Wednesday, June 18, 2014
‘The truth is worse than we imagine’: One-fourth of public company deals involve insider trading
An award-winning new study claims that more
than a quarter of all public company deals involve transactions that
could be consider examples of insider trading.
The recently published report from Menachem
Brenner and Marti G. Subrahmanyam at New York University and Patrick
Augustin of McGill examined years of data concerning mergers and
acquisitions, or M&As, to spot unusual trends in the 30 days
preceding those announcement. According to their research, around
one-in-four deals contained evidence of insider trading.
“We became intrigued by reports of a
number of illegal insider trading cases in options ahead of takeover
announcements, in particular the leveraged buyout of Heinz by Warren
Buffet and 3G Capital,” co-author Augustin said in a statement. “Hence,
we set out to investigate whether instances of informed trading in
options occur systematically or whether they were just random bets.”
“The statistical evidence we present is
consistent with informed trading strategies, and is too strong to be
dismissed as just random speculation. Our findings likely will be highly
useful to regulators, firms and investors in understanding where and
how informed investors trade,” Augustin added.
Journalist Andrew Ross Sorkin called the group’s study “perhaps the most detailed and exhaustive of its kind” and said its results show that “the truth is worse than we imagine” when it comes down to just how commonplace insider trading really is.
The results of their study, Sorkin wrote, “are
persuasive and disturbing, suggesting that law enforcement is woefully
behind — or perhaps is so overwhelmed that it simply looks for the most
egregious examples of insider trading, or for prominent targets who can
attract headlines.”
Indeed, the professors wrote that their
research suggests that even though roughly a quarter of public deals
involve insider trading, the United States Securities and Exchange
Commission litigated only “about 4.7 percent of the 1,859 M&A deals included in our sample,” which was composed of hundreds of transactions made between 1996 and the end of 2012.
When the SEC does intervene, they added, it takes “on
average, 756 days to publicly announce its first litigation action in a
given case. Thus, assuming that the litigation releases coincide
approximately with the actual initiations of investigations, it takes
the SEC a bit more than two years, on average, to prosecute a rogue
trade,” which on average was worth about $1.6 million apiece, according to their study.
What’s more, though, is that the authors of
the report seem more than just a little certain with regards to their
work. The odds of insider trading “arising out of chance” and not being explicitly planned before the public announcement of an M&A is “about three in a trillion,” they wrote.
The paper was awarded top honors at this
year’s prestigious Investor Responsibility Research Center
Institute(IRRCi) annual investor research competition.
Reprinted with permission
Miami Sues Banking Giant Over Predatory Mortgages
Wave of suits against big banks for discriminatory lending practices continues
Andrea Germanos
The city of Miami on Friday filed a
lawsuit in a federal court against JPMorgan Chase & Co., accusing
the banking giant of a pattern of discriminatory loan practices “since
at least 2004″ which sparked foreclosures and violated the U.S. Fair
Housing Act.
“JPMorgan has engaged in a continuous pattern
and practice of mortgage discrimination in Miami since at least 2004 by
imposing different terms or conditions on a discriminatory and legally
prohibited basis,” Bloomberg reports lawyers for Miami as saying in the complaint.
The bank engaged in the discriminatory
practices “in order to maximize profits at the expense of the City of
Miami and minority borrowers,” the lawyers stated.
According to reporting by Reuters,
[a]fter issuing high-cost loans to minorities in the years before the housing crisis, JPMorgan later refused to refinance the loans on the same terms as it extended to whites, leading to defaults and foreclosures, the complaint said.
A spokesperson for the bank called the claims “baseless.”
The suit comes just weeks after JPMorgan was hit by a lawsuit from the city of Los Angelesthat also accuses the banking giant of discriminatory lending practices.
Both Miami and Los Angeles have filed similar lawsuits against Wells Fargo, Bank of America and Citigroup.
_________________________
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Goldman Sachs: Too big to rein in?
On June 11, Goldman Sachs agreed to pay $67m to settle a suit charging the firm and others with colluding to drive down the price of takeovers.
For another firm, paying out tens of millions of dollars to resolve allegations of collusion might provoke an existential crisis. Not for Goldman. The firm did not admit to any wrongdoing and said in a statement: “We’re pleased to put the matter behind us.”
That seems to sum up how Goldman would like to handle everything related to its role in politics and markets over the last two decades. The rest of us shouldn’t be too ready to do so.
To be sure, Goldman Sachs is not solely or even primarily responsible for the 2008 financial crash and the ensuing, worldwide Great Recession. There’s plenty of blame to go around.
But as the leading firm on Wall Street before the crash, as the company most entangled in high-level policymaking, as an innovator of overly complicated and socially destructive trading products and schemes, as an orchestrator of financial deregulation, as an enterprise with tentacles extending so far that it has been accused of manipulating aluminum markets, Goldman Sachs surely deserves plenty of blame.
Not for nothing did columnist Matt Taibbi famously call the firm “a great vampire squid wrapped around the face of humanity”.
Read more
For another firm, paying out tens of millions of dollars to resolve allegations of collusion might provoke an existential crisis. Not for Goldman. The firm did not admit to any wrongdoing and said in a statement: “We’re pleased to put the matter behind us.”
That seems to sum up how Goldman would like to handle everything related to its role in politics and markets over the last two decades. The rest of us shouldn’t be too ready to do so.
To be sure, Goldman Sachs is not solely or even primarily responsible for the 2008 financial crash and the ensuing, worldwide Great Recession. There’s plenty of blame to go around.
But as the leading firm on Wall Street before the crash, as the company most entangled in high-level policymaking, as an innovator of overly complicated and socially destructive trading products and schemes, as an orchestrator of financial deregulation, as an enterprise with tentacles extending so far that it has been accused of manipulating aluminum markets, Goldman Sachs surely deserves plenty of blame.
Read more
The New Depression with Richard Duncan
Economist and author of several books,
Richard Duncan joins John O’Donnell and Merlin Rothfeld for a look at
what he feels is the New Depression. A cycle of debt expansion that is
leading to a nearly inevitable collapse, that not even a gold standard
can safe. The trio discuss this and several other topics while Mr.
Duncan offers a radical solution to it all. A solution that would put
America back on top, and get us out from all this debt. Mr. Duncan also
offers listeners 50% off the subscription to his video newsletter at www.RDMacroWatch.com
U.S. food prices rising 367% faster than inflation; chemical agriculture headed for catastrophic failure
(NaturalNews) Food prices are now skyrocketing across the USA, says the
Bureau of Labor Statistics (BLS). Their most recent report (1) reveals
that prices of meat, poultry, fish and eggs leaped 7.7 percent over the last year. That's nearly 367% higher than the official 2.1% inflation rate claimed by the federal government. (2)
Prices on these food items have risen 664% in the last five decades, according to the BLS, but much of the price acceleration has happened in just the last few years... and there's no end in sight.
While the federal government tries to blame rising food prices on global warming -- because seemingly everything is now attributed to climate change, including depression and divorces -- the far more sobering truth is that conventional agriculture is reaching a point of systemic, catastrophic failure.
Palmer pigweed can reach more than 2.5 meters tall, grow more than 6 centimeters a day, produce 600,000 seeds and has a tough, woody stem that can wreck farm equipment that tries to uproot it. It is also becoming more and more resistant to the popular herbicide glyphosate.
The solution to this, according to chemical herbicide manufacturers, is to start spraying fields with three, four or even FIVE herbicides all at the same time, "layering" different chemicals onto the resistant superweeds.
This approach is, of course, headed for catastrophe. Just as doctors have learned in the age of antibiotic-resistant superbugs, the more chemicals you use, the worse the resistance becomes. Before long, you've turned America's farms into Frankenweed factories that churn out megatons of weeds, but less edible food.
Even Nature.com points out this fundamental truth, saying:
[Using
multiple herbicides] is a flawed argument. Stacking up tolerance traits
may delay the appearance of resistant weeds, but probably not for long.
Weeds are wily: farmers have already reported some plants that are
resistant to more than five herbicides. And with glyphosate-resistant
weeds already in many fields, the chances of preventing resistance to
another are dropping.
If you remove the forests near the coast, in other words, you halt much of the rain that should occur inland. But conventional agriculture rarely considers such intricate connections between forests, rainfall and agricultural production. Instead, it's based on a "rape and pillage the land" model that maximizes short-term production while destroying long-term sustainability.
At the same time, conventional chemical agriculture is largely dependent on non-renewable fossil water aquifers that are rapidly dwindling in supply. Much of the underground water that currently feeds agricultural food production in Texas, Oklahoma, Kansas and Colorado, for example, is headed for an imminent collapse as large aquifers run dry. Combined with deforestation and the heavy plowing of top soils, this will inevitably lead to a massive, multi-state Dust Bowl scenario that nearly collapses food production in many areas.
The short-term thinking that dominates food production today is largely unsustainable in the long term, and it destroys the soils and ecosystem in the process. Only "holistic agriculture" practices like Permaculture have any real hope of providing a sustainable food supply well into the future.
