Saturday, April 30, 2016

Today's links

1--Savings Rate Highest Since December 2012 After Personal Spending Disappoints Again

Income up, Spending down.....Savings rises to 5.4%...another sign of weak consumption

2--Oil prices: tripwire for disaster?

Energy could be the tripwire because low oil prices heighten the likelihood of a credit event. It looks a lot like the housing problem in 2007. At that time people said: «Housing never goes down, and if it goes down it’s a buying opportunity. Don’t worry about this stuff, it’s all going to work itself out.» Today, crude oil prices are very important for financial markets. If we get a plunge in crude oil prices then that’s bad, as it means the bankruptcies come, the write downs come, investors run away and losses pile up. And then we’re back looking at financial institutions and asking ourselves: How much of those energy loans do they have? The banks will tell you that they’re not exposed and there’s no problem – just like in 2007, when they claimed that they had no exposure to subprime lending. But that wasn’t quite the way it worked out. So maybe we have to do the whole exercise again that we had to do during the financial crisis and listing out all the write downs of the banks.....

The Bank for International Settlements estimates that there are about 3 trillion dollars worth of energy lending world wide. So we’ve got a market of 3 trillion dollars worth of loans and the primary pricing of that market has fallen apart: the world wide price of oil. And the price doesn’t even need to go down much lower. It just needs to go back down to around $35 and we’re going to start looking at those 3 trillion dollars worth of lending and all of the investments in oil. And if investors see how much it really is, it’s going to be bad.

If the markets are understanding that they got a veto over the Fed then they can do what they want. This runs the risk that stocks take off to overvalued range, go to immense multiples, go bubble because investors don’t believe that this Fed would ever step on the breaks. That is the concern that I have because I am still not a believer that the economy is doing well. Of course, Wall Street’s job is to torture the data to find something positive out of it. But I see negative year-over-year earnings, I see the forecast for the next couple of earnings seasons with negative year-over-year earnings growth, I see sub 1% growth in the US economy and I see low expected inflation. Except for the payroll reports, there is no consistency that things look robust.

3--Why this Economy Feels Even Lousier than the Lousy GDP Print

The meme that 14 million jobs have been created since the Great Recession is constantly held up as proof that the labor market has healed, or has practically healed, even if there are a few soft spots left over – such as the pandemic lousiness of the jobs that have been created.

Turns out, the US population, currently at 323.2 million, has grown by 16.5 million people since the Great Recession. Which is exactly why the unemployment problem has become so intractable: job growth has been less than population growth!...

Per-capita economic growth in the first quarter compared to the prior quarter was negative 0.3%!

4--The Commies were right about Sanders--The demise of Sanders’ “political revolution”

In the wake of his losses in five out of six northeastern primaries, Vermont Senator Bernie Sanders has effectively conceded that former Secretary of State Hillary Clinton will be the Democratic nominee. On Wednesday, the Sanders campaign issued layoff notices to several hundred staffers.
In a series of media interviews, Sanders and his top campaign aide Tad Devine indicated that the
candidate would bow to demands from leading Democrats that he stop criticizing the frontrunner for her ties to Wall Street, and instead direct his attacks against the likely Republican nominee, billionaire Donald Trump.

Thus the Sanders campaign ends not with a bang, but a whimper. The candidate has every right, however, to declare “mission accomplished.” His main concern, as the campaign developed, was how to keep his supporters within the Democratic Party. Millions of youth and workers attracted by calls for a “political revolution” and denunciations of the “billionaire class” are now to be dragged to the polls to cast their votes for Clinton, a Wall Street lackey and war criminal...

A Harvard University survey of young adults aged 18 to 29, made public this week, found that 51 percent of those surveyed did not support capitalism, compared to 42 percent who did. One-third of these young adults affirmatively supported socialism, and near-majorities agreed that health care, food and shelter were basic human rights. This is in a society where socialism has been virtually criminalized and both major parties, the media and academia all sing the praises of the profit system.

As the WSWS wrote in February, “Sanders is not the representative of a working class movement. He is rather the temporary beneficiary of a rising tide of popular opposition that is passing through only its initial stages of social and class differentiation.” His entire campaign has been dedicated to preventing this leftward movement from breaking out of the straitjacket of the Democratic Party.....

His “political revolution” turned out to be nothing more than getting out the vote for the Democrats, his “socialism” merely warmed-over liberalism, without the slightest threat of any inroad against capitalist property.
Sanders avoided the overriding issues of war and militarism, on which Clinton was most vulnerable given her role as secretary of state in the Obama administration, responsible for the US-NATO war in Libya, the US-instigated civil war in Syria, and the campaign of drone missile assassinations, among other crimes....

The class character of the Democratic Party is not open to question. It is an integral component of the two-party system, which the American ruling elite employs to manage its affairs of state and to suppress all opposition from below.

Throughout the election campaign, the Socialist Equality Party has explained both the objective significance of the mass support for Sanders and the role of the candidate himself as a vehicle for strengthening the Democratic Party. We have stressed that Sanders was not the leader of a movement from below, but an instrument of the political establishment for containing, misdirecting and ultimately dispersing that movement.

5--Abenomics—-At Last, Dead In The Water

6--What Comes Next——Krugman’s Fiscal Equivalent Of War

7--Chart Of The Day: Japan’s Money Multiplier Has Dropped Like A Stone Since Kuroda Went Wild

8--Chart Of The Day: Constant Dollar New Home Sales Still At 1976 Level

9--Letter Details FBI Plan for Secretive Anti-Radicalization Committees

Saturday, April 23, 2016

1---The "not-so wealthy" effect; Housing bust leads to weaker consumption and slower growth

The U.S. consumer might be the engine of global growth — just not the roaring V12 it used to be.

From the fourth quarter of 2003 through 2006, amid the real estate bubble, personal consumption expenditures grew at an average annual clip of 3.5 percent. Since the S&P/Case-Shiller Composite 20-City Home Price Index bottomed out in March 2012, however, personal consumption expenditures have increased by just 2.3 percent, on average.

In an economic letter published by the Federal Reserve Bank of Dallas, economists John Duca, Anthony Murphy, and Elizabeth Organ identify one reason why this American muscle car has lost its nitrous oxide.

The researchers found that the wealth effect from real estate — that is, the extent to which home price appreciation juices consumer spending — has been cut in half since the mid-2000s:

Source: Dallas Fed

The housing bubble of the aughts was characterized not only by soaring real estate values, but also households' penchant for using real estate as a piggy bank to finance current consumption.

In the wake of the crisis, access to credit by this channel was curtailed dramatically and the debt overhang served as a notable drag on consumption, to boot.

"In the U.S., increased availability of consumer and mortgage credit, along with rising asset prices, contributed greatly to the consumption boom in the mid-2000s; reversals in these factors exacerbated the bust in consumption during the Great Recession," the authors wrote.

Years removed from the bust, households may still be scarred from its effects and reticent to tap into home equity lines of credit.

2--How Much Are Corporate Buybacks Propping Up Share Prices

The Federal Reserve recently put its interest rate plan on hold, but it will presumably resume at some point in the near future. Benzinga asked Theodore how much of an impact rising interest rates will have on companies that have been repurchasing shares. He explained that companies using debt to fund buybacks will suffer most.
“Because we focus on companies that are generally using growth in free cash flow to finance buybacks, rising interest rates have less of an immediate impact on them,” Theodore said.

3--The promise of more BOJ stimulus weakens yen: Dollar logs largest weekly gain vs. yen since November 2014

Despite the sharp decline, the Japanese currency remains 7.5% higher against the greenback year-to-date.

The yen’s strength has become a headache for Prime Minister Shinzo Abe because a weaker currency was seen as one of his administration’s biggest accomplishments.

But whether or not the BOJ acts might not matter, Foley said.

“Irrespective of the policy decision taken by the BoJ next week, a stronger [dollar] would be very useful in supporting growth and inflation in Japan,” she added.

Investors are turning their attention to the BOJ and a meeting of the Federal Reserve next week in the wake of an uneventful European Central Bank meeting on Thursday. Speculation of more BOJ easing has increased since the Japanese southern island of Kyushu was hit by a powerful earthquake earlier this month.

The Fed and the BOJ will each wrap up their two-day meetings on Wednesday and Thursday, respectively.

4--Imploding Japan; World’s Worst Sinkhole-Government Sports World’s Most Negative-Yielding Debt

no one is buying Japanese debt, other than the Bank of Japan, which buys every JGB (via its “primary dealers”) that the government issues and every JGB that isn’t otherwise bolted down....

The BOJ’s loans to Japanese banks at negative rates aren’t going to increase lending and investment in Japan. Interest rates on loans are already low. The problem is there’s insufficient demand! And there’s insufficient demand because, among other reasons, these policies are strangling demand!....

Japan’s national debt is between 230% and 250% of GDP, depending on who does the counting, compared to debtor-nation USA, at 105%. It has one of the worst credit ratings of any major developed economy; Standard & Poor’s rates it A+, four notches below the top.

