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Gene Ellis

Efforts to Revive the Economy Lead to Worries of a Bubble - NYTimes.com - 0 views

dealbook.nytimes.com/...my-lead-to-worries-of-a-bubble

shared by Gene Ellis on 18 Apr 13 - No Cached
  • The Federal Reserve is well into its third round of “quantitative easing,” in which it buys longer-term assets to bring down long-term lending rates.
  • In March, a smaller percentage of working-age people were actually working than at any other time since 1979.
  • In March, a smaller percentage of working-age people were actually working than at any other time since 1979.
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  • Ben S. Bernanke and company would also like to kindle inflation expectations, spurring people to buy and companies to invest today instead of waiting until tomorrow. Supposedly, all of this will drive a self-sustaining economic recovery.
  • Instead, the Fed has kindled speculation.
  • Investors are desperate for yield and are paying up for riskier assets.
  • There are more reliable measures of stock market value, and they look frothy. One gauge, the price of stocks based on the past decade of earnings, is named after the Yale economist Robert J. Shiller. Using that, stocks are too expensive by 65 percent.
  • Alternatively, many investors look at something called the Q, devised by the economist James Tobin, which compares stock prices with corporate net worth. The nonfinancial companies are overpriced by 57 percent.
  • Last month, investors were paying more for such loans than at any time in the last five years. They are snapping up billions of dollars in securities made up of subprime auto loans.
Gene Ellis

Central Bank Sets Bond Plan Meant to Ease Euro Debt Peril - NYTimes.com - 0 views

www.nytimes.com/...unchanged-at-0-75-percent.html

central bank sets bond plan ease euro debt nytimes nytimes com com

shared by Gene Ellis on 06 Sep 12 - No Cached
    • Gene Ellis
      Gene Ellis on 06 Sep 12
       
      ON the open market, mimd
  • The European Central Bank said Thursday it had agreed on a framework for buying the bonds of troubled euro-zone countries on the open market in unlimited quantities, but left the timing unclear.
  • In essence, the bank left the next step to the beleaguered governments. They would be required to ask the E.C.B. formally to begin buying their bonds in the open market and would have to agree to follow detailed conditions for paying down their debt and hewing to fiscal discipline. It would be up to the E.C.B. to determine whether the terms of the agreement were acceptable, and whether the government was meeting those conditions over time.
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  • Small companies in Spain and Italy pay more than 2 percentage points more for loans than their German counterparts, according to E.C.B. data.
  • The E.C.B. has already indicated that it will concentrate on buying bonds that mature within two or three years, rather than longer-term bonds.
Gene Ellis

The euro crisis: Debtors' prison | The Economist - 0 views

www.economist.com/...n-more-government-debt-debtors

shared by Gene Ellis on 29 Oct 13 - No Cached
  • But the reforms often fail to work. The Spanish law is intended to promote restructuring of viable firms but in practice most insolvencies end in liquidation after lengthy court proceedings.
  • High household debt helps explain why the Netherlands, along with Italy and Spain, remained in recession in the second quarter of 2013 even as the euro area in general embarked on recovery. Dutch GDP this year will be 2% lower than in 2011 and more than 3% below its previous peak, in 2008.
  • it illustrates the malign effect of high debt when house prices fall
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  • One aim of the exercise is to identify the bad debts that are fouling up euro-zone banks and preventing the flow of new credit. This is important because parts of the single-currency area are crippled not just by public borrowing but by private debt, most of which is sitting on banking books.
  • High private debt is more detrimental to growth than high public debt, according to recent research by the IMF.
  • The malign effect of high private debt becomes apparent in the busts that follow credit-driven booms. Households that have borrowed too much in relation to their income trim their spending, the main component of GDP. Overleveraged firms avoid investing and concentrate on shrinking their balance-sheets by paying off loans. As bad debts erode their capital, banks become more reluctant to lend. These adverse trends reinforce each other, increasing the overall drag on growth.
  • Other balance-sheet indicators also suggest that Italian business is in a bad way. For example, 30% of corporate debt is owed by firms whose pre-tax earnings are less than the interest payments they have to make. That share of frail companies is even higher in Spain and Portugal (40% and nearly 50% respectively).
  • Little progress has been made to lighten the private-debt burden since the crisis began. Though it eased in Spain from 227% of GDP in 2009 to 215% in 2012, it rose over the same period in Cyprus, Ireland and Portugal. In Britain, by contrast, private debt fell from 207% of GDP in 2009 to 190% in 2012 thanks to improvements by both households and firms.
  • There is an inherent contradiction between the need for debtor countries in the euro zone to regain competitiveness through lower prices and at the same time to ease excessive debt with a dose of inflation.
  • Firms that have overborrowed are reluctant to embark on new ventures, and banks are in any case reluctant to lend because their balance-sheets are peppered with bad debts. This unhappy state of affairs prevails throughout southern Europe though its precise causes vary.
Gene Ellis

