Friday, January 31, 2014

Today's links

1---Real Disposable Income Plummets Most In 40 Years, zero hedge

2--- UMich Confidence Drops Most In 3 Months, zero hedge

As a gentle reminder, as we have noted previouslyUMich Confide - this move in confidence is key...

But, it's all about confidence... investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable... And simply put, the current levels of Consumer Sentiment need to almost double for the US equity market tp approach historical multiple valuation levels...
3---Stocks on Speed: Margin Debt Spikes, So Does Risk Of Crash , Testosterone Pit

Margin debt has a nasty, very unpalatable, and very consistent habit of peaking right around the time the stock market begins to crash:

In September 1987, margin debt peaked at $44 billion on the New York Stock Exchange, or 0.88% of GDP. In August, the stock market topped. On October 19, it crashed. Brokers made margin calls, and their clients had to sell into the crash. Forget limit orders. Sell orders were executed “at market.” It turned into a plunge on margin-call steroids. It ended in tears.

In March 2000, margin debt hit a record of $278.5 billion, or 2.66% of GDP. It was the month the dotcom bubble blew up. After 28 months of waves of forced selling, interrupted by vicious sucker rallies, the S&P ended down 45%, the Nasdaq nearly 80%!  

In July 2007, margin debt soared to $381.4 billion, or 2.60% of GDP. The market peaked in October then crashed in a breathtaking manner, spurred on by tsunamis of forced selling, including by the meanwhile ubiquitous hedge funds, that took the S&P 500 down 57%.

In December 2013, margin debt jumped $21.2 billion to $444.9 billion, the NYSE reported. A spike? In the five months from August through December it soared $62 billion, more than in the prior four years combined ($45 billion). It reached 2.65% of GDP, the highest since March 2000.

4---  "The Year of Leverage", Alhambra Investment Partners

For the year, total margin debt usage jumped by an almost incomprehensible $123 billion, while cash balances declined by $19 billion.  That $142 billion leveraged bet on stocks far surpasses any twelve month period in history. The only times that were even close to as leveraged were the year leading up to June 2007 (-$89 billion) and the twelve months preceding February and March 2000 (-$77 billion). Both of those marked significant tops in the market.".....

In the third quarter of 2013, share repurchases totaled $128.2 billion, the highest level since Q4 2007. For the twelve months ended in September 2013, aggregate share repurchases were an astounding $445.3 billion; the only twelve-month period greater than that total was the calendar year of 2007 and its $589 billion.
ABOOK Jan 2014 Margin Debt Stock Repurchases
The common argument advanced in favor of such share repurchases is that companies are using cash to recognize undervalued stocks, but that is total hogwash. If that were the case, share repurchase activity would have been overwhelming in 2009, not 2007. In Q2 2009, total share repurchases totaled just $24.2 billion. Further, it is most clear that financial “investment” far outweighs considerations for actual investment in corporate operations, a productive gap that is a leading cause of economic malaise...

So we see that corporate managers are no different than the reviled stereotypical retail investor. Both leverage themselves further and further as the market goes higher, not in recognizing undervalued stocks or companies but in full froth of chasing obscene values via rationalizations."

5---Bubble Trouble: Record Junk Bond Issuance, A Barrage Of IPOs, “Out Of Whack” Valuations, And Grim Earnings Growth , Testosterone Pit

The cost of a high-yield bond on an absolute coupon basis is as low as it’s ever been,” explained Baratta, king of Blackstone’s $53 billion in private equity assets. Even the riskiest companies are selling the riskiest bonds at low yields. The September frenzy hit the upper end too and set a new record: companies sold $145.7 billion in investment-grade bonds in the US. And Baratta complained that valuations “relative to the growth prospects are out of whack right now.”

6---NYSE Margin Debt Hits an All-Time HighDoug Short,  January 29, 2014
Click to View
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The latest data puts margin debt as at an all-time high, not only in nominal terms but also in real (inflation-adjusted) dollars....
NYSE Investor Credit

Lance Roberts, General Partner & CEO of Streettalk Advisors, analyzes margin debt in the larger context that includes free cash accounts and credit balances in margin accounts. Essentially, he calculates the Credit Balance as the sum of Free Credit Cash Accounts and Credit Balances in Margin Accounts minus Margin Debt. The chart below illustrates the mathematics of Credit Balance with an overlay of the S&P 500. Note that the chart below is based on nominal data, not adjusted for inflation
Click to View
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7---Yellen Faces Test Bernanke Failed: Ease Bubbles, Bloomberg

Janet Yellen probably will confront a test during her tenure as Federal Reserve chairman that both of her predecessors flunked: defusing asset bubbles without doing damage to the economy.

The central bank’s easy money policies already have led to pockets of frothiness in corporate debt and emerging markets. The danger is that unwinding such speculative excesses will end up shaking the financial system and hurting growth.

Yellen is “going to be trying to do something that no one has ever done,” said Stephen Cecchetti, former economic adviser for the Bank for International Settlements, the Basel, Switzerland-based central bank for monetary authorities. She needs “to ensure that accommodative monetary policy doesn’t create significant financial stability risks,” he said in an interview.

8--Plagued By Indigestion, Fed Issues Asset-Bubble Warning (archive) Testosterone Pit

Now even the Fed is worried. In the minutes of the December policy meeting, hidden in the middle of an interminable paragraph on page 8 of 25 pages of wooden and convoluted prose, the Fed issued a doozie of a warning.

In its own abstruse manner, it admitted that its asset purchases had inflated asset prices to such levels that they’d become “financial vulnerabilities” that were starting to threaten “financial stability and the boarder economy.” They carefully inserted language to the effect that such risks were “moderate” – to avoid an instant panic.
And they went on (emphasis added):
In their discussion of potential risks, several participants commented on the rise in forward price-to-earnings ratios for some smallcap stocks, the increased level of equity repurchases, or the rise in margin credit. One pointed to the increase in issuance of leveraged loans this year and the apparent decline in the average quality of such loans.
9---10-year Treasury yield drops most since 2011, marketwatch

Treasury prices extended a rally Friday, closing out the month with the biggest drop in benchmark yields since August of 2011, as investors flocked to the safety of the U.S. government debt market after mixed economic data.
Market participants took a decidedly risk-averse tone Friday, bidding up Treasurys and pushing down stocks, though markets pared their movements mid-day. The Federal Reserve’s decision to withdraw its bond-buying stimulus — which was cut this week by another $10 billion to $65 billion in monthly purchases — has mixed with surging fears of a slowdown in emerging markets to spook investors.

The fear kind of feeds on itself,” said Thomas Roth, director of government trading at Mitsubishi UFJ Securities U.S.A. Inc. “You look at the outflows from emerging market stock and bond funds over the last couple weeks, and it’s pretty huge. People have to put money somewhere and they are buying Treasurys with it.”

10--The typical worker makes no more than Dad did in 1979, Rex Nutting
Opinion: Despite strong productivity, most Americans just standing still

11---PCE inflation rate lowest since 2009 - key to future Fed policy , sober look

12--Poll: Grim assessment of wars in Iraq, Afghanistan, USA Today

As two of the nation's longest wars finally end, most Americans have concluded that neither achieved its goals.

Those grim assessments in a USA TODAY/Pew Research Center poll underscore the erosion in support for the invasions of Iraq and Afghanistan and the loss of faith in the outcome of the wars, both launched in the aftermath of the Sept. 11, 2001, terror attacks. The public's soured attitudes may make it harder the next time a president tries to persuade Americans of the value of military action when it involves putting thousands of U.S. troops in harm's way.

In the survey:
• On Iraq, Americans by 52%-37% say the United States mostly failed to achieve its goals. That is a decidedly more negative view than in November 2011, when U.S. combat troops withdrew. Then, by 56%-33%, those surveyed said the U.S. had mostly succeeded.

• On Afghanistan, Americans by a nearly identical 52%-38% say the U.S. has mostly failed to achieve its goals. In 2011, a month after Osama bin Laden was killed, a majority predicted the war would succeed.

"What is especially interesting about these responses is that the public has continued to update its views on Iraq and Afghanistan despite the fact that these wars have received virtually no attention at all from our politicians over the past couple of years," said Christopher Gelpi, a political scientist at Ohio State University who has studied attitudes toward the conflicts. "This shows that the public is more attentive to costly wars than we might expect, even when politicians try to ignore the conflicts."

