$1 billion pulled from U.K. equity funds in single week as ‘Brexit’-wary investors vote with feet

European equity funds see 19 straight weeks of outflows

 

While Brexit supporters and opponents re-enacted naval battles on the River Thames, investors withdrew more than $1 billion from U.K. equity funds.
The $1.1 billion outflow last week was the second largest weekly outflow over the past 10 years, Bank of America Merrill Lynch said in its weekly “Flow Show” note on Friday (see chart above).
Read: This is why Warren Buffett and Jamie Dimon think the ‘Brexit’ vote matters to each os us

So far, June has seen a massive risk-off Brexit trade, with investors flocking to gold GCQ6, +0.25% U.S. bonds TMUBMUSD10Y, +0.00% and the Japanese yen USDJPY, -0.09% while selling oil CLN6, +4.44% U.K. and European equities UKX, +1.19% SXXP, +1.40%  and the British pound GBPUSD, +1.1055% the note said.
U.K. citizens will head to the polls on June 23 to decide whether to leave the European Union.
Read: Everything you need to know about the Brexit referendum
London’s FTSE 100 stock index rose 1.2% Friday after both sides in the Brexit campaign suspended activity for a second day in the wake of the fatal shooting of a anti-Brexit British lawmaker, an event analysts said could bolster support for the “remain” camp. The index, however, still saw a 1.6% weekly decline and is off 3.4% since the end of May.
See: ‘Pause for reflection’ in Brexit—analysts assess market impact of Cox tragedy
European equity funds continued to see withdrawals, with investors shifting $4.7 billion out last week, marking the 19th straight week of outflows.
Investors also sold high-yield bonds ($3.2 billion) and emerging market equities ($1.9 billion), while piling money into investment grade corporate bonds ($0.8 billion).
Precious metal funds saw $1.1 billion inflows, sending price of gold to highest levels in 18 months.

‘Could a Trump victory hurt the economy?’ and other tough questions coming Janet Yellen’s way

Political minefield awaits Fed leader in two days of testimony

 

Fed Chairwoman Janet Yellen addresses the House Financial Services Committee in February.

Fed Chairwoman Janet Yellen will have to tread carefully to avoid political missteps in two days of likely heated testimony on the economy and interest rates to Congress next week.
“It is always a minefield when the Fed chair goes to these semi-annual hearings, but there are even more mines in that field this time around,” said Steve East, an analyst at Height Securities, a research firm that focuses on geopolitical and regulatory investment risk.
The “very strange election” season exposes a wide divide between the parties on economic issues, he said, making it potentially hard for Yellen to keep her footing.

Yellen will testify to the Senate Banking Committee beginning at 10 a.m. Eastern on Tuesday and to the House Financial Services panel at 10 a.m. on Wednesday.
Democrats will probably ask Yellen “what will happen to the U.S. economy if Trump is elected?” East said.
Republicans will ask if trading partners are taking advantage of U.S. firms and if regulation is strangling the economy.
“Yellen will steer as clear as she possibly can of anything political,” East said. That won’t keep lawmakers from trying.
The Fed head’s testimony comes on the heels of her downbeat assessment of U.S. economic prospects at her press conference on Wednesday.
Yellen and her interest-rate-setting panel displayed a dovish tilt, discussing long-term forces that might persist in holding down the economy and keeping interest rates low for the foreseeable future. As a result, the Fed now sees a lower path for interest rates over the next two and a half years than they did a few months ago.
Read: Go-slower approach prevails as Fed leaves interest rates unchanged
Yellen could use Congress’ help in removing one of the long-term forces holding down the economy, namely low productivity, experts said.
“Good fiscal policy can help boost productivity through educating and training workers, enhancing physical infrastructure like highways and airports and by supporting research and development,” said Doug Elmendorf, former director of the Congressional Budget Office.
He noted that federal investment will soon be smaller relative to the size of the economy than at any point in 50 years.
Republicans are more open to discussing tax and entitlement reform, said Douglas Holtz-Eakin, also a CBO director who was the top economic adviser to former Republican presidential candidate John McCain.
These differences are likely to be “litigated across party lines” during the two days of hearings with Yellen looking on, Holtz-Eakin said.
Greg Valliere, chief global strategist for Horizon Investments, said Yellen may refrain from any comment that could be construed as pushing for more stimulus.
“If she is seen as an advocate for more spending or tax cuts, she would put a target on her back,” he said.

New Company Promises To Spy On Your Facebook Posts For Your Landlord

Photo Credit Flickr Mambembe Arts & Crafts

(James Holbrooks)  A new UK startup will “take a deep dive” into the intimate details of people’s private lives by essentially strip-mining data from their social media profiles — and then sell what’s unearthed to just about anybody willing to pay.
Score Assured, as the umbrella company, will offer a suite of services to those desiring a more personal insight into applicants’ lives across a number of different sectors. Tenant Assured, for instance — marketed to landlords — is already up and running. The next program to go live, Recruit Assured, will target employers.
“We’re trying to bring back a level of personal relationship to the digital world so the right judgement can be made for the right reason,” Score Assured co-founder Steve Thornhill told The Verge.
But many immediately spurned the idea when the story was first reported on by the Washington Post, and it’s not difficult to grasp why. Even setting aside the blatant violations of an individual’s basic right to privacy, some are finding fault with the indiscriminate methods these programs use to collate data.
For proprietors enrolled in Tenant Assured, for instance, would-be renters are required — assuming they first consent — to hand unfettered social media access over to potential landlords in the name of transparency with regard to economic status.
The program then dissects applicants’ online social media activity — including conversation threads and even private messaging — using language processing software and other analytics.
The frequency of keywords like “poor” and “staying in” and “no money” in online posts is noted, after which the Tenant Assured program sends landlords a “financial stress level” report — a purported measure of how likely would-be tenants will be able to pay their rent.
But clearly, given the mass data-mining methods of the program — and the varied and subjective contexts in which individuals use words and phrases — landlords will get a far more incisive peak into an applicant’s personal life. One that goes well beyond financial health.
This fact seems to be evidenced by the Tenant Assured program itself.
As reported by Tara Evans of the Telegraph, among the other data points on the final report sent to landlords is one that “aims to give insights into five main personality traits: extraversion, neuroticism, openness, agreeableness and conscientiousness.”

