Tag: news

Submitted by Erico Tavares of Sinclair & Co.

Thoughts on Prosperity in America

With equity markets at all-time highs, does this mean that prosperity in the US is also at record levels?

The 1980s were a great time for many Americans. Jobs were plentiful. The civilian unemployment rate went from almost 11% in November 1982 to around 5% by May 1989. The number of households making more than $75,000 per year (in today’s money) increased by almost seven percentage points from the low in 1982 to the end of the decade. A new sense of optimism pervaded the nation. The hit song “The Future’s So Bright, I Gotta Wear Shades” rocked the airwaves. After enduring some terrible years in the prior decade, America came roaring back.

“The Future’s So Bright, I Gotta Wear Shades” by the US band Timbuk3, 1986

The Economist magazine agreed. In its “The World in 1988” publication, the US was ranked as the best place to be born out of 50 countries. It seemed as if American babies back then should all be wearing shades indeed.

So how did things turn out for them and their parents?

By definition, in a truly prosperous country the wealth going around rises and becomes more accessible to an increasing number of people. Stated differently, the percentage of households that earn more than a certain amount steadily rises, drawing in people from the poorer sectors of society.

The US Census Bureau provides information annually on income levels adjusted for inflation in America, with the most recent report (for 2013) published last September. Is there one that we can use as the most representative of a minimal prosperity threshold?

In a 2010 Princeton study, Daniel Kahneman and Angus Deaton found that making more than $75,000 per year will not significantly improve the emotional wellbeing of American households as a whole. It’s not like you have “made it” once you start making more than that; it’s just that the marginal comfort you get out of most things in life is much less than at lower income levels. OK, there are variations by State given different cost structures and even in attitudes towards money (it might be hard to get a date in New York City earning just that), but this seems like a reasonable demarcation line.

Therefore, we will assume that America is getting more prosperous (or at the very least getting more materially satisfied, according to Kahneman and Deaton) if an increasing percentage of households make more than $75,000 per year, which we will call the “prosperity line”.

Here’s how it looked like going back to the early 1980s:

Households Split by Selected Income Levels (in 2013 CPI-U-RS adjusted dollars)(%): 1979-2013
Source: US Census Bureau.

After the recession in the early part of the 1990s, the prosperity line just kept on rocking through the end of the decade. Not only people were getting richer, but less and less people at all lower income levels were staying poor, as evidenced by the decline in their respective lines.

The boom times were back. Technology was the new rage, promising a whole new era of corporate efficiency and affordable gadgets purchased online. Inflation was a fading memory and the great moderation was in. Equity markets were rising exponentially. Civilian unemployment dropped to levels not seen in thirty years. Everyone was getting rich. It was time to wear shades again.

“Californication” by the US band Red Hot Chili Peppers, 1999

Then the new century came, the tech bubble popped and the economy went south in short order. The ensuing recession turned out to be the deepest in a generation. As the bills came due, that’s when things really started to go wrong for a lot of people, more or less up until today in fact.

After peaking in 1999 at 37%, the prosperity line has gradually declined since, and is now sitting at 34%. In between there was a housing boom and a global financial crash, both with noticeable effects on the line. That decline may not sound like much, but it will take years to rebuild all that wealth – assuming that the economy is moving in the right direction.

Most of the households which left those happier ranks likely ended up in the next level down in the graph, which can be broadly regarded as the “middle class” (if we consider that median income adjusted for inflation has generally gravitated within that interval). While the percentage here stabilized at over 30%, this might mask an awful lot of turnover as other people got pushed down even further.

And it was exactly at the bottom of the earnings scale that things got pretty bad. People earning less than $35,000 per year went from 31% at the turn of the century to 34% today, more or less matching the decline in percentage points at the top of the table. The new century brought a lot more discomfort to a growing number of Americans, fueling a lot of talk recently about income inequality in the country.

“Venomous Rat Regeneration Vendor” by the US artist Rob Zombie, considered to be one of the best rock albums of 2013

Therefore, despite all the subsequent economic growth, large fiscal stimulus packages, unprecedented Federal Reserve intervention and booming capital markets, we could say that PROSPERITY IN AMERICA PEAKED IN 1999!

