Tuesday, January 4, 2011

Today's Links

1--Brazil to face-off with China on Juan policy, Bloomberg

Excerpt: Brazilian President Dilma Rousseff plans to make a “priority” of holding discussions with China over its policies toward the yuan and trade, Brazilian Trade Minister Fernando Pimentel said.

Rousseff will raise the issue with Chinese counterparts during a visit to China in April for a meeting of the so- called BRIC nations, which comprises Brazil, India, Russia and China, Pimentel said yesterday.

Brazilian Finance Minister Guido Mantega in September vowed to prevent any excessive appreciation by the real as governments worldwide engage in competitive devaluations he called a “currency war.” Brazil last month raised its tariffs on toy imports from China in a bid to bolster manufacturers whose earnings have been undercut by the real’s 36 percent gain against the yuan since 2008....Imports from China jumped 60.2 percent, to $25.6 billion, last year outpacing Brazilian sales. Exports to China rose 46 percent, to $30.8 billion.

2--U.S. Manufacturing Increases to Seven-Month High, Bloomberg

Excerpt: Manufacturing in the U.S. expanded in December at the fastest pace in seven months, reinforcing signs the expansion is gaining momentum.

The Institute for Supply Management’s index climbed to 57 last month from 56.6 in November...Stocks rallied, sending benchmark indexes up the most in a month, on speculation U.S. growth will keep strengthening in early 2011, raising prospects for more hiring. Increased spending by American consumers and business investment is helping drive production gains at factories that make up about 11 percent of the world’s largest economy.

“The factory sector is growing at a brisk pace, and it’s getting fueled by both U.S. demand and growth in exports,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, who correctly forecast the ISM figure. “The economic recovery will get help from manufacturing.

3--Home foreclosures jump in 3rd quarter: regulators, Reuters via patrick.net

Excerpt: Newly-initiated foreclosures increased to 382,000 in the third quarter, a 31.2 percent jump over the previous quarter and a 3.7 percent rise from the same quarter a year ago, the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) said in a quarterly mortgage report.

The number of foreclosures in process increased to 1.2 million, a 4.5 percent increase from the second quarter and a 10.1 percent increase from a year ago, according to the regulators.

They said during a briefing that the numbers could send "mixed signals" about the health of the U.S. housing market.

Regulators also said a possible reason for the foreclosure uptick in the quarter was that a large pool of borrowers who were being considered for home retention programs but did not qualify moved through the system.

4--Now is the time to sell, real estate consultant says, LA Times via patrick.net

Excerpt: People who have been delaying putting their homes on the market should do it soon because prices may go down 5% to 8% as banks unload a glut of repossessed properties, Steve Harney tells agents.

Banks have been in a state of limbo this year about what to do with repossessed houses, and so they have mostly held on to them in order not to add to the nation's oversupply of homes for sale, Harney told the agents.

"The banks have been saying, 'There has to be a number [the market] can hit where we can keep the river going without flooding the valley,'" he said.

5--What Lies Ahead in 2011?, Joseph Stiglitz, Project Syndicate

Excerpt: The global economy ends 2010 more divided than it was at the beginning of the year. On one side, emerging-market countries like India, China, and the Southeast Asian economies, are experiencing robust growth. On the other side, Europe and the United States face stagnation – indeed, a Japanese-style malaise – and stubbornly high unemployment. The problem in the advanced countries is not a jobless recovery, but an anemic recovery – or worse, the possibility of a double-dip recession.....

Meanwhile, US efforts to stimulate its economy through the Federal Reserve’s policy of “quantitative easing” may backfire. After all, in globalized financial markets, money looks for the best prospects around the world, and these prospects are in Asia, not the US. So the money won’t go where it’s needed, and much of it will wind up where it’s not wanted – causing further increases in asset and commodity prices, especially in emerging markets....

This is not the only, or even the most important, downside risk facing the global economy. The gravest threat comes from the wave of austerity sweeping the world, as governments, particularly in Europe, confront the large deficits brought on by the Great Recession, and as anxieties about some countries’ ability to meet their debt payments contributes to financial-market instability.

