Tag: news

Submitted by Michael Snyder of The Economic Collapse blog,

Have you noticed that prices are going up rapidly?  If so, you are certainly not alone.  But Federal Reserve chair Janet Yellen, the Obama administration and the mainstream media would have us believe that inflation is completely under control and exactly where it should be.  Perhaps if the highly manipulated numbers that they quote us were real, everything would be fine.  But of course the way that the inflation rate is calculated has been changed more than 20 times since the 1970s, and at this point it bears so little relation to reality that it is essentially meaningless.  Anyone that has to regularly pay for food, water, gas, electricity or anything else knows that inflation is too high.  In fact, if inflation was calculated the same way that it was back in 1980, the inflation rate would be close to 10 percent right now.

But you would never know that listening to Federal Reserve chair Janet Yellen.  In the video posted below, you can listen to her telling the media that there is absolutely nothing to be concerned about…

And it is really hard to get too upset with Janet Yellen.

After all, she reminds many people of a sweet little grandmother.

But the reality of the matter is that she is simply not telling us the truth.  Everywhere we look, prices are aggressively moving higher.

Just the other day, the Bureau of Labor Statistics announced that the price index for meat, poultry, fish, and eggs has just soared to a new all-time high.

This is something that I have repeatedly warned would happen.  Just check out this article and this article.

And it isn't just meat prices that are going up.  One of the largest coffee producers in the entire world just announced that it is going to be raising coffee prices by 9 percent…

It took the Fed long enough but finally even it succumbed to the reality of surging food prices when, as we reported previously, it hiked cafeteria prices at ground zero: the cafeteria of the Chicago Fed, stating that “prices continue to rise between 3% and 33%.” So with input costs rising across the board not just for the Fed, but certainly for food manufacturers everywhere, it was only a matter of time before the latter also threw in the towel and followed in the Fed’s footsteps. Which is what happened earlier today when J.M. Smucker Co. said it raised the prices on most of its coffee products by an average of 9% to reflect higher green-coffee costs.

Not that coffee isn't expensive enough already.  It absolutely stuns me that some people are willing to pay 3 dollars for a cup of coffee.

I still remember the days when you could get a cup of coffee for 25 cents.

Also, I can't get over how expensive groceries are becoming these days.  Earlier this month I took my wife over to the grocery store to do some shopping.  We are really ramping up our food storage this summer, and so we grabbed as much stuff on sale as we could find.  When we got our cart to the register, I was expecting the bill to be large, but I didn't expect it to be over 300 dollars.

And remember, this was just for a single shopping cart and we had consciously tried to grab things that were significantly reduced from regular price.

I almost felt like asking the cashier which organ I should donate to pay the bill.

Sadly, this is just the beginning.  Food prices are eventually going to go much, much higher than this.

Also, you should get ready to pay substantially more for water as well.

According to CNBC, one recent report warned that "your water bill will likely increase" in the coming months…

U.S. water utilities face a critical economic squeeze, according to a new report—and that will likely mean higher prices at the water tap for consumers.

 

A survey by water-engineering firm Black & Veatch of 368 water utility companies across the country shows that 66 percent of them are not generating enough revenue to cover their costs.

 

To make up for the financial shortfall, prices for water are heading upward, said Michael Orth, one of the co-authors of the report and senior vice president at Black & Veatch.

 

“People will have to pay more for water to make up the falling revenues,” he said. “And that’s likely to be more than the rate of inflation.”

Of even greater concern is what is happening to gas prices.

According to Bloomberg, the price of gasoline hasn't been this high at this time of the year for six years…

Gasoline in the U.S. climbed this week, boosted by a surge in oil, and is expected to reach the highest level for this time of year since 2008.

 

The pump price averaged $3.686 a gallon yesterday, up 1.2 cents from a week earlier, data posted on the Energy Information Administration’s website late yesterday show. Oil, which accounts for two-thirds of the retail price of gasoline, gained $2.49 a barrel on the New York Mercantile Exchange in the same period and $4.88 in the month ended yesterday.

 

The jump in crude, driven by concern that the crisis in Iraq will disrupt supplies, may boost pump prices by 10 cents a gallon at a time when they normally drop, according to forecasts including one from the EIA.

And the conflicts in Iraq, Ukraine and elsewhere could potentially send gas prices screaming far higher.

In fact, T. Boone Pickens recently told CNBC that if Baghdad falls to ISIS that the price of a barrel of oil could potentially hit $200.

