Thursday, March 31, 2011

Portugal Schedules Vote as Crisis Deepens

Portugal Schedules Vote as Crisis Deepens

Irish Banks Move Toward Nationalization

Irish Banks Move Toward Nationalization 

Economist McWilliams Says Ireland Is Microcosm of Spain

YouTube - Economist McWilliams Says Ireland Is Microcosm of Spain

The Number One Downside Risk To Tomorrow's Unemployment Number

The Number One Downside Risk To Tomorrow's Unemployment Number

Ailing Spanish Bank Begins Nationalization Talks

Ailing Spanish Bank Begins Nationalization Talks

Irish Banks Need $33.9 Billion

Irish Banks Need $33.9 Billion

Irish banks' 25 bln euro hole?

Portugal Fails to Meet Deficit Goal

Portugal Fails to Meet Deficit Goal

U.K. Economy Shows Life But Clouds Linger

U.K. Economy Shows Life But Clouds Linger

Collapse of Portuguese Bonds Cause for Celebration

By Grant de Graf

The Portuguese 2-year bond has hit 8.6%.

The country should be celebrating and praying that the yield will continue on its current trajectory path. That way when political issues are resolved, a plan to consolidate debt with favorable terms is established, the country ditches the Euro and reverts to a a domestic currency, a proposal for government stimulatory measures combined with some smart austerity is imposed, Portugal can buyback its debt at hugely discounted values.

The profit on this will be enormous. In fact, according to my calculations, if Portugal had only issued additional bonds a year ago, at the then lower market yield, the country may have been able to wipe out its deficit, simply by buying back the debt, at the hugely discounted values.

Emerging Market Quantitative Tightening

Emerging Market Quantitative Tightening

Housing Quality, Real Median Housing Values

Housing Quality, Real Median Housing Values

European Inflation Blows Past Estimates For March, As Trichet Waits In The Wings

European Inflation Blows Past Estimates For March, As Trichet Waits In The Wings

Euro Strengthens as Inflation Accelerates; Aussie Dollar Gains

Euro Strengthens as Inflation Accelerates; Aussie Dollar Gains

Japan Sold 692.5 Billion Yen in March, Ministry of Finance Says

Japan Sold 692.5 Billion Yen in March, Ministry of Finance Says

Wednesday, March 30, 2011

Greenspan Faults U.S. Regulatory Reform

Greenspan Faults U.S. Regulatory Reform

5 Things That will Remedy Portugal's Economic Meltdown


By Grant de Graf
  1. Dump the Euro and revert to a domestic currency
  2. Consolidate all debt plus a safety margin through a long-term loan from the IMF, with favorable terms
  3. Execute a fiscal stimulatory package, combined with smart austerity
  4. Provide a plan that will reduce the deficit by 40 percent over 6 years
  5. Achieve political stability through strong and clear leadership

Full meltdown in full swing? Japan maximum nuclear alert

Guess The Country With The Highest Home Ownership Rate

POP QUIZ: Guess The Country With The Highest Home Ownership Rate

The PIIGS "Extend And Pretend" Period Is Winding Down

The PIIGS "Extend And Pretend" Period Is Winding Down

Rogue Economist Rants: Fiscal vs. Monetary policy; a fiscal suggestion

Rogue Economist Rants: Fiscal vs. Monetary policy; a fiscal suggestion

Is It Inflation, or Are Relative Prices Increasing?

Is It Inflation, or Are Relative Prices Increasing? - Daniel Indiviglio -

Euro's Resilience in Face of Adversity

Euro's Resilience in Face of Adversity

Econbrowser: Consumption spending slowing down

Econbrowser: Consumption spending slowing down

Contraction is Contractionary - Paul Krugman

Contraction is Contractionary

New Front Could Open Up Against Sterling

New Front Could Open Up Against Sterling

U.S. Consumer Confidence Falls to a Three-Month Low




U.S. Consumer Confidence Falls to a Three-Month Low -

Pound Trades Near 5-Month Low Versus Euro; ECB Seen Tightening Before BOE

Pound Trades Near 5-Month Low Versus Euro; ECB Seen Tightening Before BOE

Brazil May Buy Portuguese Debt




Brazil May Buy Portuguese Debt

An Obscure Inflation Indicator

By Grant de Graf

One corollary of inflation is that it that it reduces unemployment. Because nominal wages are slow to adjust downwards during a recession, the result is high unemployment. Since inflation lowers the real wage if nominal wages are kept constant, inflation would allow labor markets to reach equilibrium faster.

This phenomenon was the cause of high inflation during the early eighties. As long as the labor market is oblivious to the rising inflation, the market will accept wages that are historically set. I guess this is what some people call cheap labor. Once the market catches on and begins to renegotiate its wage rate, the game is over. A government can move an economy closer to full employment with inflation. Politically, this is very attractive. Ultimately, an administration will need to deal with the resulting inflation and sometimes the surgery which it is compelled to inflict, can be painful and have a significant impact on an economy. These were the Volker years. So theoretically, one government can party, but then ultimately someone will need to pick up the bill.

There are several causes of inflation, but the classical instigator is the government printing press: too much money, chasing too few goods. So when the press is printing faster than the economy is growing that usually is a cause for concern.

