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

Wednesday, October 30, 2013

Today's Links

  "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." Thomas Jefferson

(China's) days of open-ended buying of Treasuries will soon come to an end." Stephen S Roach, former chief economist Morgan Stanley, Asia

1---Dow Closes At Record High On Fed Stimulus Hopes, AP
Markets soar on QE

2--Markets enter blowoff, naked capitalism
(Not yet)

You know something is going wrong when the heads of the largest fund manager in the world and the largest bond management firm simultaneously scream  ”bubble”. From Bill Gross last night:
All risk asset prices artificially high. When won’t they be? When they don’t produce growth in real economy. Is 2% GDP enough?
And Larry Fink, CEO of Blackrock, from Bloomberg

“It’s imperative that the Fed begins to taper…We’ve seen real bubble-like markets again. We’ve had a huge increase in the equity market. We’ve seen corporate-debt spreads narrow dramatically…We have issues of an overzealous market again.”

3---Fed stalls taper to assist selloff, Testosterone Pit

hedge funds massively dumped stocks last week, so much so that all three client types combined were overall net sellers. Something is in the air, and hedge funds can smell it. The great rotation, from the smart money to retail investors

“It’s a great time to sell,” mused Anthony Breault, senior real estate investment officer at Oregon’s state pension fund....

Blackstone has more jewels in its crown that it’s getting ready to sell, including IndCor Properties, a warehouse REIT, and Invitation Homes, the platform Blackstone created that maniacally gobbled up 40,000 single-family homes – inflating home prices along the way – and then tried to rent them out. They might head for your portfolio early next year.

Blackstone isn’t the only seller. So far this year, there have been 14 real-estate IPOs, including the Empire State Realty Trust Inc., owner of the Empire State Building, and American Homes 4 Rent. But since May, REITs have hit rough water. Worst loser: since its IPO in May, Ellington Residential Mortgage REIT is down 18%.

So 2013 is shaping up to be a huge year for sellers: "Property-related IPOs, including REITs, real estate operating companies and mortgage trusts, have had their biggest year since 2004 by money raised,” Bloomberg reported, based on data it compiled...

the Fed, perhaps seeing its handiwork incomplete with this many IPOs and so much smart money up in the air, decided to abandon its taper considerations in September. It might keep printing money until the great rotation from private equity and hedge funds to retail investors and retirement funds has been accomplished. Once tucked away in these portfolios – we’ve seen how that worked in 2000 and 2007 – some stocks will decompose slowly, others will blow up rapidly, which is not to say that there might not actually be a winner in that group that will make patient investors some money years down the road. That one stock will then be held up as example of why all of this always works out if you just hang on to it long enough.

“Real bubble-like markets” is what Laurence Fink, CEO of the world’s largest asset manager BlackRock called it today. He blamed the Fed. “It’s imperative that the Fed begins to taper,” he said. He referred to the “huge increase in the equity market,” with the S&P 500 soaring 25% so far this year while the economy languishes, while job creation is lousy and consumer spending feeble, while corporate revenue growth has trouble keeping up with inflation, and while earnings growth is stagnating. But if the Fed does taper, it will create a vicious downdraft for those folks who unwittingly ended up buying from the “smart sellers” at the peak of the market.

4---JP Morgan sees 'most extreme excess' of global liquidity ever, Pritchard, Telegraph

(JP Morgan also said that Norway's sovereign wealth fund ($800bn) stopped buying equities in the third quarter, becoming net sellers....This implies more selling. .. Interpret that as you want. Sounds to me like there is now a sovereign wealth fund "call" on global equities markets. They will sell into the rallies.)

If you think there is far too much money sloshing through the global financial system and causing unstable asset booms, you are not alone.

A new report by JP Morgan says the bank's measure of excess global money supply has reached an all-time high.
"The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude," said the report, written by Nikolaos Panigirtzoglu and Matthew Lehmann from the bank's global asset allocation team.
They said the latest surge is far beyond anything seen in the last three episodes of excess liquidity: 1993-1995, 2001-2006, and during the Lehman emergency response from October 2008 to September 2010, all of which set off a blistering rise in asset prices....

