Tuesday, February 4, 2014

Today's links

1---As Recovery Looks Weak, Stocks Take a Deep Dive, NYT

2--Stocks Plunge: 'And This Too Shall Pass,' Or Something , Testosterone Pit

3--Global rout continues, naked capitalism

the Fed appeared to have persuaded itself that QE would help the real economy, as opposed to simply goose financial asset prices. Admittedly, there was some indirect stimulus as credit-worthy homeowners refinanced en masse and the top wealthy saw strong income growth. But the Fed has simply chosen to ignore inconvenient information: that per Willem Buiter, the wealth effect of housing works only when housing prices are in bubble territory (meaning the real economy stimulus of QE would be weak), that per Richard Koo, consumers and businesses in a balance sheet recession prioritize paying down debt over spending (so the Fed should have pushed for debt restructuring, particularly of mortgages, rather than giving banks and investors a free pass on reckless lending), that QE was not going to lead banks to loosen lending much to consumers or small businesses (and separately, even if banks were predisposed to be more generous, businesses don’t decide to run out and invest because money is on sale. Unless the cost of money is one of your major input costs, meaning you are a financial services industry participant, the cost of money is a secondary or tertiary consideration. It might constrain investment, but the big driver is whether the principals see a market opportunity. And in a generally crappy economy, opportunities are thin indeed).

4---End of an Era, Doug Noland, Prudent Bear

we might have reached the initial phase of the visible failure of inflationism. For years now, the Fed has been determined to ensure a rising “price level” to supposedly grow out of debt problems. This led to historic (and erratic) asset inflation in the U.S. that faltered back in 2008/2009. Subsequent massive reflationary measures worked to reflate U.S. asset prices, while inflating prices, markets and economies globally. Virtually all central banks and government joined in....

Truth be told, the global Bubble surpassed what I even thought possible. The Fed’s balance sheet is on its way to $4.5 Trillion. The Chinese Bubble inflated to historic proportions – and is still rapidly inflating. Scores of EM countries, many with notably checkered pasts when it comes to monetary and economic management, were inundated with cheap global finance like never before. It was destined to be a fiasco from the start. Throughout it all, rarely would local authorities move to rein in overheated domestic Credit systems. Inflationism had enveloped the world like never before. And then Japan took “daring” to a whole new level of recklessness.

As already noted, the bills are beginning to come due. Inflationism’s inevitable consequences have manifested to the point of being highly destabilizing. Late-cycle Credit excess has created enormous amounts of suspect debt and economic maladjustment. Worse yet, these days much of this debt trades in the marketplace. Likely huge quantities of potentially problematic securities are held by leveraged speculators.

On the fundamental side of things, wealth redistribution and inequalities have become more conspicuous and socially unsettling. ...

January 28 – Reuters (Sujata Rao, Daniel Bases and Vidya Ranganathan): “Emerging markets have attracted about $7 trillion since 2005 through a mix of direct investment in manufacturing and services, mergers and acquisitions, and investment in stocks and bonds, the Institute for International Finance estimates. JPMorgan estimates outstanding emerging market bonds at $10 trillion compared with just $422 billion in 1993. Assets of funds benchmarked to emerging debt indices stand at $603 billion, more than double 2007 levels, it said, and over $1.3 trillion now follows MSCI's main emerging equity index. Mutual fund data from Lipper… shows that in the past 10 years net inflows into debt and equity markets was in the region of $412 billion.”

It’s also worth noting that the global hedge fund community is today about 10 times larger than back in 1997. I believe the growth in sovereign wealth funds has been at least as dramatic. Exchange-traded funds (ETFs) weren’t even a factor back in 1997. China hardly mattered to the global economy....

Here at home, Bernanke is leaving Yellen and the FOMC in a very tough spot. The course of Federal Reserve policymaking is in a state of high uncertainty; U.S. markets are unsound; and global financial and economic systems are highly unstable. Of course, Bernanke is not fully to blame. Yet he has been the leading proponent – the intellectual mastermind – of contemporary inflationism that is today seemingly at a critical crossroads.

5---Europe exposed: over $3 trillion in emerging market loans, RT

'Threat' to Europe's banks
"When currency (volatility) combines with revenue slowdowns and rising bad debts, we see compounding threats to the exposed banks,” Spick told Reuters.

The Fragile Five, BRICS and MINT are acronyms for countries like Turkey, Mexico, Indonesia, and China that are at the focus of the emerging crisis. But Europe may be the most vulnerable, as banks have more than $3.4 trillion in loans in shaky markets.
European companies have a bigger exposure to emerging markets than US or Japanese firms, according to research by Morgan Stanley Capital International.

