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Friday, May 24, 2013

Alarm bell: US margin debt at all-time record high in April: investors borrowed $384.4 billion in their brokerage accounts against their stocks, up 1.3% from March, and up 29% from last year. The previous record was set in June 2007 at $381.4 billion, even as the financial crisis was seeping through cracks in the veneer. High margin debt, a sign of euphoria and blindness to risk, is a leading indicator of a market selloff ... which will trigger margin calls and forced selling that drives down markets even further. Been through that many times. In 2007, the swoon started in November; and of course in 1999.... Nothing new here. History in this respect is doomed to repeat itself.

Mercury in Chinese medicine stirred up debate in China after Hong Kong's Health Department forced Beijing Tong Ren Tang Group Co., one of the largest producers and retailers of Chinese medicine, to recall a batch of its stuff due to excess levels of mercury. Now people are debating the general safety of Chinese medicine as herbs might contain heavy metals, pesticides, and other goodies found in Chinese soil, water, and air. They worry that governments with their outdated equipment cannot monitor the medicines. And there are structural problems: “because these companies are either state-owned enterprises or large taxpayers, local governments protect them," said Zeng Danhua, a senior analyst at the China Capital Investment Group, and the fines for companies using contaminated herbs were too low to be a deterrent.

Inflation to hit Japanese consumers: largest bread maker in the country, Yamazaki Baking, announced that it would raise prices by 3% to 6% for bread and by 2% to 6% for pastries. Culprit? Not rising demand or optimism or rising wages, but the devalued yen that pushed up the cost of imported flower. The costs of other ingredients have also risen recently. How increasing the cost of food will crank up the economy remains one of the mysteries of Abenomics.

Stability in the Japanese government bond market is "extremely desirable," said Bank of Japan Gov. Haruhiko Kuroda after the turmoil and craziness that his policies have unleashed upon it. “We are going to conduct our market operations in a flexible manner to head off, as much as possible, volatility in long-term interest rates,” he explained. I thought the BOJ could control the JGB market with an iron fist because of the omnipotence of the printing press and the support of state-owned or controlled institutions that hold a big chunk of the JGBs. But on April 5, I started having doubts. That was the day when 10-year yields dropped to 0.315%, only to more than triple over a period of six weeks to 1.0% yesterday. The BOJ was able to force them down by throwing a truckload of money at the market yesterday. And today again it mopped up ¥900 billion ($8.9 billion) in bonds. Efforts that were aided by the crashing stock market. The jump in yields is the opposite of what the BOJ wants to achieve as institutions and individuals are bailing out. If the BOJ is losing control of the JGB market, if in the end, it's the only one buying these despicable JGBs while everyone else is dumping them.... But Kuroda refused to comment on the “daily movements” of the markets.

Worry in the eyes of Prime Minister Shinzo Abe: “Sharp increases in long-term interest rates could have a grave impact on the economy and the government’s fiscal conditions,” he told parliament. “We expect the BOJ to respond appropriately to any developments in the market.” Because the BOJ might be the only one buying. And he also talked dreamily of creating “a fiscal structure that will be sustainable in the long term.” At the rate and direction they’re going: snowball’s chance in hell.

Insanity in Japanese stock market continues: the Nikkei, which had jumped over 500 points to 15,008 in the early moments of trading in a bout of post-crash buy-buy-buy, maybe by the BOJ, went on to crash over 1,000 points to 13,982, about 500 points below yesterday's close of 14,484, before the BOJ's buying boosted it 600 points to 14,612, ending up 128 points, or 0.88%, for the day. What rollercoaster craziness.

Thursday, May 23, 2013

Eurozone manufacturing and services mired in contraction, sez the Purchasing Managers Index, at 47.7 (below 50 = contraction). Germany, miracle economy that can do no wrong, shrank again, though upticks are visible. France continues to slide downhill rapidly. "The Eurozone's second recession in five years looks set to drag on into a seventh successive quarter," the report said. Accelerating decline of new orders in the service sector; job shedding picking up, companies trying to cut capacity, order backlogs shrinking further, now for almost two years.... Very ugly.

Hitting the China jobs wall: a record 7 million students will graduate from university this year, 190,000 more than last year, according to the Ministry of Education. Yet job openings are down 15%, based on a February survey of 500 companies. It's going to be tough for these educated young people finding an appropriate slot.

Japanese government bonds go crazy again, lose their footing, with yields on the 10-year JGB spiking, briefly kissing 1.0% Thursday morning, the highest in a year, over triple the 0.315% on April 5. The goal of Abenomics and the Bank of Japan's money-printing and bond-buying frenzy is to push down yields, while creating a wave of inflation, thus devaluing the debt, and causing losses for everyone who owns it. In response, investors have been dumping JGBs. The BOJ tried to put a stop to the rout by handing out ¥2 trillion ($19 billion) in the morning. Thankfully, for the BOJ, the Nikkei began to crash, and suddenly these despicable JGBs seemed like a pretty good deal; demand picked up, yields dropped to 0.84%. The BOJ has bought equities before to prop up the Nikkei, but Thursday it was busy propping up JGBs and had to let the Nikkei go. When push comes to shove, it will always support bonds, its number one priority, and let stocks swoon.

