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No More Flyover Country

Nov 132016

November 13, 2016 Posted by Raúl Ilargi Meijer at 5:57 pm Finance Tagged with: America, anger, globalization, Growth, media, protests, Russia, transition, Trump, war 16 Responses »

Esther Bubley Waiting for Greyhound bus trip from Memphis to Louisville, KY 1943

Been scribbling several some post-election notes over the past few days, it seemed a good idea to not publish things too soon after the upset, even if I at least had the advantage that it wasn’t that much of a surprise or upset. But I’ve read far too many people too eager to write about how they haven’t moved an inch, and too many others who have -mostly reluctantly- moved but don’t know how or where to. It’s okay to think about such matters first, guys and dolls. Make that: it’s better. There’s too much nonsense out there as is. Why bother adding to the pile? Here’s a few thoughts in no particular order:

The transition we find ourselves in, into an era as profoundly different as it will be from the one that preceded it, can only possibly be chaotic. Smooth is not an option. Because it takes much time for people to recognize let alone accept that there is such a transition to begin with, and not everyone acknowledges or accepts it at the same time. Many never will at all, they will be left behind in their own realities tied down by the chains of what once was.

This transition is the one away from economic growth and globalization -centralization in general- and towards smaller, less centered and grandiose, politics and markets. It is not an idealistic transition towards self-sufficiency, it’s simply and inevitably what’s left once unfettered growth hits the skids. It doesn’t have to be anywhere near as bad as people would have you believe, or at least not necessarily so. What could make it real bad, though, is the widespread resistance and denial which seem certain to meet it.

Our entire worldviews and ‘philosophies’ are based on ever more and ever bigger and then some, and our entire economies are built upon it. That has already made us ignore the decline of our real markets for many years now. We focus on data about stock markets and the like, and ignore the demise of our respective heartlands and flyover countries, even as we experience Brexit and Trump and similar movements set to come to many more countries.

Donald Trump looks very much like the ideal fit for this transition – but nor because he understands the issue itself, or its implications. What matters is he promises to bring back jobs to America, and that’s what the country needs. Not so they can then export their products, but to consume them at home, and sell them in the domestic market.

That is the future of the world post-growth, and post-globalization. Every country and every society needs to focus on self-reliance, not as some idealistic luxury choice, but as a necessity. And that is not as bad or terrible as people would have you believe, and it’s not the end of the world. What would be terrible is if all we do is try and restart growth and globalization, because that would be a hideous waste of time and resources.

You’ll be flooded in the years to come, even more than today if you can imagine, with terms like protectionism and isolationism and even populism, but ignore all that. There’s nothing economically -let alone morally- wrong with people producing what they and their families and close neighbors themselves want and need without hauling it halfway around the world for a meagre profit, handing over control of their societies to strangers in the process.

There’s nothing wrong or negative with an American buying products made in America instead of in China. At least not for the man in the street. It’s not a threat to our ‘open societies’, as many claim. That openness does not depend on having things shipped to your stores over 1000s of miles, that you could have made yourselves at a potentially huge benefit to your local economy. An ‘open society’ is a state of mind, be it collective or personal. It’s not something that’s for sale.

Earlier this week I read what looks to be an apt observation: ‘Every white person in New York who didn’t vote for Trump is now out in the streets protesting against him’. But the people who protest now are miles off target and months too late: they should have stood up for Bernie when it became clear that the Hillary camp and the DNC conspired to oust him. Indeed, Bernie himself should have stood up back then, not for himself but for his supporters; they would have stood up with him.

Whether they all like it or not, being asleep and/or silent when big things happen that count, does carry a price. If you drop the ball, you can’t just pick it back up again and pretend it didn’t fall. Shouting ‘not my president’ in the wake of an election is a sign of weakness, no matter how well-intentioned. The protests should have taken place before the election, not after.

Moreover, to a large extent people are up in protest against the image the Hillary campaign and the media have painted of Trump, not the man himself. A difference they cannot see. Would these same people have been protesting if Hillary had won? No, they wouldn’t. But why?

Many voices expressed the wish that Americans would vote for Hillary, a story about a woman and a glass ceiling, instead of for the male and allegedly sexist and misogynist Donald Trump. Simply because she’s a woman, and it’s time for a female president.

These voices have been consistently and for a long time been blind to the fact that Hillary’s campaign and Foundation, in legal, shady and downright illegal ways, have long been financed to a substantial degree by uber-rich men in charge of Middle East oil extracting nations who have far more misogynist views and attitudes towards women than Trump will ever have.

These men carry things like misogyny, racism, xenophobia and homophobia high and proudly in their banners. Also, they’re well on their way towards obliterating not just an entire country in Yemen, but indeed an entire people, all with the enthusiastic support of Obama, Hillary and their friends and donors in the arms industry. And lest we forget, they sponsor ISIS too. Is that the future Americans want?

The bright side is the chances of a war with Russia have gone down substantially. While the odds have gone up dramatically of much fewer US servicemen and -women being sent abroad to engage in endless and countless battles and wars that never seemed to have much to do with the US, going back all the way to Korea and Vietnam.

How can either of these things can be perceived as negative? The continuation and expansion of -often proxy- hostilities versus Moscow would have been cast in stone had Hillary been elected, it was a milestone of her entire campaign. And a major part of this would have been fought at some desert location in the Middle East.

Where America has needlessly squandered the lives of many of its young and finest, to and in a mad scramble over control of oil resources which has resulted in nothing but a shapeless chaos that has equally needlessly killed millions of people, sent millions of others fleeing their homes and razed entire ancient civilizations, accomplishments that will follow America around the world for many years to come. Is that the future Americans want? Double down?

There’s -undeniably- still a risk that Donald Trump will succumb to the mighty hand of the military industrial complex. But at the same time, he may well be the country’s -and the world’s- best if not only chance at making that hand that much less mighty. There may be many things wrong with Trump -there are- but being in the pockets of arms manufacturers and other doctors of death is so far not among them, to our best knowledge.

Hillary and her crowd ran the entire election process from inside a cocoon, built largely on hubris and a lack of contact with the world outside. They had the media so much on their side that TV and newspapers became part of the Hillary cocoon, and reporters got locked into a groupthink mode that then in its turn infected the campaign itself.

What I mean is you can’t stop at saying Trump is a disaster, so let’s pick the other side, it was always very much a choice between two disasters. And at the same time, as I wrote at the Automatic Earth the day of the election, the US presidency is a poisoned chalice. There’s nothing simple about this.

Trump means a big clean-up for the GOP, and the Hillary loss means the chance for the Democrats to do the same. You bet those folks realize achingly well they could have won with Bernie. Hopefully that wing can take over substantially from the lying conniving machinery the DNC has turned out to be.

Someone summed it up as: Trump swept aside the Republicans, the Democrats, the Bush dynasty and the Clinton dynasty, all in one fell swoop, and we should perhaps be thankful to him for that.

Trump has run his campaign catering to the anger that exists among Americans. And people experience and label that as ‘terrible’ and ‘awful’. His Republican friends and opponents find it terrible, because it scares the bejeezus out of them, and they’re too scared to go anywhere near that anger. Trump embraced the anger. Because he knew from the start, instinctively, that it was the only way he could win.

And you can think like the majority of your peers do, that all that commingling with the anger, with racists and bigots and what have you, is inexcusable. But what you miss out on if you take that approach and hold on to it, is that in that case the anger does not get addressed at all. It’s instead left free to just wander over the land and fester and grow on society, out of reach of politics, media, everything.

A certain by now very vilified cartoonist explained that what Trump does is to ‘feel’ what the angry crowd wants, and then play into it by making over the top statements targeted at the anger. That way this crowd will follow him, gather around him. This has worked like a charm. But no, that doesn’t make him look like a certain German dictator.

Because it does not mean that Trump is going to literally do everything he said in the over the top statements he made. It’s all just a basic sales trick. Trump makes the angry people feel like he knows, and cares about, their grievances. Just like a car salesman makes you think he knows just what you want and need in a car, and praises the assets of that car in such a way that it touches that part of you which makes you want the car.

But that doesn’t mean at the end of the day he’ll drive the same car home that you just bought off of him. He makes you think he is like you, and knows what you want, so he can sell you that car. That’s all. He’s judged you to be the right ‘target’ for that vehicle.

That is how Trump has reeled in America’s hidden anger, how he has gathered its lost hidden mob. And before you say anything else, it’s perhaps a good idea to wonder where that anger would go without Trump. Because it’s not going to go away by itself. It’s been growing and festering for a long time, and it’s well-armed, lest you forget.

The question then becomes: would America be a better, or a safer, place if the entire angry part of its population had again, and still, been ignored by everyone? Or is it better to have them gathered under the umbrella of Donald Trump? Take your pick. Don’t be shy.

Another way to phrase the issue is this: without the exact same sales tactics that Trump used to ‘gather the anger’ around him, the TV ads (most ads in general) you see on a daily basis would look completely different. Whatever products these ads sell, from detergents to cars, they do it by referring to your unconscious, not your rational abilities.

The ads, like Trump, sell feelings, not facts (if you don’t get that, you’re lost).

Yet nobody would think of taking the companies whose products are advertized this way to court -nobody even gets really angry with them- because the happy smily people and unending open roads bathed in sunshine from the ads do not magically appear once you purchase the product. We would even find that crazy, that anyone might take the images shown in the ads, literally.

We should interpret Trump’s campaign words along those same lines, the same way we ‘undergo’ the ads that play to our subconscious. The problem is, how do you do that? How do you interpret what you are largely unaware of on a rational level?

The president-elect will now need the same skills in order to ‘come down that mountain’ without antagonizing each and every side of the discussion, of the nation. He’ll have to convince the liberal camp that he didn’t mean everything he said in a literal sense, while at the same time keeping his ‘angry mob’ satisfied that he will do enough of what he promised them.

That will take a lot of persuading. But at the same time that happens to be the one thing he’s really good at. He’ll have to convince his voters that he’s not breaking his promises, just adjusting them in ways that will, if at all possible, be even more beneficial to them than the original ones.

Difficult, but if he can convince them that there are signs, delivered relatively fast, that their living conditions are improving, he may succeed. They just vent their anger at people that are visibly not themselves, but that’s not where the anger stems from.

There are all sorts of nasty things going on, racists and supremacist etc. But you can’t say that Trump caused that to happen. The most you could say is that he gives the people involved in that stuff the idea that because someone finally hears them, they can, are allowed to, make themselves heard.

But just because a few loose cannons let loose, doesn’t mean America has 60 million loose cannons who all voted for Trump and should all be condemned including Trump himself for good measure because there’s a few incidents. Not only is that a misinterpretation of what goes on, it prevents you from understanding what lies behind.

Those incidents at least have a lot to do with the fact that so many ignored Americans live in what Washington has long considered flyover country. It would be a lot more positive and productive at this point in time if everyone looks at what they themselves have gotten wrong over the past years -not just this election campaign- before pointing fingers at everyone but themselves.

But seeing the dug-in heels in Britain almost five months after the Brexit vote, it’s hard to get your hopes up about people coming together, or even doing some genuine introspection. It’s easier to just remain stuck in your comfy little rut.

Thing is, the world is rapidly changing -it already has-, America is changing, Britain is, and many more countries will, it just takes an election to show how much. We’re transitioning to a next phase, and trying to deny we are with all our might, good luck and good night.

Or in a more poetic fashion – we can do that too-:

the blizzard of the world
has crossed the threshold
and it has overturned
the order of the soul

An American Tragedy: Trump Won Big

Oct 102016

October 10, 2016 Posted by Raúl Ilargi Meijer at 6:46 pm Finance Tagged with: America, bias, Hillary, John Wayne, moderator, narrative, Putin, Sarandon, taxes, Trump 9 Responses »

Elliot Erwitt New York 1955

If the US presidential debate last night showed anything, it must be that just about everyone has dug themselves into their trenches and had no desire whatsoever to ever came out.

This seemed especially clear on the Hillary side, which appeared to include -to an extent- ‘moderators’ Anderson Cooper and Martha Raddatz, judging from their interruptions. But, granted, they were the only biased side in the discussion, so we don’t really know what trenches the Republicans have dug.

The biggest problem with biased moderators is that people notice their bias. Not those who are on one side already, it passes them by. But others do. And perhaps more importantly, -in this case-, Hillary’s team loses its ability to adopt a neutral view. And she will therefore hear so much praise that she can’t figure out if she’s not done too well.

To illustrate that point: the main takeaway must be that Trump won the debate hands down, but that’s the opposite of what Hillary sympathizers concluded and what various polls said. It’s still true though, if only for one simple reason. That is, for 48 hours straight all talk and ‘reporting’ had been about Trumps lewd ‘words’ on the Access Hollywood tapes.

Trump really was cornered, and he knew it, everyone knew it. But after the second debate, and within 90 minutes, most of the talk turned towards how he ‘threatened’ to jail Hillary. Now, that’s not what he said, but even if he had, it’s something a lot more people sympathize with than with his language on the tapes. That’s a lot of territory ‘conquered’.

Meanwhile, even the likes of Paul Ryan don’t seem to grasp what happened overnight (he apparently think Hillary already won). What he doesn’t appear to see is, again, that Trump looked completely lost for 48 hours, but doesn’t look so lost now. There are 4 weeks and a day left in the campaign, and a lot can still happen.

Look, Trump is a buffoon. The word could have been invented specifically to define him. And it would be a very bad idea to make him president of the US. But that doesn’t mean the idea of making Hillary president is any better. It may well be worse, for a variety of reasons.

What the debate made clear once more is that America stands face to face with itself, it’s looking in a giant mirror, one which -only- in choice moments does not contort its own image, and America finds there’s nothing to like about what it sees in those brief moments in that mirror. And then therefore immediately proceeds to contort that image like it’s used to doing.

America may not like to look at its own stone cold hard reality, but it’s better than any culture ever in painting a picture of itself that it does like. In fact, it’s the first nation ever that made exactly that its main goal in life.

The Brits, the French and the Dutch try to hide their dark colonial and slave trading pasts, but America built an entire culture around contorting its history, right there in Hollywood, with ‘stars’ like John Wayne and John Ford being celebrated for movies that celebrate the annihilation and violent submission by the white man of both Native Americans and African slave populations.

In that same vein, the ‘heroic exploits’ of US soldiers in Muslim countries from Libya to Afghanistan in the past decades are now a major topic for the next generation of twisted history in movies and other media, in which invasions, drone killings and carpet bombings are portrayed as acts of bravery that warrant Purple Hearts. While the people whose lives and cultures are destroyed are swept under the first available carpet.

But that’s another story for another time. Back to last night’s debate. Trump may have won big, but he left some substantial scraps on the table that he may yet come to regret. Perhaps he was too focused on digging himself out of the ‘grab that pu**y’ hole -and yes, that is foul- to notice he was already out. Hard to say. He has the intuition, but does he have the brain?!

The first thing either The Donald or one of his team members must hammer down, urgently, is the way past stupid narrative of Russia’s involvement in US politics. Hillary repeatedly brought it up again, and it’s cheap fare for her, she can say anything she likes on the issue, no-one will contradict her or check any facts.