For this reason, Geoff Lawton's permaculture wisdom should be immediately embraced by agricultural universities like Texas A&M and taught to all students. The principles of permaculture are the kind of principles that can save human civilization from mass starvation and a collapse of the food supply.
Today, I am asserting these fundamental truths which humanity must learn or perish:
1) Food production needs to be decentralized to create food redundancy and local self-sufficiency.
2) Plant diversity in each production plot is the key to disease resistance, pest resistance and weed resistance. (Note that nearly all commercially-produced crops are mono-cropped with zero diversity.)
3) Soil microbes must be protected, not poisoned, to create healthy food crops that are resistant to disease and more resilient to stress.
4) Soil remineralization, not chemical poisoning, is the key to healthy plants and increased food production. Fortunately, the world's oceans are filled with all the minerals our plants really need (minus the salt, of course).
5) Seed saving and open-source seed practices are essential to the survival of human civilization. Attempts by corporations to monopolize seed properties through patents represents a serious threat to the sustainability of human civilization. Food-producing seeds must be declared community property and not restricted to one corporation via the patent process.
6) Food security IS national security. While the U.S. government believes in maintaining a strategic oil supply, for some reason it neglects the importance of strategic home gardening and local food production -- an idea which was openly encouraged in World War II in the form of "Victory Gardens."
7) Any civilization that destroys its ability to sustainably produce nourishing food will sooner or later perish. The United States of America -- and much of the world -- is already on this path of self destruction.
8) Modern agriculture's heavy dependence on fossil fuels (petroleum) is clearly unsustainable. As oil production plummets (and oil prices rise), food production using modern mechanized agriculture will become exorbitantly expensive and unsustainable.
If we do not change our ways, much of the U.S. population will find itself in an era of starvation in just 2-3 decades.
Many families are right now spending $1,000 - $2,000 per month on groceries. At roughly $20,000 per year in after-tax expenditures, this creates a compelling argument for growing a significant portion of your own food. Carrots, lettuce, cabbage, onions, potatoes, broccoli, peppers, tomatoes, squash, watermelons, beans and herbs are all very easily grown at home.
With a little more investment -- such as building an aquaponic system -- food production can be reliably doubled or tripled in the same amount of space (using virtually no soil and very little water in the process, by the way).
Small greenhouses also become more economically feasible thanks to their ability to extend growing seasons, allowing families to produce their own food during more months of the year.
When one gallon of milk has now reached nearly $10 in Hawaii, suddenly all these home-grown food production strategies become real money-saving strategies.
On a personal note, I raise dozens of chickens and harvest fresh chicken eggs each day, producing high-quality, better-than-organic eggs that would normally cost $5 per dozen at Whole Foods. As a bonus, the chickens eat all the grasshoppers and bugs that normally threaten a home garden. That's why smart home gardeners actually plan their gardens to be surrounded by free-range chickens that run free in a "buffer zone perimeter" that prevents bugs from reaching the garden.
It's strategies like these that are sustainable, require no toxic chemicals, and can affordably produce local food that's more nutritious and more sustainable than chemical-based mono-crop agriculture.
Prices on these food items have risen 664% in the last five decades, according to the BLS, but much of the price acceleration has happened in just the last few years... and there's no end in sight.
While the federal government tries to blame rising food prices on global warming -- because seemingly everything is now attributed to climate change, including depression and divorces -- the far more sobering truth is that conventional agriculture is reaching a point of systemic, catastrophic failure.
"Frankenweeds" taking over farm lands
The mass poisoning of agricultural lands with glyphosate, pesticides and chemical herbicides has resulted in the rise of aggressive "superweeds" that are taking over farms and causing productivity to plummet in many fields. As Nature.com now reports: (3)Palmer pigweed can reach more than 2.5 meters tall, grow more than 6 centimeters a day, produce 600,000 seeds and has a tough, woody stem that can wreck farm equipment that tries to uproot it. It is also becoming more and more resistant to the popular herbicide glyphosate.
The solution to this, according to chemical herbicide manufacturers, is to start spraying fields with three, four or even FIVE herbicides all at the same time, "layering" different chemicals onto the resistant superweeds.
This approach is, of course, headed for catastrophe. Just as doctors have learned in the age of antibiotic-resistant superbugs, the more chemicals you use, the worse the resistance becomes. Before long, you've turned America's farms into Frankenweed factories that churn out megatons of weeds, but less edible food.
Even Nature.com points out this fundamental truth, saying:
[Using
multiple herbicides] is a flawed argument. Stacking up tolerance traits
may delay the appearance of resistant weeds, but probably not for long.
Weeds are wily: farmers have already reported some plants that are
resistant to more than five herbicides. And with glyphosate-resistant
weeds already in many fields, the chances of preventing resistance to
another are dropping.Drought conditions caused by deforestation
Drought conditions are also causing food prices to spike, but it's astonishing how few people understand the connection between deforestation and drought. Every year, 18 million acres of forest are destroyed for agricultural, commercial and residential purposes (4), removing a critical "re-transpiration" mechanism that helps create continental rainfall.If you remove the forests near the coast, in other words, you halt much of the rain that should occur inland. But conventional agriculture rarely considers such intricate connections between forests, rainfall and agricultural production. Instead, it's based on a "rape and pillage the land" model that maximizes short-term production while destroying long-term sustainability.
Chemical agriculture destroys soil microbes and exploits dwindling fossil water supplies
Chemical-based agriculture is also devastating to soil microbes; the very organisms that promote plant health, disease resistance and nutrient uptake. When soils are sprayed with glyphosate and other chemicals, many microbes are wiped out, leaving crops more susceptible to disease and environmental stress (such as low rainfall or high temperatures).At the same time, conventional chemical agriculture is largely dependent on non-renewable fossil water aquifers that are rapidly dwindling in supply. Much of the underground water that currently feeds agricultural food production in Texas, Oklahoma, Kansas and Colorado, for example, is headed for an imminent collapse as large aquifers run dry. Combined with deforestation and the heavy plowing of top soils, this will inevitably lead to a massive, multi-state Dust Bowl scenario that nearly collapses food production in many areas.
Conventional agriculture is short-term agriculture
What I'm really trying to get across here is not merely that food prices are going to skyrocket in the years ahead, but that conventional (chemical-based) agriculture is hurtling us all toward systemic food shortages and, ultimately, mass starvation.The short-term thinking that dominates food production today is largely unsustainable in the long term, and it destroys the soils and ecosystem in the process. Only "holistic agriculture" practices like Permaculture have any real hope of providing a sustainable food supply well into the future.
For this reason, Geoff Lawton's permaculture wisdom should be immediately embraced by agricultural universities like Texas A&M and taught to all students. The principles of permaculture are the kind of principles that can save human civilization from mass starvation and a collapse of the food supply.
Centralized, chemical-based food production will kill millions
Often, the things that I state here on Natural News are so far ahead of common knowledge that they take years to be embraced. For example, I was warning about the dangers of sunscreen long before it was widely known that sunscreen promotes cancer by causing vitamin D deficiencies.Today, I am asserting these fundamental truths which humanity must learn or perish:
1) Food production needs to be decentralized to create food redundancy and local self-sufficiency.
2) Plant diversity in each production plot is the key to disease resistance, pest resistance and weed resistance. (Note that nearly all commercially-produced crops are mono-cropped with zero diversity.)
3) Soil microbes must be protected, not poisoned, to create healthy food crops that are resistant to disease and more resilient to stress.
4) Soil remineralization, not chemical poisoning, is the key to healthy plants and increased food production. Fortunately, the world's oceans are filled with all the minerals our plants really need (minus the salt, of course).
5) Seed saving and open-source seed practices are essential to the survival of human civilization. Attempts by corporations to monopolize seed properties through patents represents a serious threat to the sustainability of human civilization. Food-producing seeds must be declared community property and not restricted to one corporation via the patent process.
6) Food security IS national security. While the U.S. government believes in maintaining a strategic oil supply, for some reason it neglects the importance of strategic home gardening and local food production -- an idea which was openly encouraged in World War II in the form of "Victory Gardens."
7) Any civilization that destroys its ability to sustainably produce nourishing food will sooner or later perish. The United States of America -- and much of the world -- is already on this path of self destruction.
8) Modern agriculture's heavy dependence on fossil fuels (petroleum) is clearly unsustainable. As oil production plummets (and oil prices rise), food production using modern mechanized agriculture will become exorbitantly expensive and unsustainable.
If we do not change our ways, much of the U.S. population will find itself in an era of starvation in just 2-3 decades.
More than ever, it's worth growing your own food
The good news is that as food prices continue to rise, the economic argument for growing some of your own food makes increasing sense. After all, the time and effort required to grow food has always remained about the same over the years, regardless of what happens to food prices in the grocery store.Many families are right now spending $1,000 - $2,000 per month on groceries. At roughly $20,000 per year in after-tax expenditures, this creates a compelling argument for growing a significant portion of your own food. Carrots, lettuce, cabbage, onions, potatoes, broccoli, peppers, tomatoes, squash, watermelons, beans and herbs are all very easily grown at home.
