Tuesday, August 14, 2012

Today's links

1--Q2 earnings surprises masked weaker revenues, sober look

Analysts have been pointing out that earnings for the S&P500 companies continued to surprise to the upside for Q2 results. The top-line numbers however were not nearly as impressive. In fact this has been the lowest percentage of positive revenue surprises since at least 3Q09.

Nasdaq: - While roughly two-thirds of companies beat earnings expectations, the beat ratio on the revenue front is far weaker - only 37.6% of the companies have beat revenue expectations. Even some of these companies with positive revenue surprises for the second quarter have guided towards lower revenue numbers in the coming quarters. This does not bode well for growth in the coming quarters.

The global macro pressures have impacted revenues far more because of a sharp decline in commodity prices that helped improve margins.

Barclays Capital: - The global growth slowdown has had more of an impact on revenues, as margins were aided by a sharp drop in commodity prices in the second quarter. Additionally, ... companies have begun to cut their forward financial outlooks, suggesting that macro concerns are beginning to weigh on corporate operating performance.

2--No real growth in wage and salaries, Trimtabs

The fact is real time wages and salaries, before inflation, are up only 3 per cent year over year for the 133 million Americans on payrolls. And that growth rate has been trending lower for the past year and a half. After inflation, with gasoline and food prices surging, there is no real growth in wages and salaries What is worse, unless all tax cuts remain in place in 2013, after tax- income will turn negative year over year. And even if all the tax breaks do stay in place, wage and salary growth is still likely to keep slowing.

We at TrimTabs distill wages and salaries from the U.S. Treasury which reports the daily inflows of withheld payroll taxes that it receives. Back in October 2007, we first turned bearish after having been mostly bullish since 2004. Two of the reasons included that the flood of money coming out of real estate sales and mortgages was ending, and that wage and salary growth had dropped to 4% year over year compared with an over 6% pace since 2004. Wage and salary growth turned negative by the end of 2008 and bottomed at the end of 2009. Then wage and salary growth year over year turned positive in 2010 and then peaked at just over 4% by early 2011. Since then wage and salary growth has slumped down to the current 3% year over year rate.

3--Tweedledum and Tweedledee, CEPR

The vast majority of the upward redistribution over the last three decades has been in before-tax income, not after-tax. This has come out about through a coddled and bloated finanacial sector that relies on massive government subsidies in the form of "too-big-to-fail" insurance. It has been the result of a system of corporate governance in which directors get 6-figure payoffs to look the other way as the CEOs and other top management pilfer the company.

The upward redistribution was also the result of a trade policy that deliberately sought to put manufacturing workers in direct competition with low-paid workers in the developing world while largely protecting highly paid doctors and lawyers from similar competition. And it is the result of a Federal Reserve Board policy that deliberately throws millions of workers out of work to put donward pressure on their wages, thereby keeping inflation below its target rate.

These and other policies are the real story about "the extent of Americans’ obligations to one another, even the soul of the country." Unfortunately, there is no real choice offered to the public in this area since the position of the candidates on these issues is largely indistinguishable.

4--Criminalizing dissent; FBI launches stealth attack on OWS protestors, WSWS

Last month the FBI launched a series of raids at the homes of anti-Wall Street protesters in Portland, Oregon and Seattle and Olympia, Washington. As the Socialist Equality Party’s candidate for US president, I emphatically condemn these police state actions against peaceful protesters and demand an end to the Obama administration’s campaign of political persecution and repression against these individuals and groups.

The early-morning invasions—barely reported in the news media—involved as many as 80 heavily armed “domestic terrorism” agents who used stun grenades and battering rams to smash through doors, pull their unsuspecting victims from their beds and terrorize them with automatic weapons.

Underscoring the political character of the raids, the FBI agents confiscated computers, political literature, cell phones, thumb drives, and various pieces of clothing bearing political slogans. A warrant left behind in the home of one of the victims indicates the agents were seeking, among other items, “anti-government or anarchist literature or material.”

Those targeted are guilty of nothing more than participating in protests organized by the Occupy movement. The FBI has not even revealed what the trumped-up charges are and the indictments remain sealed. One can only conclude that for the Obama administration, possession of “anti-government literature or material” is now being considered evidence of criminal activity or “terrorism.”

