Selloffs in Europe, Emerging Markets Keep Investors Wary...
The Dow Jones Industrial Average on Friday tumbled 149.76 points, or 0.9%, to 15698.85. The decline capped its worst month on a percentage basis since May 2012 and was the average's biggest point decline since February 2009. The Dow dropped 5.3% in January, dragged down by turbulence in emerging markets and concerns about the pace of global economic growth....
Reflecting the swiftness of the stock market's turn, the S&P 500 index hit a record high on Jan. 15 and then went on to slide 3.6% and post a monthly loss of the same magnitude.
On Friday, the S&P 500 fel 11.60 points, or 0.65%, to 1782.59. The Nasdaq Composite Index slid 19.25 points to 4103.88 Friday and ended the month down 1.74%.....
The yield on the U.S. Treasury 10-year note finished Friday at 2.669%, down from 3% at the end of 2013. "We were a bit surprised at how substantial of a move there's been" in bonds, said Mr. Schoenhaut.
2---S&P 500 Has Longest Weekly Drop Since 2012 as Fed Cuts QE , Bloomberg
U.S. stocks fell for a third week, the longest slump since 2012 for the Standard & Poor’s 500 Index (SPX), after the Federal Reserve cut stimulus even as a rout in emerging markets spurred concern about the global economy. ....
“It’s a volatile cocktail,” David Lafferty, chief market strategist for Natixis Global Asset Management in Boston, said in a phone interview from Boston. His firm oversees $838 billion. “The Fed provides an interesting backdrop for capital leaving emerging markets. Earnings have been solid, but the outlook has generally been fairly weak.”
3---Abenomics at Risk as Workers Struggle to Keep Up With Inflation , Bloomberg
Employees like Matsui have yet to see the benefits -- in the 11 months through November, pay for the average Japanese worker rose just 0.2 percent; it’s fallen 15 percent in the past decade and a half. Japan’s unions will begin contract negotiations next month in labor’s biggest bid so far to share in the benefits of Abenomics. ....
“Only when the long-missing link between corporate profitability and wages is restored will investment in houses, cars, and other durables, and household consumption in general, finally rid Japan of its deflation,” Abe wrote in a Jan. 6 commentary for Project Syndicate, a Web-based opinion forum...
Japan’s workers collectively earned 34.3 trillion yen less in 2012 than in 1997, Abe wrote in the commentary. That’s about $6,700 from the average annual pay packet. “I was appalled when I first saw the statistics,” he wrote.
For its part, Toyota is telling workers not to expect too much...
Weak PositionOne factor helping Toyota keep pay hikes modest is that it, like many Japanese companies, has two tiers of employees. It can hire temps like Matsui or permanent workers who get more benefits and employment guarantees. Permanent workers know that if they press hard for raises, Toyota can hire more people like Matsui -- or shunt jobs overseas.
Non-regular workers like him account for all the jobs created under Abe. Japan now has a record number of people in such positions, about 20 million, or 37 percent of the workforce....
Matsui knows that Toyota’s permanent workers are only modestly better off these days. One of his friends has been at Toyota for a decade. The worker, who asked not to be identified by name for fear of harassment by management, said he earns less than when he started because of lost bonuses and overtime. ....
“Profits aren’t trickling down,” Norihiko Sugimoto, a staffer in the city’s Industrial Affairs Department, said by telephone. “The suppliers tell us they’re getting pressed to cut prices.”
4--Personal savings rate plunges, BI
This morning's release of personal income and spending data revealed that the savings rate plunged to its lowest level since 2008 in December, excluding the outlier data point in January 2013 that resulted from a spike in early dividend payments related to the fiscal cliff and subsequent drop.
"With real incomes after tax down 0.2%, the saving rate dropped to 3.9% from 4.3%," says Ian Shepherdson, chief economist at Pantheon Macroeconomics.
"The downward trend in savings cannot continue; we believe the Q4 decline was due to people spending unexpectedly high cash balances resulting from lower spending on energy in Q3. Savings will rebound in Q1. Even with better income — December was hit by the weather — we look for real spending to slow to 2-2.5% from 3.3%. The chart shows that the saving rate is now below the low seen in the 2002-04 period, before the housing boom allowed it to fall even further. With a repeat of the housing boom unlikely, the saving rate likely will struggle to stay at this low level."
5---Trade deficit exposes weak yen woes, JT
Imports of pricey fossil fuels have surged since the 2011 atomic crisis forced the shutdown of nuclear reactors that once supplied a third of the nation’s power.
“There are no signs that the weak yen is raising the competitiveness of Japanese exports,” said Capital Economics, noting the country’s share of global exports has changed little despite the yen’s plunge. “A major reason is that exporters have been reluctant to lower export prices,” it added.
And despite his sweeping national elections on a pledge to kickstart the economy, the impact of Abe’s policies has largely stopped at the boardroom door. Critics say he must follow through on structural reforms to the economy, including shaking up labor markets and signing free trade deals.
Data Jan. 27 showed Japan’s trade deficit swelled to a record $112 billion last year, marking the biggest deficit since comparable data started in 1979. The December figure alone doubled from a year earlier. Exports rose 9.5 percent to ¥69.79 trillion, their first increase in three years, but that was offset by a 15 percent jump in imports to a record ¥81.26 trillion
6--More US Meddling: West’s interpretation of freedom for Ukraine ‘strange’ – Lavrov, RT
(US supporting right wing anti Semites in rebellion against elected gov)
What does the inciting of street protests, which are growing increasingly violent, have to do with promoting democratic principles?” Lavrov said.
