Friday, March 16, 2012

Weekend Links

1--Chinese Economy Already in ‘Hard Landing,’ JPMorgan’s Mowat Says, Bloomberg

Excerpt: China’s economy is already in a so- called “hard landing,” according to Adrian Mowat, JPMorgan Chase & Co.’s chief Asian and emerging-market strategist.

“If you look at the Chinese data, you should stop debating about a hard landing,” Mowat, who is based in Hong Kong, said at a conference in Singapore yesterday. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.” His team was a runner-up for best Asian equity strategists in a 2011 Institutional Investor magazine poll

The Shanghai Composite Index fell 2.6 percent yesterday, the most since Nov. 30, after Premier Wen Jiabao said home prices are still “far from a reasonable level.” His comments fueled concern the government will maintain restrictions on the property market for an extended period even as the curbs threaten to slow economic growth.

Wen announced at the beginning of a national lawmakers’ congress on March 5 an economic growth target of 7.5 percent for this year, down from 8 percent over the past seven years. Data last week showed China’s factory output in the first two months of the year rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months. A report today showed foreign direct investment in China fell in February.

2--Home default notices rise in February: RealtyTrac, Reuters

Excerpt: The number of Americans receiving delinquency notices on their homes rose in February from January, while the backlog of homes in the foreclosure pipeline showed signs of starting to ease, a report said on Thursday.

Default notices were filed for the first time on 58,886 homes last month, up 1 percent from January, though still down 7 percent from February 2011, a report from RealtyTrac showed...

But there was a divide in the pace of activity among the states, depending on the structure of their foreclosure process, which suggested some of the homes in the pipeline were starting to move.

Foreclosure activity jumped 24 percent from a year ago in states where foreclosures must be processed through the courts, known as judicial states. Foreclosure times have stretched longer in judicial states, contributing to the backlog.

"We're seeing definite signs that the foreclosure log jam that's built up over the last year and a half is beginning to loosen up," said Daren Blomquist, director of marketing communications at RealtyTrac.

3--The 'long-term greedy' canard, IFR

Excerpt: Careers in banking are wasting assets; someone will only get so many bites at the apple, and is far less likely to be at the same firm than they were in Gus Levy’s time. The industry too, it is important to understand, is also a wasting asset; it is shrinking and may well shrink substantially from here. Ironically, that may well mean it is even more rational for bankers to burn clients, at least on the trading side, because they simply don’t know if their business line will be regulated out of existence in a few short years.

While there may be a long term for Goldman Sachs the company, no such future is promised to its employees. This is as true for the managers as for the troops. In the meantime, there are fortunes to be made.

Really, the only way we can expect long-term greedy to make a real comeback is for regulation to be tightened, or for the non-utility-like functions of banks to be put entirely outside the system of public insurance. Happily, this also happens to be what is best for clients, and by that I mean not the people who work at hedge funds or corporations but their investors, and best for the countries in which banks operate.

Much as we might admire the efforts, self-regulation in the face of life-changing rewards and minimal punishments just won’t work, not now or eventually when those ripped off finally figure it out.

4--The Myth Of Cash On The Sidelines, The Big Picture

Excerpt: Last Thursday the Federal Reserve released its quarterly Flow of Funds data, current through December 2011. One of the more popular headlines from this data concerns the record amount of “cash on the sidelines.” Through Q4 2011, nonfarm nonfinancial corporate businesses held $2.23 trillion in liquid assets on their balance sheets. As the argument goes, this must be a sign of pent-up demand just waiting to be unleashed on the market.

When examined over a shorter time frame, as shown below, the percentage of cash on the sidelines is at the upper end of its range of the past 30 years. Given the uncertainty in the markets, rampant volatility and the lack of good investment opportunities, this should not come as a surprise....

While it is true that cash on the sidelines, as defined above, is at its highest level in roughly 30 years, should this be taken as a sign of pent-up demand that could lead to a huge rally once unleashed? We would still argue it is not. If and when investment opportunities become more enticing, we will see these levels fall from 14.24% to the historical norm of the past 30 years of 10%-11%. It is not as though companies currently have 40% of their assets in the form of cash waiting to be invested, as was the case in the 1950s.

5--Why ECRI’s Recession Call Stands, Big Picture

Excerpt: Many have questioned why, in the face of improving economic data, ECRI has maintained its recession call. The straight answer is that the objective economic indicators we monitor, including those we make public, give us no other choice.

Let’s start with the current state of the economy. A couple of weeks ago, we publicly highlighted ECRI’s U.S. Coincident Index (USCI). It’s important to understand that the USCI isn’t a random concoction of data, but rather the gold standard for measuring current economic growth, as it summarizes the key coincident economic indicators used to determine the official start and end dates of U.S. recessions; namely, the broad measures of output, employment, income and sales. So when USCI growth is in a downturn (bottom line in chart), it’s an authoritative indication that overall U.S. economic growth is actually worsening, not reviving.

