Paul Kedrosky's Infectious Greed

Denmark Leads the Household Leverage Sweepstakes

pk — Tue, 09 Feb 2010 00:26:54 PST

Who let four northern European countries sneak past the U.S. in the household leverage sweepstakes?

Source: Global Household Leverage, House Prices, and Consumption, By Reuven Glick, and Kevin J. Lansing

Hugh Hendry, Marc Faber, and Nassim Taleb Go to Russia

pk — Mon, 08 Feb 2010 22:27:45 PST

An alternately sober-minded and gibbering mad – but never boring and mostly riveting -- hour-long what-would-you-invest-in panel with Nassim Taleb, Marc Faber, Hugh Hendry and others from the just-completed Russia 2010 conference:

Economists, Crises, and Cartoons

pk — Sun, 07 Feb 2010 11:40:13 PST

Apparently I'm not the only one to notice the rise of economists in cartoons during financial crises. As a related aside, this paper has some fabulous old crisis cartoons.

Economists, Crises and Cartoons

David M. Levy
Center for Study of Public Choice
Sandra J. Peart
Jepson School of Leadership Studies
February 4, 2010

Abstract:
Economists have occasionally noticed the appearance of economists in cartoons produced for public amusement during crises. Yet the message behind such images has been less than fully appreciated. This paper provides evidence of such inattention in the context of the eighteenth century speculation known as the Mississippi Bubble. A cartoon in The Great Mirror of Folly imagines John Law in a cart that flies through the air drawn by a pair of beasts, reportedly chickens. The cart is not drawn by chickens, however, but by a Biblical beast whose forefather spoke to Eve about the consequences of eating from the tree of the knowledge. The religious image signifies the danger associated with knowledge. The paper thus demonstrates how images of the Mississippi Bubble focused on the hierarchy of knowledge induced by non-transparency. Many of the images show madness caused by alchemy, the hidden or "occult."

Weekend Reading: Greenspan, EM Bonds, Cash-in Refis, China, etc.

pk — Sun, 07 Feb 2010 11:31:42 PST

From my weekly Weekend Reading column, a few articles and papers worth reading:

Alan Greenspan fights back against critics (Source)
Emerging-Market Bond Sales Stall as BES Scraps Issue (Source)
Recovery teeters as debt threat spreads (Source)
A Financial Crisis That Just Keeps Moving (Source)
Mortgage Bankers Association Sells Headquarters at Big Loss (Source)
'Cash-in' refis growing in popularity (Source)
Why a China bubble burst would be quieter (Source)

Mauldin: A Bubble in Search of a Pin

pk — Sat, 06 Feb 2010 11:56:13 PST

John Mauldin’s latest:

Should Greenspan and Bernanke have seen the bubble in housing and other assets and acted, or should we accept their defense that you can't know whether there is a bubble until after the fact? We will look at research that suggests they should have known, and, at the least, policy makers should no longer be allowed to say, "How could I have known?"

Of course, the employment numbers came out this morning, and the results are mixed; but that is better than they have been for the past two years. We dig into the numbers to see what they are really saying. And finally, we examine why the markets are so volatile. Is it just Greece, or is there more? There's a lot of very interesting, and important, material to cover.

Random Fiscal Factoid: Alt Universe U.S.?

pk — Fri, 05 Feb 2010 17:01:17 PST

Out of curiosity, what do you think the U.S. deficit would look like today if annual federal fiscal expenditures had grown at 4% since 2000, rather than at almost 8% compounded? Answer follows:

In short, if U.S. expenditures had grown at the rate of inflation the country would have run a surplus as recently as 2008. Yes, yes, I know, who knows what revenues would look this in this scenario, and all else being equal, etc., but it's still an interesting thought experiment.

Readings: Dollar, Britain, Lotteries, Bailouts, etc.

pk — Fri, 05 Feb 2010 12:10:21 PST

Britain's “broken society”: Through a glass darkly (Source)
Is the International Role of the Dollar Changing? (Source)
Spatial Competition and Cross-border Shopping: Evidence from State Lotteries (Source)
Vote for Ignoble/Dynamite Economics Prize (Source)
Commodities Kiss of Death? Is The Reflation Trade Over? (Source)
On the magic bullet virus (Source)
Bailout Skyline (Source)

The Road to Recovery?

pk — Thu, 04 Feb 2010 19:03:02 PST

Doug Short has redone his graph of various economic downturns to match up the current market recovery against recoveries from other major market declines.

