Jul 022014
 July 2, 2014  Posted by at 4:37 pm Finance Tagged with: , , , ,

Marion Post Wolcott Main street of old mining town Leadville, Colorado. Sep 1941

Oh yeah, sure, optimism is oozing from every single one of America’s pores. Or so they’ll have you believe. 281,000 new jobs says the ADP report, most since December 2012. Of which small business added 117,000 and medium sized business 115,000. And the media are just besides themselves with joy. Shame that the markets react lukewarm at best. Then again, they do better the worse the news gets, all they reflect anymore these days is the level of distortion and convolution that they obey (or is that the other way around?).

One might be inclined to think US small and medium business owners were so busy hiring those new employees that they had no time to read last month that US GDP plunged that -2.96% in Q1. But maybe that’s not quite true, because three weeks ago, the National Federation of Independent Business issued this news release:

NFIB Optimism Index rose 1.4 points in May to 96.6, the highest reading since September 2007. However, while May is the third up month in a row, the Index is still far below readings that have normally accompanied an expansion and there have been similar gains in the past that haven’t panned out in this recovery period. Five Index components improved, one was unchanged and four fell, although not by much.

“May’s numbers bring the Index to it’s highest level since September 2007. However, the four components most closely related to GDP and employment growth (job openings, job creation plans, inventory and capital spending plans) collectively fell 1 point in May. So the entire gain in optimism was driven by soft components such as expectations about sales and business conditions,” said NFIB chief economist Bill Dunkelberg. “With prices being raised more frequently in response to rising labor and higher energy costs it is clear that small businesses are unwilling to invest in an uncertain future. As long as this is the case the economy will continue to be “bifurcated”, with the small business sector not pulling its historical weight in the GDP numbers.”

‘The entire gain in optimism’ was based on nothing but .. optimism bias. That news release does not make small busniess sound anywhere near as optimistic as today’s news reports. How you get from that to a way above expectations hiring spree is not immediately clear. Isn’t it perhaps true that America is so desperate for that recovery to finally materialize that it’s now damn the truth and the torpedoes time?

Things like this from Bloomberg, written earlier today before the ADP report came out, sound as if they’ve been written solely to create a mood in the country. Some people tell some survey they plan something. Thing is, how do you get from there to journalism?

Americans on the Road Again as Economic Recovery Gains Traction

About 34.8 million people plan to drive 50 miles or more from home during the five days ending July 6, up from 34.1 million last year and the most since 2007, AAA, the biggest U.S. motoring organization, said June 26. The travel recovery is boosting sales for hotels and attractions, a sign that consumer confidence and consumer spending are on the mend, said Mark Zandi, chief economist at Moody’s Analytics. “Stronger business travel and tourism is a very good barometer of the health of the broader economy,” Zandi said. “Spending on travel is more discretionary and expensive. The revival in travel is thus a good sign that the economic recovery is gaining traction.”

What recovery? How is -2.96 Q1 GDP growth a recovery? In what universe? This next one is also from Bloomberg and written before the ADP report came out:

U.S. Companies Show Broad Recovery as Hiring Pace Surges

Industries from construction to autos to oil and gas are increasing jobs as growth accelerates after a harsh winter stunted business. As some sectors, such as floor retail sales, have yet to rebound and wages have been kept in check, the recovery is likely to be a steady climb rather than a boom, according to Jeffrey Joerres, executive chairman of Manpowergroup Inc. Nonfarm payrolls may rise by 215,000 in June, which would mark a fifth straight month of increases topping 200,000, according to the median of 89 economists. That also would be the longest streak of monthly gains since September 1999-January 2000. [..]

The U.S. economy is forecast to accelerate after year-on-year growth slowed to 1.5% in the first quarter when severe snowstorms battered the U.S. and kept customers away from stores, shut factories and gummed up transportation of goods. With consumer spending still tepid, companies aren’t hiring in anticipation demand will rise, as in other recoveries, Joerres said. Instead they are they are expanding when they have orders in hand, he said. “We’re not seeing wage inflation at the rate you would think and we’re not seeing increased hours worked at the rate you would think,” said Joerres, whose firm has more than 400,000 clients worldwide.

What is this, a charm offensive? “Year-on-year growth slowed to 1.5% in the first quarter”? You sure that’s all? We have numbers that say otherwise. Plus, wages are not rising, hours are not increasing, but still ‘U.S. Companies Show Broad Recovery as Hiring Pace Surges’? Got a sneak peek at the ADP numbers perhaps?

I can’t help wondering what a reporter or editor expect from publishing nonsense like this. What use is it exactly to make people feel better about a lousy economy? It only lasts for a day. Factory orders just come in, down 0.5%. Guess they’re going to lay off all those 281,00 new hires again over the summer. The thing for me is, I’m getting so tired of all this empty fluff.

What I would want to see from well-paid journalists at Bloomberg and other main media is research into the effects of QE on the US economy, what the price is the American public has to pay to have stock markets rally to new records, what those markets would look like without QE, what home prices are expected to do without it, what the effects of rising interest rates will be on the man in the street and his home in that same street. And don’t go ask the usual expert suspects at Bloomberg or Reuters, they’re the most biased clowns in the crowd.

