Tag: finance

Greek Supreme Court Rules “Bank Deposit Confiscation” Against The Constitution

While we are sure the governments and their IMF handlers will find a way around such annoyances as the rule of law, the Greek Supreme Court just ruled that the seizure of bank deposits due to debts to the state without previous notice was against the Constitution. We humbly suggest the Ukrainian courts be rapidly brought to a decision on the same ruling, before IMF hands start dipping into pockets.

 

As Keep Talking Greece explains,

Greece’s Supreme Court ruled that the seizure of bank deposits due to debts to the state without previous notice was against the Constitution. The judges had taken up a debtor’s complaint filed in 2006. The debtor had seen his pension being grabbed from his bank account due to debts to the tax office.

 

The court ruling is provisional, judges are expecting to take the final decision on a session on May 5th 2014.

 

 

But the Supreme Court ruling may influence the current practice of tax authorities to proceed to so-called “electronic seizure of bank accounts” without previous notice.

 

This measure has been applied since 1.1.2014.

 

Tax offices and insurance funds are allowed to seize the amount of debt from salary, pensions and rents, provided 1,000 euro will be left in the bank account

 

More details of the Supreme Court ruling here in Greek

One wonders when the US Supreme Court would take up such a decision?

 

As a reminder, here is the IMF discussing their wealth tax idea…

“The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair).

 

There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and—until he changed his mind—Keynes. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax—on bondholders—that also falls on nonresidents).

 

There is a surprisingly large amount of experience to draw on, as such levies were widely adopted in Europe after World War I and in Germany and Japan after World War II. Reviewed in Eichengreen (1990), this experience suggests that more notable than any loss of credibility was a simple failure to achieve debt reduction, largely because the delay in introduction gave space for extensive avoidance and capital flight—in turn spurring inflation.

 

The tax rates needed to bring down public debt to precrisis levels, moreover, are sizable: reducing debt ratios to end-2007 levels would require (for a sample of 15 euro area countries) a tax rate of about 10 percent on households with positive net wealth.


    



via Zero Hedge http://ift.tt/1jzT619 Tyler Durden

Ukraine’s ‘Freedom-Seeking’ Nationalists Protest Government Building, Ministers Evacuated

Well that didn’t take long.. the “nationalists” who freed the country from Yanukovych’s apparent corrupt government in favor of a well-chosen US leadership; are now turning on the replacements:

  • *UKRAINE NATIONALIST PRAVYI SEKTOR PROTESTS AT PARLIAMENT: TV5
  • *UKRAINIAN PROTESTERS DEMAND INTERIOR MINISTER’S RESIGNATION
  • *UKRAINE LAWMAKERS EVACUATED FROM PARLIAMENT BUILDING: TV5

Of course, this is a day after the party’s leader was allegedly killed by Police, and lawmakers demand the return of illegally held guns.


    



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

Inflation is Percolating Throughout the Financial System

Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system. Now, we realize that everyone knows the Fed is “printing money.” However, when you look at the list of bailouts/ money pumps it’s absolutely staggering how much money the Fed has thrown around.

 

Here’s a recap of some of the larger Fed moves during the Crisis:

 

  • Cutting interest rates from 5.25-0.25% (Sept ’07-today).
  • The Bear Stearns deal/ taking on $30 billion in junk mortgages (Mar ’08).
  • Opening various lending windows to investment banks (Mar ’08).
  • Hank Paulson spends $400 billion on Fannie/ Freddie (Sept ’08).
  • The Fed takes over insurance company AIG for $85 billion (Sept ’08).
  • The Fed doles out $25 billion for the automakers (Sept ’08)
  • The Fed kicks off the $700 billion TARP program (Oct ’08)
  • The Fed buys commercial paper from non-financial firms (Oct ’08)
  • The Fed offers $540 billion to backstop money market funds (Oct ’08)
  • The Fed agrees to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
  • $40 billion more to AIG (Nov ’08)
  • The Fed backstops $140 billion of Bank of America’s liabilities (Jan ’09)
  • Obama’s $787 Billion Stimulus (Jan ’09)
  • QE 1 buys $1.25 trillion in Treasuries and mortgage debt (March ’09)
  • QE lite buys $200-300 billion of Treasuries and mortgage debt (Aug ’10)
  • QE 2 buys $600 billion in Treasuries (Nov ’10)
  • Operation Twist reshuffles $400 billion of the Fed’s portfolio (Oct ’11)
  • QE 3 buys $40 billion of Mortgage Backed Securities monthly (Sept ‘12)
  • QE 4 buys $45 billion worth of Treasuries monthly (Dec ’12)
  • Fed tapering begins (November 2013).

