Friday, March 30, 2012

Weekend links

1--Grim Housing Data Shows We Have Not Hit Bottom, Fiscal Times

Excerpt: “We’ve still got millions of foreclosed homes waiting to come on the market, so we’re not going to see any dramatic rebound in house prices,” cautioned Paul Ashworth, chief economist at Capital Economics. He predicts over the next few months that home prices will slowly start to rise, which will slowly nudge homebuyers back into the market and lead banks to start loosening lending criteria. “But property is a slow-moving asset, unlike stocks or equity where things can go up or down ten percent in a day. We’re not going to get a rapid rebound after the housing bust we just went through.”

Other economists expect home prices to plunge further. “Our view is that foreclosures, excess supply, and weak demand will drive home prices as measured by the Case-Shiller indices down at least another 5 percent,” said Patrick Newport, a U.S. economist with IHS Global Insight....

A new string of grim housing data confirms what economists and analysts have long predicted: the housing market has yet to hit bottom, and once it does, it will be a long slog back to health and stability.

The nation’s heap of completed foreclosures remained steep, barely budging to 65,000 in February compared to 66,000 one year earlier, according to new data released by CoreLogic Thursday. The percentage of American homeowners more than 90 days delinquent on their mortgage payments, including those in foreclosure, rose to 7.3 percent in February compared to 7.2 percent a month earlier.

According to today’s report, 3.4 million properties have gone into foreclosure since the financial crisis in September 2008. About 1.4 million, or 3.4 percent of all properties with a mortgage, were in the foreclosure process in February—a 0.2 percent drop from February 2011.

That follows new data from the S&P/Case-Shiller Index that U.S. home prices sank in January for the fifth straight month to the lowest level since 2003. Additionally, separate reports from the National Association of Realtors and CoreLogic show existing home sales and previously owned homes under contract shrank in February. The number of bank-owned homes either in the foreclosure process or seriously delinquent—the so-called shadow inventory—remained unchanged from six months earlier at 1.6 million units.

“We’ve still got millions of foreclosed homes waiting to come on the market, so we’re not going to see any dramatic rebound in house prices,” cautioned Paul Ashworth, chief economist at Capital Economics

2--Abigail Field: Mortgage Settlement Institutionalizes Foreclosure Fraud, naked capitalism

Excerpt: The mortgage settlement signed by 49 states and every Federal law enforcer allows the rampant foreclosure fraud currently choking our courts to continue unabated. Yes, I realize the pretty servicing standards language of Exhibit A promises the banks will completely overhaul their standard operating procedures and totally clean up their acts. But promises are empty if they’re not honored, and worthless if not enforceable.

We know Bailed-Out Bankers’ promises are empty, so what matters is if the agreement is enforceable. And when it comes to all things foreclosure fraud, the enforcement provisions are laughable. But before I detail why, let’s be clear: I’m not being hyperbolic. The bankers running and profiting most from our bailed-out banks are totally dishonest when dealing with the public, and their promises are meaningless....

the bankers don’t limit their lying, cheating and stealing to homeowners. They abuse their clients the same way. Most broadly damaging, the bankers steal from taxpayers on a federal, state and local level and practically everybody else too. Fraud is just how they do business....
Just meeting the “thou shalt not lie when taking thy neighbor’s house” language I quoted would require fundamental process overhauls at all major mortgage servicers. And yet it’s just the start of 11 pages aimed at ending document fraud (42 pages of detailed provisions overall). Given how much bankers lie, driving those process overhauls requires a mighty big incentive, i.e., penalties for non-compliance....In theory, unless these metrics are treated like a back door ongoing liability release. In which case it’s not a release at all: it’s foreclosure fraud immunity.

3--Fixation with QE3 Tells You The Market Sweet Spot Is Ending, credit writedowns

Excerpt: A growing number of indicators suggest that the market is running out of steam. Equities have been in a temporary sweet spot where investors have been factoring in a self-sustaining U.S. economic recovery while also anticipating the imminent institution of QE3. This is a contradiction. If the economy were indeed as strong as they say, we wouldn’t need QE3. The fact that market observers eagerly look forward toward the possibility of QE3 is itself an indication that the economy is weaker than they think. We can have one or the other, but we can’t have both....

