Keiser Report: Capitalism without capital?

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In this report, Max Keiser and co-host, Stacy Herbert discuss the radical redistribution of gold and silver property in the U.S. and the radical experiment in the U.K. to have capitalism without capital. In the second half of the show, Max talks to Prof Steve Keen about the U.K.’s financial sector debt which is at least four times as large as the U.S. financial sector debt before the global financial crisis began.

Source: YouTube, December 22, 2011.

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U.K.: QE2 likely to set sail, but it’s no panacea

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This post is a guest contribution by Jonathan Ashworth of Morgan Stanley.

The vote on quantitative easing (QE) at the September meeting remained 8-1, but the tone of the minutes signalled an increased likelihood that the Bank of England (BoE) will resume asset purchases over the coming months. According to the minutes, “For most members, the decision of whether to embark on further monetary easing at this meeting was finely balanced since the weakness and stresses of the past month had significantly strengthened the case for an immediate resumption of asset purchases”. Moreover, “Most of these members (read: apart from Adam Posen) thought that it was increasingly probable that further asset purchases to loosen monetary conditions would become warranted at some point.”

We think there is at least a 50-50 chance that QE resumes in November, with a significant risk of an October move. Some members suggested that “a continuation of the conditions seen over the past month would probably be sufficient to justify an expansion of the asset purchase programme at a subsequent meeting”. In light of the bearish economic and market newsflow over recent weeks, we suspect that the vote could be 6-3 or even 5-4 at the October meeting.

By November, much will hinge on developments in the eurozone and in the domestic economic data (particularly the business confidence surveys). At the current juncture, our European Economics team believes we are some way from a comprehensive solution to the crisis; hence, the negative feedback loop should continue to buffet the UK banking sector and economy. While statistical effects should flatter 3Q GDP growth (2Q GDP was artificially depressed by the fallout from Japan and the loss of a working day for the Royal Wedding), the underlying picture is much more subdued. The latest Purchasing Mangers surveys are pointing to very little growth at the present time, and the more forward-looking components point to further weakening. As a result, we are downgrading our GDP forecasts to 1% for 2011 and 1.1% for 2012.

Set against this deteriorating backdrop (and given the recent pullback in commodity price futures), in its November Inflation Report the BoE may forecast a decent (although not huge) undershooting of inflation at its two-year time horizon, assuming unchanged interest rates (on the same basis in August it forecast inflation around the target level, but it now expects materially weaker second half growth). This, together with the growing uncertainty and downside risks around the economic outlook, should be enough to persuade a majority of members to vote for asset purchases, with £50 billion the most likely amount. Recent speeches from policy-makers suggest that they will be primarily targeted at longer maturities. As a result of the increased likelihood of doing QE, we have pushed our rate hike forecast to February 2013 at the earliest.

That said, we are not totally convinced that QE is a done deal just yet. With inflation likely to rise towards 5% in October, a number of members remain concerned about easing policy during a sustained period of above-target inflation and amid concerns over how quickly it will fall back. These fears will not have been assuaged by recent Financial Times analysis, using the Office for Budget Responsibility’s (OBR) methodology, which suggested the economy’s spare capacity may be significantly less than the OBR previously forecast. Recent speeches from MPC members Dale and Broadbent suggesting that the economy’s trend growth may be lower than previously thought will have reinforced this message. Meanwhile, the BoE’s own analysis in the 3Q Quarterly Bulletin suggests that the impact on inflation from further QE is not insignificant. So, it is not totally inconceivable that if, by the end of October, European policy-makers have confounded expectations and started to get a grip on the situation, the MPC (if growth was soft but not collapsing) may wish to eschew further easing, allowing time to assess developments in the global economy.

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U.K. inflation on the rise

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U.K. April CPI surprised on the upside, moving even further outside of the Bank of England’s (BoE) comfort zone. The annual inflation rate, as measured by headline consumer price growth, bounced to 4.5% in April from 4% in March, setting a new post-crisis high and the third highest reading since 1992.

