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Wednesday, June 19, 2013

Bernanke speaks, bonds plunge (so do stocks, gold, oil, etc... but natural gas rises). As the 10-year Treasury note dove, its yield jumped 17 basis points to new recent high of 2.36%. Up from 1.3% last August. By skillfully using and re-using the word “taper” in numerous ways, the Fed Chairman poked another pin into the bond bubble to make sure it’s properly pricked. Reasonably soon, the $85 billion that the Fed buys every month will be “tapered,” the message was, though no date was attached. From that point on, investors will have to buy this low-yielding crap themselves, and they want to be compensated properly. Hence rising yields on the long end. Short-term rates are determined by the Fed’s interest-rate policy which remains hung up on zero. Here is my broader take: Biggest Bond Bubble In History Is Turning Into Carnage

Impact of bursting bond bubble: higher mortgage rates. The average 30-year mortgage rate increased to 4.17%, from 4.15% last week, and from 3.59% in early May. Consequence: The Refinancing Index dropped 3% from the previous week and is now down almost 40% from its recent peak in early May. Banks have sucked billions in fees out of the system via the refinancing bubble, but that source of fees is now collapsing. More ominously, the Purchase Index also dropped 3%, seasonally adjusted, the first sign that higher rates might have an impact on home purchases by households – has home prices have jumped, driven by investors and private equity funds that have been buying tens of thousands of vacant single family homes to rent them out, a plan that isn’t working too well. Another bubble that may be in the process of getting pricked by other thorns.

US coal exports set record of 13.6 million short tons in March, beating the previous record, set in June last year, by almost a millions short tons, the EIA announced. Of that, 6.3 million short tons were steam coal and 7.4 million short tons were metallurgical coal. Based on increased demand from Asia. The top five: China, the Netherlands (as transshipment point for Europe), the UK, South Korea, and Brazil.

High levels of toxic, radioactive strontium-90 (by-product of the fission of uranium and plutonium) and of tritium, a somewhat less harmful substance, have been found in the groundwater at the Fukushima nuke where three melted-down reactors and tons of stored fuel rods continue to wreak their havoc. At a very inconvenient time: TEPCO, the bailed-out utility that owns the nuke, is trying to get approval to release water contaminated with, as it sez, low levels of radiation into the Pacific. TEPCO announced that the level of strontium-90 near reactor No. 2 increased by more than 100 times between December and May. So far, TEPCO has tried to store the flow of contaminated water, used to cool the reactors and fuel rods, in underground and above-ground storage tanks. But some of them have been leaking due to sloppy workmanship. So, instead of fixing the tanks, it wants to just dump this water into the Pacific.

Bank of Japan keeps all options on the table: it may open the spigot further, or turn it down a bit, "if the economy and financial conditions face drastic changes and the current easing measures are perceived as being insufficient or excessive,” Governor Haruhiko Kuroda told Parliament. This, after the enormous money-printing program announced last April apparently wasn't enough for the financial markets, where the only thing that counts these days is how much money gets printed. They were disappointed last week when the BOJ decided to just keep the spigot wide open, rather than adding another spigot. And he said the BOJ would do its darnedest to control yields on Japanese Government Bonds. He’d mention earlier that the BOJ was willing to let yields on 10-year JGBs rise a little and tangentially mentioned 2% if inflation gets to that point – but not beyond that. And that commitment seems to stand.

Tuesday, June 18, 2013

New car sales in Europe skid deeper into catastrophe, drop another 5.9% in May, hit 20-year low. Only May 1993 was worse. Year to date, down 6.8%. Of the large countries, only the UK booked gains, up 11%. The core of Europe got hammered: Switzerland -7.4%, Germany -9.9%, Austria -10.2%, France -10.4%, the Netherlands -37.0% (whoosh.... I mean, come on). Cyprus, which as part of its “bail-in” had to shut down its offshore tax haven and money laundering operations, is withering on the vine, -41.4%! Of the major car makers, only Nissan and Hyundai saw gains, 5.8% and 1.9% respectively. Even VW Group – its numerous brands include Audi and Porsche – which could do no wrong, was down 2.8%. Ford was nearly flat at very low levels (-0.3%), GM/Opel got skinned (-11.3%). Among the majors, PSA Peugeot Citroën was the biggest loser (-13.2%). All these sales declines come on top of what had already been a horrible May last year, and the year before, and... downhill essentially since 2006! Here is what the last ten Mays looked like (blue bars = unit sales in millions, left scale):

Inflation counterpoint: just as I was looking with one eye at the consumer price index – up 0.1% in May from April, and 1.4% from May last year – I was reading with the other eye my email, where I got this from TP reader and blogger, johnnygeneric: “Lucky Burger! I know the name is a little odd. But so is LG's original name, Lucky Gold. Funny, the small restaurant is run by some Orientals. Some connection I guess. Great burgers, though!! We accumulate old menus at the house. So when I picked up a new one, I decided to compare. Sure enough: in the last few months, the prices went up by about 5%, just eyeballing it.”

