luni, 20 ianuarie 2014

Seth's Blog : The index and the menu

 

The index and the menu

Google killed the old-fashioned cookbook.

Why bother searching through a thick, dull cookbook of recipes when all you have to do is type in two or three ingredients and the word 'recipe' online? The index, the now infinite magical index of the web, helps us find whatever we want, better and faster.

On the other hand, a generous, modern cookbook doesn't ask, "what do you want to cook?"  Instead, it says, "how about this?" A menu, not an index. 

Years ago, I was at a power breakfast in New York, a fancy restaurant jammed with masters of the universe and those that hoped to have a few minutes with one of them. The waiter came over and said, "what do you want?" There was no menu. Just tell him and they'll make it.

Looking around, I realized that just about everyone was eating one of three popular items. With an index but no menu, the room resorted to safe and easy.

And this is the challenge every organization faces in the uber-indexed world we live in. It's not enough to sit with a prospect and ask him what he wants. Once we know what we want, search finds it for us. No, we have to offer a menu, we have to curate choices, we have to dream for people who don't have the guts or time to dream for themselves.

This is frightening, because when you offer a menu, often people will get hung up on their status quo and just say "no." You can't get rejected when all you offer is an index, but getting your menu rejected is one of the symptoms that you're doing the hard work of making an impact.

       

 

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duminică, 19 ianuarie 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


French Banks Face €285 Bn Capital Shortfall, Germany €199 Bn, Spain €92 Bn; Mish French Fine Update

Posted: 19 Jan 2014 11:04 PM PST

At the risk of incurring another nonsensical fine for quoting someone on leverage and capital ratios of French banks, please consider European Banks Face $1 Trillion Gap Before Review.
European banks have a capital shortfall of as much as 767 billion euros ($1 trillion) before the European Central Bank's probe into the financial health of the region's lenders, according to a study.

French banks show the biggest gap of 285 billion euros, followed by German lenders with as much as 199 billion euros, Sascha Steffen of the European School of Management and Technology in Berlin and Viral Acharya at New York University said in their study dated Jan. 15. The figures assume a benchmark capital ratio for other book measures of leverage of 7 percent, they wrote.

"A comprehensive and decisive AQR will most likely reveal a substantial lack of capital in many peripheral and core European banks," the authors wrote, referring to the central bank's Asset Quality Review stage of the Comprehensive Assessment.

Spanish banks have a shortfall of 92 billion euros, while Italian banks lack 45 billion euros, the study showed.

"Our results suggest that with common equity issuance and haircuts on subordinated creditors, it should be possible to deal with many banks' capital needs," the authors wrote. "Some will, however, require public backstops, especially if bail-ins are difficult to implement without imposing losses on bondholders, who may themselves be other banks and systemically important financial institutions."

Particularly the banking sectors in Belgium, Cyprus and Greece "seem likely to require backstops," they said.
Shortfall? What Shortfall?

To ensure there will not be any major capital shortfalls in the next round of stress-free tests, please note ECB Waters Down 2014 Stress Tests Second Time

In what translates into yet another sham stress test, the ECB reduced bank capital requirements from 8% to 6% then effectively declared all sovereign bonds held in non-trading portfolios to be risk-free.

Without a doubt, banks will put all their sovereign bonds in hold-to-maturity buckets (at least for the duration of the stress test).

Fine Update

In case you missed it, please note Mish Fined 8,000 Euros for Quoting French Blog.

Here's an update:

A French lawyer volunteered to represent me in an appeal to reduce the fine. His cost was €9,000 (without vat tax at 20%), plus judicial fees of another €1,000.

I quickly pointed out that legal costs (with uncertain odds of success) exceeded the fine.

The lawyer then reduced his cost to €4,000 upfront (again without the 20% VAT) plus 50% of any reduction in fine, plus judicial fees of another €1,000.

I am wondering about the mindset of French lawyers willing to waste their time and mine with such ludicrous proposals.

