tag:blogger.com,1999:blog-64824603171377637792024-03-18T07:11:06.649-07:00International BusinessAnonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.comBlogger706125tag:blogger.com,1999:blog-6482460317137763779.post-68436943048025998472014-12-04T03:11:00.000-08:002014-12-04T06:51:15.247-08:00Plummeting Oil Prices Could Destroy The Banks That Are Holding Trillions In Commodity Derivatives<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://theeconomiccollapseblog.com/archives/plummeting-oil-prices-destroy-banks-holding-trillions-commodity-derivatives/panic-button-public-domain" rel="attachment wp-att-8072"></a>Could rapidly falling oil prices trigger a nightmare scenario for the commodity derivatives market? The big Wall Street banks did not expect plunging home prices to cause a mortgage-backed securities implosion back in 2008, and their models did not anticipate a decline in the price of oil by more than 40 dollars in less than six months this time either. If the price of oil stays at this level or goes down even more, someone out there is going to have to absorb some absolutely massive losses. In some cases, the losses will be absorbed by oil producers, but many of the big players in the industry have already locked in high prices for their oil next year through derivatives contracts. The companies enter into these derivatives contracts for a couple of reasons. Number one, many lenders do not want to give them any money unless they can show that they have locked in a price for their oil that is higher than the cost of production. Secondly, derivatives contracts protect the profits of oil producers from dramatic swings in the marketplace. These dramatic swings rarely happen, but when they do they can be absolutely crippling. So the oil companies that have locked in high prices for their oil in 2015 and 2016 are feeling pretty good right about now. But who is on the other end of those contracts? In many cases, it is the big Wall Street banks, and if the price of oil does not rebound substantially they could be facing absolutely colossal losses.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">It has been estimated that the six largest “too big to fail” banks control <span id="articleText"><a href="http://www.reuters.com/article/2014/05/16/us-banks-commodities-derivatives-analysi-idUSBREA4F02V20140516" target="_blank" title="$3.9 trillion">$3.9 trillion</a> in commodity derivatives contracts. And a very large chunk of that amount is made up of oil derivatives.</span></span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">By the middle of next year, we could be facing a situation where many of these oil producers have locked in a price of 90 or 100 dollars a barrel on their oil but the price has fallen to about 50 dollars a barrel.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">In such a case, the losses for those on the wrong end of the derivatives contracts would be astronomical.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">At this point, some of the biggest players in the shale oil industry have already locked in high prices for most of their oil for the coming year. The following is an excerpt from a recent article <a href="http://www.telegraph.co.uk/finance/oilprices/11263851/Saudis-risk-playing-with-fire-in-shale-price-showdown-as-crude-crashes.html" target="_blank" title="by Ambrose Evans-Pritchard">by Ambrose Evans-Pritchard</a>…</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;"><strong>US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon Energy have both hedged over three-quarters of their output for 2015.</strong> </span></blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;"><strong>Pioneer Natural Resources said it has o</strong><strong>ptions through 2016 covering two- thirds of its likely production.</strong></span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">So they are protected to a very large degree. It is those that are on the losing end of those contracts that are going to get burned.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Of course not all shale oil producers protected themselves. Those that didn’t are in danger of going under.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">For example, Continental Resources cashed out approximately 4 billion dollars in hedges <a href="http://www.reuters.com/article/2014/11/06/us-continental-oil-hedges-factbox-idUSKBN0IQ19420141106" target="_blank" title="about a month ago">about a month ago</a> in a gamble that oil prices would go back up. Instead, they just kept falling, so now this company is likely headed for some rough financial times…</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Continental Resources (CLR.N), the pioneering U.S. driller that bet big on North Dakota’s Bakken shale patch when its rivals were looking abroad, is once again flying in the face of convention: cashing out some $4 billion worth of hedges in a huge gamble that oil prices will rebound. </span></blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Late on Tuesday, the company run by Harold Hamm, the Oklahoma wildcatter who once sued OPEC, said it had opted to take profits on more than 31 million barrels worth of U.S. and Brent crude oil hedges for 2015 and 2016, plus as much as 8 million barrels’ worth of outstanding positions over the rest of 2014, netting a $433 million extra profit for the fourth quarter. Based on its third quarter production of about 128,000 barrels per day (bpd) of crude, its hedges for next year would have covered nearly two-thirds of its oil production.</span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Oops.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">When things are nice and stable, the derivatives marketplace works quite well most of the time.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">But when there is a “black swan event” such as a dramatic swing in the price of oil, it can create really big winners and really big losers.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">And no matter how complicated these derivatives become, and no matter how many times you transfer risk, you can never make these bets truly safe. The following is from a recent article by <a href="http://charleshughsmith.blogspot.com/2014/12/the-oil-drenched-black-swan-part-2.html" target="_blank" title="Charles Hugh Smith">Charles Hugh Smith</a>…</span><br /><blockquote><div><span style="font-family: Arial, Helvetica, sans-serif;"><b>Financialization is always based on the presumption that risk can be cancelled out by hedging bets made with counterparties.</b> This sounds appealing, but as I have noted many times, <i>risk cannot be disappeared, it can only be masked or transferred to others.</i><br /><i><br /></i></span></div><div><span style="font-family: Arial, Helvetica, sans-serif;">Relying on counterparties to pay out cannot make risk vanish; it only masks the risk of default by transferring the risk to counterparties, who then transfer it to still other counterparties, and so on. </span></div></blockquote><blockquote><div></div><div><span style="font-family: Arial, Helvetica, sans-serif;">This illusory vanishing act hasn’t made risk disappear: rather, it has set up a line of dominoes waiting for one domino to topple. This one domino will proceed to take down the entire line of financial dominoes. </span></div></blockquote><blockquote><div></div><div><span style="font-family: Arial, Helvetica, sans-serif;"><b>The 35% drop in the price of oil is the first domino.</b> All the supposedly safe, low-risk loans and bets placed on oil, made with the supreme confidence that oil would continue to trade in a band around $100/barrel, are now revealed as high-risk.</span></div></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">In recent years, Wall Street has been transformed into the largest casino in the history of the world.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Most of the time the big banks are very careful to make sure that they come out on top, but this time their house of cards may come toppling down on top of them.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">If you think that this is good news, you should keep in mind that if they collapse it virtually guarantees a full-blown economic meltdown. The following is an extended excerpt <a href="http://theeconomiccollapseblog.com/archives/5-u-s-banks-each-have-more-than-40-trillion-dollars-in-exposure-to-derivatives" title="from one of my previous articles">from one of my previous articles</a>…</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">For those looking forward to the day when these mammoth banks will collapse, you need to keep in mind that when they do go down the entire system is going to utterly fall apart.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">At this point our economic system is so completely dependent on these banks that there is no way that it can function without them.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">It is like a patient with an extremely advanced case of cancer.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Doctors can try to kill the cancer, but it is almost inevitable that the patient will die in the process.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;">The same thing could be said about our relationship with the “too big to fail” banks. If they fail, so do the rest of us.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">We were told that something would be done about the “too big to fail” problem after the last crisis, but it never happened.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">In fact, <a href="http://theeconomiccollapseblog.com/archives/we-are-in-far-worse-shape-than-we-were-just-prior-to-the-last-great-financial-crisis" title="as I have written about previously">as I have written about previously</a>, the “too big to fail” banks have collectively gotten 37 percent larger since the last recession.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">At this point, the five largest banks in the country account for <a href="http://theeconomiccollapseblog.com/archives/we-are-in-far-worse-shape-than-we-were-just-prior-to-the-last-great-financial-crisis" title="42 percent">42 percent</a> of all loans in the United States, and the six largest banks control <a href="http://theeconomiccollapseblog.com/archives/we-are-in-far-worse-shape-than-we-were-just-prior-to-the-last-great-financial-crisis" title="67 percent">67 percent</a> of all banking assets.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">If those banks were to disappear tomorrow, we would not have much of an economy left.</span><br /><div style="text-align: center;"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;">Our entire economy is based on the flow of credit. And all of that debt comes from the banks. That is why it has been so dangerous for us to become so deeply dependent on them. Without their loans, the entire country could soon resemble <a href="http://www.dailymail.co.uk/news/article-2857519/A-modern-day-mall-soleum-Inside-sprawling-Maryland-shopping-center-just-two-stores-left-thirty-years-declining-business.html" target="_blank" title="White Flint Mall">White Flint Mall</a> near Washington D.C….</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">It was once a hubbub of activity, where shoppers would snap up seasonal steals and teens would hang out to ‘look cool’. </span></blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">But now White Flint Mall in Bethesda, Maryland – which opened its doors in March 1977 – looks like a modern-day mausoleum with just two tenants remaining.</span> </blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Photographs taken inside the 874,000-square-foot complex show spotless faux marble floors, empty escalators and stationary elevators. </span></blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Only a couple of cars can be seen in the parking lot, where well-tended shrubbery appears to be the only thing alive.</span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">I keep on saying it, and I will keep on saying it until it happens. We are heading for a <a href="http://theeconomiccollapseblog.com/archives/tag/derivatives-crisis" title="derivatives crisis">derivatives crisis</a> unlike anything that we have ever seen. It is going to make the financial meltdown of 2008 look like a walk in the park.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Our politicians promised that they would do something about the “<a href="http://theeconomiccollapseblog.com/archives/tag/too-big-to-fail" title="too big to fail">too big to fail</a>” banks and the out of control gambling on Wall Street, but they didn’t.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Now a day of reckoning is rapidly approaching, and it is going to horrify the entire planet.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><a href="http://theeconomiccollapseblog.com/archives/plummeting-oil-prices-destroy-banks-holding-trillions-commodity-derivatives"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com24tag:blogger.com,1999:blog-6482460317137763779.post-49187171328010640212014-12-03T01:27:00.000-08:002014-12-04T06:51:15.298-08:005 Complete Lies About America's New $18 Trillion Debt Level<span style="font-family: Arial, Helvetica, sans-serif;">On October 22, 1981, the government of the United States of America accumulated an astounding $1 TRILLION in debt.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">At that point, it had taken the country 74,984 days (more than 205 years) to accumulate its first trillion in debt.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">It would take less than five years to accumulate its second trillion.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">And as the US government just hit $18 trillion in debt on Friday afternoon, it has taken a measly 403 days to accumulate its most recent trillion.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">There’s so much misinformation and propaganda about this; let’s examine some of the biggest lies out there about the US debt:</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><u><strong><span style="font-family: Arial, Helvetica, sans-serif;">1) “They can get it under control.”</span></strong></u><br /><u><strong><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></u><span style="font-family: Arial, Helvetica, sans-serif;">What a massive lie. Politicians have been saying for decades that they’re going to cut spending and get the debt under control.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">FACT: The last time the US debt actually decreased from one fiscal year to the next was back in 1957 during the EISENHOWER administration.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">FACT: For the last several years, the US government has been spending roughly 90% of its ENTIRE tax revenue just to pay for mandatory entitlement programs and interest on the debt.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">This leaves almost nothing for practically everything else we think of as government.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><u><strong><span style="font-family: Arial, Helvetica, sans-serif;">2) “The debt doesn’t matter because we owe it to ourselves.”</span></strong></u><br /><u><strong><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></u><span style="font-family: Arial, Helvetica, sans-serif;">This is probably the biggest lie of all. Two of the Social Security trust funds alone (OASI and DI) own $2.72 trillion of US debt.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">The federal government owes this money to current and future beneficiaries of those trust funds, i.e. EVERY SINGLE US CITIZEN ALIVE.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">I fail to see the silver lining here. How is it somehow ‘better’ if the government defaults on its citizens as opposed to, say, banks?</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><u><strong><span style="font-family: Arial, Helvetica, sans-serif;">3) “They can always ‘selectively default’ on the debt”</span></strong></u><br /><u><strong><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></u><span style="font-family: Arial, Helvetica, sans-serif;">Another lie. People think that the US government can pick and choose who it pays.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">They could make a bing stink about China, for example, and then choose to default on the $2 trillion in debt that’s owed to the Chinese.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Nice try. But this would rock global financial markets and destroy whatever tiny shred of credibility the US still has.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Others have suggested that the government could selectively default on the Federal Reserve (which owns $2.46 trillion of US debt).</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Again, possible. But given that the Fed (the issuer of the US dollar) would become immediately insolvent, the resulting currency crisis would be completely disastrous.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><u><strong><span style="font-family: Arial, Helvetica, sans-serif;">4) “It’s the NET debt that’s important”</span></strong></u><br /><u><strong><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></u><span style="font-family: Arial, Helvetica, sans-serif;">Analysts often pay attention to a country’s “net debt” instead of its gross debt. If you have a million bucks in debt, and a million bucks in cash, then your ‘net debt’ is zero. It washes out.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Problem is, the US government doesn’t have any cash. The Treasury Department opened its business day on Friday morning with just $71.9 billion in cash, or just 0.39% of its total debt level.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Apple has more money than that.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><u><strong><span style="font-family: Arial, Helvetica, sans-serif;">5) “They can fix it by raising taxes”</span></strong></u><br /><u><strong><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></u><span style="font-family: Arial, Helvetica, sans-serif;">No they can’t. Just look at the numbers. Since the end of World War II, US government tax revenue has consistently been roughly 17% of GDP.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">They can raise tax rates, but it doesn’t move the needle in terms of revenue as a percentage of GDP.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;">In other words, the government’s ‘slice of the pie’ is pretty consistent.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">You’d think with this obvious data that, rather than try to increase tax rates (ineffective), they’d do everything they can to help make a bigger pie.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Or better yet, just leave everyone the hell alone so we’re free to bake as much as we can.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">But no. They have to regulate every aspect of people’s existence: How you are allowed to educate your children. What you can/cannot put in your body. How much interest you are entitled to receive on your savings.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">All of this costs time, money, and efficiency. So do never-ending wars. The bombs. The drones. The airstrikes.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">This isn’t about any single person or President. The problem is with the system itself.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">History shows that every leading superpower from the past almost invariably fell to the same fate.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;">Great powers often feel that their wealth and success entitles them to spend recklessly and wage endless, arrogant wars. The Romans. The Ottoman Empire. The British.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">History may not repeat but it certainly rhymes. And the lesson here is very clear: debt weakens a nation. It weakens a society.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Generations that will not even be born for decades will inherit these debts by complete accident of birth.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">And the people in charge of the system have backed themselves into a corner where there is no way out other than to default– either on their creditors (creating a global financial crisis), the central bank (creating a currency crisis), or on the citizens themselves (creating an epic social crisis).</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><strong>Bottom line:</strong> <u>this is not a consequence-free environment. And while you can’t fix the debt problem, you can certainly reduce your own exposure to what happens next.</u></span><br /><u><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></u><a href="http://www.zerohedge.com/news/2014-12-02/5-complete-lies-about-americas-new-18-trillion-debt-level"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com2tag:blogger.com,1999:blog-6482460317137763779.post-86177191413655223362014-12-02T00:45:00.000-08:002014-12-04T06:51:15.314-08:00Reuters Discovers the Great Convergence of Global Stock Market Stimulation <i><span style="font-family: Arial, Helvetica, sans-serif;">Stock markets set to take off as Europe, Asia abandon austerity ... The Great Divergence is a term coined by economic historians to explain the sudden acceleration of growth and technology in Europe from the 16th century onward, while other civilizations such as China, India, Japan and Persia remained in their pre-modern state. This phrase has recently acquired a very different meaning, however, more relevant to global economic and financial conditions today ... Far more important than a likely difference next year of a quarter or half a percentage point between short-term interest rates on both sides of the Atlantic, though, is the convergence of economic philosophies and objectives for the first time since the 2008 economic crisis. In the past two months, Japan, Europe and China all moved toward further aggressive monetary stimulus and reversed previous commitments to fiscal austerity. – Reuters </span></i><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><b>Dominant Social Theme: </b>Stock markets are value-based environments that go up when economies rev. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><b>Free-Market Analysis:</b> This Reuters article states clearly what we've been pointed out in our Wall Street Party meme: It's not just a US phenomenon. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"> We noted this as quantitative easing began several years ago in the US. The EU, too, was stimulating European economies at the time as best it could, especially Southern European ones. China meanwhile printed massive amounts of money to counteract the 2008 crisis, and then continued to do so even after officials said monetary policy had turned less aggressive. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Eventually Japan joined in with Abenomics, which was a form of the same Keynesian economics being applied in the US and Europe. Thus, the world's major economies for the most part were harmonized, and that harmony was constructed around printing billions and trillions of dollars. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Reuters has now observed the same phenomenon. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><i><span style="font-family: Arial, Helvetica, sans-serif;">The important trends today, especially after October policy changes in Japan and Europe, are not divergence but convergence. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">This Great Convergence of macroeconomic policies between the United States and the rest of the world will drive financial markets and dominate business conditions in the year ahead. It is not yet reflected, however, in asset prices or market trends. Investors continue to obsess about the tiny gap that may or may not open up between U.S. and European policies sometime next year, when the Fed starts gently raising interest rates. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">Though it is true that these global policy shifts coincided with the end of the Fed's quantitative-easing program, this accident of timing does not imply that the United States is diverging from Europe and Asia. What is really happening is that Europe and Asia are finally — and reluctantly — following Washington's road map out of the Great Recession. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">In the eurozone, Britain and China, hawkish central bankers have been silenced and monetary policy has been reset for full-scale stimulus — most recently by the European Central Bank, which has belatedly accepted the principle of U.S.-style quantitative easing. In Japan, where money-printing presses were already running at full throttle, they have speeded up even more. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">... The upshot is that every advanced economy is now following broadly the same macroeconomic policies as the United States: maximal monetary stimulus combined with fiscal neutrality and the suspension of counterproductive budget rules. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">Assuming that Europe and Japan continue to pursue with conviction these Washington-style expansionary policies, they should eventually achieve similar results — gradual improvements in employment and financial conditions, powered by faster economic growth. This trend was confirmed in the United States again this week by the upward revision of 3rd-quarter gross domestic product growth to 3.9 percent. </span></i><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">While agreeing with the thrust of the Reuters article, we "diverge" when it comes to this last paragraph. Whatever so-called improvements are generated by monetary stimulation will be neither longlasting nor fundamental. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Instead, like the tech boom of the 1990s or the low-end mortgage boom of the early 2000s, the gains made economically or in stock averages will surely, eventually, be given back, at least in large part. The mainstream media will begin to debate about various bubbles and then the discussion will proceed, futilely as always, to who is to blame. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">The kind of bubble economy that is present around the world today is extremely wasteful and prone to destructive consolidations of power and wealth. Printing more money can certainly stimulate industry but the stimulation will generate products and services that will be seen sooner or later as in part unnecessary or over-expanded. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">This is, of course, a description of the modern business cycle itself. Over-printing money causes tremendous booms and busts and we've seen two of them occur in the past 15 years, first in 2001 and then in 2008. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">We've also predicted that the current harmonizing of countries and monetary policy will eventually create an extraordinary financial disaster ... though not yet. But the Wall Street Party we've been writing about is going to lapse at some point and when it does the unraveling could be significant indeed. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">In the meantime, this sort of harmonization may well drive markets around the world to new heights. Monetary stimulation's main impact, in fact, is usually on securitized assets. The Reuters article recognizes this possibility: </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><i><span style="font-family: Arial, Helvetica, sans-serif;">Stock markets around the world would start to perform better than Wall Street if investors became convinced that Europe, Japan and China were as committed as Washington is to expansionary policies. The first signs of this sentiment shift could be detected in Japan, after Abe's reflationary measures in late October, and in China, after the surprise monetary easing last week. If ECB President Mario Draghi can convince investors that he has political support for aggressive monetary stimulus, European equities could also start to outperform. </span></i><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">This is all fairly transparent, is it not? We're supposed to believe that stock markets are indicators of prosperity but the current upturn is an orchestrated one that began in the US with low rates and regulatory revisions that supported investor activity, especially when it came to IPOs. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Now the orchestration is spreading around the world and a new meme is being developed: The current market upsurge is just beginning. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">This is a typical VESTS conundrum. Does one trust one's eyes and ears when it comes to this ongoing market upsurge or does one accept that those who are orchestrating this rise are in control of it, at least for the near term? </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">We've suggested that fighting the trend may be futile, for now at least, if one wants to participate in profits that continue to be made. Prudent hedging, diversification and a concentration on certain equities and IPOs may be one way to play this equity surge ... bearing in mind that the market is at heights that can precipitate a significant downturn. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">But what we see in terms of memes and market manipulation leads us to suspect that there are immensely powerful forces committed to continued market gains. The real question is not whether this bias exists but for how long it can play out. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Higher averages need not lull the senses. Instead, if you wish, approach the market in a prudent way. A disciplined strategy is called for and a commitment to participate within the context of an "exit" plan. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><b>Conclusion</b> But this market could continue it seems for another year or two, or perhaps longer, hard as that is to fathom. And then again, well ... perhaps it won't. But the meme that is being constructed seems to focus on the longer term. That's something to consider within a larger VESTS construct. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><a href="http://www.thedailybell.com/news-analysis/35876/Reuters-Discovers-the-Great-Convergence-of-Global-Stock-Market-Stimulation/"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com3tag:blogger.com,1999:blog-6482460317137763779.post-64088543934183756822014-12-01T01:25:00.000-08:002014-12-04T06:51:15.391-08:00Guess What Happened The Last Time The Price Of Oil Crashed Like This?…<span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://theeconomiccollapseblog.com/archives/guess-happened-last-time-price-oil-crashed-like/price-of-oil-causes-a-junk-bond-crash-public-domain" rel="attachment wp-att-8056"></a>There has only been one other time in history when the price of oil has crashed by more than 40 dollars in less than 6 months. The last time this happened <a href="http://theeconomiccollapseblog.com/archives/just-witness-last-great-black-friday-celebration-american-materialism" title="was during the second half of 2008">was during the second half of 2008</a>, and the beginning of that oil price crash preceded the great financial collapse that happened later that year by several months. Well, now it is happening again, but this time the stakes are even higher. When the price of oil falls dramatically, that is a sign that economic activity is slowing down. It can also have a tremendously destabilizing affect on financial markets. As you will read about below, energy companies now account for approximately 20 percent of the junk bond market. And a junk bond implosion is usually a signal that a major stock market crash is on the way. So if you are looking for a “canary in the coal mine”, keep your eye on the performance of energy junk bonds. If they begin to collapse, that is a sign that all hell is about to break loose on Wall Street.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">It would be difficult to overstate the importance of the shale oil boom to the U.S. economy. Thanks to this boom, the United States has become <a href="http://www.bloomberg.com/news/2014-07-04/u-s-seen-as-biggest-oil-producer-after-overtaking-saudi.html" target="_blank" title="the largest oil producer">the largest oil producer</a> on the entire planet.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Yes, the U.S. now actually produces more oil than either Saudi Arabia or Russia. This “revolution” has resulted in the creation of <a href="http://www.midwestenergynews.com/2013/01/10/u-s-chambers-fracking-job-boom-behind-the-numbers/" target="_blank" title="millions of jobs">millions of jobs</a> since the last recession, and it has been one of the key factors that has kept the percentage of Americans that are employed <a href="http://theeconomiccollapseblog.com/wp-content/uploads/2014/10/Employment-Population-Ratio-2014.png" target="_blank" title="fairly stable">fairly stable</a>.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Unfortunately, the shale oil boom is coming to an abrupt end. As a recent <a href="http://www.vox.com/2014/11/28/7302827/oil-prices-opec" target="_blank" title="Vox article discussed">Vox article discussed</a>, OPEC has essentially declared a price war on U.S. shale oil producers…</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">For all intents and purposes, OPEC is now engaged in a “price war” with the United States. What that means is that it’s very cheap to pump oil out of places like Saudi Arabia and Kuwait. <strong>But it’s more expensive to extract oil from shale formations in places like Texas and North Dakota. So as the price of oil keeps falling, some US producers may become unprofitable and go out of business</strong>. The result? Oil prices will stabilize and OPEC maintains its market share.</span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">If the price of oil stays at this level or continues falling, we will see a significant number of U.S. shale oil companies go out of business and large numbers of jobs will be lost. The Saudis know how to play hardball, and they are absolutely ruthless. In fact, we have seen this kind of scenario <a href="http://www.zerohedge.com/news/2014-11-30/we-are-entering-new-oil-normal" target="_blank" title="happen before">happen before</a>…</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, told Reuters that Saudi Arabia “will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the US shale oil sector.” Even legendary oil man T. Boone Pickens believes Saudi Arabia is in a stand-off with US drillers and frackers to “see how the shale boys are going to stand up to a cheaper price.” This has happened once before. By the mid-1980’s, as oil output from Alaska’s North Slope and the North Sea came on line (combined production of around 5-6 million barrels a day), OPEC set off a price war to compete for market share. As a result, the price of oil sank from around $40 to just under $10 a barrel by 1986.</span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">But the energy sector has been one of the only bright spots for the U.S. economy in recent years. If this sector starts collapsing, it is going to have a dramatic negative impact on our economic outlook. For example, just consider the following numbers <a href="http://www.businessinsider.com/energy-capex-and-rd-2014-11" target="_blank" title="from a recent Business Insider article">from a recent Business Insider article</a>…</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Specifically, if prices get too low, then energy companies won’t be able to cover the cost of production in the US. This spending by energy companies, also known as capital expenditures, is responsible for a lot of jobs. </span></blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">“The Energy sector accounts for roughly one-third of S&P 500 capex and nearly 25% of combined capex and R&D spending,” Goldman Sachs’ Amanda Sneider writes.</span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Even more troubling is what this could mean for the financial markets.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">As I mentioned above, energy companies now account for close to 20 percent of the entire junk bond market. As those companies start to fail and those bonds start to go bad, that is going to hit our major banks <a href="http://www.cnbc.com/id/102223823?__source=yahoo|finance|headline|headline|story&par=yahoo&doc=102223823" target="_blank" title="really hard">really hard</a>…</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Everyone could suffer if the collapse triggers a wave of defaults through the high-yield debt market, and in turn, hits stocks. The first to fall: the banks that were last hit by the housing crisis. </span></blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Why could that happen? </span></blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Well, energy companies make up anywhere from 15 to 20 percent of all U.S. junk debt, according to various sources.</span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">It would be hard to overstate the seriousness of what the markets could potentially be facing.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">One analyst summed it up to CNBC <a href="http://www.cnbc.com/id/102223823?__source=yahoo|finance|headline|headline|story&par=yahoo&doc=102223823" target="_blank" title="this way">this way</a>…</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">“<strong>This is the one thing I’ve seen over and over again</strong>,” said Larry McDonald, head of U.S strategy at Newedge USA’s macro group. “<strong>When high yield underperforms equity, a major credit event occurs. It’s the canary in the coal mine.</strong>“</span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">The last time junk bonds collapsed, a major stock market crash followed fairly rapidly.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;">And those that were hardest hit were <a href="http://www.cnbc.com/id/102223823?__source=yahoo|finance|headline|headline|story&par=yahoo&doc=102223823" target="_blank" title="the big Wall Street banks">the big Wall Street banks</a>…</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">During the last high-yield collapse, which centered around debt tied to the housing sector, <strong>Citigroup lost 63 percent of its value in the following 60 days, Kensho shows. Bank of America was cut in half</strong>.