Friday, November 12, 2010

Today's Links

1--Home Prices Fall in Half of U.S. Cities, Realtors Say, Bloomberg

Excerpt: Home prices fell in half of U.S. cities in the third quarter as banks stepped up repossessions of properties in default.

The U.S. housing market is struggling as lenders seize a record number of properties and unemployment hovers near a 26- year high. Banks took over 288,345 homes in period covered by the Realtors report, up 22 percent from a year earlier, according to RealtyTrac Inc., a data firm in Irvine, California. Foreclosures boost the supply of available homes and reduce prices because they sell at a discount.

In a separate report today, the Realtors group said U.S. sales tumbled 25 percent to a 4.16 million seasonally adjusted annual pace in the third quarter from the previous three months. The pace was 21 percent below the 5.28 million rate of the year- earlier period.

The U.S. homeownership rate remained at a 10-year low of 66.9 percent in the third quarter, the U.S. Census Bureau said in a Nov. 2 report.

2--"Tory scum"; Students clash with police in London, Telegraph

Excerpt: Student demonstrators brought violence to London's streets yesterday on a scale not seen since the poll tax riots of 20 years ago. The ferocity of the protest ended the high hopes of a new era of consensus politics, promised by David Cameron when he took office exactly six months ago.

It is expected to be the first of many angry demonstrations as the impact of the Government's cuts is felt. More than 50,000 people brought Westminster to a standstill with a peaceful march past Parliament to protest against the proposal to increase tuition fees to up to £9,000 a year...

Slogans such as "Tory scum", and others more obscene, were scrawled across walls in paint and marker pen. Lights were ripped down and placards were burnt. Water fire-extinguishers were also let off from the roof and eggs thrown. Eight people, including three police officers, were taken to hospital.


Excerpt: What’s going on? As a Fed official explained it in a recent speech, one supposed benefit of the Fed policy is that it will add to “household wealth by keeping asset prices higher than they otherwise would be.”

So it’s levitation-by-decree. When the Fed moves, financial assets receive the opposite of collateral damage: universal blessing, deserved or not. Lower rates may or may not help more people find work. But there’s no doubt that the central bank has already helped the Henry Kravises and Lloyd Blankfeins of the world....

All of this is Finance 101. The cheaper money is to borrow, the more it makes sense to take a bigger risk with it.

But that doesn’t make it more palatable. It feels like an ominous replay of recent Federal Reserve emergency actions, which led to bigger and bigger bubbles. The Fed brokered the rescue of Long-Term Capital Management, bailing out the investment banks that had lent to the collapsing hedge fund. The Fed pumped money into the economy to save us from the Y2K computer bug. The Fed tried to rescue the economy from the bursting of the Nasdaq bubble, helping to create the housing bubble.

It’s like the exhausted “Saw” movie franchise. This isn’t just a sequel. It’s more like the third iteration of the second reboot — harder core, baser and for serious liquidity heads only.

4--From Ireland to €2,000bn of eurozone contagion, FT.Alphaville

Excerpt: The ECB’s lack of action is puzzling to say the least and begs the question as to whether it is fulfilling its financial stability mandate. With three countries in the euro area now having virtually lost access to capital markets, the implications for the region as a whole could easily become systemic again. Let us recall that there is Eur2 trillion of debt securities issued by Spain, Portugal Ireland and Greece in the hands of financial institutions resident outside of these countries (See “The Eur2 trillion debt exposure to Greece, Spain and Portugal”, 24 May 2010). If that is not enough to worry about financial contagion what is?

As can be seen from bond market developments over the last few days there are growing signs that the contagion is spreading to the larger economies with Spain lining up next (see charts below). In this context, the activation of the EFSF for Ireland and Portugal is not going to do anything to reduce the pressure on neighbouring countries.

RBS’s €2,000bn estimate for financial institutions’ exposure to Greece, Portugal and Spain is precisely the amount economist Willem Buiter, writing back in July, thought was needed to save the eurozone.

5--QE II Has Lit the Fuse, Chris Martenson, zero hedge

Excerpt: the first QE effort had the specific aim of repairing damaged bank balance sheets. That is, banks and other financial institutions had made some colossally poor and risky financial moves that didn't work out for them and needed some help, and the Fed was more than happy to oblige by handing them free money to patch up their losses.

