Tag: news

Bernanke may be printing the wealth effect to the benefit of the richest 1%, but that only serves to make the already wealthiest even wealthier. When it comes to the creation of new millionaire households, the epicenter of new wealth creation is about as far from Wall Street, West Putnam Avenue or Rodeo Drive as can be. In fact, the state that saw the fastest climb up in millionaire rankings in 2013 doesn’t have a single Tiffany or Saks Fifth Avenue, and the closest BMW dealership is a six-hour drive from the capital (stats which are guaranteed to change by the end of the year). Presenting North Dakota: the state which jumped 14 spots in the latest ranking of millionaire households.

Per the WSJ, which crunched the the numbers released by Phoenix Marketing International, there were 53,000 more millionaire households in 2013 compared to the year before. “About 6.15 million millionaire households are spread across the U.S., according to the report. That means 1 in every 20 households in the U.S. has more than $1 million in investable assets. Those figures don’t include the value of real estate.”

As expected, the top of the overall millionaire households per capita rankings didn’t change much. Maryland was No. 1 for the third consecutive year, with 7.7% of households holding more than $1 million in assets. New Jersey, Connecticut and Hawaii followed. Those four states, in various orders, have led the rankings every year since 2006. The complete breakdown is shown on the map below.

 

It was the middle and bottom of the ranking that saw most changes, at times quite violent. Judging by the collapse in household wealth, it seems the second Nevada housing bubble has indeed popped.

Maine climbed 11 spots over a single year to No. 25 in 2013. Louisiana jumped 10 to No. 32. Meanwhile, Nevada fell 20 spots to No. 39. Arizona, Florida, Idaho and Michigan all fell by more than 10 positions. From 2011 to 2012, no state changed its rank by more than two positions.

 

The big swings may suggest economic recovery may have become more uneven last year, said David Thompson, a managing director at Phoenix. “Maine and Louisiana are two states that have seen big turnarounds in their economies,” he said. “In Nevada, the data suggests the state is still feeling the effects of the downturn.”

Nobody was a bigger winner in 2013 than the center of the shale boom: North Dakota.

In 2012, North Dakota ranked 43rd, one spot behind Alabama. Last year, it moved up to 29th, one ahead of Florida. North Dakota’s energy boom, especially in the Bakken shale region, is driving the state’s wealth gains.

 

Mr. Hullet said the energy, health care and technology sectors are all growing in the state — pushing up paychecks of both the working class and affluent. The state’s unemployment rate was 2.6% in November, according to the Labor Department. That was the lowest in the nation by a percentage point.

 

The result has been a rapid expansion of retailers, restaurants and housing, Mr. Hullet said. But Bismarck hasn’t turned into West Egg. “I’ve seen the occasional Bentley,” he said. “But mostly, North Dakota is the type of place where someone can be very wealthy and you’d never know it.”

The main difference, however, between North Dakota and other states: ‘its people in the oil patch aren’t about to flaunt it. “The only way you know a Bakken millionaire is he’ll be driving a
new truck and might have taken his wife on vacation,” said Kelvin
Hullet, president of the chamber of commerce in Bismarck, the state
capital.”

The results sorted: by highest number of millionaires per capita:

And the states where the creation of new millionaire households was fastest in 2013:

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Up until now, most terrorist provocations surrounding the Sochi winter olympics set to begin on February 7, had been in the surrounding cities (here is dramatic video footage of the recent suicide bombing in Sochi) while the actual venue has been largely left untouched. Perhaps this is due to the security gauntlet that has wrapped the city under the constant supervision of countless eyes in the sky and about 70,000 police and soldiers. This tenuous peace, however, was disturbed this morning when as Bloomberg reported, Russian police were searching for an alleged terrorist Razmena Ibragimova, according to a wanted poster on display at a security checkpoint in Sochi’s airport. Ibragimova, 22, is “currently located on Sochi territory” and may attempt a suicide bombing, according to the poster. According to information from BlogSochi she was spotted on the street outside the foreign ministry building in Sochi.

BlogSochi has the photo details:

And while so far Sochi has not seen an actual act of terrorism, it seems ticket demand for the games is inversely proportional with the build up in security for what is set to be the most expensive winter olympics in history with over a $51 billion price tag, of which over $3 billion will be spent on security.

Bloomberg reports that listings of tickets put up for resale on a “fan to fan” website have soared almost 50 percent over the past week, with more than 3,100 offers now posted. Most offers include multiple tickets, up to a maximum eight per offer. “The U.S. website of CoSport, the exclusive ticket agent for North America and most of Western Europe, still lists seats available for some sought-after events such as the gold-medal match in men’s ice hockey. The Sochi 2014 website, the official sales outlet for residents of Russia and many other countries, has tickets available for more than 100 events.”

