Month: March 2014

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Submitted by Zachary Zeck via The Diplomat,

 

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Submitted by Peter Schiff of Euro Pacific Capital,

Everyone agrees that the winter just now winding down (hopefully) has been brutal for most Americans. And while it's easy to conclude that the Polar Vortex has been responsible for an excess of school shutdowns and ice related traffic snarls, it's much harder to conclude that it's responsible for the economic vortex that appears to have swallowed the American economy over the past three months. But this hasn't stopped economists, Fed officials, and media analysts from making this unequivocal assertion. In reality the weather is not what's ailing us. It's just the latest straw being grasped at by those who believe that the phony recovery engineered by the Fed is real and lasting. The April thaw is not far off. Unfortunately the economy is likely to stay frozen for some time to come.   

Over the past few weeks, I have seen just about every weak piece of economic news being blamed on the weather. First it was lackluster retail sales that were chalked up to consumers being unable or unwilling to make it to the mall. (This managed to ignore the fact that online sales were similarly weak – which would be unexpected for a nation of snowed in consumers). Then came the weak auto sales that were ascribed to similarly holed up potential car buyers. However, this ignores that while GM and Chrysler sales were way down, sales for luxury cars like BMW, Mercedes and Maserati, surged to record high levels (more on that later). No one offered a reason why wealthier motorists were able to brave the cold. A number of other data points, such as lower GDP, productivity, ISM and factory orders were also ascribed to the elements.

Analysts also blamed the weather for weak housing sales and mortgage applications, which both hit multi-year lows. The idea being that hibernating buyers could not get to real estate open houses or to the bank to process loans. This idea ignores the fact that the weakest home sales over the last few months have come from the states west of the Rockies, where temperatures have been above average.

Of course the biggest weakness ascribed to the snow and ice has been the very disappointing employment reports over the last few months. Analysts faced a very difficult task in squaring these reports, which showed fewer than 187,000 new jobs created in December and January combined, with the accepted narrative that the recovery was firmly underway and that the economy was no longer dependent on the Fed's monetary support.

For these desperate economists the weather was a godsend. Mark Zandi had virtually guaranteed that job creation was being deferred by the weather and that hiring would come roaring back once the mercury started rising. The weather has become such a handy and versatile tool for economic apologists that we may expect that financial news stations will start featuring meteorologists more heavily than financial analysts. Move over Jim Cramer, hello Al Roker.

The weather continued to be horrible in February and as a result, there were wide expectations that today's February jobs report would be similarly bleak. But yesterday's release detailed a slightly better than expected 175,000 new jobs, thereby convincing economists that the economy was so strong that it is overcoming the drag created by the weather. This lays aside the fact that 175,000 jobs should not be causing any optimism. After years of sub-par job growth, I believe a recovering economy would be expected to create more than 300,000 jobs per month in order to make a real dent in underemployment. Those levels, once routine in past decades, seem untouchable today. But weather-related pessimism had caused economist to ratchet down their predictions to just 150,000 jobs in February. Based on that, today's numbers were seen as a win.

But economists are ignoring the likelihood that the weather was never a major factor. Take the cold out of the equation and you would be left with a mediocre February number following two consecutive monthly disasters. This does not change the downward trajectory. In fact, the number may be revised lower in future months, as has been the norm in the years since the economic crisis began.

Drilling deeper into the report will provide little reason for optimism. The labor force participation rate stayed at a generational low and the unemployment rate edged up. On the other hand, the long-term unemployed (those out of work for more than 27 weeks) increased by 203,000 to 3.8 million. Furthermore, over half of the jobs created were low-paying or part-time jobs in education, health care, leisure and hospitality, government, and temporary services. Higher paying information jobs declined by another 16,000 following last month's 8,000 loss, and manufacturing added a scant 6,000 jobs.

The report also contained data that shows how older workers are coming out of, or postponing retirement. This trend is likely caused by inadequate savings rates, low interest rates, and increases in the cost of living that are rising faster than official CPI numbers. Not only does this point to falling living standards, but the jobs being taken by these older workers would normally be filled by younger, less skilled workers, who are left unemployed, buried beneath a pile of student debt and living in their parent's basements.

