Month: May 2014

Let’s start with Japan.

 

The Keynesian economists managing or advising the world’s Central Banks have always averred that they could pull us out of the weakest recovery in the post-WWII era if they were allowed to have their way.

 

Their “way” involves rampant debt monetization, also called Quantitative Easing or QE. Indeed, the primary argument from the Keynesians as to why QE has thus far failed to generate a rip-roaring recovery is that none of the QE programs in place were large enough.

 

Japan is where the Keynesian economic model rubber hit the road. In April 2013, the Bank of Japan announced a staggering $1.4 trillion QE program.

 

In today’s world of Central Banking madness, $1.4 trillion no longer sounds like an insane amount. So let me put this number into perspective…

 

$1.4 trillion is…

 

1)   The equivalent of 24% of Japan’s total annual economic output.

2)   Enough to fly every human being in Japan to California for a 2-week vacation.

3)   The equivalent of writing a check for $11,200 to every man, woman, and child in Japan.

 

Moreover, with $1.4 trillion, you could…

 

1)   Buy Australia’s entire economy for a year.

2)   Fund NASA for the next 82 years.

3)   Treat every person on the planet to a $200 five star dinner at one of New York’s top restaurants.

 

For the US to engage in an equivalent amount of QE, it would have to announce a $3.7 trillion QE program. If Europe engaged in a QE program of this magnitude, it could buy back ALL of Spain and Greece’s debt outstanding.

 

Suffice to say, Japan’s QE was large enough that no one, not even the most stark raving mad Keynesian on the planet, could argue that it wasn’t big enough. Which is why the results are extremely disconcerting for Central Bankers at large.

 

To whit, since announcing this program Japan has seen:

 

1)   GDP growth accelerate for only two quarters before turning down again (the latest boost was due to accelerated spending before sales taxes increased).

2)   Prices rise for nine straight months… pushing Japan’s cost of living to a five year high.

3)   Household spending crater 4.4% year over year in real terms.

4)   The Yen lose an astounding 25% of its purchasing power.

5)   Multiple new record trade deficits, with January being the worst ever January on record… ditto for October, November and December last year.

6)   Over 77% of Japanese citizens not feeling as though Japan’s economy is improving.

 

In simple terms, Abenomics has failed to revitalize Japan. Just as importantly, this failure is being noticed by the press (articles regarding the failure of Abenomics have emerged in Forbes, the Financial Times, and CNBC) and is costing Abe his popularity (his ratings have fallen from 75% at re-election to roughly 50% now).

 

The Keynesians have failed. Japan has proved it. It’s only a matter of time before the rest of the world… and the markets catch on.

 

This concludes this article. If you’re looking for the means of protecting yourself from what’s coming, you can pick up a FREE investment report titled Protect Your Portfolio at http://ift.tt/170oFLH.

 

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

 

via Zero Hedge http://ift.tt/1hFhFnj Phoenix Capital Research

With yields at record lows and stocks soaring, is it any wonder that the politicians of Europe's periphery are proclaiming victory over the crisis (and yet oddly imploring Draghi to do moar?). Perhaps, just perhaps, they are keeping one eye on the 'real' economic progress that is being made (or un-made) in their nations… such as Spain, where there are now 1.26 million people who have been jobless since 2010 and the long-term unemployment rate has risen by more than 500% since 2007.

 

 

Via Matthew Bennet of The Spain Report,

There are now 1.26 million Spaniards who have not had a job since 2010, and the total continues to rise, according to an adjunct report to the National Statistics Institute’s Active Population Survey published on May 23.

 

“In 2013, there were 1.276 million unemployed people who lost their job three years ago or longer, 234,200 more people than in 2012″.

 

The institute notes that this represents an increase of 22.5% on the figure for 2012, and that the very-long term unemployed now represent 23.1% of the total.

 

Edward Hugh, an independent British economist in Barcelona, told The Spain Report that: “The cost of the crisis has been distributed very unequally in Spain. Some barely have noticed it, while a growing number of others have been out of work for more than three years. Many of these people are now “structurally unemployed”, and many of those over 50 may never work again. It’s a national disaster.”

 

In the United States, long-term unemployment is considered to be those who have been out of work for longer than six months, but in Spain, 691,000 Spanish women and 584,000 Spanish men had not worked for more than three years.

Training For Unemployment

The break down of unemployment according to the subjects unemployed Spaniards had studied shows that, overall, those with a basic level of education are the worst hit: 32.5% are unemployed.

