Mish's Global Economic Trend Analysis |
- Housing Affordability: How Does the US compare to Canada, China, Australia, Japan, Ireland, UK
- China Manufacturing Flat-Lining In Slight Contraction
- Revised Greek Default Scenario: Liabilities Shifted to German and French Taxpayers; Bluff of the Day Revisited
- "QE already Working" Says IMF Lagarde; Ho-Hum Details Announced; Gold the Place to Be
| Housing Affordability: How Does the US compare to Canada, China, Australia, Japan, Ireland, UK Posted: 22 Jan 2015 11:27 PM PST Congratulations to Hugh Pavletich and Wendell Cox (co-authors) of the 11th Annual Demographia International Housing Affordability Survey 2015, for another excellent job. The survey shows ... "For the second year in a row, the United States had the most affordable housing among major metropolitan markets, with a moderately affordable Median Multiple of 3.6. Canada (4.3) Ireland (4.3), Japan (4.4), the United Kingdom (4.7) , and Singapore (5.0) had seriously unaffordable housing. Three national markets were severely unaffordable, with Median Multiples of 5.1 or above. These included China (Hong Kong), with a Median Multiple of 17.0, New Zealand, at 8.2 and Australia at 6.4." Housing Affordability - Major Markets  click on chart for sharper image The problem with the above chart is Hong Kong is so far off the scale, that everything else looks OK in comparison. So, don't be fooled by such distortions. My suggestion to the authors: Perhaps a logarithmic chart would help. The following table will put things in better perspective. Housing Affordability Rating Categories  Anything over 4.1 is "seriously unaffordable" or worse. From a metro-area perspective things look even worse. Housing Affordability by Nation  Given that anything over 5.1 is "severely unaffordable" it's no blue ribbon to be 10 points better than Hong Kong. Demographia does not cover China proper. However, The Economist does. The Economist China Index of Housing Affordability, which covers 40 cities of China shows the overall housing affordability multiple was 8.6. Affordibility by Major Metro Area "Hong Kong's Median Multiple of 17.0 was the highest recorded (least affordable) in the 11 years of the Demographia International Housing Affordability Survey. Again, Vancouver was second only to Hong Kong, with a Median Multiple of 10.6. Housing affordability in Sydney deteriorated to a Median Multiple of 9.8, which was followed by San Francisco and San Jose (each 9.2). Melbourne had a Median Multiple of 8.7 and London (Greater London Authority) 8.5. Three other markets had Median Multiples of 8.0 or above, including San Diego (8.3), Auckland (8.2) and Los Angeles (8.0)." Methodology The Demographia International Housing Affordability Survey uses the "Median Multiple" (median house price divided by gross annual median household income) to assess housing affordability. The Median Multiple (a house price to income ratio) is widely used for evaluating urban markets, and h as been recommended by the World Bank and the United Nations and is used by the Joint Center for Housing Studies, Harvard University. The "Median Multiple" measure may be the best way, but it's far from perfect as I am sure the authors would admit. A simple chart on major metro area affordability may explain. Affordable Major Metro Markets  Major Metro Questions
At the other end of the extreme, crack-shacks in Vancouver can sell for $1,000,000. For an amusing test, please see Crack Shack or Mansion Game Inquiring minds may also wish to investigate Vancouver B.C. vs. Donegal Ireland Real Estate: What Will $890,000 Buy? Ten Least Affordable Major Metro Areas  All Markets  Although I once visited Ireland and took many outstanding images on the trip, years ago, I know little about Limerick to comment. In contrast, I do know a bit about Rockford, Illinois. It's about 90 minutes way. Rockford is an economically depressed area in serious trouble. In fact, I have reason to believe the city is headed for bankruptcy. As facts come in, I will post on them. So, the same questions I posed about Detroit, I ask about Rockford. The only difference is no one has heard much about Rockford ... yet. Spotlight on Canada Do any Canadians readers care to comment about this: "Canada's most affordable market again was Moncton (NB), with a Median Multiple of 2.2. Both Saint John (NB ) and Fredericton (NB) had Median Multiple s of 2.5. Other affordable markets included Windsor (ON), at 2.8 and Charlottetown (PEI), at 2.9." Given that Windsor and Detroit share a border crossing, I believe I know the answer, but if I get some choice comments, I