Archive for January, 2010|Monthly archive page

Top 10 Nordic Stocks

In Financial Markets, National Economic Politics on 30.01.10 at 14:53

The technical analysts at presents an updated list of the top 10 Nordic stocks at the moment. Four of them are Swedish.

OMX Nasdaq Stockholm

According the Norwegian analysts this is the best Nordic investment opportunities in the months to come.

The list is created on basis of Investtech’s own technical analysis system and with a time frame between one and six months. (Medium Term).

Here’s the list:

1. Vostok Nafta, investment company, Sweden.

(“The share is testing support at SEK 32 and should signal a further rise. The price has fallen slightly, but an increase is indicated.”)

2. Alliance Oil Company, oil company, Sweden.

(“The share is in a rising trend and is testing support at SEK 110, this can lead to an upwards reaction.”)

3. DSV, transport, Denmark.

(“Rising trend, testing support at DKK 93.”)

4. Unibet Group, online gambling, Sweden.

(“Have met resistance at SEK 197 kroner, but are now signaling a rise to 220 or more.”)

5. New Wave Group, branding, Sweden.

6. Frontline, shipping, Norway.

7. Aker, industrial conglomerate, Norway.

8. Konecranes, industry supplier, Finland.

9.Outotec, mineral- and metal techniques, Finland.

10. RCCL, ship cruise, Norway.

The Nordic Markets:

Oslo Stock Exchange

Nasdaq OMX Stockholm

Nasdaq OMX Copenhagen

Nasdaq OMX Helsinki

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"The Houdini Recovery"

In Financial Markets, National Economic Politics, Views, commentaries and opinions on 30.01.10 at 13:49

Gross domestic product grew at a 5.7 percent annual rate from October through December, more than anticipated and the strongest performance since the third quarter of 2003, figures from the Commerce Department Friday showed. But the amazing recovery in the U.S economic activity might also be the greatest illusion ever, and makes David Copperfield look like an amateur.

“It is hard to believe that productivity at this time is growing at a pace that is four times the historical norm.”

David Rosenberg

Consumer spending rose at a 2 percent pace after increasing 2.8 percent the previous three months, reflecting a slowdown in auto sales, Bloomberg News reports. Excluding autos, consumer spending increased at a 3 percent rate last quarter, the most in three years, indicating the biggest part of the economy was gaining speed.

“The increase is being fueled by growing incomes rather than a decrease in savings, signaling household purchases can keep expanding in coming months.”

Obviously, there are several ways to look av the GDP numbers. Here’s what chief economist David Rosenberg at Gluskin Sheff sees:

“First, the report was dominated by a huge inventory adjustment — not the onset of a new inventory cycle, but a transitory realignment of stocks to sales. Excluding the inventory contribution, GDP would have advanced at a much more tepid 2.2% QoQ annual rate, not really that much better than the soft 1.5% reading in the third quarter.”

“Second, it was a tad strange to have had inventories contribute half to the GDP tally, and at the same time see import growth cut in half last quarter. Normally, inventory adds are at least partly fuelled by purchases of foreign-made inputs. Not this time. Strip out inventories and the foreign trade sector, we see that domestic demand growth in the fourth quarter actually slowed to a paltry 1.7% annual rate from 2.3% in the third quarter.”

Recovery? What recovery?

Based on the economic simulations, demand growth with all the massive doses of fiscal and monetary stimulus should already be running in excess of a 10% annual rate.

So, the really interesting question is why it is that underlying demand conditions are still so benign more than two years after the greatest stimulus of all time.

“The answer is that this epic credit collapse is a pervasive drain on spending and very likely has another five years to play out”, David Rosenberg at Gluskin Sheff writes in a note to his clients.

“If you believe the GDP data — remember, there are more revisions to come — then you de facto must be of the view that productivity growth is soaring at over a 6% annual rate. No doubt productivity is rising — just look at the never-ending slate of layoff announcements. But we came off a cycle with no technological advance and no capital deepening, so it is hard to believe that productivity at this time is growing at a pace that is four times the historical norm. Sorry, but we’re not buyers of that view.”

“No matter how you slice it, the GDP numbers represented not just a rare but an unprecedented event, and as such, we are willing to treat the report with an entire saltshaker — a few grains won’t do.”