With a little more investment -- such as building an aquaponic system -- food production can be reliably doubled or tripled in the same amount of space (using virtually no soil and very little water in the process, by the way).
Small greenhouses also become more economically feasible thanks to their ability to extend growing seasons, allowing families to produce their own food during more months of the year.
When one gallon of milk has now reached nearly $10 in Hawaii, suddenly all these home-grown food production strategies become real money-saving strategies.
On a personal note, I raise dozens of chickens and harvest fresh chicken eggs each day, producing high-quality, better-than-organic eggs that would normally cost $5 per dozen at Whole Foods. As a bonus, the chickens eat all the grasshoppers and bugs that normally threaten a home garden. That's why smart home gardeners actually plan their gardens to be surrounded by free-range chickens that run free in a "buffer zone perimeter" that prevents bugs from reaching the garden.
It's strategies like these that are sustainable, require no toxic chemicals, and can affordably produce local food that's more nutritious and more sustainable than chemical-based mono-crop agriculture.
Argentina President Blasts US Bank ‘Extortion’
Supreme Court refusal to hear appeal spells ‘terrible news for all of the developing world’
Lauren McCauley
Argentina will not submit to Wall Street’s “extortion” of their debt, said President Cristina Fernández de Kirchner in a national address Tuesday night.
De Kirchner’s comments came after it was announced that the U.S. Supreme Court refused to hear an appeal by the South American country despite their argument that obliging
predator banks would “encourage creditor free-for-alls” and “intensify
and prolong the suffering of the poor in countries undergoing sovereign
debt crisis.”
On Wednesday, following news that the Supreme
Court would uphold two lower court rulings which demanded that
Argentina pay $1.3 billion in debt holdouts to “vulture” funds before
repaying their other restructured debts, Standard & Poor lowered the
country’s rating to CCC-. According to the credit rating bureau and reported by Bloomberg News, this is the lowest rating for any nation that’s currently assessed by the company and is nine levels below “investment grade.”
“I am blown away by the [Supreme Court] decision,” said Eric LeCompte, executive director of the religious anti-poverty organization Jubilee USA. “For
heavily indebted countries trying to support extremely poor people,
this is a devastating blow. These hedge funds are equipped with an
instrument that forces struggling economies into submission.”
Speaking with The Real News on Tuesday, economist Bill Black explained that the country’s economic troubles began after they “ceded control over their monetary policy to the U.S. Federal Reserve,”
which sparked rampant inflation. Argentina was able to restructure
their debt with roughly 92 percent of their bond holders. However, U.S.
“vulture funds” that owned the remainder of the debt took the South
American nation to court demanding full repayment before the other bond
holders are recompensated.
During her address, the Argentine president
paraphrased the ruling of the district courts, saying that they demanded
their portion of the debt be paid “all together, without quotas, right
away, now, in cash, ahead of all the rest.”
De Kirchener also reiterated the country’s
commitment to repay its restructured debt, saying: “It’s our obligation
to take responsibility for paying our creditors, but not to become the
victims of extortion by speculators.”
According to Black, the Supreme Court’s decision spells “terrible news for all of the developing world.”
Despite agreement by the White House
and the International Monetary Fund that by tying developing nations to
extreme debt is extremely damaging, Black says, the court ruling serves
as “a device for keeping nations that are in crisis in very long-term
crises instead of having them recover,” he adds.
Black continues:
So we have the organs of the United States of America being used to enforce an order that the executive branch of the United States of America says is a disastrous policy and grotesquely unfair and likely to cause immense harm to the peoples of the world. And the Supreme Court, as it has done through the great bulk of its history, has sided with big business and big banks and hedge funds against the peoples of the United States, and now the peoples of the world.
_____________________
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Wealthy Clintons Use Residence Trusts to Limit Estate Tax They Back
Bill
and Hillary Clinton have long supported an estate tax to prevent the
U.S. from being dominated by inherited wealth. That doesn’t mean they
want to pay it.
To
reduce the tax pinch, the Clintons are using financial planning
strategies befitting the top 1 percent of U.S. households in wealth.
These moves, common among multimillionaires, will help shield some of
their estate from the tax that now tops out at 40 percent of assets upon
death.
The
Clintons created residence trusts in 2010 and shifted ownership of
their New York house into them in 2011, according to federal financial
disclosures and local property records.
Among
the tax advantages of such trusts is that any appreciation in the
house’s value can happen outside their taxable estate. The move could
save the Clintons hundreds of thousands of dollars in estate taxes, said
David Scott Sloan, a partner at Holland & Knight LLP in Boston.
“The goal is really be thoughtful and try to build up the nontaxable
estate, and that’s really what this is,” Sloan said. “You’re creating
things that are going to be on the nontaxable side of the balance sheet
when they die.” ...
Residence
trusts have a set term after which the property is transferred to a
beneficiary. Following that, the Clintons could pay rent to the new
owner to continue living in the house, which is another way to move
assets outside of the estate.
For
the asset to move completely outside the estate, the Clintons would
have to outlive the term of the trust. Such trusts typically last for 10
to 15 years to maximize the discount applied to the property’s value.
Creating two separate trusts allows the Clintons to spread risk. They
can set different lengths for each trust and if one of them dies, the
other’s trust wouldn’t be affected.
Also
in 2010, the Clintons created a life insurance trust. That can help
defray the cost of estate taxes, Sloan said. They have had a separate
life insurance trust since 1996, according to the disclosure records.
These
moves are “pretty standard” planning for people who know they will be
subject to the estate tax, said Ken Brier, an estate tax lawyer in
Needham, Massachusetts. “If you’re the Clintons and you live in a
fishbowl,” he said, “you’re not going to push the envelope in doing
cutting-edge planning.”
This Debt Is Explosive, And It Sits On The Shelf Everywhere, Waiting To Go Off
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
I was interviewed by Jorge Nascimento Rodrigues for Janela na web, a Portuguese management site. After what I said, he might never interview me again :-]
1-
Sovereign bond yields of some Eurozone peripherals are at historical
lows, in certain cases even below yields for US Treasuries and UK Gilts.
So the three-year austerity adjustments worked?
Central
banks have performed a miracle: separating financial assets from
reality. The crassest example is the Bank of Japan. Not far behind are
the Fed and the ECB. Japan’s fiscal situation is far worse than
Greece’s. Gross national debt is over 220% of GDP. About half of every
yen the government spends is borrowed. There is no solution in sight to
bring down the deficit. Hence, the debt will continue to balloon.
Standard & Poor’s rates Japan’s debt AA-, four notches from the top.
Inflation in April was 3.4% for all items from a year earlier, with
goods prices up 5.2%. And yet, 10-year JGBs yield below 0.6%. Whoever
holds this dodgy paper is getting creamed. But by purchasing every JGB
that isn’t nailed down, the BOJ has effectively imposed a peg on yields.
“Financial repression” is the result.
Draghi’s
promise to do “whatever it takes” has had a similar effect, but less
pronounced. To investors, it no longer matters what the classic risks of
holding debt are. The only risk that matters is what the ECB will do.
With its whatever-it-takes promise, the ECB has effectively given
investors the idea that sovereign bonds are a one-way bet.
So the
austerity adjustments have had little impact on yields. But they’ve had a
huge impact on the real economy in the affected countries – and rarely
for the better. Bailing out bank bondholders, stockholders, and
counterparties and then making workers give up wages and benefits – the
lucky ones who got to keep their jobs – and imposing numerous other cuts
to fund these bailouts isn’t exactly a prescription for economic
success. But it benefited investors!
2-
Are these historical lows sustainable? For Portugal the historical
“average” for 10-year sovereigns is 6.8%, based on data from Global
Financial Data. Since 1997, yields were below 4% for only 28 months. Now
they’ve dropped to 3.3% and might go a little lower. Does this mean
that Portuguese “fundamentals” have changed?
My
example – and every central banker’s role model – is the Bank of Japan.
Portugal’s fiscal situation is far better than Japan’s, and Japan’s
10-year yield is currently below 0.6%. So by that standard, Portugal’s
is still high. Portugal’s economic and fiscal fundamentals are a
different story. But if the ECB decided tomorrow to very vocally abandon
its “whatever-it-takes” pledge, and to pronounce that it would never
ever again engage in any form of bond purchases, guarantees, or special
loans, not even through the back door, and that all countries in the
Eurozone would have to deal with their debt and the financial markets on
their own, Portuguese yields would soar to crisis levels. Portugal
could borrow even under these conditions, but at much higher rates –
rates that it could not afford. Hence a debt crisis.
3-
Jeremy Stein, Harvard professor and former US Fed Board member,
proposed we focus the attention on risk premiums in the sovereign bond
market. Risk premiums for certain Eurozone peripherals are declining
with respect to German Bunds or Nordics’ bonds. Are investors in the
Eurozone bond market taking on excessive risk?
