The Pool Room Friday 12th June 2009

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More gems and brick­bats from the world’s media and blogs gath­ered by Evan, with con­tri­bu­tions from oth­er blog mem­bers. Please keep those tips com­ing in to gfcwrap at gmail.com.

AUSTRALIAN-RELATED LINKS:

June 9, 2009:  A beau­ti­ful set of num­bers tell only part of the eco­nom­ic sto­ry, Tim Cole­batch, The Age.

The best analy­sis of the GDP data pub­lished in the Aus­tralian media:

“How can any­one make sense of this? In the March quar­ter, the con­stant price GDP fig­ure was $271 bil­lion on the pro­duc­tion data, but $277.5 bil­lion on the expen­di­ture fig­ures. Cur­rent price GDP was $299 bil­lion on the income data but $305 bil­lion accord­ing to the expen­di­ture data.

This means there will be some heavy revi­sions ahead, as new data comes in, old data is re-checked, and the bureau thumps the num­bers to make them fit. My guess is that those revi­sions will ulti­mate­ly decide that the econ­o­my was either flat or went back­wards in the March quar­ter.”

http://www.businessday.com.au/recovery
An in-depth and unbi­ased look at the top sto­ries used to con­vince peo­ple to re-invest in bub­ble assets. Just don’t men­tion the debt.

Comm­Bank Lifts Rates In Sur­prise Move, SMH, 12 Jun
Sur­prise move for whom? First home buy­ers? “The CBA’s move marks the first increase in float­ing mort­gage rates since the last cut in offi­cial cash rates by the Reserve Bank and revers­es the reduc­tion passed on by the Com­mon­wealth at that time. That will see the rate of its main home loan prod­uct rise by 10 basis points from 5.64 per cent to 5.74 per cent.” The rest of the car­tel is set to fol­low suit imme­di­ate­ly.

First-home Buy­ers Reach Their Peak In March, SMH, 9 Jun
“The Aus­tralian Finance Group said loans to first-home buy­ers rose to 28.1 per cent of all mort­gage pur­chas­es in March, on a total num­ber of 8988 loans. Since then, the share of first home buy­ers has fall­en to 27.7 per cent in April, on 8109 loans, and 24.8 per cent in May on 7236 loans.” The SMH con­tra­dict­ed this sto­ry the very next day cit­ing ABS stats to claim that “The pro­por­tion of first-home buy­ers tak­ing out loans rose to 28 per cent in April, the high­est share to first-home own­ers since the data series began in 1991” in their breath­less­ly pos­i­tive sto­ry cap­tioned “First-home Buy­ers Rush In”? (Hat-tip “fur­bana” for point­ing out prob­lems with the pre­vi­ous com­men­tary).

Hous­ing Fear As Loans Hit New High, SMH, 11 Jun
No, in any Ponzi scheme the real pan­ic begins when the loans STOP hit­ting new highs. “The aver­age first-home loan in NSW has risen more than $50,000 in just over a year, climb­ing to $300,000 on the back of low inter­est rates and gen­er­ous gov­ern­ment grants.”

Ken Hen­ry Dives For Ideas In The Super Pool, The Aus­tralian, 12 Jun
“Fed­er­al Trea­sury boss Ken Hen­ry has estab­lished a depart­men­tal review to exam­ine ways in which the super­an­nu­a­tion sav­ings pool can be direct­ed to seed new mar­kets and tar­get spe­cif­ic areas, such as cor­po­rate debt and infra­struc­ture.” Anoth­er loot­ing exer­cise that will prob­a­bly go unno­ticed.

Busi­ness Con­fi­dence Surges, SMH, 9 Jun
The Greater Fool fac­to­ry is back in pro­duc­tion and tak­ing orders. “Busi­ness con­fi­dence surged in May, post­ing its biggest month­ly gain in eight years on the glob­al share­mar­ket ral­ly and an infra­struc­ture spend­ing boost… The index is now at the high­est lev­el since Feb­ru­ary of 2008, well before the accel­er­a­tion of the glob­al finan­cial cri­sis.”

Jilt­ed Chi­na Says Rio ‘Dis­hon­ourable’, John Gar­naut, SMH, 9 Jun
Cred­i­tor nations should mind their man­ners or face the con­se­quences. “Rio Tin­to has behaved like ‘a dis­hon­ourable woman’ in spurn­ing Chi­na’s white knight, Chi­nal­co, accord­ing to the coun­try’s offi­cial news agency, Xin­hua, in the lat­est response to the fail­ure of the pair’s $US19 bil­lion ($24 bil­lion) tie-up.”