Thursday, January 30, 2014

Today's Links

1--Fed's easy money program creates crisis in emerging markets, Bloomberg

Investors are pulling money from exchange-traded funds that track emerging markets at the fastest rate on record, as China’s slowing growth and cuts to central-bank stimulus sink currencies from Turkey to Brazil.
More than $7 billion flowed from ETFs investing in developing-nation assets in January, the most since the securities were created, data compiled by Bloomberg show. ....

“A lot of speculative money has been circulating in the emerging markets and the party seems to be over, at least for now,” said Howard Ward, the chief investment officer for growth equity at Rye, New York-based Gamco Investors (GBL) Inc., which oversees about $40 billion. “There is a growing lack of confidence in the economic policies of many emerging markets at a time when ...

Emerging economies have benefited from cheap money as three rounds of Fed bond buying pushed capital into their borders in search of higher returns. ..

The Fed’s asset purchases had helped fuel a credit boom in developing nations from Turkey to Brazil. Accumulated capital inflows to developing-country’s debt markets since 2008 reached $1.1 trillion, or $470 billion more than their long-term trend, according to a study by the International Monetary Fund in October.
The inflows encouraged borrowing, pushing Turkey’s current-account deficits to more than 7 percent of its gross domestic product and making the nation more reliant on foreign capital. The lending growth also fueled inflation, with Brazil’s consumer prices staying above the central bank’s target since August 2010, eroding the competitiveness of the economy.

“It’s quite a challenging outlook,” David Simmonds, the head of currency and emerging-markets strategy at Royal Bank of Scotland Group Plc, said in a phone interview from London. “Turkey and a number of other countries during the years of global liquidity injection have over-consumed and over-imported. We are only in the early stage of the adjustment.”

2---George Mangus Warns of Broad Impact of Emerging Markets Turbulence, RT

Trouble in the hinterland

3---Economy in U.S. Grew 3.2% as Consumer Spending Picked Up , Bloomberg

The annualized gain in gross domestic product matched the median forecast in a Bloomberg survey and followed a 4.1 percent advance in the prior three months, Commerce Department figures showed today in Washington. Growth in the second half of the year was the strongest since the six months ended in March 2012. Consumer spending, which accounts for almost 70 percent of the economy, rose 3.3 percent, less than estimated. ...

Today’s GDP report reflected a bigger decline in federal government spending and a downturn in home construction. The pickup in consumer purchases was accompanied by stronger business investment in equipment and an improvement in the nation’s trade deficit.
The gain in household consumption compared with a 3.7 percent median forecast in the Bloomberg survey and followed a 2 percent advance from July through September. Purchases added 2.3 percentage points to growth.

Government spending fell at a 4.9 percent pace, subtracting 0.9 percentage point from overall growth. Spending by federal agencies decreased at a 12.6 percent rate. For all of 2013, federal government spending declined 5.1 percent, the most since 1971. ...

Stockpiles grew more in the fourth quarter than in the previous three months, contributing to economic growth. The $127.2 billion pickup from October through December was the biggest since 1998 and followed a $115.7 billion increase in the third quarter. It marked the biggest back-to-back quarterly increases on record. ...

Core Inflation

The report also showed price pressures remain contained. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.1 percent annualized pace.

4---A Five-Year Wait for a New Rate, WSJ

Lenders are touting the 5/5 jumbo adjustable-rate mortgage as a safer bet for home buyers, but critics say it's a 'crapshoot'...
(Comment: This is a loophole in new QM rule---Lenders want to pass interest-rate risk on to unsuspecting borrowers while working within the confines of the new qualified mortgage rules. Although some borrowers claim to understand the risks, if their bets prove wrong, most will petition for bailouts, and they have every reason to expect to get one.)

Wealthy home buyers are encountering a new pitch: an adjustable-rate mortgage with a twist.
Known as the jumbo 5/5 ARM, this loan has a fixed interest rate for the first five years before it resets to a new rate that the borrower ends up with for another five years. The process in most cases repeats throughout the life of the loan....

Lenders' incentives seem to be working. Zions Bank says 5/5 jumbo originations increased 70% during the first 11 months of 2013 compared with the same period a year earlier. TD Bank says demand recently picked up and expects it to accelerate this year.

Funny thing is that what the Fed sees as no tightening is evolving into a global tightening now as central banks rush to raise rates. Consequently, money surges into the global safe asset - US Treasuries. And, interestingly, I think that you can argue that this is much, much more disconcerting than last year's taper tantrum. This seems to me to be a pretty clear global disinflationary shock. And it isn't like inflation was on a runaway train to begin with.

Bottom Line: The Fed wants out of quantitative easing. Policymakers want to normalize policy by bringing it back to interest rates. That sets a high bar to delaying the tapering process. Moreover, the leadership transition at the Federal Reserve also left policy on autopilot from December until March, raising the bar even further. That seemed to sink in today. They lack of offsetting on the part of emerging markets to easy Fed policy is now exacerbating the impact of tapering, creating a more significant monetary tightening than expected by the Fed. It is not clear when this alters the path of Fed policy. But what seems more clear is that the US is about to be hit by another disinflationary shock. That deserves careful attention, because inflation, I think, is at this moment the most important variable to watch as far as Fed policy is concerned. The Fed is pushing forward with tapering on only the forecast of future inflation. That forecast appears under threat.

6---Wall Street’s New Housing Bonanza, NYT (Same old, same old)

Wall Street’s latest trillion-dollar idea involves slicing and dicing debt tied to single-family homes and selling the bonds to investors around the world.

That might sound a lot like the activities that at one point set off a global financial crisis. But there is a twist this time. Investment bankers and lawyers are now lining up to finance investors, from big private equity firms to plumbers and dentists moonlighting as landlords, who are buying up foreclosed houses and renting them out.

7---Pending homes sales "fail", zero hedge

Pending Home Sales collapsed 8.7% month-over-month - the worst since May 2010 - missing by the most in over 3 years. This is a 6.1% drop YoY. Sellside consensus (-0.3%) was unaware of the horrible weather in December until 13 minutes ago. Of course, analysts could never have guessed that weather could have an impact (and ths reduce their expectations) but NAR's Larry Yun notes "unusually disruptive weather" prevented buyers from looking. However, he goes on to add that "Home prices rising faster than income is also giving pause to some potential buyers." This unusually honest line from the realtor mouthpiece is notable....

Home prices rising faster than income is also giving pause to some potential buyers, while at the same time a lack of inventory means insufficient choice. Although it could take several months for us to get a clearer read on market momentum, job growth and pent-up demand are positive factors.”

8---Over 300 US drone strikes in Pakistan since 2006 – leaked official data, RT

9--HY bond market weathering the storm, sober look

-Experienced analysis and investors in this space openly admit that it's just a "matter of time" before this market "cracks". It simply needs a catalyst, such as a large unexpected corporate default. Maybe a major event in the sovereign bond market could dislodge HY. Short of that, junk bonds could remain at frothy valuations for some time.

10---State of the Union: A bankrupt ruling class talking to itself, wsws

(Obama) will be remembered first as a president who was able to exploit illusions in his phony promises of change to carry out the biggest swindle in history, the Wall Street bailout, which has seen the transfer of trillions of dollars in social wealth from the majority of the population to the banks and the super-rich. Secondly, his legacy will be the buildup of a police state and the shredding of the most basic democratic and constitutional rights.
President Barack Obama’s State of the Union speech was a cynical propaganda piece, filled with fraudulent claims and promises that no one, least of all his audience at the US Capitol, believes in the slightest.
The annual address has long since become an ossified ritual, a kind of national pep rally into which social and political reality seldom intrudes.

With Obama’s speech Tuesday night one had more than ever the sense of the president as chief representative of the financial aristocracy that rules America, speaking to a house filled with millionaire congress members and bought-and-paid-for representatives of big business.
It has more and more come to resemble a political echo chamber, in which the ruling establishment celebrates and talks to itself in utter indifference to the needs and concerns of the country’s working people, the overwhelming majority of the population....

On Wednesday, the New York Times published an editorial entitled “The Diminished State of the Union,” and the Washington Post’s was headlined “Obama’s muted call.” There was no denying that the days of the “audacity of hope” are long gone....

The reality is that, if the minimum wage had risen apace with the compensation of America’s CEOs, the top 1 percent, the poorest paid worker in the US would now be making more than $33 an hour. If it just kept pace with the increase in productivity, it would be over $22.

