Sunday, October 27, 2013

Today's Links


 
1---John Mauldin: Code Red, zero hedge
 
The arsonists are now running the fire brigade. Central bankers contributed to the economic crisis the world now faces. They kept interest rates too low for too long. They fixated on controlling inflation, even as they stood by and watched investment banks party in an orgy of credit. Central bankers were completely incompetent and failed to see the Great Financial Crisis coming. They couldn't spot housing bubbles, and even when the crisis had started and banks were failing, they insisted that the banks they supervised were well regulated and healthy. They failed at their job and should have been fired. Yet governments now need central banks to erode the mountain of debt by printing money and creating inflation.

Investors should ask themselves: if central bankers couldn't manage conventional monetary policy well in the good times, what makes us think that they will be able to manage unconventional monetary policies in the bad times?

And if they don't do a perfect job of winding down condition Code Red, what will be the consequences?

Economists know that there are no free lunches. Creating tons of new money and credit out of thin air is not without cost. Massively increasing the size of a central bank's balance sheet is risky and stores up extremely difficult problems for the future. Central bank policies may succeed in creating growth, or they may fail. It is too soon to call the outcome, but what is clear (at least to us) is that the experiment is unlikely to end well.

The endgame for the current crisis is not difficult to foresee; in fact, it's already underway. Central banks think they can swell the size of their balance sheet, print money to finance government deficits, and keep rates at zero with no consequences. Bernanke and other bankers think they have the foresight to reverse their unconventional policies at the right time...

The coming upheaval will affect everyone. No one will be spared the consequences – from savers who are planning for retirement to professional traders looking for opportunities to profit in financial markets. Inflation will eat away at savings; government bonds will be destroyed as a supposedly safe asset class; and assets that benefit from inflation and money printing will do well.

2---Hedge fund slumlords are "in over their heads", zero hedge

Former employees of the companies, who spoke on condition of anonymity because they worry about jeopardizing their careers, said their former colleagues can’t keep up with the volume of complaints. The rush to buy up as many homes as possible has stretched resources to the point of breaking, these people said. ...

A former inspector for American Homes 4 Rent who worked in the Dallas office said he routinely examined homes just prior to rental that were not habitable. Though it wasn’t his job to answer complaints, he said he fielded “hundreds of calls” from irate tenants.

 - From the Huffington Post’s excellent article: Here’s What Happens When Wall Street Builds A Rental Empire
 

3--China turns towards neoliberalism, Bloomberg

Premier Li Keqiang has pledged to cut the state’s role in the economy, change the financial and fiscal systems, and overhaul land and household registration rules to sustain growth in the world’s second-biggest economy. Analysts surveyed by Bloomberg News this month said policies flowing from the meeting, called the third plenum, will reduce the odds of a severe slowdown and help China become a high-income economy by 2030.

The meeting “will focus on studying comprehensive and deep reform,” Yu was quoted as saying in Xinhua’s report. “The depth and strength of the reforms will be unprecedented and will promote profound changes in every area of the economy and society.” The report didn’t specify any policies or measures...

The government has already made progress in areas including cutting regulation, “but that’s low hanging fruit,” Kuijs said. “Some recent statements, such as on the fiscal front, seem to indicate it’s going to be pretty tame.”

4---The most evil corporation in the world, naked capitalism

In Haiti, the protests are larger and the stakes are higher. After the catastrophic Port au Prince earthquake in 2010, 10,000 Haitian farmers marched to reject a $4 million donation of seeds from Monsanto, arguing that the company was trying to hook peasants on seeds they couldn’t share or replant. In a dramatic show of defiance in the face of widespread hunger, the farmers publicly burned the seeds.
They argued that people have the right to food and the right to choose where their food comes from and what’s in it. This call to “democratize the food system” got no hearing at the World Food Prize.

5----Depression postponed, not avoided, Pritchard, Telegraph

The world economy is still becalmed. World trade volume fell 0.8pc in August. The next cycle of growth has not yet reached "escape velocity".
We continue to be in a contained global depression, punctuated by bursts of weak growth that peter out. It is not a disaster. It is not healthy either....

They say the latest flash drop in global PMIs is a "warning sign". The next month will be crucial.
If you have a job and own equities and property you may feel great. Money printing and QE à l'outrance have fuelled a delicious asset boom. You may not even be aware of the problem. (A lot of people were able to close their eyes in the 1930s. Indeed, it was great time for some.)
But I have a jaundiced view bordering on contempt for stock markets and the uber-rich – and if that is your interest and perspective, don't read me.

I follow the real economy. What I see is a pervasive malaise. Real output is still below its 2007-2008 peak in large parts of the world. Long-term unemployment is endemic in the OECD bloc. The system is firing on two cylinders.
The reason for this is the rising global savings rate, now a record 25pc. This drains demand, but creates excess capital that drives up the price of wealth assets. The GINI coefficient measuring inequality is near extreme highs in most of the world. Karl Marx has never been so relevant.
Now why is the savings rate so high, and it is self-correcting over time? Here we get to the nub of the matter. For a Marxist column later.

