More cautious optimism?

Overall, I would say that the exogenous shocks have added to downside risk. I would expect economic weakness in the second half of 2011.

If economic weakness does materialize in the US, I would expect lower long-term interest rates. Many are predicting QE2 will lead to higher rates. But why would that be the case in an environment of economic weakness in which risk assets could sell off? Watch the ECRI index for signs that the economy is weakening

Moody’s cuts China’s residential property outlook

This comes via Market Watch: Moody’s Investors Service on Thursday lowered its view on China’s property sector, warning that a slowdown is underway with credit conditions forecast to tighten over the next 18 months. However, the ratings agency stopped short of affirming the view of some economists that conditions are ripe for a perfect storm

Is China’s hard landing already happening?

If China does continue to tighten to fight inflation as I also indicated I expect they will, the hard landing scenario is definitely something to consider. Early evidence shows that the property bubble is coming off the boil. But it is doing so in a very dramatic way. Note that the scenario postulated by Victor Shih on the allegedly fragile state of China’s FX reserves becomes operative if we see this kind of property crash and loan loss outcome. Shih argues that If China does have a hard landing due to a real estate crash, then capital flight becomes a real risk.

This would crimp growth and could spark civil unrest. China would like to avoid such a scenario

Video: Australia on China’s property market and ghost cities

You have seen a few of these videos on ghost malls and ghost cities in China. This one from an Australian broadcast is quite good. It reinforces what I have been saying about the magnitude of non-performing loans and how this constrains Chinese economic policy.

Very sobering

On Greenspan’s pandering and the example of Canada’s banking system

I was on Business News Network with Rob Cox of Reuters Breakingviews yesterday. We were talking to Howard Green about all things economic. The video clip is linked below. But let me say a few words about the discussion. One of the two major topics of discussion was financial regulation and Alan Greenspan. As a

60 Minutes on The Next Housing Shock

"60 Minutes" aired a segment last night on the foreclosure fraud that we in the blogosphere have been discussing for sometime. See "Videos: Depositions of Alleged Robo-Signers From Nationwide Title Clearing" from November, for example. It’s good to see this issue go mainstream. The video is embedded below, but let me make a few comments

Hoenig says Federal Reserve is responsible for bubble

Short-Run Actions Have Consequences In the spring of 2003 there was worldwide concern that the U.S. economy was falling into a “Japanese-like” malaise; the recovery was stalling, deflation was likely to occur and unemployment was too high. This was the prevailing view despite the fact that the U.S. economy was growing at a 3.2 percent

Las Ciudades Fantasmas

Thanks to Iza Kaminska for pointing me to the video below of row after row of incomplete homes in Spanish host towns, las ciudades fantasmas. Spain has the same problem of overbuilding that the U.S. had during its bubble days. Now that things have gone pear-shaped in the residential property markets, you see these ghost

Case-Shiller Housing Data Confirm Move Below Post-Bubble Trough

The house price data has been dismal in the last several months. With the S&P/Case Shiller Home Price Indices released today, we have now passed below the post-bubble trough and are hitting new low prices across the country. For data through January 2011, the broad Composite-20 index is down 3.1% compared to January 2010. The

US monetary policy and the saving glut

Is the global saving glut to blame for global imbalances? This column argues that the role played by loose monetary policy from the US Federal Reserve should not be overlooked. The prolonged decline in long-term interest rates in the mid-2000s is largely to blame for the housing boom in the

Housing Double Dip?

Well, yes. Case-Shiller data confirmed this for me in January. We’ve been saying that’s where things were headed since the expiration of the home buyer’s tax credit last year. And even last winter we saw a seasonal dip in prices that got us negative year-on-year numbers. Eventually, this was negated by the effects of the

Houses most overvalued in Australia and Hong Kong, most undervalued in Japan

A few weeks ago, the Economist put out its quarterly gauge of house price values. Australia just beat out Hong Kong as the most overpriced market in the developed world, with an overvaluation of 56%. Japan was by far the most undervalued market, with an undervaluation of 35%. The only other housing markets that were