Tag: finance

Despite an apparent belief among the US mainstream media that 'taper' is priced in, Saxo Capital Markets warns that Emerging Market countries with large current account deficits like Brazil, India, South Africa, Indonesia, and Turkey face increasing problems. As the following chart shows (and highlghted most recently by Brazil's highest FX outflows since 2002!) could see their currencies weaken even further if the Fed's taper plans result in a deterioration of global risk appetite.

 

 

Think it will be different this time? Think again – Brazil just saw its largest outflows since 2002!!!

Via WSJ,

Dollars flowed out of Brazil in 2013 at their largest volume in more than a decade amid growing investor risk aversion and shifting capital movements around the globe.

 

The country's central bank Wednesday reported net dollar outflows of $12.3 billion, compared with net inflows of $16.8 billion the previous year, and the largest outflows on record since 2002. The outflows were also the country's first reported since 2008, when net dollar outflows totaled $983 million.

 

…

 

The central bank reported the country posted $8.8 billion in net dollar outflows in December alone.

 

The net currency outflows in 2013 were led mainly by investment outflows, which reached $23.4 billion. That was down from $8.4 billion in net investment inflows the previous year.

 

…

 

"Every bit of good economic news for the U.S. has been problematic for the rest of the world," said Mr. Galhardo. "It's hard to see good news on the horizon that will alleviate the pressure on the real in the short term."

 

The dollar outflow trend has been compounded, meanwhile, by growing scrutiny of Brazil's fiscal health and heightened investor risk aversion.

 

Source: Saxo Capital Markets

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/5psLA9Bg6hs/story01.htm Tyler Durden

Despite an apparent belief among the US mainstream media that 'taper' is priced in, Saxo Capital Markets warns that Emerging Market countries with large current account deficits like Brazil, India, South Africa, Indonesia, and Turkey face increasing problems. As the following chart shows (and highlghted most recently by Brazil's highest FX outflows since 2002!) could see their currencies weaken even further if the Fed's taper plans result in a deterioration of global risk appetite.

 

 

Think it will be different this time? Think again – Brazil just saw its largest outflows since 2002!!!

Via WSJ,

Dollars flowed out of Brazil in 2013 at their largest volume in more than a decade amid growing investor risk aversion and shifting capital movements around the globe.

 

The country's central bank Wednesday reported net dollar outflows of $12.3 billion, compared with net inflows of $16.8 billion the previous year, and the largest outflows on record since 2002. The outflows were also the country's first reported since 2008, when net dollar outflows totaled $983 million.

 

…

 

The central bank reported the country posted $8.8 billion in net dollar outflows in December alone.

 

The net currency outflows in 2013 were led mainly by investment outflows, which reached $23.4 billion. That was down from $8.4 billion in net investment inflows the previous year.

 

…

 

"Every bit of good economic news for the U.S. has been problematic for the rest of the world," said Mr. Galhardo. "It's hard to see good news on the horizon that will alleviate the pressure on the real in the short term."

 

The dollar outflow trend has been compounded, meanwhile, by growing scrutiny of Brazil's fiscal health and heightened investor risk aversion.

 

Source: Saxo Capital Markets

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/5psLA9Bg6hs/story01.htm Tyler Durden

Submitted by Michael Snyder of The Economic Collapse blog,

If you are anxiously awaiting the arrival of the "economic collapse", just open up your eyes and look at what is happening in Europe.  The entire continent is a giant economic mess right now.  Unemployment and poverty levels are setting record highs, car sales are setting record lows, and there is an ocean of bad loans and red ink everywhere you look.  Over the past several years, most of the attention has been on the economic struggles of Greece, Spain and Portugal and without a doubt things continue to get even worse in those nations. 

But in 2014 and 2015, Italy and France will start to take center stage.  France has the 5th largest economy on the planet, and Italy has the 9th largest economy on the planet, and at this point both of those economies are rapidly falling to pieces.  Expect both France and Italy to make major headlines throughout the rest of 2014.  I have always maintained that the next major wave of the economic collapse would begin in Europe, and that is exactly what is happening.  The following are just a few of the statistics that show that an "economic collapse" is happening in Europe right now…

-The unemployment rate in the eurozone as a whole is still sitting at an all-time record high of 12.1 percent.

