Shiller Says Don’t Get So Excited Yet Over Housing

“Yale professor Robert Shiller is one of the pre-eminent experts in house prices.

Shiller created the “Case-Shiller Index,” which tracks changes in house prices on a monthly basis and is the most closely followed house-price index in the country.

We sat down with Professor Shiller in Davos to get his take on the future of the housing market.

* * *

Henry Blodget: Everybody in the U.S. seems convinced that the housing market is going to come roaring back, it’s going to save the economy, house prices are going to rise, houses are a great investment again. Are they right?

Professor Shiller: First of all, I challenge your statement a little bit. The Pulsenomics survey of experts – they had 105 experts in their December survey – and not one of them predicted a return to the boom that we had. The most optimistic had a real return for the next 4/5 years of something like 6 percent.

Blodget: But that’s way better than zero.

Shiller: I’m taking the most optimistic out of 105….”

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“European talking heads have reassured us on an hourly basis that the worst of the debt crisis is over. But the Japanese trade deficit, a measure of reality, not words, tells a different story about the crisis in Europe. And about troubles coming to a boil in China.

But neither issue can be resolved by Prime Minister Shinzo Abe’s plan to decapitate the yen.

Trade deficits aren’t the end of the world for Japan. But they’re the end of an era. Since the mid-1980s, Japan has booked large annual trade surpluses, to the total and ineffectual aggravation of US presidents and lawmakers.

The surpluses helped fund Japan’s budget deficits without having to rely on foreign investors. Now, these deficits have become a mountain of debt over twice the size of GDP, unequalled in the developed world.

But in 2011, that seemingly endless string of surpluses, on which the Japanese economy had become dependent, broke. Instead there was a deficit of ¥2.56 trillion, small by US standards. It was ascribed to the earthquake and tsunami, fuel imports, etc. A temporary blip.

In 2012, the monthly trade deficits got worse, and over the last six months, they occurred in an uninterrupted sequence to reach ¥6.93 trillion ($78 billion), almost tripling from 2011. An all-time record.

Yet, even during the campaign late last year, Shinzo Abe, now prime minister, vowed to toss all fiscal restraints overboard and pile even more deficit spending on that mountain of debt that had been funded by the now evaporated trade surpluses. So the cabinet just approved another round of stimulus spending, $117 billion, the largest since the financial crisis. It will be up to the Bank of Japan to print enough yen and mop up the red ink….”

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“The Fed’s balance sheet just topped $3 trillion for the first time ever according to the Wall Street Journal,

The U.S. Federal Reserve‘s balance sheet topped $3 trillion for the first time as the central bank continued with its easy-money policy.

The Fed’s asset holdings in the week ended Jan. 23 increased to $3.013 trillion from $2.965 trillion a week earlier, the central bank said in a weekly report released Thursday.

The Fed’s holdings of U.S. Treasury securities rose to $1.697 trillion Wednesday from $1.689 trillion a week earlier. The central bank’s holdings of mortgage-backed securities rose to $983.17 billion, from $947.61 billion a week ago.

Fred

How much QE is leaking into the economy?…”

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“HOUSTON (AP) — Halliburton’s net income for the fourth quarter declined 26 percent on pricing pressures in the North American market and one time charges from the Deepwater Horizon disaster, as well as acquisitions.

Yet adjusted results beat Wall Street expectations, and shares rose 4 percent before the opening bell Friday.

The oilfield services company earned $669 million, or 72 cents per share, for the three months ended Dec. 31. That’s down from $906 million, or 98 cents per share, a year ago.

Removing one-time charges and gains, earnings from continuing operations were 67 cents per share.

Revenue increased 3 percent to $7.29 billion from $7.06 billion, bolstered by international growth — particularly in the Middle East, Asia and Latin America. The company said that its quarterly revenue performance was the highest in its history.

Analysts surveyed by FactSet expected earnings of 61 cents per share on revenue of $7.06 billion….”

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“(Reuters) – Honeywell International Inc posted fourth-quarter earnings just above Wall Street estimates, reflecting the diversified U.S. manufacturer’s campaign to boost profit margins in the face of sluggish sales growth.

The maker of cockpit electronics and systems to manage the climate and security of large buildings said on Friday that earnings came to $251 million, or 32 cents per share. For the year-earlier period, the company booked a loss of $310 million, or 40 cents per share.

