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Thursday Morning Links

On March 25, 2010, in Uncategorized, by Tim

TOP STORIES
Merkel Sets Greek Terms, Calls IMF-EU Aid Last Resort – Bloomberg
European Central Bank Blasts Merkel on Greece – Spiegel Online
US CFTC faces naysayers on metals trade limit idea – Reuters
Behind Consumer Agency Idea, a Tireless Advocate – NY Times
California’s Tax Credit: Will Home Buyers Stampede for $18,000? – WSJ
Bank of America sued for not modifying mortgages – Reuters
Brown’s Bottom Is an Enormous Issue In the UK – Jesse’s Cafe
Why this is a rich man’s recovery – MSN

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MARKETS/INVESTING
Oil inches up to near $81 as US crude stocks rise – AP
Gold firms as euro steadies; EU summit eyed – Reuters
Treasury Five-Year Notes Fall Most Since August After Auction – BusinessWeek
Treasuries Rise as Surge in Yield Presents Buying Opportunity – Bloomberg
Business Booms and Depressions Since 1775 – The Big Picture
The Yen Collapse Has Only Just Started – Zero Hedge

(more…)

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Inflation, Asset Bubbles, and Interest Rates

On March 24, 2010, in Commodities, Economy, by Tim

The lone dissenter at the last two Fed meetings, Kansas City Federal Reserve President Thomas Hoenig, talks to Fox Business news about, among other things, the perils of short-term interest rates that are left “too low for too long”.

Hoenig compares the last decade to the early 1970s noting, “we have had an extended period of negative real rates and we know what followed in the 70s. Now that’s not necessarily what’s going to follow now, but it is a concern.”

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What if It Was All Just a Big Bubble?

On March 24, 2010, in Article of the Week, Economy, Housing, Our Culture, Stocks, by Tim

One of the things that many people go through their entire lives without ever realizing is that conditions haven’t always been the way they remember them to be. Due to the length of a typical lifetime and the number of those years that individuals are productive, it’s reasonable to think that someone in their mid-60s could retire today and look back at the last 40 years only to conclude that what they just experienced was normal.

But, what if the last 40 years were anything but normal?

What if, in the world of finance and economics, it was all just a big bubble?

One look at the chart below from this recent Wall Street Journal story and it becomes instantly clear that stock market valuations over the last twenty years have been nowhere near normal. In fact, what were deemed “generational lows” for valuations at the peak of the financial market crisis a year ago look like nothing of the sort over the broad sweep of time.

And when you consider what happened in the natural resource sector in the 1970s and then what followed in Japan in the 1980s, it’s quite easy to come to the conclusion that, since the world left those last vestiges of sound money when Nixon closed the gold window in 1971, we live in a radically different world.

While some quickly dismiss ideas like this, reminding anyone who will listen that “correlation is not causation” while citing technological advances made during this time as just cause for the changes we’ve seen in financial markets, breakthroughs such as railroads and electricity a hundred or more years ago likely had a bigger impact on the world than computers, communication, and medical technology more recently.

(more…)

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New Home Sales at Record Lows

On March 24, 2010, in Housing, by Tim

The Commerce Department reports(.pdf) that new home sales reached new all-time record lows last month, below the levels seen in early-2009 at the height of the financial market crisis.

Sales of new homes fell from an upwardly revised annual rate of 315,000 in January to just 308,000 in February as homebuilders continue to lose the battle they’ve been waging with low-priced distressed property in many parts of the country and the urgency of the original December expiration of the homebuyer tax credit has long since faded.

As in yesterday’s disappointing report on existing home sales, the “Months of Supply” metric is back on an upward path and this could be the beginning of another leg down in the housing market. The expiration of the extended homebuyer tax credit in the months ahead should boost sales to some degree, however, there is a good deal of uncertainty as to how big a boost will be seen, the more important question being what happens after that.

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Somebody do Something!

On March 24, 2010, in Europe, by Tim

It’s at times like this for situations like the one in Greece where indecision seems to be more harmful than making any decision at all. Bail them out, kick them out, just do something. In this report, Reuters has the latest developments in the ongoing Greek tragedy:

European Commission President Jose Manuel Barroso made a new call on Wednesday for countries using the euro to create a safety net to help Greece if it needs financial assistance.

Barroso told the European Parliament that although the Greek debt situation was not on the formal agenda of a meeting of European Union leaders on Thursday and Friday, he could not imagine the issue would not be discussed.

“It is now appropriate to create, within the euro area, an instrument for coordinated action which could be used to provide assistance to Greece in case of need,” Barroso said.

“The framework for coordinated action should be understood as a safety-net to be used only in the case that all other means to avoid a crisis have been exhausted, including first and foremost exhausting the scope for policy action at the domestic level.”

The Germans continue to dig in their heels despite continued reports about being open to compromise. Elections that are quickly approaching in May and an adamant public that sees no reason to aid the spendthrift Greeks after they lied about their finances for years is no doubt making the problems even more difficult than they would otherwise be.

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Blytec Does Real Estate (and more)

On March 24, 2010, in Housing, by Tim

There’s an interesting new website called Blytic that has all kinds of economic data for those who dabble in this sort of thing and, after speaking with its creator yesterday (who is also the author of the Paper Economy blog), it seemed like a good idea to share this chart with a somewhat surprising curve for home prices and give him a plug at the same time.

Shown below are the well known 20-City Case-Shiller Home Price Index (in blue) along with the less well known Radar Logic 25-city MSA Composite Index (in red) that appears to already be well into another leg down for property prices.

Yes, the chart is a little blurry, but the neat thing is that you can click on the image above and you will be transported to a much larger interactive version of the same graphic at Blytic where you can fool with scaling and all sorts of other things via the options panel on the right. Apparently, some older browsers require a plug-in, but my versions of Firefox and MS Explorer interacted with the graphic immediately.

The latest Case-Shiller data will be released on Tuesday and there are more than a few people who think that the blue line in the chart will soon adopt the trend of the red line above it.

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