The lion's share, some $2 trillion, is showing up in emerging markets where credit continued to surge at $170bn a month in July and August despite the Fed Taper scare earlier that hit the Fragile Five (Brazil, India, Indonesia, South Africa, and Turkey). Mr Panigirtzoglu said there is an internal credit boom in emerging markets that is running in parallel to QE in the West....

The wash of money has set off another asset boom, yet the world economy has failed to achieve "escape velocity", and is arguably still in a contained depression. Global trade volumes contracted by 0.8pc in August. (It would have been a lot worse without QE of course, though we can never prove it).
If we ever need more QE it should go straight into the veins of the economy by direct deficit financing of big investment projects (fiscal dominance) and damn the torpedoes, and the taboos. Just print money to build houses for the poor, and solve two problems at once. Remember, I said "if", before you Austro-liquidationists and coupon rentiers all scream abuse at once.

5---Nearly 50% Of All Home Sales Now Cash, As Institutional Investor Activity Hits New High, Forbes

Blackstone Group’s Invitation Homes is by far the largest landlord in this arena, having spent $7.5 billion on an estimated 40,000 houses over the past two years. Other companies like American Homes 4 Rent, American Residential Properties, and Silver Bay Realty Trust SBY -0.89% have snapped up thousands of homes and bundled them into public offerings as single-family rental REITs.  Still others, like Five Ten Capital, have accessed nine-figure credit facilities from Deutsche Bank DB +0.1% with the longer term plan to securitize the debt. And according to Bloomberg Bloomberg, Deutsche Bank could begin marketing $500 million worth of bonds backed by Blackstone’s massive portfolio’s rental income as soon as this week.

Distressed transactions, comprised of homes in foreclosure or bank-owned, accounted for 25% of all sales last month, up from 18% a year ago. Nationwide the median price of a distressed sale was $112,000 — 41% below the $189,000 median price of a non-distressed property.

6---Chiseling banks use loan loss provision to pad profits, OC Housing

The housing bust should have wiped out America’s lenders. Instead, we deemed these institutions Too-Big-Too-Fail, and we pumped billions of dollars into keeping them afloat. Since the emergency cash was not enough, we suspended prudent accounting rules and allowed lenders to report the value of bad loans based on financial models rather than actual market prices. As long as lenders didn’t foreclose, they didn’t need to recognize the loss on their non-performing loans.
But it’s really worse than that.

Lenders quickly realized they could turn this accounting loophole to their advantage in several ways. First, they embarked on an aggressive program of modifying loans to keep borrowers making payments. Rather than accept smaller profits, they modified the terms of these loans to interest-only. This reduced the borrowers payments while keeping lender revenues and profits the same. Second, for those delinquent borrowers that didn’t agree to a loan modification, lenders simply booked the lost income as profit anyway. How could they do this? Since the could model whatever they wanted for accounting, they assumed house prices would rebound, and they would at some point in the future get back their principal plus the accumulated interest payments they booked as profits. Although this scenario isn’t particularly realistic, it past muster with accounting regulators, so banks eagerly booked this phantom income as profit to boost their financial statements.

They are reducing their loan loss reserves and booking that as profit too.
I can’t claim we are a Banana Republic, but we appear to have a Banana Banking System.
Lenders are recording profits on non-performing loans!
They are making money by virtue of not recording losses!..

Accounting rules allow the money to flow directly into profits. In all, it made up 18% of the banks’ third-quarter pretax income excluding special items, the highest percentage in a year, according to an analysis by The Wall Street Journal

7--- Fed's hawks are looking to crack down on phantom bubbles, CEPR

The issue that the Fed should concern itself with is a bubble that actually moves the economy as the stock bubble did in the 1990s and the housing bubble did in the last decade. It wasn't necessary to have complex computer programs and super-sophisticated economic knowledge to see the impact of these bubbles on the economy. Intro econ and third grade arithmetic were pretty much adequate for the job.

In both cases the wealth generated by the bubbles led consumption to soar and savings rates to plummet. In the former case, the ability to sell shares of stock in Garbage.com for billions of dollars led to a boom in investment by nonsense Internet based companies. In the latter case we got a clearly unsustainable construction boom. Both of these booms predictably collapsed when the bubbles burst.
There is no comparable story in the economy today as should be readily apparent to anyone who reads the data. The Fed's hawks are looking to crack down on phantom bubbles and to keep millions of people out of work as the cost of their war.

