marți, 13 martie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Cheap Loans From the ECB: What Banks Have Borrowed the Most as Percentage of Funded Assets?

Posted: 13 Mar 2012 12:40 PM PDT

Inquiring minds might be interested in knowing which banks have borrowed the most in absolute and percentage terms from the ECB via LTROs.

Courtesy of Google Translate, please consider a Ranking of Borrowings from the ECB.
After two rounds of cheap financing of the ECB European banks via LTRO (3-year loans at 1% interest) the ECB Balance sheet looks like a Botero sculpture, swollen to represent over 30% of euro area GDP.

Detail is now available that shows the level of funding requested by each bank individually. According to estimates by UBS, in a ranking where it relates the amount of funds borrowed to balance the size of each entity, the list of financial institutions that have most filled their balance sheets with cheap loans from the ECB.

Euro System Borrowing by Institution



The Portuguese Commercial Bank is in first place, followed by Bankinter, Bank of Ireland, the Portuguese also Holy Spirit, the Banco de Sabadell, Mediobanca, and BFA (Bankia). In these first 8 entities, the ECB's cheap financing represents over 10% of bank assets, a huge figure.

Graphic via Finacial Times Alhpaville
Euro System Names n' Numbers

A link back to Alphaville Euro System Names n' Numbers sports an additional chart by absolute numbers.



The reference to Botero piqued my curiosity. Here is a link to 17 pages of Botero Sculpture Images.

I believe I found the perfect one that represents Mario Draghi's LTRO programs.



Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Video: "Day Made of Glass" Provides Fascinating Look at Future Possibilities for Photovoltaic Glass

Posted: 13 Mar 2012 09:33 AM PDT

Here is a very interesting video that came my way called a "Day Made of Glass". It is effectively an ad for Corning, but the technology shown is well worth a play.



Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

How Far Have Home Prices "Really" Fallen? HPI Upcoming Changes; HPI and the CPI

Posted: 13 Mar 2012 12:01 AM PDT

Various charts show home prices are now back to levels last seen in September-October 2002. I posted such a chart constructed from the LPS Home Price Index (HPI) in LPS Home Price Index Shows U.S. Home Prices Accelerated Decline.

Real vs. Nominal Prices

Nominal prices are arguably not the best way of looking at things. I asked Doug Short at Advisor Perspectives if he would chart "Real" home prices. His answer was "In a heartbeat, if I can get the data".

"Real" in this case means "Inflation Adjusted" price, nominal simply means the "Current Price".

After receiving an Excel spreadsheet of the HPI data from LPI, I passed the spreadsheet on to Doug Short. I suspect he did not know what he was getting into, because once I supplied the data, I started asking for all kinds of charts.

I asked Doug for help for the simple reason his charts and the charts by Calculated Risk are in a class of their own. Advisor Perspectives frequently uses my articles so I went that route.

Note that "Inflation Adjusted" itself can mean many things, and indeed this post will take a look at "Real" home prices from several angles.

HPI Nominal Price, PCE Adjusted, and CPI Adjusted



click on any chart for sharper image

The two most common ways to adjust for price inflation are the CPI (consumer price index) and the PCE (personal consumption expenditures index). We use the CPI in the rest of the charts below because individual components' percentage weights are readily available.

HPI Comparison

  • Nominal prices have fallen to a level first surpassed in August 2002
  • PCE adjusted prices have fallen to a level first surpassed in March 1999
  • CPI adjusted prices have fallen to a level first surpassed in March 1998

That sounds pretty dramatic and it is. However, I propose the bubble is bigger and the crash worse than using the CPI deflator straight up.

CPI Flaws

One of the biggest flaws in the CPI is its measure of home prices. The CPI does not track hope prices per se, rather the BLS uses a concept called "Owners' Equivalent Rent" (OER) as a proxy for home prices.

The BLS determines OER by asking the question "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?"

If you find that preposterous, I am sure you are not the only one. Regardless, rental prices are simply not a valid measure of home prices.

Indeed, home prices rose three standard deviations from rental prices, a sure sign of a a housing bubble, and the Fed ignored it every step of the way.

I propose home prices straight up do belong in the CPI. Homes may have a longer lifetime than other consumables, but homes (not the land they are sitting on), are indeed consumed. Without maintenance, painting, upkeep, air conditioning, heat, etc., homes will slowly but surely rot away.

Whether or not one holds that view, it is absurd for the Fed to have ignored (more precisely cheered) the housing boom every step of the way.

Please check out the following graph of OER compared to the HPI.

OER vs. HPI



To the Fed, everything looked "hunky-dory" in the face of the biggest housing bubble in history because they paid attention to OER rather than actual prices.

OER Weighting in CPI

OER has the single largest weight of any component in the CPI, at 23.957%.



Let's play "What If?" Specifically, "What if the BLS used actual home prices instead of OER in calculating the CPI?"

I asked Doug Short to graph that concept. By the way, I did this once before using Case-Shiller data with help of a friend "TC" who also put together some fine charts made by substituting the Case-Shiller index for OER in the CPI.

I called that result Case-Shiller CPI. See CPI and CS-CPI vs. Fed Funds Rate from November, 2008 for a description of Case-Shiller CPI.

Let's call these results HPI-CPI.

HPI-CPI



The Fed kept interest rates at historic lows between 2002 and mid-2004. The last two rate cuts by Alan Greenspan were not justified at all, by any measure, and downright absurd considering the bubble brewing in housing prices vs. rent.

Allegedly the Fed held interest rates low to prevent "deflation". Instead it exacerbated "price deflation".

Clearly the Fed had no idea what it was doing, and still doesn't, (unless of course you believe this is a Fed conspiracy to deliberately screw the middle class). The result is bubbles and crashes of ever-increasing amplitude as the Fed chases its own tail. New bubbles have formed in the stock market and commodities right now.

HPI Upcoming Changes

Changes are coming up next month in the calculation of the HPI index. Here is a relevant snip from LPS via email.
"Beginning next month, LPS will be basing its findings on an updated view of market structure to more accurately reflect the dramatically increased proportion of short sales transactions as compared to historical norms," said Raj Dosaj, who leads the HPI team for LPS Applied Analytics. "Starting with January 2012 transactions, the base HPI will shift, as short sales are excluded; though given the fact that there were few short sales prior to 2007, the impact will be most pronounced on data from that point forward."
Fed Policies Devastated the Middle Class

Inflation benefits those with first access to money, namely the banks and the already wealthy. In the case of housing, by the time money was made available to those lowest on the totem pole, a housing crash was baked into the cake.

In that manner, Fed policies have devastated the middle class, complete with bank bailouts at taxpayer expense, Fannie Mae and Freddie Mac bailouts at taxpayer expense, and the robbing by inflation of those on fixed income struggling to get by on 0% interest rates on their savings while the Fed holds interest rates at zero.

This concludes part one of two-part series on HPI data, the CPI, and interest rates. Still more charts and an analysis of treasury rates are coming up shortly.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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