 

For men, the worst training programme to have followed in terms of finding a job upon graduation was: “environmental protection”, which shows an unemployment rate of 47.7%.

 

Education courses related to veterinary services, personal services, architecture and construction, and personal development also produced unemployment rates higher than 25%.

 

For women, the worst training option was architecture and construction, which produced a 30.7% unemployment rate.

 

Additionally, training programmes related to security services, manufacturing activities, social services, personal services and personal development all produced unemployment rates among women of more than 25%.

 

The programmes that produced the lowest rates of unemployment were mathematics and statistics (7%) and security services (7.8%) for men, and mathematics and statistics (6.6%) and life sciences (13.8%) for women.

But don't worry becaus ethe government is on it…

• *SPAIN TO BOLSTER POLICIES TO HELP LONG-TERM UNEMPLOYED: GUINDOS

via Zero Hedge http://ift.tt/1hFhDf3 Tyler Durden

In the footsteps of the smashing success that was the #AskJPM and #MyNYPD social outreach by the two beloved institutions, yet another renowned entity has decided to take its comedic genius to the people: none other than the place where it all started – the Bank of England. So if you have a question for Mark Carney’s money printing and housing bubble-forming institution, do no hesitate to tweet it: just remember to add the #AskBoE hash tag.

Tweets about “#AskBoE”

via Zero Hedge http://ift.tt/1o5gjWP Tyler Durden

• Ukraine Rebels Outfox Army to Dent Poroshenko Troop Goal (BBG)
• Russia Withdraws Most of Forces From Ukraine Border: U.S. (BBG)
• Super-Size Me! China’s ’Mini’ Stimulus Starts Expanding (BBG)
• Option B: The blueprint for Thailand’s coup (Reuters)
• Big investors replace banks in $4.2tn repo market (FT)
• Draghi Shields Catalan Independence Bid From Market (BBG)
• U.S. companies seek cyber experts for top jobs, board seats (Reuters)
• Parsley CEO Emerges as One of Youngest U.S. Billionaires (BBG)
• SpaceX unveils sleek spaceship to fly U.S. astronauts (Reuters)
• U.K. House Prices Rise as Consumer Optimism Improves (BBG)
• Aging Swiss Face Pension Funding Dilemma on Immigration (BBG)
• Siemens to Remove 11,600 Positions as Company Cuts Costs (BBG)

 

Overnight Media Digest

WSJ

* Tyson Foods Inc unleashed a $6.1 billion bid for Hillshire Brands Co, the maker of Jimmy Dean sausage and Ball Park hot dogs, setting up a heavyweight battle with Brazilian rival JBS SA for one of the juiciest remaining assets in the meat industry. (http://ift.tt/1nK1vhQ)

* Former Microsoft Corp chief Steve Ballmer is first in line to buy the L.A. Clippers with a $2 billion bid for the team, according to people familiar with the process, an offer that would triple the record for an NBA franchise. (http://ift.tt/1nK1x9B)

* KPMG LLP is going long on the market for hedge-fund services. The New York accounting firm on Thursday agreed to buy Rothstein Kass, a New Jersey firm that caters to hedge funds and other alternative investment firms. Buying Rothstein Kass would make KPMG the largest auditor of hedge funds based on client numbers. (http://ift.tt/1o5gfX6)

* Ford Motor Co on Thursday added to the year’s massive surge in auto-safety recalls, calling back 1.38 million vehicles in North America for repairs, some of which it previously had ruled out requiring a change. (http://ift.tt/1nK1x9C)

* Twitter Inc’s senior vice president of engineering, Christopher Fry, is stepping down effective Thursday. Fry will keep an advisory role at Twitter, the company said in a filing with the Securities and Exchange Commission. No reason was given for the move. (http://ift.tt/1o5gilM)

* The U.S. has added about 650,000 factory jobs since their numbers rebounded after the recession, putting manufacturing workers at 12.1 million and reversing a long decline in such jobs. But uneven growth has created regional disparities in the nation’s overall economic recovery. (http://ift.tt/1nK1vhR)

 

FT

Google bowed to European Court of Justice’s decision on the “right to be forgotten”, and said the ruling risked damaging the next generation of internet start-ups and empowered repressive governments looking to restrict online communication.

Britain’s Office for National Statistics report said that sales of illegal drugs and sexual services add around 10 billion pounds ($16.7 billion) to Britain’s economic activity each year, making up just under 1 percent of total economic output.