From Comments: NYSE Margin Debt pushing to new extremes;

(3) Covenant-Lite corporate debt issuance (high risk to lenders) hitting new extremes while interest rates remain abnormally low;

(4) Extremely high proportion of houses being bought by investors paying "cash" (aka pre-funded borrowing) rather than resident owners;

(5) House prices pushing back up toward the bubble peak, while affordability metrics drop;

(6) corporate earnings/GDP well above sustainable levels (at the expense of high trade and government deficits, and low household savings rates;

(7) rising income and wealth inequality since the newly-minted credit is unevenly distributed.

8---On Marriner Eccles, Keynes at the Fed??, economists view

From Comments:
"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth ... to provide men with buying power. ... Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. ... The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."
Marriner Stoddard Eccles,
Beckoning Frontiers, 1951...

while Keynes held that the 1929 downturn had caused underconsumption, Eccles held that underconsumption had preceded and caused the downturn.
Nowadays, Eccles’s argument would be called “secular stagnation.” This is utterly different from the timid, conventional, and almost surely wrong Keynesian business-cycle argument about what's happening to the world economy. In the Keynesian argument, deficit spending would be sufficient for a full and sustainable recovery. In the Ecclesian argument, deficit spending might ease the pain, but a full and sustainable recovery would require….???

9--Consumer Confidence Falls Sharply, NYT

10---Blackstone Vies With Goldman in Spain Rental Housing Bet, Bloomberg

11--QE fails to produce -Inflation, Reuters

The government's consumer price index rose 0.2 percent last month, bringing its year-over-year increase to 1.2 percent, the smallest since April.

The September CPI figures did not alter investors' inflation outlook as measured by the breakeven rates on Treasury Inflation Protected Securities were little changed from their earlier levels

12---US slowdown confirmed in employment and inflation data, Forex

The US Dollar has seen a bout of volatility this morning amid two important data releases that offer a bleak picture of the US economy. The private sector tracking report of US labor market, the ADP Employment Change report, showed that jobs growth slowed further as the 4Q’13 began, underscoring fears that next week’s October NFP report will erode more than the September NFP report.

The inflation outlook for the US doesn’t look much better either. The Consumer Price Index slowed to a 2013 low, while core inflation – stripped of food and energy prices – may have peaked in the near-term with the index pulling back from the Fed’s +2% yearly target.
 
13---ADP Fail, CNBC
 
The ADP employment report for October found 130,000 jobs were created in the private sector. Analysts polled by Reuters had forecast 154,000 jobs were created this month, down on 166,000 in September.
 
 
In an overwhelming UN vote, 188 countries have called on the US to lift its 53-year trade embargo on Cuba. Havana has slammed the financial sanctions as a flagrant violation of human rights and said they are tantamount to genocide.
The recording-breaking opposition to the embargo saw Israel isolated as the only country to vote in support of the US.

15---Rebuilding the German War Machine; What could go wrong? wsws

The German bourgeoisie and leading business interests now view more aggressive German participation in future military interventions as essential. In February, it was announced that major German corporations had formed an alliance for raw materials to press the German government to secure trade routes and access to raw materials....

Besides German economic interests, the “precarious situation of the United States” also plays an important role in the NATO reform, Spiegel Online writes. In the past, the virtually unlimited US defence budget secured for the US military a leading role in NATO. However, given its economic and financial crisis and the increasing number of US wars and military interventions, Washington is calling for more support and a spreading of responsibilities among the different NATO powers.
Berlin views the United States’ decline as an opportunity to assume a more prominent role in NATO and in future wars.

16---The global NSA spying scandal, wsws

Democracy is not compatible with a policy of world domination through military violence and the unprecedented levels of social inequality that prevail within the United States. The American ruling class spies on everyone because it sees everyone as a potential enemy......

The entire policy of the American ruling class, at home and abroad, is based on a mountain of lies. It is involved in a permanent conspiracy against the democratic rights of the population. The exposure of these lies has the most far-reaching political implications.
An article appearing in the latest edition of Foreign Affairs, one of the major journals of the foreign policy establishment, suggests that the pervasiveness of leaks is undermining a central premise of Washington’s “soft power”—namely, “its ability to act hypocritically and get away with it.”

