May 092014
 May 9, 2014  Posted by at 3:46 pm Finance

Ben Shahn Urbana, Ohio August 1938

We’re not doing very well overall, are we? We’re always busy chasing something, but we don’t know what it is we’re chasing, and we don’t even know why we’re doing it. Ask anyone and they’ll tell you what they really want is to be happy, but you just know they don’t know how to get there. So they all grab onto stuff, material things, which are much easier to handle than some non-tangible idea or ideal, but exactly because material things are so much easier, they don’t make them happy. One wooden toy under a Christmas tree 100 years ago made a kid then happier than 25 plastic toys do today, and it’s no wonder, and we all sort of understand why that is, but we don’t stop to reflect on it.

We all have dozens of shirts and pants and shoes in our closets, but we still keep on buying more because of that happiness thing we can’t figure out. We’re all fully invested in placebo’s. Which is why it shouldn’t be a surprise that we cling to an economic model based on eternal growth, because that’s the same principle: chasing something that you can’t name or define or attain. All we need to do then is to invent the right storyline, much of it subliminal. We’ve built our lives around advertisements that tell our subconsciousness that buying X,Y and Z will make us happy. Works like a charm, except that it doesn’t work. We do the buying, but it leaves us wanting to come back for more. Never satisfied, never happy. The sytem would collapse if we ever were.

In that sense, maybe it’s not such a bad idea that the present crisis will leave most of us a lot poorer off. The problem with that, though, is the system is built on us buying X,Y and Z, so if we don’t, we won’t get the things we really need either anymore, like health care and schooling. It’ll all fall apart unless we keep buying things, lots of things, that we don’t need, things that can’t make us happy. We’re all sort of smart enough to see how it works, but we don’t seem to be smart enough to change it around. Which of course has to do with the fact that those of us who are in positions of power stand to lose more than those who don’t, and therefore the first ideas and actions that do come through will always focus on changing it all from within, no matter how rotten to the core ‘within’ has become.

But even that we can understand. What’s much harder is to not blame others, but ourselves. That’s where our intelligence seems to fail us, every time and every step of the way. The National Journal writes “Americans Actually Think They Can Do Something About the Environment“, and the author gives an example: “Of course, acting to protect the environment could be as simple as recycling a plastic bottle.” Look, if you really think that, then whatever else happens, it’s not going to be simple. Because you don’t understand. And perhaps you should wonder why you don’t.

Everyone can understand that driving your car wherever you go, and picking up groceries which have come from thousands of miles away and which are chockfull of preservatives and wrapped in triple layers of plastic, and so on, and so on, is not a smart idea down the line. And it makes it absurd to think you’re protecting the environment by recycling a plastic bottle. That’s plain and simply lying to yourself. However dense you are, not using plastic bottles to begin with seems an obvious choice. But even better would be to examine your propensity to lie to yourself. If there’s one quality that makes us human it’s lying. If we would make that realization part of what we see when we look in mirror – as most of us do every morning – we would make a huge step ahead.

Yes, we’re surrounded by ads that promise our animal brains happiness and make us buy things that don’t make us happy even for a fleeting moment, and we’re ruled by a political class that’s turned lying into an art form, but the reason we fall for all that is that we lie to ourselves as much as they lie to us. It’s what disables our BS detector. Telling ourselves that we protect the environment by recycling a plastic bottle is no different from buying things just like that bottle because some ad has promised our subconscious that it’ll make us happy. It’s the exact same BS. It’s us refusing to use our brains because doing so might make us feel less happy in the short term. It’s not so much like we don’t have the brains, but that we either don’t know how to use them, or refuse to.

In our societies, whatever makes the most money is most admired. When someone invents and markets a new gadget or service that people never knew they needed, we call that progress. When stock exchanges rise, that’s “good”. When they fall, it’s “bad”. No matter what such a rise or fall implies, what it means to our happiness, our environment, our children. Up is good and down is bad. If the stocks of a company rise that is highly polluting, or that takes a lot of jobs away from a community, that is still considered good in the greater scheme of things. Whereas perhaps labels such as ‘good’ and ‘progress’ should be reserved for things that enhance our happiness, not the 25 plastic toys under a plastic Christmas tree placebo we have substituted for it.

Still, we all know stocks can’t rise forever, but we let the ‘good’ label cheer us up when we see it. In that same vein, we have a financial system that’s long since gone under, but we’re not doing anything to resuscitate it. We’re keeping it undead by plunging our future income into the vaults of institutions that should have been forced to default and restructure, just so their highrises can keep their lights on at night and we can feel comforted. We let money enter our political systems, and our representatives be bought by it, and the only possible outcome is a one dollar one vote system which inevitably leads to the most important decisions being taken by those we vote for, to be violating our interests. Because our interests are not the same as those of our representatives, let alone the campaign financiers they serve.

And it’s not like we don’t have the brains, or at least I think we do, it’s that we don’t want to be critical of ourselves when we look in the mirror in the morning. Which would seem such an easy thing to do. Well, unless we’re really already quite unhappy with ourselves, that would maybe make it harder. But if we don’t, here’s how things will go. Bloomberg reports today that Wall Street and Big Oil are hell-bent on using more energy, not less. That’s the eternal growth model, that’s makes makes rising markets ‘good’. The part about it that is supposed to make us ‘happier’ is that it’s a different form of energy:”Cleanest Fossil Fuel is Wall Street Bet on Climate Change“. So when climate change sets in for real: “The potential for hotter summers and colder winters will raise energy demand, and that suggests higher gas prices. [..] “Weather extremes are good for the energy business. More energy use, better for the earnings.”. Our economic system in a nutshell.

