Aug 102017
 
 August 10, 2017  Posted by at 9:18 am Finance Tagged with: , , , , , , , ,  1 Response »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Dorothea Lange Rooms for Rent, Mission District. Slums of San Francisco, California 1936

 

An Indicator of Peril (Lebowitz)
Former CBO Director: Fall 2017 Will Be “Very Scary”, Expect A Market Crash (ZH)
US Still Stuck Firmly In The Great Recession (BI)
10 Years After Crisis, Another Crash Is ‘Almost Inevitable’ – Steve Keen (RT)
This $5 Trillion Time Bomb Will Devastate Americans (IM)
New Report Raises Big Questions About Last Year’s DNC Hack (N.)
Unverified ‘Russiagate’ Allegations a Grave Threat to America (Stephen Cohen)
European Commission Spending Thousands On ‘Air Taxis’ For Top Officials (G.)
Refugee Crisis Triggers Heightened Risk Of Slavery In EU Supply Chains (G.)

 

 

“The data point, Real Value Added, is currently in negative territory and may, therefore, be a harbinger of an economic downturn. If it is a false signal, it would be the first in a 70-year history of observations.”

An Indicator of Peril (Lebowitz)

Gross Value Added (GVA) and Real Value Added (RVA). GVA is a measure of economic activity, like GDP, but formulated from the production side of the economy. It measures the dollar value of all goods and services produced less all the costs required to produce those goods or services. For example, if 720Global buys $100 worth of wood, $20 worth of other materials and employs $30 worth of labor to build a chair, we have produced a good for $150. If that good is sold for $200, 720Global has created $50 of economic value. Gross Domestic Product (GDP), the more popular measure of economic activity, calculates the level of commerce based on the dollar value of the final goods and services produced. It may help to think of GDP as economic activity measured from the demand side and GVA as measured from the supply side.

Despite the differences, the levels of economic activity reported are remarkably consistent. Since 1948, nominal GDP has averaged annual growth of 6.55% while GVA has averaged 6.50%. It is important to note that, while they track each other very well over the longer term, they are less correlated quarter to quarter. Economists prefer to measure economic activity without the effect of inflation. If inflation were rampant when making the chair in the example above, some of the incremental value was due to the general trend of rising prices and not value added by 720Global. To strip out the effect of inflation and compute a pure measure of value added, it is commonplace to subtract inflation from GVA. The result is Real Value Added (RVA = GVA less CPI). The graph below plots RVA since 1948. Periods deemed recessionary by the National Bureau of Economic Research (NBER) are denoted in gray.

Currently, three of the last four quarters have produced negative RVA levels. Real GDP is not producing similar results, having averaged 2% growth over the same quarters. As mentioned earlier, RVA and Real GDP may not be well correlated over short time frames. RVA is just one source of data arguing that economic trouble lies ahead, therefore, we would be wise not to read too much into this one indicator. Of concern, however, is that negative RVA readings have an impeccable pattern of signaling recession as a coincident indicator.

Read more …

Debt ceiling solution far from done.

Former CBO Director: Fall 2017 Will Be “Very Scary”, Expect A Market Crash (ZH)

Rudy Penner, the former director of the Congressional Budget Office and the person described by MarketNews international as “one of Washington’s most respected fiscal policy experts”, told MNI Wednesday in an exclusive interview that he expects a “very scary” fall 2017 due to fiscal issues, with market-disrupting battles ahead on both the debt ceiling and fiscal year 2018 spending. Penner directed the CBO under president Reagan, worked at high level posts in the White House budget office, and the Council of Economic Advisers. He is currently a fellow at the Urban Institute and sits on the board of the Committee for a Responsible Federal Budget. “There are so many politically hard issues and so little consensus on budget and tax policy. I assume we’ll somehow get through this, but not without getting frightened on a regular basis,” Penner said.

“Probably the best we can hope for is muddling through the (FY 2018) budget and the debt limit and getting very limited health, tax, and infrastructure legislation. There is not going to be significant stimulus coming out of Washington in the foreseeable future,” he said, echoing what many other pundits have said before. Penner said a “bipartisan negotiation is badly needed” to forge even a limited FY 2018 spending agreement. But he’s not certain this will occur. “Even a very limited spending agreement might be an impossible dream. We may just stumble into a series of short-term CRs,” he said, referring to temporary spending bills to keep the government funded. While the “record polarization” rhetoric is familiar, the clock is starting to tick ever louder: the 2018 fiscal year begins on October 1, 2017 and extends until September 30, 2018. None of the 12 annual spending bills for FY 2018 have yet been approved by Congress.

On to the debt ceiling, the one item on the calendar which Morgan Stanley (and others) have said will be the biggest hurdle for the market in the next two months, Penner said he believes it will be “very challenging” for Congress to pass legislation this fall to increase the statutory debt ceiling. Treasury Secretary Steve Mnuchin has asked Congress to lift the debt ceiling by the end of September. Penner countered that a “plausible path” for dealing with the debt ceiling is to pass legislation in September to suspend the debt ceiling until after the November 2018 mid-term elections. However, such legislation, he said, may have to be negotiated by an unusual coalition assembled by House Speaker Paul Ryan, a Republican, and House Minority Leader Nancy Pelosi, a Democrat. Such an agreement, Penner said, “could put Speaker Ryan’s job in peril” by conservative Republicans who oppose it. He said he believes the debt ceiling is “an incredibly stupid law that makes no logical sense.”

Read more …

What happens when you save banks only.

US Still Stuck Firmly In The Great Recession (BI)

Expectations are everything, especially in economics. That’s why a distinct lack of progress in a few basic measures of economic progress, particularly relative to pre-crisis expectations, has left many Americans questioning how much they have personally benefitted from the economic recovery. A new report from the Roosevelt Institute, a liberal think tank in Washington, highlights a number of ways in which “the recovery since 2009 is, in a sense, a statistical illusion.” The study finds the nation’s total economic output, its gross domestic product, “remains about 15% below the pre-recession trend, a larger gap than at the bottom of the recession.” The first chart below shows that lag, while the second offers insights into just how badly the crisis dented expectations about the future.

Strong employment gains in recent months have brought the jobless rate down to a historically-low 4.3%. However, this decline has not been accompanied by rising incomes or consumer prices, generally associated with a sustainable economic boom. Some Federal Reserve policymakers have found this trend puzzling, while many labor economists point to underlying weaknesses in the job market, including high levels of underemployment and long-term joblessness, as drags on income. Stagnant wages amid rising profits have meant that the wage share in US national income has fallen from 63% to 57% in the last 15 years, according to the report. “It is impossible for the wage share to ever rise if the central bank will not allow a period of ‘excessive’ wage growth,” writes J.W. Mason, who authored the report. “A rise in the wage share necessarily requires a period in which wages rise faster than would be consistent with longterm macroeconomic stability.”

Read more …

Zombie-to-be economies.

10 Years After Crisis, Another Crash Is ‘Almost Inevitable’ – Steve Keen (RT)

Speaking to RT, Keen said another financial crisis could be just around the corner unless a fundamentally different approach to debt is adopted. He says we are too focused on government debt, when what actually caused the crisis was “run-away private debt.” “The economy in the UK is not stable. It’s in the aftermath of the biggest financial crisis since the great depression, and there’s still a lack of awareness in the political classes about what actually caused the crisis in the first place,” Keen said. “The Tories were incredibly successful in convincing the electorate that the crisis was caused by government spending, which is absurd. That is technically saying government spending in the UK caused the financial crisis in the United States. Which is just nonsense. “And that gave us austerity for the last 10 years. That austerity has actually further weakened the economy.”

Keen says the level of private debt in the UK peaked at about 195% of GDP post-crisis. While it is now down to about 170% of GDP, it is roughly three times the level of debt England carried before the Margaret Thatcher era, he says. “That’s the stuff that’s being ignored. Nothing is really being done about that. With the amount of debt just sitting there we are still likely to have another crisis – but more likely, we are going to have stagnation.” What is cause for concern, Keen says, is what he calls the “zombie-to-be” economies, such as Australia, Belgium, China, Canada, and South Korea, which avoided the 2008 crisis by borrowing their way through it. Now they have a bigger debt burden to deal with when the next crisis hits, which could be between 2017 and 2020, he says.

“[The ‘zombie-to-be’ economies] are roughly equivalent in size to the American economy. So when they fall, then there will be a crisis that affects the rest of the world, including the UK.” Keen sees China as a terminal case. It has expanded credit at an annualized rate of around 25% for years on end. With private sector debt exceeding 200% of GDP, China resembles the over-indebted economies of Ireland and Spain prior to 2008. He also has little hope for his native Australia, whose credit and housing bubbles failed to burst in 2008. Last year, Australian private sector credit nudged above 200% of GDP, up more than 20 percentage points since the global financial crisis. Australia shows “that you can avoid a debt crisis today only by putting it off until tomorrow,” Keen says.

Read more …

Pensions.

This $5 Trillion Time Bomb Will Devastate Americans (IM)

Over 3,000 millionaires have fled Chicago in recent months. This is the largest outflow of wealthy people from any US city right now. It’s also one of the largest outflows of wealthy people in the world. But it’s not just millionaires… Every five minutes someone leaves Illinois. In a recent poll, 47% of people in Illinois said they want to leave the state. Over the last decade, more than half a million people have done just that. This is the largest outflow of people from any state in the country. The people who leave are generally better educated, more skilled, and earn more money than those who stay. Entire towns of affluent Illinois refugees have sprouted up in Florida, Arizona, and other states. Illinois is bleeding productive people. This is a major warning sign. Wealthy people are often the first to leave a bad situation. They have the means to simply get up and go.

And when they do, they take their money and their businesses with them. This hurts the local property market and the rest of the local economy. Many of Illinois’ millionaires own businesses that employ large numbers of people. As they leave, there are fewer people and businesses left to shoulder the state’s enormous and growing financial burdens. Many of these people are leaving for one simple reason: rising taxes. Illinois’ leftist tax-and-spend politicians are continuing to increase all sorts of taxes, which were already high in the first place. The state just passed a 32% income tax hike. Rising taxes are pushing more and more productive people to make the chicken run… and at the worst possible moment for the state’s coffers. Illinois is the most financially distressed state in the US. Every month, it spends $600 million more than it takes in.

It’s now $15 billion behind on its bills and counting. Illinois is about to become America’s first failed state. Even its governor has described it as a “banana republic.” Today, Illinois can’t pay contractors to fix the roads. It doesn’t have enough cash to pay lottery winners. (What happened to the money it collected selling lottery tickets?) The state can’t even afford food for its prisoners. Here are the sad facts. Illinois has: Nearly $15 billion in overdue bills (including $800 million in interest). A $7 billion budget deficit. And an eye-watering $250 billion bottomless pit of unfunded pension obligations. This $250 billion tab is one of the worst public pension crises in the US.

