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While funding custom-fit condoms was stretching the government’s buck just a little too far for some, the following 5 stunning expenses, earmarks, and pork spending that Bloomberg uncovered are mind-blowing. From over $500,000 on pet shampoo to what to eat on planet Mars; none of these compare with the back-pay for no work paid to Federal employees during the shutdown. Watch this 72 seconds of gluttony without throwing something at your monitor…
via Zero Hedge http://ift.tt/1at4VQc Tyler Durden
By EconMatters
Checks & Balances
If you think about it, the President has checks and balances, the Supreme Court has checks and balances, and even the two houses of Congress have checks and balances. However as we have seen with the last 5 years of Fed policy that there is no actual checks and balances for what the Federal Reserve can and cannot do with regard to monetary policy, and there should be.
It might not be so apparent now, but it sure will be five years from now when all is evaluated. The big takeaway will be how in the heck did we let the Federal Reserve conduct all of these ad-hoc policy initiatives with some obvious detrimental effects and unintended consequences for financial markets and the US economy?
Where would Markets Go without $75 Billion assistance each month?
Let us start with the most obvious detriment to financial markets the bubble that is the US equities market. Despite what Goldman Sachs says with their double speak to appease wealthy clients who they told to be invested in markets last week and this week said the markets are 10% over-valued, but there is no bubble – there is in fact a bubble in stocks.
Seems like a Bubble
The barometer to use is this: If the Fed stopped cold turkey tomorrow all asset purchases, the Dow would drop 3,500-4,000 points in less than a year (maybe even as little as 6 months), and this is a conservative 25% drop in value just in the short term.
If they were never allowed to intervene in financial markets with asset purchases ever again, eventually markets would fall back to sustainable levels, and all the previous liquidity fueled price appreciation in equities of the last 5 plus years would eventually come out of assets like stocks and real fundamental value would be established.
My guess is that the Dow would fall back to around the 1,000 level on its own merits over the next 3 years with no asset purchases whatsoever by the Federal Reserve, something in the order of a 40% drop in value.
Bond Market: A Debt Risk Valuation Mechanism
The Bond market is intended for debt to be issued by parties with parties independent of the debt issuers to then determine a fair market price for the risk of holding said debt in the marketplace, and not a social instrument for creating additional liquidity in financial markets which finds its way into the equities, commodities and currency markets via carry trade liquidity driven fund flows.
It is supposed to be a risk profiler to keep governments and issuers in check in regard to issuing responsible debt at appropriate times. When debt levels reach unsustainable levels, a healthy and natural bond market prices risk accordingly; thereby incentivizing necessary changes to fiscal and monetary policies.
This mechanism has been greatly distorted by Fed policy, and the long-term consequences are hard to adequately calculate at this point, but they are definitely a cost – the debate is just how high a cost?
Stock Market: A Valuation Mechanism
The most important point is this the stock market was intended to be a valuation mechanism for public companies based upon how well their business was being run, the economics of their given business paradigm, and the health of the broader macro-economic fundamentals of the market for their goods and services.
Social Engineering Instrument
It was not built as an instrument for social engineering, manipulation by a government entity, or tool to be used for monetary policy; private companies went public to raise additional financing for their capital structure to grow the business, and the market put a value on the business based upon the future prospects of the given business.
It was never intended as a risk free enterprise. Companies were going to fail, investors were going to lose money; others would flourish, investors would reward these companies with higher stock prices. Fundamentally, the market mechanism would both reward and punish based upon actual operating results of the companies.
This is how a healthy financial market is supposed to work, and we have devolved so far from this healthy and natural market valuation model that there cannot without question be major price discovery distortions in stocks, as in, a bubble in stocks, and the stock market pricing mechanism in general!
The Fed has positively incentivized the more Nefarious Elements of Stock Buybacks
Stock buybacks are bad enough, and have distorted operating results considerably with artificially making earnings appear better than they actually are, it provides incentives for other investors to front-run these company buybacks, and they are not being used properly these days by companies, i.e., buying back when shares are cheap relative to company prospects, and selling shares when they are expensive relative to company prospects – again a natural valuation mechanism.
Instead they are being utilized by management to distort prices not because business prospects are so bright, but rather they can borrow cheaply right now ( again thanks to the Fed) and artificially boost their own stock prices and make shareholders happy in their performance of running and managing the company.
