Economists Reinhart And Rogoff Took A Huge Shot At Mitt Romney’s Economists Today

via Business Insider: 

 

Last night, Carmen Reinhart and Ken Rogoff published a white paper showing the recovery could have been a whole lot worse.

carmen reinhart

They argue that the U.S. did not experience a normal crisis, but rather a “systemic financial” one.

That’s only happened four other times in our history: 1873, 1892, 1907, and 1929.

So compared with those crises, our recovery looks pretty rosy:

reinhart rogoff chart

Today in Bloomberg, the pair double down on their argument by taking issue with economists who’ve signed on to Mitt Romney’s campaign and have argued our recovery is different, and worse:

…a few op-ed writers have argued that, in fact, the U.S. is “different” and that international comparisons aren’t relevant because of profound institutional differences from one country to another. Some of these authors, including Kevin Hassett, Glenn Hubbard and John Taylor — who are advisers to the Republican presidential nominee, Mitt Romney — as well as Michael Bordo, who supports the candidate, have stressed that the U.S. is also “different” in that its recoveries from recessions associated with financial crises have been rapid and strong.

we have to take issue with gross misinterpretations of the facts

Since they’re looking at the wrong kinds of benchmark crises, Team Romney ends up using the wrong metrics, they say. Instead of focusing on years to return to normal growth, they’ve fixed on rate of recovery.

But for post- World War II systemic crises around the world, it’s taken about four and a half years to fully recover. In 14 Great Depression episodes around the world (including the U.S.) it took 10 years on average.

Team Romney misses this point:

Taylor, for example, appears to show the recovery from the Great Depression as the strongest in U.S. history, even though it took about a decade to reach the same level of per capita income as at its starting point in 1929.

No doubt, this will likely come off to many as a partisan response to another partisan assertion.

But it seems like it’s impossible to avoid that kind of thing these days.

(Via FT Alphaville)

Why The Fed’s Plan To Save The Housing Market Isn’t Working That Well

via Business Insider: 

 

When the Fed announced QE-infinity in September, it said it would purchase $40 billion of mortgage backed securities per month.  The aim was to lower the mortgage rates offered to consumers.

But there’s been some concern that this hasn’t passed through to the real economy.

In a note titled “Mortgage Originators Not Playing Nice”, TD Securities economist Gennadiy Goldberg writes that average decline in mortgage rates (the interest on a mortgage) since the QE3 decision have lagged the decline in mortgage-backed securities (MBS) rates by an average of 50 percent. Remember, MBS rates refer to the rates at which a pool of mortgages are sold to investors in the bond market.

 

mortgage spread QE3 chart

TD Securities

The difference between MBS yields and mortgage rates

Goldberg explains that there are three factors behind the weak pass-through:

 

  • Lag: Mortgage rates often respond slower to policy changes than the MBS market. “In a similar pattern to what was observed following the previous QE announcements, MBS yields fell more sharply post-announcement, as mortgage rates continued to adjust lower slowly.”
  • Banks: Pass through peaked at 66 percent during the third week after the announcement. “Since the
    mortgage pass through chart

    TD Securities

    QE3 announcement, our calculations suggest that banks have passed through an average of just 40% of their lower funding rates (i.e. lower MBS yields) in the form of lower mortgage rates.”

  • Fees: Higher mortgage fees have slowed the pass through but this is lower than historical levels.

That being said, Goldberg does think the Fed’s moves to lower mortgage rates will help the housing recovery. Now they just have to get mortgage bankers and brokers get on board.

 

FORGET GOLD: Here’s Where Die-Hard Skeptics Are Storing Their Wealth

via Business Insider: 

 

Safe

“Any thoughts about persistent safe havens (other than perhaps cash under your mattress) are dangerous,” warned Jim O’Neill, Chairman of Goldman Sachs Asset Management. 

However, the market skeptics would argue otherwise.

The most popular so-called safe haven — an asset class that doesn’t lose value — is probably gold.

But gold can be heavy and costly to store.  Furthermore, with gold trading at historically high levels, the die hard skeptics have turned to everything ranging from art and whiskey, to esoteric currencies.

