25IQ

4 euro end game scenarios http://baselinescenario.com/2010/11/28/the-eurozone-endgame-four-scenarios/  

[Martin Wolf writes masterfully here] “…In the eurozone, the fact that global interest rates were low and demand in core economies weak, exacerbated this effect. These ultra-low interest rates triggered asset price bubbles and credit booms in peripheral economies. These, in turn, encouraged construction booms. In these circumstances, what the late John Kenneth Galbraith called the “bezzle” – the stock of financial crime – rises, to emerge in the crash. As the financial system implodes, the economy collapses and the public finances, seemingly strong in the boom, turn sharply for the worse.  http://www.ft.com/cms/s/0/259c645e-fcbb-11df-bfdd-00144feab49a.html#axzz16olqLX3M  

the chief economist of Citigroup …claims Ireland is insolvent, Portugal is quietly insolvent, Greece is de facto insolvent and Spain will be insolvent once the problems in its banking sector are recognised. At which point things get really interesting. Buiter predicts the ECB could be forced to buy Spanish government paper and fund its banking system by purchasing the debt from the European Financial Stability Facility if things get really bad. http://ftalphaville.ft.com/blog/2010/11/30/420606/insolvent-greece-ireland-portugal-and-probably-spain/

A paradox of the debt crisis is that the 16-nation euro zone, as a whole, has a budget deficit of around 6% of its gross domestic product and total public debts of around 84% of GDP. While not exactly low—6% is twice what’s supposed to be the maximum in euro-zone countries—that is healthier than in the U.S., which is running a budget deficit of over 11% and has total debts of around 92% of GDP.  http://online.wsj.com/article/SB10001424052748703994904575647073671547454.html?mod=WSJ_hp_LEFTWhatsNewsCollection

The Portuguese 10 year is sitting at 7.1% this morning.  It looks like a foregone conclusion that they’ll need aid at some point in the first half of 2011.  http://pragcap.com/portugal-austerity-failed

Spain, with its size, is worrying people the most, and the chart of its default risk doesn’t look pretty.  For much of 2009, Spain CDS traded at prices just above CDS for France and Germany, but default risk has recently spiked to levels that haven’t been previously seen for that country.  For the time being, default risk for France and Germany hasn’t hit new highs.  France is getting close, however, while Germany still has a ways to go. http://www.bespokeinvest.com/thinkbig/2010/11/29/european-default-risk.html

“Even the QE2 is not sufficient to restore growth to the trend level,” he said. “The problems of the economy are not problems of liquidity, but problems of credit insolvency, and therefore monetary policy cannot resolve this.”   http://www.bloomberg.com/news/2010-11-29/roubini-says-portugal-quite-likely-to-need-funding-update1-.html

The Eurozone is going to shrink in my view. That will come about as the electorate in key countries puts politicians in place that are willing to embrace default or the politicians in place embrace default.  Senior bondholders/foreign banks are going to take bigger haircuts than the market prices in right now.

“…There are very powerful arguments to support the default view, and the strongest argument against it, from Ireland’s perspective, evaporated last week – that argument was that any default on bank bonds would cause lenders to stop giving money to the Government to fund its deficit. That has now happened anyway. It is no longer in Ireland’s narrow national interest to prevent senior bondholders from suffering the consequences of their own bad judgement. …  the consequences of weaning Ireland’s banks off cheap ECB money simply transfers the problem. Support for the banks will have to come from the bailout fund, which, in theory, will offer cash at a much higher rate of interest. If a large part of the ECB funding were to be refinanced at a much higher interest rate, the State’s total debt burden (Government and banks) would become unmanageable.http://www.irishtimes.com/newspaper/opinion/2010/1126/1224284180165.html?via=mr

“… In early 2009, a joke was making the rounds: “What’s the difference between Iceland and Ireland? Answer: One letter and about six months.” This was supposed to be gallows humor. No matter how bad the Irish situation, it couldn’t be compared with the utter disaster that was Iceland.

But at this point Iceland seems, if anything, to be doing better than its near-namesake. Its economic slump was no deeper than Ireland’s, its job losses were less severe and it seems better positioned for recovery. In fact, investors now appear to consider Iceland’s debt safer than Ireland’s. How is that possible?

Part of the answer is that Iceland let foreign lenders to its runaway banks pay the price of their poor judgment, rather than putting its own taxpayers on the line to guarantee bad private debts. As the International Monetary Fund notes — approvingly! — “private sector bankruptcies have led to a marked decline in external debt.” Meanwhile, Iceland helped avoid a financial panic in part by imposing temporary capital controls — that is, by limiting the ability of residents to pull funds out of the country.

