Saturday, May 28, 2016

Today's links

"The most worrisome risk is a contraction of the global economy," led by a slowdown in emerging economies, Japan's Shinzo Abe told a news conference after chairing the two-day summit. "There is a risk of the global economy falling into crisis if appropriate policy responses are not made."

1--US Dollar Begins to Re-Exert Real Stress

(Isn't that the point?...The Fed is trying to attract capital to USTs and US equities. And the ECB and BOJ are assisting)

2--Janet Yellen Sees Rate Hike Coming Soon

Fed is on watch to move as economy shows signs of pickup, but wild cards linger

3--Japan’s Abe Plans Up to $90.7 Billion Stimulus, Nikkei Says

Abe will seek a second supplementary budget worth 5 trillion yen to 10 trillion yen after July’s upper-house election, the Nikkei reported Saturday without attribution. Proposals will include accelerating the construction of a magnetic-levitation train line from Nagoya to Osaka, issuing vouchers to boost consumer spending, increasing pay for child-care workers and setting up a scholarship fund, the Nikkei said.

“When you want to get the economy going, as long as demand in Asia is weak, you need additional public spending,” Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo, said by phone. “Since private spending is still not picking up, the government is simply taking up the slack.”...

Meanwhile, the yen has surged about 9 percent versus the dollar this year, threatening profits for exporters including Toyota Motor Corp. and weighing on the nation’s stock market. The benchmark Topix index has fallen 13 percent in 2016.

Second Package

The stimulus package would be the second this fiscal year after Japan approved a 778 billion yen supplementary budget this month to aid recovery from earthquakes in the Kumamoto region

4--Companies Go on Worldwide Bond Bender With $236 Billion of Sales

("Nirvana of borrowing conditions"......Borrow in euros at 1 percent or dollars at 3 percent ECB touched off a wildfire of borrowing by promising to buy corporates bonds

so now companies are massively leveraging without any intention of investing in future growth or addressing demand.  Currently $9 negative yielding bonds....In the last crisis, banks had built up massive debts by creating toxic mortgages they borrowed on in the repo market..This time, corporations are selling corporate debt that funds their stock buybacks and dividends..The money is not being used to build capacity for the future, but line the pockets of greedy CEOs and shareholders.  and the facilitator of thi scam is the central banks )

A borrowing binge by companies globally is poised to make May one of the the busiest months ever, thanks to investors who continue to devour the relatively juicy yields on corporate debt in a negative-rate world.

Global issuance of non-financial company debt will be in excess of $236 billion by month-end, according to data compiled by Bloomberg, led by computer maker Dell Inc., which sold $20 billion of bonds to back its takeover of EMC Corp. in the year’s second-biggest corporate offering. In Europe, companies sold 48.5 billion euros ($54.2 billion) making it the busiest May on record. U.S. borrowers including Johnson & Johnson and Kraft Heinz Co. did deals of more than 1 billion euros....

Hans Mikkelsen, head of high-grade credit strategy at Bank of America, said spreads should grind even tighter as June supply fails to keep up with demand that’s been driven by foreign buyers. He said he expects foreign investors to purchase $400 to $500 billion of bonds in the U.S. this year. That’s as much as 38 percent of the market if issuance matches 2015’s levels....

In Europe, companies from outside that region will continue to issue bonds in euros, said Alex Hayes-Griffin, who ran Citigroup Inc.’s debt capital market and syndicate business in Sydney before moving to London in December to oversee cross-border funding. He expects more of those deals, especially when the European Central Bank begins buying corporate debt.

“Cross-border flows are increasing, with the U.S accounting for the bulk of the sales,” Hayes-Griffin said. “We expect this to continue, particularly as the CSPP actions take effect, driving down borrowing costs even for non-eligible paper,” he said referring to the ECB’s bond-purchase plan....

5--Amid strikes, French President Hollande pledges to impose labor law

the only way forward for workers in struggle against the PS’ labor law, and austerity measures across Europe, is to create organs of struggle independent of the trade unions.....

Hollande’s comments reflect the basic position of the French ruling class, which intends to impose austerity and social retrogression while crushing opposition with police violence. Nonetheless, Hollande also faces increasing calls and warnings from inside the ruling class itself, both in France and internationally, that he has provoked a confrontation with the working class that is fraught with immense danger.

In one comment, “Hollande at the end of his rope,” the Frankfurter Allgemeine Zeitung wrote, “The president knows that his country remains marked by the heritage of the French revolution. The heart of the political system goes back to 1789 … The president’s legitimacy is far too weak already to enter into conflict with a radical minority of CGT strikers. This all shows how reforms at the end of a presidential term are as good as impossible, above all in France.”...

The bourgeoisie has long experience handling and manipulating the unions, which have totally lost their base in the working class in France, and depend on corporations and the state for 95 percent of their yearly budget. Ruling circles are very clear that the union bureaucracies are part of the political establishment and allies of the bourgeoisie in their dealings with the working class, and have an immense financial and political stake in the existing social system.

6--Warnings of slump in US economy

The main factor is the fall in business investment, the key driver of economic growth in the capitalist economy.