[..] While Illinois has the worst pension situation, it’s not the only state or city in crisis. California’s public pension system is also broken beyond repair. It’s $750 billion underfunded. State pension plans in Connecticut, Pennsylvania, New Jersey, and many other states are taking on water, too. Unfunded public pension liabilities in the US have surpassed $5 trillion. And that’s during an epic stock and bond market bubble.

Read more …

A long overview of all the evidence.

New Report Raises Big Questions About Last Year’s DNC Hack (N.)

It is now a year since the Democratic National Committee’s mail system was compromised—a year since events in the spring and early summer of 2016 were identified as remote hacks and, in short order, attributed to Russians acting in behalf of Donald Trump. A great edifice has been erected during this time. President Trump, members of his family, and numerous people around him stand accused of various corruptions and extensive collusion with Russians. Half a dozen simultaneous investigations proceed into these matters. Last week news broke that Special Counsel Robert Mueller had convened a grand jury, which issued its first subpoenas on August 3. Allegations of treason are common; prominent political figures and many media cultivate a case for impeachment.

The president’s ability to conduct foreign policy, notably but not only with regard to Russia, is now crippled. Forced into a corner and having no choice, Trump just signed legislation imposing severe new sanctions on Russia and European companies working with it on pipeline projects vital to Russia’s energy sector. Striking this close to the core of another nation’s economy is customarily considered an act of war, we must not forget. In retaliation, Moscow has announced that the United States must cut its embassy staff by roughly two-thirds. All sides agree that relations between the United States and Russia are now as fragile as they were during some of the Cold War’s worst moments. To suggest that military conflict between two nuclear powers inches ever closer can no longer be dismissed as hyperbole.

All this was set in motion when the DNC’s mail server was first violated in the spring of 2016 and by subsequent assertions that Russians were behind that “hack” and another such operation, also described as a Russian hack, on July 5. These are the foundation stones of the edifice just outlined. The evolution of public discourse in the year since is worthy of scholarly study: Possibilities became allegations, and these became probabilities. Then the probabilities turned into certainties, and these evolved into what are now taken to be established truths. By my reckoning, it required a few days to a few weeks to advance from each of these stages to the next. This was accomplished via the indefensibly corrupt manipulations of language repeated incessantly in our leading media.

Read more …

America still ignores its no. 1 Russia expert.

Unverified ‘Russiagate’ Allegations a Grave Threat to America (Stephen Cohen)

Considering all these unprecedented factors, it needs to be emphasized again: President Trump is right about this “all-time low & very dangerous” moment in US-Russian relations. Having recently returned from Russia, Cohen reports that the political situation there is also worsening, primarily because of the Cold War fervor in Washington, including the politics of Russiagate and and new sanctions. Contrary to opinion in the American political-media establishment, Putin has long been a moderate, restraining factor in the new Cold War, but his political space for moderation is rapidly diminishing. His reaction to the congressional sanctions—reducing the number of personnel in US official outposts in Russia to the far lesser number of Russians in American ones—was the least he could have done.

Far harsher political and economic countermeasures are being widely discussed in Moscow, and urged on Putin. For now, he resists, explaining, “I do not want to make things worse,” but he too has a surrounding political elite and it is playing a growing role against any accommodation or restraint in regard to US policy. Meanwhile, the pro-American faction in Russian governmental circles is being decimated by Washington’s actions; and, as always happens in times of escalating Cold War, the space for Russian opposition and other dissident politics is rapidly shrinking.

Read more …

Well, if you build yourselves €1 billion offices, who cares?

European Commission Spending Thousands On ‘Air Taxis’ For Top Officials (G.)

Jean-Claude Juncker and his top officials are spending tens of thousands of euros on chartering private planes, according to documents detailing the European commission’s travel expenses. After three years of battling with transparency campaigners fighting for full disclosure, the EU’s executive has released two months of travel costs for 2016, revealing regular use of chartered planes to transport Brussels’ 28 commissioners. The most expensive mission for which details have been released was in the name of Federica Mogherini, the EU’s high representative for foreign affairs. It cost €77,118 for her and aides to travel by “air taxi” to summits in Azerbaijan and Armenia between 29 February and 2 March 2016.

A two-day visit by Juncker, the European commission president, with a delegation of eight people to see Italy’s political leaders in Rome in February 2016 cost €27,000, again due to the chartering of a private plane. Mina Andreeva, a commission spokeswoman, said the use of air taxis was only allowed where commercial flights were either not available or their flight plans did not fit in with a commissioner’s agenda. Security concerns would also allow the chartering of a private plane under commission rules. She said of Juncker’s trip that there had been “no available commercial plane to fit the president’s agenda” in Italy, where he met the Italian president and prime minister, among other dignitaries. The spokeswoman added that the EU’s total spending on such administrative costs was publicly available and that the organisation led the way in being transparent in their work.

The commission was not able to provide details of how many planes are chartered by Brussels every year, although she insisted the number was limited. The travel costs accumulated by the commissioners come out of the general budget, agreed by the member states. [..] According to documents relating to the two months in 2016, total travel and accommodation costs for visits by commissioners to European parliament sessions in Strasbourg, the World Economic Forum in Davos and official missions to countries came to €492.249, an average of €8,790 a month per commissioner.

Read more …

That’ll teach them to stay home.

Refugee Crisis Triggers Heightened Risk Of Slavery In EU Supply Chains (G.)

The migrant crisis has increased the risk of slavery and forced labour tainting supply chains in three-quarters of EU countries over the past year, researchers have found. Romania, Italy, Cyprus and Bulgaria – all key entry points into Europe for migrants vulnerable to exploitation – were identified by risk analysts as particularly vulnerable to slavery and forced labour. The annual modern slavery index, produced by Verisk Maplecroft, assessed the conditions that make labour exploitation more likely. Areas covered by the index include national legal frameworks and the severity, and frequency, of violations. Countries outside Europe, such as North Korea and South Sudan, were judged to be at the greatest risk of modern slavery, but the researchers said the EU showed the largest increase in risk of any region over the past year.

“In the past, the slavery story has been in supply chains in countries far away, like Thailand and Bangladesh,” said Dr Alexandra Channer, a human rights analyst at Verisk Maplecroft. “But it is now far closer to home and it something that consumers, governments and businesses in the EU have to look out for. With the arrival of migrants, who are often trapped in modern slavery before they enter the workplace, the vulnerable population is expanding.” The International Labour Organisation estimates that 21 million people worldwide are subject to some form of slavery. The biggest global increase in the risk of slavery was in Romania, which rose 56 places in the indexand is the only EU country classified as “high risk”. Turkey came a close second, moving up 52 places, from medium risk to high risk.

The influx of hundreds of thousands of Syrians fleeing war, combined with Turkey’s restrictive work permit system, has led to thousands of refugees becoming part of an informal workforce, said the study. The government, which is focused on political crackdown, does not prioritise labour violations, further adding to the risk. Over the past year, several large brands from Turkish textile factories have been associated with child labour and slavery. The picture in Romania is more complex, researchers said. The country’s high risk category reflects more severe and frequent instances of modern slavery, but also reflects a greater number of criminal investigations in Romania, usually in collaboration with EU enforcement authorities. Both Romania and Italy, which rose 17 places, have the worst reported violations in the EU, including severe forms of forced labour such as servitude and trafficking, the study said.

Read more …

Aug 032017
 
 August 3, 2017  Posted by at 8:58 am Finance Tagged with: , , , , , , , , ,  3 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Marion Post Wolcott Street scenes. Port Gibson, Mississippi 1940

 

Buybacks and Dividends Eat 100% of Bank Earnings (WS)
America’s Productivity Plunge Explained (ZH)
Amazon is the New Tech Crash (David Stockman)
Public Pensions Average 0.6% Return In 2016 Despite 7.6% Assumption (ZH)
Plan For The Worst (Roberts)
Who Needs $100 Oil? Majors Making More Cash at $50, Goldman Says (BBG)
China’s Fear of Japan-Style Economic Bust Drives Crackdown on Deals (BBG)
The US Just Declared Full-Scale Trade War On Russia (Medvedev)
Seymour Hersh: RussiaGate Is A CIA-Planted Lie, Revenge Against Trump (Zuesse)
The Witch Hunt for Donald Trump Surpasses the Salem Witch Trials (PCR)
Canada Opens Montreal’s Olympic Stadium To House Asylum Seekers (R.)
Number Of Child Refugees In Greek Detention Centres Rises ‘Alarmingly’ (PA)
We Got Too BIG For The World (Kingsnorth)

 

 

And then they go after the Volcker rule. Take away their political power or else.

Buybacks and Dividends Eat 100% of Bank Earnings (WS)

When tighter regulations were imposed on the banks after the Financial Crisis, the largest among them, the very ones that threatened to bring down the financial system, began squealing. Those voices are now being heard by Congress, which is considering deregulating the banks again. In particular, they claim that current capital requirements force banks to curtail their lending to businesses and consumers, and thus hurt the economy. Nonsense! That’s in essence what FDIC Vice Chairman Thomas Hoenig told Senate Banking Committee Chairman Mike Crapo and the committee’s senior Democrat, Sherrod Brown, in a letter dated Tuesday, according to Reuters. The senators are trying to find a compromise on bank deregulation. If banks wanted to increase lending, they could easily do so without lower capital requirements, Hoenig pointed out.

Rather than blowing their income on share-buybacks or paying it out in form of dividends, banks could retain more of their income, thus adding it to regulatory capital. Capital absorbs the losses from bad loans. Higher capital levels make a bank more resilient during the next crisis. If there isn’t enough capital, the bank collapses and gets bailed out. But banks that increase their capital levels through retained earnings are stronger and can lend more. Alas, in the first quarter, the 10 largest bank holding companies in the US plowed over 100% of their earnings into share buybacks and dividends, he wrote. If they had retained more of their income, they could have boosted lending by $1 trillion. The CEO of the top bank on this list has been very vocal about plowing more of the bank’s income into share buybacks and dividends, while pushing regulators to lower capital requirements.

In his “Dear Fellow Shareholders” letter in April, Jamie Dimon wrote under the heading “Regulatory Reform,” among many other things: “It is clear that the banks have too much capital.” “And we think it’s clear that banks can use more of their capital to finance the economy without sacrificing safety and soundness. Had they been less afraid of potential CCAR stress losses, banks probably would have been more aggressive in making some small business loans, lower rated middle market loans and near-prime mortgages. But the government was preventing them from doing it, he suggested.

Read more …

I think it started when manufacturing was exported to China et al. How are you supposed to be productive when you don’t make anything?