Of course the big oil companies are not exactly complaining about this.  This week energy stocks are hitting record highs, and further escalation of the conflict in Iraq will probably send them even higher.

Meanwhile, a "bipartisan Senate proposal" (that means both Democrats and Republicans) would raise the gas tax by 12 cents a gallon over the next two years.

Our politicians have such good timing, don't they?

Ugh.

And our electricity rates are going up too.  The electricity price index just set a brand new record high and there are no signs of relief on the horizon…

The electricity price index and the average price for a kilowatthour (KWH) of electricity both hit records for May, according to data released today by the Bureau of Labor Statistics.

 

The average price for a KWH hit 13.6 cents during the month, up about 3.8 percent from 13.1 cents in May 2013.

 

The seasonally adjusted electricity price index rose from 201.431 in May 2013 to 208.655 in May 2014—an increase of about 3.6 percent.

If our paychecks were increasing at the same rate as inflation, perhaps most families would be able to weather all of this.

Unfortunately, that is not the case at all.

As I wrote about recently, median household income in the U.S. is now about 7 percent lower than it was in the year 2000 after adjusting for inflation.

And if realistic inflation numbers were used instead of the government-manipulated ones, it would look a lot worse than that.

Inflation is a hidden tax that all of us pay, and it is systematically eviscerating the middle class.

via Zero Hedge http://ift.tt/1m5DmlI Tyler Durden

For over 5 years we have been explaining the hole that the fed has been digging (most ironically here). This morning's op-ed by Warsh and Druckenmiller highlights many of the problems but we leave it to Marc Faber to succinctly sum up the dilemma that the Fed faces (and by dilemma we mean, the plan) – "The more they print, the more inequality there is, the weaker the economy will become." Simply put, "it's a catastrophe," Faber told CNBC, "what the Fed has done is to lift asset prices, and the cost of living. In the meantime, the cost of living increases are higher than the wage increases. The typical American household income is going down in real terms." Recovery?

 

 

As we noted previously, the greatest irony of the entire "record income inequality" debate…

 

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Yesterday, Ha-Joon Chang exposed the shortest economics textbook ever. Today the Cambridge University Economics professor uncovers everything you didn’t know about economics (in 13 simple points)…

1. Economics was originally called ‘political economy’

Economics is politics and it can never be a science. Yet the dominant neoclassical school of economics succeeded in changing the name of the discipline from the traditional ‘political economy’ to ‘economics’ at the turn of the 20th Century. The Neoclassical school wanted economics to become a pure science, shorn of political (and thus ethical) dimensions that involve subjective value judgments. This change was a political move in and of itself.

2. The Nobel Prize in Economics is not a real Nobel Prize

Unlike the original Nobel Prizes (Physics, Chemistry, Physiology, Medicine, Literature and Peace), established by the Swedish industrialist Alfred Nobel at the end of the nineteenth century, the economics prize was established by the Swedish central bank (Sveriges Riksbank) in 1968 and is thus officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Members of the Nobel family are known to have criticized the Swedish central bank for giving prizes to free-market economists of whom their ancestor would have disapproved.

3. There is no single economic theory that can explain Singapore’s economy

This is what I call the ‘Singapore problem’. If you read the standard account of Singapore’s economic success in places like the Economist or the Wall Street Journal, you will only hear about Singapore’s free trade and welcoming attitude towards foreign investment. You will never hear about how almost all the land in Singapore is owned by the government, while 85% of housing is supplied by the government’s housing corporation. 22% of GDP is produced by state-owned enterprises (including Singapore Airlines), when the world average in that respect is only about 9%.

To put it bluntly, there isn’t one economic theory that can single-handedly explain Singapore’s success; its economy combines extreme features of capitalism and socialism. All theories are partial; reality is complex.

4. Britain and the US invented protectionism, not free trade

Britain had the most protected economy in the capitalist world in the late 18th and the early 19th century. Much of this protection was provided in order to promote British manufacturers against superior foreign competitors in Europe, the Low Countries (what are Belgium and the Netherlands today) in particular.

The US went even further. Taking inspiration from British protectionist policy, Alexander Hamilton, the first Treasury Secretary of the US (that’s the guy on the ten-dollar bill) developed a theory called the ‘infant industry argument’ – the view that the government of an economically backward nation should protect and nurture its young industries until they ‘grow up’ and can compete in the world market. Hamilton died in 1804 in a pistol duel, but the US adopted protectionism in the 1820s and remained the most protected economy in the world for most of the next century.

