Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1328.3 | 6.3 | 0.48% |
| Eurostoxx Index | 2169.7 | 25.8 | 1.20% |
| Oil (WTI) | 85.09 | 1.0 | 1.18% |
| LIBOR | 0.468 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 82.28 | -0.229 | -0.28% |
| 10 Year Govt Bond Yield | 1.63% | 0.00% | |
| RPX Composite Real Estate Index | 178.7 | 0.0 |
Markets are up this morning on a potential bail out for the Spanish banks, although the initial euphoria is wearing off. When I checked in last night, the S&P futures were up 16 points. Now they are up 6. During the US financial crisis, the one sure-fire trade was to fade any rally brought on by some sort of government rescue. The S&P futures would spike up on news that the government was intervening somewhere, and then would sell off as people realize the intervention is no panacea. US bonds clearly aren’t buying it, with the 10 year unch’d. MBS are flat as well.
While equity markets have rallied on the Spanish bailout, Spanish bond yields have not. After trading up to 6%, Spanish government yields are now over 6.4%. As Bill Gross has noted, the Spanish bond market is rigged, as the Spanish banks are encouraged to buy up debt auctions to make the demand for Spanish debt look better than it really is.
Are we there yet? That is the title of CoreLogic’s June MarketPulse report on housing. While noting that previous seasonal strength in 2010 and 2011 ended up fading into year-end, CoreLogic postulates that the green shoots we are seeing indicate the market has turned for good. The caveat: housing won’t really turn until the job market is fixed.
Filed under: Morning Report |
All Things in Moderation 
OT: Via Paul Krugman an interesting read:
“Sunday, June 10, 2012
The Macroeconomics of Chinese kleptocracy
China is a kleptocracy of a scale never seen before in human history. This post aims to explain how this wave of theft is financed, what makes it sustainable and what will make it fail. There are several China experts I have chatted with – and many of the ideas are not original. The synthesis however is mine. Some sources do not want to be quoted.”
http://brontecapital.blogspot.com/2012/06/macroeconomics-of-chinese-kleptocracy.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BronteCapital+%28Bronte+Capital%29
Krugman’s linked piece:
http://krugman.blogs.nytimes.com/2012/06/11/financial-repression-chinese-style/
He also notes the same thing about Spanish bonds:
http://krugman.blogs.nytimes.com/2012/06/11/things-you-really-dont-want-to-see-the-morning-after-a-bailout/
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jnc that is a stunning article. You should post it for shrink at PL. Speaking of PL, I agree with you that functions that provide value are way better than either spending or tax cuts to do some vague stimulus.
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From the Krugman piece on Spanish bonds.
Apparently that half-life is now down to a few hours.
A similar point to the one Brent made above.
The S&P futures would spike up on news that the government was intervening somewhere, and then would sell off as people realize the intervention is no panacea.
The China piece, if true, highlights the difference IMO between their government and ours. As citizens we still have some control over both what the government and private enterprise do. It doesn’t very often feel as though we have much say anymore but we do comparatively to China. I’m not sure that’s a ringing endorsement of the way things are going but it’s something positive to think about.
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“lmsinca, on June 11, 2012 at 10:55 am said:
The China piece, if true, highlights the difference IMO between their government and ours. As citizens we still have some control over both what the government and private enterprise do. It doesn’t very often feel as though we have much say anymore but we do comparatively to China. I’m not sure that’s a ringing endorsement of the way things are going but it’s something positive to think about.”
Even more importantly, we have the right to vote with our feet by moving ourselves physically, or at least moving our money off shore.
However, capital controls have been used in US history before. See Roosevelt’s confiscation of all gold during the Great Depression and the subsequent ban on it that wasn’t repealed until the 1970’s.
http://en.wikipedia.org/wiki/Executive_Order_6102
Imagine trying something like that now to boost the economy.