In order for the international political system to function under the domination of the US, George Washington University political science professors Henry Farrell and Martha Finnemore argue, “US officials must regularly promote and claim fealty to its core liberal principles… But as the recent leaks have shown, Washington is also unable to consistently abide by the values that it trumpets.”
The leaks from Snowden and Chelsea (Bradley) Manning are, they write, part of “an accelerating hypocrisy collapse—a dramatic narrowing of the country’s room to maneuver between its stated aspirations and its sometimes sordid pursuit of self-interests

17---Vital Signs: Private Hiring Slowed Well Before the Shutdown, WSJ

18---Scott Free (JPM and BoA) and "I'll have the chicken, but hold the arsenic", economic populist

JPMorgan Chase Fine Should Be Ten Times Larger

This article quotes experts claiming the JPMorgan Chase fine should be 10 times larger and points out how the previous fines supposedly to be doled out to homeowners benefited the bank instead:
The total damages JPMorgan, Washington Mutual, and Bear Stearns inflicted directly on purchasers of the shoddy mortgage-backed securities is estimated to be $100 billion.
Consumer advocates are concerned about how the $4 billion will be parceled out to homeowners. In other settlements related to the financial crisis, such as the $25 billion agreement with five major banks in 2012 regarding flawed foreclosure practices, much of the money that has been dispensed so far provided "relief" that benefited banks more than homeowners....

The settlement includes $4 billion to resolve claims over mortgage bonds and $1.1 billion to settle claims that JPMorgan sold faulty mortgages directly to Fannie Mae and Freddie Mac that the companies packaged into their own securities, the FHFA said today in a statement....

The Criminals Get Promoted

In our mad world of upside down where corruption and crime is rewarded as long as it is white collar and regular people get the shaft, we have yet another outrage.  The crafter of BoA mortgage fraud now has a cushy executive position at JPMorgan Chase.
The Bank of America executive at the center of the recent mortgage fraud case – for which Bank of America was found liable by a jury – is not only still working on Wall Street, she is still working in the housing market. Rebecca Mairone, the architect of the scam known as “the Hustle”, now works for JPMorgan Chase as the Managing Director of Home Lending.
 No One Should Shed a Tear
Matt Tiabbi weighs in on the Chase settlement:
And while it is true that the federal government in this latest $13 billion settlement is ostensibly reserving the right to continue to pursue criminal charges, don't hold your breath. The arc of this story suggests that the whole purpose of this agreement has been to find the highest price Chase is willing to pay to a) stay in business b) keep employees out of jail.
What's in the chicken?

Could there be anything worse for the chicken industry than this month’s outbreak of an antibiotic-resistant strain of salmonella that hospitalized 42 percent of everyone who got it—almost 300 in 18 states?

Yes. The government also announced that China has been cleared to process chickens for the US dinner plate and that all but one of arsenic compounds no one even knew they were eating have been removed from US poultry production.
 
 

Tuesday, October 29, 2013

Today's Links

1--29 Incredible Facts Which Prove That Poverty In America Is Absolutely Exploding, economic collapse

. According to a Gallup poll that was recently released, 20.0% of all Americans did not have enough money to buy food that they or their families needed at some point over the past year.  That is just under the record of 20.4% that was set back in November 2008....

According to a Feeding America hunger study, more than 37 million Americans are now being served by food pantries and soup kitchens.

. It has been reported that 4 out of every 5 adults in the United States "struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives

2--Abenomics--One year later, zero hedge
Stocks up, wages down, inflation up, trade deficit way up, taxes higher and core inflation barely zero.

One year later and due mainly to the fact the Japanese stock market has risen an astounding 70% year-over-year...Abe has managed to devalue his nation's currency by 25.5% against the USD in that time ...Job creation remains stifled, inflation is rising (but thanks to import prices) and wages languish down 0.9% as the trade balance is collapsing

...inflation has broken into positive territory after many years below zero. Unfortunately, much of this change has been due to the rise in import prices, which will be a one-off boost unless wages rise in response, which they are not yet doing. Core inflation is barely at zero....

The great unknown for Mr Abe and his successors is whether this fiscal tightening can be accomplished without tipping the economy back into recession.