There were all these alleged fact-checkers ‘active’, but they dare not check the facts on this (there are none). Anything the Democratic Party wants to hide, it is free to hide behind Putin. No questions asked. That is insane at best, and Trump should have halted the narrative.

As should Cooper and Raddatz, and the army of fact checkers, but the fix was in. The low point must have been the allegation that Wikileaks is linked to Putin. Really? Come with facts, or forever hold your tongue. Too much cheap fare, hollow as can be, and Hillary build much of her story on it. Not good on the part of the Trump people.

I was reading an August 2 piece by Timothy O’Brien at Bloomberg the other day on Trump’s Russian connections, and Tim seems to start off with good hope of ‘inking the deal’, but ends up admitting there’s no there there.. The entire narrative of Trump’s Russian connections is as false as John Wayne’s heroism in slaughtering Native Americans. He should have cut that tale short in the debate, He didn’t.

Hillary gets to say, without any interruption or fact checking that “Russia has decided who it wants to be president, and it’s not me.” and that is way beyond any comprehension, really. There is zero proof of that, as there is of everything the US claims about Russia.

For all we know, Putin would much prefer Hillary to be president, because he sees Trump as a much stronger opponent when the chips are down. Hillary’s allegations are just a narrative she thinks will appeal to voters. She’s wrong. At least when it comes to those who wouldn’t have voted for her regardless of the narrative.

The second issue Trump desperately needs to put to bed is the one of his taxes. And mind you, I did say Trump should not ever be president of the US. That’s my perspective.

Hillary again last night painted a picture of Trump leaving US veterans out in the cold by not paying enough taxes. Trump retorted by saying Buffett (not Jimmy) and Soros do the same. But that’s a huge missed opportunity.

Paying taxes in America, and in any western nation, is not some voluntary exercise; there are laws, and they are some of the most stringent and most punishable there are. You cheat on your taxes, and the IRS or their equivalent in other countries have the power to go after you like no other government institution. Tax cheats very often go to jail.

That none of this has happened to Trump means, it’s that simple, that he did not break the law. He has used to the law to his advantage, just like everyone else who could, sure, But there’s not an inch of evidence, not even a hint, that he did anything illegal.

Hillary’s campaign is well aware of this, so the issue gets presented as some -pretty opaque- moral issue: ‘You didn’t do well by our veterans’. But what could he have done? Should Trump be the only American, or only western citizen, to tell the IRS to please take another extra $10 million or so, or $100 million, after they were done auditing him? So he wouldn’t be attacked 20 years on when running for office? It makes no sense in any sense.

And yes, the situation is very different if you’re on a payroll for some company, you can’t deduct what Trump could. But he’s not alone in that; in fact, all American entrepreneurs are in the same boat, and they will all try to swing that boat in the direction that fits them best. And Hillary loves these entrepreneurs as much as anyone when it suits her purposes. And her accountants do the same thing, they follow the same principle. Perhaps for lesser amounts, but that’s not the point.

Trump’s taxes are a non-issue, a brainless narrative. Not something for Hillary or anyone else to use as some innuendo-laden topic, anymore than Trump can use Hillary’s tax files against her in an ‘innuendo illegal’ way. Any judgment on that is up to the IRS, not either the Republican or Democratic campaigns. It’s ridiculous that Hillary can use that in a debate, and Trump and his people should have shut that venue down long ago.

But anyway, we have that 4 weeks and a day to go, and there’ll by much more to ‘enjoy’. Still, Trump came back last night from very very far away. No matter what CNN and other polls may say. Those polls are as biased as the night’s moderators.

It might be a good idea to realize that a year ago nobody ever gave Trump a shot at the gold medal, and his support never came from the people who conform with CNN (which nobody watches stateside anyway) or ABC.

We’ll talk again soon. Meanwhile, I’m with Susan Sarandon, who says bring it on, bring on Trump, because she despises Hillary, and because:

“Donald Trump will bring the revolution immediately; if he gets in then things will really explode.”

Sort of like what I wrote before, that if you must choose between two very bad options, might as well pick the worst and get it over with:

Who Shall Wear The Robe And Crown?

Jun 112016

June 11, 2016 Posted by Raúl Ilargi Meijer at 3:24 pm Finance Tagged with: Ali, America, Coen Brothers, gospel, music, oppressors, slaves 1 Response »

I was going to take a day off today, partly because a kind Automatic Earth reader in Athens insisted on taking me out to lunch, partly because I need a break, and partly because the Financial Times complained about their inclusion in my Debt Rattles, which makes me think about the whole thing. Nothing bad about that. Think is good.

But then of course my head doesn’t stop wandering, and so I wandered into music, and Muhammad Ali’s funeral and memory, and I was pondering that he must have loved the songs I post below. As much as I am turned off by a lot of things stateside these days, and he was too, the country, when history is written, will be known for as long as there are people to sing and play and act, for the incredible melting pot of musical styles and plays and movies it has produced.

America, if anything sums it up, is a country that has perfected the art of painting a portrait of itself in music, literature and film. Often a deceptively false portrait, as in the whole “John Wayne vs the Indians” theme, but that’s not the real story, and we all know it. America’s always been about making you believe it’s something it’s not. And in the process it’s produced, despite itself, magic.

Gospel and religion were always a large part of the music, along with the inherent contradiction in having both sides of the segregation lines and railroad tracks go to churches and pray -in different ways- to the same God. Ali found his own. But he knew all along that there is but one God for those who choose to believe in one. He just didn’t want everyone to know that, at least not 50 years ago.

In the music itself, the British and Irish and German and Russin and Jewish et al influences are plain for everyone to hear. But American music was of course shaped more than anything else by African slaves. The biggest miracle the continent has produced is the coming together, if only in music alone, of the oppressors and the oppressed.

That’s quite an achievement, when you get to think about it. At the same time, that’s the power of music; it doesn’t know borders or race. But that’s not nearly all either.

What’s missing in my view and knowledge is how the music that the earliest slaves, those who weren’t shipped to the US but much further south to Brazil and neighboring lands, we’re talking 17-18th century, influenced American music. That’s something I’d like to know a lot more about. Meanwhile, the Coen brothers tuned right down into all of this. And so did Bob Dylan. And Ali, who now wears the robe and crown.

Did The Greatest American Alive Just Die?

Jun 042016

June 4, 2016 Posted by Raúl Ilargi Meijer at 8:25 am Finance Tagged with: Ali, America, boxing, Muhammad Ali, pretty, racism, segregation, Vietnam, war 3 Responses »

Ali escorted to jail April 28 1967

“Boxing legend dies”, is what most headlines say. And the news was first reported on sports pages, though it did soon move to frontpages, fast.

Muhammad Ali was so much more than a boxing legend. So much more that to mention boxing first doesn’t do him justice. Ali was first and foremost a very brave and intelligent man, who changed America for the better. Or should we say: changed Americans?

He grew up in an intensely racist, segregated and divided America, and in the arguably most divided part of that America. That shaped him. Boxing was merely his way out, his way to fight discrimination and racism.

But it didn’t come easy. His was a lonely fight, for most of it. But then, he wasn’t the greatest for nothing.

The only people who stood by him were the Nation of Islam, who made him say some crazy things and from whom he later split acrimoniously; Ali wanted peace, they, not so much. Ali found he was much closer to Martin Luther King at heart. But still.

I saw some numbers flash by earlier. America’s been at war in 223 of the 240 years of its existence since 1776.

Ali refused to go. No matter what the cost. He could easily have been killed for doing it, or locked away for the rest of his life, and he knew it. But he didn’t even flinch. He would not fight the fight of those who set their dogs on his people. He would instead fight against them.

“I am America. I am the part you won’t recognize… But get used to me. Black, confident, cocky; my name, not yours; my religion, not yours; my goals, my own; get used to me.”

“Why should they ask me to put on a uniform and go 10,000 miles from home and drop bombs and bullets on brown people in Vietnam while so-called Negro people in Louisville are treated like dogs and denied simple human rights?

No, I’m not going 10,000 miles from home to help murder and burn another poor nation simply to continue the domination of white slave masters of the darker people the world over.

This is the day when such evils must come to an end. I have been warned that to take such a stand would cost me millions of dollars. But I have said it once and I will say it again. The real enemy of my people is here.

I will not disgrace my religion, my people or myself by becoming a tool to enslave those who are fighting for their own justice, freedom and equality. If I thought the war was going to bring freedom and equality to 22 million of my people they wouldn’t have to draft me, I’d join tomorrow.

I have nothing to lose by standing up for my beliefs. So I’ll go to jail, so what? We’ve been in jail for 400 years.”

(NOTE: Whether Ali ever actually said: “No Vietcong ever called me a nigger” is not entirely clear. But he did say this:)

“My conscience won’t let me go shoot my brother, or some darker people, or some poor hungry people in the mud for big powerful America. And shoot them for what? They never called me nigger, they never lynched me, they didn’t put no dogs on me, they didn’t rob me of my nationality, rape and kill my mother and father… Shoot them for what? How can I shoot them poor people? Just take me to jail.”

Whether Ali was the greatest American alive when he died a few hours ago is of course a personal view. That he was way up there is beyond dispute. And he had been there for 50 years, while he was still alive. Oh, yeah, and he was a good boxer too. And very pretty.

The American Consumer Will Never Be Back

Apr 112015

April 11, 2015 Posted by Raúl Ilargi Meijer at 7:42 am Finance Tagged with: America, Bernanke, Bloomberg, consumer, debt repayments, savings, spending 10 Responses »

Harris&Ewing Inauguration of air mail service, Washington, DC 1918

That title may be a bit much, granted, because never is a very long time. I might instead have said “The American Consumer Won’t Be Back For A Very Long Time”. Still, I simply don’t see any time in the future that would see Americans start spending again at a rate anywhere near what would be required for an economic recovery. Looks pretty infinity and beyond to me.

However, that is by no means a generally accepted point of view in the financial press. There’s reality, and then there’s whatever it is they’re smoking, and never the twain shall meet. Admittedly, my title may be a bit provocative, but in my view not nearly as provocative, if not offensive, as Peter Coy’s at Bloomberg, who named his latest effort “US Consumers Will Open Their Wallets Soon Enough”.

I know, sometimes they make it just too easy to whackamole ’em down and into the ground. But even then, these issues must be addressed time and again until people begin to understand, and quit making the wrong decisions for the wrong reasons. People have a right to know what’s truly happening to their lives, and their societies. And they’re not nearly getting enough of it through the ‘official’ press. So here goes nothing:

US Consumers Will Open Their Wallets Soon Enough

People are constantly exhorted to save, but as soon as they do, economists pop up to complain they aren’t spending enough to keep the economy growing. A new blogger named Ben Bernanke wrote on April 1 that there’s still a “global savings glut.” Two days later the Bureau of Labor Statistics announced the weakest job growth since 2013, which economists quickly attributed to soft consumer spending.

The first problem with Coy’s thesis is that even if people open their wallets, far too many of them will find there’s nothing there. And Bernanke simply doesn’t understand what savings are. His ideas through the past decade+ about a Chinese savings glut were always way off the mark, and his global – or American – savings glut theory is, if possible, even more wrong. In the minds of the world’s Bernankes, there’s no such thing as people opening their wallets to find them empty. If they don’t spend, they must be saving. That there’s a third option, that of not having any dollars to spend, is for all intents and purposes ignored.

The U.S. personal savings rate—5.8% in February—is the highest since 2012. “After years of spending as if there were no tomorrow, consumers are now saving like there is a tomorrow,” Richard Moody, chief economist at Regions Financial, wrote to clients in March. Saving too much really can be a problem when spending is weak.

The little man inside, when I read things like that, tells me this is nonsense. So I decided to look up how the US personal savings rate is calculated. Turns out, it’s another one of those whacky goal-seeked government numbers. At least, that’s what I make of it. Mainly, though not even exclusively, because of things like this, from a site called Take A Smart Step:

[The personal savings rate in] November 2012 was 3.6%, this is not even close to where we need to be for financial health. This savings rate barely gives us enough to handle emergencies, and makes us as a nation weaker. The government calculates the personal savings rate as the difference between the after tax income and consumption of Americans. So they include not only retirement savings, but debt repayments, college savings, emergency fund savings, anything that was not spent.

Making paying off your debt (i.e. money you’ve already spent) count towards your savings is a practice fraught with questionable consequences. But useful for economists, and accountants alike, no doubt. The problem with it is that it hides reality behind a veil. Because debt repayments are not really savings at all; people are not free to spend what they put into paying off debt, on something else, like iPads, cars or trinkets. Not even on hookers or crack cocaine, for that matter.

For the vast majority of what is paid off in debt, there’s no such thing as free choices. People pay off debt because they must. Or, to look at it from another, wide lens, angle, Americans would have to stop servicing their debt payments if they want to ‘start spending’ again.

Going through the numbers from various sources, I can see that the US personal savings rate is presently some 5.8% of pre-tax income, and debt repayment is close to 10% of disposable -after tax – income. I’m still trying to make those stats rhyme. But no matter how you read and interpret them, it should be clear that debt repayments are a large part of ‘official’ savings. Even if they really shouldn’t be counted as such.

Of what remains in real savings, retirement/pension savings must necessarily be a substantial percentage, and it would be weird to call those things ‘saving like there is a tomorrow’, if only because they are about, well, tomorrow. But that seems to be the new normal: creating the impression that saving any money at all is somehow detrimental to the economy. A truly crazy notion, if you ask me. Let’s get back to Bloomberg’s Coy:

There are only two things you can do with a dollar, after all: spend it or save it. If you spend it, great—that’s money in someone else’s pocket.

In someone else’s pocket, but no longer in yours. Why would that be so great? It’s only great if that someone has added value to something by doing productive work, not if you simply swap paper assets.

If you save it, the financial system is supposed to recycle your dollar into productive investment with loans for new houses, factories, software, and research and development.

That notion of ‘the financial system is supposed to’ refers to theories such as those that Bernanke and his ilk ‘believe’ in. Theories that have no practical value. What is normal for many everyday Americans is crippling debt levels, and no such thing is recognized in these theories. After all, according to them, whatever amount of dollars you get in, you either spend or save them. And if you use them to pay off previously incurred debt, you’re supposedly actually saving, even though you no longer have possession of the money in any way, shape or sense, nor a choice of what to spend it on.

But if no one’s in the mood to invest more and interest rates are already as low as they can go (as they are in much of the world), the compulsion to save can sap demand and throw people out of work. For the U.S. economy, the good news is that the jump in the personal savings rate is probably no more than a blip. Three economists from Deutsche Bank Securities in New York explained why in a March 25 report called ‘U.S. Consumers: Still Shopping, Not Dropping’. While noting a “deceleration” in consumer spending, they wrote, “we think that concerns about the outlook for the consumer are overstated.” Their model of the U.S. economy predicts the savings rate will fall to 3% to 3.5% by 2017.

Oh sweet lord. Now a falling savings rate has become a beneficial thing, even when and where savings are very low. Not saving will allegedly save the economy. How did that happen? If we may presume that debt repayments will continue virtually unabated, and there seems to be little reason to think otherwise, this means that by 2017 there will be just about nothing saved at all anymore in America. Which means there’d be very little left of the ‘If you save it, the financial system is supposed to recycle your dollar into productive investment’.