However, a critical weak point in the entire inflation model is how to gauge inflation. As inflation is typically measured through the Consumer Price Index, a price index which includes a basket of goods, inflation readings can be inappropriate. For example, the current higher crude prices have nothing to do with government printing presses. Despite undue critique from China, higher food prices are unrelated to QE2 or government stimulation. Firmer coffee prices in Kenya are a function of drought and not a result of string pulling. However, equilibrium in supply and demand is achieved through price adjustments, and not increasing interest rates. If anything, a policy to increase interest rates, which governments may be motivated to pursue, will only serve to distort the normal distribution of the goods and price equilibrium, in an economy.

Alternatively, a government could look at unemployment as a measure to access whether the money supply growth that it has created is contributing to the inflation. Clearly, as the U.S. Unemployment Rate charts included herein show, the potentially harmful inflation which is a result of the printing press, is benign.








For further reading on this topic:


Should the Fed Respond to Commodity Price Increases?

Is the Yen too Low or is the Dollar too High?

By Grant de Graf

Bloomberg Buisnessweek reports:
China itself intervenes to limit gains by the yuan, drawing criticism from trading partners including the U.S.


This is not a new assertion. However, China has always criticized the U.S. for propping up the dollar, arguing that it is the dollar that should be allowed to weaken, and that blame on Chinese officials to keep the Yen low, is inappropriate. Why would a weaker dollar be such a bad thing?

Certainly with the large trade or current account deficit that the U.S. runs, it would seem like a lower dollar would be a natural progression and the course that should follow. For a start, U.S. manufacturers will enjoy a new advantage in being able to export goods at cheaper pricers and ultimately, as growth becomes export driven, this will also reduce the trade deficit. Problem solved.

10 not so on-the-radar economic risks



THE RADAR: 10 Emerging Stories You Need To Start Watching Right Now

Tuesday, March 29, 2011

The 11 Worst Housing Markets In The World

The 11 Worst Housing Markets In The World

Inflation Speaks Many Languages


Inflation Speaks Many Languages

Using VIX to Spot Opportunities: A 21-Year Study -

More on Using VIX to Spot Opportunities: A 21-Year Study -

Case-Shiller Data: Home Prices Down 3.1% in 20-City Index

Case-Shiller Data: Home Prices Down 3.1% in 20-City Index

Portugal, Greece Debt Insurance Costs Rise After Downgrades

Portugal, Greece Debt Insurance Costs Rise After Downgrades - MarketBeat

Portugal to Revise Figures in 2010 Budget

Portugal to Revise Figures in 2010 Budget

Inflation Ahead? The Fed May Raise Interest Rates

Inflation Ahead? The Fed May Raise Interest Rates

IT’S YOUR TURN PORTUGAL | PRAGMATIC CAPITALISM

IT’S YOUR TURN PORTUGAL | PRAGMATIC CAPITALISM

Europe's Debt Woes: A United State of Denial

Europe's Debt Woes: A United State of Denial

Nouriel Roubini's 10 Big Risks To The US Economy

Nouriel Roubini's 10 Big Risks To The US Economy

The 18 US Cities Where Home Prices Continue To Dive

The 18 US Cities Where Home Prices Continue To Dive

U.K. Economy Shows Signs of Stress

U.K. Economy Shows Signs of Stress

Inflation vs. Jobs: Fed’s Move Can Seal Its Fate

Inflation vs. Jobs: Fed’s Move Can Seal Its Fate

Spanish Banks are Wild Card

Interest Rate Rise Spells Trouble for Spain

U.S. Housing Crisis: Facts About The Crash

U.S. Housing Crisis: Facts About The Crash

Why house prices will keep falling

Why house prices will keep falling

S&P Downgrades Portugal, Greece

S&P Downgrades Portugal, Greece

G-20 Fighting a Battle of Relevance

By Grant de Graf

I was always the flea in the chamber, when speakers called for a show of hands, for those in support of Gordon Brown's economic policies. I was always the one that chanted "Aye" amongst the crowd of heads shaking violently, from side to side. Frankly, I am beginning to tire of the Tories' mantra that Labor pushed the country into recession by supporting bankers who robbed innocent folk of their savings. Lest anyone should forget, the whole world went up in flames and anyone standing too close to the fire, was a casualty.

Ironically, I also supported Margaret Thatcher's policies. Britain had been crippled by the unions, and when she slew the serpent with nine heads, the economy breathed with a new sense of life. I admire Ed Miliband for his political conviction, but I think little of his economic perspectives and policies. He is a socialist that would bring Britain to her knees. Similarly, I cannot say that I support the Conservative's austerity. You don't suddenly turn off the Boeing 747's engine, when you are looking for an open field on which to crash land the kite [gently].

The WSJ reports that Gordon Brown's "biggest worry was the G-20′s failure to craft the “global growth pact” that would address the global imbalances of high debts and slow growth in Western economies and high savings rates, undervalued currencies and a lack of consumer demand in Asia and elsewhere."

Point taken, but I wonder what remedy Brown proposes. It's a bit like the rugby prop forward who kept complaining to the referee that his opponent was wedging his head into his chest. "He's boring, Mr. Ref. He's boring," the player protested.

"Well you're not too interesting yourself," quipped the referee. Much to complain about, but nothing much to say.

In defense of Brown, I have not read his latest book "Beyond the Crash" which may offer some gifted pickings or remedies for a troubled economy. Either way, I prefer to push the carrot [the solutions] rather than the stick.

