Archive for February, 2010

• The New Yorker Profiles Krugman
  Eddy Elfenbein, February 22nd, 2010 at 8:43 am

  Clocking in at over 10,00 words, it’s pretty much what you’d expect:

  Krugman was bemused by the reactions. True, he had accused Chicago economists of espousing ridiculous ideas in part because of financial incentives—sabbaticals at the Hoover Institution, job opportunities on Wall Street. But when those economists responded with anger he was surprised. “There was no personal invective in what I wrote,” he says. “I never insulted anybody’s personality. It was always at the level of ideas.” Krugman has a peculiar blind spot when it comes to scorn. Even as he delights in the scorn of others (a recent blog post was titled “Today in Exquisite Insults”), he imagines himself to be a rather dry, abstract writer who takes little interest in individuals. There is, it’s true, an understanding in some parts of academia that calling a colleague’s ideas stupid is not supposed to be taken personally, but Krugman goes well beyond this.

• 30 Years Ago Today
  Eddy Elfenbein, February 22nd, 2010 at 7:18 am

• World Markets Pause for Man Who Hits Ball with Stick
  Eddy Elfenbein, February 20th, 2010 at 1:21 pm

  Priorities people:

  For a few minutes, Tiger Woods was bigger than Ben S. Bernanke.
  The CHART OF THE DAY shows that a day after the Federal Reserve chairman and his colleagues raised the rate charged to banks for direct loans, investors took time out from trading to watch Woods apologize for his marital infidelity and “repeated irresponsible behavior.”
  New York Stock Exchange volume fell to about 1 million shares, the lowest level of the day at the time, in the minute Woods began a televised speech from Ponte Vedra Beach, Florida, headquarters of the U.S. PGA Tour. Trading shot to about 6 million when the speech ended, the highest for any period except just after exchanges opened, data compiled by Bloomberg show. Trading on all U.S. bourses declined during the press conference, falling to 456 million shares from an average of 576.8 million during the five previous 15-minute segments, Bloomberg data show.

• The World’s Biggest Debtor Nations
  Eddy Elfenbein, February 19th, 2010 at 1:25 pm

  From CNBC:
  20. United States
  External debt (as % of GDP): 95.9%
  19. Australia
  External debt (as % of GDP): 108.8%
  18. Hungary
  External debt (as % of GDP): 124.2%
  17. Italy
  External debt (as % of GDP): 154.6%
  16. Greece
  External debt (as % of GDP): 175.3%
  15. Spain
  External debt (as % of GDP): 184.7%
  14. Germany
  External debt (as % of GDP): 189.4%
  13. Finland
  External debt (as % of GDP): 205.7%
  12. Norway
  External debt (as % of GDP): 208.9%
  11. Hong Kong
  External debt (as % of GDP): 218.8%
  10. Portugal
  External debt (as % of GDP): 231.5%
  9. France
  External debt (as % of GDP): 247.2%
  8. Austria
  External debt (as % of GDP): 268.9%
  7. Sweden
  External debt (as % of GDP): 275%
  6. Denmark
  External debt (as % of GDP): 315.2%
  5. Belgium
  External debt (as % of GDP): 345.6%
  4. Switzerland
  External debt (as % of GDP): 390%
  3. Netherlands
  External debt (as % of GDP): 395.6%
  2. United Kingdom
  External debt (as % of GDP): 427.6%
  1. Ireland
  External debt (as % of GDP): 1,352%

• Weakest Inflation Since 1982
  Eddy Elfenbein, February 19th, 2010 at 9:59 am

  Today’s CPI report shows that seasonally adjusted core prices had their biggest drop since 1982:
  
  The AP is calling this “the first monthly decline since December 1982,” although there were two microscopic monthly declines in 2008.

• Many ETFs Swing and Miss
  Eddy Elfenbein, February 18th, 2010 at 11:15 pm

  This is kind of scary. Outside of S&P 500 ETFs, many exchange traded funds have significant tracking errors:

  Last year, 54 ETFs showed tracking errors of more than three percentage points, up from just four funds the prior year. And a handful of the 54 missed by more than 10 percentage points.
  Nearly all exchange-traded funds, which are baskets of securities that trade all day like stocks, are designed to track indexes. So investors expect returns to closely mimic those of market gauges like Standard & Poor’s 500-stock index or the Barclays Capital (formerly Lehman) U.S. Aggregate Bond Index.
  Indeed, many of the larger ETFs that follow the broad market often produce investment returns that miss benchmark returns by only a few hundredths of a percentage point each year. The SPDR (SPY), the largest ETF on the market, missed matching the return of the S&P 500 by just 0.19 percentage point last year. Large-company stock funds from Barclays Capital’s iShares and Vanguard Group were even more precise.
  On the other hand, the $40 billion iShares MSCI Emerging Markets Index ETF (EEM) returned 71.8% in 2009, lagging the 78.5% return for its benchmark by 6.7 percentage points.
  The $3.7 billion SPDR Barclays Capital High Yield Bond ETF (JNK) posted a return of 50.5% versus 63.5% for the index it tracks, trailing by about 13 percentage points. The misses aren’t always on the negative side: The $200 million Vanguard Telecom Services ETF (VOX) returned 29.6%, overshooting its benchmark’s 12.6% return by some 17 percentage points.