</span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">I understand that some of this information is too technical for a lot of people, but the bottom line is this…</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><strong>Watch junk bonds. When they start crashing it is a sign that a major stock market collapse is right at the door</strong>.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">At this point, even the mainstream media is warning about this. Just consider the following excerpt from a recent <a href="http://money.cnn.com/2014/11/30/investing/sell-stocks-check-junk-bonds/index.html?iid=HP_LN" target="_blank" title="CNN article">CNN article</a>…</span><br /><blockquote><span style="font-family: Arial, Helvetica, sans-serif;"><strong>That swing away from junk bonds often happens shortly before stock market downturns</strong>. </span></blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">“High yield does provide useful sell signals to equity investors,” Barclays analysts concluded in a recent report. </span></blockquote><blockquote><span style="font-family: Arial, Helvetica, sans-serif;">Barclays combed through the past dozen years of data. The warning signal they found is a 30% or greater increase in the spread between Treasuries and junk bonds before a dip.</span></blockquote><span style="font-family: Arial, Helvetica, sans-serif;">If you have been waiting for the next major financial collapse, what you have just read in this article indicates that it is now closer than it has ever been.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Over the coming weeks, keep your eye on the price of oil, keep your eye on the junk bond market and keep your eye on the big banks.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Trouble is brewing, and nobody is quite sure exactly what comes next.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><a href="http://theeconomiccollapseblog.com/archives/guess-happened-last-time-price-oil-crashed-like"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com4tag:blogger.com,1999:blog-6482460317137763779.post-55268510465068365952014-11-28T03:02:00.000-08:002014-12-04T06:51:15.409-08:00Mainstream Media Negativity On Swiss Gold Referendum Conceals the Truth <i><span style="font-family: Arial, Helvetica, sans-serif;">Gold prices may surge if Swiss vote on reserves passes ... Global gold prices may surge in the coming week if Swiss voters approve a controversial measure that would force their country's central bank to keep at least a fifth of its assets in gold. If the referendum Sunday passes and the Swiss government is forced to start beefing up its reserves, the price of gold could jump to more than $1,350 an ounce — an increase of 18%, Bank of America predicts ... – USA Today </span></i><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><b>Dominant Social Theme:</b> This referendum won't pass. The Swiss are too smart to approve it. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><b>Free-Market Analysis:</b> USA Today has weighed in on the upcoming gold referendum in Switzerland with a predictable anti-gold article. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">In fact, the anti-gold tone when it comes to the mainstream media is overwhelming. Central bankers hate the yellow metal because it restricts their freedom to manipulate fiat currency as they choose – and the media reflects this prejudice. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">There are many reasons to believe the plight of gold is not so grave as it is being made out to be, but you wouldn't know that from the USA Today article, or other recent ones in the mainstream media. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">The paper reminds us that the latest poll, now a week old, by Swiss Television and the GFS Institute showed 38% in favor of the referendum, 47% opposed and 15% undecided. These numbers are actually lower than those in previous polls. ZeroHedge provides a more detailed breakout, as follows: </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><i><span style="font-family: Arial, Helvetica, sans-serif;">The poll shows that in Italian speaking areas, the yes vote was actually ahead with 47% in favour, versus 28% against. In the German speaking region, the results were 40% yes versus 50% no, while in the French speaking region it was 29% yes versus 41% no. The 'Undecided' were a low 10% in the relatively decisive German speaking region, 24% in the Italian region, and a significant 30% in the relatively indecisive French speaking region. </span></i><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Importantly, support for the gold referendum diminished after the Swiss National Bank made statements indicating that holding so much gold with no ability to sell it would severely limit the flexibility of monetary policy. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Here's more from the article:</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><i><span style="font-family: Arial, Helvetica, sans-serif;"> ... Investors apparently are not too bullish about the referendum passing, as gold prices have risen less than 5% in the last few weeks. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">Still, Sunday's vote is setting off alarm bells within the Swiss parliament and among business groups. They argue that forcing the central bank to stockpile gold it cannot sell would diminish the bank's ability to set monetary policy and react quickly to changes in the market. In recent years, for instance, the central bank had printed 400 billion Swiss francs ($412 billion), deflating its value against the euro and capping the exchange rate below 1.20 francs ($1.24) to the euro. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">The central bank took that step to protect Switzerland's economy from the European debt crisis and boost its exports to the European Union, but the Swiss People's Party has been critical of the move. "To tie the franc to a weak currency like the euro and a weak economic area like the Eurozone is a recipe for disaster," the party claims on its website. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">Backing up the currency with increased gold reserves, the group argues, would keep the franc strong and the Swiss economy impervious to global financial crises. </span></i><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><i><span style="font-family: Arial, Helvetica, sans-serif;">Some analysts counter that a law requiring increased and unmovable gold reserves might have a negative effect on the currency market and the economy in general. "The (central bank) will think twice about buying unlimited amounts of foreign currencies in order to keep its cap for the euro at 1.20 francs," says Teodoro Cocca, professor at Swiss Finance Institute in Zurich. "Most likely, the cap would have to be lifted, the franc will appreciate, and that would be a burden for Swiss exports." </span></i><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Always, we learn that a strong currency is a hindrance to national economic health. In fact, this doesn't seem to make a lot of sense. A strong currency would attract investment and that in turn would create additional industry for the country in question. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Could the additional industry sell goods and services abroad? Probably so. The market itself would adapt to higher prices and strategies to lower those prices would be pursued. The net effect of a strong currency might be increased by industrial might and prosperity not national penury. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">These are perhaps academic arguments, but the reality is that at some point central bankers may have to get used to a resurgence in the yellow metal, given continued demand. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">In fact, the negativity of the mainstream media is concealing some interesting developments. Over at Sprott Money, as posted at ZeroHedge, we find the following article, entitled, "Global Gold Demand Will Overwhelm the Manipulators." </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">The article makes the startling point that the European Central Bank may become a net buyer of gold: </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><i><span style="font-family: Arial, Helvetica, sans-serif;">Western central banks know that they need to massively increase inflation. This is the only way in which they can alleviate the huge debt levels that have been accumulated by their misguided wars and spending. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">To help assist in increasing this inflation the ECB has indicated that it may begin acquiring gold, shares and ETF's. This news comes as a shock to many, given the ECB's previous resistance to all things gold and the fact that their fiat currencies are in direct competition with the yellow metal. </span></i><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">The article also summarizes current gold demand worldwide, something we have reported on several occasions. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><i><span style="font-family: Arial, Helvetica, sans-serif;">No longer are people fooled by the paper price of precious metals. Premiums have remained relatively high through this price correction and demand has been so intense, that the US Mint was forced to cease sales of their ever-popular Silver American Eagles. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">Nation states, such as China and Russia are well known for their affinity to gold and have also continued their accumulation of precious metals. Russia, which officially became the fifth largest holder of gold recently, announced that it has once again increased their gold reserves by another 150 additional tonnes in 2014. An increase of 8.4% year over year. </span></i><br /><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i><i><span style="font-family: Arial, Helvetica, sans-serif;">The demand from China, Russia and India are well known, but now a previous seller of gold products could be entering the arena. The ECB, a long time disbeliever in precious metals is currently battling stubbornly low inflation and may be forced into a very unconventional strategy. </span></i><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">The current price of the dollar against gold is a mystery considering worldwide demand – one that has given rise to predictable charges of manipulation. Price anomalies are rife; demand seems to exceed supply despite a surging dollar price against gold. Even the Sprott article doesn't mention the inability of German officials to repatriate gold from US safekeeping. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">When the Swiss referendum doesn't pass – and it seems likely not to – we will no doubt be treated to more negativity regarding gold and its place in the modern economy. But as the Sprott article points out, gold remains a historical and established international money. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">The idea that gold and silver, too, are outdated barbaric metals has already proven to be questionable, given gold's ascension to US$2,000 an ounce not so long ago. But there are so many stresses and strains on the current global fiat system that we wonder along with Sprott how long the dollar can be propped up against either metal. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;">Sooner or later, the value of these metals will see another resurgence. Of course, we don't know when that will be. But we do know the mainstream media is not telling the truth about gold's role in the world, nor about the demand for gold and silver worldwide. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><b>Conclusion</b> The failure of the Swiss referendum may constitute another opportunity to bash gold and "gold bugs" but such observations will be facile ones. The truth is a good deal more powerful: Gold is a historical money and in all likelihood will remain so, no matter endless negative reports in Western media. </span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><a href="http://www.thedailybell.com/news-analysis/35867/Mainstream-Media-Negativity-On-Swiss-Gold-Referendum-Conceals-the-Truth/"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com6tag:blogger.com,1999:blog-6482460317137763779.post-51192136416760652592014-11-27T02:30:00.000-08:002014-12-04T06:51:15.466-08:00Presenting Bubbleology: The Science Of Bubble Money<div abp="331"><span style="font-family: Arial, Helvetica, sans-serif;">On the 12th November 2014 - some 10 years after it was launched - lander module Philae which accompanied the Rosetta spacecraft touched down on Comet 67P/Churyumov-Gerasimenko (67P) to begin extra-terrestrial scientific observations. The on-board telemetry communicated back to Earth some 28 light-minutes away revealed that the lander had bounced twice off the surface of 67P. The first bounce may have lasted two hours and over 1 kilometre and is considered the largest space bounce in history which we would put it on a par with the incredible bounces in the US and Japanese stock markets this past month!</span></div><div abp="331"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="332"><span style="font-family: Arial, Helvetica, sans-serif;">Back here on Earth Japanese monetary policy has similarly taken a giant leap forward for mankind by conducting its own scientific experiment. On the 31st October 2014 Bank of Japan Governor Kuroda-san implemented an addition to his ‘Qualitative & Quantitative Easing’ (QQE) policy begun a year ago. The surprise event was less the timing and magnitude but the clear brazen coordination of monetary and fiscal policy using the conduit of the Japanese Government Pension Fund to implement it. The QQE drove stock markets into a frenzied rally.</span></div><div abp="332"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="333"><strong abp="334"><span style="font-family: Arial, Helvetica, sans-serif;">Central banks have been conducting a seemingly coordinated financial program of unconventional monetary policy – assuringly scientific in its nomenclature of QE and QQE – media commentators marvel at the boldness (stupidity) of policymakers ‘to go forth where no man has gone before’ and eradicate the spectre of debt deflation.</span></strong></div><div abp="333"><strong abp="334"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="335"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="336">Policymakers have been studying and implementing ‘Bubbleology’ – the science of bubble money</strong>. The impact of this earthly science on both economies and financial markets has been truly dismal.<strong abp="337"> It is clear it is creating a divergence between economic and financial reality.</strong></span></div><div abp="335"><strong abp="337"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="338"><span style="font-family: Arial, Helvetica, sans-serif;">Far from eradicating the perils of debt deflation it is clear this program has merely initiated more fiscal and private sector balance sheet irresponsibility, as both continue to lever up. The capital (‘near money’) allocation of such leverage has resulted in rising asset classes, primarily housing stock, equity and bonds where the pursuit of yield has ignored all credit risk sensibilities.<strong abp="339"> All this has occurred at the expense of daily living standards and the misdirection of capital.</strong></span></div><div abp="338"><strong abp="339"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="340"><span style="font-family: Arial, Helvetica, sans-serif;">We are witnessing the continuation and completion of the financialization of our economies and markets which began at the instigation of governments and central bankers in the years leading up to the 2008 crisis. There is no attempt to foster sustainable capital and income through innovation and production which ultimately drives healthy employment. Rather financialization of asset classes driving elevated prices which creates an inequality of wealth, albeit illusionary wealth. Land, housing stock and excessive equity price growth in reality drains productivity away from entrepreneurship and the employment which enables sustainable taxable income for nations to run prudent fiscal surpluses.</span></div><div abp="340"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="341"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="342">We are in the butterfly vortex of a momentary illusion of ‘hyperinflated’ wealth - for the value of money is sinking rapidly - destroying the purchasing power of the global majority</strong>. Markets have a memory and from the first moment central banks expanded their balance sheets the flap of Lorenz’s wing has cast a shadow over financial and economic stability. In this HindeSight I endeavour to highlight where the echoes of monetary history are manifesting themselves in systemic risk across the globe.</span></div><div abp="341"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="343"><strong abp="344"><span style="font-family: Arial, Helvetica, sans-serif;">The Delicious Science of Bubble Money</span></strong></div><div abp="343"><strong abp="344"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="345"><span style="font-family: Arial, Helvetica, sans-serif;">About 15 years ago I went on a three week stint to Tokyo to cover the overnight US Treasury trading seat at Greenwich NatWest. I remember many cultural delights about that trip, not least of all the clubs and hostess bars of Roppongi! But one of my abiding memories was Bubble Tea. I was addicted to it but other than the side-effects of a sugary rush it’s fair to say this was perhaps a less troublesome elixir for a young single gaijin and one with a rather large company expense account at that.</span></div><div abp="345"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;">Bubble Tea, also known as 'pearl milk tea' actually originates from Taiwan. It is essentially a tea mix of your choice infused with rich creamer served cold with natural large, chewy tapioca balls which you suck up through a big fat straw. The term bubble is an anglicized derivation from the Chinese word 'boba' which itself refers to the 'large' tapioca balls or pearls.</span></div><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;">Fast forward 15 years and whilst meandering around London I saw a bunch of neon Bubbleology signs. Turns out they are Bubble Tea shops and they practice the ‘science of bubble tea’ making. Imagine my joy. I have finally been reunited with my favourite beverage on my home soil.</span></div><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="348"><span style="font-family: Arial, Helvetica, sans-serif;">In an era of serial financial bubble blowing I thought to myself how apt to use this name to refer to central bank money printing on account of its clear ability to create one asset bubble after another with rich infusions of money.</span></div><div abp="348"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="349"><span style="font-family: Arial, Helvetica, sans-serif;">So Bubbleology – the new ‘delicious science of bubble money’ - looks to serve grateful market participants with rich creamy rushes of infused tea, intravenously administered through the conduits of repressed and fiscally dominated financial institutions.</span></div><div abp="349"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="350"><span style="font-family: Arial, Helvetica, sans-serif;">Every central bank has its own set of magical ingredients. The BoJ administers a rich elixir of ‘Macha Bubble Money’ adding more creamer to every new infusion by which to keep the Pavlovian market salivating. The FED and BoE offer their own special potion of ‘English Breakfast Money’ superbly rich in its enunciation, crisp and firm on the pallet, whilst the PBOC offers up a soothing medication of ‘Oolong-some Bubble Money’. The ECB version, however, is somewhat more fruity and zesty in its consistency - more Tapioca ‘Money Balls’ than bubbles – well, at least for now.</span></div><div abp="350"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="351"><strong abp="352"><span style="font-family: Arial, Helvetica, sans-serif;">Monetary Echoes, Memories & Markets</span></strong></div><div abp="351"><strong abp="352"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;">Greenspan was the maestro of bubble money science and presided over almost two decades of monetary bubble infusions in an attempt to save us from perceived threats of dastardly deflation. Except a decade ago the debt levels were trivial in comparison with what exists today. Greenspan initiated the largest global bubble money experiment on earth being implemented on Earth today. It is risible to me that he now promotes ‘gold’ – the ultimate anti-bubble money asset.</span></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="354"><span style="font-family: Arial, Helvetica, sans-serif;">It is the echoes of this monetary history which reverberates strongly today creating a seemingly stable equilibrium of economic and financial asset growth. Nothing could be further from reality.</span></div><div abp="354"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;">Markets have a memory effect whereby future price movements have a higher probability of repeating recent behaviour than would otherwise be suggested by a purely random process. At the moment I believe market behaviour is a reverberation of the memory of past credit cycles propagated by central bankers who never fully allowed the cycles to complete from boom to bust. So the cycle heights either run higher and/or longer until such time as no amount of credit keeps the well-oiled financial markets rising and the economy ticking over.</span></div><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="356"><strong abp="357"><span style="font-family: Arial, Helvetica, sans-serif;">This is a classic example of the law of diminishing returns - each new dollar printed exacts less and less return or output.</span></strong></div><div abp="356"><span style="font-family: Arial, Helvetica, sans-serif;"><b><br abp="358" /></b>I have always intuitively believed that markets have significant order in their chaos and that we could predict this by looking at the relationship between credit cycles and market behaviour. I believe the inherent structure of a market carries a multitude of participants (economic agents) all with different rationale for making a purchase or a sale. Rational or irrational is in the eye of the beholder; what seems rational to one person may seem quite the opposite to another. Linear systems of econometrics that follow equilibria models do not allow for human action which is why the efficient market hypothesis has long been disproved.</span></div><div abp="356"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="359"><span style="font-family: Arial, Helvetica, sans-serif;">This classic financial theory which assumes markets are efficient was first introduced by Louis Bachelier (mathematician) in the 1900s. The concept assumes that competition among a large number of rational investors eventually lead to equilibrium and the resulting equilibrium reflects the information content of past, present and even anticipated events. So an event of the magnitude of 19th October 1987 statistically should never occur if one were to subscribe to conventional financial wisdom. This was the day the Dow Jones Industrial Average plunged more than 20% in one day, an unlikely 20-standard deviation event whose probability of occurrence is less than one in ten to the 50th power. It is intuitive to me that the financial markets are one large consciousness - a conscious mind. The price and 'value' beliefs that are embedded in a market have a memory and a history based on decades of interconnected economic agents, all with different agendas, motivations and needs. Traders/ Investors think themselves largely independent souls but they are not. They are interconnected by a neural network, figuratively and actually both in the past and present which all impacts a future outcome in the markets.</span></div><div abp="359"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="360"><span style="font-family: Arial, Helvetica, sans-serif;">Its rather analogous to a field of mushrooms which appear to be individual plants, when in fact they are a merely the temporary component of a fungal network, known as a mycelium, that exists underground all year round almost indefinitely.</span></div><div abp="361"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="362"><span style="font-family: Arial, Helvetica, sans-serif;">What is increasingly evident is that market participants are increasingly embroiled in a reflexive relationship between central bank actions, guidance and price action. The more the market moves contrary to central bank desires – ie downwards - the more the central bank injects the bubble money and reassures markets with the promise of more infusions of its rich elixir. This reflexive behaviour has led to a mindset that extends beyond institutional traders and investors but to populations as a whole. We are observing a complete financialization of the global economy and markets by this mindset. The speculative mindset that my house is now my investment, that my 401K or pension pot is my productivity for the future or that oil is some kind of arcade game rather than a highly productive resource for our economy is accepted as normal behaviour. This is the behaviour of the maddening crowd.</span></div><div abp="363"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="364"><span style="font-family: Arial, Helvetica, sans-serif;">An Austrian economic scholar and market participant quipped to me - "after six years and trillions of dollars of intervention, <strong abp="365">the only truly unconventional policies that remain are those which practice sound money, official inscrutability, and an approach which is a good deal less Hjalmar Schacht and a good deal more Adam Smith</strong>."</span></div><div abp="364"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;">Although humorous, this is a deadly serious point to consider. As you will see from the economic charts in the following sections this enormous global experiment is not working. The overhang of too much debt and moribund growth continues to threaten national balance of payments and the well-being of populations.</span></div><div abp="367"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="368"><span style="font-family: Arial, Helvetica, sans-serif;"><em abp="369">Much more in the full presentation, including numerous pretty charts, which <a abp="370" href="http://clearslide.com/v/re4krg">can be found here</a></em><a abp="371" href="http://clearslide.com/v/re4krg"></a></span></div><div abp="368"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="368"><a href="http://www.zerohedge.com/news/2014-11-26/title-presenting-bubbleology-science-bubble-money"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com2tag:blogger.com,1999:blog-6482460317137763779.post-90645440196209292582014-11-26T01:32:00.000-08:002014-12-04T06:51:15.483-08:00Who Will Wind Up Holding the Bag in the Shale Gas Bubble?<div abp="362"><span style="font-family: Arial, Helvetica, sans-serif;">We’ve been writing off and on about how the sudden fall in gas prices has been expected to put a lot of shale gas development on hold. In fact, quite a few analysts believe that one of the big Saudi aims in refusing to support oil prices was to dent the prospects for competitive energy sources, not just renewables like wind and hydro power, but shale gas. </span></div><div abp="362"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="363"><span style="font-family: Arial, Helvetica, sans-serif;">Even though OilPrice reported that <a abp="364" href="http://www.nakedcapitalism.com/2014/10/low-oil-prices-hurting-u-s-shale-operations.html">US rig count had indeed fallen as oil prices plunged</a>, <a abp="365" href="http://www.ft.com/cms/s/0/0f5be83a-717f-11e4-818e-00144feabdc0.html" rel="nofollow" target="_blank">John Dizard at the Financial Times</a> (hat tip Scott) gives a more intriguing piece of the puzzle: the degree to which production is still chugging along despite it being uneconomical. The oil majors have been criticized for levering up to continue developing when it is cash-flow negative; they are presumably betting that prices will be much higher in short order. </span></div><div abp="363"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;">But the same thing is happening further down the food chain, among players that don’t begin to have the deep pockets of the industry behemoths: many of them are still in “drill baby, drill” mode. Per Dizard:</span></div><blockquote abp="367"><div abp="368"><span style="font-family: Arial, Helvetica, sans-serif;">Even long-time energy industry people cannot remember an overinvestment cycle lasting as long as the one in unconventional US resources. It is not just the hydrocarbon engineers who have created this bubble; there are the financial engineers who came up with new ways to pay for it.</span></div></blockquote><div abp="369"><span style="font-family: Arial, Helvetica, sans-serif;">And while the financial engineers will as always do just fine, lenders are another matter:</span></div><blockquote abp="370"><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;">By now, though, there is an astonishing amount of debt that continues to build up on the smaller E&P companies’ balance sheets. According to Gavekal, the research group, even before the oil price plunge, aggregate debt-to-equity ratios in the smaller publicly traded energy companies are now at 93 per cent, up from around 70 per cent in 2012 and 2013, and around 50 per cent between 2005 and 2011. This in a highly cyclical industry that used to go through periodic banker-driven shakeouts and even bankruptcies.</span></div></blockquote><div abp="372"><span style="font-family: Arial, Helvetica, sans-serif;">One example is a KKR deal gone a cropper, Samson. As an aside, it is hard to think of an industry less suited to private equity investing than oil & gas development, since the companies have a great deal of operating leverage and the industry is highly cyclical. KKR apparently did not learn that lesson in bankruptcy of its giant energy play turned mega bankruptcy <a abp="373" href="http://www.forbes.com/sites/lorensteffy/2013/09/11/txus-imminent-bankruptcy-reveals-deregulations-failure/" rel="nofollow" target="_blank">TXU</a>. Or maybe it did. While the other lead investor in that deal, TPG, has had a hard time fundraising as a result of the TXU debacle, KKR has sailed on unscathed. This early November Reuters article describes how KKR <a abp="374" href="http://in.reuters.com/assets/print?aid=INKCN0IU0DR20141110" rel="nofollow" target="_blank">is struggling to rescue this transaction</a>*:</span></div><blockquote abp="375"><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;">KKR & Co which led the acquisition of oil and gas producer Samson Resources Corp for $7.2 billion in 2011 and has already sold almost half its acreage to cope with lower energy prices, plans to sell its North Dakota Bakken oil deposit worth less than $500 million as part of an ongoing downsizing plan, according to people familiar with the matter. </span></div></blockquote><blockquote abp="375"><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;">KKR, one of the world’s biggest private equity firms with $96 billion in assets under management, overpaid for Samson, and persistently low natural gas prices have hampered its ability to finance the company and added to its debt burden, the people said. KKR’s plan was to shift Samson’s assets from natural gas production more into oil and liquids. </span></div></blockquote><blockquote abp="375"><div abp="378"><span style="font-family: Arial, Helvetica, sans-serif;">With U.S. crude oil futures down 25 percent since June, Samson has hired Bank of Nova Scotia (to sell the Bakken assets, and the company is contemplating more asset sales to raise cash, the people said, without specifying which other assets. </span></div></blockquote><blockquote abp="375"><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;">In the medium-term, Samson may look at acquiring higher-income properties, turning to its private equity owners or external investors for financing, one of the people said.</span></div></blockquote><div abp="380"><span style="font-family: Arial, Helvetica, sans-serif;">KKR closed on Samson in November 2011. Industry experts believe one of the reasons they overpaid is they used conventional oil and gas models that showed much longer production lives for each well. Yet by spring of 2012, there were reports in conventional media about how shale gas wells have short production lives. So how could KKR have missed this issue?</span></div><div abp="380"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="381"><span style="font-family: Arial, Helvetica, sans-serif;">In the new normal of lower energy prices, developers are apparently playing a game of chicken, hoping that competitors will cut production first. Dizard again:</span></div><blockquote abp="382"><div abp="383"><span style="font-family: Arial, Helvetica, sans-serif;">Particularly in the gas and natural gas liquids drilling directed sector, every operator (and their financier) is waiting for every other operator to stop or slow their drilling programmes, so there can be some recovery in the supply-demand balance. I have been hearing a lot of buzz about cutbacks in drilling budgets for 2015, but we will not really know until the companies begin to report in January and February. Then we will find out if they really are cutting back, using their profits on in-the-money hedge programmes to keep their debt under control, and taking impairment charges on properties that did not really pay off. </span></div></blockquote><blockquote abp="382"><div abp="384"><span style="font-family: Arial, Helvetica, sans-serif;">One gas-orientated industry man in Houston I know thinks that the banks are going to call a halt to the madness of permanent negative operating cash flows. “What is the timing of their borrowing base renegotiations (with the banks)? That is the most important thing; can they borrow more money?” If not, he believes drilling and producing on uneconomic terms will slow or stop, and with the high depletion rates of unconventional reserves, such as shale gas, supplies will fall and gas prices will rise.</span></div></blockquote><div abp="385"><span style="font-family: Arial, Helvetica, sans-serif;">In other words, if the industry doesn’t discipline itself, the money sources will. Or will it?</span></div><blockquote abp="386"><div abp="387"><span style="font-family: Arial, Helvetica, sans-serif;">If the bankers reduce the borrowing base for the E&P companies, there could be a lot of private equity or high-yield investors with covenant-light deals to offer who might take their place. Not to mention cash-rich majors who would like to take the billions they can no longer put into Russia or Venezuela, who would not mind picking up more North American properties on the cheap.</span></div></blockquote><div abp="388"><span style="font-family: Arial, Helvetica, sans-serif;">Although Dizard does not discuss the downside directly, he sets forth a fact pattern that could lead to some ugly ends. US shale gas production needs to get to $6 per mBtu or more for players who aren’t very leveraged to get to break-even cash flow; they hope to make more two to three years after that on presumably higher prices.</span></div><div abp="388"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="389"><span style="font-family: Arial, Helvetica, sans-serif;">But if super low interest rates keep money flowing into the shale bubble, another set of issues emerges: US production is set to considerably outstrip domestic uses:</span></div><blockquote abp="390"><div abp="391"><span style="font-family: Arial, Helvetica, sans-serif;">So much gas is being developed in the Marcellus and Utica resources of the northeastern US that it really cannot be absorbed by the US market. Suzanne Minter, manager of oil and gas consulting at Bentek in Denver points out: “Over the next five years, daily production in the US is forecast to grow by more than 16bn cubic feet per day, with about 10bcf of that coming from the northeast. Of that, at least 8.5bcf has to be exported. Domestic demand does not grow enough.”</span></div></blockquote><div abp="392"><span style="font-family: Arial, Helvetica, sans-serif;">That means a lot of infrastructure like pipelines and storage facilities needs to be built. But that requires regulatory approvals and possibly government intervention. And even then, with US shale gas production projected by the IEA to peak in 2020 and fall slowly over the next decade, this extraction boom is nowhere near as durable as development of conventional oil has proven to be. </span></div><div abp="392"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="393"><span style="font-family: Arial, Helvetica, sans-serif;">An additional question is whether investment in infrastructure will look attractive if fracking continues to be shown to have safety risks (water supply contamination, earthquakes). The New York Times just released <a abp="394" href="http://www.nytimes.com/interactive/2014/11/23/us/north-dakota-oil-boom-downside.html" rel="nofollow" target="_blank">an impressively-researched story on regulatory abuses in North Dakota.</a> It does not make for pretty reading. And if Dizard is right, that bottom-fishers swoop in to pick up producers gone bust, headlines about bankruptcies and distress are not conducive to downstream development. </span></div><div abp="393"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="395"><span style="font-family: Arial, Helvetica, sans-serif;">In other words, there’s a not-trivial possibility, as Dizard explains, that US production does not get throttled back much by falling oil prices, that the wall of money willing to invest in energy overcomes normal supply and demand factors. If that takes place, there could be a further leg down if US producers lack the capacity to send enough production overseas.