Alibaba and the $40 billion

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Isn’t it fitting that the original story was Ali Baba and the Forty Thieves? But, this time round the modern day version of the Chinese story with Alibaba and the Initial Public Offering that has been programmed for in or around August 2014 will be the biggest IPO this year and will bring in the staggering sum of $40 billion for its employees.

The co-founders of the Chinese company Jack Ma and Joe Tsai are aiming for the launch that should take place in true Chinese tradition on the 8th of the 8th. What better could you do in a country where the number 8means ‘fortune’? Only problem might be is that it’s a Friday and Friday launches tend not to go down too well in trading history.

Alibaba filed for a launch in May and the date has yet to be confirmed officially. They will not be allowed to do so until the interviews and meetings with the Securities and Exchange Commission have finalized. Then, the company will be full-steam ahead to pitch investors with what looks like a boon for business and the coffers of the already dollar-rich billionaires that founded the company. Jack Ma, for example, is China’s 8th richest person and has a net worth of $10 billion.

Ma, Tsai and a close-knit group of company executives (28 people in total) own 14% of Alibaba.

But, it’s not only Ma and Tsai that will be raking it in once the launch happens. The past and current employees of the company hold just over a quarter of the shares of the company (26.7%) in stock options and other awards that were provided as incentives back 15 years ago in 1999.

Apparently, the company has gone as far as to start counselling of its employees to help them deal with the share of the tens of billions of dollars that could be brought in with the IPO when they will be allowed to sell of their shares. Although their shares may be locked up for months before they can cash in.

According to some sources, employees have been looking at how to spend that money on investments in property in the USA, starting business ventures in China and of course buying up the trappings of the consumer world and overt social status such as cars and artwork. But, because the IPO will be going ahead in New York, the majority of the money is suspected to be kept outside of China.

There was already a sell-down of shares in 2011, with employees selling about $2 billion in shares then. Apparently, according to sources at Alibaba, it was better to prepare the employees for immense wealth, little by little, rather than throwing millions at each of them. Ma sold off $162 million in shares then and his co-founder $108 million.

It’s the Japanese telecom company SoftBank that owns the largest stake in the company (34.4%) and the US company Yahoo that has 22.6%.

Alibaba has already acknowledged that it will have its work cut out keeping those employees on after the IPO if they decide to cash in and take advantage. The company stated: “It may be difficult for us to continue to retain and motivate these employees, and this wealth could affect their decisions about whether or not they remain with us”.

So, with the IPO of Alibaba looming fast it’s going to be ‘Open Sesame’ for the employees that will be raking it in in the biggest launch on a stock exchange this year. There’s no denying that the treasure that Alibaba is sitting on will certainly be worth fighting over.

Alibaba is an online company which enables shoppers to buy and vendors to sell as well as make on-line payments. IT’s Amazon, Paypal and eBay all rolled into one on a Chinese scale. It’s two retailers, Taobao and Tmall offering non-brand products and branded goods respectively, make up more than 50% of all parcel deliveries in the People’s Republic of China today. Combined transaction value reached $163 billion in 2012. There are 24, 000 workers employed by Alibaba and 36.7 million registered users today. In the last quarter of2013, Alibaba posted an increase in revenue equivalent to 66% (reaching $3.06 billion. Net income for the same period stood at $1.36 billion.

Originally posted: Alibaba and the $40 billion

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Brickbat: Dog Gone

After the the
third meeting with officials at the Sherrard school district in
Illinois, Kellsey McGuire’s parents moved her to a Catholic school.
The McGuires say a staff member at the school kept complaining
about the presence of Kellsey’s service
dog, which they say she needs to keep by her because of her
epilepsy. School officials refuse to comment on the case.

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via IFTTT

“Stress Test” Reviewed: Tim Geithner Is “A Grifter, A Petty Con Artist”

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Geithner is at heart a grifter, a petty con artist with the right manners and breeding to lie at the top echelons of American finance at a moment when the government and financial services industry needed someone to be the face of their multi-trillion dollar three card monte. He’s going to make his money, now that he’s done living his life of fantastic power after his upbringing of remarkable mysterious privilege. After reading this book and documenting lie after lie after lie, I’m convinced that there’s more here than just a self-serving corrupt official. There’s an entire culture, of figures at Treasury, the Federal Reserve, in the entire Democratic Party elite structure, and in the world of journalism, a culture in which Geithner is seen as some sort of role model.

 

– From Matt Stoller’s fantastic article published yesterday, The Con-Artist Wing of the Democratic Party

Timothy Geithner is likely to go down in American history as one of the most dangerous, destructive cronies to have ever wielded government power. The man is so completely and totally full of shit it’s almost impossible not to notice.

The last thing I’d ever want to do in my free time is read a lengthy book filled with Geithner lies and propaganda, so I owe a large debt of gratitude to former Congressional staffer Matt Stoller for doing it for me. Stoller simply tears Geither apart limb from limb, detailing obvious lies about the financial crisis, and even more interestingly, Geithner’s bizarre bio, replete with mysterious and inexplicable promotions into positions of power.

So without further ado, here are some excerpts from this excellent article. From Vice:

The most consequential event of this young century has been the financial crisis. This is a catchall term that means three different things: an economic housing boom and bust, a financial meltdown, and a political response in which bailouts were showered upon the very institutions that were responsible for the chaos.

 

More than anyone else, it was then US Treasury Secretary Tim Geithner who shaped this response, and who bears praise, blame, and responsibility for the outcome. And finally, with the release of his book, Stress Test: Reflections on Financial Crises, Geithner is getting to tell his side of the bailout story.

