Thursday, March 28, 2013

Today's links

1---Central bank balance sheet explosion, Big Picture

Slide 13 lists the total assets of the major central banks. Those are the Federal Reserve, European Central Bank, Bank of England, Bank of Japan, and Swiss National Bank. We have added the Swiss National Bank since Switzerland now practices a policy maintaining a pegged floor in the exchange rate between the Swiss franc and the euro. Essentially, these central banks started pre-crisis with about $3.5 trillion in total assets, in US dollar terms. Their assets now exceed $10 trillion and are growing. We have broken out the individual central banks for tracking purposes.
Slides 20 and 21 depict the assets and liabilities of the Bank of Japan. Note that Japan is the only major country that has experienced extraction from quantitative easing. That happened in 2006. At the time, the Japanese quarter-end extraction shocked world markets quite seriously. This is the only case in modern history where a large extraction at quarter-end occurred. We have noted it for both the assets side and liabilities side in slides 20 and 21.

The conclusion of our remarks in Dubai outlined the various factors that world markets and economies confront as this immense expansion of central bank balance sheets, along with massive liquidity injections, runs its course. We do not know how long this game of monetary quantitative easing will continue in the world. We do not know when it will stabilize. We do not know what will happen after that period, and we do not know how extraction will occur. What we do know is that world monetary affairs have never been in a situation like this before.

2--China's shadow bank problem, Bloomberg

Shadow lending flourishes in China because an estimated 97 percent of the nation’s 42 million small businesses can’t get bank loans, and savers are seeking higher returns than lenders pay for deposits. UBS AG estimates the size of the industry, including private lending, banks’ off-balance-sheet vehicles and trusts, at $3.35 trillion, or 45 percent of gross domestic product. A study by Zhou of the Wenzhou association and a group of academic researchers put the amount of private lending among individuals at about 3.7 trillion yuan ($596 billion).

3----RealtyTrac: Foreclosure activity rising in 2013, Housingwire

4---Deep Freeze: Home Sales to Barely Budge in Spring, CNBC

The U.S. housing market will see no surge at the start of spring, as fewer buyers signed contracts to purchase existing homes in February. An industry index of so-called pending home sales fell 0.4 percent from January but is up 8.4 percent from February of 2012. While the number of for-sale listings increased more than the seasonal norm, Realtors still say a lack of supply is keeping many potential buyers from desired deals. Pending home sales are a one to two month forward indicator of closed sales. ...

Sales of newly built homes fell nearly five percent in February, according to the U.S. Department of Commerce. Inventories did rise, but only slightly, as the nation's home builders struggle with labor and land shortages, as well as higher costs for materials.
   better sign for March, after two weeks of declines, mortgage applications to purchase a home jumped 7 percent during the past week, according to the Mortgage Bankers Association. This as interest rates fell slightly, due to concerns over the banking crisis in Cyprus.
"The rebound in mortgage applications is a small piece of a brighter housing outlook," says Bob Walters, chief economist for Quicken Loans. "Interest rates are still at record lows despite their upward trend, and consumers are taking advantage of record home affordability. Look for more buyers to enter the market this spring and a more robust housing recovery to occur."

5---International capital flows during crises: Gross matters, VOX

At the prudential level, policymakers might need to monitor and perhaps regulate ex ante the separate behaviour of domestic and foreign investors. Fashionable tools include macroprudential rules and capital controls. During good times, as financial globalisation deepens, authorities might want to encourage that foreign capital inflows are channelled to assets that can cushion eventual negative shocks. In particular, capital inflows intermediated by the banking system might prove particularly dangerous given the susceptibility of banks to runs. Flows into short-term debt might also generate fragility due to the rollover risk. On the other hand, equity and direct investment seem safer ways to channel foreign-capital inflows. On the asset side, countries might be encouraged to keep accumulating large amounts of reserves to be able to withstand shocks. In fact, this type of international financial integration seems to be the strategy that middle-income countries have followed during the 2000s, which might explain their resilience during the global financial crisis.

6--Speaking of inequality, angry bear

Travis Waldron at Think Progress pointed out this excellent article by David Cay Johnston. It dovetails well with my last post, which showed the fall of individual real wages and their failure to regain their peak fully 40 years after it was reached.

Johnston writes:
Incomes and tax revenues have grown from 2009 to 2011 as the economy recovered, but an astonishing 149 percent of the increased income went to the top 10 percent of earners.
If you wonder how that can happen, the answer is simple: Incomes fell for the bottom 90 percent. 7---Plans to vastly expand drones in US, wsws 8---The trade unions and Michigan’s “right to work” law, wsws   Michigan’s “right to work” law, passed in December, goes into effect today, making the state the 24th to prohibit contracts that require workers to pay union dues or fees as a condition of employment.
As the World Socialist Web Site explained when it was signed, the law is reactionary and regressive, its principal aim being to undermine the ability of workers to organize collectively. The main backers of the law and similar measures in other states are sections of the corporate and financial elite that see them as means for intensifying the exploitation of the working class

9---China hard landing fears resurface in survey, emerging markets

Worries that China's economy will slow down more abruptly than forecast have returned on the agenda, a fund managers survey shows.

The survey, by BofA Merrill Lynch Global Research, showed that expectations for growth in the Chinese economy dropped sharply to 14% of participants from 60% in a previous poll.
This is the lowest level since October last year and represents one of the biggest monthly falls in the reading in the survey's history.

A total of 198 fund managers, managing $578 billion, participated in the global survey, which was carried out by the BofA Merrill Lynch Global Research team between March 8 and March 14.
In a similar survey carried out at the beginning of February, China was investors' favourite market.
The analysts said that the "significantly increased" fears of a hard landing in China are reflected in investors' moves out of stocks in emerging markets and into those of developed ones, especially the US and Japan.

"Relative US economic outperformance on the back of the housing market’s ongoing improvement and the energy independence story will lead a secular uptrend in the dollar," Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said in a statement.
"US equities' leadership in the 'Great Rotation' suggests developed market equities are the likeliest winner in this scenario," he added.
Optimism about emerging markets equities in general is fading, with a net 34% of global fund managers reporting an overweight position in this asset class, down from 43% in last month's survey. 

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