Europe’s most vulnerable banks- the ones with the most risk in emerging markets- are BBVA, Erste Bank, HSBC, Santander, Standard Chartered, and UniCredit, according to analysts, Reuters reported. Deutsche Bank analysts estimate the six most exposed European banks have more than $1.7 trillion tied up in developing markets.
Spain’s Santander is deeply intertwined in Latin America with bank earnings sourced from Brazil (23 percent) and 132 billion euro in loans across the region at the end of 2013.

Another big Spanish lender BBVA is very involved in Mexico, which in 2013 made up 80 percent of group profits. The bank has $55 billion in exposure to Mexico, whose peso weakened nearly 3 percent in January.

BBVA and UniCredit have high exposure in Turkey, Standard Chartered and HSBC have exposure to India and Indonesia, according to analysts cited by Reuters.
At the end of September, European banks had $3.4 trillion of loans in developing countries, according to data from the Bank for International Settlements. British banks had a $518 billion exposure in Asia and Pacific regions, Spanish banks had a $475 billion in Latin America, and French and Italian banks both loaned $200 billion in ‘southern’ European economies.

6---Sharp fall in global share markets, wsws

Over the past two months, the Fed has “tapered” its asset buying program by $20 billion, a significant factor in the turbulence in “emerging markets” that has seen a number of central banks lift their interest rates. This has led to the view that the present market downturn could be the start of something more than a “correction.”
As a comment in the Financial Times (FT) put it: “[A]s storm clouds gather over areas of emerging markets and US companies post meagre revenue growth for the fourth quarter, investors are faced with the question: was January just a small speed bump in the five-year US equity bull run, or the prelude for greater challenges in the form of heightened volatility and bouts of pronounced risk aversion?”

The article cited figures which demonstrate the speculative nature of the boom. According to Alhambra Investment Partners, “money borrowed to buy stocks hit $445bn at end of 2013, above the levels that characterised the market’s peaks in 2000 and 2007.”

“As soon as the calendar flipped from 2012, it was as if investors suddenly lost all caution and embraced as much leveraged risk as could possibly be attained,” it noted.

The FT estimated that last year total margin debt usage increased by $142 billion, the biggest rise in any 12-month period in history.

Such leveraging yield enormous profits while the market keeps rising. But once a downturn sets in, enormous losses can result. As stock prices fall, demands are made for portions of the borrowed money to be repaid, setting in motion a snowballing process as speculators are forced to sell off shares to meet these demands, sending the market lower and prompting calls for further repayments

7---EU and Washington step up pressure on Ukraine, wsws

In contrast to most other media outlets, the mouthpiece of Wall Street refrained from euphemistic phrases about freedom and democracy and openly admitted the real aim of the Western powers in Ukraine: a “geopolitical contest for influence” and a struggle “to blunt Moscow’s ability to control Ukraine economically and politically.”...

Klitschko was hailed by the media and participants as the star of the security conference. He spoke in a panel discussion attended by the Ukrainian Foreign Minister Kozhara and former US National Security Advisor Zbigniew Brzezinski and took part in numerous background briefings, including meetings with Kerry and Steinmeier.

They apparently encouraged Klitschko to step up the pressure on the Ukrainian government. On Sunday, he returned to Kiev and called upon a crowd of 10,000 demonstrators to set up vigilante groups. “Set up vigilantes in every yard, every district, every home,” he said.

Klitschko’s party UDAR (Strike) is supported and funded by the German Konrad Adenauer Foundation. UDAR has organized anti-government protests together with two other parties, the right wing Homeland and neo-fascist Svoboda (Freedom) parties. They took to the streets following the decision of Ukraine’s President Viktor Yanukovych in November of last year to cancel on short notice the signing of an Association Agreement with the EU in favor of a loan agreement with Russia.
They are doing so with the open support of the US, German and many other European governments. None of these forces have been deterred in giving their support by the fact that Svoboda defends fascist and anti-Semitic views and glorifies Stepan Bandera, who collaborated with the Nazis in World War II and has the blood of tens of thousands Jews and communists on his hands.

Contrary to its claims, the opposition does not represent the majority of the Ukrainian people. The opposition has support in the west of the country but is vehemently opposed in the east, home to many Russians and the center of Ukraine’s heavy industry. The types of economic reforms demanded by the EU and supported by the opposition would have similar devastating effects for the vast majority of the Ukrainian people as the austerity programs of the troika in Greece.

8---The Detroit bankruptcy and the global social counterrevolution, wsws
       Last week, the Detroit news media leaked parts of the restructuring plan that Emergency Manager Kevyn Orr is set to implement in the largest municipal bankruptcy in US history. Euphemistically called a “plan of adjustment,” it outlines a savage assault that will set a precedent to escalate the attacks on the working class throughout the US and internationally.