Chairman Bernanke is finished at the Fed when his term ends on January 31, 2014, according to President Obama who told the world in an interview with Charlie Rose that “Ben Bernanke’s a little bit like Bob Mueller, the head of the FBI, where he’s already stayed a lot longer than he wanted or he was supposed to.” No additional clarity needed.

China makes its mark: the fastest supercomputer. The Tianhe-2, put together at the National University of Defense Technology in Changsha city, has made it to the top at the semiannual TOP500 official listing of the world’s fastest supercomputers. With 17.59 petaflops per second, it's almost twice as fast as the previous record holder, the US Department of Energy’s Titan. Not the first time: in November 2010, the Tianhe-1A made it to the top, before it got knocked down by Japan’s K computer. Alas, what's inside? Intel! But “the interconnect, operating system, front-end processors and software are mainly Chinese,” said TOP500 editor Jack Dongarra in the news release. What exactly did he mean with mainly?

Digital music hot in Japan, CDs rise from the dead: sales of digital music in the first quarter soared 70% over the same period in 2012. Barring a catastrophe, Japan will become the world’s largest market in 2013. In 2012, it almost beat the US, as sales grew 4.0% to $4.42 billion, while in the US, the world’s largest market, sales dropped 0.5% to $4.48 billion. Both countries combined accounted for over half of the $16.48 billion in worldwide digital music sales. But CD sales, which have been dying around the world, skyrocketed 92% in the first quarter in Japan, in part driven by cool physical packaging and the momentum of J-Pop and K-Pop. The industry is smiling as physical music media bring in a lot more revenues than digital. Abenomics can’t take credit; the trend started last year. A warning is due: Japan is a country of phenomenal fads that burn out even more quickly than they arise.

Abenomics reluctantly rubberstamped at the G-8 in Northern Ireland (what else are they going to do?): “I received positive evaluations from the leaders of other countries about Japan’s economic policy,” Japanese Prime Minister Shinzo Abe claimed afterwards, though his Abenomics strategy of demolishing the yen has received withering criticism for months. And the G-8 statement wasn’t happy with Japan’s catastrophic, no-solution-in-sight, out-of-control deficits and debt, by far the largest in the world, which Abenomics is simply making worse: Japan would “need to address the challenge of defining a credible medium-term fiscal plan," the statement said in mealy-mouthed G-8 manner. German Chancellor Angela Merkel fruitlessly exhorted Abe in private talks, she said afterwards, to undertake structural reforms and bring the budget deficits under control, which Abe apparently told her he was thinking about, something that was “very important” for Merkel to hear, she said. Two “conservatives” at the very opposite ends of the economic and monetary spectrum – not exactly a match made in heaven.

Monday, June 17, 2013

Imports into the EU collapsed in May by 12% over May 2012, while exports rose 4%. In the 17-member Eurozone, imports plunged 10% while exports were flat. Bringing the EU's trade surplus with the rest of the world to €15.9 billion for May (up from a deficit of €8.2 billion a year ago); and the Eurozone to a surplus of €22.5 billion (up from a surplus of €6.9 billion a year ago). Another sign of how the economy has gotten slammed, and how domestic demand has cratered, while the rest of the world economy has hovered between slow growth and stagnation.

Indian-made Fords to arrive in Europe: production of the EU-bound EcoSport compact crossover will start in late 2013 in Chennai, a city in southern India, where the cost of labor is a lot lower than in Europe. In another kick at already teetering European auto manufacturing, Ford CEO Alan Mulally said while visiting Chennai that Ford plans to export even more vehicles from India to Europe. It’s all part of the plan to lower its global cost of production – and Ford of Europe has been bleeding epic amounts of red ink after a crash in sales.

China’s Edward-Snowden dance: Extraditing the leaker of NSA secrets to the US would be a “betrayal” of his trust and a “face-losing outcome” for Beijing, said the Global Times, a Chinese tabloid under the thumb of Communist Party rag, the People's Daily – akin to a government announcement in absence of an official one. “Unlike a common criminal, Snowden did not hurt anybody. His ‘crime’ was that he blew the whistle on the US government’s violation of civil rights,” the editorial said. Extradition would be “a disappointment for expectations around the world.” It went on the say that he believed in “the democracy and freedom of Hong Kong,” (which was returned to Chinese rule in 1997, though it has its own legal system). And in a dizzying whirl, it added that “China’s growing power is attracting people to seek asylum in China.”

