Sunday, August 18, 2013

Today's Links

1---Millennials: Too broke to buy a car, WSJ

Last year, buyers 55 and older accounted for more than 40% of all new car sales, up from 33% in 2008 while buyers between the ages of 18 and 34 represented only 12% of new-car purchases. And that is down from 14% five years ago, according to Edmunds.com.

In recent years, auto makers have developed a bevy of pint-size models like the Chevy Sonic, Fiat F.MI +0.16% 500, Ford Fiesta and Kia Soul, and promoted them using social-media, music festival sponsorships, and in some cases, daredevil stunts. To hype the new Chevy Sonic, General Motors Co. GM -0.49% filmed the subcompact parachuting out of a plane for an online campaign aimed squarely at 18-to-30-year-olds.
But the largest customers for these cars, about 42% of buyers this year through May, are closer to retirement age, according to registration data compiled by car-shopping website Edmunds.com. The proportion is up from just 29% five years ago.
Meantime, the percentage of 18- to 34-year-olds buying new subcompact cars fell to 12% through May, down from 17% in 2008, according to registration data

2---The Destruction Of America's Middle Class , zero hedge

  • 76% of Americans live paycheck to paycheck
  • --27% of American have no savings at all
    --46% of Americans have less than $800 in savings
    --The conversion of America into a part-time working society and the country's second largest employer - a temp agency.
    --The college trap and the student loan bubble
    --And of course, foodstamps, foodstamps, foodstamps and the nearly 50 million poverty-level Americans who need them to survive

    3---The U.S. Has The Worst Income Inequality In The Developed World, Thanks To Wall Street: Study, mark gongloff

    A new paper by economists Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez lays out just how much better at making inequality the U.S. is than everybody else and tries to explain how it got that way.
    Since the 1970s, the top 1 percent of earners in the U.S. has roughly doubled its share of the total American income pie to nearly 20 percent from about 10 percent, according to the paper. This gain is easily the biggest among other developed countries, the researchers note....

    This echoes an OECD study from earlier this year that found the U.S. had the highest income inequality in the developed world. It followed only Chile, Mexico and Turkey among all nations.....

    One thing you'll notice in this chart is that, typically, the bigger the tax cuts given to the 1 percent (the horizontal scale on the chart), the bigger the income inequality. This is consistent with other studies that have shown the tax code has a big effect on income distribution. That's one way Washington has boosted inequality: By slashing taxes on the rich, for freedom and growth and trickling down on the poor. Unfortunately, the paper points out, contrary to what you will hear from conservatives, lower tax rates on the wealthy offer no obvious benefits to growth, or to the poor...

    One nifty benefit to having nine metric craptons of money is that you can use it to buy politicians to help you craft the laws you like, particularly those that will help you end up with 10 metric craptons of money. The poor and middle class, meanwhile, just get ever more discouraged about the political system and stop bothering to fight it, increasingly turning the whole process over to the wealthy and the politicians they own, according to a recent paper by Frederick Solt at Southern Illinois University. Sound familiar?

    4---China, Japan lead record outflow from Treasuries in June, (This can't be good) Reuters

    U.S. net long-term outflow highest since August 2007
    * China, Japan sell net $40 bln Treasuries in June

    Aug 16 (Reuters) - China and Japan led an exodus from U.S. Treasuries in June after the first signals the U.S. central bank was preparing to wind back its stimulus, with data showing they accounted for almost all of a record $40.8 billion of net foreign selling of Treasuries.
    The sales were part of $66.9 billion of net sales by foreigners of long-term U.S. securities in June, a fifth straight month of outflows and the largest since August 2007, U.S. Treasury Department data showed on Thursday.
    China, the largest foreign creditor, reduced its Treasury holdings to $1.2758 trillion, and Japan trimmed its holdings for a third straight month to $1.0834 trillion. Combined, they accounted for about $40 billion in net Treasury outflows....

    Holding too much U.S. debt is not wise at a time when Treasury yields rise and prices fall. On the other hand, the adjustment has been marginal considering China's massive holdings of U.S. debt, and China cannot dump U.S. debt, which could spook markets and upset the U.S. government," he said.....

