Monday, March 31, 2014

Today's Links

1--The market is rigged, Bloomberg

“The United States stock market, the most iconic market in global capitalism, is rigged,” Lewis, whose books “Liar’s Poker” and “The Big Short” highlighted Wall Street excesses, said during the interview. The new book comes out today. “It’s crazy that it’s legal for some people to get advance news on prices and what investors are doing,” he said.

2--Another Debt-Fueled Spending Spree?, House of Debt

New auto purchases have driven the consumer spending recovery to a large degree. The chart below shows the spending recovery for new auto sales and for all other retail spending. We index both series to be 100 in 2009, so the percentage change from any year to 2009 can be seen by taking the value for that year and subtracting 100.

From 2009 to 2013, spending on new autos increased by 40% in nominal terms. All other spending increased by only 20%. Further, excluding autos, 2013 saw lower growth in nominal retail spending than 2012. As we’ve mentioned before, the spending cycle tends to be amplified when it comes to auto purchases, so the strong performance of autos shouldn’t be surprising. But at this point we are seeing stronger growth in auto purchases even four years after the recession ended.
Here is year-over-year spending growth on autos and other retail goods for 2012 and 2013. Spending has increased between 7% and 9% in these years. For other goods, spending increased by 5% in 2012 and only 3% in 2013. Without autos, 2013 spending looks a lot worse than 2012. ...
Here is year-over-year spending growth on autos and other retail goods for 2012 and 2013. Spending has increased between 7% and 9% in these years. For other goods, spending increased by 5% in 2012 and only 3% in 2013. Without autos, 2013 spending looks a lot worse than 2012. If you want these in real terms, you can subtract off 2% to get a pretty close estimate.

we know that the recovery in employment and income has been pretty weak in 2012 and 2013. Do we think that income growth justifies the large increase in auto debt? Who exactly is getting these loans? Are they borrowers who are seeing their income and employment fortunes improve? Will lenders continue to lend if risk-free rates rise?

By 2030, based on the current trend of widening income inequality, close to 85 percent of all working-age adults in the U.S. will experience bouts of economic insecurity.....

Going back to the 1980s, never have whites been so pessimistic about their futures, according to the General Social Survey, a biannual survey conducted by NORC at the University of Chicago. Just 45 percent say their family will have a good chance of improving their economic position based on the way things are in America.....

Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.

Survey data exclusive to The Associated Press points to an increasingly globalized U.S. economy, the widening gap between rich and poor, and the loss of good-paying manufacturing jobs as reasons for the trend....

Hardship is particularly growing among whites, based on several measures. Pessimism among that racial group about their families' economic futures has climbed to the highest point since at least 1987. In the most recent AP-GfK poll, 63 percent of whites called the economy "poor."...

While racial and ethnic minorities are more likely to live in poverty, race disparities in the poverty rate have narrowed substantially since the 1970s, census data show. Economic insecurity among whites also is more pervasive than is shown in the government's poverty data, engulfing more than 76 percent of white adults by the time they turn 60, according to a new economic gauge being published next year by the Oxford University Press.

The gauge defines "economic insecurity" as a year or more of periodic joblessness, reliance on government aid such as food stamps or income below 150 percent of the poverty line. Measured across all races, the risk of economic insecurity rises to 79 percent.

Marriage rates are in decline across all races, and the number of white mother-headed households living in poverty has risen to the level of black ones......

Nationwide, the count of America's poor remains stuck at a record number: 46.2 million, or 15 percent of the population, due in part to lingering high unemployment following the recession. While poverty rates for blacks and Hispanics are nearly three times higher, by absolute numbers the predominant face of the poor is white.

More than 19 million whites fall below the poverty line of $23,021 for a family of four, accounting for more than 41 percent of the nation's destitute, nearly double the number of poor blacks.....

In 2011 that snapshot showed 12.6 percent of adults in their prime working-age years of 25-60 lived in poverty. But measured in terms of a person's lifetime risk, a much higher number -- 4 in 10 adults -- falls into poverty for at least a year of their lives......

4---Earl Grey, the brew that could tackle heart disease: Scientists say bergamot found in the tea could be as effective as statins in controlling cholesterol,  Mail online

5---Prosecuting mortgage fraud not a priority, Delaware online

6---Seven Decades of Nazi Collaboration: America’s Dirty Little Ukraine Secret, antiwar

7--More BS: No Russian build up on Ukrainian Border, NBC
8---New Snowden documents detail political and corporate espionage by US, UK, wsws

With the US mounting aggressive operations against allied imperialist governments and against the US Congress itself, there can be no doubt that domestic political opponents and militant elements in the US working class are subject to even more far-reaching measures.....

documents also show that GCHQ targeted three German firms in complex operations that involved infiltration of their computer systems and surveillance of employees.
IABG, a security and communications firm with ties to the German state, and similar firms Stellar and Cetel, were apparently targeted for surveillance because they provide communications services to German corporations engaged in lucrative operations such as diamond mining and oil drilling around the world.
“The document notes that GCHQ hoped to identify ‘access chokepoints’ as part of a wider effort alongside partner spy agencies to ‘look at developing possible access opportunities’ for surveillance,” the Intercept reported.

“In other words, infiltrating these companies was viewed as a means to an end for the British agents. Their ultimate targets were likely the customers. Cetel’s customers, for instance, include governments that use its communications systems to connect to the Internet in Africa and the Middle East. Stellar provides its communications systems to a diverse range of customers that could potentially be of interest to the spies—including multinational corporations, international organizations, refugee camps, and oil drilling platforms,” the Intercept wrote.

These are only the latest revelations showing that the NSA’s surveillance activities have targeted Germany’s leadership. As of yet, Germany has been hesitant to mount a legal challenge to the operations, as such a move could exacerbate already growing tensions between US and German imperialism. “The launch of legal proceedings against GCHQ agents or NSA employees would quickly become a major political issue that would further burden already tense trans-Atlantic relations,” Der Spiegel wrote.

The documents also show that the NSA’s Special Source Operations (SSO), which oversees the agency’s “corporate partnerships” with US telecommunications companies including Google, Microsoft, Verizon and AT&T, received an open-ended FISA court authorization in 2013 to conduct surveillance against targets in Germany.
According to Der Spiegel’s report, the FISA court has granted similar authorizations for blanket surveillance operations against Mexico, Venezuela, Yemen, Brazil, Guatemala, Bosnia, Russia, Sudan and China.

9---White House ally reveals anti-working class agenda behind Obamacare, wsws

Emanuel’s book is a confirmation, “from the horse’s mouth,” of the analysis of Obamacare developed since the program’s origins by the World Socialist Web Site. As the WSWS wrote last year: “The essential aim of the ACA is rapidly emerging. Behind the talk of providing coverage for the uninsured, Obamacare was devised from the outset as a means of dismantling the employer-based system of health insurance that for decades guaranteed a basic level of health care for tens of millions of workers in the US.”

From the start, Obamacare was based on cutting costs for the government and employers while boosting the profits of the health care industry, first and foremost, the insurance conglomerates. The concerted attack on health care in the US demonstrates the incompatibility of the basic needs of working people, on the one hand, and private ownership of the health care infrastructure and its subordination to corporate profit, on the other.

In his new book, Reinventing American Health Care, Ezekiel J. Emanuel outlines how the ACA lays the groundwork for the virtual elimination of employer-sponsored health insurance in America over the next decade.
Emanuel is a close ally of President Barack Obama, having served from January 2009 to January 2011 as a special adviser on health care reform to the White House. As we wrote in 2009, “An examination of Emanuel’s vision of health care restructuring reveals that Obama’s proposals have been informed by many of its guiding principles. Key among them are the defense of a health system based on private profit and the delivery of class-based, rationed medical care for the majority of Americans.”

In a section near the end of his book, titled “The End of Employer-Sponsored Health Insurance,” Emanuel explains that before Obamacare, some 150 million people—close to half of the US population—received their health insurance through their employer or a relative’s employer. This was despite the fact that no “employer mandate” existed requiring businesses to do so.

“The ACA changes all of that,” Emanuel writes approvingly. He states categorically: “By 2025 few private-sector employers will still be providing health insurance.” He predicts that traditional employer-sponsored coverage will be replaced by a combination of defined contributions to employees to purchase coverage on private exchanges, basically vouchers, or the elimination of insurance coverage altogether.
What is posed is a sea change in the way Americans receive health insurance, with devastating implications for working people.....

In the aftermath of the financial crash of 2008, the ruling class is determined to shed its share of the cost of health care for workers by ripping up the postwar system and forcing workers to buy insurance on the private market on an individual basis, leaving them completely at the mercy of the giant insurance firms.
Enter the Obama administration and its so-called health care “reform.” Emanuel explains how Obamacare creates the framework for this massive shift.
One of the biggest incentives for employers to drop insurance is the “Cadillac tax” imposed under the ACA, which will kick in after 2018. Under this tax, companies will be taxed at a 40 percent rate for benefits paid to individuals in excess of $10,200, and for families above a threshold of $27,500. Emanuel writes that this tax will make it undesirable for employers to continue to offer lavish health insurance ” (emphasis added).

