Tag: finance

Last week, in Part I of “That Was The Weak That Worked,” we reviewed the equity markets in an attempt to see how equity investors managed to scamper through 2013 with the friskiness of puppies when all about them lay doubt and potential disaster.

We found the answer in quantitative easing — of course.

This week we will take a look at how the bond market managed to navigate the same 12-month period and see what can be learned about 2013 in order to forecast for 2014.

Let’s begin by considering the subject of logical fallacies — an endeavor rendered more obsolete with each passing day.

(Deus Diapente): The study of logical fallacies is useful in learning how to think instead of what to think. In learning how to deconstruct an argument, you learn how to efficiently construct your own thoughts, ideas, and arguments. You learn how to find fallacies in your own line of reasoning before they’re even presented, which is a valuable methodology for learning how to think. Which is a lot more honest, liberating, and possibly more objective than simply regurgitating what society, teachers, parents, preachers, friends, or politicians tell us…

“Learning how to think instead of what to think”?

The very idea is enough to send many into an Austen-like swoon, and yet within this relatively simple construct lies a principle that, if it were applied to today’s markets, would have every rational investor rushing headlong into the hills.

Allow me to demonstrate using everyone’s favourite logical structure: the syllogism.

A syllogism is classified as a point-by-point outline of a deductive or inductive argument. Syllogisms normally contain two premises followed by a conclusion:

Premise 1:Miley Cyrus is the most talented musician of her generation.

?Premise 2:The most talented musician of every generation achieves legendary status.?

Conclusion:Miley Cyrus is a legend.

Simple.

The conclusion, from a purely logical standpoint, holds water. The problem comes when either of the first two premises is not accepted by the person to which they are proposed.

At that point, the argument starts to fall apart.

The common term for this kind of flawed argument is a “non sequitur,” which literally means “it does not follow.”

So let’s apply the syllogistic approach to the concept of quantitative easing and see how we go:

Premise 1:Central banks have been printing money like lunatics.?

Premise 2:Their printing of money hasn’t had any ill effects.?

Conclusion:Printing money doesn’t have any ill effects.

Right then. There’s our syllogism. Do you want to go first, or shall I?

Oh… ok.

Quantitative Easing IV (or “QE IV” — so-called because it was injected directly into the veins of the monetary system) was unveiled on December 11, 2012, when Ben Bernanke announced, as Operation Twist expired, that in addition to the ongoing QE3 program (which committed the Federal Reserve to buying $40 bn in MBS every month) he would sanction the additional buying of $45 bn in long-term Treasury securities. Every month. Forever. Until further notice.

The rest, as they say (whoever “they” are), is history.

The effect on the Fed’s balance sheet is plain to see:

That’s a very steady, predictable line; and markets, as we have discussed, LOVE steady and predictable. The consistency of this curve underpinned the strength in equity markets this year, as I demonstrated last week. But in Bondville? Well, that’s another story…

…

2014 is going to be a bumpy ride for bond markets, folks. Count on it.

Government debt is at levels that only governments themselves would pay, at exactly the time when they are trying to lean more heavily on the private sector to take up the slack — good luck with that.

…

Interest rates, bond markets, and the housing market are inextricably intertwined. They always have been and always will be. Period.

You cannot monkey around with one piece of that eternal triangle and expect the others not to be affected at some point, and just because nothing bad has happened definitely does NOT mean it won't.

It will.

2013 may well have been The Weak That Worked, but the odds on that continuing for another 12 months are very short indeed.

And so, as we wrap up this week, let's revisit the idea of logical fallacies and throw a couple more that the guardians of the global economy are relying on into the ring for good measure:

The Taper Syllogism
Premise 1: The Fed tapered its monthly asset purchases.
Premise 2: The taper had no major negative effect on markets.

Conclusion: Tapering has no negative effect on markets.

The Housing Bubble Syllogism
Premise 1: The government has all the data on the housing market.
Premise 2: The government sees no bubble in the data.

Conclusion: There is no housing bubble.

The Interest Rate Syllogism
Premise 1: The Fed sets interest rates.
Premise 2: The Fed has promised low rates of zero to 0.25 percent "… at least as long as the unemployment rate remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."

Conclusion: Interest rates will stay at zero to 0.25% and zero to 0.25 percent will be appropriate "… at least as long as the unemployment rate remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."

The Inflation Syllogism
Premise 1: The world's central banks have printed ~$4.7 trillion.
Premise 2: There is no noticeable problem with (official) inflation numbers.

Conclusion: Printing money doesn't cause inflation.

 

Discuss…!

 

Full Grant Williams letter below…

TTMYGH_Jan2014

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/OzIdf1e_b8g/story01.htm Tyler Durden

Last week, in Part I of “That Was The Weak That Worked,” we reviewed the equity markets in an attempt to see how equity investors managed to scamper through 2013 with the friskiness of puppies when all about them lay doubt and potential disaster.

We found the answer in quantitative easing — of course.

