Wednesday, April 30, 2014

Today's links

1---Abenomics Agony: Japanese Base Wages Tumble By Most In 2014 (22nd Consecutive Monthly Drop), zero hedge


... tonight the Japan labor ministry reported that monthly wages excluding overtime and bonus payments fell 0.4 percent in March from a year earlier (the biggest drop in 2014), a series of declines which has now stretched to 22 consecutive months.


2--U.S. GDP Grew A Glacial 0.1% In The First Quarter 2014, Forbes


3--About That CapEx Spending Renaissance..., zero hedge-


For all the talk that imminent, inevitable, "any second now" CapEx spending renaissance is getting, we can only assume we are looking at a wrong chart of the change in quarterly fixed income spending that plugs straight into the US GDP calculation. There is no other possible explanation.


4---Corporations--Record cash, record debt, zero hedge


There is, however, one big problem with that mantra. As Zero Hedge first showed in January with "Corporations Have Record Cash: They Also Have Record-er Debt, As Net Leverage Soars 15% Above Its 2008 Peak" companies indeed have tons of cash. What isn't discussed is where that cash came from. The answer: debt. Because while companies have record cash, they have recorder-er debt.


Today, we are happy that more are starting to notice this simple math problem. Here is Deutsche Bank's Torsten Slok who is the latest to be struck by this "revelation".


If you look at cash levels relative to debt levels you find that corporate cash holdings are at the lowest level in 15 years, see also the chart below. In other words, a very important reason why corporates have more cash is because they have taken on more debt via IG and HY issuance. Expect capex to accelerate going forward but keep in mind that debt levels for corporate America are at the highest level ever and there is a risk going forward that higher rates through debt-servicing costs and higher defaults could have a negative impact on the recovery and hence the terminal rate for both short and long rates.


5---Dow Jones Closes At Record High As Economy Grinds To A Halt, zero hedge


6---"Slowdown worse than expected": Fed, zero hedge


The Fed's move came after a report earlier Wednesday that showed the U.S. economy barely grew in the first quarter. Fed officials acknowledged the first-quarter slowdown was worse than expected by saying activity "slowed sharply." Previously, they had just said activity merely slowed.


Still, officials nodded to signs of a pickup in economic activity in March and April, suggesting they aren't too worried about the winter slowdown.


"[G]rowth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions," the statement said.


The Fed said that household spending "appears to be rising more quickly." Recent reports on retail sales and auto sales have been stronger than expected.


But officials saw business fixed investment as having "edged down." Officials repeated their view from March that the "recovery in the housing sector remained slow."


7---Lower returns in the future, zero hedge


Nominal GDP growth is likely to be far weaker over the next decade.  This will be due to the structural change in employment, rising productivity which suppresses real wage growth, still overly leveraged household balance sheets which reduces consumptive capabilities and the current demographic trends.


MarginDebt-NetCredit-040814-2
There are only a few people, besides myself, that discuss the probabilities of lower returns over the next decade.  Henry Blodget, the focus of the DeLong's post, Jeremy Grantham, Doug Short, Crestmont Research and John Hussman are the most notable.


8---Putin Parties With German Ex-Chancellor, Sanctions Be Damned , Testosterone Pit


9---This chart is a hair-raising picture of Canadian home prices that makes the torrid excesses of the US housing bubble look banal , Testosterone Pit




The gap between Canadian and US home prices is at an all-time record, with the average price in Canada now 66% higher than the mean price in the US. Even when the prices are adjusted for fluctuations in the exchange rate, BMO points out, Canadian homes are still 50% more expensive than the already expensive US homes. What gives?


10--Americans want US to mind its own business, WSJ


From the Wall Street Journal:
Americans in large numbers want the U.S. to reduce its role in world affairs even as a showdown with Russia over Ukraine preoccupies Washington, a Wall Street Journal/NBC News poll finds.

In a marked change from past decades, nearly half of those surveyed want the U.S. to be less active on the global stage, with fewer than one-fifth calling for more active engagement—an anti-interventionist current that sweeps across party lines….
The poll showed that approval of President Barack Obama’s handling of foreign policy sank to the lowest level of his presidency, with 38% approving, at a time when his overall job performance drew better marks than in recent months…

Similarly, the Pew Research Center last year found a record 53% saying that the U.S. “should mind its own business internationally” and let other countries get along as best they can, compared with 41% who said so in 1995 and 20% in 1964.