</span></div><div abp="395"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;">Now remember, Dizard already warned that smaller E&P players were already overlevered. Some, perhaps many, lenders will take losses. Private equity bottom fisher-wannabes will also come in using other people’s money. But cheaper doesn’t necessarily mean cheap enough. Recall all the sovereign wealth funds that took equity stakes in banks in 2007 thinking they had gotten a good deal.</span></div><div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="397"><span style="font-family: Arial, Helvetica, sans-serif;">A reader points out that this all feels a lot like the last oil boom gone bad. I’m old enough to remember how pretty much every bank in Texas was sold as a result (and that helped speed the liberalization of interstate banking, since no one in state had the wherewithall to act as a rescuer). Via e-mail:</span></div><blockquote abp="398"><div abp="399"><span style="font-family: Arial, Helvetica, sans-serif;">This whole situation is very similar to the oil and gas boom of late 70′s and early 80′s. It was driven by letters of credit deals which were used to secure debt. A little bank called Penn Square Bank upstreamed those loans to Continental Illinois and Sea First in Seattle. All financed by debt and wells being drilled which were not economical. When the music stopped the debt came crumbling down taking down Continental and Sea First (two of the ten largest banks in the US) as well as many others. Many banks did not even know they were lending to oil and gas because they were lending on like real estate. Well when the oil and gas industry collapsed so did real estate. Practically every significant bank in Oklahoma and Texas failed due to this.</span></div></blockquote><div abp="400"><span style="font-family: Arial, Helvetica, sans-serif;">Is the Fed teeing up an even bigger energy boom and bust? Admittedly, several adverse scenarios have to play out in succession for the downside case to kick in. But the first one, of shale gas producers not cutting very much despite the plunge in energy prices, is already under way. One might peg the odds of a major levered energy bust at 20%. That’s still uncomfortably high for the amount of damage that would result.</span></div><div abp="400"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="400"><a href="http://www.nakedcapitalism.com/2014/11/who-will-wind-up-holding-the-bag-in-the-shale-gas-bubble.html"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com1tag:blogger.com,1999:blog-6482460317137763779.post-80648616316383226862014-11-25T02:19:00.000-08:002014-12-04T06:51:15.552-08:00Global Business Outlook “Darkest Picture Since Financial Crisis”<div abp="369"><span style="font-family: Arial, Helvetica, sans-serif;">The plunging price of oil since June has been a leading indicator: global economic growth is in trouble, despite six years of unprecedented central-bank free-money policies that caused asset prices to soar but has accomplished little else. This scenario has now been confirmed by businesses that help drive the economy forward – not by economists and Wall Street hype mongers: their outlook for the next 12 months has plummeted since June to the worst level since crisis year 2009.</span></div><div abp="369"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="370"><span style="font-family: Arial, Helvetica, sans-serif;">Business leaders are an optimistic bunch. Projecting a 12-month period that is worse than the past 12 months is frowned upon; because business leaders are <em abp="371">supposed</em> to make their business grow, even when it looks tough out there. They’ve been optimistic over the years, despite multiple recessions in the Eurozone, a slowdown in China, a quagmire in Japan, and disappointing growth in the US, where “escape velocity,” dangled out in front of our noses for five years, has become a figment of Wall Street imagination. Throughout, business optimism has been fairly strong, according to Markit’s Global Business Outlook, a survey taken in February, June, and October.</span></div><div abp="370"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="372"><span style="font-family: Arial, Helvetica, sans-serif;">But results from the <a abp="373" href="http://www.markiteconomics.com/Survey/PressRelease.mvc/d024afc20bff4c6380709df5a6490cc7" rel="nofollow" target="_blank">October survey</a>, released today, are a doozie. The number of businesses around the globe that expect activity to rise over the next 12 months exceeded the number expecting a decline by 28%, the worst in the survey history going back to 2009.</span></div><div abp="372"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="374"><span style="font-family: Arial, Helvetica, sans-serif;">This “net balance” was down from 39% in June. The peak of global business optimism in the survey’s history was in February 2011, when the net balance hit 48%. Manufacturing wasn’t that much of a problem; optimism fell “only” to the level of June 2013. But in the all-important service sector, by far the largest sector in most economies, optimism plunged to the lowest level in the survey’s history.</span></div><div abp="374"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="375"><span style="font-family: Arial, Helvetica, sans-serif;">It was all-around lousy. In the UK, where businesses were among the most upbeat, so to speak, optimism about future activity fell to the lowest level since June 2013. In the Eurozone, which has been battered by a series of apparently intractable problems, optimism dropped to the already low levels of June 2013. The big drags on optimism in the Eurozone were in the two largest economies, Germany and France.</span></div><div abp="375"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;">In France, the number of businesses expecting activity to rise over the next 12 months exceeded the number expecting a decline by only 12.6%. This was the second worst net balance of all countries in the survey. These businesses were the only ones in the survey projecting on average a cut in staffing levels. The report described the mood as “gloomy.”</span></div><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;">In Japan, optimism hit a two-year low and came to rest even below the low level in the Eurozone, as businesses “have become increasingly disillusioned” with Abenomics.</span></div><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="378"><span style="font-family: Arial, Helvetica, sans-serif;">In the emerging economies, business expectations about future activity plunged to new lows. While optimism edged up in China, it was barely off the near-record low in June. In India, it stagnated at low levels. In Brazil, optimism fell to match the previous record low. And Russia, oh my!</span></div><div abp="378"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;">Russian businesses have struggled with sanctions, the swooning ruble, the shrinking price of oil, high interest rates, and waning domestic demand. They’ve been cut off from crucial Western funding sources. And key partnerships with Western companies have been thrown into turmoil. So the number of Russian businesses expecting activity to rise exceeded the number expecting it to drop by a tiny 9.8% – the most pessimistic of any country in the survey.</span></div><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="380"><span style="font-family: Arial, Helvetica, sans-serif;">But the biggest hit on a global scale came from the largest economy, the US. While manufacturing businesses showed a decline in optimism, the big problem was the far larger service sector.</span></div><div abp="380"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="381"><span style="font-family: Arial, Helvetica, sans-serif;">The <a abp="382" href="http://www.markiteconomics.com/Survey/PressRelease.mvc/9d1dd1f5f7ac4cf99dfcad0c92b222c0" rel="nofollow" target="_blank">Flash Service PMI</a> for November, released today, hammered home the point: service sector growth slowed with nerve-wrecking consistency for the fifth month in a row, from its peak of 61 in June (above 50 denotes expansion) to 56 now. It was, the report said, a signal of “a sustained loss of momentum since the post-crisis peak seen in June.”</span></div><div abp="381"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="383"><span style="font-family: Arial, Helvetica, sans-serif;">And so the outlook of <a abp="384" href="http://www.markiteconomics.com/Survey/PressRelease.mvc/82391117a9c74d49aa0babf0da85423d" rel="nofollow" target="_blank">US companies</a> about future activity – “reflecting domestic concerns and a subdued external demand environment” – dropped to the worst level since the survey began in 2009. While hiring intentions remained positive, expectations for corporate profits fizzled, and the already weak link in the US economy, plans for capital expenditures, established a new post-crisis low.</span></div><div abp="383"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="385"><span style="font-family: Arial, Helvetica, sans-serif;">The net balance of US businesses expecting an increase in activity over the next 12 months plunged from 69% in February 2012, when post-crisis hopes of escape velocity were at their peak, and from 51.4% in June this year, to 31.2% now, the worst on record. While manufacturers were hanging in there, with a net balance of 42.5%, the all-important service sector saw its net balance descend to a new low of 28.9%.</span></div><div abp="385"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="386"><span style="font-family: Arial, Helvetica, sans-serif;">These businesses listed among their concerns “fragile global economic growth, heightened geopolitical risk, ‘Obamacare,’ domestic policy uncertainty, and strong competition for new work.”</span></div><div abp="386"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="387"><span style="font-family: Arial, Helvetica, sans-serif;">On a global basis, businesses in the survey had a “long list of worries,” including:</span></div><ul abp="388"><li abp="389"><span style="font-family: Arial, Helvetica, sans-serif;">Fears of a worsening global economic climate</span></li><li abp="390"><span style="font-family: Arial, Helvetica, sans-serif;">A renewed downturn in the Eurozone</span></li><li abp="391"><span style="font-family: Arial, Helvetica, sans-serif;">Prospect of higher interest rates in the UK and US</span></li><li abp="392"><span style="font-family: Arial, Helvetica, sans-serif;">Geopolitical risk from crises in Ukraine and the Middle East</span></li><li abp="393"><span style="font-family: Arial, Helvetica, sans-serif;">Growing political uncertainty in many countries, notably the US, UK and Japan.</span></li></ul><div abp="394"><span style="font-family: Arial, Helvetica, sans-serif;">“Clouds are gathering over the global economic outlook, presenting the darkest picture seen since the global financial crisis,” explained Markit Chief Economist Chris Williamson. “Companies’ hiring and investment intentions have both fallen to post-crisis lows alongside the bleakest outlook for future business activity seen over the past five years.” And the rapid deterioration in US business optimism and expansion plans was “of greatest concern.”</span></div><div abp="394"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="395"><span style="font-family: Arial, Helvetica, sans-serif;">The plunge in business outlook since June parallels the plunge in the price of oil, indicating that businesses expect a tough slog going forward, even in the US, the engine, presumably, of global economic growth. None of this, nor anything else other than central-bank jawboning and the continued flood of free money, seems to have any impact on the stock markets where the shares of these increasingly gloomy companies are being traded at record high prices.</span></div><div abp="395"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;"><em abp="397">But even as big money is gushing from all directions at US startups, there are new – and in my opinion, hilarious – indications that the resulting excesses are hitting limits. Read… <a abp="398" href="http://wolfstreet.com/2014/11/21/startup-bubble-resorts-to-um-sexy-junk-mail-to-disrupt/" rel="nofollow" target="_blank">This Is a Sign the Startup Bubble Is Totally Maxed Out: It Resorts to (um, Sexy) Junk Mail to Disrupt</a>.</em><a abp="399" href="http://wolfstreet.com/2014/11/21/startup-bubble-resorts-to-um-sexy-junk-mail-to-disrupt/" rel="nofollow" target="_blank"></a></span></div><div abp="396"><em abp="397"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></em></div><div abp="396"><span abp="397"><a href="http://www.nakedcapitalism.com/2014/11/wolf-richter-global-business-outlook-darkest-picture-since-financial-crisis.html"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></span></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com1tag:blogger.com,1999:blog-6482460317137763779.post-54849626712882069522014-11-24T02:02:00.000-08:002014-12-04T06:51:15.566-08:00American CEOs Sum Up The Economic Outlook: "Softness, Stagnant, Cautious, Challenging"<div abp="324"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="325">Since May, CEO confidence among America's largest companies had stagnated</strong> - even as stocks did what they do and rise, rise, rise. That changed when Bullard (now explained as "misunderstood" by the market) set fire to stocks with his QE4 hints and Plunge Protection Team rescue. However, the last 2 weeks have seen a noticable collapse once again in CEO confidence, according to Bloomberg's Orange Book index, even as stocks reach new higher all-time-er highs. As Bloomberg's Rich Yamarone notes, recent earnings calls highlight the headwinds companies face: <strong abp="326"><em abp="327">Executives cite “softness in consumer spending,” a “challenging” climate, “fairly stagnant economy,” and “cautious” optimism. Currency valuations are front and center.</em></strong></span></div><div abp="328"><br /></div><div abp="329"><span style="font-family: Arial, Helvetica, sans-serif;">Quite a drop from the kneejerk exuberane after Bullard...</span></div><div abp="329"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/11-overflow/20141122_confidence_0.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/11-overflow/20141122_confidence_0.jpg" height="208" width="400" /></a></div><div abp="329"><br /></div><div abp="329"></div><blockquote abp="335"><div abp="336" class="quote_start"><div abp="337"></div></div></blockquote><br /><div abp="334">As these CEOs suggest:</div><div abp="334"><br /></div><div abp="340"><span abp="341" style="text-decoration: underline;"><strong abp="342">Harley-Davidson </strong></span>[HOG] Earnings Call 10/21/14: “Foreign currency exchange was $11.5 million unfavorable for the quarter. This was driven by significant weakening of our key currencies within the third quarter. The euro, yen, Brazilian real and Australian dollar devalued an average of approximately 7 percent from the beginning to the end of the quarter. This resulted in an <strong abp="343">unfavorable revaluation of foreign-denominated assets on the balance sheet</strong>.”</div><div abp="344"><br /></div><div abp="345"><span abp="346" style="text-decoration: underline;"><strong abp="347">McDonald’s</strong></span> [MCD] Earnings Call 10/21/14: “For 2014, we see <strong abp="348">continued pressure</strong> in the fourth quarter, reflecting on the factors that were impacting the third quarter. The biggest factor driving the U.S. decline vis-à-vis the decline in the second quarter was less pricing. And so we would expect less pricing to still be a factor in the fourth quarter as well as the 3 percent commodity increase. Those were the two biggest factors driving this quarter and, as best we see it now, will impact the fourth quarter as well.”</div><div abp="349"><br /></div><div abp="350"><span abp="351" style="text-decoration: underline;"><strong abp="352">Brinker International</strong></span> [EAT] Earnings Call 10/21/14: “Our franchise business, our U.S. com sales were up 1.7 percent. Domestic Chili's franchises continue to align with our sales-driving initiatives and deliver a consistent Chili's experience for our guests. Our international franchise comp sales were down 0.5 percent, driven by soft sales in Puerto Rico. <strong abp="353">The economy there is struggling right now</strong>.” </div><div abp="354"><br /></div><div abp="355"><span abp="356" style="text-decoration: underline;"><strong abp="357">Coca-Cola</strong></span> [KO] Earnings Call 10/21/14: “We <strong abp="358">continue to face a challenging macro environment, more challenging than was expected when we started the year</strong>. In many of our key emerging markets, we see <strong abp="359">deteriorating economic environments</strong>, coupled with the continued softness in consumer spending in the U.S. and particularly in Japan and Europe. This is placing strong pressure on the short-term performance of our business.”</div><div abp="360"><br /></div><div abp="361"><span abp="362" style="text-decoration: underline;"><strong abp="363">Kimberly-Clark </strong></span>[KMB] Earnings Call 10/21/14: “In the quarter, we had <strong abp="364">negative away-from-home price in KCP in North Americ</strong>a, and so we’re seeing some price erosion on the low end of that business, and so any net price gain has been pretty minimal at this point in time. And I think we’re seeing a <strong abp="365">fairly stagnant economy is probably not helping much on that front</strong>.”</div><div abp="366"><br /></div><div abp="367"><strong abp="368"><span abp="369" style="text-decoration: underline;">A.O. Smith </span></strong>[AOS] Earnings Call 10/21/14: “We are<strong abp="370"> cautiously optimistic </strong>about the developing recovery in U.S. housing and the strength in demand for commercial water heaters, driven by replacement and retrofit activity. We successfully implemented a mid single-digit price increase for wholesale water heaters in May, related to higher steel prices and inflation of other costs.”</div><div abp="371"><br /></div><div abp="372"><span abp="373" style="text-decoration: underline;"><strong abp="374">Illinois Tool Works</strong></span> [ITW] Earnings Call 10/21/14: “Our Construction business in North America [has] been bouncing around. Quarter-to-quarter, it's up a little, down a little, and I think we're still waiting for some traction overall. There's a fair amount of good progress we're making inside the business on the margin front, but from an overall demand standpoint, I think we're <strong abp="375">still not seeing any consistent trends, whether it's housing starts or commercial construction activity."</strong></div><div abp="372"><strong abp="375"><br /></strong></div><div abp="372"><span abp="375"><a href="http://www.zerohedge.com/news/2014-11-23/american-ceos-sum-economic-outlook-softness-stagnant-cautious-challenging">Source</a></span></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-91575226851057178352014-11-21T03:30:00.000-08:002014-12-04T06:51:15.620-08:00Wall Street Stunned As Iceland Dares To Jail Banker Involved In 2008 Crash<span style="font-family: Arial, Helvetica, sans-serif;"><em abp="315">The impossible is possible. Never say never.</em> Wall Street bankers are staring agog at headlines coming from Europe where, <strong abp="316">in Iceland, the former chief executive of one of the largest banks in the country which was involved in crashing the economy in 2008 <span abp="317" style="text-decoration: underline;">has been sentenced to jail time</span></strong>. <a abp="318" href="http://www.valuewalk.com/2014/11/iceland-banker-jail/">As Valuewalk reports,</a> in receiving a one year prison sentence, Sigurjon Arnason officially became the first bank executive to be convicted of manipulating the bank’s stock price and deceiving investors, creditors and the authorities between Sept. 29 and Oct. 3, 2008, as the bank’s fortunes unwound, crashing the economy with it. It appears he was as shocked by the verdict as Wall Street-ers are, <strong abp="319"><em abp="320">"this sentence is a big surprise to me as I did nothing wrong."</em></strong> It was likely all for the people's own good...</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><br /><div abp="326"><a abp="327" href="http://www.valuewalk.com/2014/11/iceland-banker-jail/"><em abp="328"><span style="font-family: Arial, Helvetica, sans-serif;">Via ValueWalk,</span></em></a></div><blockquote abp="329"><div abp="330" class="quote_start"><div abp="331"></div></div><div abp="332" class="quote_end"><div abp="333"></div></div><div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;">Some thought it would never happen. <strong abp="335">But in Iceland, the former chief executive of one of the largest banks in the country which was involved in crashing the economy in 2008 has been sentenced to jail time.</strong></span></div><div abp="336"><br /></div><div abp="337"><strong abp="338"><span style="font-family: Arial, Helvetica, sans-serif;">Iceland banker the first to manipulate bank’s stock price</span></strong></div><div abp="339"><br /></div><div abp="340"><span style="font-family: Arial, Helvetica, sans-serif;">In receiving a one year prison sentence, Sigurjon Arnason officially became the <strong abp="341">first bank executive to be convicted of manipulating the bank’s stock price and deceiving investors, creditors and the authorities between Sept. 29 and Oct. 3, 2008, as the bank’s fortunes unwound, crashing the economy with it.</strong> Landsbanki was one of three banks that had tallied nearly $75 billion in debt before the final curtain was drawn.</span></div><div abp="342"><br /></div><div abp="343"><span style="font-family: Arial, Helvetica, sans-serif;">What, me guilty? was the bank executive’s response upon learning of his fate. <span abp="344" style="text-decoration: underline;"><strong abp="345">“This sentence is a big surprise to me as I did not nothing wrong,” </strong></span>Arnason was quoted as saying in a Reuters article after he learned of his punishment. Amason had not decided if he was going to appeal the decision to the supreme court, as the appeal process might take longer than his sentence.</span></div><div abp="346"><br /></div><div abp="347"><strong abp="348"><span style="font-family: Arial, Helvetica, sans-serif;">Other Iceland bank executives also convicted</span></strong></div><div abp="349"><br /></div><div abp="350"><span style="font-family: Arial, Helvetica, sans-serif;">The Reykjavik District Court had lopped off nine months of Arnason’s sentence, saying they were suspended. <strong abp="351">Other bank executives involved in the situation were convicted: Ivar Gudjonsson, the former director of proprietary trading at the bank, along with Julius Heidarsson, a former broker at the bank. They each received nine-month sentences and six of those nine months were immediately suspended by the court.</strong></span></div><div abp="352"><br /></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;"><span abp="354" style="text-decoration: underline;"><strong abp="355">All pleaded innocent to the charges,</strong></span> as the the fallout from the 2008 crisis continues to this day in the north Atlantic island and around the world. As a sign of thawing in the crisis, Reuters reported that earlier in the week Landsbanki, the successor to the failed Landsbankinn, agreed to extend a deadline to restructure bonds to the end of the year. If a bond restructuring agreement is reached, it could help the government lift capital controls which were imposed due to the crisis.</span></div></blockquote><div abp="356"><span style="font-family: Arial, Helvetica, sans-serif;">It appears he needs to 'donate' more to the nation's leaders.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.zerohedge.com/news/2014-11-20/wall-street-stunned-iceland-dares-jail-banker-involved-2008-crash">Source</a></span></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-90338950673593559132014-11-20T03:07:00.000-08:002014-12-04T06:51:15.636-08:00Exposing More Super Secret Private Equity Limited Partnership Agreements<div abp="362"><span style="font-family: Arial, Helvetica, sans-serif;">Private equity fund managers keep insisting that private equity limited partnership agreements need to remain confidential or their businesses will suffer irreparable harm. We’ve already shown that claim to be ludicrous.</span></div><div abp="362"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="363"><span style="font-family: Arial, Helvetica, sans-serif;">We published a dozen of these supposedly sacrosanct documents at the end of May. They had been accidentally made public by the Pennsylvania Treasury, but no one seemed to have noticed. They included <a abp="364" href="http://naked-capitalism.com/document-trove.html" rel="nofollow" target="_blank">funds of major industry players such as KKR, TPG, and Cerberus</a>. Yet miraculously, they sky has not fallen in on their businesses as a result of the release of this information. We have obtained ten more limited partnership agreements from a source authorized to receive them who is not bound by a confidentiality agreement. These include limited partnership agreements from Blackstone, Oak Hill, and New Mountain, as well as smaller players. You can see all these limited partnership agreements <a abp="365" href="http://naked-capitalism.com/document-trove.html" rel="nofollow" target="_blank">here</a>.</span></div><div abp="363"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;">There is a vital public interest in having this information in the open. Public pension funds, which are government bodies, are the biggest single group of investors in private equity, representing roughly 25% of total industry assets. Yet private equity limited partnership agreements are the only contracts at the state and local government level that are systematically shielded from public scrutiny, through state legislation or favorable state attorney opinions.</span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="367"><span style="font-family: Arial, Helvetica, sans-serif;">Yet in countries less captured by rampant free market ideology and private equity political donations, a revolt is underway against this secrecy regime. <a abp="368" href="http://www.nakedcapitalism.com/2014/10/revolt-starting-in-uk-over-private-equity-fee-secrecy.html">As the Financial Times reported</a>:</span></div><blockquote abp="369"><div abp="370"><span style="font-family: Arial, Helvetica, sans-serif;">Anger has erupted over the practice of asset managers coercing pension funds into signing non-disclosure agreements. Pension schemes argue it is uncompetitive and prevents them from securing the best deals for their members. </span></div></blockquote><blockquote abp="369"><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;">The imposition of confidentiality agreements means pension funds are not able to compare how much they are being charged by fund managers, potentially exposing them and their scheme members to unnecessarily high fees. </span></div></blockquote><blockquote abp="369"><div abp="372"><span style="font-family: Arial, Helvetica, sans-serif;">The practice is of particular concern with respect to public sector pension plans, which are effectively funded by the taxpayer. </span></div></blockquote><blockquote abp="369"><div abp="373"><span style="font-family: Arial, Helvetica, sans-serif;">David Blake, director of the Pensions Institute at Cass Business School in London, said: “Local authorities are not allowed to compare fee deals, and that is an outrage. It should be made illegal that fund managers demand an investment mandate is confidential.”</span></div></blockquote><div abp="374"><span style="font-family: Arial, Helvetica, sans-serif;">How do private equity kingpins justify their extreme demands for confidentiality, their assertion that limited partnership agreements in their entirety are trade secrets? Consider this “we’ll fight them on the beaches” argument from this Monday’s Private Fund Management, that if general partners, meaning the private equity funds, are forced to divulge fees, they’ll eventually have to expose more of the limited partnership agreement. And of course they claim that would do them competitive harm:</span></div><blockquote abp="375"><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;">It’s impossible to have a debate about public pension plans disclosing their fee payments without first acknowledging why GPs want them kept private in the first place…</span> </div></blockquote><blockquote abp="375"><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;">In this context, GPs are being portrayed as secretive and heavy-handed. But so far, what hasn’t been addressed properly is why GPs are apparently so keen to prevent fee receipts from entering the public domain in the first place. </span></div></blockquote><blockquote abp="375"><div abp="378"><span style="font-family: Arial, Helvetica, sans-serif;">Speaking to pfm off the record, no manager has ever told us that they consider management fees a vital trade secret. No one has defended the idea that disclosing them can make or break a firm. </span></div></blockquote><blockquote abp="375"><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;">What we are hearing instead is that GPs perceive the fee debate as a proxy battle for disclosing other data that really are sensitive to the firm’s ability to do business, such as the finer points of their investment strategies, key man clauses and the like. All these things are documented in the LPA, and if the LPA can no longer be subjected to non-disclosure, then sooner or later demands will be made to publish other types of fund-specific information also.</span></div></blockquote><div abp="380"><span style="font-family: Arial, Helvetica, sans-serif;">We pointed out when we released our initial round of limited partnership agreements that in fact, when you looked at the sections the general partners again and again cited as being hugely sensitive, there’s in fact nothing deserving of special handling:</span></div><blockquote abp="381"><div abp="382"><span style="font-family: Arial, Helvetica, sans-serif;">For decades, private equity (PE) firms have asserted that limited partnership agreements (LPAs), the contracts between themselves and investors, should be treated in their <em abp="383"><strong abp="384">entirety </strong></em>as trade secrets, and therefore not subject to disclosure under Freedom of Information Act laws in any jurisdiction. These private equity general partners argued that the information in their contracts was so sensitive that it needed to be shielded from competitors’ eyes, otherwise their unique, critically important know-how would be appropriated and used against them. In particular, PE firms have made frequent, forceful claims that their limited partnership agreements provide valuable insight into their investment strategies. The industry took the position that these documents were as valuable to them as the formula for Coca-Cola or the schematics for Intel’s next microprocessor chip. </span></div></blockquote><blockquote abp="381"><div abp="385"><span style="font-family: Arial, Helvetica, sans-serif;">Now that we can look at the actual language in limited partnership agreements, we can see what any sophisticated user of legal instruments would guess: the PE firm lawyers describe the strategy in the broadest, most general terms to give the private equity fund as much latitude as possible. For example, here is the investment strategy language from the KKR 2006 Fund:</span></div><blockquote abp="386"><div abp="387"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="388">2.1 Objectives</strong> The objective and policy of the Partnership are to invest in (i) Securities of Persons formed to effect or which are the subject of management buyouts or build-ups sponsored by the General Partner or any Affiliate thereof and (ii) Securities of Persons the investment in which the General Partner reasonably expects to generate a return on investment commensurate with the returns typically achieved in previous KKR-sponsored buyouts, build-ups and growth equity investments.</span></div></blockquote><div abp="389"><span style="font-family: Arial, Helvetica, sans-serif;">Claiming this statement is a trade secret is analogous to the U.S. Navy claiming classified status for the fact that it operates ships on oceans. </span></div></blockquote><blockquote abp="381"><div abp="390"><span style="font-family: Arial, Helvetica, sans-serif;">Moreover, if you read the balance of section 2.1 (“Objectives”), you see that that most of the remainder of the paragraph deals with the goal of tax avoidance, with 195 words in the paragraph dedicated to this issue. When KKR claims the limited partnership agreement is a trade secret, it’s not hard to surmise that these tax games are a big part of what they are really trying to hide. But now that we can look across a series of limited partnership agreements, it’s clear that the tax strategies are highly parallel across funds. To the extent that there is anything distinctive, it’s in minor details relating to the implementation of the tax scheme, and not its objective or design… </span></div></blockquote><blockquote abp="381"><div abp="391"><span style="font-family: Arial, Helvetica, sans-serif;">Key person terms are another provision of LPAs that PE firms have asserted rise to trade secret status. The idea behind a “key person” provision is that certain individuals are critical achieving the sought-after investment returns and the investors thus depend on their expertise and experience. The agreements provide that if any of these “key persons” depart or otherwise can no longer work for the private equity firm, the limited partners can stop contributing capital to a fund or even force its dissolution. </span></div></blockquote><blockquote abp="381"><div abp="392"><span style="font-family: Arial, Helvetica, sans-serif;">Let’s look at Milestone Partners IV, where in section 3.2(h), you can see that both John P. Shoemaker and W. Scott Warren are defined as the sole “key persons”. Are we supposed to be surprised by this? Both Shoemaker and Warren are described on the firm’s website as Milestone’s sole managing partners. So there is nothing really a secret about this either, nor is it easy to see how disclosure of Shoemaker’s and Warren’s key person designation, even if it were previously a secret, would hurt Milestone upon disclosure.</span></div></blockquote><div abp="393"><span style="font-family: Arial, Helvetica, sans-serif;">We see more of the same, the absence of any specific or sensitive detail regarding investment strategies in this new round of limited partnership agreements. In fact, you’d expect, just like the “Use of Proceeds” section in a public securities offering, for the investment strategies to be described in the most vague and general terms possible so as to give the general partner maximum flexibility in executing his mandate. And that’s what you see again and again. For instance, from Oak Hill Capital Partners III:</span></div><blockquote abp="394"><div abp="395"><span style="font-family: Arial, Helvetica, sans-serif;"><span abp="396" style="text-decoration: underline;">Purpose</span>. The Partnership is organized for the purposes described in the Confidential Private Placement Memorandum of the Partnership, including: making investments; owning, managing, supervising and disposing of such investments; sharing the profits and losses therefrom and engaging in activities incidental or ancillary thereto; and engaging in any other lawful acts or activities consistent with the foregoing for which limited partnerships may be organized under the Partnership Law. The purposes of the Partnership may be carried out through activities conducted by the Partnership or through investments in corporations or any other Person, or participation therein, organized and conducted in the United States or elsewhere.</span></div></blockquote><div abp="397"><span style="font-family: Arial, Helvetica, sans-serif;">And this is the language from Blackstone V:</span></div><blockquote abp="398"><div abp="399"><span style="font-family: Arial, Helvetica, sans-serif;"><span abp="400" style="text-decoration: underline;">Purpose</span>. Subject to the express limitations set forth herein, the principal purpose of the Partnership is to seek out opportunities for investment utilizing the investment skills of the General Partner and the Advisor and that are generally consistent with the purposes and objectives set forth in the Offering Memorandum. </span></div></blockquote><blockquote abp="398"><div abp="401"><span style="font-family: Arial, Helvetica, sans-serif;">Specific activities permitted are committing capital to acquisitions, dispositions,<br abp="402" /> restructurings, workouts, management acquisitions, private equity investments and any other situations deemed appropriate by the Advisor without restriction thereon, except as expressly set forth herein (“<span abp="404" style="text-decoration: underline;">Investments</span>“).</span></div></blockquote><div abp="405"><span style="font-family: Arial, Helvetica, sans-serif;">Amusingly, the definition of Investments (which is what the underline is meant to signify) refers back to the very same section, 2.4, for the meaning:</span></div><blockquote abp="406"><div abp="407"><span style="font-family: Arial, Helvetica, sans-serif;">“Investment” shall have the meaning specified in paragraph 2.4, and when the<br abp="408" /> context requires, that portion thereof allocated to BCOM as provided in paragraph 3.9 or as otherwise set forth in Article Five.</span></div></blockquote><div abp="410"><span style="font-family: Arial, Helvetica, sans-serif;">Without going into mind-numbing details, Section 3.9 doesn’t give any secret sauce about how Blackstone might compete in the marketplace (as in find or do deals) but instead the financial arrangements relating the rights Blackstone has in managing this fund related to competing fund of its own, Blackstone Communications I, and other parallel investments. The section is impressively difficult to parse. Article Five is the section on rights and duties of the general partner, with a strong emphasis on rights. </span></div><div abp="410"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="411"><span style="font-family: Arial, Helvetica, sans-serif;">Similarly, Blackstone names only Steve Schwartzman and Hamilton James as key men; it also states that if a majority of the other unnamed Senior Managing Directors as of the closing date become incapacitated or “cease to devote the time required by paragraph 5.3.1….” the limited partners must be notified of a Key Man Event. The notion that Steve Schwartzman and Hamilton James are important to Blackstone hardly constitutes a state secret, and the document avoided naming any of the other Senior Managing Directors.