Tuesday, April 16, 2013

Today's links

1---UN says Afghan opium production increases for 3rd year in a row, WA Post

2---Iraq’s Bloody Monday: 75 Killed, 356 Wounded, antiwar

3---Paul Craig Roberts on Gold Crash, Washington's blog

This is an orchestration (the smash in gold). It’s been going on now from the beginning of April. Brokerage houses told their individual clients the word was out that hedge funds and institutional investors were going to be dumping gold and that they should get out in advance. Then, a couple of days ago, Goldman Sachs announced there would be further departures from gold. So what they are trying to do is scare the individual investor out of bullion. Clearly there is something desperate going on….
Indeed, this may tie into the Federal Reserve leak of insider information. Specifically, Roberts writes:
The Federal Reserve began its April Fool’s assault on gold by sending the word to brokerage houses, which quickly went out to clients, that hedge funds and other large investors were going to unload their gold positions and that clients should get out of the precious metal market prior to these sales. As this inside information was the government’s own strategy, individuals cannot be prosecuted for acting on it. By this operation, the Federal Reserve, a totally corrupt entity, was able to combine individual flight with institutional flight. Bullion prices took a big hit, and bullishness departed from the gold and silver markets. The flow of dollars into bullion, which threatened to become a torrent, was stopped.

4--Fed's easing strategy prevents household deleveraging, naked capitalism

Has the household sector finished deleveraging and rebuilding its balance sheet? The answer is unclear. The use of leverage and the asset mix remain elevated compared to just 10 years ago. Unconventional monetary policy and near zero short-term interest rates have also clouded the picture. There are indications that unconventional policies have rekindled the reach for yield.

If unconventional policies have prevented a full balance sheet adjustment, any return to a normal policy stance will be followed by renewed deleveraging and further moves towards a less risky asset mix. This would imply that the current stance of monetary policy is not promoting a return to stability and full employment, but rather simply masking the symptoms and postponing needed adjustments in balance sheets and the real economy.

5---Gold explained, naked capitalism

...no one seems to notice that S&P 500 earnings peaked in Q1 2012 and have been falling since then
....A big private debt overhang, feeble banks (operating on vitamin injections and amphetamine), and labor with no bargaining power point to deflationary pressures dominating, even if we see liquidity-fuelled speculation helping goose certain types of assets....

Thus for me, the three key events that have caused gold to correct are those that have shifted the perceptions of US money policy stability:
• Mario Draghi joining the money printers
• Stabilisation in the US housing market and its gas boom
• Japan’s mad and bad QE
All of these have prevented the $US falling any further for now and into the immediate future.
The gold correction is thus good news and bad. It heralds the return of King Dollar and is good for global inflation as all commodities deflate relative to this benchmark. But it also means the US is once again saddled with its exorbitant privilege and that that will slow its recovery.

5---Influence-peddling in Obamaland, naked capitalism

6---The Obama Administration Is Scared of an Accurate Consumer Price Index, CEPR

the goal of the Obama administration is to cut Social Security, not make the COLA more accurate. Some people may be confused on this point.

The article also misled readers when it asserted:
"Medicare, Medicaid and Social Security account for nearly 40 percent of federal spending and are growing rapidly, as they must provide benefits to all who qualify, regardless of cost."
Actually the cost of Social Security is growing relatively slowly, having risen by roughly 1.0 percentage point of GDP over the last two decades. It is projected to rise another 1.0 percentage point over the next two decades, then stay roughly constant as a share of GDP over the rest of the century.

Medicare costs have been projected to rise more rapidly because of rapidly growing private sector health care costs. In fact, Medicare costs have risen quite slowly over the last 5 years, although CBO does not project this slower rate of growth to persist

7---The bearish case for another leg down in housing, ochousing

.... banks and the gov’t have turned up to 8 million legacy distressed borrowers into underwater renters of their own houses by the use of new-vintage, higher-leverage, worse-than-Subprime loans (aka Mortgage Mods) that redefault at about the same clip as legacy Subprime loans defaulted from in the first place;

Most people don’t understand this. Loan modifications are usually temporary payment reductions that mimick the worst features of the worst loans of the housing bubble. Since the interest rate reductions are temporary, loan modifications are essentially teaser rate loans destined to reset in the future. Many of these mods have interest-only features (banks don’t want to give up their income if they don’t have to). Further, the missed payments, fees, and other charges are merely added to the loan balance when the modification is approved. The growing loan balance is much like an Option ARM leaving the borrower worse off than when they started

On top of all that, loan modifications do nothing for second loans or other consumer debts that burden loanowners. Even after modification, the back-end debt-to-income ratios of these borrowers is appalling. It shouldn’t be terribly surprising that about 40% of these loan modifications redefault each year....