In other words, energy companies have an strong incentive to burn more energy and increase CO2 levels: it’ll increase the demand for energy that will then increase CO2 levels more. Rinse and repeat. If we accept, subliminally or fully awake, that rising stock markets are ‘good’, then we accept that energy companies, which are a big part of those markets, keep their business going by burning ever more energy. Not the same, but more, or they can’t grow, and if they can’t grow, they die. The Red Queen is the perfect metaphor for how we’ve organized our entire economies and indeed our societies. Our societies have been reduced to economies, and we have been reduced to consumers. Who run to stand still. Hey, keeps us fit, right?

To keep the notions alive that all growth is good, and more is better all the time every time, we need to both lie to ourselves – because we know that just ain’t so – and to accept that in our name our – children’s – habitats are strangled to and beyond the point of suffocation. At some moment, maybe if the sun shines bright though our bathroom windows at dawn and we’ve slept what felt like the sleep of the just, and we are somewhat at ease with our mirror image, perhaps we should ask our reflection: are we happier than our parents, grandparents, great-grandparents? If not, given the amount of anti-depressants we take, they would have had to be very unhappy people, and really, where’s the proof of that? Be careful with your answer, you’re talking about your own blood.

We like to pride ourselves on our ability to adapt, but how far does that go? Adapt to the destruction we ourselves wrought? There are plenty of ‘techno-happies’ who think we are so superior that we can invent our way out of any trouble we’ve created, but there doesn’t seem to be a lot of evidence for that. Yes, we went to the moon, but not being able to go there was never a problem. And if you take the tech faith far enough, you’re talking about a world so full of pollution and so void of the species we used to share our planet with that most of that supposed superiority would have to go into cleaning up what we ourselves polluted, and rebuilding what we destroyed. How would that be considered progress though? It’s not like we’ve ever built anything anywhere close to an elephant or even a sunflower.

So why justify destroying them by claiming without proof that you can rebuild them? Or is the idea that we can live without all those millions of species that were here long before we were and that we condemned to annihilation? Just personally, I happen to like both sunflowers and elephants, but aside from that, without them we would likely never have developed the way we have – man didn’t appear from a vacuum, or a vacuum tube, though certain religious fanatics have an answer for that too. Creation. That makes me think of something quite on topic: if God made us in his own – mirror – image, does that mean he was/is as good at lying to himself as we are? And if that is so, what does that say about us, and what hopes do we have? All we are is what he is, right? Or did we maybe surpass God after he made us? Wait, that would be blasphemy, right?

I think we have the brain, or I should say the intelligence, but our brain consists of many more parts than just that intelligence, most of it is what we share with bacteria and amoeba and mice and sheep and elephants, the parts located more towards the back or our skulls. And it’s those shared parts of our brain that decide what we do and don’t, they react faster than intelligence or “reason” does. Our intelligence is therefore necessarily always late to the game, and we can use it only to justify our acts after the fact. That is, we lie. We’re smart enough to invent and do lots of things, but not how to be happy, because we’re not smart enough to understand who we are.

I think we can do better, but I don’t think we will.

Janet Yellen’s Bubble Bathtub Economics (David Stockman)

Some people are either born or nurtured into a time warp and never seem to escape. That’s Janet Yellen’s apparent problem with the “bathtub economics” of the 1960s neo-Keynesians. As has now been apparent for decades, the Great Inflation of the 1970s was a live fire drill that proved Keynesian activism doesn’t work. That particular historic trauma showed that “full employment” and “potential GDP” were imaginary figments from scribblers in Ivy League economics departments—not something that is targetable by the fiscal and monetary authorities or even measureable in a free market economy.

Even more crucially, the double digit inflation, faltering growth and repetitive boom and bust macro-cycles of the 1970s and early 1980s proved in spades that interventionist manipulations designed to achieve so-called “full-employment” actually did the opposite—that is, they only amplified economic instability and underperformance as the decade wore on. The irony is that the paternity of this real world proof came from the Yale economics department, which was inspired in the 1960s and 1970s by one of the most arrogant, wrong-headed Keynesians of modern times – Dr. James Tobin.

It was Tobin’s neo-Keynesian theories and activist role in the Kennedy-Johnson White House which gave rise to the Great Inflation and its destructive aftermath. Still, Professor Tobin could perhaps be forgiven for the original science experiment in full employment economics he helped author from his perch at 1600 Pennsylvania Avenue. After all, economics was just then enamored by newly invented large-scale math models of the US economy and their equations always generated beneficent results.

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Small caps are in real trouble. It’s a matter of time before they start infecting Wall Street.

Russell 2000: Small-Cap Stocks Send Bear-Market Signal (MarketWatch)

If you just pay attention to the Dow Jones Industrial Average, things look peachy. The index remains mired in a six-month long sideways channel but continues to trade near new all-time highs. However, small-cap stocks are giving off signs that should give investors pause. The bulls have all the justifications figured out. The weather is the blame for the recent economic slowdown, in which first-quarter GDP growth is on track to be revised to a -0.6% annualized growth rate according to Macroeconomic Advisors. Russian President Vladimir Putin is making diplomatic-sounding noises again on Ukraine. The first-quarter earnings season has been salvaged after a rough start.

And Federal Reserve chairman Janet Yellen is coming up with new and exciting excuses to keep short-term interest rates near 0% — where they’ve been going on six years now. But a quick glance over at the small caps in the Russell 2000 — which Janet Yellen in her testimony to the House of Representatives on Wednesday admitted were possibly trading at overvalued levels — suggests trouble. On Tuesday, the index closed below its 200-day moving average for the first time since 2012, ending an 18-month-long uptrend. This was a breakdown long in the making: There were no less than seven attempts over the last two weeks. The bulls simply couldn’t resist the selling pressure any longer.

