Saturday, November 8, 2014

Weekly Commentary, February March, 2012: Price Instability

Chairman Bernanke was forthcoming yesterday when he stated that loose monetary policy distorts the economy and leads to inflationary pressures. I’ll contend that the world would today be a safer place if “easy money” in fact always led to inflationary pressures. In reality, some of history’s most notorious Bubbles developed in an atypical environment comprising loose monetary policy and well-anchored consumer price inflation. One can look to the seemingly sanguine pricing backdrops in the U.S. during the “Roaring Twenties” and Japan in the eighties as cases in point. In both circumstances, a misdiagnosis of the Credit and financial backdrop was instrumental in policymakers remaining too loose for too long - and unwittingly accommodating precarious Bubble dynamics.

The U.S. economic recovery has achieved some momentum, risk markets are quite strong, the liquidity backdrop is amazingly robust, the banking system stable – and the Fed has nonetheless committed to sticking with near-zero rates for at least several more years. To be sure, market participants are anything but oblivious to the fact that they enjoy both ultra-loose liquidity conditions and a Federal Reserve eager to implement additional quantitative easing in the event of renewed economic weakness or market stress. It makes the old “Greenspan put” rather child’s playish.

In such a speculative marketplace, bubbling risk markets provide a powerful incentive that forces believers and non-believers alike to hop aboard. Increasingly, it’s a marketplace where everyone is being forced to become a trader with a short-term performance and trend-following focus. Attention to risk is proving too excruciating. For this phase of a historic Bubble cycle, it has been more a case of the Federal Reserve inciting rather than just accommodating Bubble Dynamics.

The Fed and global policymakers have fashioned a decidedly unlevel playing field. A distorted market incentive structure has fomented yet another bout of self-reinforcing risk-taking and speculation. Not all that many weeks ago, the global financial system was being rocked by de-risking and de-leveraging dynamics. Leveraged long positions were being reversed, which – in global markets dominated by leveraged speculation – was quickly leading to serious market liquidity issues. At the same time, markets were inundated with derivative-related selling, as players across the globe implemented strategies to hedge against various risk scenarios. With increasingly illiquid markets unable to withstand such selling pressure, global policymakers responded with resolve.

There is no happy medium. Equilibrium is a myth. It’s risk on or risk off – melt-up or melt-down. Oddly, relatively risk-averse and hedged global markets create quite a tinderbox. And as we now watch global risk markets catch fire and demonstrate a captivating propensity for going into melt-up mode, we’re witnessing confirmation of the “bi-polar,” “bimodal” and “fat (left and right) tail” thesis. There are reasons why speculative Bubbles tend to end with destabilizing “blow-off” tops.

It is understandable to be confused by such strong market performance in the face of major global structural issues and attendant risks. I would argue that markets have turned highly speculative specifically because of the deep structural issues confronting global policymakers. Last year, the efficacy of policy measures notably dissipated (in Europe and here with QE2), provoking only more aggressive policy interventions. The markets are now responding to the unprecedented liquidity backdrop – and the reality that global policymakers have become hostage to the markets. Risk concerns have evaporated, and ebullient traders are referring to “the sweet spot.”

Not for a minute have I ever believed that the proliferation of derivative trading would end well. When a meaningful part of the marketplace moves to implement hedging strategies (as was the case again last year), the market will immediately find itself both prone to illiquidity and vulnerable to trend-following selling pressure. And, as we’ve seen, when policymakers then aggressively intervene to stem deepening market stress, markets abruptly become susceptible to a destabilizing reversal of hedging-related exposures. The unwind of both hedges and bearish short positions creates a powerful burst of buying power and marketplace liquidity. In short order, dangerously illiquid markets can be transformed into abundantly – I would argue, overly – liquid. And there is nothing like the specter of buying panic associated with a major short squeeze to really empower the markets’ animal spirits. Nervousness and risk aversion are so second-half 2011.

