Category: zerohedge

Wolf Richter   www.wolfstreet.com   http://ift.tt/Wz5XCn

French President François Hollande should have been ecstatic when US Federal and New York State authorities slammed French megabank BNP Paribas with a slew of charges related to the bank’s dealings with Iran in violation of US sanctions. Under intense pressure, BNP agreed to pay a $8.9 billion penalty and plead guilty. It was the largest penalty for a European bank ever. Some heads rolled at the bank. But Hollande was not amused.

Yet it should have been the sweetest moment of his dreary Presidency. He should have relished that attack on the French monster bank, and he should have turned motorcade victory laps around rush-hour Paris.

Because on January 22, 2012, as Socialist presidential candidate, in a speech in Bourget that instantly went viral on a global scale, he’d pointed out, had dared to point out, the true nature of finance, not of the bank branch down the street, but that part of finance that had brought down the financial system and had triggered the great recession, a part of finance that is aided and abetted by central banks to this day:

“I’ll tell you who my opponent is, my true opponent,” he said at the time. “He has no name, no face, no party. He will never run for office. He will not be elected. And yet he governs. My opponent is the world of finance.”

He promised he’d rein in that world. He’d impose a tax on all its financial transactions, “a real tax,” and he’d eliminate stock options, and he’d curtail bonuses, and he’d do a million other things. And the huddled masses began to dream.

But soon after he was anointed President of France, nuances began to appear. In September 2013, his Industrial Renewal Minister, now re-baptized Economy Minister, Arnaud Montebourg explained it this way: “Finance is like cholesterol, there is the good and the bad.”

It was on the occasion when a factory was moved back from China to France. Not just any factory, but a Solex plant. The company has been making motorized bicycles since 1946. They have a small gasoline motor above the front wheel. The motor drives a roller that, when lowered on the tire, provides some additional oomph. When the auxiliary power is not needed, the motor can be turned off and the mechanism can be lifted to allow the wheel to turn freely. These contraptions are regularly passed by normal bicycles powered by normal people, but they allow older chain smokers to get up a hill if it’s not too steep. It’s a very French contraption, scorned and ridiculed and loved by many. So when production returned from China to France, well, politicians were making hay while they could. And for Montebourg, it was “good” finance that had brought the plant back.

Politicians to the left of Hollande regularly refer to the speech at Bourget in an effort to remind Hollande about his broken promises. But that daring speech that had sent bankers into panic mode, if only briefly, and that had resonated with so many people around the world, and that had instantly gone viral, has now, like so many things in Hollande’s presidency, officially been buried.

On Sunday, Finance Minister Michel Sapin, while speaking at a meeting of economists in Aix-en-Provence, declared that “finance, the good finance, is our friend.”

The about-face is now complete. No democratically elected entity can oppose the world of finance for long. There was some laughter in the audience. A bon mot that pleased. “We still need financial regulation,” Sapin went on. “As far as banks are concerned, we’ve made a lot of progress. But for everything outside banking, we still have some way to go.”

And he wasn’t worried about more investigations, costly penalties, and embarrassing guilty pleas for French banks. American authorities have been extracting their pound of flesh from banks while carefully tiptoeing around the idea of sending executives to jail. But they weren’t going after French banks any longer. Instead, “several other large European banks will face that risk,” he said….

Despite rumors that US authorities were targeting two additional French megabanks, Société Générale and Crédit Agricole, along with two German megabanks, Deutsche Bank – which is sinking deeper into just about every imaginable banking scandal – and Commerzbank.

The French government’s deal with megabanks has come full circle, from being a sacred relationship under President Nicholas Sarkozy to enmity during Hollande’s campaign and now back to sacred relationship. No democratically elected government in a major country – not in France, not in Germany, least of all in the US – is allowed to oppose the banks and the central banks that stand behind them, though extracting penalties to the tune of a few quarters worth of earnings – extracting them from stockholders – is now considered an easy price to pay, and part of the costs of doing business, to buy some protection from the restless populists.

