Category Archives: Economic fundamentals

Robert Shiller Questions Whether Housing Has Bottomed, Sees Possible Bubbles

Robert Shiller of the Case Shiller Index, spoke to Fox Business earlier this week (hat tip Ed Harrison). In this short chat, he stresses that the rise in housing prices so far this year look very encouraging, but could prove to be seasonal. He also points out that he is seeing what may be early bubble behavior in San Francisco and Phoenix, and even in Chicago and Atlanta.

If that is indeed happening, it’s not a bug but a feature.

Germans Getting Even More Opposed to Being in the Eurozone

Over the weekend, the newspaper Bild released the results of a new poll on German sentiment on the Euro. It found that 51% thought Germany would do better by leaving the Eurozone with 29% saying Germany would fare worse. In addition, 71% of the respondents said Greece should be expelled from the Eurozone if it could not live up to its austerity commitments.

These results aren’t particularly novel; a large cohort of Germans have been vocally opposed to Eurorescues for some time. What is new about this poll is how low the percentage is that sees being in the Euro as good for Germany.

China Will Get Old Before It Gets Rich

By Leith van Onselen, Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. You can follow him on Twitter at @leithvo. Cross posted from MacroBusiness

Yesterday, Houses & Holes stated that he was a long-term China bull, largely because of its status as an industrial powerhouse. Today I want to outline the reason why I am a long-term China bear: China’s rapidly ageing population.

Dan Kervick: Want Jobs? Forget the Fed!

Yves here. Late in the afternoon, after three days running of Mr. Market being in a bad mood, the Wall Street Journal sent a news alert titled “Fed Sees Action if Growth Doesn’t Pick Up Soon.” The message:

Federal Reserve officials, impatient with the economy’s sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring.

Since their June policy meeting, officials have made clear—in interviews, speeches and testimony to Congress—that they find the current state of the economy unacceptable. Many officials appear increasingly inclined to move unless they see evidence soon that activity is picking up on its own.

As I sputtered by e-mail:

This would be funny if it weren’t pathetic and real people weren’t being hurt.

The state of the economy is “unacceptable”? Really? Where were you when bank reforms were needed and the Obama administration was too chickenshit to go for bigger stimulus?

And the Fed has already tried every confidence fairy and central bank trick on offer. But Bernanke refuses to believe that loanable funds is a fallacy. Putting borrowing on sale is attractive to speculators, but not to real economy types who don’t see opportunity and/or have legitimate worries re repayment.

The post below is a longer-form treatment of what passes for policy thinking at the Fed. Oh, and it roughs up on Matt Yglesias too.

Josh Rosner: Eurozone Crisis – No More Safe Havens

Josh Rosner of Graham Fisher published a report last week urging subscribers to short bunds, beating the Moody’s negative watch for Germany and the Netherlands by a full week.

The article provides a data-rich analysis of how a banking crisis has morphed into a sovereign debt crisis as the authorities have refused to impose losses on investors in banks in the so-called core Eurozone countries. And as Rosner argues, the current path of denial and delay has increased the eventual costs to Germany and the global economy, with the tab to Germany already €500 billion higher than it would otherwise have been.

EuroCrisis Intensifies as Spain Spirals Downward, Greek Impasse Nigh

It is increasingly difficult to find metaphors adequate to describe the pathological dysfunction among European leaders as their rigidities and biases make a full blown crisis look inevitable.

Departing IMF Economist Blasts Fund

Although the resignation letter of Peter Doyle, who was an advisor to the IMF’s European Departments, which is running the rescue programs for Greece, Ireland, and Portugal, is more terse that Greg Smith’s resignation from Goldman via a New York Times op ed, it is no less devastating.

Spain Slides

By Delusional Economics, a regular blogger at MacroBusiness and a consulting editor at the Macro Investor newsletter. He is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint

It was an all round horrible night for Spain, starting with a bond auction that went a little wrong:

Existing Home Sales “Unexpectedly” Fall

This Bloomberg story is consistent with our current thesis: that despite the buoyancy of the stock market, conventional wisdom has it that a “recovery” is on and that the economy is on firmer footing than it really is.

Philip Pilkington: The New Monetarism Part III – Critique of Economic Reason

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

During the Great Depression and the war years monetary policy in Britain had proved largely ineffective. In the meantime it was shown that government spending could cure economic depressions and return the economy to full or even super-full employment. After the war most political parties in Britain were thus interested in using fiscal policy to generate full employment rather than rely on the vagaries of monetary policy. (This, it should be said, is the polar opposite of our rather more desperate situation today).

Wily conservatives, however, recognised that such policies would mean the expansion of government – which they didn’t like at all. So they tried to resurrect monetary policy as the government’s tool of choice.

Yanis Varoufakis: It is Now Official – The Eurozone’s Monetary Transmission System is Broken

By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog

Under normal conditions, the interest rates that you and I must pay on a home loan, a car loan, our credit card, a business loan are pegged onto two crucial rates. One is the rate that banks charge one another in order to borrow from each other. The other is the Central Bank’s overnight rate. Alas, neither of these interest rates matter during this Crisis. While such ‘official’ rates are tending to zero (as Central Banks try to squeeze the costs of borrowing to nothing), the interest rates people and firms pay are much, much higher and track indices of fear and subjective estimates of the Eurozone’s disintegration.

The Sucking Sound of Air Leaving the Economy

I’ve refrained from commenting much on the state of the economy over the last couple of years because it seems to have been largely irrelevant to the direction of many widely followed markets. While bonds, particularly the highest quality bonds, have continued to rally over time, par for what you’d expect in an economy facing deflationary pressures, on a day to day basis, bipolar risk on/off reactions have held sway. And even though there is no reason to expect anything better that a weak recovery in the wake of a balance sheet recession afflicting the world’s advanced economies, a peculiar tendency to look to ordinary recessions for comparisons plus undue faith in the confidence fairy has led many commentators to draw trend lines through improving data series and declare it to be a recovery. However, we seem to be at or may even have passed an inflection point, and policy makers seem remarkably unprepared to take action.

Divorce Finance From Commerce

Yves here. The post below does not quite nail the rather large topic it opens up, that of how financial markets differ from markets for goods and what the implications are for regulation (George Cooper’s The Origin of Financial Crises is very crisp on these topics) but I thought it would provide for conversational grist for NC readers.

RealtyTrac, CoreLogic Confirm Housing Bear Thesis: 85-90% of REO Being Held Off Market, Meaning “Tight” Inventories Are Bogus

We’ve been mystified with the housing bull argument that things really are getting better. While real estate is always and ever local, and some markets may indeed be on the upswing, there are ample reasons to doubt the idea that an overall housing recovery is in. For instance, the recent FHFA inspector general report stated:

Marshall Auerback: The Pain in Spain

By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Economic Perspectives.

Just when you think that things can get no worse in Spain, they do. Take a look at this chart, courtesy of Credit Suisse via FT’s Alphaville