Central Bankers Take Another Victim: Brazil Going Down For The Count

Sticking with purely financial expression of the eurodollar standard it is easy at times to forget such monetary influence has very real consequences. That is true in the US in particular, as even though the recovery is both deficient and waning it isn’t the disaster it is in other, connected places. It was, after all, the rise of the eurodollar standard as a wholesale system starting in the middle 1990′s that more tightly stitched the global economy, an open system architecture that eludes, still, the grasp of monetary policymakers. As such, they have a great tendency to miss and misapprehend what is really happening and because of that they will simply make it all worse without much hope for an upside.
The most evident example of the rise and fall of the eurodollar standard is China, but Brazil is no less compelling in that respect. Ever since the middle of 2013, when Ben Bernanke scared himself about bubbles and hoping the economy would finally act as it was supposed to, the ‘dollar’ system has attained this broad, global withdrawal. The system was fatally wounded in 2007, that further emphasized in 2011, but it wasn’t until the middle of 2013 that a critical threshold of upheaval was seemingly passed – a sort of economic point of no return.
The initial response from Brazil’s perspective, as the real sank from about 2.00 to the dollar to 2.40 to the dollar, was as the textbook orders (the Brazilian version of the orthodox textbook, anyway). The nation’s central bank, Banco do Brasil, launched what were called currency swaps but were really something else – long story short, it was the means (cupom cambial) by which to influence local banks to import more ‘dollars’, the practical effect of which was to incentivize Brazilian banks to increase their ‘dollar short’ at a time when the short was the problem.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ July 31, 2015.

Stealth Recession? The GDP Benchmark Revisions Show 5-Quarters Of 1% Growth

According to the latest GDP revisions I may have been off in my projection of where the recession began. I wrote in 2013 that if pressed I would name October 2012 as the start of the recession. There were many reasons for that assessment; retail sales suddenly and sharply slowing, durable goods and particularly capital goods orders contracting and a quite noticeable ‘bend’ in the payroll estimates- the Establishment Survey was, of course, still mostly a straight line but the Household Survey nearly halted. Both subject to trend-cycle which meant that in any true revisions they would show up as much worse.
Further back, in 2012, I reasoned that it was these figures that had essentially scared the Fed into heavily renewing first in MBS through QE3 and then UST’s for QE4. If it was clear enough for even the FOMC to act, it was likely worse than even the numbers were showing. In November 2013, with the 2012 slowdown in full view by then, I wrote:
The divergence now, spanning more than a full year, is too great to simply ignore as random noise. It is significant in both the statistical meaning and for truly objective analysis. What the Household Survey shows is that there has been no job growth since last October, while the Establishment Survey demonstrates relatively weak job growth. The labor participation numbers echo the former far more than the latter, as does so many other economic accounts. The economy is not moving in 2013, which is the same as not growing (shrinking comes after revisions).
Against that view stood GDP. The initial run of estimates had produced what looked like a ‘pause’ in growth, but one limited to just one, maybe two quarters. Anchored on only that quarter in question, Q4 2012, first GDP estimates projected Q4 at 0.4% but then an unmistakable rebound the rest of 2013. Subsequent annual benchmark revisions shrunk that ‘pause’ to one quarter alone. The last, from July 2014, makes that plain; Q3 2012 was thought 2.5%, Q4, the ‘anomaly’, at only 0.1% and then Q1 2013 right back to the usual, deficient but somehow comforting by relativism 2.7%. Despite a host of evidence that there was something far more going on, GDP (and the Establishment Survey) was contrarily so reassuring as the mainstream economic arbiter.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ July 30, 2015.

