Monday, August 15, 2016

Today's links

1--Stocks soar while billionaires hold cash  Falling confidence in Fed-engineered rally

A further piece of research from Wealth-X Billionaire Census showed that the world's billionaires are holding more than $1.7 trillion in cash. The report said that billionaires are taking money off the table where available, while uncertainties in the economy and the historical highs found in deals have resulted in cash-flush portfolios.

"Holding cash is surely a bad sign for investor confidence but it is perfectly rational," Alastair Winter, chief economist at Daniel Stewart told CNBC via email.

"Equity and bond prices are largely being propelled by central banks both directly through their loose monetary policies and indirectly by market expectations that those policies will be maintained indefinitely.....

More and more investors are starting to hoard cash thanks to an ultra-low interest rate environment and negative bond yields.
While the current run in the global equity markets has seen some investors enjoying the highs, there are still a number of investors who prefer to hold on to cash or invest in other alternative forms of investment.

A survey conducted by Bank of America Merrill Lynch in last month found that cash levels were at 5.8 percent of portfolios and at the highest levels since November 2001.
"Globally, sentiment remains weak. Global asset allocators are holding the highest average cash balance since November 2001, while equity allocations have dropped to four-year lows," BAML said in a note...

One analyst told CNBC via email that investors opting to hold cash rather than invest in equities at a time when equities are performing well is a sign that confidence in the market to sustain the run is deteriorating. 
"It's one of the early signs that a market is looking overextended as moves are simply not being backed up with volume

2--Japan's economy stalls in April-June, casts doubts on Abe's policies Failed monetary policies produce zero growth, zero jobs, zero inflation, zero business investment

Japan's economic growth ground to a halt in April-June as weak exports and shaky domestic demand prompted companies to cut spending, putting fresh pressure on premier Shinzo Abe to come up with policies that will produce more sustainable growth.
The weak reading underscores the challenges policymakers face in ending two decades of crippling deflation, as an initial boost from Abe's stimulus programs, dubbed "Abenomics", appears to be quickly fading.

The world's third-largest economy expanded by an annualized 0.2 percent in the second quarter, less than the 0.7 percent increase markets had expected and a sharp slowdown from a revised 2.0 percent increase in January-March, Cabinet Office data showed on Monday.

"Overall it looks like the economy is stagnating. Consumer spending is weak, and the reason is low wage gains. There is a lot of uncertainty about overseas economies, and this is holding back capital expenditure," said Norio Miyagawa, senior economist at Mizuho Securities.

3--Continued expectations of easy monetary policies, meant that global equities are trading near a one-year high

Continued expectations of easy monetary policies, meant that global equities are trading near a one-year high as evidence of uneven growth in the world’s biggest economies fuels optimism that central banks will come to the rescue by way of additional stimulus and looser monetary policy. ...
“Interest rates will stay low and the dollar should be quite stable,” said Hertta Alava, the head of emerging markets at FIM Asset Management Ltd. in Helsinki. “That is supportive for emerging-market currencies. The oil price recovery is supportive for sentiment too.”

4---Profits Plunge, Sales Drop at Macy’s. Slashes Jobs, Closes Stores. Stock Jumps 18%

Brick-and-mortar retail sinks artfully into coma.

It’s been a tough quarter for Macy’s. Again. Sales dropped 4% to $5.87 billion in the second quarter, it reported today. It had already closed 41 “underperforming Macy’s stores” in its fiscal year 2015. So among the remaining company-owned stores, comparable sales fell 2.6%. Operating income plunged 73% to $117 million. Net income plummeted 95% to a nearly invisible $11 million, or 3 cents a share.
The first quarter, on a year-over-year basis, was even worse. So for the first half, sales dropped 5.7%, operating income 53%, and net income 82%....

It will shutter “approximately” 100 Macy’s full-line stores, or about 15% of its current 675 full-line stores. Final decisions which stores to close haven’t been made yet, it said. Most of this will happen in early 2017.