The NYSE Financial Index is already up 13.6% year-to-date. Bank of America has gained 41%, Citigroup 27%, and JPMorgan 15%. Morgan Stanley and Goldman Sachs have jumped 34% and 30%, respectively. The S&P500 Homebuilding index has a 2012 gain of 20.9%. The Morgan Stanley Cyclical index is up 16.0%. The small cap Russell 2000 has gained 12.2% and the S&P400 MidCap Index has jumped 10.5%. The Morgan Stanley High Tech index is already up 14.0%, and the Nasdaq100 closed today at the highest level since early-2001.

It’s a backdrop that had me this week recalling the 1990s. I certainly haven’t heard so much bullish technology chatter since the tech Bubble. The outperformance of heavily shorted stocks also brings back memories of the nineties’ squeezes and all the trading fun and games. In the nineties, liquidity and market distortions were being fueled by the explosion of Wall Street debt instruments and leveraged speculation. The GSEs (chiefly Fannie, Freddie and the FHLB) were there to covertly provide a powerful liquidity backstop in the event of heightened market stress. The market incentive structure was pro-Bubble, and especially toward the end of the decade the marketplace had become rather emboldened from repeated crises resolutions. Today, the distortions are fueled largely by an explosion of Treasury debt and speculative leveraging, with the Fed and global central banks acting conspicuously as market liquidity backstops. Players are again emboldened.

I’ve been at this for awhile, so you won’t hear me calling for the imminent demise of this Bubble. I will, however, continue to warn that when this one blows there will be hell to pay. And what a fascinating juncture for the marketplace to so emphatically embrace risk-taking. Especially with readily available derivative risk protection, it is indeed rational for players to aggressively play the (policy-induced) global risk market rally – with one eye on buying cheap risk insurance. And I will assume the sophisticated global speculators will play this for all its worth (multi-billions, literally) – with an eye on the exits in the event Europe begins to unravel. Policymaker efforts to avoid a system blowup have created a backdrop conducive to a destabilizing speculative blow-off. And the Fed can still somehow trumpet “stable prices.”

No CBB next week

For the Week:

The S&P500 gained 2.2% (up 6.9% y-t-d), and the Dow rose 1.6% (up 5.3%). The Banks surged 5.1% higher (up 14.4%), and the Broker/Dealers jumped 5.5% (up 17.0%). The Morgan Stanley Cyclicals jumped 3.5% (up 16.0%), and the Transports added 0.5% (up 7.0%). The broader market remained exceptionally strong. The S&P 400 Mid-Caps rose 3.1% (up 10.5%), and the small cap Russell 2000 advanced 4.0% (up 12.2%). The Nasdaq100 was up 2.7% (up 11.0%), and the Morgan Stanley High Tech index rose 4.3% (up 14.0%). The Semiconductors jumped 3.5% (up 17.4%). The InteractiveWeek Internet index gained 3.6% (up 11.1%). The Biotechs surged 6.1% (up 27.3%). “Defensive” stocks are out of favor. The Morgan Stanley Consumer index increased 1.2% (up 3.5%), and the Utilities gained 0.3% (down 3.6%). With bullion down $13, the HUI gold index declined 1.3% (up 8.6%).

One-month Treasury bill rates ended the week at 5 bps and three-month bills closed at 7 bps. Two-year government yields gained 2 bps to 0.23%. Five-year T-note yields ended the week up 2 bps to 0.77%. Ten-year yields increased 3 bps to 1.93%. Long bond yields ended up 6 bps to 3.12%. Benchmark Fannie MBS yields jumped 14 bps to 2.75%. The spread between 10-year Treasury yields and benchmark MBS yields widened 11 bps to 82 bps. The implied yield on December 2012 eurodollar futures declined 4.5 bps to 0.48%. The two-year dollar swap spread dropped 5 to 27 bps. The 10-year dollar swap spread declined one to about 11 bps. Corporate bond spreads narrowed. An index of investment grade bond risk fell 5.5 to a six-month low 94.5 bps. An index of junk bond risk sank 29 bps to a six-month low 531 bps.