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On that front — and perhaps as a reflection upon the Score Assured concept in general — founder Steve Thornhill gave an almost startlingly flippant response to the Washington Post:

If you’re living a normal life then, frankly, you have nothing to worry about.

For those who’ve been paying attention, Thornhill’s statement should sound eerily similar to that of lawmakers and officials in numerous countries when trying to defend mass surveillance programs.
In 2003, in fact, Britain’s own former Foreign Affairs Secretary, William Hague — in regard to mass surveillance — said in an interview:

If you are a law abiding citizen of this country, going about your daily business and your personal life, you have nothing to fear.

Thornhill claims his Tenant Assured program actually works to the benefit of applicants, as many younger or lower income people “don’t have credit scores — so how can they get a property when the answer from a traditional credit score is going to be no?”
He’s also quick to point out that would-be renters have to voluntarily consent to the program.
But as Kaveh Waddell points out for The Atlantic, refusal is hardly a realistic move:

If a prospective tenant chooses to opt out of Tenant Assured, for example, he or she will likely not be considered alongside those who choose to participate.

None of this seems particularly concerning to Thornhill, however, as indicated by his comments to the Post. From the closing line of that article:

People will give up their privacy to get something they want.

Food Riots Shut Down Venezuelan City as Police Join Rampage

(PANAM POST)  This Tuesday, June 14, Venezuela witnessed an outburst of violence in the country’s eastern city of Cumaná that involved looting, riots, protests and hundreds of destroyed stores. Venezuelans, responding to food scarcity, were seeking to survive amid the lowest wages on the continent and the highest inflation in the world.
Cumaná, capital of the state of Sucre, is a small beach city struggling to deal with the humanitarian crisis caused by Nicolás Maduro’s regime.

This is the looting in Cumaná’s Industrial Zone of Fe y Alegría on June 14, leaving 400 detained.  

“El Cumanazo” is trending on Twitter, as the city awoke nearly destroyed Wednesday, June 15.  There were so many robberies that approximatley 100 stores were not able to open their doors.
Security forces and Venezuelans faced off on the streets during further protests that included the chant “Hay hambre, queremos comida” (There is hunger, we want food). Social media caught police taking part in the robberies.
CAUGHT RED HANDED! Cumaná police looting in the midst of riots after El Cumanazo.
Members of the Bolivarian National Guard and the regional and municipal police shot into the air to disperse crowds. People retreated and then returned for more goods later until military reinforcements were sent from the neighboring state of Anzoátegui.

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Overall, two people died in the event.
The death of Carlos Colón Castañeda was confirmed in the midst of the protest. He had been watching the looting when he was reportedly killed by a passing motorcycle, suffering contusions to the chest. Twenty-five people were reportedly wounded and 400 people arrested.
Overnight, Cumaná’s mayor David Velazquez forbade the circulation of private motorcycles in the city for 72 hours.
More cities “on fire”
The delay on the arrival of food to be distributed by the government motivated the inhabitants of the state of Trujillo west of the country to protest for the second consecutive day. On Monday, protesters looted the Mercal supply center.
Inhabitants of different communities blocked the roads as a way to protest food scarcity that had prevented them from getting enough food for the last two months.
In the state of Mérida, also in the Venezuelan Andes west of the country, protests for food scarcity resulted in the death of a 17-year-old, according to deputy Arquímedes Fajardo of the Committee of Independent Electoral Political Organizations.
The state of Miranda in the Central Region of the country awoke Wednesday to the same kind of protests. Venezuelans demand food while chanting that they were hunger, blocking roads with a bus and attracting members of the Bolivarian National Guard.

A Unified Europe, Born In the USA: Brexit, A Challenge to America’s Domination of Europe?

While Brexit versus the continuation of the European Union is a hot news topic, few know the secret who and why of the EU’s creation.
The lead financial writer at the Telegraph, Ambrose Evans-Pritchard, wrote in 2000:

Declassified American government documents show that the US intelligence community ran a campaign in the Fifties and Sixties to build momentum for a united Europe.
***
The head of the Ford Foundation, ex-OSS officer Paul Hoffman, doubled as head of ACUE [below, we’ll explain who these players are] in the late Fifties. The State Department also played a role. A memo from the European section, dated June 11, 1965, advises the vice-president of the European Economic Community, Robert Marjolin, to pursue monetary union by stealth.
It recommends suppressing debate until the point at which “adoption of such proposals would become virtually inescapable”.