10--Double Data Whammy For Japan As PMI Tumbles & Industrial Production Misses By Most Since Abenomics, zero hedge

11---salaries have dropped 15 percent over the past 15 years, and even with companies now enjoying strong profits thanks to the weaker yen, many lack the confidence to offer significant raises to their workers. , businessweek

(consumer spending slams into reverse sooner than expected.)

“The real risk it that the consumption tax will exacerbate the central problem with Abenomics—a blow to household wealth and spending power as price rises accelerate ahead of income,” writes Orlik. Abe has succeeded in conquering deflation: Consumer prices jumped at an annual 1.5 percent rate last month. But with the tax increase making prices even more expensive, Japanese consumers can’t keep up. “The problem is that tepid increases in wages have left households with falling real income.”

With inflation returning to Japan but companies not offering workers much in the way of salary increases, Japanese consumers are already cutting back on their spending. On Friday, the government announced household spending in February fell 2.5 percent. That drop was the first in six months and came as a surprise: With the consumption tax going up in April, Japanese consumers were supposed to do their spending now, while the tax rate was still at 5 percent. Instead, consumer spending went in reverse, a lot earlier than expected.

Are there signs of decline already? One ominous clue: Industrial production last month fell 2.3 percent compared with January. Economists surveyed by Bloomberg had been expecting a 0.3 percent gain. Still, the bad news now may turn out to be good news later, since the drop in manufacturing shows that companies are already adjusting for a drop in demand and so won’t have to make major cutbacks in the months ahead. “The fall off in the second quarter should be modest,” Kiichi Murashima, Citigroup’s (C) chief economist in Tokyo, told Bloomberg News.

12--Foreign capital flees Japan, Bloomberg video   

13--Abe Names Special Strategic Zones in Bid to Boost Japan’s Allure, bloomberg

Greater Tokyo aims to become the easiest international city in the world to do business, and the plan included loosened building regulations and revised labor conditions for global companies. The Kansai area plan included promoting medical and health-care innovation including regenerative medicine, and also revised labor conditions for venture capital and global companies.

Sunday, March 30, 2014

Today's Links

1---Measuring Wealth Inequality, House of Debt

Here is the bottom line from the preliminary findings: the top 0.1% of the wealth distribution has seen a dramatic rise in the fraction of total wealth held, rising from a steady level of 10% from the 1940s to the 1970s, to over 20% in 2013. Here is the key chart:


The top 0.1% have seen incredible gains over the past 30 years that have take them to the same fraction of national wealth that they enjoyed in the 1920s.
The other interesting finding in the Saez-Zucman study is that the increase in wealth is primarily about the top 0.1%. When we look at the top 1% excluding the top 0.1%, there is no gain. Here is another chart:


The gray and black line show that the top 1% to 0.1% have not seen large increases in the share of total wealth. Instead, the rise is completely driven by those in the top 0.1%. These are the very richest households in the country.

Simple measurement is often a bit boring, but it is also absolutely crucial for thinking about the overall economy. Saez and Zucman have taken an initial step toward measuring wealth inequality in the United States, and it shows a rising amount of inequality driven by the very top of the wealth distribution.

2---Capital ownership and inequality, House Of Debt

Here is the distribution of financial asset holdings across the wealth distribution. This is from the 2010 Survey of Consumer Finances:

The top 20% of the wealth distribution holds over 85% of the financial assets in the economy. So it is clear that the direct income from capital goes to the wealthiest American households. For more evidence on this pattern through history, see the working paper by Edward Wolff. He shows that the share of financial assets held by the top 20% of the wealth distribution has been increasing since 1983.

3---If You're Bullish About Stocks, You Should Ponder This Warning From One Of The Smartest Investors Ever, BI

Someday, financial markets will again decline. Someday, rising stock and bond markets will no longer be government policy – maybe not today or tomorrow, but someday. Someday, QE will end and money won’t be free. Someday, corporate failure will be permitted. Someday, the economy will turn down again, and someday, somewhere, somehow, investors will lose money and once again come to favor capital preservation over speculation. Someday, interest rates will be higher, bond prices lower, and the prospective return from owning fixed-income instruments will again be roughly commensurate with the risk.
Someday, professional investors will come to work and fear will have come to the markets and that fear will spread like wildfire. The news flow will be bad, and the markets will be tumbling.
Six years ago, many investors were way out over their skis. Giant financial institutions were brought to their knees...
The survivors pledged to themselves that they would forever be more careful, less greedy, less short-term oriented.
But here we are again, mired in a euphoric environment in which some securities have risen in price beyond all reason, where leverage is returning to rainy markets and asset classes, and where caution seems radical and risk-taking the prudent course. Not surprisingly, lessons learned in 2008 were only learned temporarily. These are the inevitable cycles of greed and fear, of peaks and troughs.
Can we say when it will end? No. Can we say that it will end? Yes. And when it ends and the trend reverses, here is what we can say for sure. Few will be ready. Few will be prepared.....

Some people, though — Jeremy Grantham, Seth Klarman, John Hussman, Robert Shiller, and many others — are looking at the current level of stock prices and comparing them to average prices over the past 150 years. And, based on these prices (and other factors, like the Fed), they are concluding that stocks have a lot of downside risk. So much so that, Klarman at least, is forgoing fees to avoid getting clobbered by this risk.

4---Inflation Slows Again, Bouncing Around Four-Year Low , wsj

Inflation isn’t just going nowhere. It may be slipping again.
The Commerce Department’s latest read of consumer prices on Friday showed price pressures moving in a direction many Federal Reserve officials find uncomfortable. The personal consumption expenditures price index — the central bank’s preferred inflation gauge — slowed to an annual gain of less than 1%.
The PCE index’s 0.9% annual increase in February marked the weakest reading since October, when year-over-year inflation touched a four-year low.

The latest data suggests the U.S. faces little risk of rapidly accelerating inflation as the Fed slows the amount of stimulus it’s pumping into the economy. Earlier this month, the central bank said it would lower the pace of monthly bond buying by another $10 billion to $55 billion.
Friday’s report showed the pace of food inflation increased in February after holding virtually flat the previous five months. But that gain was largely offset by declining prices for long-lasting durable goods and energy last month.

The consumer price index, a separate inflation measure calculated by the Labor Department and released earlier this month, rose 1.1% in February from a year earlier. That, too, was a slowdown from January.

5---Accounting Trick Helps Banks Dodge Capital Pain, wsj

Last year, many banks, especially big ones, entered into long-term relationships with their securities portfolios, promising hundreds of billions of dollars of assets will be "held to maturity." As a result, the banks may appear to have higher book values and be better capitalized in the eyes of regulators even if the value of these securities declines.

That should make investors wary.
The amount of securities banks pledge to hold to maturity rose last year by 61%, to $492.3 billion. J.P. Morgan Chase increased the amount of securities it designates this way by nearly $20 billion in last year's fourth quarter.
When securities are classified as held to maturity, they are carried at their original cost, typically face value. Declines in market values hit neither book value nor earnings. Their value is written down only if they are considered to be permanently impaired.

It's no coincidence this occurred as long-term interest rates started rising, which sends bond prices lower. The greater use of the held-to-maturity classification helped banks to potentially avoid billions of dollars in losses.
That is because most securities held by banks are designated as trading instruments or as being available for sale. In the former instance, gains and losses are based on market values and flow through earnings. In the latter, bonds are marked to market prices, but the change runs through shareholders equity; while earnings aren't affected, book values are.

The eurozone has been in paralysis a long time, first in the face of financial crisis and now the clear and present danger of deflation ...

please don’t call it deflation.
To the extent that prices, wages and asset values are indeed falling in certain parts of the eurozone, this is not, according to the ECB, deflation, but a “relative price adjustment”, which will eventually make these countries more internally competitive. Unfortunately, it also only further increases the weight of already intolerable debt burdens. To ease this plight, the ECB should actually be running an inflation target of more like 3pc or 4pc, but never mind quantitative easing, there is absolutely no chance of Mr Weidmann agreeing that.

7---A Question of Justice: Complex financial crimes were the lowest priority for the criminal investigative division., NYT

Here is one of the report’s conclusions: “We found that, despite public statements by the Financial Fraud Enforcement Task Force and the department about the importance of pursuing financial fraud cases, including mortgage fraud, the F.B.I. Criminal Investigative Division ranked complex financial crimes as the lowest of the six ranked criminal threats within its area of responsibility, and ranked mortgage fraud as the lowest subcategory threat within the complex financial crimes category. Additionally, we found mortgage fraud to be a low priority, or not listed as a priority, for F.B.I. field offices in the locations we visited, including Baltimore, Los Angeles, Miami, and New York.”
Got that? Complex financial crimes were the lowest priority for the criminal investigative division.

