Wednesday, January 21, 2015

Today's Links

"The global plutocracy is a cancer on the human race" wsws




1-- Mortgage applications?? Multi year lows, Dr Housing Bubble


Take a look at the bigger picture here:
MBAJan142015
Source:  MBA
WFC mortgages
That
mortgage rates
The current daily survey for the 30-year fixed rate mortgage is coming in at 3.62 percent.  That is incredibly low.  Within the 3 percent range, you are basically getting an interest free loan after factoring for inflation.  So why don’t people dive in and buy every house on the market?  There are two main reasons:
-1.  Inventory remains very low
-2.  Household incomes are still weak


2---U.S. 30-Year Yields Fall Toward Record on Relative-Value Demand, Bloomberg


Treasury 30-year bonds rose, pushing yields toward record lows, as speculation that the European Central Bank will start buying bonds and tumbling yields around the world spurred demand for the value of U.S. debt.
Benchmark 10-year note yields declined for the sixth time in seven days while offering about 1.34 percentage points of higher yield than comparable maturity German government securities. A measure of volatility in the Treasury market reached the highest since October.


3--Could a strong dollar destroy world economy?  gulf times
“The BIS warnings confirm what we’ve been saying for a long time: Hell could soon break loose in the emerging markets”. Redeker


Already now, the appreciation of the dollar is one of the strongest rises in past decades. The Dollar Index, which measures the greenback against the world’s major currencies, has been at its highest since Spring 2006. But it’s not the absolute state of the index that is noteworthy: it is the speed of the appreciation.
Since the beginning of July last year, the dollar has gained 13% on the major trade currencies, which for the currency market is huge. Against the currencies of individual emerging markets the greenback’s rally has been even more dramatic. Since the summer last year, appreciation against the ruble is over one-third. It’s 15% against the Ukrainian hryvnia and Brazilian real and 7% against the Turkish lira.
For companies whose debt in is dollars that means that in their own currency their burden of debt keeps rising. And there’s another troubling accounting problem: many emerging economies overwhelmingly take in the dollars they need through the sale of commodities, which are traditionally billed in dollars



In the past, appreciation of the dollar has unleashed crises in emerging economies. It happened in the early 1980s when a strong dollar led the South American countries into major trouble and in the mid-1990s when the Asian tiger countries fell like dominoes.


If the value of the dollar continues to rise, it could lead to a wave of bankruptcies in Russia, Brazil and other emerging economies, which would have a serious impact on Germany and other countries that rely on exports.
Where and why did this potential threat arise? Countries, corporate entities and private households have, globally, become indebted to the tune of $10tn. A growing share of the debt has been incurred within emerging markets.


This debt could also become an existential risk. Most of these liabilities are not in native currencies like the Brazilian real or Russian ruble, but in dollars. In times of relatively stable exchange rates and a strong world economy with robust commodities quotations, this would not be such a serious problem: Dollar revenues on the world markets make it possible for dynamic economies to meet the costs of interest and repayment.


Within emerging economies, borrowing in dollars amounts to $2.6tn. Add to that $3tn in international bank loans, and that makes for a significant sum - approximately equivalent to Japan’s economic power.
The Basel-based Bank for International Settlements (BIS), a kind of central bank to the central banks, warned in its December 2014 Quarterly Review, that the appreciation of the dollar against the backdrop of divergent monetary policies could “have a profound impact on the global economy”.



4--Central bank prophet fears QE warfare pushing world financial system out of control, Pritchard


Former BIS chief economist warns that QE in Europe is doomed to failure and may draw the region into deeper difficulties ...


Beggar-thy-neighbor devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West.
"We are in a world that is dangerously unanchored," said William White, the Swiss-based chairman of the OECD's Review Committee. "We're seeing true currency wars and everybody is doing it, and I have no idea where this is going to end."


5---Is Draghi about to massively misfire? cnbc


So far, the ECB has implemented rate cuts, provided cheap loans to banks and purchased covered bonds and asset backed securities in the hope of stimulating the euro zone economy. However, with consumer prices now falling in the region, the ECB has implied that it is ready to reveal even greater measures to try to boost inflation back to its target levels and provide a fillip for growth in the region.
The ECB's balance sheet currently stands at just over 2 trillion euros ($2.33 trillion) but it has intentions to raise it to 3 trillion euros. A U.S. Federal Reserve-style program of sovereign bond purchases has been touted despite fears over its legitimacy and opposition from Germany...


There is a risk the additional liquidity finds its home in higher-yielding opportunities outside the euro zone," she added, also explaining that "more money doesn't necessarily mean more jobs" if the stimulus doesn't find its way into the pockets of the consumer....


Claus Vistesen, the chief euro zone economist at Pantheon Macroeconomics told CNBC via email that the euro trade has become so crowded that it could suddenly "rip your face off" and push 6 percent higher against the greenback in a matter of days, disappointing consensus.


6--Not your usual oil-price decline effect, FT alpha


This suggests to Yetsenga that there is a common factor affecting all of these commodities: financialisation and the emergence of commodities as a financial asset which benefit whenever cheap dollar funding is available, and fall whenever dollars become expensive.
This, he suggests, is a negative sign for the global economy because it’s the equivalent of a physical supply shock.


7---Flow of Opec petrodollars set to dry up, FT


The flow of Opec petrodollars into global financial markets is set to dry up as the collapse in the oil price delivers a $316bn hit to the cartel’s revenues.
Big oil producers have pumped the windfall they enjoyed from soaring oil prices over the last decade into a huge range of global assets, from US Treasuries and high-grade corporate bonds to equities and real estate....
This is the first time in 20 years that Opec nations will be sucking liquidity out of the market rather than adding to it through investments,” David Spegel, global head of emerging market sovereign and corporate research at BNP Paribas.


8--'The 2003 Dividend Tax Cut Did Nothing to Help the Real Economy', econ view


9--Davos participants not interested in higher oil price – ex-Russian finance minister, RT


10--Delusion and deception in Obama’s State of Union, wsws


Nine million workers are officially unemployed, another six million have dropped out of the labor force, eight million work part-time when they want full-time jobs and 12 million work for temporary employment agencies.
* Real wages have fallen steadily for American workers since 2007, dropping another five cents an hour in December 2014. The real income of the average working-class family is now back to the level of 2000—15 years of stagnation in living standards.
* The US poverty rate has risen from 12.6 percent in 2007 to 14.5 percent in 2013. Nearly half of all Americans and more than half of all US school children are poor or near poor.
* One fifth of American children do not get enough to eat, while the overall rate of food insecurity has jumped from 11 percent in 2007 to 16 percent in 2013. One million Americans will be cut off food stamp benefits this year.


11--Capitalism and the global plutocracy, wsws


In 2013, according to updated figures, the 92 richest multi-billionaires had as much wealth as the bottom 50 percent of society. In 2014, this figure dropped to 80 billionaires. In other words, a group of people who can fit into a double-decker bus control more wealth than 3.5 billion people, equivalent to the combined populations of China, India, the United States and the European Union.
Inequality is growing at such a rapid pace that the richest 1 percent will control more wealth than the bottom 99 percent of society by next year. It is in fact quite possible that, on a global scale, society has never been so unequal through thousands of years of human history as it is today.....


fact, the unending accumulation of wealth by the super-rich is the product of the single-minded policy of the ruling class carried out over decades and escalated since the 2008 financial crisis, itself triggered by the criminal activities of the financial elite. The US government alone has funneled nearly $7 trillion into the financial system, which has been used to prop up over $30 trillion in financial assets. Central banks throughout the world have followed suit.