In other words, the U.S. State Department recommended ramming through the creation of the EU before Europeans knew what was happening.
Professor of International Security at the University of Warwick Richard J. Aldrich reviewed available historical documents, and also concluded that the European Union was largely an American project:

US officials trying to rebuild and stabilize postwar Europe worked from the assumption that it required rapid unification, perhaps leading to a United States of Europe. The encouragement of European unification, one of the most consistent components of Harry S. Truman’s foreign policy, was even more strongly emphasized under his successor General Dwight D. Eisenhower. Moreover, under both Truman and Eisenhower, US policymakers conceived of European unification not only as an important end in itself, but also as a way to solve the German problem.’
***
One of the most interesting US covert operations in postwar Europe was the funding of the European Movement. The European Movement was an umbrella organization which led a prestigious, if disparate, group of organizations urging rapid unification in Europe, focusing their efforts upon the Council of Europe, and counting Winston Churchill, Paul-Henri Spaak, Konrad Adenauer, Leon Blum and Alcide de Gasperi as its five Presidents of Honour.
***
The discreet injection of over three million dollars between 1949 and 1960, mostly from US government sources, was central to efforts to drum up mass support for the Schuman Plan, the European Defence Community and a European Assembly with sovereign powers. This covert contribution never formed less than half the European Movement’s budget and, after 1952, probably two-thirds.
***
The conduit for American assistance was the American Committee on United Europe (ACUE), directed by senior figures from the American intelligence community. This body was organized in the early Summer of 1948 by Allen Welsh Dulles, then heading a committee reviewing the organization of the Central Intelligence Agency (CIA) on behalf of the National Security Council (NSC), and also by William J. Donovan, former head of the wartime Office of Strategic Services (OSS) [predecessor to the CIA].
***
The International Organizations Division [a newly-established branch of the CIA] was also involved in the fourth type of US covert operation — provoking dissonance in the satellite states. This effort was channelled through the National Committee for a Free Europe, later known as the Free Europe Committee, which controlled Radio Free Europe and Radio Liberty. Much of the work, done with the help of irascible exile groups under the Assembly of Captive European Nations (ACEN), was coordinated by the CIA’s burgeoning Munich station, which also gave aid to resistance groups within eastern Europe.
***
The ACUE and its short-lived predecessor were only two of many `American’ and ‘Free’ committees established during 1948 and 1949. Well-documented examples include the National Committee for a Free Europe (later the Free Europe Committee) and the Free Asia Committee (later the Asia Foundation). The Free Europe Committee, formed in 1948 by the retired diplomat Joseph E. Grew at Kennan’s request, worked closely with the CIA to maintain contact between exile groups in the West and the Eastern bloc. Their campaign ‘to keep alive the hope of liberation in Eastern Europe’, was launched publicly in 1949 by the recently retired American military governor in Germany, General Lucius D. Clay.” The initial membership included many senior government figures such as the former Assistant Secretary of State, Adolphe Berle, Allen Dulles and ex-OSS personnel such as Frederic R. Dolbeare. The Free Europe Committee purported to draw its resources from private subscriptions and various foundations, but in reality the majority of its funds came from the US government through channels managed by the CIA.
***
The United States persuaded Britain and France to give the exile groups associate membership of the Council of Europe. A year later the White House endorsed State Department plans to accelerate these efforts. Outlining their proposals in a special guidance paper entitled ‘The Concept of Europe’, they admitted their concern that the main propaganda effort in the East lacked the `positive qualities which are necessary to arouse nations’. Several studies had been made in an attempt to find a positive concept and the themes of ‘European Unity’ and ‘Return to Europe’ might rectify this problem. Its ‘solely European’ nature ensured that it could not be `dismissed as another manoeuvre of “American imperialism”‘.
***
Unification was officially a central component of US policy — Congress had stipulated it as a condition of further Marshall Plan aid
***
The ACUE’s work in continental Europe during the early 1950s also focused increasingly upon propaganda and mass action
***
In 1951, the majority of ACUE funds for Europe were employed on a new venture — a unity campaign amongst European youth. Between 1951 and 1956 the European Movement organized over 2,000 rallies and festivals on the continent, particularly in Germany where they received the help of the US army. One of the additional advantages of deploying American funds on the large youth programmes was that it helped to disguise the extent to which the European Movement was dependent upon American funds. In May 1952 Spaak decided that funds from American sources that had previously been used in the ordinary budget of the European Movement would now be diverted for use in the ‘Special Budgets’ used to support their growing range of new programmes. This disguised their source and avoided any accusations of American dependency. Again, in November 1953, Baron Boel, the treasurer of the European Movement, explained that it was essential to avoid a situation where opponents of European unity could accuse them of being an American creation. For this reason ‘American money, quite acceptable for the European Youth Campaign and certain restricted activities, could not be used for the normal running of the Movement’. Through the use of `Special Budgets’, the large sums from American sources did not show up in the ordinary budget of the European Movement.”
***
As early as 1949, at the behest of Allen Dulles, the Ford Foundation was cooperating with the CIA on a number of European programmes.” By 1950, the ACUE and the Ford Foundation were coordinating their efforts to support federalism.” Moreover, by the mid-1950s, the senior figures who directed both overt and covert American support were increasingly synonymous. By 1953 both John J. McCloy and Shepard Stone, who had been instrumental in arranging for substantial covert government funds for the European Youth Campaign, were both on the board of trustees of the Ford Foundation. McCloy was also a director of the Rockefeller Foundation. By 1955, McCloy had become chairman of the Ford Foundation, while serving as chairman of the Council on Foreign Relations. Simultaneously, the same circle, including Retinger, McCloy, Allen Dulles, Harriman, David Rockefeller, Jackson and Bedell Smith were busy creating the Bilderberg Group, yet another organization that bridged the narrowing gaps between government, private and public organizations and between overt and covert on both sides of the Atlantic.”
***
Most ACUE funds originated with the CIA.
***
Mutual Security Agency [an American agency created by Congress] funds were also used to support the European Movement, indeed the Mutual Security Act of 1951 explicitly stated that its resources were to be used ‘to further encourage the economic and political federation of Europe’.’