[Which?] Bank ‘Linked’ Sys­tem To Storm, SMH, 10 Jun
“The Com­mon­wealth Bank devised a com­put­er sys­tem that encour­aged clients of Storm Finan­cial to increase their bor­row­ing, mak­ing them more vul­ner­a­ble to a share­mar­ket plunge, accord­ing to a for­mer senior man­ag­er of the col­lapsed finan­cial plan­ner.”

Few Of Us Liv­ing Beyond Our Means, The Autralian, 10 Jun
“Aus­tralians have been well-served by their will­ing­ness to take on pri­vate debt over the past 40 years and rel­a­tive­ly few house­holds were car­ry­ing more than they could han­dle before the glob­al finan­cial down­turn.” We beg to dif­fer. If you can find any data that under­pin the claims in this arti­cle then please let us know. Oth­er­wise, check out Steve Keen’s “Deep­er In Debt” and make up your own mind. Con­tributed by blog mem­ber Steve.

GLOBAL ECONOMY / BANKING / FINANCE:

Bernanke Conun­drum Threat­ens Hous­ing on Mort­gage Rate, Bloomberg, 8 Jun
The sto­ry of the week. Despite unprece­dent­ed mon­ey print­ing by the US Fed, ris­ing US trea­sury yields over the last month are push­ing up retail mort­gage rates. This reduces the size of loans avail­able to prospec­tive prop­er­ty buy­ers and there­fore threat­ens to kill off the so-called improve­ments in the US hous­ing mar­ket. “The more rates go up, the more we need home prices to go down to equal­ize con­sumers’ pay­ments.” Anoth­er arti­cle, Bond-mar­ket rout lifts mort­gage cost, explains the dynam­ic fur­ther includ­ing the impact of big spend­ing plans. “That’s the Catch-22 threat­en­ing to make an awful hous­ing mar­ket poten­tial­ly worse and keep the econ­o­my stuck in a funk. Kick-start­ing the econ­o­my requires high­er spend­ing, but ris­ing rates mean few­er Amer­i­cans will be able to refi­nance their home loans. And some poten­tial buy­ers will be shut out of the mar­ket by high­er month­ly pay­ments they won’t be able to afford.”

The Still Over-lever­aged Con­sumer, The Big Pic­ture, 9 Jun
“Despite spend­ing less time at the mall, throt­tling back con­sump­tion, and increas­ing their sav­ings rate, the US con­sumer still finds them­selves with too much debt and too lit­tle sav­ings. Even worse (at least for the econ­o­my), they lack the income or the equi­ty to fund their pre­vi­ous lifestyles.”

Inland South­ern Cal­i­for­nia: Prices At 20 Year Low, Cal­cu­lat­ed Risk, 10 Jun
Wow. Just one exam­ple: “John A. Beat­rice, 55, bought his spa­cious two-sto­ry Span­ish-style house there brand-new for $120,000 in 1989. It was a price he could com­fort­ably afford, and he planned on stay­ing through retire­ment, so he was­n’t wor­ried about price swings… But he nev­er imag­ined his neigh­bor­hood would drop off the charts. In April, a slight­ly larg­er home two doors away sold for $66,500. That’s just over half the $130,000 it went for new in 1992. In 2005, that house sold for $330,000.” Cal­cu­lat­ed Risk also reports that fore­clo­sure activ­i­ty may hit 1.8 mil­lion by mid-year and com­mer­cial mort­gage defaults seen ris­ing to a 17-year high.

The Fed: Bank­rupt, Den­ninger, 10 Jun
Inter­est­ing 12 minute inter­view with Jim Grant, a bond trad­er and edi­tor of a busi­ness jour­nal. He dis­clos­es his views on the US Fed and the pos­si­ble results of zero rate inter­est poli­cies.

Latvia’s Cur­ren­cy Cri­sis Is A Rerun Of Argentina’s, Noriel Roubi­ni, FT, 10 Jun
“Of course, as in Argenti­na, let­ting the cur­ren­cy depre­ci­ate would lead to mas­sive neg­a­tive bal­ance-sheet effects. The large for­eign lia­bil­i­ties of house­holds, com­pa­nies and banks are in for­eign cur­ren­cy; the real val­ue in local cur­ren­cy of such debts would increase sharply after a deval­u­a­tion.”… as intend­ed.

