Wikinvest Wire

And then there's Zimbabwe

Tuesday, July 31, 2007

Reuters reports on an IMF estimate that, by the end of the year, the annual inflation rate in Zimbabwe may be so high that most humans won't be able to understand what it means.

Nearly anyone can grasp a percent change of 20, 50 or 100 - even a 1,000 percent increase is relatively easy to conceptualize - but when it goes much beyond that, there are no easy reference points.

"...If recent monthly trends continue, (IMF) staff projects that year-on-year inflation could well exceed 100,000 percent by year-end," Abdoulaye Bio Tchane, the IMF's Director of the African Development, told Reuters in an interview.
What the heck does that mean?

The simplest way to think of it is as follows: if 1,000 percent represents a 10x increase, then 100,000 percent would be a 1,000x increase, meaning that if something cost $1 on January 1st of 2007 in Zimbabwe, it could cost $1,001 on December 31st.

Their central bank (yes, they do have a central bank) apparently hasn't learned how to manage "inflation expectations", an approach that has so far proven successful here in the U.S. with the Bernanke Fed, otherwise "actual inflation" wouldn't be so high.

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The funny money boom of the new millennium

Well, maybe it was fate after all that caused the return to this blog with this name - with financial markets now reeling and the book tour gearing up for a September start, it all seems to make more sense now than it did a month or two ago.

No less than three of you sent a link to today's scathing Financial Times commentary about the old Fed chief - Greenspan has left more than a wall of worry to overcome($). Thanks.

Somehow it seems like old times again - maybe all that was needed was a little break.

We can trace the market’s current tremors back to the previous Federal Reserve chairman, Alan Greenspan. It was Mr Greenspan who, in the aftermath of the dotcom bust, practically drowned asset markets with a tidal wave of liquidity and easy money.
The post-millennial stock market rescue was not the only time Mr Greenspan stepped in to “save” Wall Street. He has form as a serial inflationist, willing to slash interest rates to bail out investors who should not need rescuing from themselves: one thinks of the stock market crash of October 1987; the Savings and Loan crisis; the Asian crisis; the collapse of hedge fund Long-Term Capital Management; the feared Y2K crisis. No central banker has done more for the concept of moral hazard – the risk that the perceived support of the monetary authorities will cause financial institutions to play fast and loose with other people’s money.

It is abundantly clear that, having gorged on overly easy money for years, Anglo-Saxon financial markets are suffering from indigestion.
The problem for financial markets now is that a functioning financial system ultimately comes down to trust. When trust is in short supply, there is no obvious price base for securities and credits that during the good times seemed to offer unimpeachable quality. Nor is this crisis of trust restricted to the corporate sector – national Treasuries have been busily debauching their own currencies with the help of the printing press. As Mr Greenspan himself admitted in 1999: “Gold still represents the ultimate form of payment in the world. Fiat money, in extremis, is accepted by nobody. Gold is always accepted.”

So the US now nurses concerns about credit quality and a possible credit crunch, a housing crisis, the sustainability of corporate profit margins and the logical response of consumer spending to deteriorating fundamentals. US lenders, mortgage brokers, investment banks and ratings firms will all, one suspects, enjoy their day in court.

But when the central bank itself was complicit in the funny money boom of the new millennium, one is left to wonder just how sizeable the “correction” and cross-market contagion could ultimately become.
Just like old times.

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The all-in-one Case-Shiller HPI

After wondering what it would look like if all the metropolitan areas covered by the Case-Shiller Home Price Index were to appear in one chart, it didn't take long to find out:

In case you are having trouble making out the color coding, from top-to-bottom on the rightmost side of the chart, the order is Miami, Los Angeles, Washington DC, San Diego, Las Vegas, Tampa, Phoenix, New York, San Francisco, Seattle, Portland, Boston, Minneapolis, Chicago, Denver, Atlanta, Charlotte, Dallas, Cleveland, Detroit.

An update to the index was released earlier today - see this Bloomberg story for details.

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Caroline, give George a call

It's hard to prove a negative, some say it's impossible, but that's what Caroline Baum seems to want to do about every six months - whenever the markets takes a tumble, that's apparently more proof that the so-called Plunge Protection Team does not exist.

Rubin Should Teach Paulson Secret PPT Handshake
If that acronym, short for Plunge Protection Team, doesn't immediately conjure up images of government officials and representatives of large Wall Street banks (think Goldman Sachs) conspiring to support the stock market, you don't spend enough time with the black-helicopter crowd.

The idea that there is a cabal of government and private- sector individuals who secretly support the stock market in times of distress does have a small basis in fact. Following the 1987 stock market crash, President Ronald Reagan formed a high- level Working Group on Financial Markets to discuss options in the event of a financial crisis and disorderly markets. The group consists of the secretary of the Treasury and the chairmen of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Reporter Brett Fromson described the inner workings of the group and coined the term Plunge Protection Team in a 1997 Washington Post article.

Anyone who can't prove that the PPT doesn't exist is immediately dismissed as a pawn of the government or a part of the cabal. Yours truly has been accused of both by the conspiracy theorists (CTs).

