DEBTOR NATION

RUMBLINGS FROM THE PIT

Friday, May 24, 2013

Austrian Megabank CEO bites the dust: Raiffeisen Bank International CEO Herbert Stepic quit on Friday after it emerged that the bank is investigating two trusts of which he's the "beneficial owner" with mailbox companies in Hong Kong and the British Virgin Islands that he used for property deals in Singapore in 2006 and 2008. He sez that the two weren’t offshore vehicles and that this money had been properly taxed in Austria. SCMP checked out Takego, the Hong Kong mailbox company and found that it “was owned last year by a Hong Kong firm, Lintel Securities, wholly owned by David Chong Kok Kong, the chairman of Portcullis Trustnet, a financial services firm based in Singapore. Portcullis was a major source of information on secretive offshore companies that was provided to the United States-based International Consortium of Investigative Journalists in one of the biggest financial leaks in history.” Yup, things bubble up. He was already under investigation from the Austrian financial regulator involving a real estate deal in Serbia, but somehow that file was closed last week.

Fiat Inc.? CEO Sergio Marchionne denies that "the item" is on his "agenda for now," but rumors have been swirling that he is going to move Fiat SpA from Italy to the US, or at least its headquarters. Fiat and Chrysler would need “cultural integration based on mutual respect,” he said while in Detroit where he hangs a lot. A decision would “be governed by a variety of justifications including access to capital markets and the ability to finance the house,” he said. But... “There’s been no decision — it’s not even on my digestible list of things to do for the week.” The Obama administration, which had bailed Chrysler out of bankruptcy, handed 20% of the company to Fiat in 2009. More followed. Now Fiat’s total stake has grown to 58.5%, and he wants it to get the rest. Then there'd be a huge IPO that would make Wall Street rich. Not sure why the White House gave Chrysler away for a pittance. Meanwhile, Fiat is fighting the UAW health care trust fund in court over the value of its stake. Back home, Marchionne is under heavy pressure from the Italian government to keep Fiat in Italy.

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.

 

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....

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Wolf Richter on Max Keiser's "On The Edge" 
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Wolf Richter on the Keiser Report
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Clarke and Dawe: European Debt Crisis
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Clarke and Dawe: Quantitative Easing
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The Fastest Drive Ever Through San Francisco
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humanERROR - by "Frying Dutchman"
Powerful, lyrical appeal to the Japanese. Slams nuke industry, MSM, bureaucrats, and politicians.

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Monday
Jan212013

Algeria Sacrifices Hostages To Kill Al-Qaeda

Contributed by Chriss Street. Specialist in corporate reorganizations and turnarounds, former Chairman of two NYSE listed companies. His latest book, The Third Way, describes how to achieve management excellence and financial reward by moving organizations from Conflict and Confrontation to Leadership and Cooperation. He lives in Newport Beach, CA. 

The four-day Algerian hostage crisis ended with the death of another 23 foreign hostages, bringing the total foreign dead to 53, and all the Salafist-jihadi kidnappers after Algerian special forces blasted their way into the sprawling Tigantourine gas complex. 

In 2000, Algeria won a brutal decade-long Civil War against Islamic Salafist rebel groups, which cost as many as 200,000 lives in the relatively small nation.  Algeria is willing to suffer the rebuke of foreign governments over the loss of hostages, because they understand that the European and American intervention in neighboring Mali is the start of a war of attrition that with al-Qaeda that will spread across all of North Africa.

In July 2010, French President Nicolas Sarkozy heightened awareness of Al-Qeada in the Islamic Maghreb (AQIM) by declaring war on the group, and AQIM reciprocated by declaring war on France.  As outlined in my recent report, New Islamic Caliphate Challenges Western Crusaders, the kidnappers are imbued with dreams of reviving the glory days of the 11th century when Berbers launched Islamist revivalism in the Sahara and marched northward to conquer the North African coast and most of what is now Spain.  The group seeks to cleanse North Africa their colonial master in France and the Americans who have armed their enemies. 