The outcome of premature fiscal consolidation is all but foretold: growth will slow, tax revenues will diminish, and the reduction in deficits will be disappointing. And, in our globally integrated world, the slowdown in Europe will exacerbate the slowdown in the US, and vice versa.

6--House Prices: More Pessimistic Views, Calculated Risk

Excerpt: From CNBC: Home Prices Will Decline for Years: Zuckerman (ht Scott)

Mort Zuckerman ... blamed the continuing price decline on the so-called shadow inventory of foreclosed homes that's yet to come on the market.

“That’s what’s going to put downward pressure on residential prices,” Zuckerman added, “And in my judgment, that’s going to continue for several years.”

And from MarketWatch: S&P warns on ‘shadow inventory’ (ht jb)

Standard & Poor’s Ratings Services said Monday that it’s taking longer for the U.S. housing market to absorb foreclosed homes, which means there may be a major drag on prices for a few more years.

My view is house prices - as measured by the Case-Shiller and CoreLogic repeat sales indexes - will decline another 5% to 10%. I think it is likely that nominal house prices will bottom in 2011, but that real house prices (inflation adjusted) will decline for another two to three years.

7--Amherst finds mortgage market underestimates looming defaults, Housingwire

Excerpt: Amherst Securities Group said the market is not taking into consideration the high likelihood of potential defaults on performing or re-performing mortgages when estimating future losses on these loans.

Mortgage-backed securities analysts at the fixed income dealer took a look at $1.3 trillion in outstanding nonagency mortgages from a year ago to see how they're doing as of November 2010. They found that the $485 billion of nonperforming loans, those more than 60 days delinquent, dropped to $414 billion through either modification or liquidation.

However, Amherst said that bucket alone does not detail the lurking risk. Re-performing borrowers stand a very good chance of redefaulting, according to Amherst. For the Home Affordable Modification Program, alone, the Treasury Department has estimated a 40% redefault rate....

"By focusing only on delinquent loans, the market is underestimating the size of the housing problem and the potential losses to bondholders if further policy actions are not taken," Amherst said.

8--Five Possible Dark Clouds Over Brightening Skies, Wall Street Journal

Excerpt: 3) Businesses don’t hire. One key support to a brighter outlook is the idea that businesses will increase hiring at a rate fast enough to bring down the jobless rate in 2011. That pace is generally considered to be somewhere north of 150,000 per month.
What if companies do not follow the game plan, possibly because demand is not strong enough to suit them? If job growth stays at the 100,000 per month seen in 2010, look for consumer confidence and spending to fall back.

4) Home prices fall significantly. Once the government tax credit ended in mid-2010, home prices resumed their decline. If that drop accelerates–perhaps because job growth doesn’t pick up or long-term rates pop up–expect a double whammy on growth.
First, falling home values will make households feel less wealthy, another potential drag on consumer spending. Second, declining home values will only worsen the homebuilding and mortgage situations.

5) Gasoline jumps to $5 a gallon. Gas prices are already at about $3 per gallon and winter is usually the weakest time for gas prices. The recent surge in crude oil has raised the possibility that gasoline could hit $4 by the peak summer driving season. The big danger is that saber-rattling in the Middle East or an unexpected refinery shutdown could push prices closer to a sawbuck a gallon. Given that Americans use about 378 million gallons of gas per day, each dollar rise in gas prices, if sustained, means $2.6 billion a week must be diverted toward the gas pump and away from other spending.

9--Interview with Gary Gorton, FRB of Minneapolis

Excerpt: “Dodd-Frank is well meaning, it’s well intentioned, it does some good things. But does it solve the problem? No. Does it understand the problem? No. Metrick and I propose, broadly speaking, that we address three things: money market mutual funds, where we have nothing new to say so we leave that one aside, but we want to bring securitization under the regulatory umbrella because it’s used as collateral. If the government doesn’t oversee it, then we won’t have high-quality collateral that’s created that people will have confidence in, in the sense that it’s information-insensitive. We want all securitized product to be sold through this new category of banks: narrow-funding banks. The NFBs can only do one thing: just buy securitized products and issue liabilities. The goal is to bring that part of the banking system under the regulatory umbrella and to have these guys be collateral creators.”

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