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 

Tuesday, April 29, 2014

More Links

1--China Slams US Over Russian Sanctions; Warns "Will Escalate Tensions", zero hedge


2---The West Prepares: These Are All NATO Aircraft Deployments In Response To The Ukraine Crisis, zero hedge


3--Japanese Manufacturing PMI Collapses At Fastest Pace On Record; Drops To 14 Month Lows, zero hedge


4--Ukraine's leading presidential candidate visited Israel in secret, asked for public support,  Haaretz   


Petro Poroshenko asked Foreign Minister Avigdor Lieberman to publicly support his country’s territorial integrity.
The leading candidate for the Ukrainian presidency, former Foreign Minister Petro Poroshenko, visited Israel over the weekend and met with President Shimon Peres and Foreign Minister Avigdor Lieberman. Poroshenko told Lieberman he expected Israel to clearly declare support for maintaining the territorial integrity of Ukraine, which Israel has refrained from doing since the beginning of...


"Poroshenko arrived in Israel secretly last Thursday for a very low-profile, private visit of a few days. He did not make his arrival public, and both the President’s Office and the Israeli Foreign Ministry kept quiet about the visit. It was not until after his return to Ukraine on Monday night that Poroshenko reported on his visit."


5--Hooray for Leahy: Top US senator to withhold Egypt military aid over 'sham trial' of Islamists, RT


"It's an appalling abuse of the justice system, which is fundamental to any democracy. Nobody, nobody, can justify this. It does not show democracy. It shows a dictatorship run amok. It is a total violation of human rights," he said. ...


US Senator Patrick Leahy, chairman of the Senate subcommittee that handles foreign aid, says he will not approve funding for the military in Egypt, where 683 Muslim Brotherhood members were summarily sentenced to death on Monday.


The statement made by the longest-serving US senator is another complication in Washington’s relationship with Cairo. Since the ouster last year of democratically-elected President Mohammed Morsi by the Egyptian military and allies, the Obama administration has walked a fine line between touting the democratic process while still ultimately maintaining strong allegiances with Egypt, a main ally in the region.


Last week, the Pentagon said it would send 10 Apache attack helicopters and $650 million to Egypt’s military regime, which has brutally suppressed dissent among Islamist supporters of Morsi and other groups. The Apaches do not need congressional approval, aides on Capitol Hill said, according to Reuters.


"I'm not prepared to sign off on the delivery of additional aid for the Egyptian military," Leahy said from the Senate floor on Tuesday. "I'm not prepared to do that until we see convincing evidence the government is committed to the rule of law."


6---Putin: Washington behind Ukraine events all along, though flying low, RT


The US has been behind the Ukrainian crisis from the beginning, but was initially flying low, Russian President Vladimir Putin has said. He added that if sanctions continue, Russia will have to reconsider who has access to key sectors of its economy.
“I think what is happening now shows us who really was mastering the process from the beginning. But in the beginning, the United States preferred to remain in the shadow,” Putin said, as quoted by RIA Novosti.
Putin stated that since the US has taken a lead role in resolving the political crisis in Ukraine, it is “telling that they originally were behind this process, but now they just have emerged as leaders” of it.
The "Maidan cookies" policy paves the way to a broader crisis, Putin warned, referring to US officials showing up in central Kiev and encouraging protesters during demonstrations.
“It is necessary to understand that the situation is serious and try to find serious approaches to the solution,” he said.
Putin said that he has called on Kiev to start an all-Ukrainian dialogue, adding that other countries should not be blamed for the crisis. ...


We would very much wish not to resort to any measures in response," he told reporters. "But if something like that continues, we will of course have to think about who is working in the key sectors of the Russian economy, including the energy sector, and how."
At the same time, the US and EU sanctions will not harm the Eurasian integration process, which is meant to lead to the creation of the Eurasian Economic Union, based on a Customs Union and common economic space among Russia, Kazakhstan, and Belarus, he said.


7--US in secret talks with Hezbollah – Israeli reports, RT-


Sources in Washington, DC have told reporters at Israel’s DEBKAfile that secret discussions involving the White House and Hezbollah have recently taken place in the island nation of Cyprus.
According to the news site’s unnamed sources, officials working within the administration of United States President Barack Obama have reached out to members of the militant Lebanese group that’s designated as a terrorist organization by the US — unbeknownst to the media until the site published reports of the meeting on Tuesday this week.


Hezbollah leader Hassan Nasrallah, DEBKAfile reported, considers himself to be a key figure with regards to potentially resolving the bloody civil war in Syria that has pitted President Bashar Al-Assad’s regime against anti-government rebels for three years now.


The actions of Hezbollah, DEBKAfile said, are “credited with turning the Syrian army’s fortunes around from near defeat in 2013 to partial triumph in key areas of Syria this year. “
Nasrallah is able to boast that his movement’s commitment to the Syrian conflict is its central mission and will remain so until rebel and Al-Qaeda forces are finally vanquished,” the site reported.


8---Kerry backtracks on Israel ‘apartheid’ remark, wishes he ‘chose a different word’, RT


I do not believe, nor have I ever stated, publicly or privately, that Israel is an apartheid state or that it intends to become one,” Kerry said in a statement published on the US Department of State's website on Tuesday.

“I will not allow my commitment to Israel to be questioned by anyone, particularly for partisan, political purposes, so I want to be crystal clear about what I believe and what I don’t believe,” he affirmed.

Kerry’s original controversy-inducing comment was delivered last Friday during a closed-door conference of the influential Trilateral Commission, and echoed like thunder across the political spectrum.

The Secretary of State said: “A two-state solution will be clearly underscored as the only real alternative. Because a unitary state winds up either being an apartheid state with second-class citizens – or it ends up being a state that destroys the capacity of Israel to be a Jewish state.”

“Once you put that frame in your mind, that reality, which is the bottom line, you understand how imperative it is to get to the two-state solution, which both leaders, even yesterday, said they remain deeply committed to.”


9--US economic “recovery” dominated by low-wage jobs, wsws
   A disproportionate number of jobs created during the so-called economic “recovery” pay less than about $13 per hour, according to a report issued Monday by the National Employment Law Project.
While US businesses have on the whole added 1.85 million low-wage jobs over the past six years, they have eliminated 1.83 million medium-wage (paying between $13 and $20 per hour) and high-wage (between $20 and $32) jobs, according to the report.
These figures are an expression of the restructuring of class relations that has taken place in the aftermath of the 2008 crisis, which the ruling class used to undertake an unmitigated assault on workers’ wages and living standards 


10---This will end badly, zero hedge


The leaders of the Developed World have chipped away at the solidity that would ordinarily justify confidence in their leadership, markets and currencies, such that confidence can be lost at any moment. If confidence in a sound system is unfairly lost, then countertrend forces can act to stem the panic and restore stability. But a justified loss of confidence in an unsound system would generate much more damage and be, for a period of time and price, unstoppable. That result is what governments have risked by their poor policies, their lack of attention to the risks posed by the inventions of the modern financial system, and their neglect of the fiscal balance sheet. Since this combination is relatively new, particularly the enormity of Developed World debt and obligations, as well as the complexity and extraordinarily high leverage of the financial system (especially given the size of derivatives books), there is no way to tell exactly how it all will end. Badly, we guess.