3---Economic Confidence Ends Month Still Deeply Negative, Gallup
Improvement is slow after mid-month, shutdown-induced plunge
Gallup Economic Confidence Index -- 2013 Weekly Averages
4---Fukushima Is Here, Washington's blog

5---NYSE Margin Debt at Record High, Big Picture

. Do you think the fact that the broad stock market was priced at about 20% of the value of GDP in 1980–whereas it is now priced at about 120% of GDP–might be an important consideration? Might that make a difference when considering margin debt level sustainability? And I’m to tell myself ‘this is like 1980′? 

6---A complete disaster, economists view

Dean Baker reminds us that:
... The United States is still down almost 9m jobs from its trend path. We are losing close to $1tn a year in potential output, with cumulative losses to date approaching $5tn.
These numbers correspond to millions of dreams ruined. Families who struggled to save enough to buy a home lost it when house prices plunged or they lost their jobs. Many older workers lose their job with little hope of ever finding another one, even though they are ill-prepared for retirement; young people getting out of school are facing the worst job market since the Great Depression, while buried in student loan debt. ...

From Comments:  Medical costs at 25% of disposable income and 41% of public and private wages and salaries.
Boomer demographic drag effects.
Unemployed, underemployed, and indebted Millennials.
Money velocity and the multiplier plunging from unprecedented bank reserve expansion and banks hoarding cash, resulting in bubbles EVERYWHERE, including bank reserves, margin debt, leverage for carry trades via derivatives, stocks, corporate bonds, real estate, farmland, collectables, trophy properties, student loans, subprime auto loans, and food stamps.
What a disaster.

7---Storm clouds for the Fed, McClatchy

The Fed already owns more than a third of longer-term marketable Treasury debt and roughly a quarter of the mortgage-backed securities guaranteed by the federal government. If the current pace of purchases continued until the end of 2014, the Fed could own close to half of the outstanding longer-term Treasuries and about a third of federally guaranteed mortgage-backed securities. By removing such a large share of these securities from circulation, the Fed would run the risk of impairing the operation of these crucial markets and of fueling bubbles by pushing investors to hold riskier assets.

If confronted with a persistently weak economy, the Federal Reserve will have to give up on quantitative easing at some point. And its options for filling the gap are limited. The Fed's authority to buy other types of assets is severely constrained; notably, it cannot buy corporate bonds or stocks. As an alternative, the Fed could signal an intention to keep the federal funds rate near zero until 2016, 2017 or even beyond. But financial markets could well question the credibility of guidance so far into the future. Ultimately, the Fed might have to concede that it has run out of options, which would be a serious blow. 8---Number of the Week: Companies Holding Lots More Cash, WSJ 21.4%: Share of corporate cash holdings held in, well, cash.
U.S. nonfinancial companies has $1.8 trillion in cash on their books at the end of the second quarter, according to the Federal Reserve’s quarterly “flow of funds” report (now known formally as the “Financial Accounts of the United States”). But that figure includes a lot of assets that most people wouldn’t consider “cash” in their day-to-day lives, such as treasury securities, mutual fund shares and commercial paper. Use a narrower definition of cash –just checking-account deposits and literal currency — and companies had about $386 billion on hand, or a bit more than a fifth of their total liquid assets.

Until a few years ago, this was fairly unimportant distinction. For companies, “cash” was anything they could quickly convert into cash when needed. From the 1970s through the mid-2000s, the share of liquid assets held in literal cash fell as more financial options became available. In 1970, companies held about 60% of their liquid assets in cash. By 2007, the share had stabilized at around 10%.

Then the financial crisis hit, and all of a sudden a lot of “liquid assets” — money-market funds, in particular — turned out to be far less liquid than they had once seemed. With financial markets frozen, companies were forced to rely on literal cash: In a single quarter, corporate cash holdings fell by nearly three quarters, from $53 billion in the third quarter of 2008 to $14 billion at the end of the year.

Corporate executives appear to have learned their lesson. In less than a year, they had more than rebuilt their cash holdings, and they didn’t stop there. In absolute terms, cash holdings are at an all-time high, even after adjusting for inflation. As a share of liquid assets, holdings of cash and checkable deposits are back to where they were in 2000, though they ticked down in the second quarter.