8---Abenomics: Hidden tax hike surprises await unwary consumers, JT

Tuesday’s consumption tax hike will in principle affect all domestic purchases of goods or services, but there are still gray areas where consumers may get surprised by unexpected levies, government officials warn.

The consumption tax reform law, part of integrated social security and tax changes aimed at doubling the sales levy to 10 percent in 2015, will raise the tax to 8 percent from 5 percent on April 1, and “there are no changes in nontaxable areas,” a National Tax Agency spokesman said.
The tax is levied on all goods and services purchased or consumed within Japan, as well as all assets leased, including DVDs and office space. That means any consumption deemed to take place outside the country is basically not subject to the levy.

9---Can Protests at the University of Southern Maine Be the Flashpoint That Reverses the Mallification of American Higher Education?, naked capitalism
A professor for over 40 years, Ginsburg argues that such data are commensurate with a calculated effort in college administrations to achieve neoliberal, profit-based goals such as erasing tenure tracks, reducing political speech, and increasing focus on student job placement rather than encouraging knowledge and critical thinking.
And at USM, “mallification” goes under the guise of turning USM into something called a “metropolitan university,” ....

. The Coalition of Urban and Metropolitan Universities originated in 1990 with a vaguely stated goal of streamlining its educational models across the country. Since that time, it’s become increasingly implemented in public and private schools, both in the United States and internationally. Structurally speaking, it’s a branded organizational framework with ideas increasingly in line with corporate-driven models of education reform, such as utilizing online learning platforms like MOOCs (Massive Open Online Courses), increasing student-to-faculty ratios, teaching to a test, employing performance- or outcome-based funding, eliminating and avoiding union and tenured professorship (with a subsequent greater reliance on adjunct professors and lecturers), broadening administrative staffs, and placing greater emphasis on answering the calls of the business community. In the case of USM, as presented in Wednesday’s public meeting, it would mean all of the above.
So clearly, that’s the agenda, rotten in its own terms. Our university is to become a big mall with lovely facilities, a few very well-paid investors, executives, and administrators, and a retail experience for consumers. And retail wages and working conditions for the workers

10---Turkish officials plan false-flag attacks to create pretext for war with Syria, wsws

In a devastating exposure of the criminality of the US-led proxy war in Syria, Turkish officials have been caught planning an attack on their own forces to manufacture a pretext to attack Syria.

This is the content of a leaked audio recording, posted to YouTube, of a meeting between top Turkish diplomats and intelligence officials, including Foreign Minister Ahmet Davutoglu and Hakan Fidan, the head of Turkey’s National Intelligence Organization (MIT). At one point in the meeting, these officials discuss the possibility of organizing an attack from inside Syria across the Turkish-Syrian border, or on the Tomb of Suleiman Shah. Under the 1921 Treaty of Ankara between Turkey and France, then the colonial power in Syria, this tomb is a piece of sovereign Turkish territory inside Syria, guarded by Turkish forces.

Davutoglu says: “The prime minister said that in the current conjuncture, this attack [on Suleiman Shah Tomb] must be seen as an opportunity for us.”
Fidan replies: “I’ll send four men from Syria, if that’s what it takes. I’ll make up a cause of war by ordering a missile attack on Turkey. We can also prepare an attack on Suleiman Shah Tomb if necessary.”

Turkish officials responded to the leak by attempting to suppress it, banning access to YouTube inside Turkey. They did not contest the authenticity of the recording, however. Instead, in a speech in Diyarbakir, Prime Minister Recep Tayyip Erdogan denounced the leaking of national security meetings as “immoral.”
The Turkish Foreign Ministry called the recording “partially manipulated” and a “wretched attack” on Turkish national security.

The leak is an unanswerable indictment of the war on Syria led by Washington and the European powers. Recklessly arming Islamist opposition militias linked to Al Qaeda in a semi-covert dirty war for regime-change in Damascus, the Western powers have devastated Syria and created fertile ground for the type of provocations exposed by the leak.

The leak provides evidence of a conspiracy to attack a state that has not attacked Turkey—implicating Turkey, a NATO member state, in crimes against peace, a violation of international law for which Nazi officials were hanged at Nuremburg after World War II....

Tensions between the AKP and other sections of the ruling elite, including the army brass and the CIA-linked Islamist Gülen movement, are intensifying. Some reports suggest the leak was the result of spying operations within the Turkish state by the Gülen movement or its allies.
Erdogan’s foreign policy has become increasingly aggressive and incoherent. After the Egyptian revolution began, he abandoned his “zero problems with neighbors” policy and positioned the AKP as a model for an Islamist-led Middle East, backing the Syrian war despite its unpopularity in Turkey. This policy collapsed after last July’s US-backed coup in Egypt ousted Islamist President Mohamed Mursi, and Obama in September stepped back from military strikes against Syria.

The Western imperialist powers themselves have turned on the AKP, issuing various hypocritical criticisms of Erdogan, including over the Turkish military’s recent decision to shoot down a Syrian fighter jet. One European official told Al Monitor that it was part of a policy of backing Islamist opposition militias inside Syria, which he called “a stupid move by the Turkish side.”

“Turkey picked up the strategy of helping these radicals. This cannot be reversed now,” he told Al Monitor. “The bombing of the Syrian [MIG-23 fighter jet] was for helping these radicals.”

Since the Erdogan regime “picked up” the “stupid” strategy of arming Al Qaeda forces from the CIA, it only underscores the criminal character of NATO policy in Syria. NATO officials indicated that their main objection to Turkey’s moves to launch a war with Syria was that it would distract from their campaign to back the ultra-right regime they recently installed in Ukraine and isolate Russia.
A NATO source told Al Monitor: “In next week’s NATO foreign ministers meeting [on April 1 and 2]… I assume that people will directly share their concern with Minister Davutoglu over Turkish behavior. They will probably give the message that they do not want to be dragged into the Syrian quagmire while the Ukraine issue is keeping them busy at this stage.”

No one warned, however, of the vast and dire implications of a Turkish decision to launch a war with Syria. Such a war would threaten to escalate into a conflagration involving Turkey’s NATO allies and Syria’s main backers, Iran and Russia, as nearly happened last September.

11----Venezuelan generals arrested in alleged coup plot, wsws

12---Lavrov Speaks, zero hedge

Over a month ago I raised the issue of the Right Sector and the necessity to dissociate from the radical forces with our Western partners. I asked them a very simple question: “If you agree that we need to defuse the situation, why won’t you publicly say what the Right Sector really is?” Same to a degree goes for the Svoboda party, whose platform references The Declaration of June 30, 1941, which expressed support of Nazi Germany and its efforts to establish a new world order. According to the party’s charter, it’s still committed to this principle. US Secretary of State John Kerry told me that after close scrutiny they concluded that the Right Sector was trying to become a political movement. The subtext was that it’s a good thing, and Svoboda is moving towards [the] mainstream. That’s a quote.....

We were promised that NATO would not bring its military infrastructure closer to our borders – and we were cheated. We were promised there would be no military installations on the territory of the new NATO members. At first, we just listened to those promises and believed them. Then we started putting them on paper as political obligations, and serious people, Western leaders, signed those documents. But when we asked them how come those political obligations were ignored and whether we can make them legally binding, they told us, “No, political obligations are enough, and anyway, don’t worry, whatever we do is not against you.”

  • Eastern Partnership – as well as NATO expansion – was simply an instrument used to quickly take control over geopolitical territory. The EU was ready to push this project through at any cost. It completely ignored legitimate economic interests of both Ukraine’s neighbors, like Russia and other countries, and even the nations that were part of this program. There have been many studies on this issue. No wonder even Yatsenyuk says that Ukraine needs to take a closer look at the economic section of this agreement.
  • Isolation” is a term invented by our Western partners who act with nostalgic neo-imperial ambitions in mind. The instant something isn’t to their liking they draw out this sanctions stick. The times when such strategy could be employed are long gone.... I’m surprised at how obsessively they’re trying to – create rather than find – proof of Russia’s isolation.

    13---Credit expansion underway in US, sober look

    The reduction in nearterm uncertainty with respect to the US fiscal impasse (see story on federal budget and on debt ceiling) is likely to be helping the situation as well. Loan growth acceleration in recent weeks has been quite pronounced.

    Total loans in the US banking system (YoY

    Friday, March 28, 2014

    Today' Links

    1---Bank of America to Pay $9.5 Billion Over Mortgage Bonds, Truthdig

    The largest losses were on bonds sold as backed by high-quality mortgages but in reality stuffed with dodgy subprime home loans that went into default by the millions

    While US regulators have successfully recovered billions in civil payments from the banks, some critics have said the Department of Justice has failed in its duty to enforce the law by not criminally prosecuting senior bank executives for their roles in promoting investments that ultimately led to the biggest financial crisis since the depression.
    In a recent op-ed column, US District Judge Jed Rakoff said the absence of high-level convictions for the mortgage debacle likely "bespeaks weaknesses in our prosecutorial system that need to be addressed."...

