blitzer-taken-into,17714/

  5. Maju

    As for the Navarre mortgage story, I must say that Spanish common law does not apply in any of the Basque provinces, including Navarre. Whatever the Spanish law says, in all civil, property and tax matters, Basque laws are generally above.

    For example you cannot leave your whole inheritance to a single son/daughter in Spain but you can in the Basque Country. On the other hand, you cannot divide “root” family property such as a farmhouse.

    So Fitch (whoever that guy is) probably understands wrong because this is a Basque (or Navarrese if you wish) civil law matter and not a Spanish one.

      1. Maju

        I’d be happy about it but I’m almost sure that the laws are different for Navarre and the rest of the state.

        In financial and civil matters it is provincial (“foral”) law and institutions who rule. Notice that all taxes go to the provincial government and so on, it’s not really a Spanish matter legally but a Navarrese one.

        However the case is a very peculiar case and not a suppression of the Spanish abusive law (we wish!) It just means that in that case the bank had accepted the home as payment and therefore could not ask for more. If the bank would not accept the home, then it could still ask for more… and more and more… until your veins are dry.

        What I find most irking anyhow is that there is no Egypt-style revolution in Spain about all these abuses. I really hate Spain for many reasons but what I hate it most for is for the lack of struggling character of its people.

  6. Nicholas Weaver

    On educating Krugman…

    I think its just necessary to draw a simple cartoon supply/demand curve for most of these commodities:

    Demand as very inelastic, and not very fast to react.

    Supply in one resigm is very elastic: this is the classic demand-constrained market. A small shift in supply or demand or speculation has very low effect.

    This was oil in 1990s: The price ends up being the marginal extraction cost of the most expensive barrel needed to meet total demand.

    But then rather than being a straight line, supply becomes very INELASTIC and supply constrained, especially on a short term basis.

    You can’t miraculously create X thousand more barrels of oil/tons of copper/tons of coccoa: the lead time is too long.

    Once you transition into this regigm, anything (speculation, a 1% increase in world demand, a minor hiccup in a harvest, ANYTHING) can now produce wild price swings up (and then back down to where ti was before).

    It can be speculation (speculation becomes much more profitable as it can move markets). It can be fundimentals. It can be both. But in any case, the ride becomes much bumpier.

  7. MyLessThanPrimeBeef

    If a female quokka marries a male (or a female, I am 21st century) koala, she has a choice of going by the compound name of quokka-koala.

    That would be a pretty tasty antidote, I would imagine.

    Give me another quokka-koala.

  8. Steve Roberts

    Oil speculation can drive the market IMO. All of the Index funds and mutual funds are prohibited from shorting the market so as people buy into these commodities it increases competition to buy future deliveries.

    Last June we had this headline: HSBC and JP Morgan accused of manipulating silver market. If pricing can’t be manipulated with futures, how could they be manipulating the silver market?

  9. MyLessThanPrimeBeef

    If Super Bowl losses do increase cardiac death, can election losses have the same impact?

  10. RN

    Yves, if you’re going to go after Krugman, do it substantively in a post where you clearly explain and substantiate your theories. If you make enough sense, all, possibly including PK, will assent.

    But whining like a little girl without even making a serious case doesn’t really help your credibility, I don’t think.

    1. Yves Smith Post author

      RN,

      I wrote about this at considerable length in 2008 as I indicated. I do have a very serious and multi-pronged argument, which I also recap in ECONNED. And if you understood Krugman’s argument (which you appear not to) it is basically: “Futures are irrelevant, they all converge to the cash market, all that matters is the spot market, and unless you see excessive inventories, the price must be right.” The BWAVE argument (the fact that futures are used for pricing a huge amount of PHYSICAL oil traded) ALONE Is fatal to Krugman’s position.

      I gave more than enough bread crumbs for you to find my previous work, but you complain about me not having made the case when you can’t be bothered to look.

      1. duffolonious

        Maybe I’m just too much of an TheOilDrum.com reader – but I think it’s a fundamental problem exploited by the financial system. Oil production really has NOT increased, and oil usage is pretty elastic – so it takes a LARGE price move to get real reductions in use.

        If oil production doesn’t grow, then efficiency/productive-use/substitution is the only way to “grow”, and production isn’t growing, efficiency is slow (how many years to replace 10/20/50/100% of the cars in the market?), ditto on productivity (moving locations to shorten distances – that takes even longer now with the property bubbles), and substitution (when will we see natural gas cars?) – good luck.