Now there’s something you don’t often hear in the news, especially with the S&P500 at new all-time highs. In fact, record equity markets don’t tell the whole story. There’s a deeper dynamic at work here that is worth considering.

Here’s a graph of the S&P500 expressed in terms of gold, or as the “real money” crowd prefers to call it, the true value of the stock market (presumably as any “artificial” efforts to boost nominal share prices are neutralized by higher gold prices, which in well-functioning markets tend to respond faster to credit-led inflation):

S&P500-to-Gold Ratio (based on end of month data) and the Prosperity Line (%): Dec 1978 – Dec 2013
Source: US Census Bureau, World Gold Council.

A correlation between the S&P500-to-gold ratio and the prosperity line (again, representing the percentage of households earning more than $75,000 per year) can be clearly observed. Both datasets sort of track each other and have peaked roughly at the same time.

This is not really surprising. It is the real (as opposed to just the nominal) value of equity markets that reflects the broader prosperity in society, a point which is often lost in financial commentary. And here the US still has a lot of ground to cover. This also somewhat validates the assumptions we have been using to gauge prosperity levels in the US.

Therefore, as equity markets roar and gold tanks, investors seem to believe that the US is well on its way to regain its peak prosperity, much to the chagrin of the “gold bugs”, which (implicitly at least) are making the opposite bet.

But US investors can also bet on the prosperity of others. And the fact is that other nations have been steadily climbing the prosperity ladder. To get a sense of how the mix has changed since the go-go days of the 1980s, when American babies seemed to have it all, let’s go back to the Economist, which updated the rankings of the best place to be born in late 2012.

This time they included many more countries and used a broader set of indicators, including: material wellbeing (as measured by GDP per head), life expectancy at birth, the quality of family life, the state of political freedoms, job security, climate, personal physical security ratings, quality of community life, governance and gender equality.

The latest results are presented in the following table, along with the 1988 rankings (only the top 25 countries are shown):

Source: The Economist Intelligence Unit.
(1) West Germany in 1988.
(2) Change disregards newcomers to the ranking.

While comparing the two rankings may not be as robust as we would have liked given the change in methodology and inclusion of new countries, some interesting trends can be observed.

Generally speaking, things have really improved in smaller advanced nations, which have shot up to the top of the rankings over the last 25 years. Pristine, tiny, organized and educated Switzerland came out on top. Singapore is an absolute star, jumping 30 places, and as Asia gains prominence it is a strong contender for the #1 spot next time around.

Equally striking is how much the economic “giants” have gone down in the rankings. The US dropped from #1 to #16, or 14 places disregarding newcomers to the list, only closely surpassed here by Japan and Italy, both countries not exactly known for their economic dynamism of late. Germany also struggled (fruit of integrating their Eastern neighbors?) and France did not even make it to the top 25, after ranking #3 in 1988. C’est la vie…

It seems that in a globalized world the creation of prosperity and general wellbeing is much less related to size and, we would venture to say, more to a nation’s ability to finding a niche where they can excel in, educating its people and properly managing its finances. Perhaps there is something to be learned here as people and investors think about future prospects around the world.

As it stands, Swiss babies are currently in pole position for a life of abundance. But if general prosperity does not return in earnest to the US, they may have a hard time beating them “gold bugs”.

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

Submitted by Michael Snyder of The End of the American Dream blog,

When it comes to Ebola, the story that the government is telling us just keeps on changing.  At first, government officials were claiming that it was very difficult to spread the Ebola virus.  Some of them were even comparing it to HIV.  We were given the impression that we had to have “direct contact” with someone else’s body fluids in order to have any chance of catching the virus.  But of course that is not true at all.  Now authorities are admitting that Ebola is “aerostable”, that it can be “spread through droplets”, and that it can remain on surfaces for up to 50 days.  That is far different information than we have been getting up until this point.  So that means when they were so confidently declaring that they know exactly how Ebola spreads they were lying to us.

