Tuesday, May 31, 2011

Numbers Suggest Housing Crisis Much Worse than in Great Depression

House Prices Have Now Fallen Further Than They Did In The Great Depression

Monday, May 30, 2011

The Lady Who Rocked the Higher Echelons of Finance and Politics

by Grant de Graf

She was the cause of Europe's leap to pandemonium, as party politicians took to panic stations and reshuffled leadership chairs for forthcoming elections. She could also claim responsibility for the Swiss Franc's spike to record highs, as the market's flight-to-safety began to take momentum.

While the U.S. was experiencing a record number of tornadoes that caused ruthless devastation, Europe was experiencing a double-twister of its own. The Greek bailout is on hold and there is a possibility that it may never happen - in the way of extended assistance by the IMF that would prevent Greece from defaulting on its loans. Additionally, financial leaders across the globe are in a panic to identify a new leader for the IMF; someone who has the competence to navigate Europe through one of its most severest storms ever.

The lady in question responsible for these chain of events, is a mere thirty-two years old, beckons from Guinea and is a chamber maid at the Sofitel Hotel in Midtown Manhattan. She is the lady who laid charges against Dominique Strauss-Kahn, leader of the IMF for sexual assault. Because her name has not been officially released, for obvious reasons, let's just call her Madame X.

When she decided to lay her complaint, it is unlikely that she fully appreciated the consequences of her actions. My bet is that someone played a key role in encouraging Madame X to purse her claims, irrespective of their merit. I would be interested to find out the identity of the mystery sponsor. Additionally, Madame X is represented by counsel. Lawyers that are imbued with the quality of representation that she has sought, come attached with a hefty price tag. And given that a typical retainer fee is conservatively, anything from $20,000 upwards, which is not the sort of lolly that a chamber maid keeps under a mattress, I ponder as to who provided the funding. Perhaps Madame X's attorney is representing her on a contingency basis - unusual for a criminal case where there is no financial award, even if there is hope for a civil action. Or given the publicity that the case is likely to receive, her counsel may have agreed to render services pro bona. Possible, but unlikely. I'm not suggesting conspiracy, but I smell a rat.

The IMF do have several candidates suitable for the leadership position, favorite of which is French Finance Minister Christine Lagarde. Although, it will be hard to fill the shoes of DSK, Christine Lagarde is a worthy choice. There are two main characteristics with which a leader of the IMF should be infused. Firstly, the person should have a sound understanding of economics and finance, which includes the political dynamics that currently reign. Secondly, the candidate needs to have a degree of political "charm", to ensure that consensus amongst its members can be achieved and that strategic goals are met. Lagarde has both. She comes across as a tough cookie, the type that would make me think twice about embarking on an elevator ascent in her sole company. However, my instinct tells me that she can turn on the charm, when she wants to. I know she can.

Origins of the Crisis - Who Really is to Blame

Origins of the Crisis, Fake and Real - Paul Krugman Sheds Some Light: Surprise, Surprise...

Measure of German Inflation Impacted by Crude

German Inflation Unexpectedly Slowed in May on Cheaper Oil

IMF Staff Recommends Higher Capital to Address Too-Big-to-Fail

IMF Staff Recommends Higher Capital to Address Too-Big-to-Fail. Initiative may have been motivated by Spain's current disposition.

Sunday, May 29, 2011

Roubini Sees Stock-Correction

Roubini Sees Stock-Correction ‘Tipping Point’ on Slowdown. His view would be inline with the typical summer cyclical correction, which theoretically should kick into place, imminently.

Spain’s Ruling Political Party Announces Reshuffle

Spain’s Zapatero Names Rubalcaba as Socialist Successor in Wake of Last Weeks Massive Defeat

Signs of a Bottom in Housing Market

Although data indicates that prices remain depressed, indications of lower foreclosure numbers in April, are encouraging

Fed Kansas City President Hoenig Urges Fed to Raise Interest Rates

Hoenig Urges Fed to Raise Interest Rates to Encourage Saving - Call considered controversial and opposes Keynesian approach to dealing with recessions. Current economic monetary policy trends towards easing and interest rate constraint 

20 Questions To Ask Anyone Foolish Enough To Believe The Economic Crisis Is Over

20 Questions To Ask Anyone Foolish Enough To Believe The Economic Crisis Is Over

Commercial Real Estate Market Outlook Gruesome

Calculated Risk: Moody's: Commercial Real Estate Prices declined 4.2% in March, Hit new Post-Bubble Low

"Nearly Half of Americans Are Financially Fragile"

Economist's View: A Survey Reveals That"Nearly Half of Americans Are Financially Fragile"

Risk of Problem Banks Expanded at its Slowest Rate Since the Credit Crisis

Problem banks list hits 888

Paul Krugman Predicts Prolonged Depression

Third Depression Watch -

Predicting Unemployment Accurately

Freakonomics » Google’s New Correlation Mining Tool: It Works!