        And it takes little demand over supply to skyrocket prices.

  11. sheepdog

    As a follow up to the New Yorker article re Issa:

    http://www.sdcitybeat.com/sandiego/article-7885-issa-issues.html

    Looks like Issa is a busy, busy man buying up properties at fire sale prices.

    A bit from the Citybeat article itself, “Last summer, Issa went on a property-buying spree. In the span of two months, he bought industrial complexes in Oceanside and Carlsbad and a condo overlooking Oceanside Bay. Even his son picked up a home in Vista.
    The Carlsbad complex, however, is at the center of a lawsuit playing out in Los Angeles County Superior Court. A bank lender in Ventura County is accusing a bank of selling Issa the building for at least $3 million less than it should have.
    The property is a series of five brand-new buildings near McClellan-Palomar Airport in Carlsbad. Currently, all but one unit is empty, but they can be rented through Greene Properties, a company that employs Issa’s wife and son. The project was dreamed up by Orange County “new urbanism” developer David Dirienzo, who defaulted on a $36-million construction loan in January 2009.

    The main lender, East West Bank, put the property up for auction but decided not to sell, instead filing a $12-million “credit bid” to hang onto it. Two weeks later, the bank sold the property to Issa’s company, DEI LLC, for $8.5 million.

    In the complaint, Ventura County Business Bank, a secondary lender with an 8.3-percent interest in the original loan, accuses East West of negligence and “breach of implied covenant of good faith and fair dealing.” The complaint alleges that East West did not properly market the property and that the bank declined offers to buy the property and loan that were “significantly in excess” of what Issa paid. It specifically states that East West “discouraged” a potential buyer from making an $11.5-million bid on the property, which could have resulted in a $3-million discount for Issa.

    This sort of real-estate deal may be familiar to San Diegans. In 2005, Randall “Duke” Cunningham, a former member of Congress representing San Diego County, was caught in a bribery scandal that centered around property bought and sold at abnormal prices.”

  12. Arnie

    I read about half of the Issa article.

    One thing starts to scream out loud and clear about this guy. I’ve seen it up close myself. What the article is describing is called an antisocial personality. Watch out. For every thing they do know about him, there are probably about 10 things they don’t know.

  13. svaha

    “In Beijing, where the average monthly salary is 4,000 yuan, the average person would take 50 years to buy an average apartment, assuming they saved every penny they earned. ”

    The same could be said for New York…

  14. Paul Tioxon

    Yves, this commodity story does not start with markets, or currencies, it starts with political agreements. Axis Mundi of the world, due to historical decision is oil and gas. The Nixon administration during the Arab Oil Embargo got the dollar as the only acceptable payment for a barrel. As oil is what is controlled by a handful organizations, including OPEC, the payment for oil is therefore critical. As we of a certain age know, oil is the BASF of the economy, it’s in almost everything, from food, to plastics to clothing. If you consider that oil as a fuel is more important than an input for rayon, cotton reasserts itself as a valuable commodity for the textile industry. Iron speaks for itself as does coal, which is higher up on the price increase chart than crude oil from almost any source. If you are going to build roads to connect a large national economy and allow for the free movement of labor, oil as a fuel for transportation trumps it as an input for other products. High grade LNG can go to plastics, cotton to clothing and oil to fuel for the internal combustion engine. China is a big country and the consumer demand for motor bikes and cars is a driver that is going to require gasoline for decades.

    The fact that the world is forced into getting and holding dollars as the reserve currency goes back to the need for oil and gas for agriculture, transportation, and manufacturing etc. The political agreement to stick with the dollar gives us the advantage in the world capitalist system. The accumulation of capital is by the Aramco entente, the accumulation of dollars. The necessity for dollars requires trade with the US. The US picks and chooses the entrants to core of world capitalism (The G7, now G20) by investment and trade and stuffs them with our dollars, which they are stuck with, to invest or buy something dollars can buy. We set those markets up. We set the currency up, we have pre existing entente with any number of other neo colonial countries with our head start since WWII.

    The medium of exchange is surpassing the means of production to understanding the control of the political economy. Money provides the cybernetic control of world capitalism, such as it is, on a scale that can now only be managed with the cybernetic instrumentation of the search engine. The medium is the message, now as ever. And pragmatism is the new global ideology. We keep changing in order to keep functioning, and the truth propositions that can be tested, provide validation in that the change we choose works out. Adaptive behavior that make the right choice knows it, because it simply works, despite our pre conceived notions about what should or should not.