    .S. 10-year yields jumped to a two-year high of 2.823 percent on Thursday after encouraging jobless claims data. The yields had hit a high of 2.6670 percent in June after trading in a range of 1.6140 to 2.2350 percent in May. In April, benchmark yields were trading below 2.0 percent.
    "The sell-off in Treasuries and Bernanke's tapering remarks are related," said Michael Woolfolk, global market strategist at BNY Mellon in New York. "Lightning doesn't strike in the same place twice, but Bernanke repeated his comments in June and that roiled the market....

    June was the fifth straight month that foreign investors sold long-term U.S. securities, but the specific selling of long-term government bonds was the big turnaround as foreigners had bought $11.3 billion of Treasuries in May.
    And more recent data from the Federal Reserve showed foreign central banks' holdings of U.S. securities fell $2.7 billion to $3.3 trillion in the week ended Aug. 14.
    Including short-dated assets such as bills, overseas investors sold a net $19 billion in assets in June, compared with inflows of $56.6 billion the previous month.
    U.S. stocks were also out of favour. Foreigners pulled $26.841 billion out of equities in June after selling $8.62 billion in May. Foreigners also sold $5.2 billion in U.S. agency debt, after selling $10.3 billion in May.

    5---Treasury yields hit 2-year high, Reuters

    U.S. bond yields rose to two-year highs on Friday as investors worried the Federal Reserve will start scaling back stimulus next month, while world share indexes registered their biggest weekly fall in almost two months.
    The rise in yields on U.S. Treasuries drove the dollar up against major currencies, though it did briefly weaken after data showed U.S. consumer sentiment declined in August while housing starts and permits rose less than expected in July.

    U.S. stocks ended lower, with the Dow posting its biggest weekly decline of the year as rising interest rates hurt high-dividend names and as earnings from retailers disappointed. European shares ended higher after hitting two-year highs earlier this week.
    Treasuries have been roiled, along with German, British and other government bonds, as the United States and euro zone economies appear to have finally found a more solid footing, increasing expectations that yields will continue their recent rise....

    The bond market has undergone a sharp sell-off since the Fed started talking about paring back its bond purchases. The benchmark 10-year yield has risen from about 1.6 percent at the start of May.
    A Reuters poll released on Wednesday showed a majority of economists expect the Fed to reduce bond purchases at its September 17-18 policy meeting, with a consensus expecting that the U.S. central bank would reduce purchases by $15 billion initially from the current $85 billion monthly pace.
    On Wall Street, stocks have come under pressure as corporate revenue growth has disappointed even as companies' earnings have hit estimates. From Wal-Mart (WMT.N) and Gap (GPS.N) to Macy's (M.N) and McDonald's (MCD.N), chains that cater to middle- and lower-income Americans are feeling the pinch of an uneven economic recovery.

    6---At Least 173 Killed Across Egypt, Three Day Toll Over 800, antiwar
     Muslim Brotherhood Says True Toll Around 4,500 Dead

    7---Bond Funds Outflows Shouldn't Panic Investors , WSJ
    Bond Investors May Be Better Off Waiting for Falling Rates Despite Exodus

    Many investors are fleeing bond funds. Those who have stuck around this long might be better off staying put.
    Investors yanked more money out of bond funds in June than they put in, removing $68 billion—the first monthly net outflow in nearly two years, according to investment researcher Morningstar MORN +0.44% . They took out another $8 billion in July.

    Sharply rising yields have pushed down prices, which move in the opposite direction, spurring the exodus amid signs of an improving economy and speculation the Federal Reserve will soon shrink its bond-buying stimulus program. Nervous municipal-bond investors still are weighing the fallout from Detroit's July bankruptcy filing.