The only ‘growth’ perspective America has left is to grow its debt levels continually, continuously and arguably exponentially.

Other economists have also concluded that the spending dropoff is temporary, which is why the slowdown in job growth, to just 126,000 in March, didn’t set off many alarm bells. “Consumer spending is starting to look more and more like a coiled spring,” says Guy Berger, U.S. economist at RBS Securities. One sign that consumers aren’t retrenching: On April 7 the Federal Reserve reported that consumer credit rose $15.5 billion in February, in line with the recent past.

They got deeper into debt, and this is a sign they’re not ‘retrenching’? A coiled spring? Really?

According to Deutsche Bank Securities, the first reason to think consumers will resume spending is that their incomes are rising. Annual growth in average hourly earnings has averaged about 2% since 2010, which isn’t great but does exceed inflation. With more people working as well, aggregate payroll outlays are up 4.9% from the past year, according to Bureau of Labor Statistics data.

The rises in stock and home prices should make consumers more willing to live a little, say the Deutsche Bank authors. They calculate that households’ net worth is almost 6.5 times consumers’ disposable personal income. That’s the highest ratio since before the housing crash.

But that last bit is arguably all due to QE induced asset bubbles. Not an argument the author would make, I know, but nevertheless. Coincidentally, another Bloomberg article published the same day as the one we’re delving in here is called:Why Your Wages Could Be Depressed for a Lot Longer Than You Think. Perhaps the respective authors should have a sit down.

No question, the high savings rate depresses spending in the short run. Purchases of durable goods, from cars to couches, remain well below their 60-year average share of GDP. But all that saving helps consumers get their finances in order, which will allow them to satisfy pent-up demand for that sweet new Ford F-150.

No no no: they just paid off part of their debts. How can that possibly mean they’ll go out and get a new F-150? In real life, they spent their money instead of saving it. Either way, they don’t have it any longer to spend on a F-150. It would mean they need to get into new debt. On top of what they still have left over even AFTER paying down part of it.

Fed data show that financial obligations including debt service, rent, and auto leases are about their lowest in comparison to disposable income since 1981.

Hmm. According to Wikipedia, “Household debt as a % of disposable income rose from 68% in 1980 to a peak of 128% in 2007, prior to dropping to 112% by 2011.” It’s about 105% today. So that’s just a very weird statement. Someone’s wrong, very wrong, and I think I know who that would be. Maybe Peter Coy conveniently ignores mortgage payments when he talks about “financial obligations including debt service, rent, and auto leases”?!

When consumers are ready to borrow more, it won’t hurt that, according to the Fed’s survey of banks’ senior loan officers, banks are easing lending standards.

See? That’s what I said: they can only spend if they acquire new debt. They’re just getting rid of the last batch, and it’s going mighty slowly at that. Lest we forget, when debt as a percentage of income falls, that is due to quite an extent to people failing to make any debt payments at all, and losing their homes and cars. This is a dead economic model. This model is pining for the fjords.

These factors add up to an optimistic consumer.

Oh, c’mon. What is that statement based on? That ‘sky high’ savings rate that is really just poor slobs paying off what they can in debt repayments so they won’t get hit with even more fees and fines?

What I think these factors add up to, is a delusional reporter. There is no excess saving. It’s ludicrous. As far as people have any money at all, they’re using it to pay down their previously incurred debts. And that gets tallied into their savings rate by the government’s creative accounting methods. That’s all there is to the whole story. But it will, regardless, induce a few more poor souls to sign up for more mortgages and car loans and feel like happy American consumers on their way down into the maelstrom.

It’s sad, it really is. Maybe we should first of all stop referring to the American people as ‘consumers’. That might help.

Things To Do In 2015 When You’re Not Yet Dead

Dec 282014

December 28, 2014 Posted by Raúl Ilargi Meijer at 11:15 pm Finance Tagged with: 2015, America, EU, internet, matrix, money, power, Ukraine 14 Responses »

Unknown GMC truck Associated Oil fuel tanker, San Francisco 1935

America has managed to construct an entirely one-dimensional political system. There’s no discernible difference left between left and right, other than in spin language pre-cooked for the sole purpose of faking the concept of elections. There’s very right and ultra right. America is living proof that once money is allowed into politics, the accumulation of it, and of the power it can buy, will and eventually must fully control a democratic system, which in the process, of necessity, suffocates and dies a painful death.

What once was a proud American democracy has been turned into a circus that rolls into town every four years, filled with clowns that pretend to fight each other with over the top grotesque contraptions, but sleep in the same bed once the show is over and the audience has gone home.

In Europe that process has not yet been completed, but with the inception of the EU it is well on its way. It is a predictable process, in that the concentration of power, and of money, is irreversible as long as it’s allowed to continue its course, and the system succeeds in making people believe they still have a say in their own lives. As long as that belief is in place, it’s just an ongoing – relatively – slow corrosion that sets in and then takes its time, but never stops.

Control of the media is an obvious key element of this process, and surprisingly easy to obtain; you’d be inclined to think people would fight harder for their access to real life information. They don’t. As I said two days ago in 2014: The Year Propaganda Came Of Age, that’s what the Ukraine situation has taught me. It’s shown me how far ahead we are, not just stateside, but all over Europe as well, in living up to George Orwell’s visions. As far as I’m concerned, if Eric Blair had named his book 2014, he’d have been dead on. 2014 was the year, much more than 1984. But I don’t blame him: how was he supposed to oversee that in 1948?

Ukraine was the epitomy: no questions asked, just neverending tons of innuendo written and spoken, and a case for which to date no proof has been provided has been firmly decided in the public mind. No due process, no innocent until proven guilty, not proper defense. Everybody has the right to a lawyer, but not in international politics. Or, apparently, in the eyes of western media and citizens.

Only today, Angela Merkel once again said something to the extent that Putin must get the Donbass ‘rebels’ to stop the fighting, while she knows full well they can’t and won’t, because they risk being ethnically cleansed if they would. 4500 of them were already killed by what was supposed to be their own government.

But the German people, like all other European peoples, swallow this nonsense whole. The only counterweight comes from German businesses that lose too much money in the sanctions that make no proper sense. And if the pressure from that side gets strong enough she’ll cave in, slowly, provided she can avoid losing face. That might be the biggest risk to US regime change plans in the new year.

And those plans deserve and need to be thwarted. As do the Troika schemes to throw Europe’s Mediterrenean region ever deeper into misery, austerity and ultimately debt slavery. The EU is a one dimensional one way street into a deep dark night, construction of which is overseen by people who work for their own personal interests, not that of their people. A nice idea gone terribly astray. Let’s make sure we finish it off in 2015, and give the Greeks and Italians back their honor and their dignity. And let’s keep our own dignity in the process.

As for the US, I got to tell you, I don’t know. Obama has been a miserable failure, perhaps because he was just trying to save his skin all along, or because he was like this all along, but he sure never brought much change. Or belief. Waiting in the wings we got Hillary Clinton and Jeb Bush, but they’re the exact same person. They’ll sell their grandmas for cheap if they think it’ll help them along.

America needs people who believe in something other than money or power, but anyone who’d try would be swept off the Christmas table with the other food scraps in no time, and be devoured by the dogs. I got some flack for saying on my Facebook page that the Ron Paul Institute published the propaganda article I mentioned before, but girl, Ron Paul is all you have left, like him or not.

Dr. Paul is the only one I know in America who has raised his voice against the US involvement in Ukraine, the only one in the entire west even, other than those of us in the blogosphere, or the alternative media if you will. And that’s insane. That’s utterly insane. We should not allow for our voices to be silenced the way they are, not just like Ron Paul, but worse than him. We don’t deserve to be marginalized anymore than Dr. Paul does; we’re smarter than the lot of them.

I guess that is what I think those of us who haven’t died yet should set out to do in 2015. Do what we’ve been doing, and do more of it. As Andy Warhol said: the only thing that counts is work. Big dreams or goals go only so far. They mean little if you don’t put in the work. And for this ‘alternative press’ we have going, from Zero Hedge all the way down to the Automatic Earth, with all the great people in between and around it, what matters is the work. No letting up; we have the same responsibility the illegal press had in Amsterdam and Paris in the 1940s – even if we can’t stand in the shadows of their courage -: to make sure people get information that does not stem from the matrix.

An article in the Guardian today said that 2014 was The Year The Internet Came Of Age. I think I’ll stick with my 2014: The Year Propaganda Came Of Age, but the combination of the two leads to interesting questions. Like: what role has the internet played in the rise of the propaganda that led to almost none of our so-called higher-educated people asking any questions about what really happened in Ukraine, or about so many other situations the ever more concentrated powers that rule us are involved in.

First of all, obviously, the financial world. Hardly anybody may understand what that is doing to us, to the world we live in, to the people we love and those who don’t know but we should still be holding out for (those underground press guys in WWII were risking their lives for people they didn’t know). Between us, we do understand a whole lot of what’s happening. We have no choice – or at least I don’t – but to keep going at it every single day and get it out there, and hope that a few more people every day will pick up on it. Not to make money for themselves – that’s the very disease that got us where we are -, but to be more human, and to try and lead a way forward. For now the internet allows us to do that. Let’s make the best of it while we can.

Quo Vadis, America?

Dec 142014

December 14, 2014 Posted by Raúl Ilargi Meijer at 9:33 pm Finance Tagged with: America, freedoms, nukes, politicians, rights, Ron Paul, Senate, torture 16 Responses »

DPC Mott Street, Chinatown, New York 1900

Where are you going, America?

I don’t like to discuss politics too much. There are not enough smart, kind and honest people in politics wherever I look in the world for me to want to have anything to do with that game. I’d just spend all my time wondering what kind of mindset it takes to want to tell other people what to do, and be in control of the millions, billions and trillions of dollars that are taken from these people on a daily, yearly, basis.

Not that all of them politicians are bad, but those who have genuinely good intentions get drowned out, within seconds, by the ones for whom the need to have power over others is more important than anything else. And as I said, on the whole they’re not very smart. It’s for instance a very bad idea to let you countries’ economic policies be decided by the very people who make the decisions today.

They have no clue what they’re talking about. So they get advisors who they feel do know, and these advisors all come from the same small niche of society that steer everybody’s hard-earned cash towards that same small niche of society. 99% of economists are religious nuts who do even the Roman Catholic church one better because they chart graphs to ‘prove’ their beliefs are true -or even provable-.

They adapt the world to their theories, not the other way around, as physicists do. They pretend their field is a science, but, other than the graphs, it has none of the characteristics of a science. Falsifiability is not a term one can let loose on economics; within minutes, there’d be nothing left.

The other advisors politicians have when it comes to economic policies are bankers, who are convinced banks are the most important institutions and edifices in the world, just like priests and vicars would have described their churches and cathedrals not long ago. That is why last week we saw a spending bill being shoved through US Congress and Senate that includes parts openly written by Citigroup lobbyists, and which puts the risk of over $300 trillion in derivatives on American taxpayers’ shoulders.

America is a democracy in name only. And I often ask myself why Americans take that lying down. Why they think they don’t have to fight for their rights and their freedoms the way the founders did. Do they think they’re special, are they so full of themselves, and full of ‘it’, that they think it’s okay to let their rights being taken away from them, and their children, the same rights so many Americans died for in earlier days?

When you try and see things that way, what else do present day US citizens deserve than what’s coming to them? You can’t have freedom, and you can’t have rights, if you’re not willing to fight for them. And that doesn’t mean sending a bunch of your low-down poorest young people to some faraway desert, it means keeping in touch with what’s happening in your own town and county and state and country. And raising your voice if you don’t like what you see.

There’s a Senate report – many years too late – that confirms the CIA and other parties tortured often innocent people in the name of the United States, and that means you, in incredibly cruel ways reminiscent perhaps most of Medieval times or even before that, before man allegedly became civilized, but for which, by the looks of it, nobody will to be prosecuted in the US.

Letting people die of torture, and then afterwards finding out it was just another case of mistaken identity, has become acceptable in America. Congratulations. We’ve come a long way.

There’s the incredible story of the Ukraine, in which the Senate just days ago called for more economic sanctions vs Russia, and full-blown lethal military aid for Ukraine, where US patsies have taken over even more government positions by being handed hundreds of millions of dollars and fresh Kiev passports, and where now Russia will be forced to counteract, against its will.

Why do Americans allow for that to happen in their name? Don’t they care what other people in the world, in which they’re hugely outnumbered, since less than 1 in 20 is American, think about them? Don’t they care about the effect of harassing others incessantly for the purpose of enriching US companies?

Or do Americans think their superior weaponry allows them to do whatever they want to whoever they want to do it to? Somehow, that, too, is reminiscent of the Middle Ages. America hasn’t won an actual war since 1945, because bigger armies don’t win wars anymore. Having the biggest guns doesn’t either. Nuclear weapons are too destructive for that.

Ron Paul seems to be the only US politician who has any idea of what the US should stand for, who understands that empire building is a really bad idea with all the nukes around, and that coalition building and friendship with other peoples and nations is a much better way to keep Americans safe and -relatively – prosperous. And Ron Paul is getting on; who’ll stand up in his place?

But the biggest issues for Americans are not abroad, they’re right at home. As evidenced by Ferguson, by Eric Garner, and by the mass demonstrations in the past days. The problem is, since the 1960s people have turned their focus so much towards money and so far away from their personal rights and freedoms, and those of others, that one or two or ten demonstrations won’t make a difference anymore.

I was watching something on the 1964 Klan killing of three civil rights workers in the town of Philadelphia, Mississippi the other day, of Dr. King’s role, of how the entire town knew who was guilty but shut up. And I wondered what exactly America has achieved since then, what has changed and what is better 50 years on.

And sure enough I found my answer, in a graph of all places. It this doesn’t hurt your sense of justice, and your sense of pride to be an American, I don’t know what would. Nor do I understand, if you choose to keep silent, where you think this will lead in the future. What can you possibly say when you let these numbers sink in?

A Picture of the New America

May 242014

May 24, 2014 Posted by Raúl Ilargi Meijer at 2:56 pm Finance Tagged with: America, Fed, housing, retail 11 Responses »

Marion Post Wolcott Farmer’s son making sorghum molasses, Racine, West Virginia Sep 1938

Yesterday, we saw that despite a tepid rebound in new home sales, the underlying numbers are far from promising. In particular, prices, which had been holding up despite sagging sales, are down YoY. We also saw that some big investors are now -openly – betting against housing. We saw that the Fed is as a rule so far off in its official forecasts that one needs to wonder about its level of honesty. But what I think was the main item yesterday is the fact that world trade has landed in negative growth territory. The implications of that are hard to overestimate. Global GDP until now has been up quite a bit more than that of the US, Europe, Japan. But now all are tipping their toes on the other side of the much feared red line. And it’s high time for everyone, including Americans, to start realizing what’s going on, and that it looks nothing like the brightly colored pictures of grandeur just around the corner that are consistently being painted for your consumption.

Yesterday afternoon Bloomberg reported that US Q1 retail numbers were hugely and painfully below analysts’ estimates.

U.S. Retailers Missing Estimates by Most in 13 Years

U.S. retailers’ first-quarter earnings are trailing analysts’ estimates by the widest margin in 13 years after bad weather and weak spending by lower-income consumers intensified competition [..] … the expectations the chains are missing have been significantly lowered. While analysts now project retailers’ earnings fell an average of 4.1%, back in January they had estimated a 13% gain. Lower- and moderate-income consumers had little discretionary spending power [..]