The dichotomy is stark, and if history is any guide, it’s downright scary. In fact, the gap that has opened up between small and large stocks was last seen near the very top of the last two bear markets. According to Jason Goepfert of SentimenTrader, Tuesday was only the third time in 35 years of market history that the NYSE Composite was sitting at a 52-week high one day before the Russell 2000 dropped below both its 50- and 200-day moving averages the next day. The last two occurrences were 3/12/99 and 11/1/07. Moreover, small stocks aren’t the only area warning of trouble. Despite declarations that the economy is resurging after a harsh winter, U.S. Treasury bonds have been well bid — traditionally, a sign that the bond market is pricing in trouble. As a result, 10-year yields have dropped back to the 2.6% level, down from a high of 3.05% at the end of 2013.

The inevitable question becomes this: Is the overall market bubbly enough to justify a major turning point? I think it is. According to Citigroup research, the market stopped following the fundamentals in late 2012. That’s when bond-market spreads disconnected from the amount of borrowing companies were doing, and it’s when stocks stopped responding to earnings revisions. If bond investors no longer care about the creditworthiness of the companies they are giving their money to, and stock investors no longer care about the earning of the companies they are investing in, how is that anything other than a bubble?

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Farrell is always a good read.

10 Peaking Megabubbles Signal Impending Stock Crash (Paul B. Farrell)

Yes, “the bull market may come to an end any time,” warns Jeremy Grantham, founder of the $117 billion GMO investment giant. An unpredictable collapse. Risky valuations, 10 bubbles peaking, and black swan megatrends: The bull “could be derailed by disappointing global growth, profits sagging as deficits are cut, a Russian miscalculation, or, perhaps most dangerous and likely, an extreme Chinese slowdown.” Yes, Grantham’s hedging his near-term: Betting the S&P 500 could rally past 2,250 before the 2016 presidential election, “depending on what new ammunition the Fed can dig up.” But then, a black swan will ignite “around the election or soon after, the market bubble will burst” and “revert to its trend value, around half of its peak or worse.”

Yes half. The S&P 500 will collapse to about 1,125. This Fed-driven rally “will end badly.” Repeating the dot-com losses of 2000-2003. Repeating Wall Street’s $10 trillion losses in 2007-2009. Another GMO investment strategist, Edward Chancellor, is even more skeptical of all these explosive short-term risks. An expert in speculative bubble risks, Chancellor warns investors of a ticking time bomb. His team tracks market bubbles. They’re feeding off one another, gaining momentum, fusing, expanding into a dangerous critical mass that can trigger and ignite an S&P 500 explosion way before the 2016 elections.

“It is important for the Fed, as hard as it is, to try to detect asset bubbles when they are forming,” Fed boss Janet Yellen told the Senate last fall. Then two months ago, Yellen said she didn’t see any speculative “excesses,” that stocks were in line with “analysts estimates of future earnings.” Bad news, Chancellor warns, future earnings are a “notoriously unreliable measure of market value.” Besides, everyone knows the Fed is has big “trouble identifying bubbles.”

While the Fed hesitates, GMO is clear. Why? The formula is simple: “When an asset has moved two standard deviations from its long-term real price trend” the markets are in a bubble. That fits “the 1929 bubble, the Nifty-Fifty boom of the 1960s, and the dot-com mania in the late 1990s.” So Chancellor reviews the “typical features of asset bubbles” throughout history, concluding “most of the conditions under which earlier bubbles have appeared are present in the U.S. markets today,” including “the soaring performance of IPOs.” Long-term stock investors beware.

In short, despite Wall Street’s relentless happy talk and optimism, another crash is dead ahead. A crash that may be as devastating to America as the 1929 Crash, the Sixties Nifty-Fifty boom, the dot-com crash of 2000 preceding a 30-month recession, and $10 trillion market losses in the 2008 bank-credit collapse.

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Faber is always a good listen.

“The Economy Is Not Recovering At All” Warns Cash-Heavy Marc Faber (Zero Hedge)

Stocks in the advanced economies are basically fully priced,” Faber pronounces, and adds that, given their low yields, government bonds are also expensive. The true contrarian play is the “most under-appreciated asset – cash.”

Even though investors won’t earn any money and will actually lose money in the long-term because of Federal Reserve-induced dollar depreciation, Faber suggests that “for the next six months, maybe cash is the most attractive,” because the US economy is not recovering at all the way stocks are priced and what is more worrisome is the potential for a sudden eruption of inflation.

As we have noted numerous times, Faber blasts that despite the prices of everything going up, government statistics “are distorted by the ministry of truth” in order to enable more money printing by the central banks. Crucially, while we may not be seeing wage inflation in the US, that excess liquidity is squirting up everywhere around the world’s assets (and wages in China and India for instance), and the 2008 financial crisis could be just a precursor to a more severe economic fallout on the horizon.

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Hedge Funds Extend Their Slide (WSJ)

A bumpy trading environment is tripping up hedge funds. Big stumbles by some star managers drove hedge funds to back-to-back monthly declines for the first time in two years, according to researcher HFR Inc. The lackluster showing—the average hedge fund trailed benchmarks for both stocks and bonds in April—was a blow for an industry that charges more than other fund managers but pitches steady returns in both good times and bad. Hedge funds on average dropped 0.17% in April, HFR said Wednesday, following a 0.33% decline in March. Funds hadn’t turned in two consecutive losing months since April and May of 2012, HFR said.

