Saturday, August 18, 2012

Weekend links

1--Natural brands betray consumers over GMO labeling, infowars

2--US "exports" are actually built in other countries, sober look

As we noted yesterday, Obama's goal of achieving a 50% rise in US exports during his term has been nearly reached. US exports have risen 48% since early 2009. At the same time, when ever one thinks about US exports, keep in mind that US companies service foreign demand primarily by building locally and selling locally. Sales by majority owned affiliates of US multinationals sell 4-5 times more goods abroad than the US exports. The US has pursued primarily a foreign direct investment strategy rather than the more traditionally export strategy
3--Has the Great Rebalancing already started?, Michale Pettis, China Financial Markets

4--'Wind Down' of Fannie, Freddie: 'Positive for Housing'?, Realty Check

Treasury officials announced they will now require the two to reduce their investment portfolios at a faster rate, 15 percent a year instead of the previous 10 percent.

The Treasury is also replacing the ten percent dividend payments the two make to Treasury on its preferred stock investments with a “quarterly sweep of every dollar of profit that each firm earns going forward.” Fannie Mae and Freddie Mac only became profitable again this year, the first time since the crash of the market.

We see this as a positive for housing, as it ensures that Fannie and Freddie will remain in business,” writes Jaret Seiberg of Guggenheim Partners. “Absent Fannie and Freddie, we believe housing finance will become more expensive and less available.” ...

Given the enormous debt still owed to taxpayers, $188 billion less $46 billion paid back so far, this insures Fannie Mae and Freddie Mac will never be what they once were.

“They are never going to come back as privately chartered or quasi-governmental because they’ve signed a business plan where they can’t keep any of that profit going forward,” said Guy Cecala of Inside Mortgage Finance.

5--US Home Builders Begin to See Credit Thaw, Realty Check

The U.S. home building industry is finally coming off its lowest volumes ever, albeit in fits and slow starts.

New single family home starts fell 6.5 percent in July from the previous month but are still up 17 percent from a year ago. Building permits, considered a more dependable future indicator, rose 4.5 percent month-to-month and are up 23 percent from a year ago.

6--TVWho: Gen. Wesley Clark Shocker on 9/11 “Policy Coup”, who what why

In this stunning but little-known speech from 2007, Gen. Wesley Clark claims America underwent a “policy coup” at the time of the 9/11 attacks. In this video, he reveals that, right after 9/11, he was privy to information contained in a classified memo: US plans to attack and remove governments in seven countries over five years: Iraq, Syria, Lebanon, Libya, Somalia, Sudan and Iran.

He was told: “We learned that we can use our military without being challenged …. We’ve got about five years to clean up the Soviet client regimes before another superpower comes along and challenges us.”

“This was a policy coup…these people took control of policy in the United States

7--Attack on Iran will bring destruction of Israel – Ahmadinejad, RT

8--Large Caps net 14.1%, Big Picture (chart)

9-- Wage & Salary Growth Drops 50% – Stocks Unchanged, trimtabs

 the declining growth rate of wages and salaries is very disturbing. The chart attached to this video on our site shows that the three month moving average of year over year wage and salary growth peaked at 6% in April 2011 and has been steadily dropping until first reaching the 3% level in June and where it currently remains in the middle of August.

Despite the decline in wage and salary growth, stock prices are pretty much unchanged. Let me repeat, due to the Fed rigging the market, stocks are unchanged over the past 18 months while wages and salaries growth has dropped 50%....

when the world did not end in 2009 and companies began to rebuild inventories and technology using dirt cheap debt and equity, wage and salary growth first turned positive again in March 2010 and rose steadily to the 6% top in early 2011. But by early 2011 the pipeline is rebuilt and that is why we are now seeing no year over year growth in earnings and sales.

Meanwhile all of the Feds easings have gotten us to here, where the US has to print, borrow or steal $100 billion each month to grow incomes by $20 billion. And the wage and salary growth rate is dropping. For how long can stock prices levitate while the economy slumps? Welcome to the Big Fix.