The U.S. economy has benefited over the last few months from the inability of seasonal adjustment factors to account for an exceedingly warm winter and the distortions introduced by the fact that the worst of the recession in 2008-2009 occurred in about the same months. Although it is difficult to put a number on this, we suspect that the seasonal adjustments made the economy appear much stronger than it actually was, and that the payback is about to come.

Adding to these distortions, Fed Chairman Bernanke recently pointed out that Okun’s Law may have been a factor in the improving unemployment numbers. Okun’s Law, based on empirical observation rather than theory, states that for every 2% change in GDP, unemployment changes 1% in the opposite direction. Bernanke stated that at the worst of the last recession, unemployment increased by far more than it should have based on the decline in GDP. Recently, however, unemployment dropped by far more than it should have in relation to the increase in GDP, and that this was payback for the prior distortion. The takeaway is that the unemployment rate will not improve much in the period ahead, an assumption that is undoubtedly a major reason for the Fed’s continued caution on the outlook and promise of near-zero rates into 2014.

In just the last two weeks it has been noticeable that expectations have become so high that a number of indicators have started to disappoint. The list includes core durable goods orders, the Richmond Fed Manufacturing Survey, the Chicago Fed National Activity Index, initial weekly unemployment claims, pending home sales, new home sales and existing home sales. In addition, corporate earnings also show signs of peaking. The recent ratio of negative to positive earnings revisions is the highest since the first quarter of 2009. First quarter S&P 500 earnings growth is now estimated at only 0.7%, significantly down from the 16% estimated about a year ago and the 5% estimated as late as January. We think that when first quarter earnings are reported in a few weeks management guidance will take estimates down even more for the full year.

The economy is also facing the so-called "fiscal cliff" beginning on January 1, 2013. This includes expiration of the Bush tax cuts, the payroll tax cuts, emergency unemployment benefits and the sequester. Various estimates placed the hit to GDP as being anywhere between 2% and 3.5%, a number that would probably throw the economy into recession, if it isn’t already in one before then. At about that time we will also be hitting the debt limit once again. U.S. economic growth will also be hampered by recession in Europe and decreasing growth and a possible hard landing in China.

Technically, all of the good news seems to have been discounted by the market rally of the last three years and the last few months. The market is heavily overbought, sentiment is extremely high, daily new highs are falling and volume is both low and declining. In our view the odds of a significant decline are high.

4--Personal Income increased 0.2% in February, Spending 0.8%, calculated risk

Excerpt: The BEA released the Personal Income and Outlays report for February:

Personal income increased $28.2 billion, or 0.2 percent ... in February, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $86.0 billion, or 0.8 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.5 percent in February, compared with an increase of 0.2 percent in January. ... The price index for PCE increased 0.3 percent in February, compared with an increase of 0.2 percent in January. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of 0.2 percent....

Note: The PCE price index, excluding food and energy, increased 0.1 percent.

The personal saving rate was at 3.7% in February.

This was a sharp increase in spending in February (and January spending was revised up). Using the two-month method, it appears real PCE will increase around 2.0% in Q1 (PCE is the largest component of GDP); the mid-month method suggests an increase closer to 2.9%.

5--Fed Watch: Inflation: Still Nothing to See Here, Tim Duy, economist's view

Excerpt: The Februrary Personal Income and Outlays report came out this morning, and with it a fresh read on the Federal Reserve's preferred inflation measure, the PCE price index. On a year-over-year basis, headline inflation is trending down to the 2% target, while core is settling in just below that target....

Bottom Line: Inflation remains contained - by itself, price trends provide no reason for the Fed to turn hawkish. Moreover, there is nothing here to stop Federal Reserve Chairman Ben Bernanke from easing policy should the US recovery falter.

6--Goldman Bets on Property Rebound With New Fund: Mortgages, Bloomberg

Excerpt: Goldman Sachs Group Inc. (GS), which survived the subprime mortgage crisis by making bets on a housing decline, is raising money for a new fund that will buy home-loan bonds to benefit from an improving real-estate market.

The U.S. Housing Recovery Fund is expected to finish its first round of capital raising and open April 1, according to a marketing document obtained by Bloomberg News. It will focus on senior-ranked securities without government backing, many of which now carry junk credit grades.