The Bank of Japan has been printing about ¥80 trillion ($716 billion) a year for three years – QQE, it calls this – on top of the money it printed in prior years, and uses the proceeds to buy Japanese Government Bonds and other securities. It now holds ¥410 trillion ($3.7 trillion) in total paper. That’s 82% of GDP, versus money-printer-nation USA, at 25% of GDP.....

Japan’s economy has been vacillating between growing a little and shrinking a little for years.

Now it’s shrinking again. It shrank in the October-December quarter, and it’s likely to shrink in the January-March quarter. That would be a technical recession.

Friday, April 22, 2016

Today's Links

" ...fundamentally, it’s very hard to believe in US stocks. Earnings and profit margins are dropping and companies basically are borrowing money to pay dividends and to buy back shares."   Jeffrey Gundlach

“We have had the biggest monetary stimulus that the world must have ever seen, and we still have not solved the problem of weak demand. The idea that monetary stimulus, after six years... is the answer doesn’t seem [right] to me”. Lord (Mervyn) King, the former governor of the Bank of England

"I have not one scintilla of doubt that these central bankers will destroy the enfeebled world economy with their clumsy interventions and that political chaos will be the ugly result." Albert Edwards, Societe Generale

1--The dollar is the secret driver of the stock market comeback

Schlossberg said that by not raising rates, the Fed is consciously allowing the dollar to weaken, thus giving a competitive advantage to U.S. exporters who benefit from a weaker greenback, in turn strengthening U.S. equities.

The U.S. dollar index has fallen 4 percent this year, while stocks have rallied 4 percent.

"The reason why all of this is happening," Schlossberg said, "is because they really want to make sure that we do not tip over into any kind of a global financial panic."

2--Inequality anyone?

Eight years after the financial crash of 2008, the disastrous reality of life in America is drastically at odds with official proclamations of “economic recovery.” While nominal unemployment has fallen since the depths of the recession, this is largely because millions of Americans have dropped out of the labor force. All the growth in jobs over the past decade has been in the form of contingent, part-time or temporary labor.

Social inequality today is greater than ever before. The top 20 billionaires in the US have as much wealth as the bottom 150 million Americans. The rich not only enjoy untold wealth and privilege, they live longer. The life expectancy gap between the richest and poorest Americans averages almost 15 years for men and 10 years for women.

Young people are burdened by more than $1 trillion in student loan debt, millions of people are being cut off from food stamps, and millions more are seeing their pensions and health care slashed or eliminated.

3--(archive 2015) 

Since the demise of Lehman in 2008, there have been more than 600 rate cuts. Over the same period, central banks have injected more than $12trn (£8trn) into money markets under quantitative easing (QE) programmes. Over $26trn of government bonds are now trading at yields of below 1 per cent, with more than $6trn currently yielding less than 0 per cent. These policies, according to policymakers, have been crucial to the “recovery”.

4--One and done?

In the U.S. specifically, the economy grew just 1.4 percent in the fourth quarter and probably only rose 0.3 percent in the first quarter, according to the Atlanta Fed. Job growth continues apace but manufacturing remains in a slump and corporate earnings are tracking for an 8 percent decline in the first quarter, according to S&P Capital IQ.

Importantly, however, stock prices have jumped off the Feb. 11 low and financial conditions overall are easing. Depending on the Wall Street source, conditions are at their loosest since August (Goldman) or at least December (Nomura). The Chicago Fed's National Financial Conditions Index reflects a 17 percent loosening in conditions over the past three months...

Traders currently assign a zero percent chance to an April hike

5--Goldman's crystal ball

"We continue to expect that the strengthening of the U.S. labour market will force the Fed to hike rates three times this year, which will lead to a stronger dollar and a gradual increase in U.S. real rates, pushing gold down," Goldman analysts said in a note.

6--Revolt of the Rich (Today's "must read")  The real reason Dilma Rousseff’s enemies want her impeached

The story of Brazil’s political crisis, and the rapidly changing global perception of it, begins with its national media. The country’s dominant broadcast and print outlets are owned by a tiny handful of Brazil’s richest families, and are steadfastly conservative. For decades, those media outlets have been used to agitate for the Brazilian rich, ensuring that severe wealth inequality (and the political inequality that results) remains firmly in place.

Indeed, most of today’s largest media outlets – that appear respectable to outsiders – supported the 1964 military coup that ushered in two decades of rightwing dictatorship and further enriched the nation’s oligarchs. This key historical event still casts a shadow over the country’s identity and politics. Those corporations – led by the multiple media arms of the Globo organisation – heralded that coup as a noble blow against a corrupt, democratically elected liberal government. Sound


For more than a year, those same media outlets have peddled a self-serving narrative: an angry citizenry, driven by fury over government corruption, rising against and demanding the overthrow of Brazil’s first female president, Dilma Rousseff, and her Workers’ party (PT). The world saw endless images of huge crowds of protesters in the streets, always an inspiring sight.

But what most outside Brazil did not see was that the country’s plutocratic media had spent months inciting those protests (while pretending merely to “cover” them). The protesters were not remotely representative of Brazil’s population. They were, instead, disproportionately white and wealthy: the very same people who have opposed the PT and its anti-poverty programmes for two decades.

Slowly, the outside world has begun to see past the pleasing, two-dimensional caricature manufactured by its domestic press, and to recognise who will be empowered once Rousseff is removed. It has now become clear that corruption is not the cause of the effort to oust Brazil’s twice-elected president; rather, corruption is merely the pretext.

Rousseff’s moderately leftwing party first gained the presidency in 2002, when her predecessor, Luiz InĂ¡cio Lula da Silva, won a resounding victory. Due largely to his popularity and charisma, and bolstered by Brazil’s booming economic growth under his presidency, the PT has won four straight presidential elections – including Rousseff’s 2010 election victory and then, just 18 months ago, her re-election with 54 million votes.

The country’s elite class and their media organs have failed, over and over, in their efforts to defeat the party at the ballot box. But plutocrats are not known for gently accepting defeat, nor for playing by the rules. What they have been unable to achieve democratically, they are now attempting to achieve anti-democratically: by having a bizarre mix of politicians – evangelical extremists, far-right supporters of a return to military rule, non-ideological backroom operatives – simply remove her from office.

Indeed, those leading the campaign for her impeachment and who are in line to take over – most notably the house speaker Eduardo Cunha – are far more implicated in scandals of personal corruption than she is. Cunha was caught last year with millions of dollars in bribes in secret Swiss bank accounts, after having falsely denied to Congress that he had any foreign bank accounts. Cunha also appears in the Panama Papers, working to stash his ill-gotten millions offshore to avoid detection and tax liability.

It is impossible to convincingly march behind a banner of “anti-corruption” and “democracy” when simultaneously working to install the country’s most corruption-tainted and widely disliked political figures. Words cannot describe the surreality of watching the vote to send Rousseff’s impeachment to the Senate, during which one glaringly corrupt member of Congress after the next stood to address Cunha, proclaiming with a straight face that they were voting to remove Rousseff due to their anger over corruption.

As the Guardian reported: “Yes, voted Paulo Maluf, who is on Interpol’s red list for conspiracy. Yes, voted Nilton Capixaba, who is accused of money laundering. ‘For the love of God, yes!’ declared Silas Camara, who is under investigation for forging documents and misappropriating public funds.”

A New York Times article last week reported that “60% of the 594 members of Brazil’s Congress” – the ones voting to impeach Rousseff – “face serious charges like bribery, electoral fraud, illegal deforestation, kidnapping and homicide”. By contrast, said the article, Rousseff “is something of a rarity among Brazil’s major political figures: she has not been accused of stealing for herself”.

Last Sunday’s televised, raucous spectacle in the lower house received global attention because of some repellent (though revealing) remarks made by impeachment advocates. One of them, prominent rightwing congressman Jair Bolsonaro – widely expected to run for president and who a recent poll shows is the leading candidate among Brazil’s richest – said he was casting his vote in honour of a human-rights-abusing colonel in Brazil’s military dictatorship who was personally responsible for Rousseff’s torture. His son, Eduardo, proudly cast his vote in honour of “the military men of ’64” – the ones who led the coup.

Until now, Brazilians have had their attention exclusively directed towards Rousseff, who is deeply unpopular due to the country’s severe recession. Nobody knows how Brazilians, especially the poor and working classes, will react when they see their newly installed president: the pro-business, corruption-tainted nonentity of a vice-president who, polls show, most Brazilians want impeached.

Most volatile of all, many – including the prosecutors and investigators who have led the corruption probe – fear that the real plan behind Rousseff’s impeachment is to put an end to the ongoing investigation, thus protecting corruption, not punishing it. There is a real risk that once she is impeached, Brazil’s media will no longer be so focused on corruption, public interest will dissipate, and the newly empowered faction in Brasilia will be able to exploit its congressional majorities to cripple that investigation and protect themselves.

7--Japan ambles closer to the cliffedge

In Japan, where the sub-zero rate became effective in February, a survey of senior loan officers showed this week that banks’ profit margins from lending to highly rated companies dropped to the lowest level in almost a decade. The BOJ’s quarterly survey also showed that demand for credit from large, medium and small-sized firms all dropped.

“This wouldn’t address the underlying structural problem for the banks, which is not a loan supply issue but a demand issue,” Jefferies Group LLC analysts including Mac Salman wrote in a report.