The following comments come courtesy of BCA Research:

“Although we continue to believe U.K. inflationary pressures do not have deep roots, and expect that looming massive fiscal restraint will sweep them away, readings like today’s increase pressure on Governor Mervyn King to be seen as doing something to combat them. King’s resistance to rate hikes has been constant, but his resolution could be tested by increasingly restive elements of the BoE’s monetary policy committee (MPC). Stay tuned for signs that the internal pressure is picking up, but we continue to believe that investors should lean against expectations of imminent BoE tightening.”

Source: BCA Research – Daily Insights Service, May 19, 2011.

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Sushi with Dave: U.S. vs Japan

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The article below comes courtesy of David Rosenberg, Chief Economist and Strategist of Gluskin Sheff & Associates, showing that the U.S. post-bubble economic and financial backdrop is looking more and more like the Japanese situation of the past two decades.

CHART 1: BOTH COUNTRIES EXPERIENCED THE BURSTING OF A HOUSING BUBBLE


CHART 2: BOTH COUNTRIES EXPERIENCED A BUBBLE BURST IN HOUSING CREDIT


CHART 3: WHEN T-BILL YIELDS ARE 0%, YOU KNOW IT’S JAPAN ALL OVER AGAIN


CHART 4: UNPRECEDENTED EXPANSION OF THE CENTRAL BANK’S BALANCE SHEET


CHART 5: EVEN JAPANESE AND U.S. FISCAL POLICY LOOKS THE SAME

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Where are Britain’s house prices heading now?

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The article below comes courtesy of the UK’s MoneyWeek.

It’s the question on everyone’s lips. To find the answer, we’ve hunted down what we believe are the best leading indicators for Britain’s housing market. And for now, they suggest that prices are heading for a fall.

We watch five indicators, all of which have proved useful guides in the past. These include the RICS Housing Market Survey and data on both mortgage lending and mortgage approvals. We also watch the price of shares in flooring specialist Carpetright. Consumer confidence is another useful data point we keep an eye on.

You can read in detail what each indicator suggests for UK house prices using the links below. But, to summarise, surveyors remain gloomy, according to the RICS Housing Market Survey, a bad sign for prices. Both mortgage lending and mortgage approvals remain very weak, which also points to falling prices. And shares in specialist flooring retailer Carpetright are also falling, which suggests poor housing market activity. Meanwhile, consumer confidence has dipped again, which also points to a further slide in prices.

1. What surveyors are saying about UK house prices

2. What Bank of England net mortgage lending says about house prices

3. What Bank of England mortgage approvals suggest about house prices

4. What Carpetright’s share price says about the housing market

5. What consumer confidence means for house prices

And here’s what house prices are currently doing, according to the latest indices:

Source: Bloomberg

Stop press: Just in from Nationwide

Each month the Nationwide Consumer Confidence index gauges the UK population’s view about the country’s current and future position. It also measures how bullish Britain’s consumers are about their own finances. The Expectations index monitors consumers’ views of the economic and employment situation in six months time.

What’s the latest?

November’s overall Nationwide consumer confidence survey has just hit a 20-month low. Britons are fretting about the likely impact on jobs, and disposable incomes, of the government’s spending cutbacks. The Expectations index was driven down too.

What does this mean for UK house prices?

Source: Bloomberg

The Nationwide Expectations index has led annual changes in Nationwide’s UK “all houses” price index by about three months. This latest survey points to a sharp year-on-year fall in Britain’s house prices.

Source: MoneyWeek, December 17, 2010.

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UK growth surprises on the upside

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Contrary to expectations, UK GDP growth in the second quarter of this year exceeded expectations by a significant margin. The economy grew by 1.6% compared to a year ago, while the market expected 1.0%. The growth in the preceding two quarters was also upped somewhat.

With the GDP-weighted PMI (manufacturing and services) leading the economy by approximately one quarter the outlook for the UK economy in the third quarter of this year is positive. On a year-ago basis, output could exceed 2%.

Sources: Dismal Scientist, Markit; Plexus Asset Management.

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