Friday, October 26, 2012

Today's links

1--UK refuses to ‘violate international law’ and aid US in Iran strike prep, RT

Britain has said that it is not right “at this point in time” for a possible strike on Iran, but is involved in military contingency planning with the US and other allies over Iran, according to the UK newspaper the Guardian.
­"The UK would be in breach of international law if it facilitated what amounted to a pre-emptive strike on Iran. It is explicit. The government has been using this to push back against the Americans," a government source told the Guardian, citing secret legal advice.
The US had pressured Britain for the use of its military bases in Cyprus, as well as facilities on Ascension Island in the Atlantic and Diego Garcia in the Indian Ocean. The attorney general’s office reportedly drafted and circulated legal advice throughout the British government branding a preemptive strike ‘illegal.’
One government source described the US as “surprised” by Britain’s refusal to provide “upfront assistance.”

2--Eurozone nears Japan-style trap as money and credit contract again, Telegraph

"This credit contraction is what happened in Japan in the early 1990 and we have to be careful not get into deflationary spiral," said Prof Richard Werner from Southampton University, a Japan expert. "They to need to launch true QE or an expansion in broad credit creation, and it cant be done easily."

3-Latest Obama Headfake: Threat to Replace Favorite Housing Scapegoat, FHFA’s Ed DeMarco, naked capitalism

The October surprises are now coming fast and furious as Obama’s lead is slipping in most polls and on Intrade. So empty gestures to boost turnout in his heretofore spurned Democratic party base are the order of the day.

4--Why Today's Housing Report Spooked Investors So Much, CNBC

We know we're coming off the bottom of the housing crash, but over the summer it felt to some like we were rocketing off the bottom. Now, not so much.

It is a matter of perspective. New home construction is still barely half of what a normal, non-bubble market would look like. Existing home sales are coming off lows from last year, but last year was the hangover from the 2010 home buyer tax credit, so again, a little perspective.

"The year-over-year gain was the smallest of the year and comps against last year when the housing market was in a full blown double-dip mode," notes analyst Mark Hanson....
 
"When you compare against 2011 (the tail-end of the homebuyer tax credit hangover and a double dip) when rates were at 5.25 percent versus 2012 with rates at 3.5 percent and supply artificially suppressed due to a surge in mortgage modifications, can-kicking of foreclosures, servicer settlement further reducing distressed supply etc, things are going to look really good," argues Hanson. "But as the 2012 conditions go flat — rates, etc., turn into headwinds -— in 2013 and sales are not coming against a hangover, things will not look as great."
 
5---Rentier CEOs Advocate Austerity for America, naked capitalism (Deficit Manifesto)
 
If you look at the 80 CEOs that signed this list, you don’t see a single Silicon Valley or tech darling (well, there is Microsoft, but they are too long in the tooth to be darlings, and one small cap tech company, Investment Technology Group, but it’s on Motley Fool’s current list of 10 Worst Small Cap CEOs, so it proves our point). There’s a complete absence of the sort of companies that America likes to hold up as its winners.
Instead, the list is heavy with finance, including private equity firms, and mature industries. A sampling:
AT&T
Bank of America
BlackRock
Clayton & Dubilier (major LBO firm)
Deloitte Federal Government Services
Dow Chemical Company
General Atlantic, LLC (major LBO firm)
General Electric Company
Goldman, Sachs & Co.
HarbourVest Partners, LLC
Humana Inc.
JPMorgan Chase & Co.
Knight Capital Group, Inc.
Pershing Square Capital Management, L.P.
Promontory Financial Group
Silver Lake Partners (a major LBO firm)
Time Warner Cable Inc.
Verizon Communications Inc.

6--What's Up in Bankster Land?, economic populist

7--80 top CEOs tell Obama, Romney to slash social spending, WSWS

The chief executives of 80 large US corporations have issued a “Deficit Manifesto,” calling on the next president to “fix America’s debt” by making substantial “changes in the federal budget.” The statement was published by the Wall Street Journal on Thursday.

Behind the innocuous phrases is the demand by some of the richest individuals in America for the slashing of Medicare, Medicaid and Social Security and a general offensive against the working class.

