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RUMBLINGS FROM THE PIT

"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.

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.

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Monday
Aug202012

Argentina: Creeping State Control

DateMonday, August 20, 2012 at 12:37PM

Contributed by Bianca Fernet, an American economist in Buenos Aires, Argentina. Her blog Not Paris dives into financial and economic topics in Argentina.

One of the reasons that I love living in Buenos Aires is that it is quite literally like living in an economics textbook.  You have a very decent example of a trilemma – a central bank attempting to hold a currency steady and maintain independent monetary policy while restricting capital flows.  When asked to give an example of import substitution industrialization (ISI), most economists will throw out an example from the 1970s.  I can tell you about the time I paid US $750 for a blackberry made in Tierra del Fuego to see the screen burn up in under eight months, the time I paid close to US $900 for a pretty average television that after a year just sometimes doesn’t turn on, and my personal favorite – the time I paid an ungodly amount for an air conditioner that broke and cannot be repaired because the parts needed can no longer be imported.

Argentina is the perfect example of trade barriers, exhibiting a tantalizing web of import and export tariffs, quota systems, subsidies, licensing schemes, and local content requirements, all along with a healthy dose of corruption.  In one of my favorite anecdotes, I was meeting the Vice President of a large international oil company who received a telephone call and took off at a dead sprint (while wearing a fine Italian suit) with no explanation whatsoever.  He later emailed me an apology, saying they attempted to turn away some parts at the port and he had to go in person to get them in.

Currently though, Argentina’s most ‘popular’ textbook economic blunder is capital restrictions.  And the best part about that is watching the cat and mouse game that is playing out between the government and the people evading the traps set to suck their money back into Argentina.

Last week, a very important thing happened in the wonderful world of capital controls – a law that passed a few months ago came into effect in Uruguay.  For a while, the OECD has been putting pressure on Argentina’s neighbor to share tax information, shed its status as a tax haven, and join in the global fight against money laundering!  And as no one advocates international financial crime, this sounds like a good move… unless you happen to be an Argentine with a bit of cash.

According to a BCG report, Argentines with at least US $100,000.00 hold 74% of their wealth offshore.  That is quite a bit of wealth – and you can be sure that even Argentines with less do what they can to move their hard earned pesos into dollars and out of the grasp of AFIP, the Argentine tax agency.  And as Uruguay is a convenient couple hour jaunt across the Rio de la Plata and home to beautiful beaches and the trés stylish Punta del Este.  The convenience coupled with the relative financial security makes Uruguay a hot spot destination for both vacationers and their savings and investment.  But what implications does this law have?

AFIP takes a grab at Argentine savings in Uruguay

I’ve discussed the law with quite a few Argentines, and their response is that it won’t affect anything really.  Firstly, the law is only supposed to apply to transactions that take place after the law took effect, rather than retroactively.  Secondly, AFIP shall only have access to specific cases where they have shown evidence of evasion.  But this line of thinking ignores the importance of businesses and entities that incorporate in Uruguay and are able to take advantage of the proximity and business friendly environment to essentially execute operations between Argentina and the rest of the world.  And while it clearly will not result in a S.W.A.T. team of AFIP agents swarming the homes of Argentina’s wealthy brandishing evidence of tax evasion in Uruguay, it is a creeping step towards more control.

Before the reelection of Cristina Kirchner back in October, I had the exact same conversation with an identical bunch of people regarding the issue of access to dollars.  And from these conversations, two major concepts and lines of thinking emerge.

The first is a queer sort of “wait and see” attitude that to me seems preposterous in an environment where what has been seen in the past was really not worth waiting for.  There exists this tendency to either stay put en masse or to pile into decisions simply because your uncle’s neighbor and your brother in law’s polo teammate is doing it.  I have this suspicion that the due diligence process for quite a few Argentine investment companies probably resembles a list of how many godfathers, brothers-in-law, uncles’ friends, and university chums are also doing it, and the decision to move forward is taken when a critical number of these key indicators has been achieved.

The second is a “black swan” mentality – and not the aspiring psychotic ballerina kind.  Nassim Nicholas Taleb’s book about rare and unpredictable events is so named because at one point in time, it was indisputable fact that all swans are white.  The discovery of the existence of black swans immediately and instantaneously discredited that so called fact.