Here’s the full commentary from Mr. Rosenberg.

And here’s the other side of the coin – presented by Bloomberg News.

If you want to study the numbers for yourself, here’s the release from the U.S. authorities.

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U.S. GDP Grows Faster Than Expected

In International Econnomic Politics, National Economic Politics on 29.01.10 at 16:20

The U.S. economy grew at 5.7 percent annual rate in the fourth quarter, the highest rate of gross domestic product growth since 2003 and up from 2.2 percent in third quarter. The rise, which beats expectations, was driven by business inventories.

Gross domestic product, the broadest measure of economic activity, rose at a 5.7 percent annual rate in the fourth quarter, the Commerce Department said Friday. That is the highest pace of growth since 2003, and it constitutes strong proof that the recession reached its end earlier in 2009. It was also a surprisingly positive result, well above the 4.6 percent rate of GDP growth forecasters had expected.

But there remained reason to doubt how strong the economic recovery will be in 2010. The biggest component of the GDP growth was a steep drop in the pace at which businesses were cutting back on their inventories. Firms reduced their inventories by $33.5 billion in the fourth quarter, compared with $139 billion in the third. In the math of GDP, which attempts to capture the value of goods and services produced within U.S. borders, that added 3.4 percentage points to overall growth.

The down side is that inventories are unlikely to provide a similar boost to growth in future quarters. Now that companies are not cutting back on the goods on their warehouses and store shelves in large numbers, the way they were during the depths of the recession, inventories will not add much to growth in the coming quarters unless businesses decide they cut back too far during the downturn and decide to actively rebuild their inventories.

There was also a significant boost to growth from businesses investing again in equipment and software. They cut back dramatically on capital spending during the depths of the recession, and now such spending seems to be clawing back, rising at a 13.3 percent annual rate in the fourth quarter. That contributed 0.8 percentage points to overall growth.

American consumers also continued to increase their spending, at a 2 percent annual rate. Because personal consumption is the largest piece of overall economic activity, that was enough to add 1.4 percentage points to total GDP.

The Washington Post

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Norway Economic Update – "Partly Grim"

In Health and Environment, International Econnomic Politics, National Economic Politics on 29.01.10 at 03:04

The Norwegian Bureau of Statistics (SSB) released Thursday their latest update on the nations economy. According to SSB, Norway‘s economic health stabilized in the last three months of 2009, and the development has changed from “negative” to “neutral“. But the bureau states in their “Business tendency survey” that the prospects for producers of capital goods are “grim”.

“Norwegian industrial managers report a mixed development within manufacturing. Some sectors experienced an increase in demand due to higher consumption, while others suffered the consequences of a lack of new orders for ships, boats and oil platforms.”

Statistics Norway

According to the business tendency survey, the Norwegian manufacturing industry experienced a further decline in output and employment in the fourth quarter of 2009. However, the fall was not as strong as recorded in previous surveys. Improved conditions for producers of intermediate goods and consumer goods was the reason for this development. However, the recovery has not been sufficient to increase the demand for labour within these sectors, SSB writes.

The highlights are as follows:

* Expectations of improved demand for intermediate goods

* Grim prospects for producers of capital goods

* Higher production of consumer goods

Here’s a summary of the survey in English.

The Norwegian economic obstacles:

The historic economic barometer:

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Bernanke Reconfirmed

In Financial Markets, International Econnomic Politics, National Economic Politics on 29.01.10 at 01:26
Official portrait of Federal Reserve Chairman ...
Image via Wikipedia

Senate votes 70 to 30 to confirm Ben S. Bernanke to a second term as Federal Reserve chairman, the nation’s most powerful economic policymaker.

His nomination for four more years had become uncertain in the past week, as liberals and conservatives alike expressed new reservations about confirming a man who has presided over the worst economic downturn in generations.

Now that the Senate has confirmed him for a second term as chairman of the Federal Reserve, Ben Bernanke has, or ought to have, a very simple agenda: improve confidence. This isn’t his job alone, of course. President Obama and Treasury Secretary Timothy Geithner are hardly bit players. But what Bernanke does and says — how he projects himself and the Fed — matters a great deal, and he faces an exacting challenge.