My original plan, which I am sticking with because the appeal period is now over, is to not pay the fine and never go to France (and I had no such desire anyway).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Bottom 5 States in Fiscal Condition: New Jersey, Connecticut, Illinois, Massachusetts, California

Posted: 19 Jan 2014 01:49 PM PST

Inquiring minds are digging into a George Mason University paper on State Fiscal Conditions, a ranking of 50 states, by Sarah Arnett.

PolicyMic Produced this Chart of State Fiscal Conditions based on the working paper.



Highlights and Lowlights

Let's return to the original working paper for some highlights and lowlights.
At the bottom of the rankings are New Jersey and Illinois. New Jersey faces long-run solvency problems due in part to nearly 15 years of underfunding its state and local pensions. It has an estimated unfunded pension liability of around $25.6 billion as well as $59.3 billion in unfunded liabilities for the health benefits of retired teachers, police, firefighters, and other government workers (State Budget Crisis Task Force 2012).

Illinois has also underfunded its public pensions, resulting in an estimated state retirement system combined unfunded liability of $ 96.8 billion as of 2012 (Illinois Commission on Government Forecasting and Accountability 22 2013). To cover the costs of its pension obligations, Illinois has also sold bonds to cover its annual contributions — 60 percent of Illinois' total outstanding debt is in pension bonds (State Budget Crisis Task Force 2012). In essence, Illinois is using long-term debt instruments to meet current year pension obligations.

[In Contrast] Nebraska is constitutionally prohibited from incurring debt. As such, the long-term liabilities reflected in Nebraska's long-run solvency score are mainly due to claims payable for worker's compensation, Medicaid claims, and other employee-related items. With no significant bond debt, Nebraska has a much lower long-term liability per capita and a much lower long-term liability ratio than most other states.
Bottom 5 in Long-Term Solvency



In terms of long-term solvency (the most critical issue), New Jersey and Illinois are at the bottom of the heap. Pension plans and union activism are to blame.

All five states at the bottom of the list have one thing in common: they got that way via "progressive" extreme-liberal politics, fueled by union activism, and promises that cannot possibly be met.

Compare to the top five.

Top 5 in Long-Term Solvency



The top five states all have something in common as well: none of them are the hotbed of "progressive" activism and unions.

Although there are other issues, I strongly suggest the performance of the top five and bottom five is directly related to "progressive" politics.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

More Christie Allegations: Mayor of Flooded Hoboken Claims "Christie Held City Hostage"

Posted: 19 Jan 2014 11:45 AM PST

New Jersey Governor Chris Christie has been damaged by numerous allegations involving political paybacks regarding lane closures on the George Washington Bridge that disrupted traffic for days.

That scandal was bad, but at least Christie has claimed no personal involvement. He cannot say the same thing now. Dawn Zimmer, mayor of Hoboken, alleges Christie camp held Sandy relief money hostage.
Two senior members of Gov. Chris Christie's administration warned a New Jersey mayor earlier this year that her town would be starved of hurricane relief money unless she approved a lucrative redevelopment plan favored by the governor, according to the mayor and emails and personal notes she shared with msnbc.

The mayor, Dawn Zimmer, hasn't approved the project, but she did request $127 million in hurricane relief for her city of Hoboken – 80% of which was underwater after Sandy hit in October 2012. What she got was $142,000 to defray the cost of a single back-up generator plus an additional $200,000 in recovery grants.

In an exclusive interview, Zimmer broke her silence and named Lt. Gov. Kim Guadagno and Richard Constable, Christie's community affairs commissioner, as the two officials who delivered messages on behalf of a governor she had long supported.

"The bottom line is, it's not fair for the governor to hold Sandy funds hostage for the City of Hoboken because he wants me to give back to one private developer," she said Saturday on UP w/ Steve Kornacki. "… I know it's very complicated for the public to really understand all of this, but I have a legal obligation to follow the law, to bring balanced development to Hoboken."

"I'd be more than willing to testify under oath and – and answer any questions and provide any documents, take a lie detector test," Zimmer said, referring to the Christie administration's denials. "And, you know, my question back to them is, 'Would all of you? Would all of you be willing do that same thing, to testify under oath, to take a lie detector test?'"

