Category: zerohedge

World economic freedom averaged a record 60.3 out of 100 in 2014, with the U.S. dropping to 12th position, the Heritage Foundation’s Index of Economic Freedom shows. As Bloomberg’s Niraj Shah points out, Ireland is the most economically liberal nation in the euro area and Hong Kong the most liberal in the world. Greece, Italy, France, Cyprus and the U.K. had lower scores than 20 years ago.

 

But it is the ongoing tumble in the US that is of most relevance and concern…

Submitted by Michael Snyder of The Economic Collapse blog,

Americans have never had less economic freedom than they do right now.  The 2014 Index of Economic Freedom has just been released, and it turns out that the level of economic freedom in the United States has now fallen for seven consecutive years.  But of course none of us need a report or a survey to tell us that.  All we have to do is open our eyes and look around.  At this point our entire society is completely dominated by control freaks and bureaucrats.  Our economy is literally being suffocated to death by millions of laws, rules and regulations and each year brings a fresh tsunami of red tape.  As you will see below, the U.S. government issued more than 80,000 pages of brand new rules and regulations last year on top of what we already had.  Even if we didn’t have all of the other monumental economic problems that we are currently facing, all of this bureaucracy alone would be enough to kill our economy.

Yes, every society needs a few basic rules.  We would have total chaos if we did not have any laws at all.  But in general, when there is more economic freedom there tends to be more economic prosperity.  In fact, the greatest period of economic growth in U.S. history was during a time when the federal government was much smaller, there was no Federal Reserve and there was no income tax.  Most Americans do not know this.

Those that founded this nation intended for it to be a place where freedom was maximized and government intrusion into our lives was minimized.

If they were still alive today, they would be absolutely horrified.  We are literally drowning in red tape.

The photo posted below was shared by U.S. Senator Mike Lee on his Facebook page.  Study it carefully…

The following is what he had to say about this photo…

“Behold my display of the 2013 Federal Register. It contains over 80,000 pages of new rules, regulations, and notices all written and passed by unelected bureaucrats. The small stack of papers on top of the display are the laws passed by elected members of Congress and signed into law by the president.”

I didn’t even see the small stack of paper at the top of the cabinet until I read his explanation.  Most of the time everyone is so focused on what Congress is doing, but the truth is that the real oppression is happening behind the scenes as unelected federal bureaucrats pump out millions upon millions of useless regulations that are systematically killing our economic freedom.

On Tuesday, an article about the 2014 Index of Economic Freedom was published by the Wall Street Journal.  As I mentioned above, the United States has fallen for seven years in a row…

World economic freedom has reached record levels, according to the 2014 Index of Economic Freedom, released Tuesday by the Heritage Foundation and The Wall Street Journal. But after seven straight years of decline, the U.S. has dropped out of the top 10 most economically free countries.

That same article mentioned some of the reasons why the United States is falling…

It’s not hard to see why the U.S. is losing ground. Even marginal tax rates exceeding 43% cannot finance runaway government spending, which has caused the national debt to skyrocket. The Obama administration continues to shackle entire sectors of the economy with regulation, including health care, finance and energy. The intervention impedes both personal freedom and national prosperity.

And of course the results are predictable.  Our economy has been steadily declining for many years, and that decline appears to be ready to start picking up speed once again.  The following is an excerpt from a recent article by Dave in Denver…

In the latest retail sales report for December, auto sales were nailed – down 1.8%. The only reason overall retail sales from November to December showed a slight “gain” that November’s number was revised lower. Electronics fell off of a cliff. The housing market is about to get crushed. Feedback I’m getting from my Seeking Alpha articles and blog posts on housing from housing market professionals all around the country tells me that the housing market hit a wall at the end of 2013, as I have been forecasting.

What he said about the housing market is definitely true.  In recent months, mortgage originations have been falling like a rock.  Just check out this chart.

