"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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The information presented in this blog and its individual articles is provided for informational use only and should not be considered investment advice or an offer for a particular security. The contents reflect the views and opinions of the individual writer as of the date the article was written and do not necessarily represent the views of the individual writer on the current date. They also do not in any way, shape, or form represent the views of the Firm Never-To-Be-Named. Any such views are subject to change at any time based upon market or other conditions and The Great Redoubt and its individual writers disclaim any responsibility to update such views. These views should not be relied on as investment advice, and because investment decisions for any security are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any contributor to The Great Redoubt. Neither The Great Redoubt nor any individual author can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation.

Friday, May 27, 2011

World News!

  • The IMF has warned that they may refuse to release the June tranche of aid payments to Greece if the country does not start reducing its deficit and otherwise begin acting with more fiscal responsibility.
  • Greek Prime Minister George Papandreou met with opposition leaders in an attempt to win support for austerity measures required to prevent a) the IMF from withholding financial aid to the debt-wracked nation and b) the default on Greek sovereign debt that would result.  No consensus has been reached, but the Prime Minister remains positive.
The Group of Eight
  • The G8 has promised $20 billion in aid to Tunisia and Egypt, with a promise of possible further aid, to assist in the transition to a more western-style democracy.
  • A report made to the G8 by the IMF indicated that oil-importing countries in the Middle East and North Africa will need over $160 billion in external financing over the next three years, and it would only be able to meet about $35 billion of that need.
  • The G8 has stated that it is collectively "appalled by the deaths of many peaceful protesters as a result of the sweeping violence in Syria as well as by repeated and serious violations of human rights," and called on Syria "to immediately stop using force and intimidation against the Syrian people and to respond to their legitimate demands for freedom of expression and universal rights and aspirations."
  • You may or may not have heard President Obama proclaim that Guinness tastes better in Ireland, but there is now scientific research to back him up.  A research paper published in the Journal of Food Science states that "Guinness does not travel well and that the enjoyment of Guinness (for our group of nonexpert tasters) was higher when in Ireland".  It does also go on to state that the results are "subject to further verification because of limitations in the study design"[1].
  • In "there is such a thing as too much Facebook" news, a couple in Hod Hasharon has named their daughter "Like".  After the "Like" button on Facebook.
  • The ratings agency Fitch has cut its outlook on Japanese sovereign debt from "stable" to "negative" because of strain the costs of cleaning up after the earthquake and tsunami and the still-unknown costs of cleaning up after the nuclear disaster will place on the nation's finances.  They have not actually cut any ratings yet, but are ready to do so.
  • In a significant shift in opinion, Russia - which had criticized the NATO intervention in Libya for severely overstepping its UN mandate - has stated that Muammar Gaddafi should step down and has offered to broker his departure.
  • British Prime Minister David Cameron has authorized sending four Apache attack helicopters to join the British forces attacking Libya.
  • In a joint press conference, US President Barack Obama and French President Nicolas Sarkozy have pledged to "finish the job" in Libya, making the claim that "meeting the UN mandate of civilian protection cannot be accomplished when Gaddafi remains in Libya".
New Zealand
  • Researchers in New Zealand have published a study showing a significant positive correlation between lack of sleep and childhood obesity.  The study tracked 244 children from ages 3 to 7, and found that "After adjustment for multiple confounders, each additional hour of sleep at ages 3-5 was associated with a reduction in BMI of 0.48 (95% confidence interval 0.01 to 0.96) and a reduced risk of being overweight (BMI ≥85th centile) of 0.39 (0.24 to 0.63) at age 7"
  • It turns out that I was a little premature yesterday.  General Ratko Mladic has been arrested, but has not yet been deported to The Hague.  He is currently going through extradition hearings in Belgrade.  He is also reported to be in poor health, which could delay proceedings.
United Kingdom
  • In "thank you so much, Andrew and Jenny, and would you please stop talking now" news, failure to vaccinate children is blamed for a tenfold increase in measels cases in England and Wales in the first four months of 2011.
United States
  • Researchers at the Stanford University School of Medicine in California have used a technique originally demonstrated in mice to directly transform human skin cells into funtioning neurons.
  • The Congress voted to renew three expiring provisions of the Patriot Act, allowing law enforcement officers to conduct continued surveillance on suspects who switch phones, monitor "lone-wolf" suspects who are not linked to known terrorist groups, and gain access to suspects' business transactions.
  • In an interview with Wired magazine, Senator Ron Wyden states that there are significant problems with the Patriot Act.  "We're getting to a gap between what the public thinks the law says and what the American government secretly thinks the law says.  When you've got that kind of a gap, you're going to have a problem on your hands."
  • EBay is suing Google, and two Google executives that used to work for Google's PayPal unit.  the suit alleges that the two executives "misappropriated PayPal trade secrets by disclosing them within Google and to major retailers".  Google states that they have not yet received a copy of the complaint, and so are not yet willing to comment.
  • The House of Representatives has passed an amendment - as part of the defense budget bill - barring all companies owned by or affiliated with the Chinese government from receiving any US defense contract.
  • Ralph Lang was arrested Wednesday night for firing a bullet through the door of his room at a Motel 6 in Madison, Wisconsin.  While being questioned by police, he told them that he was in town to kill a doctor at a local Planned Parenthood office the next morning, and then to drive to Milwaukee to repeat the process.  He would have done it the week before, but he was not "100 percent in sync with God" and so held off.
  • The Westboro Baptist Church[2] plan to be in Joplin, Missouri on Sunday to thank God for killing 125 people in the town.
[1]  If you're wondering, the design of the research was to have four scientists spend a year drinking Guinness in pubs and bars in 14 different countries.
[2]  You know, those guys that show Christian love and charity by picketing and celebrating at the funerals of soldiers....

