Tuesday, November 19, 2013

Today's Links

1---The Failure Of Abenomics In One Chart... When Even The Japanese Press Admits "Easing Is Not Working", zero hedge

There is no demand for funds on the part of businesses. That’s why the monetary easing is not working,” Noguchi said.
Japan’s monetary base — the sum of cash in circulation plus banks’ current account balances at the BOJ — surged from 23.1 percent in April to 45.8 percent in October, thanks to the BOJ’s aggressive operations.

But its money stock — the total amount of monetary assets available in an economy including credit created by bank loans, but excluding deposits held by financial institutions and the central government — only rose to 3.3 percent from 2.3 percent in the period.

This means banks are just depositing the massive funds provided by the BOJ in their own accounts at the central bank. The unloaned cash is thus having little affect on the real economy

Workers’ real wages fell 2 percent in August compared with the same month the previous year, logging two drops in a row. Inflation without wage hikes will only erode people’s living standards.

“It is wages that matter. If prices go up without a rise in wages, the real income of the people just goes down,” Noguchi said.

Abe apparently is well aware of this risk and has repeatedly urged top business leaders in Keidanren, the nation’s largest business lobby, to push for wage hikes to generate “a virtuous cycle” of raises and economic expansion....

Probably the biggest risk with Abenomics, however, is a potential crash in JGB prices that would cause long-term interest rates to spike and gut the debt-laden government.

2---Here Is Proof (Provided By Japan Inc.) Why Abenomics Fails The Real Economy , testosterone Pit

What these beneficiaries of Abenomics are not doing, or not doing enough of, is investing in the real economy in Japan. But many of them are investing overseas! And they’re hording cash – total cash of all companies on the Topix, on a per-share basis, is up 49% from last year.

But the beneficiaries of Abenomics are now coming out of the woodwork.
The 1,280 largest publically traded Japanese companies, excluding financial firms, reported outright glorious earnings. Their combined net income doubled to ¥5.5 trillion ($55 billion), from ¥2.25 trillion last year, according to a Bloomberg report. Translating earnings from operations overseas into weaker yen beautified the results of many companies. But there was more to it.

Sharp has been implementing a multi-year restructuring plan of drastic cost cuts, selling assets, and shuttering facilities; it reported its first net income since 2011. Deeply troubled Panasonic has cut 71,000 jobs since 2011. It’s cutting, dumping, and shedding. It’s even shutting down its erstwhile crown jewel, plasma TV production. In October, it hiked its projection for this year’s net income to ¥100 billion.

Japan Tobacco, former state-owned monopoly and now Asia’s largest listed tobacco company, announced that it would shut four plants and cut 1,600 jobs in Japan to goose its bottom line. In the last quarter, net income soared 65%.

Japan’s largest manufacturer, Toyota, announced in May that it would limit its capital expenditures for fiscal 2014 to ¥910 billion, or about 60% of its 2008 budget. It would freeze construction of plants for three years to minimize capital expenditures at home and prepare for growing demand overseas – “to be strategic in our investments,” as Executive VP Nobuyori Kodaira said at the time. So, profit in the last quarter jumped 70% to ¥438 billion.

Mazda, heavily dependent on exports, had lost money for four years in a row. Then it started chopping workers, offshoring production to Mexico, and entering into joint production agreements with other automakers, including Fiat. Now it expects profits for the year to nearly triple from what it made in 2012.
Cutting costs at home, offshoring production, restructuring operations, shuttering plants, reducing the workforce, halting plant construction.... These companies are cutting back in Japan, instead of investing in Japan.

3---Private-Public Collaboration Results in 8M Future Foreclosure, DS News

Collaboration between the private and public sectors has resulted in 8 million non-foreclosure solutions completed for at-risk families since 2007, according to HOPE NOW, a voluntary alliance of mortgage servicers, investors, mortgage insurers, and nonprofit housing counselors.

Over the last six years, the mortgage industry has completed more than 6.71 million permanent loan modifications, based on HOPE NOW’s data. Of those loan modifications, more than 5.4 million were made through servicers’ proprietary programs and 1,268,635 were completed under the federal government’s Home Affordable Modification Program (HAMP). In addition, since December 2009, short sales total about 1.39 million.