6---21 Nations Line Up Behind U.N. Effort to Restrain NSA , Foreign Policy

7---Obama: The greatest government job killer in the modern economic age!, prag cap

Yesterday’s employment report showed another decline in government employment. But there’s a pretty amazing statistic developing during the Presidency of Barack Obama. In the post war era a US President has NEVER averaged a contraction in government employees throughout his entire term. But that’s exactly what Barack Obama is doing. At -0.7% per month, he is on pace to average a contraction in the total government workforce for his Presidency. He is the greatest government job killer in the modern economic age!

8---2 charts that make me uneasy about stocks, prag cap

The first is Warren Buffett’s favorite valuation metric – total market cap to GNP.  The latest reading of 110% has only been surpassed by the Nasdaq bubble.
mc


The other chart that makes me feel uneasy is the amount of borrowing that’s being done to purchase equities as evidenced by NYSE margin debt at all-time highs:
md

9--Stock market: Road block ahead: Stock market's continuing climb worries some Wall Street experts, LA Times

The growth in share prices has been accompanied by rising complacency among investors. That's historically been a warning sign of trouble ahead...

The market sailed to its third straight weekly gain with the Standard & Poor's 500 index notching a fresh high and the Dow Jones industrial average nearing a new peak.
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Stocks have been fueled by the belief that the Federal Reserve will maintain its economic stimulus program into next year. The shutdown appears to have boosted the market by increasing the likelihood that the Fed will extend its easy-money policies.


"Everyone is reading from same script — that you can't lose buying the dips because the Fed is by your side. And it's clearly working," said Patrick J. O'Hare, chief market analyst at briefing.com....

Despite a still-choppy economy, investors think that moderate growth and low inflation will convince the Fed to delay a so-called tapering of its monthly $85 billion in bond purchases, aimed at stimulating the economy.
But the higher that share prices go, the bigger the risk of a sharp decline when the central bank eventually pulls back.

"The Fed for the last five years has been driving stock prices higher," said Robbert van Batenburg, director of market strategy at Newedge in New York. "If and when they stop, the party is over. The extent to which the party stops — that remains to be seen."

10---Glen Greenwald: “I came to believe if you’re smart, skilled, and have the resources, you should use those things to fuck with the powerful.”, info clearinghouse

“Can I tell you what I would do with $6 million?” he says with a faraway, almost bashful tone to his voice. “I have this fantasy of buying farmland in Brazil with David and just taking care of as many dogs as we can. Is that totally crazy?”.....

Exile, self-imposed or otherwise, is a state of being that Greenwald seems most comfortable with, anyway. He prides himself on being an iconoclastic outsider and maintains an open disdain for beltway journalists and media pundits whom he regards as “sleazeballs” and “courtiers of power.” Media is the church of the “savvy” insiders who only care about who won what, Greenwald says, paraphrasing NYU media critic Jay Rosen. “They hate idealism or anyone who believes in something, because that just seems really naïve or loser-ish to them. It makes you a hopeless ideologue or a fringe-y weirdo. The currency they respect is power and success in Washington, and for them that is something to admire instead of be suspicious about or object to.” Greenwald delivers this little outlander manifesto with an effusive, cheeky verve. There’s no trace of solemnity or pathological political correctness, just a plucky fuck-you attitude that for anyone who has a natural distrust of authority serves as an easy entrée to quick camaraderie. Us vs. them.

Edward Snowden broke his general radio silence to tell me via email why he picked Greenwald to bust open his story rather than, say, a more mainstream reporter for the Washington Post or the New York Times.

 “The bottom line is that sources risking serious harm to return public information to public hands must have absolute confidence that the journalists they go to will report on that information rather than bury it,” Snowden says, clearly referring to the Times’ year-long equivocation over publishing reports of the Bush administration’s warrantless wiretapping — a major turning point in both Snowden’s and Greenwald’s political development. “Glenn’s writing consistently demonstrated his belief that journalists should serve people rather than governments, and that gives sources the confidence to shoulder great risks to do good.”



 
The initial crisis is long gone, but the unconventional measures have stayed with us. Once the crisis was over, it was clear that the world was saddled with high debt and low growth. In order to fight the monsters of deflation and depression, central bankers have gone wild. Central bankers kept on creating money. Quantitative easing was a shocking development when it was first trotted out, but these days the markets just shrug. Now, the markets are worried about losing their regular injections of monetary drugs. What will withdrawal be like?
 
The amount of money central banks have created is simply staggering. Under quantitative easing, central banks have been buying every government bond in sight and have expanded their balance sheets by over nine trillion dollars. Yes, that’s $9,000,000,000,000 – twelve zeros to be exact.
 
 
The Reagan-Thatcher revolution changed society's beliefs about taxes. If we want economic growth shared fairly, we must rethink...
 
For example, doubling the average US individual income tax rate on the top 1% income earners from the current 22.5% level to 45% would increase tax revenue by 2.7% of GDP per year – as much as letting all of the Bush tax cuts expire (only a small fraction of them lapsed in January 2013). But of course, this simple calculation is static: such a large increase in taxes may well affect the economic behaviour of the rich and the income they report pre-tax, the broader economy and, ultimately, the tax revenue generated. In recent research, we analyse this issue both conceptually and empirically using international evidence on top incomes and top tax rates since the 1970s.

