Category: Currency

Because the Banks and Insurance Companies Own Us

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Hungary has just broken off talks with the IMF and the EU, because the IMF and EU only want deficit reduction on the backs or ordinary people, so throw pensioners into the streets, destroy your healthcare and education systems, and raise the VAT, but whatever you do, don’t raise taxes on banks and insurance:

Mr Orban had intended to raise some half a billion euros (187 billion forints) via a new tax on banks and insurance firms. The IMF however said this “”is likely to adversely affect lending and growth.”

More subtlely, the EU’s Mr Rehn said: “Care will also be needed to ensure a stable environment for both domestic and international investors.”

Brussels and the IMF will be hoping a swift sharp spanking from the markets will chasten Mr Orban’s government, but the move will also unnerve investor thinking about the condition of economies across the bloc, particularly in eastern Europe.

The truth here is that the bailout package is more a bailout of western banks than it is of Hungary, which is why the EU and the IMF find it unacceptable that banks actually pay taxes in Hungary.

If I were the Hungarian PM, I would start drawing up plans to reverse Hungary’s commitment to joining the Euro, and start immediate preparations to exit the European Exchange Rate Mechanism and allow the Forint to float.

It is clear that the deal with the Euro is that if you join, you don’t just lose sovereignty to the EU institutions, but to French, German, and British banks as well.

Economic Datapoint of the Day

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Iceland’s falling GDP


Iceland’s low unemployment

Matthew Yglesias, as an afterthought in a post highlighting one of the truly trippiest campaign videos ever, notes that despite Iceland’s plummeting GDP, unemployment remains relatively mild compared to the other European* red-headed step children.

The difference is, of course, the fact that Iceland is not a part of the Euro zone, and as such is not locked into a monetary union with the Germans who continue to pursue an export driven beggar-thy-neighbor policy with a zeal that approaches that of the Chinese.

The real question about the Euro has always been whether it would survive bad times, but perhaps the question should be whether or not the Euro made sense in the 1st place.

*Yes, I know, Iceland is an island, and not a part of Europe proper, but the same could be said for Cyprus, and Iceland is even more tightly tied to western Europe.

Economics Update

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Well, over the past few days, we’ve had a spate of good news, with the New York Bank of the Federal Reserve’s Empire State index showing continued growth, though that growth is slowing, with the index dropping from 31.9 in April to 19.1 in May.

Additionally, credit card issuers are reporting reduced delinquencies for April.

In real estate, we have the National Association of Home Builders confidence index rising to a 2½ year high in May, as well as an increase in housing starts, though housing permits have fallen, which indicates that the builders are expecting the euphoria to be short lived.

Finally, concerns about the Euro zone, and a related return to recession (we’re out of recession?) have pushed both oil and the Euro down.

Morons

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After all that has gone on with the Euro over the past year, and the fact that the Baltic Republic is suffering through a brutal recession, which its government has made worse by implementing an austerity program, Estonia has announced that it will adopt the Euro next year.

While I understand the issue here, national pride basically, anyone who joins the Euro now, when the state of the currency, and its central bank are currently in flux, is dangerously reckless.

Economics Update

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Unemployment Population Ratio: Still Not Back

The lede here has to be the non-farm payroll (NFP) numbers for April, which were very, very, good.

There was in increase in payrolls of 290,000 , which was the largest increase since March of 2006, and manufacturing added 44,000 jobs, the largest increase in 12 years.

Additionally, as Paul Krugman observes, “My favorite indicator from the household survey isn’t the unemployment rate, it’s the employment-population ratio — and that’s up, from 58.6 to 58.8.”

It’s been rising since December.

Unfortunately, unemployment worsened, though part of this was discouraged workers returning to work:

But. Keep an eye on those unemployment rates. The headline figure is back up at 9.9%, the highest it’s been this year. The U-6 underemployment rate is a gruesome 17.1%. And U-4, which is total unemployed plus discouraged workers, has hit a new high of 10.6%.”

Even at nearly 300,000 new jobs a month, it will take years for these people to find work again.

Additionally, we have the short-term good/long-term bad news that consumers are using credit once again. Consumer borrowing rose by $2 billion in March.

In energy and currency, it appears that Greece, and the recent UK elections have created uncertainty, which has driven oil prices lower, and the dollar was mixed, up slightly versus the Pound, and down slightly versus the Euro.