Under the nimbus of its infamously illustrious performance, the European Banking Authority has reduced the world of money to just two abbreviations: VC and FC. And it has taken sides. Read (on my new website WOLF STREET)….  EU Regulator Warns Banks: Don’t ‘Buy, Hold, or Sell’ Virtual Currencies, Stick to ‘Fiat Currencies’

via Zero Hedge http://ift.tt/VzIJ2R testosteronepit

The headline of the Financial Times today reads “Paris rails against the dollar’s dominance.”  It could have been written nearly any time in the past half century.  After all it was a former French President Giscard d’Estaing, who as finance minister in the 1960s, complained about the “exorbitant privilege” that the US drew from the role of the dollar (the phrase is often attributed to Charles De Gaulle).

In the mid-1960s, Servan-Schreiber’s book, “The American Challenge” warned that through the dominance of the dollar, the US was colonizing Europe.   In the early 70s, it was France’s demand for gold in exchange for US Treasuries that strained Bretton Woods arrangement to a breaking point. 

The proximate cause of the latest reiteration of the traditional French position is the large fine imposed on one of France’s largest banks for violating US sanction.  As part of the penalty, the US took what appears to be an unprecedented step to deny it the ability to clear dollar trades for a full year, starting in January.

BNP pleaded guilty to two criminal charges.  It was fined almost $9 bln (2013 profits ~$6.5 bln).  Nearly four dozen employees were disciplined.  About a dozen lost their jobs, including the COO of the US operation.  Top officials in the French government tried to lobby for a smaller penalty, including the President, Finance Minister and Foreign Minister.  They warned that it could tilt the balance away from the free-trade agreement that is being negotiated.  The central banker warned that it could accelerate efforts to diversify away from the dollar. 

In explaining its rationale for a stiff penalty, US officials cited several considerations.  First, the sheer volume of the transactions is notable.  They are estimated to be near $200 bln.  Second, was the egregious nature of the conduct and circuitous efforts to conceal the activity.  Third, the illegal activity apparently continued after the inquiry began.  Fourth, high ranking officials helped hinder the investigation.  Fifth, previous fines on international banks were not functioning as an effective deterrent.

Russian President Putin, no fan of the dollar and US hegemony claimed that the actions against BNP were an effort by the United States to get leverage over France to renege on its agreement to deliver two Mistrial amphibious ships to Russia.  Putin claimed that the US offered to reduce the fine on BNP if the French complied.   

There is simply no evidence for this claim, and it seems to be predicated on a naive view of the US government.  However, it has not stopped many in the blogosphere from simply repeating Putin’s claim as if disinformation and attempts to sow discord is not a tool of the Russian’s President’s arsenal. While the Department of Justice and the Federal Bureau of Investigation were involved, the NY Financial Services Department and the Manhattan District Attorney appear to be the driving force and it is not clear that they would have acquiesced to the kind of linkage Putin suggests. 

The point is that US government is not some kind of homogenous whole with uniform interests.  Consider that the nearly $9 bln fine was split between the Federal government and the state governments.  The NY Financial Services Dept received about 1/4 of the settlement and this will be turned over to the state’s general fund.  The Manhattan District Attorney’s office receives another quarter of the settlement.  The bulk ($1.7 bln) will go to state and city governments, but about $450 mln, which is five times the office’s budget will be used for its anti-crime activities.   Surely, if the Federal Government tried to strong arm the local authorities, there would have been a push back and Putin would not be the only one to make the claim. 

BNP was the seventh large bank caught in 5-year investigation of the Manhattan District Attorney’s office into violations of US sanctions. The investigation is ongoing, and it may include least two other large French banks, as well as a large German and Italian bank.     For some banks and bankers, the statement by a Standard Chartered official chafing under its own fine, expresses a shared sentiment:  “You American,” he was quoted in the press saying, “Who are you to tell us, the rest of the world, that we’re not going to deal with the Iranians.”

One might disagree with which countries the US sanctions, but surely it is the right of a sovereign to make such a decision.  Yet the claim that the sanctions allow the US to police business arrangement that do not involve Americans is not really true.  Given the way the financial system operates, if dollars are used for trade or investment, the transaction likely involves a US bank in the US.

Moreover, the sanctions were not capricious, not publicized or imposed after the fact.   The sanctions against Sudan, which is where BNP’s violations were concentrated, have been in place since 1997 and  were tightened in 2006.  Press reports suggest that internal BNP documents showed that senior bank officials were well aware of the atrocities that led to the sanctions.  

