Category Archives: developed country forecast

currency forecasts, developed country forecast, European economy, financial forecasts, Quantitative Easing (QE)

Something is Happening in Europe

Something is going on in Europe.

Take a look at this chart of the euro/dollar exchange rate, and how some event triggered a step down mid week of last week (from xe.com).

euroexchange

The event in question was a press conference by Mario Draghi (See the Wall Street Journal real time blog on this event at Mario Draghi Delivers Fresh ECB Plan — Recap).

The European Central Bank under Draghi is moving into exotic territory – trying negative interest rates on bank deposits and toying with variants of Quantitative Easing (QE) involving ABS – asset backed securities.

All because the basic numbers for major European economies, including notably Germany and France (as well as long-time problem countries such as Spain), are not good. Growth has stalled or is reversing, bank lending is falling, and deflation stalks the European markets.

Europe – which, of course, is sectored into the countries inside and outside the currency union, countries in the common market, and countries in none of the above – accounts for several hundred million persons and maybe 20-30 percent of global production.

So what happens there is significant.

Then there is the Ukraine crisis.

Zerohedge ran this graphic recently showing the dependence of European countries on gas from Russia.

eurdependence

The US-led program of imposing sanctions on Russia – key individuals, companies, banks perhaps – flies in the face of the physical dependence of Germany, for example, on Russian gas.

On the other hand, there is lots of history here on all sides, including, notably, the countries formerly in the USSR in eastern Europe, who no doubt fear the increasingly nationalistic or militant stance shown by Russia currently in, for example, re-acquiring Crimea.

As Chancellor Merkel has stressed, this is an area for diplomacy and negotiation – although there are other voices and forces ready to rush more weapons and even troops to the region of conflict.

Finally, as I have been stressing from time to time, there is an emerging demographic reality which many European nations have to confront.

Edward Hugh has several salient posts on possibly overlooked impacts of aging on the various macroeconomies involved.

There also is the vote on Scotland coming up in the United Kingdom (what we may, if the “yes” votes carry, need to start calling “the British Isles.”)

I’d like to keep current with the signals coming from Europe in a few blogs upcoming – to see, for example, whether swing events in the next six months to a year could originate there.

Chinese economy, developed country forecast, developing country forecast, emerging market forecasts, long term forecasting, technology forecasting

2020 and 2030 – Forecasts and Projections

I’d like to establish a context for discussing longer term forecasts, in this case to 2020 and 2030.

So, just below, I give you my take on 1990-2005. A lot happened that was unanticipated at the beginning of this period. One should expect, I think, the same to be true for 2015-2030.

Along those lines, I also suggest Big Picture factors that may come into play over the next fifteen or so years.

In coming posts, I want to summarize forecasts and projections I have seen for this period.

And I’m a little unusual in the technical forecasting community, since I’m equipped to do matrix programming, discuss boosting and bagging and so forth, and, on the other side of the aisle, weave together these stories and scenarios about process, causes, and factors. The quantitative is usually where I get paid, but, at the same time, I think it is easy to underestimate the benefit of trying to keep track of the Big Picture, the global dynamics, the political economy, and so forth.

1990-2005

The 1990’s rolled out with a nasty little recession in 1991 and voters throwing the first George Bush out of office, in favor of a clarinet-playing former Governor of Arkansas with a penchant for the ladies. Then, the United States experienced the longest period of economic prosperity since the 1960’s, fueled by the tech revolution and rise of the Internet. The breakup of the Soviet Union became official with democratic forms struggling to take root in Russia and former Soviet Republics. The US defense budget was cut about 40 percent from 1980 levels. Deregulation became a theme, and deregulation of telecoms led to burgeoning investments in telecom systems. The end of the decade saw the absurd Y2K problem, where details of computer clocks were supposed to stop everything at midnight, the turn of the century.

The New Millennium saw another recession in 2001, which was particularly sharp for the tech industry. Another Bush took the Presidency, after the Supreme Court intervened in the disputed General Election. Then there was 9/11 – September 11, 2001, with the destruction of the World Trade Center by large airliners being flown into the upper stories. This was a pivotal event. There was immediate surge in the military budget and in US military action in Afghanistan and then the invasion of Iraq, putatively because Saddam Hussein possessed “weapons of mass destruction.”

The US economy pretty much languished after the 2001-2002 recession, being stimulated to an extent by the rise in the defense budget, then by housing activity triggered by continued lowering of interest rates by the US Federal Reserve Bank under the redoubtable Alan Greenspan.

