Tuesday, November 18, 2014

Today's Links

1--Media “Shocked” by Japan’s GDP Fiasco? , wolf street

... the yen has lost about 35% of its value against the dollar since Abenomics became a word!
The destruction of the purchasing power and wealth of the people also drags down the real economy.

In the July-September quarter – the second quarter in Japan’s fiscal year – GDP dropped 1.6% on an annual basis, or 0.4% from prior quarter. That April-June quarter had already been the worst quarter since the financial crisis with a 7.3% plunge on an annual basis, or 1.9% plunge on a quarterly basis. It was worse even than the two quarters of and following the terrible earthquake and tsunami of March 11, 2011, that briefly brought the economy to a halt. That April-June quarter was so bad that the media-darling  economists predicted that some kind of bounce would be inevitable.
But no.

The chart shows how the hype of Abenomics initially created a lot of excitement. Then reality set in. This was followed by the brief but thrilling era before the consumption tax hike that triggered a vast bout of front-loading, much like the prior consumption tax hike 17 years ago had triggered. This was not a surprise, not to readers of WOLF STREET. But Abenomics apologists were claiming at the time that Abenomics was performing miracles.

2---Abe to pledge more stimulus, wsj

Recession in the world’s third-largest economy has Japanese Prime Minister Shinzo Abe readying another major economic stimulus and preparing to call snap elections amid rising clamor over the wisdom of his “Abenomics” reforms.

A surprise announcement early Monday that the economy contracted for a second straight quarter makes it “absolutely necessary to take countermeasures,” said Etsuro Honda, an architect of Mr. Abe’s economic policy, in an interview with The Wall Street Journal. He called for a new $25 billion in cash handouts and tax cuts

3---The richest of the rich, Robert Reich

According to new research by Emmanuel Saez of the University of California at Berkeley and Gabriel Zucman of the London School of Economics, the richest one-hundredth of one percent of Americans now hold over 11 percent of the nation’s total wealth. That’s a higher share than the top .01 percent held in 1929, before the Great Crash....

But the top .01 percent have also been investing their money in politics. And these investments have been changing the game.
In the 2012 election cycle (the last for which we have good data) donations from the top .01 accounted for over 40 percent of all campaign contributions, according to a study by Professors Adam Bonica, Nolan McCarty, Keith Poole, and Howard Rosenthal....

Their political investments have paid off in the form of lower taxes on themselves and their businesses, subsidies for their corporations, government bailouts, federal prosecutions that end in settlements where companies don’t affirm or deny the facts and where executives don’t go to jail, watered-down regulations, and non-enforcement of antitrust laws.

We’re talking about 16,000 people, each worth at least $110 million.

4--Stocks Headed Higher, David Kotok

For financial markets the next year is easy to forecast. All four central banks will keep their short-term policy interest rates below 1%. Their GDP-weighted average will be below 0.5%......Corporate borrowers are really flush with cash......

Were Congress to pass repatriation tax relief as it did in 2004, the amount of transfer into the US would be huge. Capitol Economics notes that the 2004 legislation resulted in about 3% of GDP being repatriated in that one-year window and that most of it was used “to fund dividend payouts and share buybacks rather than boost investments.”  The latest estimate is that a repatriation tax relief bill would have four times the impact today than it did in 2004......

We open this commentary with a link to the October 31 policy statement of the Government Pension Investment Fund of Japan. Any serious investor who has not read it is invited to go to this link right now.
Simply put, one of the G4 has made its position clear with great transparency. The Pension Fund of Japan is going to raise its allocation to stocks, both domestically and internationally. It is going to reduce its allocation to government bonds denominated in its own currency. Internally, that means selling JGBs and buying an ETF that comprises 400 stocks. Meanwhile, the Bank of Japan will maintain a policy of very low interest rates so that the reallocation does not disrupt Japanese financial markets. For Japanese investors this is very bullish. Japanese stocks are headed higher – maybe a lot higher.  The recent recession news means that this policy will be in place even longer and more robustly than expected just one week ago.

