Thursday, October 31, 2013

Today's Links

  "Many of the new financial products that have been created, with financial derivatives being the most notable, contribute economic value by unbundling risks and shifting them in a highly calibrated manner. Although these instruments cannot reduce the risk inherent in real assets, they can redistribute it in a way that induces more investment in real assets and, hence, engenders higher productivity and standards of living.” – Alan Greenspan – March 6, 2000

""A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in the general price levels." Lawrence Summers

1---Obama's approval Hits New Low in Poll as Discontent Extends Beyond GOP, WSJ

Mr. Obama's job approval fell to 42%, with 51% of respondents disapproving of his performance as president. That marked a drop in his approval rating from 47% in early October and 53% at the end of 2012.
At the same time, more Americans now view Mr. Obama negatively than positively, for the first time since he emerged as a national political candidate.
In all, the poll of 800 Americans captured an extraordinarily deep and widespread public distaste for the two political parties, those parties' leaders and the state of politics in the nation's capital....

A majority of Americans said they belonged to neither party—a rarity in decades of Journal/NBC polling—while 30% said they would prefer an independent or third-party candidate for Congress, more than wanted to vote for a Republican candidate.
Optimism about the U.S. system of government, at 30%, was at the lowest ebb in 40 years...

There are at least glimmers of an improved attitude on a few fronts. A sharp surge in gloom from the first week of the shutdown appears to have abated, as 70% in the poll think the U.S. is on the wrong track, down from nearly 80% two weeks ago. Optimism about the economy ticked up, even though three-quarters of those polled think the outlook will stay the same or get worse in the next year.

2--Qui Bono? Who benefits from Bank of Japan's money?  Testosterone Pit

More beneficiaries of Bank of Japan Money Printing: After the banks, and their massively rising profits, it's the Japanese brokerage firms that shine in the bright light of Abenomics. Much of the new money that the BOJ handed to the banks to create asset bubbles and water down the yen ended up in the stock market, stimulated trading, drove up stock valuations, and is creating asset bubbles. For the first half of the fiscal year (April through September), Nomura's profits jumped 22-fold from the same period last year to the highest level in 11 years. Profits at number two, Daiwa Securities, jumped 9-fold. It's always clear when central banks print money who wins the mostest the fastest, and it's never the real economy, which keeps lumbering along with its normal ups and downs as before.

3---The Smart Money Denies They’re The Smart Money As They Franticly Sell Their Crown Jewels Before The Bubble Blows Up , Testosterone Pit

4---Congress cuts food stamps. What it means, econbrowser

The House is seeking to cut an additional $40 billion over the next ten years, while the Senate is seeking only $4.5 billion in cuts. [1] What are the macro implications? From the Wall Street Journal:
Retailers and grocers are bracing for another drain on consumer spending when a temporary boost in food-stamp benefits expires Friday.
The change will leave 48 million Americans with an estimated $16 billion less to spend over the next three years and comes just months after the expiration of a payroll tax cut knocked 2% off consumers' monthly paychecks.
Estimates of the multipliers for SNAP expenditures center around 1.5 [2]. While not a big amount overall, it's just one more bit of fiscal drag (and a particularly uncharitable one paid for by the lowest income groups). But I guess it's important to keep tax rates low for the top income quintile at all costs.

5---Barack Obama: Austerity's biggest proponent, NYT

.....few countries can match the speed with which the United States has embraced fiscal austerity. In 2013, the federal deficit shrank at its fastest pace in more than four decades, dropping to 3.9 percent of the nation’s gross domestic product, from 6.8 percent the year before, according to the Congressional Budget Office.
      
According to the International Monetary Fund, the general government deficit of the United States, which includes states and municipalities, will fall by about two-thirds as a share of G.D.P. from 2009 to 2014. Most of the decline will come from reductions in spending.
      
Not even Britain has trimmed its budget as steeply. Only Greece, Ireland and Portugal — cornered into austerity by creditors in Berlin and in Brussels demanding a cleanup from past excesses — have shrunk government spending more sharply.
Yet for all the cuts already in the bag, calls in Washington for further retrenchment remain strong. “None of us can be proud of the way we spend the money,” the Oklahoma Republican Tom Coburn said the other day from the Senate floor.
      