A North American Created the Euro

This guy – Robert Mundell – is the father of the Euro:

Born in Canada, Mundell taught at the University of Chicago for 7 years, and has since taught at Columbia University in New York for more 42 years.*
But didn’t Mundell create the Euro to help Europe?
Not according to Guardian, Independent and BBC investigative journalist Greg Palast, who explained in his book Vulture’s Picnic:

Who spawned this cruel little bastard coin?
I called its parent, Professor Robert Mundell. Mundell is known as the Father of the Euro. The Euro is often spoken of as a means to unite post-war Europeans together emotionally and politically and to give this united Europe the economic power to compete with the U.S. economy.
That’s horseshit.
The Euro was invented in New York, New York, at Columbia University. Professor Mundell invented both the Euro and the guiding light of Thatcher-Reagan government: “Supply Side Economics” or, as George Bush Sr. accurately called it, “Voodoo Economics.” Reagan-Thatcher voodoo and the Euro are two sides of the same coin. (Ouch! Some puns hurt.)
Like the Iron Lady and President Gaga. the Euro is inflexible. That is, once you join the Euro, your nation cannot fight recession by using fiscal or monetary policy. That leaves “wage reduction, fiscal constraints (cutting government jobs and benefits) as the only recourse in crisis,” The Wall Street Journal explains with joy—and sell-offs of government property (privatizations).
Why the Euro, Professor? Dr. Mundell told me he was upset at zoning rules in Italy that did not allow him to put his commode where he wanted to in his villa there. “They’ve got rules that tell me I can’t have a toilet in this room. Can you imagine?”
I couldn’t really. I don’t have an Italian villa, so I cannot really imagine the burden of commode placement restriction.
The Euro will eventually allow you to put your toilet any damn place you want.
He meant that the only way the government can create jobs is to fire people, cut benefits, and, crucially, cut the rules and regulations that restrict business.
He told me: “Without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.” Besides bowl location, he was talking about the labor laws, which raise the price of plumbers, environmental regulations, and, of course, taxes.
No, I am not making this up. And I am not saying the Euro was imposed on the Old Country just so the professor could place his toilet at a place of maximum pleasure. The Euro is fashioned as an anti-regulation straitjacket that would eliminate gallons-per-flush laws, flush away restrictive banking regulation, and all other government controls.

Now does the destruction of Greece’s sovereignty make a little more sense?
As Palast pointed out in the Guardian:

The idea that the euro has “failed” is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do.
***
For him, the euro wasn’t about turning Europe into a powerful, unified economic unit. It was about Reagan and Thatcher.
***
And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.
***
Far from failing, the euro, which was Mundell’s baby, has succeeded probably beyond its progenitor’s wildest dreams.

In other words, the Euro was intended to impose a Shock Doctrine straightjacket on Europe, where the big banks are stripping Greece and other countries of their public assets, pillaging, plundering and lootingthem of their natural resources and wealth.

The original source of this article is Washington's Blog

Copyright © Washington's Blog, Washington's Blog, 2016

Elizabeth Warren’s War On The Poor

Submitted by Patrick Trombly via The Mises Institute,
There is no American politician more closely associated with “progressive” economic causes than Massachusetts Senator Elizabeth Warren. The senator is widely regarded by the political Left as an expert on financial issues, is a self-professed champion of the “working poor,” and is a proud, finger-wagging chastiser of the 1 percent and Wall Street. Her cause is to lift up the least powerful and protect them from the most powerful. She appears to genuinely believe in this cause, and has made several policy proposals that she believes will serve it. Because of her position and the public’s association of the senator with this cause, it is assumed that the policies she proposes will in fact serve it, and that anyone who supports the same causes should get on board and support her proposed policies.
Senator Warren’s stated objective of helping the least powerful is laudable. The problem is that, though well-intentioned, many of Senator Warren’s proposed policies would actually harm the very people whom she intends to help, while her other proposals represent distractions from the real threats to the least powerful, and thus have the effect of allowing these threats to continue. By occupying the seat of defender of the least powerful while advocating policies that would harm the least powerful, the senator has become a danger to her own cause. Below are three examples.

Minimum Wage / “Fight for $15”

Senator Warren has long advocated an increase in the minimum wage, to $15/hour, on the premise that raising the minimum wage will lift the wages of the working poor — people presently earning, say, $9 per hour. The problem is that that is not how minimum wage, or any other price floor, works. The minimum wage is a price floor. A price floor does not magically lift prices, but merely establishes a legal minimum price below which exchanges are not allowed to take place, rendering exchanges that would have taken place at lower prices illegal.

Much in the way that a $15 minimum price for a hamburger would not raise the price that people pay for a McDonald’s hamburger from about $2 to $15. A $15/hour minimum wage would not raise the price that McDonald’s franchises will pay for unskilled labor. Instead, it would force McDonald’s franchises and other employers of low-skilled individuals to replace staffs of several low-skilled employees with staffs comprising fewer, skilled employees, and/or to automate. In either case, some low-skilled workers presently earning $9/hour to $11/hour would lose their jobs, or have their hours cut significantly back, to make room for the fewer, higher-skilled laborers and/or robots. While Senator Warren may not intend for this result to occur, it is what would occur if her policy recommendation is adopted.  Her proposed policy would transform millions of working poor people into unemployed poor people.