Banks were also warned.  In 2006, the Bush Administration warned foreign banks doing business in the US that they would be prosecuted if they helped sanctioned countries.  According to the Wall Street Journal, BNP told employees in 2007 that it would cease sanction-busting actions.  Instead, it appears they developed an elaborate payment structure, routing transactions through satellite banks, which would strip crucial information off wire transfers as they passed through the US system and banks. 

Even though many senior BNP officials appeared to have known about the deceit, the CEO indicated that breaking the sanctions was “something that goes against the grain of the bank.”  It has taken steps to strengthen internal controls and going forward, all dollar transactions will be properly routed through NY.  Reports suggest that other European banks are tightening their internal controls to ensure compliance with US rules. 

The US struggles to convert its financial power into political influence.   Consider who the US provides aid to, for example, and then look at how countries vote at the UN.   This effort becomes all the more important in an era in which the US is war weary.      The function the dollar serves in the world economy is a “public good”, like protecting the sea lanes and its nuclear umbrella.  Surely, it can have some say in how that public good it provides is used.  

The US is saying that if one is going to use the public good it provides, do not do so to aid an adversary.  Do not use dollars to harm the US interest, as its elected officials have defined it.  If a bank wants to function as the central bank of Sudan, as BNP was accused, it cannot use the dollar. 

Will this increase the pressure to diversify away from the dollar as Putin hopes and French officials claim?  Probably not.  The problem is the lack of a compelling alternative.  When the euro was first launched, many argued at the time, that this was the first alternative to the dollar and business and investors would jump at the opportunity.  They really haven’t.  Many investors still harbor serious reservations about the longevity of the experiment in monetary union without political union.  For a brief moment  a few years ago, the possibility of a new monetary regime, based on the SDR, captured many imaginations for naught.    

The internationalization of the Chinese yuan is being heralded as the latest dollar-buster.  It is not.  The swap lines it has set up with several dozen countries have not been used.   Last month, MSCI declined to integrate Chinese shares into its global indices because of various market restrictions and lack of transparency. Investors need permission to invest in China (QFII or RQFII) and countries have to negotiate with China to set up off-shore yuan trading centers. 

Less than a year ago, some observers were arguing that the cyber-currency Bitcoin could supplant the dollar.  One large US bank even argued that central banks should put some of their reserves in it.    The desire to find an alternative to the dollar is real, but the role of the dollar in the global economy has not changed very much in recent years.    In many respects, whatever rise the Chinese yuan is experiencing appears to be coming at the expense of other currencies, not the dollar.

The safety, liquidity and transparency of the US Treasury market know no rivals.  More than half of all cross-border loans and deposits are in US dollars.  According to the Bank for International Settlements, the dollar is on one side of 87% of all the trades in the more than $5 trillion a day foreign exchange market (up from 84.9% in the previous survey).  The dollar remains the benchmark price for oil and most commodities.  When investors want to hedge their exposures, they use a dollar-denominated derivative market instrument.

The US often is accused being short-sighted and not playing the long-game.  Yet, at the risk of deterring buyers of its debt, the Treasury Department’s semi-annual report on the international economy and foreign exchange market pulls no punches.  It wants officials to stop buying Treasuries, which it sees a way countries evade making the necessary adjustments to reduce imbalances that the G7 and G20 have advocated.  In fining foreign banks for aiding its adversaries, the US says it will not provide the rope to the hangman.  If aiding Sudan, Iran or Cuba increases the use of the yuan, euro or Bitcoin, that is risk that the US is willing to take.  

via Zero Hedge http://ift.tt/1kwsvNs Marc To Market

Via Doug Short of Advisor Perspectives,

Here is a update in response to a standing request from David England, a retired professor now actively educating investors through his Trader's Eye website. In his presentations, he likes to disprove the standard message of Wall Street, "Don't worry! The market will always come back." I furnished David with some charts, and I now share them with regular visitors to my Advisor Perspectives pages.

