Thursday, August 1, 2013

Today's links

1---Japan's slide towards fascism, wsws

The LDP now hopes its upper house majority will boost its chances of implementing its right-wing agenda, notably revising the Japanese constitution. The changes—including undermining basic democratic rights and legalizing Japan’s involvement in aggressive wars abroad—will set into motion an explosive confrontation with the working class.

The draft constitution prepared by the LDP in April reeks of Japanese nationalism. The most significant changes include eliminating key democratic rights, granting new “emergency powers” to the prime minister, restoring the emperor as head of state, and voiding the constitution’s pacifist Article 9.

The current constitution was created by US occupation authorities after Japan’s defeat in World War II. Facing the threat of social revolution amid deep popular opposition to Japan’s bloody militarist regime, US authorities made significant political concessions. Basic democratic rights were formally inscribed in the constitution; Article 9 aimed to placate broad anti-war sentiment, as well as to ensure that Japan would not return to war against the US.

The LDP explains that today’s “constitutional amendments… will unshackle the country from the system established during the Occupation and make Japan a truly sovereign state.”

Abe’s nationalist rhetoric insists that Japan must restore its status as a “normal country.” Under the current constitution, Japan is, strictly speaking, banned from having a military, even though Japan’s “Self-Defence Force” is among the largest and most advanced in the world. As a result, it currently lacks crucial offensive capacities.

The new Article 9’s title has been changed from “Renunciation of War” to “National Security.” Although it retains the phrase “renounces war as an instrument of national policy”, the new Article 9 will rename the Self-Defence Force to a National Defence Force with the prime minister as commander in chief, in order to “secure the peace, independence, and security of the country and the people.” Practically, the LDP wants the legal basis to act as a partner in US military operations and to create a force with offensive capabilities, including so-called “pre-emptive” strikes against enemy states.

The move towards militarism is going hand-in-hand with far reaching attacks on democratic rights. The preamble of the present constitution emphasizes the universality of the principle of popular sovereignty and of “laws of political morality.” It declares: “We, the Japanese people... [have] resolved that never again shall we be visited with the horrors of war through the action of government.”

The LDP plans to remove these passages, arguing that they are concepts “based on the Western theory of natural rights.” It counterposes Japanese uniqueness in a preamble that would begin, “Japan is a nation with a long history and unique culture, with the emperor as a symbol of the unity of the people.”

Without explaining why, the LDP is proposing to delete Article 97, which declares: “The fundamental human rights guaranteed by this Constitution to the people of Japan [are] to be held for all time inviolate.” Instead, the LDP would impose “duties” such as: “The people must respect the national flag and national anthem,” and “All the people must respect this Constitution.”....

The draft constitution’s new emergency powers clearly spell out the dictatorial forms of rule that would follow, in which state and security agencies could rule by decree. It reads, “In the event of armed attacks on the nation from abroad, disturbances of the social order due to internal strife... or other emergency situations... the Prime Minister may issue a declaration of emergency situation.”
At this point, “the Cabinet may enact cabinet orders having the same effect as laws,” and “all persons must comply with the directives of national or other public institutions ... taken to protect the lives, persons or property of the people.”

With Japan’s political parties largely discredited, the LDP is seeking to boost the emperor’s role, presenting him as an arbiter above parties or class interests. He is to be officially declared the “head of state,” rather than the “symbol of national unity” the present constitution declares him to be.

The LDP draft also removes the present stipulation that “the Emperor or Regent... has the obligation to respect and uphold this Constitution,” effectively preparing to return him to the role he played before World War II—a semi-divine figure placed above the law and used to justify fascistic policies at home and abroad.

2---Wall Street Engineers Newest Frankenstein’s Monster For Housing, Testosterone Pit
Wall Street engineering is back in the housing market. Its newest product is one heck of a contraption, a synthetic structured security of the type that helped blow up the financial system back in 2008. It’s like those triple-A rated mortgage-backed securities that became toxic waste in your “money-market-equivalent” bond fund or elsewhere in your 401(k) or in the portfolio of a town in Norway – only worse.

To get that deal done, private-equity giant Blackstone Group is conniving with too-big-to-jail Deutsche Bank, which is already buried under an avalanche of legal problems, scandals, and write-offs in Germany.

