Isn’t It Time We Turned American Democracy Over To The Experts?

Even before the big loss for the Democrats, we had all lost. The money pouring into politics from Super PACs and shady political “nonprofit” organizations was stealing Democracy from you and me. Financial contributions from individual voters is being eclipsed by the big bucks pouring in from far fewer big-money sources.

“Isn’t it time to hand democracy over to the experts? Send the voters packing!!”

 

Source: Mark Fiore




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BLSOD

Friday gave us a rare glimpse inside one of the Bureau of Labor Statistics Jobs Centers (courtesy of CNBC)… Perhaps, as the following screengrab indicates, this is why the American unemployed’s “re-training” is not preparing them for life in the new economy?

 

In the new normal, the ubiquitous BSOD is officially to be renamed the BLSOD…

 

How much did the Obamacare website cost again?




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Peak Cheap Oil

Submitted by Adam Taggart via Peak Prosperity,

Energy is the lifeblood of any economy.  But when an economy is based on an exponential debt-based money system and that is based on exponentially increasing energy supplies, the supply of that energy therefore deserves our very highest attention.

But we need to be careful here because it’s a mistake to lump all types of energy together because they have very different uses in our economy and they are not interchangeable.

What we’re going to examine in this chapter on Peak Cheap Oil is transportation fuels.  The liquids we put in our trucks and cars and airplanes.  Why?

Because 95% of everything that moves from point A to point B across the globe does so based on petroleum derived liquid fuels.  This makes petroleum quite special and unique.

And despite vastly increasing the global spend on oil operations, despite the shale oil "miracle" so loudly touted by the press — global production remains nearly unchanged. In just a few short years, it’s now costing us double to extract roughly the same amount of oil out of the ground.

What’s clearly at work here is that we’re finding more oil, but it’s expensive. Yet total global demand for oil will climb as developing countries expand their economies and world population continues to grow. Competition for hydrocarbons will become more fierce than it has ever been.

I’m soft-pedaling this to an enormous degree.  Let me be blunt.  If we are already at peak, as the data suggest is possible, then we are all in trouble.

 

For those who simply don't want to wait until the end of the year to view the entire new series, you can indulge your binge-watching craving by enrolling to PeakProsperity.com. The entire full new series, all 27 chapters of it, is available — now– to our enrolled users.

The full suite of chapters in this new Crash Course series can be found at http://ift.tt/VLldvm

And for those who have yet to view it, be sure to watch the 'Accelerated' Crash Course — the under-1-hour condensation of the new 4.5-hour series. It's a great vehicle for introducing new eyes to this material.




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The Democrats Got Crushed in the Midterms. But “the Republican Brand [Still] Sucks.” Here’s What’s Next.

It’s always easy to confuse the most-recent
election as they most important and a bellwether for the next big
thing in politics. And there’s no question the the GOP has a ton of
momentum after winning a majority in the Senate and making gains in
the House of Representatives and state houses and legislatures
around the country.

But the long-term trends strongly suggest that this recent
uptick in the GOP’s favor is only a temporary reprieve in the long,
slow decline of both parties. Voter identification with both
Democrats and Republicans is way down from a few decades ago and
political independents are on the rise. That’s especially true
among voters below the age of 30. What’s going on?

The short version is that political, cultural, and even economic
power has been decentralizing and unraveling for a long time.
Whether you like it or not, The
Libertarian Moment
 is here, a technologically driven
individualization of experience and a breakdown of the large
institutions—governments, corporations, churches, you name it—that
used to govern and structure our lives. The result is that top-down
systems, whether public or private, right wing or left wing, have
less and less ability to organize our lives. That’s true whether
you’re talking about the workplace, the bedroom, or the bar down
the street (that may now be serving legal pot). This is mostly
good, though it’s also profoundly disruptive too. 

That’s from my Daily Beast column. For all sorts of
reasons, we’ll always have two major parties in America, but what
they stand for can and does change on a regular basis. Neither
party enjoys anything close to majority (or even plurality) support
from most Americans. They’re going to have change their frameworks
and fast if they want to flourish.

In a world where you can personalize and individualize your
online experience, your clothing, your work situation, even your
sexuality, why would anyone join up for ossified, rigid,
centuries-old groups such as the Democrats or Republicans?
The
Repulican brand sucks
,” Sen. Rand Paul of Kentucky said
recently of his own party, which he compared to Domino’s Pizza. If
the Republicans are Domino’s, then the Democrats are Pizza Hut.
Neither is appealing in a world of easy-to-find gourmet fare.