5. Free trade first spread mostly through un-free means

Free trade spread around the world throughout the 19th century. But its spread mostly owed to something that you would not normally associate with the word ‘free’ -force, or at least the threat of using it. Colonisation was the obvious route to ‘unfree free trade’, as the colonial masters forced the subjugated countries to open up their trade completely. But even many non-colonized countries were forced to adopt free trade. Through ‘gunboat diplomacy’, they were forced to sign unequal treaties that deprived them of, among other things, tariff autonomy (the right to set its own tariffs). The most infamous unequal treaty is the Nanking Treaty that China was forced to sign in 1842, following its defeat in the Opium War, but all the Latin American countries, the Ottoman Empire (Turkey’s predecessor), Persia (Iran today), and Siam (today’s Thailand), and even Japan were subject to such treaties .

6. It was arch-conservative Otto von Bismarck who introduced the first welfare state in the world

Contrary to what many people believe, the welfare state was originally a ‘rightwing’ invention. It was the arch-conservative Otton von Bismarck who first introduced it. Bismarck hated socialism, but he wasn’t an ideologue. He basically figured out that if you don’t provide a minimum safety net to workers, they will be persuaded by the socialists. So he kept workers happy by creating the first welfare state in the world. This suggests that, contrary to their own self-image, those who want to destroy the welfare state may be the biggest enemies of capitalism.

7. Capitalism did best between the 1950s and the 1970s, an era of high regulation and high taxes

Despite what we hear these days about the detrimental economic effects of high taxes and strong government regulation, the advanced capitalist economies grew the fastest between the 1950s and the 1970s, when there were a lot of regulations and high taxes.Between 1950 and 1973, per capita income in Western Europe grew at an astonishing rate of 4.1% per year. Japan grew even faster at 8.1%, starting off the chain of ‘economic miracles’ in East Asia in the next half a century. Even the US, the slowest-growing economy in the rich world at the time, grew at an unprecedented rate of 2.5%. Per capita income for these economies collectively have since then managed to grow at only 1.8% per year between 1980 and 2010, when they cut taxes for the rich and deregulated their economies.

8. The internet was invented by the US government, not Silicon Valley

Many people think that the US is ahead in the frontier technology sectors as a result of private sector entrepreneurship. It’s not. The US federal government created all these sectors.

The Pentagon financed the development of the computer in the early days and the Internet came out of a Pentagon research project. The semiconductor – the foundation of the information economy – was initially developed with the funding of the US Navy. The US aircraft industry would not have become what it is today had the US Air Force not massively subsidized it indirectly by paying huge prices for its military aircraft, the profit of which was channeled into developing civilian aircraft.

9. Before tax and welfare spending, Germany and Belgium are more unequal than the US

Before tax and transfers, quite a few European countries, like Germany and Belgium, are more unequal than the United States. Only after tax and transfers do they become a lot more equal. These examples show that it is possible to fundamentally re-shape a country’s inequality through progressive taxes and the welfare state. Despite what many people say, inequality is not a natural phenomenon, like an earthquake or a hurricane, beyond human control.

10. Finland, one of the most equal countries in the world, has grown faster than the US

Not only is there a lot of evidence showing that that higher inequality produces more negative economic and social outcomes, there are quite a few examples of more egalitarian societies growing much faster than comparable but more unequal societies. Despite being one of the most equal societies in the world, more equal than even the former Soviet bloc countries in the days of socialism, Finland has grown much faster than the US, one of the most unequal societies in the rich world.

11. The ‘lazy’ Greeks are the hardest working people in the rich world after South Koreans

In the ongoing Eurozone crisis, the Greeks have been vilified as lazy ‘spongers’ living off hard-working Northerners. But they have longer working hours than every country in the rich world apart from South Korea. The Greeks actually work 1.4 and 1.5 times longer than the supposedly workaholic Germans and Dutch. Italians also defy the myth of ‘lazy Mediterranean types’ by working as long as Americans and 1.25 times longer than their German neighbours. These numbers show that the problem of the Mediterranean countries in the Eurozone is one of productivity, not work ethic.

12. Switzerland and Singapore are not living off banking and tourism alone

Many people argue that we have entered a post-industrial world, in which ‘making things’ is not very important, as service industries have become the engine of economic growth. They cite Switzerland and Singapore as examples of service-based success stories. Haven’t these two countries shown that you can become rich – very rich – through services, like finance, tourism, and trading?