What is their proof that the PPT exists? To a person, these folks haul out two presumably incontrovertible pieces of evidence: one, a mention of the PPT by ABC's George Stephanopoulos on TV shortly after the Sept. 11 terrorist attacks; and two, a 1989 Wall Street Journal op-ed by former Federal Reserve Governor Robert Heller.
Black helicopters and conspiracy theorists - what about "tin foil hats"?

Sprott Asset Management wrote a pretty comprehensive piece on this subject almost two years ago - Move Over Adam Smith - The Visible Hand of Uncle Sam (.pdf) - and a quick review of that work prompts the question of why Caroline called the guy who just wondered aloud about PPT-like actions in an op-ed piece (Heller) rather than the guy who claimed to know of its existence (Stephanopoulos).

If you really want to get to the bottom of this Caroline, give George a call and ask him to explain what he said on September 17th, 2001 as the stock market was about to re-open after the 9/11 attack:
Well, what I just want to talk about for a few minutes is the various efforts that are going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the markets. You reported just a while ago that the Fed has lowered the overnight interest rates, will put about $80 billion into the market. In addition, the SEC, the Securities and Exchange Commission, has relaxed the rules for companies on whether or not they can buy back their stock in case they start to fall.

And dozens of companies, including big companies like Intel and Cisco have announced that they would buy back their stock if necessary. Third, there will be some trading curbs in effect today. If the market drops by about 1,100 points, they will probably suspend trading for a while. And perhaps most important, there’s been – the Fed in 1989 created what is called a plunge protection team, which is the Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges, and there – they have been meeting informally so far, and they have kind of an informal agreement among major banks to come in and start to buy stock if there appears to be a problem.
Was this just a ham-handed reassurance from someone who really didn't know what he was talking about or did George just not realize that he was never supposed to confirm the existence and purpose of such a group?


Update: Tuesday, 7/31/07 8:00 AM

Another interesting excerpt from the Sprott report regarding this part of the Baum story - "He went on to reveal the formation of the PPT by the Fed (wrong, it was President Reagan) in 1989 (wrong, it was 1987)..."
Of note, Stephanopoulos states that the Federal Reserve created the PPT in 1989.This is significant because it differs from the publicly known details about the Working Group on Financial Markets. As explained earlier, President Reagan created the Working Group in 1988. While a small detail on the surface, it tends to support what journalist Nelson Hultberg wrote in 2003, where he found a link between the PPT and the Robert Heller Wall Street Journal op-ed described earlier:

Bill King of the highly regarded King Report in New York tells us that the PPT sprang from an analysis written and presented by former Fed Governor Robert Heller in 1989. After his paper was published is when the PPT agenda was formalized.

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Too good not to share

Monday, July 30, 2007

Courtesy of twist at Housing Doom comes this YouTube clip of Jim Cramer and his "plowing under" prognostication for San Bernardino and Riverside County real estate.


This is all very confusing

Well, Blogger/Google (whichever it is) has/have been hot on the case of the missing blog - there were at least a few links back to the Greenspan, shut up! Google, fix my blog! post over the weekend, though it's hard to imagine that this had anything to do with the recent attention from the very polite, but very late support crew.

Shortly after I deleted the old blog and started expressing my displeasure - see Bad Macro Re-Emerges, Now they respond, and See TMTGM for the time being - the forlorn badmacro blog was re-animated as

No, they didn't update the artwork, that's my handiwork.

UPDATE: July 30th, 2:35 PM

For the foreseeable future, all new material will be appearing here, rather than at either of the other blogs.

My apologies for any confusion or inconvenience the last few weeks have caused.

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Planting the seeds of their own demise?

Do you think anyone in the financial services industry stops to wonder if, by offering so many new ways for the public to buy commodities, they might be planting the seeds of their own demise?

Or, at least, helping to end business as it is currently practiced as the shift from paper to tangible assets continues despite the repeated attempts by the mainstream financial media to thwart its progress.

A case in point is the recent explosion in exchange traded products for commodities - not commodity stocks, the commodities themselves - the most recent addition being the six new ETCs (Exchange Traded Commodities) based on crude oil futures contracts, soon to begin trading in London.

Resource Investor has all the details:

ETF Securities Plans Launch of Six Oil ETCs
By Jane Louis

ETF Securities is set to launch six new oil exchange traded commodities (ETCs) on the London Stock Exchange within the next few weeks.

The new ETCs will give investors a unique “opportunity to gain direct and simple exposure to one, two and three year oil futures prices in Brent and WTI oil benchmarks,” according to a press release from the London-based company.

The six new ETCs – proclaimed as a world first for listed access to the entire oil futures curve – will be listed as: Brent 1yr [LSE:OSL1], Brent 2yr [LSE:OSL2], Brent 3yr [LSE:OSL3], WTI 1yr [LSE:OSW1], WTI 2yr [LSE:OSW2] and WTI 3yr [LSE:OSW3].

By adding six new ETCs to the two originals, “investors now have the choice of gaining exposure to a range of four different maturities with varying rates of backwardation or contango,” the company said in the press release.

Nik Bienkowski, head of listings and research for ETF Securities, told Resource Investor that ETCs, very similar to exchange traded funds (ETFs), are a good investment choice because they do not carry the risks of management and operational problems as many other investments do.

