Friday, December 27, 2013

Today's Links

1---TREASURIES-U.S. 10-year yield hits 2-year high, seen higher in 2014, Reuters

US Treasuries set for 3rd worst year in 4 decades-Barclays
    * U.S. 10-year yield breaks above 3 percent on light volume
    * Two-to-10-year yield gap grows to widest since 2011
 U.S. benchmark Treasuries
yields rose above 3 percent to their highest level in more than
two years on Friday, nearly assuring 2013 becomes one of the
bond market's worst years in decades.

    Traders further pared their bond holdings in anticipation of
a further increase in yields in 2014, when the Federal Reserve
will buy fewer bonds, after Fed policy-makers expressed some
confidence the economy can grow with less monetary stimulus.
The key challenge facing investors in coming months is
preparing for how quickly bond yields might rise, analysts say.
    "The 10-year yield has been normalizing as the data have
been coming in stronger," said Quincy Krosby, market strategist
with Prudential Financial in Newark, New Jersey, which has $1
trillion in assets under management.
    Barring a massive rally before year-end, the Treasuries
market should book one of its worst years on record.

2---Preliminary sign of a coming contraction, angry bear

Enjoy this Christmas because next year Christmas may not be as Merry…

 As real GDP nears the effective demand limit, we should see some signs of the economy turning the corner toward a contraction. So, do we see any signs? … Well, yes. This graph plots the aggregate profit rate against the savings rate of capital income. Aggregate profit rate uses the left axis. Capital income’s saving rate uses the right axis. (vertical red lines are starts of recessions.)

 I have adjusted the axes so that the lines come together and then split apart through time. The economy reaches its limit of expansion when the lines are “far” apart. A recession occurs as the lines come back together. The most recent data implies that the economy is reaching the limit of its expansion - ...

I realize many economists celebrate the strong real GDP growth of over 4% in the 3rd quarter 2013, and they forecast more strong growth for years to come… Many people get enthusiastic too. It is easy to celebrate the height of an expansion. However, everything needs to be put into the context of a larger picture. The dynamics of profit and savings for capital income are signaling the limit of the economic expansion. -

3---US credit risk appetite hits euphoria, sober look
as monetary conditions in the US begin to tighten and interest rates rise, credit spread compression has to slow or reverse. The current trend is simply not sustainable.....

4---The unintended consequences of Abenomics, sober look

The danger of Japan's current policy (Abenomics) is that the outcome could turn out to be the exact opposite of what was originally intended. With wages stagnant, these import-driven price increases are hitting the Japanese consumer quite hard. As a result, spending on domestically produced goods and services could end up falling, constraining domestic prices instead of increasing them...

 We maintain the year-long view that Abenomics would impose a relative price shock that would force wage- and credit-constrained consumers to spend more upon what they have to (food and energy) by restraining spending elsewhere in the economy in disinflationary fashion on the second- and third-round effects. That’s a very different inflation dynamic than would be the effects of a generalized increase in economy-wide prices in that it counsels future effects that will be bearish for the outlook for Japanese consumers.

5---What Happens Next, Now That The 10-year Treasury Yield Hit The Psycho-Sound Barrier Of 3%      Testosterone Pit

6---When Soaring Margin Debt, Sign of Investor Confidence, Turns Into A Nightmare On Steroids  , Testosterone Pit

In July 2007, margin debt soared to $381.4 billion, or about 2.60% of GDP. The market peaked in October before crashing in a legendary manner, with the S&P 500 plunging 57%.
In November, margin debt hit $423.7 billion, or 2.51% of GDP. Are we there yet?

