Monday, June 8, 2015

Today's Links

1--G-7 summit convenes amid US threats against Russia

But Carter used the occasion to make a pointed attack on Russia, claiming that NATO had to devise methods to fight a wide range of methods of subversion in Ukraine and eastern Europe as a whole. “It’s a mixture of subversion and sophisticated threat making, manipulation of information, the big lie—all this cocktail that we saw in Ukraine,” Carter said.

This language would apply more accurately to the US-German policy in Ukraine, which fomented a coup in February 2014, spearheaded by fascist groups, that ultimately brought to power the current government of President Petro Poroshenko, a billionaire oligarch, and provoked both Russian intervention in Crimea and the conflict with pro-Russian separatists in eastern Ukraine....

A naval exercise involving forces from 17 countries began June 5 in the Baltic, while a 10-day test deployment of the new NATO quick-reaction strike force begins June 9 in Poland. NATO will also hold its summit next year in the Polish presidential palace in Warsaw, the city where the Warsaw Pact was signed in 1955, linking the countries of the eastern Europe Soviet bloc.

2--Get China, wsws

A front-page article in the Australian this week reported that the Abbott government is “actively considering”—egged on by the US—its own coercive actions in the South China Sea. Plans are being drawn up to provocatively fly a military reconnaissance aircraft within the 12-mile territorial limit of one or more Chinese-controlled atolls.
At a joint press conference with Philippine President Benigno Aquino III yesterday in Tokyo, Japanese Prime Minister Shinzo Abe sent an identical message. “Regarding the South China Seas, we’ve reaffirmed that we are concerned about large-scale land reclamation and that we are opposed to unilateral attempts to change the status quo.” Earlier in the week, Aquino issued a far more belligerent condemnation, comparing China to Nazi Germany.....

The Vietnamese and Philippine weapons purchases are part of an escalating arms race in Asia fuelled by rising geo-political tensions and stoked in particular by the Obama administration’s aggressive “pivot to Asia” directed against China. According to IHS Jane’s, annual defence spending in South East Asia is projected to reach $52 billion by 2020, up from an estimated $42 billion this year. The 10 countries that make up the Association of South East Asian Nations (ASEAN) are expected to spend $58 billion on new military hardware over the next five years, with naval procurement comprising a large portion.

A blog by Sean O’Connor on the US-based Council of Foreign Relations website, entitled “How to defuse the looming Asia-Pacific arms race,” pointed to the heavy involvement of the United States in arms sales. This included upgrading Singapore’s F-16 program, selling missiles to Indonesia and Malaysia, and providing military financing to the Philippines to procure stealth frigates, anti-submarine helicopters and guided missile fast attack craft. Taiwan has just announced that it will deploy its P-3C Orion maritime patrol aircraft, recently acquired from the US, to the South China Sea.
“Clearly, US policymakers believe the best strategy for discouraging Chinese aggression in the South China Sea is to arm US allies in the region,” O’Connor declared. “What Washington must recognise, however, is that foreign military sales have unintended consequences. With more capabilities and vessels deployed in the disputed territory, a small skirmish could ignite an all-out crisis.”
The warning will undoubtedly fall on deaf ears. US imperialism is engaged in an all-embracing military build-up throughout the Indo-Pacific and has already staged a series of reckless provocations. Its aim is not to protect small nations from bullying or “freedom of navigation” in the South China Sea, but engineer a confrontation with China, even at the risk of all-out war, to ensure its subordination to US interests in Asia and internationally.

3--New Housing Headwind Looms as Fewer Renters Can Afford to Own
Some forecast demographic changes will help lead to a decline in homeownership rate

The U.S. homeownership rate is below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage Americans to buy homes. Conventional wisdom says the rate, at 63.7%, is leveling off to where it was for decades before the housing-market peak....

The downtrend would push homeownership below 62% in 2020, and it would hold the rate near 61% in 2030, below the lowest level since records began in 1965.