Stock buybacks have in a sense become so perverted from their original purpose that they have become payoffs to like and invest in the company, not because the company is performing so well from an operation`s standpoint, but because they are going to buy back their own stock. It becomes both a deterrent for shorting the stock, and sort of ‘mafia bribe’ for shareholders to invest in the company.
Remember, this isn`t even company money, these companies are borrowing to buy back shares! This is fundamentally as screwed up from a management standpoint as one can get, one should borrow money to grow the business and create long-term value, not create balance sheet liabilities for the company solely for the purpose of juicing up the company`s stock price!
This further distorts actual natural market pricing in stocks, there is no actual business evaluation going on currently in financial markets, there are just liquidity injections or price distorting practices.
Textbook Definition of Bubble: Non Market Price Discovery
Moreover, since all these liquidity injection practices are from the long side, it would stand to reason that value is being distorted heavily to the upside, this is about as close to the text book definition of a bubble that one could possibly create, and the Federal Reserve is at the heart of doing just this act!
The stock market I repeat is supposed to be an evaluator of companies, and not a social welfare program to bring about some higher good for economy policy.
Even if they succeeded in creating a short-term wealth effect for a portion of the population that ended up trickling down to some small extent to the broader economy, the damage to the already shaky financial markets that have crashed three times in fifteen years from a long-term perspective is just a case of the Fed overstepping their bounds and destroying financial markets in the process! On any reasonably weighted Cost/Benefit Analysis this is just too high a price to pay!
Do not Trust Anything an I-Bank says for Public Consumption
Goldman Sachs like many of these investment banks have benefited immensely from the Fed overstepping their bounds in financial markets with asset purchases, they are never going to openly tell the American public whether there is a bubble in stocks.
In fact, they have a long history of not even telling their own clients their actual feelings on markets. And given how many times these investment banks have royally screwed up their own financial investments, half of them probably have no clue of the conditions ripe for constituting a bubble in the first place until after the fact!
Precedents & Moral Hazard
The real overstepping by the Federal Reserve to actually buying up financial assets has severely distorted the market process, and the long-term damage to what financial markets are supposed to be about from an overall philosophy, fundamental and mechanical methodology standpoint with the associated costs is really incalculable.
How do you put a value on destroying natural price discovery in financial markets? You cannot, so despite the current size of the bubble the fed has created short-term, the long-term bubble of completely destroying actual price discovery in financial markets by being able to step in and buy financial assets in markets is the real harm here.
Moreover, that this act has become acceptable fed policy turf, this precedent and the fact that there were no proper checks and balances to restrict and question this intervention is the harmful and malicious fallout that will inevitably become the Bernanke Legacy.
Either Markets are forever Annual Social Welfare Policy Programs or Legislation is Required to Restrict future Fed Intervention in Financial Markets with intermittent Asset Purchases
There are many other measures the Fed could entertain instead of the path that Bernanke chose in destroying forever the concept of what constitutes a market mechanism.
Consequently unless the Fed has forever changed what markets actually are, social good mechanisms for government wealth creation, and that means a socialized commitment for eternity, i.e., the market must appreciate 10% every year regardless of broader economics or fundamentals.
Then they have caused more damage by creating a short-term bubble that is unsustainable on its own, and have set the stage for future ad-hoc interventionist asset purchases in markets on equally subjectivist timeframes and justification!
This is the real area where the Fed is guilty of overstepping its bounds. They have forever destroyed financial markets with interventionist policies, and future legislation will have to be created to limit the Fed`s power in this area, and restore financial markets back to their intended purpose.
Yes financial markets are built and intended to fail at times, once they are no longer allowed to fail, they become state tools for policy outcomes. And this reality is a bigger failure in a democratic state, than any short-term and well-meaning goals that result from such policies.
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via Zero Hedge http://ift.tt/1dUmyWN EconMatters
After the Chinese news/rumors that pummeled NU Skin the last 2 days, the company has finally been forced to make a statement…
After being halted on news pending, NUS was re-halted upon re-opening, plunged further, and is now re-halted down $45 (39%. Herbalife (down 12%) and USANA (down 12%) are also tumbling on this news.
Bouncing now…
NUS Statement:
Nu Skin Enterprises, Inc. (NYSE: NUS) today issued the following statement in regards to its China business.
“We are aware that Chinese regulators have now initiated investigations to review issues raised by recent news reports. The government regularly monitors all businesses in this rapidly growing marketplace, and as is our practice, we will continue to communicate openly with regulators to address any questions they may have.