China manufacturing contracts in May, after months of fitful near-stagnation, sez the HSBC Purchasing Managers' Index which dropped to 49.6 from 50.4 in April (under 50 = contraction), a seven-month low. A harbinger: New Orders in April had dropped to a five-month low. Ominously, in May, New Orders as well as New Export Orders fell again, as did Employment, Backlog of Work, Quantity of Purchases, among others. “The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds,” said Hongbin Qu, Chief Economist of Asian Economic Research at HSBC. “A sequential slowdown is likely in the middle of 2Q, casting downside risk to China’s fragile growth recovery.” Not very pretty. Though we’ve seen the manufacturing slowdown coming, the reaction on the Asian stock markets is brutal....

Nikkei crashed over 1,460 points, a 9.2% dive peak-to-bottom from its morning high of 15,943, after having been up 300 points early on, to 14,484. For the day, it’s down 1,143 points, or 7.3%. That’s what happens when the air hisses out of a central-bank money-printing induced bubble. The hot money wants to get out.

Wednesday, May 22, 2013

H-P revenues plunged 10.1%, worse than expected, with PC revenues down 20%. Only uptick: lowly printing supplies, such as cartridges, paper, ink, up a measly 2%. Earning didn't "completely crater" like Dell's earnings, CEO Meg Whitman consoled her investors. But H-P had a huge write-off not long ago, and who knows what they plowed into it to make subsequent quarters look better. They always do that. Write-off accounting puts some lipstick on expenses, though it can’t do much about revenues. Props up operating income. “You can feel the turnaround taking hold at H-P,” Whitman said. Indeed, feel. Because there's no visible turnaround in the numbers. Nevertheless, stock jumped 13% after hours.

Justice Department admits: drones killed 4 Americans, in a letter sent to Congressional leaders. One of them was Anwar al-Awlaki, in September 2011 in Yemen. While widely reported, the government had never fessed up to it. The other three were Samir Khan (in the same strike); Awlaki’s son Abdulrahman al-Awlaki, also in Yemen; and Jude Mohammed, in Pakistan. Last year, Attorney General Eric Holder had outlined the government’s legal rationalizations behind knocking off Americans overseas – for example when they pose an “imminent threat of violent attack” and when capturing them is inconvenient. While the whole concept is iffy, the rubbery term "imminent" came under particular fire. But certainly, it won’t be abused; after all, there’s a Nobel Peace Prize winner in the White House.

Delta Air Lines rebels against taxpayer subsidies for Boeing because they benefit state-owned foreign airlines that compete with Delta. The US Export-Import bank is helping Boeing sell wide-body jets by helping foreign airlines buy them. CEO Richard Anderson said Delta would be “perfectly willing” to accept a “total moratorium” on financing of jets, which it also benefits from. "We are trying to do whatever we can to get a level playing field in a world where my government decides that they would rather have my competitors in the marketplace than Delta," he said. In April, Delta sued the Ex-Im Bank to put a stop to these shenanigans. It noted that 46% of the $106.6 billion in the Ex-Im Bank's activities are for aircraft loans or loan guarantees. Emirates and Korean Air were among the biggest beneficiaries, and as Anderson told Reuters, they could get funding without "the balance sheet of the US government." Ah the complex web of government handouts.

BOJ Governor Haruhiko Kuroda accepts jumpy yields on Japanese Government Bonds that nearly tripled from the April 5 low of 0.315% to today’s 0.90%, exact opposite of what money-printing and bond-buying is supposed to accomplish. Japanese investors have been fleeing JGBs; inflation, if it rises to 2% or more as per plan, will eat them up without compensation from yield. Add yen devaluation to make a nasty investment. He lost a bit of his brashness: "I am not expecting long-term interest rates to increase sharply considering the strong downward pressure being exerted on them by our quantitative and qualitative easing," he said at the press conference after the BOJ’s two-day huddle that left monetary policy unchanged, with the spigot wide open, committed to buying ¥50 trillion in JGBs a year, or 70% of all new bonds the government is issuing. "I believe it is quite possible to prevent any spikes in long-term interest rates," he said with even less certainty, then submitted to fate and accepted rising yields: "If expectations for economic recovery and inflation strengthen sharply, that could outweigh the risk-premium reducing effect and result in increases in interest rates," he said.

Japan trade deficit soars 69.7% in April to ¥879.9 billion, from April a year ago, the tenth months in a row of trade deficits, the worst series since 1980, and the worst April ever. For each of the last three Aprils, the deficit was worse than in the prior one; same for March, February, and January. The trend is relentlessly awful. Abenomics is deepening the hole, but it’s digging at a faster rate. The weaker yen nudged up exports 3.8%, but imports jumped 9.4%. Don’t blame oil: imported crude oil volume dropped 2.2%. Exports to China stagnated, but imports jumped 13.3%; the deficit skyrocketed 60.2%. However, exports to the US rose 14.8% while imports stagnated; the trade surplus leaped 32.5%. Japan exports twice as much to the US as it imports. Perhaps someone in the White House will someday get Japan to open up its auto market. The trade balance with Western Europe flipped from a surplus a year ago to a deficit; exports fell 3.5% and imports rose 11.4%. Abenomics and the money-printing binge have heated up consumption of imported luxury goods and other items that can’t be produced in Japan. For the rest, Abenomics appears to be a giant miscalculation. The graph for the years 2011, 2012, and 2013 shows the worsening trend:

Despite the awful trade data that was much worse than economists had hoped for, the Nikkei jumped 246 points or 1.6%, to 15,627 – oblivious to reality for months now, drunken with money the Bank of Japan is printing.