In truth, economic activity persists in good weather and bad. Winter is largely predictable. It comes around once a year, basically on schedule. Consumers are used to the patterns and know how to deal with them. But don't tell this to today's economists.

A much more plausible explanation to me is that the economy has been weak recently because it is weak fundamentally. The data deterioration corresponds not just to unseasonably low temperatures but also to the diminishment of monthly QE from the Federal Reserve. If you recall the highly anticipated "taper" finally began in mid- December. From my perspective the Quantitative Easing has become the sunshine that drives our phony economy. Diminish that sunshine and the economic winter spreads.

But the sad fact is that QE can push up prices in stocks and real estate, but can do very little to affect positive change in the real economy. That's why I believe that BMW's are selling like hotcakes even as Chevies sit on the lot. Our current policies help the wealthy at the expense of everybody else. Unfortunately, I don't think the economy will improve as long as the QE keeps us locked into a failing model. What's worse, once the weather warms and the economy does not, look for Janet Yellen to first taper the taper, then to reverse the process completely.

So be very wary of the rationalizations that come from economists. I believe they are being used to hide the truth. I just can't wait to see the excuses they come up with once the flowers start blooming in April. They will be doozies.

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Presented with little comment aside to note that when ‘work is punished’ the demise of ‘opportunity’ will continue…

 

The painful reality in America: for increasingly more it is now more lucrative – in the form of actual disposable income – to sit, do nothing, and collect various welfare entitlements, than to work.

And that trend appears to be accelerating as more and more men drop out of the workforce…

and the demise of opportunity continues unabated…

 

… “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement” regardless of social class or circumstances of birth (or amount of stock ownership).

 

h/t @Not_Jim_Cramer

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Authored by Kristina Wong and Jeremy Herb, originally posted at The Hill,

If there is a new cold war with Russia, many observers believe the U.S. is losing it.

First under President George W. Bush and now under President Obama, the U.S. and Vladimir Putin’s Russia have engaged in a series of foreign policy battles — and Putin has repeatedly got his way.

The Russian president’s objective is clear. He wants to reassert Russia’s influence in Eastern Europe while preventing NATO’s further expansion toward Russia, said Erik Brattberg, a resident fellow at the Atlantic Council.

Diplomatic fights over Syria in 2013 and Russian’s military clash with Georgia in 2008 have given Putin confidence in the current fight over Russia’s invasion of Crimea, a region in eastern Ukraine with long ties to Moscow. 

“He's counting that there would be no significance response from the U.S. and the European Union and so far he’s been right,” Brattberg said. 

Lawmakers and experts across the political sphere warn that if the Obama administration and its western allies are not effective in dealing with Putin this time, it could have serious consequences going forward.

And the dangers go beyond Putin.

China is closely monitoring what’s going on, Brattberg said, and could become more assertive in territorial disputes with its neighbors if it sees the West back down from Russia.

Of particular concern is a small group of islands in the South China Sea that both China and Japan claim, he said. If China were to use military force against Japan, the U.S. would be contractually bound to defend it. 

“It’s not like the Chinese are sitting there [thinking], ‘What can we take tomorrow that we maybe thought we couldn’t do a month ago,’” said Gary Schmitt, a resident scholar at the conservative-leaning American Enterprise Institute. 

“It’s more the case that some incident will happen and they’ll calculate: “Look, the U.S. really isn’t going to react,’ and they’ll take advantage of that situation,” he said. 

Putin has arguably emerged as the victor in a series of confrontations with the U.S.

In 2008, Putin caught U.S. officials flatfooted and annexed Georgian territory without serious repercussions, according to a recent interview in the Washington Post with Daniel Fata, deputy assistant secretary of defense for European and NATO policy from September 2005 to September 2008.

Last August, Russia thumbed its nose at the U.S. by granting former National Security Agency contractor Edward Snowden asylum after he leaked classified material to the press and fled the country. 

In September, Putin got the U.S. to back down from military strikes against ally Syrian dictator Bashar Assad, by brokering a last-minute deal to destroy Syria’s chemical weapons.

The deal had the advantage to Russia of ensuring Assad could stay in power, and since the deal Assad has solidified his control of the country.

Although Russia's invasion of Georgia happened during the Bush Administration, Brattberg said Putin views Obama as particularly weak and his "reset" policy as naive.

