Friday, December 6, 2013

Today's Links

1---Estimated Time to Clear Distressed Inventory Rises, DS News

By far, New York holds the longest distressed inventory timeline at an estimated 230 months. Boston ranked second with 120 months of distressed inventory as of the third quarter.

With an estimated 20 months of distressed inventory, Phoenix holds the shortest distressed inventory timeline.
Short sales made up 49 percent of distressed sales in the third quarter of this year, up from 45 percent a year ago, according to Morningstar.

2---‘Nothing is beyond our reach’: Evil octopus strangling the world becomes latest US intelligence seal, RT (unbelievable)

3---The Real US Unemployment Rate: 11.5%, zero hedge

4---The case for extending unemployment insurance, in one chart, WP

Congress is starting to take notice of the fact that more than 1.3 million people will lose their jobless benefits on Dec. 28 unless lawmakers renew an emergency aid program for the unemployed that's set to expire this year.

5---Deflation alert, economists view
the Personal Income and Outlays report leave me cautious about a December taper. The data don't suggest an acceleration of household spending activity...
PceB120613
It seems premature to expect tapering while inflation is still trending down. Indeed, Chicago Federal Reserve President Charles Evans expressed some caution today:
The official, a voting member of the monetary policy setting Federal Open Market Committee, also said he was “nervous about inflation developments” describing the data as being “substantially” short of the Fed’s 2% target.

6---Why Is Business Investment Flatlining?, WSJ

Yet growth in business spending on equipment was a big fat zero — following an already weak 3.3% showing in the second quarter — which means such spending contributed exactly nothing to the nation’s GDP. While this figure was revised up from an earlier decline, it’s only the second time since the recovery began in July 2009 that we haven’t seen business-spending growth in a quarter...

Economist Andrew Smithers blames something else: Executive-compensation trends. With a lot of executive compensation now coming via bonuses instead of salary — and bonuses tied to share prices — CEOs are incentivized to support buying back their companies’ shares over, say embarking on risky long-term capital spending projects.

Big companies aren’t investing in their future because they’re paying attention only to the short-term, a trend that Mr. Smithers believes is basically short-circuiting the Federal Reserve’s stimulus efforts, which rely on getting businesses to invest by lowering borrowing rates.

7---Harvard poll: 57% of Millennials disapprove of Obamacare, USA Today

8---Ultra-Low Interest Rates: Who Wins? Who Loses?, conversable economist

Ultra-low interest rates will have two main sets of distributional effects: the first set involve interest payments made or received; the second set involve how interest rates affect the level of asset prices like homes and bonds. Here's a figure looking at how ultra-low interest rates have affected interest income and payments from 2007-2012.

Of course, lower interest rates help borrowers pay less, while those who are receiving interest payments get less. Thus, the big winner from ultra-low interest rates is the U.S. government, which over the 2007-2012 period could owe $900 billion less in interest payments. Indeed, the McKinsey report also notes that central banks like the Federal Reserve have been buying assets as part of the "quantitative easing" policies in recent years, and funds earned by the Fed over and above operating expenses go to the U.S. Treasury. They estimate that the quantitative easing policies gained the U.S. government another $145 billion or so during this time period. So overall, the ultra-low interest rate policies have been worth about $1 trillion to the U.S. government.

Nonfinancial U.S. corporations have interest-bearing debt in the form of bonds and bank loans, so the low interest rate policies have been worth $310 billion to them. U.S. banks have also seen a rise in their net interest income--that is, the amount by which the interest they received from borrowers exceeded the interest they paid to depositors. (In contrast, banks in Europe as a group have been worse off as a result of the ultra-low interest rate policies.)

On the other side, those who were depending on receiving interest payments are worse off. For example, insurance and pension funds that were relying on interest payments for part of their returns are down $270 billion from 2007-2012. As the report points out, many of these companies hold bonds that they purchased before interest rates fell, and so they have been somewhat protected from the fall in  interest rates

9---The struggle for Ukraine, wsws

The current wave of protests in Ukraine bears the label “Made in Germany,” “Made in the EU” and “Made in America.” The Western media has gone to great lengths to portray the demonstrations in Kiev as a struggle for democracy and the rule of law. In fact, they are part of a conflict over geostrategic issues. The aim is to repel Russian influence and subject Ukraine to the domination of Germany, the European Union and NATO....

The terms of the agreement, which include the introduction of EU rules for labor market deregulation, the privatization of state enterprises and a reduction in the public debt, would have a social impact similar to the EU austerity programs imposed on Greece, Romania and other countries. The International Monetary Fund (IMF) is already denying Ukraine a much-needed credit because the government refuses to hike the price of gas by 40 percent—a move that would inevitably result in the death of many unemployed people and pensioners unable to pay their heating bills.

The Association Agreement would turn the country into an extended workbench for German and European companies, which could produce at lower wage rates than those in China. At the same time, the country’s natural resources, its vast and fertile landmass, and its domestic market of 46 million inhabitants make Ukraine a mouthwatering prospect for German and European businesses.
This is one of the more important charts out there today.  One of the impacts of QE is that it reduces the amount of outstanding portfolio options for investors.  When the Fed swaps deposits for T-bonds/MBS they force a portfolio rebalancing on the private sector.  This creates a sort of hot potato effect in cash whereby cash holders will experience increased demand for other assets as the supply of safe interest earning options is reduced.  You can see the dramatic impact of this portfolio rebalancing in the following chart from CitiBank:
secs

Now

Read more at http://pragcap.com/central-banks-are-still-constraining-net-securities-supply#apTRcTDU92vYps0t.99
This is one of the more important charts out there today.  One of the impacts of QE is that it reduces the amount of outstanding portfolio options for investors.  When the Fed swaps deposits for T-bonds/MBS they force a portfolio rebalancing on the private sector.  This creates a sort of hot potato effect in cash whereby cash holders will experience increased demand for other assets as the supply of safe interest earning options is reduced.  You can see the dramatic impact of this portfolio rebalancing in the following chart from CitiBank:
secs

Now

Read more at http://pragcap.com/central-banks-are-still-constraining-net-securities-supply#apTRcTDU92vYps0t.99

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