America’s Productivity Plunge Explained (ZH)

For the first time since the financial crisis, US multifactor productivity growth turned negative last year, mystifying economists who have struggled to find something to blame for the fact that worker productivity is declining despite a technology boom that should make them more efficient – at least in theory. To be sure, economists have struggled to find explanations for the exasperating trend, with some arguing that the US hasn’t figured out how to properly measure productivity growth correctly now that service-sector jobs proliferate while manufacturing shrinks. But what if there’s a more straightforward explanation? What if the decline in US productivity measured since the 1970s isn’t happening in spite of technology, but because of it?

To wit, Facebook has just released user-engagement data for its popular Instagram photo-sharing app. Unsurprisingly, the data show that the average user below the age of 25 now spends more than 32 minutes a day on the app, while the average user aged 25 and older. The last time Facebook released this data, in October 2014, its users averaged 21 minutes a day on the app.

According to Bloomberg, “time spent is an important metric for advertisers, which like to hear that users are browsing an app beyond quick checks for updates, making them more likely to run into some marketing.” Maybe they should matter more to economists, too. Aside from short-lived booms in the 1990s and 2000s, US productivity growth has averaged just 1.2% from 1975 up to today after peaking above 3% in 1972. As we detailed previously, adjusting for the WWII anomaly (which tells us that GDP is not a good measure of a country’s prosperity) US productivity growth peaked in 1972 – incidentally the year after Nixon took the US off gold.

The productivity decline witnessed ever since is unprecedented. Despite the short lived boom of the 1990s US productivity growth only average 1.2 per cent from 1975 up to today. If we isolate the last 15 years US productivity growth is on par with what an agrarian slave economy was able to achieve 200 years ago. As we reported last year, users spent 51% of their total internet time on mobile devices, for a total of 5.6 hours per day snapchatting, face-booking, insta-graming and taking selfies.

Read more …

The new wonders are the ones who don’t make dick all.

Amazon is the New Tech Crash (David Stockman)

It won’t be long now. During the last 31 months the stock market mania has rapidly narrowed to just a handful of shooting stars. At the forefront has been Amazon.com, Inc., which saw its stock price double from $285 per share in January 2015 to $575 by October of that year. It then doubled again to about $1,000 in the 21 months since. By contrast, much of the stock market has remained in flat-earth land. For instance, those sections of the stock market that are tethered to the floundering real world economy have posted flat-lining earnings, or even sharp declines, as in the case of oil and gas. Needless to say, the drastic market narrowing of the last 30 months has been accompanied by soaring price/earnings (PE) multiples among the handful of big winners.

In the case of the so-called FAANGs + M (Facebook, Apple, Amazon, Netflix, Google and Microsoft), the group’s weighted average PE multiple has increased by some 50%. The degree to which the casino’s speculative mania has been concentrated in the FAANGs + M can also be seen by contrasting them with the other 494 stocks in the S&P 500. The market cap of the index as a whole rose from $17.7 trillion in January 2015 to some $21.2 trillion at present, meaning that the FAANGs + M account for about 40% of the entire gain. Stated differently, the market cap of the other 494 stocks rose from $16.0 trillion to $18.1 trillion during that 30-month period. That is, 13% versus the 82% gain of the six super-momentum stocks.

Moreover, if this concentrated $1.4 trillion gain in a handful of stocks sounds familiar that’s because this rodeo has been held before. The Four Horseman of Tech (Microsoft, Dell, Cisco and Intel) at the turn of the century saw their market cap soar from $850 billion to $1.65 trillion or by 94% during the manic months before the dotcom peak. At the March 2000 peak, Microsoft’s PE multiple was 60X, Intel’s was 50X and Cisco’s hit 200X. Those nosebleed valuations were really not much different than Facebook today at 40X, Amazon at 190X and Netflix at 217X. The truth is, even great companies do not escape drastic over-valuation during the blow-off stage of bubble peaks. Accordingly, two years later the Four Horseman as a group had shed $1.25 trillion or 75% of their valuation.

Read more …

“The media don’t crow every time the price of milk goes up, so why should it cheer higher prices in a different market? It’s great only if you own the cow.”

Dow 22,000 Is Not Good News For Most Americans (MW)

The U.S. stock market hit another record Wednesday, with the Dow Jones Industrial Average surpassing 22,000 for the first time. The media acted like Dow 22,000 is a good thing. The cheerleaders in the anchor desks are wearing goofy hats and high-fiving each other like their team just won the Super Bowl. But record-high stock prices are not inherently a good thing. Whether it’s good for you individually depends on whether you own lots of shares or not. Most people do not own very many shares at all, so most of us aren’t benefiting much from high stock prices. The media don’t crow every time the price of milk goes up, so why should it cheer higher prices in a different market? It’s great only if you own the cow.

Who owns the stock market? About half of all equity is owned by the richest 1 million or so families, and another 41% is owned by the rest of the top 10%. The bottom 90% of families own about 9% of outstanding shares. [..] High stock prices might have a benefit if it meant that more capital would be invested in America’s corporations. That’s the myth of the stock market, anyway. In reality, the stock market doesn’t funnel any additional capital into corporations at all. Nonfinancial corporations have been net buyers — not sellers — of equities for the past 23 years in a row. The stock market is actually a process for extracting wealth from corporations and passing it along to the wealthy people who owns shares.

Read more …

The headline bumbers are all you need really. Ponzi as far as the eye can see.

Public Pensions Average 0.6% Return In 2016 Despite 7.6% Assumption (ZH)

We’ve frequently argued that public pension funds in the U.S. are nothing more than thinly-veiled ponzi schemes with their ridiculously high return assumptions specifically intended to artificially minimize the present value of future retiree payment obligations and thus also minimize required annual contributions from taxpayers…all while actual, if immediately intangible, underfunded liabilities continue to surge. As evidence of that assertion, we present to you the latest public pension analysis from the Center for Retirement Research at Boston College. As part of their study, Boston College reviewed 170 public pension plans in the U.S. and found that their average 2016 return was an abysmal 0.6% compared to an average assumed return of 7.6%. Meanwhile, per the chart below, the average return for the past 15 years has also been well below discount rate assumptions, at just 5.95%.

All of which, as we stated above, continues to result in surging liabilities and collapsing funding ratios.

But, perhaps the most telling sign of the massive ponzi scheme being perpetrated on American retirees is the following chart which shows that net cash flows have become increasingly negative, as a percentage of assets, as annual cash benefit payments continue to exceed cash contributions.

Conclusion, you can hide behind high discount rates and a “kick the can down the road” strategy in the short-term…but in the long run actual cash flows matter.

Read more …

Pensions, planning: good luck in the bubble.

Plan For The Worst (Roberts)

One of the biggest mistakes that people make is assuming markets will grow at a consistent rate over the given time frame to retirement. There is a massive difference between compounded returns and real returns as shown. The assumption is that an investment is made in 1965 at the age of 20. In 2000, the individual is now 55 and just 10 years from retirement. The S&P index is actual through 2016 and projected through age 100 using historical volatility and market cycles as a precedent for future returns. While the historical AVERAGE return is 7% for both series, the shortfall between “compounded” returns and “actual” returns is significant. That shortfall is compounded further when you begin to add in the impact of fees, taxes, and inflation over the given time frame.

The single biggest mistake made in financial planning is NOT to include variable rates of return in your planning process. Furthermore, choosing rates of return for planning purposes that are outside historical norms is a critical mistake. Stocks tend to grow roughly at the rate of GDP plus dividends. Into today’s world GDP is expected to grow at roughly 2% in the future with dividends around 2% currently. The difference between 8% returns and 4% is quite substantial. Also, to achieve 8% in a 4% return environment, you must increase your return over the market by 100%. The level of “risk” that must be taken on to outperform the markets by such a degree is enormous. While markets can have years of significant outperformance, it only takes one devastating year of losses to wipe out years of accumulation.

Read more …

A new business model? Does this apply only to oil, or should all businesses cut their sales prices in half to increase their profits? Alternatively, maybe shareholders should sue BP and Shell for all missed profits in the past?

Who Needs $100 Oil? Majors Making More Cash at $50, Goldman Says (BBG)

Oil majors are raking in more cash now than they did in the heyday of $100 oil, according to Goldman Sachs. Integrated giants like BP and Royal Dutch Shell have adapted to lower prices by cutting costs and improving operations, analysts at the bank including Michele Della Vigna said in a research note Wednesday. European majors made more cash during the first half of this year, when Brent averaged $52 a barrel, than they did in the first half of 2014 when prices were $109. Back then, high oil prices had caused executives to overreach on projects, leading to delays, cost overruns and inefficiency, Goldman said. Those projects are coming online now, producing more revenue, while companies have tightened their belts and divested some assets to reduce debt burdens.

“Simplification, standardization and deflation are repositioning the oil industry for better profitability and cash generation in the current environment than in 2013-14 when the oil price was above $100 a barrel,” the analysts said. In the second quarter, Europe’s big oil companies generated enough cash from operations to cover 91 percent of their capital expenses and dividends, showing that they’re close to being able to fund shareholder payments with business-generated revenue, according to Goldman. That will give companies the ability to stop paying dividends by issuing new stock, which has diluted major European energy shares by 3 to 13 percent since 2014.

Read more …

Too late.

China’s Fear of Japan-Style Economic Bust Drives Crackdown on Deals (BBG)

President Xi Jinping’s top economic adviser commissioned a study earlier this year to see how China could avoid the fate of Japan’s epic bust in the 1990s and decades of stagnation that followed. The report covered a wide range of topics, from the Plaza Accord on currency to a real-estate bubble to demographics that made Japan the oldest population in Asia, according to a person familiar with the matter who has seen the report. While details are scarce, the person revealed one key recommendation that policy makers have since implemented: The need to curtail a global buying spree by some of the nation’s biggest private companies. Communist Party leaders discussed Japan’s experience in a Politburo meeting on April 26, according to the person, who asked not to be identified as the discussions are private.

State media came alive afterward, with reports trumpeting Xi’s warning that financial stability is crucial in economic growth. Then in June came a bombshell: reports that the banking regulator had asked lenders to provide information on overseas loans made to Dalian Wanda Group Co., Anbang Insurance Group Co., HNA, Fosun International Ltd. and the owner of Italian soccer team AC Milan. While the timing of those requests is unclear, other watchdogs soon issued directives to curb excessive borrowing, speculation on equities and high yields in wealth-management products. Jim O’Neill, previously chief economist at Goldman Sachs and a former U.K. government minister, said Chinese policy makers are constantly looking to avoid the mistakes of other countries — and Japan in particular.

“You see it in repeated attempts to stop various potential property bubbles so China doesn’t end up with a Japan-style property collapse,” O’Neill said in an email. “There does appear to be some signs that some Chinese investors don’t invest in clear understandable ways, but they wouldn’t be the only ones where that is true!” [..] The moves reflect concerns that China’s top dealmakers have borrowed too much from state banks, threatening the financial system and ultimately the party’s legitimacy to rule — a key worry ahead of a once-in-five-year conclave later this year that will cement Xi’s power through 2022.

