The Big Picture

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• Hamburg Crisis of 1799 and How Extreme Winter Weather Still Disrupts the Economy
• A History of Executive Orders
• 10 Monday PM Reads
• In Stock Market, Anxiety Can Be Good Thing
• 10 Monday AM Reads
• Why should investors care about geopolitics?
• Private Equity: The Numbers
• Auction: $38 Million Ferrari 250 GTO

Hamburg Crisis of 1799 and How Extreme Winter Weather Still Disrupts the Economy Posted: 19 Aug 2014 02:00 AM PDT Crisis Chronicles: The Hamburg Crisis of 1799 and How Extreme Winter Weather Still Disrupts the Economy James Narron, David Skeie, and Don Morgan Liberty Street Economics     With intermittent war raging across much of Western Europe near the end of the eighteenth century, by about 1795, Hamburg had replaced Amsterdam as an important hub for commodities trade. And from 1795 to 1799, Hamburg boomed. Prices for goods increased, the harbor was full, and warehouses were bulging. But when a harsh winter iced over the harbor, excess demand and speculation drove up prices. By spring, demand proved lower than supply, and prices started falling, credit tightened, and the decline in prices accelerated. So when a ship bound for Hamburg laden with gold sunk off the coast, an act meant to avert a crisis failed to do so. In this issue of Crisis Chronicles, we use some diverse sources from the American Machinist and Mary Lindemann's Patriots and Paupers to explore the Hamburg crisis of 1799 and describe how harsh winter weather still impacts the economy today. Hamburg Booms and Busts The occupation of Holland by France in 1795 triggered a sudden shift in the continental trade from Amsterdam to Hamburg. So as commodities flowed from the Americas and West Indies, Hamburg served as the new gateway to Europe. But the sudden shift of activity to Hamburg was accompanied by speculation, a rise in prices, and an expansion of credit. Cheap housing was replaced with warehouses, rents increased, and merchants reaped the profits from a war-torn Europe. But the summer of 1798 was dry, and the autumn wheat harvest was poor. And the winter of 1798-99 was one of harshest on record, setting in early, immobilizing ships, and hampering the transfer of goods from ship to shore. As speculation further drove up prices, consumption decreased, and by spring, supply greatly outstripped demand and prices fell. Bills of exchange, which had previously expanded, now contracted, sales fell, and prices plummeted. By August 1799, the crisis had begun in earnest with Hamburg in the grips of a violent commercial contraction. Sinking of the HMS Lutine Furthers Financial Crisis In response to the severe liquidity strains, England agreed to ship about 1.2 million pounds in specie to Hamburg aboard the frigate HMS Lutine to help avert the crisis. But on October 9, 1799, the Lutine sank in a gale off the coast of Holland, leaving just one survivor. The seas were so rough in the following weeks and months that the specie coin could not be recovered, and the crisis continued unabated. Between August and November, eighty-two banking houses failed and more than 150 firms were declared insolvent, with the crisis spreading to other trade centers like Bremen and Frankfurt. While the crisis was shocking in the short term, there were few lasting problems. The Lutine's cargo was insured by Lloyd's of London, and while Lloyd's found some of the Lutine's gold and its bell in the 1850s, the bulk of the treasure still lies buried off the coast. Today, the Lutine's bell can be found at Lloyd's headquarters in London, where it is occasionally used for ceremonial purposes. Extreme Winter Weather Causes Widespread Disruption for U.S. Economy In April, the U.S. Department of Commerce's Bureau of Economic Analysis estimated 2014:Q1 GDP growth of 0.1 percent, then later revised that estimate to a nearly 3 percent contraction, down from an increase of 2.6 percent in the previous quarter. But rather than signaling a persistent downturn in the U.S. economy, most economists expect the decline to be transitory and attribute it to the extreme winter weather that blanketed much of the country from early December to mid-March. This was the first contraction of the U.S. economy since 2011:Q1, but the contraction was more severe than the last. Corporate profits fell almost 15 percent, and exports fell nearly 10 percent. Contending with storms such as the polar vortex that struck much of the eastern half of the country in early January 2014, many factories in the Midwest, Northeast, and Southeast were closed, transportation links were frozen, and inventories were decreased. But severe winter weather is only part of the story. Some estimates put the impact of the winter weather at about 1.5 percent of the 2.9 percent contraction. San Francisco Fed Research Advisor Rob Valletta notes in a Fed Views article that the decline may be transitory. But while some of the remaining factors, such as consumer spending, have rebounded, the housing recovery remains a concern. Our colleagues at the Cleveland Fed have conducted research that suggests that, in addition to the increase in mortgage rates and some tightening of lending standards, the severe winter weather affected residential investment as well. They also suggest that a return to normal weather should allow for some rebound in residential investment. So the next time harsh winter weather sets in, whether it's in Hamburg or Pittsburgh, remember that it might impact the local or regional economy. But tell us what you think. How much are the winter storms to blame for the contraction in the first quarter? As 2014:Q2 GDP growth estimates are also being revised somewhat downward recently, is the underlying economy lagging or are we rebounding from the harsh winter weather? Disclaimer The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors. James Narron is a senior vice president and cash product manager at the Federal Reserve Bank of San Francisco. At the time this post was written, David Skeie was a senior financial economist in the Federal Reserve Bank of New York's Research and Statistics Group. He is now an assistant professor of finance at Mays Business School, Texas A&M University. Don Morgan is an assistant vice president in the Bank's Research and Statistics Group.