The speech included the obligatory reference to the state of the union being “strong” along with an assertion that 2014 can become “a breakthrough year for America.” Who does he think he is kidding? Poll after poll shows that some two-thirds of the population believe the economy is anything but strong, with their well-being declining, the phony indicators cited by Obama notwithstanding. A poll conducted at the end of last month found that over half the population is being forced to reduce their spending, and fully 36 percent are cutting back on food and medicine.

11---The Fed's "Great Unwinding" creates conditions for another crisis, wsws

These views were echoed by Benoit Anne, the head of emerging markets strategy at Société Générale, the French banking and financial services company. “We are in a full-blown contagion mode,” he said. “There is no point trying to pick and choose when faced with a severe market crisis like the one we are witnessing. Right now, sell everything.”...

An editorial in today’s Financial Times indicated that the world economy is at a turning point.
“It was good while it lasted,” the editorial began. “After a short spell of tranquility, the consequences of the US Federal Reserve’s great unwinding are reverberating across the globe. In anticipation of a world of tighter money, investors are pulling out of emerging markets, bringing their money back to what they feel are safer shores. From Asia to South America, assets that were once in strong demand have found themselves suddenly shunned.”
The wave of interventions by central bankers, it continued, has failed to placate investors, with many emerging markets facing “painful recession.”

While it was not intended as such, the editorial is an indictment of the ruling elites and the high priests of finance capital. The policies initiated after the 2008 financial meltdown, which enriched the bankers and speculators responsible for the catastrophe in the first place, have now created the conditions for another crisis, in which the attacks on the working class in the major capitalist countries and “emerging markets” alike will be intensified.

12---Happy Meal?, RT

Law enforcers in Pittsburgh arrested a McDonald’s restaurant staffer, who allegedly sold heroin in Happy Meal boxes. Customers got their dose after saying the code phrase: ‘I'd like to order a toy.’
Shania Dennis, 26, has been arrested in a drug bust, which was conducted after the DA Narcotics Enforcement team was tipped off that a McDonald’s restaurant was being used to peddle heroin.
Undercover agents set up a controlled buy of the drug at the restaurant on Wednesday afternoon, the District Attorney’s office reported.

Customers looking for heroin were instructed to go through the drive-thru and say, "I'd like to order a toy," said Mike Manko, spokesman for DA Stephen A. Zappala Jr.
The buyer would then drive to a particular window, hand over the money and get a Happy Meal box with heroin inside.

Wednesday, January 29, 2014

Today's Links

Today's quotes: "50 years on I can safely state that the War on Poverty has been won. The poor have been defeated, the middle class conquered." Yves Smith, naked capitalism

"Will the political class ever admit that a permanently shrunken labor force is an elite policy goal that Obama has successfully achieved?" Yves Smith, naked capitalism

1---U.S. banking regulator, fearing loan bubble, warns funds, Reuters

Regulators are most alarmed about leveraged loans to companies with the poorest credit quality. Many of the loans helped to finance buyouts and to fund payouts to private equity firms in the form of dividends...

A U.S. bank regulator is warning about the dangers of banks and alternative asset managers working together to do risky deals and get around rules amid concerns about a possible bubble in junk-rated loans to companies.
The Office of the Comptroller of the Currency has already told banks to avoid some of the riskiest junk loans to companies, but is alarmed that banks may still do such deals by sharing some of the risk with asset managers.

"We do not see any benefit to banks working with alternative asset managers or shadow banks to skirt the regulation and continue to have weak deals flooding markets," said Martin Pfinsgraff, senior deputy comptroller for large bank supervision at the OCC, in a statement in response to questions from Reuters.

Among the investors in alternative asset managers are pension funds that have funding issues of their own, he said.
"Transferring future losses from banks to pension funds does not aid long-term financial stability for the U.S. economy," he added...

That may be happening with leveraged loan issuance, which hit a record $1.14 trillion in the U.S. in 2013, up 72 percent from the year before, according to Thomson Reuters Loan Pricing Corp (LPC)....

But regulators are no more sanguine with asset managers taking on this risk given their investors include underfunded public pension plans....Regulators are most alarmed about leveraged loans to companies with the poorest credit quality. Many of the loans helped to finance buyouts and to fund payouts to private equity firms in the form of dividends....

Lenders want to pass interest-rate risk on to unsuspecting borrowers while working within the confines of the new qualified mortgage rules. Although some borrowers claim to understand the risks, if their bets prove wrong, most will petition for bailouts, and they have every reason to expect to get one.

2---We have a cancer (and ) it is killing us. Yves Smith, naked capitalism (The real state of the union)

Financial terrorism is infinitely more destructive than al Qaeda, infinitely better paying, and can be practiced with impunity. As for ordinary Americans, they face a militarized police and a Dickensian legal system.

At the same time, we are seeing our Constitutional rights bulldozed in the construction of a surveillance state, a euphemism for a police state. This is a state, totalitarian in its nature and ambitions, which, on the one hand, operates in the greatest secrecy with zero public accountability and makes war on anyone who seeks to expose its workings and, on the other, tells us we have nothing to worry about if we have nothing to hide. It targets us yet tells us we are not its targets. This state, or rather those who control it, can know everything about us, but we can know nothing about it or them. Its justification is that it is only after the bad guys, but this state with all its vast spying programs and resources has never actually caught any “bad guys”, certainly none to justify its enormous budgets and unchecked powers.

The wealth and the health of this country is based on the people. The value of the dollar is not based on gold or the ability to tax but on us. Yet we have been looted for decades by predatory elites and the rich. Our lives are made poorer, shorter, more pain- and anxiety-filled by them. And our country is made weaker. Education through debt and lack of opportunity is discouraged. Skills are thrown away as jobs are shipped abroad. On-the-job training has become a dirty word. We are being hollowed out both as a country and a people. Our state is this: We have a cancer. It is feeding on us. It is killing us. Our cancer tells us that without it, we cannot survive. The truth is we have no hope of survival, indeed no hope of anything, unless we cut it out. Liberal, conservative, or indifferent, Tea Party, progressive, or independent, this is the choice we are all faced with, not just for ourselves but each other. If we are to act and if we are to be successful, then we must act together. That is where we are. The choice is yours

3---Fewer Americans Than Ever Think They're Middle-Class , Huff Post

Just 44 percent of Americans say they identify as “middle-class,” the lowest share on record, according to a survey released Monday by the Pew Research Center. That’s down from 53 percent in 2008, during the first few months of the Great Recession.
On the flip side, as the chart shows, the percentage of Americans who see themselves as "lower-class" has surged 60 percent in the past six years...

Even as the share of Americans actually earning middle-income wages has been on a steady decline for the past few decades, a large swath of Americans have continued to view themselves as middle class.
That’s because as New York Times columnist Paul Krugman notes, whether you see yourself as middle-class often has little to do with income. Instead, it’s more about markers like whether you have a stable job and income, whether you’re protected from a financial emergency and whether through your hard work you can give your kids a better life.

For many Americans, the Great Recession and its subsequent slow recovery has thrown all of those things into question. Nearly half of the jobs lost during the recession paid middle-income wages and about the same share of new jobs created during the recovery were low wage, according to a 2012 analysis from the National Employment Law Project, a left-leaning think tank. Nearly half of Americans are one financial emergency from financial disaster, according to a 2013 report from Corporation for Enterprise Development. Student loan debt topped $1 trillion in 2012.

4---Study Debunks Classic Argument About Low-Wage Workers , Huff Post

Turns out that more education does not necessarily mean more pay.
Low-wage workers are a lot more educated than they were nearly 50 years ago, but they are making much less, according to a new study by the Economic Policy Institute, a left-leaning think tank.

5---The rich are different. They're assholes. naked capitalism

? As it happens, we have polling data! The Daily Beast (of all places) summarizes: “The rich really are as selfish as you think” [complete study (PDF)]:
According to [a new study by political scientists Benjamin Page, Larry Bartels, and Jason Seawright]—which surveyed a sampling of the richest 1 percent of Americans—the wealthy are almost categorically opposed to efforts to reduce inequality and improve material conditions for working- and middle-class** people. 
Among these Americans, just 40 percent support an increase to the minimum wage, just 13 percent support an expansion of the Earned Income Tax Credit, just 8 percent support a government jobs program for the unemployed, just 32 percent support universal health insurance, and only 30 percent support expanded worker training programs. By contrast, the general public is more supportive of all of these positions. 
What the rich do support, however, are policies that would shift burdens to individuals, or introduce some nebulous “competition” into public goods. That includes charter schools (90 percent support), vouchers (55 percent), Social Security privatization (55 percent), and merit pay for teachers (93 percent). 
If this agenda looks familiar, it’s because it’s basically identical to the one pushed by “centrist” deficit hawks in Washington, who have devoted themselves to the consensus positions of business and other economic elites. For them, deficit reduction—through substantial cuts to the welfare state—is more vital than efforts to reduce unemployment or strengthen the social safety net.