And as I wrote about the other day, there has been absolutely no employment recovery since the end of the last recession.  In fact, 1,687,000 fewer Americans have jobs today compared to exactly six years ago even though the population has grown significantly since then.

Unfortunately, these are not just “cyclical problems”.  Long ago we abandoned the fundamental principles that once made our economy great, and now we are paying a tremendous price for that.

Posted below is a story that has been circulating all over the Internet for quite some time.  It is a fake story.  Once again, let me repeat that.  This is a fake story.  But I think that it does a great job of illustrating what is happening to America as we march toward full-fledged socialism…

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.

 

The professor then said, “OK, we will have an experiment in this class on Obama’s plan”.. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars – something closer to home and more readily understood by all).

 

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

 

The second test average was a D! No one was happy. When the 3rd test rolled around, the average was an F. As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

 

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. Could not be any simpler than that.

But of course it would be disingenuous to pin all of the blame for this just on Obama.  The truth is that our nation has continued to march toward socialism no matter who has been in the White House and no matter who has been in control of Congress.  So if you want to place some of the blame on a “Bush” or a “Clinton” or a “Boehner” or a “Pelosi” please feel free.

And the American people are getting sick and tired of this one party system that has two heads.  According to a recent Gallup survey, only 29 percent of all Americans consider themselves to be Democrats right now.  And the news was even worse for Republicans.  According to that survey, only 24 percent of all Americans consider themselves to be Republicans at this point.

A staggering 45 percent of all Americans now consider themselves to be Independents.  Deep down, most Americans know that something is seriously wrong with our nation and that they are being lied to be our politicians and the mainstream media.

Unfortunately, there is very little agreement about how to fix things because Americans do not have a set of shared values that we all agree on anymore.

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

So much for China’s mission to gradually deleverage in 2013. Despite two near-taper episodes, one in June and one in December, which send short-term lending rates soaring, the PBOC party line has been that the Chinese banking system is slowly but surely issuing less debt as it already has an epic debt overhang, much of which is turning sour at an accelerated pace. One needs to look nowhere else than the country’s declining GDP to visualize the declining marginal utility of every dollar in newly credit loans. And yet following last night’s release of Chinese lending data we found that in 2013, the broadest measure of Chinese credit issuance, the so-called aggregated financing, just hit a record high of 17.3 trillion. So much for the deleveraging myth.

Of course, what is going on in China is more nuanced. Because while official lending indeed dipped, falling 23% in December to RMB 483 billion from 625 billion in November, it was the non-bank lending channel which made up for the difference. As a result Total Social Financing remained flat in December at RMB 1,230 billion. And it was the TSF aggregate that roared to a new all time high in 2013, which simply means that as the central bank and government pretends to clamp down on official lending channels, surplus credit is being released through unofficial pathways, where it is even more difficult to track and quantify.

Summarizing China’s full year credit numbers via BofA: YoY growth of outstanding TSF, bank loans and M2 moderated to 18.8%, 14.1% and 13.6% respectively in December from 19.5%, 14.2% and 14.2% in November. New bank loans rose 8% in 2013 from the previous year to 8.89 trillion yuan, the central bank said.

Broken down by component:

• New entrusted loans and trusted loans remained quite resilient in December at RMB276bn and RMB110bn respectively compared to RMB270bn and RMB102bn in November.
• New corporate bond dropped to RMB24bn in December from RMB138bn in November. We note that government and coporates delayed their bond issuance or scaled down the size due to the tightened interbank liquidity and jump in interbank rates.
• New FX loan rebounded to RMB51bn in December from RMB12bn in November. It is appealing to corporates to borrow FX due to continued RMB appreciation and rising interest rates in China.
• Non-discounted bankers acceptance (BA) jumped by RMB168bn in December after staying sluggish for 3 months previously. One possible reason is that corporates used BA to avoid the too high short-term rates. We think the monthly numbers are particularly volatile, and there is no need to overlyinterpret it (This is also the reason why we exclude it from calculating our revised TSF growth).