Zimmer's interview comes on the heels of a scandal in which other members of Christie's inner circle conspired to create huge traffic swells, possibly in an act of political retribution, on another New Jersey town on the outskirts of Manhattan.
It's possible to believe Christie had no knowledge of lane closures on the George Washington Bridge. Still, the person responsible was a part of his administration, and with considerable delay Christie finally offered an apology.

In this case, if the charges by Zimmer are true, Christie himself is personally involved. There is no other reasonable way to look at it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Seth's Blog : The humility of the artist

 

The humility of the artist

It seems arrogant to say, "perhaps this isn't for you."

When the critic pans your work, or the prospect hears your offer but doesn't buy, the artist responds, "that's okay, it's not for you." She doesn't wheedle or flip-flop or go into high pressure mode. She treats different people differently, understands that she is working to delight the weird, not please the masses, and walks away.

Isn't that arrogant?

No. It's arrogant to assume that you've made something so extraordinary that everyone everywhere should embrace it. Our best work can't possibly appeal to the average masses, only our average work can.

Finding the humility to happily walk away from those that don't get it unlocks our ability to do great work.

       

 

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sâmbătă, 18 ianuarie 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


SYRIZA Surges in Greek Polls, Would Win Election if Held Today; Message People Want to Hear; Contagion Guarantee

Posted: 18 Jan 2014 11:35 AM PST

Support for Prime Minister Antonis Samaras' New Democracy coalition has finally crumbled to pieces. For the year things had been close between New Democracy and opposition "Radical Left" party SYRIZA.

Not anymore. The Greek Reporter notes SYRIZA Killing New Democracy, PASOK in Attica, a critical Athens region of Greece.
A series of scandals, unresolved talks with the country's international lenders, and the escape of a terrorist seem to be taking their toll on Prime Minister Antonis Samaras' coalition government and his New Democracy Conservatives, who have fallen 7.7 percent points behind their rival, the Coalition of the Radical Left (SYRIZA) in the critical Attica region including Athens.

SYRIZA, which opposes the austerity measures being imposed by the government, had been battling for the lead in surveys for a year with New Democracy, both sides barely one percent apart, but now has a lead of 24.6-16.9 percent in the poll taken by GPO for Newcast.

That comes in the wake of a series of arrests involving a scandal at the failed state-owned Hellenic Postbank, the defense ministry, a publisher charged with failing to pay his taxes and as Samaras is trying to assert the country is poised to make a comeback. Voters aren't buying it.

Despite the arrest and prosecution of its leaders on charges of running a criminal gang, the ultra-far right extremists of Golden Dawn remain a steadfast third with 11.1 percent, even though its leader, Nikos Michaloliakos and four other of his party's Members of Parliament are in jail awaiting trial.

As bad as the results were for Samaras, it was worse for his partner, the PASOK Socialists who got 44 percent of the vote in 2009 when it won the elections. Under current leader Evangelos Venizelos, who gave Samaras his votes to join the coalition and was rewarded by being named Deputy Prime Minister/Foreign Minister, have fallen to 3 percent, the threshold needed to win seats in Parliament.

PASOK is now dead last among the seven parties in the Parliament. The Communist party (KKE) is fourth with 4.9 percent, followed by the Independent Greeks at 4 percent, the Democratic Left (DIMAR) – a former partner in the coalition – at 3.1 percent and also in danger of disappearing as a party next, just ahead of PASOK.

About 13 percent of voters are undecided and while the survey wasn't nationwide, it covers the most populous area and if the lead holds it would be difficult for New Democracy to catch up and stay in power in the 2016 elections – if the government lasts that long and snap elections aren't held.

SYRIZA leader Alexis Tsipras, who opposes the austerity measures and said his party wouldn't repay the $325 billion in loans granted by the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) has predicted the Leftists will come to power.

He has promised a return to Utopia by restoring pay, cutting taxes, returning pensions to their previous level and no public worker firings as demanded by the Troika. He didn't say how he would do it without the loans or if Greece continues to be locked out of the markets.
Message People Want to Hear

I have no love for leftists. And Tsipras' promise of restoring pay, cutting taxes, and no public worker firiings is of course ridiculous.

Nonetheless, his message is what people want to hear. It's hard to say whether people truly believe in what he is saying or not.