There is a supposition among academic economists (the tribe from which Bernanke comes) that “economic policy” consists of making decisions about interest rates, taxes, government spending and regulations that translate, almost mechanically, into actions by firms and consumers to hire or fire, spend or save, invest or hoard. By now, Bernanke surely recognizes that this economic model is at best a half-truth.

The famous British economist John Maynard Keynes (1883-1946) coined the phrase “animal spirits.” Less elegantly, we say “emotions.” Whatever the vocabulary, the lesson is the same: Psychology matters. Booms proceed from overconfidence; busts inspire great fear. Recoveries require increasing optimism. Otherwise, despondent consumers confine buying to necessities, and businesses delay hiring and expansion.


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"Geithnergate" Is A Reality

In Financial Markets, International Econnomic Politics, National Economic Politics on 28.01.10 at 07:23

The scandal surrounding Federal Reserve New York and now Treasury Secretary Timothy Geithner has now reached porpotions that might be equal the Watergater scandal in the 70’s that led to president Nixon‘s resignation. The latest report from SIGTARP concludes that someone is lying, and that federal laws was violated in the process of bailing out AIG.

“The Backdoor Bailout”

“In times when the truth is so valuable, it has to be protected with a bodyguard of lies.”

(Winston Churchill)

The Conclusion

Here’s the full statement.

And there you are; signed, sealed, delivered…

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Fear Of Norwegian Housing Market Collapse

In Financial Markets, National Economic Politics, Views, commentaries and opinions on 27.01.10 at 21:42

The Norwegian Central Bank Chief, Svein Gjedrem, issue another strong warning against the bubbling Norwegian housing market.   “House prices can fall considerably over only a few years,” Mr. Gjedrem said in a speech in Oslo Wednesday. He also warns against the national banks strong dependency on short term funding.

“I think it is fair to say that housing finance in Norway is in its infancy. There is a large proportion of adjustable-rate loans. And last, but not least, banks finance their housing loans by means of short-term asset swaps in foreign markets. This is not a sustainable solution.”

Svein Gjedrem

(Full transcript of the speech in English)

After the Second World War, the credit market in Norway was regulated. Credit demand was high. The Norwegian state endeavoured to steer credit flows towards priority sectors and the state banks therefore played an important role as credit intermediaries.

From state to private housing finance

There were considerable housing shortages after the war. For some population groups, living conditions were poor. In 1946, the Norwegian State Housing Bank was established to provide credit for new residential construction. This bank and Statens Landbruksbank (the state agricultural bank) dominated housing finance for new house purchases up to the 1980s. State bank mortgage rates were initially set based on political objectives, but were over the years gradually revised up and adjusted to market rates.

With the gradual deregulation of the credit market in the 1980s, state lending institutions assumed a lesser role in housing finance and the private market took over. Sales of existing homes increased. In 1992 private banks provided the majority of residential mortgages. Their share of housing finance was also high compared with other Nordic countries. In Denmark and Sweden, mortgage institutions were the primary source of residential mortgages. Even though their importance has been reduced in recent years, mortgage companies still provide most residential mortgages.

With the predominance of mortgage companies, fixed-rate mortgages have been a tradition in Denmark and Sweden. This has not been the case for Norway. Mortgages from the State Housing Bank were primarily adjustable-rate loans. After credit market liberalisation, adjustable-rate mortgages were also offered by banks. The supply of fixed-rate mortgages was limited. Fixed-rate loans are less common in Norway than in the other Nordic countries.

From the 1980s to the 1990s, the Norwegian economy moved from high to low inflation with, until recently, falling nominal long-term interest rates. Borrowers with fixed-rate mortgages fared poorly in this period, and even more poorly than maturity or mortgage insurance premiums alone would imply. But with a clear monetary policy objective to keep inflation low and stable – and with an independent central bank tasked with achieving this objective – the result would be different. The high inflation expectations that were built into long-term interest rates no longer exist and a further marked fall does not seem likely, nor for that matter does any substantial inflation-driven increase in long-term rates. Purchasing a home is a long-term investment. A fixed-rate mortgage reduces borrowers’ uncertainty about expenses over the life of the loan.

Longer-term financing in banks

Banks play an important role in the economy. Their task is to convert short-term deposits into long-term loans. In times of crisis, fulfilment of this task is put to the test. A century ago, depositors could lose confidence in the banks and rush to withdraw their savings. However, deposits stabilised when guarantee schemes were established in the 1930s.

