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Friday, December 09, 2005

Japanese Third Quarter Growth

Well here it is, all coming home to daddy. The Japanese data I mean. Third quarter annual growth in Japan has just been revised down from 1.7 to 1%. This is coming home to daddy, since I continue to believe that - for demographic reasons - we will not see a self-sustaining Japanese recovery. Japan will continue to be dependent for growth on China, the US and Europe. Hence weaker than expected data should hardly be surprising.

Gross domestic product was up only 0.2 per cent on the quarter in real terms, with an annualised rate of 1 per cent. The new figures show that growth has been slower than expected, and significantly lags behind the pace in the first half of the year. The government had previously estimated quarterly growth of 0.4 per cent in the three months to September and 1.7 per cent growth on an annualised basis.

Many economists have already been disappointed by recent data on Japanese household spending growth which, at 0.4 per cent, was considerably lower than the April-to-June figure.

Wednesday, December 07, 2005

US Productivity and Earnings Data

The US labour productivity grew by a robust 4.7% annualised in the third quarter, which seems to suggest that the US economy can continue to grow at a rapid pace without sparking inflation. This seems to have impications for decisionas at the Federal reserve.

"The minutes of the Fed’s last meeting in November suggested that the central bank believes that interest rates are approaching a neutral stance – a level at which they neither encourage nor restrict growth. Once this point is reached, further interest rates will be necessary only if inflationary pressures intensify, economists believe.

The Fed is widely expected to raise rates from 4 to 4.5 per cent before considering a pause. But there is less certainty about whether rates will need to rise in March, when the first meeting of the Fed’s Open Market Committee chaired by Ben Bernanke will be held.

Quite why US productivity is so good - in particular in comparison with its eurozone rivals, still remains something of a mystery. If it was simply ICT, then the eurozone countries who are introducing ICT components just like everyone else should have been showing signs of 'catching up'.

Productivity growth in the US has eclipsed the performance of other leading economies over the past six years, allowing the Fed to permit levels of economic growth that would previously have forced it to apply the brakes through higher interest rates. Economists have been expecting growth in productivity to slow from its peak at the end of 2003. But the slowdown has been much less abrupt than forecast.

Monday, December 05, 2005

Cohort Analysis, Morbidity and th Barker Hypothesis

Actually I am posting these links so I can find them again easily, but if anyone lese finds them useful, then good luck to you:

Airborne infectious diseases during infancy and mortality in later life in southern Sweden, 1766–1894 by Tommy Bengtsson and Martin Lindström.

Fetal origins of coronary heart disease by David Barker.

Inflammatory Exposure and Historical Changes in Human Life-Spans by Caleb E. Finch and Eileen M. Crimmins.

Comment on "Inflammatory Exposure and Historical Changes in Human Life-Spans" Elisabetta Barbi and James W. Vaupel

Response to Comment on "Inflammatory Exposure and Historical Changes in Human Life-Spans" by Caleb E. Finch and Eileen M. Crimmins

Inflammation and Life-Span by Calogero Caruso, Giuseppina Candore, Giuseppina Colonna-Romano, Domenico Lio, Claudio Franceschi;, Anthony G. Payne;, Caleb E. Finch, and Eileen M. Crimmins

E-Letter responses to: Caleb E. Finch and Eileen M. Crimmins "Inflammatory Exposure and Historical Changes in Human Life-Spans"

Broken Limits to Life Expectancy by Jim Oeppen and James W. Vaupel.

Increase of Maximum Life-Span in Sweden, 1861-1999
by J. R. Wilmoth, L. J. Deegan, H. Lundström, S. Horiuchi

Lifespan depends on month of birth by Gabriele Doblhammer and James W. Vaupel.