8--A top for stocks?

Since hitting its February low, the S&P 500 has rallied 15 percent and come within 2 percent of its all-time highs. But according to one market watcher, the top could be in for the year, if history is any guide.

Technical analyst John Kosar said that from a seasonal standpoint, Friday marks the end of peak week for stocks in the second quarter.

"Since 1957 we have April being the strongest month of the year for the S&P 500, and on average it has closed 1.5 percent higher on the month since that time," Kosar said Thursday on CNBC's "Futures Now." The S&P 500 is currently up 1.6 percent this month. "That tells me that we've already gone, seasonally, as high as we should," he said

9--Lower rates mean higher asset prices. Duh

Look at this chart that shows the 10-year, risk-free Treasury bond rate. Today, it stands around 1.79%. When adjusted for three-year average inflation rates, it’s much lower:

After years of non-stop QE, its yields had actually fallen to 0% in late 2014, and today it’s still only around 0.4% – practically zero!

Most people don’t understand that all other financial assets are heavily influenced by the 10-Year Treasury bond rate (or similar sovereign bonds in other countries). Higher-risk bonds from AAA corporate to junk are valued as a risk premium for default above the risk-free rate. Lower risk-free rates mean lower bond yields and higher bond values all the way up the junk bond scale.

Loans for mortgages and auto loans, etc. go down in rates, with a risk premium that is very low on government guaranteed mortgages. That pumps up prices of real estate and other highly financed assets, as everyone can buy more for the same monthly payment.

Lower rates mean higher stock values as well. Stocks are basically valued by projecting earnings 10 years out, and then discounting their value to the present by adjusting for the interest on the 10-year, risk-free rate.

At lower long-term rates, companies can borrow at near zero adjusted for inflation, and buy back their own stocks to increase earnings per share – even if earnings are not growing. Or, they can buy out or merge with a company financed by cheap debt… the list goes on.

It’s all about financial engineering – not about productive investment in future assets and employment.

This final bubble since 2009 is a total illusion from QE and financial engineering – not the normal fundamentals of rising demographics, innovation and productivity. And as an illusion, it will disappear much faster than it was created when it finally bursts

10--Manufacturing plunges

Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said:

“US factories reported their worst month for just over six-and-a-half years in April, dashing hopes that first quarter weakness will prove temporary.

“Survey measures of output and order book backlogs are down to their lowest since the height of the global financial crisis, prompting employers to cut back on their hiring.

“The survey data are broadly consistent with manufacturing output falling at an annualized rate of over 2% at the start of the second quarter, and factory employment dropping at a rate of 10,000 jobs per month.

“With prior months’ survey data pointing to annualized GDP growth of just 0.7% in the first quarter, the deteriorating performance of manufacturing suggests that growth could weaken closer towards stagnation in the second quarter.

“The survey responses reveal an increase in business uncertainty in relation to both the economic and political outlook during the month, which is weighing on spending and investment decisions and exacerbating already-weak demand both at home and abroad.” 

11--(archive) Moment of truth: Market Rises After Fed Keeps Interest Rates Unchanged

“It probably eases investors’ minds that we’re unlikely to see a rate increases in April, and it probably takes June off the table,” he said.

12--Stocks Rise When the Dollar Falls?

13--The Fed changes its mind about normalization

The chair of the Federal Reserve has dropped the broadest of hints that it has put future US interest rate increases on hold following the plunge in global stock markets since the start of the year.

In testimony before Congress, Janet Yellen admitted that the selloff in shares on Wall Street had affected the growth prospects for the world’s biggest economy and left investors in little doubt that the US central bank had no intention of following last December’s increase in the cost of borrowing with a second increase in March.

“Financial conditions in the US have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar,” she said.

“What you see here is a virtually unchanged path of economic projections and a slightly more accommodative path” for monetary policy, Ms. Yellen told a news conference on Wednesday.

The Fed’s Statement:      

“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

14--From Mario Draghi With Love: How ECB Cash Could Boost U.S. Stocks

The European Central Bank may be about to hand billions of euros to American shareholders.

On Thursday, the ECB set unexpectedly generous conditions for buying corporate bonds, part of its effort to refloat the eurozone economy with a deluge of free money.

The relaxed conditions mean the money can easily wash up on U.S. shores. Big American companies have long sold bonds in Europe, and last year these “reverse Yankee” issues hit a record after European interest rates turned negative. Reverse Yankee issuance hit €66 billion ($74.6 billion) in 2015, according to Dealogic. That was a fifth of all euro-denominated bond issuance, says Fitch Ratings. This year, so far, the level is the second highest on record.

Euro-denominated bonds issued by any eurozone-based company will qualify for ECB buying, so long as the company isn’t a bank. All a U.S. company has to do is set up a eurozone subsidiary to issue its debt. Even better, The ECB can buy up to 70% of each bond, and can buy at issue.

If the ECB spends money on U.S. debt, that cash is likely to end up in the hands of shareholders. Large U.S. companies have been rapidly increasing their borrowing and using the money mainly to finance share buybacks, rather than to increase investment.

Handing out money to foreign companies may prove controversial for the ECB, particularly because the central bank will take a financial hit if the bonds aren’t repaid in full.

In an ideal world, ECB President Mario Draghi wouldn’t have to worry about this. The ECB would like European companies to borrow in order to invest, boosting both the real economy today and growth tomorrow. This is the least likely outcome, though. Europe is awash in spare production capacity, and there is no sign that big investments have been on hold awaiting access to bond finance.

Thursday, April 21, 2016

Today's Links

1--Nearly half of Americans would have trouble finding $400 to pay for an emergency

Since 2013, the Federal Reserve Board has conducted a survey to “monitor the financial and economic status of American consumers.” ... The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?...

Americans are on thin ice financially. How thin? A 2014 Bankrate survey, echoing the Fed’s data, found that only 38 percent of Americans would cover a $1,000 emergency-room visit or $500 car repair with money they’d saved. Two reports published last year by the Pew Charitable Trusts found, respectively, that 55 percent of households didn’t have enough liquid savings to replace a month’s worth of lost income, and that of the 56 percent of people who said they’d worried about their finances in the previous year, 71 percent were concerned about having enough money to cover everyday expenses. A similar study conducted by Annamaria Lusardi of George Washington University, Peter Tufano of Oxford, and Daniel Schneider, then of Princeton, asked individuals whether they could “come up with” $2,000 within 30 days for an unanticipated expense. They found that slightly more than one-quarter could not, and another 19 percent could do so only if they pawned possessions or took out payday loans. The conclusion: Nearly half of American adults are “financially fragile” and “living very close to the financial edge.” ...

Median net worth has declined steeply in the past generation—down 85.3 percent from 1983 to 2013 for the bottom income quintile, down 63.5 percent for the second-lowest quintile, and down 25.8 percent for the third, or middle, quintile. According to research funded by the Russell Sage Foundation, the inflation-adjusted net worth of the typical household, one at the median point of wealth distribution, was $87,992 in 2003. By 2013, it had declined to $54,500, a 38 percent drop. And though the bursting of the housing bubble in 2008 certainly contributed to the drop, the decline for the lower quintiles began long before the recession—as early as the mid-1980s, Wolff says....

The personal savings rate peaked at 13.3 percent in 1971 before falling to 2.6 percent in 2005. As of last year, the figure stood at 5.1 percent, and according to McClary, nearly 30 percent of American adults don’t save any of their income for retirement....

Though household incomes rose dramatically from 1967 to 2014 for the top quintile, and more dramatically still for the top 5 percent, incomes in the bottom three quintiles rose much more gradually: only 23.2 percent for the middle quintile, 13.1 percent for the second-lowest quintile, and 17.8 percent for the bottom quintile. That is over a period of 47 years! But even that minor growth is somewhat misleading. The peak years for income in the bottom three quintiles were 1999 and 2000; incomes have declined overall since then—down 6.9 percent for the middle quintile, 10.8 percent for the second-lowest quintile, and 17.1 percent for the lowest quintile. The erosion of wages is something over which none of us has any control.

2--UPDATE: Dollar drifts lower against yen; ECB meeting in the spotlight

3--(archive) Housing sales peaks: Existing Home Sales Set 2005 Record

Sales of existing homes set a record for a fifth straight year in 2005 even though the year ended on a weaker note with three straight monthly declines, sending a strong signal that the nation's housing boom is beginning to cool.

The National Association of Realtors reported that sales of previously owned homes and condominiums dropped by 5.7 percent in December compared to the sales pace in November. It marked the third consecutive monthly decline, something that has not occurred in more than three years.

Even with the sales weakness in the last three months of the year, total sales in 2005 climbed to an all-time high of 7.072 million units, up 4.2 percent from the 6.784 million homes and condominiums sold in 2004.

The median price of a home sold in December was $211,000. For all of 2005, home prices were up 12.7 percent, the biggest increase since a 14.4 percent rise in 1979.

4--Existing home sales hit 5.33 million in March vs. 5.30 million expected

5--Sales of New Homes in U.S. Rebounded in February on Jump in West

Sales increased 2 percent to a 512,000 annualized pace following a 502,000 rate in January that was stronger than previously reported, Commerce Department figures showed Wednesday. Demand is in line with last year’s pace, indicating residential construction will remain a source of support for the economy.