That difference is so stunning one must wonder what goes on. As Alhambra Investment Partners’ Jeffrey P. Snider does, in a piece posted by David Stockman:

Sell-Side “Pent-Up Demand” Fantasy: Q1 Retail Profit Outlook Went From +13% to -4% (Actual) In 90 Days

We keep hearing about pent up demand as if it is a foregone conclusion. For some, particularly orthodox economists, it really is – it has to be. If there is no pent up demand awaiting some ephemeral trigger, then their whole theory of the economy is wrong, from the ground up. [..]

Back-to-school sales were “unexpectedly” low, leading to whispers about retailers stuffed with inventory. That was fine, though, because Christmas sales were going to be the first real treat since before the panic. Even though Kmart started advertising its Christmas deals in September, that was dismissed as idiosyncratic. Then it turned out Kmart was actually emblematic and Christmas (for the retail industry) ended up as the worst since 2009. But that, too, was fine, because holiday hangover would be less significant. So retailer expectations, as with those for overall economic growth, were tremendously optimistic until it snowed in winter.

In the space of only three months or so, retailers went from (yet again) expecting fortune and finding instead more “mysterious headwinds.” But this is beyond the usual ridiculous affair, to miss by that much implies something far more serious. To go from +13% to -4% that quickly is an outrage, not just to the economy as it sinks further under the weight of these commandments, but also in those businesses that continue to rely on orthodox forecasts and assumptions.

In another article, at Real Clear Markets, Snider backs up the numbers with a look at sales at the biggest US retail chains:

Target, Staples And The Same Poor Mess (Alhambra)

At what point do “struggling consumers” begin to register as something more than a mysterious headwind? The state of US households is more like a recession than some tangential factor that is just running below expectations. The results speak for themselves – there was an obvious slowdown in 2012 followed by revenue and spending patterns that very much equate to late 2007 and early 2008. [..] The ups and downs throughout the chronology of the past seven years sure look like two recession cycles. It really doesn’t get much clearer than this:

You can make the case that the current down cycle is nowhere near as bad as 2008, especially into 2009, but that is an exceedingly low standard. We have been promised repeatedly and assuredly that there would be a recovery, even to the point of having to withstand four separate, immense QE paroxysms. To what gain? To what loss? If it was only Target and the rest of the retail industry was doing fine, then you can dismiss these results (actual dollars spent as they are, in contrast to sentiment surveys) as Target’s individual missteps. But Wal-Mart has shown the same exact pattern, though actually faring far worse in terms of its 2008 comparisons. Wal-Mart and Target are #1 and #3 in terms of size.

That suggests that consumers were downgrading their shopping impulses in 2008 from more expensive outfits to bare bones essentials. In other words, the Great Recession almost benefitted Wal-Mart by shifting the whole retail scale toward “cheap.” Now, in 2013 and 2014, they can’t even get away with that. It’s almost as if the country and economic system have grown far poorer throughout this “recovery.”

Of course he doesn’t mean ‘it’s almost as if’, he means America has gotten poorer and is well on its way to get poorer still. The very prolific Snider takes on US housing while he’s on a roll:

• Total Y/Y Home Sales Down 7%, But Plunged 17% At Bottom

The depressed level of existing home sales throughout 2014 so far continued into April despite all projections of pent up demand after a cold and wintry start. There was some growth in the month-to-month change of the seasonally adjusted figures, but even there the clear problem that has been evident since mortgage finance collapsed starkly remains. [..] Protestations aside, the future of real estate will be decided by these financial factors, including both mortgage finance and household impoverishment.

The true pattern really jumps out when viewing these figures Y/Y.

First time home buyers continue to be absent from the housing market. The level of this category of purchasers remains at about only 29% of all sales. That speaks to both affordability (lack of) and household formation. It also shows clearly the shortcomings of the continuous appeal to the insidious wealth effect as it fails to trickle to anyone other than those directly experiencing asset inflation.

The picture that emerges of the new America is starting to get into focus. We can see what goes on, no longer distracted by the media, the markets or the political system. At least, it is there for us to see, and the need to be distracted is gone. Whether we will actually choose the clearer picture over the rosier fuzzy one is another matter altogether. Do we even want to know why American housing and retail are getting so much worse so fast? Why not turn to Jeffrey P. Snider again?

Interest Rate Manipulation Comes Back to Haunt Its Most Ardent Supporters

It is difficult to give too much deference to commentators, particularly economists, that speak to the value of quantitative easing in such bland and generic terms. It almost sounds exceedingly easy, as if the Federal Reserve buys a bunch of mortgage bonds, mortgage rates decline, more people can afford to buy houses and the world is full of sunshine again. It usually doesn’t get more detailed than that, partly because it is now ironclad law that in order to reach a mass market demands such simplicity, but also partly because that is the extent and depth of the profession’s actual knowledge of the inner workings. I hear it all the time when these same persons, who are nearly monolithic in their undying devotion to the sanctity of the FOMC, try to describe something so basic as the “money supply.”

Such a notion in the 21st century is so entirely fungible as to lose all proper and tangible meaning, yet that doesn’t stop a considerable number of respected commentators from removing all real world complexity. For example, Deutsche Bank announced last weekend a new “capital” campaign whereby the bank will raise €8 billion in order to focus more on the high yield and leveraged debt markets in the United States (this is not a joke). Part of the reason is that those debt markets are where all the action is now (thanks to what, exactly?) given that FICC [fixed income, currencies, commodities] trading, boring fixed income and bond trading, is almost completely dead today – the very segment that had sustained the global banking enterprise from the depths of near total despair.

How will Deutsche Bank get its new euro capital from Frankfurt to NYC? It’s all the more amazing since 60 million shares are to be (have been) sold to the investment company of a (the?) Qatari Sheikh. There will be a wonderful trip through derivatives markets and bank balance sheets (no doubt including Deutsche’s London and US subs), requiring the accounting and finance acumen of dozens of systems including risk management. Do we include or exclude the Sheikh’s initial funding toward the US$ money supply?

More interesting is why FICC trading has become so unprofitable. The short answer is the very same people who thought interest rate manipulation was a terrific idea in the first place. But such a generic statement plays right into the very critique I offered at the outset. There is obviously, given this setup, much more “nuance” and “texture” to how policy built up FICC only to tear it apart and set the world of finance into a much more unsettled position. First, you have to realize that the Fed through FRBNY’s Open Market desk doesn’t just buy some mortgage bonds as if they were like US treasuries. QE actually operates deep within the bowels of mortgage bond trading in a place called TBA [to-be-announced, some portion of a pending pool of as-yet unspecified mortgages]. The entire purpose of the TBA market is to provide liquidity to something that is, at its core, completely and totally illiquid. A mortgage loan is about as static as it gets in banking.

The manipulation of interest rates by central banks must at some point backfire. First of all because, as I wrote not long ago, if a market cannot set interest rates, it is by definition dysfunctional, since there’s no way to tell which asset is worth what price. That is of course the reason why the Fed suppresses rates: so highly indebted TBTF corporations can borrow at gutter-scraping rates, and made to look like they’re doing just fine, thank you. But the manipulation also drags down rates that those corporations once used to make money with, so the ‘policy’ is essentially self-defeating from the get-go.

It’s all just a matter of time. And the players in the financial world would like to pride themselves on being able to get the timing right. A tempting self-image for those who make millions a year, and think that means they’re smart. In fact, they’re not, and it all only works as long as the Fed makes up for their losses. Which it will no longer be able to do once upward pressure on interest rates becomes too strong. Or US housing and retail, together good for over 70% of GDP, plunge too much. As they inevitably must, precisely because of the near-freezing-point rates the Fed has set. It’s a closed circuit vicious circle. To put it mildly: we may be close. As for what to expect from the Fed going forward, count on it being found wanting, a lot. And count on the real economy, here’s looking at you, being the real victim, not the broke(n) financial institutions the Fed is tasked with saving. David Stockman:

Financial Storm Chasing With Blinders On: How The Fed Is Driving The Next Bust

The latest iteration of the Fed’s meeting minutes is surreal. Its another economic weather report consisting of trivial, random observations about the quarter just ended that are as superficial as CNBC sound bites. Along with that prattle comes guesses and hopes about the next 30-90 days—including the expectation that the weather will “seasonally normalize” and that auto production schedules, for instance, which were down in March, will stabilize at that level “in the months ahead”. Likewise, after noting that consumption spending moved “roughly sideways” during January and February, it detected that “recent information on factors that influence household spending were positive” – a guess that turned out to be wrong based on data we already know from April retail sales.

The data on new and existing home sales had indicated the continuation of a 5-month trend of sharp drops from prior year, but the minutes could muster only an on-the-one-hand-and-on-the-other-hand whitewash, accented with hopeful indicators on single-family permits and pending home sales. Business investment was treated the same way – that is, it was down in the first quarter but “modest gains” are expected soon based on sentiment surveys. And as you read further the noise just keeps getting more foolish, including the hope that the negative net export performance in Q1 would be off-set by improving global developments. That fond hope included this doozy: “In Japan, industrial production rose robustly, and consumer demand was boosted by anticipation of the April increase in the consumption tax.”

… the monetary politburo does indeed believe that it can steer our $17 trillion economy on a month-to-month basis, and attempts to do so with primitive “in-coming” data from the Washington statistical mills that is so tentative, imputed, guesstimated, seasonally maladjusted and subsequently revised as to be no better than anecdotal sound bites.[..] … its one size fits all control panel includes only interest rate pegging, risk asset propping and periodic open mouth blabbing by Fed heads. But these are no longer efficacious tools for driving the real Main Street economy because to boost the latter above its natural capitalist path of productivity and labor hours based growth requires artificial credit expansion – that is, a persistent leveraging up of balance sheets so that credit bloated spending rises faster than production and income.

I know many, if not most, people see Nicole and I as doomers and pessimists, and if only we did what Shinzo Abe told the Japanese to do: believe in Abenomics, things would be alright, since pessimism is such an corrosive attitude. But if pessimism means refusing to look the other way when confronted by lies, manipulations and tens of trillions in hidden losses, I guess we must accept the label, perhaps even with a shot of pride. Still, of course I realize that as the picture of the new America emerges and it’s not a rosy one, there are always plenty of sources to turn to that will serve a dose of optimism at demand.

The best thing I can do, as always, is to say: look at the data. What do you think you see? I can tell you what I see, and what I’ve been seeing for years, is a load of debt so gigantic that not restructuring it could only have been the worst possible decision, and yet it was made. The fact that this didn’t only happen stateside is no comfort, it just makes things worse: no-one left to unload your debt on. The Fed, the government and the media have ‘shielded’ Americans (and Europeans, and Japanese) from their own reality for many years now, so they wouldn’t notice how private debt was transferred to them. Retail and housing appear to be indicating that is not an effective strategy anymore, people overall are too stretched and stressed financially. What comes next is a scary thing to ponder. But it’ll be a new America, that’s for sure.

• U.S. Retailers Missing Estimates by Most in 13 Years (Bloomberg)

U.S. retailers’ first-quarter earnings are trailing analysts’ estimates by the widest margin in 13 years after bad weather and weak spending by lower-income consumers intensified competition. Chains are missing projections by an average of 3.1%, with 87 retailers, or 70% of those tracked, having reported, researcher Retail Metrics Inc. said in a statement today. That’s the worst performance relative to estimates since the fourth quarter of 2000, when they missed by 3.3%. Over the long term, chains typically beat by 3%, the firm said. Extreme winter weather through February and March forced store closings and stifled sales, Swampscott, Massachusetts-based Retail Metrics said.

Lower- and moderate-income consumers had little discretionary spending power, and chains also faced price competition from e-commerce sites. “The American consumer is not fully back and remains cautious,” Ken Perkins, Retail Metrics’ president, wrote in the report. What’s more, the expectations the chains are missing have been significantly lowered. While analysts now project retailers’ earnings fell an average of 4.1%, back in January they had estimated a 13% gain. Most retail segments are showing profit declines, with department stores, teen-apparel chains and home-furnishing stores faring the worst, Retail Metrics said. About 41% of retailers have missed estimates, while 45% have beat.

• Q1 Retail Profit Outlook Went From +13% to -4% (Actual) In 90 Days (Alhambra)

We keep hearing about pent up demand as if it is a foregone conclusion. For some, particularly orthodox economists, it really is – it has to be. If there is no pent up demand awaiting some ephemeral trigger, then their whole theory of the economy is wrong, from the ground up. The Fed reduced interest rates throughout the economy (though it is far more complicated than that) and thus had to spur a growth impulse. We haven’t seen it yet because of the continual interference of exogeny. Back-to-school sales were “unexpectedly” low, leading to whispers about retailers stuffed with inventory. That was fine, though, because Christmas sales were going to be the first real treat since before the panic. Even though Kmart started advertising its Christmas deals in September, that was dismissed as idiosyncratic. Then it turned out Kmart was actually emblematic and Christmas (for the retail industry) ended up as the worst since 2009.

But that, too, was fine, because holiday hangover would be less significant. So retailer expectations, as with those for overall economic growth, were tremendously optimistic until it snowed in winter. What’s more, the expectations the chains are missing have been significantly lowered. “While analysts now project retailers’ earnings fell an average of 4.1%, back in January they had estimated a 13% gain.” In the space of only three months or so, retailers went from (yet again) expecting fortune and finding instead more “mysterious headwinds.” But this is beyond the usual ridiculous affair, to miss by that much implies something far more serious. To go from +13% to -4% that quickly is an outrage, not just to the economy as it sinks further under the weight of these commandments, but also in those businesses that continue to rely on orthodox forecasts and assumptions.

• Total Y/Y Home Sales Down 7%, But Plunged 17% At Bottom (Alhambra)

The depressed level of existing home sales throughout 2014 so far continued into April despite all projections of pent up demand after a cold and wintry start. There was some growth in the month-to-month change of the seasonally adjusted figures, but even there the clear problem that has been evident since mortgage finance collapsed starkly remains. While it may be encouraging that April was at least better than March, there was also a small rebound in December over November that told us nothing about the future path other than to remind about normal monthly volatility. Protestations aside, the future of real estate will be decided by these financial factors, including both mortgage finance and household impoverishment.

The true pattern really jumps out when viewing these figures Y/Y.

First time home buyers continue to be absent from the housing market. The level of this category of purchasers remains at about only 29% of all sales. That speaks to both affordability (lack of) and household formation. It also shows clearly the shortcomings of the continuous appeal to the insidious wealth effect as it fails to trickle to anyone other than those directly experiencing asset inflation.

The overall distribution of sales was better across all segments except the highest, but the distribution remains heavily skewed in that direction. With all that in mind, there is a new development that may influence future price gains and overall housing momentum. First, the NAR estimates that the average home price was up only 3.7% in April, down significantly from the 7.1% gain in February. The median price fared somewhat better, as you would expect given the persisting favorability of higher end sales, but the price growth is also clearly decelerating there too.