Mediobanca has appointed former Barclays Capital executive Francesco Canzonieri as the Italian investment bank looks to reposition itself in Europe.

John Mack, a former chief executive and chairman of Morgan Stanley, has decided to leave the board of Russia’s top oil producer, Rosneft, the Kremlin-controlled company said on Thursday.

The Italian government said it planned to seek 1.2 billion euros ($1.63 billion) in damages from two of the world’s biggest drug companies – Novartis AG and Roche Holdings – following a ruling by the country’s antitrust authority that their policies had been detrimental to Italy’s national health service.

 

NYT

* As one of the most moribund housing markets in Europe, Spain has become a magnet for global bargain hunters. Real estate prices are down as much as 50 percent from their peak during a housing bubble, and investors from Asia to the United States and Britain are flocking to Spain to try to catch the uptick. (http://ift.tt/1o5gfX9)

* A recent court ruling in Europe has accelerated requests that Internet search companies expunge individuals’ data. Once a contested item is online, however, the genie will not easily go back in the bottle. (http://ift.tt/1nK1x9D)

* Two health care advocacy groups filed a complaint against CoventryOne, Cigna Corp, Humana Inc and Preferred Medical Plan for what they said was discrimination against people with H.I.V. or AIDS by requiring them to pay high out-of-pocket costs for drugs to treat H.I.V., including generic medications, in Florida.(http://ift.tt/1o5giC1)

* The United States economy contracted at an annual rate of 1 percent earlier this year, the first quarterly decline in three years. (http://ift.tt/1nK1x9E)

* Kevin Reilly is stepping down as head of entertainment programming at Fox network after three consecutive years of steep declines in ratings for “American Idol”, a show crucial to the network’s profits. (http://ift.tt/1o5giC2)

* Some colleges are offering a real-world experience of philanthropy by requiring students to investigate nonprofit organizations and give them a portion of grant money. (http://ift.tt/1nK1x9F)

 

Canada

THE GLOBE AND MAIL

* Canadian Prime Minister Stephen Harper told The Globe and Mail in an interview that family planning is an essential part of Canada’s efforts to improve maternal and child health, but abortion remains too divisive to be included in that package. (http://ift.tt/1o5ggds)

* Alberta’s Education Minister Jeff Johnson is looking to address “shortcomings” in the teacher disciplinary process after he overturned suspensions by the union and instead banned four teachers – including two in cases involving sexual misconduct – from ever working in the classroom again. (http://ift.tt/1nK1vhU)

Reports in the business section:

* The Joslyn oil sands mine has been shelved indefinitely, a result of rising industry costs that made the C$11 billion project financially untenable. French energy powerhouse Total SA , along with its partners in the Joslyn north oil sands project, unanimously decided to put the project on hold because of rising cost pressures across the entire energy industry, said Andre Goffart, the head of Total’s Canadian division. (http://ift.tt/1o5ggdv)

NATIONAL POST

* The C$3.5 billion in new funding for child and maternal health promised by Canadian Prime Minister Stephen Harper Thursday will pay for several life-saving measures, including vaccines, training midwives, vitamin A supplements – and birth certificates. (http://ift.tt/1nK1vhX)

* The Speaker of the House of Commons Andrew Scheer says neither he nor his office was consulted about whether the New Democratic Party could use taxpayer funds to pay staff to work in “satellite” offices outside Ottawa. (http://ift.tt/1nK1vi0)

FINANCIAL POST

* Decision day is approaching for one of the most important moves of Canadian Prime Minister Stephen Harper’s political career – whether to approve the Northern Gateway pipeline – and there is no easy way forward. (http://ift.tt/1nK1xpW)

* Despite years of public outrage over lavish executive compensation and regulatory measures to curb it, the pace of CEO pay continues to skyrocket to record highs, especially in the United States. In Canada, CEO pay is an equally a divisive issue although on paper the numbers seem less eye-popping. (http://ift.tt/1nK1xpX)

 

China

CHINA SECURITIES JOURNAL

– State Grid Corp of China, the country’s largest power distributor, said it would allow non-state capital for the construction of power distribution network and charging infrastructure for electric cars, the third state-owned monopoly in the energy sector to introduce private capital following PetroChina Co Ltd and China Petroleum & Chemical Corp.

SECURITIES TIMES

– The General Armament Department of the People’s Liberation Army said it supports the participation of private companies in research, production and maintenance of the army’s armament. It will provide preferential policies for private companies such as simplifying the censorship process and establishing online purchase platforms, sources told the paper.