Many traditional and unorthodox opportunities are available that may offer a positive return and/or protection against inflation. You might be surprised at what cracks this comprehensive (but not exhaustive) list of safe havens.

 

Guns and Ammo

Guns and Ammo

AP

The ability of guns and ammunition to store value makes them an appealing investment option on their own merits. According to ammo.net, the price of Remington .223 rounds rose 224 percent from 1999 to 2011 – well above the rate of inflation.

Gun sales spiked after the election of Barack Obama in anticipation of more stringent gun control laws.The Wall Street Journal reports that a similar boost in sales is expected in the event of the President’s re-election, and also notes that the supply of guns has not kept pace with demand.

Earlier in 2012, CEO Michael O. Fifer of Sturm, Ruger & Co. suspended the acceptance of new orders after 1Q sales exceeded expectations.

 

Sources: Wall Street Journal, Sovereign Man

Canadian Bonds

According to the Financial Post, foreign purchases of Canadian bonds reached a record $16.7 billion in May 2012.

Jeff Herold and Maria Berlettano, fixed-income portfolio managers at J. Zechner Associates, indicate that central banks concerned about their exposure to the European debt crisis have turned to Canadian bonds as a safe haven. Canadian bonds have retained a Triple-A rating.

 

Source: Financial Post

Farm land

Farm land is an attractive safe haven for investors due to its limited supply and perpetual demand. Tom Eisenhauer, President of Bonnefield Financial, remarked that farm prices are a more consistent hedge against inflation than gold. Simon Black suggests that farm land is inflation-proof because of the demand for food, which isn’t going anywhere but up.

John Taylor, from U.S. Trust’s Farm and Ranch division, remains bullish on farm land, even after noting that “prices over the last five years have continued to go up and they’ve really gone up more than their historic averages.”

 

Sources: Business Insider, Maclean’s

Japanese Yen

Japanese Yen

The Wall Street Journal reports that central banks around the world have increased their reserves of yen by 22 percent over the past four years.

Japan’s currency appreciation has been greater than anticipated, especially relative to the USD, fueling market expectations that Japan will intervene to weaken the yen.

J.P. Morgan has recommended buying yen during economic downturns, as it “rallies because its zero cash rates encourage its persistent use as a funding currency during global expansions, thus obliging investors to repurchase it during deleveraging.”

Sources: Reuters, Wall Street Journal

Watches

Watches

Most watches are not investment-grade material. However, scarce Rolex and Patek Philippe models maintain or increase their value over time. George Somlo, owner of an antiques store in London, observes that during an economic downturn “buying antique or vintage wristwatches and pocket watches has always been a very solid investment.”

Eric Engh, operator of the website Old Watch, notes that “once a watch is sold it creates more demand and raises the price significantly.”

 

Sources: CNBC, CNN

Timber

Though some might believe this commodity’s performance is tied to the housing market, timber has a history of strong performance vis-à-vis inflation. Larry D. Spears writes that timberland values increased by an average of 22 percent per year, compared to inflation averaging 9.2 percent from 1973 through 1981.

R. Dennis Moon, managing director of U.S. Trust’s specialty asset management division, has a client in Long Island investing $50 million in timberland.

 

Source: Barron’s, Money Morning

Stamps

The Handbook of Personal Wealth Management states that stamps have one of the “best and longest-standing track records of stability and success” among physical assets. Though fragile, old stamps retain their value like collectible cars or rare comic books.

PIMCO’s Bill Gross has a stamp collection valued at an estimated at $10 million, much of which he has auctioned off for charity.

 
Sources: CNBC, Handbook of Personal Wealth Management

Scandinavian Bonds

Swedish, Norwegian, and Danish bond yields have all decreased amidst doubts regarding the solvency of eurozone debt.

DNB, a Norwegian bank, has even developed new types of bonds to meet increased foreign demand.

Rob Stewart, head of fixed income and currencies at Rothschild Wealth Management, touts Sweden, Norway, and Denmark as safe havens whose bonds are likely to remain strong.

 

Sources: New York Times, Investment Europe, Wall Street Journal

Artwork

Artwork

Courtesy Sotheby’s

The Mei Moses index, which tracks the price of artwork, has beaten the S&P 500 six times over the past decade. Bond expert Jeff Gundlach called artwork a more portable version of gold that achieves the same store of value.