</span></div><div abp="411"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="412"><span style="font-family: Arial, Helvetica, sans-serif;">In fact, as we’ve stressed, what the industry does not want to see is other critical provisions of these documents, which we and the media have only started to dig into. Those include the extensive and often impenetrable tax provisions, the egregious indemnification agreements, the waiver of fiduciary duty, weak oversight provisions for limited partners, and lack of adequate disclosure of performance and all expenses and fees paid to general partners by portfolio companies. </span></div><div abp="412"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="413"><span style="font-family: Arial, Helvetica, sans-serif;">There’s good reason for the general partners to want to keep these contracts secret. They don’t reflect well on them or on their captured investors.</span></div><div abp="413"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="414"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="415">Update </strong>9:00 AM: An alert reader e-mailed us with more confirmation of how absurd it is for private equity funds to claim that their limited partnership agreements contain competitively valuable information. This section from <a abp="416" href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1762840" rel="nofollow" target="_blank">a 2011 paper by Peter Morris and Ludovic Philappou of Said Business School</a> refers to another type of information that private equity firms insist much remain secret, namely portfolio company financial results. However the same logic applies to the issues we raised:</span></div><blockquote abp="417"><div abp="418"><span style="font-family: Arial, Helvetica, sans-serif;">A second objection [by GPs to improved disclosure] might be competitive disadvantage. Private equity firms might suggest that this kind of disclosure would involve giving away valuable trade secrets. This is disingenuous: it misrepresents what private equity does, and the nature of the information involved. </span></div></blockquote><blockquote abp="417"><div abp="420"><span style="font-family: Arial, Helvetica, sans-serif;">Success in private equity does not depend on a simple, repeatable formula, like the recipe for Coca Cola. [emphasis added] Private equity firms try to run companies better by improving their governance. Governance involves qualitative issues like organisational structure, hiring decisions, leadership and internal incentives. Historic financial reports reveal nothing significant about what those decisions were or how they were implemented; all they reveal is the financial outcome. It follows that when a private equity firm discloses historic financial results of an individual portfolio company or a fund as a whole, in the way we suggest, it runs no risk of disclosing any proprietary trade secrets. We fail to see how reporting the information we propose creates any real competitive disadvantage. Buyouts which file public quarterly reports with the SEC or elsewhere do not seem to have suffered as a result.</span></div></blockquote><span style="font-family: Arial, Helvetica, sans-serif;"><a href="http://www.nakedcapitalism.com/2014/11/launching-super-secret-private-equity-limited-partnership-agreements.html">Source</a> </span>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-36019575662634390422014-11-19T02:04:00.000-08:002014-12-04T06:51:15.709-08:003 Of The 10 Largest Economies In The World Have Already Fallen Into Recession – Is The U.S. Next?<div abp="313"><span style="font-family: Arial, Helvetica, sans-serif;">Are you waiting for the next major wave of the global economic collapse to strike? Well, you might want to start paying attention again. Three of the ten largest economies on the planet have already fallen into recession, and there are very serious warning signs coming from several other global economic powerhouses. Things are already so bad that British Prime Minister David Cameron is comparing the current state of affairs to the horrific financial crisis of 2008. In an article for the Guardian <a abp="316" href="http://www.theguardian.com/commentisfree/2014/nov/16/red-lights-global-economy-david-cameron" target="_blank" title="that was published on Monday">that was published on Monday</a>, he delivered the following sobering warning: “Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy.” For the leader of the nation with the 6th largest economy in the world to make such a statement is more than a little bit concerning.</span></div><div abp="313"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="317"><span style="font-family: Arial, Helvetica, sans-serif;">So why is Cameron freaking out?</span></div><div abp="317"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="318"><span style="font-family: Arial, Helvetica, sans-serif;">Well, just consider what is going on in Japan. The economy of Japan is the 3rd largest on the entire planet, and it is <a abp="319" href="http://theeconomiccollapseblog.com/archives/its-currency-war-and-japan-has-fired-the-first-shot" title="a total basket case">a total basket case</a> at this point. Many believe that the Japanese will be on the leading edge of the next great global economic crisis, and that is why it is so alarming that Japan has just dipped into recession again <a abp="320" href="http://www.nytimes.com/2014/11/17/business/international/defying-expectations-japans-economy-shrinks-further.html" target="_blank" title="for the fourth time in six years">for the fourth time in six years</a>…</span></div><blockquote abp="321"><div abp="322"><span style="font-family: Arial, Helvetica, sans-serif;">Japan’s economy unexpectedly fell into recession in the third quarter, a painful slump that called into question efforts by Prime Minister Shinzo Abe to pull the country out of nearly two decades of deflation. </span></div></blockquote><blockquote abp="321"><div abp="323"><span style="font-family: Arial, Helvetica, sans-serif;">The second consecutive quarterly decline in gross domestic product could upend Japan’s political landscape. Mr. Abe is considering dissolving Parliament and calling fresh elections, people close to him say, and Monday’s economic report is seen as critical to his decision, which is widely expected to come this week.</span></div></blockquote><div abp="324"><span style="font-family: Arial, Helvetica, sans-serif;">Of course Japan is far from alone.</span></div><div abp="324"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="325"><span style="font-family: Arial, Helvetica, sans-serif;">Brazil has the 7th largest economy on the globe, and it has already been <a abp="326" href="http://www.reuters.com/article/2014/11/14/brazil-economy-employment-idUSL2N0T40WX20141114" target="_blank" title="in recession">in recession</a> for quite a few months.</span></div><div abp="325"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="327"><span style="font-family: Arial, Helvetica, sans-serif;">And the problems that the national oil company is currently experiencing <a abp="328" href="http://www.businessinsider.com/petrobras-is-brazils-shame-2014-11" target="_blank" title="certainly are not helping matters">certainly are not helping matters</a>…</span></div><blockquote abp="329"><div abp="330"><span style="font-family: Arial, Helvetica, sans-serif;">In the past five days, 23 powerful Brazilians have been arrested, with even more warrants still outstanding. </span></div></blockquote><blockquote abp="329"><div abp="331"><span style="font-family: Arial, Helvetica, sans-serif;">The country’s stock market has become a whipsaw, and its currency, the real, has hit a nine-year low. </span></div></blockquote><blockquote abp="329"><div abp="332"><span style="font-family: Arial, Helvetica, sans-serif;">All of this is due to a far-reaching corruption scandal at one massive company, Petrobras.</span> </div></blockquote><blockquote abp="329"><div abp="333"><span style="font-family: Arial, Helvetica, sans-serif;">In the last month the company’s stock has fallen by 35%.</span></div></blockquote><div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;">The 9th largest economy in the world, Italy, <a abp="335" href="http://www.businessinsider.com/italy-gdp-q3-nov-14-2014-2014-11" target="_blank" title="has also fallen into recession">has also fallen into recession</a>…</span></div><blockquote abp="336"><div abp="337"><span style="font-family: Arial, Helvetica, sans-serif;">Italian GDP dropped another 0.1% in the third quarter, as expected. </span></div></blockquote><blockquote abp="336"><div abp="338"><span style="font-family: Arial, Helvetica, sans-serif;">That’s following a 0.2% drop in Q2 and another 0.1% decline in Q1, capping nine months of recession for Europe’s third-largest economy.</span></div></blockquote><div abp="339"><span style="font-family: Arial, Helvetica, sans-serif;">Like Japan, there is no easy way out for Italy. A rapidly aging population coupled with a debt to GDP ratio of more than 132 percent is a toxic combination. Italy needs to find a way to be productive once again, and that does not happen overnight.</span></div><div abp="339"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="340"><span style="font-family: Arial, Helvetica, sans-serif;">Meanwhile, much of the rest of Europe is currently mired in depression-like conditions. The official unemployment numbers in some of the larger nations on the continent are absolutely eye-popping. The following list of unemployment figures comes from <a abp="341" href="http://theeconomiccollapseblog.com/archives/the-economy-of-the-largest-superpower-on-the-planet-is-collapsing-right-now" title="one of my previous articles">one of my previous articles</a>…</span></div><div abp="340"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="342"><span style="font-family: Arial, Helvetica, sans-serif;">France: 10.2%</span></div><div abp="342"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="343"><span style="font-family: Arial, Helvetica, sans-serif;">Poland: 11.5%</span></div><div abp="343"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="344"><span style="font-family: Arial, Helvetica, sans-serif;">Italy: 12.6%</span></div><div abp="344"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="345"><span style="font-family: Arial, Helvetica, sans-serif;">Portugal: 13.1%</span></div><div abp="345"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;">Spain: 23.6%</span></div><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;">Greece: 26.4%</span></div><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="348"><span style="font-family: Arial, Helvetica, sans-serif;">Are you starting to get the picture?</span></div><div abp="348"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="349"><span style="font-family: Arial, Helvetica, sans-serif;">The world is facing some real economic problems.</span></div><div abp="349"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="350"><span style="font-family: Arial, Helvetica, sans-serif;">Another traditionally strong economic power that is suddenly dealing with adversity is Israel.</span></div><div abp="351"><span style="font-family: Arial, Helvetica, sans-serif;">In fact, the economy of Israel is shrinking <a abp="352" href="http://themostimportantnews.com/archives/israel-economy-shrinks-for-first-time-in-more-than-5-years" target="_blank" title="for the first time since 2009">for the first time since 2009</a>…</span></div><blockquote abp="353"><div abp="354"><span style="font-family: Arial, Helvetica, sans-serif;">Israel’s economy contracted for the first time in more than five years in the third quarter, as growth was hit by the effects of a war with Islamist militants in Gaza. </span></div></blockquote><blockquote abp="353"><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;">Gross domestic product fell 0.4 percent in the July-September period, the Central Bureau of Statistics said on Sunday. It was the first quarterly decline since a 0.2 percent drop in the first three months of 2009, at the outset of the global financial crisis.</span></div></blockquote><div abp="356"><span style="font-family: Arial, Helvetica, sans-serif;">And needless to say, U.S. economic sanctions have hit Russia pretty hard.</span></div><div abp="356"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="357"><span style="font-family: Arial, Helvetica, sans-serif;">The rouble has been plummeting <a abp="358" href="https://www.google.com/#q=russian+rouble" target="_blank" title="like a rock">like a rock</a>, and the Russian government is preparing for a <a abp="359" href="http://www.bloomberg.com/news/2014-11-14/putin-says-russia-preparing-for-catastrophic-oil-slump.html" target="_blank" title="“catastrophic”">“catastrophic”</a> decline in oil prices…</span></div><blockquote abp="360"><div abp="361"><span style="font-family: Arial, Helvetica, sans-serif;">President Vladimir Putin said Russia’s economy, battered by sanctions and a collapsing currency, faces a potential “catastrophic” slump in oil prices. </span></div></blockquote><blockquote abp="360"><div abp="362"><span style="font-family: Arial, Helvetica, sans-serif;">Such a scenario is “entirely possible, and we admit it,” Putin told the state-run Tass news service before attending this weekend’s Group of 20 summit in Brisbane, Australia, according to a transcript e-mailed by the Kremlin today. Russia’s reserves, at more than $400 billion, would allow the country to weather such a turn of events, he said.</span> </div></blockquote><blockquote abp="360"><div abp="363"><span style="font-family: Arial, Helvetica, sans-serif;">Crude prices have fallen by almost a third this year, undercutting the economy in Russia, the world’s largest energy exporter.</span></div></blockquote><div abp="364"><span style="font-family: Arial, Helvetica, sans-serif;">It is being reported that Russian President Vladimir Putin has been <a abp="365" href="http://themostimportantnews.com/archives/vladimir-putin-is-hoarding-gold-to-prepare-for-economic-war" target="_blank" title="hoarding gold">hoarding gold</a> in anticipation of a full-blown global economic war.</span></div><div abp="364"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;">I think that will end up being a very wise decision on his part.</span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="367"><span style="font-family: Arial, Helvetica, sans-serif;">Despite all of this global chaos, things are still pretty stable in the United States for the moment. The stock market keeps setting new all-time highs and much of the country is preparing for an orgy of Christmas shopping.</span></div><div abp="367"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="368"><span style="font-family: Arial, Helvetica, sans-serif;">Unfortunately, the number of children that won’t even have a roof to sleep under this holiday season just continues to grow.</span></div><div abp="368"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="369"><span style="font-family: Arial, Helvetica, sans-serif;">A stunning report that was <a abp="370" href="http://www.homelesschildrenamerica.org/mediadocs/280.pdf" target="_blank" title="just released">just released</a> by the National Center on Family Homelessness says that the number of homeless children in America has soared to an astounding 2.5 million.</span></div><div abp="369"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;">That means that approximately one out of every 30 children in the United States is homeless.</span></div><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="372"><span style="font-family: Arial, Helvetica, sans-serif;">Let that number sink in for a moment as you read more about this new report <a abp="373" href="http://www.washingtonpost.com/business/economy/child-homelessness-in-us-hit-all-time-high-in-recent-years-new-report-says/2014/11/16/5ffa5324-6dd5-11e4-8808-afaa1e3a33ef_story.html" target="_blank" title="from the Washington Post">from the Washington Post</a>…</span></div><blockquote abp="374"><div abp="375"><span style="font-family: Arial, Helvetica, sans-serif;">The number of homeless children in the United States has surged in recent years to an all-time high, amounting to one child in every 30, according to a comprehensive state-by-state report that blames the nation’s high poverty rate, the lack of affordable housing and the effects of pervasive domestic violence. </span></div></blockquote><blockquote abp="374"><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;">Titled “America’s Youngest Outcasts,” the report being issued Monday by the National Center on Family Homelessness calculates that nearly 2.5 million American children were homeless at some point in 2013. The number is based on the Education Department’s latest count of 1.3 million homeless children in public schools, </span></div></blockquote><blockquote abp="374"><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;">supplemented by estimates of homeless preschool children not counted by the agency.</span> </div></blockquote><blockquote abp="374"><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;">The problem is particularly severe in California, which has about one-eighth of the U.S. population but accounts for more than one-fifth of the homeless children, totaling nearly 527,000.</span></div></blockquote><div abp="378"><span style="font-family: Arial, Helvetica, sans-serif;">This is why I get so fired up about <a abp="379" href="http://theeconomiccollapseblog.com/archives/30-stats-to-show-to-anyone-that-does-not-believe-the-middle-class-is-being-destroyed" title="the destruction of the middle class">the destruction of the middle class</a>. A healthy economy would mean more wealth for most people. But instead, most Americans just continue to see a decline in the standard of living.</span></div><div abp="378"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="380"><span style="font-family: Arial, Helvetica, sans-serif;">And remember, the next major wave of the economic collapse has not even hit us yet. When it does, the suffering of the poor and the middle class is going to get much worse.</span></div><div abp="381"><span style="font-family: Arial, Helvetica, sans-serif;">Unfortunately, there are already signs that the U.S. economy is starting to slow down too. In fact, the latest manufacturing numbers <a abp="382" href="https://alantonelson.wordpress.com/2014/11/17/whats-left-of-our-economy-manufacturing-hits-its-worst-production-stretch-in-three-plus-years/" target="_blank" title="were not good at all">were not good at all</a>…</span></div><blockquote abp="383"><div abp="384"><span style="font-family: Arial, Helvetica, sans-serif;">The Federal Reserve’s <a abp="385" href="http://www.federalreserve.gov/releases/g17/Current/default.htm" target="_blank" title="new industrial production data">new industrial production data</a> for October show that, on a monthly basis, real U.S. manufacturing output has fallen on net since July, marking its worst three-month production stretch since March-June, 2011. Largely responsible is the automotive sector’s sudden transformation from a manufacturing growth leader into a serious growth laggard, with combined real vehicles and parts production enduring its worst three-month stretch since late 2008 to early 2009.</span></div></blockquote><div abp="386"><span style="font-family: Arial, Helvetica, sans-serif;">A lot of very smart people are <a abp="387" href="http://theeconomiccollapseblog.com/archives/if-everything-is-just-fine-why-are-so-many-really-smart-people-forecasting-economic-disaster" title="forecasting economic disaster">forecasting economic disaster</a> for next year.</span></div><div abp="388"><span style="font-family: Arial, Helvetica, sans-serif;">Hopefully they are all wrong, but I have a feeling that they are going to be right.</span></div><div abp="388"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="388"><a href="http://theeconomiccollapseblog.com/archives/3-of-the-10-largest-economies-in-the-world-have-already-fallen-into-recession-is-the-u-s-next"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-25416474153250667592014-11-18T02:11:00.000-08:002014-12-04T06:51:15.725-08:00Private Equity Now Looking to Even Bigger Chumps, Namely 401 (k)s and Retail<div abp="361"><span style="font-family: Arial, Helvetica, sans-serif;">One of the reasons that private equity has managed to flourish is that its biggest investor group is what is traditionally referred to as dumb money: public pension funds, which account for 25% of industry assets. Readers may recall that even CalPERS, widely considered to be the savviest public pension fund, recently had a public board meeting where <a abp="362" href="http://www.nakedcapitalism.com/2014/10/private-equity-consultants-flounder-question-abusive-evergreen-fees-calpers-board-meeting.html">the questions asked of prospective gatekeepers, the pension fund consultants, were, with one exception, softballs</a>. And that question was the only one to address <a abp="363" href="http://www.nakedcapitalism.com/2014/05/sec-official-describes-widespread-lawbreaking-material-weakness-controls-private-equity-industry.html">the SEC’s revelation that private equity firms have been engaging in large scale fee-skimming and other forms of grifting</a>. And remember, the SEC also stated that the investors in these funds, known in industry nomenclature as limited partners, have done a crappy job of negotiating their agreements. </span></div><div abp="361"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="364"><span style="font-family: Arial, Helvetica, sans-serif;">But in predictable fashion, as one group of marks, um, sales targets, starts to dry up, private equity funds, aka general partners, are hunting for new ones. And having gone very systematically after every conceivable large pot of money, the only place left for them to go is down market, in terms of size and sophistication. As private equity industry expert Eileen Appelbaum <a abp="365" href="http://thehill.com/blogs/pundits-blog/finance/224097-private-equity-is-coming-for-your-nest-egg" rel="nofollow" target="_blank">explains in The Hill</a>, both public and private pension funds, another big money source for private equity, are shrinking as pensions generally are under attack. So the prize for private equity is to get its hands on retail investors, namely, even lower tier wealthy and 401 (k) plans. </span></div><div abp="364"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;">Before we get into how this is happening, we need to step back and underscore why this is a terrible idea. <em abp="367"><strong abp="368">Private equity returns, even for institutional investors, are exaggerated. <a abp="369" href="http://www.nakedcapitalism.com/2014/06/debunking-myth-private-equitys-superior-returns.html">These reported returns do not beat stocks on a risk-adjusted basis</a>.</strong> </em> And that’s even when you use a measure that flatters private equity, with is internal rates of return. <a abp="370" href="http://www.nakedcapitalism.com/2014/06/debunking-myth-private-equitys-superior-returns.html">As we’ve discussed</a>, IRR is known by anyone with a even a smidgen of finance training to be a terrible measure. One of the big reasons why is it overstates performance relative to better metrics, such as the widely used gold standard of discounted cash flows, or one that some academics view fondly, called public market equivalent. </span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;">So understand this: private equity’s entire <em abp="372">raison d’etre</em> is its allegedly superior returns. If that is bunk, the rationale for investing in private equity collapses. The other justification for investing in it, that its profile of returns doesn’t covary much with other investments, is highly sus, given that private equity is essentially levered equity. Many experts believe that the supposed differentiated pattern of returns depends heavily on private equity “smoothing” as in not marking their portfolios to market at times when markets are terrible. </span></div><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="373"><span style="font-family: Arial, Helvetica, sans-serif;">In fairness, there have been historical periods when buyouts, the main type of private equity deals (accounting for 85% of industry assets) produced sparkling returns for investors, such as in the 1980s, when there were lots of overdiversified large companies selling at conglomerate discounts. Making money in leveraged buyouts then was like shooting fish in a barrel, provided you could hire an investment bank to run a hostile takeover. Simply buying the company with a ton of debt (and achievable leverage levels were also higher back then, amping up returns), breaking it up and selling off the parts was an easy winner. Selling off other assets, like headquarters properties, the corporate art collection, and surplus jets, helped too, as did thinning out an often-bloated corporate center. </span></div><div abp="373"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="374"><span style="font-family: Arial, Helvetica, sans-serif;">But looking dispassionately at the data shows that PE’s claims to better returns don’t hold up. And that’s before you get to factoring in issues that astonishingly, academics have managed to ignore despite them being blindingly obvious omissions. For instance, when an investor signs up for a private equity fund, he is contractually obligated the minute the ink is dry. Yet the general partner won’t begin making capital calls for months, sometimes starting as much as a year later. Those capital calls continue typically until year three or four after the commitment date.</span></div><div abp="374"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="375"><span style="font-family: Arial, Helvetica, sans-serif;">The convention in the industry is to calculate returns ONLY when the money has left the investor’s pocket and gone over to the PE fund. Yet if you read limited partnership agreements, capital calls have very short notices. Five to ten days is the norm. The consequences of missing a capital call are draconian. Generally speaking, you lose the money you’ve put in. And even if you simply miss your first capital call (as in you lose no actual dollars), that general partner will never invite you into a fund again. If you are a typical limited partner that thinks getting into funds, particularly the illusory “better” funds, is important, that alone is a terrible sanction.</span></div><div abp="375"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;">So that means the investors need to make sure they have enough dough on hand to meet capital calls. That means they need to be in liquid, hence generally lower-return investments. <em abp="377"><strong abp="378">The cost of being in lower-term investments early in the life of private equity investments to accommodate general partner capital calls, which is inherent to investing in private equity, is not factored into return calculations. </strong></em> Low returns in the early years of any investment severely dampen total returns. </span></div><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;">We anticipate being able to perform some analyses of this issue. In the meantime, a paper by Oxford professor Ludovic Phalippou is coming out shortly that looks at this issue on a theoretical level (as in not working from a specific data set). He told us that his conclusion is that the cost of being in lower-return investments is roughly 300 basis points a year.* Note that 300 basis points is conventional wisdom as to how much PE outperforms public stocks using its current dubious metrics (and that is before risk adjusting it for its illiquidity, which is also conventionally depicted as 300 to 400 basis points**).</span></div><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="380"><span style="font-family: Arial, Helvetica, sans-serif;">So the reason to allow smaller investors to get into private equity at all looks spurious on its face, particularly since private equity returns have been declining in recent years. And remember, the return picture will look even worse for small investors than for the big boys because they will pay more in fees, more in expenses (pretty much inherent to smaller investments) and are also just about certain to be steered to at least some less than stellar funds. A New York Times article last month <a abp="381" href="http://dealbook.nytimes.com/2014/10/20/private-equity-titans-open-cloistered-world-to-smaller-investors/" rel="nofollow" target="_blank">flagged some of these issues</a> (emphasis ours):</span></div><blockquote abp="382"><div abp="383"><span style="font-family: Arial, Helvetica, sans-serif;">Carlyle’s new vehicle, called Carlyle Private Equity Access 2014, whose existence has not previously been disclosed, is just one of several efforts by the industry to attract checks in the tens of thousands of dollars rather than in the hundreds of millions.<em abp="384"> <strong abp="385">In addition to annual fees paid to their wealth manager</strong></em>, investors pay Carlyle 1 to 2 percent of their capital plus 20 percent of any profits, in line with the industry standard…. </span></div></blockquote><blockquote abp="382"><div abp="386"><span style="font-family: Arial, Helvetica, sans-serif;">Morgan Stanley, for example, was recently gathering capital from wealthy clients for a new Blackstone energy fund that is expected to exceed its $4 billion target when it finishes raising capital this year. It took the bank a single day to raise its entire $500 million feeder fund, which was about four times oversubscribed, people briefed on the matter said…. </span></div></blockquote><blockquote abp="382"><div abp="387"><span style="font-family: Arial, Helvetica, sans-serif;">Traditional feeder funds can also allow investors to commit as little as $250,000, but the new Carlyle product is intended to provide a more diversified investment, including private equity funds focused on Japan, Asia and Europe, as well as an international energy fund… </span></div></blockquote><blockquote abp="382"><div abp="388"><span style="font-family: Arial, Helvetica, sans-serif;">Other firms, acting as middlemen, are allowing the private equity giants to attract a lower stratum of wealth. One firm, the Central Park Group, gives investors indirect access to Carlyle funds. It caters to so-called accredited investors, who have at least $1 million in assets not including their primary home. Because it is an intermediary, the firm charges a fee as high as 1.8 percent and an additional 0.55 percent for expenses, on top of the 1.3 percent of assets charged by the Carlyle funds in which it invests, according to marketing materials and a person briefed on the matter. Still, it has raised more than $500 million since its debut last year, this person said.</span></div></blockquote><div abp="389"><span style="font-family: Arial, Helvetica, sans-serif;">We’ll discuss in a later post why these hot energy funds look to be a particularly successful version of private equity picking investors’ pockets. </span></div><div abp="389"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="390"><span style="font-family: Arial, Helvetica, sans-serif;">If you look at <a abp="391" href="https://www.calpers.ca.gov/index.jsp?bc=/investments/assets/equities/pe/private-equity-review/home.xml" rel="nofollow" target="_blank">how the Carlyle funds that CalPERS has invested in have performed</a> (and remember that CalPERS in theory can do a better job of fund-picking and can negotiate lower fees), you will see that on the whole, the foreign funds have performed less well than the flagship domestic funds. So “more diversified investment” appears to be seller talk for “putting you in funds with lower odds of payoff because we have less of an information advantage.”</span></div><div abp="390"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="392"><span style="font-family: Arial, Helvetica, sans-serif;">Appelbaum explains why this downmarket trend is particularly troubling:</span></div><blockquote abp="393"><div abp="394"><span style="font-family: Arial, Helvetica, sans-serif;">While private equity hasn’t tapped workers 401(k)s yet, Carlyle and other PE firms are currently developing new financial products that will let individual investors write small checks to PE funds. </span></div></blockquote><blockquote abp="393"><div abp="395"><span style="font-family: Arial, Helvetica, sans-serif;">This new focus on individual investors is facilitated by the Jumpstart Our Business Startups Act (JOBS Act) that went into effect in the fall of 2013…The rules that implement the JOBS Act do not incorporate basic investor protections…It is, however, still the case that individuals that participate in a PE fund must be “accredited investors.”</span> </div></blockquote><blockquote abp="393"><div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;">To be an accredited investor, an individual must have a net worth — alone or with a spouse — greater than $1 million, not including the value of his or her home. </span></div></blockquote><blockquote abp="393"><div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;">Alternatively, the individual can be an accredited investor if they have an annual income of $200,000 or more (or $300,000 with a spouse). These income thresholds were set in 1982 when $200,000 meant you were a lot richer. If these wealth and income thresholds had been adjusted for inflation, an accredited investor would have to have a net worth of $2.5 million or an annual income of $493,000 (or $740,000 with a spouse). </span></div></blockquote><blockquote abp="393"><div abp="397"><span style="font-family: Arial, Helvetica, sans-serif;">Granted, very few of us will ever qualify as an accredited investor. Still, about 8.5 million people meet the current criteria. And that includes many professionals, especially in two-earner households, who may head toward retirement with a million dollars in their 401(k)s. To put that in perspective, a million dollars in a retirement savings account comes to $40,000 to $50,000 a year in pre-tax income during retirement.</span></div></blockquote><div abp="398"><span style="font-family: Arial, Helvetica, sans-serif;">The kicker here is that the $1 million in net worth can include investment in retirement accounts. And as Appelbaum stresses, having a decent personal balance sheet or income does not mean someone is financially savvy. </span></div><div abp="398"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="399"><span style="font-family: Arial, Helvetica, sans-serif;">What goes unstated is why the mythology of these superior returns goes unchallenged, when that legitimates the rush to syphon funds out of retail chumps. The fact is that private equity has effectively bought off, co-opted or cowed the very people who ought to be minding the store. </span></div><div abp="399"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="400"><span style="font-family: Arial, Helvetica, sans-serif;">As we indicated with Harvard, which is also considered to be a sophisticated investor, its law firm, which is one of its most important resources in cutting deals with private equity firms, <a abp="401" href="http://www.nakedcapitalism.com/2013/07/memo-to-eliot-spitzer-if-harvards-own-pe-law-firm-is-really-more-loyal-to-bain-how-can-you-hope-to-get-good-representation.html">is more loyal to private equity kingpin Bain</a>. This pattern is repeated across the industry, where private equity limited partners simply don’t pay remotely enough in fees compared to private equity firms to get the best legal talent on their side. This pattern is most obvious with attorneys, but it applies to all the other supposed gatekeepers who are afraid to rock the boat with PE firms because they’ll simply refuse to deal with them (remember, the gatekeepers, such as the supposedly independent consulting firms, need to get information from the private equity firms to do their job. And the consultants no doubt correctly fear that they would be frozen out of limited partner engagements if PE firms reported that they were difficult or implies that their information demands reflected a lack of sophistication, as opposed to well-warranted skepticism). </span></div><div abp="400"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="402"><span style="font-family: Arial, Helvetica, sans-serif;">This situation is even worse as far as the mythology of superior returns is concerned. <em abp="403"><strong abp="404">Key employees at private equity limited partners benefit directly from PE funds reporting exaggerated returns.</strong></em> Even at CalPERS, cetain members of the investment office get bonuses based on performance relative to benchmarks. At CalPERS and public pension funds, these bonuses are so small as to arguably not be terribly motivating, but at other opinion leaders, such as universities like Yale and Harvard, the performance bonuses are significant. And they are also much more meaningful at private pension funds and insurers, both large investors in private equity. </span></div><div abp="402"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="405"><span style="font-family: Arial, Helvetica, sans-serif;">We’ve noted how the use of IRR exaggerates the return side of the performance equation. The benchmarking is often flawed too. For instance, Thompson Reuters is one of the most popular services for private equity benchmarking. It also happens to show the lowest returns. An industry insider tells us that Thompson Reuters is in the process of exiting this business, forcing limited partners who used Thompson to find new benchmarks. The replacement services, such as Cambridge Associates, use benchmarks that show returns that are sufficiently greater than the one Thompson showed as to call into question whether bonuses paid to investment staffers in prior years were deserved. One doubts that any fiduciary will have the nerve to try to claw back payments, or reduce going forward bonuses in light of what now looks like excessive prior payouts, but the differences are great enough in some cases as to be giving boards and trustee fits. </span></div><div abp="405"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="406"><span style="font-family: Arial, Helvetica, sans-serif;">And to complete this sorry picture, last week, Private Equity Manager reported that the investors’ association, the ILPA, had stated in effect that limited partners were circling the wagons, and wanted only more transparency between themselves and the general partners. So to the extent any reforms take place (and don’t hold your breath), small fry players won’t benefit. That, as we often say here, is a feature, not a bug. </span></div><div abp="407"><span style="font-family: Arial, Helvetica, sans-serif;"><br abp="408" /> * Looking at illustrative or better yet actual capital calls will allow for much more granular analysis, as well as looking at the impact over the lives of various funds, which is the most important measure. Moreover, we are not sure a one-size-fits-all story on managing pre-capital call liquidity is the best way to look at this. Wealthy individuals and smaller investors like universities and foundations would need to keep most or all of their committed money in low-risk investments like cash equivalents or short-term, low-risk bonds to avoid missing a capital call. Note that in the dot-bomb era, when wealthy investor lost boatloads on their stock portfolios, defaults on private equity capital calls were widespread. Similarly, in the crisis, Duke famously missed private equity capital calls. Similarly, CalPERS was widely criticized for dumping stocks during the crisis. It is widely rumored that the reason was not panic but needing to meet private equity capital calls. However, a CalPERS nevertheless has much more money flowing in and out on a routine basis, and thus larger investors such as the bigger pension fund and endowments could be assumed to do somewhat better, in return terms, in managing their fund so as to accommodate private equity capital calls.