Greece is Becoming Complicated

Greece’s Debts Are Europe’s Problem

Long Term Unemployment Number Shows Slight Improvement

Weekly Unemployment Claims Up 10,000, 4-Week Moving Average Down 1,750

Unemployment in U.K. is Reeling

Thursday, May 26, 2011

Has the U.S. Recovery Been Sidelined?

A View in Support of Austerity

Krugman Is Wrong About Austerity

Countries With Lowest Risk of Inflation

Tracking the Link Between CDS Spreads and Interest Rates is Invaluable in Establishing Country's Prospects for Infaltion

Housing Glut Continues

Unemployment insurance Claims: Mark Thoma Sounds the Alarm! - Grasping Reality with a Flexible Trunk

Unemployment insurance Claims: Mark Thoma Sounds the Alarm! - Grasping Reality with a Flexible Trunk

What Will Make the Great Financial Crisis Look Like Child's Play? The Next One: Gordon Brown

What Will Make the Great Financial Crisis Look Like Child's Play? The Next One: Gordon Brown | Economy Watch

Europe's Dispute on Crisis Intensifies

Significant risk exposure prevails as Europe tries to extricate itself from the debt crisis - WSJ.

Monday, May 9, 2011

Video - SocGen's Juckes Sees Euro Past $1.50 `When Dust Settles'

Video - SocGen's Juckes Sees Euro Past $1.50 `When Dust Settles'

Economic Perspectives: Forex, UK Elections, Paki-US Relations, Middle East Violence, Inflation in China and Commodity Prices

By Grant de Graf

Forex markets continue to experience high volatility, accompanied with concern over how Greece will restructure its bailout package. This has been the cause of some weakening in the Euro, which suffered losses last week that extended beyond 3%. Although most economists see changes in the bailout package as inevitable, many question the long-term sustainability of Greece, to meet its obligations under current economic conditions.

In the United Kingdom, the Liberal Democrats, the coalition partners to the ruling Conservative led government suffered heavy losses, fueling calls for the resignation of Deputy Prime Minister Nick Clegg. Sterling has experienced a heavy battering over the past few months and many see current levels as an attractive entry point for upside potential, providing that economic growth levels can achieve some level of traction.

Reports suggest that the Pakistan -U.S. relationship rift is widening, as many politicians question the justification of U.S. aid to Pakistan, if in fact allegations prove to be true that the country provided Osama bin Laden with sanctuary. Given the U.S.' need to retain Pakistan as a strategic partner and Pakistan's level of instability with most of its neighbors, it is unlikely that calls from either side of the fence will fundamentally change the current relationship, or the level of aid.

Religious clashes in Egypt over the weekend suggest that a long-lasting peace solution is not yet in sight. Sporadic violence in Syria continues and a protracted war in Libya between Gadaffi and revolutionary forces appears probable.

Taliban fighters flooded southern Afghanistan's main city at the weekend, seizing key buildings to stage attacks on government agencies in a two-day battle that brought Kandahar to virtual collapse, highlighting the insurgency's strength. What this means is that although President Obama has clearly indicated his intent to begin the withdrawal of troops from Afghanistan this year, any consideration for significantly reducing budgeted expenditure on the war effort in that area will be a challenge, unless there is a significant change in foreign policy.

Pressure on wages in China, threatens to imperil the price advantage that it has enjoyed as an exporter of cheap goods. Politicians have long argued that the Chinese Government's manipulation of its currency has artificially allowed the flow of "cheap" goods to international markets. Irrespective of these sentiments, upward pressure on wages will result in higher production costs, which could well eliminate this advantage. This dynamic is a matter that is likely to be the subject of much discussion this week, as U.S. and Chinese officials meet in Washington.

Commodity values across the board, including crude, have weakened in the past week, bringing to an end the out of control spiraling rise of commodities across the globe. Higher prices have impacted inflation indicators, especially in Europe, resulting in a series of interest rate increases by central governments. This has caused the Euro to strengthen, as traders bet on interest rate differentials to skim profits. Speculation that the European Central Bank will no longer immediately respond to rises in inflationary expectations as it has in the past, by increasing interest rates, has more recently led to a softening of the Euro. Although commodity prices have retracted from their highs, high volatility in the short-term, should still be expected.

Forecasts Point to Varying Global Growth

OECD Points to Varying Growth

Wednesday, May 4, 2011

Portugal's Bailout Has Holes

By Grant de Graf

Portugal has reached a bailout deal with the EU and IMF for €78 billion. The package is a three year plan and under the guidelines, the country will have to reach a budget deficit of 5.9% of its gross domestic product this year, 4.5% in 2012, and 3% in 2013. This is a far too aggressive timeline and given the circumstances of the economic slowdown, the country is setting itself up for disaster and a potential default. I'm surprised that the IMF and the EU could agree to such terms, especially in light of the Greek tragedy, which is still unfolding and may not have reached its climax.

