Wednesday, August 28, 2013

Today's links

1---Deluded Optimism in Corporate Earnings Growth (Now Shriveling) , Testosterone Pit

For the S&P 500 overall, earnings forecasts for 2013 were nearly chopped in half, from 12.0% in October to 6.5% now. And darker clouds are moving in: as of last week, Thomson Reuters estimates that earnings for Q2 for all sectors except financials will be $200.5, down 0.35% year over year. Declining earnings!
How long can this dichotomy between reality and “pervasive optimism,” as the insider said, go on? Well, it has been going on unperturbed for a while. Despite estimates getting cut with a cleaver, our fabulous S&P 500 has jumped 18.4% since October 1 to its all-time high of 1,710 on August 2 – though it has now given up 4.7%....

Optimism reigns, come heck or high water, despite crummy sales and ongoing pressure on earnings. However, they did slice earnings growth in the telecom sector from a breath-taking 20.3% to 10.7%. Is reality starting to sink in? But look at tech: earnings in 2014 are suddenly going to grow 11.8%, after stagnating in 2013 – based on what, exactly? I don’t know either

2---Financial Times: "World Is Doomed To An Endless Cycle Of Bubble, Financial Crisis And Currency Collapse", zero hedge

3---Rupee in freefall, sober look

And now two risks of serious collateral damage from this devaluation are becoming increasingly real:  (1) a sovereign ratings downgrade and (2) the equity market collapse due to foreign investors' full blown panic.
JPMorgan: - The stagflationary impact of such depreciation is well-known. But, more worryingly, markets have now begun to question whether the currency has entered a zone that could prompt more serious events. Two clear event risks are now appearing on the horizon. First, more currency weakness and its damaging consequences on the fiscal deficit have re-ignited concerns about a sovereign rating downgrade. Second, the risk of a sharp equity outflow has increased. Foreign equity investment is four times that of debt in India, and sustained corporate stress and slowing growth is testing equity investors’ patience. 
At this stage, rising prices, sharply higher interest rates (see post), and a loss of confidence within the business community will bring the economic growth to a standstill, potentially pushing the country into a full blown stagflation.

4---US-Syria saber-rattling is already damaging the economy , sober look

Worst of all is the tremendous uncertainty associated with rising tensions in the Middle East. An environment such as this is not conducive to investing in growth and hiring. While the situation in Syria is tragic, the US economy simply can not afford a massive blow that would result from this conflict.

5---The 43% DTI cap strongly favors those with no consumer debt, oc housing

6---Why Syria? wsws

The imperialist powers increasingly see war as a means to distract attention from the exposure of their criminal operations directed against the people

A central feature of the global explosion of US militarism is Washington’s drive to secure a dominant position not only in the Middle East, but on the entire Eurasian land mass. In recent years, the writings of the late 19th and early 20th century imperialist strategist Sir Halford Mackinder have once again become essential texts for the policymakers in the State Department, Pentagon and CIA. In numerous books and countless articles published in academic journals, what Mackinder called the “world-island”—stretching from the eastern borders of Germany to the western border of China—is deemed to be of decisive strategic importance to the United States and its West European allies.

As one recent study asserts, “The Eurasian landmass ought to be the focal point of the West’s strategic exertions… If the nascent process of Western decline is to be arrested and reversed, a better understanding of the geopolitical relevance of Eurasia, and the struggle therein, and a concerted effort there, is crucial.” [The World Island: Eurasian Geopolitics and the Fate of the West, by Alexandros Petersen] As with all imperialist strategies for world domination, this entails a struggle against powers that are seen as obstacles to its realization. The drive to dominate Eurasia leads inevitably to escalating conflict with Russia and China.

The series of aggressive wars conducted by the United States since the 1990s—in the Balkans, the Middle East and Central Asia—is part of an agenda that envisions the unchallengeable global dominance of the United States. The fact that world domination cannot be achieved without wars that will cost hundreds of millions of lives, and, very possibly, the destruction of the planet, will not deter Washington from plunging ahead.

This strategy of imperialist conquest may be insane, but so was that of Adolf Hitler—whose geopolitical objectives appear almost provincial in scope, when compared to the ambitions of US imperialism. As Trotsky, foreseeing the evolution of American imperialism, wrote nearly 80 years ago: “For Germany, it was a question of ‘organizing Europe.’ The United States must ‘organize’ the world.”