Hungarian PM Orban Says "Nem!" To Sarkozy On Euro

Hungarian PM Orban Says "Nem!" To Sarkozy On Euro - Real Time Brussels

Inflation: The Lesser of Two Evils

Inflation: The Lesser of Two Evils

German Inflation Stays High

German Inflation Stays High

What's Driving Russia's Outperformance?

What's Driving Russia's Outperformance?

How’s the Growth-Through-Austerity Mousetrap Game Going in England? « Rortybomb

How’s the Growth-Through-Austerity Mousetrap Game Going in England? « Rortybomb

Review: Economic Indicators

Economist's View: Fed Watch: Quick PCE Notes

Survival Guide - Japan to Libya, China to USA - How Can Leadership Strengthen Crisis Management?

Survival Guide - Japan to Libya, China to USA - How Can Leadership Strengthen Crisis Management?

One Sign That The Housing Bust Could End Soon

One Sign That The Housing Bust Could End Soon

The Nikkei Dives In Early Going, As The Radiation Fears Come Roaring Back

The Nikkei Dives In Early Going, As The Radiation Fears Come Roaring Back

Portugal bailout pressures grow as borrowing costs hit another record

Portugal bailout pressures grow as borrowing costs hit another record -

Real estate: Review of Buying Opportunities

Real estate: It's time to buy again - Fortune Finance

German Consumer Sentiment to Decline

German Consumer Sentiment to Decline

A look at the world's new corporate tax havens

A look at the world's new corporate tax havens - 60 Minutes - CBS News

European Markets Slide, While Portuguese Yields Continue Marching In One Direction

European Markets Slide, While Portuguese Yields Continue Marching In One Direction

Goldman Sachs Explains Why The Speculative Premium In Oil Is Actually Too LOW

Goldman Sachs Explains Why The Speculative Premium In Oil Is Actually Too LOW

Monday, March 28, 2011

Irish Lesson for Portugal's Rescuers

Irish Lesson for Portugal's Rescuers

Share of Families With Unemployed Member Reaches 12.4%

Share of Families With Unemployed Member Reaches 12.4% -

Greece Seeks Creative Ways to Plug Budget Gap

Greece Seeks Creative Ways to Plug Budget Gap

23 Charts: History Of Human Progress

Charts: History Of Human Progress

The Japanese Government's Currency Move Will Damage The Economy More Than The Tsunami

The Japanese Government's Currency Move Will Damage The Economy More Than The Tsunami

Lessons From Japan: Spending Your Way Out Of A Recession Doesn't Always Work

Lessons From Japan: Spending Your Way Out Of A Recession Doesn't Always Work

In Tsunami Aftermath, Japanese Cars Could Get Pricier For Americans

In Tsunami Aftermath, Japanese Cars Could Get Pricier For Americans

Gold Rebounds as Inflation Heats Up - Seeking Alpha

Gold Rebounds as Inflation Heats Up - Seeking Alpha

Deutsche Bank Presents The REAL Story Behind The Decline Of American Manufacturing

Deutsche Bank Presents The REAL Story Behind The Decline Of American Manufacturing

VIX Update: Volatility Gauge

VIX Analysis

Barefoot Girl Raises $500,000

Rachel Sequoia Share The Air

How to halve the deficit by doing nothing

How to halve the deficit by doing nothing

ECB Seeks New Liquidity Plan for Irish Banks - WSJ.com

ECB Seeks New Liquidity Plan for Irish Banks - WSJ.com

Ireland Wants Bondholders to Share Bank Burden, Minister Says

Ireland Wants Bondholders to Share Bank Burden, Minister Says

New Tech Bubble? | The Big Picture

New Tech Bubble? | The Big Picture

How are Irish banks doing?

How are Irish banks doing?

Portugal President May Call June Vote as Redemptions Loom -

Portugal President May Call June Vote as Redemptions Loom -

The Euro Is Sliding, As Bailo0ut Solution Remains Unresolved

The Euro Is Sliding, As Bailout Solution Remains Unresolved

Portuguese Leaders Scramble to Avoid Bailout

Portuguese Leaders Scramble to Avoid Bailout

French Voters Deal a Blow to Sarkozy

French Voters Deal a Blow to Sarkozy

The Euro Straitjacke

The Euro Straitjacket -

Thursday, March 24, 2011

Portugal crisis hijacks EU summit

YouTube - Portugal crisis hijacks EU summit

Fool's Trap: Measuring Inflation

By Grant de Graf

Probably one of the most frightening economic phenomena is the restrictive way in which bankers and economists are measuring inflation. These indicators are being used to make game changing decisions that invariably could exacerbate weakness in fragile economies.

Take the Euro-Zone's latest reading for inflation which came in at 2.4% in February, 2011 from 2.3% in January, the highest level since October 2008 and unchanged from the preliminary, or flash, estimate published on March 1, by the European Unions' Eurostat agency.

Let's also look at the report for the rise in consumer prices in the U.K. which "grew at an annualized pace of 4.4% in February to mark the highest reading since October 2008, while the core rate of inflation increased 3.4% from the previous year amid forecasts for a 3.1% expansion."

Typically inflation is measured by changes in the consumer price index [CPI] which provides a very limited perspective on the inflation that central bankers need to address.

The accepted practice for dealing with inflation and an economy which is over-heating, is to spike interest rates. The only problem is that we don't really have an economy that is overheating and that advances in the CPI appear to be a consequence of the demand and supply curve, rather than changes in monetary supply or business activity.

