Monday, January 19, 2015

Today's links

“People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.”John Kenneth Galbraith

1--27 Facts That Show How The Middle Class Has Fared Under 6 Years Of Barack Obama, zero hedge

  In 2008, the total number of business closures exceeded the total number of businesses being created for the first time ever, and that has continued to happen every single year since then.

Traditionally, owning a home has been one of the key indicators that you belong to the middle class.  So what does the fact that the rate of homeownership in America has been falling for seven years in a row say about the Obama years?

 According to one recent survey, 62 percent of all Americans are currently living paycheck to paycheck
Employment Population Ratio 2015

According to the New York Times, the “typical American household” is now worth 36 percent less than it was worth a decade ago.

One recent survey discovered that about 22 percent of all Americans have had to turn to a church food panty for assistance

2---Iranian general, son of ex-Hezbollah leader, killed in Israeli airstrike in Syria, RT

Newspaper Al-Akhbar wrote Monday that the group "will launch between 4,000-5,000 rockets at Israel and will destroy hundreds of targets per day."
"The enemy's leadership made a decision to carry out a crime," the paper continued, adding that "this is more proof that Israel is involved in the fighting in Syria. This is work that is not based on emotion or petty score-settling."

3--US Army Command delegation ‘to arrive in Kiev this week’, RT

4---For 90% Of Americans: There Has Been No Recovery , Lance Roberts
5--Your Dollar, Our Problem, Foreign Policy

Emerging markets are bracing for a rate hike in the United States and the effect it will have on their economies. This isn’t their first rodeo. U.S. interest-rate hikes in 1980s and 1990s played a role in financial crises across Latin America and East Asia. Over the course of the 1980s, many countries in Latin America and Asia prematurely liberalized their financial markets, often at the encouragement of the United States and the IMF. This opened them up to vulnerabilities of changing interest rates. When the Fed raised rates in the early 1990s, capital flew out of Latin America and Asia more quickly than it came in, beginning what became known as the lost decade. 

Just the announcement this year of "tapering" U.S. monetary policy led to capital flight and currency depreciation in Argentina, Chile, Indonesia, South Africa, Brazil, and other emerging markets. A new paper for the National Bureau of Economic Research finds that during the period of 2012 to 2013 — when the Federal Reserve simply began talking about Yellen’s moves — emerging markets with sound macroeconomic policy, meaning they weren’t carrying huge amounts of debt, were affected most negatively. 

6--America's selective strong dollar policy   , Henry Liu, AT

Robert Rubin, widely regarded as the father of the strong-dollar policy, declared his aim of a strong dollar soon after his appointment to the Treasury in January 1995. Rubin understood that a capital account surplus is the answer for a current account deficit, based on economics worked out by Martin Fieldstein in the Ronald Reagan administration. A strong dollar is key to this capital account surplus/current account deficit strategy, which has come to be known as dollar hegemony.

The policy exploits the instinctive penchant of other countries to make export gains from an undervalued currency. The United States would open its huge market to the exporting economies of the world and force them to finance the resultant US trade deficit with capital inflows from the exporting economies. A strong dollar ensures the appeal of US companies to overseas investors and thus aligning global support for a strong dollar. Dollar hegemony forces the central banks of US trading partners to hold their dollar trade surplus in US bonds and assets, if they want protection from speculative attacks on their currencies. A fall in domestic currency will cause domestic interest rates to rise, and make dollar loans more expensive to service and amortize.

As US domestic demand skyrocketed in the late 1990s, the 30 percent rise in the trade-weighted dollar between 1996 and 2001 helped keep a lid on domestic inflation and kept dollar interest rates low, even as the Fed began to hike the Fed Funds rate target to preempt wage-pushed inflation caused by structural full employment (at 4 percent unemployment). While US companies managed to attract overseas investors with low yields that translated into high yields in their own home currencies by a strong dollar, the inflow also financed the merger/acquisition mania of US companies that made the resultant entities fiercely competitive global giants.

The budget surplus of the Clinton years did not slow down inflow of funds, which readily went to finance mergers and acquisition and initial public offerings (IPOs). The easy money and credit milked from the backs of underpaid workers in the exporting economies enabled the US economy to venture into new technological fields, such as digitized telecommunication that spurred the dot-com fever, structured finance that gave birth to the hedge funds industry, and all manners of financial and accounting acrobatics. Wealth was being created as fast as the United States could print money, with little penalty of inflation. The rest of the world was shipping products they themselves could not afford to consume to US consumers in exchange for papers of the US financial system that in turn feeds US consumer power with debt.

A new economic sector called financial services came into existence. This was the true meaning of the slogan "a strong dollar is in the national interest". Dollar hegemony allowed the United States to levy a tax on the rest of the world for using the dollar, a fiat currency, as the reserve currency for world trade. The livelihood of the world's workers came to depend on US consumers' appetite for debt sustained by loans from the underpaid workers' own governments. Neo-imperialism works by making the world's poor finance the high living of the world's rich. It transcends the Marxist notion of class struggle and surplus value. In neo-liberal globalization, not just labor but even capital comes from the exploited.

What the Wall Street Journal calls mass capitalism would not have been half-bad if it were not for the fact that the hard-earned capital was squandered through fraud and Ponzi schemes. These new ventures financed by fund inflows did strengthened the US economy at first. But as the real economy in the United States did not grow as fast as the inflow of funds, because fewer and few things were being produced in the US, the excess funds soon channeled toward manipulation and fraud on a massive scale, resulting in financial scandals such as LTCM, Enron, WorldCom, Global Crossing, and thousands of less-known bankruptcies.