“We see very little benefit” from Abenomics, said Takumi Tanaka, managing director at Japanese auto-component maker Uchida Co. “Even today, we are being asked to build plants in Vietnam, Thailand, and Indonesia" by customers such as Honda. There is little relief that manufacturing can stay in Japan," he said morosely. Turns out, the devalued yen drove up the costs of imported raw materials and energy (imported fossil fuels); and companies like Honda have offshored not only to use cheaper labor but also to be closer to their customers in areas of Asia where growth has been strong. The production chain is following. But these components find their way back into products sold in Japan. Through March 2013, the Ministry of Economy, Trade, and Industry forecasts that Japanese manufacturers will produce 33% of their products overseas, an all-time high, up from 14% in 1989. It expects this to rise inexorably to 38% over the next three years, despite Abenomics.

But... refreshing froth in Abenomics: Japanese breweries plan to increase production this summer, as beer sales in restaurants and bars have taken off in the insufferable swelter, with air conditioning at the office barely working, to save electricity. In response to beer shipments that jumped 6% in May (Thursday, below), Suntory will hike production by 15%, Sapporo by 10%; Kirin and Asahi will follow. There’s nothing like a cold beer in a sweating glass after a sticky day at the office, in slightly air conditioned trains and stations, and on the muggy street. Kampai!

Japanese stocks jump, perhaps on the increased beer consumption, with the Nikkei up 346 points, or 2.73%, to 13.033, on the lowest volume since May 29 (trading value at the Tokyo Stock Exchange's first section was ¥1.98 trillion).

Friday, June 14, 2013

High-and-tight haircuts for Detroit bondholders: Emergency manager, Kevyn Orr, said that Detroit would stop paying on its debt to preserve cash – bringing the city within reach of filing for Chapter 9 bankruptcy protection. And he threatened to give a stylish haircut of 90% to holders of $2.5 billion in unsecured bonds. $9 billion in unfunded pension and benefit obligations would receive the same hairdo. Secured creditors would be able to keep more of their hair on their scalp. Part of Orr's posturing ahead of the negotiations with 150 representatives of a long line of creditors who're gnashing their teeth. And estimates for Detroit’s long-term liabilities keep rising; today to $20 billion. Yup, debt is finally allowed to blow up in the US.

Dumping US Treasuries: private foreigners dumped $30.8 billion in Treasuries in April, an all-time record. Official holders got rid of $23.7 billion in long-term Treasury debt, the highest since November 2008, and $30.1 billion in short-term debt. Sell, sell, sell! Another sign that the bond bubble, the largest in the history of mankind, has been pricked. Seatbelts are being fastened, and the clicks can be heard around the world.

Japan’s IPO bonanza lurches forward, after the minor hiccup of a market crash. Until May 23, 15 companies had gone public this year, but then the crash knocked the breath out of it. Thursday, the day of the second worst crash this year, the spigot was reopened, when PeptiDream, a pharma discovery research outfit, went public with a premarket offering price of ¥2,500. It started trading mid-morning at ¥7,900 and closed at ¥10,700. Friday it closed at ¥13,010 giving it a dizzying market valuation of ¥134 billion ($1.47 billion). More IPOs are scheduled, including Suntory Beverage (July 3), which would be the largest one so far this year, barring further implosions of the stock market.

Nikkei has trouble finding its footing: on Friday – following the 843-point 6.4% plunge to 12,445 on Thursday, the second worst of the year – the index struggled to gain 451 points to an intraday high of 12,901 but then swooned over 200 points during the last hour to close at 12,687, up 242 points for the day, or 1.94%. It’s still 20.4% below its multi-year high on May 23, the day when it turned around and crashed 1,143 points. Thus closing the fourth week in a row of red ink. Those who shorted the yen, took a good licking over the last few days as it has soared, and now trades at ¥95 to the buck. Bonds rose, and the yield on the 10-year JGB dropped to 0.815%.

Thursday, June 13, 2013

Confidence in Congress plunges to new low, and to the lowest level for any institution Gallup ever included in its surveys since the series began in 1973. Back then, 42% of Americans had a “great deal” or “quite a lot” of confidence in the institution. Which turned into the all-time record. Then it went downhill to a low of 18% in the years from 1991 to 1994, then rose again in an unsteady manner to reach a whopping 30% in 2004. Alas, that meager triumph dissipated instantly, hit a new low of 11% in 2010, ticked up to 13% by last year, and now plunged 3 points to 10%. It was spread nearly equally between Independents (10%), Republicans (11%), and Democrats (12%). The remaining 90% hovered at various levels of distrust! Of course, Congress has done a lot to earn this well-deserved distinction.

Tepid US retail sales in May: with a rebound in auto sales, after a disappointing April, total retail sales gained 0.6% from April. Without autos, sales inched up by 0.3%. In April, they rose 0.1% after a 0.3% decline in March. An uninspiring pattern. Consumers are strung out, but not dead: compared to May 2012, they bought 4.3% more of their favorite baubles, with internet sales maintaining their upward momentum with a gain of 11.3%.