-It Italy, the unemployment rate has soared to a brand new all-time record high of 12.7 percent.

-The youth unemployment rate in Italy has jumped up to 41.6 percent.

-The level of poverty in Italy is now the highest that has ever been recorded.

-Many analysts expect major economic trouble in Italy over the next couple of years.  The President of Italy is openly warning of "widespread social tension and unrest" in his nation in 2014.

-Citigroup is projecting that Italy's debt to GDP ratio will surpass 140 percent by the year 2016.

-Citigroup is projecting that Greece's debt to GDP ratio will surpass 200 percent by the year 2016.

-Citigroup is projecting that the unemployment rate in Greece will reach 32 percent in 2015.

-The unemployment rate in Spain is still sitting at an all-time record high of 26.7 percent.

-The youth unemployment rate in Spain is now up to 57.7 percent – even higher than in Greece.

-The percentage of bad loans in Spain has risen for eight straight months and recently hit a brand new all-time record high of 13 percent.

-The number of mortgage applications in Spain has fallen by 90 percent since the peak of the housing boom.

-The unemployment rate in France has risen for 9 quarters in a row and recently soared to a new 16 year high.

-For 2013, car sales in Europe were on pace to hit the lowest yearly level ever recorded.

-Deutsche Bank, probably the most important bank in Germany, is the most highly leveraged bank in Europe (60 to 1) and it has approximately 70 trillion dollars worth of exposure to derivatives.

Europe truly is experiencing an economic nightmare, and it is only going to get worse.

It would be hard to put into words the extreme desperation that unemployed workers throughout Europe are feeling right now.  When you can't feed your family and you can't find work no matter how hard you try, it can be absolutely soul crushing.

To get an idea of the level of desperation in Spain, check out the following anecdote from a recent NPR article…

Having trouble wrapping your head around southern Europe's staggering unemployment problem?

 

Look no further than a single Ikea furniture store on Spain's Mediterranean coast.

 

The plans to open a new megastore next summer near Valencia. On Monday, Ikea's started taking applications for 400 jobs at the new store.

The company wasn't prepared for what came next.

 

Within 48 hours, more than 20,000 people had applied online for those 400 jobs. The volume crashed Ikea's computer servers in Spain.

Of course that should kind of remind you of what I wrote about yesterday.  We are starting to see this kind of intense competition for low paying jobs in the United States as well.

As global economic conditions continue to deteriorate, things are going to get even tougher for those on the low end of the economic food chain.  Poverty rates are going to soar, even in areas where you might not expect it to happen.  In fact, one new report discovered that poverty has already been rising steadily in Germany, which is supposed to be the strongest economy in the entire eurozone…

A few days before the Christmas holidays, the Joint Welfare Association published a report on the regional development of poverty in Germany in 2013 titled “Between prosperity and poverty—a test to breaking point”. The report refutes the official propaganda that Germany has remained largely unaffected by the crisis and is a haven of prosperity in Europe.

 

According to the report, poverty in Germany has “reached a sad record high”. Entire cities and regions have been plunged into ever deeper economic and social crisis. “The social and regional centrifugal forces, as measured by the spread of incomes, have increased dramatically in Germany since 2006,” it says. Germany faces “a test to breaking point.”

Of course poverty continues to explode on this side of the Atlantic Ocean as well.  In the United States, the poverty rate has been at 15 percent or above for three years in a row.  That is the first time that this has happened since the 1960s.

And this is just the beginning.  The extreme recklessness of European banks such as Deutsche Bank and U.S. banks such as JPMorgan Chase, Citibank and Goldman Sachs is eventually going to cause a financial catastrophe far worse than what we experienced back in 2008.

When that crisis arrives, the flow of credit is going to freeze up dramatically and economic activity will grind to a standstill.  Unemployment, poverty and all of our current economic problems will become much, much worse.