Specifically, David had asked for real (inflation-adjusted) charts of the S&P 500, Dow 30, and Nasdaq Composite. So I created two overlays — one with the nominal price, excluding dividends, and the other with the price adjusted for inflation based on the Consumer Price Index for Urban Consumers (which I usually just refer to as the CPI). The charts below have been updated through the July 3rd close.

Click for a larger image

Click for a larger image

 

The charts require little explanation. So far the 21st Century has not been especially kind to equity investors. Yes, markets usually do bounce back, but often in time frames that defy optimistic expectations.

The charts above are based on price only. But what about dividends? Would the inclusion of dividends make a significant difference? I'll close this post with a reprint of my latest chart update of the S&P 500 total return on a $1,000 investment at the 2000 high.

Click for a larger image

Total return, including reinvested dividends, certainly looks better, but the real (inflation-adjusted) purchasing power of that $1,000 is currently, over 14 years later, only 218 dollars above break-even. That equates to a 1.39% annualized real return.

via Zero Hedge http://ift.tt/1vS6kXw Tyler Durden

Curious what Uber is spending the record $1.2 billion in cash it raised in its most recent funding round (which valued it at a whopping $18.2 billion)? The answer: subsidies.

In a page right out of Amazon’s playbook, the management of Uber has found that the best use of proceeds now that it may have finally saturated addressable markets, is to use its cash on hand to fund sub-equilibrium pricing losses and in the process, hopefully, put its competition out of business.

Earlier today, the Uber blog announced that UberX is “now cheaper than a New York City taxi.” It added the following:

We just dropped uberX fares by 20%, making it cheaper than a New York City taxi. From Brooklyn to the Bronx, and everywhere in between, uberX is now the most affordable ride in the city.

 

 

KEEP IN MIND

 

These prices are only in effect for a limited time. The more you ride, the more likely we can keep them this low!

 

We know you may be asking yourself how this affects our partner drivers. What we’ve seen in cities across the county is that lower fares mean greater demand, lower pickup times and more trips per hour — increasing earning potential and creating better economics for drivers. What does what mean in the long run? They’ll be making more than ever!

“More than ever”, at least until the subsidy cash runs out. And since Uber’s valuation is one that will make sense only if Uber effectively manages to put the bulk of the legacy taxi business in the US out of business, the conflict with the existing cab industry is about to go into overdrive.

Because while one may or may not believe that Uber will ultimately succeed in putting NYC’s cab drivers out of business, and it is very much doubtful if legacy Yellow Cabs will follow Uber in its price dumping strategy, one thing is certain: the value of a New York Yellow Cab Medallion, which about a year ago hit a record $1.3 million price, will suffer – at least in the near-term – as the conflict between Uber and Yellow Cab picks up, and as the NYC market is suddenly flooded with countless providers of cab-equivalent services.

Recall from August of last year:

The best returning asset class traded in the NY Metro area is yellow but doesn’t change hands on Wall Street. As ConvergEx’s Nick Colas notes, over the last 12 months New York City taxi medallions have risen 49% in price, besting the relatively humdrum returns of the S&P 500 (up 21%), the NASDAQ (22%) and the Dow (18%).  Medallions – essentially the right to operate a for-hail taxi in New York City – now trade for as much as $1.3 million, an all-time record.  

 

 

 

Part of this dynamic is fixed supply – there are just 13,336 medallions available for a city of 8.3 million people.  There is also a macroeconomic point, with a stronger NYC economy for those inhabitants who can afford the service.  The more surprising observation, however, is that new technology in the form of in-car credit card machines and more recently smartphone hailing apps both materially increase the value of owning a medallion.  In a world where every technology is deemed “Disruptive”, here’s a case where the status quo has actually reaped much of the reward.

Alas, there is no way to short the Medallion “price” which with the ongoing private status of Uber makes arbing the future of the cab industry rather difficult except for the most connected institutional investors, those which will have no choice but to keep investing in future Uber rounds at ever higher valuations until one day the Amazon strategy of beggar thy competitor either succeeds or fails.

And while the future of this particular Uber tactic is unknown, what most investors in the startup are wondering is what will its fate be in its largest addressable market, China. It is here where a far more notable development has taken place, with Bloomberg reporting that Hangzhou Kuaidi Technology Co., a taxi-booking service backed by Alibaba Group Holding Ltd. is adding luxury cars in China to boost revenue as it steps up its challenge to Uber Technologies Inc.