Another development that became especially noticeable after 2000 was the rise of China as a manufacturing and export power. The construction of the Shanghai skyline from the late 1990’s to the middle of the last decade was nothing less than stupendous.

The Importance of Technical Change

So what is important over a span of time? Are there underlying determinants?

I’ve got to believe technical change is an important element in historical process. If we take the fifteen year period sketched above, for example, a lot of the story is driven, at some level, by technical developments, especially in information technology (IT).

My favorite explanation of the collapse of the Soviet Union, for example, includes Silicon Valley as a key driver. The Soviet planned economy was a huge lumbering machine, compared to the nimble, change-oriented shops in the Valley, innovating new computer setups every few months. One immediate consequence was the US fighter aircraft came to totally dominate the old MIG planes, with their electronically guided missiles and tracking systems.

And to go on in this vein, focusing on the rise of US tech and then the movement of production to China is a strategic process for understanding the past couple of decades.

Big Picture Factors

Suffice it to say – new technology will be as much a driver of change in the next fifteen years, as it has been over the past fifteen.

Indeed, according to the futurist Ray Kurzweil, something called The Singularity stalks the human future. Perhaps around 2045, somewhat outside our forecast horizon in this discussion, technology will converge to completely outperform human intelligence. Commentators ranging from Stanislaus Ulam to Kurzweil believe that it is impossible to project human history beyond this point – hence the name.

Conventionally, this will involve biotechnology, computer technology, and robotics – but also could involve nanotechnology.

In any case, hefty doses of new technology may be necessary just to keep on a level course. I’m thinking, for example, of the diminishing effectiveness of antibiotics. So we have the evolution of “superbugs,” as well as the emergence of new epidemics through mutation or disease vectors jumping species lines. Ebola is a particularly gruesome example.

And while on technology, it is fair to observe that complex technologies just at or beyond the boundary of human control present deep challenges. Deep-sea oil drilling and the Gulf of Mexico oil spill, under British Petroleum, and the Fukishima nuclear disaster, still leaking radioactivity into the Pacific, are two examples.

Population or more generally demography is another Big Picture factor. Populations are aging in the United States, Europe, and Japan, but also in China. And global population continues to grow, possibly by another billion by 2030.

Climate change is another Big Picture factor.

The global climate is a complex, dynamic system. There is lots of noise in the discussion and uncertainties, such as whether there may be a cooling interval, as carbon dioxide and methane concentrations continue to rise globally. A number of studies commissioned by US and other intelligence agencies, though, highlight the potential for massive impacts from, say, basic changes in monsoon patterns in South Asia.

In terms of geopolitics, I suspect the shift in the economic center of gravity to somewhere along the Asian rim is another Big Picture development.

There are many relevant metrics. The proportion of global output produced by the United States, according to the World Economic Outlook (WEO) of the International Monetary Fund (IMF), will continue to diminuish, as Chinese growth in the worst case is projected to exceed levels of economic growth in the US and, certainly, in Europe.

Then, there is the issue of the US being the policeman of the world. At some point, the cost of maintaining a global span of military bases and force readiness for multiple theatres of action will weigh heavily on the US – as one could argue is already happening to some degree.

Challenges to the global dominance of the US dollar can be predicted, also, in the next fifteen years.

Sustainability

Whether any of the above “Big Picture” factors actually come into play by 2020 or 2030 is, of course, a speculation. But I think the basic technique of long term forecasting is to inventory possible influences like these. Then, you construct scenarios.

One thing appears certain. And that is there will be surprises.

In looking at forecasts for the next five to fifteen years, I also want to give thought to sustainability. Are there institutions and arrangements which could offer a backup to the various types of instabilities which could emerge?

And there is apparently an increasing chance of an increase in the general level of warfare, perhaps with linking of action in various theatres. I have to say, too, that I am poorly equipped to comment on these conflicts, although, as they ramp up, I attempt to learn more about the players and underlying dynamics.

I’ll be using this venue as a scratch-pad to record the projections of others and some thoughts I might have in response vis a vis 2020 and 2030.

accuracy of forecasts, business trends, celebrity forecasters, developed country forecast, developing country forecast, emerging market forecasts, energy forecasting, predictive analytics

Highlights of National and Global Energy Projections

Christof Rühl – Group Chief Economist at British Petroleum (BP) just released an excellent, short summary of the global energy situation, focused on 2013.

Ruhl

Rühl’s video is currently only available on the BP site at –

http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy.html

Note the BP Statistical Review of World Energy June 2014 was just released (June 16).