On October 24th, a 33 page document was released by the Defense Threat Reduction Agency, and in that document it is admitted that Ebola is “aerostable”.  WND was one of the first news outlets to report on this…

The information was contained in a 33-page report released Oct. 24 by the Defense Threat Reduction Agency, the Department of Defense’s Combat Support Agency for countering weapons of mass destruction.

 

The agency report states “preliminary studies indicate that Ebola is aerostable in an enclosed controlled system in the dark and can survive for long periods in different liquid media and can also be recovered from plastic and glass surfaces at low temperatures for over 3 weeks.”

 

The report says the government is seeking technologies for the “rapid disinfection” of Ebola, including an aerosol version of the virus.

 

“The technology must prove effective against viral contamination either deposited as an aerosol or heavy contaminated combined with body fluids,” reads the solicitation document.

You can view the document for yourself right here.

So is there any difference between “aerostable” and “airborne”?

That is a very good question.

Meanwhile, the CDC has finally come out and publicly admitted that Ebola “is spread through droplets”.

In other words, it can be spread by a cough or a sneeze.

On the CDC website, it now says the following…

“A person might also get infected by touching a surface or object that has germs on it and then touching their mouth or nose.”

Well, that certainly does not sound like “direct contact” to me.

And once someone has coughed or sneezed, the virus can live on a surface for a very long time.

In fact, authorities in the UK now tell us that Ebola can survive on a glass surface for up to 50 days…

The number of confirmed Ebola cases passed the 10,000 mark over the weekend, despite efforts to curb its spread.

 

And while the disease typically dies on surfaces within hours, research has discovered it can survive for more than seven weeks under certain conditions.

 

During tests, the UK’s Defence Science and Technology Laboratory (DSTL) found that the Zaire strain will live on samples stored on glass at low temperatures for as long as 50 days.

All of this directly contradicts what the CDC website has been telling us…

“To get Ebola, you have to directly get body fluids (like pee, poop, spit, sweat, vomit, semen, breast milk) from someone who has Ebola in your mouth, nose, eyes or through a break in your skin or through sexual contact.”

It turns out that is not even close to the truth.

And even as Obama boldly proclaims that there will not be an Ebola pandemic in the United States, the actions that his administration is currently taking suggest otherwise.

For example, we have just learned that the federal government has ordered 250,000 hazmat suits and is sending them to Dallas…

A manager with a major shipping company has exclusively revealed to Infowars that the U.S. government has ordered 250,000 Hazmat suits to be sent to Dallas, the location of the first Ebola outbreak in the United States.

 

The manager of the shipping company proved his credentials to Infowars by providing a photo ID and sending a verified email from the company account, but wishes to remain anonymous due to understandable fears that he could be fired for revealing the information.

 

“I just learned we have been asked to ship 250,000 HAZMAT suits to Dallas, TX. for the US Government. Again this is happening today, we are pulling these suits for the US Government to Dallas, TX,” states the individual, who manages the drivers who work for the shipping company.

Why in the world would the Obama administration buy so many hazmat suits if everything was under control?

It doesn’t make sense.

Is this Ebola outbreak much more of a potential threat than they are telling us?

Insurance companies sure seem to think so.  In fact, many of them are now specifically excluding Ebola from their policies…

Remember the promise of universal health care with Obamacare, with no refusal for ‘pre-existing conditions’? It looks like your insurance company may not have to cover you if you get Ebola. U.S. and British insurance companies have begun writing Ebola exclusions into standard policies to cover hospitals, event organizers, and other businesses vulnerable to local disruptions.

 

While it is estimated that expenditures to treat the original Dallas Ebola patient, Thomas Eric Duncan, were approximately $100,000 an hour (though he passed anyway), it looks like insurance companies won’t be footing the bill.

 

President Obama originally refused to set up travel restrictions in and out of West Africa, too, even though the governments latest scare tactics and the CDC’s ineptitude have resulted in insurance companies creating new policies which exclude Ebola care. Renewals will also become costlier for companies opting to insure business travel to West Africa or to cover the risk of losses from quarantine shutdowns at home.

The American people deserve the truth.

I can understand the desire to keep people calm, but giving the public a false sense of security isn’t going to do anyone any good, and it might end up making this crisis much, much worse.