 

I’ll address both of these, since they are intertwined. For as I read the book, and compared the book with what was written at the time and what was written afterwards, I noticed something odd, and perhaps too bold to say in polite company. As much as I really wanted to hear what Geithner had to say, I quickly realized that I wasn’t getting his actual side of the story. The book is full of narratives, facts, and statements that are, well, untrue, or at the very least, highly misleading. Despite its length, there are also serious omissions that suggest an intention to mislead, as well as misrepresentations of his critics’ arguments. As I went further into Geithner’s narrative, even back into his college days, I got the sense that I was seeing only a brilliantly scrubbed surface, that there were nooks and crannies hidden away. It struck me that I was reading the memoirs of an incredibly savvy and well-bred grifter, the kind that the American WASP establishment of financiers, foundation officials, and spies produces in such rich abundance. I realize this is a bold claim, because it’s an indictment not just of Geithner but also of those who worked for him at Treasury and at the Federal Reserve, as well as indictment of the Clinton-era finance team of Robert Rubin, Larry Summers, Alan Greenspan, Michael Barr, Jason Furman, and other accomplices. That’s why this review is somewhat long, as it’s an attempt to back up such a broad and sweeping claim. I will also connect it to what Geithner is doing now: working in the same kind of financial business that made Mitt Romney a near billionaire.

 

There are a few glaring problems with how Geithner portrays this debate. First of all, his main foil during the crisis was a fellow technocrat, former International Monetary Fund (IMF) official Simon Johnson, who actually had significant crisis-management experience parachuting into panicked countries and imposing structural reform on their bankers. Johnson became increasingly irate as he saw Geithner diverge from what Geithner himself at the US Treasury and the IMF forced on other countries: conditions. Geithner was hard on oligarchs when they were foreign, but when it was US bankers, well, then the wall of money argument triumphed. In fact, in a paper released in 2013, it was revealed that financial firms with a personal relationship with Geithner himself saw an abnormal 15% bump in share prices when Geithner’s name was floated for Treasury Secretary, and a corresponding though smaller, abnormal decline when his nomination was on the rocks due to his being caught not paying taxes by Senate investigators.

 

The third problem is housing. Economists Amir Sufi and Atif Mian lead the charge in arguing that the Geithner strategy failed to restart the economy because it focused on leverage at the large banks rather than leverage among households, i.e., foreclosures. The shape of the Geithner policy architecture is two-tiered: The financiers recovered; everyone else did not. And the economy, even today, sputters along at just above stall speed because of this.

 

But the book is more than just a set of arguments; it’s also an autobiography of a man. And while I was reading it, I kept getting the feeling I wasn’t learning the full story. I noticed oddities, a kind of set of shimmering ephemera which suggest that there was something the author was holding just out of view of the reader. 

 

Geithner talks about his childhood growing up abroad, with high-powered family members who had advised presidents, and a father who was a senior executive at the Ford Foundation in Southeast Asia in the 1960s and 70s. At that time, the Ford Foundation was a pivotal instrument of US foreign policy, an important vehicle for anti-Communist efforts and heavily integrated into the financial and foreign policy establishment (the head of the foundation even set up an internal committee to organize incoming requests from the CIA). Yet Geithner portrays himself as a largely apolitical and directionless kid, a sort of ordinary person in unusual circumstances, with loving parents. It was an odd way to describe growing up cocooned in the foreign-policy elite. Geithner is far too smart to not have been able to observe what was going on around him, yet he is silent in the book on how he saw power up close at a young age.

Ok, this is really important and something I touched on in my piece: Tim Geithner Admits “Too Big To Fail” Hasn’t Gone Anywhere (and that’s the way he likes it). As I note in that post, I find it beyond coincidental that Tim Geithner’s father and Barack Obama’s mother both worked at the Ford Foundation in Indonesia at the same time. 

At Dartmouth, Geithner portrayed himself an “unexceptional and uninspired student,” finding economics dreary and political consulting boring. He didn’t even remember voting in 1980. Yet over Christmas break during his freshman year of college, he notes, he did a short stint as a war photojournalist along the Thai-Cambodian border for the Associated Press. It’s a short piece in the book, meant to describe one Christmas break. But I had to reread it several times, to make sure it was actually in there. I kept thinking, What the hell? Who does that? It’s not that it’s not true; it sounds like it is. But there’s more to this story than “Oh, I was a freshman in college and didn’t like studying, and then I did a stint as a war photographer over Christmas break and decided I didn’t want to be a photographer.” There’s something he’s not saying. He was not just a boring apolitical kid who didn’t notice very much about the world. Such people do not become photojournalists for a week over Christmas in war zones when they are 18.

 

And then there’s the mystery of how he managed to climb up the career ladder so quickly. He never really explains how this happens. He wasn’t a good student. He notes, as a grad student, that he mostly played pool. “During my orals, when one professor asked which economics journals I read, I replied that I had never read any. Seriously? Yes, seriously. But not long after we returned from our honeymoon in France, Henry Kissinger’s international consulting firm hired me as an Asia analyst; my dean at SAIS had recommended me to Brent Scowcroft, one of Kissinger’s partners.”

 

I’m sorry, but what? How does this just happen? And it goes on. One day, when Geithner was a junior Treasury civil servant, Treasury Secretary Lloyd Bentsen just called him out of the blue to ask his advice on a matter about which he knew nothing. Why? He doesn’t say—he’s just puzzled. Later on, he advances in Treasury without any real credentials in a department where a law degree or economics PhD is essential. Even Alan Greenspan eventually expressed surprise; he had just assumed Geithner had a doctorate. Power just always seemed to flow to Geithner, and he never says why. He knows why, of course—he’s an exceptional political climber. He just doesn’t say who was grooming him, why he ended up where he ended up, and what he paid to get there. It’s clear he had ideas about how the world should work, but he pretends otherwise.