Tuesday, May 21, 2013

“Apple does not use tax gimmicks,” Apple wrote without twitching an eyebrow apparently, in response to a Senate investigation that showed that it sheltered at least $74 billion in profits from US taxes between 2009 and 2012 by using a "complex web" of offshore mailbox companies. One such Irish subsidiary with no employees and no physical existence made $30 billion in profits and didn't pay a dime to a single government anywhere, not even Ireland. Legal, and proof that the US corporate tax dodge code is a scam that bestows a tax-free environment and other welfare handouts to certain companies, while raking less fortunate and often smaller companies over the coals.

Impact of cheap natural gas in the US: the construction of 97 chemical and plastics plants that use natural gas as feedstock has been announced, with investments over $71 billion, sez the American Chemistry Council (ACC). Among them, in Texas alone: Dow Chemical’s plan to plow $4 billion into ethylene crackers and Exxon Mobil’s plan for an ethylene cracker and two polyethylene plants. Others lining up: Chevron Phillips Chemical, LyondellBasell, and Mitsui & Co. Via OilPrice.com. These companies vigorously oppose the export of liquefied natural gas (LNG) as they fear it would raise prices in the US to the levels natural gas trades for on the world markets. Their pleas fell on deaf ears, a dilemma and opportunity I wrote about.... The Quiet Triumph Of Oil And Gas In Obama’s Policies

Japanese Government Bonds: "Absolutely no guarantee" that Japanese investors will continue to buy them, warned an advisory panel to Finance Minister Taro Aso. Investors who lose confidence in the JGB can easily invest their funds overseas, the report nervously pointed out. Some have already made that shift. Hence the recent spike in yields, despite the Bank of Japan, which is mopping up around 70% of the flood of new bonds that the deficit spending of Abenomics generates. Investors only have to pick up the remaining 30%, but they appear to be reluctant to do so. Why is anyone outside of a government controlled institution still buying this crap?

Finding excuses: Japan supermarket sales dropped 1.9% in April, on a comparable-store basis, from April 2012, with food sales down 0.4% and clothing down 8.8%. Blamed was the "unseasonably cold weather." When sales edged up in February and March, the credit went to Abenomics, not the weather or some other silly thing. A broader media trend: when economic data points are positive, Abenomics gets the credit; when they’re negative, the weather and other reasons are dragged into the scenery, sometimes by their hair.

Mystery pollution in China: unknown foul-smelling goo emerges from cracks in the street, becomes huge, finally gets cleaned up ... and remains unknown.

Monday, May 20, 2013

“Every 10 years or so, banks make some horrible mistake and it usually starts with easy money,” said Mike Pinto, vice-chairman of M&T Bank, a regional US bank. “We are worried about the competitive atmosphere. It creates the temptation to do silly things.” He was talking about the credit bubble. US banks made $1.55 trillion in business loans through April, up 10% from last year; banks are falling all over each other trying to goose their profits by making risky loans. US corporations have also sold a record amount of bonds at record low yields and with historically low protections for investors. So now banks are loading up their balance sheets with business loans that will come to haunt them. But no problem. It will just be part of the next financial crisis that will give the eager Fed another opportunity to hand trillions to TBTF bankers to bail them out.

UK wages propaganda war against Scotland, which will hold an inconvenient independence referendum in September 2014. A new report by the UK Treasury, the third in the series, claims that the Scottish banking sector – composed of two large banks, Bank of Scotland and Royal Bank of Scotland, plus smaller ones – would put an independent Scotland at risk. Its assets would be 1250% of Scottish GDP, while the Cypriot banking sector, which brought down Cyprus, was 700% of GDP, the report said ominously. For the UK overall, banking assets are 492% of GDP, also very high. But the UK has “credibility” in the markets to manage that risk, something Scotland would lack. A "feeble attempt to undermine confidence in Scotland's ability to be a successful independent country," retorted Scotland's Finance Secretary John Swinney. "The Treasury, true to form, will outline what is in its own best interests, not what is in the best economic interests of the people of Scotland." He called these assertions misleading; "In terms of share of GDP, in fact, financial services are actually smaller for Scotland at 8.3% than the UK at 9.6%. So if the argument is about risk, then the risk is with the UK," he said.

Now Germany has a real reason to exit the euro: Goldman Sachs CEO Lloyd Blankfein wants it to stay! A bad sign. In an interview with the Welt, he said Germany had profited from the euro the most – from his point of view, “Germany” is “Germany Inc.” But real wages for working Germans have declined since the introduction of the euro, and workers have had a hard time, while wages in Greece, Spain, and other countries have shot up. Though German workers now have jobs, unlike people in Spain and Greece, they earn less than they used to in real terms. For that privilege, German taxpayers (not Germany Inc.) must pay a price, he said, namely bailing out banks and speculators who hold the crappy debt of periphery countries. He predicted utter economic mayhem for Germany if it left the euro. No, German taxpayers will have to bail out weaker countries, he said. And he raved about the "political project" behind the euro, the ultimately total integration of Europe (and of course, he defended TBTF banks, which were more secure, he said, than smaller ones). My question: is Goldman now seriously long the euro?

Weekend, May 18 - 19, 2013

Sales skid at S&P 500 companies: 458 companies of the 500 in the index have reported their Q1 results so far: earnings were up a measly 3.4% year-over-year, but sales fell 0.2%. Not exactly the foundation for the gigantic undying stock market rally that has plowed through whatever economic and corporate bad news with nary a twitch. When will this separation of reality from stock prices end? Someday, one way or the other! He who can pinpoint that day will make a lot of money.