It is important for people to know how easily this virus spreads so that they can take appropriate measures to protect themselves and their families.  Since June, approximately 400 health workers have caught this virus, and about 230 of them have died.  These workers take extreme precautions to avoid getting Ebola.  If this virus did not spread easily, this would not be happening.

 If our politicians and the mainstream media are not going to tell us the truth, then we are going to have to keep one another informed.

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When central bankers go wild…

 

h/t @NanexLLC

*  *  *

Perhaps a better analogy is as follows:

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Submitted by Charlie Hennemann via CFA Institute blog,

Of all the noteworthy moments from the 2014 CFA Institute Fixed-Income Management Conference, the bombshell may have been the default call from Martin S. Fridson, CFA.

Fridson, CIO at Lehmann Livian Fridson Advisors, has been a leading figure in the high-yield bond market since it was known as the “junk bond” market — and he sees as much as $1.6 trillion in high-yield defaults coming in a surge he expects to begin soon.

“And this is not based on an apocalyptic forecast,” he assured the audience.

High-yield bonds, typically issued with credit ratings at the bottom of the scale, tend to suffer default surges during troughs in the credit cycle. The first high-yield default surge occurred from 1989 to 1992, and encompassed the collapse of Drexel Burnham Lambert. The second surge ran from 1999 to 2003, following the bursting of the dot-com bubble, and the third happened in the midst of the global financial crisis, from 2008 to 2009.

Fridson suggests the next default surge will be larger than the last three combined. Each surge saw an average annual high-yield default rate above 7% (which, if extended over a multi-year period, can add up to real money).

Fridson currently projects that 1,155 issuers will default in the next wave. Over a four-year period that easily surpasses the 644 defaults in 1999–2003, the largest of the three prior default surges.

Fridson: Distressed managers will have "plenty to do" in next cycle; predicts a cumulative HY default rate of 33% in 2016-19. #CFAFI

— Charlie Henneman CFA (@CHenneman) October 16, 2014

 For context, Fridson points to the last default surge of 2008–2009 : It lasted only two years, and the market swung from a record number of defaults in 2008 to a below-average number in 2009, something Fridson “would have said was impossible.” The reason, of course, was that interventionist policies did as intended in the wake of the financial crisis, cutting the credit cycle short and giving new life to many issuers that were staring default in the face. In the absence of a strong cyclical recovery, this may only have delayed the inevitable.

Fridson noted that since 2010, the high-yield market has seen deterioration in the credit-ratings mix even as it has grown at a compound annual growth rate exceeding 10%, fueled in part by European issuers accessing the high-yield markets in lieu of bank credit, which has been harder to get thanks to more conservative bank capital requirements.

One key assumption behind Fridson’s forecast is that the Fed ends its program of quantitative easing (QE) and allows interest rates to rise. QE may have ended, but Fed guidance calls for interest rates to remain low for a “considerable time.” Fridson was asked about QE and the persistence of low rates during Q&A after his presentation, and the answer left the audience murmuring.

“If we’re in this Fed rescue mode [in 2016–2019], then I think we’re in a lot of trouble. Very serious trouble.”

The final presentation at the Fixed-Income Management Conference was from Paul Travers, a manager of bank loans and collateralized loan obligations (CLOs) at Onex Credit Partners. Travers was quick to offer his thoughts about Fridson’s forecast, which would have a profound impact on the bank loan market if it comes to pass.

“I hope he’s wrong,” Travers exclaimed, noting that high-yield issuers are often also issuers of syndicated loans. “I don’t know if I can live through another four-year default wave.”

In a typical default situation, the holders of senior-secured bank debt would be expected to have much better recoveries than holders of the same issuer’s high-yield bonds, because bank loans have higher priority in the company’s capital structure. But investors in loans may not do as well in the next credit trough as they have in the past, as leverage multiples in the loan market have steadily climbed since 2011.