The plan includes ending medical benefits for 23,500 retired city workers and forcing them onto Medicare or Obama’s insurance exchanges. Retirees will also see their already meager pension checks slashed as the city reduces payments to pension trust funds by as much as 75 percent.
Orr is organizing a fire sale of public assets, including the Detroit Institute of Arts and the municipal water and sewerage system, to pay off the Wall Street banks and other wealthy creditors who control the city’s debt. The elimination of 700 of 1,700 jobs at the water department is only the down payment on the massacre of city jobs to come.

The Detroit bankruptcy is part of the ruling class strategy to turn the clock back and return workers to conditions of economic peonage not seen since the 19th century. Flatly rejecting any Wall Street-style bailout for the population of Detroit, the Obama administration is using the bankruptcy as a test case to override state constitutions and other legal protections against the destruction of public employee pensions.

What is taking place is the wholesale theft of workers’ benefits and public assets by a parasitic financial elite that wants the wealth for itself. This criminal operation is being carried out by the politicians of both big business parties at the federal, state and local levels, sanctioned by the courts, and promoted by the media, which is systematically lying to the public.

9---Mortgage equity withdrawal responsible for 50% of current foreclosures, oc housing

“Loans entering foreclosure today have missed roughly two years of payments on average, more than double the pre-crisis, long term average,” Fitch Ratings said.
Another factor is that the composition of borrowers entering foreclosure is changing. The percentage of loans entering foreclosure, which had been cash-out refinance at origination increased steadily since 2008, and now account for 50% of the total.
This startling fact got one line in this report, but it’s the most important fact in the entire story. Activists for principal reductions and other bailouts denied free-money Ponzis were a huge part of the housing bust, but seven years after the collapse, the HELOC abusers, that group who supposedly didn’t exist, now accounts for 50% of today’s foreclosures.....

Approximately half of all loans that recently entered foreclosure have been unsuccessful in at least one prior loan modification.....

Fitch Ratings did emphasize that there is a chance some portion of borrowers currently in the foreclosure process obtained additional and/or secondary financing subsequent to the origination of their first liens, which could be factoring into their ability to pay.
In other words, this analysis doesn’t count second mortgages, credit cards, car loans, or any of the other debt instruments lenders used to enslave the population, so no matter how bad you think it is, the reality is far worse.

10--Originations See Lowest Numbers Since 2008, MReport

11--December Pending Home Sales Fall, NAR

12---The Federal Reserve Lies About Everything, USA Watchdog

“For the most part, with them now tapering, we can almost say mission accomplished. They’ve taken these mortgage bonds off the books of the banks, and they are held right now on the balance sheet of the Federal Reserve.”
According to Kirby, the Fed almost always deceives the public. Kirby claims, “Everything they tell us is a lie. These people preach they are about transparency, but everything they do is sleight of hand, misdirection and a shell game.”

13---Consumers Feel Lingering Hopelessness as Optimism Wanes, DS News

Despite improvements to personal finances, consumer sentiment moved downward in January, according to one of the leading measures.
The Surveys of Consumers’ Index of Consumer Sentiment, released jointly by Thomson Reuters and the University of Michigan’s Survey Research Center, dropped to 81.2 this month from December’s 82.5. Compared to a year ago, January’s survey was up an even 10 percent from 73.8.

The monthly decline stands in contrast to the Conference Board’s Consumer Confidence Index, which rose for the second straight month in the group’s most recent report.
According to Surveys of Consumers, respondents judged their recent financial progress in January more favorably than any other time in the past six months. When asked to explain how their finances had changed, income increases were mentioned by the highest proportion of consumers since late 2007.

At the same time, however, only one in four households in the January survey reported being better off financially than they were five years ago, and half said they expect no income increase in the year ahead.
“Despite the recent economic gains, consumers’ outlook for their finances as well as the national economy over the longer term have remained more resistant to improvement than in past recoveries,” said Richard Curtin, chief economist for Surveys of Consumers.

“This deeply rooted uncertainty about future economic conditions was first sparked by the Great Recession,” Curtin added, and it “has been sustained by the growing recognition that no federal policy has yet emerged that will restore long term economic prosperity anytime soon.”
The index’s measure of consumer perceptions about current conditions was down slightly to 96.8, outperforming last year’s reading by 13.9 percent—largely due to improved job prospects as the economy continues to march on.
The expectations index, meanwhile, was down to 71.2 (6.9 percent ahead of last year), with strained budgets and slow improvements in home values expected....

Surveys of Consumers chief economist, Richard Curtin:   Despite the recent economic gains,

consumers’ outlook for their finances
as well as the national economy over
the longer term have remained more resistant to
improvement than in past recoveries. This deeply
rooted uncertainty about future economic conditions
was first sparked by the Great Recession. It
has been sustained by the growing recognition that
no federal policy has yet emerged that will restore
long term economic prosperity anytime soon for
he majority of consumers. Optimism about long
term job and income prospects are essential for
maintaining high levels of economic motivation.

Too few consumers have regained that optimism.”

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