The CEOs’ letter, signed by a “Who’s who” of CEOs at giant US banks, financial firms and industrial corporations, calls on politicians to acknowledge “that our growing debt is a serious threat to the economic well-being and security of the United States.” It calls for Washington to adopt “an effective plan [to] stabilize the debt as a share of the economy, and put it on a downward path.”

The plan should be enacted now, “but implemented gradually to protect the fragile economic recovery and to give Americans time to prepare for the changes in the federal budget.” In other words, their proposals would worsen life for wide layers of the population, who need to “prepare” themselves for a drastic decline in their conditions.

Making no reference to the trillions of dollars made available to the banks during the financial bailout nor the trillions more that go toward imperialist war and the global defense of their economic interests, the company heads insist that the target of a plan to “fix America’s debt” should concentrate on the programs that assist tens of millions of working people, the poor and retirees.

They argue that a plan must “Reform Medicare and Medicaid, improve efficiency in the overall health care system and limit future cost growth” and “Strengthen Social Security, so that it is solvent and will be there for future beneficiaries.” These are code words for gutting these programs, which the wealthy consider an intolerable drain on resources.

The CEO statement also calls for “comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.” Felix Salmon of Reuters comments, “You can’t have lower rates and higher revenues—not without eviscerating pretty much all of the tax deductions which much of the middle class has learned to rely upon. Mortgage-interest tax relief, the charitable deduction, even the deduction for state and local taxes: pretty much all of them would have to go.”

Salmon comments sardonically that “the letter basically just says ‘please cut our taxes, raise taxes on everybody else, and cut the benefits they get from Medicare, Medicaid, and Social Security, which are programs we individually don’t rely upon.’

8-A Closer Look GDP Data, Big Picture
 
. Perhaps its my own bias, but the details of the GDP report reveal not an organic growth period in a healthy recovering economy, but rather a tepid post-credit crisis expansion highly dependent on government largesse and Federal Reserve accommodation.
It is about what we should expect: Below-trend growth, as the economy gradually heals, individual and bank balance sheets slowly improve, and the excesses of the prior cycle get wrung out of the system.
Consider the major factors within this GDP report:
-Residential construction rose 14.4%. Housing is a bright spot; with sales and prices increasing. However, this has been artificially goosed by the Fed’s ultra low rates and purchases MBS. Mortgage rates are at their lowest levels since WW2, and foreclosure abatements have created an appearance of reduced distress sales. So this portion of GDP is positive but artificial; it added about 0.3% to GDP.
-Defense Spending rose by 13% — this added 0.6% to GDP. This is not what we want driving GDP, but rather, Ii prefer to see private sector improvements.
-Business Spending remains soft. Ignore the nonsensical “Uncertainty” trope; if demand were there, businesses would add personnel and make CapEx investments as necessary. (idiotic rationalizations spoon fed to the gullible do not count as intelligent economic analysis to me — and that includes “uncertainty”).
-Slowing Exports (down 1.6%) took a few bips off of GDP.
-Midwestern Drought I do recognize that the probably whacked almost half a percentage point from overall GDP numbers (0.1% times 4Qs for an annualized 0.4%).
By my numbers, half of the GDP gains came from Fed/Uncle Sam. The slowdown in Europe and Asia are pressuring economic activity; the drought took away some of the gains, and without that, we should have seen some more strength.
Overall, this report suggests that we are not yet in recession, yet, but are barely above stall speed — more like a 1.5% GDP ex-government interventions and drought. The improvements we are seeing seem to be driven mostly by Fed and government intervention.

9--Weakness the Eurozone credit growth persists; stark contrast with the US, sober look

Tight credit conditions continue to persist in the Eurozone, inhibiting growth and dampening plans for fiscal consolidation.
AP via Yahoo: - Another drop in lending to companies in the 17-country eurozone showed the economic downturn is deepening, as a brighter mood on financial markets fails to catch on with businesses.

The European Central Bank said Thursday that loans to non-bank businesses shrank 1.4 percent year on year in September, double the 0.7 percent contraction reported the month before.
 

 

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