And Iceland has also benefited from the fact that, unlike Ireland, it still has its own currency; devaluation of the krona, which has made Iceland’s exports more competitive, has been an important factor in limiting the depth of Iceland’s slump….”  http://baselinescenario.com/2010/11/17/the-debt-problems-of-the-european-periphery/#more-8268

These probabilities of default  as expected by the market are still too low:

the probability that CDS spreads assign to a default of Italy in the next five years (around 12.7%) is significantly lower than that of Ireland (34%) and Portugal (28%). http://www.nakedcapitalism.com/2010/11/guest-post-will-the-irish-crisis-spread-to-italy.html

Nov. 26 (Bloomberg) — The cost of insuring Portuguese, Irish and Spanish government debt against default rose to records based on closing prices, according to CMA. Credit-default swaps on Portugal rose 31.5 basis points to 507.5, Ireland increased 19 basis points to 599.5 and Spain climbed 21 basis points to 320.5.  http://www.businessweek.com/news/2010-11-26/portugal-ireland-spain-credit-default-swaps-rise-to-records.html

Irish police estimate 20,000 people took to the streets of Dublin as bailout talks focus on the interest rate charged to Ireland and the fate of senior bondholders. A finance ministry spokesman said the rate will be “sustainable” after state broadcaster RTE reported that nine-year loans from the EU and the International Monetary Fund may cost as much as 6.7 percent.  … 

“One possible scenario is that the financial package for Ireland could include an element of restructuring affecting senior debt,” Fitch Ratings said in a statement yesterday. “Fitch has no visibility of this matter but notes that such a restructuring could have wider implications for the euro area.” …EU and IMF officials are taking legal advice on how senior bondholders can share the cost of the rescue without triggering lawsuits, the Irish Times said yesterday, without saying where it got the information.

http://www.bloomberg.com/news/2010-11-26/ireland-races-to-secure-weekend-aid-deal-amid-bank-debt-concern.html

Shares of European banks which hold the debt of Irish banks tumbled on Friday on reports that they could be forced to share in the cost. Britain’s Royal Bank of Scotland and Lloyds Banking Group tumbled 5.3 and 4.4 percent respectively, while Spain’s top bank, Santander, fell 3.7 percent. http://www.reuters.com/article/idUSLDE6AO0HG20101127

Ireland’s debt is “massive,” says Sean Egan, managing director at Egan-Jones. After the latest bailout, Ireland will have €220 billion of debt along with €400 billion of bank guarantees. That equates to €135,000 per person. By comparison, the French have debt of €23,000 per person. Ireland’s government also plans €15 billion ($20.53 billion) in spending cuts and tax increases, even as its gross domestic product fell 1.2% in the seasonally adjusted second quarter and its debt as a percentage of GDP rose to 77.4%. Its deficit-to-GDP is the highest in the European Union at 14.30%, and it’s expected to rise in the months ahead as the government continues to repair its damaged banking system. To date, the government has injected roughly €22 billion in capital into the banks…. its unemployment rate is 13.6%, http://online.barrons.com/article/SB50001424052970204374404575630840242907612.html?mod=BOL_twm_mw

There were big falls in the price of senior Irish bank debt at home and abroad. AIB’s 5.625 per cent senior debt due in 2014 fell to 73 cent, a 5.2 per cent drop. Similarly, Bank of Ireland’s 4.625 per cent senior notes maturing in 2013 saw a drop of four cent on the euro, or 4.8 per cent, to 81 cent. According to one London trader, any move to compel bondholders to take a haircut could have long-term implications for Ireland’s ability to enter international markets for years to come, as the Government had explicitly guaranteed the senior debt of the Irish banks in September 2008 under the guarantee. “Ireland guaranteed its bank debt two years ago, much to the annoyance of other countries . . . if it was to renege on that debt, it could find itself in the situation faced by Argentina, which still can’t enter international markets because of its default.”  http://www.irishtimes.com/newspaper/ireland/2010/1127/1224284259127.html

More thoughts:

“… The public debt can be contained in two ways. The first and preferable option is that the state never nationalizes private bank debt as Ireland has done.  For Ireland, this opportunity has probably passed, but other countries should be warned not to make the same mistake. Kazakhstan’s refusal last year to bail out its major banks, despite strong demands from the senior creditors of these banks, has proved a far more successful path.  Banks can and should go under if they have failed. The state should only defend small and medium-sized depositors.