Kuaidi is targeting wealthy travelers with a new smartphone application as it partners with chauffeur companies in Beijing, Shanghai, Guangzhou and Hangzhou, Chief Executive Officer Dexter Lu said in an interview. The new cars include the 5-Series from Bayerische Motoren Werke AG and Audi AG’s A6.

 

Uber and Kuaidi are competing with Didi Taxi, which is backed by Tencent Holdings Ltd. (700), for a bigger slice of China’s 500 million users who access the Internet from their phones and are boosting use of location-based services. The new app, known as “Yi Hao Zhuan Che” in Chinese, is part of Lu’s push for a revenue model to sustain the business, which generated 50 million yuan ($8 million) of sales last month.

 

“We operate under a similar model as Uber does in China,” Lu said on July 4. “Our work load will be very heavy in the second half, but it’s also very exciting.”

 

Uber, which has valuation of $17 billion after a recent funding round, is expanding in China and hiring in 14 cities, according to a July 1 LinkedIn post. The San Francisco-based company has been targeting customers in China willing to pay a premium for the luxury of tracking the vehicle’s approach, not handling local cash and finding daily newspapers and a Wi-Fi access inside the car.

Looks like “zero barriers to entry” is a popular saying for a reason.

One thing is certain: the winner from this competition, however long it may last, are consumers.

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

As the teen deaths, rocket launches (and landings), and rhetoric fly back back and forth; it appears last week’s de-escalation is off…

• *ISRAEL ARMY SPOKESMAN SAYS TROOPS BEING BOOSTED ON GAZA BORDER
• *ISRAELI ARMY SAYS IT IS PREPARING FOR POSSIBLE GAZA ESCALATION
• *ISRAELI AIRCRAFT TARGET GAZA TERROR TUNNEL, ARMY SAYS
  

The US administration has been oddly quiet so far on this… we await their ‘supportive’ comments.

Bloomberg reports,

As many as 1,500 reservists to be mobilized to reinforce infantry, paratroop units, military spokesman Lt.-Col. Peter Lerner says in phone interview.

 

“While last week the army talked about de-escalation, now we’re talking about preparation for possible escalation”

*  *  *

So, Iraq, Syria, Kuwait, Jordan, Egypt (post gas subsidies), and now Israel.. must be time to BTFATH in US stocks…

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

Whocouldanode? Treasury yields continue to push lower (now below Thursday’s lows) having not looked back since the jobs report. Stocks – having exuberantly spurted to record highs to ensure American consumer comfort over the long weekend – have now collapsed back and given up all their post-“great-jobs-report” gains… CNBC is puzzled…

 

 

As a reminder, here’s why the headline jobs print was not so great after all...

via Zero Hedge http://ift.tt/1mrb19p Tyler Durden

It appears the hopes and dreams of a resurgence in US GDP in Q2 will have to be extended-and-pretended another quarter. As Gallup notes, Americans’ self-reports of daily spending fell back in June, averaging $91 for the month – down notably from a six-year high of $98 in May – and flat to the $90 average found in June 2013. Not exactly the pent-up demand ‘surge’ so many economists (and Fed PhDs) have been calling for… Even more concerning, Gallup notes, the drop in daily spending among all Americans can largely be attributed to upper-income Americans spending less in June. Even the 1% are cutting back?

 

As Gallup notes,

This $91 figure for June suggests a mixed bag for the economy. While it represents a much higher level of consumer spending than the $60 to $70 averages found for much of 2009 to 2012, it also represents the first decline in the monthly average since January of this year.

While Americans’ self-reported spending in June was generally on par or lower than their average May spending, this month’s $7 drop is one of the largest recorded by Gallup during this time of year since 2008, when June spending fell by $10. The June 2008 spending average of $104 is still the highest average for that month in Gallup’s six-year trend.

…

The drop in daily spending among all Americans can largely be attributed to upper-income Americans spending less in June. Americans living in households with $90,000 a year or more in income reported spending on average $189 a day in May, but this dropped to $157 in June.