“Spending on some of the building blocks of business—such as machines, computers and steel—is slipping,” an article in the Wall Street Journal noted. “Such expenditures are an important ingredient in improving employee productivity, workers’ wages and corporate profits. A lack of investment risks trapping the economy in a low-growth mode.”

The Commerce Department reported that orders for non-defence capital goods, excluding aircraft, an indicator of business investment, fell by 0.8 percent in April, bringing the total decline since April 2014 to almost 12 percent.

Well-known economic forecaster Diane Swonk told the Wall Street Journal it was “disturbing that businesses’ cash flow has improved dramatically and they have access to cheap debt, but they’ve deployed that on dividends and buybacks instead of investing in the future.”

Earlier this week, a report by Moody’s pointed out that US non-financial corporations were sitting on a cash stockpile of $1.7 trillion, almost one-third of it held by five major hi-tech US companies, a significant statistic given that these firms are regarded as a major driving force of the US economy.

The lack of business investment in the real economy, as opposed to financial speculation, finds expression in productivity data.

The lack of business investment in the real economy, as opposed to financial speculation, finds expression in productivity data.

In a speech on Thursday, reviewing trends in the US economy, Jerome Powell, a Federal Reserve Board governor, noted that labour productivity in the US had increased by only 0.5 percent a year since 2010, the slowest five-year growth rate since World War 2 and about one quarter of the average post-war rate. He noted that this was a trend that extended across the world economy.

The productivity slowdown is expected to continue, with the Conference Board, a major US economic think tank, warning that it could go negative this year for the first time in more than three decades.

According to Powell, estimates of the long-run potential growth of the US economy have dropped from 3 percent prior to the financial crisis to 2 percent “with much of the decline a function of slower productivity growth.”

A key factor in holding back productivity in recent years, he said, was the meagre growth in the business sector’s capital stock, consistent with “the weak recovery in demand.” But other longer-term factors may also be at work. Powell pointed that the so-called total factor productivity (TFP) growth, regarded as a measure of the impact of technological innovation, was also falling.

“A broad decline in the dynamism in our economy may also be contributing to lower TFP. There is strong evidence that the slowdown in TFP growth in the United States preceded the financial crisis, particularly in sectors that produce or use information technologies,” he said.

In other words, there is a basic dysfunction in the workings of the American economy in which the cycle of business investment in the expectation of higher profits leads to higher productivity, economic expansion, resulting in further investment, has broken down....

The summit communiqué noted that since the last meeting of the group in April 2015 “downside risks to the global economic outlook have increased” and that “weak demand and unaddressed structural problems are key factors weighing on actual and potential growth.” There were also “potential shocks” of a noneconomic origin—a reference to the increasingly tense geopolitical situation....

As the summit was taking place, new data from Japan pointed to the global deflationary trends that have increasingly gripped its economy. The consumer price index for April fell by 0.3 percent in the year to April, following a decline of 0.1 percent in March with indications from preliminary forecasts that it will show an even larger decline next month.

Falling prices will put increased pressure on the Bank of Japan to further ease monetary policy and may even lead to direct intervention by government authorities in currency markets to lower the value of the yen in an effort to boost the economy, despite warnings from the US against such action and a declaration in the G7 communiqué that countries should not engage in competitive currency devaluations.

7--Abe’s grim warning about global economy highlights G7 divisions (charts)

8--The Economy vs. Earnings: Companies Aren’t Winning   GDP will grow but not profits

U.S. economy isn’t as weak as the first-quarter GDP report suggests ...

Gross domestic product grew at a 0.8% annual rate in the first quarter, according to revised estimates released by the Commerce Department on Friday. That was better than the initially reported 0.5% rate. But it was still awfully soft, marking the slimmest gain since the first quarter of last year when a harsh winter walloped the economy.

The weakness in the GDP report dovetails with the weak first-quarter results many companies reported. Indeed, the Commerce Department also reported its measure of pretax corporate profits (which unlike GDP aren’t adjusted for inflation) rose just 0.3% from the fourth quarter—1.4% at an annual rate. From a year earlier, profits were down 5.7%. ...

But if GDP isn’t as bad as advertised, why are earnings so weak?

One reason is that the share of the economy going to corporate profits, which has been near historic highs as profit margins expanded, appears to be shifting lower. Another is that profits from abroad—which play an even greater role in public-company earnings reports than in the Commerce Department figures—have been walloped by overseas weakness and dollar strength. Public companies are also more focused in the goods sector, which has been a weaker spot for the economy than services...

In the second quarter, GDP should look a lot better. Macroeconomic Advisers, for one, estimates it will grow at a 2.5% annual rate, based on the data that has come in so far. But considering the profits headwinds, earnings may not see much of a revival.

Companies may have to figure out how to explain away another round of disappointing earnings without relying on a weak economy as a crutch. 

10-- U.S. Cellphone Study Fans Cancer Worries

Researchers found incidences of tumor in rats exposed to low-level radio waves, reigniting debate over safety

11--Russia Hints At Nuclear War After US Deploys Ballistic Missile Shield

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