by Calculated Risk on 11/13/2011 04:44:00 PM

No surprise ...

From the WSJ: Italy's Monti to Form New Government

"We need to fix Italy's financial situation and restart growth while paying particular attention to creating an equitable society," Mr. Monti said in a speech ...

Mr. Monti said he would name a cabinet quickly. Before the new administration can start operating, it needs approval from both houses of Parliament—a green light that is expected within days.
...
Though Mr. Monti's new government is likely to be approved quickly by Parliament, any honeymoon period will be short. First off are likely to be more budget cuts than those already announced by Italy last summer in order to balance its budget by 2013.

I wonder what Monti's proposals are to restart growth and to create a more equitable society?

From the NY Times: Mario Monti Tapped to Lead Italy Out of Debt Crisis

[I]n a sign of political wrangling to come, the leader of Mr. Berlusconi’s People of Liberty party said that the party would support a Monti government for only as long as it could fulfill its mandate to push through measures to help reduce Italy’s $2.6 trillion public debt and increase growth to keep the country competitive. The party had been pushing for early elections, and media reports said that Mr. Monti hoped to serve until the end of the current legislature in 2013.
...
On Monday, Mr. Monti was expected to present a cabinet of nonpoliticians and introduce his program before Parliament, where a majority must vote confidence in his government.

Yesterday:
• Schedule for Week of Nov 13th
• Summary for Week Ending Nov 11th

by Calculated Risk on 11/13/2011 12:47:00 PM

On Friday, Goldman Sachs economists expressed concerns about two potential negative shocks for the U.S. economy:

"We are particularly concerned about two potential negative shocks— one of which has already materialized to some degree. First, a worsening of the European financial crisis would hurt the economic outlook globally. Second, our forecast assumes that the payroll tax cut is extended for another year; if that failed to happen, the fiscal drag in early 2012 would rise significantly."

Goldman Sachs, November 11, 2011

These are downside risks to Goldman's forecast of about 1% GDP growth in the first half of 2012 - already a very weak forecast!

On the second point, additional fiscal stimulus might depend on the so-called "super committee" that has a November 23rd deadline. I have little confidence in the committee. Here is an update from the WaPo: Supercommittee hasn’t ‘given up hope,’ Hensarling says

“We haven’t given up hope,” Rep. Jeb Hensarling (R-Texas) said on CNN’s “State of the Union.” “But if this was easy, the president of the United States and the speaker of the House would have gotten it done themselves.”

It is hard to believe that Congress would raise taxes on working Americans with a 9% unemployment rate, and in an election year - but that just might happen ...

I agree that the European financial crisis and additional fiscal tightening are the two major downside risks, but I think there are several other risks worth mentioning.

Oil and gasoline prices have remained fairly high and there is always the risk of another supply shock in the middle east. Gasoline prices are already at the highest level ever for October and November. Not a great way to start the holiday shopping season.

Another ongoing drag has been state and local government cutbacks. This year, state and local governments have cut 232,000 payroll jobs (about 23 thousand per month). This might continue in 2012 (most forecasts are for cutbacks to slow next year). The California State controller recently reported:

State Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in October, showing revenues came in $810.5 million below projections from the recently passed state budget.

"October's poor revenues capped a very disappointing first four months of the fiscal year," said Chiang. "Unless revenues and expenditures begin to track with projections, the State will face increasing cash pressure in the months ahead."

This shortfall could lead to additional cuts in California next year, and other states are probably falling short too.

And last, but never least, the U.S. housing crisis is ongoing. House prices are now falling again, and there will be more distressed supply coming on the market - especially once the mortgage settlement is reached. It does appear the excess supply is being absorbed (based on falling vacancy rates), but there is still a long way to go.

My general forecast is for sluggish growth, but there are some significant downside risks.

Yesterday:
• Schedule for Week of Nov 13th
• Summary for Week Ending Nov 11th

by Calculated Risk on 11/13/2011 09:09:00 AM

From Ashley Powers at the LA Times: In foreclosure-plagued Vegas, empty homes go to pot

The home — with four bedrooms and 61 plants — was one of the smaller alleged grow operations authorities have dismantled this year. At another home, authorities seized 878 plants worth an estimated $2.6 million.

Las Vegas has a pot home problem. And like many of the region's maladies, it's tied to the housing slump.
...
"You can't have crime without opportunity," said William Sousa, a criminologist at the University of Nevada, Las Vegas. "And all those empty homes present an opportunity for criminal activity."

Major cultivators spend tens of thousands of dollars turning cheap homes into greenhouses.

This reminds me of a classic Jim the Realtor video: High on the Hill

Yesterday:
• Schedule for Week of Nov 13th
• Summary for Week Ending Nov 11th

by Calculated Risk on 11/12/2011 08:29:00 PM

There will be a confidence vote on Wednesday (obviously Papademos will win), and the troika inspectors (EU, the IMF and the ECB) will visit Greece early next week to obtain commitments from the new government.

But basically the beatings will continue until morale improves (more austerity), although Papademos did say getting the unemployment rate down was a top priority.

A couple of stories from the Athens News: New government offers no austerity relief, may stay longer

Greeks have largely welcomed the new government, saying the somber international policymaker [new Prime Minister Lucas Papademos] is a safer pair of hands than those of politicians they say have put their own interests ahead of those of the country.

But [Theodoros Pangalos, a returning deputy prime minister from the previous cabinet] warned voters not to expect relief from the tough tax measures decided earlier this year to qualify for further bailout tranches.

"The manoeuvring space for any relief measures in 2012 is very narrow," he said.

In his first statement as prime minister, Papademos vowed to fulfill a deal forged last month with eurozone leaders that will release an 8 billion euro loan Athens needs to avoid running out of cash next month plus longer-term funding later.

"The government's main task is to implement the decisions, the conclusions of the October 26th and 27th eurozone summit meeting, and secondly to put into force the economic policies which come together with these decisions," he said.

From the Athens News: Citizens strongly back unity coalition: polls

Greeks strongly support their new technocrat prime minister Lucas Papademos and his national unity government, opinion polls showed Saturday, which also indicated the country may continue with coalition rule after he steps down next year.

I wonder how long the support will last?

Earlier:
• Schedule for Week of Nov 13th
• Summary for Week Ending Nov 11th

by Calculated Risk on 11/12/2011 04:12:00 PM

From the WSJ: Italy Passes Budget; Berlusconi Resigns

Italian Prime Minister Silvio Berlusconi resigned on Saturday , the country's president's office said, paving the way for the formation of an interim government tasked with pulling Italy from the grip of the European debt crisis.
...
The move came after Parliament passed key economic measures that preface a much tougher round of austerity likely to be carried out under the emergency administration.

From the NY Times: Berlusconi’s Resignation Ends a 17-Year Era for Italy

The front-runner to guide a new government appears to be Mario Monti, 68, a former European commissioner and a well-respected economist with close ties to European Union officials. On Wednesday, Mr. Napolitano named Mr. Monti a senator for life, an unexpected move seen as a prelude to receiving the mandate to form a government.

In a sign of intense deal-making ahead of a delicate political transition, Mr. Monti met with Mr. Berlusconi and two of his close advisers on Saturday at the prime minister’s office.

And the beatings will continue until morale improves ...