An interesting quote on government control of money and interest rates from Herbert Hoover:
“Herbert Hoover is not often invoked as an authority on monetary economics, but the memoirs of the 31st president are full of wise words on the relationship between the citizen and his government. The gold-exchange standard of the late 1920s and 1930s, a third-rate version of the classical gold standard in place before World War I, failed as a monetary mechanism. But it did serve a constitutional purpose. Hoover wrote:
‘Currency convertible into gold of the legal specifications is a vital protection against economic manipulation by the government. As long as currencies are convertible, governments cannot easily tamper with the price of goods, and therefore the wage standards of the country. They cannot easily confiscate the savings of the people by manipulation of inflation and deflation. . . . Once free of convertible standards, the executives of every “managed-currency” country had gone on a spree of government spending, and the people thereby lost control of the public purse—their first defense against tyranny.'”
http://online.wsj.com/article/SB10001424052702303830204577447323281213262.html?mod=googlenews_wsj
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They cannot easily confiscate the savings of the people by manipulation of inflation and deflation
That’s depressing when you consider the Fed. A lot of people I know believe their savings, at least in the form of equity/retirement was already confiscated, just not by the government. I guess I was responding to the negative savings interest. I doubt people in this country would put up with that, talk about a “move your money” moment.
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From Yahoo News:
Jeb Bush said on Monday that Mitt Romney’s rhetoric on immigration during the GOP presidential primaries has put him “in somewhat of a box” for the general election. The former Florida governor criticized the tone of the Republican debate over illegal immigration. “I do feel a little out of step with my party on this,” said Bush, who supports immigration reform. He made his remarks at a breakfast hosted by Bloomberg, according to Ben Smith at BuzzFeed.
Bush told reporters at the breakfast that even Ronald Reagan would have a tough time winning the Republican presidential nomination in today’s partisan climate, in which working with members of the other party is seen as a weakness. He called the current partisanship “disturbing” and blamed President Barack Obama for increasing the divide between Democrats and Republicans. Bush is often mentioned as a possible vice presidential pick for Romney but has said that he would decline if asked.
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Thanks for the links, jnc.
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For those who haven’t seen the Ryan Lizza piece on a second Obama term in the New Yorker, it’s worth a read:
The Second Term
What would Obama do if reëlected?
by Ryan Lizza June 18, 2012
http://www.newyorker.com/reporting/2012/06/18/120618fa_fact_lizza?currentPage=1
This passage in particular is interesting:
“Here the arc of Obama’s Presidency begins to resemble that of Bill Clinton’s. Both pursued bold domestic agendas in their first two years before Republicans made large midterm gains in Congress, which led to repeated clashes over fiscal issues. The outcomes of Clinton’s battles, including the government shutdown of 1995, weren’t sorted out until after the 1996 Presidential election. An Obama Administration official told me, “The first year of Clinton’s second term was the resolution of the climactic moments of his third year. I suspect a similar opportunity will open up here.”
Clinton’s reëlection victory made possible a breakthrough on the budgetary issues that had divided him and Republicans for two years. “The ideal conditions for both sides to come together and get something done are when you have a President who is at the peak of his power but is not going to benefit politically from it,” the official said. Solving Taxmageddon would be a major policy achievement, and Obama could argue that he had fulfilled his promise from the 2008 campaign: that he would bring the two major parties together to forge bipartisan agreements.”
Looks like the Grand Bargain on entitlement and tax reform would be the major policy goal of the second Obama term.
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“lmsincal, on June 11, 2012 at 1:46 pm said:
They cannot easily confiscate the savings of the people by manipulation of inflation and deflation
That’s depressing when you consider the Fed. A lot of people I know believe their savings, at least in the form of equity/retirement was already confiscated, just not by the government. I guess I was responding to the negative savings interest. I doubt people in this country would put up with that, talk about a “move your money” moment.”
The point about savers subsidizing others happens here too. Current rates on regular FDIC backed savings accounts are negative in real terms. The difference is, we have other options to put our money into.
“At Tiny Rates, Saving Money Costs Investors
By STEPHANIE STROM
Published: December 25, 2009
Millions of Americans are paying a high price for a safe place to put their money: extremely low interest rates on savings accounts and certificates of deposit.”
