The end of macro magic; Economists lose faith in once-trusted policies.

The end of macro magic

By Robert J. Samuelson, Monday, April 22, 7:53 AM

The International Monetary Fund recently held a conference that should concern most people despite its arcane subject — “Rethinking Macro Policy II.” Macroeconomics is the study of the entire economy, as opposed to the examination of individual markets (“microeconomics”). The question is how much “macro” policies can produce and protect prosperity. Before the 2008-09 financial crisis, there was great confidence that they could. Now, with 38 million unemployed in Europe and the United States — and recoveries that are feeble or nonexistent — macroeconomics is in disarray and disrepute.

Among economists, there is no consensus on policies. Is “austerity” (government spending cuts and tax increases) self-defeating or the unavoidable response to high budget deficits and debt? Can central banks such as the Federal Reserve or the European Central Bank engineer recovery by holding short-term interest rates near zero and by buying massive amounts of bonds (so-called “quantitative easing”)? Or will these policies foster financial speculation, instability and inflation? The public is confused, because economists are divided. Read more of this post

HUSSMAN: The Cover Of The Latest Barron’s Is A Screaming Sign Of A Stock Market Top

HUSSMAN: The Cover Of The Latest Barron’s Is A Screaming Sign Of A Stock Market Top

Joe Weisenthal | 39 minutes ago | 145 | 

This weekend we mentioned the latest Barron’s cover, which is about the paper’s professional investor survey, which shows record high bullishness and a widespread belief that the Dow is going to go to 16,000. John Hussman, the famously bearish mutual fund manager, sees this as screaming sell signal, as he invokes the ol’ contrarian magazine cover indicator. He writes:

The Barron’s Big Money Poll is typically bullish, on balance. This is Wall Street, after all. But variations in the tone and extent of that bullishness can be informative, especially when the consensus is extremely optimistic at new highs of mature bull markets, and defensive at new lows of mature bear markets. I can’t really throw stones about 2009, as I had my own concerns at the time (relating to the need to stress-test against Depression era outcomes, despite our favorable views of valuation). But it’s worth noting that the 2009 Big Money Poll questioned the advance from the March lows, noting “good reason not to jump in with both feet yet.” The 2003 Big Money Poll – already well into a new bull market – was bullish on balance, and up from just 43% bulls in an October 2002 poll near the market lows. Still, the 2003 poll noted “the bulls’ views have been tempered by the market’s losses in recent years. Consequently their expectations for the Dow, the Standard & Poor’s 500 stock index, and the Nasdaq Composite have been ratcheted down from past surveys.”

This certainly isn’t a criticism of Barron’s itself. I grew up on Barron’s Magazine, and will remain a devoted reader at least as long as Alan Abelson provides a worthy counterbalance to the more short-sighted views of Wall Street and the Market Lab section remains in print. Still, the Big Money Poll is most useful as a contrary indicator. Rule o’ Thumb: When the cover of a major financial magazine features a cartoon of a bull leaping through the air on a pogo stick, it’s probably about time to cash in the chips. Anyway, this chart from Hussman says it all.

‘Gourmet coffee prince’ Liu Minghui aims high

‘Gourmet coffee prince’ Liu Minghui aims high

Staff Reporter

2013-04-22

An ad for Aini Coffee. (Photo/CFP)

Liu Minghui, founder of high-end Chinese coffee company Aini Coffee, is continuing his pursuit to promote beans grown in southwestern Yunnan province and raise the company’s profile overseas. Aini Coffee opened its first store last year at the Pu’er Simao Airport, selling coffee machines and coffee beans grown in the Yunnan city of Pu’er. Liu is now seeking to create his own brand in the competitive market of coffee shop chains and instant coffee, focusing on a niche market selling high-end beans to independent coffee shops, offices and families. Opting to avoid direct competition with established brands, the company no longer supplies to Walmart and Carrefour. Liu instead advertises his products online through Taobao and Amazon. Read more of this post

Nestle’s Nespresso Growth Hit by Swiss Contender Migros: Retail

Nestle’s Nespresso Growth Hit by Swiss Contender Migros: Retail

In kitchens across Switzerland, a supermarket retailer is staking a claim on the world’s biggest food company’s growth, one coffee capsule at a time.