 

As the book moved into the guts of his career, the Mexican crisis in the early 1990s, I began to come into contact with events that could actually be fact-checked. In 1994, just after NAFTA was signed, Mexico experienced a massive currency collapse. The roots of the crisis were excessive lending by American banks to Mexico, so the US Treasury–funded bailout helped ensure that Mexico could pay its debts and that US banks had their money returned. Geithner participated in the rescue designed by then Treasury Secretary Bob Rubin. The bailout was deeply unpopular at the time, and Congress refused to fund it. But Rubin found the financing for the wall of money in an old account called the Exchange Stabilization Fund, and the American banks who had lent to Mexico were ultimately paid back. Geithner presents this as a triumph of wisdom over the stupidity and cravenness of a short-sighted Congress and impatient public. Yet as Dean Baker notes, “Mexico had the worst per capita growth of any major country in Latin America in the two decades following” the bailout. It was bad for Mexico, but great for Citigroup.

 

He also reorganized the New York Fed Board to include prominent financiers, “including Lehman Brothers CEO Dick Fuld; JPMorgan Chase CEO Jamie Dimon; former Goldman Sachs Chairman Steve Friedman, who was still on the firm’s board of directors; and General Electric CEO Jeff Immelt.” As he put it, “I basically restored the New York Fed board to its historic roots as an elite roster of the local financial establishment.” His former colleague on the Obama economic team Paul Volcker even mocked him for being so close to the big banks. These are not the actions of someone who has a distant relationship with Wall Street power players. 

 

An additional lie is that Geithner was never a Wall Street banker. Technically speaking, the New York Federal Reserve, which Geithner headed up for years, is actually a bank on Wall Street. It is in fact a bank of banks—the bank of banks. It’s why Chuck Prince wanted him for the Citigroup job. And Geithner lived like a power player. He entertained Wall Street bigwigs as part of his work and could get anyone in the world on the phone. The New York Fed isn’t subject to federal-government pay caps, so Geithner was paid $411,200 a year, with a $434,668 severance when he went to Treasury. While this is a low salary for a Wall Street banker, it is a lot of money, especially for a public servant. And it’s an especially large amount of money considering the remarkable perk package, which included, as he notes in his book, coffee served by staff on a silver tray and a car with a chauffeur and sirens to get to work every day. In other words, the reason people thought Geithner came from a bank on Wall Street is because, both in a technical and a cultural sense, he did. Geithner knows the New York Federal Reserve Bank is a bank on Wall Street—a special public-private bank, of course, not an investment bank, but a bank nonetheless. Yet he denies this because it sounds better that way.

Of course the Fed isn’t subject to federal-governent pay caps. It isn’t part of the government. 

And while he says he was concerned about insufficient capital levels at Citigroup, Sheila Bair says in her book, and more recently told Gretchen Morgenson, that the New York Fed under Geithner was undermining her push for higher capital levels at the Basel Accords. Only a hearing and threat from Barney Frank to Geithner and the Fed allowed Bair to go ahead. The crisis was creeping up on regulators, but Geithner was fighting against the most basic measures to do anything about it.

 

Geithner offers shifting and inconsistent statements about these bonuses. At Treasury, Geithner says he didn’t want the government to interfere with bonus payments, for fear of scaring the markets. The right time to have imposed executive pay restrictions was when the bailouts themselves happened, but unfortunately, “I had been too consumed with trying to contain the post-Lehman panic to even consider whether we could do anything about executive compensation.” Yet this plainly wasn’t true. Earlier in the book Geithner recalls fighting against Senator Max Baucus during the TARP negotiations. “I didn’t think Congress should mess around with TARP as a way to reform executive compensation,” he said, “not because I approved of the industry’s lavish salaries and bonuses, but because reducing them seemed like a secondary objective in a crisis.” In other words, Geithner first says he sought to preserve bonuses for bailout recipients, and then he says he didn’t.

 

Aside from all the lies and misleading statements, there are many claims that are difficult to verify. Geithner writes that he tried to get haircuts from banks that were counterparties to AIG, but seven out of eight AIG counterparties refused to take anything less than 100 cents on the dollar. Yet Goldman Sachs CEO Lloyd Blankfein said in press reports that he had never even been asked to take haircuts. If you look at the bailout watchdog reports released at the time, it’s clear efforts to get haircuts cannot even fairly be considered halfhearted. Later on, Geithner says his no-haircut strategy was a “no-brainer.” He wasn’t trying to save taxpayer money; he was trying to appear like he was trying to save taxpayer money while funneling money to banks.

 

Recognizing this tsunami of deceit is actually central to recognizing what happened during the bailouts. The bailouts were, simply put, done in bad faith. Geithner was hired to lie, steal, and cheat on behalf of bankers, and he did so.

So what is Tiny Timmy up to now? 

Geithner told Ezra Klein at Vox that he chose private equity because of ethical concerns: He did not want to go through the revolving door to the banks, he said, and did not want to be involved in companies he had been regulating. Of course, private equity as an industry was actually placed under regulation by none other than Tim Geithner through Dodd-Frank. The industry is heavily dependent on large banks for syndicate financing, so Geithner’s contacts and credibility should come in handy.

 

Beyond that, one of Warburg’s very first investments with Geithner at the helm was a $100 million infusion of cash into a company called Source, which is a large European asset manager that handles a shadow banking instrument called an exchange-traded fund (ETF). The government recently warned that ETFs may help contribute to the next financial crisis. And amusingly enough, there is a bitter fight between the regulators as to how and whether to regulate these companies, one that Geithner could be swaying behind the scenes (as he did so often with policies he did not like during the crisis). And this is just one example—Warburg owns many companies in the heavily regulated finance space, and I’m sure Geithner can add value to many of them. Already, SEC Chairman Mary Jo White is aggressively fighting to prevent any regulation of these asset managers. White was nominated to be SEC Chairman on January 24, 2013, the day before Geithner left Treasury. Her nomination might have been the last substantive decision he made in government, and it could be profitable for his new employer.