If the state has taken on too large debt, sovereign default is the natural outcome. In their excellent book This Time Is Different, Carmen Reinhardt and Kenneth Rogoff argue that 90 percent of GDP is the highest sustainable level of public debt for a developed country. This limit is not absolute, but there is little reason to believe that Greece and Ireland would belong to the exceptions. As Germany and France so sensibly, though perhaps not very cautiously, have argued in public, the EU needs a facility for sovereign debt default.  http://baselinescenario.com/2010/11/17/the-debt-problems-of-the-european-periphery/#more-8268

In a nutshell, we’re watching the most pitched, highest-stakes, most determined battle between politics and finance which has been staged. I am expecting finance to win. It’s not just about PIGS and the future of the eurozone, it’s settling a very general question about the relative power of politics and finance.  Either way, it is an event of momentous importance. http://www.marginalrevolution.com/marginalrevolution/2010/11/the-war-of-politics-and-finance.html

Taleb: “connectivity and operational leverage are making cultural and economic events cascade faster and deeper”. http://www.economist.com/node/17509373?story_id=17509373&CFID=149238396&CFTOKEN=89583226

The question is whether the Eurocrats can beat back the speculators. I find the whole situation much too complex. I can only come up with a list of things that I wish I knew.

1. What is the true state of the large European banks? In particular, if, they had to write down the principal on the debt of the PIGS by, say, 15 percent, which banks would still be solvent?

2. What does the option for inflating away European debt look like? How would the cost of that inflation be distributed? Can the inflation take place within the context of the euro, or does it require that some countries leave the euro?

3. Does a crisis create an opportunity for governments to make radical changes to the welfare state, or is that still not possible?

4. Suppose that governments have to choose between preserving their banks and preserving high levels of spending on public employees and retirees. Which choice is better for the economy? For political survival?  http://econlog.econlib.org/

Posting every day is really hard work.

WSJ: “This year, about 40% of the weekly movements in the S&P 500 index can be explained by weekly fluctuations in energy prices, says Michele Gambera, head of quantitative analysis at UBS Global Asset Management. That is twice the level of similarity over the past five years and roughly 20 times the level of the past two decades.”

European finance ministers approved a request from Ireland for a multibillion-euro emergency rescue.The bail-out is expected to total €80bn-€90bn… Ireland will have to cut fast and deep.” http://www.ft.com/cms/s/0/9338047c-f5a0-11df-99d6-00144feab49a.html#axzz15xSeKJEK

The top 35 US banks will be short of between $100bn-$150bn in equity capital after the new Basel III global bank regulations are imposed, with 90 per cent of the shortfall concentrated in the biggest six banks… the study assumes the banks will need to hold top quality capital equal to 8 per cent of their total assets, adjusted for risk.  http://www.ft.com/cms/s/0/42d42de2-f593-11df-99d6-00144feab49a.html#axzz15xWmconh

Ten-year note yields climbed eight basis points, or 0.08 percentage point, to 2.87 percent yesterday. The price of the 2.625 percent security maturing in November 2020 fell 23/32, or $7.19 per $1,000 face amount, to 97 27/32. The yield climbed to 2.96 percent on Nov. 16, the highest in three months.  http://www.businessweek.com/news/2010-11-20/treasury-10-year-notes-fall-as-investors-back-fed-s-inflation.html

Chu suggests Gurley should have included China in the conversation. There’ve been 122 IPOs in the U.S. this year, and 25 have been China-based companies listing in the U.S. – a huge percentage. http://www.pehub.com/88843/will-china-play-nice-with-us-exchanges/

results show a strong correlation between weekly share transaction volumes of the S&P 500 companies and the weekly volumes of Google searches for their corporate names. More searches mean more share trading… As Google activity about a company increased, shares were just as likely to fall as to rise. http://www.ft.com/cms/s/2/9aea26be-f1ea-11df-84ef-00144feab49a.html#ixzz15nvi28H7

 Dealogic data shows that the number of technology deals — more than 5,100 so far this year — is at its highest point since the year 2000. the average technology deal this year is $46 million, not much more than the average of $40 million in 2000.  http://dealbook.nytimes.com/2010/11/19/as-tech-deals-boom-talk-turns-to-bubbles/ 

