Around the Globe 07.02.2013

1 in 10 Canada Families Highly in Debt: Chart of the Day – Bloomberg.

Canada vs US Housing Prices 07.2013

I present the counter Chart of the Day.  Resource-rich Canada has benefited from the growth of China and other emerging markets.  This growth combined with an easy money policy has created a housing bubble.  In fact, Canadian housing prices surpassed the greatest extent of the American housing bubble over two years ago and have continued rising.

The drop in Canada’s consumer credit is not good news.  It is a sign that the housing bubble is bursting.  Canadians have ceased taking out large mortgages to buy homes.  We are about to discover how strong Canada’s banking system really is.

Germans Let Cars Age as Consumers Halt Buying in Crisis – Bloomberg.

European Car Sales 06.18.2013

Germany leads Europe in new car production but purchases less than half its own wares.  The country produces about 6 million new cars annually and buys less than 3 million.  The euro is a weaker currency than Germany deserves based on productivity.  This helps German exports, but it also robs the people of purchasing power.  The flipside to an export friendly currency is reduced living standards for the country.  Perhaps, even Germany would benefit from a euro breakup.

Banks Stay Bond-Addicted as Cash Hoarders Prevail: Japan Credit – Bloomberg.

japan-loans-to-private-sector

By purchasing bonds, the Bank of Japan wanted to increase the amount of cash available for loans.  Just by jawboning alone, loans to the private sector rose from the fall to the spring.  When the plan was announced and implemented in April, loan creation reversed its positive trend as detailed in the chart.  Banks have plenty of cash and have determined that loaning the money to the Japanese government at less than 1% is the best use of the extra funds.  The dearth of good lending opportunities speaks volumes about the true health of the Japanese economy.

Investment Banks Eye ‘Hedge Funds for the Masses’.

Hedge Funds Trail S&P 500 by 10 Percentage Points, Goldman Says – Bloomberg.

Sucker

Since the beginning of the bull market in March of 2009, the average hedge fund has risen 21% compared with a rise of 77% in the S&P 500 through May of 2013.  Less than 5% of the funds are able to match the return of the S&P 500 or even the average mutual fund.  As wealthy investors flee the sector, what are these banker to do to keep the gravy train rolling? The answer is to figure out a way to sell these funds to retail investors.  The smart money may only leave if the dumb money takes its place.

Exclusive: Greece has three days to deliver or face consequences – EU officials | Reuters.

Chicken fight

Greece and the troika are playing chicken again.  Greece is not reforming rapidly enough the troika, so it is threatening to hold back the next bailout tranche.  What makes this game of chicken more interesting than usual is that the Greek banks have yet to be recapitalized since the 3rd Bailout was agreed to last fall.  This sets up a “depositor haircut” à la Cyprus to keep the bailout on track prior to German elections.

There  is no way that Greece will receive any more money from the troika with German elections looming, but Greece cannot be allowed to collapse either.  The solution is a raid of Greek depositors.  This is why Cypriot banking assets were transferred to the Greek system as part of the Cyprus Bailout in April, so that the funds for the raid would be available.  If you think that this is too cynical for even the troika, then you have not been paying attention to the eurocrisis.

Dollar Climbs Above ¥100 – WSJ.com.

YENUSD 07.02.2013

The yen had been stuck below 100 until today.  Decent economic data is given as the reason for the move above the psychologically important level.  Whenever the yen gets too weak, the demand for yen based loans drives the price up again.  I believe that it will be very difficult for the yen to weaken beyond 105 in light of this dynamic.

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2 thoughts on “Around the Globe 07.02.2013

  1. ” The solution is a raid of Greek depositors. This is why Cypriot banking assets were transferred to the Greek system as part of the Cyprus Bailout in April, so that the funds for the raid would be available. If you think that this is too cynical for even the troika, then you have not been paying attention to the eurocrisis. ”

    Perfect, and I do agree and like the way you think, because I think it true !

    But Of course you may have overlooked another alternative:

    They can cook the books again. That may satisfy Merkel and Greece.
    Merkel only needs a few more months to get by.

    I look to magic numbers and found money and previously unknown assets,
    and stuff for sale. And I would not forget the US Fed involvement, my bet
    they will funnel some money somehow and be a part of it.

    Remember this little nugget from 2006:

    Greek economy up 25% – with a little help from prostitutes

    · Athens adds black market output to its GDP figures
    · Move staves off EU fines for breaking deficit rules

    Athens has announced that its economy is 25% bigger than thought thanks, in part, to the round-the-clock duties of the country’s prostitutes, who were known as hetairai in ancient times.

    The Greek authorities are revising the country’s gross domestic product (GDP) after deciding that the black market should be included in the figures.

    http://www.guardian.co.uk/world/2006/sep/30/nicholaswatt.mainsection

    – Too bad they already played that card,
    but maybe now is time to update it and raise GDP another 25 % ?

    .

  2. Pingback: Highly-Indebted Canadians | Boys Financial Services (Stettler)

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