This week we will take a look at how the bond market managed to navigate the same 12-month period and see what can be learned about 2013 in order to forecast for 2014.

Let’s begin by considering the subject of logical fallacies — an endeavor rendered more obsolete with each passing day.

(Deus Diapente): The study of logical fallacies is useful in learning how to think instead of what to think. In learning how to deconstruct an argument, you learn how to efficiently construct your own thoughts, ideas, and arguments. You learn how to find fallacies in your own line of reasoning before they’re even presented, which is a valuable methodology for learning how to think. Which is a lot more honest, liberating, and possibly more objective than simply regurgitating what society, teachers, parents, preachers, friends, or politicians tell us…

“Learning how to think instead of what to think”?

The very idea is enough to send many into an Austen-like swoon, and yet within this relatively simple construct lies a principle that, if it were applied to today’s markets, would have every rational investor rushing headlong into the hills.

Allow me to demonstrate using everyone’s favourite logical structure: the syllogism.

A syllogism is classified as a point-by-point outline of a deductive or inductive argument. Syllogisms normally contain two premises followed by a conclusion:

Premise 1:Miley Cyrus is the most talented musician of her generation.

?Premise 2:The most talented musician of every generation achieves legendary status.?

Conclusion:Miley Cyrus is a legend.

Simple.

The conclusion, from a purely logical standpoint, holds water. The problem comes when either of the first two premises is not accepted by the person to which they are proposed.

At that point, the argument starts to fall apart.

The common term for this kind of flawed argument is a “non sequitur,” which literally means “it does not follow.”

So let’s apply the syllogistic approach to the concept of quantitative easing and see how we go:

Premise 1:Central banks have been printing money like lunatics.?

Premise 2:Their printing of money hasn’t had any ill effects.?

Conclusion:Printing money doesn’t have any ill effects.

Right then. There’s our syllogism. Do you want to go first, or shall I?

Oh… ok.

Quantitative Easing IV (or “QE IV” — so-called because it was injected directly into the veins of the monetary system) was unveiled on December 11, 2012, when Ben Bernanke announced, as Operation Twist expired, that in addition to the ongoing QE3 program (which committed the Federal Reserve to buying $40 bn in MBS every month) he would sanction the additional buying of $45 bn in long-term Treasury securities. Every month. Forever. Until further notice.

The rest, as they say (whoever “they” are), is history.

The effect on the Fed’s balance sheet is plain to see:

That’s a very steady, predictable line; and markets, as we have discussed, LOVE steady and predictable. The consistency of this curve underpinned the strength in equity markets this year, as I demonstrated last week. But in Bondville? Well, that’s another story…

…

2014 is going to be a bumpy ride for bond markets, folks. Count on it.

Government debt is at levels that only governments themselves would pay, at exactly the time when they are trying to lean more heavily on the private sector to take up the slack — good luck with that.

…

Interest rates, bond markets, and the housing market are inextricably intertwined. They always have been and always will be. Period.

You cannot monkey around with one piece of that eternal triangle and expect the others not to be affected at some point, and just because nothing bad has happened definitely does NOT mean it won't.

It will.

2013 may well have been The Weak That Worked, but the odds on that continuing for another 12 months are very short indeed.

And so, as we wrap up this week, let's revisit the idea of logical fallacies and throw a couple more that the guardians of the global economy are relying on into the ring for good measure:

The Taper Syllogism
Premise 1: The Fed tapered its monthly asset purchases.
Premise 2: The taper had no major negative effect on markets.

Conclusion: Tapering has no negative effect on markets.

The Housing Bubble Syllogism
Premise 1: The government has all the data on the housing market.
Premise 2: The government sees no bubble in the data.

Conclusion: There is no housing bubble.

The Interest Rate Syllogism
Premise 1: The Fed sets interest rates.
Premise 2: The Fed has promised low rates of zero to 0.25 percent "… at least as long as the unemployment rate remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."

Conclusion: Interest rates will stay at zero to 0.25% and zero to 0.25 percent will be appropriate "… at least as long as the unemployment rate remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."

The Inflation Syllogism
Premise 1: The world's central banks have printed ~$4.7 trillion.
Premise 2: There is no noticeable problem with (official) inflation numbers.

Conclusion: Printing money doesn't cause inflation.

 

Discuss…!

 

Full Grant Williams letter below…

TTMYGH_Jan2014

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/OzIdf1e_b8g/story01.htm Tyler Durden

Remember this?

This was the neo-conservatives’ victory lap when they supposedly achieved one of their main stated goals: to discover and neutralize terrorist organizations, primarily al Qaeda.

Well, things have changed.

In what can be described a truly ironic event and a major failure for America’s stated mission (because one can’t help but wonder at all the support various Al Qaeda cells have received from the US and/or CIA) of eradicating the Al Qaeda scourge from the face of the earth, we learn today that al Qaeda appears to control more territory in the Arab world than it has done at any time in its history. According to a CNN report “from around Aleppo in western Syria to small areas of Falluja in central Iraq, al Qaeda now controls territory that stretches more than 400 miles across the heart of the Middle East, according to English and Arab language news accounts as well as accounts on jihadist websites.”

