Shane's Feed
Jun 26, 2014
via Counterparties

Carney in control

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Today, Bank of England governor Mark Carney announced two new rules implemented by the BoE to curb the possible risk of a UK housing bubble. Only 15 percent of new home loans made by mortgage lenders can be made at 4.5 times above the borrower’s income. Banks also “must decline loans to borrowers who fail a new stress test that assumes an immediate 3 percentage-point increase in the benchmark rate,” says Bloomberg’s Ben Moshinsky.

Earlier this month, the IMF warned the UK that rising housing prices and low economic growth posed a threat to the country’s economy, although Chief Secretary to the UK Treasury Danny Alexander told Bloomberg earlier this week that “people shouldn’t get carried away with the scale of the problem.”

Jun 26, 2014
via Data Dive

Consumer spending inches up in May

Consumer spending increased 0.2 percent in May, less than the 0.4 percent expected, but up from completely flat numbers in April. Reuters reports the weak numbers are likely because of a decrease in health care spending.

Here’s more detail:

In the 12 months through May, the personal consumption expenditures (PCE) price index was up 1.8 percent, the largest gain since October 2012. It had advanced 1.6 percent in April and should comfort Federal Reserve officials concerned about price pressures being too low.

Jun 25, 2014
via Counterparties

The student loan non-crisis

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There’s a new Brookings paper out this week, which somewhat controversially comes to the conclusion that student loans might not be the generation-stifling, nationwide debt crisis it’s made out to be. There are some surprising findings, including the fact that incomes for college-educated workers have increased alongside student loans, such that “earnings received over the course of 2.4 years would pay for the increase in debt incurred.”

Monthly payments have also stayed about the same over the last two decades. This last point is not because the amount of debt is the same, but because loan terms are longer on average. “I think they underplay the significance of this shift – student loans are now looking more like traditional mortgages in terms of their repayment periods,” says Christopher Ingraham.

Jun 25, 2014
via Data Dive

Here’s why it’s so hard to land a job

Six years into the recovery, the American jobs situation is still in a rut. The relationship between how many people are looking for a job (the unemployment rate) and how many jobs are available (the jobs opening rate) has historically been predictable. Plotting it out in chart form gives you what is known as the Beveridge Curve, named after the British economist William Beveridge. The idea is that as the number of workers who are looking for a job rises — which to employers means the pool of talent for them to hire from gets bigger — the available jobs get filled and the opening rate goes down.

This is what it has looked like since 2001:

The first thing to notice is that something happened in 2008: the Beveridge Curve shifted to the right and stayed that way. That means employers aren’t hiring as many unemployed people as they should be, according to a pre-2008 view of the world. It is also one of the reasons the economy feels like it is still bad, even though the recession officially ended five years ago.

Jun 23, 2014
via Counterparties

In Beijing we trust

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China’s credit woes are bubbling up into the news again (previously here and here).

The World Bank’s top economist, Kaushik Basu, is worried about China’s reliance on credit to fuel growth. He said last week that eventually credit will catch up with it: “We’ve seen that in the U.S. in 2008, and China may have to face up to that sometime in the coming year, or couple of years because of its bloated finances.” Back in April, the IMF’s Global Stability Report warned that China was risking a financial crisis if it didn’t rein in borrowing, and that the country should settle for lower growth in order to save itself from credit calamity (the WSJ has a good summary of the report). “Pockets of stress have already begun to emerge, particularly in the trust sector, with spillovers to other parts of the financial system,” the report says.

Jun 23, 2014
via Data Dive

Housing on the rebound

Did someone say housing recovery? Existing home sales numbers for May were released this morning, handily beating economists’ expectations. Existing homes are now being sold at an annual rate 4.89 million units, up 4.9 percent month-over-month, Reuters reports. Forecasts had put the growth rate at only 2.2 percent. The number of properties on the market is also up, suggesting that the housing market is finally pulling out of its late 2013 slump.

We’re not quite out of the slump yet, however. Sales are still down 5 percent from May of 2013, particularly in the western part of the country:

Jun 20, 2014
via Data Dive

Auto industry looks up

Car companies are taking advantage of low interest rates and expanding their finance arms — so much so that they are nudging out the big banks, Reuters reported this week. Automakers made half of new car loans last quarter, up 37 percent from a year earlier. According to Reuters:

The automakers are in a position to offer the deals because their cost of borrowing has gone down as their balance sheets have improved and as bond investors have lined up to buy securities backed by loans and leases.

Jun 19, 2014
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Fed hawks

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The Fed’s Open Market Committee concluded its two-day June meeting yesterday with a moderately positive note: economic activity has rebounded from the terrible first quarter and labor market conditions seem to be improving, according to the statement. That said, because of said terrible first quarter, the outlook for U.S. economic growth is lower than it was at the last policy meeting in April: the Fed now expects the economy to grow 2.1-2.3%, compared to 2.8-3% previously.

Interest rates still remain unchanged, but Fed chair Janet Yellen cautioned the market not to be too confident that they will stay that way. “She noted there is a wide range of views even among Fed officials about where rates will be by 2016. Fed forecasts range between 0.5% and 4.25%,” writes Jon Hilsenrath.

Jun 18, 2014
via Counterparties

Valeant effort

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Things are getting uglier between Valeant Pharmaceuticals and Allergan, the maker of Botox. The former, with a little help from hedge-fund manager Bill Ackman, is attempting a hostile takeover of the latter (previous coverage here). Over the last few weeks, Valeant has been slowing upping its bid for the company (to $53 billion from the original $45 billion). That’s pretty normal in mergers and acquisitions, says Daniel Hoffman of Pharmaceutical Business Research Associates. What’s interesting about Valeant’s bid is that “within this same span of a few weeks, attitudes in both pharma and the investment community made a radical turn from mild approval to complete revulsion.”

The latest development in this saga, writes David Gelles, is that Valeant plans to take an exchange offer to shareholders, offering them a mix of cash and stock for their shares. Matt Levine says this is “mostly a cosmetic development” since “the shareholders can’t accept the exchange offer until Allergan rescinds its poison pill, and that’s not gonna happen unless the board agrees or is voted out at the special meeting Valeant is trying to call.” Allergan’s poison pill aims at preventing Ackman significantly expanding his 9.7% stake in the company by offering discounted shares to other stakeholders if any unapproved investor acquires 10% or more of Allergan’s stock.

Jun 18, 2014
via Data Dive

Inflating CPI

Inflation is finally looking up. US consumer prices rose 0.4% in May — the biggest one-month jump since February 2013 and twice what economists expected. This rise  could have implications for the Fed’s two-day policy meeting this week, though Reuters reports the expectation remains the same: the taper will continue, but an interest rate hike is still months off.

Reuters has more context about the CPI report:

May’s rise in consumer prices built on a 0.3 percent advance in April. With tensions escalating in Iraq, a major world oil producer, inflation is likely to push higher in the coming months.