Pending Home Sales

Contender number two in our mixed bag of economic data is "pending home sales", an index maintained by the National Association of Realtors that tracks the number of pending home sales[1].  These are defined as a sale in which a contract is actually signed, but the sale has not yet closed.  The Street looks at this index, but doesn't weight it as heavily as the new home sales report or the existing home sales report.
Last month, the index was up 5.1% for the month of March, to a level of 94.1.  We have no analyst expectations, so let's go straight to the NAR for the press release.  In April, the Pending Home Sales Index fell 11.6%  to a level of 81.9.  The chief economist for the NAR, Lawrence Yun, attributes the decline in contract signings to a variety of factors including "sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims."
[1]  "Well, duh", right?

Personal Income and Outlays. Now With 100% Less ROYAL WEDDING!!!!!!

We've got a mixed bag of economic data coming out today,starting off with personal income and outlays.  Which is, of course, an index that tracks overall changes in personal income.  And personal outlays[1].  It also has one particular measure of inflation, although it's not the "official" inflation that the Fed looks at.  The market sits up and pays attention to this metric.  Why?  Well, consumer spending is around one-third of GDP, so this is a clear and present (if one month lagging) indicator of where GDP is going.
Last month - and nobody in the news media cared last month because it came out the same day as the ROYAL WEDDING!!!!!!! - we had a pretty good March report.  Personal income increased 0.5% (beating expectations), consumer spending increased 0.6% (beating expectations), and the core PCE index increased 0.1% (right in line with expectations).
Other interesting March facts included:  disposable personal income increasing 0.6%, real disposable personal income[2] increasing 0.1%, and the PCE price index increasing 0.4%.  Personal savings as a percentage of DPI fell to 5.5%, and personal current taxes increased $2.5 billion.
There were warm fuzzies all around, and singing and dancing in the streets.  Unfortunately, that was pretty much all due to the ROYAL WEDDING!!!!.  The market was still reeling from the previous day's surprisingly bad GDP report to feel a lot of joy out of this.
This month, the Econoday-surveyed analysts are feeling a little less optimism about April.  They're calling for personal income to increase only 0.4%, for consumer spending to increase only 0.4%, and for the core PCE price index to increase 0.2%.  That's nowhere near the excitement, but there is 100% less ROYAL WEDDING!!! to compete with for headline space.
The actual results come from the Bureau of Economic Analysis, and are found in the Personal Income and Outlays, April 2011 report.  Perusing that we learn that personal income increased 0.4% (meeting expectations), personal consumption expenditures (aka consumer spending) increased only 0.3% (missing expectations), and the core PCE price index increased only 0.1% (beating expectations).
Moving away from what the analysts look at, disposable personal income increased 0.3%, but real disposable personal income increased less than 0.1%.  The PCE price index increasing 0.3%.  Personal savings as a percentage of DPI fell to 4.9%, and personal current taxes increased $11.0 billion.
That's a mixed bag, but it isn't bad news at all.  Income increased as expected and, while you all didn't do your expected part in driving GDP forward by spending that increased income[3], you got more bang for your buck than would have been expected.  Assuming you didn't waste any money on volatile and expected to revert to the mean things like food and energy.  If you did, then costs increased at the same rate as income (which could be a net gain or loss, depending on what your income is, what your costs are, and whether or not you actually saw your income increase).
On the other hand, you probably decided to save less money[4], and you probably paid more taxes.
Still and all, I'd call this report a net win for the market.
[1]  What do you want from me?  It's exactly what it says on the box.
[2]  That's disposable personal income adjusted to account for price changes.
[3]  For shame.  Have you no sense of patriotism?
[4]  Making Papa Keynes proud

Thursday, May 26, 2011

World News!