That performance also trailed the broader stock market, where the S&P 500 rose 0.74% in April, including dividends. Many hedge funds, however, invest in markets other than stocks, and bet concurrently on some positions rising and others falling. Brad Balter, a Boston-based adviser who helps wealthy investors choose hedge funds, said his clients increasingly are weighing whether they should continue pouring money into these highly paid managers. “I’m not saying you should judge people in a single quarter, but there’s less rope for poor performance,” Mr. Balter said. He called the industry’s showing in recent years for the most part “mediocre.”

The latest industrywide figures come the same week a survey by the trade publication Institutional Investor’s Alpha showed that the top 25 highest-earning hedge-fund managers collectively made $21 billion in 2013, an increase of more than 50% over 2012. Most hedge funds charge some variation of the “2 and 20” model, in which the firm collects a 2% management fee and 20% of investment profits. Some of the biggest losers among fund managers in April were those who tried to ride last year’s big winners: tech stocks. Coatue Management, the $9 billion New York firm started by Philippe Laffont, a veteran of Julian Robertson’s Tiger Management, slid about 4% for its second consecutive month of losses due mostly to tech-related stocks, according to people familiar with its results. Coatue is now down almost 11% for the year, and has given back more than half of its gains from 2013.

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Maybe a retreat isn’t so bad. Who needs those big casino’s?

Barclays Investment Bank Cuts Mark Europeans’ Retreat (Bloomberg)

Barclays’s decision to shrink its investment bank shows how tighter rules and dwindling revenue are forcing Europe’s lenders to scale back operations and efforts to compete globally. In a break from his predecessor’s strategy to create a global securities operation, Barclays Chief Executive Officer Antony Jenkins said yesterday the lender will eliminate 7,000 jobs, a quarter of employees at the investment bank, shrink its fixed-income business and focus on fewer clients in the U.K. and U.S. The fixed-income market faces a structural rather than a cyclical decline and investment-banking revenue will be “weak for some time,” Jenkins told reporters.

“European banks haven’t had sufficient time to build capital, and investors and managers have become impatient,” said Paul Vrouwes, who helps oversee about 6 billion euros ($8.3 billion) at ING Investment Management in The Hague, including Barclays shares. “Banks are having to think about returns at the group level, and they are seeing a more promising environment in other areas.” Demand from regulators for larger capital buffers and dwindling volatility are curbing revenue from fixed-income trading in Europe. That’s forcing firms like Barclays and UBS to curtail their trading activities and boost their focus on other businesses, among them consumer banking and wealth management. Jenkins’s decision will leave Deutsche Bank as the biggest European investment bank by revenue.

Investors have rewarded lenders that have pledged to cut back: Barclays shares jumped 7.9% in London yesterday, their biggest gain in more than a year, and they extended their gain today, rising 1% to 265.15 pence as of 9:35 a.m. Before the announcement, Barclays was the worst-performing U.K. bank stock. Zurich-based UBS is up about 7.3% this year. Frankfurt-based Deutsche Bank is down 11%. “Barclays’s radical strategic reposition will put pressure on Deutsche Bank to re-examine its fixed-income trading business,” said Mark Williams, author of “Uncontrolled Risk,” a book on the rise and collapse of Lehman Brothers Holdings Inc., and executive-in-residence at Boston University. “Fixed-income trading historically has been its golden goose.”

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All Big Oil has left are “expensive, uneconomic projects”. Just don’t tell anyone.

Oil Industry Risks $1.1 Trillion of Investors’ Cash (Bloomberg)

Oil explorers like Exxon Mobil and Rosneft risk wasting $1.1 trillion of investors’ cash through 2025 on expensive, uneconomic projects from the Arctic and deep seas to tar sands, according to a study. That’s the sum the industry may spend on developments that need market prices of at least $95 a barrel to break even, the Carbon Tracker Initiative said. The money risks being wasted as the total amount of oil the world can afford to burn without warming the planet to unsafe levels is available from less costly deposits that are economical at $75 a barrel, according to its report.

Petroleo Brasileiro SA’s capital spending on projects needing $95 a barrel or more may reach $83 billion through 2025, with Exxon at $73 billion and Rosneft at $70 billion, Carbon Tracker said. The figures aren’t the companies’ own figures but were estimated by the non-profit group, whose backers include the Rockefeller Brothers Fund, Joseph Rowntree Charitable Trust and European Climate Foundation. Rosneft said consumption of so-called unconventional oil is forecast to rise as demand for energy increases and other sources are depleted. While recovery is a challenge, the resources represent the foundation for a “stable increase in company value for shareholders,” it said in an e-mailed reply to questions. Exxon and Petrobras weren’t immediately able to comment when contacted for reaction to the Carbon Tracker report.

The non-profit group said smaller companies have the bulk of the exposure as they tend to specialize in unconventional oil. “Investors should require the majors to demonstrate improved capital discipline, to deliver shareholder value, not just volume of production,” James Leaton, research director at Carbon Tracker, said by e-mail. “The oil majors will set the tone. If they move away from high-cost projects, then the market needs to question providing capital to other smaller players.” World governments aim to devise by the end of next year an agreement to ensure the global average temperature rise since industrialization began is capped at 2 degrees Celsius (3.6 degrees Fahrenheit). That would entail a maximum of a further 900 gigatons of carbon-dioxide emissions, of which 360 gigatons could come from burning oil, according to Carbon Tracker.

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Will he or won’t he?

Draghi Sets Clock Ticking for June Stimulus by ECB (Bloomberg)

Mario Draghi has given himself a month to craft a new fix to the European Central Bank’s deflation angst. Cutting the euro area’s benchmark interest rate to a record tops the list of options for the ECB President after he lined up fresh monetary stimulus for June. Other potential measures include charging banks to park cash at the institution, loaning them more cheap money and a fresh push to revive lending. Draghi’s declaration yesterday that officials are “comfortable” about taking further action if needed, and his increased irritation with a stronger euro, suggest he is giving up hope that an economic recovery will address the Japan-style deflation threat for him.