The sharp rise in holdings of hard cash doesn’t appear to reflect a broader caution among executives. The $1.8 trillion in liquid assets — the line item most people are referring to when they talk about “corporate cash” — accounted for 5.4% of all assets held by nonfinancial corporations in the second quarter, down from 6% in 2009 and pretty much flat for the past two years.

That narrative is pretty different from the “cash on the sidelines” storyline that dominated a couple years ago. Back then, Fed data showed companies holding more than $2 trillion in cash and other liquid assets, accounting for more than 7% of total assets. But a massive data revision last year wiped away nearly half a trillion dollars of that hoard. Based on the new data, it looks like companies rebuilt the liquid assets they’d lost (or spent), but little more than that.
Companies, in other words, aren’t holding more liquid assets. They’re holding more of their liquid assets in cash.

9--Eight years to recycle this property, OC Housing (more mark-to-fantasy)

Have you ever wondered why we used to have rules that require lenders to resolve their bad loans? We suspended those rules when we instituted mark-to-fantasy accounting, but prior to that, lenders used to have to write down their bad loans. This usually prompted them to foreclose on the property and sell it to recover their capital so they could recycle that money into a more productive use. It’s the concept of productive use that drives the need to recycle bad loans. Failure to liberate money tied up in bad loans lead to the lost decade in Japan, and it’s responsible for the economic malaise we experienced over the last six years.

Today’s featured property has been non-performing for the better part of eight years. It was originally purchased as a flip in 2005. Zovall at the IHB profiled this property back in November of 2006. Since then it’s been in and out of foreclosure and listed on and off for the last seven years. Nobody has made any payments on this mortgage since 2006 at least. This non-performing note kept getting can-kicked. Finally, it was bought by the bank late last year, but they sat on it for another year hoping to make some of the lost interest from eight years of non-performance.
Should it really take eight years to resolve a bad loan?

10---GSE Sees New Business Slip to Lowest Volume in 18 Months , DS News

11--‘Worst in years’: St Jude storm wreaks havoc across N. Europe, at least 15 dead, RT

16--Tip of the iceberg--NSA stores data to target any citizen at any time - Greenwald, RT

17---Leaving Afghanistan: Not With a Bang, But a Whimper, antiwar

What if you lost a war but no one noticed?

18--War-weary Iraqis scared to leave homes as violence reaches levels not seen since 2008, NBC world news

Mission accomplished?

19---What a joke! Stocks hit record highs on crappy data, Bloomberg

U.S. stocks rose, with the Standard & Poor’s 500 Index extending a record, as data showing lower retail sales and consumer confidence fueled bets the Federal Reserve will maintain stimulus as it starts a policy meeting. ...

The S&P 500 rose 0.2 percent to 1,765.01 at 11 a.m. in New York. The Dow Jones Industrial Average gained 40.30 points, or 0.3 percent, to 15,609.23. Trading in S&P 500 stocks was in line with the 30-day average at this time of day.

“It still seems that the Fed has created this good news is bad news, bad news is good news scenario,” Randy Bateman, who oversees $15 billion as chief investment officer of Huntington Asset Advisors in Columbus, Ohio, said by telephone. “The anticipation is that the Fed will retain its purchasing of $85 billion in monthly Treasury and mortgage securities, which is going to continue to help the housing market. That will be taken fairly well by the market.”

The S&P 500 climbed in 12 of the past 14 sessions through yesterday, as companies beat estimates in the current earnings reporting season and signs of slower economic growth fueled bets the Fed will maintain stimulus measures. The rally has pushed the index up 24 percent this year, leaving it poised for the best annual gain in a decade.

Taper Bets

The 16-day government shutdown earlier this month took at least $24 billion out of the economy and will spur the Fed to wait until March to taper, a Bloomberg survey showed this month. The central bank’s policy makers convene today and tomorrow.

Data today showed retail sales dropped 0.1 percent last month, restrained by the biggest decrease at auto dealers since October 2012. Wholesale prices unexpectedly fell in September as food costs retreated. Inflation has been running below the Fed’s 2 percent objective in the near-term, giving policy makers room to maintain monetary stimulus.

