Friday, January 7, 2011

Today's Links

1--Weekly Initial Unemployment Claims: 4-Week Average declines, Calculated Risk

Excerpt: The DOL reports on weekly unemployment insurance claims:

In the week ending Jan. 1, the advance figure for seasonally adjusted initial claims was 409,000, an increase of 18,000 from the previous week's revised figure of 391,000. The 4-week moving average was 410,750, a decrease of 3,500 from the previous week's revised average of 414,250.

In general the four-week moving average has been declining and that is good news.

2--Blizzard, shopper angst hurt December retail sales, Reuters

Excerpt: Many top U.S. retailers missed Wall Street's expectations for December sales, hurt by a post-Christmas blizzard on the East Coast and shoppers returning to their cautious ways after flocking to stores after Thanksgiving.

Retailers ranging from department store operator Macy's Inc and discounter Target Corp to teen clothing store American Eagle Outfitters were among those whose results fell far short of forecasts.

"The turbulence is here to stay," said David Bassuk, a managing director at consulting firm AlixPartners. "The consumer is still very sensitive to even slight fluctuations in prices -- the consumer is still looking for deals."

Now that Christmas is over, consumers, whose spending accounts for about 70 percent of the U.S. economy, are putting their wallets away.

3--Economic Consequences Of The “New World Order”, zero hedge

Excerpt: A common misconception among less aware segments of the American populace is that the phrase “New World Order” was concocted by attention seeking “conspiracy theorists” in dank basement apartments and sinister mountain shacks across the country. In reality, anti-globalists and Constitutionalists had nothing to do with the term’s creation (and most of us have decent digs, too). The truth is that mumblings of a “New World Order” have been floating around various elitist circles for decades, and every once in a while, those mumblings are publicized in the mainstream media. Globalists created the warped ideal; we just point out that it exists. Lately, we haven’t had to try very hard…

As most readers here are probably already privy to, elitist spokesman George Soros (who for some reason reminds me of Baron Harkonnen from the movie ‘Dune’) recently let spill all kinds of NWO gossip in a candid interview with the Financial Times. If you have not seen it yet, or you believe only kooks talk about the New World Order, I suggest you watch the below interview twice for good measure:

What is most interesting about this interview is Soros’ focus on the fate of the dollar in the NWO. He openly confirms nearly everything I and many others have been warning about for the past three to four years in the span of only ten minutes! Why would Soros make such admissions? Well, I suspect that some elites believe that they should not have to hide their pet project for a “new order” from us lowly serfs, while others perhaps have been given the green light to start selling the masses on the supposed benefits of greater centralization. Soros literally tries to paint the collapse of America as “necessary”, and the devolution of the dollar as “healthy”, though I doubt that many people will be swayed by his charms....

Soros mentions the pending bilateral trade agreements being used by China to rout the dollar in Brazil and Argentina, but for some reason fails to point out Russia’s agreement to abandon the Greenback. He also fails to mention China’s numerous interest rate hikes or increased bank allocations which have utterly failed to stem inflation, leaving the government with only one other option; dump U.S Treasuries, allowing the Yuan to quickly appreciate giving Chinese consumers greater buying power to compete with rising prices. All that’s left is for our Treasury Dept. to finally release that delayed report accusing China of currency manipulation. Retaliation ensues, and down goes the dollar.

It’s not a question of IF this will happen, but WHEN.

4--States left high and dry, Huffington Post

Excerpt: Cut spending, raise taxes and fees, and accept billions of dollars from Congress. That's been the formula for states trying to survive the worst economy since the 1930s.

As Republicans prepare to take control of the House and exert more influence in the Senate, it's clear that option No. 3 will soon wither. States will continue to face substantial deficits over the next few years, but they will have to get by with the end of stimulus spending and less financial help from the federal government. In recent interviews, top GOP lawmakers made clear it will be much less.

"We've got to put our fiscal house in order in Washington, D.C.," said Rep. Mike Pence of Indiana. "It's going to be essential that leaders at the state level roll their sleeves up, make the hard choices and put their fiscal health in order, as well."...The $814 billion stimulus program, passed by a Democratic Congress and championed by President Barack Obama, was designed to help states provide essential services and give a boost to the economy. Most of the money will run out this year.

As of June 30, 2011, the federal government will have spent about $165 billion on temporary aid to the states to help them weather the recession. The states have used most of that money on education and health care – keeping teachers in the classroom and reimbursing doctors and hospitals for treating the growing number of people eligible for Medicaid.

States will continue to get some stimulus money for road, energy and high-speed rail projects, but that money helps fund specific projects and wasn't intended to plug holes in a state's operating budget.

5--Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?, Simon Johnson, New york Times

Excerpt: Goldman Sachs is investing $450 million of its own money in Facebook, a...Remember that Goldman Sachs is now a bank-holding company – a status it received in September 2008, at the height of the financial crisis, in order to avoid collapse....This means that it has essentially unfettered access to the Federal Reserve’s discount window – that is, it can borrow against all kinds of assets in its portfolio, effectively ensuring it has government-provided liquidity at any time.

Any financial institution with such access to such government support is likely to take on excessive risk – this is the heart of what is commonly referred to as the problem of “moral hazard.” If you are fully insured against adverse events, you will be less careful.

Goldman Sachs is undoubtedly too big to fail – in the sense that if it were on the brink of failure now or in the near future, it would receive extraordinary government support and its creditors (at the very least) would be fully protected....