Central bank success story: The global market for luxury goods grew 38.6% in three years. From $200 billion in 2009, luxury goods sales jumped 13% in 2010, 11% in 2011, and 10% in 2012, to end up at $275 billion. Despite the Eurozone debt crisis and austerity, despite the earthquake and tsunami in Japan in 2011... no matter what happened in those three years, luxury goods boomed, sez the the just released "Worldwide Luxury Markets Monitor," by Bain & Company for Fondazione Altagamma (PDF). “Absolute luxury items (high-end products with no logo, highest quality materials, and exquisite craftsmanship) lead the way,” the report reassured us, but there were some losers, including “watch consumption” which crashed in China. The report confirmed what we’ve seen everywhere: when central banks hand out trillions to their cronies, it doesn’t do much for the real economy as a whole, nor for employment, but it does one heck of a job at the very top of the pyramid.

"Threat of Default": US hits debt limit on Saturday, but by using a slew of shuffle maneuvers, shell games, tricks, and devices, the US won't actually run out of money until "after Labor Day," Treasury Secretary Jacob Lew told Congress in a letter. In his previous statement, the US would be "okay until Labor Day." Today, he was more frantic. He begged Congress to get its act together and do something "sooner rather than later" to “remove the threat of default.” In its infinite wisdom, Congress had suspended the debt limit till May 18, rather than dealing with it. The debt, though still over the limit, declined in April and early May; tax extractions were fattened by asset bubbles. But since May 10, the debt has once again been rising.

Friday, May 17, 2013

US Consumers haven’t felt this good since July 2007, just before all heck broke loose. An "encouraging sign," Reuters sez. For short sellers? The preliminary results of the Thomson Reuters/University of Michigan's consumer sentiment index jumped to 83.7 in May from 76.4 in April. Big part of the reason: households in the upper third of the income bracket felt flush from the ballooning stock market – the wealth effect. The Fed giveth.... They were able to brush off the payroll tax increase, which Wal-Mart shoppers, as we’ve seen, had a harder time brushing off. The Consumer Expectations index rose to 74.8 from 67.8. And the Current Economic Conditions index leaped to 97.5 from 89.9, the highest since October 2007, a month before the stock markets began to swoon. Impeccable timing, the hallmark of consumers.

Car sales in the EU crept up 1.7% in April, from a horrible April last year. The fact that the parade of ever worsening numbers has finally stopped, at least for a moment, was greeted with a huge sigh of relief. The details of the report aren’t that rosy: sales in the UK, now the second largest market after Germany, jumped 14.8%. Without the UK, sales for the rest of the EU actually dropped 0.46%. It wasn't exactly a smooth trend across the member states: Greece finally seems to have hit bottom, and sales increased 20.9%; in Denmark, they jumped 30.7% and in Finland 142.6%; but they crashed 26% in the Netherlands and 51.9% in Cyprus; they rose 3.8% in Germany but dropped 5.3% in France.

Deafening US media hype: Japan Core Machinery Orders jumped 14.2% in March, seasonally adjusted, from February. The eternal money-printing and fiscal-stimulus apologists dragged it out as proof that Abenomics is working massively. Alas, these are highly volatile big-ticket items, though “core” orders exclude container ships, nuclear reactors, etc., which are even more volatile. To iron out the volatility, the Cabinet Office also offers quarterly numbers. Soooo, core orders in the first quarter of 2013 were actually 4.8% lower than in the first quarter of 2012, when Noda was prime minister. Kampai!

The Japanese take care of their college grads: 93.9% of all those who graduated on March 31, the end of the academic year, had jobs by April 1, the beginning of the business year. This was the second year in a row that the percentage increased, so it’s NOT related to Abenomics, please! College recruitment, like so many things in Japan, is a highly structured process with the idea to get pretty much everyone squared away before the end of the academic year. But those who miss this entry into Japan Inc. have the greatest difficulty getting through the door later. The system is unforgiving punitive to those who don’t toe the line.

About that secret inflation in Argentina: famously, no one is allowed to accurately track or discuss inflation, but all the whisper numbers floating around peg it at over 20% annually. Now confirmation has come from official sources: wage negotiations between unions and the government of President Cristina Fernández Kirchner. Unions are her base. In fact, she personally met with the leaders of six unions that represent about 2 million workers, or 40% of all workers covered by wage negotiations, and made a deal, similar to the deals she’d made with Railway and Bus Drivers’ unions. The agreed-upon wage increases this year to keep the purchasing power of her voters intact? The closest estimate to official CPI that Argentina has? 24%!

Thursday, May 16, 2013

Last time French-made cars were sold is the US? 1980? Long time ago. But... French-made models of the Toyota Yaris are coming to the US, Canada, and Mexico, apparently to keep the plant in Onnaing, near Valenciennes, busy. Car sales in Europe have been catastrophic, and plant shutdowns and layoffs are hard to do, especially in France where even thinking about it causes a huge political ruckus. In 2012, 182,841 Yaris were sold in Europe, accounting for 22% of Toyota's total European sales - a highly successful model at the low end of the lineup. North America will get US versions, not EU versions. So no diesels.