The growing inventory on the fan-to-fan site suggests that “availability is far greater than demand,” says Marlies Hoedemaker, secretary of the EU Secondary Ticketing Association, an Amsterdam-based trade group for ticket-resale companies. Some buyers may have changed their minds about going, she says, while others may have bet—unsuccessfully—that if they bought tickets early they could resell them at a profit later when supplies ran low. People who resell on the Sochi-authorized fan-to-fan site can recoup only the ticket’s face value.

 

CoSport, for example, is offering a pair of tickets to the men’s bronze- and gold-medal hockey matches for $3,666 per person. Three nights in a Sochi hotel would cost another $1,584. The cheapest roundtrip airfare to Sochi from New York City during the games, according to several travel search engines, is more than $1,600 and requires long layovers in Istanbul or Moscow. Flights with more-convenient connections cost more than $4,000.

 

Commercial ticket brokers aren’t selling many Winter Games tickets, as the organizing committee designated only a handful of authorized sales outlets and threatened stiff penalties against Russians who tried to resell tickets outside official channels. “My members have been offered a lot of tickets. I personally receive an e-mail each week with a spreadsheet full of inventory,” says Graham Burns, chairman of the London-based Association of Secondary Ticket Agents. But, he says, “the brokers don’t want to get involved.”

Of course, should a deadly terrorist attack take place, nosediving ticket sales will be the least of Putin’s concern, or of Russia, which is still riding high on the reputational gains achieved after the various diplomatic victories in 2013. Which is why security at the games is indeed unprecedetned, as the following 10 minutes review from The National demonstrates.

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

People go to a retail store searching for bargains. If an item is priced at a 50% discount, they might buy it or search a nearby store or online to see if they can get it even cheaper. If a store has a closing down sale, crowds often turn up in droves. Others sometimes do extensive searches for niche stores where few people go but there’s value for money.

It’s funny how investors rarely mimic this type of behaviour. Stocks which have gone down in price are viewed with suspicion. Something must be wrong with them. If a company’s in distress, most investors will put it in the too-hard basket. As for neglected stocks or markets, well there must be reasons for the neglect and further investigation requires work which many aren’t willing to do.

So-called frontier markets suffer many of the attributes which put off investors. They’re priced well off pre-GFC peaks, they have companies and sectors in distress and they’re completed off the radar screens of institutional investors. Add to this that many of these markets are in faraway places, with unfavourable political regimes and hugely volatile stock market price action given thin liquidity – and you have a perfect recipe for investor neglect.

In Asia Confidential’s eyes though, some of these frontier markets offer the best opportunities for investors over the next decade. And one of the most exciting opportunities is in Indochina. Today, we’re going to look at one of these markets, Vietnam, which is starting to attract investor interest after five years in the wilderness. It underwent a massive credit bust and is just coming out the other side. In many ways, Vietnam is 2-3 years ahead of China, which has just started to undergo its own credit bust.

Vietnam’s classic credit bust

I was working at a stock broker in South-East Asia in 2007 and remember the excitement generated then by some of the region’s smaller markets. At the time, Vietnam became the “it” market. Asia’s top sell-side economists and strategists poured into the country and waxed lyrical about the growth story there. I don’t think some of them were quite as bullish as their research reports relayed, but being a bull brought in plenty of money at the time. They were the go-go days prior to 2008 where there was too much cheap money and booming frontier markets got some love.

Then the GFC happened and these frontier markets were taken to the cleaners. Vietnam’s main stock market went down ~80%. Given its reliance on exports, GDP growth in Vietnam dropped from more than 8.5% in 2007 to close to 5% in 2009. The government tried to revive the massive credit boom through an aggressive stimulus program in 2009.

The printed money led to reckless lending, with credit growth of 35% Cagr from 2007-2010 and bank loan to deposit ratios peaking at 136%. Inflation rocketed to 23% in 2011, resulting in foreign investment drying up.

The latter was crucial given Vietnam’s reliance of foreign direct investment (FDI) to the tune of about US$12 billlion each year (or about 6x that of Indonesia relative to the economy, to put that in perspective).

Due to spiking inflation, the local currency, VND, dropped 40% in value from peak to trough. Vietnam’s strict capital controls didn’t prevent massive capital flight as savers exchanged local currency for gold and U.S. dollars (Vietnamese are estimated to have 50% of their net worth in gold and US$).

The government was forced to raise interest rates by 500 basis points and implement significant macro-economic reform. GDP fell to 5% in 2012, its lowest level in 13 years.