I exposed Mary Jo White for the crony she is the minute she was appointed in the piece: Meet Mary Jo White: The Next SEC Chief and a Guaranteed Wall Street Patsy. 

Moreover, the idea that private equity is an ethical industry is a remarkable claim. It is an industry dedicated to financial engineering over creating real value. The government recently came out with its very first analysis of this industry, which is known to most Americans as the place where Mitt Romney somehow got wealthy by laying people off. It turns out that more than half of the private equity funds the SEC examined were engaged in outright violations of laws in their financial dealings (or, more politely, were said to have “material weaknesses of controls”). Private equity funds routinely overstate returns, mislead investors, loot companies they buy, and break the law. Geithner found an industry even scummier than working as an executive at a Too Big to Fail bank and jumped right into it.

I recently noted I believe the private equity industry will turn out to be the primary villain in the next financial crisis in the post: SEC Official Claims Over 50% of Private Equity Audits Reveal Criminal Behavior. 

Ultimately, Geithner was a hit man for American democracy—and the middle class that sustained it. Geithner has acknowledged substantial fraud in the crisis, but he won’t even deign to answer why the administration did nothing about the individuals who perpetrated it. He doesn’t discuss distributional questions from the bailout. He sneers at the notion of justice. He argues for “anti-democratic” measures in a financial crisis, including emergency powers for the president similar to those the president has for national security.

 

Geithner is at heart a grifter, a petty con artist with the right manners and breeding to lie at the top echelons of American finance at a moment when the government and financial services industry needed someone to be the face of their multi-trillion dollar three card monte. He’s going to make his money, now that he’s done living his life of fantastic power after his upbringing of remarkable mysterious privilege. After reading this book and documenting lie after lie after lie, I’m convinced that there’s more here than just a self-serving corrupt official. There’s an entire culture, of figures at Treasury, the Federal Reserve, in the entire Democratic Party elite structure, and in the world of journalism, a culture in which Geithner is seen as some sort of role model.

 

As a result, the liberal faction in the Democratic Party is beginning to grapple with what it means to have grifters setting the course for economic strategy. There is now a debate about whether and how to purge this toxic culture. Geithner probably wishes there weren’t, which is one reason he wrote the book. He actually has to try and justify the horror show he put on. Believe it or not, that’s progress. Next time there’s a crisis, if reformers learn anything from this book, it’s to make sure that there are no Geithner types anywhere near the levers of power.

I mean what can I say. I salute you for this, Matt Stoller.

Full article here.

That explains this…




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Abenomics’ Legacy: The Greatest “Misery” In 33 Years

Back in early 2013, in article after article, we warned that Abenomics would be an epic disaster. Actually we take that back: we said it would be an epic disaster for most of Japan’s citizens. A select very few, just like in the US, would benefit greatly from the unprecedented asset reflation to follow the massive currency devaluation that the prime minister had just launched.

Over a year later, we find that we were yet again accurate in our forecast.

Meet Mieko Tatsunami, a 70 year old retired kimono dresser from Tokyo. Unlike the scores of paid actors ordered to pitch Abenomics and to spread the gospel of rising asset prices, Mieko shares a most rare commodity in this day of pervasive propaganda: the truth.

“The price of everything we eat on a daily basis is going up,” Tatsunami, 70, a retired kimono dresser, said while shopping in Tokyo’s Sugamo area. “I’m making do by halving the amount of meat I serve and adding more vegetables.”

Ironically, that’s what Americans are doing too. Only here the “halving” of the food is done by the food producers, while the consumers rarely if ever notice that they are being jobbed, and are paying the same amount for ever lesser amounts of food. At least in Japan they are honest about food inflation.

As Bloomberg shows, Tatsunami’s concerns stem from the price of food soaring at the fastest pace in 23 years after April’s sales-tax increase. Rising prices helped push the nation’s misery index to the highest level since 1981, while wages adjusted for inflation fell the most in more than four years.

Ah yes, the title. We weren’t kidding. As of this moment, Japan’s misery has not been higher in an entire generation! Its Misery index that is, which combines unemployment (3.6%) and inflation (3.4%), and results in an unprecedented 7.0%: the highest in 33 years!

 

To be sure, we warned explicitly about Japan’s soaring food prices. And now, here they are:

With food accounting for one quarter of the consumer price index and the central bank looking to drive inflation higher, a squeeze on household budgets threatens consumption as Abe weighs a further boost in the sales levy. The prime minister may be forced to ease the pain with economic stimulus, cash handouts or tax exemptions championed by his coalition partner.

 

“Price hikes without confidence that wages are going to rise will hurt appetite for spending,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “Abe has to raise people’s belief that the economy will improve.”

 

Food prices rose 5 percent in April from a year earlier, with fresh food climbing 10 percent. Onions soared 37 percent, and salmon — a staple of the nation’s lunch boxes — jumped 30 percent. Abe lifted the sales tax by 3 percentage points on April 1.

To be sure, it didn’t take a rocket surgeon to figure out what would happen to food and energy prices in a country that is actively depreciating its currency and which is only 39% self-sufficient on a calorie basis and more reliant on inbound shipments of fossil fuels after the Fukushima disaster in 2011 – hence, would be forced to spend that much more (and pass through these costs) on food and energy imports.

Yet apparently not a single economist in the Abe cabinet couldn’t comprehend what was sure to follow a 20% devaluation in the Yen.