The
only risk investors are currently paying attention to is what the ECB
will do in the future. As the ECB has backed all Eurozone sovereign
bonds, it has taken credit risk essentially off the table, as far as
investors are concerned. They cannot imagine that the ECB would let
Portugal default. The risk of inflation remains, though inflation is low
at this point. But look at Japan: inflation jumped and yields haven’t
budged. Investors see that. Bondholders used to fear inflation. Now they
take it lying down. When a central bank with its unlimited power to
manipulate sovereign debt markets gets involved, the overbearing risk is
the central bank itself – and what it will or will not do in the
future.
With
their policies, central banks have pushed all investors who want to earn
any kind of yield way out to the thin end of the classic risk limb. At
the next major storm, these investors will fall off and get hurt.
4-
You recently wrote that the Financial Stress Index dropped to the
lowest level on record, going back to December 1998. But instead of
three cheers, you are worried about it. Why?
The
Financial Stress Index, issued by the St. Louis Fed, is based on 18
components, such as interest rates (Fed Funds, Treasuries, corporate
bonds, and asset backed securities), yield spreads, and “Other
Indicators” that include the VIX volatility index, expected inflation
rate, and the S&P 500 Financials index.
The
prior record low of “financial stress” was achieved in February 2007
when the financial system in the US was already cracking under mountains
of toxic securities and iffy overleveraged mega-bets cobbled together
and sold at peak valuations to funds held by unsuspecting investors in
their retirement nest eggs. And banks stuffed this paper into their
basements and into off-balance-sheet vehicles, while their financial
statements showed values and profits that didn’t exist. No one cared.
Greed and obfuscation ruled the day. That’s what “low financial stress”
means.
In
bubble times, when exuberance takes over, when nothing can go wrong,
when risk has been banished from the system, and when interest rates are
low, perceived financial stress simply disappears. At that point,
decision makers – from homebuyers to bank CEOs – make reckless decisions
that can only be funded when there is nearly free money for everything,
and when this crap can be unloaded no questions asked. It happened in
2007, and it’s happening now again. These decisions always come to haunt
the markets. It’s just a question of when.
5-
Another index under the spot is the Euro High Yield Index from BofA
Merrill Lynch. It is also at historical lows, going back to 1997. What
does that mean?
Junk
bonds have benefitted particularly from the ECB’s interest rate
repression. As desperate investors are searching for yield, any kind of
yield at any risk anywhere, they come upon junk bonds, and they hold
their noses and close their eyes and pick up this stuff, and it drives
up demand and represses yields further. With plenty of liquidity
sloshing through the system, the risk of default is perceived as minimal
since everyone knows that even junk-rated companies that are losing
money can usually refinance their debt and sell new debt to
yield-desperate investors. Everyone knows that the day of reckoning is
being delayed, and hopefully for long enough. But this debt is
explosive, and it sits on the shelf everywhere, waiting to go off. It
has to be refinanced – which may be difficult or impossible in an era of
higher rates and tighter liquidity. Hence, once again, all eyes are on
the ECB, instead of on the junk-rated, overleveraged, money-losing
companies and the crappy paper they’re selling.
6- Is ECB monetary strategy under Draghi fueling the Eurozone sovereign bond market? Are we living in bubble dynamics?
The ECB
in conjunction with the Fed, the Bank of Japan, and others have created
the greatest credit bubble in history. Financial markets are distorted
beyond recognition. Real risks are covered up and cease to figure into
the calculus. Related asset bubbles are blooming everywhere,
particularly in equities, and in some places in housing, farmland, and
other sectors. Bubbles are good: some people get immensely rich,
governments collect more taxes, banks are saved as they can write up
certain assets on their books…. There are just two problemitas with
bubbles: they don’t do much for the real economy; and they invariably
implode. Then sit back and watch the magnificent and very destructive
fireworks!
7-
Fiscal policy in the Eurozone has been driven by austerity marked by
disinflation and quasi-economic stagnation. Is ECB easing – and a
collateral bubble in sovereigns and stock exchanges – the only way?
Disinflation
– that is inflation at a lower rate – is good for most people as the
prices of goods and services rise only slowly, rather than quickly. In
many countries, wages have lagged behind inflation; hence, real wages
have dropped. It is widely claimed that lower real wages make a country
more “competitive.” But with what? The competitor down the street? Not
that many industries have to compete with Bangladesh. But it does
increase corporate profits. It’s a devastating experience for workers,
and it reduces domestic consumption. Inflation is a tax on wages (except
where wages are indexed to inflation). On the other hand, low or no
inflation or even slight deflation is good for workers, savers, and many
investors.
But low
inflation or deflation is toxic for over-indebted governments,
companies, and other debt sinners because they can no longer rely on
inflation to mitigate their debt. In a land of low or no inflation,
corporations have trouble showing paper growth in revenues and profits.
And it’s terrible for politicians who rely on inflation to take care of
their promises.
We now
know that these days, central bank easing is creating asset bubbles,
which, when they implode, are devastating for the real economy. Easing
may or may not create consumer price inflation. It doesn’t seem to
stimulate the real economy, as we have seen in the US where economic
growth has been tepid despite enormous amounts of easing for over the past five years.
Solution?
Let the markets sort this out on their own, let decrepit overleveraged
companies and banks fail and restructure, let even big investors lose
their shirts, and let the real economy take priority. People are smart.
They can figure out how to make this work once central bank manipulators
get out of the way. Wolf Richter interviewed by Jorge Nascimento Rodrigues for Janela na web.
Speaking of Japan, a terrible corporate hangover from the consumption-tax hike has set in. Read…. Japan Inc.’s Worst Quarterly Outlook Since The 2011 Earthquake
The Keynesian Jabberwocky Gets Downright Dumb
Opining gravely, medieval theologian Thomas Aquinas asked, “Can several angels be in the same place?”
In only
slightly modified terms, the Fed is now pre-occupied with a similarly
unanswerable and fanciful question, according to Jon Hilsenrath’s
pre-meeting missive on the Fed’s current monetary policy
“debate”. Figuratively estimating the number of angels which can dance
on the head of a pin, Fed officials and economists suppose they can
specify the the appropriate money market rate down to the decimal
place for virtually all time to come:
When Federal Reserve
officials gather for their policy meeting Tuesday and Wednesday, the
most challenging question won’t be where to push interest rates in the
next few days, weeks or even months. It will be where rates belong years into the future.
So if
you want to know why there are exceedingly dark clouds gathering on the
economic horizon just consider some of their answers and the reasoning
behind them. Until recently, a majority of our monetary plumbers in the
Eccles Building believed that the ideal long-term Federal funds rate was
around 4% in a “well balanced” macro economy where inflation is
about 2% and unemployment is about “low” around 5.5%.
Of course, every one of these three magic numbers are perfectly arbitrary, academic and silly.
Due to the structural failures of the US economy owing to decades
of destructive Washington policies, the “unemployment rate” today is not
remotely comparable to what was being measured in the 1950s and 1960s
when today’s Keynesian theology with respect to the Phillips Curve,
Okun’s Law and full-employment policy was being formulated.
Today
there are 102 million adults not holding jobs, for example, but only 43
million of these are retired on OASI (social security) and just 11
million are counted as officially unemployed. At the same time, there
are upwards of 40 million part-time job holders, which self-evidently
represent additional unutilized potential labor hours. So there are
upwards of 100 million adults in America who represent a massive but
latent labor supply that makes a mockery of the silly “U-3? unemployment
ratio that the Eccles Building theologians insist on counting down to
the decimal points.
Stated
differently, the BLS recently revealed that the private business sector
of the US economy generated 194 billion labor hours in 2013—the exact
same number as way back in 1998 and notwithstanding the massive growth
of the adult population in the interim. Indeed, as recently as 2000,
there were only 75 million adults (16-years and over) not holding jobs.
Yet of the 27 million gain since then, only 7 million entered the OASI
rolls. This means that during a 14 years period in which there was no
growth of aggregate labor hours in the business economy, 20 million more
adults ended up in the safety net, in mom and dad’s basement or on the
streets.
These
realities are not a mystery, and they do reflect a dangerous fiscal and
social policy breakdown. But they are also thumbing proof that monetary
policy has exactly nothing to do with employment conditions and job
creation. During the last 15 years, the Fed engaged in massive and
nearly continuous Keynesian stimulus maneuvers, expanding it balance
sheet 8X from $500 billion to $4.3 trillion. Yet million of employable
adults and billions of available labor hours have been flushed out of
the private economy, while measured hours worked have been absolutely
frozen.
The
excuse that counting decimal points on the head of the U-3 unemployment
rate may sound medieval but that Humphrey-Hawkins makes them do it is
just palaver. The so-called dual mandate and minimum unemployment
target is just a vague statutory aspiration; there is no quantitative
target in the law and the current U-3 version of the endless
alternative ways to measure the “unemployment rate” did not even exist
when the statute was passed in the late 1970s.
Accordingly,
when Bernanke previously, and Yellen now, appear before the Congress or
press and piously intone about their full employment “mandate” being a
license for perpetual money printing they are simply indulging in a
self-serving lie.