In 2008 the advertising on Google’s search engine was responsible for 98 percent of the company’s $22 billion in revenue, and while Google refuses to provide more recent percentages, the company’s 2009 revenue of $23.6 billion suggests that little has changed.  http://www.nybooks.com/articles/archives/2010/dec/09/google-and-money/

Foreclosures on prime fixed-rate mortgages in the U.S. jumped to a record in the third quarter as unemployment strained household budgets of the most creditworthy borrowers. The inventory of homes in foreclosure financed by prime fixed-rate loans rose to 2.45 percent from 2.36 percent in the previous three months http://www.bloomberg.com/news/2010-11-18/prime-u-s-mortgage-foreclosures-rise-to-record-on-unemployment-pressure.html

as investors turn their focus to the next-weakest peripheral nation…the markets indicate that country is Portugal with 10-year bond yields of 6.88 percent, compared with 8.26 percent in Ireland and 11.62 percent in Greece  http://www.bloomberg.com/news/2010-11-18/irish-bailout-may-unleash-bond-vigilantes-on-portugal-market-euro-credit.html

Bernanke: “Globally, both growth and trade are unbalanced. Because a strong expansion in the emerging- market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short…. “On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years. As a society, we should find that outcome unacceptable.”  

While Bernanke didn’t identify China in his speech, he took aim at “large, systemically important countries with persistent current-account surpluses.”   http://www.bloomberg.com/news/2010-11-19/bernanke-takes-defense-of-monetary-stimulus-abroad-turns-tables-on-china.html

Federal Reserve Chairman Ben Bernanke put aside traditional central bank niceties and launched a direct attack on the slow pace of China’s steps to strengthen its currency. http://www.businessinsider.com/paul-tudor-jones-bernankes-speech-china-currency-manipulator-2010-11#ixzz15lIlA4x6

Kessler: “Without another $600 billion floating through the economy, Mr. Bernanke must believe that real estate (residential and commercial) would quickly drop, endangering banks.” http://online.wsj.com/article/SB10001424052748704648604575621093223928682.html?mod=googlenews_wsj

It’s fine to collect 20% a year’s worth of carry trade interest, but not if long term rates suddenly move up. A 2% rise at 10 times leverage would result in a 33% capital loss, or more precisely, a wipeout.  A year ago this carry trade looked to be about $500 billion and I suspect it has grown since then.  http://blogs.forbes.com/investor/2010/11/16/bernanke-to-banks-unwind-your-carry-trades-now/

S&P 500 earnings  http://www.ritholtz.com/blog/2010/11/q3-earnings-in-the-books/

So long as China’s credit growth continues at its current pace, aided by the liquidity the Fed is flooding world markets with, and encouraged by artificially low interest rates, the primary risk EMs face today remains that of a bubble http://ftalphaville.ft.com/blog/2010/11/19/411396/bursting-bubbles/

Slouching eagle, surging dragon  - American core CPI fell to 0.6% in October—its lowest level since records began in 1957. The chart at the upper right plots this alongside Chinese CPI, which increased to 4.4% in October, up from 3.6% in September, and now stands at its highest since 2008. That’s partly due to food, which accounts for a third of the Chinese CPI basket. http://www.economist.com/blogs/freeexchange/2010/11/inflation_2

The People’s Bank of China yesterday ordered a 50 basis point increase in the amount of money that lenders must set aside, two days after the cabinet announced measures to tackle inflation. http://www.bloomberg.com/news/2010-11-19/china-will-inevitably-raise-rates-as-wen-battles-prices-economists-say.html

the European Union’s statistics agency increased its estimate of Greece’s 2009 budget deficit to 15.4 percent of G.D.P. from 13.6 percent previously. That meant more pain would be needed to put the budget on track for a deficit smaller than 3 percent of G.D.P. by 2014, as stipulated in the country’s $140 billion rescue package. http://www.nytimes.com/2010/11/19/business/global/19euro.html?ref=business 

The O.E.C.D. said that world growth would slow to 4.2 percent in 2011 from 4.6 percent this year, and then return to 4.6 percent in 2012…. In the United States, growth was projected to rise to 2.2 percent in 2011 and then to 3.1 percent in 2012. For the euro zone, growth was forecast at 1.7 percent in 2011 and 2 percent the year after, while in Japan, gross domestic product was forecast to expand 1.7 percent in 2011 and 1.3 percent in 2012.  http://www.nytimes.com/2010/11/19/business/global/19oecd.html?ref=business