Plunging price of gasoline shaves 0.4% from Consumer Price Index in April. Total energy prices dropped 4.3%, with gasoline down 8.1%. We’ll remember those days fondly because that cheap gasoline is now history; prices have been climbing in May! Food prices rose 0.2%. Core CPI, which excludes food and energy, rose 0.1%. For the 12-month period, CPI is up 1.1% and core CPI 1.7%. The Fed might complain that this is below target; but it’s still inflation, and it still whittles down the value of your and my dollars, and everything denominated in them, and it’s still higher than the interest that banks pay on most deposits and CDs, though it’s better than 4.3%, as we had some months in 2011.

Another blow to US manufacturing: Philadelphia Fed's Business Outlook Survey – for manufacturing in eastern Pennsylvania, southern New Jersey, and Delaware – dropped into the negative, to -5.2 in May, from 1.3 in April (below zero = decline). The New York Fed's Empire State Manufacturing survey, reported yesterday (below), had also pointed at a contraction. Ominous: new orders dropped to -7.9, the worst since June last year, from -1 in April; the Workweek Index dropped to -12.4, and the Employment Index dropped to -8.7. Manufacturing is only a small part of the US economy, and this region is a small part of the US, so we’re not going to panic just yet...

US Housing Bubble confirmed: Heard an ad on the radio on how to get rich quick by flipping houses – and we’ll show you how. It conveniently offered an 800-number. Something or other was free.... but keep your credit card handy. These kinds of things usually appear late in a bubble.

Death penalty for financial fraud in China. A court in Wenzhou slapped a local, 39-year-old gal, former general manager of Wenzhou Xinfu Investment Consulting Co., with the maximum penalty available, death, for having illegally raised funds for investments starting in 2007. Everything worked fine until October 2011, when her scheme collapsed and she ended up defaulting on a 428 million yuan loan ($69.6 million). Leaves open the question if they’d slap the same penalty on TBTF bank CEOs every time their banks need a bailout. A bit draconian maybe, but something the US might want to consider as well, after not having prosecuted anyone responsible for the financial crisis and for the Fed’s bailouts that followed, though they did hound, as in China, small-scale crooks like Bernie Madoff.

Bad loans at Chinese commercial banks swelled by 6.8% in the first quarter, to 526.5 billion yuan ($85.6 billion), the sixth consecutive quarter of increases, raising the non-performing loan ratio to 0.96%. And NPLs are expected to rise further. One of the many elements in a boundless debt-fueled scheme that will eventually, like the micro-case above, unravel.

The Japanese Diet rubber-stamped the ¥92.6 trillion ($926 billion) budget for fiscal 2013, which started April 1. A breath-taking ¥43 trillion ($425 billion) will have to be borrowed to make ends meet - that's 46.4% of the total outlays! But no problem. Abenomics will get Japan out of its fiscal quagmire, one way or the other, by printing money. Government spending on public works – welfare spending for Japan Inc. – will rise to ¥5.3 trillion. In a show of rare fiscal discipline, welfare spending for the poor will be cut by ¥67 billion. Priorities of Abenomics are becoming clear.

Japanese GDP growth less than a year ago! The economy grew 0.9% in the first quarter 2013 from Q4 last year, or a 3.5% annual rate. Private demand was up some, with investment in housing being fairly strong, but corporate investment lackluster. Public demand – government spending and investment, including boondoggles – jumped, as promised by Abenomics. Exports rose, and so did imports, but not as much. All seasonally adjusted. Great? Give credit to Abenomics for that 0.9% growth in GDP? Because it was the fastest growth since... oops, well, since the first quarter of 2012, when the economy grew 1.3%. Abenomics can't even keep up with Noda's maligned era.

Wednesday, May 15, 2013

Megabanks "are NOT too big to jail," claimed Attorney General Eric Holder today in a heroic about-face at a House Judiciary hearing, after he'd explained to the Senate Judiciary Committee in early March why exactly they were indeed too big to jail. The Justice Department has not prosecuted any megabanks despite their shenanigans leading up to the Financial Crisis and continuing to this day. A debacle I wrote about.... 'Regulatory Capture' Emasculated The Regulators Of Megabanks.

French purchasing power plunges 1.5% per capita, and 0.9% for all households together in 2012 (difference due to population growth), the worst performance since 1984. Combination of: disposable income creeping up only 0.9%, and prices rising 1.9%. Ah yes, the many benefits of "moderate" or even "below-target" inflation.

Tough day for US manufacturing: industrial production dropped 0.5% in April, after increasing in February and March; year-over-year, it's up only 1.9%. Within it, manufacturing fell 0.4%; fingers point at motor vehicles and parts, down 1.3%. Capacity utilization fell 0.5% to 77.8%, and is 2.4 percentage points below long-term average. Add to that: the New York Fed's Empire State Manufacturing Survey for May dipped into the red (-1.43, from 3.05 in April). Employment sub-indices were mixed, with number of employees up slightly, but hours worked down sharply. Darkest cloud: new orders were negative. Executive optimism for the next six months declined, second month in a row. Not an exemplary picture of a growing economy.

"My question is, who is going to jail?" wondered House Speaker John Boehner about the IRS scandal. So why didn't he and other Republicans ask that question after the financial crisis, the largest scandal in the US ever?

Swooning energy prices, particularly gasoline, pushed down wholesale prices by 0.7% in April, seasonally adjusted. Food prices also dropped, a godsend for those of us who like to eat, with veggies and meat down the most. Without food and energy, which are highly volatile, the core Producer Price Index rose 0.1%. For the 12-month period, the unadjusted PPI is up a scant 0.6%. If they could just keep it that way!