Stabilization in U.S. housing fundamentals is creating an attractive investment opportunity,” the New York-based bank said in the document dated this month. “Many of the ingredients are in place for continued improvement in housing,” including near-record affordability, a better supply-and-demand balance and policy makers’ renewed focus on bolstering real estate.

Goldman Sachs Asset Management is joining hedge-fund managers Kyle Bass and Metacapital Management LP in seeking cash for new mortgage funds. They’re following firms including Cerberus Capital Management LP, CQS U.K. LLP and Canyon Partners LLC that started similar investment pools after prices slumped last year. Values in the $1.1 trillion market for so-called non- agency mortgage securities are soaring this year after Europe’s sovereign-debt crisis eased and the Federal Reserve was able to sell $19.2 billion of the notes, underscoring demand.

Selected By Fed
Goldman Sachs was among a handful of banks selected by the Fed to bid on the mortgage bonds acquired in the bailout of American International Group Inc., drawing complaints from others on Wall Street who were shut out of the process. The firm bought $6.2 billion of the debt in a Feb. 8 auction. Unlike Credit Suisse Group AG, which won a Jan. 19 auction, the bank failed to immediately flip most of the securities to clients bidding through it, regulatory data on trading volumes showed.

Andrea Raphael, a spokeswoman for Goldman Sachs, declined to comment on the fund.

Home-loan debt that isn’t backed by government-supported Fannie Mae and Freddie Mac or U.S. agencies includes so-called option adjustable-rate mortgages and Alt-A ARMs issued during the housing boom that peaked in 2006. The securities later sunk in value amid a property slump and record defaults.

Typical prices for the most senior bonds tied to option ARMs rose to 57 cents on the dollar last week from 49 cents in late November, a 16 percent gain, according to Barclays Plc data. Bonds backed by Alt-A ARMs (BBMDA60P) increased 8 percent to 52 cents on the dollar, from 48 cents in December.

Paring Bets
Those securities remain below their 2011 highs of 65 cents and 68 cents, respectively, after falling as low as 33 cents and 35 cents in 2009. Option ARMs allow borrowers to pay less initially than the interest they owe by increasing their balances, while Alt-A loans often went to borrowers who didn’t document income.

Some firms have pared their bets in non-agency securities after this year’s gains. Western Asset Management Co., which oversees about $443 billion and started 2012 among the most bullish on the debt, sold some investments after “an intense rally,” said Paul Jablansky, co-head of the Pasadena, California-based firm’s mortgage group. The Legg Mason Inc. unit is replacing the debt with notes such as high-yield company bonds, though it remains “long-term attractive,” he said.

Senior non-agency bonds may yield 12 percent for some option ARM debt to 4.5 percent for certain securities backed by larger ”jumbo” mortgages, under a “base scenario,” according to a Bank of America Corp. report. The option ARM notes could pay 14.5 percent if losses per defaulted loan are 20 percent lower than projected, or 9.2 percent if 20 percent higher, according to the lender’s calculations.

7--Paul Krugman: Broccoli and Bad Faith, economist's view

Excerpt: Nobody knows what the Supreme Court will decide with regard to the Affordable Care Act. But ... it seems quite possible that the court will strike down the “mandate” — the requirement that individuals purchase health insurance — and maybe the whole law. Removing the mandate would make the law much less workable, while striking down the whole thing would mean denying health coverage to 30 million or more Americans.

Given the stakes, one might have expected all the court’s members to be very careful... In reality, however,... antireform justices appeared to embrace any argument, no matter how flimsy, that they could use to kill reform.

Let’s start with the already famous exchange in which Justice Antonin Scalia compared the purchase of health insurance to the purchase of broccoli... That comparison horrified health care experts ... because health insurance is nothing like broccoli.

Why? When people choose not to buy broccoli, they don’t make broccoli unavailable to those who want it. But when people don’t buy health insurance until they get sick — which is what happens in the absence of a mandate — the resulting worsening of the risk pool makes insurance more expensive, and often unaffordable, for those who remain. As a result, unregulated health insurance basically doesn’t work, and never has.