Payday Lenders

Similarly, Senator Warren has recently proposed restrictions limiting the ability of lenders, known as “payday lenders,” to make short-term, fast-approval, unsecured loans to consumers with marginal or no credit histories. Much in the way that Senator Warren disapproves of the wages that low-skilled workers are paid, she disapproves of the interest and fees charged on these unsecured loans to high-risk borrowers. However, interest rates are similar to wages in that they often behave like prices. Interest rates often react to restrictions the same way prices do. And much in the way that outlawing employment of people at wages below $15/hour does not lift anyone’s wage to $15/hour, outlawing high-rate loans does not lower the rate on anyone’s loan. Instead, it prevents loans that would have been made at high interest rates from being made.

In other words, such a policy denies credit to the very people whom Senator Warren claims to want to support — even though those very people have determined that they have a borrowing need. Whatever it is that they need or want to purchase with the borrowed funds will be denied them, whether it is the rent payment, a medical prescription, dental work, car repair, or some other expense. As with the “Fight for $15,” Senator Warren may not intend for this result to occur, but it is what would occur if her policy prescription is adopted.

Income Inequality

Senator Warren and others have pointed out that since the early 1970s, and especially since the mid-1990s, there has been a growing gap between the top 1 percent of the top 1 percent and everyone else, in terms of income and wealth. The underlying causes are quite simple. Generally speaking, the groups with the most wealth tend to generate their income through ownership and trading of financial assets priced in dollars. Everyone else tends to generate their income through wages and salaries paid in dollars. Meanwhile, the central bank has, to an ever-increasing degree, been expanding the supply of dollars, thus perpetually devaluing wages and salaries while inflating the prices of financial assets. This is why real wages have been stagnant for decades while investment returns on real estate, stocks, and commodities have skyrocketed.   

In 1971, the last vestiges of the gold standard were abandoned, leaving the Fed free to expand the money supply according to a goal of “price stability,” which it defines as being “mildly inflationary,” but which, curiously, ignores the prices of assets, including some of the very assets directly financed with the newly issued and loaned money, such as houses and stocks.

Since the mid-1990s, naturally deflationary forces such as the end of the Cold War, the liberalization of China and freer trade have — under these definitions — given the Fed increasing room to expand the money supply without triggering significant inflation of the prices that are included in its consumer price metric. This has offset the deflation, and thus the gains in workers’ purchasing power, that the above-mentioned world events should have brought about. This has also made saving more difficult, and, in the short run, less attractive, with the obvious result that the savings rate for the last 20 years has been half the savings rate in the prior 20.

After a generation of low savings, about 40 percent of Americans don’t have enough set aside to cover a surprise $1,000 expense. There is nothing novel or complex about this. Inflating the currency to enrich the already-wealthy at the expense of everyone else is a centuries-old trick, infamously employed by John Law in France in the early 1700s, and many others. Moreover, the boom-bust cycles that also result from inflating the currency via the lending channel create unnecessary volatility in job markets, as employment opportunities are created and then destroyed in boom sectors such as construction in the 2000s and oil drilling in the 2010s.

What does this have to do with Senator Warren?  Her position on the Banking Committee gives her an audience with the Chair of the Federal Reserve on a regular basis. Yet she has never taken the opportunity to raise the issue of monetary inflation and its ill effects. Instead she has focused on the Fed’s decisions not to “break up big banks” or “bring bankers to trial” for various misdeeds. Some of these misdeeds are real, but none related to what Senator Warren contends are her main concerns: wage stagnation and income inequality. Indeed, whether most deposits are held and most loans are made by 10 banks or 10,000 banks won’t change income and wealth inequality if the banks are members of a protected cartel that creates money out of thin air and loans it into the financial system. Senator Warren’s efforts in this respect use up attention and energy that could otherwise be devoted to understanding what actually causes the wage stagnation and inequality: the systematic and perpetual wage and savings devaluation, and asset price inflation, conducted by our central bank.

We should not quarrel with Senator Warren’s stated goal of protecting the least powerful in society, but we should take issue with many of Senator Warren’s proposed strategies to achieve her stated goal — because they don’t work. If Senator Warren wishes to achieve her stated goals, then she should re-think her policy objectives, become familiar with basic economic principles, and adjust her policy prescriptions accordingly, especially with respect to the central bank.

What BBC won't tell you about Brexit: Decline of Britain since 1973 EEC ...

Renters Squeezed by Fed’s “Wealth Effect”

Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter

How the government deceives us on inflation, as housing costs soar.

For inflation lovers, the headline numbers that the Bureau of Labor Statistics reported today was benign: The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in May, seasonally adjusted. Over the last 12 months, not seasonally adjusted, the index rose 1.0%.
The Atlanta Fed’s “sticky-price” CPI – “a weighted basket of items that change price relatively slowly,” as it says – wasn’t quite that benign. It rose 2.6% for the 12-month period, the hottest increase since April 2009!

So prices are rising. Not that this is a surprise to anyone trying to make ends meet on a monthly basis. But now even the official numbers are beginning to limp behind reality.