    The yield on 10-year Treasurys climbed from below 1.7% in early May to above 2.8% Friday. Investors who got out before rates spiked and prices dropped likely dodged some losses.
    But not everyone is bailing. Before giving up, bond investors should consider that rates could well go back down. Furthermore, bonds offer protection to long-term investors by diversifying a portfolio.
    "Don't necessarily panic," says John Lonski, chief financial-markets economist at Moody's Analytics. "Wait and see whether the U.S. economy is strong enough to shoulder Treasury yields at current levels." ...

    The 10-year rate could climb above 3% if the Fed signals its intent to taper bond purchases soon, Mr. Lonski says. But the job and housing markets could be too weak to support higher borrowing costs, which could pull rates down again, he adds.
    "There's a possibility that we've seen Treasury rates rise too far, too fast," he says. "They could retreat to, say, 2.25% to 2.5%

    8---More sequester, LA Times

    The economy grew in the second quarter at a pitiful annual rate of 1.7%. The average workweek for all private nonfarm employees decreased last month from the month before, as did their average hourly earnings. Job growth has been middling at best.
    What has been Washington's remedy for an economy that plainly needs another shot of fiscal stimulus? The automated austerity regime known as the sequester, a package of budget cuts cynically designed to fall heaviest on our most vulnerable communities — the penniless, the disabled, the homeless and the very young. ...

     the cuts will shave as much as 1.2% off gross domestic product — after inflation — through this year and next, according to the Congressional Budget Office. They'll cost as many as 1.6 million jobs over that time frame, the CBO says. That's not counting the damage that has occurred since March 1.

    9---Fear of Summers, Reuters

     The biggest risk to the bond market and our tactical bullish trades in our model portfolio is the combination of tapering fears and the election of a more hawkish Chairperson. In such a scenario we wouldn’t be surprised that investors just sit on the sidelines and see how high rates can go if a hawkish Fed nominee is announced, with an overshoot meaningfully above 3% possible. At such extreme levels, we believe that stocks would be under even more pressure as bonds become competitive again and asset allocation adjustments eventually reverse the flows back into bonds

    10--Foreign investors exit Treasuries, Bus Insider

    11---US retail sales drop points to worsening economic conditions for workers, wsws

    We believe that much of our weakness is due to the health of the consumer,” said Karen Hoguet, the retailer’s chief financial officer, in a conference call with analysts. Macy’s CEO Terry Lundgren added that the low sales figures expressed “consumers’ continuing uncertainty about spending on discretionary items in the current economic environment.”

    Commentators echoed the retailers’ claims that poor economic conditions for working people contributed to the reduced sales at low-end retailers. “This has been a tough recovery for folks who are their prime customer base,” Jared Bernstein, of Center on Budget and Policy Priorities, told the New York Times.

    “If you look at statistics on whose paychecks are going up, you’ll see that it’s clearly an uneven recovery. In that sense, lower-end retailers are going to have a tougher time,” he added.
    Retail executives said that a 2 percent increase in Social Security taxes at the beginning of the year contributed to sagging sales at stores such as Walmart and Kohl’s. Since Walmart customers are primarily low-income, the tax increase affects them disproportionately, while rising home values, a key component of official proclamations of economic “recovery,” affect them less than other sections of the population.

    “Even though the percent is the same, losing money means more to you when you’re in the $25,000 range than when you’re in the $150,000 range,” Bernstein said. “For families who are scraping by, the loss is simply more painful.”
    Social inequality also finds expression in the sales figures. Although the growth of sales at mid-to-high-end retailer Nordstrom did not meet analysts’ expectations, it still did far better than Walmart or Kohl’s, growing 4.4 percent from a year ago, according to figures announced this week.

    “There is a certain segment of the population that is faring well in this economy and have seen their net worth rise sharply with stock and housing market gains,” Ken Perkins, president of Retail Metrics, told the New York Times. He added, “Then there is the much larger segment of Americans that are working in low-wage jobs, part-time jobs, that are struggling to make ends meet and are living paycheck to paycheck. They are not spending beyond necessities.”

    The Labor Department said Wednesday that real average weekly earnings fell by 0.5 percent over the course of the past month, as a result of falling hourly earnings and a reduction in the average work week.
    Of the lackluster total of 162,000 jobs added in July, two thirds were part-time, and most were in low-wage sectors, according to the latest US jobs report, published earlier this month by the Labor Department.