But.... Business Inventories rose 0.3% in April while business sales – a different measure than retail sales above – fell 0.1%. So the inventory-sales ratio ticked up to 1.31 from 1.30 in March. That 1.30 is sort of a line in the sand. Not that the line can’t be moved or stepped over, but it's when businesses get antsy about their inventories, when they start worrying that they might be overstocked, and they're thinking about doing something about it, and if the ratio ticks up further, they might actually do something about it, namely trimming their purchases. And when businesses across the nation trim purchases, it's a nasty inventory correction that can easily spiral into worse, especially if it coincides with other headwinds. The graph shows the iffy territories that inventory levels have entered:

Abenomics is working, finally! Beer shipments rose 6% in May from last year, to 17.71 million cases, based on frothy demand at bars and restaurants. Or maybe it wasn't Abenomics and people’s desire to drown what’s left of their euphoria ... but the particularly hot and steamy weather in May. In fact, all three beer-type categories inched up a combined 3.8% to 36.92 million cases, the second month in a row of increases, and the largest increase since October. The three categories are: the classic brewski; happoshu (“bubbly alcohol”), a low-malt fake beer; and "third segment" stuff that isn’t even beer and contains no malt. The latter two are not recommended for beer lovers, or for anyone else. Nevertheless, Kampai!

Wednesday, June 12, 2013

Don’t look now, but Japan is crashing. Did people just read my post about Akie Abe, wife of Shinzo, and her stance on nuclear power? Was that what triggered it? Not sure. The Nikkei is down almost 800 points, or 6%, after less than two hours of trading. Chart looks like a staircase to hell. But if we hold our tongue right, maybe it will bounce back....

Illusion of budgetary discipline: much ink has been spilled on the rapidly shrinking US deficit, especially after the smallish April surplus, the first since before the financial crisis. But in May the Government went hog-wild, blew through a phenomenal $336 billion in outlays, collected $197 billion in taxes, and racked up a $139 billion deficit. For the fiscal year, the deficit is now $626 billion, with four more months to go. If they don’t watch it, the deficit will once again, despite all hoopla from Congress, hit the $1-trillion mark.

Americans getting leerier about government spying: 53% disapproved of the NSA's spying on telephone and Internet communications, according to a just released Gallup poll. As opposed to an earlier Pew Research poll where only 41% disapproved (found it “unacceptable”). So has American opinion evolved? Or was it the different phrasing? Polls live and die by their words.

44% of Americans believed Edward Snowden was "right" to "share" the information he’d obtained while working as a contractor at NSA, 42% thought he was wrong, the Gallup poll also showed. Villain or hero? Can’t make up our minds. 49% of Republicans thought he was right, 47% of Independents, and 44% of Democrats. More clarity about the media’s role: 59% thought it was right for the Guardian and the Washington Post to publish the information.

Americans only kinda concerned about “violation of their own privacy rights if the government had computerized logs of their telephone calls or Internet communications.” But no outrage: 35% were very concerned, 22% somewhat concerned, and the rest slumbered through various stages of unconcern. Alas, the information the government collects from these companies is just a tiny part of what these companies have collected on us, and that they store and mine and analyze ad infinitum. If these companies didn’t collect this information, the government couldn’t get it from them. The fact that these companies have amassed this enormous treasure-trove on every second of our lives, that’s the BIG problem.

Junk bonds: “Even with the selloff, the market hasn’t come down to earth,” Marty Fridson, junk-bond researcher and CEO of FridsonVision LLC, explained at the Annual High Yield Bond Conference in New York. The problem: junk bonds sold off brutally, taking yields from a record low of 4.95% on May 9 to 6.30% on June 11, according to the Barclays US High Yield Index. But Treasuries sold off too, and compared to Treasuries, junk bonds have some catching up to do as the spread was still below his fair-value level. Last week, I wrote about the sell-off, and just how much further it could go.... The Day The Big Fat Junk-Bond Bubble Blew Up

China slowdown accelerates: The Ministry of Finance announced that revenues would miss the 7% growth target for the year – by a wide margin – and cited the economic slowdown as the main reason. In May, revenues were 717 billion yuan, up only 2.6% over 2012, after having declined in March and April, despite big increases in taxes from property development, where the China bubble is still intact.

Japanese appliance retailer throws in the towel in China: Yamada Denki’s strategy had been to start in secondary cities to gain experience before moving into top cities. So it opened a 20,000 square meter (215,300 sq. ft.) store in Nanjing in March last year, after having opened stores in Shenyang and Tianjin. But timing was unfortunate, and so was its strategy: when the Senkaku Islands fiasco erupted last fall, the Chinese turned against anything Japanese, particularly in Nanjing, site of the horrific 1937 massacre by Japanese forces during the Second Sino-Japanese War. An estimated 250,000 to 300,000 people were killed – the numbers remain disputed – and rape and looting were widespread. Other problems dogged the company as well, including fierce competition and price wars by Chinese retailers located next door. In April, Yamada Denki had announced that it would close the Nanjing store, but now it threw in the towel on the other stores as well. Following in the footsteps of Best Buy and German appliance retailer Media Mart which have also pulled out of China’s boundless retail mecca.