A catalyzing force for the next crisis might be a failure of confidence in one or more of those major governments or in China. ...
Those who think the scenario above is an exaggeration should ask themselves the following question: After decades of advancements in human knowledge and purported innovations in the global financial system, why did 2008 turn into the worst financial crisis since the Great Depression? The answer is that the system was unsound, largely due to excessive leverage and the complexity of financial instruments.


11--Isolated Russia Makes Friends: To Hold Military Drill With China; Strikes Multi-Billion Deals Qatar And Iran, zero hedge



Today's Links

1--Merck’s Former Doctor Predicts that Gardasil will Become the Greatest Medical Scandal of All Time, HIN


Excerpts:
The full extent of the Gardasil scandal needs to be assessed: everyone knew when this vaccine was released on the American market that it would prove to be worthless!  Diane Harper, a major opinion leader in the United States, was one of the first to blow the whistle, pointing out the fraud and scam of it all.

Gardasil is useless and costs a fortune!  In addition, decision-makers at all levels are aware of it!
Cases of Guillain-Barré syndrome, paralysis of the lower limbs, vaccine-induced MS and vaccine-induced encephalitis can be found, whatever the vaccine.

I predict that Gardasil will become the greatest medical scandal of all times because at some point in time, the evidence will add up to prove that this vaccine, technical and scientific feat that it may be, has absolutely no effect on cervical cancer and that all the very many adverse effects which destroy lives and even kill, serve no other purpose than to generate profit for the manufacturers.

There is far too much financial interest for these medicines to be withdrawn.


3--The EU's "creditless recovery, naked capitalism

, despite declining bank credit
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4---Giving Away the Farm: Gov Guarantees for private label MBS?, Dean Baker


Johnson-Crapo solves both problems for the industry. First, it shuts down Fannie Mae and Freddie Mac. This means Wall Street no longer has to worry about competing with them. But, Crapo-Johnson does more than just wipe out Wall Street's competition; it also allows banks to issue MBS that carry a government guarantee.


Under Johnson-Crapo, investors would have 90 percent of the price of a privately issued MBS guaranteed by the government. This means that no matter how much garbage Goldman Sachs or J.P. Morgan threw into an MBS, investors wouldn't have to worry about losing more than 10 percent of their investment. After an initial 10 percent loss, the taxpayers would be on the hook for the rest.


Proponents of Johnson-Crapo argue that the risk of losing 10 percent of their investment will ensure the quality of these MBS. Apparently these people are not old enough to remember back to the days of the housing bubble when investors gobbled up MBS issued by the Wall Street banks even though they could in principle lose 100 percent of their investment.

The moral hazard created by Johnson-Crapo, in which private banks get the profit and taxpayers get the risk, virtually guarantees the sort of abuses we saw during the housing bubble years. In fact, if we feel the need to get rid of Fannie Mae and Freddie Mac as government-run companies, it would make far more sense to just get the government out of the MBS market altogether.


5--The problem starts in Kiev, RT


First, it is wrong to portray the situation as if the main problem is in eastern Ukraine. Yes, people have taken up arms and seized public buildings. What our Western colleagues don’t want to see is that these actions are a reaction to what happened in Kiev – to the violent unconstitutional coup, to attempts to curtail the status of the Russian language, to calls by extremists for punitive operations in the east, to the inability of the authorities to end provocation or begin meaningful dialogue with Russian-speaking regions. One cannot expect people to go home when no steps are being taken to end the threats from Kiev and western Ukraine.


Second, it is unacceptable that the situation in the east is described as being the result of Russian meddling. We haven’t seen the slightest proof of that. Kiev and Washington are unable to corroborate their claims by anything other than the fact that the activists speak Russian and hold Kalashnikovs – which is also the case for most Ukrainian servicemen in that area. British reporters on the ground overwhelmingly agree the protest movement has local roots and is manned by local residents. That Russia can order them to stop protesting is pure fantasy....


If  the current leaders continue to see the situation exclusively through the prism of “Russian aggression” instead of addressing the real problems, they risk plunging their country into an economic abyss. Such a scenario is deeply troubling for Russia and the Russian people, who wish their Ukrainian brothers and sisters well, but the risks are increasing with every day that passes.


6---Washington, EU imposes new sanctions on Russia, wsws


The US puppet regime in Kiev has also demanded more severe sanctions against Russia, including a cut-off of European purchases of Russian oil and gas.
The EU has until now held back from taking such measures, which could quickly bring much of the European economy to a halt. Several major energy importing nations depend on supplies from Russia, including Germany (30 percent), the Netherlands (34 percent), and Italy (28 percent). Many Eastern European countries rely almost totally on Russia: Poland (91 percent), Lithuania (92 percent), Slovakia (96 percent), Hungary (86 percent), and Bulgaria (90 percent).


British energy corporations, including BP, which holds a 20 percent stake in Rosneft, reportedly intervened to oppose US plans for sanctions against Russia modeled on those imposed on Iran, which have largely cut the country off from world trade. US oil firm ExxonMobil, which also works closely with Rosneft, said it was studying the potential impact of sanctions against Russia on its operations.


Russian officials dismissed the sanctions and threatened to retaliate. “We will respond, although it is not our choice,” Deputy Foreign Minister Sergey Ryabkov told ITAR-TASS. “But we cannot leave this situation without reaction, without practical reaction, without reaction by means of our own decisions. US behavior in the field is becoming provocative.”


7---10 Warnings Signs Of Stock Market Exuberance  , Lance Roberts


  1. Expected strong OR acceleration of GDP and EPS  (40% of 2013's EPS increase occurred in the 4th quarter)
  2. Large number of IPOs of unprofitable AND speculative companies
  3. Parabolic move up in stock prices of hot industries (not just individual stocks)
  4. High valuations (many metrics are at near-record highs, a few at record highs)
  5. Fantastic high valuation of some large mergers (e.g., Facebook & WhatsApp)
  6. High NYSE margin debt- Margin debt/gdp (March 2000: 2.7%, July 2007: 2.6%, Jan 2014: 2.6%)
    - Margin debt/market cap (March 2000: 1.8%, July 2007: 2.3%, Jan 2014: 2.0%)
  7. Household direct holdings of equities as % of total financial assets at 24%, second-highest level (data back to 1953, highest was 1998-2000)
  8. Highly bullish sentiment (down slightly from year-end peaks; still high or near record high, depending on the source)
  9. Unusually high ratio of selling to buying by corporate senior managers (the buy/sell ratio of senior corporate officers is now at the record post-1990 lows seen in Summer 2007 and Spring 2011)
  10. Stock prices rise following speculative press releases (e.g., Tesla will dominate battery business after they get partner who knows how to build batteries and they build a big factory.  This also assumes that NO ONE else will enter into that business such as GM, Ford or GE.)
  11. All are true today, and it is the third time in the last 15 years these factors have occurred simultaneously which is the most remarkable aspect of the situation
8---Epidemic Of Hunger: New Report Says 49 Million Americans Are Dealing With Food Insecurity, zero hedge


9--Average Retirement Age In America Hits Record High, zero hedge


10--Creeping Deflation: Saxo Warns "Markets Are Drifting Into Dangerous Territory. zero hedge


11---Collapsing mortgage market has Corelogic down, but not out, HW

Due to 60% “contraction” in mortgage origination volumes ...