7--EZ Credit, macronomy

The behaviour of Europe’s banks is a barometer of the balance of advantage between the forces of deflation and reflation because bank balance sheets are evaluated by reference to the incentive to leverage or deleverage. The investment consensus tends to assume that all forms of Central Bank intervention are good for Banks. However, excess liquidity does not necessarily ensure the expectation of reflation. Precisely, the contradiction of the investment consensus is the conviction that the ECB must engage in GB-QE but that it will fail to raise the rate of nominal growth in the euro zone. The relative performance of Europe’s banking sector, especially that of the cheaper, lower quality EZ banks, has deteriorated since last October even though Central Bank liquidity is driving down bank funding costs and their lending rates.
The equity investor should take note of the message delivered by divergences within the credit space since last October. A collapse in the value of an asset as strategically important as oil produces the expectation of credit stress in the commodity-emerging space which translates into a risk premium for the banking system. ...

Société Générale in their European Banks note from the 9th of January:
"€600bn of lost corporate lending
The European corporate loan book has shrunk by €600bn since 2009, the point at which corporate credit volumes began to retreat. Around €450bn of this shrinkage has taken place in the last three years – the period of austere governments and regulators. Almost all of this correction is down to three banking systems: Spain (€400bn lost from peak), Italy (€100bn lost) and Greece (€30bn lost).
The total euro area banking system has shed €7tn in assets since 2008. The first chunk of assets fell away in 2008-09 (typically non-lending assets – subprime, etc.). The second chunk of assets has been falling away since 2011.
At the total balance sheet level, it is actually Germany that has seen the lion’s share of the balance sheet decline. This is largely linked to the non-lending assets that fell away in 2008-09.

We hate sounding like a broken record but, no credit, no loan growth, no loan growth, no economic growth.

8---Hans Redeker Morgan Stanley head of global currency strategy Morgan Stanley, Bloomberg (video)

"This is super dollar will see them (SNB) intervening in dollars they will add to their dollar reserves. which is positive for the US unit...

 Unfortunately, globally you have globally $9 trillion on the private sector dollar claims outside the US...This is significant, so the dollar goes up. If you have used those dollar liabilities to invest in assets which do not produce dollar revenues then you are in big trouble  because your asset liability ratio roles over. And therefore, what we are currently seeing --this dollar strength--is negative for emerging markets

 and there comes a third action into this and this is at one point that America --which is currently enjoying a huge gap between local funding costs--so below 2% for 10 years--but nominal GDP at 6.5%-- This is an invitation into a local, domestic US dollar carry trade--You fund in dollars and invest in housing and so forth. That's going to lead to a substantial  acceleration of monetary velocity into the United States. So that is super good for the US. But then you have to think about what's super good for the United States, is it then still good for the emerging markets which have built up these dollar liabilities to a significant degree?

The answer to that is no.

 So that actually means we will be sandwiched between continued strong performance of assets in the united states, and weaker asset performance outside of the US. And it is going to go forward and backward

 The answer to that is "No". Hans Redeker head of global currency strategy at Morgan Stanley

9--Is this the Big One, Info clearinghouse jan 28, 2014

“The worst selloff in emerging-market currencies in five years is beginning to reveal the extent of the fallout from the Federal Reserve’s tapering of monetary stimulus, compounded by political and financial instability.
Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.” (“Contagion Spreads in Emerging Markets as Crises Grow,” Bloomberg)...

The policy has pumped nearly “$7 trillion of foreign funds” into EMs since QE was first launched in 2009. According to the Telegraph’s Ambrose Evans-Pritchard, “much of it “hot money” going into bonds, equities and liquid instruments that can be sold quickly….Officials are concerned that this footloose capital could leave fast in a crisis, setting off a cascade effect,” Pritchard adds ominously.
Whether last week’s bloodbath was just a prelude to a bigger crash is impossible to say, but it is worth noting that the Fed has only reduced its purchases by a mere $10 billion per month while still providing $75 billion every 30 days. That suggests that markets will probably face greater turmoil in the months ahead. Check out this clip from USA Today:
“Emerging markets need the hot money but capital is exiting now,” says (Blackrock’s Russ) Koesterich. “What you have is people saying, ‘I don’t want to own emerging markets.’… 
The bigger fear is if the current crisis in currency markets morphs into a full-blown economic crisis and leads to financial contagion, says Matthias Kuhlmey, managing director of HighTower’s Global Investment Solutions.
“The currency story is fascinating and can be a slippery slope – be cautious,” says Kuhlmey, adding that the Asian crisis in the summer of 1997 that started with a sharp drop in the value of Thailand’s baht, turned into a broader economic crisis that engulfed Indonesian, South Korea and a handful of other countries. It also rocked financial markets.” (“Why emerging markets worry Wall Street,” USA Today)...

According to Reuters, a normalizing of interest rates in the US, (which most analysts expect) “could cut financial inflows to developing countries by as much as 80 percent for several months. In such a case, nearly a quarter of developing countries could experience sudden stops in their access to global capital, throwing some economies into a balance of payments or financial crisis, the Bank said.” (“Rout in emerging markets may only be in Phase One,” Reuters)
Clearly, the potential for another financial meltdown is quite real.

For more than four years, the Fed has buoyed stock prices and increased corporate margins through massive injections of free cash into the financial markets. Now the Central Bank wants to change the policy and ease its foot off the gas pedal. That’s causing investors to rethink their positions and take more money off the table. What started as a selloff in emerging markets could snowball into a broader panic that could wipe out the gains of the last four years. 

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