We live in the age of triggering responses from people’s unconsciousness, where they are most vulnerable, both individual and collective, almost 100 years after Freud and his nephew Edward Bernays, for very different reasons, figured out how to do that. The best proof we live in that age is probably that we never talk about it.

This means that unless you want to be a clueless victim of advertizing and other, more sinister, sorts of manipulation, you need to be awake and alert. And even then. And what better place to start than to write to your Congressman and to your newspaper and tell them you’re a grown up and you can take quite a bit of truth, and if they don’t stop incessantly bullshitting you, you’re not going to vote for them or buy their paper anymore.

World’s ATM Moves to Frankfurt as Yellen’s Fed Slows Cash (Bloomberg)

As Janet Yellen winds down the Federal Reserve’s money-printing operation, Mario Draghi is boosting Europe’s cash supply. That means the dollars Yellen’s Fed is removing could be compensated for by cheap euros from the European Central Bank. The result may be enough cash sloshing around to underpin this year’s run-up in risk assets even if the Fed begins mulling higher interest rates too, says Marios Maratheftis at Standard Chartered in Dubai. “If any central bank can take over the Fed’s role in terms of its impact on global liquidity, it’s the ECB,” according to a June 30 report by Maratheftis and colleagues David Mann and Italo Lombardi. They reckon the relative importance of the Fed in propelling liquidity worldwide has fallen since April 2013. During the last year it has slowed the bond buying it began in December 2008 as financial panic gripped the world.

Regulators’ more recent demands that banks increase reserves also may mean a higher money supply in the U.S. boosts liquidity less elsewhere too. For every $10 billion increase in the U.S. money supply, there is now a $20.5 billion increase globally, down from $24.4 billion a year ago, according to the Standard Chartered economists. Meantime, for every $10 billion rise in the euro area’s money supply there’s a $19.7 billion boost globally, up from $18 billion. With its quantitative-easing program winding down, the Fed has gone from having 35% more impact than the ECB a year ago to 5% today. The economists also calculate that to keep global money supply stable, the ECB would need to provide $10 billion of liquidity for every $9.5 billion withdrawn by the Fed.

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Global Investors Pare Risky Bond Holdings, Brace For Sell-off (Reuters)

Some of the biggest global investors have started to pull back from riskier fixed-income assets even as the Federal Reserve keeps on a green light for risk. Loomis Sayles, GAM, and Standish are among those who say U.S. investment grade and high yield corporate bond prices have gone too far, making returns less compelling. They’re aiming to get ahead of a market reversal that could be unpleasant once the Fed starts raising interest rates, probably next year. “Valuations are getting stretched,” said Jack Flaherty, investment manager at GAM, part of GAM Holding AG, a publicly-listed Swiss company with more than $120 billion in assets. “You’d rather be early in getting out because when it does turn, it could be more violent than expected.” Bonds had a solid start to 2014, with the Barclays U.S. Aggregate Index returning about 3.8 percent for the first six months of the year. Interest from overseas investors and pensions has kept flows into fixed income funds strong.

That has reduced the extra premium investors are willing to pay to hold these bonds instead of the safer U.S. Treasuries. This premium, or spread, is now at its lowest since 2007, and suggests confidence in the prospects of the U.S. corporation issuing the debt. GAM has pared its U.S. high-yield bond holdings, and plans to cut back more over the next few months. It’s re-allocated to emerging market local debt and convertible bonds – debt that can be converted into shares of stock. Flaherty is concerned that after the Fed raises rates, liquidity could be a big problem because of Wall Street brokerages’ reduced presence in the corporate bond market. in the past, big banks could be counted on to make it easier to buy and sell bonds because of their sizable inventory. But new rules have made it more costly to hold such assets.

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‘ … when one lends him more money in order for him to pay back what he owes, one is not bailing him out but rather pushing him in a bigger hole!’

Credit: The Molotov Cocktail (Macronomics)

When somebody has too much debt and cannot reimburse it, how do you bail him out? Obviously by restructuring his debts, which imply losses for his creditors. But when one lends him more money in order for him to pay back what he owes, one is not bailing him out but rather pushing him in a bigger hole! The game until now has been to “print” more money and to add more debt on the shoulders of the indebted ones, to gain some time in the hope that growth will resume and reduce de facto the weight of the existing debt burden and the additional new debt issued to support the initial debt troubles. This is a big misunderstanding of debt dynamics and its effects on the economy. When debt becomes too big, which it is now the case in many parts of Europe, the servicing drains all the available cash flows and reduces the growth potential. Credit dynamic is based on Growth. No growth or weak growth can lead to defaults and asset deflation. We hate sounding like a broken record but: no credit, no loan growth, no loan growth, no economic growth and no reduction of aforementioned budget deficits and debt levels. [..]

