The world has fierce disinflation or deflationary tendencies and we live in this world,” David Kotok, chairman and chief investment officer at Cumberland Advisors, told MoneyBeat. “I think it’s a serious risk.” There’s aren’t too many people who think that way – yet – but Mr. Kotok is not alone in that view.
Despite unprecedented efforts and trillions of freshly printed money, inflation in major developing economies is actually heading lower. The OECD reported last Tuesday that the inflation rate in the world’s largest economies fell for a third straight month - the rate for its 34 developed-country members fell to 1.3% from 1.5% in September. In the U.S., consumer prices in October were up just 0.9% from the previous October – the lowest rate of inflation since 2009, when the economy was in a deep tailspin. Friday’s PCE price index in the U.S. was up just 0.7% from a year ago.
2---No one is investing in tomorrow’s economy, Rex Nutting
Commentary: Net investment still at lowest levels since Depression
The U.S. economy simply isn’t investing enough to ensure that there will be enough good paying jobs for our children and our children’s children. Net investment — the amount of capital added to our stock — remains at the lowest levels since the Great Depression.
It’s probable that the slump in investment is just a temporary thing, but a few economists worry that it could be permanent. ...
In 2012, net fixed investment totaled $485 billion, only about half of the $1.1 trillion invested in 2006.
Net investment collapsed in the 2008 recession and hasn’t really recovered. It’s just half of its usual level. The only period it’s been a smaller share of the economy was during the Great Depression, when net investment actually declined for a few years (more capital was destroyed than created).
3---Abenomics: GDP cut to just 1.1% growth for 3rd quarter, JT
4---Inventories pose near-term risks to US growth, sober look
5---U.S. general who opened Guantanamo prison says shut it down, Reuters
6--Budget Fiasco, economists view
Budget Deal Does Little to Address the Needs of the Economy: While all the details have yet to be released, it seems clear that the budget agreement announced by Senator Patty Murray and Representative Paul Ryan, which sets discretionary budget authority limits for fiscal years 2014 and 2015, will do essentially nothing to alter the disastrous trajectory that has characterized fiscal policy since 2011. I support reaching an agreement that will end the culture of periodic crises that has driven policy in recent years. However, this deal addresses the wrong set of priorities: deficit reduction ten years out rather than a stronger recovery now, and tweaking domestic spending for a few years as we continue to ignore the public investments our country needs.
The worst part of the budget deal by far is what it doesn’t address: unemployment insurance for America’s four million long-term unemployed workers. This deal asks essentially nothing of the richest Americans while placing terrible burdens on new federal employees and the unemployed, and continuing the fiscal policy drag on our still-unfinished recovery.
7---The Ever-Expanding Government Myth Lives On, econbrowser
I happened to catch Americans for Prosperity's Tim Phillips talking about the ever growing government in the context of the recent budget deal. Here's what the actual data indicate:
. As a share of GDP, the current level is below that recorded in 1982Q4 (under President Reagan); as a share of potential GDP (guesstimated), the current level is below that recorded in 1986Q3 (under President Reagan).
8--- Yen capital flows, across the curve
Ministry of Finance data shows Japanese investors continuing to buy foreign bonds (JPY413 bln), with about a third being financed by the sale of foreign equities and bills. They have been net buyers of foreign bonds for the last nine weeks. Foreign investors continue to buy Japanese shares, and many banks remain bullish on Japanese shares for 2014. Non-residents bought almost JPY114 bln of Japanese shares. However, they sold over than four times more Japanese bills and bonds, making them net sellers of yen (and even more if some of the equity exposure was hedged
9---Flow-of-Funds Report – ‘Tis the Season to Be Jolly, The Big Picture
10---The demand deficit, economist
LAST week's Free exchange column took a look at the ongoing economic discussion over "secular stagnation", or the argument that a chronic shortfall of investment relative to saving might be shackling the rich world with weak demand.