Bottom line: Beginning in Q3 2011 and continuing through late 2012 housing & finance enjoyed YoY comparables against very weak housing market activity — the severe hangover created by the perma- Homebuyer Tax Credit stimulus that sunsetted in mid-2010 – while at the exact same time being injected with the greatest rates jet fuel stimulus in the history of the known universe a la Twist. On the supply side, bank portfolio mortgage modifications — ultimate in legacy loan high-risk can-kicking that leaves homeowners as over-levered, underwater renters of their own house – surged to several million units.

8---Housing Starts Surge Due To Rental Housing Construction, Permits Miss Even With Seasonal Distortion, zero hedge

9---Corporate CDS Tightens to Multi-Year Lows, prag cap

The upshot of the latest market moves is that credit risk appetite continues to increase, approaching the pre-crisis frothy levels

10--Obama cuts Head Start, wsws

The reduced funding will have a shattering impact on poor families unable to afford child care. Speaking to the Huffington Post, Brenda Zedlitz, the director of the Washington County Head Start program, said, “We serve the working poor. Where are their children going to go when they are at work? Does this mean that they will leave their children with caregivers who might not be appropriate?”

Along with early program closures, the NHSA estimates that at least 70,000 enrollment slots will no longer be available. Programs are already being forced to randomly remove students from their rosters, often using a lottery system in order to determine which students will be allowed to stay.
The additional cuts to busing will mean that many children, who may not have otherwise been removed from the program due to cuts in enrollment, will not be able to attend their programs due to an unmet need for transportation....

Every dollar invested in early learning and development programs saves about $7 down the road in higher earnings and yield more revenue, and lower government spending on social services and crime prevention. But today, most four-year-olds aren’t in a high-quality public preschool program, and only ten states and the District of Columbia requires school districts to provide free, full-day kindergarten."
However, the proposed cuts to Head Start are already devastating families across the nation, whose children are currently being turned away from programs in the middle of the school year. This will have a damaging impact on children’s developmental growth, both in terms of cultural formation and psychologically, being removed from the social environment of friends and caregivers they have already become accustomed to....

The program’s curriculum focused on children’s social-emotional, and health and nutritional needs by providing children with early learning experiences and the nutrition necessary for proper brain development. Child development professionals today contend that social-emotional development is one the biggest predictors in children’s later success in school.
Since its inception, the Head Start program has adjusted to living costs, with an initial budget of $96.4 million in 1965 gradually increased to over $6.5 billion by 2003. Under the Bush administration, Head Start received its first-ever decrease in funding when the House passed a reauthorization bill by only one vote in 2004, and enrollment dropped for the first time when nearly 10,000 slots were cut.

Now, under the Obama administration, deeper cuts continue to be imposed as part of the bipartisan attack on social services.
As the current financial crisis worsens, the financial elite must repeal the hard won concessions of past workers’ struggles.

For this reason, any “universal preschool” program will be used for the opposite of what it appears to be. Obama’s early education policies are of a piece with standardized testing in kindergarten programs and the Race To The Top program (RTTT). Children may be expected to meet goals that are not developmentally appropriate or realistically attainable, which will no doubt prompt further cuts to education under the guise of “accountability”.

The cuts to Head Start and other social services, such as Medicare, unemployment benefits and Social Security, are part of an ongoing redistribution of wealth to the top. The process is throwing millions more working families into dire poverty. Even for those who are employed, wages have stagnated amidst the rising cost of living, making the cost of child care and preschool increasingly unaffordable for working class families.
The Obama administration has engaged in an all-out assault on public education in its push toward privatization, at the cost of hundreds of thousands of teaching jobs nationwide, cuts to teachers’ wages and school budgets, as well as the slashing of pensions and an attack on teachers’ tenures.