Blackstone has been on the forefront in the housing market, gobbling up 32,000 single-family homes for $5.5 billion, helter-skelter, at foreclosure auctions on courthouse steps scattered around the country, hoping for capital appreciation and rental income. Deutsche Bank has been on the forefront funding this binge and leading the issuance of $3.6 billion in loans...

So how do you extract some moolah while you still can? Sell the homes into a market where first-time buyers have become rare – 29% in June, down from the 40% of a healthy market – just when higher mortgage rates are beginning to slam into bubbly home prices? Not a good idea. Instead, let’s dump some paper. In that spirit, Blackstone is planning to bundle monthly rental payments of about 1,500 to 1,700 of its homes into structured synthetic products to be hawked by Deutsche Bank to its hapless clients, “people familiar with the matter” told the Wall Street Journal.

3---Rates keep mortgage applicants away for 7th straight week, CNBC

4---Why The Housing Market Is An Accident Waiting To Happen, seeking alpha

Based on various reports about the rental markets I've read from around the country, which discuss declining rental rates and growing rental inventories, I strongly suspect that the big private equity firms will never achieve the rental cash flow yields they anticipated and will find it increasingly difficult to rent out a high percentage of their portfolio. In fact, when Ziff-Ochs announced late last year that it was looking to exit the landlord business by unloading a large portion of its rental portfolio in northern California, it cited the fact that the returns on its investment were a lot lower than it was expecting.

My point here is that existing home sales over the past 18-24 months have been heavily driven by the private equity funds and hedge funds buying up huge blocks of foreclosed and distressed homes. At their peak, they were accounting for close to 40% of all monthly existing homes and an even higher percentage in several "hot" markets. This rather temporary source of demand also played a big role in driving prices higher. But the two warning signs here are that 1) this buying cohort is fading fast and 2) many of these funds are looking to sell their housing portfolios to the public via IPOs. It's always a big red flag for me when the "smart money" private equity funds decide that it's time to sell.

There are other signs that the housing market has topped out - like the reappearance and preponderance of home "flipping" and the expanded use of subprime mortgages and ARMs. But, as discussed above, the primary drivers of the market for existing home sales are rapidly deteriorating. As these factors become more apparent to a wider audience, potential home buyers will postpone purchase plans, banks will pullback on mortgage funding and those looking to take advantage of the price run-up will try to sell their home before the bottom drops out of the market again. In other words, the "negative feedback cycle" that drove the popping of the original housing bubble will exert itself, taking the market ultimately to new lows.

5---5 Million Could Lose Food Stamps by November, economic populist

6--The Great Middle Class Wipe Out, economic populist

A flurry of studies confirms what most of America already knows.  The American middle class has been shuntered, destroyed, wiped out and no more.  Corruption and corporations have murdered the American dream and drove a huge pink slip through the heart of working America.  The Associated Press sponsored a study which shows 80% of Americans have experienced poverty in their lifetimes.
Four out of 5 U.S. adults struggle with joblessness, near poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.
Survey data exclusive to The Associated Press points to an increasingly globalized U.S. economy, the widening gap between rich and poor and loss of good-paying manufacturing jobs as reasons for the trend.
It seems the Associated Press gathered their statistics from a variety of sources, some of which will be unpublished for a year.  Other studies back up the shocking news, unless of course one is within the beltway, where denial is a way of life.  We overviewed the latest Census data on poverty earlier in this post.
The Huffington Post managed to trace some of AP's sources and gives a few more statistics:
For the first time since 1975, the number of white single-mother households living in poverty with children surpassed or equaled black ones in the past decade, spurred by job losses and faster rates of out-of-wedlock births among whites. White single-mother families in poverty stood at nearly 1.5 million in 2011, comparable to the number for blacks. Hispanic single-mother families in poverty trailed at 1.2 million.
Since 2000, the poverty rate among working-class whites has grown faster than among working-class nonwhites, rising 3 percentage points to 11 percent as the recession took a bigger toll among lower-wage workers. Still, poverty among working-class nonwhites remains higher, at 23 percent.