The following recent map from Jane’s shows just how extensive Al Qaeda’s influence has grown in recent years.

And nowhere is the surge of Al Qaeda more visible than in recent events in Iraq. From CNN:

The focus of al Qaeda’s leaders has always been regime change in the Arab world in order to install Taliban-style regimes. Al Qaeda’s leader Ayman al-Zawahiri acknowledged as much in his 2001 autobiography, “Knights Under the Banner of the Prophet,” when he explained that the most important strategic goal of al Qaeda was to seize control of a state, or part of a state, somewhere in the Muslim world, explaining that, “without achieving this goal our actions will mean nothing.”

 

Now al-Zawahiri is closer to his goal than he has ever been. On Friday al-Qaeda’s affiliate in Iraq seized control of parts of the city of Falluja and parts of the city of Ramadi, both of which are located in Iraq’s restive Anbar Province.

 

Anbar is home to predominantly Sunni Muslims, who feel that that the Shiite-dominated Iraqi government of Prime Minister Nuri al-Maliki treats the Sunnis as second-class citizens.

 

Sectarian tensions in Anbar recently burst into several all-out revolts against the government, and the Islamic State of Iraq and Syria (ISIS), as the al-Qaeda affiliate there is known, quickly seized the opportunity to notch some battlefield victories.

 

Government forces increased their presence around Falluja in response and on Tuesday tribal leaders issued a statement urging people who had fled the city or stopped reporting to work to return.

America’s escapade in Syria – where it was merely a puppet for Qatari nat gas oligarchs – has also backfired.

ISIS is also operating in Syria, where it has established a presence in many areas of the Aleppo and Idlib Governorates in the northwest. In August, ISIS launched a propaganda series on video highlighting their activities in Syria, which includes interviews with fighters; the “graduation” of a group of mujahedin “cubs” (aged about 7 to 10 years old) from training, and sermons at local mosques preaching al Qaeda’s interpretation of Islam.

 

The al-Nusra front has claimed to control parts of at least a dozen Syrian towns. Those include sections of the ancient city of the Aleppo in the northwest, where fighters have been filmed running a community fair and preaching al Qaeda’s values to crowds of children. The group has also released videos on jihadist websites claiming that it is providing services to the people of several towns in the governorate of Idlib, which borders the Aleppo Governorate to the west. Al Nusra claims that it is a quasi-government and service-provider in the towns of Binnish, Taum, and Saraqib.

 

Al-Nusra fighters allied to al Qaeda function like a government in areas they control in Syria. The group provides daily deliveries of bread, free running water and electricity, a health clinic, and a strict justice system based on Sharia law in the eastern Syrian city of Ash Shaddadi, where it also took control of the city’s wheat silos and oil wells. In September a CNN reporting team concluded, “Al Qaeda has swept to power with the aim of imposing a strict Islamist ideology on Syrians across large swathes of Syria’s rebel-held north.”

 

In sum, al Qaeda affiliates now control much of northern and northwestern Syria as well as some parts of eastern Syria, as well as much of Anbar province, which is around a third of Iraqi territory.

It wouldn’t be a US diplomatic debacle without at least one soundbite from John Kerry. So here it is:

Secretary of State John Kerry said on Sunday that the United States will “do everything that is possible to help” the Iraqi government control al Qaeda’s expansion in Anbar, but stressed that no American troops would be sent back to the Middle Eastern nation . Last month, the United States quietly sent Hellfire missiles and surveillance drones to the Iraqi government to support their fight against increasing al Qaeda-related violence.

The question of how quickly the US “gift” was intercepted by Al Qaeda is rhetorical. The other rhetorical question is how long until the now much better armed (with US weapons) jihadists will turn those same weapons on the liberating Western powers. The US for now seems safe. Europe is a different matter.

For the United States the widening reach of al Qaeda in the Middle East doesn’t necessarily translate into an immediate threat at home. So far only a handful of Americans have fought in the Syrian conflict alongside al Qaeda’s affiliates there so concerns about some kind of “blowback” from the Syrian war in the U.S. are, at this point, unfounded.

 

European countries are rightly concerned, however. Many European countries have seen their citizens drawn to the Syrian war; more than a hundred from Britain and many dozens from countries like Norway, Denmark and the Netherlands, according to multiple European officials we have spoken to. These countries are concerned that the returning veterans of the Syrian conflict might launch terrorist attacks in Europe.

 

In October for instance, British authorities arrested militants who were allegedly planning a terrorist attack. Two British officials who work on counterterrorism issues told us that that the militants had recently traveled to Syria.

Finally, none of this should come as a surprise to anyone. Ron Paul, for one, has long predicted precisely this chain of events. In this context his latest commentary, posted here over the weekend, bears repeating.