The report by the BLS had a mix of rising and falling prices. Energy got more expensive. The price of oil has jumped since February, and so the price of gasoline rose 2.3% in May, seasonally adjusted, after having soared 8.1% in April. Without seasonal adjustment, it jumped 6.6% in May. Fuel oil jumped 6.2%, natural gas rose 1.7%, electricity edged down 0.2%. But the energy index is still below last year with gasoline down 16.9%. So yes, energy prices are rising, but they’re still down from a year ago.
That cannot be said of rents.
The Consumer Price Index contains two housing components: “Owners’ equivalent rent of primary residence” (OER) and “rent of primary residence” (Rent). They purport to measure the cost of “Shelter,” which is the “consumption item” that a home provides and is thus included in the CPI. The cost of the home itself and any improvements to the home are considered an “investment,” not consumption, and therefore not part of the CPI.
“Owners’ equivalent rent” accounts for 24.2% of total CPI. “Rent of primary residence” accounts for 7.7% of CPI. Combined they account for 31.9% of CPI. “Shelter,” which adds those two and some other items, accounts for 33.2%, by far the largest and most important component of the CPI.
The data are obtained by survey. For “owners’ equivalent rent,” homeowners are asked what they think they would have to pay if they were renting the home. A measure of implicit rent. Would homeowners think that rents of their types of homes are increasing? Nope. They’re not renting. They have no idea. They can easily fool themselves.
Based on the surveys, the BLS figured the “owners’ equivalent rent” rose 3.3% year over year. That measure accounts for 24.2% of CPI. It is always ludicrously low. It’s the simplest way of hiding the impact of soaring housing costs, and the simplest way of keeping CPI artificially low.
For the component “rent of primary residence,” renters are asked what they’re currently paying in rent. Even if they’ve lived in a rent-controlled apartment for 20 years and pay just a fraction of market rent, it becomes part of the statistics, and not the rent that a new renter pays. Market rent data is available everywhere. But no. So “rent of primary residence” – however understated it may be – rose 0.4% from April and 3.8% from a year ago, the biggest year-over-year increase since January 2008:

Over the longer term? In the five-and-a-half years since September 2010, the index for rent, understated as it is, has risen 18.5%:

Why are rents rising sharply when incomes, especially for the lower 80%, have languished? It’s not like renters have more money to blow on rent and thus are driving up rents. On the contrary.
Since the Fed began its ZIRP and QE programs with the express goal of inflating asset prices, stocks and bonds have soared, home prices have soared, commercial real estate has soared, including apartments. Nearly all asset prices have soared. According to the Green Street Commercial Property Price Index (CPPI), commercial real estate prices have more than doubledsince May 2009, when the Fed’s “wealth effect” started to kick in:

People don’t have to live in stocks and bonds, and those asset bubbles have little impact on the daily lives of regular folks. But they do live in homes.
But when apartment prices, along with the rest of commercial real estate, began to soar, landlords raised rents, on the essential logic of cap rates and return on investment. It has to work out for the investor, or else the whole over-leveraged house of cards comes tumbling down again, as it did in 2008.
Housing costs is where the Fed’s “wealth effect” is eating the lunch of regular folks. More than just their lunch. They’ve gotten hammered by the Fed’s policies. Just like savers, who’ve done the prudent thing all their lives, only to watch their income streams get confiscated.
Rents started rising in late 2010, according to the BLS. The commercial real estate boom had started 9 months earlier. The lag is natural. And rent inflation, as figured by the BLS, hasn’t been nearly as steep as commercial property price inflation, for two reasons: One, because the BLS systematically understates rent inflation. And two, because reality bites; renters can be squeezed only so far before there’s nothing left to squeeze.
For many renters, it’s a zero-sum affair: every dollar spent on rent is a dollarnot spent on other items. In this way, rent inflation is a transfer of spending from healthcare, food, or electronic gadgets, to shelter. It’s not helpful for the overall economy. And it’s devastating for the people who have to struggle with it.
Sooner or later, with wages stagnant for many renters, market resistance starts kicking in. And this may now be happening in the first few cities, and a mega-landlord is preparing for a downturn. Read…  It Starts: Apartment Glut in San Francisco & New York City

Message from the Fed: ‘This is as good as it’s going to get’

At the crux of the St. Louis Fed announcement Friday that it is changing its method of forecasting was a dismal acknowledgement — the economy essentially has come as far as it’s going to go for the next several years.
The conclusion comes via a wonky slog through issues and terminology (“regime change” anyone?) that only an avid Fed follower could love. But a paper released by James Bullard, who runs the St. Louis Fed, was clear in asserting that present conditions are likely to persist for at least the next 2 ½ years, presenting little need for the central bank to raise rates more than a quarter point.

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That means economic growth around 2 percent — though without a recession — limited productivity gains and the associated wage hikes, and muted inflation. On its own, that forecast wouldn’t be terribly shocking, if it hadn’t come from a leading member of a central bank that only a few weeks ago had been talking up rate hikes and economic growth with a strong sense of certainty.
“They’ve put themselves in an awkward position,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. “It’s been a very weak economy, and interest rates are already extraordinarily low. … This is as good as it’s going to get.”
There are multiple caveats to attach to Bullard’s report, the most important being that he was speaking only for the St. Louis Fed and not the broader central bank and its Federal Open Market Committee, which sets monetary policy. But with Wednesday’s FOMC decision not only not to raise rates in June but also to scale back its economic projections and the path of rates ahead, the timing is at least important.
CONTINUE READING

Brazil declares financial disaster before Games

PHOTO CREDIT Marcelo Druck FLICKR

The acting governor of Rio de Janeiro state has declared a state of financial disaster so he has more leeway to manage the state’s scarce resources less than two months Brazil hosts the Olympic Games.

Francisco Dornelles announced the decision on Friday. It will allow Rio’s state government to change its budgetary priorities without disrespecting Brazil’s fiscal laws.

The move will let Dornelles adopt exceptional measures to pay costs related to the Games as the state grapples with the country’s economic recession.

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The 2016 Summer Olympic Games will be held in Rio de Janeiro on Aug. 5-21.

Dornelles’ office said in a statement that the decision was made because a dip in revenues from taxes and oil royalties was “stopping the state of Rio de Janeiro from honoring its commitment to the organization of the Olympic and Paralympic Games.”

“The financial crisis has brought several difficulties in essential public services and it could cause the total collapse of public security, health care, education, urban mobility and environmental management,” the statement said.