Median home prices were up only 5.2% in April, down from 8.7% growth in February and a 13% increase in August when this mortgage mess (driven by taper threats) really began to strike. The deceleration in bubble pricing, particularly in the past few months, is somewhat unsurprising as inventory levels have gained dramatically alongside the drop in sales pace. That is a very unwelcome trend. The NAR, in particular, has been trying to sell this housing market on a shortage of homes for sale. That may have been the case when sales growth was at a high point last summer, but it is no longer evident now.

In some important markets, particular those like Phoenix, AZ, inventory levels are through the roof (+49% Y/Y). Combined with construction, the real estate market is once again searching for a bottom. Artificiality giveth; taper taketh. The economic growth offset? Conspicuously absent.

• Interest Rate Manipulation Comes Back to Haunt Its Most Ardent Supporters (RCM)

It is difficult to give too much deference to commentators, particularly economists, that speak to the value of quantitative easing in such bland and generic terms. It almost sounds exceedingly easy, as if the Federal Reserve buys a bunch of mortgage bonds, mortgage rates decline, more people can afford to buy houses and the world is full of sunshine again. It usually doesn’t get more detailed than that, partly because it is now ironclad law that in order to reach a mass market demands such simplicity, but also partly because that is the extent and depth of the profession’s actual knowledge of the inner workings. I hear it all the time when these same persons, who are nearly monolithic in their undying devotion to the sanctity of the FOMC, try to describe something so basic as the “money supply.”

Such a notion in the 21st century is so entirely fungible as to lose all proper and tangible meaning, yet that doesn’t stop a considerable number of respected commentators from removing all real world complexity. For example, Deutsche Bank announced last weekend a new “capital” campaign whereby the bank will raise €8 billion in order to focus more on the high yield and leveraged debt markets in the United States (this is not a joke). Part of the reason is that those debt markets are where all the action is now (thanks to what, exactly?) given that FICC [fixed income, currencies, commodities] trading, boring fixed income and bond trading, is almost completely dead today – the very segment that had sustained the global banking enterprise from the depths of near total despair.

How will Deutsche Bank get its new euro capital from Frankfurt to NYC? It’s all the more amazing since 60 million shares are to be (have been) sold to the investment company of a (the?) Qatari Sheikh. There will be a wonderful trip through derivatives markets and bank balance sheets (no doubt including Deutsche’s London and US subs), requiring the accounting and finance acumen of dozens of systems including risk management. Do we include or exclude the Sheikh’s initial funding toward the US$ money supply?

More interesting is why FICC trading has become so unprofitable. The short answer is the very same people who thought interest rate manipulation was a terrific idea in the first place. But such a generic statement plays right into the very critique I offered at the outset. There is obviously, given this setup, much more “nuance” and “texture” to how policy built up FICC only to tear it apart and set the world of finance into a much more unsettled position. First, you have to realize that the Fed through FRBNY’s Open Market desk doesn’t just buy some mortgage bonds as if they were like US treasuries. QE actually operates deep within the bowels of mortgage bond trading in a place called TBA [to-be-announced, some portion of a pending pool of as-yet unspecified mortgages]. The entire purpose of the TBA market is to provide liquidity to something that is, at its core, completely and totally illiquid. A mortgage loan is about as static as it gets in banking.

What the Fed is buying through the Open Market Desk are largely “production coupons.” The TBA market is a highly standardized operation allowing millions of individual mortgage loans to be packaged into MBS securities in such a fashion that these otherwise immovable loans can be turned to cash in a moment’s notice. But mortgage originators need to “buy” GSE guarantees and factor that cost into the setting of MBS prices (along with a set aside for servicing costs). So whatever the net yield on the mortgage pool, say for argument’s sake it is 5%, the originator will pay 50 bps to the GSE for its guarantee, set aside 25 bps for servicing costs and then subtract its own spread. If that profit spread is 25 bps, the “production coupon” that is left is 4% to the market.

The Open Market Desk’s purchase of production coupons amounts to a retail purchase out of what is really a wholesale product. The generic ideal is that by purchasing more production coupons than might have otherwise been bought it will allow more room for originators to pocket a spread. In other words, if the Fed purchases bump up demand to the point that the “market” is competing for production coupons at 3.75% instead of 4%, the originator can gain some additional bps in profit spread and even pass some of those savings to new mortgage loans in the form of lower interest rates. The increased spread should, theoretically, entice more participation and increase production of mortgage loans to add to the TBA pool (because there is more profit to be had).

That amounts to an artificial subsidy to this type of finance, meaning any increase in activity is done so because of this sponsorship rather than the fundamentals of actual mortgage and real estate conditions. The Fed wants what it wants, including and especially an artificial “pump priming” process that it believes (wrongly, as it is turning out) will restart the housing market. There doesn’t seem anything too evidently amiss by this QE process as I’m sure there is no surprise that the Fed is “greasing the wheels” of finance. But there are costs to such grease, some that are only being discussed now in the deep recesses of global banking.

The danger of Open Market operations to such a scale in the TBA market coincides with its position as a futures/forward operation. The actual purchase of production coupons is not immediate, but upon settlement that may be several months into the future. This framework helps originators because they can “lock in” financial factors without having to take on risk of conditions changing between the filing of a mortgage application and the funding of a mortgage loan. That upside to originators poses a bit of a problem in that the pipeline is susceptible to large swings.

• Target, Staples And The Same Poor Mess (Alhambra)

Now that we have results for both Wal-Mart and Target, the retail, and thus consumer, picture has been largely filled out. Both companies continue to blame other factors (both cold; Target credit card theft) while dancing around with soft presentations of minor allusions to struggling consumers. At what point do “struggling consumers” begin to register as something more than a mysterious headwind? The state of US households is more like a recession than some tangential factor that is just running below expectations. The results speak for themselves – there was an obvious slowdown in 2012 followed by revenue and spending patterns that very much equate to late 2007 and early 2008. In fact, going back to 2012, the similarities are almost exact right up until the collapse after the September 2008 panic.

The ups and downs throughout the chronology of the past seven years sure look like two recession cycles. It really doesn’t get much clearer than this:

You can make the case that the current down cycle is nowhere near as bad as 2008, especially into 2009, but that is an exceedingly low standard. We have been promised repeatedly and assuredly that there would be a recovery, even to the point of having to withstand four separate, immense QE paroxysms. To what gain? To what loss? If it was only Target and the rest of the retail industry was doing fine, then you can dismiss these results (actual dollars spent as they are, in contrast to sentiment surveys) as Target’s individual missteps. But Wal-Mart has shown the same exact pattern, though actually faring far worse in terms of its 2008 comparisons. Wal-Mart and Target are #1 and #3 in terms of size.

That suggests that consumers were downgrading their shopping impulses in 2008 from more expensive outfits to bare bones essentials. In other words, the Great Recession almost benefitted Wal-Mart by shifting the whole retail scale toward “cheap.” Now, in 2013 and 2014, they can’t even get away with that. It’s almost as if the country and economic system have grown far poorer throughout this “recovery.”

And since Staples also reported, I might as well throw them in here too. One more large retailer (this one with a propensity to serve small and medium businesses) showing exactly the same slowdown/pattern since 2012.

• How The Fed Is Driving The Next Bust (David Stockman)

The latest iteration of the Fed’s meeting minutes is surreal. Its another economic weather report consisting of trivial, random observations about the quarter just ended that are as superficial as CNBC sound bites. Along with that prattle comes guesses and hopes about the next 30-90 days—including the expectation that the weather will “seasonally normalize” and that auto production schedules, for instance, which were down in March, will stabilize at that level “in the months ahead”. Likewise, after noting that consumption spending moved “roughly sideways” during January and February, it detected that “recent information on factors that influence household spending were positive”—-a guess that turned out to be wrong based on data we already know from April retail sales.

The data on new and existing home sales had indicated the continuation of a 5-month trend of sharp drops from prior year, but the minutes could muster only an on-the-one-hand-and-on-the-other-hand whitewash, accented with hopeful indicators on single-family permits and pending home sales. Business investment was treated the same way—that is, it was down in the first quarter but “modest gains” are expected soon based on sentiment surveys. And as you read further the noise just keeps getting more foolish, including the hope that the negative net export performance in Q1 would be off-set by improving global developments. That fond hope included this doozy: “In Japan, industrial production rose robustly, and consumer demand was boosted by anticipation of the April increase in the consumption tax.”

That particular phrase actually translates into big speed bumps ahead, but that’s beside the point. What this item and all of the rest of the commentary amounts to is bus driver chatter about road conditions at the moment. Stated differently, the monetary politburo does indeed believe that it can steer our $17 trillion economy on a month-to-month basis, and attempts to do so with primitive “in-coming” data from the Washington statistical mills that is so tentative, imputed, guesstimated, seasonally maladjusted and subsequently revised as to be no better than anecdotal sound bites.

Worse still, it pretends to be executing its monetary central planning model without any of the “gosplan” tools that would really be needed to drive the thousands of variables and millions of actors which comprise an open $17 trillion economy that is deeply intertwined in the trade, capital and financial flows of the world’s $75 trillion GDP. Alas, its one size fits all control panel includes only interest rate pegging, risk asset propping and periodic open mouth blabbing by Fed heads. But these are no longer efficacious tools for driving the real Main Street economy because to boost the latter above its natural capitalist path of productivity and labor hours based growth requires artificial credit expansion—that is, a persistent leveraging up of balance sheets so that credit bloated spending rises faster than production and income.

As should be evident after six continuous years of frantic money pumping that old secret sauce doesn’t work any more because the American economy has reached a condition of peak debt. During the Keynesian heyday between 1970 and 2007 the nation’s total leverage ratio—that is, total public and private credit market debt relative to national income—soared right off the historic charts, rising from a 100-year ratio of +/- 150% of national income to a 350% leverage ratio by 2007. Since the financial crisis, the components of national leverage have been shuffled from the household sector to the public sector, but the ratio has remained dead in the water at 3.5X. That means that contrary to all the ballyhoo about deleveraging, it has not happened in the aggregate, but where it has happened at the sector level actually proves that the Fed’s credit transmission channel is over and done.

Total non-financial business debt has risen from $11 trillion to $13.6 trillion since the financial crisis, but virtually all of that gain has gone into shrinkage of business equity capital—that is, LBOs, stock buybacks and cash M&A deals which levitate the price of shares in the secondary market, but do not fund productive assets and the wherewithal of future growth. In fact, as of Q1 business investment in plant and equipment was still nearly $70 billion or 5% below its late 2007 peak. In the case of the household sector, the 40-year sprint into higher and higher leverage ratios has reversed and is now significantly below its peak at 220% of wage and salary income in 2007. At 180% today household leverage is off the mountain top—but it is still far above historically healthy levels, especially for an economy with rapidly aging demographics and soaring ratios of dependency on government benefits that requires tax extraction from debt-burdened households or debt levies on unborn taxpayers.

Household Leverage Ratio - Click to enlarge

So the traditional credit expansion channel of Fed policy is busted, but the monetary politburo is like an old dog that is incapable of learning new tricks. It plans to keep money market rates are zero for seven years running through 2015 on the misbegotten notion that it can restart America’s unfortunate 40-year climb into the nosebleed section of the debt stadium. That isn’t happening, of course, but the $3.5 trillion of new liquidity that it has poured through the coffers of the primary bonds dealers since September 2008 has not functioned like the proverbial tree falling in an empty forest. Just the opposite. It has been a roaring siren on Wall Street—guaranteeing free short-term money to fund the carry trades, while providing a transparent “put” under the price of debt and risk assets. In short, it has fueled the Wall Street gambling channel like never before in recorded history.

Do the Fed minutes evince a clue that six years into this frantic money printing cycle that speculation, financial leverage strategies and momentum chasing gamblers are setting up for the next bursting bubble? Well no. Aside from pro forma caveats about possible future financial risks, the minutes claimed that all is well in the casino:

“In their discussion of financial stability, participants generally did not see imbalances that posed significant near-term risks to the financial system or the broader economy….

Perhaps they did not review the two charts that follow. Both are ringing the bell loudly to the effect that we are reaching the same bubble asymptote—or curve that has reached its limit— as was recorded right before the crashes of 2000-2001 and 2007-2008. The margin debt explosion is especially significant because it had reached a higher ratio to GDP (2.73%) than either of the two pervious bubble cycles. Back in the day of William McChesney Martin, the Fed watched margin debt like a hawk because it was comprised of veterans of the 1929 crash. Accordingly, they did not hesitate to take preemptive tightening actions when speculation began to get out of line, such as in the summer of 1958. But this month’s meeting minutes did not even take note of the margin data.

• Fear Strikes Out On Wall Street (Reuters)

Whatever investors are worried about right now, those concerns are not showing up in Wall Street’s fear gauge. That scares some. On the other hand, it more than likely means that stocks will keep taking things slow and steady. The CBOE Volatility Index, or VIX, closed on Friday at 11.36, its lowest level since March 2013. That means investors see less risk ahead, particularly with the S&P 500 ending at a record high again on Friday. With the typically slow summer months just ahead and little on the horizon to shake the market from its current course, investors could be looking at even lower VIX levels, some analysts said. “It’s not that there’s no likelihood of a correction. It’s that people don’t perceive anything to derail the train at this point,” said Andrew Wilkinson, chief market analyst at Interactive Brokers LLC in Greenwich, Connecticut. “So I think people are beginning to wonder: Are we heading back to single-digit volatility?”

The S&P 500’s record high and the drop in the VIX are not the only signs that fear is not a factor on Wall Street. Volume is down as well. S&P 500 E-mini futures volume was below the 1.52 million daily average of the past year on every day this week except Tuesday. The market’s gain has come despite concerns about a slowdown in China and weakness in small-cap names. Typically small-cap stocks lead the market’s advance when the U.S. economy is improving. However, the recent selloff in small-cap stocks, which drove the Russell 2000 index briefly into correction territory last week, seems to have slowed. The Russell gained 2.1% this week, its biggest weekly bounce in more than a month. The index is less than 7% below its record close of 1,208.65 in early March.

At the same time, the Dow Jones Transportation Average hit record territory late Friday, nearly breaking above the 8,000 level. “One of the reasons the VIX is so low, we haven’t really done anything this year. We haven’t moved an awful lot,” said J.J. Kinahan, chief derivatives officer of TD Ameritrade in Chicago. For the year, the S&P 500 has gained just 2.8%. To be sure, some analysts say the lack of volatility suggests a complacency that could encourage excessive risk-taking. New York Federal Reserve Bank President William Dudley and Dallas Fed President Richard Fisher have both expressed such concerns in recent days. “The lower the VIX, the more overbought the market gets, leaving it vulnerable to some kind of setback,” said Donald Selkin, chief market strategist at National Securities in New York.

The most quoted Newsweek story ever ……

• 40-Year-Old “Cooling World” Story Still Haunts Climate Science (P. Gwynne)

“The central fact is that, after three quarters of a century of extraordinarily mild conditions, the Earth seems to be cooling down. Meteorologists disagree about the cause and extent of the cooling trend, as well as over its specific impact on local weather conditions. But they are almost unanimous in the view that the trend will reduce agricultural productivity for the rest of the century.” – Newsweek: April 28, 1975

That’s an excerpt from a story I wrote about climate science that appeared almost 40 years ago. Titled “The Cooling World,” it was remarkably popular; in fact it might be the only decades-old magazine story about science ever carried onto the set of a late-night TV talk show. Now, as the author of that story, after decades of scientific advances, let me say this: while the hypotheses described in that original story seemed right at the time, climate scientists now know that they were seriously incomplete. Our climate is warming — not cooling, as the original story suggested. Nevertheless, certain websites and individuals that dispute, disparage and deny the science that shows that humans are causing the Earth to warm continue to quote my article. Their message: how can we believe climatologists who tell us that the Earth’s atmosphere is warming when their colleagues asserted that it’s actually cooling?