Again we reminded ourselves the wise words of Dr Jochen Felsenheimer: “Banks employ too much debt, because they know that they will ultimately be bailed out. Governments do exactly the same thing. Particularly those in currency unions with explicit – or at least implicit guarantees. It is just such structures that let governments increase their debt at the cost of the community. For example, in order to finance very moderate tax rates for their citizens so as to increase the chance of their own re-election (see Italy). Or to finance low rates of tax for companies and at the same time boost their domestic banking system (see Ireland). Or to raise social security benefits and support infrastructure projects which are intended to benefit the domestic economy (see Greece). Or to boost the property market (Spain and the USA). This results in some people postulating a direct relationship between failure of the market and failure of democracy.”

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I think they already have.

Central Banks Risk Making Global Economy Permanently Unstable: BIS (Telegraph)

Ultra low interest rates and the failure of policy to “lean against” the build-up of financial imbalances are in danger of making the global economy permanently unstable, the Bank for International Settlements has warned. In its annual report, the Swiss-based “bank of central banks” spelled out the risks of relying too heavily on monetary policy to stimulate the economy. The BIS warned that central banks including the Bank of England and US Federal Reserve could keep monetary policy loose for too long, with potentially damaging consequences. “The prospects for a bumpy exit together with other factors suggest that the predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly,” the BIS said on Sunday.

It added that a “persistent easing bias” by fiscal, monetary and prudential policymakers had lulled governments “into a false sense of security” that delayed needed consolidation and created a risk that instability could “entrench itself” in the system. “Policy does not lean against the booms but eases aggressively and persistently during busts,” the BIS said. “This induces a downward bias in interest rates and an upward bias in debt levels, which in turn makes it hard to raise rates without damaging the economy – a debt trap. “Systemic financial crises do not become less frequent or intense, private and public debts continue to grow, the economy fails to climb onto a stronger sustainable path, and monetary and fiscal policies run out of ammunition. Over time, policies lose their effectiveness and may end up fostering the very conditions they seek to prevent.”

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‘ If the Fed can just create money to increase demand, why bother doing it the hard way? Why do you need to earn money to create demand when you can just create it?’

Don’t Mistake This Sham Boom for the Real Thing (Bonner)

The US economy is 70% consumer spending, reason the geniuses at the Fed. So anything they can do to boost consumer spending will also boost the economy. This sort of simpleminded logic is either breathtakingly naïve or mind-bogglingly stupid. Consumers need to have money to spend before they can spend it. If the economy is working properly, they earn it from honest bussing and schlepping. But suppose the economy is in a funk? Then what are they supposed to do? No problem, say the economists. We’ll just create it. This ersatz money is supposed to stimulate the consumer to spend… whereupon, businesses will spring to life. They’ll offer him a job, boost his wages… and then he’ll have real money to spend! But wait. If the Fed can just create money to increase demand, why bother doing it the hard way? Why do you need to earn money to create demand when you can just create it?

This point has never been clarified. Nor have the feds ever noticed that consumer demand is the result of savings, investment, work, skill… and all the other things that go into producing a real product or service. Consumer demand is not what causes those things to happen. In the abstract, demand is unlimited. But output is not. Nor has it ever been demonstrated that central financial planning works. And as of last week we have more evidence that it doesn’t … What last week’s figures tell us is there is no real recovery. Just a sham boom created by EZ money. We’ve now got two months of figures for the second quarter. They tell us the same thing the first quarter’s numbers told us. Consumers aren’t spending like it was 2007. They’re spending like it was 2009… or 2010… or 2011.

In other words, they’re spending as though they were reasonable people who have realized how the system works. The Fed creates a world where its friends and cronies can borrow at below the rate of consumer price inflation. The 1% gets richer. The other 99% struggles to keep up with the bills. As we have been warning, consumer prices are rising faster than the Fed admits. That leaves the typical household with less money to spend than the numbers suggest. We see the effect of it on consumer spending. The Fed pinched off savings, investment and employment. Now, it gets what you’d expect: low GDP! Six years of “stimulating” the economy by giving it more of what it least needed has produced no real recovery… just more debt. It has also produced a corrupt money system in which almost every race is fixed. The 1% wins every time. The consumer is barely able to limp around the track.

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Fooling All The Experts With Seasonal Adjustments, All Of The Time (Zero Hedge)

Reading the economists’ comments in response to today’s ISM report (which, incidentally, missed expectations) one would think that the US has practically entered a second golden age. Here is a sample:

  • Manufacturing index “has now stabilized at a level reflecting a solid pace of expansion,” Thomas Simons, economist at Jefferies, writes in note
  • June data consistent with Barclays estimate of 2Q GDP growth rate of 4%, according to note from Cooper Howes, economist at firm.
  • June’s reading of 55.3 “has to be viewed as a good result, even if it was lower than expectations,” Rob Carnell, economist at ING, writes in note
  • ISM index shows factories humming along in Q2, according to UBS
  • And especially this one from TD Securities: Increase in new orders, as tracked by ISM factory report, is “especially encouraging as it augurs very well for future manufacturing sector activity”

So what exactly are all these “experts” looking at to be so convinced, once again, that the “imminent” economic surge that thay have all been predicting for so long, incorrectly, is finally here. The answer – the all import New Orders index – the key driver of the headline ISM print and the one most important sub-headline index. And if we were also simply looking at the reported number of 58.9, which printed at the highest level since December, we too would assume that the US economy is finally rebounding. Alas, here lies the rub: what none of the abovementioned experts realize is that for some inexplicable reason, the ISM survey is, just like the vast majority of all other economic indicators, also seasonally adjusted.