By 2050 Goldman Sachs expects it to have been overtaken by India, Brazil, Indonesia, Mexico and Turkey too. Takashi Inoguchi, a Japanese political scientist, bleakly refers to Japan as a potential “Argentina of the east”  http://www.economist.com/node/17492790?story_id=17492790&fsrc=scn/tw/te/rss/pe

“Pretty charts and fancy theories aside, the bottom line is that nobody has any idea what will happen in a world so globalized that every non-US decision actually matters now. Where before the “ROW” was a simple category, that is no longer the case. And to assume that anyone has any grasp over the infinity of variables that determine the reality of the 95% of world population not residing within the US (which in addition to their own unique financial and economic uniqueness, also has a distinct culture, tradition and history) is beyond naive.  http://www.zerohedge.com/article/socgen-presents-its-vision-future-several-pretty-charts

U.S. Labor Department reported that initial jobless claims increased less than forecast to 439,000 in the week ended Nov. 13. The total number of people collecting unemployment insurance dropped to the lowest level in two years, while those receiving extended payments climbed, the department said in Washington today.  http://www.bloomberg.com/news/2010-11-18/treasuries-fall-as-government-prepares-to-announce-sizes-of-debt-auctions.html

Extending unemployment benefits http://rortybomb.wordpress.com/2010/11/17/car-breaks-down-shows-the-importance-of-extending-unemployment-benefits/

The House of Representatives on Thursday voted down a measure that would have reauthorized extended unemployment insurance for another three months, leaving no clear path forward to prevent the benefits from lapsing as scheduled on Nov 30. Without a reauthorization, the Labor Department estimates that two million long-term unemployed will prematurely stop receiving benefits before the end of the year. http://www.huffingtonpost.com/2010/11/18/unemployment-extension-de_n_785566.html?ir=Business

NYT: Delinquency Rate on Mortgages Dropped in Quarter [but a]rising rate of new foreclosure applications.

According to Reuters data, cities and states canceled $3 billion in planned bond sales, or more than 10 percent of the $24.4 billion of issues in the pipeline. At the same time, prices have been falling rapidly, with investors demanding roughly half a percentage point more in yield than they did earlier this month because they perceive that risk has risen significantly in the past two weeks.  http://dealbook.nytimes.com/2010/11/18/the-fear-factor-in-the-muni-bond-market/

Ten-year note yields were near a three-month high as the index of U.S. leading indicators rose for a fourth consecutive month and mid-Atlantic manufacturing surged  http://www.bloomberg.com/news/2010-11-18/treasuries-fall-as-government-prepares-to-announce-sizes-of-debt-auctions.html

tylercowen tweet: Ireland made a *credible commitment* to low corporate taxes, which is actually a hidden form of *leverage*

Irish bank rescue could cost over 100 bln euros http://www.breakingviews.com/2010/11/17/irish%20banks.aspx?sg=nytimes

Completion Rates by Ad Format over Time  http://adage.com/digitalnext/article?article_id=147008

“For a long time I thought I didn’t want to be CEO of a venture-funded company,” [Twitter’s] Williams said. “It’s kind of a sucky job.” http://venturebeat.com/2010/11/17/twitter-ev-williams-ceo-kind-of-sucky/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Venturebeat+%28VentureBeat%29

Top 10 Lies Entrepreneurs Tell VCs http://blogs.wsj.com/tech-europe/2010/11/17/the-top-10-lies-entrepreneurs-tell-vcs/

[This first item below, which excludes food and energy inflation, reminds me of the old joke about shooting 80 in golf except for puts.  Inflation is low unless you use energy.  Or are poor and food is for that reason a large part of your income.  Starbucks pumped up the price of soy in a beverage today by a dime.]

“…The Consumer Price Index rose 0.2 percent last month after edging up 0.1 percent in September, the Labor Department said. Economists had expected a 0.3 percent gain. Excluding food and energy costs, prices were flat for a third straight month and the increase from a year ago of 0.6 percent was the smallest since records started in 1957….”  http://www.reuters.com/article/idUSTRE6AG2QI20101117 

In October, overall consumer prices were lifted by a 4.6 percent jump in gasoline prices, which built on a September increase of 1.6 percent. Food prices rose by a muted 0.1 percent after gaining 0.3 percent in September. http://www.reuters.com/article/idUSTRE6AG2QI20101117?pageNumber=2