This has enormous implications for basic democratic rights. The administration is criminalizing political dissent and employing its political police to intimidate and silence any and all opposition to the financial aristocracy that rules America.

5--Phoenix home prices climb 35% in one year, Housingwire

6--Serious Mortgage Delinquencies and In-Foreclosure by State, calculated risk

The top states are Florida (13.70% in foreclosure down from 14.31% in Q1), New Jersey (7.65% down from 8.37%), Illinois (7.11% down from 7.46%), New York (6.47% up from 6.17%) and Nevada (the only non-judicial state in the top 13 at 6.09% down from 6.47%).

As Jay Brinkmann noted, California (3.07% down from 3.29%) and Arizona (3.24% down from 3.57%) are now a percentage point below the national average.

7--Spanish bank addiction to ECB liquidity grows, IFR

Spanish banks borrowed €375.6bn from the ECB in July compared to €337.2bn in June. This borrowing is on a net basis with gross borrowing going up from €365bn in June to €402.2bn in July. The net figure simply subtracts deposits by Spanish banks at the ECB that stand at €26.6bn in July.

The breakdown of the borrowing by Spanish banks shows that MRO borrowing went up to €69.3bn from €45bn while LTRO related borrowing went up to €332.8bn from €320bn.

The latest hike in margins by LCH is likely to see further records during August as Spanish banks move further from repo based funding to the ECB.

8--Gary Shilling: We are either in or entering a recession, credit writedowns

"We’ve had three consecutive months of declines in retail sales," says Shilling, president of A. Shilling & Co., an economic research and forecasting firm. "That’s happened 29 times since they started collecting the data in 1947, and in 27 of the 29 we were either in a recession or within three months of it."

9--The Wall Street Book Everyone Should Read, hbr, blog

In 1997, though, such arguments were pretty close to unheard of. Which is what makes Doug Henwood's book Wall Street, published that year, such an amazing document. Along with explaining in clear if caustic terms how financial markets work, the book prefigures almost every criticism of the financial system that's been levied since the crisis of 2008. An overleveraged housing market? Check. A link between financial sector growth and income inequality? Check. A natural tendency toward instability in financial markets?

10--Where's the money going in healthcare?, incidental economist
One chart says it all

11--More on banks and housing, ft.com
Last week we wrote about how US lending standards for mortgages have continued to tighten — in severe contrast to standards for other kinds of loans....
Demand for residential mortgages continues to grow…

The strengthening of demand for residential mortgages continued into the three months preceding the July survey with a net 52.3% of banks indicating higher demand for prime mortgages (37% for nontraditional mortgages). There haven’t been that many banks reporting this since the survey in April of 1998....

In fact, a special question specifies that 25.0% of responding banks have somewhat tighter standards for prime mortgages than its average standard since 2005 to present while 30.0% have significantly tighter standards.

12--The One Housing Solution Left: Mass Mortgage Refinancing, by Joseph E. Stiglitz and Mark Zandi, Commentary, NY Times: ...

With 13.5 million homeowners underwater ... the odds are high that many millions ... will lose their homes.

Housing remains the biggest impediment to economic recovery, yet Washington seems paralyzed. ... Late last month, the top regulator overseeing Fannie Mae and Freddie Mac blocked a plan backed by the Obama administration to let the companies forgive some of the mortgage debt owed by stressed homeowners. ...

With principal writedown no longer an option, the government needs to find a new way to facilitate mass mortgage refinancings. With rates at record lows, refinancing would allow homeowners to significantly reduce their monthly payments... A mass refinancing program would work like a potent tax cut. ...

Well over half of all American homeowners with mortgages are ... excellent candidates to refinance. ... But many ... can’t refinance because the collapse in house prices has wiped out their home equity.

Senator Jeff Merkley, an Oregon Democrat, has proposed a remedy. Under his plan,... underwater homeowners who are current on their payments and meet other requirements would have the option to refinance to either lower their monthly payments or pay down their loans and rebuild equity. ...

13--The United States and Its Comrade-in-Arms, Al Qaeda, counterpunch

Afghanistan in the 1980s and 90s … Bosnia and Kosovo in the 1990s … Libya 2011 … Syria 2012 … In military conflicts in each of these countries the United States and al Qaeda (or one of its associates) have been on the same side. 1

What does this tell us about the United States’ “War On Terrorism”?

