Monday, August 12, 2013

Slower Japanese growth weighs on markets

Weaker than expected Japanese economic growth weighs on markets in slow start to the week

LONDON (AP) -- Weaker-than-expected economic growth in Japan weighed on markets Monday on what is a fairly light day on the global economic calendar.
The main economic indicator of the day was the 2.6 percent annualized second-quarter growth rate recorded in Japan, the world's third-largest economy. The number was below the 3.8 percent rate recorded in the first quarter and the 3.6 percent predicted by analysts and dented sentiment around the world.
Investors are concerned that the big monetary stimulus that is being pursued by the government may not be reaping the rewards hoped for. Japan is trying to come out of a two-decade economic stagnation. The Nikkei 225 index slid back following the news, to end the day 0.7 percent lower at 13,519.43, while the yen fell. The dollar was up 0.5 percent at 96.80 yen.
The slower growth could make it difficult for Prime Minister Shinzo Abe to carry out plans to raise the sales tax by 3 percentage points in April to improve public finances. The tax is now 5 percent.
"Raising the consumption tax is key to long-term fiscal consolidation in Japan," said Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ. He said that if Abe doesn't raise the tax as planned, he "would risk undermining foreign investor confidence" in his policies.
Following the Japanese news, stocks in Europe and Wall Street futures drifted lower amid a dearth of economic data.
Britain's FTSE 100 shed 0.3 percent to 6,566 while Germany's DAX fell 0.8 percent to 8,271. The CAC-40 in France was 0.4 percent lower at 4,059.
On Wall Street, Dow futures were pointing to a 0.4 percent fall at the open while the broader S&P futures showed a 0.5 percent retreat. Last week, U.S. stocks suffered their worst week since June amid worries over when the U.S. Federal Reserve will start to reduce its monetary stimulus. Recent comments from a raft of Fed officials have indicated that it may start as soon as September.
This week's U.S. economic data, including retail sales figures for July, will be assessed in the context of when the Fed will begin the so-called tapering.
Michael Hewson, senior market analyst at CMC Markets, said it seems investors are becoming concerned about the Fed's timing and reluctant to push stock indexes any higher.
"Given the proximity to all-time highs it appears that prudence is taking precedence over risk, with little in the way of new factors to stimulate new buying," he added.
In Europe, the main point of interest will be Wednesday's second-quarter economic growth figures for the 17-country eurozone. Most analysts think that the region will post modest growth, which will mean it emerged from recession.
Earlier in Asia, a possible upswing in China's economy helped boost stocks in Hong Kong and on mainland China.
Data released Friday showed a 9.7 percent rise in China's industrial production for July. Some other indicators such as auto sales also showed improvement. Analysts said the figures added weight to the argument that the recent soft patch in the world's second-largest economy may have come to an end.
Hong Kong's Hang Seng jumped 2.1 percent to 22,271.28. The Shanghai Composite Index rose 2.4 percent to 2,101.28. The smaller Shenzhen Composite Index rose 1.3 percent to 1,009.13.
Elsewhere, the euro was 0.3 percent lower at $1.3295 while a barrel of benchmark New York crude oil was 11 cents higher at $106.07.


Doubts Arise Over U.S. Dollar's Strength

The dollar is stumbling as investors begin to question the relative strength of the U.S. economic recovery, which had powered a rally in the greenback in the first half of 2013.
The WSJ Dollar Index, a gauge of the dollar's exchange rate against seven of the world's most heavily traded currencies, is down 4% in the past month and hit a seven-week low on Friday. Before the selloff, which began after the dollar hit a three-year high in early July, the U.S. currency was up 8.3% for the year.
Driving the reversal: a shift in views on when the Federal Reserve might start reining in some easy-money policies that are a legacy of the financial crisis, many fund managers say.
Many investors had piled into the dollar earlier this year on the belief that robust growth in the U.S. would lead the Fed to scale back its bond-purchase program, which has been pumping $85 billion into the economy each month, in the fall.
Not only would a receding flood of dollars raise the greenback's value, the positive signal it would send about the U.S. economy would give the dollar additional fuel by attracting money flows from outside the U.S., analysts say.
However, disappointing economic data, mainly weaker-than-expected jobs growth and tepid retail sales, have prompted some currency investors to back away from bullish dollar bets that were based on the Fed reducing—or "tapering"—bond purchases in September, well before other major central banks would be ready to start tightening monetary policy.
Investors have slashed bets on a rising dollar by 49%, to $21.7 billion, since late May. Then, the value of wagers hit its highest level since at least 2007, when the U.S. Commodity Futures Trading Commission first started to track the data. The number reflects investors' net position in the futures market.
"We are at this turning point where investors aren't sure whether this strong-dollar thesis is really going to hold up," says Samir Sheldenkar, an investment partner at Harmonic Capital Partners LLP, a London hedge fund with $1.2 billion under management. The fund recently pared back bets on a stronger dollar because the rate of job growth in the U.S., which the Fed is closely watching as it mulls a pullback, hasn't picked up since the start of the year.
Now, investors like Mr. Sheldenkar say tapering is more likely to happen in December or even later.
The Fed has said it won't start pulling back on bond purchases until the U.S. labor market sees "substantial" improvement. In July, the U.S. economy added 162,000 jobs, less than economists had expected.
At the same time, there are signs that Europe's year-and-a-half-long recession is coming to an end, enhancing the allure of the euro. As well, fears that a slowdown in China would drag down the global economy appear overblown for now, a factor that could revive the appeal of riskier assets such as emerging-market currencies.
Although the selloff in the dollar is in its early stages, the implications could be wide-ranging. For example, in the longer term, a weaker dollar could bolster corporate earnings, as multinational companies find that profits made outside the U.S. are worth more when translated into dollars.
Currency investors are focusing on the next jobs report, slated for release on Sept. 6, because they believe it is likely to dictate the Fed's next move at its Sept. 17-18 meeting.
If the Fed doesn't announce tapering then, the dollar could face a bumpy ride lower, analysts and investors say. Conversely, if the central bank says it will cut back on the stimulus, the dollar rally could resume.
"The trade is no slam dunk, and the dollar has gone down a lot," says Adrian Lee, president of Adrian Lee & Partners, which oversees $6 billion of currency and fixed-income investments. "But it's only a matter of time before it will turn higher again."
The Fed is unique among its counterparts in Japan, the U.K., Australia and the euro zone in that it has openly considered a policy of withdrawing monetary stimulus, Mr. Lee says. That alone is supportive of the dollar.
The relative health of the U.S. economy will continue to remain a lure, investors say. The International Monetary Fund pegs U.S. growth this year at 1.9%, compared with an average of 1.2% for all developed economies.
"What's the most attractive currency in the room? To investors, it's clear it's the dollar," says Akshay Krishnan, a senior analyst at Stenham Asset Management in London. "The underlying view is that the U.S. economy is recovering and growing at a faster pace than other parts of the world."
Still, there are warning signs for the dollar. Yields on Treasurys rose sharply starting in May—for reasons also related to possible Fed tapering—with the 10-year yield hitting a nearly two-year high of 2.718% on July 5.
The soaring bond yields sparked record outflows in emerging markets, sending investors back to the refuge of the dollar. But the drop in bond prices, which move in the opposite direction to yields, has since abated. The yield on the 10-year Treasury was 2.58% Friday.
Christopher Brandon, a managing director with Rhicon Currency Management (Pte.) Ltd., believes Treasury yields will have to rise above 3% before another upswing in the dollar is triggered. He says that is unlikely until the Fed actually starts tapering. "The market found that it got a little bit ahead of itself" in its optimism on the dollar, said Mr. Brandon, who manages about $500 million in Singapore.
A sustainable rally probably won't emerge for several months, says Stephen Jen, founding partner of London hedge fund SLJ Macro Partners LLP.
"The dollar needs confirmation that this economic divergence is indeed playing out," Mr. Jen said. "We need to see better data in the U.S., and we need to see weak data in the rest of the world. If this thesis is undermined, then the dollar will struggle."