Food import bills for the world’s poorest countries are predicted to rise 11 percent in 2010 and by 20 percent for low-income food-deficit countries.  http://www.fao.org/news/story/en/item/47733/icode/

inflation typically exhibits a six to eight quarter lag to economic output. In light of this relationship, it makes sense that core inflation has stalled-out to its current degree, because it is a lagged reaction to the sharp economic contraction which was occurring in the Q4 2008 to Q2 2009 period http://www.businessinsider.com/will-the-cpi-rebound-2010-11#ixzz15agPjezC

Stiglitz interview: http://www.dailyfinance.com/story/dailyfinance-joseph-stiglitz-interview-transcript/19684345/?icid=sphere_copyright&icid=sphere_copyright

Total housing starts were at 519 thousand (SAAR) in October, down 11.7% from the revised September rate of 588 thousand, and just up 9% from the all time record low in April 2009 of 477 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).  http://www.calculatedriskblog.com/2010/11/housing-starts-decline-in-october.html

In the second quarter of 2010, U.S. single-family home prices rose an average of 3.6 percent over the year-ago quarter, driven by strong price increases in relatively high-priced markets, such as San Diego, Washington, D.C., and the San Francisco Bay Area. But despite the gain in the national average, prices actually fell in 70 percent of the 384 metro areas, compared to the 2009 second quarter. Many markets experienced double-digit drops, including Detroit; Boise, Idaho; Reno, Nev. and many smaller markets in Florida and Oregon.  http://www.marketwatch.com/story/fiserv-case-shiller-home-price-insights-us-single-family-home-prices-up-36-percent-but-double-dip-decline-expected-in-many-markets-2010-11-15?reflink=MW_news_stmp

muni bond meltdown: http://www.distressed-debt-investing.com/2010/11/what-in-gods-name-is-going-on-in-muni.html

zerohedge Moody’s Downgrades San Francisco To Aa2 From Aa1, As Muni Maul Goes Mainstream http://bit.ly/d7zBPS

Ms. Bartsch of Morgan Stanley said that fund managers were having to get used to the idea that bonds from some European countries have taken on the characteristics of emerging market debt.  http://www.nytimes.com/2010/11/18/business/global/18zone.html?pagewanted=2&_r=1&hp

“… there was growing evidence that {Irish] bank deposits were dwindling, after Irish Life & Permanent said corporate customers had withdrawn €600m – more than 11 per cent of the total – over a matter of weeks in August and September. Bank of Ireland reported a similar trend last week and Allied Irish Banks, which is due to release third-quarter results by Friday, is expected to have been hit by a similar exodus…. Credit analysts at Société Générale on Wednesday forecast that an Irish bail-out would involve the imposition of forced discounts on Allied Irish subordinated bonds along the lines of the 80 per cent haircut being pushed through at Anglo Irish   http://www.ft.com/cms/s/0/28d67dca-f285-11df-a2f3-00144feab49a.html#axzz15a9Sm08u

“… I’m not saying we’re in an undead homicidal zombie market, though we may be. But here’s an example of what the Pet Sematary market is capable of in terms of unintended consequences: QE inflates all asset prices, including commodities. This pressures the Chinese consumer, who we are relying on to pull us all out of this mess, who can suddenly not afford his new LCD TV because his Moo Shu pork is costing 20% more than it used to. Changes in commodity prices have a much greater impact on his consumption than Joe Schmoe in Idaho, with his low cost high fructose corn syrup and processed trans fat diet…” http://ultimibarbarorum.com/2010/11/16/quantitative-queasing/ 

“…Agricultural commodity prices have soared 60 percent in the past five months, according to Capital Economics. A U.S. government farm price index rose 8 percent last month, Nomura Securities said in a note to clients….Kraft Foods said last week that it boosted prices for many of its products to offset more expensive ingredients like sugar and wheat. Some ingredients were 20 percent to 30 percent more expensive from a year earlier, the company said. http://www.businessweek.com/ap/financialnews/D9JH7BDO0.htm

Bloomberg: The best second-half for commodities in a generation is pushing U.S. farm incomes and agricultural land prices toward record highs.  http://www.bloomberg.com/news/2010-11-15/farm-economy-heading-for-record-u-s-profits-pushes-cropland-values-up-10-.html