CoreLogic cited an estimated 60% “contraction” in U.S. mortgage origination volumes as a driver in its lower revenue. The company did note that market share gains in Technology and Processing Solutions and growth in insurance and spatial solutions and international operations helped to offset the drop.
The company’s operating income from continuing operations was down significantly from last year. It decreased 71% to $13.7 million reflecting the impact of lower mortgage origination volumes as well as acquisition-related costs, severance charges and stranded AMPS costs.
The net loss from continuing operations was $3.9 million.


12--What will be the impact of cash investors slowing purchases in California? Large investor sales drop 31 percent year-over-year in California. 1.2 million homeowners underwater. Dr Housing Bubble


Investor activity slows down dramatically   
First, there has never been a year where 30 percent or more of all sales went to investors. That is, until 2009. Since that point, for half a decade over 30 percent of all sales in the state of California have gone to the “all cash” crowd. Wall Street was the first house horny buyer leveraging cheap rates in a lustful attempt to chase yield. This is how you have the odd mix of a falling homeownership rate in conjunction with higher home prices


13--Spring Recovery: Dead on Arrival?, DS News


14---Average Down Payments Shrink in Q1 2014, DS News


15---The credit crisis remains real, HW

Fear of mortgage rejection drives away almost half of potential buyers



Most telling, though, is the reinvention of the Clinton Administra-tion as a halcyon time of progressive success. Bill Clinton’s record dem-onstrates, if anything, the extent of Reagan ism’s victory in de
ning the terms of political debate and the limits of political practice. A recap of some of his administration’s greatest hits should suf
ce to break through the social amnesia. Clinton ran partly on a pledge of “ending welfare as we know it”; in of
ce he both presided over the termination of the feder-al government’s sixty-year commitment to provide income support for the poor and effectively ended direct federal provision of low-income housing. In both cases his approach was to transfer federal subsidies—when not simply eliminating them—from impoverished people to em-ployers of low-wage labor, real estate developers, and landlords. He signed into law repressive crime bills that increased the number of feder-al capital offenses,
ooded the prisons, and upheld unjusti
ed and racial-ly discriminatory sentencing disparities for crack and powder cocaine. He pushed NAFTA through over strenuous objections from labor and many congressional Democrats. He temporized on his campaign pledge to pursue labor-law reform that would tilt the playing
eld back toward workers, until the Republican takeover of Congress in 1995 gave him an excuse not to pursue it at all. He undertook the privatization of Sallie Mae, the Student Loan Marketing Association, thereby fueling the student-debt crisis. Notwithstanding his administration’s Orwell ian folderol about “reinventing government,” his commitment to de
cit reduction led to, among other things, extending privatization of the federal meat-inspection program, which shifted responsibility to the meat industry—a reinvention that must have pleased his former Arkansas patron, Tyson Foods, and arguably has left its legacy in the sporadic outbreaks and recalls that suggest deeper, endemic problems of food safety in the United States. His approach to health-care reform, like Barack Obama’s, was built around placating the insurance and pharmaceutical indus-tries, and its failure only intensi
ed the blitzkrieg of for-pro
t medicine.In foreign policy, he was no less inclined than Reagan or George H.
 
W.
 
Bush to engage in military interventionism. Indeed, counting his portion of the Somali operation, he conducted nearly as many discrete military interventions as his two predecessors
combined,
 and in four fewer years. Moreover, the Clinton Administration initiated the “extraordinary rendition” policy, under which the United States claims the right to appre-hend individuals without charges or public accounting so that they can be imprisoned anywhere in the world (and which the Obama Administration has explicitly refused to repudiate). Clinton also increased American use of “privatized military services”—that is, mercenaries.


Leading active members of today’s economics profession... have formed

themselves into a kind of Politburo for correct economic thinking. As a general

rule—as one might generally expect from a gentleman’s club—this has placed them

on the wrong side of every important policy issue, and not just recently but for

decades. They predict disaster where none occurs. They deny the possibility of

events that then happen. ... They oppose the most basic, decent and sensible

reforms, while offering placebos instead. They are always surprised when something

untoward (like a recession) actually occurs. And when finally they sense that

some position cannot be sustained, they do not reexamine their ideas. They do not

consider the possibility of a flaw in logic or theory. Rather, they simply change the

subject. No one loses face, in this club, for having been wrong. No one is dis-invited

from presenting papers at later annual meetings.And still less is anyone from the


outside invited in.19


Monday, April 28, 2014

Today's Links

1--Stockman on financial strip-mining, zero hedge


This eruption of late cycle bubble finance hardly needs comment. Below are highlights from a Bloomberg Story detailing the recent surge of leveraged recaps by the big LBO operators. These maneuvers amount to piling more debt on already heavily leveraged companies, but not to fund Capex or new products, technology or process improvements that might give these debt mules an outside chance of survival over time.


No, the freshly borrowed cash from a leveraged recap often does not even leave the closing conference room - it just gets recycled out as a dividend to the LBO sponsors who otherwise hold a tiny sliver of equity at the bottom of the capital structure. This is financial strip-mining pure and simple - and is a by-product of the Fed’s insane repression of interest rates....


Ironically, the recent surge in corporate lending by banks is being cited by Wall Street’s perma-bulls as evidence that the long-awaited “escape velocity” is about to materialize. But most of the up-tick in corporate loans has been for leveraged lending—an exact repeat of 2005-2007. And that, alas, means that the bubble cycle is in its final innings—not that economic nirvana is about to break loose.


The highlights from today’s Bloomberg story on how “private equity firms are borrowing money to pay dividends like its  2007


2---This Chart Is A True Picture of The Bank Credit Bubble In America, Now Bigger Than The Last One (Which Blew Up) , Testosterone Pit


Turns out, banks have been lending. Not only that. They’ve been lending more than ever before. They have been lending even more than during the last credit bubble, when too many easy loans were made helter-skelter by loosey-goosey loan officers while the Fed’s spigot was wide open, which helped blow up the financial system.

Note the beautiful big-fat bank credit bubble that emerged in 2002, picked up speed as it went, and took off in earnest in 2007, when the chart begins. And note how it soared exponentially in 2008. At the time, the banking system was coming apart at the seams, the housing market was tanking, Bear Stearns got cooked, and stocks were skidding. Nothing stopped the bank credit bubble. Nothing until Lehman Brothers went belly-up in September. Bank CEOs worried about being next. And that finally punctured it.
So the peak was reported in October 2008. Loans and leases outstanding at all commercial banks in the US (black line, left scale) hit $7.28 trillion and all bank credit (red line, right scale) maxed out at $9.56 trillion. Then the great cliff dive began, hitting bottom in February 2010 – outstanding loans and leases at $6.5 trillion, all bank credit at $8.9 trillion.
Now we’re back! Only this time, the bank credit bubble is even bigger. Last month, outstanding loans and leases reached $7.52 trillion and bank credit $10.3 trillion. Halleluiah...