Economics Update

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Well, the Federal Reserves Open Market Committee (FOMC) has spoken, and it has kept its benchmark rate at effectively 0, and repeated its statement that the rates will remain low for an extended period.

Not an unexpected development. After all, the economy still sucks.

In real estate, mortgage applications fell overall, but home purchase applications rose. This is probably the interplay of rising rates versus the expiration of the home purchase tax credit.

In the real world, the American Trucking Aassociation’s Trucking Tonnage Index rose in March, indicating that there is something positive going on.

In the world of sovereign debt, the US Treasury 5-year bonds’ yeild rose to 2.54%, though compared to the yield on 2-year Greek bonds, which are now over 20% (!), it’s pretty cheap money.

Also note that in the continuing euro zone meltdown, Spain’s debt rating was cut S&P.

In energy and currency, oil rose on the news that the FOMC’s posture is unchanged, and the dollar rose on continued Euro zone problems.

Economics Update

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Well, we have absolutely boffo numbers on the new home sales front, with sales climbing 27% from February to March, though as Barry Ritholtz notes, “In February 2010, new Home Sales reached a record low. Bouncing off of those depressed levels is not a big deal.”

I call a dead cat bounce, with a 3 cushion shot because of the February snowpocalypse, though it is still good news, as is the durable goods order number, which were down overall, but up when aircraft sales are factored out.

As to currency and energy, the reduced fears over Greece following their request for external aid pushed the dollar down, and the housing numbers drove oil higher.

New $100 Bill

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Defense Against the Counterfeiters from Langley

So, the 100 dollar bill has been revealed.

Nominally, it is intended to defeat the “Super Bill,” which primarily occupies the world outside of the US, which is printed by ………… Well, we don’t know, but my money is that it’s someone inside the US government, because of the following bits of information:

Simply put, if you want to pay someone off, and you don’t want a budget item that says, “Bribe made to Adnan Khashoggi,” it’s just a lot cheaper to have a budget for, “Miscellaneous printing.”

I could be wearing a tinfoil hat on this one, but I think that someone in the US collection of TLA’s (Three Letter Acronyms) in the intelligence community knows more about the super bills than they are telling.

Economics Update

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Beyond L’affaire Goldman, it’s a slow news day

We have the Reuters/University of Michigan consumer confidence survey falling, and applications for building permits up sharply in March.

The oil and currency numbers are really about the Goldman Sachs enforcement action by the SEC, which raised concerns about the economy, and this uncertainty has pushed oil down, and the dollar up, on a concern about demand and demands for safe havens respectively.

I’ll Take “Unsustainable” for $500, Alex

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China’s Economy?

China is reporting that its economy grew by 11.9% year over year.

This raises two issues:

  • How reliable are these numbers? The PRC tends to encourage lower level bureaucrats to over-report growth, and these numbers tend to filter up the chain.
  • If these numbers are anywhere near reality, what is driving it, and will it be like Wile E. Coyote discovering that he is standing in thin air when something more sustainable hits?

Chinese real estate is clearly with a bubble, with some areas experiencing appreciation in excess of 50% (!) over the past year.

One of the things driving this is the fact that the Yuan is under-valued: It makes foreign assets more expensive, which drives up demand for local investments, like real estate.

If their currency appreciates, and it does appear to be in the cards in the not-too-distant future, we could see money flowing to non-Chinese assets, and their bubble burst.

This could be yet another shoe to drop (there are many out there) in the current downturn, even though we currently appear to have found a bottom.

Economics Update

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Business orders returning

Well, it’s kind of a slow news day, as the big news was the Euro loans to Greece, but we do have another sign of a recovery, which is that business orders are on an upswing worldwide.

All in all, I think that we are truly in recovery, unless another shoe drops in high end finance, but I’m kind of expecting another shoe to drop there, causing another panic and another bailout.

The National Bureau of Economic Research (NBER) continues to take a conservative approach, saying that, “The determination of the trough date on the basis of current data would be premature.”

This is not surprising. The folks at the NBER typically take more than a year after the trough bottom to announce that they have determined a trough date.

In energy, gasoline is up nearly 4¢/gallon this over the last three weeks, to $2.85/gallon, and it’s not unreasonable to assume that it will break $3/gallon by the start of the summer driving season.

As to oil, it fell today, as and so did the dollar, largely in reaction to the Greek bailout.