Highlights include –

  • Economic growth is one of the biggest determinants of energy growth. This means that energy growth prospects in Asia and other emerging markets are likely to dominate slower growth in Europe – where demand is actually less now than in 2005 – and the US.
  • Tradeoffs and balancing are a theme of 2013. While oil prices remained above $100/barrel for the third year in a row, seemingly stable, underneath two forces counterbalanced one another – expanding production from shale deposits in the US and an increasing number of supply disruptions in the Middle East and elsewhere.
  • 2013 saw a slowdown in natural gas demand growth with coal the fastest growing fuel. Growth in shale gas is slowing down, partly because of a big price differential between gas and oil.
  • While CO2 emissions continue to increase, the increased role of renewables or non-fossil fuels (including nuclear) have helped hold the line.
  • The success story of the year is that the US is generating new fuels, improving its trade position and trade balance with what Rühl calls the “shale revolution.”

The BP Statistical Reviews of World Energy are widely-cited, and, in my mind, rank alongside the Energy Information Agency (EIA) Annual Energy Outlook and the International Energy Agency’s World Energy Outlook. The EIA’s International Energy Outlook is another frequently-cited document, scheduled for update in July.

Price is the key, but is difficult to predict

The EIA, to its credit, publishes a retrospective on the accuracy of its forecasts of prices, demand and production volumes. The latest is on a page called Annual Energy Outlook Retrospective Review which has a revealing table showing the EIA projections of the price of natural gas at wellhead and actual figures (as developed from the Monthly Energy Review).

I pulled together a graph showing the actual nominal price at the wellhead and the EIA forecasts.

natgasforecasterrorgraph

The solid red line indicates actual prices. The horizontal axis shows the year for which forecasts are made. The initial value in any forecast series is nowcast, since wellhead prices are available at only a year lag. The most accurate forecasts were for 2008-2009 in the 2009 and 2010 AEO documents, when the impact of the severe recession was already apparent.

Otherwise, the accuracy of the forecasts is completely underwhelming.

Indeed, the EIA presents another revealing chart showing the absolute percentage errors for the past two decades of forecasts. Natural gas prices show up with more than 30 percent errors, as do imported oil prices to US refineries.

Predicting Reserves Without Reference to Prices

Possibly as a result of the difficulty of price projections, the EIA apparently has decoupled the concept of Technically Recoverable Resources (TRR) from price projections.

This helps explain how you can make huge writedowns of TRR in the Monterey Shale without affecting forecasts of future shale oil and gas production.

Thus in Assumptions to AEO2014 and the section called the Oil and Gas Supply Module, we read –

While technically recoverable resources (TRR) is a useful concept, changes in play-level TRR estimates do not necessarily have significant implications for projected oil and natural gas production, which are heavily influenced by economic considerations that do not enter into the estimation of TRR. Importantly, projected oil production from the Monterey play is not a material part of the U.S. oil production outlook in either AEO2013 or AEO2014, and was largely unaffected by the change in TRR estimates between the 2013 and 2014 editions of the AEO. EIA estimates U.S. total crude oil production averaged 8.3 million barrels/day in April 2014. In the AEO2014 Reference case, economically recoverable oil from the Monterey averaged 57,000 barrels/day between 2010 and 2040, and in the AEO2013 the same play’s estimated production averaged 14,000 barrels/day. The difference in production between the AEO2013 and AEO2014 is a result of data updates for currently producing wells which were not previously linked to the Monterey play and include both conventionally-reservoired and continuous-type shale areas of the play. Clearly, there is not a proportional relationship between TRR and production estimates – economics matters, and the Monterey play faces significant economic challenges regardless of the TRR estimate.

This year EIA’s estimate for total proved and unproved U.S. technically recoverable oil resources increased 5.4 billion barrels to 238 billion barrels, even with a reduction of the Monterey/Santos shale play estimate of unproved technically recoverable tight oil resources from 13.7 billion barrels to 0.6 billion barrels. Proved reserves in EIA’s U.S. Crude Oil and Natural Gas Proved Reserves report for the Monterey/Santos shale play are withheld to avoid disclosure of individual company data. However, estimates of proved reserves in NEMS are 0.4 billion barrels, which result in 1 billion barrels of total TRR.