Mathematically, it's impossible to do what he says and maintain a current account surplus as well. Perhaps Tsipras himself even recognizes that.

Regardless, the one thing I am reasonably sure of is Greece will not pay back $325 billion in loans granted by the Troika. I even support that policy.

It would be better if it came with a realistic message to Greek citizens as to what that would mean. Short-term there would be more pain. But long-term it's the right ting to do, if accompanied by badly-needed reforms.

Default Coming One Way or Another

Whether done properly, or with promises that cannot be met, Greece is going to default on that debt. When that happens, German citizens will discover that Chancellor Angela Merkel's promise that German taxpayers won't be impacted is as hollow as most chocolate Easter bunnies.

Calculating taxpayer responsibility percentages of various countries is simple enough.

Eurozone Financial Stability Contribution Weights

CountryGuarantee Commitments (EUR) MillionsPercentage
Austria€ 21,639.192.78%
Belgium€ 27,031.993.47%
Cyprus€ 1,525.680.20%
Estonia€ 1,994.860.26%
Finland€ 13,974.031.79%
France€ 158,487.5320.32%
Germany€ 211,045.9027.06%
Greece€ 21,897.742.81%
Ireland€ 12,378.151.59%
Italy€ 139,267.8117.86%
Luxembourg€ 1,946.940.25%
Malta€ 704.330.09%
Netherlands€ 44,446.325.70%
Portugal€ 19,507.262.50%
Slovakia€ 7,727.570.99%
Slovenia€ 3,664.300.47%
Spain€ 92,543.5611.87%
Eurozone 17€ 779,783.14100%


The above table from European Financial Stability Facility

Note that Greece is responsible for 2.81% of Greek defaults. How is that going to work?

It doesn't. So take that percentage and spread it around according by revised weight. And what is Spain supposed to do with it's 12% of €325 billion of defaults?

Contagion Guarantee

Thank the economic illiterates at Troika for this setup.

Greece could have defaulted in 2009 with perhaps a €40-50 billion mess to cleanup. In a foolish attempt to prevent contagion, the nannycrats turned a relatively small mess into major €325 billion problem, virtually assuring the contagion they set out to prevent.

Expect to see much use of the word "contagion" in the coming months.

Here is a question I asked in Prisoner's Dilemma Game in Greece; Contagion-Spread Eurozone Breakup More Likely Now; How will Greece NOT pay back €320 billion? So Angela Merkel, when are you going to admit this setup, and what are you going to do about it?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Making 2014 a Year of Action to Expand Opportunities for the Middle Class

Here's What's Happening Here at the White House
 
 
 
 
 
 
  Featured 

Weekly Address: Making 2014 a Year of Action to Expand Opportunities for the Middle Class

In this week’s address, President Obama said 2014 will be a year of action, and called on both parties to help make this a breakthrough year for the United States by bringing back more good jobs and expanding opportunities for the middle class.

Click here to watch this week's Weekly Address.

Watch: President Obama's Weekly Address

 

 
 
  Top Stories

Expanding Educational Opportunity: And yesterday, a group of leaders in higher education joined the President and First Lady at the White House to take the next step toward ensuring that every child, rich or poor, has the opportunity for a quality college education so they can get ahead.

“We’ve got philanthropists and business leaders here; we’ve got leaders of innovative non-for-profits; we’ve got college presidents -- from state universities and historically black colleges to Ivy League universities and community colleges,” President Obama said. “More than 100 colleges and 40 organizations are announcing new commitments to help more young people not only go to, but graduate from college.” These leaders made the commitment to take action on areas crucial to making college a reality to more kids.

The day before, the First Lady hosted a discussion on education to support the President’s “North Star” Goal, which states that by 2020, Americans will have the highest proportion of college graduates in the world.

America’s Newest High-Tech Manufacturing Hub: President Obama visited Raleigh, North Carolina on Wednesday to announce that Raleigh is going to be America’s newest manufacturing innovation hub. This new hub will bring leading companies, universities, and federal research together under one roof to help develop the next generation of power electronics. President Obama has proposed building a network of these hubs across the country to help make the United States a magnet for the good, high-tech manufacturing jobs that we need to grow the middle class and keep this country on the cutting edge.