Ken, I Thought You Said We Were Buying a Laundromat

pk — Thu, 04 Feb 2010 17:41:18 PST

An eye-opening excerpt from Andrew Cuomo's lawsuit against BofA for its Merrill Lynch acquisition:

...when BoA’s directors met Sunday, September 15 [2008] to approve the [Merrill] transaction, they thought they were going to buy a completely different company – Lehman Brothers. Director Thomas May expressed “surprise” when he learned, as he went into the approval meeting itself, that Merrill was the acquisition target. Director Chad Gifford later wrote, in a December email that discussed the tough conditions facing the Bank, “it’s the way we approved acquisitions that ticks me off the most!!!” [Emphasis mine]

More here.

Consumers Continue to Choose Credit Cards Over Mortgages

pk — Thu, 04 Feb 2010 17:30:22 PST

A new TransUnion study shows that the usual payment hierarchy of mortgages over other debts, like credit cards, remains reversed, with consumers paying down cards before worrying about mortgages. It augurs many more housing defaults ahead.

"Conventional wisdom has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages," said Sean Reardon, the author of the study and a consultant in TransUnion's analytics and decisioning services business unit. "However, a recent TransUnion analysis has found that increasingly more consumers are paying their credit cards before making mortgage payments. This analysis reaffirms the results of a previous TransUnion study that examined data between the third quarter of 2006 and the first quarter of 2008."

The percentage of consumers current on credit cards and delinquent on mortgages first surpassed the percentage of consumers current on their mortgages and delinquent on credit cards in the first quarter of 2008. This "flip" is representative of the change in the conventional wisdom around the payment hierarchy, or which debt obligations consumers would choose to pay first.

The latest study, conducted on consumers that had at least one credit card and one mortgage, examined 30-day credit card and mortgage delinquency data between the second quarter of 2008 (Q2/2008) and the third quarter of 2009 (Q3/2009). Although many industry analysts believed that a reversion to the conventional payment hierarchy would ensue once we had passed through the worst of the recession -- that has not, in fact, been the case. To the contrary, this study found that the hierarchy reversal has become even more widespread, with the percentage of consumers who are delinquent on their mortgages and current on their credit cards rising to 6.6 percent in Q3/2009 (from 4.3 percent in Q1/2008). Conversely, the percentage of consumers who are delinquent on their credit cards and current on their mortgages has decreased to 3.6 percent in Q3/2009 (from 4.1 percent in Q1/2008).

London Real Estate Back to Defying Gravity

pk — Thu, 04 Feb 2010 16:49:12 PST

From a Brett Arends piece in Friday’s Wall Street Journal:

London real estate has actually bounced off the bottom in the last nine months. Prices are now down a mere 9% or so from their 2007 peaks, according to data tracked by mortgage giant Nationwide Building Society. The average home in London, including all those dreary outskirts that go on and on and on, is $436,000. That's even higher than it was as recently as 2006, when the bubble was in its late stages. In the fashionable center of town—where the properties cited at the top of this article are all located—the prices are astronomical.

Overall, British prices have only fallen about 12% from the peak. When compared to household incomes, they stand far higher than they did even in 1989, at the peak of the last property bubble.

U.S. Corners Global Centenarian Market

pk — Thu, 04 Feb 2010 10:50:22 PST

I found these three Worldmapper chloropleths striking. Remember, in this sort of map country sizes change depending on the relevant measured variable – in this case, population.

First, the world’s population by country in 2002:

Next, the world population by country if you only count the children:

Finally, the world population if you only count centenarians. The U.S. balloons, as does Western Europe and Japan.

In case you’re curious, here’s the full presentation deck from which this came:

Preparing for "Peak Population": how the UK fits within world demography

Peak Oil Supply vs Peak Oil Demand: 2020 vs 2010

pk — Thu, 04 Feb 2010 10:30:53 PST

We have two instructively conflicting views out today on peak oil supply vs peak oil demand. The estimable folks at TOD peg 2010 as peak supply, with perhaps 89mbpd; while BP’s Tony Hayward gave an interview to BBC Radio 4 today suggesting that peak demand would hit first, by 2020 at around 100mbpd.

Check them both:

Peak oil demand by 2020 at 100mbpd (BBC)
Peak oil supply in 2010 at 89mbpd (TOD)

Readings: Taleb, Treasuries, Moody’s, Quakes, etc.

pk — Thu, 04 Feb 2010 09:47:25 PST

Sovereign debt fears rattle investors (Source)
US 30-year bond up a point in flight to quality (Source)
Taleb Says ‘Every Human’ Should Short U.S. Treasuries (Source)
Moody's warns on costs; forecast disappoints (Source)
Summary of Yellowstone earthquake swarm (Source)