Chi­nese imports in May dropped 25% and exports 26%, Mer­co­Press, 12 Jun
“Chi­nese exports dropped by a record amount in May as demand for its goods from the US and Europe slumped. Exports fell 26.4% from the same month ear­li­er, more than February’s pre­vi­ous record drop and imports declined by 25.2%.” Note how the FT spun these depres­sion-like drops: Pos­i­tive signs in Chi­na despite trade fall. In a sep­a­rate attack on those green shoots, Chi­na’s elec­tric con­sump­tion does not sup­port offi­cial growth sta­tis­tics: “Chi­na’s pow­er con­sump­tion in May con­tin­ued to decline… Zhao Bin­gren, ex-chair­man of Chi­na Elec­tric­i­ty Reg­u­la­to­ry Com­mis­sion, expressed his doubt on eco­nom­ic sta­tis­tics report­ed by some areas.” (Con­tributed by Mac­ca.)

Counter-cycli­cal or Counter-pro­duc­tive?, Doug Noland, 5 Jun
[Scroll to the bot­tom sec­tion.] “We’re wit­ness­ing the same ana­lyt­i­cal errors today that were made in the post-tech Bub­ble analy­sis:  the will­ing­ness to inflate an even greater Bub­ble for the cause of mit­i­gat­ing the pain from the so-called defla­tion­ary risks asso­ci­at­ed with a burst­ing of THE Bub­ble.  And with each refla­tion comes a height­ened gov­ern­men­tal role in both the mar­kets and real econ­o­my – to the point where Wash­ing­ton is essen­tial­ly back­stop­ping the finan­cial and eco­nom­ic sys­tems.”

The Great Unwind­ing, David Brooks, NYT, 11 Jun
“For about a gen­er­a­tion, the U.S. surfed on a grow­ing wave of debt… Charts that mark these trends are tru­ly hor­ri­fy­ing. There is a steady lev­el of debt through most of the 20th cen­tu­ry, until the mid-1980s. Then there is a steep accel­er­at­ing rise to today’s epic lev­els.” Con­tributed by ak.

Ger­man Exports Fall 29% In April, BBC, 9 Jun
News not wide­ly report­ed in the anglo finan­cial press.

IMF Tells Europe To Come Clean On Bank Loss­es, Tele­graph [UK], 8 Jun
More hyp­o­crit­i­cal con­tra­dic­tions. The US runs scam stress tests and presents the pre­de­ter­mined and fraud­u­lent results as a cause for opti­mism, help­ing to spark a stock mar­ket ral­ly. The US, who basi­cal­ly run the IMF, then tells Europe by proxy to come clean on their bank loss­es. The next day the WSJ reports that Tim Gei­th­n­er backed up the team by ask­ing Europe to “put their banks through more rig­or­ous pub­lic stress tests to help ensure that the insti­tu­tions sur­vive if the econ­o­my slips from bad to worse”.

TARP Pan­el Chair Sug­gest Run­ning Stress Tests Again, CNBC, 9 Jun
Eliz­a­beth War­ren, told CNBC Tues­day: “We actu­al­ly make rec­om­men­da­tions to do it all over again right now… We’ve already blown past the worst-case sce­nario on unem­ploy­ment”. Den­ninger chips in.

Alaba­ma Coun­ty Set to Halt Ser­vices, Shut Build­ings Over Bud­get, Bloomberg, 5 Jun
“Alabama’s most pop­u­lous coun­ty is prepar­ing to stop road main­te­nance, close cour­t­hous­es and shut­ter ser­vices for the elder­ly after a court struck down tax­es that pay for about 35 per­cent of its bud­get.” More of this to come.

Bank Prof­its From Account­ing Rules Mask­ing Loom­ing Loan Loss­es, Bloomberg, 5 Jun
“The new account­ing rules, the stress tests: They’re all part of a major effort to put lip­stick on a pig.” “The account­ing rule changes that mat­ter most for the banks came on April 2, when the Finan­cial Account­ing Stan­dards Board gave com­pa­nies greater lat­i­tude in how they estab­lish the fair val­ue of assets.” “Along with that change, FASB also let com­pa­nies rec­og­nize loss­es on the val­ue of some debt secu­ri­ties on their bal­ance sheets with­out count­ing the write­downs against earn­ings. If banks plan to hold the debt until matu­ri­ty, they can avoid hurt­ing the bot­tom line.”