6--The market for new homes is hardly robust, with new-home sales still far from their July 2005 peak of 1.4 million annualized, wsj

7--Canada Does the Global Economy a Favor---But for maximum effect, everyone would need to adopt its formula of more fiscal, less monetary stimulus

Last month, Prime Minister Justin Trudeau’s Liberals introduced a budget that sharply boosts spending on a raft of initiatives from infrastructure to social benefits. Because of that fiscal stimulus, the Bank of Canada has refrained from cutting interest rates, helping send the Canadian dollar sharply higher.

The higher dollar will be a drag on Canada’s trade sector, diluting the budget’s stimulative impact. But Canada’s loss is the world’s gain. In fact, Canada is faithfully executing the formula that finance ministers and central bankers from the top 20 economies agreed to pursue at their just-concluded meetings in Washington: namely, rely less on monetary and more on fiscal policy to rejuvenate growth. The problem is that Canada is virtually alone in being both willing and able.....

The International Monetary Fund, the Organization for Economic Cooperation and Development and the U.S. Treasury Department for the past year have urged any country not drowning in debt to stimulate their economies by borrowing. The IMF this month recommended the G-20 stand ready to implement coordinated stimulus equal to 1% to 1.5% of GDP.

Canada listened. “We were influenced by what we heard from the IMF and OECD and around the table at the G-20,” says Bill Morneau, Canada’s finance minister, in particular the greater potency of fiscal policy when monetary policy is constrained by interest rates near zero....

But just 42% of Canada’s stimulus over the next two years goes toward infrastructure. Most of the rest goes to expanded social transfers such as child benefits, unemployment insurance and old-age pensions. All are permanent obligations and some at the margin may discourage work. Canada, with its pristine balance sheet and manageable pension burden, can easily handle it; not so the U.S., much less Japan.

8--ECB's Draghi: We haven't talked about helicopter money

The central bank said on Thursday that it would start purchasing corporate bonds as part of its quantitative easing program in June.

The purchases will be carried out on the ECB's behalf by the national banks of Belgium, Germany, Spain, France, Italy and Finland, according to a statement issued after Draghi's conference.

The purchases will take place in the primary and secondary markets. To be eligible, instruments must be denominated in euros and have a credit rating of at least BBB- or equivalent; they must also have a remaining maturity of between six months and 30 years at the time of purchase

9---US authorizes intensified air strikes against civilians in Iraq and Syria

This March alone, US warplanes dropped nearly 2,000 bombs on Iraq and Syria, an increase over the 1,700 bombs dropped by US forces during the previous March. Last November, the US-led coalition set a new record for a single month, dropping nearly 3,300 bombs.

Since the beginning of “Operation Inherent Resolve” in August 2014, Iraq and Syria have been pummeled by a combined total of more than 40,000 bombs, the vast majority of them made by American companies and delivered by American planes.

“The gradualistic, painfully slow, incremental efforts of the current administration undercut the principals of modern warfare, and harken back to the approach followed by the Johnson administration,” retired US Air Force general David Deptula, now with the Mitchell Institute for Aerospace Studies, said Tuesday, defending the expanded air strikes in comments to USA Today

Wednesday, April 20, 2016

Today's links

1--Venezuela oil minister says U.S. helped ruin deal in Doha

2--How are millions still underwater as home prices rise?

Fast-rising home prices brought 1.5 million borrowers up from underwater on their mortgages in 2015, but there are still twice as many drowning. In total, 3.2 million homeowners nationally still owe more on their mortgages than their homes are currently worth, according to a new count by Black Knight Financial Services.

That brings the average negative equity rate to 6.5 percent, a vast improvement from the worst of the housing crash, but still well above historical norms. More concerning is that negative equity is now concentrated at the bottom price tier of the market. More than 16 percent of borrowers in these homes are underwater, which means they are frozen in place, unable to sell without losing money; these are the homes the market needs most, in order for young renters to become homeowners...

As with everything in real estate, the underwater numbers vary depending on location. Nevada, where home prices are still 34 percent below their peak, wins the dubious distinction of having the largest share of underwater borrowers at 14 percent.

Looking beyond states, at the lowest end of local markets, the bottom 20 percent in terms of price, Memphis, Tennessee, Cleveland, Detroit and St. Louis show negative equity rates at more than 40 percent. Again, these borrowers cannot move without paying into their homes and are 10 times more likely to default on their home loans than those who have even a small amount of equity.

Ironically, the negative equity on the low end of the market is fueling overheated price growth across even the midtiers of the housing market. That is because it plays heavily into the severe lack of supply of homes for sale this spring. Underwater borrowers are less likely to move. On top of that, homebuilders are not focused on the low end, because they can't make enough money on cheaper homes to offset their rising costs for land and labor. The resulting short supply pushes prices higher for what is available on the low end

3--Rent growth eases: Why it is happening here and not there

Sky-high apartment rents are finally beginning to crack.

Annual gains in the first quarter were still a relatively strong 4.1 percent nationally, but that is a significant drop from the 5 percent gains the market was seeing one year ago, according to Axiometrics. The first quarter rate was also 52 basis points lower than that reported in the fourth quarter of 2015. Rent growth has been 4 percent or higher for seven-straight quarters, but wage growth is nowhere near strong enough to meet the gains, leaving renters more cash-strapped than ever before. ...

Sacramento and Portland, Oregon, reported double-digit rent growth in the first quarter....

Occupancy remains high at 94.8 percent nationally in the first quarter, tied for the highest first quarter rate since the 95.7 percent at the start of 2001. It is about the same as one year ago, but down slightly from the fourth quarter of 2015.

4--Wages Are Increasing 2.3% per Year: What Does That Mean?              

Employment and wages are key indicators for the Fed 

Aside from employment, the most important indicator of economic well-being is wages. Despite falling unemployment, one of the conundrums facing the current labor market is flat real or inflation-adjusted wages. Over the past decade, wages have more or less kept pace with inflation, but they haven’t increased

Wages Are Increasing 2.3% per Year: What Does That Mean?

Before the financial crisis, much of the rise in consumption was due to asset price inflation, not wage inflation. Instead of getting big raises, people took out home equity lines of credit to fund consumption. This approach worked as long as housing prices kept rising

However, since the bubble burst, wages have had to fund consumption, and they’ve been more or less flat. In the above chart, you can see how the line changed with the Great Recession in early 2009. Investors are watching closely for the slope to increase.

Is wage growth finally breaking out?

Average hourly earnings rose $0.07 month-over-month in March 2016 and rose 2.3% year-over-year to $25.43. Average weekly hours fell 0.1 hours to 34.4. Given the rough patch in the global economy, the Fed might have an excuse not to hike rates in June. If wage inflation is returning, their hands will be tied.
On another practical level, once inflation starts again, you’ll also see a rise in long-term rates, which you can trade through the iShares 20-year Treasury Bond ETF (TLT).

Implications for homebuilders

Historically, real estate prices have correlated closely with wage growth. That relationship began to change in the late 1990s as wages grew at the inflation rate and real estate prices began posting double-digit gains. Recently, home prices have been rising again, but that’s due to low inventory.

If you use the median home price data from the National Association of Realtors, you’ll find that the ratio of median home price to median income is again approaching bubble-type highs. As the Fed removes accommodation, further home price appreciation will depend on wage growth.

Home price appreciation rates have deteriorated

Virtually all homebuilders’ average sales price growth rates have deteriorated. They’ve been content to keep a lean inventory and raise prices. That strategy seems to have been pushed as far as it can go.

5--Chinese "fire sale" of US stocks

...a falling dollar is good for US stocks because it lures foreign money into the market. And a jumpy dollar, like last year, causes foreign money to flee.

So what’s the outlook for stocks?

Um, despite taking some pretty good licks recently with its bet, Goldman remains a dollar bull. If the bet proves correct, it would send foreign money fleeing. And that’s bad for US stocks...

Chinese companies, supported by state-owned banks and PE firms, have pushed into global M&A on a large scale, including in the US, buying companies lock, stock, and barrel.

But at the same time they’ve been dumping US stocks and bonds.

They’re following the Chinese government, which unloaded $510 billion of foreign exchange reserves in 2015, including $292 billion in US Treasuries, the first ever annual net sell-down, after having religiously piled them up year after year. China still holds about $1.4 trillion in US government debt. So it has a lot left to sell.

That can no longer be said for Chinese holdings of US stocks. From 2008 through the first quarter of 2015, China bought $117 billion of US stocks, riding the big Fed-induced bull market to its peak. Q1 of 2015 was particularly strong, with $20 billion in share purchases.

But in Q2, Chinese investors dumped a net of $14 billion of US stocks; in Q3 $34 billion; and in Q4 they threw another $68 billion out the door, according to a note by Goldman Sachs, reported by MarketWatch. In total, they sold $116 billion in shares over the last three quarters of 2015!...

Other foreigners too lost confidence in US equities. And oil producers – budgets mauled by the oil price plunge – also unloaded US stocks:

  • Canadian investors dumped $80 billion in US stocks after having been loyal buyers for many years. They still have $102 billion left to sell.