China is considering a package of price controls and other measures to contain inflation which rose sharply last month and has become the principal risk to the economy. The National Development and Reform Commission, China’s main economic planning body, is putting together a “one-two punch” of policies to limit food inflation, state media reported on Tuesday, in a sign that debate is breaking out over how to tackle rising prices, while two officials in Beijing also confirmed this week that the government was looking again at price controls. Consumer price inflation rose to 4.4 per cent in October, well above the government’s 3 per cent target, after food prices increased at an annualised rate of 10.1 per cent over the month.  http://www.ft.com/cms/s/0/a49d39f4-f17b-11df-8609-00144feab49a.html#axzz15SxNjo00

“…this isn’t just a Chinese problem. 40% of the world’s population, found in China, India, and Brazil, is seeing their food prices skyrocket as a result of price inflation. Note India’s has actually decreased, but remains close to double digit territory. see chart here: http://www.businessinsider.com/the-food-inflation-nightmare-is-about-to-hit-40-of-the-worlds-people-2010-11#ixzz15SyhfQJ3

“… the American economy appears to barely be able to keep joblessness from rising further. US unemployment has held steady at 9.6% since August. For the three months ending in September, GDP grew at annual rate of 2% — still a bit short from the 3% minimum needed to solidly keep the jobless rate from trending up…. But the economy needs to grow at more than double that rate — 5% — in order to shrink the unemployment rate by just one percentage point. … Many economists, including former OMB director Peter Orszag, expect GDP growth to slow for the next 12 to 24 months — Orszag says growth of 0%-2% is actually a best-case scenario.  http://finance.fortune.cnn.com/2010/11/16/what-it-really-takes-to-get-unemployment-down/

muni bonds “dive, dive, dive”: http://www.bespokeinvest.com/thinkbig/2010/11/16/munis-continue-collapse.html

S&P National AMT-Free Municipal Bond Fund (MUB) which has been selling off of late. It is down 5.5% since peaking on August 25th which compares to a drop of 2.46% for the iShares Barclays 7-10 Year Treasury Bond Fund (IEF) which appears to be the closest treasury ETF in terms of maturity. These moves would not be a big deal for equities but bonds are a different story.  http://randomroger.blogspot.com/2010/11/muni-bund-etfs-in-trouble-no-kidding.html

[The way these FOREX firms "play" stupid retail investors investing in currencies was described in   Reminiscences of a Stock Operator, by Edwin Lefevre] See  http://ftalphaville.ft.com/blog/2009/11/02/80866/the-100bn-fx-hustle/    

• Mutual Fund Outflows: Market declines plus capital withdrawals totaled $2.533 trillion — about 31.1% of their 2007 value.• Pension funds lost 17.9% of their 2007 asset value; Insurance companies experienced an 8.6% contraction. (Pension funds are 39.9% of total institutional assets)  http://www.ritholtz.com/blog/2010/11/institutional-investors/

High Frequency trading (HFT) video satire (Xtranormal)  http://www.zerohedge.com/article/next-xtranormal-docket-hft-explained-cartoons

social psychologist Amy Cuddy of Harvard Business School, who recently produced research suggesting that people are likely to see someone as competent if they’ve demonstrated expertise in just one area, even if they later display incompetence elsewhere. So whereas Andreessen and Horowitz are great technologists, the jury is still out on whether they’re investment geniuses. You be the judge on whether they’re overhyped.   http://www.pehub.com/88244/week-in-review/

Ask anyone who knows Silicon Valley venture capitalist and PayPal co-founder Peter Thiel and the first thing they will tell you is that he’s really, really smart. Ask the same people why it is, then, that Thiel’s hedge fund, Clarium Capital Management, is on track to suffer its third year of negative returns… down 17 percent this year, compared to average industry returns of 3 percent. Last year, Thiel’s firm lost a whopping 25 percent at a time when most funds were up by double digits. http://www.nypost.com/p/news/business/thiel_pay_pall_dlVabvgQ55otqWh2oPPmKN#ixzz15IBLr6Dj

My friends have seen the Clarium (Thiel) position reports for 5 years. Their opinion is that Peter has always been a gambler. From the looks of Peter’s return curve and the recent results, gamblers have cold streaks. In reading Peter’s thoughts about the US dollar in this piece, Peter does not seem confident about his strong dollar position.  http://howardlindzon.com/managing-money-is-hard-ask-peter-thiel/

Salmon: “…Markets have definitely been distorted by QE2. …a screenshot from Reuters’s brilliant interactive graphic: http://blogs.reuters.com/felix-salmon/2010/11/15/the-case-against-qe/

US Economics Editor, Greg Ip, discussing his new book, “The Little Book of Economics” http://www.economist.com/blogs/freeexchange/2010/11/economist