Global corporations have used the mass unemployment arising from the economic downturn to slash wages and impose speedup on their workers, while governments around the world have utilized the economic crisis as an opportunity to impose deep austerity measures.
Nearly seven years after the collapse of Lehman Brothers, the policies undertaken in the aftermath of the Wall Street crash are leading to a new stage in the global crisis. The Chinese stock market bubble, which minted dozens of new billionaires this year, appears to be collapsing, having suffered its biggest loss since 2008 on Monday. Europe is in deflation, and analysts predict the Russian economy will shrink five percent this year. On Monday, the International Monetary Fund downgraded its estimate for economic growth this year.


The only response the ruling class has to the crisis of its system is to funnel even more cash to the coffers of the rich. “Monetary policy must… stay accommodative,” the IMF declared, “including through other means if policy rates cannot be reduced further,” a veiled reference to money-printing ("quantitative easing") programs....


The global plutocracy is a cancer on the human race


Tuesday, January 20, 2015

Today's Links

1--Look Who’s Dragging Down the Global Economy Though No One Is Allowed to Say it ,  wolf street




As if they’d coordinated this, Oxfam, a non-profit that works in over 90 countries, published a research report on Monday that found that the richest 1% have been on a global wealth-grab. In 2008, the 99% still owned 56% of global wealth, based on data from Credit Suisse, whereas the 1% owned 44%. Then the Financial Crisis happened. It impacted both groups in similar proportions, and there was no change in 2009. But 2010 was the “inflection point,” when the 1% started grabbing an ever larger share of global wealth, while the 99% began to lose their grip. By 2014, the 99% was down to 52% of global wealth, the bottom 80% owned a measly 5.5%, but the top 1% had squirreled away 48%.
The report projected that if this trend continues, the 1% will own more of the global wealth by 2016 than everyone else put together...In 2009, the richest 80 people, based on the Forbes list of billionaires, sat on just under $1 trillion in net wealth, the report found. By 2014, their pile had doubled to $1.9 trillion.


Since 2008, central banks have printed $10.7 trillion, BofA Merrill Lynch pointed out. Some central banks have imposed negative-interest-rate policies. ZIRP is now so wide-spread that it covers 83% of the global free-float stock market capitalization. These days, 52% of all government bonds yield less than 1%. In the Eurozone, Switzerland, and Japan there are $7.3 trillion in government bonds with a “negative” yield....


Fed Chairman Ben Bernanke himself explained the “wealth effect” in an editorial in 2010. The Fed’s “strong and creative measures” – that’s what he called QE and ZIRP – would lead to higher stock prices. “And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”


2--Crushing The U.S. Energy Export Dream, NC
proven oil
In other words, the U.S. is a fairly minor player among the family of major oil-producing nations


the U.S. is a fairly minor player among the family of major oil-producing nations. For all the fanfare about the U.S. surpassing Saudi Arabia in production of crude oil, we are not even players in reserves. What that means is that we may temporarily pass Saudi Arabia in production because it chooses to restrict full capacity, and U.S. production will fade decades before Saudi Arabia’s production begins to decline.


Let’s put all of this together.


• The U.S. will never be oil self-sufficient and will never import less than about 6 million barrels of oil per day.
• U.S. total production will peak in a few years and imports will increase.
• The U.S. is a relatively minor reserve holder in the world.
How does this picture fit with calls for the U.S. to become an exporter of oil? Very badly. For tight oil producers to become the swing producers of the world? Give me a break.


3--The Golden Age of Black Ops: Special Ops Missions Already in 105 Countries in 2015, Nick Turse


During the fiscal year that ended on September 30, 2014, U.S. Special Operations forces (SOF) deployed to 133 countries -- roughly 70% of the nations on the planet -- according to Lieutenant Colonel Robert Bockholt, a public affairs officer with U.S. Special Operations Command (SOCOM). This capped a three-year span in which the country’s most elite forces were active in more than 150 different countries around the world, conducting missions ranging from kill/capture night raids to training exercises. And this year could be a record-breaker. Only a day before the failed raid that ended Luke Somers life -- just 66 days into fiscal 2015 -- America’s most elite troops had already set foot in 105 nations, approximately 80% of 2014’s total.


Despite its massive scale and scope, this secret global war across much of the planet is unknown to most Americans. Unlike the December debacle in Yemen, the vast majority of special ops missions remain completely in the shadows, hidden from external oversight or press scrutiny. In fact, aside from modest amounts of information disclosed through highly-selective coverage by military media, official White House leaks, SEALs with something to sell, and a few cherry-picked journalists reporting on cherry-picked opportunities, much of what America’s special operators do is never subjected to meaningful examination, which only increases the chances of unforeseen blowback and catastrophic consequences.
      
The Golden Age
“The command is at its absolute zenith. And it is indeed a golden age for special operations.” Those were the words of Army General Joseph Votel III, a West Point graduate and Army Ranger, as he assumed command of SOCOM last August. ...


The command, and especially JSOC, has also forged close ties with the Central Intelligence Agency, the Federal Bureau of Investigation, and the National Security Agency, among others.


4---The Fed's Game in a Nutshell: QE isn’t dying, it’s morphing , Nomi Prins


According to call report data compiled by the extremely thorough website www.BankRegData.com, nearly 97% of all bank trading assets (including US Treasuries) are held by just 10 banks, led by JPM Chase with 43.80% and followed by Citigroup at 24.51% of all bank trading assets.

Last quarter, US Treasuries were the fastest growing form of security bought by banks, increasing by 26.3% or $72 billion over the prior quarter. As the Fed tapered, banks stepped in to do their part in the coordinated Fed-private bank QE game. In the past year, banks have added $185.8 billion of US Treasuries to their books, more than doubling their share of government debt.

Just seven banks comprised nearly all ($70.5 billion) of this quarterly increase: State Street Bank, Capital One, JPM Chase, Wells Fargo, Bank of America, Bank of NY Mellon and Citigroup. By the end of the third quarter of 2014, Citigroup, with $95 billion, was the largest holder of US Treasuries, followed by Bank of America at $54.8 billion and Wells Fargo at $37.8 billion from nearly zero at the start of 2014. Bank of NY Mellon holds $25.3 billion and JPM Chase holds $15 billion US Treasuries...

But, the recent timing here is key. Banks only started buying US Treasuries in earnest when the Fed announced its tapering plans. Thus, not only are they participants in the ZIRP game as recipients of cheap money, they are complicit in effecting monetary policy. As the data analyzed so expertly by Bill Moreland at www.BankRegData.com makes clear, there has been no taper.  Thus, the publicized reason for tapering – better job and economic growth – is also bogus.

During the third quarter, Wells Fargo and Bank of America matched Fed purchases of US Treasuries, keeping the total amount of US Treasuries in QE land neutral. With such orchestration to keep rates down and the prices of US Treasury securities up, all the talk about whether the labor force is strengthening or inflation exists or not is mere show. Banks haven’t even propped up the labor market in their own industry. They chopped 11,400 jobs last quarter. In the past two years, they cut 57,236 jobs.  

No successful candidate in either political party mentioned any of this during the mid-term elections. Yet, our political-financial system has gone from the dysfunctional to the failed to the surreal. Speculation, once left to individuals and investors, is now federally sponsored, subsidized and institutionalized.  When this sham finally buckles and the next shoe falls and rates do eventually rise, the stock market will tank, liquidity will die, and the broader economy will plunge into a worse Depression than before. We are not there yet because of these coordinated moves and the political force behind them. But we are on a precarious path to that inevitability.  


In 1994, 66.9 million viewers tuned in to watch President Bill Clinton's State of the Union. This year, 33.3 million Americans watched Obama's latest State of the Union. About the same number of Americans watched the President's September speech on the Islamic State...

A network insider tells Playbook: “There was agreement among the broadcast networks that this was overtly political. The White House has tried to make a comparison to a time that all the networks carried President Bush in prime time, also related to immigration [2006]. But that was a bipartisan announcement, and this is an overtly political move by the White House.”...