How Much and How Quickly We Forget

I am doing some work today on the ideas of Nobel prizewinner Robert Fogel (more on this later). Taking a look at his Nobel page I have just realised that he got the prize jointly with Douglas North, someone about whose work I am woefully ignorant. In Fogel's Nobel biography I found this:

"I began my graduate training with the naive belief that by combining the study of history and economics I would quickly discover the fundamental forces that had determined technological and institutional changes over the ages and that such knowledge would point to solutions to the current problems of economic instability and inequity. As I became aware of how little was actually known about these large processes and their interconnections, I began to focus on more discrete issues:"

Well I have to say that I share his initial belief, and I don't regard it as especially naive. Also I personally am still amazed by how little we really do seem to actually known about the large processes and their interconnections he mentions, but maybe that's just me :)

Further down the speech I also find:

"Simon Kuznets, who supervised my doctoral dissertation, was by far the most influential figure in my graduate training. Soft spoken and of moderate stature, one did not have to be in his class very long to discover that he was a towering intellect, erudite not only in economics, but also in history, demography, statistics, and the natural sciences. His course in economic growth covered the history of technological change during the modern era, demography and population theory, and the use of national income aggregates for the comparative study of economic growth and of the size distribution of income".

It's funny, Simon Kuznets also gave his name to an important sub-cycle of the US business cycle - the Kuznets cycle - yet no-one seems to have heard of it these days. Which is funny, since the Kuznets cycle idea could go a long way to help understand why current US growth is so resilient.


Pension Demand Inverts The UK Yield Curve

The U.K. government may well find itself paying less to borrow over 50 years than it does to borrow over six months when it sells 2.25 billion pounds ($3.9 billion) of bonds in an auction this week: The main culprit: demand from the pension funds. The yield on the UK government's 4.25 percent bond due in December 2055 was at 4.06 percent in London this morning. This compares with 4.48 percent available on six-month bills. Actually 4.06% fifty years out from now looks a little expensive to me, but then, I guess - or at least I hope for the pensioners-to-be - that these guys are hedged. Anyway, rather than talking about impending recessions, shouldn't we be getting back to all that talk about a global savings glut?

Longer-term bonds have yielded less than shorter term securities for most of the past two years. The yield on Britain's 2055 bond is less than the 4.16 percent on 30-year gilts which are below the ten-year's 4.26 percent. Bonds maturing in 50 years have yielded less than six-month Treasury bills since they were first sold on May 26.

Investors often interpret this so-called inverted yield curve as a sign of an impending recession. In the U.S., the past four recessions came after 10-year notes yielded less than two- year Treasuries.

The situation is different in the U.K. because of demand from pension funds.

``Bonds between 30 and 50 years are in a sweet spot,'' Robert Stheeman, chief executive of the agency that manages the U.K.'s debt sales, said in a Dec. 1 interview. ``Our core investor base is the U.K. pension industry.''

Japan and the US Yield Curve

Understand why the US yield curve may be about to invert and you've understood a lot IMHO.

Brad Setser picks up on the FTs Steve Johnson, and earlier here.

Johnson makes one extremely revealing point:

"The chief problem for the yen is that the flattening of the US yield curve has made it uneconomical for Japanese investors to hedge their ongoing purchases of US Treasuries, but a falling yen encourages overseas investors to hedge their purchases of Japanese equities - negating the value of these latter flows in currency terms."

Obviously what we have is asymmetric hedging. This begins to solve what had long been a mystery for me: who was really buying into the sustained Japanese recovery argument. Obviously many of the Japanese themselves aren't (sensible them). But OPEC members are. Really they should sack all their financial consultants :). The big issue, of course, is the US yield curve. The chain normally cracks at its weakest point, so this is a must to watch. Also, I wonder how much asymmetric hedging is taking place in Germany?

Basically the growth imbalance between the US, Germany and Japan, and the inability of these latter two economies to 'normalise' interest rates is producing a significant distortion in the global financial system. The US can have interest rates in the 4 to 5% range and still grow faster than either of the other two.

Co-indidentally cross this with a petro-dollar surplus arising from the changing terms of trade, and you have all the ingredients for some kind of problem. Now let's wait and see what happens next. I'm fascinated.