The popularity of knock-off coffee pods sold by Migros, the second-biggest retailer in a country with a population smaller than New York City, contributed to a slower start to the year for sales of single-serve Nespresso, said Nestle SA (NESN)’s investor relations chief Roddy Child-Villiers. Nespresso has been among the fastest-growing major brands at Nestle over the past decade.

Migros’s capsules, on sale since May, probably squeezed Nespresso’s quarterly sales growth to 8 percent, the slowest pace in the brand’s history, according to Jon Cox, an analyst at Kepler Capital Markets in Zurich. Nespresso faces increased competition throughout Europe as food companies seek to tap the expanding $8 billion single-serve segment of the global coffee market. Nestle has sued rivals after they introduced capsules compatible with Nespresso machines.

“The introduction by a big competitor locally is meaningful and local legal cases have so far not gone Nestle’s way,” Cox said. Migros’s entry could result in “flat sales” this year for Nespresso in Switzerland, which Cox estimates accounts for about one-fifth of Nespresso’s annual revenue of 4 billion Swiss francs ($4.3 billion). The country is Nespresso’s second-biggest market, according to Kepler. Read more of this post

Commodities slump sends slow ripples through world economy

Published: Monday April 22, 2013 MYT 4:26:00 PM

Commodities slump sends slow ripples through world economy

LONDON: Lower airfares, cheaper food and rising profit margins are among the benefits that should flow from tumbling oil and commodity prices – but only after a long lead time. Having poured $400 billion into commodities over the past decade, many investors are now selling. Their confidence that risky assets could only float higher on a rising tide of cheap central bank money has crumbled as the global economy fails to respond to the stimulus. Even China, an important buyer of natural resources, is slowing. Inflation, against which gold in particular is a classic hedge, is falling nearly everywhere.

Read more of this post

Hollywood blockbusters appeared poised last year to take over China’s box office, but something unexpected happened on the way to the bank: demand tapered off sharply. “They want to see films that challenge them”

April 21, 2013

U.S. Box Office Heroes Proving Mortal in China

By MICHAEL CIEPLY

LOS ANGELES — Hollywood’s global business strategy, which counts on huge ticket sales in China for high-budget fantasies in 3-D and large-screen Imax formats, is coming unhinged.

Last year, helped by a high-level deal that expanded the number of foreign films for release there, American blockbusters like “Mission: Impossible — Ghost Protocol” led the Chinese box office for 23 straight weeks, and received a disproportionately large share of their ticket sales from China.

More big releases were on the way, and the floodgates in the world’s second-largest film market appeared ready to swing open.

But something unexpected happened on the way to the bank: demand tapered off sharply. Read more of this post

Consumer Loans Surge Across Asia; Banks From Around the World Target Middle Class With Financing for Autos, Home Appliances; debt burdens relative to individual income are up to 30% higher compared with the U.S

Updated April 21, 2013, 6:38 p.m. ET

Consumer Loans Surge Across Asia

Banks From Around the World Target Middle Class With Financing for Autos, Home Appliances

By KATHY CHU

HONG KONG—Lenders from around the world are fueling a boom in short-term loans across Asia, helping push debt to record levels as a burgeoning middle class strives for a better lifestyle and banks look to diversify away from the slow-growing West.

Companies ranging from Citigroup Inc. C -0.13% to Japan’s big banks to a Dutch consumer-finance provider that built its business in Central and Eastern Europe are issuing credit cards or stepping up lending for cars, motorcycles and home appliances from India to Indonesia.

Nonmortgage consumer credit in Asia outside of Japan rose 67% in the past five years to $1.66 trillion by the end of 2012, according to data provider Euromonitor International. In the U.S. the rise was only 10% during the same period as consumers cut back on debt following the financial crisis.

The lenders are targeting Asia’s middle class, which is expected to grow by an average of more than 100 million people each year. They are pitching everything from credit cards to short-term installment loans for motorcycles and appliances. Interest rates can range from 15% for secured auto loans to as much as 40% for unsecured loans, appliances and electronics, driven by high demand for loans and little or no credit history for the borrowers. Loans are typically paid back over six months to five years. Read more of this post

Spain’s Startups Leave in Search of Venture Capital; “There’s just no culture of investing in someone’s ideas rather than real estate.”

Spanish Preference for Property Over Startups Deepens Woe: Tech

After finishing his MBA at Columbia University in New York, Luis Sanz decided not to return home to Spain to launch his Web startup, Olapic.