And the punchline: FX reserves rose rose by US$157bn in 4Q to US$3,820bn at end-2013. In comparison, it was up by US$163bn in 3Q and US$54bn in 2Q13. For the full year of 2013, FX reserves jumped a record high of US$508bn, compared to US$130bn in 2012 and US$334bn in 2011. An initial estimate suggests that “unexplained FX inflows” could fall to about US$22bn in 4Q from US$65bn in 3Q.

Just what China will do (is doing) with this record FX hoard, especially since we know it is barely buying US Treasury paper, is anyone’s guess.

Finally, where China’s (official) credit stock to GDP is projected to grow, here is a chart from Goldman that attempts to forecast just this.

via Zero Hedge http://ift.tt/K32N7Y Tyler Durden

Wolf Richter   http://ift.tt/NCxwUy   http://ift.tt/Wz5XCn

“Merger Monday” was an exciting weekly feature of life during the 2007 bubble. It was the day when mega deals were announced, when all the craziness of leveraged buyouts invaded CNBC’s morning shows with great hoopla, and stocks would surge, and surging stocks would beget more buyouts and more hoopla, and fees and profits were extracted out of thin air, and everyone was in heaven.

After it all collapsed, I thought we’d never see “Merger Monday” again, the phrase, the concept. But now, the unthinkable happened, the impossible, the zombie phrase has walked back into the scene, when it reappeared on the front page of MarketWatch. It was like in the olden days of 2007: the big numbers were there, the exuberance was there, the craziness, the media hoopla, the head-shaking.

There was the acquisition by Japan’s booze conglomerate Suntory of US booze conglomerate Beam for $83.50 per share, a 25% premium from Friday’s closing price. Their combined booze sales would amount to $4.3 billion. The $16 billion deal, including debt, would be funded mostly with debt.

Among the brands Suntory will pick up is Maker’s Mark, which got into a huge tussle a year ago when it told its customers that it would water down its bourbon. “Fact is, demand for our bourbon is exceeding our ability to make it, which means we’re running very low on supply,” explained COO Rob Samuels at the time. They’d add water to the remaining batch, and lower alcohol content from 45% to 42%, so that there’d be enough for everybody. The uproar was immediate, including by yours truly…. Self-Medicating With Watered-Down Bourbon: An Insidious Inflation

Next was Charter Communications, backed by media mogul John Malone. It offered to buy Time Warner Cable, the second-largest cable company behind Comcast, for $132.50 per share, $83 in cash and $49.50 in Charter stock. Rumors had been flying for months. It’s tough out there for cable companies. TWC lost 825,000 cable TV subscribers in 2013, after having already lost 530,000 in 2012. And 2014 doesn’t look exactly bright. So banding together might help, the theory goes. The $61 billion deal would have been the largest unsolicited takeover since the final days of the bubble in 2008. But it was just a “low-ball offer,” as TWC CEO Rob Marcus called it. An even bigger deal may now be in the cards.

And Google announced that it would acquire thermostat and smoke-alarm maker Nest for $3.2 billion, a routine amount these days for a startup that was founded a couple of years ago, has about 300 employees, and is not even making a dent in an industry dominated by giants Honeywell and Johnson Controls.

But Google would get a foothold in the latest hot thing, connected devices, the “Internet of things.” It already knows everything you do on line and stores that information forever. It knows everything you do in your various Google accounts. It reads your emails, data mines them, and stores the results for later use. It knows where you’re going if you use an Android device, and it knows where you’re thinking of going if you use Google maps. Soon it will drive you there in a self-driving vehicle of your choice (or drive you to an advertiser’s store instead).

It knows what the outside of your place looks like, but the one thing it hasn’t seen yet is the inside of your place. Hence Nest. Google is entering your home with a sensor system that will soon be a lot more than just a thermostat – why not motion detectors, cameras, microphones, and the like – to perfect the efficiency and security of your home. Any data the system picks up will be forwarded to, or pilfered by, the NSA and others, and will be used by advertisers who want to get to know you better, because serving ads is what Google is all about.

