The Mess That Greenspan Made - Part 18

Friday Morning Links

MUST READS
Grantham: World headed for bust ‘unlike any other’ – SMH
Federal Reserve of 1970s Shows Capacity May Mislead – Bloomberg
Why “Tapering” Is a Mirage and the Fed May Be Loosening Instead – FSO
The Fed, Not the Reserve Primary Fund, ‘Broke the Buck’ – RCM
The era of easy money from the Fed is not over – MarketWatch
Spain reports price drop as eurozone fears deflation – AFP
Economic ‘honeymoon’ between Germany and China fades – Reuters
Crimea Resolution Backed by U.S. Barely Gets UN Majority – Bloomberg
The G7 and the limits of Russia’s ‘political isolation’ – Reuters
Paul “Contrafactual” Krugman: Laureate of Keynesian Babble – Contra Corner
Bitcoin 2.0 Shows Technology Evolving Beyond Use as Money – Bloomberg
Drought Spurs Mini-Gold Rush in California’s Sierra Nevadas – NBC News
$1 trillion student loan debt widens US wealth gap – AP

MARKETS/INVESTING
World stocks gain on China stimulus hopes – AP
Cramer: Palpable foreboding pervades market – CNBC
Market Facing An Array Of Bearish Indicators – Comstock Funds
This could be a big short opportunity: Ron Insana – CNBC
Windfall for hedge funds and Russian banks as IMF rescues Ukraine – Telegraph
Treasuries Head for First Monthly Loss This Year on Fed Outlook – Bloomberg
Gold Trims Weekly Loss as Decline Below $1,300 May Spur Demand – Bloomberg
April 1st date for the Volcker Rule – what it might mean for gold – USA Gold
Bundesbank Calls Repatriation Rumors ‘Utter Nonsense’ – CPM Christian – Kitco
Silver price-fixing conspiracy theorists lose battle but continue war – Mineweb
India’s tough gold import rules – cases for and against – Mineweb

ECONOMY/WORLD/HOUSING/BANKING
Can dropping out of the labor force make you happier? – NY Times
How Long to the Next Recession? iM’s Weekly Update – Advisor Perspectives
UK GDP growth estimate for 2013 revised down to 1.7% – BBC
Japan’s February inflation shows price target getting closer – CNA
Italy’s government auctions luxury cars…on eBay – CNBC
Japan family spending falls before sales tax hike – AP
Institutional investors cool on housing market – Marketwatch
Las Vegas housing market least stable in U.S. – Las Vegas RJ
Revisualizing the Second U.S. Housing Bubble – Advisor Perspectives
Is banking now even more dangerous? Central banks fear so – Telegraph
Yellen Might Help Asia Kick the Easy-Money Habit – Bloomberg
Fed’s Evans sees no rate rise before mid-2015 – Reuters

 

Shiller on Bubbles and Busts

Rounding out today’s troika of stories on rapidly inflating financial bubbles (that in some parts of the world, for example the U.K., are seen as genuine progress for the economy) comes this Wall Street Journal interview with Nobel Laureate Robert Shiller who talks about the recent history and future of bubbles and busts.

Shiller minces no words in blaming his own (economics) profession, calling it “unnatural” when asked how to explain what we’ve seen in financial markets over the last few decades.

It’s pretty hard to argue with that assessment and it’s laughable to think that some dismal scientists still believe in such folly as “efficient market theory”, “rationale actors”, and the value of economists’ vaunted “models” today given the perverse incentives that are provided on Wall Street and condoned by the Federal Reserve where, once, it was believed that investment banks are “self-regulating”.

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Lord Turner Warns on U.K. Housing

They continue to talk about how unbalanced the economic recovery is over in the U.K. and how a lot of people seem to be fine with that, this Telegraph story following on the heels of Jeremy Warner lamenting “This Guilty Return to Pre-Crisis Norms” yesterday.

Today, it’s former Financial Services Authority Chairman Lord Adair Turner.

Britain’s property obsession has left the country at risk of another major financial shock, the former head of the City watchdog has warned.

“We have made it incredibly favourable to buy houses,” Lord Turner told The Telegraph. “The supply issue is very important and we’ve got to increase the supply of housing because otherwise we are just piling up very strong incentives to buy housing, very strong incentives to borrow money to buy housing but against a fixed supply.”

If you do that the only thing that can give is the price.”

Lord Turner also said he was “worried” that the UK was “developing a recovery which is simply returning to the very issues that led us to this problem in the first place.

“Even the Office for Budget Responsibility has said the only way we’re going to get growth back in the next five years is for the [debt to income ratio] to go all the way back to 170pc again. If in five years time debt has gone back up to 170pc, and if interest rates have returned to 3pc, 4pc or 5pc, then a lot of people are going to be struggling.”

As noted here recently, it really does seem to be a case of policymakers in Anglo-Saxon countries almost admitting that “financial bubbles are about all we have left”.

It’s as if they say, “Let’s get a really good asset bubble going again – stocks, housing, whatever – and we should have a few good years of economic growth before it blows up.”

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This item at The Economist carried the chart below with the latest home price data that was released earlier in the week by S&P Case-Shiller.  A similar chart has appeared here many times over the years, however, I haven’t seen fit to update it in quite some time, so it was kind of interesting to see it done elsewhere.

It’s interactive at the Economist, so, you can turn curves for individual cities off and on. In doing so, I couldn’t help but notice how California’s resurgent housing bubble is outpacing the rest of the country (as it’s done twice before in recent decades, first in the late-1980s and then again in the early- and mid-2000s).

The slope of the curve for San Francisco (light blue) has been steepest in recent years, but Los Angeles (light green) and San Diego (dark green) are not far behind with the former recently outpacing the Washington D.C. area for best recovery so far.

Interestingly, a check on Zillow for the house in Southern California that we sold a decade ago puts its value at just a few thousand dollars less than what we sold it for.

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