Factoring out accounting items related to the company’s pension plan, the profit was $1.10 per share, topping the analysts’ average forecast of $1.09, according to Thomson Reuters I/B/E/S.

Overall profit margins rose to 15.6 percent of sales from 15.1 percent a year earlier as Chief Executive Officer Dave Cote has been pushing to boost productivity across the company’s four divisions, including consolidating businesses into fewer locations.

Revenue rose 1 percent to $9.58 billion from $9.47 billion a year earlier….”

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“Procter & Gamble Co. (PG), whose chief executive officer is under pressure from activist investor Bill Ackman, raised its 2013 earnings forecast after gaining U.S. market share and posting quarterly profit that beat analysts’ estimates.

Net income more than doubled to $4.06 billion, or $1.39 a share, in the second quarter ended Dec. 31, Cincinnati-based P&G said today in a statement. Excluding some items, profit of $1.22 a share topped the $1.11 average of estimates compiled by Bloomberg.

The results underscore CEO Bob McDonald’s ability to gain market share after putting more emphasis on leading brands while reducing expenses, cutting jobs and consolidating local suppliers. The executive has been focusing on his turnaround plan while Ackman, who took a stake in P&G last year, has pushed to replace him.
“There are signs that the company is improving — slowly – – but that momentum needs to continue going forward for discontent to evaporate,” said Ali Dibadj, an analyst at Sanford C. Bernstein & Co. “It’s been a long period of underperformance.”
P&G rose 2 percent to $71.80 at 7:28 a.m. in New York. The shares gained 1.8 percent last year compared with a 13 percent gain for the Standard & Poor’s 500 Index.
The company raised and narrowed its annual profit forecast, excluding some items, to a range of $3.97 to $4.07 a share, from $3.80 to $4. Analysts predicted $3.98, on average.

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“Crude headed for a seventh weekly advance in New York, the longest run of gains in almost four years, amid signs of global economic growth and concern that oil facilities in North Africa are vulnerable to militant attacks.

West Texas Intermediate crude advanced as much as 0.6 percent as German business confidence rose for a third month in January. The European Central Bank said 278 banks will hand back 137.2 billion euros ($184.4 billion) of its three-year loans next week at the first opportunity for early repayment. The U.K., German and Dutch governments yesterday urged their citizens to leave the Libyan city of Benghazi.

“Global risk sentiment remains fairly upbeat,” said Andrey Kryuchenkov, a commodities analyst at VTB Capital in London, who predicts WTI will trade from $93 to $97 a barrel over the next month.

Crude for March delivery gained as much as 54 cents to $96.49 a barrel and was at $96.38 in electronic trading on the New York Mercantile Exchange at 12:30 p.m. London time. Futures climbed 0.8 percent to $95.95 yesterday and are up 0.9 percent this week. A seventh weekly gain would be the longest rising streak since April 2009. The average volume of all futures traded today was 18 percent below the 100-day average.

Brent for March settlement gained as much as 56 cents to $113.84 a barrel on the London-based ICE Futures Europe exchange, the highest since Oct. 17. The European benchmark contract was at a premium of $17.35 after contracting to $15.16 on Jan. 17, the narrowest in almost six months.

Business Confidence…”

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“Coffee output in Central America and Mexico may tumble as a disease affecting foliage spreads, prompting governments to take emergency measures to protect farms responsible for 14 percent of global production.

Guatemala, Central America’s second-biggest coffee grower, may lose a third of its crop because of leaf rust, President Otto Perez Molina said yesterday in Davos, Switzerland. The crop in Costa Rica may be 30 percent to 40 percent smaller because of the fungus, President Laura Chinchilla said in a separate interview in Davos. Coffee exports from Honduras, the region’s biggest grower, will be down 767,000 bags due to leaf rust, also called roya, the Honduras Coffee Institute said.

Coffee production in Mexico and Central America will be 19.7 million bags in the 2012-2013 season that started Oct. 1, the International Coffee Organization estimated in a report on Jan. 9. That is 2.8 percent lower than the previous forecast of 20.3 million bags, data from the London-based group showed. Farmers around the world will harvest 144.1 million bags, the ICO estimates. A bag of coffee weighs 132 pounds.