    Bank of America will pay $9.5 billion to settle US charges that it sold bad mortgage-backed securities to mortgage giants Freddie Mac and Fannie Mae ahead of the housing bust.
    The settlement, arranged with the Federal Housing Finance Agency, which oversees Fannie and Freddie, involves securities sold by BofA as well as by Countrywide and Merrill Lynch, which were acquired by the bank.
    The agreement covers four lawsuits alleging the BofA entities misled the two US mortgage giants about the quality of the underlying mortgages tied to $57.5 billion in securities sold to Freddie and Fannie....

    After-tax profits for American corporations hit another record high last year, rising to $1.68 trillion.
    As this chart from Quartz shows, profits have been on a roll for some time, more than fully recovering what was lost during the recession:
    us-after-tax-corporate-profits-are-still-on-the-rise-total-corporate-profits-domestic-corporate-profits-world-corporate-profits_chartbuilder (1)
    CREDIT: Quartz
    The profits have helped boost CEO pay: Among 50 public companies, they saw a 4.1 percent increase in pay at the median last year, netting $9.8 million at that mark. That’s after average CEO pay hit a record high in 2012.

    But this wealth hasn’t trickled much further down. Despite the fact that workers have been increasing their productivity — helping to drive those corporate profits — they haven’t seen much of a reward. Wages are growing at the slowest rate since the 1960s, only just barely outpacing inflation. They have actually declined since 2007, and the trend extends back even further: American workers have experienced a “lost decade” of wage growth, as their pay stayed flat or declined between 2000 and 2012, despite a 25 percent bump in productivity. On the whole, corporate profits have grown 20 times faster than workers’ incomes since 2008.

    3---Record margin debt poses risk for bull market, USA Today

    The amount of money investors borrowed from Wall Street brokers to buy stocks rose for a seventh straight month in January to a record $451.3 billion, a potential warning sign that in the past has coincided with irrational exuberance and stock market tops.

    Borrowing money or using leverage to buy a house or a car is a sign of confidence. But getting a loan from a broker to finance stock purchases might be a sign of overconfidence in the outlook for the market, especially one trading in record-high territory, as is the current Wall Street bull.
    "One characteristic of getting closer to a market top is a major expansion in margin debt," says Gary Kaltbaum, president of Kaltbaum Capital Management. "Expanding market debt fuels the bull market and is an investors' best friend when stocks are rising. The problem is when the market turns (lower), it is the market's worst enemy.

    4---Get ready for stocks to drop 25 percent: Pro, cnbc

    Jay Jordan, founder of the Jordan Company, issued the dire warning during an interview on CNBC's "Squawk Box," saying a 25 percent drop could extend to all asset classes. He blames the monetary policies of former Fed chair Ben Bernanke for artificially inflating asset prices through super-low interest rates.

    5---It Is Informed Optimism To Wait For The Rain  , John P. Hussman, Ph.D.

    Based on valuation metrics that have demonstrated a near-90% correlation with subsequent 10-year S&P 500 total returns, not only historically but also in recent decades, we estimate that U.S. equities are more than 100% above the level that would be associated with historically normal future returns. We presently estimate 10-year nominal total returns for the S&P 500 averaging just 2.2% annually over the coming decade, with zero or negative nominal total returns on every horizon of less than 7 years. Regardless of very short-term market direction, it is urgent for investors to understand where the equity markets are positioned in the context of the full cycle.

    February home sales figures reached their lowest level since 2009

    The Federal Reserve directly controls the short-term interest rate. But what it really tries to target is inflation and its expectations. The Fed’s goal is to achieve the target of 2% inflation in the long-term, and its preferred price index is the core personal consumption expenditure price index that excludes the volatile food and energy sectors (or core PCE for short). So how has the Fed performed in achieving its target of 2% inflation in the past 15 years?
    The chart above plots the implied core PCE index if inflation had met its 2% target (red line), and the actual core PCE index (blue line) starting from 1999.  The blue line is consistently below the red line, the gap has only diverged further since the Great Recession. The cumulative effect is that today the price level is 4.7% below what it should have been had the Fed achieved its long-run target.

    The divergence between target and actual inflation is all the more striking given the elevated rate of unemployment during the sample period. We have discussed in a previous post how the post-2001 and post-2009 recoveries were “jobless” – a recovery in output but not much in employment. The Fed has a dual mandate – inflation targeting and maximizing employment. It is traditionally believed that there is a trade-off between the two and a higher level of unemployment permits the Fed to go beyond its 2% inflation target (this is the famous Taylor rule). Yet the Fed has failed to achieve its target inflation despite high unemployment rates.

    It is hard to fault the Fed for not trying – it brought short term rates to zero for an extended period of time, and bought trillions of dollars in bonds. Yet the gap between the red and blue lines continued to diverge.

    The Fed’s difficulty in maintaining a 2% target is not just about the Great Recession. The divergence started in the 2000′s despite the Fed keeping nominal rates quite low by historical standards. In fact the only period when the blue line runs parallel to the red (implying a 2% rate of inflation for a while) is the 2004-2006 period when the economy witnessed an unprecedented growth in credit.
    In ordinary times we should have seen run-away inflation given the rate of credit extension and spending against it (more on this soon). But we do not live in ordinary times anymore.
    What we are witnessing is the limit of what monetary policy alone can do. Sometimes there is a tendency to assume that the Fed can “target” any inflation rate it wishes, or that it can target the overall price level – the so-called nominal GDP targeting. The evidence suggests that the Fed may not be so omnipotent.

    The problems relating to below-target inflation are deeper and more structural. We discuss these issue in more detail in one of the chapters of our forthcoming book.

    8---Expect Surge in Temp Jobs to Continue , wsj

    9--Obama Administration Faces Diplomatic Isolation in Latin America on Venezuela, mark weisbrot Oliver Stone

    10---Home sales fall for 8th-straight month in February, cnbc

    11--Greece on Steroids: Ukraine’s IMF Deal, counterpunch

    To summarize, the IMF deal of March 27 calls for paying western banks and lenders $6.5 billion over the next two years in debt servicing payments. It additionally requires the reduction of household gas subsidies by another $13 billion plus the total phase out of gas subsidies. And it indirectly calls for the Ukrainian government to cut spending by at least $8 billion (2.5% of GDP) over the next two years—in the form of cuts in government jobs, wage cuts for government workers, and pension payment reductions of a likely 50% for retirees in general.
    Add all that up, and not surprisingly it’s around $27 billion. That’s $27 billion of economic spending and stimulus taken out of the Ukrainian real economy per the IMF deal. In other words, just about the $27 billion that the IMF purportedly will provide to the GDP per the March 27 announcement.  Which means Ukrainian households will pay for the IMF’s $27 billion package with higher gas prices, elimination of gas subsidies, government job and wage cuts, and big pension payment reductions.

    But $27 billion is not really an ‘even trade off’. It’s really a net negative stimulus for Ukraine due to the composition of the IMF deal. Keep in mind, the $6.2 billion in debt servicing payments outflow to the west will have absolutely no positive impact on Ukraine’s GDP. So, first of all, it’s really only the IMF net $21 billion ‘’in” vs. the Ukrainian $27 billion taken “out” of the economy per IMF requirements.  But even $21 billion ‘in’ vs. $27 billion ‘out’ is not the true net estimate.

    The $27 billion taken out reflects a household consumer spending ‘multiplier effect’ that is much larger than the $21 billion net domestic Ukraine injection by the IMF.  If one assumes a conservative 1.5 multiplier effect, the amount taken out of the Ukrainian economy is more like $40 billion over the next two years—a massive sum given that the Ukraine’s GDP in 2012 was no more than $175 and was flat to stagnant in 2013.  Of course, the $40 billion ‘out’ is adjusted by the $21 billion ‘in’ and its multiplier effect.  But while the $40 billion ‘out’ will definitely occur, there is no guarantee the full $21 billion IMF injection “in” will actually happen in turn

    The $27 billion total is well in excess of the $15 billion that was being talked about in prior weeks by the public press and more than the $20 billion Ukraine had asked the IMF for at the end of 2013—an indication that the economy has been deteriorating more rapidly than reported since the beginning of 2014.
    In previous articles on the Ukraine economic situation a few weeks ago, this writer estimated that at least $50 billion would be needed to stabilize the Ukraine’s economy over the next two years. That figure may even rise by 2015.

    12---Fuel imports take UK back to dark days of 1984 as refineries close, Telegraph
    Britain now dependent on imports of oil products such as diesel for first time in 30 years

    13---Spending logs surprise fall as price pressures rise, Japan Times

                    Consumers unexpectedly cut back on spending two months before the first sales tax increase since 1997, in a potential sign that emerging inflationary pressures are undermining purchasing power.

