Emerging Market ETFs and Asia's Evolving Labor Costs [View article]
alphaisbeta - - -
You have a good point. I should have put up India as an additional reference. India would have not have been in the green section because not all time periods have been positive.
The results for the two best performing India ETFs are as follows (results are given in the same order as the table: 1 year, 6 months, 3 months)
Emerging Market ETFs and Asia's Evolving Labor Costs [View article]
Paul - - -
All returns are percentage returns based on USD (ERFs traded in New York) except for the Lion Global Philippine Fund which is in SGD (Singapore dollars). I could have looked up the exchange rate history for USD/SGD and made the correction but I didn't think to do that. If I had thought of it I might have not done it anyway out of laziness. I would have rationalized that most readers could not trade the fund so getting a more accurate comparison would not have added much benefit.
Now I expect to get a complaint from someone in Singapore that I am not serving them well.
And to readers in The Phillippines (if any) I appologize for misspelling the country in the table.
I thought he brought a number of differing opinions together in a succinct manner. You are welcome to dismiss his conclusions as a secondary feature of his column.
I don't take investment advice from Friedman either.
I am preparing a longer piece on this subject in which I will point out some of the things others are cautioning about emerging markets, especially China. I will address some of the strategy I am pursuing for some emerging markets. It would have been ready by now but my broadband access went down for about six hours so I won't finish until tomorrow.
One of my sources discusses the China real estate situation at some length. Link will be provided.
Let me add one other comment about the unemployment rate curves rising for recent recessions long after the end of the recession. The earlier recessions had unemployment peaking near the end of the recession. You did not mention it in this article (but you have previously) that the amount of labor intensive production has decreased and so GDP can increase in the absence of significant increase in employment. Thus, inertia in employment change can persist (ie, unemployment can keep rising), with increased government expenditures and decreased imports driving GDP more than labor intensive production.
I appreciated your discussion on housing. One imponderable is the foreclosure overhang (foreclosures not yet executed). Another is the bank backlog of foreclosures executed but not yet on the market. The future foreclosure pattern will be influenced by how unemployment goes, so a lot of the factors you are discussing are intertwined. This is a mess and quick calls on how it will play out may be ill advised. I had an article on TheStreet.com this week in which I pointed out metrics that would indicate prices were near a bottom and others that indicated another 10% down to go. All the factors regarding foreclosures, unemployment, etc I mentioned above will determine how this plays out. I'm working on the analysis of the problem but haven't got to a publication stage yet.
If I was forced to place a bet today, I would bet on your prediction that prices still have more to fall. I do not have enough confidence, though, to volunteer to put my money down.
I appreciated your discussion on housing. One imponderable is the foreclosure overhang (foreclosures not yet executed). Another is the bank backlog of foreclosures executed but not yet on the market. The future foreclosure pattern will be influenced by how unemployment goes, so a lot of the factors you are discussing are intertwined. This is a mess and quick calls on how it will play out may be ill advised. I had an article on TheStreet.com this week in which I pointed out metrics that would indicate prices were near a bottom and others that indicated another 10% down to go. All the factors regarding foreclosures, unemployment, etc I mentioned above will determine how this plays out. I'm working on the analysis of the problem but haven't got to a publication stage yet.
If I was forced to place a bet today, I would bet on your prediction that prices still have more to fall. I do not have enough confidence, though, to volunteer to put my money down.
Changing reserve requirements is a tool that the Fed can use to effect monetary policy. However, it is a sledge hammmer and not tool that has a lot of fine tuning capability. One of the (many) Fed mistakes in the Great Depression was the doubling of required reserves from 10% to 20% in less than a year in 1936-37. This was one of several policy changes (others were fiscal) that stopped a boomong recovery 1933-36 dead in its tracks in 1937-38 and extended the depression several years.
If reserve requirements were to be tightened, say just from 12/1 to 11/1, that would create a large uncertainty. Banks would be struggling to get ahead of the curve and be prepared for the next possible move. Nothing the Fed could say, including a "guarantee" that no further adjustments would be made, would change the reaction to the new uncertainty. A Fed guarantee is good only for the day issued; it is the Fed's charter to remain reactive to changes in the economy regardless of the announcement de jour.
I do think that tightening reserve requirements should be on the table in the future, but I do not think it makes sense now when some banks are struggling with the current requirement. Only if we are ready to put some of the still struggling beheamoths into receivership (which I have argued for), does tightening reserve requirements make sense.