Iraq: The ‘Liberation’ Neocons Would Rather Forget

Remember Fallujah? Shortly after the 2003 invasion of Iraq, the US military fired on unarmed protestors, killing as many as 20 and wounding dozens. In retaliation, local Iraqis attacked a convoy of US military contractors, killing four. The US then launched a full attack on Fallujah to regain control, which left perhaps 700 Iraqis dead and the city virtually destroyed.

According to press reports last weekend, Fallujah is now under the control of al-Qaeda affiliates. The Anbar province, where Fallujah is located, is under siege by al-Qaeda. During the 2007 “surge,” more than 1,000 US troops were killed “pacifying” the Anbar province.  Although al-Qaeda was not in Iraq before the US invasion, it is now conducting its own surge in Anbar.
 
For Iraq, the US “liberation” is proving far worse than the authoritarianism of Saddam Hussein, and it keeps getting worse. Last year was Iraq’s deadliest in five years. In 2013, fighting and bomb blasts claimed the lives of 7,818 civilians and 1,050 members of the security forces. In December alone nearly a thousand people were killed.
 
I remember sitting through many hearings in the House International Relations Committee praising the “surge,” which we were told secured a US victory in Iraq. They also praised the so-called “Awakening,” which was really an agreement by insurgents to stop fighting in exchange for US dollars. I always wondered what would happen when those dollars stopped coming.
 
Where are the surge and awakening cheerleaders now?
 
One of them, Richard Perle, was interviewed last year on NPR and asked whether the Iraq invasion that he pushed was worth it. He replied:

I’ve got to say I think that is not a reasonable question. What we did at the time was done in the belief that it was necessary to protect this nation. You can’t a decade later go back and say, well, we shouldn’t have done that.

Many of us were saying all along that we shouldn’t have done that – before we did it. Unfortunately the Bush Administration took the advice of the neocons pushing for war and promising it would be a “cakewalk.” We continue to see the results of that terrible mistake, and it is only getting worse.
 
Last month the US shipped nearly a hundred air-to-ground missiles to the Iraqi air force to help combat the surging al-Qaeda. Ironically, the same al-Qaeda groups the US is helping the Iraqis combat are benefiting from the US covert and overt war to overthrow Assad next door in Syria. Why can’t the US government learn from its mistakes?
 
The neocons may be on the run from their earlier positions on Iraq, but that does not mean they have given up. They were the ones pushing for an attack on Syria this summer. Thankfully they were not successful. They are now making every effort to derail President Obama’s efforts to negotiate with the Iranians. Just last week William Kristol urged Israel to attack Iran with the hope we would then get involved. Neoconservative Senators from both parties recently introduced the Nuclear Weapon Free Iran Act of 2013, which would also bring us back on war-footing with Iran.
 
Next time the neocons tell us we must attack, just think “Iraq.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/B_JqQA2timc/story01.htm Tyler Durden

Despite an apparent belief among the US mainstream media that 'taper' is priced in, Saxo Capital Markets warns that Emerging Market countries with large current account deficits like Brazil, India, South Africa, Indonesia, and Turkey face increasing problems. As the following chart shows (and highlghted most recently by Brazil's highest FX outflows since 2002!) could see their currencies weaken even further if the Fed's taper plans result in a deterioration of global risk appetite.

 

 

Think it will be different this time? Think again – Brazil just saw its largest outflows since 2002!!!

Via WSJ,

Dollars flowed out of Brazil in 2013 at their largest volume in more than a decade amid growing investor risk aversion and shifting capital movements around the globe.

 

The country's central bank Wednesday reported net dollar outflows of $12.3 billion, compared with net inflows of $16.8 billion the previous year, and the largest outflows on record since 2002. The outflows were also the country's first reported since 2008, when net dollar outflows totaled $983 million.

 

…

 

The central bank reported the country posted $8.8 billion in net dollar outflows in December alone.

 

The net currency outflows in 2013 were led mainly by investment outflows, which reached $23.4 billion. That was down from $8.4 billion in net investment inflows the previous year.

 

…

 

"Every bit of good economic news for the U.S. has been problematic for the rest of the world," said Mr. Galhardo. "It's hard to see good news on the horizon that will alleviate the pressure on the real in the short term."

 

The dollar outflow trend has been compounded, meanwhile, by growing scrutiny of Brazil's fiscal health and heightened investor risk aversion.

 

Source: Saxo Capital Markets

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/5psLA9Bg6hs/story01.htm Tyler Durden

Despite an apparent belief among the US mainstream media that 'taper' is priced in, Saxo Capital Markets warns that Emerging Market countries with large current account deficits like Brazil, India, South Africa, Indonesia, and Turkey face increasing problems. As the following chart shows (and highlghted most recently by Brazil's highest FX outflows since 2002!) could see their currencies weaken even further if the Fed's taper plans result in a deterioration of global risk appetite.

 

 

Think it will be different this time? Think again – Brazil just saw its largest outflows since 2002!!!

Via WSJ,

Dollars flowed out of Brazil in 2013 at their largest volume in more than a decade amid growing investor risk aversion and shifting capital movements around the globe.