AQIM has staged a series of kidnappings against European employees of multinational corporations that have resulted in some big ransom payoffs, some hostage deaths, and successful prisoner swaps.  The tens of millions resulting from revenue generated by kidnap operations allowed AQIM leader Mokhtar Belmokhtar to buy a .50 caliber anti-aircraft heavy machine guns that gave AQIM the power to defeat the Mali army on the ground and neutralize the Mali air force in the sky.  The ferociousness of the Islamist offensive to overrun Mali, a country the size of France and Spain combined offensive, shocked all its neighbors.  But AQIM’s real goals are not to just conquer Mali; they sought and now have accomplished enticing Africa’s former colonial masters into a protracted war of attrition across the continent.      

French Foreign Minister Laurent Fabius called on Western Powers  to join the war by sending financial and logistical support to 2000 Mali soldiers; 2300 French troops; and 5700 allied soldiers from Chad, Niger, Burkina Faso and Senegal.  French Mirage war planes and Eurocopter Tiger attack helicopters have been bombing and strafing Mali Islamists for over a week to prevent the last quarter of the country from falling into the hands of the rebels.  The United Kingdom, Canada, the United States, Germany, Denmark and Belgium pledged transport aircraft to fly equipment into Mali.

AQIM has abandoned large-scale offensive and are assimilating among the indigenous population to use their superior knowledge of the terrain and guerrilla tactics to inflict casualties on their enemies.  According to Stratfor Reports, the Jihadists:

until now have been able to employ highly mobile formations of roughly company-sized units using trucks with mounted weapons — and also armed with assault rifles, heavy machine guns — and light to medium mortars and rockets. These jihadist formations succeeded against a demoralized and ill-equipped Malian force with negligible air support. The jihadists are fully aware, however, that their formations are highly vulnerable against a French force that can mass enormous firepower, especially when supported by air power.

A military coup in March led by American trained “Captain Sanogo” overthrew Mali President Toure.  The speed of the advances by AQIM backed rebels had demoralized the army and created a humanitarian crisis involving 800,000 refugees.  Sanogo was part of six “training missions,” conducted by U.S. Marines at Camp Pendleton from 1989 to 2000.   Over that period, the U.S. invested $1 billion in military training into Mali.

And the 1.5 million member Sharan Tuareg tribe, for centuries survived in the Sahara by controlling trade in ivory, gold, salt and slaves.  They fiercely resisted French colonialism and continue to demand independence.  But as Stefan Simanowitz wrote: 

“A key reason that the governments in Mali and Niger are not keen to give the Tuareg greater autonomy is that the areas that they inhabit are home to vast natural resources… [with] the world’s third largest uranium reserves as well as substantial oil reserves.”

Nuclear power supplies over 75 percent of France’s electricity and allows the country to be the world largest net exporter of electricity, with 3 billion euros in annual revenue.  Most of the uranium to fuel the nuclear reactors comes from Mali, so France has much to lose if AQIM gains power and ejects French interests.  But the military intervention is already being heavily criticized by former French Prime Minister Villepin.  He complains the intervention is “ill thought-out” and “This unanimous enthusiasm for war, the haste with which we are doing it, and the deja-vu of ‘war on terror’ worries me.”

Algeria understands that the Islamist strategy is to bleed and wear down the French and their allies over the long-term in order to reinstate an Islamic Caliphate that lasted for almost 800 years.  France, the United States and Europe will find it much easier to get into a fight with these Salafist Islamic warriors, than ever getting out a winner.

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Reader Comments (12)