So as bad as things are right now, the truth is that this is nothing compared to what is coming.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/kSneW2_EGWQ/story01.htm Tyler Durden

Submitted by Michael Snyder of The Economic Collapse blog,

If you are anxiously awaiting the arrival of the "economic collapse", just open up your eyes and look at what is happening in Europe.  The entire continent is a giant economic mess right now.  Unemployment and poverty levels are setting record highs, car sales are setting record lows, and there is an ocean of bad loans and red ink everywhere you look.  Over the past several years, most of the attention has been on the economic struggles of Greece, Spain and Portugal and without a doubt things continue to get even worse in those nations. 

But in 2014 and 2015, Italy and France will start to take center stage.  France has the 5th largest economy on the planet, and Italy has the 9th largest economy on the planet, and at this point both of those economies are rapidly falling to pieces.  Expect both France and Italy to make major headlines throughout the rest of 2014.  I have always maintained that the next major wave of the economic collapse would begin in Europe, and that is exactly what is happening.  The following are just a few of the statistics that show that an "economic collapse" is happening in Europe right now…

-The unemployment rate in the eurozone as a whole is still sitting at an all-time record high of 12.1 percent.

-It Italy, the unemployment rate has soared to a brand new all-time record high of 12.7 percent.

-The youth unemployment rate in Italy has jumped up to 41.6 percent.

-The level of poverty in Italy is now the highest that has ever been recorded.

-Many analysts expect major economic trouble in Italy over the next couple of years.  The President of Italy is openly warning of "widespread social tension and unrest" in his nation in 2014.

-Citigroup is projecting that Italy's debt to GDP ratio will surpass 140 percent by the year 2016.

-Citigroup is projecting that Greece's debt to GDP ratio will surpass 200 percent by the year 2016.

-Citigroup is projecting that the unemployment rate in Greece will reach 32 percent in 2015.

-The unemployment rate in Spain is still sitting at an all-time record high of 26.7 percent.

-The youth unemployment rate in Spain is now up to 57.7 percent – even higher than in Greece.

-The percentage of bad loans in Spain has risen for eight straight months and recently hit a brand new all-time record high of 13 percent.

-The number of mortgage applications in Spain has fallen by 90 percent since the peak of the housing boom.

-The unemployment rate in France has risen for 9 quarters in a row and recently soared to a new 16 year high.

-For 2013, car sales in Europe were on pace to hit the lowest yearly level ever recorded.

-Deutsche Bank, probably the most important bank in Germany, is the most highly leveraged bank in Europe (60 to 1) and it has approximately 70 trillion dollars worth of exposure to derivatives.

Europe truly is experiencing an economic nightmare, and it is only going to get worse.

It would be hard to put into words the extreme desperation that unemployed workers throughout Europe are feeling right now.  When you can't feed your family and you can't find work no matter how hard you try, it can be absolutely soul crushing.

To get an idea of the level of desperation in Spain, check out the following anecdote from a recent NPR article…

Having trouble wrapping your head around southern Europe's staggering unemployment problem?

 

Look no further than a single Ikea furniture store on Spain's Mediterranean coast.

 

The plans to open a new megastore next summer near Valencia. On Monday, Ikea's started taking applications for 400 jobs at the new store.

The company wasn't prepared for what came next.

 

Within 48 hours, more than 20,000 people had applied online for those 400 jobs. The volume crashed Ikea's computer servers in Spain.

Of course that should kind of remind you of what I wrote about yesterday.  We are starting to see this kind of intense competition for low paying jobs in the United States as well.

As global economic conditions continue to deteriorate, things are going to get even tougher for those on the low end of the economic food chain.  Poverty rates are going to soar, even in areas where you might not expect it to happen.  In fact, one new report discovered that poverty has already been rising steadily in Germany, which is supposed to be the strongest economy in the entire eurozone…

A few days before the Christmas holidays, the Joint Welfare Asso
ciation published a report on the regional development of poverty in Germany in 2013 titled “Between prosperity and poverty—a test to breaking point”. The report refutes the official propaganda that Germany has remained largely unaffected by the crisis and is a haven of prosperity in Europe.