“In comparison to alternatives, if your alternative investment is in commodities or commodity equities, the returns can be quite different,” Bienkowski said. “That’s because resource equities, for example, are correlated to the equity market, and they have management risks, operational issues, etc. … And they also have other parts of the business, especially oil companies for example, that are involved in transporting, refining, gas, electricity, all sorts of things.

“So if you do take oil as an example, our ETC is 99% correlated with the oil price. But if you look at the AMEX oil index, it is actually 50%-60% correlated with U.S. equities and only about 20% correlated with the oil price. So if you’re looking investment returns, if your investor wants to invest in the underlying commodity price, you’re better off investing in an ETC.”
Remember that while there are thousands of equity funds, the number of investment funds holding commodities or commodities futures contracts is still just a tiny fraction of that amount - less than a hundred at last count.

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The personal saving rate is now positive!

One of the mostly overlooked developments from last Friday's GDP report was the effect that massive data revisions had on the personal saving rate - it is now positive!

Not by much, but those nasty negative numbers going back over two years have been wiped off the books for good after new income was found.

Recall that this much misunderstood measure is simply after-tax income less consumption expenditures and,
according to the BEA, a zero or negative personal saving rate does not imply that individuals are not saving for retirement.

A zero or negative personal saving rate simply means that
instead of being funded by current income, some portion of spending is "financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods".

So, just how much has the savings rate improved?

The personal saving rate -- saving as a percentage of disposable personal income -- was 0.6 percent in the second quarter, compared with 1.1 percent in the first.
The personal saving rate (personal saving as a percentage of DPI) was revised up from 2.0 percent to 2.1 percent for 2004, was revised up from negative 0.4 percent to positive 0.5 percent for 2005, and was revised up from negative 1.0 percent to positive 0.4 percent for 2006.
Who says we're not a nation of savers?

That's a hefty average of a full percent each year for each of the last three years.

What more could you ask?

Maybe it's time to take a break and live a little - go on America, go out and buy something nice for yourself - you deserve it after the last three years.

Naturally, there are still those individuals who want to put assets into the savings rate calculation to make it a much, much bigger positive number - after all, rising asset prices are the foundation for nearly all Western economies.

There are a few dissenters, former Dallas Fed President Bob McTeer being the most recent, but as evidenced by the comments section at the WSJ economics blog on this topic, this is still the prevailing view.
This is good news. However, the savings rate statistic is not as meaningful as it should be. For example, it does not include assets in retirement plans, which are $16.4 trillion. See:
Comment by Kurt Brouwer - July 27, 2007 at 3:48 pm
Does the “savings rate” also reflect 401(k) and IRA, i.e. retirement, deposits?
Comment by deb - July 27, 2007 at 4:33 pm

The value of the “rate of savings” is dubious since it does not include investments. In our house we haven’t had a savings account in decades, instead investing hundreds of thousands into mutual funds. But according to the official definition, we haven’t saved a dime. Jesus saves but Moses invests.
Comment by Richard - July 29, 2007 at 6:14 pm
Jesus, hundreds of thousands! I mean, Moses.

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I can't sell my house

Sunday, July 29, 2007

Courtesy of Keith at the sometimes guilty pleasure Housing Panic blog comes this photo from what also might become a guilty pleasure blog around here - I Can't Sell My House.

Click to enlarge (yes, you really should)

Enlarging the photo is necessary to see the For Sale sign next door. The blogger writes:
Notice the Hummer, Denali, big boat, two jet skis, and customized swimming pool all on one postage stamp sized lot. Welcome to the new millennium. This isn't just a's a Happy Meal with toys.
What will they think of us in 50 years?


This week's cartoon from The Economist:

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The week's economic reports

Saturday, July 28, 2007

Following is a summary of last week's economic reports. Developing weakness in consumer spending in second quarter economic growth along with two more abysmal housing reports sent equity markets reeling around the world. Stocks and bonds ended the week with the S&P 500 Index down a whopping 4.9 percent to 1,459, now up only 2.8 percent on the year, and the yield of the 10-year U.S. Treasury Note down 17 basis points to 4.79 percent.

Existing Home Sales: Once again, existing home sales declined for the month reaching a new five year low at a seasonally adjusted annualized rate of 5.75 million units in June after a downwardly revised total of 5.98 million units in May. Sales of single-family homes plunged at a 30 percent annual rate in the second quarter, the steepest decline in 28 years, and overall existing home sales are down 11.4 percent from year-ago levels.

Though the inventory of unsold homes dropped slightly, due to fewer sales, supply remains at historically high levels of almost nine months. Median prices remain firm at $230,100, up 0.3 percent year-over-year, however, this has more to do with the mix of homes being sold rather than relative prices for comparable properties sold in 2006 versus 2007. The Case-Shiller Home Price Index shows broad mid-single-digit home price declines across major metropolitan areas.

New Home Sales: The nation's homebuilders reported more bad news on residential construction as the deceleration in new home sales quickened in June. New homes sold at an annualized rate of 834,000 in June, from a downwardly revised level of 893,000 in May. The June total just barely exceeds the result of three months ago but will likely become a new seven year low after next month's revision. Downward revisions of prior month's data are now routine - April and May sales were revised lower by 39,000, wiping out the gain that was reported last month.

