finance – Page 18219

Spot The Difference

Greater-est fools? Or different this time?

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The NSA Is Tracking Your Porn Browsing

Ed Snowden's latest revelation may leave SEC officials quaking as the NSA "has been gathering records of online sexual activity and evidence of visits to pornographic websites as part of a proposed plan to harm the reputations of those whom the agency believes are radicalizing others through incendiary speeches." Of course, as we have seen, this 'information' would never be used by the government for non-radical-terrorist suppressing reasons, as the ACLU notes, is is "an unwelcome reminder of what it means to give an intelligence agency unfettered access to individuals' most sensitive information using tactics associated with the secret police services of authoritarian governments."

Via Snowden…

The National Security Agency has been gathering records of online sexual activity and evidence of visits to pornographic websites as part of a proposed plan to harm the reputations of those whom the agency believes are radicalizing others through incendiary speeches, according to a top-secret NSA document.

The document, provided by NSA whistleblower Edward Snowden, identifies six targets, all Muslims, as “exemplars” of how “personal vulnerabilities” can be learned through electronic surveillance, and then exploited to undermine a target’s credibility, reputation and authority.

The NSA document, dated Oct. 3, 2012, repeatedly refers to the power of charges of hypocrisy to undermine such a messenger.”

Full ACLU Statement:

The NSA considered discrediting six people by revealing surveillance evidence of their online sexual activity, visits to pornography websites, and other personal information, according to a report today in The Huffington Post. The article cited documents leaked by former NSA contactor Edward Snowden. The targets of the NSA’s plan were all Muslims whom the NSA characterized as “radicals” but who were not believed to be involved in terrorism. The documents say one of the targets was a “U.S. person,” a term describing American citizens and legal permanent residents, but all of the targets were reportedly outside the United States.

American Civil Liberties Union Deputy Legal Director Jameel Jaffer had this reaction:

“This report is an unwelcome reminder of what it means to give an intelligence agency unfettered access to individuals' most sensitive information. One ordinarily associates these kinds of tactics with the secret police services of authoritarian governments. That these tactics have been adopted by the world’s leading democracy – and the world’s most powerful intelligence agency – is truly chilling.”

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David Rosenberg Turns Bullish, Earns $3.1 Million

In early 2013, many were mystified when one of the most vocal deflationists, and hence stock market bears, David Rosenberg, turned furiously bullish. Just what was the motive behind this transformation many wondered? Thanks to a just filed Gluskin Sheff compensation table, we can put all such lingering questions to rest: the reason, or rather reasons: 3,082,441… all-cash.

Some more on why the formerly rather bearish ex-Merrill strategist will make the most in 2013, or $3.1 million, almost as much as the CEO of his employer, and has the highest, $1.8 million, annual incentive plan of any Gluskin Sheff:

Mr. Rosenberg’s employment agreement provides a mechanism by which Mr. Rosenberg shares in any net revenues generated from Gluskin Sheff’s efforts to monetize economic research authored by Mr. Rosenberg and published by Gluskin Sheff. Mr. Rosenberg’s employment agreement further provides that he will receive guaranteed additional compensation of $1,800,000 per annum in addition to his base salary until June 30, 2014…. In the case of Mr. Rosenberg, his employment agreement stipulates that he will receive guaranteed additional compensation of $1,800,000 per annum until June 30, 2014, in addition to his base salary. For the 2013 fiscal year, $0.5 million of the guaranteed additional compensation paid to Mr. Rosenberg was allocated from the Bonus Pool, and for fiscal 2012 the guaranteed additional compensation was not allocated from the bonus pool.

And the full explanation, from Globe and Mail

It’s hard to imagine a a top-five executive with a public company in Canada with a sweeter deal than David Rosenberg, as evidenced by his employer Gluskin + Sheff Associates Inc.’s newly filed management information circular.

Mr. Rosenberg, the all-star chief economist and strategist with the money management firm earned an impressive $3.1-million in the company’s most recent fiscal year, ended June 30, making the former chief North American economist at Bank of America-Merrill Lynch the company’s second-highest paid executive behind CEO Jeremy Freedman.