“The juxtaposition of an America that wants to turn inward and away from world affairs, and a strong feeling of powerlessness domestically, is a powerful current that so far has eluded the grasp of Democrats and Republicans,” said Democratic pollster Fred Yang, who conducts the survey with Republican pollster Bill McInturff. “The message from the American public to their leaders in this poll seems to be: You need to take care of business here at home.”…
Support for Mr. Obama’s handling of Russian intervention in Ukraine slipped to 37% in the new poll from 43% in March.


12---New Data Raise Further Doubt on Official View of August 21 Gas Attack in Syria, smirking chimp


13---Council Member Kshama Sawant Replies to Small-Business Owner Mike Klotz, stranger


During my three months as city council member, I have aggressively advocated for tax credits and subsidies for small business, progressive changes to our tax structure, and for a municipal bank that can free small businesses from being indebted to big bank vultures. I have been pushing for these policies both in my public statements and in my dealings with other city and state leaders. Not a single elected official has so far joined me in this effort, nor have small businesses. Yet I remain fully committed to continuing this fight and building a strong grassroots base that will demand these changes. I look forward to working together with you for such real progressive change.


3. No excuses for big business – but phase in small businesses


Your letter also laments a lack of discussion of an incremental approach to $15. It seems you must have missed my recent proposal. On March 15, I proposed including a three-year phase-in for small businesses and nonprofits. My proposal is intended to insure that small businesses are given an advantage in cost structure over large corporate competitors for a substantial period, enabling you to adjust to the new marketplace.


This advantage, coupled with the increased spending power of consumers, will help to offset much of the increased cost of labor. The capitalist economy is driven by customer demand, and paying low-wage workers closer to a living wage is an effective way to increase consumer spending and benefit businesses like yours. Research shows that local businesses benefit when working families have discretionary income to spend.
Under my proposal, small-busin
ess employees will start with an $11/hour minimum wage in 2015, and reach a full $15 plus cost of living in three years. This leaves no chance for big business to hide behind small businesses. McDonald's, Burger King, Taco Bell, QFC, Safeway, Starbucks, and all other big chains and franchises should immediately pay $15 to their workers. I hope we agree that their model of earning super-profits on poverty wages has to end


4. $15 will not destroy jobs or small businesses
In addition, your letter describes your fears about the impacts of implementing a $15/hour minimum wage on your business and on other small businesses. You assert that as a result of additional costs, small, independent restaurants would be forced to lay off workers and raise prices, with many having no choice but to close. Fortunately, a vast body of evidence from past minimum wage increases, in Seattle and Washington State and elsewhere, demonstrate this isn’t what happens. Instead of laying off workers and closing up shop, the vast majority of businesses gain through an expanded consumer base and a higher worker morale and lower labor turnover, which reduces training costs.


There is no evidence that an increase in the minimum wage is proportionately reflected in prices. When looking at other municipalities that have raised the minimum wage, the only statistically significant price increase found is within the restaurant industry, where there is generally a small, one-time price increase of less than one-tenth of the minimum wage jump. These costs to consumers are real, but households are facing an already skyrocketing cost of living. Any small price increase resulting from a $15/hour wage would pale in comparison to the widespread improvement in living standards.


I applaud your choice to purchase from local suppliers, farmers, and ranchers, and to adhere to standards of sustainable and responsible business. As you correctly point out, we live in a community where many customers are willing to pay a higher price for products produced with more responsible practices. My discussions with fellow Seattleites indicate that many would spend $13 rather than $12 for their lunch, were that to happen, if it means the waitstaff and dishwashers are able to pay their rent and afford food or clothing for their kids.


Please know I take seriously the concerns of small businesses who are struggling to survive and get by in an economy stacked against them by giant corporations and a government that does not listen to their needs. I will continue to fight for the interests of everyone who is oppressed and marginalized, and one way to do this is to reverse the income inequality in our city.


14---Why are home sales hitting record lows?, oc housing


  • March sales were off 14 percent in a year, the sixth consecutive year-over-year drop. Half a year of any trend – up or down – is worth examining.
I fired up my trusty spreadsheet and looked back over a quarter-century of DataQuick homebuying patterns for the six local counties. The collective sales counts have fallen on a year-over-year basis for six straight months only five times. So the housing market is in rare territory.
The five previous six-month dips were tied to the two most recent housing debacles. That’s already a reach-for-the-antacids analysis....