Europe, Facing Economic Pain, May Ease Climate Rules - NYTimes.com - 0 views

www.nytimes.com/...tions-on-renewable-energy.html

climate change

shared by Gene Ellis on 23 Jan 14 - No Cached
  • Europe, Facing Economic Pain, May Ease Climate Rules
  • On Wednesday, the European Union proposed an end to binding national targets for renewable energy production after 2020. Instead, it substituted an overall European goal that is likely to be much harder to enforce.
  • 14 executives at large companies called for “one single, realistic target” and warned that “the high-cost of noncompetitive technologies to decarbonise the power sector” will strain businesses already hit by Europe’s high energy prices, particularly for electricity, which costs twice what it does in the United States.
Gene Ellis

To Lower Tariffs, Vietnam Pushes for Easing Trade Rules - NYTimes.com - 0 views

www.nytimes.com/...es-for-easing-trade-rules.html

trade rules Vietnam Europe

shared by Gene Ellis on 19 Feb 15 - No Cached
  • Europe generally requires what is known as a “double transformation” in goods for them to be considered made in a certain region. In the case of clothing, one step, or “transformation,” would be weaving yarn into a fabric. A second transformation would be assembling the fabric into a garment. The United States requires a “triple transformation” that extends back to the production of yarn from synthetic or natural fibers, like cotton.
  • Lien Phat Ltd.'s factory,
  • Its supplies are imported. “I mainly take orders from international corporations, who give us materials and designs,” said Truong Thi Thuy Lien, the owner of Lien Phat. “Usually the clients will designate us to certain suppliers, most of them are in China.”
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  • “I don’t deal with the exporting process. I take the order and deliver the goods to the port” in Ho Chi Minh City, she said. “The rest lies with my clients.” <img src="http://meter-svc.nytimes.com/meter.gif"/>
Gene Ellis

Shinzo Abe's Monetary-Policy Delusions by Stephen S. Roach - Project Syndicate - 0 views

www.project-syndicate.org/...save-japan-by-stephen-s--roach

shared by Gene Ellis on 18 Jan 13 - No Cached
  • The reason is not hard to fathom. Hobbled by severe damage to private and public-sector balance sheets, and with policy interest rates at or near zero, post-bubble economies have been mired in a classic “liquidity trap.” They are more focused on paying down massive debt overhangs built up before the crisis than on assuming new debt and boosting aggregate demand.
  • The sad case of the American consumer is a classic example of how this plays out. In the years leading up to the crisis, two bubbles – property and credit – fueled a record-high personal-consumption binge. When the bubbles burst, households understandably became fixated on balance-sheet repair – namely, paying down debt and rebuilding personal savings, rather than resuming excessive spending habits.CommentsView/Create comment on this paragraph
  • US consumers have pulled back as never before.
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  • Central banks that buy sovereign debt issued by fiscal authorities offset market-imposed discipline on borrowing costs, effectively subsidizing public-sector profligacy.
  • Zombie-like companies were kept on artificial life-support in the false hope that time alone would revive them. It was not until late in the decade, when the banking sector was reorganized and corporate restructuring was encouraged,
  • Like Japan, America’s post-bubble healing has been limited – even in the face of the Fed’s outsize liquidity injections. Household debt stood at 112% of income in the third quarter of 2012 – down from record highs in 2006, but still nearly 40 percentage points above the 75% norm of the last three decades of the twentieth century. Similarly, the personal-saving rate, at just 3.5% in the four months ending in November 2012, was less than half the 7.9% average of 1970-99.
  • Crisis-torn peripheral European economies still suffer from unsustainable debt loads and serious productivity and competitiveness problems. And a fragmented European banking system remains one of the weakest links in the regional daisy chain.
  • That leaves a huge sum of excess liquidity sloshing around in global asset markets. Where it goes, the next crisis is inevitably doomed to follow.
Gene Ellis