By Michael Rivero
You don't need me to tell you how bad things are.
You already know.
You already know that the wealth of American workers is being stripped away to prop up a failed private central banking system that issues the public currency as a loan at interest, by design creating more debt than money with which to pay that debt, to trap and enslave you.
You already know your children are dying in wars of conquest intended to force that same failed system of national economics onto other nations.
You already know the US Government has abandoned even the pretense of complying with the Constitution and the Bill of Rights.
You already know that the United States has become a nation few want their children to have to live in.
You know all this!
The question is, what will you do about it?
It is up to you, you know.
The reality is that there are no heroes to step forward to save the situation. That is a fantasy purveyed by film and TV to lull you into the false belief that if you sit quietly at home and do nothing to challenge the rulers, that someone else will fix the problems that curse your lives.
You know that is a lie.
Superman is a comic book, the Lone Ranger a radio show, Batman does what he does only on the silver screen, government and banking will never correct the corruptions which have made then rich and powerful, the CIA is not the swell bunch of Joes portrayed in the Tom Clancy books, and the imaginary playmate in the sky is not going to alter the nature of the world in exchange for the small change you toss into the collection plates, no matter how much you grovel before that child molester in the funny looking robes.
You know that.
If there is to be a better world, for you and your children, you must make it happen. And only you can do it.
If you want truthful government, you must make public the government's lies.
If you want honest banking, you must withdraw your business from dishonest financial institutions.
If you want accurate and fair media, you must ignore the tellers of lies and support the tellers of facts.
If you want peace, you must openly oppose war.
If you want an end to corruption, you must unite together against the corrupters.
If you want a nation that is not controlled by a foreign government, then you must remove that foreign government's enablers.
If you want a public currency that is a public utility, you must issue that currency and refuse to use the currency designed to enslave you with debt.
If you want honest elections, then you must destroy the means by which elections are rigged, and drive from power all those who stole their offices.
Above all, you must allow yourself to be openly angry to what has been done to you, what is being done to your children, and what is being done to your nation, because this is your nation. And ultimate responsibility for the future of the nation rests with you.
Only you.
If you want a better world, you must make it happen.

You know that.

Recovery hopes leave European shares hovering at two and a half month highs

By Marc Jones
LONDON (Reuters) - European stocks rose to 2-1/2 month highs on Monday on signs that China's slowdown has run its course and expectations that data this week will point to the euro zone pulling out of its longest recession on record.
Britain's FTSE 100 (.FTSE), Germany's DAX (.GDAXI) and Paris's CAC 40 (.FCHI) all opened the week up 0.1 percent to leave the regional FTSEurofirst 300 (.FTEU3) hovering at its highest level since the end of May.
Bond markets were quiet, with Spanish and Italian debt making a little ground, while for currency investors the euro and yen eased against the dollar, which continued to edge away from last week's seven-week low.
Supporting markets, jittery about the prospect of the U.S. Federal Reserve phasing out its support program, was reassuring data from China and expectations that this week's euro zone GDP and sentiment figures will further support hopes the bloc is recovering. (ECONG7)
"What we saw last week was that the figures from China lent some support to the feeling in the market that the slowdown (in China) is over," said Rabobank economist Elwin de Groot.
"I am a little bit careful though, these are still early days ... but once Asia begins to re-accelerate then that is good for Europe."
In Asian trading, China's CSI300 <.csi300> share index climbed 2.1 percent, extending last Friday's rise after factory output grew in July at its fastest pace since the start of the year.
Data released after the market close on Friday was equally positive, showing Chinese new bank loans and money supply for July came in higher than expected despite a fall in a broad measure of liquidity.
Japan' Nikkei share average (.N225) shed 0.7 percent, however, hitting its lowest since June 28, after data showed its economy grew at a slower-than-expected pace in April-June, triggering investors to cut their risk exposure.
But the yen reversed early gains to trade down 0.6 percent at 96.80 yen to the dollar. Earlier, it had strengthened as much as 0.4 percent to 95.92 yen to the dollar, not far from a seven-week peak of 95.810 yen touched last week, and hit a six-week high at 127.97 yen to the euro.
Japan, the world's third-largest economy, grew an annualized 2.6 percent in the second quarter, a third straight quarter of expansion but slower than a downwardly revised 3.8 percent rate in the first quarter.
The median forecast was for annualized growth of 3.6 percent, and so the data may heighten calls to delay a planned sales tax increase.
Yields on benchmark 10-year Japanese government bonds, which move opposite to prices, edged down 0.5 basis point to a three-month low of 0.745 percent.
U.S. stocks were expected to open down 0.1-0.3 percent later. Last week they posted their biggest weekly decline since June as comments from Fed policymakers sparked renewed talk of an early cut in its stimulus.
In commodities markets, copper prices slipped 0.3 percent to around $7,250 a ton after climbing 1.3 percent to a two-month high on Friday after the upbeat Chinese factory data.
They rose 3.9 percent last week to log their best weekly gain in almost a year.
Brent crude prices dipped 0.4 percent to slip below $108 a barrel after they advanced 1.4 percent on Friday to snap a five-day run of loss - the longest since April.
Meanwhile, gold rose 1.3 percent leaving it heading for a fourth straight day of gains. It came as holdings in the world's biggest gold exchange-traded fund rose for the first time in two months.
"The inflows into SPDR are good news," said a trader in Hong Kong. "The fund tends to have an impact on prices because of its size. But I don't think (inflows) will persist as fundamentals for gold are still negative."
(Additional reporting by A. Ananthalakshmi in Singapore, editing by Elizabeth Piper)

America Movil wants to 'unlock value' in KPN: report

AMSTERDAM (Reuters) - Mexican billionaire Carlos Slim's America Movil (AMX.N) wants to 'unlock value' from Dutch telecoms group KPN (KPN.AS) and is not just interested in its German business E-Plus, a Dutch newspaper reported on Monday, quoting the Mexican group's finance chief.
America Movil said on Friday it would offer 7.2 billion euros ($9.6 billion) for the 70 percent of KPN that it does not already own - posing a challenge to its arch-rival, Spain's Telefonica (TEF.MC), which made an $11 billion offer last month to buy E-Plus, KPN's crown jewel.
KPN "is a great company with great possessions. They only need to unlock the hidden long-term value," Carlos García Moreno, AMX's chief financial officer, told Dutch daily newspaper het Financieele Dagblad.
He said AMX has not yet formalized its position regarding E-Plus, and that it was premature to comment on whether KPN's current management would remain in place following an acquisition by the Mexican group.
($1 = 0.7490 euros)
(Reporting by Sara Webb; Editing by Greg Mahlich)

Below are 9 examples of different cities that are running dangerously low on water, hopefully you don’t call one of these cities home.