    Household spending fell 2.5 percent in February from a year earlier, the first drop in six months, the government said Friday, compared with a median estimate of economists for a 0.1 percent rise.
    Retail sales slowed, while a measure of inflation that strips out energy and fresh food increased the most since 1998.

    While the data, which include a measure of demand for workers approaching a two-decade high, offer policymakers confidence that their drive to end deflation is working, they also flash a warning sign. Without wage gains, the danger is that the end of 15 years of sustained price declines will damage the economy.
    “Households are suffering from inflation as their incomes haven’t grown much,” said Naoki Iizuka, an economist at Citigroup Inc. in Tokyo. “People are purchasing durable goods to save money before the sales tax hike, so they have to cut back on non-durables.”

    The splurge on hard goods comes despite their prices rising in February at the fastest pace since April 1980. Prime Minister Shinzo Abe said Thursday that the economy has reached a stage that cannot be called deflation....

    Household spending on clothing and footwear fell 9.2 percent from a year earlier. Outlays on furniture and household goods soared 25.4 percent.
    Finance Minister Taro Aso said Friday that the administration will front-load spending in the budget for the fiscal year starting Tuesday, adding that the fall in consumer spending is a problem.
    Japan is set for a one-quarter contraction in the next three months as spending slows after the consumption tax rise to 8 percent on Tuesday. Abe has to steer the nation through the aftermath, and the Bank of Japan may decide by May whether to add to unprecedented stimulus.

    “The BOJ should start thinking about adding more stimulus in early June,” said Takuji Okubo, chief economist at Japan Macro Advisors.
    Junko Nishioka, chief economist at Royal Bank of Scotland Group in Tokyo, said core inflation will probably settle around 1.2 percent or 1.3 percent over the next six months.

    14--Hidden tax hike surprises await unwary consumers, JT

    More gouging workers at every opportunity

    15---What way forward for workers in Ukraine?, wsws

    Based on discussions with the International Monetary Fund (IMF), Prime Minister Arseniy Yatseniuk said yesterday that he would lay off 10 percent of Ukraine’s civil service—24,000 workers—and impose a 50 percent increase in natural gas prices. This price hike, dismantling subsidies that survived the restoration of capitalism in the USSR, will have a devastating impact on the living conditions of millions of Ukrainians.
    These measures are only a foretaste of the offensive being prepared by European and US finance capital. After elections are held, the puppet government in Kiev will implement even more onerous austerity measures.
    The EU and especially German imperialism view Ukraine not only as a critical staging ground for future operations against Russia, but also an important source of cheap labor. In a revealing comment, Germany’s Finance Minister Wolfgang Schäuble said yesterday: “If we were ever to reach a situation in which we had to stabilize Ukraine, we would have many experiences in Greece [to draw on].”
    Workers are being brought face to face with the disastrous social and geo-strategic consequences of the dissolution of the USSR in 1991. The policy of the imperialist powers is to transform Ukraine and the other ex-Soviet republics into impoverished, neo-colonial outposts for reckless diplomatic and military provocations against Russia that threaten war

    Thursday, March 27, 2014

    Today's Links

    1---China's Credit Pipeline Slams Shut: Companies Scramble For The Last Drops Of Liquidity, zero hedge

    (Onset of credit crunch) "Interest rates are going up 10 percent for the entire industry," said Wang Lei, a finance department manager at PKU HealthCare Corp. "Obtaining loans is getting difficult and expensive."...

    Some gauges of China's corporate debt are already flashing red. Non-financial firms' debt jumped to 134 percent of China's GDP in 2012 from 103 percent in 2007, according to Standard & Poor's. 

     It predicted China's corporate debt will reach "stratospheric levels" and become the world's largest, overtaking the United States this year or next.

     Fearing a wave of defaults as China's economy cools after decades of rapid growth, regulators in the past two years told banks to cut off financing to sectors plagued by excess capacity such as steel and cement. 

     Experts say banks were at first slow to respond, but in the past few months, banks have started turning down credit taps.

    2---German Industry Goes To See Uncle Putin , Testosterone Pit

    President Barak Obama went to Belgium – a trip planned long ago but repurposed since the Crimean debacle – to meet with European leaders, commemorate the 100th anniversary of World War I, draw iffy parallels between then and now, and announce that more sanctions against Russia were being concocted and would soon be forthcoming, even if Russia made no additional moves on the Ukraine. The EU and the US must not sit on their hands as Russia pursues "the old way of doing things," he said. "That message would be heard not just in Europe but in Asia and the Americas, in Africa and the Middle East."...

    We have built relations with Russia on the basis of long-term prospects and trust," Kaeser said, according to Russian news agency, Itar-Tass. When questioned about the possible consequences for Siemens due to its cooperation with Russia, given the sanctions, he said, “Siemens and I personally do not feel any pressure from the federal authorities,” which had known about the visit. “And certainly there has been no pressure when the chief executive of Germany’s leading company, cooperating with Russia for 160 years, comes to meet the Russian president.”

    Kaeser also met with Gazprom CEO Alexei Miller, the Siemens spokesman confirmed. Despite any sanctions, both sides favored continuing with the strategic partnership agreement they'd inked in 2011. Gazprom is currently threatening to turn off the natural gas tap for the Ukraine. Unless the Ukraine pays up, it could run out of gas in two or three months.

    3---New Home Sales Turn Negative Year-Over-Year, First Time Since 2011, MND

    After rising by a revised 3.2 percent January, New Home Sales fell 3.3 percent in February according to data released today by The Census Bureau and the Department of Housing and Urban Development.  The annualized sales pace of 440k homes is the lowest since September 2013.

    Perhaps more telling from a momentum standpoint, year-over-year sales (Feb 2014 vs Feb 2013 in this case) were negative for the first time since September 2011.  At that time, annual momentum was in the process of improving, and the only other post-crisis move into negative territory came after the homebuyer tax credit expiration in 2010.  That means today's data is the first move from an established positive trend into negative territory since 2006....

    While average prices continued higher thanks to high-end homes, median prices fell to $261.8k from $265.1 in Feb 2013.  That's the first move into negative territory since mid 2012 and further evidence of the sideways grind.  Other home price metrics out today spoke to January's data, but told a distinctly different story.  The average year-over-year gain was 13.2 percent according to Case Shiller and 7.4 percent according to FHFA, Fannie and Freddie's regulator.

    4---Spain Banks With $55 Billion of Property Seek Deals: Mortgages, Bloomberg
    Investors Arrive
    Investment in Spain by funds, private-equity firms and other financial-services companies totaled 13.9 billion euros in 2013, according to Irea, more than double the amount invested in 2012. About 37 percent went to real estate assets and the proportion is expected to increase this year, Echavarren said.

    Firms including the Blackstone Group LP and Goldman Sachs Group Inc. have been buying real estate in Spain after home prices fell more than 45 percent from their 2007 peak and prime office rents fell more than 40 percent since 2008. Paulson & Co. said this month they will invest in property company Hispania Activos Inmobiliarios and Pacific Investment Management Co. is the anchor investor in the initial public offering of Lar Espana Real Estate Socimi SA.

    Investment in European property debt is set to rise to 40 billion euros this year as funds such as Apollo Global Management LLC and Cerberus Capital Management LP buy loans cheaply and financing for purchases becomes more readily available, Cushman & Wakefield said.

    5---Obama Says Putin’s Challenging the World Order in Ukraine, Bloomberg

    President Barack Obama said indifference to Russia’s attempt to unilaterally redraw the boundaries of Ukraine would ignore the lessons that are written in the cemeteries for the dead in two world wars.
    The U.S. and Europe are at “a moment of testing,” as Russia challenges the ideals of democracy, free markets and international law that have spread peace and prosperity, Obama said in a speech at Palais des Beaux-Arts in Brussels.

    “Once again, we are confronted with the belief that bigger nations can bully smaller ones to get their way, that recycled maxim that might makes right,” he said.“So I come here today to insist that we must never take for granted the progress that has been won here in Europe

    6---China's credit crunch: No Lehman catastrophe, Simon Johnson, NYT

    China is not going to experience a Lehman sort of crisis, at least not now. The most serious problem in China is that nonbank “shadow” banking, especially trust securities and various types of bonds, grew rapidly with insufficient oversight. For the most part, this represented an attempt to circumvent the interest-rate controls that made bank deposits unattractive.
    Savers moved funds from banks to buy these instruments. Now, just as was the case with subprime loans in the United States, some of these high-risk borrowers are failing to repay.
    Savers will lose some money on those investments, so now savers will be returning to banks, not fleeing from them...

    the Chinese government is making it clear that the nonbank financing instruments will not be bailed out, while the big banks are still obviously supported by the government. Just as in America and Europe, China’s biggest banks will live for another day, but the shadow banking sector is set to shrink.
    So instead of facing a Lehman crisis, China’s financial system is facing a more standard credit bust, driven by the drying-up of the nonbank markets and some losses on bank loans. The eventual solutions to such problems are well understood.
    Again to make a comparison, the Chinese strategy for dealing with the lurking problems of banks will be very similar to what we just saw in Europe and the United States: Let the banks slowly recognize their losses, and support the banks with credit from the central bank as needed. ...