Tuesday, June 11, 2013

US job openings dropped to 3.757 million in April, the lowest since January, down 3% from March, and 3.6% from February, according to the Labor Department, which used the politically correct term, "little changed," rather than “dropped.” But openings were still up 6.2% from a year ago. Assuming 11.66 million unemployed in April, there were 3.1 job seekers per opening, up from 3.0 in March, but down from 3.6 in April a year ago. Compare that to Japan where there were 89 openings for 100 job seekers, or about 1.12 job seekers for each opening. As TP readers have seen many times, Japan has some mega-problems, but massive unemployment in the American sense is not one of them.

Corruption and the property bubble in China: former rail minister Liu Zhijun, after running his ministry into the ground to where the state-owned rail system had to be bailed out and restructured by the state, had been arrested some time ago on corruption charges going back to 1986. Turns out, he owned, among other assets, 350 apartments that he'd bought as investment (because real-estate prices always go up), not to rent out or live in – a common practice. Investors own empty apartments, often bought sight-unseen, like people in other countries own mutual funds. Liu will likely avoid the death penalty or maybe even life in prison since he confessed to all his crimes and helped authorities recover the assets, said his lawyer, Qian Lieyang.

Hard times in the Netherlands: bankruptcies in May hit highest level ever, or at least since the data series started in 1981. A total of 769 businesses were declared bankrupt, up from 694 in April, concentrated in the trade and business services sectors. The less volatile three-month moving average of bankruptcies – yup, the Central Bureau for Statistics uses such a thing – was 733 in May, 721 in April, and 734 in March – also an all-time record. Eurozone economic crisis, housing bubble collapse, etc. The usual suspects.

Bank of Japan ends two-day meeting, stocks dive. The BoJ would keep monetary policy steady, that is keep the spigot wide open, flood the country with money, mop up Japanese Government Bonds at a rate of ¥50 trillion a year, rather than opening up the spigot further or announcing new measures, or increasing its purchase of equity EFTs and J-REITs beyond the annual amount of ¥1 trillion and ¥30 billion respectively, or jack up purchases of corporate bonds, and what not. “Investors,” who’d expected the BoJ would transition from mere flood to tsunami, were disappointed. The Nikkei tumbled almost 200 points, or 1.45% to 13,318, bonds fell, with the yield on the 10-year JGB rising to 0.87%, and the yen soared. Yet the economy, sez the BoJ statement, is "picking up steam," and inflation expectations are rising. And so the BoJ would continue to target inflation "price stability of 2%,” or something.

Monday, June 10, 2013

Chinese soul-searching about brain drain: 87% of Chinese students studying science and engineering overseas stay overseas after they receive their degrees, sez the People's Daily, the Communist Party rag, citing an official from a government working group on talent. China lacks high-level innovative and entrepreneurial talent, the official claims. Investment alone would not give China the edge; institutional hurdles are still in the way. So, enrollment of Chinese students at US universities jumped 23% in the 2011-2012 academic year, the Institute of International Education found in November – they made up the largest proportion of foreign students in the US.

Japanese not gung-ho about Abenomics: 78% thought the economy has not recovered since Shinzo Abe was installed on his throne in December; only 18% thought it has recovered. They were somewhat more positive about the future: 51% believed that Abenomics would help the economy grow, not exactly a ringing endorsement. And only 36% thought Abenomics would lead to wage increases – which is what people really need to spend more. One of the key elements in Abenomics is to return the nuclear industry to its former glory by restarting the nukes that had been taken off line after the Fukushima fiasco. Alas, only 28% of the respondents were for it; and 58% were opposed to it (though none of the respondents were from Fukushima Prefecture!).

Opposition to Abenomics becomes political: The Democratic Party of Japan, ousted last December, plans to take advantage of these lukewarm to negative sentiments: it released the final draft of its campaign platform for the Upper House election this summer – and it dares to criticize Abenomics! Let the fireworks begin.

Meanwhile, the Nikkei jumped 636 points or 4.9% to 13,514 – largest leap of faith since the 817-point jump on October 30, 2008, just before it crashed seriously. Ominously, on the lightest volume in about a month.

Weekend, June 8-9, 2013

China's economy "is weakening but not collapsing," said Zhang Zhiwei, chief China guru at Nomura, on Friday. And that's what the data dump over the weekend confirmed. Bank lending dropped 15.8% in May to 667.4 billion yuan ($109 billion), from 792.9 billion yuan in April. "Social financing," a broad measure of liquidity, dropped 32% to 1.19 trillion yuan in May. Imports dropped 0.3% from May 2012, and exports rose only a tiny 1%. Exports are tangled up in a scandal of "fake invoices" that companies produced to get around currency controls, but these fake invoices had inflated export data to nonsensical proportions. Now the government is cracking down; bits and pieces of more truthful export numbers are seeping to the surface, and they’re ugly – another sign, as if we needed one, that the global recovery is losing steam. Industrial production increased “only” 9.2% in May, producing the worst January-May period since the Financial Crisis in 2009.