And that’s why the future of politics and
policy doesn’t belong to doctrinaire Democrats or Republicans who
want to control large swaths of everyday life. It belongs
ultimately to the libertarian decentralists such as Paul who not
only understand what is happening to America but are growing
comfortable with it. Americans are increasingly wary
of government’s
power
, and they don’t want it to teach a single set of morals
either. Everything is proliferating and people
just want a government that will keep people from starving on the
streets and get out of the way as they go to the corner pot shop to
buy edibles to take to their friends’ gay wedding celebrated by
ministers who are not forced to do so.

Politicians and parties who champion policies that embrace
economic and social decentralization will own the future, even as
they wield less power by letting people discover how they actually
want to live. Whoever wins tonight would do well to remember that.
Because if they don’t, they’ll be losers again, and sooner than you
think.

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Republicans “Extremely Concerned” At Mel Watt’s Taxpayer-Backed Risky-Home-Loan Reforms

When we commented on Mel Watt's Einsteinianly-insane plans to reform FHFA, allowing bad creditors to buy houses (again) with only 3% down-payments (again), we expected nothing but echoes as the "it's everyone's 'right' to own a home"-meme gets played out for all to see in this goldfish-like societal memory that has entirely lobotomized the actions (and impact) of when this idiocy was trued before. However, a funny thing happened this week… called an 'election'. And The Republicans have been quick to take note of Obama-appointee Mel Watt's (replacing acting director Ed Demarco – who had some less-politik plans for real reform) plans with House Financial Services Committee Chairman Jeb Hensarling exclaiming he was "extremely concerned," about Watt's "efforts to force taxpayers to back high-risk mortgages with ultra-low down payments," concluding this plan "must be rejected."

 

Excerpts from Mel Watt's remarks…

Demand in today’s market is also limited by former homeowners who found themselves unable to keep up with their mortgage payments during the financial crisis, including many who lost their jobs during the recession or faced reductions in their income.  Many of these individuals not only lost their homes, but also seriously damaged their credit.  Many filed for bankruptcy.  Although some of them may be back on their feet in terms of income, their impaired credit records constrain their ability to return to homeownership. 

 

A less quantifiable factor on demand is the psychological impact of the housing crisis across the country.  Many people watched their friends or loved ones lose their homes or suffer financial hardship in the housing crisis, and this has deterred them from entering the homeownership market. 

 

Bottom line, there is no lack of rational explanations for why demand for homeownership is down, and these explanations will continue to change and evolve in the months and years ahead.  While things will not change overnight, it is my hope that many creditworthy individuals and families who are currently renters – but have the ability to pay a mortgage and become homeowners – will have the opportunity to pursue homeownership and will decide to do so.

 

A shift in this direction will not only be beneficial for our economy and overall housing market, but homeownership and paying down a mortgage remains a way that many individuals and families can save and build and retain wealth over time

 

 

the fact that home prices are still low in many locations, and the fact that interest rates are low, now is a great time for realtors to be actively encouraging their customers who can afford it to become homeowners.

 

I also announced recently that the Enterprises are working to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent.  As I said earlier, there are creditworthy borrowers in today’s market who have the income to afford monthly mortgage payments but do not have the money to make a large down payment and pay closing costs.  Purchase guidelines that allow for 3 percent down payments will provide an opportunity for access to credit for some of these borrowers.

*  *  *

WATTF!?

*  *  *
And here is Hensarling's terse response…

House Financial Services Committee Chairman Jeb Hensarling Friday criticized Federal Housing Finance Agency Director Mel Watt for supporting a plan that alters some housing finance industry lending standards.

 

In a speech Friday, Watt said Fannie Mae and Freddie Mac will seek to back loans with down payments as low as 3%.

 

"I am extremely concerned about Director Watt's efforts to force taxpayers to back high-risk mortgages with ultra-low down payments as little as 3%," Hensarling said in a statement.

 

"Such loans are inherently risky because the borrower has almost no financial cushion against a personal or economic downturn, vastly increasing the likelihood they will walk away from the loan once it gets significantly underwater," he added.

 

Hensarling continued to assail Fannie Mae and Freddie Mac as poorly functioning relics of an earlier age in mortgage finance.