The underlying idea is simple – an idea that has morphed into a special sort of higher religion at the Fed that everyone has to believe in and that no one is allowed to question: the US economy can only grow if debt grows even faster. So total bank credit rose 3% in 2013, for example, and US gross national debt soared by $883 billion, or 5.4%. But GDP rose only 1.9%.
This is what a credit bubble looks like: piling on debt and more debt at all levels while producing only anemic economic growth, so that the debt burden, relative to the economy, gets more and more onerous, and only the Fed’s zero-interest-rate policy can keep the whole construct from collapsing under its own weight, which it will do anyway even with ZIRP, but later and only after even more debt has been piled on so that the damage will be even greater.


3---Biggest Credit Bubble in History Runs Out Of Time , Testosterone Pit


Private equity firms have been ruthlessly taking advantage of that “insatiable demand.” And they have a special self-serving trick up their sleeve: Their junk-rated overleveraged portfolio companies issue new loans, but instead of using the funds for expansion projects or other productive uses, they hand them out through the back door as special dividends. It’s one of the simplest ways PE firms use to strip cash out of their portfolio companies. It loads even more debt on the already highly leveraged portfolio company without adding productive capacity. And those who end up holding this debt – for example, the mutual fund in your portfolio – have a good chance of losing it all.


“It’s kind of like an epidemic,” explained Martin Fridson, a money manager at Lehmann, Livian, Fridson Advisors LLC, in an interview with Bloomberg. “Once an investment banker sees that, he’s going to go to his clients and say, ‘Here’s a window of opportunity, you can take a dividend and get away with it.’


4---Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones, economists view


 The deep recession wiped out primarily high-wage and middle-wage jobs. Yet the strongest employment growth during the sluggish recovery has been in low-wage work, at places like strip malls and fast-food restaurants.
In essence, the poor economy has replaced good jobs with bad ones. That is the conclusion of a new report from the National Employment Law Project, a research and advocacy group, analyzing employment trends four years into the recovery.
“Fast food is driving the bulk of the job growth at the low end — the job gains there are absolutely phenomenal,” said Michael Evangelist, the report’s author. “If this is the reality — if these jobs are here to stay and are going to be making up a considerable part of the economy — the question is, how do we make them better?”...
The National Employment Law Project study found especially strong growth in restaurants and food services, administrative and waste services and retail trades. Those industries — which often pay wages at the federal minimum — accounted for about 40 percent of the increase in private sector employment over the past four years.
There has also been strong jobs growth in some high-paying industries, like professional, scientific and technical services — a category that includes accountants, lawyers, software developers and engineers. That sector accounted for about 9 percent of the private-sector job gains in the recovery.


5---'Is the Stock Market Getting Bubbly?', economists view
Dean Baker:
Is the Stock Market Getting Bubbly?: Washington Post columnist Steve Pearlstein argues it is, taking issue with fellow columnist Barry Ritholtz who says it isn't. I'm going to come down in the middle here.
The market is somewhat above its historic levels relative to trend earnings. Pearlstein cites Shiller who puts the price to earnings ratio at 25 to 1, compared to a historic average of 16. ... I would agree that stock prices are somewhat above trend, but not by quite as large a margin as Shiller. ...


However, there are some points worth noting. The social media craze has allowed many companies with no profits and few prospects for making profits to market valuations in the hundreds of millions or even billions of dollars. That sure looks like the Internet bubble. Some of these companies may end up being profitable and worth something like their current share price. The vast majority probably will not.
The other point is that the higher than trend price to earnings ratio means that we should expect to see lower than trend real returns going forward. 


6---Japan's inflation rate has stalled as impact of yen depreciation wanes , sober look


Should Japan attempt to weaken the yen even further in order to move inflation higher? The problem with that approach is that it would exacerbate the "wrong" type of inflation. Over the past year in Japan, dairy products are up 4%, meats are up 5%, gasoline is up 6%, and electricity is up 10%. These are import driven price shocks and further yen weakness could spell trouble.

With wage growth remaining inadequate, the new consumption tax combined with these price increases could put severe pressure on the consumer. That makes further yen depreciation a difficult policy to embrace. Some however would argue that all the export growth created by weaker yen would more than offset these domestic issues. Making Japanese goods cheaper should result in better sales abroad (as it did in the past), more profits domestically, better economic growth, etc. The impact of the latest yen devaluation on exports however has been less than stellar - certainly not enough to offset these domestic price shocks. In fact, Japan's trade balance is now firmly in the red (see chart).

To be sure, currency weakness has helped Japan achieve a higher inflation rate, but at a significant cost. Further currency weakness could exacerbate the situation without necessarily boosting exports. Moreover, it is not clear how sustainable the price increases will be going forward, particularly in the event of consumer retrenchment. On the other hand, as the currency stabilizes and inflation stalls, it will become increasingly difficult to reach the 2% target rate.


7---Weak US household formation pressuring housing markets, sober look
Housing remains a weak spot in what otherwise looks like a fairly broad improvement across the US economy. The new home sales report today for example came in materially below expectations.


Signs of this soft patch in housing were already visible over a month ago when lumber futures experienced a significant decline (see chart). Home prices have risen quickly over the past couple of years, and that combined with higher mortgage rates creates a bit of a sticker shock for many potential buyers. Furthermore builders continue to complain about construction costs and tight credit. The biggest issue however remains household formation. As of the end of last year for example, the number of American households was not growing at all (see chart). This is likely due to record low marriage rates as well as a slew of other factors. Whatever the reason, household formation needs to stabilize before we see stronger results in the US housing market.

8---Has the Abenomics effect run its course, prag cap

Looks like it.

9--Detention of OSCE mission provides pretext for US escalation, wsws
US, European Union, G7 set to impose new sanctions on Russia

10---The fight against color coded revolutions, Bug Pit

11--The Ukraine crisis and the political lies of the media, wsws

The powerful bond that united Ukraine and Russia arising from the 1917 Bolshevik revolution that overthrew tsarism and opened the door to the liberation of the oppressed masses; the heroic struggle of the Red Army to liberate Ukraine from the murderous grip of German fascism in World War II; the catastrophic consequences of the dissolution of the Soviet Union, the final act in the Stalinist betrayal of the October Revolution—these issues are a closed book to this ignorant, complacent, but lavishly paid flunkey of the US ruling class.....(Thomas Friedman)...

The Times ’ standard is followed by all the major newspapers and television outlets. In following the coverage in the American media, one would never know that the new government in Kiev is populated by individuals from the anti-Semitic Svoboda party, which was condemned in a 2012 vote of the EU parliament. Nor would one know that the Right Sector militia and Svoboda party glorify Nazi collaborator Stepan Bandera, whose Organization of Ukrainian Nationalists participated in the Holocaust of Ukrainian Jews.
The fact that the US has been aggressively backing the crackdown in eastern Ukraine—including sending CIA director John Brennan to Kiev—is covered over. The leaked phone call between US State Department official Victoria Nuland and US Ambassador to Ukraine Geoffrey Pyatt before the putsch, discussing whom to install as Ukraine’s prime minister, is never mentioned...