Such fiscal virtue comes at a cost. Considering the depth of the cuts, it is remarkable that the American economy did not fall off a cliff. In a sign that the United States is still much more resilient than most other advanced nations, its $16 trillion economy has managed to trundle along, overcoming austerity, the government shutdown and a brief flirtation with default. If I.M.F. forecasts hold, the American economy will grow by roughly 1.6 percent this year and add about 1.5 million jobs, significantly better than Europe and Japan.
      
But that hardly means no harm was done. A recent analysis by the research firm Macroeconomic Advisers estimated that cuts to discretionary government spending — roughly everything the government spends money on except for Social Security and Medicare — trimmed growth by seven-tenths of a percentage point a year since 2010, and cost some 1.2 million jobs. ...
 
By cutting teachers or raising taxes, reducing government transfers or trimming public purchases of goods and services, austerity shrinks the economy in the short term, often more than it shrinks the burden of public debt.....
 
Lawrence H. Summers, the former Treasury secretary under Bill Clinton and architect of President Obama’s initial economic program, pointed out in congressional testimony last May, the sequestration’s $64 billion in cuts this year might reduce federal debt by 0.39 percent of G.D.P. But if the G.D.P. shrinks by 0.6 percent, as estimated by the Congressional Budget Office, it will make the debt burden heavier, not lighter.
 
 
Polling data shows that 80 percent of Hondurans think they are worse off than they were four years ago, and the data backs them up.  The top 10 percent got over 100 percent of all income gains in the two years after Zelaya was overthrown, sharply reversing a strong trend toward more equality during the Zelaya years.  The number of people involuntarily working part time has increased by 176 percent.  Poverty has also increased, whereas it had been reduced significantly under Zelaya, who raised the minimum wage by nearly 100 percent in real terms during his 3.5 years in office.  Even private investment, despite the complaints of businesspeople who supported the coup, grew much faster under Zelaya than under the current regime....
 
The problem is that the Obama administration does not respect either the right to free elections or basic human rights in Honduras.  They went through a lot of trouble in 2009 to get rid of a democratically elected president, and paid a significant political cost in the hemisphere: at the time, all of South America’s governments were hoping that Obama would be different from his predecessor and took his word that Washington would not back the coup.  They were more than disappointed; the Obama administration’s support for the coup and its manipulation of the Organization of American States for this purpose led to the formation of a new hemispheric organization, the Community of Latin American and Caribbean States, which excludes the U.S. and Canada.
 
 
It feels like back to the future in bonds. A brand-new investment product will launch next week that is born of the housing and mortgage crashes but based on the same strategy that caused at least some of the crisis.
 
Blackstone, the largest investor in single-family rental homes, is introducing a new security backed by those homes. The as-yet unnamed bond will provide investors with not only an income stream from rental properties but also a potential return if they are sold. Much like a mortgage-backed security (MBS), it is a rental-backed security.

JPMorgan, Deutsche Bank and Credit Suisse will market about $500 million of the securities, said sources close to the matter. At least one of the tranches will be triple-A rated, according to sources, although ratings firms said to be involved would not comment. ...

Through its Invitation Homes, Blackstone had invested an estimated $5.5 billion in 32,000 homes, according to a KBW report in September, and has continued buying aggressively. The homes are largely in Western states, where the foreclosure crisis hit hardest.
Overall, investors have bought close to 200,000 foreclosed homes in the last few years, sinking nearly $20 billion into this new asset class. Blackstone would not comment on the bond deal, but competitors are watching closely.

"I do believe that securitization serves a great purpose if done well," said Laurie Hawkes, president and chief operating officer of Arizona-based American Residential Properties, a single-family REIT. "But I think it takes a little more development coming."

8---The meager 1.6% GDP growth in 2013 is partially self-inflicted, sober look
 
More evidence is emerging that the US economic activity has slowed recently. In addition to the manufacturing output decline (see Twitter chart) and slower home sales (chart), the latest private payrolls number from ADP now shows a decline in job creation.

Source: ADP

The US is now on track to reach only 1.6% real GDP growth for 2013 - in spite of the extraordinary amount of central bank stimulus. The sad part about this weakness is that to some extent it has been self-inflicted. Policy uncertainty, including "taper"-related fears and the recent dysfunction in Washington have continued to impede growth in the United States.

The chart below shows the Conference Board's consumer confidence index
 
9---US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages, Forbes 2011
 
The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.

They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.

All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks.

This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.

Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs

10---Rep. Frank: Revamped Mortgage Rules a ‘Grave Error”, WSJ

WASHINGTON–An architect of the 2010 Dodd-Frank law is accusing federal regulators of watering down new mortgage rules in the face of opposition from the housing industry.
Former Rep. Barney Frank (D., Mass.) slammed federal regulators for their decision to dial back a proposal to impose new rules on the mortgage-securities market–a key piece of the Dodd-Frank law that bears Mr. Frank’s name.

“This is a grave error, and contrary to the assertion that it would best carry out the statutory intent, significantly repudiates it,” Mr. Frank wrote in a comment letter being sent to regulators Tuesday.
At issue is a proposal from August by six regulators — including the Federal Reserve and Federal Deposit Insurance Corp. — to revamp proposed rules requiring issuers of mortgage securities to retain 5% of the credit risk on their books. Supporters of this requirement, including Mr. Frank, argue it will force Wall Street to be more cautious when packaging assets such as mortgages into securities.

The regulators’ original proposal from 2011 contained a narrow exemption focusing on only high-quality loans, where the borrower brings a 20% down payment and meets other stringent criteria. But a proposal released in August for the so-called “qualified residential mortgage” exemption is much broader and covers most loans being made today.

11---Work Until You Die? More Middle Class Americans Say They Can Never Retire, Forbes

An alarming 37% of middle class Americans believe they’ll work until they’re too sick or until they die.
Another 34% believes retirement will come at the ripe age of 80. Just two years ago only 25% of respondents felt the same way.
It’s a grim look at the state of retirement which seems to be getting worse for middle class Americans.
Wells Fargo WFC +0.33% interviewed 1,000 Americans between age 25 and 75 and with household income ranging between $25,000 and $99,000.
More than half (59%) said their top day-to-day financial concern is paying the monthly bills; that’s up from 52% who said the same last year.
...
And here’s something for leaders in Washington DC to consider: One third of those surveyed said their primary source of retirement income will come from social security.
That figure gets even bigger for those who make less than $50,000–48% of those earners say social security is going to be their primary retirement income.

Those between age 25 and 29 are the most apprehensive about stocks with 58% of them saying they’d rather put $5,000 in a savings account or CD than in the stock market.
“There is a striking amount of fear about the stock market among all investors.  The middle class just isn’t making the link between being invested and the potential growth of their savings, but on top of this fear is apathy – there is no interest in learning more about investing,” Nordquist says

12--Central Banks Make Swaps Permanent as Crisis Backstop, Bloomberg

Banks strengthen infrastructure for global banking cartel one world gov

13---Japan Salaries Extend Fall as Abe Urges Companies to Raise Wages, Bloomberg

Japan’s salaries extended the longest slide since 2010, even as Prime Minister Shinzo Abe urges companies to raise workers’ wages as part of his bid to reflate the world’s third-largest economy.

Regular wages excluding overtime and bonuses fell 0.3 percent in September from a year earlier, marking a 16th straight month of decline, according to labor ministry data released today. Total cash earnings rose 0.1 percent.

“The key for the success of Abenomics is whether companies will raise wages,” Norio Miyagawa, a senior economist at Mizuho Securities Research and Consulting Co. in Tokyo, said before the report.

Wages are falling behind price gains. National consumer prices excluding fresh food rose 0.7 percent last month from a year earlier, a fourth straight increase

14---How to Help Protect Yourself from Fukushima Radiation, Washingtons blog

15---NSA revelation: Use 9-11 fear to justify spy programs, Al Jazeera

The National Security Agency advised its officials to cite the 9/11 attacks as justification for its mass surveillance activities, according to a master list of NSA talking points.

The document, obtained by Al Jazeera through a Freedom of Information Act request, contains talking points and suggested statements for NSA officials (PDF) responding to the fallout from media revelations that originated with former NSA contractor Edward Snowden.
Invoking the events of 9/11 to justify the controversial NSA programs, which have caused major diplomatic fallout around the world, was the top item on the talking points that agency officials were encouraged to use.

16---Libya's decent into anarchy: Two years since the end of the US-NATO war in Libya, wsws

Two years later, there is no sign of any such Libya. The country bombarded by the US military and its European allies is in an advanced state of disintegration. It was reported Monday that oil production, which is responsible for virtually all of the country’s export earnings and over half of its gross domestic product, has fallen to 90,000 barrels per day, less than a tenth of the pre-war level.
Major installations have been seized by armed militias. In eastern Libya, these militias advocate the country’s partition into the three regional governorates—Cyrenaica, Tripolitania and Fezzan—maintained under the colonial regime of fascist Italy.

