Lunchtime Links 1-8

January 8, 2010

Bank regulators issue interest rate advisory (FFIEC) This may sound boring, but it’s rather important. The FFIEC — a collection of bank regulators including FDIC, OCC, the Fed, OTS and NCUA — hasn’t issued such a warning since 1996. It wants banks to make sure they can handle rising interest rates….which seems to me a HUGE disincentive to lend. 5% mortgages originated today will lose mucho value as rates go back up. This is a huge reason banks “aren’t lending,” because up is the only direction for rates to go!

Employers unexpectedly cut jobs in December (Mutikani, Reuters) The jobs report is an important catalyst for the dollar and gold. If the employment situation improves, it will be easier for the Fed to tighten (good for dollar, bad for gold). If unemployment stays high, the Fed will keep rates low indefinitely and likely keep printing money to buy assets (bad for dollar, good for gold).

U.S. now renter’s market (Timiraos, WSJ) Hooray for deflation! As I’m fond of reminding folks, rents midtown west neighborhood of Manhattan crashed over 20% last year. That’s oodles of spending power freed up to pay for other things. Yes, it’s probablematic for landlords and the banks to which they owe money. But it’s good for the economy overall. Letting house prices fall will have a similar stimulative impact.

Why does it feel worse than reported? (EconomPic Data) Comparing Gross Domestic Product with Gross Domestic Purchases demonstrates how we lived beyond our means for so long and why getting back to equilibrium feels so painful.

Bubble warning (Economist) Not a new thought (argued it myself in sep ’08), but Economist is great at summarizing issues.

Swiss speeding motorist fined $290,000 (Rhodes, Reuters) Finland also does a means test for speeding tickets. This makes so much sense. Can a millionaire with dangerous driving habits be reformed if he’s only looking at a fine of a couple hundred bucks?

The Messiah complex (Brooks, NYT) Brilliant comment on the plot of Avatar. Brooks’ last two paragraphs are particularly good.

R.I.P., WTO (Blustein, Foreign Policy) Will the WTO die in 2010? I have to admit, I’m questioning my own belief in free trade. My default position is to favor it at every turn due to the wealth effects of comparative advantage. That said, I wonder if cross-border trade is growing faster than our ability to manage it…

Great find on Antiques Road Show (PBS)

Happy birtday Stephen Hawking (Wired)


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The WTO, GATT, NAFTA are not “free trade” treaties. Lets call them what they really are, protectionism and special interest treaties. How someone could call a protectionist treaty “free trade” is beyond me. In many sense its Orwellian. War is peace, Freedom is slavery, Ignorance is strength, Protectionism is free trade! We need to have true free trade. The division of labor will always be the most efficient system and the international division of labor will always be more efficient than regional division of labor. The law of comparative advantage is an economic law for a reason (it will always be true regardless of time period).

Posted by Geoffrey | Report as abusive

As the markets float slightly to the downside, the market continues to digest the Non Farm Payrolls and Unemployment data from this morning. Non Farm Payrolls for December dropped by 85,000. This was slightly below estimates as many analysts had expected a positive growth in the jobs number. The November Non Farm Payroll number was adjusted slightly to a positive number. While overall, this report was not what many were hoping for, the real drama should be the unemployment rate.

While at first glance, the unemployment rate stayed at 10%, the same as in November, the key to this number is looking at how many people took themselves out of the work force. This number was 600,000+. That means that if those people were still looking for jobs, the unemployment rate would have been close to 10.5%. What causes people to take themselves out of considering a job or looking for a job? The easy answer is lack of jobs and the holidays. When someone searches and searches for a job for months and finds nothing, they may just stop looking for a job. In addition, the holidays are a time when most people think companies are not hiring and people spend more time with their families. That can also be a key to excluding oneself from looking for a job. As soon as someone stops looking, they are not considered unemployed.

If you add together the unemployed, under employed and those that are not currently seeking work, the real unemployment rate is estimated at 17.3%. This shows that there is still no recovery in jobs. A jobless recovery means a stimulus spending recovery. Yes folks, the only reason this market is recovering is due to the printing of trillions of dollars. In addition, long term this means soaring taxes and a crashing dollar. The writing is on the wall.

Gareth Soloway
Chief Market Strategist

Posted by Mark | Report as abusive

There is nothing wrong with Free Trade, as long as it is among countries with similar wage levels and (trade) rules.

US-Canada, US-EU trade has been very beneficial for all sides since WWII.

The problem with world wide Free Trade is that in China alone the is a billion people willing to work for 25 cents per hour, and three billion more people elsewhere in Asia and South America.

That’s where Free Trade doesn’t make sense.

Anyway, the whole problem will be solved by triple digit oil price and carbon tariffs within the next five years. Jobs will be coming back to North America.

Please read this book and you will feel much better … og/

Rolfe should invite the author for an interview.
I find the book an absolute master piece.

Posted by Mark | Report as abusive