Since 2009, Sotheby’s stock has gone from a low of 6.47 to a current price of 30.58, a reflection of the bull market for artwork.

 

Sources: Business Insider, Yahoo Finance

Diamonds

Alan Landau, CEO of Novel Asset Management, referred to diamonds as a “great safe haven” on Bloomberg Television. Though less liquid than gold, Landau notes that diamonds are also less volatile and have become an appealing alternative safe haven in light of the dollar’s rally against the euro.

 

Source: Bloomberg

Liquor, Wine

The Aztecs made extensive use of cocoa beans as a form of currency in their barter system. Likewise, early Americans — who were among the world’s leaders in alcohol consumption per capita — used whiskey as a medium of exchange. The book “SWAG” includes wine along with silver, artwork, and gold as investment opportunities that hedge against inflation.

Peter Luzer, a director of the Wine Investment Fund, expects annual returns to range from 12.5 to 14 percent.

 

Sources: Food & Wine, Sovereign Man, SWAG: Alternative Investments for the Coming Decade

Japanese Bonds

Japanese Bonds

AP

According to the Wall Street Journal, foreign investors hold a higher percentage of Japanese debt than any time since 1979.

Monetary inflows into Japanese bonds are based on its perception as a safe haven, though Japan is burdened with an unsustainable ratio of debt-to-GDP and bond yields remain low.

 

Source: Wall Street Journal

Rare Coins

The scarcity of rare coins ensures retention of their value. The price of the 1907 $20 St. Gaudens gold coin went from under $2,000 prior to the recession up to $2,720 this October. Simon Black notes that unlike gold or silver, whose supply levels can fluctuate, the supply of rare coins cannot increase — enabling them to serve as a reliable store of value.

 

Sources: Sovereign Man, NGC Coin

It Looks Like The Huge Drop In Jobless Claims Was All Due To One Mystery State

via Business Insider: 

 

UPDATE: A source explained to us exactly what happened and which state accounted for the plunge. Read more here.

Earlier this morning, the Department of Labor reported that initial jobless claims plunged to 339K from 369K a week ago.

Economists were looking for a reading of 370k.

Immediately, Twitter exploded with tweets mocking Jack Welch, who claimed last week’s jobs report was fixed to artificially drop the September unemployment rate to 7.8 percent from 8.1 percent in August.

Coincidentally, cryptic messages came through from Bloomberg and the WSJ that raised doubts about today’s report. From Bloomberg:

One state accounted for most of the plunge in claims, a Labor Department spokesman said as the data were issued to the press.

And from the WSJ:

“However, the report may not be as positive as the sharp drop indicates. A Labor Department economist said one large state didn’t report additional quarterly figures as expected, accounting for a substantial part of the decrease.”

Initially, rumors started circulating that an entire state’s worth of jobless claims was excluded.

The DoL was not immediately available to comment.

However, CNBC’s Kelly Evans is reporting that the discrepancy is that “one state did not process & report its typical seasonal workload” and that a rebound next week is likely.

We will update as we get more details.

 

jobless claims

@Kelly_Evans

The Biggest Company In Greece Is About To Leave The Country

via Business Insider: 

 

Greece’s biggest company, Coca-Cola Hellenic, is pulling out of the near-bankrupt country and seeking refuge by listing on the London stock exchange.

coca cola olympic park thumbnail

The €5.7bn (£4.6bn) company, which bottles Coke in 28 countries from Russia to Nigeria, said it would move its headquarters to Switzerland and hopes to list its shares on the FTSE 100 in London.

Coca-Cola Hellenic, which makes up a fifth of the Greek stock market, said it was ditching Greece after credit rating agencies downgraded the company’s rating following the country’s downgrade deeper into “junk” status.

The firm, which is 23%-owned by Coca-Cola, hopes switching to London will rid it of the “Greek discount”, which has depressed its shares because many international investors are afraid of putting money into the debt-ridden country.

Dimitris Lois, CCH’s chief executive, said listing in London would “give us greater recognition among international investors, will increase the liquidity of our stock and improve our access to the international equity and debt markets.”