Key factors driving the adjustment included new geology information from a U. S. Geological Survey review of the Monterey shale and a lack of production growth relative to other shale plays like the Bakken and Eagle Ford. Geologically, the thermally mature area is 90% smaller than previously thought and is in a tectonically active area which has created significant natural fractures that have allowed oil to leave the source rock and accumulate in the overlying conventional oil fields, such as Elk Hills, Cat Canyon and Elwood South (offshore). Data also indicate the Monterey play is not over pressured and thus lacks the gas drive found in highly productive tight oil plays like the Bakken and Eagle Ford. The number of wells per square mile was revised down from 16 to 6 to represent horizontal wells instead of vertical wells. TRR estimates will likely continue to evolve over time as technology advances, and as additional geologic information and results from drilling activity provide a basis for further updates.

So the shale oil in the Monterey formation may have “migrated” from that convoluted geologic structure to sand deposits or elsewhere, leaving the productive potential much less.

I still don’t understand how it is possible to estimate any geologic reserve without reference to price, but there you have it.

I plan to move on to more manageable energy aggregates, like utility power loads and time series forecasts of consumption in coming posts.

But the shale oil and gas scene in the US is fascinating and a little scary. Part of the gestalt is the involvement of smaller players – not just BP and Exxon, for example. According to Chad Moutray, Economist for the National Association of Manufacturers, the fracking boom is a major stimulus to manufacturing jobs up and down the supply chain. But the productive life of a fracked oil or gas well is typically shorter than a conventional oil or gas well. So some claim that the increases in US production cannot be sustained or will not lead to any real period of “energy independence.” For my money, I need to watch this more before making that kind of evaluation, but the issue is definitely there.

asset bubbles, Chinese economy, developed country forecast, developing country forecast, emerging market forecasts, Fed tapering, geopolitical risk, global business forecasts

The Next Recession – Will It Be A Global Meltdown?

One my focuses is the global economy and any cracks in the firmament which might presage the next recession. I rely a lot on my Twitter account to keep me on the crest of the wave, in this regard.

I’m really concerned, as are many of my colleagues and contacts in business and government.

We’ve hardly escaped the effects of last recession 2008-2009. Those are US dates, of course, set by the National Bureau of Economic Research (NBER) the official recession “dater” in this country.

There have been a series of rolling impacts and consequences of this so-called “Great Recession.”

Europe

Housing or real estate bubbles were present in Europe, too, particularly in Spain and Ireland. Then, there was the problem of the Greek economy and state, which did not support the level of public debt that had been garnered by, in some cases, corrupt public officials. And European problems were complicated by the currency union of the euro in a context where there is not, as yet, a centralized EU state. Anyway, not to reprise the whole matter blow-by-blow, but most of Europe, with the exception of Germany, plunged into recession and struggled with austerity policies that made things worse for Main Street or, as they like to say in Britain, “High Street.”

Many European countries are just now coming out of recession, and overall, the growth rate in the EU area is almost indistinguishable from zero.

So another recession in the next one to two years would really set them back.

China

Part of the problem China has been experiencing is related to the persisting downturn in most of Europe, since Europe is a big trading partner. And so, for that matter is the United States, which bought less from China during the recession years.

But another problem is that China now is experiencing a mojo big property bubble of its own.

Newly wealthy Chinese do not really have any place to put their money, except real estate. The Chinese, like the Japanese, are big savers, and for many middle class families, buying the second apartment or even a house is an investment for the future. Yet Chinese real estate prices have skyrocketed, leaving the average Chinese wage earner in the dust, with less and less hope of ever owning a residence.

Apparently, in connection with this real estate speculation, a large shadow banking system has emerged. Some estimates circulate on Twitter suggesting this rivals the size of the official Chinese banking system.

Can “market socialism” or “market Leninism” experience a financial crisis, based on too many debts that cannot be paid?

I’ve been to China a few times, and done some business there – all the while trying to understand how things are set up. My feeling is that one should not impute banking practices that seem pro forma in, say, Great Britain or the US, to the Chinese. I think they are much more ready to “break the rules” in order to keep the party going (which is sort of a pun).

Having said that, I do think a Chinese crisis could develop if property values collapse, as they are wont to do in bubble mode.

Again, it’s hard to say how this might play out, since the victims and suffering would be among the nouveau riche of China, of whom there are millions, and many more average families who have invested their nest egg in a hot property.

But I can’t think that collapse of real estate values in modern China would not have worldwide repurcussions.

The Rest of the World

Regrettably, I cannot go through other major regions, one-by-one, but I’d have to say that things are not so good. The BRIC’s as a group all have more problems than a few years back, when they were hailed as the bright new centers of economic growth by that Goldman Sachs analyst. That’s Brazil, Russia, India, and China, of course.