Much of the reckless lending went into real estate. From 2009-2011, the government implemented several regulations to reduce credit to the sector, such as increasing taxes and restricting the ability of buyers to “flip” properties. From the peak levels of 2010, real estate prices have fallen 60%.

The above isn’t to suggest that the government was pro-active in initiating reform. Far from it. Like most governments, the ruling Communist Party in Vietnam fiercely resisted reform until they were forced into action by the dramatic bursting of the credit bubble.

In fact, the government only just started to restructure the banking sector last year. And it’s still largely held off from overhauling other state-owned enterprises (SOEs). This isn’t surprising given the vested interests of SOEs which were the biggest beneficiaries of the credit boom via the corruption which flourished at the time (remind anyone of China?).

Things are turning around

There are several signs though that the worst of the credit crisis may be behind Vietnam:

• GDP appears to have bottomed with fourth quarter growth of 6% expected.

• A key sector, manufacturing, is also rebounding.

• Inflation is under control, having fallen to just 6.5%. The central bank has also cut interest rates by 850 basis points since the first quarter of 2012.

• The trade balance has shown dramatic improvement, from -US$18 billion in 2008 to -0.2 billion forecast for 2013.

• Foreign reserves have increased from US$12.5 billion in 2010 to US$32 billion in 2013, thanks to the clampdown on inflation.
• Critically, the local currency has stabilised over the past two years, with the gap between official and black market rates having closed.

There’s still much work to be done though. As mentioned, banking reform is overdue. Banks have been reluctant to lend due to non-performing loan (NPL) issues as a result of the credit bust. No-one believes the official NPL figure of 4.7%. Most think it’s 12-15%. Until NPLs are cleaned up, lending growth can’t accelerate to further spur the economy.

The government set up the Vietnam Asset Management Company (VAMC) in July last year to buy the banks’ bad loans. Well, the VAMC won’t exactly buy these loans but act as a conduit to warehouse bad loans until a buyer is found. If there are no buyers, loans will be written down over five years. Without going into all of the details, the setting up of this company isn’t a brilliant solution but should incrementally improve the ability of banks to reduce NPLs and start handing out more loans.

Attractive long-term prospects

There are a number of things to like about the long-term prospects for Vietnam too:

1. The country has one of Asia’s most attractive demographic profiles. About 70% of Vietnam’s population are under the age of 45. Positive demographics don’t guarantee economic success but they help. Remember that GDP growth comprises population growth (more specifically, working-age population) plus productivity growth.

2. Vietnam is becoming a highly attractive destination for foreign companies. The country promises to be the next great Asian exporter of electronics and sophisticated mechanical products, with labor costs less than half those of China and Thailand. For years, Taiwanese and Chinese companies were setting up shop in Vietnam to manufacture footwear and garments. Now the largest FDI contributors are Japanese and Korean, focusing on higher-end tech and mechanical products. The below chart from the World Bank, courtesy of Asia Frontier Capital, shows why Vietnam is attracting significant foreign capital.

3. There’s an emerging middle class which should fuel a consumption story. Despite the downturn, anybody who’s visited Vietnam of late will notice still packed restaurants, retail shops and so forth.

4. Vietnam should be a primary beneficiary of the rise of neighbours including China, Myanmar and Thailand. I’ve written previously about the potential for Myanmar to reclaim its former glory as it opens up its economy again (it was Asia’s richest country in the 1960s before the current regime took over). The potential of Thailand shouldn’t be discounted either despite the political problems (which may soon provide another good buying opportunity).

Short-term catalysts

I first recommended buying Vietnam stocks in July last year. Back then, they were completely off investor radars. Since then, the market has had a nice run. Vietnam was the best-performing market in Asia ex-Japan, up 22%, in 2013. Institutions are starting to take notice.

Valuations are no longer dirt cheap but remain cheap nonetheless. At around 11x forward price-to-earnings ratio (PER), it’s close to the Asia-ex Japan average. But keep in mind that Vietnam earnings are coming off a remarkably low base, unlike the rest of Asia.

Also, the PER is deceptive. Using the median PER rather than mean (the former excludes outliers and is a better gauge), the market PER drops to 9x. Moreover, the market is distorted by ETF investment in the very large companies. A third of the stock market is under 7x PER. The market remains very cheap outside the largest stocks.

Add to this that the market remains close to 50% below its 2007 peak and it’s clear that Vietnam has plenty of room to go higher.

For it to do so though will require a few things. First, there needs to be further progress on the NPL issue. Second, the government has to get serious about SOE reform. Third, the government also has to follow through with promises to increase foreign ownership limits from 49% to 60%.