4---Venezuela Arrests 100 'Bourgeois' Businessmen In Crackdown, Maduro Says , Reuters

We have more than 100 of the bourgeoisie behind bars at the moment," Maduro said in a speech to the nation.

The socialist leader, who won a vote to replace the late Hugo Chavez in April, said his government was preparing new regulations to limit businesses' profits to between 15 percent and 30 percent. Authorities say unscrupulous companies have been hiking prices of electronics and other goods more than 1,000 percent

5---OECD expects sales tax hikes to hurt economy, Japan Times
                      OECD encourages Japan to raise taxes, then criticizes Japan when it does. Go figure?

Organization of wealthy states voices misgivings about Abe recovery plan

The nation’s economy will stall for the next few years against the backdrop of the planned two-stage sales tax hike, the Organization for Economic Cooperation and Development projects in its biannual report released Tuesday.
The world’s third-biggest economy would see its gross domestic product growth slow to 1.5 percent in 2014 and 1.0 percent in 2015, adjusted for inflation, following a 1.8 percent expansion in 2013, the OECD said in its report.

The Paris-based club of 34 economically advanced nations, meanwhile, urged Japan to craft a “credible” strategy to attain its fiscal reconstruction goal, indicating Prime Minister Shinzo Abe’s government would be forced to work harder to shore up the economy and restore its debt-ridden public finances simultaneously.

“A strong cyclical upturn has occurred in Japan this year, helped by the large monetary stimulus, favorable financial conditions and improved private-sector confidence,” the OECD said, praising the effects of the “Abenomics” policy mix.

“However, fiscal consolidation, including reductions in public investment and the rise in the consumption tax rates in 2014 and 2015, will exert a substantial drag on activity in the next two years and gradually moderate the pace of the upturn,” it added.

The OECD welcomed Abe’s decision to raise the sales tax to 8 percent from the current 5 percent next April, saying it is “an important first step to achieve fiscal sustainability.”

The organization also asked Japan to lift the rate to 10 percent in October 2015 as scheduled to promote fiscal rehabilitation, as the country’s fiscal health is the worst among major developed nations.

“With gross public debt surpassing 230 percent of GDP, a detailed and credible fiscal consolidation plan to achieve the target of a primary budget surplus by fiscal 2020 is a top priority to sustain confidence in Japan’s public finances,” the OECD said.

Abe’s government has pledged to halve the ratio of the primary balance deficit to GDP by fiscal 2015 from the level in fiscal 2010 and turn the balance into a surplus by fiscal 2020. A deficit in the balance means the country cannot finance government spending other than debt-servicing costs without issuing new bonds.

To keep budget austerity from stifling the economy, the OECD has asked Japan to carry out “bold structural reforms,” saying they would help maintain confidence in the three arrows of Abenomics.

6---Dow hits new record amid deepening world slump, wsws

A redistribution of wealth from the bottom to the very top is taking place on a scale never before seen in history. But the resulting financial bubble, resting on an almost dormant real economy and growing poverty and inequality, is unsustainable. In response to the financial crash of 2008, produced by the bursting of a massive housing and credit bubble, the ruling class has engineered an even bigger bubble.
No one can say for certain when this bubble will burst, but it is certain that when it does, the economic consequences will be catastrophic. The drunken orgy of greed on Wall Street will turn overnight into a spectacle of fear and panic.
The most remarkable aspect of this bull market is that it occurs in the context of stagnant economic growth or recession in the US and Europe and signs of a slowdown in much of Asia and Latin America. Just last week, the European Union published figures showing that growth in the euro zone was essentially flat in the third quarter of this year, while consumer prices rose at the slowest level since 2009, pointing to major deflationary pressures.

More than five years after the financial crash of September 2008, the real economy in most of the world remains mired in slump and mass unemployment. There is no recovery for the vast majority of the planet’s population.