  • The Middle East unloaded $39 billion in US stocks, after having already dumped $20 billion in 2014 and $22 billion in 2013. Their holdings are down to a measly $33 billion.

  • Europe sold $24 billion, and still has $556 billion left to sell. If Europe gets more nervous about US stocks, watch out!

In total, foreign investors unloaded a net $171 billion in US equities. And they may lose whatever is left of their appetite for US stocks if China continues to rattle everyone’s nerves, and if the dollar continues to rise....

Goldman estimates that US corporate buybacks will total $450 billion in 2016 – way more than its estimate of foreign selling. Yes, our trusty financial engineering hocus-pocus machine, the relentless and dumb bid that purposefully buys high to push share prices up. That companies prop up the market by buying back their own shares mostly with borrowed money is, as the report put it, “a means of generating shareholder value.”

While that would be down from $561 billion in share buybacks last year, and nothing to write home about, it would still be head and shoulders, so to speak, above the five-year average of $360 billion and the ten-year average of $240 billion. But it would not measure up to the all-time record of $710 billion in 2007, a huge and final bout of “generating shareholder value” just before it all collapsed

6--Leak worsens in massive Hanford tank holding nuclear waste

A leak in a massive nuclear waste storage tank at the Hanford Site has expanded significantly, KING 5 learned this weekend.

After leak detector alarms sounded early Sunday morning, crews at Hanford lowered a camera into the two-foot-wide space between the tank's inner and outer walls. They discovered 8.4 inches of radioactive and chemically toxic waste has seeped into the annulus.

The U.S. Department of Energy released a statement Monday calling the leak an "anticipated" outcome of an ongoing effort to empty the tank in question. The Washington state Department of Ecology said, "There is no indication of waste leaking into the environment or risk to the public at this time."

But one former tank farm worker said the leak should be considered a major problem.

“This is catastrophic. This is probably the biggest event to ever happen in tank farm history. The double shell tanks were supposed to be the saviors of all saviors (to hold waste safely from people and the environment),” said former Hanford worker Mike Geffre.

7--Six Years Later, Worried Gulf Residents to Hold Online Town Hall on BP Spill Health Impacts

Joe Yerkes is a Florida fisherman who joined the cleanup effort of the disaster after he was put out of work by the oil in his fishing waters.

Yerkes was exposed to both oil and dispersants while cleaning up oil.

"I have spent the years since the spill happened literally trying to survive," Yerkes told Truthout in 2014. "I've lost five friends now who were also exposed to BP's oil and dispersants, who were unable to seek proper treatment to extract the chemicals from their bodies before the exposure killed them."

"Not long after his exposure, Yerkes became violently ill, started bleeding from his nose and ears, and began vomiting blood. When he couldn't get well, he had his blood tested and found it contained high levels of chemicals, which his physician attributed to BP's oil disaster," Truthout reported in 2014.

Yerkes said at the time that he had to regularly give himself intravenous treatments of saline flushes and various medications. "I have chronic headaches, a fever, and suffer chronic unbearable pain in my muscles and joints, and have had chemical pneumonia twice so far," he told Truthout.

8--Criminal charges today in Flint water crisis

The charges, which will be brought against individuals connected with the Michigan Department of Environmental Quality and the City of Flint, relate to the lead contamination of Flint's drinking water and not to the possible link between Flint River water and an outbreak of Legionnaires' disease that is tied to the deaths of 12 people, one of the sources said....

One of the more important pieces of evidence, the sources said, was how city and state officials submitted documentation related to the federal Lead and Copper Rule, which governs acceptable levels of those substances in drinking water. The person familiar with the matter said that some officials who worked on and submitted these reports included information they knew to be incorrect.

9---Nomi Prins: Break up the banks

New York based banks were involved in crimes ranging from mortgage securities fraud, to foreign exchange rate manipulation to interest rate rigging to violation of anti-money laundering laws to a host of other financial shenanigans.  Just last week, Goldman Sachs dusted off another $5 billion settlement (much of it tax-deductible) for misleading investors. It isn’t over. ....

If you break up a bank, you break up its ability to scam the public, to stuff loans into fraudulently presented toxic assets and trade them to unsuspecting pension funds. That's what Glass Steagall prevented for decades. You also reduce the cost of investigation and settlements. You reduce the possibility of anyone’s deposit account or mortage loan or insurance contract being held hostage during the next government bailout. You reduce the power inequality that spawns economic inequality. You create longer-lasting global stability. You vote for Bernie.

10--Lack of Household Income Gain Explains Trump & Sanders Appeal

census empl dec

the 90th percentile had a 69 percent increase during the same period, from $93,200 to $157,500. That’s an increase of 1.1 percent a year, almost triple the rise for the median. Households in the 95th percentile saw incomes rise from $117,800 to $206,600. That’s a gain of 75 percent, and an annual growth rate of 1.2 percent. (If you want to see how much more households at the upper extremes of the income distribution did, you can find it here.)

11--Russia calls Saudi bluff after Riyadh threatens to boost oil output

12--'Gold-Fix Cartel': How Western Banks Were Caught With Pants Down

John Crudele, an exceptionally persistent financial journalist with The New York Post and John Williams of Shadow Government Statistics and an exceptional economist, informed me at the time of the gold manipulation reports," Engdahl continues.

"The reason for the fix, which then-Fed chief Alan Greenspan reportedly orchestrated, was to prevent a stampede by panicked investors out of risky stocks and bonds into gold. Had gold profited from the stock panic, it could well have been an early end to the dollar system. It worked then to prevent a gold rise," the researcher underscores.

13--Obama flies to Saudi Arabia amid rising tensions

At the heart of the controversy over the 9/11 report is the fact that this alliance has, since the CIA-orchestrated war for regime change in Afghanistan in the 1980s, involved the use of the Saudi regime and prominent Saudi citizens, such as Osama bin Laden, to mobilize Islamist fighters as US proxies. This has continued through the 2011 war in Libya and the ongoing conflict in Syria, which will no doubt be one of the main topics of discussion at the meeting in Riyadh.

US officials recently revealed that Washington is preparing to implement its “Plan B” in Syria should the cessation of hostilities negotiated at the end of February collapse and the talks between the Syrian government and Western-backed “rebels” in Geneva break down. It would involve the pouring of new and more deadly weapons into the conflict, in particular, anti-aircraft weapons that could be used to bring down both Syrian government and Russian jets.

The unraveling of both the cease-fire and the talks now appears to be taking place. The Syrian Al Qaeda affiliate and its CIA-vetted allies launched an offensive in Aleppo province earlier this month, prompting a government counteroffensive.

The Saudi- and US-backed “High Negotiations Committee” representing the Islamist militias fighting the Syrian government announced Monday that it was suspending its participation in the UN-brokered talks, while the “rebels’” chief negotiator, Mohammed Alloush, the leader of Jaysh al-Islam (Army of Islam), a rabidly sectarian militia fighting to impose an Islamic state in Syria, wrote on Twitter urging a new offensive. “Strike them at their necks. Strike them everywhere,” he said, quoting a passage from the Quran.

The Saudis have long urged the provision of more weaponry, including man pads, i.e., portable surface-to-air missiles capable of bringing down both military jets and passenger planes.

14--Once again on Saudi complicity in the 9/11 attacks

Even without making public any new details from the 28-page chapter, Senator Graham made an effective argument to substantiate his claim that the official claim of no Saudi role in the 9/11 attacks has no credibility. He told “60 Minutes,” “I think it is implausible to believe that 19 people, most of whom didn’t speak English, most of whom had never been in the United States before, many of whom didn’t have a high school education, could’ve carried out such a complicated task without some support from within the United States.”

Graham’s language is significant, since it could suggest not only official Saudi support to the hijackers during their months in the US—the focus of the “60 Minutes” report—but support to the hijackers by other individuals or other agencies, including the US government itself. It was reported after 9/11 that the lead hijacker, Mohammed Atta, was well known to the US government, and had been under surveillance during his residence in Germany before he came to the United States to get flight training....

Kerrey said that the Commission had neither the resources nor the authority to conduct a thorough investigation of the Saudi connection. In truth, the entire 9/11 Commission was a whitewash, not only of Saudi Arabia but of the vast US military-intelligence apparatus, which was certainly tracking the activity of some, if not all, of the future hijackers. The $15 million budget for the commission to investigate an attack in which nearly 3,000 people were killed was only one quarter of the $60 million spent by Independent Counsel Kenneth Starr to investigate Bill Clinton’s relations with Monica Lewinsky

15--Housing starts debacle

(Housing) Starts and permits down and below expectations. I see this as removing any hope of any kind of sustainable growth. The traditional sources of private sector credit expansion- housing, vehicles, and general investment are continuing to decelerate when acceleration is needed just to replace the capital expenditures that were being generated by $100 oil. And even then GDP growth was modest, at best.

Tuesday, April 19, 2016

extra links

"12 straight weeks of "smart money" according to Merril Lynch has been selling into this market." CNBC analyst (video 2:45 min)  "eye of the storm??"

1--Stocks and Bonds Today: Expensive, Expensive, Expensive

The U.S. earnings season started last week as it is likely to go on: Profits plunged, but came in higher than Wall Street analysts’ had forecast, and shares rose.