“As part of our ongoing commitment to comply with all applicable Chinese regulations, we have initiated our own province-by-province business review and will invite relevant regulators to provide guidance. Given the substantial growth in our China salesforce over the last year, we are also taking additional steps to reinforce our training and education efforts. As we work through this evolving situation and remain focused on long-term growth, there will likely be a negative impact on China revenue, but it is too early to know whether our previous guidance will be affected.
“We remain committed to working cooperatively with the government to ensure long-term, sustainable growth in this important market. Nu Skin has an 11-year history of doing business in China. We are dedicated to operating in full compliance with all applicable regulations as interpreted and enforced by the government of China.”
Here’s who is hurting the most…
But the analysts still love it..
Though getting out, or in may be tricky: 4 halts so far and counting.
via Zero Hedge http://ift.tt/1dUmvtZ Tyler Durden
From GMO via Wells Fargo
“I’ve got plenty of common sense … I just choose to ignore it.”
– Calvin, from Calvin and Hobbes
By the time the Times Square ball landed, U.S. equity markets had closed the books on one of the best years in recent history. Oecember’s further rise of 2.5% put the capstone on an amazing year for the S&P 500 Index, which finished 2013 up 32.4%. New historic highs on this index were reached routinely throughout the month. Small-cap stocks, as represented by the Russell 2000® Index, added 2% in Oecember to finish the calendar year up a remarkable 38.8%. Yes, you read that correctly: Small-cap stocks rose almost 40% in a single year.
The “common sense” justifications for these dramatic moves are now well documented. The Federal Reserve (Fed) model, which compares earnings yields on the S&P 500 Index (the inverse of price/earnings) with the Treasury yield, clearly signals to load up on stocks. Common sense also tells us that profit margins are at an all-time high, so clearly it’s a good time to be buying stocks. Yellen’s dovish background, common sense tells us, is yet further reason to expect continued loose monetary policy and accommodation. And, finally, common sense dictates that recent upward gross domestic product (GOP) revisions, lower unemployment numbers, and a successful holiday retail season, means that of course it’s time to load up on stocks.
Here’s the problem: We don’t buy the common sense. And so, like the philosopher boy above, we choose to ignore it. We suggest you do the same, but for good reason.
First, the Fed model, while intuitively appealing, is a relative measure. Yes, bond yields are ridiculously and artificially low, so of course earnings yields are going to look attractive on a relative basis. But we’re trying to make money in an absolute sense, not a relative one. What if bonds and stocks are BOTH overpriced? Then what? Oh, and one more inconvenient truth-the Fed Model’s track record of forecasting future returns is actually quite abysmal.
Second, yes, we’ll concede that profit margins are at all-time highs-an undeniable fact. Here’s the problem: Profit margins are reliably mean-reverting, which means that hitting an all-time high is not a cause for celebration but just the opposite-a reason to be afraid.
Third, yes, quantitative easing can continue for some time, maybe even decades. But that isn’t a reason to get excited about stocks. In fact, we believe quite the opposite. What it means is that if that is true (and we don’t believe that it will be), then we’ve got much bigger problems on our hands because stock returns going forward are going to be dismally below what they’ve delivered for the past 150 years of our modern industrial society.
And finally, ah, yes, GOP growth! Too bad GOP growth has historically had zero to mildly negative correlation with stock market returns. In other words, even if GOP growth is resuscitated, even if 2014 turns out better than we thought, so what! Economic growth-across developed countries, across emerging countries, across time-has told us absolutely nothing about future stock market returns. Sorry to deliver the bad news.
So, we ignore common sense and instead rely upon the unconventional wisdom of, you guessed it, valuation. Rather than load up on stocks, we remain cautious and nervous because, from a valuation perspective, U.S. stocks look downright frothy. And, if the global markets continue to rally into 2014 and beyond, it is more likely that we’ll trim. By the end of November, our official seven-year forecast for the S&P 500 Index was -1.3 (real) and our forecast for small-cap stocks, at 4.5%, is worse than it was during most of 2007. Quality, a large position in the fund, has also seen its forecast come down as it, too, has had quite a nice run. Forecasts for quality are still quite positive, so we’re happy to continue owning these stocks but becoming less happy by day. Outside of the U.S., the only groups that we are somewhat optimistic about are value stocks, particularly in Europe, and emerging equities, which we think are priced to deliver 3.4% annually over the next seven years.
via Zero Hedge http://ift.tt/1eVcOO5 Tyler Durden
From GMO via Wells Fargo
“I’ve got plenty of common sense … I just choose to ignore it.”