 

The country's central bank Wednesday reported net dollar outflows of $12.3 billion, compared with net inflows of $16.8 billion the previous year, and the largest outflows on record since 2002. The outflows were also the country's first reported since 2008, when net dollar outflows totaled $983 million.

 

…

 

The central bank reported the country posted $8.8 billion in net dollar outflows in December alone.

 

The net currency outflows in 2013 were led mainly by investment outflows, which reached $23.4 billion. That was down from $8.4 billion in net investment inflows the previous year.

 

…

 

"Every bit of good economic news for the U.S. has been problematic for the rest of the world," said Mr. Galhardo. "It's hard to see good news on the horizon that will alleviate the pressure on the real in the short term."

 

The dollar outflow trend has been compounded, meanwhile, by growing scrutiny of Brazil's fiscal health and heightened investor risk aversion.

 

Source: Saxo Capital Markets

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/5psLA9Bg6hs/story01.htm Tyler Durden

Submitted by Michael Snyder of The Economic Collapse blog,

If you are anxiously awaiting the arrival of the "economic collapse", just open up your eyes and look at what is happening in Europe.  The entire continent is a giant economic mess right now.  Unemployment and poverty levels are setting record highs, car sales are setting record lows, and there is an ocean of bad loans and red ink everywhere you look.  Over the past several years, most of the attention has been on the economic struggles of Greece, Spain and Portugal and without a doubt things continue to get even worse in those nations. 

But in 2014 and 2015, Italy and France will start to take center stage.  France has the 5th largest economy on the planet, and Italy has the 9th largest economy on the planet, and at this point both of those economies are rapidly falling to pieces.  Expect both France and Italy to make major headlines throughout the rest of 2014.  I have always maintained that the next major wave of the economic collapse would begin in Europe, and that is exactly what is happening.  The following are just a few of the statistics that show that an "economic collapse" is happening in Europe right now…

-The unemployment rate in the eurozone as a whole is still sitting at an all-time record high of 12.1 percent.

-It Italy, the unemployment rate has soared to a brand new all-time record high of 12.7 percent.

-The youth unemployment rate in Italy has jumped up to 41.6 percent.

-The level of poverty in Italy is now the highest that has ever been recorded.

-Many analysts expect major economic trouble in Italy over the next couple of years.  The President of Italy is openly warning of "widespread social tension and unrest" in his nation in 2014.

-Citigroup is projecting that Italy's debt to GDP ratio will surpass 140 percent by the year 2016.

-Citigroup is projecting that Greece's debt to GDP ratio will surpass 200 percent by the year 2016.

-Citigroup is projecting that the unemployment rate in Greece will reach 32 percent in 2015.

-The unemployment rate in Spain is still sitting at an all-time record high of 26.7 percent.

-The youth unemployment rate in Spain is now up to 57.7 percent – even higher than in Greece.

-The percentage of bad loans in Spain has risen for eight straight months and recently hit a brand new all-time record high of 13 percent.

-The number of mortgage applications in Spain has fallen by 90 percent since the peak of the housing boom.

-The unemployment rate in France has risen for 9 quarters in a row and recently soared to a new 16 year high.

-For 2013, car sales in Europe were on pace to hit the lowest yearly level ever recorded.

-Deutsche Bank, probably the most important bank in Germany, is the most highly leveraged bank in Europe (60 to 1) and it has approximately 70 trillion dollars worth of exposure to derivatives.

Europe truly is experiencing an economic nightmare, and it is only going to get worse.

It would be hard to put into words the extreme desperation that unemployed workers throughout Europe are feeling right now.  When you can't feed your family and you can't find work no matter how hard you try, it can be absolutely soul crushing.

To get an idea of the level of desperation in Spain, check out the following anecdote from a recent NPR article…

Having trouble wrapping your head around southern Europe's staggering unemployment problem?

 

Look no further than a single Ikea furniture store on Spain's Mediterranean coast.

 

The plans to open a new megastore next summer near Valencia. On Monday, Ikea's started taking applications for 400 jobs at the new store.

The company wasn't prepared for what came next.

 

Within 48 hours, more than 20,000 people had applied online for those 400 jobs. The volume crashed Ikea's computer servers in Spain.

Of course that should kind of remind you of what I wrote about yesterday.  We are starting to see this kind of intense competition for low paying jobs in the United States as well.

As global economic conditions continue to deteriorate, things are going to get even tougher for those on the low end of the economic food chain.  Poverty rates are going to soar, even in areas where you might not expect it to happen.  In fact, one new report discovered that poverty has already been rising steadily in Germany, which is supposed to be the strongest economy in the entire eurozone…

A few days before the Christmas holidays, the Joint Welfare Association published a report on the regional development of poverty in Germany in 2013 titled “Between prosperity and poverty—a test to breaking point”. The report refutes the official propaganda that Germany has remained largely unaffected by the crisis and is a haven of prosperity in Europe.