Before the financial crisis, excessive thrift in emerging economies may have played a role. In 2005 Ben Bernanke identified a “global saving glut” as the reason for low interest rates. Many emerging economies, particularly China, had rising current-account surpluses. They sent their surplus savings to the rich world, by building up large foreign-exchange reserves, mostly in the form of rich-world bonds. This drove up asset prices and fuelled housing bubbles. A new working paper from the National Bureau of Economic Research reckons that foreign capital flows to America drove down interest rates and accounted for as much as a third of the increase in house prices in the 2000s.
But this explanation for economic stagnation in the rich world is difficult to square with today’s data. Global growth in foreign-exchange reserves slowed dramatically in 2013. Yet rich economies are still struggling while asset prices continue to soar.
Another theory holds that high savings reflect a cramping of consumption due to rising inequality of incomes. The share of income earned by the top 1% began climbing in the early 1980s and now stands close to the record set in 1928. Rich households save more than poorer ones. A paper published this year by Barry Cynamon of the St Louis Fed and Steven Fazzari of Washington University in St Louis estimates that prolific saving by the top 5% has been suppressing demand since the mid-1980s. That squeeze was mostly offset by increased borrowing by the bottom 95%, they find. America and Britain, unlike Germany and Japan, saw rapid growth in private debt in the 2000s (see chart 2). But when the crisis forced households to deleverage, the underlying inequality-driven stagnation may have reasserted itself.11---Central banking's elitist swap clubs, Bangkok post
Originally created as a temporary fix in 2007, the swap lines established at that time connecting the US Federal Reserve, the European Central Bank, and the Swiss National Bank have been extended each...
But did these central banks have the legal authority to do so? And, even if they did, should they have used it? The original swap lines might fairly be classified as emergency measures. But what may be...
12---QE and the stock market rally, David Wessel, WSJ video
13--Putin: "We do not attempt to lecture anyone on how they should live", RT
We will seek leadership by defending international law, advocating respect for national sovereignty, independence and the uniqueness of peoples,” Putin said.
“We have always been proud of our country, but we do not aspire to the title of superpower, which is understood to be pretense for global or regional hegemony. We do not impinge on anyone’s interests, do not impose our patronage, do not attempt to lecture anyone on how they should live,” he added.
“In Syria the world community had to make a joint and fateful decision. It was either the continuation of the degradation of the world order, the rule of the right of might, the right of the fist, the multiplication of chaos. Or to collectively take responsible decisions,” Putin explained, praising the world, Russia included, for taking the second path.
It was Russia’s involvement that to a large degree helped to prevent military intervention in Syria and paved the way for the deal involving the destruction of Syria’s chemical weapons arsenal.
If this hadn’t happened, the Syrian conflict might have escalated and impacted countries far away from the Middle East, Putin said.
“We acted in a firm, thoughtful and measured manner. At no time did we endanger either our own interests and security or global stability. I believe that this is the way a mature and responsible nation should act,” he stated.
14---‘Regime change in Ukraine is part of US campaign against Russia’, RT
15---1.3 million workers will have their benefits cut off at the end of 2013, and another 850,000 workers will exhaust normal UI benefits over the first quarter of 2014, EPI
Besides cutting off a vital lifeline to millions of Americans, cutting these extensions also continues the disastrous march towards budget austerity; a march that has been by far the primary contributor to our failure to recover from the Great Recession. Cutting these UI extensions in 2014 will create a fiscal drag on the U.S. economy that will reduce job growth by more than 300,000 over the year.
A bizarre irony is that the cost of these extensions is nearly identical to the ten-year “deficit savings” achieved in the deal—between $20 and 25 billion. This amount of money is a rounding error in ten-year deficit projections (my back of the envelope calculations say that it’s well under one half of one percent of projected deficits between 2014 and 2023, under the CBO extended baseline). But Congress has chosen to save an amount of money that doesn’t even rise to the level of symbolic over a decade rather than provide real relief to millions of distressed Americans, as well as provide a mild boost to a still-weak job market.
Even worse, spending this $25 billion to extend EUC in 2014 would surely have lowered the nation’s debt ratio, by boosting economic activity and hence tax collections, as well as generating jobs through the demand boost, and keeping workers from collecting as much in safety net spending as they would have absent this boost. Finally, it is a bizarre budgeting concept that says extended unemployment benefits made necessary by an economic emergency need to be “paid for.” Having automatic stabilizers that disburse money and allow deficits to rise when the economy is slack is a good thing, not something that needs to be fixed.