German Finagling of Rules, Bailouts and Bond Markets Send Eurozone Hurtling Toward Oblivion

The Greek tragedy contains more than its fair share of irony. Perhaps the biggest irony of all is that in the drafting of the Maastricht Treaty on Economic and Monetary Union in the late 1990s, it was Germany that insisted on the ‘no bailout’ clause. A Greek default in 2010 would have avoided Greece’s fiscal troubles cascading into an existential moment for the European Union. This is something many, including myself, proposed. But Germany and France did not want that. They feared that the damage it would do to the German and French banks that had gorged themselves on high-yielding Greek debt would further endanger a fragile global financial system. More debt was heaped onto already impossible-to-repay levels of debt. Greece’s economic sustainability was sacrificed on the altar of European financial stability.
Greece did deliver a haircut to its creditors, but it was not enough. This is because the economic austerity that came with the first Greek bailout pushed the economy into a free fall. The sum of gross domestic product (GDP) shortfalls over the past seven years, the difference between each year’s real GDP level and the 2007 level, is a staggering 135 percent. (This measure, which I learned from Charles Wyplosz, better captures the hole Greece fell into than annual GDP changes.) Greek debt was cut, but GDP fell even further. Greece is the poster child of the anti-austerity cause.

This post was published at David Stockmans Contra Corner on July 31, 2015.

Fat Chance: Cameron Vows to Clean Up UK Property Market

London is not a place to stash your dodgy cash – at least not according to UK Prime Minister David Cameron. Speaking in Singapore, Cameron vowed to expose the use of ‘anonymous shell companies’ – the sort of complex structures that werepopularized by his globe-trotting predecessor Tony Blair – to buy up luxury UK properties, often in London.
As part of a global effort to defeat corruption, foreigners will be prevented from buying UK homes with ‘plundered or laundered cash,’ Cameron said. Corruption, he added, is ‘a cancer which is at the heart of so many of the world’s problems’ and must be tackled.
Naturally, international NGOs lapped up Cameron’s tough words. Nick Maxwell, the head of advocacy and research for Transparency International, said the steps towards increasing transparency outlined by Cameron ‘can help shift the UK from being a safe-haven for illicit wealth to a place where dirty money is not welcome.’ Laura Taylor of Christian Aid said it was ‘another step forward in the battle for greater transparency worldwide.’
There was just one problem with Cameron’s speech: it omitted any mention of the frontline role the City of London plays in laundering the world’s ‘dodgy cash.’ Indeed, the way he presented his case was as if unscrupulous criminals were cleverly exploiting vulnerabilities within the UK financial system, which he painted as an unwitting patsy in the whole process.

This post was published at Wolf Street by Don Quijones ‘ July 30, 2015.

China’s Speculators Are Running Out Of Bubbles – -So How About Some Chalcedony Quartz From Madagascar?

Wei Lili is running out of investment options. Apartment prices in her city of Wuhan are beyond her reach even after a recent property slump, and the volatileSTOCK MARKET is too great a risk.
‘It takes more than a million yuan to buy a flat, and stocks are like a roller coaster – they are too soul-wrenching for me,’ said Wei, 52, a government worker in the central Chinese city. She’s lost almost half of a 30,000 yuan ($4,800) investment in stocks, she said, declining to elaborate.
The party may be ending for Chinese investors who have seen housing prices boom over most of the past decade and gained from wagers on everything from surging commodity prices to industrial-company loans. WithTHE STOCK MARKET in a funk, lackluster prospects for an oversupplied housing market and interest rates falling, savers like Wei face a new era of lower investment returns should the recent equities rout persist.
While investors have a few more instruments to turn to than before – wealth management products and investment trusts have seen assets soar in recent years – their returns also are under pressure. That could increase the incentive to hunt for better yields overseas or in questionable fads like the bubbles in garlic and fine Pu’er tea in the past decade.
‘Chinese investors are in for a tough stretch,’ said Andrew Polk, a Beijing-based economist at the Conference Board who previously worked at the U. S. Treasury Department. ‘We are likely to see an even greater increase in capital outflows going forward and we might see some very random asset bubbles, like the ‘great garlic bubble’ in late 2009.’

This post was published at David Stockmans Contra Corner on July 31, 2015.