Read more …

Well argued by Russia’s PM, and it shows just how extensive the sanctions are. Does America need decades more of Cold War?: “The sanctions codified into law will now last for decades, unless some miracle occurs. [..] the future relationship between the Russian Federation and the United States will be extremely tense, regardless of the composition of the Congress or the personality of the president.”

The US Just Declared Full-Scale Trade War On Russia (Medvedev)

The signing of new sanctions against Russia into law by the US president leads to several consequences. First, any hope of improving our relations with the new US administration is over. Second, the US just declared a full-scale trade war on Russia. Third, the Trump administration demonstrated it is utterly powerless, and in the most humiliating manner transferred executive powers to Congress. This shifts the alignment of forces in US political circles.

What does this mean for the U.S.? The American establishment completely outplayed Trump. The president is not happy with the new sanctions, but he could not avoid signing the new law. The purpose of the new sanctions was to put Trump in his place. Their ultimate goal is to remove Trump from power. An incompetent player must be eliminated. At the same time, the interests of American businesses were almost ignored. Politics rose above the pragmatic approach. Anti-Russian hysteria has turned into a key part of not only foreign (as has been the case many times), but also domestic US policy (this is recent).

The sanctions codified into law will now last for decades, unless some miracle occurs. Moreover, it will be tougher than the Jackson-Vanik law, because it is comprehensive and can not be postponed by special orders of the president without the consent of the Congress. Therefore, the future relationship between the Russian Federation and the United States will be extremely tense, regardless of the composition of the Congress or the personality of the president. Relations between the two countries will now be clarified in international bodies and courts of justice leading to further intensification of international tensions, and a refusal to resolve major international problems.

What does this mean for Russia? We will continue to work on the development of the economy and social sphere, we will deal with import substitution, solve the most important state tasks, counting primarily on ourselves. We have learned to do this in recent years. Within almost closed financial markets, foreign creditors and investors will be afraid to invest in Russia due to worries of sanctions against third parties and countries. In some ways, it will benefit us, although sanctions – in general – are meaningless. We will manage.

Read more …

No, Hersh is not some kind of nut.

Seymour Hersh: RussiaGate Is A CIA-Planted Lie, Revenge Against Trump (Zuesse)

During the latter portion of a phone-call by investigative journalist, Seymour Hersh, Hersh has now presented “a narrative [from his investigation] of how that whole fucking thing began,” including who actually is behind the ‘RussiaGate’ lies, and why they are spreading these lies.

In a youtube video upload-dated August 1st, he reveals from his inside FBI and Washington DC Police Department sources — now, long before the Justice Department’s Special Counsel Robert Mueller will be presenting his official ‘findings’ to the nation — that the charges that Russia had anything to do with the leaks from the DNC and Hillary Clinton’s campaign to Wikileaks, that those charges spread by the press, were a CIA-planted lie, and that what Wikileaks had gotten was only leaks (including at least from the murdered DNC-staffer Seth Rich), and were not from any outsider (including ’the Russians’), but that Rich didn’t get killed for that, but was instead shot in the back during a brutal robbery, which occurred in the high-crime DC neighborhood where he lived. Here is the video…

Read more …

So maybe Paul Craig Roberts lays it on a bit thick sometimes. But what happens in America is dangerous, and Trump is not the principal danger.

The Witch Hunt for Donald Trump Surpasses the Salem Witch Trials (PCR)

In 1940 US attorney general Robert Jackson warned federal prosecutors against “picking the man and then putting investigators to work, to pin some offense on him. It is in this realm—in which the prosecutor picks some person whom he dislikes or desires to embarrass, or selects some group of unpopular persons and then looks for an offense—that the greatest danger of abuse of prosecuting power lies. It is here that law enforcement becomes personal, and the real crime becomes that of being unpopular with the predominant or governing group, being attached to the wrong political views or being personally obnoxious to, or in the way of, the prosecutor himself.” Robert Jackson has given a perfect description of what is happening to President Trump at the hands of special prosecutor Robert Mueller.

Trump is vastly unpopular with the ruling establishment, with the Democrats, with the military/security complex and their bought and paid for Senators, and with the media for proving wrong all the smart people’s prediction that Hillary would win the election in a landslide. From day one this cabal has been out to get Trump, and they have given the task of framing up Trump to Mueller. An honest man would not have accepted the job of chief witch-hunter, which is what Mueller’s job is. The breathless hype of a nonexistent “Russian collusion” has been the lead news story for months despite the fact that no one, not the CIA, not the NSA, not the FBI, not the Director of National Intelligence, can find a scrap of evidence.

In desperation, three of the seventeen US intelligence agencies picked a small handful of employees thought to lack integrity and produced an unverified report, absent of any evidence, that the hand-picked handful thought that there might have been a collusion. On the basis of what evidence they do not say. That nothing more substantial than this led to a special prosecutor shows how totally corrupt justice in America is. Furthermore the baseless charge itself is an absurdity. There is no law against an incoming administration conversing with other governments. Indeed, Trump, Flynn, and whomever should be given medals for quickly moving to smooth Russian feathers ruffled by the reckless Bush and Obama regimes. What good for anyone can come from ceaselessly provoking a nuclear Russian bear?

Read more …

Spent so much time in that stadium watching baseball etc. Good memories.

Canada Opens Montreal’s Olympic Stadium To House Asylum Seekers (R.)

Canadian health authorities and aid workers are using an Olympic stadium to shelter asylum seekers as a growing number of people walk into the country from the United States. The Quebec Red Cross and local health authorities opened Montreal’s Olympic Stadium on Wednesday to asylum seekers brought in by bus after having crossed the U.S. border, Red Cross spokeswoman Stephanie Picard said. The city is seeing a growing influx in refugee claimants coming from the United States and is scrambling to house them all. The Red Cross is assisting with beds and providing bedding and other personal-care items. Montreal’s health authority would not provide exact numbers on how many people are being housed in the stadium, built for the 1976 Olympics and which now serves as an event space.

More than 4,300 people have walked across the U.S. border into Canada this year seeking refugee status. The vast majority of them come to Quebec, according to figures from the federal government. Many asylum seekers who spoke to Reuters say they left the United States fearing President Donald Trump’s immigration crackdown. People who cross the border illegally to file refugee claims are apprehended and held for questioning by both police and border officials before being allowed to file claims and live in Canada while their application is processed. Montreal Mayor Denis Coderre welcomed the asylum seekers on Twitter Wednesday afternoon, saying 2,500 people had come in July alone. He said on Twitter that providing for the new arrivals is a “humanitarian gesture.”

Read more …

Look, there have to be limits, or we will not survive this, none of us. Locking up children just because they have fled bombs is beyond insane.

Number Of Child Refugees In Greek Detention Centres Rises ‘Alarmingly’ (PA)

The number of unaccompanied child migrants living in “dirty” Greek detention centres has increased “alarmingly”, a human rights organisation has warned. An estimated 117 children were in police cells or custody centres in Greece at the end of July, compared to just two in November 2016, according to figures released by the country’s government. Under Greek law, the authorities should separate minors into safe accommodation, where they are appointed guardians who represent them in legal proceedings. But when there is no space in safe shelters, the authorities detain them in police stations and immigration detention facilities, sometimes with unrelated adults. “Instead of being cared for, dozens of vulnerable children are locked in dirty, crowded police cells and other detention facilities across Greece, in some cases with unrelated adults,” said Eva Cossé, the country’s researcher at Human Rights Watch.

“The Greek government has a duty to end this abusive practice and make sure these vulnerable kids get the care and protection they need.” Human Rights Watch has written to Migration Policy Minister Yiannis Mouzalas to stop the automatic detention of unaccompanied children. It suggested the government should amend legislation and significantly shorten the amount of time a child can be detained in protective custody. While they wait for a space in a shelter, many children are not provided with information about their rights and are not told how to apply for asylum, the organisation said. Aid workers have previously reported that the uncertainty and distress caused by the asylum process, exacerbated an ongoing mental health crisis among migrants living on the islands. Children as young as nine have harmed themselves, while 12-year-olds have attempted to kill themselves, Save the Children said in March.

Read more …

Too big NOT to fail.

We Got Too BIG For The World (Kingsnorth)

Living through a collapse is a curious experience. Perhaps the most curious part is that nobody wants to admit it’s a collapse. The results of half a century of debt-fueled “growth” are becoming impossible to deny convincingly, but even as economies and certainties crumble, our appointed leaders bravely hold the line. No one wants to be the first to say the dam is cracked beyond repair. To listen to a political leader at this moment in history is like sitting through a sermon by a priest who has lost his faith but is desperately trying not to admit it, even to himself. Watch your chosen president or prime minister mouthing tough-guy platitudes to the party faithful. Listen to them insisting in studied prose that all will be well. Study the expressions on their faces as they talk about “growth” as if it were a heathen god to be appeased by tipping another cauldron’s worth of fictional money into the mouth of a volcano.

In times like these, people look elsewhere for answers. A time of crisis is also a time of opening up, when thinking that was consigned to the fringes moves to center stage. When things fall apart, the appetite for new ways of seeing is palpable, and there are always plenty of people willing to feed it by coming forward with their pet big ideas. But here’s a thought: what if big ideas are part of the problem? What if, in fact, the problem is bigness itself? The crisis currently playing out on the world stage is a crisis of growth. Not, as we are regularly told, a crisis caused by too little growth, but by too much of it. Banks grew so big that their collapse would have brought down the entire global economy. To prevent this, they were bailed out with huge tranches of public money, which in turn is precipitating social crises on the streets of Western nations. The European Union has grown so big, and so unaccountable, that it threatens to collapse in on itself.

Corporations have grown so big that they are overwhelming democracies and building a global plutocracy to serve their own interests. The human economy as a whole has grown so big that it has been able to change the atmospheric composition of the planet and precipitate a mass-extinction event. One man who would not have been surprised by this crisis of bigness, had he lived to see it, was Leopold Kohr. Kohr has a good claim to be the most interesting political thinker that you have never heard of. Unlike Karl Marx, he did not found a global movement or inspire revolutions. Unlike Friedrich Hayek, he did not rewrite the economic rules of the modern world. Kohr was a modest, self-deprecating man, but this was not the reason his ideas have been ignored by movers and shakers in the half-century since they were produced. They have been ignored because they do not flatter the egos of the power-hungry, be they revolutionaries or plutocrats. In fact, Kohr’s message is a direct challenge to them.

“Wherever something is wrong,” he insisted, “something is too big.”