– The Shanghai Stock Exchange has submitted a plan for launching non-ferrous metal futures options to the regulator and trading could start as early as this year, its Vice-President, Ye Chun, said at the Shanghai Derivatives Market Forum on Thursday.

PEOPLE’S DAILY

– Party cadre in Xinjiang should focus their work on creating a strong identity of the motherland and Chinese culture to maintain long-term social stability in the province, the paper which acts as a party mouthpiece, said in an editorial.

 

Britain

The Telegraph

DRUGS AND PROSTITUTION ADD 10 BLN STG A YEAR TO UK ECONOMY

(http://ift.tt/1o5giC5)

Prostitution and illegal drugs are contributing around 10 billion pounds a year to the British economy, according to data by the Office for National Statistics.

RUDDERLESS CENTRICA NEEDS TO CHANGE TACK, LEADING ANALYST WARNS

(http://ift.tt/1nK1xq0)

A “rudderless” Centrica should overhaul its strategy and stop trying to be “a poor man’s BG Group”, a leading analyst warned on Thursday after the energy giant confirmed that British Gas boss Chris Weston had resigned.

The Guardian

BANK OF ENGLAND DIRECTOR DEFENDS QE AND LOW INTEREST RATES

(http://ift.tt/1o5ggtS)

Britain would be a significantly poorer country without deep cuts in interest rates and the Bank of England’s emergency injection of 375 billion pounds into the economy through its controversial quantitative easing programme, Andrew Haldane, Bank of England’s executive director for financial stability, has said.

FOOTBALL WORLD CUP TEAM WORKS ON KEEPING BRITAIN’S KETTLES BOILING

(http://ift.tt/1nK1vi3)

Managers at the National Grid are trying to assess what extra power might be needed to cope with a surge in electricity demand as kettles are brewed and lights turned on during England’s opening and late-night game against Italy.

The Times

BUSINESS LENDING SLUMPS DESPITE PRESSURE BY BANK

(http://ift.tt/1o5giC6)

Corporate lending by Britain’s biggest banks collapsed this year, dealing a crushing blow to policymakers’ recent efforts to improve the supply of credit for businesses. Loans made through the Bank of England’s Funding for Lending Scheme fell by £2.7 billion in the three months to April.

TUNGSTEN FINALLY SEALS 30-MLN-STG BANK TAKEOVER

(http://ift.tt/1nK1vi4)

Edi Truell, the founder and chief executive of Tungsten Corp , announced he had at last succeeded in buying First International Bank of Israel, more than seven months after announcing plans for the deal.

Sky News

EX-RBS CHIEF HOURICAN EYES LONDON BANK FLOAT

(http://ift.tt/1o5ggtX)

A London share listing for Bank of Cyprus is one of a range of options that will be considered by John Hourican, the former boss of Royal Bank of Scotland’s investment banking arm, who took over as its chief executive last October.

TESCO SIGNS DEAL FOR CHINA JOINT VENTURE

(http://ift.tt/1o5giC8)

Britain’s biggest supermarket chain Tesco Plc has signed a partnership deal to form China’s biggest food retailer. The joint venture will see Tesco combine its 131 outlets with China Resources Enterprise’s Vanguard business that already has 2,986 stores

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled today include:
Personal income for April at 8:30–consensus up 0.3% for the month
Personal spending for April at 8:30–consensus up 0.2% for the month
Chicago PMI for May at 9:45–consensus 61.0
University of Michigan consumer confidence for May at 9:55–consensus 82.5

ANALYST RESEARCH

Upgrades

AmSurg (AMSG) upgraded to Strong Buy from Market Perform at Raymond James
Avery Dennison (AVY) upgraded to Overweight from Neutral at JPMorgan
Bank of Nova Scotia (BNS) upgraded to Outperformer from Sector Performer at CIBC
Exelon (EXC) upgraded to Hold from Underperform at Jefferies
LifePoint Hospitals (LPNT) upgraded to Buy from Neutral at Mizuho
Mattress Firm (MFRM) upgraded to Buy from Neutral at Longbow
Telephone and Data (TDS) upgraded to Equal Weight from Underweight at Morgan Stanley