Warning shot: Russian car sales plunged 8% in April. For the year, they are now 2% below the same period last year, a record year during which sales had jumped 11% from 2011. The good times appear to be over. Is the EU malaise heading east?

Europe stuck in recession: the Eurozone economy shrank 0.2% in the first quarter, from Q4, the sixth quarter of recession in a row, another glorious record. The 27-nation EU contracted 0.1%. Year over year, they’re down 1.0% and 0.7% respectively. Germany's economy inched up 0.1% in Q1, after having plunged 0.7% in Q4, thus barely avoiding the red stamp of recession. Both quarters combined, Germany is in the hole. The lousy performance in both quarters surprisingly surprised pundits. France is formally in a recession; its economy contracted 0.2% in Q1, third contraction in four quarters. Italy and Spain both shriveled 0.5%. Unperturbed, German stocks, while down a smidgen for the day so far, are still above their prior all-time intra-day high of July 2007. This will be seen as the greatest accomplishment of the central bank money-printing binge: separating (at least temporarily) stock markets from reality and allowing them to float in a dream world.

China's pile of foreign exchange grew by 294 billion yuan to 27.363 trillion yuan ($4.41 trillion) in April, according to the People's Bank of China, the fifth month in a row of increases. For the first four months of 2013, the monthly influx averaged 400 billion yuan, nine times the average in 2012. Earlier this month, the State Administration of Foreign Exchange, the top forex regulator, had threatened to crack down on foreign money flooding the country. China is where the hot money goes – on the bet that the yuan will continue to rise against the dollar which, through the arduous and heroic efforts of the Fed, will continue to lose value.

Nikkei jumps 2.29%, to 15,096, highest since December 28, 2007. If it keeps going like this, it will be above 40,000 soon. This thing has become a joke – even more so than the US stock markets. Japanese government bonds continue their descent, pushing yields up, with the 10-year JGB hitting 0.90% but then settled down at 0.85%. The yen skidded.

Tuesday, May 14, 2013

Ex-leaders of consumer electronics: Sharp's huge loss is a sign of how Japanese powerhouses have lost the edge to Korean, US, and Chinese rivals. A doozy: ¥545 billion ($5.3 billion) in red ink, a record in its storied century-long history. A top exec reshuffle has been announced, but it won't fix the real issue that is bedeviling Sharp and other Japanese consumer electronics companies, once world leaders, now not even also-rans. Abenomics won't be able to cure that either. This isn't an issue of costs and exchange rates, but of innovation, products, and now increasingly brand (they squandered it).

China's white paper on human rights, helpfully issued in English so that foreigners like me can get their brains washed, starts out promisingly: "Since the arrival of the 21st century, the Chinese people have been making constant efforts in advancing human rights protection along the path of building socialism with Chinese characteristics under the leadership of the Communist Party of China (CPC) and the Chinese government." Further into it, the paper clarifies priorities: "China has a population of over 1.3 billion. For such a populous country, it would be impossible to protect the people's rights and interests without first developing the economy to feed and clothe the people." Money before rights. But it also points out how the government has become much more transparent in many ways, which few people will dispute (text in full).

Inflation hits Japan: wholesale prices rose for 5th month in a row in April, by 0.3% from March, with the index at 101.4 (2010 prices = 100). Electricity, gas, water, lumber, and wood products jumped over 3%. Some of it was due to the weakening yen that made imported fuels and raw materials more expensive. How exactly higher prices would cure Japan’s economic ills remains a mystery, though it will give a stylish haircut to all those owning Japanese Government Bonds....

Japanese Government Bonds skid once again: yields rose, for the 10-year JGB to 0.85%, from 0.79% yesterday, from 0.69% on Friday, and from 0.315% on April 5, the day they went bonkers. While yields are still ultra-low, the rise has been relentless, not at all what the BOJ wants – and now there's also volatility, rare sight in the JGB market. Japanese institutions and individuals are buying foreign bonds with higher yields to diversify out of the yen that has been doomed by Abenomics to decline. If this turns into a massive dumping of yen, if the BOJ cannot keep it under control, the selloff might turn into a rout, and the BOJ and government-controlled institutions will be the only ones left buying. In sympathy, mortgage rates are creeping up, as are bank loans. The opposite of what Abenomics wants to accomplish. Free money is suddenly becoming more expensive.

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

Dec202012

The Biofuel Subsidy Scams

Thursday, December 20, 2012 at 7:18PM

Corporate subsidies, in an era of fiscal-cliff attacks on Social Security and Medicare, have dodged attention despite their magnitude and absurdity. Take the renewable-fuels subsidy ecosystem—and a train of tankers filled with biodiesel that shuttled back and forth across the border between Sarnia, Ontario, and Port Huron, Michigan, twelve times, without unloading its cargo. It generated millions of dollars in profits.

The mystery train was an outgrowth of the EPA’s Renewable Fuel Standard mandate that requires oil companies to blend (subsidized) biofuels with (subsidized) fossil fuels—or alternatively, purchase Renewable Identification Numbers, or RINs, as offsets.

