Tuesday, July 12, 2016

Today's links

1--Dow hits new all-time intraday high as market puts Brexit fears behind


2--Sweeping ruling against China will have lasting impact globally

"China is a rising power and it is feeling restrained by U.S. military presence in the Western Pacific," said James Keith, former China director for the National Security Council. "China is fighting back against American dominance as it tries to carve out a place for itself in the region."


3--CRE is the crosshairs


A top US regulator has sounded a new alert over banks’ commercial real estate lending, adding to concerns that bubbles may be forming in parts of the country’s property market.
Thomas Curry, comptroller of the currency, used the watchdog’s twice-yearly report on financial risks published on Monday to warn about looser underwriting standards and concentrations in banks’ CRE portfolios….
CRE loans originated by banks in the first quarter leapt by 44 per cent from the same period in 2015, according to Morgan Stanley. Banks’ share of CRE originations has risen from just over a third in 2014 to more than half in the first quarter of 2016 — a record…
“Our exams found looser underwriting standards with less-restrictive covenants, extended maturities, longer interest-only periods, limited guarantor requirements, and deficient-stress testing practices


4--Top US officials rejected push to prosecute HSBC: Lawmakers' report


5--Bernie Sanders endorses Hillary Clinton

another fake liberal caves in

6--Can We Ignore the Alarm Bells the Bond Market Is Ringing?


The financial media tend to report breathlessly about what the stock market did yesterday. But savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.
And right now, if the bond market is correctly predicting the economic path ahead, we should all be terrified.

But, please, read on before panicking. There’s a lot more to the story.
The stock market can rise and fall for all sorts of reasons, and sometimes for no apparent reason at all. But the bond market, where trillions of dollars change hands and long-term interest rates are determined, is steadier (normally). Its prices are generally tied closely to the outlook for growth and inflation over the years ahead.

The long-term interest rates that currently prevail across all the major advanced economies are consistent with a disastrous economic future. Taken at face value, they imply that the smart money expects inflation will remain extraordinarily low for years to come, and that growth will stay so weak that central banks won’t be able to raise rates for years. It is a shift that has accelerated since Britain’s vote on June 23 to leave the European Union, but one that has been underway for years....

There are reasons to think that current prices are reflecting idiosyncrasies in the supply and demand for safe assets, rather than a conviction among global investors that very bad times are ahead.
Many of the purchasers of government bonds do so not because they find the returns offered compelling but because they have to. Insurers face regulators who may require that they do so. Pension funds seek to offset long-term obligations with safe assets of similar duration. Banks buy bonds to comply with rules limiting how much risk they can take.

In the last few years, central banks have become the biggest buyers of bonds. The Federal Reserve’s program of quantitative easing — buying bonds to try to stimulate the economy — ended in 2014, but the European Central Bank and the Bank of Japan are just getting going; the E.C.B. is buying 80 billion euros’ worth of securities a month...

There are reasons to think that current prices are reflecting idiosyncrasies in the supply and demand for safe assets, rather than a conviction among global investors that very bad times are ahead.
Many of the purchasers of government bonds do so not because they find the returns offered compelling but because they have to. Insurers face regulators who may require that they do so. Pension funds seek to offset long-term obligations with safe assets of similar duration. Banks buy bonds to comply with rules limiting how much risk they can take.
In the last few years, central banks have become the biggest buyers of bonds. The Federal Reserve’s program of quantitative easing — buying bonds to try to stimulate the economy — ended in 2014, but the European Central Bank and the Bank of Japan are just getting going; the E.C.B. is buying 80 billion euros’ worth of securities a month...

There is good news in that as well as bad. The good news is that most of the drop in long-term interest rates is being driven by things that have little to do with the underlying strength of economic growth. The bad news is that some portion of the drop really is being driven by more pessimistic economic views, at a time a great deal of pessimism is already baked in.

The bond market right now is like a speedometer that is miscalibrated and therefore unreliable. It may be less useful than usual, and is not to be interpreted literally — but it’s still telling us something. And that something is that we should be worried about the possibility the world is in a nasty deflationary economic trap that won’t get better anytime soon.

7--What China devaluation means


trade, as Chinese competitiveness rises everyone else will have a new excuse to devalue (we can see it already coming in Japan);
  • monetary, as it creates a new wave of deflation for commodity prices in everything from gas to copper to iron ore as Chinese production slams into seaborne imports;
  • capital flows, as it accelerate both capital flight and efforts to stamp it out creating turbulence for global assets markets


  • 8--Global Investment to Plunge, Trade to Languish, on “Depressed” Demand: G-20 Trade Ministers

    9--Why this Won’t Work out: Rampant Rent Inflation Collides with Stagnant Incomes


    Unlike stocks, a housing bubble can only go so far.


    . Central banks have accomplished a lot. Blowing so many bubbles to such an extent for so long has been an astounding feat. In total, central banks created $24.6 trillion, according to BofA Merrill Lynch estimates. When they bought financial assets with that new moolah, they put $24.6 trillion of cash into the hands of investors and speculators concentrated in the major financial centers of the world.