Downgrades

Alaska Air (ALK) downgraded to Hold from Buy at Stifel
Gruma (GMK) downgraded to Hold from Buy at Deutsche Bank
Infoblox (BLOX) downgraded to Hold from Buy at Deutsche Bank
Infoblox (BLOX) downgraded to Market Perform from Outperform at William Blair
Infoblox (BLOX) downgraded to Neutral from Buy at Goldman
Infoblox (BLOX) downgraded to Sector Perform from Outperform at Pacific Crest
OmniVision (OVTI) downgraded to Underperform from Market Perform at Raymond James
ReneSola (SOL) downgraded to Neutral from Buy at Roth Capital
Royal Bank of Canada (RY) downgraded to Sector Performer from Outperformer at CIBC

Initiations

Array BioPharma (ARRY) initiated with a Buy at Cantor
AtriCure (ATRC) initiated with a Buy at Stifel
BB&T (BBT) initiated with a Neutral at Sterne Agee
Comerica (CMA) initiated with a Buy at Sterne Agee
Eaton Vance (EV) initiated with an Equal Weight at Evercore
Fifth Third Bancorp (FITB) initiated with a Buy at Sterne Agee
KEYW (KEYW) initiated with a Buy at Drexel Hamilton
KeyCorp (KEY) initiated with a Neutral at Sterne Agee
M&T Bank (MTB) initiated with a Neutral at Sterne Agee
Matrix Service (MTRX) initiated with a Buy at Stifel
PNC Financial (PNC) initiated with a Buy at Sterne Agee
Preferred Apartment (APTS) initiated with a Buy at MLV & Co.
SunTrust (STI) initiated with a Buy at Sterne Agee
U.S. Bancorp (USB) initiated with a Neutral at Sterne Agee
ViaSat (VSAT) initiated with a Hold at Drexel Hamilton
Waddell & Reed (WDR) initiated with an Equal Weight at Evercore
Zions Bancorp (ZION) initiated with a Neutral at Sterne Agee

COMPANY NEWS

Microsoft (MSFT) and salesforce.com (CRM) announced a strategic partnership to create new solutions that connect salesforce.com’s customer relationship management apps and platform to Microsoft Office and Windows so customers can be more productive
Mosaic (MOS) said CEO Prokopanko to take anticipated medical leave, named CFO Stranghoener as interim CEO
OmniVision (OVTI) reported better than expected Q4 resulst and guided Q1 above expectations
Infoblox (BLOX) guided below analyst estimates for Q4 and announcedthat CEO Robert Thomas will step down
Retrophin (RTRX) announced a U.S. license agreement with Mission Pharmacal for Thiola and raised its FY14, FY15 revenue views
Express (EXPR) said it will close 50 stores over the next 36 months

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Big Lots (BIG), OmniVision (OVTI), Avago (AVGO), Nimble Storage (NMBL), Guess (GES), Infoblox (BLOX), Lionsgate (LGF), Splunk (SPLK), Veeva (VEEV), Pacific Sunwear (PSUN)

Companies that missed consensus earnings expectations include:
QAD Inc reports Q1 EPS (1c), Annie’s (BNNY), Exa Corp. (EXA), Esterline (ESL), Express (EXPR)

Companies that matched consensus earnings expectations include:
Bona Film (BONA), Violin Memory (VMEM)

NEWSPAPERS/WEBSITES

Microsoft (MSFT) could launch smartwatch as early as this summer, Forbes reports
Amazon Prime (AMZN) to launch music streaming service, Buzzfeed reports
DOJ seeks to fine BNP Paribas (BNPQY) over $10B for sanctions violations, WSJ says
Wells Fargo (WFC) settles securities lending suit by paying $62.5M, Reuters reports
Google (GOOG) to bow to EU’s privacy ruling, FT reports
Boeing (BA) expects defense sales to stay flat for next five years, WSJ reports
Netflix (NFLX) says ‘few people’ using Facebook (FB) auto-sharing feature, Re/code reports
Zoetis (ZTS) could climb 25%, Barron’s says

SYNDICATE

ARAMARK (ARMK) 20M share Secondary priced at $25.50
Caesarstone (CSTE) 5.5M share Secondary priced at $45.50
Cancer Genetics (CGIX) files $100M mixed securities shelf
Crossroads Systems (CRDS) files to sell 2.98M shares of common stock for holders
Glori Energy (GLRI) files to sell 27.24M shares of common stock for holders
Glu Mobile (GLUU) files to sell common stock
Hyatt Hotels (H) files to sell 15.14M shares of Class A common stock for holders
RSP Permian (RSPP) files to sell 8M shares of common stock for holders