Over the past two weeks, the Times has been caught in a series of fabrications. Last week, it ran a front-page lead story replete with photographs handed to it by the State Department and the US-backed Ukrainian government purporting to show that Russian Special Forces are directing the protests in eastern Ukraine.


The Times report was quickly exposed as a fraud, including by the WSWS. It took only a quick search on the Internet to expose the so-called evidence as either doctored or fabricated. Subsequent acknowledgements of the “controversy” over the photographs—exercises in damage control and cover-up—have been buried on the newspaper’s inside pages.


Far from being chastened by these exposures, the Times rapidly moved on to its next assignment from the State Department—a front-page article published yesterday alleging that Russian President Vladimir Putin has a secret fortune of between $40 billion and $70 billion. The Times acknowledged in its own article that the allegations consist of “rumors and speculation” with “little if any hard evidence.” That did not prevent it from seeking to legitimize the gossip by elevating it to the status of a prominent “news” item. ...


The final nail in the coffin of anything remotely resembling an independent media came with 9/11 and the “war on terror,” as demonstrated by the media’s “embedded” role in the invasions of Afghanistan and Iraq and its brazen propaganda in support of the wars for regime change in Libya and Syria.
The major newspapers today acknowledge passing articles through government channels before publication, a practice that in other contexts is called state censorship. The media talking heads and columnists make it their business to assist in the witch-hunt of whistleblowers like Edward Snowden and Julian Assange.
The fact that the entire foreign policy of the corporate-financial elite is erected on the basis of lies that cannot withstand the slightest critical examination is a sign not of strength, but of weakness. A vast gulf separates the working class from the warmongers in the American ruling class and their lackeys in the media.

Has the Abenomics Effect Run its Course?

We all know that QE has a substantial psychological impact on the market.  Perhaps more importantly, depending on how such a program is implemented and in what environment, it can be extremely powerful.  One of the more noticeable stories has been that of Japan where Abenomics has appeared to be at least a marginal success in recent years.  Whether this has been mainly due to the exchange rate or due to other factors is impossible to know, but one thing appears to be certain – the positive directional trend of many indicators appears to have changed from a steady rise to a steady sideways.
As our friends over at Sober Look note, inflation appears to have stopped rising as the persistent low inflation trend continues to exert itself:
Japan core CPI
The Nikkei Index, which looked like a one way bet for 6 months, has stalled:
nky
The Yen rally has stalled:
USDJPY
 
This remains one of the most interesting monetary experiments in the world today.  If the central bank is able to pull Japan out of its sustained deflation then we will likely see a permanent change in the way central banks engage their economies.  But I wouldn’t get too hopeful.  Not only do I fear that this has been primarily exchange rate driven, but I also fear that Japan’s terrible demographic trends are something that no central bank can overcome.  And of course, that assumes QE has the power to sustain a recovery or avert disaster in the first place, which I tend to think is a position that’s overstated.

Read more at http://pragcap.com/has-the-abenomics-effect-run-its-course#kflzoSUhEQec2RbJ.99

 
....

Saturday, April 26, 2014

Today's Links

1---Momentum may be changing in the housing market: Robert Shiller, Yahoo


2---Jeremy Stein sees bond bubble, fivethirtyeight


In his short tenure at the Fed, Stein argued that the central bank should respond to financial bubbles with monetary policy. In particular, two of his widely reported speeches stand out, one in February 2013 and the other last month.3 The more recent speech, with the wonky title “Incorporating Financial Stability Considerations into a Monetary Policy Framework,” garnered attention for its bold argument that the Fed should withdraw stimulus or raise interest rates, and thus tolerate a higher-than-normal unemployment rate, all to prevent the growth of a bubble — this time in the bond market, rather than in real estate or stocks.4...


What are the signs of a bubble in the bond market? Stein points to three things: first, the rising level of private-sector debt as a percentage of the U.S. economy; second, narrowing spreads between risk-free Treasuries and corporate bonds; and third, the growing proportion of corporate debt going to riskier companies, i.e. companies that have a greater likelihood of defaulting on their loans....


The U.S. has reached a new record when it comes to its private-sector debt. Nonfinancial companies have borrowed so much money that their debt level is now more than 55 percent of the country’s gross domestic product.
flowers-bubbles-2
Let’s turn to the second sign. The fact that companies are able to borrow money at extremely low rates — just above the rate that the U.S. government can borrow at — suggests there are lots of banks, mutual funds and large institutional investors willing to lend money to these companies. Normally, this is a good thing. But over time, it encourages companies to take on a lot of debt. Lenders’ willingness to loan out money to companies at extremely low interest rates suggests they’re not accurately pricing the growing risk of default from these increasingly indebted companies.
...


In this environment of low interest rates and narrow credit spreads, total corporate bond issuance has recovered and surpassed its pre-crisis levels. According to SIFMA, total issuance in 2013 was $1.3 trillion.


3---Housing Won’t Save the U.S. Economy, house of debt


4---Mortgage Companies Face "Tremendously Difficult" Year As Housing Recovery Crumbles, zero hedge
As The Wall Street Journal reports, lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance.


The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course. The average 30-year fixed-rate mortgage stood at 4.5% last week, up from 3.6% last May, when interest rates shot up in reaction to the Federal Reserve's initial indication that it might reduce a bond-buying campaign that was, in part, designed to keep a lid on long-term rates like mortgages.
The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing.











The hope is fading fast...


The lending news could disappoint economists looking for a pickup in housing construction and new-home sales this year that could drive growth as other segments of the economy are showing signs of rebounding after a winter lull.

...

Softness in the housing market, if it deepens and undermines the broader economic outlook, could complicate the Fed's efforts to dial back easy-money policies designed to support the recovery
5---100% Reserve Banking — The History, house of debt


6---Demand for Home Loans Plunges, WSJ


7---Japanese Doomsday Machine Socks It To The Middle Class (But Shorting JGBs Remains A Terrible Idea) , Testosterone Pit


If wages rise with inflation, OK. But total earnings by all employees and contract workers are still down 0.1% year over year, according to the most recent labor survey. Soaring prices and declining wages – the scourge of inflation without compensation, as I’ve come to call it, is a favorite way of hollowing out the middle class (a method employed with great success in the US since the real-wage peak of 2000).


So consumer confidence in March – before the tax increase actually hit their wallets though they’d been doing the math for months – dropped to the lowest level since August 2011, a time of tragedy. It was when people were struggling with the images and real-life impact of the Great East Japan Earthquake and tsunami that had brought businesses and consumers to a near standstill. It was when people were sweltering in offices and at home without air conditioning in an effort to save electricity, and when fears of radioactive contamination were spreading, and when people were holding Geiger counters on fish before buying it. That’s how far consumer confidence has sunk these days.


All subcategories were down: overall livelihood, income growth, employment, and willingness to buy durable goods, which took the biggest hit, not exactly an endorsement of future economic growth. And 89.7% expected prices to continue to go up over the next 12 months, a record in the data series going back to 2004.


