Ritholtz: The Decline In Inventory Right Now is NOT a Good Sign

The drop in inventory as a phenomenon may or may not pass quickly but one thing is clear – weird changes in market behavior happen for a reason – I don’t see declining inventory as a particular sign of strength in the housing market.

Comments »

The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.

Policy makers in Washington continue to have a soft spot for homeownership. Many recent government actions can be viewed as attempts to keep people in their homes, even owners who clearly can’t afford them. In addition to specific plans such as the Home Affordable Modification Program, or HAMP, and the Home Affordable Refinance Program, or HARP, the Obama administration is trying to revive the moribund housing sector by encouraging mortgage lenders and servicers to refinance loans at lower rates.

This reduces interest income for banks, which are now compelled by the Dodd-Frank law to retain 5 percent of the credit risk on lower-quality residential mortgages that are securitized and sold to others. Furthermore, banks are reluctant to refinance loans that Fannie Mae and Freddie Mac (NMCMFUS) then guarantee and put back to the lenders if they find any defects. The White House plan is a tough sell.

Read the rest here.

Comments »

Michael Lind

Manufacturing is back in the news.  The combination of Obama administration initiatives to help American manufacturing with criticism of China’s unfair trade and industrial policies by candidates for the Republican presidential nomination has produced a bipartisan backlash by prominent academic economists including Christine Romer, a Democrat and a former Obama economic adviser, in the New York Times., and Michael Boskin, a Republican and adviser to the first President Bush.

Romer and Boskin agree that government should do nothing to save or promote the manufacturing sector in the United States.  Their critiques of industrial policy, in turn, have produced responses by prominent advocates of federal aid for technological innovation and manufacturing, including Clyde Prestowitz, a former Reagan administration official and founder of the Economic Strategy Institute.

This debate is not a contest between “free trade” and “protectionism.”  It is between dogmatists who argue that free trade and government indifference to industry are the best policies for all countries, at all levels of economic development, at all times, and pragmatists who argue that free trade, strategic trade or protectionism may make sense for one country rather than another—or for the same country, in different historical periods.

Nor is the debate between left and right.  As we see today, it often pits liberal and conservative policymakers and voters against academic economists, who on this issue, whether they are Democrats or Republicans, tend to take what in politics is the view of trade held only by the libertarian lunatic fringe.

Versions of this “industrial policy debate,” featuring many of the same players, have taken place every decade since the 1970s.   It is never resolved, because the two sides are talking past each other.  They do not agree on basic theory, basic facts, or even the basic rationales for the trade and manufacturing policies in dispute.

Basic theory.  Mainstream academic economists like Romer and Boskin base their views of trade, not on the study of economic history or the actual policies of contemporary industrial countries, but on the theories of Adam Smith (absolute advantage) and David Ricardo (comparative advantage), dressed up in recent generations in seemingly-impressive but superficial mathematics.  Despite their differences, the theories of absolute and comparative advantage assume that, in a technologically-static world, global economic efficiency, defined as the lowest prices for consumers, can be maximized if all countries, as well as firms and individuals, specialize in particular lines of production.

In contrast, proponents of industrial policy and other government aid to manufacturing base their views on the actual history of the world since the late 1800s and early 1900s, after Smith and Ricardo wrote.  The four greatest economic powers in today’s world—the U.S., China, Japan and Germany—all became leading countries by ignoring the unrealistic theories of Smith and Ricardo and fostering selected national industries by some combination of tariffs, nontariff barriers, subsidies, public or publicly-funded R&D and credit policies favorable to manufacturing.  If market fundamentalists were correct, these countries should be economic basket cases, instead of the world’s leading manufacturing powers.  Even Japan, despite the aftermath of its real estate and stock bubble, remains a leader in many high-value-added industries.

Most growth in the last two centuries has resulted, not from the specialization of countries in one or a few sectors, but from the substitution of machinery powered by mineral energy for human and animal muscle power and the energy generated by wind, water and biomass.  The unwise nations that followed the advice of Smith and Ricardo and specialized according to their preindustrial absolute or comparative advantages have been backward, non-industrialized, one-crop “banana republics” like those of Central America.

Read the rest here.