Gag settlements: Oil and gas drillers across the country “feel they can get out of this litigation relatively cheaply,” said Marc Bern, an attorney with Napoli Bern Ripka Sholnik who negotiated about 30 settlements for homeowners. Drillers quietly paid significant amounts to settle numerous claims by homeowners that fracking had polluted their water. But confidentiality clauses force homeowners to keep mum. It keeps the information from regulators, policymakers, the media, and health organizations. So the industry’s claim that fracking hasn’t tainted anyone’s water becomes nearly impossible to refute, according to Bloomberg News, which reviewed “hundreds of regulatory and legal filings” to come up with its findings. It took a state right-to-know request in Pennsylvania to find out regulators “have linked gas and oil drilling with about 120 cases of water contamination from 2009 to 2012,” Bloomberg writes. “There’s obviously information that they don’t want to get out there,” said Deborah Goldberg, managing attorney with Earthjustice, about the drillers and their settlement strategy.

Friday, June 7, 2013

Fighting inflation one chicken biscuit at a time. Just found this in my inbox from TP reader johnnygeneric: “McDonalds raised the price of their chicken biscuit from $2.49 to $2.89. This works out to a 16% increase. Every once in a while, I would stop in there and get breakfast before getting on the bus for work. It was always about $3.78 for a cup of joe and the chicken biscuit. Until today. I mentioned to the gal that they raised their prices. So she charged me the 'Senior' price for a cup of coffee which lowered the overall price. That made me even madder. I'm close to being a senior and don't like the pandering (I say this in a grumpy old-man sort of way....).” His blog: California Swan Song.

A deep dive into the raw, or rawer, numbers beneath the seasonally adjusted icing on the jobs report reveals a very consistent pattern. And there are implications! Check out the excellent and insightful piece by Lee Adler: What Fed’s Failure To Stimulate Faster Jobs Growth Means For Stock Market

US consumers borrowed more to maintain their standard of living while real hourly compensation plunged 5.2% in the first quarter, the worst since the data series began in 1947. So they piled another $11.1 billion in debt on their already stooped shoulders in April, up 4.7% annual rate, seasonally adjusted. Of that, $10.4 billion was in form of auto loans, student loans, and personal loans. Credit card debt increased a scant $682 million, making up only partially for the drop in March. Wall Street had been hoping for more – $14 billion in total – to keep the sacred trade deficit inflated.

German exports and imports rise, 1.9% and 2.3% respectively in April, seasonally adjusted, from March. Looks good, but these numbers are volatile. On an unadjusted basis year to date, exports are up a tiny 0.9% and imports are down 1.4%, from last year. Meanwhile the Bundesbank lowered its forecast for economic growth in 2013 to the stagnation level of 0.3%, after first-quarter growth had been clocked at a cosmetically important +0.1% (looks better than -0.1%, but given the inaccuracy of GDP estimates, and later revisions, it’s too close to call).

China property bubble: “If the bubbles are not controlled, the result will be catastrophic," said Wang Shi, chairman of China Vanke, the largest residential property developer in China now branching out overseas, including two projects here in San Francisco. Prices continue to increase even while national and local government entities try to put a lid on them by raising down-payment requirements, slapping taxes on transactions, or restricting purchases, to no avail. Wang was featured in CBS's 60 Minutes broadcast about the China housing bubble and ghost cities two months ago. But now he said he disagreed with its conclusion that the bubble would soon burst; the housing market was very diverse, he said, with unoccupied ghost cities in some places and new housing that is immediately snapped up in other places. "You can't generalize for the Chinese market," he said. Nevertheless, the ultimate insider and beneficiary of the bubble, worries about “catastrophic” results. Hmmmm...

To tamp down on deflation, Japan tries to ban discounts after consumption-tax hikes kick in (from 5% to 8% in 2014 and to 10% in 2015). The House of Councilors passed the law in order to force companies to inflict the tax hikes on consumers, rather than pushing them back up the pipeline by pressuring suppliers to cut prices, as they’d done at the last consumption tax increase to keep their sales from cratering. Part of the strategy to force inflation upon the hapless people. Only in Japan.

Thursday, June 6, 2013

IMF mea-culpa about botched “bailout” of Greece? Quite understandably, it has stirred up some ire in Greece. Panos Sialakas, Greek blogger and economist, vivisects in English the IMF and its ridiculous forecasts, noting that, despite its mea culpa, the IMF still hasn’t offered an alternative to the social fiasco – see horrid unemployment numbers below – that the “bailout” of Greece has caused. Check it out on Panos World.

Capital controls, like those in Cyprus, “profoundly distort the markets,” said ECB President Mario Draghi during the press conference, but they weren't his idea, and the ECB had nothing to do with them, because "it's not our responsibility," he said.