The
same foibles pertain to the 2% inflation target. Its not in the law; and
until the last two decades, price stability was thought to mean an
average of zero inflation over time. Certainly William McChesney Martin
and most of the first generation of modern Fed policy-makers believed
that. Even today, Paul Volcker properly asks why is 2% inflation forever
so virtuous when it means that the purchasing power of the dollar will
be cut in half every 30 years.
And
that doesn’t even consider the total manipulation of the BLS inflation
measures that happened beginning a decade after Humphrey-Hawkins was
enacted. These manipulations include arbitrary hedonic adjustments for
“quality”; continuous reweighting of the price basket based on
substituting cheaper chicken for more expensive beef; the use of
geometric means to eliminate items with extreme increases; and of
course, the foolishness of excluding food and energy from the price
index used to make Fed policy—-the so-called PCE deflator. Rational
policy in a $17 trillion economy caught in vast global
cross-currents cannot be made based on trends shorter than one year. So
on a running one-year basis there is no distortion due to food and
energy price spasm, and these items are the foundation of every
household budget.
Thus, the
2% inflation target is just more monetary Thomas Aquinas. And this
is especially the case with respect to the lame proposition that the
inflation target is being missed from below. As shown in the graph,
there has never been a sustained period since the 1990s in which there
was a shortfall of inflation from below. The entire notion of inflation
targeting, in fact, is just self-serving Keynesian nonsense that
provides yet another excuse to keep the printing presses going at full
tilt.
But the
most egregious of the three magic numbers is the target for Federal
funds. The entire discussion as reflected in the Hilsenrath notes is
that it is the “control variable” which has no other purpose than to be
manipulated by the twelve allegedly wise men and women who comprise the
FOMC. Yet that is the heart of the anti-capitalist folly that
constitutes current monetary policy.
In
fact, the money market rate is the most important single price that
exists—its the price of leveraged financial speculation and the carry
trades. It needs to be set by honest price discovery in independent
markets for genuine private savings and business driven short-term
borrowings. Rather than being a pure creature of Fed manipulation—–its
determination should never happen within a country mile of the Eccles
Building.
Once
upon a time the founders of the Fed understood this, and provided that
the nation’s new central bank would operate as a “bankers bank”,
passively providing liquidity against real bank loans and discounts at a
penalty rate above a floating or mobile discount rate set by the
market. The virtue of that pre-Keynesian model is that is guaranteed
honest two way markets and thereby built-in checks and balances on
speculators on Wall Street. And it did not pretend that this mobilized
discount rate was a tool to manipulate the entire GDP, the unemployment
rate, the CPI, housing starts or consumer spending. Instead, these were
to be outcomes on the free market, not orchestrations from Washington.
In
short, the pre-Keynesian Fed would not be counting decimal places on the
head of the Federal funds rate, nor would it be listening to the likes
of William Dudley gumming about immeasurable things like “headwinds” or
Larry Summers arriving at a 3% Federal funds target on the preposterous
grounds that the world is suffering from a flood of excess “savings”!
This
simply illustrative the massive intellectual confusion of the Keynesian
model. The world’s central banks have created a tsunami of credit, but
there is no balance sheet in the Keynesian model, only
quarter-by-quarter flows. So Professor Summers makes the lunatic
argument that since the Federal deficits has declined for several
quarters, that means there is too much savings.
Thomas Aquinas would be proud.
Mr. Summers, in an email
exchange, said a broader set of factors will hold down rates in the
years ahead. Around the world, households (especially wealthy ones and
older ones), businesses and governments are saving more, piling
resources into bonds and driving down interest rates in the process.
“I suspect unless
circumstances change fed funds rates may well average less than 3[%]
over the next decade,” Mr. Summers said…..
They suggested that once
these headwinds recede, rates can go back toward their long-run
averages. But more recently, some Fed officials have acknowledged the
possibility of a lingering weight on rates.
A 4% fed funds rate would
be “much too high in the current economic environment in which headwinds
persist, and somewhat too high even when these headwinds fully
dissipate,” New York Fed President William Dudley said in a speech last month.
For rest of article click here:
.
Repatriated Dollars = Hyperinflation On An Immense Scale — David Morgan
from Radio.GoldSeek.com:
In his latest installment, the Silver Investor follows
the Austrian Economic Model, showing how an increase in money supply is
the only cause of inflation. He answers the question: given the Feds
profligacy, where is the runaway inflation? The reason why
hyperinflation is not yet apparent to the masses is that most of the
dollars are tied up in bank balance sheets and floating around the
globe. Once they are liberated and repatriated the velocity of money
could explode, resulting in sudden hyperinflation on an immense scale.
In addition, amid the wake of the 2008 credit crisis, officials say that
the economy has recovered. However, David Morgan thinks that our
financial institutions failed to learn any lessons, continuing to apply
excessive leverage via derivatives. Put paper silver securities in
abeyance, which are merely promises that will evaporate and disappoint
when the end game unfolds – instead consider bullion and shares, which
have no liens and retain their value in difficult environments. It’s
just a matter of time before the currency collapse comes to pass and
demand for gold and silver reaches infinity. At that point, Bob’s your
uncle for precious metals investors. David outlines his intrinsic value
calculation for silver – approximately $100 per ounce.
Click Here to Listen
Price Index for Meats, Poultry, Fish & Eggs Rockets to All-Time High
(CNSNews.com) – The seasonally-adjusted price index for
meats, poultry, fish, and eggs hit an all-time high in May, according
to data from the Bureau
of Labor Statistics (BLS).
In January 1967, when the BLS started tracking this measure, the index for meats, poultry, fish, and eggs was 38.1. As of last May, it was 234.572. By this January, it hit 240.006. By April, it hit 249.362. And, in May, it climbed to a record 252.832.
“The index for meats, poultry, fish and eggs has risen 7.7 percent over the span [last year],” says the BLS. “The index for food at home increased 0.7 percent, its largest increase since July 2011. Five of the six major grocery store food group indexes increased in May. The index for meats, poultry, fish, and eggs rose 1.4 percent in May after a 1.5 increase in April, with virtually all its major components increasing,” BLS states.
In addition to this food index, the price for fresh whole chickens hit its all-time high in the United States in May.
In January 1980, when the BLS started tracking the price of this commodity, fresh whole chickens cost $0.70 per pound. By this May 2014, fresh whole chickens cost $1.56 per pound.
A decade ago, in May 2004, a pound of fresh chicken cost $1.04. Since then, the price has gone up 50%.
Each month, the BLS employs data collectors to visit thousands of retail stores all over the United States to obtain information on the prices of thousands of items to measure changes for the Consumer Price Index (CPI).
The CPI is simply the average change over time in prices paid by consumers for a market basket of goods and services.
The BLS found that there was a 0.7% change in the prices for the food at home index in May, which tracks foods like meats, poultry, fish, eggs and dairy, as well as many others.
In January 1967, when the BLS started tracking this measure, the index for meats, poultry, fish, and eggs was 38.1. As of last May, it was 234.572. By this January, it hit 240.006. By April, it hit 249.362. And, in May, it climbed to a record 252.832.
“The index for meats, poultry, fish and eggs has risen 7.7 percent over the span [last year],” says the BLS. “The index for food at home increased 0.7 percent, its largest increase since July 2011. Five of the six major grocery store food group indexes increased in May. The index for meats, poultry, fish, and eggs rose 1.4 percent in May after a 1.5 increase in April, with virtually all its major components increasing,” BLS states.
In addition to this food index, the price for fresh whole chickens hit its all-time high in the United States in May.
In January 1980, when the BLS started tracking the price of this commodity, fresh whole chickens cost $0.70 per pound. By this May 2014, fresh whole chickens cost $1.56 per pound.
A decade ago, in May 2004, a pound of fresh chicken cost $1.04. Since then, the price has gone up 50%.
Each month, the BLS employs data collectors to visit thousands of retail stores all over the United States to obtain information on the prices of thousands of items to measure changes for the Consumer Price Index (CPI).
The CPI is simply the average change over time in prices paid by consumers for a market basket of goods and services.
The BLS found that there was a 0.7% change in the prices for the food at home index in May, which tracks foods like meats, poultry, fish, eggs and dairy, as well as many others.
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Please make a tax-deductible gift to CNSNews.com today. Your
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Federal Reserve Wants to Charge You for Pulling Your Money Out of Bond Funds
By Robert Wenzel
A new reason has just emerged to get out of bond funds fast.
The Financial Times is reporting that:
Federal Reserve officials have discussed whether regulators should impose exit fees on bond funds to avert a potential run by investors, underlining concern about the vulnerability of the $10tn corporate bond market.
Officials are concerned that bond funds are becoming “shadow banks”, because investors can withdraw their money on demand, even though the assets held by the funds can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter...Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.Got that? The Fed destroys the economy with their money printing policies (SEE: The Fed Flunks) and now that want to charge you a fee to get out of harms way.