Analysts forecast a fall in earnings per share of 7.8% for the S&P 500, the third year-over-year drop in a row according to Thomson Reuters IBES.

Yet, investors don’t seem that bothered. Large U.S. stocks are up 1.8% this year. The perverse result is that big-company shares are getting more expensive, even as their prospects dim and the bond market suggests clouds are gathering over the economy.

Why are shares so high when bond yields are so low?

All the main valuation tools now show stocks are expensive compared with history. Wall Street’s favored valuation metric, price to estimated 12-month-ahead earnings, has been higher since 2004 only for a few months last year. This forward PE ratio stands at 16.7 times, higher than any time from 1985, when the data starts, until the dot-com boom really got going in 1997.

Students of bubbles ​should note that stocks are more expensive than when Alan Greenspan, then Federal Reserve chairman, warned of the markets’ “irrational exuberance” in December 1996.

Other widely used valuation gauges tell a similar story. Notably, price relative to the past 10 years of earnings—the cyclically adjusted price/earnings ratio popularized by Yale’s Prof. Robert Shiller as a way to smooth the economic cycle—is at the highest this year. It is back at the level of November 2007, just after the precrisis peak for U.S. stocks, and stands 50% above its average since 1881.

No, this isn’t exuberance. This is desperation. Fund managers are far more cautious than usual, and worries abound about negative interest rates, recession risk, possible British exit from the European Union, the U.S. election, Chinese debt and geopolitics.

Investors are more funereal than enthusiastic, and are reaching for the assets that usually accompany gloomy times: Treasury bonds, Japanese yen and German bunds.

But with bonds already pricey, they are also piling into anything that might pass as an alternative to a bond, offering a reasonably dependable income and perhaps a little growth. ...

it is not a justification for buying shares at these prices. In the past, buying shares because they appeared cheap compared with bonds sometimes worked, but sometimes proved catastrophic. Shares were supposedly very cheap relative to bonds shortly before the financial crash, for example, before becoming very much cheaper indeed.

Investors might get lucky. If the world is stuck in an era of slow but steady growth, shares in dull companies at high valuations might be the best bet out there, albeit still one offering low returns. But the crowd that has rushed into this trade is walking a fine line between recession on one side and growth on the other, either of which would leave investors wishing they had avoided the heady valuations of today’s bond-like stocks.

2--Why Housing Will Spring Ahead     ---Conditions are right for the housing market to finally shift into higher gear

It is over a decade since the housing bust began, nearly seven years since the recession ended, and the U.S. housing market isn’t close to what historically would be considered normal. Last year, a combined 5.1 million new and used homes were sold in the U.S—not quite as many as in 1998, when the working-age population was one-fifth lower than it is now.

The conditions for improvement are there. The job market has continued to strengthen—there were 2.8 million more people working last month than in the same month a year ago, according to the Labor Department—bolstering one wrinkle in the housing-revival story is that warm weather over the winter may have made things look better than they actually are. Because housing data are adjusted to account for the big seasonal swings the sector is subject to—typically around 40% of annual homes sales are inked in the four-month period that starts in March—if only a little activity gets drawn into the dead winter months, it can have a pronounced effect

3---Stocks rise on weakening dollar

The Federal Reserve raised interest rates in December for the first time in nearly a decade. The Fed's liftoff from a zero interest rate policy was highly anticipated by a massive rally in the U.S. dollar that began in July of 2014.

On January 25, the dollar index (DXY), which measures the greenback against a basket of six major currencies, hit a short-term high of 99.52. Since then, it has dropped 6 percent to a low of 93.62. The decrease in the dollar was the primary contributor for the rebound in the major averages. Investors sold dollars because Fed Chair Janet Yellen backed away from her previously threatened four rate hikes during 2016.

A coordinated central bank attempt to depreciation the dollar is the last desperate hope to keep the bubble inflated because the overvalued stock market isn't being supported by earnings or GDP growth.

I think a stock-market sell-off of 25 percent or more will happen if the Fed can't get the dollar into a bear market. That is, a sustained decline from 94 toward 80.

The U.S. is not the only country suffering from secular stagnation. The slowdown in global growth has been fully acknowledged by the International Monetary Fund. First, the IMF just took down its outlook for U.S. growth to 2.4 percent, from 2.6 percent. And despite aggressive monetary policies implemented by the Bank of Japan, it has halved their forecast for Japanese growth this year to just 0.5 percent. In 2017, when a consumption tax hike takes effect, the IMF expects the Japanese economy to shrink actually shrink once again — as it has the habit of doing — this time by 0.1 percent. ...

All this bad news has led the IMF to cut its global growth forecast for the fourth time in the past year, this time from 3.4 percent, to 3.2 percent. Last year the global economy grew 3.1 percent, its slowest pace since the recessionary year of 2009.

U.S. Q1 GDP, according to the Atlanta Fed model, is set to grow by a meager 0.3 percent. The Atlanta Fed's model doesn't include an estimate for nominal growth, but using last quarter's GDP deflator, we can glean that Q1 nominal growth (inflation + real growth) will be about 1.2 percent. Nominal GDP growth of just 1.2 percent is beyond pitiful. And since S&P 500 earnings tend to grow with nominal GDP, we can make the same sorry assessment about the health of U.S. corporations.

Hence, according to Zack's Financial Research, total earnings for Q1 are expected to be down 11.1 percent on negative 2.3 percent revenues. Earnings growth is expected to be negative for 11 of the 16 sectors that Zack's covers. The negative earnings growth in Q1 will be the fourth quarter in a row of earnings declines for the S&P 500 index.

The weak dollar may provide some temporary relief to the stock market. However, the major averages are still extremely overvalued and overleveraged:

Margin debt as a percent of the economy is higher today than both 2000 and 2007.

The median price-to-earnings ratio that sits at 22.6, is at a higher level than the market peak in 2007. And at 22.6, the S&P 500 index is currently 25.3 percent above its median fair value.

The price-to-sales ratio is now not only higher than in 2007; but also at any other time in history with the exception of the top of the internet bubble in 2000. And finally, the total market cap of corporations in relation to the economy is also higher than any other time in history outside of the Nasdaq craze.

All things being equal, the combination of falling corporate earnings and revenue, along with peak market valuations and leverage is what could trigger a bear market in stocks.

This is why the Fed has decided to hold in abeyance future rate hikes, in hopes the falling dollar will continue to bail out the global financial system.

But a falling dollar isn't a long-term or viable strategy to generate economic prosperity. All you have to do is look at Japan to realize that growth doesn't come from a crumbling currency. The yen has dropped 35 percent in the past few years and Japan's economy and has been mired in a perpetual recession. At best, the U.S. dollar breaking 94 on the DXY will provide only temporary relief for the major averages.

But inflation and currency destruction is the bane of viable growth and will lead to yet a further dislocation between asset prices and underlying economic growth … and that means the eventual day of reckoning will be much more pernicious.

4--G Sax: "the Federal Reserve just delivered one of its most dovish decisions of the new millennium

According to economists at Goldman Sachs Group Inc., the Federal Reserve just delivered one of its most dovish decisions of the new millennium....

Markets had little doubt that the FOMC would leave the funds rate unchanged at yesterday’s meeting—futures markets implied only about a 5 percent chance of an increase before the announcement," wrote Pandl and Struyven. "Yet the decision was clearly a major dovish surprise for markets, with interest rates declining across the curve and the dollar falling against other developed market currencies."

5--Yen flirts with 18 month high

The Japanese yen climbed to a near 18-month high against the U.S. dollar on Monday, as traders resumed bets that authorities won’t be allowed to weaken the currency through direct intervention amid pressure from the nation’s key allies.

The yen strengthened as much as 1.4% against the dollar, sending other Asian currencies broadly lower on renewed risk-aversion concerns, given the yen’s safe-haven status, while a sharp fall in crude-oil prices also hurt demand for regional currencies.

The yen, last at ¥108.02, will notch a new 18-month high against the dollar if it surpasses the ¥107.61 mark recorded on April 11

6--Syria - "Rebel" Sponsors Order A New Round Of Defeat, MOA

The Obama administration has obviously decided to restart the war in Syria. Thousands of tons of new weapons have been purchased and delivered to the Jihadists including anti-air MANPADs of U.S. (full text) and Chinese origin. Half of the weapons the "rebel" mercenaries are given by their sponsors regularly end up in the hands of Al-Qaeda in Syria. We will not be surprised when a few weeks from now a civilian passenger plane will be hit and come down in Turkey or elsewhere.

Two week ago the foreign supported "rebels" already broke the ceasefire when they took part in a large al-Qaeda attack south of Aleppo city. Several "rebel" attacks took place against the Kurdish quarter in Aleppo city with over a hundred civilian death. Other attacks took place in north Latakia.

Today the "rebels" announced a full return to open war and more fronts were reopened including in north Hama where Uighur "Turkmen" Jihadis used two suicide bombers against the Syrian government positions...

