Friday, December 23, 2011

Full Release of Federal Reserve Emergency "Lending" Program data 2007-2009

Bloomberg has released the complete spreadsheets in a ZIP file  of the Federal Reserve Emergency 'lending' programs from 2007-2009 (don't we all wish we could borrow on those terms?). From Bloomberg:
"To download a zip file of the spreadsheets, go to For an explanation of the files, see the one labeled “1a Fed Data Roadmap.”
"Bloomberg News obtained information about the discount window and ST OMO through the Freedom of Information Act. While the Fed initially rejected a request for discount-window information, Bloomberg LP, the parent company of Bloomberg News, filed a federal lawsuit to force disclosure and won in the lower courts. In March, the U.S. Supreme Court decided not to intervene in the case, and the Fed released more than 29,000 pages of transaction data."
While we have read stories throughout the year on this information it had not yet been made available in this format.

Bloomberg has also updated their interactive chart which is quite interesting.....Couldn't embed it here but the image will take you to their chart.

However, it should be noted
"Bloomberg excluded foreign-currency liquidity swaps because names of commercial banks that borrowed under the program haven’t been disclosed to the public."
So it still remains unknown 3 years later who was bailed out with $586 Billion via foreign-currency swaps .

Friday, December 16, 2011

GDP Estimates 2012 Vs. 2008 and More Economic Consensus Groupthink

The Wall Street Journal recently released it's December Survey of Economists. This is where you generally get to hear about the current consensus groupthink. In the survey, 54 economists gave their projections for GDP in 2012 (among many other things). I decided to compare this years projections for the year ahead to what these great minds saw coming in December 2007 (the month the last recession started). Does anything about this strike anyone else as quite similar........

Now just maybe if they would have added a negative sign to their 2008 forecasts they would have been pretty spot on (considering GDP for the year finished down -2.5%). The December 2007 survey included 51 "economists"....yet not 1 came up with a negative GDP projection. Here we are now in 2011, with the European situation, the rest of the developed world including the US and Japan soaked in debt, and China trying to build ghost cities until someone rises from the dead, and not one of the 54 "economists" is willing to project anything lower then 1.3%? Interesting......

What else do they have to say?

With the unemployment rate right now at 8.6% (due to massive labor force shrinkage) the consensus is things will essentially stay as is. Funny, anyone know what the unemployment rate was in December of 2007? 5.0%. And what was the consensus for the end of 2008? 5.1%. In reality it tuned out to be 9.9% and yet not one of the economists predicted anything above 5.6%. Nice work guys.

Some more on unemployment....

Yikes, they can't predict one year ahead and now their being asked about the unemployment situation 3 years out? Anyone know how I can get in touch with James F. Smith from Parsec Financial Management who made that 5.0% projection? Because I would gladly pull a Mitt Romney on him and bet him $10,000 that's not gonna happen!

Alright, What about Treasury Rates?

Looks like they are calling for rates to rise from the current level of 1.85% to 2.75% (we can be sure this is due to their more optimistic view of the overall economy and not worries of the US ever expanding debt situation). In Dec of 2008 when it was 4.1% consensus said it would move up slightly to 4.28% (the yield ended 2008 down to 2.25%)

So what about their views on the probability of a recession in the US in the next 12 months?

23% and nobody puts the odds at higher then 40%? What about the Eurozone? Surely they must realize the Eurozone is already in a recession -- After all, the OECD already declared as much (and they are never the first to spot anything)

Really? You can't even get them to admit "yes" on a Eurozone recession which is clearly already happening? Well, what should we expect.......this is what they thought in July 2008 (7 months after the last US recession already started).

Ok so maybe we should interpret anything in the 50% range as their version of certainty LOL!

Will at least one member leave the Eurozone? 48%? Guess that should mean it's pretty near certain!

That may be about the biggest dispersion of views you will see on a subject from these groupthinkers.

Ah the joys of "economist" forecasts!

Friday, December 9, 2011

Real Estate Markets in Canada, China and Australia = CaCA

The investment world loves its acronyms (BRICS, PIIGS...etc) but I thought it was missing one which describes the housing markets in Canada, China and Australia. Then it hit me like a bag of.......CaCA! While Canadians, Chinese and Australians appear to still be living in a world of denial, evidence that their housing booms are in fact bubbles has been overwhelming. Similar to the smell of, yup, CaCA.