Read more …

Jul 162017
 
 July 16, 2017  Posted by at 9:19 am Finance Tagged with: , , , , , , , , ,  1 Response »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Piet Mondriaan The Grey Tree 1912

 

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)
Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)
How Brexit Is Set To Hurt Europe’s Financial Systems (R.)
Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)
Is Russiagate Really Hillarygate? (Forbes)
The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)
France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)
France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)
Is California Bailing Out Tesla through the Backdoor? (WS)
Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

 

 

No markets. No investors.

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)

Thanks, it seems, to a few short words from Janet Yellen, the world’s stock markets added over $1.5 trillion to wealthy people’s net worth this week, sending global market cap to record highs. The value of global equity markets reached a record high $76.28 trillion yesterday, up a shocking 18.6% since President Trump was elected. This is the same surge in global stocks that was seen as the market front-ran QE2 and QE3. This was the biggest spike in global equity markets since 2016.

For the first time since Dec 2007, the market value of global equity markets is greater than the world’s GDP…

Of course – the big question is – how long can ‘they’ keep this dream alive?

Read more …

“Actually, the longer it takes to hit, the better it is for us…”

Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)

The global dollar-based monetary system is in serious jeopardy, according to former Texas Congressman Ron Paul. And contrary to Fed Chairwoman Janet Yellen’s assurances that there won’t be another major crisis in our lifetime, the next economy-cratering fiat-currency crash could happen as soon as next month, Paul said during an interview with Josh Sigurdson of World Alternative media. Paul and Sigurdson also discussed false flag attacks, the dawn of a cashless society and the dangers of monetizing national debt. Paul started by saying Yellen’s attitude scares him because “central bankers are always wrong – especially before a bust.”

“There is a subjective element to when people lose confidence, and when is the day going to come when people realize we’re dealing with money that has no intrinsic value to it, we’re dealing with too much debt, too much bad investment and it will come to an end. Something that’s too good to believe usually is and it usually ends. One thing’s for sure, we’re getting closer every day and the crash might come this year, but it might come in a year or two.” “The real test is can it sustain unbelievable deficit financing and the accumulation of debt and it can’t. You can’t run a world like this, if that were the case Americans could just sit back and say “hey, everybody wants our money and will take our money.” Paul advised that, for those who are already girding for the crash by buying gold and silver and stocking their basements with provisions like canned food and bottled water, the rewards for their foresight will only grow with the passage of time.

“Actually, the longer it takes to hit, the better it is for us. The more we can get prepared personally, as well as warn other people, about what’s coming.” “It’s a sign that the authoritarians are clinging to power so they can collect the revenues collect the taxes and make sure you’re not getting around the system. That’s what the cashless society is all about. But it won’t work in fact it might be the precipitating factor that people will eventually lose confidence when the crisis hits. They say the crisis hasn’t come – welI in 2008 and 2009 we had a pretty major crisis and what we learned there is that the middle class got wiped out and the poor people got poorer and now there’s a lot of wealth going on but it’s still accumulating to the wealthy individual.” “People say it might not come for another ten years – well we don’t know whether that’s necessary but one thing that’s for sure when a government embarks on deficit financing and then monetizing the debt the value of commodities like gold and silver generally goes up.

Read more …

Anyone think the concentration of finance in the City is maybe not such a great idea? As, you know, for the people?

How Brexit Is Set To Hurt Europe’s Financial Systems (R.)

Interviews with scores of senior executives from big British and international banks, lawyers, academics, rating agencies and lobbyists outline some of the dangers for companies and consumers from potentially losing access to London’s markets. The EU needs London’s money, says Mark Carney, governor of the Bank of England. He calls Britain “Europe’s investment banker” and says half of all the debt and equity issued by the EU involves financial institutions in Britain. Rewiring businesses will be expensive, though estimates vary widely. Investment banks that set up new European outposts to retain access to the EU’s single market may see their EU costs rise by between 8 and 22%, according to one study by Boston Consulting Group.

A separate study by JP Morgan estimates that eight big U.S. and European banks face a combined bill of $7.5 billion over the next five years if they have to move capital markets operations out of London as a result of Brexit. Such costs would equate to an average 2% of the banks’ global annual expenses, JP Morgan said. Banks say most of those extra costs will end up being paid by customers. “If the cost of production goes up, ultimately a lot of our costs will get passed on to the client base,” said Richard Gnodde, chief executive of the European arm of Goldman Sachs. “As soon as you start to fragment pools of liquidity or fragment capital bases, it becomes less efficient, the costs can go up.”

UK-based financial firms are trying to shift some of their operations to Europe to ensure they can still work for EU clients, but warn such a rearrangement of the region’s financial architecture could threaten economic stability not only in Britain but also in Europe because so much European money flows through London. European countries, particularly France and Germany, don’t share these concerns, viewing Brexit as an opportunity to steal large swathes of business away from Britain and build up their own financial centres. Britain alone accounts for 5.4% of global stock markets by value, according to Reuters data. Valdis Dombrovskis, the EU financial services chief, said the EU will still account for 15% of global stock markets by value without Britain, and that measures were being taken to strengthen its capital markets. But he added: “Fragmentation is preventing our financial services sector from realising its full potential.”

Industry figures have similar concerns. Jean-Louis Laurens, a former senior Rothschild banker and now ambassador for the French asset management lobby, told Reuters: “If London is broken into pieces then it is not going to be as efficient. Both Europe and Britain are going to lose from this.” London is currently home to the world’s largest number of banks and hosts the largest commercial insurance market. About six trillion euros ($6.8 trillion), or 37%, of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris. And London dominates Europe’s 5.2 trillion euro investment banking industry.

Read more …

Familiar patteren: first blow a bubble, then warn about it.

Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)

British families are signing up for a lifetime of debt with almost one in seven borrowers now taking out mortgages of 35 years or more, official figures show. Rapid house price growth has encouraged borrowers to sign longer mortgage deals as a way of reducing monthly payments and easing affordability pressures. Bank of England data shows 15.75pc of all new mortgages taken out in the first quarter of 2017 were for terms of 35 years or more. While this is slightly down from the record high of 16.36pc at the end of 2016, it has climbed from just 2.7pc when records began in 2005. The steady rise has triggered alarm bells at the Bank, prompting regulators to warn that the trend risks storing up problem[s] for the future if lenders ignore the growing share of households prepared to borrow into retirement. Several lenders including Halifax, the UK’s biggest mortgage provider, and Nationwide have raised their borrowing age limits to 80 and 85 over the past year.

Bank figures show one in five mortgages are taken out for terms of between 30 and 35 years, from below 8pc in 2005, as the traditional 25-year mortgage becomes less popular. David Hollingworth, a director at mortgage broker London & Country, said the trend showed that an increasing share of borrowers were struggling with affordability pressures, and deciding that lengthening the term will offer leeway as house price growth continues to outpace pay rises. However, he said most borrowers were unlikely to stick with the same deal, with most having a desire to review that later and potentially peg [the extra interest costs] back . Mr Hollingworth added that longer mortgage terms were also better than interest-only deals that were prevalent before the credit crunch. The Bank noted in its latest financial stability report that there was little evidence that borrowers were signing up for longer mortgage deals to circumvent tougher borrowing tests for homeowners introduced in 2014.

Read more …

Fusion GPS.

Is Russiagate Really Hillarygate? (Forbes)

The most under covered story of Russia Gate is the interconnection between the Clinton campaign, an unregistered foreign agent of Russia headquartered in DC (Fusion GPS), and the Christopher Steele Orbis dossier. This connection has raised the question of whether Kremlin prepared the dossier as part of a disinformation campaign to sow chaos in the US political system. If ordered and paid for by Hillary Clinton associates, Russia Gate is turned on its head as collusion between Clinton operatives (not Trump’s) and Russian intelligence. Russia Gate becomes Hillary Gate. Neither the New York Times, Washington Post, nor CNN has covered this explosive story. Two op-eds have appeared in the Wall Street Journal. The possible Russian-intelligence origins of the Steele dossier have been raised only in conservative publications, such as in The Federalist and National Review.

The Fusion story has been known since Senator Chuck Grassley (R-Iowa) sent a heavily-footnoted letter to the Justice Department on March 31, 2017 demanding for his Judiciary Committee all relevant documents on Fusion GPS, the company that managed the Steele dossier against then-candidate Donald Trump. Grassley writes to justify his demand for documents that: “The issue is of particular concern to the Committee given that when Fusion GPS reportedly was acting as an unregistered agent of Russian interests, it appears to have been simultaneously overseeing the creation of the unsubstantiated dossier of allegations of a conspiracy between the Trump campaign and the Russians.”

Former FBI director, James Comey, refused to answer questions about Fusion and the Steele dossier in his May 3 testimony before the Senate Intelligence Committee. Comey responded to Lindsey Graham’s questions about Fusion GPS’s involvement “in preparing a dossier against Donald Trump that would be interfering in our election by the Russians?” with “I don’t want to say.” Perhaps he will be called on to answer in a forum where he cannot refuse to answer.

Read more …

And don’t think it’s over. The pension chips are yet to fall.

The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)

Those who wish to understand how things work in Chicago need read a single article that ties everything together:

“Teamsters Boss Indicted On Charges Of Extorting $100,000 From A Local Business. A politically connected Teamsters union boss was indicted Wednesday on federal charges alleging he extorted $100,000 in cash from a local business. John Coli Sr., considered one the union’s most powerful figures nationally, was charged with threatening work stoppages and other labor unrest unless he was given cash payoffs of $25,000 every three months by the undisclosed business. The alleged extortion occurred when Coli was president of Teamsters Joint Council 25, a labor organization that represents more than 100,000 workers in the Chicago area and northwest Indiana. Coli, 57, an early backer of Mayor Rahm Emanuel, was charged with one count of attempted extortion and five counts of demanding and accepting prohibited payment as a union official.”

[..] Former governor Rod Blagojevich is now in prison for a 14-year sentence. He was found guilty of 18 counts of corruption, including attempting to sell or trade an appointment to a vacant seat in the U.S. Senate. He faces another eight years in prison after an appeals court upheld the sentence in April of this year. No other state can match this claim: 4 OUT OF PREVIOUS 7 ILLINOIS GOVERNORS WENT TO PRISON The way Chicago “works” is the same way Illinois “works”. Corrupt politicians get in bed with corrupt union leaders and screw the taxpayers and businesses as much as they can. Sometimes they get caught. Teamster boss Coli just got caught after all these years of extortion. His deals with Mayor Emanuel screwed Chicago taxpayers. Emanuel promised reforms and transparency but reforms and transparency stop once campaign donations are sufficient enough.

Read more …

Macron plays Napoleon.