Well, yes, we should trust them, despite the views of detractors such as comedian Dennis Miller, who brought my story to The Tonight Show in 2006. Several atmospheric scientists did indeed believe in global cooling, as I reported in the April 28, 1975 issue of Newsweek. But that was then. In the 39 years since, biotechnology has flowered from a promising academic topic to a major global industry, the first test-tube baby has been born and become a mother herself, cosmologists have learned that the universe is expanding at an accelerating rate rather than slowing down, and particle physicists have detected the Higgs boson, an entity once regarded as only a theoretical concept. Seven presidents have served most of 11 terms. And Newsweek has become a shadow of its former self. And on the climate front? The vast majority of climatologists now assure us that Earth’s atmosphere is not cooling. Rather it’s warming up. And the main responsibility for the phenomenon lies with human activity.

• May 24: Global March Against Monsanto Day (RT)

Over 400 cities worldwide will see millions marching against the US chemical and agricultural company Monsanto in an effort to boycott the use of Genetically Modified Organizms in food production. Marches are planned in 52 countries in addition to some 47 US states that are jointing in the protest. “MAM supports a sustainable food production system. We must act now to stop GMOs and harmful pesticides,” said Tami Monroe Canal, founder of March Against Monsanto (MAM) in a press release ahead of the global event. The movement was formed after the 2012 California Proposition 37 on mandatory labeling of genetically engineered food initiative failed, prompting activists to demand a boycott of the GMO in food production. “Monsanto’s predatory business and corporate agriculture practices threatens their generation’s health, fertility and longevity,” Canal said.

The main aim of the activism is to organize global awareness for the need to protect food supply, local farms and environment. It seeks to promote organic solutions, while “exposing cronyism between big business and the government.” Activists claim that Monsanto spent hundreds of millions of dollars to “obstruct all labeling attempts” while suppressing all “research containing results not in their favor.” Birth defects, organ damage, infant mortality, sterility and increased cancer risks are just some of the side-effects GMO is believed to cause. “That is what the scientists have learned about, that the genetically modified foods will increase allergies that they are going to be less nutritious and that they can possibly or very contain toxins that can make us ill,” Organic Consumers Association’s political director Alexis Baden-Mayer told RT.

GMOs have been partially banned in a number of countries, including Germany, Japan, and Russia but yet in most countries across the globe still feed GMOs to their animals. Citing the US example, Baden-Mayer told RT that “it is hard to distinguish the company Monsanto from the players in the US government.” “Most of the genetically modified crops grown in the US, almost all of them end up in factory farms, concentrated in animal feeding operations,” stating that US has enough grassland to pasture and raise “100 percent grass-fed beef” and produce even more grass fed beef than is raised on “modified corn and soy.”

Oh, sweet Jesus ….

• Fukushima Daiichi Begins Pumping Groundwater Into Pacific (Guardian)

The operator of the wrecked Fukushima Daiichi nuclear power plant has started pumping groundwater into the Pacific ocean in an attempt to manage the large volume of contaminated water at the site. Tokyo Electric Power (Tepco) said it had released 560 tonnes of groundwater pumped from 12 wells located upstream from the damaged reactors. The water had been temporarily stored in a tank so it could undergo safety checks before being released, the firm added. The buildup of toxic water is the most urgent problem facing workers at the plant, almost two years after the environment ministry said 300 tonnes of contaminated groundwater from Fukushima Daiichi was seeping into the ocean every day. The groundwater, which flows in from hills behind the plant, mixes with contaminated water used to cool melted fuel before ending up in the sea.

Officials concede that decommissioning the reactors will be impossible until the water issue has been resolved. The bypass system intercepts clean groundwater as it flows downhill toward the sea and reroutes it around the plant. It is expected to reduce the amount of water flowing into the reactor basements by up to 100 tonnes a day – a quarter – and relieve pressure on the storage tanks, which will soon reach their capacity. But the system does not include the coolant water that becomes dangerously contaminated after it is pumped into the basements of three reactors that suffered meltdown after the plant was struck by an earthquake and tsunami in March 2011.

That water will continue to be stored in more than 1,000 tanks at the site, while officials debate how to safely dispose of it. The problem has been compounded by frequent technical glitches afflicting the plant’s water purification system. Tepco and the government are also preparing to build an underground frozen wall around four reactors to block groundwater, although some experts doubt the technology will work on such a large scale. The utility is also building more tanks to increase storage capacity. Dale Klein, a senior adviser to Tepco, recently warned the firm that it may have no choice but to eventually dump contaminated water into the Pacific.

Debt Rattle May 7 2014: A Parasite Is Devouring The Heart Of America

May 072014

May 7, 2014 Posted by Raúl Ilargi Meijer at 3:29 pm Finance Tagged with: America, Fed, housing, jobs 9 Responses »

Arthur Rothstein Descendants of slaves on Pettway plantation, Gee’s Bend, Alabama February 1937

Tyler Durden runs a few lines by us from casino mogul Steve Wynn that paint a micro cosmos of everything that’s going wrong in our economies. Wynn calls the present conditions in which he conducts business “nirvana” because of prevailing artificially low interest rates and downward pressure on the dollar, but he also recognizes who pays for his nirvana. In very few words, he defines with precision how measures ostensibly intended to save the economy instead serve to destroy it, even as – and because -they make it – too – easy for him and his “class” to enrich themselves even further.

Steve Wynn Slams The Fed’s Ominous, Artificial Nirvana

… on one hand, as a businessman, I’m thrilled. Never dreamed that we would see anything so tasty and wonderful as that. On the other hand, it’s a reflection of questionable fiscal and monetary policy in the United States that is artificially depressed interest rates because of quantitative easing by the Fed, which is also sort of killing the value of the dollar and the living standard of the working people.

… if you’re a high-class borrower with good credit rating, this is one of the most tastiest seasons of all time for 2 reasons. You’re borrowing money at artificially depressed rates. And you’re most likely going to pay them back with 85-cent dollars. It’s a perfect storm for a businessperson unless you look at the truth of the matter and the impact it has on your customers and your employees. And that’s a much darker story. It doesn’t lend itself to a soundbite, but it’s — for every businessman in America and any economist that has their heads screwed on right, it’s an ominous situation.

Capital structure now is – these are mostly at the Venetian and the Wynn, things of beauty. They’re lovely, better than you could ever want. I mean, they’ve got everything, low interest rates, long maturities, low covenants. What else do you want? I mean, it’s great. If you look at it from our point of view. But look at it from a consumers’ point of view or a working person’s point of view, who’s paying for all this cheap money? Well, right now, the Fed is. I thought Bernie Madoff went to jail for that.”

This “policy” of creating the conditions for those who have a lot of money to make a lot more is having consequences that are going to be felt deep inside American society, and for a very long time. In the US housing markets, the only properties that are still selling well are the most expensive ones. In March, sales of homes that cost over $1 million rose 7.8%, while those under $250,000 fell 12%. Since the latter are the vast majority of the market, it’s not hard to see the fall-out for the mortgage industry, construction, home stores etc.

The S&P/Case-Shiller may claim that U.S. home prices climbed 12.9% in the year through February, but that’s just one end of the market. “On the low end, home sales are still making fresh lows every single month”, broker-dealer Newedge’s Robbert van Batenburg told his clients last month. And “The American Dream is dead for everybody but the happy few who have enjoyed the tailwinds of the appreciating stock market … ”

It is not difficult to see why: The Economic Policy Institute says that from 2009 to 2013, wages rose only for the top U.S. earners, but fell for the bottom 90%. Tyler Durden quotes data analyst CoreLogic as saying: “the real estate market is the ultimate reflection of confidence, wealth and income [..] the same factors driving the income stagnation in the middle are driving the income momentum at the top.” [..] That last bit is at the core of all this, as Steve Wynn also acknowledged, even though it’s both denied and ignored across the board: it’s the same factors that serve to both make the rich richer and the poor poorer. Those factors are better known as Fed policies.

This is all not some passing phase which will simply prepare all of America, and all US citizens, for better days ahead; it’s a deciding factor in the demise of the famed American entrepreneurial spirit and the small businesses and jobs that rely on it, a segment of society that’ll be extremely hard to revive once it’s gone. More from Durden:

The Death Cross Of American Business

So much for the recovery… As WaPo reports, the American economy is less entrepreneurial now than at any point in the last three decades. A rather damning new Brookings Institution report shows that US businesses are being destroyed faster than they’re being created. As the authors of the report ominously explain: If the decline persists, “it implies a continuation of slow growth for the indefinite future,” as new business creation has been cut in half since 1978. This is the death cross of American Business!!

And the bottom line from Brooking’s Hathaway and Litan:

“Overall, the message here is clear. Business dynamism and entrepreneurship are experiencing a troubling secular decline in the United States. Existing research and a cursory review of broad data aggregates show that the decline in dynamism hasn’t been isolated to particular industrial sectors and firm sizes. Here we demonstrated that the decline in entrepreneurship and business dynamism has been nearly universal geographically the last three decades – reaching all fifty states and all but a few metropolitan areas.”

And no, nobody can prove that this is entirely the fault of Fed policies. But neither should anyone feel the need to try. Because it’s obvious that any policy aimed at facilitating the rich MUST make the poor poorer. It’s all just a transfer of money from one group to the other, a transfer hidden through mighty words of trickling growth that will lift everyone’s boat. Eternal hope and there’s always tomorrow. That’s the American dream. Well, say a prayer, because that dream has been dying for decades now, living an increasingly zombified existence fed by increasingly cheap credit that reached its zenith in lying subprime loans and the 7 million foreclosures they – so far – culminated in.

I wish I could say the American Dream has been on life support for decades, but few things are further from the truth. The Fed spent trillions of dollars, all of which use your labor as collateral, as Steve Wynn – again – rightly observes, but none of it went to re-establishing the heart of America as it once was: small business and the jobs it generates, which the US economy has always depended on, plus the home purchases those jobs made possible. Instead, Greenspan, Bernanke and now Yellen (and their made men) made sure to kill off that heart of America, for many years to come, by creating the ideal circumstances for Wynn et al to prosper even more.

That is, in the short term; Steve Wynn does seem to understand that this is all but certain to turn against him and his wealth medium and long term. Because it’s a one-on-one trade off: the Fed has not only done nothing at all to provide stimulus for the heart of America, it’s cut and dug a deadly hole in that heart in order to satisfy the bankrupt banks and bankers who are the greediest members of society. It could have, and should have, spent its stimulus in radically different ways. At least, if its goal would have been to bring recovery to America. Phoenix Capital:

The Fed Could Have Bought California & Texas With QE Money

… the Fed could have spent the $3.2 trillion to create 12.8 million jobs in 2009, each paying $50K per year, and still be making payroll for them today. Obviously, that’s an absurd notion, but then again, spending $3.2 trillion on anything without any evidence that your policies are really working is absurd (job growth remains anemic with the recovery being the worst in 80+ years). Indeed, QE failed to put a dent in Japan’s jobs picture over the last 20 years. It also failed to do much for the UK. Why would it somehow be different in the US?

And no, it’s not just the Fed, and it’s not just America. All major central banks act according to the same preferences: satisfy the appetite of the greediest parties. Where they should always first have restructured bank debts, they never did more than pay lip service to that sound economic principle, and put trillion dollar lipstick on unsound pigs so history’s biggest gamblers – and, lest we forget, biggest losers – could pay their debts and sit their fat asses back down at the crap table.

It’s a political at least as much as an economic issue. What’s best for a Wall Street banker will never be the same across the board as for a farmer in Alabama, and a German business executive’s interests will always be different from a Greek street vendor’s. In functioning democratic systems, “the people” should make sure that both get part of what they want and need. But in our present systems, not only does the less affluent party not get his “fair” part, he sees it being reduced so the already more affluent can take more. Even though, certainly in broad terms, it wasn’t the farmers and street vendors who were the cause of the crisis, but the bankers and executives.

If we don’t manage to solve that problem, and pretty soon, the US and EU won’t survive in their present shape and form, while Japan and China will be nations replete with street fighting men, armed with weapons a thousand times more efficient than history has ever witnessed. And that is truly scary. We’re not talking small problems here. Steve Wynn senses – part of – that, but he’s not sounding the big red flashing alarm he should. Here’s a metaphor: If American society were a human body, it would be under attack from a parasite, a flesh eating disease, that temporarily puts a red glow on its cheeks which makes people think it looks healthy. Flesh eating diseases kill their hosts. Consider yourselves such a host.

• The Death Cross Of American Business (Zero Hedge)

So much for the recovery… As WaPo reports, the American economy is less entrepreneurial now than at any point in the last three decades. A rather damning new Brookings Institution report shows that US businesses are being destroyed faster than they’re being created. As the authors of the report ominously explain: If the decline persists, “it implies a continuation of slow growth for the indefinite future,” as new business creation has been cut in half since 1978. This is the death cross of American Business!!

And the bottom line from Hathaway and Litan:

Overall, the message here is clear. Business dynamism and entrepreneurship are experiencing a troubling secular decline in the United States. Existing research and a cursory review of broad data aggregates show that the decline in dynamism hasn’t been isolated to particular industrial sectors and firm sizes. Here we demonstrated that the decline in entrepreneurship and business dynamism has been nearly universal geographically the last three decades – reaching all fifty states and all but a few metropolitan areas.

Doing so requires a more complete knowledge about what drives dynamism, and especially entrepreneurship, than currently exists. But it is clear that these trends fit into a larger narrative of business consolidation occurring in the U.S. economy – whatever the reason, older and larger businesses are doing better relative to younger and smaller ones. Firms and individuals appear to be more risk averse too – businesses are hanging on to cash, fewer people are launching firms, and workers are less likely to switch jobs or move.

• “The American Dream Is Dead For Everyone But A Happy Few” (Zero Hedge)

$250 Million homes in Europe, $150 Million homes in the US, and as Bloomberg notes. Million-dollar homes in the U.S. are selling at double their historical average while middle-class property demand stumbles, showing that the housing recovery is mirroring America’s wealth divide. As CoreLogic notes, “the real estate market is the ultimate reflection of confidence, wealth and income,” as purchases costing $1 million or more rose 7.8% in March, while sales of homes costing less than $250k plunged 12%, as “the same factors driving the income stagnation in the middle are driving the income momentum at the top.” The luxury markets are indeed on fire as foreign (and domestic) super-wealth floods into real estate but as NewEdge’s van Batenburg notes, echoing our very words, “The American Dream is dead for everybody but the happy few who have enjoyed the tailwinds of the appreciating stock market.”