The Bank of Canada recently released its December "Financial System Review". It highlights some concerns about Canadian household finances and housing prices. However, it mostly down plays the housing concerns in typical central banker speak.
"In Canada, the elevated levels of household debt and housing prices require continued vigilance and close co-operation among Canadian authorities."
"Some measures of housing affordability suggest continued imbalances, owing to the robust performance of this market. In particular, house prices remain very high relative to income (Chart 26). Since the adverse impact of elevated residential property prices on affordability has been largely offset by low interest rates, affordability would be considerably curtailed if interest rates were closer to historical norms (Chart 27).
Certain areas of the national housing market may be more vulnerable to price declines, particularly the multiple-unit segment of the market, which is showing signs of disequilibrium: the supply of completed but unoccupied condominiums is elevated, which suggests a heightened risk of a correction in this market."
Gee, where does that 3rd paragraph sound familiar (see around the 1:20 mark in the below video, although the whole thing is classic.).  Obviously, in the US, it was more then the condo market and it will be in Canada too. Although, Vancouver will be Canada's version of Miami.

Clearly Canada's party will end at some point. Then in Australia we have another disaster waiting to happen (although, it has likely already begun there). Similar to Canada, it's fate was only delayed after the 2008 crash. The case of Australia's bubble is laid out in great detail in "Bubbling Over: The End of Australia’s $2 Trillion Housing Party" by Philip Soos.

Believe it or not, housing prices cannot deviate from rents by that margin forever. Fundamentals do matter.

Then of course we have China. What more can be said about China's pending disaster. We had all seen the videos of China ghost cities and malls. Of course the deniers are still in full force claiming that China's centrally planned economic structure has everything under control.......until reality becomes undeniable. The question is not whether it will burst, but how long the Chinese government can prop it up. Some of the ghost cities are already being hit such as China's city of Ordos which is discussed below. More pictures of China's out of control building can be seen here.

And as Reuters recently reported:
"After a housing bubble that doubled values in 35 cities between 2004 and 2009, prices are now falling nationwide. The central bank said on Friday property prices had reached a turning point while banks are worried a price slide of 20 percent could trigger panic selling."
"But prices in Ordos have already fallen below the level that analysts say would cause serious problems if mirrored nationally.
Prices have plummeted 20-30 percent in certain property developments in Beijing and Shanghai.
Nationwide, the decline is so far more modest. Home prices fell slightly in October from September for the first time this year, official data showed, but private surveys indicated prices began falling in September and continued through November.
With local governments often dependent on land sales to fund payments on a staggering 10.7 trillion yuan (1.1 trillion pounds) of debt, Beijing worries that a collapsing property market will trigger a wave of defaults that in turn will hit the banks."
"In Ordos, the government announced a bailout fund of between 7.5 billion and 10 billion yuan to support its beleaguered developers.
Still, that may not be enough. A commercial real estate agent, who only gave his surname Li, said that despite the government actions he was planning to return to his native Guangdong Province after six unsuccessful months in Kangbashi.
"There isn't much commercial real estate here. You need private businesses for that, and here it's all government money." 
The shock to natural resource demand from a China real estate bust is what will really bring the Australian and Canadian markets back to reality quickly. After all, its CaCA, a big interconnected mess!

Monday, December 5, 2011

Currency Analysis, Euro Breakup: Current Value of the Euro and Future Value of the Deutsche Mark

An interesting report came out from Normura Global Reseach looking at what Euro area currencies might look like if the Euro was no more.

There are nice write-ups about the report by the Financial Times and Forbes (so I will not get into that here). However, the question I continue to have is why is the Euro continuing to be valued so high? If every national currency (except for Germany, barely) would trade lower......then why is the combined currency still trading where it is?

And if this analysis is remotely accurate then people better start inventing new reasons why Germany should not leave the Euro for the Deutsche Mark. So far the only reason people come up with is that a stronger currency (a new Deutsche Mark) would hurt their export based economy. However, as shown in the chart, that revaluation higher would barely amount to anything. While there might be an initial flight to the 'assumed' safety of the new Deutsche Mark, people should not forget that Germany would also have to recapitalize its banks to absorb the losses that they would incur from a Euro breakup and PIIGS defaults -- Quickly weakening their currency.