The Bubble That Isn't - Slate
A helicopter drop for the Treasury - VoxEu
Don't Trust the Fed - Daily Beast
Warning: Why Cheaper Money Won’t Mean More Jobs - Robert Reich
Against claims that the N.A. today suffers from “structural unemployment” - Delong
Comparing bubbles and deflation in the US and Japan
- Concerns of deflation in US — "Concern has arisen that the US could see a repeat of what has happened in Japan: namely, a prolonged period of economic sluggishness and falling inflation. However, the US bubble was far smaller than Japan's, so the post-bubble damage should be smaller as well. Moreover, we think the US government responded more appropriately than did the Japanese government."
- US housing bubble was small — "In Japan, residential property prices rose 88.0% in the five years to 1991. In the US, housing prices rose just 47.1% in the five years to 2006. Accordingly, the after-effects were smaller in the US as well."
- Japan-specific structural problems run deep — "There are two overlapping reasons for slow economic growth over the long term in Japan: 1) serious damage from the bubble bursting and 2) a decline in latent growth potential for the Japanese economy. The impact of the latter has been larger since the NPL problem was resolved in 2004."
- Deflation in US unlikely — "The US is not the only economy to see a longterm decline in deflation—it shares this with the rest of the world. USspecific cyclical factors have pushed down inflation in the short term. US economic growth potential is higher than that for Japan, so long-term deflation looks unlikely."
- Reasons for long-term yen appreciation — "After hitting ¥147/$ in July 1998, the yen rose to ¥85/$ in November 2009. This was due largely to a shrinking of the gap in long-term interest rates between the US and Japan. In the US, nominal GDP growth and long-term interest rates are in a long-term downtrend."
- Global equities should continue to rise — "The PER for the S&P Global Index has fallen to about 9x based on FY2011 forecasts, suggesting that concerns are more or less priced in; this is also clear from the rapid decline in US long-term interest rates. We expect a rebound for Japanese equities from this autumn."
- US housing bubble was small — "In Japan, residential property prices rose 88.0% in the five years to 1991. In the US, housing prices rose just 47.1% in the five years to 2006. Accordingly, the after-effects were smaller in the US as well."
- Japan-specific structural problems run deep — "There are two overlapping reasons for slow economic growth over the long term in Japan: 1) serious damage from the bubble bursting and 2) a decline in latent growth potential for the Japanese economy. The impact of the latter has been larger since the NPL problem was resolved in 2004."
- Deflation in US unlikely — "The US is not the only economy to see a longterm decline in deflation—it shares this with the rest of the world. USspecific cyclical factors have pushed down inflation in the short term. US economic growth potential is higher than that for Japan, so long-term deflation looks unlikely."
- Reasons for long-term yen appreciation — "After hitting ¥147/$ in July 1998, the yen rose to ¥85/$ in November 2009. This was due largely to a shrinking of the gap in long-term interest rates between the US and Japan. In the US, nominal GDP growth and long-term interest rates are in a long-term downtrend."
- Global equities should continue to rise — "The PER for the S&P Global Index has fallen to about 9x based on FY2011 forecasts, suggesting that concerns are more or less priced in; this is also clear from the rapid decline in US long-term interest rates. We expect a rebound for Japanese equities from this autumn."
Citigroup_Japan_Equity_Strategy_20100825
Staking a claim
- What do we make of the rise in claims? "Last week’s rise in initial jobless claims to the psychologically important level of 500,000 has been met with heightened market scrutiny and suspicion. Initial claims, like most pieces of economic data, are subject to seasonal adjustment.
And, it is widely accepted that initial claims are notoriously difficult to adjust, particularly during the summer given school layoffs, holidays, and factory shutdowns in the auto sector. Now, a series of additional theories have surfaced attempting to explain the recent jump in initial claims:
• The extension of benefits back in July could be prompting Americans whose assistance ran out to file new claims in the regular program rather than file for the extended claim.
• A surge of Census laid-off workers filing for initial claims. Most of the Census layoffs have come during the summer.
• With the war in Iraq starting to wind down, we could be witnessing a rise in initial claim filings from our servicemen and women as they return home."
- If there is a bias in claims, it is upward and chronic "At the outset, let us say if there is a bias in the claims data, to quote the Department of Labor (DOL) official we spoke to, “it is an upward one” that is chronic. This is because an individual does not have to be eligible in order to file an initial claim. Initial claims are administered by states, which are required to take the claims form regardless of eligibility. The question that needs to be addressed is the extent to which the factors listed above are creating an abnormally large upward bias."