Like the inventory of existing homes, the supply of new unsold homes remains historically high at 7.8 months and, with the growing troubles in mortgage lending, it is only a matter of time before price cuts accelerate as builders are forced to move inventory. From year-ago levels, the median price for new homes is down just 2.2 percent, however, incentives totaling many thousands of dollars have been masking large price declines for over a year.

Durable Goods: Orders for durable goods snapped back in June growing 1.4 percent after an upwardly revised 2.3 percent decline in May. This result came in below expectations, but more importantly, new orders excluding the volatile transportation category fell 0.5 percent, the second consecutive monthly decline, in what is most likely an early indication that the manufacturing boom of early 2007 is about to come to an end.

Gross Domestic Product: As expected, inflation adjusted economic growth rebounded in the second quarter to an annualized growth rate of 3.4 percent after a very weak first quarter pace of 0.6 percent. While the headline number was greeted warmly by some economists, the underlying trend in personal consumption has led many to believe that trouble lies ahead despite the second quarter improvement in nonresidential construction, higher exports, and a decline in imports.

Gross domestic product measures the total output of an economy or the combined value of all goods and services and is the most important indicator of economic health. There are four major categories:

  • Personal consumption expenditures
  • Gross private domestic investment
  • Net exports of goods and services
  • Government consumption expenditures and gross investment
As shown in the chart below, consumer spending (in blue) has contributed the lion's share of growth in recent years but contracted sharply from a 2.56 percentage point contribution to overall GDP in the first quarter to just 0.89 percentage points in the second quarter. With the exception of the Hurricane Katrina affected fourth quarter of 2005, this was the weakest period of consumer spending since the second quarter of 2001, roughly half of the average for the last four years.

You can see what might happen above based on the lagged effect of the housing boom on consumption. Private domestic investment (in red), of which one-third is residential construction, began to wane early in 2006 and then turned negative - now consumer spending drops precipitously. Where will consumer spending go from here?

The last time consumer spending detracted from economic growth was back in 1991, but just maintaining the current level will likely be enough to post a negative overall growth number given the volatility in the other components. Consumer spending, driven in large part by the housing boom and increased debt, has been a prop under the U.S. economy for years - it may be that the prop is about to be removed.

There was good news on the inflation front as the PCE deflator slowed to a 2.7 percent annualized rate after increasing 4.2 percent in the first quarter. The core PCE price index, excluding food and energy, slowed from 2.4 percent in the first quarter to 1.4 percent in the second, however, the bad news is that energy prices have been soaring so far in the third quarter - oil prices are about 10 percent higher in July than the average of April-May-June - so easing price pressures will probably be short-lived.

Consumer Sentiment: The Reuters/University of Michigan index of consumer sentiment rose from a June level of 85.3 to a 90.4 in July, down slightly from a mid-July reading of 92.4. One-year inflation expectations remained steady at 3.4 percent and five-year inflation expectations rose slightly, up to 3.1 percent. Inflation expectations, as represented in this survey, remain fairly well contained as consumers have apparently accepted $3 gasoline - from the looks of oil prices recently, there may be another test coming with $4 gasoline.

Summary: By far, the most significant development of the week was the pullback in consumer spending as seen in the report on second quarter economic growth. Though the overall annualized growth rate of 3.4 percent was quite good, particularly when compared to the first quarter reading, the slowdown in consumer spending bodes ill for economic growth during the second half of the year given that it accounts for more than two-thirds of total output.

The housing market continues to plumb new lows, but this is nothing new. What was new last week were early signs that the manufacturing rebound may have about run its course with the second consecutive decline in durable goods, excluding transportation. Next week's ISM survey will shed more light on the state of domestic manufacturing.

The Week Ahead: Economic reports in the week ahead will be highlighted by the ISM manufacturing report on Wednesday and the labor report on Friday. Also scheduled for release are reports on personal income/spending, construction spending, and consumer confidence on Tuesday, ADP employment and pending home sales on Wednesday, factory orders on Thursday, and the ISM non-manufacturing index on Friday.

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Toto, we're not in Kansas anymore

Friday, July 27, 2007

The graphic appearing in this NY Post story earlier today is just too good to pass up - investors must feel at least a little bit like Dorothy and Toto when they awoke in Oz, realizing that everything had changed.

The story isn't bad either:


The stock market's rout yesterday was driven in large part by the realization among investors big and small that the woes in the mortgage-bond sector are spreading to other parts of the debt market.

While it has been hedge funds that have felt the brunt of pain caused by the giant hiccup in the subprime mortgage market, the latest wave of malaise is affecting everything from leveraged buyouts to what until now would have been considered run-of-the-mill bond offerings.
Key Wall Street indexes are telling traders that the rout is not likely to stage a reverse soon.

A highly watched asset-backed bond index comprised of AA-rated bonds - the ABX 07-1 index - dropped six points yesterday. It usually moves a point or two, traders told The Post.

Other ABX indexes covering A-rated to BBB-rated bonds dropped between three and five points.

Bond investors and speculators are casting doubt on the future health of Wall Street's investment banks, which have been shattering quarterly and annual earnings records over the past five years.

Many now hold billions of dollars in mortgage bonds and other illiquid assets, which are expected to weigh on their results in upcoming quarters.
There's no place like home, there's no place like home.