 

The Fed is not the only one. Collectively, the world’s Central Banks have pumped over $10 trillion into the financial system since 2007. This money printing has resulted in a massive expansion of Central Bank balance sheets… and unleashed inflation in the financial system. In the emerging markets, where consumers can spend as much as 50% of their income, this has resulted in food riots and even revolutions as we saw with the Arab Spring in 2011.

 

This situation is far from over. Higher food prices continue to be a source of civil unrest throughout the emerging market space. Recently Saudi Arabia banned the exporting of poultry to halt prices, which rose by as much as 40%:

 

Saudi Arabia has banned the export of chickens in an attempt to curb an online public campaign to boycott poultry consumption due to high prices.

 

The Saudi Ministry of Commerce and Industry decided Wednesday to halt the export of chicken until the domestic market is stabilized, Emirates 24/7 reported.

 

The decision followed a campaign launched by Saudis on Twitter to boycott buying and eating chicken in the country when prices for poultry rose 30-40 percent, the Financial Times reported.

 

http://ift.tt/Z7mVq5

 

In the US, a series of droughts and biofuel policies have resulted in corn prices skyrocketing. This has crushed some Latin American markets such as Guatemala:

 

In the tiny tortillerias of this city, people complain ceaselessly about the high price of corn. Just three years ago, one quetzal — about 15 cents — bought eight tortillas; today it buys only four. And eggs have tripled in price because chickens eat corn feed…

 

In a globalized world, the expansion of the biofuels industry has contributed to spikes in food prices and a shortage of land for food-based agriculture in poor corners of Asia, Africa and Latin America because the raw material is grown wherever it is cheapest.

 

Nowhere, perhaps, is that squeeze more obvious than in Guatemala… With its corn-based diet and proximity to the United States, Central America has long been vulnerable to economic riptides related to the United States’ corn policy. Now that the United States is using 40 percent of its crop to make biofuel, it is not surprising that tortilla prices have doubled in Guatemala, which imports nearly half of its corn.

 

http://ift.tt/Z7mVq9;

 

As the cost of living increases around the globe, wage protests and strikes have become commonplace, particularly in the emerging market space:

 

South Africa – A total of 26 people were arrested overnight in connection with farmworkers' protests for higher wages, Western Cape police said on Wednesday.

 

At least 180 people had been arrested in connection with the protests since Wednesday last week…

 

http://ift.tt/Z7mTi4

 

Indonesia: Thousands of workers took to the city’s main thoroughfares on Wednesday to protest delays in the increased minimum wage and hikes in electricity rates.

 

The workers from industrial areas in Bekasi, Bogor, Depok, Jakarta and Karawang belonging to the Indonesian Metal Workers Federation (FSPMI), the All-Indonesia Workers Union (KSPSI) and the Indonesian Workers Assembly (MPBI), demanded that Governor Joko “Jokowi” Widodo instruct companies to immediately comply with the 44 percent raise of the provincial minimum wage to Rp 2.2 million (US$228) for 2013.

http://ift.tt/V6hl7q

 

China-Sanitation workers' salaries will be increased by 10 percent this year in

Guangzhou, the capital of South China's Guangdong province, following

recent protests demanding higher pay…

 

"The salary of sanitation workers will be increased by 10 percent this year and the government will also boost other subsidies, for example, housing allowances," Huang said…

 

Guangzhou has an estimated 38,840 sanitation workers, who earn an average of about 1,300 yuan ($209) a month, almost equal to the city's minimum wage.

 

http://ift.tt/VYOctL

 

Germany-Germany’s major public services trade union Verdi had called for a daylong strike on Friday at Hamburg Airport, impeding security operations and delaying flights as passengers struggled to get to their gates.

 

The union is calling for an hourly wage of 14.50 euros for its members, who currently earn 11.80 euros per hour.

 

Only one of 20 security checkpoints had opened, with approximately 95 percent of the passenger security-check staff walking off the job.

 

http://ift.tt/WixCpm

 

In the US, we are now seeing talk of raising the minimum wages. McDonalds workers are staging wage protests. And 40% of lower and middle class Americans use credit cards to pay basic expenses.

 

The signs of inflation are present in the financial system. It will be getting worse going forward. Smart investors should be preparing now in advance.