By Thomas Dishaw

Water is one of our most precious and neglected natural resources. Without an abundant water supply life as we know would not exist. Everyday we take for granted the fact that we turn on the faucet and an unlimited supply of blue gold is delivered to our door step.
Unfortunately that day may soon come to an end as the water supply in many U.S. cities are dangerously low due to extreme drought. I can only imagine the future where water restrictions will dwarf the regulations you see today.
Below are 9 examples of different cities that are running dangerously low on water, hopefully you don’t call one of these cities home.
9. Santa Fe, N.M.
> Extreme drought coverage (2013): 76.7%
> Exceptional drought coverage (2013): 16.7%
> Population: 89,284
The entirety of the Santa Fe area has been in a state of exceptional drought — the worst possible type — for the past five weeks. Already, the area has been consistently under extreme drought — the second-worst level — since mid-February. The drought in much of the state contributed to the rapid spreading of the Tres Lagunas fire which burned 16 square miles of land — the equivalent of close to a third of the size of the Santa Fe urban area — near the city earlier this summer. However, according to the NOAA, drought conditions in much of the state are expected to improve through the end of the summer and into the fall.
8. Albuquerque, N.M.
> Extreme drought coverage (2013): 76.7%
> Exceptional drought coverage (2013): 43.3%
> Population: 741,318
The majority of the state of New Mexico is in a state of extreme drought. The state’s largest city, Albuquerque, has been completely under the worst possible level of drought since the end of April. This is the city’s second major drought in the last three years — it was under extreme drought for most of 2011. Much-needed heavy storms hit the area last week, but experts caution this is likely not enough to help the parched land fully recover. National Weather Service meteorologist Chuck Jones told the Associated Press, “It’s making a little dent in places … but [the drought] is something that developed over several years … and it will take several years for the state to recover, assuming we get normal or above normal monsoons.”Jones also noted that Albuquerque was roughly a year behind its average three-year rainfall.
7. Corpus Christi, Texas 
> Extreme drought coverage (2013): 79.1%
> Exceptional drought coverage (2013): 14.1%
> Population: 320,069
Nearly all of Corpus Christi has been in a state of extreme drought since early March. As a result, the city enacted restrictions on the use of water in late June. Among the mandatory restrictions are a ban on the residential use of sprinklers and car washing more than once a week, as well as the restriction of washing sidewalks and homes, unless expressly done for business or public-health purposes. In the city of Kenedy, about halfway between Corpus Christi and San Antonio, water shortage and well failures led to the city diverting water from the local prison. This left inmates unable to shower for a week.
6. Brownsville, Texas
> Extreme drought coverage (2013): 81.1%
> Exceptional drought coverage (2013): 10.1%
> Population: 217,585
Since 2011, there has been a total of two weeks in which Brownsville, Texas, was not in at least a state of low-level drought. There have been extreme drought conditions for past the 23 straight weeks. According to The Brownsville Herald, as of early July, the last substantial rain in the area was April 28. The city announced a voluntary water restriction in April, asking residents to avoid non-essential use, particularly for lawn irrigation. Brownsville is the largest city in the Rio Grande Valley in southern Texas, which has had an ongoing dispute with Mexico for the country’s failure to deliver water to the valley as agreed in a 1944 treaty.
5. Harlingen, Texas
> Extreme drought coverage (2013): 83.6%
> Exceptional drought coverage (2013): 11.5%
> Population: 135,663
The entirety of the Harlingen urban area has been in a state extreme drought since early March. In fact, more than 56% of the area on average has been under extreme drought since the start of 2011. Many farmers have found that they are unable to grow cotton and corn due to the drought, or raise livestock because of the rising cost of animal feed. The area’s drought is expected to persist through the fall, according to the NOAA.
4. Colorado Springs, Colo.
> Extreme drought coverage (2013): 89.2%
> Exceptional drought coverage (2013): 4.7%
> Population: 559,409
For roughly a year straight, at least some part of the Colorado Springs urban area has been in a state of extreme drought. The city’s water capacity was just 57% as of July 21, a time of year when it is normally nearly 85%. Colorado Springs Utilities spokesperson Patrice Lehermeier noted, “We don’t want to say it’s becoming the norm, but dry conditions in Colorado is something we’re going to be facing, especially in Colorado Springs, for a long time,” As a local news station quoted. The NOAA projects that most of Colorado, including the Colorado Springs area, will be in a state or continued or worsening drought at least through the fall. Heavy rains in southern Colorado last week have eased some of the residents’ worries, but officials have cautioned that the region is by no means out of the woods.

3. McAllen, Texas
> Extreme drought coverage (2013): 100%
> Exceptional drought coverage (2013): 56.5%
> Population: 728,825
Like much of the southern part of Texas bordering Mexico — known as the Rio Grande Valley — McAllen has been in a state of severe, prolonged water shortage. Excepting a four-week period in late May/early June, at least some part of the area has been in a state of severe drought for 127 straight weeks. Portions of the area have been affected by the worst possible level of drought since September, 2012. The NOAA projects that drought conditions in the area will persist or intensify at least through October. In April, the city implemented phase 2 of its drought contingency plan. The plan includes mandatory water conservation, which limits the washing of vehicles, irrigation of lawns, and the refilling of swimming pools.
2. Pueblo, Colo.
> Exceptional drought coverage (2013): 71.2%
> Extreme drought coverage (2013): 100%
> Population: 136,550
Arguably, no large urban area has faced worse drought than Pueblo this year. The entire area has been in a state of at least the second-worst possible drought level from the start of the year through the third week of July. On average, more than 70% of the Pueblo was affected by exceptional drought, higher than any other area with a population of 75,000 or more. According to KOAA, Pueblo had received just 3.77 inches of rainfall through July 22, nearly half of the 7.15 inches on average it normally receives by that date. The NOAA expects drought to remain a problem in the Pueblo area through the fall.

1. Lubbock, Texas
> Exceptional drought coverage (2013): 62.8%
> Extreme drought coverage (2013): 100%
> Population: 237,356
Nearly half of the Lubbock area on average has been in a state of exceptional drought since 2011, worse than anywhere else in the nation with a population of more than 75,000. During that time, more than three quarters of the area was under exceptional drought in an average week, also worse than anywhere else in the nation. In April, to encourage water conservation, the city of Lubbock changed its water rate structure to penalize heavier users. Nothing illustrates the area’s water problems better than White River Lake, which is located 70 miles south of Lubbock. The lake may be just a few weeks away from being unable to deliver water to 10,000 residents, according to The Associated Press.
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Chinese shares hit one-month high on upbeat data, Nikkei sags on Japan GDP

By Dominic Lau
TOKYO (Reuters) - Most Asian shares rose on Monday and Chinese stocks surged to a one-month high as investors took heart from last week's upbeat data from the world's second-biggest economy, but Japan's Nikkei fell to a six-week low after softer second-quarter GDP.
European shares were expected to open firmer, with Britain's FTSE 100 (.FTSE) seen up as much as 0.3 percent and Germany's DAX (.GDAXI) up as much as 0.1 percent, according to financial spreadbetters. U.S. stock futures were flat.
China's CSI300 <.csi300> climbed 2.1 percent, extending last Friday's rise after factory output grew in July at its fastest pace since the start of the year.
Data released after the market close on Friday was equally positive, showing Chinese new bank loans and money supply for July came in higher than expected despite a fall in a broad measure of liquidity.
"Apart from the government announcement supporting the environmental protection sector, the latest batch of economic data is lifting some pressure on traditional cyclical sectors," said a Shanghai-based dealer with a major Chinese brokerage.
Worries about slowing growth in China and uncertainty on when the U.S. Federal Reserve would start to trim back its massive stimulus have roiled markets in recent months. Last week's Chinese data raised hopes that growth in Asia's economic powerhouse may be stabilizing.
The strong gains in Chinese stocks buoyed Asian shares, with the MSCI Asia-Pacific ex-Japan index <.miapj0000pus> index up 1 percent to a two-week high.
Japan' Nikkei share average (.N225) shed 0.7 percent to its lowest since June 28 after data showed its economy grew at a slower-than-expected pace in April-June, triggering investors to cut their risk exposure.
But the yen reversed early gains to trade down 0.2 percent at 96.510 yen to the dollar. Earlier, it had strengthened as much as 0.4 percent to 95.92 yen to the dollar, not far from a seven-week peak of 95.810 yen touched last week, and hit a six-week high at 127.97 yen to the euro.
Japan, the world's third-largest economy, grew an annualized 2.6 percent in the second quarter, a third straight quarter of expansion but slower than a downwardly revised 3.8 percent rate in the first quarter.
The median forecast was for annualized growth of 3.6 percent, and so the data may heighten calls to delay a planned sales tax increase given concerns it could prolong Japan's escape from deflation.
Yields on benchmark 10-year Japanese government bonds, which move opposite to prices, edged down 0.5 basis point to a three-month low of 0.745 percent.
The yen has fallen 11 percent against the dollar this year as Prime Minister Shinzo Abe pushed for fiscal and monetary expansionary policies to revive the economy, while the Nikkei is up 30 percent during the same period.
The dollar (.DXY) added 0.1 percent against a basket of major currencies on Monday.
Singapore's economy grew at a better-than-expected pace in the second quarter and the government raised the city state's outlook for the year on expectations for a gradual pick up in global growth in coming months.
Singapore's stocks (.FTSTI) were up 0.2 percent, underperforming the regional market, however.
U.S. stocks fell on Friday, posting their biggest weekly decline since June as investors focused on when the Fed would begin pull back its stimulus.
In commodities markets, copper prices slipped 0.3 percent to around $7,250 a ton after climbing 1.3 percent to a two-month high on Friday on the back of the upbeat Chinese factory data.
They rose 3.9 percent last week to log their best weekly gain in almost a year.
Gold rose 1.3 percent, extending a 0.3 percent rise in the previous session and heading for a fourth straight day of winning streak.
Brent crude prices dipped 0.1 percent but held above $108 a barrel after they advanced 1.4 percent on Friday to snap a five-day run of loss - the longest since April.
(Additional reporting by Ayai Tomisawa and Hideyuki Sano in TOKYO, Clement Tan in HONG KONG and Masayuki Kitano in SINGAPORE; Editing by Shri Navaratnam & Kim Coghill)