The result is clear:

The cost of imported beef rose to 230 yen ($2.24) for 100 grams at stores in central Tokyo in April from 187 yen a year earlier, government data show. Growing vegetables in greenhouses is more expensive as a result of increased energy prices, according to Naoyuki Yoshino, the Tokyo-based dean of the Asian Development Bank Institute.

 

Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo, said food inflation likely accelerated in May and will remain high.

But it is not soaring food and energy prices that are crushing the Japanese economy under Abe more than under any of his predecessors: it is the collapsing wages. As we reported two days ago, base Japanese wages excluding bonuses (which are a benefit to just 20% or less of the workforce), have now declined for a near-record 23 months in a row. As Bloomberg, logically, adds, “the prime minister’s drive to fatten paychecks more than inflation is at risk of stalling, with wages excluding overtime and bonus payments falling for a 23rd straight month in April. “

 

So what are the “non-1%ers” like Tatsunami to do in this slimate of near record “misery”? According to the chief market strategist at Mizuho, Yasunari Ueno, an option for Abe would be to provide more cash handouts to help low-income households: something the US president has gotten the hang of quite well courtesy of his relentless debauching of the world’s reserve currency (unknown for how much longer). Sadly, the Yen is nowhere near a reserve, and such a move would run counter to the government’s effort to reel in the world’s largest debt burden: considering Japan’s debt/GDP is running around 240% these days, the last thing Japan can afford is even a faint hint of a debt crisis.

Which means no way out: with higher food prices, people will cut back on durables, luxury goods and eating out as they did after the sales tax was last increased in 1997. Japan then ended up in a recession. A recession in a time of Abenomics would crush the prime minister and promptly put an end to the BOJ’s $70 billion per month liquidity injection, the proceeds of which mostly end up in the US stock market anyway.

And while the 1%ers will be fine in any situation, the elderly, many of whom are on fixed incomes, will be hit the hardest, said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute in Tokyo. Kumano estimates households headed by people over age 60 accounted for nearly half the nation’s consumption last year. “If prices keep rising, there is a risk that consumption by seniors may be damped as they don’t enjoy the benefit of wage increases,” Kumano said cited by Bloomberg.

We close with Tatsunami: “Abenomics may be helping the big corporations, but life’s tough for people like me,” said Tatsunami, who has seen her pension shrink. “We don’t go out as much as we did — we’re having to cut back.”

Ironically, this is precisely what we said over a year ago. And now even the common Japanese man has grasped it. In fact, everyone else too. Everyone expect Abe and Kuroda.

Which brings us to the next steps: we have said it before, so we will give Bloomberg the honors:

The squeeze on households could damage support for Abe’s administration, whose approval rating fell to 53 percent in a Nikkei survey in May from 62 percent when he took power in December 2012.

That’s right: just like Abe’s reign ended in humiliation (and diarrhea) the first time around, so to his second attempt to fix the Japanese economy will be a disaster: it is just a matter of time before someone finally admits that yet another emperor is wearing no kimono. The only question is when.

Ironically, this is the same question we asked in February of 2013:

And just like that Japan is about to learn that soaring stock prices always have a trade off, a lesson which even GETCO’s S&P ramping algos will not be exempt from when the latest bout of soaring food inflation results in central banks scrambling to withdraw liquidity, just as they did in early 2011. The results will naturally be the same.

 

As for how long Abe’s government will remain in power after energy and food inflation sweep through the net importing nation, that is anyone’s guess.

We hope – for their sake – that Japan’s ordinary citizens,  not the 5-10% who benefit from the Nikkei’s surge, but the 90% or so who couldn’t care less what the stock market does but have no choice but to care very much about the price of food, make the right decision and get rid of their catastrophic government soon, before it is far too late.




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

Half The Country Makes Less Than $27,520 A Year And 15 Other Signs The Middle Class Is Dying

Submitted by Michael Snyder of THe Economic Collapse blog,

If you make more than $27,520 a year at your job, you are doing better than half the country is.  But you don't have to take my word for it, you can check out the latest wage statistics from the Social Security administration right here.  But of course $27,520 a year will not allow you to live "the American Dream" in this day and age.  After taxes, that breaks down to a good bit less than $2,000 a month.  You can't realistically pay a mortgage, make a car payment, afford health insurance and provide food, clothing and everything else your family needs for that much money.  That is one of the reasons why both parents are working in most families today.  In fact, sometimes both parents are working multiple jobs in a desperate attempt to make ends meet.  Over the years, the cost of living has risen steadily but our paychecks have not.  This has resulted in a steady erosion of the middle class.  Once upon a time, most American families could afford a nice home, a couple of cars and a nice vacation every year.  When I was growing up, it seemed like almost everyone was middle class.  But now "the American Dream" is out of reach for more Americans than ever, and the middle class is dying right in front of our eyes.

One of the things that was great about America in the post-World War II era was that we developed a large, thriving middle class.  Until recent times, it always seemed like there were plenty of good jobs for people that were willing to be responsible and work hard.  That was one of the big reasons why people wanted to come here from all over the world.  They wanted to have a chance to live "the American Dream" too.

But now the American Dream is becoming a mirage for most people.  No matter how hard they try, they just can't seem to achieve it.

And here are some hard numbers to back that assertion up.  The following are 15 more signs that the middle class is dying…

#1 According to a brand new CNN poll, 59 percent of Americans believe that it has become impossible for most people to achieve the American Dream…

The American Dream is impossible to achieve in this country.

 

So say nearly 6 in 10 people who responded to CNNMoney's American Dream Poll, conducted by ORC International. They feel the dream — however they define it — is out of reach.

 

Young adults, age 18 to 34, are most likely to feel the dream is unattainable, with 63% saying it's impossible. This age group has suffered in the wake of the Great Recession, finding it hard to get good jobs.