Possibilities of Increased Conflict

There is a kind of axiom of geopolitics and social interaction that when the pie is growing and everybody can get more, even though their slice may not have been very big to begin with, there is a tendency for people to make do, go about their business and so forth. Reverse this and you have the concept that shrinking the pie – as austerity policies and the Great Recession have done – tends to increase levels of conflict. At first, to the extent that people have the idea that “we are all in this together” there may be increased cooperation. But that is not the current situation in almost any society. Quite the contrary, as Piketty and the Occupy Movement highlight, there is growing awareness of inequality of wealth and income.

There are armed conflicts in Syria, the Ukraine, Afghanistan (resurgent Taliban), and areas and regions in Africa. The Indian elections recently installed a Hindu nationalist who hopefully will be a reformer, but may, if the going gets tough, revert or acquiesce to more conflict with Pakistan and with non-Hindu populations within India. Pakistan, one of the world’s nuclear powers, appears to be extremely unstable politically. There are deep civil divisions in Thailand between city and rural areas that parallel class divisions. China is flexing its muscles in the South China Sea.

And we may be moving from an era of US-centric global capitalism to a time when the Eurasian supercontinent will become significantly more important and perhaps decoupled from Wall Street and the City of London. Already, there are threats to dollar supremacy, and, historically, as US economic power is eclipsed by the more rapidly growing economies of Asia, some adjustment seems predictable.

In all this, Hollywood can be counted on to roll out some really corking new international intrigue films, perhaps (although I doubt it) with more complex plots.

The Situation with the US Federal Reserve Bank

The point of this international survey and reprise of recent business history is to highlight areas where surprises may originate, shaking the markets, and perhaps triggering the next recession.

But the most likely suspect is the US Federal Reserve Bank.

Two graphs speak volumes.

interestratesnew

Fedassets

Seeking to encourage economic recovery, the US Federal Reserve dropped the federal funds rate to a number effectively almost zero – a historically low number. This zero bound federal funds rate has persisted since the end of 2009, or for about five years.

The Fed also has engaged in new policies, whereby it goes into private bond markets and buys long term bonds – primarily mortgage-backed securities. The second chart tracks this inasmuch as a good portion of the more than 4 trillion in Fed assets (for which there are corresponding liabilities, of course) are these mortgage-backed securities. In effect, the Fed has purchased a sizeable portion of the US housing market – one might say “nationalize” except that would be forgetting the fact that the Fed is actually a private institution whose governance is appointed by the Executive Branch of the US government.

In any case, this bond-buying is the famous “quantitative easing” (QE) and is mirrored in the accumulation of excess reserves by the banking system. Generally, that is, banks and financial institutions issue mortgages, sell them among themselves to be packaged in mortgage-backed securities, and the Fed has been buying these.

Banks can easily loan these excess reserves, but they consistently have not. Why is an interesting question beyond the scope of this discussion, but the consequence is that the Fed’s actions are “firewalled” from increasing the rate of inflation, which is what ordinarily you might think would occur given that various metrics of money supply also have surged upward.

Now “Fed-watching” is its own little cottage industry among financial commentators, and I am not going to second-guess the media here. The Fed has announced a plan to “taper” these purchases of long term bonds. This is likely to increase the mortgage rates and, probably to some extent, based on expectations already has.

So, the long and the short of it are that this set of policies – zero federal funds rate and bond buying cannot go on forever.

If economic growth has been low-grade since 2010 with these low interest rates, what is the reasonable outlook for a higher interest rate regime?

Timing of the Next Recession

When is the most likely time for a recession, for example? Would it be later in 2014, in 2015, or thereafter, maybe in 2016.

Here is a table of all the recessions in the US since the middle 1850’s along with facts about their duration (source: NBER).

NBERRecess

Without even considering averages, the maximum period of trough to trough – that is, from the bottom of one recession to the bottom of the next – has been 128 months or ten years and eight months. Here, incidentally, the month numbers begin January 1800, for what that’s worth.

Thus, at the outside, based on these empirics, the trough of the next recession is likely to occur no later than early 2020.

Note that we have already blown through the average length from trough to trough of about 58.4 months or about five years from June 2009.

On a simple probabilistic basis, therefore, we are moving into the tail of the distribution of business cycle durations, suggesting that the chances of a downturn are in some sense already above 50 percent.

And note that the experience of the current business recovery is nothing like this historically maximum span in the 1990’s between the trough of the recession of 1990-1991 and the trough of November 2001.