Exclusive: CFTC subpoenas metals warehousing firm as inquiry heats up

By Josephine Mason
LONDON (Reuters) - The U.S. commodities market regulator has subpoenaed a metals warehousing firm, seeking all of its documents and communications related to the London Metal Exchange since January 2010, as an inquiry into complaints about inflated metals prices gathers steam.
The U.S. Commodity Futures Trading Commission (CFTC) sent the subpoena last week, a source with direct knowledge of the matter said, after a letter from the regulator last month ordered the warehouse firm to preserve emails, documents and instant messages from the past three years.
The subpoena is the latest sign the CFTC is stepping up its inquiry as it looks into allegations by users of metals, such as Coca-Cola Co, that warehousing firms have made it more expensive for them to buy metal by restricting the flow of metal out of warehouses.
It isn't clear if more than one firm has received a subpoena or whether there is going to be a formal investigation into the metals warehousing industry.
The industry used to be primarily run by traditional warehouse firms such as Netherlands-based C.Steinweg and Singapore-headquartered CWT Commodities but in recent years it has been dominated by banks such as Goldman Sachs and JPMorgan Chase & Co, as well as large commodities traders like Glencore Xstrata Plc and Trafigura AG, all of which have bought metals warehouse businesses in the last three years.
Spokespeople for Goldman Sachs, JPMorgan Chase & Co, Glencore Xstrata, and Trafigura declined to comment.
CFTC spokesman Steve Adamske also declined to comment. While the CFTC, which is tasked with overseeing commodities markets including preventing manipulation of prices, opens dozens of investigations each year, only a handful ever result in action and some are never made public. It almost never discusses open inquiries.
The warehouses and the London Metal Exchange (LME), which works with and monitors a vast network of warehouses, have said the big stockpiles and high physical prices are the result of low interest rates and a market structure known as contango that make it profitable to sell metal forward and store it for months or years at a time.
The source, who asked for anonymity and for the name of the firm not to be disclosed as he is not authorized to speak to the media, said the CFTC's enforcement division has asked the firm that has received the subpoena to send, by August 23, every document, communication, voice recording, correspondence and external and internal emails related to the LME since January 2010.
The subpoena "included more than 30 areas of interest to the CFTC", the source said, and was particularly focused on "anything that relates to moving metal from one warehouse to another within the same company... and procedures for loading out," adding it also wanted details of any trading based on prices on the LME, the CME Group's COMEX commodity exchange, and Platts, a unit of McGraw Hill that publishes price assessments of physical commodity markets.
In another sign that the industry is under increasing scrutiny over alleged price inflation, U.S. Department of Justice officials have visited a different warehousing firm in the United States, and asked about how the business is run, said another source, who also asked not to be identified or for the name of the firm to be disclosed.
The DOJ started a separate preliminary probe into the metals warehousing industry last month, sources familiar with the matter said.
The DOJ has declined to comment on its inquiry.
Anti-trust lawyers have said the DOJ will only launch an official investigation if it found evidence that warehousing firms had broken anti-trust laws. There has been no such indication.
The Beer Institute, which represents the $250 billion beer industry and over 2,800 breweries, which use a lot of aluminum in cans, has met with the DOJ and urged it to take action, a source familiar with the meeting said in July.
Companies such as Coca-Cola and its sheet supplier Novelis Inc have complained to regulators and in public comments that warehousing firms have artificially inflated the length of time it takes to get metal out of the warehouses, raising rents and boosting the physical premiums customers need to pay to get quick access to metals like aluminum and tin.
At least four class-action lawsuits from small U.S. aluminum end-users have also been filed in the past month accusing banks and large commodity trades of hoarding metal in warehouses and driving up the prices of industrial products from soft-drink cans to aircraft. Goldman Sachs, JPMorgan and Glencore Xstrata were named as defendants in some of the suits, alongside the firms' warehouse subsidiaries.
Goldman and JPMorgan have said that the allegations are without merit. Glencore has declined to comment.
In the past three years, a mountain of aluminum and other metals has accumulated in the global warehouses that are part of the LME network, clogging the trading system and causing lengthy queues for consumers and dealers seeking to buy the metal of up to 18 months, traders and end-users say.
The long wait times to get metal out of the warehouses have been further inflated by incentives paid by the firms to attract metal into their sheds, traders and consumers say, and have caused the price premium on some metals to surge.
After years of complaints from end-users regulators are now taking a deeper look into the industry as regulatory and lawmakers' scrutiny of Wall Street's role in physical commodity markets intensifies.
The visit to a firm by the DOJ followed letters sent to at least two companies that own warehouses seeking more information about warehousing practices.
The exact nature of those letters was not immediately clear and there has been no public allegation of any illegal activity. It is not clear how advanced or broad the DOJ probe is, nor any certainty that it will result in any action.
Responding to the accusations, Goldman Sachs has publicly said that Metro International Trade Services, its warehousing unit, has not broken any laws or rules. In an effort to reduce intensifying pressure on its commodities business it offered on July 31 to provide immediate access to aluminum stored in Metro's warehouses, a week after the CFTC and DOJ probes were first reported by Reuters.
The supply issues at the warehouses are, according to critics of the LME system, a byproduct of LME rules which mean warehousing companies only have to deliver out a small tonnages of metal each day. According to current rules, facilities with 900,000 tons or more metal have to load out 3,500 tons of metal.
Under fire from users, the LME, which was sold last year by its member bank owners to Hong Kong Exchanges and Clearing, has proposed a massive overhaul of its warehousing policy that would come into effect next April.
(Writing and additional reporting by Susan Thomas in London; Additional reporting by David Sheppard in New York and Douwe Miedema in Washington; Editing by Ed Davies)

Japan growth slows in second quarter, adds to sales tax uncertainty

By Leika Kihara and Stanley White
TOKYO (Reuters) - Japan's economy grew at a slower-than-expected rate in the second quarter, offering ammunition to those seeking to delay a scheduled sales tax increase even as government debt has risen past 1,000 trillion yen ($10.4 trillion).
Capital expenditure unexpectedly fell for a sixth straight quarter, a sign that companies are yet to boost spending despite the feel-good mood generated by Prime Minister Shinzo Abe's reflationary policies over the first half of 2013.
The world's third-largest economy grew an annualized 2.6 percent in April-June, a third straight quarter of expansion but below both a forecast of 3.6 percent growth and a downwardly revised 3.8 percent rate in the first quarter.
"There is no need to raise the sales tax in a hurry," Koichi Hamada, a key adviser to Abe and a professor emeritus at Yale University, told Reuters.
"One idea is to delay everything by one year. I feel that raising the sales tax as scheduled might hurt the economy."
Abe was elected last December on a platform of aggressive fiscal and monetary stimulus to revive Japan's economy.
An immediate impact of 'Abenomics' was a sharp weakening of the yen, a surge in share prices and exceptionally strong personal consumption in early 2013, but there are questions over his commitment to the third leg - structural reform.
As part of efforts to curb its debt, which is about double the size of its GDP, Japan is due to raise its 5 percent sales tax rate to 8 percent next April and then to 10 percent in October 2015.
Public debt exceeded 1 quadrillion yen -- or 1,000 trillion yen -- for the first time in June, Finance Ministry data shows, highlighting the need for higher taxes or other new revenue.
But the GDP data may weaken the case for the tax hike, and sources have said Abe is worried it may dampen spending and delay Japan's escape from 15 year of deflation.
"Growth above 2 percent is still considered high, so it wouldn't lead to a complete postponement of the sales tax hike. But the government could make tax hikes more incremental, without delaying the timing," said Takeshi Minami, chief economist at Norinchukin Research Institute.
The Nikkei 225 share average fell to a six-week low on the weaker than expected data as confidence was hit by the combination of weak capital spending and the expected sales tax increase affecting consumption, but it later pared its fall.
On a quarter-to-quarter basis, Japan's economy grew 0.6 percent in April-June, data released by the Cabinet Office showed on Monday. External demand added 0.2 percentage point to growth, while domestic demand contributed 0.5 point.
Private consumption rose 0.8 percent from the March quarter, more than a median market forecast of a 0.5 percent increase, on robust spending on food, travel and consumer electronics.
But capital expenditure slid 0.1 percent, much weaker than a median market forecast for a 0.7 percent increase and marking the sixth straight quarter of decline.
"The economy has been steadily rising since the inauguration of the Abe administration last year," Abe told reporters.
"I'll continue to take all possible care about the economy. I'd like to focus on the economy, including implementation of further growth strategies in the autumn."
Government officials have said the preliminary GDP data and revised figures due on September 9 would be key factors in the tax debate, with a final decision possible by early October.
Critics of the planned two-stage tax hike are calling for a delay or at least a more moderate pace of increase.
"Growth is lower than I expected, so you cannot say that the conditions are appropriate to raise taxes as scheduled," Etsuro Honda, a professor at Shizuoka University and an influential adviser to Abe, told Reuters.
Honda has repeatedly said he favors raising the sales tax by 1 percent per year and that he is worried about Japan's progress in escaping 15 years of mild deflation.
But Bank of Japan Governor Haruhiko Kuroda has said the tax hikes are needed and would not hurt the economy. Kuroda has also said Japan can raise taxes and still escape deflation.
($1 = 96.2550 Japanese yen)
(Additional reporting by Tetsushi Kajimoto, Shinichi Saoshiro and Chris Gallagher; Editing by John Mair)

