Tuesday, May 28, 2013

Today's links

1---I Want to Believe, New Inquiry

Facing the imminent threat of ecological ruin and unprecedented human suffering which capitalist states are powerless to reverse, the stakes of the proletariat’s historical mission become even higher than its 19th century prophets could imagine. As we cast aside illusions and face the sobering reality that it’s either us or nobody at all, “everyday people” will discover that the biggest conspiracy of all is the one which has undermined their power as a class for so long. Experts agree.

2---Underwater Borrowers Becoming Accidental Landlords, CNBC

Despite rising home prices, 13 million borrowers, or 25.4 percent of all homeowners with a mortgage, still owe more on their mortgages than their homes are worth, according to a new report from Zillow. So-called "underwater" borrowers would have to pay money into their loans to get out of their homes. Another 9 million borrowers, while not entirely underwater, likely do not have enough equity in their homes to afford to move.

3---Obama shrugs off sequestration, Bloomberg

The deficit is losing some of its political urgency as it falls because of a 15 percent jump in revenue from last year with the economy’s expansion, the expiration of a payroll-tax cut, and tax rates rising for married couples earning more than $450,000. The Congressional Budget Office estimates the gap this year will narrow to $642 billion, from $1.1 trillion last year.
Though the budget office projects that sequestration will subtract 0.6 percentage point from the economy’s growth this year, Americans’ job prospects are improving and financial markets are gaining.
The unemployment rate fell to 7.5 percent in April from 7.9 percent at the beginning of the year. The stock market has reached record levels, with the Standard & Poor’s 500 Index (SPX) rising almost 16 percent this year.

4--Japan's creeping yields send stocks plunging, Testosterone Pit

Along with the chaos in the JGB market, the insanity of the ever skyrocketing Japanese stock market suddenly turned into a rout Thursday morning. After an early 300 point run-up, the Nikkei plunged 1,460 points from its peak, or 9.2%, to 14,484. Friday morning, it jumped over 500 points in a few minutes to 15,008 in a bout of post-crash buy-buy-buy. But then it plummeted over 1,000 points to 13,982, before it jumped over 600 points to 14,612, ending up 128 points, or 0.88%, for the day. What breathless rollercoaster craziness.

This is what happens when the allure of central-bank money-printing erects a wall of illusion between stock market and reality: there is no longer any underpinning. Everything is hype and printed moolah. But when the hot money decides to leave, the air hisses out of that bubble, and markets swoon.
The BOJ has a policy of buying equities to prop up the Nikkei, but Thursday it was furiously propping up JGBs and let the Nikkei go. Friday it might have had a hand in the stock market. When push comes to shove, the BOJ will support JGBs, its number one priority, and let stocks die. But what if it’s losing control of the JGB market, if in the end it’s the only one buying this despicable paper while institutions and individuals are dumping it?

Kuroda refused to comment on the “daily movements” of the markets. But Prime Minister Shinzo Abe was worried: “Sharp increases in long-term interest rates could have a grave impact on the economy and the government’s fiscal conditions,” he told Parliament on Friday. “We expect the BOJ to respond appropriately to any developments in the market.” Appropriately meaning with unlimited magnitude.

Alas, there is no incentive for anyone else to buy this crap, with inflation engineered to exceed yields, and with risks so deep that if you open your eyes and you look down at them, you get woozy. An advisory panel to the Ministry of Finance had warned Abe earlier this week about precisely that problem: there’s “absolutely no guarantee” that Japanese investors will continue to buy JGBs; those who lose confidence can easily invest their funds overseas, the report nervously pointed out.

5---Central Banks buy stocks, washingtons blog

As Bloomberg reports, 23% of central bankers surveyed said the bank owns shares and plans to buy more. From the Bank of Japan to the Bank of Israel and with the SNB and the Czech National Bank now at over 10% allocation of reserves to stocks, is it any wonder there is an inexorable bid under the ‘free’ markets. Rick Santelli is rightly concerned that, “there is a danger that everyone is loaded in the same direction,” asking what happens if all the Central Bank pump-priming does not work, given these equity valuations, “who gets caught holding the bag? What chairs are left when the music stops?”
Via Bloomberg,
Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.

In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves...

Earlier this month, the Bank of Japan promised to pump $1.4 trillion into the economy in less than two years to combat deflation through open-ended asset purchases. The central bank said on April 4 that it will more than double investments in equity exchange-traded funds by the end of 2014. The Bank currently holds ¥1.4 trillion ($14.1 billion) in ETFs with a target of ¥3.5 trillion ($35.3 billion) in 2014.

6---Stocks rise while earnings and revenues shrink. Go figure? zero hedge

Morgan Stanley conveniently reminds us, is that corporate profits have been declining not for one or two quarters, but for two full years now. "For net margins, March 2013 quarter-end results showed the top 1500 US equities at 7.15%, below the peak achieved in the June quarter of 2011. In fact, net margins have declined for the top 1500 companies every quarter since June 2011."...

studies have found that managers tend to increase share buybacks in periods of slow earnings growth ...



Sadly, there is no hope of a pick up in revenues either, which is perfectly logical: when companies don't invest in capital spending and future growth, this is the direct result.