Apparently ECRI does backwards revisions to their data. I just looked at their coincident indicator from your June 21 post. That shows the indicator settling to a flat bottom in June after declining in April and May. Today, they are showing a different curve. The coincident indicator today shows a minimum in April, with a rising curve for May and June. I wonder if this happens frequently. If so, using ECRI data real time may not have as much value as I had thought. Maybe the data should be viewed in hstorical perspective (say, three months delay) instead.
One problem with the Fed is the responsibility for maintaining financial stability. As a result they have a public relations role. The Fed ends up being a cheerleader in the face of potential economic stress in an effort to maintain confidence in the system. In a fractional reserve banking system, banks are always individually insolvent. The system overcomes this by central banking back-up, with the ability to print whatever amount of money is necessary to satisfy any claims in "bank runs".
To reduce the possibility of liquidity and solvency stress on a system (fractional reserve banking) that has built in technical insolvency and potential liquidity stresses, the Fed becomes a cheerleader. They make reassuring public pronouncements whenever there might be increasing uncertainty. This has always been done and will continue to be done as long as we have this system. Can you imagine the Fed coming out with warnings of potential crises? That would not fulfill their responsibilty to maintain stability.
Policy actions are another issue. These are done presumably to reflect what the Fed really thinks are the challenges. Fed actions can sometimes contradict public statements. The Fed can say everything is fine but cut interest rates with some benign statement like "inflationary expectations are contained". In fact, I don't believe the Fed ever reacts to favorable inflation outlooks with lower interest rates. (They would lower for deflationary prospects.) They cut rates only because they see or fear lessened liquidity or balance sheet stress. The public statements can be obfuscatory.
This is why having public audit of the Fed is, in my opinion, step one in a process of removing that franchise from existence. An audited Fed is ineffective, because their mission is to maintain confidence in a leveraged system. If the real reasons for their actions were public knowledge, the effectiveness of the actions would be negated.
The Fed has made serious policy mistakes. In the Great Depression, they maintained too tight monetary policy. In the Greenspan era, they spent too much time with too loose a monetary policy (too low interest rates). Imagine what the stability might have been over the last 20 years if interest rate policy had been to keep interest rates as high as could be tolerated rather than as low as could be tolerated. Would the average growth have been different? Maybe or maybe not, but we probably would not have had a massive credit bubble and crash.
So, I have to agree with the author. My confidence in the Fed has been shaken. I am ready to hear discussion of how the financial system could be changed. But I am not ready to follow those that say we should abolish the Fed right now, put the U.S. on a gold standard, and let the chips fall where they may. I view that as a nuclear option. I do not equate nuclear explosions with creative destruction. We need some creative destruction and current policy is hindering creative destruction that should have occurred already.
If we need to move on from the financial system of the past 100 years, let's do it with a well thought out plan. I do not see any such plan at present.
Quantum Shift in Economic Baseline: A 'Black Hole' Recovery [View article]
Steve - - -
Great job every week!
Some comments (why is it you get my brain moving on Sundays?)
1. You wrote: "...only a die-hard Keynesian would argue that excessive overspending can go on indefinitely." My observation of "die-hard Keynesians" is that Keynes himself would probably debate them. So many people cherry pick what they want from the great economic philosophers and ignore the rest. The more I read of Keynes work, the less I recognize the modern "Keynesian".
2. The dichotomy between the initial claims graph and the unemployment level table may be in the average duration of unemployment in this recession. It is at least 50% higher than any recession since WW II (probably much higher due to changes in measurement methods to which you referred). Unfortunately, it may be headed for 100% longer duration, or more.
3. I'm still wondering how much the rise in stock prices since March has pumped the ECRI Leading Indicator. If the market goes into an extended pullback toward the March lows, how will this indicator be affected?
Quantum Shift in Economic Baseline: A 'Black Hole' Recovery [View article]
kruser53 - - -
You missed on the extended continuing claims argument. The chart the author displayed is for the regular state unemployment programs. There is another chart for the extended claims progams, which is another 2 million plus people. Mish has a piecs about this globaleconomicanalysis...
So, if intial claims stay below 600,000, continuing claims should start coming down in a couple of weeks because we will be dropping off the end of the line those who filed in the above 600,000 a week period that started in January.
The extended continuing claims should continue rising for another 26 weeks or so unless employment starts increasing.
Brazil: Five Economic Charts [View article]
Thanks for posting these graphs. They give perspective not only on Brazil but also the U.S. and the rest of the world.