According to best estimates, there are nearly one-quarter of a million militiamen who are armed and paid by the Libyan government but operate with complete impunity under the direction of Islamist and regional warlords. The warlords constitute the principal power in the country.

The nearly eight-month-long war achieved its goal of toppling the regime of Colonel Muammar Gaddafi, whose murder by a mob of NATO-backed “rebels” prompted President Barack Obama to proclaim from the White House Rose Garden that this grisly event signaled the advent of “a new and democratic Libya.”

Two years later, there is no sign of any such Libya. The country bombarded by the US military and its European allies is in an advanced state of disintegration. It was reported Monday that oil production, which is responsible for virtually all of the country’s export earnings and over half of its gross domestic product, has fallen to 90,000 barrels per day, less than a tenth of the pre-war level.
Major installations have been seized by armed militias. In eastern Libya, these militias advocate the country’s partition into the three regional governorates—Cyrenaica, Tripolitania and Fezzan—maintained under the colonial regime of fascist Italy.

According to best estimates, there are nearly one-quarter of a million militiamen who are armed and paid by the Libyan government but operate with complete impunity under the direction of Islamist and regional warlords. The warlords constitute the principal power in the country....

Meanwhile, two years after the withdrawal of American troops, Iraq is descending into civil war, with casualties approaching the record levels reached during the US occupation. In Syria, the Obama administration found itself compelled to retreat from the direct use of US military force in the face of overwhelming popular opposition both at home and abroad, driven by the immense hostility to the previous wars waged, in the interests of the financial oligarchy, on the basis of lies.

17---US Federal Reserve continues massive subsidy for financial markets, wsws

US corporate profits, which hit a new record in the third quarter, have shot up 18.6 percent over the past year. As a result, corporate profits now make up a larger share of America’s gross domestic product than at any previous time in US history.

On the same day the central bank made clear it will continue its vast cash handouts to the banks, bipartisan talks began in Congress to slash the food stamp program beyond an automatic reduction in benefits that takes effect this Friday, and a House-Senate conference committee held its first formal meeting on a new budget that will further slash social programs....

The Fed’s announcement followed a string of lackluster reports on jobs and other economic indices. The US economy added 148,000 jobs in September, less than the number expected by economists and barely enough to keep up with population growth, according to the Labor Department’s employment report released last week. So far, the second half of 2013 has averaged 143,000 new jobs per month, compared to an average of 195,000 for the first half of the year, pointing to an economic slowdown.

18---Abenomics: Pushing on a string, economonitor

Japan has maintained a zero interest rate policy (“ZIRP”) for over 15 years and implemented several rounds of QE. The new plan will assist the Japanese government to finance its spending. It may also help devalue the Yen and boost asset prices. But given that short term rates were near zero and 10 year rates around 0.50% before the announcement of the plan, the effect of monetary initiatives on real economic activity are likely to be less significant - ...

In October 2013, Mr. Abe announced the implementation of an increase in the consumption tax from 5% to 8%, initiated by the previous government. A further rise to 10% is planned in 2015 but is contingent on economic conditions. -

19---Deutsche Bank Said to Market $479 Million of Rental Bonds, Bloomberg

20---Rental bonds could spark backlash, Reuters

Bankers are hoping that an innovative, long awaited US home-rental ABS from private equity giant Blackstone will open up a brand new single-family rental asset class with issuance of US$10bn likely over the next 18 months - providing they can win investors over.
The new sector, built on what some naysayers are calling the housing "detritus" of the financial crisis, is not expected to be met with tons of praise in the court of public opinion, some industry participants say.
"I think there's a potential for a backlash on this," said one RMBS investor...

Securitization technology can be applied to cashflows of any asset class, as long as there is a transparent and supportable basis for estimating the underwritten cashflows as the basis of paying the debt-holders," said Ron D'Vari, CEO of NewOak Capital, a financial advisory and investment banking firm.
"Single-family rental cashflows are no exception if they can be properly managed and modeled

21---zirp: The Federal Reserve’s War On Seniors, personal liberty

22--You're on your own: A Year After Sandy: Poor Still Out in Cold, The Root
Housing advocates say that New Jersey disproportionately allocated recovery funds to those less in need of help

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