Unlike fixed-rate high-yield bonds, leveraged loans typically offer floating rates indexed off of Libor, usually resetting monthly, which provides some protection for investors against the prospect of a rising interest rate environment. Travers considers the current credit environment “relatively benign,” and said the current low-rate, low-growth environment is the “sweet spot” for the leveraged loan market — positive growth that isn’t rapid enough to threaten a rate increase. Under these conditions, the S&P/LSTA Leveraged Loan Index par amount outstanding increased to $768 billion in July of this year, adding $76 billion in the first half of 2014.

During his presentation, Travers noted that “Covenant Lite” loans now exceed 50% of the  S&P/LSTA Leveraged Loan Index. According to Travers, fewer loan covenants wouldn’t necessarily lead to a higher incidence of defaults, since loan holders in most instances would be inclined to waive covenants rather than force an issuer into default. But over time, the lack of tight covenants could allow cash to flow out of the company, resulting in lower loan recoveries for investors in the event of default.

Of more immediate concern to Travers was the impact of retail fund flows on the leveraged loan market, which had seen 14 consecutive weeks of negative flows at the time of the conference after a long period of inflows. A fairly recent phenomenon in the leveraged-credit market, these retail flows from large loan managers — forced to buy and sell large blocks of loans to put cash to work or meet fund redemptions — contribute to volatility.

In addition to the underlying loan market’s volatility, Travers suggested the CLO market was experiencing volatility itself as a result of just-announced risk retention provisions under section 941 of Dodd–Frank, which would require managers of CLOs to own at least 5% of the risk in their portfolios. Anticipation of this rule was a contributing factor in the rush of CLO issuance in 2014, which equaled 187 deals at the time of the conference.

While the risk-retention requirement isn’t expected to kick in immediately, Travers suggested that going forward, investors should determine whether CLO managers have the capital to comply with this new requirement as part of their due diligence process.

Fridson and Travers approached the leveraged credit market from different perspectives, but their talks suggested that the placid environment encouraged by low interest rates and accommodative credit won’t persist. The next credit cycle will pose some serious challenges for leveraged-credit investors, regardless of their place in the capital structure.

Under the circumstances, the retail component of leveraged credit investments — absent from prior default surges — is probably not a positive development.

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

Amid record unemployment, even recorder youth unemployment, and politicians willingly breaking EU treaties (with apparently no consequences), it appears – just as in the US – police brutality in France was the straw that broke ‘Le Camel’s back. As RT reports, another anti-police brutality protest turned violent in the French city of Rennes, with masked youths and police engaging in running street battles. The unrest follows the death of a young environmental activist earlier this week. Overnight Thursday, protesters in the northwestern city lobbed flairs at police and flipped over cars, some of which they set ablaze. Police responded by firing tear gas. We hear guillotines are still cheap on ebay.

 

 

The French (youth) are revolting…

As RT reports,

A similar protest in Paris on Wednesday also descended into violence. Around 250 people gathered outside City Hall in Paris, with some throwing rocks at police and writing “Remi is dead, the state kills” on walls, The Local’s French edition reports. At least 33 people were taken into police custody following the unrest.

 

 

The protests are in response to the death of 21-year-old activist Remi Fraisse. He was killed early on Sunday by an explosion, which occurred during violent clashes with police at the site of a contested-dam project in southwestern France.

His death, the first in a mainland protest in France since 1986, has been blamed on a concussion grenade fired by police. France’s Interior Minister Bernard Cazeneuve, who came under serious pressure to resign following the incident, announced an immediate suspension of such grenades, which are intended to stun rather than kill.

 

The incident has put additional pressure on the already unpopular government of Francois Hollande, who has vowed that a thorough investigation will be conducted into the circumstances surrounding Fraisse’s death.

*  *  *

Is this the start?

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Submitted by David Stockman via Contra Corner blog,

This is just plain sick. Hardly a day after the greatest central bank fraudster of all time, Maestro Greenspan, confessed that QE has not helped the main street economy and jobs, the lunatics at the BOJ flat-out jumped the monetary shark. Even then, the madman Kuroda pulled off his incendiary maneuver by a bare 5-4 vote. Apparently the dissenters – Messrs. Morimoto, Ishida, Sato and Kiuchi – are only semi-mad.