Lois said it made “clear business sense” to leave Greece because 95% of its operations and nearly all its investors were outside of Greece, with 16% of sales coming from Russia, 15% in Italy and 9% in Nigeria.

In a statement, Lois said he hoped the company would be able to join the FTSE 100 index of the UK’s biggest companies. CCH’s market value of £4.6m would, in theory, make it Britain’s 74th-biggest company, just ahead of British Land.

The announcement – a heavy blow to Greece’s Treasury as CCH is among the nation’s biggest taxpayers – came on the same day that official figures showed Greek tax revenues fell €1.3bn short of the target set by the Troika of international lenders as part of its bailout agreement.

Analysts said Greece’s high corporation taxes, which can reach 45%, were likely to have been a big factor in CCH’s decision. Sources close the company confirmed its big shareholders had been pushing for CCH to move out of Greece for some time.

Manos Hatzidakis, an analyst at Beta Securities, said: “The Greek bourse is losing a very good company and the London Stock Exchange is gaining a very important group.

“It’s very bad news for the Greek economy and bourse.”

Because most of its activities are outside Greece, CCH has consistently out-performed the Athens stock market, which has slumped to a 20-year low. The company, which employs more than 40,000 people, became Greece’s biggest after the nation’s banks plummeted in value. CCH said its Greek bottling plants would be unaffected by the move, which is scheduled to take place next year pending a shareholder vote.

CCH is the second big firm to leave Greece for a low-tax jurisdiction this week following the withdrawal of dairy company FAGE to Luxembourg, and analysts say many other big Greek businesses are weighing up plans to leave the country.

The news came as Greece released figures on Thursday showing unemployment soared to a record 25.1% in July. The Greek statistical service ELSTAT said unemployment had risen for the 35th consecutive month and was 0.3% higher than in June.

More than 1.26m Greeks were actively seeking employment in July, a 43% increase on a year earlier. Young people are the worst affected with 54% of Greeks aged 15-24 out of work.

 

28 Good Questions That The Mainstream Media Should Be Asking

via The Economic Collapse: 

Why is there so little trust in the mainstream media these days?  CNN ratings have been hovering close to record lows over the past few months.  A recent Gallup survey found that 60 percent of all Americans “have little or no trust” in the mainstream media.  That was a record high according to Gallup.  So why is this happening?  Sadly, the truth is that the mainstream media quit telling the truth a long time ago.  The mainstream media has an agenda, and more Americans than ever are beginning to recognize this.  Once upon a time, control of the news in the United States was at least somewhat decentralized.  But now there are just six giant media corporations that control almost everything that we see, hear and watch.  The version of “the news” that they give us is designed to serve the interests of those corporate giants and the other corporate giants that spend billions of dollars to advertise their products through those outlets.  Watching the news on television can be an extremely frustrating experience these days.  Yes, there are little bits and pieces of the truth in there, but you have to wade through an awful lot of “infotainment” to get to those bits and pieces.  That is one of the reasons why the “alternative media” has absolutely exploded in recent years.  The American people are hungry for the truth, and they are increasingly turning to alternative sources of news on the Internet in an attempt to find it.

We live at a time when the world is changing more rapidly than ever before.  Just about everything that can be shaken is being shaken, and anyone with half a brain realizes that we are heading for challenges that previous generations never even could have imagined.

There certainly is no shortage of news, but instead of focusing on the terribly important issues that we are facing, the mainstream media feeds us an endless stream of fluff, scandals and celebrities.

Just check out some of the headlines that I found on the front pages of major mainstream news websites today….

“Man Dies After Roach-Eating Contest”

“Ex-NFL Cheerleader Admits To Sex With Minor”

“Facebook Rolls Out Pinterest-Like Tool For Buying Stuff”

“Grumpy Cat Becomes Internet Sensation”

So what should the mainstream media really be talking about today?

The following are 28 good questions that the mainstream media should be asking….

1. Why is the IMF warning that there is an “alarmingly high” risk of a deeper global economic slowdown?

2. Why is Switzerland preparing for “major civil unrest” throughout Europe?

3. If the Spanish financial system completely collapses, what is that going to mean for the rest of Europe and the rest of the globe?

