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[Premium] Spain’s nationalisation plan won’t work as the banking system is insolvent

Edward Harrison — Thu, 17 May 2012 15:44:12 +0000

The Spanish banking system is insolvent and the Spanish government simply does not have the wherewithal to clean it up. This is the problem in Spain that has come to a head, particularly now after the rescue of Bankia, Spain's fourth largest bank. Unless the European Union come to Spain's rescue, there will be runs on Spanish banks, with contagion rippling outward.

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US housing starts up 40% in last year but still half of 50-year average

Edward Harrison — Wed, 16 May 2012 12:56:54 +0000

Housing starts in the US were up today. The Wall Street Journal writes that number came in at 717,000, up from a low of 478,000 in April

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Don’t Fight the Last War: Lessons from the Battlefields of Risk Management

Niels Jensen — Tue, 08 May 2012 17:41:25 +0000

Our brains are not calibrated to deal with the unexpected. Most of us believe we are good risk managers but in reality we are not. Most of us trust that risk can always be quantified and expressed through some fancy modelling whereas, often, it cannot. The world is not normal, yet universities continue to teach our young students the wisdom of Markowitz and Sharpe which brought us modern portfolio theory and, more specifically, the capital asset pricing model. Garbage In, Garbage Out, as they say. One of the fundamental assumptions behind modern portfolio theory is that asset returns are normally distributed random variables. The return profile of US equities fairly closely matches that of a normal distribution with the exception of large negative returns. They have come about more frequently than one would or should expect

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The Denial on Housing in Spain

Claus Vistesen — Fri, 04 May 2012 11:55:38 +0000

This post highlights a brilliant piece of journalism by Bloomberg reporters Sharon Smyth, Neil Callanan and Dara Doyle. The story takes us to Spain and Ireland and the former's denial with regards its housing market. A passage that was particularly staggering was the comments by Miguel Angel Garcia Nieto, mayor of Avila (a town showcased in the article), that this is just an interim soft spot as a result of the crisis and that oversupply and overcapacity will eventually be absorbed. Hope, as they say, springs eternal

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Australian House Prices down 10% from Peak

Steve Keen — Tue, 01 May 2012 12:26:07 +0000

Australian house prices peaked in June 2010. The motive force behind Australia’s bubble was the same as in the USA and Japan: accelerating debt drove rising house prices during the boom. Now in both those countries, decelerating debt is driving house prices down. The same pattern applies in Australia

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[Premium] Australian house prices down 1.1% Q-o-Q

Edward Harrison — Tue, 01 May 2012 01:48:29 +0000

Last week I said I would do a better job of tracking the Australian housing market as my prediction for 2012 is that it is a bubble which will pop

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[Premium] Daily Commentary: On Case-Shiller and New Home Sales

Edward Harrison — Tue, 24 Apr 2012 15:00:12 +0000

The big US data today was in the housing markets as we got both the Case-Shiller and the housing starts numbers. Here's my take on the news

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Judging by Ireland, Spanish banks to take a lot more credit writedowns

Sober Look — Mon, 23 Apr 2012 18:00:23 +0000

Ireland dealt fairly quickly with its property market bubble by effectively and forcefully nationalizing and recapitalizing its banking sector. They clearly still have a serious problem on their hands, but the nation has been aggressive in addressing the issue of distressed real estate loans. In contrast, Spain's banking system is nowhere close to fully recognizing the full extent of the problem. Not facing the problem however is not going to make it go away

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The growing optimism on housing is not justified

Comstock Partners — Fri, 20 Apr 2012 19:25:54 +0000

The bullish argument that houses are now generally affordable also does not hold up on closer examination. As we have repeated ad infinitum the average household has too much debt and is in the midst of deleveraging rather than taking on more debt. Furthermore, households, on average, do not have enough cash for a down payment or a high enough credit score to qualify for the more stringent credit standards put into effect following the credit crisis. Neither do they have enough income

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[Premium] Housing bubbles in Austria and Germany?

Edward Harrison — Fri, 20 Apr 2012 01:16:01 +0000

Since the Great Financial Crisis began, Austrian house prices have zoomed at a pace well above the rate of inflation and the rate of rentals. The price action and other anecdotes make this sound suspiciously like a bubble. The same has happened in Germany on a lesser scale

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