When you're already losing revenue, giving the president the spotlight isn't always the best business decision. Or ever the best business decision.


6--Republicans Change Rules; Democrats Change Stripes, Jack Rasmus


Reports leaking in recent days about his forthcoming 2015 address suggest this week he’ll offer proposals that he should have raised six years ago. Now we’ll hear them because there’s no ‘chance in hell’ they’ll ever get passed the next two years with the Congress solidly Republican, and Obama knows it.  But the proposals will make for good campaign material for the Democrats in the next national election cycle, including presidential elections in 2016, which has already begun. And that’s what it’s all about.


With the lowest low voter turnout last November 2014 in over 70 years, at a mere 36%, Democrats are running scared. They’ve earned it.  Last November 2014 their major constituencies voted with their feet. Or perhaps we should say they conducted a sit-down strike, staying home, on their butts, and didn’t turn out to vote for Democrats. The Obama strategy of the past six years of ‘propose little and deliver less’ has cost him and the Democratic Party so far both houses of the US Congress. And polls show it may also cost them the presidency next time, since they’re already in a ‘come from behind’ position for the coming presidential race in 2016.


So the next two years Obama, and what remains of Congressional Democrats, will step up the rhetoric and ‘talk the talk’ after having refused to ‘walk the walk’, as they say, in the previous six years. They’ll put on their phony paper hats and march around holding their placards of progressivism, and start the process and cycle of fooling the people all over again (aka lying). It all starts in earnest with the upcoming SOTU address by the President this week


7--Oil's plunge to siphon Gulf petrodollars from global markets, A business
8--Russia Abandons PetroDollar By Opening Reserve Fund, oil price
9--Petrodollar drought is new risk for markets, Reuters
10--The upcoming petrodollar bifurcation risk?, FT


One of the still to be appreciated side-effects of falling oil prices is a reduction in so-called petrodollar recycling by oil producers.
As we’ve already noted, there are analysts who believe petro-induced liquidity shortages may already be impacting certain eurodollar markets. Furthermore, there’s also the fact that as liquidity shortfalls manifest in external markets, the opposite could become true for internal US markets. So, just as the dollar liquidity tap gets switched off externally, it gets turned on with gusto back at home.
But Bank of America Merrill Lynch’s Jean-Michel Saliba gets to the same point somewhat differently.
As Saliba noted last week (our emphasis):
Lower oil for longer could imply material shifts in petrodollar recycling flows. Petrodollar recycling through the absorption channel has generally been USD negative, helping an orderly reduction of global imbalances though greater domestic investment. Although recycling through the financial account is less well understood, the bulk has likely, directly or indirectly, ended up in US financial markets and has thus been USD-positive. A prolonged period of low oil prices is thus likely to lead to lower petrodollar liquidity with, in time, an allocation shift towards more inward-looking repatriation and financing flows, in our view.

Saliba’s view is based on the presumption that the majority of petrodollars have always tended to be repatriated back into onshore US investments via the financial account, supporting the dollar in the long run and sterilising oil receipts domestically. Thus, fewer dollars going out to petrodollar nations most likely means fewer chances of those dollars being reinvested in US financial markets, leading to a weakening dollar effect in the long run.
From Saliba:
Lower oil for longer could imply material shifts in petrodollar recycling flows. Every US$10/bbl drop in oil prices shaves off US$70bn (4.2% of GDP) from GCC current account balances. History suggests GCC fiscal adjustment only occurs with a variable lag, which would imply a sticky absorption channel through still elevated imports in the near-term. The GCC external breakeven oil price currently stands at cUS$60/bbl, which would only make the region a net external creditor to the extent our forecast of a material rebound in oil prices in 2H15 plays out. The regional fiscal breakeven oil price stands at cUS$85/bbl, suggesting the GCC is set to run a fiscal deficit on aggregate, the bulk of which is likely to be financed through a drawdown of foreign assets currently held abroad, we think.
If Saliba is correct then we can expect a drawdown of foreign assets held abroad by GCC states, which should lead to greater dollar absorption via the use of oil export receipts to finance imports of goods and services from DM states. Which means this chart could be begin to adjust the same way it did during the 1980s gluts:

As a reminder this is what the dollar did during that period:

So a pop first, and then a crash.
Whilst there were obviously different variables in place in the early 1980s, the point still stands that before we get any dollar weakness we’re likely to experience an external (eurodollar) dollar liquidity shortage that eats external reserves and pops the dollar on a trade-weighted basis, but at the same time creates an inflationary effect in the domestic US economy.
Cue Volcker?


11--Ukraine opens offensive against pro-Russian separatists in the east, wsws


The Donetsk airport is a strategic foothold in the ongoing fighting between the Kiev regime and separatist forces. The regime in Kiev and the leaders of the self-proclaimed Donetsk People’s Republic both fear that the airport could be used to fly in supplies and reinforcements if either side is able to solidify control. The airstrip is reportedly still in good enough condition to support military supply flights....


On Monday, Zakharchenko told the press that Kiev had broken the Minsk ceasefire agreement and added, “At no point over the course of this conflict have we had to withstand such massive heavy artillery strikes the likes of which Donetsk and the surrounding regions, as well as Gorlovka, have survived over the past 24 hours.”
Ukrainian military forces shelled Donetsk with mortars and Grad rockets, damaging residential buildings, a bus station and a shop, and killing at least five civilians over the weekend. On Monday a mortar shell hit Donetsk’s Central Clinical Hospital No. 3, blowing out the windows. While there were no reported casualties, all of the patients had to be evacuated to other hospitals.


12--The legitimization of Marine Le Pen, wsws


The promotion of Le Pen is part of a broader elevation of fascistic and extreme right-wing organizations internationally. Last year, the United States and Germany worked with the Right Sector and Svoboda—organizations that celebrate the Nazi collaborators in Ukraine during World War II—to overthrow the pro-Russian government of Viktor Yanukovych, an operation that was presented across the political establishment as a movement for democracy....


She then calls for effectively scrapping freedom and human rights in order to wage political war on France’s five-million-strong Muslim population, proposing “a policy restricting immigration,” new policies to strip people of citizenship, and a fight against “communalism and ways of life at odds” with French traditions.
While providing a political platform for Le Pen, the Times does not bother to inform its readers of her political pedigree. The FN was formed in 1972 by former supporters of the World War II Nazi collaborationist Vichy regime and defenders of French colonial rule in Algeria. It is notorious for its anti-Muslim and anti-Semitic racism, its virulent nationalism, and its thuggish attacks on political opponents.


13--Israel's Golan Attack Turns Heights Into An Active Resistance Zone, MOA


14--These are not the dollars you’re looking for, FT


we are, nevertheless, at a point where the fall in oil prices is beginning to stifle an important channel of US dollars to foreign markets, markets which happen to be increasingly exposed to dollar strength due to their acquisition of major dollar denominated liabilities throughout the years when financing in the currency was cheap. Many of which liabilities, we should add, are not captured by BIS capital flow data due to the use of offshore subsidiaries....


From UBS back in June:
In total, the sovereign wealth funds of Norway, Saudi Arabia, Abu Dhabi, Kuwait, Qatar, Algeria and Russia currently hold around $3.5trn of petrodollars. This is less than China’s $4.0trn of foreign exchange reserves. But it is still a large pool of assets whose allocation will affect financial markets and exchange rates.
In short, modest rises in energy prices are likely to support risk assets
...
15--U.S. Won’t Intervene in Oil Market  , Bloomberg


The U.S. won’t intervene in the oil market amid falling crude prices, according to Amos Hochstein, the U.S. State Department’s energy envoy.
The U.S. will let “the market” decide what happens, Hochstein said in an interview at a conference in Abu Dhabi yesterday. Hochstein is special envoy and coordinator for international affairs at the State Department’s Bureau of Energy Resources.


