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from MacroScope:

Stocks rally not sustainable: Prudential

Want the recent rally in stocks to last? Don’t count on it, says John Praveen of Prudential Financial. The Dow Jones industrial average is up over 20 percent since September, and has gained 7 percent since the start of the year. But Praveen sees too many headwinds for the boom to continue.

The pace of gains thus far in 2012 is likely to be unsustainable and volatility is likely to remain high as several downside risks remain. These include:

1) Greek risks: The second Greek bailout and debt restructuring deal are likely to be a short-term reprieve, with still high Greek debt/GDP burden and Greek elections due in April.  A negative election outcome with no clear mandate and/or a new government reneging on its commitments (to reduce debt) could potentially roil markets.

2) Other euro zone risks: Further debt rating downgrades of euro zone countries and banks; recession in euro zone and the continued negative feedback loop between the high debt burden and economies in recession.

3) Oil price and geopolitical risks: Continued surge in oil prices with simmering Middle East tensions and risk of short-circuiting the global recovery.

from MacroScope:

Employer of last resort, Arab Spring style

The concept that the government should serve as an employer of last resort in times of economic stress was first floated by the late economist Hyman Minsky. Its modern-day proponents remain largely marginalized, despite the nation’s persistently high unemployment and the extreme damage to the job market that was done by the deepest recession in generations. 

But Ali Kadri, senior research fellow at the National University of Singapore, argues the policy, which works as an automatic stabilizer when economies are struggling, is all the more appropriate for an Arab world that has been plagued by extremely high joblessness and a general lack of infrastructure and development. He says the Arab spring creates an opportunity for a drastic shift in the region’s approach to social and economic policy.

The retention of resources and their redeployment within the national economy are indispensable conditions for development and job creation. Employment policies are best set subject to social efficiency criteria distinct from the salient neoclassical productivity ones. It is highly unlikely, in view of the sheer smallness to which industry and the productive economy have shrunk under neoliberalism, that it would be possible to reemploy the massive redundant labour force on the basis of expanding private sector expansion and productivity gains. A criterion valuing and remunerating social work may be costly in the short term, but the social returns will reimburse initial expenses over the long term.

Notwithstanding the reductionist nature of the neoclassical criterion of efficiency, equity, in an Arab context of war and oil, must precede any received criteria for efficiency. More egalitarian rent, land and resource distributions redressing the dispossession of the working population during the neoliberal age represent the necessary conditions for effective demand enhancement and a successful development strategy. In practical terms, the state has to act as the employer of last resort (Minsky's ELR) creating socially relevant and public sector employment. Increasing-returns industry and a granting of preferential status to regional capital and labour are also required. In view of the instability besetting capital accumulation, a regional security arrangement bolstered by working class security and substantiating autonomy over policy can underwrite long-term employment generating investment

from Global Investing:

Three snapshots for Wednesday

Saudi Arabia has repeated publicly it would prime its pumps to meet any shortfall in exports from fellow OPEC member Iran, this chart shows their production since 1980:

Unwelcome news for British finance minister George Osborne ahead of today's budget - February public sector borrowing comes in at £15.2bn against expectations for £8bn.

Along with the rise in bond yields, expectations for interest rates at end 2013 and 2014 have started to pick up:

from Global Investing:

Three snapshots for Tuesday

U.S. February housing starts fall slightly to a 698,000 annual rate:

UK inflation edged down to 3.4% in February:

Spanish banks' bad loans highest since August 1994

from Breakingviews:

China reform may require a deeper crisis

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

“Reform” might turn out to be this year’s most overused word in China. The country’s outgoing premier Wen Jiabao, and his likely successor Li Keqiang, have both recently spoken of the urgent need to change. Even Communist Party mouthpiece People’s Daily advised last month that it’s better to have imperfect reforms than a crisis caused by none at all. The trouble is that China lacks external creditors or voters to hold leaders to account and make these reforms a reality.

In China, reform can mean almost anything. It includes the giant - like privatising the big state-owned enterprises - and the small, like raising gas prices, which China did with ease on March 19. Some reforms might sweep away anachronisms like the “hukou” ID system that splits citizens into urban and rural, and impedes a free labour market. Others seem trivial: Wang Yang, an ambitious politician from the provinces, has reportedly suggested axing unnecessary applause for officials at meetings.

The reforms that count would make capital flow more efficiently. But these could create powerful losers. If interest rates were liberalised so that banks were free to offer high deposit rates, savers would be more likely to keep their money in the bank than speculate on property. But it would erode the guaranteed profit lenders make under today’s capped interest rate system. Similarly, separating management and state ownership of companies would make steel, auto and construction companies more efficient, but would also make a job in politics less lucrative, and one in industry less powerful.