Recall that it was ISM’s seasonal adjustment SNAFU last month, when it used the wrong “adjustment factor”, that caused the reported number to become a humiliating farce after the ISM had to revise it not once but twice with what ultimately ended up being a “factor” leading to a far higher, and consensus expectation-beating, headline ISM print of 55.4. But what really happened in June? For the answer we need a refresher of just how the ISM survey results in reported numbers. What the ISM does is ask respondents to comment on how they are seeing any given query category as performing in the current month. The response options are simple: better, same, or worse. The ISM then takes the%age of “better” responses and adds half the%age of “same” (ignoring the worse answers) for any of the following categories:

  • New Orders (58.9 in June)
  • Production (60.0)
  • Employment (52.8)
  • Delivery Time (51.9)
  • Inventories (53.0)

Then it simply takes the equal-weighted average of these 5 series and gets the final number (in the case of June 55.3 down from May’s adjusted 55.4). However, before the final tabulation, the ISM also applies a little-known seasonal adjustment factor to the actual unadjusted survey reponse result before getting a seasonally adjusted number that feeds into the above calculation. Why a survey needs to be seasonally adjusted – considering it merely captures sentiment which already reflects the periodicity of the seasons when it is, well, experienced – is beyond the scope of this article, and/or logic.

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And that’s a big problem when they come invest in you home town. But nobody talks about it.

Quality Of Chinese Data ‘Unknowable’ (CNBC)

Founder of short-seller Muddy Waters Research, Carson Block, claimed on Tuesday that Chinese economic data lacked credibility following the release of China PMI data, which came in at a 6-month high. Block is well-known for issuing damning research and short selling Chinese companies mostly listed in the U.S. and Canada. He became a controversial figure after claiming the firms he was shorting were fraudulent. The companies, meanwhile, have questioned Muddy Waters’ sources. Chinese mobile security software company NQ Mobile, which saw a huge drop in its shares after Block described the firm as a “massive fraud”, has said Block’s firm does not disclose who its researchers are and what documents they examine.

Block said the China was facing a “massive credit and asset bubble” and questioned the legitimacy and quality of Chinese GDP prints. “I think we have to understand (that) what China is printing on GDP is really for political reasons internally. It is unknowable what the quality of the data really is,” Block told CNBC. Block is the not the first voice in the market to question the credibility of Chinese data. China’s official purchasing manager’s index (PMI) for June came in at a six-month high of 51, in line with expectations and up from 50.8 in May.

Global chief economist at Unicredit, Erik Nielsen said the figures were “curious”. “Why is it that the Chinese are having PMIs around 50 and growth at about 6 or 6.5%? It is constructive in every other country for 50 to be above flat,” he said. “It is simply a curious question, if you look through GDP numbers in any other country, you cannot construct any logical explanation for why they have such little volatility in growth in China,” he said. Block argued that a corrupt elite in China controls the banking system. “They control a huge swath of the economy through non-financial state owned enterprises. The core of the economy is subject to this kind of corruption,” he said. Block also questioned the legitimacy of the anti-corruption crackdown launched by President Xi Jinping, adding “things aren’t getting any different”.

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Is Asia The Next Financial Center Of The World? (CNBC)

In 1602 the Dutch East India Company opened the world’s first stock exchange in Amsterdam. The new company was on its way to dominating the lucrative international trade in spices from the Far East, and it needed huge amounts of cash to finance its fleet of merchant ships. Hence, the Amsterdam Bourse, which started life as an open-air market where traders could buy and sell the East India Company’s stocks and bonds. Those traders soon invented the first derivative contracts, simple call and put options that gave them the right to trade shares in the future. Other companies started issuing shares on the Bourse, which moved to a handsome new building in 1611. Rival European capitals launched their own stock exchanges. The securitization of the world was under way.

Today the Amsterdam Bourse is a branch of Euronext, an exchange holding company that also operates the Brussels and Paris exchanges. Euronext, in turn, is owned by Atlanta-based IntercontinentalExchange (ICE), which operates a total of 23 exchanges around the world, including the venerable New York Stock Exchange, which it acquired late last year for $8.2 billion. It’s worth remembering the original Amsterdam Bourse because it established the template for the modern financial center, a physical place where finance professionals help companies access the capital they need to grow.

Location obviously matters somewhat less in an era of exchange consolidation, globalized capital and 24/7 electronic trading. Even so, the complex infrastructure of modern finance is still clustered in a few major cities around the world. “If you have a laptop and a satellite phone, you can trade from on top of a mountain,” said Mark Yeandle, associate director of London’s Z/Yen Group, which produces a biannual ranking of the world’s top financial centers. “And yet people naturally want to cluster in cities near their clients and suppliers, even if they don’t have to.”

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‘ … offering to buy back homes above the purchase price?!’