How about forward-looking indicators? We find that year-over-year growth in ECRI’s Weekly Leading Index (WLI) remains in a cyclical downturn (top line in chart) and, as of early March, is near its worst reading since July 2009. Close observers of this index might be understandably surprised by this persistent weakness, since the WLI’s smoothed annualized growth rate, which is much better known, has turned decidedly less negative in recent months. The unusual divergence between these two measures of growth underscores a widespread seasonal adjustment problem that economists have known about for some time....In spite of the efforts of monetary policy makers, actual U.S. economic growth has slowed, while WLI growth has barely budged from a two-and-a-half-year low.

The bigger question is, can unprecedented, concerted global monetary policy action repeal the business cycle? The objective coincident and leading indexes that we have always monitored are still telling us that it cannot.

6--Savings low, worry high among workers: report, Reuters

Excerpt: Workers are saving less, worrying more and may be unrealistic about their ability to work as long as they think necessary to afford retirement, according to a major national survey released on Tuesday.

The 2012 Retirement Confidence Survey, published by Employee Benefits Research Institute, found workers in January as gloomy as they have ever been about their retirement prospects. The survey, which measures workers' and retirees' views of the future rather than actual savings data, has been conducted annually for 22 years and is largely underwritten by financial services firms.

Some 60 percent of workers surveyed said they had less than $25,000 in household savings (excluding their homes and traditional pensions); 34 percent said they had pulled money out of savings to pay for basic expenses; and only 52 percent said they felt even somewhat confident that they would have enough money to live comfortably through their retirement years.

The nation's confidence has plateaued "at the lowest levels we've seen in the two decades since we've done this survey," said Jack VanDerhei, the report's co-author and research director at EBRI.

7-- From Goldman: "Expect The New QE As Soon As April", zero hedge

Excerpt: Q: What is your current forecast for Fed policy?

A: It has definitely become a closer call, but we still expect another asset purchase program that involves purchases of both mortgage-backed securities and Treasuries. This would expand the Fed's balance sheet, but its impact on the monetary base would likely be "sterilized." We expect this program to be announced in the second quarter, either at the April 24-25 FOMC meeting or the June 19-20 meeting. The argument for April is that this would leave more time before the end of the long-term bond purchases under Operation Twist (more formally known as the Maturity Extension Program), and would thereby reduce the risk of market disruptions as uncertainty about the Fed's role in the market rose. The argument for June is that this would allow Fed officials a bit more time to assess the state of the economy. After June, we believe the hurdle for more action rises, not so much because of the impending presidential election but more because a decision to wait until after the end of Operation Twist would signal greater comfort on the Fed's part with denying the economy additional stimulus.

Q: The economic indicators are improving, financial conditions remain accommodative, and inflation is at or above the Fed's target. So why should they ease further?

1. The improvement might not last.

2. Even if the improvement does last, faster growth would be desirable to push down the unemployment rate more quickly.

3. Not easing might be equivalent to tightening.

8--International Demand for U.S. Assets Rises, Bloomberg

Excerpt: International demand for U.S. financial assets rose more than forecast in January as investors sought a haven from the debt crisis in Europe.

Net buying of long-term equities, notes and bonds totaled $101 billion during the month, compared with net purchases of $19.1 billion in December, the Treasury Department said today in Washington. Six economists surveyed by Bloomberg News had forecast net buying of $38.5 billion of long-term assets, according to the median estimate.

“The surge in foreign demand for U.S. financial assets underscores the healthy appetite that continues to prevail globally for U.S. securities,” Millan Mulraine, a senior U.S. strategist at TD Securities in New York, said. “Treasuries demand was especially strong, reflecting the appeal of this ‘safe haven’ asset to global investors even at a time when risk appetite was improving.”

9--Bankers’ dictatorship for Detroit workers, WSWS

Excerpt: Michigan Governor Rick Snyder announced Tuesday night that he was demanding the establishment of an unelected financial control board to run the city of Detroit, with the power to tear up and rewrite union contracts and impose across-the-board cuts in spending, including the selloff of city assets.

Detroit would be the largest American city to be subjected to such a financial dictatorship since an Emergency Financial Control Board was imposed on New York City in the mid-1970s. The measures to be taken against city workers will be far more drastic than those of 35 years ago, however. Detroit’s crisis is the consequence of the long-term decline of the US auto industry, and of American capitalism as a whole.

The city has shrunk to barely one-third of its 1950s population—from two million to barely 700,000—and there are only two functioning auto plants in the “Motor City.” The majority of the city’s population is impoverished, and the official unemployment rate is over 30 percent. Vast sections of the city are abandoned, with weeds growing in empty lots. Neighborhoods have been ravaged by house fires and the deterioration of essential services like street lighting, garbage collection and fire protection.

Snyder made his announcement in a message to the Detroit City Council, after talks broke down between the governor and Mayor David Bing over the terms of a “consent agreement” under which the city would accept the financial control board in return for state assistance in avoiding bankruptcy. Snyder said he would ask the City Council to ratify the agreement before a March 27 deadline.

10--Time to Worry About Bond Yields? , Bloomberg

Excerpt: (video) Excellent 4 minute summary of the recent ructions in USTs

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