 

"Since their spectacular collapse in 2008, Fannie Mae and Freddie Mac have continued to exist only through the massive financial support of taxpayers and a strict focus on sound underwriting. To abandon that focus now is an invitation by government for industry to return slipshod and dangerous practices that caused the mortgage meltdown in the first place and wrecked our economy," he said.

 

Hensarling said the chief statutory obligation of the FHFA is to ensure the safety and soundness of the Fannie Mae and Freddie Mac.

 

"Clearly, this initiative is directly contrary to that mission, and must be rejected," Hensarling said.

*  *  *

We suspect this will not be the last we hear of this… but there does appear at least one sane mind in Washington.

 




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GoPro Goes Weightless: This Is What Camera-In-Zero-Gravity-Bubble Looks Like

Everyone’s favorite camera-on-a-stick boldy goes where no camera-on-a-stick has gone before… inside a water bubble aboard the International Space Station…

 

 

Bloomberg explains…

During Expedition 40 in the summer of 2014, NASA astronauts Steve Swanson and Reid Wiseman — along with European Space Agency astronaut Alexander Gerst — explored the phenomenon of water-surface tension in microgravity on the International Space Station.

 

That’s a fancy way of saying they had some fun with a GoPro and a blob of water.

*  *  *

We assume this will be good for a 10 point pop on Monday’s open…




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VID: Ventura County Residents Blocked From Voting on Pension Reform

“Why Were Ventura County Residents Blocked From Voting on
Pension Reform in the Midterm Elections?,” produced by Alexis
Garcia. About 11 minutes. Original release date was
November 4, 2014 and original writeup is below.

“The taxpayers bear a large burden…for the government employees’
pension and these pensions are much more generous than is available
to them,” says Richard Thomson, president of the Ventura County Taxpayers Association
(VCTA). “The question you have to ask is what’s so special about
government employees that they shouldn’t have to assume some of
their own risk—like the taxpayer—for their retirement.”

On Tuesday, voters across the county will venture to polling
stations for the midterm elections. In Ventura County, California,
residents will be able to have their say on a variety of local
issues, but there is one initiative they won’t be able to cast
their ballot for—that measure is pension reform. 

Like so many retirement systems across the country, Ventura has
seen it’s pension fund go from having a healthy surplus to being
over a billion dollars in debt. To avoid having their county become
the next Stockton or Detroit, the Ventura County Taxpayers
Association crafted a reform measure that would move the county
from a defined benefit to a defined contribution system. 

But shortly after it was approved to appear on the ballot, a
local judge
preemptively ruled the measure illegal
and ordered it stricken
from the 2014 election—thus ending Ventura’s hopes to change their
costly pension system. 

The roots of Ventura’s failed attempt at pension reform were
planted in 1947 when residents elected to create the Venture County
Employees Retirement Association (VCERA). After the Great
Depression, states thought it beneficial to establish retirement
systems that could provide aging workers with modest benefits when
they could no longer work.

In California, a 1937 law gave counties a choice—they could
become part of the statewide retirement system or create their own.
Twenty counties, including Ventura, chose the latter and became
known as ’37 Act counties. This designation is important
because if Ventura could elect change, it could provide a blueprint
for other counties to enact reform without having to go through the
arduous legislative process in Sacramento which often stalls
because of union pressure to squash any form of pension
reform. 

According
to the judge’s ruling
, even though voters elected to create a
pension fund decades ago, the law provides them no way to exit the
system through a vote. Reformers would have to either repeal or
amend the law through state legislation to change their costly
pension programs. 

The decision was a setback for the VCTA, who had hoped a midterm
victory could expedite change to VCERA’s growing mountain of debt.
In 1999, pension payments accounted for just
one percent
of the total budget—today that number is
17 percent
. As retirements eat up a bigger portion of the
budget, the amount residents have had to kick in to cover pension
obligations has also increased. 

Taxpayers pay
$153 million per year
to the pension system—that’s triple the
number they paid out over a decade ago. In the next five years,
that number is expected to climb to$226
million
.

Some of the rise in costs can be attributed to demographics.
Retirees are living longer and drawing more in pension payments.
Unrealistic investment targets have also hampered growth in the
retirement system. While Ventura assumes the standard
7.75 percent return
on retirement investments, the county has
seen just a
5.82 percent return
in the last five years. 