For example, unrest in the Middle East has been the cause for a rise in crude prices, which has caused an increase in fuel prices at the pump and in transport costs. The multiplier impact that this has on an economy is obvious. Secondly, the hike in food prices internationally, partially as a result of shortages, has also effected the CPI.

The fallacy that governments can raise interest rates to reduce inflation, which is essentially a function of demand and supply is misplaced. Most certainly, if trading levels of the Sterling and the Euro are anything to go on, the market believes that central bankers will increase interest rates to combat the recent increases in CPI, which they are calling inflation. Such a move by policymakers, in this instance would be a mistake. Changes in prices within any market mechanism is a natural function that contributes to the equilibrium process and the efficient distribution of goods.

When money supply within an economy increases, or robust growth is the cause for higher prices, then there may be justification for a government to use interest rate policy to curb an overheated economy. That is not the case here.

A more accurate way to measure the harmful effects of inflation that governments seek to constrain, is to track increases in real wages and decreases in unemployment, to access the impact that inflation is having on an economy.

Case in point, WSJ reports:

"Eurostat said wage growth in the euro zone picked up in the final three months of last year [2010] from its record-low pace, although pay still rose less rapidly than prices.

"Employment edged up only modestly over the final three months of last year, so consumer spending appears unlikely to grow rapidly in the months ahead or make a major contribution to growth in the broader economy."

Clearly, the recently reported increases in CPI, both in the United Kingdom and the Euro Zone do not justify an increase in those region's interest rates. The impact of increasing interest rates would further constrain growth in fragile economies, and would not have an impact on CPI, in the way that governments may desire.

The World's 15 Biggest Economies And The Risks They Face

The World's 15 Biggest Economies And The Risks They Face

Portugal Said to Need as Much as 70 Billion Euros in Aid

Portugal Said to Need as Much as 70 Billion Euros in Aid

Japan Quake Could Have Big Impact on U.S. Output

Japan Quake Could Have Big Impact on U.S. Output

Euro-Zone Recovery Slows

Euro-Zone Recovery Slows

Goldman's Magnum Opus On The Economic Impact From Japan's Earthquake

Goldman's Magnum Opus On The Economic Impact From Japan's Earthquake

Portugal Credit-Default Swaps Jump 17.5 Basis Points to 552

Portugal Credit-Default Swaps Jump 17.5 Basis Points to 552

Spanish Banks Hit by Moody's -

Spanish Banks Hit by Moody's

Portuguese Yields Rip Higher After Austerity Rejection

Portuguese Yields Rip Higher After Austerity Rejection

Portugal's Fall Creates New Economic Dynamics

By Grant de Graf

The rejection of Portugal's Parliament for the new austerity measures and the subsequent resignation of Prime Minister José Sócrates, creates new dynamics in Europe's Future. It seems now, almost certain that Portugal will avail itself of a credit line from the EFSF. After all a central bank's purpose is to facilitate liquidity to the market, and why should a country not benefit from this service.

Although it may well be in Portugal's best interest to defect from the EU and the straight jacket which is being imposed on it by Europe's Central Government, the likelihood of such an event is low. Ultimately, Portugal will be sold on the credit line that it has access to from the EFSF. Alternatively, it will have to go to the open market, where interest rates will be punitive and probably close to ten percent for further bond issues.

I am uncertain as to why Europe's all costs approach, to support survival of the EU in its current state, is in its best interests. It pays a hefty price in opting to hold Greece, Ireland and Portugal's hand, and it is difficult to see the value of such support against the mounting costs.

The elephant in the room is Spain, which economist Nouriel Roubini describes as "too big too fail, and too big to bail." In Spain's case it is difficult to see the size of the pit or call a bottom.

Portugal Signaling: Beware the United States of Europe

Portugal Signaling: Beware the United States of Europe

Portugal Premier Quits After Austerity Plan Is Rejected

Portugal Premier Quits After Austerity Plan Is Rejected -

Wednesday, March 23, 2011

Bond Investors Balk at EU Plans

Bond Investors Balk at EU Plans

Portugal Victim of EU Poison Pill Policy

By Grant de Graf

Portugal is the latest victim of the difficult standards and expectations that the European Union is imposing on its members, to meet high levels of austerity and government spending cuts. Very often the dogma that is being propagated at central government is one that may be good for the Union in general, but which is inappropriate at a local level.

As predicted, attempts to implement the stringent measures of austerity by central government are bound to impact the electorate. Politicians are being forced to resign or being compelled to become recipient to the wrath of their respective voters, who express dissatisfaction with the manner in which their economy is being managed. This has been true of Ireland where the ruling party was ousted and more recently in Portugal, when Prime Minister José Sócrates was forced to tender his resignation, after Parliament rejected a new austerity plan.

One may argue that Portugal's attempt to implement the austerity measures was voluntary and a course which was inspired to win investor confidence, for its slew of bond issues that it has had to facilitate. However ultimately, investors will be wooed through any action that has a positive long term goal, even if that plan amounts to stimulatory measures, for the economy.

Additionally, Portugal's ratio of GDP to debt remains low relative to Japan, Italy and France.

Portugal Premier Quits After Austerity Plan Is Rejected

Portugal Premier Quits After Austerity Plan Is Rejected

U.S. Targets Banks Over Credit Union Bond Losses

U.S. Targets Banks Over Credit Union Bond Losses

Tuesday, March 22, 2011

GE engineer reflects on Fukushima concerns

YouTube - GE engineer reflects on Fukushima concerns: "afety of the nuclear reactor used in the Fukushima plant in Japan"

Sterling Surges

By Grant de Graf

With the increasing inflationary pressures that the United Kingdom faces, expectation are that the Bank of England will increase interest rates, sooner rather than later, in its efforts to contain inflation. The rise in consumer prices comes at a time, when growth rates remain anemic and business lethargic, in light of the severe austerity pressures, which the government has implemented.