[US] Pay­roll Data In Per­spec­tive, Zero Hedge, 5 Jun
Note that the US jobs sto­ry, as orig­i­nal­ly spun, was pre­sent­ed as good news in the Aus­tralian media. “It is dif­fi­cult to rejoice over an employ­ment data that is con­sis­tent with real GDP still declin­ing any­where from a 2% to 4% at an annu­al rate. Now here we are, close to nine months after the Lehman col­lapse, and we are still print­ing employ­ment num­bers that are dou­ble what they were before pre-Lehman. That is the big­ger pic­ture. “The inter­nals of today’s report, in a word, were awful. if com­pa­nies had held hours worked con­stant in May instead of cut­ting them, to achieve the total labour input they achieved last month would have required — get this — a 927,000 pay­roll cut.” Also see, temp work cov­ers up depth of unem­ploy­ment.

Fed Intends to Hire [ex-Enron] Lob­by­ist in Cam­paign to But­tress Its Image, Bloomberg, 5 Jun
You couldn’t make this up. “’Peo­ple have been ask­ing whether the Fed is capa­ble of get­ting its job done right,’ said Lynn Turn­er, a for­mer chief accoun­tant at the Secu­ri­ties and Exchange Com­mis­sion. ‘Hir­ing a for­mer lob­by­ist from Enron will sure­ly make one won­der.’”

Sen­a­tors Want Home­buy­er Tax Cred­it to Rise to $15,000, Bloomberg, 10 Jun
“Law­mak­ers are push­ing to revive leg­is­la­tion in the Sen­ate that would almost dou­ble an $8,000 tax cred­it for first-time home­buy­ers and expand the pro­gram to all bor­row­ers.” Amer­i­ca search­es for a new class of sub-prime bor­row­er and decides to fol­low Australia’s suc­cess­ful mod­el.

Under The Sur­face, New York Has A Des­per­a­tion I Have Not Seen Before, SMH, 13 Jun
Excel­lent, anec­dote-filled arti­cle on doom and gloom in the Big Apple.

A Tale of Two Depres­sions, Voxeu.org, 4 Jun
Con­tributed by Greg. Detailed com­par­isons between the cur­rent GFC and the last big one. It’s hard to see how this could all be turn­ing around so soon, isn’t it?

North Korea jails US jour­nal­ists, BBC, 8 Jun
A blog read­er notes that one of the jailed jour­nal­ists, Lau­ra Ling, had cre­at­ed the “Lost Vegas” video fea­tured in the Pool Room two weeks ago. Strange. Maybe that’s what hap­pens when jour­nal­ists get out of line.

Place Your Wages, Finan­cial Sense, 5 Jun
Excel­lent arti­cle analysing the impact of unem­ploy­ment and falling wages on the US econ­o­my (and hence the glob­al econ­o­my). Con­tributed by Mac­ca.

Econ­o­mists Saw Dan­ger Signs, But Failed At Dis­clo­sure, The Age, 27 May
“Most of them failed to see the weak­ness­es in finan­cial mar­kets. But they were not only blind. They reject­ed the pos­si­bil­i­ty of unpar­al­leled dis­as­ter because it did not fit their mod­el of ratio­nal and effi­cient mar­kets, of finan­cial inno­va­tion effec­tive­ly trans­fer­ring risk, of mar­ket prices reflect­ing the state of the world and self-reg­u­la­tion being more appro­pri­ate than heavy-hand­ed gov­ern­ment inter­ven­tion.“

Pok­ing Holes in a The­o­ry on Mar­kets, NYT, 5 Jun
Con­tributed by Michael. “In the last decade, the effi­cient mar­ket hypoth­e­sis, which had been near dog­ma since the ear­ly 1970s, has tak­en some seri­ous body blows… These days, you would be hard-pressed to find any­body, even on the Uni­ver­si­ty of Chica­go cam­pus, who would claim that the mar­ket is per­fect­ly effi­cient.”

Break The Banks, For The Good Of The Peo­ple, Joseph Stiglitz, The Age, 10 Jun
“With all the talk of “green shoots” of eco­nom­ic recov­ery, Amer­i­ca’s banks are resist­ing efforts to reg­u­late them. While politi­cians talk about their com­mit­ment to reg­u­la­to­ry reform to pre­vent a recur­rence of the cri­sis, this is one area where the dev­il real­ly is in the details – and the banks will muster what mus­cle they have left to ensure that they have ample room to con­tin­ue as they have in the past.”

