Friday, January 3, 2014

Today's Links

1--Can mighty Wall St. bull keep charging in 2014?, USA Today

The rapid price appreciation of stocks and real estate makes consumers feel richer. The resulting "wealth effect" is likely to spur consumer spending, which accounts for two-thirds of U.S. economic activity.
"The recovery in asset prices is an important part of the story," Chung says

2---U.S. Home Sales Post First Yearly Drop in 29 Months - world property channel

In November, distressed home sales -- foreclosures and short sales -- accounted for 14 percent of all sales, unchanged from October, but lower than the 22 percent last year. 

First-time buyers accounted for 28 percent of purchases in November, unchanged from October, but lower than the 30 percent in November 2012.

All-cash sales represented 32 percent of transactions in November, increasing from 31 percent in October and 30 percent in November 2012.  

3---How Beer Explains 20 Years of NAFTA’s Devastating Effects on Mexico, naked capitalism
Mexico's farming destroyed by "free trade"

4---The Untold Story of Citibank’s Student Loan Deals at NYU , Wall Street on Parade

Even more disturbing in evaluating the fitness of a Citigroup company to be offering loans to young, inexperienced students at a nonprofit institution of higher education, Kubiniec testified that CitiFinancial intentionally targeted the young, gullible and minorities: “I and other employees would often determine how much insurance could be sold to a borrower based on the borrower’s occupation, race, age, and education level.  If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the coverages CitiFinancial offered.  The more gullible the consumer appeared, the more coverages I would try to include in the loan…” Kubiniec told the FTC investigators. ...

Another NYU student and Citibank borrower, Gina K., wrote to the CFPB early this year telling them that “I was misinformed, manipulated and the lenders were not honest with me. They estimated that my student loans would be about $200 – 300 a month. A far cry from $1,000 a month. When the economy gets better, my variable interest rate goes up, and my payments can be as high as $1,300 or $1400 a month.” Gina told the CFPB that she has a Masters Degree from NYU but because student loan payments are consuming half of her monthly income, she is forced to live from paycheck to paycheck with no hope of getting out of debt.....

Instead of education being the great equalizer, the NYU education model has become the fast track to ensuring that the generational chains of poverty are never broken. A four year education at NYU, including campus housing, is now over $280,000.

5--Central Banks Rule!, Testosterone Pit

Hedge funds raked in the moolah in 2013, with assets under management rising by $228.8 billion to an all-time record of $2.01 trillion – not counting the hedge funds that our TBTF banks have become. But returns paled compared to the miracles the Fed performed with the stock market. Hedge funds specializing in distressed debt outperformed all other strategies with a 16.8% gain, ahead of long/short equities hedge funds, up 14.3%, and event-driven hedge funds, up 11.3%. Compared to 29% for the S&P 500.

But hey, what matters is that the all-important metric of assets under management gets pushed to new highs. Hedge funds get paid 2% on it, come hell or high water, so about $40 billion in 2013. And they get paid another 20% on any gains, so roughly $55 billion in 2013, for a total fee intake of $95 billion or so. Hopes are riding high for a killer 2014.

Corporate deal-making also bloomed in the US in 2013: mergers rose 11% to over $1 trillion, the highest since the financial crisis. Reshuffling the corporate deck is good for everyone: CEOs, investment banks, hedge funds with insider knowledge, and workers who are going to get laid off as the post-merger synergies are being implemented….

“This era of low interest rates has encouraged companies to consolidate and clean up some structural inefficiencies,” is how Michael Carr, head of Goldman’s Americas M&A, explained the workers-getting-laid-off phenomenon. Goldman pocketed $1.5 billion in fees for its M&A advisory work.
The accelerating pace of the mergers during the last two quarters is goosing extrapolations of what an insanely good year 2014 is going to be – helped along by a “stronger economy,” some sort of “stability at the Fed,” and an inexplicable absence “of near-term economic bumps,” according to Scott Barshay, head of the Corporate Department at Wall Street law firm Cravath, Swaine & Moore. In reality, to get a bumper crop of mergers, you must have a gravity-defying stock market and a continued flood of freshly printed money made available to large corporations at near-zero cost.
Companies are motivated. Stock valuations have moved into the stratosphere. Financial engineering, such as share buybacks, has been covering up, more or less elegantly, the ugly reality of stalling growth in revenues and earnings. But there will be a moment of truth.