#2 More Americans than ever believe that homeownership is not a key to long-term wealth and prosperity…

The great American Dream is dying. Even though many Americans still desire to own a home, they are losing faith in homeownership as a key to prosperity.

 

Nearly two-thirds of Americans, or 64%, believe they are less likely to build wealth by buying a home today than they were 20 or 30 years ago, according to a survey sponsored by non-profit MacArthur Foundation. And nearly 43% said buying a home is no longer a good long-term investment.

#3 Overall, the rate of homeownership in the United States has fallen for eight years in a row, and it has now dropped to the lowest level in 19 years.

#4 52 percent of Americans cannot even afford the house that they are living in right now…

"Over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years, according to the “How Housing Matters Survey,” which was commissioned by the nonprofit John D. and Catherine T. MacArthur Foundation and carried out by Hart Research Associates. These sacrifices include getting a second job, deferring saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools."

#5 According to the U.S. Census Bureau, only 36 percent of Americans under the age of 35 own a home.  That is the lowest level that has ever been measured.

#6 Right now, approximately one out of every six men in the United States that are in their prime working years (25 to 54) do not have a job.

#7 The labor force participation rate for Americans from the age of 25 to the age of 29 has fallen to an all-time record low.

#8 The number of working age Americans that are not employed has increased by 27 million since the year 2000.

#9 According to the government's own numbers, about 20 percent of the families in the entire country do not have a single member that is employed at this point.

#10 This may sound crazy, but 25 percent of all American adults do not even have a single penny saved up for retirement.

#11 As I noted in one recent article, total consumer credit in the United States has increased by 22 percent over the past three years, and 56 percent of all Americans have "subprime credit" at this point.

#12 Major retailers are shutting down stores at the fastest pace that we have seen since the collapse of Lehman Brothers.

#13 It is hard to believe, but more than one out of every five children in the United States is living in poverty in 2014.

#14 According to one recent report, there are 49 million Americans that are dealing with food insecurity right now.

#15 Overall, the U.S. poverty rate is up more than 30 percent since 1966.  It looks like LBJ's war on poverty didn't work out too well after all.

Sadly, it does not appear that there is much hope on the horizon for the middle class.  More good jobs are being shipped out of the country and are being lost to technology every single day, and our politicians seem convinced that "business as usual" is the right course of action for our nation.

Unless something dramatic happens, it is going to become increasingly difficult to eke out a middle class existence as a "worker bee" in American society.  The truth is that most big companies these days do not have any loyalty to their workers and really do not care what ends up happening to them.

To thrive in this kind of environment, new and different thinking is required.  The paradigm of "go to college, get a job, stay loyal and retire after 30 years" has been shattered.  The business world is more unstable now than it has been during any point in the post-World War II era, and we are all going to have to adjust.




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Previewing Tomorrow’s Payroll Number

With a 9 standard deviation range between the highest and lowest excuse for a forecast from the 81 “qualified” economists on Bloomberg’s survey, there is plenty of room for noise to dominate signal with tomorrow’s payrolls data. Goldman forecasts a softer-than-consensus 210k increase in non-farm-payrolls as May employment data flow looks more mixed, and they expect that the unemployment rate rose two-tenths to 6.5% in May (vs. consensus 6.4%). Average hourly earnings (AHE) are likely to be in focus again following several months of heightened attention to wage growth and labor market slack; Goldman expects an increase of 0.2% in May (vs. consensus 0.2%).

 

Recent employment data has been mixed… (and today’s dismal Challenger Layoffs data)…

 

And Goldman is less exuberant than many on the street…

We forecast a 210k increase in nonfarm payrolls in May, a touch below the consensus estimate of 215k. We expect that private payrolls increased 210k (vs. consensus 210k), with government a neutral contributor. This would mark a substantial decline from April’s better-than-expected 288k gain. The reason for our more modest expectations for May is that the employment data have been considerably more mixed this month after pointing almost uniformly to a stronger number in April. As a result, we expect this month’s gain to fall somewhere in between the 6-month (203k) or 12-month (197k) moving average and the roughly 225k trend rate we expect as growth accelerates this year. Based on May data from recent years, we also see some risk of a net downward revision to the prior two months.

 

Arguing for a stronger report:

  • The employment components of business surveys sent a mixed-to-positive overall message this month. Among manufacturing surveys, the ISM (-1.9 to 52.8) and Dallas Fed (-16.8pt to 2.9) surveys declined, but the Philly (+0.9pt to 7.8), Empire (+12.7pt to 20.9), Richmond (+6pt to 10), and Kansas City (+7pt to 10) Fed surveys improved. Among service sector surveys, the employment components of the ISM non-manufacturing (+1.1pt to 52.4) and New York Fed (+10.3pt to 16.4) surveys improved, while the Richmond (-2pt to 4) and Dallas (-2.6pt to 13.8) surveys declined. The Beige Book also reported “steady to stronger” hiring in almost all districts.
  • The labor differential?the difference in the percentage of respondents in the Conference Board’s consumer confidence survey describing jobs as plentiful vs. hard to get?improved 1.6pt to -18.2 in May. The index has shown a fairly steady recovery since late 2011, but was a misleading indicator last month, when it fell 2.2pt.

 

Arguing for a weaker report

  • Private job gains reported by ADP disappointed consensus expectations this week at 179k in May, down from an initially-reported April gain of 220k. That said, we attach only limited weight to the ADP report because its initial print has yet to prove itself as a reliable indicator of payroll job growth as measured by the Labor Department.
  • Announced layoffs rose about 25% in May on a seasonally-adjusted basis, according to Challenger, Gray, and Christmas, with the largest cuts coming in the computer industry. As in April, job cuts in the health care sector remained at a normal level, suggesting little impact from layoffs of temporary workers after the end of the sign-up period for health insurance under the Affordable Care Act.