6---US economy headed towards permanent stagnation...the New Normal, NYT

We look back upon the Great Depression as a discrete event with a beginning and an end; a long and profound economic shock but one that turned out to be nonetheless temporary. In the 1930s, however, many feared that what John Maynard Keynes clinically called “equilibrium at less than full employment” might, in fact, be the new normal — forever.

There is a lesson here for us, somewhere. In hindsight, the Depression suggests our era will, too, eventually emerge from its economic morass. Yet we should hardly let optimism carry us away....

Broader measures of joblessness paint a bleak picture. As Lawrence Summers, President Obama’s former top economic adviser, noted in a speech at the International Monetary Fund in November, “the share of men or women or adults in the United States who are working today is essentially the same as it was four years ago.”

Today, the American economy is still roughly 8 percent smaller than it would be if it had followed the path the Congressional Budget Office forecast in August 2007. That’s a gap of $1.5 trillion, or almost $5,000 for every person in the country.
The failure to rebound has revived the old, recurring fear: Is stagnation inevitable? Has the economy — has the job market — become stuck for good? ...

The Obama administration’s boldest propositions are sensible, from raising the minimum wage to $10.10 to extending emergency unemployment insurance. But they are not quite on the scale of a trillion dollars’ worth of lost gross domestic product....

Mr. Summers proposed a list of factors that could be holding the economy back. A slowdown in the expansion of the labor force and weaker productivity growth might be restraining investment, he suggested. The concentration of income among the very richest could be curbing consumer spending.
Importantly, he has noted that the forces restraining growth preceded the crisis. “Even a great bubble wasn’t enough to produce any excess in aggregate demand,” Mr. Summers said in his November speech. Whatever is wrong with the United States economy has been wrong for a while.
There are potentially great benefits to government investments in public works at a time like this. ...

Our current path — set by the Federal Reserve’s huge stimulus to encourage lending — seems dangerously similar to the wanton credit expansion that led to the crisis of a few years ago. Trusting it any further appears foolhardy.

It would be better to rely on fiscal policy, but the path favored by many Republicans in the House seems even worse. To slash government spending and let the economy run its bedraggled course would probably transform our economic emergency from a painful though temporary setback into a permanent feature called stagnation.
And yet this is essentially the policy the nation is following.

7---Bernanke's Legacy? " Has the economy downshifted to some slower pace of growth that the Fed can’t change? ", Bloomberg

Extraordinary Actions

The crisis response also transformed the institution in ways that defy any near-term conclusion because nobody knows whether extraordinary actions, like purchasing $1.5 trillion in mortgage debt or creating $2.4 trillion in excess bank reserves, can be retracted, shrunk and unwound successfully.
The Fed is more extended politically as it engages in policies such as suppressing mortgage rates, and the size and influence of its open-market operations have involved it in financial markets as never before.
“The legacy is still open,” said Vincent Reinhart, a former top Fed official and now chief U.S. economist at Morgan Stanley in New York. “We survived. The question is what are the consequences?” ...

“I think it is very intrusive,” Tad Rivelle, who oversees about $84 billion as chief investment officer for U.S. fixed-income securities at TCW Group in Los Angeles, said of the Fed’s operations under Bernanke. The outgoing chairman’s legacy “will ultimately be negative” as policies used during the crisis and slow recovery lead to future instability, he said.

Social Instability

That instability may be social and political as well as financial, he said. Banks are still wary lenders, so the Fed’s low-rate policies are providing what Rivelle calls “preferential access” to a privileged group of borrowers: the government, corporations and consumers with the highest credit scores.

The bond-buying policy, known as quantitative easing, has helped boost asset prices. The Standard and Poor’s 500 stock index rose 30 percent last year, and home prices rose a projected 11.5 percent in 2013, according to an index tracked by CoreLogic, an Irvine, California, data and analytics company. Yet earnings per hour for private-sector workers have climbed just 2 percent a year on average since 2011 compared with a 3.2 percent gain in 2007, the last year of the previous expansion. Adjusted for inflation, they’ve barely grown at all.

The 2010 Dodd-Frank Act, the most sweeping rewrite of financial rules since the 1930s, contains the phrase “to end too-big-to-fail” in its preamble, a message to regulators that no bank should be so big and risky that it would have to be saved again. To put a point on it, Congress limited the Fed’s power to lend emergency funds to non-bank corporations to a broad-based facility that could only be accessed by several institutions. The message was that singular bailouts of firms such as Bear Stearns were over. ...

Among the unresolved questions as Bernanke exits: Can the Fed operate indefinitely with a multi-trillion-dollar balance sheet? Is the flow of credit to the economy constricted with the banking system under intense regulatory scrutiny? Has the economy downshifted to some slower pace of growth that the Fed can’t change?

“This is a Fed that’s intervening in the yield curve, it’s intervening in liquidity markets, it’s intervening in many asset classes,” said Julia Coronado, a former Fed board staff economist who is now chief economist for North America at BNP Paribas in New York.
“The book is still open, the last chapters have yet to be written, and it’s way too soon to say, ‘Ah, this is his legacy,’ because history is the judge, and there’s still a lot of risk.”
Meanwhile, the Fed’s retreat from quantitative easing is slowing capital flows to emerging markets, roiling local stock markets. The MSCI Emerging Markets Index is down 6.8 percent year-to-date

8---The Housing Slowdown Has Already Begun,  New Deal Democrat

The simple fact is that the housing market follows interest rates usually with a six to nine month lag....

The data that we have seen in December confirms that in 2013 we already have seen a slowdown, and is in accord with my forecast that at some point this year, we will see a YoY change of -100,000 in permits and/or starts. Could it be different this time? Of course, but history is on my side....

9---American "exceptionalism"?, RT

RT: The American President claimed that, quote "No other country in the world does what we do." Is he once again back on his "US exceptionalism" hobbyhorse?
EP: I think he certainly is, though he is right on the one hand, because no one does as the US does in terms of spying on the people of the world, launching drone strikes and other military actions and things of that nature, and attempt to dominate the world with this massive military machine and in unprecedented fashion. So in that sense he is right. His attempt to whip up the American patriotism by saying “We are the greatest country” to the exclusion of all others, I think, it's odious and it’s not something that would bring more cooperation among people in the world.

10--"A nauseating ritual"---Obama's SOTU speech: Pro-business nostrums, militarist jingoism and a jumble of penny-ante proposals by the president, who has done more than any of his predecessors to funnel money into Wall Street, wsws

US President Barack Obama’s State of the Union address Tuesday was, perhaps even more than his previous addresses, a cynical and reactionary charade. Empty rhetoric was combined with a complete disconnect from the reality confronting millions of people and an assertion of executive power.
The thrust of the speech was a mixture of pro-business nostrums, militarist jingoism and a jumble of penny-ante proposals. The media’s attempt to promote the speech as a major address on inequality was a deliberate falsification aimed at drumming up interest among a generally indifferent and hostile population.

Instead it was a threadbare attempt to cover over the reality of the past year, a year in which the mask fell off a society riven by historically unprecedented levels of social inequality and mass poverty, overseen by a vast police-state spying apparatus, on the verge of another global war of incalculable consequences and presided over by the most right-wing administration in US history...

The president, who has done more than any of his predecessors to funnel money into Wall Street, acknowledged that “corporate profits and stock prices have rarely been higher, and those at the top have never done better,” as if the policies of his own administration had nothing to do with it. He quickly claimed, however, that the American people “don’t resent those who, by virtue of their efforts, achieve incredible success.”...

Obama made as brief a reference as possible to the fact that at the end of last year, due to the actions of Democrats and Republicans, 1.6 million people were cut off of extended unemployment benefits. At the same time, he called for “reforming unemployment insurance so that it’s more effective in today’s economy,” which could only mean introducing greater restrictions on eligibility.
The president was also silent on the Democrats and Republicans having just agreed to slash $8.7 billion from food stamps, only the second cut in the program since it was founded (the first coming just a few months ago).

11---A second bite of the apple? Hedge Funds See Cheap Homes With Soured Loans: Mortgages. Bloomberg

“The supply of NPLs is going to be very substantial for the next several years,” said Michael Vranos, Chief Executive Officer of Ellington, which oversees $6 billion. “Until last year, with the heavy supply of distressed securities, but only light supply of NPLs, we saw much better value in securities.” ..