</span></div><div abp="407"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="409"><span style="font-family: Arial, Helvetica, sans-serif;">** We are not certain the 300 to 400 basis point illiquidity discount is the right way to look at this issue. Private equity investors face a high degree of uncertainty as to when they get their money back. They have effectively given the general partners that option. Long-dated options are extremely valuable. We suspect this option is worth more than 300 to 400 basis points.</span></div><div abp="409"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="409"><a href="http://www.nakedcapitalism.com/2014/11/private-equity-now-looking-even-bigger-chumps-namely-401-ks-retail.html"><span style="font-family: Arial, Helvetica, sans-serif;">Source </span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-6520659353201462402014-11-17T02:18:00.000-08:002014-12-04T06:51:15.782-08:00Obamacare = A Death Panel For The U.S. Economy<div abp="313"><span style="font-family: Arial, Helvetica, sans-serif;"><a abp="314" href="http://theeconomiccollapseblog.com/archives/obamacare-a-death-panel-for-the-u-s-economy/obamacare-line-2" rel="attachment wp-att-8005"></a>Did you know that some Americans are being hit with health insurance rate increases of more than 500 percent? Taking advantage of "the stupidity of the American voter", the Democrats succeeded in ramming through one of the worst pieces of legislation that has ever come before Congress. The full implementation of Obamacare has been repeatedly delayed, but now we are finally starting to see the true horror of this terrible law. Thanks to Obamacare, millions of American families are losing health plans that they were very happy with, health insurance rates are skyrocketing, millions of workers are having their full-time hours cut back to part-time hours, rural hospitals all over the country <a abp="316" href="http://themostimportantnews.com/archives/obamacare-is-killing-rural-hospitals" target="_blank" title="are dying">are dying</a>, and thousands of doctors are being driven out of the industry thus intensifying <a abp="317" href="http://endoftheamericandream.com/archives/we-are-heading-for-the-greatest-doctor-shortage-in-american-history" target="_blank" title="the greatest doctor shortage">the greatest doctor shortage</a> in U.S. history. Obamacare is a slow-motion train wreck of epic proportions, and the full effect of this law is only beginning to be felt. In the end, the economic impact of this law will likely be measured in the <strong abp="318">trillions</strong> of dollars.</span></div><div abp="313"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="319"><span style="font-family: Arial, Helvetica, sans-serif;">One of the primary reasons why Democrats experienced so much pain during the recent elections was because millions of Americans are receiving some very disturbing letters from their health insurance providers. At a time when U.S. incomes <a abp="320" href="http://theeconomiccollapseblog.com/archives/50-percent-of-american-workers-make-less-than-28031-dollars-a-year" title="are stagnating">are stagnating</a>, health insurance rates are rising to absolutely ridiculous levels.</span></div><div abp="319"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="321"><span style="font-family: Arial, Helvetica, sans-serif;">As <a abp="322" href="http://www.nytimes.com/2014/11/15/us/politics/cost-of-coverage-under-affordable-care-act-to-increase-in-2015.html?_r=3" target="_blank" title="the New York Times">the New York Times</a> recently reported, even the Obama administration is admitting that "substantial price increases" are on the way...</span></div><blockquote abp="323"><div abp="324"><span style="font-family: Arial, Helvetica, sans-serif;">The Obama administration on Friday unveiled data showing that many Americans with health insurance bought under the Affordable Care Act could face substantial price increases next year — in some cases <strong abp="325">as much as 20 percent</strong> — unless they switch plans.</span></div><div abp="326"><span style="font-family: Arial, Helvetica, sans-serif;">The data became available just hours before the health insurance marketplace was to open to buyers seeking insurance for 2015. </span></div></blockquote><blockquote abp="323"><div abp="327"><span style="font-family: Arial, Helvetica, sans-serif;">An analysis of the data by The New York Times suggests that although consumers will often be able to find new health plans with prices comparable to those they now pay, the situation varies greatly from state to state and even among counties in the same state.</span></div></blockquote><div abp="328"><span style="font-family: Arial, Helvetica, sans-serif;">Originally, Barack Obama promised that if we liked our current health plans that we could keep them. Well, it turns out that was not true at all. Instead, the vast majority of us will eventually have to move to new plans if we have not done so already. This is particularly true for those that purchase health insurance individually. The following is an excerpt from an <a abp="329" href="http://investigations.nbcnews.com/_news/2013/10/29/21222195-obama-administration-knew-millions-could-not-keep-their-health-insurance?lite" target="_blank" title="NBC News investigation">NBC News investigation</a>...</span></div><blockquote abp="330"><div abp="331"><span style="font-family: Arial, Helvetica, sans-serif;">Four sources deeply involved in the Affordable Care Act tell NBC News that 50 to 75 percent of the 14 million consumers who buy their insurance individually can expect to receive a “cancellation” letter or the equivalent over the next year because their existing policies don’t meet the standards mandated by the new health care law. One expert predicts that number could reach as high as 80 percent. And all say that many of those forced to buy pricier new policies will experience “sticker shock.”</span></div></blockquote><div abp="332"><span style="font-family: Arial, Helvetica, sans-serif;">This is something that actually happened to me. I received a letter in the mail informing me that my new health insurance policy which meets the requirements of Obamacare will cost me nearly twice as much as my old one.</span></div><div abp="332"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="333"><span style="font-family: Arial, Helvetica, sans-serif;">Needless to say, I was not too thrilled about that.</span></div><div abp="333"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;">Other Americans are being hit even harder. For instance, one family down in Texas got hammered with <a abp="335" href="http://www.naturalnews.com/042703_Obamacare_rate_shock_health_insurance_costs.html" target="_blank" title="Mike Adams of Natural News">a 539 percent rate increase</a>...</span></div><blockquote abp="336"><div abp="337"><span style="font-family: Arial, Helvetica, sans-serif;">Obamacare is named the "Affordable Care Act," after all, and the President promised the rates would be "as low as a phone bill." But I just received a confirmed letter from a friend in Texas showing a <b abp="338">539% rate increase</b> on an existing policy that's been in good standing for years. </span></div></blockquote><blockquote abp="336"><div abp="339"><span style="font-family: Arial, Helvetica, sans-serif;">As the letter reveals (see below), the cost for this couple's policy under Humana is increasing from $212.10 per month to <b abp="340">$1,356.60 per month</b>. This is for a couple in good health whose combined income is less than $70K -- a middle-class family, in other words.</span></div></blockquote><div abp="341"><span style="font-family: Arial, Helvetica, sans-serif;">These rate increases are coming at a time when the middle class in the U.S. is already <a abp="342" href="http://theeconomiccollapseblog.com/archives/30-stats-to-show-to-anyone-that-does-not-believe-the-middle-class-is-being-destroyed" title="steadily shrinking">steadily shrinking</a>. A lot of families that are already stretched to the breaking point are making the very painful decision to give up health insurance entirely. At this point, there are millions of families that simply cannot afford it.</span></div><div abp="341"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="343"><span style="font-family: Arial, Helvetica, sans-serif;">But Obama is not about to let those people off the hook. In fact, <a abp="344" href="http://www.shtfplan.com/headline-news/your-children-will-be-fined-if-you-fail-to-sign-up-for-obamacare-people-are-going-to-be-in-for-a-shock_11142014" target="_blank" title="huge tax penalties are on the way">huge tax penalties are on the way</a> for those that do not participate in the new system...</span></div><blockquote abp="345"><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;">Penalties for failing to secure a health-insurance plan will rise steeply next year, which could take a big bite out of some families’ pocketbooks. </span></div></blockquote><blockquote abp="345"><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;">“<strong abp="348">The penalty is meant to incentivize people to get coverage</strong>,” said senior analyst Laura Adams of InsuranceQuotes.com. “<strong abp="349">This year, I think a lot of people are going to be in for a shock.</strong>” </span></div></blockquote><blockquote abp="345"><div abp="350"><span style="font-family: Arial, Helvetica, sans-serif;">In 2014, Obamacare’s first year, individuals are facing a penalty of $95 per person, or 1 percent of their income, depending on which is higher. If an American failed to get coverage this year, that penalty will be taken out of their tax refund in early 2015, Adams noted. </span></div></blockquote><blockquote abp="345"><div abp="351"><span style="font-family: Arial, Helvetica, sans-serif;">While that might be painful to some uninsured Americans who are counting on their tax refunds in early 2015, the penalty for going uninsured next year is even harsher. <span abp="352" style="text-decoration: underline;"><strong abp="353">The financial penalty for skipping out on health coverage will more than triple to $325 per person in 2015, or 2 percent of income, depending on whichever is higher.</strong> </span></span></div><div abp="354"><span style="font-family: Arial, Helvetica, sans-serif;"><span abp="355" style="text-decoration: underline;"><strong abp="356">Children will be fined</strong></span> at half the adult rate, or $162.50 for those under 18 years old.</span></div></blockquote><div abp="357"><span style="font-family: Arial, Helvetica, sans-serif;">No wonder so many people are so angry with the Democrats.</span></div><div abp="357"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="358"><span style="font-family: Arial, Helvetica, sans-serif;">And as Massachusetts Institute of Technology professor Jonathan Gruber has so infamously observed, Obamacare never would have become law if the American people had been told the truth about what it would do to them.</span></div><div abp="358"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="359"><span style="font-family: Arial, Helvetica, sans-serif;">It has been documented that Gruber has visited the White House about a dozen times since 2009, and he has been one of the leading intellectual proponents of Obamacare. A <a abp="360" href="https://www.youtube.com/watch?v=G790p0LcgbI" target="_blank" title="video">video</a> in which he states that "the stupidity of the American voter" was "really critical" to the passage of Obamacare has gone viral over the past week. I have posted a copy of this video below...</span></div><div abp="359"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="361"></div><center abp="362"><span style="font-family: Arial, Helvetica, sans-serif;"><iframe abp="363" allowfullscreen="allowfullscreen" frameborder="0" height="235" src="http://www.youtube.com/embed/G790p0LcgbI" width="418"></iframe></span></center><div abp="364"></div><div abp="365"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="365"><span style="font-family: Arial, Helvetica, sans-serif;">What he is essentially saying is that the Democrats purposely deceived the American people because it was the only way that Obamacare was going to become law.</span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;">And this is a man that has become very wealthy advising government on healthcare matters. According to an article in <a abp="367" href="http://www.washingtonpost.com/blogs/fact-checker/wp/2014/11/14/did-jonathan-gruber-earn-almost-400000-from-the-obama-administration/" target="_blank" title="the Washington Post">the Washington Post</a>, he has made millions of dollars from "consulting" in recent years...</span></div><blockquote abp="368"><div abp="369"><span style="font-family: Arial, Helvetica, sans-serif;">Not all of the contracts could be found on public Web sites, but here is a sampling. In some cases, Gruber worked with other consultants, so the fees were shared. These figures also might not represent the final payout, and of course these are gross figures, before expenses. But it’s safe to say that about $400,000 appears to be the standard rate for gaining access to the Gruber Microsimulation Model.</span> </div></blockquote><blockquote abp="368"><div abp="370"><span style="font-family: Arial, Helvetica, sans-serif;">Michigan: $481,050</span> </div></blockquote><blockquote abp="368"><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;">Minnesota: $329,000</span> </div></blockquote><blockquote abp="368"><div abp="372"><span style="font-family: Arial, Helvetica, sans-serif;">Vermont: $400,000</span> </div></blockquote><blockquote abp="368"><div abp="373"><span style="font-family: Arial, Helvetica, sans-serif;">Wisconsin: $400,000</span> </div></blockquote><blockquote abp="368"><div abp="374"><span style="font-family: Arial, Helvetica, sans-serif;">Gruber has also earned <strong abp="375">more than $2 million</strong> over the last seven years for an ongoing contract with HHS to assess choices made by the elderly in Medicare’s prescription-drug plan.</span></div></blockquote><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;">If you are Gruber, life is quite good.</span></div><div abp="376"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;">But for most of the rest of America, the economic pain continues.</span></div><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="378"><span style="font-family: Arial, Helvetica, sans-serif;">For example, one recent study found <a abp="379" href="http://www.heraldtribune.com/article/20141111/article/141119948?tc=ar" target="_blank" title="that almost half of all Floridians">that almost half of all Floridians</a> cannot even afford "to pay for basic necessities"...</span></div><div abp="380" class="article_text article_paragraph0"><blockquote abp="381"><div abp="382"><span style="font-family: Arial, Helvetica, sans-serif;">Nearly half of Florida households do not earn enough to pay for basic necessities, according to a report released Tuesday by the United Way that seeks to cast a light on the large group of state residents who struggle financially but do not meet the official criteria for being in poverty.</span></div><div abp="383"><span style="font-family: Arial, Helvetica, sans-serif;">While 15 percent of Florida households are below the poverty level, another 30 percent are financially insecure — a figure that also applies to Sarasota and Manatee counties — based on a new measurement developed by the United Way. </span></div></blockquote><div abp="384"><span style="font-family: Arial, Helvetica, sans-serif;">If all those people cannot even afford the basics, how are they going to pay for Obamacare?</span></div><div abp="385"><span style="font-family: Arial, Helvetica, sans-serif;">This law is going to financially cripple millions of American families. It truly is a death panel for the U.S. economy. And because Barack Obama can veto anything that the Republicans in Congress do, we are stuck with it for at least another two years (and probably longer).</span></div><div abp="386"><span style="font-family: Arial, Helvetica, sans-serif;">So what about you?</span></div><div abp="386"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="387"><span style="font-family: Arial, Helvetica, sans-serif;">Have your health insurance premiums gone up yet?</span></div><div abp="387"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="388"><span style="font-family: Arial, Helvetica, sans-serif;">Please feel free to add to the discussion by posting a comment below...</span></div><div abp="388"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="388"><a href="http://theeconomiccollapseblog.com/archives/obamacare-a-death-panel-for-the-u-s-economy"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-71082654973491592632014-11-14T03:32:00.000-08:002014-12-04T06:51:15.799-08:00Corporate Profit Margins vs. Wages in One Disturbing Chart<div abp="362"><span style="font-family: Arial, Helvetica, sans-serif;">This brief post by Doug Short is even more important than it appears to be. We had an outburst of neoliberal orthodoxy in comments yesterday on <a abp="363" href="http://www.nakedcapitalism.com/2014/11/wealth-us-households-fallen-last-25-years.html" rel="nofollow">a post that discussed how wealth of most households had fallen since 1987</a>. Some readers assigned blame for stagnant average worker wages (which was a big contributor to the lack of growth in household wealth) to immigrants, particularly Mexicans and H1-B visa workers. </span></div><div abp="362"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="364"><span style="font-family: Arial, Helvetica, sans-serif;">While immigration was no doubt an element, to give it the leading role is counterfactual. The argument made, explicitly, is “more workers leads to lower wages”. Ahem, there a a lot more variables than just the labor supply side. But even if you take a simple-minded point of view, women’s rising participation in the workforce, particularly given that women even now make 77% of what men make, would be a vastly bigger wage-rate depressor than Mexican workers. The number of working women rose by nearly 30 million between 1970 and 2010, vastly larger than any estimate of immigrant influx. </span></div><div abp="364"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="365"><span style="font-family: Arial, Helvetica, sans-serif;">The Doug Short chart below looks at corporate profit share versus labor share. This pinpoints the degree to which wage stagnation is the result of corporate managers and executives succeeding in cutting the pie to favor themselves (executive pay has become increasingly linked to stock prices, and relentless focus on short-term earnings, as well as stock buybacks, do wonders for earnings per share). </span></div><div abp="365"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;">Short omits some key elements from his discussion. One is that until recently, a profit share of GDP of 6% was perceived to be a cyclical peak; no less than Warren Buffet deemed a higher level to be unsustainable. And in fact, we see an explosion of profit share from 6% to 10% of GDP in the runup to the crisis, roughly from 2003 to 2007. The “rescue the banks and financial markets” measures succeeded in bringing the profit share back to its pre-crisis levels, at the expense of workers.</span></div><div abp="366"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="367"><span style="font-family: Arial, Helvetica, sans-serif;">Notice the inflection point in profit share is 1987, when Greenspan became Fed chairman. Correlation may not be causation, but the timing is almost exact.</span></div><div abp="367"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="368"><span style="font-family: Arial, Helvetica, sans-serif;">But what about the years prior to 1987? We see falling labor share and rising profit share from the 1973 recession through 1979, then labor share and profit share falling through 1987. What is that about?</span></div><div abp="368"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="369"><span style="font-family: Arial, Helvetica, sans-serif;">Interestingly, the chart shows that corporations did well in profit terms in the mid-1970s stagflation at the expense of workers. But they were perceived (correctly) as having their lunches increasingly eaten by Japanese and German manufacturers. Inflation kept rising, which hurt investment in plant and equipment (high interest rates make any long-term commitment look lousy). High inflation killed stock market valuations, which allowed corporate leaders to press an agenda of deregulation with the Carter Administration, which was desperate for any ideas to increase flagging growth levels.</span></div><div abp="369"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="370"><span style="font-family: Arial, Helvetica, sans-serif;">In 1979, Volcker started pushing interest rates sky high. Banks and other financial players were hemorrhaging losses. Volcker was explicit privately that he wanted to break the bargaining power of labor. In Secrets of the Temple, William Greider reported that Volcker kept a notecard which tracked average pay in the construction industry. He wanted to see that fall before he was willing to let interest rates ease. The economy went into a sharp, nasty contraction, hence the reason for both falling profits and falling labor share. </span></div><div abp="370"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;">But why did corporate profits continue to fall after the 1979-1982 recession was over? I’d hazard a big contributor was the rapid rise of the US dollar, which not only killed US exports, but also enabled foreign manufacturers to gain even more ground. If you look at auto imports to the US, the Japanese made tremendous headway after the dollar spike of the early 1980s. </span></div><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="372"><em abp="373"><strong abp="374"><span style="font-family: Arial, Helvetica, sans-serif;">By Doug Short, <a abp="375" href="http://www.advisorperspectives.com/dshort/" rel="nofollow" target="_blank">Advisor Perspectives</a>. Cross posted from <a abp="376" href="http://wolfstreet.com/2014/11/13/corporate-profit-margins-vs-employee-compensation-in-one-disturbing-chart/" rel="nofollow" target="_blank">Wolf Street</a></span></strong></em></div><div abp="372"><em abp="373"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></em></div><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;">Yesterday’s collection of Advisor Perspectives articles particularly caught my attention: <a abp="378" href="http://www.advisorperspectives.com/newsletters14/Why_Jeremy_Grantham_is_Right.php" rel="nofollow" target="_blank">Why Jeremy Grantham is Right about Corporate Profit Margin</a>s by Baijnath Ramraika and Prashant Trivedi. The article includes a number of fascinating graphs, the first of which is a snapshot of US Corporate Margins since 1947 calculated by dividing Corporate Profits after Tax by Gross National Product.</span></div><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;">The article inspired me to produce a chart of the Profit-to-GNP ratio, but with an added and rather sobering overlay: Employee Compensation (wages and salaries), which I’ve likewise divided by GNP. Here it is.</span></div><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div class="separator" style="clear: both; text-align: center;"><a href="http://www.nakedcapitalism.com/wp-content/uploads/2014/11/Corporate-Profit-Margins-and-Employee-Compensation-Q2.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://www.nakedcapitalism.com/wp-content/uploads/2014/11/Corporate-Profit-Margins-and-Employee-Compensation-Q2.gif" height="290" width="400" /></a></div><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="383"><span style="font-family: Arial, Helvetica, sans-serif;">If indeed corporate profits are mean reverting, a view supported by the authors of the Advisor Perspectives article, we see that this metric can spend many years at wide variance from the trend. Employee Compensation, however, has had a distinctly downward trend since its peak in 1970. The only conspicuous exception to the trend was the bubble period of “Irrational Exuberance,” as then Fed Chairman Alan Greenspan famously called it, that began in the mid-1990s.</span></div><div abp="383"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="384"><em abp="385"><span style="font-family: Arial, Helvetica, sans-serif;">And when it comes to wages, there are “Lies, Damn Lies, and Statistics.” Read… <a abp="386" href="http://wolfstreet.com/2014/08/24/measuring-real-wages-lies-damn-lies-and-statistics/" rel="nofollow" target="_blank">How to Obscure one of the Biggest Economic Problems in the US</a></span></em></div><div abp="384"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="384"><a href="http://www.nakedcapitalism.com/2014/11/corporate-profit-margins-vs-wages-in-one-disturbing-chart.html"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-27826317561524745722014-11-13T02:53:00.000-08:002014-12-04T06:51:15.854-08:00Obama’s Secret Treaty Would Be The Most Important Step Toward A One World Economic System<div abp="313"><span style="font-family: Arial, Helvetica, sans-serif;"><a abp="314" href="http://theeconomiccollapseblog.com/archives/obamas-secret-treaty-would-be-the-most-important-step-toward-a-one-world-economic-system/barack-obama-behind-resolute-desk-in-the-oval-office-public-domain" rel="attachment wp-att-8000"></a>Barack Obama is secretly negotiating the largest international trade agreement in history, and the mainstream media in the United States is almost completely ignoring it. If this treaty is adopted, it will be the most important step toward a one world economic system that we have ever seen. The name of this treaty is "the Trans-Pacific Partnership", and the text of the treaty is so closely guarded that not even members of Congress know what is in it. Right now, there are 12 countries that are part of the negotiations: the United States, Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These nations have a combined population of 792 million people and account for an astounding 40 percent of the global economy. And it is hoped that the EU, China and India will eventually join as well. This is potentially the most dangerous economic treaty of our lifetimes, and yet there is very little political debate about it in this country.</span></div><div abp="316"><span style="font-family: Arial, Helvetica, sans-serif;">Even though Congress is not being allowed to see what is in the treaty, Barack Obama wants Congress to give him <a abp="317" href="http://en.wikipedia.org/wiki/Fast_track_%28trade%29" target="_blank" title="fast track negotiating authority">fast track negotiating authority</a>. What that means is that Congress would essentially trust Obama to negotiate a good treaty for us. Congress could vote the treaty up or down, but would not be able to amend or filibuster it.</span></div><div abp="316"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="318"><span style="font-family: Arial, Helvetica, sans-serif;">Of course now the Republicans control both houses of Congress. If they are foolish enough to blindly give Barack Obama so much power, they should all immediately resign.</span></div><div abp="318"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="319"><span style="font-family: Arial, Helvetica, sans-serif;">And it is critical that people understand that this is not just an economic treaty. It is basically a gigantic end run around Congress. Thanks to leaks, we have learned that so many of the things that Obama has deeply wanted for years are in this treaty. If adopted, this treaty will fundamentally change our laws regarding Internet freedom, healthcare, copyright and patent protection, food safety, environmental standards, civil liberties and so much more. This treaty includes many of the rules that alarmed Internet activists so much <a abp="320" href="http://endoftheamericandream.com/archives/why-we-must-stop-sopa" target="_blank" title="when SOPA was being debated">when SOPA was being debated</a>, it would essentially ban all "Buy American" laws, it would give Wall Street banks much more freedom to trade risky <a abp="321" href="http://theeconomiccollapseblog.com/archives/tag/derivatives" title="derivatives">derivatives</a> and it would force even more domestic manufacturing offshore.</span></div><div abp="319"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="322"><span style="font-family: Arial, Helvetica, sans-serif;">In other words, it is the treaty from hell.</span></div><div abp="322"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="323"><span style="font-family: Arial, Helvetica, sans-serif;">In addition to imposing Obama's vision for the world on 40 percent of the global population, it is also being described as a "Christmas wish-list for major corporations". Of the 29 chapters in the treaty, only five of them actually deal with economic issues. The rest of the treaty deals with a whole host of other issues of great importance to the global elite.</span></div><div abp="323"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="324"><span style="font-family: Arial, Helvetica, sans-serif;">The following list of issues addressed by this treaty is from <a abp="325" href="http://www.themalaymailonline.com/what-you-think/article/trans-pacific-partnership-a-recipe-for-corporate-dictatorship-mun-loong-won" target="_blank" title="a Malaysian news source">a Malaysian news source</a>...</span></div><blockquote abp="326"><div abp="327"><span style="font-family: Arial, Helvetica, sans-serif;">• domestic court decisions and international legal standards (e.g., overriding domestic laws on both trade and nontrade matters, foreign investors’ right to sue governments in international tribunals that would overrule the national sovereignty)</span></div><div abp="328"><span style="font-family: Arial, Helvetica, sans-serif;">• environmental regulations (e.g., nuclear energy, pollution, sustainability)</span></div><div abp="329"><span style="font-family: Arial, Helvetica, sans-serif;">• financial deregulation (e.g., more power and privileges to the bankers and financiers)</span></div><div abp="330"><span style="font-family: Arial, Helvetica, sans-serif;">• food safety (e.g., lowering food self-sufficiency, prohibition of mandatory labeling of genetically modified products, or bovine spongiform encephalopathy (BSE) or mad cow disease)</span></div><div abp="331"><span style="font-family: Arial, Helvetica, sans-serif;">• Government procurement (e.g., no more buy locally produced/grown)</span></div><div abp="332"><span style="font-family: Arial, Helvetica, sans-serif;">• Internet freedom (e.g., monitoring and policing user activity)</span></div><div abp="333"><span style="font-family: Arial, Helvetica, sans-serif;">• labour (e.g., welfare regulation, workplace safety, relocating domestic jobs abroad)</span></div><div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;">• patent protection, copyrights (e.g., decrease access to affordable medicine)</span></div><div abp="335"><span style="font-family: Arial, Helvetica, sans-serif;">• public access to essential services may be restricted due to investment rules (e.g., water, electricity, and gas)</span></div></blockquote><div abp="336"><span style="font-family: Arial, Helvetica, sans-serif;">Why can't we get this type of reporting in the United States?</span></div><div abp="336"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="337"><span style="font-family: Arial, Helvetica, sans-serif;">And if this treaty is ultimately approved by Congress, we will essentially be stuck with it forever.</span></div><div abp="337"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="338"><span style="font-family: Arial, Helvetica, sans-serif;">This treaty is written in such a way that the United States will be permanently bound by all of the provisions and will never be able to alter them <strong abp="339">unless all of the other countries agree</strong>.</span></div><div abp="338"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="340"><span style="font-family: Arial, Helvetica, sans-serif;">Are you starting to understand why this treaty is so dangerous?</span></div><div abp="340"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="341"><span style="font-family: Arial, Helvetica, sans-serif;">This treaty is the key to Obama's "legacy". He wants to impose his will upon 40 percent of the global population in a way that will never be able to be overturned.</span></div><div abp="341"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="342"><span style="font-family: Arial, Helvetica, sans-serif;">Of course Obama is touting this treaty as the path to economic recovery. He promises that it will greatly increase global trade, decrease tariffs and create more jobs for American workers.</span></div><div abp="342"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="343"><span style="font-family: Arial, Helvetica, sans-serif;">But instead, it would be a major step toward destroying what is left of the U.S. economy.</span></div><div abp="343"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="344"><span style="font-family: Arial, Helvetica, sans-serif;">Over the past several decades, every time a major trade agreement has been signed we have seen even more good jobs leave the United States.</span></div><div abp="344"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="345"><span style="font-family: Arial, Helvetica, sans-serif;">And it doesn't take a genius to figure out why this is happening. If corporations can move jobs to the other side of the planet to nations where it is legal to pay slave labor wages, they will make larger profits.</span></div><div abp="345"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;">Just think about it. If you were running a corporation and you had the choice of paying workers ten dollars an hour or one dollar an hour, which would you choose?</span></div><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;">Plus there are so many other costs, taxes and paperwork hassles when you deal with American workers. For example, big corporations will not have to provide Obamacare for their foreign workers. That alone will represent a huge savings.</span></div><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="348"><span style="font-family: Arial, Helvetica, sans-serif;">Any basic course in economics will teach you that labor flows from markets where labor costs are high to markets where labor costs are lower. And at this point it costs less to make almost everything overseas. As a result, we have already lost millions upon millions of good jobs, and countless small and mid-size U.S. companies have been forced to shut down because they cannot compete with foreign manufacturers.</span></div><div abp="348"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="349"><span style="font-family: Arial, Helvetica, sans-serif;">Later this month, consumers will flock to retail stores for "Black Friday" deals. But if you look carefully at those products, you will find that almost all of them are made overseas. We buy far, far more from the rest of the world than they buy from us, and that is a recipe for <a abp="350" href="http://theeconomiccollapseblog.com/archives/national-economic-suicide-the-u-s-trade-deficit-with-china-sets-a-new-record-high" title="national economic suicide">national economic suicide</a>.</span></div><div abp="349"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="351"><span style="font-family: Arial, Helvetica, sans-serif;">We consume far more wealth that we produce, and anyone with half a brain can see that is not sustainable in the long run. The only way that we have been able to maintain our high standard of living is by going into insane amounts of debt. We are currently living in the largest debt bubble in the history of the planet, and at some point the party is going to end.</span></div><div abp="351"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="352"><span style="font-family: Arial, Helvetica, sans-serif;">Please share this article with as many people as you can. We need to inform people about what Obama is trying to do.</span></div><div abp="352"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;">If Obama is successful in ramming this secret treaty through, it is going to do incalculable damage to what is left of the once great U.S. economy.