 

As Gallup concludes, Americans’ average daily spending dropped in June from May’s levels. This indicator fits in the context of scores on Gallup’s other economic measures. Job creation remained flat, although maintaining May’s six-year high. Economic confidence dipped slightly from May, but remains higher than the economic confidence found several years ago in the depth of the recession.

That self-reported spending did not increase in June is important, given that consumer expenditures are a significant driver of the U.S. economy. While Americans are spending more than they did several years ago, spending has not returned to pre-recession levels.

*  *  *

By Bye Q2 GDP surge…

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

As we remarked two weeks ago, when observing the recent developments surrounding the suddenly all-important South Stream gas pipeline bypassing Ukraine entirely, and instead traversing the Black Sea before crossing Bulgaria, Serbia, Hungary and terminating in the Austrian central European gas hub of Baumgarten, we said that all of Europe is suddenly focused on if and how Russia will make headway with a project that may be the most important one for not only Europe’s energy future but the impact Russia will continue to have over Germany et al. And of course, Ukraine. Because should Russia find a way to completely bypass Kiev as a traditional transit hub for Russian gas, it would make the country, and its ongoing civil war, completely irrelevant not only for Russia, but worse, for Europe, the IMF, and Ukraine’s staunch western “supporters and allies” as well.

Showing just how Europe perceives the Russian “South Stream” threat was a comment from a recent NYT article, in which Günther Oettinger, Europe’s top energy official, was quoted as saying that the Ukraine crisis “has slowed down our progress on South Stream considerably… We can’t just give in to the Russians every time.” Alas, since the Russians control the all important gas, Europe has zero choice.

This explains why even as the western media finally remembered over the weekend there was a Ukraine civil war going on following an advance by the Kiev army to retake some rebel strongholds in the Donbas region, with some curious what if anything Putin would do in retaliation, what Putin, or rather his envoy Sergei Lavrov were actually doing, was completely ignoring the Ukraine situation (where the West has long since conceded the loss of Crimea to the Kremlin) and instead focusing on securing the successful launch of the South Stream. And since Russia already signed another historic agreement with Austria in June, which positioned the AAA-country (with some surprising emerging bank troubles subsequently) squarely against its fellow European peers, it was the turn of the other South Stream countries, namely Bulgaria.

As Reuters reported, all construction timelines for the South Stream pipeline are on track and the European Union should restart talks about the project, Russian Foreign Minister Sergei Lavrov said on a visit to Bulgaria on Monday.   

Bulgaria has been an enthusiastic supporter of the Russian-backed project, whose construction has stoked tensions between the West and Moscow, especially in the wake of Russia’s annexation of Crimea.

 

But Prime Minister Plamen Oresharski’s government suspended work last month on its section of the pipeline at the behest of Brussels, pending a ruling on whether the project violates EU law.

Which maybe sheds some light on why in June Bulgaria also experienced the biggest bank run in 17 years, culminating with the nationalization of the 4th largest bank, and also led to the president announcing his early resignation.

So in the Bulgarian power vacuum, the domestic foreign minister Kristian Vigenin said that the “pipeline is of interest to EU, its construction must comply with European laws” during a briefing with his Russian counterpart, Sergei Lavrov. He also said that Bulgaria seeks a quick resumption of South Stream, something which means Europe will have to try harder in its try to prevent a pipeline bypassing its now very substantial Ukraine investment. 

Lavrov added that South Stream agreements were signed long ago, before EU adopted unbundling legislation; such laws can’t be retroactively applied. The Russian foreign minister said Russia expects EU to apply single standards to all pipelines.

And since it is not just Bulgaria but Serbia, we also got this:

• RUSSIA, SERBIA MAY SIGN SOUTH STREAM PACT IN DAYS: MEDVEDEV

In other words, the great cold war 2.0 fight for Russian sphere of influence in Eastern Europe is on. Because while on one hand we reported that during the weekend, it was none other than France which vocally came out against US Dollar hegemony and thus was forced to gravitate toward the Eurasian (China/Russian) camp, it is the events in Eastern Europe in the next several months that will define European energy geopolitics for the decades to come.

Look for many more fireworks in Bulgaria and the other South Stream countries over the coming weeks as the fate of the South Stream is determined behind the scenes.