The Algerian Civil War started as a war by the incumbent government against Islamist political forces that were set to win a free and fair election. The election was cancelled when the "wrong" side were about to win. There is an important moral truth here. To describe these people as "rebels", as if a military coup that swiftly replaced the incumbent government were some kind of legitimate political entity is misleading. Unpleasant they certainly were, but it would be more accurate to describe them as the political majority. We should now rewrite the first sentence of paragraph 3 above as: "In 2000, Algeria won a brutal decade-long Civil War against the political majority of its citizens who favoured Islamic Government." How about that? The truth for a change. Although it is difficult to know what "Algeria" means in this sentence. The faction supported by Western economic interests?
January 21, 2013 | Unregistered CommenterRoger Yates
Roger - you're mistaken about the terrorists in Algeria. In the late 90s, there were daily reports about Algerians (women, children, men, boys, girls, no matter) getting their throats cut in groups of five or six or so. I mean, brutal! And the terrorists were NOT a "political majority" as you claim. It was a horrible chapter in Algeria's history that no one in his right mind wants to relive.
January 22, 2013 | Registered CommenterWolf Richter
@Wolf
The problem is it is not one group.
-In Algeria probably like in Egypt the majority of the people will support islamist parties. Something the urban and military elites not like, for a mix of reasons. First of all its not to the advantage of their the present power structure (creming off things). As a positive also because it sets the country back and make any investor run for the exit. hardly a way to develop your country.
-Part of these Algerian (as in born in Algeria, several of these groups see themselves not as mainstram Algerians)groups have become violent. But it looks like a relatively small part. This part has however some support from the religious/conservative groups. These have the choice between 2 evils (present corrupt elites and islamists in this case the violent parts), some go left some go right. Often old ties play as well (you support your family or folks from your family's village against the government even if you donot share their views.
Next to that in Algeria there are continuously rumours going around that at least part of the violence/massacres are instigated by the army. At best these are an indication what huge parts think of the credibility of the current rulers at worst they are true.
-These violent groups have support of Al Quaida groups. Which has to be seen more as a franchise/ideology than one centrally directed organisation. There it usually starts. When these AQ groups get more room they become more and more independent.

A lot of people in the West see the West as the good guys. Which is not how the facts on the ground are. Most would love to emigrate to the States on one hand but on the other it is still the history with crusaders (whities are still often called that way), French colonoalism, and American recent interference. One has to keep in mind that the general population in all of these countries are often still illiterate, hardly educated at best and in very nationalistic types of schools (the we are great, biggest country on earth stuff and our heroic struggle for independence and outr president is even a bigger hero than DPRKs Mr Kim). That kind of education more or less needs an enemy (inplicitly or explicitly) that keeps the country from greatness (fill in the names: neighbours, USA, former colonial powers, Israel, Christians etc).
Cities is partly different. Allthough that is a mixed bunch, with original city folks being better educated etc, but most of the people living there are recent influx. Simple peasants that via living in the city have come in contact with the wider world often by staterun biased TV. half the population might live in cities but often more than half the population there is originally from the primitive countryside.