Debt issuance picked up significantly. Investment grade issuers included IBM $2.5bn, Procter & Gamble $1.0bn, Praxair $600 million, Ventas Realty $600 million, Tyco $750 million, Nustar Logistics $250 million and Southwestern Electric Power $275 million.

Junk bond funds enjoyed inflows of $1.6bn (from Lipper). Junk issuers included Univision Communications $1.2bn, Ford Motor Credit $1.0bn, Energy Future $800 million, KB Home $350 million, Mediacom $250 million, Aurora Oil & Gas $200 million, and Rural Metro Corp $100 million.

I saw no convertible issuance this week.

A huge lineup of international dollar bond issuers included Petrobras $10.5bn, Bank of Reconstruction & Development $5.0bn, Rabobank $3.0bn, Poland $3.0bn, Japan Finance Corp $2.5bn, Hutchison Whampoa $2.5bn, Sberbank $1.5bn, ABN Amro $1.5bn, Romania $1.5bn, Neder Waterschapsbank $1.0bn, UPCB $750 million, Banco Del Estado $500 million, COFIDE $400 million, Codere $300 million, Spanish Broadcasting System $275 million, Central American Bank $250 million, CAB Corp $200 million, Cimento Tupi $150 million, and Grupo Elektra $150 million.

Ten-year Portuguese yields sank 160 bps to 13.05% (up 28bps y-t-d). Italian 10-yr yields ended the week down 20 bps to 5.68% (down 135bps). Spain's 10-year yields added 2 bps to 4.96% (down 8bps). German bund yields rose 8 bps to 1.93% (up 11bps), while French yields fell 14 bps to 2.89% (down 25bps). The French to German 10-year bond spread narrowed 25 bps to 96bps. Greek two-year yields ended the week up 749 bps to 165.65% (up 4,011bps). Greek 10-year yields jumped 44 bps to 31.43% (up 12bps). U.K. 10-year gilt yields rose 11 bps to 2.18% (up 20bps). Irish yields dropped 27 bps to 6.89% (down 137bps).

The German DAX equities index jumped 3.9% (up 14.7% y-t-d). Japanese 10-year "JGB" yields declined 2 bps to 0.94% (down 4bps). Japan's Nikkei was little changed (up 4.5%). Emerging markets were higher. For the week, Brazil's Bovespa equities index surged 3.7% (up 14.9%), and Mexico's Bolsa jumped 2.4% (up 2.7%). South Korea's Kospi index added 0.3% (up 8.0%). India’s Sensex equities index increased 2.2% (up 13.9%). China’s Shanghai Exchange added a tepid 0.5% (up 6.0%). Brazil’s benchmark dollar bond yields rose 3 bps to 3.24%, and Mexico's dollar bond yields fell 17 bps to 3.33%.

Freddie Mac 30-year fixed mortgage rates dropped 11 bps to 3.87% (down 94bps y-o-y). Fifteen-year fixed rates fell 10 bps to 3.14% (down 94bps y-o-y). One-year ARMs were up 2 bps to 2.76% (down 50bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up 14 bps to 4.60% (down 77bps y-o-y).

Federal Reserve Credit added $0.4bn to $2.906 TN. Fed Credit was up $467bn from a year ago, or 19.2%. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 2/1) rose $3.7bn to $3.410 TN (20-wk decline of $65bn). "Custody holdings" were up $54bn year-over-year, or 1.6%.

Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg – were up $941bn y-o-y, or 10.2% to $10.212 TN. Over two years, reserves were $2.398 TN higher, for 31% growth.

M2 (narrow) "money" supply increased $4.5bn to a record $9.768 TN. "Narrow money" expanded 10.3% from a year ago. For the week, Currency increased $1.2bn. Demand and Checkable Deposits rose $11.9bn, while Savings Deposits declined $2.0bn. Small Denominated Deposits dipped $2.1bn. Retail Money Funds dropped $4.5bn.

Total Money Fund assets dropped $21.3bn to $2.657 TN. Money Fund assets were down $38bn y-t-d and $83bn over the past year, or 3.0%.

Total Commercial Paper outstanding increased $800 million to $972.2bn. CP was down $24bn from one year ago, or down 2.4%.