A History of Executive Orders Posted: 18 Aug 2014 04:30 PM PDT Source: WonkBlog

10 Monday PM Reads Posted: 18 Aug 2014 01:30 PM PDT My afternoon train reads: • When “Process” Meets the Real World (Reformed Broker) • Housing Affordability Hits Six-Year Low (Real Time Economics) see also Why Housing Isn’t As Cheap As It Looks (Real Time Economics) • The leverage clock tolls for thee (FT Alphaville) • The great exodus out of China (WSJ) • 60:30:10 is the New 80/20 Rule (LinkedIn) • We Now Know A Lot More About Edward Snowden’s Epic Heist — And It’s Troubling (Business Insider) • The fantasy of Middle Eastern moderates (Washington Post) • The Happiest Regions In America (Priceonomics) • Today Let’s Blow Up the NCAA (Bloomberg View) • How the Creator of ‘Jaws’ Became the Shark’s Greatest Defender (Narratively) see also Township in Solomon Islands Is 1st in Pacific to Relocate Due to Climate Change (Scientific American) What are you reading?     Investors Rethink Bets on Europe Shares Source: WSJ

In Stock Market, Anxiety Can Be Good Thing Posted: 18 Aug 2014 09:30 AM PDT Source: WSJ

10 Monday AM Reads Posted: 18 Aug 2014 06:30 AM PDT It’s time to start your week off right with our hand-selected artisanal reads: (continues here): • Federated Investors: Get Ready for S&P 2500 (Barron’s) versus Spuds Powell, Master of Disaster (Barron’s) • Secular Stagnation: Facts, Causes and Cures (Vox EU) • The Mystery of Lofty Stock Market Elevations (NYT) but see Under What Circumstances Should You Worry That the Stock Market Is “Too High” (Washington Center for Equitable Growth) • An Honest Stock Market Update (Motley Fool) Continues here

Why should investors care about geopolitics? Posted: 18 Aug 2014 05:45 AM PDT One of the concerns for investors is how markets keep powering higher despite all of the geopolitical turmoil: The grinding Syrian civil war that has spilled into Iraq, the clash between Israel and Gaza, the Crimea annexation and now the confrontation between Russia and Ukraine. That thinking gets the issue precisely backward. The proper question to ask is, "Why should investors care about geopolitics?" That may seem counterintuitive, but if you delve into history, you will discover that markets have more or less found the normal turmoil of geopolitics to be irrelevant. The reasons for this are varied, but consider these factors: Continues here

Private Equity: The Numbers Posted: 18 Aug 2014 04:00 AM PDT Barron’s notes that Q3 2014 has been good to Private Equity firms: $50 billion: U.S. private-equity fund raising in the second quarter, a near doubling from the first quarter -3%: sequential decline in total equity financing for U.S. leveraged buyouts $440 billion: callable capital reserves, or “dry powder,” rose to this level sequentially -21%: decrease in exit volume in the quarter Source: Private Equity Growth Capital Council

Auction: $38 Million Ferrari 250 GTO Posted: 18 Aug 2014 03:00 AM PDT A Ferrari 250 GTO becomes the most expensive car ever sold at an auction at a sale in Pebble Beach, California. Aug. 14, 2014

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