“In the next few months when demand increases, the market will realize that the countries south of Mexico to Peru do not have the amounts of coffee expected and that there will be less availability of high-quality coffee,” said Ronald Peters, executive director of the Costa Rican Coffee Institute, adding that higher temperatures and below normal rainfall may have helped fuel the outbreak.

Coffee Futures…”

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“Goldman Sachs Group Inc. (GS) President Gary Cohn warned of a potential drop in fixed-income prices as bankers and policy makers in Davos celebrated surging demand for financial assets.

Debt markets that have seen junk-bond yields drop to record lows may face a “substantial repricing” if interest rates spike or investors begin pulling money out of fixed income, Cohn, 52, said in an interview yesterday with Bloomberg Television’s Erik Schatzker at the World Economic Forum in Davos, Switzerland.

The Spanish government attracted record demand for its 7 billion-euro ($9.4 billion) sale of 10-year bonds this week and Portugal sold five-year debt for the first time in two years. The Standard & Poor’s 500 Index (SPX) topped 1,500 yesterday for the first time since 2007.

“Markets are really giving the sign that progress has been made,” Martin Senn, chief executive officer of Zurich Insurance Group AG, said in an interview after a meeting of bankers and policy makers including Italian Prime Minister Mario Monti and Bank of Canada Governor Mark Carney. Senn said that he and his colleagues have to avoid becoming “complacent.”

“I’m not concerned at this point of that because there’s a good awareness of the respective risks,” he said.

Resurgent Markets…”

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“The European Central Bank said banks will next week repay more of its emergency three-year loans than economists forecast in another sign the euro region’s debt crisis is abating.

Some 278 financial institutions will return 137.2 billion euros ($184.4 billion) on Jan. 30, the first opportunity for early repayment of the initial three-year loan, the Frankfurt- based ECB said in a statement today. That compares with the median forecast of 84 billion euros in a Bloomberg News survey of economists. The ECB’s first loan totalled 489 billion euros and banks can continue to make early repayments in coming weeks.

“The ECB is taking back some of the extra liquidity it injected into the banking system a year ago,” said Christian Schulz, senior economist at Berenberg Bank in London. “This is a stark contrast to other central banks such as the U.S. Federal Reserve, the Bank of England and the Bank of Japan, who are still blowing up their balance sheets. No wonder that the euro exchange rate is going up.”

The euro rose about half a cent after the report to $1.3465, the highest since February last year. It traded at $1.3437 at 1:15 p.m. in Frankfurt.

The ECB flooded financial markets with two tranches of so- called Longer Term Refinancing Operations totaling more than 1 trillion euros a year ago after banks stopped lending to each other because of Europe’s debt crisis. Banks have the option of repaying the loans, which were offered at the average of the ECB’s benchmark rate over their duration, after a year.

Euribor Futures…”

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“Goldman Sachs Group Inc. (GS) traders are telling investors Spain’s housing market is improving, even as unemployment is at a record 26 percent and 2 million homes linger unsold after a decade-long building boom crashed.

A Goldman Sachs trading desk is recommending Spanish residential mortgage securities that are priced cheaper than other assets linked to the country and may be attractive to comparable European bonds, according to a presentation seen by Bloomberg News. While official statistics are lagging behind, homes are selling in regions with the most inventory and housing starts are dropping, the bank said.

Spain is mired in its second recession in three years and Prime Minister Mariano Rajoy is imposing the deepest budget cuts in the country’s democratic history to avoid an international bailout. While that’s restored some investor confidence, the number of jobless is near 6 million and home prices that more than doubled in the decade through 2007 before turning negative in the first quarter of 2008 have fallen by about 26 percent.

“We have significant concerns over the increasing unemployment levels in Spain, particularly in a falling housing market,” said Dipesh Mehta, a London-based securitization analyst at Barclays Plc, without referring to the Goldman Sachs report. “On both counts we do not expect the situation to improve anytime soon.”

About 40,000 homes have been foreclosed on in Spain since the collapse of the market five years ago. Overbuilding created ghost towns of unoccupied homes around the country, and the Ministry of Public Works estimated last year there were 700,000 unsold homes. With unfinished units and foreclosures, the total stands at 2 million, according to Madrid-based real estate consulting firm Acuna & Asociados.