What is unusual about his compensation is how little of it is tied to the success of his employer, either in its financial performance or stock price. Actually, none of it is. As long as Gluskin has enough money to keep on the lights, stay in business and pay employees, Mr. Rosenberg is guaranteed a payment of $2-million a year. That’s split into two parts: his $200,000 salary, and a $1.8-million amount identified in the proxy circular as “guaranteed annual compensation.” The guaranteed payment agreement has been in place for the last two fiscal years and continues through the end of this fiscal year next June. It is paid in cash, not share units.

The third element of his compensation is variable, but it has nothing to do with the performance of his firm or the accuracy of his forecasting, but rather the popularity of his research, which reaches far beyond Canada: Mr. Rosenberg pocketed $1.08-million in gross pay last year from his share of net revenues generated by the company’s sale of economic research he pens. That’s up from $877,645 the year before, making Mr. Rosenberg one of the few Canadian authors to earn a $1-million a year for his work.

Not a bad haul when you consider Mr. Rosenberg made a much publicized shift in his thinking earlier this year, shedding part of his bearish stance to adopt a more bullish view on Canada.

Source: Gluskin Sheff circular

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Obamacare Online Sign-Up Delayed By One Year For Small-Business

In a move reminiscent of the “radical” Tea-Party demands of a few weeks back, the administration has decided:

*OBAMA DELAYING ONLINE INSURANCE ENROLLMENT FOR SMALL BUSINESS
*SMALL BUSINESSES SAID TO USE `DIRECT ENROLLMENT,’ NOT WEBSITE

The one-year delay – to Nov 2014, follows the initial Oct 2013 delay citing “sometime in November 2013” availability. The delay applies only to the federal-run SHOP exchanges in almost three dozen states.

Via HHS,

“We’ve concluded that we can best serve small employers by continuing this offline process while we concentrate on both creating a smoothly functioning online experience in the SHOP Marketplace, and adding key new features, including an employee choice option and premium aggregation services, by November 2014,”

Via Bloomberg,

Small businesses won’t be able to use the federal government’s health-insurance website until November 2014 in most U.S. states, the latest delay for the Obama administration’s health-care system overhaul.

“Direct enrollment” will be available in the meantime, said an official with the U.S. Department of Health and Human Services who asked not to be identified because the decision hasn’t been made public. The change applies to 36 states where the federal government is running insurance exchanges.

The exchanges for small businesses, available for companies with 50 or fewer full-time workers, had already been delayed from a scheduled Oct. 1, 2013, start.

So far so good eh?

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HaPPY KLePTo THANKSGiViNG 2013

The Kleptos are now giving thanks

For money that flows to their banks

Their hunger for more

Is killing the poor

As the global economy tanks

The Limerick King

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The Global Leverage Cycle: You Are Here

While one can make an argument that the central banks have now destroyed all traditional “cycles”, including the economic “virtuous cycle“, the business cycle and even the leverage cycle, the question remains how much longer can the Fed et al defy mean reversion and all laws of nature associated with it. That said, assuming the fake market environment we find ourselves in persists for at least another year, this is what the leverage cycle would look like assuming $10 trillion in global central bank assets were a pro forma new normal.

Keep a close eye on China: it is on the cusp between the end of the leverage cycle (where as we reported over the past two days, it has been pumping bank assets at the ridiculous pace of $3.5 trillion per year) and on the verge of having its debt bubble bursting. What happens then is unclear.

Some thoughts on the above graphic from SocGen:

For the first time post-crisis, we expect advanced economies in 2014 to see a marked increase in their contribution to global growth. Emerging economies have over the past few years offered a welcome support to global growth, but this relied in part on a build-up of credit that now needs to be paid down. The hope is for advanced economies to take over the baton from the emerging economies as the main driver of global growth. The US is now poised for sustainable recovery and in Japan hopes remain that Abenomics will work. The euro area, however, continues to lag. As such the growth relay from emerging to advanced is likely to prove a bumpy process. Commodity markets will sit at the heart of this dynamic – our strategists look for range-bound markets in 2014.