Part 1. The Fed’s Bathtub Economics Brigade Blathers On

In case you are wondering what the meaning of ‘some’ is – -don’t bother. It’s just the same old Fed ritual incantation, chanted in 2/2 ‘cut time’. That means there are only two beats to each of its monthly meeting measures – – employment and inflation.
Like in the musical world, each beat is a half-note. But they might be better described as half-assed notes. The denizens of the Eccles Building are using BLS junk statistics to measure both variables. They don’t have a clue that they are rhythmically chanting a pretentious chorus about nothing more significant than short-run economic noise.
We got a load of evidence on that point with this morning’s Q2 GDP release and the accompanying benchmark revisions reaching back to 2012. What these fresh reports show is that this ‘recovery’ has been even more of a dud than was previously evident, and that the Fed’s monthly claims that the US economy is inching toward some kind of Keynesian full-employment nirvana are pure rubbish.
In fact, our monetary politburo is driving the US economy in the opposite direction. That is, toward dis-employment of its true, wealth-creating economic resources – – human labor, entrepreneurial talent and market driven gains in economic factor efficiency.

This post was published at David Stockmans Contra Corner by David Stockman ‘ July 31, 2015.

Cronies, Polluters and Funny Money

What’s Really Killing Capitalism VANCOUVER, Canada – Hillary is taking the bull by the horns… and putting the knife between her teeth. She is a ‘take-charge’ candidate and aims to let us know.
Yes, earlier his week, she promised to improve capitalism. Now, it’s the climate of planet Earth that has her attention. She’s going to make it better by decreasing carbon emissions – by force, of course.
Next week, presumably, she will vanquish death itself.
But let us turn to the markets. On Tuesday night as the sun set, things were looking up. From Bloomberg:
U. S. stocks rose, ending their longest losing streak since January, amid better-than-forecast earnings and as Chinese equities pulled back from a selloff.

This post was published at Acting-Man on July 31, 2015.

The Military-Industrial Complex Finally Did It – – -Invented A Trillion Dollar Plane (F-35) That Will Add Zero Value To National Security

When we think of militarism, Prussians in spiffy uniforms goose-stepping down Unter den Linden probably comes to mind. Prussia’s fixation on her army was less an ‘ism’ than a product of her geography, which stranded the country between two great land powers, France and Russia, with no natural defenses on her borders. Nonetheless, a cartoon from the Kaiser’s time depicts such militarism well. It shows a Berlin street full of people in various uniforms, all staring pop-eyed at a man in a suit. The caption reads, ‘A civilian! A civilian!’
A book a friend recommended offers a supplementary definition of militarism, one that touches closer to home for Americans. The work, A History of Militarism by Alfred Vagts, was first published in 1937. Vagts makes an important distinction at the outset:
Every war is fought, every army is maintained in a military way and in a militaristic way. The distinction is fundamental and fateful. The military way is marked by a primary concentration of men and materials on winning. … Militarism, on the other hand, presents a vast array of customs, interests, prestige, actions and thought associated with armies and wars and yet transcending true military purposes. Indeed, militarism is so constituted that it may hamper and defeat the purposes of the military way [emphasis added].
Modern militarism has … specific traits … modern armies … are more liable to forget their true purpose, war, and the maintenance of the state to which they belong. Becoming narcissistic, they dream that they exist for themselves alone … perpetuating themselves for the purpose of drawing money.

This post was published at David Stockmans Contra Corner By WILLIAM S. LIND, American Conservative ‘ July 30, 2015.

If You Like Soaring Medical Bills You Can Keep Them – – -Feds Forecast Health Care Spending Will Hit Nearly 20% Of GDP

WASHINGTON – Growth in national health spending, which had dropped to historic lows in recent years, has snapped back and is set to continue at a faster pace over the next decade, federal actuaries said Tuesday.
The return to bigger growth is a result of expanded insurance coverage under the 2010 health law, a revived economy and crunchtime as Medicare’s baby-boom beneficiaries enter their 70s.
American spending on all health care grew 5.5% in 2014 from the previous year and will grow 5.3% this year, according to a report from actuaries at the Centers for Medicare and Medicaid Servicespublished in the journal Health Affairs. In the years through 2024, spending growth is expected to average 5.8%, peaking at 6.3% in 2020.