Loans to households make up a third of banks’ assets. Residential mortgage loans are long-term loans. At the same time, funding for Norwegian banks has changed. Market funding has assumed a more important role. In recent years, both short-term market funding and funding in foreign currency have grown in Norwegian banks. Banks have increasingly transformed short-term deposits from international money markets into long-term domestic lending. This is the main reason for the strain on liquidity experienced by Norwegian banks when foreign funding came to a halt in 2008. For Norwegian banks, the financial crisis has primarily been a liquidity crisis and not a solvency crisis.

The authorities all over the world are currently reviewing the regulation of banks’ liquidity. The Basel Committee on Banking Supervision presented recommendations on quantitative liquidity requirements in December 2009. The UK, Switzerland and New Zealand have introduced, or are in the process of introducing, stricter rules. Norwegian banks must also expect the regulation of liquidity to be more stringent in the future. It will be more difficult to base housing finance on short-term funding. Issuing covered bonds may be an alternative. The collateral pool for covered bonds may comprise residential mortgages or mortgages for holiday homes with a loan-to-value ratio (LTV) of up to 75 per cent, commercial property mortgages with an LTV of up to 60 per cent or loans to public sector entities with an LTV ratio of up to 100 per cent. These instruments are highly collateralised, carrying lower risk premiums than ordinary bank bonds, and are well suited to pension fund investment and other investments with a long-term horizon.

According to the rules for the issue of covered bonds, the value of the cover pool is required at all times to exceed the value of the covered bonds. Both assets and liabilities are to be recorded at estimated market value. This implies that a mortgage company must add further collateral to the cover pool, for example in the form of government bonds, to replace any shortfall.

An efficient bond market can handle large trading volumes without substantially affecting prices. Such a market requires instruments that are easy to understand and clear regulation. Trading should be transparent. Ideally, there should be multiple independent bidders and askers and trading volumes should be high in primary and secondary markets.

Issues of covered bonds have picked up in Norway since the regulations relating to covered bonds entered into force on 1 June 2007, supported since autumn 2009 by the arrangement for the exchange of government bonds for covered bonds.

To facilitate banks’ access to borrowing from Norges Bank during the period of financial turbulence, collateral requirements for loans were temporarily eased. In October 2009, it was announced that the temporary rules for collateral requirements would be changed. Acceptance of new securities eligible under the temporary rules was discontinued in October. Securities already approved under the temporary rules would be eligible as collateral until maturity, or at the latest until 15 February 2012.

Changes in the so-called bank quota were also announced. Under the current rules, up to 35 per cent of a bank’s borrowing facility can be based on collateral in bonds issued by other Norwegian banks. Debt instruments issued by foreign banks will be included in the bank quota as from 1 December 2010. Securities issued by banks will no longer be eligible as collateral for loans as from 15 February 2012.

Covered bonds will still be eligible as collateral, including, until further notice, bonds to which no credit rating has been assigned and bonds issued by a bank’s own mortgage company. This is expected to contribute to the development of the Norwegian covered bond market.

The housing market – a source of disturbances in the economy

Banks have had strong incentives to extend credit for house purchases. Even during the banking crisis around 1990, Norwegian banks’ losses on residential mortgages were low. This is reflected in the low risk weights for residential mortgages in banks’ risk models. For an individual bank, residential mortgages are low-risk loans. However, market fluctuations, accompanied by shifts in saving behaviour, are nonetheless a source of business cycle fluctuations and substantial losses when banks have to write off loans to firms selling goods and services to households.

With low risk weights for residential mortgages, banks can lend extensively, operating with a substantially reduced equity ratio. As a result, banks are more vulnerable to disturbances in funding markets. Thus, low risk weights for residential mortgages also lead to higher liquidity risk in our banking system.

A high level of tax incentives for house ownership and a large volume of adjustable-rate mortgages contribute to wide fluctuations in activity and prices in the Norwegian housing market. [1] The rise in house prices over the past two decades has also been very strong compared with countries where housing bubbles have burst.