“Together, these hubs will “help build new partnerships in areas that show potential,” the President said. “They’ll help to lift up our communities. They’ll help spark the technology and research that will create the new industries, the good jobs required for folks to punch their ticket into the middle class.” You can check out his complete remarks here.

Cabinet Meeting: On Tuesday, President Obama held his first Cabinet meeting of the new year. “We’ve got a lot to do in 2014. As I’ve said before, this is going to be a year of action,” he said before the meeting. The President said he was pleased that the House and Senate agreed to a budget and put forward a bill to fund the government and is looking forward to working with each side of the aisle to advance economic recovery. Read his full remarks here.

Get ready for the State of the Union: Next Tuesday, January 28th at 9 P.M. ET, President Obama will deliver his fifth State of the Union Address. This year there will be more ways to watch the speech and share exclusive graphics. Want to stay updated on the latest State of the Union news? Sign up to get exclusive content before and after the speech and follow @WhiteHouse on Twitter for real-time updates on the State of the Union.

The Miami Heat back at the White House: The President welcomed the Miami Heat back to the White House on Wednesday to congratulate the team on their back-to-back championship titles. Last season, the Heat won a team-record 66 games and beat the San Antonio Spurs in the finals. "The Heat showed us the kind of heart and determination it takes to be a champion," the President said.

Nomination for the Small Business Administration: On Wednesday the President announced his nominee to lead the Small Business Administration, Maria Contreras-Sweet. The President spoke about her previous experience starting small businesses and her proven track record to helping small businesses succeed.

Vice President Attends Auto Show: While the President was back in Washington, D.C., Vice President Biden spoke at the North American International Auto Show in Detroit on Thursday. After speaking at the event, he got to tour the exhibit. “I’m like a kid in a candy shop,” the Vice President said. 


 

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Seth's Blog : "Bring us your problems"

 

"Bring us your problems"

We're far more aware of our problems than our opportunities. Our problems nag at us, annoy us and paralyze us.

Every organization wrestles with its problems, and is eager to solve them.

When you generously invite people to bring you their problems, they might just do that.

Solving problems—actually solving them, not just claiming you do—solving perceived, urgent problems, is a surefire way to get the world to beat a path to your door. [HT to Adrian for the photo.]

       

 

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vineri, 17 ianuarie 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Delinquencies and Defaults in Spain Hit 13%, a 50-Year Record

Posted: 17 Jan 2014 06:23 PM PST

Looking for evidence of a recovery in Spain? So am I, but I sure don't see any.

Via translation from La Vanguardia, please consider Bank Defaults Hit Record 13% in November.
Delinquency ratio of banks, savings banks, cooperatives and credit institutions operating in Spain rose again in November to 13.08%, a level not seen since the data began to be collected, over 50 years.

According to provisional data for November released today by the Bank of Spain, the Spanish financial system stand together a volume of overdue loans of 192.504 billion euros, compared to 190.971 billion in October, largely due to the economic crisis and high unemployment.

Compared to November 2012 the total volume of loans in November declined by nearly 212 billion, due in large part to deleveraging holding families and Spanish companies.

Although the Bank of Spain does not break default rates by type of institutions with the exception of the EFC, the rest (banks, savings banks and cooperatives) recorded a volume of bad loans of 187.039 billion euros, compared to 185.439 billion of previous month.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Obama's Message On NSA Translated

Posted: 17 Jan 2014 12:12 PM PST

Earlier today, President Obama gave a long-awaited and long-winded speech on the NSA. The Washington Post has the transcript.

Here are my thoughts:

Obama says we need more "balance" between security and liberty. The president would "not dwell on Mr. Snowden's actions or his motivations".

I will. Edward Snowden is a national hero who should be given immunity from prosecution and welcomed back to the US.

Instead of praising Snowden, the president says "the sensational way in which these disclosures have come out has often shed more heat than light, while revealing methods to our adversaries that could impact our operations in ways that we might not fully understand for years to come."

I suggest the revelations by Snowden shed an immense amount of light into the downright scary surveillance tactics of the NSA.