Sanz says he stayed in New York because his homeland lacks an entrepreneurial culture and has virtually no venture capital industry. Last year, he raised $1 million for Olapic, which helps companies collect photos posted by their customers on social-networking sites such as Facebook and Twitter.

“In Spain it’s just harder to get funded unless you’re already a big name,” said the 32-year-old telecommunications engineer from Zaragoza. “The U.S. is way more appealing.”

Olapic, which serves about 70 corporate clients ranging from EBay Inc. (EBAY) to the New York Giants football team, mirrors other startups founded by engineers fleeing Spain to start businesses in more promising locations. The exodus is crimping the country’s technology industry and threatens the long-term vitality of an economy suffering from a six-year slump and record unemployment.

The number of new businesses created in Spain annually has dropped by almost 100,000 over the past six years, to 334,516 in 2012 from 426,321 in 2007, according to the National Statistics Institute. Over the same period, more than 2 million businesses have closed. Read more of this post

Hong Kong Home Prices to Decline as Much as 25%, Bernstein Says

Hong Kong Home Prices to Decline as Much as 25%, Bernstein Says

Hong Kong home prices will fall as much as 25 percent after the government stepped up measures to curb an asset bubble and as banks raised mortgage rates, according to Sanford C. Bernstein H.K. Ltd.

The number of new apartment sales will “remain largely subdued” with developers shifting their focus to cheaper and smaller units to boost sales, analysts led by Kenneth Tsang wrote in a report today.

An index tracking home prices dropped the most in almost three years in the week ended April 14 after the government introduced its toughest yet measures to cool prices on Feb. 22. Prices could fall as much as 20 percent over the next two years, Deutsche Bank AG said in a report last month.

Cheung Kong Holdings Ltd. (1), which last month lowered prices by almost 10 percent at a project in response to the government curbs, may introduce more price cuts to boost sales, said the Bernstein analysts. The builder is controlled by Li Ka-shing, the city’s richest man. Read more of this post

Carbon-Intensive Investors Risk $6 Trillion ‘Bubble,’ Study Says

Carbon-Intensive Investors Risk $6 Trillion ‘Bubble,’ Study Says

Investors in carbon-intensive business could see $6 trillion wasted as policies limiting global warming stop them from exploiting their coal, oil and gas reserves, according to a report.

The top 200 oil, gas and mining companies spent $674 billion last year finding and developing fossil fuel resources, according to research by the Carbon Tracker Initiative and a climate-change research unit at the London School of Economics. If this rate continues for the next decade some $6 trillion risks being wasted on “unburnable” or stranded assets, according to the report, released today.

Banks, funds and institutional investors are seeking clarity from government and central banks about how greenhouse- gas emissions may affect the value of their investments. The Bank of England said last year it will evaluate whether the U.K.’s exposure to investments in polluting industries poses a risk to financial stability after a group of more than 20 investors called for a such a probe.

“If the markets carry on regardless, with the regulators looking the other away, they’re just asleep on their watch,” James Leaton, research director at Carbon Tracker, a project by non-profit Investor Watch, said in an interview in London. “The longer it goes on, the bigger the bubble will get.” Read more of this post

In Europe, Paid Permits for Pollution Are Fizzling

April 21, 2013

In Europe, Paid Permits for Pollution Are Fizzling

By STANLEY REED and MARK SCOTT

LONDON — On a showery afternoon last week in West London, a ripple of enthusiasm went through the trading floor of CF Partners, a privately owned financial company. The price of carbon allowances, shown in green lights on a board hanging from the ceiling, was creeping up toward three euros. That is pretty small change — $3.90, or only about 10 percent of what the price was in 2008. But to the traders it came as a relief after the market had gone into free fall to record lows two days earlier, after the European Parliament spurned an effort to shore up prices by shrinking the number of allowances. “The market still stands,” said Thomas Rassmuson, a native of Sweden who founded the company with Jonathan Navon, a Briton, in 2006.