Goldman Sachs now enjoys exactly the same kind of unfair, nontransparent and dangerous subsidy: it has effectively become a new form of government-sponsored enterprise. Goldman is not a venture capital fund or primarily an equity-financed investment fund. It is a highly leveraged bank, meaning that it borrows through the capital markets most of the money that it puts to work....As Anat Admati of Stanford University and her colleagues tirelessly point out, the central vulnerability in our modern financial system is excessive reliance on borrowed money, particularly by the biggest players.

6--Hedge funds pump money into GOP victory, The Center for Public Integrity

Excerpt: A small network of hedge fund executives pumped at least $10 million into Republican campaign committees and allied groups in last year’s elections, helping bankroll GOP victories that changed the balance of power in Washington, according to a review of campaign records and interviews with industry insiders.

The review by the Center for Public Integrity and NBC found that some of the heaviest contributions from industry leaders came late in the campaign or were funneled through obscure “joint fundraising committees” and other independent GOP allies — some of which were set up to maximize campaign fundraising or to avoid disclosing the names of big donors. The Center and NBC analyzed campaign data compiled by CQ Moneyline and the Internal Revenue Service.

Bitterly opposed to economic and regulatory policies backed by President Barack Obama and Democrats — including proposals to increase taxes on some of their profits — top Wall Street hedge fund moguls were unusually energized during last year’s election. They held multiple fundraisers and coordinated strategy to direct what appear to be unprecedented sums into the coffers of GOP and allied political committees.

The net effect has given hedge funds important new allies at a time when they are fending off some regulations mandated by the Dodd-Frank financial reform law and an aggressive Justice Department investigation into insider trading.

7--Generally Positive, Tim Duy, Fed Watch via Economist's View

Excerpt: Today's ISM nonmanufaturing headline figure provided further evidence the US economy left 2010 on firmer footing. Generally solid internals as well, with both production and new orders posting solid gains. Like its manufacturing cousin, the weak spot was employment, a critical determinant for the evolution of Fed policy this year....

On the inflation outlook, today's ISM release revealed a higher percentage of firms reporting higher prices. Firming demand may allow firms to pass on some of these cost increases to consumers, but as the Wall Street Journal notes, this isn't a bad outcome....

Three additional factors likely to weigh on the Fed: Housing, state and local budgets, and Europe. From the FOMC minutes:

Others pointed to downside risks to growth. One common concern was that the housing sector could weaken further in light of the considerable supply of houses either on the market or likely to come to market. Another concern was the ongoing deterioration in the fiscal position of U.S. states and localities, which could lead to sharp cuts in spending and increases in taxes. In addition, participants expressed concerns about a possible worsening of the banking and financial strains in Europe, which could spill over to U.S. financial markets and institutions, and so to the broader U.S. economy....

Bottom Line: Data continues to be supportive, with at least one more hint of solid job growth to add to the improving trend evidence in initial claims. Still, the hole we are in is deep, not every piece of data has fallen into line, the positive trends are relatively recent, and at least three swords are still holding over the heads of FOMC members. The combination should keep policymakers clinging to the current stance of monetary policy, although even the more dovish will need to publicly recognize the more solid pattern of data sooner than later.

8--The Rise of the New Global Elite, The Atlantic

Excerpt: F. Scott Fitzgerald was right when he declared the rich different from you and me. But today’s super-rich are also different from yesterday’s: more hardworking and meritocratic, but less connected to the nations that granted them opportunity—and the countrymen they are leaving ever further behind....

This widening gap between the rich and non-rich has been evident for years. In a 2005 report to investors, for instance, three analysts at Citigroup advised that “the World is dividing into two blocs—the Plutonomy and the rest”:

In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie....

But the financial crisis and its long, dismal aftermath have changed all that. A multibillion-dollar bailout and Wall Street’s swift, subsequent reinstatement of gargantuan bonuses have inspired a narrative of parasitic bankers and other elites rigging the game for their own benefit. And this, in turn, has led to wider—and not unreasonable—fears that we are living in not merely a plutonomy, but a plutocracy, in which the rich display outsize political influence, narrowly self-interested motives, and a casual indifference to anyone outside their own rarefied economic bubble.

Through my work as a business journalist, I’ve spent the better part of the past decade shadowing the new super-rich: attending the same exclusive conferences in Europe; conducting interviews over cappuccinos on Martha’s Vineyard or in Silicon Valley meeting rooms; observing high-powered dinner parties in Manhattan. Some of what I’ve learned is entirely predictable: the rich are, as F. Scott Fitzgerald famously noted, different from you and me.

9--Don’t Let the New Financial Elite Become the Ruling Class, Mike Konczal, New Deal 2.0

Excerpt: From Chrystia Freeland’s fantastic new Atlantic Monthly article The Rise of the New Global Elite:

The good news — and the bad news — for America is that the nation’s own super-elite is rapidly adjusting to this more global perspective. The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.....

Konczal---Instead of soul-searching for why the financial crisis happened, they incriminate middle-class Americans. Instead of looking at the latest research finding that securitization and Wall Street intermediation increased the supply of credit, and supply always finds its demand, they blame average Americans for demanding too much credit.

And the most worrisome thing is that the obvious solutions for where we are — a short period of higher inflation, massive credit writedowns, and a larger government deficit paid for with higher taxes on the rich and the largest banks — are all things this new financial elite hate. And the current debates about “structural unemployment” or a lack of interest in jobs covers for this elite’s obvious belief — that the American middle-class was an anomaly of history, an artifact of the Cold War and the post-WWII era. They believe that Americans are going to have to take a massive cut in wages in order to recover. This was the argument in the age of Keynes, and it is the argument now. No wonder the Democratic party looks paralyzed from the outside.

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