  • The Group of Eight is meeting in Deauville to discuss their responses to the situations in Libya, Egypt and Tunisia, to look into ways to improve global nuclear safety, and to determine how to and how much to regulate the internet.
  • A leaked report, dated June 2010, shows multiple well-known banks holding and investing Libyan state funds.  The banks include Societe General ($1 billion), Nomura ($500 million), Bank of New York ($500 million), HSBC ($292.7 million cash, with a similar amount in a hedge fund), and Goldman Sachs ($43 million in each of three accounts).  The banks in question have refused to say whether they held or currently hold the assets.
  • In a joint press conference with British Prime Minister David Cameron, President Obama said that "Gaddafi and his regime need to understand that there will not be a let-up in the pressure we are applying."  He did not address questions about the legitimacy of that objective, given that the attacks are being conducted under a UN mandate to protect civilians.
  • Suleiman al-Khalidi, a reporter for Reuters, provides a first-hand report of what happens to people arrested by the Syrian security forces.  Be aware that, while it is not intensely graphic, it is still unsettling.
United States
  • Bank of America has agreed to pay $410 million to settle a lawsuit accusing the bank of manipulating debit transactions to maximize overdraft fees.  According to the plaintiffs' lawyers, BofA processed debit transactions from largest to smallest in order to deplete accounts faster and boost the total number of overdrafts, and then deceived customers by not disclosing that they could opt out of the overdraft plan (and just allow the debit to be denied) and by failing to clearly explain the payment hierarchy.
  • Jared Loughner, the man accused of killing six people and wounding 13 others (including Representative Gabrielle Giffords) on January 9th, has been found incompetant to stand trial.  He has been remanded to a federal mental facility in an effort to restore competency, at which point the trial will proceed.
  • The Wisconsin law restricting the collective bargaining rights of public sector unions has been struck down, on the grounds that the way it was passed violated the state's open meeting laws.  It is anticipated that the ruling will be appealed to the state Supreme Court.

Q1 2011 GDP, First Revision

We've got an economic one-two punch coming down the track this morning.  We open up with Gross Domestic Product, the "other fist of steel" to first time jobless claim's "one fist of iron"[1].  And Gross Domestic Product is truly a fist of steel for the market.
GDP is, of course, the sum total of private domestic consumption plus gross private domestic investment plus government spending plus the current trade balance.  It's the scorecard used to determine the health of the US economy, and it dominates everything else in its path because it is everything else in its path.  There is no single better estimate of the economic health of the country.
Last month, the advance estimate for Q1 GDP came out at 1.8% growth, missing analyst expectations by 20 bps.  The price index - a measure of the rate of change in the cost of a fixed basket of goods and services, which is a fancy way of saying a measure of inflation - increased 3.8%, which missed expectations by 160 bps.  The core price index came in at a 2.2% increase, so even without food and energy costs prices went way up.
Of course, that was just the advance estimate.  This month we're getting the first revision, and then next month we'll get the final for real revision, and the Econoday-surveyed analysts are feeling remarkably positive about the results.  They're calling for GDP to be revised upwards to 2.1%, and for the GDP price index to be revised downwards to 1.9%[2].
So, does the Bureau of Economic Analysis disappoint?  Let's go have a look at the Q1 second estimate report and find out.  Real Gross Domestic Product increased at an annual rate of 1.8% in Q1 - unchanged from the advance figures and missing expectations by 30 bps.  The GDP price index increased at a rate of 3.8% as well, also unchanged from the advance figures and substantially missing expectations.  Core GDP price index increased by 2.2%, also unchanged.
So, although things didn't actually get any worse than originally estimated, we've badly missed estimates.  That sound you hear.  That is the sound of the GDP's fist of steel crushing the market.
Unless I'm wrong, of course.
[1]  If you don't get the reference, go listen to Tennessee Ernie Ford sing Sixteen Tons, and obtain wisdom.
[2]  If you've clicked on the Econoday link, I just want you to know that I have no idea why they're reporting the Q1 advance GDP price index at 1.9%.  The BEA report from last month was pretty explicit about it being 3.8%, with a 2.2% core.