4. Is Turkey about to drag the rest of NATO (including the United States) into a war with Syria?

5. Why aren’t people screaming in outrage about the fact that the U.S. national debt increased by more than a trillion dollars for the fourth straight year in 2012?

6. Should we be concerned that the U.S. government added more to the U.S. national debt on the first day of fiscal year 2013 than it did from 1776 to 1941 combined?

7. If temporary refinery problems can cause some gas stations to shut down and cause gas prices in California to skyrocket to all-time highs, what would a real crisis do?

8. Why are some analysts predicting that a “rapid collapse” is coming for the U.S. dollar?

9. Will the U.S. dollar soon lose its status as the primary reserve currency of the world?

10. Why is Marc Faber warning that the wealthy “may lose up to 50 percent of their total wealth“?

11. By keeping interest rates near zero, is the Federal Reserve crushing the retirement dreams of millions of elderly Americans?

12. Why do Barack Obama, Mitt Romney and most members of Congress continue to stand behind the TSA when nearly 400 TSA employees have been fired for stealing from travelers since 2003?

13. Why are nearly half a million employees of the federal government making over $100,000 a year?

14. How in the world can you have a debate about the economy that lasts for an hour and a half and never even mention Ben Bernanke, the Federal Reserve or quantitative easing?

15. Why are Romney campaign signs being smeared with excrement?

16. British taxpayers spent 57.8 million dollars on the royal family in 2011.  U.S. taxpayers spent 1.4 billion dollars on the Obamas that same year.  How in the world can this be justified?

17. Why does the U.S. government treat our military veterans like garbage?  Many of them have given everything for their country.  Shouldn’t we treat them with more respect?

18. Why is the mainstream media ignoring a warning that an international gang of cybercriminals plans “to steal money from the online accounts of thousands of consumers at 30 or more major U.S. banks“?

19. The New England Complex Systems Institute in Cambridge, Massachusetts is warning that rapidly rising global food prices could soon lead to massive food riots all over the planet.  Is this something that we should be concerned about?

20. Why is the United Nations pushing to have the authority to impose “global taxes” on all of us?

21. How did we get to the point where sex trafficking is now at epidemic levels all over the United States?

22. Why are so many young people being arrested?  Should we be concerned that 41 percent of all Americans have been arrested by the time they reach the age of 23?

23. Why are most Americans either overweight or obese or severely obese?

24. How was one Baltimore woman able to accumulate 30 free cell phones all paid for by the federal government?

25. Why are nearly 30 percent of all young adults in the 25 to 34 year old age bracket living at home with their parents?

26. Why has the birth rate in the United States fallen to an all-time low?

27. With the race for president incredibly tight right now, will the side that loses end up accusing the other side of using voter fraud to steal the election?

28. Is the U.S. Supreme Court about to make it illegal to resell our own stuff at yard sales, in thrift stores and on eBay?

Do you have any questions to add to this list?

Please feel free to post a comment with your thoughts below….

Jack Welch: I Was Right About That Strange Jobs Report

via Washington Post

Imagine a country where challenging the ruling authorities—questioning, say, a piece of data released by central headquarters—would result in mobs of administration sympathizers claiming you should feel “embarrassed” and labeling you a fool, or worse.

Soviet Russia perhaps? Communist China? Nope, that would be the United States right now, when a person (like me, for instance) suggests that a certain government datum (like the September unemployment rate of 7.8%) doesn’t make sense.

Unfortunately for those who would like me to pipe down, the 7.8% unemployment figure released by the Bureau of Labor Statistics (BLS) last week is downright implausible. And that’s why I made a stink about it.

Before I explain why the number is questionable, though, a few words about where I’m coming from. Contrary to some of the sound-and-fury last week, I do not work for the Mitt Romney campaign. I am definitely not a surrogate. My wife, Suzy, is not associated with the campaign, either. She worked at Bain Consulting (not Bain Capital) right after business school, in 1988 and 1989, and had no contact with Mr. Romney.