But don’t worry. They have a privacy policy which “clearly limits the use of customer information to providing and improving Nest’s products and services,” Nest explained in perfect corporate speak. Google simply wants to be in every part of your life, connect all your devices, understand your thinking, your preferences, your emotions, your snacking habits. And this acquisition was one more step in that direction [here is my personal experience…. How Much Is My Private Data Worth? (Google Just Offered Me $$)]

But Monday didn’t end on this uplifting note. There was more excitement fermenting beneath the surface. It was all about “leveraged loans.” They’d hit an all-time high in 2013 of $1.14 trillion, and market participants are exuberant about 2014, according to Thomson Reuters’s Quarterly Lender Survey. Alas, in its minutes of the December meeting, the Fed had named leveraged loans and their deteriorating underwriting standards as one of the four threats to “financial stability.”  They’re issued to highly leveraged companies with dubious prospects and junk credit ratings. And many of them are going to blow up once the mania fizzles out.

But not yet. Everyone is counting on rock-bottom interest rates to persist, and on desperate investors who’re chasing yield when there is none in reasonable places, and so they take on risks, any risks, and they hold their noses and swallow covenant-lite junk debt that gives them few rights once there is a problem. In 2013, $311 billion in covenant-lite loans were issued, more than triple the prior all-time high. And everyone is hoping that this year will set another record. After us the deluge.

Did a company have problems servicing its debt or did it threaten to default? A replacement leveraged loan would be offered with better terms. Extend and pretend…. Last year, about 70% of the leveraged loans were issued to reprice and refinance existing debt.

But for 2014, that may be hard to beat. So enthusiasm is building in another direction: mergers and acquisitions. “It’s nice to see that M&A is starting to pick up, and that should provide a new source of fresh capital needs from borrowers,” said Leland Hart, a Managing Director at BlackRock. And everyone is already dreaming of a series of glorious Merger Mondays.

So the mini-downdraft in the stock market so far this year, including Monday’s selloff, hasn’t dampened anyone’s enthusiasm. The Fed seems ready to taper QE out of existence and is sprinkling the market with verbiage to that effect, and eventually this will have an impact, but at this point, it is still just talk, and everyone is hoping that this bubble can be maintained for a while longer.

Prices for housing have jumped and rents have jumped too, yet the 38.7 million renters, 34% of all households, watched with dismay as their real wages declined. They’ve got a problem with the “wealth effect” that Bernanke held up as pretext for printing money. Read…. The Magic “Wealth Effect” On Our Hapless Renters

via Zero Hedge http://ift.tt/1dQLs9D testosteronepit

First the Volcker Rule was defanged when last night the requirement to offload TruPS CDOs was eliminated, and now here comes Europe where the ECB just lowered the capital requirement for its “stringent” bank stress test (the one where Bankia and Dexia won’t pass with flying colors we assume) by 25%. From the wires:

• ECB SAID TO FAVOR 6% CAPITAL REQUIREMENT IN BANK STRESS TEST
• ECB SAYS DECISION ON CAPITAL REQUIREMENT NOT YET FORMALLY MADE
• MAJORITY OF POLICYMAKERS AND TECHNICALS OFFICIALS HAVE REACHED CONSENSUS ON THE BENCHMARK

The final number may in fact be even lower:

• SMALL NUMBER OF COUNTRIES WANT AN EASIER BENCHMARK AND MAY PRESS FOR COMPROMISE LOWER THAN 6%

Why is this notable? Recall from three short months ago:

The European Central Bank said it will use stricter rules when stress testing banks’ balance sheets next year than it will to study their assets, as it seeks to prove its credentials as the region’s financial supervisor.

 

While the ECB confirmed that it will require lenders to have a capital ratio of 8 percent, what qualifies as capital will change over the course of the three-part assessment, the central bank said in an e-mailed statement. The capital definition applicable on Jan. 1, 2014 will be used for the asset-quality review and the definition in force “at the end of the horizon” of the stress test will be used in that evaluation, it said.