</span></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="353"><a href="http://theeconomiccollapseblog.com/archives/obamas-secret-treaty-would-be-the-most-important-step-toward-a-one-world-economic-system"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-49291950024533472512014-11-12T02:46:00.000-08:002014-12-04T06:51:15.870-08:00Russia to Launch New Payments System to Circumvent SWIFT Network<div abp="395" itemscope="" itemtype="http://schema.org/BlogPosting"><div abp="396" class="pf-content"><div abp="397"><span style="font-family: Arial, Helvetica, sans-serif;">Many observers have become unduly excited about what they depict as efforts to break the dollar hegeomony, such as the joint effort by the so-called BRCS nations to form a development bank. While having a suite of internationals funding entities, particularly ones focused on activities that in theory increase the collective benefits of relying on a reserve currency, are seen to be important, it does not follow that launching useful new funding institutions will break dollar dominance. As much as US abuse of its position as issuer of the reserve currency is correctly resented, there isn’t a competitor waiting in the wings. The Eurozone has blown it with its failure to clean up even sicker banks than the US has, and by compounding a bad situation with its adherence to destructive austerity policies. China clearly has the potential to displace the US longer-term, but it is unwilling to run the requisite trade deficits, since that means exporting demand and hence jobs. And no country had made the transition from being a major exporter to being consumer-driven smoothly; a crisis or protracted malaise would also delay China displacing the US as currency top dog.</span></div><div abp="397"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="398"><span style="font-family: Arial, Helvetica, sans-serif;">But not being able to get rid of the dollar any time soon does not mean that countries that the US is trying to punish by using its influence over international payments system won’t find nearer-term escape routes. Russia, which has become America’s enemy number one apparently for its sins of interceding in Syria, (when Congress was firmly opposed to military action), successfully standing up against a US-backed coup in Ukraine, of collaborating with Iran, and harboring Edward Snowden, has become the target of increasingly stringent economic sanctions. The ones that really bite are those aimed at Russian banks, which have foreign currency exposures, and have used foreign capital markets to issue debt and equity. </span></div><div abp="398"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="399"><span style="font-family: Arial, Helvetica, sans-serif;">Russia today announced that it plans to launch a new payments system so that it will no longer need to use the payments system SWIFT. <a abp="400" href="http://rt.com/business/204459-russia-swift-payment-alternative/" rel="nofollow" target="_blank">From RT</a>:</span></div><blockquote abp="401"><div abp="402"><span style="font-family: Arial, Helvetica, sans-serif;">Russia intends to have its own international inter-bank system up and running by May 2015. The Central of Russia says it needs to speed up preparations for its version of SWIFT in case of possible ”challenges” from the West. </span></div></blockquote><blockquote abp="401"><div abp="402"><span style="font-family: Arial, Helvetica, sans-serif;">“Given the challenges, Bank of Russia is creating its own system for transmitting financial messaging… It’s time to hurry up, so in the next few months we will have certain work done. The entire project for transmitting financial messages will be completed in May 2015,” said Ramilya Kanafina, deputy head of the national payment system department at the Central Bank of Russia (CBR). </span></div></blockquote><blockquote abp="401"><div abp="403"><span style="font-family: Arial, Helvetica, sans-serif;">Calls not to use the SWIFT (Society for Worldwide Interbank Financial </span></div></blockquote><blockquote abp="401"><div abp="404"><span style="font-family: Arial, Helvetica, sans-serif;">Telecommunication) system in Russian banks began to grow as relations between Russia and the West deteriorated over sanctions. So far, SWIFT says despite pressure from some Western countries to join the anti-Russian sanctions, it has no intention of doing so… </span></div></blockquote><blockquote abp="401"><div abp="405"><span style="font-family: Arial, Helvetica, sans-serif;">SWIFT, is currently one of Russia’s main connections to the international banking system, and if turned off, could hurt the Russian economy, in the short-term. Globally it transmits orders for transactions worth more than $6 trillion, and involves more than 10,000 financial institutions in 210 countries. According to SWIFT’s statute, the system has national groups of members and users in each country. In Russia it’s ROSSWIFT – the second biggest worldwide SWIFT association after the US.</span></div></blockquote><div abp="406"><span style="font-family: Arial, Helvetica, sans-serif;">I welcome reader comment, but I believe there are two issues here. First is that even though SWIFT is still open for business with Russia, it could be cut off at a future date. It can’t have escaped Moscow’s attention that Iran’s central bank and most other major banks were barred from SWIFT in 2012. <a abp="407" href="http://online.wsj.com/articles/SB10001424052702303863404577283532862521716" rel="nofollow" target="_blank">From the Wall Street Journal</a>:</span></div><blockquote abp="408"><div abp="409"><span style="font-family: Arial, Helvetica, sans-serif;">The European Union said it was banning any kind of financial transactions with blacklisted Iranian financial firms, but U.S. policy makers made it clear they would keep up pressure for wider action. </span></div></blockquote><blockquote abp="408"><div abp="410"><span style="font-family: Arial, Helvetica, sans-serif;">The Belgium-based Society for Worldwide Interbank Financial Telecommunication, or Swift, a financial communication and clearing system used by most of the world’s major banks, said it would comply with the EU order. </span></div></blockquote><blockquote abp="408"><div abp="411"><span style="font-family: Arial, Helvetica, sans-serif;">The ban applies only to Iran banks that the EU has placed on a sanctions blacklist. They include Iran’s central bank and more than a dozen other firms. </span></div></blockquote><blockquote abp="408"><div abp="412"><span style="font-family: Arial, Helvetica, sans-serif;">The U.S. Congress, meanwhile, is asking transactions with all Iranian banks to be ended, and is threatening penalties against Swift’s board and directors if they don’t cut all ties with Iran’s financial sector. U.S. lawmakers argue that Iran is shifting funding for its nuclear program out of the sanctioned banks into other firms.</span></div></blockquote><div abp="413"><span style="font-family: Arial, Helvetica, sans-serif;">Second is that setting up a payments channel outside SWIFT can enable Russia to establish a financial system for those who don’t want to be subject to US dictates. Banks that did business with Iran, both before and after the SWIFT sanctions, were hit with money-laundering sanctions. The payments were dollar payments and were cleared thought the banks’ New York branches, making them subject to US law. All dollar transactions between banks are settled at the end of the business day in New York; interbank payment systems ultimately depend on a central bank backstop, and many large payments run over the Fed’s interbank system, Fedwire. So there’s no way of engineering around this issue, at least as of now. Benjamin Lawsky, New York’s superintendent of financial services, threatened to yank the license for the New York branch of the first miscreant he dealt with, Standard Chartered. </span></div><div abp="413"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="414"><span style="font-family: Arial, Helvetica, sans-serif;"><a abp="415" href="http://www.nakedcapitalism.com/2012/08/federal-regulators-trying-to-leash-and-collar-standard-chartereds-nemesis-benjamin-lawsky.html" rel="nofollow">Federal and British regulators were outraged over his move</a>, but Federal regulators swiftly recognized that Lawsky had done them a huge favor. They vastly upped the ante when they went after other foreign banks that were defying the US by doing business through US payment systems with blacklisted foreign countries. Lawsky fined Standard Chartered for $340 million in 2012 and the Federal fines were an additional $327 million. As staggering as that was deemed to be at the time, it paled next to the <a abp="416" href="http://www.nakedcapitalism.com/2014/07/our-op-ed-at-cnn-on-bnp-paribas-settlement.html" rel="nofollow">$8.9 billion in fines plus criminal charges against BNP Paribas earlier this year</a>. (Lawsky <a abp="417" href="http://www.nakedcapitalism.com/2014/08/benjamin-lawsky-shows-other-bank-regulators-how-to-do-their-jobs.html" rel="nofollow">also hit Standard Chartered with a $300 million fine in August</a> for continuing compliance failures.) </span></div><div abp="414"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="418"><span style="font-family: Arial, Helvetica, sans-serif;">But many foreign banks, and even foreign regulators, were incensed by the magnitude of fines the US imposed for money laundering (as in using the US payments system to conduct transactions with verboten parties). French newspapers and politicians howled over the $8.9 billion fine against BNP Paribas. If the Russian payment system works (as in is NSA-proof, you can bet the US will set its best hacking talent against it), it would allow banks like BNP Paribas and Standard Chartered to deal with Iran. It would likely please them no end to get a bit of revenge on the US that way.</span></div><div abp="418"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="419"><span style="font-family: Arial, Helvetica, sans-serif;">In addition, there are likely businesses in Europe that are not keen about how complying with the EU sanctions against Russia is hurting their business. It isn’t clear how many would be willing to walk on the wild side and defy sanctions, but processing transactions through a Russian-controlled payment system would be far less susceptible to detection than through SWIFT. </span></div><div abp="419"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="420"><span style="font-family: Arial, Helvetica, sans-serif;">In other words, this measure is intended to reduce the effectiveness of using the dollar dominance in payments as a weapon. Whether the Russians can launch a robust enough system quickly is an open question, but this is a sensible defensive and potentially offensive measure. It may have longer-term ramifications if other countries that are not happy with the US decide to employ it for practical or political reasons. Stay tuned. </span></div><div abp="421" class="printfriendly pf-alignleft"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="421" class="printfriendly pf-alignleft"><a href="http://www.nakedcapitalism.com/2014/11/russia-launch-new-payments-system-circumvent-swift-network.html"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div></div></div><!-- Simple Share Buttons Adder (4.8) simplesharebuttons.com --><br /><div abp="424" class="ssba"><div abp="425"><br /></div></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-19582736497840217892014-11-11T03:30:00.000-08:002014-12-04T06:51:15.924-08:00Petrodollar Panic? China Signs Currency Swap Deal With Qatar & Canada<div abp="348"><span style="font-family: Arial, Helvetica, sans-serif;"><em abp="349"><strong abp="350">The march of global de-dollarization continues.</strong></em> In the last few days,<strong abp="351"> China has signed direct currency agreements with Canada becoming North America's first offshore RMB hub,</strong> <a abp="352" href="http://www.cbc.ca/news/politics/canada-china-sign-currency-deal-aimed-at-boosting-trade-1.2828707">which CBC reports</a> analysts suggest "could double maybe even triple the level of Canadian trade between Canada and China," impacting the need for Dollars.But that is not the week's biggest Petrodollar precariousness news,<a abp="353" href="http://www.examiner.com/article/china-signs-currency-swap-deal-with-qatar-the-heart-of-petro-dollar-system"> as The Examiner reports,</a> a <strong abp="354">new chink in the petrodollar system was forged as China signed an agreement with Qatar to begin direct currency swaps between the two nations</strong> using the Yuan, and establishing the foundation for new direct trade with the OPEC nation in the very heart of the petrodollar system. As Simon Black warns, <span abp="355" style="text-decoration: underline;"><em abp="356">"It’s happening... with increasing speed and frequency."</em></span></span></div><div abp="348"><span abp="355" style="text-decoration: underline;"><em abp="356"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></em></span></div><div abp="357"><a abp="358" href="http://www.cbc.ca/news/politics/canada-china-sign-currency-deal-aimed-at-boosting-trade-1.2828707"><em abp="359"><span style="font-family: Arial, Helvetica, sans-serif;">As CBC reports,</span></em></a></div><blockquote abp="360"><div abp="361" class="quote_start"><div abp="362"></div></div><div abp="363" class="quote_end"><div abp="364"></div></div><div abp="365"><span style="font-family: Arial, Helvetica, sans-serif;">Authorized by China's central bank,<span abp="366" style="text-decoration: underline;"><strong abp="367"> the deal will allow direct business between the Canadian dollar and the Chinese yuan, cutting out the middle man — in most cases, the U.S. dollar.</strong></span></span></div><div abp="368"><br /></div><div abp="369"><span style="font-family: Arial, Helvetica, sans-serif;">Canadian exporters forced to use the American currency to do business in China are faced with higher currency exchange costs and longer waits to close deals.</span></div><div abp="370"><br /></div><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;">"It's something the prime minister has been talking about. He wants Canadian companies, particularly small- and medium-sized businesses, doing more and more work in China, selling goods and services there," said CBC's Catherine Cullen, reporting from Beijing.</span></div></blockquote><div abp="372"><a abp="373" href="http://www.sovereignman.com/offshore-banking-2/still-happening-canada-just-became-north-americas-first-offshore-renminbi-hub-15541/"><em abp="374"><span style="font-family: Arial, Helvetica, sans-serif;">Sovereign Man's Simon Black has some ominous thoughts on Canada's move...</span></em></a></div><blockquote abp="375"><div abp="376" class="quote_start"><div abp="377"></div></div><div abp="378" class="quote_end"><div abp="379"></div></div><div abp="380"><strong abp="381"><span style="font-family: Arial, Helvetica, sans-serif;">It’s happening. With increasing speed and frequency.</span></strong></div><div abp="382"><br /></div><div abp="383"><span style="font-family: Arial, Helvetica, sans-serif;">The People’s Bank of China and the Canadian Prime Minister’s office issued a statement on Saturday stating that Canada will establish North America’s first offshore renminbi trading center in Toronto.</span></div><div abp="384"><br /></div><div abp="385"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="386">China and Canada agreed on a number of measures to increase the use of renminbi in trade, business, and investment. </strong>And they further signed a 200-billion renminbi bilateral currency swap agreement.</span></div><div abp="387"><br /></div><div abp="388"><span style="font-family: Arial, Helvetica, sans-serif;">Moreover, just today, hot off the presses, the<strong abp="389"> central banks of China and Malaysia announced the establishment of renminbi clearing arrangements </strong>in Kuala Lumpur, which will further increase the use of renminbi in South-East Asia.</span></div><div abp="390"><br /></div><div abp="391"><span style="font-family: Arial, Helvetica, sans-serif;">This <strong abp="392">comes just two weeks after Asia’s leading financial center, Singapore, became a major renminbi hub,</strong> with direct convertibility established between the Singapore dollar and the renminbi.</span></div></blockquote><div abp="393"><span style="font-family: Arial, Helvetica, sans-serif;">And as Black notes, <strong abp="394">everyone is in on the trend. All across the world, the renminbi is quickly becoming THE currency for trade, investment, and even savings.</strong></span></div><blockquote abp="395"><div abp="396" class="quote_start"><div abp="397"></div></div><div abp="398" class="quote_end"><div abp="399"></div></div><div abp="400"><span style="font-family: Arial, Helvetica, sans-serif;">Renminbi deposits in South Korea, for example, surged 55-times in one single year. It’s stunning.</span></div><div abp="401"><br /></div><div abp="402"><span style="font-family: Arial, Helvetica, sans-serif;">The government of UK just issued a renminbi bond, becoming the first foreign government to issue debt in renminbi.</span></div><div abp="403"><br /></div><div abp="404"><span style="font-family: Arial, Helvetica, sans-serif;">Even the European Central bank is debating to include renminbi in its official reserves, while politicians the world over are sounding not-so-subtle warnings that a new non-dollar monetary system is needed.</span></div><div abp="405"><br /></div><div abp="406"><span style="font-family: Arial, Helvetica, sans-serif;">Nothing goes up or down in a straight line. And given how volatile Europe and the global economy continue to be, the dollar may certainly be in for its surges and bumps in the coming months.</span></div><div abp="407"><br /></div><div abp="408"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="409">But over the long-term it’s glaringly obvious where this trend is going: the rest of the world no longer wants to rely on the US dollar, and they’re making it a reality whether the US likes it or not</strong>.</span></div></blockquote><div abp="410"><span style="font-family: Arial, Helvetica, sans-serif;">And now, no lesser oil-producing state than controversial <strong abp="412">Qatar has signed an agreement too.. seemingly opening up the door to Petrodollar panic... (as The Examiner reports)</strong></span></div><blockquote abp="413"><div abp="414" class="quote_start"><div abp="415"></div></div><div abp="416" class="quote_end"><div abp="417"></div></div><div abp="418"><span style="font-family: Arial, Helvetica, sans-serif;">The petro-dollar system is the heart and soul of America's domination over the global reserve currency, and their right to make all nations have to purchase U.S. dollars to be able to buy oil in the open market. Bound through an agreement with Saudi Arabia and OPEC in 1973, this de facto standard has lasted for over 41 years and has been the driving force behind America's economic, political, and military power.</span></div><div abp="419"><br /></div><div abp="420"><strong abp="421"><span style="font-family: Arial, Helvetica, sans-serif;">But on Nov. 3 a new chink in the petro-dollar system was forged as China signed an agreement with Qatar to begin direct currency swaps between the two nations using the Yuan, and establishing the foundation for new direct trade with the OPEC nation in the very heart of the petro-dollar system.</span></strong></div><div abp="422"><br /></div><div abp="423"><strong abp="424"><span style="font-family: Arial, Helvetica, sans-serif;">While this new agreement between China and Qatar is only for the equivalent of $5.7 billion over the next three years, Qatar becomes the 24th nation to open its Forex market to the Chinese currency, and solidifies acceptance of the Yuan as a viable option for the future in the Middle East.</span></strong></div><div abp="425"><br /></div><div abp="426"><span abp="427" style="text-decoration: underline;"><span style="font-family: Arial, Helvetica, sans-serif;">China's central bank announced Monday that it has signed a currency swap deal worth 35 billion yuan (about 5.7 billion US dollars) with the central bank of Qatar.</span></span></div><div abp="428"><br /></div><div abp="429"><span abp="430" style="text-decoration: underline;"><span style="font-family: Arial, Helvetica, sans-serif;">The three-year deal could be extended upon agreement by the two sides,said a statement on the website of the People's Bank of China (PBOC).</span></span></div><div abp="431"><br /></div><div abp="432"><span abp="433" style="text-decoration: underline;"><span style="font-family: Arial, Helvetica, sans-serif;">Also on Monday, the two sides signed a memorandum of understanding on Renminbi clearing settlement in Doha. China agreed to extend the RMB Qualified Foreign Institutional Investor scheme to Qatar, with an initial quota of 30 billion yuan.</span></span></div><div abp="434"><br /></div><div abp="435"><span abp="436" style="text-decoration: underline;"><span style="font-family: Arial, Helvetica, sans-serif;">The deal marked a new step forward in financial cooperation between the two countries, and will facilitate bilateral trade and investment to help maintain regional financial stability, the statement said. - <a abp="437" href="http://www.chinadaily.com.cn/business/2014-11/03/content_18860134.htm">China Daily</a></span></span></div><div abp="438"><br /></div><div abp="439"><span style="font-family: Arial, Helvetica, sans-serif;">It is perhaps no coincidence that the term for the new agreement is set for three years, and is within the exact time frame being predicted by the director of the Finance Institute under the Development Research Center of the State Council, Zhang Chenghui for the Renminbi to become fully convertible in the global financial system.</span></div><div abp="440"><br /></div><div abp="441"><span style="font-family: Arial, Helvetica, sans-serif;"><a abp="442" href="http://www.zerohedge.com/news/2014-11-03/how-petrodollar-quietly-died-and-nobody-noticed"><strong abp="443">The need for new markets and a more stable trade currency in Qatar could be tied to a new report issued last week by French bank BNP Paribas which showed that petro-dollar recycling has fallen to its lowest levels in 18 years</strong></a>, signifying that even oil producing nations in the Middle East are finding it difficult to trust the U.S. dollar, and facilitate its use in trade due to its depreciation since the advent of the Federal Reserve's massive QE programs.</span></div><div abp="444"><br /></div><div abp="445"><u abp="446"><strong abp="447"><span style="font-family: Arial, Helvetica, sans-serif;">Nearly every week now, China, Russia, or one of the BRICS nations are finalizing agreements that supersede the old system of dollar trade and reliance on the petro-dollar system. And as many countries begin to reject the dollar due to the exported inflation that is growing in nations that are relegated to having to hold them for global oil purchases, alternatives such as the Chinese Yuan will become a more viable option, especially now that the Asian power has taken over the top spot as the world's biggest economy.</span></strong></u></div></blockquote><a href="http://www.zerohedge.com/news/2014-11-10/petrodollar-panic-china-signs-currency-swap-deal-qatar-canada">Source </a>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-4881945744934357622014-11-10T02:07:00.000-08:002014-12-04T06:51:15.941-08:00The System Is Terminally Broken<div abp="389"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="390">The Fed has formally “ended” QE, but it hasn’t really. </strong> The Fed will continue reinvesting interest on its portfolio in more bonds and it will rollover maturities. We saw what happens to the stock market a few weeks ago when Fed official James Bullard asserted that the Fed needs to start raising rates: the S&P 500 quickly dropped 8%. Right at the bottom of the drop, the very same Bullard issued a statement suggesting that QE should be extended. This triggered an insanely abrupt “V” move back up to a new record high for the S&P 500. Bullard either did this intentionally or is a complete idiot.</span></div><div abp="389"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="391"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="392">The stock market can’t function without Federal Reserve intervention. </strong> The stock market lost 8% quickly on just the thought that the Fed might start raising rates. Imagine what would happen if the Fed decided to “experiment” by shutting down its market intervention operations – both verbal and physical – for a month…</span></div><div abp="391"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="393"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="394">As for QE, if the Fed has achieved its objective of stimulating the economy, why doesn’t it start removing the $2.6 trillion of liquidity that it has injected into its member banks (<a abp="395" href="http://research.stlouisfed.org/fred2/series/EXCSRESNW?rid=283" target="_blank">LINK</a>)? </strong> This was money that was supposed to be directed at the economy. How come it’s sitting on bank balance sheets earning .25% interest? That’s $6.5 billion in free interest the Fed continues to inject into the Too Big To Fail banks. But why? What would happen if the Fed decided to “experiment” by removing this massive dead-pool of money from the banks? The money isn’t really “dead,” it’s keeping the banks from collapsing.</span></div><div abp="393"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;">I’m interested to watch the Government Treasury bond auctions now that the Fed is not there to soak up anywhere from 50-100% of each issue. I wonder if the banks will be moving their $2.6 trillion in Excess Reserves into new Treasury issuance. Obama is going around broadcasting the lie that the Government’s spending deficit in FY 2014 was something like $600 billion. Yet, the amount of new Treasury bonds issued increased by $1 trillion over the same period. Either Obama is lying or the accountants at the Treasury committed a big typo. Either the Fed has found a way to continue opaquely monetizing new Government debt issuance, or the market is soon going to force U.S. interest rates up much higher.</span></div><div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="397"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="398">By continuously intervening in all of the markets, the Fed has destroyed the information transmission system that is built into freely trading markets. </strong> If the Fed left the gold market alone – instead of hammering away with the naked shorting of Comex paper gold – the price of gold would be significantly higher than where it is now. This would be the market’s signal that our system is indeed terminally broken.</span></div><div abp="397"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="399"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="400">Instead, the Fed keeps interest rates artificially low in hopes of stimulating a recovery in consumption and housing.</strong> But if this is working, how come the country’s two largest retailers have begun Black Friday shopping discounts on November 3rd (<a abp="401" href="http://nypost.com/2014/10/31/its-no-trick-amazon-starts-black-friday-season-now/?utm_campaign=SocialFlow&utm_source=NYPTwitter&utm_medium=SocialFlow" target="_blank">LINK</a>)? And the Fed keeps pushing stocks higher to new record highs in order to “stimulate” confidence and faith in the system. The fact that the stock market craps its pants when the Fed steps away for a split-second tells us just how broken this transmission mechanism is. That 8% drop 4 weeks ago is the real signal that our system is terminally broken.</span></div><div abp="399"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="402"><span style="font-family: Arial, Helvetica, sans-serif;">And now it’s emerging that the Q3 GDP report was greatly inflated by a <a abp="403" href="http://www.aei.org/publication/surprisingly-strong-us-gdp-report-cause-statistical-error/" target="_blank">statistical error </a>which erroneously boosted the Government spending component. It was this component that juiced the GDP report because residential investment (housing) and personal expenditures (consumption) both tanked. Imagine that – a statistical error artificially boosted the GDP report right before a national election…</span></div><div abp="402"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="404"><span style="font-family: Arial, Helvetica, sans-serif;">A colleague of mine has concluded that the QE infinity policy implemented Friday in Japan is<strong abp="405"> the market’s signal that the entire western fiat system is getting close to imploding.</strong> I’m inclined to agree with him. Wall Street, the financial media and politicians are pointing at Europe and Japan as the source of the problems. But the heart and nerve center of the western fiat currency/debt Ponzi scheme is right under our nose in this country. The U.S. financial system is in worse shape than both Japan and Europe. The only difference is that the U.S. officials do a much better job hiding these problems.</span></div><div abp="404"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="406"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="407">Time is starting to run out for ability of the U.S. to keep kicking the can of collapse down the road. </strong> I really believe that the full-on intensity of the recent intervention in the precious metals market is the most obvious signal of time expiring. China has been accumulating physical gold at a stunning rate and now some research indicates that China’s Central Bank may have accumulated significantly more gold than anyone previously thought (<a abp="408" href="http://www.goldmoney.com/research/analysis/china-s-gold-strategy" target="_blank">LINK</a>). China has most likely maneuvered itself into owning the world’s largest stock of gold, which is where the U.S. had positioned itself after WW2. China has done this to a large degree by buying massive quantities of western Central Bank gold.</span></div><div abp="406"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="409"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="410">We’ve come full circle, only with China in the Midas throne this time around.</strong> Eventually the world is going to revert back to a gold-backed currency system. When this happens, the U.S. will be required to demonstrate that it possesses the amount of gold that it reports to own. The only caveat here is that I believe that the U.S. will start WW3 before it’s forced to reveal the truth about its empty gold vault. <strong abp="411">That’s how broken our system really is…</strong></span></div><div abp="409"><strong abp="411"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="409"><span abp="411"><a href="http://www.zerohedge.com/news/2014-11-09/system-terminally-broken"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></span></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-59222085825209429432014-11-07T00:58:00.000-08:002014-12-04T06:51:15.994-08:00Ritual Incantation - The Economic Gibberish Of The Keynesian Apparatchiks<div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;">If you want an illustration of the utter intellectual bankruptcy of our Keynesian policy overlords just review the attached Wall Street Journal piece on yet another downgrade by the EC of its official economic growth forecast. What’s illuminating is not that the savants of Brussels were wrong by a country-mile yet again, but that they persist in a mechanistic numbers game that resembles nothing so much as ritual incantation.</span></div><div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="397"><span style="font-family: Arial, Helvetica, sans-serif;">Yep, the Keynesian priesthood is operating from sacred texts and magic numbers. One of these revelations says that 2% inflation was decreed by the great god of GDP and that any shortfall will precipitate his wrathful extractions from growth and jobs. But there is not a shed of empirical evidence for 2% versus 1% or 3% annual change in consumer inflation—–even if it were honestly measured. Its just revealed word as transmitted by the Keynesian priesthood.</span></div><div abp="397"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="398"><span style="font-family: Arial, Helvetica, sans-serif;">Another sacred tenent avers that in handing down the laws of proper economic life, the Keynesian creator ordained that governments everywhere and always must strive to bring GDP growth to its full employment “potential” rate. No exceptions. World without end.</span></div><div abp="398"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="399"><span style="font-family: Arial, Helvetica, sans-serif;">While the texts are not clear on the precise numeric value of this divinely ordained rate of potential GDP growth, today’s congregants claim that it’s about 3%, reflecting the historic trend growth of the labor supply plus productivity gains. In fact, however, we have achieved only about half of that—about 1.8% per annum—-in the US during the last 14 years, and even a lesser fraction in Europe.</span></div><div abp="399"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="400"><span style="font-family: Arial, Helvetica, sans-serif;">Accordingly, this imaginary trend line of “potential GDP” is now far above actual output levels. This yawning gap between the real economy and its revealed potential, in turn, enables the Keynesian priesthood to demand an endless crusade by the fiscal and central banking agencies of the state to close it.</span></div><div abp="400"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="401"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="402">This essentially means that the state’s economic apparatus is now all about stimulus, all of the time.</strong> In fact, the state’s central banking branch has gotten so deep into ritualized Keynesian governance that it’s essentially attempting to micro-manage vast accumulations of GDP—-about $17 trillion each in the US and Europe—-on a monthly basis.That’s entirely what the meeting statements and post-meeting press conferences are all about.</span></div><div abp="401"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="403"><span style="font-family: Arial, Helvetica, sans-serif;">Yet this is absurd. The information flow in a $17 trillion economy is far too vast to be digested and assessed by the 12 mortal members of the FOMC, and their policy control instrument—-the bludgeon of interest rate manipulations—- could not possibly shape its short-run course in any event. That’s especially true since the macro-economy is not a closed system, but one open to every manner of complicating and countervailing influence from trade, capital flows and financial impulses in a $80 trillion global economy.</span></div><div abp="403"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="404"><span style="font-family: Arial, Helvetica, sans-serif;">Still, the Keynesian policy apparatchiks have not even an inkling that they are attempting the impossible or that their patter about objectives, forecasts and policy actions have gotten downright moronic. And here’s where the EC’s latest retreat on its official forecast is so ludicrously illustrative.</span></div><div abp="404"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="405"><span style="font-family: Arial, Helvetica, sans-serif;">Given the massive complexity of the global economy—plus the tidal forces being unleashed by Japan’s yen destruction campaign, the cooling of China’s monumental construction binge, the dead-in-the-water bankruptcy of most of Europe and the massive shift of income and wealth to the top 1% in America— no one in their right mind should attempt to predict GDP growth to the exact decimal point three years into the future or even one year for that matter. There are imponderables, uncertainties and aberrations everywhere, and none of them are in the Keynesians’ primitive DSGE models.</span></div><div abp="405"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="406"><span style="font-family: Arial, Helvetica, sans-serif;">Yet like the Keynesian apparatus everywhere in the modern world, the EC bureaucrats are pleased to try, and feel compelled to make hairline adjustments twice a year—-mainly to cover their chronic back-pedaling on the near-term picture which, in any event, reveals itself soon enough.</span></div><div abp="406"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="407"><span style="font-family: Arial, Helvetica, sans-serif;">Thus, not too long ago the EC projected that real output gains averaged across 18 hugely divergent eurozone economies would average 2.5% during 2015. By the time of this year’s spring forecast revision, the projection was down to 1.7%; and now its fall update downgrades it further to 1.1%. Yes, and while they were splitting economic hairs, the EC prognosticators decided to embrace nine months of “disappointing” reality that has already occurred and lower the 2014 forecast to 0.8% from the spring level of 1.2%.</span></div><div abp="407"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="408"><span style="font-family: Arial, Helvetica, sans-serif;">While it was at it, the EC also resurrected its 1.7% GDP forecast—-which was projected for 2014 awhile back before it was lowered in semi-annual nicks to its current 0.8% level. It seems that this magical 1.7% growth number for the third year forward is never really abandoned; its just rolled forward year after year. Indeed, it had earlier been shuffled forward to 2015, but since that now seems out of reach, the Brussels prognosticators had no trouble seeing it coming clearly into view for 2016.</span></div><div abp="408"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="408"><span style="font-family: Arial, Helvetica, sans-serif;">This paint-by-the-numbers ritual is ridiculous because it makes not a wit of difference whether the outlook for GDP three years into the future is 0.8%, 1.2%, 1.7% or any other number in that range. Its just noise and foolishness.</span></div><div abp="409"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="410"><span style="font-family: Arial, Helvetica, sans-serif;">Why then do they persist in this pointless forecast ritual? Well, because it is written in the sacred texts that policy action to close the GDP gap is imperative, and that the size of the gap and the requisite policy interventions depend upon a macro forecast. The latter is, in effect, their policy intervention map.</span></div><div abp="410"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="411"><span style="font-family: Arial, Helvetica, sans-serif;">However, now that the output gap has become massive and the central bankers believe that there is vast “slack” in the labor force—- which is partly reflected in Europe’s official unemployment rates and largely obfuscated by the BLS’ dummied up U-3 numbers here—the Keynesian project faces a rude reality. Namely, that it is virtually impossible to believe that the “gap” and the “slack” are due to cyclical factors.