We have been through the longest period of uninterrupted house price inflation. In real terms, house prices in Norway have tripled since the trough in 1992. House prices fell in 2007 and 2008, but have picked up again and have, in nominal terms, surpassed the summer 2007 peak.

Norwegian household debt is high compared with households in other countries. The number of residential mortgages with a high loan-to-value ratio, i.e. above 80 per cent, has also increased.

Periods of sharply rising house prices have historically been followed by periods of declining prices. House prices can fall considerably over only a few years. Loan-to-value ratios will then increase. Mortgage companies should therefore take housing market fluctuations into account when issuing covered bonds.


I think it is fair to say that housing finance in Norway is in its infancy. There is a large proportion of adjustable-rate loans. Fixed-rate loans offered in Norway are less customer-friendly than, for example, in Denmark, where it is less expensive to cancel a fixed-rate mortgage and where there is a secondary market, providing risk diversification. Mortgage companies have a limited role in housing finance. Loan-to-value ratios are in some cases alarmingly high. And last, but not least, banks finance their housing loans by means of short-term asset swaps in foreign markets. This is not a sustainable solution. I hope that this forum can contribute towards the development of a better foundation for housing finance in Norway.


1. See Van den Noord, Paul (2005): “Tax Incentives and House Price Volatility in the Euro Area: Theory and Evidence”, Économie Internationale 101, pp.29-45. This paper shows that house price volatility is higher in countries where tax regimes favour owner-occupied housing. See also IMF (2004): World Economic Outlook, September, p.81, where house price volatility is higher is countries where adjustable-rate mortgages are common.

By Svein Gjedrem

Governor at Central Bank of Norway


And here’s the charts.

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May Never See A Recovery

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 27.01.10 at 17:54

Sales of newly built U.S. single-family homes fell unexpectedly in December, data from the Commerce Department showed Wednesday. Sales fell 7.6 percent to a 342,000 unit annual rate from an upwardly revised 370,000 units in November. It was the second straight month that new home sales declined.

“It could take up to a decade for many homeowners to regain equity in their homes, while some people in the hardest-hit regions of the country may not see a recovery during their lifetime.”

Brent T. White

(Article in English, link to press release)

Analysts polled by Reuters had expected new home sales to increase to a 370,000 unit annual pace from November’s previously reported 355,000 units.

New home sales for the whole of 2009 fell 22.9 percent to a record low 374,000 units, the department said.

The latest indication that the government-led housing recovery might be losing some steam.

The housing market recovery is showing some signs of fatigue after a surge in sales as first-time buyers rushed to take advantage of a popular tax credit, which had been scheduled to expire in November.

It has since been expanded and extended until June this year and while analysts expect home sales to pick up as a result, they reckon the pace will not be as strong as witnessed with the initial tax credit.

The housing market was the main catalyst of the most painful downturn in 70 years and renewed weakness could hobble the economic recovery.

The number of new homes on the market last month dropped 1.7 percent to 231,000 units, the lowest level since April 1971. However, December’s weak sales pace left the supply of homes available for sale at 8.1 months’ worth, the highest since June 2009, from 7.6 months in November.

May Never See a Recovery

Even as the housing market shows signs of improvement, including in new data released Tuesday, economists warn that it could take up to a decade for many homeowners to regain equity in their homes, while some people in the hardest-hit regions of the country may not see a recovery during their lifetime.

“What are we going to do down the road when people who should have been saving for retirement, or college funds, are spending that money instead staying current on their underwater home?” says Brent T. White, a University of Arizona law school professor who has studied underwater borrowers.

“We’re just not convinced that the housing market can stand on its own two feet without the fiscal support of the tax credit,” says Paul Dales, an economist for Capital Economics, a research firm.

“There is no clear sign of a sustained, broad-based recovery,” says David Blitzer, chairman of S&P’s index committee.

Even after the housing market stabilizes, it will take years for some owners to see the value of their homes appreciate. About 25 percent of homeowners owe more than their home is worth, according to data from First American CoreLogic, a research firm.

While it has historically taken five to 10 years for home prices to regain losses after a major downturn, analysts says, it is likely to take much longer this time, particularly in parts of the country that have seen the steepest declines.

“In California, Florida, in the ground-zero zones, it could take 15 years to fully recover,” says Lawrence Yun, chief economist for the National Association of Realtors.

Press Release.


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