No Credit…”

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“Japan’s consumer prices fell for the seventh time in eight months, underscoring the risk that the central bank may struggle to reach a 2 percent inflation target unless it implements new easing measures earlier than planned.

Consumer prices excluding fresh food fell 0.2 percent in December from a year earlier, the government said in Tokyo today, matching the median estimate of 23 economists surveyed byBloomberg News. Bank of Japan (8301) Governor Masaaki Shirakawa said today that meeting the target would not be easy and that central banks need to be alert to financial bubbles.

Deputy Economy Minister Yasutoshi Nishimura said in an interview yesterday that reaching the inflation target announced this week will be difficult without more easing, as he endorsed further yen weakness. Minutes of a December BOJ meeting released today show that some members were in favor of making asset purchases in the first half of 2013 to support an economy that contracted in the second and third quarters of last year.

“There is no doubt that the 2 percent target is too high,” saidYuichi Kodama, Tokyo-based chief economist at Meiji Yasuda Life Insurance Co. “The BOJ will have to implement much looser measures.”

The yen fell, heading for a record stretch of weekly losses against the dollar. The currency was 0.2 percent lower at 90.50 per dollar as of 4:14 p.m in Tokyo. The Nikkei 225 Stock Average closed 2.9 percent higher, while the Topix Index capped its longest weekly winning streak since 1973.

The BOJ said this week that it will shift to Federal Reserve-style open-ended asset purchases from January 2014 and target the achievement of 2 percent inflation “at the earliest possible time.” The central bank’s forecasts this week showed inflation at 0.9 percent in the year starting April 2014.

Buy Bonds…”

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“Samsung Electronics Co. (005930) fell to a two-month low in Seoul trading after forecasting a slowdown in smartphone demand and predicting that a stronger currency may cut operating profit by 3 trillion won ($2.8 billion) this year.

The world’s largest maker of mobile phones, TVs and computer-memory chips dropped 2.5 percent after stoking concerns about the smartphone market triggered by an Apple Inc. share plunge yesterday. The forecast also overshadowed a better-than- expected 76 percent jump in quarterly net income.

“Fourth-quarter results were good, but the problem now is what lies ahead,” said Kim Hyung Sik, a Seoul-based analyst with Taurus Investment Securities. “The high-end smartphone market has largely become saturated, while the fast Chinese growth in the lower segment will make it difficult for anyone to see strong profit growth there.”

Samsung and Apple (AAPL), which together make more than half the world’s smartphones, face slower growth in developed nations as years of surging sales have limited the number of new customers they can find. In China, the companies are batting with local phone-makers offering models costing as little as $100.

“Chinese vendors are growing fast,” Kim Hyun Joon, vice president at Samsung’s mobile communications business, said on a conference call today. Global market growth also will get “somewhat weaker” starting this year, he said.

Stronger Won…”

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The Australian dollar rose versus the yen for a second day on speculation pressure will increase on the Bank of Japan (8301) to expand stimulus after core consumer prices in the nation declined last month.

The so-called kiwi dollar traded 0.3 percent from its highest level versus the yen since September 2008 after minutes of a BOJ policy meeting in December showed the central bank intends to continue powerful easing. The Australian currency reached a three-week low versus the U.S. dollar as traders remained almost split on whether the Reserve Bank of Australia will cut its benchmark interest rate on Feb. 5.

“We should see more yen weakness, and Aussie-yen as a consequence is beginning to perform quite well,” said Jim Vrondas, the chief currency and payments strategist, Asia- Pacific, at OzForex Ltd. in Sydney. “The market is quite confident that the new regime in Japan, for the time being at least, is going to deliver on what they’re saying in a somewhat aggressive way,” he said referring to Liberal Democratic Party’s return to power after elections last month.

Australia’s dollar rose 0.2 percent to 94.56 yen as of 4:42 p.m. in Sydney. It fell as low as $1.0439, the weakest since Jan. 4, before trading unchanged at $1.0451.

New Zealand’s dollar was little changed at 75.67 yen, after reaching 75.89 yesterday, its strongest since September 2008. It declined 0.2 percent to 83.63 U.S. cents.

The so-called Aussie may climb toward 100 yen and New Zealand’s dollar may advance to 80 yen over the first quarter, Vrondas said.