First Time Jobless Claims

Have you caught your breath from that GDP beating yet?  Good, because it's time for the left hook in that one-two punch combo as First Time Jobless Claims come out.
Last week was extremely good.  The advance figure for seasonally adjusted initial claims for the week ending 5/14 came in at 409,000, beating estimates by 16,000.  The unadjusted number of initial claims came in at 357,872 (a decline of 36,711), and the total number of people claiming benefits in all programs (for the week ending 4/30) declined by 47,124 to a level of 7,936,548.
For the week ending 5/21, the Econoday-surveyed analysts are expecting the joy to continue.  They're calling for a further decline to "only" 404,000 initial claims.  And will the US Department of Labor, when we look at this week's Unemployment Insurance Weekly Claims Report, give us any joy?
In a word,no.
First off, the seasonally adjusted initial claims for the week ending 5/14 was adjusted upwards to 414,000.  So that's not great.  And then, the advance figure for seasonally adjusted initial claims was 424,000, missing expectations by 20,000.  The unadjusted number of initial claims rose to 371,857 (an increase of 13,985).  The total number of people claiming benefits in all programs (for the week ending 5/7) fell to 7,739,572, a decline of 196,976, so that might be good news.[1]
Overall, this day has been a bust for economic data.
[1]  But probably not.  If you recall, nonfarm payroll employment increased by 244,000 in April (the last month covered by the Employment situation report).  March had 216,000 new jobs, February had 192,000, and I can't find my figures for January.  Still, that lets us figure that we're looking at an average of 217,000 new jobs per month, or about 54,250 new jobs per week (assuming a four-week month).  Best case scenario, therefore, is that around 54,250 people who stopped claiming unemployment benefits in all programs went back to work.  That means that around 142,726 people simply exhausted their benefits and fell off the rolls.  That's not too good.

Wednesday, May 25, 2011

World News!

European Union
  • The EU has agreed on parameters for stress tests on nuclear power plants operating with in the Union.  Threats to be covered will include natural disasters, airplane crashes, and explosions near the plants.  Nuclear power stations produce a third of the electricity in the EU, so they have a vested interest in making sure they are safe and reliable.
  • Representatives of the BRICS[4] nations released a joint statement stating that choosing a new director for the IMF on the basis of nationality undermines the legitimacy of the IMF.  "We are concerned with public statements made recently by high-level European officials to the effect that the position of managing director should continue to be occupied by a European.  The recent financial crisis which erupted in developed countries underscored the urgency of reforming international financial institutions so as to reflect the growing role of developing countries in the world economy."
  • In a move that surprises no one, Christine Lagarde has announced her candidacy to be the head of the IMF.
  • Speaking before a joint session of the US Congress, Israeli Prime Minister Benjamin Netanyahu stated that he was willing to make "painful compromises" for peace.  "Now this is not easy for me," he said, "It's not easy because I recognize that in a genuine peace we will be required to give up parts of the ancestral Jewish homeland."  He also stated that any peace plan will also require Palestinian recognition of Israel as the homeland of the Jewish people, recognition of the right of Israel to exist, the scrapping of the Palestinian Authority's accord with Hamas, and Jerusalem would have to be left undivided.
  • The Palestinian Authority, responding to Prime Minister Netanyahu's speech, stated that it "contained nothing we can build on", and that Israel is attempting to dictate the results of the negotiations before they even begin.
  • In "first I must solicit your strictest confidence in this transaction" news, Richard Cookson (global chief investment officer) of Citigroup has stated his belief that there will be increasing demand for Nigerian sovereign debt.  "Given the demand for the country's bond offer, and given the deteriorating quality of debt in the rest of the world, there should be more demand for the country's debt.  ...The political system is getting better and if all continues to go according to expectations, the overall credit rating of the country is likely to go up, not down."
United States
  • The United States has imposed sanctions on PDVSA, the Venezuelan state oil company, in an effort to reduce Iran's ability to import oil.  The sanctions only restrict PDVSA's ability to compete for US government contracts.  Currently, the US imports about 10% of all its oil from PDVSA.
  • In "brace yourself, Jeff" news, Harold Camping has declared that the rapture did happen over the weekend, and that May 21st was "an invisible judgment day".  According to him we have been spared five months of hell on earth, but the destruction of the Earth is still on track for October 21.
  • The Washington-based Human Rights Law Foundation is suing Cisco Systems, alleging that the company worked closely with security agents of the Chinese government to tailor hardware and software that they knew would be used to "isolate, surveil and suppress Falun gong practitioners in China".  Cisco has denied the allegations.
  • A study published in the journal Business And Politics finds that "stocks purchased by Representatives also earn significant positive abnormal returns....  A portfolio that mimics the purchases of House members beats the market by 55 basis points per month (approximately 6% annually)."  You can read the abstract just by going to the web site, but accessing the actual article requires a subscription.  Don't feel too bad for the Senators, though.  They typically beat the market by almost 12% annually, mostly because they have a distinct information advantage and because current laws to not prohibit Congressmen from trading on material non-public information obtained in the course of performing their normal duties.
  • The US Treasury Department sold 200 million shares of AIG at $29 per share yesterday, netting a $0.27 per share profit on the transaction.  A return of 0.9% isn't too bad for a two-year investment, right?
  • The Venezuelan government has condemned the US sanctions on PDVSA as "hostile action" and "imperialist aggression".  Currently, PDVSA exports roughly 45% of its crude oil to the United States.
[1]  No, I'm not really sure how 46% of survey respondents can believe in the continuation of a trend that only 43% of the respondents believe in in the first place.  
[2]  I.e. mob.
[3]  Originally imposed by Mubarak, and not actually lifted by the new military government.
[4]  Brazil, Russia, India, China, South Africa.

