Hugh Hendry watch

Here's some linkage and video of hedge fund manager Hugh Hendry.

NY Times article - July 19, 2010

Vdeo interview posted July 23:

Chinese property developers cut prices.

From Chinadaily:

BEIJING - More property developers have began to cut prices and adjust their business portfolios to cope with sluggish transaction numbers due to government tightening of the real estate sector.   According to Li Wenjie, general manager of property agency Centaline China's North China Region, most Beijing developers have lowered prices by 15 percent on new projects.
Shenzhen-based Vanke, the country's largest real estate firm, made public sale prices of a large-scale project in Beijing over the weekend, with units priced 1,600 yuan ($236) lower than the expected price of 15,000 yuan per square meter.

Shanghai-headquartered Shimao Group just launched an upscale residential project called "Royal Garden" in Beijing's Central Business District area at a price of 65,000 yuan per sq m. The average price of similar projects nearby has been close to 70,000 yuan per sq m.

Of course the article quotes real estate firms spinning the lower prices but as I have mentioned previously first volume slows and then the price cuts start.  Is the beginning of the end or just the end of the beginning? 

Consumer credit keeps rolling downhill.

Earlier this month the Fed released the consumer credit data for May.  Total consumer credit keeps rolling downhill with no sign of slowing down.  I've included a longer term year over year chart as well as a more recent graph showing total consumer credit outstanding.

As you can see from this longer term year over year chart a sustained decline in lending has not occurred since this data series began at the end of World War II.  This is just one example of how this recession is different than all other post WWII slowdowns.

Looking at graph #2 for a shorter time period one again sees the steady decline in consumer credit.  Compare this to the early 90's where consumer credit levelled off but did not decline. 

In my opinion until the employment numbers start to seriously improve and home prices start creeping upwards we are going to see continued declines in consumer credit and thus sluggish growth (at best) in the overall economy.

Source: Federal Reserve

Unemployment claims and Google trends continue to diverge

One of my topics (and headscratchers) recently has been the disparity between the Google Trends unemployment data and initial unemployment claims data from the government.  While both of them are trending upwards the difference between the two data series grows. 

Here's a few possible reasons why:

• The Google Trends data changes. A lot.  As I update my data series I have noticed the entire set has changed (all the way back to 2005!) up to 10%  Comparing the older and newer data series gives you the same shape of the graph for year over year purposes but seeing data change that much is perplexing.  I've emailed Google about this but we'll see if I get any response. 
• The strong seasonality of layoffs (Go look at the government non seasonally adjusted data. It is very 'spikey') could be making the two series non comparable at this time of year. Even though both series are compared on a year over year basis something may still be incorrect.
• There could just be anxiety about losing ones job right now and those searches are showing up in the Google data.
• Census workers are getting laid off right now and looking for new jobs but they may not be showing up in the unemployment claims data.
• The Google data is relative to all other searches which should remove the bias of greater internet usage over time but it may not properly isolate this specific function used more as compared to others. 

Looking at the data you can see both series tend to follow the same direction but the Initial Claims data leads the Google Trends data (the graph is of a 30 day simple moving average of the daily data)  This time the Google data is leading the Initial Claims data (or is just plain wrong)  I could perhaps be asking too much of the Google data as well. Considering the slope of both is upwards I should perhaps call it good . . .

I don't have any bets placed due to this data but I'm still hopeful something can come of this series.  In a few hours we'll see if I'm still banging my head against a wall or onto something.

Source: Federal Reserve, Google

Inflation watch -- Headline inflation rolling over.

Inflation data was released recently.  The headline rate of inflation continues to roll downwards towards zero as the chart shows.  (Source: Federal Reserve)  With oil prices no longer going higher it is likely the headline inflation rate will continue declining.  'Core' inflation (red line)  has been stuck at 1% for the last few months but the longer term trend looks downwards to me as well.  The housing component is stuck in negative territory.

Overall the trend is down for all the sub components of inflation. 

Late Night Linkage

Postings have been light due to some business related demands.  Here's some links to my recent reads from the last few days.