Get out of bond funds, now! Consider yourself warned.
Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.com and author of The Fed Flunks: My Speech at the New York Federal Reserve Bank.
12 Numbers About The Global Financial Ponzi Scheme That Should Be Burned Into Your Brain
The
numbers that you are about to see are likely to shock you. They prove
that the global financial Ponzi scheme is far more extensive than most
people would ever dare to imagine. As you will see below, the total
amount of debt in the world is now more than three times greater than
global GDP. In other words, you could take every single good and
service produced on the entire planet this year, next year and the year
after that and it still would not be enough to pay off all the debt.
But even that number pales in comparison to the exposure that big global
banks have to derivatives contracts. It is hard to put into words how
reckless they have been. At the low end of the estimates, the total
exposure that global banks have to derivatives contracts is 710 trillion
dollars. That is an amount of money that is almost unimaginable. And
the reality of the matter is that there is really not all that much
actual “money” in circulation today. In fact, as you will read about
below, there is only a little bit more than a trillion dollars of U.S.
currency that you can actually hold in your hands in existence. If we
all went out and tried to close our bank accounts and investment
portfolios all at once, that would create a major league crisis. The
truth is that our financial system is little more than a giant pyramid
scheme that is based on debt and paper promises. It is literally a
miracle that it has survived for so long without collapsing already.
When Americans think about the financial
crisis that we are facing, the largest number that they usually can
think of is the size of the U.S. national debt. And at over 17 trillion
dollars, it truly is massive. But it is actually the 2nd-smallest
number on the list below. The following are 12 numbers about the global
financial Ponzi scheme that should be burned into your brain…
-$1,280,000,000,000 –
Most people are really surprised when they hear this number. Right
now, there is only 1.28 trillion dollars worth of U.S. currency floating
around out there.
-$17,555,165,805,212.27 – This is the size of the U.S. national debt. It has grown by more than 10 trillion dollars over the past ten years.
-$32,000,000,000,000 – This is the total amount of money that the global elite have stashed in offshore banks (that we know about).
-$48,611,684,000,000 – This is the total exposure that Goldman Sachs has to derivatives contracts.
-$59,398,590,000,000 –
This is the total amount of debt (government, corporate, consumer,
etc.) in the U.S. financial system. 40 years ago, this number was just a
little bit above 2 trillion dollars.
-$70,088,625,000,000 – This is the total exposure that JPMorgan Chase has to derivatives contracts.
-$71,830,000,000,000 – This is the approximate size of the GDP of the entire world.
-$75,000,000,000,000 – This is approximately the total exposure that German banking giant Deutsche Bank has to derivatives contracts.
-$100,000,000,000,000 – This is the total amount of government debt in the entire world. This amount has grown by $30 trillion just since mid-2007.
-$223,300,000,000,000 – This is the approximate size of the total amount of debt in the entire world.
-$236,637,271,000,000 –
According to the U.S. government, this is the total exposure that the
top 25 banks in the United States have to derivatives contracts. But
those banks only have total assets of about 9.4 trillion dollars
combined. In other words, the exposure of our largest banks to
derivatives outweighs their total assets by a ratio of about 25 to 1.
-$710,000,000,000,000 to $1,500,000,000,000,000 –
The estimates of the total notional value of all global derivatives
contracts generally fall within this range. At the high end of the
range, the ratio of derivatives exposure to global GDP is about 21 to 1.
Most people tend to assume that the
“authorities” have fixed whatever caused the financial world to almost
end back in 2008, but that is not the case at all.
In fact, the total amount of government debt
around the globe has grown by about 40 percent since then, and the “too
big to fail banks” have collectively gotten 37 percent larger since then.
Our “authorities” didn’t fix anything. All they did was reinflate the bubble and kick the can down the road for a little while.
I don’t know how anyone can take an honest
look at the numbers and not come to the conclusion that this is
completely and totally unsustainable.
How much debt can the global financial system take before it utterly collapses?
How recklessly can the big banks behave before the house of cards that they have constructed implodes underneath them?
For the moment, everything seems fine. Stock
markets around the world have been setting record highs and credit is
flowing like wine.
But at some point a day of reckoning is
coming, and when it arrives it is going to be the most painful financial
crisis the world has ever seen.
If you plan on getting ready before it strikes, now is the time to do so.
Michael T. Snyder is a
graduate of the McIntire School of Commerce at the University of
Virginia and has a law degree and an LLM from the University of Florida
Law School. He is an attorney that has worked for some of the largest
and most prominent law firms in Washington D.C. and who now spends his
time researching and writing and trying to wake the American people up.
You can follow his work on The Economic Collapse blog, End of the American Dream and The Truth Wins. His new novel entitled “The Beginning Of The End” is now available on Amazon.com.
U.S. Supreme Court Rules Against Argentina in Debt Repayment Case
The U.S. Supreme Court surprised the
financial world Monday by turning down Argentina’s request to hear the
bankrupt South American nation’s case against its hedge fund creditors.
Whereas many observers expected the Supreme Court to give Argentina more
time by referring the case to the U.S. solicitor general for review,
today’s ruling effectively put an end to years of Argentine posturing
and bluster. Her judicial options now exhausted, Argentina — a country
notorious for decades for unwillingness to properly service the massive
debts she has incurred as a result of several generations of financial
profligacy — faces two options: pay her creditors or default once again
on her obligations.
Argentina’s latest financial crisis is the long-delayed consequence of her infamous default in 2001-2002. Then, her options for repayment exhausted, Argentina simply defaulted on her debt, which led to economic collapse and several years of crime, poverty, and civil unrest severe even by Argentine standards. Eventually, Argentina worked out an agreement with many of her creditors, who agreed to accept service of debts at a steep discount. But not all holders of Argentine debt were willing to take a haircut. After the default, a significant portion of the debt was sold to international hedge funds, who have been hounding and harassing Argentina ever since to force the deadbeat nation to pay up, in full.
Argentina’s vitriolic populist president Cristina Kirchner (shown) has been fulminating for years against allegedly wicked plutocrats (“vultures,” she calls them, in the best tradition of over-the-top Latin American political rhetoric) who have the temerity to require Argentina to pay her debts. Since Argentina, unlike Greece and other failed EU economies, cannot rely on stronger regional economies, such as Brazil or Chile, to bail her out of her misery, the unlucky citizens of the republic on the River Plate are staring into the abyss for the second time in little more than a decade. Since Argentina’s addiction to a fiat-currency-and-debt-driven economy has enriched the few at the expense off the many, there is little political support for paying the American-based hedge funds their due. So desperate have been Argentina’s legal and financial contortions to avoid repayment that, at one juncture, an Argentine military vessel was actually impounded in Ghana at the behest of her creditors.
Read more
Argentina’s latest financial crisis is the long-delayed consequence of her infamous default in 2001-2002. Then, her options for repayment exhausted, Argentina simply defaulted on her debt, which led to economic collapse and several years of crime, poverty, and civil unrest severe even by Argentine standards. Eventually, Argentina worked out an agreement with many of her creditors, who agreed to accept service of debts at a steep discount. But not all holders of Argentine debt were willing to take a haircut. After the default, a significant portion of the debt was sold to international hedge funds, who have been hounding and harassing Argentina ever since to force the deadbeat nation to pay up, in full.
Argentina’s vitriolic populist president Cristina Kirchner (shown) has been fulminating for years against allegedly wicked plutocrats (“vultures,” she calls them, in the best tradition of over-the-top Latin American political rhetoric) who have the temerity to require Argentina to pay her debts. Since Argentina, unlike Greece and other failed EU economies, cannot rely on stronger regional economies, such as Brazil or Chile, to bail her out of her misery, the unlucky citizens of the republic on the River Plate are staring into the abyss for the second time in little more than a decade. Since Argentina’s addiction to a fiat-currency-and-debt-driven economy has enriched the few at the expense off the many, there is little political support for paying the American-based hedge funds their due. So desperate have been Argentina’s legal and financial contortions to avoid repayment that, at one juncture, an Argentine military vessel was actually impounded in Ghana at the behest of her creditors.
Read more
Total US debt soars to nearly $60 trn, foreshadows new recession
America - its government, businesses, and people - are nearly $60
trillion in debt, according to the latest economic data from thethe St.
Louis Federal Reserve. And private debt - not government borrowing - is
the biggest reason for the huge deficit.
Total US debt at the end of the first quarter of 2014, on March 31 totaled almost $59.4 trillion - up nearly $500 billion from the end of the fourth quarter of 2013, according to the data. Total debt (the combination of government, business, mortgage, and consumer debt) was $2.2 trillion 40 years ago.
“In 50 short years, debt has gone from being a luxury for a few to a convenience for many to an addiction for most to a disease for all,” James Butler wrote in an Independent Voters Network (IVN) op-ed. “It is a virus that has spread to every aspect of our economy, from a consumer using a credit card to buy a $0.75 candy bar in a vending machine to a government borrowing $17 trillion to keep the lights on.”