• Q1 GDP Cut To -0.6% At Goldman, -0.8% At JPMorgan (Zero Hedge)

The US “recovery” is starting to feel more and more recessionary by the day. As we warned after we reported the trade deficit, it was only a matter of time before the Q1 GDP cuts came. And come they did, first from Barclays, and now from Goldman, which just doubled its GDP forecast loss for the past quarter from -0.3% to -0.6%. Bottom Line: The March trade deficit was roughly in line with consensus expectations, narrowing from February. However, imports were substantially higher than the Commerce Department had assumed in its initial estimate for Q1 GDP. We reduced our Q1 past-quarter tracking by three-tenths to -0.6%. Main Points:

1. The March trade deficit narrowed to $40.4bn (vs. consensus -$40.0bn), from a revised $41.9bn in February. The real petroleum balance narrowed (+$0.6bn to -$11.3bn), while the real ex-petroleum balance widened (-$0.8bn to -$42.4bn). Exports rose 2.1%, more than reversing their February decline, while imports rose 1.1%. The 10.8% increase in food & beverage imports appears to have been driven by the jump in agricultural import prices already released for the month. By country, the large drop in seasonally-adjusted exports to China which occurred in January and February stabilized in March.

2. Both imports and exports were higher than the Commerce Department assumed in their initial estimate for Q1 GDP growth. However, imports exceeded their assumption by a significantly larger margin, pushing our Q1 past-quarter GDP tracking estimate down by three-tenths to -0.6%.

Also, keep in mind that as we explained before, Q1 GDP was boosted around 1% by the forced spending “benefit” of Obamacare: a GDP contribution that will no longer be there. Which means that either normalized Q1 GDP is approaching -2%, or Q2 GDP is about to be whacked by the same amount. Pick your poison. One thing is certain – anyone hoping that 2014 is the year in which the US economy finally achieved “escape velocity” will have to drink the humiliation under the table as they repeat the mantra of apologists everywhere: “snow…. snow…. snow….” UPDATE: JPM just jumped on the bandwagon and cut Q1 GDP to -0.8% from -0.4%. Don’t worry: it snowed.

• The Fed Could Have Bought California & Texas With QE Money (Phoenix)

The Federal Reserve has spent over $3.2 trillion in the post-Crisis era. The bulk of this money printing has gone towards buying garbage mortgage securities or US Treasuries from Wall Street. Because we’ve reached a point in time at which $1 trillion no longer sounds like a lot of money, we thought we’d go through the exercise of assessing just what the Fed could have done with this money besides give it to Wall Street. With $3.2 trillion, the Fed could have:

Mailed a check for $10,223 to every man, woman, and child in the US.

Bought back all of the US debt owned by China, Japan, Belgium as well as the debt acquired via investors through the Caribbean islands.

Bought all of France’s economy for a year (or the UK or Brazil depending on its preference) and still had $600 billion or more left over.

Performed leveraged buyouts of California and Texas.

Funded NASA for the next 188 years.

Treated every person on the planet to $200 five star dinners at one of New York’s top restaurants, along with a night’s stay in the Big Apple.

Bought every human being on earth a PlayStation 4 gaming console… and still had enough money left over to buy all of Peru and Ireland’s economies for a year.

It’s quite impressive, isn’t it? We’re repeatedly told that the Fed has to engage in QE to help the recovery and create jobs. But the facts show otherwise. The economy has added nearly 9 million jobs. But the Fed could have spent the $3.2 trillion to create 12.8 million jobs in 2009, each paying $50K per year, and still be making payroll for them today. Obviously, that’s an absurd notion, but then again, spending $3.2 trillion on anything without any evidence that your policies are really working is absurd (job growth remains anemic with the recovery being the worst in 80+ years). Indeed, QE failed to put a dent in Japan’s jobs picture over the last 20 years. It also failed to do much for the UK. Why would it somehow be different in the US?

• Steve Wynn Slams The Fed’s Ominous, Artificial Nirvana (Zero Hedge)

Steve Wynn: “we finished our financing recently; The last tranche was a $750 million bond. We sold it at 5.09% with no covenants, non-recourse to the parent. And that brought our total financing for Cotai to $3.850 billion, at an average cost of 3.3%.” “Or to put it another way, we rented the $3.85 billion for $125 million.” Now on one hand, as a businessman, I’m thrilled. Never dreamed that we would see anything so tasty and wonderful as that. On the other hand, it’s a reflection of questionable fiscal and monetary policy in the United States that is artificially depressed interest rates because of quantitative easing by the Fed, which is also sort of killing the value of the dollar and the living standard of the working people.

So the good news is, if you’re a high-class borrower with good credit rating, this is one of the most tastiest seasons of all time for 2 reasons. You’re borrowing money at artificially depressed rates. And you’re most likely going to pay them back with 85-cent dollars. It’s a perfect storm for a businessperson unless you look at the truth of the matter and the impact it has on your customers and your employees. And that’s a much darker story. It doesn’t lend itself to a soundbite, but it’s — for every businessman in America and any economist that has their heads screwed on right, it’s an ominous situation. But in terms of our moment in history, in commercial history…along with our colleagues in the industry, it’s nirvana.

Capital structure now is — these are mostly at the Venetian and the Wynn, things of beauty. They’re lovely, better than you could ever want. I mean, they’ve got everything, low interest rates, long maturities, low covenants. What else do you want? I mean, it’s great. If you look at it from our point of view. But look at it from a consumers’ point of view or a working person’s point of view, who’s paying for all this cheap money? Well, right now, the Fed is. I thought Bernie Madoff went to jail for that.”

A sign of a bad fever.

• Margin Debt Bubble Started Cracking In March Along With Momo Trades (Alhambra)

We still may not know the difference between cause and effect, but margin debt balances dropped in March for the first time in ten months. The $14 billion decline in margin debt was also coincident to an increase of $6 billion in relative cash balances in equity accounts at FINRA dealers. That meant total investor net worth improved by a little more than $20 billion. Under more normal circumstances that might be significant, and it may yet be, but it only reduces investor complacency to the extreme levels we saw just the month before. The jump in margin in February was astounding, meaning that March simply retraced only the last extreme move in a string of them.

Since July 2012, margin debt balances are 56% higher. That surge in debt corresponds exactly with the spike in valuations. That includes, as I noted last week, the dramatic valuations of small cap stocks.

That raises the possibility that the relatively minor reversal in margin and complacency in March was in response to changes in perceptions over small cap stock valuations. It could also refer to extreme margin levels leading prices. In other words, did such stretching of investor positions lead to a decline in margin usage, thus taking the steam out of the fast rising small caps and momentums, or was an inflection in pricing and valuations the reason for the decline in margin?

• “The Six Most Important Asset Bubbles In Modern Times” (Grantham)

According to GMO’s Jeremy Grantham, these are the six most important asset bubbles in modern times. And some additional color from the legendary investor:

The six most important asset bubbles in modern times (in my opinion) are shown in Exhibit 1 and, as you can see, each of them qualifies on the 2-sigma definition, although the 1965-72 peak, known in the trade then as the “Nifty-Fifty” event, did so by a modest margin. This event fell short in providing the usual good examples of extreme investment craziness. Perhaps, though, the very definition of the Nifty Fifty as “one decision stocks” may have qualified it, with one extremely crazy theme substituting for many smaller ones, for “one decision stocks” were so named because you only had to make one decision: to buy. These stocks were generally believed then to be so superior that once bought they would be held for life. (Most, like Coca-Cola and Merck, stood the test of time well enough, but unfortunately several then unchallengeable examples like Eastman Kodak and Polaroid went the way of all flesh, or all film.)

There is one very important event that influenced our lives, financial and otherwise: 2008. The U.S. housing market leaped past 2-sigma all the way to 3.5-sigma (a 1 in 5,000-year event!). The U.S. equity market, though, was overshadowed by the then recent record bubble of 2000, although it still made it to a 2-sigma event on some definitions. But what was unique about 2008 was the near universality of its asset class overpricing: every equity market, almost all real estate markets (Japan and Germany abstained), and, of course, a fully-fledged bubble in oil and many other commodities.

TEXT

• Blackstone Guaranteed Huge Taxpayer Fees On Risky Pension Investments (Pando)

When you think of the term “public pension fund,” you probably imagine hyper-cautious investment strategies kept in check by no-nonsense fiduciary laws. But you probably shouldn’t. An increasing number of those pension funds are being stealthily diverted into high-fee, high-risk “alternative investments” that deliver spectacular rewards for the Wall Street firms paid to manage them – but not such great returns for pensioners and taxpayers. Citing data from the National Association of State Retirement Administrators, Al Jazeera America recently reported that “the average portion of pension dollars devoted to real estate and alternative investments has more than tripled over the last 12 years, growing from 7% to around 22% today.” [..]

The Blackstone-related documents, though, don’t just tell a story about public pensions in Kentucky. The firm, which just reported record earnings, does business with states and localities across the country. The Wall Street Journal reports that “about $37 of every $100 of Blackstone’s $111 billion investment pool comes from state and local pension plans.” In one set of documents provided by Tobe, Blackstone’s payment structure is outlined, with language guaranteeing that Blackstone will receive its hefty annual management fees from the taxpayer – regardless of the fund’s performance. In other documents, public pension money is exempted from some of the most basic protections usually guaranteed under federal law. Other contract language appears to license Blackstone to engage in financial conflicts of interests that could harm investors.

• We Are Not There Yet: Jobs Still Below Dec. 2007 Peak (Stockman)

The Reagan recovery of the 1980s is not all that the legends crack it up to be, but it is a useful benchmark in the jobs counting game. It came on the heels of what was then the worst recession since the 1930s—including a significant contraction of real GDP (3%), a severe collapse of housing (50%), faltering industrial production (10%), a meltdown of commodity prices and a double-digit unemployment rate that reached 10.7%. As it happened, the economy hit its pre-recession peak in July 1981 when nonfarm payrolls printed at 91.6 million jobs (well not really, that is the repeatedly revised, reformulated and adjusted official figure for that date—-the original is buried in the BLS data morgue). Needless to say, the picture had dramatically improved 76 months later. By November 1987 the NFP payrolls were 103.4 million, meaning that the US had gained 11.8 million jobs or 13% from the prior peak.

Since we are now also 76 months out from the most recent peak, which was December 2007, it is useful to briefly review the interim cycles. Thus, after the economy peaked at 109.9 nonfarm payrolls in June 1990 the post-recession rebound was also reasonably resilient. By the 76-month marker in October 1996, nonfarm payrolls printed at 120.7 million, signifying a gain of 10.8 million jobs or 10%. Then a few years later Greenspan’s irrational exuberance turned into the thundering bust of the dotcom market, but this caused hardly a measureable dip in real GDP. In fact, the total decline—as now several times revised—-barely registers at 0.3% or less than one-tenth as severe as the Great Recession drop. So there wasn’t much of an economic hole to climb out. But rebound we did under the impetus of the second Greenspan Bubble—the great housing and credit boom of 2001-2007.

After hitting a pre-recession peak at 132.8 million jobs in February 2001, the NFP payrolls rode the credit/housing bubble to a 138.0 million print by the 76-month marker in June 2007. So this time the rebound was quite modest by historical standards, but the gain of 5.2 million new non-farm payroll jobs still amounted to a 4% advance. No such luck this time. The April NFP printed at 138.25 million—and that, alas, is still 100,000 jobs below where it was 76 months ago on the eve of the financial crisis and the subsequent Great Recession. In short, we have been in a totally new ball game—a macroeconomic cycle in which so far the monthly jobs print has consisted entirely of born again jobs, not net new jobs. [..]

…despite its grotesque violation of all prior monetary principles, the Fed went forward in the last meeting with its 64th consecutive month of zero money market rates; the BLS reported another “favorable” jobs delta; Wall Street spotted an imminent GDP acceleration just a few months down the road for the fifth time in 5 years; and the financial press reported that the polar vortex has passed and that the market could continue rising a few more points until the next crucial “Jobs Friday” i.e. next month. What delusionary babble! Among everything else, the world does not move in 30 days intervals, the path is not linear and history overwhelmingly proves that no business cycle expansion has eternal life. Indeed, we are now in month 59 of this expansion, and have therefore already overstayed our welcome—the average historical expansion having lasted only 53 months.

Ha ha ha!

• BOE May Be Forced To Raise Interest Rates To Burst Housing Bubble (Guardian)

The Bank’s hope is that lenders will get the message. If they don’t, the option is there to tighten up the capital requirements for banks and building societies. This means that lenders have to hold more capital to safeguard themselves against potential future losses, and limits the amount of money they can parcel out in mortgages. When this happens, defcon 4 becomes defcon 3. But there is plenty of cash floating around the UK financial system, courtesy of the Bank’s own quantitative easing and funding-for-lending programmes. The unleashing of several years of pent-up demand, coupled with an inadequate supply of new homes, means the property market has plenty of momentum.

Tighter capital requirements might not be sufficient, so the next step would be to tell George Osborne that it is time to wind up, or heavily scale back, his Help to Buy scheme. Telling the chancellor that his beloved mortgage subsidy plan was part of the problem rather than part of the solution would be a sign that Mark Carney, the Bank’s governor, was starting to run out of options. In Threadneedle Street, defcon 3 would have become defcon 2. By this point, the discussion inside the Bank would be about how to bring down house-price inflation with the minimum collateral damage. Rising house prices have forced many borrowers to stretch themselves to the limit.

In the past five years, the number of people taking out mortgages with a loan to income ratio of more than 4.5 has doubled to 8%. Half of all new mortgages are for more than 25 years. The Bank could impose loan to value or loan to income curbs as a way of bringing prices down. Finally, there is the nuclear option. The Bank’s financial policy committee was designed to provide a range of custom-made tools for preventing the UK housing market from running out of control. Knowledge that innocent people will be hurt means policymakers are reluctant to go to defcon 1. But ultimately, they will need to be prepared to press the button and push up the cost of borrowing.

You ain’t seen nothing yet.

• China Budget Strains Showing as S&P Warns On Local Debt (Bloomberg)

China’s cooling property market has helped push its budget into deficit and prompted Standard & Poor’s to warn of risks to the finances of regional borrowers. Growth in national fiscal revenue slowed to 5.2% in March from 8.2% in February, Ministry of Finance data showed. The budget swung to a 326 billion yuan ($52 billion) deficit from a 257.5 billion yuan surplus. New home sales in 54 cities tracked by Centaline Group slid 47% from a year earlier to a four-year low over the May 1-3 Labor Day holidays. Property market weakness would undermine Premier Li Keqiang’s efforts to spur growth and make it harder for local-government financing vehicles to repay debt using land sales.

Borrowing costs for companies with an AA rating, the most common for LGFVs, have dropped 75 basis points this year, helping spur a 40% increase in bond sales. “A significant deterioration in the property market and land prices will have very wide-ranging implications for the entire economy and also credit markets,” Christopher Lee, head of corporate ratings for Greater China at S&P in Hong Kong, said in a May 5 e-mail interview. “Land is used as the collateral for financing for LGFVs. It’s also used as the collateral for property developers to get construction funding.”

Local governments have set up thousands of financing vehicles to fund projects from subways to sewage systems, which account for 80% of state capital spending and 40% of tax revenue, the World Bank estimates. Total liabilities of regional authorities rose to a record 17.9 trillion yuan as of June 2013, the National Audit Office estimates. Land sales in 20 major cities in March fell 5% from a year earlier, the biggest drop in at least a year, according to China Real Estate Information Corp. data compiled by Bloomberg. The value of sales in third-tier cities declined 27% last month, according to Soufun Holdings Ltd., the nation’s biggest real estate website owner.