10--Number of Homes Facing Foreclosure Rose in July, ABC News

11--It’s the capital requirements, stupid,

Banks are lending neither to each other, nor to the real economy, in the way they used to. In Europe in particular, loan growth remains subdued. In the UK, there’s a lot of hope riding on the Funding for Lending Scheme to alleviate the situation.

While some of the great deleveraging is a question of reining in past excesses and lax standards, another part of it is regulation-driven

12--Derivatives industry no likey new margin requirements,

A survey of financial market participants most likely to be negatively affected by new regulations on uncleared swap trades revealed that they don’t like this new-fangled way of doing things at all. No, no, they really don’t.

The completely predictable result was published in an article in Risk on Wednesday:

Sixty per cent of respondents to a survey thought end-users will opt not to use derivatives as a result of proposals published in July… If those rules come into force, derivatives participants will be required to post initial and variation margin on uncleared swap trades – a development that could lock down several trillion dollars in collateral.

13--All Four Official Recession Indicators Are Looking Up, business insider

Industrial production, employment, real income, retail sales

14--A Short History of Bubblenomics, counterpunch
15--Tremendous demand for ABS paper, sober look

Asset backed securities (ABS) continue to hit the market in volume, with both high quality as well as subprime paper in high demand.

Top quality:

Bloomberg: - Nissan Motor Co. sold $1.4 billion of bonds tied to auto loans at the lowest rate ever as the Federal Reserve’s efforts to spur economic growth reduce borrowing costs.

The company issued the top-rated securities with an average life of 1.49 years to yield 0.481 percent, the lowest financing rate for an auto company in the asset-backed market on record, according to data from Citigroup Inc. (C), the lead manager of the transaction. Though spreads on the debt were narrower in 2006, the higher lending benchmarks boosted the cost, the data show.

Bloomnerg: - Sales of bonds tied to payments on subprime car loans are accelerating at the fastest pace in five years as investors seek high yields amid speculation the Federal Reserve will keep interest rates at record lows until mid-2015

16--ABS - the changing face of US "shadow banking", sober look

Here are the latest statistics on the US asset-backed securitization industry - the so-called "shadow banking". In spite of what has been said about ABS, it continues to be a critical source of financing in certain areas. Unlike in Europe where banks are the dominant source of credit, the US capital markets provide essential non-bank access to credit. It means that if the banking system is not ready to extend credit for some reason, other channels of liquidity may still be available (and lending doesn't come to a grinding halt as it did in Europe).

The chart below shows the total ABS outstanding over time in the US. It has peaked in 2007 at just under three trillion and has been on a constant decline as existing deals gradually roll off
The "Auto" sector that is now over half of the new ABS issuance includes car loans, leases, and dealer floor plans. Even in the subprime auto sector default rates have been significantly lower than in the mortgage space

17--Meet Barack Obama, Robert Urie, counterpunch

18--It's the Housing Stupid, CEPR

it is not hard to understand why housing has not recovered. The massive over-building of housing during the bubble years lead to an enormous over-supply of housing, which shows up in the data as a record vacancy rate in the years 2006-10. In the last couple of years the vacancy rate has begun to decline which can explain the recent uptick in housing over the last few quarters.

This housing story explains why we should have expected a long and drawn out recovery. There is no easy way to replace the massive loss in demand associated with the collapse of the housing sector. And, it is hard to blame the collapse on President Obama, since the overbuilding took place in the years 2000-2006 and the collapse was already well underway at the point where he took office.

The housing story also puts a kink in the three phases of stimulus story that Hassett and Hubbard outline, where the stimulus becomes contractionary when it is withdrawn after a short initial boost, and then slows the economy further after recovery as a result of a higher future tax burdens. The implication of the housing crash story is that we didn't want a short initial boost, but rather needed a longer term stimulus that could sustain demand until some other component of consumption could fill the gap.


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