Obama says "I consulted with the Privacy and Civil Liberties Oversight Board, created by Congress. I've listened to foreign partners, privacy advocates and industry leaders. My administration has spent countless hours considering how to approach intelligence in this era of diffuse threats and technological revolution."

That's completely believable. However, Obama failed to say "But heck, the discussion was meaningless, because I did what I wanted in the first place."

Obama promised "reformed procedures" and "greater transparency to protect privacy".

And here's a humorous statement: "I've made clear to the intelligence community that unless there is a compelling national security purpose, we will not monitor the communications of heads of state and government of our close friends and allies."

In short, we will not monitor communications of foreign leaders unless we will. How comforting.

I can sum up President Obama's entire speech up in a simple easy to understand graphic courtesy of reader "California Banker".



"Trust Me!" (Just as you did with Obamacare).

I promise "Change You Can Believe In!" (You can believe all you want, but there won't be any changes).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Greece Will Default in May Without Another Bailout or Change in Terms

Posted: 17 Jan 2014 10:49 AM PST

Cash flow analysis shows Greece is in serious trouble again in spite of having a current account surplus.

Specifically, Greece needs a change in payback terms or another bailout or it will default in August, if not May. I use the words "will default" imprecisely.

The only way Greece is making loan payments now is with money from the Troika.

The scam works like this: bailout money is allegedly given to Greece, but Greece cannot really touch it. Instead the money goes right back to the Troika for interest and capital payments, with perhaps a miniscule portion finally getting to Greece.

Realistically, Greece defaults on every payment already.

Greece Bailout Cash Flow

Even this game is in trouble now as Greek Cash Flow Charts show.
Just two days before New year 2014, Antonis Samaras told his People that Greece would leave its bailout programme next year without needing a third aid package. "In 2014 we will make the big step of exiting the loan agreement," said the Greek PM in a nationally televised address. "In 2014, Greece will venture out to the markets again [and] start becoming a normal country… There will be no need for new loans and new bailout agreements".

But figures obtained by The Slog show he lied.



Mr Samaras told the Greeks during October that debt relief would come by Christmas. It didn't. He is now suggesting there is no budget shortfall. There is.

He says the much-trumpeted €800m surplus obtained last year will help solve the problem. It won't.

The total payments due in 2014 are €31.6bn. The total loan funds available to meet that sum are €17.5bn. €0.8bn of Greek surplus doesn't even make a dent in it.

This second chart highlights when the inevitable shortage will become a default issue:



On 20th and 21st of the month, three whopping capital and interest payments become due. The largest of these – a €5.2bn sum – is also at a floating rate, and so could be bigger if confidence fails in the meantime. The funding gap to avoid default here is almost as big as that one sum due – at €4.7bn.

With that help available (and no yield rises) Athens could limp through to Q3. But then on 20th August things go badly pear-shaped again, when two further biggies hit the due date. The funding gap here is €5.6bn. Even if the Troika allowed Greece to bring the Q4 support forward, the gap would still be €3.8bn.

So in the very best, most optimistic scenario, Antonis Samaras needs €8.5bn in fiscal surpluses, and he needs them over the next 16 weeks.
The major point of the primary current account surplus is that Greece now obtains as much in tax revenues as it needs to finance current debt (not counting interest and debt repayments to the Troika).

If Greece can remain in a state of surplus, it can tell the Troika to go to hell, declare the bailout debt null and void, and shed its onerous debt burden. I suggest Greece should do just that.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Canada Housing Bubble: Far Too Late for Warnings; Rule of Predictions

Posted: 17 Jan 2014 12:35 AM PST

A recent parade of articles discusses the prospects of a pending Canadian housing bust. For example, The Globe and Mail reports Bank CEOs 'should be worried' about real estate.
Ed Clark, Toronto-Dominion Bank's outspoken chief executive officer, is playing the contrarian card one more time, publicly arguing that he and his fellow bank CEOs should be cautious about the country's heated real estate market.