 

According to the report, poverty in Germany has “reached a sad record high”. Entire cities and regions have been plunged into ever deeper economic and social crisis. “The social and regional centrifugal forces, as measured by the spread of incomes, have increased dramatically in Germany since 2006,” it says. Germany faces “a test to breaking point.”

Of course poverty continues to explode on this side of the Atlantic Ocean as well.  In the United States, the poverty rate has been at 15 percent or above for three years in a row.  That is the first time that this has happened since the 1960s.

And this is just the beginning.  The extreme recklessness of European banks such as Deutsche Bank and U.S. banks such as JPMorgan Chase, Citibank and Goldman Sachs is eventually going to cause a financial catastrophe far worse than what we experienced back in 2008.

When that crisis arrives, the flow of credit is going to freeze up dramatically and economic activity will grind to a standstill.  Unemployment, poverty and all of our current economic problems will become much, much worse.

So as bad as things are right now, the truth is that this is nothing compared to what is coming.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/kSneW2_EGWQ/story01.htm Tyler Durden

There is the full-time vs part-time jobs debacle, the questions over job-quality, the “no country for young workers” problem, and Bernanke’s “born-again jobs scam,” but nowhere is the real ‘recovery’ in American jobs less evident than in the actual number of employed males…

 

(h/t @Not_Jim_Cramer)

Tomorrow’s non-farm-payrolls data is once again the most important (and noise-prone manipulated) data item in the world – but few (aside from us) will be paying attention to the ongoing plunge in the labor force…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/3fJUiJINMlQ/story01.htm Tyler Durden

There is the full-time vs part-time jobs debacle, the questions over job-quality, the “no country for young workers” problem, and Bernanke’s “born-again jobs scam,” but nowhere is the real ‘recovery’ in American jobs less evident than in the actual number of employed males…

 

(h/t @Not_Jim_Cramer)

Tomorrow’s non-farm-payrolls data is once again the most important (and noise-prone manipulated) data item in the world – but few (aside from us) will be paying attention to the ongoing plunge in the labor force…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/3fJUiJINMlQ/story01.htm Tyler Durden

A month ago, we showed a chart of median household income in the US versus that just in the District of Columbia. The punchline wrote itself: “what’s bad for America is good for Washington, D.C.“

Today we got official verification that Bernanke’s wealth transfer in addition to benefitting the richest 1%, primarily those dealing with financial assets, also led to a material increase in the wealth of one particular subgroup of the US population: its politicians.

According to the OpenSecrets blog which conveniently tracks the wealth of America’s proud recipients of lobbying dollars, aka Congress, for the first time ever the majority of America’s lawmakers are worth more than $1 million.

Specifically, of 534 current members of Congress, at least 268 had an average net worth of $1 million or more in 2012, according to disclosures filed last year by all members of Congress and candidates. The median net worth for the 530 current lawmakers who were in Congress as of the May filing deadline was $1,008,767 — an increase from last year when it was $966,000. In addition, at least one of the members elected since then, Rep. Katherine Clark (D-Mass.), is a millionaire, according to forms she filed as a candidate. (There is currently one vacancy in Congress.)

Last year only 257 members, or about 48 percent of lawmakers, had a median net worth of at least $1 million.

Because who better to debate the class divide raging across the US thanks to the Federal Reserve’s $4+ trillion balance sheet than a room full of millionaires. On the other hand, perhaps it means they will be less bribable by “donations” and other lobbying funding…

… Yeah, we LOLed at that one too.

OpenSecrets was about as cynical as us: “Members of Congress have long been far wealthier than the typical American, but the fact that now a majority of members — albeit just a hair over 50 percent — are millionaires represents a watershed moment at a time when lawmakers are debating issues like unemployment benefits, food stamps and the minimum wage, which affect people with far fewer resources, as well as considering an overhaul of the tax code.”

“Despite the fact that polls show how dissatisfied Americans are with Congress overall, there’s been no change in our appetite to elect affluent politicians to represent our concerns in Washington, said Sheila Krumholz, executive director of the Center. “Of course, it’s undeniable that in our electoral system, candidates need access to wealth to run financially viable campaigns, and the most successful fundraisers are politicians who swim in those circles to begin with.”