“When people ask the question ‘what will the U.S. do?,’ it’s really the market that’s going to have to decide what happens,” Hochstein said. “This is about a global market that is addressing the supply-demand curve.”


Asked what the U.S. could do about falling prices and instability in oil markets, he said: “We do have mechanisms to work with our partners around the world if something extreme happens, but that’s not where I think we are and I think the markets so far can adjust themselves.”
Oil prices have dropped 53 percent in the past year as growing production from the U.S., Russia and the Organization of Petroleum Exporting Countries overwhelmed demand. The International Energy said last week that the effects on U.S. production are so far “marginal.”


Monday, January 19, 2015

Today's links


“People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.”John Kenneth Galbraith


1--27 Facts That Show How The Middle Class Has Fared Under 6 Years Of Barack Obama, zero hedge


  In 2008, the total number of business closures exceeded the total number of businesses being created for the first time ever, and that has continued to happen every single year since then.


Traditionally, owning a home has been one of the key indicators that you belong to the middle class.  So what does the fact that the rate of homeownership in America has been falling for seven years in a row say about the Obama years?


 According to one recent survey, 62 percent of all Americans are currently living paycheck to paycheck
Employment Population Ratio 2015


According to the New York Times, the “typical American household” is now worth 36 percent less than it was worth a decade ago.


One recent survey discovered that about 22 percent of all Americans have had to turn to a church food panty for assistance


2---Iranian general, son of ex-Hezbollah leader, killed in Israeli airstrike in Syria, RT


Newspaper Al-Akhbar wrote Monday that the group "will launch between 4,000-5,000 rockets at Israel and will destroy hundreds of targets per day."
"The enemy's leadership made a decision to carry out a crime," the paper continued, adding that "this is more proof that Israel is involved in the fighting in Syria. This is work that is not based on emotion or petty score-settling."


3--US Army Command delegation ‘to arrive in Kiev this week’, RT


4---For 90% Of Americans: There Has Been No Recovery , Lance Roberts
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Fed-Survey-2013-NetWorth-091014
5--Your Dollar, Our Problem, Foreign Policy


Emerging markets are bracing for a rate hike in the United States and the effect it will have on their economies. This isn’t their first rodeo. U.S. interest-rate hikes in 1980s and 1990s played a role in financial crises across Latin America and East Asia. Over the course of the 1980s, many countries in Latin America and Asia prematurely liberalized their financial markets, often at the encouragement of the United States and the IMF. This opened them up to vulnerabilities of changing interest rates. When the Fed raised rates in the early 1990s, capital flew out of Latin America and Asia more quickly than it came in, beginning what became known as the lost decade. 

Just the announcement this year of "tapering" U.S. monetary policy led to capital flight and currency depreciation in Argentina, Chile, Indonesia, South Africa, Brazil, and other emerging markets. A new paper for the National Bureau of Economic Research finds that during the period of 2012 to 2013 — when the Federal Reserve simply began talking about Yellen’s moves — emerging markets with sound macroeconomic policy, meaning they weren’t carrying huge amounts of debt, were affected most negatively. 


6--America's selective strong dollar policy   , Henry Liu, AT


Robert Rubin, widely regarded as the father of the strong-dollar policy, declared his aim of a strong dollar soon after his appointment to the Treasury in January 1995. Rubin understood that a capital account surplus is the answer for a current account deficit, based on economics worked out by Martin Fieldstein in the Ronald Reagan administration. A strong dollar is key to this capital account surplus/current account deficit strategy, which has come to be known as dollar hegemony.

The policy exploits the instinctive penchant of other countries to make export gains from an undervalued currency. The United States would open its huge market to the exporting economies of the world and force them to finance the resultant US trade deficit with capital inflows from the exporting economies. A strong dollar ensures the appeal of US companies to overseas investors and thus aligning global support for a strong dollar. Dollar hegemony forces the central banks of US trading partners to hold their dollar trade surplus in US bonds and assets, if they want protection from speculative attacks on their currencies. A fall in domestic currency will cause domestic interest rates to rise, and make dollar loans more expensive to service and amortize.

As US domestic demand skyrocketed in the late 1990s, the 30 percent rise in the trade-weighted dollar between 1996 and 2001 helped keep a lid on domestic inflation and kept dollar interest rates low, even as the Fed began to hike the Fed Funds rate target to preempt wage-pushed inflation caused by structural full employment (at 4 percent unemployment). While US companies managed to attract overseas investors with low yields that translated into high yields in their own home currencies by a strong dollar, the inflow also financed the merger/acquisition mania of US companies that made the resultant entities fiercely competitive global giants.



The budget surplus of the Clinton years did not slow down inflow of funds, which readily went to finance mergers and acquisition and initial public offerings (IPOs). The easy money and credit milked from the backs of underpaid workers in the exporting economies enabled the US economy to venture into new technological fields, such as digitized telecommunication that spurred the dot-com fever, structured finance that gave birth to the hedge funds industry, and all manners of financial and accounting acrobatics. Wealth was being created as fast as the United States could print money, with little penalty of inflation. The rest of the world was shipping products they themselves could not afford to consume to US consumers in exchange for papers of the US financial system that in turn feeds US consumer power with debt.

A new economic sector called financial services came into existence. This was the true meaning of the slogan "a strong dollar is in the national interest". Dollar hegemony allowed the United States to levy a tax on the rest of the world for using the dollar, a fiat currency, as the reserve currency for world trade. The livelihood of the world's workers came to depend on US consumers' appetite for debt sustained by loans from the underpaid workers' own governments. Neo-imperialism works by making the world's poor finance the high living of the world's rich. It transcends the Marxist notion of class struggle and surplus value. In neo-liberal globalization, not just labor but even capital comes from the exploited.

What the Wall Street Journal calls mass capitalism would not have been half-bad if it were not for the fact that the hard-earned capital was squandered through fraud and Ponzi schemes. These new ventures financed by fund inflows did strengthened the US economy at first. But as the real economy in the United States did not grow as fast as the inflow of funds, because fewer and few things were being produced in the US, the excess funds soon channeled toward manipulation and fraud on a massive scale, resulting in financial scandals such as LTCM, Enron, WorldCom, Global Crossing, and thousands of less-known bankruptcies.



7--EZ Credit, macronomy


The behaviour of Europe’s banks is a barometer of the balance of advantage between the forces of deflation and reflation because bank balance sheets are evaluated by reference to the incentive to leverage or deleverage. The investment consensus tends to assume that all forms of Central Bank intervention are good for Banks. However, excess liquidity does not necessarily ensure the expectation of reflation. Precisely, the contradiction of the investment consensus is the conviction that the ECB must engage in GB-QE but that it will fail to raise the rate of nominal growth in the euro zone. The relative performance of Europe’s banking sector, especially that of the cheaper, lower quality EZ banks, has deteriorated since last October even though Central Bank liquidity is driving down bank funding costs and their lending rates.
The equity investor should take note of the message delivered by divergences within the credit space since last October. A collapse in the value of an asset as strategically important as oil produces the expectation of credit stress in the commodity-emerging space which translates into a risk premium for the banking system. ...





Société Générale in their European Banks note from the 9th of January:
"€600bn of lost corporate lending
The European corporate loan book has shrunk by €600bn since 2009, the point at which corporate credit volumes began to retreat. Around €450bn of this shrinkage has taken place in the last three years – the period of austere governments and regulators. Almost all of this correction is down to three banking systems: Spain (€400bn lost from peak), Italy (€100bn lost) and Greece (€30bn lost).
The total euro area banking system has shed €7tn in assets since 2008. The first chunk of assets fell away in 2008-09 (typically non-lending assets – subprime, etc.). The second chunk of assets has been falling away since 2011.
At the total balance sheet level, it is actually Germany that has seen the lion’s share of the balance sheet decline. This is largely linked to the non-lending assets that fell away in 2008-09.