Secondly, according to Mr. Sócrates, the acting Prime Minister of Portugal until the elections in June 2011, the deal will not include cuts in the minimum wage or in public-sector jobs, measures Ireland and Greece were forced to take. Employees will still receive the extra 13th and 14th months of salary. I'm not running for prime minister, so its easy for me to say, but in the case of smart austerity, workers need to take cuts. We're not asking for layoffs, just simply some belt-tightening, which under the circumstances would be very gentlemanly.

The good news is that there is a plan on the table and officials are working towards a solution, which appears attainable.

Portugal Reaches Deal on Bailout

Portugal Reaches Deal on Bailout

Tuesday, May 3, 2011

Pakistan is an Added Risk in the Political Equation

By Grant de Graf

So now Pakistan has flip-flopped from its previous stance, in which it initially commended the capture and final bullet that targeted bin Laden's capture. Even President Obama extended his appreciation towards Pakistan, for its contribution towards bin Laden's demise.

Seemingly, a few hours in politics can be a long time and very quickly, the Pakistan government began questioning, the legitimacy of U.S. entry into foreign air space without the hosting country's permission. What could well have been the makings for a celebration in diplomatic solidarity between these two countries, appears to be heading towards a  political rift, a situation that has already been cooking for some time.

Pakistan must have something to gain by the hard-ball attitude. Firstly, stronger electorate support. Let's be honest. It's not like every Pakistani is hoarding a collection of American flags under a bed, to wave at the next rally. Secondly, perhaps Pakistan believes it can negotiate better terms with its current relationship with the U.S. It's a message that is being directed to the oval office. "You need us more than we need you, and if you want a relationship, then cough up a few more greens." I suppose two can play the same game, which will mean very little progress towards any final solution in Afghanistan.

Somehow I would like to appoint as diplomatic coordinator to the U.S.- Pakistan relationship committee, the lady who waves her hand like a Gestapo police officer at me everyday, instructing me to keep my Armstrong bike out of the pedestrian section of the track. She would tell both parties how to deal with any unresolved differences and exactly where they stand, in no uncertain terms.

How America went from surpluses to deficits

How America went from surpluses to deficits - Ezra Klein

Monday, May 2, 2011

Video - Roubini Says China Has to Change Its Model of Growth

Video - Roubini Says China Has to Change Its Model of Growth

Economic Perspectives: Bin Laden, ISM Index, EU Central Banks, Syria, Israel and P.A.

By Grant de Graf

Osama bin Laden is dead, after a U.S. military operation in Pakistan located his hideout and killed all inhabitants. The impact of his death is likely to be broad-reaching. Firstly, the assistance which Pakistani officials afforded U.S. operatives in the initiative, is likely to tentatively repair, the strained relationship that exists between the two countries. Secondly, U.S. officials are on high alert, as world wide reprisals are expected from al Qaeda.

The U.S. manufacturing sector posted its 21th consecutive month of expansion in April, according to the closely followed ISM index. The index dipped to 60.4% last month from 61.2% in March, the Institute for Supply Management said Monday. Any reading over 50 indicates that more manufacturers are expanding instead of shrinking. Economists had forecast the index to dip to 59.7%. The dollar's weakness will continue to act as a stimulus to the economy, and if this trend continues (barring the market's reaction to bin Laden's demise) a devalued dollar may well move trade accounts in the U.S. and China towards equilibrium. Thank you Adam Smith. Thank you invisible hand.

The European Central Bank has opted to increase interest rates in line with the respective increase in inflation, while the Bank of England has chosen to maintain interest rates at current levels. This reflects a divergence in the two central banks approach to deal with inflation. Most certainly the EU decision to increase interest rates, may further constrain economic growth to a level that is already anemic. Additionally, the strengthening of the Euro, which is a result of higher interest rates, may further limit the EU's level of competitiveness as an exporter of goods to global markets.

Syria battles to contain national protests calling for changes towards a democratic government. This Middle Eastern country is a major strategic partner to Iran, who sees Syria as a geographically suitable conduit for expending its export of arms to Hezbollah in Lebanon, and a launch pad for insurgents into Iraq.

Israel expresses concern over the opening of the Gaza-Egyptian border, which Israel contests will become  a funnel for arms export to Hamas, in Gaza. Additionally, Israel has frozen $88 million of payments that it was scheduled to be made to the Palestinian Authority, as a result of the a new power sharing agreement between Hamas and the P.A. Israel claims that the funds will be used to fund Hamas' war against Israel and has called upon the P.A. to prove otherwise.