 

Ignazio Angeloni, who is head of the ECB’s financial stability directorate, said today in Frankfurt that officials haven’t yet decided on a timeframe or on details for the stress test. The European Union is gradually phasing in global capital standards known as Basel III, a process which is due to be completed by 2019.

 

“We’ve got a feasible but safe capital cushion of 8 percent,” Angeloni told reporters. “We want the exercise to encompass all the main sources of risk.”

Apparently you don’t, but who cares as long as the myth of strong European bank balance sheets is perpetuated. And should the capital requirement be lowered even more, expect politicians and central bankers to bang the drums even louder on just how stable the European financial system is.

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

When Google bought Nest (for its smart, intrusive thermostat technology that gives the NSA a front-row seat into the heating requirements of Americans), little did it know that it was purchasing an OTC penny stock with the ticker NEST and a market cap of a few hundred thousand. Or maybe, Google knew very well what it paid $3 billion for, and it was the increasingly prevalent idiots that make up the stock market that were confused. Either way, just like TWTRQ was TWTR for a few short days, so NEST (not to be confused with the GOOG acquisition target if even that is precisely what happened) is now the second coming of the unmitigated idiocy that defines the “market”

 

Meet Nestor (ticker symbol NEST) – a small company from Rhode Island that makes traffic systems – different to Nest – the thermostat-maker that Google just bought for $3.2 billion. NEST was up 4900% at its peak yesterday on massive volume.

 

One just has to laugh and yes, Jordan Belfort would be proud.

via Zero Hedge http://ift.tt/1gL3WeY Tyler Durden

One of Warren Buffett’s greatest investment ideas concerned “economic moats.”

 

What he meant by this was to invest in companies with significant competitive advantage that stops competitors from breaking into their market share. These competitive advantages served as “moats” around these businesses, much as a moat of water would protect a castle from intruders in medieval times.

 

To consider how “moat” investing works in the real world, let’s consider McDonalds (MCD).

 

For starters, MCD has a moat. MCD was launched in 1940. Burger King was launched in 1953. Wendy’s was launched in 1969.

 

Despite these competitors moving into its space, MCD has thrived, growing to become the largest hamburger based business in the world: its 2012 revenues were $27 billion compared to Burger King’s $1.9 billion and Wendy’s $2.5 billion.

 

Today, MCD has over 34,000 restaurants based in 199 countries employing 1.8 million people. Obviously the company is able to defend its market share from competitors. That’s an economic moat.

 

Between this and the company’s focus on producing returns to shareholders, those who invested in MCD and held for the long-term have dramatically outperformed the market and built literal fortunes.

 

Indeed, had you in McDonalds in 1986, you would have outperformed the S&P 500 by a simply enormous margin (see Figure 1 below). Not only that but you would have crushed every asset manager on planet earth with very few exceptions.

 

Regarding returns to shareholders, MCD has paid dividends every year for 37 years and has increased its dividend at least once per year.

 

Dividends per share have increased from $0.11 in 1986 to $2.87 in 2012. Those who invested in MCD shares in 1986 are receiving a yield of nearly 30% per year on their initial investment today just from dividends alone.

 

MCD is so focused on producing returns for shareholders that the company has bought back 23% of its shares outstanding in the last ten years. So even investors who bought in 2000 have experienced a synthetic yield of roughly 5% per year.

 

However, the most dramatic returns produced by “moat” investing are evident through the power of compounding as illustrated by MCD’s Dividend Re-Investment Plan or DRIP (a plan through which cash dividend payouts were  automatically used to buy more MCD shares).

 

If you had invested in MCD’s DRIP program in 1988, you would have turned $1,000 into over $23,000 by the end of 2012. This is not by adding to your positions, this is the result of one single $1000 purchase of MCD stock.