The Insider’s Economic Dictionary: C Is for Camouflage

By Michael Hudson
This piece first appeared at Michael Hudson’s website.
Camouflage: A cloak of artificial attractiveness or even of invisibility. Financial debt-claims on the economy’s income and assets camouflage themselves as wealth, although the financial tactic is to strip it. (See Euphemism and Parasite.)
Capital: From Latin caput, “head,” as the political seat of government, society’s guiding intelligence or brain. Economically, the term is used ambiguously to represent two antithetical forms of capital. Physical capital in the form of tools, machinery and buildings are means of production evaluated by the cost of producing or acquiring them. Finance capital represents the rentier claims on these means of production and their revenue. Its dynamics tend ultimately to strip the means of production via the claims of compound interest in excess of the ability to pay out of current income and production.
Capital flight: The effect of global finance capital and local oligarchies stripping domestic capital to move it safely offshore, to the United States, Britain or intermediate tax havens. Russia lost an average $25 billion annually during the 1990s as its kleptocrats moved their money abroad, accompanied by an emigration of labor. Depopulation typically accompanies capital flight as the economy shrinks. Argentina is reported to have lost a million workers during the balance-of-payments crisis of 2002-03 in which a decade of IMF planning culminated, over and above its flight-capital losses. (See Asset Stripping, Hyperinflation and Washington Consensus.)
Capital formation: The full term is “fixed capital formation” or “real capital formation.” The United Kingdom’s National Accounts define it as “investment in tangible assets. [It] consists of gross domestic fixed capital formation and acquisition of stocks and work in progress.” It continues “Gross domestic fixed capital formation is defined as expenditure on fixed assets (buildings, plant and machinery and dwellings) which either replace existing assets that are no longer productive or increase the availability of productive assets.”??
Capital gain: The objective of investors and speculators under a policy of asset-price inflation. Machinery and other physical capital tends to wear out or obsolesce (see Depreciation), but prices for real estate, monopoly privileges and other rent-yielding assets, as well as financial securities (stocks, and bonds since 1980) tend to rise or be inflated over time.
Although the great bulk of capital gains occur in real estate, most popular lobbying and journalistic discussion treat capital gains as the reward for industrial innovation and enterprise. Investors claim that capital gains are required as an incentive to induce them to seek out opportunities likely to rise in price, and conclude that this price appreciation helps allocate resources to the most profitable (and implicitly, most beneficial) sectors. This logic succeeded in getting the U.S. tax rate on capital gains reduced to just half the normal income-tax rate. (They originally were treated as normal income.) Many countries fail to tax these asset-price gains at all, as if they did not exist. But they are now the main objective of investors seeking total returns.
Capitalism: The term popularized by Werner Sombart in Das moderne Kapitalismus [1909] to describe the social system based on promoting the accumulation of capital. (Marx himself did not use the term capitalism.) Long used mainly as an economic invective, the term only recently has become more glorified by neoliberals, referring mainly to finance capitalism.
Capitalism, finance: See Finance Capitalism.
Capitalism, Pentagon: See Pentagon Capitalism.
Cash flow: In older usage, the sum of profits plus depreciation. The more recent usage is ebitda, the acronym for earnings before interest, taxes, depreciation and amortization. This flow of income is available for new direct investment, to pay creditors or stockholders, although under finance capitalism it is absorbed increasingly by interest charges.
Central bank: Starting with the Bank of England, capped by the U.S. Federal Reserve Bank, a semipublic (although initially privately owned) institution administered by the commercial banks to provide sufficient liquidity to “avoid financial collapse,” which may become a euphemism for providing enough credit to keep inflating financial bubbles at a rate that will save debtors from defaulting and hence avoiding real-estate and stock-market loans from going bad and threatening the solvency of commercial banks. (See Bond, Treasury.)
Chartalism: Another term for the State Theory of Money. As Henry Liu has described it, “When the state issues fiat money under the principle of Chartalism, the something of value behind it is the fulfillment of tax obligations. Thus the state issues a credit instrument, called (fiat) money, good for the cancellation of tax liabilities. By issuing fiat money, the state is not borrowing from anyone. It is issuing tax credit to the economy.” (“Dollar Hegemony Against Sovereign Credit,” Asia Times, June 24, 2005.)
Chicago Boys: The University of Chicago economists brought to Chile in 1974 by its military dictatorship to turn economic control over to the junta’s supporters. Euphemizing their policy as introducing “free markets,” the Chicago Boys engineered a free lunch by giving away public enterprises. To silence criticism, they shut down every economics department in Chile except that of the Catholic University where the Chicago School had gained control. (See Labor Capitalism, Privatization and Washington Consensus.)
Chicago School: Named after the University of Chicago’s Business School where Milton Friedman and other monetarists established an early beachhead. The essence of their ideology is that government has no positive role, being only a deadweight burden. Starting with John D. Rockefeller, substantial funding for these economists came from rentiers seeking to replace the tax burden on property, monopoly power and finance with a tax shift onto the rest of the economy and give free reign for the FIRE sector to charge rent and interest free of regulation. Hence the euphemism “free-market school.” (See Free Lunch and Market Fundamentalism.)
Choice: What monopolists and other opponents of public regulation seek to limit, because limiting choice is what makes rent-seeking possible. The most successful monopolies sell essential products or services, giving them an ability to administer prices (e.g. for insurance, health care, oil and privatized monopolies). The idea that everyone chooses their own economic fate by being left “free to choose” is a euphemism for withdrawing public oversight of financial and property abuses. The result on the macroeconomic level is called “freedom of choice” only in the sense that Anatole France poked fun at when he quipped that “The poor man has as much right to sleep under a bridge as a rich man.”
Circular flow: The reciprocal flow of receipts and payments. The earliest model of circular flow was by the royal surgeon and founder of Physiocracy, Francois Quesnay, inspire by the circulation of blood in the human body. Most economic models since J. B. Say have focused on the reciprocal flow of income between producers and consumers, leaving out payments for debt service and property rent. (See Say’s Law and John Maynard Keynes.) But a rising proportion of income is diverted to pay interest charges as the economy’s debt overhead grows over the course of each business cycle and from one business upswing to the next. Because most net creditors either are institutional investors or belong to the population’s wealthiest layer, this debt service appears as “saving,” which Keynes criticized in his General Theory for reducing the demand for current output.
Circular flow (new model): The old circular flow: from industrial companies to their employees, who use their wages to buy what they produce. This is why Henry Ford famously paid his workers the then-towering $5 a day. This was Say’s law: Income paid for production is matched by consumption, in order for equilibrium to be maintained in a way that enables the economy to keep on growing.
The new circular flow: from the Fed and Treasury to Wall Street in bailouts, back to Washington in the form of campaign contributions. The money is circulated without having to go through the “real” economy of production and consumption at all.
Class: Classical political economy defined classes by their relationship to the means of production – land, labor and capital. Landlords charged rent, workers earned wages, and capitalists employed wage-labor to produce commodities to sell at a profit. The implication was that each form of income was a payment to a factor of production, without paying much attention to taxes or interest payments to the government and to creditors. All classes tend to be taxpayers and also to be debtors and creditors simultaneously.
A class approach thus relates only to one part of the overall economy. The American protectionist Simon Patten suggested that public improvements (such as the Erie Canal, roads and communications) were a fourth factor of production. Governments levy taxes to support a royal or civil bureaucracy (see Milovan Djilas, The New Class for a study of a Soviet-style government class), and to wage wars. Meanwhile, creditors supply money in exchange for interest; but money is not a means of production. One cannot really speak of a “saver” or “creditor” class as such, because all classes are savers, and most also are debtors.
Class warfare: The 19th century’s most characteristic economic warfare saw industrialists fight to keep profits high by minimizing labor’s wages. Toward this end they fought not only against labor unions and socialists but also against landlords and monopolists, so as to obtain a competitive advantage against foreign industrial employers by purchasing food in the cheapest markets and supply necessities at the lowest price. Class warfare and free markets thus were intertwined in Ricardo’s day.