This new rotation of the global leverage cycle is an integral part of our monetary policy outlook, which we discuss in greater detail in the following sections. Several features are worth noting:

Time for emerging economies to deleverage: Post crisis, emerging economies adopted accommodative economic policies to offset the collapse in demand for their output. Providing a further boost, accommodative monetary policies in advanced economies drove significant financial flows into the region. Combined, these fuelled credit expansion. With the turn in the US interest rate cycle back in the spring, external financing conditions tightened. Moreover, in a number of emerging economies, policymakers have become increasingly concerned by a build-up in leverage; this is not just a story of level, but also one of speed. As seen from our leverage cycle, we believe the emerging economies have now moved to a phase of deleveraging. Our emerging market theme, however, is not just one of a cyclical downturn. As we have highlighted on several occasions, we believe potential growth is structurally slowing and no more so than in China.

China must tame excess capacity: With NFC debt at over 150% of GDP and significant excess capacity, China is ripe for deleveraging. Already in 2013, a notable feature of our forecast has been that the Chinese authorities would resist market pressure to ease monetary policy and further fuel the credit bubble. Nonetheless, shadow bank credit has continued to expand and, with that, problems of excess capacity. China’s challenge now is to deleverage and reform. The two in many ways go hand in hand and we discuss these issues in Boxes 5 and 14. It is worth nothing here that reform in China is tantamount to removing the 100% implicit state guarantee. And looking ahead, even state-backed companies could be allowed to fail. Herein resides also a potential trigger for the risk scenario of a hard landing, should such a company failure be poorly managed and spin out of control.

Japan’s corporate sector to cut savings to invest: Investment and savings are two sides of the same coin and to secure sustainable recovery in Japan, corporations need to reduce savings and invest. The BoJ’s monetary policy is already working through the currency channel and our expectation is to see a pick-up in corporate investment next. This is not just a function of monetary policy, but also the two remaining arrows of Abenomics, namely fiscal stimulus and structural reform. We see significant opportunities medium-term from reform as discussed in Box 13. Short-term, the BoJ is poised to deliver further stimulus and we look for additional asset purchases to be announced early in the new fiscal year (commencing April 1).

US credit cycle is turning: Credit channels have been repaired, household balance sheets deleveraged and excess housing stock unwound. Combined, these lay the foundations for sustainable recovery. In 2013, fiscal tightening exerted a headwind to growth, but this is now easing allowing GDP growth to accelerate to 2.9% in 2014. For the Fed, setting the right monetary policy during this transition will be challenging. A glance at our leverage cycle suggests that the challenge as recovery gains traction over time is to avoid a build-up of excess leverage. This is not an immediate concern to our minds. Although we forecast household credit expansion, our forecast for household income growth is higher, entailing some further reduction of the household debt-to-income ratio.

UK housing credit has been boosted by government measures: Supported by policy initiatives, UK housing is staging a recovery. This is highly dependent on mortgage loan conditions and the BoE will be keen to keep rates low. We expect the Bank to lower the unemployment rate threshold on its forward guidance from 7.0% to 6.5% (and reduce the NAIRU from 6.5% to 6.0%). The hope medium-term, is that this housing-driven recovery will eventually become broader based with stronger confidence, consumption, exports, corporate investment and lower unemployment. Much will depend, however, on euro area recovery as of 2015. Longer-term, a possible UK referendum on EU membership remains a point of uncertainty.

Euro area still facing headwinds: Individual euro area economies are in very different stages on the leverage cycle. Germany is the most advanced, followed by France, Italy and Spain. For several euro area economies, financial fragmentation and fiscal austerity remain serious headwinds. 2014 will see the arrival of a Single Supervisory Mechanism. As we discuss in Box 10, progress on a Single Supervisory Mechanism continues to disappoint and our base line remains for only a gradual repair of credit channels. Moreover, structural reforms are also not progressing at the desired pace, albeit with significant variation from country to country. The danger for the euro area is to become trapped in a lost decade of very low growth and low inflation. The ECB still has options. The real game changer opportunities, however, reside with governments to deliver quantum leaps on reform – at both the euro area and national levels. For now, progress remains disappointingly slow.

Summing up our view, 2014 will thus be the first year post crisis when advanced economies make an increased contribution to global GDP growth.

* * *

Good luck

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Something’s Afoot In China: Young Rich Woman Are Buying Maseratis

Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter

Money-losing Italian supercar maker Maserati, a subsidiary of money-losing Italian run-of-the-mill automaker Fiat, has some challenges. It sold 6,288 cars worldwide in 2012, down 30% from its all-time record in 2008 of 9,000 cars. In order to become profitable, and help its parent become profitable, it wants to force-jump those sales to 50,000 by 2015. Multiplying sales by a factor of eight in three years, just to become profitable? I wonder who did the math.