 

This example of “moat” investing is precisely the kind of wealth generating investment that has made Warren Buffett a billionaire.

 

For a FREE Special Report outlining how to set up your portfolio from this, swing by: http://ift.tt/170oFLH

 

Best Regards

Phoenix Capital Research 

 

 

 

via Zero Hedge http://ift.tt/1gL3T33 Phoenix Capital Research

Between lack of cash flows, insurmountable liabilities, an untenable pension funding, even insider fraud, we thought we had seen all the various reasons for filing for Chapter 11 bankruptcy protection. And then along came the Catholic Diocese of Stockton which announced that it would join its host city and seek bankruptcy protection “in the wake of the church’s sexual-abuse scandal.” As WSJ reported, Bishop Stephen E. Blaire said in a news release Monday that the diocese would seek bankruptcy protection Wednesday, explaining that reorganization was the only option for dealing with mounting legal costs related to abuse by priests. The bishop said the diocese has spent $14 million in legal settlements and judgments over the past 20 years dealing with abuse allegations, and doesn’t have funds available to settle pending lawsuits or address future allegations. The punchline: “Very simply, we are in this situation because of those priests in our diocese who perpetrated grave, evil acts of child sexual abuse.”

In the Stockton diocesan bankruptcy, the parties will likely agree on a figure that the diocese would pay, in addition to potentially pulling in funds from insurers. However, the diocese says it holds “relatively little property and assets.” Other holdings, including schools, parishes and several parcels of land, are incorporated separately.

And so the Stockton Catholics became the 10th US Diocese after Milwaukee; San Diego; Spokane, Wash.; Davenport, Iowa; Portland, Ore.; Tucson, Ariz.; Fairbanks, Alaska; Wilmington, Del.; and Gallup, N.M. to file bankruptcy.  In addition, the Christian Brothers Institute, which operates Catholic schools and orphanages, also filed because of sexual abuse liabilities.

The Chapter 11 filing would halt pending litigation against the diocese and likely would ultimately allow it to discharge liabilities stemming from sexual-abuse allegations by setting up a trust to compensate victims. The diocese said it hopes to arrive at a resolution with victims and insurers through the process.

 

Joelle Casteix, western regional director of the Survivors Network of those Abused by Priests, called the bankruptcy “problematic on a lot of different levels,” noting that it would let the diocese avoid future civil cases.

However, while the local catholics’ financial woes may be put on temporary hold, their civil troubles are only starting:

Separately, a grand jury Monday indicted a former priest with the diocese, Michael Eugene Kelly, and a warrant for his arrest has been issued. Calaveras County authorities are seeking Mr. Kelly’s extradition from Ireland to face charges of three counts of lewd and lascivious conduct on a child, and one count of oral copulation with a child. Mr. Kelly faces 14 years in prison if convicted.

Not surprisingly, the Catholic church which itself is embroiled in numerous financial scandals recently, was unable to come to the Diocese’s rescue even though it has already paid out an estimated $2.2 billion to cover settlements, therapy for victims, support for offenders, attorney fees and other costs, according to a report by the U.S. Conference of Catholic Bishops.

And with this filing, we are fairly confident we have seen every possible bankruptcy filing reason.

via Zero Hedge http://ift.tt/LdDu42 Tyler Durden

Presented with little comment; aside to note that it would appear (based on BlackRock’s survey) that there is only one trade the sell-side wants you in…

 

 

h/t @GavynNolan

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

The S&P 500 is screaching back towards its record all-time highs with a little help from a USDJPY-sparked momentum ignition and a $4-5 Billion POMO… behold the efficient markets…

 

 

What a farcical joke… For now, VIX ain’t buying it…

 

Chart: Bloomberg

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

The S&P 500 is screaching back towards its record all-time highs with a little help from a USDJPY-sparked momentum ignition and a $4-5 Billion POMO… behold the efficient markets…

 

 

What a farcical joke… For now, VIX ain’t buying it…

 

Chart: Bloomberg

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