HUD offers the loans at a significant discount to the unpaid principal balance with the expectation that buyers will try to modify the loan terms or take other actions to prevent neighborhoods from being swamped with vacant homes. Homeowners have a better chance of keeping their properties if the loans are sold because FHA’s rules prevent borrower-aid tactics available to private investors, such as reductions to principal balances.

There are about 1.3 million properties in the U.S. tied to loans at least 90 days late and not yet in foreclosure, according to Black Knight Financial Services. Another 4.5 million borrowers are at least 30 days delinquent or in the repossession process, according to a report released today. ...

Values increased as the economy strengthened and firms led by Blackstone bought more than 366,200 single-family homes in cities such as Phoenix and Atlanta since January 2011 to turn into rentals, according to Port Street Realty and RealtyTrac data. That’s made delinquent loans a relatively cheaper way to acquire real estate or profit by working with borrowers who are behind on mortgage payments. ....

Ellington considers delinquent loans as one of the biggest opportunities this year, said Vranos. The firm weighs buying soured debt or foreclosed homes to turn into rentals depending on the location.
“There are certain areas where we may might want to buy a house, where we may not be able to necessarily get the NPL,” said Vranos, who founded Ellington in 1994. The firm expects to see strong home price appreciation continue in several parts of Florida, including Punta Gorda and Miami, as well as Las Vegas.
Ashish Pandey, CEO of Altisource Residential Corp. (RESI), said at a conference in Las Vegas last week that he expects as many as 500,000 non-performing loans to sell in 2014.
“Banks have made a decision internally that a delinquent borrower is not a core customer,” said Pandey, whose firm had 6,300 delinquent loans as of the third quarter of 2013. Altisource rose 0.6 percent to $30.67 today, and has gained 94 percent since 2012

12---America’s False Dawn, Stephen Roach, Project Syndicate available on Businessday

Financial markets and the so-called Davos consensus are in broad agreement that something close to a classic cyclical revival may finally be at hand for the US. But is it?
At first blush, the celebration seems warranted. Growth in real GDP appears to have averaged close to 4% in the second half of 2013, nearly double the 2.2% pace of the preceding four years. The unemployment rate has finally fallen below the 7% threshold. And the Federal Reserve has validated this seemingly uplifting scenario by starting to taper its purchases of long-term assets.

But my advice is to keep the champagne on ice. Two quarters of strengthening GDP growth hardly indicates a breakout from an anemic recovery. The same thing has happened twice since the end of the Great Recession in mid-2009 – a 3.4% average annualized gain in the second and third quarters of 2010 and a 4.3% average increase in the fourth quarter of 2011 and the first quarter of 2012. In both cases, the uptick proved to be short-lived.

A similar outcome this time would not be surprising. Indeed, much of the acceleration in GDP growth has been bloated by an unsustainable surge of restocking. Over the first three quarters of 2013, rising inventory investment accounted for fully 38% of the 2.6% increase in total GDP. Excluding this inventory swing, annualized growth in “final sales” to consumers, businesses, and the government averaged a tepid 1.6%. With inventory investment unlikely to keep accelerating at anything close to its recent rate, overall GDP growth can be expected to converge on this more subdued pace of final demand.

That gets to the toughest issue of all – the ongoing balance-sheet recession that continues to stifle the American consumer. Accounting for 69% of the economy, consumer demand holds the key to America’s post-crisis malaise. In the 17 quarters since “recovery” began, annualized growth in real personal consumption expenditures has averaged just 2.2%, compared to a pre-crisis trend of 3.6% from 1996 to 2007.

To be sure, there were indications of a temporary pick-up in annual consumption growth to nearly 4% in the fourth quarter of 2013. Yet that is reminiscent of a comparable 4.3% spurt in the fourth quarter of 2010, an upturn that quickly faded.
The lackluster trend in consumption is all the more pronounced when judged against the unprecedented decline that occurred in the depths of the Great Recession. From the first quarter of 2008 through the second quarter of 2009, real consumer spending plunged at a 1.8% average annual rate. In the past, when discretionary spending on items such as motor vehicles, furniture, appliances, and travel was deferred, a surge of “pent-up demand” quickly followed.
Not this time. The record plunge in consumer demand during the Great Recession has been followed by persistently subpar consumption growth.

This should not be surprising. The American consumer was, in effect, ground zero in this horrific crisis. Far too many US households made enormous bets on the property bubble, believing that their paper gains were permanent substitutes for stagnant labor income. They then used these gains to support a record consumption binge. Compounding the problem, they drew freely on a monstrous credit bubble to finance the gap between spending and income-based saving.
When both bubbles burst – first housing, and then credit – asset-dependent US consumers were exposed to the American strain of the Japanese disease first diagnosed by Nomura economist Richard Koo.

Koo has stressed the lingering perils of a balance-sheet recession centered on the corporate sector of the Japanese economy; but the analysis is equally applicable to bubble-dependent US consumers. When the collateral that underpins excess leverage comes under severe pressure – as was the case for Japanese businesses in the early 1990’s and American consumers in the mid 2000’s – what Koo calls the “debt rejection” motive of deleveraging takes precedence over discretionary spending.

The Japanese parallels do not stop there. As research by the economists Richard Caballero, Takeo Hoshi, and Anil Kashyap has shown, Japan’s corporate “zombies” – rendered essentially lifeless by their balance-sheet problems – ended up damaging the healthier parts of the economy. Until balance sheets are repaired, such “zombie congestion” restrains aggregate demand. Japan’s lost decades are an outgrowth of this phenomenon; the US is now halfway through the first lost decade of its own.
Indicators of US balance-sheet repair hardly signal the onset of the more vigorous cyclical revival that many believe is at hand. The debt/income ratio for American households is now down to 109% – well below the peak of 135% reached in late 2007, but still 35 percentage points above the average over the final three decades of the twentieth century.

Similarly, the personal saving rate stood at 4.9% in late 2013, up sharply from the low of 2.3% in the third quarter of 2005; but it remains 4.4 percentage points below the average recorded from 1970 to 1999. By these measures, American consumers’ balance-sheet repair is, at best, only about half-finished.
Optimists see it differently. Encouraged by sharp reductions in households’ debt-service costs and a surprisingly steep fall in unemployment, they argue that the long nightmare has finally ended.
That may be wishful thinking. Plunging debt service is largely an outgrowth of the Fed’s unprecedented zero-interest-rate policy. As long as the stock of debt remains excessive, consumers will dismiss the reduction in interest expenses as nothing more than a temporary subsidy from the Fed.

Moreover, the decline in unemployment largely reflects persistently grim labor-market conditions, which have discouraged many workers from remaining in the labor force. If the labor-force participation rate was 66%, as it was in early 2008, rather than 62.8%, as it was in December 2013, the unemployment rate would be just over 11%, not 6.7%.
Yes, there has been some progress on the road to recovery. But, as Carmen Reinhart and Ken Rogoff have long documented, post-crisis healing is typically slow and painful. Notwithstanding the Fed’s claims that its unconventional policies have been the elixir of economic renewal in the US, the healing process still has years to go.

A similar outcome this time would not be surprising. Indeed, much of the acceleration in GDP growth has been bloated by an unsustainable surge of restocking. Over the first three quarters of 2013, rising inventory investment accounted for fully 38% of the 2.6% increase in total GDP. Excluding this inventory swing, annualized growth in “final sales” to consumers, businesses, and the government averaged a tepid 1.6%. With inventory investment unlikely to keep accelerating at anything close to its recent rate, overall GDP growth can be expected to converge on this more subdued pace of final demand.

Tuesday, January 28, 2014

Today's links

1---Sell everything, Reuters

"Right now we are in full-blown financial contagion mode, and that means correlations have rushed towards the dreaded 100 percent," Benoit Anne, emerging market strategist at Societe Generale in London, wrote in a note to clients.

"There is no point spending too much time trying to pick and choose when faced with a severe market crisis like the one we are witnessing in front of our screens. Right now, sell everything."...

What struggling emerging markets need right about now is a big sell-off - in the U.S.
Without a substantial downdraft on Wall Street, the Federal Reserve is highly likely to carry on trimming the amount of bonds it buys every month, continuing at its meeting ending on Wednesday by taking it down another $10 billion to $65 billion.
That tapering will accentuate pressure on emerging markets, which have suffered substantial losses on currencies and securities with investors increasingly less interested in discriminating between the weak and the more stable...

