Wednesday, July 29, 2009


Via CalculatedRisk I came to this great chart from Macroblog on past recoveries and the forecasts for the current one.

Economists expect a much shallower recovery than the past pattern would suggest. One of the deepest GDP decline followed by one of the smallest post war recovery. Not a great combination but forecasts can still be proven wrong.

Friday, July 24, 2009

Employment and Unemployment Claims

DeLong states: "Payroll Employment Starts Growing When Seasonally-Adjusted Unemployment Claims Fall Below 400K per Week or so..." and he has the chart to prove it.

Monday, July 20, 2009

Crude Oil and Natural Gas

Econbrowser has the explanations and the equations.

"Let Δot denote the monthly percent change in in oil prices (technically, the change in the natural logarithm) and zt the percentage gap in cost (technically, zt = ln(ot/6gt)). If you use a regression to try to predict oil prices from their own lagged values and the lagged oil-gas cost gap, a positive gap such as we have at the moment does tend to tug down future oil prices slightly, though the coefficient is not statistically significant. Here are the regression coefficients, with standard errors in parentheses:

On the other hand, the cost gap does seem to help significantly to predict where natural gas prices might go. With the gap currently at zt = 1.13, the historical regression below might lead you to expect natural gas prices to climb by 10% a month (0.103 x 1.13 = 0.116) until the gap is closed.


Monday, July 13, 2009


H/T Brad De Long for highlighting Martin Wolf's summary of this report on India: An Affluent Society in One Generation.

"So what needs to happen if Indians are to enjoy an affluent lifestyle? The answer, suggests the report, is that India must sustain growth at close to 10 per cent a year over a generation. This is not inconceivable: China has managed that, from a lower base, over three decades. But it is a massive task, particularly for so huge, diverse and complex a country. Extraordinary change would have to occur, inside India and in India’s relationships with the world.

For this to be conceivable, at least four things would have to happen: the world must remain peaceful; the world economy must remain open; India must avoid the stagnation into which many middle-income countries have fallen; and, finally, the resource and environmental implications of its rise to affluence must be managed.

Moreover, India itself must overcome three big challenges: maintaining, indeed strengthening, social cohesion at a time of economic and social upheaval; creating a competitive and innovative economy; and playing a role in its region and the world commensurate with the country’s size and rising importance. In fundamental respects, India must turn itself into a different country.

Not least, as the report makes clear, India would have to be governed quite differently. In India a vigorous, albeit too often corrupt, democratic process has been superimposed on the “mindsets, institutional structures and practices inherited from the British Raj”. India has prospered despite government, not because of it. It is a miracle that the giant has fared as well as it has. But if this country is to prosper it must create infrastructure, provide services, promote competition, protect property and offer justice. The country must move from what the report calls “crony capitalism and petty corruption” to something different. The quality of government, widely believed to be deteriorating, must, instead, radically improve."

Option ARMs - Deja Vu All Over Again?

Thanks Calculated Risk for highlighting this interesting discussion of the following Credit Suisse's chart:

This chart was apparently also used by the IMF:

The IMF chart looks like a great summary of the financial crisis with subprime resets peaking in the second half of 2008 when Lehman et al collapsed. After an "easy" 2009 the resets rise again with a new peak expected at the start of 2011, this time led by options ARMs.
Hence looking at the charts it appears that while subprime loans are slowly leaving the chart a big chunk of option ARM are expected to recast within the next three years. According to the charts these recasts should be over by September 2012. However this apparently does not fit with statements from WFC which does not foresee any major recasts before 2012.

Who's right? Will these recasts have the same impact on the solvency of the financial sectors? And if so when? Over the coming two years or the next five?

CR's conclusion: "this suggests that the problem will persist for some time (much longer than shown by the Credit Suisse chart)."

Healdsburg's conclusion: "The bottom line something doens't add up when Wells Fargo predicts virtually no Option-ARM recasts before 2012, while Credit Suisse predicts no recasts after 2012. While I would guess Wells Fargo is underestimating recasts assuming a flat rate environment, the bulk of recasts do look like they will be pushed out to 2014/2015. Surely, some of these recasts need to be reflected in the Credit Suisse chart. I’ll leave it to others what this means for the housing market, but what is clear is this needs more attention."