via Zero Hedge http://ift.tt/1o5giSy Tyler Durden

Last night’s docket of atrocious Japanese economic data inexplicably managed to push the Nikkei lower, not because the data was ugly but because the scorching inflation – the highest since 1991 – mostly driven by import costs, food and energy as a result of a weak yen, and certainly not in wages, has pushed back most banks’ estimates of additional QE to late 2014 if not 2015 which is as we predicted would happen over a year ago. As a result the market, addicted to central bank liquidity, has had to make a modest reassessment of just how much disconnected from reality it is willing to push equities relative to expectations of central bank balance sheet growth. However, now that the night crew trading the USDJPY is replaced with the US session algo shift which does a great job of re-levitating the pair, and with it bringing the S&P 500 higher, we expect this brief flicker of red futures currently observable on trading terminals to be promptly replaced with the friendly, well-known and “confidence-boosting” green. The same goes for Treasurys which lately have been tracking every directional move in stocks not in yield but in price.

Yesterday’s latest record US session close petered out in the Asian session and most bourses are trading a little weaker today. Losses are being paced by the Nikkei. It’s a different picture in China where Bloomberg is reporting that there is growing consensus that China’s targeted stimulus is beginning to morph into something larger. The PBoC has made a few changes to policy around the edges to ease pressures for some banks (e.g. targeted RRR cuts), complementing the State Council’s recent announcements on tax breaks and faster railway spending.

In Europe, BNP Paribas (-5.4%) are the notable underperformer after pre-market reports the US DoJ are to seek more than USD 10bln penalty from the Co., a value which is twice as large as figures reported last week. This has seen both Credit Agricole and SocGen trade lower who are also ex-dividend and therefore cementing the CAC’s position as Europe’s underperformer (-0.3%). Elsewhere, despite metals markets holding steady throughout the session, the recent losses across the complex have weighed on the basic materials sector and consequently pushed the FTSE 100 lower due to the number of mining names in the index.

Looking ahead, today’s session sees the release of the US PCE deflator,
Chicago PMI, University of Michigan confidence, a host of Fed speakers
and ECB’s Costa.

* * *

ASIAN HEADLINES

Japanese Core CPI rose to its highest level since Feb 1991, further negating any hope of more easing from the BoJ and prompting several large investment banks to push back their BoJ easing expectations.

EU & UK HEADLINES

Markets have used today to take a breather from recent sharp gains in fixed income products as participants book profits ahead of the weekend (Jun-14 Bund -30 ticks), with the yield on the US 10yr steadily moves back towards the 2.50% level.

BoE’s Bean (Dove) said there is no case for immediate rate rise and will increase rates gradually when the time comes. (Wales Online)

Final Barclays month end extensions show Pan-Euro Agg at +0.04y (Prelim +0.04y), Sterling-Agg at +0.06y (Prev. +0.02y);

US HEADLINES

Fed’s George (Non-FOMC – Hawk) predicts the Fed will raise the main rate faster than it forecasts citing leveraged loans as banks are taking on more risk. George also added the Fed will need to resist pressure to back away from rate hikes. (BBG)

Final Barclays month end extensions show US Treasury at +0.12y (Prelim +0.13y).

EQUITIES

BNP Paribas (-5.4%) are the notable underperformer after pre-market reports the US DoJ are to seek more than USD 10bln penalty from the Co., a value which is twice as large as figures reported last week. This has seen both Credit Agricole and SocGen trade lower who are also ex-dividend and therefore cementing the CAC’s position as Europe’s underperformer (-0.3%). Elsewhere, despite metals markets holding steady throughout the session, the recent losses across the complex have weighed on the basic materials sector and consequently pushed the FTSE 100 lower due to the number of mining names in the index.

FX

FX markets remain relatively subdued with the USD index still above its 200DMA and failing to weigh on its major counterparts, with markets now looking ahead to tier 1 US data for any firm direction.

COMMODITIES

Spot gold has traded steady throughout the morning and above the USD 1250 handle, with little newsflow to provide the yellow metal with any firm direction. In metals commentary, amid the ongoing platinum strikes in South Africa the country’s largest energy provider, Eksom, has suggested that it cannot supply the 500MW that mines require to operate at full capacity, and is only able to supply 400MW.

CME lowered Natural Gas Henry Hub future initial margins for specs by 10.5% to USD 2,805 per contract from USD 3,135. (CME) WTI crude futures have traded with marginal losses across the morning in a pullback of yesterday’s gain after the Seaway Pipeline closure and DoE Inventories report which despite the headline coming in at a build, it was smaller than that of the API release.