Regime change has been the American goal on each occasion: overthrowing communists (or “communists”), Serbians, Slobodan Milosevic, Moammar Gaddafi, Bashar al-Assad … all heretics or infidels, all non-believers in the empire, all inconvenient to the empire.

Why, if the enemy is Islamic terrorism, has the United States invested so much blood and treasure against the PLO, Iraq, and Libya, and now Syria, all mideast secular governments?

Why are Washington’s closest Arab allies in the Middle East the Islamic governments of Saudi Arabia, Qatar, Kuwait, Jordan, and Bahrain? Bahrain being the home of an American naval base; Saudi Arabia and Qatar being conduits to transfer arms to the Syrian rebels.

Why, if democracy means anything to the United States are these same close allies in the Middle East all monarchies?

Why, if the enemy is Islamic terrorism, did the United States shepherd Kosovo — 90% Islamist and perhaps the most gangsterish government in the world — to unilaterally declare independence from Serbia in 2008, an independence so illegitimate and artificial that the majority of the world’s nations still have not recognized it?...

Why, if the enemy is Islamic terrorism, did the United States pave the way to power for the Libyan Islamic rebels, who at this very moment are killing other Libyans in order to institute a more fundamentalist Islamic state?

Why do American officials speak endlessly about human rights, yet fully support the Libyan Islamic rebels despite the fact that Doctors Without Borders suspended its work in prisons in the Islamic-rebel city of Misurata because torture was so rampant that some detainees were brought for care only to make them fit for further interrogation

14--Washington’s bipartisan class-war policy: No jobs, no benefits, WSWS

The expiration last week of one of the two federal emergency unemployment benefits programs marks an escalation in the American ruling class’ attack on working people. Idaho, the last state participating in the federal government’s Extended Benefits (EB) program, made its final extended unemployment payment. Across the country, half a million people have been cut off of extended benefits since the start of the year.

The other federal jobless benefits program, known as Emergency Unemployment Compensation (EUC), is scheduled to end completely on January 1, halting at a stroke payments for two million more people.

There is every likelihood that after December 31 no one in the United States will receive more than 26 weeks of jobless benefits at a time when the average duration of unemployment is nearly 40 weeks. The Obama administration has already indicated that it will not seek a renewal of the EUC program.

In exchange for passing a payroll tax cut last February—financed at the expense of the Social Security trust fund—the Democrats agreed to significant cutbacks in unemployment insurance, lowering the duration of federal extended benefits in most states by 30 weeks. This set the stage for states such as Georgia, Florida and Michigan to implement even more draconian cuts in state unemployment insurance.

The deal also allowed for the immediate cut-off of existing beneficiaries on January 1, 2013 should Congress fail to extend the federal programs before the end of 2012. Prior to the agreement brokered by the White House in February, all extensions of federal emergency unemployment benefits passed since the financial crash of 2008 provided that existing beneficiaries would continue to receive payments for the duration available when they first became jobless, even if there was no further extension of the programs. The extension signed in February, however, stipulated that all two million recipients of the EUC program would be cut off immediately if Congress failed to extend it further.

What is perhaps most remarkable about the cutoff of benefits is the complete silence in the media and in official politics. In the midst of a presidential election campaign, occurring in the context of the deepest social crisis since the Great Depression, neither Obama nor his Republican opponent Romney, and neither of their corporate-controlled parties, even mention the ending of cash assistance to millions of unemployed workers.

The justification for all cuts in social spending—that there is “no money”—is preposterous. Extending the federal benefit programs for a year would cost $30 billion. This is less than the US military spends in two weeks and less than the personal net worth of multi-billionaires such as Warren Buffett, Bill Gates and Larry Ellision.

The cutoff of extended unemployment benefits is part of a bipartisan class-war policy led by the Obama administration. For the ruling class, high unemployment is a positive good. It gives the corporations and state and local governments a weapon to blackmail workers into accepting lower wages and cuts in benefits.

Last month, wages grew at a slower pace than at any time since the Second World War. Adjusting for inflation, wages have actually fallen over the past year. The slashing of wages and imposition of speedup have sent corporate profits to record levels.

Obama’s 2009 restructuring of the auto industry, based on a 50 percent reduction in wages for new-hires and the cutting of benefits for both active workers and retirees, was a signal to corporate America to attack the wages and working conditions of the entire working class. What is underway is a drive to reverse all of the social gains achieved by workers in the twentieth century and turn the clock back to the days of poverty wages and unvarnished industrial slavery.