will post them. While on the subject, here's an interesting bar bet question: If you are in Detroit, headed due south, what is the first country you hit? Here's the key to the answer: "Windsor is located directly south of the city of Detroit." Canada High End  Land-Use Chicken Egg  The Demographia authors point out "no major metropolitan market without urban containment policy has ever been rated with severely unaffordable housing in 11 years." I have to ask: Which came first, containment or lack of land? Is there more usable land around LA or San Antonio? Is Detroit affordable because it has no land use restrictions or are there no land use restrictions in Detroit because no one wants to live there? In my view it is overly simplistic to place to place the majority of the blame on land use restrictions, even if restrictions are a major problem in some areas. Much More To See There's much more in the 59-page report. Give it a look. Just don't expect perfection, especially in regards to affordability of places where nearly everyone wants out but lacks the means to escape. That aside, compiling data for all the major metro areas in the world is not an easy task. All in all, Hugh Pavletich and Wendell Cox did an outstanding job, once again. Their work is much appreciated. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| China Manufacturing Flat-Lining In Slight Contraction Posted: 22 Jan 2015 06:46 PM PST It's pretty much the status quo for the HSBC Flash China Manufacturing PMI report. Key Points
When a rise from 49.6 to 49.8 puts you at a high (with 50 being the break-even point between contraction and expansion), you cannot possibly be moving fast. Flat-lining in slight contraction is the best phrase to describe the current state of affairs in China. The following charts show just that.  click on chart to show sharper image China's manufacturing PMI has hovered in a range just under and just above the 50 expansion-contraction line since mid-2011. Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: ... "The HSBC China Manufacturing PMI rose to 49.8 in the flash reading for January, up from 49.6 in December. Domestic demand improved marginally while external demand remained solid. The labour market weakened and prices fell further. Today's data suggest that the manufacturing slowdown is still ongoing amidst weak domestic demand. More monetary and fiscal easing measures will be needed to support growth in the coming months." More Easing to Support Growth? How much more easing can the world even take? The answer depends on how much bigger current asset bubbles can get. And no one knows the answer to that. Regardless, all this "easing" at this point is counterproductive. It will lower consumption in Europe for reasons explained by Steen Jakobsen, chief economist at Saxo Bank in "ECB About to Make Biggest Mistake in History". Michael Pettis at China Financial Markets echoed the same views in regards to both China and Europe as noted in Grand Experiment Failure; Bankers Prefer Bubbles; Europe is not USA; Final Epitaph. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Posted: 22 Jan 2015 11:36 AM PST Dr. Eric Dor, director of IESEG School of Management in Lille, has an update on bank exposure to Greek debt liabilities. The numbers are roughly in line with figures I have posted earlier, but the breakdowns and other details are interesting.
The above table from Exposure of European Countries to Greece by Dr. Eric Dor, IESEG School of management. Exposure of European Banks The exposure of European banks to Greek public and private debt is most interesting. Nearly all the liabilities have been shifted from banks to the public. For example the exposure of German banks to the Greek public sector is now limited to $181 million. German Bank Claims on Greek Public Sector  The exposure of French banks to the public sector of Greece is now limited to $102 million. French Bank Claims on Greek Public Sector  The exposition of European banks to the private sector of Greece excluding banks is also very limited, even if it recently increased for German banks, for which it amounts to $7.885 billion. The exposure of German banks to Greek banks amounts to $5.702 billion. Their other potential exposure to Greece amounts to $2.912 billion in the form of derivatives, guarantees extended and credit commitments. German Bank Claims on Greek Private Sector  The exposure of the French banks to the private sector of Greece excluding banks is limited to $1.646 billion.  French and German banks dumped their exposure to Greece on to the public by dumping assets and also via the EFSF.