Draghi speaks, European stocks tank: The ECB had lowered Eurozone GDP “growth” to -0.6% for 2013, from -0.5%, he said at the press conference. But they're still expecting growth for 2014. These words, or whatever else, spooked jittery bubble chasers. The German DAX gave up 138 points, or 1.6%, in the two hours since his words started spreading around.

Unemployment in Greece hit 26.8% in March, an all-time record, up from the previous all-time record of 26.7% in February, and from 22.2% a year ago. The number of unemployed people rose to 1.309 million. In 2008, at the end of the euros-grow-on-trees era, "only" 390,000 people were unemployed. In March 2013, 3.58 million Greeks had jobs; in March 2008, 4.53 million had jobs. Youth unemployment (15-24) reached 58.3%. At this rate, it's unclear what a young person who is not well connected has to do to get a job – other than leave the country and find it somewhere else.

Japanese stocks: foreign hot money bailed out last week, dumping 9.94 trillion yen ($100 billion) in shares, the third largest amount ever, well since the data series began almost 40 years ago, sez the Tokyo Stock Exchange. Second week in a row of dumping. But some bought too, and net selling by foreigners was only $1.3 billion – because for each share someone sells, there has to be a buyer. And overall, there is no such thing as bailing out of stocks.

Awful auto sales plague Germany and France in May.
- In Germany, new passenger vehicle sales plunged 9.9% from May last year and 8.8% year to date. Registrations by individuals skidded 3.9%, commercial registrations plummeted 13.7%. Among German Brands, only Porsche gained (+6.1%), all others fell. Ford, which is considered a German brand in Germany, only edged down 0.9%. Opel, the other non-German German brand, plunged 16.3%. Commercial trucks fell 9.5% in May and 10.4% year to date. German companies aren't investing in trucks. German individuals aren't buying their favorite toys. Not good.
- In France, new passenger vehicle sales dropped 10.5% from May last year, and 11.5% year to date; with PSA Peugeot Citroën down 7.6% and Renault down 19%. Of the foreign automakers, Nissan and Mercedes booked small gains, while Toyota rose 7.6%. But the others were in the red, even last year’s hero, Hyundai/Kia (-5.2%); Ford suffered a 14.5% decline; Opel/Chevrolet got hit the worst (-25.9%). Ugly. That the auto sales fiasco continues unabatedly in these two large European markets doesn’t leave much room for economic optimism.

Click for Older Rumblings....

VIDEOS

Wolf Richter on Max Keiser's "On The Edge"
"The Pauperization of America"

Wolf Richter on the Keiser Report
"Where the Money Goes to Die"

Clarke and Dawe: European Debt Crisis
Two favorite Australian Comedians

Clarke and Dawe: Quantitative Easing
Big industrial-strength printers, all facing the window

The Fastest Drive Ever Through San Francisco
Don't try to do this yourself

humanERROR - by "Frying Dutchman"
Powerful, lyrical appeal to the Japanese. Slams nuke industry, MSM, bureaucrats, and politicians.

Thursday

Jan052012

Greece’s Extortion Racket Maxed Out

Thursday, January 5, 2012 at 9:04PM

Just how bad is the real economy in Greece after four years of recession, countless strikes, and 17.7% unemployment? Registrations of new and used vehicles plunged 30% in 2011, after having already plunged 37% in 2010. Only 107,737 vehicles were registered, the lowest level in over 20 years.

And yet, more cuts are coming. Mid January, inspectors from the Troika (EU Commission, IMF, and ECB) will once again head to Greece to inspect its books and come up with a budget deficit number for 2011—no one trusts Greek numbers anymore. And they will once again leave angry. Indications are that the deficit ranged from 9.5% to 10.7% of GDP, significantly higher than the already revised Troika-set limit of 9% that Greece had vowed to abide by.

So, new “structural reforms,” as they’re called, will have to be implemented, including cutting everything in sight ... auxiliary pensions, public sector salaries, social and welfare benefits, healthcare, defense, tax exemptions. Agencies will have to be closed and tens of thousands of civil servants will finally have to be laid off.

All to get the next bailout installment. Of the first bailout package of €110 billion, €73 billion have already been paid. The sixth installment, €5 billion, has been moved from December to March due to lack of progress, and the seventh installment, €10 billion, has been moved from March to June.

“If our mission in mid-January reaches the conclusion that there are delays, then we should revise the March installment,” announced Olivier Bailly, spokesperson for the EU Commission. Piling pressure on Greece is the name of the game.

Then there is the second bailout package of €130 billion put together last October. €89 billion are to be released in February. It will enable Greece to pay for €17.5 billion in maturing bonds due in March. But the Troika imposed conditions.