It seems that another round of the cycle is now necessary. Iran has deployed regular ground troops in Syria and these, even while not yet battle-tested, will have some effect. The Syrian air force has been reequipped and its older planes have been updated. Russian helicopters are active on the Syrian front and new short range (200 km) "Iskander" ballistic missiles were recently seen. The Russian air force can additionally engage with long range flights from Russia against fixed targets in Syria within hours. Russia cruise missile carrying ships are near the Syrian coast.

It is foolish to believe that MANPADs and TOW anti tank systems can decisively change the situation on the ground. I expect that a few week of heavy fighting will now follow after which the "rebels" will again be exhausted and again on the border of defeat.

Today's Links

1--The slowdown in buybacks: What you need to know

Buybacks are on the retreat in 2016, hitting a 21-month low in March and not showing much pop in April either, according to market data analytics firm TrimTabs. March repurchases amounted to just $24.1 billion and are at a measly $3.2 billion in April, TrimTabs reported over the weekend.

That slowdown has come after a period since 2010 when companies bought back more than $2.7 trillion of their own shares as the market rallied more than 200 percent off its recession lows...


"If you were of the belief that (buybacks have) been a key leg of support for the market, it may be distressing news," said Art Hogan, chief market strategist at Wunderlich Securities. "If this is a pivot point for corporations to say, 'My stock is fully valued, I have found better use of capital,' that is good news."

The key determinant in buyback decisions is value. With the S&P 500 now trading at nearly 17 times earnings, which FactSet reports is well above the five-year and 10-year averages, the temptation for buybacks likely will diminish.

2--Wall Street banking revenue is in free-fall, and here's why

3--Who Needs Buybacks? One S&P 500 Variant Just Rallied to a Record

The rallying U.S. stock market just pushed one version of the Standard & Poor’s 500 Index to an all-time high and has sent another within 2 points of its highest since July -- all during earnings season, when the biggest buyer supposedly goes missing...

Breadth is improving, money is flowing into equities and even fluctuations in the price of oil are failing to put a brake on a rally that has restored $2.8 trillion since mid-February. The S&P 500 has climbed 2.6 percent since Alcoa Inc. reported results, a move good for about $400 billion in market capitalization and the second-best start to an earnings season in three years. Futures on the S&P 500 rose 0.4 percent at 8:39 a.m. in New York.
“It’s going to continue to run until there’s some doubt again in terms of the economy,” said Charlie Bilello, director of research at New York-based Pension Partners LLC. “The notion that the S&P needed buybacks to get close to new highs doesn’t seem to be playing out.”

Analysts including David Kostin, Goldman Sachs Group Inc. chief U.S. equity strategist, say most companies suspend repurchases during earnings season, putting corporate buybacks off the table for about five weeks. Two groups of buyers have emerged to pick up the slack: customers of exchange-traded funds and short sellers....

While economists have ratcheted down odds for a U.S. recession, economic reports haven’t been unilaterally positive. Sales at U.S. retailers unexpectedly fell in March, as did consumer sentiment, while weaker factory orders suggest business investment will be a drag on growth.
“Mr. Market believes that we have earnings growth or that it’s just around the corner, which we remain skeptical of,” said Joseph Betlej, vice president of St. Paul, Minnesota-based Advantus Capital Management, which oversees $18 billion. “Look at the consensus for earnings relative to what might be implied with earnings growth. When you compare that to where the market is going, it’s an interesting conundrum

4--Fed's Rosengren takes another shot at pessimistic markets

5--Brazil’s impeachment crisis and the debacle of the Workers Party

Without missing a beat, Folha de S.Paulo carried an article headlined “Business demands unpopular reforms in six months,” laying out an agenda for a post-PT government headed by Vice President Michel Temer, the head of the Brazilian Democratic Movement Party (PMDB). Among other things, it calls for the repeal of requirements that the government meet fixed funding levels for health care and education, a radical “reform” of retirement laws, a rewriting of labor laws and a new wave of privatizations, including at Petrobras, the center of the kickbacks-for-contracts scandal that has engulfed not only the PT government, but every major party. What is plainly being prepared is a frontal assault on the social rights and conditions of the Brazilian working class....

fully 60 percent in the lower house facing criminal charges, speakers railed against the corruption of Rousseff, while invoking God, their children and grandchildren, fear of sex being taught in school and the supposed heroism of the junta leaders and torturers of the dictatorship that ruled Brazil for more than 20 years after the US-backed coup of 1964....

The impeachment drive, carried out amid the country’s worst economic crisis at least since the Great Depression of the 1930s, arises fundamentally out of the determination of the ruling financial and corporate oligarchy, backed by US imperialism, to fundamentally alter class relations.
Rousseff, Lula and their supporters have charged incessantly that the move to impeach her on flimsy charges of manipulating state funding is tantamount to a “coup.” To the extent that it is a coup, carried out through a gross abuse of constitutional procedures, its chief conspirators are to be found not within the Brazilian military or the American CIA, but on the financial markets of Sao Paulo and Wall Street.

6--Ash Carter’s announcement must be taken as a warning: a massive escalation of war in the Middle East and beyond is being readied for the period after the US elections in November.

7--Golinger: Chavez Assassination Attempts 'Documented, Very Real'

8--Columbia in the Crosshairs: Paramilitary rule continues despite efforts for reconciliation

The State cannot afford to fail institutionally as it did following the previous peace processes when it proved to be incapable of recovering control over the national territory. This time it is absolutely necessary that the nationally territory is recovered and not just in the geographic sense and from the point of view of the armed conflict against the guerrillas, but in terms of the vitality of the constitutional State based on the rule of law and a firm guarantee of the civil rights and freedoms of all Colombians, underpinned by cutting off the foundations of the illegal economies with socially oriented policies and effective plans for the substitution of illicit crops. They are enormous tasks, but they are the heart and soul of the peace process. We don´t want the disarmed members of the FARC and the ELN to face the same situation that was faced by the members of the M-19 and the EPL when they disarmed in the 1980s, following which they had to leave their homes and regional areas en masse because they were being systematically hunted down and killed. That can´t occur again, members of the guerrilla groups that agree to return to civilian life must have genuine and effective guarantees of their safety and civil and political rights that include the entire community and social networks to which they belong....

In many cases the successors of the paramilitary groups have continued threatening and assassinating journalists, lawyers and human rights activists, identifying themselves as members of a group called the Black Eagles...

“The counterinsurgency strategy of the State has been founded upon para-militarism. The official version of the phenomenon places its origin in the 1980s and explains it as arising from the reaction of rural land owners and agricultural and business associations to confront guerrilla actions, in response to which the land owners and businessmen in rural areas decided to create private armies to defend themselves, from which came the name commonly used to refer to such groups, “self-defence forces”. This remains the essence of the official version today. However, the real origin of para-militarism, as proven by official documents, can be traced back to the Yarborough Mission, an official mission to Colombia by officials of the Special Warfare College of Fort Bragg (North Carolina) in February 1962. The members of the commission left a secret document, accompanied by an ultra-secret annex, containing instructions for the formation of mixed groups of civilians and military personnel, trained in secret to be utilized in the event that the national security situation were to deteriorate…”

The formation of paramilitary forces was itself preceded by the creation of private militias at the service of large landowners in the late 1940s and early 1950s that ravaged the countryside during “the Violence” (a brutal civil war that claimed over 200,000 victims and displaced millions of people from rural areas)… The prolongation of the strategy of para-militarism over time and the role that it has played in the neoliberal era, violently displacing rural communities and taking over their land for agricultural, mining, energy and infrastructure mega-projects or to extend the domains of large cattle ranches, signified the construction of a para-State exercising dominion over large swathes of the territory, population and institutions of the country.
While it may well be that the paramilitary armies no longer receive orders directly from the government, that doesn´t mean that substantial sectors within the military establishment and other State institutions don´t still consider them to be allies in the fight against the counterinsurgents and therefore continue supporting them and maintaining the relationship of subordination. Considered in these terms, para-militarism isn´t just a group of criminal gangs that has infiltrated State institutions but rather represents a continuation of the armed elements of the para-State....

Giraldo describes the essence of this doctrine as follows: “In the arsenal of the doctrine of National Security, fundamentally comprising books (in the Library of the National Army), editorials and articles appearing in the Journal of the Armed Forces and in the Journal of the Army, discourses, presentations and reports of high level military commanders and their advisors, as well as in a collection of Counter-Insurgency Manuals marked as secret or confidential, “communists” are explicitly identified as trade unionists, farmers who don´t sympathize with or who are reluctant to cooperate with military operations on their farms, students that participate in street protests, militants of non-traditional or critical political forces, defenders of human rights, proponents of liberation theology, and sectors of the population generally that are not in conformity with the status quo…”

“The continuity of para-militarism, fissures in the factions in power and peace”

By Jose Honorio Martinez, 5 April 2016

9--Stocks Soar As Corporations Are Defaulting On Their Debts Like It's 2008 All Over Again

10--Pepe Escobar: The coup in Brazil should fail

11--A Few Words from the FARC

Here's an excerpt from an Interview with FARC Commander Raul Reyes by Garry Leech that fits the bill. Readers can decide for themselves whether they hear something that "rings true" or if it is just revolutionary mumbo-jumbo:

FARC Commander Raul Reyes: "The goal of revolutionary struggle is peace"

"When we speak of the New Colombia we are speaking of a Colombia without social, economic or political inequalities; of a Colombia without corruption; with neither paramilitarism or state terrorism; of a Colombia with industrial development; of a worthy Colombia, independent and sovereign; a Colombia where resources are invested in scientific research and technological development; a Colombia where the environment is protected; a Colombia whose wealth is used for the benefit of the population; a Colombia that does not continue privatizing, that does not continue selling the businesses of the State but instead uses these businesses to benefit social programs; a Colombia with agrarian reform that includes infrastructure for the peasants and that makes it possible for their children to study; an agrarian reform in which a market and the purchase of their products is guaranteed; an agrarian reform in which they can obtain affordable credits from the State; a Colombia with employment; a Colombia with subsidies for the unemployed; a Colombia that guarantees education, healthcare, homes and all that.