5--Here’s Why Wages Have Stagnated——–And Will Continue to Stagnate (The libertarian view?)

... wages are only rising significantly for the top 5%, while workers between the bottom 81% who have seen their household incomes decline and the top 5% are experiencing stagnant earnings.....productivity gains have accrued to the top 5%. This chart shows that while productivity has advanced, household income has remained flat...

If earnings and household incomes for the bottom 95% stagnate, these households cannot afford to borrow and spend more money–and that’s why demand is tepid except when the purchases are financed at 0%...

The key feature of monopoly and state-cartel capitalism is ever-rising costs for everything controlled by monopolies, cartels or the state. Since these are the dominant structures in our economy, the cost basis of the entire economy rises even though output doesn’t rise. In other words, we pay more for the same goods and services.
Mainstream economists cannot admit that demand is exhausted because demand is the foundation of all “growth.” I have often explained why demand is systemically stagnating, along with “growth”: Here’s Why the Status Quo Is Doomed(September 2015)
The world is shifting from unlimited growth to limits and Degrowth

6--Fiscal Stimulus Revisited-- 5 quarters of falling earnings, compels Bloomberg to call for fiscal stimulus

Budget deficits may be coming out of retirement. With economies all over the world growing too slowly and little scope left for new monetary stimulus, governments are turning their attention back to fiscal policy.
This shift in thinking is overdue...
With demand still lacking, the hope was that monetary expansion would be enough to support recovery. It wasn't. Governments have found that monetary policy is losing its potency. Interest rates are close to zero in many countries, and in some even negative. Huge bond-buying programs -- so-called quantitative easing -- have delivered an additional monetary punch, but again with diminishing effects, and with a growing risk of financial instability as well.

So fiscal policy, despite the recent growth of public debt, is back on the agenda. Central banks have been leading the call. In June, Federal Reserve Chair Janet Yellen told the Senate Banking Committee that U.S. fiscal policy had "not played a supportive role." In July, the European Central Bank's chief economist, Peter Praet, said "monetary policy cannot be the only remedy to our current economic challenges...

a cautious shift away from fiscal austerity is justified. With monetary policy already at or beyond its prudent limits, and economies still struggling for lack of demand, budget policy needs to step up. A time for strict fiscal discipline will come. That time isn't now

7--A Simple Test to Dispel the Illusion Behind Stock Buybacks; Are buybacks a form of "liquidation plan.”? 

“The simplest way to evaluate a company’s asset allocation decisions over the years is to see whether its net profit growth is close to its earnings-per-share growth,” Mr. Colby said. “Unlike an investment in the business, share buybacks have no effect on net profit and there is no compounding in future years.”...

The net profit test, said Gary Lutin, a former investment banker who heads the forum, “cuts through to the essential logic of comparing a process that grows a bigger pie — reinvestment — to a process that divides a shrunken pie among fewer people: share buybacks.

“It’s pretty obvious,” he continued, “that even mediocre returns from reinvesting in the production of goods and services will beat what’s effectively a liquidation plan.”

8 --New York Times “human rights” warrior Nicholas Kristof demands military escalation in Syria

The Times journalist is one of the public faces of a shadowy network of media outlets and figures, NGOs, think tanks, “human rights” organizations and public relations firms behind which stands the military-intelligence apparatus as well as billionaires with money to burn. Its principal business is to manipulate public opinion. Its primary target is the affluent, socially liberal upper-middle class, including members of the pseudo-left organizations, who are easily worked into a froth by alleged violations of the rights of women or gays by regimes thousands of miles away—without fail, governments targeted by Washington for replacement with “friendlier” ones.
One often finds Kristof in the middle of efforts to disorient and confuse, using his special brand of moralizing smoke and mirrors....Kristof, a true accomplice to war crimes, is doing his best to pave the way for the military bloodbaths being plotted by his superiors in the State Department, the Pentagon and the CIA

He complains that Obama hasn’t shown enough “American leadership.” He cites the opinions of various high-level state figures (retired four-star general James Cartwright, former secretary of state Madeleine Albright and Bush administration director of defense strategy Kori Schake) in support of measures such as establishing “safe zones,” i.e., no-fly zones, and grounding Syria’s Air Force by firing missiles from outside the country “to crater military runways to make them unusable.”