But it’s not entirely pie in the sky. The number of orders nearly tripled during its year ended July, from the number of units sold in the prior year, though manufacturing bottlenecks have limited actual dealer sales so far.

“The numbers show that the United States is still our largest market globally, but that China has taken the lead for certain models such as the Quattroporte,” Maserati brand chief executive Harald Wester told Reuters in August.

But the company faces a couple of problems in China.

One is the perception that Italian high-end cars are less reliable than their German competitors – a perception Maserati had to fight, Christian Gobber, managing director of Maserati Greater China, told The Wall Street Journal.

Another is crummy service. Maserati doesn’t have much of a service operation in China, and its parts distribution center in Shanghai is run by a third party. “It’s a headache for owners of Maserati; even in Beijing there are few places that provide maintenance service,” explained Michael Ye, a real-estate professional. He liked the Quattroporte’s “fashionable and dynamic design,” but dreading the aftermarket service, he ended up buying a Porsche Cayenne.

Maserati isn’t blind to the problem. The company is looking into beefing up its parts and service operations as more Maseratis roll over the curb. Eventually customers might see service levels “more in line” with German high-end automakers, but as of yet, Gobber said, a new parts distribution center was still in the “study phase.”

And then there is Chinese President Xi Jinping’s crackdown on lavish spending by government officials as part of a larger crackdown on corruption that he wove into his plan late 2012. He meant business. Sales of supercars, which had soared since the Financial Crisis, suddenly dropped late last year, and have continued to drop, including those of Ferrari and Lamborghini. Corrupt officials simply can no longer afford to show off the fruits of their corruption [read…. Supercars In The US, Japan, and China: How QE And Corruption Boosted Sales].

But Maserati sales in China are booming. The number of dealerships is expected to reach 40 by the end of the first quarter and 60 by the end of 2014. For the first 10 months, the company delivered 2,000 cars, with another 1,000 cars to be delivered by the end of this year, Mr. Gobber said. That’s up from about 900 for the entire year 2012.

China, with 4,938 total orders for the first nine months – the company is having trouble building them – is still Maserati’s second largest market, behind the US, for now, but orders for its hottest model, the Quattroporte, reached 3,956 in China, the most anywhere in the world.

But who the heck are these eager buyers, now that corrupt officials have to think twice before splurging on them?

In the US and Europe, 95% of the buyers are male. The average age is 55. Turns out, the cliché is actually a reality: wealthy guy, going through midlife crisis, ends up buying a supercar, perhaps at the spur of the moment, now that he can afford it.

But not in China. There, the average buyer is 37 years old – and 40% are “very successful young businesswomen who love European craftsmanship and want to be chauffeured in their new Quattroportes,” Maserati CEO Harald Wester told Automotive News Europe.

As is the case with rich Chinese men, these young women don’t want to fight it out themselves in the endless traffic jams. Forget the screeching tires as the light turns green, the heel-and-toe downshift ahead of a turn with no visibility, the sheer thrill of a four-wheel drift through that turn, the rush that comes from blasting out of the turn, V-8 screaming near the red line, the rush of having escaped near-certain death merely by your infinitely honed driving skills and the noble piece of machinery that you paid such a fortune to obtain. They’d rather sit in the back and be chauffeured around.

And those Quattroportes cost a lot of moolah in China where the government slaps on hefty import duties and confiscatory luxury taxes. Entry-level econo-models with a V-6 engine start at the equivalent of $277,000, according to Automotive News Europe. Fully equipped V-8 models retail for about $440,000.

How is Maserati’s Quattroporte different from the models Ferrari and Lamborghini offer? They have to rely on corrupt officials to make their numbers, and when corrupt officials fail to materialize, sales drop. The entry-level Quattroporte is priced below the corruption limit of 2 million yuan, and that may help. But why does it appeal to young rich Chinese women? Maybe it’s the way it looks, maybe it’s the sound of the name in Chinese, or maybe it’s just young rich Chinese women who think they’re going to change the world.