Humor
Vuvuzela -- Will it blend? Youtube

Gold
Telegraph - did BIS gold swap spook the markets?

China
From Chinadaily - Property restrictions continue.
Chinadaily - Home price appreciation slows.
Chinadaily - Rate of lending slows in China.

Residential
From CalculatedRisk - A Chapter 13 bankruptcy can wipe away a 2nd lien.

Commodities
From FT -- The financialization of commodities.

LNG
From Hellenicshipping - A lot of spare LNG ships standing idle.

Lumber
Globe and Mail - Canada exporting lumber to China.

Sovereign debt
CalculatedRisk - How much debt is there and what is the probability of default?  It's a multi part series. Good stuff.
GMO - White paper on defaults in history. Very good. Intend to write longer blog post about this.

BP / Oill spill
WSJ - BP has replaced old cap, trying new one in an attempt to stop leak.  (This is at least 24 hours old.)

Euro
Telegraph - Legal challenges to bailout of Greece.
WSJ - Moody's downgrades Portugal.

Debt
Annaly - The debt deleveraging continues.

Unemployement claims and Google Trends. Not much clarity.

Ok call that a whiff. . .  Initial unemployment claims were released today and showed a decline.  I'm going to keep my eye on these series and see if the two continue to diverge  . . .

Google Unemployment Trends rising. Will initial claims follow suit?

I recently mentioned the correlation between Google Trends data on unemployment and initial unemployment claims data published by the government.  As you can see, in the short period of time since that last post the Google Trends data has risen dramatically.

I do not know if this is due to all the newly unemployed Census workers re-entering the ranks of the unemployed or if it is actually due to an 'unexpected' jump in initial claims.  We'll have more clarity in a few hours.

Either way the trend is not positive . . .

Source:
Federal Reserve, Google

Late Night Linkage

Some links of stuff I've been reading recently:

http://alephblog.com/2010/07/05/watch-the-state-of-the-states/

Canadian home sales falling.  Prices next?
http://globaleconomicanalysis.blogspot.com/2010/07/vancouver-home-sales-drop-30-percent.html

A different look at Dr. Copper
http://humblestudentofthemarkets.blogspot.com/2010/07/dr-copper-teeters-over-abyss.html

China home prices
http://www.telegraph.co.uk/finance/china-business/7875713/Chinas-property-market-braced-for-30pc-drop.html

Payroll number may take a header next month due to birth death model
http://jessescrossroadscafe.blogspot.com/2010/07/note-to-mish-bls-added-145897-imaginary.html

Greece -- Default now or later? Good reads.
http://www.nakedcapitalism.com/2010/07/greece-is-restructuring-debt-now.html
http://mpettis.com/2010/06/what-might-history-tell-us-about-the-greek-crisis/


Iran discovers large gas fields
http://www.hellenicshippingnews.com/index.php?option=com_content&task=view&id=109332&Itemid=79

More oil found in North Sea
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7873355/North-Sea-oil-hopes-rise-of-the-biggest-discovery-in-a-decade.html

Libya eyes purchasing stake in BP.  Cue irony.
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7873702/Libya-eyes-stake-in-bargain-BP.html

China building more nukes
http://www.chinadaily.com.cn/business/2010-07/06/content_10069093.htm

BP considering selling assets to pay fines
http://www.bloomberg.com/news/2010-07-05/bp-said-to-consider-selling-colombia-venezuela-fields-to-pay-spill-costs.html
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7866766/China-seeks-9bn-of-BP-assets-in-Argentina.html


Ozzie mine tax revised
http://seekingalpha.com/article/212933-miners-win-as-australian-government-revises-mining-tax

ECRI predicts more frequent recessions in future
http://www.businesscycle.com/news/press/1887/

Steven Keen gets some more press on his Minsky model predicting what will happen next.
http://www.nakedcapitalism.com/2010/07/steve-keens-scary-minsky-model.html

http://www.creditwritedowns.com/2010/07/mandelbrot-fractals-and-the-art-of-roughness.html

Recent jobs report was not good
http://www.thereformedbroker.com/2010/07/03/the-truth-about-those-job-numbers

Review and backstory of the book "This Time is Different" by NYT

I have previously brought up the book 'This Time is Different" and how the history of sovereign defaults is very instructive considering our current situation in history.  The New York Times recently had a long review of the book and the authors. They started working on the book in 2003 and it was published last September.  Great timing!