In addition to these factors, the county also has the
distinction of having some of the highest retirement benefits in
the state—thanks to a practice known as spiking—in which retirees
can manipulate their final pay with supplemental benefits to boost
their pensions. 

A
1997 state supreme court ruling
known as “The Ventura Decision”
upheld this practice which legitimized pension spiking throughout
the state. A recent
Los Angeles Times study
found that 84% of Ventura
retirees receiving more than $100,000 a year in pension benefits
are getting more than they did on the job.

“When you look at compensation and pensions…we’re right up there
if not higher than anybody else,” states Bill Wilson, a member of
the VCTA who has also served on the county retirement board for
over 16 years. 

Under the defined benefit model, the government worker
contributes just a small fraction of their payroll toward the
retirement fund. According to a 2014 actuarial report done by Segal
Counsulting, Ventura county workers contribute 7.20% percent
of their paycheck, while public safety employees contribute 15.93
percent. The taxpayers match those contributions and pick up the
payments for any debt that has accrued. 

The same Segal actuarial report spells out average county worker
benefits. After 35 years of service, the average county employee in
Ventura with an $85,000 salary could expect to retire with $74,375
in annual benefits on top of their social security and 401(k) pay.
The average public safety employee making $125,000 salary can
expect to walk away with an annual pension of a $101,250 after 30
years of service. 


The reform
would have changed this structure by enacting a
defined contribution plan whereby the county would contribute four
percent for general county employees and 11 percent for public
safety workers. The measure would have only applied to new
employees hired after July 2015. The Reason Foundation—which
publishes Reason TV—provided analysis of the reform for the VCTA

and estimated
that the measure would save the county $460
million over the next 15 years and would reduce pension liabilities
by $1.8 billion. 

While the measure was wildly popular with local residents, labor
groups vehemently opposed reform. They turned out in large numbers
to county board meetings to voice their opposition and even showed
up at signature drives to intimidate people from signing the
petition to place reform on the ballot. 

Though the measure won’t appear on this year’s ballot, the VCTA
will continue to push for statewide reform. Growing public support
for reform and
recent court rulings
that may allow cities like Stockton and
Detroit to restructure their pension debt could be the tipping
point necessary to bring about change. 

“Once people realize what is at stake here, they’re going to
support it,” says Wilson. 

Approximately 11 minutes.

Produced by Alexis Garcia. Camera by Garcia, Paul Detrick, and
Alex Manning. Music byMobyGratis, Incompetech, and
Free
Music Archive.org

Scroll down for downloadable versions and subscribe to Reason TV’s YouTube channel
to get automatic notifications when new material goes live.

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Another “Conspiracy Theory” Bites The Dust: UBS Settles Over Gold Rigging, Many More Banks To Follow

Remember when everyone decried wholesale Libor manipulation as a crazy conspiracy theory (Zero Hedge: January 2009:This Makes No Sense: LIBOR By Bank“) because after all, it was impossible for so many people to keep their mouth shut or whatever the generic justification is for disproving such “conspiracy theories”? Why, none other than ICAP chief Michael Spencer says they all though Libor was “unmanipulable.” As it turns out, not only is Libor manipulable(sic), and a vast rate-rigging “conspiracy theory” is quite possible when everyone’s interests are aligned, but it also was massively profitable.

Then it was the turn of the even more massive, multi-trillion FX market, when first UBS squealed like a pig and soon ratted out every other bank in the criminal “Cartel” (or was it “Bandits”?) syndicate (see: “Meet The (First) Seven Banks Who Rigged The FX Market“). End result: banks such as JPM, Citi and BofA forced to review their criminal ways and adjusting their third quarter results a month into Q4. Many more legal fees, charges and settlement coming however for those who lost money on the other side of such long-running manipulation, please accept our condolences: you won’t see a penny.

And finally, there was the precious metals market: a market which all the Keynesian fanatic paper bugs said was immune from manipulation, be it of the central or commercial bank kind, even with every other market clearly exposed for perpetual rigging either by hedge funds, by prop desks, by HFTs, or central banks themselves.

Sadly this too conspiracy theory just was crushed into the reality of conspiracy fact, when moments ago the FT reported that alongside admissions of rigging every other market, UBS – always the proverbial first rat in the coalmine, to mix and match metaphors- is about to “settle” allegations of gold and silver rigging. In other words: it admits it had rigged the gold and silver markets, without of course “admitting or denying” it did so.