While he isn't worried about a full-blown bust, Mr. Clark believes chief executives simply can't ignore warning signs in the market – particularly the sudden run up in prices for real estate of all stripes. "If you run a bank, you should be worried about it," he told the audience at a bank conference in Toronto.
The only thing I am confused about is why Ed Clark isn't concerned about a "full-blown bust".

Pater Tenebrarum at the Acting Man blog notes Carney's Legacy: Canada's Credit and Housing Bubble.

Tenebrarum quickly asks "How Long Before it Bursts?"

Energizer Bunny

Over the course of the past five years, every time I thought a major Canadian housing correction was coming, none did.

Canadian housing has been like the "Energizer Bunny", going and going and going. Nonetheless the housing bust calls keep on coming.

Short Notice

The Financial Times reports Canada housing: On short notice.
In the past five years, while other big developed economies have been suffering through the financial crisis, the average Canadian home price has risen 38 per cent to C$389,119 (US$355,000), according to data from the Canadian Real Estate Association. This has been driven in part by Toronto, where a condominium boom has driven prices to record highs.

At the same time, Canadian households have been on a debt binge fuelled by easy bank lending, low interest rates and government-insured mortgages. The household debt-to-income ratio rose to a record 163.7 per cent in the third quarter, close to the US peak of about 165 per cent on an adjusted basis.

Many of the investors and economists sounding the alarm about Canada's housing market are veterans of the US subprime crisis. They include Mr Hanson, the analyst, Steve Eisman, an investor, and Nouriel Roubini and Robert Shiller, the economists. Whether they will be right a second time is the source of a heated debate on both sides of the border.

While some of the bigger hedge funds are choosing to stay on the sidelines, Canada, and to a greater extent Australia, are top of the watch list.

"Once you start to see [Canadian] banks showing credit deterioration they'll all pile in," says Mr Eisman, founder of Emrys Partners and noted for his role in forecasting the US subprime crisis in Michael Lewis's book The Big Short.

The Canadian government is playing an important role in the mortgage boom. The government encourages banks to insure mortgages with more than an 80 per cent loan-to-value ratio with the national housing agency, meaning that mortgages with 20 per cent deposits and under are counted as close to sovereign risk.

"The vast majority of the mortgage book is insured by the government. This naturally protects the banking system but it does create a big taxpayer liability," says Craig Alexander, chief economist at TD Bank, the country's second-biggest bank.

"If you had large-scale losses and that insurance came into effect it would end up with the Canadian taxpayer."

Banks have piled into housing, racking up hundreds of billions of dollars in mortgage loans, a large portion of which are backed by the government through the Canada Mortgage and Housing Corporation. Consumer lending helped the banks to report record earnings in 2013.

The federal government is also guaranteeing up to 90 per cent on claims in the case of insolvency of private insurers in an effort to level the playing field between the private sector and the national housing agency.

This year, Canada imposed a "risk fee" on mortgage insurance provided by the country's housing agency, to compensate taxpayers for potential losses.

Despite the government's measures, Toronto's cranes and surging skyline tell a different story. But even those in the hedge fund industry know that betting on a Canadian housing collapse is not a sure thing.

"For every Eisman or [John] Paulson, there's someone that went out of business for shorting subprime too early," says Mr Daniels.
Rule of Predictions

No one knows for sure precisely when any bubble will burst. I got the US housing bubble correct but missed Canada by a mile.

I got the 2007 stock market bubble on the nose, but on this go around called a top on February 3, 2013: Extreme Sentiment: Barron's Cover "Get Ready for Record Dow - We Told You So"; Top Call.

Here is the cardinal rule of predictions: Make enough calls and sooner or later you are going to look ridiculous. Even those who get things correct often look ridiculous at intermediate stages.

I discussed a prime example of getting the call perfect but looking ridiculous along the way in Bubble Valuation Blues; GMO 7-Year Outlook for U.S. Stocks is Negative.

Leverage Works Both Ways

Make a play on major macro calls too early with leverage and you are wiped out. Had Paulson been a year early, he would have been fried to a crisp and we probably would never have heard about him.

In general, you only hear about the successes, never the failures.

The safest thing to do with bubbles is avoid investing in them at all, either way.  There is no rule that says "one has to play the game".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com