According to a 2012 study published in the Economist, rapid growth in private debt is a better predictor of recessions than increases in public debt, growth in money supply, or trade imbalances. Consumer credit in the US rose by 22 percent over the last three years, reaching a record-high $3.18 trillion in April, the Fed reported on Friday.
Credit card use (or revolving credit) rose by $8.8 billion, while non-revolving credit like auto loans and student loans made by the government surged up by $18 billion in April. Non-revolving credit jumped by 8.2 percent over the last year, while revolving credit only rose 2.2 percent over the same time period.
“For a while after the recession it was trendy to cut up your credit cards and get out of debt,” Michael Snyder wrote in an InfoWars op-ed. “But that fad wore off rather quickly, didn’t it?”
Snyder noted that 56 percent of all Americans have a subprime credit rating, and that the average monthly car payment in the US is $474. He added that 52 percent of homeowners are overextended on their mortgages and “cannot even afford the house that they are living in right now.”
Debt is hurting young adults the most. Millennials say they are spending at least half their monthly paychecks on paying off debt, a recent Wells Fargo survey found. And two years out of college, half of all graduates are still relying on their parents or other family members for some sort of financial help, according to a University of Arizona study, which also found that only 49 percent of graduates are working full-time.
"Whether or not a weak labor market is increasing the need for intergenerational support -- a likely driver in today's economy -- our data clearly showed that many young adults today may not be earning enough to make it on their own, even when working full time," the report stated.
Most of the debt that young adults face is student loan debt, which totals more than $1.2 trillion, according to the Federal Reserve. Of that debt, approximately $124 billion is more than 90 days delinquent.
“What we have done to our young people is shameful. We have encouraged them to sign up for a lifetime of debt slavery before they even understand what life is all about,” Snyder wrote.
The Congressional Budget Office predicts that the economy will stall by 2017 because Americans will continue spending, but wages and wealth won’t be going up - leading to increased income inequality in the country, the Guardian reported.
“That ever-increasing gap between income and consumption has been filled by borrowing,” the Guardian said. “These were the debt dynamics in the lead-up to the recession. But they are also the dynamics leading out of the crisis, and continuing today with no end in sight.”
Economists have not agreed on how to stave off the impending crisis. But Americans’ addiction to spending on credit will not help.
“The problem is, the more debt we have, the more future income must be used to pay the debt and its interest, which reduces the money we have to spend on things. This works to slow the economy,” Butler wrote.
“Eventually, the negative effect of the debt load becomes stronger than the positive effect of the added spending and a recession is triggered — or worse.”
Total US debt at the end of the first quarter of 2014, on March 31 totaled almost $59.4 trillion - up nearly $500 billion from the end of the fourth quarter of 2013, according to the data. Total debt (the combination of government, business, mortgage, and consumer debt) was $2.2 trillion 40 years ago.
“In 50 short years, debt has gone from being a luxury for a few to a convenience for many to an addiction for most to a disease for all,” James Butler wrote in an Independent Voters Network (IVN) op-ed. “It is a virus that has spread to every aspect of our economy, from a consumer using a credit card to buy a $0.75 candy bar in a vending machine to a government borrowing $17 trillion to keep the lights on.”
According to a 2012 study published in the Economist, rapid growth in private debt is a better predictor of recessions than increases in public debt, growth in money supply, or trade imbalances. Consumer credit in the US rose by 22 percent over the last three years, reaching a record-high $3.18 trillion in April, the Fed reported on Friday.
Credit card use (or revolving credit) rose by $8.8 billion, while non-revolving credit like auto loans and student loans made by the government surged up by $18 billion in April. Non-revolving credit jumped by 8.2 percent over the last year, while revolving credit only rose 2.2 percent over the same time period.
“For a while after the recession it was trendy to cut up your credit cards and get out of debt,” Michael Snyder wrote in an InfoWars op-ed. “But that fad wore off rather quickly, didn’t it?”
Snyder noted that 56 percent of all Americans have a subprime credit rating, and that the average monthly car payment in the US is $474. He added that 52 percent of homeowners are overextended on their mortgages and “cannot even afford the house that they are living in right now.”
Debt is hurting young adults the most. Millennials say they are spending at least half their monthly paychecks on paying off debt, a recent Wells Fargo survey found. And two years out of college, half of all graduates are still relying on their parents or other family members for some sort of financial help, according to a University of Arizona study, which also found that only 49 percent of graduates are working full-time.
"Whether or not a weak labor market is increasing the need for intergenerational support -- a likely driver in today's economy -- our data clearly showed that many young adults today may not be earning enough to make it on their own, even when working full time," the report stated.
Most of the debt that young adults face is student loan debt, which totals more than $1.2 trillion, according to the Federal Reserve. Of that debt, approximately $124 billion is more than 90 days delinquent.
“What we have done to our young people is shameful. We have encouraged them to sign up for a lifetime of debt slavery before they even understand what life is all about,” Snyder wrote.
The Congressional Budget Office predicts that the economy will stall by 2017 because Americans will continue spending, but wages and wealth won’t be going up - leading to increased income inequality in the country, the Guardian reported.
“That ever-increasing gap between income and consumption has been filled by borrowing,” the Guardian said. “These were the debt dynamics in the lead-up to the recession. But they are also the dynamics leading out of the crisis, and continuing today with no end in sight.”
Economists have not agreed on how to stave off the impending crisis. But Americans’ addiction to spending on credit will not help.
“The problem is, the more debt we have, the more future income must be used to pay the debt and its interest, which reduces the money we have to spend on things. This works to slow the economy,” Butler wrote.
“Eventually, the negative effect of the debt load becomes stronger than the positive effect of the added spending and a recession is triggered — or worse.”
Fed Prepares For Bond-Fund Runs, Looking At Imposing "Exit Fee" Gates
It was two short years ago that the Fed, in its relentless attempt to
push everyone into the biggest equity bubble of all time, did something
many thought was merely a backdoor ploy to forcibly reallocate capital
out of the $2.7 trillion money market industry and into stocks when, as we wrote in July 2012,
it contemplated imposing suspensions of fund redemptions to "allow for
the orderly liquidation of funds assets." Or in other words "gate" money
markets.
Since then various iterations of this proposal have been attempted, either by the Fed or the SEC, however due to stern industry push back (and the relatively modest amount of money at stake) the attempt to force investors to rotate their funds out of money markets (because it is quite clear that if the Fed is hinting at gating issues with a given asset class, it is only a matter of time before the hint becomes a reality) has failed, and as a result the total amount of notional capital held at money market funds has been largely unchanged in recent years.
Here comes attempt number two.
Only this time it is no longer aimed at money market funds, but that other most hated, by the Fed, asset class: bond funds, whose relentless inflows, we shouldn't have to remind readers are the main reason why the propaganda myth of a recovery, and the resulting con game, keep crashing and burning, as it is impossible to spin a 2.5% 10 Year yield as indicative of anything remotely resembling a recovery, and shows at best, a semi-deflationary world. Said inflows also are recurring evidence that whatever retail money remains unallocated, continues to go into the one asset class which is actively disparaged by the Fed at every opportunity.
In brief, if anything, the Fed would prefer that all retail investors pull their money out of bonds funds (and money markets of course), and invest them into 100x+ P/E biotech stocks. Because after all, today's stock market is nothing but the biggest Fed-propped Ponzi scheme in existence.
And in order to achieve that, according to the FT, "Federal Reserve officials have discussed imposing exit fees on bond funds to avert a potential run by investors, underlining regulators’ concern about the vulnerability of the $10tn corporate bond market."
FT justifies this latest unprecedented pseudo-capital control by sayng that "officials are concerned that bond-fund investors, as with bank depositors, can withdraw their money on demand even though the assets held by their funds are long-term debt and can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter."
Also, it goes without saying that "discouraging investors" from withdrawing funds is the last thing on the Fed's mind, which knows very well that when it comes to investor behavior all that matters is how the Fed's future intentions are discounted.
And with this unprecedented step, the Fed is sending a very clear message: it may be next year, or next month, or next week, but quite soon you, dear retail bond-fund investor, will be gated and will be unable to pull your money.
The only thing that was missing from the FT piece was a casual reference to Cyprus.
So what is the obvious desired outcome, at least by the Fed? Why a wholesale panic withdrawal from bond funds now, while the gates are still open, and since those trillions in bond funds have to be allocated somewhere, where will they go but... stock funds.
In other words, now that the Fed is pulling away from injecting tens of billions of liquidity into the market every month, it is hoping the investing population will pick up the torch. And since it has failed to incite the mass reallocation of funds from bonds to stocks, the Fed is willing to use every trick in the book to achieve its goal.
Sure enough, "introducing exit fees would require a rule change by the Securities and Exchange Commission, which some commissioners would be expected to resist, according to others familiar with the matter." However, those commissioners would be promptly silenced when a joint effort between the NSA and the Fed were to threaten the release of embarrassing photographs or conversations to the general public. And watch how all dissent promptly disappears, and the Fed once again demonstrates it is increasingly more helpless in not only preserving the biggest asset bubble in US history, but at modeling and nudging human behavior.