Comments »

Noam Scheiber

For the past three years, Washington journalists and politicos have obsessed over a 57-page memo that Barack Obama’s incoming economic team prepared for him in late 2008. The document has achieved such totemic status for good reason: It decisively shaped the Obama administration’s initial response to the economic crisis. The memo outlined the president-elect’s options for dealing with the teetering banks, the cash-strapped automakers, and the country’s tidal wave of foreclosures. Above all, the memo laid out options for a massive stimulus package—the mix of tax cuts and government spending designed to end the recession and boost employment. The economic team presented the contents of the memo to Obama at his transition headquarters on December 16, 2008, at which point they collectively settled on a proposed stimulus of nearly $800 billion.

Last month, my friend and former colleague, Ryan Lizza, wrote a much-discussed piece in The New Yorker based on a copy of this and several other previously-unpublished memos. The piece and the corresponding memo described the stimulus options that Obama’s team—including Larry Summers, his top economic adviser, and Christy Romer, soon to be his chief White House economist—ultimately sent him. The options ranged from about $550 billion to just under $900 billion.

Intriguingly, Lizza also noted that Romer “was frustrated that she wasn’t allowed to present an even larger option,” suggesting that while the memo he obtained may have been the end of the story, it was far from the whole story.

Read the rest here.

Comments »

Jason Zweig

When Your DNA Dings Your ROI

Why are some people more prone to stupid financial behavior than others?

Several of the most common and costly mistakes that investors make appear to be encoded in our genes.

So argues a new research paper from two finance professors, Henrik Cronqvist of Claremont McKenna College and Stephan Siegel of the W.P. Carey School of Business at Arizona State University.

Cronqvist and Siegel based their study on two sets of remarkable data.

In Sweden, until recently, the government collected details about each holding in taxpayers’ investment portfolios. Cronqvist and Siegel could thus track the investment portfolios of individual Swedes, as well as any of their sales of securities, between 1999 and 2007. (None of the investors’ names were disclosed to the researchers.)

What’s more, the Swedish government enters all twins in a national register at birth. Cronqvist and Siegel identified more than 30,000 twins with investment portfolios – including more than 9,200 identical twins – and then studied how much their investing behavior varied. Bear in mind that identical twins are genetically a perfect match, while fraternal twins share similar but not identical genetic profiles; the researchers also compared twins against a random sample of nontwins as an experimental control.

The intuition is obvious: If thousands of people who are genetically identical exhibit the same behavior more strongly than thousands of nonidentical people do, then it’s plausible to attribute the variation in behavior to their genetic makeup.

Cronqvist and Siegel studied five prevalent investing mistakes or “biases”:

• Inadequate diversification (measured as a preference for investments based in Sweden)
• Excessive trading
• The reluctance to sell at a loss
• Chasing hot past performance
• Trying to get rich quick.

Cronqvist and Siegel found, across the twins in their sample, that genetic variation explained between one-quarter and nearly one-half of the extent to which investors suffered from these biases. Inadequate diversification scored the highest, with genetic effects explaining 45.3% of the variation across investors. At the low end, 25.7% of the degree to which investors traded too much was explained by their genetic variation.

Of course,we aren’t just abject slaves to our double helix when we invest. As intriguing as these new data are, they still explain less than half of what makes investors tick.

Read the rest here.

Comments »

[youtube://http://www.youtube.com/watch?v=PNMDfHPTayM 450 300]

Comments »

[youtube://http://www.youtube.com/watch?v=okPnDZ1Txlo 450 300]

Comments »

[youtube://http://www.youtube.com/watch?v=8UsiHn9crVM 450 300]

Comments »

In preparation for a possible conflict Iran has spun some home grown hilarity to accomplish who knows what…

[youtube://http://www.youtube.com/watch?v=sTSb9Cgt5nk 450 300]

Comments »

Source

“Recent developments in oil markets and the global economy have, once again, triggered concerns about the impact of oil price shocks around the world. This column wonders whether the fuss is really necessary. It presents evidence of relatively small negative effects of oil price increases.

Increases in international oil prices over the past couple years, explained partly by strong growth in large emerging and developing economies, have raised concerns that high oil prices could endanger the shaky recovery in advanced economies and small oil-importing countries.

