Friday, August 16, 2013

Today's links

1---The Taper Cometh, Fed Watch

Regardless of the date of the tapering, however, the initial claims report reiterated that the writing is on the wall. Tapering is happening, and as long as that idea is still sinking in, I suspect the Federal Reserve is going to have a hard time keeping a lid on interest rates despite their best efforts to push back the timing of the first rate increase. I think there are still market participants who have yet to adjust their expectations that QE is not forever, and that expectation delivered unusually low term premiums. Hence rates remain under pressure until everyone comes to the acceptance that end of asset purchases is arguably a paradigm shift.

2--Obama's Economic Approval Slips to 35%, Gallup

Bottom Line
It may be summer, but Americans are not all smiles and sunshine, at least when it comes to their ratings of Washington leaders. Gallup's August polling finds Americans' scant approval of Congress remaining low at 14% this month, while their satisfaction with the direction of the country slipped six points to 22%, the lowest since March. In this context, it is not surprising that Obama's overall job approval rating is at a low ebb for the year.
(2-thirds of the people think the country is headed in the wrong direction)

3---Footnotes, Testosterone Pit

Dose of reality: US Treasuries dive as the date of some sort of Fed "taper" moves closer. September has been penciled into the calendar, and given recent data, that seems to solidify. The 10-year note swooned and the yield soared to 2.81%, before backing off a notch to 2.80% at this time, up 8 basis points, the highest yield since July 2011 (to drive up mortgage rates and add more pressure on potential home buyers who are already facing much higher home prices)....

Japanese pile into foreign debt to diversify out of harm’s way, from Japan toward the perceived safer shores overseas: they bought a net of ¥1.61 trillion ($16.4 billion) in foreign bonds and notes in the week of August 4-10, the largest net purchase of overseas debt since August 2010, and the sixth week in a row of net buying. Biggest buyers: banks...... How any of this is helping the Japanese economy remains unknown.

Tax cut for Japan Inc., tax increase for the rest: The three-percentage point increase in the consumption tax approaches reality. The final nod required from the government was made contingent on the economy, and GDP growth in the last quarter, though disappointing, was strong enough to support it. Now Shinzo Abe apparently has called for a study to cut the corporate tax rates, unnamed sources told the Nikkei. That would be in addition to the other corporate tax reduction measures that are already part of the plan. The lower rates are supposed to be a confidence-booster. They’re supposed to compensate Japan Inc. for the strain that the hike in the consumption tax – a jump in inflation that every inflation apologist has been clamoring for! – will put on consumers. It’s supposed to be a counterweight: take from the people and give to Japan Inc. And this, when Japan's single biggest problem is the debt that is growing like a mushroom cloud over the country, as only half of the government expenditures are covered by taxes, and the rest is borrowed from the future. The hot money liked it, and the Nikkei jumped 2.57% or 348 points.
Japan inflation: Corporate Goods Price Index jumped 2.2% in July from a year ago

4---Report: Half of All Homes Are Being Purchased With Cash, WSJ

More than half of all homes sold last year and so far in 2013 have been financed without a mortgage, according to an analysis by economists at Goldman Sachs Group.
The analysis estimates that around 20% of all homes sold before the housing crash were “all-cash” sales (or around 30% of sales by dollar volume). But over the past seven years, the all-cash share of sales has more than doubled, increasing by more than 30 percentage points, according to economists Hui Shan, Marty Young and Charlie Himmelberg.
The surprisingly large cash-share of purchases helps to explain why home sales have jumped over the past two years despite more muted increases in broad measures of new mortgage activity, such as the MBA’s mortgage application index.
There’s no exact way to know who is responsible for all of these cash purchases, though they are likely to include some combination of investors, foreign buyers, and wealthy homeowners that don’t want to go through the hassle of getting a mortgage before closing on a sale. Mortgage lending standards have sharply tightened up since the housing bubble, with banks scrutinizing borrowers’ tax returns and bank statements to verify their incomes and the source of their down payment

5---U.S. retailers say uneven recovery keeps consumers cautious, Reuters

Everyone wants to talk about recovery - it's like the unrecovery," Susquehanna Financial Group analyst Bob Summers said following the Wal-Mart results. "The demographic that they cater to, not only has it not seen improvement, I would argue that things have gotten worse."