    Over the past six months, the growth of part-time jobs has been even more dramatic, with 97 percent of new jobs created being part-time, according to Keith Hall, a senior researcher at George Mason University’s Mercatus Center.
    Citing the Bureau of Labor Statistics’ Household Survey, Hall said that over the past six months, 963,000 more people reported that they were employed while 936,000 of them reported they were in part-time jobs.

    12---Revolt in Egypt: "It's beyond our control now.", WSWS

    The junta is trying to justify the massacre of defenseless protesters, rallying support in the liberal bourgeoisie and sections of the middle class with false claims that the victims were armed terrorists. State TV put a banner in English titled “Egypt Fighting Terrorism” on its coverage of yesterday’s crackdowns.
    The MB has called on its supporters to mount nationwide protests against the junta every day for the next week.

    Popular anger is escalating in Egypt and internationally over the repeated mass killings of protesters by the Egyptian junta and the complicity of Washington. Protests in Egypt are mobilizing forces beyond the right-wing MB’s support base, including layers of urban youth who have clashed with police and army forces since the early days of the Egyptian revolution in 2011 and oppose the army’s re-imposition of emergency rule.
    The MB is increasingly worried about whether it can control the protests, fearing that as broader social layers move into opposition, they could develop into a revolutionary challenge by the working class to the entire regime—as in the early days of 2011....

    MB spokesman Gehad El-Haddad gave voice to these fears in comments Thursday: “It’s beyond control now. There was always that worry. With every massacre, that increases. The real danger comes when groups of people, angry by the loss of loved ones, start mobilizing on the ground.”...

    A mass revolutionary struggle of the working class against the coup and repression in Egypt would be directed not only against the junta and governments supporting it internationally, but also against the junta’s liberal and pseudo-left supporters in the bourgeoisie and the affluent middle classes.
    In Egypt, these forces—such as the National Salvation Front of Mohamed ElBaradei and the pseudo-left Revolutionary Socialists—backed the Tamarod alliance, which sought to channel mass working-class protests against Mursi behind the July 3 coup. (See also: Egypt’s Revolutionary Socialists seek to cover up support for military coup )

    The mass murder in Egypt is also creating a political crisis in the US political establishment. There is rising concern that US President Barack Obama’s continued support for the Egyptian junta is discrediting Washington in the eyes of the world population. In brief remarks Thursday, Obama announced the cancellation of joint US-Egyptian military exercises, but did not cancel the $1.3 billion in yearly US aid to the Egyptian army.
    Republican Senators John McCain and Lindsey Graham called on Obama to suspend this funding yesterday. They said that the army was “taking Egypt down a dark path, one that the United States cannot and should not travel with them.”...

    Washington is increasingly concerned that, as the MB’s leadership collapses under arrests and repression and its standoff with the junta hardens, sections of the MB will go underground and organize armed resistance to the Egyptian junta. This would be all the more explosive, as the US has organized wars by Islamist forces in both Libya and Syria, threatening to unleash fighting that could engulf the entire Middle East.
    Noting widespread fears inside the US government of an “extended armed insurrection” in Egypt, the Wall Street Journal quoted an anonymous senior US official: “There is the real possibility of civil war. There is a dangerous possibility that Egypt goes the way of Syria.”
    The calculations of US geopolitical strategists point to the necessity of an intervention of the working class against the Egyptian junta and the imperialist powers, to halt the slide towards a broad regional war.

    The Journal wrote that for US officials, “The nightmare scenario would be a civil war in Egypt that creates a crescent-shaped arc of instability from Syria and Lebanon to Iraq, Egypt, and Libya… A stockpile of arms lies in neighboring Libya, a country where the security situation is spiraling downward in a similar fashion. That impedes the ability of the Libyan government to lock down the arsenal accumulated by the late Libyan leader Moammar Gaddafi. US officials worry eastern Libya could serve as a springboard for insurgents moving across the border into Egypt.”

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