There is a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares, for the period from 1975-79 to 2004-08, across 18 OECD countries for which top income share information is available. For example, the United States experienced a 35 percentage-point reduction in its top income tax rate and a very large ten percentage-point increase in its top 1% pre-tax income share. By contrast, France or Germany saw very little change in their top tax rates and their top 1% income shares during the same period.

13---Self-censored UK media’ frightened to show true outrage with global spying, RT

14---German government talks: A grand coalition of social cuts and imperialist foreign policy, wsws

Just before the opening of the European Union (EU) conference in Brussels on Thursday, German Chancellor Angela Merkel proposed that the EU Commission be given more influence over the budgets of individual member states. Merkel’s office has already dictated massive social cuts through the EU’s institutions to a number of states. In Greece, Spain, Portugal, Italy and other countries these policies have had devastating consequences. Now this social counterrevolution is to be intensified....

This takes place amid the worsening of the global economic crisis and of its impact on Europe. During the election campaign, reports on the euro crisis were almost entirely blacked out and the situation portrayed positively. It is obvious, however, that none of the problems which led to the deepest recession since the 1930s has been resolved. On the contrary, the austerity measures dictated by Berlin and Brussels have worsened the debt crisis.

In the name of bailing out the banks and making reforms, a massive redistribution of wealth from working people to the ruling elite has taken place. The financial aristocracy has enriched itself at the expense of the working class and state budgets. While the number of millionaires rises and the stock markets post record profits, mass poverty, unemployment and state indebtedness have soared.

The future government will not simply be a repetition of the grand coalition of 2005-2009, when Merkel governed in a coalition with the SPD. Since then, the economic and political crisis has deepened significantly. The super-rich who control the banks, corporations and financial funds will seek to dictate policy throughout Europe even more ruthlessly.

15---The Snowden revelations have sparked concern in the ruling class of Europe, which fears rising popular disquiet and anger over these revelations, wsws

The Snowden revelations have shown that Europe has also built up the basis for a police state based on the total surveillance of public and private communications. This development throws into question the legitimacy of the actions of the bourgeois state for millions of people. Political leaders, therefore, seek to concentrate attention exclusively on the tapping of government leaders.

All of these leaders, however, are united in their determination to subject their respective populations to surveillance amid rising popular opposition to social cuts, layoffs and war. Already on Thursday evening, discussions took place at the summit to continue the assault on social rights and spending across the continent.
In advance of the summit, Merkel called for an extension of the European fiscal pact, which imposes balanced budgets on all EU members, to other areas of policy. In particular, structural reform of labor markets, spending on state institutions and taxation systems are to fall under EU control, Merkel declared.

The purpose of such a delegation is not to expose the criminal activities of US intelligence agencies, but to assist in a cover-up. For months, all EU leaders have worked to suppress the revelations by Edward Snowden of the systematic monitoring of the entire world population.
The British, German and French intelligence work closely with US intelligence in their own surveillance activities.
The summit also decided against any sanctions against the US. It rejected demands raised earlier this week by the European parliament to suspend the Swift agreement on the transfer of bank data to the US, and also turned down calls to postpone negotiations currently taking place between the US and the EU over a free trade agreement. The summit even refused to discuss a revision of the EU Data Protection Regulation, which has been negotiated for over a year.

16---The Lust Beneath Japan's Sex Drought,  Bloomberg

Economic stagnation and changes in labor laws have restrained wage growth and enabled companies to swap employees into low-paying part-time jobs with few benefits. This means the exclusion of more and more Japanese from the lifetime employment system that's long been the cornerstone of Japan Inc., forcing many to work additional jobs. If you leave for work at 6 a.m. and get home close to midnight, including weekends, where is there time for dating?

Young Japanese, especially men, don't feel financially secure enough to enter into long-term relationships, never mind getting married or starting families. At the same time, little has been done to blunt the institutionalized sexism that exacerbates Japan's low birthrate. Hardships women face in balancing careers and family encourages many to delay marriage and motherhood. If Japanese felt better about the future, they wouldn't be so reluctant to start building their own.....

The root of Japan's supposed sex drought isn't culture, but economics. This distinction is important because it feeds into Prime Minister Shinzo Abe's efforts to end Japan's 20-year bout with deflation.
I, too, have been swayed at times by such data sets. As far back as December 2001, I explored waning sex drives in Japan, citing findings that Japanese are the world's least prolific lovers. Such conclusions are quite paradoxical. How else to explain a country whose cities are teeming with red-light districts; a porn industry that's burgeoning; hard-core manga -- a type of comic book -- that's read openly on the subways; and love hotels that can't turn over rooms fast enough.

But I've come to doubt sensationalist surveys suggesting young Japanese don't have sex. The real issue is that many avoid traditional, committed relationships out of doubts about the future that based on economics rather than culture. If low libido were strictly societal, why do the Czech Republic, Poland, Singapore, South Korea, Spain and Taiwan have fertility rates as low as Japan's? I don't see the global media characterizing those countries as sexless freak shows spiraling toward extinction.

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