Morgan Stanley admits as much: "If companies don’t invest in capital spending and research and development, they may maintain higher margins, but this lack of spending will not be a good catalyst for economic growth."

Alas, there is no economic growth, and in fact when stripping away buybacks, there would have been no EPS growth in Q1 either. (EPS--earnings per share)

7---Spike in excess reserves has not impacted lending , sober look

8---How Obama and Al-Qaeda Became Syrian Bedfellows, counterpunch

While it’s difficult to know if CIA trafficked guns are going directly or indirectly to al-Nursa, it’s extremely likely that these guns are going directly into the hands of ideological cousins of al-Nursa, since the Syrian rebels are completely dominated by Islamic extremists.
....
It’s now clear that Obama’s foreign policy in Syria is actively encouraging terrorism. Many rebel-controlled areas in Syria are now new safe havens for terrorists, and there have been hundreds of terrorist bombing attacks against the Syrian government, many of which have targeted civilian areas...

The vast majority of this Islamic sectarian warfare is exported by Saudi Arabia, which funds radical Islamic schools all over the Middle East that attract the downtrodden of these countries by providing basic social services that the host country is too poor — or unwilling — to provide.  There is an informative chapter on this dynamic in Vijay Prashad’s excellent book, A People’s History of the Third World.
Now the debate among U.S.-NATO countries is whether to give more sophisticated weaponry to the extremist-dominated rebels in Syria. The Obama Administration is pressuring the European Union to drop its arms embargo on Syria so that a new torrent of weapons can flood the country (apparently the CIA operations haven’t yet completely drenched Syria with guns).
In response to the “drop the embargo” discussion, Oxfam intelligently responded by saying:
“Sending arms to the Syrian opposition won’t create a level playing field. Instead, it risks further fueling an arms free-for-all where the victims are the civilians of Syria. Our experience from other conflict zones tells us that this crisis will only drag on for far longer if more and more arms are poured into the country.”....

The real intention of the War on Terror is not to stop terrorists, but to target nation states that are opposed to U.S. foreign policy: Iraq and Libya — like Syria — were both secular countries at the time of their being invaded; Afghanistan was invaded even though the vast majority of those involved in the 9-11 attacks were from Saudi Arabia. There was no terrorist problem in Iraq before the U.S. invaded, just like there was no terrorist problem in Syria before the U.S.-backed rebels came onto the scene.

9---Deflation risk rising? prag cap

  • While the S&P 500 is up 17% YTD, equity inflation is not in sync with the US economy, where inflation expectations fell below 2.3% to reach an 8-month low.
  • Inflation has been sinking in the eurozone at an accelerated pace in the past few months, reaching a 3-year low of 1.2% in April
  • Inflation has been trending down in many countries, including China where inflation accelerated a mere 2.4% in April 2013.

  • 10---Corporate Share Buybacks: How Timely Are They?, mish

    11---Gold and economic freedom, alan greenspan

    12---U.S. Economy In Second Month Of Deflation Pressures Bernanke On QE, Forbes

    13---Richard Koo’s newest paper: About the Ineffectiveness of Monetary Expansion, snbchf

    14---The war on terror and the fate of US democracy, wsws

    Hidden from the American people, preparations are far advanced for an open break with democratic forms of rule in the United States. Under the framework of the “war on terror,” the American ruling class has brought democracy to the very brink of extinction. Under first Bush and then Obama, the executive has claimed vast powers to wage war, spy on the American people, torture and hold prisoners indefinitely without charge, try them in military commissions, and kill anyone, anywhere, including US citizens, without due process.

    Little more than a month ago, following the still unexplained bombings at the Boston Marathon, the entire city was placed in lockdown and virtual martial law. As the WSWS noted at the time, “The events in Boston have laid bare the modus operandi for the establishment of dictatorial forms of rule in the US.” Once again, as with the attacks of September 11 that set off the “war on terror,” the bombers were being closely monitored by sections of the state apparatus, and the events were seized on to implement new and unprecedented attacks on democratic rights.

    The breakdown of democracy is tied to an immense growth in the strength of the military and intelligence apparatus. These institutions operate as virtual laws unto themselves.....

    The American ruling class is destroying the political foundations upon which it has based its rule. They cannot invoke legality when they are confronting challenges to the state from the working class when they are the greatest law-breakers. The more they dispense with constitutional legality, the more illegitimate the ruling elite appears before the great mass of the population, within the United States and internationally......

    A crisis of bourgeois rule is one of the most important indicators of impending revolutionary upheaval. History substantiates a general political rule that revolutions arise not only because the oppressed classes cannot live in the old way, but that the ruling classes cannot rule in the old way.
    The crisis of class rule and the collapse of American democracy are rooted in, on the one hand, endless war abroad, and, on the other, the uncontrollable and historically unprecedented degree of social inequality.

    These developments pose grave dangers for the working class. Not only it is possible for a dictatorship to emerge in the United States, it is already emerging.

    The defense of democratic rights is more than ever a class issue. Democracy on the basis of capitalism and imperialist militarism is impossible

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