Emerging Market ETFs and Asia's Evolving Labor Costs [View article]
You have a good point. I should have put up India as an additional reference. India would have not have been in the green section because not all time periods have been positive.
The results for the two best performing India ETFs are as follows (results are given in the same order as the table: 1 year, 6 months, 3 months)
EPI - +25.9%, +8.2%, -1.8%
INP - +24.8%, -1.1%, -3.0%
Emerging Market ETFs and Asia's Evolving Labor Costs [View article]
All returns are percentage returns based on USD (ERFs traded in New York) except for the Lion Global Philippine Fund which is in SGD (Singapore dollars). I could have looked up the exchange rate history for USD/SGD and made the correction but I didn't think to do that. If I had thought of it I might have not done it anyway out of laziness. I would have rationalized that most readers could not trade the fund so getting a more accurate comparison would not have added much benefit.
Now I expect to get a complaint from someone in Singapore that I am not serving them well.
And to readers in The Phillippines (if any) I appologize for misspelling the country in the table.
Emerging Markets Are Emerging [View article]
You are correct. My extrapolation from Edward's discussion was that such action would not be good for China's stocks.
Emerging Markets Are Emerging [View article]
I thought he brought a number of differing opinions together in a succinct manner. You are welcome to dismiss his conclusions as a secondary feature of his column.
I don't take investment advice from Friedman either.
Emerging Markets Are Emerging [View article]
I am preparing a longer piece on this subject in which I will point out some of the things others are cautioning about emerging markets, especially China. I will address some of the strategy I am pursuing for some emerging markets. It would have been ready by now but my broadband access went down for about six hours so I won't finish until tomorrow.
One of my sources discusses the China real estate situation at some length. Link will be provided.
The Great Recession Continues [View article]
Let me add one other comment about the unemployment rate curves rising for recent recessions long after the end of the recession. The earlier recessions had unemployment peaking near the end of the recession. You did not mention it in this article (but you have previously) that the amount of labor intensive production has decreased and so GDP can increase in the absence of significant increase in employment. Thus, inertia in employment change can persist (ie, unemployment can keep rising), with increased government expenditures and decreased imports driving GDP more than labor intensive production.
The Great Recession Continues [View article]
I appreciated your discussion on housing. One imponderable is the foreclosure overhang (foreclosures not yet executed). Another is the bank backlog of foreclosures executed but not yet on the market. The future foreclosure pattern will be influenced by how unemployment goes, so a lot of the factors you are discussing are intertwined. This is a mess and quick calls on how it will play out may be ill advised. I had an article on TheStreet.com this week in which I pointed out metrics that would indicate prices were near a bottom and others that indicated another 10% down to go. All the factors regarding foreclosures, unemployment, etc I mentioned above will determine how this plays out. I'm working on the analysis of the problem but haven't got to a publication stage yet.
If I was forced to place a bet today, I would bet on your prediction that prices still have more to fall. I do not have enough confidence, though, to volunteer to put my money down.
The Great Recession Continues [View article]
I appreciated your discussion on housing. One imponderable is the foreclosure overhang (foreclosures not yet executed). Another is the bank backlog of foreclosures executed but not yet on the market. The future foreclosure pattern will be influenced by how unemployment goes, so a lot of the factors you are discussing are intertwined. This is a mess and quick calls on how it will play out may be ill advised. I had an article on TheStreet.com this week in which I pointed out metrics that would indicate prices were near a bottom and others that indicated another 10% down to go. All the factors regarding foreclosures, unemployment, etc I mentioned above will determine how this plays out. I'm working on the analysis of the problem but haven't got to a publication stage yet.
If I was forced to place a bet today, I would bet on your prediction that prices still have more to fall. I do not have enough confidence, though, to volunteer to put my money down.
Beating on the Federal Reserve [View article]
Changing reserve requirements is a tool that the Fed can use to effect monetary policy. However, it is a sledge hammmer and not tool that has a lot of fine tuning capability. One of the (many) Fed mistakes in the Great Depression was the doubling of required reserves from 10% to 20% in less than a year in 1936-37. This was one of several policy changes (others were fiscal) that stopped a boomong recovery 1933-36 dead in its tracks in 1937-38 and extended the depression several years.
If reserve requirements were to be tightened, say just from 12/1 to 11/1, that would create a large uncertainty. Banks would be struggling to get ahead of the curve and be prepared for the next possible move. Nothing the Fed could say, including a "guarantee" that no further adjustments would be made, would change the reaction to the new uncertainty. A Fed guarantee is good only for the day issued; it is the Fed's charter to remain reactive to changes in the economy regardless of the announcement de jour.