Sadly for the Fed, America is now on to its endless bullshit experiments. Because absent an executive order from Obama demanding that Americans invest every spare Dollar in a Ponzi scheme, this too attempt to forcibly reallocate capital from Point A to Point B will fail.
Which, however means one thing: since the Fed is so desperate it has to float trial balloons of this nature in the financial press, the untapering can't be far behind, and with it QEternity+1.
Finally, just like in Europe with its revolutionary NIRP experiment, it will also confirm that the real economy has never been worse than it is now.
Since then various iterations of this proposal have been attempted, either by the Fed or the SEC, however due to stern industry push back (and the relatively modest amount of money at stake) the attempt to force investors to rotate their funds out of money markets (because it is quite clear that if the Fed is hinting at gating issues with a given asset class, it is only a matter of time before the hint becomes a reality) has failed, and as a result the total amount of notional capital held at money market funds has been largely unchanged in recent years.
Here comes attempt number two.
Only this time it is no longer aimed at money market funds, but that other most hated, by the Fed, asset class: bond funds, whose relentless inflows, we shouldn't have to remind readers are the main reason why the propaganda myth of a recovery, and the resulting con game, keep crashing and burning, as it is impossible to spin a 2.5% 10 Year yield as indicative of anything remotely resembling a recovery, and shows at best, a semi-deflationary world. Said inflows also are recurring evidence that whatever retail money remains unallocated, continues to go into the one asset class which is actively disparaged by the Fed at every opportunity.
In brief, if anything, the Fed would prefer that all retail investors pull their money out of bonds funds (and money markets of course), and invest them into 100x+ P/E biotech stocks. Because after all, today's stock market is nothing but the biggest Fed-propped Ponzi scheme in existence.
And in order to achieve that, according to the FT, "Federal Reserve officials have discussed imposing exit fees on bond funds to avert a potential run by investors, underlining regulators’ concern about the vulnerability of the $10tn corporate bond market."
FT justifies this latest unprecedented pseudo-capital control by sayng that "officials are concerned that bond-fund investors, as with bank depositors, can withdraw their money on demand even though the assets held by their funds are long-term debt and can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter."
The Fed's justification for this latest bazooka approach in forced capital reallocation:“So much activity in open-end corporate bond and loan funds is a little bit bank like,” Jeremy Stein, a Fed governor from 2012-2014 told the Financial Times last month, just before he stepped down. “It may be the essence of shadow banking is ... giving people a liquid claim on illiquid assets.”
"Oddly" there is nothing in the Fed's proposal about gating the most overvalued asset classes of all, equities, or say, biotechs and momo stocks, where the drawdowns, when they happen, are so fast and vicious, the bulk of hedge funds are still down for the year precisely because they were all led like obedient sheep into the Div/0 PE slaughter. Also, memory is a little fuzzy, but in the days after Lehman, it was equity hedge funds that promptly gated all their investors.... not bond hedge funds, which in fact were scrambling to deal with the influx of new funds.Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.
Also, it goes without saying that "discouraging investors" from withdrawing funds is the last thing on the Fed's mind, which knows very well that when it comes to investor behavior all that matters is how the Fed's future intentions are discounted.
And with this unprecedented step, the Fed is sending a very clear message: it may be next year, or next month, or next week, but quite soon you, dear retail bond-fund investor, will be gated and will be unable to pull your money.
The only thing that was missing from the FT piece was a casual reference to Cyprus.
So what is the obvious desired outcome, at least by the Fed? Why a wholesale panic withdrawal from bond funds now, while the gates are still open, and since those trillions in bond funds have to be allocated somewhere, where will they go but... stock funds.
In other words, now that the Fed is pulling away from injecting tens of billions of liquidity into the market every month, it is hoping the investing population will pick up the torch. And since it has failed to incite the mass reallocation of funds from bonds to stocks, the Fed is willing to use every trick in the book to achieve its goal.
Sure enough, "introducing exit fees would require a rule change by the Securities and Exchange Commission, which some commissioners would be expected to resist, according to others familiar with the matter." However, those commissioners would be promptly silenced when a joint effort between the NSA and the Fed were to threaten the release of embarrassing photographs or conversations to the general public. And watch how all dissent promptly disappears, and the Fed once again demonstrates it is increasingly more helpless in not only preserving the biggest asset bubble in US history, but at modeling and nudging human behavior.
Sadly for the Fed, America is now on to its endless bullshit experiments. Because absent an executive order from Obama demanding that Americans invest every spare Dollar in a Ponzi scheme, this too attempt to forcibly reallocate capital from Point A to Point B will fail.
Which, however means one thing: since the Fed is so desperate it has to float trial balloons of this nature in the financial press, the untapering can't be far behind, and with it QEternity+1.
Finally, just like in Europe with its revolutionary NIRP experiment, it will also confirm that the real economy has never been worse than it is now.
Argentina: Won’t submit to U.S. ‘extortion’ on debt
AP Photo/Victor R. Caivano
Argentine President Cristina Fernandez gives a
speech, aired on national TV, during an event at the Casa Rosada
government palace in Buenos Aires, Argentina, Feb. 12, 2014. President
Fernandez said Monday, June 16, 2014, that Argentina can’t comply with
U.S. court orders to pay $1.5 billion to winners of a decade-long legal
battle over defaulted debt.
In a national address Monday night, Cristina Fernandez repeatedly vowed not to submit to "extortion," and said she had working on ways to keep Argentina's commitments to other creditors despite the threat of losing use of the U.S. financial system.
Her hard line came hours after the justices in Washington refused to hear Argentina's appeal, and it could be a last effort to gain leverage ahead of a negotiated solution that both sides say they want. But with only days before a huge debt payment ordered by the court is due, many economists, analysts and politicians said the country's already fragile economy could be deeply harmed if she didn't immediately resolve the dispute.
Refusing to comply with rulings that have been allowed to stand by the U.S. Supreme Court "would be very damaging to the Argentine economy in the near future," said Miguel Kiguel, a former deputy finance minister and World Bank economist in the 1990s who runs the Econviews consulting firm in Buenos Aires.
Argentine markets were already reflecting fear. The Merval stock index dropped 11 percent after the court decision, its largest one-day loss in more than six months, and the value of Argentina's currency plunged 33 percent on the black market.
Fernandez urged her countrymen to "remain tranquil" in the days ahead.
Bowing to the U.S. courts would force her to betray a core value that she and her late husband and predecessor, Nestor Kirchner, promoted since they took over the government in 2003: Argentina must maintain its sovereignty and economic independence at any cost.
But a chorus of analysts said that if she complied with the ruling, it would become much easier for Argentina to borrow again, rebuilding its reserves and preventing the recession from getting even deeper.
U.S. District Court Judge Thomas Griesa order requires that $1.5 billion be paid "all together, without quotas, right away, now, in cash, ahead of all the rest" of bondholders, Fernandez said.
"This represents a profit of 1,608 percent, in dollars!" she complained. "I believe that in all of organized crime there has never been a case of a profit of 1,608 percent in such a short time."
But Fernandez also said repeatedly that her government is ready to negotiate with the "speculators" who scooped up Argentine junk bonds after the country's 2001 default. Owners of more than 92 percent of the nearly worthless debt agreed to accept new bonds worth much less than their original face value, but investors led by New York billionaire Paul Singer held out and litigated instead, seeking to force Argentina to pay cash in full plus interest.
Singer's NML Capital Ltd. has now won in the U.S. courts — and if Argentina doesn't hand over $907 million to the plaintiffs in the next two weeks, the judge will order U.S. banks not to process Argentina's June 30 payment totaling an equal amount to all the other bondholders.
Fernandez said her government "will not default on those who believed in Argentina." But analysts have questioned whether holders of restructured debt would accept payments outside the U.S. financial system.
"Some people say, 'Why don't you pay them and end all this right now?'" the president said. "It's because there's another problem, even more serious. There's another 7 percent who would be able to demand payment from Argentina, right away and now, of $15 billion. That's more than half the reserves in the Central Bank. As you can see, it's not only absurd but impossible that the country pays more than 50 percent of its reserves in a single payment to its creditors."
"It's our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators," she said.
The plaintiffs said her government needs to settle now.
"The time has come for Argentina to enter into good-faith negotiations with holdout bondholders," said Richard Samp, an attorney for the Washington Legal Foundation who has acted as a spokesman for NML's position throughout the case. "Argentina has expressed a desire to be permitted to re-enter financial markets around the world. The only way that it can do so is by coming to terms with its existing creditors."
Refusing to comply was "the best option" among a series of grim alternatives that Cleary, Gottlieb, the U.S. law firm representing Argentina in Washington, presented to Fernandez ahead of the Supreme Court decision. That guidance suggested Argentina should default on all its debts before negotiating in order to gain more leverage.
Associated
Press writers Mark Sherman in Washington, Luis Andres Henao in
Santiago, Chile, and Almudena Calatrava in Buenos Aires contributed to
this report.
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