Overnight Japan posted its latest, September, trade numbers which were absolutely abysmal, as the trade deficit rose to a fresh record high of 932 billion yen ($9.5 billion), the 15th consecutive monthly shortfall. The deficit for April-September rose to nearly 5 trillion yen ($51 billion), also a record for the first half of the fiscal year. The reason: as we warned in January when we predicted that the surging import costs of energy and food as a result of the plunging yen will far outweigh any incremental benefits for exports, is that, well, surging cost of energy and food far outweighed any incremental benefits for exports courtesy of the ongoing Yen devaluation. But at least Japan's 0.1%, like the 0.1% in the US and Europe, have their wealth effect. The rest can just go on a diet. And walk getting there since they can't afford gas.
2---3Q earnings; Fact and fiction, Testosterone Pit
Earnings estimates for S&P 500 companies for the third quarter have been crashing for a year. On October 1, 2012, our brilliant analysts on Wall Street estimated that earnings would leap 15.9% year over year in Q3 this year. As of Friday, these same brilliant analysts have chopped their forecasts down for the same brilliant quarter to a measly growth of 2.1%, according to Thompson Reuters IBES.
They’re now forecasting that earnings would grow at the rate of inflation, nothing more. The next step down would be negative earnings growth – shrinking earnings. Our brilliant analysts have lowered the bar all the way down to the floor...
Meanwhile, the S&P 500 stock index has soared nearly 20% this year and has hit a new high on Friday. On what basis? If reality still had any kind of influence, stocks would have fallen along with earnings estimates. But not when the Fed is printing money in a drunken frenzy. What will cause the music to stop? The end of the Fed’s drunken frenzy.
3---Treasuries Losing Cachet; Weakest Foreign Demand Since 2001, Bloomberg
The $11.6 trillion U.S. government bond market is losing some of its luster. ....
Foreign investors alone hold $5.59 trillion in Treasuries, more than three times the size of China’s government bond market. They accounted for just 8.4 percent of Japan’s $9.88 trillion of sovereign bonds, the only market that approaches the U.S. in size.
The dollar has also been the most-popular reserve currency of foreign governments since the end of World War II, and now makes up 62 percent of central bank holdings globally. China and Japan, which together have $4.87 trillion in foreign-currency reserves, keep 50 percent of their assets in Treasuries.
‘Hard Truth’“The hard truth for China is that there’s no alternative for U.S. Treasuries,” Li Jie, head of the foreign-exchange reserve research office at the Central University of Finance and Economics in Beijing, said last week before the debt limit was lifted. “Whatever happens, undertaking a massive selloff of U.S. bonds is not an option.”
Official holders of U.S. government debt such as central banks and finance ministries, which own $4 trillion of Treasuries, have pared their investments by $95 billion in the four months ended July, while non-official holders including mutual funds and private investors cut their stakes by about $39 billion, the data show...
While lawmakers reached an agreement last week to avert the country’s first default in its 237-year history, overseas investors who own almost half the Treasuries outstanding have reduced holdings for four straight months, the longest stretch since 2001. Their growing reluctance to finance the world’s biggest debtor nation may lift borrowing costs further and harm an economy that has yet to fully recover from the deepest recession since the 1930s. Each percentage point increase in Treasuries would boost annual U.S. funding costs by $20 billion, based on the amount of debt issued in the year ended Sept. 30.
“Default or no default, the damage is already done,” Steve Major, the London-based global head of rates strategy at HSBC Holdings Plc, Europe’s largest bank, said in a telephone interview. “Politicians are kicking the can down the road when the world needs a longer-term solution. This sort of political brinkmanship undermines confidence.”
Lingering DoubtsMajor, whose firm is also one of the 21 primary dealers of U.S. government securities that are obligated to bid at Treasury auctions, says that while the Federal Reserve will keep suppressing borrowing costs to buffer the economy, lingering doubts wrought by the political discord will likely cause bondholders to demand more to own the longest-dated Treasuries relative to shorter-term debt over the next year. ...
More TrepidationOverseas investors have sold a net $132 billion of Treasuries in the four months ended July, the longest streak in 12 years, and are poised to add to their holdings at the slowest pace since at least 2001, the most recent data show.
Their proportion of Treasuries dropped below 50 percent in April before falling to a six-year low of 48.7 percent in July, from a peak of 55.7 percent in April 2008.
While Treasuries rebounded after the accord, the debt-ceiling debate has dissuaded foreign investors from putting money in U.S. debt, according to Laurence D. Fink, chief executive officer at BlackRock Inc. (BLK), which oversees $4.1 trillion in assets as the world’s biggest money manager.
“Many of our foreign investors have had conversations with me and many at BlackRock about how should they think about investing in U.S. debt over the next two years,” Fink said in an interview on Bloomberg Television last week.