    So if China avoids a Lehman crisis but does face a serious growth slowdown, how worried should Europe and the United States be for their own economic growth? The answer is, not much at all.
    China is still only a small fraction of the world economy. World G.D.P., calculated by the International Monetary Fund, was $73.5 trillion at the end of 2013, while China’s G.D.P. was about $9 trillion, or 12 percent of the total. The United States at $16.7 trillion and the European Union at $17 trillion are each nearly double the size of China (using market prices and actual exchange rates).

    China’s main link with the rest of the world is through trade. According to the latest available data from the World Trade Organization, for 2012, China’s merchandise imports accounted for nearly 10 percent of the world’s imports. Exports to China in 2013 were $1.95 trillion.

    7---UK threatened to shut down Guardian for printing Snowden leaks, RT

    8---Obama says Iraq invasion not as bad as Crimea, antiwar

    9---The S and P Bubble, macrobusiness

    A cursory look at the performance of the US stock market would indicate that the Federal Reserve’s efforts to right the US economy have been a storming success. The rally in US equities through the Operation Twist and QE3 episodes has been dramatic, with the S&P500 gaining over 60% since October 2011 to reach new highs.
    While is it certainly true that the FOMC’s actions over the past two and a bit years has facilitated this recovery by instilling confidence and providing liquidity, it is important to recognise that there has also been a clear ‘fundamentals’ narrative
    We will leave the obvious benefits for households’ wealth for a subsequent discussion. What we instead focus on for the remainder of this article is the consequence for business investment. Being able to meet, and indeed exceed, investor expectations through management of the bottom line has negated the need to invest in their own productive capacity. This has resulted in a deteriorating underlying trend for business investment, further impacted by the various bouts of fiscal uncertainty.
    Needless to say, this is not a viable long-term strategy. One has to argue that there is an inevitable limit to the earnings benefits achieved through cost and capital management, with top-line trends the inevitable determinant of long-term success and stock performance.

    All else equal, the absence of persistent investment in productive capacity and efficiency creates a tension between the market’s expectations and firms’ ability to perform. This tension has been magnified by the degree of liquidity provision offered by the Federal Reserve.

    The apparent disconnect between financial market performance and real economic activity should concern investors. If the FOMC’s economic forecasts fail to be achieved again in 2014 and, at the same time, liquidity continues to be removed, the sharp improvement seen in household financial wealth may be jeopardised. Stay tuned for more on this topic in coming weeks.

    10--Obama’s speech on Ukraine: Propaganda and lies, wsws

    the words rang rather hollow coming from a president who has claimed absolute and unreviewable power to order the drone-missile assassination of anyone he chooses, anywhere in the world, and whose government asserts the right to collect and store the e-mails, text messages and telephone calls of the entire human race....

    He rejected any comparison between Crimea and Kosovo, denying that Kosovo was an example “of the West interfering in the affairs of a smaller country.” Obama asserted, “NATO only intervened after the people of Kosovo were systematically brutalized and killed for years,” ignoring the responsibility of the United States and the European powers, particularly Germany, for fomenting the breakup of Yugoslavia along ethnic lines. In Kosovo, the US sponsored the gangsters of the Kosovo Liberation Army, who carried out tit-for-tat atrocities against the Serb population, and now, in power, persecute the Roma and other minorities.

    “Russia has pointed to America’s decision to go into Iraq as an example of Western hypocrisy,” Obama continued. “Now, it is true that the Iraq war was a subject of vigorous debate, not just around the world but in the United States, as well.”

    There was no significant debate or democratic discussion in the lead-up to the US invasion of Iraq. The war was the outcome of a political conspiracy. The Bush administration went to war on the basis of brazen lies about Iraq’s supposed possession of weapons of mass destruction and its nonexistent alliance with Al Qaeda. The mass demonstrations that showed the opposition of millions of Americans, and a majority of the world’s population, were simply ignored.

    After claiming he had opposed the Iraq war, Obama sought to justify its conduct and outcome, claiming, “even in Iraq, America sought to work within the international system. We did not claim or annex Iraq’s territory. We did not grab its resources for our own gain. Instead, we ended our war and left Iraq to its people in a fully sovereign Iraqi state that can make decisions about its own future

    Wednesday, March 26, 2014

    Today's Links

    1---The Risk of Stock-Market Vertigo , Testosterone Pit

    Under ZIRP as the law of the land, corporations have loaded up their balance sheets with cheap debt to fund anything from payroll to M&A and buy back their own shares. This debt will have to be rolled over at higher rates, and the ballooning interest expense will hit their earnings. Highly leveraged companies with junk credit ratings will have trouble rolling over their debt at rates they can live with. There will be defaults.

    These things will blow up one at a time, here and there. But the impact of higher rates on share buybacks will hit the market as a whole, and in a big way: In 2013, the companies in the Russell 3000 stock index bought back $567.6 billion of their own shares, up 21% from 2012. That unrelenting corporate buying helped drive up the index 33.5%. So far this year, buybacks are on a similar trajectory.

    Since 2005, share buybacks totaled $4.2 trillion, nearly a fifth of the total value of all US stocks today, the Wall Street Journal reported. And companies were buying at peak prices: during the third quarter in 2007, just before the bubble blew up, share buybacks hit $214.3 billion. For the year, buybacks set an all-time high of $728.9 billion “when banks binged on buying back their own shares right before they collapsed....”

    Conversely, in Q4 of 2008 and Q1 of 2009, during the worst of the crash when prices were way down, buybacks for both quarters combined dropped to a measly $97.3 billion. Massive share buybacks are part of the self-reinforcing loop that drives stocks to dizzying heights. And when buybacks fizzle, that lack of demand pulls the rug out from under the already teetering market.

    If the Fed pulls through, buybacks will get more expensive. The risky game of loading up the balance sheet with cheap debt to buy back shares, rather than invest in productive assets, will balloon interest expenses that will hit iffy earnings. That’s when the appetite for buybacks turns into nausea and a bout of stock-market vertigo. These are among the “unintended consequences” of the Fed’s ingenious QE and ZIRP policies.

    2---Will Stock Buybacks Bite Back? , Wall Street Journal

    Last year, the corporations in the Russell 3000, a broad U.S. stock index, repurchased $567.6 billion worth of their own shares—a 21% increase over 2012, calculates Rob Leiphart, an analyst at Birinyi Associates, a research firm in Westport, Conn. That brings total buybacks since the beginning of 2005 to $4.21 trillion—or nearly one-fifth of the total value of all U.S. stocks today.

    There has been a lot of talk in the past few years about how index funds, which buy and hold stocks regardless of whether they are cheap or expensive, might be contributing to an overvaluation of the U.S. stock market. But the companies that make up the U.S. stock market might be contributing even more. And, if you wanted a signal of when to get in and out of the market, doing the opposite of whatever companies themselves are doing would serve you pretty well.

    The Russell 3000 returned 33.5% last year, including dividends. At the end of 2012, the stocks in the index were trading at an average of 16.7 times their net earnings; by year-end 2013, the index was at a multiple of 20.6 times.

    So, even as stock prices rose by a third and became a quarter more expensive relative to underlying profits, companies bought their own shares back more aggressively than the year before.
    To be sure, corporations should favor a buyback when shares are trading below the total value of their future cash flows and when capital expenditures or acquisitions don’t appear likely to offer a higher rate of return. And investors ought to welcome a repurchase, since it should increase earnings per share—so long as the company isn’t overvalued and can finance the buyback cheaply.

    Yet companies tend to exhibit the same perverse timing—buying high and selling low—as individual and institutional investors. As the market hit a then-record high in the third quarter of 2007, corporations bought back more than twice as much of their shares—$214.3 billion worth—as they did in the depths of the bear market. In the final quarter of 2008 and first quarter of 2009 combined, repurchases totaled only $97.3 billion.

    “At the bottom, everybody sits on their hands,” says Michael Mauboussin, head of global financial strategies at Credit Suisse. “They don’t do anything when stocks appear to be cheap. But when stocks are expensive, then they buy back shares hand over fist.” The managers of companies might sometimes seek to offset the issuance of new shares when stock options are exercised; often, they are subject to the same fear and greed as anyone else....

    Moreover, it appears that buybacks aren’t about to revisit the peaks of 2007. So far this year, all U.S. companies have bought back a total of $15.4 billion, according to Birinyi—about the same level as this time last year, implying that 2014’s pace will roughly match that of 2013.

    And last year’s total was well below the all-time high of $728.9 billion in 2007, when banks binged on buying back their own shares right before they collapsed in the financial crisis.
    “Over the past couple of years, the thinking has been that once people got secure with the market, they’d open the coffers and spend willy-nilly to buy back shares and we’d return to the levels of 2007,” Mr. Leiphart says. “But companies haven’t opened the floodgates like that.”