</span></div><div abp="411"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="412"><span style="font-family: Arial, Helvetica, sans-serif;">Two simple time series prove the case. First, there has been virtually no increase in non-farm labor hours actually consumed by the US economy over the past 15 years. That’s not cyclical—–its a disastrous fundamental condition or trend.</span></div><div abp="412"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="413"><a abp="414" class="image-anchor" href="http://davidstockmanscontracorner.com/wp-content/uploads/2014/07/Untitled45.png" target="_blank"><span style="font-family: Arial, Helvetica, sans-serif;"><img abp="415" alt="Untitled" class="alignnone size-medium wp-image-15207" height="213" src="http://davidstockmanscontracorner.com/wp-content/uploads/2014/07/Untitled45-480x213.png" width="480" /></span></a></div><div abp="416"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="416"><span style="font-family: Arial, Helvetica, sans-serif;">Secondly, real median household incomes have been trending down for the past 15 years, as well. That too is not about temporary “cyclical” slack; it is a measure of a failing, decaying national economy.</span></div><div abp="416"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="417"><span style="font-family: Arial, Helvetica, sans-serif;"><img abp="418" alt="" class="rg_i" data-src="https://encrypted-tbn1.gstatic.com/images?q=tbn:ANd9GcT_8VzRsKvGkemGaM5lEXxXyS-XlavTmIAXIJJy_y5E8kIbj_SJnw" data-sz="f" name="XRyhyQnSBdXx0M:" src="https://encrypted-tbn1.gstatic.com/images?q=tbn:ANd9GcT_8VzRsKvGkemGaM5lEXxXyS-XlavTmIAXIJJy_y5E8kIbj_SJnw" /></span></div><div abp="419"><strong abp="420"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="419"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="420">So today’s perpetual stimulus policy is utterly unsuited to the real problems at hand because these deep challenges dwell on the supply side of the economy.</strong> The latter has become freighted down with debt, taxes, regulatory barriers, crony capitalist inefficiencies and welfare state inducements to dependency. They have nothing to do with “aggregate demand”, and couldn’t be solved with even more household and business borrowing on top of the mountains of debt already on their balance sheets. The Fed’s lunatic ZIRP policy has already proven that it can’t actually stimulate credit fueled spending for consumer and capital goods owing to the roadblock of “peak debt”.</span></div><div abp="419"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="421"><span style="font-family: Arial, Helvetica, sans-serif;">Yet the Keynesian apparatchiks continue to demand counter-cyclical “stimulus” because they are intoxicated in ritual incantation based on an earlier, more primitive Keynesian catechism. Those original texts called for episodic action at the bottom of the business cycle to prime the pump and overcome recessions. Stimulus was the exceptional condition, not the norm; it embodied the notion that after the state’s kick start——market capitalism could largely take care of itself. The corollary was that fiscal and monetary policy would rapidly normalize once the recovery commenced.</span></div><div abp="421"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="422"><span style="font-family: Arial, Helvetica, sans-serif;">Indeed, the “business Keynesians” of the early 1960’s promised that there would be an off-setting fiscal surplus during the top half of the cycle. <em abp="423"><strong abp="424">Therefore “counter-cyclical deficits” were not a form of monetization of the state’s debts because the borrowing involved was held to be only temporary (i.e. would be repaid from recovery period surpluses).</strong> </em>And central bankers like the great William McChesney Martin, who was no Keynesian at all, actually did endeavor to “lean against the wind” during the up-cycle and even take away the punch bowel just when the party got started.</span></div><div abp="422"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="425"><span style="font-family: Arial, Helvetica, sans-serif;">But somewhere during the last two decades the Keynesian stimulus project migrated from the fiscal authorities to the central banks. This had far-reaching consequences because it shifted the locus of policy making from the unruly, paralysis prone machinery of legislative budgets and taxes to unelected bureaucrats and academics endowed with virtually plenary powers and 13 year terms.</span></div><div abp="425"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="426"><span style="font-family: Arial, Helvetica, sans-serif;">What is worse, it put them in the full-time business of fiddling with the money and capital markets in the false belief that they could control the evolution of the macro-economy through its financial nerve center and deftly guide GDP back to the ordained path of full employment.</span></div><div abp="426"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="427"><span style="font-family: Arial, Helvetica, sans-serif;">Consequently, all hell has broken loss. These interventions have not levitated the real economy, nor have they closed the imaginary output gap. Instead, massive central bank stimulus has destroyed honest capital markets and enabled a giant casino of speculators to feast on the free money and market props, puts and bailouts offered by the central banks.</span></div><div abp="427"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="428"><span style="font-family: Arial, Helvetica, sans-serif;">Yet the true danger is not simply that the Keynesians are caught in a time warp. That is, that the fiscal Keynesianism taught by James Tobin in the 1960’s was OK because it was counter-cyclical help from the state to the private economy, but the 24/7 central banker Keynesianism practiced by his PhD student, Janet Yellen, has gone too far and is now obsolete.</span></div><div abp="428"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="429"><span style="font-family: Arial, Helvetica, sans-serif;">No, Keynesianism was always wrong. It is predicated on the alleged inherent cyclical instability of market capitalism, and a purported tendency to chronically tumble into recession, depression and an economic black hole absent the ministrations of the state.</span></div><div abp="429"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="430"><span style="font-family: Arial, Helvetica, sans-serif;">But the evidence for that is the founding event of the Keynesian gospel—–the Great Depression of the 1930s. Yet tragic as it was for mankind everywhere, the disaster of the 1930’s was not due to the inherent instabilities of capitalism or an unregulated free market.</span></div><div abp="430"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="431"><span style="font-family: Arial, Helvetica, sans-serif;">Instead, the Great Depression was born in the financial mayhem of World War I, which destroyed the monetary system and engulfed the world in debt and inflation; and in the 1920s manipulations of the Fed, Bank of England and other central banks as they attempted to restore the pre-1914 status quo ante without the fiscal and financial discipline that was part and parcel of the prosperity and stability that flowed from the liberal international order based on the gold standard and free trade in goods, capital and labor.</span></div><div abp="431"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="432"><span style="font-family: Arial, Helvetica, sans-serif;">All the milder business cycles since then have been generated by the state. These include the excesses of war finance and an overheated economy, as in the case the Korean and Vietnam wars; and the peacetime spells of excessive credit creation enabled by central banks, which had to then correct their own excesses through monetary stringency and recession.</span></div><div abp="432"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="433"><span style="font-family: Arial, Helvetica, sans-serif;">In open economies and a global trading system the only thing which counts is prices, not aggregates. America’s problem is that its production costs and labor prices are too high and its subsidies for inefficient production and non-production are too great. That is the reason why there is so much labor “slack” and why the growth of output and wealth has been so tepid since the late 1990s when the “china price” became the driving force in the global economy.</span></div><div abp="433"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="434"><span style="font-family: Arial, Helvetica, sans-serif;">Stated differently, the Keynesian notions of “potential GDP” and “aggregate demand” have no basis in the real world. They are revealed doctrine. They are the religion of the state’s economic policy apparatus.</span></div><div abp="434"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="435"><span style="font-family: Arial, Helvetica, sans-serif;">Its bad enough that this destructive economic religion leads to the farcical forecasting games evident in the EC’s chronic updates and slow-walks of the GDP numbers down. The evil, however, is that the Keynesian apparatchiks will not desist in their destructive money printing and borrowing until they have suffocated free market capitalism entirely, and have monetized so much public debt that the financial system simply implodes.</span></div><div abp="435"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="436" class="author mobile-scrim hasMenu open" data-scrim="{"type":"author","header":"Gabriele Steinhauser","subhead":"The Wall Street Journal","list":[{"type":"link","icon":"bio","url":"http://topics.wsj.com/person/A/biography/7314","text":"Biography"},{"type":"link","icon":"email","url":"mailto:Gabriele.Steinhauser@wsj.com","text":"Gabriele.Steinhauser@wsj.com"},{"type":"link","icon":"twitter","url":"http://twitter.com/gksteinhauser","text":"@gksteinhauser"},{"type":"link","icon":"google","url":"https://plus.google.com/102810271257307731589","text":"Google+"}]}"></div><div abp="437" class="author mobile-scrim hasMenu open" data-scrim="{"type":"author","header":"Gabriele Steinhauser","subhead":"The Wall Street Journal","list":[{"type":"link","icon":"bio","url":"http://topics.wsj.com/person/A/biography/7314","text":"Biography"},{"type":"link","icon":"email","url":"mailto:Gabriele.Steinhauser@wsj.com","text":"Gabriele.Steinhauser@wsj.com"},{"type":"link","icon":"twitter","url":"http://twitter.com/gksteinhauser","text":"@gksteinhauser"},{"type":"link","icon":"google","url":"https://plus.google.com/102810271257307731589","text":"Google+"}]}"><em abp="438"><strong abp="439"><span style="font-family: Arial, Helvetica, sans-serif;">By Gabriele Steinhauser at The Wall Street Journal</span></strong></em><div abp="441"></div><div abp="442" class="info-name"></div></div><div abp="437" class="author mobile-scrim hasMenu open" data-scrim="{"type":"author","header":"Gabriele Steinhauser","subhead":"The Wall Street Journal","list":[{"type":"link","icon":"bio","url":"http://topics.wsj.com/person/A/biography/7314","text":"Biography"},{"type":"link","icon":"email","url":"mailto:Gabriele.Steinhauser@wsj.com","text":"Gabriele.Steinhauser@wsj.com"},{"type":"link","icon":"twitter","url":"http://twitter.com/gksteinhauser","text":"@gksteinhauser"},{"type":"link","icon":"google","url":"https://plus.google.com/102810271257307731589","text":"Google+"}]}"><em abp="438"><strong abp="439"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></em></div><div abp="443"><span style="font-family: Arial, Helvetica, sans-serif;">The European Commission on Tuesday cut its growth forecasts for the eurozone and the European Union, citing the tensions in Ukraine and the Middle East along with a lack of investment.</span></div><div abp="443"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="444"><span style="font-family: Arial, Helvetica, sans-serif;">The EU’s executive arm now also expects inflation in the eurozone to remain below the close-to 2% targeted by the European Central Bank until at least 2016. That is likely to boost expectations of stronger measures by the ECB such as large-scale purchases of government bonds and other assets.</span></div><div abp="444"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="445"><span style="font-family: Arial, Helvetica, sans-serif;">The commission said it now expects gross domestic product in the 18-country eurozone to grow 0.8% this year, down from 1.2% growth it forecast this spring. In 2015, the eurozone economy will likely grow 1.1%, also less than the 1.7% growth seen in the spring. In 2016, growth in the currency union will rise to 1.7%, the commission said.</span></div><div abp="445"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="446"><span style="font-family: Arial, Helvetica, sans-serif;">The forecasts for the eurozone were dragged down by lower than-expected growth in big countries, including Germany, France and Italy, the latter of which expected to fall back into recession this year.</span></div><div abp="446"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="447"><span style="font-family: Arial, Helvetica, sans-serif;">The picture looks only mildly better for the broader EU. The 28 EU countries are now expected to grow on average 1.3% this year, down from 1.6% growth seen in the spring. Next year, EU GDP is expected to rise 1.5%, also below the 2% previously forecast. In 2016, growth is seen reaching 2%.</span></div><div abp="447"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="448"><span style="font-family: Arial, Helvetica, sans-serif;">“The economic and employment situation is not improving fast enough,” said Jyrki Katainen, the European Commission’s vice-president for jobs and growth. “The European Commission is committed to use all available tools and resources to deliver more jobs and growth in Europe.”</span></div><div abp="448"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="449"><span style="font-family: Arial, Helvetica, sans-serif;">Significantly for investors, the commission said eurozone inflation is likely to be 0.5% this year and 0.8% in 2015. Even in 2016, inflation in the currency union is forecast at just 1.5%, still below the close-to-2% targeted by the ECB, the commission said. Those 2014 and 2015 forecasts undershoot the ECB’s own inflation expectations released in September. At the time, the ECB said it expected eurozone inflation to be 0.6% this year and 1.1% in 2015.</span></div><div abp="449"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="450"><span style="font-family: Arial, Helvetica, sans-serif;">Low growth and low inflation will make it much harder for the eurozone to recover from its debt crisis, causing big problems for high-debt countries such as Greece, Italy and Spain, among others.</span></div><div abp="450"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="451"><span style="font-family: Arial, Helvetica, sans-serif;">Although most analysts don’t expect the ECB to announce new measures to stimulate inflation at its meeting on Thursday, Tuesday’s forecasts are likely to raise expectations of future action, including larger-scale asset purchases as were previously done by the U.S. Federal Reserve and the Bank of England.</span></div><div abp="451"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="452"><span style="font-family: Arial, Helvetica, sans-serif;">Tuesday’s forecasts also form the basis for the commission’s assessment of national governments’ 2015 budgets. While the lower-than-expected growth could mean some countries get extra time to bring their deficits below the 3% of GDP allowed under EU law, they are also likely to underpin demands for new cuts in some countries, including France and Italy. According to the forecasts, both Paris and Rome will fail to cut their 2014 deficits by as much as previously promised, even when the effects of the weak economy are stripped out.</span></div><div abp="452"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="452"><a href="http://davidstockmanscontracorner.com/ritual-incantation-the-economic-gibberish-of-the-keynesian-apparatchiks/"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com1tag:blogger.com,1999:blog-6482460317137763779.post-66605175879828803092014-11-06T04:05:00.000-08:002014-12-04T06:51:16.013-08:00Debt on Wheels<div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Soaring auto sales are not so much a sign of a strong economy as they are an indication of financial hanky-panky. We saw this same type of fakery play out in housing between 2004 – 2006, when prices went through the roof due to a mortgage-lending scam (“subprime”) that crashed the stock market and sent the economy reeling. Now the bigtime money guys are at it again, writing up auto loans for anyone who can sit upright in a chair and scribble an “X” on the dotted line. As a result, car sales have surged to over 16 million for the last 6 months. (A full 7 million more than the low point in January, 2009.) And it’s not hard to see why either. The finance gurus are packaging these sketchy subprimes into bonds, offloading them on eager investors, and recycling the profits into more crappy loans. It’s a perfect circle and it won’t end until the loans start blowing up, jittery investors head for the exits, and Uncle Sugar rides to the rescue with more bailouts.</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">But we’re getting ahead of ourselves. First take a look at these charts by House of Debt which shows the disparity between auto spending and other types of spending since the end of the slump in 2009.</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">House of Debt: “New auto purchases have driven the consumer spending recovery to a large degree. The chart below shows the spending recovery for new auto sales and for all other retail spending….</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><img alt="houseofdebtq" class="aligncenter size-full wp-image-74088" height="360" src="http://www.counterpunch.org/wp-content/dropzone/2014/11/houseofdebtq.jpg" style="display: block; margin: 0px auto; padding: 0px;" width="510" /></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">From 2009 to 2013, spending on new autos increased by 40% in nominal terms. All other spending increased by only 20%. Further, excluding autos, 2013 saw lower growth in nominal retail spending than 2012…..</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">The concern is that a lot of auto purchases are being fueled with debt, given a strong recovery in the auto loan market. Below is the net flow of auto loans from 2002 to 2013. It is a net flow because it includes pay downs in addition to new originations. As it shows, auto lending in 2012 and 2013 tops any other year during the previous expansion from 2002 to 2007 (although it is still below the amount of new auto loans in 2000 and 2001).</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><a href="http://www.counterpunch.org/wp-content/dropzone/2014/11/houseofdebt2.png" style="color: #cf1028; margin: 0px; padding: 0px; text-decoration: none;"><span style="font-family: Arial, Helvetica, sans-serif;"><img alt="houseofdebt2" class="aligncenter size-full wp-image-74089" height="371" src="http://www.counterpunch.org/wp-content/dropzone/2014/11/houseofdebt2.png" style="border: none; display: block; margin: 0px auto; padding: 0px;" width="510" /></span></a></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><em style="margin: 0px; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">(“<a href="http://houseofdebt.org/2014/03/31/another-debt-fueled-spending-spree.html" style="color: #cf1028; margin: 0px; padding: 0px; text-decoration: none;">Another Debt-Fueled Spending Spree?</a>” House of Debt) </span></em></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">How about that? So there’s a bigger debt bubble in auto loans today than there was before the bust. But why? Is it because demand is strong, jobs are plentiful, wages are rising, the economy is growing, and people are optimistic about the future?</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Heck, no. It’s because rates are low, credit is easy, and dealers are ready to put anyone with a license and a heartbeat into a brand-spanking new car no questions asked. Here are the details from an article in the New York Times titled “In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates” by Jessica Silver-Greenberg and Michael Corkery:</span></div><blockquote style="background-color: white; font-size: 16px; line-height: 21px; margin: 0px; padding: 0px 24px;"><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"> ”Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime — people with credit scores at or below 640.</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">The explosive growth is being driven by some of the same dynamics that were at work in subprime mortgages. A wave of money is pouring into subprime autos, as the high rates and steady profits of the loans attract investors. Just as Wall Street stoked the boom in mortgages, some of the nation’s biggest banks and private equity firms are feeding the growth in subprime auto loans by investing in lenders and making money available for loans.</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">And, like subprime mortgages before the financial crisis, many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds — a process that creates ever-greater demand for loans.</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">The New York Times examined more than 100 bankruptcy court cases, dozens of civil lawsuits against lenders and hundreds of loan documents and found that subprime auto loans can come with interest rates that can exceed 23 percent. The loans were typically at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers. Such loans can thrust already vulnerable borrowers further into debt, even propelling some into bankruptcy, according to the court records, as well as interviews with borrowers and lawyers in 19 states.</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">In another echo of the mortgage boom, The Times investigation also found dozens of loans that included incorrect information about borrowers’ income and employment, leading people who had lost their jobs, were in bankruptcy or were living on Social Security to qualify for loans that they could never afford.” (“In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates”, New York Times)</span></div></blockquote><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Can you believe that this kind of chicanery is going on in broad daylight without the regulators stepping in? Think about it for a minute: If the NYT’s journalists can find “dozens of loans that included incorrect information about borrowers’ income and employment”, then why can’t the government regulators? It’s ridiculous. What we’re talking about here is a new version of “liar’s loans” where dealers are helping people who don’t have the means to repay the debt, to fudge the details on their loan application so they can drive off in a shiny new Impala.</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Haven’t we seen this movie before?</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Here’s more from USA Today: “In the first quarter of 2014, 24.9% of all new-car loans were 73 to 84 months long. Four years ago, less than 10% of loans were that long. In fact, such lengthy terms have pulled the average new-car loan to 66 months. That’s an all-time record.”</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">7 years to pay off a car? You got to be kidding me? It’s like a second mortgage. And there’s more, too. The average monthly payment and average amount financed hit record highs in the first quarter too. This is from Auto News:</span></div><blockquote style="background-color: white; font-size: 16px; line-height: 21px; margin: 0px; padding: 0px 24px;"><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">“The average monthly new-vehicle payment was $474 in the first quarter, up 3.3 percent from a year ago. The average monthly used-vehicle payment was $352, up 1.1 percent, Experian Automotive said.</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Also in the first quarter, the average amount financed on a new-vehicle loan was $27,612, an increase of $964, or 3.6 percent. For used vehicles, the average amount financed was $17,927, up $395 or 2.3 percent.”</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">(“<a href="http://www.autonews.com/article/20140602/FINANCE_AND_INSURANCE/140609996/auto-loan-terms-monthly-payments-hit-high-in-q1-experian-says" style="color: #cf1028; margin: 0px; padding: 0px; text-decoration: none;">Auto loan terms, monthly payments hit high in Q1, Experian says</a>“, Auto News)</span></div></blockquote><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">So Americans are not just loading on more debt, they’re also assuming that they’re financial situation is going to be stable enough to make these large payments well into the future. Good luck with that.</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">It’s also worth noting that, in many transactions, dealers are actually lending more than the value of the vehicle. According to Reuters David Henry,</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">“The average loan-to-value on new cars rose to 110.6 percent… On used cars it rose to 133.2 percent…</span></div><blockquote style="background-color: white; font-size: 16px; line-height: 21px; margin: 0px; padding: 0px 24px;"><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"> Auto lenders often provide loans that exceed the value of cars they are financing because borrowers want cash to pay sales taxes and fees.”</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">(“<a href="http://www.reuters.com/article/2013/12/04/us-banks-autoloans-idUSBRE9B30K320131204" style="color: #cf1028; margin: 0px; padding: 0px; text-decoration: none;">U.S. car buyers borrow more as rates fall and standards loosen</a>“, David Henry, Reuters)</span></div></blockquote><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Let me see if I got this straight: You walk onto a car lot without a dime in your pocket, and drive off in a brand new car with everything paid for upfront? Such a deal! Can you see why we think that the sales numbers are a big fake? This isn’t the sign of a strong economy. It’s the sign of another gigantic credit bubble rip-off. But what do the dealers get out of this thing? Is it really worth their while to botch the underwriting when they know that eventually they’ll have to repossess the vehicle? Sure, it is, because there’s big money in stuffing people into loans they can’t afford.</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Here’s how the Times explains it: ”Auto loans to borrowers considered subprime, those with credit scores at or below 640, have spiked in the last five years. The jump has been driven in large part by the demand among investors for securities backed by the loans, which offer high returns at a time of low interest rates. Roughly 25 percent of all new auto loans made last year were subprime, and the volume of subprime auto loans reached more than $145 billion in the first three months of this year.”</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Bingo. So not only do they make dough on the high interest rates they charge their subprime borrowers, (Sometimes 23 percent or more.) they also make it by selling the loan to investors who are eager to buy any manner of crappy bond provided it offers a better return than US Treasuries. This is the mess Bernanke created by fixing interest rates at zero for nearly 6 years. Zirp (zero interest rate policy) unavoidably leads to excessive risk taking by yield-crazed speculators. The voracious appetite for subprime securities (ABS–Asset-Backed Securities) has even surprised the bond issuers who are constantly beating the bushes looking for sketchier products. This is from the same article by the NY Times:</span></div><blockquote style="background-color: white; font-size: 16px; line-height: 21px; margin: 0px; padding: 0px 24px;"><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">“Investors, seeking a higher return when interest rates are low, recently flocked to buy a bond issue from Prestige Financial Services of Utah. Orders to invest in the $390 million debt deal were four times greater than the amount of available securities.</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">What is backing many of these securities? Auto loans made to people who have been in bankruptcy.</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">An affiliate of the Larry H. Miller Group of Companies, Prestige specializes in making the loans to people in bankruptcy, packaging them into securities and then selling them to investors.</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">“It’s been a hot space,” Richard L. Hyde, the firm’s chief operating officer, said during an interview in March. Investors are betting on risky borrowers. The average interest rate on loans bundled into Prestige’s latest offering, for example, is 18.6 percent, up slightly from a similar offering rolled out a year earlier…. To meet that rising demand, Wall Street snatches up more and more loans to package into the complex investments.” (NYT)</span></div></blockquote><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">HA! Now there’s a good way to feather the old retirement fund; load up on bonds made up of loans to people who’ve gone bust.</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">This is the impact that zero rates have on investor behavior. The abundance of cheap and plentiful liquidity invariably leads to trouble. And there are victims in this Central Bank-authored gold rush too, namely the unsophisticated borrowers who pay prohibitively high rates on beater vehicles that are typically worth less-than-half the value of the loan. (Check the NYT article for examples.)</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">The Times also notes that the ratings agencies have been playing along with the finance companies just as they did during the subprime mortgage fiasco. Here’s more from the Times:</span></div><blockquote style="background-color: white; font-size: 16px; line-height: 21px; margin: 0px; padding: 0px 24px;"><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">“Rating agencies, which assess the quality of the bonds, are helping fuel the boom. They are giving many of these securities top ratings, which clears the way for major investors, from pension funds to employee retirement accounts, to buy the bonds. In March, for example, Standard & Poor’s blessed most of Prestige’s bond with a triple-A rating. Slices of a similar bond that Prestige sold last year also fetched the highest rating from S.&P. A large slice of that bond is held in mutual funds managed by<a href="http://dealbook.on.nytimes.com/public/overview?symbol=BLK&inline=nyt-org" style="color: #cf1028; margin: 0px; padding: 0px; text-decoration: none;">BlackRock</a>, one of the world’s largest money managers.” (NYT)</span></div></blockquote><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Ask yourself this, dear reader: How are the ratings agencies able to give “many of these securities top ratings”, when the investigators from the Times found “dozens of loans that included incorrect information about borrowers’ income and employment, leading people who had lost their jobs, were in bankruptcy or were living on Social Security to qualify for loans that they could never afford”?</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Let’s face it: The regulatory changes in Dodd-Frank haven’t done a damn thing to protect the victims of these dodgy subprime schemes. Borrowers and investors are both getting gouged by a system that only protects the interests of the perpetrators. The sad fact is that nothing has changed. The system is just as corrupt as it was when Lehman went down.</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">So, how long can this go on before the market implodes?</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">According to the Times:</span></div><blockquote style="background-color: white; font-size: 16px; line-height: 21px; margin: 0px; padding: 0px 24px;"><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">“financial firms are beginning to see signs of strain. In the first three months of this year, banks had to write off as entirely uncollectable an average of $8,541 of each delinquent auto loan, up about 15 percent from a year earlier, according to Experian….</span></div><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">In another sign of trouble ahead, repossessions, while still relatively low, increased nearly 78 percent to an estimated 388,000 cars in the first three months of the year from the same period a year earlier, according to the latest data provided by Experian. The number of borrowers who are more than 60 days late on their car payments also jumped in 22 states during that period….” (NYT)</span></div></blockquote><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">(According to Amber Nelson at <a href="http://loan.com/" style="color: #cf1028; margin: 0px; padding: 0px; text-decoration: none;">loan.com</a>: “In the second quarter, the value of all auto loans late by 60 days or more was more than $4 billion, up 27 percent from the prior year, according to Experian.”)</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">So, yeah, the trouble is mounting, but that doesn’t mean that this madness won’t continue for some time to come. It probably will. It’ll probably drag-on until the economy turns south and more borrowers start falling behind on their payments. That will lead to more defaults, heavier losses on auto bonds, and a hasty race to the exits by investors. Isn’t that how the subprime mortgage scam played out?</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Indeed. But at least there are signs of hope on the regulatory front. Check out this clip from an article at CNBC:</span></div><blockquote style="background-color: white; font-size: 16px; line-height: 21px; margin: 0px; padding: 0px 24px;"><div style="margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">“In August, both Santander Consumer and General Motors Financial Co. acknowledged receiving Justice Department subpoenas in connection with a probe over possible violations of civil-fraud laws. And the Consumer Financial Protection Bureau and the Securities and Exchange Commission have both stepped up their scrutiny of the auto-loan market.” (“<a href="http://www.cnbc.com/id/102049575" style="color: #cf1028; margin: 0px; padding: 0px; text-decoration: none;">New debt crisis fear: Subprime auto loans</a>“, CNBC)</span></div></blockquote><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">So the SEC, the DOJ, and the CFPB are actually investigating the underwriting practices of these behemoth finance companies to see if they violated “civil fraud laws”?</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Will wonders never cease?</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Just don’t hold your breath waiting for convictions.</span></div><div style="background-color: white; font-size: 16px; line-height: 21px; margin-bottom: 1em; padding: 0px;"><a href="http://www.counterpunch.org/2014/11/05/debt-on-wheels/"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-1025067142042954782014-11-05T04:10:00.000-08:002014-12-04T06:51:16.088-08:00National Economic Suicide: The U.S. Trade Deficit With China Just Hit A New Record High<div abp="313"><span style="font-family: Arial, Helvetica, sans-serif;"><a abp="314" href="http://theeconomiccollapseblog.com/archives/national-economic-suicide-the-u-s-trade-deficit-with-china-sets-a-new-record-high/economics-public-domain" rel="attachment wp-att-7975"></a>Did you know that we buy nearly five times as much stuff from the Chinese as they buy from us? According to government numbers that were just released, we imported 44.9 billion dollars worth of stuff from China in September but we only exported 9.3 billion dollars worth of stuff to them. And this is not happening because our economy is so much larger than China's. In fact, the IMF says that <a abp="316" href="http://endoftheamericandream.com/archives/not-just-the-largest-economy-here-are-26-other-ways-china-has-surpassed-america" target="_blank" title="China now has the largest economy on the entire planet">China now has the largest economy on the entire planet</a> on a purchasing power basis. No, the truth is that this is happening because our economy is broken. Every month, we consume far more wealth than we produce. Because the outflow of money is far greater than the inflow, we have to go to major exporting nations and beg them to lend our dollars back to us so that we can pay our bills. Meanwhile, the quality of the jobs in this country <a abp="317" href="http://theeconomiccollapseblog.com/archives/50-percent-of-american-workers-make-less-than-28031-dollars-a-year" title="continues to go down">continues to go down</a> and our formerly great manufacturing cities <a abp="318" href="http://theeconomiccollapseblog.com/archives/the-death-of-the-rust-belt" title="are rotting and decaying">are rotting and decaying</a>. We are committing national economic suicide, and most Americans don't seem to care.</span></div><div abp="313"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="319"><span style="font-family: Arial, Helvetica, sans-serif;">Barack Obama is constantly hyping a "manufacturing resurgence" in America, but the numbers don't lie. In September, our manufactured goods trade deficit with the rest of the world soared to a new all-time record high of 69.16 billion dollars. For the year, we are nearly 12 percent ahead of last year's record pace.</span></div><div abp="319"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="320"><span style="font-family: Arial, Helvetica, sans-serif;">When we buy far more things than we sell, we get poorer as a nation.</span></div><div abp="320"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="321"><span style="font-family: Arial, Helvetica, sans-serif;">How do you think that we ever got into a position of owing China more than a trillion dollars?</span></div><div abp="321"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="322"><span style="font-family: Arial, Helvetica, sans-serif;">We just kept buying far more from them than they bought from us, and their money just kept piling up. Now it has gotten to the point where our politicians literally beg them to lend our money back to us. They are the head and we are the tail.