Global Credit Watch:

February 3 – Bloomberg (Jonathan Stearns): “Greece’s fight to win its second international bailout may only open a new chapter in its struggle to remain in the euro area. The rescue plan, which European officials and Greek creditors say may be wrapped up in coming days, includes a loss of more than 70% for bondholders in a voluntary exchange and loans likely to exceed the 130 billion euros ($171bn) now on the table. That won’t stanch the bleeding, say economists including Holger Schmieding of Berenberg Bank in London. Greece will be saddled with too much debt, too little growth and too large a budget hole to do without even more money that euro nations led by Germany are increasingly reluctant to offer, they say. ‘Greece is in deep trouble,’ Schmieding said… ‘The current Greek adjustment program is failing. Excessive austerity, a lack of supply-side reforms, administrative incompetence and political deadlock have pushed the Greek economy into an apparent death spiral. More of the same will not work.’”

February 1 – Financial Times (Ralph Atkins and Rachel Sanderson): “All is not lost for small, struggling companies around Milan. The local chamber of commerce’s… ‘Milan’s fund to Free up Credit’ – is a sign of the gloomy times across parts of Italy’s business community. Set up by UniCredit… and the local business lobby, the credit line offers a last ditch chance for small viable businesses with nowhere else to turn. With just €15m available, however, the fund may quickly prove inadequate. A European Central Bank survey… showed the eurozone debt crisis has triggered a severe credit squeeze across the region with banks imposing significantly harsher loan terms on businesses and consumers. Demand for mortgages and loans to fund corporate investment was also falling sharply…”

February 1 – Bloomberg (Jana Randow and Jeff Black): “The European Central Bank’s plan to accept more bank loans as collateral may not be used by all euro-region nations, threatening to fragment the rules applying to bank funding operations, said two euro-area officials with knowledge of the discussions. The initiative is likely to be implemented on a voluntary basis by national central banks and several of them may opt out, said the officials… Germany’s Bundesbank has indicated it may be among those to shun the measure, arguing the country’s banks don’t need to borrow more from the ECB… ‘It contradicts the idea that all banks are treated equally in the euro area,’ said Klaus Baader, co-head of economic research at Societe Generale… ‘It creates a two-class society. Central banks that take part are therefore identifying themselves as ones that are dealing with a weak banking system.’”

February 1 – Bloomberg (Jeff Black): “European Central Bank council member Jens Weidmann said the fiscal treaty agreed by European leaders this week isn’t the foundation for a fiscal union. ‘Obviously in the negotiations, as often in the past, things were watered down,’ Weidmann, who is also head of the Bundesbank, said… ‘It’s clear that the cornerstone for a real fiscal union hasn’t been laid here.’”

February 1 - Dow Jones: “Overly generous liquidity provision by the European Central Bank could increase risks for banks and the financial system, the head of Germany's Bundesbank warned… six weeks after the ECB handed banks a massive EUR489 billion in three-year loans. While the ECB has a duty to provide liquidity to solvent banks, ‘an overly generous provision of liquidity gives banks new business possibilities that can mean higher risks for banks and also risks to financial stability,’ Weidmann warned… The ECB ‘mustn’t and shouldn’t under any circumstances perform a massive redistribution and sharing of solvency risks within the euro zone,’ Weidmann said. The ECB supplied banks with EUR489 billion at its first ever three-year loan operation in December, much more than analysts had expected. The central bank will carry out a second such operation at the end of February, with analysts expecting similar or even higher demand.”

January 31 – Bloomberg (Frances Schwartzkopff): “Denmark’s banking crisis is getting worse, threatening to trigger more failures, as loans to farms and small businesses sour and the property market fails to recover, the head of the Financial Supervisory Authority said. ‘We have a small group of institutions where we think there might be a risk that within the next 12 to 18 months they will run into solvency problems,’ Ulrik Noedgaard, director general of the… FSA, said… ‘Any notion that the group of troubled banks might get smaller than we thought has probably been taken off the table for a while.’”