    It is possible, Mr. Mauboussin says, that “maybe they’re painted into a corner and that’s all they have to do.” If the prospects for the growth of a business look dim, managers might not want to shell out for capital expenditures or research and development that won’t pay off for years—preferring instead the instant gratification of buying back stock.

    Taken to extremes, that wouldn’t be healthy. In 1924, the pioneering investment theorist Edgar Lawrence Smith pointed out in his book “Common Stocks as Long Term Investments” that the ability of companies to plow earnings back into developing the future growth of their businesses is “a practical demonstration of the principle of compound interest.”
    If share repurchases consume too much of companies’ excess profits, the underlying businesses might end up starved, which could lower future returns.

    So the surge in buybacks is worth watching closely. If companies end up chasing their own shares as high as they did in 2007, a fall to earth might not be far behind.

    3---Krugman and DeLong on Avoiding Secular Stagnation, Dean Baker

    The basic story going into the crash was that we had an economy that was being driven by the housing bubble. This was both directly through residential construction and indirectly through the consumption that followed from $8 trillion of bubble generated housing equity. Residential construction expanded to a record high of more than 6 percent of GDP at a time when demographics would have implied its share would be shrinking. This led to enormous overbuilding, which is why construction hit record lows following the crash. (There was a smaller bubble in non-residential real estate that also burst in the crash.)

    Consumption also predictably plummeted. This is known as the housing wealth effect. (I learned about this in grad school, didn't anyone else?) Anyhow, when people saw their homes soar in value many spent in part based on this wealth. This might have meant doing cash out refinancing, a story that obsessed Alan Greenspan during the bubble years. It might mean a home equity loan, or it might just mean not putting money into a retirement account because your house is saving for you.

    In any case, when the $8 trillion in bubble generated equity disappeared so did the consumption that it was driving. You can't borrow against equity that isn't there. This cost the economy between $400 billion and $600 billion (@ 3-4 percent of GDP) in annual consumption expenditures. Between the lost construction and lost consumption, it was necessary to replace close to 8 percent of GDP. The effect of lost tax revenue in forcing cutbacks at the state and local level raised the demand loss by another percentage point or so.

    4---Showdown in Ukraine: Putin’s Quest for Ports, Oil, Pipelines and Gas, oil price

    There is also another reason for Putin’s intervention in Ukraine and that has to do with Russia elbowing for dominance of the very lucrative and strategically important “energy corridors.”
    That is very likely to be the major reason why Putin is willing to risk going to war with the West over Crimea, the pipelines that traverses the Caucasus and the oil and natural gas these pipelines carry westwards to Europe.

    Given the geography of the region there are only so many lanes where the pipelines can be laid; and most of them transit through Ukraine. Others travel across Azerbaijan and Turkey. Most of Western Europe’s gas and much of Eastern Europe’s gas travels through Ukraine.

    If Russia has vested interest in “recolonizing” Ukraine, the United States on the other hand has its own interests in Ukraine and other former Soviet areas.
    What is going on today is nothing short of a race for control of what’s going to dominate the energy markets over the next two or three decades: the energy corridors from Central Asia, the Caucuses and through Russia and Ukraine.

    As stated in a report published by the Woodrow Wilson International Center for Scholars, “the proclamation of independence, the adoption of state symbols and a national anthem, the establishment of armed forces and even the presence on Ukrainian territory of nuclear missiles—all important elements of independent statehood—amount little if another power, Russia, controls access to fuel without which Ukraine cannot survive economically..

    That same report denotes that "Ukraine's strategic location between the main energy producers (Russia and the Caspian Sea area) and consumers in the Eurasian region, its large transit network, and its available underground gas storage capacities," make the country "a potentially crucial player in European energy transit" - a position that will "grow as Western European demands for Russian and Caspian gas and oil continue to increase."

    Ukraine's dependence on Russian energy imports has had "negative implications for US strategy in the region."
    As long as Russia controls the flow of oil and gas it has the upper hand. Russia's Gazprom currently controls almost a fifth of the world's gas reserves.

    More than half of Ukraine’s and nearly 30% of Europe's gas comes from Russia.  Moscow wants to try and keep things going its way; Washington and Brussels find it in their interests to try and alter that by creating multiple channels for central Asian and Caspian oil to flow westwards.
    Ukraine today finds itself in the center of the new East-West dispute.

    Ironically, the very assets that make Ukraine an important player in the new geopolitical game being played out between Washington and Moscow is also its greatest disadvantage.

    The 4-week average of the purchase index is now down about 19% from a year ago.
    5---Yikes!  The 4 week average of the purchase index is now down 19% from a year ago. , calculated risk

    6---A Chart That Spells Trouble for Abenomics , WSJ
    One of Japan’s economic problems is the tendency of companies to sit on cash instead of putting it to productive use, and new data from the Bank of Japan8301.TO +0.40% show the problem isn’t getting better.
    As this chart shows, cash and deposits held by private-sector companies stood at about 222 trillion yen, or $2.17 trillion, as of Dec. 31, up 6.4% from a year earlier, just after Prime Minister Shinzo Abe took office.

    It was natural for companies to stay cautious after the global financial crisis. But now Mr. Abe wants them to step up investment and raise workers’ paychecks using their cash holdings, now equal to nearly half Japan’s annual economic output by this measure. Will it work? The shape of this chart a year from now may give the answer.

    7---Abenomics: Deposits exceed expansion,---The Failure Of Abenomics In One Chart... When Even The Japanese Press Admits "Easing Is Not Working" (archive), zero hedge

    We will however, show the one chart summary which captures all the major failures of the BOJ quite succinctly.

    BOJ’s money mountain growing but debt may explode

    by Reiji Yoshida

    Haruhiko Kuroda hit the ground running when he was appointed by Prime Minister Shinzo Abe in March to take charge of the Bank of Japan.

    Out of the blue, the central bank’s new governor unveiled a super-aggressive easing policy the next month to double the nation’s monetary base in just two years. He said the BOJ would buy more than ¥7 trillion in long-term Japanese government bonds per month to flood the financial system with money to end more than a decade of deflation.

    The BOJ’s nine-member Policy Board unanimously supported Kuroda’s goal of stoking 2 percent inflation in two years — a surprise about-face from its stance under his predecessor, Masaaki Shirakawa, who was concerned about the potential side effects of embracing such radical quantitative easing.

    More than six months have passed. How has the BOJ’s strategy changed Japan’s financial markets and the real economy?

    Critics say Kuroda’s monetary easing scheme isn’t working, although most of the public apparently believes otherwise.

    More than six months have passed. How has the BOJ’s strategy changed Japan’s financial markets and the real economy?

    Critics say Kuroda’s monetary easing scheme isn’t working, although most of the public apparently believes otherwise.

    There are growing signs of inflation, but not the sort heralding the start of Abe’s much-advertised recovery and rising wages. Instead, imported fuel and other products have become more expensive because of the weak yen ushered in by Kuroda and Abe, and this bodes ill for the public’s living standards.

    Meanwhile, Kuroda’s aggressive plan is allowing the debt-ridden government to issue fresh bonds continuously, further increasing the likelihood of a fiscal crisis, they said.

    People have been deceived by ‘Abenomics,’ ” Yukio Noguchi, a prominent economist and adviser to Waseda University’s Institute of Financial Studies, told The Japan Times in a recent interview.

    Monetary easing is not working, and it’s going nowhere,” Noguchi said.

    Since April, the BOJ has been gobbling up JGBs from banks and the open market. Its purchases amount to roughly 70 percent of the value of all new JGBs issued.

    But the banks are just stowing that money in their accounts at the BOJ because they can’t find any companies interested in borrowing it.

    “There is no demand for funds on the part of businesses. That’s why the monetary easing is not working,” Noguchi said.

    Japan’s monetary base — the sum of cash in circulation plus banks’ current account balances at the BOJ — surged from 23.1 percent in April to 45.8 percent in October, thanks to the BOJ’s aggressive operations.

    But its money stock — the total amount of monetary assets available in an economy including credit created by bank loans, but excluding deposits held by financial institutions and the central government — only rose to 3.3 percent from 2.3 percent in the period.

    This means banks are just depositing the massive funds provided by the BOJ in their own accounts at the central bank. The unloaned cash is thus having little affect on the real economy.

    Japan’s trade balance has turned into a deficit and the current account surplus has shrunk. Japan posted a surplus of ¥3.05 trillion in the current account for the April-September half, the second-lowest level since 1985, when comparable data became available.