Each RIN is a serial number for a batch of biofuel, such as biodiesel or ethanol. RINs are generated when the biofuel is produced or imported. Under the mandate, oil companies must blend 1 billion gallons of biodiesel a year into the fuel stream. Each refiner’s contribution is determined by its market share. If a refiner doesn’t want to comply, it can instead buy RIN credits from biodiesel producers. Hence, a $2 billion market for biodiesel RIN credits, policed by the ever so vigilant EPA. But RIN credits can be traded independently from the batches of biofuel that generated them. And this has opened up some opportunities.

Last year, Clean Green Fuels in Maryland was accused of selling 32 million fake biodiesel RIN credits to oil companies and brokers. In June 2012, CEO Rodney Hailey was convicted of wire fraud, money laundering, and of violating the Clean Air Act.

Absolute Fuels in Texas, was sent an EPA Notice of Violation in February this year. On July 19, owner Jeffrey David Gunselman was arrested for having allegedly created on his computer more than $50 million in RIN credits that he then sold. He didn’t even have the facilities to produce biodiesel. Earlier this month, he pleaded guilty to a laundry list of charges and is contemplating a maximum sentence of $20 million in fines and 1,268 years in the hoosegow.

Another Texas company, Green Diesel, received a Notice of Violation on April 30. The issue: 60 million fake RINs. By then, CEO Philip Rivkin had apparently skedaddled to Europe, out of harm’s way.

Buyers of these credits got tangled up as well: “30 refiners settled with the EPA without admitting wrongdoing.” The usual suspects. Exxon would pay a fine of $165,000; ConocoPhillips $250,000, and BP $350,000. They’d also have to buy real RINs to replace the fake ones. The chaos in the RIN market prompted the House Energy and Commerce Oversight Subcommittee to hold hearings.

But a small outfit in Toronto, Bioversel Trading Inc., was particularly resourceful in milking the RIN system—and may not have done anything illegal, according to an excellent investigative series by CBC News. Bioversel hired Canadian National Railways (CN) to shuttle the same trainload of biodiesel twelve times across the US-Canadian border without unloading the cargo. All in the second half of June, 2010. For $2.6 million.

To generate RINs from importing biodiesel into the US, ownership of each trainload was transferred to Bioversel’s US partner, Verdeo, which then, rather than selling the biodiesel in the US, exported it back to Canada. But by exporting the biodiesel, Verdeo would have been required to “retire” the associated RINs, instead of being able to sell them. So Verdeo retired ethanol RINs instead, which cost only a fraction. The difference, less the cost of transportation back and forth, was profit.

It might have remained under wraps. But the “importer of record,” Northern Biodiesel of Ontario, NY, found out that the same rail cars were being shuttled back and forth and generated new RINs each time they came into the US; something was fishy. So the owner blew the whistle.

CBC News contacted the EPA to get some clarity, but the agency refused to comment. And the railroad? Didn’t they have a clue? Nope. “As required by law, CN discharged its common carrier obligation regarding these biodiesel shipments,” spokesman Mark Hallman wrote to CBC News. “CN is not aware of any pending investigation of an alleged fraud. CN has and will continue to co-operate fully with....” etc. etc.

Alas, CBC News had obtained a copy of an internal CN email, dated June 14, 2010, sent by Teresa Edwards, CN’s Sarnia transportation manager. In addition to some technical details, it included these priceless words: “It will be the same cars flipping back and forth and the product will stay on the car. Target is to get at least 25 flips across the border and back by June 30.” And a word of corporate encouragement: “This move has the potential to make a lot of money for CN so need everyone’s assistance to maximize the number of trips we make and ensure that it all moves smooth.”

In a follow-up email, dated June 28, 2010, of which CBC News also obtained a copy, Edwards wrote: “The Bioversal move back and forth across the border at Sarnia has now completed. Records show that we moved 1984 cars total.... This equates to approximately 2.6 million dollars of revenue....”

Though the Canada Border Services Agency and the EPA are investigating, CBC News emphasized that it “has found no evidence Bioversel or its partners broke any laws.” Apparently, regulations at the time permitted importing biofuels to generate RIN credits, re-export the fuel, retire cheaper ethanol credits instead of biodiesel credits, and laugh all the way to the bank. A perfect example of how huge corporate welfare programs, such as fuel subsidies, throw off unexpected crumbs in surprising directions.

Another investigation, this one into the potentially deadly industry practice of mechanical tenderization of beef, has turned into a nightmare for steak lovers. The risks have been known since at least 2003. Yet the industry resists even the most basic labeling requirement that would save lives. Read.... The Beef Industry’s Deadly Secret: “Blading” and “Needling”

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Reader Comments (7)

....hmmm, isn't one of the Board of Directors of CN Railroad somebody by the name of Raisbeck ?? who was about the number 3 man in charge at Cargill, Inc, that runs umpteen ethanol plants ??? just wonderin'

December 20, 2012 |

james thurber

james - interesting!

December 20, 2012 |

Wolf Richter

i checked , raisbeck was a director at Canadian Pacific not CN, but nonetheless........................he resigned in June from the board........................smelly, at a minimum.

December 21, 2012 |

james thurber

Here's more on our EPA:

The EPA is now working ‘internationally’ (INTERNATIONALLY'?) with the UN; our EPA has awarded a five-year, $2.5 million grant (US citizen's taxes) to the UNU Institute for Sustainability and Peace (UNU-ISP)…you've been taxed to fund UNU since 1972, how's that 'sustainablility and peace' going UNU? Your also paying for the UN ‘World Tourist Organization’ (UNWTO), another tax black hole along with UNESCO & ICLEI, recently exposed in their war on private property rights & liberty -Agenda 21. We're funding 22% of the UN budget which funds also the IMF and WB (yep they're both UN agencies), think CNN or NBC will tell you how your taxes are being spent? But that 22% you see in Wikipedia dosen't include all the 'back door' funding (your taxes).