Neutral indicators

  • The four-week moving average of initial claims for unemployment benefits increased slightly from the April to the May reference week. However, the April weekly data might have been distorted by the Easter holiday and spring break from schools, and the difference between the two months was relatively small.
  • New and total online job ads fell a touch in May. Both series have been fairly stable over the last few months relative to their usual volatility, and we therefore view this as a neutral indicator. The Help Wanted OnLine report noted weaker demand for workers in sales, management, and computing, but increases in transportation, production, and construction job ads.
  • Weather conditions returned to seasonal norms in April and were a bit more supportive than usual in May.

 

We expect that the unemployment rate rose two-tenths to 6.5% in May (vs. consensus 6.4%), following an unexpected four-tenths decline to an unrounded 6.28% in April. The reason is that we expect the participation rate will partially reverse last month’s unusually large four-tenths decline. Building on our decomposition of non-participators into the retired, disabled and other categories shown in the household survey micro data, we find that the ‘other’ category contributed most of the decline in participation in April.

 

At the margin, this might point to a larger retracement of last month’s decline because–as researchers who use the household survey often note–survey respondents sometimes confuse unemployment with being out of the labor force for other reasons (the marginally attached are a subset of this category). To test this possibility, we model the change in the share of non-participators with a constant and last month’s change. We find a tendency for about one-quarter of the change to reverse, but when we replace last month’s total change with the changes in the three components of non-participation, we find that the effect is driven by changes in the ‘other’ category.

 

Average hourly earnings (AHE) are likely to be in focus again on Friday following several months of heightened attention to wage growth and labor market slack. We expect an increase of 0.2% in May (vs. consensus 0.2%). Wage data released over the last few months have remained soft, and qualitative evidence from yesterday’s Beige Book also noted subdued wage growth. AHE for all workers grew just 0.1% in March and were flat in April. The Employment Cost Index showed compensation growth of 1.3% (annualized) and wage & salary growth of 1% (annualized) in Q1, while the national accounts data showed 2.3% (annualized) growth of compensation per hour in the nonfarm business sector in Q1. Our wage tracker–a smoother aggregate of all three wage measures–grew 1.8% over the past year.

Here is the full distribution – with Lavorgna actually slightly below consensus also…




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The Gold Conspiracy

As increasingly more conspiracy 'theories' become conspiracy 'facts', The History Channel discusses "The Gold Conspiracy" in this brief documentary.

 

 

As The History Channel introduces:

Gold. It is one of the most precious metals in the world. A glittering commodity so rare that people will go to great lengths to obtain it. But who sets the price? And what are the secret methods to control its value? Uncover the clandestine world surrounding the highly prized precious metal. How much gold does the United States really have–and where is it locked away? Is the American government overstating the amount of gold in its reserves to create the mystique of financial superiority?

 

Former U.S. Secretary of Labor Robert Reich discusses the gold standard and the possible manipulation of the commodities markets. Chairman of Euro Pacific Precious Metals Peter Schiff describes how gold could replace credit cards. And author Matthew Hart details how the U.S. is storing gold that belongs to other countries–but may now be missing from the Federal Reserve's vaults.




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What Mario Draghi Did Today: Goldman Sachs Explains

Since Mario Draghi is merely a frontman for (and former employee of) Goldman Sachs in yet another central bank, and since his policy mandate is implemented only after extensive drafting and pre-clearance with 200 West, the best “most-mortem” of what happened today comes from the firm that was responsible for today’s announcement in the first place: Goldman Sachs itself.

So here it is, via Goldman’s Dirk Schumacher:

ECB announces wide range of measures

Today, the ECB cut the MRO and the deposit rate by 10bp and the marginal lending facility by 35bp. In addition, it announced several measures aimed at reviving lending to the corporate sector. It is difficult to say with certainty at this stage what the net effect of these different measures will be on lending and the economy. But the ECB has clearly bought itself time before engaging in further measures. The next step will be outright purchases of ABS, for which the “preparatory work has been intensified”. There was no indication that the Governing Council was moving closer to a large-scale asset programme, even though it was not ruled out. Overall, the cut in the policy rates was a bit smaller than we had expected, but the credit easing measures were more meaningful than our prior expectations.

Ongoing gradual recovery

The ECB continues to expect the “gradual” recovery to continue, although first quarter GDP was “somewhat weaker” than expected. Indeed, the updated staff projections show a small upward revision to next year’s growth, to +1.7% compared with +1.5% previously (the 2014 forecast was revised down to +1.0% from +1.2%). As in previous months, the ECB sees the risks to the growth outlook as being to the “downside”.

The updated staff projections also show a downward revision to the inflation forecast for this year, to 0.7% (+1.0% previously) and to 1.1% in 2015 (from +1.3%) and +1.4% in 2016 (from +1.5%). By the end of 2016, the staff now expects inflation to be at +1.5%, compared with +1.7% previously. This raises the question of whether the +1.5% forecast can be considered close enough to the ECB’s target of medium-term price stability, and hence a signal for future action. Mr Draghi did not dwell on this point during the press conference, but it is noteworthy that these projections do not yet incorporate the new measures announced today. Thus, one should not necessarily interpret the new forecasts as a signal that further significant steps are imminent. That said, it is also the case that Mr Draghi did not rule out the possibility that more is coming.

Close to lower bound for rates

When asked during the press conference whether further rate cuts were likely, Mr Draghi appeared to signal that the lower bound had been reached. To be sure he did not rule out the possibility of further small cuts but neither did he suggest that this would be the preferred choice. One interesting detail of today’s decision was that the marginal lending facility was reduced by more than the MRO or depo rate, thereby establishing a symmetric corridor again. We interpret this narrowing of the corridor from the top as an attempt to reduce the volatility in EONIA.