Tapering is bad for emerging markets assets in exactly the opposite way the expansion of quantitative easing was good for them: it tightens the global supply of money seeking a better return, and sharpens investors' focus on creditworthiness. That makes it harder for countries like South Africa, Turkey and India to attract the money they need.

2--Yellen Faces Test Bernanke Failed: Ease Bubbles, Bloomberg

The central bank’s easy money policies already have led to pockets of frothiness in corporate debt and emerging markets. The danger is that unwinding such speculative excesses will end up shaking the financial system and hurting growth.
Yellen is “going to be trying to do something that no one has ever done,” said Stephen Cecchetti, former economic adviser for the Bank for International Settlements, the Basel, Switzerland-based central bank for monetary authorities. She needs “to ensure that accommodative monetary policy doesn’t create significant financial stability risks,” he said in an interview. ....

Yellen faces two challenges in dealing with bubbles: she has to identify and deflate them before they get too big and dangerous; and she has to manage monetary policy without causing them to burst in a way that causes havoc in financial markets and undercuts the expansion.
The trouble is that the tools she has for the first task, such as raising capital standards for banks or requiring homebuyers to put down more of their own money, are largely untested in the U.S. They are potentially cumbersome to put in place with multiple regulatory bodies involved and could prove politically unpopular....

Yellen, currently Fed vice chairman, told the Senate Banking Committee on Nov. 14.
“By and large,” she said, “I don’t see evidence at this point in major sectors of asset-price misalignments, at least of a level that would threaten financial instability.” ...


The Fed’s zero-interest-rate policy is prompting investors to take greater risks with their money. The extra yield that buyers demand to own older, smaller junk bonds that trade infrequently shrank to an average 0.25 percentage point in the first half of this month from more than 1 percentage point a year ago, according to Barclays Plc data...

The Fed’s forward guidance strategy already has “crumbled,” said Marvin Goodfriend, a former central bank official who is now a professor at Carnegie Mellon University in Pittsburgh. At 6.7 percent, the unemployment rate is just above the 6.5 percent threshold that the central bank had set for the start of its discussions on raising rates. Yet it’s still buying bonds in an effort to ease financial conditions.

3---Bair, Critic of the Revolving Door, Joins Board of Santander, NYT

Sheila C. Bair, a former head of the Federal Deposit Insurance Corporation who once argued that former regulators should be barred from joining the banks they oversaw, is joining the board of Banco Santander, the Spanish bank said on Monday

4---The Federal Reserve is the primary engine of income/wealth inequality in the U.S. Eliminate "free money for cronies," bailouts of the "too big to fail" banks that own the Fed, manipulation of markets, the purchase of impaired private assets at high prices, and all the other tools of financialization the Fed wields to enforce its grip on the nation's throat--in other words, abolish the Fed--and the neofeudal structure that feeds inequality will vanish along with the feudal lords that enforced it.

There is no persuasive evidence that cheap credit enables legitimate wealth creation, while there is abundant evidence that cheap credit fuels speculation, credit bubbles and a variety of financier schemes and scams that create temporary phantom wealth for crony capitalists and impoverishes everyone who wasn't in on the scam.....

You can see the results of financialization in financial profits, which soared in the era of securitization, shadow banking, asset bubbles and loosened or ignored regulation:

Here's how cheap, abundant credit--supposedly the key engine of growth, according to the Federal Reserve--massively increases wealth inequality: the wealthy have much greater access to credit than the non-wealthy, and they use this vastly greater credit to buy productive assets that generate income streams that increase their income and wealth....

The income of the top 5% soared during Fed-enabled credit bubbles:

Since all these distortions originate from the Fed, the only solution is to abolish the Fed.

5---Americans worse off under Obama, Huff Post

As the President takes the podium for the State of the Union, the majority of people watching and listening to his speech will be almost certainly be worse off financially than they were when he took office. That's not allocating blame, just stating a fact. According to the Pew Research Center, in the first two years following the Great Recession, 93 percent of Americans lost net worth. Only 7 percent got wealthier. Forty-three percent of those sampled in a nationally-weighted survey I recently commissioned believe this is a permanent trend....

Among the sobering findings were that nearly 35% of respondents said they had spent retirement or personal savings to supplement their wages. Twenty percent relied only on personal savings; four percent on retirement savings, like an early withdrawal from an IRA or 401k, and eleven percent spent both. According to an analysis of data from the Federal Reserve and the U.S. Census Bureau by the firm Hello Wallet, in 2010, one in four Americans withdrew money from their retirement accounts. And the Transamerica Center For Retirement Studies found a third of un- or under-employed workers made early withdrawals.

Even more arresting: 21 percent of those I surveyed agreed with the statement "In 2013, I borrowed money from friends or family specifically in order to pay household, medical or credit card bills."
All of this adds up to some painful math: Americans, faced with stagnant wages despite pronounced gains in productivity, are spending against their future in order to live today. Here are some of the scenarios we'll see play out in the coming years:
1) Consumers Who Can't Buy (Much)

6---Japan's trade deficit "biggest ever", Testosterone Pit

It’s easy to devalue the yen and quietly confiscate the wealth of the Japanese people. Meanwhile, the trade deficit is elegantly spiraling out of control as Japan Inc. is looking for the greener grass elsewhere.....

It was the worst December trade deficit ever. In December 2010, Japan still had a surplus! It was the continuation of a terrible trend: November had been the worst November ever, October the worst October, September the worst September.... And so on! It was the 18th month in a row of trade deficits, the worst such sequence since anyone started counting, worse even than the 14-month series in 1979-1980....

The devaluation of the yen has added another motivation: the ability to translate profits from foreign operations into yen, which gooses income statements and adds artificial gloss that is then hyped by brokers and swallowed hook, line, and sinker by eager investors.
But companies are not repatriating their foreign moolah, and they’re not actually converting it into yen because it would just get demolished. They’re leaving it overseas, reinvest it overseas, and spend it overseas. And the Japanese economy doesn’t benefit.

7---Steve Keen: Bye Bye, Bernanke, naked capitalism

...on Ben’s own theory of what caused the Great Depression, he could quite easily be found guilty – by a future Ben Bernanke – of causing the Great Recession. The only saving grace would be that once he had made the mistake, he fought to reduce the size of the crisis. But the crisis still occurred, on his watch, and when his Fed did the very things he said the Fed got wrong in the late 1920s.

8---Will China stop the Taper, naked capitalism

The Chinese rebalancing should lead (over time)  to capital account liberalisation and considerably lower current account surpluses. In that event China will by definition be recycling fewer surpluses into foreign market investment including US Treasuries. That will see upwards pressure on yields without the Fed doing anything, though this likely a long term influence more than an immediate issue.
The fourth channel of influence is markets themselves. Will Chinese slowing infect forex and credit market stability enough that the Fed might feel contagion risk warranted slowing taper? JPMorgan asks the question:
The past two weeks have presented surprises from almost ever corner – undershoots on Chinese activity data; stress in Chinese credit/money markets; idiosyncratic developments in Russia, Turkey and Argentina; data wobbles in the US – but only the China ones meet the criteria for potentially being systemic for FX because the underlying issue is opaque and large-scale.
....Combined with interest rate liberalisation, tapering will also deliver higher rate volatility and possibly higher lending rates; hence the recurring spikes in Shibor such as those in June and December 2013 and in January 2014. The resulting tightening could lead to a rise in non-performing loans and defaults, such as the possible one which arose this week with a trust loan product (see Greater China Quarterly Issues, Haibin Zhu, Grace Ng and Lu Jiang, January 24).

9---Bond Investors Notice that Servicers Let Houses Fall Apart, naked capitalism

Compare the Bloomberg story with this account by Dave Dayen in Salon last July, The Housing “Recovery” Is a Total Sham:
Out on the alphabet streets in this once-thriving Florida community, the houses are dotted with black mold. Some have buckled roofs. Others are hollowed out by fire, or the wiring has been stripped. Pests and critters have moved in as the people moved out. On some streets, half of the homes feature boards along the windows, and ubiquitous “No Trespassing: No Traspasar” signs in English and Spanish. “Those are to keep the drug sales out,” says my tour guide, Lynn Szymoniak of the nonprofit Housing Justice Foundation. “I’ve been stopped doing these tours, cops have told me, ‘you’re not supposed to be here.’”
 At one time, these homes were exciting products sold by Option One, Ameriquest, New Century Financial, and other mortgage lenders who sprouted up during the housing bubble, and disappeared just as quickly….
The inflated sale prices present a serious problem for rehabilitating the community. Ninety percent of these properties are tied up in mortgage-backed trusts for large sums (“When you look them up, you’re just so amazed,” Szymoniak says), and the trustees don’t want to book the losses. So instead of selling off the old inventory, they hold onto it, hoping in vain for price appreciation or just wanting to avoid the reckoning. “If you have to keep investors thinking that you have a $300,000 property,” Szymoniak remarked, “and you want to carry it on the books for as long as you possibly can, then you don’t put it on the market, you just hold it back, and you let it go on forever.”