Did the EPA first mention that to our congress or taxpayers or the people freezing in New Jersey? This is (actually 'you will' pay) for the USA to clean up 'e-trash' around the world (around the world?), at least that is what they are telling us what the money is for.....and where the fek did the EPA get the money? The EPA can 'deem' law now, so it can, shut up (see below).

So, we are providing the world's libraries with $6,000 (each, google it) Kindals that is creating the "e-trash" and now we are the world's trash collectors?

“for Sustainability and Peace” right.

...and this:

'Should Law Enforcement Agencies Have The Power To Write And Enforce Whatever Laws They Desire?'

Posted on August 4, 2011

"This is how unelected bureaucrats, such as those in the EPA, can write law that wasn’t necessarily intended by the Congress. We see it all the time. A good example are the recent new regulations being promulgated by the EPA to control carbon emissions from power generating plants that effectively will enforce a carbon cap-and-trade law that the Congress has in fact already rejected." If you write the law you can fund yourself at will. But where does that money come from? Obama's stash?

The EPA is only one:
Agenda 21 (UN)

www.theblaze.com/stories/does-the-new-white-house-rural-council-uns-agenda-21

Excerpt:

The new White House Rural Council will probably be populated by experts in the various fields that might prove helpful to the folks who live and work outside of large urban areas, right? Well, Tom Vilsack, the current Secretary of Agriculture, will chair the group, but let us review the list of members appointed to serve on this new council – according to the order, the heads of the following groups have been appointed:
•(1) the Department of the Treasury; Timothy Geithner
•(2) the Department of Defense; Robert Gates
•(3) the Department of Justice; Eric Holder
•(4) the Department of the Interior; Ken Salazar
•(5) the Department of Commerce; Gary Locke
•(6) the Department of Labor; Hilda Solis
•(7) the Department of Health and Human Services; Kathleen Sebelius
•(8) the Department of Housing and Urban Development; Shaun Donovan
•(9) the Department of Transportation; Ray LaHood
•(10) the Department of Energy; Dr. Steven Chu
•(11) the Department of Education; Arne Duncan
•(12) the Department of Veterans Affairs; Eric Shinseki
•(13) the Department of Homeland Security; Janet Napolitano
•(14) the Environmental Protection Agency; Lisa Jackson
•(15) the Federal Communications Commission; Michael Copps
•(16) the Office of Management and Budget; Peter Orszag
•(17) the Office of Science and Technology Policy; John Holdren
•(18) the Office of National Drug Control Policy; R. Gil Kerlikowske
•(19) the Council of Economic Advisers; Austan Goolsbee
•(20) the Domestic Policy Council; Melody Barnes (former VP at Center for American Progress)
•(21) the National Economic Council; Gene B. Sperling
•(22) the Small Business Administration; Karen Mills
•(23) the Council on Environmental Quality; Nancy Sutley
•(24) the White House Office of Public Engagement and Intergovernmental Affairs; Valerie Jarrett
•(25) the White House Office of Cabinet Affairs; and such other executive branch departments, agencies, and offices as the President or Secretary of Agriculture may, from time to time, designate. Chris Lu (or virtually anyone to be designated by the 24 people named above)

It appears that not a single department in the federal government was excluded from the new White House Rural Council, and the wild card option in number 25 gives the president and the agriculture secretary the option to designate anyone to serve on this powerful council.

America better wake up fast, the coming gun debates is all part of dis-arming the USA

December 21, 2012 |

DADDY WARBUCKS

The EPA (and other regulatory agencies) has gotten way too authoritative and powerful

Watch Agenda 21 in real time action, is the same happening in countries outside the USA, yep? (AND WHAT YOU HEAR IS ONLY THE BEGINING OF THEIR PLAN, reminder at bottom)

Sheriff Dean Wilson – Defend Rural America:

http://www.youtube.com/watch?v=ZicSIjJwSmU&feature=share&list=PLybzMXLEOSWIx9oOmYL7ZVDOvZghNmMED

A must watch (and share):
“more education increases the threat to sustainability” – you can’t make this up.

Youtube: Agenda 21 For Dummies
http://youtu.be/TzEEgtOFFlM

December 21, 2012 |

DADDY WARBUCKS

That biodiesel ferried back and forth...tansesterified biodiesel has a limited shelf life. Whoever got stuck with it last probably found it almost unusable!

I was involved in the biodiesel industry several years ago. We tried to do things the honest way. The price of vegetable oil rose so fast, we found outselves without enough funds to react to the changing market and unable to build the plant - and that was WITH the $1.00 credit.

December 21, 2012 |

johnnygeneric

Another good example how incompetent policymakers are when they have to make big calls like here.
-Influence on worldfood supply missed.
-Influence on food prices (especially in poorer parts of the world), missed.
-Mass production and natural disasters (in Malysia/Indonesia etc, increasing often several times more CO2 levels than the stuff grown on it helps), missed.
-No idea how levies/subsidies work through the system (simple one dimensional thinking), missed.
-Proper mechanisms for proper audits etc. installed etc., missed.
-Feed back to see if things work, missed.

December 22, 2012 |

Rik

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