Dec 29, 2010

It's Pretty Clear The Housing Market Has Already Double Dipped

"It's pretty clear the housing market has already double dipped. And the rate of decline is stronger than in previous months. If you look at the data, Case Shiller has been falling every month since the tax credit expired in May. Everyone who wanted to buy a home did so by April." - in CNBC

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Dec 22, 2010

Spain Is Too Big To Fail And Too Big To Be Bailed Out.

“Spain is too big to fail but also too big to be bailed out. The existing resources for bailouts are too small to backstop the Spanish banks and the sovereign if there is going to be a run on them.”

in Bloomberg TV

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Dec 21, 2010

United Kingdom`s Risks To Growth.

"UK fiscal austerity is more front loaded than back loaded with short term risks to growth if rising inflation doesnt allow the BoE to do QE2"

in Twitter

Related: iShares MSCI United Kingdom Index (ETF) (Public, NYSE:EWU)

Dec 20, 2010

We May Need QE3, But Congress May Not Allow It

“We may need QE3, but then the politics from Congress and the internal dynamic of the FOMC may not allow it, even if now growth is still below trend and inflation is still low and falling.”

in Bloomberg

Dec 17, 2010

Economic Growth In The US And Most Developed Economies Is Anaemic And Below Expectations.

"Economic growth in the US and most developed economies is anaemic and below expectations. Measures of inflation, both core and headline, are below the implicit and explicit targets of the Federal Reserve. The scenario is low growth, low inflation and an unemployment rate close to 10 per cent. If one were to run the numbers, you get that the Fed Funds rate (FFR) should be around minus 5 percent, but nominal policy rates have a zero lower bound. Quantitative easing (QE) by the US and other governments has been increasing liquidity to effectively push the real policy rate below zero. Some $600bn of additional liquidity in QE2 is the equivalent of a reduction of about 50-60 basis points in the FFR. When Ben Bernanke says this is just a variant of traditional monetary policy, I think that is correct, even if unconventional.

I think recent opposition to QE2, especially those that have said it is a disaster, is totally wrong. Given the high risk of a double dip recession, ask yourself where would the economy and risky asset prices be today if this had not been done. Asset price reaction had already priced in QE2 from Bernanke’s speech in Jackson Hole well ahead of the actual implementation. The stock market is about 10 per cent higher."
- in RGE

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Dec 16, 2010

European Sovereign Debt Crisis

“The risk of something disorderly happening is still significant. At the moment, the policy is still lend, pray and hope this is a liquidity problem and not a solvency problem.”

in The Telegraph

Dec 15, 2010

The Risks For A Double Dip Recession Have Receded.

"The good news about advanced economies is that the tail-risk of a double-dip recession has receded."

Outlook for 2011, Roubini Global Economics in Greenwich Village, New York

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The US Dollar As A Reserve Currency. For How Long?

"Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined—and the pound lost its status as the main global reserve currency—when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets."

in The Times

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Dec 14, 2010

Euro Crisis: ECB May Be Forced To Bail Out PIIGS Through Repo And Bond Purchases.

"If no fiscal union, no Euro-Bonds & not a larger EFSF the European Central Bank will be forced to bailout PIIGS banks/sovereigns through its repo & bond purchases."

in Twitter

Dec 13, 2010

Q&A With Foreign Policy Magazine

Reading list: This Time Is Different, by Carmen Reinhart and Kenneth Rogoff; Fault Lines, by Raghuram Rajan; Regulating Wall Street, by Viral Acharya et al.

Best idea: The continued rise of emerging-market economies.
Worst idea: The forecast of a V-shaped recovery for the U.S. economy.
China or India? India, in the long term.
Kindle or iPad? iPad.

Dec 10, 2010

Foreign Policy Magazine On Roubini

"Being a global economic Cassandra isn’t a cheerful job, but someone’s got to do it — and Nouriel Roubini acknowledges that he fits the role perfectly. He has even embraced the moniker “Dr. Doom,” a name derisively pinned on him before the 2008 crash that showed his pessimism was warranted. And so while everyone’s still trying to figure out how to overcome the last financial crisis, Roubini has his sights set firmly on the next one — which, Dr. Doom assures us in his book, Crisis Economics, won’t latest be too far off.

Roubini argues that the United States is at serious risk of heading back into a recession, and unlike other talking heads, he puts a number on his prediction, saying there’s a 40 percent chance of the United States hitting the dreaded “double dip.” Why? He thinks the root causes of the current malaise have only been covered over and that unhealthy levels of debt are once again piling up around the world — though this time on government accounting ledgers. It’s only a matter of time, he says, until we start seeing national bankruptcies — perhaps even a cascade of them across Europe that sparks the dissolution of the euro. If Roubini has one message, it’s that crises aren’t unforeseeable “black swan” events, but “white swans” — the culmination of long trends that are perfectly intelligible to anyone who takes the time to examine the data. We may not like Dr. Doom’s advice, but we can’t say he didn’t warn us."

in Foreign Policy

Dec 9, 2010

Are Bond Vigilantes Starting To Wake Up?

"Obama-GOP tax deal costs $900 billion over two years. US kicking the can further down the road. Are bond vigilantes starting to wake up?"

in Twitter

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Dec 8, 2010

Roubini Fears the Bond Vigilantes May Come to U.S. (CNBC)

"Economist Nouriel Roubini on Wednesday voiced concern over a compromise on extending tax cuts struck by US President Barack Obama and Republican leaders, saying the agreement could expose the US to bond vigilantes who will drive up bond yields."


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Dec 7, 2010

China`s Inflation Outlook.