China Developers Offering Home Buybacks in Weakest Markets (Bloomberg)

Property developers in two of China’s weakest housing markets are offering to buy back homes above the purchase price to boost sales as demand slows. In Hangzhou, where home prices fell the most in May among 70 Chinese cities watched by the government, Shanheng Real Estate Group is giving homebuyers an option to sell back their apartments in five years for 40% above the purchase price. In Wenzhou, DoThink Group is offering to repurchase homes at three of its projects for 120% of the purchase price after three years. The offers are the latest strategy by developers across China, including reducing prices, delaying project launches and offering incentives to potential buyers, as they seek to maintain sales targets. Prices of new homes fell in May from April in half the 70 cities tracked by the government, the largest proportion since May 2012, according to government data.

A more persistent and sharper downturn in the property sector is the biggest risk for China’s economy in the next couple of years, according to UBS AG. “Obviously they’re relatively cash-thirsty,” said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co. “If it works, there surely will be other developers following suit.” China’s home sales slumped 10.2% in the first five months of this year from the same period a year earlier amid tight credit and an economic slowdown, reversing last year’s 27% jump. The average new-home price in 100 cities tracked by SouFun Holdings fell 0.5% in June from the previous month, accelerating from the 0.3% decline in May that ended 23 consecutive months of gains.

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The Communist party as a bunch of desperate sorcerer’s apprentices.

China’s Repression of Savers Eases (Bloomberg)

The extra interest Yin Xuelan earned last year by socking her savings into wealth management products instead of bank deposits paid for a tour of Taiwan and a microwave oven. “I didn’t need to go to Taiwan and I didn’t need to buy a microwave oven, but with this extra money, why not?” said retired schoolteacher Yin, 60, as she put receipts into her pink purse at an Industrial & Commercial Bank of China branch in central Beijing. “It’s like free money.” Yin is a beneficiary of an easing in China’s financial repression, a term that describes the way savers have suffered artificially low returns on deposits in order to provide cheap loans for investment. Measures used for the size of the toll – such as inflation-adjusted deposit rates, the gap between rates on loans and the pace of economic growth – have shifted in favor of savers in the past four years.

The burden has dropped to the equivalent of about 1% of gross domestic product annually from 5% to 8% as recently as three to four years ago, estimates Michael Pettis, a finance professor at Peking University. That’s a shift of as much as 2.6 trillion yuan ($420 billion) to households from borrowers from 2010 to 2013. “It is a turning point,” said Chen Zhiwu, a finance professor at Yale University in New Haven, Connecticut, and a former adviser to China’s State Council. “It will afford more growth opportunities for domestic consumption and the service sector.” Financial repression refers to policies that force savers to accept returns below the rate of inflation and that enable banks to provide cheap loans to companies and governments, reducing the burden of their debt repayments.

A sustained easing would channel more of China’s wealth to the average person while squeezing bank margins and the debt-fueled investment that’s evoked comparisons with the excesses that generated Japan’s lost decades and the Asian financial crisis. On the flip side, slimmer bank profits may add to risks for an industry grappling with the fallout from record lending in the aftermath of the global financial crisis. “Many local governments and state enterprises have made low-return investments based on the low-cost funding,” said David Dollar, a former U.S. Treasury Department official in China who is now a senior fellow at the Brookings Institution in Washington. “As the cost of capital rises, some of them no doubt will have difficulty servicing their debts and may even be pushed into bankruptcy.”

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Record Bond Sales Show China Focused on GDP Growth Over Debt (Bloomberg)

China’s Premier Li Keqiang has promised to cut credit while also meeting a 7.5% economic growth target. Record bond sales last quarter show which pledge he’s prioritizing. Issuance jumped 54% from the previous three months to 1.55 trillion yuan ($250 billion), the most in data compiled by Bloomberg. Yields on two-year AAA rated corporate notes have dropped 137 basis points this year to near a 10-month low of 4.86%, as authorities eased after tightening that had sparked credit crunches in 2013. When Premier Li took office last year he stressed the need for painful reforms to pare the influence of the state, wean industries with overcapacity from debt and ease access to funds for smaller enterprises. The latest filings of more than 4,000 publicly traded non-financial Chinese companies show $2.05 trillion of obligations, up from $1.8 trillion at the end of 2012, with the 10 biggest state-owned borrowers accounting for 18% of the liabilities.

“The government may have sped up the approval of corporate bonds to help stabilize the economy,” said Xu Hanfei, a bond analyst in Shanghai at Guotai Junan Securities, the nation’s third-biggest brokerage. “The issuance may continue to increase in the third quarter because that’s when rising bond sales help the government’s stimulus measures work.” The Finance Ministry called for faster spending of budgeted funds in May, and the State Council said it would increase support to service industries amid “relatively large” downward economic pressure. That followed steps outlined in April for faster railway spending and tax breaks to help ensure the government meets its economic expansion goal. China’s manufacturing expanded in June at the fastest pace this year, the Purchasing Managers’ Index showed yesterday. While such signals support Premier Li’s contention the nation will meet its 7.5% growth target this year, the government’s efforts to prod expansion have added to concern borrowings may continue to rise.