Short of a crisis that threatens the Party’s survival, it’s hard to see what will drive such big changes. Unlike Russia, Spain, Greece or France, the People’s Republic doesn’t have to keep foreign creditors happy, or appeal to a traditional electorate. It may take a greater turmoil for meaningful reform to become anything other than talk.

from Global Investing:

Three snapshots for Monday

The NAHB U.S. homebuilder sentiment index held at 28, below economists' expectations for 30.

Apple will initiate a regular quarterly dividend of $2.65 a share in July and will buy back up to $10 billion of its stock starting in fiscal 2013.

Energy leads the way for commodities this year, but with a big divergence between the components - gasoline sitting at the top while natural gas sits near the bottom.

from MacroScope:

U.S. retail sector perks up

One month’s data may not a trend make. Even so, this morning’s batch was pretty solid. U.S. retail sales rose 1.1 percent in February, the biggest gain in five months, and January’s numbers were revised up. Some of the rise reflected higher gas prices, but much of it appeared to be real.

The National Federation of Independent Businesses’ small business optimism index also rose, for a sixth straight month.

Eric Green at TD Securities says that as far as potential revisions to GDP forecasts, he’s keeping his powder dry for now:

This will probably lead to some upward revision in the monthly consumption data that feeds into GDP, but at the margin. The main weakness in recent consumption data has not been in objects you buy, take home, or eat, but in services which is not captured in the retail sales data. We keep our GDP forecast of 1.7%, one already predicated on very strong gains in consumer spending for February and March.

Economists at Goldman Sachs, however, thought differently:

from Global Investing:

Three snapshots for Monday

China's trade balance plunged $31.5 billion into the red in February as imports swamped exports.  It followed reports on Friday that inflation cooled in February while retail sales and industrial output fell below forecast, all pointing to a gradual cooling.

Investors ploughed more money into hedge funds over the past month as performance has picked up after last year's losses.

Final Q4 Italian GDP growth came in at -0.7%q/q. This chart showing GDP vs the Markit purchasing managers' index shows the current recession may continue into this year.

from Photographers Blog:

An American homeless family

By Lucy Nicholson

On her second day of camping near the coast north of Los Angeles, Benita Guzman lit a match, threw it on a pile of logs, and poured gasoline on top. As flames engulfed her hand and foot, her niece, Angelica Cervantes, rushed to throw sand over her. Benita thrust her burning hand into a pile of mud, and took a deep breath.

Camping’s not easy. It’s a whole lot rougher when you’re a pair of homeless single mothers trying to keep seven children fed, clothed, washed and in school.

Guzman, 40, and two of her children are living outdoors with Cervantes, 36, and five of her children. The two banded together in an effort to keep the children together as a family, and not taken away and separated in foster homes.

“It’s scary, especially at night,” says Guzman. “I’ve always been spoiled. I have a large family and when we went on camping trips, I was the princess.”

from MacroScope:

A recovery in Europe? Really?

There's a sense of relief among European policymakers that the worst of the euro zone's crisis appears to have passed. Olli Rehn, the EU's top economic officials, talked this week of a "turning of the tide in the coming months". Mario Draghi, the president of the European Central Bank, speaks of "sizeable progress" and "a reassuring picture".

At last week's spring summit, EU leaders couldn't say it enough: "This meeting is not a crisis meeting ... it's not crisis management," according to Finnish Prime Minister Jyrki Katainen. All the talk is of how the euro zone's economy will recover in the second half of this year.

But for the 330 million Europeans who make up the euro zone, the outlook has, if anything, darkened. As euro zone governments deepen their commitment to deficit-cutting, and rising oil prices mean higher-than-expected inflation, households can't be counted on to drive growth. Not only did housing spending fall 0.4 percent in the October to December period from the third quarter, but unemployment rose to its highest since late 1997 in January.

Joblessness is reaching shameful levels in southern Europe. In Greece, unemployment rose to a new record high of 21 percent in December and to 23 percent in Spain in January. Even in wealthy, northern Europe, the number of people out of work has started to rise in France, the Netherlands and Germany.

Just over half of the euro zone's economic output is generated by domestic consumer spending, but demand for goods looks chronically weak and fiscal austerity is aggravating the situation. Euro zone governments, desperate to distinguish themselves from debt-stricken Greece, are completely unwilling to step in and spend. The European Commission, persuaded mainly by Germany that fiscal discipline will lift economic growth, is on their backs to get their deficits within the 3 percent level of GDP by the end of 2013.

"The case against Europe’s growth strategy is that it is all supply and no demand," said Philip Whyte, a senior research fellow at the Centre for European Reform. "Fiscal policy is being tightened too rapidly. The more certain EU countries do to balance their budgets, the more output contracts," he said in a recent paper.

So where will growth come from? The ECB's Draghi said this week he is counting on foreign demand. Emerging Asia and a stronger recovery in the United States might help pull the euro zone out of its slump. But with Germany responsible for almost 40 percent of the euro zone's exports, a wider tide of prosperity across the currency area looks unlikely.