GEOPOLITICAL:

CCIC Beats Gold­man As Chi­na Banks Join Top Ranks In Asia Bonds, Bloomberg, 11 Jun
The world stopped buy­ing US man­u­fac­tured goods decades ago.  Now it doesn’t need US finan­cial ser­vices.

US Secu­ri­ties Seized From Japan­ese Nation­als, Asianews.it, 8 Jun
Fas­ci­nat­ing. There’s lots of talk of naked short­ing bonds… now the elec­tron­ic coun­ter­feit­ing may have turned phys­i­cal. “Italy’s finan­cial police has seized US bonds worth US 134.5 bil­lion from two Japan­ese nation­als… on the bor­der between Italy and Switzer­land. They include 249 US Fed­er­al Reserve bonds worth US$ 500 mil­lion each, plus ten Kennedy bonds and oth­er US gov­ern­ment secu­ri­ties worth a bil­lion dol­lar each.” Den­ninger spec­u­lates that this could be a sov­er­eign attempt­ing to covert­ly dump $140 bil­lion in debt.

Crowd­ed Debt Sales Risks Caus­ing ‘Auc­tion Fatigue’, FT, 4 Jun
Excel­lent arti­cle. “But make no mis­take: the poten­tial for an acci­dent is ris­ing, as the auc­tion cal­en­dar fills. Fin­gers crossed that the phrase “gov­ern­ment bond auc­tion fatigue” is not some­thing that ever hits the head­lines of the main­stream press this year. Even – or espe­cial­ly – in those dan­ger­ous sum­mer months.”

Top Chi­nese Banker Calls For Wider Use of Yuan, UK Tele­graph, 8 Jun
“Guo Shuqing, the chair­man of state-con­trolled Chi­na Con­struc­tion Bank (CCB), also said he is explor­ing the pos­si­bil­i­ty of issu­ing loans to trad­ing com­pa­nies in yuan, allow­ing Chi­nese and for­eign com­pa­nies to set­tle their bills in yuan rather than in dol­lars.”

Trea­suries Tum­ble After Auc­tion, Russ­ian Threat To Cut Hold­ings, Bloomberg, 10 Jun
“Russia’s cen­tral bank may switch some of its reserves from Trea­suries to Inter­na­tion­al Mon­e­tary Fund bonds, the bank’s first deputy chair­man, Alex­ei Ulyukayev, said in Moscow today.” “While lead­ers of the nations of Brazil, Rus­sia, India and Chi­na talk about sub­sti­tut­ing the dol­lar, the so-called BRIC coun­tries have increased for­eign reserves at the fastest pace since Sep­tem­ber.” In a sep­a­rate arti­cle, Russia’s pres­i­dent warns against rely­ing on the dol­lar.

30y Bond Results: Beware, Den­ninger, 11 Jun
“If you think hyper­in­fla­tion is com­ing, or even seri­ous infla­tion, you’re going to get your head cut off on a 4.6% 30y bond.” “There is only one rea­son for the FCBs to want this sort of expo­sure: they expect a ramp in the dol­lar and crush­ing DEFLATION, as this is the only way that bet will pay off.”

Ecuador Cel­e­brates Sov­er­eign “Default­ed” Bonds Repur­chase, Mer­co­Press, 12 Jun
“Ecuador announced Thurs­day it had bought back 91% of its ‘default­ed’ bonds via an inter­na­tion­al auc­tion with dras­tic rebates of 65% to 70%… Pres­i­dent Rafael Cor­rea called the debt buy­back a “resound­ing vic­to­ry” and the start of a new era in inter­na­tion­al mar­kets that he says are at fault for the glob­al finan­cial cri­sis hurt­ing poor nations.” Hooray!

Brazil Con­sid­ers G8 Is No Longer A Valid Polit­i­cal Deci­sion Group, Mer­co­Press, 12 Jun
It’s amaz­ing what you find out­side of the anglo MSM. “’G8 is over as a polit­i­cal deci­sion group’ since ‘it rep­re­sents noth­ing at all’ and ‘it’s not a valid instru­ment to address the reform of the glob­al finan­cial sys­tem’, said Brazil’s For­eign Affairs min­is­ter.”