4---Japan breaks record with 15-month string of trade deficits, japan times
Japan posted a record 15th consecutive monthly trade deficit in September, as data Monday showed the country’s energy bill soaring, but exports to China rebounded after a territorial row last year hurt demand for Japanese goods.
While the yen’s sharp decline is generally seen as a plus for Japan’s export picture, the overall volume of shipments turned down last month as an uncertain U.S. economic recovery held back growth.
Sky-high energy bills from imports of pricey fossil fuels — made more expensive by the weak currency — also weighed on the nation’s trade balance..
“Japan will continue to rely on energy imports, and any boost to exports from the weaker yen won’t be enough to turn around the trade deficit,” said RBS Securities chief economist Junko Nishioka.
The Finance Ministry said the nation recorded a deficit of ¥932.1 billion, 64.1 percent higher than the ¥568.2 billion deficit a year earlier. It also marked the 15th straight month of deficit, the longest spell since comparable data started in 1979.
5---Academic Studies Show QE Doesn’t Work, Washington's blog
The Fed’s relentless buying of massive amounts of securities has produced no positive economic developments, but has had significant negative, unintended consequences...... a rise in stock prices generated by excess reserves may sap, rather than supply, funds needed for economic growth....
The money multiplier is 3.1. In 2008, prior to the Fed’s massive expansion of the monetary base, the money multiplier stood at 9.3, meaning that $1 of base supported $9.30 of M2.
If reserves created by LSAP were spreading throughout the economy in the traditional manner, the money multiplier should be more stable. However, if those reserves were essentially funding speculative activity, the money would remain with the large banks and the money multiplier would fall. This is the current condition.
The September 2013 level of 3.1 is the lowest in the entire 100-year history of the Federal Reserve. Until the last five years, the money multiplier never dropped below the old historical low of 4.5 reached in late 1940. Thus, LSAP may have produced the unintended consequence of actually reducing economic growth. [Indeed, 81.5% of money created through quantitative easing is sitting there gathering dust, due to a conscious decision by the Fed to tie up the money and prevent it from being loaned out to Main Street.]
Stock market investors benefited, but this did not carry through to the broader economy. The net result is that LSAP worsened the gap between high- and low-income households. [Indeed, it's been known for some time that quantitative easing quantitative easing increases inequality (and see this and this.)]
The papers I am talking about were presented at the Jackson Hole Monetary Conference in August 2013. The first is by Robert E. Hall, one of the world’s leading econometricians and a member of the prestigious NBER Cycle Dating Committee. He wrote, “The combination of low investment and low consumption resulted in an extraordinary decline in output demand, which called for a markedly negative real interest rate, one unattainable because the zero lower bound on the nominal interest rate coupled with low inflation put a lower bound on the real rate at only a slightly negative level.”
Dr. Hall also wrote the following about the large increase in reserves to finance quantitative easing: “An expansion of reserves contracts the economy.” In other words, not only have the Fed not improved matters, they have actually made economic conditions worse with their experiments
6---Comstock: Show me the data, prag cap
Most market strategists seem to assume that other than the turmoil in Washington, the underlying economy is getting stronger. We’d like to see their data. Real consumer spending on an annualized basis increased by a tepid 1.5% in the 1st quarter, 1.2% in the 2nd, and 1.3% in July and August. That’s barely above recessionary levels. In addition housing is slowing down, business remains reluctant to hire and spend, and government spending is declining. Furthermore, if the budget committee comes up with an agreement, it will almost certainly involve additional cuts in spending and, perhaps, higher taxes. If there’s no agreement, the sequester is scheduled to increase automatically in January.
7---Afghan Special Forces Commander Defects to Militants, antiwar
Commander Took Truckload of Arms, Equipment With Him
8--JPM: Getting away with it again, wsws
JPMorgan and its CEO, Jamie Dimon, have pressed for such a blanket deal to allow the bank to pay a fine and obtain in return the equivalent of a general amnesty for illegal actions that have led to the impoverishment of countless millions of people. The systematic marketing of worthless securities enabled the bank to pocket tens of billions of dollars and further enrich top executives such as Dimon.
When the Ponzi scheme collapsed, the government used trillions of dollars in taxpayer money to bail out the banks and financial firms. Since 2009, it—along with governments all over the world—has been engaged in a savage offensive to recoup the debts taken on by the state by destroying social programs and the living standards of the working class.
The $9 billion fine, the largest penalty ever imposed on a US corporation, is less than half the $21 billion profit JPMorgan recorded in 2012. The bank is pulling in enormous profits despite having set aside $28 billion since 2010 to cover legal costs.
It is necessary to place the size of the fine in the context of the economic damage resulting from the bank's practices. Reportedly, $4 billion will go to settle a suit by the Federal Housing Finance Agency (FHFA) charging JPMorgan with knowingly making false statements and omitting material facts in selling $33 billion in worthless mortgage bonds to the government-sponsored mortgage finance companies Fannie Mae and Freddie Mac at the height of the subprime mortgage bubble (2005-2007). That is about 2 percent of the $188 billion in taxpayer money the government has spent thus far to prop up the firms.
