The Mess That Greenspan Made - Part 414

Growth Slows in China – to 9.2 Percent

Along with another European credit downgrade by Standard & Poor’s and Greece once again edging closer to default (they’ve been edging closer to default for years now), slower growth in China is making headlines this morning, though, most nations would give their eye-teeth for an economy that is still expanding at a nine percent clip.

Retail sales were up 17 percent from year ago levels while year-over-year growth rates slowed during all four quarters of 2011 as the government tightened lending and found other ways to rein in soaring home prices and cool inflation.

So far, it looks like they’re succeeding. Hopefully, they won’t be too successful.

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Tuesday Morning Links

China growth slows to 9.2% – Channel News Asia
S&P downgrades eurozone EFSF bailout fund – Reuters
Officials: EFSF Has Enough Funds After Downgrade – Businessweek
Fitch says Greece to default, believes will be orderly – Reuters
Portugal borrowing costs soar, France passes bond auction test – Telegraph
Draghi Questions Role of Ratings Companies After Downgrades – Bloomberg
Temporary Respite: Why ECB’s Tricks Won’t Solve the Crisis – Spiegel
Economists’ ‘Inside Job’ Problem Begs More Than Disclosure – Bloomberg
Many Americans gave up hope last year – 2012 will be worse – Guardian
How to Create a Depression – Feldstein, Project Syndicate
Gas prices may get close to $5 in some spots – CNN/Money
Dwelling In Uncertainty – Hussman Funds

Oil above $100 in Europe amid Iran tensions – AP
Gold hits 5-week high as euro, commodities rise – Reuters
U.S. Market Shrinks for First Time Since 2009 – Bloomberg
Listen Up, Class: Here’s How to Profit – Barron’s
Using recent weeks to predict rest of 2012 – MarketWatch
India gold,silver to climb on import duty hike – Bullion Street
Gold: The Next Bubble in China’s Economy – Daily Reckoning
Gold to consolidate at lower levels – may fall to $1200 – Mineweb
GFMS: Gold May Struggle In Short Term But Hit Record High In 2012 – Kitco
India’s rich eye gold – Mineweb

Rich America, Poor America – Newsweek
Who will get the ‘Recovery Presidency’? – Washington Post
China’s Slowing Growth Boosts Scope for Easing – Businessweek
UK inflation drops to 4.2pc as shops cut prices – Telegraph
Greece sends officials to US as default fears grow – Telegraph
Iceland in fledgling recovery from economic meltdown – Washington Post
Parting Shot: Ex-Chief Economist Slams ECB Bond Purchases – Spiegel
Latest China housing data stokes concern – MarketWatch
More failed HAMP trials end in foreclosure – Housing Wire
Forecast: Cash buyers a force in real estate – O.C. Register
How the Fed Can Prevent the Next Financial Crisis – Fiscal Times
Flying Blind: Inside the Fed’s Damning 2006 Transcript – Atlantic


Federal Government About to Downsize?

Though down slightly in 2011, federal government payrolls have been growing steadily in recent years, adding about a million new jobs since the financial crisis began in 2008, but, that looks as though its about to change according to this survey from Gallup.

In the public sector, state and local governments have born the brunt of the bad U.S. economy, due in large part to their lack of a printing press and the ability to keep piling on debt in amounts never witnessed before on planet earth. With a much larger workforce – a combined 19 million versus less than 3 million for the federal government – state government payrolls have declined by more that 125,000 since 2008 and local governments have seen net reductions of more than a half million.

But, still, it seems the federal government has some catching up to do.

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Is This the Year for a Bottom in Home Prices?

Not a day goes by, or so it seems, without someone writing another upbeat article about the U.S. housing market in 2012 (a refrain that has been heard at least a few other times before since the housing bubble burst a half-decade ago) and today’s entry comes via this story in USA Today that cites all the usual factors.

Optimism is building that the housing industry is nearing a bottom — finally.

Home sales and home building are forecast to rise this year after sliding steeply the past five years in housing’s worst downturn since the Great Depression.

Recovery is expected to be slow, and home prices are widely expected to fall this year. But investors are betting on the start of an upturn, bidding up home builder stocks and causing them to outperform the broader stock market.

Chief executives are more positive. JPMorgan Chase’s Jamie Dimon said last week that housing is near its bottom but could stay there a year. Stuart Miller, CEO of home builder Lennar, said the market has started to stabilize because of low prices and record-low interest rates.

Market researcher RBC Capital Markets has also turned from a “bearish” view on housing to saying that 2012 “will mark a step in the right direction.”

To me, one of the more surprising turnarounds came last week when the Orange County Register reported that early housing bubble-spotter Christopher Thornberg (those of you were around back in 2005-2006 should recognize the name) turned from bear to bull.

While home prices will probably continue to fall early in the year as the foreclosure pipeline begins to empty into the market again, there are still opportunities for the best mortgages since the Eisenhower Administration and, given all the optimistic press reports  in the New Year, buyers just might decide to return.

Of course, that’s the best case scenario and, given the disappointment seen in the U.S. and global economy in recent years, not something one should count on.

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All the Gold Bugs in China

[Following are excerpts from the current issue of the Weekend Update at Iacono Research.]

Many analysts thought a death knell sounded for the gold bull market last month. However, driven by surging investment demand in China, as evidenced by record-high imports from Hong Kong, and the recapturing of the 200-day moving average, the gold price added to its gains from the first week of the year, while silver mounted an even bigger surge.

All this occurred despite a stronger trade-weighted dollar (that normally moves opposite of metal prices). However, credit downgrades late on Friday and an expected further decline for the euro are sure to test the recent enthusiasm for precious metals in the days ahead.

For the week, the gold price rose 1.4%, from $1,616.60 an ounce to $1,639.70. Silver briefly topped the $30 an ounce mark for the first time in a month, before ending slightly below that mark. That’s up 3.5% from $28.75 an ounce to $29.77. Gold is now down 14.7% from its high last summer while the silver price remains 39.9% below its early-2011 peak.

Surging Chinese gold demand and soaring premiums in advance of the Lunar New Year were by far the dominant stories for precious metals last week. The Hong Kong Census and Statistics Department reported a record 103 tonnes of gold entered the mainland from Hong Kong in November, up from 86 tonnes in October as shown below via Reuters.

[To see the graphic associated with this story, continue reading at Seeking Alpha.]

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