– Calvin, from Calvin and Hobbes
By the time the Times Square ball landed, U.S. equity markets had closed the books on one of the best years in recent history. Oecember’s further rise of 2.5% put the capstone on an amazing year for the S&P 500 Index, which finished 2013 up 32.4%. New historic highs on this index were reached routinely throughout the month. Small-cap stocks, as represented by the Russell 2000® Index, added 2% in Oecember to finish the calendar year up a remarkable 38.8%. Yes, you read that correctly: Small-cap stocks rose almost 40% in a single year.
The “common sense” justifications for these dramatic moves are now well documented. The Federal Reserve (Fed) model, which compares earnings yields on the S&P 500 Index (the inverse of price/earnings) with the Treasury yield, clearly signals to load up on stocks. Common sense also tells us that profit margins are at an all-time high, so clearly it’s a good time to be buying stocks. Yellen’s dovish background, common sense tells us, is yet further reason to expect continued loose monetary policy and accommodation. And, finally, common sense dictates that recent upward gross domestic product (GOP) revisions, lower unemployment numbers, and a successful holiday retail season, means that of course it’s time to load up on stocks.
Here’s the problem: We don’t buy the common sense. And so, like the philosopher boy above, we choose to ignore it. We suggest you do the same, but for good reason.
First, the Fed model, while intuitively appealing, is a relative measure. Yes, bond yields are ridiculously and artificially low, so of course earnings yields are going to look attractive on a relative basis. But we’re trying to make money in an absolute sense, not a relative one. What if bonds and stocks are BOTH overpriced? Then what? Oh, and one more inconvenient truth-the Fed Model’s track record of forecasting future returns is actually quite abysmal.
Second, yes, we’ll concede that profit margins are at all-time highs-an undeniable fact. Here’s the problem: Profit margins are reliably mean-reverting, which means that hitting an all-time high is not a cause for celebration but just the opposite-a reason to be afraid.
Third, yes, quantitative easing can continue for some time, maybe even decades. But that isn’t a reason to get excited about stocks. In fact, we believe quite the opposite. What it means is that if that is true (and we don’t believe that it will be), then we’ve got much bigger problems on our hands because stock returns going forward are going to be dismally below what they’ve delivered for the past 150 years of our modern industrial society.
And finally, ah, yes, GOP growth! Too bad GOP growth has historically had zero to mildly negative correlation with stock market returns. In other words, even if GOP growth is resuscitated, even if 2014 turns out better than we thought, so what! Economic growth-across developed countries, across emerging countries, across time-has told us absolutely nothing about future stock market returns. Sorry to deliver the bad news.
So, we ignore common sense and instead rely upon the unconventional wisdom of, you guessed it, valuation. Rather than load up on stocks, we remain cautious and nervous because, from a valuation perspective, U.S. stocks look downright frothy. And, if the global markets continue to rally into 2014 and beyond, it is more likely that we’ll trim. By the end of November, our official seven-year forecast for the S&P 500 Index was -1.3 (real) and our forecast for small-cap stocks, at 4.5%, is worse than it was during most of 2007. Quality, a large position in the fund, has also seen its forecast come down as it, too, has had quite a nice run. Forecasts for quality are still quite positive, so we’re happy to continue owning these stocks but becoming less happy by day. Outside of the U.S., the only groups that we are somewhat optimistic about are value stocks, particularly in Europe, and emerging equities, which we think are priced to deliver 3.4% annually over the next seven years.
via Zero Hedge http://ift.tt/1eVcOO5 Tyler Durden
We have long held that Africa is a crucial region of the world in the near future because there is no more incremental debt capacity at any level: sovereign, household, financial or corporate – in any other region. As we noted previously:
without the ability to create debt out of thin air, be it on a secured or unsecured basis, the ability to “create” growth, at least in the current Keynesian paradigm, goes away with it. Yet there is one place where there is untapped credit creation potential, if not on an unsecured (i.e., future cash flow discounting), then certainly on a secured (hard asset collateral) basis. The place is Africa, and according to some estimates the continent, Africa can create between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral.