It also pushes the bank closer toward the quantitative-easing policy that it has long rebuffed but may still have to deploy if his worst-case scenario plays out. “The debate seems to be on what policy measures to take, and not on whether to take any at all,” said Elga Bartsch, chief European economist at Morgan Stanley in London. Draghi’s exasperation with low inflation prompted economists from Morgan Stanley to ABN Amro Bank NV to predict policy makers will cut their key rate to 0.10% from 0.25% when they convene on June 5 and have access to new staff economic forecasts.

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Not going well.

Is China Catching A Whiff Of Deflation? (CNBC)

China’s annual consumer inflation rose 1.8% in April, slower than March’s 2.4% rise, data on Friday showed. The reading was below expectations for a 2% rise in a Reuters poll. On a month-on-month basis CPI fell 0.3%, below expectations for a 0.1% decline. “It seems China is catching a whiff of that deflationary problem,” Yao Wei, China economist at Societe Generale told CNBC. “For an economy with a nominal GDP (gross domestic product) growing at 8%, this is an extremely low level of inflation, or rather deflation actually.

It seems that all these corrections that China needs to work on its debt are having an impact on the economy and we think its going to last, the low inflation or PPI (producer price) deflation,” she added. Producer prices fell 2.0% on year in April, below expectations for a 1.8% decline in a Reuters poll. “The chance of things [China’s growth deceleration] getting out of control has increased. One reason is that the property sector is really a wildcard; it’s not something that the government has complete control over. Secondly, we can see these new leaders, they want to do the right thing for the long run but they are struggling with how much short-term pain they are willing to tolerate, Yao said.
“I think over time, people will realize more and more that short-term pain is good for the long run, so we’re getting more growth deceleration,” she added.

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China Deflation Fears As Price Rises Slow Sharply (Telegraph)

Concerns that China could be slipping into deflation were sharpened on Friday as official figures showed annual inflation fell sharply in April to its lowest level in 18 months, raising concerns about the risk of deflation in the world’s second-largest economy. Annual inflation fell to 1.8% in April, its lowest in 18 months, the National Bureau of Statistics (NBS) said in a statement, down from a rise of 2.4% in March. It was the lowest increase since October 2012, when the statistic stood at 1.7%. The April figure was also well below the 3.5% annual inflation target set by Beijing and added to analyst worries that deflation could be looming as Chinese growth slows.

Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, but economists say falling prices encourage consumers to put off spending and companies to delay investment, both of which act as brakes on growth. The producer price index (PPI) – a measure of costs for goods at the factory gate – fell by 2% year-on-year in April, the NBS said in a separate statement, its 26th month of deflation, albeit less steep than its 2.3% decline in March. “As the PPI inflation remained negative for more than two years and the PPI is an important leading indicator for CPI, the risk of deflation is looming large on the horizon,” ANZ economists Liu Ligang and Zhou Hao said in a research note.

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All China all the way down.

Tumble in Fuel Sales Adds to Evidence of China Slowdown (Bloomberg)

Declining demand for ship fuel in Singapore, the merchant fleet’s biggest refueling hub, is signaling weakening prospects for a rebound in Chinese growth. Fuel oil for immediate delivery traded at the biggest discount to later supplies in 16 months on April 28, according to data from PVM Oil Associates Ltd. Sales of so-called bunker dropped for a third month in March, the longest retreat since November 2007, the latest Maritime and Port Authority data show. The discount in Singapore’s fuel market shows how growth in demand to ship goods in and out of the world’s second-biggest economy weakened this year.

While China’s trade volume unexpectedly rose last month, economists surveyed by Bloomberg anticipate the slowest annual economic growth in almost a quarter century. “Falling fuel-oil prices are a consistent reflection of a slowing Chinese economy,” Victor Shum, a vice president at IHS Energy Insight, a consultant in Singapore, said May 6. “I expect the fuel oil market to remain weak on sluggish bunker demand.” Front-month 380-centistoke fuel-oil swaps cost $3.25 a metric ton less than second-month contracts on April 28, the biggest discount since December 2012. While front-month swaps since rebounded to a premium of $1.75 as the contracts rolled into a new month, this year’s peak was $9.13 in January.

Sales of bunker in Singapore, which supplied fuel valued at about $26 billion last year, dropped to the lowest level since February 2013 in March, Maritime and Port Authority data show. The 2% decline in the first quarter was the biggest for the period since at least 2005. “Bunker volumes here are very low, as trade slows not only in China, but also in India,” Simon Neo, the executive director of Piroj International LLP, a Singapore-based broker, said April 28. Sales were previously “largely supported by Chinese trading activities,” said Neo, who was chairman of the International Bunker Industry Association until the end of March.

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Geithner in Book Says U.S. Considered Nationalizing Banks (Bloomberg)

Former Treasury Secretary Timothy F. Geithner said in his new book that members of the Obama administration “talked openly” about nationalizing banks such as Citigroup in the aftermath of the financial crisis, according to an article in the New York Times Magazine. Geithner disagreed when Lawrence Summers, then head of the White House’s National Economic Council, suggested to President Barack Obama that the administration “pre-emptively nationalize” banks including Citigroup and Bank of America Corp., or try to embarrass them into changing their pay structures, according to the Times. The article includes quotes from the book, “Stress Test: Reflections on Financial Crises,” and interviews with Geithner.