16---JOLTs report shows no improvement in jobs market, economic populist
The BLS JOLTS report, or Job Openings and Labor Turnover Survey shows there are 2.9 official unemployed per job opening for October 2013. The headlines blare job openings are at the highest level in five years, but that's not the real story as hiring is way below pre-recession levels. Job openings have increased 80% from July 2009, while hires have only increased 24% from the same time period. Every month JOLTS reports the same bleak labor market conditions with little improvement. Despite what many want and the press headlines imply, this month's report is no different. Once again the United States labor market is showing little change. ...
Businesses can say there are job openings, but if they do not hire an American and fill it, what's the point? The truth is business are refusing to hire Americans and this is while profits are at roaring highs.
17--Hoovernomics Explains the Economy, Michael Froomkin
This one chart tells you much of what you need to know about the fiscal side of the US economy: we’re dealing with a recession/depression Herbert Hoover style — by cutting government spending just when we would have needed a strong counter-cyclical push from government.
What’s good about this chart, lifted from Krugman, is that it aggregates federal, state, and local spending...
Something to consider as you look at the ugly budget deal coming out of Congress — the one that doesn’t extend unemployment benefits and, as far as I can tell, doesn’t fix the recent vicious cuts to food stamps either
18---Brewing Signs of Housing Trouble, economic populist
19---Bob Shiller: I've never accepted the conventional wisdom, PBS
Bob Shiller: The whole idea that the stock market reflects fundamentals is, I think, wrong. It really reflects psychology. The aggregate stock market reflects psychology more than fundamentals. This is where maybe I really do differ from Gene Fama. I don't think he would say that....
Bob Shiller: I've never accepted the conventional wisdom. It's maybe an attitude that I got from my father -- don't believe all these important people. And when they tell you something's right, well, there's certain kinds of things you can trust in them, but when it comes to politically involved discussions, don't believe anything they say. And so that gave me the fortitude to just stand up for what seems right to me.
Bob Shiller: Yes, yeah. Not only was I acting unpatriotic, but I was also working against a sense of self-esteem that we have that we're the most capitalist country in the world, and we have a system that works better and better... an amazing system. To say that, well, there are others who did that, but to say that the system is flawed and that it's open to psychological swings is just... it was a risky professional strategy. There were people who did it, like John Kenneth Galbraith in 1954 wrote a book called "1929, The Great Cras," and that was a wonderful book, but it made the leaders of this country look a little foolish. I think he was very unpopular for that. But he had a sort of following. I think he was following his conscience.
Paul Solman: Well, he liked being contrarian.
Bob Shiller: I think I like being contrarian, too. But I like the truth and I'm not going to do it just to be contrarian. The word conventional wisdom, by the way, was coined by Galbraith and it refers to his frustration when so many high placed people were saying the same nonsense. They would say it because it's the thing to say.
20---Investors cut back home purchases, oc housing
The doomsayers who decry the REO-to-rental business model are wrong. They fail to see that cash returns still outperform competing opportunities, and they fail to anticipate liquidation opportunities that won’t impact the housing market. The doomsayers may want this model to fail, but wishes aren’t horses, and this business model won’t drown in a sea of investor liquidations....
Purchases by investors could be slowing down for several reasons. First, the deals are disappearing. The share of homes selling out of foreclosures and short sales have plummeted over the past year, and prices on a national basis are up by anywhere from 6% to 13%, depending on which home-price gauge is used. Prices are up significantly more in hard-hit housing markets that had offered some of the steepest discounts to investors.
Second, executives of some large investment firms have said on quarterly conference calls that they’ve dialed back their purchases as they focus on improving their operations, including leasing and property management functions
21--Redfin: November’s U.S. Housing Numbers: Not a Lot to Give Thanks For
While the real estate market typically softens as the holiday season nears, this November saw an unexpectedly sharp drop in sales. In November, home sales fell below 2012 levels for the first time this year, dropping 10.9 percent year over year and 16.8 percent from October. At the same time, prices fell for the fifth consecutive month from their peak in June. Not surprisingly, inventory was down as well, dropping 10.5 since last year and 8.2 percent since October
22--Watt appointment: Principal reduction on the way? Time
23--Gloomy comsumers put damper on housing, DS News
Nearly two-thirds of those surveyed believe the economy is on the wrong track. Twenty-two percent expect their personal finances to worsen during the next year, and only 45 percent expect home prices to increase within the next 12 months.