We hate sounding like a broken record but, no credit, no loan growth, no loan growth, no economic growth.


8---Hans Redeker Morgan Stanley head of global currency strategy Morgan Stanley, Bloomberg (video)


"This is super dollar positive....you will see them (SNB) intervening in dollars they will add to their dollar reserves. which is positive for the US unit...

 Unfortunately, globally you have globally $9 trillion on the private sector dollar claims outside the US...This is significant, so the dollar goes up. If you have used those dollar liabilities to invest in assets which do not produce dollar revenues then you are in big trouble  because your asset liability ratio roles over. And therefore, what we are currently seeing --this dollar strength--is negative for emerging markets

 and there comes a third action into this and this is at one point that America --which is currently enjoying a huge gap between local funding costs--so below 2% for 10 years--but nominal GDP at 6.5%-- This is an invitation into a local, domestic US dollar carry trade--You fund in dollars and invest in housing and so forth. That's going to lead to a substantial  acceleration of monetary velocity into the United States. So that is super good for the US. But then you have to think about what's super good for the United States, is it then still good for the emerging markets which have built up these dollar liabilities to a significant degree?


The answer to that is no.

 So that actually means we will be sandwiched between continued strong performance of assets in the united states, and weaker asset performance outside of the US. And it is going to go forward and backward

 The answer to that is "No". Hans Redeker head of global currency strategy at Morgan Stanley


9--Is this the Big One, Info clearinghouse jan 28, 2014


“The worst selloff in emerging-market currencies in five years is beginning to reveal the extent of the fallout from the Federal Reserve’s tapering of monetary stimulus, compounded by political and financial instability.
Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.” (“Contagion Spreads in Emerging Markets as Crises Grow,” Bloomberg)...

The policy has pumped nearly “$7 trillion of foreign funds” into EMs since QE was first launched in 2009. According to the Telegraph’s Ambrose Evans-Pritchard, “much of it “hot money” going into bonds, equities and liquid instruments that can be sold quickly….Officials are concerned that this footloose capital could leave fast in a crisis, setting off a cascade effect,” Pritchard adds ominously.
Whether last week’s bloodbath was just a prelude to a bigger crash is impossible to say, but it is worth noting that the Fed has only reduced its purchases by a mere $10 billion per month while still providing $75 billion every 30 days. That suggests that markets will probably face greater turmoil in the months ahead. Check out this clip from USA Today:
“Emerging markets need the hot money but capital is exiting now,” says (Blackrock’s Russ) Koesterich. “What you have is people saying, ‘I don’t want to own emerging markets.’… 
The bigger fear is if the current crisis in currency markets morphs into a full-blown economic crisis and leads to financial contagion, says Matthias Kuhlmey, managing director of HighTower’s Global Investment Solutions.
“The currency story is fascinating and can be a slippery slope – be cautious,” says Kuhlmey, adding that the Asian crisis in the summer of 1997 that started with a sharp drop in the value of Thailand’s baht, turned into a broader economic crisis that engulfed Indonesian, South Korea and a handful of other countries. It also rocked financial markets.” (“Why emerging markets worry Wall Street,” USA Today)...


According to Reuters, a normalizing of interest rates in the US, (which most analysts expect) “could cut financial inflows to developing countries by as much as 80 percent for several months. In such a case, nearly a quarter of developing countries could experience sudden stops in their access to global capital, throwing some economies into a balance of payments or financial crisis, the Bank said.” (“Rout in emerging markets may only be in Phase One,” Reuters)
Clearly, the potential for another financial meltdown is quite real.

For more than four years, the Fed has buoyed stock prices and increased corporate margins through massive injections of free cash into the financial markets. Now the Central Bank wants to change the policy and ease its foot off the gas pedal. That’s causing investors to rethink their positions and take more money off the table. What started as a selloff in emerging markets could snowball into a broader panic that could wipe out the gains of the last four years. 



Thursday, January 15, 2015

Today's Links

1--Russia to Shift Ukraine Gas Transit to Turkey as EU Cries Foul, Bloomberg


2--Turkish Intel Chief Exposes CIA Operations via Islamic Group in Central Asia , Boiling Frogs


GIRALDI: You also have information on al-Qaeda, specifically al-Qaeda in Central Asia and Bosnia. You were privy to conversations that suggested the CIA was supporting al-Qaeda in central Asia and the Balkans, training people to get money, get weapons, and this contact continued until 9/11…
EDMONDS: I don’t know if it was CIA. There were certain forces in the U.S. government who worked with the Turkish paramilitary groups, including Abdullah Çatli’s group, Fethullah Gülen.
GIRALDI: Well, that could be either Joint Special Operations Command or CIA.
EDMONDS: Maybe in a lot of cases when they said State Department, they meant CIA?
GIRALDI: When they said State Department, they probably meant CIA.
EDMONDS: Okay. So these conversations, between 1997 and 2001, had to do with a Central Asia operation that involved bin Laden. Not once did anybody use the word “al-Qaeda.” It was always “mujahideen,” always “bin Laden” and, in fact, not “bin Laden” but “bin Ladens” plural. There were several bin Ladens who were going on private jets to Azerbaijan and Tajikistan. The Turkish ambassador in Azerbaijan worked with them.
There were bin Ladens, with the help of Pakistanis or Saudis, under our management. Marc Grossman was leading it, 100 percent, bringing people from East Turkestan into Kyrgyzstan, from Kyrgyzstan to Azerbaijan, from Azerbaijan some of them were being channeled to Chechnya, some of them were being channeled to Bosnia. From Turkey, they were putting all these bin Ladens on NATO planes. People and weapons went one way, drugs came back.
GIRALDI: Was the U.S. government aware of this circular deal?
EDMONDS: 100 percent. A lot of the drugs were going to Belgium on NATO planes. After that, they went to the UK, and a lot came to the U.S. via military planes to distribution centers in Chicago and Paterson, New Jersey. Turkish diplomats who would never be searched were coming with suitcases of heroin.

-3--The New Great Game Round-Up: January 12, 2015, Boiling Frogs


Daily Sabah is known to overstate the case when it comes to the Gülen movement but given that Gülen's schools play a decisive part in the Islamization of Central Asia and the Caucasus region and that they have been used for various covert operations by the CIA, the Tajik authorities should consider referring to the schools' mission as "shadowy." Dushanbe has long lamented that young Tajiks, who are studying illegally at Islamic religious schools abroad, "can be easily radicalized and recruited into extremist or militant groups," while doing little to stop the indoctrination and terrorist recruitment at home. However, recent actions indicate that this could change in the near future


4--Don’t bet on a stronger dollar as risks abound ,  Gulf Times


If oil revenues fall further, they may be forced to sell those holdings, using the dollars to intervene in the foreign-exchange market and support their currencies or to bail out troubled banks, like Russia’s Trust Bank, the mid-size institution that the government rescued in December.
Such developments would cause US debt yields to spike, disrupting growth. The dollar would become weaker, leaving investors wrong-footed. The dislocations could be severe.


5--Gartman: Swiss made worst central bank decision, cnbc


Swiss debt in Poland and Hungary are a concern.