    Yet the global economy remains languid. Demand is sluggish. Job growth in the US can barely keep up with population growth. And a good part of American consumers – those on fixed incomes and savers – have seen their incomes transferred to others. So they’ve gutted their consumption....
    After a wait of 417 calendar days, or 286 trading days, the S&P 500 finally set a new record high on light volume. Bonds have soared, and yields have dropped to ludicrous lows. The 10-year Treasury yield hit an all-time low on Friday of 1.366%. Globally, nearly $13 trillion, or 29% of total bonds outstanding, are trading with a negative yield. So those asset bubbles remain intact.

    Commercial real estate has been soaring since March 2009, and that bubble remains intact, though some markets are already causing fear and trembling due to office-space gluts that are now coinciding with withering demand, such as in Houston and in San Francisco. Home prices too have been soaring for years, though in some major cities, the tide has turned

    10--If so many people are working, why are tax revenues shrinking?


    11--More of the same:  the majority of business owners continue to expect a worsening of business conditions.


    12--Celebrate what? The trillions spent by central banks has been a dud, says Bank of America   very important


    13--Stinks to High Heaven: The European Commission has tried to stave off criticism after its former president, Jose Manuel Barroso, went to work with US investment bank Goldman Sachs.


    14-Outright monetization?: -Japan's Abe orders new stimulus after election win, as machinery orders 'stall'


    Helicopter Ben does Tokyo


    15--Japan Turns Again to Bernanke, as Fruits of Abenomics Wither


    Bernanke’s 2003 visit, when he was a Federal Reserve Board member, and his message at the time is still discussed by BOJ officials. Japan has a tradition of seeking the advice of overseas experts, something that’s been taken to a new level under Abe, who consulted with Nobel laureates Paul Krugman and Joseph Stiglitz prior to his decision in June to delay a sales-tax hike. Unlike with this week’s Bernanke visit, the meetings with Krugman and Stiglitz were well-publicized....


    “Under certain extreme circumstances -- sharply deficient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies -- such programs may be the best available alternative. It would be premature to rule them out,” Bernanke wrote


    16--A dangerous turn to economic nationalism


    “The past decade and a half has proved so turbulent and disappointing that it has upended basic assumptions about modern economics and our political system. This string of disappointments has resulted in one of the most unpredictable and unconventional political seasons in modern history with the rise of Donald Trump and Bernie Sanders.”...


    The turn to economic nationalism, “responsible” or otherwise, has a historical parallel. In his article Nationalism and Economic Life, written in 1934 in the midst of the Great Depression, Leon Trotsky wrote that after decades of preaching the virtues of trade and the international division of labour, the bourgeoisie issued the call, “back to the national hearth.”


    It should be recalled that this perspective was not only advanced by openly right-wing and fascist forces, such as Adolf Hitler. It was the doctrine of “progressives” such as John Maynard Keynes, regarded as one of the founders of the “modern” bourgeois economic doctrine, whose analysis has been invoked by Summers in his warnings of “secular stagnation.”

    The result of economic nationalism in the 1930s, whether cloaked in fascistic or “progressive” garb, was the outbreak of World War II in 1939—the most barbarous event in world history—just 25 years after the outbreak of World War I in 1914. The outcome will be no different in the present epoch, the signs of which are becoming ever-more apparent...


    The attacks on living standards, the development of increasingly authoritarian forms of rule and the rising danger of war arise not from globalisation as such, but from the fact that this inherently progressive development takes place within the reactionary and outmoded system of capitalist social relations, based on private profit and the division of the world into rival great powers and nation-states.
    The essential problem facing mankind is that, in Trotsky’s words, “capitalist development as a whole is faced with insurmountable obstacles and contradictions and beats in frenzy against them.”

    17--Former Police Chief Has A Plan For 'How To Fix America's Police'


    must read

    18--Ben talks helicopters


    BOJ Governor Haruhiko Kuroda is currently meeting with former Fed head Ben Bernanke who is known for using three rounds of QE to pull the U.S. economy out of the financial crisis and recession. Fresh from Japanese News TV, it seems like they have been talking about is "Helicopter Money" which points to printing more money to ensure that the level of money supply stays more or less the same. Rumor has it that

    19--Damn the torpedoes; Massive 20 trillion yen stimulus package planned


    As the yen continued to weaken and Japan’s Topix index capped its biggest two-day jump since February, Prime Minister Shinzo Abe’s government kept markets guessing on the details of a much-anticipated fiscal stimulus package.

    Japanese Finance Minister Taro Aso Tuesday said he’ll consider the package as soon as it’s ordered by Abe, with decisions on how it will be financed coming after spending details are hammered out. Speaking later on Tuesday, Economy Minister Nobuteru Ishihara said he’ll compile stimulus measures later this month, making use of the low interest rate environment.

    18--Koo--On fire


    For the past 20 years, Japan’s private sector has not only stopped borrowing money but has actually been paying down existing debt and increasing its savings in spite of zero interest rates.
    Traditional economics never envisioned this kind of behavior, but the collapse of debt financed bubbles in Japan in 1990 and the West in 2008 left many businesses and households owing as much or more than they owned, prompting them to focus on repairing their damaged balance sheets....

    No matter how much the BOJ eases policy during this kind of balance sheet recession, the liquidity it supplies will not enter the real economy as long as there are no private sector borrowers. The only result is likely to be the creation of mini-bubbles in the financial markets.


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