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Inside the GDP report

After a dismal showing in the first quarter, the U.S. economy grew at an annualized rate of 3.4 percent in the second quarter, the best performance in over a year. The details, however, contain some ominous signs for what may lay ahead.

Gross domestic product measures the total output of an economy or the combined value of all goods and services and is the most important indicator of economic health.

There are four major categories:

  • Personal consumption expenditures
  • Gross private domestic investment
  • Net exports of goods and services
  • Government consumption expenditures and gross investment
As shown in the chart below, consumer spending (in blue) has contributed the lion's share of growth in recent years but contracted sharply from a 2.56 percentage point contribution to overall GDP in the first quarter to just 0.89 percentage points in the second quarter.

With the exception of the Hurricane Katrina afected fourth quarter of 2005, this was the weakest period of consumer spending since the second quarter of 2001, and is roughly half of the average for the last four years.

You can see what might happen above based on the lagged effect of the housing boom on consumption. Private domestic investment (in red), of which one-third is residential construction, began to wane early in 2006 and then turned negative - now consumer spending drops precipitously.

Where will consumer spending go from here?

The last time consumer spending detracted from economic growth was back in 1991, but just maintaining the current level will likely be enough to post a negative overall growth number given the volatility in the other components.

Consumer spending, driven in large part by the housing boom and increased debt, has been a prop under the U.S. economy for years - it may be that the prop is being removed.

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Greenspan, shut up! Google, fix my blog!

Thursday, July 26, 2007

This just in, courtesy of the Wall Street Journal Real Time Economics Blog - a consistent source of timely information, insightful commentary, and regular amusement.

Greenspan Warns of High U.S. Tax Rates
Former Federal Reserve Chairman Alan Greenspan, speaking at a Treasury Department event on business taxes, said the problems of higher U.S. tax rates in a global economy are being masked by the low global cost of capital and declining exchange rates.

This will be temporary, however. “The cost of capital is not going to stay down at this level,” Greenspan said. As the cost of capital rises, the problems of higher U.S. tax rates relative to other countries will become more apparent, he said.

Greenspan stressed that lawmakers should act now to lower rates while the economy is good. “When all of a sudden the Baby Boomers retire … pressure is going to be for higher taxes, not lower taxes and to do anything that effects the corporate tax rate on the downside will run into political resistance.”

He said political opposition will occur even though economists widely agree that lower corporate tax rates can boost jobs by increasing productivity. “Regrettably, there is still a great deal of populism in this country,” he said.
Google/Blogger support is about the exact opposite of the WSJ Economics Blog - an inconsistent source of untimely information, useless commentary, and no amusement whatsoever.

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The Bank of New Zealand raises rates

Earlier today, the Reserve Bank of New Zealand raised their short-term interest rate to an all-time high of 8.25 percent and Reserve Bank Governor Alan Bollard provided the following comments:

The New Zealand economy is running strong. We are recording continued big increases in international commodity prices, especially dairy, reflecting solid world demand for our products.

This is very good news for New Zealand. Given this positive situation, some of the negative commentary circulating about the economy is unwarranted.

However, the continued tight labour market, high capacity use, and rising oil and food prices all point to sustained inflationary pressures. That is why we are increasing the OCR today.

The New Zealand dollar has reached very high levels recently, driven by US dollar weakness and New Zealanders’ heavy demand for borrowing. This level of the currency has been hurting exports.

The high New Zealand dollar is not sustainable medium term and investors should understand this. The higher OCR now gives strong incentives to New Zealanders to save.

New Zealanders have been showing early signs of moderating their borrowing.

Provided they keep this up, and the pressure on resources continues to ease, we think the four successive OCR increases we have delivered will be sufficient to contain inflation.
The odd similarity to Zoolander aside, it's hard to mistake the seriousness of the bank in their approach toward inflation - "tight labour market, high capacity use, and rising oil and food prices all point to sustained inflationary pressures".

Apparently the RBNZ doesn't follow the Bernanke "inflation expectations" approach to controlling rising prices where it is believed that if you keep repeating over and over, "inflation is moderating" and "inflation is our predominant policy concern", that price increases will eventually moderate.

In New Zealand, they actually raise the cost of borrowing (the money supply growth would be checked over at The Economist, but they have apparently stopped publishing that data).

According to this Bloomberg report, this may be the end of the rate hikes and the kiwi may be set for a long, steady decline from the recent all-time highs against other freely traded currencies.

Bollard for the first time signaled he may be done raising interest rates, suggesting New Zealand's dollar will slide from a 22-year high that has forced exporters to close factories and fire workers as profits drop. Bollard has raised rates to curb domestic demand, which is stoking inflation toward the top of the 1 percent-to-3 percent range he targets.
New Zealand's dollar bought 79.89 U.S. cents at 5 p.m. in Wellington from 80.36 cents immediately before the statement. The currency this week reached 81.10 U.S. cents, the highest since it began freely trading in March 1985.
New Zealand's currency has been buoyed by the so-called carry trade, where investors borrow cheaply in the currencies of countries where interest rates are lower, such as Japan, to invest in assets with higher returns.