 

For a FREE Special Report on how to protect your portfolio from inflation, swing by

http://ift.tt/RQfggo

Best Regards

Phoenix Capital Research

 

 

 

 


    



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

FOMC Asset Purchases And The S&P 500

Submitted by Lance Roberts of STA Wealth Management,

I have been pretty rough on the market over the last couple of days (see here and here) as to why the markets are unlikely to repeat the secular bull market of the 80's and 90's anytime soon.  However, as I have stated repeatedly over the last several months, such comments do not mean that the markets can not go higher in the near term.  We are reminded of this fact in a recent note from Bespoke Investment Group which discussed the impact of the FOMC's large-scale asset purchase programs (known quantitative easing or QE) on the financial markets.  To wit:

"Throughout the last couple of years we have been updating a version of the chart below which overlays each of the FOMC’s asset purchase plans on the chart of the S&P 500. As one can clearly see in the chart and the table below, periods where the Fed was buying bonds have seen stocks rally, whereas periods where the Fed was not actively purchasing bonds saw two of the largest pullbacks for the S&P 500 during this bull market."

Bespoke-032614

This is something that I discussed previously.  The chart below shows the historical correlation between increases in the Fed's balance sheet and the S&P 500.  I have also projected the theoretical conclusion of the Fed's program by assuming a continued reduction in purchases of $10 billion at each of the future FOMC meetings.

Fed-Balance-Sheet-VS-SP500-032614

If the current pace of reductions continues it is reasonable to assume that the Fed will terminate the current QE program by the October meeting.  If we assume the current correlation remains intact, it projects an advance of the S&P 500 to roughly 2000 by the end of the year.  This would imply an 8% advance for the market for the entirety of 2014.

Such an advance would correspond with an economy that is modestly expanding at a time where the Federal Reserve has begun tightening monetary policy. (Yes, Virginia, "tapering" is "tightening.)  David Rosenberg charted this in his note yesterday (via PragCap):

Rosenberg-CycleTable-032614

With this in mind, Bespoke made a very salient point.

"With the benefit of hindsight it was easy to see that the economy was not strong enough to stand on its own following the last two times the Fed ended its bond buying programs.

 

While the S&P 500 has continued to rally since the taper was announced, volatility has seen an uptick. This leads to the question once again over whether the US economy can stand on its own when QE3 completely winds down, not to mention when the Fed actually hikes rates?"

This is a crucial question considering that the economy is already growing at sub-par rates.  As I discussed recently:

"Since 1999, the annual real economic growth rate has run at 1.94%, which is the lowest growth rate in history including the 'Great Depression.'  I have broken down economic growth into major cycles for clarity."

GDP-Growth-ByCycle-031214

Such weak levels of economic growth does not leave much wiggle room to absorb an exogenous event, or even just a normal downturn, in an economic cycle. 

With deflationary pressures still prevalent in the economy, from rising productivity, excess labor supply and sluggish wage growth, there is little ability for increases in consumption to drive continued economic expansion.  The chart below shows the "consumption function."

PCE-DEBT-GDP-032614

Through 2008, consumption as a percentage of the economy, grew from roughly 62% to 68%. That increase in consumption, which supported economic growth, was derived through an $11 Trillion increase in real, inflation adjusted, household debt.  However, therein lies the problem.  If the Federal Reserve does begin to hike interest rates in an already anemic economy, can consumers absorb higher borrowing costs without impeding their consumption?  The answer is shown in the comparison of real personal consumption expenditures as compared to economic growth.

PCE-GDP-032614

It is unlikely that the consumer can increase debt enough to substantially increase economic growth.  With economic growth heavily dependent on personal consumption, even the much anticipated revival in corporate capex spending will be unlikely able to "carry the ball" on its own.

It is here that Bespoke's question of whether the economy can survive without the support of the FOMC becomes critical.  As I stated yesterday:

"It is quite apparent that the ongoing interventions by the Federal Reserve has certainly boosted asset prices higher.  This has further widened the wealth gap between the top 10% of individuals that have dollars invested in the financial markets, and everyone else.

 

However, while increased productivity, stock buybacks, and accounting gimmicks can certainly maintain an illusion of corporate profitability in the near term, the real economy remains very subject to actual economic activity.  It is here that the inability to releverage balance sheets, to any great degree, to support consumption provides an inherent long term headwind to economic prosperity."

The real challenge for the Federal Reserve is deciphering between economic statistics at the headline and the real economy.  While much of the economic data does show improvement from the recessionary lows, it also suggests that the real economy is far too weak to stand on its own. 

If the Fed is indeed caught in a liquidity trap, then the current withdrawal of support will quickly show the cracks in the economy pushing the Fed back into action.  I think the real question that needs to be asked is:

"When will the financial markets fail to respond to Fed actions?"