I do think that tightening reserve requirements should be on the table in the future, but I do not think it makes sense now when some banks are struggling with the current requirement. Only if we are ready to put some of the still struggling beheamoths into receivership (which I have argued for), does tightening reserve requirements make sense.
Beating on the Federal Reserve [View article]
Apparently ECRI does backwards revisions to their data. I just looked at their coincident indicator from your June 21 post. That shows the indicator settling to a flat bottom in June after declining in April and May. Today, they are showing a different curve. The coincident indicator today shows a minimum in April, with a rising curve for May and June. I wonder if this happens frequently. If so, using ECRI data real time may not have as much value as I had thought. Maybe the data should be viewed in hstorical perspective (say, three months delay) instead.
Beating on the Federal Reserve [View article]
To reduce the possibility of liquidity and solvency stress on a system (fractional reserve banking) that has built in technical insolvency and potential liquidity stresses, the Fed becomes a cheerleader. They make reassuring public pronouncements whenever there might be increasing uncertainty. This has always been done and will continue to be done as long as we have this system. Can you imagine the Fed coming out with warnings of potential crises? That would not fulfill their responsibilty to maintain stability.
Policy actions are another issue. These are done presumably to reflect what the Fed really thinks are the challenges. Fed actions can sometimes contradict public statements. The Fed can say everything is fine but cut interest rates with some benign statement like "inflationary expectations are contained". In fact, I don't believe the Fed ever reacts to favorable inflation outlooks with lower interest rates. (They would lower for deflationary prospects.) They cut rates only because they see or fear lessened liquidity or balance sheet stress. The public statements can be obfuscatory.
This is why having public audit of the Fed is, in my opinion, step one in a process of removing that franchise from existence. An audited Fed is ineffective, because their mission is to maintain confidence in a leveraged system. If the real reasons for their actions were public knowledge, the effectiveness of the actions would be negated.
The Fed has made serious policy mistakes. In the Great Depression, they maintained too tight monetary policy. In the Greenspan era, they spent too much time with too loose a monetary policy (too low interest rates). Imagine what the stability might have been over the last 20 years if interest rate policy had been to keep interest rates as high as could be tolerated rather than as low as could be tolerated. Would the average growth have been different? Maybe or maybe not, but we probably would not have had a massive credit bubble and crash.
So, I have to agree with the author. My confidence in the Fed has been shaken. I am ready to hear discussion of how the financial system could be changed. But I am not ready to follow those that say we should abolish the Fed right now, put the U.S. on a gold standard, and let the chips fall where they may. I view that as a nuclear option. I do not equate nuclear explosions with creative destruction. We need some creative destruction and current policy is hindering creative destruction that should have occurred already.
If we need to move on from the financial system of the past 100 years, let's do it with a well thought out plan. I do not see any such plan at present.
Perhaps There Are Unseen Green Shoots [View article]
Quantum Shift in Economic Baseline: A 'Black Hole' Recovery [View article]
Great job every week!
Some comments (why is it you get my brain moving on Sundays?)
1. You wrote: "...only a die-hard Keynesian would argue that excessive overspending can go on indefinitely." My observation of "die-hard Keynesians" is that Keynes himself would probably debate them. So many people cherry pick what they want from the great economic philosophers and ignore the rest. The more I read of Keynes work, the less I recognize the modern "Keynesian".
2. The dichotomy between the initial claims graph and the unemployment level table may be in the average duration of unemployment in this recession. It is at least 50% higher than any recession since WW II (probably much higher due to changes in measurement methods to which you referred). Unfortunately, it may be headed for 100% longer duration, or more.
3. I'm still wondering how much the rise in stock prices since March has pumped the ECRI Leading Indicator. If the market goes into an extended pullback toward the March lows, how will this indicator be affected?
Quantum Shift in Economic Baseline: A 'Black Hole' Recovery [View article]
You missed on the extended continuing claims argument. The chart the author displayed is for the regular state unemployment programs. There is another chart for the extended claims progams, which is another 2 million plus people. Mish has a piecs about this globaleconomicanalysis...
So, if intial claims stay below 600,000, continuing claims should start coming down in a couple of weeks because we will be dropping off the end of the line those who filed in the above 600,000 a week period that started in January.
The extended continuing claims should continue rising for another 26 weeks or so unless employment starts increasing.