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 . . .

China PMI comes in below expectations. Overnight stock futures down.

The Chinese Purchasing Managers Index (PMI) came in at 52.1 as reported by Chinadaily and looking at the market reaction it was below expectation.

SP 500 overnight futures are down ~0.8%
Gold down
Copper down
Bonds up
You can see delayed CME futures quotes if you want to watch the action tonight.

Clarity on debt levels in China. They are high.

Getting precise numbers out of China is always challenging but data is slowly coming out. . .  From the Telegraph

Chinese provinces are, in some cases, equivalent in size to major European countries and run with a degree of fiscal autonomy. The southern province of Guangdong, for example, has the same population size as Germany. However, provincial budgets have been classified as state secrets until now and this is the first time that China has disclosed the level of local government debt.
Mr Liu said the ratio of debt to disposable revenues at some local governments was over 100pc and in the highest case it was 365pc. . .
Victor Shih, a professor at Northwestern University in the United States, believes the sum in 2009 was 11.4 trillion yuan, equivalent to 71pc of China's nominal GDP.
Mr Shih has warned that local governments have also succeeded in rapidly funnelling large amounts of debt off their balance sheet and into public-private investment vehicles.

ht Metalminer

No one is talking much about deflation . . . yet.

US Treasury rates have dropped recently and it appears to me they may continue declining.   How low can they go?  I have no idea but I thought it would be interesting to look at when 'deflation' was a popular search term on Google.  Click on the screen capture at the right and you'll see searches spiked around the same time long term US Treasury bond yields dropped very quickly.

I wonder if we'll get another spike in search traffic for deflation if bond yields fall again . . .

A head and shoulders on the stock market?

The market action today did some technical damage.  As you can see from the chart below (provided by Stockcharts.com) a classic 'head and shoulder's' pattern appears to be forming in the S&P 500.  If the market goes down much further the technicians may consider the pattern formed and they'll sell sell sell.

Overall it was an ugly day for risk assets with stocks, energy and base metals falling.  The dollar, gold and US Treasuries were all positive.   The quarter ends tomorrow so the exciting market action may be not be over with.