 

According to the report, poverty in Germany has “reached a sad record high”. Entire cities and regions have been plunged into ever deeper economic and social crisis. “The social and regional centrifugal forces, as measured by the spread of incomes, have increased dramatically in Germany since 2006,” it says. Germany faces “a test to breaking point.”

Of course poverty continues to explode on this side of the Atlantic Ocean as well.  In the United States, the poverty rate has been at 15 percent or above for three years in a row.  That is the first time that this has happened since the 1960s.

And this is just the beginning.  The extreme recklessness of European banks such as Deutsche Bank and U.S. banks such as JPMorgan Chase, Citibank and Goldman Sachs is eventually going to cause a financial catastrophe far worse than what we experienced back in 2008.

When that crisis arrives, the flow of credit is going to freeze up dramatically and economic activity will grind to a standstill.  Unemployment, poverty and all of our current economic problems will become much, much worse.

So as bad as things are right now, the truth is that this is nothing compared to what is coming.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/kSneW2_EGWQ/story01.htm Tyler Durden

Submitted by Michael Snyder of The Economic Collapse blog,

If you are anxiously awaiting the arrival of the "economic collapse", just open up your eyes and look at what is happening in Europe.  The entire continent is a giant economic mess right now.  Unemployment and poverty levels are setting record highs, car sales are setting record lows, and there is an ocean of bad loans and red ink everywhere you look.  Over the past several years, most of the attention has been on the economic struggles of Greece, Spain and Portugal and without a doubt things continue to get even worse in those nations. 

But in 2014 and 2015, Italy and France will start to take center stage.  France has the 5th largest economy on the planet, and Italy has the 9th largest economy on the planet, and at this point both of those economies are rapidly falling to pieces.  Expect both France and Italy to make major headlines throughout the rest of 2014.  I have always maintained that the next major wave of the economic collapse would begin in Europe, and that is exactly what is happening.  The following are just a few of the statistics that show that an "economic collapse" is happening in Europe right now…

-The unemployment rate in the eurozone as a whole is still sitting at an all-time record high of 12.1 percent.

-It Italy, the unemployment rate has soared to a brand new all-time record high of 12.7 percent.

-The youth unemployment rate in Italy has jumped up to 41.6 percent.

-The level of poverty in Italy is now the highest that has ever been recorded.

-Many analysts expect major economic trouble in Italy over the next couple of years.  The President of Italy is openly warning of "widespread social tension and unrest" in his nation in 2014.

-Citigroup is projecting that Italy's debt to GDP ratio will surpass 140 percent by the year 2016.

-Citigroup is projecting that Greece's debt to GDP ratio will surpass 200 percent by the year 2016.

-Citigroup is projecting that the unemployment rate in Greece will reach 32 percent in 2015.

-The unemployment rate in Spain is still sitting at an all-time record high of 26.7 percent.

-The youth unemployment rate in Spain is now up to 57.7 percent – even higher than in Greece.

-The percentage of bad loans in Spain has risen for eight straight months and recently hit a brand new all-time record high of 13 percent.

-The number of mortgage applications in Spain has fallen by 90 percent since the peak of the housing boom.

-The unemployment rate in France has risen for 9 quarters in a row and recently soared to a new 16 year high.

-For 2013, car sales in Europe were on pace to hit the lowest yearly level ever recorded.

-Deutsche Bank, probably the most important bank in Germany, is the most highly leveraged bank in Europe (60 to 1) and it has approximately 70 trillion dollars worth of exposure to derivatives.

Europe truly is experiencing an economic nightmare, and it is only going to get worse.

It would be hard to put into words the extreme desperation that unemployed workers throughout Europe are feeling right now.  When you can't feed your family and you can't find work no matter how hard you try, it can be absolutely soul crushing.

To get an idea of the level of desperation in Spain, check out the following anecdote from a recent NPR article…

Having trouble wrapping your head around southern Europe's staggering unemployment problem?

 

Look no further than a single Ikea furniture store on Spain's Mediterranean coast.

 

The plans to open a new megastore next summer near Valencia. On Monday, Ikea's started taking applications for 400 jobs at the new store.

The company wasn't prepared for what came next.

 

Within 48 hours, more than 20,000 people had applied online for those 400 jobs. The volume crashed Ikea's computer servers in Spain.

Of course that should kind of remind you of what I wrote about yesterday.  We are starting to see this kind of intense competition for low paying jobs in the United States as well.

As global economic conditions continue to deteriorate, things are going to get even tougher for those on the low end of the economic food chain.  Poverty rates are going to soar, even in areas where you might not expect it to happen.  In fact, one new report discovered that poverty has already been rising steadily in Germany, which is supposed to be the strongest economy in the entire eurozone…

A few days before the Christmas holidays, the Joint Welfare Asso
ciation published a report on the regional development of poverty in Germany in 2013 titled “Between prosperity and poverty—a test to breaking point”. The report refutes the official propaganda that Germany has remained largely unaffected by the crisis and is a haven of prosperity in Europe.