6--US takes first step to ending Cuba trade embargo, cnbc


The United States eased decades of trade and financial restrictions on Cuba, opening up the country to U.S. telecommunications, construction and financial services in a slew of changes announced by the U.S. Departments of Commerce and Treasury.
The new rules, effective on Friday, are the first concrete step to implement U.S. President Barack Obama's move last month to restore diplomatic ties with Cuba and ease the long economic embargo on America's Cold War enemy after more than 50 years.
The amendments, meant to open up commerce and support Cuban citizens, will also allow Americans to travel to the country without asking for permission first, as long as they go for educational, religious or other approved reasons


7--Gazprom warns EU to link to Turkey pipeline or lose Russian gas, Hurriyet


Russian energy giant Gazprom has urged the European Union to link up to its planned energy pipeline to Turkey or lose the gas that now transits Ukraine.

“The Turkish Stream is the only route along which 63 billion cubic meters of Russian gas can be supplied, which at present transit Ukraine. There are no other options,” Gazprom chief Alexei Miller said on Jan. 14, after a meeting with the new European Commissioner for Energy Union, Maros Sefcovic, in Moscow.

Russia now plans to build a new gas pipeline to Turkey, which it already supplies through an existing pipeline called Blue Stream, turning Turkey into a key transit center for Russian gas.

Turkey is the second-largest European importer of Russian gas after Germany.

“Our European partners have been informed of this and now their task is to create the necessary gas transport infrastructure from the Greek and Turkish border,” said Miller, according to a Gazprom statement.

“They have a couple of years at most to do this. It’s a very, very tight deadline. In order to meet the deadline, the work on building new trunk gas pipelines in European Union countries must start immediately today. Otherwise, these volumes of gas could end up in other markets,” he warned.


8---US launches asymmetrical "oil" war on Russia, RT


...it is very important to understand that this is not about market supply and demand. This is much more about geopolitics. It is not the invisible hand of the market that has lowered the price of oil by 55 percent in 7-8 months. This is the invisible hand of the market which is always attached to a muscular arm and to a devilish brain. So I think more than watching the price of oil which is what the invisible hand decides, it is much more important that we understand what the muscular arm is doing with the invisible hand and much more important, what the devilish brain in the Western think-tanks are designing as part of this ongoing veritable war against Russia, against China, and its allies.


9--Hundreds of thousands of US layoffs expected as oil boom unravels, wsws
 
The precipitous drop in the price of oil has prompted oil companies to prepare mass layoffs in 2015 as sections of the industry become unprofitable. According to a variety of sources, hundreds of thousands of jobs in the US alone could disappear this year if oil prices remain low.
The boom led to the addition of some 150,000 jobs in the industry, according to Citi Research. The slowdown could wipe out even more as jobs are slashed in exploration, construction, refining and the tens of thousands of jobs that service the industry and its workers.


The job cuts, which are occurring worldwide, will be most pronounced in regions where “unconventional” oil production has recently developed. In Texas, for instance, where a large oil boom has occurred at the Eagle Ford shale formation, the Dallas Federal Reserve predicts that 128,000 jobs could be lost in the state by mid-2015 if West Texas Intermediate (WTI) crude oil remains around $55.00 a barrel. As of this writing, WTI crude is going for $48.52 a barrel....


Many states will be devastated by the decline in oil price. Alaska depends on oil taxes for 90 percent of its revenue and is expected to cut its expenditures by 50 percent to deal with the price decline. Louisiana is expecting a $1.4 billion funding shortfall for the 2015-2016 budget and has begun enacting cuts. Oklahoma, North Dakota, and Texas are the three other states whose budgets will be significantly hurt by the fall in oil prices.
Oil has plunged by more than 55 percent since its previous peak in July 2014. The last time the oil price dropped so starkly was in 2008 during the global financial crisis, when West Texas crude went from $145.29 in July 2008 to as low as $30.81 in December 2008, a 79 percent drop.


10--World Bank lowers its growth forecast, wsws


the US “engine” is far from functioning with a steady beat. Figures released by the Commerce Department yesterday showed that retail sales fell by 0.9 percent in December from the previous month, compared to a forecast decline of 0.1 percent. The figures were described as a “big surprise” by at least one analyst, as they included a 0.4 percent decline in core sales, including electronics, clothing and sporting goods, but excluding gasoline.


As if to underscore the World Bank’s message of a weakening global economy, copper prices fell to their lowest levels in five-and-a-half years yesterday. The price of the metal, which is used extensively in the construction and electrical industries, dropped by as much as 6.6 percent on the London market.
Copper has joined other industrial commodities, most notably iron ore and oil, in falling to price levels not experienced since the immediate aftermath of the global financial crisis of 2008–2009. The Bloomberg Commodity Index is now down to levels last seen in 2002....


Financial turbulence could also be triggered by increased geopolitical tensions, sharp movements in commodity markets, or financial stress in emerging markets, because a rise in the value of the US dollar could increase the real debt burden of dollar-denominated loans...


“labour force participation has declined to levels not seen since the early 1980s.”
The bank wrote that investment levels in the US would increase, but remain below the levels reached before the financial crisis. In addition, a strong dollar would dampen net exports, while low oil prices would “negatively affect capital expenditure in the energy sector.”
Activity in the euro area had been weaker than expected, especially in France, Germany and Italy—the core economies of the region.
The report identified a potential source of financial turbulence in emerging markets, warning that after “several years of rapid credit growth and record debt issuance on international bond markets, corporations in many developing countries have accumulated significant liabilities and exposure to both global interest rates and exchange rate fluctuations.”...


In Europe, the continuing fall in inflation could signify so-called “secular stagnation,” with weak consumption, low investment and falling prices feeding off each other to produce a deflationary spiral


11--The World Economy Post 2008, naked capitalism


You are making the wrong assumption that EU officials are in the business of promoting shared prosperity. I wish that were true. No, they are in business for perpetuating their bureaucratic authority within an institution that was designed as a democracy-free zone and as a mediator between various powerful, oligopolistic vested interests for whom austerity is a golden opportunity to maximize their social power over the rest of society. And if gigantic unemployment and a humanitarian crisis is the result, so be it…


The recent US unemployment figures (December 2014) and third quarter 2014 GDP growth figure of 5% seems a little unbelievable, particularly given most statistical analysis that demonstrates all gains and more since the “supposed” US recovery have accumulated within the top 5% at the expense of the average Joe on Main Street?


If you look at the US labour market closely you find that the number of Americans wanting a full time job and not having it has remained more or less constant over the last few years. Employment growth has not kept up with labour supply which, in the United States, rises faster than in Europe. As for income growth, it is no great wonder that, courtesy of low investment and QE, asset price increases and share buybacks boost the top 1%’s income further while wages are languishing on a filthy floor. And so macrodata prosper while most people suffer.


12--Market madness started with end of Fed's QE, Jeff Cox


13--Big Oil cuts back as analysts slash forecasts, cnbc


14--Increased U.S. Output Bolsters Oil Glut Fears , Bloomberg


15--U.S. Retail Sales Down Sharply, Likely Cuts to Growth Forecasts Ahead , Bloomberg


16--Yellen Signals She Won't Babysit Markets in Turmoil, Bloomberg


Janet Yellen is leaving the Greenspan “put” behind as she charts the first interest-rate increase since 2006 amid growing financial-market volatility. ...


“Let me be clear, there is no Fed equity market put,” William C. Dudley, president of the New York Fed, the central bank’s watchdog on financial markets, said in a Dec. 1 speech in New York. “Because financial-market conditions affect economic activity only slowly over time, this suggests that we should look through short-term volatility..


Volatility Buffers

“Financial volatility occurs when you have highly leveraged institutions,” Greenspan said. “But if you have institutions with significant capital buffers, volatility will be muted.”
U.S. central bankers are counting on supervisory tools, such as their current stepped-up focus on lending standards in the high-yield loan market, and higher levels of bank capital and liquidity to help make the financial system more resilient to shocks.