The core of China’s credit problem is that everything serves as collateral for everything else. If one pin drops ……

• China Property Slump Adds Danger to Local Finances (Bloomberg)

China’s weakening property market poses an increasing danger to local governments, threatening to strain their finances and intensify an economic slowdown. Land sales in 20 major cities fell 5% in March from a year earlier, the biggest drop in at least a year, according to China Real Estate Information Corp. data compiled by Bloomberg. The value of land sales in third-tier cities declined 27% last month, according to SouFun Holdings Ltd., the nation’s biggest real-estate website owner. Failure to find other revenue sources increases the risk of defaults and financial turmoil that curb economic expansion already projected this year at the slowest pace since 1990.

Some cities plan to reverse controls implemented to make home prices more affordable or give residency benefits to out-of-town buyers, a state-run newspaper reported this week. “As the housing market is cooling off, we expect land-sale revenue will decline and this will add pressure on the funding capacity for local governments,” said Zhu Haibin, chief China economist with JPMorgan Chase & Co. in Hong Kong. Land sales will drop more in areas where oversupply in property is more severe, said Zhu, who previously worked at the Bank for International Settlements.

The weakness adds to the urgency of expanding China’s municipal-bond market so regional governments can sell debt directly to the public instead of through off-budget corporations called local-government financing vehicles. A sample of provincial, municipal and county administrations shows they have guaranteed repayment of about 37%, or 3.5 trillion yuan ($560 billion) of debt with land sales, according to a national audit report released in December. The People’s Bank of China said yesterday it will strengthen monitoring of credit extended to LGFVs, real estate companies and industries with overcapacity to minimize risks to the financial system. The central bank will maintain a “prudent” monetary policy, according to a quarterly report.

A worsening market downturn would increase pressure on national leaders to ease monetary policy for the first time since 2012. Premier Li Keqiang and other officials have outlined plans for railway spending and tax breaks to support growth while pledging to avoid any short-term, large-scale stimulus that could exacerbate debt risks. The government budgeted for an 11.8% drop in land-sales revenue in 2014, according to the Finance Ministry’s annual work report in March. Nationwide, land sales in 2013 were equivalent to about 61% of local-government revenue, according to figures from the Ministry of Land and Resources and the Finance Ministry.

That’s just great, UK, Australia, NZ. “Healthy” property markets that you have no access to.

• Chinese Developers Rush Overseas Amid Shaky Home Market (CNBC)

As the cracks in China’s housing market deepen, the country’s major property developers are scouring the world for new opportunities. Spending on overseas residential development projects soared to $1.1 billion in the first quarter – an 80% on-year rise, with Australia, the U.K. and U.S. garnering most of the investment. Overall outbound investment – including residential and commercial – grew 25% to $2.1 billion over this period. Investment in residential projects was driven by developers looking to “counteract slower economic and price growth at home,” said David Green-Morgan, global capital markets research director at real estate services firm JLL.

Shanghai-based Greenland’s investments in London, Los Angeles and Sydney, and Guangdong-based Country Garden’s first foray in the Australian market earlier in the year, underscore growing interest in overseas residential properties. China’s once red-hot housing market has shown signs of a rapid cooling in the recent months. According to a survey by China Real Estate Index System (CREIS), 45 of the 100 cities experienced month-on-month property price declines in April, up from 37 cities in March. Meanwhile, property investment in China has also lost steam as bank funding for developers tightens. Property investment accounted for about 12% of China’s gross domestic product (GDP) in the first quarter, down from 15% in 2013, according to Reuters.

Part of today’s laugh track.

• Japan Just Needs ‘Little Turn’ By US(style) Consumer: Nomura (CNBC)

All the Japanese economy needs to take off is a small shift in U.S. consumer sentiment, according to Jeremy Bennett, chief executive of Nomura International, the Europe, Middle East and Africa wing of the Japanese bank. “We don’t need some massive U.S.(style) consumer boom. We just need a little turn in sentiment,” he told CNBC. Jeremy Bennett, CEO of Nomura International, says a return of sentiment to Japan would go “a long way” to boosting investor appetite for the country. Japan’s economy is loaded with the heaviest public debt burden in the developed world, although Prime Minister Shinzo Abe has pledged to slash debt through his “Abenomics” plan.

The economy has also been hampered by slowing growth, and is predicted to expand by 1.2% this year, below the average for developed economies, according to the Organisation for Economic Co-operation and Development (OECD). Nomura has been one of the key beneficiaries of an improved picture in Japan, although its profits fell in the first quarter of 2014, for the first time in nearly two years. “Abenomics has helped us, and internationally our investment banking business is doing well,” Bennett said. “We had a cracking year last year, in Japan and internationally.”

• Economists, Show Your Assumptions (Bloomberg)

What if I told you that jumping off a cliff is entirely safe, except for gravity? Would you find my prediction insightful or useful? Strange as it may seem, this is precisely the kind of logic that underpins many of the models that economists build to help them understand the world — and even to make policy recommendations on things such as financial regulation and inequality. It’s a serious flaw to which Stanford University finance professor Paul Pfleiderer has been trying to attract attention. As he argues in a recent paper, theorists make some pretty absurd assumptions to arrive at results or implications that are, in turn, relevant to policy.

All too often, people – including people involved in real policy matters – ignore those assumptions and end up believing ridiculous things. After all, they’ve been demonstrated in an economic model. As a spectacular example, Pfleiderer points to a 2013 working paper by two respected economists titled “Why High Leverage is Optimal for Banks,” which essentially says that banks operating with thin capital and tons of borrowed money do not necessarily present a systemic threat. They build a model demonstrating that — if you ignore a string of really important things, such as the potential for extreme leverage to destabilize the financial system and force governments into costly bailouts — you can make the case that banks should be as leveraged as possible.

A better title, Pfleiderer suggests, would be “Why ‘High’ Leverage is Optimal for Banks in an Idealized Model that Omits Many Things of First-order Importance.” There’s nothing wrong with making assumptions — even crazy ones — to help get your mind around something. The deception comes in claiming that your conclusions have real-world relevance when the assumptions are nuts. Too frequently, Pfleiderer argues, economic theories are like chameleons that change their color to suit the moment. The chameleon hides its assumptions and makes bold claims, and then, when questioned, acknowledges its assumptions and says, “Hey, I’m only a model!”

• Einhorn Finds Dinner Chat With Bernanke ‘Frightening’ (Bloomberg)

David Einhorn, manager of the $10 billion Greenlight Capital Inc., said he found a recent dinner conversation with former Federal Reserve Chairman Ben S. Bernanke scary. “I got to ask him all these questions that had been on my mind for a long time,” Einhorn said in an interview today with Erik Schatzker and Stephanie Ruhle on Bloomberg Television, referring to a March 26 dinner with Bernanke. “It was sort of frightening because the answers were not better than I thought they would be.” Einhorn has been critical of Bernanke’s willingness to leave interest rates near zero for more than five years. The hedge-fund manager has said the benefits of low rates diminish over time until they are more harmful than helpful, and that the Fed’s stimulus has led to income inequality.

Bernanke, a former Princeton University economics professor, stepped down this year after eight years helming the U.S. central bank. In describing the dinner conversation at New York’s Le Bernardin, Einhorn criticized Bernanke for saying he was 100% certain there would be no hyperinflation and that it generally occurs after a war. “Not that I think there will be hyperinflation, but how do you get to 100% certainty about anything?” Einhorn said. “Why can’t you be 99% certain?” Bernanke responded “you are wrong” to a question about the diminishing returns of having interest rates at zero, according to the hedge-fund manager. The ex-Fed chief’s explanation, Einhorn said, was that raising interest rates to benefit savers wouldn’t be the right move for the economy because it would require borrowers to pay more for capital.

Einhorn said he was keeping an “open mind” about the new Fed Chair Janet Yellen. “I would love to see if she had a better reason for rates to remain at zero at this stage of the economy,” he said. The Fed’s actions during the financial crisis have been praised by investors including billionaire Warren Buffett for helping the U.S. recover from the deepest slump since the Great Depression. Last year he described the Fed as “the greatest hedge fund in history” because of the money it’s generating for the government from its bond-buying program. “I’m not sure that is meant as a compliment,” Einhorn said in response to a question about Buffett’s remark.

Yeah, the most polluted country in the world really needs to get into shale. Great idea.

• US-China Shale Gas Rivalry Bad News For Poor Countries (CNBC)

China’s plans to establish a shale industry to rival the U.S.’s could see Beijing slash its energy imports—in a blow for some of the world’s poorest gas exporters. Shale gas is drilled out of rocks in a process known as fracking or hydraulic fracturing, and has been hailed as revolutionary way of getting cheap energy by some. However, the U.S. is currently the only country to have fully embraced fracking. Its shale gas production increased to 291.6 billion cubic meters (bcm) in 2012, up from 56.6 bcm in 2007 – a shift from 8% to 35% of the U.S.’s total natural gas production. China’s own shale gas industry is currently extremely small, but its government hopes to emulate the U.S.’s success by upping production to 6.5 bcm by 2015 and 60-to-100 bcm by 2020.

The huge increase in production will make China more economically independent, cutting its gas imports by up to 40%. But it could also a blow for several oil-exporting countries, particularly as they will be having to deal with the declining demand from the U.S. “Combined with the increase in shale gas production in the U.S., it will hit the economy of small exporters in the developing world,” said the Overseas Development Institute, a leading U.K. think tank on development issues, in a report out on Wednesday. The institute noted that developing countries had already lost around $1.5 billion in gas export revenue due to U.S. shale gas production. It named Angola and the Republic of the Congo as particularly susceptible to a fall-off in Chinese demand for their gas, and forecast each would suffer a 13% hit to national income.

Maybe they know something others don’t?!

• Exxon And Chevron Trailing In US Fracking Boom (USA Today)

What boom? While the United States enjoys a surge in oil and natural gas production, its two largest oil companies — Exxon Mobil and Chevron — have so far missed the party. Big Oil was slow to jump into the fracking business, which has transformed U.S. energy markets by extracting oil and gas from shale deposits. And its latest quarterly reports show how it’s struggling to get on board. “The big oil companies were late to invest in shale. They’re trying to play catch-up,” says Brian Youngberg, an analyst at Edward Jones, noting smaller and more nimble companies got into fracking more quickly. He says the multinationals are now investing in new shale developments, but since they’re so big, it’s difficult for any single project to shift their overall bottom line.

The nation’s energy boom is largely due to the combined use of horizontal drilling and hydraulic fracturing, or fracking, which has made it cheaper to break apart shale rock and extract oil or gas trapped deep underground. Since 2005, U.S. production has risen 35% for natural gas and 44% for crude oil, according to the U.S. Energy Information Administration. The major oil companies, which have invested heavily in mega projects offshore and abroad, report a different story. Exxon, the nation’s largest oil company, said Thursday that it produced 5% less natural gas in the United States during the first three months of 2014 than it did in the same period a year ago. Its domestic production of crude oil and other liquids rose 1.6%.

Chevron, the second-largest U.S. oil company, reported declining production. On Friday, it said it produced 4% less oil and 3% less natural gas in the United States during 2014’s first quarter than it did a year ago. Only the third-largest U.S. oil company, ConocoPhillips, did slightly better. On Thursday, it reported a U.S. production uptick of 2.4% for crude oil and 1.8% for natural gas in the first three months of 2104, compared with the same period last year.

Time to wonder if enough people will care enough soon enough. Doesn’t look like it. Looks like we’re too busy drilling in the ever scarcer remaining pristine locations we haven’t yet exploited, and too busy preparing to go to war over access to the very resources that lifted us all the way up over 400ppm in what’s really no more than the blink of an eye in the 800,000 year timeframe.

• First time in 800,000 years: April’s CO2 levels above 400 ppm (CBS)

Less than a year after scientists first warned that the amount of carbon dioxide in the atmosphere could rise above 400 parts per million and stay there, it has finally happened. For the first time in recorded history, the average level of CO2 has topped 400 ppm for an entire month. The high levels of carbon dioxide is largely considered by scientists a key factor in global warming, according to the National Oceanic and Atmospheric Administration’s (NOAA) Earth System Research Lab. The Scripps Institution of Oceanography, a part of the University of California, San Diego, reported that April’s average amount of CO2 was 401.33 ppm, with each day reading above 400 ppm.

Scientists, using the Keeling Curve, show the increase of CO2 levels over the course of 800,000 years. Scripps Institution Of Oceanography

According to the Institute, CO2 levels have not surpassed 300 ppm in 800,000 years. It is estimated that during Earth’s ice ages, the C02 levels were around 200 ppm, with warmer periods — as well as prior to the Industrial Revolution — having carbon dioxide levels of 280 ppm. Past levels of CO2 are found in old air samples preserved as bubbles in the Atlantic ice sheet, according to Scripps. Throughout the year, there are changes in CO2 levels that occur naturally from the growth of plants and trees. Carbon dioxide levels often peak in the spring due to plant growth, and decrease in the fall when plants die, according to NOAA. However, human CO2 production has exacerbated the effects, causing global warming and climate change.

Scientists have been measuring the levels of carbon dioxide over the past fifty years. Since 1958, the Keeling Curve — named after developer Charles Keeling — has been used to monitor the levels of greenhouse gasses atop Hawaii’s Mauna Loa. When Keeling first started monitoring CO2 levels, the amount of carbon dioxide present in the atmosphere was 313 ppm. After Keeling’s death in 2005, his son Ralph, a professor of geochemistry and director of the Scripps CO2 Program, continued the measurements. In a statement last year, he warned that CO2 levels would “hit 450-ppm within a few decades.”

Make that the whole population.

• Half U.S. Population Vulnerable to Climate Change (Bloomberg)

More than half the U.S. population lives in coastal areas that are “increasingly vulnerable” to the effects of climate change, which will ripple throughout the U.S. economy, a White House advisory group’s report concluded. The report released today said the impact of the accumulation of greenhouse gases in the atmosphere is already affecting Americans, with coastal flooding, heavier downpours and more intense wildfire episodes. And more changes are coming. “The real bottom line is that climate change is not a distant threat,” John Holdren, the White House science adviser, told reporters today. “It’s already affecting different regions in the country.”

The findings may bolster President Barack Obama’s energy and environmental agenda, which he is pursuing without legislation from Congress, as well as his proposals to prepare the U.S. to deal with global warming. The administration is focusing on climate change policies this week in conjunction with the release of the report, said John Podesta, an Obama adviser who’s overseeing the president’s climate plans. The warming climate will affect broad sectors of the economy, from infrastructure along the densely populated corridor from Washington to New York to Boston, to crops in the Midwest farm belt to water supplies in growing cities of the Southwest, the authors concluded.

Republicans such as Senators John Barrasso of Wyoming and Jim Inhofe of Oklahoma said the administration is using climate change to support new regulations they say would eliminate jobs. “The president is attempting to once again distract Americans from his unchecked regulatory agenda that is costing our nation millions of job opportunities and our ability to be energy independent,” Inhofe said in an e-mail statement.

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