• Reuters: Only 19% of Americans Are Confident Stock Investors
  Eddy Elfenbein, February 18th, 2010 at 10:43 pm

  Yet they all write for Seeking Alpha:

  Fewer than two in 10 Americans are confident of their ability to invest in the stock market, although 60 percent still believe equities are important in a portfolio.
  The findings come in preliminary results of a survey by AXA Equitable Life Insurance Company that polled 1,000 American between the ages of 25 and 70.
  In 2008 the financial crisis wiped more than 37 percent off the value of share prices as measured by the broad S&P 500 index. That has left many investors shell shocked and distrustful of equities.
  U.S. investors pulled around $242.7 billion out of stock funds in 2008 and 2009 and put $401.7 billion into safer bond funds over the same period, according to the Investment Company Institute.
  That seeming aversion to the stock market came even as the S&P 500 jumped 65 percent from March 2009 to the end of the year.
  In the first decade of the new century the value of top 500 U.S. stocks, which make up a large part of retirement assets, have fallen more than 24 percent.
  Because of that and an increase in life expectancy, the survey showed 42 percent of Americans will delay retirement by an average of six years. More than four in 10 now expect to retire at 68 rather than 62.
  Falling stock prices have eaten into family nest eggs. Almost three in 10 Americans plan to go back to work after retiring, according to the survey, which shows 84 percent are worried about inflation and losing money.

• Odd Lots
  Eddy Elfenbein, February 18th, 2010 at 6:27 pm

  How to Make a Crayon Rocket
  UBS: World’s Largest Trading Floor
  A Look at the Tax Returns of the Top 400 Taxpayers
  The Mouth of Sauron
  
  Ugly Dogs
  School used student laptop webcams to spy on them at school and home
  Behind the Scenes at Footnoted.org
  America’s Most Dangerous Drivers By Profession
  
  An economist predicts the Olympic medal standings
  Flesh-Eating Vultures Descend on Luxury Condo Building
  New Beta Stock Twits

• Fed Raises Discount Rate
  Eddy Elfenbein, February 18th, 2010 at 4:33 pm

  This is the Discount Rate not the Fed Funds rate:

  The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.
  Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve’s lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
  The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19.
  In addition, the Board announced that, effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight. Primary credit is provided by Reserve Banks on a fully secured basis to depository institutions that are in generally sound condition as a backup source of funds. Finally, the Board announced that it had raised the minimum bid rate for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF auction will be on March 8, 2010.
  Easing the terms of primary credit was one of the Federal Reserve’s first responses to the financial crisis. On August 17, 2007, the Federal Reserve reduced the spread of the primary credit rate over the FOMC’s target for the federal funds rate to 1/2 percentage point, from 1 percentage point, and lengthened the typical maximum maturity from overnight to 30 days. On December 12, 2007, the Federal Reserve created the TAF to further improve the access of depository institutions to term funding. On March 16, 2008, the Federal Reserve lowered the spread of the primary credit rate over the target federal funds rate to 1/4 percentage point and extended the maximum maturity of primary credit loans to 90 days.
  Subsequently, in response to improving conditions in wholesale funding markets, on June 25, 2009, the Federal Reserve initiated a gradual reduction in TAF auction sizes. As announced on November 17, 2009, and implemented on January 14, 2010, the Federal Reserve began the process of normalizing the terms on primary credit by reducing the typical maximum maturity to 28 days.
  The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC’s 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread.

  Was this news leaked?

• 2-Year/10-Year Treasury Spread Hits All-Time Record
  Eddy Elfenbein, February 18th, 2010 at 1:03 pm

  Bloomberg:

  The gap in yield between Treasury 2- and 10-year notes, known as the yield curve, steepened to a record as reports showed that Philadelphia region manufacturing and U.S. leading indicators rose.
  The Treasury Department said it will sell $126 billion in notes and bonds next week: billion in 30-year Treasury Inflation Protected Securities, or TIPS, $44 billion in two-year debt, $42 billion in five-year notes and $32 billion in seven-year securities on successive days beginning Feb. 22. The producer price index rose more than forecast last month.
  “The steep yield curve is starting to reflect signs of stagflation,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities in New York. “The short end will remain tied to the Fed funds. Yet we are seeing inflation signs and as a result, long dated maturities are getting hurt.”
  The yield curve increased to 2.92 percentage points, beating the record of 2.90 percentage points set on Jan. 11.
  The 10-year note yield advanced five basis points, or 0.05 percentage point, to 3.78 percent, the highest level since Jan. 14, at 11:13 a.m. in New York, according to BGCantor Market Data. The two-year note yield rose two basis points to 0.86 percent.

  
  (HT: Alea)