The consumer confidence level of 37.5 is the worst in Abe’s reign. It’s down over 2.4 points from when he took over in December 2012. It’s down 8.2 points from its peak under his rule, achieved last May when his honeymoon began to erode.


8---Is the economy suffering from "secular stagnation"?, mark Thoma


9---Housing risk rising as more loans don't meet QM on DTI, HW

An early look at report shows loan climate getting riskier

This month’s NMRI ( National Mortgage Risk ) update shows about 24% of all purchase loans have a debt-to-income ratio greater than the QM limit of 43%.
The Federal Housing Administration leads with 45% of purchase loans exceeding the 43% DTI limit.
Indices for Fannie/Freddie and FHA/RHS both hit new highs in March. Roughly 117,000 loans were added in March, bringing total in NMRI to 2.57 million.
Risk levels remain higher than is conducive to long-run market stability, their report says, with no discernible impact from QM regulation.
What are their reasons for caution?


“In a boom, mortgage lending moves out the credit curve; political pressures are again growing for degraded lending practices,” the report states.
Further, they say, the QM credit box is broad and deep. All the home purchase loans covered by the NMRI today are qualified mortgages, but half have a down payment ≤ 5%, with an average NMRI of 19%.
Also, nearly one-quarter have a total debt-to-income ratio > 43%, also with an average NMRI of 19%.
One-third of FHA’s home purchase loans have a FICO score below 660 (the demarcation line for subprime credit); these have an average NMRI of 35%.


10--“Risk Aversion, Global Asset Prices, and Fed Tightening Signals”, econbrowser


11---This Chart Is A True Picture of The Bank Credit Bubble In America, Now Bigger Than The Last One (Which Blew Up), Testosterone Pit


Turns out, banks have been lending. Not only that. They’ve been lending more than ever before. They have been lending even more than during the last credit bubble, when too many easy loans were made helter-skelter by loosey-goosey loan officers while the Fed’s spigot was wide open, which helped blow up the financial system.

Note the beautiful big-fat bank credit bubble that emerged in 2002, picked up speed as it went, and took off in earnest in 2007, when the chart begins. And note how it soared exponentially in 2008. At the time, the banking system was coming apart at the seams, the housing market was tanking, Bear Stearns got cooked, and stocks were skidding. Nothing stopped the bank credit bubble. Nothing until Lehman Brothers went belly-up in September. Bank CEOs worried about being next. And that finally punctured it.
So the peak was reported in October 2008. Loans and leases outstanding at all commercial banks in the US (black line, left scale) hit $7.28 trillion and all bank credit (red line, right scale) maxed out at $9.56 trillion. Then the great cliff dive began, hitting bottom in February 2010 – outstanding loans and leases at $6.5 trillion, all bank credit at $8.9 trillion.
Now we’re back! Only this time, the bank credit bubble is even bigger. Last month, outstanding loans and leases reached $7.52 trillion and bank credit $10.3 trillion. Halleluiah


12---Risky Lending Becoming More Common, MReport


According to a report released this week by LendingTree, down payment percentages for 30-year fixed-rate purchase loans fell in the first quarter to an average of 15.78 percent, down from just higher than 16 percent in the last quarter of 2013.
At the same time, the company found average credit scores for borrowers matched with lenders on its own network have dropped 6 percent year-over-year, opening up the credit pool a little more.
“As the housing market improves and refinance activity declines, lenders are adapting their guidelines to improve credit accessibility for borrowers,” said LendingTree founder and CEO Doug Lebda. “Relaxed lending guidelines translates to a larger pool of qualified homebuyers that could boost the housing recovery.”


13---Whalen: Nonbanks are taking over mortgage originations, HW


Investment banker and outspoken housing analyst Christopher Whalen, predicts that by this time next year, 40% of mortgage originations will be done by nonbanks.
“When you hear Ginnie Mae CEO Ted Tozer speaking at public events, he says more and more he’s seeing nonbank counterparties for FHA,” Whalen said, speaking at the SourceMedia Mortgage Servicing conference in Dallas. “I hope that nonbanks will step up to the plate and take over originations. Commercial banks no longer want anything to do with closing that note.”


14---US and Europe push confrontation with Russia toward war, wsws


The Spiegel article also refers to a survey by the International Republican Institute from the second half of March, which reports that 48 percent of the population in eastern Ukraine “strongly oppose” the head of state Alexander Turchinov, with just three percent expressing “strong support.” A total of 59 percent of eastern Ukrainians in the survey expressed positive feelings for Russia, with 45 percent of respondents rejecting the parliament in Kiev.....


there is no indication from the American side of a desire to deescalate the crisis. Comments made by Ukrainian Prime Minister Arseniy Yatsenyuk confirmed that the US, the EU and the International Monetary Fund are providing funds to build up Ukrainian security forces.
In an interview with the Washington Post published Friday, Yatsenyuk was asked: “Is the US giving you enough military aid to build up the army?” Yatsenyuk replied: "The US supplies us with non-lethal support.” When asked where his government will find the money to buy military equipment, the Ukrainian premier answered: “The US issued $1 billion in loan guarantees. The IMF supports us. We are getting support from the EU.”
....




British Prime Minister David Cameron’s office said: “The five leaders agreed that in the light of Russia’s refusal to support the process, an extension of the current targeted sanctions would need to be implemented, in conjunction with other G-7 leaders and with European partners.”
At a press conference following discussions with Polish President Donald Tusk, German Chancellor Merkel said she told Russian President Vladimir Putin in a phone call that Germany was ready to impose further sanctions should tensions increase. Merkel’s press spokesman declared, “Nobody should be deceived. We are willing to act.”...


The Geneva agreement calls for all illegal paramilitary groups to be disarmed and disbanded, but Kiev, with the full support of the US and the European Union, has mobilized fascist thugs of the Right Sector against anti-government protesters in the east. On Thursday, thirty Right Sector operatives armed with baseball bats stormed buildings held by protesters in the city of Mariupol.


Right Sector leader Dmytro Yarosh has announced he is moving to the eastern Ukrainian industrial city of Dnepropetrovsk to direct attacks against anti-regime protesters. He boasts of state support for his forces, telling the German publication Spiegel Online, “Our battalions are part of the new territorial defense. We have close contact with the intelligence services and the general staff.”...


US Treasury Secretary Jack Lew said Friday that the next round of sanctions against Moscow would go well beyond the penalties targeting individuals thus far imposed. “We are working with our international partners to make sure that when we do it, we do it in an effective way,” he said in a radio interview....


15--Kerry’s statement on Ukraine: A lying brief for war, wsws


16---The danger of war in Asia, wsws


17---‘Tanks, APCs, 15,000 troops’: Satellite images show Kiev forces build-up near Slavyansk, RT



Wednesday, April 23, 2014

Today's links

"If you want to understand the policy of a country, look at the map.”   Napoleon Bonaparte




1---China's Largest Manager Of Bad Debt On The Economy: "Grim And Complicated", zero hedge






As Bloomberg reports, new nonperforming loans amounted to more than 60 billion yuan ($9.6 billion) in the first two months of this year, compared with 100 billion yuan for all of 2013, China Business News reported on April 9, citing people it didn’t identify.