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‘ … the golden age of China’s economic boom is long past’

China’s Infamous Swag Markets Lose Their Shine (CNBC)

As far as market vendor Chang Yu is concerned the golden age of China’s economic boom is long past. “When I arrived [eight years ago], there were so many people you couldn’t even walk here,” she told CNBC, gesturing toward the empty isle where she sells wigs in Beijing’s YaShow market. Beijing’s markets were once the pride of China where the state-supported manufacturing industry supplied the west with a steady stream of goods and lifted millions of people from poverty. These markets thrived in the late 1990’s and early 2000’s, selling surplus, flawed and copycat items. They were meccas for tourists looking to buy something genuine or close to it for next to nothing. For years, young migrant vendors haggled hard to bring home the bacon.

Now they are in decline. [..] Dozens of vendors in Beijing’s famous markets who once proudly paraded their wares before celebrities and heads of state told CNBC that business has never been worse. As China outgrows low-end manufacturing, property values soar and seasoned consumers seek greater convenience and choices online, these markets must evolve or die. Rising production costs have pushed some foreign companies to move production to less developed Asian countries. Average wages in China’s manufacturing sector have risen 96% since 2007, according to Thomas Orlik, an economist at Bloomberg Financial and author of Understanding China’s Economic Indicators. “Manufacturers are facing rising costs for labor, rent and electricity and they have passed some of those on to shopkeepers,” Orlik said.

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You have to wonder when France can expect the first real attacks from the markets.

Europe’s ‘Sick Man’ Fights Housing Crisis (CNBC)

France has in recent weeks unveiled a slew of measures to boost its ailing construction sector and revive growth for the euro zone’s “sick man”, but analysts warn the measures will fall short. The country’s construction sector is currently going through a deep crisis as new building reaches historically low levels. The latest official figures reveal that new housing starts in the twelve months to May were at the weakest level since 1998. It comes as growth in the euro zone’s second-largest economy stalls and France is labeled the “sick man of Europe”. Some 8.5% of the country’s jobs come from the construction sector. The decline in the sector – activity fell 1.4% in the first quarter, well below overall economic output – is expected to continue for the third consecutive year.[..]

Last week, the government unveiled its latest action plan to stimulate the sector with an extension to interest free loans which had been set to be scrapped by the end of 2014. The “0% interest loan”, introduced in 2011, was meant to help middle and low-income first-time buyers by offering them cheap financing. The repayments could be deferred for five years. That figure has now been raised to seven years. Initially restricted to new-build homes, their use has now been extended to old properties in need of renovation in certain areas and access to the loans has been increased. The government believes that the number of beneficiaries will be increased by 60% a year from 40,000 currently to 70,000. But analysts doubt the measures will have much of an impact, given the value of the loans available is fairly modest, especially if you want to buy in Paris, where prices are the highest in the country.

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Biggest Pension Fund Replaces Bank Of Japan Driving Stock Rally (Bloomberg)

Move over, Haruhiko Kuroda. Stock investors, tired of waiting for a boost from the Japanese central bank, have found a new hero in the nation’s 128.6 trillion yen ($1.3 trillion) retirement fund, said Societe Generale Securities. The Topix index rebounded 5% last quarter as the Government Pension Investment Fund moved closer to an asset overhaul that’s expected to pour 3.6 trillion yen into Japan’s equities. The gauge started the year with the developed world’s steepest quarterly slump as the yen gained and Kuroda dashed expectations for more stimulus. “The BOJ’s role is over and the market is now counting on GPIF,” said Akihiro Ohara, head of Japan sales trading at Societe Generale. “I expect the fund to change its asset allocation around September.”

“Economic data and company outlooks suggest Japan is overcoming the tax hike,” Kazuhiro Miyake, chief strategist at Daiwa Institute of Research in Tokyo, said by phone on June 27. “Public pension funds will boost their equity weighting in stages and that will improve supply and demand conditions for the market.” The world’s biggest pension fund may change its strategy as soon as August, Yasuhiro Yonezawa, who heads GPIF’s investment committee, told the Nikkei newspaper last month. It will increase its target for holdings of domestic shares to 20% from 12%, while cutting local bonds to 40% from 60%, according to the median estimates in a Bloomberg survey of analysts and investors in May.

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Great idea. Squeeze the young!

US Student Loan Interest Rates Just Went Up 20% (BW)

July is here, which brings an important development to student borrowers: Higher interest rates for education loans kick in today. Loans for undergraduates will increase to 4.66%, from 3.86%, for all new borrowing during the 2014-15 school year. (Loans that students already took out aren’t affected by the hike.) Historically, Congress set a fixed rate for students loans. It was lowered to 3.4% during the financial crisis. Last summer, that temporary reduction was set to expire, which would have caused the rates to double to 6.8%. A last-minute deal pegged the rates to the government’s borrowing costs, which are at historic lows. The roughly seven out of 10 college seniors who borrow to attend school graduate with about $29,400 in loans on average. If the 2014-15 rate increase were applied to the full debt, the average monthly payment would go up about $10 a month—an amount that won’t make or break many borrowers. Over 10 years, the increase could add about $1,350 in interest expenses.

