Monday, May 19, 2014

Today's Links

1---Trickle Down Abenomics, JT

“The Abe administration’s stance is more about fixing things, including poverty, with a trickle-down effect from overall economic growth,” said Takashi Oshio, a professor at Hitotsubashi University specializing in social security. “There’s little political capital spent on issues like alleviating child poverty. It doesn’t garner votes.”...

As Prime Minister Shinzo Abe charges ahead with his “Abenomics” policies to revive economic growth, things look set to get harder, not better, for Japan’s down-and-outs.
Having ramped up spending on public works projects and business incentives, the government has also moved to shore up its finances, cutting welfare benefits last summer and last month raising the national sales tax to 8 percent from 5 percent.
The regressive tax puts the biggest burden on the poor, and another hike to 10 percent is planned for October 2015.

Team Abe’s success in reversing 15 years of price declines that have hurt business confidence and investment also squeezes the poor, who cannot count on bonuses or financial profits to offset rising living costs as he artificially stokes inflation.
Japan says it plans more aid for welfare recipients, largely through job training. That, however, is little consolation because even those with jobs often live under the poverty line. The government does not officially define the “working poor,” but the number of part-time, temporary and other non-regular workers who typically make less than half the average pay has jumped 70 percent from 1997 to 19.7 million today — 38 percent of the labor force.

2---Importing cheap labor called "reform"; Success of ‘Abenomics’ hinges on immigration policy, JT

3--Treasurys swing lower as yield curve steepens, marketwatch
The 10-year yield is at 2.55%

4---El-Erian: Treasury rally should end as central banks spark animal spirits, marketwatch

Concerns slow growth in the U.S. and Europe that have led to fears about consumer and wholesale prices rising too tepidly, or a slide into “lowflation” in his terminology......

But each of these factors theoretically has a self-correcting mechanism built into it, El-Erian writes:
“In theory, there is little to worry about as lower interest rates should be self-correcting on all three counts. By reducing mortgage rates, they increase house affordability and, for existing homeowners, the incentive to refinance mortgages – both of which support home prices and housing activity. They also push investors out of bond holdings and into riskier assets.
“Indeed, this is the main objective of the “unconventional policies” pursued by major central banks, in the hope that the resulting price surge in risky assets makes households and businesses feel better, encouraging greater consumption and higher investment (via energized “animal spirits”). Finally, offside traders’ positions get cleaned up as more are stopped out.”.....

Nonetheless, it may not play out that smoothly, he says, as concerns about economic growth could lead investors to exit stocks, credit, emerging markets, and other assets that depend on expansion of the economy. There’s a lot of noise that could obscure market movement, but the clearest path toward movement higher in rates is an acceleration in growth.
The explanation by El-Erian, who departed Pimco earlier this year, shares some similarities with that of Bill Gross, the money management firm’s chief investment officer. Gross told MarketWatch last week that the rally reflects lower trend economic growth across the globe, which is likely to keep central banks more accommodative than they have been in the past. Gross takes it a step further, tying the rally to the theory that central bank lending rates will peak lower than in past economic cycles. Gross also told Barron’s that technical positioning played a role as well.
Others are bringing those views together too. Here’s J.P. Morgan’s European equity strategy team, led by Mislav Matejka, in a Monday note.
“The recent bond rally is clearly partly due to the loss of US growth momentum in Q1, but our fixed income strategists suggest that it was also due to expectations of a lower neutral Fed funds rate, declining duration supply and subdued inflation.

Given that, the J.P. Morgan strategists say “We don’t think that the recent bond rally should be interpreted as a negative for equities.”
But not everyone sees a slow-growth world that will remain awash in easy money policies. Zach Pandl, portfolio manager and strategist at Columbia Management, said in a report Friday that signs of increasing growth and dissipating after-effects from the financial crisis mean the peak fed funds rate is likely closer to 3.75% or 4%.

5--Today's Hero: Chilean activist sets fire to $500 mn worth of student debt documents, RT

6---Save the Banks, Save the Economy? House of Debt

Paul Krugman has an excellent column this morning hitting many of the same themes we discuss in our new book. As he puts it:
In the end, the story of economic policy since 2008 has been that of a remarkable double standard. Bad loans always involve mistakes on both sides — if borrowers were irresponsible, so were the people who lent them money. But when crisis came, bankers were held harmless for their errors while families paid full price.
And refusing to help families in debt, it turns out, wasn’t just unfair; it was bad economics. Wall Street is back, but America isn’t, and the double standard is the main reason....

The problem with the economy in 2008 and 2009 is not that banks are not lending enough. It’s absurd to argue that we need more bank lending when demand is collapsing throughout the economy.
Here is the passage from our book that speaks on this issue:
When a financial crisis erupts, lawmakers and regulators must address problems in the banking system. They must work to prevent runs and preserve liquidity. But policy makers have gone much further, behaving as if the preservation of bank creditor and shareholder value is the only policy goal

Student loan balances soared 362% to $1.1 trillion since 2003, during a period when mortgage debt – including the effects of the current Housing Bubble 2 – rose “only” 65% to $8.2 trillion and credit card debt actually declined by 4.2% to $660 billion (chart). The burden of servicing that increasing pile of student loans is eating into other forms of borrowing and spending, such as the American classic, reckless consumption on credit cards, or the purchase of a home. And so the proportion of first-time buyers – the single most important sign of a healthy housing market – has been shrinking for years.
Recent graduates are facing a job situation that remains tough..

Over 70% of the students who are sitting through a commencement speech this spring have student loans. They will start their career, if any, with an average student loan balance of $33,000

10---The housing bubble is bursting in China, now what?, oc housing

11--Apartment nation: Multi-unit housing starts up 416 percent from 2010 low. Builders preparing for a nation with high rental demand., Dr Housing Bubble


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