The Bank of England has introduced new rules requiring banks to spend two hours interviewing each mortgage applicant, which is an ingenious way to slow down borrowing.  

Canadian housing prices approach the ozone layer

A survey of 56 countries by Frank Knight shows that world house prices rose more than 8 percent last year. Prices in eleven countries rose by double digits. (FT 5/6. P2)  Shortly after I read this, someone sent me a chart comparing US and Canadian housing prices.  After a slight tremor when the US cracked, Canadian house prices soon resumed their upward trend.  The high price of housing in Canada has long puzzled me.  It is, after all, the second largest country in the world by area and sparsely populated. 

 

For example, Yonge Street in Toronto, which extends north from Lake Erie toward the pole, was listed in the Guinness Book of World Records as the longest street in the world until it was displaced by the Pan American Highway, which runs from Alaska to Chile, in 1999.  Yonge Street is 1,178 miles in length.  It was built in the 1790’s and named after Sir George Yonge, the British Secretary of War at the time and, was designed so that the capital could be evacuated northward in the event of a US invasion. 

(Given the length of the road, the British were clearly contemplating a worst case scenario. -- The route’s straightness belies the legend that it was built by prisoners arrested for inebriation.)  One would think it possible to have a prestigious Yonge Street address fairly cheaply somewhere.  But prices are twice the US level.

Overvalued market going even higher: a technician thinks so

A friend sent me a comment by Richard Russell of the Dow Theory Letters, which Russell has been writing since 1954.  (He’s getting old.)  Russell refers to Robert Shiller’s price-earnings ratio, in which “p” is the current price and “e” is the average inflation-adjusted earnings of the past ten years.  Russell states the following:

“We are now 53.3% above the average P/E of the preceding decade. There have been only three times when valuations calculated by this method were higher -- the late 1920s, the late 1950s and 2007 just before the bull market ended. Judging from current valuations, we are either near the beginning of a bear market -- or facing a decade of sub-par performance from stocks."

 

Paradox: As a technician, Russell nonetheless sees the potential of a big upside breakout in the Dow.

The Southern Stream gas pipeling will avoid transit through Ukraine

Russia is pushing for construction to begin on the “Southern Stream” gas pipeline, which will avoid Ukraine entirely by going under the Black Sea to Bulgaria.  The already completed Northern Stream has reduced Russia’s reliance on Ukraine by 50% in supplying Europe, and the Southern Stream will allow Russia to completely cut off Ukraine and still provide gas to Europe.  The European Commission is opposing the pipeline on “monopoly” grounds. 

The pipeline will almost certainly go ahead. Russia is prepared to finance it 100% on spec if EU opposition prevents bank financing.  Bulgaria, Serbia and other states are in favor.  Italy will build the undersea section and the Germans are manufacturing the pipes. 

Polio declared a "world health emergency" by the WHO

Polio, which a few years ago was on the verge of being eliminated globally, is coming back, according to the WHO.  Polio is a virus that mainly affects children under 5 by multiplying in their intestines and then attacking the nervous system.  It spreads through infected water. There are vaccines but no cure.  The WHO has issued a “World Health Emergency.” There were 68 deaths by the end of April this year compared to 24 in the same period last year.

Polio is endemic in three countries:  Pakistan, Afghanistan and Nigeria.  It is spreading in and from Pakistan because Islamic militants have blocked vaccination programs there.  Syria, which was polio-free for 14 years, has now been inflected from Pakistan. 

Americans are becoming pariahs to international financial institutions

Deutsche Bank in Belgium has asked its clients who are US taxpayers to close their accounts by June.  In a letter, the bank said, “it is no longer allowed to use Internet, email, phone or fax to serve [US] retail clients.”  This is because of FATCA (The Foreign Account Tax Compliance Act) which is being phased in.  It required foreign banks to provide the IRS all financial information on all US taxpayers.  The penalties are draconian: a bank can be fined 30% of its annual US income for missing a single individual.

Americans have become pariahs to foreign financial institutions.  When I was living in Singapore several years ago, UBS announced that it would no longer accept any US citizens or green card holders as clients whether or not they lived abroad.  Will more individual Americans follow Pfizer and renounce their citizenship?

Gary Becker of the University of Chicago has died: Created "Rotten Kid Theorem."

RIP: Prof. Gary S. Becker of the University of Chicago died.  NYT: “Households, for example, were long seen as entities intent only on maximizing consumption, but Mr. Becker saw them as small factories that also produce valuable, though nonmarketable, basics of life, like leisure and sleeping.” He also came up with the “Rotten Kid Theorem:”  He wrote, “Children have an incentive to act altruistically toward each other as their parents want them to, even if children are really egotistical.” He believed that “behavior is driven by a much richer set of values and preferences that can also include altruism, loyalty and spite.”

The thing that I most remember is that he long ago said that children had changed from economic assets (i.e. a retirement program) of parents into consumption items.  Large families would come to be seen as signs of affluence.