The housing market’s recovery appears to be losing momentum, a concern underscored by the recent update from the S&P/Case-Shiller Home Price Indices. Nationally, U.S. housing prices experienced a decline of 2.0% in the third quarter of this year compared to the previous quarter. This marks a significant slowdown from the 4.7% increase recorded in the second quarter.
► Contagion Fears Hit Euro; Spanish Bond Spreads Widen
Mark Brown and Eva Szalay/Wall Street Journal/Nov 30
The spreads of Spanish and Italian bonds over German bunds surged to unprecedented levels today, triggering heightened costs for European sovereign debt insurance. The euro continued its downward trend amid growing concerns about contagion within the eurozone. The premium for Spanish 10-year bonds over the benchmark German bund climbed over 30 basis points, surpassing 300 basis points, while Italian 10-year bund spreads rose over 20 basis points to 215 basis points, according to Tradeweb, marking record highs for both.
► Asia stocks fall on Europe debt, China hike fears
Associated Press/Nov 30
Asian markets tumbled today, with Chinese stocks falling amid fears of an impending interest rate hike, and the European Union’s bailout of Ireland failed to reassure investors regarding the continent’s debt situation. Inflation in China, the world’s second-largest economy, is primarily affecting food prices, but analysts warn that these pressures could extend to other sectors unless Beijing increases interest rates and tightens credit further. Such actions could potentially hinder economic growth or limit the liquidity that fuels stock trading. “There is a little nervousness about how hard the policymakers will have to slam on the brakes to contain inflation,” noted David Cohen, an economist with Action Economics in Singapore.
Economics professor David Beckworth states that the debate on Milton Friedman‘s stance regarding the Federal Reserve’s quantitative easing program is settled: Friedman would have supported it. His conclusions are drawn from comments made by Friedman in 2000. After reviewing the information, it’s hard to refute Beckworth’s assertions. There may be grounds for Alan Meltzer to reconsider his recent op-ed suggesting that Friedman would not have endorsed QE2.
The Federal Reserve’s most recent monetary easing initiative, often labeled QE2, has helped stabilize inflation expectations, which have recently risen slightly. Since mid-October, the inflation forecast based on the yield spread between nominal and inflation-indexed 10-year Treasuries has fluctuated around the low-2% mark. This development signals a recovery from the previous summer’s sharp decline in inflation outlook, which was driven by fears of a looming recession.
● The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere
By Vitaliy N. Katsenelson
Excerpt via publisher, John Wiley & Sons
Prepare for a thrilling ride in the markets. Over the next decade or so, the Dow Jones Industrial Average and the S&P 500 index are likely to mirror their past behavior: fluctuating wildly, achieving new highs and lows. However, at the end of this turbulent journey, index and buy-and-hold investors will find they have returned to their starting positions after enduring dramatic ups and downs akin to an amusement park ride.
Today, the U.S. Bureau of Economic Analysis released several economic reports that collectively showcase a mixed bag of macroeconomic data. These updates on new orders for durable goods, personal income and spending, and weekly jobless claims, which are typically released on separate days, were all published this morning due to the upcoming Thanksgiving holiday. The result is an unusually robust set of statistics to analyze. Here’s a brief overview of some notable data points:
John Maynard Keynes was known for his strong opposition to the gold standard. In the mid-1920s, for instance, he urged Winston Churchill to withdraw England from it. Interestingly, Robert Skidelsky, who authored a best-selling biography that presents a positive view of Keynes—Keynes: The Return of the Master
The U.S. economy has expanded at a somewhat stronger rate in the third quarter than previously estimated, according to reports from the Bureau of Economic Analysis (BEA). The inflation-adjusted output of the nation’s goods and services rose at an annual rate of 2.5% for the three months ending in October, an increase from the originally estimated 2.0% pace for Q3. This revision adds some distance from the second quarter’s more modest 1.7% growth.
Humans often seek simple answers to complex issues, which is generally a reasonable endeavor. However, unraveling financial crises is inherently different.
The book All the Devils Are Here: The Hidden History of the Financial Crisis
At times, investors may find themselves facing risks greater than anticipated, as detailed in a recent report by Bloomberg:
The FBI conducted raids seeking documents from three investment firms tied to hedge fund insider trading investigations under the direction of Manhattan U.S. Attorney Preet Bharara. The offices of Level Global Investors LP and Diamondback Capital Management LLC, founded by alumni of SAC Capital Advisors LLC, were among those searched by Federal Bureau of Investigation agents. Additionally, a search warrant was executed at the offices of Loch Capital Management, another firm involved in the probes. “The government has decided it needs to use force to obtain all the information,” stated Jacob Frenkel, a former federal prosecutor and attorney with the Securities and Exchange Commission. “It has opted for search warrants instead of issuing grand jury subpoenas.”