5---WHAT THE FED HAS WROUGHT, Burning Platform

The chart below might be the most powerful indictment of the Federal Reserve and our corporate fascist empire of debt ever created. Some people don’t get charts. Charts tell a story. This chart tells the story of elitist bankers supporting the agenda of a corporate fascist state, resulting in the gutting of the middle class. Anyone who views this chart in a positive manner is either a Federal Reserve banker or their paycheck is dependent upon the continuation of the pillaging of the working class. Corporate profits are at all-time highs. Profit margins have always reverted to the mean throughout modern history. If they remain at all-time highs then something is terribly wrong.

Here is the story I see in that chart. Corporate profits as a percentage of GNP have averaged 6.5% over the last 67 years. As you can see, it is a volatile figure. Corporate profits rise during expansions and fall during recessions. That has been a given over time. The reason corporate profits have always reverted to the mean was due to the basic tenets of free market capitalism. When a company is generating outsized profits, that industry will then attract new competitors, resulting in price competition and lower profits. From 1950 through 1971, corporate profits as a percentage of GNP fluctuated in a narrow range between 5% and 7%. This was a reflection of a market driven by competition, a non-interventionist Federal Reserve, and a government not captured by corporate interests.

6---G-20 summit intensifies threat of war against Russia, wsws

The responsibility for the danger of nuclear war, which could mean the end of humanity, lies with the imperialist powers, in particular, the US and Germany. For years they have shifted the boundaries of NATO eastwards, incorporating numerous Eastern European states. Now they are seeking to incorporate Ukraine and finally Russia itself into their sphere of influence, while reducing Russia to the status of a semicolony.

The driving force behind this process is the crisis of world capitalism. As was the case a hundred years ago with the outbreak of World War I, the imperialist powers are responding to an economic impasse by fighting to redivide the world and struggling for control over raw materials, markets and strategic influence. Now, as then, a deepening social crisis at home is intensifying the war drive abroad, as the ruling classes seek to divert internal conflicts outwards against an external enemy....

The military and financial pressure, in the form of economic sanctions, exerted on Russia is designed to destabilize the country and lead to regime-change and the installation of a government completely subordinate to the will of the imperialist powers.

7--With the foreclosure crisis past, why are foreclosures rising? , oc housing

Mortgage delinquencies and foreclosures will rise again, and they will remain elevated above historic norms for much longer than anyone currently anticipates. This will “surprise” economists and others who accept the financial media spin without understanding why and how the mortgage delinquency rates were lowered in the first place, through temporary measure and can-kicking. Despite reports to the contrary, permanent loan modifications did not permanently solve the delinquency and foreclosure crisis.

The next wave of foreclosures won’t be as damaging as the 2008 tsunami. The whole point of lender can-kicking was to meter out these foreclosures over time, and in that regard, they succeeded. We likely won’t see substantive price declines from the upcoming REOs, but it will be welcome added supply that may help sales volumes....

Six years after the housing bust, lenders are still offloading homes that have been in foreclosure limbo. And they’re stepping up their efforts.
In October alone, nearly 60,000 of those homes were scheduled to be auctioned off by banks, up 24 percent from the previous month and seven percent from a year ago, according to RealtyTrac, a housing data firm. That’s the highest level since May 2013. …
In the post Bold California housing market predictions for 2014, I said “Foreclosure processing will increase from 2013 levels. The conventional wisdom states the foreclosure problem is behind us. Forecasters nearly universally agree foreclosure processing will decline because borrowers are going back to work and catching up on their mortgage payments. I believe they will be proven wrong.”
Here we are...

Separately, lenders also had an incentive to delay, said Greg McBride, chief financial analyst at Bankrate.com. They were basically waiting for home prices to rise, as they have in the past two years. That way they could get a better return on those homes, McBride said

One of the few acknowledgments of can-kicking I’ve read in the mainstream media.
While there is no longer a deluge of foreclosures hobbling the housing market, the auctions that are underway are a reminder of the residual effects of the crisis. “The rise in foreclosure auctions indicates that the banks and the courts are preparing for a spring cleaning,” Blomquist said

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