Japan's 0.5 percent rate is 7.75 percentage points lower than New Zealand's, which is the highest after Iceland's among countries with the top rating at Moody's Investors Service.
Adding to signs domestic demand isn't slowing, retail sales rose twice as fast as expected in May, according to a government report on July 13. House prices increased at the fastest pace in 13 months in June and credit-card spending jumped 9.1 percent from June last year.
Central banks worldwide are grappling to curb inflation pressures. Bank of England's policy makers this month increased their benchmark rate to 5.75 percent. The Bank of Canada this month raised its key rate for the first time in more than a year to 4.5 percent.
Don't bet on the kiwi losing too much for too long against the dollar - at least not as long as the carry-trade continues.

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Google/Blogger 'bots running amok

Well at least Bad Macro had company earlier this week - in the Google 'bots zest to stamp out SPAM blogs (apparently a big problem) they also took down The Bondad Blog.

Hey all --

I had a technical meltdown with Google. They have these things called robots that search the web looking for Spam web sites. They thought I was one, but I guess I'm not.

So, I'm back. Sorry for being away.
Robots? Where are the robots? I'll find them. Good boy!

Since this email was received yesterday afternoon and there is still no sign of life at the new blog, the worst fears of a fatal incident may yet be realized:
From: Blogger Help
To: ""
Sent: Wednesday, July 25, 2007 12:41:17 PM
Subject: Re: [#178090425] Blogger Beta non-spam review and verification request:


Your blog has been reviewed, verified, and cleared for regular use so that
it will no longer appear as potential spam. If you sign out of Blogger and
sign back in again, you should be able to post as normal. Thanks for your
patience, and we apologize for any inconvenience this has caused.

The Blogger Team
It's kind of like they're taunting me now - either that or this is what it would be like to talk to someone on a far away planet where it takes 12 hours for messages to travel in one direction.

They've been advised that, despite their happy-sounding email, nothing has changed.

On a kharma related note, I just noticed that this 'ol TMTGM blog shows up at number five when doing a simple Google search on "Greenspan":

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An equal opportunity housing bust

Wednesday, July 25, 2007

Draw your own inferences from the table below, but it sounded like it would be an interesting exercise to plot yesterday's California foreclosure data by county from DataQuick alongside the 2005 census data for race.

The color coding is simple - a red to green gradient per column with red numbers the biggest and green numbers the smallest.

There are some pretty cool features in the new Excel - in this case, for Conditional Formatting, just select a group of cells and pick which color scheme you want.

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One of many, apparently

Whatever caused Bad Macro to be shut down has apparently had a similar effect on a number of other blogs just within the last few days.

Here's a note from someone at Google in reply to one of the Help Group messages:

Hey all,

I'm not here to get into a large discussion about politics, corporate, Blogger, or otherwise, but I do want to apologize for any frustrations and inconveniences that pop up due to our Spam filter. I know it sucks to be locked out when you want to publish. That said though, there's a swift and easy way to get reviewed. If you're forced to complete word verifications before publishing (but you're not locked out of your blog), then all you have to do is click on the "?" on your post editor and request a review. Alternatively, if you're locked out of your blog completely, you should be able to request a review by clicking on the "Contact Blogger Support" link on your dashboard. After requesting a review, you should hear back from The Blogger Team within 24-48 hours (barring any weekends and holidays), unless you are in fact violating Blogger's Terms of Service. There's no need to send multiple emails, one will do the job. Sending multiple emails simply means there's more emails for us to go through.

If you're blog was incorrectly flagged as Spam, I can't give you the one reason our filter caught your blog. You just happened to get caught, and for that, we apologize. Know that we're continuously working to improve our filter, so we don't catch folks like you in the future. In the meantime, thanks for your patience.

- Jordan
This reminds me of the time I set up a website using Yahoo! a few years ago - there is simply no way to actually talk to someone at the company about a problem and sending emails is like dropping a letter into an abyss.

From their point of view, it's easy to understand why they do this, but from my point of view, it is maddening.

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Shut down tight, but not that tight

Tuesday, July 24, 2007

Now that the new blog is completely useless to anyone but me (and to me it is only useful in a limited composition and preview mode rather than as a real blog where others can actually read it too), it is only natural to wonder what these eight people have seen after somehow penetrating the Blogger/Google-SPAM-cone-of-silence that was dropped just after 9:36 this morning.

Worldspice, - what do you see? Sprintbbd, you saw two pages - how's BM doing?


Bad Macro flagged as SPAM, chopped off at the knees!

On Tuesday, the new blog - Bad Macro - was flagged as SPAM by Blogger/Google and it was taken down - everything appears to be intact, it's just that noone can get to it (kind of defeating the whole purpose of having a blog). Blogger/Google have been contacted and hopefully it will be back up soon. Meanwhile, new posts will appear below.


Stealing copper near Copperopolis

A local newspaper not far from here published this story yesterday on how surging commodity prices are affecting the behavior of some profit-seekers the Motherlode - there appears to be a "Copper Rush" here in Gold Country.

Local copper theft rules are proposed

After the defeat of a California bill that aimed to curb the copper thefts that have plagued farms and construction sites across the state, a coalition has drafted a version for local governments.
The rise in thefts is believed to be driven by copper's price, which has risen from around 60 cents per pound in early 2003 to about $3.75 per pound today, according to, a metal retailer.