Durable Goods Orders

With the mortgage applications out of the way, it's time to move on to an economic index the market cares about.  Durable Goods Orders.
According to Barron's Dictionary of Finance and Investment Terms,  durable goods are "goods that have a useful life of more than three years.  Orders for durable goods, which are tracked by the Commerce Department on a monthly basis, indicate the extent to which businesses and manufacturers are willing to invest capital for future needs.  Several months of increases in durable goods orders are a sign of a strong economy, and vice versa.  The term hard goods is sometimes used synonymously, but more properly refers to durable consumer goods, such as appliances, as opposed to soft goods, which are consumer nondurables, such as textiles.  The official economic opposite of durable goods is nondurable goods, which includes food, fuel, cosmetics, drugs, clothing, and services."
So yeah, the market loves this index.  Loves it to pieces.
And it really loved March's results.  We had an expectations-beating month, with new orders for manufactured durable goods up 2.5%.  That was driven heavily by transportation equipment orders as, ex-transportation, the index was only up 1.3%.  But, I fear, the Econoday-surveyed analysts are not so optimistic about April.  They are expecting durable goods orders to decline 3.0%.
But the proof is in the pudding, and in this case the pudding is the US Department of Commerce's Advance Report on Durable Goods Manufacturers' Shipments, Inventories and Orders April 2011.  And the report makes sad broker very sad.
New orders for manufactured durable goods in April declined an expectations-missing 3.6%, still driven by transportation.  Ex-transportation, new orders fell only 1.5%.  Transportation equipment orders fell 9.5% (with nondefense aircraft and parts orders leading the way with a whopping 30% decline).  The only winner was computers and electronic products, which saw a 0.7% increase in new orders.
And that is sort of a sad win.
The takeaway?  Manufacturing did poorly in April, and aircraft did the worst.  Barring some dramatic news from elsewhere, watch for a down day[1].
[1]  Of course, given my overall success in attempting to predict market activity from this data, we could be up 300 points.  Please do not assume I know what I'm talking about.

MBA Purchase Applications

This is, of course, the Mortgage Bankers' Association indices of mortgage application activity for the previous week.  It actually consists of three indices:  the Market Composite Index (which tracks overall mortgage application activity), the Purchase Index (which tracks applications for home purchases) and the Refinance Index (which tracks applications for refinancing of existing mortgages).  The figures represent week-over-week change.
Traditionally, this is not considered a huge market mover.  It's useful information for trying to predict whether home sales will increase or decrease, and it can be used as a data point for the health of the financial sector (particularly mortgage lenders), but the Street doesn't concern itself all that much with this specific index.  As a result, there are no analyst opinions on it that I can find.
So let's delve into some number instead, shall we?  For the week ending 5/13, the Composite Index was up 7.8%.  This was entirely driven by refinancing (the Refinance Index was up 13.2%), as purchase applications fell for the week (dropping 3.2%).  To get the data for the week ending 5/20, we turn to the press release on the MBA website.  The Market Composite Index increased 1.1%, driven by both new purchases (the Purchase Index was up 1.5%) and refinance activity (the Refinance Index was up 0.9%).
Refinance activity represented 66.8% of all mortgage applications for the week, and adjustable-rate mortgages[1] represented 5.8% of total applications.  The average contract rate for 30-year fixed-rate mortgages increased to 4.69%.
[1]  Remember those?

Tuesday, May 24, 2011

Chrysler Repays Outstanding TARP Loans

Early Repayment Comes Six Years before Loans Mature in 2017

115,000 Jobs Added in Auto Industry since June 2009 – Strongest Growth in a Decade
WASHINGTON – Today, the U.S. Department of the Treasury announced that Chrysler Group LLC has repaid its outstanding Troubled Asset Relief Program (TARP) loans. Chrysler's repayment comes six years before the scheduled maturity of those loans in 2017.

As part of today's announcement, Chrysler Group LLC repaid $5.1 billion in TARP loans and terminated its ability to draw a remaining $2.1 billion TARP loan commitment. In total, Treasury has received $1.5 billion in interest and fees from Chrysler Group LLC, including $865 million associated with today's transaction.