11---Moscow calls Obama’s human rights bluff, wsws

Samir Naji al Hasan Moqbel, a Yemeni who has been held at Guantanamo since 2002, recounted his fate in a phone call with his lawyers, the contents of which were published by the New York Times on Monday. He described how twice daily a squad of eight military police in riot gear breaks into his cell and straps his arms, legs and head to a chair so that a feeding tube can be forced up his nose and into his stomach, causing excruciating pain.

“The situation is desperate now,” he said. “All of the detainees here are suffering deeply. At least 40 people here are on a hunger strike. People are fainting with exhaustion every day. I have vomited blood.

“And there is no end in sight to our imprisonment. Denying ourselves food and risking death every day is the choice we have made.”

At least nine inmates have died in custody at Guantanamo, some of them as the direct result of torture, others driven to suicide. It appears that this number is about to climb.

When Barack Obama was elected president in 2008, he vowed to close Guantanamo within his first year in office. More than four years later, the prison not only remains open, but its criminal operations have been codified into US law.

The ongoing operation of Guantanamo is emblematic of the Obama administration’s continuation and deepening of all the crimes carried out under Bush, from aggressive war and torture to the vast expansion of the drone assassination program and its extension to US citizens.

If the principles enunciated by the Nuremberg trials of the Nazi leadership were upheld today, those named in Russia’s blacklist as well as their superiors (left off out of diplomatic considerations)—Bush, Cheney, Rumsfeld, Rice, Powell and Tenet—would be in the dock for their crimes. Instead, these crimes not only go unpunished, they continue.

12---More on Detroit Dictatorship, wsws

We have already seen our pensions frozen and wage cuts of 10 percent or even 30 percent for some fire fighters. We are down 500 fire fighters from five years ago. In the fall, fire commissioner Don Austin closed another five companies and put up to 10 more on brownout. Of the 57 companies we have left, only 42 a day are open.

“The EM has the power to tear up contracts and impose conditions of employment with no input from the unions. It’s ‘meet and confirm,’ that’s what we’re doing. I cannot bargain for the safety of our members. And if our members are not safe we can’t help the safety of the people of Detroit.”

13---Subprime auto ABS: should it be Triple A?, IFR

14---BoJ QE fuels hope of US bond bonanza, IFR

Japan’s monetary easing has prompted a jump in Japanese investor cash flowing into the US corporate bond markets in the past week, fuelling hopes that it will turn into a wall of funds in the coming months that will be enough to stave off a market meltdown if rates rise.
The Bank of Japan announced on April 4 that it would spend ¥60trn (US$605bn) in each of the next two years buying bonds and other assets. This move is now only about a week old but banks and fund managers are already reporting an increase in secondary market activity by Japanese investors, as well as a higher level of enquiries about the corporate bond pipeline.
That increase has the potential to turn into a major inflow of investment dollars in coming weeks, given that the BoJ’s QE news has coincided with the annual asset allocation process currently under way in the Japanese investment community for the next fiscal year.
Bankers are heading to Tokyo to talk to the biggest institutional accounts during the allocation process, and to gauge their interest in expanding their usually narrow, conservative investment parameters to include riskier assets.
“There is certainly the potential for the market to see money flowing from Japan into the US corporate bond market,” said Andrew Karp, head of investment-grade debt syndicate in the Americas for Bank of America Merrill Lynch. “We have already seen some of that, and I think you will see an uptick in interest as a result of the recent moves by the Bank of Japan.”...

“There has been anecdotal evidence that there are Japanese investors looking to put money to work in the US corporate bond market,” said Michael Collins, a senior portfolio manager and investment officer at Prudential.
An increase in Japanese investment in US assets is likely to keep the bond bull market going longer than expected, whether the inflows are directed to Treasuries, corporate bonds or both. Any rise in Japanese flows “is definitely positive for credit spreads”, said Collins.
Nomura conservatively estimates that the US Treasury market will receive US$80bn–$110bn of Japan inflows arising from the BoJ’s QE.

Big hope

With a surge in Japanese appetite, there is the hope the Asian bid for US corporate bonds will become big enough to compensate for any drop in total return investor appetite if Treasury rates start to rise – potentially staving off the market mayhem that a back-up in rates could cause.
“Mutual funds are getting between 35% and 40% of allocations in new issues in high-yield and investment grade, and yet they only account for 15% of all corporate bonds held in the market,” said Jason Shoup, Citigroup’s high-grade credit strategist. “They are a huge source of demand, so even a tapering in that demand, say because of rising rates, would be a concern

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