Expectations for a rate hike has strengthened the demand for Sterling, at a time when it is least welcome and which could constrain the possibility of an export driven recovery.

Portugal's Fate Hinges on Austerity Vote

Premier's Fate Hinges on Austerity Vote

Natural disasters: Counting the Cost

Natural Disasters: Counting the cost

U.K. Consumer Prices Rise 4.4%

U.K. Consumer Prices Rise 4.4% - WS

Japan fishermen rebuild lives

YouTube - Japan fishermen rebuild lives

Friday, March 18, 2011

Fed Confirms First FX Market Intervention In 11 Years

Fed Confirms First FX Market Intervention In 11 Years

Inflation Watch

Oil Prices Are Skyrocketing. For Everything Else, Inflation's Still Low. : Planet Money : NPR

Who Does the US Owe Money To? | The Big Picture

Who Does the US Owe Money To? | The Big Picture

Euro Zone Posts Record Trade Deficit

Euro Zone Posts Record Trade Deficit

Inflation Continues to Tick Higher

Inflation Continues to Tick Higher

The Nikkei Surges Following Big Plan For Coordinated Yen Intervention

The Nikkei Surges At Open Following Big Plan For Coordinated Yen Intervention

Assets in Firing line to Pay For Japan's Reconstruction

What Will Be Sold To Pay For Japanese Reconstruction? | The Big Picture

Dollar Surges Against Yen

Dollar Surges Against Yen - WSJ.com

MAJOR FOREIGN HOLDERS OF US TREASURY SECURITIES

MAJOR FOREIGN HOLDERS OF U.S. TREASURY SECURITIES

Analyzing Global Sovereign Debt

The Global Debt Bomb - Forbes.com

List of Global Countries by Net Wealth

Wealth of Nations- Government Assets Minus Liabilities Analysis

Nations Act to Put Brakes on Yen's Rise

Nations Act to Put Brakes on Yen's Rise - WSJ.com

Thursday, March 17, 2011

The Story Behind the Yen's Record Surge

Why the Japanese Yen Surged - WSJ.com

5 Characteristics of Successful People

5 Characteristics of Successful People

CHART OF THE DAY: How Long Could Japan's Post-Crisis Construction Boom Last?

CHART OF THE DAY: How Long Could Japan's Post-Crisis Construction Boom Last?

Economic Implications Of Japan Tsunami, Earthquake and Nuclear Crisis

Economic Implications Of Japan Tsunami, Earthquake and Nuclear Crisis : Planet Money : NPR

The Bank of Japan Poised for Battle of the Yen

The Bank of Japan Has a Major Battle Ahead - The Source - WSJ

Market Overvalued by 30% According to PE Ratio Valuation

Q4 2010 S&P 500 Earnings Show Fair Market Value = 868 (30% Overvalued)

AAII Sentiment Survey: Pessimism at Highest Level Since Last September


Inflation Watch: Measuring Inflation

Calculated Risk: Core Measures show increase in Inflation

Euroview: Swiss Franc A Good Barometer Of Risk

In times of extreme uncertainty the Swiss franc outperforms, and this week has been no exception.

A Complete Guide To Japan's $200 Billion Disaster And How It Will Affect The Global Economy

A Complete Guide To Japan's $200 Billion Disaster And How It Will Affect The Global Economy

Big Picture: Does the Market have Legs?

By Grant de Graf

WSJ reports:

"Factory operators doing business in the Philadelphia Fed’s district saw already-strong growth heat up further in March to the best pace in nearly three decades, as inflation pressures remained persistent.

"The Federal Reserve Bank of Philadelphia reported Thursday that its index of general business activity for manufacturers moved up to 43.4, the best reading since January 1984, from 35.9 the month before. Economists had been expecting a modest slowing in the rate of expansion, and had predicted the index would come in at a still very respectable 30.0. Readings over zero indicate expansion and describe the breadth of the change, not its magnitude."


Given the market's automatic adjustment mechanism in reconciling expectations with actual performance, the strong growth reading suggests that the market is scheduled for further appreciation this year, providing that the world can manage or come to terms with geopolitical and catastrophic risk. It's always difficult to call a bottom, but in the long term seemingly, there is still evidence of some reasonable upward momentum

Earthquake: No Impact on Japan's GDP - Goldman

FT Alphaville » Goldman sees no earthquake impact on Japan’s GDP

Perspective: Yen Volatility


By Grant de Graf

Yesterday at about 5pm EST the Yen made a major correction of over 5%. Guess what? Within about four hours that spike had been literally wiped out and gains were quickly parred. Reports suggested that because of the huge amount of foreign Japanese assets that would need to be liquidated to repatriate funds and pay for rebuilding, the USD/JPY was being hammered. After the Japanese government issued a statement that no foreign assets were being disposed, the market quickly corrected itself.

Yen Makes Correction

Remember That Unreal Yen Surge?