"Chrysler's early repayment of its outstanding TARP loans is an important step in the turnaround of this company and the resurgence of the auto industry," said Treasury Secretary Tim Geithner. "Because President Obama made the tough decision to stand behind and restructure the auto industry, America's automakers are growing stronger, making new investments, and creating new jobs today throughout our nation's industrial heartland."

Treasury committed a total of $12.5 billion to Chrysler under TARP's Automotive Industry Financing Program (AIFP). With today's transaction, Chrysler has returned more than $10.6 billion of that amount to taxpayers through principal repayments, interest, and cancelled commitments.  Treasury continues to hold a 6.6 percent common equity stake in Chrysler. As previously stated, however, Treasury is unlikely to fully recover its remaining outstanding investment of $1.9 billion in Chrysler.

When President Obama took office, the American auto industry was on the brink of collapse. The President made the difficult decision to provide support to General Motors (GM) and Chrysler on the condition that all stakeholders make the sacrifices necessary to fundamentally restructure those companies and put them on a path to viability. By conservative estimates, providing this support and preventing the abrupt liquidation of GM and Chrysler saved more than 1 million American jobs.  Moreover, the expected costs of TARP's support for the industry have come down dramatically over the last two years as the auto industry has continued to recover and strengthen.

Today, as a result of the President's tough decisions and the hard work of the companies' new management teams, their dedicated employees, and the communities that support them, the American auto industry is growing stronger and creating new jobs. For the first time since 2004, all three American automakers have an operating profit. Since GM and Chrysler emerged from bankruptcy in June 2009, the industry has added more than 115,000 jobs – the industry's strongest period of job growth in more than a decade.

Lazard served as Treasury's exclusive financial advisor on today's transaction.​

U.S. Department of the Treasury Logo Questions? Contact Us

Remarks by Under Secretary for International Affairs Lael Brainard on Global Agriculture and Food Security

Chicago Council of Global Affair's Symposium on Global Agriculture and Food Security

As Prepared for Delivery

The need for global action to strengthen food security is clear.  With food prices again high and increasingly volatile, and in the face of ongoing climate change impacts, rural households in the world's poorest countries are increasingly exposed to global price swings, and forces of demand and supply far beyond their borders.   

We all recognize agricultural development is an effective anti-poverty strategy. It is a foundation for social stability. It can play an important role in achieving gender equity. And it has served as a stepping stone to broader improvements in productivity and living standards in almost all successful economic growth stories. 

To make a difference, our investments in food security must be targeted and effective. They must spur long-term transformations that enable smallholder farmers to grow more and earn more. 

For all these reasons, at the outset of his presidency, President Obama made food security a key development priority for the U.S.  And that's why the United States has taken a leadership role in crafting a global partnership to address the underlying causes of global hunger. 

That partnership centers on the basic proposition expressed by six of our African colleagues: "The responsibility of transforming the agriculture sector falls on African governments.  However, winning the battle against global hunger depends on all of us acting on our mutual responsibilities."

But this group already believes in the centrality of this agenda.

Today, let me briefly tell you one of the key ways we are acting to advance it. We are proud to have launched the Global Agriculture and Food Security Program in concert with key G-20 partners, the World Bank, NGOs, and leading foundations.  Let me share three facts that explain why we want to make sure it grows stronger.

First, GAFSP is smart and innovative.  Its design reflects the best practices of development:  country ownership, involvement of civil society organizations and the private sector, and investments based on comprehensive country-developed food security plans. In addition to support from G-20 partners such as Canada, Spain and Australia, the fund has attracted support from foundations like the Gates Foundation and from emerging markets such as South Korea. 

It has an inclusive decision-making structure with equal numbers of contributors and developing countries on the steering committee, with equal voice in decisions.  Two southern farmers groups and one northern CSO are part of the fund's governance structure which makes recommendations on which proposals to fund.

Second, GAFSP is nimble.  In less than one year, it has made grants totaling $337 million to eight of the world's poorest countries, including five in Africa. 

These grants are already making a difference.  In Rwanda, the fund's investments are at work as small holder farmers build hill-side terraces that are improving irrigation and minimizing the efforts of erosion to enhance agricultural productivity in the Lake Kivu region. 

Third, the fund is results-oriented and transparent.  GAFSP leverages the technical capacity of the multilateral development banks in implementing grants, and supports investments in irrigation infrastructure, feeder roads, seeds, and fertilizer. 

The fund also works with other development partners, including the core programs of the multilateral development banks, to achieve leverage and scale. In Rwanda and Bangladesh, for instance, the fund's investments and those of USAID complement and reinforce each other. 