* * *

DB’s Jim Reid summarizes the balance of the overnight events

Following yesterday’s discussion on bond yields and the updated chart showing how close we are again to 500 years yield lows, we had one of the largest email responses/discussions since I published my all time top 10 box sets at the back end of last year. So it seems box sets and bonds really get our readers going. Given the interest in the former I should say that we are currently watching one of the best new series I’ve seen in a while. It’s a BBC show I bought on DVD called “Line of Duty”. Series 1 was very good and series 2 (the latest one) has started very well. I’m gripped. No spoilers from those for saw it on telly earlier this year please. Since I named my top 10 we’ve watched True Detective (very good), started Suits (enjoyable mindless escapism) and watched the entire 8 series of Curb Your Enthusiasm. My wife hadn’t seen it before so I had the pleasure of watching it for a second time.

Talking of repeats, the biggest recurring theme in financial markets at the moment seems to be new yield lows in bonds and record highs in US equities. As we enter the last trading day of May US long bonds have now rallied every month of the year, and the last time we saw a five month streak like this was 2006. Treasuries also rallied hard again initially yesterday before reversing the gains as the S&P 500 (+0.54%) closed out at another record high. It doesn’t seem that good or bad data notably alters the path of assets one way or another at the moment as central bank liquidity continues to trump everything. We’re building up to a fascinating ECB meeting next week. It’s fair to say expectations are relatively high and have contributed to the recent bond moves.

Yesterday’s -1% US Q1 real GDP print was not a huge surprise given the additional data released since the first reading however it was slightly worse than expected. Clearly the market will largely shrug off the number because of the weather and to a large degree it is correct to do so. However for us it does highlight how shock proof economies are whilst nominal GDP is as low as it is now across the globe. Q1’s US nominal GDP was only 0.3% annualised. Since 1961 there have only been 7 quarters worse in nominal GDP terms – 4 of which occurred in the GFC 5 years ago. Historically, bad recessions used to bottom out at these kind of nominal GDP numbers. So in this low growth and inflation world we don’t have much cushion for an outside event. This is part of the reason why we continue to think more specific nominal gdp targeting should at least be debated around the globe.

Treasury yields rallied with the GDP print and hit intraday lows shortly before the Richmond Fed’s Jeff Lacker hit the newswires. In a TV interview, Lacker (a voter next year) shrugged off the Q1 number pointing to the drop in inventories which he described as a transitory factor. In terms of inflation, he said there are signs that prices were picking up and he was hopeful that inflation would accelerate to around 2% by the end of this year. This may have been a factor in the subsequent rise in yields but we also had better than expected jobless claims (300k vs 318k expected) and some were wondering whether there were any more buyers when yields had hit an intraday low of 2.40%. There was also talk that today’s April Core PCE deflator, a key inflation indicator for the Fed, may surprise to the upside, given normalisation of healthcare costs. For the record, the market is expecting the PCE deflator to print at 1.6% y/y in the headline and 1.4% y/y in the core (the latter, if correct, would be the highest print since early 2013).

The firm close to the US session has petered out in the Asian session and most bourses are trading a little weaker today. Losses are being paced by the Nikkei (-0.1%) after Japan’s April CPI printed at its highest level since 1991 (3.4% y/y headline, 3.2% y/y ex food). Inflation was boosted by the recent sales tax hike, but nevertheless a number of forecasters on the Street are predicting that there will be no further easing from the BoJ in 2014. It’s a different picture in China where Bloomberg is reporting that there is growing consensus that China’s targeted stimulus is beginning to morph into something larger. As we have written about in recent days, the PBoC has made a few changes to policy around the edges to ease pressures for some banks (e.g. targeted RRR cuts), complementing the State Council’s recent announcements on tax breaks and faster railway spending. We’ll be interested to see if this gets reflected in the official Chinese manufacturing PMI for May which will be released this weekend. Today though, the HSCEI is up 0.5% and Chinese CDS is outperforming at 4bp tighter.

Taking a quick tour of the other headlines, there has been plenty other Fed headlines aside from Lacker in the last 24 hours. The latest has been the Kansas City Fed’s Esther George (voter in 2015) who advocated a rate hike shortly after QE ends and he said that banks are responding to low rates by engaging in riskier activities. The SF Fed’s John Williams has a different tone, commenting that in times of high long-term unemployment, the Fed had the flexibility to let inflation exceed their target in an effort to achieve full employment.