CONTINUE READING

Kohl's To Close 17 stores tomorrow June 19th; 9 of the Stores Are in California

Kohl's Department store is closing 17 stores tomorrow, June 19th. Eight of the stores are in Southern California, and one in San Jose. The chain annoucned the closings earlier this year. An additional Kohl's store in Georgia will close in November.
The photos below are of the Kohl's in Upland, California located on Mountain Ave and 8th St. I went in there last week and the place was already a ghost town, completely empty except for some shirts on clearance and a bunch of mannequins on sale for $75 each. The sad part is that this particular Kohls location used to house a Mervyns department store, which was located there for decades. Mervyns, founded in 1949, declared bankruptcy and went defunct in 2008.
The Kohls press release about the store closings, which was issued in March, stated, in part,

"Kohl's also continues to explore ways to enhance shareholder value through the optimization of its existing store portfolio. In 2016, Kohl's will close 18 underperforming stores representing less than one percent of total sales. To reach this decision, Kohl's conducted a comprehensive review of all of the markets across the country to understand every element that contributes to making a store successful - from review of the other stores in each trade area, to the rent and expenses involved in operating any location, to how each customer base is evolving and adapting to the company's integrated omnichannel efforts. An important part of this decision was to ensure we could take care of every impacted store associate. We are proud to share every eligible store associate will be offered the opportunity to work at a nearby Kohl's or, if they choose, can accept a competitive severance package. On average, Kohl's stores employ approximately 80-100 associates.
... The following affected stores will be closed as of June 19, 2016:

• Arcadia, CA -7279 N. Rosemead Blvd., San Gabriel, Calif.
• Cypress, CA - 10201 Valley View St., Cypress, Calif.
• Ladera Ranch, CA - 27426 Antonio Parkway, Ladera Ranch, Calif.
• Mira Mesa, CA - 8140 Mira Mesa Blvd., San Diego, Calif.
• Rancho Cordova, CA - 11051 Olson Drive, Rancho Cordova, Calif.
• Santa Ana, CA - 1351 W. 17th St., Santa Ana, Calif.
• San Jose East, CA - 2323 McKee Road, San Jose, Calif.
• Upland South, CA - 233 S. Mountain Ave., Upland, Calif.
• West Hills, CA -6651 N. Fallbrook Ave., West Hills, Calif.
• Hialeah, FL -700 W. 49th St., Hialeah, Fla.
• Tallahassee, FL- 6785 Thomasville Road, Tallahassee, Fla.
• Holcomb Bridge, GA -2342 Holcomb Bridge Road, Roswell, Ga.
• Lithonia, GA - 2929 Turner Hill Road, Lithonia, Ga. -Note: The Lithonia, Ga. store will close November 1, 2016.
• Northlake Mall, GA - 4820 Briarcliff Road, Atlanta, Ga.
• Saint Charles, IL -3840 E. Main St., Saint Charles, Ill.
• Pineville, NC - 9579 S. Blvd., Charlotte, N.C.
• Princeton, NJ - 200 Nassau Park Blvd., Princeton, N.J.
• Brown Deer, WI -9060 N. Green Bay Road, Brown Deer, Wis.

KOHLS LINK

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HERE IS THE CLOSE-UP VERSION. GO TO MINUTE 20. Trump says that the "Israel Did 9/11' Protester is "A Trump Guy, He's On Our Side, He's Very Committed, he's Got a lot of energy."

Here is the wide-shot footage from the back of the room. If you watch starting at around minute 20, That's when I interrupt him, and he responds to me. Then a few minutes later, he stops his speech again to watch the Secret Service take me out, and he is referring to me when he says: [21:18] Oh! Don't hurt him. Don't hurt him. Be very nice. Be very nice. Yep. Be nice to him. Don't hurt him. See how nice I'm being? I'm only doing it for them, you know that (points to the media) Don't hurt him! (21:34) Tell me, ... I love you too, maam.. Look. Is there more fun than a Trump rally? (21:48) Is there more fun?  


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RICHARD DUNCAN: China’s Hard Landing Has Already Begun!

by Gordon T Long
The Financial Repression Authority is joined by Richard Duncan, an esteemed author, economist, consultant and speaker. FRA Co-founder, Gordon T. Long discusses with Mr. Duncan about the current Chinese situation and the ramifications being imposed on the global economy.
Richard Duncan is the author of three books on the global economic crisis. The Dollar Crisis: Causes, Consequences, Cures (John Wiley & Sons, 2003, updated 2005), predicted the current global economic disaster with extraordinary accuracy. It was an international bestseller. His second book was The Corruption of Capitalism: A strategy to rebalance the global economy and restore sustainable growth. It was published by CLSA Books in December 2009. His latest book is The New Depression: The Breakdown Of The Paper Money Economy (John Wiley & Sons, 2012).
Since beginning his career as an equities analyst in Hong Kong in 1986, Richard has served as global head of investment strategy at ABN AMRO Asset Management in London, worked as a financial sector specialist for the World Bank in Washington D.C., and headed equity research departments for James Capel Securities and Salomon Brothers in Bangkok. He also worked as a consultant for the IMF in Thailand during the Asia Crisis. He is now chief economist at Blackhorse Asset Management in Singapore.

Richard has appeared frequently on CNBC, CNN, BBC and Bloomberg Television, as well as on BBC World Service Radio. He has published articles in The Financial Times, The Far East Economic Review, FinanceAsia and CFO Asia. He is also a well-known speaker whose audiences have included The World Economic Forum’s East Asia Economic Summit in Singapore, The EuroFinance Conference in Copenhagen, The Chief Financial Officers’ Roundtable in Shanghai, and The World Knowledge Forum in Seoul.