February 1 – Bloomberg (Drew Benson): “The cost of growth-linked securities that Argentina used to entice creditors in a restructuring will top $10 billion seven years after they were issued, serving as a cautionary tale to Greece as it negotiates a debt exchange. The so-called GDP warrants, which pay creditors when gross domestic product exceeds targets, will cost the government $3.5 billion…”

Global Bubble Watch:

February 3 – Wall Street Journal (Matt Phillips): “Investors have piled into mortgage bonds guaranteed by U.S. housing agencies, in a bet that the Federal Reserve will launch a third round of stimulus aimed at the housing market. That buying has sent yields for securities backed by newly originated 30-year mortgages to record lows this week.”

February 3 – Financial Times (Tracy Alloway): “The use of lower-rated debt in a key US funding market has returned to pre-crisis levels, fuelling fears that the so-called shadow banking system is becoming riskier. The repo market is an important part of the shadow banking sector, which consists of unregulated financial institutions and activities… When the US housing bubble burst, the banks’ trading partners refused to accept such securities as collateral and the repo market rapidly contracted. However, a study by Fitch Ratings says the proportion of bundled debt being used as security in repo transactions has returned to pre-crisis levels… ‘These are less liquid, longer-tenor assets that are funded short-term by highly risk-averse lenders,’ said Robert Grossman, head of macro credit research at Fitch. ‘In a period of market turbulence, all of the parties to a repo would be affected,’ he added, meaning that both banks and funds could be hit.”

February 3 – Bloomberg (Sridhar Natarajan and Tim Catts): “Corporate bond sales are mounting a comeback globally, with U.S. issuance climbing 75% from last week as Federal Reserve Chairman Ben S. Bernanke highlights ‘signs of improvement’ in the world’s biggest economy. International Business Machines… led $69.9 billion of debt offerings this week… Sales worldwide climbed 23% from $56.8 billion last week as borrowers raised $17.6 billion in the U.S. on Feb. 1, the most in almost three months...”

February 1 – Financial Times (Nicole Bullock and Robin Wigglesworth): “Junk bonds, until last year one of the favoured post-crisis asset classes for many investors, are enjoying a vigorous rally that has drawn comparisons with the credit boom. US corporate debt rated below investment grade, or junk, has notched up a 3% return this year, according to Barclays Capital… Issuance has reached $19.5bn, Dealogic says… European junk bonds have returned 5.3% to investors and issuance has rebounded to almost $6bn. ‘We’ve seen nothing like it [in Europe] since the halcyon days before the subprime crisis,’ Suki Mann, a strategist at Société Générale said… ‘This is effectively a massive rally in credit. The message isn’t hidden or subtle: buy corporate bonds, simple. Rather add risk, any risk and there’s no point in being measured about it.”

February 2 - Bloomberg (Zeke Faux and Tim Catts): “Procter & Gamble Co. was awarded the lowest interest rate ever on 10-year bonds by safety-minded investors seeking higher-rated corporate securities as an alternative to government debt. The world’s biggest consumer-products company sold $1 billion of 2.3% notes due in February 2022 yesterday to yield 55 bps more than similar-maturity Treasuries…”

February 2 - Bloomberg (Scott Reyburn): “Car dealers who are in Paris for sales of Porsche and Aston Martin classics have revealed that a Ferrari was bought this year for about $32 million. The GTO -- one of 36 produced by the Italian company in 1962 to 1963 -- was sold privately in the U.K. within the last two weeks… Investors are looking to rare autos as an alternative to volatile financial markets. The show is luring collectors with an exhibition that includes a Bugatti, said to be the world’s most expensive auto and bought for as much as $40 million.”

Currency Watch:

The dollar index was little changed this week (down 1.5% y-t-d). On the upside, the South African rand increased 3.1%, the Mexican peso 2.0%, the New Zealand dollar 1.3%, the Brazilian real 1.1%, the Australian dollar 1.1%, the Swedish krona 1.0%, the Taiwanese dollar 0.9%, the Canadian dollar 0.8%, the Singapore dollar 0.8%, the British pound 0.6%, the South Korean won 0.5%, the Japanese yen 0.1%, and the Norwegian krone 0.1%. On the downside, Danish krone declined 0.5%, the euro 0.5%, and the Swiss franc 0.6%.