- There is a modest additional upward bias in initial claims "Our view is that these additional factors are having a limited upward impact on the initial claims data. The data from the Labor Department on actual payments allows us to create an implied approval rate, which supports our claim. This is important because while anyone can file and show up as an initial claim, what matters is if the government actually pays the claimant."
- Quantifying the upward bias "As of July, approvals ran at 69%. There is seasonality to this data and this is slightly below the 74% July average during the 2005-2007 period when the DOL was not making emergency benefits payments (Chart 1). So, taken literally this implies a 5% upward bias to the latest reading, or about 25,000. That would still mean claims are north of 450,000 and consistent with almost no growth in private employment."
And, it is widely accepted that initial claims are notoriously difficult to adjust, particularly during the summer given school layoffs, holidays, and factory shutdowns in the auto sector. Now, a series of additional theories have surfaced attempting to explain the recent jump in initial claims:
• The extension of benefits back in July could be prompting Americans whose assistance ran out to file new claims in the regular program rather than file for the extended claim.
• A surge of Census laid-off workers filing for initial claims. Most of the Census layoffs have come during the summer.
• With the war in Iraq starting to wind down, we could be witnessing a rise in initial claim filings from our servicemen and women as they return home."
- If there is a bias in claims, it is upward and chronic "At the outset, let us say if there is a bias in the claims data, to quote the Department of Labor (DOL) official we spoke to, “it is an upward one” that is chronic. This is because an individual does not have to be eligible in order to file an initial claim. Initial claims are administered by states, which are required to take the claims form regardless of eligibility. The question that needs to be addressed is the extent to which the factors listed above are creating an abnormally large upward bias."
- There is a modest additional upward bias in initial claims "Our view is that these additional factors are having a limited upward impact on the initial claims data. The data from the Labor Department on actual payments allows us to create an implied approval rate, which supports our claim. This is important because while anyone can file and show up as an initial claim, what matters is if the government actually pays the claimant."
- Quantifying the upward bias "As of July, approvals ran at 69%. There is seasonality to this data and this is slightly below the 74% July average during the 2005-2007 period when the DOL was not making emergency benefits payments (Chart 1). So, taken literally this implies a 5% upward bias to the latest reading, or about 25,000. That would still mean claims are north of 450,000 and consistent with almost no growth in private employment."
Merrill Lynch Economic Commentary 20100826
Hellenic Big Picture
- Deposit Trends — "9% of Greek deposits have been withdrawn since the start of 2010. The absolute outflow worsened to €10.7bn in 2Q from €10.6bn in 1Q. Time and savings deposit outflows accelerated and were partially offset by sight deposit inflows. Cypriot banks, however, have seen 15% deposit inflow since the beginning of the year, driven by resident (+10% YTD) and non-resident (+28% YTD) inflows."
- Loan Growth — "Greek lending growth picked up to +5% YoY in June from +2% YoY in May driven by an increase in corporate lending (+9% YoY). Household lending remains subdued. Cypriot lending is buoyant at +8% YoY due to a double-digit growth in mortgages (+26% YoY) and partly offset by weak corporate lending (-1% YoY)."
- Less Bearish on Fundamentals — "We review our forecasts for the Greek and Cypriot banks under our coverage and raise the 2010 EPS estimates for most of them. Our less pessimistic stance is driven by a stabilizing macro environment as the Greek Government budget deficit is shrinking to plan (albeit with revenues coming in softer than projected)."
- TP Changes — "Together with our new EPS estimates, we adjust our cost of equity assumptions. We differentiate banks with higher leverage (Eurobank EFG, Piraeus) from those with lower leverage (Alpha, NBG). All target prices except Marfin’s, increase or remain flat. Marfin’s TP goes from €1.85 to €1.70 and we downgrade the shares from Buy (1H) to Hold (2H) on the back of a better stock price and mixed outlook. For Agricultural Bank we increase our TP to €0.95 from €0.75 and raise the risk rating on the shares to High (3H) from Medium (3M)."
- M&A Speculation — "We expect M&A activity and speculation to pick up in the autumn. Stocks will likely be volatile as investors speculate on who will be buying and who will be selling. Investors should be prepared for valuations which do not necessarily reflect fundamentals."
- Loan Growth — "Greek lending growth picked up to +5% YoY in June from +2% YoY in May driven by an increase in corporate lending (+9% YoY). Household lending remains subdued. Cypriot lending is buoyant at +8% YoY due to a double-digit growth in mortgages (+26% YoY) and partly offset by weak corporate lending (-1% YoY)."