Geithner feared “fueling unrealistic expectations about our ability to eradicate extravagance in the financial industry,” he wrote in the book, to be published May 12. “I did not view Wall Street as a cabal of idiots or crooks,” Geithner wrote. “My jobs mostly exposed me to talented senior bankers, and selection bias probably gave me an impression that the U.S. financial sector was more capable and ethical than it really was.”

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The engine of Europe, you said?!

German Exports, Imports, Factory Orders Fall (Reuters)

German exports posted their biggest fall in nearly a year in March and imports also fell, narrowing the trade surplus in Europe’s largest economy and confirming that trade was a drag on growth at the start of 2014. Figures from the Federal Statistics Office showed seasonally-adjusted exports slipped 1.8% on the month, their second consecutive fall, and imports dipped 0.9%, pushing the trade surplus down to €14.8 billion. The consensus forecast in a Reuters poll of economists had been for shipments abroad to rise by 1% and for imports to increase by 0.5%. The seasonally adjusted trade balance compared with a surplus of €15.8 billion in February.

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But Merkel doesn’t agree.

German Lawmakers Decide To Quiz Snowden (Reuters)

German lawmakers decided on Thursday they want to question former U.S. intelligence contractor Edward Snowden as part of a parliamentary inquiry into the mass surveillance of German citizens, which he exposed. “A majority of the committee has decided that we want to hear Mr. Snowden,” said Roderich Kiesewetter, the conservative head of the committee set up to investigate the activities in Germany of the U.S. National Security Agency (NSA). It has not yet been decided whether Snowden, who was granted asylum in Russia, should be invited to testify in person about the NSA surveillance that has soured ties between Washington and Berlin. Snowden risks being arrested and extradited if he sets foot in any U.S.-allied country.

He was charged last year in the United States with theft of government property, unauthorized communication of national defense information and willful communication of classified intelligence to an unauthorized person. An option would be for him to testify from abroad but the German opposition argues that Snowden would only be able to express himself freely if he were in Germany. Angela Merkel’s conservatives have so far rejected this, fearing that bringing Snowden to Berlin could further damage relations with Washington which have suffered from revelations that U.S. spies had tapped the German chancellor’s own phone. The center-left Social Democrats (SPD), who share power with Merkel’s conservatives in a ‘grand coalition’, have said they are open to questioning Snowden in Germany or Russia.

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University Economics Teaching Is A $15,000 Lobotomy (Guardian)

“I don’t care who writes a nation’s laws – or crafts its treatises – if I can write its economics textbooks,” said Paul Samuelson. The Nobel prizewinner grasped that what was true of gadgets was also true for economies: he who produces the instruction manual defines how the object will be used, and to what ends. Samuelson’s axiom held good until the collapse of Lehman Brothers, which triggered both an economic crisis and a crisis in economics. In the six years since, the reputations of those high priests of capitalism, academic economists, have taken a battering.

The Queen herself asked why hardly any of them saw the crash coming, while the Bank of England’s Andy Haldane has noted how it rendered his colleagues’ enchantingly neat models as good as useless: “The economy in crisis behaved more like slime descending a warehouse wall than Newton’s pendulum.” And this week, economics students from Kolkata to Manchester have gone on the warpath demanding radical changes in what they’re taught. In a manifesto signed by 42 university economics associations from 19 countries, the students decry a “dramatic narrowing of the curriculum” that presents the economy “in a vacuum”. The result is that the generation next in line to run our economy, from Whitehall departments or corporate corner-offices, discuss policy without touching on “broader social impacts and moral implications of economic decisions”.

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There may still be hope.

Steve Keen New Head of School of Economics, Kingston University, London (Keen)

I have just accepted an offer to become Head of the School of Economics, History and Politics at Kingston University in London. I will take up the appointment in time for the Autumn term, which starts on September 23rd. Kingston will respond positively to calls from students for genuine reform of economics education – like those made by the Post-Crash Economics Society in Manchester, and the International Student Initiative for Pluralism in Economics (which was launched only days ago).

These student calls for genuine reform are timely, because though there are some initiatives for reform, academic economics has, if anything, become more hostile to criticism of the mainstream and to presentation of alternative perspectives than it was before the crisis. Kingston is different. It already has a curriculum that teaches both mainstream and non-orthodox approaches. We will develop this further in the coming years to provide an education that is mindful of the need for economics to be humble after its many failures.

These include not merely the failure of Neoclassical economics to foresee the financial crisis – and its contribution to that crisis by championing the financial products that made the crisis so severe – but also the failure of Marxian economics to foresee the many problems that led to the collapse of centrally planned economies two decades earlier. The guiding principles in developing Kingston’s approach will be, firstly, that there is no “right” school of economic thought today, so that all schools of thought deserve to be taught; and secondly, that nothing in economics is sacred, so that different approaches should be taught “warts and all” – with their weaknesses noted as well as their strengths.

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Cleanest Fossil Fuel is Wall Street Bet on Climate Change (Bloomberg)

Wall Street’s idea of investing in climate change means investors are piling into natural gas, the least polluting fossil fuel. Energy accounted for almost two-thirds of the $8 billion of inflows into sector-based exchange-traded funds this year, according to data compiled by Bloomberg. In the absence of federal mandates for renewables such as wind and solar, much of that money is going into funds that invest in natural gas drillers. The fuel that produces less pollution than coal and oil is the most obvious beneficiary of global warming, which a White House advisory panel said on May 6 is already blighting the U.S. with coastal flooding, heavier rainstorms and more intense wildfires. The potential for hotter summers and colder winters will raise energy demand, and that suggests higher gas prices.