Still, Europe’s carbon market, a pioneering effort to use markets to regulate greenhouse gases, is having a hard time staying upright. This year has been stomach-churning for the people who make their living in the arcane world of trading emissions permits. The most recent volatility comes on top of years of uncertainty during which prices have fluctuated from $40 to nearly zero for the right to emit one ton of carbon dioxide. More important, though, than lost jobs and diminished payouts for traders and bankers, the penny ante price of carbon credits means the market is not doing its job: pushing polluters to reduce carbon emissions, which most climate scientists believe contribute to global warming. The market for these credits, officially called European Union Allowances, or E.U.A.’s, has been both unstable and under sharp downward pressure this year because of a huge oversupply and a stream of bad political and economic news. On April 16, for instance, after the European Parliament voted down the proposed reduction in the number of credits, prices dropped about 50 percent, to 2.63 euros from nearly 5, in 10 minutes. Read more of this post

Tata Faces Crisis as $20 Billion Spent on Water: Corporate India

Tata Faces Crisis as $20 Billion Spent on Water: Corporate India

India, the world’s second-most populous nation, is doubling spending on water management to a record as conglomerates from the Tatas to Adani face shortages that the United Nations calls an impending crisis.

The federal and state governments have set aside 1.1 trillion rupees ($20 billion) for sewage treatment, irrigation and recycling for the five-year period ending March 2017, G. Mohan Kumar, special secretary in the Ministry of Water Resources, said in an interview. The nation with 1.2 billion people, which treats only 20 percent of its sewage, is pouring more money as inadequate clean water is threatening to stunt growth in industrial and farm output.

Disputes with farmers demanding rights to their irrigated land have stalled about $80 billion of investment by companies including Posco and ArcelorMittal (MT) as Prime Minister Manmohan Singh seeks to revive an economy growing at the slowest pace in a decade. Tata Steel Ltd. (TATA), India’s biggest maker of the alloy, is setting annual targets to cut water usage as two-thirds of the country faces a scarcity, H.M. Nerurkar, managing director said in an April 11 interview.

“Water availability is a very big issue and in the coming days this will be a far bigger issue,” A.P. Choudhary, chairman of Rashtriya Ispat Nigam Ltd., India’s second-biggest state-run steelmaker, said in an interview. “Water is critical for the steel industry’s growth and no company is comfortably placed.” Read more of this post

Triple A-rated Netherlands on Edge of Economic Crisis; Unemployment Surges as Home Prices Collapse

Netherlands on Edge of Economic Crisis; Unemployment Surges as Home Prices Collapse

Posted: 21 Apr 2013 12:05 PM PDT

Netherlands is underwater in more ways than one. Der Spiegel reports Underwater: The Netherlands Falls Prey to Economic Crisis

More than a decade ago, the Dutch central bank recognized the dangers of [the housing] euphoria, but its warnings went unheeded. Only last year did the new government, under conservative-liberal Prime Minister Mark Rutte, amend the generous tax loopholes, which gradually began to expire in January. But now it’s almost too late. No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books. Consumer debt amounts to about 250 percent of available income. By comparison, in 2011 even the Spaniards only reached a debt ratio of 125 percent.  The Netherlands is still one of the most competitive countries in the European Union, but now that the real estate bubble has burst, it threatens to take down the entire economy with it. Unemployment is on the rise, consumption is down and growth has come to a standstill. Read more of this post

Canadians Surpass Americans in Net Worth, But Will it Last?

April 18, 2013, 2:30 PM

Canadians Surpass Americans in Net Worth, But Will it Last?

By Don Curren

They’ve been known to get pretty excited when a new, big-name discount retailer comes to town, but thanks to a booming housing sector, Canadians are more affluent than their American neighbors.

At least for the moment, that is.

Canada’s net worth was at a healthy 648% of gross domestic product in the final quarter of 2012, according to a report from independent economic research firm Capital Economics, which has gained something of a profile for its bearish views on Canada’s economy, and particularly its housing market.

By contrast, U.S. net worth was a more modest 550% in the same period.

The catch is that Canadians’ wealth advantage is built mostly on the big run-up in housing prices in recent years, and that’s a very shaky foundation, at least from Capital Economics’ point of view. Read more of this post

ASEAN looking a bit like ’97

ASEAN looking a bit like ’97

APR 22, 2013

This is an abridged translation of an article from the April issue of Sentaku, a monthly magazine covering Japanese political, social and economic scenes.

An economic upturn always has the potential for crisis. Members of the Association of Southeast Asian Nations (ASEAN) appear to be blessed with an economic boom. But there is a feeling of deja vu as current circumstances closely resemble those on the eve of the Asian financial crisis, which started in July 1997. Read more of this post