From the FT:

UBS is to settle allegations of misconduct at its precious metals trading business alongside a planned agreement between UK and US authorities and seven banks over accusations of foreign exchange market rigging.

 

* * *

UBS is expected to strike a settlement over alleged trader misbehaviour at its precious metals desks with at least one authority as part of a group deal over forex with multiple regulators this week, two people close to the situation said. They cautioned that the timing of a precious metals deal could still slip to a date after the forex agreement.

 

Regulators around the world have alleged that traders at a number of banks have colluded and shared information about client orders to manipulate prices in the $5.3tn-a-day forex market. UBS has previously disclosed that it launched an internal probe of its precious metals business in addition to its forex investigation. It declined to comment for this article.

 

Unlike at other banks, UBS’s precious metals and forex businesses are closely integrated. The business units have joint management and the bank’s precious metals staff – who mainly trade gold and silver – sit on the same floor as the forex traders.

 

One person familiar with UBS’s internal probe said the bank found a small number of potentially problematic incidents at its precious metals desk.

Potentially provlematic incidents“? One must give props to the FT for always finding just the right amount of politically correct lipstick to cover up what was market manipulation, pure and simple, which continued for years and years, even as the same FT routinely mocked everyone who alleged otherwise.

The good news is that the FT will finally reinstate the Gold manipulation article which is penned in February then promptly removed following complaints from up high.

Some more from the BOE’s favorite media outlet:

The head of UBS’s gold desk in Zurich, André Flotron, has been on leave since January for reasons unspecified by the lender.

Surely it is because he made too much money rigging FX and gold?

Those who wish to send Andre their regards, may do so courtesy of his LinkedIn profile

… Because he is one of many people responsible for such perfectly new normal trades as “Vicious Gold Slamdown Breaks Gold Market For 20 Seconds.” Recall what “a humble block of 2000 gold futs (GC) taking out the bid stack, and slamming the price of gold, managed to halt the gold market: one of the largest “asset” markets in the world in terms of total notional, for 20 seconds” looks like:

Thank you Monsieur Flotron for teaching us how market manipulators “trade” gold:

Mr Flotron has not been accused of wrongdoing and has never responded to any requests for comment. He has labelled his professional status on his LinkedIn profile as being “on leave, keen to return in due time”.

The gold market has this year become the latest trading area to be subjected to heavy regulatory scrutiny and allegations of price-rigging. The FCA fined Barclays £26m in May after an options trader was found to have manipulated the London gold fix.

Germany’s financial regulator BaFin has launched a formal investigation into the gold market and is probing Deutsche Bank, one of the former members of a tarnished gold fix panel that will soon be replaced by an electronic fixing.

As for what happens next, the game is clear, because the only thing that can surpass the “developed world’s” rigged markets is said world’s “judicial” system: rigged far more than a $10 billion gold market sell order at 1 am in the morning. The TBTF, aka Too Big To Prosecute Banks will settle, paying out pennies on the dollar of the profits they made from rigging gold, silver, FX, libor, Interest rates, equities, and so on, and will lay low for a while until the rigging resumes.

But fear not: even as the criminal banks stay out of the rigged market for a month or so – after all they have to at least give the appearance of complying with the rigged law – the central banks, courtesy of the “People Bringing You Currency Manipulation On A Daily Basis” located conveniently at the nexus of central banking in the Bank of International Settlements in Basel, will keep on rigging. Or else none other than Benoit Gilson, Head of Foreign Exchange & Gold at the BIS will be forced to report that he too is “on leave, keen to return in due time”…

Alas, we are far too deep inside the rabbit hole at this point to even pretend normalcy can ever again exist without the biggest systemic reset in history.




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A Dozen Thoughts about Next Week and the Dollar

1.  The Federal Reserve upgraded its assessment of the labor market in its statement at the end of last month.  It noted that the “under-utilization of labor resources was gradually diminishing”.   There was nothing in the October jobs report that will challenge that assessment.  The Fed’s new labor market conditions index will be released at the start of the week and the JOLTS report on Thursday. 

