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 InflationThe 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.
5---Taper leading to disinflation or outright deflation?, Fed Watch
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.