The Obama campaign and its supporters, including bigwigs like David Axelrod and Robert Gibbs, along with several cable TV anchors, would like you to believe that BLS data are handled like the gold in Fort Knox, with gun-carrying guards watching their every move, and highly trained, white-gloved super-agents counting and recounting hourly.

Let’s get real. The unemployment data reported each month are gathered over a one-week period by census workers, by phone in 70% of the cases, and the rest through home visits. In sum, they try to contact 60,000 households, asking a list of questions and recording the responses.

Some questions allow for unambiguous answers, but others less so. For instance, the range for part-time work falls between one hour and 34 hours a week. So, if an out-of-work accountant tells a census worker, “I got one baby-sitting job this week just to cover my kid’s bus fare, but I haven’t been able to find anything else,” that could be recorded as being employed part-time.

The possibility of subjectivity creeping into the process is so pervasive that the BLS’s own “Handbook of Methods” has a full page explaining the limitations of its data, including how non-sampling errors get made, from “misinterpretation of the questions” to “errors made in the estimations of missing data.”

Bottom line: To suggest that the input to the BLS data-collection system is precise and bias-free is—well, let’s just say, overstated.

Even if the BLS had a perfect process, the context surrounding the 7.8% figure still bears serious skepticism. Consider the following:

In August, the labor-force participation rate in the U.S. dropped to 63.5%, the lowest since September 1981. By definition, fewer people in the workforce leads to better unemployment numbers. That’s why the unemployment rate dropped to 8.1% in August from 8.3% in July.

Meanwhile, we’re told in the BLS report that in the months of August and September, federal, state and local governments added 602,000 workers to their payrolls, the largest two-month increase in more than 20 years. And the BLS tells us that, overall, 873,000 workers were added in September, the largest one-month increase since 1983, during the booming Reagan recovery.

These three statistics—the labor-force participation rate, the growth in government workers, and overall job growth, all multidecade records achieved over the past two months—have to raise some eyebrows. There were no economists, liberal or conservative, predicting that unemployment in September would drop below 8%.

I know I’m not the only person hearing these numbers and saying, “Really? If all that’s true, why are so many people I know still having such a hard time finding work? Why do I keep hearing about local, state and federal cutbacks?”

I sat through business reviews of a dozen companies last week as part of my work in the private sector, and not one reported better results in the third quarter compared with the second quarter. Several stayed about the same, the rest were down slightly.

The economy is not in a free-fall. Oil and gas are strong, automotive is doing well and we seem to be seeing the beginning of a housing comeback. But I doubt many of us know any businessperson who believes the economy is growing at breakneck speed, as it would have to be for unemployment to drop to 7.8% from 8.3% over the course of two months.

The reality is the economy is experiencing a weak recovery. Everything points to that, particularly the overall employment level, which is 143 million people today, compared with 146 million people in 2007.

Now, I realize my tweets about this matter have been somewhat incendiary. In my first tweet, sent the night before the unemployment figure was released, I wrote: “Tomorrow unemployment numbers for Sept. with all the assumptions Labor Department can make..wonder about participation assumption??” The response was a big yawn.

My next tweet, on Oct. 5, the one that got the attention of the Obama campaign and its supporters, read: “Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers.”

As I said that same evening in an interview on CNN, if I could write that tweet again, I would have added a few question marks at the end, as with my earlier tweet, to make it clear I was raising a question.

But I’m not sorry for the heated debate that ensued. I’m not the first person to question government numbers, and hopefully I won’t be the last. Take, for example, one of my chief critics in this go-round, Austan Goolsbee, former chairman of the Obama administration’s Council of Economic Advisers. Back in 2003, Mr. Goolsbee himself, commenting on a Bush-era unemployment figure, wrote in a New York Times op-ed: “the government has cooked the books.”

The good news is that the current debate has resulted in people giving the whole issue of unemployment data more thought. Moreover, it led to some of the campaign’s biggest supporters admitting that the number merited a closer look—and even expressing skepticism. The New York Times in a Sunday editorial, for instance, acknowledged the 7.8% figure is “partly due to a statistical fluke.”

The coming election is too important to be decided on a number. Especially when that number seems so wrong.

Mr. Welch was the CEO of General Electric for 21 years and is the founder of the Jack Welch Management Institute at Strayer University.