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While recalls continue to rise.

US Auto Sales Close To Hitting The Brakes (CNBC)

America’s auto industry, in the midst of a five-year run where sales have rebounded more than 55%, is close to seeing a slowdown according to a new study. The AlixPartners 2014 Automotive Study suggests sales of cars and trucks in the U.S. will hit a peak this year and then gradually pull back. “This is a cyclical industry and we think this current cycle has just about run its course,” said Mark Wakefield of AlixPartners. “We’re a little less optimistic than others about the demand for new vehicles staying this strong.” For 2015, AlixPartners estimates U.S. sales will peak at 16.7 million before gradually starting to pull back. A primary reason new vehicle sales are poised to slow down, according to the new study, is the expectation of rising interest rates. “We’re living in an unusually calm world for interest rates,” said Wakefield. “We believe the Fed will start to raise rates and when that happens, interest rates for auto loans will also go up.”

As a result, Wakefield believes the purchasing power for potential car and truck buyers will diminish. He calculates a 3% rise in interest rates will reduce purchasing power by $2,500 while a jump of 7% would cut into consumer’s purchasing power by $5,250. “The threat of higher rates is a very real one and if they go up it will impact auto sales,” said Wakefield. The latest study by AlixPartners highlights two trends that will alter how many see the auto industry. In the U.S., car sharing is a fast-growing trend that has many potential buyers now opting to car share instead. By the end of the decade, an estimated 4 million people will participate in car-sharing programs, up from 1.3 million this year. Meanwhile, the growth of auto sales in China will be slowing down throughout the rest of this decade. “China is still the growth engine for the auto industry, but its growth is slowing,” said Wakefield.

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Good. Ban. But they’ll come after you for the rest of your – public – life.

NY Towns Have Authority To Ban Gas Drilling, Fracking (Reuters)

New York state’s top court ruled on Monday that towns have the authority to ban gas drilling within their borders, giving a boost to opponents of the drilling method known as fracking. The Court of Appeals in a 5-2 decision upheld drilling bans in the Ithaca suburb of Dryden and in Middlefield, near Cooperstown, saying the laws were extensions of the towns’ zoning authority. Drilling company Norse Energy USA and an upstate dairy farmer separately sued the towns, claiming the bans violated a law designed to create uniform statewide regulations on the oil and gas industry. The court disagreed, saying the law was designed to bar only local ordinances that could impede the state’s ability to regulate drilling activities. “Plainly, the zoning laws in these cases are directed at regulating land use generally and do not attempt to govern the details, procedures or operations of the oil and gas industries,” Judge Victoria Graffeo wrote for the court.

The decision affirmed rulings by three lower courts. The plaintiffs had told the court that upholding the bans would make drilling companies reluctant to invest in the state, since they would be faced with a patchwork of local laws that could change. In 2011, Dryden and Middlefield were among the first of more than 170 municipalities in New York to ban gas drilling as state officials considered whether to lift a moratorium on fracking, which is still in place. Fracking involves blasting chemical-laced water and sand deep below ground to release oil and natural gas trapped within rock formations. It has allowed companies to tap a wealth of new natural gas reserves in other states, but critics say the procedure has polluted water and air, and caused seismic activity near wells.

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Let’s see … How about you stop feeding antibiotics to farm and feedlot animals?!

Superbugs ‘Could Send UK Back To The Dark Ages’ (Daily Mail)

David Cameron has vowed Britain will lead a global fightback against antibiotic-resistant superbugs. The Prime Minister said concerted action was needed to prevent the world from being ‘cast back into the dark ages of medicine’. The rise of untreatable bacteria is one of the biggest health threats facing the world, threatening an ‘unthinkable scenario’ where minor infections could once again kill. Tens of thousands of people are already dying of infections that have evolved resistance to common treatments. The World Health Organisation has warned that routine operations and minor scratches could become fatal if nothing is done. Mr Cameron said: ‘For many of us, we only know a world where infections or sicknesses can be quickly remedied by a visit to the doctor and a course of antibiotics.

‘This great British discovery has kept our families safe for decades, while saving billions of lives around the world. ‘But that protection is at risk as never before. ‘Resistance to antibiotics is now a very real and worrying threat, as bacteria mutates to become immune to its effect.’ He warned 25,000 people in Europe already die every year from infections resistant to anti-biotic drugs. ‘This is not some distant threat but something happening right now’, he added. ‘If we fail to act, we are looking at an almost unthinkable scenario where antibiotics no longer work and we are cast back into the dark ages of medicine where treatable infections and injuries will kill once again. ‘That simply cannot be allowed to happened and I want to see a stronger, more coherent global response, with nations, business and the world of science working together to up our game in the field of antibiotics.

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This means it’s now part of the ecosystem, just not in animals’ stomachs anymore, but in their veins. That can’t be good.