7---Stock Rally Fails to Spur Big Inflows Into Mutual Funds, WSJ

Individual investors keep tiptoeing back into the U.S. stock market. And that might be a problem.
According to data provider Lipper, investors put $5.6 billion into U.S. stock mutual funds in the week ended Wednesday. The move puts total inflows for 2013 on track to exceed $60 billion, which would be the first yearly gain since 2005.
                         But the latest weekly data underscored a worry that has gnawed at some experts for months. With the stock market at an all-time high, including a 122.33-point jump by the Dow Jones Industrial Average on Thursday to its 50th record high of the year, even more money ought to be flowing into stock-oriented mutual funds, these experts say.
"The surprise is that people are only dipping their toes into a market that's up so much from its low," said Jeff Tjornehoj, Lipper's head of Americas research. "You'd think people would get excited about that."
This year's move back into stocks still is a trickle by historical standards, especially since the Dow's gain of 26% is on pace to be the biggest yearly advance since 1996. From 2006 to 2012, investors withdrew $451 billion from stock mutual funds, but this year's inflows are smaller than the $126 billion that headed out the door last year. The figures exclude exchange-traded funds.
Despite growing signs that the economy is gaining steam and the relentless climb of stocks even after the Federal Reserve said last week it will shrink its monthly bond purchases, many investors still feel tepid about the overall stock market...
Investors still are apprehensive," said Michael Loewengart, director of investment strategy at brokerage firm E*Trade Financial Corp."The magnitude of the losses during the financial crisis just stayed with people."

8---Worst. Loan Creation. Ever, zero hedge

9----Why Corporations Might Not Mind Moderate Depression, Krugman, NYT

from a profits point of view it’s not a depressed economy at all. Look at profits versus compensation of employees (that’s wages and benefits combined) since the slump began at the end of 2007; both are expressed as indexes with 2007Q4=100:
Profits took a hit during the financial crisis, but have soared since then, and are now 60 percent above pre-crisis levels; meanwhile compensation has grown hardly at all, and indeed fallen in real per capita terms.
The point is that we have a depressed economy for workers, but not at all for corporations. How much of this is due to the bargaining-power issue is obviously something we don’t know, but the disconnect between the economy at large and profits is undeniable. A depressed economy may or may not actually be good for corporations, but it evidently doesn’t hurt them much.
Now, about the political economy: I don’t think we have to believe in a cabal of CEOs trying to keep the economy depressed. All that we need is for the big money to find the state of the economy OK from its point of view, so that politicians who listen to that money lose interest in the unemployed. You can round up a who’s who of CEOs for Fix the Debt; you can’t even get started on a power-list drive to Fix the Economy.

10---The Japanese Feel The Heat From The Big Lie Of Abenomics, zero hedge

Inflation without compensation. Hapless Japanese households get to bear the brunt of Abenomics. Inflation is whittling away at their real incomes. As they feel their belts being tightened, they adjust their spending. So average household spending in November was up 0.3% in nominal terms from a year ago. But adjusted for inflation, it dropped 1.6%.

Hidden in this awful number are even more awful numbers. The consumption-tax hike from 5% to 8%, effective April 1, 2014, is motivating households to do what they did last time the consumption tax was raised: frontloading of big-ticket items to save 3%. Household purchases of durable goods jumped 25.2% in November from prior year. It made retail sales look good (up 4% year over year). But households cut spending in other areas, including services by 3.7% and education by 14.2%.

The hangover will hit in 2014 – when durable goods purchases will plunge. Every adult in Japan knows how that works. Been there, done that. The government knows it too. Hence its ¥5.5 trillion “supplementary budget” that will be handed out to various constituents, particularly Japan Inc., to compensate for the loss of household purchases. But these households won’t see any of that stimulus money. Instead, they’ll see the consumption tax hike which will add 3% to nearly everything they pay for.

This is where they will feel the heat from the lie of Abenomics.

11---Fatal error in ‘wedding party’ drone strike prompts UN condemnation, RT

12---Survey of Consumers, U of Michigan, Thomson Reuters

Is the American Dream Dead?

Consumer Behavior Adapts to Fundamental Changes in Expectations
Richard Curtin, University of Michigan

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