“They’re predicting more weather extremes,” said Skip Aylesworth, who helps manage $5 billion at Hennessy Advisors in Boston, including its gas utility index fund. “Weather extremes are good for the energy business. More energy use, better for the earnings.” Climate change is proving to be a boon for energy investment. On the day the National Climate Assessment report was issued, the 44-company Standard & Poor’s Energy Index reached a record, and $322 million of cash flowed into exchange-traded funds that specialize in energy. As of yesterday, $5 billion had flowed into energy ETFs this year, 17 times more than in the final quarter of 2013. Energy took 63% of the net flow into all sector EFTs.

Natural gas companies also will be the first beneficiaries of President Barack Obama’s climate policy, which has consistently discouraged the use of coal without requiring renewables to be used as a substitute, said Stephen Smith, executive director of the Southern Alliance for Clean Energy in Knoxville, Tennessee. Bad weather was good to U.S. utilities in the first quarter. They beat earnings estimates after the coldest winter in three decades stoked demand for electricity and gas. Similarly, the rise in prices that accompanied stronger winter demand helped Chesapeake Energy, a gas producer, boost profit to $425 million from $58 million a year ago.

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Goldman’s an ordinary bookie.

Goldman Bets on Gang Members Staying Out of Jail (Bloomberg)

Goldman Sachs, which wagered more than $300 billion last year on things like yen rates and bond spreads, just laid down a bet that guys like Nelson “Johnny” Aguilar can stay out of jail. Aguilar was at a Dunkin’ Donuts near Boston on a Sunday night in March when a shooting outside left a 21-year-old man with a bullet wound to the gut, police said. They arrested Aguilar, a 19-year-old gang member with a criminal record and a tattoo that says “Life’s a Gamble.” Such crime-blotter moments are Goldman’s concern thanks to a financial product called a social-impact bond. Goldman is anchoring a $21 million plan to help a Boston-area nonprofit called Roca expand its efforts to steer young men like Aguilar away from dealing drugs, stealing cars or committing assaults and murders.

Under the deal, if men targeted by Roca spend 22% fewer days in jails and prisons than their peers, Massachusetts would save enough to repay Goldman’s $9 million loan. An even bigger drop in recidivism would hand Goldman as much as $1 million in profit. If Roca fails and too many men end up behind bars, Goldman will lose almost everything it ventured. “It’s not that different than if you were looking at any company” to invest in, said Andrea Phillips, vice president of Goldman’s Urban Investment Group, who leads the bank’s social-impact bond transactions. “You’re relying on a management team. You’re relying on their human capital, their folks who work at the plant and deliver and do what they’re supposed to do.”

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Anyone surprised?

Black Americans Left Behind as Civil Rights Milestone Nears (Bloomberg)

Half a century after the Civil Rights Act committed the federal government to narrowing the racial divide, black Americans are still being left behind. Blacks remain less likely to climb the income ladder and more likely to drop than whites, according to research published by the Federal Reserve Bank of Chicago last month. It also found that blacks will probably continue to suffer from lower mobility unless the causes of the disparities are addressed. Such stagnation isn’t just troubling in the framework of American history – it’s bad for the economy, said Richard Reeves, a fellow in economic studies at the Brookings Institution in Washington.

If blacks don’t have the opportunity to rise, income inequality will become more severe, labor markets more inefficient and welfare rolls more burdened. “It’s nice to look at Obama and the higher-profile African Americans who have done well, but the U.S. is very far from being a post-racial society,” Reeves said in an interview. “Crudely, we can’t afford to maintain such sharp divides in the life chances of black and white Americans.” Fissures persist since President Lyndon B. Johnson signed the Civil Rights Act on July 2, 1964, forbidding discrimination on the basis of race and sex in hiring, job advancement and firing as well as banning segregation in public accommodations.

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“Of course, acting to protect the environment could be as simple as recycling a plastic bottle”. Oh, really?

Americans Actually Think They Can Do Something About the Environment (NJ)

There’s a whole lot that Americans don’t think they can change. Most Americans don’t think they can do much to reduce taxes and government spending. More than half of Americans don’t think there’s much they can do to keep college affordable. Acting to protect privacy and Social Security benefits is a toss-up. But there is one issue that a large majority of Americans actually thinks it can influence: protecting the environment. According to a new Allstate/National Journal Heartland Monitor Poll, 78% of Americans think that the average citizen has “some” or a “great deal” of ability to make a difference on the environment through his or her own actions. That’s the highest for any issue polled.

It’s not like Americans aren’t worried about the state of the environment. It’s not just the actions the White House is currently taking on climate change, or this spring’s ultra-gloomy United Nations report. While Americans are split on whether the country is headed in the right or wrong direction on environmental protection according to the Heartland poll, Americans know that where we are right now isn’t right. In a recent Gallup Poll, two-thirds of Americans said that they personally worry about the quality of the environment a “great deal” or a “fair amount.”

Gallup also found that 48% of Americans think the U.S. government is doing too little to protect the environment (compared with 17% who think the government is doing too much), and that 56% of Americans personally worry a great deal or fair amount about global warming specifically. Of course, acting to protect the environment could be as simple as recycling a plastic bottle. Small, individual actions aren’t going to reverse climate change on their own. But when it’s so easy to get down on individual efficacy right now, and when it’s especially easy to look at climate change as this unstoppable, unsolvable behemoth, it’s at least a little heartening to see an area where so many Americans think they can actually make a difference.

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No comment needed.