The Obama administration has pursued a definite domestic strategy: to turn the US into an export platform by making labor costs competitive with Mexico, China and other cheap-labor centers. It is no coincidence that only weeks after Obama signed off on cuts in jobless benefits last February he held a major event at the Master Lock plant in Milwaukee, Wisconsin to promote the “insourcing” of jobs to the United States. “Our job as a nation is to do everything we can to make the decision to insource more attractive for more companies,” he said.

The attack on wages is tied to a policy of gutting social benefits. Unemployment insurance, Social Security, Medicare and Medicaid—all of the social programs that were wrenched from the ruling class through working class struggles—are to be slashed or eliminated outright

15--A Green Light for Car Loans, WSJ

Banks, Finance Firms Boost Auto Lending; Fed Survey Finds Easier Standards.
Banks and investors are still wary of lending to Americans purchasing houses and almost everything else, but they are lending people money to buy cars—even to borrowers who must stretch to make their payments.

The value of auto loans outstanding at the end of the second quarter hit $725 billion, according to the automotive division of Experian, a credit-reporting firm. That is 5.7% above a year ago and the highest level since the first quarter of 2009.

More banks tell the Federal Reserve that they are easing standards for making new auto loans, and the market for securities backed by car loans has rebounded

The car-financing surge is nourishing one of the few parts of the consumer economy that is doing well. Lenders, eager to boost their interest income because yields on alternatives like U.S. Treasurys are very low, see auto loans as particularly attractive and safe.

The banks are getting into auto loans because they have the money," said Jim Lentz, U.S. chief executive at Toyota Motor Corp. 7203.TO -0.79%"We are seeing more 'subprime,' which is good."

One attraction of auto loans to lenders is that when borrowers get into trouble, they tend to skip mortgage payments before car payments because cars can be more easily seized by banks. The percentage of auto-loan payments 30 days past due fell to a recent low of 2.52% in the second quarter, around 2007's rate, Experian said.

One potential worry for lenders: More borrowers are taking out loans as long as 72 months, or even 84 months. That could cause problems later if stretched borrowers need to sell their cars but owe more than the vehicles are worth....

Finance companies increased auto loans on their books during the first quarter by about $2 billion to $228.4 billion while reducing their credit-card loans by $7 billion to $93.5 billion, the Fed says. Car makers that scaled back their lending businesses are eager to expand again: General Motors Co. GM +1.11%said Monday it has made a bid for Ally Financial Inc.'s international operations in Canada, Mexico, Europe and Latin America.

On Wall Street, the market for securities backed by auto loans, which collapsed during the 2008-09 financial crisis, has rebounded. Roughly $50 billion in bonds backed by auto loans have been issued so far this year, nearly the $53 billion raised in all of 2011, according to Dealogic. Finance units of auto makers and banks initiate the loans, and then package them into securities which are sold to investors.

The volume of auto-loan-backed securities so far this year is about 33% above 2006 pre-crisis levels. In contrast, the volume of mortgage-backed securities is about 70% below 2006 levels.

The most recent Fed survey of senior bank-lending officers found more than 20% reporting they had eased standards for making auto loans in the past three months. In contrast, 11% said they had eased standards for credit cards and 3% for prime residential mortgages.

The availability of financing has helped drive up auto sales. Year-over-year, total sales rose 8.9% to 1.15 million new cars and light trucks in July, maintaining an annual pace of 14.1 million vehicles, according to industry researcher Autodata Corp. Annual sales could hit 15 million, said Paul Edelstein, economist at IHS Global Insight, who says consumers are more willing to borrow money to buy cars than other items.

In the first half of the year, sales at motor-vehicle dealers were up 8.7%, before adjusting for inflation, compared with an overall increase in nonauto retailers' sales of 5.9%, according to the Commerce Department's monthly retail sales data. Sales at clothing stores were up 6.6%; at department and other general merchandise stores, 2.7%, and at electronics and appliance stores, only 0.4%.

The average car on the road is 11 years old, according to Experian. That is a record and is helping to boost demand at a time when credit is readily available.

"It's definitely flowing better, the credit issue has eased up," said Gary McAlister, general manager of the Fairway Ford Lincoln Subaru dealership in Greenville, S.C.


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