6---Easy Credit Dries Up, Choking Growth in China, NYT

a painful credit crisis is now spreading across Shenmu and cities nearby, as thousands of businesses have closed, fleets of BMWs and Audis have been repossessed and street protests have erupted.
“It’s an economic crisis just like the United States has had; just like it,” said Wang Ting, an operator of an illegal casino in Fugu, near Shenmu. “There’s no cash, everyone stays home without a job, there’s no way the economy can recover.” ...
The cracks are showing in many sizable cities like coastal Wenzhou, where informal lending, a big part of so-called shadow banking, has dominated for a quarter-century. Cities with economies linked to commodities with falling prices have also been affected, as more people have defaulted on loans. The biggest, most economically diverse metropolitan areas like Beijing and Shanghai seem considerably less affected, but also have many small and medium-size businesses that depend on informal lending.
Lending has collapsed here in northern Shaanxi Province, where it was particularly speculative and frenzied, and where the local coal industry has also been crippled by steeply falling prices.
As some borrowers began defaulting early this year, worried lenders in the informal sector raised interest rates for small and medium-size businesses, previously 25 to 40 percent a year, to as much as 125 percent a year. The increase set off a much broader wave of defaults in recent weeks, as owners found themselves unable to repay billions of dollars in bad debts, many of them handwritten and hard to enforce in court.
“Almost no one will give you a loan,” said a construction executive who gave only his surname, Xie, as he stood next to his white Toyota Land Cruiser outside a project that had been halted. ...
overinvestment led to overcapacity. Dozens of new mines opened around Shenmu in the last decade and older mines expanded. But demand has grown much more slowly than expected for electricity and steel, the two main users of coal.
Coal prices have dropped by half in the last three years as a result. Now, out of 90 mines near Shenmu, practically the only ones still operating are nine that are state-owned and do not need to show a profit.
The popping of the real estate bubble has been the most serious blow to the local economy. Real estate prices had soared in cities across China. In Shenmu, 1,200-square-foot apartments that sold for less than $20,000 a decade ago reached $330,000 by last winter
The army ousted Mursi in a July 3 coup aimed at pre-empting developing mass working class protests against Mursi’s reactionary policies and moving back to the type of military-backed dictatorship that existed before the 2011 uprising against Hosni Mubarak. As casualties from Wednesday’s bloodbath mount into the thousands and fighting spreads, the coup is placing Egypt on a path towards civil war and mass upheavals....
The central danger feared by the MB, the junta and its imperialist backers is that rising violence and protests might trigger a movement in the working class, directed against the reactionary policies which both the MB and the junta support. All the factions of the Egyptian capitalist class and their allies in the US and Europe are determined to impose unpopular austerity measures, including cuts to vital fuel and food subsidies, to attack the workers and crush the revolution....
“Those who ignore the coup and don’t even display the honorable behavior of calling a ‘coup’ a ‘coup’ share in the guilt of the massacre of those children,” Erdogan said. “At this stage, what right do you have to speak of democracy, of universal values, of human rights and freedoms?”
Inside Egypt, however, the liberal bourgeoisie and in sections of the affluent middle class closest to it are overwhelmingly supporting the coup and the massacre.

As if oblivious to the fact that supporting the junta’s persecution of the MB strengthens the MB in the longer term—by allowing it to posture as the sole opponent of the junta’s policies—they are backing the junta’s moves to fully restore a military dictatorship in Egypt. This is because, after the emergence of mass strikes and protests earlier this year, they do not see the MB as their main enemy. Rather, they are terrified of the emergence of revolutionary struggles in the working class, directed against the entire ruling elite.

9---Obama's lies: When is a coup not a coup? wsws

Masses of workers and youth must come to recognize the moral sermons of Obama for what they are: propaganda in the pursuit of imperialism’s geostrategic interests.

Washington apparently failed to fully foresee the implications of allowing the military and its supporters in the liberal bourgeoisie to settle accounts with the MB. It now fears that with the latest massacre, the army has overreached itself, irretrievably destabilizing Egypt and undermining US Middle East policy.
This accounts for Obama’s mealy-mouthed response, attempting to distance his administration from the massacre while indicating that it will continue supporting the army. He said that his administration “strongly condemns the steps that have been taken.” The centerpiece of his chastisement of the junta, however, was to postpone “our biannual joint military exercise, which was scheduled for next month.”
This was simply window dressing for continuing US support for the junta, as it attempts to consolidate a dictatorship and drown the Egyptian revolution in blood. The White House still declines to recognize the July 3 toppling of Mursi as a coup, so it can continue its decades-long policy of funding the Egyptian army to the tune of billions of dollars per year

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