The Mess That Greenspan Made - Part 19

Thursday Morning Links

MUST READS
Ukraine agrees to 50% gas price hike amid IMF talks – BBC
Ukraine Unlocks $27 Billion International Aid Deal With IMF – Bloomberg
Putin’s Russia caught in US and Chinese double-pincer – Telegraph
Visionary or looney? Zuckerberg on spending spree – AP
Seth Klarman Says Markets Are Too Bubbly – Bloomberg
Fed’s Bullard sees potential risk of bubble as easy policy unwound – Reuters
Why does the investing class hang on Janet Yellen’s every word and move? – Slate
Humble Berkeley Sociologists Explains Why the Fed is Bubble Blind – aucontrarian
China’s Money Rate Jumps Most Since January as PBOC Pulls Funds – Bloomberg
BofA to spend $9.3 billion in FHFA settlement – USA Today
A Stake Through the Greedy Heart of the NCAA? – Bloomberg
Anatomy of the Deep State – Moyers & Company

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MARKETS/INVESTING
Asia stocks vacillate, Europe drifts – AP
Behind the massive trade that spooked the market – CNBC
5-year treasury cheapest in years after selloff – Sober Look
Is cloud computing the next tech bubble? – MarketWatch
In Uncertain Markets, Put Your Money at Risk – Minyanville
Why Warren Buffett Doesn’t Invest In Technology — Or Bitcoin – BI
Treasury Seven-Year Note Among Worst Performers Before Auction – Bloomberg
Gold holds steady near $1,300; SPDR sees outflows for 2nd day – Reuters
Barclays Revises Up 2014 Gold Forecast; Sees Gains For PGMs – Kitco
A First Glance On US Official Gold Reserves Audits – In Gold We Trust
Mysterious stock dump sends Montreal metals junior tanking – Mining.com

ECONOMY/WORLD/HOUSING/BANKING
Piketty’s Inequality Story in Six Charts – New Yorker
Retail Job Growth Illusion: More Workers, Fewer Hours – IBD
New, Revolutionary Way To Measure The Economy Is Coming – Forbes
U.S. jobs market dropouts increasingly likely to stay out – Reuters
ECB Promotes Stimulus Measures Even as Recovery Lessens Need – Bloomberg
Lord Turner: Housing boom could drag UK back into crisis – Telegraph
Spanish economy to grow by 1.2 pct in 2014: Bank of Spain – xinhuanet
More homesellers are going it alone — should you? – Yahoo! Finance
Pitfalls of Reverse Mortgages May Pass to Borrower’s Heirs – NY Times
Bank of America to pay $9.3 billion to settle mortgage bond claims – Reuters
Citigroup share buyback and dividend plan rejected by Fed – BBC
Modern Math and ‘Money’ – Alhambra Partners

 

Unsustainable?

Via this item at Mining.com where someone took the time to read through this report from the World Gold Council on the subject of risk management and capital preservation comes the chart below where, clearly, they’ve got the correct caption.

I’d read about gold’s share of financial assets then and now (i.e., back in 1980 as compared to today), but this is the first time I’ve seen it in chart form and it’s a real eye-opener.

Once again, this reinforces the little acknowledged fact that the financial world has changed rather dramatically in recent decades (and perhaps not for the better given that booms and busts seem to be a regular part of the landscape).

In his commentary A depressingly familiar reality lies behind the UK’s economic miracle in the U.K. Telegraph, Jeremy Warner laments how the economic recovery engineered by Chancellor George Osborne and Prime Minister David Cameron looks a lot like the last economic recovery a few years back that ended in, well, you know, tears.

True enough, the economy is recovering fast, with a growth spurt which ought, absent of external shocks, to last well beyond the next election.

Unfortunately, it’s the wrong kind of growth again. What is more, Office for Budget Responsibility forecasts give little reason to suppose it’s about to change into something more lasting. The hoped-for revival in exports remains almost entirely absent from the feast of more upbeat OBR forecasts.

For at least the next five years, growth is predicted to depend entirely on rising household spending, a recovering housing market, and the questionable assumption of a trampoline-like bounce in business investment. Net trade is not expected to make any contribution at all.

More worrying still for those who think of the pre-crisis economy as a debt-fuelled ponzi scheme, rising private consumption looks as if it will again be bought with a return to very high levels of household debt and a pitifully inadequate savings rate.

This guilty return to pre-crisis norms is compounded by another surge in household indebtedness, which because of low mortgage market activity since the start of the crisis, had been mercifully moving back to tolerable levels.

Not any longer, according to the OBR. With a pronounced shove from government, mortgage lending is storming back. So too is double-digit house price inflation, necessitating larger average mortgages and rising household indebtedness.

Growth in unsecured credit, too, has picked up sharply, boosted by loans for car purchases, which have been flying off the books as if the recent banking crisis never really happened.

On both sides of the Atlantic, poicymakers are saying, “Hey, bubbles are all we got”.

Also, the question of the sustainability of the U.K. economic recovery notwithstanding, there’s not been much from Nobel Laureate economist and NY Times author Paul Krugman on the recent success of the austerity measures in the U.K. that were once thought to be doomed to fail. If there has been and I missed it, leave a comment…

The Fed’s Bubbles

There is absolutely nothing new in the graphic below from this commentary(.pdf) by IceCap Asset Management, but something about the simplicity of the message being conveyed was striking and it seemed worth reproducing here today. Of course, it wasn’t all about interest rates, but you’d think that by now someone at the Fed would acknowledge rates that were too low for too long played some kind of role in the many recent boom-bust cycles.

Picking up the story at the beginning of item 2 above, they note:

Of course 4,000 Dow Jones Industrial and NASDAQ points later, the sheep started to lazily admit that perhaps this new post-Y2K economy wasn’t all that it was cracked up to be. Not to worry, once again the American central bank mounted their ponies and rode the global economy straight into several years of ultra-low interest rates. The hope (there’s that word again) was that really cheap money would encourage people, companies and governments to borrow and spend again.

And borrow and spend they did – right smack into the biggest housing bubble in economic history. Day traders became passé, and the newest game in town was flippin’ houses. Rich people flipped mansions, plumbers and teachers flipped suburban homes and even Vegas strippers got in on the act and flipped condos among other things. By the time it was over, the entire world was flipped upside down – courtesy of the US Federal Reserve and their interest rate machine.

And this brings us to the next global crisis, which we assure you is on its way.

© 2010-2011 The Mess That Greenspan Made