Perhaps one could argue that a country drowning in poverty needs politicians who actually know the troubles that afflict the majority of the population first hand. Actually, according to folklore that is the Democrat party. So it may come as a surprise to some that the median net worth of the average Democrat at $1.1 million (an increase of 11.6% from 2011) is higher than that of any given Republican at just over $1 million, an increase of 10.3% from the prior year.

OpenSecrets breaks down the numbers further:

Congressional Democrats had a median net worth of $1.04 million, while congressional Republicans had a median net worth of almost exactly $1 million. In both cases, the figures are up from last year, when the numbers were $990,000 and $907,000, respectively.

 

The median net worth for all House members was $896,000 — that’s up from $856,000 in 2011 — with House Democrats (median net worth: $929,000) holding an edge over House Republicans (median net worth: $884,000). The median net worth for both House Republicans and Democrats was higher than in 2011.

 

Similarly, the median net worth for all senators increased to $2.7 million from $2.5 million, but in that body it was the Republicans who were better-off. Senate Democrats reported a median net worth of $1.7 million (a decline from 2011’s $2.4 million), compared to Senate Republicans, at $2.9 million (an increase from $2.5 million).

 

Senate Democrats were the only group reporting a drop in their median net worth from the prior year — a decline that is at least partly because of the loss of two extremely well-off Senate Democrats from the list: now-Secretary of State John Kerry, who had been the wealthiest senator with a 2011 average net worth of $248 million, and Sen. Frank Lautenberg (D-N.J.) who had an average net worth of $87.5 million before his death last year.

As we all know, some millionaires are richer than other millionaires. So who took the honors this year?

The richest member of Congress was, once again, Rep. Darrell Issa (R-Calif.) chairman of the House Oversight Committee. Issa, who made his fortune in the car alarm business, had an average net worth of $464 million in 2012. Issa had ruled the roost as the wealthiest lawmaker for several years but was bumped from that perch last year by Rep. Michael McCaul (R-Texas).

 

In our analysis last year, we estimated that McCaul’s 2011 average net worth was $500.6 million — a dramatic increase for him from the year before. McCaul’s affluence is primarily due to the holdings of his wife, Linda, the daughter of Clear Channel Communications Chairman Lowry Mays. McCaul took a dramatic tumble from the list’s pinnacle, reporting an average net worth of $143.1 million in 2012.

 

Shed no tears for McCaul, though: His drop wasn’t due to any great financial misfortune, but reflects changes in reporting rules. Beginning with reports covering calendar year 2012, high-value assets, income and liabilities belonging to the spouses of House members may be reported as being worth simply “$1 million or more.” Previously, the forms required somewhat more specific valuations. So, for example, on his 2011 disclosure McCaul reported that his wife owned a 10.1 percent interest in LLM Family Investments that was worth “more than $50 million.” Now, he reports that his wife’s share of the fund has increased to 12.2 percent, but he can list it as a “spousal asset over $1,000,000,” though it’s likely worth much more.

 

This methodological change (to a system the Senate already uses) also appeared to affect Rep. Chellie Pingree (D-Maine). On her disclosure form covering 2010, she reported having an average net worth of $750,000. Then in 2011 she married hedge fund manager Donald Sussman, which increased her average net worth for that year to $85.8 million. Her report for 2012 shows a dramatic decline, to $42.4 million, because of the new reporting rules.

 

The least wealthy member of Congress in 2012, at least on paper, was Rep. David Valadao (R-Calif.) — a slot he occupied the previous year as well. Valdao reported an average net worth of negative $12.1 million in 2012. That’s actually a big improvement from 2011, when his average net worth was negative $19 million. According to Valdao’s disclosure forms and our interviews with his staff last year, his debt is the result of loans for his family dairy farm.

 

The second-poorest member of Congress continued to be Rep. Alcee Hastings (D-Fla.), who for decades has owed millions of dollars for legal bills incurred in the 1980s, when he was charged with accepting a bribe while sitting as a federal judge. As we noted last year, Hastings was acquitted, but later impeached and removed by the Senate before running for Congress in 1992. His level of debt has not changed since 2005.