The present Algerian government is simply not popular in really free elections most likely they would be sent home. Of course this will not happen as de facto the army rules the show.
Add a few minorities (deserts are usually populated by those). Which were able to do their own thing before but with modern technology see more and more state interference.
Add poverty. These countries are not properly developed and natural resources proceeds end up mainly with a few.
Makes together an explosive mix.
January 22, 2013 | Unregistered CommenterRik
@Wolf Have you read the book by a Canadian Algerian (I forget the details) who describes the descent into Islamist madness of his main character and the evils of that time? I have an Algerian friend who fled to the EU and UK in that era too. He is still without hope that any good outcome could come from any faction in North Africa or the Middle East. But he does believe that democracy was subverted in Algeria in 1992. He would vote for an Islamic government of some form in a perfect world but he believes that all factions are fundamentally corrupt now. He describes the Salafists as Fascists. I believe that Western power brokering is fundamentally distorting the politics of these countries and has been doing so for a long time now. If a civil war starts, as it did in Algeria in '92, all hell breaks loose. Imagine for a moment what America or Europe would look like under these circumstances. I should have used a stronger word than "unpleasant" to describe the Islamist and State criminals of the Algerian Civil War. But I hold to my central point about democracy in the region. These populations want government that reflects their culture and history. To describe that aspiration as an illegitimate rebellion against proper order and governance and part of some massive plot to take over the world, as Mr. Street does, is ridiculous and reveals a basic denial of democratic values in the American Right in my view. "The (Islamic) people have spoken. The bastards." would be the response of a true democrat. My feelings about Egypt, by the way.
January 23, 2013 | Unregistered CommenterRoger Yates
@Rik Your analysis is excellent.
January 23, 2013 | Unregistered CommenterRoger Yates
1. What is happening in NA ME is probably a phase these countries have to go through. However we have to keep in mind that this phase might take a few decades if not more. And furthermore how this phase will develop is still pretty unclear.
End of the day no use for short and medium term oriented Western foreign policy.
2. Islamists are overall different shades of fanatics. This is important to know as fanatics usually have as one of the main characteristics that they can create huge problems about issues a normal person would not even know you can look at in different ways. And subsequently these 'discussions' often end in violence.
Next to that there are numerous old conflicts that have never been properly solved.
3. If you look at eg Egypt the Islamists start with the Brotherhood. But also in that organisation there are huge differences. It simply looks like the present leadership had not so much problems with the Mubarak system as well as witht he fact that they were not part of that. Repression and corruptionwise it looks like: 'like has been exchanged for like' (only now with a beard). Next to the fact that even with the best intensions started system end often in corruption and repression (as that is the way things go in those countries and it will take generations before institutions have been created and made properly working which will be mitigate that 'system').
4. Starting with the idea that if an uprising like in say Egypte is started by students that at the end of the road it will end up Westernlike was pure naivity from the West's mostly incompetent leadership.
5. Relations with NA and the ME have simply worsened. The new rulers are less pro Western than the old ones. Population thinks still more or less the same about the West. And the rulers that are not be replaced have started looking for alternatives.
6. And mistakes made in Libya are now repeated in a much worse form in Syria.
7. First of all Syria might be in the Iran camp but at least it was stable. The outcome of this is highly uncertain. It could end up better for the West but could end up much worse as well. Especially if Syria this way is turned into a failed state.
8. Which is a very likley scenario.
Both parties think at the moment especially as religious weirdos are a substantial part of the uprising that they and their families/tribes/cities etc might be wiped from the face of the earth.
It is not only Assad and his cronies. It is a large part of the population that support Assad and are now very very frightened.
On the other side we see the extremists and the local people have simply the idea that if they lose they will be wiped of the face of the earth (as they have seen many times happen before).
Both sides thinking they should not lose means you are in a a big fight.
Providing extremist with weapons like now for the xth time always end up badly.
You only should use them in a large conflict like the cold war or be certain that you can eliminate them after the job is done. This like Libya is not a major conflict and dumping them in a big hole is not a realistic option.
January 23, 2013 | Unregistered CommenterRik
Ultimately the only people who can sort these countries out are The People. When western governments give aid (financial and military) to "stable" governments they give them the means to abuse and terrorize their own people. The aid buys political repression. In Egypt the democratic activists dread the "good intentions" of the IMF. The Muslim Brotherhood (MB) plus the IMF becomes the IMBF....Christine Legard in a Niqab. An arms company from my country (UK) sells (via its American subsidiary) teargas and rubber bullets used against liberal (English usage of this word) secular modernist demonstrators. The kind of folk who watch "Friends" on tv. and whose favorite movie is "The Hobbit"
They are not the majority but they are the hope. "Stability" means the bastards have won. Assad is stability. The Saudi Royals are stability. The Ayatollahs are stability. Give me a peaceful mass uprising any day. Nonviolent. No compromise. Destabilize stability. Power always praises stability. Nothing more stable than a corpse or a prison.
January 24, 2013 | Unregistered CommenterRoger Yates
@Roger
It is a complicated situation but it simply looks like THE PEOPLE are not ready to do that. At least in that part of the world. You can see them fighting between themselves often with as much violence as against the former oldskool dictators.
These countries have a long history with a lot of oppression and violence and people with a verty long term memery of that. And with a sense of pride that basically has to be shown by way of violence.
With an uprising all these forces that have been previously oppressed come to the surface. Like in Egypt against the Christians and other minorities (and Egypt is rather homogenous, except for the Christians, compared to the rest).

It is probably a way they will have to go anyway, but imho it likely will be a pretty violent one.
I like a peaceful uprising as much as you do but most or all uprisings will not be peaceful (either the uprising itself or the shorter or longer term aftermath).