Sales of previously owned homes have fallen in seven of the last eight months. They were down 7.5% from a year earlier in March, the fifth straight month in which sales have fallen below the year-earlier level.
There is simply no way to spin this as a positive sign of a durable housing recovery. Slower sales are largely a result of higher prices. In the past, lenders would respond to high prices by peddling toxic loan products, but the new mortgage regulations changed how real estate markets work by banning most of these products


15---Japan's Manufacturing Contracts For The First Time In 14 Months,  investing


Japan's consumption tax hit the nation's manufacturing sector harder than economists had anticipated.
Markit: Japanese manufacturing firms saw a decline in output for the first time in 14 months in April. Alongside this fall in output was a deterioration in new orders which also decreased for the first time in 14 months. In both cases, firms linked the reductions to the rise in the sales tax.
Japan Manuacturing PMI
Japan Manuacturing PMI



Many of Japan's consumers are expected to stay out of stores for a while, having bought all they could prior to the tax hike (see story). The BOJ had factored some of that slowdown into their analysis. The full extent of the damage to the economy however remains uncertain


16---Japan's central bank mulls policy as industrial output, wages fall short of forecasts


17--Abe's Third Arrow: Lower corporate taxes, worker's plantations, and retirement funds dumped in stock market, Forbes


Nishimura emphasized efforts to reduce further Japan’s corporate tax rate, still at 36%, not just to bolster domestic and foreign investment, but to induce Japanese business to attempt painful restructurings in order to boost profitability. He said Japan has passed from a period of protecting employment levels after the “Lehman shock” of 2008 to one in which the private sector should concentrate resources on what each management can do best.


In order to emphasize that push, as well as to bolster returns that can help cover Japan’s looming retirement-benefits burden, Abe also is pushing the Government Pension Investment Fund to reorient its portfolio away from a largely passive, low-yielding reliance on public bonds to one that more closely resembles large state funds elsewhere, tilted toward domestic and foreign equities.  Having that huge investment focus in the home market, it is thought, would increase pressure on corporate executives to improve their returns.  They will also be pushed by Tokyo to justify failures to have independent directors and be discouraged from cross-shareholdings, which are both blamed for lagging corporate performance...


Nishimura identified six Special Zone Projects in different areas of Japan where even the country’s “20 bedrock regulations” that inhibit outright competition can be gotten around.   These would include the Niigata region for agricultural reforms that could challenge the traditional role of small-farmer cooperatives. In Okinawa, designated for international sightseeing, visa requirements would be relaxed (a particular boon to Chinese visits). On the touchy subject of immigration, Nishimura specifically cited temporary work-permits for Chinese construction crews as a lead-up to the 2020 Tokyo Olympics


18--The ECB betting on "creditless" recovery, sober look
The story from the Eurozone is beginning to sounds like a broken record. The area's monetary conditions continue to tighten as the Eurosystem's balance sheet shrinks.

Eurosystem total balance sheet (source: ECB)

The decline is driven by banks' deleveraging, as the LTRO balances decline

19---US economy stalls, econbrowser

Even the 2% growth in consumption spending is not all that encouraging. As Bricklin Dwyer of BNP Paribas noted, 1.1% of that consumption growth– more than half– was attributed to higher household expenditures on health care.

20---Sinn Fein leader Gerry Adams detained over notorious 1972 murder, RT

21--US State Dept campaign of lies, RT

22--Low-wage labor in America, wsws

23--Americans don't want to expand conflict with Russia, wsws

A USA Today /Pew Research Center Poll found that a narrow majority of Americans supports tighter economic sanctions on Moscow, but the public opposes by more than two-to-one (62 percent to 30 percent) the dispatch of arms or military supplies to the Ukrainian government.
A Washington Post -ABC News poll found that Obama’s approval rating has fallen to 41 percent, down from 46 percent through the first three months of the year and the lowest of his presidency. Only 34 percent approve of his handling of the Ukraine crisis, while 46 percent disapprove.
While the regime of Russian President Vladimir Putin is signaling that it wants to ease tensions and find some basis for accommodation with the West, Washington is giving no indication of a desire to reciprocate


24--Ukraine: Coup-Government Acknowledges Defeat, Moon of Alabama


Pushed by CIA Director Brennan and Vice President Biden the Ukrainian government twice tried to use its military against federalists in the east. The second time, when it pushed to blockade the city of Slovyansk, the Russian Federation announced a snap maneuvers of its border troops and threatened to intervene. Kiev called back its forces and the federalists occupied state buildings in more cities in east. Some 23 cities and towns in the Donbass region, which delivers a third of Ukraine's GDP, are now in their hands. More will be by tomorrow.
The coup government in Kiev has, for now, given up:
Ukraine’s president warned Wednesday that its police and security forces are “helpless” to subdue unrest in the country’s east, even as pro-Russia militants seized government buildings in another city in the restive region. “I will be frank: Today, security forces are unable to quickly take the situation in the Donetsk and Luhansk regions under control,” said acting President Oleksandr Turchynov


25--Mortgage applications continue downward heading, HW 

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