 

We expect the continued gradual improvement in the labor market will allow the Federal Reserve to hike rates around toward the middle of next year.  Yellen and Fischer have recently been emphasizing the Fed’s desire to minimize the impact of changes in its monetary stance.  It will do so by being as transparent and forthright as possible.  It appears that process by which it announced and then implemented the exit from its asset purchase program serves as the model for the communication of its first hike.  Before the weekend, NY Fed President Dudley reaffirmed that barring a significant economic surprise, the Fed funds rate will likely increase next year.

 

2.  The continued improvement in the labor market should not be confused with a strengthening of the US economy.  Specifically, the recent construction spending and trade figures warn of a notable downward revision in Q3 US to possibly below 3%, and the data for Q4 appears to be tracking something closer to 2.5%.    This is probably closer to trend growth than the 3% handle that infatuates many. 

 

That said, the employment growth coupled with the decline in gasoline prices will likely boost discretionary spending.  As the recent consumer credit report confirms, household consumption is not relying on credit cards (revolving credit).  October retail sales, the main US economic report of the week, is likely to show a recovery after the unexpected weakness in September, especially in the measure that excludes, autos, gasoline and building materials.  University of Michigan consumer confidence is likely to have been lifted by the recovery in stock prices, the falling gasoline prices, and the gradually improving labor market. 

 

3.  Contrary to a widely cited Reuters report, the ECB came together and endorsed the expansion of its balance sheet toward the peak near three trillion euros.  It also unanimously endorsed adopting additional measures that will likely be needed given the downside risks, and instructed the staff to expedite their exploration of the options, within its charter, to expand its balance sheet.  These downside risks will be underscored by the ECB’s Survey of Professional Forecasters, and will likely hint at what to expect from the next month’s updated forecasts by the ECB’s staff.

 

4.  The euro area zone reports Q3 GDP figures in the days ahead.  The area as a whole likely experienced meager growth of 0.1%.   Germany and France probably did not grow much faster, though a statistical fluke might have the latter grow a touch faster than the former.  Spain and Ireland have become the widely cited examples of success stories from the austerity/reform agenda.  Spain’s economy may have grown by 0.4%-0.5%.  Italy, on the other hand, despite the reformist Renzi promising significant progress in his first hundred thousand days, has not really found a growth path and is expected to have contracted by another 0.3% in Q3.  An acceleration in euro zone October industrial output will fan hopes of somewhat stronger Q4 GDP. 

 

5.   The UK’s labor market is also improving, and the unemployment rate (3-months annualized) is expected to dip below 6% when the latest report is published on November 12.    Similar to what we observed in the US, improvement in the UK labor market does not mean that growth is accelerating.  In fact, the UK economy has steadily lost momentum since the middle of the year.  The October composite PMI, reported last week, fell to 55.8, its lowest since May 2013. 

 

The downward pressure on wages may ease but will hardly be suggesting imminent wage-push inflation.  Arguably, the weak nominal wage growth and falling real wages are sapping aggregate demand.  BRC retail sales, due Monday, are expected to have declined again (~0.5%) in October.  They have fallen in three of the four months through September. 

 

6.  The same day as the UK’s October employment data is released, the Bank of England issues its Quarterly Inflation Report (QIR).  Given the lack of an MPC statement at the end conclusion of its monthly meetings, as Federal Reserve does, or a press conference like the BOJ and ECB, the BOE’s quarterly inflation report takes on added importance in the period in which officials rely on forward guidance.  The QIR is expected to be dovish, revising down the expected growth path,  and support the swing in market expectations of the first hike into late 2015. 

 

7.  Japan’s current account position is always better in September than August.  This year is not likely to break the historical pattern.  While the decline in the yen is not boosting the volume of Japanese exports, it can be expected to boost the investment income (dividend and coupon payments) earned overseas.  The decline in the price of oil is also likely to be beneficial to Japan.  Since mid-June the price of Brent has fallen by about 30% while the yen has declined 11%. 

 

8. China’s Xi will meet Japan’s Abe at the APEC meeting.  This is the first time the two men will meet as leaders of their respective countries.    They have not met due to China’s displeasure with Japanese policies in the South China Sea, where it nationalized disputed islands, and Abe’s insistence on visiting a war shrine in Japan that antagonizes not only China but South Korea.  Abe seemed to be pushing harder for the meeting than Xi, and it is not clear what concessions were made.  Japan did indicate that it would relax the screening of Chinese tourists’ visas.  Last year, Abe visited the Yasukuni Shrine last December.  Visiting it again this year would prevent building on the APEC meeting. 