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

We warned Thursday that there was something wrong with the picture of the equity market’s exuberance but it seems the July-4th-week-effect has run its course and equity markets – having read the jobs report over the weekend – have realized it is anything but strong. The Dow just lost 17,000 (however briefly) and equities are catching down to Treasury yield’s drop as USDJPY loses 102.00.

 

Dow loses 17k…

 

as Stocks catch down to bonds…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1mqQ6U1 Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The jobs report has little value if we don't peer beneath the glossy veneer.

On the surface, last week's jobs report was glossy good news: the U.S. economy added 288,000 non-farm jobs. Beneath the glossy veneer, however, the news wasn't quite as good as advertised: full-time jobs declined by 523,000 and part-time jobs surged 840,000.

 

Courtesy of Zero Hedge, here's a chart depicting the the entire job market:

Here's a chart of full-time employment from the late 1960s. After unprecedented intervention by the Federal Reserve and Federal deficit spending since late 2008, full-time jobs (the only ones that count in terms of supporting a household) have reached the level of 2006, while population has risen by 7.5%.

Courtesy of Mish, here is a chart of full-time employment from 2003 to the present:

Courtesy of Lance Roberts, here is a chart depicting full-time employees to population: note that the ratio has been flatlined since 2009.

It's important to note that employment growth is only the first half of a real recovery: real household incomes must also grow. Real (adjusted for inflation) incomes haven't expanded except for the top layer of households.

Expenses haven't stagnated along with incomes. As a result the price tag for the American dream (i.e. a middle class lifestyle) is $130K a year.

This chart depicts the happy story trumpeted by container-loads of superficial analysts and paid cheerleaders: jobs that pay above-average outnumber below-average paying jobs.

Courtesy of Market Daily Briefing, let's dig into employment by sector.

The salient point here is that only three of the nine sectors have expanded since 2000; the other six have declined or stagnated. In those 14 years, only Professional & Business Services, Education & Health and Leisure & Hospitality have gained, and only Education and Health has soared. Note that jobs in Leisure & Hospitality typically pay below-average wages, so the growth of this sector may be one reason why household income has stagnated
.

Why have Education & Healthcare soared despite the deep recession? Simply put, Education & Healthcare are functional monopolies that can add costs with impunity. In economics jargon, these sectors are largely untradable, meaning they are not exposed to much competition from overseas providers of Education & Health.

They also benefit from immense lobbying of government to protect their fiefdoms from transparency and competition. Consider this chart from the University of California system that reflects the Administrative Bloat at American Universities that is the underlying cause of soaring college costs.

It is not unusual for administrative costs to have exploded higher by 300% while the number of students rose by 15%.

Meanwhile, as college costs have skyrocketed, wages of those with college degrees have stagnated:

As for healthcare (a.k.a. sickcare) The incredible rise in healthcare/sickcare costs in the U.S. since the early 1990s is easily seen in this chart:

Note that Japan provides care for its populace for a mere 36% of what the U.S. spends per person. Germany and France spend about half of what the U.S. spends per person. Our advanced-economy competitors have a global advantage as a result of our inability to control sickcare costs, which act as a hidden 8% tax on the entire economy.America's Hidden 8% VAT: Sickcare (May 10, 2012)

Our Two Most Onerous Taxes: College Tuition and Healthcare Insurance (February 3, 2014)

There are two realities nobody dares mention, much less discuss:

1. The expansion of the Professional & Business Services sector is all about cutting costs and boosting productivity while reducing payroll. How else could the economy expand while full-time jobs and household incomes have both stagnated? By boosting productivity and slashing payrolls.

2. The bloat, waste and inefficiencies of Education & Healthcare mean that these sectors offer the juiciest yields on innovation. As a result, they are the primary targets for transparency, real competition and technological innovations.

By my own reckoning, a college diploma shouldn't cost more than a few thousand dollars for the entire four-year program: The Nearly Free University and The Emerging Economy: The Revolution in Higher Education: Reconnecting higher education, livelihoods and the real economy.

The structural changes triggered by the Internet and digital automation, networking, software and robotics have barely begun. The jobs report has little value if we don't peer beneath the glossy veneer.

via Zero Hedge http://ift.tt/1r2WKkl Tyler Durden