China’s food prices look to be peaking, with vegetable prices falling in the second half of November after government efforts to boost supplies and impose price caps took effect. Still, the CPI last month increased at its fastest pace in more than two years. The two required reserve ratio (RRR) hikes in November resulted in some acute liquidity shortages toward the end of the month, but these appear to have dissipated in the first week of December. We expect the central bank to hike interest rates by 25 basis points (bps) in the coming weeks.


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The US Real Estate Market Is Double Dipping

"The United States real estate market, for sure, is double dipping. The apparent increase in prices has been fully reversed, demand is falling, and supply is going to increase.”

in New York Times

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Dec 6, 2010

There's Not Going To Be Anybody Coming From Mars Or The Moon To Bail Out The IMF Or The Eurozone

"We started with private debt, we socialized it and it became public debt. Now we have sovereigns in trouble being bailed out by essentially super sovereigns, IMF, euro zone, EU. But there's not going to be anybody coming from Mars or the moon to bail out the IMF or the eurozone."

in Reuters Insider

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Dec 3, 2010

A Spanish Inquisition.

With Ireland's financial woes exposed, Spain's similarities warrant inspection.
Contagion has taken hold of Spain, with respect to both the sovereign and the banking system, in the wake of Ireland's financial troubles and bailout application. In contrast with Greece, where the key vulnerabilities are in the public sector, both Spain and Ireland have run up large private sector imbalances following real estate booms and busts. In "Comparing Spain With Ireland and Other PIIGS: Better in Some Ways, More at Risk in Others," available exclusively to clients, we shed light on Spain's balance sheet vulnerabilities to assess liquidity and solvency risks in comparison with Ireland and the other PIIGS (Italy, Greece and Portugal).

Spain shares some of Ireland's key vulnerabilities, including a housing bubble more pronounced than that in the U.S. and large nonperforming loan overhang in the banking sector. Though Spain's housing bubble is less severe than Ireland's, and though the Spanish banks' commendable loan-loss provisioning system is providing a buffer, a comparison of price-to-rent ratios shows that the bulk of the housing price correction and loss recognition has not yet come. Thus, the pressure on the banking system is bound to increase going forward.

Plus, unlike Ireland, Spain's economy is subject to structural rigidities that prevent a fast return to growth and a quick competitiveness adjustment through internal devaluation. While this year's fiscal performance is largely on track, the 2011 fiscal target of 6% will be more challenging amid fiscal austerity. In some dimensions Spain's macro and financial fundamentals (for example, national savings and public debt levels) are better than those of other periphery countries. But in many dimensions, fundamentals are worse and financial vulnerabilities more severe (for example, unemployment and financing needs).

As the flow of excess savings from abroad has receded after the investment bust, Spain's private losses are being socialized, with dire consequences for the public sector balance sheet--although not to the same extent as in Ireland. Ireland's outsized banking sector in comparison to GDP and its decision to stand behind banks that are too big for it alone to save have accelerated the unsustainable debt dynamics. But one must ask: Is Spain in a fundamentally different situation? Investors seemed willing to give Spain the benefit of the doubt, but market dynamics since Ireland's application for external support show that a reassessment is taking place.

If the current liquidity pressures don't abate and Spain, alongside Ireland and possibly Portugal, is forced to turn to the E.U. funding mechanism, the 500 billion euros of E.U. resources (in addition to the not-yet-committed 250 billion euros in potential IMF funds) would be strained. With Spain too big to fail but also effectively too big to save, a bailout request would open the door to speculation against the cohesion of the eurozone. Indeed, German Bundesbank President Axel Weber's comment that the 500 billion euro bailout fund could be increased if necessary to prevent a breakup of the currency union shows that this concern is shared among even the most vocal bailout skeptics.

The alternative to a bailout is a bail-in of private investors. The inclusion of collective action clauses on new debt issues starting in mid-2013, as part of the new European Stabilization Mechanism, is meant to facilitate this process in those cases where insolvency has been established. While useful, such legal technology is not necessary to achieve an orderly restructuring of sovereign debt--previous instances illustrate that market-based restructurings via exchange offers are sufficient.

Elisa Parisi-Capone is a senior analyst for finance, banking and Western Europe with Roubini Global Economics, Christian Menegatti is the head of global research and Nouriel Roubini is the chairman.

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Spain Is Too Big To Fail, Too Big To Be Saved.

"Spain is too big to fail but also too big to be saved or too big to be bailed out. Official funds aren't currently enough to bailout Spain."

in Twitter

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Dec 2, 2010

Advanced Economies Will Have To Spend Less, Consume Less, Import Less

“Advanced economies will have to spend less, consume less, import less and save more for years to put the economy back on track. The monetary easing came after inflation readings stood below the central bank’s target.”

in Taipei Times

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China`s Inflation And Asset Bubbles.

"Today China is overheating, inflation is rising, there is excessive monetary growth, excessive credit growth, beginning of asset bubbles. One of the ways which China can control this risk is to allow a faster rate of appreciation of the currency."


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Dec 1, 2010

Contagion Is Spreading From Ireland To Spain.

"Contagion is spreading from Ireland to Spain, which shares some key vulnerabilities in the wake of its real estate boom/bust and large non-performing loan overhang in the banking sector. A house price comparison shows that the housing bubble in Spain was more pronounced than in the United States but less pronounced than in Ireland."


There Is Financial Contagion In Europe.

“There’s now financial contagion in Portugal, Spain and to a smaller degree even in countries like Italy, Belgium and others in the euro zone.”

Nouriel Roubini, in a speech to a conference in Taipei today