    1. skippy

      Paul, I must say I rather liked that, with the caveat, that the time line is post modern and does not address the fundamental question *inquiring minds want too know*…HTFDWGH (how the F*&^# did we get here (sorry mate twice DIA marsupial thingy}). Why out of so many societal constructs are we using this one? Why do we as a species (not so sapience) insist on allowing only a very small % of our said genus control the holy grail of exchange, a medium that transcends the extinction / reduction of so many living things (on the only planet we know has life, at the moment) in the pursuit of individualistic pleasure, before all other considerations. The dialog is restricted and prone to psychopathy (aggressive rats denied their wants) which in my book is mistaken for humanistic advancement (rats get what they want, and everyone is happy, screaming kids shut up: see consumerist / consumptionist society).

      I was born into this world, but, find myself increasingly not of it, to whit, I find myself alienated to those closet to me, heritable and chosen. SO much to learn yet we advance ours and other demise over, king of the hill financial dung heap machinations…sigh.

      Skippy…sorry all, I still find IOTBP the most revealing of us all, all he/she wanted to do was share, is that so bad considering our trajectory.

        1. Paul Tioxon

          Skippy, how did we get here? I am trying to answer the request for help in analysis of currency manipulation of bwaves as the connection to speculation. The connection is of political origin, within the capitalist world system. I am not sure I can address why some have been allowed to stay on top of a hierarchical political system of pure exploitation. I do know that the USA has had an advantage over the rest of the world in not having to contend with entrenched institutional power of church, military and aristocracies. This allowed corporate business interest to overwhelm our republic and the rest of the world, because for so long, profits were not siphoned off into the state, church, kings or war. The system went global in a way not possible previously, after WWII, because of the two theater war effort. American business took its capital and with the experience of projecting its military might across 2 oceans simultaneously, transitioned to commercial projection of economic might on a global scale never before seen. We could manufacture in America and sell in Germany and Japan, cars and trucks cheaper than those made in their own respective locales. And at a profit. And for over a decade. To the whole world. So, that’s why we are here, in 2010. Only now, that system is unstable. Something better or worse can come out of this,depending on how we respond. If the opposition picks the evolutionary dead ends, in the face of changing circumstances which are just not predictable, and loses capital, privilege or power for some now unknown reason, the best organized alternative can move in. That is why I keep saying to pick a side. More importantly, build a side. You can’t be sure on the outcome or if you will live to see any conclusive transformation, but you know that if the opportunity arises, if you are ready with enough allies, you can take on the mantle of change and fight to hold onto to it. Accumulating capital, just to perpetually continue to accumulate it, makes no sense in the face of just watching the money get printed by a machine every night on the evening news as the visual about some big economic story. The Chinese have shown that raw materials and picking the right social organization is more important than waiting for a big gold mine to appear to back your currency. You just print the stuff, the work to create wealth is done by people, not money. Our social organization is designed for survival which is already a settled accomplishment. A system where the medium of exchanged is put under political control, yet still used for productive enterprise is not that hard to imagine. Banking with political limitations under the UCC can be written based on common sense experience of America from the past 200 years as well as other countries, especially China, with state capitalism. Capital invested by the government or private groups is still capital invested. It will rise or fall depending on its acceptance in the market. Not the fairy tale free market, but the market where people make everyday decisions on what to buy. The SBA, OPIC and other various venture groups and investment funds with limited equity, formed by the government do this on the state level right now.

  15. moreantidote

    Hi,

    I miss antidote du jour on the front page !

    Any chance you could expand the links posting and maybe put a thumbnail of the picture back on the FP ?

    Thank you.

    A loyal reader.

  16. Max424

    YS: “…Krugman [is] again insisting all commodities are the same and the prices all reflect fundamental forces. Help me.”

    The United States has pounded, built and prefabbed between 100 and 300 (depending on how you count em) military bases into the sands, dirt, and rock of the Central Eurasian/ Middle-Eastern badlands.

    In order to patrol this region, if you include mercenaries — at unprecedented expense — the United States military machine has put well over 250,000 paid boots on the ground.

    In the area’s surrounding seas and gulfs — again, at unprecedented expense — the USN has assembled 6 carrier task forces; 8 if you include carrier groups within nominal striking distance. There is enough firepower contained within these warships to kill every single inhabitant in the region — many dozens of times over.

    Why are we there, and what are we doing all this for?

    For cotton. For the commodity known as cotton.

Comments are closed.