Commodities and Food Watch:

The CRB index declined 1.1% this week (up 2.9% y-t-d). The Goldman Sachs Commodities Index was unchanged (up 3.3%). Spot Gold slipped 0.7% to $1,726 (up 10.4%). Silver retreated 1.7% to $33.75 (up 21%). March Crude declined $1.72 to $97.84 (down 1%). March Gasoline dipped 0.3% (up 10%), and March Natural Gas sank 9.3% (down 16%). March Copper added 0.3% (up 13%). March Wheat rallied 2.1% (up 1%), and March Corn increased 0.4% (down 0.3%).

China Watch:

February 1 – Bloomberg: “Chinese manufacturing indexes rose in January as the world’s second-biggest economy withstood weaker exports driven by Europe’s debt crisis and a government-induced property slowdown. The official purchasing managers’ index increased to 50.5 from 50.3 in December…”

February 1 – Bloomberg (Kelvin Wong): “The Year of the Dragon, representing wealth and power in China, is shaping up to be the opposite for the world’s costliest housing market, Hong Kong. Mortgages that need to be insured by the government because of risk experienced the steepest plunge in six years in 2011… Property prices that have slid 6% since June may fall as much as 25% by 2013, estimates Andrew Lawrence of Barclays Capital… Asian real estate markets from Singapore to Beijing to Mumbai are stalling or have started declining as governments seek to curb the type of housing bubble that brought down the U.S. economy.”

February 1 – Bloomberg: “China’s home prices fell for a fifth month in January as the government continued to control the property market, the longest losing streak since SouFun Holdings Ltd. started tracking the data. Home prices dropped 0.18% last month from December… Residential prices slid in 60 of 100 cities tracked by the company, same as in December… Premier Wen Jiabao yesterday reiterated that the government will maintain curbs on the property market to bring prices down to a reasonable level.”

Japan Watch:

February 3 – Bloomberg (Shunichi Ozasa and Kathleen Chu): “Japan Inc. is suffering and the supply chain is bearing the cost. Sumco Corp., a supplier to Sony Corp. and Toshiba Corp., said yesterday it will cut 1,300 jobs. Auto windshield maker Nippon Sheet Glass Co., which sells to Mazda Motor Corp., said it will cut 3,500 jobs. They join NEC Corp… which said last month it would eliminate 10,000 positions. The yen’s 7% surge against the dollar in the past 12 months has widened losses at Sony, Mazda and Sharp Corp., which plans to halve TV production at its biggest factory… Manufacturers have been forced to both relocate production outside of Japan and to press their suppliers for cost cuts.”

India Watch:

February 3 – Bloomberg (Kartik Goyal and Daniel Moss): “Reserve Bank of India Deputy Governor Subir Gokarn said the monetary authority will cut interest rates once it’s confident inflation will keep slowing. ‘The stance now is that we have reached the peak and any further action will be toward easing,’ Gokarn, 52, said…”

Asian Bubble Watch:

January 31 - Bloomberg (Chinmei Sung): “Taiwan’s economy expanded at the slowest pace in more than two years… Gross domestic product rose 1.9% in the three months through December from a year earlier and contracted from the previous quarter, pushing the economy into a technical recession…”

Unbalanced Global Economy Watch:

February 1 – Bloomberg (Simone Meier): “European inflation remained steady in January… The inflation rate in the 17-nation euro area was 2.7%, the same rate as in December… The European Central Bank aims to keep inflation just below 2%.”

January 31 – Bloomberg (Simone Meier and Rainer Buergin): “German unemployment dropped more than economists forecast to a two-decade low in January… The number of people out of work fell a seasonally adjusted 34,000 to 2.85 million… In December, Italy’s jobless rate rose to the highest since 2004, while in the euro area it stayed at a 14-year high of 10.4%.”