This business recovery persistently seems to move ahead just above or, in the last quarter of 2013, below “stall speed.”

Seemingly, a fairly minor perturbation could set off a chain reaction, given the advanced frothiness in the stock market and softness in housing prices.

More of the Same, Worse

Neil Baroifsky was special inspector with oversight authority for the TARP during the bailout phase of the Great Recession, and currently is a partner in the Litigation Department of national law firm Jenner & Block LLP.

He’s also an author and often is called on for his opinion about developments in malfeasance writ large among the finance giants – such as the Credit Suisse settlement. In connection with a recent NPR interview, Barofsky said,

Although it is good that we averted a catastrophe back in 2008, the way that we did so I believe has unfortunately set the stage for an even more devastating financial crisis in the future.

HOBSON: In the future? How far?

BAROFSKY: Well, if I knew that, Michael Lewis would be writing his next book about people who made billions on timing the markets perfectly about me, which would be great.

(LAUGHTER)

BAROFSKY: But if you look, a lot of the same broken incentives from 2008 are still there. It’s just a question of when, not if. You can’t look at the fundamental broken incentives in the financial system and really come to a conclusion other than that we’re headed down the same dangerous path that we were that culminated in the explosion of ’08.

Barofsky’s point is readily supported by facts, such as –

The US and global financial system is even more concentrated today than in 2007, making “too big to fail”and even bigger potential problem now, than before the Great Recession. Even Alan Greenspan has taken note.

And the “pass the buck” system, whereby bond rating agencies are paid by the originators to evaluate exotic securities (“financial innovations”) created by the banking and shadow banking industries, securities which are then passed on to pension funds and hapless investors – this system appears to still be completely in place. Talk about the concept of “moral hazard.”

Global Impact

I think you get the picture.

For one reason or another, some fairly minor event is likely to set off a cascade of consequences in US and global financial markets, leading to the next recession. Probably, within one, two, or three years, as a matter of fact. Because the US Fed, and, for that matter, other central banks will still be working their way out of the last recession, there may be fewer “policy tools” to halt the stampede to sell, cutback, and so forth. Governments could respond with aggressive fiscal policy, but that option appears limited unless there are major changes in the political climate in the US and Europe.

Personally, I think wholly new directions of policy should be contemplated at the personal, local, regional, and of course at national levels.

We need to create what I have started to call “islands of stability.” This is the old idea of local self-reliance, but in new packaging. I really think there should be discussions widely across the US at least about how to decouple from the global economy and, indeed, from the financial concentrations on Wall Street. As a matter of self-preservation, until such time as more courageous national policies can be undertaken to reign in such obvious risks.

causal discovery, Chinese economy, climate change, developed country forecast, energy forecasting, global warming, IT market analysis

LInks – late May

US and Global Economic Prospects

Goldman’s Hatzius: Rationale for Economic Acceleration Is Intact

We currently estimate that real GDP fell -0.7% (annualized) in the first quarter, versus a December consensus estimate of +2½%. On the face of it, this is a large disappointment. It raises the question whether 2014 will be yet another year when initially high hopes for growth are ultimately dashed.

 Today we therefore ask whether our forecast that 2014-2015 will show a meaningful pickup in growth relative to the first four years of the recovery is still on track. Our answer, broadly, is yes. Although the weak first quarter is likely to hold down real GDP for 2014 as a whole, the underlying trends in economic activity are still pointing to significant improvement….

 The basic rationale for our acceleration forecast of late 2013 was twofold—(1) an end to the fiscal drag that had weighed on growth so heavily in 2013 and (2) a positive impulse from the private sector following the completion of the balance sheet adjustments specifically among US households. Both of these points remain intact.

Economy and Housing Market Projected to Grow in 2015

Despite many beginning-of-the-year predictions about spring growth in the housing market falling flat, and despite a still chugging economy that changes its mind quarter-to-quarter, economists at the National Association of Realtors and other industry groups expect an uptick in the economy and housing market through next year.

The key to the NAR’s optimism, as expressed by the organization’s chief economist, Lawrence Yun, earlier this week, is a hefty pent-up demand for houses coupled with expectations of job growth—which itself has been more feeble than anticipated. “When you look at the jobs-to-population ratio, the current period is weaker than it was from the late 1990s through 2007,” Yun said. “This explains why Main Street America does not fully feel the recovery.”

