electric tuk tukFed Running On Auto Pilot With Foreign Reserves

Gavyn Davies at Financial Times argues that “the behaviour of the major central banks, which had dominated market attention for so long, [will] not be the decisive element for asset prices in 2014,” thanks to a broad, slow recovery and the Federal Reserve’s “tapering by auto pilot.”  Furthermore, he predicts that “in the longer term, it is likely that wages will emerge as the indicator that matters most for the FOMC…markets should therefore watch the monthly wages data even more closely than they watch the non farm payrolls in the future.”  Meanwhile, economists at the Bank of International Settlements (the “central banker’s bank”) are warning that revising forward guidance policy or keeping interest rates low for too long may create financial instability.  “While forward-guidance policies have helped subdue one-year interest-rate volatility, they are less effective at influencing longer maturities, the BIS report said.”  Also, “because of changes in charges levied by the [FDIC], foreign banks accounted for almost half of the reserves held at the U.S. Federal Reserve in December…at the end of 2013 these foreign bank branches held almost $1 trillion of the $2.2 trillion in reserves at the Fed, or 43% of the total.”

Solar-Powered Tuk Tuks

Here’s a chest-thumper about the success of solar-generated electricity and renewable energy in general: 1) “The average price of a solar panel has declined an estimated 60 percent since the beginning of 2011, and this year the total photovoltaic capacity in the United States is projected to reach 10 gigawatts, the energy equivalent of several nuclear power plants,” 2) “solar installations — primarily photovoltaic rather than solar thermal — grew by a third last year alone,” and 3) “The Solar Foundation’s Solar Job Census estimated that there were almost 143,000 solar workers in the United States in 2013, a nearly 20 percent increase over employment totals in 2012.”  Meanwhile, an Australian-based energy company is building solar-powered tuk-tuks (the taxi of Southeast Asia) for the Cambodian market.

USA: New-Home Building Is Shifting To Apartments

“Single-family homes accounted for about two-thirds of housing starts last year, down from their peak of 87% in 1993 and about 80% in the years leading up to the recession.”  Possible explanations of this trend include 1) “As the job market improves, larger numbers of young adults are leaving their parents’ homes and forming their own households — adding more to the demand for rentals,” (Although, somewhat paradoxically, “Moody’s Analytics estimates that four jobs are created for every new single-family-home start, versus two for multifamily units”) 2) “The baby-boom generation is moving into retirement and empty-nesthood, prompting many to downsize to smaller quarters,” 3) “The generations behind them, meantime, are having fewer children, later in life, so need less space,” and 4) “Single-family homes were built at the expense of apartments during the mid-2000s housing boom.”

EU: Mr. Putin’s Clever Bond Issue

Remember when Russia gave Ukraine $3bn not so long ago?  That came with a “Debt Ratio” provision allowing Russia to declare payment immediately if Ukraine’s Debt-to-GDP ratio rises above 60%.  “Having cut ties with Russia, Ukraine needs a substantial debt relief package from the EU and is likely to receive it (along with some IMF assistance).  The question though is how much of that relief will come from an EU taxpayer bailout and how much will come from haircuts to the claims of private creditors…The more unpalatable the creditors, the less willing taxpayers are going to be to subsidise them.”  Furthermore, “if one factors in the loss of Crimea, the inevitable economic consequences of the unrest throughout the country and — lest we forget — the inevitable drop in GDP that follows IMF-prescribed austerity, that ratio is probably going to clear the 60 per cent threshold.”

USA: Invisible Shrinking Management Fee

“This past week, WiseBanyan, an online-only investment adviser, publicly launched a service that builds and manages diversified portfolios of exchange-traded funds for nothing. There is no minimum account size; nor is there any fee to sign up, to buy the funds or to hold them (other than the underlying expenses of the funds, averaging less than 0.14% annually).”  Structuring clients’ portfolios “is often highly mechanical and a computer can do it for nothing, as WiseBanyan shows with its ‘algorithmic’ method of determining which portfolios to recommend.”  This algorithmic method comes up short in one area, however: the complexities of tax, estate and retirement planning.  Meanwhile, Bank of America is gonna start charging clients $5/month to keep them from overdrawing their checking account…

USA: The Current Bull Market: By The Numbers; also Five Bears Who Turned Bullish During Five-Year Rally

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