Demand for Spanish Bonds Robust

Spain Sells EU4.1 Billion of Bonds at Auction, Demand for Securities Rises

Spain Ramps Up Job Efforts

Spain Ramps Up Job Efforts

Irish Perspective on Bank/Sovereign Default

Irish Perspective on Bank/Sovereign Default « naked capitalism

Paul Krugman Suggests We're In A Liquidity Trap

Paul Krugman: Yes, We're In A Liquidity Trap - Brad DeLong's Grasping Reality with All Ten Tentacles

Calculated Risk: Housing Starts decrease sharply in February

Calculated Risk: Housing Starts decrease sharply in February

Q&A: Eichengreen on the End of Dollar Dominance

Q&A: Eichengreen on the End of Dollar Dominance - Real Time Economics - WSJ

Total US Debt Hits $14.237 Trillion, Debt Ceiling At $14.294 Trillion

Total US Debt Hits $14.237 Trillion, Debt Ceiling At $14.294 Trillion

World Nuclear Power Reactors | Uranium Requirements | Future Nuclear Power

World Nuclear Power Reactors | Uranium Requirements | Future Nuclear Power

Wednesday, March 16, 2011

US Futures Slide After Major Move In The Yen

US Futures Slide After That Ridiculous Move In The Yen

Yen Makes Significant Surge

This Move In The Yen Is Simply Unreal

CHART: Correlation of Dow to Fukushima Headlines

CHART: The Dow Makes Huge Swings On Every Fukushima Headline

Chart of the Day: Stockmarkets after disasters: Market tremors

Stockmarkets after disasters: Market tremors | The Economist

Economist Eichengreen Sees Yuan As Dominant Global Currency

Economist Eichengreen Sees Yuan As Dominant Global Currency


David Wessel, Economics Editor for the Wall Street Journal, sits down with Barry Eichengreen, an economics professor at the University of California Berkley, to discuss how the yuan could be widely used within ten years.



Fight From Risk

Risk, the economy and markets: A flight from risk | The Economist

Portugal's warning after downgrade

YouTube - Portugal's warning after downgrade

CHART OF THE DAY: Sendai Earthquake vs Kobe Eartquake in 1995

CHART OF THE DAY: Sendai Earthquake vs Kobe Eartquake in 1995

Weighing the Economic Costs of Disaster

Economic consequences of disaster: Reduced expectations, panic, or uncertainty?

Moody's on impact of quake on Japan

YouTube - Moody's on impact of quake on Japan

Markets Misjudge Japan Risk

Markets Misjudge Japan Risk

Sanctions Debate For Weaker Countries in EU Could Be Last Straw

Doubts on Europe Plan

Perspective: When is a Black Swan a Grey Swan?


By Grant de Graf

The Black Swan Theory or Theory of Black Swan Events is a metaphor that encapsulates the concept that the event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight.

The theory was developed by Nassim Nicholas Taleb to explain:

1] The disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology

2] The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)

3] The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs

In recent years, natural disasters are occurring at a much more rapid rate and have moved beyond the boundaries of their normal levels of distributions. Events such as the earthquake in Christ Church, in Haiti and New Zealand, the Middle East crisis and the earthquake in Japan, are happening at unprecedented rates. Clearly, events that may have previously been termed as "black swan" need to be viewed in a different light, and reclassified as grey swan.

New Housing Starts Collapse A Massive 22.5% In February

New Housing Starts Collapse A Massive 22.5% In February

UK unemployment rate rises to 8% | Finance Markets

UK unemployment rate rises to 8% | Finance Markets: "UK unemployment rate rises to 8%"

Euro-Zone Inflation Stays High

Euro-Zone Inflation Stays High

How a Tokyo Earthquake Could Devastate Wall Street [1989]

How a Tokyo Earthquake Could Devastate Wall Street [1989]

The Macroeconomic Aftermath of the Earthquake/Tsunami in Japan

The Macroeconomic Aftermath of the Earthquake/Tsunami in Japan

Wrong Models of the Great Recession

YouTube - IAS 107: Intermediate Macro: March 15, 2011 "Wrong Theories" Lecture

The economy has been bad to both public and private-sector workers

The economy has been bad to both public and private-sector workers

The Impact Of The Japan Crisis On China

What Is The Impact Of The Japan Crisis On China?

Homebuilder Perceptions May Be Better, But Conditions Are Really Worse

Homebuilder Perceptions May Be Better, But Conditions Are Really Worse

Five Things You Need To Know About Japan's Debt Crisis

Five Things You Need To Know About Japan's Debt Crisis

Japan asks EU for Help following Earthquake and Tsunami

YouTube - Japan asks EU for 'help in kind' following Earthquake and Tsunami

13% Of Japanese GDP Could Now Evaporate

13% Of Japanese GDP Could Now Evaporate

Fed Signals More Stimulus Unlikely as Recovery Gains Strength

Fed Signals More Stimulus Unlikely as Recovery Gains Strength

Black Swan Earthquake Catches Tim Geithner Naked

Black Swan Earthquake Catches Tim Geithner Naked: William Pesek

Portugal Downgrade Knocks Euro


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GDP vs National Debt by Country -

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Public Debt by Country | Global Finance

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Finance & Development - Getting Debt under Control

Perspective: Portugal Faces New Economic Challenges

By Grant de Graf

WSJ reports:

Moody's Investors Service issued a two-notch downgrade on Portugal's long-term government bond ratings, citing subdued growth prospects and productivity gains over the near term until structural reforms are enacted.

Apparently, a contributing factor towards the downgrade is "implementation risks for the government's austerity plan, which has faced opposition from the center-right Social Democrats."