Africa is precisely where the smart money (and those who quietly run the above mentioned “power echelons”), namely China and Goldman Sachs, have refocused all their attention in the past year precisely because they both realize that Africa is the last and only bastion of untapped credit growth and capacity.
Africa in geographical perspective…
So it is perhaps unsurprising that China’s current arch-enemy Japan – and its apparently bottomless well of printed money – are taking aim also…
Submitted by Shannon Tiezzi, via The Diplomat,
As tensions between China and Japan multiply, there is an increasing battle for influence in other states. For example, in his recent article in The Diplomat, Jin Kai noted China and Japan’s global media war. There has also been an upswing in more traditional diplomatic wrangling, with Japan seeking to increase its influence in ASEAN as an attempt to reduce China’s sway in the region. With both China and Japan seeking to assert their leadership over the Asia-Pacific, it makes sense that both countries would woo ASEAN. It’s a bit more surprisingly to see China-Japan diplomatic competition supposedly pop up in Africa.
Recently, China’s Foreign Minister Wang Yi and Japan’s Prime Minister Shinzo Abe both visited the African continent. Abe left on January 9 for a week-long tour of the Ivory Coast, Mozambique, and Ethiopia. Meanwhile, Wang was in Africa from January 7 to January 11, visiting Ethiopia, Djibouti, Ghana, and Senegal. Given the current chill in China-Japan relations (and the tendency for both countries to snipe at each other in the media), the two trips quickly morphed into a sign of ‘competition’ over Africa.
Both countries rejected the idea that they were competing. When Chinese Foreign Ministry spokesperson Hua Chunying was asked to comment on the idea that Wang Yi’s visit to Africa “is directed against Japan,” she responded that anyone harboring this idea “is not so acquainted with the past and present of China-Africa relations.” Indeed, as Hua pointed out, it’s traditional for Chinese Foreign Ministers to visit Africa as their first overseas trip of the new year. Hua praised China “sincere and selfless help” for Africa, and warned that trying to stir up a rivalry in Africa is “a wrong decision which is doomed to fail.” This comment was likely directed at Japan, but could just as easily apply to the United States and other countries seeking to increase their influence in Africa.
Japan also denied that Abe’s visit to Africa had anything to do with China. Hiroshige Seko, a deputy chief cabinet secretary, was quoted in an Associated Press article as saying that competing against China is “not our intention at all.” Seko added, “As far as the African nations are concerned, they are important regardless of China.” African countries are important to Japan for the same reason they are to China — a wealth of natural resources as well as ample opportunity for foreign investment. The New York Times pointed out that increasing ties with Africa is just one aspect of Abe’s diplomatic strategy, all of which is designed to support “Abenomics.”
In a speech in Ethiopia, Abe reaffirmed Africa’s importance. “A considerable number of Japanese believe that Africa is the hope for Japan,” he said. His speech focused almost entirely on the potential for a positive relationship between Africans and Japanese companies — including how Japanese management strategies can benefit African people. “When Japanese companies that value each and every individual come to Africa, a win-win relationship in the truest sense can emerge,” Abe said. By contrast, his vision of the Japanese government’s role in Africa seemed like an afterthought. Abe did discuss his wish for more cooperation with the African Union, and offered to increase Japans’ assistance and loans to the continent, but he spent far less time on this point than on extolling the virtues of Japanese businesses.
Japan’s strategy, in other words, is economically focused. It’s clear that Abe’s pursuit of a relationship with Africa is closely connected with Japanese businesses. China, on the other hand, constantly emphasizes the “friendship” between its government and those of African nations. Though Chinese companies do big business in China, Beijing almost never alludes to this fact in its official remarks. When joint projects (such as roads or government buildings) are brought up, these projects are always a sign of China’s friendship towards Africa.
Accordingly, in his speeches Wang Yi focused on the government-to-government relationships between China and African nations. In Senegal, Wang called for both countries “to firmly support each other’s core interest[s] and major concerns.” In Ghana, he spoke about the need “to promote practical cooperation through strengthening traditional friendship.” China’s relationships with African countries are focused not just on business opportunities (although of course that’s an important aspect) but also on gaining African diplomatic support for China’s policies.