4---Bond-Market Game of Chicken With Fed Is Riskier Than Ever , Bloomberg

If the Federal Reserve is really so intent on raising interest rates this year, why is Wall Street chopping its forecasts for bond yields?
For all the hand-wringing over the recent selloff that wiped out about $1.2 trillion in value from the global bond market, the fixed-income market’s best and brightest have actually taken down their year-end estimates for Treasuries in four of the past five months.
It amounts to a dangerous game of chicken, in which many analysts and investors are betting the Fed won’t lift rates too fast because of the damage it may inflict on the economy -- even after last week’s stronger-than-expected jobs report. And the stakes have never been higher for holders of debt globally, who are more exposed to the potential for big losses than at any time in history, based on a metric known as duration...

Even as the labor market showed signs of improvement, household spending and retail sales have fallen short of economists’ estimates every month in 2015.
If the Fed does decide to raise rates before January, it would be doing so when U.S. corporate earnings are forecast to grow less than at the start of any tightening cycle since 1980....

Using the Fed’s preferred measure, inflation reached just 0.1 percent in April from a year ago -- the 36th straight month the gauge has fallen short of the central bank’s 2 percent goal.
It’s this lack of price pressure that has prompted so many investors to pour into longer-term debt to generate higher real returns as yields hover close to their historical lows -- a decision that’s roiled the market as bonds tumbled

5---Experts worry that 'phony numbers' are misleading investors

6--Capex Recovery Is Worst In History, BofAML Says
record issuance and buybacks have come at the expense of capex.
Price insensitive corporate management teams are leveraging their balance sheets in order to buyback shares, thereby artificially inflating the bottom line, boosting equity-linked compensation, and underwriting a stock market rally.

This comes at the expense of capex (i.e. investing the proceeds from debt sales in future growth and productivity). While some will note that capex hit a record in absolute terms in 2014, that obscures the fact that if one looks at how companies are using cash, the trend is clearly towards buybacks and dividends and away from investment.....

This, we’ve argued, could imperil top line growth going forward, as financial engineering is not, in the final estimation, a viable growth strategy...

Since the Great Recession, US business investment has grown at an average annual rate of 4.9%, compared with the 8.1% average for the corresponding period of all post-war recoveries. This shortfall is a much larger than the 1.8pp shortfall for household consumption, and the 2.0 pp for residential investment.

7--Federal Deficit below last year

The budget deficit is now looking too small to sustain growth, as evidenced by the incoming data over the last 6 months. The problem is, as always, unspent income- aka demand leakages- must be offset by agents spending more than their incomes or the output goes unsold. And collapsing GDP growth and rising inventory ratios are telling me that’s it’s been happening ever since the price of oil collapsed, ending the shale related capex, with nothing yet stepping up to fill that spending gap.
At the same time, the Federal govt is going the other way as, reducing the amount that it’s spending in excess of taxation. Additionally, with the current tax structure, if there is any pick up in growth from private sector credit expansion it will cause the federal deficit to further decline, which will require that much more private sector deficit spending to support growth. That’s why the tax structure and transfer payment structure are called ‘automatic fiscal stabilizers’. And, of course, if the economy does stall, the Fed will get the blame for ending QE and more recently allowing longer term rates to rise… CBO: Fiscal 2015 Federal Deficit through May about 10% below Last Year

8--The grinding halt that the economy came to the first quarter pulled nonfarm productivity down by 3.1 percent and inflated unit labor costs by 6.7 percent. These are more severe than the initial data released a month ago where productivity was pegged at minus 1.9 percent and unit labor costs at plus 5.0 percent. Output as measured in this report fell 1.6 percent in the quarter at the same time that hours worked rose 1.6 percent. Adding to labor costs was a sharp 3.3 percent rise in compensation. 

9--CBO: Fiscal 2015 Federal Deficit through May about 10% below Last Year

10--Literally, Your ATM Won’t Work…"Bill Bonner
11--The Real Reason Why There Is No Bond Market Liquidity Left

12--If you thought income inequality was bad, get a load of wealth inequality

13--The  Geopolitics of American Global Decline, Alfred McCoy

14---A Closer Look at Goldman Sachs’ Stance on Share Buybacks

15---Dick Cheney's Song of America


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