Actually these two countries show the exact opposite. According to the UNIDO data, in 2002, Switzerland had the highest per capita manufacturing value added (MVA) in the world – 24% more than that of Japan. In 2010, Singapore ranked the first, producing 48% more MVA per capita than the US. Switzerland ranked the third.

13. Most poor people don’t live in poor countries

Currently, around 1.4billion people – or about one in five people in the world – live with less than $1.25 per day, which is the international poverty line (below which survival itself becomes a challenge).

But most poor people do not live in poor countries. Over 70% of people in absolute poverty actually live in middle-income countries. As of the mid-2000’s, over 170 million people in China (around 13% of its population) and 450 million people in India (around 42% of its population) lived with incomes below the international poverty line. These show the enormity of challenges that the two most populous countries face.

Source: Ha-Joon Chang’s latest book, Economics: The User’s Guide, which is available in stores now

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Submitted by David Stockman of Contra Corner blog,

For the last two decades Coach (COH) could do no wrong. Its aspirational handbags flew off the shelves at hefty prices, causing its sales to soar from $1.3 billion to $5.1 billion during the 10-years ending in fiscal 2013. Better still, its EPS soared by 6X, representing a 20% earnings growth rate over the same period. Greatest of all, its share price peaked at nearly $80 in 2012 after having opened the 21st century at $3 per share.

Needless to say, the believers and speculators who got on board for the 27X gain in twelve years were fabulously rewarded, as was its founder and largest stockholder, Lew Frankfort, who became a billionaire along the way. So the capitalist dream is still working in America, right?

Not exactly. Last night Coach announced an earnings horror show. Sales were down 21% from year ago levels, the 4th straight quarter of plunging top line results. Worse still, Coach announced that same store sales in its 544 North American stores and outlets, which account for 70% of sales, face even worse prospects in the period ahead. According to the Reuters account,

The clothes, shoes and handbags retailer said it expected North America same-store sales to fall in the “high teens” in percentage terms in the coming year.

Simply stated, a high teens same store sales decline at a luxury retail emporium is a death sentence. Accordingly, COH has now tossed its long standing business model out the window and is marching on the double in the opposite direction.

COH’s 27X share price gain since 2000 depended upon a pell mell path of retail footage expansion by which its opened dozens of new stores every year for nearly two decades and thereby drove its sales steadily upward. But now it will close 70 of its NA stores or 13% of the total. And facing upwards of a 20% decline in same store sales in the coming year that is surely only the beginning of the shrinkage.

Not surprisingly, Coach shares took a 10% hit in the aftermarket, and that’s only the last hurrah for this once high flying canary.The stock has been weakening for two years owing to its recent faltering performance, and now stands at $35/share—–down 56% from its peak and back to the price it first traded at in August 2005.

This can all be dismissed as the unfortunate life-cycle of a high flyer playing out its appointed rounds. And, indeed, the primary force knocking COH off its pedestal was two aggressive competitors in the same market for “aspirational” branded handbags, shoes and apparel goods—–that is, Kate Spade and Michael Kors.Coach Inc. stock displayed the New York Stock Exchange.

Self-evidently, the supply of aspirational buyers at Coach’s nosebleed price points was not nearly as great as the supply of competitive designs, products and merchandizing that its latter day competitors have flooded into the malls. Something had to give, but it wasn’t just old-fashioned capitalist survival of the fittest.

Instead, Coach blew it by playing the bubble finance game on the Wall Street casino—a destructive game which is part and parcel of the Fed’s misguided policy of financial repression and its wealth effects promotion of speculation in risk assets.  In a word, Coach blatantly failed to reinvest in its business in order to preserve its ample head start against its current devastating competitors. Instead, it cycled nearly all of its cash flow into stock-buybacks, thereby levitating its share price by orders of magnitude more than its total earnings, sales and sustainable cash flow.

During the 10-years ending in fiscal 2013, Coach generated about $8.6 billion in operating cash flow—that is, revenue less cash operating expense and change in working capital. But it utilized  $6.2 billion or nearly 75% of the net cash generated during its high flying days to buyback shares. By contrast, it applied only $1.5 billion to net investments in CapEx and some modest acquisitions.