“Why do we not hear statements of condemnation toward those who seize government buildings, attack and burn police officers, and voice racist and anti-Semitic slogans? Why do senior European politicians de facto encourage such actions, while at home they swiftly and harshly act to stop any impingement on the letter of the law?”
Lavrov defended the Ukrainian government’s right to stop the violence, citing a 1966 international treaty on basic political rights, which has been adopted by almost all UN members.
“The International Covenant on Civil and Political Rights states that the freedom of expression cannot be illegal and is a basic right. But riots, violent actions give the grounds to limit those freedoms,” he said. “A state must be strong, if it wants to remain democratic.”
7--5 reasons the ECB will act in the months ahead , sober look
8---Obama’s plan for long-term jobless: A teaspoon to bail out the ocean, wsws
There are some 4 million workers who have been out of work for six months or longer, according to official statistics, which do not count millions more who have dropped out of the workforce entirely for lack of any real prospect of getting a decent-paying job....
Obama has held pep rallies at factories and workplaces in several states, in most cases to highlight and celebrate the supposed generosity of corporate or small-business employers who have agreed to pay entry-level workers as much as the $10.10 an hour that Obama proposed for the new federal minimum wage.
At a Costco in Lanham, Maryland, Obama hailed the company’s founder Jim Sinegal as “a great friend of mine and somebody who I greatly admire.” Costco pays entry-level workers more than $10 an hour, above the entry-level wage at competitor Sam’s Club, owned by Walmart.
Both the Obama administration, the congressional Democrats and corporate America generally know very well that no such increase in the minimum wage will pass Congress.
9--Turmoil in EMs signals "turning point" in crisis: Currency turmoil signals new phase of global economic crisis, wsws (Today's "must read")
Whatever the immediate outcome of the turbulence sweeping through the financial systems of so-called “emerging market” economies, it represents a turning point in the global economy as a whole. The roots of the crisis lie in policies of “quantitative easing”—the pumping of trillions of dollars into the world financial system by the US Federal Reserve and other central banks—initiated in response to the 2008 breakdown that was sparked by the collapse of US investment bank Lehman Brothers.
Much of this money flowed into “emerging markets,” seeking higher profits as share prices in these countries boomed and the rates of return on other financial assets rose. But now the bubble has started to deflate and volatile capital is rushing for the exits, sending currency exchange rates plunging.....
As Neil Shearing, the chief emerging markets economist at Capital Economics, told the Financial Times: “The fact that currencies have continued to weaken even in countries that have started to raise interest rates raises the prospect of a new, and potentially more worrying phase of the recent turmoil in EM financial markets, in which beleaguered policy makers find themselves unable to defend their currencies.”
The first signs of a potential crisis appeared last May and June after Chairman Ben Bernanke indicated that the Fed would soon begin to “taper” its $85 billion per month purchases of mortgage-backed securities and US Treasury bonds. His comments sent a shiver through “emerging markets” and capital flowed out...
The claim that the present turmoil is the outcome of “country-specific” problems ignores the fact that the massive inflow of capital into “emerging markets” in the five years since the crisis of 2008 is part of a much broader development.
The continued injection of money by the Fed—amounting to at least $1 trillion per year—combined with near-zero interest rates has created a situation where the global financial system has come to resemble an inverted pyramid, with financial assets rapidly expanding relative to the productive base of the world economy on which they ultimately rest.
This means that, in the final analysis, a large proportion of these assets have become “toxic,” having no real value, just as hundreds of billions of dollars of securities based on sub-prime housing loans were found to be worthless five years ago. In other words, the present turmoil is an early signal of a new financial crisis, potentially more destructive than that of 2008.
This can be seen from figures on the extent of the movement of volatile finance capital in the past period. According to the Institute for International Finance, emerging markets have attracted about $7 trillion since 2005, which has been invested in a mixture of manufacturing and service enterprises, mergers and acquisitions, and stocks and bonds. JPMorgan Chase estimates that outstanding “emerging market” bonds are now $10 trillion, compared to just $422 billion in 1993.
On top of the shift of capital sparked by the “taper,” another factor in the crisis is the economic slowdown in China. According to a survey published this week, Chinese manufacturers have been cutting jobs at the fastest rate since March 2009, the nadir of the downturn caused by the global financial crisis.
Chinese growth this
year is expected to be the lowest for more than 20 years, and there are increasing concerns about the stability of the country’s financial system. This week, the $500 million China Credit Trust had to be bailed out to avert default on a financial product backed by loans to a failed coal mining company. The China Credit Trust is part of the shadow banking system in China that is believed to account for about one third of all new credit in the Chinese economy....
The significance of that remark is underscored by the fact that in the five years since September 2008, the “emerging markets,” including China, have been responsible for about three quarters of the increase in global output. In 1997–98, the outcome of the Asian financial crisis was a downturn as significant in its impact on the region as the Great Depression was in the advanced capitalist economies. Any repetition would rapidly bring deepening recession around the world.
For the international working class, the eruption of this crisis has major implications. In all of the “emerging markets,” the interest rate increases and other emergency measures will mean a stepped-up offensive—the slashing of jobs, wages and social conditions.
The currency crisis demonstrates once again the emptiness of the claims by the ruling elites and their pundits that “economic recovery” is underway. The global capitalist system has failed. The very policies that were supposed to induce an upturn have only enhanced the wealth of the multi-millionaires and billionaires, while creating the conditions for another financial meltdown