Whereas Abe seems content to have Japanese businesses make profits, China is actively pursuing soft power on the continent. This is nothing new for China. A 2013 study by Gustavo Flores-Macías and Sarah Kreps of Cornell University found that, since the mid-1990s, China has been quite successful at parlaying its trade relationships in Africa and Latin America into tangible foreign policy support. Japan doesn’t seem to be seeking this sort of influence (at least, not yet). Instead, Abe is more openly concerned with increasing economic interactions. While China and Japan may look like they’re competing in Africa, the two countries are actually playing different games.
via Zero Hedge http://ift.tt/1dxArxw Tyler Durden
We have long held that Africa is a crucial region of the world in the near future because there is no more incremental debt capacity at any level: sovereign, household, financial or corporate – in any other region. As we noted previously:
without the ability to create debt out of thin air, be it on a secured or unsecured basis, the ability to “create” growth, at least in the current Keynesian paradigm, goes away with it. Yet there is one place where there is untapped credit creation potential, if not on an unsecured (i.e., future cash flow discounting), then certainly on a secured (hard asset collateral) basis. The place is Africa, and according to some estimates the continent, Africa can create between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral.
Africa is precisely where the smart money (and those who quietly run the above mentioned “power echelons”), namely China and Goldman Sachs, have refocused all their attention in the past year precisely because they both realize that Africa is the last and only bastion of untapped credit growth and capacity.
Africa in geographical perspective…
So it is perhaps unsurprising that China’s current arch-enemy Japan – and its apparently bottomless well of printed money – are taking aim also…
Submitted by Shannon Tiezzi, via The Diplomat,
As tensions between China and Japan multiply, there is an increasing battle for influence in other states. For example, in his recent article in The Diplomat, Jin Kai noted China and Japan’s global media war. There has also been an upswing in more traditional diplomatic wrangling, with Japan seeking to increase its influence in ASEAN as an attempt to reduce China’s sway in the region. With both China and Japan seeking to assert their leadership over the Asia-Pacific, it makes sense that both countries would woo ASEAN. It’s a bit more surprisingly to see China-Japan diplomatic competition supposedly pop up in Africa.
Recently, China’s Foreign Minister Wang Yi and Japan’s Prime Minister Shinzo Abe both visited the African continent. Abe left on January 9 for a week-long tour of the Ivory Coast, Mozambique, and Ethiopia. Meanwhile, Wang was in Africa from January 7 to January 11, visiting Ethiopia, Djibouti, Ghana, and Senegal. Given the current chill in China-Japan relations (and the tendency for both countries to snipe at each other in the media), the two trips quickly morphed into a sign of ‘competition’ over Africa.
Both countries rejected the idea that they were competing. When Chinese Foreign Ministry spokesperson Hua Chunying was asked to comment on the idea that Wang Yi’s visit to Africa “is directed against Japan,” she responded that anyone harboring this idea “is not so acquainted with the past and present of China-Africa relations.” Indeed, as Hua pointed out, it’s traditional for Chinese Foreign Ministers to visit Africa as their first overseas trip of the new year. Hua praised China “sincere and selfless help” for Africa, and warned that trying to stir up a rivalry in Africa is “a wrong decision which is doomed to fail.” This comment was likely directed at Japan, but could just as easily apply to the United States and other countries seeking to increase their influence in Africa.
Japan also denied that Abe’s visit to Africa had anything to do with China. Hiroshige Seko, a deputy chief cabinet secretary, was quoted in an Associated Press article as saying that competing against China is “not our intention at all.” Seko added, “As far as the African nations are concerned, they are important regardless of China.” African countries are important to Japan for the same reason they are to China — a wealth of natural resources as well as ample opportunity for foreign investment. The New York Times pointed out that increasing ties with Africa is just one aspect of Abe’s diplomatic strategy, all of which is designed to support “Abenomics.”
In a speech in Ethiopia, Abe reaffirmed Africa’s importance. “A considerable number of Japanese believe that Africa is the hope for Japan,” he said. His speech focused almost entirely on the potential for a positive relationship between Africans and Japanese companies — including how Japanese management strategies can benefit African people. “When Japanese companies that value each and every individual come to Africa, a win-win relationship in the truest sense can emerge,” Abe said. By contrast, his vision of the Japanese government’s role in Africa seemed like an afterthought. Abe did discuss his wish for more cooperation with the African Union, and offered to increase Japans’ assistance and loans to the continent, but he spent far less time on this point than on extolling the virtues of Japanese businesses.