Yun’s comments echo those in a report released Thursday by Fitch Ratings and Oxford Analytica that looks at the unusual pattern of recovery the U.S. is facing in the wake of its latest major recession. However, although the U.S. GDP and overall economy have occasionally fluctuated quarter-to-quarter these past few years, Yun said that there are no fresh signs of recession for Q2, which could grow about 3 percent.

Report: San Francisco has worse income inequality than Rwanda

If San Francisco was a country, it would rank as the 20th most unequal nation on Earth, according to the World Bank’s measurements.

Googlebus

Climate Change

When Will Coastal Property Values Crash And Will Climate Science Deniers Be The Only Buyers?

sea

How Much Will It Cost to Solve Climate Change?

Switching from fossil fuels to low-carbon sources of energy will cost $44 trillion between now and 2050, according to a report released this week by the International Energy Agency.

Natural Gas and Fracking

How The Russia-China Gas Deal Hurts U.S. Liquid Natural Gas Industry

This could dampen the demand – and ultimately the price for – LNG from the United States. East Asia represents the most prized market for producers of LNG. That’s because it is home to the top three importers of LNG in the world: Japan, South Korea and China. Together, the three countries account for more than half of LNG demand worldwide. As a result, prices for LNG are as much as four to five times higher in Asia compared to what natural gas is sold for in the United States.

The Russia-China deal may change that.

If LNG prices in Asia come down from their recent highs, the most expensive LNG projects may no longer be profitable. That could force out several of the U.S. LNG projects waiting for U.S. Department of Energy approval. As of April, DOE had approved seven LNG terminals, but many more are waiting for permits.

LNG terminals in the United States will also not be the least expensive producers. The construction of several liquefaction facilities in Australia is way ahead of competitors in the U.S., and the country plans on nearly quadrupling its LNG capacity by 2017. More supplies and lower-than-expected demand from China could bring down prices over the next several years.

Write-down of two-thirds of US shale oil explodes fracking myth – This is big!

Next month, the US Energy Information Administration (EIA) will publish a new estimate of US shale deposits set to deal a death-blow to industry hype about a new golden era of US energy independence by fracking unconventional oil and gas.

EIA officials told the Los Angeles Times that previous estimates of recoverable oil in the Monterey shale reserves in California of about 15.4 billion barrels were vastly overstated. The revised estimate, they said, will slash this amount by 96% to a puny 600 million barrels of oil.

The Monterey formation, previously believed to contain more than double the amount of oil estimated at the Bakken shale in North Dakota, and five times larger than the Eagle Ford shale in South Texas, was slated to add up to 2.8 million jobs by 2020 and boost government tax revenues by $24.6 billion a year.

China

The Annotated History Of The World’s Next Reserve Currency

yuanhistory

Goldman: Prepare for Chinese property bust

…With demand poised to slow given a tepid economic backdrop, weaker household affordability, rising mortgage rates and developer cash flow weakness, we believe current construction capacity of the domestic property industry may be excessive. We estimate an inventory adjustment cycle of two years for developers, driving 10%-15% price cuts in most cities with 15% volume contraction from 2013 levels in 2014E-15E. We also expect M&A activities to take place actively, favoring developers with strong balance sheet and cash flow discipline.

China’s Shadow Banking Sector Valued At 80% of GDP

The China Banking Regulatory Commission has shed light on the country’s opaque shadow banking sector. It was as large as 33 trillion yuan ($5.29 trillion) in mid-2013 and equivalent to 80% of last year’s GDP, according to Yan Qingmin, a vice chairman of the commission.

In a Tuesday WeChat blog sent by the Chong Yang Institute for Financial Studies, Renmin University, Yan wrote that his calculation is based on shadow lending activities from asset management businesses to trust companies, a definition he said was very broad.  Yan said the rapid expansion of the sector, which was equivalent to 53% of GDP in 2012, entailed risks of some parts of the shadow banking business, but not necessarily the Chinese economy.

Yan’s estimation is notably higher than that of the Chinese Academy of Social Sciences. The government think tank said on May 9 that the sector has reached 27 trillion yuan ($4.4 trillion in 2013) and is equivalent to nearly one fifth of the domestic banking sector’s total assets.

Massive, Curvaceous Buildings Designed to Imitate a Mountain Forest

Chinamassive

Information Technology (IT)

I am an IT generalist. Am I doomed to low pay forever? Interesting comments and suggestions to this question on a Forum maintained by The Register.