How is the unprecedented stock market boom to be explained? It is the intended outcome of a policy being pursued by the governments and central banks of the major powers to pump virtually unlimited quantities of cash into the financial markets, in order to bail out and further enrich the financial elite

7---5 years of QE and the distributional effects , sober look

As we approach the fifth anniversary of the start of the first quantitative easing program..... Financial asset valuations, particularly in the corporate sector have seen sharp increases. For example the S&P500 index total return (including dividends) has delivered 144% over the 5-year period.

For example savers, particularly retirees who had to stay in cash? They were hurt severely by record low interest rates (negative real rates - see post). And those who had neither the savings nor significant stock investments, relied on house price appreciation or growth in wages. The housing recovery has certainly been helpful (for those who kept their homes), but according to the S&P Case-Shiller Home Price Index, US housing is up less than 5% over the past five years. Not much of a "wealth effect" for those without stock portfolios. And when it comes to wage growth, the situation isn't much better. The chart below shows hourly earnings growth of private sector employees.

 8---Bubble" In Riskiest Credit Exceeds 2008 Peak, zero hedge

Via The FT,
The amount of riskier loans offering fewer protections to lenders contained in packages of debt sold to investors have hit record levels, amid resurgent lending markets and a continued thirst for higher returns.
 as “covenant-lite” loans, or loans that come with fewer protections for lenders, have this year become the norm in the US, CLO managers have been forced to relax the limits on the percentage of the loans that can go into their deals.

Already, 55 per cent of new leveraged loans come in “cov-lite” form, eclipsing the 29 per cent reached at the height of the leveraged buyout boom just before the financial crisis.


CLO managers have clearly taken notice of this trend, and structures have come with more relaxed caps on cov-lites this year.

While the majority of CLOs sold last year had a 40 per cent limit on the amount of cov-lite loans that could be bought by the vehicles, a 50 per cent cap has become the industry standard in 2013, according to data from S&P Capital IQ.

At least three deals have come to market this year with a 70 per cent limit.

9--Krugman goes off the rails, NYT

10---Who knew? counterpunch archive

Gramlich said in the Wall Street Journal:
"I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board. "He was opposed to it, so I didn’t really pursue it," says Mr. Gramlich. (Wall Street Journal)
So, Greenspan knew, too. And, according to Elizabeth MacDonald  in an article titled "Housing Red flags Ignored":
"One of the nation’s biggest mortgage industry players repeatedly warned the Federal Reserve, the Federal Deposit Insurance Corp. and other bank regulators during the housing bubble that the U.S. faced an imminent housing crash….But bank regulators not only ignored the group’s warnings, top Fed officials also went on the airwaves to say the economy was "building on a sturdy foundation" and a housing crash was "unlikely."
So, the Mortgage Insurance Companies of America [MICA] also knew. And, here’s a clip from the Washington Post by former New York governor Eliot Spitzer who accused Bush of being a ‘partner in crime’ in the subprime fiasco. Spitzer says that the OCC launched “an unprecedented assault on state legislatures, as well as on state attorneys general just to make sure the looting would continue without interruption. Here’s an except from Spitzer’s article:
"In 2003, during the height of the predatory lending crisis….the OCC promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules. (Washington Post)

11---I would say that the “free market” is basically free for the super-wealthy, and extremely un-free for the rest of us., info clearinghouse

Interview with professor Kshama Sawant...Seattle's new socialist city council member
Consciously, I became a socialist when I came to Seattle, and I just happened to attend a meeting where somebody from Socialist Alternative gave a speech. And for me, there was – that was exactly what I was looking for. And I haven’t looked back since then.

But I would say more accurately that I have always been a socialist, but less consciously. From my very childhood, it was just the experience of growing up in Mumbai, India, and seeing just the ocean of poverty and misery all around me. And for me, it was not simply a question of outrage or fellow-feeling. Of course that’s the starting point, but for me it’s a logical question as well. Which is: How is it possible that there is so much wealth in society, and you can see that there are so many wealthy people who are just wealthy beyond measure, and you have such unimaginable poverty and misery, and just absolute horrendous conditions that human beings are living in…
It just seemed very, just unacceptable to me logically that that situation was a natural one. I mean, I could see that it had nothing to do with resources or productivity. It was clearly a political obstacle to eliminating poverty. 

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