Richard studied literature and economics at Vanderbilt University (1983) and international finance at Babson College (1986); and, between the two, spent a year travelling around the world as a backpacker.
THE CHINESE FINANCIAL CRISIS

“China’s economy resembles a spinning top that is running out of momentum. It is wobbling and gyrating erratically.”
China is really just running into a brick wall. If they continue to have more and more credit growth, it will only exaggerate their problem. This is essentially the nature of China’s current problem. A stock market crash, diminishing returns on credit, a plunge in imports, capital flight and currency volatility are all signs that China’s great economic boom is now coming to an end. In all probability, this is just the beginning of what is likely to be a very protracted economic slump.
China’s economy need not collapse into a Chinese Great Depression to produce a global economic crisis, although the possibility of economic collapse in China cannot be ruled out. The 17% contraction in Chinese imports last year was already enough to tip the global economy into recession. The consequences of this economic hard landing in China will be felt in ever corner of the world.
CONSEQUENCES OF INCREASING CREDIT IN AMERICA
Despite the efforts of quantitative easing, it did not help or facilitate much benefit to China. This is largely due to the fact that China’s economy is so large. There is a large gap between how much China produces and how much China consumes.  From 2005 to 2014, China invested $4.6 trillion more than it consumed. If we look at aggregate financing it reveals a much more detailed story of the credit growth situation in China. Since 2009 credit growth has been significantly slowing, and once this began, so too did nominal GDP growth begin to decline.
“China is increasingly misallocating and wasting credit.”

During the last 25 years in China:
If credit growth in China continues to grow then by 2021, total credit growth in China will be more than the peak credit growth the US had back in 2008.

• The Gross Output Value of Construction increased by 134 times, growing at an average annual rate of 21%.

• Building Area Under Construction increased by 33 times, at an average annual rate of 15%.

• Steel Production increased by 12 times, at an average rate of 11% growth per year. Consequently, China now has 50% of global steel capacity.

• Cement Production increased 12-fold, growing by an average annual rate of 11%. During just three years (2011 to 2013), China produced more cement than the United States did during the entire 20th Century.  China now has 59% of global cement capacity.

On the other hand many would believe that if China devalued the yuan, it would bring in more capital investment, but this is not the case. If they had one big devaluation it would make china much more competitive in the global economy. The trade surplus will soar and bring in more money into china. But at the same time China’s trading partners would not be pleased because China already has a large trade surplus with the rest of the world. So too devalue further only to make the already large trade surplus even larger would be unfair by anyone’s standards.
FALLING FOREX RESERVES

“Rather than the reserves shrinking, the more important thing to note is that they have not been growing.”
The buyers who are absorbing the treasuries being sold at are really people just fleeing negative interest rates. Rather than take a negative yield, they would rather buy US treasuries at a pathetic 1.7% on a 10yr. The reason China’s forex reserves are falling is because Chinese people want to sell Chinese yuan and buy dollars. And with these dollars they want to buy treasury bonds.
I do expect there to be a steady depreciation in the yuan coming in the near future. But much of this depends on what happens to the dollar. It is very clear that if the dollar goes up, the yuan is going to go down and this is a problem because the more the yuan goes down then the cheaper the Chinese goods will become compared to the US. Therefore making it more difficult for the fed to reach its mandate of 2% inflation.
JOB CREATION AND SUSTAINMENT IN CHINA 


The green shows that China’s’ economy made up 13% of the global economy. But Chinese household consumption made up only 9% of global consumption, while investment made up 24.4% of global investment. This is mind boggling because its telling of investment in all kinds of structures which create jobs.
 “If global investment and Chinese investment grow at the same rate as they are now, then within 10 years; Chinese investment will make up 60% of global investment. Of course this is not possible, it just won’t happen, so the investment is going to have to slow. “
What Chinese authorities are telling is that they are consequently going to move from investment driven growth into consumption driven growth, but this again is just not possible because if you begin laying off factory workers, then these people will consume less, not more.  If investment slows as it must, then consumption will also slow. So in order to have any growth at all, Chinese spending will need to sharply increase.
“For the rest of the world it does not matter how much China’s economy is growing by, but that matter is how much their imports are growing by.”
When Chinese imports are growing, china then becomes a significant driver for global economic growth. But last year Chinese imports contracted by a staggering 17%. Brazil is now suffering the world depression in 100 years because commodity prices have crashed due to lack of Chinese demand. The effects of this import contraction are clearly being felt and it will be global. All around the world we are seeing a rapidly growing backlash against free trade and the rise of anti-free trade candidates on both the right and the left.
“We need to push up wages in the manufacturing industries around the world. Currently the average wage rate globally is $8/day, and there are hundreds of millions of people who would be happy to work for $5/day. We now live in a global economy, we are very much interconnected and we have to find a way to increase wages in the manufacturing sector.”

Karan Singh karan1.singh@ryerson.ca

Sarah Tung sarah.tung@ryerson.ca

 

US Buybacks Slowing Down

by: otterwood
US corporate buybacks have totaled close to $2 trillion since 2013 which has provided significant support to US equities. Now it appears the pace of buybacks is beginning to slow. According to JP Morgan Quant Marko Kolanovic, announced buybacks have dropped 40% ($250 billion) on a 12-month trailing basis. Share buybacks take approximately 6 quarters to execute so the recent drop will translate into roughly $40 billion less equity demand per quarter.
The market has not experience the buyback slowdown yet, however going forward the divergence between buybacks and the S&P500 is an increasing area of risk, see the chart below.