Plastic Garbage On Ocean Surface Is Mysteriously Disappearing (LiveScience)

A vast amount of the plastic garbage littering the surface of the ocean may be disappearing, a new study suggests. Exactly what is happening to this ocean debris is a mystery, though the researchers hypothesize that the trash could be breaking down into tiny, undetectable pieces. Alternatively, the garbage may be traveling deep into the ocean’s interior. “The deep ocean is a great unknown,” study co-author Andrés Cózar, an ecologist at the University of Cadiz in Spain, said in an email. “Sadly, the accumulation of plastic in the deep ocean would be modifying this mysterious ecosystem – the largest of the world – before we can know it.” Researchers drew their conclusion about the disappearing trash by analyzing the amount of plastic debris floating in the ocean, as well as global plastic production and disposal rates.

The modern period has been dubbed the Plastic Age. As society produces more and more of the material, storm water runoff carries more and more of the detritus of modern life into the ocean. Ocean currents, acting as giant conveyer belts, then carry the plastic into several subtropical regions, such as the infamous Pacific Ocean Garbage Patch. In the 1970s, the National Academy of Sciences estimated that about 45,000 tons of plastic reaches the oceans every year. Since then, the world’s production of plastic has quintupled. Cózar and his colleagues wanted to understand the size and extent of the ocean’s garbage problem. The researchers circumnavigated the globe in a ship called the Malaspina in 2010, collecting surface water samples and measuring plastic concentrations. The team also analyzed data from several other expeditions, looking at a total of 3,070 samples.

What they found was strange. Despite the drastic increase in plastic produced since the 1970s, the researchers estimated there were between 7,000 and 35,000 tons of plastic in the oceans. Based on crude calculations, there should have been millions of tons of garbage in the oceans. Because each large piece of plastic can break down into many additional, smaller pieces of plastic, the researchers expected to find more tiny pieces of debris. But the vast majority of the small plastic pieces, measuring less than 0.2 inches (5 millimeters) in size, were missing, Cózar said.

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Caribbean Coral Reefs ‘Will Be Lost Within 20 Years’ (Guardian)

Most Caribbean coral reefs will disappear within the next 20 years, primarily due to the decline of grazers such as sea urchins and parrotfish, a new report has warned. A comprehensive analysis by 90 experts of more than 35,000 surveys conducted at nearly 100 Caribbean locations since 1970 shows that the region’s corals have declined by more than 50%. But restoring key fish populations and improving protection from overfishing and pollution could help the reefs recover and make them more resilient to the impacts of climate change, according to the study from the Global Coral Reef Monitoring Network, the International Union for Conservation of Nature and the United Nations Environment Programme. While climate change and the resulting ocean acidification and coral bleaching does pose a major threat to the region, the report – Status and Trends of Caribbean Coral Reefs: 1970-2012 – found that local pressures such as tourism, overfishing and pollution posed the biggest problems.

And these factors have made the loss of the two main grazer species, the parrotfish and sea urchin, the key driver of coral decline in the Caribbean. Grazers are important fish in the marine ecosystem as they eat the algae that can smother corals. An unidentified disease led to a mass mortality of the sea urchin in 1983 and overfishing throughout the 20th century has brought the parrotfish population to the brink of extinction in some regions, according to the report. Reefs where parrotfish are not protected have suffered significant declines, including Jamaica, the entire Florida reef tract from Miami to Key West, and the US Virgin Islands. At the same time, the report showed that some of the healthiest Caribbean coral reefs are those that are home to big populations of grazing parrotfish. These include the US Flower Garden Banks national marine sanctuary in the northern Gulf of Mexico, Bermuda and Bonaire – all of which have restricted or banned fishing practices that harm parrotfish.

Home Forums Debt Rattle Jul 2 2014: Optimism Bias Squared

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    Marion Post Wolcott Main street of old mining town Leadville, Colorado. Sep1941 Oh yeah, sure, optimism is oozing from every single one of America’s p
    [See the full post at: Debt Rattle Jul 2 2014: Optimism Bias Squared]

    Diogenes Shrugged

    The last link squarely pins the collapse of Caribbean corals on overfishing. The resulting decline of parrotfish populations and a mysterious disease affecting sea urchins back in the 1980’s have evidently rendered photosynthetic corals unable to compete with algae for sunlight.

    But I just have to laugh. This article still manages to pay awkward homage to global warming – – an irrelevancy – – five times. I wonder how many readers come away from this article thinking it was ABOUT global warming. The brainwashing has been quite a success.

    To quote Ilargi (above):
    “We live in the age of triggering responses from people’s unconsciousness, where they are most vulnerable, both individual and collective, almost 100 years after Freud and his nephew Edward Bernays, for very different reasons, figured out how to do that.”


    “The Communist party as a bunch of desperate sorcerer’s apprentices.”

    Is the Fed any different? And yes, Bill Bonner, the Fed can play this game until all are so dependent on it, they will insist it become normal.

    These power mad psychos don’t care about the future. That’s someone else’s problem. They plan to play this out and be safe in their bunkers well before it flames out.

    Brave New World we have here.


    On the travel thing, every room in the county is booked for the weekend. Tried to reserve one for a friend. First time it’s happened since around 2007.

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