Bluff of the Day Revisited Taxpayers in general, not banks are the ones at risk if Greece defaults. This explains the Bluff of the Day: Germany Warns "Greece is No Longer of Systemic Importance For the Euro". It's pretty clear Greece is still of systemic importance. What Merkel really meant is this: "German banks now have limited concerns if Greece defaults. Instead, it's German taxpayers who are at risk." As Steen Jakobsen chief economist of Saxo Bank in Denmark explains "Euro is Not a Good Idea and ECB About to Make Biggest Mistake in History" . Steen's rationale is supported by Michael Pettis at China Financial Markets and Lacy Hunt at Hoisington Management. For details, please see Grand Experiment Failure; Bankers Prefer Bubbles; Europe is not USA; Final Epitaph. Gold the Place to Be Today, ECB president Mario Draghi put taxpayers still more at risk with QE policies that cannot possibly work as noted in "QE already Working" Says IMF Lagarde; Ho-Hum Details Announced; Gold the Place to Be. Gold in Euros Nick at Gold Charts "R" Us provides this chart.  Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| "QE already Working" Says IMF Lagarde; Ho-Hum Details Announced; Gold the Place to Be Posted: 22 Jan 2015 09:55 AM PST Today, ECB president Mario Draghi announced his much awaited QE program that will allegedly save Europe from the imaginary perils of price deflation. See Deflation Bonanza! (And the Fool's Mission to Stop It). Stocks are up a bit, the dollar is up a bit, the yen is up a bit, and gold is up a bit. Oil is down a bit. The details are more or less along the lines most thought, not the celestial "big bang" that everyone hoped. ECB QE Press Release Here are a few snips from the ECB Press Release on Asset Purchases. Six Elements of Decision Digging a little deeper, here are Six Key Elements of ECB Decision.
The above courtesy of Marc Chandler of Marc to Market via TalkMarkets. Any Surprises? Given that most believed an open ended program is coming, that announcement was hardly earth-shattering. Nonetheless the ECB is playing with fire. Instead of taking all the risk or making each national central bank take all the risk, it incorporated "risk sharing". And it's pretty clear the ECB took most of the risk. Expect challenges from Germany. Reactions Global market reactions are pretty moot so far. The biggest move is in the currencies. The Euro dropped to a new low vs. the US dollar and the Swiss franc. US Dollar vs. Euro  The US dollar is back to a level last seen in October of 2003. Parity was last seen in November 2002. "QE already Working" Just ahead of the announcement IMF director Christine Lagarde said on a panel at Davos, QE Already Working. "To a point you can say that it has already worked," Lagarde said on a panel in Davos. "If you look at currency variation and where the euro is at the moment, you can't deny that there is expectations there that QE is about to come and is announced and will be significant." Apparently Lagarde thinks trashing a currency means the move is working. Hmm. How long ago was it that Lagarde and various monetarists thought the key to saving the world was forcing the US dollar lower. Here's the other side of the story. Consumers in the eurozone will see prices rise. US exports to Europe will decline. More importantly, if this is another one of those "whatever it takes moments", where do you want to be? The inflated stock market? Bonds with negative yield? How about gold? Gold in Euros  The above chart is yesterday's gold close divided by the current movement in euros. Roughly multiply the right scale by 100 to get gold price in euros. In November something changed big time. I suggest belief in central banks is fading. Gold in all currencies has been rising. Today gold is up again even though the dollar is up significantly. And in euros, gold is up roughly 22.8% from the November low. Where Do You Want To Be? So where do you want to be if the ECB continues QE indefinitely until it reaches its inflation target of 2%. Bonds yielding 0% or even negative percent? If you look under the covers you will discover Central Banks are as Impotent as Obama. Gold is the place to be. Addendum: Nick at Gold Charts "R" Us provided a better chart than the one I posted above from Stockcharts. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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