Economics Update

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Philly Fed 1st Q: 25 states down, 18 up, 7 unchanged

The official non-farm payroll (NFP) number comes out on Friday, but today we have the private report from ADP, which shows a loss of 23,000 jobs, but the payroll withholding taxes numbers imply an increase in total jobs of something in the 300,000 range.

Meanwhile, the Philadelphia Bank of the Federal Reserve has released its State Coincident Indexes, which show that half of the states contracted over the past 3 months, and 23 decreased in the past month.

It’s better than it was a year ago, but it’s still not good.

In the consumer sector, consumer spending rose in February, and the Conference Board’s Consumer Confidence Index rose in March.

On the production side, factory orders rose for the 6th month, though the data was not good in the Midwest, with the, with the Chicago purchasing managers index falling.

In real estate, mortgage application, including purchases, rose last week, and Fannie Mae has reported that mortgage delinquencies rose to 5.52% in January.

Note that because of the different times covered, these numbers may be consistent.

Across the ponds, Euro zone inflation rose to 1.5% year over year, and unemployment broke 10%, while in China, manufacturing grew faster than forecast in March.

Meanwhile, for reasons that I do not understand, oil rose, though the Chinese manufacturing data might have led to concerns over additional demand, and both the dollar and the Yen fell on reduced demand for safe havens.

Economics Update

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Well, they just revised down the 4th quarter GDP numbers down again, to a 5.6% annual rate, the earlier estimate had been 5.9%.

On the brighter side, incomes rose faster than GDP, which gives a boost to the idea that some sort of recovery is going on.

Meanwhile, in high fiance, Ambac’s dance of death continues, with the International Swaps and Derivatives Association, Inc. (ISDA) ruling that the regulator action yesterday constitutes a trigger for bankruptcy CDS contracts.

Meanwhile, the apparrent resolution of the Greek crisis has pushed the US dollar down on reduced demand for safe havens, and oil prices fell marginally.

Greece

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Well, it looks like the issue with a possible default by Greece has been resolved, for a while at least, by a joint action of the EU and the IMF.

I think that this puts to rest the idea that Greece will leave the Euro, for a while at least, but the real problem is that the Germans have structured the Euro with the goal of furthering their mercantilist export driven goals, much as the Chinese have with the Yuan, and the solution here is not to kick the Greeks out of the Euros, but to kick the Germans out of the Euro.

Simply put, the German desire for new export markets has made them push aggressively for countries to join the monetary union before it is prudent, and to encourage them to do so by providing economic aid and by overvaluing the sovereign currency.

Unfortunately, this creates asymmetries that are creating the problems that we have now, and it will be a tough thing to avoid something like the downfall of European Exchange Rate Mechanism that occurred when George Soros, “Broke the Bank of England.”

The problem is that, absent the labor mobility that exists in the United States, where one need neither a work permit nor to learn a new language, these asymmetries will persist.

This has been further reinforced by the efforts of Europhiles to jump-start the mechanisms of European integration through direct and indirect subsidies to entice new members to join prematurely.

Damn ………… I gotta make this a longer form, and submit it to Marketplace as a guest editorial.

Economics Update

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Well, it looks like real estate will be the suck for some time to come, as new home sales falling to an all time low, while inventory rose to 9.2 months, up from January’s 8.9 months.

The snowpocalypse might have had a little to do with this, but it has nothing to do with the fact that the Architecture Billings Index falling, since that is all about future residential construction.

On the brighter side, durable orders rose, largely on civil aircraft purchases.

In the “why the hell is this happening?” division, treasuries fell and yields rose in the most recent bond auction, despite the fact that the Greek meltdown would normally encourage a flight to safety, which would bid T-bills up.

In any case, the Greek problems have driven the dollar up and oil down.

On the other hand, things are good in New Zealand, if you don’t mind all the rain, with Kiwi GDP growing 0.8% (about a 3.2% annual rate) last quarter.

Economics Update

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H/t Calculated Risk

It’s Jobless Thursday, and initial jobless claims fell by 5,000 to 457,000, which is less bad, you need to be under 400K for any real job growth, and the less volatile 4 week moving average fell, though continuing claims fell slightly.

Meanwhile, the CPI was flat in February, with a 0.1% increase in the core inflation rate, which omits food and energy.

In real estate, the 30-year fixed mortgage rate is basically unchanged, at 4.96%.

It will start going up once the TALF expires in a few months.

Finally, oil fell and the dollar rose, probably as a correction for the large swings in response to yesterday’s Federal Reserve statement.