Today, financial managers have taken control of industry, using its profits to pay interest and other financial charges. Meanwhile, finance supports real estate and monopolies as its major collateral for loans. The upshot is that interest now is paid more out of economic rent than profit, prompting the financial lobby to defend monopoly rights and economic deregulation. The banking and financial sector finds its major source of business in real estate, the economy’s largest sector (accounting for 70 percent of bank loans), followed by mining and other natural monopolies, including the public monopolies such as water, power and communications that are now being privatized.
Labor has won concessions from industry, but still has not come to terms with the role of finance in squeezing an economic surplus out of companies that are “financialized.” Having transmuted industrial capital into finance capital, the latter is now moving to take over governments to promote its interests (see Moral Hazard and Washington Consensus). In colloquial language, however, the term “class warfare” is applied only to debtors and employees seeking to protect their position as wealth is increasingly concentrated at the top of the economic pyramid. (See Compound Interest.)
Classical political economy: The body of economic analysis emerging out of 18th-century Enlightenment’s progressive moral philosophy, extending from the Physiocrats (see Economists) and Adam Smith through David Ricardo and John Stuart Mill, culminating in Karl Marx. The common denominator of these writers was the labor theory of value and the complementary theory of economic rent, developed to isolate non-labor costs (see Free Lunch). Their critique of rentier income was countered by a post-classical “neoclassical” school of economists (see Marginal Utility, Neoliberalism and Road to Serfdom.)
Clean Slate: The policy of annulling debts to save the economy and society from being torn apart financially and property being transferred to creditors through debt foreclosure. Originally a royal practice in Bronze Age Sumer and Babylonia, this policy became the core of Judaic Law in the form of the Jubilee Year. In modern times a moratorium was declared on Inter-Ally World War I debts and German reparations in 1931, but debt cancellations now occur only through personal or corporate bankruptcy, not on an economy-wide basis.
Client oligarchy: The ruling class of a “developing” (that is, backward) country that has been co-opted into serving U.S. and cosmopolitan finance capital in exchange for agreeing to IMF and World Bank “conditionalities” and permit capital flight (“free capital movement”) and un-taxing monopoly capital and other property, mainly for the benefit of foreign investors, including the client oligarchy via its own offshore financial accounts (see Offshore Banking Centers and Democracy).
Colonialism: A policy whereby a mother country underdevelops its periphery by imposing a double standard favoring industry, food self-sufficiency and high technology at home, and raw-materials production and low-wage manual labor abroad; and democracy at home, in contrast with client oligarchies in the colonies, whose loyalty and even identity lies mainly with the mother country and helps provide it with inexpensive raw materials and other products which it chooses not to produce at home. See Gains from Trade and Underdevelopment. Superceded by Dollar Hegemony.
Commons: Publicly held land and other economic infrastructure in the public domain, such as water, land, radio airwaves, forests and air, and natural monopolies such as transportation, power and telephone service, to be organized in society’s overall long-term self-interest rather than monopolized by private-sector rentiers. The idea of an inherent “tragedy of the commons” resulting from overuse often is cited as the reason why this policy cannot work over time. However, that ideological position does not reflect historical reality. The commons traditionally have been treated with a view toward long-term preservation of social integrity and balance.
Communism: In Marxist and Leninist terminology, the final stage of socialism in which the state is to wither away. But the outcome of the Soviet model turned out to be a Stalinist dictatorship by the party bureaucracy. Anti-government ideologues claim that this is the inherent fate of socialism, statist, or even mixed economies that wield public regulatory power.
Company: From “companion,” literally those who break bread together; originally a “company of men” in the form of marauding bands seizing lands and subduing their populations. The narrowing of this term to mercantile commerce retains the idea of a closed band, most notoriously in the form of the limited-liability corporation (LLC). The latter is a legal filter to protect businessmen from economic liability for their actions. As such, a limited liability company is the alternative to taking responsibility for the so-called “external” environmental and social costs of doing business, shifting these onto society at large. (See Externality.)
Compound Interest: The exponential rate at which an interest-bearing loan or debt doubles under conditions where the interest is added onto the loan principle, earning interest itself. (See Doubling Time, Rule of 72 and Sinking Fund.) The basic doubling curve is described mathematically as y=x2. The phenomenon was known already in the Old Babylonian period c. 2000 BC by the term “interest on interest” (mash-mash). However, loan contracts were for a specified duration, and when they expired the creditor had to draw up a new contract to receive further interest.
Prior to 1972 it was normal for Latin American countries simply to borrow the interest charges due on their foreign debt each year. This practice now (2005) characterizes over 20 percent of home mortgage loans, in order to “free” debtors from having to pay the amortization charges (and thereby leaving their debts to continue to multiply rather than being paid off).
Conditionalities: The requirement by the IMF and World Bank that indebted governments sell off their public domain and public enterprises, and also deregulate their monopolies and markets in exchange for creditor nations rolling over their foreign debts and refraining from overthrowing their governments either by covert means or by force. Conditionalities are imposed mainly on hapless third-world debtors and the post-Soviet bloc, with the support of local client oligarchies. (See Washington Consensus.)
Consumer: A euphemism for wage earner, viewed in terms of spending power rather than earning power. Today, a consumer is a debtor, as consumption standards have been maintained only by running deeper and deeper into debt. (See equity withdrawal.)
Consumer economy: As part of the postindustrial service economy, employees and workers are referred to as “consumers” and proclaimed king rather than the exploited factor of production. But it is the advertisers and mass-market producers who occupy the commanding position in shaping consumer tastes. Television and radio as well as the printed media have been turned into advertising vehicles and only incidentally for the news or culture. Poll-takers have found that the most open to being influenced are youth, up to the age of 25; after that age, they tend to become cynical. This helps explain why adult programming has been largely ignored by today’s media, throwing into question the real meaning of participatory democracy.
Corruption: Progress in a direction that depletes society’s power to live and grow, e.g. as democracy is transformed into oligarchy. It may take the form of an originally useful idea gone bad or turned into a zero-sum activity. See Law of Unintended Consequences.
Creative Destruction: Joseph Schumpeter famously cited creative destruction as the motive force of entrepreneurial capitalism. He defined it as innovations that were able to undersell and hence replace earlier production or distribution technologies.
Socialists accused capitalism of being a system that makes money out of, and in fact, thrives on, destruction and tragedy. Is there truth in this?
Ancient communities sought to protect the weak and poor, especially debtors (but not slaves captured from other communities, to be sure). Hardship was made temporary. Individuals reduced to debt bondage (usually as a result of natural disaster, warfare, death or infirmity) were released after a given period. Rulers decreed Clean Slates that annulled the backlog of debts, liberated the bond-servants and returned the land-tenure rights to debtors who had forfeited them to creditors or sold them under economic duress.
The reason for avoiding creative destruction was that by depriving the citizenry of land and liberty, it destroyed the community’s ability to field an army, as a prerequisite for citizenship was land tenure and personal liberty. This is why even classical antiquity (Judah and Rome) liberated debt servants and even slaves in times of military attack so that they could fight in defense of their communities. This was in an era where a community’s survival reflected largely the size of its free population.
This no longer was the case as armies shifted to mercenaries rather than depending on the draft of citizens. Today, a nation’s economic surplus is likely to be larger with less population. Prosperity under industrial and finance capitalism often is achieved in a manner that breaks up families and reduces the population.
Most notoriously, neoliberal anti-labor policies have led to severe demographic collapse in Russia and the Baltic states, and even Western Europe is losing population. Destruction is becoming less “creative” as this collapse is not associated with rising productivity and investment, but merely with the destruction of government’s ability to tax and spend.
Credit: A debt that has not been paid. As a verb, credit is the act of establishing a debt on the part of a loan recipient or buyer. Money is a form of credit, putting its holders in the position of a creditor vis-à-vis the rest of society willing to accept money in payment for their goods, property or labor.
Crusade: An attack that unifies both the attacking body and the body being attacked, as when Christian Europe attacked the Moslem Near East in the 12th century. However, crusades typically end up being politically divisive and cult-like, polarizing society between crusaders and their enemies. In this respect political and economic crusades are like religious crusades. (See Fundamentalist, Neoconservatives, Neoliberalism and Road to Serfdom.)
Horia Varlan (CC BY 2.0)