 

Although more members of Congress are millionaires than ever before, and the median net worth for all lawmakers is higher than ever, their total net worth — the value of all their assets minus liabilities — fell from $4.2 billion in 2011 to $3.9 billion in 2012. Again, that could be at least partly due to the change in the House reporting requirements for spousal assets and liabilities.

Finally there is a question of which financial assets America’s millionaire legislators mostly own. The answer should surprise nobody, and will probably also explain the perverted and very symbiotic relationship between the US financial system and the governing class.

General Electric continued to be the most popular investment for current members of Congress. In 2011, there were 71 lawmakers who reported owning shares in the company; in 2012, there were 74. The second most popular holding was the bank Wells Fargo, in which 58 members owned shares (up from 40 in 2011). Financial firms were well-represented in the 10 most popular investments: Bank of America came in sixth (51 members) and JPMorgan Chase was seventh (49 members). Both companies had more congressional investors than in 2011 (11 more for Bank of America and 10 more for JPMorgan Chase.)

 

Of course, the public can surely expect Congress to pass legislation that would imperil their financial investments. Surely.

And finally, why reflating the housing bubble is on top of the agenda for not only Bernanke, but Congress as well:

Overall, though, real estate was the most popular investment for members of Congress. Their investments in real estate in 2012 were valued at  between $442.2 million and $1.4 billion. The next most popular industry to invest in was securities and investment, with congressional investments being worth between $64.5 million and $229.6 million.

In conclusion: Congratulations to America’s millionaire politicians. May they enjoy it in health while it lasts. The wealth that is… and the health.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/EDjfcXGLNTA/story01.htm Tyler Durden

In 1970, when 11% of adult Americans had bachelor's degrees or more, degree holders were viewed as the nation's best and brightest. Today, with over 30% with degrees, as the WSJ notes, a significant portion of college graduates are similar to the average American – not demonstrably smarter or more disciplined. Furthermore, declining academic standards and grade inflation add to employers' perceptions that college degrees say little about job readiness. As we noted recently, change is coming as more and more realize college may not be worth it. Educational entrepreneurship offers hope that creative destruction is coming to higher education. The cleansing would be good for a higher education system still tied to its medieval origins – and for the students it's robbing.

 

Authored by Richard Vedder (of the American Enterprise Institute) and Christopher Denhart (Ohio University), originally posted at WSJ,

The American political class has long held that higher education is vital to individual and national success. The Obama administration has dubbed college "the ticket to the middle class," and political leaders from Education Secretary Arne Duncan to Federal Reserve Chairman Ben Bernanke have hailed higher education as the best way to improve economic opportunity. Parents and high-school guidance counselors tend to agree.

 

Yet despite such exhortations, total college enrollment has fallen by 1.5% since 2012. What's causing the decline? While changing demographics—specifically, a birth dearth in the mid-1990s—accounts for some of the shift, robust foreign enrollment offsets that lack. The answer is simple: The benefits of a degree are declining while costs rise.

 

A key measure of the benefits of a degree is the college graduate's earning potential—and on this score, their advantage over high-school graduates is deteriorating. Since 2006, the gap between what the median college graduate earned compared with the median high-school graduate has narrowed by $1,387 for men over 25 working full time, a 5% fall. Women in the same category have fared worse, losing 7% of their income advantage ($1,496).

 

A college degree's declining value is even more pronounced for younger Americans. According to data collected by the College Board, for those in the 25-34 age range the differential between college graduate and high school graduate earnings fell 11% for men, to $18,303 from $20,623. The decline for women was an extraordinary 19.7%, to $14,868 from $18,525.

 

Meanwhile, the cost of college has increased 16.5% in 2012 dollars since 2006, according to the Bureau of Labor Statistics' higher education tuition-fee index. Aggressive tuition discounting from universities has mitigated the hike, but not enough to offset the clear inflation-adjusted increase. Even worse, the lousy economy has caused household income levels to fall, limiting a family's ability to finance a degree.