France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)

French President Emmanuel Macron said his defense chief has no choice but to agree with what he says, a weekly newspaper reported on Sunday, after his top general criticized spending cuts to this year’s budget. “If something opposes the military chief of staff and the president, the military chief of staff goes,” Macron, who as president is also the commander-in-chief of the armed forces, told Le Journal du Dimanche (JDD). Macron said on Thursday that he would not tolerate public dissent from the military after General Pierre de Villiers reportedly told a parliament committee he would not let the government “fuck with” him on spending cuts.

De Villiers still has Macron’s “full trust,” the president told JDD, provided the top general “knows the chain of command and how it works.” “No one deserves to be blindly followed,” De Villiers wrote in a message posted on his Facebook page on Friday. De Villiers’ last Facebook post is an open letter addressed to new military recruits that makes no mention of Macron. But it was perceived by French media as targeting the president’s earlier comments.

Read more …

Macron wants to be a global force too. While he has nothing to say in Europe.

France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)

France called on Saturday for a swift lifting of sanctions that target Qatari nationals in an effort to ease a month-long rift between the Gulf country and several of its neighbors. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt imposed sanctions on Qatar on June 5, accusing it of financing extremist groups and allying with the Gulf Arab states’ arch-foe Iran. Doha denies the accusations. “France calls for the lifting, as soon as possible, of the measures that affect the populations in particular, bi-national families that have been separated or students,” French Foreign Minister Jean-Yves Le Drian told reporters in Doha, after he met his counterpart Sheikh Mohammed bin Abdulrahman al-Thani. Le Drian was speaking alongside Sheikh Mohammed, hours after his arrival in Doha. He is the latest Western official to visit the area since the crisis began.

Later in the day he flew to Jeddah, where he repeated his concerns about the effects of the standoff in a televised press appearance with Saudi Foreign Minister Adel al-Jubeir. Jubeir said any resolution of the worst Gulf crisis in years should come from within the six-nation Gulf Cooperation Council. “We hope to resolve this crisis within the Gulf house, and we hope that wisdom prevails for our brothers in Qatar in order to respond to the demands of the international community – not just of the four countries,” he said. [..] Le Drian, who will visit the UAE and Gulf mediator Kuwait on Sunday, follows in the steps of other world powers in the region, including the United States, whose Secretary of State Rex Tillerson sought to find a solution to the impasse this week.

Officials from Britain and Germany also visited the region with the aim of easing the conflict, for which Kuwait has acted as mediator between the fending Gulf countries. In a joint statement issued after Tillerson and Sheikh Mohammed signed an agreement on Tuesday aimed at combating the financing of terrorism, the four Arab states leading the boycott on Qatar said the sanctions would remain in place.

Read more …

The Tesla tulip.

Is California Bailing Out Tesla through the Backdoor? (WS)

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout. Tesla will soon hit the limit of the federal tax rebates, which are good for the first 200,000 EVs sold in the US per manufacturer beginning in December 2009 (IRS explanation). In the second quarter after the manufacturer hits the limit, the subsidy gets cut in half, from $7,500 to $3,750; two quarters later, it gets cut to $1,875. Two quarters later, it goes to zero. Given Tesla’s ambitious US sales forecast for its Model 3, it will hit the 200,000 vehicle limit in 2018, after which the phase-out begins.

A year later, the subsidies are gone. Losing a $7,500 subsidy on a $35,000 car is a huge deal. No other EV manufacturer is anywhere near their 200,000 limit. Their customers are going to benefit from the subsidy; Tesla buyers won’t. This could crush Tesla sales. Many car buyers are sensitive to these subsidies. For example, after Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero. The good people of Hong Kong will likely start buying Teslas again, but it shows that subsidies have a devastating impact when they’re pulled. That’s what Tesla is facing next year in the US. In California, the largest EV market in the US, 2.7% of new vehicles sold in the first quarter were EVs, up from 0.4% in 2012, according to the California New Dealers Association. California is Tesla’s largest market.

Something big needs to be done to help the Bay Area company, which has lost money every single year of its ten years of existence. And taxpayers are going to be shanghaied into doing it. To make this more palatable, you have to dress this up as something where others benefit too, though the biggest beneficiary would be Tesla because these California subsidies would replace the federal subsidies when they’re phased out. It would be a rebate handled at the dealer, not a tax credit on the tax return. And it could reach “up to $30,000 to $40,000” per EV, state Senator Andy Vidak, a Republican from Hanford, explained in an emailed statement. This is how the taxpayer-funded rebates in the “California Electric Vehicle Initiative” (AB1184) would work, according to the Mercury News:

“The [California Air Resources Board] would determine the size of a rebate based on equalizing the cost of an EV and a comparable gas-powered car. For example, a new, $40,000 electric vehicle might have the same features as a $25,000 gas-powered car. The EV buyer would receive a $7,500 federal rebate, and the state would kick in an additional $7,500 to even out the bottom line.” And for instance, a $100,000 Tesla might be deemed to have the same features as a $65,000 gas-powered car. The rebate would cover the difference, minus the federal rebate (so $27,500). Because rebates for Teslas will soon be gone, the program would cover the entire difference – $35,000. This is where Senator Vidak got his “$30,000 to $40,000.”

Read more …

Money changes everything.

Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

The Brazilian environment ministry is proposing the release of 860,000 acres in the National Forest of Jamanxim for agricultural use, mining and logging. The government’s order was a compromise measure after protests from local residents and ecologists who claim that the bill could lead to further deforestation in the Pará area. If approved, the legislation will create a new protection area (APA) close to Novo Progresso. Around 27% of the national forest would be converted into an APA, the ministry said. Carlos Xavier, president of a lobbying group in Pará to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. According to the ministry, the bill includes stipulations to reduce conflicts over land, prevent deforestation and create jobs. The measures were criticised by environmental groups.

“The bill is seen as an amnesty for illegal occupation of the conservancy unit,” said Observatório do Clima on its website, claiming that the government “yielded to pressure” from the rural lobby. Carlos Xavier, president of a lobbying group in Para to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. In 2016, deforestation of the Amazon rose by 29% over the previous year, according to the government’s satellite monitoring, the biggest jump since 2008. Mongabay, an environmental science and conservation website, reports that experts using satellite images have identified illegal logging activities to the east of the BR-163 highway, in Pará state. The BR-163 protests involved stopping trucks from unloading grains at the riverside location of Miritituba, where barges carrying crops are transported en route to the export markets. ATP, the Brazilian private ports association, calculated that the highway protests would result in losses of $47m.

Read more …

Apr 052017
 
 April 5, 2017  Posted by at 8:43 am Finance Tagged with: , , , , , , , , , ,  1 Response »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


DPC Times Square seen from Broadway 1908

 

JPMorgan CEO Jamie Dimon Warns ‘Something Is Wrong’ With the US (BBG)
US Housing Boom Is Anything But as Ownership Loses Appeal (A. Gary Shilling)
Young Americans Are Killing Marriage (BBG)
The Comex Is The World’s Most Corrupted Market (IRD)
The Real Russiagate (Paul Craig Roberts – Michael Hudson)
Fed Leak Probe Dooms Lacker But Leaves Key Question: Who Leaked? (BBG)
I Tried To Ask Yellen About The Fed Leak (Da Costa)
Australia’s Household Debt Crisis Is Worse Than Ever (Abc.au)
Australian Economy At Risk As Debt Bomb Grows (Aus.)
Chinese Brokers Are Muscling in on Asia’s Junk Bond Underwriters
Zombie Nation: In Japan, Zero Public Companies Went Bust in 2016 (BBG)
The World’s Best Economist (PCR)
New Zealand Post To Deliver KFC (AFP)

 

 

Actually, a lot is wrong. Including Dimon talking his book and people thinking he’s doing something else, like trying to help anyone other than himself.

JPMorgan CEO Jamie Dimon Warns ‘Something Is Wrong’ With the US (BBG)

JPMorgan CEO Jamie Dimon has two big pronouncements as the Trump administration starts reshaping the government: “The United States of America is truly an exceptional country,” and “it is clear that something is wrong.” Dimon, leader of world’s most valuable bank and a counselor to the new president, used his 45-page annual letter to shareholders on Tuesday to list ways America is stronger than ever – before jumping into a much longer list of self-inflicted problems that he said was “upsetting” to write. Here’s the start: Since the turn of the century, the U.S. has dumped trillions of dollars into wars, piled huge debt onto students, forced legions of foreigners to leave after getting advanced degrees, driven millions of Americans out of the workplace with felonies for sometimes minor offenses and hobbled the housing market with hastily crafted layers of rules.

Dimon, who sits on Donald Trump’s business forum aimed at boosting job growth, is renowned for his optimism and has been voicing support this year for parts of the president’s business agenda. In February, Dimon predicted the U.S. would have a bright economic future if the new administration carries out plans to overhaul taxes, rein in rules and boost infrastructure investment. In an interview last month, he credited Trump with boosting consumer and business confidence in growth, and reawakening “animal spirits.” But on Tuesday, reasons for concern kept coming. Labor market participation is low, Dimon wrote. Inner-city schools are failing poor kids. High schools and vocational schools aren’t providing skills to get decent jobs. Infrastructure planning and spending is so anemic that the U.S. hasn’t built a major airport in more than 20 years.

Corporate taxes are so onerous it’s driving capital and brains overseas. Regulation is excessive. “It is understandable why so many are angry at the leaders of America’s institutions, including businesses, schools and governments,” Dimon, 61, summarized. “This can understandably lead to disenchantment with trade, globalization and even our free enterprise system, which for so many people seems not to have worked.”

Read more …

I like Shilling. But this reeks of nonsense. It’s not about appeal, it’s about getting poorer.

US Housing Boom Is Anything But as Ownership Loses Appeal (A. Gary Shilling)

By many measures, the U.S. housing market seems in very good shape. The National Association of Realtors in Washington said last week that contracts to buy existing homes jumped 5.5% in February, the biggest increase since July 2010. Fannie Mae’s National Housing Survey showed that Americans expect home prices to rise a robust 3.2% over the next year as its sentiment index reached a record high. So, are boom times ahead for housing? Not quite. To understand why, it helps to revisit recent history. The housing bubble of the early 2000s was driven by subprime mortgages and other loose-lending practices. The subsequent collapse left many potential new homeowners with inadequate credit scores, not enough money for a down payment and insufficient job security to buy a house.

They also saw, for the first time since the 1930s, that not only house prices fall nationwide, but nosedive by a third. Homeownership plunged and those who did form households moved into rental apartments instead of single-family houses. That drove rental vacancy rates down and starts of multi-family housing – about two-thirds of which are rentals – up to 396,000 units, more than the earlier norm of 300,000 starts at annual rates. But single-family housing starts – even with the rebound to an 872,000 annual rate from the bottom of about 400,000 – are still far below the pre-housing bubble average of more than 1 million. Despite the recovery in house prices, rents have risen at a much faster pace. As a share of median income, rents have jumped while mortgage costs have fallen. The latest data from the National Association of Realtors show its Housing Affordability Index was up 52% in the fourth quarter of 2016 from the early 2007 low.