10--China credit boom headed for the reef, naked capitalism from the FT

A comment at the Financial Times by Ruchir Sharma, Morgan Stanley’s head of emerging markets and global macro, argues that the Chinese credit boom is likely to come to a nasty end. Key bits of this important piece:
Recent studies have isolated the most reliable signal of a looming financial crisis and it is the “credit gap”, or the increase in private sector credit as a proportion of economic output over the most recent five-year period. In China, that gap has risen since 2008 by a stunning 71 percentage points, taking total debt to about 230 per cent of gross domestic product…
Looking back over the past 50 years and focusing on the most extreme credit booms – the top 0.5 per cent – turns up 33 cases, with a minimum credit gap of 42 percentage points. 
Of these nations, 22 suffered a credit crisis in the subsequent five years and all suffered an economic slowdown. On average, the annual economic growth rate fell from 5.2 per cent to 1.8 per cent. Not one country got away without facing either a crisis or a major economic slowdown. Thailand, Malaysia, Chile, Zimbabwe and Latvia have had a gap higher than 60 points. All those binges ended in a severe credit crisis… 
China has hit its ambitious growth targets so consistently that many analysts can no longer imagine a miss. The consensus forecast is for growth of 7.5 per cent this year, right on target. Growth is widely expected to continue at an average rate of 6-7 per cent for the next five years. It is hard to find a prominent economist who forecasts a significant slowdown, much less a credit crisis…
History foretells a different story. In the 33 cases in which countries built up extreme credit gaps, the pace of GDP growth more than halved subsequently. If China follows that path, its growth rate over the next five years would average between 4 per cent and 5 per cent. 
The key to foretelling credit trouble is not the size but the pace of growth in debt, because during rapid credit booms more and more loans go to wasteful endeavours. That is China today…
Those who trust in China’s exceptionalism say it has special defences. It has a war chest of foreign exchange reserves and a current account surplus, reducing its dependence on foreign capital flows. Its banks are supported by large domestic savings, and enjoy low loan-to-deposit ratios… 
These defences have failed before. Taiwan suffered a banking crisis in 1995, despite having foreign exchange reserves that totalled 45 per cent of GDP, a slightly higher level than China has today. Taiwan’s banks also enjoyed low loan-to-deposit ratios, but that did not avert a credit crunch. Banking crises also hit Japan in the 1970s and Malaysia in the 1990s, even though these countries had savings rates of about 40 per cent of GDP. 

11---The housing “recovery” is a total sham, dave dayen                      

Forget the happy talk about the housing crisis being over. The stories from this Florida community will shock you 

12---Poll Finds Americans Anxious Over Future, Obama's Performance, wsj

Since the rise of modern polling in the 1930s, only George W. Bush has begun his sixth year in the White House on rockier ground than Mr. Obama.

At the same time, the public supports many of the themes and policy ideas Mr. Obama looks set to emphasize in his annual State of the Union address to Congress. Large majorities of respondents said they want the White House and lawmakers to focus on job creation and early-childhood education, and a slimmer majority favored increasing the minimum wage...

13---1% not responsible for low mobility? equitable growth
A Better Headline Would be “Mobility Stagnant as U.S. Economy Doubles”

Low mobility in spite of growth is threatening America’s future as the land of opportunity. ...

From 1971 to 1993, U.S. real Gross Domestic Product increased from $5.0 trillion to $9.7 trillion (accounting for population growth, the real per-capita Gross Domestic Product grew by 54% in the same time period). So an alternate framing of this story would be that the U.S. economy nearly doubled in size but mobility did not budge.

If we can't expect private savings to turn negative in a big way, and we keep the government budget balanced, then there is one other way for the income accounting identity to hold. If the economy shrinks due to insufficient demand, then savings will fall more than investment. At some point, this will give us a large enough excess of private investment over private savings for the national income accounts to be in balance.

If it is not clear, we are bringing the national accounts into balance in this story with a shrinking economy and rising unemployment. That is what happens if we run a balanced budget in the context of having a large trade deficit. The deficit hawks may yell and scream that they don't want to shrink the economy and have mass unemployment, but this is what they will get if we have deficit reduction without a clear plan for reducing the trade deficit

16--PEW: More people accept that they are "lower class", NYT

One of the odd things about America has long been the immense range of people who consider themselves middle class — and are deluding themselves. Low-paid workers who would be considered poor by international standards, say with incomes below half the median, nonetheless considered themselves lower-middle class; people with incomes four or five times the median considered themselves, at most, upper-middle class.
But this may be changing. According to a new Pew survey (pdf), there has been a sharp increase in the number of people calling themselves lower class, and a somewhat smaller rise in the number calling themselves lower-middle, so that at this point the combined “lower” categories are close to a plurality of the population — in fact, closing in on, um, 47 percent:

This is, I believe, a very significant development. The whole politics of poverty since the 70s has rested on the popular belief that the poor are Those People, not like us hard-working real Americans. This belief has been out of touch with reality for decades — but only now does reality seem to be breaking in.

17--Money and class, Krugman, NYT

By security, I mean that you have enough resources and backup that the ordinary emergencies of life won’t plunge you into the abyss. This means having decent health insurance, reasonably stable employment, and enough financial assets that having to replace your car or your boiler isn’t a crisis.
By opportunity I mainly mean being able to get your children a good education and access to job prospects, not feeling that doors are shut because you just can’t afford to do the right thing.

If you don’t have these things, I would say that you don’t lead a middle-class life, even if you have a car and a few electronic gadgets that weren’t around during the era when most Americans really were middle class, and no matter how clean, sober, and prudent your behavior may be.

Now, according to that Pew survey (pdf), in early 2008 only 6 percent of Americans considered themselves lower class — far below the official poverty rate! — only 2 percent upper class, and 1 percent didn’t know. So 91 percent of Americans — roughly speaking, people with incomes between $15,000 and $250,000 — considered themselves middle class. And a large portion of these people were wrong.

Reuters: Corporate profits are so high because wages are so low.
Source: MacroScope
Source: MacroScope

19---Chicago's Zombie problem, HW

Since a zombie property is a foreclosure that has not been resolved for more than three years, usually because neither the borrower nor servicer has a strong incentive to assume responsibility, the houses are likely to be poorly maintained or blighted, which in turn threatens the stability of surrounding communities...

From 2008 to 2010, 8.7% of foreclosures filed in Cook County, Illinois, were zombie foreclosures, accruing to more than 5,800 zombie properties in the city of Chicago. But this is just the beginning.

20---Margin Debt Soars To Record High; Investor Net Worth Now Doubly Negative From 2007 Bubble Peak, zero hedge

21--Fukushima contamination everywhere, RT

Contaminated fish may have been caught and delivered anywhere. From now on one should bear in mind that it's impossible to check the entire fish catch for radiation. This is what the co-chairman of the Eco-Protection international environmental group, Vladimir Slivyak, says about the situation in a comment.
 "Russia has been considering setting limits on catching marine products and fish in the Far East. But no restrictions have officially been imposed thus far, to the best of my knowledge. But some moves may eventually be made," he said.
 As regards atmospheric contamination, the crippled Fukushima plant radionuclides are known to have reached California and Mexico eight days after the disaster. Russia was unaffected by the propagation of radiation, says Maxim Shingarkin....

 tests in California found that the blue-fin tuna caught in coastal waters were contaminated, according to the portal. The contaminated water has most likely reached the area, since radioactive iodine levels have grown more than 200 times. The level of caesium-137 has also grown along the entire length of the US West Coast, the radioactive caesium was found in local berries and mushrooms. Meanwhile, local residents have reported more frequent bird deaths recently. Radionuclides have made it even to the Alaskan coast, causing a decline in the sockeye populations there. Some experts claim we are yet to see more consequences of the 2011 Fukushima nuclear power plant disaster.