Republished from: TruthDig

Moscow, Tehran to sign agreement on building new nuclear power plant – Iranian FM

The reactor building at the Russian-built Bushehr nuclear power plant in southern Iran, 1200 kms south of Tehran. (Reuters/Mehr News Agency/Majid Asgaripour)
“Iran has held consultations with the Russian side and soon an agreement of mutual understanding will be signed on the construction of a new nuclear power plant,” Ali Akbar Salehi, Iranian foreign minister and former nuclear chief, said on Sunday.
He reiterated that Iran’s nuclear program is purely peaceful, as the country needs nuclear power for electricity generation and medicine.
The statement comes ahead of the first meeting between Iran’s newly elected President Hassan Rouhani and Russian President Vladimir Putin on September 13. The talks are part of a Eurasian summit taking place in Kyrgyzstan’s capital of Bishkek, a Russian presidential aide said Friday.
“After Rouhani’s election as president, the Iranian government sent us a proposal to hold a Rouhani-Putin meeting within the framework of the Shanghai Cooperation Organization summit in Bishkek,” Yury Ushakov said.
Last month, Russian business daily Kommersant cited anonymous sources which said that Vladimir Putin may visit Tehran to meet Hassan Rouhani in mid-August.
Rouhani was sworn in on August 4 and replaced Mahmoud Ahmadinejad as head of Iranian government.
During his first press conference on Tuesday, Rouhani said that Iran would continue negotiations with Russia on nuclear power development in the country.
"We need to get 20,000 megawatts of nuclear power. We have been negotiating on this. I hope that everything will develop according to schedule, and Iran will be able to continue to build nuclear power plants and continue to cooperate. The Iranian government will continue to negotiate with neighboring countries, one of which is Russia, to develop peaceful nuclear energy," he said.
Russian parliament speaker Sergey Naryshkin said during his visit to Iran on August 4 that Russia intends to expand cooperation in civilian nuclear power after Iran’s nuclear power plant at Bushehr is fully commissioned in September.
The construction of Bushehr - the first civilian nuclear plant in the Middle East - was started in 1975 by German companies, but the work was stopped in 1979 after the Islamic revolution of Iran. A contract for finishing the plant was signed between Iran and the Russian Ministry for Atomic Energy in 1995.
Bushehr nuclear power plant has no link to nuclear weapons production and cannot be used to develop such technology.
The US and its allies have long accused Iran of seeking to develop a nuclear weapons capability – a claim which Tehran has repeatedly denied.
Several rounds of talks between Iran and the five permanent members of the UN Security Council plus Germany have failed to resolve the dispute. Iran’s critics claim the country has used nuclear negotiations as a delaying tactic while continuing to develop nuclear weapons technology behind closed doors. Tehran insists its nuclear program is for entirely peaceful purposes.

China to let banks sell off loans in prelude to possible bailout

China is developing a new trading platform to enable banks to sell off loans to a wider range of investors, in a move that could pave the way for a government bailout of lenders or distressed asset sales to private investors.
The trading platform, now in the testing phase, is designed to introduce banks to a new class of investors, including non-bank financial institutions and large companies.
Currently, the lack of well-established precedents for asset disposals effectively leaves banks only two options: sell non-performing loans in private deals, mostly with big state-backed asset management firms, or keep rolling them over indefinitely to avoid booking a loss.
Most analysts believe Beijing will eventually be forced to use some public funds to help peel off bad loans from state banks, but the ability to draw in at least some private capital could reduce the cost of that bailout.
The new platform could aid the effort to draw in private investors by allowing for price discovery for loan transfers, creating benchmarks that could guide future deals. Greater transparency in pricing could thus lure even more investors.

Eurozone Funding Shortfall Rises To Over $4 Trillion, Increases By More Than $500 Billion In A Year

Back in April 2012, Zero Hedge pointed out something rather disturbing for the European banking sector and defenders of the European monetary myth: the "aggregate shortfall of required stable funding Is €2.78 trillion" which was the number estimated by the BIS' Basel III rules needed to return to some semblance of balance sheet stability in Europe. More importantly, this was a number so big, it was obvious that there was only one way to deal with it: cover it up deeply under the rug and pray it never reemerged.
What happened next was inevitable: Basel III's implementation was delayed as there was no way Europe's banks could satisfy their deleveraging requirements, while the actual capital shortfall hole became bigger and bigger. Today, 16 months later, the FT discovers what Zero Hedge readers knew long ago in "Eurozone banks need to shed €3.2tn in assets to meet Basel III." In other words, not only has Europe not fixed anything in the past year, but the liquidity tsunami injected by the central banks merely taped over the epic capital shortfall that just got epic-er, increasing from €2.8 trillion to €3.2 trillion, an increase of over half a billion to over $4 trillion in one short year.
Sadly, just like back in April 2012, so now, Europe has no hope of actually addressing this much needed deleveraging and so the can kicking will continue until the number rises to $5 trillion, $6, $7 etc until one day the market's "head in the sand" strategy finally fails and every emperor around the world is found to be naked.
From the FT:
Europe’s biggest banks will have to cut €661bn of assets and generate €47bn of fresh capital over the next five years to comply with forthcoming regulations aimed at reducing the likelihood of another taxpayer funded bailout.
The figures form part of an analysis by the UK’s Royal Bank of Scotland – which singles out Deutsche Bank, Crédit Agricole and Barclays as the banks most in need of fresh capital – highlighting that five years on since the financial crisis, Europe’s banks are still “too big to fail”.
Overall, the region’s banks need to shed €3.2tn in assets by 2018 to comply with Basel III regulations on capital and leverage, according to RBS.
The burden is greatest on smaller banks, which need to shed €2.6tn from their balance sheets, raising fears that lending to the region’s small and medium size enterprises will be sharply reduced as a result.
“There is too much debt still across Europe’s economies and the manifestation of that is on bank balance sheets,” said James Chappell, an analyst at Berenberg bank. “The major issue is that the banks still don’t have enough capital to write down those loans.”
Eurozone banks have already shrunk their balance sheets by €2.9tn since May 2012 – by renewing fewer loans, repurchase and derivatives contracts and selling non-core businesses – according to data from the Frankfurt-based European Central Bank.
Deutsche Bank recently said it would seek to cut its assets by about a fifth over the next two and a half years. Barclays, which announced a £5.8bn rights issue last month, said it wants to shrink its balance sheet by £65bn-£80bn.
Europe’s banking sector assets are worth €32tn, or more than three times the single currency zone’s annual gross domestic product.
Of course, if Europe's banking sector actually does take its deleveraging obligations seriously, what will happen to Europe's economy, where private sector loan creation is already at a record low level, will be nothing short of a stunning contraction, unlike anything seen in the past 5 years. And yet, that is precisely the path Europe most take in order to emerge on the other side with a healthy beating financial heart. That it won't is a given because doing the right thing would mean a complete wipe out for the banker oligarchy. And, as always, it will be the common man who will suffer when the forced deleveraging day finally comes.

Rental World: California adds more than 500,000 renters while the homeownership rate declines amidst a boom. California food stamp users jump from 2.2 million in 2008 to nearly 4 million today.

The California housing market is providing us with two different pictures.  First, home prices have surged and inventory is still very low (although increasing from the spring low).  However, the homeownership rate continues to decline from the peak reached in 2006 of 60.2 percent.  Today the California homeownership rate is 54.5 percent.  How big of a difference is this?  Since 2007 California has added a net of 500,000 renter households while losing a net of 233,000 homeowners.  Yet the market continues to boom in the face of a declining homeownership rate.  As we look at the market today we start seeing a slowdown in the speed in which flips are being accepted and inventory is rising.  With higher interest rates and the fall season just before us, will the market thaw or continue to accelerate?