The notion that oil prices can have a macroeconomic impact is well accepted; the debate has centred mainly on magnitude and transmission channels. Most studies have focused on the US and other OECD economies. And much of the discussion has related to the role of monetary policy, labour markets, and the intensity of oil in production (Hamilton 1983, 1996, 2005, 2009, Barsky and Kilian 2004, Bernanke et al 1997, Blanchard and Gali 2007).

The manner in which oil prices affect emerging and developing economies has received surprisingly little attention compared with the large body of evidence for advanced economies. In an attempt to provide a broader and more encompassing view on the impact of oil price shocks, we document in recent research (Rasmussen and Roitman 2011) key stylised facts that characterise the relationship between oil prices and macroeconomic aggregates across the world.

The big picture

It is no surprise that import bills go up when oil prices increase. It is more surprising that GDP often goes up too. Figure 1 depicts the correlation between oil prices and GDP for 144 countries from 1970 to 2010. More precisely, it shows the cyclical components of oil prices and GDP, with long-term trends excluded. The set includes 19 oil-exporting countries, represented by red bars, and 125 oil-importing countries, represented by blue bars. A positive correlation indicates that when oil prices go up, GDP goes up, and when oil prices go down, GDP goes down.

The message is clear. In more than 80% of the countries, the correlation between oil prices and GDP is positive, and in only two advanced economies – the US and Japan – it is negative. One of the contributing factors to this pattern is that in 90% of the countries, exports tend to move in the same direction as oil prices.

Figure 1. Correlation between the cyclical component of real GDP and the cyclical component of real oil prices (1970-2010)

Anatomy of oil shock episodes

Given that periods of high oil prices have generally coincided with good times for the world economy, especially in recent years, it is important to disentangle the impact of oil price increases on economic activity during episodes of markedly high oil prices. Following Hamilton (2003), we identify 12 episodes since 1970 in which oil prices have reached three-year highs. The median increase in oil prices in these years was 27%.

We study the behaviour of macroeconomic aggregates during these episodes by comparing the median annual change in a particular variable during oil shock years to the median annual change over the entire sample period. This tells us of any unusual observed changes (Figure 2).

We find no evidence of a widespread contemporaneous negative effect on economic output across oil-importing countries, but rather value and volume increases in both imports and exports. It is only in the year after the shock that we find a negative impact on output for a small majority of countries.

Figure 2. Real GDP growth in oil shock episodes less median growth (1970-2010, in percent)

Small effects for oil importers

To analyse multiple countries and control for global conditions, we adapt the basic autoregressive model of Hamilton (2003, 2005).

Our main interest is in the effect of an oil price shock on the economy of a typical oil-importing country. Taking into account the fact that higher oil prices are generally positively associated with good global conditions, we find that the effect becomes larger and more significant as the ratio of oil imports to GDP increases (Figure 3).

To trace out the full impact of an oil shock, we calculate impulse responses for a 25% increase in oil prices (Figure 4). The results indicate that the typical oil importer can expect a cumulative GDP loss of about 0.3% over the first two years, with little subsequent impact. For countries with oil imports of more than 4% of GDP (ie at or above the average for middle- and low-income oil importers), however, the loss increases to about 0.8% – and this loss increases further for those with oil imports above 5% of GDP. In contrast to the oil importers, oil exporters show little impact on GDP in the first two years but then a substantial increase consistent with the positive income effect, with real GDP 0.6% higher three years after the initial shock.

Figure 3.

To put these numbers in perspective, it is useful to think of an economy where oil accounts for 4% of total expenditure and where aggregate spending is determined entirely by demand. If the quantity of oil consumption remains unchanged, then a 25% increase in the price of oil will cause spending on other items to decrease and, hence, real GDP to contract by 1% of the total. From this reference point, one would expect the possibility of substituting away from oil to reduce the overall impact on GDP. At the same time, there could also be factors working in the opposite direction, via, for example, confidence effects, market frictions, or changes in monetary policy. With our estimates of the GDP loss at only about half the level implied by the direct price effect on the import bill, the results presented here suggest the size of any such magnifying effects, if present, is not substantial across countries.

Are oil price increases really that bad?

Conventional wisdom has it that oil shocks are bad for oil-importing countries. This is grounded in the experience of slumps in many advanced economies during the 1970s. It is also consistent with the large body of research on the impact of higher oil prices on the US economy, although the magnitude and channels of the effect are still being debated.