 

9.  Xi will use the APEC meeting to showcase China’s regional leadership while Obama will have to work hard to convince that he is not a lame duck.  Obama’s Asia pivot looks hollow if his Trans-Pacific Partnership falters as it looks likely.   China will press for its alternative–Free Trade Area of Asia-Pacific.   Abe has agreed to explore joining it.  Xi also intends to reach Memorandum of Understanding to launch an Asian Infrastructure Bank (a regional “World Bank”). 

 

10.  China had shifted from an export-led economy to one driven by investment.  However, that investment was financed by debt, and that cycle is over.  China appears to be relying again on exports to underpin growth.  The October trade figures were released over the weekend.  China reported an October trade surplus of $45.4 bln, a 50% increase from September’s $30.9 bln surplus.  Over the past 12-months, China has recorded a $316 bln surplus, a record.  Exports rose 11.6% from a year ago (Bloomberg consensus 10.6%).  Imports rose 4.6% (consensus 5%).   China releases other data in the week ahead, including inflation, industrial output, retail sales, and bank and total lending figures.  While lending is expected to have slowed, the other readings are expected to be little changed from September readings. 

 

Exports to Hong Kong rose 24% in October.  The gap between China’s reported exports and Hong Kong’s reported imports (in September the gap was the widest of the year) has fanned concern of a resumption in fictitious trade invoices to conceal capital flows.  After rising more than 10% in September, China’s precious metal exports to Hong Kong rose just less than 5% in October.  This is still three times the pace of October 2013 pace.   

 

11.  China is not expected to object to Japan’s aggressive monetary policy stance, which some say is a shot in the currency wars.  However, Korean officials are a different matter.  The won is at six-year highs against the Japanese yen, and finance officials are concerned about the impact on Korean industry, especially, autos, steel and electronics.  Against the dollar, the won has fallen for seven consecutive sessions to reach a 14-month low.  It is the second weakest currency in Asia, losing 4% of its value this year (vs. -8.1% decline in the yen).  Do not expect much official sympathy for Korea, where the OECD estimates the won is nearly 27% under-valued. 

 

Moreover, if Japanese exports are not increasing much in volume terms, how much can the weakening of the yen really hurt South Korea.  In the first ten months of 2014, South Korea recorded a trade surplus of $36.7 bln.  In the same period in 2013, its trade surplus was $35.6 bln, and in the same 2012 period, its trade surplus was $22.1 bln.  Exports in October 2014 were 2.5% higher year-over-year.  Imports were 3% lower.    The South Korean central bank meets on November 12.  A Bloomberg survey found nine of 10 economists expected it to keep its seven-day repo rate unchanged at 2.0%.  With CPI at 1.2%, the multi-year strength of the won against the yen, and pressure from the pressure from the US over its chronic intervention, the risk of a    rate cut seems larger than many investors may suspect.  

 

12.  The confrontation over Ukraine is heating up again.  Following, provocative elections in the east, Russia has sent reinforcements in the form of weapons, ammunition and personnel, according to the Organization of Security and Co-operation in Europe.   Since 2008, Russia has occupied a couple of regions in Georgia and continues to intimidate a number of small (and large) countries on its borders.  Investors should be prepared for an intensification of the conflict in the coming weeks, which will likely entail new sanctions. 

 

The combination of the sanctions and the drop in oil prices is delivering a significant blow to the Russian economy.  In late October, the central bank surprised many with a 150 bp rate hike to try to stem the capital outflows.  Last week, the central bank changed foreign exchange regime by reducing its intervention to one $350 mln a day operation, of course, it can still intervene whenever it wants.  This ad hoc intervention rather than it former rule-based operations is closer to a dirty float.  Previously it had predictably intervened with $350 mln every five-kopeck move below the approved floor.   Russian reserves have fallen by about $83 bln this year, though part of this decline likely reflects valuation adjustments, given the euro’s 9.4% against the dollar this year. 




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Scott Beyer on How San Francisco’s Progressive Policies Are Hurting the Poor

In recent years, a contradiction has unfolded in
San Francisco. On the one hand, the city continues to practice
progressive economic policies. But rather than helping its poor and
middle-class residents—as such policies are advertised as
doing—these groups in San Francisco have become more unequal,
downwardly mobile, and altogether priced-out. As Scott Beyer
explains, this raises the question of whether the policies
themselves are contributing to the problem.

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