There are at least two ways to address this reality... One is to tax everyone ... and use the money raised to provide health coverage. That’s what Medicare and Medicaid do. The other is to require that everyone buy insurance, while aiding those for whom this is a financial hardship.
Are these fundamentally different approaches? ... Here’s what Charles Fried — who was Ronald Reagan’s solicitor general — said..: “I’ve never understood why regulating by making people go buy something is somehow more intrusive than regulating by making them pay taxes and then giving it to them.” ... (By the way, another pet conservative project — private accounts to replace Social Security — relies on, yes, mandatory contributions from individuals.)

So has there been a real change in legal thinking here? Mr. Fried thinks that it’s just politics — and other discussions in the hearings strongly support that perception. ...

As I said, we don’t know how this will go. But it’s hard not to feel a sense of foreboding — and to worry that the nation’s already badly damaged faith in the Supreme Court’s ability to stand above politics is about to take another severe hit.

8--Euro Area Credit: Did the ECB Wait Too Long?, economonitor

Excerpt: The ECB released its February report on monetary developments in the Euro area. This is an important report, since it will highlight whether or not the ECB’s LTRO is ‘working’, rather if the new liquidity is passing through to the real economy via new lending. On balance, it’s probably too early to tell, since there are long lags in monetary policy – however, early signs are not good for the real economy.

Ostensibly, the ECB LTRO did its job, as interbank credit has re-emerged in aggregate. Repo credit increased 4.2% over the year in February – this followed an 11.5% annual surge in January. Furthermore, short-term debt holdings jumped at a 21.3% annual pace. Banks and sovereigns have seen relief in the short-term credit markets, a product of long-term funding from the ECB.

But credit availability to the broader economy is more challenged. The chart below illustrates the working-day and seasonally adjusted lending by Monetary Financial Institutions (MFIs) to the household and non-financial corporate sectors. I use the 3-month/3-month average growth rate to illustrate the credit impetus over the LTRO period. In the three months ending in February, household lending fell 0.18% compared to the average spanning September through November 2011. The drop in quarterly lending did slow, but remains in decline. Loans to non-financial corporations fell a larger 0.82% in the three months ending in February. For non-financial corporations, the pace of decline quickened since the three months ending in January....The usual suspects are seeing large declines in household and non-financial corporate lending, including Spain, Portugal, Greece, and Ireland....

9--Who captured the Fed, NY Times

Excerpt: A hundred years ago, monetary policy – control over interest rates and the availability of credit – was viewed as a highly contentious political issue. People on the left of the political spectrum feared the central bank would be used to prop up Wall Street banks; those on the right thought it would unduly expand the role of government, giving too much power to politicians.

In the 1980s we entered a phase in which the Federal Reserve, along with other major central banks around the world, was seen as independent and run by technocrats supposedly immune from political pressure.

But in the light of the crisis of 2008 and its aftermath, we have to ask: Has our central bank fallen back under the influence of special interests?...

At the dawn of the republic, Thomas Jefferson railed against the risks posed by government backing for concentrated power in the financial sector. President Andrew Jackson fought to abolish the Second Bank of the United States in the 1830s, the leading private bank of his day, which helped manage public finances and the banking system. Consequently, there was nothing resembling a central bank in the United States for much of the 19th century.

The Federal Reserve System, created in 1913, was a uniquely American compromise, trying to balance public and private interests. Banks controlled the boards of the 12 regional Feds – with big Wall Street firms holding great sway over the New York Fed, which had a disproportionate influence within the system as a whole — and still does....

Increasingly, however, it seems that technocratic policy-making is just a myth. We have come full circle, and the Wall Street banks are calling the shots again....

We have lost track of the number of research notes from major banks pleading for easier credit, lower capital requirements, delay in implementing financial reforms or all of the above.

In recent decades the Fed has given way completely, at the highest level and with disastrous consequences, when the bankers bring their influence to bear – for example, over deregulating finance, keeping interest rates low in the middle of a boom after 2003, providing unconditional bailouts in 2007-8 and subsequently resisting attempts to raise capital requirements by enough to make a difference.

As the American economy begins to improve, influential people in the financial sector will continue to talk about the need for a prolonged period of low interest rates. The Fed will listen.