Our recent research indicates that oil prices tend to be surprisingly closely associated with good times for the global economy. Indeed, we find that the US has been somewhat of an outlier in the way that it has been negatively affected by oil price increases. Across the world, oil price shock episodes have generally not been associated with a contemporaneous decline in output but, rather, with increases in both imports and exports. There is evidence of lagged negative effects on output, particularly for OECD economies, but the magnitude has typically been small.

Controlling for global economic conditions, and thus abstracting from our finding that oil price increases generally appear to be demand-driven, makes the impact of higher oil prices stand out more clearly. For a given level of world GDP, we do find that oil prices have a negative effect on oil-importing countries and also that cross-country differences in the magnitude of the impact depend to a large extent on the relative magnitude of oil imports. The effect is still not particularly large, however, with our estimates suggesting that a 25% increase in oil prices will typically cause a loss of real GDP in oil-importing countries of less than half of 1%, spread over 2 to 3 years.

These findings suggest that the higher import demand in oil-exporting countries resulting from oil price increases has an important contemporaneous offsetting effect on economic activity in the rest of the world, and that the adverse consequences are mostly relatively mild and occur with a lag.

The fact that the negative impact of higher oil prices has generally been quite small does not mean that the effect can be ignored. Some countries have clearly been negatively affected by high oil prices. Moreover, our results do not rule out more adverse effects from a future shock that is driven more by lower oil supply than the more demand-driven increases in oil prices that have been the norm over the past two decades. In terms of policy lessons, our findings suggest that efforts to reduce dependence on oil could help reduce the exposure to oil price shocks and hence costs associated with macroeconomic volatility. At the same time, given a certain level of oil imports, strengthening economic linkages to oil exporters could also work as a natural shock absorber.

The views expressed in this article are the sole responsibility of the authors and should not be attributed to the International Monetary Fund, its Executive Board, or its management.

By. Tobias Rasmussen and Agustin Roitman for the Oil Drum”

Comments »

Gold hit $1778 per oz….

Comments »

Full article

Comments »

“NEW YORK (CNNMoney) — In a switch to a more aggressive tax plan, Mitt Romney said Wednesday that he now favors cutting marginal tax rates for individuals by 20%.

The candidate had previously said he would “maintain current tax rates on personal income” as president before moving to a “fairer, flatter, simpler tax structure” in the future.

Now Romney appears to be accelerating that timetable, announcing a move that would reduce the current top rate paid on income from 35% to 28%, with similar reductions across all tax brackets.

For example, Americans in the lowest bracket would pay 8% instead of 10%. Americans closer to the middle would pay 20% instead of 25%.

“Obviously this is a bigger step,” said Roberton Williams, a Tax Policy Center scholar who has been analyzing the 2012 candidates’ tax plans. “It’s a substantial cut and quite the switch.”

The tax cuts will be offset by limits placed on deductions, exemptions and credits currently available to top-level income earners.

“The right way forward is a flatter, fairer, simpler tax system that generates the revenue we need to fund a smaller government that is restrained to its historical size,” Romney said in a statement.

In a conference call with reporters, Romney economic adviser Glenn Hubbard said that the tax plan, even with rate cuts for individuals, should be revenue neutral….”

Full article

Comments »

“WASHINGTON—Securities and Exchange Commission Chairman Mary Schapiro said Wednesday she is worried about the role of high-frequency traders in the stock market and hinted at new policies aimed at curbing frenetic market activity.

A large portion of trading in the equities market has little to do with “the fundamentals of the company that’s being traded” and more to do with “the minuscule aberrational price move” that computer-assisted traders with direct connections to the exchange can “jump on” in fractions of a second, Ms. Schapiro said.

Such activity “worries me,” she said in a wide-ranging breakfast meeting with reporters. One solution would be forcing high-frequency traders to pay for the canceled trades that make up more than nine-tenths of their orders, she said. Another remedy: requiring such traders to maintain competitive buy and sell orders in the market throughout most of the trading day.

Worries about high-speed trading have been mounting inside the SEC for years, but Ms. Schapiro’s remarks Wednesday indicated a heightened sense of concern and indicate the agency could take aggressive action to rein in the practice.