I donot have the answers but this will not go smoothly.
January 24, 2013 | Unregistered CommenterRik
Rik: What you say is true, but the only way they are going to learn is by trying. Imperial Power distorts everything. Look at Northern Ireland still, and many parts of Africa, or India Pakistan. Essentially Western economic imperialism has exacerbated the fault lines in these societies by fostering stability imposed by West -Friendly factions. Iran elected a secular democrat in Mosadeq, who was deposed by a tyrant with the help of the Brits and America because he had the temerity to suppose that Iran's oil might belong to the Iranian people. Look at the whirlwind we reaped there. These countries have been pushed towards chaos. There is no reason to suppose that these folk are any more or less inherently crazy than Californians or Poles. Everyone's sh+t smells the same.....to reach for a polite metaphor....
January 25, 2013 | Unregistered CommenterRoger Yates
@Roger
Fully agree that that they have to learn by trying. That was what I meant with a phase they are going to (a necessary next step), earlier on.
However realise that that will not go without bloodshed and tanking the economy. May be not in all countries but as I see it in most of them.
Elites will not give up powers voluntarily. Easy Western interventions (like Tunesia and Egypt) are of the past (every selfrespecting dictator has now had time to work on a plan B (aka other sources for bullets to shoot at protestors). So basically Syria is the new Spring.
Egypt is the new Springeconomy. Nobody with a brain is going to invest there and if you are Mubarak's elite you move all things liquid asap to Dubai, S'Pore etc. (the new Switzerland).

The larger ME must have some serious braindamage. They are right that Mubarak and Co is not likely to work, but so as Iran showed is Muslimbrothers Inc. Plus in the transition itself a lot of extra damage is done.
While at the same time they keep breeding, Egypt a country effectively the size of Holland or Belgium with close to 100 Mn people and counting and an awful lot of sand (with very little under it). They need a sophisticated economy to make the money to pay for food (and other) imports (porn CDs, cars, colorTVs iPads78s that kind of stuff). The more economy and population divide the larger the basics for problems gets. And division looks the by far most likely scenario.

Not agree that the Western interference is the main factor. With Nasser Egypt was independent of the West and that is 50 years ago. Their history is simply a chain of messing thins up and very similar in most other countries in that part of the world. Dictators have been (post colonialism) have been the standard for most of that period in Western oriented, Leaning towards Russia, Communists, independent. There isnot much difference in that. Plus some countries with heavy interference did extremely well (Japan, Korea, Taiwan, HK, S'Pore).
It looks as you said a phase they have to go through.
And basically with a pub-wisdom division. For most people in the pub it was clear that say the larger ME would likley be a disaster (and eg Taiwan not). Like as say with which Euro countries would get into trouble.

Of course the West by basically 'knowing everything better', bears part of the responsibility, but that it reallu made things worse in general I doubt.
January 27, 2013 | Unregistered CommenterRik
@Roger
Btw love to hear your views on what I will call neo-neo-colonialism.
What I mean after colonialism and neo-colonialism since say 70s we see Western countries (mainly former colonial powers) trying to help the 3rd world. And often make the mess even bigger than it would have been without help.
Imho basically the old fashioned mainly economic stuff did well (say Korea, Taiwan etc) and a lot of the present increase in wealth is probably caused by the US opening up for trade and making industrialisation possible.
However on the making it the next Norway front it looks to be more disaster than success. And they donot learn.
Good intentions and disasterous results.
January 27, 2013 | Unregistered CommenterRik
Rik and Roger - Great discussion and analysis.

Roger - I totally agree that, as your friend said, "democracy was subverted in Algeria in 1992." Democracy is a concept that frustrates a lot of people in the West as well (the power of money, elites that have near absolute control, central banks that are beyond democratic processes.... the list of common complaints is long) -- but at least, we rarely kill each other over it. It's easy to "subvert" democracy in many countries, and we're seeing it in Africa all the time.
January 27, 2013 | Registered CommenterWolf Richter

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