    8---Meet the Americans Who Put Together the Coup in Kiev, rsn

    The State Department controls the prime funding sources for non-military intervention, including the controversial National Endowment for Democracy (NED), which Washington created to fund covert and clandestine action after Ramparts magazine and others exposed how the CIA channeled money through private foundations, including the Ford Foundation. State also controls the far-better-funded Agency for International Development (USAID), along with a growing network of front groups, cut-outs, and private contractors. State coordinates with like-minded governments and their parallel institutions, mostly in Canada and Western Europe. State's "democracy bureaucracy" oversees nominally private but largely government funded groups like Freedom House. And through Assistant Secretary of State for European and Eurasian Affairs Victoria Nuland, State had Geoff Pyatt coordinate the coup in Kiev.

    The CIA, NSA, and Pentagon likely provided their specialized services, while some of the private contractors exhibited shadowy skill sets. But if McGovern knows the score, as he should, diplomats ran the campaign to destabilize Ukraine and did the hands-on dirty work.

    Harder for some people to grasp, Ambassador Pyatt and his team did not create the foreign policy, which was – and is – only minimally about overthrowing Ukraine's duly elected government to "promote democracy." Ever since Bill Clinton sat in the Oval Office, Washington and its European allies have worked openly and covertly to extend NATO to the Russian border and Black Sea Fleet, provoking a badly wounded Russian bear. They have also worked to bring Ukraine and its Eastern European neighbors into the neoliberal economy of the West, isolating the Russians rather than trying to bring them into the fold. Except for sporadic resets, anti-Russian has become the new anti-Soviet, and "strategic containment" has been the wonky word for encircling Russia with our military and economic power....

    Tensions will also grow as the US-picked interim prime minister Arseniy Yatsenyuk – our man "Yats" – joins with the IMF to impose a Greek, Spanish, or Italian style austerity. Hard-pressed Ukranians will undoubtedly fight back, especially in the predominantly Russian-speaking east. According to Der Spiegel, a whopping three quarters of the people there do not support the coup or government. What a tar patch! A domestic conflict that could split Ukraine in two will inevitably become even further embroiled in the geo-strategic struggle between Russia and the West.....

    Revolution on Demand
    Arriving in the Ukrainian capital on August 3, Pyatt almost immediately authorized a grant for an online television outlet called Hromadske.TV, which would prove essential to building the Euromaidan street demonstrations against Yanukovych. The grant was only $43,737, with an additional $4,796 by November 13. Just enough to buy the modest equipment the project needed.

    Many of Hromadske's journalists had worked in the past with American benefactors. Editor-in-chief Roman Skrypin was a frequent contributor to Washington's Radio Free Europe / Radio Liberty and the US-funded Ukrayinska Pravda. In 2004, he had helped create Channel 5 television, which played a major role in the Orange Revolution that the US and its European allies masterminded in 2004.
    Skrypin had already gotten $10,560 from George Soros's International Renaissance Foundation (IRF), which came as a recommendation to Pyatt. Sometime between December and the following April, IRF would give Hromadske another $19,183.

    Snyder fails to mention that Pyatt, Soros, and the Dutch had put Web TV at the uprising's disposal. Without their joint funding of Hromadske and its streaming video from the Euromaidan, the revolution might never have been televised and Yanukovych might have crushed the entire effort before it gained traction.

    For better or for worse, popular uprisings have changed history long before radio, television, or the Internet. The new technologies only speed up the game. Pyatt and his team understood that and masterfully turned soft power and the exercise of free speech, press, and assembly into a televised revolution on demand, complete with an instant overdub in English. Soros then funded a Ukrainian Crisis Media Center "to inform the international community about events in Ukraine," and I'm still trying to track down who paid for Euromaidan PR, the website of the Official Public Relations Secretariat for the Headquarters of the National Resistance....

    Weingarten visited Kiev not on behalf of Ukrainian teachers—who will face devastating cuts as the new Western-backed regime imposes a Greek-style IMF austerity plan—but as an operative of the US State Department.

    These efforts are not new. The AFT and AFL-CIO were deeply involved in the so-called Orange Revolution, the first effort by US-backed forces to install an anti-Russian regime in Ukraine. The AFL-CIO, through its State Department-funded American Center for International Labor Solidarity (Solidarity Center), cultivated close ties with Mikhail Volynets, the president of the Confederation of Free Trade Unions of Ukraine (KVPU), who was elected to parliament in 2005 as a deputy of the Fatherland Party of energy oligarch Yulia Tymoshenko. The AFL-CIO awarded “Brother Volynets” the 2004 George Meany & Lane Kirkland Human Rights Award.

    This reactionary activity in Ukraine is part of a broader foreign policy pursued by the AFT and the AFL-CIO. Over the course of many decades, the American trade union federation has funded and promoted far-right and fascistic forces against left-wing and Communist trade unions around the world. The former long-time president of the AFT, Albert Shanker, was a particularly rabid anti-communist, who supported the Vietnam War and CIA subversion campaigns around the world.

    Organizations such as the Inter-American Regional Labor Organization (ORIT) and the American Institute for Free Labor Development (AIFLD), the predecessors of the AFL-CIO Solidarity Center, functioned as labor fronts for CIA-organized coups in Guatemala (1954), British Guiana (1963), Brazil (1964), the Dominican Republic (1965) and Chile (1973). Solidarity Center was a conduit for money from the National Endowment for Democracy to right-wing trade unions active in the failed attempt to overthrow Venezuela’s Hugo Chavez in 2002.

    In the protests that led to the February coup in Kiev, the Solidarity Center’s Ukrainian “partner,” the Volynets-led KVPU, collaborated with leading oligarchs to call an “All-Ukrainian strike” to destabilize the Yanukovych regime. (See: The US State Department’s “labor man” in Ukraine). The effort, however, failed to garner any significant support in the working class, given that the opposition parties were committed to implementing an IMF-dictated austerity plan and provoking a confrontation with Russia that threatened a catastrophic war.

    The support for American imperialist interests in Ukraine and around the world is closely linked to the policies the AFT and Randi Weingarten pursue in the United States. The AFT has collaborated with the Obama administration and billionaires such as Bill Gates to implement a corporate-driven “school reform” agenda. This has led to the destruction of hundreds of thousands of teachers’ jobs, the abolition of long-standing rights such as teacher tenure, and an explosive growth of privately run charter schools. The main role of the AFT has been to suppress opposition among teachers, parents and students to the destruction of public education.

    Teachers cannot defend their interests through an organization that is a tool of the US State Department and corporate America

    The junta has murdered thousands and is about to hang hundreds of its opponents, and the European Union has the gall to still talk about Egypt’s “transition towards democracy.”

    Not wishing to be outdone, the US State Department, in a declaration that might have been penned by a master of black comedy, called upon “all parties and groups in Egypt to make sure that as their democratic transition moves forward, it’s done so in an inclusive manner.” The 529 condemned must await further instructions from Secretary of State John Kerry as to how they should “move forward” to democracy as they stand on the gallows with their hands tied and ropes around their necks.

    The military would not have dared hand down the death sentences were it not confident that it is acting with the support of the Obama administration. Field Marshall Abdel-Fattah al-Sisi is nothing other than a modern Egyptian version of the late Chilean dictator, General Augusto Pinochet. Like the former Chilean dictator, al-Sisi came to power in a US-backed military coup and has the support of the imperialist powers in erecting a fascistic military dictatorship and declaring war against the working class....

    The death sentences and the junta’s preparations for an ever more direct fascistic dictatorship is a warning. It confirms that the ruling elite will stop at nothing and is ready to defend its class interests with the bloodiest measures against any challenge by the working class.

    12---CBS poll found that 65 percent of Americans did not think the United States should provide military aid to the Kiev regime, wsws

    There is deep opposition in the American and European working class to further military escalation against Russia in support of the far-right regime in Kiev. A recent CBS poll found that 65 percent of Americans did not think the United States should provide military aid to the Kiev regime. Only 26 percent called for the provision of such aid.
    The poll also found that 61 percent of the population did not think the United States has any “responsibility to get involved” in the conflict between Russia and Ukraine.

    13---24% of all purchase loans have a debt-to-income ratio greater than the CFPB’s Qualified Mortgage rule limit of 43%, a new series high.

    Mortgage Risk Index-March 2014 Release

    March 21, 2014 Edward Pinto AIE---
    To put the February level of 11.6% in perspective, the NMRI for loans originated in 1990, when prudent underwriting standards predominated, was about 6%.  In contrast, the NMRI for the exceptionally risky 2007 vintage of loans was about 19%.  Consequently, the January level indicates that housing risk is substantially higher today than in 1990, but does not approach the level in 2007 when credit standards were the loosest in many decades....

    reasons for caution

    Half of all purchase loans and a quarter of F and F purchase loans have a minimal down payment of 5 percent or less.

    BRICS countries express concern over Australian foreign minister’s comment that Putin could be barred from attending the G-20 Summit in Nov

    16---More specifically, 65 percent of Americans do not think the U.S. should provide military aid and equipment to Ukraine in response to Russia's actions, while only 26 percent think the U.S. should. Majorities of Republicans (59 percent), Democrats (67 percent), and independents (69 percent) are opposed to providing military aid and equipment to Ukraine.