 

This phenomenon leads to underemployment. A study I conducted with my colleague Jonathan Robe, the 2013 Center for College Affordability and Productivity report, found explosive growth in the number of college graduates taking relatively unskilled jobs. We now have more college graduates working in retail than soldiers in the U.S. Army, and more janitors with bachelor's degrees than chemists. In 1970, less than 1% of taxi drivers had college degrees. Four decades later, more than 15% do.

 

This is only partly the result of the Great Recession and botched public policies that have failed to produce employment growth. It's also the result of an academic arms race in which universities have spent exorbitant sums on luxury dormitories, climbing walls, athletic subsidies and bureaucratic bloat. More significantly, it's the result of sending more high-school graduates to college than professional fields can accommodate.

 

In 1970, when 11% of adult Americans had bachelor's degrees or more, degree holders were viewed as the nation's best and brightest. Today, with over 30% with degrees, a significant portion of college graduates are similar to the average American—not demonstrably smarter or more disciplined. Declining academic standards and grade inflation add to employers' perceptions that college degrees say little about job readiness.

 

There are exceptions. Applications to top universities are booming, as employers recognize these graduates will become our society's future innovators and leaders. The earnings differential between bachelor's and master's degree holders has grown in recent years, as those holding graduate degrees are perceived to be sharper and more responsible.

 

But unless colleges plan to offer master's degrees in janitorial studies, they will have to change. They currently have little incentive to do so, as they are often strangled by tenure rules, spoiled by subsides from government and rich alumni, and more interested in trivial things—second-rate research by third-rate scholars; ball-throwing contests—than imparting knowledge. Yet dire financial straits from falling demand for their product will force two types of changes within the next five years.

 

First, colleges will have to constrain costs. Traditional residential college education will not die because the collegiate years are fun and offer an easy transition from adolescence to adulthood. But institutions must take a haircut. Excessive spending on administrative staffs, professorial tenure, and other expensive accouterments must be put on the chopping block.

 

Second, colleges must bow to new benchmarks assessing their worth. With the advent of electronic learning—including low-cost computer courses and online courses that can reach thousands of students around the world—there is more market competition than ever. New tests are being devised to assure employers that individual students are vocationally prepared, helping recruiters discern which institutions deliver superior academic training. Purdue University, for example, has joined with the Gallup Organization to create an index to survey alumni, providing universities and employers with detailed information, including earnings data.

 

This educational entrepreneurship offers hope that creative destruction is coming to higher education. Many poorly endowed and undistinguished schools may bite the dust, but America flourished when buggy manufacturers went bankrupt thanks to the automobile. The cleansing would be good for a higher education system still tied to its medieval origins—and for the students it's robbing.

Which fits with what we previously noted:

real income of college grads has fallen just as fast as high school grads since 2007…

 

…though over a longer period – an extended academic career has paid off (so more college and more debt is better?)…

 

which means the money flows to best ranked schools – which incentivizes raising fees in a 'Prisoner's dilemma' world… (dominant strategy is to raise tuition – as indicated by the green arrows)

 

 

Which Matt Taibbi so eloquently pointed out:

"The dirty secret of American higher education is that student-loan interest rates are almost irrelevant. It’s not the cost of the loan that’s the problem, it’s the principal – the appallingly high tuition costs that have been soaring at two to three times the rate of inflation, an irrational upward trajectory eerily reminiscent of skyrocketing housing prices in the years before 2008."

 

As Democracy Now notes, during the following interview with Taibbi, "…throw off the mystery and what you’ll uncover is a shameful and oppressive outrage that for years now has been systematically perpetrated against a generation of young adults." The federal government is poised to make $185 billion over the next 10 years on student loans, with no way out for the young borrowers: "Even gamblers can declare bankruptcy, but kids who enter into student loans will never, ever be able to get out of this debt."

As Taibbi concludes,

"something has to be done to sort of check this availability of credit and force colleges to make more rational decisions about pricing and about – and force kids to understand better the consequences of what they’re getting into when they sign up for these loans."