Japan’s strategy, in other words, is economically focused. It’s clear that Abe’s pursuit of a relationship with Africa is closely connected with Japanese businesses. China, on the other hand, constantly emphasizes the “friendship” between its government and those of African nations. Though Chinese companies do big business in China, Beijing almost never alludes to this fact in its official remarks. When joint projects (such as roads or government buildings) are brought up, these projects are always a sign of China’s friendship towards Africa.
Accordingly, in his speeches Wang Yi focused on the government-to-government relationships between China and African nations. In Senegal, Wang called for both countries “to firmly support each other’s core interest[s] and major concerns.” In Ghana, he spoke about the need “to promote practical cooperation through strengthening traditional friendship.” China’s relationships with African countries are focused not just on business opportunities (although of course that’s an important aspect) but also on gaining African diplomatic support for China’s policies.
Whereas Abe seems content to have Japanese businesses make profits, China is actively pursuing soft power on the continent. This is nothing new for China. A 2013 study by Gustavo Flores-Macías and Sarah Kreps of Cornell University found that, since the mid-1990s, China has been quite successful at parlaying its trade relationships in Africa and Latin America into tangible foreign policy support. Japan doesn’t seem to be seeking this sort of influence (at least, not yet). Instead, Abe is more openly concerned with increasing economic interactions. While China and Japan may look like they’re competing in Africa, the two countries are actually playing different games.
via Zero Hedge http://ift.tt/1dxArxw Tyler Durden
The history books on Bernanke’s legacy have not even been started, and while the euphoria over the Fed’s balance sheet expansion to a ridiculous $4 trillion or about 25% of the US GDP has been well-telegraphed and manifests itself in a record high stock market and a matching record disparity between the haves and the have nots, there is never such a thing as a free lunch… or else the Fed should be crucified for not monetizing all debt since its inception over 100 years ago – just think of all the foregone “wealth effect.” Sarcasm aside, one thing that can be quantified and that few are talking about is the unprecedented, and record, amount of “deposits” held at US commercial banks over loans.
Naturally, these are not deposits in the conventional sense, but merely the balance sheet liability manifestation of the Fed’s excess reserves parked at banks. And as our readers know well by now (here and here) it is these “excess deposits” that the Banks have used to run up risk in various permutations, most notably as the JPM CIO demonstrated, by attempting to corner various markets and other still unknown pathways, using the Fed’s excess liquidity as a source of initial and maintenance margin on synthetic positions.
So how does the record mismatch between deposits and loans look like? Well, for the Big 4 US banks, JPM, Wells, BofA and Citi it looks as follows.
What the above chart simply shows is the breakdown in the Excess Deposit over Loan series, which is shown in the chart below, which tracks the historical change in commercial bank loans and deposits. What is immediately obvious is that while loans and deposits moved hand in hand for most of history, starting with the collapse of Lehman loan creation has been virtually non-existent (total loans are now at levels seen at the time of Lehman’s collapse) while deposits have risen to just about $10 trillion. It is here that the Fed’s excess reserves have gone – the delta between the two is almost precisely the total amount of reserves injected by the Fed since the Lehman crisis.
As for the location of the remainder of the Fed-created excess reserves? Why it is held by none other than foreign banks operating in the US.
So what does all of this mean? In a nutshell, with the Fed now tapering QE and deposit formation slowing, banks will have no choice but to issue loans to offset the lack of outside money injection by the Fed. In other words, while bank “deposits” have already experienced the benefit of “future inflation”, and have manifested it in the stock market, it is now the turn of the matching asset to catch up. Which also means that while “deposit” growth (i.e., parked reserves) in the future will slow to a trickle, banks will have no choice but to flood the country with $2.5 trillion in loans, or a third of the currently outstanding loans, just to catch up to the head start provided by the Fed!
It is this loan creation that will jump start inside money and the flow through to the economy, resulting in the long-overdue growth. It is also this loan creation that means banks will no longer speculate as prop traders with the excess liquidity but go back to their roots as lenders. Most importantly, once banks launch this wholesale lending effort, it is then and only then that the true pernicious inflation from what the Fed has done in the past 5 years will finally rear its ugly head.