Many high-frequency trading firms, which move in and out of stocks rapidly using powerful computers, place their computer servers nearby an exchange’s computers in the same facility, an activity known as collocation. Ms. Schapiro did say that high-frequency traders provide liquidity to markets, “and that’s a great thing, it’s lowered the cost of trading.”

She said some of her concerns about high-speed trading were sparked by the May 6, 2010, “flash crash,” when the stock market suffered a massive dislocation and the Dow Jones Industrial Average plunged hundreds of points in a matter of minutes before recovering some of the lost ground. An SEC report after the crash found that many high-frequency firms stopped trading during the upheaval, and some placed added pressure on the market by selling their positions….”

Full article

Comments »

Let the lawsuits rain down…..

Comments »

Source

“Marijuana is safer for drivers than alcohol, teenagers said in a survey by Liberty Mutual Holding Co. and a group promoting responsible behavior among students.

Thirty-six percent of teens who drove after using marijuana said the drug wasn’t a distraction. Among those who reported drinking before driving, 19 percent said alcohol presented no distraction, according to a statement today from the Boston- based insurer.

Adolescents have become more receptive to marijuana use by drivers, according to the company, which conducted the survey with SADD, or Students Against Destructive Decisions. The portion of teens who said marijuana use was very distracting or extremely distracting to their driving fell to 70 percent in the most recent study from 78 percent two years earlier.

The data reflect “a dangerous trend toward the acceptance of marijuana and other substances,” Stephen Wallace, a senior adviser for policy, research, and education at SADD, said in the statement.

About 19 percent of teen drivers said they’ve been behind the wheel under the influence of marijuana, compared with 13 percent who report driving after drinking. The study included a survey of more than 2,000 teenagers in 11th and 12th grades last year at 28 high schools across the country. “

Comments »

Comments »

Source

Everyone keeps wondering when this Teflon market is finally going to crack.

Here’s one chart, via Doug Kass, that more and more people are paying attention to.

It’s the S&P 500 (red line) vs. the ratio of the Dow Transports vs. the S&P 500 (blue line).

The idea among some “Dow Theorists” is that when the Transports get very weak (relatively) it’s a sign that the market as a whole is doomed to fall.

It is pretty stark the gap that’s opened up this year. At a minimum it at least shows that some parts of the market are getting roughed up by the rise in oil prices.

 

Read more: http://trade.cc/aohu#ixzz1n8CvfyXe

Comments »

Take a look at today’s hybrid movers courtesy of The PPT, click here for charts.

Comments »

via

New Jersey Governor Chris Christie said billionaire investor Warren Buffett, who has called for the nation’s wealthiest people to pay more taxes, should “just write a cheque and shut up.”

“I’m tired of hearing about it,” Christie told CNN’s Piers Morgan in an interview that aired last night. “If he wants to give the government more money, he’s got the ability to write a cheque. Go ahead and write it.”

Christie, a first-term Republican known for a blunt and caustic style, has proposed a 10% income-tax cut for every New Jersey resident. Democrats who control the Legislature say his plan would favour the rich. A family with a US$50,000 annual income would pay US$80 less under his plan, while someone earning US$1 million would save US$7,200, Democrats say.

Buffett, chairman of Berkshire Hathaway Inc., has urged Congress to raise taxes on millionaires to cut the U.S. budget deficit. In a New York Times op-ed last year, Buffett wrote that his federal income-tax bill was US$6.94 million, or 17.4% of his taxable income — a lower rate than any of the other 20 employees in his Omaha, Nebraska, office. He has said it is wrong that he pays a smaller share than his secretary does.

Carrie Kizer, Buffett’s assistant, didn’t immediately return an e-mail or telephone call seeking comment on Christie’s statements.

Christie’s comments — which have included calling a lawmaker “numbnuts,” urging reporters to “take the bat out” on a 76-year-old legislator and calling union leaders “political thugs,” — have made him a national figure.

Christie, who vetoed a bill to legalize gay marriage and wants to put it to a popular vote, told its supporters last month that blacks would have been happy to put their civil rights up for a referendum.

“People would have been happy with a referendum on civil rights rather than fighting and dying in the streets of the South,” Christie told reporters Jan. 24 in Bridgewater.

He was accused of ignorance by leaders including Georgia Representative John Lewis, a civil-rights movement veteran who was beaten by Alabama state troopers. Lewis came to Trenton to denounce the governor.

Comments »