Around the Globe 04.08.2013

Analysis: Illinois pension fix faces political, legal hurdles | Reuters.

The Illinois government is proposing huge changes to its public worker pension plans underfunded to a tune of $100bn .  By giving workers a choice between either health care in retirement or the automatic 3% cost of living increase, the state expects to save $100bn over 3o years.  There are two problems with this plan.  The legislature is in the pocket of the unions, so the bill is garnering only tepid support.  The other issue is that the underfunding amount is drastically underestimated as the projections assume a rather optimistic return in the pension fund’s investments over the years.  Illinois residents will be responsible for an increasingly large tax burden amidst a decline in government services for decades to support the bribes given to state workers in exchange for their electoral support.

Why S&P but Not Moody’s? – WSJ.com.

Moody’s and S&P were handing out identical ratings for the most part on rotten CDOs during the subprime crisis.  The article points out a few minor discrepancies, but these are not significant enough to justify the DoJ lawsuit against S&P while Moody’s remains in the clear for similar actions.   Note that in 2011 two ratings agencies, S&P and Egan Jones downgraded the U.S. credit rating from AAA.  I am sure it is a coincidence that both of these firms have endured government investigation into their businesses since while the firm that maintained the AAA rating did not.

Yen tumbles to multi-year lows as BOJ begins buying bonds | Reuters.

YENUSD Exchange Rate to 04.08.13

This article repeats a misconception regarding the BoJ’s policy.  The writer implies that there is something new about Japan monetizing its debt, but this is the same old policy that it has been pursuing for years just on a larger scale.  BTW, whenever a country fires up the HP to finance itself, hyperinflation is the result.

Margaret Thatcher, U.K. ‘Iron Lady’ Prime Minister, Dies – Bloomberg.

margaret thatcher

RIP, Madame Prime Minister.  Margaret Thatcher was easily the most popular British leader since Winston Churchill.  If you’re feeling nostalgic, don’t watch the recent movie about her life starring Meryl Streep.  It’s awful despite Streep’s typically excellent performance.

Housing Prices Are on a Tear, Thanks to the Fed – WSJ.com.

Home-Price Gains May Be Overstated – Real Time Economics – WSJ.

Home prices are up thanks to the Fed’s money printing.  For those of you not trained in the art of economics, this is known as “inflation.” The MSM over-hyped housing recovery has yet to be seen in the numbers.  Let’s go to the charts.

Note that housing prices have only recovered to 2004 levels.  Also note that in inflation adjusted terms, the numbers are even worse: (charts from ZeroHedge.com)

Housing Prices 2000-2013

New home sales  and mortgage applications continue to scrape along the bottom with no uptrend in sight:

New Home Sales 2006 to 2013

Mortgage Applications 2000-2013

I guess if you print enough money to stoke asset price inflation it is easy to fool people into believing that the economy  has improved. (See also the S&P 500).

German Industrial Production Increased in February – Bloomberg.

Markit Eurozone Components Manu PMI March 2013

Mixed economic data emanating from Germany.   Some signs point to growth, others to stagnation.  Flash PMI for March was slightly contractionary.  Germany does not import much relative to its size, so even good growth will not help the periphery much.

Euro zone sentiment dips in April on Cyprus woes | Reuters.

There is an argument that the periphery countries are great for investment because they have sunk so low.  Of course, the other argument is that the PIIGS have much further to fall despite the troika’s happy talk.

Japan Posts First Current-Account Surplus in Four Months – WSJ.com.

Japan ran a surplus, but this is not a significant development.  A rise in exports was not responsible.  Rather, income from international investments and a drop in imports from China during the Lunar caused surplus.  The current account is still way down from last year even with this “recovery.”

Hedge Funds Cut Bets Most Since ’08 as Prices Slump: Commodities – Bloomberg.

The hot money herd thunders from commodities to the U.S. stock market:

SPX vs. SPGCSI 04.08.2013

Guest Post: The Real Cyprus Template (The One You’re Not Supposed To Notice) | Zero Hedge.

This is a fascinating article from ZeroHedge.  I recommend reading the whole thing, but here is the most important chart from the piece:

Cyprus Deposit Sources

One group (black line) managed to get the lion’s share of its money out of those Cypriot banks before the collapse.  Once their exposure was reduced, the bail-in was allowed to proceed.  Guess who?

Fed Faces Risk of Fourth Summer Slump While Pushing QE – Bloomberg.

There is nothing new here.  The Fed really wants everyone to know that it will continue printing money through 2014 no matter what to inflate the stock and housing markets.

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