In setting the fine, the Obama administration calculated that the bank could absorb the loss with minimal damage. At the same time, the size of the penalty indicates that the Justice Department has abundant evidence of illegality—on a massive scale....
He told the committee that the big banks are so large and powerful that “if we do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”
What does this astonishing admission signify? First, that the financial elite is above the law. It, like the aristocracies of old, is immune from the laws that apply to the lower orders
The London Whale and subprime mortgage probes are only two among a host of investigations into the bank’s operations, concerning such offenses as credit card fraud, illegal debt collection practices, rigging of energy markets, complicity in the Bernard Madoff Ponzi scheme, illegal home foreclosures, bribing Chinese officials, and involvement in the Libor rate-rigging scandal.
JPMorgan is the rule, not the exception. Every major US bank is the subject of multiple investigations and lawsuits. In 2011, the Senate Permanent Subcommittee on Investigations issued a 630-page report on the financial crash detailing illegal activities by Washington Mutual, Deutsche Bank and Goldman Sachs that contributed to the global crisis. The report also documented the collusion of the credit rating firms and government regulatory agencies.
The committee chairman, Senator Carl Levin, said at the time that the investigation had found “a financial snake pit rife with greed, conflicts of interest and wrongdoing.”
The Obama administration, both political parties, Congress and the courts have worked assiduously to cover up the snake pit and shield the snakes from prosecution. The role of the government in running interference for the banks and protecting the financial aristocracy is illuminated by one little-noted detail of the negotiations between Dimon and Holder.
While the press has reported that Dimon was joined by his bank’s chief counsel, Stephen Cutler, in the Friday night conference call where the agreement was reached, the media has failed to note that Cutler headed the enforcement division of the Securities and Exchange Commission between 2001 and 2005
9---Families With Kids Go Homeless as U.S. Rents Exceed Pay: Economy, Bloomberg
For households with children, rising housing costs, elevated unemployment and stagnant earnings are increasingly placing rent beyond reach. The housing slump made matters worse as former homeowners turned into renters, increasing competition for available apartments.
Nationally, the average hourly wage among renters is $14.32 this year compared with the $18.79 needed to afford an apartment at a fair-market rent, as defined by the U.S. Department of Housing and Urban Development, without spending more than 30 percent of income on housing, a National Low Income Housing Coalition report found in March. The $4.47 gap this year is wider than the $4.10 differential in 2012.
Median household income has fallen every year for the past five after adjusting for inflation, with Americans earning no more than they did in 1996, according to data from the Census Bureau. The share of people making less than $15,000 climbed to 13 percent of the population in 2012, from 10.9 percent in 2000, and the share making less than $35,000 expanded to 35.4 percent from 31.4 percent. ...
The number of children without a home increased by an estimated 2 percent, according to NAEH, a Washington-based non-profit focused on policy and research on the needs of homeless people.
The share of Americans experiencing “deep poverty,” living at less than 50 percent of the $23,492 poverty line for a family of four, climbed to 6.6 percent in 2012 from 4.5 percent in 2000, based on Census Bureau data released last month.
That may increase the pipeline of Americans heading toward homelessness. There was a 9.4 percent increase in the number of poor people “doubled up,” or living with friends or family due to economic need, between 2010 and 2011, based on the NAEH 2013 report. Crowley said 2011 is the latest year for which usable data on doubling up is available.
10--Japan: No recovery for most, japan times
The proportion of voters who do not feel there has been an economic recovery since Prime Minister Shinzo Abe took office last December now stands at 76.4 percent, up from 68.6 percent in April, a Jiji Press survey showed Friday.
In the latest survey, only 18.5 percent of respondents said they have a sense of economic recovery, down from 23.7 percent, reflecting weaker consumer sentiment.
The survey showed that Abe’s economic policies, known as “Abenomics,” have made little impact on people’s daily lives, despite improvements in a host of economic indicators
11---The trouble with rehypothecation, global markets
the process known as rehypothecation—off balance-sheet leverage derived from the re-use of existing client collateral.Totally legit (in the United States, brokerages are allowed to pledge up to 140% of client’s liabilities), rehypothecation nevertheless has its share of pitfalls, including the need for borrowers to post additional margin on a moment’s notice in order to mollify dubious creditors and regulators ...
proponents believe that rehypothecation can still be an attractive proposition for brokers who are keen on optimising borrowing opportunities, as well as lenders seeking a reduction in transactional costs. To avoid the mistakes of the past and maintain the integrity of the re-pledged collateral, rehypothecation requires the presence of transparent, fully automated monitoring systems and operational practices, including the use of segregated accounts -
12---Banks face profit squeeze, WSJ