Tuesday, January 22, 2013

Today's links

1---Chart of the day: US stock market vs. US labor market, AIE

 
Bottom line: (The market rises when more people find jobs) 
 
2---BOJ Adopts Abe’s 2% Target in Commitment to End Deflation, Bloomberg
 
3----Bundesbank Head Cautions Japan, WSJ
 
Bundesbank President Jens Weidmann warned Japan not to "politicize" its exchange rate by pursuing an overly aggressive monetary policy, reflecting mounting concern in Europe that other central banks may cheapen their currencies as a means of stimulating economic growth.
Japan's government as well as Hungary's "are intervening heavily in the duties of the central banks, pressuring for a more aggressive monetary policy" that threatens central-bank independence, Mr. Weidmann said in a speech on Monday.
"A consequence, whether intended or not, could lead to an increasingly politicized exchange rate. Until now, the international monetary system has come through the crisis without a race to devaluation, and I really hope that it stays that way," Mr. Weidmann said....
 
European officials have reacted with growing alarm as their currency, the euro, has risen. The euro gained nearly 7% against a wide basket of currencies since late July, when European Central Bank President Mario Draghi signaled that the ECB was willing to intervene aggressively in euro-zone government bond markets. It is up 10% against the U.S. dollar over that time frame, and traded at around $1.33 late Monday in Europe.
The ECB's bond plan calmed fears of a euro-zone breakup, boosting the euro. The ECB hasn't purchased any bonds yet, keeping its balance sheet steady. The ECB has resisted cutting interest rates near to zero as the Federal Reserve and Bank of Japan have done.
Jean-Claude Juncker, head of the euro-zone finance ministers' group, last week said the euro's value was "dangerously high," threatening the currency bloc's recovery. German Finance Minister Wolfgang Schäuble said he found Japan's policies "worrying."
 
4---Retail Sales and Jobs, financial armageddon
 
Sales down, jobs will follow
 
5--How to prevent another housing bubble, oc housing
 
  1. 1. All payments must be calculated based on a 30-year fixed-rate conventionally-amortizing mortgage regardless of the loan program used. Negative amortization is not permitted.
  2. 2. The total debt-to-income ratio for the mortgage loan payment, taxes and insurance cannot exceed 28% of a borrower’s gross income.
  3. 3. The total debt-to-income of all debt obligations cannot exceed 36% of a borrower’s gross income.
  4. 4. The combined-loan-to-value of mortgage indebtedness cannot exceed 90% of the appraised value of the property or the purchase price, whichever value is smaller except in specially sanctioned government programs.

6---Investors Most Optimistic on Stocks in 3 1/2 Years in Poll, Bloomberg

International investors are the most bullish on stocks in at least 3 1/2 years, with close to two- thirds planning to raise their holdings of equities during the next six months, according to a Bloomberg survey.

As the global financial and business elite gather in Davos for their annual forum, 53 percent of respondents to the Bloomberg Global Poll also say equities will offer the highest return in the next year. That’s a 17 percentage point jump from the last poll in November and the most since the quarterly survey of investors, analysts and traders who subscribe to Bloomberg began in July 2009
...

The improvement in the U.S. is having a “positive effect throughout the world,” according to Sriram Srinivasan, chief executive officer of Wall Street Investment Management in Chantilly, Virginia, and a poll respondent.
The global economy is in its best shape since May 2011, according to the survey, with 35 percent of those contacted saying it is getting better. That’s about twice the number who say the outlook is worsening. European investors were the most upbeat; U.S. respondents the least.
“The positive wealth effect caused by rising stock markets creates a big global confidence boost,” Srinivasan said in an e-mail.
Equity market gains are expected to be widespread. More than three-in-five surveyed forecast the Standard & Poor’s 500 Index (SPX) and the MSCI Asia Pacific Index (MXAP) will be higher six months from now. The U.S. index closed at a five-year high of 1,485.98 in New York on Jan. 18 and the Asian gauge rose 0.3 percent today as of 3:57 p.m. in Tokyo....

The U.S. is the best place to invest for the next five years because of the commitment by the Federal Reserve to inflate the economy,” Ron Anari, who took part in the poll and who is a senior vice president at ICAP Plc. in Jersey City, New Jersey, said in an e-mail.
Fed Chairman Ben S. Bernanke, who received a favorable rating from seven out of 10 investors in the poll, has pledged to keep purchasing Treasury and mortgage-backed securities until the outlook for the labor market improves “substantially.” 