Copper theft is rampant in Tuolumne County, with up to eight incidents being reported to the Sheriff's Office each month.

"And most of them don't get reported," said Sheriff's Lt. Dan Bressler.

A $30,000 spool of copper wire taken from the Moccasin Point Marina late last year was perhaps the largest single take, but in recent months 500-foot spools of wire have been stolen from a handful of homes and construction sites.

"They'll pull thousands of feet of wire out of the ground, they'll take spools of copper wiring from construction sites, they'll take anything they think has copper in it," Bressler said.
But can recyclers tell whether the product is stolen?

"That's one of the difficulties with scrap metal. There's no bar code on it," said Keith Highiet, one of four family members who run Modesto Junk Co.

The company requires valid car plates, driver's licenses and a checkable source for the metal, which leads it to turn away about five customers each hour. But the criminals do not have to go far.

"People can go down the street, or they can go across county lines or to a different city and they don't have the same kind of guidelines," Highiet said. "The price is at a level where it makes economic sense for people to drive 20, 30, 40 miles to get rid of it."
Between here and the Modesto Junk Co. is a construction boomtown (at least up until this year) called Copperopolis, imaginatively named for what they once pulled out of the ground with a pick and a shovel but which now arrives and leaves on a spool.

Geez, next thing you know they'll be stealing milk crates!

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Greenspan Rulez

Federal Reserve humor is not easy, a point made clear during the agonizing half-hour Daily Show send off for retiring Fed Chairman Alan Greenspan eighteen months ago. Justin over at Bernanke Panky is determined to see if he can make the Fed funny - having a retired Alan Greenspan around sure seems to help the cause.

What, no brimstone? Just fire?

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Not so well kept secrets at Northern Dynasty

How does a gold exploration company move their share price 50 percent higher in just six months without issuing a press release?

Keep finding gold and make others work to find out just how much gold you are finding.

That seems to be the story at Northern Dynasty Minerals...

[Note: This is a slightly edited version of a company update that went out to subscribers at Iacono Research just a few days ago - shares of Northern Dynasty were added to the model portfolio late last year with additional shares purchased yesterday. If you are interested in investing in the great natural resources bull market of the early 21st century, you might want to sign up for a Free Trial to see what it's all about.]

Northern Dynasty Minerals (AMEX:NAK) is one of the best-positioned companies in the gold mining industry to benefit from rising metal prices either by building a mine or by being acquired - the company's Pebble West Project is huge, but the Pebble East Project looks like it will be even bigger.

Share price have risen dramatically in recent months after an updated resource estimate for Pebble East in February but, since that time, the company has been virtually silent about what's going on with their 2007 drill program.

Recall that after some very promising initial exploration in 2005 at Pebble East, company priorities were realigned resulting in increased exploration in 2006 and an initial estimate in February of 2007 indicating a near doubling of the inferred resource from 22 million ounces of gold to 40 million ounces. A larger drill program is now underway with the intention of further defining the resource and moving as much of the gold as possible from the Inferred category (fewer samples, wider spacing) to Measured and Indicated (more samples closer together).

According to recent accounts, with eight drill rigs operating this summer, the ore body boundaries at Pebble East have yet to be found - both laterally and at depth - and non-disclosure agreements have been signed with as many as eighteen other mining companies as a prelude to possibly forming a consortium to build and operate what will probably be the world's largest gold and copper mine. What was planned as a 2007 drill program at Pebble East will likely turn into a multi-year exploration effort to discover just how big the deposit really is - only then can planning for the construction of a mine really begin. The 31 million ounce Pebble West Project is now being de-emphasized by management, the current thinking being that an open-pit mine will extract just the higher grade ore, as a multi-generational life for an underground mine at Pebble East is pondered.

So, if you've been wondering how a company boosts their stock price by 50 percent in six months without issuing a press release, now you know. You do it by having the goods which is what more and more investors realize Northern Dynasty has here mid-way through 2007. (As it turns out, you don't even have to update the resource estimate on your website if you have what Northern Dynasty seems to have in Pebble East - their resource page still doesn't reflect the resource doubling that was announced in February.)

While higher share prices for Northern Dynasty seem to be all but a sure thing, remember that there is still a fair amount of environmental opposition to the Pebble Project by some well-connected environmentalists who live nearby. But, simply due to the enormous mineral content and the clout that comes with increasing involvement by much larger mining concerns in what is generally a very mining-friendly state, this appears to be a project that is just too big to stop.

At times such as this, making an additional purchase comes only after great deal of deliberation. Even after the recent run-up in the share price Northern Dynasty is still undervalued by a very wide margin - simply comparing their current gold resource and market capitalization to that of Alaskan neighbor NovaGold Resources (AMEX:NG) makes this point abundantly clear.


Vancouver-based Northern Dynasty Minerals is developing one of the world's most significant advanced stage copper-gold-molybdenum projects in southwestern Alaska. This is very much a copper and gold project, however, the amount of gold that has already been confirmed through extensive drill programs ranks among the largest deposits in the world, making this resource a prime take-over target in the years ahead.