 

According to the report, poverty in Germany has “reached a sad record high”. Entire cities and regions have been plunged into ever deeper economic and social crisis. “The social and regional centrifugal forces, as measured by the spread of incomes, have increased dramatically in Germany since 2006,” it says. Germany faces “a test to breaking point.”

Of course poverty continues to explode on this side of the Atlantic Ocean as well.  In the United States, the poverty rate has been at 15 percent or above for three years in a row.  That is the first time that this has happened since the 1960s.

And this is just the beginning.  The extreme recklessness of European banks such as Deutsche Bank and U.S. banks such as JPMorgan Chase, Citibank and Goldman Sachs is eventually going to cause a financial catastrophe far worse than what we experienced back in 2008.

When that crisis arrives, the flow of credit is going to freeze up dramatically and economic activity will grind to a standstill.  Unemployment, poverty and all of our current economic problems will become much, much worse.

So as bad as things are right now, the truth is that this is nothing compared to what is coming.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/kSneW2_EGWQ/story01.htm Tyler Durden

There is the full-time vs part-time jobs debacle, the questions over job-quality, the “no country for young workers” problem, and Bernanke’s “born-again jobs scam,” but nowhere is the real ‘recovery’ in American jobs less evident than in the actual number of employed males…

 

(h/t @Not_Jim_Cramer)

Tomorrow’s non-farm-payrolls data is once again the most important (and noise-prone manipulated) data item in the world – but few (aside from us) will be paying attention to the ongoing plunge in the labor force…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/3fJUiJINMlQ/story01.htm Tyler Durden

There is the full-time vs part-time jobs debacle, the questions over job-quality, the “no country for young workers” problem, and Bernanke’s “born-again jobs scam,” but nowhere is the real ‘recovery’ in American jobs less evident than in the actual number of employed males…

 

(h/t @Not_Jim_Cramer)

Tomorrow’s non-farm-payrolls data is once again the most important (and noise-prone manipulated) data item in the world – but few (aside from us) will be paying attention to the ongoing plunge in the labor force…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/3fJUiJINMlQ/story01.htm Tyler Durden

A month ago, we showed a chart of median household income in the US versus that just in the District of Columbia. The punchline wrote itself: “what’s bad for America is good for Washington, D.C.“

Today we got official verification that Bernanke’s wealth transfer in addition to benefitting the richest 1%, primarily those dealing with financial assets, also led to a material increase in the wealth of one particular subgroup of the US population: its politicians.

According to the OpenSecrets blog which conveniently tracks the wealth of America’s proud recipients of lobbying dollars, aka Congress, for the first time ever the majority of America’s lawmakers are worth more than $1 million.

Specifically, of 534 current members of Congress, at least 268 had an average net worth of $1 million or more in 2012, according to disclosures filed last year by all members of Congress and candidates. The median net worth for the 530 current lawmakers who were in Congress as of the May filing deadline was $1,008,767 — an increase from last year when it was $966,000. In addition, at least one of the members elected since then, Rep. Katherine Clark (D-Mass.), is a millionaire, according to forms she filed as a candidate. (There is currently one vacancy in Congress.)

Last year only 257 members, or about 48 percent of lawmakers, had a median net worth of at least $1 million.

Because who better to debate the class divide raging across the US thanks to the Federal Reserve’s $4+ trillion balance sheet than a room full of millionaires. On the other hand, perhaps it means they will be less bribable by “donations” and other lobbying funding…

… Yeah, we LOLed at that one too.

OpenSecrets was about as cynical as us: “Members of Congress have long been far wealthier than the typical American, but the fact that now a majority of members — albeit just a hair over 50 percent — are millionaires represents a watershed moment at a time when lawmakers are debating issues like unemployment benefits, food stamps and the minimum wage, which affect people with far fewer resources, as well as considering an overhaul of the tax code.”

“Despite the fact that polls show how dissatisfied Americans are with Congress overall, there’s been no change in our appetite to elect affluent politicians to represent our concerns in Washington, said Sheila Krumholz, executive director of the Center. “Of course, it’s undeniable that in our electoral system, candidates need access to wealth to run financially viable campaigns, and the most successful fundraisers are politicians who swim in those circles to begin with.”

Perhaps one could argue that a country drowning in poverty needs politicians who actually know the troubles that afflict the majority of the population first hand. Actually, according to folklore that is the Democrat party. So it may come as a surprise to some that the median net worth of the average Democrat at $1.1 million (an increase of 11.6% from 2011) is higher than that of any given Republican at just over $1 million, an increase of 10.3% from the prior year.

OpenSecrets breaks down the numbers further:

Congressional Democrats had a median net worth of $1.04 million, while congressional Republicans had a median net worth of almost exactly $1 million. In both cases, the figures are up from last year, when the numbers were $990,000 and $907,000, respectively.

 

The median net worth for all House members was $896,000 — that’s up from $856,000 in 2011 — with House Democrats (median net worth: $929,000) holding an edge over House Republicans (median net worth: $884,000). The median net worth for both House Republicans and Democrats was higher than in 2011.