Portugal's government is facing political turmoil that threatens to derail its ambition to solve the crisis alone. The nation's Social Democrats are opposed to the minority government's new austerity measures announced Friday that called for further spending cuts and boosted state revenue by further tax increases.

This is the point where I loose it. In summary: with the country facing increasing debt levels, the government initiates austerity measures, in a belt-tightening campaign against public spending. A scheduled program of commitments to repay debt is fast approaching due date, so Portugal successfully issues a series of bond auctions in the open market. Investors are a touch nervous, so interest rates yields are a little higher. Actually, quite a lot higher, about 200 basis points above previous auction levels of 4%.

WSJ elaborates: The nation is at the center of a storm that has already hit Greece and Ireland, as it is struggling with a high budget deficit that must be brought down to 4.6% of gross domestic product this year and 3% in 2012, from around 7% last year.

Interestingly, this is paltry compared to Japan's percentage government deficit to GDP of 200% before the earthquake, Italy's of 120% and France's deficit to GDP of 85% - go figure.

Portugal's Prime Minister Jose Socrates believes that if the new austerity plan was voted down in parliament, his government would likely face early elections and that a "political crisis would inevitably cause the country to request external help."

The point however that needs to be made, is that even if Portugal appeals to the European Central Bank for an extended credit line in a post election scenario, that facility will come with stringent terms, calling for further austerity measures.

This would be no different than the position in which the Irish currently find themselves, with Government officials from Ireland trying to make a case for new terms for their credit line from the ECB, balanced against further demands from the EU for an increase in austerity. Certainly, nothing would really be achieved through an election in Portugal, other than an opportunity for the dog to bite its tail.

The predicament in which Portugal finds itself, is a function of the disparity between fiscal policy and monetary policy that is a challenge for all EU members. It is impossible to fiscally meet the demands of a local electorate, when monetary policy is being dictated centrally in accordance with interests that are very different from local needs. Both Ireland and Portugal may be compelled to opt out the confinement of the Euro, which is inhibiting growth, constraining domestic needs, and reducing political strength.

Portugal's Debt Rating Cut Two Notches

Portugal's Debt Rating Cut Two Notches

Tuesday, March 15, 2011

World's Largest Nuclear-Energy Producers

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Economists React: If Worst Happens in Japan, All Bets Are Off - Real Time Economics

Economists React: If Worst Happens in Japan, All Bets Are Off - Real Time Economics

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Chart of the Day: Japan’s Share of the Global Economy





EU Denies Asking Ireland To Hike Its Corporate Tax Rate

EU Denies Asking Ireland To Hike Its Corporate Tax Rate


EU in Reshuffle to Package Bailouts


By Grant de Graf

WSJ reports: "Euro-zone finance ministers reached no agreement Monday on precisely how the bloc's 17 members will share the burden of enlarging bailout funds, and put off discussions until next week.

"But despite the unresolved details, markets reacted warmly to Saturday morning's announcement of a pact to expand the euro zone's current bailout capacity. In trading Monday, the prices of Spanish, Portuguese and Greek bonds jumped, bringing down their interest rates and reflecting improved investor confidence."

The market's positive response to Greek bonds is attributable to the new deal that Greece has secured with the Euro Union: namely, restructuring the loans that have been extended to that country, with a reduction in long-term borrowing costs. Greece has in turn agreed to dispose of some significant parcels of real estate owned by the government, in the open market and apply further measures of austerity. Neil Ferguson would argue that this is in effect a default, merely packaged in an attractive wrapper. Still, I am left scratching my head as to how long the Greek community will tolerate the austerity measures, which are bound to exacerbate rising unemployment.

WSJ reports: "The pact is "particularly positive for Portugal," said economists at Danske Bank in a research note, since it expands the ability of euro-zone policy makers to come to the country's aid. Portugal's persistent deficits have led investors to believe it is likely heading for a bailout."

The EU has always shown a commitment to come to the assistance of ailing member countries. Unity within the union has never been stronger. With the comfort of a Big Daddy in the waiting room, I am puzzled as to why the market even priced in the bonds that Portugal issued, at the price that it did. Portugal has always indicated a commitment to austerity and provided projections indicating positive growth. If ever there was an arbitrage opportunity it was here: the buy Portuguese and sell German bond trade. Clearly, the spread should be expected to narrow.

Ireland has rejected the EU's demand for that country to increase corporate tax. That meant that the EU refused to restructure the terms of its loans to Ireland. There is always a danger that the EU oversteps its mark in dictating policy to its members. However that is a consequence of being part of a union. You lump it or leave it.

In the long term it is difficult to envisage an EU that succeeds in sustaining member loyalty and attachment to the Euro. Currently, the Euro impedes the weaker countries from any meaningful recovery through imprisonment with the Euro straight-jacket. Effected countries are being held to ransom by the bailout rescue packages the EU can offer. In the end Germany and France will pay dearly. The price will be a withdrawal of support for those governments. If the EU is unable to change its terms of membership to the union, it is probable that the political map will look very different in the not too distant future and that both Merkel and Sarkozy will be serving their countries in different capacities, that they are today.