All the imperialist countries confront an ever-worsening social crisis produced by rising social inequality and class tensions. In the United States—where the wealthiest 10 percent of the population owns nearly three quarters of the wealth, and the top 1 percent monopolizes half of that—cities are being forced into bankruptcy amid a relentless assault on wages and living standards.

In Europe, the European Union is disintegrating amid rising tensions between the European powers and an assault on jobs and living standards symbolized by the social devastation of Greece. The more bitter and intractable the conflicts between the major European powers, the more they turn to external aggression as the only policy upon which they can all agree.
The imperialist powers increasingly see war as a means to distract attention from the exposure of their criminal operations directed against the people

7---Turmoil in emerging economies a symptom of global crisis, wsws

This summer’s crisis of the so-called “emerging market” economies reached a new stage last week, as India, Brazil, Turkey and Indonesia all announced emergency measures in an attempt to stem a plunge in their currencies and stock and bond markets.

India, whose rupee has fallen 15 percent versus the US dollar since the start of the year, announced restrictions on the amount of money individuals and companies can send abroad. Turkey raised its interest rates in hopes of curtailing capital flight that has driven down the lira by 10 percent. Indonesia announced steps to increase the availability of dollars in its markets, increase taxes on luxury items and reduce oil imports. Its rupiah has dropped 8 percent this year...

This third round of so-called “quantitative easing,” along with short-term interest rates that have been kept at near zero since late 2008, depressed long-term interest rates in the US and made virtually free cash available to banks and speculators. In addition to driving up US share values and bond prices and boosting corporate profits, this windfall for the financial elite fostered a flood of speculative capital into the so-called emerging economies.

For five years, beginning shortly after the Wall Street crash of September 2008, the banks and hedge funds flooded cheap dollars into economies such as India, Brazil, Turkey and Indonesia, where higher interest rates and faster economic growth guaranteed huge returns on their investments.
Now, along with the prospect of a reduction and ultimate halt in the money-printing operation of the Fed—which had been duplicated by central banks in Britain, Europe and Japan—has come higher interest rates in the US and a reversal in the flow of capital. Almost overnight, the hot money that had boosted the emerging economies has stopped pouring in, and these countries have been hit with a massive flight of capital back to the US and other so-called developed countries.

Some figures provide an indication of the scale of the financial shockwaves hitting these economies. According to Société Génerale, the emerging markets’ bond and stock funds registered net outflows of $20 billion and $26.5 billion respectively over the three months ending August 21.
Investors removed a record $37 billion from emerging market stock and bond funds in June. In the week ending August 21, $1.76 billion was pulled out of emerging market equity funds—more than double the amount that was removed the previous week.
Funds have flowed out of emerging market bonds for 13 straight weeks. In the week ending August 21, another $1.3 billion was removed, up almost $500 million from the previous week....

In many of these countries, banks and corporations took advantage of the relatively high exchange rate of their currencies, under conditions where the Fed’s policies were cheapening the dollar, to take on dollar denominated debt. Now they are finding it difficult to meet their debt payments because it costs much more to purchase dollars with their national currencies.
The crisis is particularly sharp for countries that built up large current account deficits and used the hot money pouring in to cover their debts. Now they face the possibility of insolvency. India is one such country. It has a huge current account deficit and a large government debt. There is already talk of India applying for a bailout loan from the International Monetary Fund.

Other countries in this predicament include Brazil, Turkey, South Africa and Indonesia. The last of these recently reported a sharp growth in its current account deficit in the second quarter of this year.
Underlying the financial problems of emerging market countries is the absence of any genuine recovery in the real economies of the United States, Europe or Japan and, instead, a further deterioration in the global economy. The massive infusion of cheap money by the central banks of the US, Europe and Japan into the financial markets is itself an attempt to pump life into a near-dormant world economy.

But while it subsidizes corporate profits and the fortunes of the rich and the super-rich, it does virtually nothing to address mass unemployment, declining living standards and growing poverty. On the contrary, the ruling classes and governments of the US, Europe and Japan all combine vast handouts to the banks with austerity for the masses of working people. Their talk of promoting growth and job-creation is always linked to so-called “structural reforms”—a euphemism for the destruction of all forms of economic security for workers, wage-cutting, the casualization of labor, privatization and the gutting of business regulations.

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