As an aside, there are a few ways to invest in the Vietnam stock market. You can do it via an ETF such as Van Eck’s Market Vectors ETF (NYSE: VNM). Or you can go through managed funds such Dragon Capital and Asia Frontier Capital, both of which are reputable.

Risks

No investment is risk-free and frontier markets certainly have their share of risk. For Vietnam specifically, the obvious risk is a failure to implement government reform. There are plenty of vested interests involved and you have a government which has made plenty of mistakes in recent years. The risk is that the government thinks its job is largely done in steadying the economy.

The long-term risk is that the economy recovers and a credit boom/bust cycle ensues again. You’d hope that the government has learned the painful lessons of the recent crisis but nothing is guaranteed in this business.

And, of course, there’s the broader risk of a renewed global economic slump which would hurt Vietnam disproportionately. That said, some of the current positive moves on the economic front would put the country in a better position to withstand such a slump.

AC Speed Read

– Frontier markets offer some of the best investment opportunities over the next decade.

– We particularly like Indochina, including Vietnam.

– Vietnam has been through a classic credit bust and is coming out the other side.

– Investors are starting to take notice but the Vietnam market remains cheap.

This post was originally published at Asia Confidential:
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Submitted by Michael Snyder of The Economic Collapse blog,

If you want to get an idea of where the rest of America is heading, just take a trip through the western half of West Virginia and the eastern half of Kentucky some time.  Once you leave the main highways, you will rapidly encounter poverty on a level that is absolutely staggering.  Overall, about 15 percent of the entire nation is under the poverty line, but in some areas of eastern Kentucky, more than 40 percent of the population is living in poverty.  Most of the people would work if they could.  Over the past couple of decades, locals have witnessed businesses and industries leave the region at a steady pace.  When another factory or business shuts down, many of the unemployed do not even realize that their jobs have been shipped overseas.  Coal mining still produces jobs that pay a decent wage, but Barack Obama is doing his very best to kill off that entire industry.  After decades of decline, vast stretches of impoverished Appalachia look like they have been through a war.  Those living in the area know that things are not good, but they just try to do the best that they can with what they have.

In previous articles about areas of the country that are economically depressed, I have typically focused on large cities such as Detroit or Camden, New Jersey.  But the economic suffering that is taking place in rural communities in the heartland of America is just as tragic.  We just don't hear about it as much.

Most of those that live in the heart of Appalachia are really good "salt of the earth" people that just want to work hard and do what is right for their families.  But after decades of increasing poverty, the entire region has been transformed into an economic nightmare that never seems to end.  The following is a description of what life is like in Appalachia today that comes from a recent article by Kevin D. Williamson…

Thinking about the future here and its bleak prospects is not much fun at all, so instead of too much black-minded introspection you have the pills and the dope, the morning beers, the endless scratch-off lotto cards, healing meetings up on the hill, the federally funded ritual of trading cases of food-stamp Pepsi for packs of Kentucky’s Best cigarettes and good old hard currency, tall piles of gas-station nachos, the occasional blast of meth, Narcotics Anonymous meetings, petty crime, the draw, the recreational making and surgical unmaking of teenaged mothers, and death: Life expectancies are short — the typical man here dies well over a decade earlier than does a man in Fairfax County, Va. — and they are getting shorter, women’s life expectancy having declined by nearly 1.1 percent from 1987 to 2007.

In these kinds of conditions, people do whatever they have to do just to survive.  With so much poverty around, serving those on food stamps has become an important part of the local economy.  In fact, cases of soda purchased with food stamps have become a form of "alternative currency" in the region.  In his article, Williamson described how this works…

It works like this: Once a month, the debit-card accounts of those receiving what we still call food stamps are credited with a few hundred dollars — about $500 for a family of four, on average — which are immediately converted into a unit of exchange, in this case cases of soda. On the day when accounts are credited, local establishments accepting EBT cards — and all across the Big White Ghetto, “We Accept Food Stamps” is the new E pluribus unum – are swamped with locals using their public benefits to buy cases and cases — reports put the number at 30 to 40 cases for some buyers — of soda. Those cases of soda then either go on to another retailer, who buys them at 50 cents on the dollar, in effect laundering those $500 in monthly benefits into $250 in cash — a considerably worse rate than your typical organized-crime money launderer offers — or else they go into the local black-market economy, where they can be used as currency in such ventures as the dealing of unauthorized prescription painkillers — by “pillbillies,” as they are known at the sympathetic establishments in Florida that do so much business with Kentucky and West Virginia that the relevant interstate bus service is nicknamed the “OxyContin Express.” A woman who is intimately familiar with the local drug economy suggests that the exchange rate between sexual favors and cases of pop — some dealers will accept either — is about 1:1, meaning that the value of a woman in the local prescription-drug economy is about $12.99 at Walmart prices.