22---NSA, GCHQ mapping “political alignment” of cellphone users, wsws
New information made public by Edward Snowden reveals that the governments of the United States and United Kingdom are trawling data from cellphone “apps” to accumulate dossiers on the “political alignments” of millions of smartphone users worldwide.
According to a 2012 internal UK Government Communications Headquarters (GCHQ) document, the National Security Agency (NSA) and GCHQ have been accumulating and storing hundreds of millions of user “cookies” —the digital footprints left on a cellphone or computer each time a user visits a web site—in order to accumulate detailed personal information about users’ private lives.
This confirms that the main purpose of the programs is not to protect the population from “terrorism,” but to facilitate the state repression of working class opposition to widening social inequality and social counterrevolution. The programs do not primarily target “terrorists,” but workers, intellectuals, and students.

The collection of data regarding the “political alignment” of cellphone users also suggests that the governments of the US and UK are keeping lists of those whose “political alignments” are of concern to the government. Previous revelations have shown how the NSA and GCHQ “flag” certain “suspects” for additional surveillance: the most recent revelation indicates that suspects are “flagged” at least in part based on their “political alignment.”

The legal rationale behind this process points to a growing movement to criminalize political thought in the US and UK.

23---As Ukrainian regime totters, oligarchs call for talks with right-wing opposition, wsws

The central issue facing the working class is developing its own, independent struggle against the Yanukovych regime and also the fascistic, Western-backed opposition forces, whose program is utterly reactionary. The support of US and EU politicians for the opposition reflects their hopes that, if the opposition rules Ukraine or a rump state in western Ukraine, it will enable them to step up operations against Russia and the Middle East.

In seeking to control Ukraine, US and European imperialism are pursuing broad geo-strategic aims. The country controls two of the three major gas pipelines connecting Russian gas fields to European markets—the Transgas and Soyuz pipelines, accounting for approximately 80 percent of Russian exports to Europe. Ukraine also hosts key naval bases used by the Russian navy during its deployments last September to oppose US plans for an attack on Syria....

Most of the street battles around Independence Square, like the takeovers of regional administrations, were waged by only a few thousand protesters, mobilized by the fascistic, anti-Semitic Svoboda party and Right Sector group. The ability of such forces to destabilize Ukraine testifies to the unpopularity and the narrow social base of Yanukovych’s reactionary regime...

Speaking to the Guardian, Klitschko praised the oligarchs and boasted of his close ties to them. “In private conversations, all the oligarchs support the idea of the rule of law,” he said. “The leaders change, the rules change, and the lack of set rules means business groups can’t be sure they will keep their assets.” This statement points to the anti-worker agenda driving both the Western-backed opposition and the regime. Both are dedicated to defending the reactionary capitalist oligarchy that emerged from the restoration of capitalism in the USSR in 1991. The conflict between Yanukovych and the opposition is only over which geo-strategic orientation—to Moscow or, for the opposition, to the EU—will more reliably preserve the “assets” monopolized by the oligarchs.

The current political crisis and opposition protests emerged last year, when Ukraine faced the possibility of state bankruptcy over a $15 billion debt to international banks. Yanukovych first negotiated deep austerity measures as part of a deal to establish closer ties to the EU. His decision to back away from the deal and seek financial aid from Russia—fearing the social explosion that mass cuts to energy subsidies and social programs would create in the working class—triggered opposition protests.
Both the pro-EU opposition and the Yanukovych regime are united, however, in their insistence that the international banks will be repaid, and that the costs will be borne not by billionaire oligarchs, but by working people. As different factions of the ruling elite plan for violence and crackdowns—by the opposition’s fascistic goon squads or the regime’s security forces—they are united in their hostility to the working class, and fear of its opposition to their austerity agenda.
This situation is an indictment of the restoration of capitalism in the USSR in 1991 and of the reactionary impact of Stalinism on the political consciousness of the population.

Capitalist restoration has led to a social disaster in the Ukraine. From 1990 to 2000, the country’s Gross Domestic Product (GDP) fell from $90 billion (4 percent of the world economy) to $31 billion (1 percent of the world economy). The fruits of what economic growth has taken place since then have gone overwhelmingly to a layer of super-rich, parasitic oligarchs who looted Ukrainian state assets during capitalist restoration.
In 2008, the net worth of Ukraine’s top 50 oligarchs was $112.7 billion, or two-thirds of the country’s Gross Domestic Product (GDP). Their personal holdings gave them controlling stakes in businesses amounting to 85 percent of the country’s economy

24---Obama's legacy, wsws

Obama's principal domestic initiative, the health care overhaul, is a gigantic fraud, aimed not at expanding health care, but slashing it....

* Obama oversaw the greatest transfer of wealth from the poor to the rich in world history.
The 2008 bailout of the banks and the “quantitative easing” programs begun under Bush have been vastly expanded under Obama. His administration has made available virtually unlimited resources for speculation by Wall Street. Over the past five years, the Federal Reserve has purchased more than $1.5 trillion in essentially worthless mortgage-backed securities from financial institutions, and even more in US Treasuries. It has printed trillions of dollars and injected them into the financial markets.

As a direct consequence, the stock market has soared. The Dow Jones Industrial Average has more than doubled since the first months of Obama’s first term. The net wealth of the Forbes 400 richest Americans has risen accordingly, from $1.27 trillion in 2009 to over $2 trillion today, an increase of 60 percent, or more than $700 billion. Ninety-five percent of all income gains between 2009 and 2012 went to the wealthiest one percent of the US population.

Corporate profits are higher than ever, while wage growth is at the lowest level since the end of the Second World War. In the aftermath of the Obama administration’s 2009 restructuring of the auto industry, real wages for auto workers have fallen 10 percent and wages for manufacturing as a whole have fallen 2.4 percent. As a result of the collapse in wages, for the first time in history the majority of Americans receiving food stamps are working age.

           Attacks Meant to Draw Attention Away From Civilian Deaths

26---Meet the new breed of Ukrainian revolutionaries – ‘Pravy Sektor’ (Right Sector) radical movement, RT

Radical nationalism is a dark, blind force, isn’t it? So this is how they can eventually set their whole native land, worshipped by them, on fire. ...

What comes as a double surprise is the latest news that ambassadors of several EU-member states, the US and Canada have paid another visit to Maidan to meet Pravy Sektor activists and learn how ‘the headquarters of national resistance’ operates. ...

The core of Pravy sektor is made of the activists of radical groups, including ‘Trizub’, ‘Patriot of Ukraine’, as well as UNA-UNSO and the ‘Svoboda’ (Freedom) ultra-right party, which made international headlines after winning nearly 10 percent of votes at the last parliamentary election in Ukraine.

The icon of the modern Ukrainian nationalist movement is Stepan Bandera – the notorious leader of the previous generation of Ukrainian nationalists who were fiercely fighting against the Soviet army during the Second World War. Gangs of cutthroats, obsessed with the idea of a unified Ukrainian state were hiding in the thick forests of Western Ukraine and hobnobbing with fascist Germany in an attempt to find a ‘senior brother’ to defeat the ‘Soviet occupants’.

Bandera, who was killed by a Soviet spy agent in 1959 while living in exile in post-war Munich, was later proclaimed ‘a martyr’ and a ‘national hero’ by the offspring of the founding fathers of the Ukrainian ultra-right movement.

27--End of 2013: 1,280,000 were at least 90 days past due, DS news

BKFS’ data also reveals that 3,243,000 properties were at least 30 days past due (but not in foreclosure) at the end of the year, while 1,280,000 were at least 90 days past due. A total of 4,488,000 properties were at least a month delinquent or in foreclosure.
The total U.S. foreclosure pre-sale inventory rate as of December 31 was 2.48 percent, according to the company—down 0.74 percent on a monthly basis and 27.90 percent yearly. The total number of properties in foreclosure pre-sale inventory was 1,244,000.

28---Seeing past the spin: 1,280,000 properties 90 or more days delinquent, but not in foreclosure
 , HW

Really good news: In December, foreclosure and seriously delinquent (90+ days) inventories reached their lowest levels since 2008. Also, foreclosure starts were down 23% for the entire year. The total U.S. foreclosure pre-sale inventory rate hovered at 2.48%.
By volume, the number of properties 30 days or more past due, but not in foreclosure, came to 3.24 million.
In addition, there were 1.28 million properties 90 or more days delinquent, but not in foreclosure.
The number of properties in the foreclosure pre-sale inventory ran to 1.25 million, while the number of properties that were 30 or more days delinquent or in foreclosure hit 4.48 million.

29---High prices causing new home sales to wane, mreport

30---Economic mobility hasn’t changed in a half-century in America, economists declare, WP