This time will not be different.

10--The fundamental imbalance in the U.S. economy is the trade deficit, CEPR

Excerpt:...the fundamental imbalance in the U.S. economy is the trade deficit. This deficit is in turn caused by the over-valued dollar. The latter is a direct result of the decision of developing countries to accumulate massive amounts of foreign exchange reserves (i.e. dollars) in the wake of the East Asian financial crisis.

Developing countries saw the harsh treatment of the East Asian countries following the crisis and decided that they did not want to be in the same situation. Their protection against this event was the stockpiling of huge amounts of reserves. They acquire the reserves by running trade surpluses, which they use to acquire dollars. The decision of foreign central banks to buy and hold dollars keeps up the value of the dollar against their own currencies. If they didn't buy dollars, the value of the dollar would fall relative to their currencies.

This matters for our trade deficit because the higher valued dollar means that imports are cheaper for us, which leads us to buy more imports. In addition, the high dollar means that our exports are more expensive for people in other countries. Therefore they buy less of our exports. If we import more and export less, then we get a trade deficit.

This matters for the budget deficit story because if the United States runs a trade deficit, then it means that the United States has negative national savings. This is definitional; as a country we are buying more than we are selling

11--FHA: "We're not broke"-- Bailout Risk Looming After Guarantees: Mortgages, Bloomberg

Excerpt: The Federal Housing Administration won’t be able to earn its way to financial health this year, increasing the chance it will need a taxpayer bailout, based on an updated forecast from Moody’s Analytics, which provides the agency’s housing-market analysis.

The U.S. government mortgage-insurer, which guarantees $1.1 trillion in home loans, had been counting on “robust growth” in home prices to help rebuild its insurance fund after paying out $37 billion to cover defaults the past three years, according to its annual report to Congress, filed in November...

The FHA’s economic projections are surreal,” said Andrew Caplin, a New York University economics professor who has testified to Congress on the agency’s finances. “They must believe there will be very few readers in Congress able to critically review such a complex report.”

Negative Equity
Caplin and six other researchers estimated that as many as 71 percent of FHA borrowers who streamline-refinanced in Los Angeles County, California, in 2009 owed more than their houses were worth, according to a February 2010 paper. Using the FHA actuary’s methodology, only 1.5 percent of the streamline refinanced borrowers would have had negative equity, Caplin said.

12--Why More Stimulus Now Would Pay for Itself—Really!, The Atlantic

Excerpt: Brad DeLong and Larry Summers say yes. In a provocative new paper, they argue that when the economy is depressed like today, government spending can be a free lunch. It can pay for itself.

It's a fairly simple story. With interest rates at zero, the normal rules do not apply. Government spending can put people back to work and prevent the long-term unemployed from becoming unemployable. This last point is critical. If people are out of work for too long, they lose skills, which makes employers less likely to hire them, which makes them lose even more skills, and so on, and so on. Even when the economy fully recovers, these workers will stay on the sidelines. It's not just these workers who suffer from being out of work. We all do. High unemployment is a symptom of a collapse in investment. If we don't make needed investments now, that will put a brake on growth down the line. Together, economists call these twin menaces hysteresis. And if it sets in, it reduces how much we can do and make in the future. Assuming that spending now can forestall hysteresis, then this spending might be self-financing. In other words, spending now might "cost" us less than not acting.

This doesn't mean that government spending is magic. Often, it's anything but. But this is a special case. DeLong and Summers identify three factors that determine whether fiscal stimulus will pay for itself: 1) how much hysteresis hurts future output, 2) the inflation-adjusted interest rate, and 3) the size of the fiscal multiplier. Let's consider these in turn.

13--Why this could be the bull market's last charge, CNN Money

Excerpt: ...That means Malkiel's whole argument is really rested on a prediction of analysts that corporate earnings will grow 5%. Analysts, though, are notoriously overly optimistic. They basically expect whatever happened in the past to happen in the future, especially when the recent past has been pretty good. Recently, earnings have been rising rapidly. That's not likely to continue. And while 5% might not sound like much, at a time when the GDP is only growing 2%, and profit margins are at an all-time high, 5% looks like a stretch. Rob Arnott, for one, thinks we have hit peak earnings. So not much of a reason to buy stocks at all.