</span></div><div abp="322"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="323"><span style="font-family: Arial, Helvetica, sans-serif;">And we did this to ourselves.</span></div><div abp="323"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="324"><span style="font-family: Arial, Helvetica, sans-serif;">Once upon a time, the United States was the greatest manufacturing powerhouse that the world had ever seen. But now China manufactures <a abp="325" href="http://endoftheamericandream.com/archives/not-just-the-largest-economy-here-are-26-other-ways-china-has-surpassed-america" target="_blank" title="more stuff than us">more stuff than us</a> and China also accounts for <a abp="326" href="http://endoftheamericandream.com/archives/not-just-the-largest-economy-here-are-26-other-ways-china-has-surpassed-america" target="_blank" title="more total global trade">more total global trade</a> (imports plus exports) than us.</span></div><div abp="324"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="327"><span style="font-family: Arial, Helvetica, sans-serif;">This should never have happened. Several decades ago, the Chinese economy was a complete joke. But decades of incredibly foolish decisions by our politicians have resulted in the loss of tens of thousands of manufacturing facilities, millions of good paying jobs and the destruction of vast stretches of our economic infrastructure.</span></div><div abp="327"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="328"><span style="font-family: Arial, Helvetica, sans-serif;">During the same time frame, gleaming new manufacturing facilities have gone up all over China.</span></div><div abp="328"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="329"><span style="font-family: Arial, Helvetica, sans-serif;">China is literally wiping the floor with us on the global economic stage and most Americans don't even understand what is happening. Here is more on the trade deficit numbers that were just released from <a abp="330" href="https://alantonelson.wordpress.com/" target="_blank" title="the RealityChek Blog">the RealityChek Blog</a>...</span></div><blockquote abp="331"><div abp="332"><span style="font-family: Arial, Helvetica, sans-serif;">The China goods deficit of $35.56 billion blew past the old mark of $30.86 billion, set in July, by 15.23 percent. The new deficit also represented a 17.77 percent increase over the August level of $30.20 billion. </span></div></blockquote><blockquote abp="331"><div abp="332"> </div><div abp="333"><span style="font-family: Arial, Helvetica, sans-serif;">U.S. goods exports to the still strongly growing Chinese economy fell on month in September from $9.63 billion to $9.33 billion (3.12 percent). U.S. merchandise imports from China jumped by 12.70 percent over August levels, from $39.83 billion to $44.89 billion – itself an all-time high. </span></div></blockquote><blockquote abp="331"><div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;">The U.S. goods deficit with China this year is now so far running 5.62 percent ahead of 2014’s record pace. </span></div></blockquote><blockquote abp="331"><div abp="335"><span style="font-family: Arial, Helvetica, sans-serif;">The longstanding U.S. manufacturing trade shortfall shot up from $59.10 billion in August to $69.16 billion in September. This 17.02 percent jump resulted in a beat of the old record of $67.33 billion, also set in July, by 2.72 percent.</span></div></blockquote><div abp="336"><span style="font-family: Arial, Helvetica, sans-serif;">And it isn't just cheap plastic trinkets that China is selling to us.</span></div><div abp="336"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="337"><span style="font-family: Arial, Helvetica, sans-serif;">In fact, their number one export to us is computer equipment.</span></div><div abp="337"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="338"><span style="font-family: Arial, Helvetica, sans-serif;">Meanwhile, one of our main exports to them is "scrap and trash".</span></div><div abp="338"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="339"><span style="font-family: Arial, Helvetica, sans-serif;">For much more on how China is absolutely dominating us, please see my previous article entitled "<a abp="340" href="http://endoftheamericandream.com/archives/not-just-the-largest-economy-here-are-26-other-ways-china-has-surpassed-america" target="_blank" title="Not Just The Largest Economy – Here Are 26 Other Ways China Has Surpassed America">Not Just The Largest Economy – Here Are 26 Other Ways China Has Surpassed America</a>".</span></div><div abp="339"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="341"><span style="font-family: Arial, Helvetica, sans-serif;">Sadly, there are a couple of factors that will probably make our trade deficit with the rest of the world even worse in the months ahead.</span></div><div abp="341"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="342"><span style="font-family: Arial, Helvetica, sans-serif;">Number one, the <a abp="343" href="http://theeconomiccollapseblog.com/archives/its-currency-war-and-japan-has-fired-the-first-shot" title="currency war">currency war</a> that I wrote about earlier this week will probably push the U.S. dollar even higher against the yen and the euro.</span></div><div abp="342"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="344"><span style="font-family: Arial, Helvetica, sans-serif;">You might think that a rising dollar sounds good, but the truth is that it will make our exports less competitive in the global marketplace.</span></div><div abp="344"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="345"><span style="font-family: Arial, Helvetica, sans-serif;">Nations such as Japan devalue their currencies so that they can sell more stuff to us. But that hurts our own domestic industries. And when our own domestic industries suffer, that means less jobs for American workers.</span></div><div abp="345"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;">Secondly, the collapse in the price of oil could have very serious implications for the shale oil industry.</span></div><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;">In recent years, the shale oil revolution has caused local economic booms in states such as Texas and North Dakota. But shale oil tends to be quite expensive to extract. As I write this, the price of U.S. oil has fallen to about 77 dollars a barrel. If it stays at that level or keeps going down, shale oil production in the United States will slow down dramatically.</span></div><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="348"><span style="font-family: Arial, Helvetica, sans-serif;">In other words, a lot of these shale oil "boom towns" could go "bust" very rapidly.</span></div><div abp="348"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="349"><span style="font-family: Arial, Helvetica, sans-serif;">If that happens, the amount of oil that we import will rise substantially and that will add to our overall trade deficit.</span></div><div abp="349"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="350"><span style="font-family: Arial, Helvetica, sans-serif;">But of course the biggest factor fueling our trade deficit is that the vast majority of Americans simply do not care that we are committing national economic suicide.</span></div><div abp="350"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="351"><span style="font-family: Arial, Helvetica, sans-serif;">When we buy products made in America, we support American businesses and American workers.</span></div><div abp="352"><span style="font-family: Arial, Helvetica, sans-serif;">When we buy products made overseas, we hurt American businesses, we kill American jobs and we make ourselves poorer as a nation.</span></div><div abp="352"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;">Of course there is nothing wrong with buying a foreign-made product once in a while. But this holiday season, most people will fill their shopping carts to the brim with foreign-made goods without even thinking twice about it.</span></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="354"><span style="font-family: Arial, Helvetica, sans-serif;">The next time that you go into a huge retail establishment such as Wal-Mart, start picking up products and look to see where they were made.</span></div><div abp="354"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;">I think that you will be shocked at how few of them are actually made inside the United States.</span></div><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="356"><span style="font-family: Arial, Helvetica, sans-serif;">When are Americans going to get sick and tired of making China wealthier at our expense?</span></div><div abp="356"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="357"><span style="font-family: Arial, Helvetica, sans-serif;">We are willing participants in the destruction of the U.S. economy, and yet only a small minority of people seem to care.</span></div><div abp="357"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="358"><span style="font-family: Arial, Helvetica, sans-serif;">What is it going to take for people to finally wake up?</span></div><div abp="358"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="358"><a href="http://theeconomiccollapseblog.com/archives/national-economic-suicide-the-u-s-trade-deficit-with-china-sets-a-new-record-high"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-55732456636853917242014-11-04T00:52:00.000-08:002014-12-04T06:51:16.106-08:00It’s Currency War! – And Japan Has Fired The First Shot<div abp="313"><span style="font-family: Arial, Helvetica, sans-serif;"><a abp="314" href="http://theeconomiccollapseblog.com/archives/its-currency-war-and-japan-has-fired-the-first-shot/currency-war-public-domain" rel="attachment wp-att-7969"></a>This is the big problem with fiat currency - eventually the temptation to print more of it when you are in a jam becomes too powerful to resist. In a surprise move on Friday, the Bank of Japan dramatically increased the size of the quantitative easing program that it has been conducting. This sent Japanese stocks soaring and the Japanese yen plunging. The yen had already fallen by about 11 percent against the dollar over the last year before this announcement, and news of the BOJ's surprise move caused the yen to collapse to a seven year low. Essentially what the Bank of Japan has done is declare a currency war. And as you will see below, in every currency war there are winners and there are losers. Let's just hope that global financial markets do not get shredded in the crossfire.</span><br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="316"><span style="font-family: Arial, Helvetica, sans-serif;">Without a doubt, the Japanese are desperate. Their economic decline has lasted for decades, and their debt levels are off the charts. In such a situation, printing more money seems like such an easy solution. But as history has shown us, wild money printing always ends badly. Just remember what happened in the Weimar Republic and in Zimbabwe.</span></div><div abp="316"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="317"><span style="font-family: Arial, Helvetica, sans-serif;">At this point, the Bank of Japan is already behaving so recklessly that it is making the Federal Reserve look somewhat responsible in comparison. The following is how <a abp="318" href="http://davidstockmanscontracorner.com/the-boj-jumps-the-monetary-shark-now-the-machines-madmen-and-morons-are-raging/" target="_blank" title="David Stockman">David Stockman</a> summarized what just happened...</span></div><blockquote abp="319"><div abp="320"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="321">This is just plain sick</strong>. Hardly a day after the greatest central bank fraudster of all time, Maestro Greenspan, confessed that QE has not helped the main street economy and jobs, the lunatics at the BOJ flat-out jumped the monetary shark. Even then, the madman Kuroda pulled off his incendiary maneuver by a bare 5-4 vote. Apparently the dissenters——Messrs. Morimoto, Ishida, Sato and Kiuchi—-are only semi-mad. </span></div></blockquote><blockquote abp="319"><div abp="322"><span style="font-family: Arial, Helvetica, sans-serif;">Never mind that the BOJ will now escalate its bond purchase rate to $750 billion per year—-<strong abp="323">a figure so astonishingly large that it would amount to nearly $3 trillion per year if applied to a US scale GDP</strong>. And that comes on top of a central bank balance sheet which had previously exploded to nearly 50% of Japan’s national income or more than double the already mind-boggling US ratio of 25%.</span></div></blockquote><div abp="324"><span style="font-family: Arial, Helvetica, sans-serif;">The Japanese are absolutely destroying the credibility of their currency in a last ditch effort to boost short-term economic growth.</span></div><div abp="324"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="325"><span style="font-family: Arial, Helvetica, sans-serif;">So why would they want to devalue their currency?</span></div><div abp="325"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="326"><span style="font-family: Arial, Helvetica, sans-serif;">Well, there are too main reasons why nations do this.</span></div><div abp="326"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="327"><span style="font-family: Arial, Helvetica, sans-serif;">One reason is that it makes it easier to pay off debt. The government debt to GDP ratio in Japan is approximately 250 percent at the moment, and the total debt to GDP ratio is approximately 600 percent. When you have lots more money floating around, servicing crippling levels of debt becomes more feasible.</span></div><div abp="327"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="328"><span style="font-family: Arial, Helvetica, sans-serif;">Secondly, nations like to devalue their currencies because it makes their products less expensive on the world stage.</span></div><div abp="328"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="329"><span style="font-family: Arial, Helvetica, sans-serif;">In other words, it helps them sell more stuff to other people.</span></div><div abp="329"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="330"><span style="font-family: Arial, Helvetica, sans-serif;">But in the process, this hurts other exporters. For example, what the Bank of Japan just did is already having serious consequences for <a abp="331" href="http://online.wsj.com/articles/weak-yen-hits-south-korean-car-makers-1415014783" target="_blank" title="South Korean automakers">South Korean automakers</a>...</span></div><blockquote abp="332"><div abp="333"><span style="font-family: Arial, Helvetica, sans-serif;">In Seoul, shares of auto makers Hyundai Motor and Kia Motors fell 5.9% and 5.6%, respectively, on Monday. </span></div></blockquote><blockquote abp="332"><div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;">South Korean and Japanese companies often compete head-to-head in the same product groups in global markets, notably cars and electronics goods. </span></div></blockquote><blockquote abp="332"><div abp="335"><span style="font-family: Arial, Helvetica, sans-serif;">From the Bank of Japan’s standpoint, “you’re giving your industry a head start relative to someone else’s,” said Markus Rosgen, regional head of equity strategy at Citi in Hong Kong. “The perception in the equity market will be that they [South Korea] will have to take a hit from the lack of competitiveness versus the Japanese.”</span></div></blockquote><div abp="336"><span style="font-family: Arial, Helvetica, sans-serif;">This is why I said that there are winners and there are losers in every currency war.</span></div><div abp="336"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="337"><span style="font-family: Arial, Helvetica, sans-serif;">If you boost your exports by devaluing your currency, you take away business from someone else. And ultimately other nations start devaluing their currencies in an attempt to stay competitive. That is why they call it a currency war.</span></div><div abp="337"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="338"><span style="font-family: Arial, Helvetica, sans-serif;">For now, the Japanese are celebrating. On Friday, Japanese stocks surged almost five percent for the day and reached a seven year high. Investors tend to love quantitative easing, and they were very pleasantly surprised by what the Bank of Japan decided to do.</span></div><div abp="338"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="339"><span style="font-family: Arial, Helvetica, sans-serif;">But of course rising stock prices are not always a good thing. As <a abp="340" href="http://www.zerohedge.com/news/2014-11-03/usdjpy-tops-114-6-handles-sending-japanese-stocks-2000-points-fomc" target="_blank" title="Kyle Bass recently explained">Kyle Bass recently explained</a>, wild money printing caused Zimbabwe's stock market to skyrocket to unprecedented heights as well and that turned out very, very badly...</span></div><blockquote abp="341"><div abp="342"><span style="font-family: Arial, Helvetica, sans-serif;">Amid the euphoria... Kyle Bass provided a few minutes of sanity this morning in an interview with CNBC's Gary Kaminsky. Bass starts by reflecting on the ongoing (and escalating) money-printing (or balance sheet expansion as we noted here) as the driver of stock movements currently and would not be surprised to see them move higher still (given the ongoing printing expected). </span></div></blockquote><blockquote abp="341"><div abp="343"><span style="font-family: Arial, Helvetica, sans-serif;">However, he caveats that nominally bullish statement with a critical point, "<strong abp="344">Zimbabwe's stock market was the best performer this decade - but your entire portfolio now buys you 3 eggs</strong>" as purchasing power is crushed. Investors, he says, are "too focused on nominal prices" as the rate of growth of the monetary base is destroying true wealth. Bass is convinced that cost-push inflation is coming (as the velocity of money will move once psychology shifts) and investors must not take their eye off the insidious nature of underlying inflation - no matter what we are told by the government (as they will always lie when its critical). Own 'productive assets', finance them at low fixed rates (thank you Ben)...</span></div></blockquote><div abp="345"><span style="font-family: Arial, Helvetica, sans-serif;">And just like we have experienced with quantitative easing <a abp="346" href="http://theeconomiccollapseblog.com/archives/from-this-day-forward-we-will-watch-how-the-stock-market-performs-without-the-feds-monetary-heroin" title="in the United States">in the United States</a>, Japan's money printing has done very little to help the real economy. Here is more from <a abp="347" href="http://davidstockmanscontracorner.com/the-boj-jumps-the-monetary-shark-now-the-machines-madmen-and-morons-are-raging/" target="_blank" title="David Stockman">David Stockman</a>...</span></div><blockquote abp="348"><div abp="349"><span style="font-family: Arial, Helvetica, sans-serif;">Notwithstanding the massive hype of Abenomics, <strong abp="350">Japan’s real GDP is lower than it was in early 2013, while its trade accounts have continued to deteriorate and real wages have headed sharply south</strong>.</span></div></blockquote><div abp="351"><span style="font-family: Arial, Helvetica, sans-serif;">So up to this point Japan's experiment in crazy money printing has been a dismal failure.</span></div><div abp="352"><span style="font-family: Arial, Helvetica, sans-serif;">Will printing even more money turn things around?</span></div><div abp="352"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;">We shall see, but I wouldn't hold your breath.</span></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="354"><span style="font-family: Arial, Helvetica, sans-serif;">Meanwhile, there are reports that the European Central Bank is getting ready for more quantitative easing. Central banks all over the planet are becoming increasingly desperate for answers, and the temptation to print, print and print some more is extremely strong.</span></div><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;">Nobody is quite sure how this currency war will play out, but I have a feeling that it isn't going to be pretty.</span></div><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="355"><a href="http://theeconomiccollapseblog.com/archives/its-currency-war-and-japan-has-fired-the-first-shot"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-88723160942372672022014-11-02T23:32:00.000-08:002014-12-04T06:51:16.162-08:00FBI To Probe Accounting Fraud At Multi-Billion REIT<div abp="331"><span style="font-family: Arial, Helvetica, sans-serif;">While the Fed and the BOJ were by far the biggest news of the past week, explicitly admitting that the world simply can not exist without one central bank passing the monetization torch to someone else, a surprising, and scare for its shareholders, development took place when REIT American Realty Capital Properties, with a then-market cap of over $10 billion, announced, under the cover of the Fed ending QE3, that it had overstated its adjusted funds from operation, a cash flow key metric used by REITs, from the first- and second-quarters of 2014.As the <a abp="332" href="http://online.wsj.com/articles/fbi-opens-criminal-probe-into-american-realty-capital-amid-accounting-meltdown-1414963018?mod=WSJ_LatestHeadlines">WSJ reminds </a>us, while the amount of money involved, some $23 million, was "relatively small", the irregularities resulted in the resignation of the company’s chief financial officer, Brian Block, and chief accounting officer, Lisa McAlister.The result: <strong abp="333">a crash in the stock that wiped out nearly 30% or nearly $4 billion in market cap.</strong></span></div><div abp="331"><strong abp="333"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;">A bigger question of course is why did a multi-billion dollar company feel compelled to lie about what on the surface is peanutes, and what other lies plague the company's cash flow and income statements, not to mention its balance sheets. That, and also because there is never just one lack of cashflow cockroach, one wonders which other REITs have been systematically overstating their financial health. </span></div><div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="335"><span style="font-family: Arial, Helvetica, sans-serif;">We may learn soon, because as <a abp="336" href="http://www.reuters.com/article/2014/10/31/us-usa-arcp-investigation-exclusive-idUSKBN0IK2CR20141031">Reuters reports </a>the Federal Bureau of Investigation is conducting the investigation along with prosecutors from U.S. Attorney Preet Bharara's office in New York, the sources said. Further details of the probe could not be learned.</span></div><blockquote abp="337"><div abp="338" class="quote_start"><div abp="339"></div></div><div abp="340" class="quote_end"><div abp="341"></div></div><div abp="342"><span style="font-family: Arial, Helvetica, sans-serif;">American Realty Capital Properties said on Wednesday it would have to restate earnings after it discovered employees "intentionally made" accounting mistakes that caused it to understate net losses during the first half of 2014. Its chief accounting officer and chief financial officer resigned on Tuesday.</span></div><div abp="343"><br /></div><div abp="344"><span style="font-family: Arial, Helvetica, sans-serif;">Andy Merrill, a spokesman for American Realty Capital, had no immediate comment when contacted by Reuters.</span></div><div abp="345"><br /></div><div abp="346"><span style="font-family: Arial, Helvetica, sans-serif;">A criminal probe raises the stakes for the company, which has seen its shares fall almost 30 percent since the disclosure of the accounting issues on Wednesday, wiping out around $4 billion of its market value. The U.S. Securities and Exchange Commission is also investigating the company, according to the Wall Street Journal.</span></div></blockquote><div abp="347"><span style="font-family: Arial, Helvetica, sans-serif;">And once the FBI is ready done with ARCP, there are a whole lot of other "successful" real estate companies that are probably comparably rife with fraud. Because what ARCP has done is precisely the same as all those other "successful" roll ups have engaged in over the past few years : American Realty Capital Properties, which went public in 2011, is one in a web of investment companies and brokerages that have been rapidly built up over the past seven years by real estate investor Nicholas Schorsch.</span></div><blockquote abp="348"><div abp="349" class="quote_start"><div abp="350"></div></div><div abp="351" class="quote_end"><div abp="352"></div></div><div abp="353"><span style="font-family: Arial, Helvetica, sans-serif;">Schorsch served as the chief executive of the company until Oct. 1, when he was succeeded by President David Kay. </span></div><div abp="354"><br /></div><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;">Since then, Schorsch has turned his focus to RCS Capital, an affiliated investment management firm that he founded in 2012 and where he serves as executive chairman. </span></div><div abp="356"><br /></div><div abp="357"><span style="font-family: Arial, Helvetica, sans-serif;">Schorsch, who began building a portfolio of commercial real estate properties in the mid 1990s and is considered a pioneer in non-traded REITs, has been expanding RCS into a broad retail brokerage platform that would serve as a one-stop-shop for alternative investments. Its legion of brokers hit 9,700 just a little over a year after Schorsch began building it through a series of acquisitions. </span></div><div abp="358"><br /></div><div abp="359"><span style="font-family: Arial, Helvetica, sans-serif;">On the same day that Schorsch stepped down as CEO, American Realty Capital Properties said it was selling its private fund management business Cole Capital to RCS Capital for $700 million. </span></div><div abp="360"><br /></div><div abp="361"><span style="font-family: Arial, Helvetica, sans-serif;">Over the past year and a half, RCS has also bought a number of independent broker-dealers and investment advisors as well, including Cetera Financial Group, VSR Financial and J.P. Turner.</span></div></blockquote><div abp="362"><span style="font-family: Arial, Helvetica, sans-serif;">Some did raise red flags...</span></div><blockquote abp="363"><div abp="364" class="quote_start"><div abp="365"></div></div><div abp="366" class="quote_end"><div abp="367"></div></div><div abp="368"><span style="font-family: Arial, Helvetica, sans-serif;">Schorsch's fast-paced deal making has recently drawn some criticism, however. </span></div><div abp="369"><br /></div><div abp="370"><span style="font-family: Arial, Helvetica, sans-serif;">The hedge fund Marcato Capital Management, which at the time held 2.4 percent of American Realty Capital's outstanding shares, said in a letter in June that the company was improperly diluting its stock with new issuances and engaging in too many acquisitions in too short a time.</span></div></blockquote><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;">... which ironically is precisely the same that Bill Ackman-darling Valeant has been doing as well. One wonders when that particular house of cards will implode under its own (hollow) cash-free, non-GAAP weight? Whenever it doe, one can be sure that the FBI will be on the scene... just after the fraud is revealed for all to see.</span></div><div abp="371"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="372"><span style="font-family: Arial, Helvetica, sans-serif;">But the biggest question is when precisely will the FBI conduct a criminal probe in an accounting scandal <em abp="373"><strong abp="374">before </strong></em>it becomes public and before thousands of shareholders are wiped out? Of course, that would mean admitting that the whole premise of "earnings" and "cash flow" is as credible and realistic as the "fundamental" case for the S&P at just why of 2050, or 19x "earnings."</span></div><div abp="372"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="372"><a href="http://www.zerohedge.com/news/2014-11-02/fbi-probe-accounting-fraud-multi-billion-reit"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0tag:blogger.com,1999:blog-6482460317137763779.post-41116790359993900092014-10-31T01:35:00.000-07:002014-12-04T06:51:16.178-08:00The Dollar Decline Continues: China Starts Direct Convertibility With Asia's #1 Financial Hub<div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;">Earlier this week some of the <strong abp="335">biggest financial news of the year made huge waves all over Asia</strong>.</span></div><div abp="334"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="336"><span style="font-family: Arial, Helvetica, sans-serif;">Yet in the Western press, this hugely important information has barely even been mentioned.</span></div><div abp="336"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="343"><span style="font-family: Arial, Helvetica, sans-serif;">So what’s the news?</span></div><div abp="343"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="344"><u abp="345"><strong abp="346"><span style="font-family: Arial, Helvetica, sans-serif;">The Chinese government announced that the renminbi will become directly convertible with the Singapore dollar... effective immediately.</span></strong></u></div><div abp="344"><u abp="345"><strong abp="346"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></u></div><div abp="350"><span style="font-family: Arial, Helvetica, sans-serif;">It’s clear this deal has been in the works for a while, and it’s another major step towards the continued internationalization of the renminbi and unseating of the dollar as the world’s dominant reserve currency.</span></div><div abp="350"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="351"><span style="font-family: Arial, Helvetica, sans-serif;">For decades the renminbi has been a tightly controlled currency. It’s only been in the last few years that the Chinese government started loosening those controls, primarily in response to the obvious need for a dollar competitor.</span></div><div abp="351"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="352"><strong abp="353"><span style="font-family: Arial, Helvetica, sans-serif;">The entire world is <a abp="354" href="http://www.sovereignman.com/trends/russians-and-chinese-are-ditching-the-dollar-as-europeans-start-using-renminbi-in-their-reserves-15260/" target="_blank">screaming for an alternative to the dollar</a> and the US government.</span></strong></div><div abp="352"><strong abp="353"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;">Since the end of World War II, the US has been in the driver seat. The Fed essentially sets global monetary policy. Foreign banks are forced to rely on the US banking system. Nearly every nation on earth must hold US dollars and buy US government debt just to be able to trade with one another.</span></div><div abp="355"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="356"><span style="font-family: Arial, Helvetica, sans-serif;">These were sacred privileges entrusted to the US government. And they have been abused time and time again.</span></div><blockquote abp="357"><div abp="358" class="quote_start"><div abp="359"></div></div><div abp="360" class="quote_end"><div abp="361"></div></div><div abp="362"><strong abp="363"><em abp="364"><span style="font-family: Arial, Helvetica, sans-serif;">The US government spies on its allies. It uses its banking system as a weapon to threaten foreign companies. It fines foreign banks billions of dollars for doing business with countries it doesn’t like.</span></em></strong></div><div abp="365"><br /></div><div abp="366"><strong abp="367"><em abp="368"><span style="font-family: Arial, Helvetica, sans-serif;">They discredit themselves by continuing to <a abp="369" href="http://www.sovereignman.com/trends/new-data-shows-it-will-take-398879561-years-to-pay-off-the-debt-15309/" target="_blank">indebt future generations</a> and failing to make tough fiscal decisions.</span></em></strong></div><div abp="370"><br /></div><div abp="371"><strong abp="372"><em abp="373"><span style="font-family: Arial, Helvetica, sans-serif;">And the Fed has printed so much money that major foreign institutions are left with no choice but to seek an alternative. Enough is enough.</span></em></strong></div></blockquote><div abp="374"><span style="font-family: Arial, Helvetica, sans-serif;">China is taking the lead in providing the world with another option. And they’re not exactly doing this under cover of darkness. These moves have been widely telegraphed, at least to anyone paying attention.</span></div><div abp="374"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="375"><strong abp="376"><span style="font-family: Arial, Helvetica, sans-serif;">For the last few years the Chinese government has entered into new ‘swap agreements’ at blazing speed, allowing other nations’ central banks and governments to hold the renminbi in reserve.</span></strong></div><div abp="375"><strong abp="376"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;">They’ve concluded direct trade arrangements (notably with Russia) to settle oil and gas deals in renminbi.</span></div><div abp="377"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="378"><span style="font-family: Arial, Helvetica, sans-serif;">This summer we saw the establishment of a Chinese-led supranational bank intended to compete directly with the IMF.</span></div><div abp="378"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;">Just last week the British government issued a new government bond denominated in renminbi.</span></div><div abp="379"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="380"><span style="font-family: Arial, Helvetica, sans-serif;">And now this– direct convertibility between China and the #1 financial center in Asia, making it possible for ANYONE to trade and hold renminbi through Singapore.</span></div><div abp="380"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="381"><u abp="382"><strong abp="383"><span style="font-family: Arial, Helvetica, sans-serif;">It’s so obvious where this train is headed.</span></strong></u></div><div abp="381"><u abp="382"><strong abp="383"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></u></div><div abp="384"><span style="font-family: Arial, Helvetica, sans-serif;">But again, this story is hardly covered in the Western press. They’re living in a dream world where King Dollar still reigns and the US is the only superpower in the world.</span></div><div abp="384"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="385"><strong abp="386"><span style="font-family: Arial, Helvetica, sans-serif;">Nonsense. It’s imperative to stop listening to the propaganda and start paying attention to facts:</span></strong></div><blockquote abp="387"><div abp="388" class="quote_start"><div abp="389"></div></div><div abp="390" class="quote_end"><div abp="391"></div></div><div abp="392"><span style="font-family: Arial, Helvetica, sans-serif;">The US government has accumulated more debt than any other nation in the history of the world… and is in a position where they must borrow money to pay interest on the money they’ve already borrowed.</span></div><div abp="393"><br /></div><div abp="394"><span style="font-family: Arial, Helvetica, sans-serif;">The Federal Reserve (which issues the US dollar) continues to erode its balance sheet. According to last Wednesday H.4.1 report, the Fed’s capital base is a minuscule 1.26% of its total assets.</span></div><div abp="395"><br /></div><div abp="396"><span style="font-family: Arial, Helvetica, sans-serif;">A year ago it was 1.42%. That was bad enough. But on a proportional basis, the Fed has lost another 11.3% of its capital in the last twelve months.</span></div><div abp="397"><br /></div><div abp="398"><span style="font-family: Arial, Helvetica, sans-serif;">And according to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), international bank payments denominated in renminbi have nearly tripled in value in the past two years.</span></div></blockquote><div abp="399"><strong abp="400"><span style="font-family: Arial, Helvetica, sans-serif;">These are all objective facts which point to the same conclusion: this current dollar/<a abp="401" href="http://www.sovereignman.com/trends/quantitative-easing-is-like-treating-cancer-with-aspirin-15427/" target="_blank">debt-based system</a> is on the way out.</span></strong></div><div abp="399"><strong abp="400"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></strong></div><div abp="402"><span style="font-family: Arial, Helvetica, sans-serif;">It’s not going to happen overnight, but we’re already seeing a slow and orderly exit. And we can see the rest of this trend unfolding years in advance.</span></div><div abp="402"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="403"><span style="font-family: Arial, Helvetica, sans-serif;">Ignoring this could be very hazardous to your financial well-being. And while the Western media might be totally clueless, there are plenty of options for forward-thinking individuals.</span></div><ul abp="404"><li abp="405"><span style="font-family: Arial, Helvetica, sans-serif;">Consider holding Hong Kong dollars in addition to US dollars. Hong Kong dollars are currently pegged to the US dollar, so the currency risk is minimal. But if the US dollar declines sharply, Hong Kong (controlled by China) could easily de-peg. This mitigates your downside risk.</span></li><li abp="406"><span style="font-family: Arial, Helvetica, sans-serif;">Consider trading paper currency savings for productive REAL assets like farmland and private businesses which capitalize on key growth trends.</span></li></ul><div abp="344"><u abp="345"><span style="font-family: Arial, Helvetica, sans-serif;"><strong abp="346"></strong></span></u></div><div abp="407"><span style="font-family: Arial, Helvetica, sans-serif;">There are dozens of other solutions out there. You’ll be able to find some that are just right for your circumstances.</span></div><div abp="407"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div><div abp="407"><a href="http://www.zerohedge.com/news/2014-10-30/dollar-decline-continues-china-starts-direct-convertibility-asia-1-financial-hub"><span style="font-family: Arial, Helvetica, sans-serif;">Source</span></a></div>Anonymoushttp://www.blogger.com/profile/16299081477422346376noreply@blogger.com0