My 2 cents: I would go with the banks' statements since they made the loans. Optimistically this could leave them with more time to deal with the problems down the road.

Monday, July 6, 2009

Debt and more debt

Econbrowser has the discussion and the following charts:

First Federal debt held by the public as a % of GDP. Actually not unprecended but let's not repeat the ww2 war effort.

Second a CBO projection of the same ratio under their "alternative fiscal scenario" assuming no changes to current policies. Something has to give.

Sunday, July 5, 2009

Golden Cross

Interesting backtests from Ibankcoin and MarketSci on the validity of being long when the 50 days moving average crosses the 200day ma from below and exit the trade and be in cash when the reverse happens.

Asia's Rise

Thanks InfectiousGreed for highlighting this article from Minxin Pei. The author makes the case that we should not yet buy into the hype of America's decline and Asia's inexorable rise. He tackles the following affirmations:

Power is shifting from the West to the East.
At most the rise of Asia will lead to a multipolar world. For the time being Asia, while producing 30% of world output still live on a 5800US$ GDP per capita. In 08 Asia's combined military spending is still only 1/3 of America's. At current rate of growth it will take 77 years for Asia to reach US GDP per head. Asia is not one entity, expect continuous competition for power. Though dynamic the region can not yet play a role as a thought leader.

Asia's rise is unstoppable
Many hurdles down the road:
Demographic, over 20% of Asian will be elderly by 2050 leading the savings rate to fall
Environmental: pollution, constaints on natural ressources including fresh water could impact agriculture
Economical: with a global slump the export dependent model of development will stop being an engine of growth
Political: rising inequality, corruption, collapsing states, military conflicts all have potential to hinder growth

Asian Capitalism is more dynamic
There is little evidence that Asia's dynamism comes from a certain form of Asian capitalism. Fundamentals play a more important role (high saving, urbanization, low base, regional integration etc.). The following three unique features of Asian capitalism do not help. (1) the state interfers more in the economy (2) State owned companies and family controlled conglomerates dominate the corporate landscape (3) High savings due to poor safety nets

Asia will lead the world in innovation
US still leads in patents 92k in 08 vs 37k for Japan and 8.7k for South Korea. China produces 600000 engineering graduates each year but according to a McKinsey study HR managers consider only 10% and 25% of Chinese and Indian engineers employable compared to 82% for US grads.

Dictatorship has given Asia an advantage
Many countries experienced their fastest growth under undemocratic regimes (Singapore, Indonesia, South Korea, Taiwan and now China. But many autocracies impoverished their countries Burma, Philippines, North Korea, Laos, Cambodia. Furthermore as autocracies became less brutal their economic performance improved. More important than the regime are the appropriate economic policies. In summary: "Dictatorships are good at concealing the problems they create while democracy is good at advertising its defects".

China will dominate Asia
Not that easily as China has its own secession minded minorities covering 30% of its territory. China also has a formidable set of neighbours (Russia, India, Japan) that will not let its power go unchecked.

America is losing influence in Asia
Not according to a recent poll of Asians. Most countries in the region also welcome the US as the guarantor of Asian peace.

Thursday, July 2, 2009


Econbrowser, as usual, has a very intersting post on inventory restocking. He doubts however that this will be sufficient to witness a strong recovery as "the question is whether our financial system is willing and able to extend the credit that would fuel the recovery. "

Wednesday, July 1, 2009

Wind Energy

"Can wind power get up to speed?" asks

From the article:

Wind power accounted for 42% of all new electricity generation added to the U.S. grid last year

Wind still makes up less than 3% of America's total electricity generation

A new study in the Proceedings of the National Academy of Science (PNAS) found that current technology could harness enough power to supply more than 40 times the planet's present-day levels of electricity consumption.

For the U.S., there's enough wind concentrated in the Midwest prairie states to supply as much as 16 times the current American demand for electricity

The energy is there, on the breeze — it just needs to be tapped.

The problem isn't supply but distribution: in the U.S. and elsewhere, some of the richest wind resources tend to be far from the densely populated coastal areas that need the most electricity.

Another problem is intermittency