14--The balance sheet recession, charted, FT Alphaville

Excerpt: Nomura’s Richard Koo has been banging on about the similarities between Japan’s balance sheet recession and the current financial malaise for a long while.

His main point has always been that the financial system won’t recover unless corporates and households complete their deleveraging journey.

On Wednesday he provides some charts to help illustrate the journey’s progress thus far. (see charts)

Thus what we can see here is that up until the Japan’s bubble collapsed in 1990, the country’s corporate sector was growing at rapid pace with liabilities growing faster than assets. Or as he puts it “businesses were borrowing large sums of money to purchase financial assets and real assets.”

After the bubble burst, that growth in financial liabilities slowed sharply, even turning negative in 1997 — indicating that corporates had actually started to pay down debt. This deleveraging continued until 2004, even though interest rates were at zero, indicating “just how desperate corporates were to repair their balance sheets”.

The paying down of debt only stopped in 2005. But instead of taking on new liabilties they moved to restore the pool of financial assets that had been depleted during the difficult years.

A similar story can be observed in Japan’s household sector, despite the fact that financial asset growth far outpaced the growth of financial liabilities....

As Figure 2 shows, financial asset growth in Japanese households greatly exceeded the growth in financial liabilities through the first half of the 1990s, reflecting a history of high savings rates. But growth in financial assets (savings) fell steadily after the bubble burst and had dipped nearly to zero by 2003. This was attributable more to sluggish incomes than to aging demographics, in my view. It was during this period that employment and wage adjustments began and “restructuring” became a buzzword, pushing many households into a tight financial corner. Financial assets did not resume growing until 2004, when improvements in the job market enabled households to start saving again.

Growth in financial assets slumped again as the global financial crisis depressed incomes, but picked up sharply last year following the March earthquake and tsunami. The disaster—and the subsequent problems at the nuclear plants—fueled widespread concerns about the future, prompting people to cut consumption and increase savings.

Growth in household financial liabilities fell sharply after the bubble burst, and from 1998 onward households not only stopped borrowing money but in most years were paying down existing debt. I attribute this largely to sluggish demand for home mortgage loans as land prices fell. The combined private savings surplus for Japan’s household and corporate sectors is now running at 9.5% of GDP. At a time when the strong yen and overseas economic weakness prevent Japan from boosting its exports, these savings could easily shrink GDP by 9.5% a year if the government did not step in to borrow and spend the surplus....

As Koo himself notes:

Let us now look at the situation at US households with their damaged balance sheets. As Figure 4 shows, their behavior since 2008 has mirrored that of Japanese households and companies over the last decade and a half: they are both reducing financial liabilities (paying down debt) and increasing financial assets (savings) in spite of zero interest rates. Together, the household and corporate sectors are now net savers to the tune of 5.8% of GDP. That this surplus of private savings is occurring at a time when interest rates are at zero is a clear indication the US is in a balance sheet recession triggered by the first crash in house prices in seven decades.

15--Investment banks ramp up risk trades, IFR

Excerpt: The dramatic resurgence of secondary equity markets in the US – up 11.5% in the first quarter, and 21% from the lows in November – caught most market participants off-guard. How much so was evident by short interest on the S&P 500 that peaked at post-crisis highs in September 2011, and that almost all fund categories were underweight equities and long cash entering the new year.

The equity capital markets have been a beneficiary of short-covering and a move toward fuller allocations. Initial public offerings provided an obvious means to close performance short-falls. Less apparent is the use of sizeable secondary offerings to source liquidity at a discount.

“We’re in a stock-pickers’ market. If you’re a fund manager, you can’t generate alpha by hugging an index,” said the head of equity syndicate at one US bank. “Liquidity in the secondary markets has been anaemic. Market volumes over the past two years are running at 70% of historical levels.”

16--US market breaks new records, IFR

Excerpt: The US high-yield market had its largest quarter ever at US$91.94bn, while investment-grade volume of US$294.25bn was the largest first quarter on record and the fifth largest quarter ever, according to Thomson Reuters Data.