Never mind that the BOJ will now escalate its bond purchase rate to $750 billion per year – a figure so astonishingly large that it would amount to nearly $3 trillion per year if applied to a US scale GDP. And that comes on top of a central bank balance sheet which had previously exploded to nearly 50% of Japan’s national income or more than double the already mind-boggling US ratio of 25%.

In fact, this was just the beginning of a Ponzi scheme so vast that in a matter of seconds its ignited the Japanese stock averages by 5%. And here’s the reason: Japan Inc. is fixing to inject a massive bid into the stock market based on a monumental emission of central bank credit created out of thin air. So doing, it has generated the greatest front-running frenzy ever recorded.

The scheme is so insane that the surge of markets around the world in response to the BOJ’s announcement is proof positive that the mother of all central bank bubbles now envelopes the entire globe. Specifically, in order to go on a stock buying spree, Japan’s state pension fund (the GPIF) intends to dump massive amounts of Japanese government bonds (JCB’s). This will enable it to reduce its government bond holding – built up over decades – from about 60% to only 35% of its portfolio.

Needless to say, in an even quasi-honest capital market, the GPIF’s announced plan would unleash a relentless wave of selling and price decline. Yet, instead, the Japanese bond market soared on this dumping announcement because the JCBs are intended to tumble right into the maws of the BOJ’s endless bid. Charles Ponzi would have been truly envious!

Accordingly, the 10-year JGB is now trading at a microscopic 43 bps and the 5-year at a hardly recordable 11 bps. So, say again. The purpose of all this massive money printing is to drive the inflation rate to 2%. Nevertheless, Japanese government debt is heading deeper into the land of negative real returns because there are no rational buyers left in the market – just the BOJ and some robots trading for a few bps of spread on the carry.

Whether it attains its 2% inflation target or not, its is blindingly evident that the BOJ has destroyed every last vestige of honest price discovery in Japan’s vast bond market. Notwithstanding the massive hype of Abenomics, Japan’s real GDP is lower than it was in early 2013, while its trade accounts have continued to deteriorate and real wages have headed sharply south.

So there is no recovery whatsoever—-not even the faintest prospect that Japan can grow out if its massive debts. The latter now stands at a staggering 250% of GDP on the government account and upwards of 600% of GDP when the debts of business, households and the financial sectors are included. And on top of that there is Japan’s inexorable demographic bust—–a force which will shrink the labor force and squeeze even further its tepid growth of output as far as the eye can see.

Stated differently, Japan is an old age colony which is heading for bankruptcy. It has virtually no prospect for measurable economic growth and a virtual certainty that taxes will keep rising —since notwithstanding the much lamented but unavoidable consumption tax increase last spring it is still borrowing 40 cents on every dollar it spends.

So 5-year JGBs yielding just 11 bps are an insult to rationality everywhere, and a warning that Japan’s financial system is a disaster waiting to happen. But even that is not the end of it. Having slashed its historic holdings of JCBs, the GPIF will now double it allocation to equities, raising its investment in domestic and international stocks to 24% each.

Stated differently, 50% of GPIF’s $1.8 trillion portfolio will flow into world stock markets.  On top of that—the BOJ will pile on too—-tripling its annual purchase of ETFs and other equity securities. This is surely madness, but the point of the whole enterprise explains why the world economy is in such extreme danger. A Japanese market watcher caught the essence of it in his observation about the madman who runs the bank of Japan,

“Kuroda loves a surprise — Kuroda doesn’t care about common sense, all he cares about is meeting the price target,” said Naomi Muguruma, a Tokyo-based economist at Mitsubishi UFJ Morgan Stanley Securities Co., who correctly forecast more stimulus today.

That’s right. Its 2% on the CPI…..come hell or high water.  There is not a smidgeon of evidence that 2% inflation is any better for the real growth of enterprise, labor hours supplied and economic productivity than is 1% or 3%.  Its pure Keynesian mythology. Yet all the world’s central banks are beating a path toward the same mindless 2% inflation target that lies behind this morning’s outbreak of monetary madness in Japan.

Folks, look-out below.  As George W. Bush said in another context…..this sucker is going down!

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