It is at the point of "monetary impotence" where the word "risk"  takes on a whole new meaning.

 


    



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

Presenting The Latest US Strategy To Counter “Russian Aggression”

#Selfies!

 

 

State Department Spokesperson Jen Psaki’s message to the world is not #trending

 


    



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

Obama Tries Stand Up Comedy … Bombs

President Obama tried his hand at stand up comedy.  Here’s the punchline:

Russia has pointed to America’s decision to go into Iraq as an example of Western hypocrisy. Now, it is true that the Iraq war was a subject of vigorous debate, not just around the world but in the United States, as well. I participated in that debate, and I opposed our military intervention there.

 

But even in Iraq, America sought to work within the international system. We did not claim or annex Iraq’s territory. We did not grab its resources for our own gain. Instead, we ended our war and left Iraq to its people in a fully sovereign Iraqi state that can make decisions about its own future.

We get the joke …  For example, we know that:

  • The protests against the Iraq war were the largest protests in history, and yet the politicians plowed ahead with the disastrous war and refused to listen to the facts … or the will of the people

We get it … It’s just not very funny.

So – other than a few polite claps by his secret service escorts – Obama’s stand up act is getting no applause:


    



via Zero Hedge http://ift.tt/1rGnWX2 George Washington

“Are The Bubbles Back?” – Live Feed

"Either way you look at it, it's time for the Fed stop inflating housing assets, and stop buying mortgages" is how Alex Pollock introduces the following live streamed event by AEI. With Speakers such as Chris Whalen we suspect, as the moderator explains how, they will explain "financial markets never seem to grow smarter when it comes to real estate."

Via AEI,

Has money creation and bond-buying by the major central banks, intended to address the effects of old bubbles, now induced new bubbles? As Fed Chairman Janet Yellen recently told Congress, “It is fair to say that our monetary policy has had the effect of boosting asset prices.” Is the asset price boosting too much or no problem?

US house prices in major cities were up 13 percent in 2013 and are already back above their long-term inflation-adjusted trend, and global markets have been marked by a risk-increasing thirst for yield. According to the Bundesbank, German houses are overpriced. Furthermore, there are house price bubbles in Brazil and Canada, and foreign debt expansions make the Fragile Five large emerging markets — Brazil, India, Indonesia, South Africa, and Turkey — more fragile.

So are there new bubbles or not? What are we to make of the current asset price inflations? The expert panel will discuss.

 

 

 

Full presentation links here:

Alex J. Pollock, AEI

Jay Brinkmann, Former Chief Economist of the Mortgage Bankers Association

Mark Carey, Federal Reserve Board

Mark Fogarty, National Mortgage News

Desmond Lachman, AEI

Chris Whalen, Indiana State University’s Networks Financial Institute


    



via Zero Hedge http://ift.tt/P7gULR Tyler Durden

30Y Treasury Yield Tumbles Under 3.5% – Lowest In 9 Months

The short-end of the Treasury curve continues to reprice higher in yield (3Y +2bps) as the term structure bear-flattens with 30Y yields rallying further after the aggressive 7Y auction. 30Y yields just broke below 3.5% (-4.5bps) – the lowest level intraday since early July 2013. 2s10s are now at 2.21% – near 10-month lows – and 5s30s has plunged to 1.80% – its flattest since September 2009.

 

 

Chart: Bloomberg


    



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

2 Bear Markets In 15 Years In Not Enough “Punishment”

Bear markets are punishment for over-exuberance and greed, notes ConvergEx's Nick Colas, teaching investors to be more careful next time around. That’s a pretty popular narrative in capital markets, and with two tough bear markets over the past 15 years, Colas suggests you’d think that there’s no way investors would be guilty of blowing bubbles again.  Right?  Well, as Nick explains, if the evidence from actual crime and punishment is any guide, this moral narrative is actually quite wrong.

Via ConvergEx's Nick Colas,

Recidivism – the percent of criminals who are rearrested after a stint in prison – is +40% across the U.S. and over 50% in some states like California. Those ‘Scared Straight’ programs you see on reality TV?  Many criminal psychologists think they do more harm than good, and the data supports that point of view.  So despite lifting equities to unsustainable levels twice in a generation, investors are perfectly capable of doing it again.  Let the punishment fit the crime if this is the case.

The current generation of investors must be the most bubble-conscious market participants since the Dutch realized tulip bulbs weren’t great long term investments back in the 1630s.  We’ve had two difficult bear markets, first from 2000-2003 and again in 2007-2009.  Both lopped off close to 50% from equity values and both had the same root cause: irrational human confidence, first in tech stocks and then house prices.  Justice delayed is justice denied, and investors swiftly paid for their mistakes once the bubbles of their exuberance popped.

