In the news today, Jun 15

HA Commentary

We kick of today with a Bloomberg triple-header.  The pundits out there will tell you that UK house prices are surging higher because of a “lack of supply”.  That is pure ignorance or MOPE or both.  Monetary pumping has saved the banking sector which is allowing credit to flow toward the housing markets again.  Western nations have a massive OVERSUPPLY of houses, not a supply squeeze.  Rising house prices is evidence of bailouts and a return to unsustainable bubble territory, not a sign of health.

U.K. Housing Market Strengthened Most Since January, RICS Says

By Svenja O’Donnell

June 15 (Bloomberg) — A U.K. house-price gauge climbed in May to the highest level in four months as demand from homebuyers matched rising supply, the Royal Institution of Chartered Surveyors said.

The number of real-estate agents and surveyors saying prices increased exceeded those reporting declines by 22 percentage points, compared with 19 in April, the London-based institution said in an e-mailed report today. The proportion of agents reporting more homes being put up for sale jumped to 21 percent from 11 percent.

“Surveyors are generally confident that sales will continue to pick up over the summer months,” Ian Perry, a spokesman for RICS, said in the statement. “A higher level of instructions should meanwhile also lead to a flatter trend in house prices in the latter part of the year.”

Britain’s housing market has rebounded since the economy returned to growth. While the lack of supply of properties has helped push up prices, the number of home loans approved by banks still remains at half the level seen at the peak of the housing boom in 2007.

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HA Commentary

Japan is in a heap of trouble and just because it’s happening in slow motion doesn’t mean it’s not happening.  You’ve gotta love this economist’s analysis that the loan programme being extended by the central bank to companies is “too small” to lower borrowing costs.  Firstly, $33 billion is not small.  Secondly, borrowing costs in Japan are 0.1%!  There ain’t room for lower borrowing costs short of literally dumping free cash on Japan from helicopters… Ben Bernanke style.

BOJ to Offer 3 Trillion Yen to Spur Corporate Loans

By Mayumi Otsuma

June 15 (Bloomberg) — The Bank of Japan will offer as much as 3 trillion yen ($33 billion) in loans to companies for as long as four years in an effort to strengthen the economic recovery.

The loans will be channeled through banks, and the central bank will accept requests from lenders through March 2012, it said in a statement released today in Tokyo. Credit will be extended at the benchmark interest rate, which the board today unanimously voted to keep unchanged at 0.1 percent.

The plan is too small to lower borrowing costs and is unlikely to spur the economy or satisfy politicians, said economist Hirokata Kusaba.

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HA Commentary

This is the essence of political-economic cronyism.  The government claims to want to remove the conflict of interest on the Federal Reserve boards, but in reality this is a power struggle between Washington and business insiders for monetary control.  Either way, we know what the result will – bailouts to infinity as the old boys club takes the whole ship down.

New York Fed’s Enhanced Powers May Come With Reduced Autonomy

By Craig Torres and Caroline Salas

June 15 (Bloomberg) — The Federal Reserve Bank of New York, which carried out central-bank rescues of money markets and Wall Street firms, is poised to have its powers expanded even more — at the risk of reduced independence.

Senate and House negotiators meet today to begin hammering out a financial-regulation bill that puts the New York Fed at the forefront of the central bank’s new role as overseer for financial stability. Lawmakers also want its chief, now nominated by the bank’s board, to be a White House appointee.

Senate Banking Committee Chairman Christopher Dodd says the selection process must be overhauled to avoid conflicts of interest at the regional Fed bank, which supervises firms including JPMorgan Chase & Co. and Goldman Sachs Group Inc., where New York Fed chief William Dudley spent two decades. Opponents, including St. Louis Fed President James Bullard, say the legislation represents an effort by politicians to exert more control over monetary policy.

“Congress is concerned about accountability,” Gary Stern, Minneapolis Fed president from 1985 to 2009, said in a telephone interview. “You would get a different kind of person in the job. I am an economist by training. You might continue to get some people like that. But you might get people who are more active politically.”

The so-called base text of the financial-overhaul legislation would give the central bank a seat on a newly created Financial Stability Oversight Council. The Fed would be delegated to watch over firms that “may pose risks to financial stability,” including banks it supervises and non-bank financial firms.

Authority Extended

The New York Fed might have its authority extended to firms such as GE Capital. Jeffrey Immelt, chairman of General Electric Co., the parent of GE Capital, sits on the New York Fed Board.

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HA Commentary

Precious metals vaulting services.  Now there’s a real booming business…

Banks set new store on building gold vaults

By Javier Blas in London, Published: June 11 2010 22:33

Some of the world’s biggest banks and security companies are building vaults to store gold bars and coins worth tens of billions of dollars, cashing in on resurgent demand and record prices.

The growing interest in gold among investors worried about the global economy and Europe’s sovereign debt crisis has led to a shortage of long-term storage space.