Read more …

Yesterday we saw IMF head Lagarde saying the loss of productivity can be solved with education. But the younger have had a boatload more education than their parents.

Young Americans Are Killing Marriage (BBG)

There’s no shortage of theories as to how and why today’s young people differ from their parents. As marketing consultants never cease to point out, baby boomers and millennials appear to have starkly different attitudes about pretty much everything, from money and sports to breakfast and lunch. New research tries to ground those observations in solid data. The National Center for Family and Marriage Research at Bowling Green State University set out to compare 25- to 34-year-olds in 1980—baby boomers—with the same age group today. Researcher Lydia Anderson compared U.S. Census data from 1980 with the most recent American Community Survey data in 2015. The results reveal some stark differences in how young Americans are living today, compared with three or four decades ago.

In 1980, two-thirds of 25- to 34-year-olds were already married. One in eight had already been married and divorced. In 2015, just two in five millennials were married, and only 7% had been divorced. Baby boomers’ eagerness to get married meant they were far more likely than today’s young people to live on their own. Anderson looked at the share of each generation living independently, either as heads of their own household or in married couples. The chance that Americans in their late twenties and early thirties live with parents or grandparents has more than doubled. In 1980, just 9% of 25- to 34-year-olds were doing so. In 2015, 22% lived with parents or grandparents. Millennials are also less likely than boomers to be living with kids—and to be homeowners.

It’s easy to look at these figures and say millennials are lagging behind their boomer parents. However, even as young Americans delay marriage, kids, and homeownership, they’re ahead of their parents by one measure: education.

Read more …

Dazzling. “Historically, when the amount of paper exceeds the amount of underlying commodity that is available for delivery by more than 20-30%, the CFTC intervenes by investigating the possibility of market manipulation. But never with gold and silver.”

The Comex Is The World’s Most Corrupted Market (IRD)

If you were to poll the public about comparing the investment returns between gold, silver and stocks during the first quarter of 2017, it’s highly probable that the majority of the populace would respond that the S&P 500 outperformed the precious metals. That’s a result of the mainstream media’s unwillingness to report on the precious metals market other than to disparage it as an investment. In reality, among silver, gold, the Nasdaq 100 and the S&P 500, the S&P 500 had the lowest ROR in Q1. Silver led the pack at 14%, followed by tech-heavy Nasdaq 100 at 11.1%, gold at 8.6% and the S&P 500 at 4.8%. Put that in your pipe and smoke it, Cramer. Imagine the performance gold and silver would have turned in if the Comex was prevented from creating paper gold and silver in amounts that exceeded the quantity of gold and silver sitting in the Comex vaults.

As an example, as of Friday the Comex is reporting 949k ozs of gold in the registered accounts of the Comex vaults and 9 million ozs of total gold. Yet, the open interest in paper gold contracts as of Friday totaled 41.7 million ozs. This is 44x more paper gold than the amount of physical that has been designated – “registered” – as available for delivery. It’s 4.6x more than the total amount of gold sitting on Comex vaults. With silver the situation is even more extreme. The Comex is reporting 29.5 million ozs of silver as registered and 190.2 million total ozs. Yet, the open interest in paper silver is a staggering 1.08 billion ozs. 1.08 billion ozs of silver is more silver than the world mines in a year. The paper silver open interest is 5x greater than the total amount of silver held in Comex vaults; it’s an astonishing 37x more than the amount of silver that is available to be delivered.

This degree of imbalance between the open interest in CME futures contracts in relation to the amount of the underlying physical commodity represented by those contracts never occurs in any other CME commodity – ever. Historically, when the amount of paper exceeds the amount of underlying commodity that is available for delivery by more than 20-30%, the CFTC intervenes by investigating the possibility of market manipulation. But never with gold and silver. The Comex is perhaps the most corrupted securities market in history. It is emblematic of the fraud and corruption that has engulfed the entire U.S. financial and political system. The U.S. Government has now issued $20 trillion in Treasury debt for which it has no intention of every redeeming. It’s issued over $100 trillion in unfunded liabilities (entitlements, pensions, etc) for which default is not a matter of “if” but of “when.”

Read more …

“..We are now in a position to see the real story behind “Russiagate.” It’s not about Russia, except incidentally…”

The Real Russiagate (Paul Craig Roberts – Michael Hudson)

Wall Street Journal editorialist Kimberley A. Strassel poses the real question: Why hasn’t the Trump administration had the Secret Service arrest Comey, Brennan, Schiff, the DNC and Hillary for trying to overthrow the President of the United States? “Mr. Nunes has said he has seen proof that the Obama White House surveilled the incoming administration—on subjects that had nothing to do with Russia—and that it further unmasked (identified by name) transition officials. This goes far beyond a mere scandal. It’s a potential crime.” What we are watching is turning out to be traces of a plot against a government elected by the American people. Attempts by House national security committee Chairman Devin Nunes have been countered with demands by his potential victims to recuse himself so as to stop his exposé of how “Team Obama was spying broadly on the incoming administration.”

[..] We are now in a position to see the real story behind “Russiagate.” It’s not about Russia, except incidentally. The Obama regime abused the government’s surveillance powers and spied on Donald Trump and other Republicans in order to build a dossier for the DNC to leak to the press in an attempt to slander or compromise Trump and throw the election to Hillary. They’ve been caught, but we can now see that they took steps to protect themselves against this. They prepared a cover story. They pretend they were not spying on Trump, but on Russians – which only by fortuitous happenchance turned up incriminating smoke against Trump. This cover story was buttressed by the fake news story prepared by former MI6 freelancer Christopher Steele.

As Whitney reports, Steele “was hired as an opposition researcher last June to dig up derogatory information on Donald Trump.” Unvetted and unverified information paid for by so-called informants “somehow” found its way into U.S. intelligence agency reports. These reports were then leaked to Democrat-friendly media. This is where the crime lies. Obama regime and DNC were using these agencies for domestic political use, KGB style. The Obama/Clinton cover story is now falling to pieces. That explains the desperation in the attack by Adam Schiff, the ranking Democrat on the House Intelligence Committee, on Committee Chairman Devin Nunes to stop the exposure. Russiagate is not a Trump/Putin collusion but a domestic spy job carried out by Democrats. Law requires Trump to arrest those responsible and to put them on trial for treason and conspiracy to overthrow the government of the United States.

Read more …

They end the investigation without answering the question that started it?!

Fed Leak Probe Dooms Lacker But Leaves Key Question: Who Leaked? (BBG)

The Federal Reserve’s inspector general says it will be ending its investigation into the 2012 release of confidential information. Even after the scandal cut short the career of one top Fed official, the answer to the most important question remains a mystery. Who did the initial leaking? Richmond Fed President Jeffrey Lacker resigned abruptly Tuesday as he announced his role in the unauthorized disclosure of information to Medley Global Advisors about policy options that the central bank was considering in 2012. His explanation suggested he was confirming facts the Medley analyst already knew. It was a sudden career stop for a Fed president who was frequently in opposition to the Fed board consensus on interest-rate policy, and the news will likely revive questions in Congress about the value of the central bank’s discretion and transparency.

“The story is not over today,” said Andrew Levin, a professor at Dartmouth College who was previously a special adviser at the Fed board and helped then-Vice Chair Janet Yellen develop the Fed’s policy on external communication. “There are a number of distinct details that suggest that Lacker wasn’t the main source of information.” Aaron Klein, a fellow at the Brookings Institution and the former chief economist on the Senate Banking Committee, said the Lacker statement “is not a full and complete accounting of what happened.” “The Fed, internally and its inspector general, would be wise to fully explore every aspect of what happened here because today’s actions and statements by Lacker raise more questions than they answer,” he said.

[..] Lacker’s carefully worded statement, distributed by his attorney, said he “crossed the line to confirming information that should have remained confidential.” The investigation into Lacker has concluded and no charges will be brought against him, the attorney said. He also said the Medley analyst “introduced into the conversation an important non-public detail” about one of the policy options under consideration. Lacker says he didn’t decline to comment “and the interview continued.” His statement doesn’t suggest that he tipped the Medley analyst initially. Indeed, the Fed board’s own investigation said “a few Federal Reserve personnel” had contact with the Medley analyst.

Read more …

Lacker the only leaker? Doesn’t quite look that way.

I Tried To Ask Yellen About The Fed Leak (Da Costa)

I once asked Janet Yellen a rather straightforward question that would echo for much longer than I expected. It was March 2015, and the Federal Reserve was under pressure from Congress to reveal details about an internal investigation into how key details of its interest rate policy deliberations had made their way into a report by a private sector firm. I was a reporter at the Wall Street Journal, and I asked the following at a press conference:

Let’s make something clear: Like any journalist, I love a good leak. But this was not your typical leak of important information to a journalist who then reported it to the public. This was the sharing of private, market-sensitive details with a private party – Medley Global Advisors – which then shared that information with its clients. The leak, it should be noted, happened all the way back in 2012 but it was still being discussed in 2015 because – despite the Fed’s internal investigation – nobody seemed to have gotten to the bottom of what had happened. And back in 2012, any read on what the Federal Reserve might do to suppress interest rates as the US economy continued to crawl out of the Great Recession, could lead to huge profits for the traders who bet on such things. These days, traders are thinking about the next rate hike.

Back then, interest rates were already at zero and the real insight gleaned from Medley’s report was how aggressively the Fed would work to keep them there by using its balance sheet. My question to Yellen had to do with basic public trust in the Fed. Why should the American people believe the central bank is working in its best interests if policymakers chat privately with movers and shakers on Wall Street? This was an alarming trend I had been reporting on since 2010, when I co-authored a report for Reuters entitled “Cozying up to big investors at Club Fed.” In it, my colleagues and I detailed other instances of market-moving information inappropriately being shared with investors, a trend we first observed when Fed officials speaking to bankers and hedge fund managers at conferences would suddenly go silent when a reporter walked by.

After the Yellen press conference, I took two weeks of paid leave for the birth of my daughter. When I returned, my editor at the paper told me I would no longer be attending Fed press conferences. No reason was given, and I left the job a few months later. Market bloggers speculated the Fed had “banned” me from the press conference. I have no reason to think that was the case because the central bank let me back in as soon as I changed news organizations. Fast-forward to April 4, 2017: Richmond Fed President Jeffrey Lacker resigns abruptly after admitting he was a source of the leak. As soon as I saw the news, the whole press conference incident flashed before my eyes. But Lacker’s admission that the Medley leak originated with him doesn’t entirely settle the matter. We know Yellen also met with Medley herself. Why? What did she say to them? Former Fed economist and Treasury official Seth Carpenter was also under scrutiny on the issue. What were the results of the Fed’s own investigation? And of Congress’?