Of course they didn't do this outright by saying, "Here take this money!"; they did it somewhat sneakily. But when the Fed hands you huge piles of money (for your dodgy debt) and then let's you park that very same money in an interest bearing account at the Fed, there's really no difference between that and just handing banks free money. No difference at all. If the Fed ever offers you free money that you can then park in an interest bearing account with the Fed, you should take them up on it, and you should do it as much as they will allow...

from Xinhua: The G-20 should "set up a new mechanism that effectively monitors the issuer of the international reserve currency, especially when it is not able to carry out responsible currency policies," Xinhua said, making an apparent reference to the U.S. as the issuer of the dominant reserve currency.

"Considering the influence of the policy moves in the major international reserve currencies on the global economy, it is necessary for the issuer of the international reserve currency to report to and communicate with the G-20 Group before it makes major policy shifts."

6--European Ministers Hold emergency meeting on Ireland at G-20, Bloomberg

Excerpt: Finance ministers from Germany, France and the U.K. met in Seoul to discuss Ireland’s debt crisis after bond yields soared on concern the European Union will need to step in with a bailout.

Ministers are monitoring developments and will probably issue a joint statement later today, said Steffen Seibert, a spokesman for German Chancellor Angela Merkel...Bailing out Ireland’s financial system could cost as much as 50 billion euros ($68 billion) under a “stress case” scenario compiled by the finance ministry and central bank.

Germany is the biggest contributor to this year’s 860 billion euros in loans and pledges to stem Europe’s debt crisis. Bonds of the euro area’s so-called peripheral nations have tumbled since EU leaders on Oct. 29 backed Merkel’s demand to set up a permanent rescue system by 2013 that makes bondholders foot part of the cost of any future debt crisis.

“There may be a conflict here between the interests of the financial world and the interests of politicians,” Merkel said in Seoul yesterday where she is attending a Group of 20 leaders summit. “We can’t constantly explain to our voters that taxpayers have to be on the hook for certain risks rather than those who make a lot of money taking those risks.”

7--Irish debt woes rock the euro, Reuters

Excerpt: The euro extended losses on Friday on fears Ireland may need a bailout just like Greece, while commodities eased as the U.S. dollar rose, hitting the pause button on a rally that pushed copper to record highs....

The possibility of a bailout for Ireland has significantly widened the difference of bond yields of high-risk European countries over those of Germany, and overshadowed a Group of 20 leaders' summit in Seoul, where a breakthrough on resolving global economic imbalances amid incongruent policies looked unattainable.

"The effects of euro zone peripheral bond concerns are spreading through euro zone markets and hitting risk appetite in the process. The euro is a clear casualty, having dropped further against the U.S. dollar and versus other currencies," Mitul Kotecha, global head of currency strategy with Credit Agricole CIB in Hong Kong.

The resurgence of fears about Europe's sovereign debt has added to a shift back into dollars and out of riskier assets.

The euro was down 0.3 percent against the U.S. dollar at $1.3625 after tumbling 0.9 percent on Thursday.

8--Pessimism pervades as G20 leaders show sharp split, AP

Excerpt: A strong sense of pessimism shrouded the start of an economic summit of rich and emerging economies Thursday, with President Barack Obama and fellow world leaders arriving in Seoul sharply divided over currency and trade policies....

Brazil's president, Luiz Inacio Lula da Silva, warned that such policies would "bankrupt" the world.

"If the rich countries are not consuming and want to grow its economy on exports, the world goes bankrupt because there would be no one to buy," he told reporters. "Everybody would like to sell."...

A major issue confronting the G-20 is how to craft a new global economic order to replace one centered on the U.S. running huge trade deficits while countries such as China, Germany and Japan accumulate vast surpluses. The U.S. runs a trade deficit because it consumes more foreign products than it sells to others.

9--Somali Pirates Refuse to Board Carnival Cruise Ships, The Borowitz Report

Excerpt: MOGADISHU (The Borowitz Report) – In yet another public relations setback for the beleaguered cruise ship company, Somali pirates today said they would no longer board Carnival Cruise ships, citing “unsafe working conditions.”

“If Carnival thinks that it’s going to be business as usual between them and the Somali pirates, they need to have their heads examined,” said Somali pirate spokesman Sugule. “We Somali pirates may be bold, but we’re not crazy.”...

When asked if the Somali pirates might attempt to board Carnival ships in the future, he responded, “I am telling me hearties that if they were thinking of pillaging a Carnival ship of its booty over the holidays, they should make alternative plans.”

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