7---Elevated energy prices pose a threat to US recovery, sober look
 
Gasoline prices could create headwinds for US economic recovery. The recent sharp rise in gasoline inventories (below) was thought to provide some relief to the consumer by bringing down fuel prices - at least in the near-term...
But in spite of adequate supplies, prices remain elevated
 
8---Worldwide unemployment soars, young workers most vulnerable – UN report, RT
 
Global unemployment is at a record high in the wake of the financial crisis, says a UN report. A rise in joblessness of 5.1 million is expected in 2013, impacting the world’s youth hardest in a climate of stifling austerity and economic instability.
UN agency, the International Labor Organization (ILO) released its annual report on worldwide employment on Tuesday, marking a significant worsening in unemployment trends.
The report states that approximately 197 million people were out of work in 2012, a rise of 4.2 million. Guy Ryder, director-general of the ILO, stated at the press conference accompanying the release of the report that “inadequacy of policy to counter” unemployment was largely to blame for the slump in investment and hiring.
“This has prolonged the labor market slump in many countries, lowering job creation and increasing unemployment duration even in some countries that previously had low unemployment and dynamic labor markets,” he added.
Ryder stressed the numbers did not convey the full extent of the crisis because "labor force participation has fallen dramatically…masking the true extent of the jobs crisis."
Over 39 million people dropped out of the global job market last year because of the increasingly bleak outlook. The economic climate in the eurozone has been earmarked as one of the worst areas for the job market, indicative of a “piecemeal approach” to the crisis.
“The global nature of the crisis means countries cannot resolve its impact individually and with domestic measures only,” he declared

9---Hunger and homelessness rise in the US, RT

10---Over a quarter of US kids on food stamps, under-50s dying young – reports, RT

11---Proof that "wealth effect" impacts spending, shiller etc, economists view

We find a statistically significant and rather large effect of housing wealth upon household consumption. This effect is consistently larger than the effect of stock market wealth upon consumption.
In our earlier version of this paper we found that households increase their spending when house prices rise, but we found no significant decrease in consumption when house prices fall. The results presented here with the extended data now show that declines in house prices stimulate large and significant decreases in household spending.
The elasticities implied by this work are large. An increase in real housing wealth comparable to the rise between 2001 and 2005 would, over the four years, push up household spending by a total of about 4.3%. A decrease in real housing wealth comparable to the crash which took place between 2005 and 2009 would lead to a drop of about 3.5%
 
12--US as capital importer, conversable economist

13--Hannity vs Hitchens, you tube

14---‘A Time Comes When Silence Is Betrayal’, MLK opposes Vietnam war, antiwar

15---The 4 Dubious Assumptions Driving the Market Higher, prag cap

Since almost every central bank in the world is aggressively easing, the market cannot go down.

We disagree. Despite massive ease by the Fed and stimulative fiscal policy, the economy has grown at only a 2.2% annualized rate since the recovery started in the 2nd quarter of 2009. That pales in comparison to the average of 3.6% between 1950 and 1999—-and that period included both recoveries and recessions. The Fed, however, has run out of ammunition. The funds rate has been near zero since 2008 while each successive round of quantitative easing has had less and less effect. GDP estimates for the 4th quarter of 2012 are only between 0.5% and 1.5%. Economic growth has shown few signs of being sustainable on its own. It is worth pointing out that GDP growth has consistently been overestimated throughout the recovery. The Fed, for instance, originally forecast GDP growth of 4.5% for 2012.

Moreover, fiscal policy, which has previously been supportive of economic growth, is fast becoming a headwind instead. The fiscal cliff agreement, although celebrated by the market, raised taxes and reduced spending by enough to slice between 1% and 1.5% off GDP this year. No matter how the upcoming debates are resolved, they are all about cutting deficits through some combination of spending reductions and tax increases. A portion of this will be applicable to 2013, and result in additional deductions from economic growth.

16---Washington Post Is Confused on the Origins of the Deficit, CEPR

"The country faces a fast-growing national debt as a result of waves of retiring workers who expect health care and pension benefits."

This is not true. The reason the debt has been rising rapidly in recent years is that the economy plunged due to the collapse of the housing bubble. In 2007, before the collapse, the deficit was just 1.2 percent of GDP and the debt to GDP ratio was falling. The Congressional Budget Office projected that the deficit would remain in this neighborhood well into the current decade, even if the Bush tax cuts were not allowed to expire.

17---Poor, White and Pissed, Joe Bageant

If you are reading this it is very likely that you are a liberal, maybe even an outright screaming burn down the goddam country commie -- in which case I say, "Come sit by me comrade!" (Especially if you are a blonde.) Like most lefties you probably live in an urban area, or someplace with reasonable cultural diversity. More than likely you are educated and can read this without moving your lips. Maybe you even live in the freethinking People's Republic of Berkeley, or bustle along under the fabled lights of Manhattan where you can see independent films and buy such things as leeks and soy milk at your grocery store. 

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