That it is the Colombia that we dream of and that we call the New Colombia...
But to achieve this is a task for titans, because Colombia has a mafia class and a corrupt murderous ruler. And as long as they continue controlling the destiny of our country it is going to be very difficult for the people to become controllers of their own destinies. This is the reason that the FARC continues its revolutionary struggle.

The end of the revolutionary struggle being waged by the FARC is peace. For us, peace is the fundamental thing. We understand that peace is the solution to the problems that affect our people. We understand that peace means that in Colombia we have a true democracy. Not a democracy for the capitalists, but a democracy for the people, who can protest, who can participate, who have the right to live, who have the right to healthcare, to education, who have the right to communication, to electricity, to agrarian reforms, to fight corruption, to not have to kneel before foreign powers, but to be a country free, independent and sovereign with respectful relations with all countries on equal terms. Also, that the weapons of the army not be not used against the people, but just for the defense of our sovereignty and nothing more. To achieve that objective is why we are here in this jungle. And in search of that objective we are willing to continue for as long as is necessary."

These are comments that you won't find in the 4,253 articles on Google News, because they stimulate critical thinking and shape hearts and minds. And that's exactly what the corporate propaganda system hopes to avoid.

12--US involved in assassination of  FARC Commander Raul Reyes

In the final analysis, this episode in the “global war on terrorism,” which has brought three South American nations to the brink of armed conflict, is the product of a filthy political murder carried out to defend the strategic and profit interests of US capitalism.

It is a reminder that “Murder, Inc.”-as the CIA became known during the 1960s and 1970s, when it organized numerous assassinations and assassination attempts, along with right-wing coups and dirty wars-is still very much in business in Latin America.

The March 1 raid was carried out not to defend Colombia from terrorism, but to murder one man, Raul Reyes, considered the second- in-command of the FARC and the guerrilla movement’s principal international spokesman and diplomatic representative. He was well known in both Latin America and Europe, having served as the principal FARC negotiator in the abortive attempt under the government of President Andres Pastrana (1998-2002) to broker a peaceful settlement of the civil conflict that has wracked Colombia for more than four decades. During that same period, he met with officials of the Clinton State Department.

To carry out this political murder, air strikes were called in against the camp inside Ecuador as Reyes and some 20 of his comrades slept. Commandos were then sent into the camp to finish off most of the survivors and haul Reyes’s bloody corpse back to Colombia as a political trophy for the right-wing US-backed government of President Alvaro Uribe.

This ruthless attack was staged not to ward off some pending terrorist attack. On the contrary, it was designed as a “preemptive strike” against a negotiated release of hostages held by the FARC, among them a former presidential candidate, Ingrid Betancourt, who holds joint Colombian-French citizenship and has been held prisoner by the FARC for six years....

US role in Reyes’s assassination

Colombian officials have openly acknowledged the role of US intelligence agencies in instigating and coordinating the March 1 targeted assassination. General Oscar Naranjo, commander of the national police told reporters it was no secret that the Colombian military-police apparatus maintained “a very strong alliance with federal agencies of the US.”

The Colombian radio network, Radio Cadena Nacional (RCN), reported Wednesday that Reyes’s location was pinpointed by US intelligence as a result of monitoring a satellite phone call between the FARC leader and Venezuelan President Chavez. The February 27 call-three days before the raid-came after the FARC released to Venezuelan authorities four former Colombian legislators-Gloria Polanco, Luis Eladio Perez, Orlando Beltran and Jorge Eduardo Gechem-who had been held hostage for nearly seven years.

“Chavez was thrilled by the release of the hostages, and called Reyes to tell him that everything went well,” RCN reported. Presumably, the CIA or other US intelligence agencies were also tapping phone calls between Reyes and French officials over the proposed release of Betancourt...

Both Washington and the right-wing regime in Colombia were determined to stop any further hostage releases in order to further efforts to politically isolate the Chavez regime and to enforce the Bush administration’s proscription against negotiations with “terrorists.”

At the same time, the bombs dropped on the FARC encampment were undoubtedly also meant as a message to Sarkozy not to meddle in Yankee imperialism’s “backyard.”

13--After Vote to Remove Brazil’s President, Key Opposition Figure Holds Meetings in Washington

another coup organized in Washington?

14--The Hole at the Center of the Rally: S&P Margins in Decline

The biggest sucker rally of all time?  analysts predict income from S&P 500 firms will slump 9.5 percent in the first quarter while sales fall 1 percent.

Stocks are rising, the worst start to a year is a memory, and short sellers are getting pummeled. And yet something is going on below the surface of earnings that should give bulls pause.

It’s evident in quarterly forecasts for the Standard & Poor’s 500 Index, where profits are declining at the steepest rate since the financial crisis relative to revenue. The divergence reflects a worsening contraction in corporate profitability, with net income falling to 8 percent of sales from a record 9.7 percent in 2014.

Bears have warned for years that such a deterioration would sound the death knell for a bull market that is about two weeks away from becoming the second-longest on record even as productivity sputters and industrial output weakens. While none of it has prevented stocks from advancing in seven of the last nine weeks, rallies have seldom weathered a decline in profitability as violent as this one -- and the squeeze is often a bad sign for the economy, too.

“Analysts have seen the string pull as far as it can go, and there is no way for it to go but to reverse for the moment,” said Barry James, chief executive officer who helps oversee $6.7 billion at James Investment Research in Xenia, Ohio. “Without the Federal Reserve chipping in with quantitative easing, investors have to go back to valuations and earnings, and both of those -- one is high and the other is low -- that’s not a very good recipe for stocks.” James said his firm is raising cash amid the recent rally in stocks....

Market Cycle

A study by Barclays Plc showed that big drops in corporate profitability usually foreshadow economic reversals. Since 1973, there have been six other instances when the S&P 500’s margins narrowed by 60 basis points or more over a 12-month period. All but one coincided with a recession.

Moreover, should the Fed continue to gradually raise interest rates and the government refrain from adding stimulus, it would be the first time since 1952 that profits turned lower without a recession, Fed easing, or fiscal expansion, data compiled by Bianco Research LLC show....

U.S. stocks advanced last week, pushing the S&P 500’s gain since it bottomed on Feb. 11 to almost 14 percent. Stocks with the most short sales are up 31 percent over that stretch, according to an index compiled by Goldman Sachs Group Inc. Last week’s rally came even as readings on retail sales, industrial production and consumer sentiment fell. Stocks advanced before what will be the worst earnings season since 2009, pushing the S&P 500’s price-earnings ratio to 19, near a six-year high. The benchmark gauge climbed 0.7 percent at 4 p.m. in New York.

Even as margins slip, U.S. companies are churning out more profits than any other time in history. Analysts forecast combined S&P 500 income to exceed $1 trillion in the next 12 months, compared with $740 billion in 2007 and $490 billion in 2000. Technology innovation and lower commodity prices will help provide a floor to margins, according to Jeffrey Saut, chief investment strategist at St Petersburg, Florida-based Raymond James Financial Inc., which oversees $500 billion. 

The concern over a margin squeeze “is overblown,” Saut said. “I don’t think margins are going to do what they have done in past cycles and regress to the mean. I’m not all that worried about a big margin compression that’s going to take the wind out of the profit picture.”...

The forecasts highlight the challenge for corporate America, whose efforts to boost revenue are constrained by a sluggish economy while reining in costs is impeded by rising wages and interest rates. Also pressuring profit growth is stubbornly low productivity, or employee output per hour. Over the last five years, productivity gains averaged 0.5 percent, the weakest since 1978-1982.

Margin Leverage

Margins are the fulcrum between the top and bottom lines -- they help profits multiply on the way up and exacerbate declines on the way down. In the five years through the third quarter of 2014, when margins more than tripled to a record, S&P 500 earnings expanded at an average rate of 21 percent a quarter, versus 5 percent for sales. As margins started shrinking, the difference between the growth rates has narrowed to about 2 percentage points, with fourth-quarter income experiencing a bigger decline than revenue for the first time since 2009.

Volatility has risen in the stock market as forecasts for gross domestic product and corporate earnings kept falling. Since August, the S&P 500 has suffered two separate declines exceeding 10 percent as economists reduced projections for this year’s rate of economic expansion to 2 percent from 2.7 percent. Over the period, growth estimates for S&P 500 profits have been trimmed to 2.3 percent from 10 percent.