He notes, in passing, that “Cartwright… acknowledges that his proposal for safe zones carries risks and that the American public should be prepared for a long project, a decade or more.” The prospect of yet another one of the endless “wars of the 21st century” does not ruffle the Times columnist’s finely turned moral sensibilities.
All in all, Kristof argues that US government policy in regard to Syria at present amounts to misplaced “caution,” “nonchalance” and “inaction.”...

He sides with “Hillary Clinton, Gen. David Petraeus and many others” who advocate “more assertive approaches,” i.e., a full-scale air war, for starters.
American imperialism has spent billions, in league with Saudi Arabia, Qatar and Turkey, to fund and arm Islamist militias and dispatch them to Syria to bring about regime change. Russian intervention, which Kristof notes has made matters in Syria “far more complex,” has dealt a blow to the Islamist forces, further outraging Kristof and company.

The “modest” measures Kristof and his co-thinkers propose—creating “safe zones,” in reality, no-fly zones prepared and maintained through massive bombing of Syrian military and civilian infrastructure (Albright terms them “humanitarian areas”)—would inevitably result in a sharp escalation of the fighting and very possibly a direct clash with Russia. The experience of Iraq, Bosnia and Libya has demonstrated that these measures are mere preliminaries to full-scale war

9---International bond markets turn “surreal” as speculation grows

The soaring price of long-term British government debt means that the rate of return on 30-year bonds over the past 12 months is 31 percent. The rise in price of so-called “gilts” has been so rapid that the yield on the longest-dated bond, which matures in 2068, has almost halved since the day of the Brexit referendum, falling from 2 percent to 1.06 percent. The price of the bond has risen by 53 percent so far this year—the kind of rise normally associated with highly speculative stock, not long-term debt issued by the British government.

Mike Amey, the manager of sterling portfolios for the one of the world’s largest bond-trading companies, Pimco, described the speed of the move as “eye-popping.”

A senior investment officer at Prudential Fixed Income, Gregory Peters, told the Financial Times the situation had become “surreal.” He said, “It’s clear that central banks are dominating markets. There’s a race to the bottom...

It appears that trading in bond markets has assumed the form of a mania, as everyone seeks to maximise immediate profits with no concern for what could be the consequences. “There’s too much acceptance of this,” Peters warned. “We’re talking about it in a cavalier way, but that’s not appropriate. It’s extremely distortive, and if we see a pick-up on the fiscal side, or inflation, it will look less comfortable sitting in this negative-yielding universe....

The official rationale for the quantitative easing policy was that lower interest rates were necessary to stimulate investment and consumer spending by lowering the cost of borrowing, thereby preventing the global economy from falling into a full-scale depression. But almost eight years of financial stimulus have failed to lift the real economy, with investment rates remaining well below where they were before the financial crisis. In the US, for example, the latest data on gross domestic product shows investment dropping by 9.7 percent in the second quarter.

In a comment published in the Financial Times on Friday, Eric Lonergan, the macro fund manager at M&G Investments, wrote that the policy of the central banks had been based on a false theory. There was, he noted, no empirical evidence to show that consumers tended to increase spending as a result of lower interest rates, and that when interest rates were very low, households tended to save more because of concerns about the future direction of the economy. Corporate investment was similarly unresponsive to lower rates...

“Companies have in the past few years responded to very low borrowing costs by engaging in relatively low-risk financial engineering such as share buybacks, potentially crowding out productive risk-taking.”

Lonergan did not say so openly, but his remarks pointed to the underlying cause of falling investment despite lowered borrowing costs—the persistent tendency of the rate of profit to fall. This decline was in evidence even before the crisis of 2008, and has increased since.
In the US, where the stock market has reached record highs because of low interest rates, profitability is worsening, with S&P 500 firms reporting weakening overall profits for four quarters in the row.