This post was published at David Stockmans Contra Corner on July 30, 2015.

SP 500 and NDX Futures Daily Charts – Triumph of the Swill

“Pride goes before a destruction, and arrogance before a fall.”
Prov 16:18
This was a fairly lackluster day in US equities.
Sentiment is now back to somewhat complacent as the VIX has fallen back to a 12 handle.
I picked up a little VIX today. I may buy more if we see some additional fluff to the upside.
This is probably not going to last, and is marking a top of sorts. Whether this is a major top or just a passing intermediate term thing I cannot tell.
The forces of crony capitalism are ready to stick a fork in the rest of the world, and start carving off chunks for themselves.
When a people begin to consider themselves exceptional, above all others, you know that the downfall is just around the corned. It may be considered the ‘German disease’ by some, but we are all susceptible to it.

This post was published at Jesses Crossroads Cafe on 30 JULY 2015.

Putin Is Right: The National Endowment For Democracy Is The CIA’s Trojan Horse

The Washington Post’s descent into the depths of neoconservative propaganda – willfully misleading its readers on matters of grave importance – apparently knows no bounds as was demonstrated with two deceptive articles regarding Russian President Vladimir Putin and why his government is cracking down on ‘foreign agents.’
If you read the Post’s editorial on Wednesday and a companion op-ed by National Endowment for Democracy President Carl Gershman, you would have been led to believe that Putin is delusional, paranoid and ‘power mad’ in his concern that outside money funneled into non-governmental organizations represents a threat to Russian sovereignty.

This post was published at David Stockmans Contra Corner on July 30, 2015.

Brazil’s Economy Slides Into Depression, And Now Olympians Will Be Swimming In Feces

Back on December 29 of last year, we explained how under the burden of its soaring current account deficit, and its its first primary fiscal deficit since 1998, not to mention numerous corruption scandals and a dysfunctional monetary policy, the Brazilian economy “just imploded.” We also noted the main reason for the Latin American collapse: Brazil had for the past decade become China’s favorite source of commodities, and now that China suddenly no longer needed commodities, the Brazilian economy went into freefall.
We followed this up a month later with “Brazil’s Economy Is On The Verge Of Total Collapse” which repeated more of the same, only this time the situation was even worse.
It took the rating agencies 7 months to figure out what our readers had known since 2014, when two days ago S&P downgraded Brazil’s credit rating from Stable to Negative citing, what else, the “sharp deterioration of the growth and fiscal consolidation outlook and heightened political/institutional friction” adding that “the negative outlook reflects the agency’s view of a ‘greater than one – in – three likelihood that the policy correction will face further slippage given fluid political dynamics and that the return to a firmer growth trajectory will take longer than expected.”
In other words, Brazil is about to become the next BRIC to follow Russia into junk territory:

This post was published at Zero Hedge on 07/30/2015.

Legendary Fund Manager John Bogle Calls Wall Street’s Number – – 99% Of Trading ($32 Trillion/Year) Is A Waste

An astonishing $32 trillion in securities changes hands every year with no net positive impact for investors, charges Vanguard Group Founder John Bogle.
Meanwhile, corporate finance – the reason Wall Street exists – is just a tiny slice of the total business. The nation’s big investment banks probably could work for less than a week and take the rest of the year off with no real effect on the economy.
‘The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings,’ Bogle told Time in an interview. ‘What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources.’
Rent seekers
It’s a lot of money, $32 trillion. Nearly double the entire U. S. economy moving from one pocket to another, with a toll-taker in the middle. Most people refer to them as STOCK BROKERS,’ but let’s call them what they are – toll-takers and rent-seekers.

This post was published at David Stockmans Contra Corner on July 30, 2015.