Perhaps it is a psychological echo from our country’s Puritan founders, but the notion that bear markets are “Punishment” for the error of our collectively greedy ways is a popular narrative.  The wrongdoer – and let whoever is without sin cast the first stone – must go through his or her punishment before achieving redemption.  Only after that penance is complete can we enjoy the next period of growth and expansion.  The error of our ways may vary.  Excessive enthusiasm for sock puppet mascots and their dot com business models one market cycle, sloppy residential real estate lending the next.  But in the end, we pay for our wrongdoing and move on, hopefully wiser and more cautious.

If this narrative of crime, punishment, and rejuvenation holds, current equity market valuations should be – at worst – accurate representations of future cash flows and discount rates.  They may even still be cheap.  After all, we’ve paid dearly not once, but twice, for terrible errors in judgment over the last 15 years.  Pencils should be sharper, minds clearer, and portfolios more thoughtfully diversified than at any point in the last two decades.  That’s the basic Puritanical structure of sin, penance, and forgiveness.  Wear your scarlet letter, contemplate your moral failings, and live a better life going forward.

The problem with this argument is that it ignores a cold reality of the human experience: punishment is a poor motivator for changes in behavior.   Consider the following points from the world of criminal justice:

In 2011 the Pew Charitable Trusts published an extensive study on recidivism – when people already jailed once for a crime must return to prison, convicted of another serious offense.  The central finding was that more than 43% of all past inmates end up back in jail for another crime within three years of their initial release, despite that the U.S. spends more than $50 billion annually on its prison system.  That is more than the GDP of most of the countries on the planet.

 

This rate has been fairly constant for several years, at 45.4% for inmates released in 1999 and 43.3% for those released in 2004.  Results vary widely by state.  California has a 59.5% recidivism rate, using samples from 1999-2002 and 2004-2007, while Virginia’s is essentially half that at 28.7% over the same periods.

 

Technical violations of parole – missed meetings with an officer of the court or social worker, for example, represent 26% of the cases. New crimes are 20%.  Again, results vary by state.  Arkansas has a unique program for parolees that essentially eliminates the chance of breaking parole.  Still, its recidivism rate is 44%.   California’s high rate, as noted, comes primarily from parole violations, and only 14-18% of its repeat offenders are convicted of a new crime.

 

The evidence shows that declining recidivism on a state level only comes with new programs that explicitly target the problem.  Oregon, with the lowest reported levels at 22.8% in 2004, aggressively manages parolees’ transition plans back into the “Real world” even before they leave prison.  Once out, punishments for breaking parole are gradual rather than an immediate trip back to prison.

 

How about those “Scared Straight” programs, where juvenile offenders get a stern talking to from seasoned inmates?  Ever since the original film chronicled such an approach to dealing with at-risk teens back in 1978, this has been a popular program in many American states as well as other countries.  Analysis of numerous studies on the efficacy of these programs yields a not-so startling conclusion: “the intervention on average is more harmful to juveniles than doing nothing.”  One review of a Scared Straight program in California’s notorious San Quentin prison concluded: “it was clear that the San Quentin Squires Program did not reduce delinquency overall.”  Even then, the program is still running to this day.

The bottom line is that punishment alone is not enough to change behavior.  Doing time in America is no joke.  Sentences are more severe than most other democracies, and conditions are generally tough at best and horrific at worst.  Despite all this, the chances that someone who goes through this experience and commits another crime is essentially 50-50.  And that’s a pretty sticky number, as the history shows.  To shift the balance states have to fundamentally change their approach, as the Oregon experience highlights.

As far as how these insights should inform our perspective on investor behavior, the conclusions are counterintuitive but hard to dismiss.  No, two bear markets in 15 years is not enough ‘Punishment’ to deter future ill-considered speculation.  In the vernacular of the U.S. penal system, investors are actually working on their “Third strike” – the much harsher set of penalties for repeat offenders.  At the moment, we actually aren’t too concerned that equity markets are actually in a bubble phase.  Earnings are decent, there is just enough economic growth to hold out some hope for acceleration, and valuations are fair.  Not cheap, mind you, but not insane as long as corporate managers keep costs in line.  So let’s keep our appointments with our parole officer and stay out of trouble.  Another trip back to the big house doesn’t help anyone.


    



via Zero Hedge http://ift.tt/1hymX2Z Tyler Durden