First, Greece needs to force the financial institutions that hold $206 billion of its bonds to accept a “voluntary” 50% haircut as demanded during the Eurozone summit in October. Negotiations have been dragging. But now word is that bondholders buckled under the threat of losing their entire principle if Greece tumbles into a disorderly default. And a deal has emerged: a 50% haircut with a hit to net present value not to exceed 60%. Their old bonds would be swapped for new bonds with a coupon of 5%. They would have the same status as loans Greece receives from the Eurozone and the IMF.

Second, Greece needs to implement "structural reforms" in the private sector to make it competitive. Among the targets: cutting salaries, reducing the minimum wage of €751 (in France it’s €1,398), scrapping the still existing 13th and 14th monthly salary, and eliminating automatic pay raises.

“So we can get the next loan installment,” Prime Minister Lucas Papademos explained at a meeting with the major labor unions. Employers and unions would have to come to an agreement this month to meet the Troika’s demands. And then the nuclear option: “Without an agreement with the troika and the ensuing funding, Greece faces the threat of a disorderly default in March.”

Disorderly default. Greek politicians muttered threats before, and each time, money materialized. But last October, the Troika said no. For how Greece solved that situation, read... Greece 'Finds' Treasure, Stays Solvent For Another Month.

But cutting wages didn’t sit well with the unions. At the forefront: Giannis Panagopoulos, president of the GSEE, the highest confederation of private-sector unions in Greece. His resistance was vehement. Salaries, he said, were not the reason for Greece's lack of competitiveness. Instead, companies should secure their jobs. Other union officials spoke up too. So, there won’t be any progress in implementing “structural changes.”

Hence, the Troika inspectors will once again leave angry. But Greek politicians have become expert at their extortion game—even with bond holders. They found that the Troika, after some huffing an puffing, will keep Greece afloat another month. And if the people with the money lose their fear of that threatened end of the world, accept their losses, and move on without Greece?

"True Hell," is how Giorgos Provopoulos, Governor of the Bank of Greece, described the possibility of life without the euro.

Even Beatrice Weder di Mauro, member of Germany’s Council of Economic Experts confirmed that a breakup of the euro in 2012 “cannot be excluded." For more on this, and why people hang on to leftover Deutschmarks, read.... Missing: 13.3 Billion Deutschmarks.

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Reader Comments (6)

"They would have the same status as loans Greece receives from the Eurozone and the IMF"

I don't see how this is possible, or believable. ECB/IMF obligations ALWAYS are senior to private sector. IF that were to change, the IMF would probably be much less likely to put more money into this sinkhole. Beyond that, a 60% or less NPV reduction is just not going to do the trick for Greek debt/GDP, especially without ECB participation in the haircut.

January 6, 2012 |

Blankfiend

As I read the source, these new bonds would be English law bonds. I think I was reading too much into your piece to come to the conclusion that they would have par seniority to IMF/ECB funding.

January 6, 2012 |

blankfiend

Blankfiend - You're correct. Thanks for checking the source. It's still a rumor at this point, though....

January 6, 2012 |

Wolf

Re: "ECB/IMF obligations ALWAYS are senior to private sector."

This was changed in June, 2011. [links below] The reason for the change is clearly NOT the one stated. Yes, this would take some pressure off of existing bondholders, but this would only matter if it were believed that these bonds would eventually be made good. By June of course, no one in their right mind believed this, protestations to the contrary notwithstanding. The reason then MUST have been to allow government money (and in particular, US money -- most IMF money is) to be passed through almost directly to the private European banks with all of the bad loans, AND TO HIDE THE FACT THAT THIS WAS BEING DONE.

Note more recently (2011 DEC), "Fed may give loans to IMF to help euro zone" (Reuters, http://www.reuters.com/article/2011/12/04/us-eurozone-imf-fed-idUSTRE7B30X320111204 ) This is the money actually being dropped off for plunder. Note the sub-title's use of the phrase, "funds that could be used to aid debt-ridden states..." This is nonsense. These funds are going to debt-ridden BANKS. The heist continues.

Please See:
"Bankers: draining funds from taxpayers courtesy of finance ministers"
http://www.debtonation.org/2011/06/eu-diverting-funds-from-taxpayers-to-bankers/
And:
"Debtors hail changes to EU rescue fund"
http://www.ft.com/intl/cms/s/0/a2c8cc40-9b69-11e0-bbc6-00144feabdc0.html

January 7, 2012 |

Benedict@Large

Very interesting. It's getting "curiouser and curiouser" what central banks are doing and what they're trying to keep secret....

January 8, 2012 |

Wolf

30 years bonds (1981-2011) had to be payed 7% every year, but 107% the last year: debtor bankrupt in 2011!
So the 30 years bonds (1981-2011) only have delayed debtor insolvency of 30 years!
30 years bonds should better have been payed 8% every year, but only 8% the last year, total 240%!
So bonds would not simply have delayed an insolvency, but would have solved the problem, after 30 years!

January 13, 2012 |

Jean-Francois Morf

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