I’m an IT generalist. I know a bit of everything – I can behave appropriately up to Cxx level both internally and with clients, and I’m happy to crawl under a desk to plug in network cables. I know a little bit about how nearly everything works – enough to fill in the gaps quickly: I didn’t know any C# a year ago, but 2 days into a project using it I could see the offshore guys were writing absolute rubbish. I can talk to DB folks about their DBs; network guys about their switches and wireless networks; programmers about their code and architects about their designs. Don’t get me wrong, I can do as well as talk, programming, design, architecture – but I would never claim to be the equal of a specialist (although some of the work I have seen from the soi-disant specialists makes me wonder whether I’m missing a trick).

My principle skill, if there is one – is problem resolution, from nitty gritty tech details (performance and functionality) to handling tricky internal politics to detoxify projects and get them moving again.

How on earth do I sell this to an employer as a full-timer or contractor? Am I doomed to a low income role whilst the specialists command the big day rates? Or should I give up on IT altogether

Crowdfunding is brutal… even when it works

China bans Windows 8

China has banned government use of Windows 8, Microsoft Corp’s latest operating system, a blow to a US technology company that has long struggled with sales in the country.

The Central Government Procurement Center issued the ban on installing Windows 8 on Chinese government computers as part of a notice on the use of energy-saving products, posted on its website last week.

Data Analytics

Statistics of election irregularities – good forensic data analytics.

accuracy of forecasts, developed country forecast, Federal Reserve policies and impacts, macroeconomic forecasting

US Growth Stalls

The US Bureau of Economic Analysis (BEA) announced today that,

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 0.1 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014), according to the “advance” estimate released by the Bureau of Economic Analysis.  In the fourth quarter, real GDP increased 2.6 percent.

This flatline growth number is in stark contrast to the median forecast of 83 economists surveyed by Bloomberg, which called for a 1.2 percent increase for the first quarter.

Bloomberg writes in a confusingly titled report – Dow Hits Record as Fed Trims Stimulus as Economy Improves

The pullback in growth came as snow blanketed much of the eastern half of the country, keeping shoppers from stores, preventing builders from breaking ground and raising costs for companies including United Parcel Service Inc. Another report today showing a surge in regional manufacturing this month adds to data on retail sales, production and employment that signal a rebound is under way as temperatures warm.

Here’s is the BEA table of real GDP, along with the advanced estimates for the first quarter 2014 (click to enlarge).

usgdp

The large negative slump in investment in equipment (-5.5) indicates to me something more is going on than bad weather.

Indeed, Econbrowser notes that,

Both business fixed investment and new home construction fell in the quarter, which would be ominous developments if they’re repeated through the rest of this year. And a big drop in exports reminds us that America is not immune to weakness elsewhere in the world.

Even the 2% growth in consumption spending is not all that encouraging. As Bricklin Dwyer of BNP Paribas noted, 1.1% of that consumption growth– more than half– was attributed to higher household expenditures on health care.

What May Be Happening

I think there is some amount of “happy talk” about the US economy linked to the urgency about reducing Fed bond purchases. So just think of what might happen if the federal funds rate is still at the zero bound when another recession hits. What tools would the Fed have left? Somehow the Fed has to position itself rather quickly for the inevitable swing of the business cycle.

I have wondered, therefore, whether some of the pronouncements recently from the Fed did not have a unrealistic slant.

So, as the Fed unwinds quantitative easing (QE), dropping bond (mortgage-backed securities) purchases to zero, surely there will be further impacts on the housing markets.

Also, China is not there this time to take up the slack.

And it is always good to remember that new employment numbers are basically a lagging indicator of the business cycle.

Let’s hope for a better second and third quarter, and that this flatline growth for the first quarter is a blip.

developed country forecast, developing country forecast, global business forecasts, Janet Yellen outlook

World Bank Economic Forecast

The World Bank issued its latest Global Economic Prospects report this week, basically offering up a forecast based on dynamics of (a) moderate increases in growth in the US and Europe (assuming no abrupt, but a gradual taper of QE), and (b) slowing, but stable growth in the developing world at a pace still about double that of the “developed” countries.

The story is, as with other macroeconomic forecasts issued recently by investment banks, that constraints, such as the fiscal drag on growth are being loosened, both in the US and in Europe. With currently low interest rates and continuing excess capacity, this suggests more rapid economic US and EU growth in 2014. Together with the still high average rates of growth in China and elsewhere, this suggests to the World Bank economists, that global growth will quicken in 2014.

Here is a World Bank spokesman with the basic story of the new Global Economic Prospects release.

And here are some of the specific numbers in the report (click to enlarge).

WBforecast