And GAFSP's focus on transparency and results ensures that resources are used effectively. Fund investments are allocated based on a technical assessment by an independent body of experts.  And the results of the fund's investments will be measured through rigorous, independent impact evaluations.  

Despite these early successes, we should remain vigilant against losing momentum in our "smart investment" agenda on global food security.  While $22 billion was pledged by the G-8 and other donors at the 2009 L'Aquila Summit, in many cases the impact of this money has yet to be seen at the country level.  Efforts towards accounting for these commitments have foundered with some donors unwilling to share disbursement data.   

The need to make progress is clear in the strong pipeline of proposals waiting for funding from GAFSP.  Because GAFSP offers one of the few sources of new, additional and transparent resources, a total of 25 countries have applied to the fund with requests in excess of $1 billion.  Unfortunately, until more donors join the fund and commit larger amounts of resources over a longer time period, many of these countries will be turned away and the fund will not be able to issue a second call for proposals.

Raising more funds for GAFSP starts at home.  We were delighted that Congress found room for a contribution of $100 million to GAFSP in the FY2011 budget, bringing the US contribution to date to $167 million.  But that is far short of the $475 that we have pledged. 

Without greater progress on our pledge, it is difficult for the United States to convince other development partners to contribute—although I can assure you we are trying.  That's why it will be critical for Congress to fund the Administration's request of $308 million in FY2012.

But the promise of L'Aquila wasn't just about resources.  It was also about doing development differently.  We all recognize that it is important to demonstrate results and make our funding go further in the current tight budget context. 

And that is why GAFSP is even more critical.  By pooling resources, donors can leverage contributions; by aligning investments to country-owned plans, we can ensure against proliferation of agriculture projects that tax the administrative capacities for low-income countries; and by working together, we can scale up programs that have demonstrated results.  

That's why L'Aquila partners should channel a portion of their pledges through GAFSP.   And emerging market members of the G-20 should also join this global partnership, taking on a greater role in supporting economic development in the world's poorest countries commensurate with their growing role in the global economy.

On June 7 and 8, the GAFSP steering committee will meet here in Washington to decide on a third set of grant allocations.  With the $100 million appropriated by Congress for FY11, the fund will allocate nearly $200 million to the best designed projects in food insecure countries.  But once that money is committed, GAFSP will be without additional resources. 

This will test the ability of the international community to make good on its promise, and demonstrate that we are in this for the long-run.  

The greatest champions of this fund are the low-income countries themselves.  Our African colleagues have urged the G-20 to work together to sustain this fund.  

With your support and effort, let's continue to strengthen the foundation of our global partnership to address food security. 

Thank you.

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New Home Sales

This is a little late, but it's worth it.
New Home Sales (technically, New Residential Sales) is exactly what it sounds like on the box - a seasonally adjusted look at the annual rate of sales of newly constructed residential buildings.  Keep in mind that this is an annual rate - if we're showing sales at (say) 250,000 that means that in the past rolling year 250,000 new homes have been sold.
But enough lecturing on methodology.  Let's get to why you (or, indeed, anyone) should care.  In this case, it's all about the trickle-down effect.  New home sales typically mean new mortgages, which means that banks and mortgage brokers are doing business.  New home sales also lead to durable goods sales - furniture, appliances, home entertainment systems, gardening and lawn care equipment, all those lovely economy-driving big ticket items - and to less durable but still important goods sales (paint, carpet, lightbulbs, and so on and so forth).  Home sales are economic force multipliers, and increases in new home sales are an economic reason to party.
For April, the Econoday-surveyed analysts aren't expecting much of a party.  March annual sales came in at 300,000, and they're expecting the exact same thing for April - and while slow and steady may win the race[1], it doesn't impress the markets much.
But that's just the opinion of some analysts.  For actual data, we turn to the joint press release from the US Census Bureau and the US Department of Housing and Urban Development, which shows us that sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000, beating expectations by 7.6%.  The median sale price was $217,900 and the average sales price was $268,900.  The Bureau and Department also estimate there are 175,000 new homes for sale as of the end of April, giving us a 6.5 month supply at current sales rates.
So there you go, a nice hefty slice of "beating expectations".
[1]  A saying apparently created by someone who has never actually been in a race.

World News!