BYD, the name of a Chinese electric vehicle maker, stands for “Build Your Dream.” Maybe that’s what they’re trying to do in China. But here, they’re building a nightmare: broken promises, falsehoods, design flaws… funded by American taxpayers. And they paid Chinese workers in California $1.50 per hour to do it. Read….. American Boondoggle Meets Chinese Methods

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Exposing The Reality Of The "Too Good To Be True" Greek Budget Myth

Authored by Martin Feldstein, originally posted at Project Syndicate,

Recently, newspaper headlines declared that Greece would have a balanced budget for 2013 as a whole. The news came as quite a shock: Recall that when Greek officials came clean about the true state of their country’s public finances in 2010, the budget deficit was more than 10% of GDP – a moment of statistical honesty that triggered the eurozone debt crisis. It seemed too good to be true that the Greek deficit would be completely eliminated in just three years.

In fact, it is too good to be true. Any reader who went beyond the headlines soon discovered that the prediction of a zero budget deficit was in fact misleading. The International Monetary Fund was predicting only that Greece would have a zero “primary” budget deficit in 2013.

A “primary” budget deficit (or surplus) is the difference between a government’s outlays for everything excluding the interest payments that it must pay on its debt and its receipts from taxes and other charges. In the case of Greece, the interest payments apply to government debt held by Greek individuals and institutions, as well as to government debt held by the IMF, the European Central Bank, and other foreign lenders.

The overall budget deficit is still predicted to be 4.1% of Greece’s GDP in 2013 – a substantial improvement compared to 2010 but still far from fiscal balance. The difference between the overall deficit and the primary deficit implies that the interest on the Greek national debt this year will be 4.1% of GDP.

Moreover, the Greek government’s interest payments are exceptionally low. Given that its debt will still be about 170% of GDP this year, the 4.1%-of-GDP interest bill implies that the Greek government pays an average interest rate of just 2.4% – far less than the nearly 9% rate that the market is now charging on ten-year Greek government bonds.

The difference reflects a combination of the lower rate on short-term debt and the highly favorable terms on which Greece is now able to borrow from official lenders at the IMF and the ECB. If Greece had to borrow at the market interest rate on ten-year bonds, its deficit would rise by 6.5% of the Greek government debt or 11% of GDP. In this case, the overall Greek deficit would be about 15% of GDP, putting its debt on a rapidly exploding path.

Greece’s economic weakness increases the current level of the deficit. Five years of declining GDP have depressed tax receipts and increased transfer payments. The IMF estimates that these cyclical effects on revenue and outlays have raised the overall deficit by nearly 5% of Greek GDP. On a cyclically adjusted basis, Greece’s overall budget would show a surplus of 0.6% of GDP this year.

This also implies that if Greece could escape from its current recession, its national debt would decline, both absolutely and as a share of GDP. More generally, the national debt of any country grows by the size of its budget deficit or declines by the size of its budget surplus.

Even an economy with an overall budget deficit will have a declining government debt/GDP ratio if the growth rate of its nominal GDP exceeds that of its debt. For Greece, with an overall deficit of 4.1% of GDP and a debt/GDP ratio of 170%, the debt ratio would fall if the combination of inflation and real (inflation-adjusted) GDP growth exceeded 2.4%. Stated differently, now that Greece has achieved a zero primary budget deficit, its debt burden will decline if its nominal growth rate exceeds the average interest that it pays on its government debt.

Budget deficits and the resulting national debt are important not only in themselves; they also contribute to a country’s current-account deficit, which is the difference between its level of domestic investment by businesses and households in structures and equipment and the amount that it saves to finance those investments. That amount, which includes the saving of businesses and households, is reduced by the amount that the government borrows.

In the case of Greece, the saving of businesses and households exceeds the level of investment in businesses and housing by just enough to outweigh the dissaving by the government, resulting in a very small current-account surplus. Stated differently, Greece is now able to finance its current level of consumption and investment, including government and private spending, without relying on capital inflows from the rest of the world.

Looking ahead, the IMF predicts that Greece will have a gradually rising primary surplus and a gradually declining overall deficit over the next several years. But, unless Greece is able to increase its rate of economic growth, the budget will remain in deficit and the debt will remain at nearly its current share of GDP.