The investment-grade total exceeds the US$272.3bn recorded in the first quarter of 2007 – before the onset of the financial crisis. The previous high-yield record was US$85.254bn, set in the fourth quarter of 2010.

“A lot of opportunistic issuers [have been] stepping in to take advantage of market conditions,” said Maureen O’Connor, a director on the high-grade syndicate desk at Bank of America Merrill Lynch.

The market environment has created the perfect storm for high-yield. On the supply side, record low rates have encouraged issuers to continue to refinance debt, setting their sights on their 2014, 2015, 2016 or even longer maturities. Last week, for example, Cimarex refinanced its 7.125% notes due 2017, pushing the maturity out by five years and saving 125bp on its cash coupon.

And if issuers are not refinancing outstanding notes, they are refinancing bank loans, locking in rates for longer terms with less restrictive covenants at levels not much higher than they could get in the loan market.

And while M&A activity has been slow, the favourable environment has allowed some larger M&A financings to get done, including the refinancing of several of hung bridge loans from the euro market

17--The Obama recovery, WSWS

Excerpt: While the United States remains mired in the deepest slump since the Great Depression, President Barack Obama is touting a modest improvement in employment over the past several months to boost his electoral prospects in November.

The three-month period from December through February has, according to the Labor Department, seen a net gain of 744,000 jobs, the largest for any three-month stretch since 2006. The official jobless rate has fallen from 9.1 percent in September to 8.3 percent in February.

It is necessary to place these gains within the context of the catastrophic collapse in employment that followed the Wall Street crash of 2008, which has left the US economy with 5 million fewer jobs than at the official start of the recession in December 2007. At the height of the crash, US businesses were cutting more than 744,000 jobs every month.

While the US economy added 335,000 net new manufacturing jobs in 2010 and 2011 combined, it lost 1.6 million manufacturing jobs between January 2008 and March 2009, a reduction of 10 percent. The current level of 12 million manufacturing jobs is down 7.5 million from its peak in 1979....

What Obama has been doing is spearheading an intensified assault on the working class. He has escalated the attack on working class living standards that has been underway for more than three decades, focusing on a drastic and permanent reduction in wages and benefits....

The results of this government-corporate offensive are reflected in statistics on wages, labor costs and income. According to a census report released in September 2011, real median household income fell 2.3 percent in 2010, to a level 7.1 percent below that reached a decade before.

US manufacturing labor costs per unit of output in 2010 were 13 percent lower than a decade earlier....

The overall result of the Obama recovery, besides the impoverishment of ever wider layers of the working class, is a further staggering growth of social inequality. One stark metric of the decline in the social position of the American working class is the fact that in the third quarter of 2011, the share of the US gross domestic product going to corporate profits was at its highest (10.3 percent) since the 1960s, and the share going to wages was at its lowest (45.3 percent) on record.

In officially announcing the AFL-CIO’s support for Obama’s reelection earlier this month, the union federation president, Richard Trumka, denounced the frontrunner for the Republican nomination, Mitt Romney, declaring, “Everything he’s done helps the 1 percent.”


A Reuters article published March 15 provides statistical proof that when it comes to helping the top 1 percent at the expense of everyone else, Obama takes a back seat to no one. The article notes that the movement of US incomes during the Obama “recovery” contrasts sharply with that which occurred in 1934, during the Great Depression.

The 1934 rebound saw strong income gains for the bottom 90 percent of earners and a decline for the super-rich (the top 0.01 percent). The year 2010, saw the opposite. The income of the super-rich ($23.8 million on average) rose by 21.5 percent over the previous year, while that of the bottom 90 percent fell by 0.4 percent.

National income rose overall in 2010, but all of the gains went to the top 10 percent. Just 15,600 super-rich households pocketed an astonishing 37 percent of the entire national gain.

The article further reports that the top 1 percent’s share of real income growth has increased with each economic expansion, regardless of whether a Democrat or Republican was in the White House. The top 1 percent captured 45 percent of Clinton-era income growth, 65 percent of Bush-era growth, and 93 percent of Obama-era growth, through 2010.

These facts demonstrate the existence in the US of a plutocracy that controls the Democrats and Republicans and the entire political system. Its deadly grip can be broken only by an independent political movement of the working class, fighting for workers’ power and socialism.

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