According to Doug Duncan, SVP and chief economist at Fannie Mae: “We continue to see caution as the defining feature of Americans’ attitudes toward the economy and their personal financial situation. In this environment, the housing recovery is likely to improve, but only at a gradual pace.”
Duncan continued: “Our November National Housing Survey results show a loss of momentum in expectations for home prices and personal finances. Also, the majority of consumers expecting higher mortgage rates implies a slowing of housing market momentum. As the economy
24---Median New Home Sales Price Drops 4.5 Percent For October, U.S. Census Says, Forbes
25---The housing crash resumes in Phoenix and Las Vegas, cnbc
Phoenix and Las Vegas could make the top of another list—the unhealthiest. Both saw rapid price appreciation due to high investor demand. For the past three years, single and institutional investors swooped into these highly distressed markets and began inhaling properties. The intention was to put most of them up for rent. Prices had fallen by well over half in both areas peak to trough, so the bargains were plentiful. Until they weren't.
In Phoenix, the median single-family home price shot up 71 percent between October 2011 and October 2013, up 27 percent in just the last year, according to Mike Orr, director of the Center for Real Estate Theory at Arizona State University. Investors pushed prices up so far, so fast, that they priced themselves out of the market.
"I anticipate sales will be way down in November and through the holidays, when some people even take their homes off the market until late January," said Orr. "We also anticipate a much slower rate of price appreciation in 2014 than the furious pace we have witnessed over the last two years." ..
Others have more dire predictions.
"If I was a Phoenix real estate 'investor' sitting on the upside—or in the long process of readying dozens, hundreds, or thousands of houses for rent into a market about to get pounded for years with single-family rental supply—I would push the 'sell button' on everything I could, immediately, on data such as these," said California-based housing analyst Mark Hanson. "In fact, by the looks of the November supply and demand metrics, it's already happening."
Inventories of homes for sale in Phoenix are up 40 percent from a year ago. Some of it may be investors, and some may be regular home owners who have finally come into a positive equity position and can move.
(Read more: The days of 3.5% 30-year fixed mortgages are over)
What happened in Phoenix and Las Vegas is a testament to how impossible this housing recovery is to predict. The usual rules don't apply. Prices usually lag sales, but in this case, prices nearly leapfrogged sales. Housing analyst Ivy Zelman said as much, as she revised her earlier projections for the home building market way down in a report to clients Friday.
26--All eyes on the Fed meeting, cnbc
CNBC's Steve Liesman reported that it's likely the Fed will announce a tapering move this Wednesday, while some economists say it has a 50-50 chance. Many traders, however, believe the Fed could use its statement or post-meeting press briefing to lay out a vague promise of tapering and act early next year to reduce its $85 billion-a-month bond purchases.
27---Number of the Week: Half of U.S. Lives in Household Getting Benefits, WSJ
28---The Nastiest Injury in Sports (Hint: ACL tear), grantland
29---Provocations, EU’s financial interests behind Ukraine protests – Lavrov, RT
He suggested that the EU’s motive for putting pressure on Kiev has nothing to do with the interests of the Ukrainian people.
“Our European partners are first and foremost concerned with losing this inexpensive, if not free, addition to their profits in the times of crisis,” was the Russian minister’s charge.
“And the second reason is the ideological load. Those thinking along the ‘either-or’ lines as well as those who saw the Eastern Partnership project as a vehicle for severing the Russian neighbor – even if it required blackmail. They realized it was not that easy,” he added.
Unlike Europe, Russia is demanding that the Ukrainian people and government settle the conflict on their own, the minister stressed.
30---¥5.5 trillion extra 2013 budget for stimulus OK’d, japan times
Abe tries to shore up GDP before tax cuts kick in