The Conference Board’s index of consumer confidence fell to 71.2 in October from 80.2 the month prior, the New York-based private research group said today. The median forecast in a Bloomberg survey of economists called for a reading of 75.

Weak Data

Weaker-than-forecast data yesterday on factory output and sales of previously owned homes added to concern that growth slowed in the weeks before the shutdown. Home prices in 20 U.S. cities rose in August from a year ago by the most since February 2006, the S&P/Case-Shiller index indicated today.

The Fed’s stimulus has helped propel the S&P 500 up more than 160 percent from a 12-year low in 2009. While the rally lifted equity valuations to a four-year high, with the index trading at 15.9 times estimated operating earnings, that’s still below the multiples at the market’s two previous peaks, when the ratio reached 16.5 in October 2007 and 25.7 in March 2000, data compiled by Bloomberg show.

“The market has traveled away, sentiment has got to fairly elevated levels, therefore to push these markets on requires some pretty positive earnings news to come through,” Mark Harris, a London-based fund manager at City Financial, which oversees about $1.2 billion, said in an interview today.

20---Fed aware of emerging bubbles, Bloomberg

Financial-market bubbles are proving a more pressing threat than inflation to Federal Reserve officials who’ve bought trillions of dollars in bonds and kept the target for short-term interest rates near zero since 2008.

“There is a threshold out there somewhere” where markets will become too frothy or the balance sheet becomes too large and the central bank will have to react, said Michael Gapen, a former member of the Fed board’s Division of Monetary Affairs and now a senior U.S. economist at Barclays Plc in New York. “The problem since the beginning of quantitative easing three is there isn’t significant enough clarity for what is the stopping rule.” ...

Stein has argued the Fed should consider raising interest rates to fight bubbles when regulation or the central bank’s supervisory reach fall short.
“While monetary policy may not be quite the right tool for the job, it has one important advantage relative to supervision and regulation: namely that it gets in all of the cracks,” he said in a Feb. 7 speech in St. Louis.

In Denver on Sept. 26, George noted “some excess” in the leveraged-lending market, which “bears watching,” along with the price of farmland...

(financial) stability doesn’t “factor heavily into the Fed’s macro policy until it is staring into the abyss of market turbulence,” Goodman said.

21--China reconsiders long bet on Treasuries, Stephen Roach, global times

22---China Signals ‘Unprecedented’ Policy Changes on Agenda at Plenum, Bloomberg

23--Obamacare prompts insurers to drop hundreds of thousands from coverage, wsws

24--Bankruptcy proceedings in Detroit: The looting of an American city, wsws

25--Europe discovers US cannot be trusted, wsws

Nevertheless, Merkel’s attempts at conciliation cannot hide the fact that a profound rupture in international relations has taken place, with far-reaching consequences that are only gradually coming to the surface.
For decades, the German intelligence services have worked closely with their American counterparts. Governments on both sides of the Atlantic are intent on building up their police state apparatuses in order to suppress their respective populations. This is behind the hostility of both Washington and Berlin to the revelations made by Edward Snowden.

Commenting on the Der Spiegel report, columnist Jakob Augstein wrote: “The bitter truth is that digital omnipotence has turned the heads of the Americans. Is the country in its current condition even capable of maintaining an alliance?”
Augstein went on to say that the United States “regards its right to security to be absolute and all-embracing—and has thereby become somewhat self-destructive.” There was no conceivable benefit that could outweigh the damage already done by the recently exposed espionage, he concluded.

The conservative newspaper Die Welt declared that the Obama administration was enmeshed “in its most dangerous crisis,” while the Swiss Neue Zürcher Zeitung reported that German anger over US spying was intense. The “Obama-mania” that prevailed in layers of the European population before his 2008 election had disappeared.

High-ranking representatives of the German government and parliament from all parties declared their indignation in press releases and statements. At the end of last week, German Chancellor Angela Merkel scolded the US administration. “Spying on friends is unacceptable,” she declared prior to the EU summit in Brussels, adding, “We need trust between allies and partners, and such trust must now be restored.”

Despite the criticisms and demands for an explanation or apology directed at Washington, the German government is trying to limit the damage.

Read more here: http://www.mcclatchydc.com/2013/10/28/206632/storm-clouds-for-the-fed.html#storylink=cpy
 

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.
.
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.