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/mAKGeFGe9hE/story01.htm Tyler Durden

While Ford and GM struggle somewhat, demand for the eilte-of-the-elite Bentley is soaring. As BusinessWeek reports, 2013 saw the firm sell 10,120 vehicles worldwide – dominated by the Americas – a 19% rise over 2012. Coincidentally, since Fed policy went extreme, Bentley has seen double-digit growth rates each and every year leading to the best performance in its 95-year history. As BusinessWeek ironically notes, it requires no small amount of consumer confidence to roll away in a Bentley Mulsanne, which has a sticker price just shy of $300,000.

 

Via BusinessWeek,

The luxury car brand said yesterday that it sold a record 10,120 vehicles worldwide last year, a 19 percent increase over the year prior. That was Bentley’s best performance in its 95-year history and its fourth straight year of double-digit volume gains. Bentley Chief Executive Officer Wolfgang Schreiber said the sales bump establishes his charge “as the most sought-after luxury car brand in the world.” Achtung, Daimler!

 

 

Why the heady sales pace? For one, Bentley is getting a nice boost from the economy at large, specifically a bullish stock market. It requires no small amount of consumer confidence to roll away in a Bentley Mulsanne, which has a sticker price just shy of $300,000.

 

…

 

The end goal? Bentley is hoping to sell 15,000 cars a year by 2018. Assuming an average price around $300,000 and Bentley’s hoped-for 21 percent return, that’s a profit of almost $1 billion for Volkswagen. Luxurious indeed.

 

Thank you Ben-tley Bernanke…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/CZM-rYIY2Kw/story01.htm Tyler Durden

The capital markets have become artificial with all risk being mispriced due to Fed intervention.

 

The problem with this is that when the capital markets “break” due to a loss in credibility, the shift tends to be both swift and violent. I noted before that the yield on the ten-year Treasury is the basis for the pricing of all risk in the capital markets. With this yield being manipulated by the US Federal Reserve to the tune of $70 billion per month, the entire landscape for risk has become distorted.

 

This is not to say that there will not be substantial opportunities to make money in the capital markets going forward. Rather, I am stating that the capital markets will not be the safest, most stable places to do it. Risk in general is being mispriced today. There will be an adjustment and all investment in the capital markets needs to keep this in mind.

I wish to note that I’m not alone in the view that the capital markets are offering limited opportunities.

 

Stanley Druckenmiller founded his hedge fund Duquesne Capital in 1981. From 1986 onward he maintained average annual returns of 30%. He also managed George Soros’ Quantum Fund from 1988-2000. During that latter period he famously facilitated Soros’ “breaking of the Bank of England” trade: the legendary trade which netted over $1 billion in a single day.

 

Druckenmiller closed Duquesne Capital in 2010, stating that he was no longer able to meet his investment “standard[s]” in the post-2008 climate (he made money in 2008 before the Fed began to alter the risk landscape).

 

Druckenmiller’s key strength has always been macro-economic forecasting. That he would feel the capital markets were not offering him the opportunities he needed says a lot.

 

Seth Klarman is another investment legend who is returning capital to clients. Widely considered to be the Warren Buffett of his generation, Klarman recently cited a lack of “investment opportunities” as the cause for his decision to downsize his legendary Baupost Group hedge funds.

 

Other legends or market outperformers who have returned capital to investors or closed their funds to outside investors are Carl Icahn and Michael Karsch. Indeed, even value legend Warren Buffett is sitting on the single largest amount of cash in the history of his 50+ year career as an investor, stating that stocks are “fully valued” at current levels (Buffett largely does not believe in shorting the market, so his decision to be in cash is a strong indicator of opportunities).

 

These men are masters of the capital markets. They are voting with their feet and pulling their capital out of them. Given that their personal compensation is closely linked to assets under management and profit sharing, this decision is akin to the choice to forego additional wealth that could be made quite easily (none of these individuals would have trouble raising several billion more in capital) rather than trying to find opportunities in a challenging market.

 

For a FREE Special Report outlining how to protect your portfolio from this, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best Regards

Phoenix Capital Research 

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/BaD85UtIrG8/story01.htm Phoenix Capital Research