- Less Bearish on Fundamentals — "We review our forecasts for the Greek and Cypriot banks under our coverage and raise the 2010 EPS estimates for most of them. Our less pessimistic stance is driven by a stabilizing macro environment as the Greek Government budget deficit is shrinking to plan (albeit with revenues coming in softer than projected)."
- TP Changes — "Together with our new EPS estimates, we adjust our cost of equity assumptions. We differentiate banks with higher leverage (Eurobank EFG, Piraeus) from those with lower leverage (Alpha, NBG). All target prices except Marfin’s, increase or remain flat. Marfin’s TP goes from €1.85 to €1.70 and we downgrade the shares from Buy (1H) to Hold (2H) on the back of a better stock price and mixed outlook. For Agricultural Bank we increase our TP to €0.95 from €0.75 and raise the risk rating on the shares to High (3H) from Medium (3M)."
- M&A Speculation — "We expect M&A activity and speculation to pick up in the autumn. Stocks will likely be volatile as investors speculate on who will be buying and who will be selling. Investors should be prepared for valuations which do not necessarily reflect fundamentals."
Citigroup_Hellenic_Big_Picture_20100824
Raising our corn price forecasts
- Beyond near-term volatility we expect wheat prices to settle lower "Wheat supply disruptions continue to dominate the agricultural markets. Although wheat prices have retrenched from their recent peaks on improving weather, we expect prices to remain volatile until the market gains a better grasp on this year’s deficit. Barring further deterioration in crop production, we expect the elevated wheat inventories coming into this supply shock to push prices lower than currently priced in by the forward curve and forecast prices of 650 cents/bu over the next 12 months. Further, a potentially large supply response to higher prices in upcoming winter wheat crops suggests risk to this forecast is skewed to the downside."
- We are raising our corn price forecasts on tighter balances "For corn, continued strong demand over the past few months and prospects for wheat-to-corn demand substitution suggest even stronger corn demand than we had previously expected. While strong old-crop demand has lowered expected beginning stocks for the 2010/11 crop, our forecast of lower US corn yields also points to lower corn production in 2010/11 than the market currently expects. We therefore forecast the deficit that we have been expecting to widen further and are revising our corn price forecast higher to 465 cents/bu in 3 months, and 515 cents/bu in 6 months, leaving us constructive versus the forward curve."
- Ample soybean supplies will meet strong EM demand "Soybean prices have remained supported by strength in the rest of the grain complex and continued remarkably strong emerging market demand, in particular import demand from China. We believe that the expected record-large US crop and the prospect for another large South American crop will meet this strong demand and we continue to expect marginally lower soybean prices. However, an intensification of the nascent La Niña weather pattern would create upside risk to these forecasts as it has historically hurt yields in South America."
- We are raising our corn price forecasts on tighter balances "For corn, continued strong demand over the past few months and prospects for wheat-to-corn demand substitution suggest even stronger corn demand than we had previously expected. While strong old-crop demand has lowered expected beginning stocks for the 2010/11 crop, our forecast of lower US corn yields also points to lower corn production in 2010/11 than the market currently expects. We therefore forecast the deficit that we have been expecting to widen further and are revising our corn price forecast higher to 465 cents/bu in 3 months, and 515 cents/bu in 6 months, leaving us constructive versus the forward curve."
- Ample soybean supplies will meet strong EM demand "Soybean prices have remained supported by strength in the rest of the grain complex and continued remarkably strong emerging market demand, in particular import demand from China. We believe that the expected record-large US crop and the prospect for another large South American crop will meet this strong demand and we continue to expect marginally lower soybean prices. However, an intensification of the nascent La Niña weather pattern would create upside risk to these forecasts as it has historically hurt yields in South America."
GoldmanSachs Agriculture Update 20100826
Singapore: GDP contributions of the IRs
- "This year witnessed the openings of the two iconic integrated resorts (IRs), the Marina Bay Sands and Resorts World at Sentosa. While the government and the private sector had earlier provided estimates on the IRs’ contributions to the economy, latest GDP data may have shed more light on that. Based on our analysis, the IRs have added about SGD 470mn (0.3%) to the economy in the first half of the year. In fact, we can now expect a full year GDP contributions of about SGD 2bn from these two projects, which will account for about 0.7%-pt out of a 15% growth this year."
DBS Economics 20100826
What is the best structure for the holding of public debts?
- "Public debts of OECD countries can be held by:
• central banks;
• other non-resident institutional investors, non-resident banks or funds;
• domestic investors: institutional investors, funds, households, banks."
- "We seek to ascertain (by looking at the situations of the United States, the United Kingdom, Germany, France, Spain, Italy, the Netherlands and Japan) which of these possible public debt holding structures is the most stabilising, where by stability is meant a low variability of long-term interest rates on government bonds. We see in particular that:
• the holding by non-residents is not destabilising;
• the holding by domestic banks is stabilising."