  • In "Ray Kurzweil must be proud" news, engineers and scientists at the University of Queensland have designed robots that are capable of inventing their own language and then teaching it to other robots.  It's crude right now, but it is one more step towards the godlike AIs predicted by Singularitarians.
  • Moody's Investors Service's chief credit officer for Europe - Alastair Wilson - expressed concerns about a Greek debt default.  "A Greek default would be highly destabilizing and would have implications for the creditworthiness of issuers across Europe.  This would result in more highly polarized credit worthiness and ratings among euro zone sovereigns, with the stronger countries retaining very high ratings and the weaker countries struggling to remain in investment grade."
  • At least two people were killed and 20 injured in an explosion at the Abadan refinery.  The explosion is believed to be caused by technical problems, and not by deliberate sabotage.
  • In non-PIIGS news, Lamborghini (a unit of Volkswagen's Audi brand) anticipates that the luxury super sports car market will return to 2007 levels by 2013-14.  They also plan to design a third car model.  "It has to be an everyday car," said Lamborghini CEO Stephan Winkelmann, "We want to have a car which is able to be used on a daily basis."  Lamborghini SUV, anyone?
  • In "no real surprise there" news, TEPCO has confirmed that fuel rods in the Fukushima Number 2 and Number 3 reactors have undergone a partial meltdown[1] (this after revealing earlier in the month that the rods in the Number 1 reactor melted down).  The meltdown had occurred within 60 hours of the earthquake in the Number 3 reactor, and within 100 hours after the earthquake for the Number 2 reactor.  They remain confident that the will be able to reach a cold shutdown of the Fukushima reactors by January.
North Korea
  • In "I got 99 problems but having to find a legal pretext for ongoing military operations ain't one" news, chief military prosecutor Sergei Fridinsky stated that a huge portion of Russia's defense spending is lost to corruption.  "Huge money is being stolen - practically every fifth ruble.."  When asked if he thought senior officials were involved in the corruption, Fridinsky said "Work it out for yourself."
United States
  • The White House is looking for ways to legally continue participating in the NATO-led Libyan campaign past Friday.  Under the War Powers Resolution, any involvement in combat operations that has not been authorized by Congress must be terminated after 60 days and, since Congress was formally informed of US involvement in Libya on March 21st, Friday will be the 60th day.
United Kingdom
[1]  This is known technically as a "partial core melt accident", and literally means that one or more fuel rods have gotten hot enough to liquefy and melt.  The reactor core - at least in non-Russian reactor designs - should be able to contain the majority of the radiation, but that theory is often dependent on operational cooling systems.

Monday, May 23, 2011

Yarrr! Student Debt!


World News!

  • Researchers in Germany have demonstrated a computer data transfer rate of 26 terabytes per second (or, if you're not sure what a terabyte is, 26,624 gigabytes) by using a single laser and a "fast Fourier transform" to unpack the different wavelengths.  (This is slower than the record 100 terabytes per second, but that required something on the order of 370 different lasers.)[1]
Great Britain
  • A report published by HSBC Bank states that "we're confident that there are around 50 years of oil left"[2].  Substitutes like biofuels and synthetic oil could fill the gap, but only if average oil prices exceed $150 per barrel.  They also warn that Europe will suffer the most, as energy scarcity may significantly impact economic growth by midcentury.
  • In an interview with the BBC, President Obama stated that he would order a similar operation to the one that killed Osama Bin Laden if another militant leader was found in Pakistan.
  • Almost a year after Eyjafjallajokull shut down international flights across the Atlantic, the Grimsvotn volcano is gearing up for a repeat performance.  Icelandic air traffic control has created a no-fly zone around the volcano[3], closed the nation's main airport, and cancelled domestic flights.  As of right now the ash cloud poses no risk to European air traffic, but that could change by the end of the week.
  • In "so you've arrested more hikers?" news, Tehran announced that it has broken up a CIA spy network that operated out of US diplomatic missions in Malaysia, Turkey and the UAE and that was spying on Iran's research institutes, universities, and nuclear programs.  "Elite agents of the intelligence ministry in their confrontation with the CIA elements were able to arrest 30 America-linked spies through numerous intelligence and counter-intelligence operations," was the official announcement from the Iranian intelligence ministry.
  • The European Union has opened an office in the rebel-held Libyan city of Benghazi.  "We are here for the long term," said Baroness Catherine Ashton.  "What we can offer is support to Libyan institutions and the economy.  We will be here to support you all the way.".  As she made the announcement, air strikes were made against Colonel Gadaffi's Bab al-Azizya compound in Tripoli in what we are still assured are not assassination attempts.
United States
[1]  How much data is that?  Well, a byte is essentially one character.  A typical typed 8 1/2" by 11" page with no images holds 2 kilobytes of data.  So 26 terabytes is 26 x 230 pages of text.  If that doesn't help, then try this:  the US Library of Congress held about 235 terabytes of data in its collection as of April 2011.  You could use this method to download that collection in 9.0384615 seconds.
[2]  The quote is actually from Karen Ward, a senior global economist for HSBC.
[3]  There is no word yet as to whether Iceland will stretch the mandate of the no-fly zone and launch missile strikes on the residence of the volcano's leadership in what they will insist are not assassination attempts.