 

Similarly, the median net worth for all senators increased to $2.7 million from $2.5 million, but in that body it was the Republicans who were better-off. Senate Democrats reported a median net worth of $1.7 million (a decline from 2011’s $2.4 million), compared to Senate Republicans, at $2.9 million (an increase from $2.5 million).

 

Senate Democrats were the only group reporting a drop in their median net worth from the prior year — a decline that is at least partly because of the loss of two extremely well-off Senate Democrats from the list: now-Secretary of State John Kerry, who had been the wealthiest senator with a 2011 average net worth of $248 million, and Sen. Frank Lautenberg (D-N.J.) who had an average net worth of $87.5 million before his death last year.

As we all know, some millionaires are richer than other millionaires. So who took the honors this year?

The richest member of Congress was, once again, Rep. Darrell Issa (R-Calif.) chairman of the House Oversight Committee. Issa, who made his fortune in the car alarm business, had an average net worth of $464 million in 2012. Issa had ruled the roost as the wealthiest lawmaker for several years but was bumped from that perch last year by Rep. Michael McCaul (R-Texas).

 

In our analysis last year, we estimated that McCaul’s 2011 average net worth was $500.6 million — a dramatic increase for him from the year before. McCaul’s affluence is primarily due to the holdings of his wife, Linda, the daughter of Clear Channel Communications Chairman Lowry Mays. McCaul took a dramatic tumble from the list’s pinnacle, reporting an average net worth of $143.1 million in 2012.

 

Shed no tears for McCaul, though: His drop wasn’t due to any great financial misfortune, but reflects changes in reporting rules. Beginning with reports covering calendar year 2012, high-value assets, income and liabilities belonging to the spouses of House members may be reported as being worth simply “$1 million or more.” Previously, the forms required somewhat more specific valuations. So, for example, on his 2011 disclosure McCaul reported that his wife owned a 10.1 percent interest in LLM Family Investments that was worth “more than $50 million.” Now, he reports that his wife’s share of the fund has increased to 12.2 percent, but he can list it as a “spousal asset over $1,000,000,” though it’s likely worth much more.

 

This methodological change (to a system the Senate already uses) also appeared to affect Rep. Chellie Pingree (D-Maine). On her disclosure form covering 2010, she reported having an average net worth of $750,000. Then in 2011 she married hedge fund manager Donald Sussman, which increased her average net worth for that year to $85.8 million. Her report for 2012 shows a dramatic decline, to $42.4 million, because of the new reporting rules.

 

The least wealthy member of Congress in 2012, at least on paper, was Rep. David Valadao (R-Calif.) — a slot he occupied the previous year as well. Valdao reported an average net worth of negative $12.1 million in 2012. That’s actually a big improvement from 2011, when his average net worth was negative $19 million. According to Valdao’s disclosure forms and our interviews with his staff last year, his debt is the result of loans for his family dairy farm.

 

The second-poorest member of Congress continued to be Rep. Alcee Hastings (D-Fla.), who for decades has owed millions of dollars for legal bills incurred in the 1980s, when he was charged with accepting a bribe while sitting as a federal judge. As we noted last year, Hastings was acquitted, but later impeached and removed by the Senate before running for Congress in 1992. His level of debt has not changed since 2005.

 

Although more members of Congress are millionaires than ever before, and the median net worth for all lawmakers is higher than ever, their total net worth — the value of all their assets minus liabilities — fell from $4.2 billion in 2011 to $3.9 billion in 2012. Again, that could be at least partly due to the change in the House reporting requirements for spousal assets and liabilities.

Finally there is a question of which financial assets America’s millionaire legislators mostly own. The answer should surprise nobody, and will probably also explain the perverted and very symbiotic relationship between the US financial system and the governing class.

General Electric continued to be the most popular investment for current members of Congress. In 2011, there were 71 lawmakers who reported owning shares in the company; in 2012, there were 74. The second most popular holding was the bank Wells Fargo, in which 58 members owned shares (up from 40 in 2011). Financial firms were well-represented in the 10 most popular investments: Bank of America came in sixth (51 members) and JPMorgan Chase was seventh (49 members). Both companies had more congressional investors than in 2011 (11 more for Bank of America and 10 more for JPMorgan Chase.)

 

Of course, the public can surely expect Congress to pass legislation that would imperil their financial investments. Surely.

And finally, why reflating the housing bubble is on top of the agenda for not only Bernanke, but Congress as well:

Overall, though, real estate was the most popular investment for members of Congress. Their investments in real estate in 2012 were valued at  between $442.2 million and $1.4 billion. The next most popular industry to invest in was securities and investment, with congressional investments being worth between $64.5 million and $229.6 million.

In conclusion: Congratulations to America’s millionaire politicians. May they enjoy it in health while it lasts. The wealth that is… and the health.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EDjfcXGLNTA/story01.htm Tyler Durden