Finally, it is then that Bernanke’s legendary statement that he can “contain inflation in 15 minutes” will truly be tested. Which perhaps explains why he can’t wait to be as far away from the Marriner Eccles building as possible when the long-overdue reaction to his actions finally hits. Which is smart: now it is all Yellen responsibility.
via Zero Hedge http://ift.tt/1dawmLk Tyler Durden
The history books on Bernanke’s legacy have not even been started, and while the euphoria over the Fed’s balance sheet expansion to a ridiculous $4 trillion or about 25% of the US GDP has been well-telegraphed and manifests itself in a record high stock market and a matching record disparity between the haves and the have nots, there is never such a thing as a free lunch… or else the Fed should be crucified for not monetizing all debt since its inception over 100 years ago – just think of all the foregone “wealth effect.” Sarcasm aside, one thing that can be quantified and that few are talking about is the unprecedented, and record, amount of “deposits” held at US commercial banks over loans.
Naturally, these are not deposits in the conventional sense, but merely the balance sheet liability manifestation of the Fed’s excess reserves parked at banks. And as our readers know well by now (here and here) it is these “excess deposits” that the Banks have used to run up risk in various permutations, most notably as the JPM CIO demonstrated, by attempting to corner various markets and other still unknown pathways, using the Fed’s excess liquidity as a source of initial and maintenance margin on synthetic positions.
So how does the record mismatch between deposits and loans look like? Well, for the Big 4 US banks, JPM, Wells, BofA and Citi it looks as follows.
What the above chart simply shows is the breakdown in the Excess Deposit over Loan series, which is shown in the chart below, which tracks the historical change in commercial bank loans and deposits. What is immediately obvious is that while loans and deposits moved hand in hand for most of history, starting with the collapse of Lehman loan creation has been virtually non-existent (total loans are now at levels seen at the time of Lehman’s collapse) while deposits have risen to just about $10 trillion. It is here that the Fed’s excess reserves have gone – the delta between the two is almost precisely the total amount of reserves injected by the Fed since the Lehman crisis.
As for the location of the remainder of the Fed-created excess reserves? Why it is held by none other than foreign banks operating in the US.
So what does all of this mean? In a nutshell, with the Fed now tapering QE and deposit formation slowing, banks will have no choice but to issue loans to offset the lack of outside money injection by the Fed. In other words, while bank “deposits” have already experienced the benefit of “future inflation”, and have manifested it in the stock market, it is now the turn of the matching asset to catch up. Which also means that while “deposit” growth (i.e., parked reserves) in the future will slow to a trickle, banks will have no choice but to flood the country with $2.5 trillion in loans, or a third of the currently outstanding loans, just to catch up to the head start provided by the Fed!
It is this loan creation that will jump start inside money and the flow through to the economy, resulting in the long-overdue growth. It is also this loan creation that means banks will no longer speculate as prop traders with the excess liquidity but go back to their roots as lenders. Most importantly, once banks launch this wholesale lending effort, it is then and only then that the true pernicious inflation from what the Fed has done in the past 5 years will finally rear its ugly head.
Finally, it is then that Bernanke’s legendary statement that he can “contain inflation in 15 minutes” will truly be tested. Which perhaps explains why he can’t wait to be as far away from the Marriner Eccles building as possible when the long-overdue reaction to his actions finally hits. Which is smart: now it is all Yellen responsibility.
via Zero Hedge http://ift.tt/1dawmLk Tyler Durden
While the “economy in general” and “jobs” remain a close second (with the latter rising rapidly despite a plunging – and entirely useless – unemployment rate), Americans polled by Gallup still see the number 1 problem facing the US is “dissatisfation with government; poor leadership and abuse of power.” Compared with a year ago, mentions of government are up slightly; but mentions of healthcare, on the other hand, have quadrupled — from 4% in January 2013 to 16% today!
As Gallup sums up:
The issues that concern Americans at the start of 2014, and as Obama prepares to deliver the second State of the Union address of his second term, are similar to those Gallup measured in December, and not wildly different from those last January. While the top five issues today also figured prominently in January 2013, their relative positioning has shifted in ways that could affect how Obama frames his message. Concern about unemployment, while up slightly from December, is the same as it was a year ago, and both the economy and problems with government remain top issues. At the same time, concern about healthcare is up, likely resulting from issues with the rollout of the Affordable Care Act.
What issues were at the bottom of the list? Welfare, Immigration and the Wealth Gap.
Ironically, while these issues all ranked so low that they barely made the list of concerns, there are the very issues that are the focus of the current Administration. Unfortunately, these issues are not the ones currently impeding economic progress, but they are the issues that will garner “votes” come the mid-term elections.
via Zero Hedge http://ift.tt/1dar96a Tyler Durden