Obama’s Sends $1.3 Billion To His Favorite Terrorist – – -General al-Sisi Then Brutally Attacks All Domestic Opponents

Like a stopped clock, even rabid neoconservatives can be right once in a while. A good case in point is a recent open letter to Secretary of State John Kerry, signed by such neocon luminaries as Robert Kagan, Elliott Abrams, Reuel Gerecht and Ellen Bork, calling on the Obama administration to ‘press the Government of Egypt to end its campaign of indiscriminate repression in order to advance a more effective strategy for countering violent extremism.’
The Obama administration, which helped blow up Libya and Syria in the name of human rights, has resumed arms shipments to the military regime of Abdel Fattah al-Sisi, which seized power from a democratically elected government in 2013. Washington’s double standard not only undercuts U. S. credibility internationally, it also jeopardizes important security interests in the region.
As the letter from the ‘Bipartisan Working Group on Egypt’ rightly warns, ‘State violence – several thousand killed during street demonstrations, tens of thousands of political prisoners, hundreds of documented cases of torture or forced disappearance, sexual assault of detainees or family members, reported collective punishment of Sinai communities possibly with weapons provided through U. S. military aid – is creating more incentives for Egyptians to join militant groups.’

This post was published at David Stockmans Contra Corner on July 30, 2015.

No Corruption Here, Move Right Along

You still want her to be the Democrat nominee eh?
Donations to the Clinton Foundation by Swiss bank UBS increased tenfold after Hillary Clinton intervened to settle a dispute with the IRS early in her tenure as secretary of state, according to a published report.
According to the Wall Street Journal, total donations by UBS to the foundation grew from less than $60,000 at the end of 2008 to approximately $600,000 by the end of 2014. The Journal reports that the bank also lent $32 million through entrepreneurship and inner-city loan programs it launched in association with the foundation, while paying former President Bill Clinton $1.5 million to participate in a series of corporate question-and-answer sessions with UBS Chief Executive Bob McCann.

This post was published at Market-Ticker on 2015-07-30.

The 2015 Untrustworthies Report – – Why Social Security Could Be Bankrupt In 12 Years

The so-called ‘trustees’ of the social security system issued their annual report last week and the stenographers of the financial press dutifully reported that the day of reckoning when the trust funds run dry has been put off another year – -until 2034.
So take a breath and kick the can. That’s five Presidential elections away!
Except that is not what the report really says. On a cash basis, the OASDI (retirement and disability) funds spent $859 billion during 2014 but took in only $786 billion in taxes, thereby generating $73 billion in red ink. And by the trustees’ own reckoning, the OASDI funds will spew a cumulative cash deficit of $1.6 trillion during the 12-years covering 2015-2026.
So measured by the only thing that matters – -hard cash income and outgo – -the social security system has already gone bust. What’s more, even under the White House’s rosy scenario budget forecasts, general fund outlays will exceed general revenues ex-payroll taxes by $8 trillion over the next twelve years.
Needless to say, this means there will be no general fund surplus to pay the OASDI shortfall. Uncle Sam will finance the entire $1.6 trillion cash deficit by adding to the public debt. That is, Washington plans to make social security ends meet by burying unborn taxpayers even deeper in national debt in order to fund unaffordable entitlements for the current generation of retirees.

This post was published at David Stockmans Contra Corner on July 29, 2015.

BOJ’s Money Fest Strikes Out – – June Retail Sales Plunge, Q2 Headed For Negative GDP Print

Japan’s retail sales dropped for the third time this year, sapping an economy that analysts say struggled last quarter amid sluggish exports and production.
Sales slid 0.8 percent from May, following declines in January and March. The median forecast in a survey byBLOOMBERG was for a drop of 0.9 percent.
Weakness in consumer spending adds to risks to the world’s third-biggest economy, whose manufacturing sector has struggled with softness in exports to Asia. The task for Prime Minister Shinzo Abe is to convince companies to continue to boost wages to help consumers cope with a rise in living costs that the central bank sees picking up quickly this year.
‘Consumers are hitting the brakes and I don’t think the economy is getting any upward momentum at all,’ said Yasunari Ueno, the Tokyo-based chief market economist at Mizuho Securities Co. ‘I don’t see a strong, sustainable catalyst for growth. Exports are fragile, capital investment is limited.’