Bankers said that vaulting had become highly profitable. Rising bullion prices translate into higher storage fees, which are usually calculated as a percentage of the gold price. Gold prices this week rose to a nominal record of $1,251.20 a troy ounce, up 14.5 per cent since January. On Friday, bullion traded at $1,226.

“Physical gold is being sought more than ever and that is causing all sorts of strains,” said Peter Hambro, chairman of Petropavlovsk, the gold miner.

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HA Commentary

As has been clear all along, the biggest fear in Europe is not whether Greece goes belly up or not, but whether the banks that lent Greece money go belly up or not.  That folks is why policy makers from France to Brussels to Germany are willing to fork out money they don’t have to bail out people they don’t really like and lose political points they barely have.  The solutions are short term ones, and therefore the next crisis is just around the corner.

Europe’s Banks Face Second Funding Squeeze on Sovereign Crisis

By Gavin Finch and John Glover

European banks at risk of writedowns from the sovereign debt crisis face a funding squeeze that may depress earnings, curb lending and imperil economic recovery in the region.

Investors are shunning bank securities on concern Greek, Portuguese and Spanish bonds held by the lenders will plunge in value. Bank bond sales slowed in May to the lowest since Lehman Brothers Holdings Inc.’s failure in 2008 as the extra yield buyers demand to hold the securities over government debt soared to the highest this year. Firms are wary of lending to each other, depositing record funds with the European Central Bank.

“There is a lot of mistrust,” said Christoph Rieger, co- head of fixed-income strategy at Commerzbank AG in Frankfurt. “Banks are trading with the ECB rather than with each other.”

The central bank is preventing a crisis by providing banks with unprecedented funding. In substituting long-term money with shorter-maturity ECB cash, policymakers are making it harder to wean banks off life support as well as the short-term financing that regulators blame for the credit crisis.

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HA Commentary

SA reporters insist on turning the 2010 soccer world cup into an economic saviour.  What is it about the mainstream journo-muppets?  They only find bad news when there is really good news and they only seem to be able to find good news when there is really bad news.  The world cup is great for a party, but terrible for the economy.  That this is up for debate is rather perplexing: If the world cup were really so good for the economy and business, then why has government had to subsidise it from start to finish?  When the facts on the ground clearly point to an economic cost rather than benefit, everyone starts looking at the ’soft’ measures.  Pointing to ‘consumer confidence’ measures (arguably one of the worst indicators of economic performance) only underscores how desperate we seem to be to find the economic light at the end of the gloomy tunnel of wasted billions on redundant stadia in Nelspruit, Polokwane, Rustenburg, and Durban, and over-investment in accommodation.  Hey, at least travelling SA and staying in hotels and B&Bs after the world cup will be cheap!

Consumer confidence gets World Cup boost

June 15, 2010

By Ethel Hazelhurst

Consumer confidence remains “remarkably high”, according to Cees Bruggemans, the chief economist of FNB.

The World Cup, he said, could be partially responsible – given that consumer confidence surged briefly by a hefty 27 index points in the fourth quarter of 2004 when South Africa won the bid to host the 2010 tournament.

Confidence, as measured by the index compiled by FNB and the University of Stellenbosch’s Bureau for Economic Research, fell to +14 in the second quarter, almost unchanged from the +15 scored in the first quarter. The score is the difference between positive and negative responses.

Bruggemans said the score was at levels traditionally associated with boom time prosperity. He described this as “extraordinary” in view of current economic circumstances.

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HA Commentary

The European economy (EU27) is around 50x larger than the South African economy in terms of annual GDP.  The US (and Chinese) administrations are concerned with developments in Europe and the risks this pose to their economic recoveries.  A douple dip in Europe would bring about a global recession (again), and SA will unfortunately not be ’serenely coasting’ anymore.   Yet it must be noted that the SA economy held up well in both times of great devaluations of paper currencies of the Western world, both in the 1930s and 1970s, as a result of the booming mining industry here during those times.  We have spoken of this before.  We expect it will be the same this time round.

Will SA escape the European crisis unscathed?

Cees Bruggemans / 15 June 2010 06:55 / The Rex Column

Cees Bruggemans argues SA may succeed in traversing this period relatively unscathed.

JOHANNESBURG – As we approach mid-2010, with European sovereign debt under siege, many European banks under a cloud, and global financial markets at sixes and sevens as to whether financial contagion will deepen and the global economy will relapse into double-dip territory, South Africa is serenely coasting onwards.

Blame it on the World Cup finally being here and the nation taking time off for this historically unique occurrence in our midst.

With the stock market back above 27 000 (50% up on a year ago, if still 20% off the all-time high), house prices 12% up on a year ago, the rand firm at 7.65:$ and 9.30:€, and gold and platinum prices above $1 200 and $1 500 respectively, not all can be going badly with us.

True, we lost over 500 000 formal jobs and an equal number informal ones these past two years.

Yet the economy has been recovering for a full year when including 2Q2010. Even so, it has been a bit of an uneven performance.

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