One ordinary (but capped) 2-year LTRO plus a Targeted LTRO

The ECB will conduct 2 TLTROs in September and December this year. Banks will be allowed to borrow 7% of their outstanding loans to the non-financial private sector excluding mortgages (according to the ECB, this amounts to €400bn). In our understanding, banks can post any eligible collateral for these two operations. The interest rate of the TLTROs – the MRO rate at that point in time plus 10bp – will be fixed over the maturity of the operation. There will be four additional TLTROs between March 2015 and June 2016. Borrowing under these operations can be up to three times a bank’s net lending to the Euro area private sector (excluding mortgages) between April 20, 2014 and the allotment date of the TLTRO. All TLTROs will mature in September 2018. Should net lending be lower than a – yet to be determined – benchmark, banks will be required to repay their borrowings by September 2016.

The main difference between these new Targeted LTROs and the previous ones is that banks will have to increase their net lending to the private sector in order to get the full benefit of the 4-year maturity. But for those banks that are not willing or able to do so, the ECB has offered a regular 2-year LTRO at 25bp. It is difficult to say ex ante how much demand there will be. But given that a positive carry exists between such 2-year borrowing and (say) peripheral sovereign debt, we could see significant take-up and a resulting net injection of liquidity.

“Intensifying the preparatory work” to buy ABS

The Governing Council also announced that it has moved closer to buying “simple and transparent ABS” with claims against the Euro area non-financial private sector as the underlying asset. No further details have been announced so far, but we think the ECB is likely to announce a programme in the coming months. The stock of traded ABS that fulfil these criteria, however, is rather small and geographically concentrated.

Nothing specific on QE

Mr Draghi was asked several times during the press conference about the likelihood of a large-scale asset purchase programme. As expected, Mr Draghi did not rule out this possibility, saying that it was an option should the need arise. But he gave no further hint as to whether Fed-style QE involving significant outright purchases of domestic sovereign debt has become more likely. In any case, the ECB will first want to see how the new measures work before it considers a QE programme in earnest. We continue to assess a probability of just 15% to an LSAP programme involving sovereign debt through year-end.




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Fed President Defends Blowing Bubbles: It’s In The Best Interest Of “Irrational Investors”

It would appear the Fed, after being angry at itself for creating the “complacency” evident in the markets globally has reached the pinnacle of critically circular logic in its defense of policies that are aimed at financial stability (i.e. prices flat or rising but absolutely not falling). Fed’s Williams, a la Greenspan’s “a-ha” moment, appears to have realized that investors are not always ‘rational’ and “bull markets may cause investors to get ‘carried away’ over time and confuse what is a one-time, perhaps transitory, shift in fundamentals for a new paradigm of rising asset prices.”

The “carried-away”-ness then leads to crashes which the Fed must then re-inflate to ensure financial stability… but because “it remains difficult to know when markets have gone wrong,” or as a rational, normal person would say, when the “rational” Fed has blown yet another bubble, Williams does what any other self-respecting career economist would do: calling for additional study into the matter.

Via The Wall Street Journal,

The Fed realizes investors do not act rationally… blowing up their models entirely…

“In a world of rational expectations, asset prices adjust and that’s it,” Mr. Williams said. ” He added, “but if one allows for limited information, the resulting bull market may cause investors to get ‘carried away’ over time and confuse what is a one-time, perhaps transitory, shift in fundamentals for a new paradigm of rising asset prices.”

 

Mr. Williams explained that it appears to be the case that investors, on balance, look at where a given market has been heading and assume that pattern will persist. Rapidly rising markets fuel the belief the good times are here to stay, while market blowouts generate such pessimism that investors cease to act as if prices will rise again.

 

“The recognition that people behave in this way can move us a long way closer to understanding how asset price booms and busts can emerge and how policy actions could influence that process,” he said.

And then there is Philly Fed’s Plosser – who suggests in fact that instead of “managing” this irrationality and tamping it down, the Fed should encourage it just a little longer…

Economists would say that policymakers are trying to commit to a policy that is not time-consistent.

 

Put another way, former Fed Chairman William McChesney Martin used to say that monetary policy’s job “is to take away the punch bowl just when the party is getting good.”

 

Yet, these models tell us that at the zero lower bound, forward guidance should convey the opposite. That is, it should promise that monetary policy will not remove the punch bowl but allow the party to continue until very late in the evening to ensure that everyone has a good time.

 

But what will make the public believe that policymakers in the future will deviate from past practices in this way?

Even as several Fed member are expressing grave concerns about the instability and complacency already embedded in investors irrational expectations…

In comments after a speech last month, New York Fed President William Dudley observed “volatility in the markets is unusually low.” He said “that makes me a little nervous because I’ve got to believe that even though most people in the room have something close to my view of the economy, there’s always the possibility of big surprises.”

 

In a speech this week, Kansas City Fed leader Esther George, long a critic of the Fed aggressively easy money policy stance, again lamented actions taken by the central bank may be promoting too much risk taking, of a sort that could eventually come to woe.

But Williams says, The Fed can’t see bubbles anyway…

Mr. Williams flagged that it remains difficult to know when markets have gone wrong, and he called for additional study into the matter.

So in summary… It’s entirely circular…

The Fed must blow bubbles because otherwise irrational investors get “carried away” and inevitably crash the markets…

Ultimately it seems clearer and clearer that, as Williams himself opines “financial stability is just as important as pursuing price stability and growth.”

But Ben Bernanke said their actions were for Main Street, not Wall Street?

Ultimately it is clear that The Fed wants supreme control to protect us all from irrational investors…




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