This post was published at David Stockmans Contra Corner on July 29, 2015.

China’s Market Intervention Folly

The biggest drop in Chinese stocks in eight years Monday is another sign that Beijing’s efforts to prop up prices have failed. Moreover, the interventions themselves have made China’s equity markets more volatile and damaged their credibility in the long run.
To stabilize stock prices, Beijing has employed numerous techniques, including suspending trading for a time on well over half of listed A-shares. Short sales were banned, and major shareholders were prohibited from selling. New initial public offerings were disallowed.
China needs more professional participants in its equities markets. But why should institutions buy when the government can control if and when they can sell? And ordering state-owned enterprises and brokerages to buy stocks with borrowed money to shore up prices only reinforces the notion that the market is rigged.
Ultimately such actions increase risk levels and the required rates of return on equities. After all, it was the government’s encouragement of the public’s margin buying of stocks that contributed to the 150% increase in prices before China’s equity markets went south this summer.
The lesson from the stock-market instability is that continued economic growth will depend on continued economic restructuring, but growth will be compromised by endless bureaucratic interventions. A retreat from economic reform is the prime obstacle to continued Chinese progress.

This post was published at David Stockmans Contra Corner on July 29, 2015.

Global Deflation Alert: Iron Ore Heading For $35 As China Steel Productions Falls

For a clue about where iron ore prices are headed, watch port stockpiles in China.
Holdings will probably extend a rebound from a 19-month low as supply rises, according to Clarksons Platou Securities Inc., the world’s largest shipbroker, which says prices may slump to $35 a metric ton in the second half. Inventories, at 82.5 million tons last week, may climb to 95 million tons by September, said Australia & New Zealand Banking Group Ltd.
‘With our view that Chinese steel production will end the year down year-on-year, it has to go somewhere and port stocks are the logical place,’ Jeremy Sussman, a New York-based analyst at Clarksons, said by e-mail.
Iron ore’s been whipsawed this year, tumbling to the lowest level in at least six years earlier this month before rallying near to bull-market territory. The world’s biggest mining companies including BHP Billiton Ltd. and Vale SA raised output even as demand growth stalled in China, seeking to boost sales and cut costs. Further gains in low-cost production may cause prices to plunge into the $30s, according to Citigroup Inc. ‘Stock levels may start to grow modestly in the months ahead as supply growth accelerates once again but, in a buyers’ market, this is likely to come at the expense of further price declines,’ Goldman Sachs Group Inc. said in a report on Monday. The bank sees iron ore dropping for the next four quarters.

This post was published at David Stockmans Contra Corner on July 29, 2015.

The Exim Bank Fight is Much Ado About Very Little

The fight in Washington over resurrecting the Export-Import Bank has gotten so heated that it’s responsible for Texas Republican Senator (and presidential candidate) Ted Cruz calling his Kentucky colleague (and Senate leader) Mitch McConnell a liar, and has the nation’s major business groups lobbying furiously for reauthorization. For the life of me, I still can’t figure out what the big deal is.
In principle, I like the idea of the Bank – which has been forced to suspend most of its operations since its authorizing legislation ran out on June 30. It helps promote U. S. overseas sales by providing low-cost, taxpayer-backed financing for American businesses that want to do business with foreign customers that are sort of risky. The financing needed to clinch sales to these customers – in effect, a subsidy – enables the exporters to compete effectively with foreign rivals that receive similarly ‘attractive financing’ from their governments.
It’s hardly free markets – but America faces a world of trade competitors that aggressively intervene to support their own firms and workers all the time. Matching this particular form of subsidy is simply a variation on Adam Smith’s maxim that an appropriate way to fight foreign trade barriers is to create bargaining chips by erecting your own.

This post was published at Wall Street Examiner by Alan Tonelson – July 29, 2015.