7---Q1 2013 Flow of Funds Shows Corporate Cash at Record High, economic populist

8---38 Percent of Home Buyers Halt Search Due to Rising Rates, urban turf (repeat)

9---Key factor driving corporate profit margins, sober look

Corporate margins in the US are no longer expanding at the rate they were in the first couple of years after the recession. In fact margins are now undergoing a gradual decline.
WSJ: - Revenue at the companies that make up the Standard & Poor's 500-stock index—excluding banks, whose profits have soared—is expected to creep up by just 1.1% in the second quarter from a year earlier, according to Thomson Reuters, which melds Wall Street analysts' projections with company reports.

Earnings, meanwhile, are expected to decline 0.6%. That would be the first profit decline for nonfinancial companies since last autumn and the first time in a year that earnings grew more slowly than revenue, a sign that margin widening is petering out....
As we begin to adjust to lower profit margins for US companies, we should keep in mind that the declines are sharper for most other nations. Going forward, while business spending and interest rates will certainly have an impact, it's the labor productivity gains that will ultimately drive adjustments in corporate margins.

10--Student loan fiasco (Charts) , sober look

There is about 1.2 trillion dollars worth of student loans outstanding with all but 15% of that owned or guaranteed by the government. The chart below shows the student loan amount held directly by the federal government. That balance is rising at about $110 bn per year.


Student loans now have the highest delinquency rate among all major consumer credit asset classes. Based on the latest data, the trend isn't encouraging.

Source: Barclays

6. While there is a perception that student loan delinquencies are limited to generation-Y borrowers, delinquencies are rising across all ages.

Source: Barclays

The data clearly shows that the risk to the taxpayers is on the rise and the strain on US consumers from student loans isn't going to improve any time soon.

11---Econbrowser recession indicator index up to 30.5%

In terms of the individual components of GDP, it's clear that the ongoing fiscal drag is the biggest single factor in the recent sluggish growth. Lower government purchases of goods and services subtracted 1.3 percentage points from the 2012:Q4 growth rate and 0.8 percentage points from the 2013:Q1 growth rate. In other words, if you assumed a government-spending multiplier of 1, if real government purchases of goods and services had not fallen, U.S. real GDP would have grown at an average annual rate of 1.7% over 2012:Q4-2013:Q1 instead of the 0.6% actually observed. Lower government purchases of goods and services only subtracted 0.1 percentage points from the 2013:Q2 GDP growth rate, which is one reason the 2013:Q2 GDP growth rate was better than the preceding two quarters.

12---Ezra Klein: This graph calls the entire economic recovery into question, WA Post
At the beginning of 2007, the employment rate was 63.3 percent, and the unemployment rate was 4.7 percent. By the end of 2009 — so, after the worst of the recession — it had fallen to 58.3 percent, and unemployment was up to 9.9 percent. Today, it’s 58.7 percent, even though unemployment has fallen to 7.6 percent. That means a lot of the people who’ve left the rolls of the unemployed haven’t gotten a new job. They’ve just left the labor force altogether.

Some of that’s natural. The population is aging, and the labor force was expected to shrink. But it wasn’t expected to shrink this much. The economy is a lot worse than a glance at the unemployment rate suggests. And instead of doing anything to help those people get back to work, Washington canceled the payroll tax cut, permitted sequestration to go into effect, and is now arguing about whether to shut down the federal government — and possibly breach the debt ceiling — in the fall.
This graph calls the entire economic recovery into question
13--What would Keynes do? Bruce Bartlett, Forbes

14---Abenomics as a Fulfillment of Milton Friedman's Policy Prescriptions, macromusings

15---We should be horrified at 1.7 percent GDP growth, WA Post

16---Bondegeddon: TREASURIES-U.S. bond prices tumble as data support Fed tapering view, Reuters

Upbeat jobs, factory data push yields near two-year high
    * Traders brace for strong U.S. payrolls report due Friday
    * Fed seen on track to pare bond buying after FOMC respite
    * Treasuries suffered worst 3-month period in nearly a

17---U.S. 30-Year Yield Reaches 2-Year High as Reports Back Fed Taper, BusinessWeek

18---Trannies Top; Bonds Bottom; Credit Crumbling, zero hedge

19---Uh oh!  Average 30-year mortgage rate jumps to 4.4%, USA Today

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