Argentines believe that because they have seen and experienced a handful of other crises, certain actions that proved beneficial will do so again.  The example of real estate investing is an easy example, but my favorite one is the peculiar habit of Argentines to keep massive amounts of cash in safe deposit boxes (cajas de seguridad) in banks and companies dedicated to the provision of insured safe boxes.  More on these in the future, but these mini- fortresses literally house piles of liquid wealth, and are insured by companies forced to hold Argentine assets.  Yet simply because they’ve never been touched before, they are viewed as safe.  Just like Uruguay.

 

Buenos Aires Banking – A lot like Gringotts with fewer dragons

Yet when little laws like giving AFIP investigatory scope in Uruguay creep closer and closer to the aspects of security that Argentines take for granted, at what point do you acknowledge that maybe not all swans are white? Cross posted from NotParis.

The winter weather is not the only thing chilling the bones of Argentina’s residents. Since late July, a new set of words has been showing up in the articles about the economy. Shrinks. Slows. Stagflation. Read...  Argentina: The Big Shrink.

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Reader Comments (3)

Excellent article and from my fours years of living in Argentina's wine country, Mendoza and San Rafael, Blanca is right on.

We recently began the process of drilling a commercial 10" water well for our 108-acre vineyards development for obvious reasons, the Andes snowmelt is not what is used to be.

Our quest began in August 2011 when our Engineer filed the formal paperwork in San Rafael that had to be routed to Mendoza for a head honcho to sign. Days turned into weeks and weeks into months. After persistently asking for updates and why our paperwork had stalled, we read in the Newspaper that the head honcho had been accused of bribery and basically all pending applications in Mendoza sat frozen of someone’s desk. We were told nothing would get done until after the “Election” because no one knew for sure what part, if any, Christina would play in prosecuting this honcho.

Finally, our application was granted and we aggressively set out to get bids on the cost of the well drilling project. After repeated follows ups, apparently not many well drilling companies our people were interested in our US$65,000, we signed a contract that called for a submersible pump/motor. Our well drilling company typically used “imported pump/motors” but during our lengthy wait new “Import Laws” had been passed prohibiting the importation of … yep, foreign submersible pumps/motors. Also, because we needed test the submersible pump/motor with a 3-Phase portable generator we had made arrangements to rent one in San Rafael at AR 1,000 pesos a day (about US$225 a day at that time). When it came time to test the equipment we were informed that the San Rafael 3-Phase portable generator had a minor, but essential broken part, a “whatchamacallit” we were told. It was easy to fix but the replacement part was … yep, an import and unavailable. So we had to rent the same make and model 3-Phase portable generator in Mendoza and pay AR 5,000 a day (about US$1,125 a day at that time).

I could go on but I think the point is made and the article covers in quite credibly.

As of late we have been receiving a lot of leads from Argentines, especially from those living in Buenos Aires, for information about our vineyards. La Vida Buena Vineyards sells boutique 2½ - 5-acre vineyards and it appears a lot of Argentines are looking for places to invest their money.
August 21, 2012 | Unregistered CommenterThomas Phelan
Well, we should all know by now that people only start doing something once they starve or worse. It is sad but it is true. As long as the main things like their Apple gadgets and all still function and remain available (let's say for a kidney or two) all is right.

The problem with this mentality is that once a society is so broken down, anything can happen and it will. I always like to quote the example of Germany before that funny fellow with the moustache took over. Once we have reached a turning point there is no going back. When it comes to sheeple we probable have passed the turning point a long time ago... I hope I am wrong.

It is time not only to do something against corrupt governments. You also have to do something against the sheeple who put them there in the first place.

Democracy and mob rule has failed. We need new ideas and new approaches to solve our problems:

The application of the scientific method for social concern.

www.thezeitgeistmovement.com

Believing is nothing. Knowing is everything.
August 22, 2012 | Unregistered CommenterTheSpiritOfTheTimes
Yeah socialism "new ideas" will work - NOT - How about actual capitalism as opposed to the crony capitalism we have now?
August 22, 2012 | Unregistered Commenterrdawwgy

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