17--End of CB Power - SNB Folds, zero hedge


I will stick my neck out and say that the failure to hold the minimum rate will result in a one time loss for the SNB of close to $100B. That's a huge amount of money. It comes to 20% of the Swiss GDP! If this type of loss were incurred by the US Fed it would result in a loss in excess of $2 Trillion!
In the coming days and weeks there will be more fallout from the SNB disaster. There will be reports of big losses and gains from today's events. But that is a side show to the real story. We have just witnesses the collapse of a promise by a major central bank.
The Fed, Bank of Japan, ECB, SNB and other Central Banks have repeatedly made the same promises over the past half decade:

Don't worry! We are here. We will do anything it takes to achieve the stability we desire. We are stronger than the markets. We can overwhelm all forces. We will never let go - just trust us!
 
I never believed in these promises, but the vast majority of those who are active in financial markets did. The entire world has signed onto the notion that Central Banks are all powerful. We now have evidence that they are not.
Anyone who continues to believes in the All Powerful CB after today is a fool. Those who believed in Jordan's promises now have red ink on their hands - lots of it!


The next central bank that will come into the market's cross hairs is the ECB. Mario Draghi has made promises that he would "Do anything - in any amount". Like I said, you would be a fool to continue to believe in that promise as of this morning.
We've just taken a huge leap into chaos. The linchpin of the capital markets has been the trust in the CBs. The market's anchors have now been tossed overboard.


18--Dollar's Rise Is Good News For The U.S., For Now, NPR


19--Oil Rebound

Treasuries pared gains as oil rebounded. Oil futures surged for a second day in New York, extending a rebound from a 5 1/2-year low. West Texas Intermediate advanced as much as 5.8 percent to $51.27 a barrel in New York.
“That should calm the deflationists out there,” said Stanley Sun, a New York-based strategist at primary dealer Nomura Holdings Inc. “That should allow the market to stabilize a bit on the inflation front.”


The 0.3 percent decrease in the producer price index was the biggest since October 2011 and followed a 0.2 percent drop the prior month, a Labor Department report showed. The median estimate in a Bloomberg survey called for a 0.4 percent fall.
A report tomorrow is forecast by economists to show the consumer price index declined 0.4 percent in December from the previous month, compared with a 0.3 percent drop in November. Retail sales fell in December, a government report yesterday showed


20--A Swiss bombshell: Why the franc soared 30%, cnbc


Here's what happened in Switzerland that shocked the world:
The central bank canceled its policy of pegging the Swiss franc at 1.20 to the euro, a policy that's been in place more than three years to keep the currency from getting too strong and hurting the economy.
The Swiss National Bank also cut interest rates deeper into negative territory to help cushion the blow and make the Swiss franc seem more unappealing since low rates are bearish for currencies.
But those low rates didn't deter traders from piling into the franc.
After the announcement, it surged almost 30 percent, flying to a record high.


"The attempt to hold the EUR/CHF 1.20 floor has resulted in a ballooning foreign reserves stockpile at the SNB," Societe Generale FX strategist Kit Juckes said in a note, referring to the Swiss National Bank.
"The reserves have climbed from CHF200bn in mid-2011 to almost CHF 500bn. These are now equivalent to 70% of Swiss GDP and have not been without controversy in Switzerland, as reflected in the referendum on the SNB's gold holdings on 30 November 2014."
The implication of Thursday's move: The Swiss authorities are worried about pressure on the euro against the franc ahead of the European Central Bank's policy meeting next Thursday, in which it is widely expect to announce a monetary stimulus..


ECB QE? Pros say, the timing of the move reflects Switzerland's expectation for dramatic easing action from the European Central Bank and raises market expectations that it will be announced soon.
Read More ECB stimulus already priced into market: Pros
For world markets: In this postcrisis climbing of the wall of worry, currency volatility has just gone to the top of the worry list.
A stronger dollar, wild swings and crazy central bank surprises have the potential to destabilize markets and economies. It could be a trigger for risk aversion, or it could draw even more money into U.S. markets as a global safe haven.


21--Oil prices steady below $49 as forecasters see more falls, reuters


22--Swiss surprise, marc chandler


23---The Fed’s Hobson’s Choice: End QE and Zero-Interest Rates or Destabilize the Dollar and the Treasury Market, WA Blog


Keeping interest rates near zero has removed any financial incentive to buying Treasury bonds other than flight to safety. As Stephanie Pomboy observed in her excellent Wine Country Conference 2014 presentation, (and I paraphrase here): “every day they continued QE, they chased away more and more of our foreign creditors.”

The Treasury must sell bonds to fund the Federal deficit, which is running about $500 billion a year. The Treasury must also sell new bonds to replace the immense amounts of T-Bills that are maturing.
The more T-bills the Fed buys to keep interest rates at zero, the more it drives foreign and domestic buyers out of the Treasury market.
This is also true of the U.S. dollar. This sets up the Fed’s Hobson’s Choice, which is the term for an illusory choice, i.e. a choice in which only one option is offered.
If the Fed continues QE, it destabilizes the Treasury market that funds U.S. government deficits, and the hegemony of the U.S. dollar. If it ceases QE, interest rates will rise as non-central bank buyers will demand an actual return on their capital.
...
The Fed believed that five years of free money and incentivizing risk would heal the economy. They were wrong. The real economy is more fragile and dysfunctional than ever due to the distortions created by Fed policies, while the top 1/10th of 1% have feasted on the asset bubbles inflated by these same policies.
Meanwhile, beneath the crony-capitalist celebration of new asset bubbles, the foundations of the nation’s fiscal security–the Treasury market and the U.S. dollar–have been undermined and destabilized by these same Fed policies.
Those who focus solely on the Fed assume the ruling Elite is monolithic: unified in worldview, strategy and goals. I believe this is overly linear and overly simplistic: there are competing elites, and nations fall when their elites experience profound disunity.
Though the Fed is doing its best to mask its abject failure and lack of choices with public relations (“Pay no attention to what’s behind the curtain!”), the reality is it has no choice to tapering and eventually ending its gargantuan spew of credit and its unprecedented and destabilizing purchases of assets














Wednesday, January 14, 2015

Today's Links

1--Big Retail Sales Miss for December Dents Theory that Consumers Will Spend Gas Savings
NC


The Wall Street Journal seems puzzled:
Sales at retailers and restaurants decreased a seasonally adjusted 0.9% in December from a month earlier, the Commerce Department said Wednesday. That was the largest monthly decline since January 2014. Excluding gasoline sales, purchases fell 0.4%, while spending declined 1% when removing the volatile autos category.
The numbers are at odds with what most retailers say was a relatively strong holiday season and underscore the volatility of consumers, who may have more money in their pockets thanks to lower energy prices but aren’t necessarily spending it.
The results “were weak even after accounting for the huge plunge in gasoline prices,” PNC Financial Services Chief Economist Stuart Hoffman said. Excluding gasoline, the consumer-spending trend is “increasing, but growth does not look as strong as it did in November.”


2--Treasury Bond Yield Drops to Record Low Amid Fear of Global Deflation, Bloomberg


3--U.S. Stocks Fall on Growth Concerns as Retail Sales Drop, Bloomberg


4--Don’t bet on a stronger dollar as risks abound , Eichengreen


5--Market madness started with end of Fed's QE, cnbc


QE works "much better for equity prices than it does for economic growth," Pento said. "You had a huge separation where markets went based on the Fed's $1.7 trillion QE(3) program and where GDP growth was on a global basis. Now you're seeing those two reconcile."
"Copper's down over 20 percent. You're looking at global yields in the toilet and oil prices down over 50 percent," he added. "If you add all those things together, it adds up to global slow growth and the bursting of the commodity bubble that we saw courtesy of central banks."