Following warnings about trading revenues from Citigroup, JPM and CS in recent weeks, yesterday Goldman Sachs joined a growing chorus of broker dealers suggesting that low volatility was leading to subdued trading activity amongst investors. This was a key theme which came out of DB’s global financials conference and there was plenty of debate at the conference as to whether this was a structural vs cyclical problem. Other themes from the conference included concerns about regulations and the potential implications of negative interest rates in Europe. 

On the topic of bank regulation, the WSJ writes today that US regulators and a large French bank are negotiating whether the bank will temporarily lose the ability to transfer money into and out of the US, in a response to potential evasion of US sanctions. The report was published late yesterday and may weigh on European bank stocks today. There is further bad news for European banks after Moody’s changed 82 EU bank’s rating outlooks to “negative” from “stable” reflecting the EU’s adoption of the single resolution mechanism and the explicit inclusion of burden-sharing with unsecured creditors.

Looking at the day ahead, US data will again be the focus before attention shifts to next week’s ECB meeting and US payrolls. Probably the most interesting of the data will be the April PCE Core and Deflator indices but we also get May’s Chicago PMI and April’s personal income and spending numbers. Canada also reports Q1 GDP. In Europe, German retail sales and Italian CPI round out the week’s calendar. Over the weekend, watch out for China’s official May manufacturing PMI (Sunday).

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With the advent of unions in the USA in the 19th century, they were once synonymous with downing tools and walking out to hold the management and the company they were working for to ransom. Collective bargaining and across-the-board pay rises were high on the agenda back then. In the latter part of the twentieth century they were the ones that were relegated to the back offices, shunned by society as an example of not how to be in the USA. They are still there, but their power is diminished today; they are of little benefit to you as a worker if you are not unionized since you wouldn’t be gaining any of the benefits from their deals (that’s reserved for union members only). In some countries, unions gain the benefits for all workers rather than just their own members.

But, today, workers are forming new types of unions that are based quite simply on the fact that workers have had enough of being paid two cents for doing the hard work while the executives lord it in their ivory towers.

Today, there are few people in the USA that actually belong to a union and the figures are continually falling.

• In 2013, there were 14.5 million union members in the USA. 
• That’s compared with 17.7 million in 1983.
• Union Density (or the percentage of workers that were unionized) stood at 11.3% in 2013 in the USA.
• That figure is a drop from the 20.1% one of 1983.
• In Finland at roughly the same time, there were 70% of workers that were unionized. We would hardly consider Finland as the epitome of the country that downs tools and goes on strike for better wages though, would we? 
• The typical union member is probably male according to statistics and he works for the public sector (government workers, teachers and the police force). They also normally live in the Northeast, Midwest and in California. 
• If you are a union member, then you get an average of somewhere between 10% and 30% more than a non-union worker in terms of pay for equivalent employment.

Joining a union hardly serves any purpose today and as sociologists have proved, whenever an employee threatens or mentions that they might be willing to join one, they are immediately replaced by another worker.

There are some 10, 000 employees every year in the USA today that lose their jobs because they are putting union-talk on the table at company meetings between management and workers. Yes, the law states that companies have to pay a fine for such abusive firing; but they is far better than running the risk of having an organized and powerful trade union on the premises. Today it’s all about informal unions that are being formed or alternative unionization. Take Fight for 15 or OUR Walmart, which are both backed by unions but that are non-affiliated to any union structure. Back in 1992 there were just 5 worker centers that coordinated these campaigns for informal worker-right organization in the USA. That number has exploded today to over 200.

One of the most powerful organizations that is grouping workers together is the Restaurant Opportunities Center, which was founded in 2001. Its aim is to group together the 10 million workers that work in the restaurant sector in the USA. Only 1% of those 10 million workers are actually unionized today.

These organizations came about because since the Second World War unions have been more about management than actually playing a role of contestation in companies. They simply haven’t managed to change the political system or have clout to help workers benefit. 
The last report that was published actually mentioned that restaurant-sector workers were paid so little that it was the taxpayer that was providing subsidies in the form of state benefits for those workers, just so they could survive. That’s all the time while working for restaurants that are sometimes very profitable. US taxpayers fork out $7 billion a year to help them out. They only have a median wage of $8.69 per hour and that’s at front-line fast-food restaurants.

There are still 5 states in the USA that have no minimum wage requirement and it’s tantamount to slavery in modern times (Louisiana, Mississippi, Tennessee, Alabama, and South Carolina). There are still four states with minimum wage rates that are lower than the Federal rate (Wyoming, Minnesota, Arkansas, Georgia).

Originally posted: Americans Fighting Back in Alternative Unions

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