Some great quotes :

Their handiwork is contained in their recent best seller, “This Time Is Different,” a quantitative reconstruction of hundreds of historical episodes in which perfectly smart people made perfectly disastrous decisions. It is a panoramic opus, both geographically and temporally, covering crises from 66 countries over the last 800 years. “
There is so much inbredness in this profession,” says Ms. Reinhart. “They all read the same sources. They all use the same data sets. They all talk to the same people. There is endless extrapolation on extrapolation on extrapolation, and for years that is what has been rewarded.”

One interesting point in the book and the article is how often we forget the past with respect to country defaults:

Mr. Rogoff says a senior official in the Japanese finance ministry was offended at the suggestion in “This Time Is Different” that Japan had once defaulted on its debt and sent him an angry letter demanding a retraction.

Mr. Rogoff sent him a 1942 front-page article in The Times documenting the forgotten default. “Thank you,” the official wrote in apology, “for teaching the Japanese something about our own country.”

If you are at all interested in finding a great historical context for what is going on right now throughout the world I strongly suggest you read the book.

Is Google Trends providing a sneak peak into the employment situation?

The employment report was released today and the results were weaker than expected.  From Bloomberg the consensus was for +105,000 private sector jobs while the number was actually 83,000.  Here's a little insight on who was not surprised.

Google Trends provides very interesting data regarding search terms over time.  One of the data series reported daily is the unemployment index consisting of search terms such as 'unemployment' and 'unemployment benefits'.   As you can see from this Google chart the growth of the unemployment index peaked in early 2009 and until very recently was consistently declining.

Comparing the year over year percent change in the 30 day smoothed Google Trends unemployment index to the Four Week Initial Claims as reported by the government is very instructive.  While there is noise it is very impressive how similar the trends and turning points are for each data series.

The recent 'unexpected increases' in Initial Claims coincides with the Google data basing and again turning upwards.  If you want to handicap future unemployment and initial claims reports starting with Google Trends will improve your odds. 

Other Google Trends reports are available on a plethora of topics and you'd be amazed at what you'll find.

Additional reading:
Voxeu.org

Predicting Initial Claims for Unemployment Benefits -- Hyunyoung Choi, Hal Varian

China's property 'boom'

Patrick Chovanec has a good post on several topics but one passage really jumped out at me:

Even before my plane landed in Changchun, I could tell from just looking at the city out my window that it was in the midst of an incredible building boom. Row upon row of high-end villas and apartment towers were sprouting like crops all along the outskirts of the city. The same image greeted us on our approach to Jilin City by bus — I couldn’t even count the number of cranes rising over half-completed projects. It’s not any one development, it’s a cumulative impression made by dozens of projects, one after another, on a scale that’s overwhelming. Remember, despite the booming auto industry, this is still a relatively depressed and out-of-the-way part of China. I don’t like to use the Dubai comparison — China is not just a dream in the desert — but I was in Dubai two years ago, and the resemblance is creepy.

We visited one luxury residential development up close. I won’t name the developer, not only because they were our hosts, and I don’t want to be ungracious, but also because they don’t really deserve to be singled out. They’re just doing what dozens of other developers are doing, all around them. This particular project, we were told, had 100 buildings (although I only saw about 40 or so on the display model), the last of which had just been completed. Over the past two years, prices had risen from RMB 3,000 per square meter to RMB 6,000. The entire project was 90% sold out. It was clear, though, that it was also completely unoccupied. Row upon row of buildings stood in pristine luxuriousness, with not a resident in sight.

I suggest you read the whole post.
The anecdotal evidence of residential overbuilding keeps piling up . . .