"The fuel for the fire over the last several years has been stock repurchases, and that has been fueled for the most part by the zero interest rate environment. As long as that continues, there's still some room for the stock market to continue higher," said Brian LaRose, a strategist at United-ICAP. "The path of least resistance is still to the upside."


6--Falling oil prices hitting economic growth; oil firms report layoffs, freezes: Fed Beige Book, cnbc


7--Nerves Rattled in U.S. Equities as S&P 500 Volatility Turns Ugly , Bloomberg

Today's links

"Thing is, that whole line about how lower oil prices were going to be a boost for our economies was ignorant from the start. And there’s still plenty people believing just that. That may explain those EU stock exchange gains. That sort of thing all comes from people who don’t understand to what extent oil is pivotal to our societies. " Automatic Earth




1--Oil fall could lead to capex collapse: DoubleLine's Gundlach, Reuters


DoubleLine Capital's Jeffrey Gundlach said on Tuesday there is a possibility of a "true collapse" in U.S. capital expenditures and hiring if the price of oil stays at its current level.
Gundlach, who correctly predicted government bond yields would plunge in 2014, said on his annual outlook webcast that 35 percent of Standard & Poor's capital expenditures comes from the energy sector and if oil remains around the $45-plus level or drops further, growth in capital expenditures could likely "fall to zero."


Gundlach, the co-founder of Los Angeles-based DoubleLine, which oversees $64 billion in assets, noted that "all of the job growth in the (economic) recovery can be attributed to the shale renaissance." He added that if low oil prices remain, the U.S. could see a wave of bankruptcies from some leveraged energy companies....


High-yield junk bonds have also been under severe selling pressure. Gundlach said his firm bought some junk in November but warned that investors need to "go slow" and pointed out "we are still underweight


2--US Retail Sales Drop Most Since June 2012 (And Don't Blame Gas Prices), zero hedge


3--Mind The Dollar Spike—-Greenback Now In Sharpest Ascent Since The Lehman Crisis , stockman


The movement since the end of June/first week in July is now matched only by the period right before the 2008 crash. In other words, this is the most significant “dollar” problem we have seen during this part of the “cycle”, far and beyond even the 2011 version which nearly saw a rerun of Lehman Brothers that December....


Like the flattening yield curve from around December 1 onward, foreign currencies almost everywhere have been entrapped by the same pessimism. If I am right about the implications being almost exclusively economic rather than financial responsibility for this “tightening”, that would again and further cement the globalized economy as indistinguishable from individual pieces – the US cannot escape of its own and is, in fact, a good part of the problem.....


 if I am correct about the ordering of factors after December 1, this would indicate not financial leading economic, but rather the other way around. That is in many ways a much more dangerous and explosive arrangement particularly given the current degree of central bank involvement. Something changed in late November/December 1 which shifted the risk perceptions of credit and, more importantly, funding globally. From what we see of January so far, that hasn’t been at all alleviated even if the immediacy has withdrawn so far this year


4--Charles Biderman and Rick Santelli discuss the rise in stocks and bonds in the new year.  Trim Tabs
Wages and salaries have gone down 4 months in a row. This is not a sustainably-growing economy. Interest rates will keep going down ..even with all the free money we have tremendous asset inflation and a no growth economy.


5---The Most-Censored News Story of 2014 Was , SC


6--Inflation Outlook , Bloomberg


Tumbling oil prices have crimped the outlook for inflation, depressing yields on 10-year U.S. Treasuries to the lowest since May 2013. Bank of America’s Market Risk Index, derived from implied volatilities in stocks, Treasuries, currencies and commodities, touched the highest level since July 2013 on Jan. 7 and has remained around there since.
“The velocity of oil’s plunge has made it very difficult for markets to take,” Quincy Krosby, a market strategist based in Newark, New Jersey at Prudential Financial Inc., which oversees more than $1 trillion in assets, said by phone yesterday. “It bleeds into other assets and that’s what we’re seeing here.”


7--Here’s Why Oil Is Such A Problem For Corporate Earnings 
On December 1st, analysts anticipated that Energy earnings for Q1 2015 would decline 13.8% compared to Q1 2014, according to S&P Capital IQ. As of Monday, analysts expected Energy earnings for Q1 2015 to decline 41.0%. Think about that: in 5 weeks, earnings expectations for the entire Energy group have gone from down 13.8% to down 41.0%.
Q1 earnings for the Energy sector were cut by $7.7 billion from December 1 through today. The S&P 500 as a whole saw a cut of $9.1 billion during the same period. So Energy is $7.7 billion/$9.1 billion = 84% of the decline in the dollar value of the earnings decline we have seen in the past five weeks. See why the market is so focused on oil for the moment?


Thing is, that whole line about how lower oil prices were going to be a boost for our economies was ignorant from the start. And there’s still plenty people believing just that. That may explain those EU stock exchange gains. That sort of thing all comes from people who don’t understand to what extent oil is pivotal to our societies. 


That we would be lost without it. And that dropping its price by 55% and counting will make the machine run a lot less efficiently. Think of what you pay for oil and gas as the grease that keeps the machine running. Not the product itself, but what you pay for it. We just took away a lot of grease. And you know what that does to a machine. When oil drops, so do many people’s wages, and jobs. And then businesses start to close. And we enter deflation. And more businesses close. And more jobs are lost, and more wages squeezed. Ergo: more deflation


8--U.S. Stocks Slide, Global Bonds Rally Amid Growth Concern , Bloomberg


Retail sales fell last month in a broad-based retreat that will probably prompt economists to cut growth forecasts. Commodity prices are tumbling as a supply glut collides with waning demand, reducing earnings prospects for producers and increasing the appeal of bonds as inflation slows. The World Bank cut its global growth outlook, citing weak expansions in Europe and China. U.S. financial shares sank after JPMorgan Chase & Co. (JPM)’s earnings retreated.


“People are starting to get very nervous as commodity prices are faltering and we know it’s because the global growth rate has been brought down,” Tom Stringfellow, president and chief investment officer of San Antonio-based Frost Investment Advisors LLC, which manages about $10 billion, said in a phone interview. “The U.S. alone can’t support the world and the retail sales are a warning shot across the bow. One month isn’t a trend but it does put people ...


Risk Off

“There is a broad-based risk-off sentiment in financial markets,” Jens Naervig Pedersen, a commodities analyst at Danske Bank A/S, said by e-mail from Copenhagen today. “This is highlighted by the set-back in the copper price and weak performance in equity markets.”
The plunge in crude prices is spreading to the metals market, as copper tumbled amid speculation that demand for raw materials won’t be enough to eliminate a supply glut. China is the world’s biggest consumer of the industrial metal.


9---The stock market is overvalued any way you look at it, mark Hulbert


The market can stay overvalued for some time, and even become more overvalued.
Eventually, however, value wins out. Ben Inker, co-head of the asset-allocation team at Boston-based money management firm GMO, likens the market to a leaf in a hurricane, with the Earth representing the market’s underlying fundamental value:
“You have no idea where the leaf will be a minute or an hour from now,” he says. “But, eventually, gravity will win out, and it will land on the ground.”


10--Prepare for the largest wealth transfer in history , marketwatch


11--Disaster scenario" comes into focus as stocks, commodities slump, Yahoo


12--Oil prices and bond yields continue their decline, wsws


13--European powers implement police state measures in wake of Charlie Hebdo attack, wsws


14--Imperialist war, the “war on terror” and the end of democracy, wsws


The purpose of this “war,” in both its international and domestic manifestations, is to provide a political rationale for the re-division of the world between the major imperialist powers. After more than 13 years, it is clear that the “war on terror” is the pretext and political framework for the reestablishment of colonial-style domination and subordination of the world’s peoples to the dictates of finance capital.