The economic indicators we’ve seen so far are quite disappointing and repayment risks are rising across sectors from property to small businesses due to weak demand,” Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp., said by phone.

Banks will be hit in such an operating environment...
The business environment this year has been “grim and complicated” as lenders face pressures on asset quality, liquidity and lending margins...
China’s bad-loan ratio rose “significantly” in the first quarter, increasing risks for the nation’s banking industry...
2---Fed’s Wealth Effect: Richest 200 Moguls Made $13.9 Billion Today , Testosterone Pit


This is the Fed’s “wealth effect,” on a daily basis, as seen from the top. It’s a construct that the Greenspan Fed conjured up out of thin air and presented to the incredulous American people as a valid economic theory. Bernanke then promoted it to the Fed’s stated raison d’être. His theory: if we immensely enrich during years of bailouts, money-printing, and interest rate repression the richest few thousand people in the world, everyone would be happy somehow.


And so central bankers, with glowing support from the bondholder bailout organ, the IMF, inflated by hook or crook and for over five years the prices of assets that these chosen few were holding, and they gave them free money to acquire every asset insight and drive up values even further. It all worked out wonderfully and like clockwork for over five years, and the numbers of this “wealth effect” are truly impressive as we can see above. The only thing that Bernanke regretted not doing, based on his own admission, was to explain the whole noble construct to the American people.


3---Moving in with parents becomes more common for the middle-aged , LA Times


The number of Californians 50 to 64 who live in their parents' homes has surged in recent years, reflecting the grim economic aftermath of the Great Recession.


4--The Future of the Captured State, project syndicate


5---Deflation Is About to Wallop Europe, gary shilling


6--New Home Sales Collapse To 8 Month Lows, zero hedge


New Home Sales collapsed 14.5% month-over-month to its lowest since July 2013. A mere 384k versus 450k expectations is the biggest miss since July. So much for the Spring buying season... This is a 7 standard deviation miss against the smart economists' estimates! Whocouldanode that when the free-money sponsored fast money leaves the game that real people with real debt and real wages are simply priced out of buying a new home? Supply of unsold new homes jumps to 6 months, its highest since Oct 2011


7---California Foreclosure Starts Hover Near 8-Year Low, dataquick


8---Existing home sales fall three months in row, USA Today
Sales of existing homes slowest since July 2012


The housing market continued to sputter in March as adverse weather, low supplies and higher costs discouraged home buyers.
Existing home sales declined 0.2% to a seasonally adjusted annual rate of 4.59 million, the lowest level since July 2012, the National Association of Realtors said Tuesday. Home sales have fallen in seven of the past eight months.


Other factors are also holding down sales. The average 30-year fixed mortgage rate is at 4.27%, low by historical standards but up from about 3.4% a year ago. And higher home prices and a tight supply of homes for sale discouraged some buyers, NAR said.
There was a a 5.2-month supply of homes last month, up from a five-month supply in February, but six months is normal. Some of the tight inventory is welcome as the housing market recovers from the 2006 crash. Distressed homes, including foreclosures and short sales, accounted for 14% of sales in March, down from 21% a year ago.
Still, the market was a bit firmer than expected. Economists' median estimate was for an annual sales rate of 4.57 million, according to Action Economics' survey...


But tight supplies limit selection and push up prices, crimping sales. The median price of a single-family home was $198,200 last month, up 7.4% from March 2013.
Another obstacle is that first-time buyers are making up an unusually low share of purchases — 30%, down from 40% traditionally — largely because of strict credit standards.


9---Inequality in Well-Being, House of Debt


“The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away. If there is any doubt, the speed at which companies are adapting to the new consumer landscape serves as very convincing evidence. Within top consulting firms and among Wall Street analysts, the shift is being described with a frankness more often associated with left-wing academics than business experts. ‘Those consumers who have capital like real estate and stocks and are in the top 20 percent are feeling pretty good,’ said John G. Maxwell, head of the global retail and consumer practice at PricewaterhouseCoopers.”....


Aaron Cobet of the Bureau of Labor Statistics used information from the Consumer Expenditure Survey to plot the following chart, which measures the change in annual expenditures for the richest and poorest Americans between 2008 and 2012.

houseofdebt_20140420_1

As it shows, spending increased the most from 2008 to 2012 for the richest households in the United States. So stronger income growth for rich Americans from 2008 to 2012 has translated into stronger spending growth as well. A working paper by Barry Cynamon and Steve Fazzari shows similar results.
The chart above is consistent with this fantastic New York Times article written by Nelson Schwartz earlier this year. He reports that high-end hotels and casinos that target rich customers are doing much better than mid-scale hotels. Retailers aimed at the middle class, such as Sears and J.C. Penney, are suffering while high end retailers such as Nordstrom are doing great.


10---New home sales plummet 14.5% in March, HW

Spring buying season off with a whimper

Sales of new single-family homes in March plummeted 14.5% to a seasonally adjusted annual rate of 384,000, hitting the lowest level since July 2013, the U.S. Census Bureau reported Wednesday.
The March drop in new home sales was a year-over-year drop of 13.3%. The report showed there were drops in three of four U.S. regions.
The March results were well below analyst expectations. The report can be read here.
Home sales have been tepid in market facing rising interest rates, investor-driven home price increases, declining inventory, a rising affordability gap and the much tighter lending standards imposed on the industry


11---Bond Bubbles? Dean Baker


First, I was surprised to read that the size of the U.S. bond market is almost $40 trillion, which the piece rightly points out is considerably larger than the $28 trillion stock market or the $20 trillion housing market. When I checked the source for this number I discovered that the figure referred to the total size of the debt market, not just longer term debt that we would typically refer to as "bonds." The FiveThirtyEight figure includes 90-day T-notes and money market funds.


This is not just a question of semantics. Longer term debt (with a duration of five years or more) has large fluctuations in value in response to a change in interest rates. The price of shorter debt will also vary, but the size of the changes is trivial by comparison. This means that if we are worried about a bubble inflating bond prices, we should really only be looking at longer term debt. The size of this market would be roughly half as large, or less than $20 trillion. That's still big, but a considerably smaller basis for concern than the piece implies.


More importantly, the room for losses in this market is not nearly as large as it was in the case of the stock or housing bubbles. The stock market lost more than half of its value from its 2000 peak to its 2002 trough. House prices lost more than one third of their real value from the 2006 peak to the 2011 trough. By contrast, it is difficult to envision a scenario where the bond market loses even 10 percent of its value....


Lower interest rates certainly help the economy, but does anyone believe that investment would freeze up or that housing construction would plummet if the interest rate on long-term debt rose by a percentage point from current levels? In short, the only reason to be concerned about a bubble in the bond market is that influential people are apparently taking the risk seriously and could pressure the Fed to needlessly raise interest rates and cause more unemployment.