Australia Doesn’t Need a Tea Party (Bloomberg)

America’s Tea Party might be excited to see that its tactics are being replicated as far away as Australia. Australian voters shouldn’t be. None other than failed U.S. presidential candidate Rick Santorum has congratulated Australian Prime Minister Tony Abbott for his scaremongering about government debt. Santorum calls Abbott a “hard-liner” – high praise indeed – who is forcing his conservative vision on a nation that doesn’t know what’s good for it. Yet the more Abbott and his team indulge in Tea Party tactics, the more they’re imperiling the future of one of the developed world’s few bright spots.

For the record, Australia is nowhere near reaching the fiscal emergency that Abbott and Treasurer Joe Hockey have recently been hyping. Gross national debt was just 28.8% of gross domestic product in 2013, the smallest outside of Estonia among advanced economies. That compares with 105% for the U.S. and 243% for Japan. Australia remains the only developed economy that’s avoided a recession for more than 20 years; it’s currently growing at a rate of 2.8%. There’s absolutely no reason for Abbott and Hockey to treat Australia’s balance sheet like a national scandal.

The real scandal is the government’s attempt to concoct a fake budget crisis, all in order to attack programs they dislike on partisan grounds, including unemployment benefits, assistance for the poor and single mothers, and Medicare-like programs for the elderly and disabled. This austerity push isn’t just mean and unnecessary – it’s self-defeating. It will starve Australia of the vital investments in education, training and infrastructure the country needs if it’s to diversify its economy and thrive in the decades ahead. [..]

When Nobel laureate Joseph Stiglitz warned about a “crisis Down Under” in August 2010, he was arguing against precisely this sort of “deficit fetishism.” That was back when Julia Gillard was in power, a leader Abbott blamed for running up the debt. Once Abbott finally deposed Gillard’s Labor Party last September, he eagerly stepped into the very trap Stiglitz had highlighted. China is much more of a candidate for a debt crisis than Australia is. That’s what should really worry Abbott: Resource-rich Australia remains as big and dangerous a bet on Beijing’s 7.4% growth as you’ll find. Canberra needs to devise ways to make the economy more than just a giant filling station for the Chinese economy.

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Everything’s for sale, including the Great Barrier Reef.

Queensland Approval For Mega Coal Mine Near Great Barrier Reef (Guardian)

Queensland has given its approval for an Indian conglomerate to build one of the world’s biggest coal mines, despite fears that an associated port development could damage the Great Barrier Reef. Adani Enterprises won approval from the Australian state on Thursday for the A$16.5 billion (£9.1bn) coal and rail project in the Galilee Basin. The Carmichael mine, designed to produce 60m tonnes of thermal coal a year for power stations, has been the focus of opposition by green groups fighting the approval of new mines as well as the rail lines and ports needed to ship the coal. “This project has the potential to be the largest coal mine in Australia and one of the largest in the world,” Queensland’s deputy premier Jeff Seeny said.

The state’s report, which set 190 conditions for Adani to meet, including compensating landholders affected by any harm to water supplies, now goes to Australia’s environment minister for a final decision. The conglomerate’s chairman, Gautam Adani, welcomed the approval, saying the firm could now move to the next stage of the project. The company still faces challenges stalling progress on the project, not the least of which is raising the money needed to build the mine, rail and port for the coal. The port that Adani plans to use, Abbot Point, is facing a legal challenge from environmentalists fighting expansion plans that would involve dredging up 3m cubic metres of sand and dumping it near the Great Barrier Reef.

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Home Forums Debt Rattle May 9 2014: We’re Not Doing Very Well, Are We?

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    Ben Shahn Urbana, Ohio August 1938 We’re not doing very well overall, are we? We’re always busy chasing something, but we don’t know what it is we’re
    [See the full post at: Debt Rattle May 9 2014: We’re Not Doing Very Well, Are We?]


    Of all the places, an old photo of Urbana, Ohio today. It’s not far from where I live, maybe 25 miles. We took a short trip there only a few weeks ago. It is always interesting to see what was then in the photo, compared to what is now.

    Great essay today too, really causes one to reflect what we can do better. But for many people in today’s bubble world, it appears the main priority is to buy, buy, buy. That is all most have been conditioned to live for their entire lives. Thus they don’t understand why they should do anything different.


    Read many an essay like this. This one is well written too. How do the Dutch do languages so well? Really good. I learn English reading this blog!

    You are writing off humanity in a stroke though just because consumer capitalism is so destructive and manipulative. I don’t agree with that.

    If you watched over the dinosaurs you’d have said there is no chance of intelligent life on earth and yet a few million years later intelligent life sprung. We do not know the future no matter how much we know. It could be climate change will knock us massively and a few of us may survive the shock and we will evolve out our faults. We may not. We don’t know. I believe we will or another species will because I am an optimist. Like you I think western capitalism will be a flash in the pan. It had the potential to be brilliant but was totally flawed.

    In the meantime I despair when my PhD friends believe in creationism, the divinity of Jesus and think the dinosaur fossils were put there to test us by “God”. Your comments about god are pertinent. I liked them.

    Mother earth still has a long way to go. She’s not done yet.

    Long time ago when I lived in India my grandmother and I travelled to another town. We passed a mango tree bearing young fruit. The tree looked beautiful in the sun. Majestic and vibrant. My grandmother stopped and said a small prayer to give thanks for the abundance of life and the fruit. It was a normal thing to do. She did it often. Almost all the older people did. I thought it was pointless and played while she gave thanks. Now, I look back and realise that’s a way of staying connected with the natural environment. Never forgetting your place in the big picture.

    When I tell my English friends this story they laugh.


    I’m as much Canadian as Dutch, that’s why, and the Dutch being all that great at languages is a gross exaggeration based on the fact that the rest are so poor. Great story about your nana, it’s all we need to know about what we lost, why that is important, and how the emptiness implicit in that makes us so destructive.

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