“Putin sees Obama as a weak leader. I would point to Syria in particular. We drew a red line and didn’t back it up,” he said. 

The administration has pushed back at such criticisms, with Obama this week saying Russia’s actions were a sign of weakness that would isolate the country.

The administration has taken several steps to make that happen.

The U.S. has sent six additional F-15 fighter jets to Poland to bolster a NATO air policing mission, and announced sanctions and visa restrictions that could be imposed on Russian leaders and entities found to have threatened Ukraine’s sovereignty.

But the efforts appear to have done little to slow Russia down.

Crimea’s autonomous parliament appears to be moving ahead with a vote to secede from Ukraine and join Russia. A referendum is planned on March 16.

Schmitt said that for the United States to turn the tide, it should take stronger steps such as admitting Ukraine into NATO or sanctioning Russia’s gas exports. 

“The legacy [for Russia] would look like: ‘It looked good at the time but now it looks like we really stepped into it,’” Schmitt said.

Brattberg said the U.S. should be doing more to lead and unify a fragmented European Union. 

“There has been some disconnect over sanctions between some European Union countries, and there is the need for the U.S. to really show leadership and lead them in the same direction,” he said. 

Critics doubt the administration can provide this leadership at a time it is looking to focus on domestic policy, end the war in Afghanistan, and pivot to the Asia Pacific. 

At the SASC hearing earlier this week, Republican senators decried shrinking defense spending as a part of the U.S’s GDP at a time when the U.S. was being challenged by Russia and China.

The White House’s 2015 budget request, unveiled earlier this week, would hold defense spending nominally flat for a third year and a decline in real terms.

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1-800-TaylorMade or 1-900-Vladimir? You decide…

 

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For the past few weeks we have seen stock markets surge as macro-economic data has collapsed around the world. The ‘excuse’ given for this apparent dichotomy – weather. But now it seems “weather” is to blame for other problems in the world too. As Russia Today reports, in its latest Quadrennial Defense Review, the US Department of Defense (DoD), stressed threats to global stability and American hegemony posed by climate change warning that that an erratic climate will likely cause increased “terrorist activity,” among other impacts…“The pressures caused by climate change will influence resource competition while placing additional burdens on economies, societies, and governance institutions around the world…these effects are threat multipliers.”

 

Via Russia Today,

Like the 2006 and 2010 versions, the 2014 Quadrennial Defense Review (QDR) – a report released every four years on US military strategy and the challenges to its global operations – highlights threats, some more predictable than others, that global climate change will present to human civilization.

 

“The impacts of climate change may increase the frequency, scale, and complexity of future missions, including defense support to civil authorities, while at the same time undermining the capacity of our domestic installations to support training activities,” states the 64-page report, published Tuesday.

 

“Climate change poses another significant challenge for the United States and the world at large. As greenhouse gas emissions increase, sea levels are rising, average global temperatures are increasing, and severe weather patterns are accelerating.”

 

A warming planet will likely “exacerbate water scarcity and lead to sharp increases in food costs,” the report details, leading to devastated infrastructure and living conditions, especially in poorer regions of the world.

 

In addition, this fierce “resource competition” will only push the likelihood of additional terror threats, the QDR states.

 

“The pressures caused by climate change will influence resource competition while placing additional burdens on economies, societies, and governance institutions around the world,” the report continues.

 

“These effects are threat multipliers that will aggravate stressors abroad such as poverty, environmental degradation, political instability, and social tensions – conditions that can enable terrorist activity and other forms of violence.”

Perhaps more ironically, despite identifying climate change as a global menace and an antagonist to American power, the Defense Department does not address its own unrivaled fuel consumption.

According to the Pentagon’s Defense Energy Support Center, the military spent $3.8 billion in 2009 for 31.3 million barrels, or about 1.3 billion gallons, of oil that was consumed at posts, camps, and overseas bases, TomDispatch’s Nick Turse reported in 2010.

 

Estimates as to how much oil the US military uses per day varies between about 400,000 barrels per day in “peacetime” to around 800,000 barrels each day during the height of the Iraq war.

Bad economic data, blame the weather! Bad earnings, blame the weather! Bad Social Unrest, blame the weather!

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