“The pressure is building for companies to justify their trading multiples,” warned Chris Ventresca, co-head of Global M&A at JPMorgan, which pocketed $1.3 billion in fees for its M&A advisory work. “It will be hard to deliver that organically, so you have to look for inorganic growth.”
You can practically hear the fizzing optimism for IPOs. In 2013, there were 229 IPOs, raising $61.3 billion, the highest amount since 2007, and up 58% from 2012 [read my take on this and other extraordinary accomplishments in 2013..... Financial Engineering Wildest Since The 2007 Bubble].
 Now even Chinese IPOs are coming back. Everything that isn’t nailed down will get shoved out the door, viable or not, at dizzying valuations. And somebody is going to end up holding the bag.
“The longer this window stays open, the more the quality of the deals falls, the more you get the piggyback deals,” explained Tony Ursillo, a tech analyst at Loomis Sayles & Co., which has $193.5 billion under management. “I feel like we’ve cleaned out a number of the first-tier companies, from a quality standpoint.”

The casino mentality that has set in, and the billions it extracts from the real economy, is dependent on the most addictive drugs of all: a flood of nearly free money. It sets off a chain reaction, including ecstatic stock markets, where IPOs without earnings can soar and where even the most convoluted mergers that will haunt stockholders for years to come seem to make divine sense – and our favorite Wall Street engineers are out making hay while they still can.
Central banks rule!

6--Only 17% of Japan’s biggest firms plan to raise wages, japan times

7--The US is a police state, RT

NSA seeks to build quantum computer that could crack most types of encryption, WA Post

9--Obamacare turns lucrative health care industry into a virtual gold mine, wsws

The value of Standard and Poor’s health insurance index rose 43 percent through the third quarter of 2013. Since the passage of the ACA in March 2010, the value of the insurance industry’s common stock has soared by 200 to 300 percent. This is largely the result of insurance firms hiking premiums in the employer-sponsored health care market, the way the majority of American workers and their families are insured....

The launch of the president’s signature domestic program in 2014 follows a year of brutal social cuts presided over by his administration. These include cuts of tens of billions of dollars from antipoverty programs and education and other social services through the “sequester” that began last March; the US government shutdown in October; cuts to SNAP, the food stamp program, beginning November 1; and the bipartisan budget agreement December 11 that slashes retirement benefits for federal workers while leaving the majority of sequester cuts in place. This vicious assault on the working class was capped with the Christmastime cutoff of jobless benefits for 1.3 million long-term unemployed workers....

Everything that has been learned so far about the cost and quality of this coverage confirms what we wrote more than four years ago:
  • Private insurance companies are charging steep premiums on the Obamacare exchanges—some 30 percent higher than in the present individual market.
  • The least expensive “bronze” plans carry deductibles as high as $6,350 for an individual and $12,700 for families, which must be paid in full before most coverage kicks in.
  • A large percentage of bronze plans require full payment of the deductible before they cover many doctor visits, including for the flu, childhood illnesses or treatment for injuries.
  • Co-payments for doctor visits average $41 for bronze plans, compared to $28 in the current individual market.
  • Many bronze plans require cost sharing of as much as 40 percent of the price of some prescription medications. Many expensive drugs are not covered at all because they are not included in plans’ drug formularies.
  • Insurers are significantly limiting the choice of doctors and hospitals available on their plans; in many states, only one or two hospitals are included in the Obamacare networks.
All of these factors will have the effect of restricting access to care, not expanding it. The health care “reform” was aimed from the start at cutting costs for the government and corporations, resulting in reduced medical care and rationing for the vast majority of Americans. Claims by the Obama administration that the president’s health care overhaul had anything to do with providing “near universal” access to quality, affordable health care have been exposed as a cynical lie

10---Economy faces headwinds in 2014--Experts see Japan muddling through tax hike on global rebound, JT

The first stage of the sales tax hike next April will likely put a major drag on growth this year, although the nation will avert an outright recession, economists say.

“The consumption tax hike will be the biggest factor when forecasting Japan’s economy in 2014,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. “Assuming that wage increases will be minimal after the hike, consumer spending is highly likely to lose momentum,” he said.
Many economists predict that gross domestic product in real terms will rise less than 1 percent for fiscal 2014 starting in April.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute Inc., forecasts 0.9 percent growth. Ueno expects 0.3 percent.
The government, however, is taking a rosier view, targeting 1.4 percent growth for fiscal 2014. The target was approved by the Cabinet on Dec. 21.
Consumer spending, which accounts for more than 50 percent of GDP, will be the main concern after the sales tax rises to 8 percent from 5 percent. A second tax hike is to complete the doubling of the levy to 10 percent in 2015.

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