Companies’ productivity doesn’t rise and fall in lockstep with economic activity the way it did in the past, in large part because they’re firing more workers in downturns. …Mr. Van Zandweghe sees various changes in the labor market that could help explain the shift. For one, the cost of searching for and hiring workers has fallen thanks to the advent of the Internet. http://blogs.wsj.com/economics/2010/11/15/productivity-changes-may-boost-labor-market-prospects/

[You often get arguments that things are cause by a single variable all the time, which ignores the reality that many variables are involved and you can’t re-run history top prove causation]  http://www.economist.com/blogs/freeexchange/2010/11/commodity_prices

Robert Skidelsky says that when Keynes lectured at Cambridge about monetary theory, he would begin by reading an article from the FT (or occasionally the Economist), and then ask: “What is the theory that lies behind this argument? Is it coherent? Could it be correct? How can we find out?” And that is how he would teach monetary theory at Cambridge.  http://delong.typepad.com/sdj/2010/11/keynes-and-the-ft.html

The music business “is one of the sleaziest businesses there is”, [Keith] Richards argues http://www.economist.com/node/17461585

“The developed world, and the United States in particular, is suffering an economic malaise the likes of which we’ve seen only rarely in the last 100 years,” Mr. Tudor Jones [the undervaluation of the Chinese currency, the renminbi, against the dollar, which he believes has led to the loss of millions of jobs in the United States. That, in turn, he says, has contributed “to the most unsustainable economic imbalance in the world today — China’s persistent bilateral trade surplus with the United States.” http://dealbook.nytimes.com/2010/11/12/tudor-jones-questions-feds-bond-buying/

The deficit panel’s chairmen, Erskine B. Bowles and Alan K. Simpson, called for a phased-in program of modestly higher taxes and cuts to social programs and the military. Some conservatives have criticized that plan for raising taxes at all, and some liberals dislike its emphasis on spending cuts and eliminating middle-class tax breaks.   http://www.nytimes.com/2010/11/14/weekinreview/14leonhardt.html?_r=1

The graphic is here: http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html?choices=6mtj15qv

the mortgage-interest deduction costs $131 billion a year, none of which goes to renters or to people who have paid off their mortgage, and all of which goes to people in the top 1/3 of the income distribution. http://blogs.reuters.com/felix-salmon/2010/11/14/re-examining-the-mortgage-interest-deduction/

The IEA estimates that removing all fossil-fuel consumption subsidies would reduce global carbon-dioxide emissions by 1.5 to 2 billion tonnes by 2020. Current emissions from fossil fuel are about 30 billion tonnes; but that potential 1.5 billion reduction is more than a third of the difference between business-as-usual emissions and the level needed to stand something like a 50:50 chance of limiting global warming to two degrees centigrade.  http://www.economist.com/blogs/newsbook/2010/11/fossil-fuel_subsidies

the brain’s ability to selectively filter unattended or unwanted information from reaching awareness — diminishes with age, leaving older adults less capable of filtering out distracting or irrelevant information. Further, this age-related “leaky” attentional filter fundamentally impacts the way visual information is encoded into memory. Older adults with impaired visual attention have better memory for “irrelevant” information.  http://www.futurepundit.com/archives/007642.html

[Researchers] describe a microcircuit in the amygdala that controls, or “gates,” the outflow of fear from that region of the brain. The microcircuit in question… contains two subtypes of neurons that are antagonistic—have opposing functions—and that control the level of fear output from the amygdala by acting like a seesaw. “Imagine that one end of a seesaw is weighted and normally sits on a garden hose, preventing water—in this analogy, the fear impulse—from flowing through it,” says Anderson. “When a signal that triggers a fear response arrives, it presses down on the opposite end of the seesaw, lifting the first end off the hose and allowing fear, like water, to flow.” Once the flow of fear has begun, that impulse can be transmitted to other regions of the brain that control fearful behavior, such as freezing in place. http://media.caltech.edu/press_releases/13393

The authors of a paper that will be released by Science today suggest two possible alternatives to explain this widespread literacy. Either reading is similar enough to something that our brains could already do that it’s processed by existing structures, or literacy has “stolen” areas of the brain that used to be involved in other functions. (A combination of the two is also possible.) http://arstechnica.com/science/news/2010/11/literacy-takes-over-the-brain.ars?utm_source=rss&utm_medium=rss&utm_campaign=rss