I would encourage everyone to read the rest of Williamson's excellent article.  You can find the entire article right here.

In Appalachia, the abuse of alcohol, meth and other legal and illegal drugs is significantly higher than in the U.S. population as a whole.  In a desperate attempt to deal with the pain of their lives, many people living in the region are looking for anything that will allow them to "escape" for a little while.  The following is an excerpt from an excellent article by Chris Hedges which describes what life is like in the little town of Gary, West Virginia at this point…

Joe and I are sitting in the Tug River Health Clinic in Gary with a registered nurse who does not want her name used. The clinic handles federal and state black lung applications. It runs a program for those addicted to prescription pills. It also handles what in the local vernacular is known as “the crazy check” — payments obtained for mental illness from Medicaid or SSI — a vital source of income for those whose five years of welfare payments have run out. Doctors willing to diagnose a patient as mentally ill are important to economic survival.

 

“They come in and want to be diagnosed as soon as they can for the crazy check,” the nurse says. “They will insist to us they are crazy. They will tell us, ‘I know I’m not right.’ People here are very resigned. They will avoid working by being diagnosed as crazy.”

 

The reliance on government checks, and a vast array of painkillers and opiates, has turned towns like Gary into modern opium dens. The painkillers OxyContin, fentanyl — 80 times stronger than morphine — Lortab, as well as a wide variety of anti-anxiety medications such as Xanax, are widely abused. Many top off their daily cocktail of painkillers at night with sleeping pills and muscle relaxants. And for fun, addicts, especially the young, hold “pharm parties,” in which they combine their pills in a bowl, scoop out handfuls of medication, swallow them, and wait to feel the result.

Of course this kind of thing is not just happening in the heart of Appalachia.  All over the country there are rural communities that are economically depressed.  In fact, according to the Wall Street Journal, economic activity in about half of the counties in the entire nation is still below pre-recession levels…

About half of the nation’s 3,069 county economies are still short of their prerecession economic output, reflecting the uneven economic recovery, according to a new report from the National Association of Counties.

So what are our "leaders" doing to fix this?

Well, they plan to ship millions more of our good jobs overseas.

Unfortunately, I am not kidding.

Republicans in the House of Representatives are introducing "fast track" trade promotion authority legislation that will pave the way for rapid approval of the secret trade treaty that Barack Obama has been negotiating.  The following is how I described this insidious treaty in a previous article…

Did you know that the Obama administration is negotiating a super secret "trade agreement" that is so sensitive that he isn't even allowing members of Congress to see it?  The Trans-Pacific Partnership is being called the "NAFTA of the Pacific" and "NAFTA on steroids", but the truth is that it is so much more than just a trade agreement.  This treaty has 29 chapters, but only 5 of them have to do with trade.  Most Americans don't realize this, but this treaty will fundamentally change our laws regarding Internet freedom, health care, the trading of derivatives, copyright issues, food safety, environmental standards, civil liberties and so much more.  It will also merge the United States far more deeply into the emerging one world economic system.

Once again, our politicians are betraying the American people and millions of jobs will be lost as a result.

Not that the economy needs another reason to go downhill.  The truth is that our economic foundations have already been rotting away for quite some time.

But now the ongoing economic collapse seems to be picking up steam again.  For example, the Baltic Dry Index (a very important indicator of global economic activity) is collapsing at a rate not seen since the great financial crash of 2008…

Despite 'blaming' the drop in the cost of dry bulk shipping on Colombian coal restrictions, it seems increasingly clear that the 40% collapse in the Baltic Dry Index since the start of the year is more than just that. While this is the worst start to a year in over 30 years, the scale of this meltdown is only matched by the total devastation that occurred in Q3 2008. Of course, the mainstream media will continue to ignore this dour index until it decides to rise once again, but for now, 9 days in a row of plunging prices is yet another canary in the global trade coalmine and suggests what inventory stacking that occurred in Q3/4 2013 is anything but sustained.

Soon economic conditions will get even worse for Appalachia and for the rest of the country.  The consequences of decades of very foolish decisions are rapidly catching up with us, and millions upon millions of Americans are going to experience immense economic pain during the years to come.

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Frequent Zero Hedge contributor Mike Krieger sent this in: “Just got this in the mail. No, it’s not meant to be a joke.” Which is why it is unclear if one should laugh or cry at this fantastic offer for a “High-Yield” savings account…

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