12---Kiev must immediately deescalate east Ukraine crisis, call back troops - Moscow, RT


Kiev authorities must “immediately” deescalate the situation in southeast Ukraine by withdrawing its troops from the region, Russia’s Foreign Ministry has said, adding that Kiev must start nationwide talks and stop “distorting” the Geneva agreement.
“The Russian side once again insists on an immediate deescalation of the situation in the southeast of Ukraine, the withdrawal of divisions of the Ukrainian Army and the start of a real inter-Ukrainian dialogue including all the regions and political entities of the country,” the Foreign Ministry said in a statement on its website.


Moscow is “surprised” by Kiev’s interpretation of the four-sided Geneva agreement adopted by Russia, Ukraine, the US and the EU on April 17, it added.
Despite the call for disarmament of “all the illegal armed groups” specified by the agreement, Kiev, Washington and a number of European leaders “keep harping on the necessity to ‘hand over weapons’ [referring] only to the Ukrainian citizens defending their rights in southeastern Ukraine.” With that, the Western powers “are turning a blind eye to the ongoing provocative actions of the gunmen of the far-right groups, including that of the so-called Right Sector.”


13---Lavrov: Kiev issued 'criminal order' allowing use of weapons against civilians, RT


The coup-appointed Kiev government’s order to use force against Ukrainian citizens is “criminal,” the Russian Foreign Minister told RT. He also denied claims that there is Russian military presence on Ukrainian territory.
In an interview with RT’s Sophie Shevardnadze, Sergey Lavrov called acting Ukrainian President Alexander Turchinov’s order to reinitiate an anti-terror operation in East Ukraine, a criminal act.
Referencing the four-sided talks between the EU, the US, Russia and Ukraine that took place in Geneva on April 17, Lavrov accused Kiev’s coup-appointed government of going back on its pledge to put a stop to all violence.

“In Geneva we agreed there must be an end of all violence. Next afternoon [interim Ukrainian President Aleksandr] Turchinov declared almost a state of emergency and ordered the army to shoot at the people.”
Turchinov announced the resumption of the anti-terrorist operation in eastern Ukraine on Tuesday. Moscow has decried the operation and urged the Ukrainian government to refrain from using force on civilians living in the region.
The Russian Foreign Minister said the buildup of troops on the border with Ukraine was within the bounds of international law and denied the presence of Russian troops in East Ukraine. Lavrov said the troops were participating in routine military drills, something that has been verified by international inspectors.
Describing a worst case scenario in the Ukrainian crisis, Lavrov said Russia would be forced to respond if it were attacked.

“If we are attacked, we would certainly respond. If our interests, our legitimate interests, the interests of Russians have been attacked directly, like they were in South Ossetia for example, I do not see any other way but to respond in accordance with international law,” he said.

“Russian citizens being attacked is an attack against the Russian Federation,” he told RT...


There is no reason not to believe that the Americans are running the show,” said Lavrov, referencing US Vice-President Joe Biden’s visit to Kiev and its coincidence with the renewed counter-terror operation on activists in eastern Ukraine.

“It’s quite telling they chose the moment of the Vice President of the US’ visit to announce the resumption of this operation because the launching of this operation happened immediately after [head of the CIA] John Brennan’s visit to Kiev,”
said Lavrov.
The situation in Ukraine is just another example of Washington trying to gain ground in the geopolitical fight, the minister said.
“Ukraine is just one manifestation of the American unwillingness to yield in the geopolitical fight. Americans are not ready to admit that they cannot run the show in each and every part of the globe from Washington alone,” said Lavrov, adding Washington’s “ready-made solutions” cannot remedy a crisis that it does not understand.


14---Ukraine President Vows New Offensive Against East , antiwar 


15---New York Times propaganda photos on Ukraine exposed, wsws


Today, the lies the Times is palming off as news could provoke a war with Russia, a nuclear-armed power. By fabricating evidence of Russian involvement in east Ukraine, the Times was providing political ammunition for calls in Ukraine and in the Western imperialist powers for a military crackdown against protests in east Ukraine, a region with a large Russian population. This could lead to a military intervention by Moscow in eastern Ukraine to break up the crackdown, and a clash between Russia and Ukraine drawing in the Western powers......


In publishing the false allegations, the Times worked closely with the US government, which received the photos from the unelected pro-US regime in Kiev and “endorsed” them before passing them on. At a press briefing, however, US State Department spokeswoman Jen Psaki, whom the New York Times quoted in its article, indicated that the administration was well aware that the photos did not constitute proof of what was being claimed.
Pressed about whether she was certain the pictures showed individuals linked to Russia, Psaki replied: “What we see in these photos that have been, again, in international media, on Twitter, and publicly available, is that there are individuals who visibly appear to be tied to Russia. We’ve said that publicly a countless number of times. I will let you draw all the conclusions yourself as to whether these are individuals who look similar or not to other events.”


A journalist at the briefing objected to calling this “evidence,” and asked, “Do you think this is evidence that would stand up in a court of law?”
Psaki replied, “I don’t think it’s a legal—we’re not making a court-of-law case here. We’re just showing that this is photographic evidence that indicates the connection we’ve been talking about for weeks now.”


The journalist asked, “You think it is proof of connection, or it’s just—or you’re just alleging that it’s another sign of this?”
Psaki replied, “It’s another sign.”
In fact, the Times has worked to mislead its readers, uncritically presenting concocted photos delivered by its contacts in the State Department.


16---Kiev regime orders crackdown as US steps up threats against Moscow, wsws


 the real motivation behind the US-backed coup in Ukraine: to escalate the military encirclement of Russia, bringing NATO to its borders and eliminating Moscow as an impediment to US geostrategic hegemony over the Eurasian landmass.....


Asked by the Post whether the regime was going “to fight the terrorists,” Avakov replied, “Tomorrow the holidays will be finished and the announced Easter truce will be finished… We will act… We will start liberating people from the terrorists.”


Turchynov claimed the resumption of the crackdown was triggered by the discovery in Slovyansk of the body of a local politician and member of his own right-wing Batkivshchyna, or “Fatherland,” party, who had been abducted earlier. Another body found in the town has yet to be identified. Turchynov charged that “these crimes are being committed with the full support and connivance” of Russia....


The Kiev regime initially launched its “antiterrorist” offensive early last week, seizing control of a military airfield in Kramatorsk and sending an armored column rolling toward Slovyansk. Halted by a crowd of local people, however, the Ukrainian soldiers refused to take action against them, instead turning over their armored vehicles and weapons to anti-Kiev militiamen.
It was in the aftermath of this humiliating fiasco that the Ukrainian regime’s foreign minister joined his counterparts from the US, Russia and the European Union in drafting an agreement in Geneva to halt all violence and de-escalate tensions by disarming illegal groups, ending occupations of public buildings and spaces, freeing political prisoners and initiating a dialogue between the regions.


Shortly afterwards, the regime in Kiev added that it was observing an “Easter truce.” It was during this supposed truce that a column of four cars carrying Right Sector gunmen attacked a roadblock on the outskirts of Slovyansk on Easter Sunday, killing three local men.
It is now apparent that the Kiev regime and its patrons in Washington were only playing for time with the negotiations in Geneva. It hardly seems a coincidence that the first abortive “counterterrorist” offensive was launched after a secret visit to Kiev by CIA Director John Brennan, while the second attempt was initiated immediately after Vice President Biden’s trip to the country.