Moreover, that is only half the story. Throughout the last decade COH reliably posted fat EBITDA margins of between 33-35% because that is how the high flyer momentum game is played. Open lots of stores, post fulsome cash flow margins and wait for the sell-side analysts to sharpen their hockey sticks. Next, the momo traders get on board, the CEO appears on Cramer to talk up the home gamers and its off to the races. At it peak in 2012, COH was trading at about 50X forward earnings.

Needless to say, the momo boys and girls never asked how COH could open 544 North American stores and many more abroad on virtually no CapEx. In fact, over the last decade the company’s revenues totaled nearly $32 billion, meaning that CapEx amounted to less than 5% of sales.

And realize, also, that this 5% of sales figure is essentially a low-side benchmark for maintenance CapEx in high end retail where merchandising appeal must be continuously refreshed; it doesn’t even begin to reflect the capital utilization that would be required for the pell mell opening of hundreds of new high-end stores.

The short answer, of course, is that COH didn’t need much CapEx to open stores because they were all financed through operating leases! But there are two giant problems with the rent-a-store approach to company building.

First, the cost of occupancy—which is extremely rich in the so-called in-line section of the mall were the likes of COH are positioned—becomes a fixed cash cost.  So when traffic and sales turn down even modestly, there is no cushion. Instead, there is an immediate hit to margins; and if volumes at “weak stores” fall sharply—-like 20%—-operating cash flow can dry-up completely. Suddenly, a rent-a-store high flyer is in the store closure and lease write-off business—even if this destruction of capital is dismissed as “non-recurring” by the sell side analysts who never figure out that the gig is up.

But there is another more debilitating feature. It is rarely possible to run 35% EBITDA margins in a highly competitive luxury goods market without heavy and continuous reinvestment in design, product, marketing, in-store merchandising and staff support and training. Yet operating leases—because they are a fixed cash charge to the current P&L—inevitably squeeze out discretionary cash investments in the business operations mentioned above when a high flyer is under the gun to meet the rich EBITDA margins that get embedded in analyst hockey sticks. In other words, Coach’s high EBITDA margins were deceptive and unsustainable because they masked a big lump of cash leases.

Why is it so easy to build a 550 store retail emporium on operating leases? The answer is financial repression. Mall owners have enjoyed  “cap rates” on their debt capital (most of their investment) which has been far below market clearing levels every since the Fed launched into monetary central planning and interest rate pegging.

The mall REITs, in turn, collect a generous spread between their rents and their debt carry costs, but they also accord tenants like COH an unwarranted credit rating and therefore an implicit subsidy. The latter is based on the so-called national tenant credit status of fast expanding chains like COH and the demonstrated fact that the Fed will allow no stock market bubble to stay burst. So when push comes to shove, mall owners assume that even injured high flyers, like COH is currently, will be able to obtain enough cheap financing to pay the rent.

So we have a great deformation. High-flying retail rollouts like COH drastically over-invest in stores and square footage on the way up because occupancy costs have been made sub-economic by our clueless monetary politburo. At the same time, genuine entrepreneurs like Lew Frankfort in this case, and serial scam artists more frequently, are encouraged by the momo traders and sell side analysts to drastically under-invest in products, merchandising and service.  There are few more strategic business errors than to underinvest in what’s inside when you are over-invested in fixed leases all around.  Can you say Sears?

Coach may struggle on, but what happens when the current financial bubble ends up as the third stock market crash of this century? Well, what happens is that “demand” for “aspirational leathers” among the top 10% of households will plummet. Then the canaries will be fluttering up and down the mall aisles as Coach, Kate Spade and Michael Kors duke it out for the remnant of customers who will be left.

Needless, to say the momo traders have left the scene months, if not years, ago; and Lew Frankfort has cashed in his billions and retired. What will be left is empty malls, fired staff, closed stores and billions of operating leases written off as dead-weight destruction of capital. That’s how the Fed’s bubble finance works, and how it corrodes and corrupts the vital arteries of capitalism.

Someone should take Janet Yellen to Sears….or even to Coach.

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

Meet RAMPART/BLARNEY/MYSTIC – the NSA’s “unconventional special access program” partnering with international agencies to capture – but not collect (though there are exceptions) ‘data’ directly from the world’s fiber-optice cables. The following map shows there is plenty of places to hop on the pipe and suck out as much information as they’d like but it’s all good, as NSA notes in the leaked docs – “partnering with Foreign SIGINT partners to enable access to foreign intelligence” as the NSA shows “how to find target communication on a typical fiber optic cable.”

 

Here’s the problem…

 

And here’s the target…

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