Taking account
It might be useful to take into account what has occurred in the last few years in regards to the status of occupied-housing in California:
renter homeowner california
California has added a significant number of renters over this period.  Many of these people lost their homes via foreclosure and simply shifted to renting their place of occupancy.  What is interesting is the number of renters being added has only increased.  The above data is from the Census ACS that came out in September of 2012 (the full 2012 data should be out in fall of 2013).  The above figures were calculated when California had a 55.3 homeownership rate (the latest figure is 54.5 percent):
homeownership rate california
One of the big reasons for this shift has certainly come from investors purchasing homes for rent.  In more typical markets, a home is sold and then another one is usually bought (two transactions are generated).  In the recent market with many foreclosures, you had someone losing their home and then someone buying it from the bank (which was a one-and-done transaction if it then became a rental).  This was likely the case in many areas including the Sacramento area and also the Inland Empire.  I know of a few people that bought in Los Angeles and Orange County for these purposes but their rental yields were extremely low.
This trend to a lower homeownership rate is not only specific to California.  It is a nationwide trend:
homeownership rate
The homeownership rate today is back to where it was in the mid-1990s or if you go further back, to what it was in the late 1970s.  In California home prices are in a manic like acceleration upwards.  The median home price in the state is up a record 28.5 percent over the year:
Median price:
May 2012             $274,000
May 2013:           $352,000
Home prices went up by $78,000 across the state while incomes look like this:
california incomes
To put it another way, a California family would do better by simply sitting in their home generating “equity” instead of working.  This is starting to sound very familiar since many of the ancillary businesses are now starting to rev up and once again have become very real estate dependent.  For example, banks are living high on the hog with low rates and a continual stream of refinances.  Fees and leverage allowed for record profits once again.  We are even seeing a few of our favorite loans cropping up once again as well.
Yet the change in California is symbolic of a bigger trend nationwide.  Fewer and fewer people will be able to live what they think of as a middle class lifestyle in more expensive regions.  And the legions of poor are also growing.  In 2008, California had 2,220,127 people of food assistance.  Today it is closer to 4,000,000 (a jump of 80 percent in roughly four years).  This is in the same state that saw an overall median price jump of 28.5 percent.
The unsold inventory index is down to around 2.9 months which indicates tight conditions for anyone looking to buy.  While the talk is heating up, the facts show that hundreds of thousands of Californians have now become renters versus homeowners.  A few open houses seemed a bit calmer this month but only by a little.
What are you seeing in your local real estate market?

Do natural disasters, earthquakes, or wars stimulate aneconomy? - Bastiat Vs. Paul Krugman

Dr. Paul Craig Roberts: WHY the US Govt started touting GDP instead of GNP since GWB Regime!

IRS Needs AR-15′s For “Standoff Capabilities”?

The IRS, which primarily acts as an audit agency, refuses to answer why its agents need AR-15s for “standoff capability.”
In May, U.S. Congressman Jeff Duncan (R-SC) was getting a lot of questions about ammo shortages and government agencies stockpiling guns and ammo. He wanted to know why IRS agents were buying ammo in large quantities and wanted to see the ammo supply himself.  He went to the Federal Law Enforcement Training Center (FLETC) in Maryland where he witnessed 8 or 9 IRS agents using AR-15s at an indoor 100 yard firing range.
Duncan questioned why IRS agents needed to be trained with AR-15 military rifles with 30 round magazines for “standoff capability” and why the IRS couldn’t use agencies like the U.S. Marshals to assist them when needed. asked Duncan if the IRS offered him any new information regarding his investigation.
“The IRS has not been cooperative. My committee doesn’t have direct oversight over the IRS so I’ve been trying to build support for an investigation. The IRS has not shown me any information on why they need to train with AR-15′s,” Duncan said.
The IRS is not the only federal agency stocking up tactical weapons and training for paramilitary raids.
In 2011, the Department of Education’s SWAT team raided Kenneth Wright’s home because of a search warrant regarding his ex-wife (who no longer lived at the home).* At 6am, SWAT broke through the door and dragged Wright by the neck to his front lawn and held him and his children at gun point. See video.
According to the Washington Post, right after the federal government took over the student aid program, the Department of Education began to acquire tactical weapons like Remington’s 870 police 12-gauge shotgun.
Agencies like the Department of Education, the Social Security Administration, the Environmental Protection Agency, and the Internal Revenue Service continue to purchase large amounts of tactical weapons and ammunition to build up their law enforcement divisions.
Steve Hoffman, the Southeast Regional Director for the Republican Liberty Caucus (RLC) told his thoughts on IRS agents training with AR-15s.
“This just as bad as the Dept. of Education actually having agents who are on armed and trained with AR-15s. Both are symptoms of a federal government that is out of control and whose powers have grown well beyond those outlined in Article 1, Section 8 of the Constitution,”Hoffman said.
Congressman Duncan agrees.
When asked if the Department of Education should have a law enforcement division or SWAT team to investigate Americans regarding their student loans Duncan said,
“Absolutely not, that’s the whole concern with the IRS. Do they need a SWAT team to make sure you’ve paid your taxes?”
Duncan wants answers. He is investigating why the IRS and the Department of Education needs to have their own law enforcement division, and why they need tactical and paramilitary training at the FLETC. He expects to find more answers at his next subcommittee hearing.

*The U.S. Department of Education’s spokesman Justin Hamilton would not say specifically why the raid took place except that it was part of an ongoing criminal investigation.
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Pentagon proposes $2.7 billion arms sales to Iraq

11 Aug 2013 Amid the most deadly month in Iraq in five years, the Pentagon has notified Congress of $2.7 billion in new arms sales to the [US-installed] Iraqi government. The latest contracts, that would provide air defense, communications systems and maintenance, would raise to nearly $5 billion the value of arms sales proposals to Iraq sent to Congress over the past two weeks. Congress has 30 days to act to block the contracts, but otherwise the arms sales would enjoy a tacit approval. The biggest contract, which involves the sale of 681 Stinger anti-aircraft missiles and 40 truck-mounted launchers among other advanced equipment, is worth an estimated $2.4 billion.

G20 Showdown on Dollar Hedgemony

By  of Winters Actionables
Obama canceled his scheduled meeting with Russian President Vladimir Putin last week. Although Obama didn’t give his reason for the cancellation, the media stoogery speculated it was because of Russia’s protection of whistleblower-patriot Edward Snowden. What is not being reported is that Russia has been warning its citizens and institutions since last March’s Cyprus bail-in to divest assets out of western banks.
Additionally, last week Yao Yudong of the PBoC’s monetary policy committee called for a new Bretton Woods system to strengthen the management of global liquidity. In an article in the China Securities Journal, Yao called for more power to the IMF as international cooperation and supervision are needed.
Because of the U.S. dollar hegemony, the lion’s share of all global dollar-denominated transactions pass through the New York. This includes those that have absolutely nothing to do with the U.S. In turn, these transactions are monitored by the New York State Department of Financial Services, which was created in 2011. This agency plays a special role in the exposure of bank and company wrongdoers, real or imagined.  Around 4,500 organizations, with assets of $6.2 trillion, are under the direct control of this agency.
This circumstance, the unnecessary power and the unlimited surveillance/invasion of privacy are powerful incentives for non-U.S. banks and companies to replace the U.S. dollar with the currencies of other countries when making international payments, while at the same time creating their own regional systems of international payments.
Thus, recent Western self-inflicted wounds have opened the Pandora’s box for China and Russia as well as other BRIC nations to pressure hard for non-dollar settlement of trade, and in particular oil. I submit that this agenda and the G20 meeting Sept. 5-6 is the venue for this to be revealed. THAT should be the real concern for the U.S., and it ties direct into my earlier article, China Maneuvers to take Away US’ Dominant Reserve Currency Status. 
As far as the timing, there are just too many coincidences happening on the gold and other fronts to assume the yellow metal does not play a role here. Is it a coincidence that JP Morgan has literally cornered the gold market [see Banker's Participation Report].

The Shanghai Gold Exchange has had deliveries equal to the world’s production for months straight.

The Comex registered gold is only at a mere 2% of open interest.

Chart source: Garrett Goggin
Is it a coincidence that GOFO has been negative for 25 straight days, and gold in backwardization?
Is it a coincidence that the stock market witnessed four Hindenberg Omens in the last week?
The end of Dollar hegemony is going to be a “gap” game-changer.