The company's Pebble West Project was discovered by Teck Cominco in 1988 who then proceeded to explore the property until 1997, ultimately agreeing to option 80 percent of the resource to Northern Dynasty in 2001. After three years, Northern Dynasty earned its 80 percent interest from Teck Cominco and a year later exercised its right for the remaining 20 percent from the Hunter Dickinson Group and gained control of the entire property.

Drill programs for Pebble West were conducted from 2002 through 2005 and mine planning was initiated, however, an eastward expansion in exploration during 2005 resulted in a substantial new discovery of higher grade copper-gold-molybdenum mineralization that came to be known as Pebble East. Much of the work over the past year has been focused on defining the resource at Pebble East, leading to a huge increase in inferred resources announced in February of 2007. Exploration continues at Pebble East during the summer of 2007.

With a total of almost 80 million resource ounces of gold, of which 31.3 million ounces are already in the Measured and Indicated category, the company is a prime target for acquisition in the ongoing mining industry consolidation where large producers seek to purchase smaller exploration companies with confirmed mineral resources. Mining giant Rio Tinto owns almost 20 percent of Northern Dynasty shares and, due to the sheer size of the project, a mining consortium is being considered to more efficiently develop mining operations at Pebble.

Full Disclosure: Long NAK and NG at time of writing.

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Greenspan: Savings glut half-way over

Monday, July 23, 2007

Bloomberg reports on the continuing flow of prognostications from former Fed Chief Alan Greenspan who seems to have turned his attention away from posting odds on the next recession, focusing instead on gauging what's left of the global savings glut.

Former Federal Reserve Chairman Alan Greenspan said financial markets are benefiting from a "one shot" flow of savings from the developing world that is about half-way over.

Foreign savings have "created this liquidity we are seeing," Greenspan, 81, told the Building Owners and Managers Association's international conference in New York. "It is not permanent. It is reflective of a one shot thing. I'd say we're about half-way through."

Greenspan left the Fed in January 2006 after serving 18 years. During that time, his policies helped produce the longest economic expansion in U.S. history from 1991 to 2001.

The former chairman is giving lectures to earn money and is also writing a book on his experiences. "The Age of Turbulence: Adventures in a New World,'' is scheduled for release Sept. 17 by Penguin Press. His comments today ranged from oil dependency, to capital flows, to immigration.
Greenspan said the U.S. must reduce its dependency on oil or face "serious problems."'

"People who want to buy SUVs are going to want to buy big, huge energy-inefficient cars," Greenspan said. "The only way to get consumption to go down is for prices to go up, and they are going up."
September 17th - mark your calender.

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Chinese money, Chinese interest rates

Late on Friday, the Chinese central bank raised interest rates a quarter point to help cool the economy and slow the recent surge in consumer prices. It was the third rate hike this year and will bring the one-year deposit rate up to 3.33 percent and the one-year lending rate to 6.84 percent.

This follows last week's announcement that GDP grew by 11.9 percent from a year earlier in the second quarter and consumer prices rose by 4.4 percent in June, the sharpest increase since late-2004, exceeding the central bank's 3 percent inflation target for the fourth consecutive month.

Of course the yuan gained slightly against the dollar, but not too much. China has limited the rise in their currency, the yuan, by buying U.S. dollars, the source of soaring foreign-exchange reserves that have now topped $1.3 trillion, adding to the consternation of U.S. lawmakers who desperately want the yuan to rise faster to help narrow the trade gap.

The rising price of food is an increasing problem in China. Food prices account for about one-third of their inflation index and with the cost of pork rising almost 60 percent and egg prices up almost 40 percent, this could lead to some major unrest, something that the Chinese government desperately wants to avoid, particularly before next year's coming out party at the Beijing Olympics.

[One possible solution here is to get on board with the U.S. style 30+ percent weighting for rent (combined "real" rent prices and owners' equivalent rent) and deemphasize food which accounts for only 15 percent of the U.S. inflation index. Clearly, the Chinese central bank needs to spend more time managing not only rising prices, but "inflation expectations".]

So, why are prices rising so rapidly? Paul Kasriel at Northern Trust explains:

Because Chinese government policy is to manage the Chinese exchange rate, especially with respect to the U.S. dollar, and because the U.S. dollar “wants” to fall in the global foreign exchange market, the PBOC (People's Bank of China) is forced to buy dollars in order to keep the Chinese yuan from rising faster relative to the dollar.

The PBOC pays for the dollars it purchases -- those dollars or the dollar-denominated investment instruments purchased with these newly-acquired dollars – showing up as foreign assets on its balance sheet – with Chinese yuan.

And where does the PBOC get these yuan? The same place all modern central banks get their currencies – they create them with a stroke of a key. (One difference between central bankers and counterfeiters is that counterfeiters actually have to put a little work into creating currency – engraving and physical printing.)
Sounds like a swell system, sure to stand the test of time, but this is what passes for contemporary monetary policy and mainstream economic thought in a global economy that increasing appears to be coming unhinged.

Evidence of the "less hinged" nature of money and credit in China came earlier today when regulators announced that, henceforth, credit creation would be limited to 15 percent annual growth, rather than the 17 percent growth seen in the first half of the year.

How did financial markets react to all this news of monetary tightening?

Contrary to what central bankers expected, the stock market responded by pushing ahead to a one-month high, signs of a major recovery in investor confidence, or so they say.

Someday, this is all probably going to end badly.

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