February 1 – Bloomberg (Michael Heath and Nichola Saminather): “Australian house prices plunged by the most on record in 2011 as global economic uncertainty and concerns about its impact at home kept a lid on demand. An index measuring the weighted average of prices for established houses in eight major cities slid 4.8% from a year earlier…”

Central Banking Watch:

February 3 – Bloomberg (Steve Matthews): “Federal Reserve Bank of St. Louis President James Bullard said reports on the U.S. economy such as today’s better-than-forecast employment data indicate that more Fed purchases of bonds aren’t necessary. ‘The economic news and economic data, including today’s data, has been surprising to the upside,’ Bullard said… ‘I need to see significant deterioration in the economy and some threat of deflation or inflation moving significantly below our inflation target before I would consider more QE,’ he said…”

U.S. Bubble Economy Watch:

February 3 – Bloomberg (Janet Lorin): “Terry Williams borrowed about $7,000 to earn a degree from Spelman College 38 years ago. For her youngest child, a sophomore at Belmont University in Nashville, she will take on almost $40,000 in parental loans. Williams… is watching her retirement savings dwindle as she pays college bills for her three children… ‘I’ll probably work until I fall dead at my keyboard,’ the Decatur, Georgia, resident said… It’s not just graduates who are staggering under the weight of educational loans. Parents, too, are borrowing record amounts to put their kids through college, jeopardizing their retirements. With the housing crisis, many families can no longer avail themselves of one popular option for financing university studies: taking out a second mortgage.”

January 31 – New York Times (Motoko Rich): “Housing prices continue to fall nationwide, despite a few modest signs of improvement. But not all markets are equal. Places like Miami and Phoenix — symbols of boom-time excesses and later the sites of fierce crashes — were not the weakest performers last year. That distinction goes to Atlanta. A sprawling Southern metropolis, Atlanta has become one of the biggest laggards in the economic recovery. In November, prices of single-family homes were down close to 12% compared with a year earlier… Home prices regionally are now below their levels of 2000, making Atlanta one of only four metro areas to have experienced such a slide.”

February 1 – Bloomberg (Shobhana Chandra and Ilan Kolet): “The aging of America may be good for the U.S. labor market. A growing number of older people and rising health-care spending are driving demand for workers from nursing aides to surgeons. While the economy lost 7.5 million positions during the recession, health care expanded staff. Together with social assistance, it will add 4 million employees to become the second-biggest job gainer by 2018, behind only professional and business-services… Manufacturing is projected to lose 1.2 million jobs by then. Health care… was the largest contributor to employment growth in the past two years, with a 22% share that was almost twice as big as manufacturing.”

February 1 – Bloomberg (Rob Golum): “Ryan Seacrest, the radio and TV producer and host of ‘American Idol,’ garnered a commitment for as much as $300 million from Thomas H. Lee Partners LP and Bain Capital LLC to fund media ventures. The private-equity investors will provide capital to Ryan Seacrest Media to buy and develop companies, content and other properties…”

Fiscal Watch:

January 31 - Washington Post (Lori Montgomery): “The federal budget deficit will top $1 trillion for a fourth straight year, congressional budget analysts said…, the smallest since the Great Recession hit in 2009. The nonpartisan Congressional Budget Office projected that the gap between government spending and tax collections would continue to fall, dropping sharply in 2013 and through the decade if policymakers follow through with major changes in both tax policy and government spending now on the books.”

California Watch:

January 31 – Los Angeles Times: “California is running out of cash, the state controller warned in a letter to lawmakers… Controller John Chiang said lawmakers need to scrape together $3.3 billion by March -- assuming the state's financial situation doesn't get any worse… He urged the state to delay some payments, borrow more money and shift cash among various funds. The looming problem is the result of another difficult budget year. Chiang said the state, as of Dec. 31, has spent $2.6 billion more than expected while collecting $2.6 billion less in revenue.”

February 1 – Bloomberg (James Nash and Michael B. Marois): “California will seek a loan from Wall Street of as much as $1 billion to pay bills as the most populous U.S. state’s tax collections trail budgeted amounts, according to the treasurer’s office.”