ECB Resisting Calls to Cheapen Euro as Currency War Rages - SPIEGEL ONLINE - 0 views

www.spiegel.de/...rrency-war-rages-a-882462.html

shared by Gene Ellis on 21 Feb 13 - No Cached
  • The central bank chief is coming under increasing pressure because he can't quite bring himself to embrace the concept of quantitative easing, the latest fashion in the world of finance. It involves central bankers engaging in the large-scale purchase of bonds issued by their governments and other securities, thereby injecting huge sums of money into the financial system. In this way, they hope to stimulate the domestic economy and keep their own currencies cheap, thereby strengthening exports.
  • The country is in the process of "boldly rebuilding" monetary policy, Prime Minister Shinzo Abe declared. Indeed, the Japanese yen has lost 12 percent of its value against the dollar in the last two months.
  • The US central bank, the Federal Reserve Bank, has also been printing money to a previously unimaginable extent since the financial crisis. Calling its efforts QE 1 and QE 2, the Fed has pumped more than a trillion dollars into the US economy.
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  • For years, China has defended its currency by pegging the exchange rate to the dollar, and the Swiss National Bank now only permits appreciation of the franc up to a certain limit, because investors have viewed the Swiss currency as one of the last safe currencies since the outbreak of the sovereign debt crisis in Europe.
Gene Ellis

Waiting for the Markets to Blink - NYTimes.com - 0 views

www.nytimes.com/...-for-the-markets-to-blink.html

shared by Gene Ellis on 19 Feb 15 - No Cached
  • “You get these occasional disconnects and start asking who’s right and who’s wrong,” said Daniel Morris, global investment strategist at TIAA-CREF.
  • “We think the equity market is right,” he said. “If that’s the case, bond yields are too low.”
  • “We’re constructive about the future and think all this intervention is going to work, but how much is priced in” to the stock market? So much, in his view, that “we’ve been selling into the strength,” he said.
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  • “Do you believe that things are going to get better? If you do, you don’t want to be in Treasuries at 2.5 percent,” he said. “Some things don’t make sense to me. It’s frustrating.”
  • He says it doesn’t make sense that the stock market has held up as well as it has amid the Fed’s debt purchases and its policy of maintaining short-term interest rates near zero, a measure taken in a crisis that is supposed to be over.
  • “How do you know there has been an economic recovery and the patient is breathing normally when it’s in an oxygen tent?”
  • For all of 2013, gross domestic product increased by 1.9 percent, compared with 2.8 percent for 2012.
  • Orders and shipments of durable goods
  • were flat in 2013, and housing has weakened. February was the eighth consecutive month of declines in pending home sales, leaving them down 10.2 percent from 12 months earlier.
  • “It will be extremely difficult for the U.S. economy to escape its Great Recession hangover with this poor profits backdrop,” Mr. Edwards wrote. “Indeed it leaves the economy extremely vulnerable to adverse shocks,” like declining growth in Asia.
  • “We’re keeping a very close eye on China,” Ms. Patterson said. “If there are signs that it’s slowing more than we expect, that would hurt our view of emerging markets and worsen the outlook for developed markets due to contagion” because of the increasing importance of China in the global economy.
  • American real estate companies and European banks, for instance — but he is keeping 13 percent of his fund in cash because of a dearth of attractive investment choices.
  • Mr. Morris finds a wider array of opportunities. He likes shares of consumer-discretionary companies, which provide the products and services that people want but do not need. The sector includes businesses as diverse as hotels, carmakers and clothing stores.
  • the industrial sector, which includes manufacturers of business equipment. Another preferred segment is banks; he expects them to flourish as interest rates rise and the gap widens between what they charge in interest and what they pay.
  • Mr. Morris encourages stock investors to buy American.
  • “You can’t just unwind quantitative easing, with all of its distortions, and achieve stability without some pain along the way,” he warned. “What that pain is, when it happens, that’s where the uncertainties lie. The margin to maneuver is getting less and less with the passage of time.”
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