Read more …

Meanwhile in the gutter….

Australia’s Household Debt Crisis Is Worse Than Ever (Abc.au)

Mr Russell told me there had been a big increase in debt-distressed Australians calling the [National Debt] helpline in recent months unable to pay their utilities bills. Naturally, he explained, rent and mortgage repayments take priority over the utilities bills because, in the order of survival priorities, you first need a roof over your head. Generally speaking, though, the National Debt helpline told me the rising cost of living is becoming crippling. Utilities bills, mortgage repayments and credit card debt, are all contributing to household financial stress. Last year over 150,000 calls were made to the National Debt Helpline. This year, monthly call volumes for the helpline are already 20% higher, compared to 2016. Based on current call volumes, the NDH predicts that there will be over 182,000 calls this year.

Martin North is the principal of financial research firm Digital Finance Analytics. He crunched the numbers and calculated that, in March, of the 3.1 million mortgaged households, around 22% were in “mild mortgage stress”. That’s up 1.5% on February, and is directly related to the even the smallest of interest rate increases by some of the big four banks. That means those households are managing to make their mortgage repayments, but only by cutting back on other expenditure, or putting more on credit cards, and generally hunkering down. Then there are those Australians under extreme levels of financial stress. Data from Digital Finance Analytics show 1% of households are in severe stress. That means they’re behind with their repayments, and are trying to dig their way out by refinancing, selling their property, or seeking help from services like the National Debt Helpline.

Read more …

Ha ha: “Our banks are resilient and they are soundly capitalised,” he said.”

Australian Economy At Risk As Debt Bomb Grows (Aus.)

The rampant debt-fuelled surge in the Sydney and Melbourne property markets will threaten the health of the national economy if it continues, Reserve Bank governor Philip Lowe has warned. However, Treasurer Scott Morrison has talked down drastic action on house prices after a “strong intervention” from Dr Lowe. The RBA is worried that housing debts are rising more than twice as fast as household incomes and that banks are lending to people who cannot afford to repay their debts. The concern has been that the longer the recent trends continued, the greater the risk to the future health of the Australian economy, Dr Lowe told a business dinner in Melbourne last night. “Stretched balance sheets make for more volatility when things turn down.” “For many people, the high debt levels and low wage growth are a sobering combination.”

The chairman of the government’s Financial System Inquiry, former Future Fund chairman David Murray, yesterday sounded a further alarm on the housing boom, saying a crisis on the scale of the 1890s great property collapse could not be ruled out. “What people should do is look at the 1890s, which was caused by a housing land boom,” he told The Australian. “To say it won’t happen and simply ignore it is wrong.” Half of the nation’s banks closed their doors following the 1890s crash. “Many people say a crisis has a low probability of occurrence, but the problem with that view is that whatever the probability, the severity can be very high if it occurs”, Mr Murray, who is also a former Commonwealth Bank chief executive, said. “It shouldn t be allowed to grow & it’s too big a risk to take.”

[..] House prices in Australia’s capital cities have risen 12.9% compared with this time last year, with a surge of 18.9% in Sydney and 15.9% in Melbourne, according to data released on Monday by property analytics firm CoreLogic. [..] Dr Lowe dismissed fears that the banks would be undermined by a housing downturn, saying the Council of Financial Regulators did not believe the boom was a threat to financial stability. “Our banks are resilient and they are soundly capitalised,” he said.

Read more …

In China, the shadow banks are taking over…

Chinese Brokers Are Muscling in on Asia’s Junk Bond Underwriters

China’s brokerages are out-muscling global investment banks to win more underwriting business in Asia’s junk bond market amid record offerings, as they increasingly help borrowers from the nation raise foreign currency debt. Haitong Securities topped the league table for high-yield notes denominated in dollars, euro and yen from companies in Asia excluding Japan in the first quarter, according to data compiled by Bloomberg. China Merchants Securities moved up four places to fifth. While HSBC rose three places to second, Standard Chartered and UBS slid to eighth and 11th from first and second in the first quarter of 2016. Junk bonds offer more lucrative fees than high-grade bonds, giving an extra boost to financial institutions that can expand in the business.

As Chinese firms have flocked to the offshore high-yield market, mainland banks and brokerage firms have grabbed market share away from international peers. Issuance of junk notes in dollars, euro and yen from Asia excluding Japan swelled to a record $14.6 billion in the first quarter, with nearly 70% from Chinese companies. “It’s increasingly competitive and Chinese banks are effectively buying market share with their balance sheet,” said Veronique Lafon-Vinais at the Hong Kong University of Science and Technology. Alexi Chan, global co-head of debt capital markets at HSBC, said that the significant rise in Asia high-yield bond sales reflected the “constructive market sentiment” and “positive outlook for China’s economy.”

Read more …

… and in Japan, the zombies take over.

Zombie Nation: In Japan, Zero Public Companies Went Bust in 2016 (BBG)

Corporate Japan achieved a rare feat in the fiscal year that ended last week. Not one of its almost 4,000 publicly-traded firms filed for bankruptcy protection. Yet that’s no reason to celebrate, according to analysts who see Japan’s easy credit conditions standing in the way of a much-needed, corporate restructuring to flush out failing companies and make room for new businesses. “It’s totally unhealthy,” says Martin Schulz, an economist at Fujitsu Research Institute in Tokyo. “Japan’s business cycle isn’t working. When no old companies go out of business, no new ones can come in because there isn’t room. The old companies will always compete on price, simply because they can.”

The last time not a single Japanese corporate titan went belly up was a four-year stretch 26 years ago, according to a report published this week by research firm Teikoku Databank. Back then, though, an overheated Japanese economy averaged 5.5% growth per year and then hit a wall when stock and real estate asset bubbles burst. This time, ultra-low interest rates and government loan guarantees left over from the global financial crisis are keeping companies afloat. Prime Minister Shinzo Abe touts fewer business failures as an economic success, but critics say too-easy credit is keeping “zombie” firms alive, worsening labor shortages, and excess competition is putting downward pressure on prices.

The Austrian economist Joseph Schumpeter in 1942 coined the term “creative destruction” to describe the messy way that capitalism reinvents itself. Japan may be stuck in a rut because it refuses to take the economic pain needed for a revival. Yet it’s hardly the only country keeping companies on life support. A January study by the OECD blamed zombies – defined as firms with persistent difficulties paying interest on debt – for slowing productivity, and thus causing sluggish growth, in the developed world. In South Korea, where the shipping industry has been hit by slumping global trade, state-run banks last month agreed to lend Daewoo Shipbuilding $2.6 billion and swap debt for equity to prevent a default. It was the second time in less than two years that the troubled shipbuilder was bailed out.

In China, roughly 10% of the country’s publicly-traded companies are “among the walking dead,” being kept alive by continuous support from government and banks, according to research by He Fan, an economist at Beijing’s Renmin University. Banks keep lending, often because they don’t want to own up to their bad debts. Meanwhile, the government fears the unemployment that would result if so many troubled firms were left to wither away.

Read more …

“..the owners of property along the subway line experience a rise in property values. They owe their increased wealth and their increased incomes from the rental values of their properties to the expenditure of taxpayer dollars. If these gains were taxed away, the subway line could have been financed without taxpayers’ money.”

The World’s Best Economist (PCR)

If you want to learn real economics instead of neoliberal junk economics, read Michael Hudson’s books. What you will learn is that neoliberal economics is an apology for the rentier class and the large banks that have succeeded in financializing the economy, shifting consumer spending power from the purchase of goods and services that drive the real economy to the payment of interest and fees to banks. His latest book is J is for Junk Economics. It is written in the form of a dictionary, but the definitions give you the precise meaning of economic terms, the history of economic concepts, and describe the transformation of economics from classical economics, where the emphasis was on taxing incomes that are not the product of the production of goods and services, to neoliberal economics, which rests on the taxation of labor and production.

This is an important difference that is not easy to understand. Classical economists defined “unearned income” as “economic rent.” This is not the rent that you pay for your apartment. Economic rent is an income stream that has no counterpart in cost incurred by the receipient of the income stream. For example, when a public authority, say the city of Alexandria, Virginia, decides to connect Alexandria with Washington, D.C., and with itself, with a subway paid for with public money, the owners of property along the subway line experience a rise in property values. They owe their increased wealth and their increased incomes from the rental values of their properties to the expenditure of taxpayer dollars. If these gains were taxed away, the subway line could have been financed without taxpayers’ money.

It is these gains in value produced by the subway, or by a taxpayer-financed road across property, or by having beachfront property instead of property off the beach, or by having property on the sunny side of the street in a business area that are “economic rents.” Monopoly profits due to a unique positioning are also economic rents. Hudson adds to these rents the interest that governments pay to bondholders when governments can avoid the issuance of bonds by printing money instead of bonds. When governments allow private banks to create the money with which to purchase the government’s bonds, the governments create liabilities for taxpayers than are easily avoidable if, instead, government created the money themselves to finance their projects. The buildup of public debt is entirely unnecessary.

No less money is created by the banks that buy government bonds than would be created if the government printed money instead of bonds. The inability of neoliberal economics to differentiate income streams that are economic rents with no cost of production from produced output makes the National Income and Product Accounts, the main source of data on economic activity in the US, extremely misleading. The economy can be said to be growing because public debt-financed investment projects raise the rents along subway lines. “Free market” economists today are different from the classical free market economists. Classical economists, such as Adam Smith, understood a free market to be one in which taxation freed the economy from untaxed economic rents. In neoliberal economics, Hudson explains, “free market” means freedom for rent extraction free of government taxation and regulation. This is a huge difference.

Read more …

I got nothing. We’re doomed.

New Zealand Post To Deliver KFC (AFP)

New Zealand Post has announced its couriers will home-deliver KFC fast food, in a trial that could provide a recipe for success as letter volumes continue to dwindle. Under a pilot scheme that started this week in the North Island town of Tauranga, KFC customers can order online and have their food delivered by NZ Post drivers. KFC operator Restaurant Brands NZ said that while it knew how to produce food, it had no experience in logistics, making the postal service a natural fit. “NZ Post has an extensive delivery distribution network around New Zealand, and KFC is available in most towns nationwide,” chief executive Ian Letele said.

“With the support of NZ Post, we hope to service the home delivery needs of many more KFC customers throughout New Zealand.” New Zealand Post has struggled in the digital age as email and texts have replaced traditional “snail mail”. The state-owned service slashed 2,000 jobs, or 20% of its workforce in 2013, and two years later moved to three-day-a-week deliveries, down from six. It said in its last financial statement that the fall in letter deliveries meant it was losing up to NZ$30 million ($21 million) a year in revenue. However, it said parcel volumes were up due to rising online orders and NZ Post was concentrating on capturing more e-commerce business.

Read more …