• central banks;
• other non-resident institutional investors, non-resident banks or funds;
• domestic investors: institutional investors, funds, households, banks."
- "We seek to ascertain (by looking at the situations of the United States, the United Kingdom, Germany, France, Spain, Italy, the Netherlands and Japan) which of these possible public debt holding structures is the most stabilising, where by stability is meant a low variability of long-term interest rates on government bonds. We see in particular that:
• the holding by non-residents is not destabilising;
• the holding by domestic banks is stabilising."
Natixis Flash Economics 406 20100824
Japan: Uncertain on the economic policy front
- Uncertain on the economic policy front
• "With increasing concerns about the global economy and the recent sharp yen appreciation, the government and the Bank of Japan are facing growing calls to eploy additional fiscal and monetary stimulus."
• "On the monetary policy front, an expansion of the BoJ's new funds-supplying operation (introduced in December 2009) looks likely to be announced either at an emergency meeting (if financial markets remain volatile) or at the central bank's next scheduled Monetary Policy Meeting on 6-7 September."
• "Fiscal stimulus efforts appear likely to center around measures aimed at fueling demand and boosting employment levels. That said, much could change depending on the outcome of the DPJ's 14 September internal election for party president."
• "Recent media reports suggest that the package currently under consideration offers nothing new from a policy perspective and would in any case involve only a relatively small increase in fiscal spending."
- Slowdown in trades
• "Seasonally adjusted trade surplus rose for the second consecutive month in July. However, this was mainly due to a larger decline in imports than in exports."
- Demand for bank loans remains weak
• "Money stock in July indicates weak demand for funds and less risk appetite among investors"
• "With increasing concerns about the global economy and the recent sharp yen appreciation, the government and the Bank of Japan are facing growing calls to eploy additional fiscal and monetary stimulus."
• "On the monetary policy front, an expansion of the BoJ's new funds-supplying operation (introduced in December 2009) looks likely to be announced either at an emergency meeting (if financial markets remain volatile) or at the central bank's next scheduled Monetary Policy Meeting on 6-7 September."
• "Fiscal stimulus efforts appear likely to center around measures aimed at fueling demand and boosting employment levels. That said, much could change depending on the outcome of the DPJ's 14 September internal election for party president."
• "Recent media reports suggest that the package currently under consideration offers nothing new from a policy perspective and would in any case involve only a relatively small increase in fiscal spending."
- Slowdown in trades
• "Seasonally adjusted trade surplus rose for the second consecutive month in July. However, this was mainly due to a larger decline in imports than in exports."
- Demand for bank loans remains weak
• "Money stock in July indicates weak demand for funds and less risk appetite among investors"
CreditSuisse Japan Economics Weekly 20100826
Trouble in Paradise
- "With the natural splendor of the Grand Tetons as a backdrop, Fed Chairman Bernanke will deliver opening remarks this Friday at the Kansas City Federal Reserve’s Economic Symposium in Jackson Hole. His speech is entitled, "The Economic Outlook and the Federal Reserve's Policy Response.”"
- "This conference presents Bernanke with an opportunity to clarify the Fed’s monetary policy strategy in the face of a significant slowdown in the US recovery. The most recent economic data have been coming in below already modest expectations. This is of particular concern considering that the BEA estimate for Q2 GDP growth, originally reported at an annualized 2.4%, is likely to be cut in half upon revision Friday morning."
- "While we don’t expect the Chairman to brace the nation for a “double dip,” he may warn that near-term growth could be insufficient to promote a sustained reduction in the country’s 9.5% unemployment rate."
- "Turning to the Fed’s policy response, perhaps Bernanke will attempt to explain on Friday what the Fed hopes to achieve, in real economic terms, by targeting a stable level of asset holdings."
- "This conference presents Bernanke with an opportunity to clarify the Fed’s monetary policy strategy in the face of a significant slowdown in the US recovery. The most recent economic data have been coming in below already modest expectations. This is of particular concern considering that the BEA estimate for Q2 GDP growth, originally reported at an annualized 2.4%, is likely to be cut in half upon revision Friday morning."
- "While we don’t expect the Chairman to brace the nation for a “double dip,” he may warn that near-term growth could be insufficient to promote a sustained reduction in the country’s 9.5% unemployment rate."
- "Turning to the Fed’s policy response, perhaps Bernanke will attempt to explain on Friday what the Fed hopes to achieve, in real economic terms, by targeting a stable level of asset holdings."
CreditSuisse US Economics Digest 20100825
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