Thursday, March 10, 2011

Moody's, Spain Disagree Over Banks' Capital Needs

Moody's, Spain Disagree Over Banks' Capital Needs

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Dollar Rises Before Jobs Data; Euro Weakens on Spain Downgrade

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Greece Default Bets Mount as Spain Exits Sick List: Euro Credit

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Wednesday, March 9, 2011

What's the Fuel Price Breaking Point [Part II]


What's the Fuel Price Breaking Point Part II


The Fuel Price Breaking Point

The Fuel Price Breaking Point

Portugal in New Pact

Portugal to take competitiveness pact to Eurozone summit on Friday -

The Calm Before the Next Eurozone Storm

The Calm Before the Next Eurozone Storm

Meet The Top 10 Richest People In The World

Meet The Top 10 Richest People In The World

Portuguese 10-Year Yield Retreats From Record After Debt Sale

Portuguese 10-Year Yield Retreats From Record After Debt Sale

SocGen Says Spanish Banks Are In Need Of €50 Billion If Their Worst Real Estate Nightmare Comes True

SocGen Says Spanish Banks Are In Need Of €50 Billion If Their Worst Real Estate Nightmare Comes True

Greek Unemployment Surges From 13.9% In November To 14.8% In December

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ECB Officials Hint at Rate Increases

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RE-heat-map.png (645×561)

MAP OF THE DAY: Libya's Oil Infrastructure Is Burning -- Here's Where It's Located

MAP OF THE DAY: Libya's Oil Infrastructure Is Burning -- Here's Where It's Located

Portugal's Lost Dignity and Dirty Tricks in the Eurozone -

Portugal's Lost Dignity and Dirty Tricks in the Eurozone -

UK Hawks Just Need Two More Votes For A Rate Hike, But It's Unlikely To Happen

UK Hawks Just Need Two More Votes For A Rate Hike, But It's Unlikely To Happen

Portugal Sells Bonds at a High Price

Portugal Sells Bonds at a High Price

Portugal's Bonds are a Free Lunch

By GRANT DE GRAF

"Greece, Ireland and Portugal may revert to a domestic currency."

Portugal has just completed a closely watched €1 billion 2013 bond auction. The average yield of 5.993% was below secondary market levels. The bond traded above 6% in the run-up to the auction, but was sharply above the 4.086% level set at a previous auction, six months ago.

What has become very clear, is that the appetite for Portuguese bonds remains solid. Portugal’s Prime Minister Jose Socrates continues to support the country's commitment to access finance through the open market. Seemingly, policymakers wish to demonstrate the absence of an emergency situation. This may in deed reflect the economic dynamics that prevail in Portugal: that the challenges are surmountable.

Investor's are the winners at these bond auctions, as the risk premium that the market is dictating appears somewhat of a free lunch. Given the potential support that Portugal enjoys from the EU and the lack of any hidden debt exposure that was evident in the Greek and Irish bailouts, it is surprising that the market has priced in a premium that appears overly aggressive. The extent of the Irish and Greek bailouts in numerical terms, and the possibility that the European Central Bank may cut the chord are risk factors that investors have discounted in those specific instances. Portugal is different. The country's total debt exposure is relatively small, and the ECB could comfortably cover Portugal's total exposure, made available through a traditional credit line. Even Spain, a significant trading partner remains a creditor, and it is difficult to envisage the impact that a Spanish SOS would have on Portugal.

A more relevant enigma is the uncertainty of the plan [if any] that will emerge to implement a Portuguese recovery. It is unclear whether austerity alone will satisfy concern from investors. Securing a non-emergency long-term loan facility from the ECB to cover its debt exposure with favorable terms, would be a good start. This is not a free lunch, as Portugal is paying a price for being a hand-holder to a big brother. It needs to conform with EU austerity and policy, irrespective of suitability, or it walks.

Comments by Frank Oland Hansen, a senior economist at Danske Bank in Copenhagen, miss the point. “The recent economic performance hasn’t been sufficiently convincing and we expect that Portugal will need help soon,” he said. Other analysts suggest that the ability for Portugal to service high interest rate bonds is not sustainable and that a Portuguese emergency bailout is inevitable. It is important to distinguish between a bailout and a debt restructuring program. Further, the comments fail to grasp the fundamental issues that relate directly to Portugal's challenges. That would be the need for policymakers to formulate a blueprint, which will enhance long-term economic conditions for a solid recovery.

Another catalyst for recovery would be for Portugal to voluntarily revert to a domestic currency, while still retaining its economic ties with the EU. This way it would enjoy a competitive advantage for goods and services that it exports. Realistically, a reversion to a domestic currency appears the way that both Ireland and Greece will ultimately go. The tenacious buoyancy of the Euro in recent weeks, may be a reflection of this hypothesis. Traders are predicting that troubled countries will reject the Euro as their currency. In the long term, this approach would preserve a more bullish approach to the Euro, than may have been anticipated.

Sources:
Grant de Graf is a writer and economist who covers issues that relate to the credit crunch, business cycles, asset correlations, and the sovereign debt crisis. He is also a former trader on Wall Street, where he specialized in options and equity arbitrage. De Graf publishes his posts on his blogs, Grant de Graf and Understanding the Credit Crunch.

Should Fannie and Freddie Be Disssolved? - Room for Debate - NYTimes.com

Should Fannie and Freddie Be Disssolved? - Room for Debate - NYTimes.com

Tuesday, March 8, 2011

Spanish Bonds Decouple From Portugal

Spanish Bonds Decouple From Portugal

An Actual Improvement in U.S. Employment - Seeking Alpha

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The Future of the Euro: A Symposium

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The Market Is Reading Its Verdict On Greece Right Now

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