Japan Inflation…”

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“The euro strengthened to an 11-month high against the dollar as the European Central Banksaid lenders will repay more of its loans than economists forecast. U.S. stock-index futures rose, while the yen weakened for a second day.

The euro climbed 0.4 percent to $1.3436 at 7:10 a.m. in New York and the yen slid 0.8 percent versus the dollar. The pound dropped less than 0.1 percent to $1.5784, erasing earlier gains, after the U.K. economy contracted more than analysts anticipated. The Stoxx Europe 600 Index advanced 0.3 percent, extending a 23-month high. Standard & Poor’s 500 Index futures increased 0.3 percent as Starbucks Corp. climbed 2.6 percent. Lead and zinc jumped to three-week highs and European Union carbon permits headed for a record weekly decline….”

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“The yen headed for a record stretch of weekly losses against the dollar as data showing a decline in Japanese consumer prices added to the case for further monetary stimulus from the central bank.

The Bank of Japan (8301) announced open-ended easing and a 2 percent inflation target this week. The Japanese currency remained weaker after touching a 2 1/2-year low as Governor Masaaki Shirakawa said he will make “considerable efforts” to reach the price target. The Dollar Index rose before U.S. data forecast to show home sales increased.

“The market’s looking for any excuse to sell the yen at the moment,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk management company. “The weakness in the yen has got quite a long way to go. It’s very hard to find economic fundamentals that justify buying the currency.”

The Japanese currency slid 0.2 percent to 90.55 per dollar at 6:39 a.m. in London from yesterday, after earlier touching 90.69, the weakest since June 21, 2010. It was set for an 11th weekly loss, the longest losing streak in data compiled by Bloomberg going back to 1971.

The yen dropped to 121.31 per euro, the weakest since April 2011, before trading at 121.03, 0.2 percent lower than yesterday’s close in New York. The 17-nation euro fell 0.1 percent to $1.3367. The shared currency was still poised for a 0.4 percent weekly gain against the dollar and 0.9 percent advance versus the yen.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, added 0.1 percent to 80.038.

Consumer Prices…”

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“European stocks rose, extending a 23-month high, as German business confidence improved and European Central Bank data showed lenders will repay more long- term refinancing operation loans than estimated. U.S. index futures and Asian shares also advanced.

Banca Monte dei Paschi di Siena SpA (BMPS) led banks higher, surging 12 percent, on a report the Bank of Italy may approve a bailout as soon as tomorrow. STMicroelectronics NV jumped 4.4 percent after Exane BNP Paribas upgraded the semiconductor maker. SolarWorld AG (SWV) sank the most ever after saying it needs to make “serious” adjustments to its debt structure.

The Stoxx Europe 600 Index rose 0.3 percent to 289.66 at 12:43 p.m. in London, extending its gain this week to 0.9 percent. The gauge has climbed 3.6 percent so this year and is on track for its longest stretch of monthly gains since July 1997 after U.S. lawmakers reached a budget compromise. Standard & Poor’s 500 Index futures rose 0.4 percent today, while the MSCI Asia Pacific Index added 0.2 percent.

“The market will move higher, it is still undervalued, and any pullback we view as a buying opportunity,” said Kevin Lilley, a fund manager at Old Mutual Asset Managers U.K. in London, which oversees about 4 billion pounds ($6.2 billion). “I do feel hopeful for this year in that all the leading indicators across the globe are all picking up.”

The number of shares changing hands on companies listed on the Stoxx 600 was 42 percent higher than the average of the last 30 days, data compiled by Bloomberg showed….”

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Not as bad as yesterday, but Au is off $4 and Ag is down $0.20

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Yields for Italy, Spain, France,  and Germany …

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“SAN FRANCISCO (MarketWatch) — Starbucks Corp. SBUX +0.61% reported late Thursday its fiscal first-quarter profit rose to $432 million, or 57 cents a share, from $382 million, or 50 cents a share, a year ago. Revenue for the quarter ended Dec. 30 rose 11% to $3.8 billion from $3.44 billion. Analysts surveyed by FactSet had expected the Seattle-based coffee giant to earn 57 cents a share on $3.85 billion in revenue. Starbucks stood by its fiscal 2013 revenue growth target of 10% to 13%. Starbucks shares fell 1.1% to $54.00 in after-hours trade.”