See also:
http://online.wsj.com/article/SB10001424052970204662204577201751197496914.html?mod=WSJ_hp_LEFTTopStories
Sorry to bring more depressing news, but there’s also this:
“Fed: Americans’ wealth dropped 40 percent
By Ylan Q. Mui, Updated: Monday, June 11, 2:18 PM
The net worth of the American family has fallen to its lowest level in two decades, according to government data released Monday, driven by a more than 40 percent drop in their stakes in their homes.
The Federal Reserve’s detailed survey of consumer finances showed families’ median wealth plunged from $126,400 in 2007 to $77,300 in 2010 — a 39 percent decline. That put them on par with median wealth in 1992.”
http://www.washingtonpost.com/business/economy/fed-americans-wealth-dropped-40-percent/2012/06/11/gJQAlIsCVV_story.html?hpid=z1
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And one note of cautious optimism:
“Negotiations to avoid taxmageddon have begun, top Senate Democrat says
By Rosalind S. Helderman
The Senate’s top Democratic tax writer advised Monday that Congress should avoid divisive votes on taxing and spending issues that could hem in members, making it harder to hatch a deal after the election to avert dramatic budget cuts and tax hikes scheduled to take effect in January.”
…
“Baucus argued that the tax code today impedes competitiveness, encouraging corporations and individual to seek tax havens overseas, failing to incentivize innovation and injecting uncertainty into the economy due to dozens of tax provisions that regularly face expiration without Congressional action.
“Tax reform is a once-in-a-generation opportunity. We can cement America’s preeminence,” he said. “Tax reform can create jobs. It can spark innovation. It can expand opportunity. It can guarantee our competitiveness. It can put America back on top.””
http://www.washingtonpost.com/blogs/2chambers/post/negotiations-to-avoid-taxmaggedon-have-begun-top-senate-democrat-says/2012/06/11/gJQA8173UV_blog.html?hpid=z3
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jnc
As long as you don’t pay a fee for service at the bank, you can still make a tiny bit of money on your savings………………agree it’s probably better to put it somewhere else but for the average paycheck to paycheck saver many of those other options don’t really exist.
The net worth of the American family has fallen to its lowest level in two decades, according to government data released Monday, driven by a more than 40 percent drop in their stakes in their homes.
Anyone paying attention would have known that the prices were hugely inflated. I’ll never forget a banker telling us, when we borrowed enough to build our warehouse in 2006 ($120K) that we could “borrow like a million dollars”. Stupid, stupid. Borrowers and lenders alike either believed the hype or took advantage of the hype.
“Tax reform is a once-in-a-generation opportunity. We can cement America’s preeminence,” he said. “Tax reform can create jobs. It can spark innovation. It can expand opportunity. It can guarantee our competitiveness. It can put America back on top.””
That may be true but does anyone believe it will happen under the current political reality?
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Re: tax reform, this is a good history/behind-the-scene account of the 1986 reform.
Showdown at Gucci Gulch.
from the amazon description …. “personal victories by Washington officials over the usually triumphant lobbyists of ‘Gucci Gulch’ the hallways outside the congressional meeting rooms where expensive suits and shoes prevail.
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“lmsinca, on June 11, 2012 at 2:36 pm said:
jnc
As long as you don’t pay a fee for service at the bank, you can still make a tiny bit of money on your savings………………agree it’s probably better to put it somewhere else but for the average paycheck to paycheck saver many of those other options don’t really exist. ”
Are you factoring inflation into your calculations? I.e. compare the annual inflation rate with the stated annual interest rate that the bank pays on savings. This usually results in a negative real rate of return, which is the same issue that the article on China discussed from a savers perspective, but on a considerably smaller scale.
Note that I’m thinking about a straight on demand savings account, not a fixed term certificate of deposit.
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ok jnc, I see now. I just thought Krugman’s comments didn’t make it seem so straight forward as you’re indicating as only low interest rates and inflation.
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