The only major area where falling interest rates have had a significant impact on the real economy is in housing, where ultra-low rates have fuelled the formation of housing bubbles in a number of leading economies, creating the risk of a new collapse in the housing mortgage market, as happened with the bursting of the subprime bubble eight years ago

10--The real issues in the 2016 US elections

There is a vast and growing gulf between the entire political system and the sentiments of millions of workers and young people. Trump and Clinton are the two most unpopular major-party candidates for president in modern history, with Trump deemed unacceptable by close to 70 percent of the population, while Clinton’s unfavorability rating tops 55 percent. As the Washington Post noted in a front-page report Sunday, for young people especially, the choice of Clinton vs. Trump “feels like a joke.”

While expressing revulsion at Trump, dozens of younger voters interviewed for the report voiced no enthusiasm for Clinton, a development the Post called “ominous.” Gone were the illusions inspired by the Obama campaign of 2008. According to the Post, “most talked about both her and Trump in searing, caustic words: Super villain. Evil. Chameleon. Racist. Criminal. Egomaniac. Narcissist. Sociopath. Liar. Lying cutthroat… Horrifying. Dishonest. Disgusting. Dangerous. Disaster.” Which term applied to which candidate was left unsaid, though most could equally apply to both.

Many of these younger voters backed the campaign of Bernie Sanders, yet his so-called political revolution has proven a cynical fraud, aimed, as the WSWS warned, at channeling oppositional sentiment into the dead-end of the Democratic Party.

11--Toward a Global Realignment,

12--Turkish FM repeats "Assad must go"

13--Turkish PM suggests three-step road map for Syria (no agreement on Assad)

14--(You're headed in the wrong direction, dude)  Syrian Democratic Forces (Re: Kurds) Set Up Al-Bab Military Council, Prepare for Fresh Advances

On August 14, the US-backed Syrian Democratic Forces (SDF) announced creation of the Al-Bab Military Council. This could indicate that developing the success in Manbij, the Kurds are going to advance on Al Bab in order to link the four cantons of Rojava along the Syrian-Turkish border.
Pro-Kurdish sources say that the main goal of the council is to liberate Al-Bab and surrounding villages from ISIS and the council includes 7 “Arab” armed groups:
Furthermore, the liberation of Al Bab is far away from the political goals of Obama administration in Syria. The White House is seeking to show the success of American anti-terrorist operations by taking major ISIS strongholds – Raqqa and Mosul – in Syria and Iraq. Al Bab is just located in another direction.

the Russian position is really simple. It’s good neighbor policy if you like, but let me try and make it quick and short for you. First, Turkey should stop supporting and fueling and providing safe haven and supplies for groups that threaten Russia to the North, threaten Syria to the south. Threaten Iraq to the east. That means and end to support for ISIS, an end to support for the Chechen Rebellion in the Russian Caucasus. It means an end to support for Crimean Tatar opposition to Russia. It means an end Turkish support for the war against Armenia. That’s number one. Number two, Russia has always for the last several hundred years, as long as there are ships, and as long as there’s the sea, Russia wants free passage through the so-called Turkish straits, between the Black Sea, the Aegean Sea, and the Mediterranean. The Turks claim that it’s a territorial war, they often claim that they lost several wars over this. Russia wants to see no expansion of NATO or enemy operations, naval operations, in the Black Sea, facilitated through the Bosphorus, through the Dardanelles, through the Turkish straits, at the behest and at the permission and the encouragement of the Turkish government. Those are security issues, right? No response from Erdogan. In fact, he said at the press conference, we didn’t even talk about Syria, we’ll talk about that a bit later in the afternoon. But as for that meeting, there is no record that anything was said, because as I said before the Russian Foreign Ministry has yet to acknowledge there was such a meeting. More important, on the [crosstalk] morning on the day Erdogan–


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